Proposed Modifications to
Interdepartmental Policy 460
General Fund Reserve Policy
October 18, 2022
Background
• Measure U Citizen's Oversight Committee suggested the need to investigate possible modifications to Policy 460 as part of their annual review
— City Council agreed to consider suggested modifications after Oversight Committee completed a policy review
• Original Policy 460 (adopted June 5, 2018) established a General Fund Reserve Policy
— Established reserve level goal of 17% of annual operating budget expenditures
• Subsequently raised to 25% (January 26, 2022)
— Established revenue allocation guidelines for new, ongoing as well as new, one-time sources of revenue
• Measure U revenue was first and most significant revenue source covered by the policy
• Allocation amounts depend upon whether or not council approved reserve goal is satisfied
— Outlined proper uses of reserve funds
— Revisions of the policy require 4/5ths vote of City Council
Motivation to Review and Possibly
Modify PoIicy 460
• Modifications represent clarifications/enhancements identified after having operated under Policy 460 for four years
— Reflect the fact reserve procedures have "matured"
• Existing policy was written to cover establishment and building of reserves • Existing policy lacks clarity regarding procedures once reserve goal is reached, but events cause reserve level to fall back below goal
— Existing policy did not require formal review or oversight to confirm reserve goal was not only met in the short -run, but also met in the long -run — Existing policy did not place a requirement on the City Council to periodically review the reserve goal level for adequacy and possible revision
Proposed Modifications to Policy 460
• Move references to a specific reserve level goal to an appendix — Eliminate the need to modify the policy with every city council reserve goal change
— Support the capture of the history of reserve goal changes and levels in a single location
• Formalize a yearly process for reviewing the status of the reserve level vs. the council specified goal
— Require a long range reserve level forecast be generated to include a citizen oversight requirement
— Generation of long-range reserve level forecast would be part of budget process
• Clarify the language regarding allocation of funds depending upon satisfaction of the reserve level goal
• Adjust the allocation levels depending upon reserve level status to reflect discretionary nature of allocation categories
Proposed Modifications to Revenue
Allocation Requirements — New, Ongoing Revenues
(Reserve Goal Satisfied)
Current Allocation
Infrastructure, Vehicles, and
Equipment
Post -Employment Benefits
Sustainability
Employee Retention and
Recruitment (including
additional staff)
General Fund Contingency
Reserve
Proposed Allocation
60% Infrastructure, Vehicles, and
Equipment
10% Post -Employment Benefits 10%
Sustainability
30% Employee Retention and 30%
Recruitment (including
additional staff)
0% General Fund Contingency 10%
Reserve
• This is the current reserve level condition
• Oversight Committee suggests some funds continue to flow into reserves to support budget growth
• This is allocation waterfall that controls Measure U revenues
Proposed Modifications to Revenue
Allocation Requirements — New, Ongoing Revenues
(Reserve Goal Satisfied)
Current Allocation
Infrastructure, Vehicles, and
Equipment
Post -Employment Benefits
Sustainability Reserve
Employee Retention and
Recruitment (including
additional staff)
General Fund Contingency
Reserve
Suggested Allocation
50% Infrastructure, Vehicles, and
Equipment
10% Post -Employment Benefits 10%
Sustainability Reserve
20% Employee Retention and 30%
Recruitment (including
additional staff)
20% General Fund Contingency 20%
Reserve
• With the reserve goal level achieved, this condition would occur if reserves were utilized or if expenditures grew without a corresponding revenue surplus to fund reserves • Suggested allocation reflects desire to not "take -away" presently allocated employee retention funding
Recommended Actions
• Approve proposed modifications to Policy 460
— Requires a 4/5ths vote of council to approve
• Establish July 1, 2023 as the effective date of
implementation
— Consistent with the start of a new budget -year
— Eliminates the need for mid -year budget
adjustments
Questions