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Provide Direction for FY21-22 Budget <br />March 16, 2021 <br />Page 3 <br />Update to Budget and Financial Policy <br />The City Council adopted the Budget and Financial Policies on June 6, 2017 (Exhibit 3). <br />The Policy document included guidelines for General Fund reserves and two internal <br />service fund reserves. On April 21, 2020, as part of the FY 2020-21 budget process, staff <br />reported the need for a policy update, but did not make a recommendation due to the <br />unknown effects of the pandemic and the local emergency declared by the City Council <br />with Resolution 2020-016 on March 17, 2020. <br />Considering City Council direction to proceed with pension debt financing, staff proposes <br />an updated policy to clarify ambiguities (Exhibit 1, proposed Budget and Reserve Policy). <br />The primary purpose of a reserve is to mitigate risk and provide cash flow. As such, staff <br />prepared a risk assessment and cash flow analysis to support the proposed General Fund <br />Reserve policy amount (Exhibit 2). The following table compares the 2017 policy to the <br />proposed version. <br />2017 Policy <br />Comments <br />Proposed Policy <br />Operating Reserve of <br />The City has maintained <br />Reserve 18% of annual <br />16.67% to 20% of annual <br />the minimum 16.67% <br />recurring General Fund <br />recurring General Fund <br />requirement as applied to <br />revenue, combining the <br />revenue or expenditures <br />annual recurring revenue <br />former Operating Reserve <br />and Economic Uncertainty <br />Reserve <br />Economic Uncertainty <br />The City has maintained <br />See above for the <br />Reserve of 1 % to 10% of <br />the minimum 1 % <br />proposed combination of <br />recurring General Fund <br />requirement <br />Reserves <br />revenue <br />General Liability and <br />At June 30, 2020, the <br />No change to policy; <br />Workers Compensation <br />General Liability fund <br />however staff will develop <br />internal service funds — <br />balance was 80% of the <br />a plan to achieve the <br />Reserves of 80% of <br />actuarial determined <br />desired reserve balance <br />actuarial determined <br />liability, but the Workers <br />over time <br />liabilities <br />Compensation fund <br />balance was only 31 % of <br />the liability <br />No policy for other funds <br />The City has many funds <br />Individual Target Reserve <br />critical to ongoing <br />Balances for each internal <br />operations <br />service fund, and a target <br />for all other funds (20% of <br />annual operating costs), if <br />allowed by restricted <br />funding sources <br />