Cotati City Council
Agenda Staff Report
Item type: REGULAR AGENDA (ACTION)
To: City Council
Subject: FISCAL RESILIENCY POLICY REVIEW
Date: April 9, 2024
Written by: Angela Courter, Director of Administrative Services Recommendation
It is recommended the City Council for the City of Cotati receive and provide direction on the proposed draft fiscal resiliency policy. No action is requested.
Background
At the January 23, 2024 City Council meeting, staff presented the General Fund Long Range Financial Forecast (LRFF), which is a tool to assist in long range financial planning and to discuss potential medium- and long-term financial challenges. The LRFF will continue to be presented annually to help ensure long-term revenue and operational stability.
With the LRFF, a severe recession scenario was included for comparison purposes and to approximate the financial impact of an event like the recession of 2008, as well as scenarios that assume continued slow growth, and a rosier scenario with a hotel operating in Cotati.
To ensure that the City is considering early signs of financial weakness and hopefully take progressive countermeasures early to avoid extreme reactions as a result of waiting too long to adjust.
Analysis/Discussion
Financial policies assist elected officials and City staff in the development of fiscal management practices, save time, and provide structure for financial decisions, promote public confidence, enhance transparency, and provide continuity over time. These policies are to be updated periodically but are designed with a long-term perspective. The financial policies provide the basic framework and road map for addressing a wide variety of financial and economic conditions that the City will encounter. A fiscal policy supports long-term planning and enhances the City’s effectiveness in implementing long-term strategies to deliver efficient public services.
The drafted policy incorporates reference to our City Code, the City’s existing financial policies and derived best practices incorporated from other national municipalities or other government agencies. Staff could not find other public policies or procedures that incorporated the action steps required for continued evaluation of economic events and steps to address such events. As such, this is a unique policy that could be used and evaluated for effectiveness.
The drafted policy provides initial steps for continuous evaluation of internal financial factors for the major City funds (General Fund, Water Fund, and Sewer Fund) and other outside economic factors. Each factor provides insights into the health of the Citys financial standing and performance of the local economy. Using the data allows the City Council and other stakeholders to make informed decisions to promote fiscal stability. If one or more of the identified factors indicate a financial risk, then the policy provides steps for implementing remediation.
Note that one factor still under consideration by staff is how to best manage timing of revenues/expenditures for reporting, particularly if the metrics are reported quarterly. There are some large expenditures (i.e. insurance, pension) that occur at the start of the year, as well as revenues, such as property tax, which are only received twice per year. To make meaningful comparisons, this can’t be compared to budget, but needs to be either annualized or compared to prior years.
The assumed benefits of implementing a policy like this are the enhanced economic resilience and improved fiscal health for the City and our community. By proactively monitoring economic indicators and implementing targeted strategies, our city can actively monitor and adjust for economic downturns and external shocks, which in turn reduces impacts to services, programs and infrastructure maintenance for our residents and businesses.
Assuming the City Council provides direction to implement this (or similar) policy, staff will incorporate feedback from the City Council and return with an updated policy for City Council action.
Financial Considerations
Adopting a financial policy has no direct fiscal impact on the City. This policy is intended to allow effective identification of possible financial downturns and steps used to implement phased or layered cost-saving measures.
Environmental Issues
This action is exempt from the California Environmental Quality Act (CEQA) because it is not a project which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment, pursuant to CEQA Guideline section 15378.