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HomeMy WebLinkAbout05-11-2020 Council agenda packetSaratoga City council Agenda – Page 1 of 2 SARATOGA CITY COUNCIL SPECIAL MEETING MAY 11, 2020 Teleconference/Public Participation Information to Mitigate the Spread of COVID‐19 This meeting will be entirely by teleconference. All Council members and staff will only participate via the Zoom platform using the process described below. The meeting is being conducted in compliance with the Governor’s Executive Order N‐29‐20 suspending certain teleconference rules required by the Ralph M. Brown Act. The purpose of this order was to provide the safest environment for the public, elected officials, and staff while allowing for continued operation of the government and public participation during the COVID‐19 pandemic. Members of the public can view and participate in the Special Meeting Session of the meeting by: 1. Using the Zoom website https://us02web.zoom.us/j/78519159789 or App Webinar ID: 785 1915 9789 and raising their hand to speak on an agenda item when directed by the Mayor. 2. Calling 1.669.900.6833 or 1.408.638.0968 and pressing *9 to raise their hand to speak on an agenda item when directed by the Mayor; OR 3. Viewing the meeting on Saratoga Community Access Television Channel 15 (Comcast Channel 15, AT&T UVerse Channel 99) and calling 1.669.900.6833 or 1.408.638.0968 and pressing *9 to raise their hand to speak on an agenda item when directed by the Mayor; OR 4. Viewing online at http://saratoga.granicus.com/MediaPlayer.php?publish_id=2 and calling 1.669.900.6833 or 1.408.638.0968 and pressing *9 to raise their hand to speak on an agenda item when directed by the Mayor. The public will not be able to participate in the meeting in person. As always, members of the public can send written comments to the Council prior to the meeting by commenting online at www.saratoga.ca.us/comment prior to the start of the meeting. These emails will be provided to the members of the Council and will become part of the official record of the meeting. During the meeting the Mayor will explain the process for members of the public to be recognized to offer public comment. In accordance with the Americans with Disabilities Act and the Governor’s Executive Order, if you need assistance to participate in this meeting due to a disability, please contact the City Clerk at debbieb@saratoga.ca.us or calling 408.868.1216 as soon as possible before the meeting. The Saratoga City council Agenda – Page 2 of 2 City will use its best efforts to provide reasonable accommodations to provide as much accessibility as possible while also maintaining public safety. 6:00 PM CITY COUNCIL SPECIAL MEETING AGENDA ITEMS FY 2020/21 Budget Study Session Review Recommended Action: Council to review and provide consensus direction to staff on: 1) Recession Impacts 2) Draft Proposed FY 2020/21 Operating Budget 3) Draft Proposed FY 2020/21 Fiscal Policy Changes 4) Draft Proposed FY 2020/21 Capital Project Funding Allocations 5) Finance Committee recommendations 6) Additional budget funding requests ADJOURNMENT CERTIFICATE OF POSTING OF THE AGENDA, DISTRIBUTION OF THE AGENDA PACKET, COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT I, Debbie Bretschneider, City Clerk for the City of Saratoga, declare that the foregoing agenda for the meeting of the City Council was posted and available for review on May 8, 2020 at the City of Saratoga, 13777 Fruitvale Avenue, Saratoga, California and on the City's website at www.saratoga.ca.us. Signed this 8th day of May 2020 at Saratoga, California. \s\Debbie Bretschneider Debbie Bretschneider, City Clerk In accordance with the Ralph M. Brown Act, copies of the staff reports and other materials provided to the City Council by City staff in connection with this agenda, copies of materials distributed to the City Council concurrently with the posting of the agenda, and materials distributed to the City Council by staff after the posting of the agenda are available on the City Website at www.saratoga.ca.us. Following removal of State and local shelter in place orders these materials will be available for review in the office of the City Clerk at 13777 Fruitvale Avenue, Saratoga, California. In Compliance with the Americans with Disabilities Act, if you need assistance to participate in this meeting, please contact the City Clerk at debbieb@saratoga.ca.us or calling 408.868.1216 as soon as possible before the meeting. The City will use its best efforts to provide reasonable accommodations to provide as much accessibility as possible while also maintaining public safety. [28 CFR 35.102-35.104 ADA title II] SARATOGA CITY COUNCIL MEETING DATE:June 3, 2020 DEPARTMENT:Finance & Administrative Services Department PREPARED BY:Mary Furey, Administrative Services Director SUBJECT:Review of recession impacts, the draft Proposed FY 2020/21 General Fund Operating Budget, Fiscal Policy revisions, a recap of the proposed Capital Improvement Project funding allocations, Finance Committee recommendations, and additional budget requests. RECOMMENDED ACTION: Council to review and provide consensus direction to staff on: 1)Recession Impacts 2)Draft Proposed FY 2020/21 Operating Budget 3)Proposed Fiscal Policy Changes 4)Proposed FY 2020/21 Capital Project Funding Allocations 5)Finance Committee recommendations 6)Additional budget funding requests BACKGROUND: The annual Budget Study Session provides an update of the current year’s funding and expenditure estimates, a summary overview of next fiscal year’s proposed operating budget and notable changes, and a final review of recommended capital project funding allocations. Council direction will be incorporated into the Proposed Operating and Capital Budgets to be presented at the June 3rd public hearing. Additionally, as fiscal policies are included as part of the annual budget adoption, proposed policy changes are provided for discussion. This informal review process provides Council with the opportunity to ask questions, request clarifications, and provide direction in preparation of the final proposed budget presentation. Recession Impacts This year’s Budget Study Session will focus on anticipated fiscal impacts unfolding from the COVID-19 Shelter- in-Place order, and planned budget strategies for offsetting revenue shortfalls to ensure continuity of City service levels. After years of conservative budgeting, the City is prepared to weather this recession and maintain service levels without having to use the Fiscal Stabilization Reserve or cutting services to balance this next fiscal year’s budget. In short, Council’s recession mitigation practices have built sufficient resources to ensure stability and mitigate service reductions during this recession, even if the recession were to worsen or continue on for several more years. Planned budget strategies for the next fiscal year,as recommended by the Council Finance Committee, include the use of a one-time funding source, Internal Service Fund funding reductions and General Fund expenditure reductions. Additional strategies were discussed and will provide further options during next budget year, if needed. Staff will bring notable fiscal changes to the Finance Committee and Council as soon as possible throughout the year, with recommendations to mitigate impacts if any are needed. 3 DISCUSSION: General Fund Summary Overview Attachment A, the General Fund Summary schedule, provides three years of revenue and expenditure history, the current fiscal year budget and estimate, and next year’s proposed budget. A review of Total Operating Sources will include a general discussion of major revenues, trends and projections in the context of continued fiscal impacts, and information on the use of fund balance reserves. A review of Total Operating Uses will highlight notable changes for the current year and proposed budgeted expenditures, trends, and projections. Total Fund Activity Overview Attachment B, the Total Fund Activity Schedule provides a high-level summary of all funds: General, Internal Services, Debt Service, Trust & Agency (new), and Capital Funds. Beginning with estimated beginning fund balances in the first column, budgeted revenues, expenditures, and transfers in the following columns lead to the estimated ending fund balances at the end of next fiscal year for each of the City’s funds. This high-level summary of the City’s funds provides a broad understanding of how the funds are structured for use in either general or specific functions, how they individually contribute to City operations, and how these funds balance both short and long-term objectives. Collectively the funds represent and illustrate the City’s overall fiscal health. Fiscal Policies On an annual basis, and as part of the Finance Committee’s function, portions of the City of Saratoga’s fiscal policies are reviewed. Policy revisions generally include policy language refinement and clarifications, expanded policy direction, documentation of existing best practices or verbal policy direction during the course of the year, and any necessaryoperational or fiscal changes to reflect current practices or legal requirements. Proposed changes are then submitted to the Council and integrated into the budget adoption process. This year’s proposed Fiscal Policy update includes a more in-depth update to expand on several of the current topics and to add several new policy topics within the base Fiscal Management Policy Statements, to both better articulate established procedures, and to meet the Government Finance Officer Association’s updated standard for budget policies. The new topic areas include policy statements on Investments, Long-Term Planning, Pension Funding, Recession Preparations, Trust & AgencyPolicies, and User Fees. Expanded GeneralFinancial Principal Statements include additional Financial Reporting, Development Policy, Investments and Long-Term Debt, Revenue, and Risk Management information. Of particular note is the expanded Capital Improvement Planning (CIP) section which refines and establishes a conceptual framework going forward for City infrastructure planning. This ongoing process is to identify projects as either Capital Maintenance Projects or one-time Capital Improvement Projects as a step toward the broader goal to identify and establish long-term financial maintenance plans for citywide infrastructure. In the short-term, this methodology will help inform Council on capital project funding decisions. Capital Project Funding Council assessed both proposed and current capital project proposals during the Council CIP Project Allocating meeting on March 4th. Attachment D captures Council’s CIP project scope and funding direction for the FY 2020/21 Capital Improvement Program Budget. Finance Committee Recommendations Subsequent to the Council’s CIP project allocation meeting on March 4th, the Finance Committee discussed CIP funding allocations in reference to operational functions versus capital functions. As a result of the discussion, the committee recommends: 1. Defund the annual $50,000 Risk Management CIP, and budget expenses in the Operating Budget. 2. Reallocate $25,000 of the $50,000 to the Art Infrastructure CIP to continue the goal of integrating Art into the Saratoga community. 4 3. Allocate the remaining $25,000 to the underfunded Annual Parks, Trails, Grounds & Median Infrastructure Replacement CIP project. Wildfire Task Force Budget Recommendations At the April 30th Finance Committee meeting, the Committee considered a recommendation from the Wildfire Task Force to the City Council to create a $50,000 Wildfire Risk Mitigation Reserve Fund. The Finance Committee requested that the Task Force refine the recommendation. Subsequently, the Task Force revised its recommendation to the City Council to allocate $50,000 to a Capital Wildfire Risk Mitigation project for fuel reduction work, such as fuel breaks projects, brush clearing, or roadside fuel treatments. The Task Force has also recommended that the City Council increase the annual $25,000 Operating Budget allocation to Santa Clara County FireSafe Council to $50,000 in Fiscal Year 2020/21 (one time) to operate a dead tree removal incentive pilot program and to support fuel reduction efforts. Staff is available to explain the request in more detail. Please Note: The Proposed Operating & Capital Budget is currently being finalized for the City Council Budget Hearing on June 3, 2020. Documents and fiscal information provided at this budget study session are in development and subject to Council direction, revisions and updates. ATTACHMENTS: Attachment A – Fiscal Impacts Attachment B – Draft Proposed FY 2020/21 General Fund Summary Attachment C – Draft Proposed FY 2020/21 Total Fund Activity Summary Attachment D – Fiscal Policy Revisions Attachment E – Results of FY 2020/21 CIP Funding Prioritization Attachment F – Proposed FY 2020/21 Capital Improvement Plan 5 Revenue Budget Variance Over Budget Property Tax (ERAF - $675,000)900,000 Business, Franchise, IG, Other 120,000 Under Budget Sales Tax (150,000) Transient Tax (175,000) Services, Fees, Licenses, Permits (610,000) Rental Income (135,000) Revenue Shortfall (50,000) Expenditure Budget Variance Salary & Benefits 650,000 Operational Savings 565,000 Expenditure Savings 1,215,000 RECAP Budgeted Revenue Shortfall (50,000) Budgeted Expenditure Savings 1,215,000 Budgeted Net Operations 291,000 Ending Estimated Net Operations 1,456,000 General Fund FY 2019/20 Budget Variance Attachment A 6 FY 2016/17 FY 2017/18 2018/19 2019/20 2019/20 2020/21 % of General Fund Revenues Actuals Actuals Actuals Adjusted Estimated Proposed Budget Property Tax 12,003,942 12,963,531 14,166,177 14,009,000 14,902,500 14,936,000 66.5% Sales Tax 1,185,035 1,124,647 1,207,471 1,100,000 950,000 750,000 3.3% Transient Occupancy Tax 343,618 389,037 347,605 350,000 175,000 150,000 0.7% Business & Other Taxes 513,431 571,326 548,815 515,000 565,000 505,000 2.2% Franchise Fee Tax 2,356,539 2,338,794 2,482,074 2,382,000 2,451,000 2,432,000 10.8% Intergovernmental 584,480 557,026 533,058 515,000 501,456 500,000 2.2% Fees, Licenses & Permits 1,500,843 2,217,363 1,936,019 1,841,850 1,465,412 1,483,180 6.6% Charge for Services 1,666,164 1,671,955 1,416,278 1,184,442 952,436 872,584 3.9% Interest 102,787 270,929 639,154 510,000 513,167 310,000 1.4% Rental Income 494,176 445,161 432,595 399,250 263,086 297,697 1.3% Other Sources 361,396 420,339 406,703 244,977 260,911 238,077 1.1% Total GF Revenues 21,112,412 22,970,107 24,115,948 23,051,519 22,999,967 22,474,538 100% Fund Transfers In 55,384 442,198 158,391 - - - Total Rev & Transfers 21,167,796 23,412,305 24,274,339 23,051,519 22,999,967 22,474,538 Use of (Addition to) Fund Balance Reserves Carryforward Reserve - 7,246 5,264 47,647 47,647 - Development Reserve - - - - - - Environmental Reserve 50,000 50,000 50,000 50,000 50,000 50,000 CIP Reserve 1,410,648 1,872,909 1,840,866 3,505,000 3,505,000 2,360,500 Hillside Reserve 210,000 (210,000) - - - - Fiscal Stabilization Repayment (250,000) - - - - - LLD Fund Closeout - - - - - 844,774 Total Operating Sources 22,588,444 25,132,460 26,170,468 26,654,166 26,602,614 25,729,812 FY 2016/17 FY 2017/18 2018/19 2019/20 2019/20 2020/21 % of General Fund Expenditures Actuals Actuals Actuals Adjusted Estimated Proposed Budget Salary & Benefits 7,171,061 7,264,949 7,617,050 8,820,625 8,217,249 9,075,239 39.1% UAL Payment 500,000 750,000 1,052,631 1,050,000 1,000,942 1,025,000 4.4% Materials & Supplies 248,600 246,785 223,304 336,370 259,705 303,665 1.3% Fees & Charges 939,859 788,811 891,961 928,982 914,327 1,045,387 4.5% Consultant & Contract Svs 2,322,212 2,034,666 2,451,965 2,526,776 2,185,539 2,365,481 10.2% Sheriff Services 5,176,515 5,319,341 5,680,745 6,057,371 6,057,371 6,408,958 27.6% Meetings, Events & Training 87,606 105,621 115,690 180,210 98,984 117,500 0.5% Community Grants & Events 222,127 233,336 242,667 308,636 258,546 303,932 1.3% Fixed Assets - 19,785 20,459 20,000 20,000 - 0.0% Internal Services Charges 2,535,472 2,626,497 2,591,332 2,629,224 2,629,224 2,563,404 11.0% Total Expenditures 19,203,452 19,389,791 20,887,806 22,858,195$ 21,641,887$ 23,208,565$ 100% Streets CIP 1,305,000 1,319,000 1,037,866 1,560,000 1,560,000 905,500 Park & Trails CIP 75,000 420,000 100,000 1,495,000 1,495,000 845,000 Facilities CIP 190,648 - 653,000 375,000 375,000 500,000 Admin & Technology CIP 50,000 133,909 50,000 75,000 75,000 110,000 CIP Reserve Transfers 1,620,648$ 1,872,909$ 1,840,866$ 3,505,000$ 3,505,000$ 2,360,500$ General Fund Transfers Transfer to Street CIP - - - - - - Total General Fund Transfers -$ -$ -$ -$ -$ -$ Total Transfers Out 1,620,648 1,872,909 1,840,866 3,505,000 3,505,000 2,360,500 Total Expenditure & Transfers 20,824,100 21,262,700 22,728,672 26,363,195 25,146,887 25,569,065 Net Operations 1,764,343$ 3,869,760$ 3,441,797$ 290,971 1,455,727 160,747 OPERATING USES OPERATING SOURCES GENERAL FUND SUMMARY DRAFT PROPOSED 5/8/2020 Attachment B 7 Revenues Expenditures Source (Use)Estimated Fund Balance && of Fund Balance Fund Category July 1, 2020 Transfers In Transfers Out Fund Balance June 30, 2021 Operating Funds General Fund Reserves Environmental Services 113,182$ -$ -$ (50,000)$ 63,182$ Hillside Stability 1,000,000$ - - - 1,000,000 Capital Projects 1,864,134$ - (2,360,500) 955,727 459,361 Facility Reserve 3,200,000$ - - 500,000 3,700,000 Carryforwards -$ - - - - Working Capital 1,000,000$ - - - 1,000,000 Fiscal Stabilization 3,150,000$ - - - 3,150,000 LLD Reserve 844,774 - - (844,774) - Compensated Absences 249,620$ - - - 249,620 Other Unassigned 1,955,727$ 22,474,538 (23,208,565) (560,953) 660,747 Total General Fund Reserves 13,377,437$ 22,474,538$ (25,569,065)$ -$ 10,282,910$ Special Revenue Funds Landscape & Lighting Districts 767,379$ 512,131 (507,457) - 772,053 Total Special Revenue Reserves 767,379$ 512,131$ (507,457)$ -$ 772,053$ Internal Service Funds Liability/Risk Management 534,895$ 511,362 (774,764) - 271,492 Workers Compensation 246,803$ 185,000 (220,910) - 210,894 Office Support Services 118,378$ 25,000 (69,250) - 74,128 IT Services 357,167$ 666,000 (750,083) - 273,084 Vehicle & Equipment Maintenance 270,119$ 275,000 (268,800) - 276,319 Facility Maintenance 625,213$ 900,000 (956,382) - 568,831 Vehicle & Equipment Replacement 534,596$ - (250,825) - 283,771 IT Equipment Replacement 527,343$ 150,000 (252,100) - 425,243 Facility FFE Replacement 180,056$ 200,000 (350,000) - 30,056 Total Internal Service Reserves 3,394,569$ 2,912,362$ (3,893,114)$ -$ 2,413,817$ Total Operating Funds 17,539,385$ 25,899,031$ (29,969,636)$ -$ 13,468,781$ Debt Service Funds 2001 Series GO Bond 820,170$ 772,250 (844,635) - 747,785 2018 Arrowhead CFD Bond 300,878 152,460 (356,650) 96,688 Total Debt Service Funds 1,121,048$ 924,710$ (1,201,285)$ -$ 844,473$ Trust & Agency Funds West Valley Clean Water JPA 581,759 985,916 (980,916) - 586,759 Arrowhead Project Fund 408,605 - - - 408,605 Total Trust & Agency Funds 990,364$ 985,916$ (980,916)$ -$ 995,364$ Total Operating Budget 19,650,798$ 27,809,657$ (32,151,837)$ -$ 15,308,618$ Capital Improvement Funds Street Projects 737,769 4,512,523 (5,250,292) - - Park & Trail Projects 1,214,750 1,448,649 (2,648,004) - 15,395 Facility Projects 671,541 620,000 (1,256,542) - 35,000 Administrative & Tech Projects 205,449 240,000 (445,449) - - Total Capital Improvement Funds 2,829,509 6,821,172 (9,600,286) - 50,395 Total Operating & Capital Budget 22,480,307$ 34,630,829$ (41,752,123) -$ 15,359,013 DRAFT PROPOSED TOTAL FUND ACTIVITY SUMMARY FY 2020/21 5/8/2020 Attachment C 8 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 11 Formatted: Font color: Background 1 FISCAL MANAGEMENT POLICY STATEMENTS The City of Saratoga With both a general management philosophy and Council goal to practices fiscal responsibility, the City of Saratoga’s through conservative and cautious financial management is achieved through responsible, and cautious, sustainable, and enforceable fiscal policies and internal controls to ensure prudent and efficient use of resources. PThese policies and controls represent long -standing accounting, budgeting, debt, investment, and reserve principles and practices, and are the foundation upon which the City maintains its fiscal stability prepares its Long- Term Financial Plan. Saratoga’s general fiscal management policy statements provide a summary overview of financial, operational, and budgetary management, in one comprehensive centralized format to act as guidelines and to assist elected officials and staff with understanding the City’s financial practices for fiscal operations. Detail level fiscal policies are administrative in nature and therefore not included in the budget document. However, fiscal policies that rise to Council review and impact budgetary decision making approval standards at a more specific level are incorporated into the budget document for annual adoption by Council. Currently this includes the Fund Balance Reserve Policy and the Capital Project Process Policy which follows this section. Other Council defined policies will be added as directed/approved. The Summary Fiscal Management Policy Statements in this document are organized into the following categories: • General Financial Principles • Appropriations and Budgetary Control • Auditing and Financial Reporting • Capital Improvement Planning • Development Related Financial Policies • Expenditures and Purchasing • Fixed Assets and Infrastructure • Internal Service Funds • Investments • Long-Term Debt • Long-Term Financial Planning • Pension Funding • Revenues • Risk Management • Treasury Management • Trust & Agency Policies • User Fees GENERAL FINANCIAL PRINCIPLES • The City shall ensure prudent financial practices are incorporated into operational procedures to ensure fiscal integrity and safeguard the City’s assets. • The City’s fiscal policies are structured to ensure fiscal responsibility, accountability, transpar ency, and efficient use of resources. Fiscal policies are to be reviewed, updated, and refined as necessary, with general policy level decisions brought to City Council for review and approval as Council Policies, and administrative and operational level functions approved by the City Manager as Administrative Policies. • Proposed revisions to the Fiscal Management Policy Statements and Council Policies are reviewed by the Finance Committee and then provided to the entire City Council at the annual Council Retreat. Council members are asked to provide comments and concerns regarding or suggestions for revisions to the Mayor or City Manager Administrative Services Director at least two weeks prior to the budget study session to clarify or include on the agenda. • The City’s primary long-term financial goals areseek to maintain the City’s fiscal health, preserve essential services, reduce financial risk, and support short and long -term administrative, financial, and operational goals in a financially judicious manner. Long-term financial and infrastructure planning and the annual adoption of a structurally balanced budget provides the foundation to these long -term financial goals. The City shall promote Formatted: Pattern: Clear Formatted: Pattern: Clear Attachment D 9 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 12 Formatted: Font color: Background 1 and implement strong internal financial controls to manage risks and monitor the reliability and integrity of financial transactions and operational activities. • Financial information shall be provided in a relevant, thorough, and timely manner, to effectively communicate the City’s financial status to the Council, citizens, employees, and all other interested parties. • Financial stability goals and judicious responsiveness shall be the foundation upon which proactive and advantageous financial decisions are made, and which guide the City’s response to local, regional, and broader economic changes through the years. • The City shall undertake, adopt, and integrate new initiatives or programs in a cautious, well planned manner to support the City’s long-term ability to maintain its essential services and infrastructure at the same level and quality required by its citizens. • The City Council’s financial, operational, and community goals, objectives, and policies are incorporated into and implemented with the development and adoption of the City’s Operating and Capital Budgets. • Efforts will be coordinated with other gover nmental agencies and joint power associations to achieve common policy objectives, create beneficial opportunities and services for the community, share the cost of providing governmental services, and support legislation favorable to cities at the state a nd federal level. • The City will seek out, apply for, and effectively administer federal, state, local, foundation, business, and private grants which address the City’s current priorities and policy objectives. • The City shall develop and incorporate long -term financial planning tools into operational practices to promote strategic analysis and prioritization of financial resources in decision making. Strategic operational masterplans shall incorporate infrastructure purpose and use, current and future needs, infrastructure maintenance, repair, and/or replacement schedules, funding, and other related issues for consideration. • All City infrastructure should be tracked through inventorying all current assets, location, program responsibility, asset costs and lifespan, Replacement timelines, maintenance schedules, and funding needs and availability are integral to establishing a broader capital improvement plan. Future infrastructure needs and funding plans Long- term perspectives Infrastructure (Roadway infrastructure, bridges, retaining walls, storm drains, streetlights, etc.), Parks Vehicles, Equipment, Facility Fixtures and Equipment, and Technology infrastructure should all have inventory Assets, APPROPRIATIONS AND BUDGETARY CONTROL • The City Council shall adopt an annual balanced operating budget and the first year of an integrated five -year capital improvement plan budget by June 30th of each year, to be effective for the following fiscal year running from July 1st through June 30th. Balanced budgets present budgeted sources in excess of budgeted uses. Budgeted “Sources” include Revenues, Transfers In, and Appropriated Uses of Fund Balance. Budgeted “Uses” include Expenditures and Transfers Out. Operating and Capital Budgets are to align with the City’s long -term financial goals. • Each year the Finance & Administrative Services Department provid es a short recap of the prior-year budget, a mid-year budget status report, and an updated five-year financial forecast to the City Council at the Annual Council Retreat (scheduled in late January or early February ) to assist Council with formulating direction for long-range fiscal planning, oOperating Bbudget development, and capital funding appropriations. • Budgets are prepared on the same basis of accounting used for financial 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 (Custodial Funds) are budgeted under the accrual basis of accounting. Formatted: Space After: 6 pt, Tab stops: Not at 0.3" Commented [MF1]: Attachment D 10 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 13 Formatted: Font color: Background 1 • The Operating Budget is primarily funded with current year revenues. Dedicated fund balance reserves, such as the Carryforward or Fiscal Stabilization Reserves represent prior- year savings designated for specific uses, which may be used to fund current year operational expenses, in accordance with their purpose, upon Council approval. Council may also approve the use of long-term debt for operational liabilities if they deem it fiscally prudent. • With funding for other committed reserves already in place, Additionally, a minimal base amount of $500,000 is to remains in the Unassigned Fund Balance Reserve at year-end to provide the first layer of fiscal protection a buffer for unanticipated operational shortfalls or and unforeseen needs in the following fiscal year. • The Capital Budget is funded with both prior- year surplus funding and dedicated capital funding resources. Dedicated funding sources include Gas Tax (HUTA) revenues, VTA Measure B funding, road impact assessment revenues; project revenues and reimbursements; community benefit assessments; and federa l, state, local, and private grants. • In practice, budgeted revenues are conservatively stated, and budgeted expenditures are funded at the full level required to meet comprehensive allowing for the annual operational and capital improvement goals to be completed. With effectively managed revenue streams and efficient use of resources, fiscal year -end operational budget surpluses are typically available to fund future capital improvement projects and contribute to the City’s fiscally responsible reserve accounts. • 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 carried forward by appropriation in the following fiscal year’s budget. Capital Budget appropriations are structured as a multi -year workplan; therefore, project expenditure balances are automatically carried forward to the following fiscal year as part of the annual budget adoption until funding is exhausted, modified, or the project is completed. • The City’s adopted budget shall comply with State law that limits annual budget expenditures to the annual determination of the City’s appropriation limit calculated in accordance with Article XIIIB of the Constitution of the State of California. Known as the Gann Limit, the City Council and adopt an annual resolution to this effect. • The City Manager is authorized to implement the City’s workplan as approved in the adopted budget. Within a specific fund, the City Manager has the discretion to adjust appropriations between categories, depart ments, programs, and projects as needed to effectively operateimplement the adopted budget, provided no change is made to the the fund’s total appropriation amount is not provided for any one fund changed. An example would be to backfill a vacant salaried position with a contract service, therefore shifting budgeted funds from wage and benefit appropriations to an operating expense expenditure within the Operating Expense General Fund appropriations. The City Manager also has the authority to withhold filling the position for a time if conditions warrant a delay. • Generally, recurring expenditures are funded with recurring revenues , or with revenues specifically designated for operational use. One-time expenditures may be funded with one-time revenues or fund balances reserves. Fund balance reserves are to be used for non-recurring one-time expenditures and capital projects. • In compliance with Council’s Fiscal Stewardship goal, fiscal stability and sustainability principles are incorporated into budget planning. Appropriating adequate funds on an annual basis for the replacement and maintenance of assets through Internal Service Funds, pr ioritizing infrastructure maintenance and repair in the capital budget, and institutionalizing prudent payment strategies for long -term liabilities are foundational strategies of fiscal stability and sustainability. • The City Council appropriates $50,000 annually to a ‘Council Discretionary account’ to provide Council with funding for unplanned expenditures. Council direction and consensus approval is required to utilize these funds. Unexpended Council Discretionary appropriations are carried forward into the following fiscal year. • Attachment D 11 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 14 Formatted: Font color: Background 1 • In FY 2014/15 CalPERS notified the City that the City’s Unfunded Accrued Liability obligation of $7.7 million (as of 6/30/2015) was to be repaid over a thirty (30) year payment plan. In accordance with the City’s responsible fiscal stewardship objective, approximately 43% of the outstanding liability was immediately paid from current year net operations and expendable reserve funding to significantly reduce the financing portion of the obligation. Council also established an alternative repayment policy to contribute an annual amount approximately equal to the annual amount due at the five-year mark to both lower the overall total long -term cost of the liability and to stabilize the annual payment. This is expected to shorten the payment period to approximately 15 years and maintain fiscal stability into the future. Subsequently, CalPERS revised their UAL estimates significantly as a result of actuarial changes and further investment losses. The City’s UAL grew significantl y necessitating an increase in the annual UAL excess contribution amount from $500,000 to $750,000 effective FY 2017/18. Then, as a result of CalPERS making further discount rate revisions, Council again increased the annual UAL contribution amount effective FY 2018/19, bringing the total budgeted annual payment to $1,000,000 in the effort to continue the accelerated payoff schedule. • The City Council appropriates $50,000 annually to a ‘Council Discretionary account’ to provide Council with funding for unplanned expenditures. Council direction and consensus approval is required to utilize these funds. Unexpended appropriations are carried forward into the following fiscal year. • In recognition that many planning and building services are provided primarily for individual and monetary benefit rather than for the community’s benefit, the Community Development Department sets planning application and building permit fees to recover full cost of the service provided. A number of services provided by the department are not fee based, hence the department overall is not full -cost recovery based. AUDITING AND FINANCIAL REPORTING • California State statutes require an annual financial audit of the City’s financial records a nd transactions by independent Certified Public Accountants. The City shall comply with Generally Accepted Accounting Principles (GAAP) and produce annual financial reports pursuant to Governmental Accounting, Auditing, and Financial Reporting (GAAFR) guidelines. The independent auditor will issue an audit opinion to be included in the City’s Comprehensive Annual Financial Report (CAFR) testifying to the financial report’s conformance with accounting principles. • Additional financial reports issued by th e Auditor’s may include: Singe Audit Report (annual report of federal grant expenditures if in excess of the federal single audit limit is expended in a fiscal year), a Transportation Development Act (TDA) report (annual report of TDA fund expenditures), an Appropriations Limit review report (to establish tax revenue appropriation limit), and a Management report on the City’s Internal Controls. • The City shall submit the CAFR to the Governmental Finance Officers Association (GFOA) Financial Reporting Program each year for review, and if in compliance with the program’s requirements, apply to receive an award for meeting GFOA’s financial reporting standards. • Regularly scheduled external Financial Reports include the following:  State required Annual Cities Report and Annual Streets Report completed in conjunction with the year - end close  State required Annual Debt Transparency Report for any debt issued after January 21, 2017  California Debt and Investment Advisory Commission’s (CDIAC) Mello-Roos Community Facilities District (CFD) Fiscal Status Report for CFD bond debt  Quarterly SMIP (Seismic Motion) fee reconciliation reports; CASp (ADA Acc essibility) reconciliation reports: and California Building Standard Commission (green building standards) reconciliation reports  Quarterly Use Tax Reports to remit uncollected sales tax to the State Board of Equalization  SB90 Mandated Cost reports for claims to comply with State regulated legislation  Annual UST Certification report to show fiscal responsibility for the City’s underground storage tanks Formatted: Highlight Formatted: Indent: Hanging: 0.21", Space After: 2 pt Attachment D 12 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 15 Formatted: Font color: Background 1  Annual Possessory Interest Report submitted to the County’s Assessor’s Office to report City owned leased property • Regularly scheduled internal Financial Reports include the following:  Weekly check registers and monthly Cash and Investment Treasurer Reports are submitted for review and approval at City Council meetings.  Quarterly financial reports provide a status update on General Fund revenues and expenditures for the first, second, and third quarters.  A mid-year budget status report is presented to City Council in February each year to provide a comprehensive financial overview of the current year’s bud get and to propose recommended budget adjustments as appropriate.  A year-end financial recap is provided after the City’s annual financial audit is completed. CAPITAL IMPROVEMENT PLANNING • The Capital Improvement Plan is an ongoing process through which the City identifies, prioritizes, and develop s a multi-year workplan for major capital expenditures and their associated funding sources, in the effort to improve and maintain the City of Saratoga’s roadways, parks, and facility infrastructure. Non-infrastructure projects may also be included in the CIP under the Administrative & Technology programs if they are one-time, operational efficiency, technology, or multi-faceted administrative projects. • Generally, CIP improvements are major expenditures that have a multi -year life span and result in becoming City assets. The City’s standard definition of a Capital Improvement Plan project is for the construction, acquisition, rehabilitation or non-routine maintenance work that generally costs $25,000 or more with a useful life of at least 5 years at a fixed location. The City also includes projects under $25,000 if they include staged or ongoing improvement projects, or if they are significant multi-year projects. • Capital Planning is developed and prioritized through infrastructure and operational assessments of asset maintenance plans, urgent mitigation needs to prevent structure or system failures, health and safety issues, federal or state mandates, availability of city and external funding, efficiencies, impacts if project not completed, business or community input/demand, and short-term vs long term cost of replacement considerations. • The Capital Improvement Plan includes funded capital improvement projects planned for completion in the next five years, with cost estimates based on current year dollars. Project estimates are updated as needed, due to price changes, design specifications, or project scope adjustmen ts. • Departmental staff research and prepare project proposals for review by Department Directors. Directors meet with the City Manager to identify and collaborate on approved proposals. Additionally, City Council members propose projects which staff also research and prepare project proposals. Finalized project proposals are brought to Council for review. Council then collectively directs which project proposals are to be funded and included in the following year’s proposed Capital Improvement Plan budget. Council also determines if a proposed project is put on the Unfunded Project List and brought back the next year for consideration, or if a project is rejected. • TheA five-year Capital Improvement Plan (CIP) is updated annually in conjunction with the operating budget. The CIP reflects the current and changing needs of the community as well as enhancements to improve the quality of the community. The first year of the CIP funding is adopted annually to authorize current year appropriations, which includes any remaining funds appropriated in the prior year ’s CIP. . • The CIP is categorized into programs by project type. The four programs includeare: Street Improvements, Park & Trail Improvements, Facility Improvements, and Administrative & Technology Improvements. Formatted: Indent: Hanging: 0.21", Space After: 2 pt Attachment D 13 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 16 Formatted: Font color: Background 1 • All projects within the CIP programs are appropriated, managed, and tracked as separate funding entities, with separately, and each project’s financial status is reported on a monthly basis in the Treasurers Report. • Project updates are recorded in the annual Capital Budget, with narrative, timeline, and financial summary information updated with each published budget document. • Capital improvements that specifically benefit a select group of users and/or are fee -for-service based are to be financed through user fees, service charges, special assessments and taxes, or development impact fees. • The City shall identify and dedicate capital improvement related funding directly to the CIP and to maximize the use of grant funding for capital improvement projects. • Grants, insurance, or other reimbursement funding is to be returned to the expenditure’s funding source, unless otherwise directed by Council. For instance, Hillside Reserve funded projects that receive insurance reimbursement payments are to be returned to the Hillside Reserve, and grant reimbursements for projects funded through the CIP Reserve are to be returned to the CIP Reserve when payment is received. • After completion of the prior year’s audit and the General Fund’s priority funding requirements are met, the remaining net operations are moved into the Capital Project Reserve at year end. Use s for of the Capital Project Reserve fund for the subsequent fiscal year is reviewed at Council’s Annual Retreat in late January/early February, with and preliminary allocation direction voted upon given by consensus of the City Council at a follow-up the AnnualBudget Study Session in March or April. This direction is presented at the Proposed Budget Hearing in late May or early June, with Council Retreat. Final CIP funding direction is determined provided by Council with Bat budget Aadoption in June. • Council has designated the following capital projects as fundamental to maintaining City infrastructure on an ongoing basis, and shall therefore have priority status for available Capital Improvement Reserve funding: The below funding allocations are guidelines to shall bbe reviewed by Council for final CIP bBudget direction each fiscal year:  $2500,000 – Annual Infrastructure Maintenance & Repairs (for Sidewalk , Storm Drains, Curb & Gutter, and Bridge Maintenance)  $2100,000 – Annual Retaining Wall Maintenance Parks, Trails, Grounds & Median Replacement & Repairs Project  $100,000 – Annual Parks, Trails, Grounds & Median Replacement Funding  $ $ 7550,000 – Roadway Safety and Traffic Calming  $ 50,000 – Risk Management and Mitigation Projects  $100,000 – Annual Parks, Trails, Grounds & Median Project$ 25,000 – City Art Program • The Annual Roadway Maintenance and Repair (ARM&R) CIP project is the primary CIP project funded in support of Council’s goal to maintain Saratoga cit y streets at an average 70 PCI rating. On occasion, separate street specific resurfacing projects are established that due to funding requirements; they also contribute toward this goal. In FY 2016/17, Council established The a $2 ARM&R project was originally established with a $1 million minimum annual funding goal. Funding comes primarily from dedicated Gas Tax Revenue and Solid Waste Services contract assessed Vehicle Impact Fees. However, after decreases in the PCI, Council has established a new goal of $2 million annually with the FY 2016/17 budget. Council is to consider this goal in conjunction with funding requests during the CIP budget discussion each year. This CIP project shall encompass roadway repairs, resurfacing, and rehabilitation projects, traffic light, curb and gutter, and other miscellaneous repairs, striping and signage, and assorted street materials and supplies. DEVELOPMENT RELATED FINANCIAL POLICIES • Most planning and building services are provided for business and individual benefit rather than for the general community’s benefit. As such, the Community Development Department planning application and building Formatted: Indent: Left: 0.5", Bulleted + Level: 2 + Aligned at: 0.75" + Tab after: 1" + Indent at: 1" Formatted: Indent: Left: 0", Hanging: 0.21", Space After: 6 pt, Add space between paragraphs of the same style Attachment D 14 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 17 Formatted: Font color: Background 1 permit fees are established at rates to recover the full cost of the service provided. However, a number of services provided by the department are not fee based (code compliance, event permits, etc.), hence the department overall is not full-cost recovery based. • The Williamson Act, also known as the California Land Conservation Act, was passed by the California Legislature in 1965 to encourage rural & agricultural land owners to keep their land undeveloped. When land owners enter into a contract under the act, they benefit from lower property taxes, which are based on the property’s current use, rather than paying market value-based tax rates. In exchange, the property is to remain undeveloped and continue to function in the same manner for the duration of the contra ct. Contracts are valid run for 10 years and are automatically renewed unless the farmer or rancher cancels it. The City does not limit the number of Williamson Act contracts entered into each year. • The Mills Act is State-sponsored legislation granting local governments the authority to enter into an agreement with property owners to allow reduced property tax payments in return for the restoration and continued maintenance of their historic property. The property must be privately owned and on a local, state, or national register of historic places. After the initial 10-year contract expires, the contract may extend one year annually unless either party elects to non-renew. Since the agreement reduces the property tax assessment, the City receives a smaller share of property tax revenue in comparison to a property that is assessed at market value. Per State law, the County Assessor is required to recalculate each individual property’s tax assessment each year, based upon a variety of stated market factors. This results in reductions that are specific to each property, with some benefiting more than others. The City will allow approval of up to three Mills Act Contracts per year. • EXPENDITURES AND PURCHASING • All expenditures shall be in accordance with the City’s purchasing policy, travel policy, credit card policy, contract policy and public contract code, state or federal law, or any other applicable guidelines or regulations. • 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, service reductions, or with Council approval, budget adjustments to increase the program budget. , or service reductions. • The City’s current purchasing policy establishes purchasing authority levels, purchasing procedures, and procedural 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 governed by the State’s Public Cont ract Code are excluded from provisions of the City’s purchasing policy. • Guidelines established by the City’s Purchasing Policy directs the City’s departments to purchase the best value obtainable, securing the maximum benefit for funds expended, while providing all qualified vendors an equal opportunity to do business with the City. • Services and supplies purchases that exceed $5,000 require written quotes, and must be approved by the Purchasing Officer or designee, typically through the Purchase Order process. Documentation is to be retained by the department in accordance with the rRecords rRetention pPolicy and schedule. • Services, supplies, and fixed asset purchases exceeding $25,000 must be authorized by the City Council, unless purchase is specifically identified as approved called out in the adopted budget or excluded under the Purchasing Policy. Formatted: Font: 9 pt Formatted: Indent: Left: 0.21", No bullets or numbering, Tab stops: Not at 0.39" Attachment D 15 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 18 Formatted: Font color: Background 1 • City departments shall conduct quarterly program and capital project reviews to determine if projected operating revenues and expenditures meet budgeted expectations. If an operating deficit is projected to occur at year-end, the departments shall evaluate and implement corrective actions as needed, and notify Council before services will be impacted. FIXED ASSETS AND INFRASTRUCTURE • Tangible assets with a cost equal to or greater than $10,000 and a useful life of more than one year are considered fixed assets and added to the capitalization schedules. Repairs and maintenance of infrastructure assets will generally not be subject to capitalization unless the expenserepair 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, and through Internal Service Fund programs to both maintain and replace operational infrastructure, such as City buildings infrastructure, fixtures, and equipment, vehicles, and public works equipment, and technology related equipment on an ongoing basis • A Capital Asset system will be maintained to identify all City assets, their condition, historical and estimated replacement costs, and useful life. Asset information is re tained to provide information for preparation of financial statements in accordance with GAAP and, with emphasis placed on compliance with completion of GASB 34 requirements. • Infrastructure management systems are to be developed and maintained to provide long-term range financial and operational planning. These shall include various rRoadway sSystem management programs, sStorm dDrain sSystem management plans, bBridge replacements, sStreet sSignal sSystem replacements, and all other infrastructure categories that require significant financial resources to fund the eventual replacement needs. • Information Technology software, hardware, and auxiliary equipment and system assetss are tracked and funded to be maintained through the Operating Budget’s Internal Service Replacement Fund, whereas annual appropriations in the Information Technology Services program budget operating budget or departmental program budgets are to funds most ongoing license, maintenance, and security costs. • indebtedness to an aggregate 15% of the assessed value of all real and personal property of the City. INTERNAL SERVICE FUNDS • Internal Services Funds are established to both equitably allocate operating costs to departments for support and maintenance services, and to stabilize and spread the City’s replacement and operational costs over fiscal years for the purpose of providing an accurate and balanced long -range fiscal perspective of the use of services and assets. • Vehicles, Equipment, and Building asset replacement and maintenance types of Internal Service Funds are structured to provide a consistent level of funding for asset and equipment replacement, and to ensure sufficient funding is available for the regular maintenance, repair, and replacement of the City’s vehicles, equipment, and building fixtures in an ongoing manner. • Technology and Office Equipment replacement and maintenance Internal Service Funds are structured to provide a consistent level of funding for the replacement of assets and projects, and to appropriately distribute support and maintenance costs to City departments. • The Liability and Workers Compensation Insurance Internal Service Funds shall 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. Attachment D 16 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 19 Formatted: Font color: Background 1 • Each Internal Service Fund will set recovery charges at rates sufficient to meet all operating expenses, depreciation, and fund balance reserve policy objectives. • indebtedness to an aggregate 15% of the assessed value of all real and personal property of the City. INVESTMENTS • The City maintains a detail-level Council approved Investment Policy that outlines the goals of fiscal security and investment risk levels allowed to achieve the City’s stated security restrictions and investment objectives. The Investment Policy is brought to Council for review and adoption each year, just prior to the begin ning of the fiscal year. • The policy shall comply with the State’s California Debt and Investment Advisory Commission (CDIAC) guidelines for the practice of public finance. • Fund Reserves and excess operational funding reside in the State managed Local Agency Investment Fund (LAIF) unless expressly approved by the City Council’s Finance Committee to invest in other vehicles approved in the City’s Investment Policy. • The City’s Finance & Administrative Services Department shall oversee Treasury functions and submit a monthly Treasurer’s Report to report on City funds , investments, and interest earnings. LONG-TERM DEBT • The City maintains a Council approved Debt Policy to provide clear direction on debt issuance. Existing debt shall comply with all legal and reporting requirements to ensure the City is in compliance with State regulations, GASB guidelines, and transparency efforts. • The City shall seek to maintain a high credit rating through sound financial practices as a foundational financial objectivepractice, in order to obtain the lowest possible borrowing cost, and maintain financial responsiblityand to maximize borrowing costs. • The City does not incur debt for operation al purposess or capital improvements as a standard practice. except uUnder extraordinary circumstances, the City may seek and with citizen support. Under these circumstances the City will seek voter approval for General Obligation (GO) Bond Debt for city-wide major infrastructure rehabilitation, or through Community Facility District Bonds for specific community desired infrastructure improvements. • Long-term Financing Debt is typically incurred for capital improvements or special projects that cannot be financed from current or dedicated revenues, or for large liabilities resulting in significant financial impacts. In principal, long-term debt 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. • Through City Council approval, the City may function as a bonding conduit for special assessment districts. This may occur when a neighborhood or distinct area is seeking to improve private or cooperatively owned infrastructure, such as private roads or water system cooperatives. A special district may also be established to improve publicly owned infrastructure, such as a neighborhood park or a parking lot. • For special district debt offerings, tThe City shall require full liability protection and cost recovery as necessary to protect the City and mitigate the cost associated with such actions. • The term for repayment of long-term financing shall:l not exceed the expected useful life of the project or extend beyond functionally appropriate payment terms. Additionally, ; include financing payment terms must be Formatted: Space After: 6 pt, Add space between paragraphs of the same style Formatted: Font: Not Bold Formatted: Space After: 6 pt, Add space between paragraphs of the same style, Pattern: Clear Formatted: Space After: 6 pt, Add space between paragraphs of the same style Attachment D 17 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 110 Formatted: Font color: Background 1 established at a manageable funding level or reasonable assessment level; and, does not extend beyond functionally appropriate payment terms. • The City shall monitor all forms of debt in conjunction with budget development throughout the year , and will report concerns and remedies if necessary to the City Council if needed. • The City will ensure compliance with bond covenants, providing financial information to reporting parties as required under the terms of the contract or State lawnecessary. • The City will comply with Government Code Section 43605 limitations on debt, which limits general obligation indebtedness to an aggregate 15% of the assessed value of all real and personal property of the City. LONG-TERM FINANCIAL PLANNING • City policy is to develop, build upon, and incorporate long-term financial planning processes into a comprehensive plan that provides Council, staff, and the public with the resources to understand issues impacting the City’s financial condition, and the t ools with which to make informed decisions. • The City’s Long-Term Financial Plan (LTFP) is to ultimately include various analyses and documents that support financial planning efforts, including a financial forecast and analysis, fiscal policies, revenu e descriptions and trend analysis, an annual pension review, the City’s Strategic Plan, the Capital Improvement Plan and funding analysis, Information Technology Strategic Plan, and numerous asset and infrastructure master plans. While the financial trend analysis and forecast is the foundation of the LTFP, the entirety of the various documents provide a comprehensive outlook on many operational fronts. • Long-Term Financial Planning is an ongoing event that begins at the Council Retreat to review Strategic Plan goals and the current financial situation at the mid-year point, and as the starting point for the following years budget process. Trends, critical or concerning issues, policy changes, new initiatives and priorities, new resource requirements, and potential impacts and opportunities a re reviewed, and financial projections for the future are presented. Direction is compiled into the following year’s budgets, and plans are updated throughout the year, as needed. • Council shall review a General Fund revenue, expenditure, and financial position forecast of at least five- years, to garner a longer-term perspective of current fiscal expectations and fairly reliable projected fiscal impacts so as to anticipate or mitigate operational changes for the near future. Because funds other than the General Fund are both specific and limited in nature, they are not currently included in the annual review. However, staff shall assess the funds and incorporate any items of concern into the forecast discussion. • Revenues shall be described, documented, and properly classified with historical trend analysis and known upcoming impacts built into forecast projections. Projections should be conservative , with those revenues of a more volatile nature projected with a greater conservative weight than those known to be consistent and dependable. Additional factors, such as unsustainable growth, shall also be identified and folded into the projections with caution. • Expenditures are classified by category in summary, but forecast by individual programs application in detail. This methodology allows for greater specificity and accuracy in workplan expectations, while providing a broader view of trends. These trends are utilized for longer perspectives in the forecast analysis, strategic planning, asset management, capital prioritization and funding decisions, and funding gap analyses within the LTFP. • A Reserve Analysis is conducted to review and recommends appropriate levels of reserves per the needs of the reserve purpose, the priority of the reserve over other needs, and compliance with GFOA recommendations and legal requirements. Formatted: Font color: Auto Formatted: Pattern: Clear Formatted: Space After: 6 pt, Add space between paragraphs of the same style, Pattern: Clear Formatted: Font: Not Bold Formatted: Font: 10 pt Formatted: Font: 10 pt Formatted: Font: 10 pt Formatted: Font: 10 pt Formatted: Font: Bold Formatted: Font: Bold Formatted: Font: Not Bold Formatted: Pattern: Clear Formatted: Font color: Auto Attachment D 18 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 111 Formatted: Font color: Background 1 PENSION FUNDING • In the pursuit of prudent fiscal practices and long-term financial sustainability, the City seeks to mitigate the overall cost of pension benefits, and prior year liabilities. Several strategies are utilized, which includes lower tier pension benefits, lump sum prepayments, and accelerated payments. • The City has three Miscellaneous Employee Pension Plan tiers:  Tier I for employees hired up to May 12, 2012  Tier II for employees hired on/after May 12, 2012, and “Classic” employees hired on/after January 1, 2013  Tier III/PEPRA, for employees entering into the CalPERS pension plan system on/after January 1, 2013 Tier I provides a 2% at 55 pension benefit. Tier II provides a 2% at 60 pension benefit. Tier III/PEPRA provides a 2% at 62 pension benefit. • In FY 2014/15, with CalPERS change to their pension funding methodology, Council paid off a large portion of the UAL liability, and then established an alternative to CalPERS 30-year repayment policy to contribute an annual amount approximately equal to double the minimum Annual Required Contribution (ARC) due at the five- year mark. The intent was to lower the overall cost of the liability , but also to shorten the payment period to 15 years and maintain fiscal stability by establishing a set payment amount. Detailed information is provided in the Financial Summaries Staffing Information section. • Council also established a practice to pay Tier II and Tier III UAL amounts in full each year, to eliminate future unfunded liabilities for the growing segments of employees. This amount is minimal each year as the actuarial determined rates are in line with current actuarial factors, until actuarial factors are modified. • The City’s goal is to fund pension liabilities near or at 100% to reduce unfunded liability payments to minimal payments each year. Currently, Tier II and III unfunded accrued liability payments are minimal, if any, and paid in full each year in alignment with this policy, however the Tier I pension unfunded accrued liability is understood to be a long-term goal. • A review of the City’s Unfunded Accrued Liability and CalPERS annual actuarial report will be brought to the Finance Committee for review and analysis each year, along with CalPERS Pension liability projection tools as they become available. • In addition to the City’s policy to reduce the Tier I UAL through additional discretionary payments each year, a 115 Trust may be established to prefund future year’s CalPERS liability payments. The 115 Trust is used to hold dedicated reserve funding in a higher investment-return vehicle, while also setting aside the funds that are designated for recession planning. Council direction will determine when to use th ese funds as part of the annual budget adoption process, or during the course of the fiscal year , if necessary. RECESSION PREPARATIONS • The City shall incorporate preparations for the inevitable future recession in its fiscal and operational practices. This includes prudent and cautious assessment of expansions in ongoing services, diligence in maintaining cost recovery for user services, aggressive funding of fund balance reserves to healthy levels in strong economies, conservative budgeting practices, fiscal frugality, alignment of one-time funding sources and uses, and a continued practice of long-term financial planning. • Education of City finances is vital to knowledgeable financial decision making . Finance staff remain available to all Council Members for one-on-one training sessions and to answer specific finance an d budget questions throughout their tenure on the Council, either spontaneously or scheduled, in person, by phone, or email. • Council’s identification of priority operational services, and Council Priorities as a whole are defined in the Strategic Plan, which is adopted as part of the overall budget plan each year. The Strategic Plan helps to drive long-term planning and operations, and provides guidance in recession decision making whe n needed. Formatted: Space After: 3 pt, Tab stops: Not at 0.3" Formatted: Indent: Left: 0.25", Space After: 0 pt, Bulleted + Level: 2 + Aligned at: 0.75" + Tab after: 1" + Indent at: 1" Formatted: Indent: Left: 0.25", Bulleted + Level: 2 + Aligned at: 0.75" + Tab after: 1" + Indent at: 1", Tab stops: Not at 0.6" Formatted: Indent: Left: 0.25", No bullets or numbering, Tab stops: Not at 0.6" Formatted: Not Highlight Formatted: Not Highlight Formatted: Not Highlight Formatted: Not Highlight Formatted: Not Highlight Formatted: Not Highlight Formatted: Not Highlight Formatted: Tab stops: Not at 0.3" Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Font color: Auto Formatted: Pattern: Clear Formatted: Font: Bold, Font color: Custom Color(RGB(241,23,194)) Formatted: Font: Times New Roman, 10 pt, Not Bold, Font color: Auto, Not Small caps Attachment D 19 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 112 Formatted: Font color: Background 1 • Recession fiscal decisions will ultimately be specific to the unique time period, recessionary causes, and economic environment, but a basic assumption is that recessions will impact the City’s ma in revenue category of Property Tax. Fortunately, this impact is delayed due to the nature of tax assessments occurring before severe impacts are felt, and the subsequent distribution of funding, providing the City time to prepare. More immediate impacts come from development-related services fees, Sales Tax, and Hotel Tax revenue reductions. The advantage of having impacts hit City finances in phases allows for preliminary mitigation steps, and time to plan if more severe mitigation steps are needed. However, this delay also plays out in reverse as a time lag occurs before the City’s finances return to normal. Hence, recession impacts will last a minimum of two years if minor, and (typically) three to five years if more severe. • Overall, financial resources funded during good economic periods are recommended for initial recessionary reductions, such as 1) delaying or reducing funding for Internal Service Fund operations, 2) one-time revenue resources, such as an unexpected payments or excessive net operation funding held for future use, and 3) to reduce expenditures that are included in a budget each year that are not essential to providing services, such as staff conferences or optional consultant services. REVENUES • Revenue funding is designed to ensure services that provide city-wide benefit such as public safety, infrastructure maintenance, and city administration are provided for by general revenue sources such as taxes, intergovernmental revenues, and interest. Services where a customer determines the use, such as for planning services and building permits, are financed through user fees, service charges, and assessments directly linked to the level of services provided. • To provide the Saratoga community with services and maintain infrastructure, ongoing reviews of operations are conducted to assess revenue leakage. If applicable, assessments or charges are pursued, and user fees are implemented for cost recovery. • 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. Funds dDedicated for specific cCapital Pimprovements roject revenues are to be directly accounted for in the appropriate Ccapital project Improvement Plan fund, within a designated project. An example is VTA Measure B Sales Tax is deposited directly to the Annual Roadway Improvement Project in the Street CIP Fund. • A master schedule of User Fees is reviewed and presented to Council on an annual basis to adjust fees to an appropriate level. Operating departments shall review services and the existing fees to ensure discretionary services (not specifically waived or modified) reflect direct and reasonable indirect costs of providing such services. • The City typically establishes user charges and fees at levels that recover the direct and indirect activity cost of providing a service or product. The City also considers market rates and charges levied by other municipalities of similar size for like services in establishing rates, fees, and charges. As some services have partial cost recovery objectives (such as development fees), cost recovery ratios will vary in accordance with policy objectives. • 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. Categories of Revenues include Taxes, Intergovernmental, Fees/Licenses/Permits, Charge for Services, Interest Income, Rental Income, Other Sources, Internal Service Fund charges, and Capital Improvement Revenues. • While a diversification of revenue funding is desired, the City only pursues additional funding streams that are in alignment with the City’s overall goal to support and protect the Saratoga community. The City does not enter Formatted: Font: 10 pt Formatted: Space After: 6 pt, Line spacing: Multiple 1.05 li, Border: Bottom: (No border) Attachment D 20 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 113 Formatted: Font color: Background 1 into profit-making enterprises that service select user groups, but rather seeks to engage in cost -recovery activities or taxpayer-funded services that maintain or enhance the Saratoga community as a whole. • Tax revenues are reliable funding streams, with most tax revenues steadily increasing at a slow but steady pace. Almost 80% of tax revenue comes from Property Tax, with Sales Tax, Franchise Fees, Transient Occupancy Tax, Business License Tax, and Construction Tax making up the remainder . As Property Tax comprises about 44% of Total Operating Revenue, there is a significant dependency on this revenue stream. Hence, the City tracks these revenues closely, and makes budgetary projections and adjustments in line with Property Tax fluctuations. And, with this revenue growth is expected to decrease in future years, the City budgets revenue increases conservatively to help restrain expenditure growth. • City will seek to obtain grants that support the City’s priorities and provide a benefit, however grant requirements are taken into consideration to assess immediate and long-term costs and benefits to the City. Grants are brought to the Council for approval. • • Donations may be accepted in accordance with the City of Saratoga Donation Policy most recently approved by the City Council. Under the current policy, unrestricted donations of $5,000 or less may be accepted or declined by the City Manager. Restricted donations of $500 or less may be accepted or declined by the City Manager. Unrestricted donations of more than $5,000 and restricted donations of more than $500 must be brought to the City Council for consideration. The City Manager may choose to request City Council consideration of any donation, regardless of value. • The City follows a vigilant policy of collecting local taxes and revenues due to the City through persistent fo llow- up procedures, however efficiency of collections is paramount, and external resources are used as needed . An example of this practice is the City’s Business License audit engagement where a consultant is utilized to both educate and ensure companies doing businesses within Saratoga are paying their business license tax. • In FY 2014/15 CalPERS notified the City that the City’s Unfunded Accrued Liability obligation of $7.7 million (as of 6/30/2015) was to be repaid over a thirty (30) year p ayment plan. In accordance with the City’s responsible fiscal stewardship objective, approximately 43% of the outstanding liability was immediately paid from current year net operations and expendable reserve funding to significantly reduce the financing portion of the obligation. Council also established an alternative repayment policy to contribute an annual amount approximately equal to the annual amount due at the five-year mark to both lower the overall total long -term cost of the liability and to stabilize the annual payment. This is expected to shorten the payment period to approximately 15 years and maintain fiscal stability into the future. Subsequently, CalPERS revised their UAL estimates significantly as a result of actuarial changes and fur ther investment losses. The City’s UAL grew significantly necessitating an increase in the annual UAL excess contribution amount from $500,000 to $750,000 effective FY 2017/18. Then, as a result of CalPERS making further discount rate revisions, Council again increased the annual UAL contribution amount effective FY 2018/19, bringing the total budgeted annual payment to $1,000,000 in the effort to continue the accelerated payoff schedule. RISK MANAGEMENT POLICY • The City is insured for up to $25 million of general liability, auto, and property damage claims through a Bay Area Joint Powers Association insurance cooperative (PLAN JPA). Claim coverage consists of up to $5 million from the JPA, and a following $20 million from and an excess insurance provider. for claims in excess of this, up to $20 million. The City is self-insured for the first $25,000 for general liability and auto claims; property damage up to $5,000 and third party auto claims up to $10,000. Formatted: Space After: 6 pt Formatted: Indent: Left: 0.3", Space After: 6 pt, No bullets or numbering Formatted: Font: Lucida Bright, 12 pt, Bold, Font color: Brown, Small caps Formatted: Space After: 4 pt, Line spacing: Multiple 1.1 li, Border: Bottom: (Single solid line, Auto, 0.5 pt Line width) Attachment D 21 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 114 Formatted: Font color: Background 1 • Workers Compensation claims are insured for the first $250,000 of coverage through the City’s p articipation in a Workers Compensation risk pool. After the $250,000 limit is met, an excess insurance coverage policy is activated. The excess coverage provides an employer liability limit of $5 million per occurrence, and workers’ comp per occurrence limit of $100 million. Workers' Compensation claims are managed by the PLAN JPA as a third-party administrator (TPA). • The City’s role in managing both its risk management and workers comp programs is to be preventative in nature which is accomplished thro ugh careful monitoring of losses, working closely with the third -party administrator, participating in training, proactively addressing infrastructure maintenance and potential risks, and by designing and implementing safety programs to minimize risk and reduce losses. • Claims against the City are submitted to and addressed in conjunction with the City’s pooled liability JPA administrator in a timely matter. Responses are carried out Adverse claims are also pursued for restitution. TREASURY MANAGEMENT • The City’s Investment Policy shall be brought to the Finance Committee and City Council for review, discussion, direction, and adoption on an annual basis. California Government Code Section 53600 and City of Saratoga Municipal Code Section 2-20.035 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 meetin g the daily cash flow demands of the City and conforming to all state and local statutes governing the investment of funds. • Finance staff shall exercise due diligence to comply with the Investment Policy. The City currently practices conservative and cautious investment practices by limiting its investments to the State’s Local Agency Investment Fund (LAIF). Certificates of Deposits and high -grade investment vehicles may also be utilized under the Investment Policy, however the Finance Committee will provide oversight, review and direction on any decisions to move a portion of the City’s available funds into these other permitted investments. Administrative Services Department’s Finance Division shall prepare a monthly report to the City Council that has sufficient detail to present the financial condition of the City at month end, the cash and investments balance by fund, and fund balances by fund type. TRUST & AGENCY FUNDS • The City may serve as a Fiscal Agent for an agency organ ization only if the purpose of the agency is related to City operations and is in the best interest of the City. • A legal agreement governing the Trust or Agency relationship is approved by the City Council. • The Trust or Agency organization remains a separate entity from the City and shall not represent itself as a component of the City. • As the Fiscal Agent, the City may hold funds provided by the agency organization in a separate and clearly designated fund. The fund may earn interest at the City’s investment rate. • Depending on the level of services provided to the agency organization, the City may charge for the cost of any and all fiscal services provided. • Depending on the agreement, the City may purchase goods or services on behalf of the agency organization, and/ or disburse funds as directed and permitted by the agency’s by -laws and purpose. However, the City is not liable for any of the agency organization’s debts, liabilities or actions. Formatted: Space After: 6 pt Attachment D 22 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 115 Formatted: Font color: Background 1 USER FEES • The City allows for discretion in the use of general taxes to meet the cost of services tha t provide a larger public benefit, such as code enforcement, and to recover the full or partial cost of services that largely or solely benefit individuals, such as a building permit. • In some cases, fees are established with a goal to discourage the use of a service, such as a false alarm fee that results in the dispatch of a public safety officer. The fee may be structured to accelerate with usage, but allows for a level of leniency initially for this service with the understanding that co st recovery goals are not met. • A master schedule of User Fees is reviewed and presented to Council on an annual basis to allow for the adjustment of discretionary service and rental fees. If an adjustment is needed, a request to increase or decrease the fee is brought to Council as a Public Hearing, and becomes effective 60 days (or later if stated) following approval of the fee adjustment. Typically, fee adjustments are brought to Council in late April for a July 1st effective date, however a stand-alone fee adjustment may be brought to Council at any time thro ughout the year. • The City’s overall goal is to establish user charges and fees at levels that fully recovers the direct and indirect activity cost of providing a service or product. However, market rates and charges levied by other municipalities (of similar size) for like services are taken into consideration when establishing rates, fees, and charges. As some services have partial cost recovery objectives, cost recovery ratios will vary in accordance with policy objectives. Formatted: Font: Lucida Bright, 12 pt, Bold, Font color: Brown, Small caps Formatted: Justified, Space After: 4 pt, Line spacing: Multiple 1.1 li, Border: Bottom: (Single solid line, Auto, 0.5 pt Line width) Formatted: Font: Lucida Bright, 12 pt, Bold, Font color: Brown, Small caps Formatted: Indent: Left: 0" Formatted: Font: 10 pt Attachment D 23 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 116 Formatted: Font color: Background 1 FUND BALANCE RESERVE POLICIES Prudent financial management dictates that the City reserve a portion of its funds for future use to: maintain fiscal stability; ensure the continued orderly operation of government and provision of services to residents; and to mitigate current and future risks. As a general budget precept, the City Council decides when and whether to appropriate available funds to and from a reserve account. Use of reserve funds must be authorized b y either specific direction in the annual budget, or by a separate City Council action – unless specifically directed by policy. Responsible fiscal stewardship also requires adequate reserves be maintained for all known liabilities and established City Co uncil and community directed initiatives. In the following Fund Balance/Reserve Policy guidelines, the descriptions include identification of the fund type and classification, the purpose of the reserve, minimum and maximum funding goals if appropriate, a ppropriate utilization of the reserve and by what authority, and the procedure for funding the reserve initially; on an ongoing basis, or after utilization. FUND BALANCE AND NET POSITION In 2009, Governmental Accounting Standards Board (“GASB”) Statement No. 54 revised fund balance classifications for “Governmental Funds” into five specific classifications of fund balance with the intent to identify the extent to which a specific fund balance reserve is available for appropriation and therefore spendable, or whether the fund balance reserve is constrained by special restrictions. Government Funds for which these new rules apply include: the General Fund, Special Revenue Funds, Capital Project Funds, and Debt Service Funds. For “Non-Governmental Funds”, equity classifications are classified as “Net Position” with sub -classifications of Restricted or Unrestricted Net Position. A third component of a Non -Governmental Fund’s equity is “Net Investment in Capital Assets,” which for Saratoga refers to the non-monetary portion of equity such as vehicles and equipment, net of depreciation. Non-Governmental Fund types include Proprietary Funds (Enterprise and Internal Service Funds) and Fiduciary Funds. GOVERNMENTAL FUND TYPE RESERVE CLASSIFICATIONS The Governmental Reserve classifications are defined as follows, which includes the applicable reserves that fall into the classification. Non-Spendable Fund Balance Represents resources that are inherently non -spendable from the vantage point of the current period. The City does not presently hold Non-Spendable Reserve funds. Restricted Fund Balance Represents fund balance that is subject to external enforceable legal restrictions. The City maintains the following restricted fund balances under this designation: • General Fund: Environmental Services Fund Balance Reserve • Special Revenue Funds: Landscape & Lighting Assessment Districts Fund Balances • Debt Services Fund: Library General Obligation Bond Debt Service Fund Attachment D 24 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 117 Formatted: Font color: Background 1 • Capital Project Funds a) Park in Lieu Funds b) Highway User Tax Allocation Fund (Gas Tax) c) Capital Project Grant Funds Committed Fund Balance Represents fund balance constrained by limitations the government imposes upon itself at its highest level of decision making and remains binding unless removed in the same manner. The City maintains the following fund balances under this designation: • General Fund: Hillside Stability Reserve • General Fund: Facility Replacement Reserve • Capital Improvement Plan Funds: Capital Improvement Project Fund Balance Reserve Assigned Fund Balance Represents fund balance identified by Council for an intended use; however as no legal obligations exist, the funds may be re-designated and utilized for another purpose if Council chooses. The C ity maintains the following General Fund reserves under this designation: • General Fund: Future Capital & Efficiency Project Reserve • General Fund: Carryforward Reserve Unassigned Fund Balance Represents funding which may be held for specific types of use s or operational funding/stabilization purposes, but is not yet directed to a specific purpose. Only General Fund reserves can be designated under the “Unassigned” fund balance classification. Other fund types are by nature structured for specific purpos es, hence the fund balances are therefore considered “assigned” for that purpose. • General Fund: Working Capital Reserve • General Fund: Fiscal Stabilization Reserve • General Fund: Other Unassigned Fund Balance Reserve Fund Balance Ratios To ensure the City maintains available working cash flow and emergency funding at all times, the collective total of the General Fund’s Assigned and Unassigned Reserves shall be sustained at a minimum of 20% of General Fund expenditure appropriations, net of transfers out. GENERAL FUND YEAR-END ALLOCATIONS After the City’s financial records are finalized and audited, with legal obligations and liability reserves funded, revenues in excess of expenditures are closed out to the Other Unassigned Fund Balance Reserve. A b ase amount of funding, as set by budget policy, is to remain in the Other Unassigned Fund Balance Reserve, with the remainder distributed in the following order: 1. Repayment of Fund Balance Reserve loans - back to established levels (e.g. borrowing from/usage of the Fiscal Stabilization or Hillside Stability Reserves). • For the Hillside Stability Reserve, loan repayment shall be made in annual contributions of $100,000 until reserve balance reaches the $1 million reserve goal. • Fiscal Stabilization loan repayments shall be made as directed by Council. 2. Annual contribution of $500,000 to Facilities Replacement Reserve. 3. Remaining funds are allocated to the Future Capital Improvement and Cost Efficiency Projects Reserve. Attachment D 25 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 118 Formatted: Font color: Background 1 GENERAL FUND RESERVES Environmental Services Reserve Under the Restricted Fund Balance classification, the Environmental Services Reserve represents revenues collected under a prior funding structure for environmental purposes, and is therefore restricted for use in funding environmental program costs such as clean water programs, street sweeping, and storm drain cleaning services. Per policy, the Environmental Service Reserve is being utilized through annual budget appropriations of $50,000. The Environmental Services Reserve originated from a one -time funding structural change and therefore will not be replenished when depleted. Hillside Stability Reserve Under the Committed Fund Balance classification, a Hillside Stability Reserve of $1 million is set aside to provide funding for unanticipated or unforeseen emergency or extraordinary costs related to hillside degradation, inclusive of slide prevention and mitigation, slide repair, and associated drainage and roadwork. Use of the reserve requires an analysis be prepared and presented to Council for approval, or in the event of a landslide requiring immediate emergency work, the Public Works Director may direct use of up to 10% of the reserve to make emergency repairs and mitigate further damage until Council takes action. Reserve funding is to be u sed for emergency work which exceeds operational funding provided for in the Operations Budget. Upon use, refunding of the reserve shall be provided from year -end net operations in the amount of $100,000 each fiscal year until the $1,000,000 reserve cap is reached. Facility Replacement Reserve The Facility Replacement Reserve is established to accrue funding for the major rehabilitation or replacement of City Facilities (buildings/structures). Eligible uses of this reserve include both direct funding of public facility improvements, and the servicing of related debt. Small facility building replacements, major facility renovations, and down payment contributions toward a large facility replacement in conjunction with bond measure funding are examples of intended Facility Replacement Reserve uses. An initial contribution of $300,000 was established in FY 2012/13 with Council’s recommendation to continue funding at this level, as a priority use of year -end net operations funding. Effective FY 2016/17, Council’s direction is to increase the annual year-end contribution amount to $500,000, as funding is available. Council has set a goal to fund the Facility Replacement Reserve to a level equal to 1/3 of the City’s insured value over the next 20 years (by FY 2036/37) as a fiscally responsible pra ctice to maintain city infrastructure In principle, Saratoga does not pursue bond money to fund capital improvements, however, replacing high cost facility infrastructure requires a long -term funding plan that may or may not be attainable through annual contributions. Therefore, the Facility Replacement Reserve demonstrates both the City’s good faith funding effort and financial stewardship for future bond measures if needed, as well as accumulating funding for a down payment on replacement infrastructur e to minimize bond funding needs. A facility’s insured value represents the initial cost of the facility decreased each year over the facility’s estimated lifespan. Therefore, insured value represents the remaining life of the facility’s purchase cost – it does not represent the current cost to replace a facility. The City recognizes insured value is not sufficient to fund facility replacements, therefore annual contributions will continue as an ongoing funding obligation even after the 1/3 reserve goal is met. Changes in annual contributions and the reserve goal amount shall be determined by Council during the budget process, in line with changes in the City’s economic situation. Utilization of the reserve shall be brought to Council for discussion and consideration as needed. Attachment D 26 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 119 Formatted: Font color: Background 1 Future Capital & Efficiency Projects Reserve Under the Assigned Fund Balance classification, the Reserve for Future Capital Improvement & Efficiency Projects shall reserve funding for as yet undefined capital and efficie ncy improvement projects. Reserve funding is derived from General Fund accumulated net operations (as available) and is therefore considered a “one -time funding source”. Funds are held in this reserve until Council reviews funding requests and approves a use or transfer to a capital project fund. Use of the reserve funding is at the Council’s discretion, but typically occurs in conjunction with the annual budget adoption after Council conducts a comprehensive review of capital and efficiency improvemen t needs. Reserve replenishment is dependent upon net operational savings in subsequent fiscal years. Carryforward Reserve Under the Assigned Fund Balance classification, the Reserve for Carryforwards represents funding held at the end of each fiscal year for critical unexpended operating budget appropriations to be purchased in the following fiscal year, and any remaining Council Contingency funding. The reserve is reconciled at the end of each fiscal year to both release prior year carryforward funding and reserve current year carryforward funding into the following budget year. Staff determines the year-end reserve amount after all fiscal year payments are finalized; the reserve amount is conceptually appropriated by Council each year in the budget adoption resolution. Working Capital Reserves In accordance with the City’s cautious and conservative fiscal philosophy, the City’s general prevailing financial policy holds that the City should fund daily operations with current resources in o rder to avoid use of short-term borrowing for cash flow management. To support this policy a Working Capital Reserve is maintained that meets cash flow requirements, and in turn, ensures the continuance of services to the public while also preserving the City’s credit worthiness. To provide adequate working capital in the case of extreme circumstances, the City shall maintain, in combination with the Fiscal Stabilization Reserve, a minimum operational reserve of 60 days of the following year’s General Fun d budgeted expenditures (net of internal service charges and transfers out), up to a maximum operational reserve amount equal to 90 days of the following year's General Fund budgeted expenditures (again, net of internal service charges and transfers out). This reserve falls under the Unassigned Fund Balance classification. Beginning with the FY 2016/17 budget, the Working Capital Reserve is maintained at $1 million (reduced from $2 million), and the Fiscal Stabilization Reserve in maintained at $2.5 milli on (increased from $1.5 million). At this time a Working Capital Reserve of $1 million is sufficient for cash flow needs, however, the funding level will be assessed on an annual basis to ensure $1 million is sufficient for cash flow needs. The $1 millio n funding shift to the Fiscal Stabilization Reserve reflects a more realistic reserve usage structure – the Working Capital Reserve’s purpose is to ensure sufficient operating cash; the reserve has no defined fund uses, repayment terms, or authorization re quirements. On the other hand, the Fiscal Stabilization Reserve’s purpose is defined and may be called upon for critical uses in the future. The overall 60-day General Fund operational reserve minimum requirements shall continue to be met. Fiscal Stabilization Reserve Under the Unassigned Fund Balance classification, the Fiscal Stabilization Reserve represents a funding set -aside to provide temporary financing for budget stabilization caused by fiscal downturns, unanticipated extraordinary expenditures related to a natural disaster or calamity, or from an unexpected liability or funding decrease created by a legislative action. Effective July 1, 2016, the Fiscal Stabilization Reserve funding level increased by a $1 million transfer from the Working Capital Reserve, up to $2.5 million. As of FY 2018/19, the Development Services Reserve of $650,000 was integrated into the Fiscal Stabilization Reserve to reflect the Council’s desire to review citywide operational priorities and needs as a whole rather than segmented sections. This brought the Fiscal Stabilization Reserve up to $3,150 million; approximately 15% of the General Fund’s budgeted operations. Together, these funding shifts provide a focused but flexible reserve funding purpose and utilization s tructure. Attachment D 27 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 120 Formatted: Font color: Background 1 Fiscal stabilization uses are defined and restricted to: 1) revenue declines lasting more than one year and equal to more than 5% of either property tax, the combined total of other taxes, or General Fund revenues in total; 2) an unanticipate d extraordinary operational increase of more than 5% such as from a natural disaster; or 3) an unexpected Federal, State, County or CalPERS funding change. Council may utilize funding at budget adoption, by adoption of a budget adjustment resolution d uring the course of the year, or after a Federal, State, or locally declared emergency. In the event a locally declared emergency takes place, the City Manager has the authority to spend funds until such time as the City Council takes action. Reserve appropriations are to be replenished from year -end net operations, as available, on a priority basis. The $2.5 million Fiscal Stabilization Reserve funding level will be assessed on an annual basis to ensure this funding level is sufficient in light of operational reserves and utilization needs. Compensated Absences Reserve Under the Unassigned Fund Balance classification, the Compensated Absences Reserve is established to smooth expenditure fluctuations resulting from the payout of accrued leave to employ ees at service separation and distribution payouts. Reserve funding equal to one-third of the compensated absences liability is established at year -end. Reserve funding in excess of one-third of the liability is to be returned to the General Fund’s Other Unassigned Reserve. Use of the reserve occurs when total annual compensated absences payouts exceed budgeted salary funds. Large payouts decrease the compensated absences liability at year -end, thereby supporting the practice of utilizing the reserve as needed. Year-end reconciling allocations to and from the reserve are approved though Council’s budget resolution adoption each fiscal year, with the liability and resulting reserve amounts determined as part of the year - end close process. Council Discretionary Reserve Under the Unassigned Fund Balance classification, the Council Discretionary Reserve represents unspent funds from the Council’s annual appropriation. The reserve provides a mechanism to roll forward remaining Council Discretionary Funds as reserve funds are immediately re-appropriated into the following fiscal year. This allows Council the flexibility to take advantage of unforeseen opportunities or needs without the restriction of fiscal year boundaries. Use of the reserve funding requi res Council majority approval. The reserve exists at year -end only when there are remaining unspent Council Discretionary funds at the end of the fiscal year. Other Unassigned Reserve The ‘Other Unassigned Reserve’ represents accumulated net operations not yet allocated to other fund balance reserves, and by definition, fall into the Unassigned Fund Balance classification. Other fund’s accumulated net operations are typically accou nted for in an undefined reserve account in the fund – and typically titled ‘Fund Balance Reserve’. As other funds are structured for specific uses or commitments, the fund balance, by its distinctiveness, already has a directed purpose, whereas the Gener al Fund is used for multiple and general operational purposes thereby requiring a distinction of purpose for each reserve. Council may utilize reserve funding at budget adoption or by adoption of a budget adjustment resolution during the course of the ye ar. Reserve funding is replenished from year-end net operations, as available. Attachment D 28 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 121 Formatted: Font color: Background 1 SPECIAL REVENUE FUND RESERVES Landscape & Lighting Assessment District Funds Assessment District Funds are Special Revenue Funds, which is a type of governmental fund. As a governmental fund, the Landscape and Lighting Assessment District Funds comply with GASB 54 fund balance classifications, and by nature of the fund’s purpose, fund balance reserves are classified as restricted reserves. Special Revenue Funds account for and report the proceeds of specific revenue sources that are restricted or committed to specified purposes (other than for debt service or capital projects.) For the City, Landscape & Lighting Assessment District Special Revenue Funds were established to account for each individual assessment district; thereby each fund has its own separate fund balance reserve. Each district’s fund balance reserve should be sufficient to provide working capital to cover operational expenses through the first half of assessment receipts in January, therefore equitable to approximately one -half of a district’s annual expenditure budget. The second half of receipts are rece ived in June. Some districts may include capital improvement projects in addition to ongoing regular maintenance resulting in fund balance increasing over the years to accumulate sufficient resources for the improvement projects. As each district’s situ ation is different, a district’s maximum fund balance shall be determined by the Public Works Director. Requests for use of the reserve are approved by Council through budget adoption or by a Council approved budget adjustment resolution throughout the ye ar. The reserve is replenished from the Fund’s net operations in subsequent years. DEBT SERVICE FUND RESERVES Library General Obligation (GO) Bond Debt Fund The Library General Obligation (GO) Bond Debt Fund is a Debt Service Fund established to acco unt for the financial resources accumulated for principal, interest, and cost of issuance expenditures associated with the Library Bond Debt. As Debt Service Funds are a governmental fund type, the fund reserves fall under the GASB 54 fund balance classifications. Debt Service Fund reserves are classified as a Restricted Reserve with the funding only spent for specific purposes as stipulated by the bond covenants. The Library GO Bond Debt Fund ensures receipts are tracked separately, and that funding i s available for the GO Bond debt service requirements. At a minimum, the year -end fund balance reserve shall be sufficient to provide working capital to cover the semi-annual principal and interest debt payment due on August 1 st as the GO Bond tax receipts are received after the 1st debt payment is due. December receipts provide for the February payment. In addition, as bond assessments are collected as a percentage of property values, reserves should provide sufficient funding to compensate for tax fluctuations. The fund’s reserve maximum is set at no more than one-year of budgeted annual expenditures. The reserve balance is increased (or reduced) through establishing assessment rates at more (or less) than the semi - annual payments and bond services require. Therefore, use or replenishment of the reserve is approved by Council through budget adoption, and implemented through an increased or reduced assessment rate as a result of the fund’s net operations. Arrowhead Community Facility District Bond Debt Fund In 2016, the City agreed to act as the fiduciary agent for the Arrowhead Community Facility District’s bond issuance to fund the community’s water system infrastructure. The bond was finally issued in December 2018, and participant s in the bond issuance began assessment payments in FY 2018/19. The annual debt service assessment is to cover the cost of the bond’s principal and interest payments, and the associated administrative costs. The fund’s reserves are comprised of funds collected less bond costs. As flat dollar amount assessments are set rather than percentage rates, the CFD Bond Debt assessments do not generate excess fund balance as does the GO Bond Debt Fund. Attachment D 29 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 122 Formatted: Font color: Background 1 CAPITAL IMPROVEMENT PROJECT FUND RESERVES Overview Capital Improvement Project (CIP) Funds account for the acquisition and maintenance of major capital assets other than those financed through special assessments or enterprise funds. Capital Project Funds are a type of governmental fund and therefore comply with GASB 54 fund balance classifications. Because Council has directed the fund’s appropriated funding be spent on specific capital improvement projects, the Capital Project Fund Balance Reserve is classified as Committed Fund Balance. Budgeted capital improvement project funding is determined by the scope of work approved by Council, and remains assigned for that use until completed or reassigned by Council. Fund Balance amounts represent the total remaining funds in the individual projects at year-end. As Fund Balance amounts are determined by the amount of project completion at year-end, they cannot be standardized for minimum or maximum amounts. Fund Balance is re- appropriated to the capital projects in the following fiscal year for the work to be completed. Street Improvement Projects Funds Street Improvement Project Funds provide for a safe and functional roadway and pedestrian street system. Each Street Improvement Fund (CIP Street Fund, CIP Grant Fund, and Gas Tax Fund) has multiple proj ects which roll up into the overall fund balances, but remain designated for use by project. The CIP Street Fund receives annual funding from designated fees, reimbursements, contributions, and transfers from other funds. The CIP Grant Fund receives federal, state, and local grants which vary in source and amount from year - to-year. On occasion, a private grant may be received. Typically, CIP Grant Funds have a negative fund balance as project work is conducted before reimbursement is received. Gas T ax Funds represent annual Highway User Tax and Transportation Congestion Relief revenue allocations that are to be accounted for separately and are subject to State audits. Park & Trail Improvement Project Funds Park & Trail Improvement Project Funds provide for capital improvements to the City’s neighborhood and city parks and plaza, the sport fields, bike and pedestrian trails, and open space areas throughout the City. Each of the Park & Trail Improvement Funds (CIP Park & Trail Fund, CIP Tree Fund, and the CIP Park & Trail Grant Fund) have multiple projects which roll up into the overall fund balances, but remain designated for use by project. The CIP Park & Trail Fund receives annual funding from Park-In-Lieu fees, occasional subventions, reimbursements and contributions, and transfers in from other funds. The Tree Fund receives revenue from tree fines and transfers from other funds upon Council direction. The CIP Grant Fund receives federal, state, local and occasional private grants which vary in source and amount from year-to-year. Typically, CIP Grant Funds have a negative fund balance as project work is conducted beforehand and then reimbursed from expenditure invoices. Year end fund balance represents the remaining unexpended project funds (net of any negative CIP Grant Fund Balance) which are subsequently re-appropriated by Council into the following budget year through budget adoption. Facility Improvement Project Funds Facility Improvement Project Funds provide for capital maintenance and improvements of the City-owned buildings and structures throughout the City. Each of the Facility Improvement Funds (CIP Facilities Fund and the Facility Grant Fund) have multiple projects which roll up into the overall fund balances, but remain desi gnated for use by project. The CIP Facilities Fund receives annual funding from a General Fund transfer, from Theater Ticket Surcharge Fees, and from reimbursements and contributions. The Facility Grant Fund receives revenue from grants that vary in amount from year-to-year. Typically, CIP Grant Funds have a negative fund balance as project work is conducted beforehand and then reimbursed from expenditure invoices. Attachment D 30 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 123 Formatted: Font color: Background 1 Year end fund balance represents the remaining unexpended project funds (net of any negative CIP Grant Fund Balance) which are subsequently re-appropriated by Council into the following budget year through budget adoption. Administrative & Technology Improvement Funds Administrative & Technology Improvement Project Funds provide for major capital expenditures to imp rove or enhance administrative, operational, or technology-based systems, processes, or functions. Each of the Administrative & Technology Improvement Funds (CIP Admin & Tech Improvement Fund and the Admin & Tech Grant Fund) have multiple projects which roll up into the overall fund balances, but remain designated for use by individual project. The CIP Administrative & Technology Improvement Fund typically receives funding from a General Fund transfer as administrative and technology improvement focuse d grants are limited. If grants are received, projects typically have a negative fund balance as project work is conducted beforehand and then reimbursed from expenditure invoices. Year end fund balance represents the remaining unexpended project funds (net of any negative CIP Grant Fund Balance) which are subsequently re-appropriated by Council into the following budget year through budget adoption. INTERNAL SERVICE FUND RESERVES Overview Internal Service Funds are established to provide centralized cost centers for shared expenses and services in order to efficiently track costs and manage resources. Costs are then allocated back to the operational programs based on usage to more accurately determine cost of services. The City’s Internal Service Funds include the two Insurance funds: Risk Management and Workers Compensation, four Service/Support funds: Office Support, IT Services, Vehicle & Equipment Maintenance, and Building Maintenance Funds, and three Equipment Replacement funds: the Vehicle & Equipment Replacement Fund, the Office Technology Equipment Replacement Fund, and the Building FF&E (Furniture, Fixture, & Equipment) Replacement Fund. As each fund is accounted for as a separate entity, operational revenues less expenditures result in either a positive or negative fund balance at any given point in time – Internal Service Funds are similar to the separate checking and saving accounts a person may use for different purposes. At year end, each fund’s net balance is represented as the “Fund Balance Reserve”. The intent of the Internal Service Funds Reserves is to hold appropriate levels of reserves to support cash flow needs and minimize interfund loans, not to accumulate funds in excess of expected ongoing operational costs. Reserve levels are determined by the specific operational needs of the program, but typically will fall within 25 – 50% of annual budgeted expenditures. Internal Service Funds are a type of Proprietary Fund; therefore GASB 54 fund balance classification (for Governmental Fund types) does not apply. Instead, Internal Service Fund’s financial statement reports are presented similar to private-sector businesses and use “Restricted” and “Unrestricted Net Position” to define net operational balances (equity/fund balance reserves). Unrestricted Net Position allows reserve funding to be used (with Council approval) within the general scope of the fund’s purpose. Restricted Net Position reserves are limited to a specific use, narrower than the stated purpose of the fund. For example, grant funding provided for a defined use, as in remaining funds from a Risk Management Training Grant within the Liability/Risk Management Fund, must be used for qualified training purposes. Most Internal Service Funds reserves are held in the Unrestricted Net Position category. Liability /Risk Management Reserve Fund Attachment D 31 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 124 Formatted: Font color: Background 1 The Liability/Risk Management Fund’s Unrestricted Net Position reserve supports cash flow needs and minimizes interfund loans. Appropriate levels are maintained through service chargebacks to the programs, based on operational risk factors. Most claims are covered under the insurance risk pool JPA. The City is self -insured for up to $25,000 per General Liability and City Vehicle Auto Liability occurrence, and up to $5,000 for Property Damage and 3rd Party Auto Liability. Non-covered claims are paid fully by the City. The Liability/Risk Management program receives funding from allocations charged to covered departments, from grant funding, and from claim reimbursements. At year end, unspent funding flows into Unrestricted Net Position or Restricted Net Position for specific purposes. Requests for use of reserve balance are approved by Council through budget adoption or by a Council approved budget adjustment resolution during the year. The reserve is replenished from the Fund’s net operations in subsequent years. Workers Compensation Fund The Workers Compensation Fund’s Unrestricted Net Position reserve supports cash flow needs and minimizes interfund loans. Appropriate levels are maintained through service chargebacks to the programs, based on operational risk factors. The purpose of the Workers' Compensation program is to provide insurance benefit coverage for employee work-related illness and/or injuries through its membership in a shared risk pool. The risk pool provides coverage up to $250,000, and excess insurance provides coverage over this amount up to $10 million. The Workers Compensation program receives funding from allocations char ged to covered departments, from grant funding, and from claim reimbursements. At year end, unspent funding flows into Unrestricted Net Position, or Restricted Net Position for grant funding. Requests for use of the reserve balance are approved by Counci l through budget adoption or by a Council approved budget adjustment resolution during the year. The reserve is replenished from the Fund’s net operations in subsequent years. Office Support Fund The Office Support program provides a centralized cost cen ter for administrative office support expenses, including photocopy machine leases, postage machines, shared office machines, and the associated maintenance and repair services, postage, paper, and copier supplies. For efficiency, office support costs are managed collectively and charged back to departmental programs on a use-basis allocation. Accumulated net operations are held in the Office Support Fund for working capital cash flow. The reserve is funded from the allocations charged to covered depart ments. At year end, unspent funding flows into Unrestricted Net Position. Requests for use of excess reserve balance are approved by Council through budget adoption or by a Council approved budget adjustment resolution during the year. The reserve is re plenished from the Fund’s net operations in subsequent years. Information Technology Services Fund Information Technology Services provide for the delivery of technology -based services throughout the City’s operations, including maintenance of the City’s information systems and infrastructure, program implementation, streaming video, internet, landline, and wireless communications systems, cloud-based technology, and support of all existing information technology as well as new technology initiatives. For technology oversight, security, and efficiency, information technology costs are managed collective ly and charged back to departmental programs on a service-based allocation to fund the program. Funding for the program comes from these allocations charged to covered departments. At year end, unspent funding flows into Unrestricted Net Position. Accu mulated net operations are held in the Information Technology Services Fund for working capital cash flow. Requests for use of the reserve are approved by Council through budget adoption or by a Council approved budget adjustment resolution during the yea r. The reserve is replenished from the Fund’s net operations in subsequent years. Vehicle & Equipment Maintenance Fund Attachment D 32 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 125 Formatted: Font color: Background 1 The Vehicle & Equipment Maintenance program provides for the fuel, maintenance, and servicing of the City’s fleet and major equipment to ensure all vehicles and equipment comply with manufacturer’s recommendations and safety requirements. To fund the program, vehicle & equipment replacement costs are charged back to the departmental programs based on assigned usage. Accumulated net operations are held in the Vehicle & Equipment Maintenance Fund for working capital cash flow. At year end, unspent funding flows into Unrestricted Net Position. Requests for use of the reserve are approved by Council through budget adoption or by a Counci l approved budget adjustment resolution during the year. The reserve is replenished from the Fund’s net operations in subsequent years. Facility Maintenance Fund The Building Maintenance program provides for the custodial, maintenance, and non -major repairs and building improvement services for all facilities at the Civic Center, Prospect Center, and Museum Park. Additionally, the program supports the maintenance and repair needs for the tenants of City leased buildings as defined in the lease agreements. To fund the program, total costs are allocated back to departmental programs primarily based on building space usage. General and public use is allocated to the Non - Departmental program. Accumulated net operations are held in the Building Maintenance Fund for working capital cash flow. Funding comes from the allocations charged to covered departments. At year end, unspent funding flows into Unrestricted Net Position. Requests for use of the reserve are approved by Council through budget adoption or by establishing chargeback funding levels higher or lower than budgeted expenditures. The reserve is replenished from the Fund’s net operations in subsequent years Vehicle & Equipment Replacement Reserve The Vehicle and Equipment Replacement Fund Balance Reserve accounts for accumulated funding over an asset’s lifespan, to be used for the replacement of the vehicle or equipment at the end of its useful life. Initial purchases are paid for through a department’s operational budget. If the pu rchased item is for ongoing use, the Vehicle & Equipment Replacement program appropriates an annual allocation for the replacement of the vehicles and equipment based on the asset’s cost and years of life. Final determination for replacement of the asset is determined through an analysis of whether the cost of maintenance equals or exceeds the cost of replacing the asset. The reserve is funded from allocations charged to covered departments and represents accumulated funding, less amounts expended for asset replacement. At year end, unspent funding is held in Unrestricted Net Position. The reserve is to be maintained at a level sufficient to provide replacement funding of vehicles and equipment in accordance with replacement schedules. Requests for use of the reserve are approved by Council through budget adoption or by a Council approved budget adjustment resolution throughout the year. The reserve is replenished from the Fund’s net operations in subsequent years. Office Technology Equipment Replacement Fund The Office Technology Equipment Replacement Fund accounts for accumulated funding over an asset’s lifespan to be used for the replacement of office technology -based equipment such as desktop computers and monitors, laptops and tablets, network infrastructure, and various other related equipment. Replacement costs are charged back to the departments based on assigned equipment costs. Initial purchases are paid for through a department’s operational budget. If the purchased item is for ongoing use, the Office Equipment Replacement program appropriates an annual allocation for the replacement of the equipment based on the asset’s cost and years of life. The reserve represents accumulated funding, less amounts expended for replacements. The reserve shall be funded to provide replacement funding in accordance with replacement schedules. Funding for the reserve comes from the allocations charged to covered departments. Requests for use of the reserve are approved by Council through budget Attachment D 33 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 126 Formatted: Font color: Background 1 adoption or by a Council approved budget adjustment resolution during the year. The reserve is replenished from the Fund’s net operations in subsequent years. Facility Furniture, Fixtures & Equipment (FFE) Replacement Fund The Facility FF&E Fund accumulates fu nding over an asset’s lifespan to be used for the replacement of furniture – such as tables, chairs, and cubicle partitions; for fixtures - such as kitchen appliances, sound equipment, lighting, for equipment - such as HVAC units, boilers, and generators; and for facility infrastructure – such as roof, door, window, and floor/carpeting replacement. Initial purchases for new assets may be paid for through the Operating Budget or through the Capital Budget. Annual replacement charges are charged-back to the supported department programs with full replacement funding to be accumulated over the asset’s estimated lifetime. Final determination for replacement of the asset is determined through an analysis of whether the cost of maintenance equals or exceeds t he cost of replacing the asset. The reserve is intended to be maintained at a level sufficient to provide replacement funding in accordance with replacement schedules. Requests for use of the accumulated reserve funding are approved by Council through bu dget adoption, or if an unplanned situation occurs, by a Council approved budget adjustment resolution during the fiscal year. The reserve is replenished by replacement charge allocations in subsequent years. TRUST & AGENCY FUND RESERVES Overview Trust and Agency Funds are created to enable City’s to assist associated agencies with fund management needs. Trust Funds are established to hold another entity’s funds and ensure the proper management of their money. Agency Funds are established to receive and disburse another entity’s money, as directed by the associated entity. The City does not currently have any Trust Funds but has set up two Agency Funds: West Valley Clean Water Program; and the Arrowhead CFD Project Fund. Because the Agency Funds manage their own money, the City of Saratoga does not develop Reserve Policies for Agency Funds. Attachment D 34 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 127 Formatted: Font color: Background 1 CIP PROJECT PROCESS POLICY This procedural policy defines how a project moves through the CIP Budget Funding process: from the initial project idea, through project development, nomination, and project approval process, and if successful, into the Capital Budget as a funded project. The CIP project development stage of the policy takes different tracks, depending upon whether the project idea is staff driven or Council nominated. These two paths are discussed separately below, until the tracks converge for CIP project assessment preparation. STAFF PROJECT DEVELOPMENT 1. CIP Project Initiation As a function of staff’s day-to-day work, infrastructure improvements and large-scale repairs and maintenance are identified as potential capital improvement projects. These are often high ly-visible tangible public assets such as street repaving, or park and trail improvements. However, many CIP projects are less noticeable, including facility roof repairs, tree planting, or ADA enhancements. Projects may also be administrative or technol ogy improvements, and hence invisible to the general public, such as code updates/revisions, process improvements, software implementations, or economic vitality programs. Staff is to discuss the CIP project idea with the appropriate staff or City Manag er for feedback and refinement. Ultimately, projects need clearly defined boundaries to identify project requirements, specifications, and resources. While this is not always feasible in the initial stages of project development, the understanding that a project will eventually require a clear and specific scope will encourage better preparation for discussing the project idea and moving it through the nomination process. After receiving initial approval, staff moves into the idea development stage. 2. Idea Development To move the idea forward, staff will need to analyze and articulate the project’s scope, political impacts, priority factors, resource requirements, and any other relevant considerations. a. Project Scope – Scope may include the description, project size and location parameters, project purpose, and goals or deliverables, such as products, services or results. Project justifications and assumptions should support the project’s purpose and definition, and may include cost -benefit analysis, risk assessments, funding availability, or even community desirability factors. The scope should clearly state if a project is to be funded and/or completed in phases rather than as a singular body of work. If the project is ongoing infrastructure main tenance or a program project, this too should also be clearly noted. In some cases, project scope may be defined by exclusions – statements about what the project will not accomplish or produce. Additionally, constraints or restrictions may identify pro ject limitations. Project Scope defines a commitment to produce a body of work or end -product with the resources provided under the stated assumptions. The written scope helps to manage expectations and provide clarity to the involved parties, reduce confusion and failure, prevent scope creep, and provide transparency to the community. b. Political Considerations - Knowledge of historical information, which attests to the necessity of Council/staff communication is of vital importance in project develo pment. Determine whether this project has come up for consideration before, or why was it not completed previously. Are there lessons to be learned from a past project proposal? Attachment D 35 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 128 Formatted: Font color: Background 1 Another consideration includes knowing whether a project might be controv ersial. Is there a segment of the community strongly opposed to, or strongly supportive of this specific project? Will this project prompt demand for further funding or resources? Have similar projects been completed in another part of the city? Determine why this project should be considered a priority over others, and whether the project’s cost or benefits would be supported by the community. c. Priority Factors - Project priority is an important consideration in the CIP approval decision factor. Council’s role is to determine which projects are of higher priority than others since there will never be enough money or resources to do every project. Decision criteria may include factors such as: • Health and Safety Issues • Imminent failure of structure/system • Short-term cost of repair vs. long-term cost of replacement • Availability of external or dedicated funding • Efficiencies • Federal or State mandates • Business or community support • Impacts if project is not completed A project’s priority is also affected by the severity of the criteria. For instance, a project that falls under the “Imminent Failure of Structure/System” criteria may be an extremely dangerous situation in need of immediate repair, or low danger of minor importance and simply remedied by removal. Another example would occur with Federal or State mandated projects. There may be little impact as to whether the mandate is met, or there may be severe fines for lack of timely completion. As a result, projec t priority is based on the overall assessment of the circumstances; many factors contribute to priority decisions and Council cannot rely upon a clear hierarchical order upon which to base their decisions. d. Project Resources - In the City’s project development discussions, resources typically refer to financial funding. However, resources may also refer to staff time, equipment and materials, community/stakeholder participation or support, space requirements, information technology services, or some other type of support or contribution. Funding plays a critical role in project development. In many cases, lower priority projects may be approved ahead of higher priority projects simply because there is designated funding available for the lower priority projects. The ability to bring designated funding (such as a grant award) with a project proposal greatly increases the likelihood that the proposed project is approved. Overall, projects that request undesignated Capital Project Reserve funding are more competitive due to funding limitations and the number of projects competing for the same pot of funds. An additional component of project resource considerations are the unstated resources (identified above) required in project construction or implementation. For instance, staff time is limited, and time spent working on one project prevents staff time being spent on another project. Project timing and staff time requirements are therefore an important component of the project that Council may wish to review. e. Other Considerations - There are numerous other factors not mentioned above that are also taken into consideration when assessing a project idea. For example, can the City afford the ongoing operating budget increases to maintain or implement the project? Does the project contribute toward economic vitality? Are there environmental concerns? Does it enhance the community’s art, education, or cultural resources? Does the project provide operational efficiencies or cost savings? Are there r isk management or legal liability issues? Possibly the project requires development be staged in phases? Is there strong community interest Attachment D 36 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 129 Formatted: Font color: Background 1 in this project? Each project will differ, meaning analysis is specific to the circumstances, and diligent research and thought should be put into developing project scope and justification. In summary, the overall goal of idea development is to identify, quantify, and assess the project comprehensively. This effort is intended to ensure that a proposed project i s well-thought-out, developed, and articulated thereby enabling the City Manager and Council to make educated and rational decisions. 3. City Manager Approval Staff is to propose the project idea to the City Manager for approval. If approved, the project is moved onto the CIP Project Candidate List. Staff is to notify the Administrative Services Director of the project’s approval and provide pertinent project information. Staff will prepare written narratives with project scope, justification, fiscal impacts, cost estimates, timelines, etc. as necessary for Council Retreat assessment package. CITY COUNCIL PROJECT DEVELOPMENT Council Members are often the recipients of residents’ suggestions for capital project work. Depending on the topic, Council Members can take these opportunities to: 1) educate the residents on why a project may not be feasible; or 2) provide residents with information on how to conta ct City staff with their requests to determine feasibility; or 3) Council may support the project suggestion and decide to act as a proponent for the project by guiding it through the Capital Project Nomination process: 1. Nomination To move a project idea onto the CIP Candidate List, a Council Member is to propose the idea to fellow Council Members at the end of a City Council Meeting during the Council Items session and request that it be put on the CIP Candidate List for review during the next upcoming CIP budget cycle. 2. Idea Concurrence A second Council Member must concur with the request to move the project idea onto the Capital Project Candidate List. 3. Follow-up A nomination to the Capital Project Candidate List is to be recorded in the City Coun cil minutes, and acted upon as a follow-up item. City Manager will notify Council Member of project nomination (to clarify/verify understanding of project scope and of the assignment to a staff member. Staff member will complete Candidate List step requirements, including: preparation of project scope narrative and justification, fiscal impacts, cost estimates, timelines, etc. as required for Council Retreat assessment package. CIP PROJECT ASSESSMENT 1. Assessment Package In preparation for the annual Capital Project Assessment, Finance will consolidate the CIP Project Candidates, along with proposed changes to current CIP projects, and the current year’s CIP Unfunded Project List into an assessment package for Council’s review. The Capital Proj ect Assessment review provides a forum to assess all projects at one time. These assessment package will include: ● A review of available funding ● Existing projects in the current year’s CIP ● Proposed changes to existing projects Attachment D 37 INTRODUCTION SECTION CITY OF SARATOGA ● FISCAL YEAR 2020/21 OPERATING & CAPITAL BUDGET 130 Formatted: Font color: Background 1 ● The current CIP Unfunded List ● Proposed changes to projects on the CIP Unfunded List ● New projects on the CIP Candidate List ● Review of requests in conjunction with funding sources 2. Capital Project Assessment The City Council’s review of the capital project assessment package is to be held annually, early in the budget development cycle, in late January or early February. In addition to reviewing the assessment package, the Council will also review currently funded capital projects that have unencumbered funds to determine if the project will continue in the following fiscal year. In their review, Council may request revisions to a project’s scope, funding, or other component. However, changes that redefine a proposed project must be Council’s consensus direction. During the assessment review process, as projects are assessed, they are either: ● Rejected ● Accepted, or ● Modified and Accepted At the conclusion of the assessment review, Council will prioriti ze accepted projects and designate project funding. Projects placed on the Funded List will be brought forward to the upcoming Budget Study Session. The remainder will be placed on the CIP Unfunded Project List. NOTE: Rejected project ideas may be nominated for another attempt to become an approved project in the following year(s), but must again go through the project development and assessment process. 3. Budget Study Session Updated CIP funding availability and project revisions will be reviewed a fi nal time with Council. Council will conduct a final assessment and provide consensus direction to staff for inclusion in the upcoming Proposed Budget Hearing to be held in May. CIP PROJECT FUNDING 1. Proposed Budget Hearing The final Proposed Capital Budget with the recommended project funding will be brought to the City Council Budget Public Hearing in May. Council is to provide any final comments or direction for budget adoption. 2. Budget Adoption The Operating and Capital Budgets are brought to Council in June with all final direction incorporated into the final summaries. Council is to adopt the budget at this time, with budget funding effective on July 1 st of that year. 3. Funding Process Follow-up Approved CIP projects that do not receive funding allocations will be assigned to the next budget year’s CIP Unfunded List. The list will be included in the budget document, and assessed again during the following year’s Capital Project Nomination and Assessment Process. The new CIP Unfunded Li st has a life span of one budget cycle. Attachment D 38 2,839,134 Roadway Safety & Traffic Calming 75,000 Infrastructure Maintenance and Repairs 250,000 Annual Retaining Wall Maint & Repairs 200,000 McFarland Avenue Curb & Gutter Replacement 350,000 Fruitvale/Allendale Ave. Intersection Impr.125,000 Prospect Road Improvements 40,000 Quito Road Bridges - Project Engineering 50,000 Saratoga Village to Quarry Park Walkway 100,000 Saratoga-Sunnyvale Road Pathway Rehab (Cox to RRXing)125,000 Traffic Signal Battery Backup - Citywide 150,000 Village Clock 15,500 1,480,500 Park, Trail, Grounds, and Medians R&R 100,000 Guava Ct/Fredericksburg Entrance 250,000 Reconstruction of Hakone Koi Pond 300,000 Kevin Moran Park Accessible Parking 95,000 745,000 Senior Center/Community Center Generator and EV Charging Stations 500,000 500,000 Safe Routes to School Needs Assessment 60,000 Risk Management Projects 50,000 110,000 2,835,500 3,634 Funding Source Funding Allocation Landscape & Lightning Fund Closeout 150,000 Quito Neighborhood Improvements CIP 150,000 Risk Management CIP elimination 50,000 Art Infrastructure CIP 25,000 Annual Parks, Trails, Grounds, and Medians Replacement CIP 25,000 Wildfire Task Force CIP request 50,000 Additional Requests Total All Projects Council Directed Allocations Total Administrative & Technology Projects Remaining Funds Parks & Trails Projects Total Parks & Trails Projects Facilities Projects Total Facilities Projects Administrative & Technology Projects Finance Committee Recommended Changes DRAFT PROPOSED Results of FY 2020/21 CIP Funding Prioritization Street Improvement Projects Total Street Improvement Projects DISCRETIONARY CIP RESERVES Attachment E 39 Project #Project CIP - Reserve Park In-Lieu Gas Tax Grants Other Total Street Projects 9111-003 Annual Roadway Improvements 941,270 - 980,325 - - 1,921,595 9121-001 Roadway Safety & Traffic Calming 75,000 - -- - 75,000 9121-004 Traffic Signal Battery Backup - Citywide 150,000 - -- - 150,000 9122-006 Prospect Road Improvements 40,000 - 145,555 1,075,000 - 1,260,555 9122-010 Fruitvale/Allendale Ave. Intersection Impr.- - - - - - 9132-006 Village Clock 27,500 - - - - 27,500 9141-005 Annual Infrastructure Maintenance & Repairs 250,000 - - - - 250,000 9141-006 McFarland Ave. Curb & Gutter Repair - - - - - - 9142-005 Saratoga Avenue Sidewalks - - - 79,656 - 79,656 9142-011 Village Sidewalk & Pedestrian Impr. - Phase II 65,530 - - - - 65,530 9142-014 Big Basin Way Sidewalk Repairs - - 20,990 163,000 - 183,990 9142-019 Saratoga Village Crosswalk & Sidewalk Rehab.44,000 - - 3,141 - 47,141 9142-020 Quito Road Sidewalk Improvements 43,370 - - - - 43,370 9142-021 Saratoga/Sunnyvale Sidewalks 92,183 - - - - 92,183 9142-022 Saratoga Sunnyvale Rd. Pathway Rehab 125,000 - - - - 125,000 9152-001 4th Street Bridge 99,837 - - 1,704 - 101,541 9152-002 Quito Road Bridges - Project Engineering 167,348 - 7,085 19,029 - 193,462 9152-004 Quito Road Bridges - ROW Acquisition 32,043 - - 302,982 - 335,025 9153-003 Annual Retaining Wall Maintenance & Repairs 200,000 - - - - 200,000 9171-002 Quito Road Electric Underground Project - - - - 98,744 98,744 Total Street Projects 2,353,081 - 1,153,955 1,644,512 98,744 5,250,292 Parks & Trails Projects 9211-001 Annual Park & Trail Repairs 100,000 - - - - 100,000 9211-002 Citywide Tree Replanting - - - - 45,445 45,445 9212-001 Tree Dedication Program - - - - 24,125 24,125 9222-004 Hakone Gardens Infrastructure Improvements 23,175 120,000 - - - 143,175 9222-008 Hakone Pond Reconstruction 300,000 300,000 9237-002 Kevin Moran Park Accessible Parking 95,000 95,000 9274-002 Guava Ct/Fredericksburg Entrance 300,047 - - - - 300,047 9277-004 Saratoga Village to Quarry Park Walkway 306,584 - - - - 306,584 9278-001 Saratoga-to-the-Sea Trail 697,309 - - 636,319 - 1,333,628 Total Parks & Trails Projects 1,822,115 120,000 - 636,319 69,570 2,648,004 Facilities Projects 9322-001 Theater Improvements 115,667 - - - - 115,667 9322-013 PEG Funded Projects 420,789 - - - - 420,789 9331-011 Preschool Turf Conversion 12,500 - - - - 12,500 9333-007 Senior Center Entrance Remodel 112,585 - - - - 112,585 9333-008 Community Center Improvement Program 85,000 - - - - 85,000 9333-009 Community Center Generator & EV Stations 500,000 - - - - 500,000 9372-001 Library Building Exterior Maintenance 10,000 - - - - 10,000 Total Facilities Projects 1,256,541 - - - - 1,256,541 Administrative & Technology Projects 9413-002 City Website/Intranet Redesign 16,949 - - - - 16,949 9415-001 Development Technology Management 99,051 - - - - 99,051 9442-001 Citywide LLD Initiation Match Program 25,000 - - - - 25,000 9442-002 Horseshoe LLD Beautification 19,250 - - - - 19,250 9443-003 Art Infrastructure CIP - - - - - - 9443-004 Safe Routes to School Needs Assessment 60,000 - - - - 60,000 9451-002 General Plan Update - CIP 175,199 - - - - 175,199 9491-001 Risk Management Mitigation Project 50,000 - - - - 50,000 Total Administrative & Technology Projects 445,449 - - - - 445,449 Total All Projects 5,877,186 120,000 1,153,955 2,280,831 168,314 9,600,286 PROPOSED FY 2020/21 CIP FUNDING PER 3.4.2020 COUNCIL CIP MEETING Attachment F 40