RPVCCA_CC_SR_2013_04_30_D_City_Council_Reserve_PolicyCITY OF
4o RANCHO PALOS VERDES
MEMORANDUM
REVIEWED:
Project Manager:
TO:
FROM:
DATE:
SUBJECT:
HONORABLE MAYOR &CITY COUNCIL MEMBERS
DENNIS McLEAN,DIRECTOR OF FINANCE &~
INFORMATION TECHNOLOGY
APRIL 30,2013
CITY COUNCIL RESERVE POLICY (Supports 2013 City
Council Goal of Public Infrastructure Funding)
CAROLYN LEHR,CITY MANAGER oS2-
Kathryn Downs,Deputy Director of Finance &Information
Technology UP
RECOMMENDATION
Approve the amended City Council Policy No.41 -Reserve Policies (see Attachment A).
DISCUSSION
The proposed amendment to the City Council's Reserve Policy is presented in a tracked-
changes format for convenience.Based on City Council direction on March 19,2013,the
amendment adds prior year favorable General Fund expenditure variances (when
applicable)as a funding mechanism for the Capital Improvement Projects (CIP)Reserve.
Ten years of historical annual General Fund expenditure variances follow.
Total Expenditures
FY02-03 10,459,516
FY03-04 11,177,956
FY04-05 11,891,896
FY05-06 13,400,508
FY06-07 14,383,996
FY07-08 14,358,934
FY08-09 15,796,631
FY09-10 16,718,366
FY10-11 17,081,270
FY11-12 17,460,898
Ten~Year Average
$Variance %Variance:
695,755 6.7%
754,649 6.8%
978,612 8.2%
1,048,687 7.8%
833,930 5.8%
420,103 2.9%
992,478 6.3%
927,146 5.5%
897,647 5.3%
1,184,897 6.8%
873,390 6.2%
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Attachment A
CITY COUNCIL POLICY
NUMBER:41 (Amended)
DATE ADOPTED/AMENDED:April1Q,2011April30.2013
SUBJECT:Reserve Policies
POLICY:
The City utilizes a variety of accounting funds for accounting and budgeting for
revenues and expenditures of the City.Appropriations lapse at each fiscal year-
end.The City Council authorizes continued appropriations for certain incomplete
capital projects,other one-time projects and services which have not been billed.
Remaining dollars left in each fund that are undesignated and unencumbered
constitute available reserves of the City.It is appropriate that reserve policies for
the City be established for each of the various funds,that the purpose of these
reserves be designated,and that dollars available in excess of the reserve
amounts be appropriately and effectively utilized.This policy governs the City's
reserves as follows:
A.General Fund
The City will maintain a minimum fund balance of at least 50 percent of
annual operating expenditures in the General Fund.This is considered the
minimum level necessary to maintain the City's credit worthiness and to
adequately provide for:
1.Economic uncertainties,local disasters,and other financial hardships
or downturns in the local or national economy.
2.Contingencies for unseen operating or capital needs.
3.Cash flow requirements.
B.Capital Improvement Fund
The City will maintain a minimum of $3 million in the Capital Improvement
Projects (CIP)fund as a reserve for major improvement projects related to
roadways,storm drains,parks,buildings,rights-of-way,and the sewer
system.Subject to the annual budgeting process,the CIP reserve will be
funded,to the extent possible,by allocating the following amounts equal to
the annual Transient Occupancy Tax (TOT)revenue to the CIP fund.,--~
1.Amounts equal to the annual transient occupancy tax (TOT);and
2.Amounts equal to the prior year General Fund favorable expenditure
variance,when applicable.
All interest earnings in this fund will be used for capital improvement
projects.
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City Council Policy #41 (Amended)
C.Equipment Replacement Fund
The City will maintain retained earnings equal to the estimated
replacement cost for equipment assets held by this fund.
D.Water Quality Flood Protection Fund
Project spending in the Water Quality Flood Protection (WQFP)fund
fluctuates year to year.The Storm Drain User Fee is a source of funding
for these projects.To avoid a fluctuating Fee,the City will maintain
retained earnings over the life of the WQFP fee to establish rate
stabilization,thereby enabling fund availability for scheduled projects and
maintenance.
E.Building Replacement Fund
The City will maintain retained earnings in this fund to accumulate monies
and interest earnings to finance major improvements (e.g.roofing),and
partially provide for future replacement of City owned buildings.
F.Utility Undergrounding Fund
The City will maintain retained earnings in this fund to accumulate monies
for relocating utility poles and lines on City arterial roadways underground,
as well as provide residents assistance with the process leading to utility
undergrounding in residential areas of the City.
G.Street Maintenance Fund
The City will maintain a minimum of one year's appropriations for road
maintenance on Palos Verdes Drive South in the landslide area.
H.Habitat Restoration Fund
The City will maintain a minimum of $50,000 in this fund as required by
the National Communities Conservation Plan (NCCP)for emergency use
for habitat restoration purposes in addition to maintaining any interest
earnings.
I.Subregion One Maintenance Fund
As part of the development agreement for Subregion One,the developer
provided $750,000 as an endowment to generate interest earnings for
future maintenance of the open space area in Subregion One.
J.Improvement Authority Abalone Cove Fund
In connection with the Horan lawsuit,the Redevelopment Agency's
Reimbursement and Settlement Agreement with property owners and the
County stipulated that $1,000,000 of County loan proceeds was to be
deposited in the Abalone Cove Maintenance Nonexpendable Trust Fund
of the Joint Powers Improvement Authority.Interest earnings from this
deposit are used to maintain landslide abatement facilities in the Abalone
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City Council Policy #41 (Amended)
Cove area of the active landslide,except sewers in accordance with the
reimbursement and settlement agreement
Reserve levels will be reviewed annually during the budget process.Any
recommended adjustments to reserve levels will be presented to City Council for
its consideration during the annual budget process.
COMMITMENTS AND ASSIGNMENTS OF FUND BALANCE:
Governmental Accounting Standards Board Statement No.54,Fund Balance
Reporting and Governmental Fund Type Definitions,provides the City with a
method to self-classify fund balance for financial statement reporting purposes.
A.Committed Fund Balance
Fund balance may be committed to specific purposes using its highest
level of decision-making authority,the City Council.It is the City Council's
policy that commitments of fund balance for a fiscal year must be adopted
by resolution prior to fiscal year end.Amounts that have been committed
by the City Council cannot be used for any other purpose unless the City
Council adopts another resolution to remove or change the constraint.
B.Assigned Fund Balance
The General Fund balance may be assigned for amounts the City Council
intends to use for a specific purpose.It is the City Council's policy that
assignments of fund balance for a fiscal year must be approved by
minute-order of the City Council prior to the fiscal year end.Any changes
to assignments must also be made by minute-order of the City Council.
It is the City Council's policy to spend classified fund balance in the following
order when amounts in more than one classification are available for a particular
purpose:
1.Restricted Fund Balance -amounts constrained to specific purpose by
their providers through constitutional provisions or enabling legislation.
Examples include grants,bond proceeds and pass-through revenue from
other levels of government.
2.Committed Fund Balance -amounts constrained to specific purpose by
resolution of the City Council.
3.Assigned Fund Balance -amounts in the General Fund which are
intended to be used for a specific purpose,expressed by minute-order of
the City Council.
4.Unassigned Fund Balance -amounts available for any purpose in the
General Fund.
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City Council Policy #41 (Amended)
BACKGROUND:
Reserves,rainy-day funds,or contingency funds are a prudent fiscal policy and
an important credit factor in the analysis of financial analysis and management.
Local governments have experienced much volatility in their financial stability due
to the economy,natural disasters,terrorist attacks,and actions taken by state
government which includes taking revenues from local governments to resolve
state budget problems.California cities are at an even greater disadvantage
than the rest of the country due to the unique regulations imposed by Proposition
13,and the inability to raise property taxes if the need would arise.Sound
financial management includes the practice and discipline of maintaining
adequate reserve funds for known and unknown contingencies.Such
contingencies include,but are not limited to:cash flow requirements,economic
uncertainties including downturns in the local,state or national economy,local
emergencies and natural disasters,loss of major revenue sources,unanticipated
operating or capital expenditures,uninsured losses,tax refunds,future capital
projects,vehicle and equipment replacement,and capital asset and infrastructure
repair and replacement.The establishment of prudent financial reserve policies
is important to ensure the long-term financial health of the City.
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