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HomeMy WebLinkAbout60-23RESOLUTION 60-23 A RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF LOS ALTOS HILLS APPROVES FINANCIAL POLICY WHEREAS, financial policy refers to the set of strategies, decisions, and actions taken by the Town to manage its finances and achieve specific economic objectives; and WHEREAS, assists elected officials and staff in saving time and energy in making financial decisions, promoting public confidence, and the development of fiscal management practices; and WHEREAS, the FIC will review the Financial Policy annually during the Annual Comprehensive Financial Reporting (ACFR) process and include in their annual work plan; and NOW, THEREFORE, BE IT RESOLVED, by the City Council of the Town of Los Altos Hills approves and adopts the Financial Policy (Attachment A). 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, Mok, Schmidt, Tankha, Tyson NOES: None ABSTAIN: None ABSENT: None ATTEST: NO�i/ �eborah '.d• BY: Resolution 60-23 Linda G. Swan, Mayor Page 1 LOSALTOS HILLS WT*1I The Town of Los Altos Hills Financial Policy CALIFORNIA This document establishes policies and practices for the Town of Los Altos Hills that provides financial information and manages its financial resources. As well as establishing and maintaining prudent fund balance levels, financial reporting, and investment policies that are in accordance with State Law. Formally adopted financial policies assist elected officials and staff in saving time and energy in making financial decisions, promoting public confidence, and the development of sound fiscal management practices. In contrast to larger public agencies, the Town of Los Altos Hills is a small town as measured by geography, population, staff, the absence of commercial businesses, and employees who perform fire, policing, water, and sewer services (which are provided by independent third parties.) It has a volunteer, resident elected, five -member Council who are subject to term limits and operates under a Council — City Manager form of government. Town has many volunteer resident committees appointed by Town Council to limited terms, who advise the Council on financial matters, recreation and hospitality events, land development, technology and environmental issues. Town staff perform planning and building functions, financial functions, maintenance of pathways, and contract for policing, trash removal, street maintenance, legal services, electronic recordkeeping, and recurring specialty services such as review of resident submitted building plans, town news media, treasury, insurance, and other occasional specialty needs. While these policies will be updated intermittently, they provide the basic framework for many of the financial decisions that will be addressed by the Town. Support long-term planning and enhance the Town's effectiveness. This policy will be reviewed annually during the ACFR 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 ACFR preparations. III FINANCIAL CONTROLS III Collection of revenues and disbursement of costs and expenses is performed by Town finance staff. An independent audit is performed annually along with the publication of an annual financial report. in accordance with GASB (Governmental Accounting Standard Board) , that includes a description of the Town's accounting policies (in footnote 1.) An annual or biennial budget is prepared following a format recommended by the Government Financial Officers Town of Los Altos Hills Financial Policy June 2023 Resolution 60-23 Page 2 Association (GFOA) and prepared by Town Staff for presentation to Town Council after review by the Town's Finance and Investment Committee. With exception of personnel records, Town records are public and are public information available upon request. Investments Most of the Town's funds are maintained, invested, and managed by independent third parties who report monthly and quarterly to the Town Council who, in turn, delegate some of the review responsibility to Staff and the Town's Finance and Investment Committee. Investments are made in compliance with the Town's Investment policy which is reviewed annually by the Town's Finance and Investment Committee. Financial records The collection of receipts is recorded and reviewed by Town staff before being deposited. in the Town's bank accounts. Disbursements are prepared by the responsible Town staff, reviewed by Town finance staff, and signed by two independent check signers who are either senior employees or Council members. Bank reconciliations are prepared monthly. Other records are maintained and independently backed up offsite. Specialty third party financial service providers Payroll is independently prepared and processed by a third -party specialty service. Employee benefits are managed by responsible third -party health care providers, pension benefit managers, and related periodic reports are reviewed by Staff, the Town's Finance and Investment Committee and Town Council. Liability insurance services are provided by a Joint Powers Authority who report annually, and town staff attend periodic meetings in an oversight role. Electronic records are maintained offsite by an independent service. Physical asset inventories are conducted annually by Town staff and reviewed as part of the Town's annual financial audit. The Town maintains employee fidelity insurance purchased from its Joint Powers Authority provider. Overall controls The foregoing briefly describes a web of interrelated services performed periodically on annual, quarterly, and monthly cycles. In addition, reserves are provided for several financial risks subject to review by the Town's Finance and Investment Committee and Town Council. The Town's employees develop and maintain job descriptions and procedures the objective of which is to enable smooth transition when employee turnover occurs. Compensation surveys are used to assist management and Council in maintaining competitive compensation. Despite its small size, the Town maintains records, produces financial reports, and utilizes financial controls that are comparable to those performed and maintained by larger governmental agencies. Town of Los Altos Hills Financial Policy June 2023 Resolution 60-23 Page 3 This policy is reviewed and assessed by the Town's staff, the Finance & Investment Committee, and elected officials and will also be updated annually, if necessary, to reflect any changes within the requirements. This document discusses the important elements of financial management at the Town of Los Altos Hills, in an all -in -one format and organized into the following areas of discussion: General Financial Principles Operating Budget Revenues Expenditures Capital Improvement Program Cash Management Debt Management Capitalization Assets Financial Reporting III GENERAL FINANCIAL PRINCIPLES III It is the overall policy of the Town of Los Altos Hills to: ➢ Provide financial information in a relevant, thorough, timely fashion, and in a format that effectively communicates financial status to City Council, citizens, and Town employees. ➢ Manage its financial resources in a responsible and planned manner. ➢ Establish and maintain prudent fund balance levels. ➢ Maintain financial reporting in compliance with current governmental accounting standards. ➢ Promote and implement a relevant and strong system of internal financial controls to manage significant risks and. monitor the reliability and integrity of financial and operating reporting. ➢ Promote constructive and proactive financial decision making. ➢ Integrate long-term operating and capital resources planning. ➢ Allow for uncertainties and maintain a posture of financial flexibility. ➢ Develop programs in a manner that supports the City's long-term ability to cover costs and provide the level and quality of service required by its citizens. ➢ Managing debt responsibility. ➢ Establish and maintain investment policies in accordance with State law. Town of Los Altos Hills Financial Policy June 2023 Resolution 60-23 Page 4 OPERATING BUDGET The budget will be adopted by the City Council no later than June 301h of each year. The City Manager may develop and present an annual or biennial budget. A balanced provisional operating budget will be presented to City Council for review and adoption with total projected expenditures not exceeding estimated revenues not taking into account the overhead allocations. Should it be necessary, the City Council may approve a planned use of accumulated fund balances in prior years for inclusion in the budget. Funds may not be expended for a new fiscal year until the budget for that fiscal year has been adopted by the City Council. One-time revenue sources are not to be relied on to fund ongoing operations. Budgetary control is maintained at the fund level: ➢ The City Manager may make budget transfers between departments or programs if those changes do not increase overall appropriations within any one given fund. Transfers between funds, overall increases in fund appropriations and overall increases in project budgets can only be made through the City Council action. Transfers between departments should be reported to the City Council as part of the budget update process, either at mid -year or at the proposal of a new budget term. ➢ Department heads are held directly responsible and accountable for developing and managing their operational budgets. Their level of control is held at the department level. Departments that operate programs among different funds are limited to the appropriate levels within any one fund. Any contracts made during the fiscal year that have not been completed at year-end, the remaining balance due on the contract must be included in the following budget cycle. Operating expenditures appropriations not spent during the fiscal year lapse at year-end, except for: o Encumbrances or commitments, as in the form of finalized Purchase Orders, made during the fiscal year that have not been completed at year-end. o Appropriations for capital improvement projects and ongoing grants with a life cycle beyond one year. Governmental funds use the modified accrual basis of accounting while proprietary and fiduciary fund types are budgeted on a full accrual basis of accounting. The Annual Comprehensive Financial Report (ACFR) presents the Town's finances on a generally accepted accounting principles (GAAP) basis and the Town's budget is prepared in conformance with these standards. Town of Los Altos Hills Financial Policy June 2023 Resolution 60-23 Page 5 The Town budget must comply with the annual determination of the Town's appropriation limit calculated in accordance with Article XIIB of the Constitution of the State of California and adopt an annual resolution to this effect. REVENUES The Town will seek out, apply for, and effectively administer federal, state, and other grants that address the Town's current operating and capital priorities. Operating departments are to review existing fees periodically and recommend adjustments to fees, as necessary, to reflect changing direct and indirect costs of providing such services. Independent user -fee studies should be performed and updated periodically (three to five years) to ensure the proper balance of costs and service charges. The Town should strive to cover the full cost of providing non -tax and discretionary fee-based service operations except to the extent that the City Council approves defined subsidy levels by program area. Operating departments are to periodically review public services to identify and determine those appropriate for fee collection. Enterprise operations will be self-supporting and shall reimburse the General Fund for any and all material and services provided on their behalf. EXPENDITURES Expenditures are to be budgeted and controlled to not exceed estimated revenues plus the approved and planned use of fund balances accumulated in prior years. The Town will. conduct a mid -year financial status review to determine if projected revenues and. expenditures meet budgeted levels. If an operating deficit is projected. at year-end, the Town should evaluate the need for immediate corrective and/or mitigating actions, including operating or capital expenditures reduction and /or activate the use of established contingency balances. The deferral of essential and scheduled operational expenditures into the following fiscal year or the use of short-term loans and transfers to balance the budget should be avoided. 11 CAPITAL IMPROVEMENT PLAN The Town will develop and maintain a five-year capital improvement project plan (CIP) to be updated annually in conjunction with the operating budget. The CIP should reflect the current and changing needs of the community as well as enhance the community's quality of life. Town of Los Altos Hills Financial Policy June 2023 Resolution 60-23 Page 6 11 CASH MANAGEMENT The Financial and Investment Committee will review the Town's Investment Policy annually and make recommendations to the City Council when appropriate. The City Manager may assign the Administrative Services Director the responsible of investing Town funds in accordance with the Investment Policy. The City Manager may assign the Administrative Services Director to present to the City Council quarterly investment reports presenting a summary of the portfolio status and compliance with the conditions set forth in the Investment Policy. III DEBT MANAGEMENT III The Town should plan the use of debt in a manner that sustains financing payments at manageable levels. The Town will seek to maintain a high credit rating through sound financial practices as a basis for minimizing borrowing costs. The Town will make every effort to use pay-as-you-go financing for capital improvement projects. Debt financing for a project can be used if the overall project's cost exceeds anticipated available resources and/or if financing terms are favorable. The Town will monitor all forms of debt annually in conjunction with the budget preparation process and report concerns and remedies, if necessary, to the City Council. The Town will diligently monitor its compliance with bond covenants. The Town will not issue long-term debt to finance current operations. Debt financing should only be used for long-term capital improvement projects with a useful life exceeding the term of the financing and for which the project revenues or specific identified revenue sources are sufficient to service the long-term debt. The Town may use a lease -purchase method of financing for equipment if the lease rates are more favorable than the Town's expected overall investment rate of return. The Town will not incur general obligation indebtedness for public improvements which exceed in aggregate 15% of the assessed value of all real and personal property of the Town as specified in the California Government Code Section 43605. CAPITALIZATION ASSETS and LEASES The Town's operations require the purchase and construction of certain assets that are used over a long-term period to provide services to the community. To facilitate the proper recording of these assets, the department has established the following procedure. Acquisition The acquisition of capital assets is planned in the Town's budget on an annual basis. Public projects are budgeted in lump sums based on recommendation from the City Manager. The City Manager Town of Los Altos Hills Financial Policy June 2023 Resolution 60-23 Page 7 oversees the various components of the public project to ensure overall budget compliance. Under direction from the City Manager, the Public Works Director has the authority to make necessary changes from the authorized plans, provided the project will not exceed the approved budget. With the exception of public works projects, the acquisition of all other capital assets may be managed by the Administrative Services Director under the direction of the City Manager. Accounting & Tracking It is the Finance department's policy to record staff time, supplies, services, and applicable overhead to public projects. Public projects are budgeted in distinct capital project funds and tracked by unique account numbers. All costs required to acquire a public project are recorded to the respective account number. The Administrative Services Director maintains a register of capital assets that is in conformance with generally accepted accounting principles. The register records the asset's identification (e.g., name, vehicle identification, etc.), year of acquisition, acquisition cost, useful life, Depreciation Schedule Capital assets are categorized into one of several categories, each with estimated useful lives. The Finance Director determines the useful life of each item based on historical practice and input from the appropriate department head where necessary. Assets are classified as "capital assets" on the Town's financial statements and include any tangible goods with an acquisition cost of $25,000 or more and a useful life greater than three years. Depreciation/amortization will be recorded on a straight-line basis (effective rate of interest method for leases) over the following estimated useful lives: Infrastructure 20 to 50 years Structures and improvements 10 to 30 years Vehicles 5 to 10 years Equipment 3 to 10 years Leases term of the leases Disposal of Capital Assets At the discretion of the City Manager, an obsolete or unused capital asset may be recommended for disposed at any time. The Administrative Services Director is responsible for ensuring the disposal of the assets is in accordance with the Municipal Code. Leases The Town is to record the depreciation of equipment, buildings and facilities, infrastructure, and leases as follows and in line with internally established capitalization guidelines: ➢ Capitalization Thresholds o Land purchases at any value o Equipment - $25,000 o Buildings and facility improvements - $100,000 o Leases - $100,000 Town of Los Altos Hills Financial Policy June 2023 Resolution 60-23 Page 8 The interest rate used for GASB 87 leases is the commercial real estate secured loan rate as of July 1St of the commencement year of the lease if there is not an explicit interest rate in the lease agreement. FUND BALANCE 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 and capital needs; (2) debt service obligations; 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. 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. FUND BALANCE CLASSIFICATIONS 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 IT, vehicle, and equipment needs, fulfillment of legal, regulatory, and contractual obligations and mitigation of risk and liability exposures. The Town is required to reclassify fund balances into the following five categories to comply with the Governmental Accounting Standards Board. Statement (GASB) No. 54, Fund Balance, and Governmental Fund Types. NonSpendable: This is a portion of fund balance not available for appropriations by its nature or external restriction. Examples are inventories, prepaid expense and loans to other agencies. Restricted: The restricted portion of the fund balance is subject to externally enforceable legal restrictions. Examples are Gas Tax revenues and grant proceeds. Town of Los Altos Hills Financial Policy June 2023 Resolution 60-23 Page 9 Committed: The committed portion of the fund balance is constrained by the limitations imposed through formal City Council action. Only formal City Council action can remove or modify a previously committed amount. Unassigned: The Unassigned portion of fund balance is that remaining after the non - spendable, the restricted, the committed, and the assigned fund balances are identified and recorded. The general fund is the only fund that reports a positive unassigned fund balance. Assigned: The assigned portion of the fund balance is established for intended use by either the City Council or its designee, such as the City Manager. No formal City Council action is needed to remove the intended use. GAAP required reserves, such as the Oher Post -Employment Benefits (OPEB) reserve, belong to this category. Order of Utilization The Town will use GASB's definitions of fund balance for the annual financial reports (audits) and for all other financial reporting. For all financial planning purposes, the term Budgetary Fund Balance will be used and will include any portion of the fund balance that is available for appropriation. Portions of the fund balance not available for appropriations will be identified as follows. The Town shall strive to use the most restricted. fund balances prior to utilizing those that are less restricted. This policy establishes the order of use of unrestricted resources as follows: ➢ Nonspendable (if funds become spendable) ➢ Restricted ➢ Committed ➢ Assigned ➢ Unassigned 11 FINANCE REPORTING —11 A system of effective internal controls will be maintained that ensures only properly authorized expenditures, recordings of financial transactions, and accounting entries are executed. Along with providing management information and meeting reporting requirements. Accounting and Finance Responsibilities Management's discussion and analysis (MD&A). MD&A should introduce the basic financial statements and provide an analytical overview of the government's financial activities. Each basic financial statement should include: A. Government -wide financial statements, consisting of a statement of net assets and a statement of activities. B. A series of statements that focus on information about the government's major governmental and enterprise funds, including its blended component units. Town of Los Altos Hills Financial Policy June 2023 Resolution 60-23 Page 10 Annual Audit It is the Town's goal to maintain accounting records, processes, and procedures in such a manner as to receive an unmodified audit opinion. The responsibility for the accuracy of the information and the completeness and fairness of the presentation, including all disclosure, rests on the Town's management. An annual financial audit will be performed by an independent public accounting firm familiar with municipal government activities. The independent auditor will issue an audit opinion to be included in the Town's Annual Comprehensive Financial Report (ACFR). The ACFR is composed into three major sections: providing introductory, financial, and statistical information about the Town of Los Altos Hills. The independent auditor's report is presented as the first out of three components of the financial section of this report. Management's discussion and analysis (MD&A) presents a comparative analysis of current to prior year results, changes in financial position, financial highlights, trends and disclosure of any known significant events or decisions that affect the financial condition of the Town. MD&A immediately follows the independent auditor's report and provides a narrative introduction, overview, and analysis of the basic statement. Accounting During a Disaster The Finance Department is responsible for the Town's participation in disaster assistance funding. Breaking down responsibilities into four main sections, (1) Compensation and Claims Unit, (2) Cost and Purchasing Unit, (3) Time Keeping Unit, and the (4) Recovery Unit. Ensuring that the Finance Department continues to assist staff, elected officials, and the Town in saving time and energy when malting financial decisions, promoting public confidence, and the development emergency management. In the case of an emergency all reimbursements that are based on disaster related expenses should be recorded by each department. Each department is responsible for keeping thorough, accurate and complete records regarding all expenses that are incurred as a latter result of a declared disaster. Without proper documentation, requests for reimbursement will be denied. Town of Los Altos Hills June 2023 Financial Policy 10 Resolution 60-23 Page I 1