CITY OF POMONA
COUNCIL REPORT
February 6, 2023
To: Honorable Mayor and Members of the City Council
From: James Makshanoff, City Manager
Submitted By: Andrew Mowbray, Finance Director/City Treasurer SUBJECT: ADOPT A RESOLUTION TO APPROVE THE UPDATED CONSOLIDATED FISCAL POLICIES AND ADMINISTRATIVE PROCEDURES RECOMMENDATION:
It is recommended that the City Council adopt the following resolution:
RESOLUTION NO. 2023-06 - A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF POMONA, CALIFORNIA ADOPTING THE CITY’S UPDATED CONSOLIDATED FISCAL POLICIES AND ADMINISTRATIVE PROCEDURES EXECUTIVE SUMMARY: City staff have been working with the City’s financial advisor, Urban Futures, Inc. (UFI), to develop an Updated Ten-Year Financial Forecast and a Consolidated Fiscal Policies and Administrative Procedures (Attachment No. 1 – Exhibit A).
The purpose of the adoption of the updated Consolidated Financial Policies is to establish guidelines for the City’s overall fiscal planning and management. These policies are intended to foster and support the continued financial strength and stability of the City as reflected in its financial goals. The consolidated policy document is designed and structured to develop principles that guide the financial administration of the City. The document includes City Council policies and staff administrative procedures.
Staff brought forward this item for consideration on December 19, 2022 and the City Council advised that the item be taken back to the Labor Subcommittee to gain additional feedback before bringing forward to the entire City Council this evening. Staff met with the Labor Subcommittee on January 11, 2023 and presented a breakdown of the major Policy items discussed. The presentation to the Labor Subcommittee identified the purpose for each Policy, the set goal contribution amount defined in the policies, and whether they are currently an existing or new Policy. Also discussed was the approach to begin “chipping away” by contributing amounts that the City can afford based on annual available resources in the General Fund. Staff received consensus direction to propose the action to raise the fund balance to 22% and work towards increasing the amount to 25%, with 1% increases each of the next following 3 fiscal years thereafter. Also highlighted was the option to contribute the General Fund surplus in a 50/50 matter to different long term needs but reminding all that this is an option that must always be brought forward to the City Council for consideration.
FISCAL IMPACT: No fiscal impact at this time.
PREVIOUS RELATED ACTION:
On May 2, 2011 the City adopted Resolution No.2011-49 Fiscal Sustainability Policy and on June 20, 2011 adopted Resolution No.2011-63A Fund Balance Policy.
On December 19, 2022 a resolution to approve the Updated Consolidated Policies and Procedures was brought forward for consideration along with a presentation on the Updated Ten-Year Financial Forecast which was received and filed. City Council directed staff to bring back this resolution to a future meeting after meeting with the Labor Subcommittee.
DISCUSSION:
Over the past several months, the Finance Department staff worked closely with UFI to consolidate fiscal policies and administrative procedures as well as to collect and analyze the necessary financial data, structure and trends required to model the various revenue streams and expenditure drivers for the updated General Fund Ten-Year Forecast. The presentation will be broken down into these areas:
Consolidated Fiscal Policies and Procedures – this section will focus on the City Council Policy and Administrative Procedure. City Council 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. Policies include Fund Balances, Reserves & Surplus, Pension and Other Post Employment Benefit (OPEB) Funding, Budget Adoption and Administration, Fiscal Sustainability Plan Elements, Capital Improvement, Debt Management, Investments and Economic Development. Any amendments to the City Council Policy shall require City Council approval. In contrast, Administrative Procedures require management decisions that involve detailed steps used regularly to meet operational objectives. Procedures include Cash Management, Accounting, Auditing and Financial Reporting, Risk Management, Grant Management, Travel and Expense, Purchasing and Capital Asset Management. Amendments to Administrative Procedures shall require City Manager approval.
Update of General Fund Economic Reserves at 22% of operating expenses, eventually increasing to 25%. As of the writing of this staff report, the General Fund Fund Balance is estimated at 35.1%, which is 18.1% above the current policy goal of 17% (see Table 1).
Table 1: FY 2022-23 Estimated Fund Balance
Finance staff proposed and the Labor Sub-Committee concurs to update the General Fund Economic Reserve to a higher amount than the 17% that was first created in 2011.
Purpose(s): Financial needs due to a downturn or recession in the local, state, or national economy; action by another government that eliminates or shifts revenues from the City; an unanticipated inability to fully pay the General Fund’s debt service obligations in any given year; other unexpected reductions or interruptions of revenue streams; or cash flow requirements of the General Fund.
Amount: minimum of 22% with the goal of incrementally increasing to a maximum of 25% of the General Fund’s current fiscal year operating expenses. Determination of this reserve amount should be based in part on the General Fund’s revenue loss/recovery during prior economic downturns and recessions, an assessment of the volatility of General Fund’s various major revenue streams, and a quantification of the General Fund’s cash flow demands over the fiscal year as compared to the timing of revenue receipts. As a perspective, below are the amounts proposed as a percentage of FY 2022-23 operating expenses:
22% $31,209,785
24% $34,047,038
23% $32,628,411
25% $35,465,665
Setup a Catastrophic Events Reserve at $300k initially and increasing for 10 years to reach $5 million.
Purpose(s): Financial needs due to unforeseen claims, damages, or liability, loss of critical infrastructure, facilities, equipment, or assets; extraordinary public service demands caused by natural disasters (earthquake, flood, fire etc.), civil unrest or other unforeseen events.
Amount: $300k initially and a goal of $5 million with annual appropriation towards that goal determined by the City Council at the time of the annual budget adoption. Determination of this reserve amount is a risk-loss assessment based on the City’s own loss experience, claims data, history of natural disasters or unexpected events, and other relevant data.
Establish a Pension 115 Trust funding at $1.5 million initially and $500k annually thereafter.
Purpose(s): The Section 115 Trust allows the City to build its pension reserve while maintaining oversight of investment management and control over the risk tolerance of the portfolio. Funds placed intro the trust is irrevocable, meaning it cannot be withdrawn and used for another expenditure of the City. The benefits of the Section 115 Trust include:
Assets in the trust will offset unfunded pension liabilities.
The City will control the risk tolerance of the portfolio.
Assets held in trust will allow for greater investment flexibility and risk diversification compared to the City’s investment portfolio.
Assets can be used to stabilize rates – to offset unexpected contribution rate increases or be used as a rainy-day fund when revenues are impaired based on economic or other conditions.
A higher rate of return on investments may, under certain circumstances, be achieved than can be earned on the pooled investment portfolio or LAIF City will have the flexibility to access trust assets any time, as long as it is used to pay employer pension.
Once the City transfers funds into such a trust, they can only be utilized for payment of employee pension.
Amount: $1.5 million initially and $500k annually thereafter, to the extent that the City has excess reserves, unspent budget monies at year-end, unspent proceeds from capital projects, and/or one-time revenues or any additional resources, it shall be the City’s policy to consider and establishing and allocating such available resources to a Section 115 Trust.
Pursuant 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 on a separate council meeting.
Other Post Employment Benefit (OPEB) will remain pay-as-you-go and there will be no prefunding at this time.
Capital Improvement Projects (CIP) Funding from General Fund initially at 1/2% of adopted revenues, with an eventual goal of 1% of adopted revenues Purpose(s): To phase in the impact of unfunded capital improvement projects.
Amount: Annual funding shall be targeted at 1/2% of the operating revenues. This amount shall be for CIP projects without an identified funding source.
One member of the Labor subcommittee did suggest targeting the initial contribution amount at 3/4% of the operating revenues.
Equipment Replacement Funding from General Fund at $100k, increasing annually to $400k at the end of 10 years.
Purpose(s): To phase in the impact of replacement and upgrade costs of capital equipment and high-cost vehicle replacements.
Amount: $100k initially with total funding goal of $400k at the end of 10 years.
The above recommendations set the goals and sometimes only portions of the goal may be attained annually as part of the budget. With the December 19, 2022 presentation of the updated ten-year forecast, along with the fiscal policy commitments, it reminds the City of the structural issues the City’s General Fund is facing that may make these commitments difficult to pursue. However, we can start to incrementally “chip away” towards these commitments by allocating these amounts in the annual operating and budget and possibly using available reserves. Finally, it must be mentioned again that at the December 19, 2022 presentation, the City began the discussion of removing the sunset clause on the Measure PG Sales Tax that is scheduled to end in 2029.
COUNCIL PRIORITIES & GOALS: This item supports the Fiscal Year 2019-20 City Council Priorities and Goals - Priority 1 (GOAL A): Continue to ensure that the City has sufficient financial reserves in accordance with the City Fund Balance Policy, including at least 17% of General Fund operational budget for General Fund Reserves.
ALTERNATIVE(S): None
Prepared by:
Andrew Mowbray
Finance Director/City Treasurer
ATTACHMENT(S):
Attachment No. 1 – RESOLUTION NO. 2023-06
Exhibit A – City of Pomona Consolidated Fiscal Policies and Administrative Procedures Attachment No. 2 – Presentation: Consolidated Fiscal Policies and Administrative Procedures Adopt a Resolution to approve the Updated Consolidated Fiscal Policies and Administrative Procedures