The URL can be used to link to this page

Home My WebLink AboutRES NO 091-19RESOLUTION NO. 0 9 7- 19 A RESOLUTION APPROVING AND ADOPTING A CASH RESERVE AND FACILITY REPLACEMENT RESERVE PLAN. WHEREAS, the City of Bakersfield has traditionally engaged in fiscally conservative budgeting practices; and WHEREAS, the City does not currently have a cash reserve or facility replacement reserve that meet the City's preferred levels or national standards for government agencies; and WHEREAS, there is a need for a 60 -day general cash reserve and a more robust facility replacement reserve to mitigate against future unknown circumstances; and WHEREAS, reserve funds help mitigate the effects of unanticipated situations such as natural disasters and significant unforeseen events, as well allow the City to temporarily buffer against cuts to staffing levels, programs or services in response to economic downturns and State revenue takeaways; and WHEREAS, one of the City Council's adopted goals is fiscal solvency and providing for the prudent use of fiscal resources; and WHEREAS, one of the 13 community priorities of the Bakersfield Public Safety and Vital Services Measure is to ensure the fiscal stability of the City; and WHEREAS, the Bakersfield Public Safety and Vital Services Citizens Oversight Committee has recommended the City Council establish a 60 -day general cash reserve for the City; and WHEREAS, the City Council has directed staff to develop a plan to implement such recommendations to increase the City's general cash reserve; and WHEREAS, staff has developed a multi-year plan to increase the City's general cash reserves to a level equal to 60 -days of general fund expenditure needs and a facility reserve level to that of adequate need. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of Bakersfield as follows: 1. The above recitals are true and correct; and -1 - o sr r- n �; o 2. That the general cash reserve and facility replacement reserve plan outlined in Exhibit "A" of this resolution is hereby approved and adopted; and 3. The resolution and exhibit shall provide direction to staff is the development and implementation of such reserve levels; and 4. That staff shall make every effort, fiscal circumstances allowing, to meet the target reserve levels within the timelines included in the Exhibit. 6ahF r n OR;G:M1�ci HEREBY CERTIFY that the foregoing Resolution was passed and adopted by the Council of the City of Bakersfield at a regular meeting thereof held on JUN 2 R 2019 by the following vote: ✓ ✓ ✓ ✓ ✓ ✓ AYES COUNCILMEMBER RMEGONZALES, WEIR, SMITH, FREEMAN, SULLIVAN, EARLIER NOES: COUNOLMEMBNER - ABSi N: COUNCILMEMBER loBSE : COUNCILMEMBER V COQ � �r� JULIE DRIMAKIS CITY CLERK and EX OFFICIO CLERK of the Council of the City of Bakersfield APPROVED JUN 2 8 2019 44Am 4 KAREN K. GOH MAYOR of the City of Bakersfield APPROVED as to form: VIRGINIA GENNARO City Attorney Ie HU� A�SA H. RUDNICK puty City Attorney Attachment Exhibit"A" _ 3 _ F V'AK' 9, c m `U'r!Iu.rcai Exhibit''A" MEMORANDUM TO: Alan Tandy, City Manager FROM: Randy McKeegan, Finance Director / RW DATE: June 19, 2019 RE: City Reserves and Unfunded Liabilities Members of the City Council requested additional research and the development of a plan on reserve levels along with funding a new pension related trust fund. That analysis and related recommendations are spelled out below. Over the next three fiscal years, increase General Fund Reserves by a total of $5.7 million to reach the recommended level of two months of General Fund expenditures and increase the Facility Replacement Reserve by $2 million. The City's rainy day reserves will have a total balance of over $65.1 million when this plan is fully implemented. In addition, to address the unfunded pension liability, establish a separate 115 Trust and budget a $5 million annual contribution starting in fiscal year 2022-23. RESERVE FUNDS/UNFUNDED LIABILITIES BUDGET PLAN Fhcd Yem 2019-20' 2020-21 2021-22 2022-23 2023-24 2024-25 C BIFundReserves.(Inc. PSV51 '.: MOW,= 8:900,000 7.000,000 IADD)DW 1:. .1000 T;S000M Facility Replacement Reserve 2,000,900 200,000 2,000,000 PERS Rote SfabIRWflpn(115 Trust) SAW= 5,00DAW 5,000,000 TOTAL 1 2r000100 81900.000 9,000,000 6,400,000 6,400,000 6,500,000 Note. Cased on ovotobllfy of funs of mltl-year. If insuflrcienI fund, are available the plan will need to be pu,oud back by one Year, ening Instead on 202526 CUMMULATIVE RESERVE BALANCES 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 Cpo Bash Reserve (Gen. Fuad) 36;380:000 43,280.00D 50,280,000 51,690.000 53MOO 56580,000 Facility Replacement Reserve 6,590,000 8,590,000 10.590.000 10,590,000 10590.000 10,590,000 PERS Rafe Stabilization (115 Trust) - 5,000,000 10,00D,000 15;000;000 BACKGROUND Council made a number of inquiries related to both increasing City reserves and addressing unfunded liabilities for CaIPERS and OPEB at recent meetings in May. It was determined that looking at the necessity to address these items overall, and prioritizing each, may be beneficial and the best way to respond.A'S. <g 9 SC .1ACC0NNNN.RANDY,ADNIVADMIN ISSUESIMAY COUNCIL RFFFRAI.- RFSFRVES AND LIABILFILS NLV UOC'% O "n H 17 V J 0. NAI City Reserves The City currently has a General Fund Cash Basis Reserve of $25.4 million. That amount includes a Council approved appropriation of $12 million of PSVS revenue in 2018-19 to supplement the historic General Fund reserve. That additional amount allows the CaIPERS unfunded liability to be paid at the beginning of each fiscal year as opposed to making payments monthly resulting in annual interest savings of $1 million to $1.5 million over the next six years. The current plan to increase General Fund reserves is to allocate these interest savings on the pension liability payments, which would increase the reserves to $33 million by fiscal year 2024-25. The City has recently updated revenue estimates both for the current fiscal year and for 2019-20 that increases Sales Tax Revenue. This change allows increases in the budgeted allocation to the General Fund Cash Basis Reserve for both years ($1 million in 2018-19 & $3.3 million in 2019-20.) The Government Finance Officers Association (GFOA( recommends General Fund reserve levels equal to two months of expenditures and this plan puts the City near that recommendation based on the 2018-19 budget. The proper level of General Fund reserves is a moving target though. The estimated General Fund budget in two years, when the bulk of PSVS hiring is completed, would be approximately $327 million, which increases the minimum target reserve in the General Fund to $54.5 million. A study by the San Francisco Office of Controller found that the largest cities in California had all established goals or policies of maintaining a General Fund reserve of 10°%or less of General Fund revenues or expenditures (depending on the organization). See Attachment A. The current goal of two months of expenditures (or 16.7%) exceeds the reserve levels sought by those comparable cities. The department is currently researching to find the most recent reserve levels for those identified in the study. The City also has a reserve fund that is held for emergency repairs and maintenance to City facilities. The balance of that facility reserve is at its lowest point since it was established in 2005, currently $2.6 million. With the improved Sales Tax Revenue outlook mentioned previously, the City was able to set aside an additional $1 million for this fund in the current year. The 2019-20 budget also proposes an increase of $1 million to this fund but additional reserves are needed. When it was established over a decade ago, the goal was a reserve level of $5 million. The value of City building and improvements has increased significantly since 2005, both due to inflation and additional assets, so it has been proposed that the facility reserve level should be at a level closer to $10 million. PERS and OPEB Liabilities CalPERS and OPEB liabilities continue to be a concern with unfunded liabilities sitting at $415 million and $78 million respectively based on the most recent actuarial reports. Required contributions to CalPERS for 2019-20 will be over $53 million and are expected to increase over 30% to $69 million by 2024-25. The City has established what is called a Section 115 Trust to fund the OPEB liability and has eliminated the benefit for employees hired after 2006. The OPER program is therefore a "closed" system and the number of participants will only shrink over time. Analysis of the liability and investment performance has shown that, with the City continuing to make the required contributions, by 2036 the earnings on the trust should cover the anticipated cost of the plan going forward. Contributions in excess of the required amount do not shorten the estimated time the trust will become "self -funding" in a meaningful way. Actuarial analysis shows that an additional contribution of $5 million only reduces that timeframe by 1 year so excess funds are considered better -served addressing ColPERS liabilities. There are fewer options available to reduce the CalPERS liability. Steps have been taken locally with the voter approved Measure D in 2010 and at the State level with the passage of PEPRAin 2013. Additional contributions could be made to PERS, but there has been reluctance to consider that option due to past investment performance at CalPERS. A separate Section 115 trust could be established in what is called a Pension Rate Stabilization fund. Those funds would remain within the City's control and be managed by the City's own investment consultant. The deposits could then be held in the trust to either offset the pension liability or cover significant spikes in required contributions should the need arise. Reductions to the City's total pension expenses have also occurred with smaller shifts of the Employer Paid Member Contributions (EPMC) back to employees connected with past COLA increases. These varying and competing needs will require prioritization on the use of available funds moving forward. Increasing General Fund and Facility Reserves With the target reserve levels of $54.5 million, over the next three years the City will need to supplement the initial reserve plan by approximately $23 million ($17 million for General Fund reserves and $6 million for Facility reserves.). That amount would be in addition to the savings on interest that will be realized by funding the PERS liability payments at the beginning of each year. As noted previously, the target reserve level of $54.5 million (or 16.7% of budgeted General expenditures) is the level recommended by GFOA and exceeds the average reserves percentage held by comparable Cities in research by the San Francisco Office of Controller. Establish Pension Section 115 Trust As discussed, addressing reserve levels will the first priority but after fiscal year 2022-23, a Section 115 trust could be established to deal with the City's pension liabilities. Reducing unfunded liabilities requires establishing some goal or benchmark the City would like to achieve. There is an unfunded liability balance nearing $500 million dollars with an overall funded ratio of 66%. As an example, if the City would like to get to a ratio of 70% for the CaIPERS liability, that would require a contribution to the trust starting in 2022-23 of $5 million a year through 2027-28 based on the most recent actuarial reports. It should be noted that each year the liability reported by ColPERS changes based on new actuarial studies and these unfunded amounts are very fluid based on investment performance and plan population. Please contact me if you need any more information or have questions. Attachment Cc: Chris Huot, Assistant City Manager Nelson Smith, Finance Director 0 6NkfSm V O `�r)fl'1NAL ATTACHMENT A Table S. Reserve Policies of Peer Jurisdictions City Reserve Name Purpose size FY 2009-10 Reserve Balance Withdrawal Deposits $millions %oftarget Francisco None specified None specified million historically) Supervisors 550.0 17.3% of total long-term reserve General Fund current Rainy Day Reserve Significant Maximum of 10% of Projected revenues for 50% of excess 24.6 revenues 0.9% of regular Poll revenues economic regular General upcoming year must be revenuesif None specified General Fund and long-term dowmums Fund revenues less than current year or projected revenues reserve revenues revenues the highest of any other exceed current year None specified None specified None specified - - Fund fiscal year's revenues revenues by 5% or Fresno General Fund Natural disasters, 5% of General Fund Declaration of fiscal Add funds as plus 2% for each more significant declines appropriations emergency by Mayor, necessary to reach General Fund " t enim Year ratified by Cfiy Council or exceed 5% target Anaheim General Fund None speed 7-10% of General None specified WA 28.2 11%of General Unrashicted Fund Fund expenditures Fund Balance expenditures Boston General Fund Extraordinary& 2.5% of preceding Written dooumentafion None specified 27.5 2.8% of prior Reserve Unforeseen yeafs explaining why transfer year City Circumstances appropriations for all is necessary, approval Department City departments from Mayor & City appropriations (excluding schools) Council. Undesgnated Fired costs (e.g. 10% .1 General Actual revenues exceed WA 550.3 24.5% of General Fund pension Fund operating budgeted amounts & (FY2008-09) General Fund Balance contributions) or expenditures encumbrances are less operating extraordinary, than appropriations expenditures nonrecurring events Chicago Skyway mid -and None specified None specified None speed None specified 550.0 17.3% of total long-term reserve General Fund revenues Parlang meter mid- None specked None speed None specified None specified 180.0 5.7% of total and long-term General Fund reserve revenues Budget Stabilization None specified None specified None specified None specified - - Fund Fresno General Fund Natural disasters, 5% of General Fund Declaration of fiscal Add funds as 17.0 7.5% of Emergency Reserve significant declines appropriations emergency by Mayor, necessary to reach General Fund in GF revenues ratified by Cfiy Council or exceed 5% target appropriations Countemyclical Sbw arenue gmwtM1 Minimum of 5% of Rearmue growth, Rexene Fund during recession General Fund unemployment are, coasting re,enues property tax delinquency rale, & business license reasnue growth rggea FY 2009.10 Reserve Balance city Reserve Name Purpose Size yKthdrawal Deposits $ trillions % of target RaquI merits Honolulu Fiscal Stability Fund Economic & revenue None specified A trigger relating to Deposits subject to 26.8 1.9%of total dosamums; unemployment, Council appoo al; General Fund ememeacy revenues, property `value, possible sources are revamres slumb.ma experaftures, unNnded unbudgeted mandates, or mituml unreserved fund disaster ..at be and balance & property, sales Los Angeles Contingency W Hhin fiscal year 2.25% of total Majority sate, by an, If funds remoced 1225 2.5% of trial Russ. Fund unanticipated General Fund C ncll total less than 1% M General Fund expenses or revenue avenues GF revenues, asarme^ shortfalls resume must he fully restored in following FY; tfunds removed total more than 1%. funds shall W Emergency Reserve Significant economic Minimum of 2.75% Mayor must determine replenished l% per 121.0 2.99%of total FUM downtum; natural of total General that ne other Viable FY until replenished General Fund disaster Fund resenues sources of fulls era relemres mailable Oakland Genemf Purpose Unusual, 7.5% of General A declaration ofa fiscal (Sly Administrator 9.82.3%of General Fund Reserve unanticipated and Purpose Fund emert3ency must be shall present Fund seamingy expenditures approved by a m ijoity of sbalegy to restore expenditures Quotable City Council reserve balance events of lordship Philadelphia Genual Fund NonespedilM None specified None specified! None specified 55.3 2.25/6of total Balance General Fund .U. Portland Emergency Reserve Within fiscal year Minimum of 5% of Unanticipated stent Must begin to 64.9 15.5%of Fund unanticipated Gerimal Fund would result in negative restore funds wthin General Fred expendtures or oparatirg revenues ending GF balance; 24 months of operating revenue fluctuations Declaration witldrawal revenues emergency by Council dolmans. Countemyclical Sbw arenue gmwtM1 Minimum of 5% of Rearmue growth, Rexene Fund during recession General Fund unemployment are, coasting re,enues property tax delinquency rale, & business license reasnue growth rggea FY 2009-10 Reserve Balance city Reserve Name Purpose Size Withdrawal Deposits $ millions % of target Requirements Sacramento Economic Nona specified No formal policy, in None specified None specified 10.5 2.8% of Uncertainty Reserve practice, maintain General Fund reserve equal to revenues 10%af GF revenues San Diego Emergency Reserve Qualifying Target: Emergency Declaration of None specified 75.4 6.7% of emergencies Reserve must equal emergency approved by General Fund 8% of GF Revenues two-thirds of City revenues Council Phasean: Appropriated Within fiscal year combined value Approval by majonty of Reserve unexpected must equal 8% of City Council operational needs GF Revenues by Unappropriated the and of FY2011- Reserve 12. San Jose General Fund Unexpected 3% of operating Approval by hvo-thirds None specified 30.7 3.1%of Contingency circumstances budget of City Council General Fund Reserve Including GF expenditures shortfall Emergency Reserve Known but None specified Not specified None specified 3.4 0.5% of Fund unspecified General Fund expenses expenditures Economic Public emergency None specified Not specified Financed through 4.5 0.3% of Uncertainty Reserve that threatens Ives, sale of surplus city General Fund Fund property or welfare properties expenditures of residents