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HomeMy WebLinkAboutCC Resolution 15307 (General Fund Reserve Policy) RESOLUTION NO. 15307 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL ADOPTING A GENERAL FUND RESERVE POLICY WHEREAS, the City of San Rafael is committed to ensuring that service to the public is not avoidably disrupted by natural disasters or unforeseen, negative economic events; and WHEREAS, on November 21, 2014, the City Council of the City of San Rafael adopted Resolution number 13832 establishing a formal General Fund Reserve Policy; and WHEREAS, the City’s General Fund Reserve Policy has not been updated since its formal adoption in November 2014; and WHEREAS, revisions to the City’s General Fund Reserve Policy are warranted in light of the current best practices, evolving financial position of the City, and changes to the economic and statutory environment impacting local government revenues; and WHEREAS, a discussion of potential revisions to the City’s General Fund Reserve Policy was agendized at the April 4, 2024, meeting of the City Council Finance Sub-Committee; and WHEREAS, the City Council has reviewed and considered the proposed revisions to the City’s General Fund Reserve Policy. NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of San Rafael does hereby approve and adopt the updated General Fund Reserve Policy that is attached hereto as Exhibit A I, LINDSAY LARA, Clerk of the City of San Rafael, hereby certify that the foregoing resolution was duly and regularly introduced and adopted at a regular meeting of the City Council of said City on Monday, the 17th of June 2024, by the following vote, to wit: AYES: COUNCILMEMBERS: Bushey, Hill & Mayor Kate NOES: COUNCILMEMBERS: None ABSENT: COUNCILMEMBERS: Kertz & Llorens Gulati LINDSAY LARA, City Clerk CITY OF SAN RAFAEL GENERAL FUND RESERVE POLICY PURPOSE The City’s General Fund Reserve Policy establishes the target level of operating and capital reserves. Adequate reserves help sustain continuity of City operations and service delivery when adverse or unexpected circumstances affect the City. Reserves are established to provide resources required to minimize service disruption in the event of temporary revenue shortfalls or unexpected one-time expenditures. This policy is designed to: • Establish target reserve levels and the methodology for calculating reserve levels. • Establish criteria for the use of reserves and a process to replenish reserves. • Establish policy priorities for uses of year-end fund balances within the General Fund that are determined to be in excess of the reserve levels established by this policy. . RESPONSIBILITY The City Manager shall be responsible for enforcing this policy. The City Manager or his/her designee may issue supplemental procedures and memorandums that detail specific directions that clarify this policy. However, such procedures and directives must be consistent and not conflict with the general provisions of this policy. POLICY It is the policy of the City of San Rafael to ensure that there will be adequate financial resources to protect the City against unforeseen circumstances and events such as revenue shortfalls and unanticipated expenditures. The Government Finance Officers of America (GFOA) recommends that reserve levels be directly related to the degree of uncertainty the local government faces: the greater the uncertainty, the greater the financial resources necessary. Past experience is to be used as a guide, with particular attention being paid to the following: • Diversity of revenue base • Volatility of revenue structure • Volatility of political environment • Consistent operating surpluses/occasional or frequent operation deficits • Uneven cash flows, requiring short-term borrowing General Fund Reserve Policy – page 2 2 Emergency and Cash Flow Reserve (15% minimum) The City will maintain an emergency and cash flow reserve equal to 15% of General Fund operating expenditures, exclusive of one-time expenditures and non-operating transfers. The Emergency and Cash Flow reserves will be allocated in the following manner: • Economic Uncertainty (5%) – these funds are generally designated to mitigate periodic revenue shortfalls due to downturn in economic cycles, and avoid the need for service-level reductions within a fiscal year. • Emergency Reserves (10%) – these funds are generally designated to mitigate costs of unforeseen emergencies and natural disasters. Budgeted operating expenditures are to be used for the purposes of budget allocations and projections, and actual operating expenditures are to be used for the purpose of measuring this reserve at fiscal year-end. The appropriate level of General Fund reserves will be reviewed annually as part of the budget cycle. Facilities and Infrastructure Reserve A separate Facilities and Infrastructure Reserve is established to provide funding to cover unplanned emergency repairs to City facilities and infrastructure. This reserve level is established in the amount of $1,000,000. Use of Reserve Funds The General Fund reserve is intended to mitigate the impacts of significant short-term issues, including unexpected revenue shortfalls, unplanned expenditures, or declared emergencies. The reserve(s) established by this policy may be expended only when the City Council determines by resolution that such action is consistent with the purpose and intent of this policy. It is the intent of the City Council to limit the use of reserves to address unanticipated, non-recurring needs. Reserves shall not be applied to recurring annual operating expenditures. The reserve may, however, be used to strategically allow time for the City to restructure its operations in a deliberate manner (as might be required in an economic downturn), but will only take place in connection with a City Council adopted long-term plan. Restoration of Reserve Balances In the event the balance in the Emergency and Cashflow Reserve falls below the minimum level, the City Manager shall recommend a plan to replenish the reserves, within a timeframe not to exceed two years. This recommendation shall be approved by the City Council no later than the time at which the next annual budget is adopted. Any variance from the stipulations established within this policy shall require approval by the City Council. Excess Fund Balance At the end of each fiscal year the Finance Department will report on the audited year-end fiscal results. Should the reported fund balance within the General Fund exceed the funding levels General Fund Reserve Policy – page 3 3 required to meet the reserve levels established by this policy, such funds shall be deemed available for allocation in several areas, subject to City Council approval. The priority for consideration of allocation of excess funds should generally be as follows: 1. Payments toward unfunded liabilities, deferred maintenance and asset replacement. 2. Transfers to other funds, as appropriate, to offset year-end deficits within those funds. 3. Allocation to capital projects with shortfalls in funding sources and/or to provide matching funds for grant awards. 4. Re-appropriation within the subsequent year’s operating budget to provide for one- time, non-recurring needs. Other Considerations The adequacy of the General Fund Reserve shall be evaluated on an annual basis and in the context of the General Fund long-term forecast. In addition, this General Fund reserve policy assumes that there are sound policies and procedures in place to ensure that there are sufficient funds and assets for the following essential needs: • encumbrances and other commitments • projected general liability claims • projected workers compensation claims • replacement of vehicles and equipment • maintenance and replacement of infrastructure • employee retirement costs • technology replacement and upgrades Policies, procedures and funding strategies should be established for each of these areas and, where appropriate, approved by the City Council.