Loading...
HomeMy WebLinkAboutBUDGET AND FISCAL POLICY - 6-2012,~~~~:,, City of Santa Ana A~1~.+' ~-`~ Council Policy Mayor's Authorization Subject Council Approval Date: BUDGET 8. FINANCIAL POLICIES June 4. 20'12 Background The severity of the recent economic recession highlighted the need to establish and maintain adequate reserve policies to offset significant economic downturns and unforeseen rising costs more effectively. In 2002, The Government Finance Officers' Association (GFOA) recommended reserve levels equal to a minimum of 5% to 15% of operating revenues or one to two months of operating expenditures as a basis to establish sound reserve levels. Adoption of a formal City Budget and Reserve Policy will provide a basis to manage significant financial events more effectively in the future. PURPOSE The City's reserve policy will define the recommended level for reserves for the General Fund as well as internal and enterprise operations. The policy will outline a timeframe and plan that will assist the City in meeting the minimum General Fund requirements over the course of the next few years. It will also establish criteria for the use of reserves and establish a process by which to replenish reserves if used. It is the intent to focus on the General Fund initially and incorporate additional reserve policies for internal and enterprise funds over the next fiscal year. General Fund The General Fund is the general operating fund for the City. It accounts for all general revenues including sales tax, property tax, business tax, hotel visitor's tax, as well as other fees and charges. It is the basis to fund general ongoing City operations such as police, fire (contract services), recreation, planning and building as well as other general support services. General Fund Budget Policy Directives - It shall be established that a balanced budget will be presented annually to the City Council for adoption- A balanced budget will be defined as ongoing recurring operating revenues matching ongoing recurring operating expenditures including debt service. - One time or term specific funding can only be used to match one-time non recurring expenditures, term specific projects and programs, as well as capital expenditures. - In order to ensure a balanced budget objective, the City will continue to pursue internal operational efficiencies and strategies, such as technology, that minimize City costs and impacts to City services. In addition, no language shall be adopted that requires the City to maintain a minimum or required level of staffing and overtime. Budget & Financial Polices Page 1 In order to ensure proper maintenance of a continued balanced budget, the City Council will adopt a compensation and retirement benefit directive that provides guidance and conforms with the established budget directives and reserve requirements as outlined in this policy. General Fund Reserves In order to ensure a continued orderly operation of City Government and to address any unforeseen economic occurrences the City shall establish two General Fund Reserve Accounts: An Unassigned Reserve Account and an Economic Uncertainty Reserve Account. Unassigned Reserve Account -In accordance with GFOA and in order to maintain the highest level of fiscal health, the City will maintain under the Unassigned Reserve Account designation a minimum reserve level of between 5 and 15% of recurring General Fund operating expenditures. At no time is it permissible for the reserve requirement to fall below 5%. However, it is the intent of the City to ensure a significant reserve position of at least 15%. Upon attainment of 15%, the City shall consider and if approved continue to strive for an overall goal of 20% for the Unassigned Reserve Account. Such reserves shall not be used to fund any form of operating expenditures or to cover any budgetary shortfall other than to preserve ongoing cash flow needs for the City. If at any point in time it is deemed that the City budget is performing at a structural deficit, the use of the Unassigned Reserve Account to balance the budget is strictly prohibited unless approved by two thirds of the City Council. If approved, a corresponding plan to replenish the reserves must be adopted by the same vote. Economic Uncertainty Reserve Account - It is hereby established that upon fulfillment of achieving a minimum Unassigned Reserve Account of 10%, the City shall consider the establishment of a reserve account for Economic Uncertainty. The reserve for Economic Uncertainty is established to offset any major variations in tax receipts as well as fees and charges or unforeseen cost increases. It is hereby established the City maintain a minimum reserve level of 1 to 10% of recurring General Fund revenues with an objective of attaining a maximum goal of 10%. - Upon determination by the Finance Department, that negative variations in projected revenues from the largest revenue sources defined as Sales tax, Property tax, Property tax in Lieu, Utility Users tax, Business Tax, and Hotel Visitors tax exceed 2% with no corresponding General Fund expenditure offset, then the City Council may authorize use of the Economic Uncertainty Reserve by atwo-thirds vote to offset the revenue loss prior to the close of the fiscal year end. A corresponding plan to replenish the reserve account must be adopted by the same vote. Upon determination by the Finance Department and report submission to the City Council that a structural deficit exists in the budgeted forecast of the upcoming fiscal year, the City Council may authorize use of the Economic Uncertainty Reserve to balance the budget by two thirds vote of the Council. However, authorization to utilize the Economic Uncertainty Reserve beyond two consecutive years is strictly prohibited- General Work Plan for Achieving Genera! Fund Reserve Objectives The following work plan is intended to reach the unassigned reserve account of 15% in phases. The initial objective is to attain at least a 5% threshold over the course of the following fiscal year and between 7% and 8% Budget & Financial Polices Page 2 over the subsequent fiscal year. Upon attainment of the phased objectives, a comprehensive review of the general financial condition of the City will be completed and a new reserve work plan will be developed and submitted for approval that outlines the next intermediate steps for meeting the main objective of a reserve target level of 15%. Until such time that the General Fund Unassigned Reserve meets the minimum phased requirements as outlined above, the following budgetary and operational guidelines shall be used as a basis to achieve the various minimum requirements- - Budget consideration of new programs, personnel, or capital related expenditures shall only be considered if a source of funding is identified either through a corresponding cost reduction, an identified general increase in general tax revenue, or a one-time revenue infusion. Source of funding should include consideration of ongoing general maintenance and operational costs. - Departments will be encouraged to continually achieve savings through internal organizational efficiencies. - Technology will be encouraged if it can be demonstrated that a one-time capital infusion can result in savings being generated beyond two years. - Any General Fund savings generated at the fiscal year end can be considered either for term specific operational or capital needs but a minimum of SO% (up to 100%) of the savings shall be deposited into the unassigned reserve balance until such time that the phased reserve levels are met. - Any internal service fund that has funds in excess of the identified minimum reserve requirement as outlined in this policy, can be utilized as a means to meet the minimum General Fund Reserve requirements. Only unrestricted funds deemed transferable can be utilized. Any transfer to the General Fund Unassigned Reserve Balance will be submitted to Council for consideration and approval. - In order to generate additional savings and until such time that the minimum level of reserves has been achieved, the Budget Office will only utilize a fiscally conservative profile for revenue projections. - If the phased reserve target requirements as outlined above have not been met it is recommended that beginning in FY 14-15 a more conservative projection factor be used to generate forced budgetary savings: (NOTE: Each 1% equates to approximately $2 million) FY 12-13. 100% of recurring revenue projected; FY 13-14: 100% of recurring revenue projected; FY 14-15: 99% of recurring revenue projected; Such factors shall be used to generate General Fund savings until such time that a 7%-8% unassigned General Fund reserve has been achieved. Any generated General Fund savings achieved after reaching between a 7%-8% undesignated General Fund reserve shall be applied in the following order: Up to a max of 25% -Unassigned General Fund Reserve Up to a max of 25% -Economic Uncertainty Reserve Up to a max of 50% -Can be applied to term specific programs, projects, personnel as well as deferred capital maintenance. Budget & Financial Polices Page 3 Internal Service Funds Background Internal Service Funds are established to administer and account for various activities whose purpose is to provide for goods and services to support other departments for their ongoing operational and programming needs. The delivery of these services is recovered on a cost recovery basis- Purpose It is the intent of the Internal Service Fund Reserve Policy to establish general guidelines as to the establishment of a proper recovery rate structure and define an appropriate level of reserves for each Internal Service Fund. It will also establish criteria for the use of reserves and establish a process by which to replenish reserves if utilized. Although this policy only addresses the Risk Management Funds (i.e. Liability and Property Insurance and Workers Compensation Fund), it is the intent to build upon and include all internal service funds within this policy. Risk Management The Risk Management programs are established to protect the City's assets through the administration of a properly funded liability claim and insurance program and by minimizing the cost and effect of work-related injuries. Rates for these programs are established on a biennial actuarial basis. Reserves Reserves for these accounts will be funded at not less than 80% as defined in the actuarial study. In addition, three months of operational reserves will be included to address any variations related to revenues and expenditures. Any surplus amounts defined in these accounts from general agencies shall be available for transfer to the General Fund until such time that the General Fund reserve meets the minimum requirement of 15% or to establish the reserve for Economic Uncertainty. Transfers shall be submitted to Council for approval. There after any surplus can be used to fund any deficits identified in other Internal Service Fund reserves, as well as other unfunded capital and deferred related maintenance. Budget & Financial Polices Page 4