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HomeMy WebLinkAboutR-15-29 Readopting Financial PoliciesRESOLUTION NO. R-15-29 A RESOLUTION OF THE CITY OF SEBASTIAN, FLORIDA, READOPTING AMENDED FINANCIAL POLICIES GOVERNING VARIOUS AREAS OF BUDGET AND FINANCE AS PROVIDED FOR IN ATTACHMENT "A'; PROVIDING FOR CONFLICTS; AND PROVIDING FOR AN EFFECTIVE DATE. WHEREAS, the Government Finance Officers Association of the United States and Canada recommends best practices in various areas for Finance and Budget; and WHEREAS, the City Council deems it to be necessary to adopt and readopt such financial policies on an annual basis, NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEBASTIAN, FLORIDA, as follows: SECTION 1. READOPTING AMENDED FINANCIAL POLICIES: The City Council of the City of Sebastian hereby readopts amended Financial Policies governing the Operating Budget, Financial Reserves, Use of Surplus, Performance Measurement, Capital Improvement Program, Debt Management, Revenue, and Investment, which are attached hereto. SECTION 2. All resolutions or parts of resolutions in conflict herewith are hereby repealed. SECTION 4. This Resolution shall take effect upon adoption. The foregoing Resolution was moved for adot'on by Council Member Motion was seconded by Council Member P and, upon bein ut to a vote, the vote was as follows: Mayor Richard Gillmor Vice -Mayor Jerome Adams Councilmember Andrea B. Coy Councilmember Bob McPartlan Councilmember Jim Hill The Mayor thereupon declared this Resolution duly passed and adopted this 23d day of September, 2015. ATTE 1 nA ✓vl' Sally A. Maio MC City Clerk s. �. I41 � // /�%I Approved as to Form and Legality for Reliance by the City of Sebastian Only: By: Z"/Z-�% Robert Ginsburg, City Attorney City of Sebastian, Florida Financial Policies City of Sebastian's financial policies set forth the basic framework for overall fiscal planning and management and set forth guidelines for both current activities and long-range planning. These policies are reviewed annually to assure the highest standards of fiscal management and were formally adopted by the City Council at a public meeting on September 23, 2015. The City Manager and the Management Team has the primary role of reviewing financial actions and providing guidance on financial issues to the City Council. Overall Goals The overall financial goals underlying these policies are: 1. Fiscal Conservatism: To ensure the city is in a solid financial condition at all times. This can be defined as: A. Cash Solvency — the ability to pay bills B. Budgetary Solvency — the ability to balance the budget C. Long Term Solvency — the ability to pay future costs D. Service Level Solvency— the ability to provide needed and desired services 2. Flexibility: To ensure that the city is in a position to respond to changes in the economy or new service challenges without an undue amount of financial stress. 3. Comply with All Statutory Requirements: As set forth by the State of Florida and the City ordinances. 4. Adherence to the highest Accounting and Management Practices: As set by the Government Finance Officers' Association standards for financial reporting and budgeting, the Government Accounting Standards Board and other professional standards. Operating Budget Policies The City Administrative Services Department, with support and general direction from the City Manager, coordinates the budget process. The formal budgeting process begins in March and ends in September and provides the primary mechanism by which key decisions are made regarding the levels and types of services to be provided, given the anticipated level of available resources. Revenues and expenditures are projected on the basis of information provided by City departments, outside agencies, current rate structures, historical data and statistical trends. Budget Process The development of the budget is guided by the following budget policies: 1. The budget must be balanced for all funds. Total anticipated revenues must equal total estimated expenditures for each fund (Section 166.241 of Florida Statutes requires that all budgets be balanced). 2. All operating funds are subject to the annual budget process and reflected in the budget document. 3. The enterprise operations of the City are to be self-supporting; i.e., current revenues will cover current expenditures, including debt service. 4. An administrative service fee will be paid to the General Fund by each enterprise fund. This assessment will be calculated based upon a percentage (ratio of both the number of full-time equivalent employees of the enterprise fund/total number of full-time equivalent employees of the City and ratio of the operating budget of the enterprise funds/total operating budget of the City) of total budgeted General Fund administration expenditures (includes City Council, City Manager, City Attorney, City Clerk, Administrative Services, Community Development and Facilities Maintenance). 5. A 2.5 percent administrative service fee will be assessed by the General Fund against the Community Redevelopment Agency (CRA) Fund of the city. This assessment will be based on the total tax increment revenue estimate of the CRA Fund and will be used to reimburse the General Fund for the administrative support services provided to the CRA fund. City of Sebastian, Florida Financial Policies 6. Pursuant to Ordinance 05-16, stormwater utility fees can be utilized to fund the General Fund stormwater operation. The amount being utilized should be approved by the City Council through the budget process. 7. In no event will the City of Sebastian levy ad valorem taxes against real property and tangible personal property in excess of 10 mills, except for voted levies (Section 200.081 of Florida Statutes places this millage limitation on all Florida municipalities.) 8. The City will budget 96 percent of anticipated gross ad valorem proceeds to provide an allowance for discounts for early payment of taxes (Section 200.065 of Florida Statutes states that each taxing authority shall utilize not less than 95 percent of the taxable value.) 9. Retirement programs will be funded at 100% of the obligations calculated annually. The defined benefit pension plan will be funded in accordance with the required annual contribution calculated by an independent actuary. 10. The City will coordinate development of the capital improvement budget with the development of the annual operating budget. Each capital improvement budget is reviewed for its impact on the operating budget in ternis of revenue generation, additional personnel required and additional operating expenses. It is also evaluated as to proposed projects being consistent with the City's Comprehensive Plan. 11. A budget calendar will be designed each year to provide a framework within which the interactions necessary to formulate a sound budget could occur. At the same time, it will ensure that the City will comply with all applicable State legal mandates. Basis of Budgeting The basis of budgeting for governmental funds (General, Special Revenue, Debt Service Funds, and Capital Project funds) shall be prepared on a modified accrual basis of accounting. This means unpaid financial obligations, such as outstanding purchase orders, are immediately reflected as encumbrances when the cost is estimated, although the items may not have been received. However, in most cases revenue is recognized only after it is measurable and actually available. The budgets for the proprietary funds — Golf Course, Airport and Building Department — are prepared using the accrual basis of accounting. Proprietary funds also recognize expenses as encumbered when a commitment is made (e.g., through a purchase order). Revenues, on the other hand, are recognized when they are obligated to the City. Purchase orders for goods and services received prior to the end of the current fiscal year will be eligible for payment immediately following the close of the fiscal year. Encumbrances for all other purchases, excluding the capital projects funds purchases, will automatically lapse. The Comprehensive Annual Financial Report (CAFR) presents the status of the City's finances on the basis of Generally Accepted Accounting Principles (GAAP). Since FY 2001, the CAFR has been prepared in compliance with Governmental Accounting Standards Board (GASB) Statement 34 requirements. The CAFR shows fund expenditures and revenues on both a GAAP basis and budget basis for comparison purposes. In most cases, this conforms to the way the City prepares its budget with the following exceptions: I. Principal payments on long-term debt within the enterprise funds are applied to the outstanding liability on a GAAP basis as opposed to being expended when paid on a budget basis. 2. Capital outlay within the proprietary funds are recorded as assets on a GAAP basis and expended on a budget basis. 3. Depreciation expense is not budgeted. 4. Inventory is expensed at the time it is used. 5. Compensated absences liabilities that are expected to be liquidated with expendable available financial resources are accrued as earned by employees on a GAAP basis as opposed to being expended when paid on a budget basis. City of Sebastian, Florida Financial Policies Guidelines The Comprehensive Annual Financial Report (CAFR) presents the status of the City's finances on a basis consistent with Generally Accepted Accounting Principles (GAAP) (i.e., a statement of net assets and statement of activities are presented on an accrual basis of accounting, including governmental funds, major governmental and proprietary funds are identified, governmental funds use the modified accrual basis of accounting, while the proprietary and trust funds use the accrual basis of accounting.) In order to provide a meaningful comparison of actual results to the final budget, the CAFR presents the City's operations on a GAAP basis and also shows fund revenue and expenditures on a budget basis for the General, Special Revenue, and Debt Service funds. Current revenues shall be sufficient to support current expenditures. The Administrative Services Department will monitor each fund and make timely budgetary recommendations and adjustments to be sure no expenditures are in excess of appropriations at fiscal year end, which is not permitted under Florida State Statutes. The budget process and format shall be performance-based and focus on goals, objectives, programs, and performance indicators. The budget will provide adequate funding for maintenance and replacement of capital plant and equipment. Budget Amendment 1. Total fund appropriations changes and uses of contingency appropriations are approved by the City Council. 2. Shifts in appropriations within fund totals may be done administratively on the authority of the City Manager. In most cases the City Manager will request City Council's approval, since the item prompting the change will usually go to the City Council (e.g., award of contract, addition of staff, contract change order). Procedures for appropriation transfers and delegation of budget responsibility will be set by the City Manager. 3. A Budgetary Control System will be maintained to ensure compliance with the budget. Monthly operating statements are provided to all Department Heads and Quarterly budget status reports will be provided to the City Council comparing actual versus budgeted revenue and expense activity for all budgeted funds. Planning The City will annually prepare and distribute to departments and the City Council a Five -Year Forecast. The forecast will include estimated operating costs and revenues for future capital improvements, such as new parks and public works facilities, included in the capital improvement plan. Fund Balance Policies On an annual basis, after the year-end audit has been completed, but no later than April 1, the City's Chief Financial Officer shall produce a schedule of all fund surpluses and deficits, with projections of reserve requirements and a plan for the use of any excess surplus for the current year in accordance with the Financial Balance Policies and Use of Surplus Policies. This document will be used not only to ensure compliance with stated and adopted policies, but also to analyze the total reserve and surplus picture to ensure that the policies as adopted do not inadvertently create adverse effects. The City's Chief Financial Officer shall provide recommended changes to the City Manager for any changes to the Fund Balance Policies and Use of Surplus Policies based on needs identified in this analysis. General Fund committed fund balances will be maintained at greater than or equal to thirty percent (30%) of the annual General Fund total expenditures budget, less debt service, interfund transfers and capital expenditure. This approximates three months of working capital and will be used for unforeseen or emergency events, such as natural disasters or major changes in weather patterns, as well as a cushion for revenue shortfalls or unanticipated expenditure overages. In addition, the City shall assign any General Fund operating surplus (revenues in excess of expenditures) to a Capital Renewal and Replacement Reserve for the purpose of allowing the City Manager to immediately proceed with repairing or replacing essential General Fund equipment or facilities in instances where those items have not been budgeted. Such expenditures shall be governed by the purchasing thresholds set by City Code Section 2-10 and shall be reported to the City Council within the next Quarterly Financial Report. City of Sebastian, Florida Financial Policies Use of Surplus Policies Use of Surpluses It is the intent of the City to use all surpluses generated to accomplish three goals: meeting reserve policies, avoidance of future debt, and reduction of outstanding debt. The City will avoid using fund balances or year-end surpluses to fund ongoing operating expenses. Any surpluses realized in the General Fund shall be used first to meet reserve policies as set forth in the Fund Balance Policies. Excess surplus will then be used for the following purposes, listed in order of priority: Y Capital Replacement Programs. After General Fund reserves have been met, excess reserves may be budgeted to implement capital replacement programs (e.g, vehicle and equipment replacement and facility maintenance). ➢ Cash Payments for Capital Improvement Program Projects. Using cash to purchase capital items that may otherwise to be purchased with the proceeds from debt will reduce the future debt burden of the City. This strategy may be beneficial but a financial analysis should be performed to determine the greatest net present value savings. ➢ Cemetery Permanent Trust Fund. After all other needs have been satisfied, excess surpluses may be transferred to the Cemetery Permanent Trust Fund that has been established to care for the Cemetery. The amounts transferred shall be deemed corpus to the Cemetery Trust fund for future earnings growth to fund Cemetery care and maintenance. ➢ Riverfront Redevelopment Agency. After all other needs have been satisfied; excess surpluses may be transferred to the Riverfront Redevelopment Agency that has been established to provide infrastructure and public facility needs in that area. Special Revenue Fund Surpluses Local Option Gas Tax Revenue Fund — To the extent possible, a reserve will be maintained in an amount greater than or equal to fifteen percent (15%) of the annual Local Option Gas Tax Fund expenditures budget for the purpose of alleviating the impact of a decline in amounts of collected revenue. Discretionary Sales Surtax Revenue Fund — To the extent possible, a reserve will be maintained in an amount greater than or equal to ten percent (10%) of the total annual Discretionary Sales Tax Fund Expenditures budget for the purpose of alleviating the impact of decline in amounts of collected revenue and to provide sufficient funds for unanticipated replacements of eligible capital improvements or equipment. Discretionary Sales Tax revenues will be used in accordance with the following: 1. fund annual debt service payments for which this revenue source is pledged, then; 2. fund emergency vehicles, then; 3. fund annual debt service payments previously incurred for stormwater improvements, then; 4. fund additional stormwater improvements, then; 5. fund other pay -as -you go eligible capital improvements. Stormwater Utility Revenue Fund — To the extent possible, a reserve will be maintained in an amount greater than or equal to fifteen percent (15%) of the total annual Stormwater Utility Revenue Fund Expenditures budget for the purpose of providing sufficient funds for unanticipated major capital improvements and for the purpose of alleviating the impact of a decline in amounts of collected revenue. City of Sebastian, Florida Financial Policies Performance Measurement Policies Establishing Performance Requirements Annually, each department shall develop departmental performance measures that correspond with the department programs and file them with the City Manager's Office. Goals should be related to core services of the department and should reflect stakeholder needs. The measures should be of a mix of different types, including effectiveness, efficiency, demand and workload. Measures should have sufficiently aggressive "stretch" goals to ensure continuous improvement. ➢ Workload — Measures the quantity of activity for a department (e.g., number of calls responded to). ➢ Demand — Measures the amount of service opportunities (e.g.. total number of calls). ➢ Efficiency — Measures the relationship between output and service cost (e.g., average cost of the response to a service call). ➢ Effectiveness — Measures the impact of an activity (e.g., percent of people who feel safe). Department Directors shall establish performance measures for each program within their department to monitor and project program performance. These must be linked to the departmental goals and objectives they support. Supervisors shall insure that fair, objective and aggressive performance measures for each employee that directly supports program objectives and departmental measures are part of their annual review. Reporting Performance Quarterly summaries of progress on goals and objectives and departmental performance measures will be provided to the Chief Financial Officer for publishing in the City Council's Quarterly Budget to Actual Report. Decision Making and Analysis The City's Strategic Planning and budgeting decisions are based on a number of processes currently in place. The specific tools used are: ❖ Citizen Advisory Boards — (e.g., Budget Review Committee) are teams made up of Residents and City staff to address specific concerns and provide direction and feedback. Several such advisory boards currently exist; ❖ Master Planning — Specific functions and processes are included in written plans, such as the Comprehensive Plan, Stormwater Master Plan, and the Airport Master Plan; ❖ Fiscal Impact Model — Allocation methodology that quantifies average and marginal revenues and the costs of new development by land use type; ❖ Revenue Forecasting Model — Statistical time series analysis and tracking model of major revenue sources; Performance Measurement System — Quarterly performance evaluations and reports; Capital Budgeting Tools — Present Value Payback, Net Present Value Analysis, Own/Lease Analysis, and Return on Investment (ROI) Analysis; ❖ Five -Year Financial Plan — Multi-year forecasting of revenues and expenditures; ❖ Ten -Year Fleet Replacement Program — Equipment maintenance and replacement schedule covering the useful life of all vehicle classes; ❖ Ten -Year Equipment and Maintenance Program - maintenance and replacement schedule covering the useful life of all equipment, other than vehicles; ❖ Financial Trend Monitoring System — Systematic analysis of major financial indicators; City of Sebastian, Florida Financial Policies Capital Improvement Program Policies Definition Capital improvements include streets, buildings, building improvements, park expansions/improvements, new parks, airport runways, infrastructure improvements, and major acquisitions of equipment. Projects in the Capital Improvement Program generally cost more than $50,000 and last at least five years. For accounting purposes, lesser cost capital items as well as operational and maintenance expenditures are also included, including those charged directly to Other Funds. Alignment The City shall coordinate the development of the Capital Improvement Program plan with the development of the Strategic Plan and Operating Budget, as well as ensuring compliance with the Comprehensive Plan Capital Improvement Element. Future operating expenditures and revenues associated with new capital improvements will be projected and included in the Capital Improvement Program Forecasts. Project Selection Capital projects submitted for approval must be justified in terms of how the project supports the achievement of the City's Strategic Priorities. The originating department of the capital improvement project will identify the estimated costs and impacts on revenue and operating costs for each capital project proposal. Projects are prioritized and approved based on the relevancy of the project to the City's Strategic Plan and the impact on the end stakeholder(s). Capital Improvement Plan The City shall adopt an annual Capital Budget based on the Capital Improvement Plan. Future capital improvement expenditures necessitated by changes in population, real estate development, or in economic base will be calculated and included in the capital improvement plan projections. The City shall make all capital improvements in accordance with an adopted Capital Improvement Plan. The City will determine and use the most prudent financial methods for acquisition of capital improvement projects based upon market conditions at the time of acquisition. Capital Equipment Outlay Definition Capital equipment outlay is defined as capital assets purchased and/or constructed with a cost equal to or greater than $750 (with the exception of computer software cost which is equal to or greater than $5,000) with a useful life of one or more years. Capital Replacement Programs — The City shall forecast capital replacement and maintenance needs for at least five-year periods and update this projection each year. From this, a maintenance and replacement schedule shall be developed and implemented. Funding for capital replacement may be obtained through excess year-end surpluses as identified in the Use of Surplus Policies. Maintenance programs shall be paid for on a pay-as-you-go basis. The City will determine and use the most prudent financial methods for acquisition of capital equipment, based upon market conditions at the time of acquisition. Maintenance The City shall maintain all capital assets at a level adequate to protect the City's capital investment and m;nimi�e future maintenance and replacement costs. Physical Inventory An annual physical inventory will be conducted to ensure that all capital assets listed in the City's financial system are accounted for, and that sufficient internal control over capital items is exercised. Further detail on capital purchases and dispositions is detailed in a separately published policy. City of Sebastian, Florida Financial Policies Debt Management Policies Market Review The City's Chief Financial Officer, in conjunction with the Financial Consultant, shall review its outstanding debt annually for the purpose of determining if the financial marketplace will afford the City the opportunity to refund an issue and incur less debt service costs. In order to consider the possible refunding of an issue, a present value savings of three percent (3%) over the life of the respective issue, at a minimum, must be attainable. Capital Improvements, equipment and facility projects shall be classified into "pay-as-you-go" and "debt financing" classifications. Pay-as-you-go capital items will be $150,000 or less with lives of ten years or less. Debt financing will only be used for major, non-recurring items with a minimum useful life longer than the loan repayment time. Debt Financing for Capital Assets i. Short-term Borrowing Short-term borrowing or lease/purchase contracts should be considered for financing major operating capital equipment when the City's Chief Financial Officer, along with the City's Financial Consultant, determines that this is in the City's best financial interest. Lease/purchase decisions should have the concurrence of the appropriate department/division head and should consider the net cost after factoring in anticipated maintenance expenditures. 2. Issuance of Debt When the City finances capital projects or purchases by issuing debt, it shall amortize the debt over a term not to exceed the average useful life of the project(s) financed. Consideration of bank notes will be given for financing over shorter periods. Except in the most unusual instances, the City will seek competitive bids to assure it selects the financial institution with the most advantageous terms. If General Obligation Bonds are issued, the City's goal will be to limit the maturity to fifteen (15) years. When possible, the City shall use a special assessment or self-supporting financing instead of general obligation bonds, so those benefiting from the improvements will bear all or part of the cost of the project financed. Debt Service Levels Annual General Fund debt service expense, if any, will be limited to eight percent (8%) of the General Fund expenditures budget. The City will limit its total outstanding General Obligation debt, if any, to five percent (5%) of the assessed valuation of taxable property. The City will limit the amount of Variable Rate debt to fifteen percent (15%) of the total debt outstanding. Bond Ratings and Full Disclosure The City recognizes the importance of favorable bond ratings by the various rating agencies. The City's Chief Financial Officer, along with the Financial Consultant, shall periodically review possible actions to maintain or improve its bond ratings and shall maintain good communications with bond rating agencies and its bond insurers about its financial condition. The City's Chief Financial Officer shall coordinate all communications to ensure a professional and factual response to any inquiries. The City shall follow a policy of "full disclosure" in its Comprehensive Annual Financial Report and bond prospectuses. The City's Chief Financial Officer shall assure that all legally required filings are made in regard to outstanding financings. City of Sebastian, Florida Financial Policies Revenue Policies Revenue Projections The City shall estimate its annual revenues by objective and analytical processes. The City shall maintain a diversified and stable revenue system to the extent provided by law to insulate it from short-term fluctuations in any one revenue source. User Fees The City shall recalculate on a bi-annual basis the full cost of selected activities currently supported by user fees and charges to identify the impact of inflation and other cost increases. The City shall set fees and user charges for the Golf Course at a level that fully supports the total direct and indirect costs of operation, including debt service and depreciation. Reporting and Analysis To ensure compliance with the adopted financial policies, the City Administrative Services Department shall prepare analyses in conjunction with the annual budget process to assist departments/divisions with budget projections. The analyses include the following: ➢ Five -Year Forecast of Revenues and Expenditures — Planning tool prepared and used by the Administrative Services Department to forecast and project various funds (General, Local Option Gas Tax, Discretionary Sales Tax, Recreation Impact Fees, Riverfront CRA, Stormwater Utility, Golf Course, Building, and Airport); ➢ Financial Trend Monitoring System — Set of financial trends and ratios used as leading indicators and as a measurement of relative performance. ➢ Revenue Manual — Guide to the major revenue sources that indicates the source, calculation, legal requirements, historical trends and accounting guidelines. Updated annually and included in the annual budget document. ➢ Reserve Analysis — The City's Chief Financial Officer will annually review the reserve levels and produce a report that indicates up-to-date reserve levels as compared to policy goals. Investment Policies Investment Management The City Administrative Services Department shall perform a cash flow analysis of all funds on a regular basis. Disbursement, collection, and deposit of all funds will be scheduled to insure optimum cash availability. When permitted by law, the City shall pool cash from each respective fund for investment purposes. The City's Chief Financial Officer shall manage all City investments with the assistance from a third -party administrator to achieve safety, liquidity and optimal return on the City's investments. Further detail on allowed investments is contained in a separately published policy. Investment Analysis The City's Chief Financial Officer shall review its investment policies established for investing surplus funds to account for changes in legislation and market conditions on an annual basis. The City's Chief Financial Officer shall prepare quarterly investment portfolio reports containing information on the securities being held and the overall performance of the fund.