HomeMy WebLinkAboutReg 2015-08-03 Item 6E - Resolution - Financial Reserve Policy RevisionCOUNCIL AGENDA SYNOPSIS
Meetin
,g Date
Prepared by
ayors revi . e
Council review
07/27/15
PMC
Z Resolution
Mtg Date 813119
❑ Ordinance
Mtg Dale
08/03/15
PMC
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SPONSOR ❑ Council ❑ Mayor ❑ HR [:] DCD Z .Finance ❑ Fire ❑ IT [:] P&R ❑ Police ❑ PF
SPONSOR'S The City Council is being asked to approve a resolution revising the Reserve Policy
SUMMARY increasing the General Fund minimum fund balance requirement to 18%, establishing a
One-time Revenue Reserve and conforming the reserve requirements for the self-insured
health care funds to those currently practiced. This item is scheduled for Council
consideration at the 7/27/15 C.O.W. and 8/3/15 Regular Council meeting.
RE;vu-,'WI:?D BY 0 cow Mtg. [:] CA&P Cmte Z F&S Cmte ❑ Transportation Cmte
❑ Utilities Cmte ❑ Arts Comm. ❑ Parks Comm. ❑ Planning Comm.
DATE: 7/7/15&7/21/15 COMMITTEE CHAIR: HOUGARDY
RECOMMENDATIONS:
SPONSOR /ADMIN. Finance Department
C0NIm1"-I'1_`E Unanimous Approval; Forward to Committee of the Whole
COST IMPACT / FUND SOURCE
ExPF,NDrruRE REQUIRED AMOUNT BUDGETED APPROPRIATION REQUIRED
Fund Source: MISCELLANEOUS FUNDING SOURCES, SEE DETAIL
Comments:
MTG. DATE
RECORD OF COUNCIL ACTION
7/27/15
ITEM INFORMATION
ITEM NO.
6.E.
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107
STAFF SPONSOR: PEGGY MCCARTHY
IORIGINAi.AGENDADATE: 7/27/15
AGENDA ITEM Trri-E An Resolution Revising the Reserve Policy.
CATEGORY Z Discussion
All
,g Date 7127119
❑ Motion
Mtg Dale
Z Resolution
Mtg Date 813119
❑ Ordinance
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❑.BidAward
Mt g Date
❑ Public Hearing
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E] Othe
Mtg Date
SPONSOR ❑ Council ❑ Mayor ❑ HR [:] DCD Z .Finance ❑ Fire ❑ IT [:] P&R ❑ Police ❑ PF
SPONSOR'S The City Council is being asked to approve a resolution revising the Reserve Policy
SUMMARY increasing the General Fund minimum fund balance requirement to 18%, establishing a
One-time Revenue Reserve and conforming the reserve requirements for the self-insured
health care funds to those currently practiced. This item is scheduled for Council
consideration at the 7/27/15 C.O.W. and 8/3/15 Regular Council meeting.
RE;vu-,'WI:?D BY 0 cow Mtg. [:] CA&P Cmte Z F&S Cmte ❑ Transportation Cmte
❑ Utilities Cmte ❑ Arts Comm. ❑ Parks Comm. ❑ Planning Comm.
DATE: 7/7/15&7/21/15 COMMITTEE CHAIR: HOUGARDY
RECOMMENDATIONS:
SPONSOR /ADMIN. Finance Department
C0NIm1"-I'1_`E Unanimous Approval; Forward to Committee of the Whole
COST IMPACT / FUND SOURCE
ExPF,NDrruRE REQUIRED AMOUNT BUDGETED APPROPRIATION REQUIRED
Fund Source: MISCELLANEOUS FUNDING SOURCES, SEE DETAIL
Comments:
MTG. DATE
RECORD OF COUNCIL ACTION
7/27/15
Forward to next Regular Meeting with updated Info Memo with additional figures
8/3/15
MTG. DATE
ATTACHMENTS
7/21/15
Informational Memorandum dated 07/01/15
Draft Resolution
Committee Minutes from Finance and Safety (FS) Committee meeting of 7/7/15
Informational Memorandum from 7/7 FS packet
Minutes from the Finance & Safety Committee Meeting of 7/21/15
8/3/15
Revised Informational Memorandum dated 7/29/15 with additional figures
Resolution in final form
107
WT.*
City of Tukwila
Jim Haggerton, Mayor
INFORMATIONAL MEMORANDUM
TO: Mayor Haggerton
City Council
FROM: Peggy McCarthy, Finance Director
DATE: July 29, 2015
SUBJECT: Revision to Financial Reserve Policy
(Updated after 7/27 C.O.W. meeting; see Page 2)
ISSUE
Consider for approval the proposed revisions to the Financial Reserve Policy, as currently set forth in
Resolution 1774.
BACKGROUND
A Reserve policy was established in 2009 as a safeguard to protect the community, its residents, and
businesses from unforeseen or emergent situations that could negatively impact the City's finances
including revenue shortfalls and unanticipated expenditures. The policy was revised in October 2012 to
augment, simplify and clarify the policy criteria and guidance. The revision now proposed would increase
the General Fund reserve level, add a One -time Revenue Reserve and conform the healthcare fund
reserve policy to current practices.
DISCUSSION
Revisions to the current policy is now being considered for the following reasons:
1. To ensure sufficient General Fund balance is maintained. The current policy requires a 10%
General Fund minimum fund balance. The Government Finance Officer Association (GFOA)
Best Practices recommends a 16.67% minimum balance. The proposed policy revision increases
the minimum balance to 18 %.
Together, the proposed revised 18% General Fund reserve requirement and the existing 10%
Contingency Fund reserve requirement would commit 28 %, or approximately $15.4 million, to
reserves. This level is realistic and attainable since the 2014 unassigned General Fund balance
was $10 million and the 2014 Contingency Fund balance totaled $5.7 million. This represents a
combined total of $15.7 million exceeding the estimated $15.4 million required should the policy
revision be adopted.
The increased level of reserves is considered prudent based on the City's experience with
previous revenue shortfalls. When the City experienced a revenue shortfall as a result of the
combined effect of the Great Recession and the adoption of destination based sales tax, sales
tax revenue declined by more than $4 million from a high of $20 million in 2007 to a low of less
than $16 million in each of the years 2009, 2010 and 2012. Additionally, the governmental fund
balances, as presented in Attachment A of the Financial Planning Model, have declined by over
$8 million from a high in 2007 of $29 million to the current $21 million level.
2. To establish a One -time Revenue Reserve. A One -time Revenue Reserve is proposed to
ensure that a portion of revenue windfalls from one -time or periodic events — such as construction
sales tax and real property sales -- is set aside and saved. The reserve would reside in the
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INFORMATIONAL MEMO
Page 2
Contingency fund and be in addition to the Contingency fund minimum balance requirement.
The One -Time Revenue Reserve would be credited annually with 10% of the prior year one -time
revenues. This would occur only if the General Fund surplus for the year is sufficient to cover the
reserve funding. Use of the reserves would be based on the recommendation by City
Administration and approval by City Council through a resolution.
Should the Reserve be established, the funding goal for 2015 (based on 2014 actual one -time
revenues) would be $81,900. The estimated funding goal for 2016 (based on 2015 estimated
one -time revenues) could approximate $170,000, for an estimated biennial total of $251,900. The
funding goal for the 2017 -2018 biennium could exceed $1,000,000 depending on the timing of
one -time revenue events. These events include real property sales of the Tukwila Village land,
TIB Redevelopment properties, Longacres property, and the former Fire Station 53. Planned
construction activities generating construction sales tax include Tukwila Village, Washington
Place and other development projects.
3. To conform the self - insured healthcare reserve minimums to those used by the actuary in
the annual IBNR (incurred but not reported) liability and IBNR reserve calculations. The
Policy now states that the IBNR reserve should equal 2.5 times the IBNR. In practice, and as
conservatively recommended by the actuary and healthcare broker, the IBNR reserve should
equal 1.5 times° -ef the IBNR. This reserve is in addition to the IBNR liability.
37 The IBNR balance for 2014 was $904,700 for the Employee healthcare plan and $114,301 for the
Retiree healthcare plan (per Exhibit H line 4.2 of the actuarial reports). For the Employee plan, the IBNR
liability and the IBNR reserve as of December 31 2014 were $904,700 and $1,355,300 respectively for a
total of $2,260,000. In addition to this reserve the plan had over $2.5 million in ending fund balance. For
the Retiree plan the IBNR liability and the IBNR reserve as of December 31 2014 were $114,301 and
$171,449 respectively for a total of $285,750. In addition to this reserve, the plan had $237,644 in ending
fund balance.
RECOMMENDATION
The Council is being asked to approve the resolution revising the Financial Reserve Policy at the July 13,
2015 Committee of the Whole meeting and the subsequent July 20, 2015 Regular Meeting.
ATTACHMENTS
Resolution Revising the Financial Reserve Policy
Finance and Safety Committee Minutes, July 7, 2015
Informational Memorandum from the July 7, 2015 Finance and Safety Committee meeting
110 WA2015 CAS1Reserve Policy 7 -22 -15 REVISED 2nd,doc
City of Tukwila
Washington
Resolution No.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
TUKWILA, WASHINGTON, REVISING THE PREVIOUSLY
ADOPTED FINANCIAL RESERVE POLICY TO INCREASE
THE GENERAL FUND RESERVE LEVEL, ADD A ONE -TIME
REVENUE RESERVE, AND CONFORM THE HEALTH CARE
FUND RESERVE POLICY TO CURRENT PRACTICES; AND
REPEALING RESOLUTION NO. 1774.
WHEREAS, for the well -being and sustainability of the community, its residents,
and businesses, it is important that the City of Tukwila be prepared to respond to any and
all situations that could result in a risk and /or crisis to the City's finances including, but not
limited to, revenue shortfalls and unanticipated expenditures; and
WHEREAS, it is the responsibility of the City Council of the City of Tukwila to provide
policy direction for the City's biennial budget through the passage of motions and
ordinances, adoption of resolutions, and final approval of said budget; and
WHEREAS, a financial reserve policy establishes, attains, and restores minimum
fund balances, including self- insured health care reserve funds, and specifies review and
reporting of such; and
WHEREAS, the Best Practices promulgated by the Government Finance Officers
Association recommends that the unrestricted fund balance in the General Fund equal
no less than two months of regular General Fund operating revenues, or 16.67 %; and
WHEREAS, credit rating agencies consider combined General Fund and
Contingency Reserve Fund balances of at least 30% of operating revenues to be a
good indication of creditworthiness; and
WHEREAS, in prior years the financial health of the City was negatively impacted
by recession and changes in state law; and
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WHEREAS, it is financially prudent to save a portion of revenue windfalls derived
from one -time or periodic events, such as the sale of real property or sales tax collected
on construction activity, as a means of offsetting the effects of recessions or other
events that could force the City to reduce service levels;
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA,
WASHINGTON, HEREBY RESOLVES AS FOLLOWS:
Section 1. Minimum Fund Balances.
A. At the close of each fiscal year, the General Fund unassigned balance shall
equal or exceed 18% and the Contingency Fund reserve balance shall equal or
exceed 10% of the previous year General Fund revenue, exclusive of significant non -
operating, non - recurring revenues such as real estate sales or transfers in from other
funds.
B. At the close of each fiscal year, the unrestricted balances of the Enterprise
Funds shall equal or exceed 20% of the previous year revenue, exclusive of
significant non - operating, non - recurring revenues such as real estate sales, transfers
in from other funds or debt proceeds.
C. Use or draw down of minimum balances shall occur only upon
recommendation of City Administration and approval by City Council through a
resolution. Should use or draw down occur, the City Administration shall establish a
plan, no later than the end of the fiscal year following the year of decline, to restore
the fund balance to the prescribed minimum level. The plan shall be presented to
and approved by the City Council.
Section 2. One -time Revenue Reserve. A One -time Revenue Reserve shall be
established and maintained in the Contingency Fund. The One -time Revenue
Reserve shall be credited annually with 10% of the prior year one -time revenues to
the extent General Fund surplus for the year is sufficient to cover the reserve funding.
Use of the reserve shall occur only upon recommendation by City Administration and
approval by City Council through a resolution.
Section 3. Self- insured Health Care Funds. The City shall maintain a reserve in
each of its self- insured health care funds in an amount equal to 1.5 times, or 150 %, of
the actuarially determined IBNR (incurred but not reported) balance. Use of the
reserve shall occur only upon recommendation by City Administration and approval by
City Council through a resolution.
Section 4. A report showing compliance with the Financial Reserve Policy shall
be provided to the City Council on an annual basis, no later than July 1 of each year.
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Section 5. Repealer. Resolution No. 1774 is hereby repealed.
PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON,
at a Regular Meeting thereof this day of , 2015.
ATTEST /AUTHENTICATED:
Christy O'Flaherty, MMC, City Clerk
APPROVED AS TO FORM BY:
Rachel B. Turpin, City Attorney
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Kate Kruller, Council President
Filed with the City Clerk:
Passed by the City Council:
Resolution Number:
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