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HomeMy WebLinkAboutApprove Deletion of Financial Policy Requiring a Biannual Tw V, t'CMG4L�1 +]�!n1C.L� f Council/Agency Meeting Held: 4 DeferredlContinued to: Approved ❑ Conditionally Approved 0 Denied LA;-7 Citylgerq S na re Council Meeting Date: JUNE 6, 2005 Department ID Number FN 05-002 CITY OF HUNTINGTON BEACH REQUEST FOR CITY COUNCIL ACTION SUBMITTED TO: pp��,,HJJONORABLE MAYOR CITY�CCIL �M,B S SUBMITTED BY:ePENELOPE CULBRETH-GRAFT, DPA, CITY ADMINIS RA R PREPARED BY: DAN T. VILLELLA, CPA, FINANCE OFFICER SUBJECT: FINANCIAL POLICIES — LANGUAGE AMENDMENT Statement of Issue, Funding Source,Recommended Action,Alternative Actlon(s),Analysis,Environmental Status,AHEa9hmes) :.l Statement of Issue: (1) An existing financial policy currently sets a budgeting standard of a biannual preparation of a two year budget. Amendment of this language is proposed to reflect annual budget preparation as required by charter. (2) An existing financial policy requires that fifty percent (50%) of the general fund balance in excess of the seven percent (7%) reserve requirement be transferred to the Capital Improvement Project (CIP) Fund. The proposed amendment recommends a percentage breakdown of 50/25/25 of general fund balance in excess of the required seven percent (7%). Respectively, this would be apportioned as a 50% designation to the General Fund, 25% towards the Capital Improvement Fund and the remaining 25% towards the Infrastructure Fund. Funding Source: NIA Recommended Action: (1) Approve the deletion of the current financial policy requiring a biannual preparation of a two-year budget. (2) Approve the 50/25/25 proportion of General Fund balance in excess of the required seven percent (7%) reserve and the General Fund portion placed in a secondary General Fund Reserve. Alternative Action(s): (1) Do not approve the language deletion of the current financial policy dictating a biannual preparation of a two-year budget. (2) Do not approve the proposed 50/25/25 proportion of General Fund balance in excess of the required seven percent (7%) reserve. Continue to abide by the current standard of a 50% CIP Fund designation of General Fund balance in excess of the required reserve. (3) Direct staff to develop alternate policies. 1 � � REQUEST FOR ACTION MEETING DATE: JUNE 6, 2005 DEPARTMENT ID NUMBER: Analysis: (1) The City Council adopted a series of financial policies on May 3, 2004. The current policy under the section "Budgeting" states: "Biannually, the City Administrator will prepare a two-year budget, with the first year submitted to the City Council for legal adoption, and the second year presented as a planning document." Administration recommends the preparation of an annual budget. The practice of an annual (1-year) budget preparation serves the best interests of the City as a whole, ranging from costs of its preparation to its reflection of the current economy. As such, the City's financial policies need to be aligned with the desired annual budget process. (2) The City Council adopted a series of financial policies on May 3, 2004. One of these policies requires that 50% of the General Fund balance, in excess of 7% of the adopted budget designation be transferred to the CIP fund. Placing 25% in the CIP fund and the remaining 25% in the Infrastructure Fund would provide a funding source for this latter fund. In addition, the change to this policy provides for potential increases to General Fund reserves. Amounts remaining in the General Fund in excess of the 7% reserve would be placed in a secondary reserve. This allows for desired increases while providing more flexibility rather than increasing the fixed percentage. The Finance Board also recommended these changes at their May 11, 2005 meeting. Environmental Status: NIA Attachment(s)• NumberCity Clerk's Page Description 1. Financial Policies - Current 2. Financial Policies - Proposed Revision DADocuments and Settingslbazantd\Local Settings7emporary Internet Files101-1<871RCA-Financial Policies Amendment.doc -2- 5/24/2005 3:17 PM ATTACHMENT # 1 r � CITY OF HUNTINGTON BEACH FINANCIAL POLICIES FINANCIAL REPORTING AND ACCOUNTING STANDARDS ❑ The City's accounting system will be maintained in accordance with generally accepted accounting practices and the standards of the Government Accounting Standards Board and the Government Finance Officers Association. ❑ The annual financial report will be prepared within six months of the close of the previous fiscal year. The City will use generally accepted accounting principles in preparing the annual financial statements and will attempt to qualify for the Government Finance Officers Association's Excellence in Financial Reporting Program. ❑ The City will strive for an unqualified audit opinion. An unqualified opinion is rendered without reservation by the independent auditor that financial statements are fairly presented. ❑ The City will contract for an annual audit by a qualified independent certified public accounting firm. The independent audit firm will be selected through a competitive process at least once every five years. The contract period will be for an initial period of three years, with two one-year options. BUDGETING ❑ Biannually, the Gity AdFninistitateF will prepare a We year budgK with the first yeaF submitted to the Gity Council for legal deption, and the second yeaF presented as a planning decufneFC. ❑ The budget will be prepared consistent with the standards developed by the Government Finance Officers Association and California Society of Municipal Finance Officers. In addition, a summary version will be provided to the public in a user-friendly format. ❑ The City will maintain a balanced operating budget for all funds with estimated revenues being equal to, or greater than, estimated expenditures, and with periodic City Council reviews and necessary adjustments to maintain balance. ❑ On-going revenues will support on-going expenditures. Revenues from one-time or limited duration sources will not be used to balance the annual operating budget. ❑ Support function appropriations will be placed in the department in which they are managed. GENERAL FUND BALANCE ❑ The Fund resep.Fe will be f seven per-eent (7%) of the annual General Fund budget The General Fund reserve (designation) will be a minimum of seven percent (7%) of the General Fund budget. In addition, a second tier reserve will consist of the net accumulation of amounts that were in excess of the 7% reserve (designation) and remained in the General Fund after application of the financial policy that immediately follows. This second tier reserve will be used to balance fie budget fluctuations. fellews- Allocation of the audited General Fund balance in excess of the above reserves (designations)wil# may be as follows: ■ -58 25 percent for capital projects(transferred to the Capital Projects Fund) ■ 25 percent for Infrastructure (transferred to the Infrastructure Fund) * 50 percent to increase the 2"d tier reserve for future .,o.,,+;+„ras (nnm hr.,n.d ...:+h the ro iu ra Fund Reserve) ❑ Ali supplemental appropriations from the General Fund minimum reserve that cannot otherwise be funded during the current fiscal year operating budget must meet one of the three following criteria: Page 1 of 3 Updated 4119105 CITY OF HUNTINGTON BEACH FINANCIAL POLICIES • It is an unanticipated emergency. ■ It is required to implement a Memorandum of Understanding (MOU) or a mandate. • It is a new expense that is offset by related revenues. ❑ Any unanticipated and unrestricted revenues received during the fiscal year will be added to the General Fund fund balance. APPROPRIATION AUTHORITY ❑ The City Council is the appropriation authority for the City Budget. As required by state law, appropriations expire at the end of each fiscal year. NON-DEPARTMENTAL BUDGET ❑ The City shall maintain a non-departmental budget that is used for expenditures that do not apply to a specific department, are Citywide in nature, or shared by several departments. The Administrative Services Director and City Administrator shall be responsible for administration of this budget. OPERATION OF THE CAPITAL PROJECTS FUND ❑ The Capital Projects Fund will only be used to budget for, and construct, capital improvement projects identified in the City's five year Capital Improvement Plan. ❑ Savings from completed capital improvement projects will be retained for use on other infrastructure projects. ❑ Interest earned on idle funds in the Capital Projects Fund will be retained for use on other infrastructure projects. ENTERPRISE FUNDS ❑ An Enterprise Fund is a type of proprietary fund used to report an activity for which a fee is charged to external users for goods or services. The City will set users fees for each enterprise fund at a rate that fully recovers the direct and indirect costs of providing service. ❑ The City will adjust user fees as necessary to ensure that enterprise funds do not collect revenues at a rate in excess of the fund's operating, capital, and reserve requirements. ❑ Enterprise funds will be supported by their own rates and not subsidized by the General Fund. ❑ Enterprise funds will pay their share of overhead services provided by the General Fund. SPECIAL REVENUE FUNDS ❑ A Special Revenue Fund is used to account for the proceeds of specific revenue sources that are restricted to expenditure for specified purposes. ❑ The City Council will establish which revenues require placement into a special revenue fund. The City Council will establish which expenditures will be expensed to each special revenue fund. DEBT ISSUANCE & MANAGEMENT ❑ The City will not use long-term debt to pay for current operations. D The City will strive to construct capital and infrastructure improvements without incurring debt. Debt financing will be considered for capital and infrastructure improvements when one or more of the following circumstances exist: • When the term of the debt does not extend beyond the useful life of the improvements; ■ When project revenues or specific resources will be sufficient to service the long-term debt; ■ When the cost of debt is less than the impact of the cost caused by delaying the project. Page 2 of 3 Updated 4/19/05 CITY OF HUNTINGTON BEACH FINANCIAL POLICIES CHARGES& USER FEES ❑ "User Fees" are fees for services that are exclusively provided by the City and cannot legally exceed the cost of the service provided nor the statutory limit (if lower). User Fees will be reviewed and/or revised periodically by the City Council. User Fees that do not recover all direct and indirect costs of service will be clearly identified and must be approved by the City Council. u "Charges" are fees that have no statutory limit and typically are set at "market rates" since the public can choose to obtain these services from other sources. Charges will be reviewed and/or revised periodically by the City Council. Charges that do not recover all direct and indirect costs of service will be clearly identified and must be approved by the City Council. ❑ The City Council will be presented annually with a list of all User Fees and Charges indicating when they were last changed. ❑ Fees for infrastructure improvements required by new development will be reviewed annually to ensure that the fees recover development related expenditures. CAPITAL MANAGEMENT ❑ The City will prepare a five year Capital Improvement Plan. The plan will be developed biannually and updated annually. The Capital Improvement Plan will include current operating maintenance expenditures, funding to support repair and rehabilitation of deteriorating infrastructure, and the construction of new infrastructure projects. u Prior to planning the construction of new infrastructure, the improvement's future operating, maintenance, and replacement costs will be forecast and matched to available revenue sources in the operating budget. Page 3 of 3 Updated 4119/05 ATTACHMENT #2 CITY OF HUNTINGTON BEACH FINANCIAL POLICIES FINANCIAL REPORTING AND ACCOUNTING STANDARDS ❑ The City's accounting system will be maintained in accordance with generally accepted accounting practices and the standards of the Government Accounting Standards Board and the Government Finance Officers Association. ❑ The annual financial report will be prepared within six months of the close of the previous fiscal year. The City will use generally accepted accounting principles in preparing the annual financial statements and will attempt to qualify for the Government Finance Officers Association's Excellence in Financial Reporting Program. ❑ The City will strive for an unqualified audit opinion_ An unqualified opinion is render�d without reservation by the independent auditor that financial statements are fairly presented. ❑ The City will contract for an annual audit by a qualified independent certified public accountin 3 firm. The independent audit firm will be selected through a competitive process at least once every five ears. The contract period will be for an initial period of three years, with two one-year options. BUDGETING ❑ The budget will be prepared consistent with the standards developed by the Governme t Finance Officers Association and California Society of Municipal Finance Officers. In addition, a summary version will be provided to the public in a user-friendly format. ❑ The City will maintain a balanced operating budget for all funds with estimated revenues being equal to, or greater than, estimated expenditures, and with periodic City Council reviews and necessary adjustments to maintain balance. ❑ On-going revenues will support on-going expenditures. Revenues from one-time or limited duration sources will not be used to balance the annual operating budget. ❑ Support function appropriations will be placed in the department in which they are managed. GENERAL FUND BALANCE ❑ The General Fund reserve (designation) will be a minimum of seven percent (7%) of the General Fund budget. In addition, a second tier reserve will consist of the net accumulation of amounts that were in excess of the 7% reserve (designation) and remained in the General Fund after application of the financial policy that immediately follows. This second tier reserve will be used to balance budget fluctuations. ❑ Allocation of the audited General Fund balance in excess of the above reserves (designatio s) may be as follows: • 25 percent for capital projects (transferred to the Capital Projects Fund) • 25 percent for Infrastructure (transferred to the Infrastructure Fund) • 50 percent to increase the 2nd tier reserve ❑ All supplemental appropriations from the General Fund minimum reserve that cannot otherwise be funded during the current fiscal year operating budget must meet one of the three following criteria: ■ It is an unanticipated emergency. ■ It is required to implement a Memorandum of Understanding (MOU) or a mandate. ■ It is a new expense that is offset by related revenues. ❑ Any unanticipated and unrestricted revenues received during the fiscal year will be added to the General Fund fund balance. Page 1 of 3 Updated 619105 CITY OF HUNTINGTON BEACH FINANCIAL POLICIES APPROPRIATION AUTHORITY ❑ The City Council is the appropriation authority for the City Budget. As required by state law, appropriations expire at the end of each fiscal year. NON-DEPARTMENTAL BUDGET ❑ The City shall maintain a non-departmental budget that is used for expenditures that do not apply to a specific department, are Citywide in nature, or shared by several departments. The Administrative Services Director and City Administrator shall be responsible for administration of this budget. OPERATION OF THE CAPITAL PROJECTS FUND Q The Capital Projects Fund will only be used to budget for, and construct, capital improvement projects identified in the City's five year Capital Improvement Plan. ❑ Savings from completed capital improvement projects will be retained for use on other infrastructure projects. ❑ Interest earned on idle funds in the Capital Projects Fund will be retained for use on other infrastructure projects. ENTERPRISE FUNDS ❑ An Enterprise Fund is a type of proprietary fund used to report an activity for which a fee is charged to external users for goods or services. The City will set users fees for each enterprise fund at a rate that fully recovers the direct and indirect costs of providing service. ❑ The City will adjust user fees as necessary to ensure that enterprise funds do not collect revenues at a rate in excess of the fund's operating, capital, and reserve requirements. ❑ Enterprise funds will be supported by their own rates and not subsidized by the General Fund. ❑ Enterprise funds will pay their share of overhead services provided by the General Fund. SPECIAL REVENUE FUNDS ❑ A Special Revenue Fund is used to account for the proceeds of specific revenue sources that are restricted to expenditure for specified purposes. ❑ The City Council will establish which revenues require placement into a special revenue fund. ❑ The City Council will establish which expenditures will be expensed to each special revenue fund. DEBT ISSUANCE & MANAGEMENT ❑ The City will not use long-term debt to pay for current operations. ❑ The City will strive to construct capital and infrastructure improvements without incurring debt. Debt financing will be considered for capital and infrastructure improvements when one or more of the following circumstances exist: ■ When the term of the debt does not extend beyond the useful life of the improvements; ■ When project revenues or specific resources will be sufficient to service the long-term debt; ■ When the cost of debt is less than the impact of the cost caused by delaying the project. CHARGES & USER FEES ❑ "User Fees" are fees for services that are exclusively provided by the City and cannot legally exceed the cost of the service provided nor the statutory limit (if lower). User Fees will be reviewed and/or revised periodically by the City Council. User Fees that do not recover all direct and indirect costs of service will be clearly identified and must be approved by the City Council. Page 2 of 3 Updated 619105 CITY OF HUNTINGTON BEACH FINANCIAL POLICIES ❑ "Charges" are fees that have no statutory limit and typically are set at"market rates" since the public can choose to obtain these services from other sources. Charges will be reviewed and/or revised periodically by the City Council. Charges that do not recover all direct and indirect costs of service will be clearly identified and must be approved by the City Council. ❑ The City Council will be presented annually with a list of all User Fees and Charges indicating when they were last changed. ❑ Fees for infrastructure improvements required by new development will be reviewed annually to ensure that the fees recover development related expenditures. CAPITAL MANAGEMENT ❑ The City will prepare a five year Capital Improvement Plan. The plan will be developed biannually and updated annually. The Capital Improvement Plan will include current operating maintenance expenditures, funding to support repair and rehabilitation of deteriorating infrastructure, and the construction of new infrastructure projects. ❑ Prior to planning the construction of new infrastructure, the improvement's future operating, maintenance, and replacement costs will be forecast and matched to available revenue sources in the operating budget. Page 3 of 3 Updated 6/9105 RCA ROUTING SHEET INITIATING DEPARTMENT: FINANCE SUBJECT: FINANCIAL POLICIES - LANGUAGE AMENDMENT COUNCIL MEETING DATE: JUNE 5, 2005 RCA ATTACHMENTS: STATUS Ordinance (w/exhibits & legislative draft if applicable) Attached ❑ Not Appiicable Resolution (w/exhibits & legislative draft if applicable) Attached ❑ Not Applicable Tract Map, Location Map and/or other Exhibits Attached ❑ Not Ap licable Attached ❑ Contract/Agreement (w/exhibits if applicable) Not Applicable (Signed in full by the City Attorney) Attached Subleases, Third Party Agreements, etc. Not Applicable (Approved as to form by City Attome Certificates of Insurance (Approved y the A roved b City Attorney) Attached ❑ Not Applicable Attached ❑ Fiscal Impact Statement (Unbudget, over $5,000) Not Applicable Bonds (If applicable) Attached ElNot Applicable Attached Staff Report (If applicable) Not licable Commission, Board or Committee Re ort If applicable Attached p � Pp ) Not Applicable s/Conditions for Approval and/or Denial Attached Find ings/Conditions ❑ g pp Not Applicable EXPLANATION FOR MISSING ATTACHMENTS REVIEWED REJURNED FORWA D' Administrative Staff } Assistant City Administrator Initial City Administrator Initial ( ) rCity Clerk ) EXPLANATION FOR RETURN OF ITEM: SpaceOnly) RCA Author: Dan Villella, x 5225