STAFF REPORT - CITY COUNCIL/SUCCESSOR AGENCY/PUBLIC FINANCE AUTHORITY

Financial Services Director recommends the City Council Adopt Resolution No. 4004 Approving the General Fund and Enterprise Funds Reserve Policy for the City of Coalinga for Fiscal Year 2020-2021 that defines a minimum target amount of ‘cash on hand’ equal to 6 months work of average monthly operating expenditures, which constitutes a margin or buffer for mitigating risks and provide a back-up for revenue shortfalls due to economic uncertainties. 

The attached resolution would establish for the first time, a Fund Balance Policy for the City's General Fund & Reserve Funds. The adequacy of a reserve fund balance in the General Fund should be assessed based upon a government’s specific circumstances. The Government Finance Officers Association (GFOA) issued two Best Practices (attached) that specifically address this subject. Each Best Practice recommends that general purpose governments, regardless of size, adopt policies that state that unrestricted fund balance in the General Fund be no less than two months of regular operating revenue or expenditures. The Fund Balance Policy should be established based upon a long-term perspective recognizing that stated thresholds are considered minimum balances. The main objective of establishing and maintaining a Fund Balance Policy is for the City to be in a strong fiscal position that will allow for better position to address unanticipated expenses and weather negative economic trends.

POLICY SUMMARY

The attached resolution establishes a Fund Balance Policy for the General Fund as follows:

• Establishes a target amount of cash on hand in the General Fund Reserve fund of no less than six months (180 days) of regular general fund operating expenditures.

• The ‘cash on hand’ in the General Fund Reserve fund shall be the valuation measure used to determine the reserve fund balance.

• Identifies typical resources that are appropriate to add to or replenish fund balance, such as non-recurring revenues and budget surpluses.

• Contributions/Uses of the General Fund Reserve shall continue to be approved by the City Council using the annual budget or mid-year budget amendment process.

• In the event that the cash on hand in the General Fund Reserve fund falls below the established minimum threshold, staff will develop and present to the Council a plan to replenish the deficit as soon as possible. Generally, fund balances should be replenished within one to three years of use, or as soon as economic conditions allow.

• Funds in the General Fund Reserve fund cannot be spent without Council approval; however this policy acknowledges and allows the continued use of the Reserve fund balance as a financing “bridge” to ensure stable cash flow in the General Fund during specific months of the fiscal year leading up to the receipt of anticipated/budgeted revenue allocations (e.g. Property Tax, Vehicle License Fees). 

• 100% of interest earnings in the General Fund Reserve fund will now remain in the fund, thus enabling the balance to grow faster as available interest earnings compound

Not to approve the General Fund Reserve Policy but it is not recommended by the Financial Services Director during these uncertain times. 

There is no immediate impact of adopting this financial policy. If adopted, this policy will guide Staff and the City Council to allocate appropriate resources to build and maintain the current General Fund Reserve balance to the minimum level as recommended by the GFOA. Credit agencies, lenders, and other stakeholders also look favorably upon agencies that have these financial policies in place as it demonstrates a commitment to sound financial management.