CC SR 20210302 F - Reserve Policies
CITY COUNCIL MEETING DATE: 03/02/2021
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA TITLE:
Consideration and possible action to adopt the amended City Council Policy No. 41,
Reserve Policies.
RECOMMENDED CITY COUNCIL ACTIONS:
(1) Adopt Resolution No. 2021-__ thereby amending City Council Policy No. 41,
Reserve Policies, as approved by the City Council at the February 16, 2021
meeting.
FISCAL IMPACT: N/A
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: Vina Ramos, Deputy Director of Finance
REVIEWED BY: Trang Nguyen, Director of Finance
APPROVED BY: Ara Mihranian, AICP, City Manager
ATTACHED SUPPORTING DOCUMENTS:
A. Resolution No. 2021-___ (page A-1)
B. City Council Policy No. 41, Reserve Policies (page B-1)
BACKGROUND AND DISCUSSION:
On February 16, 2021, the City Council unanimously approved the recommendations to
revise City Council Policy No. 41, Reserve Policies. This evening, the amended policy is
presented for adoption, via resolution, formally memorializing the City Council’s February
16 action.
The salient revisions approved would provide more options for the City Council’s
consideration in the future, addressing the significant drop of General Fund transfers to
the Capital Improvement Program (CIP) Fund in Fiscal Year 2020-21. Other revisions
identified are mainly clarifying/cleanup language that is relevant and consistent with the
City’s current and best practices. In summary, the revisions to City Council Policy No. 41
Reserve Policies are as follows:
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• Added clarifying language in the policy introduction;
• Added clarifying language and options for CIP funding:
(a) Clarified that the current and historical practice of General Fund transfer is
from Terranea Resort’s Transient Occupancy Tax (TOT) revenues only;
and,
(b) Added the option for the City Council to decrease the General Fund TOT
transfers to CIP Fund by adjusting or suspending the reduction of transfers
based on the cumulative increases in the public safety contract when the
General Fund will not have a balanced budget;
• Added clarifying language for the General Fund transfers to CIP Fund using
“unrestricted excess reserve” instead of “favorable expenditure variance”;
• Increased the CIP Fund reserve limit from $3 million to $5 million; and,
• Changed the reserve limit of the Equipment Replacement Fund (ERF).
To view the full staff report presented to the City Council on February 16, 2021, visit
https://rpv.granicus.com/MetaViewer.php?view_id=5&clip_id=3853&meta_id=91006 .
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative action s are available
for the City Council’s consideration:
1. Identify further amendments to City Council Policy No. 41 and direct Staff to
return with revisions.
2. Take other action, as deemed appropriate.
3. Do not adopt the Resolution thereby not approving amendments to City
Council Policy No. 41.
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Resolution No. 2021-xx
Page 1 of 2
RESOLUTION NO. 2021-
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF RANCHO PALOS VERDES, CALIFORNIA
AMENDING COUNCIL POLICY NO. 41, RESERVE
POLICY, ADDING, CLARIFYING LANGUAGE AND
OPTIONS FOR FUNDING THE CAPTAL
IMPROVEMENT FUND AND INCREASING ITS
RESERVE LIMIT TO $5 MILLION.
WHEREAS, in 2008, the City Council adopted the City Council’s Policy No.
41, Reserve Policy; and
WHEREAS, in 2010, the City Council amended the City Council’s Policy
No. 41, Reserve Policy, Section B, Capital Improvement Fund, to allow for change
in the way the Capital Improvement Fund reserve is funded; and
WHEREAS, in 2011, the City Council amended the City Council’s Policy
No. 41, Reserve Policy, for compliance with the Governmental Accounting
Standards Board Statement No. 54, Fund Balance Reporting and Governmental
Fund Type Definitions; and
WHEREAS, in 2013, the City Council amended the City Council’s Policy
No. 41, Reserve Policy, Section B, Capital Improvement Fund, adding a funding
mechanism for the Capital Improvement Projects (CIP) Reserve; and
WHEREAS, on February 16, 2021 the City Council accepted the amended
City Council’s Policy No. 41, Reserve Policy (Attachment B); and
NOW, THEREFORE, THE RANCHO PALOS VERDES CITY COUNCIL
DOES HEREBY RESOLVE, DETERMINE, AND ORDER AS FOLLOWS:
Section 1: The forgoing recitals are true and correct and are incor porated
herein by this reference.
Section 2: The City Council’s Policy No. 41, Reserve Policy, as modified in
Attachment B is approved and adopted by the City Council.
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Resolution No. 2021-xx
Page 2 of 2
PASSED, APPROVED and ADOPTED on this 2nd day of March 2021.
__________________________
Mayor
Attest:
__________________________
City Clerk
State of California )
County of Los Angeles ) ss
City of Rancho Palos Verdes )
I, Emily Colborn, City Clerk of the City of Rancho Palos Verdes, hereby certify
that the above Resolution No. 2021-__ was duly and regularly passed and
adopted by the said City Council at a regular meeting thereof held on March 2,
2021.
_____________________
City Clerk
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CITY COUNCIL POLICY
NUMBER: 41
DATE ADOPTED/AMENDED: 12/02/08 (Amended 03/02/2021)
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 may authorize continued appropriations and purchase
orders carryover for certain incomplete capital projects, other one-time projects
and services which have not been billed or completed. 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 $5 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 to the CIP fund:
1. Transient Occupancy Tax (TOT).
a. Pursuant to the City’s Municipal Code Chapter 3.16, Transient
Occupancy Tax is collected from hotels that are located within the
City. "Hotel" means any structure, or any portion of any structure,
which is occupied or intended or designed for occupancy by
transients for dwelling, lodging or sleeping purposes, and
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includes any hotel, inn, tourist home or house, motel, studio hotel,
bachelor hotel, lodging house, rooming house, apartment house,
dormitory, public or private club, mobile home or house trailer at
a fixed location, or other similar structure or portion thereof.
b. The tax imposed in any hotel is based on temporary occupancy.
"Temporary" means a period of thirty consecutive calendar days
or less, counting portions of calendar days as full days.
c. General Fund transfer amounts to the CIP are equal to the TOT
collected from the Terranea Resort, the main source of TOT
revenues. During the annual budget process if it is determined
that the General Fund will not have a balanced budget, the City
Council may reduce the transfer amount to the CIP by a portion
or all of the increases in the public safety contract.
2. If deemed necessary, the City Council may allocate all or a percentage
of the prior year’s General Fund unrestricted excess reserve during
budget adoption process.
All interest earnings in this fund will be used for capital improvement
projects.
C. Equipment Replacement Fund
The City will maintain a minimum reserve of 75% but no more than 100%
of the estimated replacement cost for equipment assets that are due to be
replaced in the City’s next fiscal year.
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.
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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 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
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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.
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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