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| Financial Policies Review Staff comment follows on our performance vis-a-vis each element of our financial policies at June 30, 2003, our last independently audited financial year. The adopted policies appear in bold type: |
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"I. BALANCED BUDGET
We will strive to maintain a balanced operating budget for all governmental funds (all funds except the water enterprise), with total on-going revenues equal to or greater than total on-going expenditure, so that at year end all these funds have a positive fund balance and the general fund balance is maintained." This policy is being met as pertains to the General Fund. Exceptions to this policy consist of fund deficits at year end in certain special revenue funds: the Traffic Improvement ($15); MTA Circulator Bus Study ($3,087); MTA/Fair Oaks Traffic Improvement Grant ($10,121); County Park Bond ($2,602); Skate Park Grant ($1,294); State Park Bond ($15,548); and ISTEA ($275,954). Each fund deficit was disclosed in the June 30, 2003 Comprehensive Annual Financial Report (CAFR). Immaterial fund deficits for Traffic Improvement and the completed Skate Park grants will be closed out into the General Fund at June 30, 2004. Almost all the remaining fund deficits are the result of normal timing differences across fiscal years for grant reimbursement. At this writing, all deficits have or will be eliminated in fiscal year 2004 except a $275,954 portion of the ISTEA reimbursement pertaining to the Oaklawn Bridge project. Complicated federal administrative regulations relating to reimbursement for the construction engineering portion of the work continue to delay reimbursement. The City's consultant for the project, Bill Bayne, is reported to be confident that documentation sufficient to secure the final reimbursement will soon become available. |
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"II. APPROPRIATIONS AND BUDGETARY CONTROL
The City Council holds public hearings and adopts the City's annual budget and may modify appropriations with majority approval. Changes in appropriations at the fund level during the year must be submitted by the City's departments for City Council review and approval. The legal level of expenditures is controlled at the fund level, and appropriations lapse at the end of each fiscal year unless encumbered for re-appropriation by the City Council in the following fiscal year. Department heads may, without Council approval, amend individual line items within any fund in the maintenance and operations portions of the budget without increasing total appropriations for that division. The City Manager may, without Council approval, amend individual line items within any fund, and between divisions and programs, in the personnel costs, maintenance and operations, capital outlay and capital projects portions of the budget without increasing total appropriations for that fund."
This policy is being met. |
"III. ENTERPRISE FUND
We will require that our water fund be self-supporting." The Utility experienced net income of $457,987 in FY 2003. The Water Utility does not make a direct fund transfer to the General Fund, having eliminated the transfer in FY 2002 after several years of incremental reductions. |
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"IV. GENERAL FUND RESERVE
We will maintain an undesignated, unreserved General Fund reserve equal to at least 10% of General Fund expenditures at year end."
This policy is being met. At June 30, 2003, the General Fund undesignated, unreserved balance of $2,725,553 is 20% of actual 2002-03 General Fund expenditures. At June 20, 2004, we estimate the reserve ratio to maintain itself at 20%. |
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"V. EQUIPMENT RESERVE
We will maintain an equipment reserve designation equal to 15% of the replacement cost of City vehicles and equipment to be replaced in the General Fund." At June 30, 2003, the equipment reserve, $374,786, is 11% of the General Fund's total inventory of machinery, equipment, and licensed vehicles. This ratio falls below the City's reserve requirement of 15%. At June 30, 2004, a transfer to this reserve of $129,214 is recommended. The transfer will bring reserves to an estimated 14% ratio. |
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"VI. UNINSURED LOSSES RESERVE
We will maintain an uninsured losses reserve designation equal to 100% coverage of the four-year combined average of retroactive deposits for General Liability and Workers' Compensation insurance." This policy is being met. At June 30, 2003, the ratio of reserves to the four-year General Fund mean average for retroactive deposits was 220%. We expect this ratio to increase to 263% at June 30, 2004, and then experience reduction to 132% at the end of FY 2004-05 with the application of $200,000 in these reserves toward Gold Line mitigation capital projects. |
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"VII. INFRASTRUCTURE
We will maintain a long-range fiscal perspective through the use of a Capital Improvement Program to maintain the quality of City infrastructure, including streets, sidewalks, sewers, drains, lighting, buildings, parks, and trees." This policy is being met in part. The City Council approved long-range capital programs for the sewer and water systems in FY 2004. Unfortunately, our plan for ten-year street and alley reconstruction program was not supported by a supermajority of voters in the March of 2003 election. Measure M received a 55% majority of the vote, short of the required 67%. |
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"VIII. ACCOUNTING AND REPORTING STANDARDS
We will comply with all requirements of generally accepted accounting principles. We will prepare a Comprehensive Annual Financial Report (CAFR) to demonstrate that compliance." This policy is being met. Our June 30, 2003 CAFR retained its award of excellence with national (the Government Finance Officers Association of America and Canada) reviewers. State of California reviewers (the California Society of Municipal Finance Officers) initially withheld the City's 2003 award, with little explanation. The Finance Department successfully appealed the judgment, continuing 15 consecutive years of dual awards. |
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"IX. RISK MANAGEMENT
We will identify and quantify all areas of financial and operating risk, and prepare contingencies for those risks, including legal liabilities, infrastructure maintenance, emergency response, and contract and employee obligation. We will work with our Retirement system and Insurance Pool to seek full coverage of actuarially projected needs." This policy is being met in part. With regard to retirement and insurance costs, full coverage of ongoing liabilities is paid via annual premiums. Employee contracts are being established in FY 2005. The proposed 2005 budget fully funds ongoing obligations for employee retirement and organizational insurance. The City has not created contingency financing mechanisms or set-asides for infrastructure maintenance and improvements. Available funding is applied on a pay-as-you-go basis. |
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"X. DEBT AND INVESTMENTS
We will consider the use of debt when the cost of debt is lower than the City's investment return, and when operating revenues are available to pay the debt. We will maximize the investment return on City Cash balances within the higher concerns of safety and liquidity." This policy is being met. The City's water utility issued debt through a pooled water financing (see Transmittal Letter) in FY 2004 to quickly create capital sufficient to meet the cash flow requirements for the Grand Reservoir reconstruction. Taking advantage of a positive interest rate environment, an additional $2.9 million was added to the borrowing for subsequent projects. While the cost of the debt (coupons range from 3% to 5.25% over the life of the 25-year borrowing) is higher than the average 1.5% return on investments from LAIF, the rates obtaining in the pooled financing were the best available in the capital markets at sale date. |
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"XI. CONTROL OF FINANCIAL ASSETS
All financial assets will be under the direct authority of the City Treasurer and Director of Finance." This policy is being met. |
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"XII. FINANCIAL MANAGEMENT
We will seek to realize the maximum use of all tax dollars to public benefit." This policy is being met. |
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