Financial Policies
LONG TERM FINANCIAL POLICY AUDIT
SUBCOMMIT TEE
MARCH 13, 2025
ALAN ALTON
CHIEF FINANCIAL OFFICER
2 Financial Policy Overview
• Financial Policies are central to a strategic, long-term approach to financial management
• Santa Rosa currently has several financial policies identified as best practices by GFOA in place, including:
• General Fund reserves
• Reserves for Other Funds
• Debt Management and Disclosures
• Investments
• Grant Administration
• In addition, the Santa Rosa City Charter requires an annual audit 3 Financial Policy Overview
• Why should the City adopt formal financial policies?
✓ Institutionalize good financial management practices, promoting stability and continuity.
✓ Define limits on the actions staff may take, providing boundaries within which staff can innovate in order to realize the organization’s strategic intent. ✓ Support good bond ratings and thereby reduce the cost of borrowing. ✓ Manage risk to the financial condition.
Government Finance Officers Association (GFOA) recognize these such policies as an essential part of public financial management, and a best practice.
Other Financial
Policies for
Consideration
4 Structurally Balanced Budget
Long-Term Financial Planning
Capital Projects
Use of General Fund Reserves
5 Structurally Balanced Budget
Policy would offer a distinction between satisfying the statutory definition of balanced budget and achieving a true structurally balanced budget. • Ongoing expenses match ongoing revenues
• One-time funds must not be used to fund operational costs, ongoing programs, or temporary increases to City service levels unless part of a larger plan to balance ongoing revenues and expenditures over a multi-year budget period • Reserves cannot solve structural deficits
• Revenue and cost deviations can require the use of reserves to smooth budget changes in the short term
• Significant budget variances and recommended actions will be reported to the Finance Subcommittee and the City Council via budget reports. 6 Long-Term Financial Planning
Policy would commit the City to take a long-term approach to financial health.
This is established practice in the City, but policy would formalize the process. • Multi-year forecast of financial operations of the General Fund. • Forecast includes changes in cost to maintain current service levels and costs related to new programs of program enhancements.
• Forecast part of budget presentation at City Council and Finance Subcommittee.
7 Capital Projects
Policy would cover the lifecycle of capital assets, including capital improvement planning, capital budgeting, project management, and asset maintenance. • Ensure that the City allocates its capital funding resources effectively and maintains public infrastructure in the most cost-efficient manner. • Capital budget will include as complete, reliable, and attainable scope and cost estimates as possible.
• Plan for funding projected staffing, operation and maintenance, and utility costs must be identified as part of the approval process for each capital project. • Capital projects will not be budgeted unless there are reasonable expectations that resources will be available to pay for them.
8 General Fund Reserves
Policy would modify existing General Fund reserve policy which ensures a minimum level of unassigned fund balance is designated to meet unanticipated expenditures or revenue shortfalls, economic downturns, or local disasters. • Expand policy to include the current “Fiscal Stability Reserves” and address the circumstances under which unassigned fund balance can be spent down. • Use of unassigned fund balance would be limited to non-recurring expenditures, debt reduction, one-time capital costs or emergency situations.
Next Steps
• Develop policies based on discussion at Finance
Subcommittee
• Depending on Subcommittee direction, could return with finished policies for final review, or take directly to City Council • Goal to have Council adopt policies before Fiscal Year-End 9 10
Questions
and
Discussion