Attachment G
Resolution No. 26-042
Affirming the General Fund
Reserve Policy
RESOLUTION NO. 26-042
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF VICTORVILLE
AFFIRMING THE GENERAL FUND RESERVE POLICY (CITY COUNCIL POLICY CP-23-01)
WHEREAS, on June 1, 2010, the City Council of the City of Victorville (the “City Council”) adopted the City of Victorville General Fund Reserve Policy CP-10-04 (“Reserve Policy”); and
WHEREAS, on June 15, 2021, the City Council adopted the City of Victorville General Fund Reserve Policy CP-21-01, which replaced Reserve Policy CP-10-04; and
WHEREAS, on June 21, 2022, the City Council adopted the City of Victorville General Fund Reserve Policy CP-22-02, which replaced Reserve Policy CP-21-01; and
WHEREAS, on March 7, 2023, the City Council adopted the City of Victorville General Fund Reserve Policy CP-23-01, which replaced Reserve Policy CP-22-02; and
WHEREAS, a defined calculation methodology is included within said policy to determine the Annual General Fund Reserve requirement; and
WHEREAS, Measure P is a General Fund account which is used to account for the one- percent transactions and use tax approved by the voters in November 2020; and
WHEREAS, said calculation methodology applies to the reserve requirement for Measure P; and
WHEREAS, the Reserve Policy requires an annual review wherein City Council will affirm or revise the policy including the established percentage for the reserve; and
WHEREAS, staff has reviewed the Reserve Policy during the preparation of the FY 2 6- 27 budget and does not recommend any changes to Reserve Policy CP-23-01; and
WHEREAS, this policy will continue to be reviewed on an annual basis and brought forth to City Council in conjunction with the annual budget adoption.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF VICTORVILLE DOES HEREBY RESOLVE AS FOLLOWS:
SECTION 1. That the General Fund Reserve Policy CP-23-01 attached to this Resolution is hereby affirmed by the City Council of the City of Victorville.
SECTION 2. That any other resolutions or administrative actions by the City Council, or parts thereof that are inconsistent with any provisions of this Resolution are hereby superseded, but only to the extent of such inconsistency.
SECTION 3. That copies of such policy, certified by the City Clerk, shall be filed with the auditors of the City of Victorville and in the office of the City Clerk for public inspection within the annual budget document and certified copies thereof shall be made available for use by the City departments, offices and subsidiary districts of the City.
COUNCIL POLICY CP-23-01
CITY OF VICTORVILLE
COUNCIL POLICY
SUBJECT:
GENERAL FUND RESERVE POLICY
POLICY NO.: CP-23-01
(Supersedes Policy No. CP-22-02)
DATE:
March 7, 2023
BACKGROUND
Financial sustainability has been established as a City Council priority. The General Fund Reserve Policy is an important tool to help mitigate current and future risks and to ensure long-term financial planning. Sound fiscal management practices include the discipline of maintaining adequate reserve funds for known and unknown contingencies. Such contingencies and occurrences may include, but are not limited to:
1. Cash flow requirements
2. Economic uncertainties including downturns in the local, state, or national economies
3. Local emergencies and disasters
4. Loss of major revenue sources
5. Unanticipated operating or capital expenditures
6. Uninsured losses
7. Future capital projects
8. Vehicle and equipment replacement
9. Capital asset and infrastructure repair and replacement In addition, minimum levels of reserves are important to help:
1. Insulate the city from actions of the state that may result in a reduction of revenues
2. Demonstrate creditworthiness to bond rating agencies and the financial community
3. Promote both short and long-term financial planning and stabilization
APPLICABILITY
This policy will apply to the General Fund (Fund 100), effective March 8, 2023. The General Fund is the City’s primary operating fund and accounts for all financial resources of the City, except those required to be accounted for in another fund. This policy will also apply to the Measure P general fund (Fund 105), which shall be calculated separately.
PURPOSE
The purpose of this Policy is to establish a target and minimum level of unassigned fund balance to be maintained in the General Fund.
POLICY
To ensure sound fiscal management, the City establishes the following General Fund balance designations and funding levels, as calculated pursuant to the Budgetary Fund Balance accounting methodology established within this policy:
1. General Fund Reserve and Measure P Reserve - Seventeen percent (17%) of the General Fund and separately, Measure P Fund annual appropriations shall be held in reserve. The General Fund appropriations calculation shall only include Fund 100. The Measure P appropriations calculation shall only include Fund 105.
2. Minimum Reserve - During times of fiscal hardship, a minimum of five percent (5%) of the General Fund and separately, Measure P Fund annual appropriations shall be maintained to provide provision for cash flow requirements, economic uncertainties, uninsured losses, local emergencies/disasters, or other unknown financial hardships.
3. Replenishment of Fund Reserves - If reserves are used below the seventeen percent (17%) level on either fund, the City Manager shall develop a plan to rebuild the reserve fund(s) to the target level. Said plan(s) shall be presented and/or updated on an annual basis for review and approval by the City Council during the annual budget review and adoption process until the fund(s) reaches the target level.
USE OF GENERAL FUND RESERVES
In the event there are unanticipated expenses or revenue shortfalls during the annual budget approval process, funds may be appropriated by the City Council from the General Fund Reserve to balance the annual operating budget. Funds may also be appropriated by the City Council in case of a local emergency/disaster or financial hardship after the annual operating budget is adopted.
CALCULATION METHODOLOGY
Governmental Accounting Standards Board (GASB) Statement No. 54 “Fund Balance Reporting and Governmental Fund Type Definitions” distinguishes the difference between the term fund balance used in accordance with Generally Accepted Accounting Principles (GAAP) and fund balance used on a budgetary basis. Fund balance is the difference between the assets and liabilities reported in a governmental fund and excludes long- term assets and long-term liabilities.
GASB Statement No. 54 defines five separate components of fund balance, each of which identifies the extent to which amounts are “spendable” as follows:
1. Nonspendable Fund Balance – Assets that cannot be readily converted to cash (i.e. a prepaid asset such as an insurance premium not yet deducted from fund balance, but not available for appropriation)
2. Restricted Fund Balance – Assets that have externally imposed restrictions (i.e. debt service reserves)
2 General Fund Expenditures X Reserve policy % = General Fund Reserve requirement
3. Committed Fund Balance – City Council imposed commitment
4. Assigned Fund Balance – Restriction imposed by an official designated for that purpose (delegated by the City Council to the City Manager), but not formally restricted or committed by the City Council yet.
5. Unassigned Fund Balance – Residual balance not otherwise restricted
The above components comprise the Fund Balance, as reported in the annual financial statements. For the purpose of calculating fund balance in conjunction with GAAP, sub- funds within the General Fund may also be used (i.e., Fund 105 Measure P, Fund 111 Technology Reserve Fund, Fund 120 Fueling Stations and Fund 620 Sidewalk Assessment Fund).
The Annual General Fund Reserve requirement is calculated as the Total General Fund Expenditures budgeted multiplied by the Reserve Policy percentage. Surplus Reserve would be the difference between this calculation and the amount currently reflected as General Fund Reserves.
Budgetary Fund Balance: The General Fund Reserve and Minimum Reserve levels shall be calculated utilizing the Budgetary Fund Balance methodology. For Budgetary Fund Balance, the use of only the resources available to General Fund (100) will be used. This method shall also be used for the Measure P (Fund 105) calculation.
ANNUAL REVIEW
Each year, during the annual budget process, City Council will affirm or revise the Policy including the percentage range established by the components described herein.
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