1 Consolidated Fiscal Policies/Procedures and Financial Forecast UpdateDecember 19, 2022
2 Presentation – Table of Contents
• Amending and Developing New Council Policies and Staff Administrative Fiscal Procedures Consolidated Fiscal Policies and Procedures • 2023 Baseline Forecast• Fiscal Outlook Moves from Precarious to Stable• Fund Balance Growing and Healthy• Impact of Sales Tax Measure SunsetUpdated Baseline Forecast (FY 2023) • Scenario #1: Full Funding - Fiscal Policies & Initiatives• Scenario #2: Partial Funding - Fiscal Policies & InitiativesScenario Forecasts 3 CONSOLIDATED FISCAL POLICIES AND PROCEDURES
4 Consolidated Fiscal Policies and Procedures –Scope of Work•Starting with the City’s current policies, incorporate existing and appropriate language into a new consolidated policy document, update the language to reflect City’s financial objectives, goals and specific changes.•Amend or add language where appropriate to reflect best practices, institutional controls and financial concepts from the Government Finance Officers Association (GFOA), International City/County Management Association (ICMA), Rating Agencies & Bond Insurers and other industry-leading trade and research groups. 5 Policy Versus Procedure
Policy– requires action or decision by City Council, more high-level in substance, and typically applies to broad policy goals and objectives relating to the allocation of resources.
Policy– requires action or decision by City Council, more high-level in substance, and typically applies to broad policy goals and objectives relating to the allocation of resources.Fund Balances, Reserves & SurplusPension and OPEB FundingBudget Adoption and AdministrationFiscal Sustainability Plan ElementsCapital ImprovementDebt ManagementInvestmentsEconomic DevelopmentProcedure– requires management decisions that involve detailed steps used regularly to meet operational objectivesCash ManagementProcurement CardAccounting, Auditing and Financial ReportingRisk ManagementGrant ManagementTravel and ExpensePurchasingCapital Asset Management 6 City Council PoliciesFund Balances, Reserves & SurplusPension and OPEB FundingBudget Adoption and AdministrationFiscal Sustainability Plan ElementsCapital ImprovementDebt ManagementInvestmentsEconomic Development 7 General Fund Contingency Reserve Balance Determination•Performed a thorough examination of the City’s risk factors that generally influence the amount of reserves the City should hold.•Risks that posed the most clear and present danger to the City were identified and assessed, including earthquakes, floods, fires, and the potential for decreased revenues and increased pension costs due to an economic downturn.•Benchmarked General Fund reserve balances of comparable cities. 8 GFOA Risk Assessment TemplateVERY IMPORTANT IMPORTANTNEUTRALUNIMPORTANT VERY UNIMPORTANTRISKSExtreme Events22.0 Revenue Stability4 4.0 Expenditure Volatility4 4.0 Leverage4 4.0 Liquidity4 4.0 Other Funds4 4.0 Growth 33.0 Capital Projects 33.0 SUBTOTAL 28.0 ADJUSTMENTS-4.0RISK ADJUSTED SCORE24.0 9 GFOA Analytical Guidance
10 Contingency Fund Balance of Comparable CitiesCity General Fund Reserve as % of Operating BudgetPomona 17% (current), 20-22% (proposed)Santa Clarita 20%Palmdale 20%Lancaster 20%Ontario 18%West Covina 17%Fontana 25%Claremont 25% 11 Fund Balances, Reserves & Surplus Policy SummaryGENERAL FUND Coverage AmountEconomic Contingency Reserve Covers financial needs due to downturn or recession20%-22% of GF operating expenditure - incrementalCatastrophic Events Reserve Covers financial needs due to unforeseen claims, damages or claims liability$5 million or based on risk loss assessment – annual contribution determined upon adoption of annual budgetFund Balance Designations Committed, Restricted, and Assigned fund balances set aside for specific purposesDetermined upon adoption of annual budgetUnassigned Fund Balance (Surplus) Allocated to one-time expenditures 50% allocated to long-term obligations50% allocated to facility or infrastructure improvements, equipment purchases, or other long-term capital needsCIP Funding Designation Allocated to CIP projects without an identified funding source1.0% of General Fund adopted revenues 12 Fund Balances, Reserves & Surplus Policy cont.ENTERPRISE FUNDS Coverage AmountOperating Reserves Covers temporary cash flow deficiencies caused by unforeseen expenses6-12 months of average operating expensesCapital Reserves To phase in the cost of replacing/upgrading capital equipment or natural disastersWater – $1.5 Million Recycled Water - $500,000 Sewer – $750,000Refuse – Capital reserve intended for capital needs –requires Council approvalBond Reserve Established as condition of each bond issueDependent on bond covenant 13 Fund Balances, Reserves & Surplus Policy cont.INTERNAL SERVICE FUNDS Coverage AmountLiability/Workers' Compensation ReservesCovers costs typically associated with claims administration, legal defense, insurance premiums, etc.Reserve equal to but not less than 25% of the value of the outstanding claims as reported in the most recent annual financial statementsUnemployment Reserve Used for the payment of unemployment claims filed by City employeesPay-as-you-go basisEquipment Maintenance Reserve A cost allocation center funded on a pay-as-you-go basis by departmental maintenance charges by vehicle type and usage requirementWorking capital balance equivalent to 25% of expenses (including transfers out) in the Equipment Maintenance Fund as of each fiscal year ending June 30th. Information Technology Reserve Accumulates funds for the replacement of vehicles, communications equipment, parking equipment and other equipment replacement at their economic obsolescence Working capital balance equivalent to 25% of expenses (including transfers out) in the Equipment Maintenance Fund as of each fiscal year ending June 30th. Printing and Mailing Services FundA cost allocation center funded on a pay-as-you-go basis by departmental charges for the cost of citywide printing and mailing distribution servicesPay-as-you-go basis 14 Pension and OPEB Funding Policy Summary•Funding Goal and Target•Funding Strategies•Annual Prepayment of UAL Payment•Allocation of Liabilities Across Funds•Tax-Exempt Exchange•Cost Sharing & Contract/MOU Provision•Examine Medical Benefit Levels and Eligibility Criteria•Use of One-time Monies or Annual Contribution•Base Selection Strategy•Superfunding•Policy Review and AmendmentPursuant to the implementation of this policy, staff will seek Council direction and approval on the establishment of a Section 115 trust to build a pension reserve. 15 Budget Adoption and Administration Policy Summary•Budget Preparation Process•Preparation Schedule•Content and Format•Department Budget Requests•Long-Range Fiscal Forecast (LRFF)•Annual Budget Administration•Revenues and Collections•Grants and Donations•User Fee and Service Charge Cost Recovery•Expenditures•Budget Amendments and Transfers•Budget Reporting to City Council 16 Fiscal Sustainability Policy Summary“Fiscal Sustainability” now proposed as a general policy of intent as opposed to a major category under which other policies appear .•Purpose:•Help focus limited City resources on activities that are most cost-effective •Address the City’s priorities for sustained growth and prosperity. •Describe the role the City will play in several areas to support fiscal sustainability 17 Capital Improvement Policy SummaryPurpose: To set the general parameters within which capital spending decisions are made.•Capital Improvement Plan Formulation•Capital Project Criteria•CIP Development Responsibility•Project Requests and Consideration•Project Selection•CIP and its Relation the Budget•Project Financing•Project Progress Reporting 18 Debt Management Policy SummaryPurpose: Establish guidelines and parameters for the effective governance, management and administration of City debt in conformance to government code. •Acceptable Conditions for the Use of Debt•Purposes for Which Debt May Be Issued•Types of Debt Allowed•Refunding Guidelines•Communication, Reporting and Debt Administration 19 Investment Policy SummaryPurpose: Provides guidance on investing public funds for maximum security, adequate liquidity and sufficient yield in conformance to government code.•Standards of Care•Authorized Financial Dealers and Institutions•Safekeeping and Custody•Suitable and Authorized Investments•Investing Parameters•Portfolio Risk Management 20 Economic Development Policy SummaryPurpose: To establish guidelines for economic development efforts and incentives that encourage value-added development and accrue public benefits to the City of Pomona.•Diverse economic base•Development incentives for companies with positive impacts to the community•Expedited plan review 21 Staff Administrative Fiscal Procedures
22 Staff Administrative Fiscal ProceduresAdministrative Fiscal Procedure PurposeCash Management Sets forth procedures that govern the handling, deposit and safekeeping of City cash.Procurement Card Sets forth procedures for issuance and use of the “P-Card” for non-recurring, small-dollar purchases (under $3k).Accounting, Auditing and Financial Reporting Provides guidance for the preparation of accounting, auditing and financial reporting in conformance with professional standards. Risk Management Provides guidance on the identification, evaluation, and treatment of risk. Grant Management and Administration Provides guidance for accepting and administering grants in compliance with grant agreement and applicable federal and state guidelines.Travel and Expense Details procedures for reimbursing City employees for expenses incurred in the conduct of their official business on behalf of the City.Capital Asset Management Details procedures for administering the capital asset management system and provides guidelines to account for and depreciate the City’s capital assets. 23 UPDATED 10-YEAR BASELINE FORECAST
24 Baseline Forecast – Updated for FY 2023FY23 Amended Budget Forecast ModelFY23 Revenues$141.5M($7.0M in one-time ARPA funds)$134.5MBaseline RevenuesFY23 Expenses$141.5M($3.3M in one-time expenses)$138.2MBaseline ExpensesOperating Surplus/(Deficit) +$57,000 (-$3.7M) 25 Baseline Forecast – Updated for FY 2023
$75,000,000$95,000,000$115,000,000$135,000,000$155,000,000$175,000,000$195,000,000Total Revenues & Expenses10-Year Prior and Baseline Forecast Surplus/DeficitBaseline Revenues1-Time RevenuesBaseline Expenses1-Time ExpensesMeasure PG SunsetsPOB Issued & Federal Relief (ARPA)Measure PG (local sales tax)Baseline Labor Costs (in-house and contractual) Increase (15.5%) Slow Revenue Recovery (2.2% real growth). Baseline revenues never fully recoverCovid-19 PandemicPOB Interest-Only Payments End 26 $(25,000,000)$(20,000,000)$(15,000,000)$(10,000,000)$(5,000,000)$-$5,000,000$10,000,000$15,000,000$20,000,000Annual Operating Surplus/(Deficit)10-Year Prior and Baseline ForecastBaseline Forecast – Updated for FY 2023 Measure PG SunsetsPOB Interest-Only Payments EndMeasure PG (local sales tax)Covid-19 PandemicPOB Issued & Federal Relief 27 $-$10,000,000$20,000,000$30,000,000$40,000,000$50,000,000$60,000,000Year End Fund Balance & Allocation10-Year Prior and Baseline Forecast Non-SpendableRestrictedEconomic ReserveUndesignated
Baseline Forecast – Updated for FY 2023
Measure PG (local sales tax)POB Issued & Federal ReliefMeasure PG SunsetsCovid-19 Pandemic 28 $-$10,000,000$20,000,000$30,000,000$40,000,000$50,000,000$60,000,000$70,000,000Year End Fund Balance & Allocation10-Year Prior and Baseline Forecast Non-SpendableRestrictedEconomic ReserveUndesignated
Baseline Forecast – Updated for FY 2023
Measure PG (local sales tax)POB Issued & Federal ReliefCovid-19 Pandemic 29 10-YEAR SCENARIO FORECASTFiscal Policies & Initiatives – Full Funding 30 1. Economic Contingency Reserve @ 20% Operating Expenses2. Catastrophic Events Reserve @ $500,000 annually for 10 years to reach $5 million3. Pension 115 Trust Funding @ $1.5 million annually4. OPEB Prefunding @ Pay-Go until FY28 then $400,000 annually5. CIP Funding from General Fund @ 1% Operating Revenues annually6. Equipment & Vehicle Replacement Funding from General Fund @ $400,000 annually7. Youth Commitment Funding @ $1.3 million in FY23 and $2 million annually thereafter for 4 years Scenario – Fiscal Policies & Initiatives – Full Funding 31 (25,000,000)(20,000,000)(15,000,000)(10,000,000)(5,000,000)-5,000,00010,000,00015,000,00020,000,000Annual Operating Surplus/(Deficit)10-Year Prior with Scenarios vs. Baseline Forecast Scenarios ForecastBaseline Forecast
Scenario – Fiscal Policies & Initiatives – Full Funding Measure PG SunsetsPOB Interest-Only Payments EndMeasure PG (local sales tax)Covid-19 PandemicPOB Issued & Federal Relief 32 $-$10,000,000$20,000,000$30,000,000$40,000,000$50,000,000$60,000,000Year End Fund Balance & Allocation10-Year Prior with Scenarios vs. Baseline Forecast Non-SpendableRestrictedEconomic ReserveCatastrophic ReserveUndesignatedBaseline Forecast Scenario – Fiscal Policies & Initiatives – Full Funding Measure PG (local sales tax)POB Issued & Federal ReliefMeasure PG SunsetsCovid-19 Pandemic 33 10-YEAR SCENARIO FORECASTFiscal Policies & Initiatives – Partial Funding 34 1. Economic Contingency Reserve @ 20% Operating Expenses2. Catastrophic Events Reserve @ $300,000 and increasing for 10 years to reach $5 million3. Pension 115 Trust Funding @ $1.5 million initially and $500,000 annually thereafter4. OPEB Prefunding @ Pay-Go only (no prefunding)5. CIP Funding from General Fund @ 1/2% Operating Revenues annually6. Equipment & Vehicle Replacement Funding from General Fund @ $400,000 annually7. Youth Commitment Funding @ $1.3 million in FY23 and $2 million annually thereafter for 4 years Scenario – Fiscal Policies & Initiatives – Partial Funding 35 (25,000,000)(20,000,000)(15,000,000)(10,000,000)(5,000,000)-5,000,00010,000,00015,000,00020,000,000Annual Operating Surplus/(Deficit)10-Year Prior with Scenarios vs. Baseline Forecast Scenarios ForecastBaseline Forecast
Scenario – Fiscal Policies & Initiatives – Partial Funding Measure PG SunsetsPOB Interest-Only Payments EndMeasure PG (local sales tax)Covid-19 PandemicPOB Issued & Federal Relief 36 $-$10,000,000$20,000,000$30,000,000$40,000,000$50,000,000$60,000,000Year End Fund Balance & Allocation10-Year Prior with Scenarios vs. Baseline Forecast Non-SpendableRestrictedEconomic ReserveCatastrophic ReserveUndesignatedBaseline Forecast Scenario – Fiscal Policies & Initiatives – Partial Funding Measure PG (local sales tax)POB Issued & Federal ReliefMeasure PG SunsetsCovid-19 Pandemic 37 Scenario – Fiscal Policies & Initiatives – Partial Funding$4.1M$3.1M$3.1M$3.1M$1.2M$1.2M$-$5,000,000$10,000,000$15,000,000$20,000,000$25,000,000$30,000,000$35,000,000$40,000,000$45,000,000$50,000,000 $-$500,000$1,000,000$1,500,000$2,000,000$2,500,000$3,000,000$3,500,000$4,000,000$4,500,000 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029
Fund Balance Allocations - Fiscal Policies & Initiatives FY24 - FY29 ($16.0M) Scenarios Forecast - Partial Funding Economic ReserveCatastrophic ReserveUndesignated Fund BalanceEquip & Veh ReplacementCapital ImprovementPension 115 TrustYouth Initiative 38 QUESTIONS?