HomeMy WebLinkAboutAGENDA REPORT 2020 1021 CCSA REG ITEM 10FCITY OF MOORPARK, CALIFORNIA
City Council Meeting
of October 21, 2020
ACTION Approved Staff Recommendation.
BY B.Garza.
F. Consider Revised City Council Policy 5.2: Fund Balance Reserve Policy. Staff
Recommendation: 1) Approve revisions to Policy 5.2, Fund Balance Reserve,
and direct staff to incorporate the revised Policy 5.2 into the next comprehensive
update of the City Council Policies Resolution; and 2) Fund the Economic
Uncertainty reserve using General Fund unreserved fund balance as suggested.
(Staff: Kambiz Borhani) (ROLL CALL VOTE REQUIRED)
Item: 10.F.
MOORPARK CITY COUNCIL
AGENDA REPORT
TO: Honorable City Council
FROM: Kambiz Borhani, Finance Director
DATE: 10/21/2020 Regular Meeting
SUBJECT: Consider Revised City Council Policy 5.2: Fund Balance Reserve
Policy
SUMMARY
Staff and the Administration, Finance and Public Safety Committee have reviewed
Council Policy 5.2, “Fund Balance Reserve” (Policy 5.2) and requests the Council
approve updating this policy to clarify the following: 1) the fund balance accounting
classification that the Emergency/Contingency and the $1 million unreserved will be
placed under; 2) the type of expenditure used for the 20% calculation of the
Emergency/Contingency reserve; and 3) the priority list for which the unassigned
General Fund surplus will be used before the remaining excess is transferred to Special
Projects Fund.
Policy 5.2 changes are shown in legislative format as an attachment to this report.
BACKGROUND
The Administration, Finance and Public Safety Committee reviewed this investment
policy on September 2 and October 7, 2020, and recommended the City Council adopt
the policy. The City Council approved revisions to Policy 5.2, Fund Balance Reserve,
on May 16, 2018, to promote sound financial management practices. The policy set a
minimum Emergency/Contingency reserve level to be based on 20% of General Fund
expenditures, plus $1 million of the General Fund unreserved fund balance to be set
aside for budget adjustments during the fiscal year before any excess were to be
transferred to the Special Projects Fund.
The following provisions highlight the major updates and clarifications proposed:
1. The purpose of the Emergency/Contingency reserve is to minimize the financial
impact or quickly respond to unexpected situations such as a local event or natural
Item: 10.F.
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disaster or declared emergency and/or claims which will not be reimbursable from
insurance or Federal, State or County government. Best practices recommends
maintaining an amount equal to 20% of the General Fund’s operating expenditures.
The term Emergency in this policy is defined as a catastrophic earthquake,
sinkholes, flood, hurricane, wildfire, tsunami, tornado, thunderstorm, lightning,
landslide, volcano, avalanche, drought, heat wave, cold wave, hail storm, ice storm,
pandemic, active shooter, attacks in public places, chemical emergencies,
hazardous materials incidents, home fires, power outages, cybersecurity,
explosions, asteroid, plane/helicopter crashing, fuel/oil truck spill, road emergency,
structural failure, or similar natural event causing widespread damage or emergency
in the City of Moorpark as declared by vote of the City Council, or by proclamation of
the President of the United States or the Governor of the State of California.
2. Create a new Economic Uncertainty reserve in the General Fund to help provide
resources to minimize service disruption in the event of fiscal stress such as
unexpected revenue shortfalls or unpredicted one-time expenditures or operating
changes that occur outside of the planned annual budget. Reserves shall not
normally be applied to recurring annual operating expenditures.
This fund will provide the City resources to weather short-term and other cyclical
revenue downturns while avoiding large variations in taxes and fees or variations in
the type and quality of municipal services provided. The amount of the Economic
Uncertainty fund shall be a minimum of $1 million. Funding the Economic
Uncertainty reserve can only be appropriated and used for budgetary purposes by
an affirmative vote of the City Council.
As of June 30, 2020, there is $1 million in the General Fund unreserved fund
balance. Staff recommends using $500,000 of this amount to establish this reserve
fund. Subsequent replenishment will be recommended by the City Manager each
year.
3. Designate both Emergency/Contingency and Economic Uncertainty reserves as
committed fund balances and the $1 million of General Fund unreserved as
unassigned fund balance, as the applicable classified fund types prescribed by
Governmental Accounting Standards Board (“GASB”) Statement No. 54.
4. Further, for the Emergency/Contingency reserve, the policy did not specify which
operating expenditures were to be used for the 20% calculation. Since the policy
requires the reserves to be adjusted annually in conjunction with the year-end
analysis and preparation of the City’s Comprehensive Annual Financial Report
(“CAFR”), which timing is after the adoption of the subsequent year’s budget, staff
recommends using General Fund adopted budget operating expenditures for the
purpose of this calculation. For example, for fiscal year ending (“FYE”) June 30,
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2020, staff will adjust the ending fund balance amount for the
Emergency/Contingency reserve based on FYE June 30, 2021 General Fund
adopted budget operating expenditures. This clarifying change to the policy will
match the beginning fund balance of the Emergency/Contingency reserve for a fiscal
year to the budgeted operating expenditures adopted by the City Council for the
same fiscal year.
5. To promote sound financial management practices, staff is also recommending
establishing a priority list for allocating year-end General Fund surplus to
replenishment among the three reserves and toward reduction of liabilities
associated with post-employment employee benefits. This list, in order of priority,
requires the Emergency/Contingency reserve to be replenished first, followed by the
Economic Uncertainty reserve (amount shall be at least $1 million at the beginning
of each fiscal year) and the $1 million unassigned reserve to be restored third, then
proceed with payments for maintaining a minimum 95% funding for Pension
Unfunded Accrued Liability (“UAL”) and also Other Post-Employment Benefits
(“OPEB”) UAL.
In the last decade, to maintain fiscal sustainability, the City Council approved three
separate payments made to CalPERS in order to address the rising costs associated
with changes made to actuarial assumptions. These actions have saved the City
millions of dollars in Pension UAL. Conversely, CalPERS has also taken actions that
would further impact and increase employers’ contributions. One of those decisions
was lowering the discount rate from 7.5% to 7.0%, which as it got implemented resulted
in the City’s Pension UAL increasing in excess of a million dollars. As of June 30, 2019,
CalPERS’ latest actuarial valuation, the City’s Pension UAL was $1,341,661. During
the FY 2020-2021 budget presentation, staff expressed concerns about the growing
Pension UAL due to the investment losses CalPERS experienced from the global
pandemic resulting from the coronavirus. As such, this liability may have escalated to
approximately $4.3 million. To address this growing concern, staff recommends
establishing a policy whereby a portion of the General Fund surplus is set aside to be
later appropriated towards paying down these UALs and maintaining an overall
minimum of 95% funding.
Other revisions are to help comply with best practices and parse out language that can
be confusing or have alternative meanings so that it can be clear, concise and easy to
follow. The proposed revisions outline a clear vision of how the City will manage its
financial resources to provide the best value to the community, promote long-term and
strategic thinking, and help manage and reduce risks to the City’s fiscal health.
FISCAL IMPACT
Staff recommends using $500,000 of the FYE June 30, 2020, $1 million General Fund
unreserved fund balance to establish the Economic Uncertainty reserve.
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COUNCIL GOAL COMPLIANCE
This action does not support a current strategic directive.
STAFF RECOMMENDATION (ROLL CALL VOTE REQUIRED)
1. Approve revisions to Policy 5.2, Fund Balance Reserve, and direct staff to
incorporate the revised Policy 5.2 into the next comprehensive update of the City
Council Policies Resolution; and
2. Fund the Economic Uncertainty reserve using General Fund unreserved fund
balance as suggested.
Attachment: Exhibit A – Draft City of Moorpark Council Policy 5.2: Fund Balance Reserve
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Policy 5.2: Fund Balance Reserve
Fiscal stability is an important factor to any city. Sound financial management includes
the practice and discipline of maintaining adequate reserve funds for known and
unknown contingencies. Such contingencies and occurrences include, but are not
limited to:
• Cash flow requirements
• Economic uncertainties and other financial hardships or downturns in the local,
state or national economy
• Local disasters or catastrophic events
• Loss of major revenue source
• Unanticipated operating or capital expenditures
• 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.
The City will fund annually, to the extent of available General Fund unassigned
budgetary surplus, and endeavor to maintain a minimum General Fund reserved
committed fund balance for an Emergency/Contingency reserve in the minimum amount
of 20% of adopted budget expenditures, plus an unreserved a minimum General Fund
unassigned fund balance of $1 million. Additionally, an Economic Uncertainty reserve
will also be funded in General Fund committed fund balance to help provide resources
to minimize service disruption in the event of fiscal stress such as unexpected revenue
shortfalls or unpredicted one-time expenditures or operating changes that occur outside
of the planned annual budget. Reserves shall not normally be applied to recurring
annual operating expenditures. This fund will provide the City resources to weather
short-term and other cyclical revenue downturns while avoiding large variations in taxes
and fees or variations in the type and quality of municipal services provided. The
amount of the Economic Uncertainty fund shall be a minimum of $1 million. Funding the
Economic Uncertainty reserve can only be appropriated and used for budgetary
purposes by an affirmative vote of the City Council. AnThe
Emergency/Contingency Rreserve will be maintained for the purpose of minimizing the
financial impact or quickly respond to unexpected situations such as local event or
natural disaster or declared emergency and/or claims which will not be reimbursable
from insurance or Federal, State or County Government. sustaining General Fund
operations in the case of a public emergency such as a natural disaster or other
unforeseen catastrophic event. The Emergency/Contingency Reserve can be used to
mitigate financial and service delivery risk due to unexpected revenue shortfalls or
unanticipated critical expenditures. This reserve will not be used to fund new programs
or personnel. The $1 million of General Fund unassigned fund balance may be used for
budget adjustments during the fiscal year and/or Economic Uncertainty reserve
replenishment, as recommended by the City Manager from time to time.
ATTACHMENT
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Reserve levels will be adjusted annually in accordance with this policy. Annually, in
conjunction with the year-end analysis and preparation of the City’s Comprehensive
Annual Financial Report (CAFR) for a completed fiscal year, any remaining General
Fund unassigned fund balance from that fiscal year shall be applied as follows, in order
of priority: (1) if needed, to increase the fund balance of the Emergency/Contingency
Reserve to 20% of the subsequent fiscal year’s adopted budget expenditures; (2) if
needed, to reserve or replenish General Fund Economic Uncertainty to $1 million; (3) if
needed, to reserve or replenish General Fund unassigned fund balance to $1 million;
(4) to pay down Unfunded Accrued Liability (UAL), if any, with respect to the City’s
pension plans in an effort to maintain a minimum of 95% funding; and (5) to pay down
UAL, if any, with respect to the City’s Other Post-Employment Benefits (OPEB) plan
(i.e., post-employment healthcare plan) in an effort to maintain a minimum of 95%
funding.
Annually, Aany excess General Fund unreserved unassigned fund balance remaining
after the four items required by the immediately preceding paragraph above have been
fully funded will be transferred out to the Special Projects Fund. Pursuant to California
Government Code Section 53647, Iinterest generated from the Special Projects Fund
will be posted to the General Fund as interest income, which is vital to the City's
General Fund operating budget. The Special Projects Fund will be used to maintain and
build new projects including major rehabilitation of streets, parks and facilities (e.g.
Construction of Civic Center Complex, Moorpark Library, Street Capital Improvement
Projects, etc.). These funds may also be used for any other purpose as deemed
appropriate by the City Council by a separate vote.
Reserve levels will be adjusted annually in accordance with this policy. After the
Emergency/Contingency reserve has been fully funded and the $1 million General Fund
unreserved fund balance, then any excess will be transferred by the Finance Director to
the Special Projects Fund in conjunction with the year-end analysis and preparation of
the City' s Comprehensive Annual Financial Report ( CAFR).
Grant Funds
Most grant awards are reimbursable, whereby the City spends the money first and
applies for reimbursement from the granting agency. The City usually has a negative
fund balance in the grant funds until the grant money is actually received. Therefore,
there is no minimum reserve requirement for grant funds. Grant funds shall be used to
procure materials, supplies, and capital as may be permitted by the grant rules. No
recurring costs shall be funded by a grant unless the City Council pre-approves the
recurring costs.
All Other Funds
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Except as otherwise described above, Tthe City will maintain a minimum reserve of
10% of the annual revenue in each fund. Annual revenue is calculated based on the
average of the three prior year's revenue for the fund.
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