Attachment G
Fiscal Policies – Committed, Unassigned Fund
Balance, and Use of One Time Funds Policy
PURPOSE
To establish assigned and unassigned fund balance and one time use policies.
SCOPE
The General Fund and Capital Funds.
POLICY
To maintain sufficient committed and unassigned fund balance (general fund only) in each fund for the ability to meet following economic uncertainties:
Economic Uncertainty – $1924,000,000 and represents two months of General Fund (GF) operating expenditures excluding transfers out plus a two year drop in total general fund revenue of 13% or approximately 1.5 months, excluding the use of reserves. Transfers out are primarily used to fund Capital Projects and do not represent on‐going expenditures. This assignment will change from year to year based on budgeted general fund expenditures and revenues.
Mitigate short‐term economic downturns and volatility in revenues (2 years or less) Sustain city services in the event of an emergency
Meet requirements for debt reserves
Meet operating cash flow requirements as a result of delay in the receipt of taxes, grant proceeds and other operating revenues
PERS – $20,491,004 and represents the initial investment into the City’s Pension Rate Stabilization Program (PRSP). As a result of the significant increase in retirement costs based on the most recent actuarial forecast, the City elects to establish and fund a secondary pension trust to assist in stabilizing the potential impact of pension cost volatility on the City’s operating budget. Annual contributions subsequent to the initial funding are determined by calculating the difference between CalPERS’ current discount rate and a more conservative rate determined by the City. This difference is to be transferred to the pension trust and to be used solely for the benefit of members in the plan. Funds in this trust are technically “restricted” under Governmental Accounting Standards Board (GASB) Statement No. 54 in that the funds are legally restricted to be used for retirement costs; however, the timing for which these funds may be used is only at the discretion of City Council.
Attachment G
Capital Projects ‐ $10,000,000 and represents the amount of General Fund resources readily available to fund future capital projects in the City’s Capital Improvement Program (CIP). The City’s Capital Projects Funds has a $5,000,000 reserve threshold; however, establishing a secondary reserve in the City’s General Fund will enable more efficient and accurate short‐ and long‐term capital budgeting and planning.
Attachment G
Sustainability Reserve – Cupertino’s Sustainability Division oversees the City’s Climate Action Plan (CAP), which defines strategies to reduce greenhouse gas emissions, and provides residents, businesses and schools with programs and services focused on energy efficiency, renewable energy, water conservation, alternative transportation and other sustainable actions.
The City receives rebates for projects that successfully meet the eligibility requirements such as energy or water efficiency. If the rebates were not initially budgeted, they are categorized as committed fund balance in the General Fund. The purpose of this reserve is to help support future sustainability projects/programs.
Unassigned – $500,000 and represents 1% of the total general fund operating budget. This assignment may change from year to year based on budgeted general fund expenditures. Absorb unanticipated operating needs that arise during the fiscal year that were not anticipated during the budget process
Absorb unexpected claims or litigation settlements
Capital Improvement – $5,000,000 and represents average dollars spent for capital projects in the last three fiscal years. This assignment may change from year to year based on actuals dollars spent on capital projects and anticipated future capital project needs. Meet future capital project needs so as to minimize future debt obligations
The City shall not use fund balances/reserves in lieu of revenues to pay for ongoing expenses except as specifically provided in the City’s reserve policy.
The chart below summarizes reserve policy levels as described above:
Funding
Priority Reserve
Reserve
Level Escalator¹ Description
GENERAL FUND
1 Economic
Uncertainty
$1924,000,000
GF Budgeted
Operating
Expenditures²
GF Budget
Revenue³
For economic
downturns and
major revenue
changes.
2 PERS $20,491,004 Budgeted
Citywide
Retirement
Costs
For pension cost
increases.
3 Capital Projects $10,000,000 None For future capital project funding.
Attachment G
4 Sustainability
Reserve
$127,891 GF Budget
Revenue³
For future
sustainability
projects/programs.
5 Unassigned $500,000 Budgeted GF
Operating
Expenditures²
For mid‐year
budget
adjustments and
redeployment into
the five year
budget.
CAPITAL PROJECTS FUNDS
6 Capital
Improvement
$5,000,000 None Reserves set aside
for future capital
projects.
______________
¹ Rounded to the nearest hundred thousand
² Excludes Transfers Out
³ Excludes the use of reserves
Changes to Committed Fund Balance – All reserves listed in this policy, with the exception of the PERS restricted reserve, are classified as Committed Fund Balance under Government Accounting Standards Board (GASB) Statement No. 54. Committed fund balance is comprised of amounts that can be used only for the specific purposes determined by a formal action of the government’s highest level of decision‐making authority. Changes to committed fund balances must be approved by City Council. This policy will be reviewed annually as part of the budget process.
Replenishment process –
Should the City need to utilize any of the committed fund balances listed in this policy, recommendation will be brought to City Council for approval and a plan to replenish the committed balance will be developed in conjunction with its use.
Excess – Funding of these reserves will come generally from one‐time revenues, annual net income, and transfers from other reserves that exceed policy levels. They will be funded in the following priority order with any remaining funds to be placed in the Capital Reserve:
1) Economic Uncertainty
2) PERS
3) Capital Projects
3) Sustainability Reserve
Attachment G
4) Unassigned