CITY OF SIMI VALLEY
MEMORANDUM
Oc
tober 10, 2022
TO: Cit
y Council
FR
OM: Office of the City Manager
SUBJECT: CONSIDERATION OF DISTRIBUTION OF FY 20 -21 BUDGET SURPLUS
FUNDS IN ACCORDANCE WITH THE FUND BALANCE POLICY
STAFF RECOMMENDATION
It is recommended the City Council approve the distribution of $7,317,482 from FY 20 -21 Budget Surplus as outlined in staff’s repor t.
BACKGROUND AND OVERVIEW
Due to conservative budget practices, the City has maintained a structurally balanced budget for the last three Adopted Budgets and it is anticipated to maintain structurally balanced budgets for the foreseeable future. The many years of fiscal restraint has now led to some year -end surpluses of one -time funds that can be used for strategic purposes.
On April 25, 2022, the City Council approved a Fund Balance Policy (Attachment A; page 6) which distributes budget surpluses into specific categories at specific percentages.
The City’s FY 22-23 Adopted Budget identifies a FY 20-21 surplus of $8,053,103, which can be distributed in accordance with the p olicy. Staff recommends the City Council approve staff’s recommended distribution of funds.
FINDINGS AND ALTERNATIVES
The City maintains a General Fund balance comprised of the Prudent Reserve, Assigned Fund balance, and Unassigned Fund balance. The Prudent Reserve, equal to 17% of General Fund budgeted expenditures, is set aside for emergencies and catastrophic events. The Assigned Fund Balance is restricted for financial purposes such as encumbrances, prior obligations, long -term receivables, and special funds. The Unassigned Fund Balance is a compilation of funds that are generally available for use at the City Council’s discretion. The combination of the Prudent Reserve and t he Unassigned Fund Balance are funds that, in total, are available for use at the City Council’s discretion and for emergencies and catastrophic events; it is the Assigned Fund Balance that are non-discretionary funds.
AGENDA ITEM NO.
9A
2 In order to preserve a healthy and appropriate General Fund balance and address one- time investments into the community, the adopted Fund Balance Policy provides a minimum Unassigned Fund Balance and community investment plan.
T
he City Council adopted policy provides for the allocation of any one- time year -end General Fund surplus. Should the Unassigned Fund Balance exceed 30% of the Proposed year Budgeted General Fund expenditures, the surplus funds are distributed in the following categories and percentages:
• R
etirement Investment Fund - 40% shall be deposited into a Retirement Investment Fund to be used for such options as, but not limited to, additional discretionary payments, or a 115 Trust to reduce the City’s Unfunded Accrued Liability portion of the City’s PERS obligation, or a payment to reduce the City’s OPEB liability.
• Infrastructure Investment Fund - 40% shall be deposited into an Infrastructure Investment Fund to be used for any one-time capital needs included but not limited to roads, equipment replacement, and deferred maintenance. • Contingency Fund - 20% shall be deposited into a Contingency Fund to allow for one-time expenditure needs that are urgent and unanticipated or related to identified fiscal issues. This Account will have a maximum balance of $2 million.
A
t the close of Fiscal Year 2020-21, the City had a one-year surplus of $8,053,103. Based on the above Policy distribution schedule, the following funding is available:
• R
etirement Investment Fund - $3,221,241
• Infrastructure Investment Fund - $3,221,241
• Contingency Fund - $1,610,621
I
n accordance with the Policy, the City Manager will evaluate the application of the funds within the above-allocated Fund Balances to propose the highest valued use to the City Council for consideration and appropriation. The following is a proposed distribution of the Funds:
R
etirement Investment Fund: Available Funding - $3,221,241 S
taff recommends the full amount of $3,221,241 from the Retirement Investment Fund be used for an Additional Discretionary Payment (ADP) towards the City’s CalPERS unfunded accrued liability (UAL). Staff has conferred with the City’s Retirement Plan consultants and analyzed the effect of making this ADP . The resulting ADP will lower the City’s annual CalPERS payment annually by hundreds of thousands of dollars, it will also reduce the interest the City will pay as well.
While the City could invest the funds into a 115 Trust account to be used in the future, the impact of a $3.2 million payment will provide immediate and long -term benefit; the $3.2 million ADP will save over $5.8 million in payments over a 20-year period. The effect of the ADP is shown in Attachment B, page 7. 3 Infrastructure Investment Fund: Available Funding - $3,221,241 T
he City continues to make progress in addressing the needed investment into the major streets network in Simi Valley. Continued investment is critical in order to ensure the City’s streets are serving the public and stemming deterioration beyond normal wear and tear.
A
dditionally, the City is embarking on a multi -million dollar project to replace the City’s aging radio communications system. Staff has been working with consultants and communications experts for the past several years to design and bid the replacement of the City’s radio system ; staff will be returning to the City Council within 90 days to review the project and recommend a construction vendor.
While the cost of the radio project is not finalized, the current estimate is $11 million. Because the radio system serves several City entities, the overall cost will be allocated among the General F und (Public Works, Police, Code Enforcement, and Building & Safety), Transit F und, Waterworks District #8, and the Sanitation division; the General Fund will be responsible for the bulk of the funding. On August 22, 2022, the City approved receipt of a $1 million grant from the Federal government for the radio system. To continue to source funding for the General Fund portion of the radio project, staff recommends a portion of the Infrastructure Investment fund be allocated for this purpose. Staff will be returning to the City Council with further information and authorizations on this project however this action continues to set aside funds to support the radio project. • $
2 million – Radio Communications project
• $1,221,241 – Major Streets projects
C
ontingency Fund: Available funding - $1,610,621
U
se of the Contingency Fund is intended for one-time expenditure needs that are urgent and unanticipated or related to identified fiscal issues. Staff has developed two funding recommendations:
1. W
ith history as a farming community, Simi Valley had an abundance of rows of eucalyptus trees in the community. Used as windbreaks, the trees were planted throughout Simi Valley to protect the crops from the hi gh winds. As shallow rooted trees, over the years Simi Valley has experienced failures of the older eucalyptus trees, often toppling in unexpected high wind conditions or casting off large branches. In order to ensure public safety, t he City has identified a row of eucalyptus trees on the west side of Sinaloa Road between Laguna Drive and Mark Drive for review. In the past several years, these trees have shed branches . As a result, in March 2022 the City contracted with an arborist to evaluate the condition of the trees. The resulting arborist study found that the majority of the 63 eucalyptus should be removed. As a Tree City USA community, the City will do all that is possible to preserve trees; however, these eucalyptus trees need to be removed. St aff has estimated the cost to 4 remove these trees at $175,000. While this action will establish funding for the tree removal, staff will be returning to the City Council with authorization to move forward with the removal and a contract for the work.
2. Th
e City of Simi Valley has participated in the National Flood Insurance Program (NFIP) since 1991. The NFIP is a Federal program that provides insurance to help reduce the socio-economic impact of floods. Flood insurance is a separate policy that can cover buildings, the contents in a building, or both.
The NFIP provides flood insurance to property owners, renters, and businesses, and having this coverage helps them recover faster when floodwaters recede. In 1999, the City joined the Community Rating Syst em (CRS) Program which provides discounts on flood insurance to affected property owners in the community.
Th
e methodology that was used decades ago to determine the areas of the City that would be impacted by flooding resulted in property owners within large sections of Simi Valley being required by FEMA and their mortgage companies to pay annually for flood insurance. It is estimated that Simi Valley property owners pay over $1 million annually for such insurance. Recent flood modeling using updated technology, as well as studies performed by property owners to remove their properties from the flood areas, has led staff and the City’s flood consultants to believe that over 50% of Simi Valley property owners currently paying flood insurance could be relieved of this burden. In order to remove areas from the flood insurance requirements, flood hazard and risk assessment studies and flood modeling need to be performed. Working with the City’s flood consultant, staff estimates the work would take 3-5 years to complete at a cost of $700,000. Based on the financial benefit to Simi Valley property owners which, in the long run will benefit future property owners and help to facilitate redevelopment of properties currently located in flooding designated areas , staff recommends funding this flood hazard and risk assessment analysis.
Staff will return to the City Council with further authorizations on this project. • $175,
000 – Hazardous Tree Removal
• $700,000 – Flood Hazard and Risk Assessment Studies.
In d
eveloping the above recommendations, staff has evaluated the immediate needs of the City as well as appropriate method to invest in addressing the City’s unfunded PERS liability. Staff recommends the City Council approve the distribution of Budget Surplu s funds as noted in this report.
Th
e following alternatives are available to the City Council:
1. Approve the distribution of $7,317,482 fr om FY 20-21 Budget Surplus as outlined in staff’s report.
2. Revise and approve the distribution of funds from FY 20-21 Budget Surplus.
3. Provide further direction to staff.
5 Staff recommends Alternative No. 1.
SUGGESTED CITY COUNCIL MOTION
I move to approve the distribution of $7,317,482 from FY 20-21 Budget Surplus as o
utlined in staff’s report.
SUMMARY
On April 25, 2022, the City Council approved a policy which distributes budget surpluses into specific categories at specific percentages. Those categories include the Retirement Investment Fund (40% of the identified Surplus), the Infrastructure Investment Fund (40% of the identified Surplus), and the Contingency Fund (20% of the identified Surplus).
The City’s FY 22
-23 Adopted Budget identifies a FY 20-21 surplus of $8,053,103, which can be distributed in accordance with the Fund Balance Policy. Staff recommends the City
Council approve staff’s recommended distribution of funds. ______
______________________________
Brian P. Gabler
City Manager
INDEX Page
Atta
chment A – Fund Balance Policy ............................................... 6 Attachment B – ADP UAL Payment Schedule ................................. 7
ATTACHMENT A
Year End General Fund – Fund Balance Policy
Fund Balance – General Fund Policy
Per existing policy, t he City will maintain a General Fund balance comprised of the Prudent Reserve, Assigned General Fund balance, and Unassigned General Fund balance. The Prudent Reserve will maintain a balance equal to 17% of General Fund budgeted expenditures for emergencies and catastrophic events. The Assigned Balance is restricted for financial purposes such as encumbrances, prior obligations, long -term receivables, and special funds. The Unassigned Balance is a compilation of funds that are generally available for use.
Year End General Fund Surplus Policy
At the close of each fiscal year, if three criteria are met, the reallocation of surplus dollars will be allowed. The three criteria that have to be met are:
1) There is a General Fund surplus savings in the most recent fiscal year closed, 2) The 17% prudent reserve is fully funded in the most recent fiscal year closed, and
3) The unassigned fund balance exceeds 30% of operating expenditures in the most recent fiscal year closed.
If the above three criteria are met, the prior year end surplus funds will considered for reallocation when developing the subsequent Proposed Budget. The prior year surplus funds will be considered for reallocation into Assigned Balances after the 17% Pru dent Reserve and 30% Unassigned minimums are maintained in the Proposed Budget (the net remaining surplus funds) as follows:
a. 40% shall be deposited into an Unfunded Pension/Retiree Medical Benefit Obligations Fund to be used for items such as but not limited to Additional Discretionary Payments or a 115 Trust to reduce the City’s Unfunded Accrued Liability and Other Post-Employment Benefits (OPEB).
b. 40% shall be deposited into an Infrastructure Fund to be used for any one-time capital needs including but not limited to: roads, equipment replacement, storm drain, buildings, and deferred maintenance.
c. 20% shall be deposited into a Contingency Fund to allow for one -time expenditure needs that were unanticipated or are related to the identified fiscal issues. This fund will have a maximum balance of $2 million.
The City Manager, or designee, will evaluate the application of the funds within the above allocated Fund Balances to propose the highest valued use to the City Council for consideration and appropriation.
6 ATTACHMENT B
ADDITIONAL DISCRETIONARY PAYMENT
REVISED PAYMENT SCHEDULE
Fiscal Year Ending Current UAL
Payment
Proposed
UAL Payment Savings
2024 12,400,727 12,179,104 (221,623)
2025 12,231,521 12,003,691 (227,830)
2026 10,879,789 10,645,581 (234,208)
2027 10,458,284 10,217,517 (240,767)
2028 9,777,628 9,530,124 (247,504)
2029 10,196,205 9,941,770 (254,435)
2030 10,626,499 10,364,940 (261,559)
2031 11,068,843 10,799,960 (268,883)
2032 10,400,649 10,124,236 (276,413)
2033 10,220,014 9,935,862 (284,152)
2034 9,070,123 8,778,016 (292,107)
2035 8,598,708 8,298,419 (300,289)
2036 7,809,990 7,501,296 (308,694)
2037 6,420,116 6,102,778 (317,338)
2038 5,650,198 5,323,974 (326,224)
2039 4,828,068 4,492,707 (335,361)
2040 4,202,280 3,857,530 (344,750)
2041 4,049,817 3,695,415 (354,402)
2042 1,984,608 1,620,282 (364,326)
2043 1,485,220 1,110,692 (374,528)
Total UAL Savings (5,835,392)
7