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HomeMy WebLinkAboutBudget Policy Review Staff reportSARATOGA CITY COUNCIL MEETING DATE: October 26, 2009 AGENDA ITEM: DEPARTMENT: Finance Administrative Services CITY MANAGER: Dave Anderson PREPARED BY: Mary Furey DIRECTOR: Mary Furey SUBJECT: Budget Policy Review RECOMMENDED ACTION: Review current and proposed budget policies and practices, and provide direction to staff REPORT SUMMARY: In alignment with Governmental Financial Officer's Association (GFOA) best practices, the City's Operating and Capital Budgets serve as a financial plan, as well as a policy document, a communications tool, and an operations guide. The annual budgets are developed with an emphasis on long -range planning, service delivery, and program management with the fundamental purpose of these documents to provide a linkage between the services and projects the City intends to accomplish, and the resources committed to get the work done. The City adopts an annual Operating and Capital Budget effective from July 1s through June 30 of the following calendar year. The Operating Budget allocates funding for ongoing costs and services which support and benefit the community including: street and park maintenance; development and building oversight; public safety and emergency preparedness; recreation and teen services; facility and equipment maintenance; financial management; and city administration. The Capital Budget provides for individually approved infrastructure improvements and is adopted on a project basis, meaning project funding and expenditure appropriations carryforward (as adjusted) to the subsequent fiscal year. Adopted high level budget policy concepts that the City currently operates under are incorporated within the Financial Policy Statements which were adopted by Council on October 1, 2008, and are included in the budget document for general reference. (Attachment A) As a result of the October 13 2009 Cost Recovery study session, Council direction affirmed the Recreation Department's stated cost recovery goal of approximately 65 in alignment with cost recovery obtained by other surveyed Recreation Departments. The Council did not establish a cost recovery rate for the Community Development Department as it was determined there was not enough consistent financial information to make a valid, fact -based decision. However, Council did establish a fund balance policy for the Development Reserve which allows for the utilization of (up to) one -third of the fund balance reserve to offset revenue shortfalls. This new policy is to include direction that Community Development Depai lucent excess revenues over expenditures would be allocated into the Development fund balance reserve in order to build the reserve up in more profitable years, for use in Page 1 of 14 less profitable years. This mechanism was implemented to mitigate the economic impacts of revenue peaks and valley that occurs with development activities over multiple year cycles. In addition to the budget policies Council adopted as part of the overall Financial Policies Statements and Cost Recovery Study Session, the following standard budget policies and practices are regularly incorporated into the City's budget process, and could be added as amendments to the financial policies: (Please note that the following budget policies and practices are a work-in-progress.) QL GE1NET1 GET The City adopts an Operating and Capital Budget each year to identify and communicate the City's stated policies, goals, and priorities in the format of an operations plan with staffing and funding allocations. The Operating Budget represents funding allocations for ongoing City services, support, and administration. The Capital Budget represents funding allocations for City infrastructure, facilities, and efficiency improvements. The City adopts balanced Operating and Capital Budgets each year, which is defined as funding sources equal or exceed funding uses. Funding sources includes revenues, transfers -in from other funds, and Council- approved use of fund balance. Funding uses include expenditures and transfers -out to other funds. The City will seek to maintain financial stability through a diversified and stable revenue base, and will account for both revenues and expenditures within a program, if a relationship exists. The City's general operations and user fee supported on -going costs and services are accounted for within the General Fund as primary functions of the City. The City has also established special revenue, capital project, debt service, and trust funds to account for revenues that are restricted for certain activities, in accordance with GFOA guidelines. Funds exist and are budgeted as separate financing entities from other funds in accordance with Generally Accepted Accounting Principles (GAAP), with their own self balancing set of accounts recording revenue sources, expenditures, and fund equity. CES BUDGETDEVEEO! As the City develops its Operating and Capital Budgets each year, processes are established to ensure logical financial relationships and on -going consistency in the budgetary information. The following standard budget development practices are currently in place, or in the process of being established: Timeline A budget calendar is established to set the overall timetable for budget requests, assignments, meetings, deadlines, and Council meetings for the public hearings and scheduled budget adoption for the upcoming budget development process. Forecast Council will review the status of the City's current year budget and five -year forecast at the Council's mid -year retreat as a first step in budget development for the following year. The primary objectives of the financial forecast is to assist Council and staff in identifying financial trends, recognize long -term implications of fiscal decisions, and provide management with a tool to assess the General Fund's ability to continue current services and preserve the City's fiscal health. Page 2 of 14 To facilitate long -range financial planning, the financial forecast represents a five year history of the City's revenues, expenditures, and fund balance, current year estimates, and a five year projection of the City's long term fiscal condition under currently adopted service levels. The forecast projections are based on a compilation of financial data history, information, and reasonable economic, operational, political, and administrative assumptions used to project likely revenues and transfers -in, and subtract expected operating costs, debt service, transfers -out, capital investments, and maintenance expenses for equipment, facilities, and infrastructure at currently adopted and projected service levels. A forecast projection is not a statement of what will occur over the next five years, but a warning system for potential future problems, and a tool to be used for decision making. Budget Policy Review As part of the mid -year Council retreat, the currently adopted budget policies will be reviewed by the City Council after the forecast. This will provide information necessary to begin budget development in alignment with Council's goals, policies, and best financial practices. Operating Budget Development The development of the Operating Budget is the synchronization of many pieces of information into numerous schedules to develop a citywide workplan. At a summary level, the following processes /steps are included in the preparation of the Operating Budget: Budget development guidelines are developed direction on forecast analysis, new initiatives, staffing levels, changes in program service levels, revenues and expenditures, etc. Community grant process User Fee Schedule process Labor and Benefit costs developed Internal Service Fund detail budget worksheets prepared Program Budget detail worksheets provided to program managers with salary and internal service information Program managers to determine and submit current year revenue and expenditure estimates Program managers to develop and submit revenue and expenditure budget projections 1st draft budget run prepared Review, analysis, and budget changes Council study session 2nd draft budget run prepared Department/program narratives prepared Review, analysis, and budget changes Financial Summaries and narratives finalized Proposed Budget prepared and presented to Council at public hearing Capital Budget Development The Capital Budget is the update of the five -year Capital Improvement Plan, and is an assessment and update of project status, funding allocations, scope of work, timelines, and project priorities. At a summary level, the following processes /steps are to be included in the preparation of the Capital Budget: Page 3 of 14 Current Projects Public Works to reassess currently approved/adopted CIP projects and categorize by: Projects to be completed by fiscal year -end Inactive funded projects to be delayed into future years (no fiscal activity in budget year) Active projects to carryforward to the next year Unfunded, adopted projects For inactive projects, Public Works to determine and submit new timeline if applicable For active projects with carryforward funding, project managers to estimate year end balance /amount of carryforward funds Project Funding Determine availability of current funding status, new funding, designated revenues, and General Fund and other fund transfers. Align designated funding and grant funding with designated projects Prioritize remaining funding allocations for current and proposed projects Proposed Project Review Proposed CIP projects submitted for budget review to include a workplan that identifies: Scope of work, timeline, project justification, cost/benefit analysis, coordination issues, and project alternatives Every CIP Project is to have an assigned project manager who is assigned to prepare the project proposal, oversee the project in process, authorize all project expenditures, and ensure that the project is completed on schedule and within budget. Projects to be rated based on health and safety, infrastructure failure, cost efficiencies, availability of external funding sources, community impacts, or other justification criteria Funding sources utilized in the proposed project. Prepare project budget worksheets and summaries Council study session Review, analysis, and budget changes Prepare CIP project recommendations for Council budget hearing Project Adoption When adopted, CIP Projects are authorized for five years. If the project is not progressing within that time period, the project is to be brought back for re- evaluation. OPERA '1 Uli►GE,T Structure The Operating Budget is organized by "Departments and subsequently by subcategories or budgetary units called "Programs" which combine similar functions, purposes, and services into definable workload areas. The City departments are structured by functional area. The depai tinent's budgetary information including purpose /objectives, funding, and staffing are collectively reflected in the depai [mental overview, and then is subsequently broken out into individual programs which provide more specificity and detailed workload duties. Page 4 of 14 Each program budget section will include narratives and schedules which describe the services provided in the program budget overview, appropriate resources (funding and staffing), and establish workload priorities, goals, and activities which define the nature and level of program services delivered to provide program intent and resource information. The City's depaitnients include: Council Commissions, City Manager's Department, Finance Administrative Services, Community Development, Public Works, Recreation Facilities, Public Safety, and Non Departmental. Council and Commissions Department reflects the elected City officials and commission functions, the staffing resources (the elected and appointed volunteers), descriptions of the Council and Commission functions, and the funding allocations to support these legislative and advisory functions. City Manager's Depailtuent includes the City Manager's support functions to effectively oversee City management processes. This includes the City Manager's Office, the City Clerk, and the Human Resources Office. Finance Administrative Services Department is comprised of the Financial Services to manage citywide financial activities, and the Information Technology Services programs, the Office Stores, and IT Equipment Replacement programs for administrative support functions. Community Development Department consists of Development Review and Arborist Services, Advanced Planning, Code Compliance, Building Inspection, and community service program for CDBG grants and housing rehabilitation loans. Public Works Department is comprised of: General Engineering for infrastructure oversight; Development Engineering for private development services, Environmental Services to oversee several environment programs and ensure compliance with State regulations; Streets Storm Drains; Parks Landscaping; Landscape Lighting District Funds; Equipment Maintenance; and Equipment Replacement Funds. Recreation Facilities Department provides recreation services and activities through its Recreation Services and Teen Services programs, and provides Facilities to the community through its Facility Rentals program. The Building Maintenance program provides citywide maintenance support for all facilities. Public Safety is comprised of the Public Safety Services program for day -to -day law enforcement services, and the Emergency Preparedness program which prepares the City for infrequent large -scale disaster and emergency occurrences. Non Departmental is comprised of a collection of programs that are independent of the City's service area functions, including the General Administration program, Legal Services, Community Grant and Event programs, Risk Management/Liability and Workers Comp insurance programs, the Library Bond Debt Service, Library Capital Maintenance Trust Fund, and the KSAR Trust Fund. These are all considered non departmental as the programs represent functions outside of the established City service operations. The Financial Summaries section of the budget is the summarization of all budgeted financial and staffing information into concise schedules for a comprehensive view of the departmental /program budgets from several different perspectives. Revenues Council Commissions These programs have legislative and advisory functions, and are not revenue focused. However, as Council and Planning Commission appeals are filed on occasion, the appeal fees are accounted for in these programs as the hearing are part of the program function. Page 5 of 14 City Manager's Department The City Manager Department programs are focused on city management oversight support and are therefore not revenue generating programs. An exception is a very small amount of revenue accounted for in the City Clerk's program for dedication trees, benches, or plaques, which represents a reimbursement for the costs of the dedication item, and fees for copies of documents. Finance Administrative Services While the Finance Administrative Service Depai ent manages the City's finances, only Business License application fee revenue that is specifically linked to a service the program provides is included in the Financial Services program. The majority of City revenue is considered tax revenue that is received on behalf of the City in the Non Departmental section's General Administration program. Community Development The Development Department is a fee for service focused department with numerous types of development fees collected for project application reviews and permits provided to customers. Additionally, the Development Services program collects arborist fees, historical preservation, traffic, and an assortment of miscellaneous service fees as part of the program's overall development focus. A General Plan Update fee is collected in the Advanced Planning program to underwrite the cost of City standards, regulations, specific plans, and the General Plan to guide the physical development of the City. This fee is based on the building permit issued as a new building permit represents a physical change in the City's landscape and has impacts to the community and the future General Plan. The Code Compliance program revenues consist of regulatory activity and services, including solicitor /peddler permits, special event and noise permits, and city code which may result in fines. Building Inspection Fees represents building plan check fees, building inspection permit fees, grading permits, and state regulatory fees. Public Works Public Works operating budget revenues primarily come from engineering permits and services and City park fees. The General Engineering program issues encroachment permits for access rights on city infrastructure, and the Development Engineering program collects fees for engineering related reviews. The Environmental Services program is an oversight program, and revenues are limited to the County collected and distributed refuse surcharge fee. The function of the Streets and Storm Drain Maintenance program is city street maintenance and as a result does not generate revenues except for an occasional reimbursement for work done by street staff. The Parks and Landscape program function supports park usage by sport groups, therefore fees are collected as reimbursement for these services and contract services. The Parks program also oversees the Landscape Lighting District (L &L's) activities and provides some services, and therefore receives an administrative fee to reimburse the City for associated expenses. L &L's receive tax and assessment fees from property owners from the County assessor to pay the City for District services and oversight. The Public Works' vehicle and equipment internal service support functions support their own and other departments, and therefore collect charge -back service revenue. Recreation Facilities The Recreation and Facility Department revenues consist of class, camp, and recreation program fees. As established under the Cost Recovery Policy, overall program revenues are offset by community based functions, in conjunction with class fees being tempered by competition in the recreation marketplace. Page 6of14 Facility Rental revenues are also elastic due to market competition and do not represent a full cost recovery of the program. Rental fees are established as part of the Fee Schedule update process each fiscal year. Public Safety Vehicle Abatement, Vehicle Code Bail Fines, Parking, and False Alarm Fines are allocated to the Public Safety program as the revenue is derived from the Sheriff's activities. SLESF /COPS Subvention Funding and Public Safety Sales Tax are allocated to the Public Safety program as these revenues are directly linked to the City providing public safety services to the community. Non Departmental The General Administration program accounts for the majority of the City's operating budget revenues. This includes Property Tax revenues, Sales Tax, Hotel Tax, Business License Tax, Construction Tax, Franchise Fees, VLF revenue, Interest, and Cell Tower Lease revenue. Legal Services, as well as the Community Grants and Events programs are not revenue generating functions and do not typically account for any revenue. Risk Management/Liability and Workers Comp insurance programs reflect the charge -back revenues received for internal support services to other programs, and some claim reimbursements. The Library GO Bond Debt Service Fund program reflects property tax assessment levied on the city's property owners, as well as interest earned on the debt service funds. The City's Library Capital Project trust funds only reflects interest earnings, whereas the KSAR Trust Fund reflects Public, Education, and Government Access revenues received as part of a cable pass through fee to support public television. Expenditures Council Commissions City Council is supported with funding for supplies, association membership dues, meeting expenses, and training costs. An additional amount of $50,000 is set aside for Council Discretionary Funds each year, to be allocated as directed by Council vote City Commissions receive funding to carry out workload and to attend training as required by commission position. City Manager's Department As the City Manager's Office, City Clerk and Human Resources programs are primarily city management functions supported by staff. Operating costs include supplies, training, document imaging, agenda management, website management, and video streaming and archiving of council meetings. Finance &Administrative Services The majority of costs in the Financial Service Program are staff, however audit services and supplies contribute significantly to the bottom line. The Office Stores program does not have staffing costs, expenses consists of paper and postage supplies, and equipment lease fees. The IT Services program reflects staffing, annual license and support fees, and consultant costs to support the program's functions. The IT Replacement program is limited to equipment costs only. Page 7 of 14 Community Development As a fee for service orientated department, expenditures primarily represent staffing costs to provide development services, with some additional contract and consultant services for assistance. Development expenses include supplies and printing, legal notices, credit card fees, system license fees, records management services, and pass through applicant fees. The Building Inspection program also has regulatory fees for the State's seismic monitoring program (SMIP). Public Works Engineering functions are supported by staff and consultant services for both city engineering purposes and development engineering. Engineering program costs also include county wide congestion management services, GIS services, and miscellaneous operational costs. The Environmental Services program expenditures represent some staff oversight costs, several large association fees for regional environmental and solid waste programs, and for storm drain testing and cleaning. Streets and Storm Drain Maintenance program functions provide staffing and material costs for street and storm drain maintenance, streetlights, traffic signals, signs, street markings, and debris removal, as well as coordinating work with engineering for traffic and roadway projects, and with Parks for weed control and storm drain work. Expenditures consist of mainly of staffing and contract services costs, with a small amount for materials and supplies. The Parks Landscape program expenditures also rely heavily on staff for program functions, but utilize contract services for various park and median landscaping maintenance functions, street tree pruning, orchard maintenance, and sport field services. Water, field rental, port-a -potty rentals, and refuse bins make up some of other the fees and charges for this program Landscape Lighting Districts use city staff for administrative oversight, however most landscaping and lighting maintenance is provided through contract services Vehicle Equipment Maintenance reflects staffing costs for ongoing maintenance servicing and small repairs, fuel, supplies, professional repairs, and miscellaneous permit fees. The Equipment Replacement expenditures reflect vehicle and equipment purchases. Recreation Facilities Recreation and Teen Services functions include recreation, instructional, and health and safety classes, camps, and excursions. City staff oversees and support these services, however contract instructors and temporary staff provide the hands -on recreation services, and contribute to a significant part of the program's costs. Excursion costs, supplies, credit card fees, and printing costs are notable expenditures also. The Facility Rental program is managed by staff with very little expenses other than internal service costs for building maintenance charges. The Building Maintenance program reflects staff time and contract services for facility maintenance, repairs, and upkeep. Supplies, materials and utility costs are significant costs for this program as city- wide facility fees are accounted for in this program and then charged back to departments through internal service charges. Public Safety The Public Safety program reflects the City's contract law enforcement services, animal control services, and affiliated administrative fees. The Emergency Preparedness program reflects a minor amount of expense for supplies, emergency communication fees, and the regional interoperability program dues. Page 8of14 Non Departmental General Administration program expenses include a collection of expenses, that do not relate to a specific department's function, such as unemployment charges, retiree insurance administration fee, and budgeted funds for leave payouts, miscellaneous supplies, and printing costs. Legal Services reflects the anticipated expense for city attorney services including routine attorney services, council and depaitinental support, non development ordinances, property development and code enforcement matters, litigation, and a small amount for supplies. Community Grants program is the centralized distribution point for City and CDBG grant funds. There are several categories of grant expenditures: Community Services, Community Special Interest Groups, Saratoga Community Support Groups, and CDBG Public Service Grants. Community Event program reflects budgeted funding for community support and city events to build community in the City The Risk Management/Liability and Workers Comp Insurance program expenses primarily reflect insurance premium costs; however there is a minor amount of staff time allocated to these programs for administration. The GO Bond Debt Service Fund reflect the principal and interest payments, and the contract service fee for arbitrage monitoring. The Library Capital Project Fund reflects funding for small improvement projects. Large projects are administered through the City's CIP Budget. KSAR Trust Fund expenditures would reflect only the distribution of trust fund money back to the KSAR non profit organization. STAFFING TOLICIE City staff positions (FTEs) authorized in the prior year's adopted budget continues on as the staffing base in the following year. Proposed staffing additions or deletions are specifically identified and brought to Council for approval in the budget process. Part-time staff positions receive benefits in accordance with their budgeted FTE percentage. Temporary staff positions are presented in the budget as funded hours. Temporary worker positions differ from city staff positions as temporary staff are paid based on the number of hours worked in a pay period, do not receive benefits, and are utilized according to changing and variable needs. The City operates under adopted labor contracts known as Memorandum of Understandings (MOUs) for the three labor bargaining groups and the City Manager contract. Labor and benefit expenses are budgeted in accordance with the MOUs. Council Members (elected positions) and Planning Commissioners (Council appointed positions) receive monthly stipends. Stipend amounts are not adjusted from year to year unless directed by Council. The remaining City Commissioners do not receive stipends. FTEs and temporary staff hours are allocated to programs based on an estimated percentage of time spent on program assignments within the depai ient's program functions. INTERNA1, CE FUND I GT S The City maintains Internal Service Fund programs to allocate centralized program costs which exist to provide services and support to other City programs. Each of these programs is accounted for as a separate fund to track replacement funding, accumulate funds for infrastructure projects, and service level flexibility. The City's Internal Service Fund programs include: Page 9of14 Risk Management/Liability Workers Compensation Office Stores Information Technology Services Vehicle Equipment Maintenance Building Maintenance Equipment Replacement IT Equipment Replacement Risk Management /Liability Fund is the City's insurance program which provides general liability, auto, property insurance, and risk management services as part of the ABAG JPA insurance pool. Funding for this program comes from charge -backs to depai talents based on staffing and function risk factors which recognize operational costs. Workers Compensation is the City's insurance for employee benefit coverage for work related illness and injuries. Charge -backs to depaitnients are based on the number of staff, volunteers, and commissioners, injury history, and service function risk factors which recognize operational costs. Office Stores is a centralized cost center for the City's photocopy equipment, postage machine, postage permits, and the costs, supplies, equipment repairs, and servicing that comes with maintaining the equipment. Direct costs for copies and mailing are charged back to programs, with the overall leasing costs charged -back to programs on a pro -rated basis, based on program usage. Information Technology Services this program supports the delivery of technology based services throughout the City operations. Core services include the maintenance and support for information systems, voicemail and wireless communications, desktop computer and network maintenance and support, as well as new technology initiatives and enhancements to improve IT services. Program operating costs include staffing, consultant costs, and annual license and support fees. Program charge -backs are based on depai tnients information systems, support and maintenance requirements, number of staff and assigned desktops, and user specific fees. Vehicle Equipment Maintenance this program provides for preventative maintenance, cleaning, and repair of all City vehicles and equipment in accordance with manufacturers requirements, and to ensure all vehicles and equipment are safe and well functioning. Program charge -backs are based on the amount and type of equipment assigned, maintenance requirements, and fuel usage. Building Maintenance is a centralized cost center for building maintenance and utility costs, as well as custodial supplies and services and miscellaneous repairs. Program charge -backs are based on building space allocation and community use versus depai tniental use, as well as staffing and contract repair services and supplies utilized for maintenance. Equipment Replacement this program provides for a consistent level of funding for the replacement of vehicles and equipment over an asset's lifespan. This funding structure smoothes a department's operating expenses by charging back an annual fee for assigned vehicles and equipment to a program, while the Internal Service Fund program reflects the actual fluctuating costs of acquisition and disposal of equipment, and the accumulation of funds for replacement. Program charge -backs are based on the assigned vehicle and equipment's replacement cost and lifespan. IT Equipment Replacement provides for the systematic charge -back of IT related equipment based on the amount and cost of equipment provided to each program over the lifespan of the equipment. This allows for an accurate cost of operations on an ongoing basis, and a consistent level of funding ensuring services are supported. IT Equipment includes desktops, monitors, servers, printers, laptops, telecommunication, and any technology related equipment. Charge -backs to the programs are based on the equipment assigned, the cost and lifespan of the equipment, and maintenance costs. Page 10 of 14 INT RFII TRA SV RS DIES Interfund Transfers typically reflect the transfer of funds from the General Fund for capital improvements, or from a Special Revenue or Internal Service Fund for an infrastructure improvement that is specific to that fund's purpose, such as a capital improvement in a Landscape Lighting District. Transfers to the General Fund are reimbursements for specific expenses, such as from the CDBG Special Revenue Fund for human service grants distributed from the General Fund. Transfers between funds are made in accordance with the adopted budget, or by Council approved budget adjustments. Any transfers between funds where reimbursement is not expected within one fiscal year shall be recorded as an interfund borrowing. Interfund borrowing is typically undertaken for cash flow purposes, and requires Council approval. FEE COS"IRECORY Fees collected for services provided will be reviewed and updated on an ongoing annual basis to ensure that fees reflect actual costs, in coordination with the Council's direction on cost recovery policies. The Recreation and Facility Department's General Fund programs consist of Recreation Services, Teen Services, and Facility Rentals. These programs are under a Council directive to achieve 65% Cost Recovery in light of the understanding there is a significant amount of community benefit derived from these programs which do not provide full cost recovery, such as CPR and CERT classes, facility usage for community meetings, and the sense of community that a recreation program builds in a city. The Community Development Department General Fund programs consist of Development Review, Advanced Planning, Code Compliance, and Building Inspection Services. These programs have an undefined Cost Recovery Policy at this time due to substantive changes in the department' s fee structure, the unsettled economy, and the community benefit services provided outside of the individual fee based services. This policy to be updated at a later date. The City will maintain a minimum fund balance reserve of at least 20% of operating expenditures in the General Fund for working capital cash balance. This minimum level is necessary to adequately provide for cash flow requirements and maintain the City's credit worthiness. Actual revenue excess over expenditures in the Community Development Depai lnient's General Fund programs are to be allocated into the Development Reserve. For years of budgeted shortfall, up to one third of the Development Reserve may be utilized to offset revenue shortfalls CAPITALIMPRO'S 'LAN/1(3 JDGET l''0 CIE General Policies The Capital Improvement Plan (CIP) is an ongoing process through which the City identifies, prioritizes, and develops a multi -year plan for major capital expenditures and their associated funding sources, to improve and maintain the City's roadways, parks, facilities, and other infrastructure. The Capital Budget represents the current year's funding approval of the City's five -year Capital Improvement Plan. Page I 1 of 14 CIP Projects are the individually Council approved body of work within the CIP /Capital Budget. CIP Projects are defined as having a multi -year life, typically exceeding $25,000 in cost, and resulting in assets or infrastructure improvements or efficiencies. CIP Structure As the City is comprised of diverse infrastructure, the CIP is structured under four separate program areas: Streets Program, Parks Trail Program, Facility Improvement Program, and Administrative Improvement Program. Each program area has further sub classifications of projects to allow for the tracking of resources expended for specific types of work or by specific location. The Streets Program includes projects which develop and maintain the City's roadway infrastructure. Sub categories include: Street Repair Resurfacing Projects Roadway Safety Improvements Landscape Beautification Improvements Sidewalks, Curbs Storm Drains Bridge Hillside Support Projects The Parks Trail CIP Program includes projects which develop or improve neighborhood and city parks and sport fields, bike and pedestrian trails, and open space areas throughout the city. Projects are grouped into types of park or trails, and then sub classified by location to allow for the tracking of all projects over time by specific site. Primary categories are: General Citywide Park Improvements City Parks Neighborhood Parks Sport Parks Facilities Trails Open Space The Facility Improvement Program provides for capital maintenance and improvements of the city's buildings and structures. Projects in the Facility Program are classified by site to capture resource and improvement information. There are further sub classifications within the site category by building. The program categories are: City -wide Facility Projects Civic Center North Campus Village Historical Park Library Building The Administrative Improvement Program provides for major capital projects which improve or create efficiencies for administrative systems, processes, or functions. At this point, the Administrative Improvement Program is limited to three categories: IT System Projects Communication System Projects IT Infrastructure Projects Page 12 of 14 CIP Funds Capital Improvement Funds are set up for each of the four CIP Programs to account for projects within the program area. The CIP Funds receive funding directly from designated sources, from General Fund transfers, and transfers from other Funds The CIP Street fund receives funding directly from DOT Prop 42 (TCR) subventions, Road Impact Fees, CIP Project reimbursements, and from Transfers In. The CIP Park Trail Fund receives funding directly from Park in Lieu fees, and from Transfers In. The CIP Facilities Fund receives funding directly from Theater Ticket Surcharge (for theater projects only), and from Transfers In. The CIP Administrative Improvements Fund receives funding from Transfers In. Grant Fund Grants for capital projects are to be pursued to maximize the use of capital funding dollars. Grant funded projects are approved in concept in the Capital Budget; however the project must be approved by the grantee with an award letter prior to beginning the project to ensure cost recovery. Grant funding comes from various sources, including federal, state, local, and private grants Grant requirements are to be followed accurately to ensure reimbursement submittals are accepted. Grant funded projects are to submit reimbursement requests on a quarterly or other regular basis to ensure the City is receiving grant funds on a timely basis. Transportation Development Act (TDA) Grant Revenues are to be allocated to alternative transportation programs designed to reduce automobile usage. Gas Tax Fund Gas Tax subventions are restricted by the State for street- related purposes and are subject to compliance audits. CIP projects utilizing Gas Tax revenues will be restricted to street resurfacing and street maintenance projects in compliance with the State's regulations. Gas Tax Funds are to be accounted for in its own fund as required by the State. Tree Fine Fund Tree fines resulting from code violation assessments are paid into this fund for utilization in the City's forestry enhancement or replacement projects. Project expenditures include tree and shrubbery materials and installation costs, including the cost of irrigation for project area. CIP Funding and Appropriations CIP allocations are approved on a project by project basis by Council, for use only for the authorized project (even within funds), in accordance with project parameters approved by Council. CIP allocations carryover to the following budget year, unless modifications are made to the project budget. Project funds remaining at the close of the project will be reallocated to another project by Council. CIP project budget adjustments must be approved by Council. Page 13 of 14 CIP Document (future) The Capital Budget is to be presented as an annual update to the five -year Capital Improvement Plan in a budget document each year, to include project parameters, financial and funding information, timeline, fund summaries, and any other relevant information. FISCAL IMPACTS: To be determined CONSEQUENCES OF NOT FOLLOWING RECOMMENDED ACTION: N/A ALTERNATIVE ACTION: N/A FOLLOW UP ACTION: To be determined ADVERTISING, NOTICING AND PUBLIC CONTACT: N/A ATTACHMENTS: Attachment A Financial Policy Statements Page 14 of 14 FINANCIAL POLICY STATEMENTS The City of Saratoga manages its financial, operational, and budgetary affairs in accordance with the following general policy statements. These policies represent long standing accounting, budgeting, debt, investment, and reserve principles and practices, and are the foundation which guides the City in maintaining its financial stability. GENERAI1 FINANCIAL POLICIES: The City Council's financial based goals, objectives, and policies will be incorporated into and implemented with the City's Operating and Capital Budgets. Efforts will be coordinated with other governmental agencies and joint power associations to achieve common policy objectives, share the cost of providing governmental services, and support legislation favorable to cities at the state and federal level. The City will seek out, apply for, and effectively administer federal, state, local, and foundation grants which address the City's current priorities and policy objectives. AUDITING AND FINANCIAL REPORTING: California State statute requires an annual financial audit of the City's financial records and transactions by independent Certified Public Accountants. The city will comply with Generally Accepted Accounting Principles (GAAP) and produce annual financial reports pursuant to Governmental Accounting, Auditing, and Financial Reporting (GAAFR) guidelines. Weekly check registers and monthly Investment Reports will be submitted for review and approval at City Council meetings. A mid -year budget status report will be presented at the City Council retreat. APPROPRIATIONS AND BUDGETARY CONTROL: The City Council will adopt an annual balanced operating budget and the first year of an integrated five -year capital improvement plan budget, to be effective for the fiscal year running from July 1S` through June 30"'. Operating and capital budgets are to align with the City's long -tern financial goals. Each year the Finance Depai huent will provide an updated five year (or longer) financial forecast to the City Council prior to Council's review of the proposed annual budgets to provide a long -range fiscal perspective to the City's economic status. Budgets are prepared on the same basis used for financial accounting and reporting: governmental fund types (General, Special Revenue, and Debt Service) are budgeted according to the modified accrual basis of accounting; proprietary funds (Internal Service Funds) and fiduciary funds are budgeted under the accrual basis of accounting. The City Council maintains budgetary control at the fund level; any changes in total fund appropriations during the fiscal year must be submitted to the City Council for review and Council majority approval. Operating Budget appropriations lapse at the end of each fiscal year unless specifically re appropriated by the City Council in the following fiscal year. Capital Budget appropriations are structured as a multi -year workplan; therefore project expenditure balances are carried forward to the following fiscal year as part of the annual budget adoption until funding is exhausted or the project is completed. The City Manager is authorized to implement the City's workplan as approved in the adopted budget. Within a specific fund, the City Manager may transfer appropriations between categories, departments, programs, and projects as needed to implement the adopted budget, provided no change is made to the total appropriation amount provided for any one fund. Recurring expenditures are to be funded with recurring revenues, or funds specifically designated for operational use. One time expenditures may be funded with one -time revenues or fund balances. Fund balance reserves will be used only for non recurring one -time and capital projects. The CIP Streets/Pavement Management program has an established minimum annual funding goal of $1,000,000, with Gas Tax Revenues and Road Impact Fees as designated funding sources. The $300,000 of designated TEA proceeds previously transferred to the CIP Streets/Pavement Management program was reverted back to the General Fund effective with the FY 2008/09 budget. $100,000 of TEA General Fund property tax revenues are designated for CIP Facility Improvements. The Recreation Depai tinent cost recovery rate is established at 65 in alignment with the average cost recovery rate for other surveyed recreation departments. REVENUE POLICIES: The City will encourage a diversified and stable revenue system to offset short-run fluctuations in any one revenue source. Designated and legally restricted tax and revenue funding sources will be accounted for in the appropriate funds. General taxes and revenues not allocated by law or some other contractual agreement to other funds are accounted for in the General Fund. Capital project revenues are to be directly accounted for in the appropriate capital project fund. The City establishes user charges and fees at a level that recovers the direct and indirect activity cost of providing a service or product. The City will consider market rates and charges levied by other municipalities of similar size for like services in establishing rates, fees, and charges. For services having partial cost recovery objectives, cost recovery ratios may vary according to policy objectives. A master schedule of User Fees is reviewed and updated each year to adjust fees to the established level. The City will follow an aggressive policy of collecting local taxes and revenues due to the City through persistent follow -up procedures, and external resources as necessary. Unrestricted donations, gifts, and bequests to the City in excess of $5,000 must be brought to Council for approval and acceptance. All restricted donations, gifts and bequests must be submitted to the Council for approval prior to acceptance. EXPENDITURE POLICIES: All expenditures shall be in accordance with the City's purchasing policy, travel policy, credit card policy, or any other applicable guidelines. Expenditures are managed at the program level. Program managers are to ensure expenditures do not exceed the budgeted workplan and must take immediate action if at any time during the fiscal year an operating deficit is projected at year -end. Corrective actions may include expenditure reductions, or with Council approval, budget adjustments, service reductions, or service fee increases. PURCHASING POLICY: The City's current purchasing policy, with an effective date of 4/23/2007, establishes purchasing authority levels, purchasing procedures, and requirements, for the procurement of supplies, equipment, and services, in conformance with Federal and State codes and regulations, and City Ordinance No. 2 -45. Public Work projects which are governed by the State's Public Contract Code are excluded from provisions of the City's purchasing policy. Guidelines established by the City's Purchasing Policy directs the City's depai linents to purchase the best value obtainable, securing the maximum benefit for funds expended, while giving all qualified vendors an equal opportunity to do business with the City. All purchases exceeding $5,000, up to $25,000 require written quotes and must be approved by the Purchasing Officer or designee. All purchases exceeding $25,000 must be authorized by the City Council. FIXED ASSETS AND INFRASTRUCTURE: All assets with a cost equal to or greater than $10,000 and a useful life of more than one year will be capitalized. Repairs and maintenance of infrastructure assets will generally not be subject to capitalization unless the repair extends the useful life of the asset. The City will sustain a long -range fiscal perspective through the use of a five -year Capital Improvement Plan designed to maintain the quality of City infrastructure, including streets, sidewalks, curbs and storm drains, lighting, building, parks, and trees. Asset information is to provide information for preparation of financial statements in accordance with GAAP, with emphasis placed on completion of GASB 34 requirements. INTERNAL SERVICE FUNDS: Asset replacement and maintenance Internal Service Funds are to provide a consistent level of funding for asset replacement and building maintenance projects, and ensure sufficient funding is available for the regular maintenance and repair of the City's vehicles, equipment, and buildings. Internal Services Funds are established to both allocate operating costs to depaitnients for support and maintenance services in the effort to distribute costs appropriately, and to stabilize the City's replacement and operational costs for the purpose of providing an accurate and balanced long -range fiscal perspective of the use of services and assets. Technology and Office Equipment replacement and maintenance Internal Service Funds are to provide a consistent level of funding for the replacement of technology assets and projects, and appropriately distribute support and maintenance costs to depaitinents. The Liability and Workers Compensation Insurance Internal Service Funds are to maintain adequate reserves to pay all valid self insured claims and insurance deductibles, including those incurred but not reported, in order to keep the insurance funds actuarially sound. Each Internal Service Fund will set recovery charges at rates sufficient to meet all operating expenses, depreciation, and cash reserve policy objectives. FUND BALANCE RESERVES: Fund balance reserves in a governmental fund are classified as either Reserved or Unreserved Fund Balances, depending on purpose. Reserved Fund Balances represent funding set aside for established legal obligations and liabilities, and are not available for appropriation. Unreserved Fund Balances are comprised of both designated and undesignated fund balances, and are not legally obligated for a specific use. Unreserved Designated Fund Balance Reserves represents funds identified by Council for an intended use; however as there is no legal obligation, the funds may be re- designated and utilized for another purpose if Council chooses. Unreserved Undesignated Fund Balance represents funds not yet identified for a specific use by Council, and is available for designation or appropriation. Adequate reserves are to be maintained for all known liabilities and established City Council and community directed initiatives. At year -end, after the City's financial records are finalized and audited, revenues in excess of expenditures and funding obligations close out to Unreserved Undesignated Fund Balance. Council established $500,000 as the base amount for Undesignated Fund Balance. Any accumulated available funding in excess of $500,000 is to be held for appropriation to Capital Improvement and Cost Efficiency projects in the following budget process. Year —end undesignated fund balance distribution is to be prioritized as follows: 1. Funding of legal obligation and liability reserves 2. Repayment of borrowing from Fund Balance Reserve to established levels 3. Replenishment of Unreserved Undesignated Fund Balance to $500,000 4. Designation of remaining funds for Capital Improvement and Cost Efficiency Projects Reserved Fund Balance reserves are to be maintained on an on -going basis for the following legal obligations and liabilities: 1. Petty cash Unreserved Designated Fund Balance reserves are to be maintained on an on -going basis for the following Council established purposes: 1. Operations Reserve (Established on July 1, 1999 at $2,000,000 to provide working capital cash flow for the General Fund. Interest earnings are applied at fiscal year -end at LAIF interest rate.) 2. Economic Uncertainty Reserve established and maintained at $1,500,000 3. Designated for Liability Claims 4. Development Services Fund Balance 5. Environmental Services Fund Balance TREASURY MANAGEMENT: California Government Code Section 53600; City of Saratoga Municipal Code Section 2- 20.035; and Section 16.0 of the City of Saratoga Investment Policy require the City Council to annually review and approve the City's Investment Policy. It is the policy of the City of Saratoga to invest public funds in a manner which will provide the maximum security with the highest investment return, while meeting the daily cash flow demands of the City and conforming to all state and local statutes governing the investment of funds. The Finance Administrative Services Department shall prepare and present to the City Council in sufficient detail to show the financial condition of the City at month end, the cash and investments balance by fund, and fund balances by fund type. LONG -TERM DEBT: Long -term Financing Debt will be confined to capital improvements or special projects that cannot be financed from current revenues, and is to be used only if the debt service requirements do not negatively impact the City's ability to meet future operating, capital, and cash reserve policy requirements. The term for repayment of long -term financing will not exceed the expected useful life of the project. RISK MANAGEMENT POLICY: The City is self insured against each general liability, auto, and property insurance claim for the first $25,000, and for each workers compensation claim for the first $250,000. The City carries insurance for claims in excess of these amounts. The City's role in managing its risk management program is to be preventative in nature which will be accomplished through careful monitoring of losses, working closely with the third party administrator, and designing and implementing programs to minimize risk and reduce losses. TEA FUNDING ALLOCATIONS FY 2007/08 approx $786,000 $146,000 for an additional 1046 hours of Sheriff's General Law Enforcement Hours $300,000 for Street maintenance $100,000 for Facility Maintenance 30,000 for The Saratogan newsletter 25,000 for additional Street Sweeping services in the village 5,000 for spot color for medians 34,200 to convert Temporary PW Maintenance Worker to benefited position 98,000 for Admin Analyst 34,200 to convert Temporary IT Intern to benefited position Total of 773,000 FY 2008/09 approx $815,000 $155,000 for an additional 1046 hours of Sheriff's General Law Enforcement Hours 40,000 for additional Sheriff's Office investigative and analyst hours $100,000 for Facility Maintenance 30,000 for The Saratogan newsletter 25,000 for additional Street Sweeping services in the village 10,000 for spot color for medians 36,000 for Public Works Maintenance Worker 104,000 for Admin Analyst (36,000) for IT Technician position frozen/backfilled with Temporary IT Intern Total of 464,000 plus $350,000 revenue over expenditures at year -end *The Road Impact Fee replaced the $300, 000 General Fund allocation for Street Maintenance FY 2009/10 approx $840,000 $162,000 for an additional 1046 hours General Law Enforcement Hours 15,000 for additional Sheriffs Office investigate hours $100,000 for Facility Maintenance 30,000 for The Saratogan newsletter 25,000 for additional Street Sweeping services in the village 13,000 for spot color for medians 38,000 for Public Works Maintenance Worker 110,000 for Admin Analyst (38,000) for IT Technician position frozen/backfilled with Temporary IT Intern Total of 455,000, remainder of TEA funds allocated to General Fund *The Road Impact Fee replaced the $300, 000 General Fund allocation for Street Maintenance Public Safety Costs Law Enforcement Contract TOTAL 2006/07 2007/08 2008/09 2009/10 COLA Increases 3,330,042 3,693,515 3,902,766 4,134,884 Increase from Prior Year 90,504 363,473 209,251 232,118 Increase 2.8% 10.9% 5.7% 5.9% Less Increased Services Genl Law Hour Increase 146,000 9,000 16,000 Investigative Hours 40,000 15,000 Service Cost Increases 90,504 217,473 160,251 201,118 578,842 Salaries Benefits FY 2007/08 FY 2008/09 FY 2009/10 Actuals Estimated Adopted 6,788,872 7,125,280 7,303,336 Net Increase from PY 336,408 178,056