PREPARED BY: J. KELLY SESSIONS DATE OF MEETING: 06/20/16
SUBJECT:
TITLE
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN PABLO AMENDING THE FISCAL RESILIENCY RESERVE POLICY TO ESTABLISH THE CASINO REVENUE SUSTAINABILITY RESERVE
Label
RECOMMENDATION
Recommendation
Adopt Resolution
Body
Council Priority Workplan
Budget Spending Controls (All) and General Fund Reserves Protection/Fund Balance (City Council, City Manager) are adopted policy items under the FY 2015-17 City Council Priority Workplan, effective July 1, 2015.
CEQA Compliance Statement
This 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 (Resolution 2013-159). This Fiscal Resiliency Reserve Policy 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:
• Catastrophic Reserve 50% of total Operating Funds
• Budget Stabilization Reserve 5% of total Operating Funds
• General Fund Designated Reserves* Allocated on an annual basis
• Future Capital Projects Reserve* Allocated on an annual basis
• City Manager’s Contingency Account** 1% of total Operating Funds
* 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
New Casino Revenue Sustainability Reserve
The City’s General Fund is heavily dependent on revenues from Casino San Pablo representing nearly 60% of the City’s total General Fund Operating Revenues, and would be impacted significantly if the Casino closed, either temporarily or permanently. In order to take a long-term, cautious but proactive approach, staff proposes to update the Fiscal Resiliency Reserve Policy to establish a new discretionary reserve, the Casino Revenue Sustainability Reserve, to give the City the ability to save up to maximum of 50% of unused audited fund balance annually to mitigate the potential loss of future casino revenues, as follows:
Casino Revenue Sustainability Reserve (Fund 180): At the completion of each annual audit, and following certification of the Comprehensive Annual Financial Report (CAFR) by the City’s independent auditor for that particular fiscal year, a percentage of the net change in year-end audited fund balance-up to a maximum 50.0 percent-may be deposited into the Casino Revenue Sustainability Reserve (Fund 180). The purpose of the reserve is to mitigate against the potential impact that a sudden shutdown or loss of casino revenue would have on the City’s ability to maintain current operations and service levels. All deposits and withdrawals from the fund are discretionary, but require approval by the Budget, Fiscal & Legislative Standing Committee and a majority approval by resolution of the City Council.
Casino Ad Hoc Standing Committee
On May 11, 2016, the Casino Ad Hoc SubCommittee (Kinney/Valdez) reviewed the proposed Casino Revenue Sustainability Reserve Fund in concept as presented by the City Manager and staff. Following their initial review, the Standing Committee recommended its approval by the entire City Council beginning in FY 2016/17.
Other Administrative Changes
Other proposed changes to the Fiscal Resiliency Reserve Policy are primarily clean-up in nature and do not significantly alter the policy’s original intent.
Summary
Staff believes that proactive financial management, strong budgetary reserves and conservative spending will prepare the City well for any financial storm that may arise. Additionally, as the City moves forward with contemplation of future bond financings for specific City initiated projects, the ongoing practice of establishing fund reserves in addition to an existing operating or catastrophic reserve policy provides rating agencies with good financial indicators that the City maintains prudent fiscal management practices, and results in favorable financing and interest rates at time of bond issuance.
FISCAL IMPACT
This action does not involve the expenditure of funds or the creation of new budgets; hence, there is no associated fiscal impact. The action does, however, create a new reserve fund, which would have the impact of allowing the City Council to redirect up to 50% of the net change in year-end audited fund balance to a special “rainy day” reserve related to the loss of any future Casino revenues, further demonstrating the City’s continued commitment to prudent financial management and protecting the City’s financial future.