HomeMy WebLinkAboutEstablishment of a New Fund Reserve for Economic Uncertainti REQUEST F _ 14
APPROVED BY CIT�
9#'
Y DATE: June 6, 1994
SUBMITTED TO: HONORABLE MAYOR AND CITY COUNCIL
SUBMITTED BY: MICHAEL T. UBERUAGA, City Administrator
PREPARED BY: ROBERT J. FRANZ, Deputy City Administr5r`�
SUBJECT: ESTABLISHMENT OF A NEW FUND - RESERVE FOR ECONOMIC
UNCERTAINTIES
Consistent with Council Policy: RI Yes New Policy or Exception ❑
Statement of Issue, Recommendation, Analysis, Funding Source, Alternative Actions, Attachments
STATEMENT OF OBJECTIVE: The City's current General Fund reserve is an estimated $7.1
million or 7.3%. City fiscal policies require a minimum of a 3% reserve with 5% being desirable.
This proposed resolution will establish a separate fund in the amount of $5 million as the City's
reserve.
RECOMMENDED ACTION: Approve Resolution No. ' 6 eo creating a Reserve for
Economic Uncertainty Fund in the amount of $5 million.
ANALYSIS:
In June of 1990 the City adopted fiscal policies which include the requirement for General Fund
reserves to be maintained at no less than 3% with a 5% reserve being desirable. (See attached
Fiscal Policies) The General Fund Reserve has always been maintained within the General Fund
itself, although a more common practice among cities is to create a separate fund that is available
for emergencies, one time expenses, or as a reserve that recognizes the economic uncertainties in
projecting revenues and expenses which can be used only in such times of uncertainty by specific
action of the City Council.
The City staff is recommending the establishment of a separate fund for a Reserve for Economic
Uncertainties because the desirable 5% fund balance has been maintained now for three (3)
consecutive years and our current year budget is close to being balanced. Therefore, use of the
reserve is not anticipated to meet current year expenses. (See attached chart providing ten year
history of General Fund Reserves) The transfer of the recommended $5 million to a new fund for
economic uncertainties will still retain a balance in the General Fund of about $2 million which is
recommended so that cash flow needs and minor fluctuations in revenue and expense estimates
can be accommodated without a formal transfer or appropriation of funds from the new Reserve for
Economic Uncertainties fund.
REQUEST FOR CITY COUNCIL ACTION
An additional benefit to establishing the Reserve for Economic Uncertainties in this amount is that
the City's annual Tax Revenue Anticipation Note (TRAN) can be increased in amount by $5 million.
A total TRAM issue of an estimated $16 million is recommended for the fifteen (15) months
beginning July 1, 1994. The benefit to the City from this increased TRAN issue is additional
interest income of an estimated $350,000 compared to estimated interest costs of $175,000 or a
net General Fund benefit of$175,000 for fiscal year 1994/95.
The resolution establishes the Reserve for Economic Uncertanties fund at $5 million and allows
later adjustments by the City Council to modify the total dollar amount of the fund.
FUNDING SOURCE: Unreserved, undesignated fund balance of the General Fund..
ALTERNATIVE ACTIONS:
Do not establish a new fund for a Reserve for Economic Uncertainties.
ATTACHMENTS:
1. Resolution.
2. Fiscal Policies.
3. Fund balance history.
RCAECUN.QOC Page 2 05/25/94 3:05 PM
RESOLUTION NO. 6600
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF HUNTINGTON BEACH CREATING A RESERVE
FOR ECONOMIC UNCERTAINTY
WHEREAS, the General Fund of the City of Huntington Beach has an unreserved,
undesignated fund balance in excess of$5,000,000; and
The City of Huntington Beach has an existing fiscal policy that requires a reserve of not
less than three percent of the General Fund's annual budget be maintained; and
The City Council wishes to adopt this resolution for the purpose of establishing a
"Reserve for Economic Uncertainties" Fund to implement such fiscal policy;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Huntington
Beach as follows:
1. There is hereby created a Reserve for Economic Uncertainty Fund which shall
be separate and apart from the General Fund, or
2. There is hereby transferred Five Million Dollars ($5,000,000) from the
Unreserved Undesignated General Fund Balance to the Reserve for Economic Uncertainty
Fund Balance. Such balance, or any greater or lesser amount as shall be designated by the
City Council from time to time, shall be maintained at all times, and any transfer or expenditure
pursuant to Section 4 shall be restored from available amounts in the General Fund.
3. That interest earnings of the monies within the Reserve for Economic
Uncertainty Fund shall be transferred to the General Fund every three months.
4. That any transfer or expenditure of funds from the Reserve for Economic
Uncertainty Fund, must be approved by the formal action of the City Council.
a
1
3/resoVreserve/05/27/94
PASSED AND ADOPTED by the City Council of the City of Huntington Beach at a
regular meeting thereof held on the 6th day of June , 1994.
Mayor
ATTE T:
5� OAIPICII� APPROVED AS TO FORMA:
City Clerk
ity Attorney
RE ,,,WED AND APPROVED:
ITI VED:
l
City Administrator
Director of d i istrative rvic
2
3/resoVreserve/0W7/94
6600
Res. No. 6600
STATE OF CALIFORNIA )
COUNTY OF ORANGE ) ss:
CITY OF HUNTINGTON BEACH )
I, CONNIE BROCKWAY, the duly elected, qualified City Clerk of
the City of Huntington Beach, and ex-officio Clerk of the City Council of said
City, do hereby certify that the whole number of members of the City Council of
the City of Huntington Beach is seven; that the foregoing resolution was passed
and adopted by the affirmative vote of at least a majority of all the members of said
City Council at a regular meeting thereof held on the 6th of June, 1994, by the
following vote:
AYES: Councilmembers:
Moulton-Patterson, Winchell, Leipzig, Sullivan
NOES; Councilmembers:
None
ABSENT: Councilmembers:
Silva, Bauer, Robitaille
e
City Clerk and ex-officio Clerk
of the City Council of the City
of Huntington Beach, California
CITY OF HUNTINGTON BEACH
FISCAL POLICIES
• Ongoing expenditures should be supported by ongoing revenues
• General Fund reserves should be maintained at no less than 3% with a 5%
reserve being desirable
• No new capital improvements should be approved until associated
operating costs are funded by recurring revenues
• Each enterprise fund should reflect the true cost of operation including
direct and indirect costs supported by the General Fund
• If the City's budget is balanced, General Fund reserves in excess of 5%
should be transferred to the Capital Improvement Projects Fund on an
annual basis
• To implement the above fiscal policy statements, a phase-in period will be
required
Adopted June 1990
Amended June 1991 (#3)
GENERAL FUND
RESERVES
Fund Balance
I
33i i
i Million
f r
f
f:
44
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,: �,•,.S _.�. I � III
I
FF 1
f � �F #•y,{ �� � t�.l 2Y III I�,C\ ! I� � p'
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kl {I, �� Y� •• I q� I { Y� � �I �$' � 4C�I k, .
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'� .:, ...•# y...' 2'n'�3e ;5.�{"�t -aE���'. ::SiR =Y; � —I� �:::i:
of 1e
04,7
a
Joint Meeting - City Council and Public Finance Authority
Annual TRAN Issue
New Fund - Reserve for
Economic Uncertainties
15 Month "Tax and Revenue
Anticipation Note" (TRAN) Issue
Slide 1
New Fund ® Reserve for
Economic Uncertainties
• Transfer $5 Million to New Fund
• New Fund Replaces General Fund Reserve:
—Use for One Time Expenses
—Requires City Council Approval for Any Uses
—Can be Increased or Decreased in Size
• Consistent with Fiscal Policy Adopted in 1990
Allows TRAN Issue to be $5 Million larger:
—Net General Fund Increased Revenue of
$175,000Near
Slide 2
June 6, 1994
Joint Meeting - City Council and Public Finance Authority
Annual TRAN
Short Term Cash Flow Debt
Repayment Required by end of Fiscal
Year
City has Issued Annually since 1986
Required due to Cash Flow Deficit until
First Property Payments are Received
® PFA Issue Will Allow 15 Month TRAM
® Maximum Size = $11-16 Million
Slide 3
General Fund - Monthly
Cash Surplus/Deficit
3 Year Average
10
$in Millions
5
f
0 ; {Sti
v
-10 ®Monthly
—Cumulative
-15
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Slide d
June 6, 14
Joint Meeting - City""Council and Public Finance Authority
...............................
TRAN Issue 711/94
Repayment 9130/95
................. 0-�
Loan#1
July 1,1994 October 1,1994
Repayment 9130194 Repayment 9/30/95
............ ......
Slide 5
... ........
Net Revenue TRAN
.... ........
$11 Million $16 Million
Revenue @ 7% $962,500 $1 ,400,000
Cost @, 3.5% 481 ,250 700,000
Difference 481 ,250 7001000
Issuance Costs -35,000 -35,000
Net Revenue $446,250 $665,000
1
Revenue and Costs for 15 Month TRAN
Slide 6
June 6, 1994
tAOL
Joint Meetinge City Council and Pub is Finance Authority
tY
Summary
• New Fund will Permit Larger TRAN
issue
• TRAN of 15 Months due to Change
in Fiscal Year
• Net Revenue of $446,250 to
$665,000 from TRAN
Slide 7
June 6, 1994