HomeMy WebLinkAbout0 BUDGET AND FISCAL POLICY
CITY OF TUSTIN, CALIFORNIA
BUDGET AND FISCAL POLICY
FINANCIAL PLAN PURPOSE AND ORGANIZATION
A.PURPOSE
One of the most basic functions of effective leadership is to establish policies to guide an organization
through good times and challenging times. In addition, bond rating agencies give a higher score to
communities with clear, established policies because measurable and enforceable policies lead to reduced
investment risk. This policy reinforces the importance of long-
fiscal affairs and concentrates on developing and budgeting for the accomplishment of significant
objectives.
B.CORRELATION TO THE STRATEGIC PLAN
and communicate a comprehensive set of financial policies and their purpose to strengthen financial
practices.
C.BUDGET
-year financial plan, with increased
emphasis on long-range planning and effective program management. The City Council will conduct
open budget workshops as necessary and adopt the budget at a noticed public meeting. Key objectives of
the budget process:
1.Reinforce the importance of long-
2.Concentrate on developing and budgeting for the accomplishment of significant objectives.
3.Create a pro--term fiscal
health.
4.Implement a two-year budget process by fiscal year-end 2016 in order to emphasize long-range planning
and effective program management and reduce the amount of time and resources allocated to preparing
annual budgets. Along with specific two-year budgets, prepare general overview budgets for the next
three years, for a total of five years, updated annually.
D.OPERATING CARRYOVER
Operating program appropriations not spent during the fiscal year may be carried over for specific purposes
into the subsequent fiscal year with the approval of the City Manager.
E.MID-YEAR BUDGET REVIEWS
The Council will formally review the Cit fiscal condition, and amend appropriations if necessary, six
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months after the beginning of each fiscal year.
F.BALANCED BUDGET
The City will maintain a structurally balanced budget over the period of the Financial Plan. This means
that:
1.Recurring revenues should equal or exceed recurring expenditures, including debt service.
2.Ending fund balance (or working capital in the enterprise funds) must meet minimum policy levels.
a)For the General Fund, this level has been established at 20% of operating expenditures. Only with
the City Council declaring a financial emergency shall the reserves be lowered to fewer than 15%.
For the Water Enterprise Fund, this level has been established at 50% of operating expenditures.
3.Special Fund accounts must be established as follows. For financial reporting purposes, these accounts
are all part of the General Fund:
a)Emergency Fund Minimum $1 million
For use in a City Council declared emergency such as earthquake, flood and fire. This fund would
augment City operational costs until the City could seek reimbursement from either the state or
federal government.
b)Land Proceeds Fund These funds would be derived from land sales primarily in the Tustin Legacy
Project; however, these funds could be from any City owned property. The funds would be allocated
to insure the infrastructure needs are met in the overall development of the Tustin Legacy Plan and
to support the implementation of key elements of the City and Legacy project such as economic
development opportunities and development of parks and recreational facilities throughout the City.
Land proceeds from the Tustin Legacy Project area will be held in a separate account within this
fund. Those funds will be dedicated for use only in the Legacy area, until such time that the City has
secured adequate funds necessary to develop the Tustin Legacy backbone infrastructure and
maintenance program. All other monies in the fund can be used throughout the City of Tustin.
c)Special Capital Project Fund The fund would provide for the financing of needed infrastructure
where there is currently no dedicated funding source such as water funds or transportation funds.
These General Fund expenditures would include: technology upgrades, building
construction/upgrades and park enhancements. It is recommended that 25% of any fiscal year
General Fund surplus be dedicated to this fund.
Under this policy, it is allowable for total expenditures to exceed revenues in a given year; however, in this
situation, beginning fund balance can only be used to fund capital improvement plan projects, or other -
non-recurring expenditures.
FINANCIAL REPORTING AND BUDGET ADMINISTRATION
A. ANNUAL REPORTING - The City will prepare annual financial statements as follows:
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1.In accordance with legal requirements, the City will contract for an annual audit by a qualified
independent
2.The City will use generally accepted accounting principles in preparing its annual financial statements,
for Excellence in Financial Reporting
program.
3.The City will issue audited financial statements within 180 days after fiscal year-end.
B.INTERIM REPORTING The City provides on-line access to the financial management system to City
Staff. Budget to actual comparisons are provided through display or reports and through budget controls set
within the purchasing and accounts payable modules for each individual governmental fund for which an
appropriated annual budget has been adopted.
C. BUDGET ADMINISTRATION As set forth in the City Charter, the Council may amend or supplement
the budget at any time after its adoption by majority vote of the Council members. The City Manager has
the authority to transfer appropriations within a particular fund between the various programs and/or
departments.
GENERAL REVENUE MANAGEMENT
A. Diversified and Stable Base The City will seek to maintain a diversified and stable revenue base to protect
it from short-term fluctuations in any one revenue source.
B. Long-Range Focus The City will emphasize and facilitate long-range financial planning.
C. Current Revenues for Current Uses The City will pay for all current expenditures with current revenues,
avoiding procedures that balance current budgets by postponing needed expenditures, accruing future
revenues, or rolling over short-term debt.
D. Interfund Transfers and Loans In order to achieve important public policy goals, the City has established
various special revenue, capital project, debt service and enterprise funds to account for revenues whose use
should be restricted to certain activities. Accordingly each fund exists as a separate financing entity from
other funds, with its own revenue sources, expenditures and fund equity.
Any transfers between funds for operating purposes are clearly set forth in the Financial Plan, and can only
be made by the Finance Director in accordance with the adopted budget. These operating transfers, under
which financial resources are transferred from one fund to another, are distinctly different from interfund
borrowings, which are usually made for temporary cash flow reasons, and are not intended to result in a
transfer of financial resources by the end of the fiscal year.
In summary, interfund transfers result in a change in fund equity; interfund borrowings do not, as the intent
is to repay the loan in the near term.
From time-to-time, interfund borrowings may be appropriate; however, these are subject to the following
criteria in ensuring that the fiduciary purpose of the fund is met:
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1.The Finance Director is authorized to approve temporary interfund borrowings for cash flow purposes
whenever the cash shortfall is expected to be resolved within 45 days. The most common use of
interfund borrowing under this circumstance is for grant programs like the Community Development
Block Grant, where costs are incurred before drawdowns are initiated and received. However, funds are
typically received shortly after the request for funds has been made.
2.Any other interfund borrowings for cash flow or other purposes require case-by-case approval by the
Council.
3.Any transfers between funds where reimbursement is not expected within one fiscal year shall not be
recorded as interfund borrowings; they shall be recorded as interfund operating transfers that affect
equity by moving financial resources from one fund to another.
E.Overhead Charges The City will record a transfer from the Water Enterprise Fund for the cost of
providing the building and associated City services used by the water enterprise operation. The
administrative expenses charged are calculated using a percentage.
USER FEE COST RECOVERY GOALS
A.Ongoing Review Fees will be reviewed and updated on an ongoing basis to ensure that they keep pace
with changes in the cost-of-living as well as changes in methods or levels of service delivery.
In implementing this goal, a comprehensive analysis of City costs and fees should be made generally
every 5 years, unless there is no reason to believe the costs of providing the service(s) associated with
the fee have changed. Fees may be adjusted in the interim based on supplemental analysis whenever it
appears that there have been significant changes in the method, level or cost of service delivery.
Prior to approving new or increased fees, the City shall comply with all procedural requirements
imposed by law, including without limitation, California Government Code §§ 66016 and 66018,
Proposition 218, and Proposition 26.
B.General Concepts Regarding the Use of User Fees The following general concepts will be used in
developing and implementing user fees :
1.User fees may not exceed the reasonable cost of providing the service.
2.User fees may be at a level of less than 100 percent recovery of full cost when deemed
appropriate for the service.
3.Cost recovery goals should be based on the total cost of delivering the service, including direct
costs, department administration costs and organization-wide support costs such as accounting,
personnel, information technology, legal services, fleet maintenance and insurance.
4.In setting fees for use of City-controlled park, amusement, or recreational facilities, the City will
consider fees charged for similar uses or services by other cities to determine appropriate
le considering that comparability of fees among different communities can
vary as other communities may adopt varying cost recovery policies. Notwithstanding any of the
foregoing, no fee for such purposes shall exceed the reasonable cost of the service provided.
5.Cost recovery levels will be set at individual department levels with a unified approach in
determining cost recovery levels throughout the program.
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C.User Fee Cost Recovery Levels In setting user fees and cost recovery levels, the following factors will
be considered:
1.Community-Wide Versus Special Benefit The level of user fee cost recovery should consider
the community-wide versus special service nature of the program or activity. The use of general-
purpose revenues is appropriate for community-wide services, while user fees are appropriate for
services that are of special benefit to easily identified individuals or groups.
2.Service Recipient Versus Service Driver After considering community-wide versus special
benefit of the service, the concept of service recipient versus service driver should also be
considered. For example, it could be argued that the applicant is not t
development review efforts; the community is the primary beneficiary. However, the applicant
is the driver of development review costs, and as such, cost recovery from the applicant is
appropriate.
3.Effect of Pricing on the Demand for Services The level of cost recovery and related pricing of
services can significantly affect the demand and subsequent level of services provided. At full
cost recovery, this has the specific advantage of ensuring that the City is providing services for
which there is genuinely a market that is not overly-stimulated by artificially low prices.
Conversely, high levels of cost recovery will negatively impact the delivery of services to lower
income groups. This negative feature is especially pronounced, and works against public policy,
if the services are specifically targeted to low income groups.
4.Feasibility of Collection and Recovery Although it may be determined that a high level of cost
recovery may be appropriate for specific services, it may be impractical or too costly to establish
a system to identify and charge the user. Accordingly, the feasibility of assessing and collecting
charges should also be considered in developing user fees, especially if significant program costs
are intended to be financed from that source.
WATER ENTERPRISE FUND RATES
A.The City will set fees and rates at levels which fully cover the total direct and indirect costs, including
operations, future capital outlay, and debt service.
B.The City will review and adjust water fees and rate structures as required to ensure that they remain
appropriate and equitable. Increases in costs due to higher production costs, purchased water, or power
will be passed through to the customers in increased rates.
APPROPRIATIONS LIMITATION
C.The Council will annually a in
accordance with Article XIII-B of the Constitution of the State of California, Section 7900 of the State
of California Government Code, and any other voter approved amendments or state legislation that
D.
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appropriations subject to the limit will be available for public and Council review at least 10 days before
Council consideration of a resolution to adopt an appropriations limit. The Council will generally
consider this resolution in connection with final approval of the budget.
FUND BALANCE AND RESERVES
A.Minimum Fund and Working Capital Balances The City will maintain a minimum fund balance of at
least 20% of operating expenditures in the General Fund and a minimum working capital balance of
50% of operating expenditures in the Water Enterprise Funds. This is considered the minimum level
1.Economic uncertainties, local disasters, and other financial hardships or downturns in the local or
national economy.
2.Contingencies for unseen operational or capital needs.
3.Cash flow requirements.
B.
ensation claims for employees.
The annual contribution to this fund will generally be based on a calculation using annual payroll
expense multiplied by a factor based on claims experience. The contribution amounts are charged to the
applicable City departments and tra
An actuarial analysis is performed every three years to aid as a benchmark in evaluating the
reasonableness of the fund balance. The fund balance is reviewed annually during the budget process
and any excess revenues are transferred to the Liability Fund or the Unemployment Compensation Fund.
C.Liability For the General Fund, the City will establish and maintain a Liability Fund to provide for
expenses related to liability claims filed against the City.
The annual contribution to this fund will generally be based on current claims activity and estimated
claims incurred but not yet reported.
D.Unemployment Compensation For the General Fund, the City will establish and maintain an
Unemployment Compensation Fund to provide for expenses related to unemployment claims filed by
former employees.
The annual contribution to this fund will generally
Compensation Fund.
E.Equipment Replacement For the General Fund vehicles and equipment, the City will establish and
maintain an Equipment Replacement Fund to provide for the timely replacement of vehicles and major
equipment.
The annual contribution to this fund will generally be based on the estimated life of the vehicle or
equipment, its original purchase cost and, for vehicles, on-going fleet maintenance expenses. Each City
department receives an equipment replacement charge, and the funds are transferred from the General
Fund to the Equipment Replacement Fund.
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F.Obligations Reimbursable from Successor Agency For the General Fund, the City will establish and
maintain a Fund for Obligations that should be reimbursed by the Successor Agency to the
Redevelopment Agency. In the event that the Successor Agency does not reimburse the City for these
expenses, then the General Fund will provide funding.
G.Proceeds from Land Held for Resale For the General Fund, the City will establish and maintain a Fund
for the Proceeds from the Sale of Land Held for Resale. These funds would be derived from land sales
primarily in the Tustin Legacy Project; however, these funds could be from any City owned property.
The funds would be allocated to insure the infrastructure needs are met in the overall development of the
Tustin Legacy Plan and to support the implementation of key elements of the City and Legacy project
such as economic development opportunities and development of parks and recreational facilities
throughout the City. Land proceeds from the Tustin Legacy Project area will be held in a separate
account within this fund. Those funds will be dedicated for use only in the Legacy area, until such time
that the City has secured adequate funds necessary to develop the Tustin Legacy backbone infrastructure
and maintenance program. All other monies in the fund can be used throughout the City of Tustin.
H.Information Technology For the General Fund, the City will establish and maintain a Fund for the
Information Technology Division. These funds provide for research, planning, development, support
and evaluation of Citywide technology systems, including data, voice, telephone systems, radio, and
technology infrastructure. It provides maintenance for current hardware/software platforms in use by
the City, updates and application support.
Costs are allocated to the various departments based on computer count, as well as software and
hardware needs, which in tur
change the net impact to the General Fund.
FUTURE DEVELOPMENT
A.Analysis will be performed to determine the on-going costs to maintain public services for future
development, such as the Tustin Legacy Project. The analysis will include public safety services, police
and fire protection, as well as maintenance of public streets, lights, water mains, etc. Revenue sources
should be created and implemented at levels sufficient to ensure that future long-term maintenance costs
will be adequately funded.
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