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CC - Approval of Excluding $14 Million in Land Sale Proceeds Received During Fiscal Year 2014/2015 from the General Fund Surplus Allocation Prescribed in City Council Policy 2014-CP003.
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Contact Person/Dept: Jeff Muir/Finance
Phone Number: (310)253-5865
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Public Hearing: [] Action Item: [] Attachments: Yes [] No [X]
Commission Action Required: Yes [] No [X]
Commission Name:
Public Notification: (E-Mail) Meetings and Agendas - City Council (10/22/15)
Department Approval: Jeff Muir, Chief Financial Officer (10/21/15)
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RECOMMENDATION
Staff recommends the City Council approve excluding $14 million in land sale proceeds received during Fiscal Year 2014/2015 from the General Fund surplus allocation formula prescribed in City Council Policy 2014-CP003.
BACKGROUND
On June 23, 2014, the City Council adopted Resolution 2014-R056, which approved and adopted City Council Policy 2014-CP003 entitled Finance - Financial Policies (Policy). This was a comprehensive update of prior financial policies, as recommended by the Finance Advisory Committee. The Financial Reserves Policy section of the Policy includes a description of three types of reserves within the General Fund, which are considered ‘Committed fund balance’ under Governmental Accounting Standards Board Statement No. 54:
1. Contingency Reserve: The Contingency Reserve shall have a target balance of thirty percent (30%) of General Fund “Operating Budget” as originally adopted. Operating Budget for this purpose shall include current expenditure appropriations and shall exclude Capital Improvement Projects and Transfers Out. Appropriation and/or access to these funds are reserved for emergency situations only.
2. Facilities Planning Reserve: The Facilities Planning Reserve has been established to offset the cost of replacement or major refurbishment to critical City facilities such as, but not limited to, the City Hall building and Police Department buildings, Fire Stations, and other Facility Improvement Projects. Use of this Reserve must be approved by City Council. This Reserve shall be funded by allocations of General Fund surplus revenues, as defined later in this policy, or by specific City Council allocations. The eligible uses of this reserve include the cash funding of public facility improvements or the servicing of related debt.
3. Recreational Facilities Reserve: City Council Policy 5003 requires ten percent (10%) of gross annual revenues derived from specified recreational classes and rentals to be set aside for the refurbishment of certain recreational facilities, fee-based activity programs and equipment used in connection with fee-based recreation classes.
The Financial Reserves Policy section further defines how staff is to allocate a General Fund surplus between these reserves and Unassigned Fund Balance. In the case of a surplus in the General Fund at the completion of a fiscal year, any surplus must first be allocated to ensuring the Contingency Reserve is fully funded. If the Contingency Reserve is fully funded, 40% of the remaining surplus is to be placed in the Facilities Planning Reserve, with the remainder reverting to Unassigned Fund Balance.
The Policy also allows the City Manager to recommend a different allocation for approval by the City Council.
DISCUSSION
During Fiscal Year 2014/2015, the City sold two properties (former Fire Station 3 and the Pacific Theater property) for a total of $14,214,805.90. These are one-time revenues that should be allocated to one-time or capital costs. Pursuant to the Policy, 40% of this amount would normally be allocated to the Facilities Planning Reserve account. However, the City Manager and Chief Financial Officer request and recommend the City Council authorize the exclusion of $14,000,000 of these land sale proceeds from the General Fund surplus allocation prescribed in the Policy and instead revert this amount to Unassigned Fund Balance. It is anticipated a significant portion of this amount will be requested to be allocated towards the Municipal Fiber Network, and the balance will likely be allocated towards additional needed infrastructure projects during the mid-year budget review.
FISCAL ANALYSIS
There is no impact to the overall bottom line of the General Fund from this action. This action authorizes the Chief Financial Officer to allocate the ending Fiscal Year 2014/2015 General Fund surplus outside of the policy, and simply shifts General Fund fund balance between categories. In the future, City Council may be requested to appropriate these land sale proceeds towards projects.
ATTACHMENTS
None
RECOMMENDED MOTIONS
That the City Council:
Approve excluding $14 million in land sale proceeds received during Fiscal Year 2014/2015 from the General Fund surplus allocation formula prescribed in City Council Policy 2014-CP003.