AGENDA
ITEM
5 AGENDA STAFF REPORT
CALEXICO
DATE: July 20, 2022
TO: Mayor and City Council
APPROVED BY: Esperanza Colo warren, Cly Manager Gang Cata abo PREPARED BY: Sandra L. Fonseca, Interim Finance Director SUBJECT: Approval of a Resolution of the City Council of the City of Calexico Approving Budget policies for Fiscal Year July 1, 2022 to June 30, 2023 ======= ================ ===========
Recommendation:
It is recommended the City Council pass a resolution adopting budget policies for the 2022-23 fiscal year.
Background:
The City Council approved a continuing budget resolution for the 2022-23 fiscal year (Resolution 2022-42) followed by a resolution adopting the 2022-23 Proposed Budget for individual funds and programs (Resolution 2022-43) on June 30, 2022.
Today's proposed resolution completes the initial 2022-23 budget by adopting policies that clarify the authority delegated to the City Manager to conduct operations and also affirms the City's commitment to long-term financial stability by setting target operating reserves and retirement obligation funding policies.
Discussion & Analysis:
City Council received a briefing on the Proposed Budget on June 14, 2022. Budget Hearings were conducted with the City's program staff on June 21, 2022 to provide opportunity for questions and public input. Also on June 21, 2022, staff met with the Economic Development Finance Advisory Commission to present and discuss the Proposed Budget. The Measure H Advisory Oversight committee discussed and recommended the Measure H section of the budget to City Council on June 8, 2002.
AGENDA
During the budget process, certain equipment replacement and discretionary ITEM capital projects were discussed and recommendations for additional consideration on these items were noted by City Council members. 5 The City Council further met to consider adoption of the full proposed budget on June 27, 2022. Action was not taken on the Proposed Budget. Instead, City Council requested staff to return with a continuing budget resolution as a bridge until the recently appointed City Manager had assumed duties in July.
On June 30, 2022, City Council adopted the 2022-23 budget through a series of two resolutions.
First, a continuing budget resolution was adopted (Resolution 2022-42). Also, to fully meet the City's employee contract agreements, insurance obligations, vendor contractual obligations, and grant/bond funded project timelines, the City Council then adopted a supplemental 2022-23 budget resolution that, along with the continuing budget resolution, adopted the budget for specific City funds and programs. The result of the combined resolutions was adoption of substantially all of the 2022-23 Proposed Budget, with certain discretionary items held out for subsequent discussion and consideration by the New City Manager and City Council. The exceptions withheld from the Proposed Budget included approximately $43,000 in discretionary General Fund operating budget requests and the discretionary capital project and equipment spending listed in the Proposed Budget in Local Capital Fund #411. Staff will return to City Council separately for further discussion and consideration of these discretionary operating and capital budget line items.
The original 2022-23 Proposed Budget resolution also included consideration of an appropriation of $600,000 in surplus from the 2021-22 fiscal year that is anticipated to be available due to an improving revenue base. These funds were proposed to be used for one-time equipment replacements including vehicles. Actual 2021-22 revenues will be calculated after the State's sales tax distribution in September, 2022. Staff will return at that time with pre-audit General Fund results and an updated recommendation on the application of 2021-22 operating surplus to one-time capital and equipment replacements. Note that the 2022-23 General Fund budget is balanced without funding for capital or vehicle replacements. Several departments anticipate proposing application of the anticipated 2021-22 surplus for City Council consideration to address deficiencies for deferred vehicle replacement, similar to the year-end strategy used at the end of 2020-21 to match one-time fund surplus to one-time equipment/capital replacements.
As the new City Manager begins analysis and assessment of City operations, the initial 2022-23 budget may see ongoing proposed updates to implement new operating strategies and recommendations as they are developed.
Fiscal Impact:
The proposed resolution establishes budget policies for the 2022-23 fiscal year that both carry forward policies from past practice and also introduce new policies to demonstrate and affirm the City's commitment to long-term financial stability.
These policies are important and possible now that the City has emerged from a period of fiscal distress, paid down operating debts, rebuilt a positive fund balance, and is charting a course forward through the next 5-year planning period
General Fund Reserve
First, the proposed resolution increases the target General Fund reserve to meet the industry best practice recommendation of the Government Finance Officers Association (GOA) (September 2015). GOA recommends a General Fund balance reserve equal to 60 days (16%) of operations. At June 2022, the combined General/Measure H Funds are projected to hold a reserve of 12% of General Fund annual operating expenditures. Specifically, the resolution proposes phasing-in an increase to the combined General and Measure H reserve to 16% to achieve the GFOA best practice recommendation over a 5-year planning period, by June 2027.
The proposed budget includes a 5-year projection that models the revenue growth and expenditure capacity necessary to achieve this target.
Retiree Medical ("OPEB")
The City faces increasing annual cash payments for retiree obligations for both CaPERS pension and for retiree medical costs (sometime referenced as Other Post-Employment Benefits, or OPEB). While the City has long funded future pension obligations through the CaPERS trust funding model, the 2022-23 budget is only the third year that the City has formally set-aside funding for future retiree medical obligations. The accumulated OPEB funds held by the City for future payments are reported and budgeted in the City's Retiree Medical Internal Service Fund. The City's most recent OPEB actuary report estimates the actuarial liability as of June 2021 at $39 million. While the City currently pays in excess of $1 million in annual retiree medical cash payments (2022-23), this annual cash payment is projected by the City's actuary to grow to over $2.5 million by 2036. To anticipate and smooth the annual cash/budget impact to the City, the proposed resolution moves the City's OPEB funding model to the CaPERS funding model, in which OPEB obligations are pre-funded and invested with a long-term view through a trust restricted for the benefit of current and future retirees. The proposed resolution establishes the policy direction of OPEB trust funding. With policy direction, staff anticipates returning to City Council for consideration of approval of the documents to establish an OPEB trust and vendor options for trust administration.
Coordinated With:
All City Departments.
Attachments):
1. Resolution of the City Council of the City of Calexico Approving Budget policies for Fiscal Year July 1, 2022 to June 30, 2023.
RESOLUTION NO. 2022-_
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CALEXICO APPROVING BUDGET POLICIES FOR FISCAL YEAR JULY 1, 2022 TO JUNE 30, 2023 WHEREAS, the City of Calexico is a general law city that operates under the council- manager form of government; and
WHEREAS, the City Council of the City of Calexico annually adopts a budget that estimates revenues and authorizes expenditures, subject to the City's existing purchasing policies and procedures, employment policies and other adopted city policies; WHEREAS, the City Council of the City of Calexico adopted a continuing budget resolution (Resolution #2022-42) followed by a resolution adopting the 2022-23 Proposed Budget for specific individual funds and programs (Resolution #2022-43) on June 30, 2022; WHEREAS, the City Council intends to complete its initial 2022-23 budget by adopting budget policies that clarify the authority delegated to the City Manager to conduct operations and also affirms the City's commitment to long-term financial stability by setting target operating reserves and retirement obligation funding policies;
NOW, THEREFORE, be it resolved, determined, and ordered by the City Council of the City of Calexico:
Section 1. The City Manager, or his duly appointed representative, has the authority to expend appropriated amounts subject to policies and procedures adopted by the City Council. Budget appropriations shall be controlled at the department level within the General Fund, at the fund level for other funds, and at the capital project level within the capital improvement program. The City Manager is authorized to transfer appropriations between accounts within a General Fund Department, and within other individual funds, to meet the operating needs of the City. The City Manager is also authorized to carry-over any unspent capital project or grant appropriations to the following fiscal year until the projects are complete.
Section 2. The City Manager, or his duly appointed representative, is authorized to fill staff positions as listed in the full-time staff position chart in the budget.
A General Fund and Internal Service Fund Operating Reserve Policy was established in the 2020-21 budget and is updated with this 2022-23 budget. It will be the City Council's policy to target and build over 5-year period a fund balance reserve for the combined General Fund and Measure H Funds that follows the Best Practices established by the Government Finance Officers Association (September 2015) equal to 60 days (16%) of General Fund operations. For Internal Service Self-Insurance Funds, the Operating Reserve Policy will remain at a one-month reserve equal to 8% of annual operating expenditures. These reserves will provide contingency funds in the event of economic or other disruption in City operations.
Section 4. A Water and Wastewater Operating Reserve policy was established in the 2019-20 budget and continues with the 2022-23 budget. It is the City Council's policy that both the Water and the Wastewater Enterprise Funds will maintain a $3 million operating reserve.
Water and Wastewater revenues that exceed the amounts needed to maintain this operating reserve will be transferred to the respective Water and Wastewater Capital Funds for investment in their long-term capital improvement programs.
Section 5. The City Manager is directed to establish an IRS Section 115 trust fund to accumulate resources to pay for the City's OPEB (Other Post-Employment Benefits) obligations, specifically the City's retiree medical benefit obligations, with a funding model similar to the CalPERS pension trust fund. The initial deposit to the trust fund will be funds accumulated in the Fund #602 Retiree Medical Internal Service Fund for this purpose as listed in the proposed budget.
PASSED, ADOPTED and APPROVED this 20# day of July, 2022, by the City Council of the City of Calexico.
Javier Moreno, Mayor
ATTEST:
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Gabriela T. Garcia, City Clerk
APPROVED AS TO FORM:
Carlos Campos, City Attorney
State of California -
County of Imperial ) SS.
City of Calexico
I, Gabriela T. Garcia, City Clerk of the City of Calexico do hereby certify the above Resolution No. 2022- was approved at a regular City Council meeting held on the 20th day of July, 2022, by the following vote to-wit:
AYES:
NOES:
ABSTAIN:
ABSENT:
Gabriela T. Garcia, City Clerk