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HomeMy WebLinkAboutR-22-28 Financial PoliciesCITY OF SEBASTIAN RESOLUTION NO. R-22-28 A RESOLUTION OF THE CITY OF SEBASTIAN, INDIAN RIVER COUNTY, FLORIDA, ADOPTING FINANCIAL POLICIES GOVERNING VARIOUS AREAS OF BUDGET AND FINANCE AS PROVIDED FOR IN ATTACHMENT "A'; PROVIDING FOR CONFLICTS; PROVIDING FOR SCRIVENER'S ERRORS; 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. AMENDING FINANCIAL POLICIES: The City Council of the City of Sebastian hereby adopts Financial Policies attached hereto as Attachment "A" governing the Operating Budget, Revenue, Performance Measurement, Investment, Capital Improvement Plan, Debt Management, Fund Balance and Use of Surplus. SECTION 2. CONFLICT. All resolutions or parts of resolutions in conflict herewith are hereby repealed. SECTION 3. SCRIVENER'S ERRORS; Sections of this resolution may be renumbered or re - lettered and corrections of typographical errors which do not affect the intent may be authorized by the City Manager, or the City Manager's designee, without need of fuller action of City Council by filing a corrected copy of same with the City Clerk. SECTION 4. This Resolution shall take effect upon adoption. The foregoing Resolution was moved for adoption by Council Member Dodd Motion was seconded by Council Member McPartlan and, upon being put to a vote, the vote was m follows: Mayor Jim Hill aye Councilmember Ed Dodd aye Councilmember Bob McPartlan aye Councilmember Fred Jones aye Councilmember Christopher Nunn aye The Mayor thereupon declared this Resolution duly passed and adopted this 30a' day of September, 2022. ette Williams, City Clerk CITY OF SEBAST , FL A By: Jim Hill, y �- Approved as to Form and ali r Reliance ity eb i nly: By j�anny non, Jr iry Attorney RESOLUTION R-22-28 - ATTACHMENT "A" 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 28, 2022. 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. I. 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. Compliance with All Statutory Requirements: As set forth by the Slate 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. II.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 February 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. A. Budget Process The development of the budget is guided by the following budget policies: I. A budget calendar will be designed each year to provide a framework within which the interactions necessary to formulate a sound budget could occur and ensure that the City complies with State legal mandates. 2. The budget must be balanced for all funds. Total revenues and other available funds must equal total estimated expenditures for each fund (Section 166.241 Florida Statutes requires all budgets to be balanced). 3. All operating funds are subject to the annual budget process and reflected in the budget document. 4. The enterprise operations of the City are intended to be self-supporting; Le„ current revenues are hoped to cover current expenditures, including debt service. 5. An administrative service fee will be paid to the General Fund by the Stonnwater Fund and each Enterprise Fund. This assessment is calculated based upon a percentage (ratio of both the number of full-time equivalent employees of the enterprise fund to the total number of full-time equivalent employees of the City and ratio of the operating budget of the enterprise funds to the total operating budget of the City) of total budgeted General Fund administration expenditures (includes City Council, City Manager, City Attorney, City Clerk, Administrative Services, Management Information Systems, Community Development and Facilities 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 28, 2022. 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. I. Overall Goals The overall fmancial goals underlying these policies are: L 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 Tenn 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. Compliance 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. II.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 February 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 rote structures, historical data and statistical trends. A. Budget Process The development of the budget is guided by the following budget policies: I. A budget calendar will be designed each year to provide a homework within which the interactions necessary to formulate a sound budget could occur and ensure that the City complies with State legal mandates. 2. The budget must be balanced for all funds. Total revenues and other available funds must equal total estimated expenditures for each fund (Section 166.241 Florida Statutes requires all budgets to be balanced). 3. All operating funds are subject to the annual budget process and reflected in the budget document. 4. The enterprise operations of the City are intended to be self-supporting; i.e., current revenues are hoped to cover current expenditures, including debt service. 5. An administrative service fee will be paid to the General Fund by the Stormwater Fund and each Enterprise Fund. This assessment is calculated based upon a percentage (ratio of both the number of full-time equivalent employees of the enterprise fund to the total number of full-time equivalent employees of the City and ratio of the operating budget of the enterprise fonds to the total operating budget of the City) of total budgeted General Fund administration expenditures (includes City Council, City Manager, City Attorney, City Clerk, Administrative Services, Management Information Systems, Community Development and Facilities City of Sebastian, Florida Financial Policies Maintenance). A Management Charge -Back is also assessed by the General Fund against the Community Redevelopment Agency (CPA) Fund of the City. This Charge -Back is based on 50% of the pay and benefits of the Community Development Director/CRA Manager and corresponds with the amount of time devoted to administrative support for the CRA. The Stormwater Fund is assessed for 45% of the pay and benefits of the City Engineer, 30% for the Administrative Assistant and 50% of the GIS Technician. 6. Pursuant to Ordinance 05-16, stonnwater utility fees can be used to fund stormwater operations, as well as capital improvements. Stormwater operations were previously accounted for in General Fund and partially reimbursed with transfers from the Stormwater Fund. Since FY 2019, stormwater operating expenditures are directly accounted for within the Stormwater Food to better disclose how the fees are being used. 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. Employees covered by the Coastal Florida Public Employee Labor Agreement will have 9% of their wages contributed to a pension plan offered by the Communication Workers of America. The locally administered defined benefit pension plan for police officers will be funded in accordance with the required annual contribution calculated by an independent actuary but no less than 14.6% of the covered payroll. All other employees will have 9% of their wages contributed to a deferred compensation retirement program sponsored by the International City Management Association. 10. The City will coordinate development of the capital improvement budget with the development of the annual operating budget. Each item included in the capital improvement budget is reviewed for its impact on the operating budget. The review quantifies four main factors, which are maintenance costs, improved efficiency, reduction in liability exposure and savings from taking replaced items out of service. Other considerations include the expectation of generating additional revenue, changes in personnel requirements and consistency with the City's Comprehensive Plan. B. 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 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 at the close of the fiscal year. 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. Any 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. City of Sebastian, Florida Financial Policies 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 scented as earned by employees on a GAAP basis as opposed to being expended when paid on a budget basis. C. 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). Therefore, a statement of net assets and a statement of activities are presented for total governmental funds and total proprietary funds on an accrual basis of accounting. Additional statements then identify major governmental funds and individual proprietary funds, with the modified accrual basis of accounting used for governmental funds and accrual basis of accounting used for the proprietary and trust funds. 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 with a reconciliation to presentations of 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. D. Budget Amendment 1. Only City Council may approve changes to total fund appropriations and use of contingency appropriations. 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 any significant item prompting the change will usually go to the City Council (e.g., award of contract, additions to staff, contract change order). Procedures for transfers between appropriations 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 Citizen's Budget Review Board and the City Council comparing actual versus budgeted revenue and expense activity for all budgeted funds. E. Planning The City will annually prepare and distribute to departments and the City Council a Five -Year Forecast for the period beyond the next fiscal year. The forecast will include estimated revenues, operating costs and future capital improvements included in the capital improvement plan, as well as projected fund balances. City of Sebastian, Florida Financial Policies III. Revenue Policies A. 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. B. User Fees The City shall recalculate on an 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. To the extent possible, the City shall set fees and user charges for the Golf Course, Airport and Building Enterprise Funds with the intent to have them fully support the total direct and indirect costs of their respective operations, including any debt service and depreciation. IV. Performance Measurement Policies A. 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. These must be linked to the department wide goals and objectives being supported. Systematic and cost effective methodologies must also be developed to monitor and project the established performance measures. Supervisors shall insure that fair, objective and aggressive performance measures are identified for each employee or work group that directly supports program goals and objectives and that an evaluation of the success in accomplishing departmental measures are part of the employee's annual performance review. B. Reporting Performance Quarterly summaries of progress on goals and objectives and departmental performance measures will be provided to the Administrative Services Director/CFO for publishing in the City Council's Quarterly Budget to Actual Report. City of Sebastian, Florida Financial Policies V. Investment Policies A. 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 Administrative Services Director/CFO, as the City's Chief Financial Officer, shall select and manage all City investments. Investments shall always be made with the priority focused on achieving safety, liquidity and optimal return of the investments, in that order. Further detail on allowed investments is contained in a separately published investment policy. B. Investment Analysis The Administrative Services Director/CFO shall review the investment policy established for investing surplus funds to account for changes in legislation and market conditions on a regular basis. The Administrative Services Director/CFO shall prepare quarterly investment portfolio reports containing information on the securities being held and the returns of each investment category. The Administrative Services Director/CFO shall meet and discuss any changes in investment strategies or differences in investment holdings as needed, with an Investment Committee consisting of the Administrative Services Director/CFO, the City Manager and a third person selected by the City Manager. VI. Capital Improvement Program Policies A. Capital Improvement Plan The City shall adopt an annual Capital Budget based on the Capital Improvement Plan and make all capital improvements in accordance with it. 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 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 Replacement Programs —The City shall forecast capital replacement and maintenance needs for at least five -yen periods beyond the budget year 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. B. Definition Capital improvements include streets, buildings, building improvements, park expansions/improvements, new parks, airport runways, infrastructure improvements, and acquisitions of equipment. Projects in the Capital Improvement Program generally cost more than $750 and last at least five years (with the exception of computer software if $5,000 or greater). For accounting purposes, these lesser cost capital items are often included, in order to easily reconcile the initial year with the capital accounts budgeted in that year's Operating Budget. Significant allocations to some programs that do not meet the definition of capital items may also be reflected in the Program in order to present the complete financial plan, although they may ultimately be accounted for as operating expenditures. C. Alignments The City shall coordinate the development of the Capital Improvement Program plan with the development of the 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 he projected and included in the Capital Improvement Program Forecasts. City of Sebastian, Florida Financial Policies D. Project Approvals 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). E. Maintenance The City shall maintain all capital assets at a level adequate to protect the City's capital investment and minimize future maintenance and replacement costs. F. 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. VII. Debt Management Policies A. Market Review The City's Administrative Services Director/CFO, 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 at least three percent (3%) over the life of the respective issue should be attained. B. Debt Financing for Capital Assets 1. Short-term borrowing or lease/purchase contracts should only be considered for financing major operating capital equipment when the Administrative Services Director/CFO 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. Whenever the City finances capital projects or purchases by issuing long-term debt, it shall amortize the debt over a term not to exceed the average useful life of the project(s) financed. Financing utilizing bank notes will be preferred to avoid the higher issuance cost typically incurred with bonded debt. Except in the most unusual instances, the City will seek competitive bids to assure it selects the financial institution with the most advantageous temts. 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. C. Debt Service Levels Annual General Fond 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. City of Sebastian, Florida Financial Policies D. Bond Ratings and Full Disclosure The City recognizes the importance of favorable bond ratings by the various rating agencies. Bond ratings will be obtained when bonds are issued and will be regularly updated for the tern of the bond issue. The Administrative Services Director/CFO, 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 Administrative Services Director/CFO 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 Administrative Services Director/CFO shall assure that all legally required filings are made in regard to outstanding financings. E. 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 arc: Citizen Advisory Boards — (e.g., Citizens Budget Review Advisory Committee) are teams made up of Residents and City staff to address specific concerns and provide direction and feedback; Master Planning — Specific functions and processes are included in written plans, such as the Comprehensive Plan, Stormwater Master Plan, Community Redevelopment Agency 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 revenues; 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 beyond the next budget year for all major City funds; 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 major equipment, other than vehicles; I I Financial Trend Monitoring System — Systematic analysis of major financial indicators. City of Sebastian, Florida Financial Policies VIII. Fund Balance Policies On an annual basis, after the yearend audit has been completed, but no later than April 1, the Administrative Services Director/CFO shall update schedules of all fund surpluses and deficits, with projections of reserve requirements and any 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 will be reviewed 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 Administrative Services Director/CFO shall provide recommendations to the City Manager for any changes to the Fund Balance Policies and Use of Surplus Policies based on needs identified in this analysis. A. General Fund uncommitted and unassigned fund balances will be maintained at a target amount of five million dollars ($5,000,000) as a reserve for declared natural disasters. This approximates an amount calculated to sustain City operations in the aftermath of unforeseen or emergency events, such as hurricanes declared to be natural disasters. Key assumptions of this calculation are: a. That damage to City-0wned and private property will amount to a loss of no greater than 35% in overall property values; b. That the damage occurs after the maximum proposed millage is established for the next fiscal year, resulting in up to a year's delay before there is the option of increasing property tax revenues; c. Property taxes, franchise fees, utility service taxes and other revenues will decline; d. There would be significant public safety and public works employee overtime; large outlays for debris removal; plus expenditures for repairing and replacing City facilities; e. Reimbursements from insurance claims will occur within six months and FEMA claims will occur within a three year period from the month the natural disaster occurs; B. In addition, the City shall assign a portion of General Fund to the Capital Renewal and Replacement Reserve to a balance no greater than $275,000. This Reserve is assigned for the purpose of allowing the City Manager to immediately proceed with repairing or replacing essential 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. The necessary budget adjustments for these items shall be reported to and approved by the City Council along with the next Quarterly Financial Report. C. Consideration shall also be given to establishing extra cushions for unanticipated events or extraordinary expenditures, such as: a. Uncontrollable shortfalls in intergovernmental revenue occurring due to poor economic conditions at the Slate and National levels or the willful political action of those attempting to undermine home rule and the effectiveness of City government. (General Fund receives about 54.6 million each year from Communication Service Taxes, State Revenue Sharing, Motor Fuel Taxes and the Half -cent Sales Taxes which is about 30.8% of its total revenues) Allowing for a 10% shortfall would calculate as $460,000. b. Significant payouts of unused employee leave accruals at the time they terminate. These payouts have averaged about $101,000 or 6.5% of an assumed 100% payout over the past five years and are typically manageable by covering them from the relevant department's other budgeted accounts. However, the departure of 100% of the employees would create a total payout of about $1.26 million in wages plus another $296,000 for applicable benefits. In response to some emergency situations, the City could be faced with excessive voluntary departures or perhaps mandatory layoffs due to the financial situation. Allowing for a 25% termination rate, The City would be faced with an unexpected payout for a total of about $389,000. City of Sebastian, Florida Financial Policies c. Unanticipated expenditures on capital outlays or capital replacements of such a magnitude that am beyond the possibility of immediately funding within any legal or normally reasonable means. (1) Although financing from financial institutions may be feasible in certain isolated cases, this possibility may not be available should those creditors have to also consider other events the City could be dealing with at the time. (2) Additional cushions could be established in certain Special Revenue Funds as a capital reserve. d. The unfunded Police Pension Fund Actuarial Accrued Liability is also something that could possibly be a concern. Annual contributions to the pension plan are calculated to cover the vested benefits being accumulated by the Police Officers but the deficit occurs when plan changes are made or when assumptions are changed or when assumptions do not materialize. An immediate payout is not required, since repayment of the deficit is allowed to be amortized and calculated into future annual payment requirements. Consideration could be given to paying more than the annual requirement or establishing another cash reserves in case political forces create a future mandate to immediately pay off the deficit. e. Localized emergencies that may not be eligible for insurance or FEMA reimbursement, such as flooding, tornados, sink holes, earth quakes, civil disorders, terrorism, explosions, fires, etc. Emergencies of this nature would most likely impact operational accounts such as overtime pay expenditures and utility tax and franchise fee revenues. To the extent possible without increasing tax rates, a cushion of some amount would be warranted. D. Target amounts should be established and reviewed annually during the budgeting process for each of the above. Generally, the targets would be calculated as a reasonable percentage of the total based on a rational analysis of the perceived likelihood of the event actually occurring and amounts that would be sufficient to reduce the negative impact of the event to acceptable levels. Al the discretion of the City Council, the creation or replenishment of established target amounts will occur as soon as reasonably possible without tax rate increases or further damaging ongoing levels of service to the public. An effort will be made to replenish the reserve for declared natural disasters for at least 25% of the shortfall within the following year. E. In some instances, the City's Golf Course, Airport and Building Enterprise Funds may be impacted by the foregoing emergency conditions. Certainly, the Golf Course and Airport may not have the resources that might be necessary to effectively restore their operations. While considering the level of targeted cash reserve balances in the General Fund and Special Revenue Funds, it must be recognized that these operations may also need financial assistance to recover. F. In conclusion, the following Fund Balance Policies for funding amount targets will be in effect: a. Declared National Disasters - $5,000,000 Target Balance. b. Capital Renewal and Replacement Reserve — Replenished Up to $275,000 from Operating Surpluses. c. Shortfalls in Intergovernmental Revenues 4460,000 Based on 10% of Annual State Revenues. d. Employee Leave Accrual Payouts — $389,000 Based on 25% Payout of Accumulated Liability. e. Capital Outlay Reserve— Set Aside 5% in Certain Special Revenue Fonds: i. Local Option Gas Tax—$38,882 based on 5% of budget of gas taxes. ii. Discretionary Sales Tax—$258,032 based on 5% of budget for sales taxes. iii. Community Redevelopment Agency—$19,029 based on 5% of budget for tax increment receipts. iv. Slormwater Utility—$97,603 based on 5% of budget for stormwater fee receipts. f Unfunded Police Pension Liability— Address this by increasing annual contribution when possible. g. Localized Emergencies — The severity of such events is difficult to envision, thus it is assumed that other balances would have to be utilized. G. The total funding target for General Fund to cover items a, b, c and d. would be $6,124,000, which exceeds current balances. These are to be fully funded as soon as possible by using accumulated Operating Surpluses that result from revenues exceeding expenditures. City of Sebastian, Florida Financial Policies IX. Use of Surplus Policies It is the intent of the City to use all uncommitted or unassigned surpluses to accomplish three primary goals: meeting fund balance policies, avoidance of future debt, and reduction of outstanding debts or liabilities. The City will always avoid using fund balances or year-end surpluses to cover ongoing operating expenses. A. Any surpluses realized in the General Fund may, at the discretion of the City Council, be used to restore fund balance targets or other purposes in the following order of priority: 1. $5,000,000 target reserve for declared national disasters. 2. $275,000 maximum balance on hand at the beginning of each fiscal year for the Capital Renewal and Replacement Reserve. 3. $400,000 target reserve for shortfalls in intergovernmental revenues. 4. $440,000 target reserve for payouts of terminating employee leave accruals. 5. Pay the full budgeted amount based on the Actuary's projection for the required annual contribution to the Police Pension Trust Fund, even in those years when actual investment returns are better than had been projected. B. After fully satisfying the fund balance targets or additional payments, surpluses may be used for the following purposes, listed in order of priority: 1. Additional Cash Payments for Capital Improvement Program Projects. Using cash to purchase capital items that may otherwise 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 detemtine the greatest net present value savings. 2. Cemetery Permanent Trust Fund. After all other needs have been satisfied, excess surpluses may be transferred to the Cemetery Permanent Trust Fund established to care for the Cemetery. The amounts transferred shall be deemed corpus to the Cemetery Trust fund for funding Cemetery care and maintenance. 3. 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 that will result in increased property values. C. Special Revenue Fund Surpluses Local Option Gas Tax Revenue Fund — A target reserve will be maintained in an amount equal to five percent (5%) of the annual budgeted gas tax receipts to alleviate the impact of a decline in amounts of collected revenue and to provide sufficient funds for unanticipated transportation expenditures. Surpluses projected five years beyond the budget year may exceed the target or be allocated toward additional eligible projects or programs. Discretionary Sales Surtax Revenue Fund — A target reserve will be maintained in an amount equal to five percent (5%) of the annual budgeted sales tax receipts to alleviate the impact of decline in amounts of collected revenue and to provide sufficient funds for unanticipated replacements of eligible capital improvements or equipment. Surpluses projected five years beyond the budget year may exceed the target or also be programmed toward additional eligible capital infrastructure or forgiveness of some of the advances made for the construction of Airport Hangars A and B. Community Redevelopment Agency — A target reserve will be maintained in an amount equal to five percent (5%) of the annual budgeted tax increment receipts to alleviate the impact of a decline in amounts of collected revenue and to provide sufficient funds for unanticipated projects or programs. Surpluses projected five years beyond the budget year may exceed the target or also be programmed toward additional eligible projects or programs that may be identified in the future. Parking In -Lieu -Of Fund — Surpluses will be used to fund projects that add vehicle parking facilities or may be held in reserve for projects that may be identified in the future. City of Sebastian, Florida Financial Policies Recreation Impact Fee Fund — Surpluses will be used toward additional projects to provide additions or improvements to Parks and Recreation facilities or may be held in reserve for projects that may be identified in the future. (Note that impact fee payments must be refunded if not appropriated within seven years). Stormwater Utility Revenue Fund — A target reserve will be maintained in an amount of five percent (5%) of the annual budgeted Stonnwater fee receipts for the purpose of alleviating the impact of an unanticipated decline in amounts of collected revenue and to provide sufficient funds for unanticipated capital improvements. Surpluses projected five years beyond the budget year may exceed the target or be programmed toward additional programs or be used for eligible capital projects. X. Reporting and Analysis To ensure compliance with the adopted financial policies, the 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 used by the Administrative Services Department to forecast and project various funds (General, Local Option Gas Tax, Discretionary Sales Tax, Recreation Impact Fees, Rivedront 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. Fund Balance and Reserve Analysis — The City's Administrative Services Director/CFO will review the fund balance and reserve levels and produce a report annually on reserve levels as compared to policy goals.