PREPARED BY: MATT RODRIGUEZ DATE OF MEETING: 04/15/2024
SUBJECT:
TITLE
CONSIDER ADOPTION OF RESOLUTION AMENDING THE FISCAL RESILIENCY RESERVE POLICY (LAST REVISED ON JUNE 20, 2016) BY FORMALLY ESTABLISHING THREE (3) NEW INTERNAL SERVICE FUNDS (FUNDS: 130, 140 & 190) WITH A ONE-TIME APPROPRIATION FROM UNASSIGNED FUND BALANCE RESERVES FOR FY 2024-25 PERIOD ONLY, EFFECTIVE JULY 1, 2024
CEQA: This proposed action is not a project as defined by CEQA.
Label
CITY MANAGER RECOMMENDATION
Recommendation
Adopt Resolution
Body
Council Priority Workplan
Policy No. No.414. New Strategic Budget Initiatives to address new Structural Deficits Forecasted for FY 2025-2027 period; (6) Re-tool & revise adopted fiscal resiliency policy requirements to reverse forecasted structural deficits as one-time balancing measures (for FY 2025-2027 period only are adopted policy items under the FY 2015-17 City Council Priority Workplan, effective May 1, 2023.
CEQA Compliance Statement
This proposed action is not a project as defined by CEQA.
BACKGROUND
On October 21, 2013, in order to protect the fiscal solvency of the City and to achieve greater fiscal resiliency, the City Council took the important step of establishing the Fiscal Resiliency Reserve Policy (FRRP) adopted via Resolution No. 2013-159. This FRRP adopted by City Council Resolution established several new reserves and funded each at the recommended levels as part of the City’s ongoing budget planning and development, as follows:
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CITY OF SAN PABLO FISCAL RESILIENCY RESERVE POLICY (FRRP) (Adopted 10/21/2013 via Resolution No. 2013-159; Amended 06/20/2016 via Resolution No. 2016-218) |
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Catastrophic Reserve (Fund: 150) |
50% of total Adopted GF Operating Funds |
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Budget Stabilization Reserve (Fund: 170) |
5% of total Adopted GF Operating Funds |
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City Manager Contingency Account (Fund: 190)* |
1% of total Adopted GF Operating Funds |
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General Fund Designated Reserves (Fund: 100)** |
Allocated on an annual basis |
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Future Capital Projects Reserve* |
Allocated on an annual basis |
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Casino Revenue Sustainability Reserve* (Fund: 180) |
Allocated on an annual basis; Up to max. 50% of Unused Audited Fund Balance on discretionary basis. |
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Notes: * One-time funds for allocation by the City Council for specific operational programs and projects. **One-time funds for allocation by the City Manager for specific operational programs and projects. |
First Amendment - Casino Revenue Sustainability Reserve (Fund 180)
On June 20, 2016, the City Council previously revised the FRRP by adopting Resolution No. 2016-218 which formally established the Casino Revenue Sustainability Reserve (Fund: 180). This provided the City the ability to save up to a maximum of 50% of unused audited fund balance annually to mitigate the potential loss of future casino revenues. This is a discretionary action by City Council; not formulaic as with the other FRRP reserves within the FRRP framework. Unfortunately, Fund 180 has been used sporadically for one-time funding allocation since being established in 2016. Instead, the City Council has appropriated one-time allocation from the GFDR Fund Balance (Fund: 100) on a more recurring basis to augment capital projects, projects or professional services by adopted Resolution.
Proposed Second Amendment - New Internal Service Funds for FY 2024-25 Only
Due to the City’s new financial condition as reported with presentation of the City’s 10-year Long-Range Financial Forecast on December 13, 2023, the City Council adopted a total of eight (8) new Strategic Budget Initiatives to assist the City Manager with elimination of forecasted deficits (-$8.7M) for the FY 2025 - 2027 period per Resolution No. 2023-167 (See Attachment). Specifically, the City Manager wishes to address the implementation of Strategic Budget Initiative No. 6, as follows:
Strategic Budget Initiative No.6: Re-tool & revise adopted Fiscal Resiliency Reserve Policy requirements to reverse forecasted structural deficits as one-time balancing measures (for FY 2025-2027 period only)
Therefore, to assist in reducing City annual spending for ongoing operational expenses during the upcoming FY 2025-2027 period, City staff proposes to amend the FRRP for FY 2024-25 period only to include the formal establishment of three (3) new Internal Service Funds (ISFs), and to pre-fund these ISFs (i.e. Funds: 130, 140 & 190) based on a percentage of adopted GF Operating Funds using a one-time allocation from the City’s Unassigned Reserves (Fund Balance), effective July 1, 2024.
Budget, Fiscal & Legislative Standing Committee (BFLSC)
On February 26, 2024, the BFLSC members (Pabon-Alvarado/Ponce) reviewed the proposed Second Amendment to the FRRP policy for FY 2024-25 only, presented by the City Manager and Finance Director in concept using a percentage of Unassigned Reserves (Fund Balance) to establish three (3) new Special Revenue Funds. (See Attached PPT Presentation). Following their initial review, the BFLSC members recommended the full proposed policy amendment for the FRRP for approval by the entire City Council prior to adoption of the new FY 2025-2027 GF Operating Budget, effective July 1, 2024.
Other Administrative FRRP Policy Changes
Other proposed changes to the FRRP being presented to the City Council for formal adoption include changing the “Special Revenue Funds” to “Internal Service Funds” for better accountability, functionality and tracking purposes for expenses related to these types of funds. Additionally, future allocations to the new ISFs (Funds: 130, 140, and 190) would be from Year-end Audited Fund Balance following completion of ACFR for the preceding fiscal year period to be allocated by City Manager recommendation, with BFLSC review and City Council approval by Resolution. Future extension of this one-time policy amendment may be authorized by City Council Resolution. Finally, other minor clean-up language is also proposed which does not significantly alter the revised FRRP’s intent (See Attachment).
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CITY OF SAN PABLO FISCAL RESILIENCY RESERVE POLICY FRAMEWORK (PROPOSED SECOND AMENDMENT FOR FY 2024-2025 ONLY) Effective: July 1, 2024 |
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CATASTROPHIC RESERVE (FUND 150) BUDGET STABILIZATION RESERVE (FUND 170) |
50% of GF Operating Funds 5% of GF Operating Funds |
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NEW INTERNAL RESERVE FUNDS: Allocated as a percentage of the adopted GF Operating Budget (via ONE-TIME ALLOCATION for FY 2024-25 only) a). Building & Facilities Maintenance Reserve (Fund 130) b). Asset & Vehicle Replacement Reserve (Fund 140) c). City Manager Operating Reserve (Fund 190)* Total: NOTE: ALL FUTURE YEAR-END AUDITED FUND BALANCE WILL BE ALLOCATED BY CITY MANAGER TO NEW INTERNAL SERVICE FUNDS (i.e. Fund 130, 140 & 190) AS NOTED ABOVE. (*Note: Removed as an annual, recurring GF Budget Annual Operating Expense) |
3% of GF Operating Funds 2% of GF Operating Funds 1% of GF Operating Funds __________________________________ = 61% of Adopted GF Operating Funds |
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CASINO REVENUE SHORTFALL RESERVE (FUND 180): |
NO CHANGES; DISCRETIONARY ACTION |
In summary, City staff believe that pro-active financial management, strong budgetary reserves and conservative spending will prepare the City well for the financial challenges facing the City, and to assist with addressing the (-$8.7M) forecasted deficits in the coming years during the upcoming FY 2025-2027 period.
Additionally, as the City moves forward with any future bond financings for specific City initiated projects, the ongoing practice of establishing additional fund reserves in addition to an existing operating or 50% catastrophic reserve policy provides credit rating agencies (i.e. Standard and Poor’s), with good financial indicators that the City maintains prudent fiscal management practices, and results in favorable financing, and interest rates at time of future bond issuance.
FISCAL IMPACT
This action does not involve the expenditure of funds. Hence, there is no associated fiscal impact for FY 2023-24. The action does, however, create new Internal Service Funds (ISFs) (i.e. Funds: 130, 140 and 190) for specific related expenses which would have the impact of further demonstrating the City’s continued commitment to prudent financial management, and protecting the City’s financial future. These new Internal Service Funds (ISFs) will be formally established commensurate with adoption by the City Council of the new FY 2025-2027 GF Operating Budget, effective July 1, 2024.
Future one-time appropriation from these three (3) new Internal Service Funds (excluding the City Manager’s Contingency Fund No.190) shall generally be budgeted to cover expenses within the City’s operating budget for planned repair and replacement of capital assets. Funds may also be used for unplanned expenses if all other methods of funding have been exhausted. Use of the funds shall follow the City’s established spending authority limits as approved in the City’s Purchasing Policy.
ATTACHMENTS
Att A - Proposed Resolution
Exhibit A - Proposed Second Amendment to Fiscal Resiliency Reserve Policy (Amended for City Council action on 04/15/2024)
Att B - Adopted Eight (8) Strategic Budget Initiatives (per Reso. No. 2023-167)
Att C - PPT Presentation to BFLSC Meeting on 02/26/2024 re: Proposed FRRP Amendment for FY 2024-25 Only