CITY OF SIMI VALLEY
MEMORANDUM
October 6, 2025
TO: City Council
FROM: Department of Administrative Services
SUBJECT: PROVIDE DIRECTION TO STAFF REGARDING THE YEAR- END GENERAL FUND – FUND BALANCE POLICY
STAFF RECOMMENDATION
It is recommended that the City Council review and provide direction to staff regarding the Year-End General Fund - Fund Balance Policy (Attachment A, page 4).
BACKGROUND AND OVERVIEW
On April 25, 2022, the City Council adopted a Fund Balance Policy (Policy) that distributes one-time budget surpluses into specific categories at specific percentages as defined below. Surplus funds are typically the result of one- time revenues received by the City that were higher than anticipated and budgeted. Before the adoption of the Policy, surplus funds were rolled into the preparation of the next year’s budget.
Should the Unassigned Fund Balance exceed 30% of the proposed year's budgeted General Fund expenditures, the surplus funds are distributed in the following categories at the following 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, including 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.
During the June 10, 2025, City Council Retreat, the Council requested to review the policy to ensure the identified allocation continues to meet the City's needs.
AGENDA ITEM NO.
9B
2 FINDINGS AND ALTERNATIVES
In light of the year -end surpluses, City staff has evaluated the infrastructure and other budgetary needs of the City, as well as the City’s CalPERS obligations, while weighing the continued growth of the City’s General Fund balance. As of June 30, 2024, the City’s Unassigned Fund Balance was $ 44.3 million. This amount is in addition to the $ 14.6 million set aside as the City Council’s Prudent Reserve balance. This combined total exceeds the Government Finance Officers Association (GFOA) recommendation of maintaining an unrestricted budgetary fund balance of no less than two months or 17% of operating revenues or expenditures. Combining the Unassigned Fund Balance of $44.3 million and the Prudent Reserve of $14.6 million results in a discretionary amount of $58.9 million, equal to 61% of budgeted expenditures for FY 2025-2026.
Under the current Policy, the FY 2023- 24 surplus of $7,134,886 from the General Fund (Fund 100) would be distributed as follows:
• $3,279,943 - Retirement Obligation Fund (Fund 121)
• $3,279,943 - Infrastructure Investment Fund (Fund 120) • $ 575,000 - Contingency Fund (Fund 122)
However, during the City Council Retreat, the Council directed staff to bring the policy forward to discuss modifications for this year’s cycle. Options available to the Council include pausing the P olicy for a one- year period and reconsidering the guidelines and allocations of each fund.
• Retirement Investment Fund
The City has invested $12.3 million of year -end surplus funds into additional discretionary payments over the past three fiscal years. The last payment of $4.5 million saved the City $681,000 in payments for FY2025-26.
• Infrastructure Investment Fund
The City has invested $9.1 million of surplus funds over the past three years into street maintenance. Street maintenance continues; however, due to staffing constraints, allocating additional surplus funds is not recommended at this time.
• Contingency Fund
The Contingency Fund has a maximum balance limit of $2 million. There is currently $1.4 million in the fund.
The City Council may wish to consider increasing the maximum balance limit of this fund and modifying the language to remove “one-time expenditures” from this fund.
3 The following options are available to the City Council:
1. D
irect staff to pause the implementation of the Year -End General Fund – Fund Balance Policy for one year;
2. R
eview the current General Fund – Fund Balance Policy and make revisions (Attachment A).
3. Pr
ovide staff with other direction.
S
taff recommends Options No. 1.
SUGGESTED CITY COUNCIL MOTION
I
move to pause the implementation of the Year-End General Fund – Fund Balance Policy for one year only.
SUMMARY
I
t is recommended that the City Council review and provide direction to staff regarding the Year-End General Fund - Fund Balance Policy.
___
_________________________________
Carolyn Johnson
Administrative Services Director
INDEX Page
A
ttachment A – Year-End General Fund – Fund Balance Policy .... 4
ATTACHMENT A
Year End General Fund – Fund Balance Policy
Fund Balance – General Fund Policy
Per
existing policy, the City will maintain a General Fund bala nce 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, prio r obligations, long-term receivables, and special funds. T he Unassigned Balance is a co mpilation 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. T he prior year surplus funds will be considered for reallocation into Assigned Balance s after the 17% Prudent Reserve and 30% Unassigned minimums are maintained in the Propo sed Budget (the net remaining surplus funds) as follows:
a. 40% shall be deposited into an Unfunded Pension/Retiree Medi cal Benefit Obligations Fund to be used for it ems 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 th e City Council for consideration and appropriation.
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