ABSTRACT: On the January 8, 2008 City Council Agenda is A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEAAPPROVING THE USE OF THE FY 2006/07 GENERAL FUND SURPLUS OF $1,904,018; the allocations were approved by “consensus” by the City Council at their 4 December 2006 meeting. In support of the Resolution, specifically Recommendation #3: Transfer to Capital Reserve Fund, Administrative Services Director Joyce Giuffre cites five reasons for maintaining adequate reserves. Comments are made regarding the city’s reserve fund level and the absence of context, i.e. deferred maintenance requirements, for the City Council and City Administrator to make “prudent” decisions with regard to the appropriate balance between deferred maintenance requirements and reserve funds.
City Council Agenda
Regular Meeting
January 8, 2008
X. Resolutions
A. Consideration of a Resolution approving the use of the FY 2006/07 General Fund Surplus of $1,904,018.
At the 4 December 2007 City Council meeting, the City Council approved by “consensus” the following allocations for the $1,904,018 FY 2006/07 surplus appearing in the following Resolution on the January 8, 2008 City Council agenda:
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEAAPPROVING THE USE OF THE FY 2006/07 GENERAL FUND SURPLUS OF $1,904,018
1. Approve establishing a Reserve for Debt Reduction-Sunset Center Certificates of Participation and transfer $674,500 from the General Fund to the new reserve.
2. Approve using General Fund monies to pay off the balance due on Westamerica note #526-00598 and Westamerica leases 526-00685 and 526-00930 (approximate payoff amount = $325,500).
3. Approve General Fund expenditures for the Police Department Autofind Mobile GPS system in an amount not to exceed $71,575.
4. Approve General Fund expenditures for a Fire Department generator in an amount not to exceed $60,000.
5. Approve the transfer of $772,443 from the General Fund to the Capital Project Reserve Fund.
In support of the Resolution, Administrative Services Director Joyce Giuffre’s Staff Report includes five reasons to “maintain adequate reserves,” as follows:
CITY OF CARMEL-BY-THE-SEA
Staff Report
TO: MAYOR MCCLOUD AND COUNCIL MEMBERS
THROUGH: RICH GUILLEN, CITY ADMINISTRATOR
FROM: JOYCE GIUFFRE, ADMINISTRATIVE SERVICES DIRECTOR
DATE: JANUARY 8, 2008
SUBJECT: CONSIDERATION OF A RESOLUTION APPROVING THE USE OF THE FY 2006/07 GENERAL FUND SURPLUS OF $1,904,018
Recommendation #3: Transfer to Capital Reserve Fund
Assuming that portions of the FY 2006/07 General Fund surplus are applied according to Recommendations #1 and #2 above, there will be $772,443 remaining. Staff recommends a transfer of the remaining $772,443 to replenish the Capital Reserve fund. Currently, the City has reserve funds designated for specific purposes as outlined in Exhibit C.
It is important to note that over 50% of the total reserves balance is designated based on municipal code, City policy, or trust agreement provisions. The remaining reserve balances are based on previously approved Council resolutions.
There are significant reasons why it is financially prudent for Carmel-by-the-Sea to maintain adequate reserves, including:
• Set aside funds for future capital needs, i.e. a “savings account”, to fund projects that can not be funded with annual operating revenues. Examples are street and road projects that will require funding once the Pavement Management Study is completed and presented to the City Council by Nichols Engineering;
• Prepare for possible revenue shortfalls due to economic downturns affecting tourism, which is the main source of the City’s revenue stream;
• Possible decreases in State funding in lieu of the current State budget $10 billion shortfall;
• Impending required financial resources to comply with Areas of Special Biological Significance (ASBS) discharge regulations; and
• Prepare for financial losses related to natural disasters that can occur to City's forest or beach area
Recommendation #3 is to transfer $772,443 from the General Fund to the Capital Reserve to replenish reserves.
City of Carmel-by-the-Sea
Statement of Revenues, Expenditures and Changes in Fund Balances
General Fund
Year Ended June 30, 2007
REVENUES------------------------------------------------$13,556,103
LESS OPERATING EXPENDITURES----------------------$(11,652,085)
EXCESS OF REVENUES OVER (UNDER) EXPENDITURES-$1,904,018
OTHER FINANCING SOURCES (TRANSFERS IN/(OUT)---$160,641
NET CHANGE IN FUND BALANCES-----------------------$2,064,659
FUND BALANCES – BEGINNING OF YEAR----------------$8,789,839
FUND BALANCES – END OF YEAR----------------------$10,854,498
Exhibit A
COMMENTS:
• For the Fiscal Year ending June 30, 2007, the City’s Fund Balance is $10,854,498, according to the City. Note: For the last Fiscal Year, FY ended June 30, 2006, the Total Fund Balance was $9,593,226.00, which represents an increase of $694,804 over the previous fiscal year, according to Nicholson & Olson, Certified Public Accountants, the City's Auditor.
• For Reserve Funds, the convention or “sweet spot” is 15%; that is, usually not more than 15% of a city’s annual budget is in reserve funds. While an exception can be argued for the City of Carmel-by-the-Sea due to tourism being the “main source of the City’s revenue stream,” 93% is extremely high for any city.
• There is an essential element missing from Administrative Services Director Joyce Guiffre’s Staff Report; and that is, an estimate of the city’s deferred maintenance requirements. Without an estimate of the city’s deferred maintenance requirements, the City Council and City Administrator does not have context to make “prudent” decisions with regard to the appropriate balance between deferred maintenance requirements and reserve funds. Moreover, if the ratio of deferred maintenance requirements to reserve funds is allowed to get too high, then essential city projects are not accomplished in a proactive, timely manner and the costs of finally addressing deferred maintenance requirements are more prohibitive than necessary.
• In regard to one of Administrative Services Director Joyce Guiffre’s “significant reasons why it is financially prudent for Carmel-by-the-Sea to maintain adequate reserves, including:
• Impending required financial resources to comply with Areas of Special Biological Significance (ASBS) discharge regulations;” it is important to note that the City of Carmel-by-the-Sea, instead of expending taxpayer monies to comply with the law pertaining to discharges into Carmel Bay, has already expended $250,000 in taxpayer monies in a failed effort to obtain a waiver and has informed the State Water Resources Control Board of the City’s intent to pursue an “exception” to the Ocean Plan for its storm water discharges to the ASBS i.e. Carmel Bay.
1 comment:
As the blog says, most cities are happy if their reserves are 10% of revenues and aspire to a maximum of 15%. Carmel's reserves are over 600% higher than that and growing every year. If the blog's figures are correct, reserves grew by $695,000 in fiscal "05 and $1,261,000 in "06. The only reason for such a lack of responsibility by the mayor/city council is their philisophicaly based insistence on minimizing government and expenditure in the face of the reality of the growing needs of the city. The excessive money tied up in reserves is badly needed to pay for adequate city staff, maintenance, departmental budgets etc. Instead a lot of the money that is budgeted is wasted on repetitive studies and consultants that are very often ignored, for lawsuits that the city tends to lose etc. It is really unfortunate that resposible and realistic people are afraid to step up and run for office so that Carmel can be put back on a healthy footing. It's a real mystery why there have'nt been any viable, realistic candidates interested in the welfare of Carmel in the last four city council elections.
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