HomeMy WebLinkAbout2005/06/02 - Agenda Packet - Spec Study (Budget) AGENDA
RANCHO CUCAMONGA
CITY COUNCIL
REDEVELOPMENT AGENCY
FIRE PROTECTION DISTRICT
SPECIAL STUDY SESSION
Thursday, Jur.~ 2, 2005 + 3:00 p.m.
Rancho Cucamonga City Hall + Tri Communities Room
10500 Civic Center Drive + Rancho Cucamonga, CA 91730-3801
A. CALL TO
1. Pledge of Allegiance
2. Roll Call:
Alexander , Gutierrez , Michael , Spagnolo , Williams
B. COMMUNICAT~QNS_
This is the time and place for the general public to address the City Council,
Redevelopment Agency and Fire Protection District. State law prohibits the Council,
Agency and District from addressing any issue not previously included on the agenda.
The Council, Agency and District may receive testimony and set the matter for a
subsequent meeting. Comments are to be limited to five minutes per individual.
C. ITEi~(~ OF BUSINESS
1. DISCUSSION OF PROPOSED BUDGETS FOR FISCAL YEAR 2005/2006
D. ~2~JOURNMENT
I, Debra J. Adams, City Clerk of the City of Rancho Cucamonga, hereby certify that a true,
accurate copy of the foregoing agenda was posted on May 26, 2005, per Government Code
54954.2 at 10500 Civic Center Drive, Rancho Cucamonga, California.
Memorandum
City Manager's Office
To: Mayor and Members of the C~jty Council
From: Jack Lam, City Manage~r. ~'.~¢..~
Date: June 1, 2005
Subject: Overview of City Reserve Funds
This memo provides an overview of the City's various reserve funds and explains the
individual funds and the restrictions that are placed on these funds. To begin, let us first
define what reserve funds are. Reserve funds, also known as fund balance, are non-
recurring funds that have been accumulated over time and are earmarked for specific
purposes. Reserve funds can function as placeholders for specific future commitments,
work to stabilize annual operational budgets, and act as emergency funds for
unexpected needs. The sources for these funds are often one-fime revenues but they
can also be from expenditure savings in a particular year.
For accounting and financial reporting purposes, there are generally two categories in
which fund balance is categorized: 1) reserved and 2) designated. Funds that are
categorized as reserved are not available as spendable resources or they are legally
segregated for a specific future use. Funds categorized as designated, indicate City
Council's plans for future usage of City resources, such as for general contingencies or
for capital replacement.
Reserved Fund Balance
As described above, funds included in reserved fund balance are not available as
spendable resources or they are legally segregated for a specific use. Following are the
specific reserves that make up the City's overall reserved fund balance:
· Reserved for encumbrances: This reserve represents funds that must be held
to pay for expenditures that overlap the end of one fiscal year and the beginning
of the next fiscal year. The dollar amount that is reserved for encumbrances
each year represents the total amount of purchase order commitments
outstanding at the end of the fiscal year. Therefore, this reserve will recur each
fiscal year at varying dollar amounts, depending on the number of purchase
orders that are outstanding.
Overview of City Reserve Funds Page 2
June 1,2005
· Reserved for deposits: This reserve represents monies being held by third
parties on behalf of the City for a specific purpose. An example of such a deposit
would be monies held by the City's third party administrator for workers'
compensation claims payments. The deposit provides the administrator with an
advance of funds to cover the time period between when they issue a check and
when the City provides a reimbursement.
· Reserved for prepaid costs: This reserve is for annual costs, such as certain
insurance costs, that are typically paid in advance of the fiscal year to which the
coverage pertains. It is used to indicate that prepaid costs do not represent
available spendable resources.
· Reserved for radio system acquisition: This reserve represents the City's
commitment to the West End Communications Authority (WECA) for future
backbone infrastructure replacement.
· Reserved for advances to other funds: This reserve indicates the long-term
portion of advances to other funds and does not represent available, spendable
resources. The majority of this reserve represents the annual paper transaction
that is a Ioan/payment/reloan action between the City and the Redevelopment
Agency (Agency) that creates the necessary debt in order for the Agency to exist.
Designated Fund Balance
As described above, funds that are categorized as designated indicate City Council's
plans for future usage of City resources, such as for general contingencies or for capital
replacement. The designations discussed below are the result of specific policy
decisions of the City Council.
· Desi.qnated for chan.qes in economic circumstance,~: The designation for
Changes in Economic Circumstances is the reserve that is often referred to by
the general public when a reference is made as to the amount of a City's reserve.
This is the "savings account" of non-recurring revenue that would be utilized
should an economic downturn or an emergency occur, and it is one of the major
factors that rating agencies consider when rating a city's fiscal health.
Additionally, it should be noted that the Government Finance Officers Association
(GFOA) has included in its Recommended Practices for State and Local
Governments the "maintenance of a prudent level of financial resources to
protect against reducing service levels or raising taxes and fees because of
temporary revenue shortfalls or unpredicted one-time expenditures." For
instance, the City utilized this reserve to address unforeseen funding needs for
the "Grand Prix" Fire and emergency flood control improvements.
Overview of City Reserve Funds Page 3
June 1,2005
After the severe economic downturn in the early 1990's, the City Council
established a goal of obtaining a minimum six-month operating reserve in the
City's General Fund. This reserve was approximately $24.0 million as of June
30, 2003. A portion of this $24.0 million reserve was used in October 2004 to
purchase a five year Guaranteed Investment Contract (GIC) to shape an interest
curve such that labor contract costs could be funded for FY 2004/0,5 and FY
2005/06. The shaping of this interest curve anticipated that City revenues will
increase in the third through fifth years to replace the interest gained from the
GIC in the first two years. This money will be returned to the City at the end of
the contract and, at that time, will be placed back into the Changes in Economic
Circumstances reserve. This approach created a temporary artificial revenue
stream to fund the labor contracts, while allowing the City's bond rating to be
sustained.
Therefore, due to the purchase of the GIC, the current reserve amount in this
fund has been temporarily reduced to approximately $10.1 million (as of June 30,
2004) or an effective two and a half month reserve.
To provide perspective on this fund, in the downturn of the economy in 1990, this
reserve sank to a Iow of $802,251 when General Fund revenues took an $8.0
million negative swing in a single year. Shortly thereafter, the City Council
directed the City Manager to work towards achieving a six-month operating
reserve to deal with unexpected emergencies in the future.
· Desi,qnated for City facilities' capital repai~. The City facilities' capital repair
funding goal mirrors the industry standard of 15% of capital asset value. Current
City facilities, including construction in progress, have an asset value of just over
$85.46 million. The reserve is at 95% attainment. As the new Central Park
facilities and the Cultural Center are completed, the additional value of these
facilities must be added to the inventory of City facilities for capital repair. All
capital repairs for all City facilities and buildings are funded independently of the
General Fund, which only pays for routine annual operational maintenance.
· Des~qnated for self-insurance: This designation is currently fully funded with
all current claims generally being paid from interest earnings on the fund. As
such, the fund is basically self-funding. General liability claims, therefore, do not
impact the General Fund, which only budgets for major loss insurance premiums.
Although claims have grown (as expected) with the growth of the City, our City's
claims history still remains positive relative to other jurisdictions. Rancho
Cucamonga is a newer city with a proactive risk management program, which
helps to minimize liabilities. The City is self-insured for the first $250,000 on
Overview of City Reserve Funds Page 4
June 1,2005
each general liability claim and has supplemental insurance for the amount in
excess of the $250,000 self-insurance up to $10,000,000.
· Oesi.qnated for workin.cl capital: The working capital designation is intended to
provide sufficient liquidity for the City's day-to-day operations so that fluctuations
in revenue receipts throughout the year will not disrupt the City's investment
portfolio and avoids having to borrow for operations. The funding level for this
reserve has been established by the City Council at 5% of the City's General
Fund budget for the upcoming fiscal year.
Desi,qnated for Ion.q-term employee leave payouts: This designation sets
aside funding for the long-term portion of future employee leave payouts such as
sick leave, vacation, etc., and is separate from recurring personnel costs. The
current portion of these payouts; or that amount that is reasonably expected to
be paid out within one year, is reflected separately as a liability in the City's
financial records. For financial reporting purposes, this designation provides
funding for the accrual of the long-term portion of this liability as required Dy
Governmental Accounting Standards Board (GASB) Statement No. 34.
· Desi,qnated for inte.qrated waste mana.qemen~. This designation represents
the AB 939 fees that can only be used in conjunction with the City's recycling and
waste reduction program.
· Desi,qnated for law enforcement. This designation represents Police
Department fund balance used to facilitate unexpected equipment, facilities, or
other unexpected law enforcement needs within the community.
· Desi.qnated for contract development services: This designation is comprised
of AB 1600 development fees that can only be used annually for development
processing services and must be segregated to ensure compliance with AB
1600.
· Oesi.qnated for bookin.q fees: This designation represents funds set aside to
offset future anticipated cost increases in the fees that the County of San
Bernardino charges the City for the booking of prisoners.
· Desi.qnated for Sphere Of Influence and Multi-Species Habitat Plan: Tills
designation provides funding to enable the City to meet our commitment for
processing these two important programs in partnership with the County.
Council actions have created the City's involvement with these two policy areas_
These designated funds not only help to protect existing services and be prepared f~r
emergencies, but they also provide the good fiscal management and financial structure
Overview of City Reserve Funds Page 5
June 1, 2005
necessary to operate a municipal corporation as well as the financial strength required
to maintain beneficial bond ratings for the City. An added benefit is the attraction of
economic development to the City, as fiscal stability of public services is a vital
component.
As a final note, reserve funds should not be used to fund recurring expenditures as
these funds are non-recurring. Any new expenditures must have cash flows to match
these expenditures, otherwise, deficits will ensue. The City is the guardian of the
taxpayers' money and has a fiduciary responsibility to ensure expenditures do not
exceed revenues. Over the years, the City Council has done an outstanding job of
adopting the necessary financial structure and policies to provide a basis for sound
fiscal management. The City Manager also has a fiduciary responsibility and is required
to submit a balanced budget to the City Council each year. Professional ethics also
dictate that the City Manager make recommendations that protect the City's Budget.
The State is the most relevant example of creating more on-going costs than there is
ongoing revenue to support such costs, resulting in huge deficits that affect services
across the entire State. Note that as revenues increase at the State, there are efforts to
spend these revenues on new or expanded programs before even eliminating the
deficit. Reserves are one-time revenues accumulated over time. It is poor fiscal
practice to spend more than the City's revenue stream can provide.
See attached Exhibit A for a summary of the City's reserved and designated fund
balances at June 30, 2004.
Exhibit A
Summary of City Reserved and Designated Fund Balances
June 30, 2004
Reserved for encumbrances $ 1,631,474
Reserved for deposits 20,000
Reserved for prepaid costs 1,538,808
Reserved for radio system acquisition 118,143
Reserved for advances to other funds 8,321,227
Total reserved fund balance 11,629,652
Designated for self-insurance 7,600,916
Designated for long-term employee leave payouts 2,305,766
Designated for integrated waste management 1,665,071
Designated for booking fees 723,000
Designated for City facilities' capital repair 12,230,379
Designated for changes in economic circumstances* 10,086,658
Designated for law enforcement 3,492,433
Designated for contract development services 1,434,571
Designated for sphere of influence issues 350,000
Designated for multi-species habitat plan 200,000
Designated for guaranteed investment contract 15,600,000
Designated for working capital 2,374,264
Total designated fund balance 58,063,058
Total City reserved and designated fund balances $69.692.710
*This is the designation that is typically referred to as the City's operational reserve
Memorandum
City Manager's Office
To: Mayor and Members of the ~'~t¥ Gouncil
From: Jack Lam, City Man~~
Date: June 2, 2005
Subject: Overview of Fire District Reserve Funds
This memo provides an overview of the Fire District's various reserve funds and
explains the individual funds and the restrictions that are placed on these funds. To
begin, let us first define what reserve funds are. Reserve funds, also known as fund
balance, are non-recurring funds that have been accumulated over time and are
earmarked for specific purposes. Reserve funds can function as placeholders for
specific future commitments, work to stabilize annual operational budgets, and act as
emergency funds for unexpected needs. The sources for these funds are often one-
time revenues but they can also be from expenditure savings in a particular year.
Historically, the Fire District did not have a mechanism to effectively establish reserve
funds when it was under the County of San Bernardino's control. The County provided
augmentation revenue to the District to support its annual operations. If a fund balance
remained at the end of the fiscal year, the District would be adversely impacted by
having a reduction in its subsequent year's allocation of revenue. The belief was that if
the District didn't use the revenues being provided to them then they obviously didn't
need them. Thus, the funding provided by the County did not facilitate the
establishment of any type of meaningful reserves to help financially stabilize to the
District.
When the District became a subsidiary district of the City in July 1989, it came under the
control and management of the City Council as they filled the roles of the District's
Board of Directors. Due to the lack of reserves that resulted from the County's
management approach, the District typically was short on cash for the first few months
of each fiscal year until the first of two large property tax distributions was received from
the County in November/December. In order to weather this cash shodage, the District
would (borrow) enter into an annual Tax Revenue Anticipation Note (TRAN) which
would provide the District with cash flow at the beginning of the fiscal year with payment
not becoming due until the end of the fiscal year. In recent years, the Fire District had
accumulated sufficient fund balance to forego borrowing.
Overview of Fire District Reserve Funds Page 2
June 2, 2005
For accounting and financial reporting purposes, there are generally two categories in
which fund balance is categorized: 1) reserved and 2) designated. Funds that are
categorized as reserved are not available as spendable resources or they are legally
segregated for a specific future use. Funds categorized as designated, indicate the Fire
Board's plans for future usage of District resources, such as for general contingencies
or for working capital.
Reserved Fund Balance
As described above, funds included in reserved fund balance are not available as
spendable resources or they are legally segregated for a specific use. Following are the
specific reserves that make up the District's overall reserved fund balance:
· Reserved for encumbrances: This reserve represents funds that must be held
to pay for expenditures that overlap the end of one fiscal year and the beginning
of the next fiscal year. The dollar amount that is reserved for encumbrances
each year represents the total amount of pumhase order commitments
outstanding at the end of the fiscal year. Therefore, this reserve will recur each
fiscal year at varying dollar amounts, depending on the number of purchase
orders that are outstanding.
· Reserved for prepaid costs: This reserve is for annual costs, such as certain
insurance costs, that are typically paid in advance of the fiscal year to which the
coverage pertains. It is used to indicate that prepaid costs do not represent
available spendable resources.
· Reserved for radio system acquisition: This reserve represents the District's
commitment to the West End Communications Authority (WECA) for future
backbone infrastructure replacement and mobile/portable radio purchases.
· Reserved for vehicle and equipment replacement: This reserve provides
future funding for vehicle and equipment replacement based on District
maintenance/replacement schedules. Supplemental vehicle and equipment
replacement funding is provided by the Redevelopment Agency in the Agency's
Fire Fund.
· Reserved for land acquisition: This reserve represents funding set aside
toward the future purchase of land to build a fire station in a location in the City
where the most critical need is determined to be based on the results of a
pending Public Safety Strategic Plan.
Overview of Fire District Reserve Funds Page 3
· June 2, 2005
· Reserved for capital proiects: This reserve was primarily established to fund
the replacement of underground fuel tanks at various stations throughout the
City.
Designated Fund Balance
As described above, funds that are categorized as designated indicate the Fire Board's
plans for future usage of District resources, such as for general contingencies or for
working capital. The designations discussed below are the result of specific policy
decisions of the Fire Board.
· Desi.qnated for employee leave payouts: This designation sets aside funding
for the long-term portion of future employee leave payouts such as sick leave,
vacation, etc., and is separate from recurring personnel costs. The current
portion of these payouts, or that amount that is reasonably expected to be paid
out within one year, is reflected separately as a liability in the District's financial
records. For financial reporting purposes, this designation provides funding for
the accrual of the long-term portion of this liability as required by Governmental
Accounting Standards Board (GASB) Statement No. 34. This designation is
currently fully funded.
· Desi.qnated for workers' compensation: The amount designated for workers'
compensation is designed to cover the estimated cost of future workers'
compensation claims payments while not impacting ongoing operational funds.
The District is a member of a risk sharing pool with other fire agencies for
workers' compensation insurance. The pool has an actuary who calculates each
member's estimated liability on an annual basis. This designation is adjusted
accordingly on an annual basis and is currently fully funded.
· Desi.qnated for workin,q capital: The working capital designation is intended to
provide sufficient liquidity for the District's day-to-day operations so that
fluctuations in revenue receipts throughout the year will not disrupt the District's
investment portfolio and avoids having to borrow for operations.
Reserve funds should not be used to fund recurring expenditures as these funds are
non-recurring. Any new expenditures must have cash flows to match these
expenditures, otherwise, deficits will ensue. The District is the guardian of the
taxpayers' money and has a fiduciary responsibility to ensure expenditures do not
exceed revenues. The State is the most relevant example of creating more on-going
costs than there is ongoing revenue to support such costs, resulting in huge deficits that
affect services across the entire State. Note that as revenues increase at the State,
there are efforts to spend these revenues on new or expanded programs before even
Overview of Fire District Reserve Funds Page 4
June 2, 2005
eliminating the deficit. Reserves are one-time revenues accumulated over time. It is
poor fiscal practice to spend more than the District's revenue stream can provide.
See attached Exhibit A for a summary of the District's reserved and designated fund
balances at June 30, 2004.
Exhibit A
Summary of Fire District Reserved and Designated Fund Balances
June 30, 2004 (adjusted)
Reserved for encumbrances $ 238,081
Reserved for prepaid costs 590
Reserved for radio system acquisition 150,000
Reserved for vehicle and equipment replacement 2,175,851
Reserved for land acquisition 400,000
Reserved for capital projects 311,002
Total reserved fund balance 3,275,524
Designated for employee leave payouts 747,331
Designated for workers' compensation 1,587,490
Designated for working capital 2,022,195
Total designated fund balance 4,357,016
Total District reserved and designated fund balances $ 7,632,540