Item 4.2 - Amendment to the City's Financial PolicyCity of Poway
(ED
COUNCIL AGENDA REPORT
DATE:
February 5, 2019
TO:
Honorable Mayor and Members of the City Council
FROM:
Donna Goldsmith, Finance Director
CONTACT:
858-668-4411 or daoldsmith(cDpoway.org
SUBJECT:
Amendment to the City's Financial Policy
Summary:
APPROVED 5
APPROVED AS AMENDED ❑
(SEE MINUTES)
DENIED ❑
REMOVED ❑
CONTINUED
RESOLUTION NO.
The City Council adopted a formal Financial Policy in 2006. The Policy serves as a guiding
document that addresses budget development, financial reporting, minimum fund balance and
reserves, revenue and expenditure management, enterprise funds, internal service funds, debt
management, and human resources management. Over time, the Policy has been amended,
most recently in 2014. Staff recently completed a review of the Policy and is recommending
revisions to reflect current practices and to make the policy consistent with the City Council
adopted General Fund Reserve Policy.
Recommended Action:
It is recommended that the City Council adopt the attached Resolution Amending the Financial
Policy.
Discussion:
The City Council and staff have historically approached our budget process utilizing fiscal
practices that can be, and have been, described as conservative. For almost forty years, Poway's
leaders have had the foresight, discipline and ability to manage our City's finances responsibly.
On April 11, 2006, the City Council received a presentation highlighting potential financial policy
areas to be considered for inclusion in a formal financial policy. At that time, Council directed
staff to meet with the Budget Review Committee (BRC) to establish a suggested formal written
policy and return to Council with such a policy for consideration and adoption. Staff, working with
the BRC, developed a financial policy that was adopted by the City Council on June 20, 2006.
Between 2006 and 2014, minor changes to the Financial Policy have been approved by the City
Council. Following a recent review of the Policy, Staff is proposing several updates. Since the
City has returned to a single year budget, staff recommends the Council eliminate the reference
to the City's two-year budget cycle under the Budget Development section. The description of the
Minimum Fund Balance and Reserve section is updated to align with the language in the General
Fund Reserve Policy. The Minimum Fund Balance and Reserve section is also revised to state
that it is a goal, not mandatory, to maintain a minimum working capital balance of 20% of operating
expenditures in the Water and Sewer Enterprise Funds. The policy is also amended to clarify a
portion of the annual revenue received in lieu of the former Property Tax Increment
1 of 13 February 5, 2019 Item # I , 2-
Amendment of the City's Financial Policy
February 5, 2019
Page 2
(Redevelopment Property Tax Trust Fund Distributions) will be set aside for capital programming,
facilities and infrastructure revitalization. Additionally, reference to the Administrative Services
Department is removed and updated to reference the Finance Department.
Environmental Review:
This item is not subject to CEQA Review.
Fiscal Impact:
None.
Public Notification:
A copy of this policy will be posted on the City's website.
Attachments:
A. Resolution to Amend the Financial Policy
B. Redline showing amendments to Financial Policy
Reviewed/Approved By: Reviewed By: Approved By:
--yti,unl
Wendy I aserman Alan Fenstermacher Tina M. White
Assistant City Manager City Attorney City Manager
2 of 13 February 5, 2019 Item # 2.
RESOLUTION NO. 19-XXX
A RESOLUTION.OF THE CITY COUNCIL OF THE CITY OF
POWAY, CALIFORNIA, AMENDING AND ADOPTING
THE FINANCIAL POLICY
WHEREAS, the City of Poway and its representatives strive to serve as models of fiscally
responsible professionals, and the City Council desires to sustain a sound economic agency with
proven revenue and expenditure guidelines;
WHEREAS, a Financial Policy encourages high standards of fiscal management by public
officials, increases, public confidence in the institutions that serve the public, and assists public
officials with decision-making;
WHEREAS, the City of Poway Financial Policy builds upon the City's commitment to financial
excellence, full disclosure, and responsible fiscal management;
WHEREAS, the City of Poway Financial Policy emphasizes values and principles which
are complementary to generally accepted accounting principles, but extend beyond minimum
legal requirements;
WHEREAS, on June 20, 2006, the City of Poway Financial Policy was formally adopted;
WHEREAS, on June 16, 2009, and June 17, 2014, the City of Poway Financial Policy was
amended; and
WHEREAS, it is again desirable to revise the City of Poway Financial Policy.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Poway,as follows:
1. Resolution No. 09-037 is rescinded.
2. The Financial Policy adopted on June 17, 2014, is superseded by the revised policy
attached as Exhibit "A."
3. The Financial Policy, attached as Exhibit "A" is adopted.
PASSED,ADOPTED AND APPROVED by the City Council of the City of Poway,California,
at a regular meeting this 5th day of February 2019.
Steve Vaus, Mayor
ATTEST:
A. Kay Vinson, Interim City Clerk
3 of 13 Attachment A February 5, 2019 Item # 4.2
•
Resolution No. 19-
Page 2
STATE OF CALIFORNIA )
SS
COUNTY OF SAN DIEGO )
I, A. Kay Vinson, Interim City Clerk of the City of Poway, California, do hereby certify under
penalty of perjury that the foregoing Resolution No. 19 was duly adopted by the City Council at a
meeting of said City Council held on the 5th day of February 2019,and that it was so adopted by the
following vote:
AYES:
NOES:
ABSENT:
DISQUALIFIED:
A. Kay Vinson, Interim City Clerk
City of Poway
4 of 13 February 5, 2019 Item # 'f 2
Resolution No. 19-
Page 3
City of Poway
FINANCIAL POLICY
(h' Tl4f
PREAMBLE
The Poway City Council and staff have historically approached our budget process
utilizing fiscal practices that can be. and have been, described as conservative. For
nearly forty years, Poway's leaders have had the foresight, discipline and ability to
manage our City's finances responsibly. Reserves have been established and policies
developed to overcome economic uncertainty.
The purpose of this Financial Policy is to codify our past practices that have served us
well, and to establish a system under which we regularly review our fiscal policies and
practices and update them as needed. The Policy will be reviewed and evaluated
annually.
Accordingly. the Poway City Council has adopted this Financial Policy to:
1 . Serve as a guiding principle for this and future Councils:
2. Set forth guidelines against which current budgetary performance can
be measured: and
3. Provide values to assist with evaluation of future programs.
By adopting this Financial Policy, we confirm the City of Poway's commitment to
financial excellence. full disclosure. and responsible financial management.
BALANCED BUDGET
• The City will maintain a balanced operating budget. Operating revenues will
fully cover operating expenditures. including debt service, each fiscal year.
• Postponing needed expenditures. accruing future revenues, or rolling over
short-term debt in order to balance the budget will be limited to addressing
identified, non-recurring impacts and when outside of the City's control.
Exhibit A to
5 of 13 Attachment AFebruary 5, 2019 Item #
Resolution No. 19-
Page 4
• City will track revenue and expenditures on an on-going basis and attempt to
anticipate future trends beyond the current budget cycle in order to maintain a
balanced budget.
• Ending fund balance must meet minimum policy levels.
BUDGET DEVELOPMENT
• Budget development will take place in an open and publicly accessible forum.
• Public involvement is encouraged.
• A citizen's budget review committee will solicit citizen input and serve in an
advisory capacity in reviewing operating budget recommendations.
• The City will use a one-year financial plan as well as a long-term fiscal forecast
model to promote orderly spending patterns and engage in long-range planning.
• Council will formally review the City's fiscal condition at the midpoint of each fiscal
year.
FINANCIAL REPORTING
• The City will contract for an annual audit by a qualified independent certified public
accountant and will strive for an unqualified auditor's opinion.
• The City will use generally accepted accounting principles in preparing its annual
financial statements.
• The City will strive to meet the requirements of the GFOA awards program for
financial reporting.
MINIMUM FUND BALANCE AND RESERVES (ALSO SEE GENERAL
FUND RESERVE POLICY)
• The City will maintain a General Fund reserve equivalent to 45% of budgeted
annual General Fund operating expenditures.
• The City's goal is to maintain a minimum working capital balance of 20% of
operating expenditures in the Water and Sewer Enterprise Funds.
6 of 13 February 5, 2019 Item # 44/.2.
Resolution No. 19-
Page 5
REVENUE MANAGEMENT
• We will seek to maintain a diversified and stable revenue base to protect the City
from short-term fluctuations in any one source of revenue.
• The City will maintain revenue projections extending several years into the future.
• One-time and non-sustainable revenues will be excluded as a source to fund
ongoing programs, debt service or other long-term obligations.
• With the dissolution of redevelopment, the City will endeavor to set-aside a portion
of its annual operating revenue received in lieu of former Property Tax Increment
(i.e., Redevelopment Property Tax Trust Fund Distributions) for capital
programming as well as facilities and infrastructure revitalization.
• Fees will be reviewed and updated annually in a master fee schedule.
• The City will make conscious decisions about cost recovery and/or general tax
subsidy of those services that benefit only portions of the tax-paying public.
• A comprehensive analysis of City costs and fees should be made every 5 to 10
years.
FISCAL CONSTRAINTS AND EXPENDITURE MANAGEMENT
• The City will utilize a competitive procurement process as set forth in a purchasing
policy.
• Budgeted expenditures shall reflect the Council's goals.
• The City will continue to search for viable opportunities to prioritize or outsource
services, where appropriate.
• The City will track expenditures to evaluate trends and identify potential problems.
• Acquisition of real property or facilities shall be tied to a specific objective, with
adequate funds identified and taking into account long-term fiscal and policy
impacts.
• Agenda staff reports having a fiscal impact require review by the Finance
Department.
7 of 13 February 5, 2019 Item # •_
Resolution No. 19-
Page 6
ENTERPRISE FUNDS
• Fees and rates will fully cover direct and indirect costs, including operations, capital
outlay, long-term maintenance and debt service.
• Enterprise funds will not be subsidized by the General Fund.
• Costs of general government services will be allocated to the enterprise funds
based on approved methodology.
INTERNAL SERVICE FUNDS
• The cost of replacing existing equipment will be fully amortized and funded.
• Rates shall be established to recover the replacement cost of each piece of
equipment at the end of its useful life.
• Facilities will be amortized to cover ongoing maintenance and cyclical repairs and,
to the extent possible, the replacement or expansion of major structures.
• With the dissolution of redevelopment, the City may use funds set-aside for capital
programming as well as facilities and infrastructure revitalization (i.e.,
Redevelopment Property Tax Trust Fund Distributions) to supplement internal
service funds designated for the replacement or expansion of major structures.
DEBT MANAGEMENT (SEE DEBT POLICY)
• Debt financing is not appropriate for any recurring purpose, such as operating and
maintenance expenditures.
• The City will evaluate pay-as-you-go versus long-term financing in funding capital
improvements.
• The City will strive to maintain a high reliance on pay-as-you-go financing.
• The City will use financing mechanisms that appropriately spread the cost of
facilities and services to current and future benefiting residents.
HUMAN RESOURCE MANAGEMENT
• The City will strive to provide competitive compensation and benefits to its
employees.
• The City will encourage employees to further develop their skills and abilities.
8 of 13 February 5, 2019 Item # v
Resolution No. 19-
Page 7
• The City will staff for the "valleys," not the "peaks." Temporary and/or contract
staffing may be used to meet peak workload requirements.
• Part-time employee hours will generally not exceed 1,000 hours annually.
• New technologies and related capital investments will be evaluated to improve
workforce productivity.
• Contracting with the private sector for the delivery of services will be considered
where cost-effective and when established service levels can be met or enhanced.
We will hold ourselves, as individuals and the City of Poway organization as a whole,
accountable for being consistent with this Financial Policy.
Adopted:June 20,2006
Amended:June 16, 2009;June 17, 2014
M.IFinancelFinancial PolicieslyyyylFinancial Poticy.docx
9 of 13February 5, 2019 Item # f .2
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City of Poway
FINANCIAL POLICY Illticsop-1111111,
1,EP
PREAMBLE
The Poway City Council and staff have historically approached our budget process utilizing
fiscal practices that can be. and have been, described as conservative. For moce-Taan
t#*tynearly forty years. Poway's leaders have had the foresight. discipline and ability to
manage our City's finances responsibly. Reserves have been established and policies
developed to overcome economic uncertainty.
The purpose of this Financial Policy is to codify our past practices that have served us well.
and to establish a system under which we regularly review our fiscal policies and practices,
and update them as needed. The Policy will be reviewed and evaluated annually.
Accordingly. the Poway City Council has adopted this Financial Policy to:
1 . Serve as a guiding principle for this and future Councils:
2. Set forth guidelines against which current budgetary performance can be
measured: and
3. Provide values to assist with evaluation of future programs.
By adopting this Financial Policy, we confirm the City of Poway's commitment to financial
excellence, full disclosure, and responsible financial management.
BALANCED BUDGET
• The City will maintain a balanced operating budget. Operating revenues will fully cover
operating expenditures, including debt service, each fiscal year.
• Postponing needed expenditures, accruing future revenues. or rolling over short-term
debt in order to balance the budget will be limited to addressing identified. non-recurring
impacts and when outside of the City's control.
• City will track revenue and expenditures on an on-going basis, and attempt to anticipate
future trends beyond the current budget cycle in order to maintain a balanced budget.
• Ending fund balance must meet minimum policy levels.
10 of 13 Attachment BFebruary 5, 2019 Item # ��-
BUDGET DEVELOPMENT
• Budget development will take place in an open and publicly accessible forum.
• Public involvement is encouraged.
• A citizens budget review committee will solicit citizen input and serve in an advisory
capacity in reviewing operating budget recommendations.
• The City will use either a one-year of two-year-financial plan as well as a long-term fiscal
forecast model to promote orderly spending patterns, and engage in long-range _
pia• . - • - - - - •. - - -- - -- • - - 2. .-e - - -I budgets.
• Council will formally review the City's fiscal condition at the midpoint of each fiscal year
FINANCIAL REPORTING
• The City will contract for an annual audit by a qualified independent certified public
accountant and will strive for an unqualified auditor's opinion.
• The City will use generally accepted accounting principles in preparing its annual
financial statements.
• The City will strive to meet the requirements of the GFOA awards program for financial
reporting.
MINIMUM FUND BALANCE AND RESERVES (ALSO SEE GENERAL FUND
RESERVE POLICY)
• The City will maintain a General Fund reserve equivalent to 45% of budgeted annual
General Fund •• •• • . _ , . _ -_ . - -_ _ . - . _ . _ __ _o. _
operating expenditures in the General Fund.
• The City's goal is to 44I-maintain a minimum working capital balance of 20% of operating
expenditures in the Water and Sewer Enterprise Funds.
REVENUE MANAGEMENT
• We will seek to maintain a diversified and stable revenue base to protect the City from
short-term fluctuations in any one source of revenue.
• The City will maintain revenue projections extending several years into the future.
• One-time and non-sustainable revenues will be excluded as a source to fund ongoing
programs. debt service or other long-term obligations.
11 of 13 February 5, 2019 Item # +2.
• With the dissolution of redevelopment. the City will endeavor to set-aside a portion of its
annual operating revenue received in lieu of former Property Tax Increment (i.e..
Redevelopment Property Tax Trust Fund Distributions) for capital programming as well
as facilities and infrastructure revitalization.
• Fees will be reviewed and updated annually in a master fee schedule.
• The City will make conscious decisions about cost recovery and/or general tax subsidy
of those services that benefit only portions of the tax-paying public.
• A comprehensive analysis of City costs and fees should be made every 5 to 10 years.
FISCAL CONSTRAINTS AND EXPENDITURE MANAGEMENT
• The City will utilize a competitive procurement process as set forth in a purchasing policy.
• Budgeted expenditures shall reflect the Council's goals.
• The City will continue to search for viable opportunities to prioritize or outsource services.
where appropriate.
• The City will track expenditures to evaluate trends and identify potential problems.
• Acquisition of real property or facilities shall be tied to a specific objective, with adequate
funds identified and taking into account long-term fiscal and policy impacts.
• Agenda staff reports having a fiscal impact require review by— the Finance
Departmen ' . . - _ - .
ENTERPRISE FUNDS
• Fees and rates will fully cover direct and indirect costs. including operations, capital
outlay, long-term maintenance and debt service.
• Enterprise funds will not be subsidized by the General Fund.
• Costs of general government services will be allocated to the enterprise funds based on
approved methodology.
INTERNAL SERVICE FUNDS
• The cost of replacing existing equipment will be fully amortized and funded.
• Rates shall be established to recover the replacement cost of each piece of equipment
at the end of its useful life.
12 of 13 February 5, 2019 Item # I.Z
• Facilities will be amortized to cover ongoing maintenance and cyclical repairs and, to the
extent possible. the replacement or expansion of major structures.
• With the dissolution of redevelopment, the City may use funds set-aside for capital
programming as well as facilities and infrastructure revitalization (i.e.. Redevelopment
Property Tax Trust Fund Distributions) to supplement internal service funds designated
for the replacement or expansion of major structures.
DEBT MANAGEMENT (SEE DEBT POLICY)
• Debt financing is not appropriate for any recurring purpose, such as operating and
maintenance expenditures.
• The City will evaluate pay-as-you-go versus long-term financing in funding capital
improvements.
• The City will strive to maintain a high reliance on pay-as-you-go financing.
• The City will use financing mechanisms that appropriately spread the cost of facilities
and services to current and future benefiting residents.
HUMAN RESOURCE MANAGEMENT
• The City will strive to provide competitive compensation and benefits to its employees.
• The City will encourage employees to further develop their skills and abilities.
• The City will staff for the "valleys." not the "peaks." Temporary and/or contract staffing
may be used to meet peak workload requirements.
• Part-time employee hours will generally not exceed 1 .000 hours annually.
• New technologies and related capital investments will be evaluated to improve workforce
productivity.
• Contracting with the private sector for the delivery of services will be considered where
cost-effective and when established service levels can be met or enhanced.
We will hold ourselves. as individuals and the City of Poway organization as a
whole. accountable for being consistent with this Financial Policy.
13 of 13 February 5, 2019 Item #