HomeMy WebLinkAboutResolutions - No. 2016-189RESOLUTION NO. 2016-189
A RESOLUTION OF THE LODI CITY COUNCIL
APPROVING BUDGET AND FISCAL POLICIES
WHEREAS, the City Council held Shirtsleeve meetings on February 2,
February 9, and September 13, 2016, to discuss a comprehensive set of budget and
fiscal policies; and
WHEREAS, establishing budget and fiscal policies is a prudent best practice for
local government agencies; and
WHEREAS, establishing budget and fiscal policies provides a framework for
current and future decisions.
NOW, THEREFORE, BE IT RESOLVED that the Lodi City Council does hereby
approve the Budget and Fiscal Policies, attached hereto as Exhibit A.
Dated: October 19, 2016
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I hereby certify that Resolution No. 2016-189 was passed and adopted by the
City Council of the City of Lodi in a regular meeting held October 19, 2016, by the
following votes:
AYES: COUNCIL MEMBERS — Johnson, Kuehne, Mounce, Nakanishi, and
Mayor Chandler
NOES: COUNCIL MEMBERS — None
ABSENT: COUNCIL MEMBERS — None
ABSTAIN: COUNCIL MEMBERS — None
NNIFE FERRAIOLO
City Clerk
2016-189
City of Lodi
Budget and Fiscal Policies
Adopted October 19, 2016
1. Purpose
The City's primary financial objective is to maintain the fiscal stability of the
organization. The purpose of this policy is to establish guidelines for budget
development, administration, and management as well as outline the City's fiscal policies
in regard to cost recovery of various programs, target reserve levels in all funds and
funding mechanisms for various programs.
2. Budget Development
The budget will reflect the goals and priorities of the Council each year and make the best
use of available funding within those goals and priorities. While goals and priorities may
change from year to year, some basic tenets will apply to all budgets. Those tenets are
reflected below.
A. The General Fund budget will be balanced each year, without the use of reserves.
Current year revenues will support current year expenditures.
B. One-time revenue will be used to fund one-time expenditures or be placed in
reserves. One-time revenue will not be used to fund on-going operations.
C. Annual budgetary savings will be used to fund one-time expenditures or be placed
in reserves.
D. Funding for the Vehicle Replacement Fund shall be based upon annual
depreciation schedules for vehicles and amounts will be reflected in departmental
budgets.
E. Funding for the Other Post -Employment Benefits (OPEB) Fund shall be based
upon the Actuarial Required Contribution shown in the actuarial report and
charged to fund based upon ratio of full time positions.
F. Funding for the Pension Stabilization Fund shall be based upon the ratio of annual
budgeted pension costs by fund.
G. Funding for the Information Technology (IT) Replacement Fund shall be based
upon the replacement cycle for equipment contained in the fund.
H. Budgetary allotments for OPEB, Pension Stabilization and IT Replacement shall
be reflected in the Non -Departmental Organization Unit for all General Fund
units.
a. Special Revenue, Enterprise and Internal Service funds will reflect
budgetary allotments for these items within their respective funds.
I. Fixed Assets
a. Capital purchases of $10,000 or more, with a three year useful life, will be
capitalized.
b. Infrastructure additions or new construction of $10,000 or more will be
capitalized.
c. Vehicle purchases of any amount will be capitalized and useful lives will
be determined based upon the Government Finance Officers Association
Best Practices guidelines.
d. Straight line depreciation will be used for all depreciable assets.
J. Library
a. The Library is primarily funded through a transfer from the General Fund.
Council will set the level of funding each year based upon available
General Fund revenue.
K. Parks, Recreation and Cultural Services (PRCS)
a. Recreation and Community Center Programs
i. The goal is to recover, on average, 40% of program costs from
participants. Individual programs may be fully self-supporting
while other programs may have a nominal cost recovery ratio.
b. General Fund Transfer
The General Fund Transfer shall be determined by Council each
year. The intent of the General Fund Transfer is to cover the costs
associated with Parks Maintenance, PRCS administration, Debt
Service and Hutchins Street Square Maintenance.
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L. Community Development
a. The Community Development Department should primarily be self-
supporting through fee revenue.
b. A General Fund Transfer, determined by Council each year, will be
designed to support the value of the general information function that the
department provides and support at least one-half of the costs associated
with a Youth Outreach function designed to divert youth involvement in
gang activities.
M. Enterprise Funds
a. Enterprise funds will set fees and rates at levels that meet operating, debt
service, capital and reserve needs.
N. Internal Service Funds
a. Internal Service funds will set rates and charges at levels that will ensure
full recovery of costs each year.
3. Budget Administration and Adjustment
The City Council is ultimately responsible to the public for the delivery and conduct of
City services and facilities. Accordingly, the Council appropriates funds to ensure the
delivery of services at the levels and in the priority established by Council. The legal
level of budgetary control is at the department level.
A. City Manager
The City Manager, as the chief administrative officer, provides staff with general
direction in the development and formulation of the City Manager's budget
recommendations to Council. This includes: evaluating and assessing current and
anticipated issues facing the City; determining the demand for services and
facilities; identifying the concerns of the citizenry; assessing the current and
projected financial condition of the City; and determining the final staffing
recommendations.
B. Deputy City Manager/Internal Services Director
The Deputy City Manager/Internal Services Director, as the chief financial
officer, is responsible for budget development and day-to-day administration of
adopted budgets. This includes: developing and issuing the budget instructions
and calendar; advising the City Manager on budget policies and issues, including
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the recommended level of funding for each department within the General Fund;
reviewing budget requests to ensure they are complete and accurate; preparing the
preliminary budget recommendations for review by the City Manager; and
publishing the approved budget, Capital Improvement Plan, and Budget in Brief
documents.
C. Department Directors
Department directors are responsible for preparing their operating and capital
budget requests in accordance with the City's budget instructions and managing
their respective departments within their approved budget allotments.
D. Failure to Adopt a Budget
If the City fails to adopt the budget by July 1, the City Council may elect one of
the following courses of action until passage of a budget and appropriation of
funds: (1) Provide the City Manager with Continuing Resolution Authority to
allow continued services at expenditure levels not greater than those in the prior
year budget; or (2) Require staff to obtain prior approval for any expenditure
(payment) of City funds.
E. Public Record
The budget document will be available on-line at the City's website
www.lodi. ov . Hard copies will be available for public review at the Lodi
Public Library, City Hall and the Carnegie Forum.
F. Budget Adjustments
a. City Council approval is required for any increase in appropriations.
b. The City Manager and Deputy City Manager have the authority to adjust
appropriations within a fund, so long as total appropriations within the fund do
not increase.
c. Department directors have the authority to adjust appropriations within their
departmental funds, so long as total appropriations within the departmental
funds do not increase.
4. Appropriation Limit
The Council will annually adopt a resolution establishing its appropriate limit calculated
in accordance with Article XIIIB of the Constitution of the State of California, Section
7900 of the State of California Government Code, and any other voter -approved
amendments or state legislation that affect the City's appropriation limit.
5. Components of Fund Balance
A. Governmental Accounting Standards Board Statement Number 54 — Fund
Balance Reporting and Governmental Fund Type Definitions outlines the
requirements to report fund balance for governmental funds in specific
classifications which create a hierarchy primarily based upon the extent to which
a City is bound to constraints on the specific purposes for which the funds can be
spent. Fund Balance consists of the following five categories:
Non -spendable fund balance: amounts that cannot be spent because they
are either (a) not in a spendable form (e.g., inventories or pre-paids) or (b)
legally or contractually required to be maintained intact (e.g.,
endowment).
ii. Restricted fund balance: amounts that can only be spent for the specific
purposes stipulated by external resource providers either constitutionally
or through enabling legislation (e.g., grants, gas tax, impact fees).
iii. Committed fund balance: amounts that can be used for the specific
purposes determined by formal action of the government's highest level of
decision making authority. Committed fund balance can be changed only
by the government taking the same formal action that initially created the
commitment. (e.g., Council approved catastrophic or economic reserves).
iv. Assigned fund balance: amounts that are intended to be used by the
government for specific purposes. Intent can be established by either the
governing body or delegated to a City official. (e.g., amount of
unassigned fund balance intended to be used to pay for future salary and
benefit increases).
v. Unassigned fund balance: the remaining amount of fund balance after all
other fund balance classifications are accounted for and can be either
positive or negative. Positive unassigned fund balance is available for any
purpose.
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6. Fund Balance Policies
A. Committing Fund Balance
i. The City Council is the City's highest level of decision making authority
and the formal action that is required to be taken to establish, modify, or
rescind a fund balance commitment is a resolution or ordinance approved
by the City Council at a City Council meeting. For reporting purposes, the
resolution or ordinance approving, modifying or rescinding a fund balance
commitment must be approved prior to the last day of the fiscal year for
which the commitment is to be reported. The amount of the commitment
may be determined in a subsequent period.
B. Assigning Fund Balance
i. The City Council retains the authority to assign fund balance.
C. Hierarchy of Fund Balance Use
i. When multiple categories of fund balance are available for expenditure,
the City will spend the most restrictive funds eligible to pay the
expenditure first before moving down to the next category with available
funds in the following order:
1. Restricted
2. Committed
3. Assigned
4. Unassigned.
7. General Fund Reserves
Maintaining reserves in the General Fund is critical to the successful and stable short- and
long-term operations of the City. Adequate reserves in the General Fund ensure that the
City is able to respond to emergencies and continue providing services to the citizens of
Lodi. Adequate reserves also ensure that the City will have sufficient funds available to
meet its operating, capital and debt service obligations.
A. Catastrophic Reserve
i. A Catastrophic Reserve is established within the General Fund. This
reserve is established to maintain the ability of the City to meet
operational expenses during times of declared emergency or major
catastrophe.
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1. It is recognized that during a time of emergency, the City will need
to expend more resources than normal operations dictate to meet
the community's need. In addition to an increased level of
expenditure, the tax base of the City may be impaired after a major
catastrophic event.
ii. The amount of the Catastrophic Reserve shall be a minimum of 8% of
annual General Fund revenues, including Operating Transfers.
iii. The Catastrophic Reserve shall be exclusive of all other reserve amounts.
iv. Council may draw on the Catastrophic Reserve only upon declaration of
an emergency pursuant to the Lodi Municipal Code.
v. If the Catastrophic Reserve falls below 5% of annual General Fund
revenue, including Operating Transfers, the City Manager shall prepare a
plan within three months of Council approval of the Comprehensive
Annual Financial Report (CAFR) to restore the reserve balance to the 5%
level within 12 months and the 8% level within 24 months.
vi. The Catastrophic Reserve is not intended for normal unanticipated
expenditures and shall be funded before all other committed General Fund
reserves.
B. Economic Reserve
i. An Economic Reserve is established within the General Fund. This
reserve is established to maintain the City's economic viability and to
meet seasonal cash flow needs.
It is recognized that economic cycles can cause significant
fluctuations in the revenue streams of the City and the recovery
from down cycles can be prolonged and affect service levels to the
community dramatically. The Economic Reserve is intended to
assist the City in maintaining service levels while revenues recover
from a down economic cycle.
ii. The amount of the Economic Reserve shall be a minimum of 8% of annual
General Fund revenues, including Operating Transfers.
iii. The Economic Reserve shall be exclusive of all other reserve amounts.
iv. Council may draw on the Economic Reserve only upon adoption of a
resolution of the City Council.
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v. If the Economic Reserve falls below 5% of annual General Fund revenue,
including Operating Transfers, the City Manager shall prepare a plan
within three months of Council approval of the Comprehensive Annual
Financial Report (CAFR) to restore the reserve balance to the 5% level
within 12 months and the 8% level within 24 months.
vi. The Economic Reserve is not intended to be used to encourage
development through the expansion of infrastructure to undeveloped areas
of the City and shall be funded once the General Fund Catastrophic
Reserve is fully funded.
8. Special Revenue Fund Reserves
Maintaining reserves in the City's Special Revenue Funds is also critical to the successful
and stable short- and long-term operations of the City. Adequate reserves in the Special
Revenue Funds, where appropriate, ensure that the City is able to carry out the purpose of
the special revenue fund and ensure compliance with underlying laws and contractual
provisions associated with the funds. Additionally, bond rating agencies often evaluate a
City's General Fund financial resilience by looking at reserves that may be drawn from
Special Revenue funds to help support General Fund activities.
A. Library
i. Since the Library is primarily funded by a General Fund transfer, there is
no need to duplicate reserves associated with the transfer amount within
the Library Fund.
ii. Reserves within the Library Fund should be maintained at a minimum
level of 16% of annual Non -General Fund Transfer revenue.
1. Any excess reserves not otherwise designated by Council may be
returned to the General Fund annually for use as directed by
Council.
B. Parks, Recreation and Cultural Services (PRCS)
i. Since a significant portion of PRCS revenue comes from a General Fund
transfer, there is no need to duplicate reserves associated with the transfer
amount within the PRCS fund.
ii. Reserves within the PRCS Fund should be maintained at a minimum level
of 16% of annual Non -General Fund Transfer revenue.
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1. Any excess reserves not otherwise designated by Council may be
returned to the General Fund annually for use as directed by
Council.
C. Community Development
i. The Community Development Fund is primarily self-supporting from fee
revenue associated with development activities. The activities and
financing of this fund are subject to wide fluctuations based upon the state
of the development economy. Many of the fees assessed are collected
ahead of services being provided. In the event of an economic downturn,
the fund will have collected fees for services that have not yet been
provided. As such, it is prudent to carry a large reserve to recognize that
the reserve represents services that have not yet been provided.
ii. Reserves within the Community Development Fund should be maintained
at a minimum level of 50% of annual operating expenses, including
transfers.
D. Vehicle Replacement
i. Reserves in the Vehicle Replacement fund should be maintained equal to
the accumulated depreciation of the vehicles in the fund.
E. Information Technology Replacement
i. Reserves in the Information Technology Replacement fund should be
maintained equal to the accumulated depreciation of the equipment in the
fund.
F. Other Special Revenue Funds
i. All reserve balances in the following funds are Restricted by the terms of
the funds:
1. Streets
2. Transportation Development Act
3. Community Development Block Grant
4. Debt Service
5. Public Safety Special Revenue
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6. General Fund Capital Outlay
7. Parks Capital Outlay
8. Vehicle and Equipment Replacement
9. Enterprise Fund Reserves
Maintaining reserves in the City's Enterprise Funds is also critical to the successful and
stable short- and long-term operations of the City. Adequate reserves in the Enterprise
Funds ensures that the City is able to carry out the purpose of the fund and ensures
compliance with underlying laws and contractual provisions associated with the funds.
Among other metrics, bond rating agencies review compliance with reserve policies in
determining credit ratings.
A. Electric Utility
i. The City Council separately adopts a reserve policy for the Electric Utility
and reviews the components of the policy every three years. As part of the
annual budget process, Council is apprised of the level of reserves desired
under that policy.
B. Water Utility
i. The City Council has adopted a financial model for the Water Enterprise
that incorporates a reserve target of 25% of Operating Expenses.
ii. Additionally, all funds collected in relation to PCE/TCE rates or
settlements are restricted to use solely for the mitigation and remediation
of those pollutants.
C. Wastewater Utility
L The City Council has adopted a financial model for the Wastewater
Enterprise that incorporates a reserve target of 25% of Operating
Expenses.
D. Transit
i. All reserve funds in the Transit Enterprise are restricted as to use solely
for transit purposes.
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10. Internal Service Fund Reserves
Maintaining reserves in the City's Internal Service Funds demonstrates fiscal
accountability and financial prudence. Adequate reserves in the Internal Service Funds
ensure that the City has set aside sufficient funds to meet the future obligations it has
committed to provide to its employees. Additionally, bond rating agencies review these
funds and look favorably upon entities that are funding the long-term liabilities
represented in the City's Internal Service Funds.
A. Benefits Fund
i. Other Post -Employment Benefits (OPEB)
1. Reserves equal to the annual pay-as-you-go expense should be
held in reserve locally.
2. Additional funds may be held in a third -party trust.
ii. Long Term Disability
1. The City is self-insured for a long-term disability program.
Reserves equal to three times the annual expense should be held
locally.
iii. Pension Stabilization
1. Reserves should be set aside to amortize the unfunded pension
liability over, at most, a 30 -year period.
2. Funds may be held locally or in a third -party trust.
B. General Liability Insurance Fund
i. Reserves equal to a minimum of three times the Self -Insured Retention
level should be held locally.
ii. Funds above the minimum reserve level may be retained in this fund as a
means of mitigating future program cost increases, rebated to the paying
funds or transferred to other funds at Council discretion.
C. Workers Compensation Fund
Reserves, at a minimum, equal to the 70% confidence level shown in the
annual actuarial report should be held locally.
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ii. Funds above the minimum reserve level may be retained in this fund as a
means of mitigating future program cost increases, rebated to the paying
funds or transferred to other funds at Council discretion.
D. Fleet Maintenance Fund
i. Reserves equal to a minimum of 16% of Operating Expenses shall be held
in the Fleet Maintenance Fund.
11. Capital Improvement Plan
The City is committed to ensuring that all of its assets are operated, maintained and replaced
in a manner that is the most prudent method of maintaining the public stewardship of those
assets. To that end, the City will prepare and update annually a Capital Improvement Plan
(CIP) that encompasses those assets and looks out over a five year lifespan. The first year
of the five year plan will be the current budget year. The Internal Services Department will
be responsible for gathering the data for inclusion in the plan.
A. CIP Projects
Construction projects that are expected to cost $10,000 or more should be included in
the CIP. Projects will be a combination of projects that repair, replace or enhance
existing facilities, equipment or infrastructure and projects that expand or add to the
City's existing fixed assets. Vehicles and equipment (rolling stock) are not to be
included in the CIP.
B. CIP Appropriations
Approval of the CIP and the projects contained within it does not constitute
appropriation of the funds necessary or designation of the funds necessary to
complete the project. Annual appropriations for CIP costs will be included in the
annual budget. Carryforward of funds on approved contracts will follow City year
end procedures.
C. Elements of the CIP
Each project listed in the CIP will address the following items:
a. project description
b. project timeline
c. anticipated funding sources
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d. estimated expenditures
e. revenues and expenditures will be reflected by fiscal year over the five-year
timespan of the CIP
f. estimated annual on-going operating and maintenance costs
12. Encumbrance Accounting
Encumbrances represent commitments to contracts not yet performed and orders not yet
filled. They are used to control expenditure commitments for the year and to enhance cash
management. Encumbrances do not represent expenditures for a period, only a commitment
to expend resources. As a contract is completed, the budgetary encumbrance control
accounts are liquidated or reduced and the actual expenditure is recorded.
A. Lapsing Appropriations
a. General Fund — all encumbered funds, except those related to a fixed -asset
purchase, lapse at the end of each fiscal year.
b. Capital Projects — encumbered funds associated with construction contracts
do not lapse. However, encumbered funds associated with staff costs on
construction projects do lapse and should be re -appropriated each fiscal
year.
13. Review and Update
These policies will be in place for the fiscal year 2017/18 budget. These policies will be
reviewed and updated every two years in odd numbered years in conjunction with the
approval of the annual budget. The next review cycle will be in conjunction with the fiscal
year 2019/20 budget.
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