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HomeMy WebLinkAbout04-15-2019 City council Study session agenda packetSaratoga City council Agenda – Page 1 of 2 SARATOGA CITY COUNCIL SPECIAL MEETING APRIL 15, 2019 6:00 P.M. SPECIAL MEETING Linda Callon Conference Room, City Hall | 13777 Fruitvale Avenue, Saratoga, CA 95070 ORAL COMMUNICATIONS ON NON-AGENDIZED ITEMS Any member of the public will be allowed to address the City Council for up to three (3) minutes on matters not on this Agenda. The law generally prohibits the Council from discussing or taking action on such items. However, the Council may instruct Staff accordingly. AGENDA ITEMS Review of the Draft Proposed FY 2019/20 General Fund Operating Budget and Fiscal Policies, and a recap of the proposed Capital Improvement Project funding allocations. Recommended Action: Council to review and provide consensus direction to staff on: 1) Draft Proposed FY 2019/20 Operating Budget 2) Proposed Fiscal Policy Changes 3) Proposed FY 2019/20 Capital Project Funding Allocations ADJOURNMENT CERTIFICATE OF POSTING OF THE AGENDA, DISTRIBUTION OF THE AGENDA PACKET, COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT I, Debbie Bretschneider, City Clerk for the City of Saratoga, declare that the foregoing agenda for the meeting of the City Council was posted and available for review on April 12, 2019 at the City of Saratoga, 13777 Fruitvale Avenue, Saratoga, CA 95070 and on the City's website at www.saratoga.ca.us. Signed this 12th day of April 2019 at Saratoga, California. Debbie Bretschneider, City Clerk In accordance with the Ralph M. Brown Act, copies of the staff reports and other materials provided to the City Council by City staff in connection with this agenda are available at the office of the City Clerk at 13777 Fruitvale Avenue, Saratoga, CA 95070. Note that copies of materials distributed to the City Council concurrently with the posting of the agenda are also available on the City Website at www.saratoga.ca.us. Any materials distributed by staff after the posting of the agenda are made available for public review at the office of the City Clerk at the time they are distributed to the City Council. These materials are also posted on the City website. Saratoga City council Agenda – Page 2 of 2 In Compliance with the Americans with Disabilities Act, if you need assistance to participate in this meeting, please contact the City Clerk at 408.868.1269. Notification 24 hours prior to the meeting will enable the City to make reasonable arrangements to ensure accessibility to this meeting. [28 CFR 35.102-35.104 ADA title II] SARATOGA CITY COUNCIL MEETING DATE: April 15, 2019 DEPARTMENT: Finance & Administrative Services Department PREPARED BY: Mary Furey, Administrative Services Director SUBJECT: Review of the Draft Proposed FY 2019/20 General Fund Operating Budget and Fiscal Policy changes, and a recap of the proposed Capital Improvement Project funding allocations. RECOMMENDED ACTION: Council to review and provide consensus direction to staff on: 1) Draft Proposed FY 2019/20 Operating Budget 2) Proposed Fiscal Policy Changes 3) Proposed FY 2019/20 Capital Project Funding Allocations BACKGROUND: The annual Budget Study Session provides an update of the current year’s funding and expenditure estimates, a summary overview of next fiscal year’s proposed operating budget and notable changes, and a final review of recommended capital project funding allocations. Council direction will be incorporated into the Proposed Operating and Capital Budgets to be presented at the May 16th public hearing. Additionally, as fiscal policies are included as part of the annual budget adoption, proposed policy changes are provided for discussion. This informal review process provides Council with the opportunity to ask questions, request clarifications, and provide direction in preparation of the final proposed budget presentation. General Fund Summary Overview Attachment A, the General Fund Summary schedule, provides three years of revenue and expenditure history, the current fiscal year budget and estimate, and next year’s proposed budget. A review of Total Operating Sources will include a general discussion of major revenues, trends and projections, and information on the use of fund balance reserves. A review of Total Operating Uses will highlight notable changes in the current and proposed year’s budgeted expenditures, trends, and projections. Total Fund Activity Overview Attachment B, the Total Fund Activity Schedule provides a high-level summary of all funds: General, Internal Services, Debt Service, Trust & Agency (new), and Capital Funds. Beginning with estimated beginning fund balances in the first column, budgeted revenues, expenditures, and transfers in the following columns lead to the estimated ending fund balances at the end of next fiscal year for each of the City’s funds. This high-level summary of the City’s funds provides a broad understanding of how the funds are structured for use in either general or specific functions, how they individually contribute to City operations, and how these funds balance both short and long-term objectives. Collectively the funds represent and illustrate the City’s overall fiscal health. 3 Fiscal Policies On an annual basis, and as part of the Finance Committee’s function, portions of the City of Saratoga’s fiscal policies are reviewed. Policy revisions generally include policy language refinement and clarifications, expanded policy direction, documentation of existing best practices or verbal policy direction during the course of the year, and any necessary operational or fiscal changes to reflect current practices or legal requirements. Proposed changes are then submitted to the Council and integrated into the budget adoption process. This year’s proposed update includes the elimination of references to City-run recreation services due to the transfer of this function to Los Gatos Saratoga Recreation District. Additional deletions to last year’s elimination of the Development Reserve were also made. A section titled Trust & Agency Funds was added to the policy to recognize that the City is now acting as the trustee for the West Valley Clean Water JPA, which includes the receipt and distribution of the agency’s funds. An additional trust fund may also be added for the Arrowhead project funds held by the Bank of New York Mellon: we are awaiting direction from the City’s auditors on whether to include these project funds in the City’s financials in the Debt Service fund or as a separate Trust Fund. Capital Project Funding Council assessed both proposed and current capital project proposals during the Council Retreat. Attachment D captures Council’s CIP project scope and funding direction for the FY 2019/20 Capital Improvement Program Budget. Please Note: The Proposed Operating & Capital Budget is currently being finalized for the City Council Budget Hearing on May 15, 2019. Documents and fiscal information provided at this budget study session are in development and subject to revisions and updates. ATTACHMENTS: Attachment A – Draft Proposed FY 2019/20 General Fund Summary Attachment B – Draft Proposed FY 2019/20 Total Fund Activity Summary Attachment C – Fiscal Policy Revisions Attachment D – Results of FY 2019/20 CIP Funding Prioritization Attachment E – Proposed FY 2019/20 Capital Improvement Plan 4 Attachment A FY 2015/16 FY 2016/17 FY 2017/18 2018/19 2018/19 2019/20 % of General Fund Revenues Actuals Actuals Actuals Adjusted Estimated Proposed Budget Property Tax 11,301,176 12,003,942 12,963,531 13,189,900 13,926,572 13,805,000 60.4% Sales Tax 1,189,398 1,185,035 1,124,647 1,050,000 1,050,000 1,050,000 4.6% Transient Occupancy Tax 319,109 343,618 389,037 350,000 390,000 400,000 1.8% Business & Other Taxes 578,652 513,431 571,326 580,000 547,000 520,000 2.3% Franchise Fee Tax 2,235,514 2,356,539 2,338,794 2,462,000 2,402,084 2,392,000 10.5% Intergovernmental 547,075 584,480 557,026 487,500 521,886 513,000 2.2% Fees, Licenses & Permits 1,544,844 1,500,843 2,217,363 1,724,150 1,864,289 1,943,350 8.5% Charge for Services 2,079,939 1,666,164 1,671,955 1,531,698 1,438,763 1,083,292 4.7% Interest 79,341 102,787 270,929 254,500 459,481 510,000 2.2% Rental Income 527,596 494,176 445,161 410,606 410,690 395,250 1.7% Other Sources 379,952 361,396 420,339 256,222 382,227 244,977 1.1% Total GF Revenues 20,782,596 21,112,412 22,970,107 22,296,576 23,392,993 22,856,869 100% Fund Transfers In 267,918 55,384 442,198 - 50,947 - Total Rev & Transfers 21,050,514 21,167,796 23,412,305 22,296,576 23,443,940 22,856,869 Use of (Addition to) Fund Balance Reserves Carryforward Reserve 176,560 - 7,246 - - - Development Reserve 60,000 - - - - - Environmental Reserve 50,000 50,000 50,000 50,000 50,000 50,000 CIP Reserve 1,777,896 1,410,648 1,872,909 1,710,000 1,710,000 2,595,000 Hillside Reserve - 210,000 (210,000) - - - Fiscal Stabilization Repayment (250,000) (250,000) - - - - Total Operating Sources 22,864,970 22,588,444 25,132,460 24,056,576 25,203,940 25,501,869 FY 2015/16 FY 2016/17 FY 2017/18 2018/19 2018/19 2019/20 % of General Fund Expenditures Actuals Actuals Actuals Adjusted Estimated Proposed Budget Salary & Benefits 6,814,803 7,171,061 7,264,949 8,358,212 7,708,846 8,709,414 39% UAL Payment 500,000 500,000 750,000 1,050,000 1,050,000 1,050,000 5% Materials & Supplies 207,649 248,600 246,785 340,770 256,205 376,570 2% Fees & Charges 835,636 939,859 788,811 950,634 891,512 839,325 4% Consultant & Contract Svs 2,115,325 2,322,212 2,034,666 2,699,280 2,563,728 2,345,971 10% Sheriff Services 4,973,080 5,176,515 5,319,341 5,680,745 5,680,745 6,057,371 27% Meetings, Events & Training 59,431 87,606 105,621 181,290 125,427 175,010 1% Community Grants & Events 202,525 222,127 233,336 285,429 259,177 301,635 1% Operating Grant Expenditures 34,762 - - - - - 0% Fixed Assets - - 19,785 20,000 - 20,000 0% Internal Services Charges 2,455,758 2,535,472 2,626,497 2,591,332 2,591,332 2,630,519 12% Total Expenditures 18,198,969 19,203,452 19,389,791 22,157,691 21,126,972 22,505,815$ 100% Streets CIP 1,099,000 1,305,000 1,319,000 907,000 907,000 675,000 Park & Trails CIP 295,000 75,000 420,000 100,000 100,000 1,495,000 Facilities CIP 233,896 190,648 - 653,000 653,000 375,000 Admin & Technology CIP 265,000 50,000 133,909 50,000 50,000 50,000 CIP Reserve Transfers 1,892,896$ 1,620,648$ 1,872,909$ 1,710,000$ 1,710,000$ 2,595,000$ Developmt Reserve Transfer 60,000 - - - - - General Fund Transfers Transfer to Street CIP 64,760 - - - - - Total General Fund Transfers 64,760$ -$ -$ -$ -$ -$ Total Transfers Out 2,017,656 1,620,648 1,872,909 1,710,000 1,710,000 2,595,000 Total Expenditure & Transfers 20,216,625 20,824,100 21,262,700 23,867,691 22,836,972 25,100,815 Net Operations 2,648,344$ 1,764,343$ 3,869,760$ 188,885$ 2,366,968$ 401,054 DRAFT PROPOSED OPERATING USES OPERATING SOURCES GENERAL FUND SUMMARY 4/11/2019 5 Attachment B Revenues Expenditures Source (Use)Estimated Fund Balance && of Fund Balance Fund Category July 1, 2019 Transfers In Transfers Out Fund Balance June 30, 2020 Operating Funds General Fund Reserves Environmental Services 163,182$ -$ -$ (50,000)$ 113,182$ Hillside Stability 1,000,000 - - - 1,000,000 Capital Projects 2,524,710 - (2,595,000) 1,896,285 1,825,995 Facility Reserve 2,700,000 - - 500,000 3,200,000 Carryforwards - - - - - Working Capital 1,000,000 - - - 1,000,000 Fiscal Stabilization 3,150,000 - - - 3,150,000 Compensated Absences 231,708 - - - 231,708 Other Unassigned 2,896,285 22,856,869 (22,505,815) (2,346,285) 901,054 Total General Fund Reserves 13,665,885$ 22,856,869$ (25,100,815)$ -$ 11,421,938$ Special Revenue Funds Landscape & Lighting Districts 1,433,386$ 753,049 (766,272) - 1,420,163 Total Special Revenue Reserves 1,433,386$ 753,049$ (766,272)$ -$ 1,420,163$ Internal Service Funds Liability/Risk Management 497,912$ 461,362 (610,186) - 349,088 Workers Compensation 274,765 185,000 (214,293) - 245,472 Office Support Services 115,847 50,000 (73,750) - 92,097 IT Services 367,469 585,000 (682,770) - 269,699 Vehicle & Equipment Maintenance 251,043 275,000 (274,588) - 251,455 Facility Maintenance 548,986 925,000 (967,542) - 506,444 Vehicle & Equipment Replacement 476,586 150,000 (211,250) - 415,336 IT Equipment Replacement 502,812 150,000 (178,750) - 474,062 Facility FFE Replacement 402,686 200,000 (419,300) - 183,386 Total Internal Service Reserves 3,438,106$ 2,981,362$ (3,632,429)$ -$ 2,787,039$ Total Operating Funds 18,537,377$ 26,591,279$ (29,499,516)$ -$ 15,629,140$ Debt Service Funds 2001 Series GO Bond 996,546$ 710,000 (846,035) - 860,511 2018 Arrowhead CFD Bond 180,057 200,000 (242,203) 137,854 Total Debt Service Funds 1,176,603$ 910,000$ (1,088,238)$ -$ 998,365$ Trust & Agency Funds West Valley Clean Water JPA 414,217 995,000 (988,827) - 420,390 Arrowhead Project Fund - - - - - Total Trust & Agency Funds 414,217$ 995,000$ (988,827)$ -$ 420,390$ Total Operating Budget 20,128,196$ 28,496,279$ (31,576,581)$ -$ 17,047,895$ Capital Improvement Funds Street Projects 2,740,453 3,487,685 (6,541,981) - (313,842) Park & Trail Projects 485,744 2,625,000 (3,179,389) - (68,645) Facility Projects 242,438 415,000 (657,438) - - Administrative & Tech Projects 207,008 180,000 (510,814) - (123,806) Total Capital Improvement Funds 3,675,643 6,707,685 (10,889,622) - (506,293) Total Operating & Capital Budget 23,803,839$ 35,203,964$ (42,466,203) -$ 16,541,602 DRAFT PROPOSED TOTAL FUND ACTIVITY SUMMARY FY 2019/20 4/11/2019 6 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 1 FISCAL MANAGEMENT POLICY STATEMENTS With both a general management philosophy and Council goal to practice fiscal responsibility, the City of Saratoga’s conservative and cautious financial management is achieved through responsible, sustainable, and enfo rceable fiscal policies and internal controls to ensure prudent and efficient use of resources. These policies and controls represent long-standing accounting, budgeting, debt, investment, and reserve principles and practices, and are the foundation upon which the City maintains its fiscal stability. Saratoga’s general fiscal management policy statements provide a summary overview of financial, operational, and budgetary management, in one comprehensive centralized format to act as guidelines and to as sist elected officials and staff with understanding the City’s financial practices for fiscal operations. Detail level fiscal policies are administrative in nature and therefore not included in the budget document. However, fiscal policies that rise to Council review and approval standards at a more specific level are incorporated into the budget document for annual adoption by Council. Currently this includes the Fund Balance Reserve Policy and the Capital Project Process Policy which follows this section. Other Council defined policies will be added as directed/approved. The Summary Fiscal Management Policy Statements in this document are organized into the following categories: General Financial Principles Appropriations and Budgetary Control Auditing and Financial Reporting Capital Improvement Plan Development Related Financial Policies Expenditures and Purchasing Fixed Assets and Infrastructure Internal Service Funds Long-Term Debt Revenues Risk Management Policies Treasury Management GENERAL FINANCIAL PRINCIPLES • 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 leve l decisions brought to City Council for review and approval, and administrative and operational level functions approved by the City Manager. • Proposed revisions to the Fiscal Management Policy Statements and Council Policies are provided to Council at the annual Council Retreat. Council members are to provide comments and concerns regarding revisions to the Mayor or City Manager at least two weeks prior to the budget study session to clarify or include on the agenda. • The City’s primary long-term financial goals are 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 integr ity of financial transactions and operational activities. • Financial information shall be provided in a relevant, thorough, and timely manner, to effectively communicate the City’s financial status to the Council, citizens, employees, and all other interest ed 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. 7 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 2 • The City shall undertake, adopt, and integrate new initiatives or programs in a cautious, well planned manner to support the City’s long-term ability to maintain its essential services at the same level and quality required by its citizens. • The City Council’s financial 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. • The City will seek out, apply for, and effectively administer federal, state, local, foundation, business, and private grants which address the City’s current priorities and policy objectives. APPROPRIATIONS AND BUDGETARY CONTROL • The City Council shall adopt an annual balanced operating budget and the first year of an integrated five -year capital improvement plan budget by June 30th of each year, to be effective for the following fiscal year running from July 1st through June 30th. Balanced budgets present budgeted sources in excess of budgeted uses. Budgeted “Sources” include Revenues, Transfers In, and Appropriated Uses of Fund Balance. Budgeted “Uses” include Expenditures and Transfers Out. Operating and Capital Budgets are to align with the City’s lon g-term financial goals. • Each year the Finance & Administrative Services Department 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 at the Annual Council Retreat (scheduled in late January or early February) to assist Council with formulating direction for long-range fiscal planning, Operating Budget development, and capital funding appropriations. • Budgets are prepared on the same basis of accounting used for financial reporting: governmental fund types (General, Special Revenue, and Debt Service) are budgeted according to the modified accrual basis of accounting; proprietary funds (Internal Service Funds) and fiduciary funds are budgeted under the accrual bas is 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. Council may also approve the use of long-term debt for operational liabilities if they deem it fiscally prudent. • With funding for other committed reserves already in place, a minimal base amount of $500,000 is to remain in the Unassigned Fund Balance Reserve at year -end to provide a buffer for unanticipated operational shortfalls and unforeseen needs in the following fiscal year. • The Capital Budget is funded with both prior year surplus funding and dedicated capital funding resources. Dedicated funding sources include Gas Tax (HUTA) revenues, 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 comprehensive, allowing for the annual operational and capital improvement goals to be completed. With effectively managed revenue streams and efficient use of resources, fiscal year -end operational budget surpluses are 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 ca rried 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 t he annual budget adoption until funding is exhausted, modified, or the project is completed. 8 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 3 • The City budget shall comply with the annual determination of the City’s appropriation limit calculated in accordance with Article XIIIB of the Constitution of the State of California and adopt an annual resolution to this effect. • The City Manager is authorized to implement the City’s workplan as approved in the adopted budget. Within a specific fund, the City Manager has the discretion to adjust appropriations b etween categories, departments, programs, and projects as needed to implement the adopted budget, provided no change is made to the total appropriation amount provided for any one fund. An example would be to backfill a vacant salaried position with a contract service, therefore shifting funds from wage and benefit appropriations to an operating expense expenditure within the General Fund appropriation. 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 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. • In FY 2014/15 CalPERS notified the City that as of 6/30/2015, the City’s Unfunded Accrued Liability obligation of $7.7 million (as of 6/30/2015) was to be repaid over a thirty (30) year payment plan . In accordance with the City’s responsible fiscal stewardship objective, Aapproximately 43% of the outstanding liability was immediately paid from current year net operations and expendable reserve funding to significantly reduce the financing portion of the obligation. Council also established an alternative repayment policy to pay the minimum payment amount to becontribute an amount approximately equal to the amount due at the five-year mark to both lower the overall total long -term cost of the liability and to stabilize the annual payment. This would shorten the payment period to approximately 15 years and maintain while maintaining fiscal stability into the future. However, because Subsequently, CalPERS revised their UAL estimates significantly as a result of actuarial changes and further investment losses. this The City’s UAL number grew significantly, necessitating an increase in the annual UAL excess contribution amount from $500,000 to $750,000 effective FY 2017/18. For FY 2018/19, Council again increased the annual UAL contribution amount, bringing the total budgeted annual payment to $1,000,000 to continue the accelerated payoff schedule as a result of further discount rate revisions. • The City Council appropriates $50,000 annually to a ‘Council Di scretionary account’ to provide so that Council with has funding available for unplanned expenditures. Council direction and consensus approval is required to utilize these funds. Unexpended appropriations are carried forward into the following fiscal yea r. • Parks and Recreation Services are essential elements in meeting the City’s goal to enhance and promote quality of life in the community. The Recreation Department provides activities, programs, classes, and rental facilities to the entire Saratoga community, from infants to seniors, through various services. While these services innately benefit individuals, and would typically be 100% funded through user fees, Council recognizes the general community benefit and determined the Recreation Department activities would function under a minimum cost recovery goal of 65%. This calculation is comprised of total program revenues and expenditures for the General Fund’s Recreation Services, Teen Services, and Facility Rentals programs, as all share the use of the building, equipment, staff, and purpose, and are therefore intrinsically connected in the analysis. • In recognition that development and building services are provided primarily for individual and monetary benefit rather than for the community’s benefit, the Community Development Department strives to attain full cost recovery plus a $100,000 annual stipend for advanced planning updates .. Total department revenues in excess of total department expenses (net gain) are added to the reserve at year end, and up to one-third of the reserve fund balance may be used to offset a net loss at year end. 9 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 4 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 Comprehensive Annual Financial Report (CAFR) testifying to the financial reports conformance with accounting principles. • Additional financial reports issued by the Auditor’s may include: Singe Au dit Report (annual report of federal grant expenditures if in excess of the federal single audit limit is expended in a fiscal year), a Transportation Development Act (TDA) report (annual report of TDA fund expenditures), an Appropriations Limit review report (to establish tax revenue appropriation limit), and a Management report on the City’s Internal Controls. • The City shall submit the CAFR to the Governmental Finance Officers Association (GFOA) Financial Reporting Program each year for review, and if in compliance with the program’s requirements, to receive an award for meeting GFOA’s financial reporting standards. • Regularly scheduled external Financial Reports include the following:  State required Annual Cities Report and Annual Streets Report completed in conjunction with the year- end close  Quarterly SMIP (Seismic Motion) fee reconciliation reports; CASp (ADA 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.  A mid-year budget status report is presented to City Council in February each year to provide a comprehensive financial overview of the current year’s budget and to propose recommended budget adjustments as appropriate.  A year-end financial recap is provided after the City’s annual financial au dit is completed. CAPITAL IMPROVEMENT PLAN • A five-year Capital Improvement Plan (CIP) is updated annually in conjunction with the operating budget. The CIP reflects the current and changing needs of the community as well as enhancements to improve the quality of the community. The first year of the CIP is adopted to authorize appropriations. • The CIP is categorized into programs by project type. The four programs are: Street Improvements, Park & Trail Improvements, Facility Improvements, and Administrative & Technology Improvements. • All projects within the CIP programs are appropriated, managed, and tracked separately, and each project’s financial status is reported on a monthly basis in the Treasurers Report. • Project updates are recorded in the annual Capital Budget, with narrative, timeline, and financial summary information updated with each published budget document. • Capital improvements that specifically benefit a select group of users and/or are fee -for-service based are to be financed through user fees, service charges, special assessments and taxes, or development impact fees. 10 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 5 • The City shall identify and dedicate capital improvement related funding directly to the CIP and to maximize the use of grant funding for capital improvement projects. • Grants, insurance, or other reimbursement funding is to be returned to the expenditure’s funding source, unless otherwise directed by Council. For instance, Hillside Reserve funded projects that receive insurance reimbursement payments are to be returned to the Hillside Reserve, and grant reimbursements for projects funded through the CIP Reserve are to be returned to the CIP Reserve when payment is received. • After completion of the prior year’s audit and the General Fund’s priority funding requirem ents are met, the remaining net operations are moved into the Capital Project Reserve at year end. Use of the Capital Project Reserve for the subsequent fiscal year is reviewed and preliminary direction given by consensus of the City Council at the Annual Council Retreat. Final CIP funding direction is provide d through the budget adoption. • 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 guidelines shall be reviewed by Council for final CIP Budget direction each fiscal year:  $200,000 – Annual Infrastructure Maintenance & Repairs (for Sidewalk, Storm Drains, Curb & Gutter, and Bridge Maintenance)  $100,000 – Parks, Trails, Grounds & Median Replacement Project  $50,000 – Roadway Safety and Traffic Calming  $50,000 – Risk Management and Mitigation Projects • The Annual Roadway Maintenance and Repair (ARM&R) CIP project is the prima ry CIP project funded in support of Council’s goal to maintain Saratoga city streets at an average 70 PCI rating. On occasion, separate street specific resurfacing projects are established due to funding requirements; they also contribute toward this goal. The ARM&R project was originally established with a $1 million minimum annual funding goal from dedicated Gas Tax Revenue and Solid Waste Services contract assessed Vehicle Impact Fees. However, after decreases in the PCI, Council has established a new goal of $2 million annually with the FY 2016/17 budget. Council is to consider this goal in conjunction with funding requests during the CIP budget discussion each year. This project shall encompass roadway repairs, resurfacing, and rehabilitation proj ects, traffic light, curb and gutter, and other miscellaneous repairs, striping and signage, and assorted street materials and supplies. DEVELOPMENT RELATED FINANCIAL POLICIES • The Development Reserve was established to provide stability for multi -year development related services. The reserve is funded by Community Development Department revenues in excess of expenses at fiscal year -end. The reserve is available for use in those years where a shortfall occurs; when development revenues fall below development expenses. Use of the reserve for operational support is limited to a maximum of 1/3 of the reserve balance in any given fiscal year; with any budgeted use of the reserve automatically rescinded up to the amount development revenues are sufficient to cover General Fund net operations. The reserve may also be utilized for other development related uses, such as funding development software upgrades or special projects, per Council direction. Additional information on this Development Reserve is located in the Fund Balance Reserve Policies section. • The Williamson Act, also known as the California Land Conservation Act, was passed by the California Legislature in 1965 to encourage rural & agricultural land owners to keep their land undeveloped. Wh en 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 run for 10 years and are automatically renewed unless the farmer or rancher cancels it. The City does not limit the number of Williamson Act contracts entered into each year. • The Mills Act is State-sponsored legislation granting local governments the authority to enter into an agreement with property owners to allow reduced property tax payments in return for the restoration and continued maintenance of their historic property. Since the agreement reduces property tax assessment, the City receives a 11 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 6 smaller share of property tax revenue in comparison to a property that is assessed at market value. 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, or with Council approval, budget adjustments, or service reductions. • The City’s current purchasing policy establishes purchasing authority levels, purchasing procedures, and procedural requirements, for the procurement of supplies, equipment, and services, in conformance with Federal and State codes and regulations, and City Ordinance No. 2 -45. • Public Work projects governed by the State’s Public 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 records retention policy and schedule. • Services, supplies, and fixed asset purchases exceeding $25,000 must be authorized by the City Council, unless purchase is specifically called out in the adopted budget or excluded under the Purchasing Poli cy. • The 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 if 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 con sidered fixed assets and added to the capitalization schedules. Repairs and maintenance of infrastructure assets will generally not be subject to capitalization unless the repair extends the useful life of the asset. • The City will sustain a long-range fiscal perspective through the use of a five-year Capital Improvement Plan designed to maintain the quality of City infrastructure, including streets, sidewalks, curbs and storm drains, lighting, building, parks, and trees, and through Internal Service Fund programs to both maintain and replace City building infrastructure, fixtures, and equipment, vehicles, and public works and technology 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 GAAP, with emphasis placed on completion of GASB 34 requirements. • Infrastructure management systems are to be developed and maintained to provide long range financial and operational planning. These shall include Roadway System management programs, Storm Drain System management plans, Bridge replacements, Street Signal System replaceme nts, and all other infrastructure categories that require significant financial resources to fund the eventual replacement needs. 12 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 7 • Information Technology software, hardware, and auxiliary equipment and systems are to be maintained through the Operating Budget’s Internal Service Replacement Fund, whereas annual appropriations in the Information Technology Services operating budget or departmental program budgets are to fund ongoing license, maintenance, and security costs. 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 departments. • The Liability and Workers Compensation Insura nce 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. • Each Internal Service Fund will set recovery charges at rates sufficient to meet all operating expenses, depreciation, and Fund Balance Reserve policy objectives. LONG-TERM DEBT • The City shall seek to maintain a high credit rating through sound financial practices as a foundational financial practice, and to maximize borrowing costs. • The City does not incur debt for operations or capital improvements except under extraordinary circumstances and with citizen support. Under these circumstances the City will seek voter approval for Gene ral Obligation (GO) Bond Debt for major infrastructure rehabilitation. • 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 result ing in significant financial impacts. In principal, long-term debt is to be used only if the debt service requirements do not negatively impact the City’s ability to meet future operating, capital, and cash reserve policy requirements. • Through City Council approval, the City may function as a bonding conduit for special assessment districts. This may occur when a neighborhood or area 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 report concerns and remedies if necessary to the City Council. • The City will ensure compliance with bond covenants, providing financial information to reporting parties as necessary. Formatted: Indent: Hanging: 0.21" Formatted: Tab stops: 3.38", Left 13 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 8 • The City will comply with Government Code Section 43605 limitations on debt, which limits ge neral obligation indebtedness to an aggregate 15% of the assessed value of all real and personal property of the City. REVENUES • The City will encourage a stable revenue system to offset short -run fluctuations in any one revenue source, in part through balancing revenue fluctuations to related operational fluctuations. This concept is applied in Community Development as net operational funding is held in reserve and utilized to fund operational expenses as needed. • Designated and legally restricted tax and revenue funding sources will be accounted for in the appropriate funds. General taxes and revenues not allocated by law or some other contractual agreement to other funds are accounted for in the General Fund. Dedicated Capital Project revenues are to be directly accounted for in the appropriate capital project fund, within a designated project. • A master schedule of User Fees is reviewed and presented to Council on an annual basis to adjust fees to an appropriate level. Operating departments shall review services and the existing fees to ensure discretionary services (not specifically waived or modified) reflect direct and reasonable indirect costs of providing such services. • The City typically establishes user charges and fees at levels that rec over the direct and indirect activity cost of providing a service or product. The City also considers market rates and charges levied by other municipalities of similar size for like services in establishing rates, fees, and charges. As some services hav e partial cost recovery objectives (such as Recreation classes development fees and facility rentals), cost recovery ratios will vary in accordance with policy objectives. • The City will follow an aggressive policy of collecting local taxes and revenues d ue to the City through persistent follow-up procedures, and external resources as necessary. • 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. RISK MANAGEMENT POLICY • The City is insured for up to $25 million of general liability, auto , and property damage claims through a Joint Powers Association insurance cooperative up to $5 million, and an excess insurance provider for claims in excess of this, up to $20 million. The City is self-insured for the first $25,000 for general liability and auto claims; property damage up to $5,000 and third party auto claims up to $10,000. • 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 a third- party administrator. • The City’s role in managing both its risk management and workers comp programs is to be preventative in nature which is accomplished through careful monitoring of losses, working closely with the third - party administrator, proactively addressing infrastructure maintenance and potential risks, and by designing and implementing safety programs to minimize risk and reduce losses. 14 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 9 TREASURY MANAGEMENT • The City’s Investment Policy shall be brought to the Finance Committee and City Council for review, discussion, direction, and adoption on an annual basis. California Government Code Section 53600 and City of Saratoga Municipal Code Section 2 -20.035 require the City Council to annually review and approve the City’s Investment Policy. • It is the policy of the City of Saratoga to invest public funds in a manner which will provide the maximum security with the highest investment return, while meeting the daily cash flow demands of the City and conforming to all state and local statutes governing the investment of funds. • Finance staff shall exercise due diligence to comply with the Investment Policy. The City currently practices conservative and cautious investment practices by limiting its investments to the State’s Local Agency Investment Fund (LAIF). Certificates of Deposits and high - grade investment vehicles may also be utilized under the Investment Policy, however the Finance Committee will provide oversight, review and direction on any decisions to move a portion of the City’s available funds into these other permitted investments. Administrative Services Department’s Finance Division shall prepare a monthly report to the City Council that has sufficient detail to present the financial condition of the City at month end, the ca sh and investments balance by fund, and fund balances by fund type. TRUST & AGENCY FUNDS • The City may serve as a Fiscal Agent for an agency 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 charg e for the cost of any and all fiscal services provided. • Depending on the agreement, the City may purchase goods or services on behalf of the agency organization, and/ or disburse funds as directed and permitted by the agency’s by-laws and purpose. However, the City is not liable for any of the agency organization’s debts, liabilities or actions. • Formatted: No bullets or numbering, Tab stops: Not at 0.39" 15 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 10 FUND BALANCE RESERVE POLICIES Prudent financial management dictates that the City reserve a portion of its funds for future use to: maintain fiscal stability; ensure the continued orderly operation of government and provision of services to residents; and to mitigate current and future risks. As a general budget precept, the City Council decides when and whether to appropriate available funds to and from a reserve account. Use of reserve funds must be authorized 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: the General Fund, Special Revenue Funds, Capital Project Funds, and Debt Service Funds. For “Non-Governmental Funds”, equity classifications are classified as “Net Position” with sub -classifications of Restricted or Unrestricted Net Position. A third component of a Non-Governmental Fund’s equity is “Net Investment in Capital Assets,” which for Saratoga refers to the non -monetary portion of equity such as vehicles and equipment, net of depreciation. Non-Governmental Fund types include Proprietary Funds (Enterprise and Internal Service Funds) and Fiduciary Funds. GOVERNMENTAL FUND TYPE RESERVE CLASSIFICATIONS The Governmental Reserve classifications are defined as follows, which includes the applicable reserves that fall into the classification. Non-Spendable Fund Balance Represents resources that are inherently non-spendable from the vantage point of the current period. The City does not presently hold Non-Spendable Reserve funds. Restricted Fund Balance Represents fund balance that is subject to external enforceable legal restrictions. The City mainta ins the following restricted fund balances under this designation: • General Fund: Environmental Services Fund Balance Reserve • Special Revenue Funds: Landscape & Lighting Assessment Districts Fund Balances • Debt Services Fund: Library General Obligation B ond Debt Service Fund 16 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 11 • 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 hig hest level of decision making and remains binding unless removed in the same manner. The City maintains the following fund balances under this designation: • General Fund: Hillside Stability Reserve • General Fund: Facility Replacement Reserve • Capital Improvement Plan Funds: Capital Improvement Project Fund Balance Reserve Assigned Fund Balance Represents fund balance identified by Council for an intended use; however as no legal obligations exist, the funds may be re-designated and utilized for another purpose if Council chooses. The City maintains the following General Fund reserves under this designation: • General Fund: Future Capital & Efficiency Project Reserve • General Fund: Carryforward Reserve Unassigned Fund Balance Represents funding which may be held for specific types of 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: Working Capital Reserve • General Fund: Fiscal Stabilization Reserve • General Fund: Other Unassigned Fund Balance Reserve Fund Balance Ratios To ensure the City maintains available working cash flow and emergency funding at all times, the collective total of the General Fund’s Assigned and Unassigned Reserves shall be sustained at a minimum of 20% of General Fund expenditure appropriations, net of transfers out. GENERAL FUND YEAR-END ALLOCATIONS After the City’s financial records are finalized and audited, with legal obligations and liability reserves funded, revenues in excess of expenditures are closed out to the Other Unassi gned Fund Balance Reserve. A base amount of funding, as set by budget policy, is to remain in the Other Unassigned Fund Balance Reserve, with the remainder distributed in the following order: 1. Repayment of Fund Balance Reserve loans - back to established levels (e.g. borrowing from/usage of the Fiscal Stabilization or Hillside Stability Reserves). • For the Hillside Stability Reserve, loan repayment shall be made in annual contributions of $100,000 until reserve balance reaches the $1 million reserve goal. • Fiscal Stabilization loan repayments shall be made as directed by Council. 2. Annual contribution of $500,000 to Facilities Replacement Reserve. 3. Remaining funds are allocated to the Future Capital Improvement and Cost Efficiency Projects Reserve. 17 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 12 GENERAL FUND RESERVES Environmental Services Reserve Under the Restricted Fund Balance classification, the Environmental Services Reserve represents revenues collected under a prior funding structure for environmental purposes, and is therefore restricted for use in funding environmental program costs such as clean water programs, street sweeping, and storm drain cleaning services. Per policy, the Environmental Service Reserve is being utilized through annual budget appropriations of $50,000. The Environmental Services Reserve originated from a one-time funding structural change and therefore will not be replenished when depleted. Hillside Stability Reserve Under the Committed Fund Balance classification, a Hillside Stability Reserve of $1 million is set aside to provide funding for unanticipated or unforeseen emergency or extraordinary costs related to hillside degradation, inclusive of slide prevention and mitigation, slide repair, and associated drainage and roadwork. Use of the reserve requires an analysis be prepared and presented to Council for approval, or in the event of a landslide requiring immediate emergency work, the Public Works Director may direct use of up to 10% of the reserve to make emergency repairs and mitigate further damage until Council takes action. Reserve funding is to be 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 the amount of $100,000 each fiscal year until the $1,000,000 reserve cap is reached. Facility Replacement Reserve The Facility Replacement Reserve is established to accrue funding for the major rehabilitation or replacement of City Facilities (buildings/structures). Eligible us es of this reserve include both direct funding of public facility improvements, and the servicing of related debt. Small facility building replacements, major facility renovations, and down payment contributions toward a large facility replacement in conj unction with bond measure funding are examples of intended Facility Replacement Reserve uses. An initial contribution of $300,000 was established in FY 2012/13 with Council’s recommendation to continue funding at this level, as a priority use of year -end net operations funding. Effective FY 2016/17, Council’s direction is to increase the annual year-end contribution amount to $500,000, as funding is available. Council has set a goal to fund the Facility Replacement Reserve to a level equal to 1/3 of th e City’s insured value over the next 20 years (by FY 2036/37) as a fiscally responsible practice to maintain city infrastructure In principle, Saratoga does not pursue bond money to fund capital improvements, however, replacing high cost facility infrast ructure requires a long-term funding plan that may or may not be attainable through annual contributions. Therefore, the Facility Replacement Reserve demonstrates both the City’s good faith funding effort and financial stewardship for future bond measures if needed, as well as accumulating funding for a down payment on replacement infrastructure to minimize bond funding needs. A facility’s insured value represents the initial cost of the facility decreased each year over the facility’s estimated lifespan. Therefore, insured value represents the remaining life of the facility’s purchase cost – it does not represent the current cost to replace a facility. The City recognizes insured value is not sufficient to fund facility replacements, therefore annual contributions will continue as an ongoing funding obligation even after the 1/3 reserve goal is met. Changes in annual contributions and the reserve goal amount shall be determined by Council during the budget process, in line with changes in the City’s economic situation. Utilization of the reserve shall be brought to Council for discussion and consideration as needed. 18 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 13 Future Capital & Efficiency Projects Reserve Under the Assigned Fund Balance classification, the Reserve for Future Capital Impro vement & Efficiency Projects shall reserve funding for as yet undefined capital and efficiency improvement projects. Reserve funding is derived from General Fund accumulated net operations (as available) and is therefore considered a “one -time funding source”. Funds are held in this reserve until Council reviews funding requests and approves a use or transfer to a capital project fund. Use of the reserve funding is at the Council’s discretion, but typically occurs in conjunction with the annual budget adoption after Council conducts a comprehensive review of capital and efficiency 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 fina lized; 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. Beginning with the FY 2016/17 budget, the Working Capital Reserve is maintained at $1 million (reduced from $2 million), and the Fiscal Stabilization Reserve in maintained at $2.5 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 Stabiliza tion Reserve funding level increased by a $1 million transfer from the Working Capital Reserve, up to $2.5 million. As of FY 2018/19, the Development Services Reserve of $650,000 was integrated into the Fiscal Stabilization Reserve to reflect the Council’s desire to review citywide operational priorities and needs as a whole rather than segmented sections. This brought the Fiscal Stabilization Reserve up to $3,150 million; approximately 15% of the General Fund’s budgeted operations. Together, these funding shifts provide a focused but flexible reserve funding purpose and utilization structure. Fiscal stabilization uses are defined and restricted to: 1) revenue declines lasting more than one year and equal to more than 5% of either property tax, the combined total of other taxes, or General Fund revenues in total; 2) an unanticipated 19 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 14 extraordinary operational increases of more than 5% such as from a natural disaster; or 3) an unexpected Federal, State, County or CalPERS funding change. Council may utilize funding at budget adoption, by adoption of a budget adjustment resolution 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 $2.5 million Fiscal Stabilization Reserve funding level will be assessed on an annual basis to ensure this funding level is sufficient in light of operational reserves and utilization needs. Compensated Absences Reserve Under the Unassigned Fund Balance classification, the Compensated Absences Reserve is established to s mooth 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 as needed. Year-end reconciling allocations to and from the reserve are approved though Council’s budget resolution adoption each fiscal year, with the liability and resulting reserve amounts determined as part of the year- end close process. Council Discretionary Reserve Under the Unassigned Fund Balance classification, the Council Discretionary Reserve represents unspent funds from the Council’s annual appropriation. The r eserve provides a mechanism to roll forward remaining Council Discretionary Funds as reserve funds are immediately re -appropriated into the following fiscal year. This allows Council the flexibility to take advantage of unforeseen opportunities or needs w ithout the restriction of fiscal year boundaries. Use of the reserve funding requires Council majority approval. The reserve exists at year -end only when there are remaining unspent Council Discretionary funds at the end of the fiscal year. Other Unassigned Reserve The ‘Other Unassigned Reserve’ represents accumulated net operations not yet allocated to other fund balance reserves, and by definition, fall into the Unassigned Fund Balance classification. Other fund’s accumulated net operations are typically accounted for in an undefined reserve account in the fund – and typically titled ‘Fund Balance Reserve’. As other funds are structured for specific uses or commitments, the fund balance, by its distinctiveness, already has a directed purpose, whe reas the General Fund is used for multiple and general operational purposes thereby requiring a distinction of purpose for each reserve. Council may utilize reserve funding at budget adoption or by adoption of a budget adjustment resolution during the co urse of the year. Reserve funding is replenished from year-end net operations, as available. SPECIAL REVENUE FUND RESERVES Landscape & Lighting Assessment District Funds Assessment District Funds are Special Revenue Funds, which is a type of governmenta l fund. As a governmental fund, the Landscape and Lighting Assessment District Funds comply with GASB 54 fund balance classifications, and by nature of the fund’s purpose, fund balance reserves are classified as restricted reserves. Special Revenue Funds account for and report the proceeds of specific revenue sources that are restricted or committed to specified purposes (other than for debt service or capital projects.) For the City, Landscape & Lighting Assessment District Special Revenue Funds were established to account for each individual assessment district; thereby each fund has its own separate fund balance reserve. 20 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 15 Each district’s fund balance reserve should be sufficient to provide working capital to cover operational expenses through the first half of assessment receipts in January, therefore equitable to approximately one -half of a district’s annual expenditure budget. The second half of receipts are received in June. Some districts may include capital improvement projects in addition to ongoing regular maintenance resulting in fund balance increasing over the years to accumulate sufficient resources for the improvement projects. As each district’s situation is different, a district’s maximum fund balance shall be determined by the Public Works Director. Requests for use of the reserve are approved by Council through budget adoption or by a Council approved budget adjustment resolution throughout the year. The reserve is replenished from the Fund’s net operations in subsequent years. DEBT SERVICE FUND RESERVES Overview As Debt Service Funds are classified as a governmental fund type, these Fund Balance Reserves fall under GASB 54 fund balance classifications. Debt Service Fund Reserves are classified as a ‘Restricted Reserve’ with funding expended only for specific purposes as stipulated by the bond covenants. 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. GO Bond tax receipts are received from the County on a semi-annual basis, around the months of December and May each year. Therefore, Aat a minimum, fiscal the year-end fund balance reserve shall be sufficient to provide working capital to cover the semi-annual principal and interest debt payment due on August 1 st. as the GO Bond tax receipts are received after the 1st debt payment is due. December receipts provide for the February payment. In addition, as Bbond assessments are collected as a percentage of property values, and while increasing with property values, a slight reserves should provide sufficient funding to compensate for potential 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 setting the annual 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. Community Facility District 2016 Arrowhead Bond Fund The CFD 2016 Arrowhead Bond Fund was established upon the issuance of the Bond is a Debt Service Fund established to account for the receipt of special tax assessments and related debt service payments on behalf of the Arrowhead CFD’s bond issuance dated December 1, 2018. 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 govern mental fund and therefore comply with GASB 54 fund balance classifications. Because Council has directed the fund’s 21 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 16 appropriated funding be spent on specific capital improvement projects, the Capital Project Fund Balance Reserve is classified as Committed Fund Balance. Budgeted capital improvement project funding is determined by the scope of work approved by Council and remains assigned for that use until completed or reassigned by Council. Fund Balance amounts represent the total remaining funds in the individual projects at year-end. As Fund Balance amounts are determined by the amount of project completion at year-end, they cannot be standardized for minimum or maximum amounts. Fund Balance is re- appropriated to the capital projects in the followi ng fiscal year for the work to be completed. Street Improvement Projects Funds Street Improvement Project Funds provide for a safe and functional roadway and pedestrian street system. Each Street Improvement Fund (CIP Street Fund, CIP Grant Fund, and Gas Tax Fund) has multiple 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 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 pri vate grants which vary in source and amount from year-to-year. Typically, CIP Grant Funds have a negative fund balance as project work is conducted beforehand and then reimbursed from expenditure invoices. Year end fund balance represents the remaining unexpended project funds (net of any negative CIP Grant Fund Balance) which are subsequently re-appropriated by Council into the following budget year through budget adoption. Facility Improvement Project Funds Facility Improvement Project Funds provide for capital maintenance and improvements of the City -owned buildings and structures throughout the City. Each of the Facility Improvement Funds (CIP Facilities Fund and the Facility Grant Fund) have multiple projects which roll up into the overall fund balances but remain 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 fro m 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 pro ject 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, or technology-based systems, processes, or functions. Each of the Administrative & Technology Improvement Funds (CIP Admin & Tech Improvement Fund and the Admin & Tech Grant Fund) have multiple projects which roll up into the overall fund balances but remain designated for use by individual project. 22 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 17 The CIP Administrative & Technology Improvement Fund typically receives funding from a General Fund transfe r as administrative and technology improvement focused grants are limited. If grants are received, projects typically have a negative fund balance as project work is conducted beforehand and then reimbursed from expenditure invoices. Year end fund balance represents the remaining unexpended project funds (net of any negative CIP Grant Fund Balance) which are subsequently re-appropriated by Council into the following budget year through budget adoption. INTERNAL SERVICE FUND RESERVES Overview Internal Service Funds are established to provide centralized cost centers for shared expenses and services in order to efficiently track costs and manage resources. Costs are then allocated back to the operational programs based on usage to more accurately determine cost of services. The City’s Internal Service Funds include the two Insurance funds: Risk Management and Workers Compensation, four Service/Support funds: Office Support, IT Services, Vehicle & Equipment Maintenance, and Building Maintenance Funds, and three Equipment Replacement funds: the Vehicle & Equipment Replacement Fund, the Office Technology Equipment Replacement Fund, and the Building FF&E (Furniture, Fixture, & Equipment) Replacement Fund. As each fund is accounted for as a separate entity, operational revenues less expenditures result in either a positive or negative fund balance at any given point in time – Internal Service Funds are similar to the separate checking and saving accounts a person may use for different purposes. At year e nd, each fund’s net balance is represented as the “Fund Balance Reserve”. The intent of the Internal Service Funds Reserves is to hold appropriate levels of reserves to support cash flow needs and minimize interfund loans, not to accumulate funds in excess of expected ongoing operational costs. Reserve levels are determined by the specific operational needs of the program, but typically will fall within 25 – 50% of annual budgeted expenditures. Internal Service Funds are a type of Proprietary Fund; the refore 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 for up to $25,000 per General Liability and City Vehicle Auto Liability occurrence, and up to $5,000 for Property Damage and 3rd Party Auto Liability. Non-covered claims are paid fully by the City. The Liability/Risk Management program receives funding from allocations charged to covered departments, from grant funding, and from claim reimbursements. At year end, unspent funding flows into Unrestricted Net Position or Restricted Net Position for specific purposes. Requests for use of reserve balance are approved by Council through budget adoption or by a Council approved budget adjustment resolution during the year. The reserve is replenished from the Fund’s net operations in subsequent years. 23 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 18 Workers Compensation Fund The Workers Compensation Fund’s Unrestricted Net Position reserve supports cas h flow needs and minimizes interfund loans. Appropriate levels are maintained through service chargebacks to the programs, based on operational risk factors. The purpose of the Workers' Compensation program is to provide insurance benefit coverage for employee work-related illness and/or injuries through its membership in a shared risk pool. The risk pool provides coverage up to $250,000, and excess insurance provides coverage over this amount up to $10 million. The Workers Compensation program receives funding from allocations charged to covered departments, from grant funding, and from claim reimbursements. At year end, unspent funding flows into Unrestricted Net Position, or Restricted Net Position for grant funding. Requests for use of the reserv e balance are approved by Council through budget adoption or by a Council approved budget adjustment resolution during the year. The reserve is replenished from the Fund’s net operations in subsequent years. Office Support Fund The Office Support program provides a centralized cost center for administrative office support expenses, including photocopy machine leases, postage machines, shared office machines, and the associated maintenance and repair services, postage, paper, and copier supplies. For efficiency, office support costs are managed collectively and charged back to departmental programs on a use-basis allocation. Accumulated net operations are held in the Office Support Fund for working capital cash flow. The reserve is funded from the allocations charged to covered 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. 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 covered 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 u se 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. 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. Additiona lly, 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 24 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 19 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, uns pent 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 th e 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 covered departments and represents accumulated funding, less amounts expended for asset replacement. At year end, unspent funding is held in Unrestricted Net Position. The reserve is to be maintained at a level sufficient to provide replacement funding of vehicles and equipment in accordance with replacement schedules. Requests for use of the reserve are approved by Council through budget adoption or by a Council approved budget adjustment resolution throughout the year. The reserve is replenished from the Fund’s net operations in subsequent years. Office Technology Equipment Replacement Fund The Office Technology Equipment Replacement Fund accounts for accumulated funding over an asset’s lifespan to be used for the replacement of office technology-based equipment such as desktop computers and monitors, laptops and tablets, network infrastructure, and various other related equipment. Replacement costs are charged back to the departments based on assigned equipment costs. Initial purchases are paid for through a department’s operational budget. If the purchased item is for ongoing use, the Office Equipment Replacement program appropriates an annual allocation for the replacement of the equipment based on the asset’s cost and years of life. The reserve represents accumulated funding, less amounts expended for replacements. The reserve shall be funded to provide replacement funding in accordance with replacement schedules. Funding for the reserve comes from the allocations charged to covered departments. Requests for use of the reserve are approved by Council through budget 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 fixtur es - such as kitchen appliances, sound equipment, lighting, for equipment - such as HVAC units, boilers, and generators; and for facility infrastructure – such as roof, door, window, and floor/carpeting replacement. Initial purchases for new assets may be paid for through the Operating Budget or through the Capital Budget. Annual replacement charges are charged -back to the supported department programs with full replacement funding to be accumulated over the asset’s estimated lifetime. Final determination for replacement of the asset is determined through an analysis of whether the cost of maintenance equals or exceeds 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. 25 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 20 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 reser ve is replenished by replacement charge allocations in subsequent years. TRUST AND AGENCY FUNDS Overview Trust and Agency Funds represent funds held on behalf of other agencies, and as such are held at the agency’s direction and discretion. The City does not establish funding levels or have authority to approve use or replenishment of Trust and Agency Reserve Funds. As this authority rests with the agency’s board, the City does not establish Trust and Agency Fund Reserve Fund policies. Beginning July 1, 2018, the City agreed to act as the Fiscal Agent for the West Valley Clean Water Program Authority. As a result, revenue and expenditure activity and fund balance amounts will appear in the City’s financial statement s, and future year budgeted amounts will reflect full use of available funds to reflect the agency’s ability to expend funding as desired. Formatted: Space After: 6 pt, Line spacing: Multiple 1.1 li, Border: Bottom: (Single solid line, Auto, 0.5 pt Line width) Formatted: Font: Bold Formatted: Justified, Don't add space between paragraphs of the same style, Line spacing: Multiple 1.05 li Formatted: Font: 11 pt 26 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 21 CIP PROJECT PROCESS POLICY This procedural policy defines how a project moves through the CIP Budget Funding process: from the initial project idea, through project development, nomination, and project approval process, and if successful, into the Capital Budget as a funded project. The CIP project development stage of the policy takes different tracks, depending upon whether the project idea is staff driven or Council nominated. These two paths are discussed separately below, until the tracks converge for CIP project assessment preparation. STAFF PROJECT DEVELOPMENT 1. CIP Project Initiation As a function of staff’s day-to-day work, infrastructure improvements and large-scale repairs and maintenance are identified as potential capital improvement projects. These are often highly-visible tangible public assets such as street repaving, or park and trail improvements. However, many CIP projects ar e less noticeable, including facility roof repairs, tree planting, or ADA enhancements. Projects may also be administrative or technology improvements, and hence invisible to the general public, such as code updates/revisions, process improvements, software implementations, or economic vitality programs. Staff is to discuss the CIP project idea with the appropriate staff or City Manager for feedback and refinement. Ultimately, projects need clearly defined boundaries to identify project requirements, s pecifications, and resources. While this is not always feasible in the initial stages of project development, the understanding that a project will eventually require a clear and specific scope will encourage better preparation for discussing the project idea and moving it through the nomination process. After receiving initial approval, staff moves into the idea development stage. 2. Idea Development To move the idea forward, staff will need to analyze and articulate the project’s scope, political impacts, priority factors, resource requirements, and any other relevant considerations. a. Project Scope – Scope may include the description, project size and location parameters, project purpose, and goals or deliverables, such as products, services or results. Project justifications and assumptions should support the project’s purpose and definition, and may include cost -benefit analysis, risk assessments, funding availability, or even community desirability factors. The scope should clearly state if a project is to be funded and/or completed in phases rather than as a singular body of work. If the project is ongoing infrastructure maintenance or a program project, this too should also be clearly noted. In some cases, project scope may be defined by exclusi ons – statements about what the project will not accomplish or produce. Additionally, constraints or restrictions may identify project limitations. Project Scope defines a commitment to produce a body of work or end -product with the resources provided under the stated assumptions. The written scope helps to manage expectations and provide clarity to the involved parties, reduce confusion and failure, prevent scope creep, and provide transparency to the community. b. Political Considerations - Knowledge of historical information, which attests to the necessity of Council/staff communication is of vital importance in project development. Determine whether this project has come up for consideration before, or why was it not completed previously. Are there lessons to be learned from a past project proposal? 27 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 22 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 factor. Council’s role is to determine which projects are of higher priority than others since there will never be enough money or resources to do every project. Decision criteria may include factors such as: • Health and Safety Issues • Imminent failure of structure/system • Short-term cost of repair vs. long-term cost of replacement • Availability of external or dedicated funding • Efficiencies • Inter-governmental agency support • Federal or State mandates • Business or community support • Impacts if project is not completed A project’s priority is also affected by the severity of the criteria. For instance, a project that falls under the “Imminent Failure of Structure/System” criteria may be an extremely dangerous situation in need of immediate repair, or low danger of minor importance and simply remedied by removal. Another example would occur with Federal or State mandated projects. There m ay be little impact as to whether the mandate is met, or there may be severe fines for lack of timely completion. As a result, project priority is based on the overall assessment of the circumstances; many factors contribute to priority decisions and Coun cil cannot rely upon a clear hierarchical order upon which to base their decisions. d. Project Resources - In the City’s project development discussions, resources typically refer to financial funding. However, resources may also refer to staff time, equipment and materials, community/stakeholder participation or support, space requirements, information technology services, or some other type of support or contribution. Funding plays a critical role in project development. In many cases, lower priority projects may be approved ahead of higher priority projects simply because there is designated funding available for the lower priority projects. The ability to bring designated funding (such as a grant award) with a project proposal greatly increases the likelihood that the proposed project is approved. Overall, projects that request undesignated Capital Project Reserve funding are more competitive due to funding limitations and the number of projects competing for the same pot of funds. An additional component of project resource considerations are the unstated resources (identified above) required in project construction or implementation. For instance, staff time is limited and time spent working on one project prevents staff time being spent on another project. Project timing and staff time requirements are therefore an important component of the project that Council may wish to review. e. Other Considerations - There are numerous other factors not mentioned above that are also taken into consideration when assessing a project idea. For example, can the City afford the ongoing operating budget increases to maintain or implement the project? Does the project contribute toward economic vitality? Are there environmental concerns? Does it enhance the community’s art, education, or cultural resources? Does the project provide operational efficiencies or cost savings? Are there risk management or legal liability issues? Possibly the project requires development be staged in phases? Is there strong community interest in this project? Each project will differ, meaning analysis is specific to the circumstances, and diligent research and thought should be put into developing project scope and justification. 28 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 23 In summary, the overall goal of idea development is to identify, quantify, and assess the project comprehensively. This effort is intended to ensure that a proposed project 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 is to propose the project idea to the City Manager for approval. If approved, the project is moved onto the CIP Project Candidate List. Staff is to notify the Administrative Services Director of the project’s appro val and provide pertinent project information. Staff will prepare written narratives with project scope, justification, fiscal impacts, cost estimates, timelines, etc. as necessary for Council Retreat assessment package. CITY COUNCIL PROJECT DEVELOPMENT Council Members are often the recipients of residents’ suggestions for capital project work. Depending on the topic, Council Members can take these opportunities to: 1) educate the residents on why a project may not be feasible; or 2) provide residents with information on how to 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 Capital Project Candidate List is to be recorded in the City Council minutes and acted upon as a follow-up item. City Manager will notify Council Member of project nomination (to clarify/verify understanding of project scope and of the assignment to a staff member. Staff member will c omplete Candidate List step requirements, including: preparation of project scope narrative and justification, fiscal impacts, cost estimates, timelines, etc. as required for Council Retreat assessment package. CIP PROJECT ASSESSMENT 1. Assessment Package In preparation for the annual Capital Project Assessment, Finance will consolidate the CIP Project Candidates, along with proposed changes to current CIP projects, and the current year’s CIP Unfunded Project List into an assessment package for Council’s review. The Capital Project Assessment review provides a forum to assess all projects at one time. These assessment package will include: ● A review of available funding ● All project activity summary list (projects with/without encumbrances) ● Existing projects in the current year’s CIP ● Proposed changes to existing projects ● The current CIP Unfunded List ● Proposed changes to projects on the CIP Unfunded List ● New projects on the CIP Candidate List 29 Attachment C INTRODUCTION SECTION - PROPOSED CHANGES SUP CITY OF SARATOGA ● FISCAL YEAR 2018/19 OPERATING & CAPITAL BUDGET 24 ● Review of requests in conjunction with funding sources 2. Capital Project Assessment The City Council’s review of the capital project assessment package is to be held annually, early in the budget development cycle, in late January or early February. In addition to reviewing the assessment package, the Council will also review currently funded capital projects that have unencumbered funds to determine if the project will continue in the following fiscal year. In their review, Council may request revisions to a project’s scope, funding, or other component. However, changes that redefine a proposed project must be Council’s consensus direction. During the assessment review process, as projects are assessed, they are either: ● Rejected ● Accepted, or ● Modified and Accepted At the conclusion of the assessment review, Council will prioritize accepted projects and designate project funding. Projects placed on the Funded List will be brought forward to the upcoming Budget Study Session. The remainder will be placed on the CIP Unfunded Project List. NOTE: Rejected project ideas may be nominated for another attempt to become an approved project in the following year(s), but must again go through the project development and assessment process. 3. Budget Study Session Updated CIP funding availability and project revisions wi ll be reviewed a final time with Council. Council will conduct a final assessment and provide consensus direction to staff for inclusion in the upcoming Proposed Budget Hearing to be held in May. CIP PROJECT FUNDING 1. Proposed Budget Hearing The final Proposed Capital Budget with the recommended project funding will be brought to the City Council Budget Public Hearing in May. Council is to provide any final comments or direction for budget adoption. 2. Budget Adoption The Operating and Capital Budgets are brought to Council in June with all final direction incorporated into the final summaries. Council is to adopt the budget at this time, with budget funding effective on July 1 st of that year. 3. Funding Process Follow-up Approved CIP projects that do not receive funding allocations will be assigned to the next budget year’s CIP Unfunded List. The list will be included in the budget document, and assessed again during the following year’s Capital Project Nomination and Assessment Process. The new CIP Unfunded List has a life span of one budget cycle. 30 DRAFT PROPOSED Results of FY 2019/20 CIP Funding Prioritization Attachment D FY 2019/20 CIP Funding  CIP ‐ Reserve Park In‐lieu Risk  Management Projected Available Discretionary CIP Reserves 2,595,323                    6,064                           89,412                         Street Improvement Projects Roadway Safety & Traffic Calming 75,000                         ‐                               ‐                               Infrastructure Maintenance and Repairs 250,000                       ‐                               ‐                               Annual Retaining Wall Maint & Repairs 200,000                       ‐                               ‐                               Citywide Signal Upgrade Project ‐ Phase II 100,000                       ‐                               ‐                               Village Sidewalk & Pedestrian Enhance‐P2 50,000                         ‐                               ‐                                     Total Street Improvement Projects 675,000                       Parks & Trails Projects Park, Trail, Grounds, and Medians R&R 100,000                       ‐                               ‐                               Preschool Turf Conversion 25,000                         ‐                               ‐                               Community Center Improvement Program 185,000                       ‐                               ‐                               Park & Trail Safety Improvements 40,000                         ‐                               ‐                               Guava Ct/Fredericksburg Entrance 50,000                         ‐                               ‐                               Saratoga Village to Quarry Park Walkway 175,000                       ‐                               ‐                               Saratoga‐to‐the‐Sea Trail 1,130,000                    ‐                               ‐                                     Total Parks & Trails Projects 1,705,000                    Facilities Projects CDD Lobby Remodel 165,000                       ‐                               ‐                                     Total Facilities Projects 165,000                       Administrative & Technology Projects Risk Management Mitigation Project 50,000                         ‐                               ‐                                     Total Administrative & Technology Projects 50,000                         Total Discretionary Funds used 2,595,000                   ‐                               ‐                               Remaining Discretionary CIP Funds 323                               6,064                           89,412                         4/15/2019 31 DRAFT PROPOSED Proposed FY 2019/20 Capital Improvement Plan Attachment E Project # Project CIP - Reserve Park In-Lieu Gas Tax Grants Other Total Street Projects 9111-003 Annual Roadway Improvements 1,353,631 - 1,350,579 - - 2,704,210 9121-001 Roadway Safety & Traffic Calming 75,000 - - - - 75,000 9122-006 Prospect Road Improvements 166,981 - - 675,000 - 841,981 9122-007 Citywide Signal Upgrade Project Phase II 100,000 - 98,759 1,000 - 199,759 9122-010 Fruitvale/Allendale Avenue Intersection Improvements 180,000 - - - - 180,000 9141-005 Annual Infrastructure Maintenance & Repairs 250,000 - - - - 250,000 9142-005 Saratoga Avenue Sidewalk - - - 82,653 - 82,653 9142-011 Village Sidewalk & Pedestrian Improvements - Phase II 125,866 - - - - 125,866 9142-014 Big Basin Way Sidewalk Repairs - - 20,990 163,000 - 183,990 9142-015 El Camino Grande Storm Drain Pump 358,606 - - - - 358,606 9142-019 Saratoga Village Crosswalk & Sidewalk Rehabilitation 44,000 - - 338,000 - 382,000 9142-020 Quito Road Sidewalk Improvements 42,020 - - - - 42,020 9152-001 4th Street Bridge 69,837 - - 364,664 - 434,501 9152-002 Quito Road Bridges - Project Engineering 157,967 - 7,085 - - 165,052 9152-004 Quito Road Bridges - ROW Acquisition 33,654 - - 2,460 - 36,114 9153-003 Annual Retaining Wall Maintenance and Repairs 381,485 - - - - 381,485 9171-002 Quito Road Electric Underground Project - - - - 98,744 98,744 Total Street Projects 3,339,047 - 1,477,413 1,626,777 98,744 6,541,981 Parks & Trails Projects 9211-001 Annual Park & Trail Repairs 100,000 - - - - 100,000 9211-002 Citywide Tree Replanting - - - - 42,678 42,678 9211-010 Park & Trail Safety Improvements 40,000 - - - - 40,000 9212-001 Tree Dedication Program - - - - 24,000 24,000 9219-002 Quito/Pollard Road Open Space Improvements - 35,715 - - - 35,715 9222-004 Hakone Gardens Infrastructure Improvements 89,613 20,000 - - - 109,613 9274-002 Guava Ct/Fredericksburg Entrance 50,448 - - - - 50,448 9277-004 Saratoga Village to Quarry Park Walkway 208,000 - - - - 208,000 9278-001 Saratoga-to-the-Sea Trail 1,351,417 - - 1,130,000 - 2,481,417 Total Parks & Trails Projects 1,839,478 55,715 - 1,130,000 66,678 3,091,871 Facilities Projects 9321-016 Community Development Lobby Remodel 305,500 - - - - 305,500 9322‐001 Theater Improvements 136,939 ‐                       ‐                       ‐                       ‐                      136,939 9331‐011 Preschool Turf Conversion 25,000 ‐                       ‐                       ‐                       ‐                      25,000 9333‐008 Community Center Improvement Program 185,000 ‐                       ‐                       ‐                       ‐                      185,000 9372‐001 Library Building Exterior Maintenance 5,000 ‐                       ‐                       ‐                       ‐                      5,000 Total Facilities Projects 657,439 - - - - 657,439 Administrative & Technology Projects 9413‐002 City Website/Intranet Redesign 16,949 ‐                       ‐                       ‐                       ‐                      16,949 9415‐001 Development Technology Management 121,715 ‐                       ‐                       ‐                       ‐                      121,715 9442‐001 Citywide LLD Initiation Match Program 25,000 ‐                       ‐                       ‐                       ‐                      25,000 9442‐002 Horseshoe LLD Beautification 21,950 ‐                       ‐                       ‐                       ‐                      21,950 9443‐002 Citywide Accessibility Assessment 11,305 ‐                       ‐                       ‐                       ‐                      11,305 9451‐002 General Plan Update ‐ CIP 225,000 ‐                       ‐                       ‐                       ‐                      225,000 9491‐001 Risk Management Mitigation Project 88,895 ‐                       ‐                       ‐                       ‐                      88,895 Total Administrative & Technology Projects 510,814 - - - - 510,814 Total All Projects 6,346,778 55,715 1,477,413 2,756,777 165,422 10,802,105 4/15/2019 32