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HomeMy Public PortalAbout21) 8A 2nd Reading & Adoption of Ord 12-953, Budget Reserve Fund Balance RequirementsCity Council June 5, 2012 Page 2 and reporting purposes of this reserve policy, it was suggested by staff, and the City Council Budget Ad Hoc Committee members concurred, that one reserve level or dollar amount be brought forward for approval by the City Council. 4 . On April 17, 2012, the City Council received and filed the Comprehensive Annual Financial Report (CAFR) at June 30, 2011, and fund balances were reported and classified in accordance with GASB 54, as a formal policy had yet to be adopted by the City . 5. On May 1, 2012, the City Attorney and Administrative Services Director recommended to the City Manager, that for ease of clarity, the adoption of the GASB 54 Fund Balance Policy and the Budget Reserve Fund Balance requirements to be adopted by Ordinance (as recommended by the City Council Budget Ad Hoc Committee), should be considered separately as each proposed action has a different objective. The GASB 54 is a fund balance classification and financial reporting mandate only and is recommended to be adopted by policy only. The Budget Reserve Fund Balance requirements address how General Fund Reserves can and cannot be spent and the requirements for the Reserves should be adopted by Ordinance . Further, the proposed Budget Reserve Fund Balance Requirements is intended for the General Fund only and GASB 54 must address all funds . 6. On May 4 , 2012, staff met with the City Council Budget Ad Hoc Committee (i.e., Mayor Yu and Council member Blum) to discuss the merits of separating the GASB 54 Fund Balance Policy and the Budget Reserve Fund Balance requirements. The City Council Budget Ad Hoc Committee concurred with staffs recommendation. 7. On May 15, 2012 , the C ity Council introduced Ordinance No . 12-953. After answering a clarifying question from Councilmember Blum, staff recommended one minor wording change. That change is red -lined on Page 3 in the attached Ordinance and this Ordinance is now presented for second reading and adoption . ANALYSIS: The City Council desires to establish various budgeted reserve fund accounts that will allow for the funding of emergencies, contingencies, liabilities and planned major capital projects. The goal is to maintain adequate financial reserves so that in times of econom ic downturns and annual revenue fluctuations , the City can continue to provide essential city services to meet expenditure obligations . The dollar amount of General Fund recommended reserves , the criteria for each Reserve and the GASB 54 Classification is documented in Attachment "A". It is proposed that Budget Fund Balance Reserves be established for: • Emergency/Disasters at $1 ,000 ,000; • Liquidity at $2,000 ,000 ; and City Council June 5, 2012 Page 3 • Local Economic Uncertainty at $500,000. It is recommended that these Reserves be established by Ordinance (Attachment "8") as proposed. This approach is suggested so that any changes in these Reserves will require an adoption of a new Ordinance with a first and second reading, eliminating the ability to change the reserve levels without careful consideration and a 4/51h affirmative vote of the City Council. The recommended reserve for Other Postemployment Benefits (OPES) will be part of the annual budget process and it is anticipated that an amount will be earmarked in each proposed fiscal year budget to reduce the liability of the postemployment benefits estimated at $9,142,000. At the June 19, 2012, City Council meeting, staff will recommend that the City Council allocate $1,000,000 OPES Trust Fund which will include a recommendation for the Public Agency Retirement Services (PARS) to administer the Trust Fund. The remaining recommended Reserves are as follows: • Fleet Management at $400,000; • Facilities Management at $4,000,000; • Technology Replacement at $200,000; • Economic Development at $8,000,000; and • Opportunities for One-Time Expenditures at $4,600,000. These reserve levels will be reviewed on an annual basis (or more often if necessary) as part of the City Budget process and recommendations for changes in these reserves will come from the City Manager to the City Council . CONCLUSION: In order to meet the City Council's objective of developing and implementing comprehensive budgeted reserves for fund balances, it is recommended the City Council adopt the attached Ordinance, stipulating minimum amounts for Emergency/Disasters, Liquidity and Local Economic Uncertainty. The adoption of an Ordinance is a best practice to ensure budgeted reserve levels cannot be changed without a thoughtful process and 4/5 vote by the City Council. Further, in order to enable long-term planning for replacement of the fleet, facilities, technology, economic development and one-time expenditures, recommended reserve levels shall be an on-going part of the annual budget process. FISCAL IMPACT: This action does not have an impact on the FY 2011-12 City Budget. City Council June 5, 2012 Page 4 ATTACHMENTS: A. General Fund Recommended Reserves-FY 2012-13 B. Ordinance No. 12-953, An Ordinance of the City Council of the City of Temple City, California, Adding a New Chapter 10 "Budget Reserve Fund Balance Requirements" to Title 2 "Administration" of the Temple City Municipal Code Classification Emergency/Disasters Uquidoty local Economic Uncertainty other Post Employment BenefiLs (OPEB) Risk Manasement-Not recommended at this time. Fleet Management Facilities Management TeclvooiOIY Replacement Economic Development Opportunoties and One-nme Expendotures Undesognated Fund Balance Total Estomated Unassigned Fund Balance at June 30, 2012 Per Adopted Budget CITY OF TEMPLE CITY GENERAL FUND RECOMMENDED RESERVES FY 2012-13 Criteria To ensure the City can provide essential services to the public durin& a dinster. The City's portfolio is currently $38 mill ion. With a total Budget o f $15 m illlon, the City can cash How 2 +years of operations and budgeted capital at current levels. However, with the Rosemead Blvd Enhancement Project coming up, a liquidly reserve is reommended as the City will have substantial cash outlays, receiving reimbursement for expenses a t a later date. Reduction in sales tax and property tax revenues and certain fees that can be sensitive to the local economic cycles. There is no mandate to fund however some level of funding is rei:ommended. Temple Coty has first dollar coverage for all risks. To provide fo r future replacement. To provide for future replacement. To provide for future replacement. To provide resources for future economic growth. To provide resources for leveraging opportumtoes and unforeseen one-time expendotures . Recommended Reserves • s 1,000,000 s 2,000,000 $ 500,000 $ 1,000,000 $ 400,000 $ 4,000,000 s 200,000 s 8,000,000 s 4,600,000 s - s 21,700,000 If all or a portion of the Reserve os utilized, the Reserve woll be restored to the orogonallevel as adopted within the next love fiscal years or whenever reasonably possible Attachment "A" GASB 54 Rei:ommended Classification Committed Com mot ted Commotted Committed I Assisned I Assogned Assigned I Assogned I Assogned Unassogned Attachment "B" ORDINANCE N0.12-953 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF TEMPLE CITY, CALIFORNIA, ADDING A NEW CHAPTER 10 "BUDGET RESERVE FUND BALANCE REQUIREMENTS" TO TITLE 2 "ADMINISTRATION" OF THE TEMPLE CITY MUNICIPAL CODE. WHEREAS, to ensure adequate fiscal resources and stable delivery of City services during emergencies, fiscal emergencies , annual revenue fluctuation, liquidity shortages, or severe economic downturns, the City desires to establish a General Fund reserve requirements, and; WHEREAS, to ensure fiscal prudence and responsibility the City desires to also establish criteria for use of General Fund reserves; and WHEREAS, the City desires to adopt these requirements and criteria by Ordinance and codify its provisions in the City of Temple City Municipal Code . NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TEMPLE CITY HEREBY ORDAINS AS FOLLOWS: SECTION 1. Addition of Chapter 10 to Title 2 of the Temple City Municipal Code. The City Council hereby adds a new Chapter 10 " Budget Reserve Fund Balance Requirements ) to Title 2 "Administration" of the Temple City Municipal Code, which shall read as follows: Chapter 10 BUDGET RESERVE FUND BALANCE REQUIREMENTS 2550: PURPOSE 2560: DEFINITIONS 2570: BUDGET RESERVE FUND BALANCE TARGETS 2550: PURPOSE The primary purpose of this Chapter is to ensure adequate fiscal resources and stable delivery of City services during emergencies, fiscal emergencies, annual revenue fluctuations, liquidity shortages, or severe economic downturns so that in the event of 1 these occurrences the City is able to continue providing essential city services and satisfying expenditure obligation. The secondary purpose of this Chapter is to enable realistic long-term planning, assist in development of annual budgets, require the prudent use of resources, and to implement of sound fiscal management practices. To achieve these purposes, this Chapter requires the City to : 1. Establish adequate reserves. 2. Establish sound fiscal reserve requirements. 3. Ensure the City satisfies its short-term and long-term financial obligations. 4. Establish a periodic review of the City's fund balances and reserves. 5. Enhance the City's credit rating. To achieve the purposes of this Chapter it is contemplated that the City will establish various Budget Reserve Fund Balance accounts facilitating funding of emergencies, contingencies, liabilities and planned major capital projects. . 2560: DEFINITIONS For the purposes of this Chapter 1 0, the following terms shall have the following meanings: (a) "Emergency" shall mean, in accordance with Section 2701 , the actual or threatened existence of conditions of disaster or of extreme peril to the safety of persons and property within the city caused by such conditions as air pollution, fire, flood, storm, ep idemic, riot or earthquake, or other conditions, including conditions resulting from a labor controversy, which conditions are or are likely to be beyond the control of the services, personnel, equipment and facilities of the city, requiring the combined forces of other political subdivisions to combat. (b) "Fiscal Emergency" shall mean the occurrence of any one or more of the following : (1) the existence of a default on a debt obligation for more than thirty days, or the reasonable probability that the City will default on a debt obligation, or that the City will not be able to cure a default on a debt obligation within thirty days; (2) the existence of a failure for lack of funds to make payment of all payroll to officials, officers, or employees of the municipal corporation for more than one payment cycled ; (3) the existence of a condition in which accounts due and payable at the end of the preceding fiscal year, less the year-end balance, exceeded one-twelfth of the available revenues during the preceding fiscal year; (4) the existence of a condition in which the aggregate of deficit amounts 2 of all deficit funds at the end of the preceding fiscal year, less the year-end balance, exceeded one-twelfth of the total of the general fund budget for that year and the receipts to those deficit funds other than from transfers from the general fund; (5) the existence of a condition in which , at the end of the preceding fiscal year, moneys and marketable investments in or held for the unsegregated treasury of the municipal corporation, minus outstanding checks and warrants, were less than the aggregate of the positive balances of the general fund and those special funds whose purposes the unsegregated treasury meets, and such deficiency exceeded one-twelfth of the total amount received into the unsegregated treasury during the preceding fiscal year. (c) "Economic Stabilization Reserve" shall mean, as provided in GASB 54 (Governmental Accounting Standards Board), an identified fund for which the specified purpose is stabilizing the delivery of city services during periods of operational deficits resulting from deferral of federal, state, or county remittance and which may also be used as a short-term bridge from unexpected and drastic downturns in the economy. Pursuant to GASB 54 stabilization is regarded as a specified purpose only if the circumstances or conditions that signal the need for stabilization (a) are identified in sufficient detail and (b) are not expected to occur routinely. 2570: MINIMUM BUDGET RESERVE FUND BALANCE The City will maintain combined General Fund reserves as follows: (a) Emergency/Disaster Reserve-$1,000,000. (1) Use of these funds is allowable only when the following conditions have been met: (i) The City Council has declared the existence of either an "Emergency" or "Fiscal Emergency"; and (ii) The use of the reserve has been approved by 4/5th vote of the membership of the City Council. (2) Within 6 months after the Council's determination in paragraph (1) above the City Manager shall present . a plan to the City Council to replenish this fund over a ~.vo year period . (3) If all or a portion of the Reserve is utilized, the Reserve will be restored to the original level as adopted within the next five years or whenever reasonably possible. (b) Liquidity Reserve -$2,000,000 . (1) Funds are to be set-aside to provide cash flow for timing of revenues and expenditures. For example, while payroll costs are bi-weekly and 3 fairly predictable, state and county tax payments can vary . The City may also from time to time have major projects that are grant funded on a reimbursement basis that require large cash outlays. A "Liquidity Reserve" is established to provide the cash-on-hand needed in between large revenue payments and grant reimbursements and will alleviate the need for short-term borrowing . (2) If all or a portion of the Reserve is utilized, the Reserve will be restored to the original level as adopted within the next five years or whenever re asonably possible. (c) Local Economic Uncertainty Reserve· $500,000 (1) Funds are to be set aside for the purpose of stabilizing the delivery of City services during periods of operational budget deficits resulting from the conditions as described in the definition above "Economic Stabilization Reserve. (2) Use of the funds are allowable only when the City Council , upon the 4/51h vote of its membership , has approved the use of the fund . (3) If all or a portion of the Reserve is utilized, the Reserve will be restored to the original level as adopted within the next five years or whenever reasonably possible (d) Other Reserve Designations. The City Council may at any time designate specific fund balance levels for future development of projects which it has determined to be in the best long-term interests of the City. (e) The City Manager must include a recommendation for the amounts to be appointed to these reserves during the annual budget process. SECTION 2. Severability. The City Council hereby declares that, should any provision, section , subsection , paragraph, sentence, clause , phrase, or word of this Ordinance or any part thereof, be rendered or declared invalid or unconstitutional by any final court action in a court of competent jurisdiction or by reason of any preemptive legislation, such decision or action shall not affect the validity of the remaining section or portions of the Ordinance or part thereof. The City Council hereby declares that it would have independently adopted the rema ining provisions, sections , subsections, paragraphs, sentences, clauses, phrases, or words of this Ordinance irrespective of the fact that any one or more provisions, sections, subsections, paragraphs, sentences, clauses, phrases, or words may be declared invalid or unconstitutional . SECTION 3. Publication. The City Clerk shall certify to the passage and adoption of this Ordinance and to its approval by the Mayor and shall cause the same to be published according to law. 4 PASSED, APPROVED, AND ADOPTED this 15th day of May 2012 . MAYOR ATTEST: APPROVED AS TO FORM: City Clerk City Attorney I, Mary Flandrick, City Clerk of the City of Temple City, hereby certify that the foregoing Ordinance No. 12-953 was introduced at the regular meeting of the City Council of the City of Temple City held on the_ day of __ 2012, and was duly passed, approved and adopted by said Council at the regular meeting held on , 2012 by the following vote: AYES: NOES: ABSENT: City Clerk 5