CITY OF SIMI VALLEY
MEMORANDUM
September 11, 2023
TO: City Council
FROM: Office of the City Manager
SUBJECT: CONSIDERATION OF DISTRIBUTION OF FY21 -22 BUDGET SURPLUS
FUNDS IN ACCORDANCE WITH THE FUND BALANCE POLICY
STAFF RECOMMENDATION
It is recommended the City Council approve the distribution of $9,469,508 from FY21-22 Budget Surplus as outlined in staff’s report.
BACKGROUND AND OVERVIEW
Due to conservative budget practices, the City has maintained a structurally balanced budget for the last three Adopted Budgets and will maintain structurally balanced budgets for the foreseeable future. The many years of fiscal restraint has now led to some ye ar-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 5) which distributes budget surpluses into specific categories at specif ic percentages.
The City’s FY23-24 Adopted Budget identifies a FY21-22 surplus of $10,333,888, which can now be distributed in accordance with the Policy. 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 the 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.
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.
AGENDA ITEM NO.
9A
2 The Ci ty 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:
• Retirement 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 deposit to 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.
At the close of Fiscal Year 2021- 22, the City had a one-year surplus of $10,333,888.
Based on the above Policy distribution schedule, the following funding is available:
• Retirement Investment Fund - $4,534,754
• Infrastructure Investment Fund - $4,534,754
• Contingency Fund - $2,000,000
In 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 its consideration and appropriation. Expenditures from these funds should be for one-time expenditures; the expenditures should not be related to on-going expenses.
The Fund Balance Policy allows for surplus money that would normally flow to the Contingency Fund to be distributed equally between the Infrastructure Investment Fund and the Retirement Investment Fund, if the Contingency Fun d reaches the $2 million maximum balance. The Contingency Fund currently has a fund balance of $735,621 and therefore will only receive $1,264,379, giving the two other funds a slight increase. The following is a proposed distribution of the Funds:
Retirement Investment Fund: Available Funding - $4,534,754
Staff recommends the f ull amount of $4,534,754 be appropriated from the Retirement Investment Fund (Fund 121) to be used for an Additional Discretionary Payment (ADP) towards the City’s CalPERS unfunded accrued liability (UAL). 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 $4.5 million ADP payment will provide immediate and long- term benefit. In October 2022, the City made a $3.2 million ADP utilizing Budget Surplus Funds in accordance with City Policy. This payment resulted in annual payment savings and will save over $5.8 million in payments over a 20-year period. 3 The proposed ADP of $4.5 could result in an estimated savings of over $9 million over the next 15 years. The effect of the ADP is shown in Attachment B, page 6.
Infrastructure Investment Fund: Available Funding - $4,534,754
The 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. Through this Fund Balance Policy, the City allocated $1.2 million to the Major Street program in FY22- 23 in addition to the $7.9 allocated through the annual Budget. For FY23- 24, staff recommends the full amount of $4,534,754 be appropriated from the Infrastructure Investment Fund (Fund 120) and transferred to Major Streets (Project # CP60000018, in Fund 600) . This amount, in addition to the $2.5 million allocated through the FY23- 24 Annual Budget, will result in a $7 million contribution to the Major Streets program.
Contingency Fund: Available funding - $2,000,000
Use of the Contingency Fund is intended for one-time expenditure needs that are urgent and unanticipated or related to identified fiscal issues. As noted above, 20% shall be deposited into the Contingency Fund with the Fund to have a maximum balance of $2 million. In FY22-23, based on the funding available, the Contingency Fund was funded at $1,610,621. Factoring in the City Council FY22-23 approved expenditures from the Fund ($875,000) and to provide fund to its maximum $2 million, only $1,264,379 was required from the FY21- 22 surplus. Thus, less than 20% of the overall surplus was needed to fully fund the Contingency Fund.
Staff has developed one funding recommendation from the Contingency Fund:
1. The City continues to make a major investment in the community’s streets and infrastructure. As contained in the FY23-24 Adopted Budget, funding has been approved for major streets rehabilitation ($2.5 million), minor streets rehabilitation ($4.85 million), expansion of the City’s pothole repair program ($200,000), upgrades to the City’s traffic signal equipment ($250,000), repairs of the City’s curb, gutter, and sidewalks ($200,000), and expansion of the City’s crack seal program to extend the life of City streets ($250,000), replacement of deteriorated street signage ($100,000), and removal of street trees where needed ($150,000). I n this staff report, it is further recommended to invest another $4.5 million from the City’s Infrastructure Investment Fund into the City’s major street program. Collectively, this is a $13 million investment for FY23-24 into the City’s streets and street infrastructure. These investments will make a significant difference to the motoring public.
One item needing additional funding is worn street striping throughout the community. Based on staff estimates, the cost of one mile of lane striping (white and yellow striping) is approximately $6,300 per mile, however, this cost- per-mile estimate does not include additional striping for crosswalks, limit lines, left/right turn lanes, and other miscellaneous street markings. It is 4 recommended the City Council provide funding with an appropriation of $400,000 from the Contingency Fund (Fund 122) with a transfer to the General Fund (Fund 100) for street striping. This funding will provide sufficient funds to re-stripe approximately 60 miles of street and other markings.
In developing 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 Surplus funds as noted in this report.
The following alternatives are available to the City Council:
1. Approve the distribution of $ 9,469,508 from FY21-22 Budget Surplus as outlined in staff’s report;
2. Revise and approve the distribution of funds from FY21-22 Budget Surplus;
3. Provide further direction to staff.
Staff recommends Alternative No. 1
SUGGESTED CITY COUNCIL MOTION
I move to approve the distribution of $9,469,508 from FY21-22 Budget Surplus as outlined 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 FY23-24 Adopted Budget identifies a FY21-22 surplus of $10,333,888, 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
Attachment A – Fund Balance Policy ............................................... 5 Attachment B – ADP UAL Payment Schedule ................................. 6
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.
5 ATTACHMENT B
ADDITIONAL DISCRETIONARY PAYMENT
REVISED PAYMENT SCHEDULE
Fiscal Year Current
UAL/Normal
Payment Schedule
Proposed
UAL/Normal
Payment Schedule
Savings
2023-2024 $18,440,053.97 $18,440,053.97 $0
2024-2025 $18,356,006.06 $18,036,416.48 $319,589.57
2025-2026 $17,095,057.77 $16,766,519.69 $328,538.08
2026-2027 $16,694,275.88 $16,349,353.25 $344,922.64
2027-2028 $16,030,846.40 $15,676,467.12 $354,379.28
2028-2029 $16,488,414.98 $16,124,314.27 $364,100.70
2029-2030 $16,962,191.22 $16,588,096.89 $374,094.33
2030-2031 $17,465,658.74 $17,081,290.96 $384,367.78
2031-2032 $16,876,678.52 $16,481,749.64 $394,928.88
2032-2033 $16,793,882.12 $16,388,096.43 $405,785.70
2033-2034 $15,768,307.39 $15,351,360.89 $416,946.50
2034-2035 $15,438,294.79 $15,009,874.98 $428,419.81
2035-2036 $14,804,012.41 $14,363,798.04 $440,214.37
2036-2037 $13,545,610.13 $13,093,270.94 $452,339.18
2037-2038 $12,904,684.47 $12,439,880.99 $464,803.48
2038-2039 $12,209,510.34 $11,731,893.56 $477,616.79
2039-2040 $11,716,901.73 $9,926,183.59 $1,790,718.14
2040-2041 $11,699,143.21 $10,182,861.34 $1,516,281.87
Total UAL
Savings
$9,258,047.11
6