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HomeMy WebLinkAbout57-23RESOLUTION 57-23 A RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF LOS ALTOS HILLS APPROVES THE FUND BALANCE AND RESERVE POLICY WHEREAS, financial reserves are an essential component to demonstrating financial stability and strength of the organization; and WHEREAS, a fund balance and reserve policy enable an organization to plan for contingencies, maintain good standing with credit rating agencies, generate interest income, and ensure that funds are available during emergencies and economic downturns; and WHEREAS, the Town adopted Resolution 06-21 on February 18, 2021 to update the Town of Los Altos Hills Fund Balance and Reserve Policy; and WHEREAS, the Town desires to replace the existing reserve policy with the new policy in Attachment 1; and WHEREAS, the reserves have the following reserve balances: Pension Contribution: $2,099,951, Facilities Replacement: $4,619,613, Disaster Contingency: $1,050,000 Operating Contingency: $2,328,858, Vehicle and Equipment: $594,000 for FY22-23; and WHEREAS, created the Capital Reserves with a balance of. $2,504,440 for FY22-23 and Technology reserve: $46,000 for FY23-24; and WHEREAS, the City Manager is responsible for presenting annually an updated reserve threshold report during the annual budget cycle; and NOW, THEREFORE, BE IT RESOLVED, by the City Council of the Town of Los Altos Hills approves the Fund Balances and Reserve Policy. The above and foregoing Resolution was passed and adopted by the City Council of the Town of Los Altos Hills at a regular meeting held on 15th day of June 2023 by the following vote: AYES: Swan, Molc, Schmidt, Tankha, Tyson NOES: None ABSTAIN: None ABSENT: None ATTEST: Deborah Padovan, City Cleric Resolution 57-23 Linda G. Swan, Mayor Page 1 IAS ALTOS IIILi,S a y Town of Los Altos Hills Reserve Policy CALIFORNIA Approved by the City Council on June 15, 2023 Purpose To set forth the Town's policy for establishing and maintaining fund reserve targets for each of the Town's governmental funds. Fiscal reserves provide working capital for operations and maintenance activities, funding for, vehicle, and equipment needs, fulfillment of legal, regulatory, and contractual obligations and mitigation of risk and liability exposures. Policy This policy is intended to ensure that the Town has sufficient cash flow to meet current and future needs and provide transparency to its residents by establishing fund reserve targets for each of the Town's governmental funds. Reserve funds are needed to provide funding for planned and unplanned events. Planned events include, but are not limited to, (1) accumulating balances to fund operating needs; (2) debt service obligations (if any); and (3) funding for employee related pension and other post -employment benefits. Unplanned events include, but are not limited to, (1) accounting for revenue shortfalls; (2) unanticipated expenses; and (3) paying for unforeseen emergency events. The established reserve targets defined. herein provide guidance for long-term financial planning and maintaining the Town's long-term financial health. Adequate fund reserves are of value to: (1) provide working capital to fund operating needs; (2) provide a financial cushion for dealing with unanticipated financial needs and emergencies; and (3) are a component of achieving favorable credit ratings which can help reduce the costs of issuing debt. This policy designates specific reserve accounts. For each reserve, this policy specifies the reserve purpose, the threshold amount, allowable uses of reserves, and replenishment of the reserve. This policy establishes committed and assigned reserves. Committed or Assigned reserves may be established, changed, applied, and deleted by Council resolution. Committed reserves may be used for one or more limited activities noted in the purpose or usage of the reserve. Assigned reserves are not limited to one single activity and may be used for any Town specific activity described. in the purpose or usage of the reserve. This policy will be reviewed annually during the budget process to ensure conformance with the Town's goals and objectives and compliance with any changes in regulations or standards. In conjunction with the annual policy review, the Administrative Services Director will include updated calculated thresholds, review of use and replenishment of the reserves, and any anticipated changes to be included in the annual budget preparations. Committed Reserves A. Pension Contribution Reserve Purpose of the Reserve: The Pension Contribution Reserve is to constrain funds for the Town's estimated unfunded liability. Ca1PERS prepares an annual Actuarial Report for each of the Town's three pension Town of Los Altos Hills a&iended Reserve Policy Updated June 2023 Resolution 57-23 Page 2 ISS ALTOS MLIS Town of Los Altos Hills Reserve Policy CALIFORNIA Approved by the City Council on June 15, 2023 plans. This reserve is for amounts not included in the Accrued Liability and represents the difference between the currently applied Discount Rate and the lowest Discount Rate measured by Ca1PERS in its most recent actuarial report. This difference is updated to the most recent past fiscal year end as reported. in the related ACFR Pension Footnote. Threshold of the Reserve: The Pension Contribution Reserve shall maintain a maximum threshold based on the Ca1PERS annual actuarial report for each of the Town's three pension plans. The reserve threshold amount is calculated by the following: the difference between the accrued liability at the current discount rate and the accrued liability calculated using the discount rate that is one percentage point lower than the current rate, as shown in the most recent ACFR pension footnote. Usage of the Reserve: Adjustments to the reserve will result from the discount rate changes in succeeding years per the Ca1PERS annual report per the Analysis of Discount Rate Sensitivity as updated in the most recent ACFR Pension footnote. Replenishment of the Reserve: During the annual budget cycle, the Pension Contribution Reserve will be adjusted to reflect the new threshold amount as described in the preceding Threshold of the Reserve section. These adjustments will be approved by the City Council as part of the annual budget cycle. B. Technology Reserve Purpose of the Reserve: The Technology Reserve is to constrain funds for the Town's future Audio and Visual equipment and software replacement needs. Threshold of the Reserve: The threshold is based will be calculated. on $460K, the budgeted amount of the AV system, and will be $46K for the following 10 years for upgrades and replacement of the equipment. Usage of the Reserve: Eligible expenditures will be for AV System and software to be upgraded or replaced throughout the fiscal year. These expenditures will be determined on an annual basis. Replenishment of the Reserve: The Technology Reserve will be adjusted up or down, as necessary, to equal the threshold. These expenditures will be determined on an annual basis. Town of Los Altos Hills Mended Reserve Policy Updated June 2023 Resolution 57-23 Page 3 IM ALTOS HILLS a y Town of Los Altos Hills Reserve Policy CALIFORNIA Approved by the City Council on June 15, 2023 C. Vehicle and Equipment Replacement Reserves Purpose of the Reserve: The Vehicle and Equipment Replacement Reserve is to constrain funds for the Town's current and future vehicle and equipment replacement needs. The Town maintains a vehicle and equipment replacement schedule for all Town vehicles and equipment. This schedule is updated as equipment is added or removed from service. Threshold of the Reserve: The threshold of the Vehicle and Equipment Replacement Reserve will be calculated each year during the annual budget cycle. This threshold will be the sum of the amount determined for each piece of equipment on the Vehicle and Equipment replacement schedule based on future replacement costs of the item divided by its useful life and multiplied by the number of years in service, but in no event greater than the future replacement cost. Usage of the Reserve: Eligible expenditures include vehicles and/or equipment replacements purchased throughout the fiscal year. These expenditures will be determined on an annual basis. Replenishment of the Reserve: During the annual budget cycle, the Vehicle and Equipment Replacement Reserve will be adjusted up or down, as necessary, to equal the threshold. Any adjustments will be approved by the City Council as part of the annual budget cycle. D. Facilities Replacement Reserves Purpose of the Reserve: The Facilities Replacement Reserve is to constrain funds for the Town's current and future facility improvement and replacement needs. The Town maintains a facility schedule for all Town facilities. Additions to the facilities schedule occur when Town facilities are either improved or new Town facilities are added. Deletions occur as Town facilities are demolished and removed from service. Threshold of the Reserve: The threshold of the Facilities Replacement Reserve will be calculated each year during the annual budget cycle. This threshold will be comprised of two parts. For existing buildings, it will be the cumulative depreciation of the buildings listed in the fixed asset schedule as reported in the most recent ACFR Capital Asset Footnote. Added to this amount is any remaining unspent funds appropriated to construct additions or improvements to facilities. Usage of the Reserve: Eligible expenditures include facilities improvements, renovations, or demolitions that occur throughout the fiscal year. These expenditures will be determined on an annual basis. Town of Los Altos Hills *&ended Reseive Policy Updated June 2023 Resolution 57-23 Page 4 ISS ALTOS HILTS X11 W-11 Town of Los Altos Hills Reserve Policy CALIFORNIA Approved by the City Council on June 15, 2023 Replenishment of the Reserve: During the annual budget cycle, the Facilities Replacement Reserve will be adjusted up or down, as necessary, to equal the threshold. Any adjustments will be approved by the City Council as part of the annual CAFR cycle. E. Disasters Contingency Reserve: The Disaster Contingency Reserve is to constrain funds for emergencies that may arise within the Town that have not been federally and or state declared disasters. To constitute a Town emergency, the disaster or emergency would be natural disasters (i.e. earthquakes, landslides, flooding) or temporary service outages of Town facilities and infrastructure (i.e. extensive debris cleanup from wind events that prohibits travel on Town roads). To be declared a Town Emergency, the Emergency Operations Center and team would be activated for any length of time. Town emergencies are smaller in nature than presidentially declared federal disasters and governor declared state disasters and are typically contained within the Town boundaries. Threshold of the Reserve: The Town Disaster Contingency shall maintain a balance not less than $1,250,000. This amount shall be adjusted up or down, as necessary, each year. Adjustments will be based on the risk assessment performed by the Town's emergency services personnel. Usage of the Reserve: The City Manager is the Director of Emergency Services. In the event of a Town emergency, the City Manager would determine eligible expenditures allowable for use of the reserve on a case-by-case basis. If expenditures are incurred, use of the reserve will be considered on an annual basis. Replenishment of the Reserve: During the annual budget cycle, the Town Disaster Contingency Reserve will be adjusted. as necessary to equal the threshold. Any adjustments will be approved by the City Council as part of the annual budget cycle. F. Capital Projects Reserve Purpose of the Reserve: The Town Capital Projects Reserve is to constrain funds to start or complete projects for which the Council has previously appropriated funds, but the projects have not been started or completed. Town of Los Altos Hills 4 Updated June 2023 Mended Reserve Policy Resolution 57-23 Page 5 1A ALTOS HUS ti Town of Los Altos Hills Reserve Policy CALIFORNIA Approved by the City Council on June 15, 2023 Threshold of the Reserve: The Town Capital Projects Reserve shall maintain a balance equal to the unused prior appropriated funds as shown in the list of capital projects prepared as part of the annual budget process. This amount shall be adjusted up or down, as necessary, each year. Usage of the Reserve: The Town Capital Projects Reserve will be used to fund the completion of the prior appropriated projects as shown in the list of capital projects in the budget. Replenishment of the Reserve: During the annual budget cycle, the Town Capital Projects Reserve will be adjusted as necessary to equal the threshold. Any adjustments will be approved by the City Council as part of the annual budget cycle. Assigned Reserves A. Operating Contingency Reserve Purpose of the Reserve: The Operating Contingency Reserve is to establish a minimum unassigned fund balance and to constrain funds for the Town's current and future operational needs in the event of economic downtowns or unexpected expenditures. Threshold of the Reserve: The Operating Contingency reserve shall maintain a maximum threshold that is equivalent to three months of average operating expenditures in the general fund. Operating expenditures are defined as those expenditures before transfers to other funds and exclude capital expenditures (less that portion of Community Development costs that are recovered through charges for services). The figures from the most recent ACFR shall be used for calculating the threshold amount. Usage of the Reserve: Allowable expenditures for use in this reserve shall be determined on a case by case basis. Examples of allowable expenditures include, but are not limited to, significant economic downturn that result in diminished property taxes revenues, thus resulting in a need for use of the reserve to balance the annual general fund budget. These expenditures will be recommended. by the City Manager and approved by the City Council. If expenditures are recommended and. approved, use of this reserve will be considered on an annual basis. Town of Los Altos Hills *&ended Reserve Policy Updated June 2023 Resolution 57-23 Page 6 1,OS ALTS IRLISIIIid.S I M0KI'* M M -4e M-4 Town of Los Altos Hills Reserve Policy CALIFORNIA Approved by the City Council on June 15, 2023 Replenishment of the Reserve: During the annual budget cycle, the Operating Contingency reserve will be reviewed and updated based on the most recent audited and issued Comprehensive Annual Financial Report. Any adjustments will be approved by the City Council as part of the annual budget cycle. Town of Los Altos Hills �M-ended Reserve Policy Updated June 2023 Resolution 57-23 Page 7