CITY OF SIMI VALLEY
MEMORANDUM
February 10, 2025
TO: City Council
FROM: Office of the City Manager
SUBJECT: CONSIDERATION OF DISTRIBUTION OF FY 2022-23 BUDGET
SURPLUS FUNDS IN ACCORDANCE WITH THE FUND BALANCE
POLICY
STAFF RECOMMENDATION
It is recommended the City Council approve the distribution of $9,543,410 from FY2022- 23 Budget Surplus as outlined in staff’s report.
BACKGROUND AND OVERVIEW
Due to conservative budget pr actices, the City has maintain ed a structurally balanced budget and will maintain a structurally balanced budget 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 specif ic percentages.
The City’s FY 2024-25 Adopted Budget identifies a FY 2022-23 surplus of $9,543,410 along with the distribution into the three pre-determined funds. On August 8, 2024, the City Council approved using $380,900 from the Contingency Fund (Fund 122) for 70% of the cost of the first year of the Axon Enterprise, Inc. agreement. On September 23, 2024, the City Council approved using $267,000 from the Contingency Fund (Fund 122) to subsidize the Senior Nutrition program. The remaining $8,895,510 can now be distributed in accordance wi th 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 Counc il’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.
AGENDA ITEM NO.
9B
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.
The 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:
• 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 2022-23, the City had a one-year surplus of $9,543,410. 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, i f the Contingency Fund reaches the $2 million maximum balance. The Contingency Fund ended FY2023-24 with a fund balance of $1.6 million and therefore will only receive $ 400,000, giving the two other funds a slight increase. Based on the above Policy the funds were distributed during the budget adoption as follows:
• Retirement Investment Fund - $4,571,705
• Infrastructure Investment Fund - $4,571,705
• Contingency Fund - $400,000
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 following is a proposed distribution of the Funds:
Retirement Investment Fund: Available Funding (including accrued interest) - $4,608,605
Staff recommends the f ull fund balance amount of $4,608,605 be appropriated from the Retirement I nvestment 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 3 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 $ 4.6 million ADP payment will provide immediate and long-term benefit. In December 2022, the City made a $3.2 million ADP utilizing Budget Surplus Funds in accordance with City Policy. This payment resulted in a FY2023-24 payment savings of $1 Million. Again, in December 2023, the City made another ADP of $4.5 million with Surplus funds from prior year’s surplus resulting in a savings of $731,000 for the FY2024-25 payments.
Infrastructure Investment Fund: Available Funding (including accrued interest) - $4,605,540
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 FY 2022-23 in addition to the $7.9 allocated through the annual Budget. In FY2023-24, the City Council approved $4,534,754 from the FY 2021-22 Budget Sur plus for appropriation from the Infrastructure Investment Fund (Fund 120) and transferred to Major Streets (Project # CP60000018, in Fund 600) . For the FY 2024-25 Budget Year, staff is recommending the full allocation from the fund balance in the Infr astructure Investment Fund of $ 4,605,540 to be transferred to Major Streets (Fund 600).
This, combined with the approved FY2024-25 budget allocation of $1,650,000, will result in a $6.2 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.
City Council has already approved the following distributions from the Contingency Fund:
1. On August 8, 2024, the City Council approved the contract with Axon along with $380,900 (70% of the first year payment) to be funded through the Contingency Fund (Fund 122). In 2019, the City invested in providing body worn cameras (BWC) to all Simi Valley Police sworn personnel. Purchased through a cooperative agreement with Axon, the BWC has proven to be a valuable asset, providing video evidence of all Police encounters with the public. The BWC has been used in the investigation of major crimes as well as investigating complaints against officers or the Department. The initial 5 year contract with Axon for the BWC is expiring this fiscal year. The funding for the new BWC contract was not contained within the FY2024-25 Budget.
4 2. On September 23, 2024, the City Council approved transferring $267,000 from the Contingency Fund (Fund 122) into the General Fund (Fund 100) to subsidize the Senior Nutrition program in FY2024-25. The Senior Nutrition Program, managed through the Sr. Center, provides for the Meals-On-Wheels and Congregate Meals programs. These are federally funded grant programs with the grant money coming to the City of Simi Valley from the County of Ventura. The available grant dollars for FY2024- 25 are significantly less than originally anticipated.
Any additional needs for funding from the contingency fund will be brought to City Council as the need arises.
In developing the above recommendations, staff has evaluated the immediate needs of the City as well as the 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 the Surplus funds, and interest earned, that are in the Retirement Investment Fund (Fund 121) and Infrastructure Investment Fund (Fund 120) as outlined in staff’s report;
2. Revise and approve the di stribution of funds from the FY2022-23 Budget Surplus;
3. Provide further direction to staff.
Staff recommends Alternative No. 1
SUGGESTED CITY COUNCIL MOTION
I move to approve the distribution of the surplus funds, and interest earned, from the Retirement Investment Fund (Fund 121) and Infrastructure Investment Fund (Fund 120) as outlined in staff’s report.
SUMMARY
On April 25, 2022, the City Council approved a policy which distributes year end, general fund 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 (2 0% of the identified Surplus). The City’s FY2024-25 Adopted Budget identifies a FY2022-23 surplus of $9,543,410, which was distributed into the predetermined funds in accordance with the Fund Balance Policy. Staff now requests the City Council to approve staff’s recommended distribution of these funds.
5 ____________________________________
Samantha C. Argabrite
City Manager
Prepared by: Carolyn Johnson, Administrative Services Director
INDEX Page
Attachment A – Fund Balance Policy ............................................... 6
AT TACHMENT A
Y
ear End General Fund – Fund Balance Policy
Fund Balance – General Fund Policy
P
er existing policy, the 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
A
t 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% Prudent 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.
T
he 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.
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