HomeMy WebLinkAbout04.09.2024 Amended Finance Committee PacketCity Council Finance Committee Agenda April 9, 2024
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SARATOGA CITY COUNCIL
FINANCE COMMITTEE
April 9, 2024
4:00 P.M. REGULAR MEETING
AMENDED AGENDA
• 5. PRESENTATION SLIDES ADDED 04/09/2024
Public Participation Information
In accordance with Saratoga City Council’s Remote Public Participation Policy, members of the
public may participate in this meeting in person at the location listed below or via remote
attendance using the Zoom information below. In the event remote participation technology is
unexpectedly unavailable, the meeting will proceed in person without remote participation.
Members of the public can view and participate in the meeting by:
1. Attending the meeting in person in the Linda Callon Conference Room located at 13777
Fruitvale Avenue, Saratoga CA 95070; OR
2. Accessing the meeting through Zoom
* Webinar URL https://us02web.zoom.us/j/88539638908
* Webinar ID: 885 3963 8908
* Calling 1.669.900.6833 or 1.408.638.0968
Written Communication
Comments can be submitted in writing at www.saratoga.ca.us/fc. Written communications will
be provided to the members of the City Council and included in the Agenda Packet and/or in
supplemental meeting materials.
Public Comment
Members of the public may comment on any item for up to three (3) minutes. The amount of
time for public comment may be reduced by the Mayor.
Meeting Recording Information
In accordance with the Saratoga City Council’s Meeting Recording Policy, the City Council
Finance Committee Meetings are recorded and made available following the meeting on the
City website.
City Council Finance Committee Agenda April 9, 2024
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CALL TO ORDER
ROLL CALL
Public Comment
AGENDA ITEMS
1. Finance Committee Minutes
Recommended Action:
Review and approve the minutes for the February 13, 2024 Finance Committee Regular
Meeting.
Finance Committee Minutes
2. Financial Policies
Recommended Action:
Review and provide updates to the City Council adopted financial policies.
Memo - Annual Financial Policies Review
Attachment A - Responses to Questions from 2-13-24 Meeting
Attachment B - Redlined Financial Policies
3. Treasurer’s Report Overview
Recommended Action:
Receive report overview of the monthly Treasurer’s Report – No action required.
Memo - Treasurer's Report Overview
Attachment A -Treasurer Report February 2024
4. Transfer to CalTRUST
Recommended Action:
Receive report on transfer to CalTRUST Joint Powers Authority (JPA) Investment Pool - No
action required.
Memo - Transfer to CalTRUST
Attachment A - Historical Investment Returns
5. Fiscal Year 2025 Preliminary Budget
Recommended Action:
Receive fiscal year 2025 Preliminary Budget Report – No action required.
Memo - Fiscal Year 2025 Budget Overview
Presentation Slides (added 04-09-2024)
City Council Finance Committee Agenda April 9, 2024
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ADJOURNMENT
CERTIFICATE OF POSTING OF THE AGENDA, DISTRIBUTION OF THE AGENDA PACKET,
COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT
I, Gina Scott, Administrative Analyst for the City of Saratoga, declare that the foregoing agenda
for the meeting of the City Council Finance Committee was posted and available for public
review on April 4, 2024, at the City of Saratoga, 13777 Fruitvale Ave., Saratoga, CA 95070, and
on the City’s website at www.saratoga.ca.us.
Signed this 4th day of April 2024 at Saratoga, California.
Gina Scott, Administrative Analyst
In accordance with the Ralph M. Brown Act, copies of the staff reports and other materials
provided to the Committee by City staff in connection with this agenda, copies of materials
distributed to the Committee concurrently with the posting of the agenda, and materials
distributed to the Committee by staff after the posting of the agenda are available on the City
website at www.saratoga.ca.us and are available for review in the office of the City Clerk at
13777 Fruitvale Avenue, Saratoga, California.
In compliance with the Americans with Disabilities Act and the Governor’s Executive Order, if
you need assistance to participate in this meeting, please contact the City Clerk at
bavrit@saratoga.ca.us or call 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]
City Council Regular Finance Committee Minutes – February 13, 2024
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MINUTES
SARATOGA CITY COUNCIL FINANCE COMMITTEE
REGULAR MEETING
FEBRUARY 13, 2024
CALL TO ORDER
The meeting was called to order at 4:00 p.m.
ROLL CALL
Present:Mayor Yan Zhao, Councilmember Belal Aftab
Also Present:James Lindsay, City Manager
Ryan Hinchman, Administrative Services Director
Leslie Arroyo, Assistant City Manager
Ann Xu, Interim Finance Manager/Accountant
Gina Scott, Administrative Analyst
REPORT ON POSTING OF THE AGENDA
The Administrative Analyst reported the agenda for this meeting was properly posted on February
7, 2024.
AGENDA ITEMS
1. Finance Committee Minutes
Recommended Action:
Approve the minutes for the January 23, 2024, Finance Committee Special Meeting.
AFTAB/ZHAO MOVED TO APPROVE THE MINUTES FOR THE JANUARY 23, 2024
FINANCE COMMITTEE SPECIAL MEETING. MOTION PASSED BY VERBAL ROLL CALL.
AYES: AFTAB/ZHAO NOES: NONE. ABSTAIN: NONE.
2. Financial Policies
Recommended Action:
Review and provide updates to the City Council adopted financial policies.
Ryan Hinchman, Administrative Services Director, gave a summary of the Financial Policies
stating that all financial policies have been collated into one document. Ryan provided an
overview of the Major Reserve Policy which includes information on the Hillside Stability
Reserve and its intended use and the Future Capital Improvement Program Reserve Policy
which is used to fund capital budget requests. He pointed out that general fund reserve
balances are provided in the City’s Treasurer Report.
The Investment Policy was also discussed in greater detail including information on the City’s
investments with LAIF and the joint powers authority investment pool.
Feedback, thoughts, questions, and comments will be brought to the next Finance Committee
meeting for discussion before being brought to the Council for adoption.
Mayor Zhao invited public comment.
The following individuals spoke: Bill Dalton, Darrell Miller
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City Council Regular Finance Committee Minutes – February 13, 2024
Page 2
No motion needed.
Staff will prepare additional documentation to be presented at the next Finance Committee
meeting. Staff asked the Committee to bring their comments and suggestions to the next
meeting. Mayor Zhao asked if there could be a review of the Treasurer’s report at the next
Finance Committee meeting.
ADJOURNMENT
THE MEETING WAS ADJOURNED AT 4:53 PM.
Minutes respectfully submitted:
Gina Scott, Administrative Analyst
City of Saratoga
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Memorandum
DATE: April 9, 2024
TO: Finance Committee
FROM: Ryan Hinchman, Administrative Services Director
Gina Scott, Administrative Analyst
Ann Xu, Finance Manager
SUBJECT: Annual Financial Policies –Proposed Updates
The City’s Financial Policies are reviewed on an annual basis as part of the budget process. The Finance
Committee asked clarifying questions and provided feedback on the Policies at the February meeting, and
responses to those questions are found in Attachment A. We request the Committee review and provide
direction on the proposed changes to the Financial Policies, incorporating the feedback from the February
Finance Committee meeting and staffs’suggested updates in Attachment B.
ATTACHMENTS
A.Responses to February Finance Committee Questions
B.DRAFT Financial Policies Update
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Memorandum
DATE: April 9, 2024
TO: Finance Committee
FROM: Ryan Hinchman, Administrative Services Director
SUBJECT: Responses to February Finance Committee Questions on Financial Policies
The Committee asked clarifying questions on the Financial Policies at the 2/13/24 Finance Committee
meeting and provided suggested modifications to the policies. The following items detail City staff
responses to the questions and outline policy modifications based on direction provided by the
Committee.
1.Page 6 –Appropriations & Budgetary Control -3rd to last bullet (below), are we currently using
this process every year?
“Additionally,a minimal base amount of $500,000 remains in the Unassigned Fund Balance
Reserve at year-end to provide the first layer of fiscal protection for unanticipated operational
shortfalls or unforeseen needs in the following fiscal year.”
Response –Yes, each year the budget is built with a minimum of $500K of Unassigned Fund
Balance Reserves remaining at the end of the budget year. Unassigned Fund Balances are flexible
and can be applied to multiple uses.
2.Page 7 –Appropriations & Budgetary Control -Gann Limit –Please describe the Gann limit in
simple terms?
Response -The Gann Limit mandates an appropriations (spending) limit on the amount of tax
revenues that Saratoga may appropriate within a fiscal year.Simply put, the purpose of the limit
is to keep inflation adjusted per-person government spending under 1978–79 levels when the
limit was established. The formula to calculate the 2023-24 Gann limit is below:
% Change in
County
Population
% Change in
Per Capita
Income
Appropriation
Factor
2022-23
Appropriation
Limit
2023-24
Appropriation
Limit
0.9975 X 1.0444 =1.0418 X $54,320,026 $56,590,006
Saratoga typically budgets about 35% of the Gann appropriation limit. As a low-tax city, the City's
property tax dollar growth has increased at a slower pace than per capita personal income growth
rate since the Gann calculation was established in 1979.
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Memorandum
3.Page 10 –Capital Improvement Planning -Potentially adding a new priority project that pertains
to Hillside Stability.
4.Page 18 –Revenues -property tax and ERAF –please clarify bullet below:
“Over the last decade, Property Tax revenue increased at a much faster pace than other tax
revenues, due to rapidly increasing housing prices and the State’s agreement to bring the
allocation percentage up to the full 7 percent minimum rate, offset by the City’s 17.4 ERAF
calculation rather than the County’s 47.7 percent ERAF rate. As a result, Property Tax now makes
up about 80 percent of all tax revenues, with Sales Tax, Franchise Fees, Transient Occupancy Tax,
Business License Tax, and Construction Tax making up the remainder.”
Response –Answering this question involves delving into the history of property tax law. Santa
Clara County manages the property tax collection and distribution process on behalf of the State
of California. The County distributes the property taxes paid by Saratoga property owners to
multiple agencies and funds. Due to special legislation passed over 30 years ago, Saratoga and
three other small Santa Clara County cities (Los Altos Hills, Cupertino , and Monte Sereno) only
received a portion of the minimum 7% tax allocation prescribed by State law.
When Proposition 13 was passed in 1978 , the legislation held cities to the tax rates that
were in place in the prior year. Saratoga, along with the cities of Cupertino , Los Altos Hills, and
Monte Sereno, were among the cities in Santa Clara County that had no or very low property
taxes. To mitigate this, legislation was passed in 1979 to bring no/low tax cities up to the minimum
property tax rate of 7%.
However, the legislation provided an exception that allowed Counties to retain the
increase in property tax allocations if they choose to forego Trial Court funding. Because Santa
Clara County would receive more funding by retaining Property Tax from the four no/low tax
cities, than from Trial Court funding, they chose to retain the property tax, thereby limiting the
amount of property taxes these four cities were to receive to 55% of the 7%.
Throughout the years, the four cities launched collaborative lobbying efforts to introduce
and pass legislation that would treat Saratoga, Cupertino , Los Altos Hills, and Monte Sereno like
all the other no/low tax cities, and receive the minimum 7% allocation of the property tax
collected in the respective cities. Efforts were in part successful in late 2006 as the full 7% was
restored, however the amount restored was burdened with the County's Educational Revenue
Augmentation Fund (ERAF)rate of 40+% rather than the cities' much smaller ERAF rate of
between approximately 9 and 17%. The County ERAF rate was still a significant impact to revenue,
so the four cities continued to press for the full reinstatement of the 7% Tax Equity Allocation
(TEA)funding.
Policy Update –a new priority project Hillside Stabilization ($250K) has been included in the
policy which aligns with Council feedback from the capital improvement plan study session
on 2/21/2024.
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Memorandum
Fortunately, State Senator Jim Beall’s renewed efforts to assist the three cities and strong
property tax revenue growth after the recession brought momentum that helped convince the
State Department of Finance and legislators they could afford to reinstate the four cities' share of
property tax revenue. Legislation was passed as part of the fiscal year (FY)2015-16 budget trailer
bill to restore the funding back to the cities at an incremental 20% per year over the next five-
year period.When enacted, the restoration was valued at an additional $660,000 of property tax
revenue to the City each year when fully restored. This amount grows each year with the increase
in assessment values.
This background is helpful in understanding the historical context of property tax in
Saratoga, but the impacts of these changes have been included in Saratoga’s actual property tax
for some time, and are no longer relevant to the policy. The intent of the financial policy
statement is to highlight the importance of property tax and state that the City monitors it closely,
rather than provide historical tax changes.
5.Page 22 –Fund Balances –Comment that in the future we may want to consider a fund reserve
for Extreme Weather Reserve.
This is noted for future consideration. In an extreme weather event that necessitated the use of
funds, unassigned fund balance reserves could be used to fund the event with Council approval.
6.Page 45 -Authorized and Suitable Investments -clarify 20% of portfolio per pool.
Response - The 20% per pool limit in the table refers to a single joint power authority (JPA)
investment pool. This is essentially saying that no more than 20% of the City’s total portfolio can
be invested with any one particular JPA investment pool.
7.Page 62 –Debit Issuance -misspelled.Guideline on issuing debt. Request to add “making sure
the public is informed throughout the process.”
Policy Update –the language was removed from the redlined policy since the changes
occurred in the past and will not continue in the future. The language was updated to
highlight the ongoing importance of property tax as the primary funding source for the City.
Policy Update –misspelling corrected, added a bullet point under Debt Issuance Decision
Factors stating,“The public is informed throughout the debt issuance process.”
Policy Update –added “JPA investment” to the pool on page 46.
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Memorandum
8.Page 66 –Managing the Credit Relationship –Request to add a bullet ensuring that issuance of
any new debt doesn’t impact existing contracts.”
Question –should this be added under Debt Philosophy page 53 as a new bullet point instead of
under “Managing the credit relationship pay 66”?
9.Page 70 –Debt Arbitrage Compliance -Should we add something about buying back debt if there
is cheaper option available?
Response –Page 67 details the policy on refunding debt under various circumstances.
Some background on debt arbitrage compliance: Since the enactment of the Tax Reform Act of
1986, most bond financings have been subject to the arbitrage rebate requirement. To the extent
that proceeds of bonds are allowed to be invested at a yield in excess of the bond yield and
actually are invested at a higher yield, the law requires that the excess (generally referred to as
“arbitrage earnings”) must be rebated to the federal government.
10.Page 80, add attachments for donation policy examples.
Policy Update –added the following language: “During the due diligence process, the City
will verify that the issuance of new debt does not activate any terms or conditions outlined in
existing contracts or debt covenants”on page 53.
Policy Update –the donation policy is a standalone City Council policy and should not have
been included in the Financial Policies. It has been removed from the Financial Policy
package.
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Table of Contents
Current Adopted Financial Policies (20243-254)
General Financial Policies ............................................................................................................................... 5
General Principles ........................................................................................................................................ 5
Appropriations & Budgetary Control ........................................................................................................... 6
Auditing and Financial Reporting ................................................................................................................. 7
Capital Improvement Planning .................................................................................................................... 8
Development Related Financial Policies .................................................................................................... 11
Expenditures and Purchasing .................................................................................................................... 11
Fixed Assets and Infrastructure ................................................................................................................. 12
Grants and Donations ................................................................................................................................ 13
Internal Service Funds ............................................................................................................................... 14
Investments ............................................................................................................................................... 14
Long-Term Debt ......................................................................................................................................... 14
Long-Term Financial Planning .................................................................................................................... 15
Pension Funding ......................................................................................................................................... 16
Recession Preparations .............................................................................................................................. 17
Revenues .................................................................................................................................................... 18
Risk Management Policy ............................................................................................................................ 19
Treasury Management............................................................................................................................... 19
User Fees.................................................................................................................................................... 20
Fund Balance Reserve Policy ........................................................................................................................ 22
Fund Balance and Net Position .................................................................................................................. 22
Governmental Fund Type Reserve Classifications ..................................................................................... 22
General Fund Year-End Allocations ........................................................................................................... 24
General Fund Reserves .............................................................................................................................. 24
Special Revenue Fund Reserves ................................................................................................................. 27
Debt Service Fund Reserves ....................................................................................................................... 27
Capital Improvement Project Fund Reserves ............................................................................................ 28
Trust and Agency Fund Reserves ............................................................................................................... 35
Summary .................................................................................................................................................... 35
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Capital Improvement Program (CIP) ............................................................................................................ 37
Staff Project Development......................................................................................................................... 37
City Council Project Development ............................................................................................................. 39
CIP Project Review and Approval ............................................................................................................... 40
CIP Project Funding .................................................................................................................................... 41
Investment Policy .......................................................................................................................................... 43
Policy .......................................................................................................................................................... 43
Scope .......................................................................................................................................................... 43
Prudence .................................................................................................................................................... 43
Objectives .................................................................................................................................................. 44
Delegation of Authority ............................................................................................................................. 44
Ethics and Conflicts of Interest .................................................................................................................. 44
Authorized Financial Dealers and Institutions ........................................................................................... 45
Authorized and Suitable Investments ........................................................................................................ 45
Collateralization ......................................................................................................................................... 46
Safekeeping and Custody ........................................................................................................................... 47
Diversification ............................................................................................................................................ 47
Maximum Maturities ................................................................................................................................. 47
Internal Control .......................................................................................................................................... 47
Performance Standards ............................................................................................................................. 48
Market Yield (Benchmark) ......................................................................................................................... 48
Reporting ................................................................................................................................................... 48
Investment Policy Adoption ....................................................................................................................... 48
Debt Management Policy ............................................................................................................................. 51
Scope and Objectives ................................................................................................................................. 51
Statutory Requirements ............................................................................................................................ 51
Responsibility ............................................................................................................................................. 52
Debt Financing Considerations .................................................................................................................. 52
Cash Funding .......................................................................................................................................... 54
Types of Long-term Bond Debt Financing ................................................................................................. 58
Bond Debt Structure Considerations ......................................................................................................... 60
Debt Issuance ............................................................................................................................................. 62
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Debt Management ..................................................................................................................................... 70
SB 1029: Debt Issuance Reporting Requirements .................................................................................... 72
Donations Policy ................................................................................................ Error! Bookmark not defined.
City of Saratoga Donation Policy ................................................................... Error! Bookmark not defined.
General Provisions ......................................................................................... Error! Bookmark not defined.
Procedures ..................................................................................................... Error! Bookmark not defined.
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PAGE LEFT BLANK INTENTIONALLY
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General Financial Policies
ADOPTED MAY 17, 2023
General 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,
transparency, 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 or Budget Study Session. Council members are asked to provide comments or
suggestions for revisions to the Administrative Services Director with the final draft made
available for review by the entire Council prior to adoption.
• The City’s primary long-term financial goals seek 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 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, residents, 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 essential services and
infrastructure at the level and quality required by its residents.
• 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 governmental 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 and federal level.
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• The City shall develop and incorporate long-term financial planning tools to promote strategic
analysis and prioritization of financial resources in decision making.
• Replacement plans shall be maintained for fixed assets, such as vehicles, equipment, park
infrastructure, building fixtures and equipment, and technology infrastructure.
• Efficient major infrastructure funding requires comprehensive and long-term Master Plans. The
City shall endeavor to develop major infrastructure maintenance and replacement plans for
roadways, bridges, retaining walls, storm drains, streetlights, and similar infrastructure.
Appropriations & 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 Administrative Services Department staff provides; 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, typically at the Annual Council Retreat (scheduled in late January or early
February). This annual review assists Council with formulating direction for long-range fiscal
planning, operating budget development, and capital project 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.
• 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.
• Additionally, a minimal base amount of $500,000 remains in the Unassigned Fund Balance
Reserve at year-end to provide the first layer of fiscal protection for unanticipated operational
shortfalls or 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 federal, state, local, and private grants.
• In practice, budgeted revenues are conservatively stated, and budgeted expenditures are
funded at the full level required to meet annual operational and capital improvement goals. With
effectively managed revenue streams and efficient use of resources, fiscal year-end operational
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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 appropriation limit calculated in accordance with Article XIIIB of the Constitution of the State
of California. Known as the Gann Limit, the City Council adopts 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, departments, programs, and projects as needed to effectively operate,
provided the fund’s total appropriation amount is not 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
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, prioritizing
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.
Auditing and Financial Reporting
• California State statutes require an annual financial audit of the City’s financial records and
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 Annual
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Comprehensive Financial Report (ACFR) testifying to the financial report’s conformance with
accounting principles.
• Additional financial reports issued by the Auditor’s may include: a Single Audit of federal grant
expenditures when expenditures exceed the Federal Office of Management and Budget Single
Audit requirement, currently $750,000 in fiscal year 2022-232023-24), 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 ACFR 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 Controller’s Office Annual Cities Financial Transactions Report and Annual Streets
Report completed in conjunction with the year-end close.
Annual Debt Transparency Report for any debt issued after January 21, 2017.
Annual Government Compensation in California Report for all wages paid to individuals in
a calendar year.
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 (Americans with
Disabilities Act) Accessibility) 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.
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.
If needed, aA mid-year budget status reportadjustment is presented to City Council in
February or March each year to provide a comprehensive financial overview of the current
year’s budget 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 develops a multi-year workplan for major capital expenditures and their
associated funding sources, in an effort to improve and maintain the City of Saratoga’s
roadways, parks, and facility infrastructure. Non-infrastructure projects may also be included
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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, healthhealth, 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, typically
scheduled for completion within the five-year plan timeline, with cost estimates based on current
year dollars. Project estimates are updated as needed, due to price changes, design
specifications, or project scope adjustments.
• 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 may propose projects during City Council meetings for
which, if seconded, staff will 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 in accordance with available funding. Council also determines what projects shall
be included on the Unfunded Project List for future consideration.
• The five-year Capital Improvement Plan (CIP) is updated annually in conjunction with the
operating budget. While the CIP reflects the current and changing needs of the community as
well as enhancements to improve the quality of the community, Council prioritizes the
maintenance of City infrastructure to safeguard the public’s safety and reduce maintenance
costs over the long-term. The first year of 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 include: Street
Improvements, Park & Trail Improvements, Facility Improvements, and Administrative &
Technology Improvements.
• All projects within the CIP programs are appropriated, managed, and tracked as separate
funding entities, with each project’s financial status 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.
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• 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
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.
Proposed uses for the Capital Project Reserve fund is reviewed by Council, with preliminary
allocation direction voted upon by Council at the Budget Study Session in April. This direction
is presented at the Proposed Budget Hearing in late May or early June, with Final CIP funding
direction determined by Council with Budget Adoption in May or 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 be reviewed by
Council for budget direction each fiscal year:
$250,000 – Annual Sidewalks, Curbs & Gutters, Storm Drains, Bridges Maintenance and
Repairs
$200,000 – Annual Retaining Wall Maintenance & Repairs
$250,000 – Annual Parks, Trails, Grounds & Median Replacement Funding
$250,000 – Hillside Stability
$200,000 – Annual Retaining Wall Maintenance & Repairs
$150,000 – Annual Roadway Safety and Traffic Calming
$25,000 – Annual Public Art Infrastructure
$25,000 – Annual Hakone Gardens Infrastructure Improvements
• The Annual Pavement Management Program project is the primary capital project funded in
support of Council’s goal to maintain Saratoga city streets at an average 70 pavement
management index (PCI) rating. On occasion, separate street specific resurfacing projects are
established that also contribute toward this goal. In 20232-243, Council dedicated all revenue,
approximately $2.6 million, from State gas taxes, the State Roadway Rehabilitation Fund
(Senate Bill 1 or SB 1), the local refuse vehicle impact fees assessed on the Solid Waste
Services contract provider, and allocation of the Santa Clara County Measure B sales tax for
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local roads projects. This CIP project encompasses 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 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 is not full-cost recovery based overall.
• The Williamson Act, also known as the California Land Conservation Act, was passed by the
California Legislature in 1965 to encourage rural & agricultural landowners 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 contract. Contracts are valid for 10 years and are
automatically renewed unless the farmer or rancher cancels the contracti. 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.
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• The City’s 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 Contract 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 Record Retention
Policy 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 in the adopted budget or excluded
under the Purchasing Policy.
• 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
expense 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, and through Internal
Service Fund programs to both maintain and replace operational infrastructure, such as City
buildings, 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 retained to provide information
for preparation of financial statements in accordance with generally accepted accounting
principles and Governmental Accounting Standards Board (GASB) pronouncements.
• Infrastructure management systems are to be developed and maintained to provide long-term
financial and operational planning. These shall include various roadway system management
programs, storm drain system management plans, bridge replacements, street signal system
replacements, and all other infrastructure categories that require significant financial resources
to fund eventual replacement needs.
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• Information Technology software, hardware, and auxiliary equipment and system assets are
tracked and funded through the Operating Budget’s Internal Service Replacement Fund,
whereas annual appropriations in the Information Technology Services program budget funds
most ongoing license, maintenance, and security costs.
Grants and Donations
• The City recognizes the value of grants and donations to extend pre-existing services, introduce
new initiatives, add artistic and cultural infrastructure, implement technological advances, and
subsidize programmatic staffing for public safety, recreational activities, development support,
social services, homeland security, and economic efforts.
• City will seek to obtain and effectively administer federal, state, local, foundation, business, and
private grants that support the City’s priorities and provide a benefit to the City, with grant
requirements taken into consideration.
• City staff shall notify City Manager of grant proposals prior to submitting a grant application. If
approved to pursue, requesting department’s staff are responsible for all aspects of the grant
process, including preparing and submitting grant proposals, preparing staff reports, ordinances
and resolutions if needed, developing grant implementation plans, managing the grant program,
preparing and submitting reports to grantors, and properly closing out grant projects. Staff shall
work with Finance staff to track grant funding and expenses, and to generate grant payment
requests.
• The acceptance of grant funding will be assessed for both immediate and long-term costs and
benefits to the City. For example, a grant to construct infrastructure would incur future ongoing
maintenance costs. These costs shall be disclosed with the grant application and/or pre-award
notice.
• All accepted grants and donations are to have assigned staff, known as the Grant/Donation
Administrator, who is responsible for grant/donation oversight to ensure rigorous adherence to
the grant or donation’s related activity, ensure accountability for financial and ethical
administration, and is consistent with the City’s strategic priorities.
• Infrastructure addition or improvement grants in excess of $10,000 shall be brought to the
Council for review and approval.
• Operating Services grants, such as funding for health and safety programs that primarily utilize
staff or contract service or pay for material and supplies to accomplish the grant objectives may
be approved by the City Manager up to the City Manager’s current purchasing limit of $25,000.
• The City Council’s Public Art Policy establishes public art grant and donation authorization
approval levels.
• 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.
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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.
Additionally, funding is used to maintain required safety related documents, such as the City’s
ADA Transition Plan, and the Industrial Injury Prevention Plan (IIPP).
• Each Internal Service Fund will set recovery charges at rates sufficient to meet all operating
expenses, depreciation, and fund balance reserve policy objectives.
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 beginning 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 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, Governmental Accounting Standards Board (GASB)
guidelines, and transparency efforts.
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• The City shall seek to maintain a high credit rating through sound financial practices as a
foundational financial objective, in order to obtain the lowest possible borrowing cost, and
maintain financial responsibility.
• The City does not incur debt for operational purposes or capital improvements as a standard
practice. Under extraordinary circumstances, the City may 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 principle, long-term debt is 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 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, the 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 not exceed the expected useful life of the
project or extend beyond functionally appropriate payment terms. Additionally, financing
payment terms must be established at a manageable funding level or reasonable assessment
level.
• The City shall monitor all forms of debt in conjunction with budget development throughout the
year and will report concerns and remedies 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 law.
• The City will comply with Government Code Section 43605 limitations on debt, which limits
general obligation indebtedness to an aggregate 15 percent 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 tools with which to make
informed decisions.
• The City’s Long-Term Financial Plan (LTFP) shall include various analyses and documents that
support financial planning efforts, including a financial forecast and analysis, fiscal policies,
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revenue 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 are reviewed in conjunction with financial projections for the future. 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 three years, to garner a longer-term perspective of current fiscal expectations and fairly
reliable projected fiscal impacts in the effort 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 recommend 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.
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 prior to May 12, 2012
Tier II for employees hired on/after May 12, 2012, and “Classic” employees hired on/after
January 1, 2013
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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 2014-15, with the CalPERS changed to their pension funding methodology, Council paid off
a large portion of the unfunded accrued liability (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 percent 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 LiabilityUAL 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.
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 and 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 when needed.
• 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 main revenue category of Property Tax. Fortunately, this impact is delayed due to the
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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) the delay or reduction of funding for Internal Service Fund
operations, 2) use of one-time revenue resources, such as an unexpected payment or excessive
net operation funding held for future use, and 3) the reduction of expenditures included in the
budget each year that are not essential to providing services, such as staff conferences or
optional consultant and contract services.
Revenues
• General Revenue funding such as taxes, intergovernmental revenues, and interest provide the
funding for services conducted for city-wide benefit, such as public safety, infrastructure
maintenance, and city administration. Services provided upon request, 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 to maintain infrastructure, the City
conducts ongoing reviews of operations to assess revenue leakage. If applicable, assessments
or charges are assessed, 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 contractual agreement
to other funds are accounted for in the General Fund. Funds dedicated for specific capital
improvements are accounted for in the appropriate Capital Improvement Plan fund, within a
designated project. An example is VTA Measure B Sales Tax deposited directly to the Annual
Roadway Improvement Project in the Street CIP Fund.
• Categories of Revenues include Taxes, Intergovernmental, Fees/Licenses/Permits, Charge for
Services, Interest Income, Rental Income, other sources such as grants, donations, sales of
copies or maps, and over/short adjustments, 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 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.
• Over the last decade, Property Tax revenue increased at a much faster pace than other tax
revenues, due to rapidly increasing housing prices and the State’s agreement to bring the
allocation percentage up to the full 7 percent minimum rate, offset by the City’s 17.4 ERAF
calculation rather than the County’s 47.7 percent ERAF rate. As a result, Property Tax now
makes up about 80 percent of all tax revenues, with Sales Tax, Franchise Fees, Transient
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Occupancy Tax, Business License Tax, and Construction Tax making up the remainder. By
itself, Property Tax comprises about one-half of Total Operating Revenue, meaning there is a
significant dependency on this one revenue category. Hence, the City tracks Property Tax
revenue closely and makes revenue and expenditure budgetary projections and adjustments in
line with anticipated fluctuations. With revenue growth expected to increase slowly now that full
allocation has been attained, City expenditure budgets will mirror this restrained growth.
• Property Tax is the largest single revenue source for the City and makes up about two thirds of
the total general fund revenue. Given its significance, the City closely monitors Property Tax
revenue and makes revenue and expenditure budgetary projections and adjustments in line with
anticipated Property Tax fluctuations.
• The City follows a vigilant policy of collecting local taxes and revenues due to the City through
persistent follow-up procedures. 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.
Risk Management Policy
• The City is insured for up to $30 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 $25 million from an excess insurance
provider. 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.
• Workers Compensation claims are insured for the first $250,000 of coverage through the City’s
participation 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 Risk Management and Workers Comp programs is preventative
in nature, which is accomplished through 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 the City’s pooled liability JPA administrator in a timely
matter. Adverse claims in which City property is damaged are also pursued for restitution.
Repair cost for damages, and staff time for attending to the accident/incident, cleanup, and repair
time is billed to the other party. The JPA Administrator follows up on these matters alsoand
assists on these matters as well.
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.
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• It is the policy of the City of Saratoga to invest public funds in a manner which will provide the
maximum security for preservation of capital, with the highest investment return, while meeting
the daily cash flow and liquidity demands of the City, and provide the highest investment return,
while 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 the majority its of
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. The 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 AND AGENCY FUNDS
• The City may serve as a Fiscal Agent for an agency organization 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.
User Fees
• The City allows for discretion in the use of general taxes to meet the cost of services that 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 cost 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
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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 throughout the year.
• The City’s overall goal is to establish user charges and fees at levels that fully recover 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.
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Fund Balance Reserve Policy
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 by 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 Council 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, appropriate 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 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:
• Special Revenue Funds: Landscape & Lighting Assessment Districts Fund Balances
• Debt Services Fund: Library General Obligation Bond Debt Service Fund; Arrowhead
Community Facility District Bond Debt Fund
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• 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
• a) Hillside Stability Reserve
• b) Road and Facility Replacement Reserve
• Capital Improvement Program Funds:
a) Streets Capital
b) Gas Taxes Capital
c) Capital Grants, including ARPA
d) Parks Capital
e) Park In-Lieu Capital
f) Facilities Capital
g) Administrative & Technology Capital
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 City
maintains the following General Fund reserves under this designation:
• General Fund:
a) Future Capital Projects Reserve
b) Carryforward Reserve
b)c) Road and Facility Replacement Reserve
Unassigned Fund Balance
Represents funding which may be held for specific types of uses 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 purposes; hence the fund balances are therefore considered “assigned” for
that purpose.
General Fund:
a) Working Capital Reserve
b) Fiscal Stabilization Reserve
c) Unassigned Fund Balance
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 percent of General Fund expenditure appropriations, net of transfers out.
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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 Unassigned Fund Balance. A base
amount of funding, as set by budget policy, is to remain in the Unassigned Fund Balance, 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 repaid with year-end net
operations if funding in excess of the next year’s priority Capital Improvement Project is
available. At a minimum, reimbursements 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 shall be made to Road and Facility Replacement Reserve and Fiscal
Stabilization Reserve as directed by Council.
3. Remaining funds are allocated to the Future Capital Projects Reserve.
General Fund Reserves
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 which must be commenced prior to the next fiscal year’s CIP Project funding
availability.
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 percent of the reserve to make emergency repairs and mitigate further damage until
Council takes action. Reserve funding is to be used 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 full if funding is available, or at minimum in the amount of $100,000
each fiscal year until the $1,000,000 reserve cap is reached.
Road and Facility Replacement Reserve
Under the Assigned Fund Balance classification, tThe Road and Facility Replacement Reserve is
established to accrue funding for the major rehabilitation or replacement of City-owned roads,
building, and structures. Eligible uses of this reserve include direct funding of public road and facility
improvements and related debt service, if applicable. Road and facility improvements include major
and minor replacements, renovations, or city-match for grant or debt financed projects.
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.
Future Capital Projects Reserve
Under the Assigned Fund Balance classification, the Reserve for Future Capital Projects shall fund
capital improvement projects in future years, at the discretion of the City Council. Reserve funding
is derived from General Fund accumulated net operations (as available) and is therefore considered
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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
improvement 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
order 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 Fund 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.
Effective 2016-17, the Working Capital Reserve is maintained at $1 million (reduced from $2 million),
and the Fiscal Stabilization Reserve is maintained at $2.5 million (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 million 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 requirements. 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
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Reserve, up to $2.5 million. As of 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 12 percent of the General Fund’s
budgeted operations. Together, these funding shifts provide a focused but flexible reserve funding
purpose and utilization structure.
Fiscal stabilization uses are defined and restricted to 1) revenue declines lasting more than one
year and equal to more than 5 percent of either property tax, the combined total of other taxes, or
General Fund revenues in total; 2) an unanticipated extraordinary operational increase of more than
5 percent 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 during
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 Fiscal Stabilization Reserve funding level will be
assessed on an annual basis and may direct staff to increase the reserve fund through the budget
adoption or through a budget adjustment to ensure this funding level is sufficient in light of
operational reserve requirements and utilization needs.
The General Fund budget continues to increase each fiscal year. The overall 60-day General Fund
operational reserve minimum requirement level is close to the current total of Working Capital and
Fiscal Stabilization Reserve Fund total combined. To ensure that the Fiscal Stabilization and
Working Capital Reserves remain at a minimum requirement level, $100,000 shall be allocated
annually into the Fiscal Stabilization Reserve from Net Operations as part of the General Fund Year
End Close, effective 2021-22. This allocation shall only occur if General Fund Net Operations
exceed a minimum of $1,000,000 to ensure adequate funding is available for other necessary
allocations.
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
employees 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 if 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.
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.
General Fund vs Other Fund Reserves
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Other Fund’s accumulated net operations are typically accounted for in an undefined reserve
account in the fund – and typically titled ‘Fund Balance Reserve’ meaning they do not have reserve
categories. This difference is because other funds are structured for specific uses or commitments,
hence the fund balance already has a directed function and fund balance is therefore committed for
that purpose. Whereas the General Fund is used for multiple and various operational purposes
thereby requiring a distinction of purpose for each reserve.
Special Revenue Fund Reserves
Landscape & Lighting, Storm Water, and Automatic License Plate Readers (ALPR)
Assessment Zone Funds
Assessment Zone Funds are Special Revenue Funds, which is a type of governmental fund. As a
governmental fund, the Landscape & Lighting and Storm Water Assessment Zone 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
Saratoga, Assessment Zone Special Revenue Funds are established to account for each individual
assessment zone financial assets separately; thereby each fund has its own separate fund balance
reserve.
Each zone’s Fund Balance Reserve should be sufficient to provide working capital to cover
operational expenses through the first half of assessment receipts in February, therefore equitable
to approximately one-half of a district’s annual expenditure budget. The second half of receipts are
received in late May or early June. Some districts may include capital improvement projects in
addition to ongoing regular maintenance. This requires accumulating fund balance over the years
to generate sufficient resources for the improvement projects. As each zone’s situation is different,
a maximum fund balance shall be determined by the Public Works Director.
Requests for use of the reserve for special projects are approved by Council through budget
adoption or by a Council approved budget adjustment resolution throughout the year. Reserves are
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 account
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 is
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 1st 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
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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 issued in
December 2018, and participants in the bond issuance began assessment payments in 2018-19.
The annual debt service assessment pays for the cost of the bond’s principal and interest payments,
and the associated administrative costs. Fund reserves are comprised of assessments collected
less bond costs. Assessments are established as dollar amounts rather than percentage rates, so
the CFD Bond Debt Reserve does not generate unexpected excess fund balance as does the GO
Bond Debt Fund.
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, setting a minimum or
maximum amount is not applicable. Fund Balance is automatically re-appropriated to budgeted
capital projects in the following fiscal year for the improvement 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 projects 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 Tax 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
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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 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 designated 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.
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
improve or enhance administrative, operational, and technology-based systems and processes.
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. Administrative and technology improvement focused grants are typically limited to
the Community Development function for housing elements or development processes. 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.
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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
operational programs based on usage to determine cost of service.
The City’s Internal Service Funds include 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.
Internal Service Funds are similar to the separate checking or savings accounts a person may use
for different purposes. And, as each fund is accounted for as a separate entity, operational revenues
less expenditures result in either a positive or negative net operations, with their own fund balance
to offset operational losses if needed. 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 throughout the fiscal year and to minimize interfund loans. Some of the Internal Service
Funds do not accumulate funds in excess of expected ongoing operational costs, but for the
replacement funds, the purpose is to accumulate a rolling balance to fund future replacement costs
as needed. Individual fund reserve levels are explained in more detail in the following fund sections.
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
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 with 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 departments,
from grant funding, and from claim reimbursements. On occasion, the City is obligated to pay a
claim settlement. While some funds are budgeted for miscellaneous claim expenses each year,
large claims may need to utilize reserves. For this reason, the Fund Balance Reserve goal is set at
about 100 percent of annual budget to both fund operational activity and for claim funding as
needed. At year-end, unspent funding flows into Unrestricted Net Position or Restricted Net Position
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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. If claim payments
do utilize reserve funds, 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 self-insurance 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 charged to 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 Council through budget adoption or by a Council approved budget
adjustment resolution during the year, such as for an unexpected large claim settlement. The
reserve is replenished from the Fund’s net operations in subsequent years.
Office Services Fund
The Office Services program provides a centralized cost center for administrative office support
services, supplies/ equipment, and maintenance/ repair expenses. Example services include
mailing, printing, and centralized records management. Example supplies/ equipment include
paper, toner, and binding materials. Maintenance and repair expenses include service contracts on
shared office equipment. For efficiency, shared 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 Services Fund for working capital cash flow.
The reserve is funded from the allocations charged to covered departments. 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. Reserves are maintained at approximately the 50 percent of budget
level, however on occasion, excess Reserve funds are used for the replacement of assets such as
the mailing machine. The reserve is replenished 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 collectively 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 departments. At year-end,
unspent funding flows into Unrestricted Net Position. Accumulated 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
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adjustment resolution during the year. The reserve is replenished from the Fund’s net operations
in subsequent years.
Vehicle & Equipment Maintenance Fund
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 Council 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
purchased 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 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.
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Technology Equipment Replacement Fund
The 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 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 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 funding 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 accumulatedaccumulated 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 the 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 budget
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.
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Trust and Agency Fund Reserves
Overview
Trust and Agency Funds are created to assist City-related agencies with fund management needs.
Trust Funds 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 one Agency Fund: the West Valley Clean
Water Program. Because Agency Funds manage their own money, the City of Saratoga does not
develop Reserve Policies for Agency Funds.
Summary
Fund Balance Reserve Use
Council may utilize reserve funding at budget adoption or by adoption of a budget adjustment
resolution during the course of the year if necessary. Reserve funding is replenished from year-end
net operations, or if the fund has a negative net operation, then Reserve funds would offset the net
operation loss with the close of the fiscal year.
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Capital Improvement Program (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, to the Council’s CIP Project Review and CIP
Budget Study Session meetings, 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 Review Meeting.
Staff Project Development
1. CIP Project Initiation
As a function of staff’s day-to-day work, infrastructure improvements, large-scale repairs, and
ongoing maintenance and replacement projects are identified as potential capital improvements.
These are often highly visible and tangible public assets such as street repaving, retaining walls,
or park and trail improvements. However, many essential CIP projects are less noticeable,
including storm drain repairs, electrical or irrigation upgrades, or ADA enhancements. Other
projects are intangible administrative or technology improvements and, in most cases, invisible
to the general public, such as code updates/revisions, software and process improvements, or
economic vitality programs.
Staff discusses CIP project ideas with the appropriate Director or City Manager 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 approval process. After receiving initial approval, staff moves into the idea
development stage.
2. Idea Development
To move the idea forward, staff will 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 a phased project, information regarding future phases
and total costs should be included. For instance, a design project should include information
on the intended project’s construction phases and total estimated cost.
If the project is ongoing infrastructure maintenance such as a roof replacement, or a program
project such as a General Plan element update, this too should also be clearly noted. In the
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scope description, constraints or restrictions may help to identify project limitations. And in
some cases, project scope may be clarified by exclusions – statements about what the
project will not accomplish or produce.
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 development.
Understanding of historical context and past projects will help to dDetermine whether this a
new project has come up for consideration beforein the past, or why it was not completed
previously. Have circumstances changed? Or are there lessons to be learned from a past
project proposal?
Another consideration includes knowing whether a project might be controversial. 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.
Ultimately, Council wants to support those projects that 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 not undertaken
The severity of priority criteria is considered in the decision-making process. For instance,
a project that falls under the “Imminent Failure of Structure/System” criteria is assessed to
determine whether there are safety issues, or if immediate repairs would provide significant
replacement or maintenance savings. Another consideration 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 or risk of lawsuits for lack of timely completion. As a result, project
priority is based on the overall assessment of the collective 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
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materials, community/stakeholder participation or support, space requirements, information
technology services, or some other type of support or contribution needed for a project to be
successful.
Funding plays a critical role in project development. In many cases, lower priority projects
are approved ahead of higher priority projects simply because there is designated funding
available for the lower priority projects. The ability to leverage designated funding with grant
funding for a project proposal greatly increases the likelihood a proposed project will be
approved. Overall, a project funded solely by Capital Project Reserve money needs to be
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 number and types of projects brought to Council for review.
Other Considerations - Numerous other factors, not mentioned above, are also taken into
consideration when assessing a project idea. For example:
a. Can the City afford the ongoing operating budget increases to maintain or implement the
project?
b. Does the project provide operational efficiencies or cost savings?
c. Are there environmental concerns?
d. Does it enhance the community’s art, education, or cultural resources?
e. What impacts are there if the project requires development be staged in phases?
f. Are there risk management concerns, or legal liability issues?
g. Is there strong community interest in this project?
h. Does the project contribute toward economic vitality?
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 goal of idea development is to identify, quantify, and assess a project
comprehensively. This effort is intended to ensure that a proposed project is well thought-
out, developed, and articulated thereby enabling the City Manager and Council to make
educated and rational decisions.
3. City Manager Approval
Staff’s proposed projects ultimately go to the City Manager. If approved for consideration, staff
will prepare written narratives with project scope, justification, fiscal impacts, cost estimates,
timelines, etc. as necessary for Council Retreat assessment package and Finance Staff will add
the project to the Proposed CIP Project List.
City Council Project Development
Council Members are often the recipients of residents’ suggestions and requests for capital
improvements. 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
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on how to contact 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 Proposed Capital Project List is to be recorded in the City Council minutes
and acted upon as a follow-up item. City Manager will clarify/verify understanding of project
scope and then assign staff to complete Proposed CIP Project requirements, including
preparation of project scope narrative and justification, fiscal impacts, cost estimates, timelines,
etc.
Council nominated projects are automatically included as a proposed CIP project in the CIP
Project Review package.
CIP Project Review and Approval
1. CIP Project Review Package
In preparation for the annual Capital Project Review, Finance Staff will consolidate Proposed
CIP projects information, along with proposed changes to current CIP projects, and the current
year’s CIP Unfunded Project List into a presentation and CIP Project Review package for
Council. The CIP Project Review meeting provides Council with a forum to have an in-depth
discussion on funding availability, assess project scopes, evaluate priority criteria and
resources, and examine impacts of other considerations for CIP projects at one time. The CIP
Review package will include:
● Available funding
● Current year CIP projects
● Proposed changes to existing projects
● The current CIP Unfunded List
● Proposed changes to projects on the CIP Unfunded List
● Proposed new CIP projects
● Proposed additions to the CIP Unfunded List
2. Capital Project Review Meeting
The City Council’s review of current and proposed funded and unfunded Capital Projects is held
annually, typically at the Council Retreat as part of the budget development cycle initiation. In
addition to reviewing the Capital Project Review package, the Council may request a currently
funded capital project be reviewed to determine if the project should continue in the following
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fiscal year. If consensus direction is given, staff will add the currently funded project into the
Review package for discussion at the follow-up CIP Budget Prioritization Meeting.
In reviewing Capital Projects, 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.
At the conclusion of the CIP Project Review meeting, Council may retain the CIP Project Review
Binder although the documents will also be available on the City’s website.
3. CIP Budget Study Session
The CIP Budget Study Session agenda is to:
• Remind Council of the upcoming fiscal year’s Capital Project funding availability.
• Recap the Proposed CIP Projects Review Meeting proposals and associated priority issues.
• Inform Council of any changes or modifications since the CIP Project Review Meeting.
• Answer questions Council may have on proposed projects.
• Reach consensus on the Proposed CIP Funding Scenario and CIP Unfunded List.
Council will conduct a final assessment and provide consensus direction to staff for CIP Project
funding to be included in the upcoming Proposed Budget Hearing to be held in May, and
modifications to the CIP Unfunded Project List, if any.
NOTE: Rejected project ideas may be brought back in following years for another attempt to
become an approved project but must go through the project development process again.
CIP Project Funding
1. Proposed Budget Hearing
Staff will incorporate Council’s direction from the CIP Budget Study Session into the Proposed
Capital Budget brought to the City Council Budget Public Hearing that occurs in late May or early
June. Council 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 asked to adopt the budget at this time, with
budget funding effective on July 1st , the start of the next fiscal year.
3. Funding Process Follow-up
Approved CIP projects that do not receive funding allocations are assigned to the CIP Unfunded
List. The CIP Unfunded List has a life span of one budget cycle meaning the budget adoption
keeps the Unfunded CIP Project for consideration as a potential project in the following fiscal
year CIP project discussions.
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Investment Policy
EFFECTIVE JULY 1, 20243
Policy
It is the policy of the City of Saratoga to invest public funds in a manner which will provide
the maximum security with the highest investment return, while meeting the daily cash flow
demands of the City and conforming to all state and local statutes governing the investment
of public funds.
Scope
This investment policy applies to all financial assets of the City of Saratoga. These funds
are accounted for in the City of Saratoga's Annual Comprehensive Annual Financial Report
and include:
A. Funds
1. General Fund
2. Special Revenue Funds
3. Internal Service Funds
4. Capital Project Funds
5. Debt Service Funds
6. Trust and Agency Funds
7. Any new fund, unless specifically exempted
B. Exceptions
1. Deferred Compensation Plans – Investments are directed by the individual plan
participants.
2. Debt Service Funds held by trustees – Investments are placed in accordance with bond
indenture provisions.
3. Notes and Loans – Investments are authorized by separate agreements approved by
City Council.
Prudence
Investments shall be made with judgment and care, under circumstances then prevailing, with
prudence, discretion, and intelligence not for speculation, but for investments, considering the
probable safety of capital as well as the probable income to be derived.
A. The standard of prudence to be used by investment officials shall be applied in the context
of managing an overall portfolio. Investment officers acting in accordance with written
procedures and this investment policy and exercising due diligence shall be relieved of
personal responsibility for an individual security's credit risk or market price changes,
provided deviations from expectations are reported in a timely fashion and appropriate
action is taken to control adverse developments.
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Objectives
The primary objectives, in priority order, of the City of Saratoga's investment activities shall be:
A. Safety
Safety of principal is the foremost objective of the investment program. Investments of the
City of Saratoga shall be undertaken in a manner that seeks to ensure the preservation of
capital in the overall portfolio. The objectives will be to mitigate credit risk and market risk.
1. Credit risk, defined as the risk of loss due to failure of the issuer of a security, shall be
mitigated by investing only in investment grade securities and by diversifying the
investment portfolio so that potential losses on individual securities will have a minimal
impact on the portfolio.
2. Market risk, defined as market value fluctuations due to overall changes in the general
level of interest rates, shall be mitigated by limiting the average maturity of the City’s
investment portfolio to two years and the maximum maturity of any one security to five
years, and by structuring the portfolio based on cash flow analysis so as to avoid the
need to sell securities prior to maturity.
B. Liquidity
The City of Saratoga's investment portfolio will remain sufficiently liquid to enable the City
of Saratoga to meet all operating requirements, which might be reasonably anticipated.
C. Return on Investments
The City of Saratoga's investment portfolio shall be designed with the objective of attaining
a rate of return throughout budgetary and economic cycles, commensurate with the City of
Saratoga's investment risk constraints and the cash flow characteristics of the portfolio.
Delegation of Authority
Authority to manage the City of Saratoga's investment program is derived from the following:
California Government Code Section 53600 et seq. and Saratoga Municipal Code Section 2-
20.035. Management responsibility for the investment program is hereby delegated to the City
Manager who shall be responsible for supervising all treasury activities of the Administrative
Services Director and who shall establish written procedures for the operation of the investment
program consistent with this investment policy. Procedures should include reference to
safekeeping, delivery vs. payment, investment accounting, wire transfer agreements, banking
service contracts and collateral/depository agreements. Such procedures shall include explicit
delegations of authority to persons responsible for investment transactions. No person may
engage in investment transactions except as provided under the terms of this policy and the
procedures established by the City Manager. The City Manager shall be responsible for all
transactions undertaken and shall establish a system of controls to regulate the activities of
subordinate officials.
Ethics and Conflicts of Interest
Officers and employees involved in the investment process shall refrain from personal business
activity that could conflict with proper execution of the investment program, or which could
impair their ability to make impartial investment decisions. These officers and employees
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involved in the investment process shall disclose to the City Manager any material financial
interests in financial institutions that conduct business with the City. Employees and investment
officials shall refrain from undertaking personal investment transactions with individuals who
conduct business on behalf of the City of Saratoga.
Authorized Financial Dealers and Institutions
The City Manager will maintain a list of financial institutions authorized to provide investment
services to the City. In addition, a list will also be maintained of approved security
broker/dealers selected by credit worthiness and who are authorized to provide investment
services in the State of California. These may include "primary" dealers or regional dealers that
qualify under Securities & Exchange Commission Rule 15C3-1 (uniform net capital rule). No
public deposit shall be made except in a qualified public depository as established by state
laws.
All financial institutions and broker/dealers who desire to become qualified bidders for
investment transactions must supply the City Manager with the following: personal interview,
firm description and audited financial statements, proof of National Association of Securities
Dealers (NASD) certification, proof of State of California registration, completed broker/dealer
questionnaire and certification of having read the City of Saratoga's investment policy and
applicable depository contracts. An annual review of the financial condition and
registrations of qualified bidders will be conducted by the City Manager.
A current audited financial statement is required to be on file for each financial institution and
broker/dealer with which the City of Saratoga invests prior to any transaction.
Authorized and Suitable Investments
The City of Saratoga is empowered by Government Code Section 53601, and further limited
by this investment policy, to invest in the following types of securities:
Type Guarantee Limits Term to Maturity Limit
State of California Local Agency
Investment Fund (LAIF)
NoneImplied
Guarantee by State
of California
$765,000,000 On Demand
U.S. Treasury Bills Guaranteed by the
US Treasury
No Limit 1 Year
U.S. Treasury Notes Guaranteed by US
Treasury
No Limit 5 Years
U.S. Govt. Agency Issues (e.g.
FNMA, GNMA)
Implied Guarantee
by US Government
No Limit 5 Years
FDIC Insured Certificates of
Deposit
FDIC
$250,000 per
institution; 30%
total portfolio
5 Years
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FDIC Insured Negotiable
Certificates of Deposit
FDIC
$250,000 per
institution; 30%
total portfolio
5 Years
Investment Grade Obligations of
California, or Local
Governments, or Public
Agencies
None
20% portfolio per
institution; 30%
total portfolio
5 Years
Money Market Mutual Funds
None
10% portfolio per
institution; 20%
total portfolio
On Demand
Passbook Savings Account and
Demand Deposit
110% Collateral
Minimum
necessary for
current cash flow
On Demand
Joint Powers Authority (JPA)
Investment Pools as authorized
by Government Code 53601(p)
None 20% portfolio per
JPA investment
pool; 20% total
portfolio
3 years
The City shall not engage in leveraged investing, such as margin accounts, or any form of
borrowing for the purpose of investing.
The City shall not invest in instruments whose principal and interest could be at risk contrary to
Section IV.A of this policy. Examples of these instruments are options and future contracts.
Additionally, the City shall not invest in "derivatives".
See Glossary for description of above securities.
Collateralization
Collateralization will be required on certificates of deposit and other deposit-type securities
balances in excess of the FDIC insured limits. In order to anticipate market changes and provide
a level of security for all funds, the collateralization level will be 110% of market value of principal
and accrued interest, in accordance with California Government Code Section 53651 and
53652.
The City of Saratoga chooses to limit collateral to those listed in Section VIII.
Collateral will always be held by an independent third party with whom the entity has a current
custodial agreement. A clearly marked evidence of ownership (safekeeping receipt) must be
supplied to the City of Saratoga and retained.
The right of collateral substitution may be granted.
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Safekeeping and Custody
All security transactions entered into by the City of Saratoga shall be conducted on a delivery-
versus-payment (DVP) basis. Securities will be held by a third -party custodian, in the City of
Saratoga's name and control, designated by the City Manager and evidenced by safekeeping
receipts.
Diversification
The City of Saratoga will diversify its investments by security type and institution. Limits are
provided for in Section VIII. With the exception of U.S. Treasury securities and authorized
pools, no more than 30% of the City of Saratoga's total investment portfolio will be invested in
a single security type or 20% with a single financial institution.
Maximum Maturities
To the extent possible, the City of Saratoga will attempt to match its investments with
anticipated cash flow requirements. Unless matched to a specific cash flow, the City of
Saratoga will not directly invest in securities maturing more than five (5) years from the date of
purchase. However, the City of Saratoga may collateralize its certificates of deposits using
longer-dated investments not to exceed ten (10) years to maturity.
Debt reserve funds may be invested in securities exceeding five (5) years if the maturities of
such investments coincide as nearly as practicable with the expected use of the funds.
The City of Saratoga will retain a general operating reserve adopted annually by the City
Council. The amount of active deposits and inactive investments with maturity of one year or
less shall always be equal to or greater than the required general operating reserve. The report
discussed in Section XV shall demonstrate this policy is in effect.
Internal Control
The City of Saratoga is responsible for establishing and maintaining an internal control structure
designed to ensure that the assets of the City are protected from loss, theft or misuse. The
internal control structure shall be designed to provide reasonable assurance that these
objectives are met. The concept of reasonable assurance recognizes that (1 the cost of a
control should not exceed the benefits likely to be derived, and (2 the valuation of costs and
benefits requires estimates and judgments by the City Manager and staff.
Accordingly, the City shall establish an annual process of independent review by an external
auditor. This review will provide internal control by assuring compliance with policies and
procedures. The internal controls shall address the following points:
• Control of collusion.
• Separation of transaction authority from accounting and recordkeeping.
• Custodial safekeeping.
• Avoidance of physical delivery of securities.
• Clear delegation of authority to subordinate staff members.
• Written confirmation of transactions for investments and wire transfers.
• Development of a wire transfer agreement with the lead bank and third-party custodian.
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Performance Standards
The investment portfolio shall be designed with the objective of obtaining a reasonable rate of
return throughout budgetary and economic cycles, commensurate with investment risk
constraints and cash flow needs.
Market Yield (Benchmark)
The City’s investment strategy is passive. Given this strategy, the benchmark used by the
City of Saratoga to determine whether market yields are being achieved shall be the one-
year U.S. Treasury Bill.
Reporting
The City Manager is charged with the responsibility of including a market report on investment
activity and returns in the City of Saratoga's Cash and Investment Report. The report will be in
compliance with California Government Code Section 53646.
Investment Policy Adoption
The City of Saratoga's Investment Policy shall be reviewed and adopted by the City
Council annually.
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GLOSSARY
Asset Allocation - Refers to the division of holdings in a portfolio by asset class. A common strategy
is to hold assets that perform or react differently with the objective to limit or reduce risk.
Benchmark - A point of reference that serves as a standard for performance to be measured against.
Broker - A person or entity registered with the National Association of Security Dealers and provides
investment services and/or execution of services in exchange for compensation.
Annual Comprehensive Financial Report (ACFR) - The City’s annual financial statements and
footnotes, along with an executive summary, financial outlook, statistical information, and other
financial information.
Certificates of Deposit - Commonly called time deposit certificates or time deposit open accounts.
These are nonnegotiable.
Collateralization - Process by which a borrower pledges securities, property or other deposits for the
purpose of securing the repayment of a loan and/or security. Also refers to securities pledged by a
bank to secure deposits of public monies.
Custodian - A bank or other financial institution that keeps custody of stock certificates and other
assets.
Dealer - Someone who acts as a principal in all transactions, including buying and selling from his/her
own account.
Delivery vs. Payment - The preferred method of delivering securities, with an exchange of money for
the securities.
Demand Deposits - A deposit of monies which are payable by the bank upon demand of the depositor.
Derivative - Securities that are based on, or derived from, some underlying asset, reference date, or
index.
Dividend - A share of the income divided amongst shareholders of a company.
FDIC - Federal Depository Insurance Corporation
Index - A tool used to statistically measure the progress of a group of assets that share characteristics.
This can include a group of stocks, a group of bonds, or a group of other assets.
Internal Rate of Return (IRR) - The discount rate at which the present value of future cash flows of an
investment equals the cost of the investment. It is determined when the net present value of the cash
outflows (the cost of the investment) and the cash inflows (returns on the investment) equal zero, the
rate of discount being used is the IRR
Liquidity - An asset that can easily and rapidly be converted into cash without significant loss of value.
Local Agency Investment Fund (LAIF) - The LAIF was established by the State of California to
enable treasurers to place funds in a pool for investments. There is a limitation of $65 million per
agency subject to a maximum of ten (10) total transactions per month. The City uses this fund when
market interest rates are declining as well as for short-term investments and liquidity.
Money Market Mutual Funds - Mutual funds that invest in short term securities and strive to maintain
a share price of $1.
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Negotiable Certificates of Deposit - A bank deposit issued in negotiable form (i.e., one that can be
bought or sold in the open market).
Passive Investment Strategy - An approach to managing the investment portfolio, which entails a
“buy and hold” strategy in which investments are generally held until they mature.
Portfolio - Combined holding of more than one stock, bond, commodity, cash equivalent or other asset.
The purpose of a portfolio is to reduce risk through diversification.
Primary Dealer - A group of government securities dealers that submit daily reports of market
activity and security positions held to the Federal Reserve Bank of New York and are subject to its
oversight.
Rate of Return - The total income received over a period of time, including interest income,
accretion of discount, amortization of premium, and change of market value; usually expressed as
a percentage or in decimal format.
Regional Dealer - A dealer who is not a primary dealer, and therefore not monitored by the Federal
Reserve, but is registered with the Securities and Exchange Commission.
Safekeeping - Offers storage and protection of assets provided by an institution serving as an agent.
U.S. Treasury Bills - Commonly referred to as T-Bills these are short-term marketable securities sold
as obligations of the U.S. Government. They are offered in three-month, six-monthsix-month, and one-
year maturities. T-Bills do not accrue interest but are sold at a discount to pay face value at maturity.
The principal investment and interest earned from Treasury Bills are guaranteed by the full faith and
credit of the United States, if held to maturity.
U.S. Treasury Notes - These are marketable, interest-bearing securities sold as obligations of the U.S.
Government with original maturities of one to ten years. Interest is paid semi-annually. The principal
investment and interest earned from Treasury Bills are guaranteed by the full faith and credit of the
United States, if held to maturity.
U.S. Government Agency Issues - A U.S. Government Agency Issue is a security issued by a
government-sponsored enterprise (GSE) or a federal government department other than the U.S.
Treasury. The principal investment in GSE Issues has an implicit guarantee by the United States
government; however, they are not fully guaranteed, similar to U.S. Treasury-issued securities.
Yield - The yield refers to the interest on a bond or the dividends paid on a stock or mutual fund.
Yield also includes expected capital gain or loss.
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Debt Management Policy
Scope and Objectives
This Debt Management Policy sets forth debt management goals for the City of Saratoga,
establishes general parameters for consideration of debt financing, and provides guidance for
the issuance, management, and continued administration of debt. This policy applies to debt
issued directly by the City, and debt issued on behalf of the City by its Public Financing Authority.
The primary objectives of this policy are to improve the quality of debt related decisions through
providing an overview of common types of debt the Council may consider, the debt issuance
process, and practices required for the management of a debt portfolio. Overall, this policy
serves as a public commitment by City Council to:
• Articulate debt policy goals.
• Provide guidelines on debt issuance decisions, implementation, and maintenance.
• Promote sound financial management on the use of debt, including an understanding of the
different types of borrowing.
• Establish maximum limits on the amount of debt outstanding and the amount of annual debt
service the City will consider.
• Minimize debt service and issuance costs.
• Maintain a high credit rating and credit availability to maximize future debt capacity.
• Demonstrate a commitment to long-term financial planning, including a multi-year capital
plan and five-year General Fund operational forecast.
• Provide public accountability and transparency related to the issuance of debt through clear
disclosure in budget and financial reporting documents, and annual debt reports.
• Minimize legal risks by complying with all financial disclosure, reporting, and debt issuance
laws while planning debt transactions, executing them, and throughout the life of the debt
transaction.
• Ensure full and timely repayment of debt.
Statutory Requirements
The State Legislature created the California Debt and Investment Advisory Commission
(CDIAC) in 1981 to, among other things, oversee state and local debt authorization and
issuance. To meet its statutory mandate, the CDIAC establishes guidelines, policies, and
procedures to be followed, including reporting forms and deadlines.
In compliance with CDIAC direction, this Debt Policy shall:
• Require a stated purpose for which debt proceeds may be used.
• Identify the types of debt that may be issued.
• Require debt have an integral relationship to the City’s goals and objectives, budget
and/or capital improvement program.
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• Identify the methods of sale permitted.
• Identify permissible debt structure factors, such as maximum term limits, amortization
requirements, redemption policies, credit tools, and other debt limitations.
• Require internal control procedures over funds to ensure debt proceeds are directed to
the intended use
• Establish debt issuance authorization and compliance requirements.
Responsibility
On an annual basis, this Debt Management policy: shall be reviewed and modified as necessary
by the Finance & Administrative Services Director; brought to the Finance Committee for review;
and brought to the City Council for approval.
The City Manager or designee shall be responsible for enforcing this policy, and may issue
supplemental procedures and memoranda that details specific directions for clarification
purposes, as needed.
A. TRANSPARENCY
The decision to incur new indebtedness should be fully transparent and incorporated into the
adopted Operating and Capital Improvement Program budget document, with full explanation
and disclosure of the debt purpose, funding source, and payment obligations. Annual debt
service payments shall be included in the adopted Operating Budget over the life of the financing
obligation.
Debt Financing Considerations
A. DEBT PHILOSOPHY
The City’s fiscal management philosophy calls for conservative and cautious practices to ensure
prudent and efficient use of resources to maintain the City’s fiscal health; preserve essential
services; reduce financial risk; and support short and long-term administrative, financial, and
operational goals through responsible, sustainable, and enforceable fiscal policies and internal
controls.
This Debt Management Policy is designed to align with the City’s conservative and cautious
fiscal practices. The following statements summarize Council’s debt philosophy:
• The City minimizes the use of debt funding, limiting long-term debt financing to capital
improvements or special projects that cannot be financed from current or dedicated
revenues. Large liabilities that result in significant financial impacts may also be considered
for long-term debt financing if prompt repayment is vital to the City’s well-being. In principle,
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.
• The City does not incur debt for operations, or for capital improvements except under
extraordinary circumstances and with citizen support. Under these circumstances the City
will seek voter approval for debt to undertake major infrastructure rehabilitation.
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• Through City Council approval, the City may function as a bonding conduit for special
assessment districts. This may occur when a neighborhood is seeking to improve private or
cooperatively owned infrastructure, such as private roads or water system cooperatives.
The 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: not exceed the expected useful life of
the project; include financing payment terms at a manageable level; and, does not extend
beyond functionally appropriate payment terms.
• The City will monitor all forms of debt in conjunction with budget development throughout
the year, and will promptly report concerns and remedies if necessary to the City Council.
• The City will ensure compliance with bond covenants, and provide financial information to
reporting parties as required.
• During the due diligence process, the City will verify that the issuance of new debt does not
activate any terms or conditions outlined in existing contracts or debt covenants.
B. PURPOSE AND ANALYSIS
The general purpose for debt financing must fall into one of the following categories:
1. New Money Financing – New money debt is to generate additional funding to be available
for expenditure on capital projects. These funds may be used for the acquisition,
construction, or major rehabilitation of capital assets.
2. Refunding – Refunding bonds are issued to retire all or a portion of an outstanding bond
issue. Most typically this is done to refinance debt at a lower interest rate to reduce debt
service. Alternatively, some refundings are to restructure the repayment schedule of the
debt, to change the type of debt instruments being used, or to retire an indenture in order to
remove undesirable covenants.
3. Reimbursement Bonds – A tax-exempt bond for which the proceeds are allocated to prior
expenditures originally paid from sources other than bond proceeds.
A proposed debt financing request must fully and clearly state the purpose, funding use, debt
type, and the reasons debt financing is being requested, including a critical analysis on whether
debt financing is beneficial for the project and the City. The analysis is to include a detailed
consideration of available alternatives, debt funding sources, and whether the debt conforms to
the City’s long-term financial planning objectives.
As a checklist, the analysis of proposed debt should:
• Confirm that the capital project, infrastructure improvement, or asset is eligible for short- or
long-term financing.
• Assure the total cost of the capital project, infrastructure improvement, or asset includes
contingency funding and financing costs.
• Review available financing options, cost effectiveness, and cost-benefit factors.
• Identify and assess alternative bond structures.
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• Identify the source and reliability of a revenue stream to fund annual debt service.
• Appraise the municipal bond market, including economic and interest rate trends, and
appropriateness of market timing.
C. METHODS OF FINANCING
Under the City’s fiscal management philosophy, the City manages its cash in a manner that
ensures ongoing operational expenses are met, thereby preventing the need for borrowing.
Capital funding is viewed under the same available funding philosophy, meaning the City
subscribes to acquiring funds through grants and accumulated net operational savings for one-
time cash flow funding, as a general rule. Debt obligations are to be considered only after giving
due consideration to all available funding sources, including available cash reserves, available
current revenues, future revenue sources, potential grants, and all other financing sources
legally available to be used for such purposes.
Cash Funding
The City funds a significant portion of capital improvements on a “pay-as-you-go” basis.
City generated capital improvement funding is typically accumulated from excess
operational revenues (aka Net Operations), that is directed into a Capital Project Reserve
at year end. This reserve funding is then distributed to capital improvement projects by
Council as part of the annual budget process. As part of a “pay as you go” strategy, the
City may accumulate capital improvement funding for several years, or contribute a portion
of the project cost and look for grant funding to supplement the cost of the project.
Interfund Borrowing
The City may borrow internally from other funds with surplus cash, in lieu of issuing bonded
debt. Purposes warranting the use of this type of borrowing could include short-term cash
flow imbalances due to grant terms, interim financing pending the issuance of bonds, or
long-term financing in lieu of bonds for principal amounts under $5 million. The City funds
from which the money is borrowed may, at Council’s discretion, be repaid with interest
based upon the earning rate of the City’s investment pool or other designated market rate.
The Finance & Administrative Services Director shall exercise due diligence to ensure that
it is financially prudent for the Fund to make the loan.
Interfund loans will be evaluated on a case-by-case basis. Any borrowing between two
City funds which exceeds the City Manager’s authority for services requires a repayment
schedule approved by City Council and may include an interest rate based on the market
at the time the loan was taken out. The purpose of interfund borrowing is to finance high
priority needs and to reduce costs of interest, debt issuance and/or administration.
Bank Loans/Lines of Credit
Although the City does not typically utilize lines of credit or short-term anticipation notes
for the financing of capital projects, temporary financing instruments may be evaluated as
a financing option.
Other Loans
The City will evaluate other loan programs under specialized circumstances, including but
not limited to State or Federal loans, loans from other governmental agencies, private
loans, and non-profit foundations.
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Bond Financing
The City may issue bond types that are allowed under federal and state law including, but
not limited to: general obligation bonds; certificates of participation; revenue bonds;
assessment district bonds; and special tax bonds.
Conduit bond financing, where the City issues debt that is borne by another party, does
not constitute a general obligation of the City. However, the same level of due diligence
and transparency prior to bond issuance is required. The City will consider requests for
conduit financing on a case-by-case basis.
Non-Profit or Joint Powers Authority (JPA) Co-op
In addition to long and short-term financing instruments, the City may also consider joint
arrangements with other governmental agencies when a project serves the public interest
beyond City boundaries.
D. DEBT CATEGORIES
As part of debt financing considerations, the following debt-term categories are defined and
identified as appropriate for specific purposes:
1. Short-term Debt
Some cities in California utilize short-term loans for short-term liquidity needs. As a practice,
short-term instruments are not utilized by the City of Saratoga. However, short-term
borrowing is permissible, if necessary, under exigent circumstances. This could include
large, unexpected working capital cash needs after a catastrophic event, or the need for an
interim method of financing until long-term borrowing or grant funds have been secured. The
City Council may choose to authorize the use of short-term instruments if future revenue will
be sufficient to repay the debt within a maximum 18 months short-term debt timeframe
requirement.
2. Intermediate-Term Debt Lease/Purchase Debt
Typically, intermediate term debt is used for Lease-Purchase financing where fixed
assets/equipment have limited useful lives due to rapidly evolving technology or changing
needs, making the purchase of an asset/equipment unfavorable. Examples of appropriate
uses include leasing electric vehicles or multi-function devices, (formerly known as copiers),
for which technology is improving both quality and functionality significantly before the useful
life is over, or when long-term maintenance costs on purchased assets increase total cost
significantly. These types of leases are allowed over a repayment term not to exceed 10
years.
3. Long-Term Municipal Bond Debt
City philosophy establishes the preference to fund capital projects with available cash or
grant funding, to the extent possible and practical. As part of infrastructure funding strategy,
the City will first look for available grant funding for capital improvement projects, then to
current dedicated revenues, capital project reserves, and current year operational funding.
As a result, large projects are often completed in phases. However, the City will consider
the use of long-term municipal bond financing to fund major infrastructure needs under the
following circumstances:
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a) A capital project is immediately required to meet or relieve capacity needs and current
resources are insufficient or unavailable.
b) A capital project is mandated by state or federal requirements, and current resources are
insufficient or unavailable.
c) The capital project lends itself to debt financing rather than funding over an extended
time period, based on cost and the expected useful life of the asset.
d) Other financing options have been explored and are not viable for the timely or economic
acquisition or completion of the major capital project or asset.
E. DEBT RESTRICTIONS AND POLICY LIMITS
Existing debt adversely affects an entity’s credit rating. This in effect means an entity’s debt
capacity is limited by cost as the risk/price of borrowing increases with more debt. Therefore, it
follows that only the highest-priority projects should be considered for debt financing, as funds
borrowed and funds committed for debt service of currently financed projects would not be
available for future projects or operational uses.
Through this policy, the City Council limits debt financing by the following legal limits, financial
limits, operational guidelines, and public policy:
1. Legal/Statutory Limits
Legal restrictions may be determined by State constitution or law, local charter ordinances,
or bond referenda approved by voters. At the highest level, California Government Code
section 43605 states:
A city shall not incur an indebtedness for public improvements which exceeds in
the aggregate 15 percent of the assessed value of all real and personal property
in the city. Within the meaning of this section, “indebtedness” means bonded
indebtedness of the city payable from the proceeds of taxes levied upon taxable
property in the city.
This provision, however, was enacted when assessed valuation was based upon 25 percent
of market value. Effective with the 1981/82 fiscal year, property parcels are now assessed
at 100 percent of market value, based on the most recent ownership change for that parcel,
and adjusted upward annually by a maximum of +2 percent. To reflect the intent of the debt
limit in Section 43605, the stated 15 percent of assessed level would be adjusted to one-
fourth of that level, or 3.75 percent of the assessed value of all real and personal property of
the City.
In addition, special assessment debt, revenue bond debt, and certificates of participation
debt are excluded from the debt limit calculation as State debt limit guidelines pertains
primarily to General Obligation Debt.
Following the City’s cautious and conservative financial practices, the City chooses to limit
General Obligation Bond Debt to 1.0 percent of the City’s assessed valuation – far lower
than the State’s maximum debt limit of 3.75 percent. Further, cumulative annual debt service
payments for all bond issues supported by the General Fund are limited to a maximum of 10
percent of annual General Fund Revenue.
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As a public policy check, taxpayer surveys and subsequent election results will establish the
actual threshold residents would approve. This policy establishes maximum debt limit
guidelines for financial management purposes.
2. Financial Limits
a) In line with the maximum 1.0 percent of assessed valuation maximum debt policy,
General Obligation debt financing assessments are further restricted so as not to exceed
the lower of either:
• $5,000 debt per capita
• Total annual maximum debt service assessment on $10,000 per $1 million of
assessed value
b) The City will not oblige the General Fund to secure long-term financing unless the
community will benefit as a result of the improvement and estimated future revenues
from the project or funding resources are sufficient to repay the debt obligation.
c) Short-term debt shall not exceed 10 percent of the General Fund’s annual budgeted
revenue at any point in time.
d) Long-term financing can be marketed with investment grade credit ratings, and the City
can maintain its high credit ratings.
3. Operational Restrictions
a) Long-term bond debt is restricted to major capital infrastructure projects identified in the
adopted Capital Improvement Plan. Project costs include planning, design, construction,
and land acquisition, as well as related fixtures and equipment.
b) Bond debt funding shall not be used for ongoing operating expenses or liabilities such
as infrastructure maintenance or for pension obligation bonds (POBs) to fund unfunded
pension liabilities.
c) Variable rate bonds may cause debt service payment fluctuations and uncertainty in cash
flows. Based on the City’s conservative financial management philosophy, variable rate
bonds are not suitable for capital infrastructure funding, and therefore not allowed as a
debt financing tool.
d) To be eligible for debt funding, short-term financed assets must have a minimum useful
life of one-year, intermediate debt for five years, and for long-term debt, an asset must
have a minimum useful life of twenty years.
4. Long-Term Debt Public Policy Limits
The following policies further enforce the City’s fiscally conservative philosophy. Each must
be considered under the specific issuance circumstances, and in relation to the other
relevant parameters.
a) Long-term financing shall be considered for major infrastructure projects where the
burden of payment rests more directly on select taxpayers or beneficiaries, such as for
special assessment projects, project revenue bonds, or economic development projects,
and exceeds a minimum bond indebtedness of $1 million.
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b) General Obligation bond debt may be considered for large public infrastructure projects
where project costs exceeds the minimum bond indebtedness of $5 million, a significant
proportion of City residents would benefit from the debt financing purpose, and public
opinion surveys indicate a favorable vote of approval.
c) The life of the project or asset to be financed is 10 years or longer, and the financing
term exceeds the useful life of the project or asset.
Types of Long-term Bond Debt Financing
The following describes common types of long-term debt instruments that may be considered to
meet financing objectives.
D. GENERAL OBLIGATION BOND DEBT
General Obligation (G.O.) bonds are the traditional form of debt financing for large capital
projects such as the acquisition, construction, or remodeling of buildings. As voter authorization
is required for a City to issue G.O. bonds, and funded by the City’s ad valorem taxing authority,
this debt represents the most secure type of City debt. Therefore, when voters approve a G.O.
Bond, they are simultaneously approving a tax levy on their real or personal property to cover
the debt service payments. In California, local agency G.O. bonds must be approved at an
election by at least 2/3 of the voters (school bonds require a 55% majority). Saratoga residents
passed a 30-year G.O. bond issue in 2001 to remodel the City’s Library building.
While G.O. bonds are typically the least expensive long-term debt available, there are a number
of drawbacks: delays due to voter approval requirements; the possibility voters do not approve
the bond issuance and project; and state or agency debt limit restraints.
E. ASSESSMENT BONDS
Special assessment debt is a type of land-secured municipal bond used to fund a development
or community project for a specific third-party entity. The debt is repaid from taxes assessed on
the district’s property owners who benefit from the improvements financed by the bonds.
The issuance of these bonds is subject to a two-thirds (2/3) approval of the landowners voting
in the election. Voters are limited to the property owners within the designated area defined as
a “community benefit” or “special assessment” district that receives the benefit of the project.
For example, if a special assessment bond is issued to pay for the initial roadway or for repairs
on a private street, the local government would levy a special assessment tax on the property
owners designated as belonging to that special district on that private street. The special tax
assessments are then used to retire the interest and principal payments on the bond debt.
F. REVENUE BONDS
Revenue bond long-term debt is issued by municipality, state, or public agencies, typically to
build, acquire, or improve a revenue-generating asset or service. In turn, debt service is
commonly repaid by the revenue generated by the project or service funded by the bond
proceeds, with the intent that the beneficiaries pay for a fair share of the costs. Revenue bonds
are designed to be self-supporting through user fees or special earmarked receipts. The general
taxing power of the jurisdiction is not pledged.
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Enterprise Revenue Bonds are repaid by the earnings from the operations of a revenue-
producing enterprise; Special Revenue Bonds are repaid from special taxes/assessments, and
Lease Revenue Bonds from contract leases or rental agreements.
Investors consider Revenue Bonds less secure than general obligation bonds as the debt
service revenue comes from user fees of the capital asset that is being funded, with the local
entity responsible for establishing and collecting sufficient revenues to retire the debt through
fees or rates. As a result, borrowing costs are typically higher than those on general obligation
bonds.
G. MELLO-ROOS BONDS
The Mello-Roos Community Facilities Act of 1982 authorizes a public entity to form a Community
Facilities District (CFD), also known as a Mello-Roos district. Once formed, the district can
finance facilities and provide services. Upon approval by at least two-thirds of the registered
voters or landowners within the district, the district may issue bonds secured by a levy of special
taxes (not ad valorem). The security of the bonds is provided by properties within the district.
The special taxes are not assessments, and there is no requirement that the special tax be
apportioned on the basis of benefit to the property. The public entity is not liable for the
repayment of these bonds but acts as an agent for the property owners/bondholders in collecting
and forwarding the special assessments. In 2018, City Council authorized the issuance of
Saratoga CFD (Arrowhead Project) 30-year Special Tax bonds, payable only from special
taxes levied on properties within the CFD.
H. MARKS-ROOS BONDS
The Marks-Roos Local Bond Pooling Act of 1985 provides Joint Powers Authorities (JPAs) with
broad powers to issue bonds for a wide variety of purposes. As the name of the Act implies, the
law was originally enacted to facilitate local bond pooling efforts, which allowed local agencies
to achieve lower costs of issuance through spreading fixed costs across a number of small
issues. Debt repayment would be dependent on the type of bonds issued.
I. CONDUIT BONDS
The City may issue conduit bonds for related agencies provided the improvements to be
financed have a general public purpose (e.g. infrastructure, economic development, housing,
health facilities, etc.) consistent with the City’s overall operating and capital plans. Principal and
interest is to be paid from project revenues or specific taxes.
Conduit debt bonds are not included in the City’s debt burden because they are secured solely
by revenues of the private or non-profit party. Principal and interest on conduit bonds is paid
solely from the net revenues of the project. Issuance of these bonds does not constitute a
general obligation of the City.
The City will obtain a clear opinion that it will not be liable for the payment of principal and interest
in the event of default by the conduit borrower by independent bond counsel. If no such opinion
can be obtained, the conduit borrower will purchase insurance or a letter of credit in the City’s
name to protect taxpayers in the event of default.
The City will require a commitment from all institutions that borrow money under the City’s name
to agree to provide the market with continuing disclosure information.
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J. CERTIFICATES OF PARTICIPATION
Certificates of Participation (COPs) are a widely used type of lease-purchase financing
mechanism where a public entity seeking to acquire an asset enters into an agreement to pay a
fixed amount annually to a third party, that are considered installments toward the purchase of
the asset. The agreement allows the lessor to assign the rights to the lease payments to
investors via certificates of participation. Each certificate signifies that the investor owns a
proportional interest in the lease payments to be made by the governmental entity.
The participants in a lease-purchase agreement are (1) the government entity lessee, (2) the
lessor, which may be a private firm, vendor, or another governmental entity, and (3) investors.
Under a capital lease or Certificate of Participation issue, the City is obligated to annually budget
for the rentals that are due and payable during each fiscal year; as such, payments cannot be
accelerated. Because of this, capital leases are not considered an indebtedness of the City
under State statutes. However, from a credit or accounting perspective, all, or most of this type
of debt may be considered an obligation of the City. For instance, under governmental
accounting principles, a minimal buy-out payment at the end of the lease term indicates the
lease is in true form a purchase and shall be accounted for as such throughout the issuance
term.
K. SHORT-TERM ANTICIPATION NOTE FINANCING
Revenue Anticipation Notes (RANs), Tax Anticipation Notes (TANs), Tax and Revenue
Anticipation Notes (TRANs), Grant Anticipation Notes (GANs), and Bond Anticipation Notes
(BANs) are all types of short-term borrowings issued by municipalities to finance cash flow
deficits that occur due to irregular receipt of tax and/or revenues to fund working capital
requirements for operating expenses, or to provide interim bridge financing for bond or grant
financed capital projects.
Typically, the issuers (ones owing the debt) are required to repay all principal and interest with
current fiscal year revenues, but no longer than 18 months; to borrow no more than the projected
cash-flow deficit; and to provide detailed cash flow projections and comprehensive
documentation.
Bond Debt Structure Considerations
A. BOND ATTRIBUTES
1. Interest Rates
a) Fixed Interest Rate Bonds – A bond with interest rates established or “fixed” at the time
the bond is issued. Unlike a typical mortgage fixed interest rate, bond fixed interest rates
may vary slightly from year to year over the term of the bond. These fluctuations are a
factor of structuring the bonds to attain the lowest possible total cost while maintaining a
high level of attractiveness for bond buyers. Bonds are typically designed to pay a higher
interest rate for those bonds held for longer terms, than those maturing in the near term.
This higher rate is associated with a higher risk in long-term economic projections.
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b) Variable Interest Rate Bonds – A bond with floating coupon payments that are adjusted
at specific intervals. Generally, the current Money Market Rate is used to set interest
rates, plus or minus a set percentage. As a result, coupon payments change over time.
Investment risk is offset by lower initial interest rates, but the long-term costs are
uncertain, as rates may increase significantly.
c) Interest Only Bonds – A long-term debt structure that delays the repayment of principal
for a set time period in order to offer lower front-end payments. This type of debt incurs
a greater cost over the term of the bond as the full amount of the debt is carried for a
longer time period.
Under this policy and in alignment with the City’s conservative and cautious fiscal policies,
the City limits permissible debt structures to Fixed Interest Rate Bonds, with debt amortized
on a fairly level basis over the life of the debt.
2. Debt Service
Under Fixed Interest Rate Bonds, the amortization of the debt, and to the extent possible,
the anticipated debt service payments will closely match cash flows.
To maintain funding consistency, the City will structure debt with fairly level debt service
payments over the life of the debt. This may be accomplished with varying principal payment
amounts to offset interest rate increases or decreases on that year’s bond maturities.
Debt Service with unlevel payments may be considered or necessary when one or more of
the following exist:
• Natural disasters or extraordinary unanticipated external factors make payment on
the debt in the early years prohibitive.
• Unlevel structuring is beneficial to the City’s aggregate overall debt payment
schedule.
• Such structuring would more closely match project revenues.
3. Bond Maturity
Factors that drive bond maturity dates include the size of the bond, asset life span, purpose,
debt service requirements, interest rates, and economic conditions. Additionally, financial
standards drive bond maturity terms. The City chooses to follow the current standards, where
the maximum term for bond issuances exceeding $50 million is not to exceed 40 years, and
bond issuances under $50 million is not to exceed 30 years.
4. Tax Exempt Status
One of the biggest advantages of investing in municipal debt is that the interest is usually
exempt from federal taxes and most state and local taxes (if the investor lives in the state or
municipality issuing the debt). Generally speaking, this exemption means that investors in
high federal tax brackets benefit from tax free investment earnings. Because of this
relationship, there is usually stronger demand for municipal debt in high-tax states.
Accordingly, City bonds shall be tax-exempt, unless the constraints imposed justify the
increased cost of a taxable transaction.
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5. Sizing
The Bond Issue amount shall include all construction costs, including acquisition of land,
preliminary assessments, planning, design, building costs, construction loan interest, as well
as bond issuance costs. Bond issue size shall also consider purpose, debt service
requirements, interest rates, economic conditions, and other pertinent factors.
6. Call Features
In general, fixed rate, tax-exempt bonds will be issued with a provision that allows the City to
call outstanding bonds 10 years after the bond delivery date at par (i.e., no call premium).
Shorter and continuous calls may be considered to increase program flexibility based on
market conditions at the time of pricing.
7. Credit Enhancements
In the event the highest credit rating is not assigned, the interest rate cost of the bond
issuance increases. The City shall consider the use of bond insurance or other credit
enhancements if a significant savings is made through its use, or when necessary for
marketing reasons.
Debit Issuance
A. GUIDELINES ON ISSUING DEBT
1. Authorization of Debt
All long-term financing transactions shall be approved by the City Council in a public hearing
at a regularly scheduled, noticed meeting, and the public will be informed throughout the
debt issuance process. The City Council shall comply with all public hearing requirements
applicable to the specific type of bond being approved. CDIAC direction shall guide debt
issuance, operational procedures and management, internal controls, and debt reporting.
2. Debt Issuance Decision Factors
Many factors influence the financing decision. In deciding how to proceed, the following
should be considered in the analysis:
• Interest rates, loan terms, and the issuance costs of debt financing versus the benefit to
be gained from the financing.
• Public support for the project.
• Costs and public impacts from not proceeding with the project.
• The possibility that political controversy or litigation may arise from the bond issuance.
• Operational impacts to the organization and community.
3. Debt Issuance Consultants
Debt Issuance is a complex financial and legal process, and requires a working group of
experienced professionals to successfully complete a debt issuance. It is common for
agencies to hire outside consultant to work with staff as a Financing Team to guide the bond
issuance process. The outside consultants consist of the following:
• Financial Advisor
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The Financial Advisor (FA) is a professional consultant or investment firm retained to
advise and assist the issuer in formulating and/or executing a debt-financing plan. The
FA is typically the primary consultant for a bond issue and is retained prior to planning a
transaction.
• Bond Counsel
Bond Counsel refers to the attorney/legal firm hired to provide a legal opinion delivered
with the bonds confirming that the bonds are valid and binding obligations of the issuer,
and that interest on the bonds is tax-exempt (if applicable) from federal and state income
taxes.
• Underwriter
An Underwriter is a firm that purchases bonds directly from a bond issuer and resells
them to investors. Underwriters are intermediaries between issuers and investors,
providing the conveyance link in the marketplace by purchasing whole bond issues, and
then reselling in desired lots to investors.
• Underwriter’s Counsel (optional)
Underwriter’s counsel is customarily selected by the underwriter to represent the
underwriter and its interests in a negotiated sale. Normally, the underwriter does not
retain counsel for competitive sales. Underwriter’s counsel will customarily review, from
the underwriter’s perspective, the documents prepared by bond counsel, and will
negotiate matters relating to those documents on behalf of the underwriter.
• Special Financing District Consultants (optional)
Special Financing District (SFDs) consultants are involved in the formation of special tax,
fee, and assessment districts. They represent property owner’s interests in the funding
of infrastructure or service improvements. SFDs provide fees, rates, and other types of
financial assessments and calculations to tax and administer the districts.
4. Selecting and Managing Debt Issuance Consultants
The City’s selection of financial bond advisors will contribute to the effectiveness of a bond
issuance and impact the final outcome.
The City will conduct a request for proposal/qualifications process to select such consultants.
Applications will be reviewed to assess the professional qualifications and experience of
consultants as it relates to the particular bond issue or other financing under consideration.
The consultants should have documented experience in providing their specialized services,
for financings of similar size, types, and structures of issues.
B. CREDIT OBJECTIVES
A debt issuance credit rating is a public and independent opinion on the creditworthiness of a
bond issuer to make timely payments of principal and interest on a bond debt. A credit rating
agency will assign its rating to a particular debt issue and to all the outstanding debt issued
under the same security or credit pledge.
One or more credit rating agencies may be engaged to provide a credit rating. Having a bond
issuance rated is advisable as institutional investors are often restricted from purchasing unrated
debt or debt below a certain rating threshold, thereby credit ratings broaden the investor base.
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Additionally, if a high rating is obtained, the risk is lowered, and with lower risk - the cost of debt
decreases. On the other hand, the issuance of additional debt is not recommended if the
additional debt burden causes less favorable ratios and measurements to reduce the City’s
Prime Grade bond rating. Accordingly, favorable credit ratings provide a material benefit to the
cost of borrowing.
1. Credit Rating
Credit Ratings are a reflection ofreflect the general fiscal soundness of the City and the
capabilities of its management. Typically, the higher the credit ratings are, the lower the
interest cost is on the City’s debt issues. To enhance creditworthiness, the City is committed
to prudent financial management, systematic capital planning, and long-term financial
planning. The City recognizes that external economic, natural, or other events may, from
time to time, affect the creditworthiness of its debt.
The most familiar nationally recognized bond rating agencies are Standard and Poor’s,
Moody’s Investors Service, and Fitch Ratings. When issuing a credit rating, rating agencies
consider various factors including but not limited to:
• City’s ability to repay debt;
• City’s fiscal status;
• City’s general management capabilities;
• Economic conditions that may impact the stability and reliability of debt repayment
sources;
• City’s general reserve levels;
• City’s debt history and current debt structure;
• Project being financed;
• Covenants and conditions in the governing legal documents and existing contracts..
Bond Ratings
Typically, a rating from at least one nationally recognized rating agency on new and refunded
issues being sold in the public market is advisable to open the issuance up to a broader market.
The Financing Team will determine whether a credit rating should be obtained, and request a
rating if appropriate. When applying for a rating on an issue, a formal presentation of the City’s
finances and developments within the City may need to be prepared for presentation to the
rating agency.
Rating Agency Communication
The City shall maintain positive working relationships with the top rating agencies that assign
ratings to the various debt obligations. This effort would include providing the rating agencies
with financial documents and statements, as well as any additional information requested.
The City’s current long-term G.O. Bond Prime Grade rating of ‘AAA’ from Standard & Poor’s is
Standard & Poor’s highest attainable rating as shown in the chart below. Comparable
investment grade ratings from other credit rating agencies are shown for reference:
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2. Credit Rating Considerations:
The following should be considered in advance of obtaining credit rating services for future
bond issuances:
a) Cost of credit rating – Evaluate the potential economic benefit from a credit rating in the
form of lower bond yields compared to the cost of obtaining and maintaining the rating.
b) Size of issuance – In general, a debt issue with lower bond par amounts may not benefit
from a credit rating as much as ones with a larger bond par amount. While credit rating
fees often vary with issue size, ratings are generally more cost effective for larger size
transactions.
c) Frequency of issuance – In general, the more frequently an issuer plans to issue debt,
the greater the potential benefit will be from obtaining a credit rating. A more frequent
debt issuer may benefit from expanding its investor base in order to successfully finance
a large debt program, and a credit rating may help attract a greater number of investors
to a particular debt issue.
d) Method of sale – A debt issue sold in a public offering (via negotiated or competitive sale)
may benefit from obtaining a credit rating, while a rating may not be required or
necessary for a private placement or direct purchase.
e) Administrative workload – Administrative duties are required to obtain a credit rating and
maintain the rating throughout the life of the bonds. Once a rating is requested, the
formal credit rating process itself may take as long as 4-6 weeks to complete. The
process may include in-person meetings, calls with rating analysts and project site visits,
which does not include the time and resources an issuer must commit in advance to
prepare for the rating process.
f) Information gathering – A substantial amount of information must be provided to the
rating agency, which may include: (1) history of issuer; (2) management and governance
structure; (3) multi-year budget documents; (4) financial policies and procedures; (5)
bond documents and (6) audited financial statements.
g) Multiple credit ratings – Issuers should consult with members of their financing team,
particularly their municipal advisor (if one is retained) and their underwriters (if sold
through a negotiated sale) on the potential economic benefits, as well as the potential
Bond Rating Descripton
Standard
& Poors Moody's Fitch
Prime Grade AAA Aaa AAA
High Grade AA+Aa1 AA+
AA Aa2 AA
AA-Aa3 AA-
Upper Medium Grade A+A1 A+
A A2 A
A-A3 A-
Lower Medium Grade BBB+Baa1 BBB+
BBB Baa2 BBB
BBB-Baa3 BBB-
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costs and administrative workload of obtaining one or more credit ratings for a particular
debt issue. Some institutional investors require a minimum of two ratings.
3. Managing the Credit Relationship
If the City decides to move forward and obtain a credit rating, the following should be
addressed:
a) Preparation – Review the selected credit rating agency methodologies and the City’s
likely rating under them before requesting a rating. City management shall be prepared
to address the specific criteria in meetings with the rating agencies.
b) Financial Analysis – The Credit Analyst will review the Comprehensive Annual
Comprehensive Financial Report in detail. The CAFR ACFR report should reflect and
articulate the well thought out financial planning and management of the City’s budget
planning, financial management, and operational strategies. Financial policies shall be
comprehensive and available for review. Financial reports shall demonstrate the financial
stability of the City through standardization of activities and cash reserves, and strong
financial ratios on its balance sheets.
c) Disclosure of non-public information – During the rating process, issuers may be asked
to provide non-public information such as internal revenue forecasts,
projectionsprojections, or other forward-looking statements. Issuers should consult with
their counsel before disclosing non-public information and request that such information,
if provided, remain confidential.
d) Consistent Message – City management shall take a systematic and comprehensive
approach to manage the City’s relationships with the credit rating firm as they develop
their opinions. City management shall be responsive to these requests in a timely manner
with accurate and comprehensive information, and ensure the provided documents
consistently convey key messages to the rating agency.
e) Review – City Management should be prepared to review draft rating opinions prior to
publication and submit any comments on a timely basis.
f) Follow-up – Once a credit rating is assigned, City staff are to supply annual reports if
requested, as well as keep the credit rating agency informed of any subsequent material
events that may impact its creditworthiness or ability to make timely payments of interest
and principal. The City is directly responsible for managing the rating agency relationship
throughout the term of the bonds and should not delegate this responsibility to any other
party (e.g., municipal advisor, underwriters).
C. METHODS OF SALE
1. Competitive vs Negotiated Sale
Bond issues should be sold using the method of sale that is most likely to achieve the lowest
cost of borrowing while taking into accountconsidering both short-range and long-range
implications. Differences in bond structure, security, size, credit ratings, and market conditions
will produce different results.
Competitive Sales – A competitive bond sale is when bonds are offered to multiple
underwriters/investors, who then submit sealed bids to purchase the bonds. The bonds are
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awarded based on lowest “True Interest Cost”. Competitive sales are recommended for simple
financings with a strong underlying credit rating.
Negotiated Sales - A sale of securities to investors through an underwriter, or the private
placement of the securities with a financial institution or other investment broker. The negotiated
sales process provides control over the financing structure and issuance timing. If the
negotiated sale option is utilized, City staff would work with the Financial Advisor or Bond
Consultant to negotiate the best possible interest rates for the City. Negotiated sales are
recommended for unusual financing terms, periods of market volatility and weaker credit quality.
A thorough evaluation of market conditions should be made to ensure reasonable final pricing
and underwriting spread.
As circumstances can vary significantly over time and situation, there is no clear policy
recommendation on whether to proceed with a negotiated sale or a competitive sale.
2. Private Placements
A bond issue that is structured specifically for one purchaser. Private placements are typically
carried out when extraneous circumstances preclude public offerings, such as for small
issuances of conduit debt, when capital requirements are too small to bear the cost of a public
debt issuance, or when debt obligations would have a short amortization schedule. Staff, in
conjunction with qualified legal counsel and municipal advisors, shall evaluate the cost-
effectiveness of alternative financing methods before the City conducts a private placement of
debt. A private placement is considered to be a negotiated sale.
D. INITIAL DISCLOSURE REQUIREMENTS
The City and Financing Team shall comply with all disclosure responsibilities for a bond
issuance. Under the guidance of Counsel, the City’s underwriter shall distribute a Preliminary
Official Statement and final Official Statement as required for a bond issuance. If Private
Placement bonds are used, a “Private Placement Memorandum” should be posted and
submitted to the City Council for transparency and documentation.
The Financing Team shall be responsible for obtaining material information to prepare the
Official Statement or memorandum. In doing so, the Financing Team shall confirm that the Initial
Disclosure document accurately states all material information relating to the decision to buy or
sell the subject bonds, and that all information in the Official Statement or Memorandum has
been critically reviewed by an appropriate person.
In connection with an initial offering of securities, the City and other members of the Financing
Team will:
• Identify material information that should be disclosed in the statement;
• Identify other persons that may have material information (contributors);
• Review and approve the Official Statement or Memorandum;
• Ensure the City’s compliance, and that of its related entities, with federal and state
securities laws.
E. REFUNDING OF DEBT
Bond refundings refers to the retirement of all, or a portion of, an outstanding bond issue.
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Most commonly, refundings are used to achieve borrowing cost savings, but may also be issued
to remove or revise burdensome bond covenants, to change the type of instruments being used,
or to restructure a bond in order to revise debt service payments.
1. Issuance Considerations
When issuing bonds, future refunding opportunities are to be considered and preserved if
reasonable through optional redemption provisions. The typical optional call on a tax-exempt
bond is 10 years from the date of issuance. Earlier call dates may result in somewhat higher
costs, and should be evaluated for cost to benefit. On taxable bonds, call structures vary and
all options should be evaluated.
2. Bond Refundings
Refunded bonds are classified as either current or advance refundings. A current refunding is
one in which the outstanding (refunded) bonds are redeemed within 90 days from the date the
refunding bonds are issued. In an advance refunding, the refunded bonds remain outstanding
for a period of more than 90 days from the date the refunding bonds are issued.
Under federal tax law, a tax-exempt advance refunding may occur only once over the life of the
bonds. Taxable bonds may be subject to different restrictions or tax law. However, the
methodology for determining when a refunding might be appropriate may be applied to all types
of bonds.
3. Bond Coupons
Future refunding opportunities also depend on the coupons – not the yields – on the bonds to
be refunded. Bonds with relatively high coupons (e.g. 5%) are more likely to be refunded than
bonds with lower coupons. The municipal advisor or others in their finance team may provide
direction to determine market preferences at the time of issuance and whether a higher or lower
coupon (premium or discount bonds) provide the best economic conditions to ensure future
refunding opportunities.
4. Opportunity Monitoring
Bonds are to be monitored to identify and monitor potential refunding opportunities. For
Saratoga, with limited bond issuances, this review is to take place in conjunction with the annual
review of this policy. Any bond issuance that may be nearing advantageous refunding status
shall be monitored and evaluated more closely throughout the year.
5. Refunding Guidelines
Decision guidelines to determine when to refund outstanding bonds include:
Net Present Value Savings – A minimum net present value (NPV) savings of 2% or a
minimum of $500,000 are to be achieved to undertake a refunding, with further consideration
given to whether the call would be for an advance or current refunding. Higher savings could
be required for advance refundings, or for refundings with longer periods from the call date
to maturity on a situation-by-situation assessment. Current refundings may warrant lower
savings thresholds than are set for advance refundings.
Negative arbitrage efficiency – In a proposed advance refunding, negative arbitrage is
how much of potential debt service savings are lost in funding the escrow to the call date.
Negative arbitrage is typically in the form of a penalty paid prior to a stated call date, and is
to be considered in the NPV savings calculation before a refunding is undertaken.
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Rate efficiency/sensitivity analysis – Advance refundings are pursued to obtain lower
interest rates than would be available at the call date. This requires that a rate sensitivity
analysis be conducted to determine how much the interest rates have to rise by the call date
to produce savings matching those that could be achieved with an advance refunding. This
analysis could result in simply waiting until the call date to refund the bonds.
Refunding efficiency – The call feature included in municipal bonds has an economic
value, and involve complex calculations that should be requested from the bond advisors.
Considerations on the value added should be included in the bond issuance analysis.
6. Refunding execution
At the outset of a bond refunding process, the City should follow the same procedures as for
initial bond issuances. This is key as bond refunding may have special considerations such as
call/defeasance notices or escrow account requirements that must be addressed in the process.
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Debt Management
A. INVESTMENT OF BOND PROCEEDS
Bond proceeds and reserve funds shall be invested in accordance with each issue’s indenture
or trust agreement. All unexpended funds held by the City will be held in secure investment
securities, in compliance with the City’s Investment Policy, which sets objectives of safety,
liquidity and then yield. The City shall be responsible for recording all investments and
transactions relating to the proceeds and providing monthly statements regarding the
investments and transactions upon demand.
B. USE OF BOND PROCEEDS
To ensure bond proceeds are spent for their intended purposes, the Finance & Administrative
Services Director shall be responsible for authorizing and reviewing expenditures for each bond
issue to determine that bond proceeds were in fact spent in the manner detailed in the bond
documents on the date of issuance.
All projects being funded with bond proceeds shall be designated as such and included in the
City’s annual Capital Improvement Program as approved or amended by the City Council. The
City shall maintain books and records of information showing how bond proceeds are spent,
including the following:
• Requisitions from the project fund;
• Bond records relating to other funds and accounts;
• Verifiable information showing payments to third parties.
• An accounting of all bond proceeds spent on approved capital project.
C. ARBITRAGE COMPLIANCE
The City shall follow a policy of full compliance with all the arbitrage and rebate requirements of
the federal tax code and Internal Revenue Service regulations. The City shall engage qualified
third parties for the preparation of arbitrage and rebate calculations. All necessary rebates will
be filed and paid when due.
D. ONGOING DISCLOSURE REQUIREMENTS
The City shall comply with all Continuing Disclosure requirements for each bond issue. This
includes identifying material information that should be disclosed, preparing annual disclosure
reports, and providing ongoing disclosure information to the Municipal Securities Rulemaking
Board’s (MSRB’s) Electronic Municipal Market Access (EMMA) system, the central depository
designated by the Securities and Exchange Commission for ongoing disclosure by municipal
issuers.
In addition to annual reports, Securities and Exchange Commission Rule 15c2-12(b)(5)(i)(C)-
(D) obligates the City to disclose, in a timely manner to the MSRB, notice of certain specified
events with respect to the City’s securities, including the following:
1. Principal and interest payment delinquencies;
2. Non-payment related defaults;
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3. Unscheduled draws on debt service reserves reflecting financial difficulties;
4. Unscheduled draws on credit enhancements reflecting financial difficulties;
5. Substitution of credit or liquidity providers, or their failure to perform;
6. Adverse tax opinions; the issuance by the Internal Revenue Service of proposed or final
determinations of taxability, notices of proposed issue (IRS Form 5701-TEB) or other
material notices or determinations with respect to the tax status of the security, or other
material events affecting the tax status of security;
7. Modifications to rights of securities holders, if material;
8. Bond calls, if material, and tender offers;
9. Defeasances;
10. Release, substitution, or sale of property securing repayment of the securities, if material;
11. Rating changes;
12. Bankruptcy, insolvency, receivership, or similar events of the obligated person;
13. Consummation of a merger, consolidation, or acquisition or sale of substantially all of the
assets of the obligated person (other than in the ordinary course of business), the entry into
a definitive agreement to undertake such an action, or the termination of a definitive
agreement relating to any such actions, other than pursuant to its terms, if material;
14. Appointment of a successor or additional trustee or the change of name of a trustee if
material;
15. Failure of any person specified in SEC Rule 15c2-12(b)(5)(i)(A) to provide required annual
financial information on or before the date specified in the written contract or agreement.
The Finance & Administrative Services Director may file notice with the MSRB of specified
events listed in the Continuing Disclosure Certificates without prior review and approval of the
Disclosure Review Group if the City is contractually obligated to file and the Disclosure
Document contains no discretionary content.
If any member of the Disclosure Review Group concludes that an event may have occurred, the
Finance & Administrative Services Director shall be contacted and shall notify the Disclosure
Review Group to discuss the potential event.
E. COMPLIANCE WITH OTHER BOND COVENANTS
In addition to financial disclosure and arbitrage, the City is also responsible for verifying
compliance with all undertakings, covenants, and agreements of each bond issuance on an
ongoing basis. This typically includes ensuring:
• Annual appropriation of revenues to meet debt service payments;
• Taxes/fees are levied and collected where applicable;
• Timely transfer of debt service payments to the trustee;
• Compliance with insurance requirements;
• Compliance with rate covenants.
The City shall comply with all covenants and conditions contained in governing law and any
legal documents entered into at the time of the bond offering. City staff will coordinate
verification and monitoring of covenant compliance.
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F. Retention
Documents and records will be maintained by the City’s Finance Department for the term of the
bonds (including refunded bonds, if any), and as defined by the City’s Record Retention Policy
for inactive bonds. Relevant documents and records will include sufficient documentation to
support the requirements relating to the tax-exempt status, including the following:
• Bond transcripts, official statement, and other offering documents.
• All documents relating to capital expenditures financed by bond proceeds. Such documents
will include construction contracts, purchase orders, invoices, and payment records. Such
documents will include documents relating to costs reimbursed with bond proceeds.
• Records will be maintained identifying the assets or portion of assets that are financed with
bond proceeds.
• All contracts and arrangements involving private use of the bond financed assets.
• All reports relating to the allocation of bond proceeds and private use of bond financed
assets.
• All records of investments, investment agreements, arbitrage reports, return filings with the
IRS and underlying documents, trustee statements, rating correspondence, and continuing
disclosure.
G. Investor Relations
The City posts its annual financial report as well as other financial reports on the City’s website
for the benefit of Saratoga’s residents and interested parties. Similarly, information with the
intention of reaching the investing public, including bondholders, rating analysts, investment
advisors, or any other members of the investment community shall be filed on the EMMA
system.
H. Annual Financial Statement Audit
It is the City’s policy to hire an auditing firm that has the technical skills and resources to properly
perform an annual audit of the City’s financial statements. More specifically, the firm shall be a
recognized expert in the accounting rules applicable to the City and shall have the resources
necessary to review the City’s financial statements on a timely basis.
SB 1029: Debt Issuance Reporting Requirements
Background
SB 1029, signed into law September 12, 2016, mandates the tracking of state and local
government borrowing and spending of bond proceeds – in the effort to increase transparency
and improve public knowledge. State and local government debt issuers are required to report
specified information about proposed debt issuances to the California Debt and Investment
Advisory Commission (CDIAC) no later than 30 days prior to the sale of debt, and to report on
the debt issuance’s status on an annual basis thereafter. The information gathered will populate
the online website Debt Watch, a transparency tool designed to enable taxpayers and the media
to access debt data on California’s 4,200 local government agencies.
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Proposed Debt Issuance
To comply with code section 8855(i) the Finance & Administrative Services Director shall submit
an annual report for any proposed debt that includes:
1. A certification by the issuer that it has adopted debt policies in compliance with the stated
requirements.
2. That the proposed debt issuance is consistent with these debt policies.
This report is filed through the California State Treasurer’s website. Detailed information on the
debt issuer, financing participants, type of sale, type of debt instrument, source of repayment,
and purpose of financing is required. A Report Fee equal to 2.5 basis points ($250 per million
of debt issuance), not to exceed $5,000 may be assessed on the submittal.
Report of Final Sale
To comply with code section 8855(j), the Finance & Administrative Services Director shall submit
a Report of Final Sale within 21 days after the issuance of debt. The online form is prepopulated
from the online Proposed Debt Issuance form and allows modification to the Proposed Debt
report information at this time if necessary. Additional information on the debt issue is required,
and must be submitted even if the settlement date with final numbers has not yet occurred.
Further, once debt is issued, the City is obligated to submit annual Debt Transparency Reports.
Annual Transparency Report
To comply with code section 8855(k) the Finance & Administrative Services Director shall submit
an annual report within seven months of the close of the reporting period, or January 31st.
Annual Transparency Reports must be submitted to CDIAC each year, until the debt is no longer
outstanding, or the bond proceeds have been fully spent – whichever is later. These Annual
Transparency Reports will evolve over time, but are expected to include:
1) Debt authorized during the reporting period, to include:
a. Debt authorized at the beginning of the reporting period.
b. Debt authorized and issued during the reporting period.
c. Debt authorized but not issued at the end of the reporting period.
d. Debt authority that has lapsed during the reporting period.
2) Debt outstanding during the reporting period, to include:
a. Principal balance at the beginning of the reporting period.
b. Principal paid during the reporting period.
c. Principal outstanding at the end of the reporting period.
3) The use of proceeds of issued debt during the reporting period, to include:
a. Debt proceeds available at the beginning of the reporting period.
b. Proceeds spent during the reporting and the purposes for which it was spent.
c. Debt proceeds remaining at the end of the reporting period.
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Glossary: MUNICIPAL SECURITIES TERMINOLOGY
ACFR: Acronym for Annual Comprehensive Financial Report. This is the City’s annual financial
report that contains an introductory discussion, audited financial statements with clarifying financial
notes, supplementary schedules, and statistical data schedules.
Ad Valorem Tax: A tax calculated “according to the value” of property. Such a tax is based on the
assessed valuation of real property and a valuation of tangible personal property.
Advance Refunding: Refunding bonds that are issued more than 90 days prior to the date upon
which the refunded bonds will be redeemed. Proceeds of the advance refunding bonds are placed
into an escrow account with a fiduciary and used to pay interest and principal on the refunded bonds
and then used to redeem the refunded bonds at their maturity or call date.
Arbitrage: The gain that may be obtained by borrowing funds at a lower (often tax-exempt) rate
and investing the proceeds at higher (often taxable) rates. The ability to earn arbitrage by issuing
tax-exempt securities has been severely curtailed by the Tax Reform Act of 1986, as amended.
Assessed Valuation: The appraised worth of property as set by a taxing authority through
assessments for purposes of ad valorem taxation.
Assessment District Bonds: Bonds issued for public improvements benefiting property within
assessment districts created pursuant to the Improvement Act of 1911 and the Municipal
Improvement Act of 1913.
Bond: A security that represents an obligation to pay a specified amount of money on a specific
date in the future, typically with periodic interest payments.
Bond Anticipation Notes (BANS): Short-term notes issued usually for capital projects and paid
from the proceeds of the issuance of long-term bonds. Provide interim financing in anticipation of
bond issuance.
Bond Counsel: An attorney retained by the issuer to give a legal opinion concerning the validity of
securities. The bond counsel’s opinion usually addresses the subject of tax exemption. Bond
counsel may prepare or review and advise the issuer regarding authorizing resolutions, trust
indentures and litigation.
Bond Insurance: A type of credit enhancement whereby an insurance company indemnifies an
investor against default by the issuer. In the event of failure by the issuer to pay principal and
interest in full and on time, investors may call upon the insurance company to do so. Once issued,
the municipal bond insurance policy is generally irrevocable. The insurance company receives its
premium when the policy is issued.
Bond Resolution: Resolution adopted by the City Council authorizing the issuance of bonds,
approving the Notice of Sale and the Official Statement.
Book-Entry: Bonds that are issued in fully registered form but without certificates of ownership.
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Call Option: The right to redeem a bond prior to its stated maturity, either on a given date or
continuously. The call option is also referred to as the optional redemption provision. Often a “call
premium” is added to the call option as compensation to the holders of the earliest bonds called.
Capital Appreciation Bond: A municipal security on which the investment return on an initial
principal amount is reinvested at a stated compounded rate until maturity, at which time the investor
receives a single payment representing both the initial principal amount and the total investment
return.
ACFR: Acronym for Annual Comprehensive Financial Report. This is the City’s annual financial
report that contains an introductory discussion, audited financial statements with clarifying financial
notes, supplementary schedules, and statistical data schedules.
Certificates of Participation: A financial instrument representing a proportionate interest in
payments such as lease payments by one party (such as a city acting as a lessee) to another party
(often a trustee).
Commercial Paper: Short-term debt instrument. The debt is usually issued at a discount, reflecting
prevailing market interest rates.
Competitive Sale: A sale of bonds in which an underwriter or syndicate of underwriters submit
sealed bids to purchase the bonds. Bids are awarded on a true interest cost basis (“TIC”), providing
that other bidding requirements are satisfied. Competitive sales are recommended for simple
financings with a strong underlying credit rating. This type of sale is in contrast to a Negotiated
Sale.
Conduit Financing: The issuance of securities by a governmental entity to finance a project that
will primarily benefit a third party. The security for this type of financing is the credit of the third
party. Usually, such securities do not constitute general obligations of the issuer since the private
entity is liable for generating the pledged revenues for repayment.
Continuing Disclosure: The requirement by the Securities and Exchange Commission for most
issuers of municipal debt to provide current financial information to the Municipal Securities
Rulemaking Board for access by the general marketplace.
Coupon Rate: The interest rate on specific maturities of a bond issue. While the term “coupon” is
derived from the days when virtually all municipal bonds were in bearer form with coupons attached,
the term is still frequently used to refer to the interest rate on different maturities of bonds in
registered form.
Credit Rating Agency: A company that rates the relative credit quality of a bond issue and assigns
a letter rating. These rating agencies include Moody’s Investors Service, Standard & Poor’s, and
Fitch Ratings.
CUSIP Number: The term CUSIP is an acronym for the Committee on Uniform Securities
Identification Procedures. An identification number is assigned to each maturity of an issue. The
CUSIP numbers are intended to help facilitate the identification and clearance of municipal
securities.
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Debt Limit: The maximum amount of debt that is legally permitted by a jurisdiction’s charter,
constitution, or statutes.
Debt Service: The amount necessary to pay principal and interest requirements on outstanding
bonds for a given year or series of years.
Default: The failure to pay principal or interest in full or on time and, in some cases, the failure to
comply with non-payment obligations after notice and the opportunity to cure.
Defeasance: Providing for the payment of principal, premium (if any) and interest on debt through
the call date or scheduled principal maturity in accordance with the terms of the debt. A legal
defeasance usually involves establishing an irrevocable escrow funded with only cash and U.S.
Government obligations.
Derivative: A financial instrument which derives its own value from the value of another instrument,
usually an underlying asset such as a stock, bond, or an underlying reference such as an interest
rate index.
Disclosure Counsel: An attorney retained to provide advice on issuer disclosure obligations, to
prepare the official statement and to prepare the continuing disclosure undertaking.
Discount: The difference between a bond’s par value and the price for which it is sold when the
latter is less than par.
Enterprise Activity: A revenue generating project or business. The project often provides funds
necessary to pay debt service on securities issued to finance the facility. Common examples include
water and sewer treatment facilities and utility facilities.
Financial Advisor: A consultant who provides the issuer with advice on the structure of the bond
issue, timing, terms, and related matters for a new bond issue.
Financing Team: The working group of City staff and outside consultants necessary to complete
a debt issuance.
Grant Anticipation Notes (GANs): Short-term notes usually issued for capital projects, in
anticipation of receiving grant revenue at a future date. Proceeds allow the municipality to manage
the periods of cash shortfalls between expenditure payments and receipt of grant reimbursement
revenues.
General Obligation Bond: A bond secured by an unlimited property tax pledge. Requires a two-
thirds vote by the electorate. GO bonds usually achieve lower rates of interest than other financing
instruments since they are considered to be a lower risk.
Indenture: A contract between the issuer and the trustee stipulating the characteristics of the
financial instrument, the issuer’s obligation to pay debt service, and the remedies available to the
trustee in the event of default.
Issuance Costs: The costs incurred by the bond issuer during the planning and sale of securities.
These costs include but are not limited to financial advisory, bond counsel, disclosure counsel,
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printing, advertising costs, rating agencies fees, and other expenses incurred in the marketing of an
issue.
Lease: An obligation wherein a lessee agrees to make payments to a lesser in exchange for the
use of certain property. The term may refer to a capital lease or to an operating lease.
Lease Revenue Bonds: Bonds that are secured by an obligation of one party to make annual
lease payments to another.
Letter of Credit: An unconditional pledge of the bank’s credit which is used to guarantee payment
of principal and interest on debt in the event insufficient funds are available to meet a debt service
obligation. Letters of credit are most often employed when the stated interest on the City’s securities
is variable.
Line of Credit: A contract with a financial institution, usually a bank, that establishes a maximum
loan balance that the bank will permit the borrower to maintain. The borrower can draw down on the
line at any time, as long as the maximum set in the agreement is not exceeded.
Mortgage Revenue Bonds: Bonds issued for the purpose of providing single-family mortgage
financing or acquisition and construction funds for multi-family housing projects. The bonds are
secured by the mortgage repayments and project revenue. See Conduit Financing.
Municipal Securities Rulemaking Board (MSRB): A self-regulating organization established on
September 5, 1975 upon the appointment of a 15-member board by the Securities and Exchange
Agreement. The MSRB, comprised of representatives from investment banking firms, dealer bank
representatives, and public representatives, is entrusted with the responsibility of writing rules of
conduct for the municipal securities market.
Negotiated Sale: A sale of securities in which the terms of the sale are determined through
negotiation between the issuer and the purchaser, typically an underwriter, without competitive
bidding. The negotiated sales process provides control over the financing structure and issuance
timing. Negotiated sales are recommended for unusual financing terms, periods of market volatility
and weaker credit quality. A thorough evaluation of market conditions will be performedcarried out
to ensure reasonable final pricing and underwriting spread.
Net Interest Cost (NIC): A method of computing the interest expense to the issuer of bonds, which
may serve as the basis of award in a competitive sale of a new issue of municipal securities. NIC
takes into accountconsiders any premium or discount applicable to the issue, as well as the dollar
amount of coupon interest payable over the life of the issue. NIC does not take into accountconsider
the time value of money (as would be done in other calculation methods, such as the “true interest
cost” (TIC) method). The term “net interest cost” refers to the overall rate of interest to be paid by
the issuer over the life of the bonds.
Official Statement (Prospectus): A document published by the issuer in connection with a primary
offering of securities that discloses material information on a new security issue including the
purposes of the issue, how the securities will be repaid, and the financial, economic, and social
characteristics of the security for the bonds. Investors may use this information to evaluate the
credit quality of the securities.
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78
Original Issue Discount Bonds: Bonds sold at a substantial discount from their par value at the
time of the original sale.
Par Value: The face value or principal amount of a security.
Pension Obligation Bonds (POBs): Financing instruments used to pay some or all of the
unfunded pension liability of a pension plan. POBs are issued as taxable instruments over a 30–
40-year term or by matching the term with the amortization period of the outstanding unfunded
actuarial accrued liability.
Preliminary Official Statement: A version of the Official Statement prepared by or for an issuer of
municipal securities for potential customers prior to the availability of the final Official Statement.
Under SEC Rule 15c2-12, the difference between a Preliminary Official Statement and a final Official
Statement is that the final Official Statement includes “pricing information,” i.e., offering price(s),
interest rate(s), selling compensation, aggregate principal amount, principal amount per maturity,
delivery dates, any other terms or provisions required by an issuer of such securities to be specified
in a competitive bid, ratings, other terms of the securities depending on such matters, and the
identity of the underwriter(s).
Premium: The excess of the price at which a bond is sold over its face value.
Present Value: The value of a future amount or stream of revenues or expenditures.
Pricing Consultant: The Pricing Consultant provides a fairness letter to the City or its agent
regarding the pricing of a new issue of municipal securities.
Private Activity Bonds: A bond where bond proceeds are used for private purposes. If deemed
a private activity bond, the interest is not tax exempt unless the use of the proceeds meets certain
requirements of the Internal Revenue Code.
Private Placement: A bond issue that is structured specifically for one purchaser. Private
placements are typically carried out when extraneous circumstances preclude public offerings. A
private placement is considered to be a negotiated sale.
Refunding: A procedure whereby an issuer refinances an outstanding debt issue by issuing a new
debt issue.
Related Entities: Those independent agencies, joint power authorities, special districts, component
units, or other entities created by the City Council or by State law for which the City Council serves
as the governing or legislative body in his or her official capacity, or for which the City has agreed
to provide initial or continuing disclosure in connections with the issuance of securities.
Revenue Anticipation Notes (RANs): Short-term notes issued in anticipation of receiving revenue
at a future date. Proceeds allow the municipality to manage the periods of cash shortfalls resulting
from a mismatch between the timing of revenues and timing of expenditures.
Rule 10b5: Rule adopted by the Securities and Exchange Commission that requires the disclosure
of all material facts and prohibits the omission of facts necessary to make statements not misleading.
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Rule 15c2-12: Rule adopted by the Securities and Exchange Commission setting forth certain
obligations of (i) underwriters to receive, review and disseminate official statements prepared by
issuers of most primary offerings of municipal securities, (ii) underwriters to obtain continuing
disclosure agreements from issuers and other obligated persons to provide ongoing annual financial
information on a continuing basis, and (iii) broker-dealers to have access to such continuing
disclosure in order to make recommendations of municipal securities in the secondary market.
Reserve Fund: A fund established by the indenture of a bond issue into which money is deposited
for payment of debt service in case of a shortfall in current revenues.
Revenue Bond: A bond which is payable from a specific source of revenue and to which the full
faith and credit of an issuer is not pledged. Revenue bonds are payable from identified sources of
revenue, and do not permit the bondholders to compel a jurisdiction to pay debt service from any
other source. Pledged revenues often are derived from the operation of an enterprise.
Secondary Market: The market in which bonds are sold after their initial sale in the new issue
market.
Serial Bonds: Bonds of an issue that mature in consecutive years or other intervals and are not
subject to mandatory sinking fund provisions.
Special Tax Bonds: Bonds issued to fund eligible public improvements and paid with special taxes
levied in a community facilities district formed under the Mello-Roos Community Facilities Act of
1982, as amended. The City’s policy on Community Facilities Districts and Special Tax Bonds is
further outlined in City Council Resolution 2009-103.
Tax Anticipation Notes (TANs): Short-term notes issued in anticipation of receiving tax receipts
at a future date. Proceeds allow the municipality to manage the periods of cash shortfalls resulting
from a mismatch between the timing of revenues and timing of expenditures.
Tax and Revenue Anticipation Notes (TRANS): Short-term notes issued in anticipation of
receiving tax receipts and revenues at a future date. Proceeds allow the municipality to manage
the periods of cash shortfalls resulting from a mismatch between timing of revenues and timing of
expenditures.
Term Bonds: Bonds that come due in a single maturity whereby the issuer may agree to make
periodic payments into a sinking fund for mandatory redemption of term bonds before maturity or
for payment at maturity.
True Interest Cost (TIC): Under this method of computing the interest expense to the issuer of
bonds, true interest cost is defined as the rate necessary to discount the amounts payable on the
respective principal and interest payment dates to the purchase price received for the new issue of
bonds. Interest is assumed to be compounded semi-annually. TIC computations produce a figure
slightly different from the “net interest cost” (NIC) method because TIC considers the time value of
money while NIC does not.
Trustee: A bank retained by the issuer as custodian of bond proceeds and official representative
of bondholders. The trustee ensures compliance with the indenture. In many cases, the trustee
also acts as paying agent and is responsible for transmitting payments of interest and principal to
the bondholders.
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Underwriter: A broker-dealer that purchases a new issue of municipal securities from the issuer for
resale in a primary offering. The bonds may be purchased either through a negotiated sale with the
issuer or through a competitive sale.
89
Memorandum
DATE: April 9, 2024
TO: Finance Committee
FROM: Ryan Hinchman, Administrative Services Director
Ann Xu, Finance Manager
SUBJECT: Overview of Treasurer’s Report
In the February Finance Committee meeting, the Committee requested staff to provide an overview of
the Treasurer’s report to be reviewed in the March meeting. The Treasurer’s Report provides a
comprehensive view of all financial receipts, disbursements, and fund balances in accordance with
California government code section 41004.The report is structured with the following components:
Cash and Investments Balance
Financial Position
Total Fund Balance
Total Fund Balances by Capital Improvement Plan (CIP) Project
Change in Investment Pool Balance by Month
Local Agency Investment Fund (LAIF) Quarterly Apportionment Rates
CalTRUST Quarterly Yield Rates
ATTACHMENTS
A.Treasurer’s Report for February
90
SARATOGA CITY COUNCIL
MEETING DATE:April 3, 2024
DEPARTMENT:Administrative Services
PREPARED BY:Ann Xu, Finance Manager
SUBJECT:Treasurer’s Report for the Month Ended February 29, 2024
RECOMMENDED ACTION:
Review and accept the Treasurer’s Report for the month ended February 29, 2024.
BACKGROUND:
California government code section 41004 requires that the City Treasurer submits to the City
Clerk and the legislative body a written report and accounting of all receipts, disbursements, and
fund balances. The Municipal Code of the City of Saratoga, Article 2-20, Section 2-20.035
designates the City Manager as the City Treasurer. This report is prepared to fulfill this
requirement.
The following attachments provide various financial transaction data for the City of Saratoga’s
Funds collectively as well as specifically for the City’s General (Operating) Fund, including an
attachment from the State Treasurer’s Office of Quarterly Local Agency Investment Fund (LAIF)
rates from the 1st Quarter of 1977 to the present.
FISCAL STATEMENT:
Cash and Investments Balance by Fund
As of February 29, 2024, the City’s unaudited cash and investments totaled $42,528,557. The
City Council’s adopted policy on the Working Capital Reserve Fund states that effective July 1,
2016: for cash flow purposes and to avoid the occurrence of dry period financing, pooled cash
from all funds should not be allowed to fall below $1,000,000. The total pooled cash balance of
$42.5 million exceeds the minimum amount required.
In June 2023, the City Council approved resolution 23-060,which updated the City’s investment
policy to include the ability to allocate up to 20% of the City’s investment portfolio to Joint
Powers Authority (JPA) investment pools as authorized by Government Code 53601(p). In
February 2024, $4,000,000 was transferred to CalTRUST, a JPA investment pool in order to
diversify the City’s investments.
91
City’s Current Financial Position
In accordance with California government code section 53646 (b) (3), the City is financially well
positioned and able to meet its estimated expenditure requirements for the next six months. As of
February 29, 2024, the City’s financial position (Assets $42.9M, Liabilities $6.6M, and Fund
Equity $36.3M) remains very strong and there are no issues in meeting financial obligations now
or in the foreseeable future.
The following Fund Balance schedule represents actual funding available for all funds at the end
of the monthly period. This amount differs from the above Cash Summary schedule as assets and
liabilities are components of the fund balance. As illustrated in the summary below, Total Cash
is adjusted by the addition of Total Assets less the amount of Total Liabilities to arrive at the
Ending Fund Balance –which represents the actual amount of funds available.
ATTACHMENTS:
Table 1 – Change in Total Fund Balances by Fund
Table 2 – Change in Total Fund Balances by CIP Project
Chart 1 – Change in Investment Pool Balance by Month
Chart 2 – Local Agency Investment Fund (LAIF) Quarterly Apportionment Rates
Chart 3 – CalTRUST Liquidity Fund Quarterly Yield Rates
Comerica Bank 661,070$
Deposit with LAIF 37,867,488$
Deposit with CalTRUST 4,000,000$
Total Cash 42,528,557$
Cash Summary
"+
Total Cash 42,528,557$
Plus: Assets 353,212
Less: Liabilities (6,562,456)
Ending Fund Balance 36,319,313$
Adjusting Cash to Ending Fund Balance
92
TABLE 1: CHANGES IN TOTAL FUND BALANCE
*Negative fund balance due to authorized spending of anticipated revenues
**Includes long-term debt for Arrowhead Community Facilities District Bond
Fund Description
Prior Year
Carryforward
7/1/2023
Increase/
(Decrease)
Jul-Jan
Current
Revenue
Current
Expenditure Transfer In
Transfer
Out
Fund Balance
2/29/2024
General Fund
Committed Fund Balances:
Hillside Stability Reserve 1,000,000 - - - - - 1,000,000
Assigned Fund Balances:
Future Capital Project Reserve 3,534,875 - - - - (1,337,000) 2,197,875
Carryforwards Reserve 100,000 - - - - - 100,000
Road and Facility Replacement Reserve 3,700,000 - - - - - 3,700,000
Unassigned Fund Balances:
Working Capital Reserve 1,000,000 - - - - - 1,000,000
Fiscal Stabilization Reserve 3,150,000 - - - - - 3,150,000
Compensated Absences Reserve 330,000 - - - - - 330,000
Other Unassigned Fund Balance Reserve (Pre YE distribution)2,373,803 729,030 828,132 (1,815,446) - (2,170,876) (55,357)
General Fund Total 15,188,678 729,030 828,132 (1,815,446) - (3,507,876) 11,422,518
Special Revenue
Landscape/Lighting Districts 1,001,132 86,749 18 (26,390) - - 1,061,509
ARPA Federal Grants 6,473,435 - - - - - 6,473,435
2023 Storm Fund 200,884 4,487 - - - - 205,371
Special Revenue Fund Total 7,675,451 91,236 18 (26,390) - - 7,740,315
Debt Service
Library Bond 910,655 (205,379) 1,052 (111,093) - - 595,236
Arrowhead Bond (1,287,086) (60,264) - (573) - - (1,347,922) **
Debt Service Fund Total (376,431) (265,642) 1,052 (111,666) - - (752,686)
Internal Service Fund
Liability/Risk Management 643,207 (202,256) - (15,739) - - 425,212
W orkers Compensation 224,868 18,377 3,189 (4,499) - - 241,935
Office Support 162,213 7,731 867 (10,156) - - 160,655
Information Technology Services 710,691 192,517 - (64,247) - - 838,961
Vehicle & Equipment Maintenance 268,387 (9,690) - (25,050) - - 233,647
Building Maintenance 692,401 224,178 - (86,900) - - 829,679
Vehicle & Equipment Replacement 754,983 27,014 - - - - 781,997
Technology Replacement 908,565 90,124 - - - - 998,689
Facility FFE Replacement 855,962 147,626 - - - - 1,003,588
Internal Service Fund Total 5,221,277 495,621 4,055 (206,590) - - 5,514,363
Trust/Agency
WVCWP Agency Fund 651,922 43,621 - (50,170) - - 645,373
Trust/Agency Fund Total 651,922 43,621 - (50,170) - - 645,373
Capital Project
Street Projects 3,660,101 (705,802) 39,473 (52,284) 2,846,395 (57,395) 5,730,488
Park and Trail Projects 836,826 (181,734) - (5,953) 375,000 - 1,024,139
Facility Projects 492,336 20,965 16,156 (200) - - 529,257
Administrative Projects 1,334,960 236,082 39,029 (24,791) 343,876 - 1,929,155
Tree Fine Projects 27,266 14,720 - - - - 41,986
Park In-Lieu Projects 1,048,701 328,288 32,343 - - - 1,409,332
CIP Grant Street Projects (81,233) 9,115 - - - - (72,117) *
CIP Grant Park & Trail Projects 90,000 1,173,005 - - - - 1,263,005
CIP Grant Administrative Projects (186,987) (45,025) 32,170 (21,664) - - (221,505) *
CIP Grant ARPR/SLFRF Projects - (763,560) - (34,105) - - (797,665) *
Gas Tax Fund Projects (51,189) 821,441 143,104 - - - 913,356
CIP Fund Total 7,170,781 907,496 302,276 (138,998) 3,565,271 (57,395) 11,749,433
Total City 35,531,679 2,001,361 1,135,533 (2,349,260) 3,565,271 (3,565,271)36,319,313
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TABLE 2: FUND BALANCES BY CIP PROJECT
*Negative fund balance due to authorized spending of anticipated revenues
CIP Funds/Projects
Prior Year
Carryforward
7/1/2023
Increase/
(Decrease)
Jul-Jan
Current
Revenue
Current
Expenditure Transfer In Transfer Out
Fund Balance
2/29/2024
Street Projects
Annual Road Improvements 853,356 (92,767) 39,473 (52,284) 1,337,000 (57,395) 2,027,384
Roadway Safety & Traffic Calming 212,585 (172,761) - - 150,000 - 189,824
Local Roadway Safety Plan 3,047 - - - - - 3,047
Traffic Signal Controller Upgrades 80,000 - - - - - 80,000
Safe Routes to School Implementation - (22,300) - - 160,000 - 137,700
Citywide Bikeways and Sidewalk Master Plan - - - - 57,395 - 57,395
Prospect/Saratoga Median Improvement 309,379 - - - - - 309,379
Village Clock 2,560 - - - - - 2,560
Annual Infrastructure Maintenance & Repairs 72,915 (266,664) - - 250,000 - 56,252
Guava Court Curb & Gutter Replacement 252,514 - - - - - 252,514
Annual Corrugated Pipe Rehabilitation Project - - - - 300,000 - 300,000
Saratoga Village Crosswalk & Sidewalk Rehabilitation 31,724 (4,793) - - - - 26,932
Quito Road Sidewalk Improvements 43,370 - - - - - 43,370
Saratoga/Sunnyvale Road Sidewalk 92,158 - - - - - 92,158
Saratoga Sunnyvale Rd. Pathway Rehab Cox to Railroad Crossing 50,000 (50,000) - - - - -
Quito Road Sidewalk Gap Closure Phase 1 182,609 - - - - - 182,609
Quito Road Sidewalk Rehabilitation Gap Closure Phase 2 300,000 - - - - - 300,000
Fourth Street Bridge Widening 95,813 - - - 42,000 - 137,813
Quito Road Bridge Replacement 127,478 - - - - - 127,478
Quito Road Bridge - ROW Acquisition 3,662 - - - - - 3,662
Bridge Rehabilitation Project Phase 1 350,000 - - - 350,000 - 700,000
Annual Retaining Wall Maintenance & Repairs 332,401 (94,618) - - 200,000 - 437,783
Mt. Eden Erosion Repair 45,344 (1,900) - - - - 43,444
Pierce Road Retaining Wall 36,881 - - - - - 36,881
Unallocated Street Funds 182,303 - - - - - 182,303
Total Street Projects 3,660,101 (705,802) 39,473 (52,284) 2,846,395 (57,395) 5,730,488
Parks & Trails Projects
Park/Trail Repairs 150,756 (127,149) - (1,452) 250,000 - 272,155
Hakone Gardens Infrastructure Improvements (12,010) - - - 25,000 - 12,990
Hakone Pond Reconstruction 300,000 - - - - - 300,000
Beauchamps Park Playground Replacement (3,945) - - - - - (3,945) *
Guava/Fredericksburg Entrance 87,035 (4,584) - (1,140) - - 81,310
Saratoga Village to Quarry Park Walkway - Design 228,989 - - - - - 228,989
Park and Trail Fire Mitigation - (50,000) - (3,360) 100,000 - 46,640
Unallocated Park Funds 86,000 - - - - - 86,000
Total Parks & Trails Projects 836,826 (181,734) - (5,953) 375,000 - 1,024,139
Facility Projects
Open Work Space 78,100 - - - - - 78,100
Civic Theater Improvements 27,240 11,405 - - - - 38,645
PEG Funded Project 189,312 13,281 16,156 - - - 218,749
Community Center Improvement 19,484 (5,721) - - - - 13,763
Community Center Generator and EV Charging Stations 163,201 (3,000) - (200) - - 160,001
Library Building Exterior Maintenance 15,000 5,000 - - - - 20,000
Total Facility Projects 492,336 20,965 16,156 (200) - - 529,257
Administrative and Technology Projects
Safe Routes to School 158,755 - - - - - 158,755
City Website/Intranet 16,948 - - - - - 16,948
Software Technology Management 167,361 82,468 13,224 - - - 263,053
LLD Initiation Match Program (7,344) - - - - - (7,344) *
Horseshoe Beautification 8,237 (1,724) - - - - 6,514
Citywide Accessibility Assessment 26,116 (25,431) - (326) 100,000 - 100,358
City Art Program 78,669 - - - 25,000 - 103,669
Safe Routes to School Needs Assessment 15,748 - - - - - 15,748
El Quito Neighborhood Improvements 284,507 - - - - - 284,507
ADA Self Assessment 320,250 (9,000) - - - - 311,250
General Plan Update 234,195 189,769 25,805 (24,465) 218,876 - 644,179
Wildfire Mitigation Program 4,067 - - - - - 4,067
Unallocated Administrative Funds 27,452 - - - - - 27,452
Total Administrative and Technology Projects 1,334,960 236,082 39,029 (24,791) 343,876 - 1,929,155
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TABLE 2 (cont.): FUND BALANCES BY CIP PROJECT
*Negative fund balance due to authorized spending of anticipated revenues
CIP Funds/Projects
Prior Year
Carryforward
7/1/2023
Increase/
(Decrease)
Jul-Jan
Current
Revenue
Current
Expenditure Transfer In Transfer Out
Fund Balance
2/29/2024
Tree Fine Projects
Citywide Tree Planting Program 27,266 14,720 - - - - 41,986
Total Tree Fine Projects 27,266 14,720 - - - - 41,986
Park In-Lieu Projects
Orchard Irrigation & Tree Planting 3,237 - - - - - 3,237
Hakone Gardens Infrastructure 82,011 (37,687) - - - - 44,324
Hakone Gardens Neighbor Wood Fence Replacement 75,000 (69,250) - - - - 5,750
Quarry Park Maintenance Building Utility Project 35,000 - - - - - 35,000
EL Quito Park Pickleball 1,515 - - - - - 1,515
Joe's Trail Phase II 130,755 - - - - - 130,755
Joe's Trail Phase III 264,000 - - - - - 264,000
Trail Pet Stations 25,000 - - - - - 25,000
Saratoga Village to Quarry Park Walkway - Design 223,810 - - - - - 223,810
Village Oaks Bridge Reconstruction and Erosion Control 30,000 - - - - - 30,000
Hakone Gardens to Quarry Park Trail Gap Closure Phase 1 50,000 - - - - - 50,000
Park and Trail Fire Mitigation 100,000 (49,920) - - - - 50,080
Unallocated Park In-Lieu Funds 28,372 485,145 32,343 - - - 545,860
Total Park In-Lieu Projects 1,048,701 328,288 32,343 - - - 1,409,332
CIP Grant Street Projects
Local Roadway Safety Plan (4,882) - - - - - (4,882) *
Prospect/Saratoga Median Improvement (19,217) 3,718 - - - - (15,499) *
Citywide Signal Upgrade II 18 - - - - - 18
Saratoga Ave Sidewalk (34,146) - - - - - (34,146) *
Village Sidewalk, Curb & Gutter - Phase II Construction (91) - - - - - (91) *
Saratoga Village Crosswalk & Sidewalk Rehabilitation (834) 2,564 - - - - 1,730
4th Street Bridge (31,057) 2,833 - - - - (28,224) *
Quito Bridge Replacement 18,597 - - - - - 18,597
Quito Road Bridges - ROW Acquisition (9,619) - - - - - (9,619) *
Total CIP Grant Street Projects (81,233) 9,115 - - - - (72,117)
CIP Grant Park & Trail Projects
Blue Hills Elementary Pedestrian Crossing at UPPR - 1,200,000 - - - - 1,200,000
Park and Trail Fire Mitigation 90,000 (26,995) - - - - 63,005
Total CIP Grant Park & Trail Projects 90,000 1,173,005 - - - - 1,263,005
CIP Grant Administrative Projects
CDD Software/ADA 39,736 - - - - - 39,736
General Plan Update (LEAP)(226,723) (45,025) 32,170 (21,664) - - (261,241) *
Total CIP Grant Administrative Projects (186,987) (45,025) 32,170 (21,664) - - (221,505)
CIP Grant ARPA/SLFRF Projects
Park Sewer Lateral Replacement - (70,859) - (1,400) - - (72,259) *
Prospect Road Green Infrastructure (304,640) - - - - (304,640) *
Stormwater Pollution Prevention Program Compliance (SWPPP)- (38,526) - - - - (38,526) *
Saratoga Village Water Improvement - (46,901) - (25,629) - - (72,529) *
Guava Ct. Improvements and Green Stormwater Infrastructure (GSI)- (297,637) - (7,077) - - (304,714) *
Monta Vista Storm Drain Improvement - (4,997) - - - - (4,997) *
Total CIP Grant ARPA/SLFRF Projects - (763,560) - (34,105) - - (797,665)
Gas Tax Fund Projects
Annual Roadway Improvements (106,552) 821,441 143,104 - - - 857,993
Prospect/Saratoga Median Improvements 48,278 - - - - - 48,278
Quito Road Bridges 7,085 - - - - - 7,085
Total Gas Tax Fund Projects (51,189) 821,441 143,104 - - - 913,356
Total CIP Funds 7,170,781 907,496 302,276 (138,998) 3,565,271 (57,395) 11,749,433
95
CHART 1: CHANGE IN INVESTMENT POOL BALANCE BY MONTH
96
CHART 2
March June September December
1977 5.68 5.78 5.84 6.45
1978 6.97 7.35 7.86 8.32
1979 8.81 9.10 9.26 10.06
1980 11.11 11.54 10.01 10.47
1981 11.23 11.68 12.40 11.91
1982 11.82 11.99 11.74 10.71
1983 9.87 9.64 10.04 10.18
1984 10.32 10.88 11.53 11.41
1985 10.32 9.98 9.54 9.43
1986 9.09 8.39 7.81 7.48
1987 7.24 7.21 7.54 7.97
1988 8.01 7.87 8.20 8.45
1989 8.76 9.13 8.87 8.68
1990 8.52 8.50 8.39 8.27
1991 7.97 7.38 7.00 6.52
1992 5.87 5.45 4.97 4.67
1993 4.64 4.51 4.44 4.36
1994 4.25 4.45 4.96 5.37
1995 5.76 5.98 5.89 5.76
1996 5.62 5.52 5.57 5.58
1997 5.56 5.63 5.68 5.71
1998 5.70 5.66 5.64 5.46
1999 5.19 5.08 5.21 5.49
2000 5.80 6.18 6.47 6.52
2001 6.16 5.32 4.47 3.52
2002 2.96 2.75 2.63 2.31
2003 1.98 1.77 1.63 1.56
2004 1.47 1.44 1.67 2.00
2005 2.38 2.85 3.18 3.63
2006 4.03 4.53 4.93 5.11
2007 5.17 5.23 5.24 4.96
2008 4.18 3.11 2.77 2.54
2009 1.91 1.51 0.90 0.60
2010 0.56 0.56 0.51 0.46
2011 0.51 0.48 0.38 0.38
2012 0.38 0.36 0.35 0.32
2013 0.28 0.24 0.26 0.26
2014 0.24 0.22 0.24 0.25
2015 0.26 0.28 0.32 0.37
2016 0.46 0.55 0.60 0.68
2017 0.78 0.92 1.07 1.20
2018 1.51 1.90 2.16 2.40
2019 2.55 2.57 2.45 2.29
2020 2.03 1.36 0.84 0.63
2021 0.44 0.33 0.24 0.23
2022 0.32 0.75 1.35 2.07
2023 2.74 3.15 3.59 4.00
Quarterly Apportionment Rates
Local Agency Investment Fund
97
CHART 3
March June September December
2019 2.50 2.37 2.06 1.69
2020 0.98 0.25 0.15 0.03
2021 0.05 0.03 0.03 0.03
2022 0.16 1.37 2.75 4.62
2023 4.59 5.06 5.44 5.69
CalTRUST Liquidity Fund
Quarterly Yield Rates
98
Memorandum
DATE: April 9, 2024
TO: Finance Committee
FROM: Ryan Hinchman, Administrative Services Director
Ann Xu, Finance Manager
SUBJECT: Transfer to CalTRUST
In June 2023, the City Council approved resolution 23-060 which updated the City’s investment policy to
include the ability to allocate up to 20% of the City’s investment portfolio to Joint Powers Authority (JPA)
Investment Pools as authorized by Government Code 53601(p).JPA Investment Pools offer a potentially
cost-effective alternative to for-profit investment advisors, providing additional options for the City's
investment strategy.
In February 2024, $4 million was transferred to CalTRUST, a JPA investment pool. The details of the
transaction are below:
Date Description Fund # Shares Price Total Running #
Shares
2/7/2024 Purchase
(62563)
CalTRUST
Liquidity
Fund
4,000,000.0000 $1.00 $4,000,000.00 4,000,000.0000
2/29/2024 Accrual Income
Div
Reinvestment
(62790)
CalTRUST
Liquidity
Fund
13,699.5300 $1.00 $13,699.53 4,013,699.5300
Attachment A provides historical returns for CalTRUST funds for your reference.
ATTACHMENTS
A.Historical Investment Returns
99
Attachment A
March June September December
2019 2.50 2.37 2.06 1.69
2020 0.98 0.25 0.15 0.03
2021 0.05 0.03 0.03 0.03
2022 0.16 1.37 2.75 4.62
2023 4.59 5.06 5.44 5.69
CalTRUST Liquidity Fund
Quarterly Yield Rates
100
March June September December
1977 5.68 5.78 5.84 6.45
1978 6.97 7.35 7.86 8.32
1979 8.81 9.10 9.26 10.06
1980 11.11 11.54 10.01 10.47
1981 11.23 11.68 12.40 11.91
1982 11.82 11.99 11.74 10.71
1983 9.87 9.64 10.04 10.18
1984 10.32 10.88 11.53 11.41
1985 10.32 9.98 9.54 9.43
1986 9.09 8.39 7.81 7.48
1987 7.24 7.21 7.54 7.97
1988 8.01 7.87 8.20 8.45
1989 8.76 9.13 8.87 8.68
1990 8.52 8.50 8.39 8.27
1991 7.97 7.38 7.00 6.52
1992 5.87 5.45 4.97 4.67
1993 4.64 4.51 4.44 4.36
1994 4.25 4.45 4.96 5.37
1995 5.76 5.98 5.89 5.76
1996 5.62 5.52 5.57 5.58
1997 5.56 5.63 5.68 5.71
1998 5.70 5.66 5.64 5.46
1999 5.19 5.08 5.21 5.49
2000 5.80 6.18 6.47 6.52
2001 6.16 5.32 4.47 3.52
2002 2.96 2.75 2.63 2.31
2003 1.98 1.77 1.63 1.56
2004 1.47 1.44 1.67 2.00
2005 2.38 2.85 3.18 3.63
2006 4.03 4.53 4.93 5.11
2007 5.17 5.23 5.24 4.96
2008 4.18 3.11 2.77 2.54
2009 1.91 1.51 0.90 0.60
2010 0.56 0.56 0.51 0.46
2011 0.51 0.48 0.38 0.38
2012 0.38 0.36 0.35 0.32
2013 0.28 0.24 0.26 0.26
2014 0.24 0.22 0.24 0.25
2015 0.26 0.28 0.32 0.37
2016 0.46 0.55 0.60 0.68
2017 0.78 0.92 1.07 1.20
2018 1.51 1.90 2.16 2.40
2019 2.55 2.57 2.45 2.29
2020 2.03 1.36 0.84 0.63
2021 0.44 0.33 0.24 0.23
2022 0.32 0.75 1.35 2.07
2023 2.74 3.15 3.59 4.00
Quarterly Apportionment Rates
Local Agency Investment Fund
101
Memorandum
1
DATE: April 9, 2024
TO: Finance Committee
FROM: Ryan Hinchman,Administrative Services Director
SUBJECT: Fiscal Year 2024-25 Budget Overview
Staff will provide a preview of the 2024-25 draft budget.We are requesting the
Committee to provide input to City staff for their presentation to City Council on
May 1st.
102
Preview Preliminary Budget
FY2024-25
103
Overview of Budget Timeline
•May 15 th -Proposed
Budget to Council
•June 5th –Public hearing
•June 19th –Adoption
•January 30th – Council
Retreat
•February 20th – CIP
Study Session
•April 4th – CIP Approval
Complete Upcoming
104
Excess Educational Revenue
Augmentation Fund (ERAF)
•When a county has ERAF revenue that is higher than
the General Fund needs of schools and community
colleges, there is an Excess ERAF
•Excess ERAF is distributed to cities and special districts
•Few counties have excess ERAF, Santa Clara County is
among them
105
Excess ERAF - RISK
•County preliminary ERAF estimate of $1M for Saratoga
•The State is attempting to claw back excess ERAF. Santa
Clara County has filed a suit to protect funding
•If the state is successful, ERAF could be at risk
•The total risk is $1.7M of funding ($1M this year and $0.7M claw
back for prior years). Timing/amounts are uncertain
Preliminary ERAF budget estimate is $900K
106
Solid Waste Fee
•FY2023-24 budget assumed loss of solid waste
revenue
•Based on recent study, the revenue is
expected to continue in FY2024-25
•JPA board approval in May
Preliminary Solid Waste revenue budget is $1.5M
107
Preliminary Property Tax Growth
0.0%
2.0%
4.0%
6.0%
8.0%
2021
Actual
2022
Actual
2023
Actual
2024 Est.2025
Prelim.
Slowing property tax growth•Property tax
growth has slowed
from pandemic
levels
•Estimates are
preliminary
108
Preliminary Property and Sales Tax
•Property – estimated 3% growth from current year
•Sales tax – projected to be flat
•Final estimates in May
109
Protective Services
•Protective Services make up about 25%-30% of the general fund budget
•Contracts renew this year and assume 7% growth -
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2021
Actual
2022
Actual
2023
Actual
2024 Est.2025
Prelim.
Sheriff Animal Control
In $1,000s
110
Insurance Premiums
•Insurance costs are
estimated to increase
23% in FY2024-25
•California market
continues to harden
In $1,000s
-
200
400
600
800
1,000
1,200
2021
Actual
2022
Actual
2023
Actual
2024
Estimate
2025
Prelim.
111
Pension Contributions
•Minimum
unfunded
accrued liability
(UAL) payments
continue to
increase
1,015 1,041 1,049
726
1,576
850
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
FY2020 FY2021 FY2022 FY2023 FY2024 FY2025
Minimum UAL Payment Additional UAL Payment
112
2.4
3.0
3.9
3.5
3.2
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2021 2022 2023 2024 2025
General Fund Transfers to Capital
In ($ millions)
•Contributions
to capital from
the general
fund
113
Next Steps
•Draft proposed budget for Finance Committee May 8th
•Draft proposed budget to City Council May 15th
•June 5th budget hearing
•June 19th adoption
114