City Council Agenda Report
TO: Mayor Clauzel and Members of the City Council
FROM: Ken Irwn, City Manager
BY: Jennifer Riedeman, Finance Director
MEETING DATE: July 16, 2024
ITEM NO: 6.9
SUBJECT: Adopt Resolution No. 2024-45, approving an amendment to the City of Patterson General Fund Emergency Contingency commitment of fund balance for the General Fund.
RECOMMENDATION
Motion to Adopt Resolution No. 2024-45, approving an amendment to the City of Patterson General Fund Emergency Contingency commitment of fund balance for the General Fund.
BACKGROUND
The Governmental Accounting Standards Board (GASB) has issued its Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The requirements of this statement are intended to improve financial reporting by providing fund balance categories and classifications that will be more easily understood. The categories are more clearly defined to make the nature and extent of the constraints placed on government’s fund balance more transparent.
An overview of this statement was given to Council during the budget workshop held on June 14, 2011, and the original policy was adopted on June 21, 2011 as Resolution 2011-37.
ANALYSIS
Part of the City’s implementation of GASB Statement No. 54 for Fiscal Year 2011/12 was the formal adoption of a fund balance policy. The policy explains the five components of fund balance and formally delegates to the City Manager and Finance Director, as required by the statement, the assignment of fund balance for specific purposes for inclusion in the annual financial reports. The objective of this Statement is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. Therefore, it improved financial reporting. Prior to GASB Statement No. 54, these amounts were reported by the Finance Director as unreserved and designated and did not require City Council delegation.
The policy is the City Council’s formal commitment of an amount of fund balance to be set aside specifically for emergency contingencies previously defined as a state or federal state of emergency or declaration of a local emergency as defined in Patterson Municipal Code Section
2.36.060. The amount was originally set at $3,564,292 for Fiscal Year 2011/12, and has increased to $12,024,541 for Fiscal Year 2024/25 and represents an equivalent to 5 months of regular operating expenses per the original policy.
The objective of this amendment is to include other extenuating circumstances for use of the emergency contingency reserve in order to stabilize the city in the event of an economic downturn, shortfalls of revenues, or unanticipated or unfunded expenditures through interfund loans with repayment back to the Emergency Contingency Fund, including interest.
The interfund loans shall be repaid with interest based on the Local Agency Investment Fund (LAIF) earning rate. The Finance Officer (or designee) shall also exercise due diligence to ensure that it is financially prudent for the Fund making the loan.
Interfund loans will be evaluated on a case-by-case basis. Any borrowing between two City funds requires approval by City Council. The purpose of interfund borrowing is to finance high priority needs and to reduce costs of interest, debt issuance and/or administration.
The proposed Fund Balance Policy is attached as “Exhibit A”. This policy is effective beginning for Fiscal Year 2024/25 until further amended. This amount and/or commitment may be changed with the adoption of a new resolution by the affirming vote of three council members.
FISCAL IMPACT
The amendment to the policy will not result in significant financial impact, except with respect to the interest charged for the interfund loan(s).
POLICY ALTERNATIVES
The City Council’s options are:
1. Adopt the Resolution No. 2024-45 without any changes;
2. Adopt the Resolution No. 2024-45 with changes and revisions;
3. Continue the item to a later meeting of the City Council and provide direction to staff for any changes; or
4. Reject the Resolution No. 2024-45 entirely.
ATTACHMENTS
A. Resolution No. 2024-45
B. Amended Fund Balance Policy