HomeMy WebLinkAboutFY 2011-2012 Unaudited General Fund Balance Designations Ap� ppI C 1. a.� dn.n my — __ - - BEACH- -
Interdepartmental Memo
TO: honorable Mayor and City Council Members
FROM: Fred A. Wilson, City Manager
DATE: March 18, 2013
SUBJECT: Item Number 6 — Revised Recommended Action for Unaudited
General Fund Balance Designations for FY 2011/12
Summary:
Upon further analysis of the City's General Fund budget performance, it is clear that the
uncertainties regarding the dissolution of Redevelopment Agencies, and upcoming CalPERS
Board actions, will likely impact the City's budgets going forward. As such, staff is revising its
year-end fund balance allocations to recommend the creation of a Budget Stabilization Fund.
Due to the dissolution of redevelopment and upcoming CalPERS Board actions that will
significantly increase the City's retirement obligations, it is recommended that a Budget
Stabilization Fund be established. Please note however, that the amount recommended
below falls far short of amounts needed to address all issues.
Revised Recommended Action:
1) Approve the FY 2011/12 General Fund Year -End Fund Balance allocations as follows:
A) The deposit of $1.7 million to the Capital Improvements Reserve (CIR);
B) The deposit of $3.1 million into a Budget Stabilization Fund with commensurate
appropriation authority up to that amount, as needed ;
C)The deposit of $600,000 into the Economic Uncertainties Reserve (exact amount to
be determined upon completion of the City's audit).
D)The deposit of $698,000 into a Retiree Medical Unfunded Liability Reserve and an
equivalent appropriation in FY 2012/13 to allow for payment into the Plan.
2) Increase budget appropriations by $3,174,000 in the Non -Departmental FY 2012/13
General Fund Budget to expedite and complete the two remaining years of payments for
the PARS Early Retirement Incentive program.
SUPPLEMENTAL
COMMUWATION
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Date:
Agenda Itam No. .4—
Dept. ID FN 13-003 Page 1 of 2
Meeting Date: 3/18/2013
CITY OF HUNTINGTON BEACH
REQUEST FOR CITY COUNCIL ACTION
MEETING DATE: 3/18/2013
SUBMITTED TO: Honorable Mayor and City Council Members
SUBMITTED BY: Fred A. Wilson, City Manager
PREPARED BY: Lori Ann Farrell, Director of Finance
SUBJECT: Approve Unaudited General Fund Balance Designations for FY 2011/12 and
Appropriation Increases for PARS and Retiree Medical Plan Contributions
Statement of Issue:
At the January 25, 2013, Strategic Planning Session, the Finance Department presented the
preliminary, unaudited FY 2011/12 Year -End General Fund Budget performance results. City
Council approval is requested to implement the recommended year-end Fund Balance designations
and reflect them in the City's General Ledger and in the City's Comprehensive Annual Financial
Report (CAFR) for the Fiscal Year ended September 30, 2012, subject to final certification by the
City's independent, external auditors.
Financial Impact:
This action will result in an additional $1.7 million deposit into the Capital Improvements Reserve
(CIR); the creation of a $1.9 million set -aside to fund items disallowed by the State Department of
Finance; the creation of a $698,000 Retiree Medical Unfunded Liabilities Reserve with an
equivalent appropriation in the FY 2012/13 Budget to allow for payment into the Plan; and, subject
to final approval and certification by the City's independent external auditors, the deposit of an
estimated $1.8 million into the Economic Uncertainties Reserve. An increase in appropriations of
$3.2 million is also requested for the current FY 2012/13 Budget to make the two remaining
payments for the City's Early Retirement Incentive Program. This appropriation would be fully offset
by a PARS Obligation set -aside reflected in the City's reserves of an equivalent amount.
Recommended Action:
A) Approve the FY 2011/12 General Fund Year -End Fund Balance allocations as follows:
1. The deposit of $1.7 million to the Capital Improvements Reserve (CIR); and,
2. The deposit of $1.9 million to the Disallowed Items Reserve; and,
3. The deposit of $1.8 million into the Economic Uncertainties Reserve (exact amount to be
determined upon completion of the City's audit); and,
4. The deposit of $698,000 into a Retiree Medical Unfunded Liability Reserve and an
equivalent appropriation in FY 2012/13 to allow for payment into the Plan.
B) Increase budget appropriations by $3,174,000 in the Non -Departmental FY 2012/13 General
Fund Budget to expedite and complete the two remaining years of payments for the PARS
Early Retirement Incentive program.
Alternative Action(s): Do not approve these allocations and provide alternative direction.
HB -29- Item 6. - I
Dept. ID FN 13-003 Page 2 of 2
Meeting Date: 3/18/2013
Analysis:
For FY 20.11/12, which ended on September 30, 2012, preliminary, unaudited figures reflect that the
City received a total of approximately $186.9 million in recurring General Fund revenue. Of this
amount, it is recommended that $1.7 million be deposited into the Capital Improvements Reserve
(CIR) to finance the cost of additional capital repairs that will be performed in FY 2012/13. Please
note the FY 2012/13 Adopted Budget assumed additional capital projects would be funded by the
CIR; hence, this deposit of $1.7 million into the CIR fully finances the costs of these projects without
further depleting existing CIR balances. Further, these capital projects assist the City in complying
with the Charter mandate that 15 percent of General Fund revenue be spent on its infrastructure.
Of the remaining amount of $185.2 million in recurring revenue, a significant portion is needed to
support approximately $183.4 million in recurring General Fund actual expenditures, liabilities and
costs incurred through September 30, 2012. This results in a preliminary, unaudited, remaining
year-end fund balance of $1.8 million, or 0.95 percent of the General Fund. The deposit of $1.8
million into the City's Economic Uncertainties Reserve is subject to final, audited General Fund
amounts and may slightly vary from this preliminary, unaudited estimate. This deposit will assist the
City in inching closer to achieving its goal of maintaining approximately two months worth of
General Fund expenditures, or $31.0 million, in its emergency reserve. With this deposit, the
Economic Uncertainties Reserve will total $24.9 million, approximately $6.1 million short of its goal.
In addition, the City also received $2.6 million in one-time General Fund revenue. Of this amount,
Staff recommends the allocation of $1.9 million into a set -aside to fund items that have been
disallowed by, or are currently under dispute with, the State Department of Finance (DOF) under
the wind -down of the former Redevelopment Agency. As discussed at the January 25, 2013,
Strategic Planning Session, $1.9 million in actual expenditures have been disallowed by the State
including bond payments, legal, consulting, and administrative costs, among others. As there is no
funding now available to support those costs, these disallowances have a direct impact on the
General Fund. These costs were not originally included in the Adopted FY 2012/13 General Fund
Budget; hence, this set -aside will provide the necessary funding to maintain fiscal neutrality.
While the City has done an extraordinary job of reducing overall expenditures during the past five
years, an area that continues to be of particular concern is the City's unfunded liabilities for its
pension and Other Post Employment Benefits (OPEB). As one of the Strategic Planning Goals is to
"Improve the City's Long -Term Financial Sustainability" it is strongly recommended that the City
deposit the remaining $698,000 of one-time revenue received in FY 2011/12 into an OPEB
Unfunded Liabilities Reserve. This would allow the City to improve the 52 percent funded status of
the City's retiree medical plan. With a current unfunded liability of $10.5 million, the City's current
amortization policy is over a 25 year period. Depositing this additional $698,000 into the reserve
and appropriating an equivalent amount for immediately payment into the Plan will improve its
funded status. If the City were to increase its annual contribution into the Plan by $698,000 each
year for the next ten years, the entire unfunded liability could be eliminated.
City Council approval is also requested for an appropriation increase in the current FY 2012/13
Non -Departmental Budget totaling $3.2 million to pay in full the remaining liability associated with
the PARS Early Retirement Incentive Program offered to employees in FY 2009/10. This
appropriation would be fully offset by an equivalent $3.2 million that has been set -aside in the PARS
Obligation reserve for this purpose resulting in a net neutral effect. Expediting the two remaining
annual payments of $1.6 million each for this program will absolve the City of this fixed liability two
years ahead of schedule thereby eliminating this liability from future financial statements. Lastly,
the City will save approximately $60,000 by expediting these payments.
Environmental Status: N/A
Strategic Plan Goal:
Improve Long -Term Financial Sustainability and Improve the City's Infrastructure
Attachment(s): None
Item 6. - 2