HomeMy WebLinkAbout02/27/1989, 2 - 1989-91 FINANCIAL PLAN STUDY SESSION NO. 2 . Same agenda report dist uted for 2/14 Council meeting
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10024 COUNCIL AGE MDA R ®RT �"NUMBER:
FROM: William C. Statler, Director of Finance V,�4�
SUBJECT: 1989-91 FINANCIAL PLAN STUDY SESSION NO. 2
CAO RECOMMENDATION
Receive and file this status report on the preparation of the 1989-91 Financial Plan.
OVERVIEW
The purpose of this study session is to review the following areas related to the 1989-91
Financial Plan:
• Mid-Year budget review of 1988-89 revenue and expenditure trends as well as fund
balance projections for July 1, 1989.
• Proposed organization and format of the 1989-91 Financial Plan.
• Consideration of Financial Plan policies regarding the use of Gas Tax and
Transportation Development Act (TDA) Funds; fund accounting for Parks and
Recreation operating programs; and definitions and use of enterprise funds.
To facilitate the mid-year budget review and consideration of the proposed format for the
1989-91 Financial Plan, the following documents have been prepared separately and
- included with the agenda packet:
• 1988-89 Mid-Year Budget Review
• Proposed organization of the 1989-91 Financial Plan
Although no specific action is requested from the City Council at this study session, the
City Council's general concurrence to proceed with the proposed concepts outlined in this
report will assist in establishing an overall framework for the development of the
1989-91 Financial Plan.
MID-YEAR BUDGET REVIEW
As part of the City's two-year Financial Plan, a report on the financial status of the
City is presented to the City Council every six months. Although monthly financial
reports are distributed to the City Council on an ongoing basis, the formal submittal of
a review at the mid-point of the fiscal year provides an opportunity to identify and
present any fiscal problem areas to the City Council and to recommend corrective action
or additional funding if required.
As discussed in greater detail below, the City's financial position at the mid-point of
Fiscal Year 1988-89 is on target with budget projections. Overall revenue estimates for
the fiscal year are generally equal to or greater than original budget projections; and
current operating program appropriations are adequate to support approved service
levels. As such, no appropriation adjustments requiring City Council approval are
recommended at this time.
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ONGs COUNCIL AGENDA REPORT
Financial Status Overview
The Monthly Financial Report (MFR) for December 1988 (which reflects the City's financial
status at the mid-point of the fiscal year) was previously distributed to the City
Council on January 27, 1989. As reflected in the Transmittal Memorandum included in the
the December MFR, financial results at mid-year for revenues and operating expenditures
are generally on target with budget estimates: with 50% of the year complete, operating
revenues are at 51% of fiscal year projections; and operating expenditures/encumbrances
are at 48% of budgeted amounts.
Provided as supplemental information with this agenda item is a separate Mid-Year Budget
Review document which provides a comparison of the original 1988-89 Approved Budget for
revenues, expenditures, and changes in fund balance for each City fund with current
revenue projections and revised budget amounts. Additionally, this supplemental document
includes the Transmittal Memorandum and selected graphics from the December MFR.
As reflected in the Fund Balance summaries provided in the accompanying report, the
City's financial position at the end of 1988-89 is projected to be on target or exceed
original budget estimates.
FINANCIAL PLAN ORGANIZATION
The submittal of the draft 1989-91 Financial Plan to the City Council has been
tentatively scheduled for April 18, 1989. To facilitate the Council's review of the
content of the Financial Plan document at that time, the enclosed overview of the
proposed format and organization of the 1989-91 Financial Plan has been prepared for City
Council review and comment. Further discussion of the format and organization of the
Financial Plan is anticipated at the Study Session.
As reflected in the overview document, the 1989-91 Financial Plan will be composed of the
following nine sections:
A. Introduction F. Debt Service Requirements
B. Policies & Objectives G. Changes in Fund Balance
C. Budget Graphics & Summaries H. Budget Supplements
D. Operating Programs I. Policy Document References & Budget Glossary
E. Capital Improvement Plan
Each of these sections is described in the enclosed overview document along with samples
of proposed narratives and schedules.
FINANCIAL PLAN REVENUE POLICIES
As noted in the accompanying overview of the Financial Plan organization, Section B of
the Financial Plan (Policies & Objectives) outlines the policies and general framework I
which guide the preparation and management of the budget and financial plan. At this
time, the following modifications to the General Budget Policies are recommended for City
Council consideration:
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COUNCIL AGENDA REPORT
Gas Tax/ TDA Revenue Distributions
Background
Under the City's current revenue distribution policies, 60% of the City's Gas Tax
Section 2106 revenues and 100% of Section 2107.5 revenues are allocated to the General
Fund for street maintenance purposes; remaining Gas Tax (Section 2107) and Transportation
Development Act (TDA Article 8) revenues are allocated for street related improvement
projects. Additionally, 40% of the City's property tax revenues are allocated for
capital purposes, including street improvement projects.
These allocations of street-related funds (which are distributed to the City by the State
of California) are based solely on historical allocations determined by the City; there
are no external restrictions by the State on the allocation of these funds between
capital and maintenance purposes. The City's total operating and capital expenditures
for Gas Tax/TDA eligible programs and projects far exceeds the level of funding provided
by the State from these sources. As such, any allocation of these funds between
operating programs and specific street improvement projects is an arbitrary one.
However, due to State reporting requirements, significant administrative efforts are made
by the City's Finance and Public Works staff in managing, reporting, and auditing these
program and project allocations.
Within existing State guidelines, this level of effort could be significantly reduced by
allocating all Gas Tax/TDA Article 8 funds for maintenance purposes. Concurrently, to
ensure that overall resources available for capital improvements under existing policy
guidelines are unaffected by this conversion, a commensurate increase in the allocation
of property tax revenues to the Capital Outlay Fund is recommended. Based on 1988-89
revenue projections, it is anticipated that the property tax apportionment factor would
increase from 40% to 60% in order to achieve an equalization in the level of available
capital outlay revenues.
Summary
The City has historically developed revenue distribution policies for Gas Tax and TDA
funds which are not mandated by the State. These policies require greater work efforts
on the part of Public Works and Finance staff, and as such, it is recommended that they
be discontinued as unnecessary. As proposed, the net financial effect of this change is
the same as the current policy. The City's street development and maintenance efforts
will not be impacted: the level of General Fund support will reamin the same, although
it will be identified differently.
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COUNCIL AGENDA REPORT
Park and Recreation Fund
The City currently accounts for the following operational programs and activities within
the Parks and Recreation Fund:
1988-89
Approved Budget
Commissions & Committees $ 3,200
Recreation Programs:
General Programs 1,032,700
Aquatics 181,600
Maintenance Services:
Landscape & Park Facility Maintenance 759,400
Swim Center Maintenance 100,700
Support Services 105.700
Total $2.183.300
Of this amount, only 22% ($486,900) is projected to be funded from user fees during
1988-89; the remaining 78% of the assigned operating costs ($1,696,400) are funded
through an apportionment of the City's general purpose property tax revenues ($583,000)
and other General Fund sources ($1,112,300).
With this high level of General Fund support (almost 80% of direct costs), the historic
rationale for establishing a separate Special Revenue Fund for this purpose is unclear.
As such, it is recommended that the Park and Recreation operating programs be accounted
for within the General Fund, which is the standard accounting approach used throughout
the State of California. It should be noted that a separate fund will be maintained to
account for dwelling unit and park in-lieu fees, which are restricted for park
acquisition and development purposes.
Enterprise Funds
Under the City's current accounting policies, the following operations are accounted for
as enterprise funds:
Minimum Level of
User Fee
Cost Recovery
Water 100%
Sewer 100%
Parking 100%
Golf 80%
Transit 10%
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NOUN COUNCIL AGENDA REPORT
Under generally accepted accounting principles for local governments, the use of enterprise
funds in reporting financial operations is appropriate under the following circumstances:
• Services are operated and financed in a manner similar to private sector
enterprises.
• It is the intent of the City that the costs of the operation be financed or
recovered primarily through user charges.
• The City (or an outside granting agency) has determined that the periodic
determination of revenues earned, expenses incurred, and net income is appropriate
for capital maintenance, public policy, management control, accountability, or
other purposes.
Under this criteria, accounting for transit and golf activities as enterprise funds is
appropriate even though user charges are not intended to be the sole source of financing.
In the case of the City's transit system, user fees (transit fares) are only required to
recover 10% of operating costs exclusive of depreciation and rental expenses; however,
outside granting agencies (both the State and Federal governments, which provide the
operating and capital subsidies required to finance the remaining portion) have required
that it be accounted for as an enterprise fund.
Similarly, accounting for the golf course as an enterprise operation may also be appropriate
even though user fees are intended to recover only 80% of total costs due to its:
• Similarity to a private sector activity.
• Reliance on user charges as its primary source (80%) of funding..
However, two additional methods of accounting for the golf course operation are also
available which meet generally accepted accounting principles:
Soecial Revenue Fund - Under this accounting method, the financial position and
resources of the golf course operation would continue to be maintained separately from
other City funds. Comparability with similar private sector activities would be
affected as depreciation would no longer be recorded as an expense, and capital assets
and equity associated with the operation would not be reported separately in the City's
financial statements. However, this type of data could be developed for special review
purposes on an "as needed" basis.
General Fund - Under this accounting approach, the financial position (assets,
liabilities, and fund balance) of the golf course would not be readily identifiable. As
such, any accumulated resources generated from golf course fees above the 80% minimum
recovery level would not be specifically designated for golf course purposes.
For consistency with past financial reporting practices, the Enterprise Fund approach is
recommended. However, as noted above, any of these fund accounting methods for the golf
course operation (general, special revenue, enterprise) are consistent with generally
accepted accounting principles, and as such, staff can support any of the other financial
reporting options.
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Sig COUNCIL AGENDA REPORT
SUMMARY
The following areas related to the 1989-91 Financial Plan development process have been
scheduled for City Council consideration at this study session:
• Mid-year budget review.
• Proposed format and organization of the 1989-91 Financial Plan.
• Modifications to existing General Budget Policies.
As noted in the Overview section, no specific action is requested from the City Council at
this study session.
APPROVALS:
City dministrative Officer
City Attorney/
Previously Distributed (2/14 Meeting) :
1988-89 Mid—Year Budget Review
Proposed organization of the 1989-91 Financial Plan
SESSII/MIDYEAR