Department of Financial Management
411 West Ocean Boulevard, 6th Floor
Long Beach, CA 90802
(562) 570-6425
August 22, 2023
HONORABLE MAYOR AND CITY COUNCIL
City of Long Beach
California
RECOMMENDATION:
Receive and file a report on City of Long Beach (City) financial policies used in the annual budget development process and other citywide financial analyses. (Citywide)
DISCUSSION
On July 18, 2023, the Department of Financial Management presented to the Budget Oversight Committee (BOC) an overview of the City's financial policies (Attachment A – Financial Policies Presentation). The BOC requested the presentation be made to the full City Council. The attached presentation provides an overview of the City’s financial policies and discusses how these policies inform the development of the annual budget as well as citywide financial analyses and decision-making processes. The full financial policies document is also attached (Attachment B – Financial Policies).
This matter was reviewed by Deputy City Attorney Monica Kilaita on July 31, 2023 and by Budget Manager Grace H. Yoon on July 27, 2023.
TIMING CONSIDERATIONS
City Council action on this item is not time critical.
FISCAL IMPACT
This recommendation has no staffing impact beyond the normal budgeted scope of duties and is consistent with existing City Council priorities. There is no fiscal or local job impact associated with this recommendation.
SUGGESTED ACTION:
Approve recommendation.
Respectfully submitted,
KEVIN RIPER
DIRECTOR OF FINANCIAL MANAGEMENT
ATTACHMENTS: A – FINANCIAL POLICIES PRESENTATION
B – FINANCIAL POLICIES
APPROVED:
THOMAS B. MODICA
CITY MANAGER
R-15
Overview of Budgetary and Financial Policies
Budget Oversight Committee Meeting
July 18, 2023
Attachment A
• Provide an overview of the City’s budgetary and financial policies and current status
• There are 22 policies, last updated in the FY 23 Budget • No changes or updates are being recommended
Agenda and Overview
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
1. The Budget will be Structurally Balanced
• The General Fund budget
will be structurally balanced
for the fiscal year.
Status
• Currently the General Fund
has a budgetary structural
imbalance but has been
balanced with one-times
since the pandemic with
funds made available
through the Long Beach
Recovery Act.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
2. Multi-year Financial Projections
• The proposed annual
budget should include a
three-year General Fund
surplus/(shortfall) project at
minimum
Status
• Budget includes four-year
projection (FY 24 – FY 27)
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
3. Budget Process is an Annual Cycle
• The budget process
develops annual service
priorities and changes are
minimized.
Status
• The City works to make as
few changes as feasible
other than technical
changes, new grants, etc.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
4. User Fees to be Set at the Cost of Service
• Fees fully recover costs,
except where there is
greater public benefit
through use of a lower fee
Status
• A multi-year citywide fee
study in progress. Fees are
generally set at cost of
service, except where City
Council approves
exceptions.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
5. One-time Resources are for One-time Uses
• One-time resources not
used to fund ongoing
operations.
• Five percent of one-time
revenues are set aside for
unfunded liabilities.
Status
• One-time resources are
generally used for one-time
purposes, except for recent
years post pandemic to
help balance General Fund
• Five percent of General
Fund funds available is set
aside for unfunded
liabilities.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
6. Capital Projects Budgeted for Both One-time and Ongoing • Before approving any
capital expenditure, both
the capital (one-time) and
operation (on-going) costs
will be considered
Status
• Where known, the fiscal
impact of capital items
includes estimates of
normal operating costs.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
7&8 Emergency and Operating Reserves Will Be Maintained • Emergency reserves: 8%
min (of expenditures), 10%
target
• Operating reserves: 2%
min, 7% max.
• Other reserves may be
established
Status
• Reserves have been
maintained at the minimum
levels or higher.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
9. Adequate Reserves for All funds
• Financial Management will
develop and recommend
reserve policies for each
City fund
Status
• Review is in process
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
10. Revenue Projections will be Reasonably Expected
• Revenue projections are to
be objectively prepared
using a reasonably
expected approach, so that
there is an equal chance of
coming in higher or lower
than projection.
Status
• Projections are following
this guideline
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
11. Stable Revenue Sources will be Used to Fund Operations • Any revenue which has
highly variable component
may have only a portion of
it, or none of it, budgeted
for operations.
• Oil revenue will be
budgeted at a price likely to
be lower than the actual
price.
Status
• Oil has been budgeted in
this manner and has
protected the City from
more serious budget
impacts.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
12. Fiscal Impact Statements Required
• Fiscal impact statements
are required for proposed
City Council actions,
including revenues,
expenditures, financial
position, and economic
impact.
Status
• This policy is being followed
and fiscal impact
statements are provided.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
13. Current Year Costs will be Funded or Explanation Provided • The Budget will include
funding for all costs of
operation for the current
year or will discuss those
costs where full funding is
not provided.
Status
• The City funds most annual
costs in the proposed
budget except for deferred
maintenance and retiree
health costs
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
14. Financial Reporting Will Use Generally Accepted Standards • Annual financial statements
will use Generally Accepted
Accounting Principles
(GAAP) and will include a
reconciliation of budgetary
funds available to GAAP.
Status
• The City’s financial reports
are in accordance with
GAAP. Reconciliation to
budgetary funds available is
done for key funds.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
15. Financial Status will be Reported
• The City’s ACFR will be
available and there will be
periodic reporting on the
budgetary status of the City
Status
• Reports are prepared in
accordance with policy
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
16. Financial Status of Major Funds will be Reviewed
• The City Manager will
annually present a brief
report discussing the high-
level financial status of
each major fund and the
report may be incorporated
as a component of the
budget’s Fund Summary.
Status
• The financial status is
contained in the budget
document, in periodic
performance reports, and in
the year-end report for
funds that have significant
issues or are of interest.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
17. Appropriate Grants will be Sought
• The City will seek grants
that address City priorities
and provide substantial net
benefit. Appropriate grant
support levels will be
maintained.
Status
• This policy is being
followed.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
18. Debt Maintained at Appropriate Levels
• Debt will not fund
operations and debt limits
will be adopted. Capital
leases for vehicles will be
part of a comprehensive
strategy.
• A separate debt policy will
be adopted
Status
• This policy is being
generally followed. While
there is no formal policy for
capital leases, they are
watched closely for
conformance with budget.
• A separate debt policy has
been adopted by City
Council.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
19. Investments will be Conservatively Managed
• Investments are managed
with the priorities of (in
order): safety of principal,
liquidity (availability of
cash), and yield (income).
• A separate investment
policy is to be adopted.
Status
• This policy is being
followed.
• A separate investment
policy has been adopted by
City Council.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
20. Long-Term General Financial Plan will be Maintained • A long-term general
financial plan will be
adopted that includes
general approaches on
revenues, economic
growth, control and
management of costs and
method of service delivery
Status
• The City does not have a
formal plan, but instead
prepares a three or four-
year outlook and the issues
and ramifications of that
outlook are discussed as
part of the annual budget
process.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
21. Financial Policies will be Reviewed
• Financial policies will be
reviewed every three years
and the City Manager will
report annually on any non-
compliance.
Status
• This was last reviewed as
part of the FY 23 Budget
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Policy
22. Administrative Procedures to be Consistent with Policy • Administrative procedures
shall be consistent with the
adopted City Council
budgetary and financial
policies.
Status
• Administrative procedures
are consistent with City
Council financial policy.
O v e r v i e w o f B u d g e t a r y a n d F i n a n c i a l P o l i c i e s B u d g e t O v e r s i g h t C o m m i t t e e M e e t i n g Attachment A
Questions
D E P A R T M E N T N A M E
P R O P O S E D F Y 2 4 B U D G E T O V E R V I E W Attachment A
Financial Polices as Adopted by City Council on September 6, 2022 Page 1
BUDGETARY AND FINANCIAL POLICIES
CITY OF LONG BEACH, CALIFORNIA
1. The Budget will be Structurally Balanced
Background – A budget is structurally balanced if it does not spend more on ongoing services than it receives in ongoing rev enues. A structurally balanced budget is a necessary component of good financial management and financial discipline and will help sustain the consistent delivery of se rvices to residents. An unbalanced budget (spending more than is received) undermines t he City’s ability to deal with financial problems. It may lead to reduced services in the future and inhibit the City’s ability to take advantage of opportunities that will periodically occur.
Policy - The budget for the General Fund wil l be structurally balanced for the fiscal year. A structurally unbal anced budget will include an ex planation and describe the expected approach and time frame for achieving structural balance within the context of official revenue and expend iture projections. It is not a violation of this policy to have a planned use of funds av ailable to fund one-time it ems, including capital, equipment, land or transitional costs for operations (start ing up or termination of a service element). It is also not a violation of this policy to use funds previously set aside to mitigate temporarily higher costs or lower revenues.
2. Multi-Year Financial Projections will be Incorporated into the Budget Process
Background – The City’s financial situation and projected future status are important factors in the financial and economic decis ions the City Council may make. To support the City’s budgetary planning and financial decision-making process, the City needs to analyze its financial situation and the key factors impacting its economic and financial status.
Policy - At a minimum, the proposed ann ual budget should incl ude a three-year General Fund surplus/(shortfall) projection (the fiscal year plus two additional years).
Major assumptions should be identified. It is desirable that the budget should include similar projections of key funds and potentially all funds.
3. The Budget Process Is Based on an Annual Cycle with Minimal Mid-Cycle Adjustments
Background - The service plan for the City is based on an annual budget as required by Charter and by good financial and operati onal practice. Budgeting on an annual basis provides time to review all revenue sources, develop solutions to previously Attachment B
Financial Polices as Adopted by City Council on September 6, 2022 Page 2
identified problems, and to discuss and decide on policies and priorities. An annual budget process also provides time for management to plan and implement changes incorporated into the budget more effici ently and effectively. Shortening or interrupting the process with significant mid-cycle changes can lead to poor decision- making due to incomplete information and to inefficient and ineffective operations or expenditures.
Policy
a. The annual budget process will be the general method used by the City to develop its annual service priorities and the le vel and type of resources to fund those services.
b. Changes to the budget and to servic e levels during the fiscal year will be minimized. “Routine” changes during the fi scal year will genera lly be limited to technical adjustments, time sensitive oppor tunities or issues, or new grants or awards that are intended to be spent during the year.
c. The creation of non-routi ne mid-year new programs or projects, higher service levels, or other expenditures during mi d-budget cycle is discouraged and, if proposed, before adoption is considered, should be evaluated for programmatic feasibility and impact and for fiscal impa ct, preferably by the responsible operational department and by Financial Management. If an adopted mid-year program or project is in conflict in terms of resource use or other aspects, the mid- year program or project will have a lo wer priority (compared to preexisting budgeted programs and projects) unless otherwise specified by City Council. d. Unexpected revenue shortfalls or other significant issues that may create a budget shortfall during the fiscal year are to be reported to the City Council with recommendations by the City Manager as to whether a mid-year budget adjustment should be made.
e. A list of City Council adopted new programs or expendit ures not included in the original budget or that do not qualify as routine mid-year items (as defined above) shall be provided to the Budget Oversight Committee annually for review.
4. User Fees and Charges will be Set at the Cost of the Service
Background - Fees and associated charges ar e associated with recovering the cost of providing a service. The City can charge up to the full cost of providing a service.
Policy
a. Fees will be set to fully recover costs, except where there is a greater public benefit through use of a lower fee, such as where full recovery may adversely impact overall revenue or may discourage participation in programs where the participation benefits the overall community.
Attachment B
Financial Polices as Adopted by City Council on September 6, 2022 Page 3
b. The City Manager will establish a process in -depth review of all fees over time.
The review, while eventually covering all fees, should emphasize those that have or may have significant subvention (may not be at full cost).
5. One-Time Resources will be U sed Only for One-Time Purposes
Background – One-time resources are rev enues that only occur once, for a very limited time, or are too unpr edictable or unstable to fund operations. One-time revenues may include the variable portion of some revenue sources that have highly variable components. One-time revenues ar e not suited to fund ongoing operations because they are not available in the future or cannot be relied on from year-to-year to pay the ongoing costs of operations.
Policy
a. One-time resources will not be used to fund ongoing operations. They will be used for one-time uses, including capital and ot her one-time expenditures, transitional funding of operations (for a limited time-period with a planned ending date), increasing reserves, or paying down unfunded liabilities. b. Five percent of new Gener al Fund funds available in a year will be automatically set-aside to fund unfunded liabilities and these funds may be used to reduce unfunded liabilities.
6. Capital Projects will be Budgeted a nd Funded for Both Capital and Operating Costs
Background – Expenditures for capital and infrastructure often have an impact on operating costs. Capital in vestments and infrastructure eventually have to be replaced. New capital projects typically increase costs while repairs may lower costs.
For capital expenditure decisions, both the one-time capital costs, the ongoing net operating costs, and replacem ent costs (lifecycle) should be considered. When capital and infrastructure funding decisions are made, it is im portant to provide information to the City Council about future operating costs and potential replacement costs and funding of replacement.
Policy
a. Before approving any capital expe nditure, including those proposed by any elected official, the City Council shall c onsider both the capi tal (one-time) and operating (ongoing) components of costs, including the fu ll capital cost of the project, regardless of funding sources, and all City incurred site, design, overhead costs and start-up costs. Replacement costs and potential method of funding shall also be considered. Site costs for land already owned by the City do not need to be reported. Projected operating costs through any stabilization period, as well as Attachment B
Financial Polices as Adopted by City Council on September 6, 2022 Page 4
projected future operating and maintenance costs, are to be identified. If the project has a limited economic life, the fiscal impact information should discuss proposed end of life actions and costs. T he method for fundin g the projected operating costs is to be included in any funding description. Projects and costs that do not significantly impact the City do not need to be analyzed.
When fees are initially proposed for items charged to external parties but installed and maintained by the City, the City Council shall have information to allow the Council to consider incor poration of capital costs, maintenance costs and replacement cycle costs in the fees or upfront costs. Costs that are not significant do not need to be analyzed.
7. Fund Balance Policy
Background – Generally Accepted Accounting Principles (GAAP) require a policy with regard to the establishment and maintenance of fund bal ances. GAAP does not make any requirements as to the level of those balances; just that there is a policy so that they can be clearly and consistently accounted for.
Policy - This policy provides for the est ablishment and maintenance of fund balances; helps maintain the financial strength, stability, and bond rating of the City; positions the City to be better able to financially respond to emergencies, unexpected needs; provides a method of accumulating funds for one-ti me needs; and meet the requirements of Generally Accepted Accounting Principl es (GAAP). This policy applies to all governmental funds of the City.
a) Types of Fund Balance : The City maintains five components of fund balance.
1. Non-spendable - Fund balance that is inherently non-spendable.
2. Restricted - Fund balance that has externally enf orceable (legal) limitations on its use and can only be spent for a specific purpose stipulated by an external provider, a constitutional provision, or through enabling legislation.
3. Committed - Fund balance that the City has placed limitations on its use by way of a motion of the City Council.
4. Assigned - Fund balance that is comprised of amounts intended to be used by the government for specific purposes. The int ent can be informally expressed by the governing body or can be stated by the City Manager.
5. Unassigned - This is the residual fund balance that is spendable and not restricted, committed or assigned.
Assigned Fund Balances
1. Emergency Reserve – This reserve is used only in extremely rare circumstances resulting from major emergencies that are not recurring by nature and, in general, Attachment B
Financial Polices as Adopted by City Council on September 6, 2022 Page 5
are not predictable. Such an event will have resulted in significant physical damage or disruption within the Cit y and its Tidelands areas. Examples of a major emergency that would require extensive additional City operational or capital costs include an earthquake, severe storms, floodi ng; a terrorist event, and a protracted major health or military crisis. It is not intended for use to smooth economic cycles or changes in revenue or expenditure pattern s. Use of this reserve for intended purpose is consistent with this policy. Any draws on this reserve should be the highest priority for reserve replenishment.
2. Operating Reserve – This reserve is used to provide funds for unexpected one-time opportunities or temporary operating needs. It is also intended to provide transition, phase-in or phase-out funding. This reserve is not intended to be used to fund planned infrastructure or capital acquisi tions. It can be used in an emergency situation to supplement the emergency re serve. Temporary drawdown of the reserve, or any drawdown below the minimum, should be the second highest priority for reserve replenishment.
3. Reserve for Subsequent Years Appropriations – This reserve is used to identify fund balance amounts that are appropriated or identi fied through the budget process as a funding source for a future year.
4. Infrastructure Reserve – This reserve is used to accumulate and provide funds to finance capital projects and other capital im provements, to finance the acquisition and implementation of information technology systems that enhance service delivery, create operating efficiencies or improve City operations, or to retire capital- related debt in advance of scheduled debt serv ice payments. It is not intended to serve the purpose of an operating reserve. It can be used in an emergency to supplement the emergency reserve.
b) Other Reserves and Designation for Purpose – Additional committed or assigned reserves may be created by the City Council, either explicitly (committed) or through the budget or other proce ss (assigned). Assignments ma y be designated for a purpose by the City Council or, if delegated, the Council’s designee. c) Use of Governmental Fund Balances – Use of fund balances, for purposes as defined in this policy, are not a violation of th is policy. When an expense is incurred, the normal order of resource use, subject to the reserves specified purposes, when applicable, will first be the use of restrict ed fund balance resources, followed by committed fund balance resources, assi gned fund balance resources, and, finally, unassigned fund balance resources.
8. Adequate General Fund Emergency and Operating Reserves will be Maintained
Background – Maintaining ad equate emergency and operati ng reserves is a basic component of a financially strong City. Adequate reserves help sustain City operations when adverse or unexpected circumstances impact the City.
Attachment B
Financial Polices as Adopted by City Council on September 6, 2022 Page 6
Policy
a. The City will maintain a General Fund Emergency Reserve at a minimum of 8 percent of General Fund ongoing operating expenditures (including transfers) and a target level of 10 percent.
b. The City will maintain a General Fund Operating Reserve at a minimum of 2 percent of General Fund ongoing operating expenditures with a normal maximum of 7 percent.
c. The reserve created by Measure B Budget Stabilization Fund (2016) shall be maintained and accounted for as provided for in Measure B and GAAP and shall be included in the overall calculation of the Operating Reserve levels. d. The City will seek to achieve and ma intain overall General Fund reserves (including all committed, assigned and unassigned reserves and excludes restricted and unspendable reserves) at no less than two months (or 16.7 percent) of General Fund ongoing operating expenditures, including transfers. e. If emergency or operating reserves are drawn down below the minimums, a plan will be developed and implemented to repl enish them, generally from future surpluses. Replenishing reserves will be a priority use of one-time resources. f. The City may establish and maintain special purpose operating reserves (in addition to the operating reserve described above). Special purpose operating reserves are intended to be used for specific revenue and expense variations and will generally be formulaic and automatic in nature in terms of when the reserves will be added and when they will be used.
g. The City may establish and maintain other reserves.
9. Adequate Reserves will be Established for all City Funds
Background – Financial reserves strengthen the City’s financial status and provide valuable flexibility for unexpected event s for City funds. Every fund of the City represents a stand-alone financial operation and has its own operating characteristics, financial capabilities, and constraints. The leve l of reserves needed, if any, should be based on the financial and operating characteristics of each fund.
Policy – The Financial Management Departm ent, in concert with any relevant operating departments, shall develop and present to Cit y Council recommended reserve policies for each City fund, which will be adopted, as m odified, by the City Council.
10. Revenue Projections will utilize a Reasonably Expected Approach
Background - Revenue projections are crit ical to budget decisions, particularly a budget that is intended to be structurally balanced. Unfortunately, many of the City’s key revenues are subject to material variation depending on the economy. No Attachment B
Financial Polices as Adopted by City Council on September 6, 2022 Page 7
revenue projection is likely to be “accurate” when the economy is changing direction or moving quickly. As a result, it is impor tant to have a consistent approach to projecting revenues and for decision-makers to understand the basis used to project the resources available for the budget. Re venue should be projected in a way not likely to lead to a revenue shortfall and not be so conservative that the projection is always substantially under revenues.
Policy - Revenue projections are to be objectively prepared using a reasonably expected approach, so that there is an equal chance of coming in higher or lower than projection.
11. Stable Revenue Sources will be Used to Fund Operations, to the Extent Practical
Background - Operations r equire stable revenue sources from year-to-year to minimize the necessity to cut services when key revenues vary in the wrong direction.
Revenue sources that have significant va riability from year to year, or an unpredictable basis, are not completely suitable to fund operations and often cannot be projected with reasonable accuracy. Two approaches to addressing such a situation are to 1) designate the entire revenue sources as one-time or 2) divide it into stable (operations) and unstable (one-time) components.
Policy - The City will take steps to utilize only the stable portion of revenue sources for ongoing operations.
a. Any revenue that has a highly variable component and is used to fund ongoing operations may have only a portion of i t, or none of it, budgeted for operations.
The remainder (unstable portion) may be budgeted in the year of expected receipt or in the following year for capital or other one-time purposes, including increasing reserves. If budgeted in the year of receipt, it should not normally be budgeted for expenditures that require commitments in advance of receipt. This policy helps stabilize operating revenues and can provide a fairly regular source of funds for one-time purposes. Consideration of such a practice for individual revenue sources will be based on a recommendat ion from the City Manager and subsequent approval by City Council.
b. Oil revenue has a tendency to vary unpredi ctably within a year or from year-to- year. As a result, oil revenue will be budgeted at a per barrel price that reflects a price that is highly likely to be lower than the average price of oil during the year, based on historical variability. Oil revenue actually received as a result of the actual price of oil being above that budgeted price may be budgeted the following year.
Attachment B
Financial Polices as Adopted by City Council on September 6, 2022 Page 8
12. Fiscal Impact Statements will be Incl uded with all City Council Letters Which Involve Decisions for Spending, Revenues, Debt, Investments, or Other Potential Economic Impact
Background – The City Council should receive information on the actual or potential fiscal and resource impact of proposed actions to aid in making decisions.
Policy – For any proposed City Council action, including those from non-city Manager departments or elected officials, an analysis is to be provided (a fiscal impact statement) of the projected or potential fiscal impact on current and future revenues, on expenditures and resources, including st aff resources (hours, opportunity costs, and diversion of resources impact, as appropriate), on existing City Council priorities, and the projected or potential impact on the City’s financial or economic position. A discussion of any overall economic impacts to the City, if relevant, will also be included. Where analysis has determined that the impact is not significant, a detailed explanation is not required. Any proposed City Council action should include a statement indicating the proposed action was reviewed by Financial Management. If the time urgency of the item does not allow for any Financial Management review or allows for only a partial review, the fiscal impact statement should explicitly indicate that. For any proposed City Council action re sulting in a disbursement of funds, the funding source must be ident ified, as well as whether the expenditure has been budgeted.
13. The Budget Will Fund Costs Incurred in the Current Year or will Identify the Costs that Have Not Been Fully Funded
Background – Governments sometimes have financial issues because they do not budget for or fund costs that are incurred in a budget y ear, but not paid out until a future year. This practice can lead to higher costs to taxpayers in the future if they have to pay for services provided in the past. Typically, these costs are for employee benefits, but may also be associated with other costs. Funding current year costs is not the same as funding unfunded liabilities. Paying current costs does not have any impact on existing unfunded liabilities, but it does have an impact on keeping unfunded liabilities from occurring or growi ng in dollar amount. Current costs, whether paid in the current year or not, are a component of structural balance.
Policy
a. The budget will include funding for the cost s for services for the current year. If funding a particular service or type of cost is determined to not be appropriate for a given year, the budget will disclose that and include a discussion of those costs that were not fully funded.
Attachment B
Financial Polices as Adopted by City Council on September 6, 2022 Page 9 b. Unfunded liabilities, unfunded lifecycle replacement costs, and deferred maintenance costs shall be explicitly identified in the budget and the budget shall include a discussion of them, including general information on the funding of those costs.
14. Accounting and Financial Reporting will Meet Generally Accepted Standards Background - To be able to borrow money fo r City infrastructure and capital needs, the City must maintain financial statements in conformance with Generally Accepted Accounting Principles (GAAP). This is also necessary to have a financial presentation that a knowledgeable r eader can understand. Governm ental budget decisions, however, are not necessarily best made based on GAAP financial reporting. As an example, GAAP accounting for enterprises and internal service operations focuses on the longer term and not the short-term situation in which many governmental budgeting decisions are made. For this and other reasons, gov ernmental budgetary reporting usually uses a non-GAAP basis. However, it is very important to know how budget reporting differs from GAAP and to know that the budgetary reporting of financial status is traceable to audited GAAP financial statements.
Policy
a. The City will prepare an annual financial report (ACFR) in accordance with GAAP and will include a written description of the basis of accounting in the ACFR. b. The City will prepare the annual budget using as consis tent an approach as
appropriate
and will include a written description of the basis of budgeting in the budget, as well as the ACFR.
c. For every budgeted fund, the ACFR will include a reconciliation of the budgetary funds available (a fund’s bottom line from
a budget perspective) to the GAAP fund
balance or net position.
15. Financial Status and Financial Issues will be Reported Background - Routine financial reporting is an essential component of financial control and management.
Policy - The City’s annual comprehensive financial report (ACF R) will be made available to the City Council, the publ ic, bond holders, and rating agencies after completion of the annual audit. In addition, there will be periodi c reporting on the budgetary status of the City, particularly the General Fund and other funds that have unusual or problematic status. Any major or critical issue will be reported as soon as it is practical.
Attachment B
Financial Polices as Adopted by City Council on September 6, 2022 Page 10
16. Financial Status of Major City Funds will be Periodically Reviewed
Background – A periodic high-level financial review of all major City funds is important to the understanding of the City’s financial status and to any decision-making that impacts the City’s short or long-term financial status.
Policy – The City Manager will annually present to the Cit y Council a brief report discussing the high-level financial status of each major fund of the City and its future outlook, risks and opportunities. The report ma y be provided by including it in the proposed budget as a component of each funds’ Fund Summary.
17. Grants will be Actively Sought, but Only as Appropriate and with Suitable Oversight to Ensure Compliance
Background - Grants are an es sential component of City re sources. All grants have rules and regulations that must be followed, including the purpose for which the grant funds may be used. Failure to follow the ru les and regulations may require a return of the funds, even after they have been spent. Grants often require a match. A grant may be inappropriate for the City due to a large match requirement, disallowed or limited ability to recover administrative costs, excessive restrictions on expenditures, compliance risk (return of funds if in non-compliance), issues with post-grant funding, or incompatibility with other City priorities.
Policy - The City will seek gr ants that address City priori ties and are believed to provide a benefit to the City that provide a substantial net benefit after considering the cost to secure and administer the grant, and the risk associated with unintentional non-compliance. The City will not seek gr ants if the purpose does not provide a significant net benefit to the City for existing priorities. Before applying for any grant, staff shall ensure the above conditions hav e been met. The City shall maintain the necessary administrative support and training to ensure compliance with grant terms and requirements. When the City Council considers approval of a grant, City Council should be provided with staff’s expectations for any continued funding and continuing or discontinuing of programs after the grant period. If it subsequently becomes clear that a City Council approved grant funded pr ogram will need to be continued or discontinued differently from previously reported expectations, that change should be reported to the City Council during the budget process fo r the year in which the proposed change is to occur.
18. Debt and Capital Leases will be Maintained at Appropriate Levels
Background - Debt (borrowing) is a valuable and necessary tool for financing major infrastructure and other capital assets. Ho wever, misuse of debt or poor debt Attachment B
Financial Polices as Adopted by City Council on September 6, 2022 Page 11
management, including excessive debt and poor choices for the structure of debt, can contribute to financial weakness and compromise the City’s ability to deliver services over the long-term.
Policy – Limits on the amount of debt shall be recommended by the Financial Management Department and adopted, as modified, by the City Council. The term of debt will generally not exceed the life of the asset being acquired. Capital leases for vehicle replacement or other recurring co sts should be part of a comprehensive strategy that provides for ongoing replac ement of the equipmen t and should not be done to provide a short-term budget solution to replace cash purchases with debt.
Debt will not be used to fund operations. Incurring short-term debt (less than one year) to provide for cash flow in anticipation of revenues is not a violation of this policy.
A separate policy on debt and debt policy will be adopted by the City Council.
19. Investments will be Conservatively Managed
Background – Investments can provide a significant source of revenue to the City.
However, investments have risk. An investment policy needs to describe the balance between investment income and risk that is desired.
Policy – Investments shall be managed with the following priorities, in order: safety of principal, liquidity (availability of cash) and yield (investment income). A separate policy on investments and investment management will be adopted by the City Council.
20. A Long-Term General Financial Plan will be Maintained
Background - The long-term fi nancial health of the City and the ability to provide services and a quality of life for the City’s residents depends on the actions City officials take. To help guide the decisions of City officials where the decisions impact the long-term finances of the City, a plan that identifies adopted general strategies for the long-term financial strength of the City is helpful, if not essential, to the long-term financial success of the City. The general financial plan would be specific enough to determine whether or not a particular proposal is consistent with the plan.
Policy - The City Manager will prepare and periodically update a proposed high-level financial plan for the City. The plan will outline general approaches the City should follow over the long-term to maintain and increase the ability of the City to provide services through maintaining and increas ing revenues, growing the City’s economy for the purpose of revenue generation, and controlling and managing the cost of services and the method of delivery of se rvices. This plan will identify and discuss unfunded liabilities and other deferred costs such as maintenance. A plan or options Attachment B
Financial Polices as Adopted by City Council on September 6, 2022 Page 12
will be identified to address them. This plan is not intended as a general statement of overall City strategies and goals, but rather a focused approach to long-term finances and to enhancing the economic st rength of the City to generate more revenues and resources for services. The plan may be integrated into an overall set of goals and strategies for the City. The City Council will modify the plan as it desires and adopt it as a general guideline for futu re financial and economic direction. The plan is to be reviewed and updated no less frequently than every five years.
21. Financial Policies will be Periodically Reviewed
Background - Financial policies need to be periodically reviewed to ensure that they do not become out-of-date and also to help reinforce compliance with the policies.
Policy
a. Financial policies will be reviewed by t he City Council every three years or more frequently, if appropriate.
b. The City Manager will report to City Council when any proposed City Council action may not comply with City Council financial policies (preferably through the Fiscal Impact Statement) and will also r eport annually on general compliance or non-compliance with each of the policies, recognizing that some policies may take time to fully implement. This annual repor t will list the financial policies in their entirety.
22. Procedures and Practices are to be Consistent with Financial Policy
Background – Financial policies are hi gh level expressions of direction.
Implementation of policies requires detailed procedures and practices.
Policy – Policy implementation procedures and practices designed and implemented by the City Manager and any associated administrative procedures and practices shall be consistent with the adopted City Council policies.
Attachment B