HomeMy WebLinkAboutRES NO 091-19(1)RESOLUTION NO. 091-190)
AMENDMENT NO. 1 TO RESOLUTION 091-19 APPROVING
AND ADOPTING A CASH RESERVE AND FACILITY
REPLACEMENT RESERVE FUND.
WHEREAS, 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.
WHEREAS, City Council updated its Policy and Procedure Manual
subsequent to this Resolution and desired to have this Resolution in said Manual
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of
Bakersfield as follows:
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1. The above recitals are true and correct; and sn
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ORIGNAL
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. This Resolution and Exhibit shall provide directions 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; and
5. Resolution 091-19 (1) and its amendments thereto be lodged in the
City Council Policy and Procedure Manual, Chapter 4, Section 4.15.
--------- 000 ----------
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
MAR 17 2021 by the following vote:
ES COUNCIL MEMBER ARIAS, GO ALES, WEIR, SMITH, FREEMAN, GRAY, PARLIER
NOES: COUNCIL MEMBER N WG Q_
ABSTAIN: COUNCIL MEMBER 04\p_
ABSENT: COUNCIL MEMBER NJ*.e\4.,
J LIE DRIMAKIS
CITY CLERK and Ex Officio Clerk of
APPROVED
MAR 17 2021 the Council of the City of Bakersfield
By
KAREN GOH
Ma)1or
APPROVED AS TO
By Git
VI GINIA GENNARO
City Attorney
Attachment: Exhibit "A"
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S:\C0UNCIL\Resor\20-21 \Ch4Sec4.15 - Fxhbit Adocx
- Page 2 of 2 Pages -
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ORIGINAL
Exhibit ''A"
MEMORANDUM
TO: Alan Tandy, City Manager
FROM: Randy McKeegan, Finance Director f ;ZW
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 wiih funding a new pension related trust fund, That analysis and related
recommendations are spelled out below.
RECOMMENDATION
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 1 15 Trust and budget a $5 million annual contribution starting in fiscal
year 2022-23.
RESERVE FUNDS/UNFUNDED LIABILITIES BUDGET PLAN
' Note: Based on availability of funds at mid -year. If insufficienf funds are avoiloble the pron will need to be pushed back by one year, ending
instead on 2025.26
FIScd Yew
CUMMULATIVE RESERVE BALANCES
2019-20'
2020-21
2021-22
2022-23
2023-24 2024-25
furld-R85erves, (hc. PS
1.0;400;000:
6.9w,'000 :
7.000.000
:1.00000 —
I.AWWO
111,6010"r Replacement Reserve
2,000,000
2,000,000
2,000,000
PERS Rate Stabilization (115 Trust)
5.000,000
O.M. 5 feat® Sttitii�tk119C {3 9 5 Trust] .
15:000;000
.000,10W :
5,000.000 tlOD 000
TOTAL
12,000,000
8,900.000
9,000,000
6,400,000
6,400,000 6,500,000
' Note: Based on availability of funds at mid -year. If insufficienf funds are avoiloble the pron will need to be pushed back by one year, ending
instead on 2025.26
CUMMULATIVE RESERVE BALANCES
2019-20 2020-21 2021-22 2022-23
2023-24
2024-25
G'ril'l Basis Reserve iGen. Fund)
.
36:380:400 43,280:000 50,280.i300::::?:..51.680.00N}.:'
Facility Replacement Reserve
6,590,000 8,590,000 10,590,000°' : • 10,590,000
"
10,M,=
JO.590;000
PERS Rate Stabilization (115 Trust)
5.000,000
. °10;000,000
15:000;000
BACKGROUND
Council made a number of inquiries related io both increasing City reserves and addressing
unfunded liabilities for ColPERS 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. 6A c
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ORIG!I AL
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 CalPERS 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 OPEB 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 CalPERS 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 PEPRA in
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.
RESERVE FUND PLAN
2018-19 to 2024-25
`2016-19 2019.20 202021 2021.22
`-
�IWalReservePbn--Tota! GeherelFun dReserves
202223 20Q3-24
+o••••Facility Replacement Reserve
CPIG!NAL
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 CalPERS
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 Nuot, Assistant City Manager
Nelson Smith, Finance Director
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GFIGINAL
ATTACHMENT A
Table S. Reserve Policies of Peer Jurisdictions
IY 2009-10 Reserve Balance
city
Reserve Name
Purpose
size
Withdrawal
Deposits
$ millions % of target
Requirements
San
General Reserve
None specified
None specified ($25 Majority vale of Board of None specified
25.0 0.9% of regular
Francisco
million historically)
Supervisors
General Fund
eurrent
Rainy Day Reserve
Significant
Maximum of 10% of
Projected revenues for
50% of excess
revenues
24.6 0.9% of regular
Poll
economic
regular General
upcoming year must be
revenues if
General Fund
downturns
Fund revenues
less than current year or
projected revenues
revenues
the highest of any other
exceed current year
fiscal year's revenues
revenues by 5% or
plus 2% for each
more
intervening year
Anaheim
General f=und
None specified
7-10% of General
None specified
WA
28.2 11 % of General
Unrestricted Fund
Fund expenditures
Fund
Balance
expgnditures
_
Boston
General Fund
Extraordinary &
2.5% of preceding
Written documentation
None specified
27.5 2.8% of prior
Reserve
Unforeseen
year's
explaining why transfer
year City
Circumstances
appropriations for all is necessary, approval
Department
City departments
from Mayor & City
appropriations
(excluding schools)
Council,
Undesignated Fixed costs (e.g. 10% of General Actual revenues exceed NIA 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 specified None specified 550.0 17.3% of total
long-term reserve General Fund
revenues
Parting meter mid- None specified None specified 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 City Council or exceed 5% target appropriations
(- ,;a Y Yb;�11
R
19
FY 2009.10 Reserve Balance
City Reserve Name Purpose size
Withdrawal
Deposits
S rnillions % of target
If funds removed
Requirements
2.8% ortotas
Reserve Fund
Honolulu Fiscal Stability Fund Economic & revenue None specified
A trigger relating to
Deposits subject to
26.8 1.9°% of total
downturns;
unemployment,
Council approval;
General Fund
emergency
revenues, property value,
possible sources are
revenues
situations
expenditures, unfunded
unbudgeted
mandates, or natural
unreserved fund
disaster must be met
balance 8 property
restored in following
sales
Los Angeles Contingency
Within fiscal year
2.251/6, of total
Majority Note by City
If funds removed
1225
2.8% ortotas
Reserve Fund
unanticipated
General Fund
Council
total less than 1% of
General Fund
expenses or revenue
revenues
GF revenues,
revenues
shortfalls
reserve must be fully
restored in following
FY; if funds removed
total more than 1%,
funds shall be
Emergency Reserve
Significant economic Minimum of 2.75%
Mayor must determine
replenished 1% per
121.0
2.79% of total
Fund
downturn; natural
of total General
that no other viable
FY until replenished
General Fund
disaster
Fund revenues
sources of funds are
revenues
available
Oakland General Purpose
Unusual,
7.596 of General
A declaration of a fiscal
City Administrator
9.8 2.3% of General
Fund Reserve
unanticipated and
Purpose Fund
emergency must be
shall present
Fund
seemingly
expenditures
approved by a majority of strategy to restore
expenditures
insurmountable
City Council
reserve balance
everts of hardship
Philadelphia General Fund
None specified
None specified
None specified
None specified
85.3
2.2% of total
Balance
General Fund
revenues
Portland Emergency Reserve Within fiscal year
Minimum of 5% of
Unanticipated event
Must begin to
64.7
15.5% of
Fund
unanticipated
General Fund
would result in negative
restore funds within
General Fund
expenditures or
operating revenues
ending GF balance;
24 months of
operating
revenue fluctuations
Declaration of
withdrawal
revenues
emergency by Council
ordinance
Countercyclical Slow revenue growth Minimum of 5% of Revenue growth,
Reserve Fund during recession General Fund unemployment rate,
operating revenues property tax delinquency
rate, & business license
revenue growth triggers
FY 2009-10 Reserve Balance
City Reserve Name Purpose Size WithdrawalRequirementsdeposits $millions % of target
Sacramento Economic None specified No formal policy; In None specified None specified 10.6 2.8% of
Uncertainty Reserve practice. maintain General Fund
reserve equal to revenues
10%of 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
Phase-in:
Appropriated Within fiscal year combined value Approval by majority of
Reserve unexpected must equal 8% of City Council
operational needs OF Revenues by
Unappropriated the end of FY201 1 -
Reserve 12.
San Jose General Fund Unexpected
3% of operating
Approval by two-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 lives,
sale of surplus city
General Fund
Fund property or welfare
properties
expenditures
of residents
N
N