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HomeMy WebLinkAboutItem 7.1 Fund Balance Policyor 19 82 /ii � 111 DATE: TO: FROM: STAFF REPORT CITY COUNCIL June 4, 2013 Honorable Mayor and City Councilmembers Joni Pattillo City Manager""' CITY CLERK File #330 -10 SUBJECT: Resolution Amending Principal Components of Fund Balance Policy, in Accordance with Governmental Accounting Standards Board Statement No. 54; and Resolution Authorizing a Special Designation of General Fund Reserves for Fiscal Year 2012 -13 Prepared by Colleen Tribby, Administrative Services Director EXECUTIVE SUMMARY: In June 2012 the City Council adopted Resolution 108 -12 making changes to the Principal Components of Fund Balance policy in accordance with Governmental Accounting Standards (GASB) Statement No. 54. The rules require the City Council to adjust classifications and policies prior to June 30th if they are to be reflected on the final financial statements for the year. The attached resolutions would adopt changes to the Principal Components of Fund Balance policy and rename it the Fund Balance and Reserves Policy, and would make a special designation of General Fund reserves for fiscal year 2012 -13. FINANCIAL IMPACT: Adopting the Fund Balance and Reserves Policy would not result in any net change to total fund balance, but rather clarify the purpose and scope of the policy, amend several sub- classifications within the Committed and Assigned Fund Balance categories, and define the order of allocating any excess resources at year end. Likewise, approving the special designation of General Fund reserves would not result in any net change to total fund balance, but would shift reserves to add funding for the Public Safety Complex, Maintenance Facility, and Non - Streets Capital Improvements Program Commitments. RECOMMENDATION: It is recommended that the City Council: 1) Adopt the Resolution Amending Principal Components of Fund Balance Policy and Providing the Fund Balance and Reserves Policy; 2) Adopt the Resolution Authorizing a Special Designation of General Fund Reserves for Fiscal Year 2012 -13; and 3) Direct Staff to implement the changes in the financial records. 4 r Submitted By , Administrative Services Director Reviewed By Assistant City Manager Page 1 of 4 ITEM NO. 7.1 DESCRIPTION: The City of Dublin's Principal Components of Fund Balance policy identifies the five classifications of fund balance to be used in the financial reporting of governmental funds, as required by GASB Statement No. 54. The amendments proposed in this staff report add some clarifying language to the policy, re -name the policy the Fund Balance and Reserves Policy, and create several new reserve sub - categories as specific components under the larger definitions of Committed and Assigned reserves. The specific changes are as follows- 1 . Addition of a Policy Objectives section that defines the document as a policy; 2. Removal of the Civic Center Generator sub - category, as this project is complete; 3. Addition of the Joint City / School Projects sub - category; 4. Addition of the Non - Streets CIP Reserve sub - category in order to begin funding the larger anticipated projects; and 5. Amendment of the allocation of net resources so that any excess fund balance, after designations to all other categories, and after providing for at least two months of expenditures in the cash flow reserve, goes to OPEB (50 %) and Non - Streets CIP (50 %). In addition to policy changes, this Staff Report transmits a resolution authorizing special designations of fund balance as of June 30, 2013. These designations include the shifting between sub - categories under the broader component of Committed reserves, as well as some designations of Unassigned reserves for special purposes. With City Council's approval, the following is a list of fund balances, amounts spent in the current year, and projected balances at year -end to be reflected in the FY 2012 -13 financial statements: Balance Spent Shift Balance Restricted 11 -12 12 -13 12 -13 12 -13 Note Restricted 468 (468) - Balance Spent Shift Balance Non - Spendable 11 -12 12 -13 12 -13 12 -13 Note Prepaid Expenses 20,146 20,146 Cemetery 60,000 60,000 Endowment Advance to Fire 1,358,914 1,358,914 Impact Fee 1,000,000 1,000,000 Advance to PERS 1,994,826 1,994,826 Side Fund 741,000 741,000 Balance Spent Shift Balance Restricted 11 -12 12 -13 12 -13 12 -13 Note Restricted 468 (468) - Page 2 of 4 Balance Spent Shift Balance Committed 11 -12 12 -13 12 -13 12 -13 Note Economic Stability 5,868,847 5,868,847 Downtown Public 1,000,000 1,000,000 Improvements Open Space Funding 1,000,000 1,000,000 2,000,000 Shift from Unassigned Affordable Housing 1,000,000 1,000,000 Aquatic Center 1,500,000 1,500,000 Emergency 741,000 741,000 Communications Page 2 of 4 Balance Spent Shift Balance Unassigned 11 -12 12 -13 12 -13 12 -13 Note Unrealized Gains 1,013,252 1,013,252 Cash Flow 14,059,284 (12,568,885) 10,433,440 11,923,839 Meets 2.5 month cash flow Projected balances in all fund balance categories have been taken into account during the preparation of the 2013 -14 budget update, with the expectation that many of the Committed reserves will be spent down in the next fiscal year. Note that while the changes to Committed reserves can be authorized only by the City Council, the City Manager has the authority to make designations to Assigned reserves as fund balance allows. The changes to Assigned reserves Page 3 of 4 Balance Spent Shift Balance Assigned Ccrnrni to (coht.) 11-12, 11243 243- 2 -13 ; Note Fire Services OPEB 5,148,021 1,338,979 6,487,000 Shift from City OPEB reserve - Not needed CIP Carryovers 215,587 (215,587) to pre -fund ACFD OPEB Innovations & New 3,372,785 (2,000,000) 1,372,785 Shift to Public Safety Complex Opportunities 1,888,455 1,888,455 special designations & cash Reserve flow met Catastrophic Loss Add $3,500,000 contribution Maintenance Facility 1,083,989 (2,988,187) 5,670,063 3,765,865 from ACFD; shift $2,170,063 asset book value Service Continuity 2,410,000 from Unassigned Heritage Park - 1,250,000 1,250,000 Add revenues received via Pension & OPEB 7,073,816 1,049,476 8,123,292 OPEB reserve; add 50% net Developer Agreement Civic Center 767,922 (767,922) resources after after special - Expansion designations & cash flow met Fiscally Responsible 328,039 (291,000) 287,961 Emergency Generator 79,867 Adjustment (79,867) - Removed: project complete Public Safety Shift $2,000,000 from Complex 1,272,811 (2,016,193) 2,431,990 1,688,608 Innovations Reserve; rest from Unassigned Joint City / School - 600,000 600,000 Shift from Unassigned Projects One -Time Initiatives 1,341,408 1,341,408 Balance Spent Shift Balance Unassigned 11 -12 12 -13 12 -13 12 -13 Note Unrealized Gains 1,013,252 1,013,252 Cash Flow 14,059,284 (12,568,885) 10,433,440 11,923,839 Meets 2.5 month cash flow Projected balances in all fund balance categories have been taken into account during the preparation of the 2013 -14 budget update, with the expectation that many of the Committed reserves will be spent down in the next fiscal year. Note that while the changes to Committed reserves can be authorized only by the City Council, the City Manager has the authority to make designations to Assigned reserves as fund balance allows. The changes to Assigned reserves Page 3 of 4 Balance Spent Shift Balance Assigned 11 -12 12 -13 12 -13 12 -13 Note Accrued Leave 863,379 863,379 Operating Carryovers 652,585 (652,585) - Not needed CIP Carryovers 215,587 (215,587) - Not needed Non - Streets CIP Add 50% net resources after Commitments 1,888,455 1,888,455 special designations & cash flow met Catastrophic Loss 10,537,271 - 10,537,271 Meets maximum target of 15% asset book value Service Continuity 2,410,000 2,410,000 Shift $1,338,979 to ACFD Pension & OPEB 7,073,816 1,049,476 8,123,292 OPEB reserve; add 50% net resources after after special designations & cash flow met Fiscally Responsible 328,039 (291,000) 287,961 325,000 Shift from Unassigned for Adjustment expected 13 -14 expenses Balance Spent Shift Balance Unassigned 11 -12 12 -13 12 -13 12 -13 Note Unrealized Gains 1,013,252 1,013,252 Cash Flow 14,059,284 (12,568,885) 10,433,440 11,923,839 Meets 2.5 month cash flow Projected balances in all fund balance categories have been taken into account during the preparation of the 2013 -14 budget update, with the expectation that many of the Committed reserves will be spent down in the next fiscal year. Note that while the changes to Committed reserves can be authorized only by the City Council, the City Manager has the authority to make designations to Assigned reserves as fund balance allows. The changes to Assigned reserves Page 3 of 4 included in this report are based on estimated revenues and expenses in the current fiscal year, and will be updated with exact amounts after closing entries are made. At the time of this report, it is estimated that the General Fund will have sufficient fund balance to provide for an Unassigned Cash Flow of $11,923,839 (2.5 months of FY 2013 -14 expenditure budget), and a Catastrophic Loss reserve of $10,537,271 (meets 15% of asset book value). NOTICING REQUIREMENTS /PUBLIC OUTREACH: None. ATTACHMENTS: 1. Resolution Amending Resolution 108 -12 and Providing the Fund Balance and Reserves Policy 2. Red -Lined Changes to Principal Components of Fund Balance 3. Resolution Authorizing a Special Designation of General Fund Reserves for Fiscal Year 2012 -13 Page 4 of 4 RESOLUTION NO. -13 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN * * * * * * * * * * * * * * * * * * * * * * * * * ** AMENDING RESOLUTION 108 -12 AND PROVIDING THE FUND BALANCE AND RESERVES POLICY IN ACCORDANCE WITH GASB STATEMENT 54 WHEREAS, the City of Dublin incorporates into its financial records the requirements issued by Governmental Accounting Standards Board (GASB); and WHEREAS, On June 19, 2012 the City Council adopted Resolution 108 -12 which established the Principal Components of Fund Balance in Accordance with GASB Statement 54 for the City of Dublin; and WHEREAS, the adopted policy identified that the City Manager may recommend to the City Council a review of this policy based on overall City initiatives and current balances; and WHEREAS, any adjustments to the policy shall be adopted by the City Council; and WHEREAS, the City Council received a report recommending certain adjustments to the policy on June 4, 2013; and WHEREAS, the amended language has been incorporated into the policy and the policy has been renamed the Fund Balance and Reserves Policy (Exhibit A); and WHEREAS, the Fund Balances and Reserves Policy (Exhibit A) attached hereto and made a part of this Resolution, reflects the categorization of fund balance, defines the order of expenditures from resources available, and defines the methodology of allocating residual resources; NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Dublin does hereby find, determine, declare and resolve as follows- 1 . The Dublin City Council does hereby adopt Fund Balance and Reserves Policy, as contained in Exhibit A. 2. This shall serve as the basis for presenting fund balance in the Comprehensive Annual Financial Report beginning with the report covering the period ending June 30, 2013 and beyond. 3. The City Manager is responsible for administering and interpreting this policy, and has been designated by the City Council to determine funds to be classified in the "Assigned" category in accordance with this policy. PASSED, APPROVED AND ADOPTED this 4th day of June, 2013. AYES- NOES- ABSENT- Mayor ATTEST- City Clerk ATTACHMENT 1 A CITY OF DUBLIN FUND BALANCE AND RESERVES POLICY GENERAL FUND AND OTHER GOVERNMENTAL FUNDS This document shall establish the foundation for the components of fund balance and provide requirements for maintaining reasonable levels of reserves in governmental funds, with a focus on the General Fund. The presentation of fund balances is also presented in the Comprehensive Annual Financial Report (CAFR) and the official City financial records. This document is intended to comply with Governmental Accounting Standards Board (GASB) Statement No. 54. In the event of a conflict between this policy and the provisions of GASB Statement No. 54 the accounting statement shall prevail. In accordance with the requirements of GASB, the City Council also confirms as part of this policy the order of expenditures from resources available. The City considers "Restricted" amounts to have been spent prior to "unrestricted" amounts when an expenditure is incurred for purposes for which both are available ( "unrestricted" would include Committed, Assigned, and Unassigned). Similarly, when an expenditure is incurred for purposes for which amounts in any of the unrestricted classifications of fund balance could be used, the City considers "Committed" amounts to be reduced first, followed by assigned amounts and then the unassigned amounts. A. POLICY OBJECTIVES The City of Dublin's Fund Balance and Reserves Policy has four primary objectives- - Determine available liquid resources; - Classify fund balances in accordance with GASB 54; - Define the methodology of allocating net resources; and - Provide information needed to make informed financial decisions. Periodically the City Manager may recommend to the City Council a review of this policy based on overall City initiatives and current balances. Any adjustments to the policy shall be adopted by the City Council. B. CLASSIFICATION OF FUND BALANCES In accordance with GASB Statement No. 54 and as reported in the City's financial statements, fund balances are identified by the following five fund balance classifications: I. Nonspendable Fund Balance Nonspendable fund balances are amounts in a form that cannot be spent because they are either (a) in a non - spendable form such as pre -paid items, inventories, or loans receivable; or (b) they have external restrictions imposed by creditors, grantors, contributors, laws, regulations, etc. However, if the use of the proceeds from the collection of those receivables or from the sale of those properties is restricted, committed, or assigned, then they will be included in the appropriate fund balance classification (restricted, committed, or assigned), rather than nonspendable fund balance. The following are items that are expected to be recorded as "Nonspendable ". Prepaid Expenditures: The portion of fund balance that represents the asset amount of prepaid expenditures, held by a given fund. Endowments: The portion of fund balance established as an endowment by the donor and in which the principal balance is not intended for expenditure. Advances To Other Funds: The portion of the fund balance that represents the asset amount of cash advanced to other funds, held by a given fund. Notes / Loans Receivable: The portion of fund balance that represents the asset amount of notes or loans receivable, held by a given fund. II. Restricted Fund Balance Restricted Fund Balance shall reflect that portion of fund balance that reflects constraints placed on the use of resources (other than nonspendable items) that are either: (a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or (b) Imposed by law through constitutional provisions or enabling legislation. The following are items that are expected to be recorded as "Restricted ": Public Safety Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Public Safety related activities. Transportation Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Transportation related activities. Environmental Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Environmental related activities. Parks Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Parks related activities. Assessment District Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Public Safety and Transportation related activities, consistent with the purpose under which the fee is collected. Cultural & Arts Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Cultural & Arts related activities. Health & Welfare Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Social Services and Housing related activities. Impact & Mitigation Capital Project Funds: The portion of fund balances derived from funds collected to be used for parks, public facilities, fire and transportation related activities, consistent with the purpose under which the fee is collected. Other Restricted: The portion of fund balance in any governmental fund (except the General Fund) that is restricted under the "Restricted Fund Balance" definition as otherwise prescribed by Governmental Accounting Standards Board Statement No. 54 and not otherwise described in this category above. III. Committed Fund Balance Committed Fund Balance shall be comprised of amounts in which the City Council has taken action to commit the funds before the end of fiscal year. The decision to modify the amount or use of funds designated as committed can only be changed by action of the City Council. Economic Stability: The portion of General Fund Balance committed for the purpose of stabilizing the delivery of City services during periods of severe operational deficits and to mitigate the effects of uncertainties from unforeseen change in revenues and / or expenditures. City Council approval shall be required before expending any portion of this fund balance. Reserve shall be used only if: a) Sudden and unexpected decline in ongoing revenues greater than 5% of General Fund operating revenues; and /or b) Elimination or reduction of State revenue source(s) received consistently for municipal purposes, resulting in a decrease of $1,000,000 in General Fund revenues; and /or c) Reduction in projected or actual property tax or sales tax of $1 million or more; and /or d) An increase in contracted Police or Fire Services in excess of 10 percent more than the previous year. Downtown Public Improvements Seed Funding: The portion of General Fund Balance established by the City Council for public improvements in the downtown. The use of this balance is intended to address public improvements within the Downtown Specific Plan Area. The expenditure is to be identified as a specific appropriation made by the City Council. The appropriation shall be a minimum of $50,000. Open Space Funding: The portion of General Fund Balance established by the City Council for the acquisition and long term protection of open space in the City. The acquisition may be in cooperation with other agencies. The expenditure is to be identified as a specific appropriation made by the City Council. Affordable Housing Funding: The portion of General Fund Balance established by the City Council to support the construction, acquisition, or creation of affordable housing in the City. The acquisition may be in cooperation with other public and private entities. The expenditure is to be identified as a specific appropriation made by the City Council. Emerald Glen Recreation and Aquatic Center Scope Change: The portion of General Fund Balance established by the City Council to support the design and construction of added features (beyond facilities described in the Park and Recreation Master Plan and impact fee program). In 2007 the estimated cost was $6.93 million. The expenditure is to be identified as a specific appropriation made by the City Council. Emergency Communications System: The portion of General Fund Balance established by the City Council to fund the purchase of emergency radio system equipment. This includes a pro -rata share of regional radio infrastructure as well as City owned radios for Police, Fire, and Public Works. Further the reserve may be used to fund the upgrade of centralized City telephone and communication systems. The expenditure is to be identified as a specific appropriation made by the City Council. Fire Retiree Other Post - Employment Benefits (OPEB): The portion of General Fund Balance established by the City Council for the future liability related to retiree medical benefits offered to the inactive Dougherty Regional Fire Authority Staff, as well as the City share of obligations with the OPEB benefits for Alameda County Fire Department. The expenditure is to be identified as a specific appropriation made by the City Council. Innovations & New Opportunities: The portion of General Fund Balance established by the City Council to fund potential projects which require up -front costs, but would provide longer term benefits and / or potential operating cost reductions. The expenditure is to be identified as a specific appropriation made by the City Council. Future Maintenance Facility: : The portion of General Fund Balance established by the City Council to fund design, improvements, and equipment required for the establishment of a City maintenance yard. The expenditure is to be identified as a specific appropriation made by the City Council. Civic Center Expansion: The portion of General Fund Balance established by the City Council to fund design, improvements, and equipment required for the expansion of the Civic Center. The expenditure is to be identified as a specific appropriation made by the City Council. Public Safety Complex: The portion of General Fund Balance established by the City Council to fund the design and construction of a Public Safety Complex located at the corner of Clark Avenue and Dublin Boulevard. The expenditure is to be identified as a specific appropriation made by the City Council. Heritage Park: This commitment shall be initially used to capture the receipt of Developer contributions specifically identified for additional development of the Dublin Heritage Park and Museums. The commitment is beyond amounts collected under existing fee programs. The expenditure is to be identified as a specific appropriation made by the City Council. One Time Initiatives (Operating) The City Council recognizes that there may be fluctuations in revenues and expenditures over time. Periodically the Council may determine that funds are best set -aside to address certain one -time initiatives within the operating budget. The expenditure is to be identified as a specific appropriation made by the City Council. One Time Initiatives (Capital) The City Council recognizes that there may be fluctuations in revenues and expenditures over time. Periodically the Council may determine that funds are best set -aside to address certain one -time capital expenditures. The expenditure is to be identified as a specific appropriation made by the City Council. Joint City/ School Proiects This commitment shall be used to fund projects undertaken via a joint effort of the City and the Dublin Unified School District. The expenditure is to be identified as a specific appropriation made by the City Council. Fund Balance- Committed: The portion of Fund Balance that is in any non - general fund governmental fund that is committed under the "Committed Fund Balance" definition as otherwise prescribed by Governmental Accounting Standards Board Statement No. 54 and not otherwise described in this category above. The portion of Fund Balance that was restricted but later found to be unrestricted shall be designated as a "Committed" balance. IV. Assigned Fund Balance Assigned fund balances are amounts constrained by the City's intent to be used for a specific purpose, but are neither restricted nor committed. The City Council has authorized the City Manager or his /her designee to make assignments in accordance with this policy and in conformance with any formal direction provided by the City Council. Accrued Leave Subiect To Year End Calculations: Certain fund balances are calculated based on the financial performance of the reporting period including accrued Leave. These amounts fluctuate each year and are reflected as part of the year -end financial statements. Carry -Over Items (Operating Budget & Capital Improvement Proiects): Fund balance may be assigned for operating expenditures (excluding personnel costs) which were not expended in the current year and the expense will occur in the following year, i.e. encumbrances. Similarly, a Capital Improvement Project may have funds allocated in a specific year and the project remains incomplete at year end. The City Manager or his /her designee may assign fund balance representing the unexpended funds. These funds are available for authorized appropriations in the subsequent year. Non - Streets Capital Improvement Proiects (CIP) Reserve: The portion of General Fund Balance intended to fund future non - streets capital projects, where total funding may not currently be known, and for which lump sum amounts will be set aside over time. These funds are available for authorized appropriations in the subsequent year. Carry -Over Fiscally Responsible Adiustment: In any year that an appropriation was made to the contingency For Fiscally Responsible Adjustment the unused fund balance may be assigned as a carry -over for personnel costs. The City Manager or his /her designee may assign fund balance representing the unexpended funds. These funds are available for authorized appropriations in the subsequent year in conformance with personnel policies and procedures. Catastrophic Facility/ Infrastructure Loss & City Business Recovery: The City Council recognizes the importance to maintain funds to recover from a catastrophic loss which are unexpected and incur more than $500,000 in expenses to public facilities and infrastructure. This may also be used for short -term recovery and business operations following a catastrophic loss pending the reimbursement from insurance or grants to the extent that they are available. The balance is established in the General Fund and the expenditure shall be made only by City Council appropriation, which shall include a special emergency appropriation. The target established for the maximum balance in this category is an amount equal to 15% of the reported book value of the City owned Buildings and Improvements recorded as Capital assets. Service Continuity Obligations: The City Council recognizes the importance to maintain funds for continued obligations to provide Building and Safety inspections in the event that program supporting fees are collected in one year and the expenditures occur in a subsequent year. The City Council hereby establishes as policy that the assigned funds shall not exceed 125% of the budgeted Building and Safety Division operating cost. Pension and Other Post Employment Benefits: The City Council recognizes that investment earnings can fluctuate from year to year and they are an important component of the funding of retiree benefits. Investment performance impacts annual contributions and expenditures made towards retiree obligations. The intent of the City Council is to establish a fund balance that can provide supplemental financing to lessen the impacts from decreases in investment performance on retiree obligations. The City Manager or designee may allocate from what would otherwise be "Unassigned" fund balance to increase the fund balance. The use of funds from this fund balance may be used: (a) if the City Employer share of the Public Employee Retirement System (PERS) rate increases by 3 percent; and / or (b) If the City Annual Required Contribution (ARC) for retiree medical benefits increases by 3 percent or more; and / or (c) If the City Council by majority vote authorizes a lump sum use of the fund balance to reduce pension or OPEB liabilities. IV. Unassigned Fund Balance (General Fund Only) Unassigned fund balance represents amounts that have not been restricted, committed, or assigned and is available for any purpose. The City Council at its discretion may modify unassigned fund balance, and designate in the future an intended "Commitment" or "Assignment ". Unrealized Gain on Investments: Used to account for that portion of fund balance that is the result of unrealized investment gains that have been recorded in accordance with Governmental Accounting Standards Board Statement No. 31. Unassigned For Cash Flow Purposes: The City Council recognizes the importance to maintain funds for cash flow purposes to balance the fact that the receipt of major revenues and major expenditure disbursements are not evenly distributed throughout the year. The City Council establishes as policy that this fund balance shall be at a minimum equal to two months of budgeted operating expenditures with a goal to achieve a maximum of four months. As part of the annual budget appropriation the City Council may also appropriate as a source of funding "Unrestricted — Capital Contribution" from this source. This shall typically be done only for high priority one time capital expenditures, provided the minimum fund balance would remain. C. Changes In General Fund Resources In accordance with the requirements of GASB the City Council also confirms as part of this policy how General Fund resources shall impact changes in balances. Revenue Sources Allocated to Fire OPEB: The entire amount of the General Fund resources derived from the repayment of funds advanced to the PERS Side Fund, shall be assigned to the Fire OPEB Committed Balance, until such time that either there are no longer any repayments made, or the balance equals $8.6 million, whichever occurs first. Revenue Sources Allocated to Service Continuity: If the "Assigned" balance is below the target maximum of 125% of Building & Safety Expenditures, the following criteria shall be used for calculating an adjustment only if annual building permit revenue exceeds annual Building and Safety expenditures. The Administrative Services Director shall complete an analysis of major building permits issued in the period April — June and shall assign an allocation of the portion of revenue that is expected to be related to expenditures occurring in the subsequent year. The amount derived shall be recommended to the City Manager. If annual building permit revenue is less than the annual Building and Safety expenditures, the City Manager is authorized to reduce the assigned amount by the amount necessary to balance revenues and expenditures. Allocation of Residual Resources: When there are net resources in excess of what is classified as Nonspendable, Restricted, Commited, and /or Assigned, and after maintaining the minimum level of unassigned cash -flow funding, those resources shall be allocated as follows: a) 50% to Pension and Other Post Employment Benefits; and b) 50% to Non - Streets CIP Reserve. ATTACHMENT 2 CITY OF DUBLIN FUND BALANCE AND RESERVES POLICY GENERAL FUND AND OTHER GOVERNMENTAL FUNDS PRINICIP41 CC)n4RnniGniTC nG Gi INID Roi 4NICG -(Amended Redline Policy Changes Presented June 4, 2013) This document shall establish the foundation for the components of fund balance and provide requirements for maintaining reasonable levels of reserves in governmental funds, with a focus on the General Fund. The presentation of fund balances is also presented in the Comprehensive Annual Financial Report (CAFR) and the official City financial records. This document is intended to comply with Governmental Accounting Standards Board (GASB) Statement No. 54. In the event of a conflict between this policy and the provisions of GASB Statement No. 54 the accounting statement shall prevail. In accordance with the requirements of GASB, the City Council also confirms as part of this policy the order of expenditures from resources available. The City considers "Restricted" amounts to have been spent prior to "unrestricted" amounts when an expenditure is incurred for purposes for which both are available ( "unrestricted" would include Committed, Assigned, and Unassigned). Similarly, when an expenditure is incurred for purposes for which amounts in any of the unrestricted classifications of fund balance could be used, the City considers "Committed" amounts to be reduced first, followed by assigned amounts and then the unassigned amounts. A. POLICY OBJECTIVES The City of Dublin's Fund Balance and Reserves Policy has four primary objectives- - Determine available liquid resources; - Classify fund balances in accordance with GASB 54; - Define the methodology of allocating net resources; - Provide information needed to make informed financial decisions. Periodically the City Manager may recommend to the City Council a review of this policy based on overall City initiatives and current balances. Any adjustments to the policy shall be adopted by the City Council. B. CLASSIFICATION OF FUND BALANCES In accordance with GASB Statement No. 54 and as reported in the City's financial statements, fund balances are identified by the following five fund balance classifications: I. Nonspendable Fund Balance Nonspendable fund balances are amounts in a form that cannot be spent because they are either (a) in a non - spendable form such as pre -paid items or loans receivable; or (b) they have external restrictions imposed by creditors, grantors, contributors, laws, regulations, etc. However, if the use of the proceeds from the collection of those receivables or from the sale of those properties is restricted, committed, or assigned, then they will be included in the appropriate fund balance classification (restricted, committed, or assigned), rather than nonspendable fund balance. The following are items that are expected to be recorded as "Nonspendable ": Prepaid Expenditures: The portion of fund balance that represents the asset amount of prepaid expenditures, held by a given fund. Endowments: The portion of fund balance established as an endowment by the donor and in which the principal balance is not intended for expenditure. As Gf II Ina 30 2010, the r;+„ Fe GAF dA d .ten in tha GeReFal F= 1Rd fnr the GeMeteFy of $60,000. Advances To Other Funds: The portion of the fund balance that represents the asset amount of cash advanced to other funds, held by a given fund. Notes / Loans Receivable: The portion of fund balance that represents the asset amount of notes or loans receivable, held by a given fund. II. Restricted Fund Balance Restricted Fund Balance shall reflect that portion of fund balance that reflects constraints placed on the use of resources (other than nonspendable items) that are either: (a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or (b) Imposed by law through constitutional provisions or enabling legislation. The following are items that are expected to be recorded as "Restricted ": Public Safety Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Public Safety related activities. Transportation Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Transportation related activities. Environmental Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Environmental related activities. Parks Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Parks related activities. Assessment District Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Public Safety and Transportation related activities, consistent with the purpose under which the fee is collected. Cultural & Arts Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Cultural & Arts related activities. Health & Welfare Special Revenue Funds: The portion of fund balances derived from funds collected to be used for Social Services and Housing related activities. Impact & Mitigation Capital Proiect Funds: The portion of fund balances derived from funds collected to be used for parks, public facilities, fire and transportation related activities, consistent with the purpose under which the fee is collected. Other Restricted: The portion of fund balance in any governmental fund (except the General Fund) that is restricted under the "Restricted Fund Balance" definition as otherwise prescribed by G: \Audit \FY 12 -13 Annual Audit \GASB 54 Discussion Changes \Red -lined Fund Balance Policy. June 2013. FINAL.docxu.�nl IDGF_T 22QQ�A„eRda C +e +amen +c \Dece n,er \FIt I.A. \Deco Adept F61 Rd Qel a nne De IOGY dGI Governmental Accounting Standards Board Statement No. 54 and not otherwise described in this category above. III. Committed Fund Balance Committed Fund Balance shall be comprised of amounts in which the City Council has taken action to commit the funds before the end of fiscal year. The decision to modify the amount or use of funds designated as committed can only be changed by action of the City Council. Economic Stability: The portion of General Fund Balance committed for the purpose of stabilizing the delivery of City services during periods of severe operational deficits and to mitigate the effects of uncertainties from unforeseen change in revenues and / or expenditures. City Council approval shall be required before expending any portion of this fund balance. Reserve shall be used only if: a) Sudden and unexpected decline in ongoing revenues greater than 5% of General Fund operating revenues; and /or b) Elimination or reduction of State revenue source(s) received consistently for municipal purposes; and /or c) Reduction in projected or actual property tax or sales tax of $1 million or more; and /or d) An increase in contracted Police or Fire Services in excess of 10 percent more than the previous year. Downtown Public Improvements Seed Funding: The portion of General Fund Balance established by the City Council for public improvements in the downtown. The use of this balance is intended to address public improvements within the Downtown Specific Plan Area. The expenditure is to be identified as a specific appropriation made by the City Council. The appropriation shall be a minimum of $50,000. Open Space Funding: The portion of General Fund Balance established by the City Council for the acquisition and long term protection of open space in the City. The acquisition may be in cooperation with other agencies. The expenditure is to be identified as a specific appropriation made by the City Council. Affordable Housing Funding: The portion of General Fund Balance established by the City Council to support the construction, acquisition, or creation of affordable housing in the City. The acquisition may be in cooperation with other public and private entities. The expenditure is to be identified as a specific appropriation made by the City Council. Emerald Glen Recreation and Aquatic Center Scope Change: The portion of General Fund Balance established by the City Council to support the design and construction of added features (beyond facilities described in the Park and Recreation Master Plan and impact fee program). In 2007 the estimated cost was $6.93 million. The expenditure is to be identified as a specific appropriation made by the City Council. Emergency Communications System: The portion of General Fund Balance established by the City Council to fund the purchase of emergency radio system equipment. This includes a pro -rata share of regional radio infrastructure as well as City owned radios for Police, Fire, and Public Works. Further the reserve may be used to fund the upgrade of centralized City telephone and communication systems. The expenditure is to be identified as a specific appropriation made by the City Council. Fire Retiree Other Post - Employment Benefits (OPEB): The portion of General Fund Balance established by the City Council for the future liability related to retiree medical benefits offered to G: \Audit \FY 12 -13 Annual Audit \GASB 54 Discussion Changes \Red -lined Fund Balance Policy. June 2013. FINAL.docxu.\QI InGCT 22QQ\AgeRda C +o +amen +c \Decenie c \CI�IAI \Decn A,+nr+ CiinrJ Qolonne Dnlini rJnn the inactive Dougherty Regional Fire Authority Staff, as well as the City share of obligations with the OPEB benefits for Alameda County Fire Department. The expenditure is to be identified as a specific appropriation made by the City Council. Innovations & New Opportunities: The portion of General Fund Balance established by the City Council to fund potential projects which require up -front costs, but would provide longer term benefits and / or potential operating cost reductions. The expenditure is to be identified as a specific appropriation made by the City Council. Future Maintenance Facility: : The portion of General Fund Balance established by the City Council to fund design, improvements, and equipment required for the establishment of a City maintenance yard. The expenditure is to be identified as a specific appropriation made by the City Council. Civic Center Expansion: The portion of General Fund Balance established by the City Council to fund design, improvements, and equipment required for the expansion of the Civic Center. The expenditure is to be identified as a specific appropriation made by the City Council. In Cic6n.;l Vo.;r —2011 2017 Gity aGq iiroi-I -A bliilrliRg and Gi G At +ho Public Safety Complex- �T�Z�,- rZt#c��rr t�� P'a p--- G safety GGR;plex. The portion of General Fund Balance established by the City Council to fund the design and construction of a Public Safety Complex located at the corner of Clark Avenue and Dublin Boulevard. The expenditure is to be identified as a specific appropriation made by the City Council. Heritage Park: This commitment shall be initially used to capture the receipt of Developer contributions specifically identified for additional development of the Dublin Heritage Park and Museums. The commitment is beyond amounts collected under existing fee programs. The expenditure is to be identified as a specific appropriation made by the City Council. One Time Initiatives (Operating) The City Council recognizes that there may be fluctuations in revenues and expenditures over time. Periodically the Council may determine that funds are best set -aside to address certain one -time initiatives within the operating budget. The expenditure is to be identified as a specific appropriation made by the City Council. One Time Initiatives (Capital) The City Council recognizes that there may be fluctuations in revenues and expenditures over time. Periodically the Council may determine that funds are best set -aside to address certain one -time capital expenditures. The expenditure is to be identified as a specific appropriation made by the City Council. Joint City/ School Projects This commitment shall be used to fund projects undertaken via a joint effort of the City and the Dublin Unified School District. The expenditure is to be identified as a specific appropriation made by the City Council. G:\Audit \FY 12 -13 Annual Audit \GASB 54 Discussion Changes \Red -lined Fund Balance Policy. June 2013. FINAL.docxu: ° IDGFT :2Q12IA9eRGIa - 17ee. ....... e _e _e imp !:I ONE -e _e e.... -119M 0 MY. "NIN NIN.- OT-1 Y' ZIA-= In Cic6n.;l Vo.;r —2011 2017 Gity aGq iiroi-I -A bliilrliRg and Gi G At +ho Public Safety Complex- �T�Z�,- rZt#c��rr t�� P'a p--- G safety GGR;plex. The portion of General Fund Balance established by the City Council to fund the design and construction of a Public Safety Complex located at the corner of Clark Avenue and Dublin Boulevard. The expenditure is to be identified as a specific appropriation made by the City Council. Heritage Park: This commitment shall be initially used to capture the receipt of Developer contributions specifically identified for additional development of the Dublin Heritage Park and Museums. The commitment is beyond amounts collected under existing fee programs. The expenditure is to be identified as a specific appropriation made by the City Council. One Time Initiatives (Operating) The City Council recognizes that there may be fluctuations in revenues and expenditures over time. Periodically the Council may determine that funds are best set -aside to address certain one -time initiatives within the operating budget. The expenditure is to be identified as a specific appropriation made by the City Council. One Time Initiatives (Capital) The City Council recognizes that there may be fluctuations in revenues and expenditures over time. Periodically the Council may determine that funds are best set -aside to address certain one -time capital expenditures. The expenditure is to be identified as a specific appropriation made by the City Council. Joint City/ School Projects This commitment shall be used to fund projects undertaken via a joint effort of the City and the Dublin Unified School District. The expenditure is to be identified as a specific appropriation made by the City Council. G:\Audit \FY 12 -13 Annual Audit \GASB 54 Discussion Changes \Red -lined Fund Balance Policy. June 2013. FINAL.docxu: ° IDGFT :2Q12IA9eRGIa Fund Balance- Committed: The portion of Fund Balance that is in any non - general fund governmental fund that is committed under the "Committed Fund Balance" definition as otherwise prescribed by Governmental Accounting Standards Board Statement No. 54 and not otherwise described in this category above. The portion of Fund Balance that was restricted but later found to be unrestricted shall be designated as a "Committed" balance. IV. Assigned Fund Balance Assigned fund balances are amounts constrained by the City's intent to be used for a specific purpose, but are neither restricted nor committed. The City Council has authorized the City Manager or his /her designee to make assignments in accordance with this policy and in conformance with any formal direction provided by the City Council. Accrued Leave Subiect To Year End Calculations: Certain fund balances are calculated based on the financial performance of the reporting period including accrued Leave. These amounts fluctuate each year and are reflected as part of the year -end financial statements. Carry -Over Items (Operating Budget & Capital Improvement Proiects): Fund balance may be assigned for operating expenditures (excluding personnel costs) which were not expended in the current year and the expense will occur in the following year, i.e. encumbrances. Similarly, a Capital Improvement Project may have funds allocated in a specific year and the project remains incomplete at year end. The City Manager or his /her designee may assign fund balance representing the unexpended funds. These funds are available for authorized appropriations in the subsequent year. Non - Streets Capital Improvement Proiects (CIP) Reserve: The portion of General Fund Balance intended to fund future non - streets capital projects, where total funding may not currently be known, and for which lump sum amounts will be set aside over time. These funds are available for authorized appropriations in the subsequent year. Carry -Over Fiscally Responsible Adjustment: In any year that an appropriation was made to the contingency For Fiscally Responsible Adjustment the unused fund balance may be assigned as a carry-over for personnel costs. The City Manager or his /her designee may assign fund balance representing the unexpended funds. These funds are available for authorized appropriations in the subsequent year in conformance with personnel policies and procedures. Catastrophic Facility/ Infrastructure Loss & City Business Recovery: The City Council recognizes the importance to maintain funds to recover from a catastrophic loss which are unexpected and incur more than $500,000 in expenses to public facilities and infrastructure. This may also be used for short -term recovery and business operations following a catastrophic loss pending the reimbursement from insurance or grants to the extent that they are available. The balance is established in the General Fund and the expenditure shall be made only by City Council appropriation, which shall include a special emergency appropriation. The target established for the maximum balance in this category is an amount equal to 15% of the reported book value of the City owned Buildings and Improvements recorded as Capital assets. Service Continuity Obligations: The City Council recognizes the importance to maintain funds for continued obligations to provide Building and Safety inspections in the event that program G:Wudit \FY 12 -13 Annual Audit \GASB 54 Discussion Changes \Red -lined Fund Balance Policy. June 2013. FINAL.docxu: ° 1DGFT :20121 „eRda e *� *erve ♦� oe�e.,e� nnini oe�e ndep F=61R I galaRGe oer,.,, Ie supporting fees are collected in one year and the expenditures occur in a subsequent year. The City Council hereby establishes as policy that the assigned funds shall not exceed 125% of the budgeted Building and Safety Division operating cost. Pension and Other Post Employment Benefits: The City Council recognizes that investment earnings can fluctuate from year to year and they are an important component of the funding of retiree benefits. Investment performance impacts annual contributions and expenditures made towards retiree obligations. The intent of the City Council is to establish a fund balance that can provide supplemental financing to lessen the impacts from decreases in investment performance on retiree obligations. The City Manager or designee may allocate from what would otherwise be "Unassigned" fund balance to increase the fund balance. The use of funds from this fund balance may be used: (a) if the City Employer share of the Public Employee Retirement System (PERS) rate increases by 3 percent; and / or (b) If the City Annual Required Contribution (ARC) for retiree medical benefits increases by 3 percent or more; and / or (c) If the City Council by majority vote authorizes a lump sum use of the fund balance to reduce pension or OPEB liabilities. IV. Unassigned Fund Balance (General Fund Only) Unassigned fund balance represents amounts that have not been restricted, committed, or assigned and is available for any purpose. The City Council at its discretion may modify unassigned fund balance, and designate in the future an intended "Commitment" or "Assignment ". Unrealized Gain on Investments: Used to account for that portion of fund balance that is the result of unrealized investment gains that have been recorded in accordance with Governmental Accounting Standards Board Statement No. 31. "nrestr:Gted Unassigned For Cash Flow Purposes: The City Council recognizes the importance to maintain funds for cash flow purposes to balance the fact that the receipt of major revenues and major expenditure disbursements are not evenly distributed throughout the year. The City Council establishes as policy that this fund balance shall be at a minimum equal to two months of budgeted operating expenditures with a goal to achieve a maximum of four4 months. As part of the annual budget appropriation the City Council may also appropriate as a source of funding "Unrestricted — Capital Contribution" from this source. This shall typically be done only for high priority one time capital expenditures, provided the minimum fund balance would remain. C. Changes In General Fund Resources In accordance with the requirements of GASB the City Council also confirms as part of this policy how General Fund resources shall impact changes in balances. Revenue Sources Allocated to Fire OPEB: The entire amount of the General Fund resources derived from the repayment of funds advanced to the PERS Side Fund, shall be assigned to the Fire OPEB Committed Balance, until such time that either there are no longer any repayments made, or the balance equals $8.6 million, whichever occurs first. Revenue Sources Allocated to Service Continuity: If the "Assigned" balance is below the target maximum of 125% of Building & Safety Expenditures, the following criteria shall be used for calculating an adjustment only if annual building permit revenue exceeds annual Building and Safety expenditures. The Administrative Services Director shall complete an analysis of major building permits issued in the period April — June and shall assign an allocation of the portion of revenue that is expected to be related to expenditures occurring in the subsequent year. The amount derived shall G:Wudit \FY 12 -13 Annual Audit \GASB 54 Discussion Changes \Red -lined Fund Balance Policy. June 2013. FINAL.docxu:\QI 1DGFT :20121AOGRda Statemen+c\Decewec.\CIN41 \Deco Arlon+ Ciinrl galenoe Dnlio rJno be recommended to the City Manager. If annual building permit revenue is less than the annual Building and Safety expenditures, the City Manager is authorized to reduce the assigned amount by the amount necessary to balance revenues and expenditures. Allocation of Residual Resources. When there are net resources in excess of what is classified as Nonspendable, Restricted, Commited, and /or Assigned, and after maintaining the minimum level of unassigned cash -flow funding, those residual resources shall be allocated as follows: a) 50% to Pension and Other Post Employment Benefits; and b) 50% to Non - Streets CIP Reserve. G:\Audit \FY 12 -13 Annual Audit \GASB 54 Discussion Changes \Red -lined Fund Balance Policy. June 2013. FINAL.docxu: ° 1DGFT :2n121A, GRGja e*ete.,,e.,ts;'Rpsp,,es;'nniAi Rps;o Adep F=61RI Qelenne PGIMG, �e Lem- -- ._ ._ ._ G:\Audit \FY 12 -13 Annual Audit \GASB 54 Discussion Changes \Red -lined Fund Balance Policy. June 2013. FINAL.docxu: ° 1DGFT :2n121A, GRGja e*ete.,,e.,ts;'Rpsp,,es;'nniAi Rps;o Adep F=61RI Qelenne PGIMG, �e RESOLUTION NO. - 13 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN * * * * * * * * * * * * * * * * * * * * * * * * * ** AUTHORIZING A SPECIAL DESIGNATION OF GENERAL FUND RESERVES FOR FISCAL YEAR 2012 -2013 WHEREAS, On June 4, 2013 the City Council adopted a revised Fund Balance and Reserves Policy; and WHEREAS, the policy allows the City Council to take action prior to the end of the fiscal year, to direct a specific assignment of the fund balance; and WHEREAS, Staff reviewed updated information regarding fund balance and estimated one- time revenues during the preparation of the Update to the Fiscal Year 2012 -13 and 2013 -14 budgets; and WHEREAS, the Fund Balance and Reserves Policy requires special fund balance allocations to be adopted by the City Council; NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Dublin does hereby make a special allocation of the estimated Fiscal Year 2012 -2013 year -end balance to the Committed fund balance sub - categories as follows: ATTACHMENT 3 Balance Spent Shift Balance Committed 11 -12 12 -13 12 -13 12 -13 Note Economic Stability 5,868,847 5,868,847 Downtown Public 1,000,000 1,000,000 Improvements Open Space Funding 1,000,000 1,000,000 2,000,000 Shift $500k from Catastrophic Reserve; $500k from Unassigned Affordable Housing 1,000,000 1,000,000 Aquatic Center 1,500,000 1,500,000 Emergency 741,000 741,000 Communications Fire Services OPEB 5,148,021 1,338,979 6,487,000 Shift from City OPEB reserve to pre -fund ACFD OPEB Innovations & New 3,372,785 (2,000,000) 1,372,785 Shift to Public Safety Complex Opportunities Reserve Add $3,000,000 contribution Maintenance Facility 1,083,989 (2,988,187) 5,670,063 3,765,865 from ACFD; shift $2,170,063 from Unassigned Heritage Park - 1,250,000 1,250,000 Add revenues received via Developer Agreement Civic Center Expansion 767,922 (767,922) - Emergency Generator 79,867 (79,867) - Removed: project complete Shift $2,000,000 from Public Safety Complex 1,272,811 (2,016,193) 2,431,990 1,688,608 Innovations Reserve; rest from Unassigned Joint City / School - 600,000 600,000 Shift from Unassigned Proj ects One -Time Initiatives 1,341,408 1,341,408 ATTACHMENT 3 BE IT FURTHER RESOLVED that, any net resources remaining after special designations, and after meeting the minimum requirement of two months cash flow in the Unassigned fund balance and a maximum of 15% asset book value in the Catastrophic Loss reserve, will be assigned as described in the policy: a) 50% to Pension and Other Post Employment Benefits; and b) 50% to the Non - Streets Capital Improvements Program reserve. PASSED, APPROVED AND ADOPTED this 4th day of June, 2013. AYES: NOES: ABSENT: Mayor ATTEST: City Clerk Page 2 of 2