RPVCCA_CC_SR_2013_12_17_05_Consider_Policy_For_Balanced_Operating_BudgetCITY OF
MEMORANDUM
TO:
FROM:
DATE:·
SUBJECT:
REVIEWED:
Project Manager:
HONORABLE MAYOR & CITY COUNCIL MEM~
DENNIS McLEAN, DIRECTOR OF FINANCE & (f!;I)
INFORMATION TECHNOLOGY
DECEMBER 17, 2013
CONSIDER POLICY FOR BALANCED OPERATING
BUDGET
CAROLYN LEHR, CITY MANAGER ~
Kathryn Downs, Deputy Director of Finance & Information
Technology \( r.[)
RECOMMENDATION
Adopt the proposed City Council Policy to maintain an annual balanced operating
budget.
BACKGROUND AND DISCUSSION
For many years, Staff and the City Council have strived to adopt a balanced operating
budget. The City's strong reserve balances are evidence that the City Council has
maintained a balanced operating budget. The Municipal Code requires a midyear status
report on the budget. The City Council has adopted a Reserve Policy, as well as a policy
requiring preparation of an annual Five-Year Financial Model. Each of these City policies
support sound budgeting practices.
In June 2013, the County of Los Angeles Civil Grand Jury published a report titled Fiscal
Health, Governance, Financial Management and Compensation. The report included the
following recommendations.
• Cities should adopt financial planning, revenue and expenditure policies to guide
city officials to develop sustainable, balanced budgets.
• Cities should develop a balanced budget and commit to operate within budget
constraints.
• Cities should commit to not using one-time revenues to fund recurring or ongoing
expenditures.
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CONSIDER POLICY FOR BALANCED OPERATING BUDGET
December 17, 2013
Page 2 of 2
On September 17, 2013, a proposed plan of action in response to the Civil Grand Jury
report was approved by the City Council. The plan included returning to City Council with
a proposed City Council Policy by December 31, 2013 to address the 3 recommendations
noted above. Staff proposes a City Council Policy titled "Balanced Operating Budget"
(see attachment A).
The proposed policy would require the following:
1. Identification of recurring revenues and expenditures, as well as non-recurring
revenues and expenditures of the General Fund during the budget process; and
2. Prior to taking action, the City Council must be advised if that action will result in a
deviation of the Balanced Operating Budget policy.
The proposed policy does not address restricted funds of the City, as the nature of those
funds includes periodic spending after an accumulation of fund balance. The proposed
policy also does not address internal service funds of the City (e.g. Equipment
Replacement Fund), as the budget for those funds is based upon a targeted ending fund
balance; which may result in an annual budget where expenses exceed revenue sources
by design. The City Council's Reserve Policy addresses targeted ending fund balances
for various restricted funds and internal service funds.
ALTERNATIVES
1. Take no action; or
2. Provide direction to Staff for modifications to the proposed policy.
FISCAL IMPACT
There is no fiscal impact of adopting the proposed policy. Effective immediately, Staff
would advise the City Council if any proposed budgets would result in recurring General
Fund expenditures exceeding recurring General Fund revenues; and the 2014 budget
process would include identification of both recurring and non-recurring General Fund
revenues and expenditures.
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CITY COUNCIL POLICY
NUMBER: XX
DATE ADOPTED/AMENDED: December 17, 2013
SUBJECT: Balanced Operating Budget
POLICY:
The City Council shall adopt an annual oper
expenditures do not exceed recurring re
expenditures are not funded with one-tim
unpredictable revenue sources shall be u
et where recurring
ongoing program
One-time or
d other non-
recurring expenditures.
To assist the City Council with enforcing , the annual General Fund
one-time or unpredictable budget presentation shall incl identifica
revenues and one-time expendi
As
City
where
the Cityo
ity Staff if the proposed
hermore, City Staff must
iation fr a balanced General Fund
ral Fund budget becomes structurally
recommendation to the City Council.
budget will support financial sustainability for the
structurally balanced operating budget is one
re g ater than or equal to recurring expenditures. For
rdes, the operating budget is the General Fund budget.
Recurring rev defined as those which can reasonably be expected to
continue from y year, with some degree of predictability. Property tax
revenue is an exa pie of recurring revenue. Grants from outside agencies and
lawsuit settlements are examples of one-time or unpredictable revenues.
Recurring expenditures are defined as those which can reasonably be expected
to be funded every year in order to maintain the current levels of City services.
Staff salaries and the costs of park maintenance are examples of recurring
expenditures. Capital asset acquisitions (e.g. rehabilitation or improvement of the
City's infrastructure) are typically not considered recurring, as the same assets are
not acquired or rehabilitated each year. Although deferred maintenance of City
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infrastructure is not advisable, the City has a greater degree of flexibility to adjust
spending to maintain its capital assets in reaction to budgetary shortfalls.
Reserves are the portion of certain fund balances that are set aside as a hedge
against risk as defined in City Council Policy Number 41: Reserve Policies. If
Reserves are maintained at their desired levels, it is an indication that the City is
maintaining a structurally balanced budget.
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