Rancho Palos Verdes City Council
   

AUGUST 3, 2004 PRESENTATION OF ESTIMATED GENERAL FUND RESERVES WITH STAFF REPORTS THAT INCLUDE A REQUEST FOR A BUDGET ADJUSTMENT AND MONTHLY FINANCIAL REPORTING – RECOMMENDATION OF AD-HOC COMMITTEE

TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

FROM: DIRECTOR OF FINANCE AND INFORMATION TECHNOLOGY

DATE: AUGUST 3, 2004

SUBJECT: PRESENTATION OF ESTIMATED GENERAL FUND RESERVES WITH STAFF REPORTS THAT INCLUDE A REQUEST FOR A BUDGET ADJUSTMENT AND MONTHLY FINANCIAL REPORTING – RECOMMENDATION OF AD-HOC COMMITTEE

Staff Coordinator: Kathryn Downs, Accounting Manager

Attachment: revenue and expenditure

RECOMMENDATION

Approve the following recommendation by Staff and the City Council’s Ad-Hoc Committee:

  1. Staff will attach the proposed Schedule of Estimated General Fund Reserves (see Exhibit A and B) to every staff report that includes a request for a budget adjustment; and
  2. Staff will prepare a monthly City Manager Report highlighting notable revenue and expenditure trends and variances to budget.

BACKGROUND AND DISCUSSION

Formation of Ad-Hoc Committee

On March 30, 2004, the City Council created an Ad-Hoc Committee comprised of Mayor Gardiner and Councilman Wolowicz to review financial information provided to the City Council while making fiscal decisions (i.e. budget adjustments). On June 30, 2004, the Ad-Hoc Committee met with Staff to discuss this topic.

Upon concluding their discussion, it was agreed (subject to direction by the City Council):

  1. Staff will attach the Schedule of the Estimated General Fund Reserves (see Exhibit A and B) to every staff report that includes a request for a budget adjustment; and
  2. Staff will prepare a monthly City Manager Report highlighting notable revenue and expenditure trends and variances to budget.

Schedule Of Estimated General Fund Reserves

Staff has prepared the proposed Schedule of Estimated General Fund Reserves for both FY03-04 and FY04-05 (see Exhibits A and B, respectively). The proposed Schedule presents estimates of General fund beginning reserves, revenues, expenditures, net transfers and ending reserves for the fiscal year, based upon the adopted budget. Each budget adjustment approved by the City Council after the adoption of the budget is included in the proposed Schedule. The proposed Schedule of Estimated General Fund Reserves would be updated bi-monthly after each City Council meeting to include additional budget adjustments approved by the City Council at the previous meeting. Staff would also prepare and include revenue budget adjustments when significant unexpected revenue is received that was not included in the adopted budget (i.e. insurance settlements, sale of CDBG funds not included in the adopted budget). Additionally, the proposed Schedule of Estimated General Fund Reserves would be updated when:

  1. The audited financial statements for the previous year-end are issued during December; and
  2. The Midyear Budget Report is issued during February.

The proposed Schedule of Estimated General Fund Reserves would be attached to every staff report that includes a recommendation for a budget adjustment. In the event a staff report includes a request for a budget adjustment, the Estimated General Fund Reserves would be compared with the General Fund Reserve Policy Level to determine whether sufficient reserves are available to pay for the additional cost of the propose expenditures. The City Council General fund Reserve Policy Level (50% of annual General fund budgeted revenues) is presented at the bottom of the proposed Schedule of Estimated General Fund Reserves along with the calculation of estimated Reserves in Excess of Policy Level. In the event a proposed budget adjustment impacts other funds of the City, the staff report would include the fiscal impact on the estimated ending fund balance of the respective fund(s).

The purpose of the General Fund Reserve Policy is to set-aside a prudent amount of General fund monies for unexpected events (e.g. an emergency storm drain project similar to the $4.5 million San Ramon project or the unexpected loss of State shared revenue during the annual budget process). The goal is to maintain General fund reserves in excess of the Policy Level during any fiscal year, especially when budgeted expenditures exceed revenues.

Monthly City Manager Report

The City Manager will prepare a one-page narrative report summarizing notable trends or budget variances for the benefit of the City Council. The memorandum would include the City Manager’s observations when an expenditure trend suggests the future need for an additional appropriation or that a revenue source is outpacing budget and is expected to result in a material favorable variance.

City Management receives an internal use monthly budget report prepared on a cash basis. The Ad-Hoc Committee and Staff discussed the pros and cons of distributing the internal use monthly budget report to the City Council. Because of its limitations (e.g. it’s prepared on a cash basis, payment of expenditures and receipt of revenues are highly cyclical), the Ad-Hoc Committee decided that the Monthly City Manager Report would better serve to inform the City Council about the notable trends or budget variances rather than the internal use monthly budget report.

Respectfully submitted,

Dennis McLean

Director of Finance and Information Technology

Reviewed,

Les Evans

City Manager