CITY COUNCIL AGENDA
June 4, 2024
WE PROVIDE EFFICIENT DELIVERY OF QUALITY PUBLIC SERVICES THAT ARE
ESSENTIAL TO THOSE WHO LIVE AND WORK IN SAN RAMON
David E. Hudson, Mayor • Scott Perkins, Vice Mayor
Mark Armstrong, Councilmember • Marisol Rubio, Councilmember • Sridhar Verose, Councilmember Council Chamber
7000 Bollinger Canyon Road
SPECIAL MEETING – 4:00 PM
Agenda Questions: Please contact the City Clerk (925) 973-2539 or [email protected] Please refer to the end of the agenda to review options for participation in the meeting.
Unless stated otherwise on the agenda, every item on the agenda is exempt from CEQA Guidelines Sections 15060(c), 15061(b)(3), 15273, 15378, 15301, 15323 and/or Public Resources Code Section 21065.
1. CALL TO ORDER/ROLL CALL
2. COUNCIL BUSINESS
2.1 Consider Using General Fund Reserves and/or Other Post-Employment Benefits (OPEB) Trust Fund Reserves to Close the Remaining $3.5 Million Budget Gap for the FY 2024/25 Proposed Budget
3. ADJOURNMENT
I hereby certify the agenda was posted more than 24 hours before the noted meeting. This agenda is posted in accordance with Government Code Section 54954.2(a).
Dated: May 31, 2024
2 City Council Special Meeting – June 4, 2024
HOW TO VIEW OR PARTICIPATE IN THE MEETING:
The public is invited to participate in the meeting using any of the following methods:
IN-PERSON
Members of the public can provide in-person comments at the meeting. To make a request for disability-related accommodation to participate in the meeting, please contact the City Clerk’s Office 48 hours in advance of the meeting.
WRITTEN COMMUNICATION BY EMAIL
Public comments may be submitted via e-mail to [email protected]. Any public comments received up until two (2) hours prior to the scheduled start time of the meeting will be distributed to the City Council via e-mail, provided at the meeting in the red binder, and posted online at https://www.sanramon.ca.gov/public_comment.
Written comments received after the cut-off time will be provided to the City Council the day following the meeting.
Please include “Public Comment” in the subject line. In the body of the email please include your name and the item you wish to comment on. Written public comment will not be read aloud during the meeting.
TO VIEW OR LISTEN ONLY
As a courtesy and technology permitting, the public will have the opportunity to view the meeting via one-way feed by the options below. However, the City cannot guarantee that the public’s remote access to any meeting will be uninterrupted, and technical difficulties may occur from time to time. In those instances, so long as the public may still attend the meeting in person, the meeting will continue. Members of the public desiring to provide comments as a part of the meeting are encouraged to either submit written comments prior to the meeting or to attend the meeting in person.
a. Zoom: https://cityofsanramon.zoom.us/j/92928276771
Webinar ID: 929 2827 6771
b. Zoom Phone Numbers: +1 (669) 900-6833
c. The City’s YouTube Channel: www.sanramon.ca.gov/YouTube Regular City Council meetings are broadcast on Contra Costa Television (CCTV) (Channel 27) on Wednesdays at 7:00 p.m. and Thursdays at 1:00 p.m. immediately following the meeting. Regular City Council meetings are also broadcast on AT&T U-Verse (Channel 99).
ATTENDEE CONDUCT
There will be zero tolerance for any person addressing the Council making profane, offensive and disruptive remarks, or engaging in loud, boisterous, or other disorderly conduct, that disrupts the orderly conduct of the public meeting.
Specifically, it is important for all speakers to adhere to the following guidelines for participation in this meeting:
a. No profanity or obscenity.
b. Refrain from personal threats or attacks.
c. Refrain from hateful epithets and demeaning language based on any person’s race, religion, sexual orientation, ethnicity, gender, or disability.
d. Respect all people that are present or watching.
At the discretion of the Mayor, a speaker may forfeit speaking time for any of the following reasons:
a. Exceeding the allotted time to speak;
b. Yelling, screaming, or other behavior that renders this Council unable to continue the meeting; c. Excessive profanity or slander;
d. Specific threats or “fighting words” that incite violence; or e. Speech that is outside the subject matter jurisdiction of the Council or the specific agenda item in which you are speaking.
While the City of San Ramon ensures the First Amendment rights of its citizens, we do not accept nor endorse any offensive or hateful comments made during our meetings. The City of San Ramon celebrates the diversity of our community, and we strive to be a welcoming and open community for all.
CITY COUNCIL STAFF REPORT
DATE: June 4, 2024
TO: City Council/City Manager
FROM: Kelly Sessions, Administrative Services Director
By: Kelly Sessions, Administrative Services Director
SUBJECT: Consider Using General Fund Reserves and/or Other Post-Employment Benefits (OPEB) Trust Fund Reserves to Close the Remaining $3.5 Million Budget Gap for the FY 2024/25 Proposed Budget
RECOMMENDED ACTION
Staff recommends that the City Council provide direction to staff on how to close the remaining $3.5 million budget gap for FY 2024/25 using either General Fund Reserves or OPEB Trust funds in preparation for adopting a budget on June 11, 2024.
BACKGROUND/DISCUSSION
At the regular City Council meeting of May 28, 2024, staff presented an update on FY 2024/25 budget development in preparation for budget adoption on June 11, 2024. The effort to close the $14.1 million budget gap funded the General Reserves to the 30% level, but to get to 36% would require an additional $3.5 million. Staff presented three options for closing the remaining budget gap of $3.5 million as follows: (1) lower General Fund reserves from 36% to 30%; (2) remove the $1.6 million in expenditures restored to departmental budgets at the April 23, 2024 City Council meeting while also seeking an additional $1.9 million in service reductions; and (3) use OPEB Trust funds to pay the $1.8 million retiree medical expense for FY 2023/24, budget an additional $1.0 million to partially fund the $1.9 million expense for FY 2024/25, and use the carryover fund balance from FY 2023/24 to cover the remaining $2.5 million.
City Council supported the idea of using reserves to close the gap but requested that staff return with additional information on the difference between using General Fund reserves or OPEB Trust funds to close the gap; this report presents that information. The City Council did not favor the second option, which would require additional budget cuts at the department level, including further reduction in services and the possibility of layoffs; that option is not presented here.
Considerations for Using General Fund Reserves
The General Fund (GF) is critical for any City’s financial health in supporting essential public services and allowing for flexibility in managing municipal resources. By definition, General
2.1 Packet Pg. 4
Fund (GF) Reserves are unrestricted and available for any purpose. Whenever possible, non-GF resources should be used for general expenditures to preserve GF funds--this should always be a priority. The City is not obligated to maintain reserve funds at any particular level, although maintaining an adequate reserve is essential for prudent fiscal management and is highly recommended by the Government Finance Officers Association (GFOA). The GFOA recommends a minimum of two months of operating revenues or expenditures (16.7%).
The GFOA also recommends that governments use risk analysis techniques to optimize their reserve use, as the size of the reserves should be based on an analysis of the types of risk the government is trying to manage. The City established its first GF Reserve Policy in 2004 at the 50% level. City Council subsequently lowered that policy to 40% following an internal staff analysis which recommended reserves of 26% to 35%. The City then hired a consultant, Management Partners, to conduct an independent analysis of risk. The Management Partners report stated that many cities have reserve levels of 20% to 25%, but recommended setting the policy at 36%, which the Council did in March 2021.
City Council has the option of budgeting reserves at less than the 36% benchmark, which would require the City Manager to “prepare an action plan to restore reserves to the thirty-six percent (36%) [level]. This action plan shall be presented to the City Council within thirty (30) days of determining that the thirty-six percent (36%) threshold is projected to be breached.” City Council also has the option of permanently lowering the Reserve Policy. Doing so would require a resolution of the City Council, and prudent fiscal management would suggest the need for analytical justification.
Considerations for Using OPEB Reserves
The City’s Other Post-Employment Benefits (OPEB) Trust fund was established to prefund and manage costs associated with retiree medical benefits. The OPEB Trust accumulates and invests assets to pay for retiree health care, including medical, dental and vision. Assets in the OPEB Trust can only be used for their intended purpose-to pay OPEB benefits-and cannot legally be diverted for other uses. The City is not obligated to maintain an OPEB Trust, although the GFOA does recommend it as a means of prefunding OPEB obligations to mitigate liability costs, reduce the impact of inflation and rising medical costs, and ensure that funds are available to pay future obligations. The GFOA further recommends that agencies with OPEB benefits adopt an OPEB funding policy that aims for a fully funded ratio of 100%. The City complied and adopted an OPEB Funding Policy in June 2020 which states funding goals as follows:
A. The City will strive to maintain assets in the OPEB Trust equal to 100% of the Actuarial Liability for OPEB through regular contributions to the OPEB Trust.
B. The City will strive to make regular contributions to the OPEB Trust to achieve this goal.
C. The funds in the OPEB Trust will be used to pay the City’s OPEB payments each year.
D. The City will strive to contribute its Actuarially Determined Contribution (ADC) into the OPEB Trust each year.
2.1 Packet Pg. 5
The Policy goes on to state, “Nothing in this funding policy shall constitute an obligation upon the City, nor an implied contract.” Therefore, meeting the stated goal is not obligatory.
As of March 31, 2024, the OPEB Trust had a balance of $36.6 million against liabilities of $41.2 million, for a funded status of approximately 88%. Utilizing the OPEB Trust alone for the $3.5 million would lower its funded status to approximately 80%. If utilized, the City may want to make replenishment of that funding a priority over the next few fiscal years. The City expects a new actuarial report by the end of the calendar year.
Using a Combination of Both Reserves
Should Council elect to utilize a combination of GF Reserves and OPEB Trust Funds to close the budget gap, that path would require a plan of action from the City Manager for dropping below the 36% level or a study and Council resolution to lower the 36% Reserve Policy permanently.
Conversely, using any amount of OPEB funding would not require additional action beyond a transfer of the funds.
Investment Considerations
The City invests its temporary pooled idle cash in the GF Reserve according to the City’s Investment Policy, which is reviewed and approved annually by City Council. By nature, the City’s Investment Portfolio is conservative and follows the “prudent investor standard.” Consistent with this principle, the City adheres to the goals of safety, liquidity, and yield in that order. The Administrative Services Director, who serves as City Treasurer, works with Meeder Investments (formerly FHN Financial Main Street Advisors) to manage the portfolio on a monthly basis.
The City’s OPEB funds are maintained and managed by the California Employer’s Retirement Benefit Trust (CERBT) Fund. The CERBT Fund is a Section 115 trust fund dedicated to prefunding OPEB and is managed by CalPERS. As a participant, the City has the ability to choose among three investment strategies which vary by risk. The City participates in the CERBT Strategy 2, which is the medium risk strategy.
The Investment Portfolio has much higher liquidity needs than the CERBT Trust, and a much shorter investment horizon, which translates into very safe, lower yielding returns, such as US Treasuries. The CERBT Trust can take greater risk over time and outperforms the Investment Portfolio on a long-term basis, but short-term investment losses are not uncommon (see FY 2021/22).
The following table shows the earnings and annual rate of return for both the Investment Portfolio and the CERBT Trust over the past four years:
2.1 Packet Pg. 6
GF Reserves v. OPEB Trust FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24
(thru March
2024)
Investment Portfolio
Earnings 1,187,009 966,358 1,489,898 1,487,533
Annual rate of return 1.47% 1.22% 1.93% 2.54%
CERBT Trust
Earnings 6,457,509 (4,953,589) 1,242,694 2,639,710
Annual rate of return 19.76% -12.57% 3.61% 4.74%
Credit Rating Considerations
Staff reached out to a former credit analyst to ask about any impacts to its AAA credit rating as follows: From a credit rating agency perspective, would the City be better off using GF Reserves or OPEB Trust to close the budget gap?
He recommended using OPEB Trust Funds for the following reasons:
• The OPEB Trust has no minimum requirements or obligations like the GF Reserve does.
It is cleaner, easier and is less visible to a credit rather than the GF Reserve. • Permanently lowering the GF Reserve Policy is an analytical process that would likely take months to complete and may not be expedient at this point. Moreover, the City should look to balance current obligations with current resources. A trend of lowering reserve requirements over time may visibly signal an agency’s inability to meet current obligations.
• Credit rating agencies will look at the City’s determination to maintain compliance with its own self-imposed 36% reserve policy. However, the decision to use GF Reserves to drop below the 36% level is not disastrous; that is the purpose of the reserve. More important will be the plan of action and the City’s commitment to repay.
Lastly, the credit analyst posited that maintaining an AAA credit rating is a high bar, especially for a city, a luxury that most cities cannot afford.
FISCAL ANALYSIS
The City managed a $14.1 million General Fund budget deficit in preparing its FY 2024/25 budget, which included funding the GF Reserve at 30%. To reach the 36% reserves level would require the City to close an additional gap of $3.5 million.
Utilizing any amount of GF Reserves would reduce fund balance below 36% and trigger further action. Temporarily dropping below 36% would require the City Manager to submit a plan of action to City Council within 30 days to restore funding. Changing the 36% Reserve Policy permanently would require a Council resolution to adopt.
The FY 2023/24 Adopted Budget included utilizing OPEB Trust funds to cover the $1.8 million
2.1 Packet Pg. 7
cost of annual OPEB benefits. However, when the City realized an increase of $2.5 million in General Fund balance from the 2023 audit, the decision was made to use that funding to pay the OPEB expense as a means of preserving the OPEB Trust’s funded status. Instead, the City can revert to paying the FY 2023/24 OPEB expense of $1.8 million as currently budgeted with FY 2023/24 OPEB funds, in addition to utilizing $1.0 million from the OPEB Trust in FY 2024/25 to fund roughly one-half of the annual FY 2024/25 OPEB expense of $1.9 million. Doing so would free up the $2.5 million in new GF fund balance along with an additional $1.0 million in OPEB funding to reach the $3.5 million mark and close the remaining gap. This approach appropriates only $1 million more from the OPEB Trust than what was already budgeted and leaves the Trust in an acceptable funded status of approximately 80%. Utilizing any amount of OPEB funding does not require additional action beyond a transfer of the funds.
Using a combination of GF Reserves and OPEB Trust Funds to close the budget gap is also an option.
STEPS FOLLOWING APPROVAL
• Incorporate feedback from the City Council regarding their direction to close the remaining budget gap.
• Present a FY 2024/25 Proposed Budget to City Council for adoption on June 11, 2024.
ATTACHMENT
A. Agenda Report and Analysis of General Fund Reserve Policy, May 2020 B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 C. OPEB Funding Policy, June 2020
D. Agenda Report and Resolution Approving General Fund Reserve Policy, March 2021 E. General Fund Reserve Policy, March 2021
F. General Fund Investment Portfolio Annual Statements
G. CERBT Trust Fund Annual Performance
2.1 Packet Pg. 8
CITY COUNCIL STAFF REPORT
DATE: May 26, 2020
TO: City Council/City Manager
FROM: Eva Phelps, Administrative Services Director
By: Eva Phelps, Administrative Services Director
SUBJECT: Proposed Statement of the General Fund Reserve Policy
RECOMMENDED ACTION
Staff recommends the City Council review the proposed Statement of the General Fund Reserve Policy and provide comments and direction to staff.
BACKGROUND/DISCUSSION
The City Council adopted a Statement of the General Fund Reserve Policy (Policy) by approving Resolution No. 2004-030 on February 24, 2004, to promote sound financial management practices. It is appropriate to review the Policy periodically and consider making changes when appropriate.
In 2016, staff conducted a Risk Factor Assessment (RFA) to analyze the General Fund reserve levels. The RFA was based on the Government Finance Officers Association (GFOA) guidelines in determining the minimum target reserve amount. The RFA guidelines factored in the following:
Vulnerability to extreme events
Revenue source stability
Expenditure volatility
Unfunded liability
Liquidity risks
Other fund dependency issues
Unfunded capital projects
The results of the RFA, identified $12.3 million for revenue stabilization and $4 million for expenditure volatility, for a total of $16.3 million in reserves. The RFA also indicated that a reserve level between 26% - 35% was warranted. On February 14, 2017, the City Council approved Resolution No. 2017-16 modifying the reserve level from 50% to 40%.
One of the goals of the City Council for Fiscal Year 2019-2020 was to review the Policy to determine the appropriateness of existing reserve levels. Staff engaged the services of
2.1.a
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Attachment: A. Agenda Report and Analysis of General Fund Reserve Policy, May 2020 (4372 : Consideration of Using General Reserves or Management Partners to review the adequacy of setting the General Fund reserve level at 40% of prior year actual General Fund expenditures and validate the adequacy of the contingency reserves to meet the City’s financial commitments and address unanticipated financial needs in the future.
On May 12, 2020, at a Special City Council meeting, Management Partners presented their final analysis report with six recommendations. The following are the comments and recommendations from the report, along with the City’s responses to each:
1. One of the critical factors used in determining the City’s targeted General Fund reserve amount when it was formulated in 2016 was revenue volatility and as noted, our analysis indicates that the City’s “worst case scenario” of revenue volatility appears to be slightly overstated. In fact, a review of actual revenue loss during the last recession in property taxes, sales taxes and transient occupancy taxes totaled $10.7 million. Consequently, had City staff used a $10.7 million revenue loss in determining their Risk Fact Assessment, as opposed to the $12.3 million figure, the target reserve amount would have been closer to 35% rather than 40%.
Recommendation - Adjust the minimum General Fund reserve amount from 40% to 35%.
2. The Dougherty Valley Fund provides several General Fund-related municipal services to a County service area within the City’s limits. The City is then reimbursed for said services by Contra Costa County on a semi-annual basis. This creates a liquidity concern as the City’s General Fund assumes various costs for providing services before being reimbursed by the County. Because the General Fund annually contributes (transfer out) approximately $2 million to the Dougherty Valley Fund, it is recommended that this amount be included in the calculation of prior year General Fund operating expenditures.
Recommendation - Incorporate the transfer payment to the Dougherty Valley (approximately $2 million) to reflect the annual General Fund contribution to this fund, for inclusion into the calculation of prior year General operating expenditures.
This recommendation warrants adjusting the minimum General target reserve to 36% of prior year operating expenditures.
City response - Propose adjusting the minimum General Fund reserve amount to 36% per Recommendation 1 and 2, and including the annual payment to the Dougherty Valley Fund into the calculation of prior year General Fund operating expenditures.
3. The City’s Risk Factor Assessment identified significant risk factors associated with the potential for substantial revenue loss in the future (i.e., Revenue Source Stability) and the exposure to future expenditure volatility (i.e., Vulnerability to Extreme Events).
However, there are no reserve funds designated as either “committed” or “assigned” to address the potential for substantial revenue loss or to deal with expenditure volatility. In
2.1.a
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Attachment: A. Agenda Report and Analysis of General Fund Reserve Policy, May 2020 (4372 : Consideration of Using General Reserves or fact, of the current $24.9 million in combined reserves, over $11.1 million are designated as either “non-spendable” or “restricted,” leaving more than half of the reserve funds ($13.8 million) categorized as unassigned. To that end, it would be prudent to designate a portion of the $13.8 million in unassigned reserves to address future revenue stabilization and expenditure volatility. In addition, a re-designation of some restricted funds may also be in order since there are sufficient funds in the Debt Service Fund to pay for current and future debt service obligations; thereby allowing those remaining funds to be designated as unassigned.
Should City leaders conclude that the recommended action does not meet their criteria for committing or assigning fund balance reserve amounts, in the alternative, at a minimum, the Notes to the Financial Statements in the Comprehensive Annual Financial Report (CAFR) should disclose such revenue stabilization and expenditure volatility information. Such clarification language could be incorporated in Section 9 Net Position and Fund Balances, Subsection C.
Recommendation - Reallocate $10.7 million in unassigned General Fund reserves to the “committed” designation to address future revenue stabilization concerns and $4 million in unassigned General Fund reserves to the “assigned” designation to address expenditure volatility issues in the future.
City response - The City will include in the Notes to the Financial of the CAFR the reallocation of $10.7 million in unassigned General Fund reserves, identified for future revenue stabilization concerns, to the “committed” designation and $4 million in unassigned General Fund reserves, identified to address expenditure volatility issues in the future, to the “assigned” designation.
4. As a matter of practice, the City uses a combination of General Fund reserves, Dougherty Valley Fund reserves and the Debt Service Fund reserves as a basis for establishing their General Fund reserve amount. However, aside from the General Fund Reserve Policy, there is no mention of this practice in the annual CAFR and there should be for purposes of clarification and full disclosure.
Recommendation - Insert clarification language in future CAFRs to indicate that for calculation purposes the General Fund reserves shall consist of a combination of the following three reserves: General Fund reserves, Dougherty Valley Fund reserves, and Debt Service Fund. Specifically, this language can be incorporated in the Notes to the Financial Statements, Section 9 Net Position and Fund Balances, Subsection C.
City response - For clarification and ease of calculation purposes, portions of the General Fund reserves are no longer allocated in the Dougherty Valley Fund and Debt Service Fund beginning with FY 2020-2021 Budget. Any reference to these funds have been removed from the proposed Policy.
5. Since the Healthcare Fund is no longer used in the calculation for determining the
2.1.a
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Attachment: A. Agenda Report and Analysis of General Fund Reserve Policy, May 2020 (4372 : Consideration of Using General Reserves or General Fund reserve amount, the City should change the policy and remove any reference to the Healthcare Fund.
Recommendation - Revise the General Fund Reserve Policy and remove any reference to the Healthcare Fund since it is no longer used in calculating reserves.
City response - Any reference to the Healthcare Fund has been removed from the proposed Policy.
6. The existing policy’s requirement to use prior fiscal year’s “actual” General Fund Expenditures is difficult to put into practice because it requires the use of audited financial data which City staff does not have readily available at the time the budget is being compiled. Accordingly, the policy should be slightly modified to use the prior fiscal year’s estimated General Fund Expenditures.
Recommendation - Modify the General Fund Reserve Policy and replace the word “actual” with “estimated” before the wording “General Fund Operating Expenditures” when describing the minimum reserve level calculation.
City response - The word “actual” has been changed with “estimated” in the proposed Policy.
Staff recommends incorporating Management Partners recommendations from the results of their analysis into the General Fund Reserve Policy.
FISCAL ANALYSIS
The proposed action establishes policy and does not have a direct fiscal impact on the City.
STEPS FOLLOWING APPROVAL
Forward the proposed Statement of General Fund Reserve Policy to the City Council for approval by resolution.
ATTACHMENT:
A: General Fund Reserve Policy 2020 DRAFT
2.1.a
Packet Pg. 12
Attachment: A. Agenda Report and Analysis of General Fund Reserve Policy, May 2020 (4372 : Consideration of Using General Reserves or San Ramon’s General Fund Reserve Policy and
Reserve Level Review
San Ramon City Council Meeting
May 12, 2020
Rick Haydon, Special Advisor
2.1.b
Packet Pg. 13
Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
25+ of service exclusively to local governments
years
About Management Partners
including local government generalists andsubject-matter experts 100+
associates
successfully completed
in Cincinnati, Ohio; San Jose and Costa Mesa, California Our Services
• Strategic Planning• Organization Analysis• Financial Planning/Budgeting• Organization Development• Process Improvement• Operations Improvement• Service Sharing• Performance Management• Facilitation and Training• Executive Recruitment• Executive Coaching served across the United States
42 states
Over
1,700
projects
3 national
offices
2.1.b
Packet Pg. 14
Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
Goals of the Engagement
• Review the adequacy of setting
the General Fund reserve at 40% of the prior year actual General Fund expenditures • Validate the adequacy of a
contingency reserve of $24.9 million to meet the unanticipated needs of the City Note: Our analysis was done prior to the recent COVID-19 pandemic 3
2.1.b
Packet Pg. 15
Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
What are Reserves?
• A cornerstone of financial flexibility• Provide options for responding to unexpected issues and help buffer against various forms of risk
• Commonly referred to as the difference between a
fund’s assets and liabilities
A reserve policy establishes minimum levels of
designated funds to help protect the
City against financial instability.
4 2.1.b
Packet Pg. 16
Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
General Fund Reserve Level
5 Reserve levels vary
among cities
Government
Finance Officers’
Association (GFOA)
recommends no
less than 17%
reserve amounts
Many cities have
between 20% to
25% in reserves
Nearby cities
have written
policies that call
for reserves
between 20% and
26.5%
San Ramon’s policy
calls for minimum
reserves of 40%
2.1.b
Packet Pg. 17
Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
Basis for Current Reserve Policy
• City staff conducted a Risk Factor
Assessment in 2016
• Risk Assessment based on GFOA
guidelines factored in:
Vulnerability to extreme events Revenue source stability Expenditure volatility Unfunded liabilities Liquidity risks Other fund dependency issues Unfunded capital projects 6 2.1.b
Packet Pg. 18
Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
• Based on the 2016 Risk Factor Assessment (RFA)
City identified a “worst case scenario” revenue loss of $12.3 million $4 million was identified for expenditure volatility • Results of the RFA indicated a reserve between 26% to 35% was warranted
• City Council decided on a 40% minimum reserve• General Fund reserve includes funding from the Dougherty Valley and Debt Service Funds
7 How the City set the Reserve at 40%
2.1.b
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Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
Current Reserves Exceed Minimum Goal of 40%
Actual Goal
General Fund Balance $13,888,558 $18,567,378Dougherty Valley Fund $ 470,903 -Debt Service Fund $10,563,736 - TOTAL $24,923,197 $18,567,378
$-
$5,000,000
$10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 Actual Goal
General Fund Balance Dougherty Valley FundDebt Service Fund 8 2.1.b
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Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
Attainment of 40% Reserve Goal
0%
10%20%30%40%50%60%70%80%
2015-16 2016-17 2017-18 2018-19
General Fund Reserves as a Percent of Total General Fund Expenditures 9 2.1.b
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Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
Adequacy of Setting Reserve at 40%
• Current reserve of 40% is a relatively high standard for a minimum reserve amount
• Many cities have between 20% to 25% in reserves• Each city is different and has its own unique set of circumstances
• In our opinion, the minimum reserve of 40% is high based on historical data
10 2.1.b
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Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
Revenue Loss during Great Recession
$14.30
$14.50
$13.90
$14.04
$13.95
$13.72
$14.63
$13.20 $13.40 $13.60 $13.80 $14.00 $14.20 $14.40 $14.60 $14.80 2008 2009 2010 2011 2012 2013 2014
Actual Property Tax Revenue FY 2007-08 through FY 2013-14 (in millions) 11 2.1.b
Packet Pg. 23
Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
Revenue Loss during Great Recession
$1.98
$1.57
$1.25
$1.50
$1.74
$2.10
$2.25
$-
$0.50 $1.00 $1.50 $2.00 $2.50
2008 2009 2010 2011 2012 2013 2014
Actual Transient Occupancy Tax Revenue FY 2007-08 through FY 2013-14 (in millions) 12 2.1.b
Packet Pg. 24
Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
Revenue Loss during Great Recession
$9.20 $9.00
$6.70
$7.58
$8.20 $8.30
$9.70
$-
$2.00 $4.00 $6.00 $8.00
$10.00 $12.00
2008 2009 2010 2011 2012 2013 2014
Actual Sales Tax Revenue FY 2007-08 through FY 2013-14 (in millions) 13 2.1.b
Packet Pg. 25
Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
Total Cumulative Revenue Loss
2008 Actuals 2009 Actuals 2010 Actuals 2011 Actuals 2012 Actuals 2013 Actuals Property Tax $14,345,904 $14,525,239 $13,930,189 $14,038,722 $13,912,217 $13,720,279 Sales and Use Tax $9,241,599 $9,013,866 $6,657,222 $7,580,028 $8,198,736 $8,336,061 Transient Occupancy Tax $1,979,708 $1,566,201 $1,247,315 $1,500,987 $1,740,663 $2,095,975 Property Transfer Tax $664,267 $438,874 $537,645 $469,732 $439,705 $518,437 Total $26,231,478 $25,544,180 $22,372,371 $23,589,469 $24,291,321 $24,670,752 Loss $(687,298) $(3,859,107) $(2,642,009) $(1,940,157) $(1,560,726) TOTAL LOSS $(10,689,297)
14 2.1.b
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Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
Modified Reserve Amount
• Uses $10.7 million actual revenue loss• Includes $4 million for expenditure volatility
• Adjusts the Minimum General Fund
Amount from 40% to 35%
• Needs to include Dougherty Valley
Fund expenses
Recommended
Reserve Amount
• Include Dougherty Valley
Fund expenses (approx. $2 million)
• Adjust the Minimum
General Fund Amountto 36%
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Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
Other Recommendations
• Reallocate unassigned General Fund reserves to:
$10.7 million in committed funds to address future revenue stabilization concerns; and
$4 million in assigned funds to address expenditure volatility issues City Nonspendable Restricted Committed Assigned Unassigned Danville $7,325,019 $820,547 $19,005,310 $117,735 $0Dublin $2,818 $1,938,000 $47,267,326 $60,771,810 $61,235,819 Livermore $5,712,441 $0 $15,954,446 $22,359,001 $21,015,747 Pleasanton $524,566 $0 $0 $0 $29,077,433
San Ramon (current) $170,326 $11,026,271 $0 $0 $13,726,600 San Ramon (proposed) $170,326 $4,621,275 $10,700,000 $4,000,000 $5,431,596 Walnut Creek $896,338 $17,618,718 $24,410,360 $18,759,479 $6,794,320 116
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Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
Other Recommendations
Remove Remove all references to the Healthcare Fund in the reserve policy Identify Identify in the CAFR that the Dougherty Valley Fund and Debt Service reserves are part of the General Fund reserves Replace Replace the word “actual” with “estimated” in the calculation of prior year General Fund operating expenditures 17 2.1.b
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Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
Questions
Rick Haydon | [email protected]
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Attachment: B. Management Partners Inc. Presentation on General Fund Reserve Policy, May 2020 (4372 :
1 CITY OF SAN RAMON
OTHER POST-EMPLOYMENT BENEFITS (OPEB) FUNDING POLICY
Introduction
The purpose of this Funding Policy is to outline the overall funding goals for the City of San Ramon (City) OPEB Trust (OPEB Trust), and the approach that the City will take to achieve those goals.
Background
The City of San Ramon has provided retiree health benefits to its employees for many years, based on a years of service vesting schedule. As a cost reduction strategy, this benefit was eliminated for employees hired on or after July 1, 2014. Although eliminated for new employees, this benefit remains in effect for majority of the City employees and must be addressed during the annual budget process.
To address the long-term costs of this expense, the City created a trust to begin pre-funding this benefit. In the past, the City’s budgetary strategy has been to pay all explicit retiree expenses incurred in the current year on a pay-as-you-go basis and make additional contributions to the Trust fund to fully fund benefits accrued by eligible employees. This policy statement discusses the City’s funding strategy moving forward.
Goals and Objectives
The City’s OPEB funding objective is to accumulate sufficient assets to fully fund the retiree healthcare benefits that the City’s retired employees receive throughout retirement. In meeting this objective, the City will strive to meet the following funding goals:
A. The City will strive to maintain assets in the OPEB Trust equal to 100% of the Actuarial Liability for OPEB through regular contributions to the OPEB Trust.
B. The City will strive to make regular contributions to the OPEB Trust to achieve this goal.
C. The funds in the OPEB Trust will be used to pay the City’s OPEB payments each year.
D. The City will strive to contribute its Actuarially Determined Contribution (ADC) into the OPEB Trust each year.
Nothing in this funding policy shall constitute an obligation upon the City, nor an implied contract.
The City Council may revoke or amend this policy in the best interests of the City.
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Attachment: C. OPEB Funding Policy, June 2020 (4372 : Consideration of Using General Reserves or OPEB Reserves to Close the Remaining 2 This policy does not change the City’s obligation or intent to fully pay annual medical costs for retirees as defined in the City’s Personnel Rules and Regulations, Compensation Policy and respective Memorandum of Understandings.
Definitions
The funding of retirement programs, such as pensions or retiree health plans, is a complex process that utilizes many specialized terms. In this section, we will define the most important ones that are used in this policy statement.
Actuarial Liability – The portion of the cost of future OPEB benefits attributable to work done by current and prior City employees prior to the date of the Actuarial Valuation. Actuarial Valuation – The City will engage a qualified OPEB actuary to perform an actuarial valuation at least once every two years. The actuarial valuation will calculate the ADC based on current OPEB plan information and a series of demographic assumptions (such as retirement age and life expectancy) and economic assumptions (such as medical inflation and return on investment) adopted by the actuary and approved by the City.
Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Actuarially Determined Contribution (ADC) – The contribution calculated by the actuary as sufficient, assuming future experience matches the assumptions used in the Actuarial Valuation, to bring the plan to 100% funding by end of the Amortization Period, currently set at five years.
Additional Discretionary Payments – When the OPEB plan is less than 100% funded and the ADC is insufficient to bring the plan’s funding to 100% in that year, the City Council may, at its own discretion, make an additional contribution from year-end budget surplus, to the extent, such budget surplus appears.
Amortization Payments – When the Actuarial Liability is greater than the assets in the Trust, the City will make up the difference through a level series of annual payments over a five-year period, which are referred to as Amortization Payments. Explicit Benefit Payments – These are the premium payments made by the City in the current year for eligible former employees.
Normal Cost – The portion of the cost of future OPEB benefits attributable to work done by employees in the current year. The Normal Cost will be calculated using the entry age normal cost method using appropriate economic and demographic assumptions approved by the City.
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Attachment: C. OPEB Funding Policy, June 2020 (4372 : Consideration of Using General Reserves or OPEB Reserves to Close the Remaining 3 Pay-As-You-Go – The funding approach where the City pays for the Explicit Benefit Payments from the current year’s budget.
Unfunded Actuarial Liability (UAL) – The difference between the Actuarial Liability and the assets that are in the OPEB Trust. If the assets are greater than the Actuarial Liability at the time of the Actuarial Valuation that is sometimes referred to as a Surplus.
Policy
Funding the OPEB Trust will be comprised of three components. The City’s OPEB Contribution will be the sum of these three amounts.
1. Normal Cost – The City will make a contribution each year equal to the Normal Cost, as calculated in the Actuarial Valuation.
2. Amortization Payment for Unfunded Actuarial Liability – The City will make an additional contribution to the Trust each year toward the Unfunded Actuarial Liability. For Fiscal Year 2020-2021, this additional amount shall be equal to 1% of salary in Fiscal Year 2020-2021. This additional contribution will increase in subsequent fiscal years by 1% of salary until the contribution reaches the Amortization Payment calculated in the Actuarial Valuation. If the OPEB plan is more than 100% funded, this amount will be a credit toward the payment to the Trust.
3. Additional Discretionary Payment – When the OPEB plan is less than 100% funded, the City Council may, at its own discretion, make an additional contribution from year-end budget surplus, to the extent, such budget surplus appears. The dollar amount of available one-time funds will be presented to Council with a recommendation for contribution to the Trust after analyzing other City funding goals. This recommendation will be based on the dollars available, other competing priorities and Council input.
Policy Review
Funding the OPEB requires long-term planning. The City will review this policy at a minimum every five years, to determine if changes to this policy are necessary to ensure adequate resources are being accumulated to fund OPEB benefits. The review may occur more frequently if material changes to the plan, the assets in the Trust, or the City’s finances occur.
June 23, 2020 – Resolution No. 2020-058
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Attachment: C. OPEB Funding Policy, June 2020 (4372 : Consideration of Using General Reserves or OPEB Reserves to Close the Remaining 4 2.1.c
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Attachment: C. OPEB Funding Policy, June 2020 (4372 : Consideration of Using General Reserves or OPEB Reserves to Close the Remaining
CITY COUNCIL STAFF REPORT
DATE: March 23, 2021
TO: City Council/City Manager
FROM: Eva Phelps, Administrative Services Director
By: Christina Franco, City Clerk
SUBJECT: RESOLUTION NO. 2021-037 - Approving the Statement of the General Fund Reserve Policy
RECOMMENDED ACTION
Staff recommends the City Council adopt the Resolution approving the Statement of the General Fund Reserve Policy.
BACKGROUND/DISCUSSION
The City Council adopted a Statement of the General Fund Reserve Policy (Policy) by approving Resolution No. 2004-030 on February 24, 2004, to promote sound financial management practices.
On June 30, 2010, City Council approved Resolution No. 2010-078 modifying the Policy and reallocating General Fund Reserves to the Debt Service Fund, the Dougherty Valley Fund and the Healthcare Fund.
On February 14, 2017, City Council approved Resolution No. 2017-016 modifying the reserve level from 50% to 40% based on the results of a Risk Factor Assessment (RFA) that analyzed the General Fund reserve levels conducted by staff. The RFA was based on the Government Finance Officers Association (GFOA) guidelines in determining the minimum target reserve amount.
In 2020, one of the goals of the City Council was to review the Policy to determine the appropriateness of existing reserve levels. Staff contracted the services of Management Partners to review the adequacy of setting the General Fund reserve level at 40% of prior year actual General Fund expenditures and validate the adequacy of the contingency reserves to meet the City’s financial commitments and address unanticipated financial needs in the future.
At a Special City Council meeting on May 26, 2020, City Council reviewed and accepted the Statement of General Fund Reserve Policy and six recommendations from Management Partners final analysis report.
On June 9, 2020, City Council approved Resolution No. 2020-043 incorporating the following
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Attachment: D. Agenda Report and Resolution Approving General Fund Reserve Policy, March 2021 (4372 : Consideration of Using General recommendations from Management Partners in the Policy:
1. Adjusted the minimum General Fund reserve amount from 40% to 36%
2. Included the annual payment to the Dougherty Valley Fund into the calculation of prior year General Fund operating expenditures
3. Removed any reference to General Fund reserves allocated in the Debt Service Fund, Dougherty Valley Fund and Healthcare Fund, since these funds no longer have allocated General Fund reserves
4. Replaced the word “actual” with “estimate” before the wording “General Fund Operating Expenditures” when describing the minimum reserve level calculation The remaining two recommendations were to designate the unassigned General Fund reserves in the Fiscal Year June 30, 2020 Comprehensive Annual Financial Report (CAFR) by incorporating the following language in the CAFR’s Note to the Financial Statements, Section 9 Net Position and Fund Balances:
1. Reallocate $10.7 million in unassigned General Fund reserves to the “committed” designation as identified to address future revenue stabilization concerns
2. Reallocate $4 million in unassigned General Fund reserves to the “assigned” designation as identified to address expenditure volatility issues in the future However, prior to finalizing of the CAFR, the outside auditors informed the City that in order to designate reserves as “committed” and/or “assigned” the language needs to be included in the Policy or a resolution. Therefore, staff is proposing amending the Policy to include the language reference above in the Policy as an Exhibit to a resolution.
On March 8, 2021, the Finance Committee reviewed the proposed changes to the General Fund Reserve Policy and directed staff to forward to the City Council.
FISCAL ANALYSIS
The proposed action establishes policy and does not have a direct fiscal impact on the City.
STEPS FOLLOWING APPROVAL
Staff will incorporate any changes to the Policy as directed by City Council and finalize the Policy prior to distribution and posting to website.
ATTACHMENT:
Exhibit 1: Statement of the General Fund Reserve Policy
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Attachment: D. Agenda Report and Resolution Approving General Fund Reserve Policy, March 2021 (4372 : Consideration of Using General RESOLUTION NO. 2021-037
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAMON
APPROVING THE STATEMENT OF THE GENERAL FUND RESERVE POLICY WHEREAS, the City Council adopted Resolution No. 2004-030 to establish a General Fund Reserve Policy (“Policy”) to promote sound financial management practices in the City; and
WHEREAS, it is appropriate to review the Policy periodically and consider making changes when appropriate; and
WHEREAS, on June 30, 2010, the City Council approved Resolution No. 2010-078 modifying the Policy and reallocating General Reserves to the Debt Service Fund, the Dougherty Valley Fund and the Healthcare Fund; and
WHEREAS, on February 14, 2017, the City Council approved Resolution No. 2017-016 modifying the Policy reserve level from 50% to 40%; and WHEREAS, on June 9, 2020, the City Council approved Resolution No. 2020-043 modifying the Policy to incorporate recommendations from Management Partners as follows:
1. Adjusted the minimum General Fund reserve amount from 40% to 36%
2. Included the annual payment to the Dougherty Valley Fund into the calculation of prior year General Fund operating expenditures
3. Removed any reference to General Fund reserves allocated in the Debt Service Fund, Dougherty Valley Fund and Healthcare Fund, since these funds no longer have allocated General Fund reserves
4. Replaced the word “actual” with “estimate” before the wording “General Fund Operating Expenditures” when describing the minimum reserve level calculation.
NOW, THEREFORE BE IT RESOLVED, that the City Council approve the Statement of the General Fund Reserve Policy attached as Exhibit 1.
PASSED, APPROVED AND ADOPTED at the meeting of March 23, 2021 by the following votes:
AYES:
NOES:
ABSENT:
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Attachment: D. Agenda Report and Resolution Approving General Fund Reserve Policy, March 2021 (4372 : Consideration of Using General ABSTAIN:
________________________
David E. Hudson, Mayor
ATTEST:
_______________________
Christina Franco, City Clerk
Exhibit 1: Statement of the General Fund Reserve Policy
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Attachment: D. Agenda Report and Resolution Approving General Fund Reserve Policy, March 2021 (4372 : Consideration of Using General 1 CITY OF SAN RAMON
STATEMENT OF GENERAL FUND RESERVE POLICY
Purpose
To provide guidelines to the City Council and staff for establishing, maintaining, and the annual review of a minimum target General Fund reserve for the City of San Ramon. This policy is developed to consider the minimum level necessary to maintain the City’s creditworthiness and to adequately provide for:
• Economic uncertainties and other financial hardships or downturns in the local or national economy
• Extreme events
• Future debt or capital obligations
• Cash flow requirements
• Legal requirements
The General Reserve Policy is an integral part of the City's multi-year financial business plan.
The City General Fund Reserve Policy was approved by City Council Resolution No. 2021- 037.
Introduction
One of the key components of a financially stable organization is the adherence to a policy of maintaining an appropriate level of reserves. Establishing a target minimum General Fund reserve is a mechanism that governments can implement to help ensure adequate levels of fund balance are available to help mitigate current and future risks. A minimum General Fund reserve is generally considered a prudent and conservative fiscal policy to deal with unforeseen situations. Some examples of unforeseen situations include, but are not limited to:
• Extreme Events
• Economic Downturns
• Reduced Revenues
• Federal/State/County Budget Cuts
• Unfunded Legislative or Judicial Mandates
• Cash Flow Requirements
• Capital Obligations
• One-Time City Council Approved Expenditures
• Innovative Opportunities for the Betterment of the Community
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Attachment: E. General Fund Reserve Policy, March 2021 (4372 : Consideration of Using General Reserves or OPEB Reserves to Close the 2 The Government Finance Officers Association (GFOA), an international organization that promotes the professional management of governments for the public interest, recommends, at a minimum, that general-purpose governments, regardless of size, maintain unrestricted fund balance in their General Fund of no less than two months of operating revenues or operating expenditures, or a minimum of approximately 16.67% of General Fund operating expenditures.
The GFOA further recommends that reserve levels be directly related to the degree of uncertainty the local government faces, specifically, the greater the uncertainty, the greater the financial resources necessary.
Most cities choose General Fund Operating Expenditures as the basis for reserve. Typically, there is less fluctuation and risk in forecasting future expenditures. The General Fund Operating Expenditures methodology is also typically considered the more conservative basis for establishing a General Fund reserve.
There are additional benefits to establishing a minimum General Fund reserve. Credit rating agencies carefully monitor levels of fund balance and unreserved fund balance in a government’s General Fund to evaluate a government’s continued creditworthiness. Finally, fund balance levels are a crucial consideration in long-term financial planning.
Policy
For purposes of this policy, the term “reserve” includes undesignated, unreserved fund balance.
It is the policy of the City of San Ramon to maintain a minimum target reserve for unforeseen situations that impact the City, and whenever fiscally possible and financially prudent to maintain a greater target reserve. The City will continue to maintain reserve funds to:
a) Stabilize the fiscal base by anticipating fluctuations in revenues and expenditures; and
b) Provide for non-recurring, unanticipated expenditures; and c) Provide for innovative opportunities for the betterment of the community.
The minimum target reserve of the General Fund reserves will be maintained at thirty-six percent (36%) of General Fund Operating Expenditures, plus the annual transfer amount from the General Fund to the Dougherty Valley Fund.
The minimum reserve level will be calculated annually using the prior fiscal year’s estimated General Fund Operating Expenditures and estimated annual transfer amount from the General Fund to the Dougherty Valley Fund. General Fund reserves levels will be evaluated at three different time periods during the fiscal year as described below. Staff recommendations will be made to City Council on the available funds and the appropriate reserve levels. In the event the General Fund reserve balance drops below the minimum reserve level, a response plan will be developed to return the General Fund reserves back to the minimum reserve level.
The minimum General Fund Reserve Policy is intended to be a prudent and conservative fiscal
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Attachment: E. General Fund Reserve Policy, March 2021 (4372 : Consideration of Using General Reserves or OPEB Reserves to Close the 3 policy, which should help contribute to the fiscal security of the City. Nothing in this policy shall prohibit the City Council from maintaining a higher level of reserves than the established minimum General Fund reserve target of thirty-six percent (36%).
Designation of General Fund Reserves
1) Committed - $10.7 million of General Fund reserves are identified and allocated as “committed” to address future revenue stabilization concerns 2) Assigned - $4 million of General Fund reserves are identified and allocated as “assigned” to address expenditure volatility issues in the future Monitoring and Maintenance of Reserves
1) General Fund Reserve Levels are to be monitored at three (3) different time periods during the fiscal year as follows:
a) Actual Reserve Levels as of the end of each fiscal year are to be reported to the City Council at the time that audited financial statements are published. b) Estimated Reserve Levels are to be projected as part of the annual mid-year financial review presented to the City Council and projected ending reserve levels shall be measured against the Reserve Policy.
c) Budgeted Reserve Levels are to be projected as part of the annual budget adoption process and projected ending reserve levels shall be measured against the Reserve Policy thresholds.
2) If, at any of the three (3) monitoring time periods, total ending reserves fall below, or are estimated to fall below thirty-six percent (36%), the City Manager shall report the amount of reserves remaining below the thirty-six percent (36%) level to the City Council. This report shall be presented to the City Council within thirty (30) days of determining the total combined reserve level is estimated to be below thirty-six percent (36%).
3) If, at any of the three (3) monitoring time periods, total ending reserves actually fall below, or are estimated to fall below thirty-six percent (36%), the City Manager shall prepare an action plan to restore reserves to the thirty-six percent (36%). This action plan shall be presented to the City Council within thirty (30) days of determining that the thirty-six percent (36%) threshold is projected to be breached. The City Council will consider the City Manager's recommended corrective actions.
March 23, 2021 – Resolution No. 2021-037
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Attachment: E. General Fund Reserve Policy, March 2021 (4372 : Consideration of Using General Reserves or OPEB Reserves to Close the
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Attachment: F. General Fund Investment Portfolio Annual Statements (4372 : Consideration of Using
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Attachment: F. General Fund Investment Portfolio Annual Statements (4372 : Consideration of Using
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Attachment: F. General Fund Investment Portfolio Annual Statements (4372 : Consideration of Using
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Attachment: F. General Fund Investment Portfolio Annual Statements (4372 : Consideration of Using
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Attachment: G. CERBT Trust Fund Annual Performance (4372 : Consideration of Using General Reserves