October 17, 2023
Finance Department
DATE: October 17, 2023
TO: Mayor Martinez and Members of the City Council
FROM:
Nickie Mastay, Deputy City Manager - Internal Services
Andrea Miller, Director of Finance
Mubeen Qader, Deputy Director of Finance
Subject:
Annual Review and Adoption of the Resolutions to
approve the Financial Policies (Debt, Investment, and
Pension Funding policies)
FINANCIAL IMPACT: There is no fiscal impact with adopting financial policies.
PREVIOUS COUNCIL
ACTION:
June 27, 2023, July 11, 2023
STATEMENT OF THE
ISSUE:
Annual review and revision of the Financial Policies
(Debt, Pension Funding, and Investment)
RECOMMENDED ACTION:
REVIEW the City’s Debt, Pension Funding, and
Investment policies; and ADOPT resolutions to approve
the updated policies – Finance Department (Andrea
Miller 510-620-6790/ Mubeen Qader 510-412-2077).
This item was continued from the October 3, 2023,
meeting.
DISCUSSION:
The Government Finance Officers Association (GFOA) recommends that governments adopt comprehensive written financial policies that reflect applicable local, state, and federal laws and regulations. The adoption of and adherence to financial policies can be used as a resource to:
•Minimize borrowing costs,
•Better manage the City's debt and investment portfolios; and, •Provide fiscal security during times of unforeseen economic downturns.
AGENDA
REPORT
October 17, 2023
Debt Policy
The foundation of any well-managed debt program is a comprehensive debt policy. A debt policy sets forth the parameters for issuing debt and managing the debt portfolio, including post-issuance compliance. In the credit rating process, the rating agencies believe it is appropriate to place significant value on debt policies that have been adopted by cities.
The City's Debt Policy requires that annual commitments relating to General Fund debt not exceed ten percent (10%) of current General Fund revenues.
On April 20, 2021, the City adopted a guiding fiscal policy which prohibits the use of interest rate swaps when issuing debt (Section 12 of Debt Policy). The City does not have any swaps in its debt portfolio.
Pension Funding Policy
The State Auditor’s recommendation number 4 on retirement-related costs states:
“To ensure that Richmond is able to fund its retirement-related costs, city staff should, by June 2023, propose to the city council a specific policy regarding funding of its pension trust fund for this purpose. Staff should report to the city council on estimated long-term savings from increasing its direct payments to CalPERS compared to investing the same amounts in its pension trust fund. Staff members should use this information to inform their recommendations related to funding targets for the pension trust fund and should consider recommending that the council increase the city's payments directly to CalPERS.” (California State Audit, 2021-806).
As part of the State Audit Corrective Action Plan implementation, the policy was originally presented to the City Council on June 27, 2023, where the City Council amended the policy before approving it during the City Council meeting. The City Council also directed City staff to bring back an analysis of fiscal impact of the two funding options: 1) contributing additional funds to the 115 Trust Account, and 2) additional discretionary payments to CalPERS. Per the City Council’s direction, NHA Advisors made a presentation to the City Council on July 11, 2023. Following the presentation, the City Council directed City staff to bring back the original Pension Funding Policy proposal that was presented by City staff on June 27, 2023, for approval with the inclusion of the following funding guidelines:
1. The City shall continue to make annual Unfunded Actuarial Liability (UAL) prepayment to CalPERS in the beginning of each Fiscal Year, resulting in an estimated three percent discount compared to paying UAL monthly. The City shall place the prepayment savings into the Trust account.
2. The City shall place 10 percent of each year-end operating surplus (Total Actual Revenues minus Total Actual Expenditures, including Transfers In and
October 17, 2023
Transfers Out) in the General Fund in excess of the City’s Minimum Reserve Policy into the Trust.
Investment Policy
The City of Richmond Investment Policy is an integral part of the Finance Department, setting standards and procedures regarding how the City's funds are invested. The Investment Policy is consistent with the guidelines of the California Municipal Treasurers Association (CMTA) Certification Program. The policy addresses the 19 sections that the Association deems as critical elements, which are as follows:
1. Policy
2. Scope
3. Prudence
4. Objective
5. Delegation of Authority
6. Ethics and Conflicts of Interest
7. Authorized Financial Dealers and Institutions
8. Authorized and Suitable Investments
9. Review of Investment Portfolio
10. Investment Pools/Mutual Funds
11. Collateralization
12. Safekeeping and Custody
13. Diversification
14. Maximum Maturities
15. Internal Controls
16. Performance Standards
17. Reporting
18. Investment Policy Adoption
19. Glossary
The Investment Policy provides for the City to invest public funds in a manner which will provide the highest investment return, with maximum security, while meeting the daily cash flow demands of the City and conforming to all state and local statutes governing the investment of public funds. It further provides that the policy shall be reviewed annually and adopted by resolution of the City Council.
Next Steps
City staff will continue to monitor industry best practices and propose revisions to these policies on an annual basis.
DOCUMENTS ATTACHED:
Attachment 1 – Resolution Adopting Debt Policy
Attachment 2 – Debt Policy
Attachment 3 – Resolution Adopting Pension Funding Policy
October 17, 2023
Attachment 4 – Pension Funding Policy
Attachment 5 – Pension Funding Policy Adopted 6-27-2023 Attachment 6 – Resolution Adopting Investment Policy
Attachment 7 – Investment Policy