HomeMy WebLinkAboutCOW 2009-11-23 Item 4J - Ordinance - Regulations for Cash Reserves COUNCIL AGENDA SYNOPSIS
1 0 LA Inztials ITEM NO.
V. Meeting Date 1 Prepared by 1 Mayor review 1 Council review, 1
O 11/23/09 I SH 1` I n/ki 1
12/07/09 1 SH 1 I v
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29.1
ITEM INFORMATION
CAS NUMBER: 09-171 I ORIGINAL AGENDA DATE: NOVEMBER 23, 2009
AGENDA ITEM TITLE An ordinance and policy regarding City cash reserves.
CATEGORY Discussion Motion Resolutton Ordinance Bid Award Public Heating Other
Mtg Date 11/23/09 Mtg Date Mtg Date Mtg Date 12/07/09 Mtg Date Mtg Date Mtg Date
SPONSOR Council Mayor Adm Svcs DCD Finance Fire Legal P&R Police PIV
SPONSOR'S The ordinance adds new regulations, TMC 3.34, providing for adoption by reference
SUMMARY proposed Administrative Policy No. 300 -15, Reserve Policy. The policy would provide for
cash reserves to address revenue shortfalls, unplanned expenses and mitigate the risk of
loss of uninsured claims against the City.
The Council is being asked to approve the ordinance adopting Policy 300 -15.
REVIEWED BY COW Mtg. CA &P Cmte F &S Cmte Transportation Cmte
Utilities Cmte Arts Comm. Parks Comm. n Planning Comm.
DATE:
RECOMMENDATIONS:
SPONSOR /ADMIN. Finance Department
COMMITTEE Committee Chair consent to take this item directly to COW
COST IMPACT, FUND SOURCE
EXPENDITURE REQUIRED AMOUNT BUDGETED APPROPRIATION REQUIRED
Fund Source:
Comments:
MTG. DATE RECORD OF COUNCIL ACTION
11/23/09
12/07/09
MTG. DATE ATTACHMENTS
11/23/09 Informational Memorandum dated 11/19/09
Ordinance in Draft Form
Administrative Policy No. 300 -15, Reserve Policy
12/07/09
AAI
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TO:
ISSUE
BACKGROUND
DISCUSSION
City of Tukwila
INFORMATIONAL MEMORANDUM
Mayor Haggerton
Rhonda Berry
Finance and Safety Committee
FROM: Shawn Hunstock, Finance Director
DATE: November 19, 2009
SUBJECT: City Reserve Policy
Jim Haggerton, Mayor
The City's Financial Policies, contained within the CIP document, specify that the City's
accumulated reserves shall not fall below $3,000,000. This amount is inadequate as a
reserve for all of the City's possible financial contingencies. This specific amount does
not provide for enough funds to address significant declines in budgeted revenue, nor is
it enough to address unexpected expenses such as flood prevention and mitigation. The
policy is not a formal legal requirement placed upon the use or preservation of ending
fund balances. Also, the policy has historically not been included in the City's biennial
budget development process.
The Financial Policies contained within the CIP document are not a legal requirement
for Council and the Mayor as the biennial budget is developed and adopted. The City
currently has no formal reserve or contingency policy. This lack of formal policy was
noted during two recent bond rating reviews. The SCORE jail facility issued bonds in
October 2009, and the Cascade Water Alliance issued bonds in August 2009. Both
bond issues included a review of Tukwila's finances and reserve policies. While the
City's existing bond rating was re- affirmed, one of the reasons why Tukwila did not
receive an upgrade in our rating was the lack of a formal reserve policy.
The Government Finance Officers Association (GFOA) recently issued a
Recommended Practice for cities to follow titled Appropriate Level of Unrestricted Fund
Balance in the General Fund. The recommendations contained within the
Recommended Practice are incorporated into the attached draft reserve policy.
The draft reserve policy represents a comprehensive reserve policy for the major funds
of the City of Tukwila and recommends a phased approach in setting reserve levels.
One of the key components of a financially stable organization is the establishment and
maintenance of appropriate reserves and the adoption of a prudent reserve policy.
While Tukwila has a reserve objective in our Financial Policies, contained within the
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INFORMATIONAL MEMO
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CIP, it does not have a clearly delineated policy to govern decision making and fiscal
actions by Council and administration. This is essential, especially as the City works to
maintain and improve its financial standing overall, and within the bond community.
The following are objectives of the draft reserve policy:
A. Establish sound formal fiscal reserve policies. These policies will be the
foundation for ensuring that strong fiscal management and policies guide
future City decisions.
B. Build adequate reserves. This action will provide the City with resources to
help stabilize the City's finances and will position it better to address
economic downturns or large -scale emergencies. In addition, it is critical to
minimize the potential for reactive decision making which could lead to poor
choices and unpleasant consequences.
C. Guide the City toward meeting its short-term and long -term obligations and to
ensure that the City maintains the highest credit rating possible.
The draft reserve policy recommends that the City establish and maintain appropriate
reserves for the City's major funds. Adequate reserve levels would allow the City to
withstand short-term revenue and expenditure swings which can result in short-term
decisions with negative Tong -term implications, mitigate the impact of economic
downturns that result in reduced revenues from the City's major revenue sources,
respond to the budgetary affects of natural disasters or other catastrophic events,
address excessive legal exposure of the City, and demonstrate the desire to maintain
and improve its financial standing and creditworthiness to bond rating agencies and the
financial community.
The GFOA recommends that "governments establish a formal policy on the level of
unreserved fund balance that should be maintained in the general fund. GFOA also
encourages the adoption of similar policies for other types of governmental funds. Such
a guideline should be set by the appropriate policy body and should provide both a
temporal framework and specific plans for increasing or decreasing the level of
unreserved fund balance, if it is inconsistent with that policy GFOA recommends, at a
minimum, that general purpose governments, regardless of size, maintain unreserved
fund balance in their general fund of no less than five to 15 percent of regular general
fund operating revenues..." In establishing a policy governing the level of reserves in
the General Fund, a government should consider a variety of factors, including:
The predictability of its revenues and the volatility of its expenditures (i.e., a
higher level of unreserved fund balance may be needed if significant revenue
sources are subject to unpredictable fluctuations or if operating expenditures are
highly volatile).
The availability of resources in other funds as well as the potential drain upon
general fund resources from other funds (i.e., the availability of resources in other
funds may reduce the amount of unreserved fund balance needed in the general
444 W12009 InfoMemos\ReservePolicy.doc
INFORMATIONAL MEMO
Page 3
fund, just as deficits in other funds may require that a higher level of unreserved
fund balance be maintained in the general fund).
Liquidity (i.e., a disparity between when financial resources actually become
available to make payments and the average maturity of related liabilities may
require that a higher level of resources be maintained).
Designations (i.e., governments may wish to maintain higher levels of unreserved
fund balance to compensate for any portion of unreserved fund balance already
designated for a specific purpose).
The goal of the draft reserve policy is to maintain a reserve between 75% and 100% of
the minimum of the targeted balances. If reserve levels fall below 75% of the minimum,
action will be required to increase the reserve over a number of years back to 100% of
the minimum targets. The policy provides for a plan to be developed that will return the
reserve to an appropriate level over a period of three to seven years, depending upon
the severity of the draw down of the reserve.
This policy also requires an annual reporting mechanism, and the review of this Policy
on a periodic basis. The annual report compares the reserves of each fund at the end of
each fiscal year to the budgeted expenditures of the current fiscal year.
RECOMMENDATION
The Council is being asked to approve the attached Reserve Policy, and Ordinance
adopting the Policy.
This item is scheduled to be discussed at the November 23, 2009 Committee of the
Whole meeting and the December 7, 2009 Regular Meeting.
ATTACHMENT
Draft Ordinance
Reserve Policy 300 -15
W12009 InfoMemoslReservePolicy.doc
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446
DR 'T
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF TUKWILA,
WASHINGTON, ESTABLISHING NEW REGULATIONS REGARDING CITY
CASH RESERVES, TO BE CODIFIED AT TUKWILA MUNICIPAL CODE
CHAPTER 3.34, "RESERVE POLICY"; PROVIDING FOR SEVERABILTTY;
AND ESTABLISHING AN EFFECTIVE DATE.
WHEREAS, the City Council recognizes that the City of Tukwila is in need of a reserve
policy that provides resources for unplanned expenses, to offset unexpected revenue
declines and to improve the long -term financial condition of the City; and
WHEREAS, the City Council recognizes establishing such a reserve policy has a direct
effect upon the bond rating of the City, which could result in future decreased borrowing
costs; and
WHEREAS, the City Council has determined it is in the best interest of its citizens and
businesses to provide long -term financial stability, reduce reliance upon one -time cost
savings, to address unplanned economic challenges that might face the City in the future;
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA,
WASHINGTON, HEREBY ORDAINS AS FOLLOWS:
Section 1. Regulations Established. Tukwila Municipal Code Chapter 3.34, "Reserve
Policy," is hereby created to read as follows:
3.34 Reserve Policy
City Administrative Policy No. 300 -15, "Reserve Policy," attached to this ordinance as
"Exhibit A," is hereby adopted and incorporated into this chapter by reference as if fully set
forth herein. The Finance Director is required to maintain the administrative reserve policy
Changes to the policy require approval by the City Council Finance and Safety Committee.
Section 2. Severability. If any section, subsection, paragraph, sentence, clause or
phrase of this ordinance or its application to any person or situation should be held to be
invalid or unconstitutional for any reason by a court of competent jurisdiction, such
invalidity or unconstitutionality shall not affect the validity or constitutionality of the
remaining portions of this ordinance or its application to any other person or situation.
Section 3. Effective Date. This ordinance or a summary thereof shall be published in
the official newspaper of the City, and shall take effect and be in full force and effect five
days after passage and publication as provided by law.
PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at a
Regular Meeting thereof this day of 2009.
ATTEST /AUTHENTICATED
Christy O'Flaherty, CMC
APPROVED AS TO FORM BY:
Office of the City Attorney
Attachment Exhibit A Reserve Policy 300
W \Word Processing \Ordinances \Cash Reserve Policy.doc
SH:ksn 11/19/2009
-15
Jim Haggerton, Mayor
Filed with the City Clerk:
Passed by the City Council:
Published:
Effective Date:
Ordinance Number
Page 1 of 1
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1.0 PURPOSE:
CITY OF TUKWILA
ADMINISTRATIVE MANUAL
TITLE: RESERVE POLICY
To establish a Reserve Policy for the City which is capable of addressing the
various types (categories) of the City's operating and reStritted use funds. The
objectives of this Policy are to (i) provide a clear uraderstaridjgg the goals and
objectives of reserve establishment, (ii) offer uidante and Iirr itations regarding the
establishment, use and replenishment of City reserves, and (iii)-establish a process
for periodic reporting and review of City
2.0 ORGANIZATION AFFECTED:
All City funds.
3.0 REFERENCES:
4.0 GENERAL FUND RESERVE POLICY:
The General Fund to accoun for all general revenues of the City not
specifically levied or colt„ acted for other City funds, and for expenditures related to
providing general services by the City. 'For.the purpose of this policy and as it
applies to the uen ral Find-only, the Cit `will establish a Contingency Reserve
Fund with, a minimumEalancetf�8%M.of annual General Fund revenues. At no time,
hoWe'VeKEShaltthe bata .ce in the Contingency Reserve Fund fall below 4% unless
,�sbecifically'waived by t1 City Council because of an unforeseen emergency.
Tie Contingencyeserve Fund shall initially be set at a minimum of 4% of annual
General Fund revenues. The City shall reach the targeted minimum of 8% no later
than-fig-cal year 2014 according to the following schedule:
29/0 by December 31, 2011
'4%o December 31, 2012
-:6% by December 31, 2013
8% by December 31, 2014
Index: 300 -15
Page 1 of 5
4.1 If actual expenditures in the General Fund are less than budgeted
expenditures, and the General Fund does not end the year at a deficit, at least
25% of the difference between budgeted and actual expenditures will revert to
the Contingency Reserve Fund and may then be re- appropriated in a
subsequent year at the discretion of the City Council.
4.2 The City will annually direct a minimum of 25% of sales tax receipts from new
construction (NAICS Industry Classification Code 23) to the Contingency
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TITLE: RESERVE POLICY
Reserve Fund.
4.3 Use of Contingency Reserve Fund To the extent that there is an imbalance
in the General Fund between revenues and budgeted expenditures, City
Council and administration will strive to address the imbalance first with
revenue increases, expenditure reductions, or a combination of the two.
Use of the Contingency Reserve Fund is a one -time, non recurring funding
source. If an imbalance in the General Fund occurs that can not be addressed
with additional revenues or expenditure reductions, a 1piti -year plan shall be
developed to address the imbalance concurrently` ith the" planned reserve
draw down of the Contingency Fund. The impleltation of the replenishment
plan will be done in accordance with the gui,diiine 1 w (see
"Replenishment of Reserves A planne&dr yy dowribfabe fund's reserves
should: a) not exceed 50% of the balar a 11 -tlie ContingWey, Reserve Fund,
and b) not reduce the reserve below1070 of annual General .d revenues.
4.4 Replenishment of Reserves The Qbwing criteria will be usedla :r• store the
Contingency Reserve Fund based upcir1the remaining fund balaaice compared
to the minimum reserve guideline:
1 If the reserves aredrawn down by 25.Q% of reserve fund balance,
then a budgetary pff..all be implemi'ted to return the reserve level
to between 75% an -'100 of the minimanarance over a 5 to 7 year
period.
2. If the reserves are drain d,QWn 5:% of reserve fund balance,
theadWzbudgetary plaa th r=eserve shall be structured over
a "to 5 year period.
3. 4flibe reser a are drawn drown by 0 -10% of reserve fund balance, then
a-sojution tareplenish to at `eVit the minimum shall be structured over
a 1 tcs' ye ripe. od...
4.5. ;T A'r ta`r l.,Status'1RWpprting ani'= Periodic Review Annually, after presentation of
the Cify mprel1 sive Annual Financial Report, the Finance Director will
prepare an resent' =eta i} dated Reserve Level Status report by July 1 of the
following yeah
5.0 RISK MANAGEMENT RESERVE POLICY:
Index: 300 -15
Page 2 of 5
=AC least everyyfie years, the Mayor, based on advice from the Finance
Drier -,tor, will ask the City Council to reaffirm or revise this policy, including the
perceri;tagesM-established herein.
5.1. The City shall maintain a Risk Management Reserve Fund dedicated to
mitigation of the risk of loss arising from potential claims against the City for
general liability purposes as well as claims resulting from natural disasters
such as flooding and earthquakes.
5.2. The Risk Management Reserve Fund shall be set initially at a minimum of 4%
TITLE: RESERVE POLICY
of annual General Fund revenues. The City shall reach the targeted minimum
of 8% no later than fiscal year 2014 according to the following schedule:
2% by December 31, 2011
4% by December 31, 2012
6% by December 31, 2013
8% by December 31, 2014
5.3. Legal claims expenses incurred below the City's insurance deductable
amounts will be paid for out of the Risk Management Fund.
Uninsured legal claim expenses will also be deddced from the Risk
Management Reserve Fund.
5.4. Use of the Risk Management Reserve Fuiad A draw doWjLof the fund's
reserves should: a) not exceed 50% ofthe balance in thel isk Management
Reserve Fund, and b) not reduce the reserve below 4% of annual General
Fund revenues.
5.5. Replenishment of Reserves The followin wcriteria will be used to restore the
Risk Management Reserve Fund based upon =the remaining fund balance
compared to the minimur= reserve guideline
1. If the reserves are dreawn down bar 25- 50 %rofreserve fund balance,
then a budgetary planwshall,be implemented to return the reserve level
to between 75% and 100%Tof the mamum balance over a 5 to 7 year
period_
2. reservers are drawn down by 10 -25% of reserve fund balance,
ifieb,the buegetary plan toTestore the reserve shall be structured over
a 31o:a.yeaiperi.od.
If the rrserves°are40y,vra,down by 0 -10% of reserve fund balance, then
solution- `faseplenisffto at least the minimum shall be structured over
a° to 3 year: period.
The City Council may their discretion and as necessary, transfer funds
;between the Contingency Reserve Fund and the Risk Management Reserve
'F4nd. Once the:two reserve funds are fully funded up to the minimum levels
aszekablisheelwithin this policy, at no time will the combined balances of both
funds -tlr eclirie below 8% of annual General Fund revenues.
6.0 REVENUE STABILIZATION FUND POLICY:
Index: 300 -15
Page 3 of 5
6.1. The City shall maintain a Revenue Stabilization Fund dedicated to mitigating
the impact of unanticipated revenue declines.
6.2. The City shall appropriate, on an annual basis, a transfer of 1% of General
Fund revenue to the Revenue Stabilization Fund beginning with the 2011-
2012 biennial budget. The Revenue Stabilization Fund will not be utilized by
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TITLE: RESERVE POLICY
6.3. In addition to the annual 1% appropriation, the City will transfer a minimum of
25% of the excess of any actual property tax or sales tax collections above the
respective budgeted amounts. Such transfer shall take place by March 31 of
the following fiscal year.
6.4. Replenishment of Reserves The following critQz be used to restore the
Revenue Stabilization Fund based upon the rernal fl g fund balance
compared to the minimum reserve guideline
1. If the reserves are drawn dowkt -by 25=50% of reseMe and balance,
then a budgetary plan shallIITimplemented to return ir eserve level
to between 75% and 100f ,1e minimum balance ove aZ`to 7 year
period.
2. If the reserves are drawn down 6",_M5% of reserve fund balance,
then the budgetary plan to restore tfi reserve shall be structured over
a 3 to 5 year perio""
3. If the reserves are d"aWii!down by 0 -10 °Io fund balance, then
a solution to replenigh to alsrdathe minirrt' rim shall be structured over
a 1 to 3 year period.
6.5. If the accarmlat di,balance in thr Revenue Stabilization Fund exceeds 10% of
annua1-neral Halt revenues, such excess shall be transferred to the
Contilipty Resei to Fund.
the City unless actual General Fund revenue is 5% or more below budgeted
revenue after six months through any given calendar year. At no point will the
balance in the Revenue Stabilization Fund decline by more than 50 unless
actual General Fund revenue is more than 20% below budgeted revenue.
7.0 ENTERPRISE FUN D :RESERVE POE10Y:
Index: 300 -15
Page 4 of 5
The Cityi l!aII mai j an adequate fund balance in each of the City's
enterprise to pt de funding for capital expenses, unanticipated
revenue dedl %rtes, and =any other unbudgeted expense. The policy applies to
The following nds:
1. WateriFund
2. Fund
3. `Siirface Water Fund
4. Foster Golf Course Fund
7.2. The City shall incorporate into its customer rate structure funding for the
establishment and maintenance of a Working Capital Reserve Fund. The
reserve balance shall be no less than 20% of the previous year operating and
capital expenses. The City shall reach the targeted minimum of 20% no later
than fiscal year 2014 according to the following schedule:
TITLE: RESERVE POLICY
5% by December 31, 2011
10% by December 31, 2012
15% by December 31, 2013
20% by December 31, 2014
7.3. Use of the Working Capital Reserve Fund A draw down of the fund's
reserves should: a) not exceed 50% of the balance in the Working Capital
Reserve Fund, and b) not reduce the reserve below 10% of annual operating
and capital expenditures within each fund.
7.4. Replenishment of Reserves The following criteriawill be used to restore the
Working Capital Reserve Fund based upon theµreh:aining fund balance
compared to the minimum reserve guidelind:
Title:
RESERVE POLICY
Effective Date:
12/11/09 N/A
Index: 300 -15
Page 5 of 5
1. If the reserves are drawn down by 25-50% of reserve and balance,
then a budgetary plan shall, be implemented to return=tfaa.reserve level
to between 75% and 1 00% of "fhe minimum balance overa=5 to 7 year
period.
2. If the reserves are drawn down byy3=Y25% of reserve fund balance,
then the budgetary plan to restore tF reserve shall be structured over
a 3 to 5 year period:
3. If the reserves are dIaaivfi own by 0 -10(E reaerve fund balance, then
a solution to replenish to ate: east the minimum shall be structured over
a 1 to 3 year period.
7.5. The Workiit'eapjtal Reserve fund shall beThaintained within each of the
Enterprige Funds =.but shall be separate from the accumulated fund balance
within eac1 Jund.
Initiating Department:
Finance Department
Supercedes: Mayor's Office Approval Signature:
453