City of Culver City, California
City Council Agenda Item Report
RECOMMENDATION:
It is recommended the City Council discuss and consider introduction of a Balanced
Budget Ordinance.
BACKGROUND/DISCUSSION:
On December 1, 2008, the City Council directed staff to bring back an ordinance that
would require the City to adopt a balanced budget. Staff has completed drafting this
Ordinance, and it has been reviewed by the Budget & Finance Subcommittee.
A draft ordinance was presented to the City Council on March 9, 2009 for the
Council’s consideration. The general provisions of the draft Ordinance are as follows:
• Section 3.07.400 would be added to the Culver City Municipal Code requiring
that General Fund ongoing expenditures shall not exceed budgeted ongoing
revenues for each budget year.
• Section 3.07.405 specifies that for each budget year, the City’s projected ending
reserves shall not be less than thirty (30%) percent of budgeted operating
expenditures.
• Section 3.07.410 provides the ability to use reserves for financial emergencies.
If a financial emergency is declared by the City Council by a four-fifths vote, the
City’s required reserves may be used to help balance the budget for a single
year, but the projected emergency reserves may not fall below twenty-five
(25%) percent. Additionally, the City must implement measures to restore the
Meeting Date: 05/18/09 Item Number: A-2
AGENDA ITEM: Introduction of an Ordinance Adding Sections 3.07.400 through
3.07.420 to the Culver City Municipal Code (Balanced Budget Ordinance)
Contact Person/Dept.: Jeff Muir, Chief
Financial Officer
Phone Number: 310-253-5865
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Public Hearing: [] Action Item: [X] Attachments: [X]
Public Notification:
Master Notification List (05/13/09)
Department Approval:
Jeff Muir (05/05/09)
City Attorney Approval:
Carol Schwab (by H. Baker) (05/06/09)
Chief Financial Officer Approval:
Jeff Muir (05/05/09)
City Manager Approval:
Jerry B. Fulwood (05/06/09) City of Culver City, California
City Council Agenda Item Report
projected ending reserves to thirty (30%) percent by the end of the immediately
following budget year.
• Section 3.07.415 provides that ending reserves in excess of thirty (30%)
percent may be appropriated only for one-time, non-recurring expenditures that
will not increase future operating costs. It also provides that any other use of
these excess reserves may be approved by a four-fifths (4/5) vote of the City
Council.
Pursuant to comments made at the City Council meeting of March 9, 2009, the
following provision is now part of the draft ordinance:
• Section 3.07.420 requires a quarterly budget monitoring report for the first,
second and third fiscal quarters to be provided to City Council no later than 45
days after the end of the quarter.
The City is facing very difficult financial times in the coming years, and difficult
decisions will need to be made. The currently approved financial policies also include
language that the City will adopt a budget where ongoing expenditures do not exceed
ongoing revenues, and that reserves in excess of the thirty percent (30%)
requirement may only be used for one-time expenditures. This draft ordinance
provides a more formal structure for ensuring the adoption of balanced budget than
the City’s current financial policies, while still providing the City Council some flexibility
with a four-fifths (4/5) vote. Currently, the City Council could adopt a budget that does
not comply with the budgetary provisions of the existing financial policies with a simple
majority vote. The draft ordinance would not prohibit the City Council from such action
in the future, but would require a ‘super’ majority 4/5 vote to do so.
Procedures/Practices from other Jurisdictions
Staff performed a survey regarding what requirements other cities have implemented
similar to this proposed ordinance. Within California, there were no cities that
responded that had a specific ordinance requiring an ‘operationally’ balanced budget.
Most jurisdictions did report that they had financial policies in place that required
varying level of reserves, as well as policies that projected recurring expenditures
should not exceed projected recurring revenues. Additionally, most cities have
financial policies stating that reserves or one-time revenues should not be used for
operating expenditures. A copy of the survey showing the varying level of reserve
requirements is attached.
City of Culver City, California
City Council Agenda Item Report
Staff did locate an Ordinance adopted by the City of Cincinnati which directed the City
Manager to implement procedures necessary to ensure that budgeted General Fund
expenditures do not exceed budgeted revenues, and further directed that once the
City's projected ending minimum combined reserve balance reached a specific level,
only then could those resources over that level be appropriated for one time, non-
recurring expenditures that would not increase future operating expenditures. A copy
of this Ordinance is attached.
Most states, including California, have a balanced budget requirement. However, this
‘requirement’ is normally loosely defined and does not prevent balancing the budget
by spending reserves or other one-time dollars. California is currently in a position of
essentially no reserves while battling a growing deficit, with a very probable scenario
of running out of cash next fiscal year.
Impacts on New Programs
The question of whether this draft ordinance would prevent a new program from being
added to the budget was asked when this item was considered on March 9. In
general, if there was a projected operating surplus in the budget, then new programs
could be considered with a simple majority approval. If the new program was to be
‘revenue generating’ and projected revenues were included in the budget to cover the
cost of the program then the program could be considered with simple majority
approval. If the new program was to be ‘revenue generating’, but was not projected to
generate sufficient revenues to cover its cost within the first year or two of the
program, then the item could be approved by a simple majority if there was an
operating budget surplus to cover the additional cost. In all cases, a 4/5 majority could
approve new programs in the budget even if there was a projected budgetary deficit.
FISCAL ANALYSIS:
This Ordinance will require the City to adopt a balanced budget, where ongoing
revenues meet or exceed ongoing expenditures, or require a 4/5 majority approval to
do otherwise. This will assist the long-term financial viability of the General Fund, but
will require difficult decisions to get there.
ATTACHMENTS:
1. Draft Ordinance
2. Council Policy Number 5002 – Financial Policies
3. Survey of Reserve Requirements
4. Cincinnati Ordinance 175-2008 City of Culver City, California
City Council Agenda Item Report
MOTION:
That the City Council:
1. Discuss the draft Ordinance; and,
2A.Introduce the Ordinance as presented;
OR
2B. Provide staff with alternate direction as deemed appropriate.
MEETING DATE: 05/18/09
AGENDA ITEM: Introduction of an Ordinance Amending Chapter 3.07,
Finance and Revenue, of the Culver City Municipal Code to
Add a New Subchapter 3.07.400, et seq., Entitled "Budget
Regulations", Relating to Regulating the Adoption of
Balanced City Budgets and the Use of Reserve Funds
ATTACHMENTS
Pages
I. Ordinance 1-4
2_ Council Policy 5002 — Financial Policies 5 - 14
3. General Fund Reserve Percentage Survey 15 — 16
4. City of Cincinnati Ordinance 175-2008 17 18ORDINANCE NO. 2009-
AN ORDINANCE OF THE CITY OF CULVER CITY,
CALIFORNIA, AMENDING CHAPTER 3.07, FINANCE AND
REVENUE, OF THE CULVER CITY MUNICIPAL CODE, TO
ADD A NEW SUBCHAPTER 3.07.400, et seq., ENTITLED
"BUDGET RESTRICTIONS," RELATING TO THE ADOPTION
OF BALANCED CITY BUDGETS AND THE USE OF RESERVE
FUNDS.
WHEREAS, the City of Culver City is committed to operating in a financially
responsible manner; and,
WHEREAS, it is critical for the City to maintain a structural balance and avoid
operating deficits in order to preserve its General Fund reserves, maintain favorable ratings
with the bond rating agencies and ensure its long-term ability to provide necessary services;
and,
WHEREAS, structural balance is achieved when budgeted ongoing revenues
meet or exceed budgeted ongoing expenditures; and,
WHEREAS, the City is projecting an operating deficit in Fiscal Year 2009/2010
and beyond; and,
WHEREAS, unfunded liabilities and mandates threaten the City's ability to
maintain a structural balance; and,
WHEREAS, the City desires to avoid drawing down on its General Fund
reserves in order to balance its budgets; and,
WHEREAS, the City Council has already adopted a policy of maintaining a
General Fund reserve equal to at least thirty percent (30%) of appropriated ongoing
expenditures; and,|101010101010101010 10
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28WHEREAS, it is the intent of this ordinance to restrict the adoption of budgets
that rely on the use of General Fund reserves to achieve balanced budgets.
NOW, THEREFORE, the City Council of the City of Culver City, California,
DOES HEREBY ORDAIN as follows:
SECTION 1. Chapter 3.07, Finance and Revenue, of the Culver City Municipal
Code is hereby amended to add a new subchapter 3.07.400, et seq. entitled "Budget
Restrictions," to read as follows:
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§ 3.07.400
§ 3.07.405
§ 3.07.410
§ 3.07.415
§ 3.07.420
Balanced budget requirement
Required reserves
Use of required reserves for financial emergencies
Use of amounts in excess of required reserves
Quarterly Reports
§ 3.07.400. Balanced Budget Requirement.
For each budget year, budgeted General Fund ongoing expenditures shall not
exceed budgeted ongoing revenues.
§ 3.07.405. Required Reserves.
For each budget year, the City's projected ending General Fund reserves shall
not be less than thirty percent (30%) of budgeted operating expenditures.
§ 3.07.410. Use Of Required Reserves For Financial
Emergencies.
During a financial emergency, as declared by a four-fifths (4/5) vote of the City
Council, the City's General Fund reserves may be used to balance the budget for a single
budget year, provided that the projected ending General Fund reserves not fall below
twenty-five percent (25%) of budgeted operating expenditures. The City shall implement
measures to restore the projected ending General Fund reserves to thirty percent (30%) of
-2-budgeted operating expenditures by the budget year occurring immediately after the budget
year in which any such financial emergency was declared by the City Council. Upon a
finding of special circumstances, the City Council may by four-fifths (4/5) vote approve an
extension to the time period to restore the projected ending General Fund reserves to thirty
percent (30%) of budgeted operating expenditures.
§ 3.07.415. Use Of Amounts in Excess Of Required Reserves.
Projected ending General Fund reserves in excess of thirty percent (30%) of
budgeted operating expenditures may be appropriated only for one-time, non-recurring
expenditures that will not increase future operating expenditures. Any other use of those
General Fund reserves exceeding thirty percent (30%) of budgeted operating expenditures
shall require approval by a four-fifths (4/5) vote of the City Council.
§ 3.07.420. Quarterly Reports
The Finance Department shall generate quarterly budget monitoring reports
for City Council review and consideration within forty-five (45) days of the conclusion of the
first, second, and third fiscal quarters.
SECTION 2. Pursuant to Section 619 of the Culver City City Charter, this
ordinance shall take effect thirty (30) days after its adoption. Pursuant to Sections 616
and 621 of the Culver City City Charter, prior to the expiration of fifteen (15) days after
the adoption of this ordinance, the City Clerk shall cause this ordinance, or a summary
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thereof, to be published in the Culver City News and shall post this ordinance or a
summary thereof in at least three (3) places within the City.
APPROVED and ADOPTED this day of , 2009
ANDREW WEISSMAN, Mayor
City of Culver City, California
ATTEST: APPROVED AS TO FORM:
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MARTIN R. COLE,
City Clerk
A09-00045
?CAPPENDIX B
CITY OF CULVER CITY
COUNCIL POLICY STATEMENT
General Subject: Finance
Specific Subject: Financial Policies
Policy Number 5002
Date Issued 1/2311995
Date Revised 7/16/2007
Effective Date 7/17/2007
Resolution No. 2007-R043
PURPOSE:
To establish a comprehensive set of financial policies for the City that will serve as a
guideline for operational and strategic decision making related to financial matters.
STATEMENT OF POLICY:
The following financial policies are intended to establish a comprehensive set of
guidelines for use by the City Council and City staff on decision-making that has a
fiscal impact. The goal is to maintain the City's financial stability in order to be able to
continually adapt to local and regional economic changes. Such policies will allow the
City to maintain and enhance a sound fiscal condition. This policy should be
implemented in conjunction with associated subsidiary policies, i.e. Mission Driven
Budgeting Policy (5001), Purchasing Policy, Investment Policy, Grants Policy, etc.
This financial policy will be reviewed annually to ensure that it remains current. The
policy will be included as part of the City's annual Adopted Budget. The City's
comprehensive financial policies shall be in conformance with all state and federal
laws, generally accepted accounting principles (GAAP) and standards of the
Governmental Accounting Standards Board (GASB) and the Government Finance
Officers Association (GFOA).
LONG-TERM FINANCIAL PLANNING
1. The City shall seek a balance in the overall revenue structure between more
stable revenue sources (e.g. Property Tax and Utility Taxes) and economically
sensitive revenue sources (e.g. Sales Tax and Transient Occupancy Tax).
When new revenue sources are proposed, they should be designed to achieve
a desirable balance.
2. The City shall encourage the economic development of the community as a
whole in order to provide stable and increasing revenue streams. It should be
the City's goal to Hut unly LLId.LL Hew uuuieeb but alsu tu letain
businesses in the City. Objectives of the revenue strategy should also include:
avoiding an over reliance on revenue from any one particular industry;
recruitment and retention efforts to ensure a balance of revenue sources;
Page 1 of 10
477 5ensuring compatible uses; encouraging business synergies; and promoting the
growth of amenities and ancillary services to support business districts and
established industries.
3. The City shall develop and maintain methods for the evaluation of future
development and related fiscal impacts on the City budget.
4. The City shall develop and implement a five-year infrastructure, facilities and
equipment maintenance/replacement plan, which shall be updated annually and
included in the City's Comprehensive Financial Plan. From this plan a
maintenance and replacement schedule will be developed and followed.
5. The City shall develop and implement a financial plan to address its funding
needs for issues like deferred maintenance and unfunded liabilities, which will
be included in the City's Comprehensive Financial Plan.
OPERATING BUDGET POLICIES
The City Manager shall prepare and present a proposed two-year budget to the
City Council within all statutorily prescribed deadlines. The City Council will
adopt the first year budget with conceptual approval of the second year budget.
A public hearing will be conducted in June of each year to adopt the budget.
2. A Budget Resolution will be adopted by the City Council annually, which
describes the budget amendment process and also specifies budget
amendment authority.
3. All departments will participate in the responsibility of meeting the City's
financial policy goals and ensure the City's long-term financial health. Budget
control is maintained at the department level.
4. It is the City's policy to adopt a balanced budget where operating revenue is
equal to, or exceeds, operating expenditures. In the event a balanced budget is
not attainable, and the cause of the imbalance is expected to last for no more
than one year, the planned use of reserves to balance the budget is permitted.
In the event that a budget shortfall is expected to continue beyond one year, the
planned use of reserves must be developed as part of a corresponding strategic
financial plan to close the gap through revenue increases and/or expenditure
decreases.
5. The operating budget shall serve as the annual financial plan for the City. It
shall serve as the City's management plan for implementing goals and
objectives of the City Council, City Manager and departments. The budget shall
provide staff the resources necessary to accomplish City Council determined
cnrvitna luIe
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66. During the annual budget development process, the existing base budget
should be thoroughly examined to assure removal or reduction of any services
or programs that could be eliminated or reduced in cost.
7. The annual review process should include an assessment to determine if funds
are available to operate and maintain proposed capital facilities and other public
improvements. If funding is not available for operations and maintenance costs,
the City will delay construction of new projects.
8. Any year-end operating surpluses will revert to unappropriated balances for use
in maintaining reserve levels set by policy and will be available for capital
projects and/or one-time General Fund expenditures upon approval of the City
Council.
9. Where practical, the City's annual budget will include performance measures of
workload, efficiency, and effectiveness.
10. The City's Comprehensive Financial Plan (Plan) is a long-term picture of the
City's finances and will be updated annually as part of the annual budget
development. The Plan shall include forecasted expenditures and revenues of
at least five (5) years for each fund; however, a ten (10) year forecast is
preferred. The update will include an analysis of any substantial discrepancies
of previous projections.
Revenues:
1. The City will estimate annual General Fund revenues using an objective,
analytical process; specific assumptions will be documented and maintained.
Budgeted revenues will be estimated conservatively using accepted standards
and estimates provided by the state, other governmental agencies, and/or
reliable economic forecasters when available.
2. Specific revenue sources will not be dedicated for specific purposes, unless
required by law or Generally Accepted Accounting Principles (GAAP). All non-
restricted revenues will be deposited in the General Fund and appropriated
through the budget process.
3. On-going revenues will fund on-going expenditures and a diversified and stable
revenue system will be developed and maintained to protect programs from
short-term fluctuations in any single revenue source.
4. The City shall prepare quarterly reports which discuss revenue projections in
light of actual receipts, and shall provide new projections, as appropriate.
Pag&7 3 9 of 10
7Appropriations:
1. The City shall, to the extent possible, pay for current year expenditures with
current year revenues. Where authorized activities/equipment remain
incomplete and/or unpurchased, revenues and/or fund balance may be carried
forward at the City Manager's direction to the next fiscal year to support such an
activity/purchase.
2. The City shall avoid budgetary procedures which rely on financial strategies that
defer payment of current operating expenses to future years.
3. Department Heads are responsible for ensuring department expenditures stay
within the department's budgeted appropriation.
4. The City Manager will notify the City Council immediately of the necessity to
increase any departmental appropriation; a budget amendment needs to be
approved by a 415 th vote of the City Council prior to such over-expenditure.
GENERAL FUND RESERVE POLICY
1. It is a goal of the City to maintain a general operating reserve of, at a minimum,
25% of projected General Fund operating expenditures for each fiscal year and
an additional 5% for emergency situations (excluding debt service, fund
transfers, and encumbered funds). These reserves are designed to be used in
the event of a significant financial emergency. Should the General Fund
reserve fall below 30%, the City will implement measures to restore the reserve
percentage to 30% in the following fiscal year.
2. The unreserved portion of General Fund Fund Balances can be loaned to the
Redevelopment Agency or to the Refuse or Sewer Funds for a total amount not
to exceed 50% of the "Unreserved" fund balance shown in the most current
Comprehensive Annual Financial Report (CAFR).
a. Such loans should be for a term of five years or less and have a call
provision of no more than 120 days. Furthermore, the loan must be secured
by assets such as real property, tax increment fund, or secured by the user
fee and/or other sound funding source.
b. The interest rate for a loan originated by the City will be determined by the
Chief Financial Officer and should be set based on rates of investments
and/or loans with comparable terms on or about the date the loan is
executed.
c. Such loan shall be considered as part of the reserve calculation.
3. The City shall establish, at the beginning of each fiscal year, an "appropriated
reserve" to provide funding for special projects/programs approved by City
COLIlla after the anilual budget is adopted, foi UI ICU Itk•FpatGd GAFIG] idaUl Lit
nonrecurring nature, or to meet unexpected increases in current service
delivery costs. The amount of this reserve will be approved annually by the City
Council.
Pag&840 of 10
84.
A portion of any uncommitted fund balance in excess of 30% of annual
revenues resulting from the previous fiscal year's operations should be
committed to capital improvement projects or should be used to retire existing
debt, fund future liabilities or potential legislative impacts, establish or replenish
equipment replacement funds, and/or establish or replenish deferred
maintenance funds.
5. One-time funds should not be used to fund ongoing City programs. Any one-
time revenue receipt during the fiscal year should be recognized and recorded
in a "non-recurring revenue source" category. One-time revenue windfalls
include: sales of city-owned real estate, CalPERS rebates, lump sum (net
present value) savings from debt restructuring, litigation settlement, unexpected
revenues, and other similar sources of revenue as designated by the City
Council.
6.
The City should establish and maintain a designated reserve fund for any
anticipated future expenses that will require a certain level of steady funding
source, i.e. unfunded future retiree medical cost and pension cost. It is prudent
to set aside these funding needs each year in order to maintain City's financial
stability.
FINANCIAL REPORTING POLICIES
Accounting Standards:
1.
The City's accounting and financial reporting systems shall be maintained in
conformance with all state and federal laws, generally accepted accounting
principles (GAAP) and standards of the Governmental Accounting Standards
Board (GASB) and the Government Finance Officers Association (GFOA). The
City will make every attempt to implement all changes to governmental
accounting practices at the earliest practicable time.
Annual Audit:
1. An annual audit will be performed by an independent public accounting firm with
an audit opinion to be included with the City's published Comprehensive Annual
Financial Report (CAFR).
2. The independent firm will be selected through a competitive bidding process at
least once every five years. The contract will be for an initial period of three
years with two additional one-year options at the City Council's discretion. The
Budget & Finance subcommittee and City Manager will review the qualifications
of prospective firms and make a recommendation to the City Council. The audit
contract, and any extensions, will be awarded by the City Council.
Page 5 of 10
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9OPERATIONAL MANAGEMENT POLICIES
1. The City shall endeavor to avoid committing to new spending for operating or
capital improvement purposes until an analysis of all current and future cost
implications relating to those programs and projects is completed.
2. All departments will participate in the responsibility of meeting policy goals and
ensuring long-term financial health. Future service plans and program
initiatives will be developed to reflect current policy directives, projected
resources and future service requirements.
3. Departmental requests for increases in staffing will be thoroughly analyzed; only
those that meet adopted program initiatives and policy directives will be
considered. To the extent feasible, personnel cost reductions will be achieved
through attrition.
User Fees and Charges and Development Impact Fees:
1. All non-enterprise user fees and charges will be examined or adjusted annually
to determine the direct and indirect cost of service recovery rate. Where direct
services to users can be measured, the City shall consider use of appropriate
fees, charges or assessments rather than general tax funds.
2. User fees and charges for specialized services shall be established at a level
related to the cost of providing such service except where the City Council has
determined there is a public benefit to subsidize the service with tax based
revenue. The acceptable recovery rate and any associated changes to user
fees and charges will be approved by the City Council following public review.
The City shall identify the costs associated with new development as a basis for
establishing development impact fees. The long-term benefit of the
development to the City should be considered in establishing such fees.
Grant Management:
1. The City shall actively pursue federal, state and other grant opportunities when
deemed appropriate. Before accepting any grant, the City shall thoroughly
consider the implications in terms of ongoing obligations that will be required in
connection with acceptance of said grant.
2. The term of Grant funded positions should be clearly identified and presented to
the City Council for approval. It is mandatory to disclose if General Fund
revenues will be needed to fund a position after the Grant expires.
3. Grant funding will be considered to leverage City funds. Inconsistent and/or
fluctuating grants should not be used to fund ongoing programs. Programs
financed with grant monies will be "Lidg-t-ri in separate cost centers, and the
service program will be adjusted to reflect the level of available funding. In the
event of reduced grant funding, City resources may be substituted only after all
program priorities and alternatives are considered.
Page8 6 2 of 10
104. All externally mandated services for which funding is available shall be fully
costed out, including overhead, to allow for complete reimbursement of
expenses.
Revenue Collection Policy:
1. The City will pursue revenue collection and auditing to assure that monies due
the City are accurately received in a timely manner.
2. The City will seek reimbursement from the appropriate agency for State and
Federal mandated costs whenever possible.
3. The City should centralize accounts receivable/collection activities so that all
receivables are handled consistently.
4. Accounts receivable management and diligent oversight of collections from all
revenue sources are imperative. Sound financial management principles
include the establishment of an allowance for doubtful accounts. Efforts should
be made to pursue the timely collection of delinquent accounts. When such
accounts are deemed uncollectible, they should be written-off from the financial
statements.
FINANCIAL MANAGEMENT POLICIES
1. Staff shall keep City Council apprised of financial opportunities available to the
City and shall develop appropriate recommendations.
All requests for City Council action shall include an analysis of the immediate
and future fiscal impact of such action. No appropriation for new or expanded
programs or staffing levels shall be approved without identifying the amount and
source of available funds.
3. All externally mandated services for which funding is available shall be fully
costed out, including overhead, to allow for complete reimbursement of
expenses.
Cash Management Investment:
1. Cash and investment programs will be maintained in accordance with California
Government Code Section 53600 et seq. and the City's adopted investment
policy and will ensure that proper controls and safeguards are maintained.
Pursuant to State law, the City, at least annually, revises, and the City Council
affirms, a detailed investment policy.
2. Reports on the City's investment portfolio and cash position will be developed
and presented to the (s it; r'ouricil on a quarthrly basis, in conformity' with the
California Government Code.
Page q87 3 of 10
113. City funds will be managed in a prudent and diligent manner with emphasis on
safety, liquidity, and yield, in that order.
CAPITAL IMPROVEMENT PROJECT POLICIES
1. A five-year Capital Improvement Plan must be developed and updated annually,
including anticipated funding sources. Capital improvement projects are
defined as infrastructure or equipment purchases or construction which result in
a capitalized asset and have a useful (depreciable) life of two years or more.
2. The capital improvement plan will identify, where applicable, current operating
maintenance costs and funding streams available to repair and/or replace
deteriorating infrastructure and to avoid significant unfunded liabilities.
3. The City should develop and implement a post-implementation evaluation of its
infrastructures condition on a specified periodic basis, estimating the remaining
useful life, and projecting replacement costs.
4. The City shall actively pursue outside funding sources for all Capital
Improvement Projects. Outside funding sources, such as grants, shall be used
to finance only those Capital Improvement Projects that are consistent with the
five-year Capital Improvement Project and local governmental priorities, and
whose operating and maintenance costs have been included in future operating
budget forecasts.
5. Capital improvement lifecycle costs will be coordinated with the development of
the Operating Budget. Future operating, maintenance and replacement costs
associated with new capital improvements will be forecasted, matched to
available revenue sources, and included in the Operating Budget. Capital
project contract awards will include a fiscal impact statement disclosing the
expected operating impact of the project and when such cost is expected to
occur.
6. The City must carefully seek and analyze the appropriate type of 'financing
instrument appropriate for financing capital projects. Several options are
available — general obligation debt, fee-supported debt, fund reserves, etc. All
debt financing mechanisms shall be carefully considered and analyzed for fiscal
benefit and cost effectiveness. Long-term borrowing shall be restricted to
projects too large to be financed from current revenues (pay-as-you-go).
Where possible, special assessment, revenue or other self-supporting bonds
shall be used in lieu of general obligation bonds.
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12DEBT MANAGEMENT POLICIES
Issuance of Debt:
1. The City will not use long-term debt to pay for on-going operations. The use of
bonds or certificates of participation will only be considered for significant capital
and infrastructure improvements.
2. New debt issues, and refinancing of existing debt, must be analyzed for
compatibility within the City's overall financial planning within the
Comprehensive Financial Plan. The review shall include, but not be limited to,
cash flow analysis and the maintenance of the City's bond rating. Annual debt
service shall not produce an adverse impact upon future operations.
3. Debt financing should not exceed the useful life of the infrastructure
improvement with the average (weighted) bond maturities at or below twenty
years.
4. A ratio of current assets to current liabilities of at least 2 to 1 will be maintained
to ensure the City's ability to pay short-term obligations (i.e. current
assets/current liabilities 2).
Credit Rating:
1. The City will seek to maintain and, if possible, improve its current bond rating(s)
in order to minimize costs and preserve access to credit.
2. It is the City's goal to maintain an AAA/Aaa credit rating from all three major
rating agencies. The City may pay the bond insurance which is considered as
part of the rating, however, the rating agency does evaluate the structure of the
bond to validate the bond rating. The factors that contribute to a high rating
include the City's financial management practices, low debt levels, budgetary
and fiscal controls, and accountability. To support this policy, the City will
continue to maintain its position of full financial disclosure and proactive fiscal
planning.
INTERNAL SERVICE FUNDS
Self Insurance Fund:
1. The Self-insurance fund pays for insurance premiums, benefit and settlement
payments, and administrative and operating expenses. It is supported by
charges to other City funds for the services it provides. These annual charges
for service shall reflect the five-year historical experience and shall be set to
equal the annual expenses of the fund.
2. Self-insurance reserves (Liability and Workers' compensation) will be
maintained at a level which, together with purchased insurance policies,
adequately indemnify tt-le City's property, liability, and health benefit risk. A
qualified actuarial firm shall be retained on an annual basis in order to
recommend appropriate funding levels, which will be approved by Council. The
City shall endeavor to maintain reserves equal to 30% of the net present value
Page 9 of 10
485 13of such future liabilities, with no less than $2 million to cover potential swings in
working capital.
Equipment Replacement Fund:
1. The City shall maintain a fund with a sufficient balance for replacement of
vehicles, equipment (including technology and communication equipment)
2. Vehicle replacement will be accomplished through the use of an amortization
methodology structure. The rates will be revised annually to ensure that
charges to operating departments are sufficient for operation and replacement
of vehicles and other capital equipment (fleet, computers, phones, copiers,
etc.). Replacement costs will be based upon equipment lifecycle financial
analysis.
ENTERPRISE FUNDS (Includes Sewer Fund, Refuse Fund and Transportation
Fund)
1. All Enterprise Funds user fees will be examined annually to ensure that they
recover all direct and indirect costs of service, provide for capital improvements
and maintenance, and maintain adequate reserves.
2. Rate increases shall be approved by the City Council following formal noticing
and a public hearing. Rate adjustments for Sewer Fund operations will be
based on five-year financial plans unless the City Council directs otherwise.
Page 10 of 10
486
14Reserve Percentage Survey
Agency
Policy? Percent Actual Percent Notes
Agoura Hills
Alhambra
Aliso Viejo
Angels Camp
Atwater
Benicia
Beverly Hills
Brisbane
Carlsbad
Colton
Culver City
Davis
El Cajon
El Centro
El Cerrito
Elk Grove
Fresno
Fullerton
Goleta
Kerman
La Mesa
Lafayette
Laguna Niguel
Lake Forest
LaVerne
Lawndale
Lomita
Mill Valley
Milpitas
Modesto
Monterey
Morro Bay
Mt. Shasta
Oakley
Orange
Orland
Palos Verdes Estates
Yes 40%
No 10% No "formal" policy
Yes 35%
15% GE Stabilization, 10% Economic Uncertainty, 10% Continency
Yes 35%
Yes 25% 32%
Yes 20%
5% economic uncertainty, 5% liability, 10% disaster
Yes 40%
Yes 50%
Yes 30%
30% minimum, with 40% to 50% target
Yes 15%
8% Dipping into reserve this year and expect to finish June 30th at 8%
Yes 30%
40% 25% requirement with 5% for 'emergency'
Yes 15%
Yes 20%
Also maintain a fluctuating 'rainy day' reserve, but no policy on that
Yes 10%
Yes 10% 10% policy, 15% informal practice
Yes 15% - 20%
Yes 5% 6.70%
Yes 10%
Yes 33%
No 50%
Target 25%, currently at 50%, no formal policy
Yes 15%
May be revising upwards
Yes 50%
Yes 50%
Yes 40% 40% plus $3 million disaster reserve
Yes 15%
Yes 100%
Yes 50%
Yes 15%
Try to keep an additional 10% in reserves
Yes 15%
Yes 8%
Yes 15% 11%
No 27.50% They have a target, not a formal policy
Yes 8% to 10%
Yes 20%
Yes 25%
Yes 13.33%
Plus some fixed amounts for economic downturn and natural disaster
Yes 50%
15Pismo Beach Yes 20%
Pittsburg Yes 15%
Poway Yes 15% 50%
Poway Yes 15%
Rancho Cordova Yes 20%
Rancho Mirage Yes 100% Policy is reserve equal to 1 year of budget
Rancho Palos Verdes Yes 50% Plus $3 million capital improvements project fund reserve
Redwood City Yes 15% to 20% Based on anticipated revenues
Relands Yes 12%
Riverside Yes 15%
Roseville Yes 10% Net out indirect charges to utilities prior to calculating
Sacramento Yes 10% 2.50% Based on revenues; they have used substantial reserves over the last few years
San Dimas No 100% Have been saving for a large project, looking to adopt a 50% reserve policy
San Francisco No 4%
San Juan Capistrano Yes 50%
San Luis Obispo Yes 20%
San Mateo Yes 25% 12%
San Rafael Yes 10%
Santa Barbara Yes 25% 10% budget reserve, 15% disaster reserve
Santa Clara Yes 25% 14%
Santa Clarita Yes 15%
Santa Monica Yes 10% Also have other fund balance designations, including $8.2 million for economic uncertainty
Santee Yes 25%
Sierra Madre Yes 50% Just reached recently
South Lake Tahoe Yes 26% 25% reserve, plus 1% contingency reserve
Susanville Yes 20%
Thousand Oaks Yes 20% 15% operating reserve, 5% emergency reserve
Truckee Yes 16.70% 80%
Twentynine Palms Yes 50%
Union City Yes 7.50%
Vacaville No 15% Not a formal policy, but try to reserve this amount
Waterford No 33% Not a formal policy, but have maintained about 1/3 reserve for last 10 years
Westminster No
Yorba Linda Yes 50%
Yucaipa Yes 15% 85% 15% requirement, 85% to 95% goal, currently at 85%
16-
Titll ul Tintinnati
An Mthinattre No. /75—
DIRECTING the City Manager to implement the procedures necessary to ensure that budgeted
General Fund expenditures do not exceed budgeted revenues, commencing with the 20092010
Biennial Budget, and further directing that once the City's projected ending minimum combined
reserve balance reaches 10 percent or greater of projected revenues, only then may those
resources over the 10 percent required reserve be appropriated, and then such prior Year
resources may only be appropriated for one time non-recurring expenditures that will not
increase future operating expenditures.
WHEREAS, both Moody's and Standard & Poor's bond rating agencies have ernphaSized
the need for the City to maintain structural balance and avoid operating deficits in order to
maintain the Aal and AA+ bond ratings, respectively; and
WHEREAS, structural balance is achieved when budgeted operating revenues meet or
exceed budgeted operating expenditures; and
WHEREAS, for the last several years, the City has been able to balance its budget by
drawing down on the savings garnered in past years and/or utilizing expenditure savings; and
WHEREAS, the prior year carryover at the end of 1999 was $26.6 million, _while the
budgeted carryover from 2007 to 2008 is only $5 million; and
WHEREAS, it is the intent of this ordinance to prohibit the passage of structurally
imbalanced budgets that rely on prior year carryover funds to achieve a "balance"; now,
therefore,
BE IT ORDAINED by the Council of the City of Cincinnati, State of Ohio:
Section 1. That commencing with the 2009-2010 Biennial Budget, budgeted General
Fund expenditures shall not exceed budgeted revenues.
Section 2_ If the City's projected ending minimum combined reserve balance (reserve) is
less than 10 percent, the City may not spend from that reserve, absent a genuine ernerger4 as
declared by the City Manager,
Section 3. If the City's projected ending minimum combined reserve balance reaches 10
percent or greater of projected revenues, only then may additional prior year resources be
appropriated, and then such prior year resources may only be appropriated for one time non-
17Passed:|1010|CLERK OF COUNCI
recurring expenditures that will not increase future operating expenditures, absent a genuine
ernergeriCy as declared by the City Manager.
Section 4. That the City Manager is hereby directed to implement any administrative
procedures necessary to carry out the policies described in Sections 1 and 2 herein.
Section 5. To the extent permissible by law, this ordinance shall be binding upon the
City administration, the Mayor, and the members of City Council until the proper legislitive
action is .taken to repeal this ordinance.
Section 6. That the terms hereof shall take effect from and after the earliest fi dii o d
allowed by law.
I HEREBY
CERTFY r.r;iti- C'RDINANCE7 NO 0/75—„,2r
WAS PUBLiSHED lilt: CITY BULLETIN
iN ACCORDANCE WITH ThE CHAHTER ON to o
18