Six Noteworthy 5 February 2013 City Council Agenda Items

ABSTRACT:  Six Noteworthy 5 February 2013 City Council Agenda Items, namely Announcements from Closed Session, Consideration of a Resolution approving an additional allocation of $16,015 for professional services and project studies related to the Monterey Peninsula Regional Water Authority,  Consideration of a Resolution authorizing the City Administrator to enter into an agreement with Carver & Schicketanz Architects to prepare drawings for the Beach Restrooms project and direct staff to seek alternative funding sources for the construction documents and construction of the facility, Review and adopt the Community Planning and Building Director job description and salary range, Update on the Water Replacement Project and Consideration of a Resolution updating financial policies and set a maximum level for each of the reserve funds, are presented.  Supporting materials are embedded.

CITY OF CARMEL-BY-THE-SEA

CITY COUNCIL AGENDA PACKET

Regular Meeting

Tuesday, February 5, 2013

4:30 p.m., Open Session

City Hall

East side of Monte Verde Street between Ocean and Seventh Avenues

Live & Archived Video Streaming

II. Roll Call

V. Announcements from Closed Session, from City Council Members and the City Administrator.

A. Announcements from Closed Session.

1. Public Employment - Government Code Section 54957(b)(1) – Title: City Attorney

2. Property Negotiations – Government Code Section 54956.8, Real Property negotiations  between City Administrator Jason Stilwell and Christine Sandin regarding the Sunset Cultural Center.

VII. Consent Calendar

These matters include routine financial and administrative actions, which are usually approved by a single majority vote. Individual items may be removed from Consent by a member of the Council or the public for discussion and action

E. Consideration of a Resolution approving an additional allocation of $16,015 for professional services and project studies related to the Monterey Peninsula Regional Water Authority.
City Council Resolution MPRWA 

F. Consideration of a Resolution authorizing the City Administrator to enter into an agreement with Carver & Schicketanz Architects to prepare drawings for the Beach Restrooms project and direct staff to seek alternative funding sources for the construction documents and construction of the facility.

City Council Resolution Carver and Schicketanz Architects 

G. Review and adopt the Community Planning and Building Director job description and salary range.

City Council Community Planning and Building Director 

VIII. Orders of Council

A. Update on the Water Replacement Project. (Oral report)

B. Consideration of a Resolution updating financial policies and set a maximum level for each of the reserve funds.

City Council Resolution updating financial policies  

City Fiscal Conditions in 2012: Research Brief on American Cities, NATIONAL LEAGUE OF CITIES

ABSTRACT: City Fiscal Conditions in 2012 by Michael A. Pagano, Christopher W. Hoene & Christiana McFarland, September 2012, Research Brief on American Cities, NATIONAL LEAGUE OF CITIES, is embedded. With regard to “Ending Balances,” “Prior to the recession, as city finances experienced sustained growth, city ending balances as a percentage of general fund expenditures reached an historical high for the survey of 25 percent.”

Note: Ratio of reserves as a percentage of general fund expenditures more than 75% in Carmel-by-the-Sea.

View Figure 10: Ending Balances as a Percentage of Expenditures (General Fund)

Measure D, a proposal to increase the sales tax from 7.25% to 8.25%, should be viewed in the aforementioned context. 

City Fiscal Conditions in 2012

City Fiscal Conditions in 2012 
by Michael A. Pagano, Christopher W. Hoene & Christiana McFarland
September 2012
Research Brief on American Cities
NATIONAL LEAGUE OF CITIES

Literature Articles: City Financial Reserve Policies

ABSTRACT:  For educational and informational purposes, articles on city finance entitled RESERVE POLICIES IN CALIFORNIA CITIES by Anita Lawrence, Barbara Underwood, Mary Bradley and City Financial Reserves, CITY OF GLENDALE, including Fund Balance – General Fund: Survey Cities and Fund Balance –General Fund Comparisons - % of Budget; Per Capita and City Reserve Sources and Reserve Funds and Financial Condition Analysis, New York State are embedded.

RESERVE POLICIES IN CALIFORNIA CITIES

RESERVE POLICIES IN CALIFORNIA CITIES

city financial reserves

City Financial Reserves, CITY OF GLENDALE

City Reserve Sources

City Reserve Sources

Reserve Funds

Reserve Funds, New York State

Financial Condition Analysis

Financial Condition Analysis, New York State

HIGHLIGHTS of 'Reserve Funds' & 'BENCHMARKING AND MUNICIPAL RESERVE FUNDS: THEORY VERSUS PRACTICE'

ABSTRACT: HIGHLIGHTS of “Reserve Funds” & “BENCHMARKING AND MUNICIPAL RESERVE FUNDS: THEORY VERSUS PRACTICE” are presented with links to the articles. Read for concepts and information only as the former article is specific to New York and the latter article is specific to North and South Carolina.

HIGHLIGHTS of “Reserve Funds” & BENCHMARKING AND MUNICIPAL RESERVE FUNDS: THEORY VERSUS PRACTICE:

• “Reserve funds provide a mechanism for legally saving money to finance all or part of future infrastructure, equipment, and other requirements. Reserve funds can also provide a degree of financial stability by reducing reliance on indebtedness to finance capital projects and acquisitions. In uncertain economic times, reserve funds can also provide officials with a welcomed budgetary option that can help mitigate the need to cut services or to raise taxes.”

• “A reasonable level of unreserved, unappropriated fund balance provides a cushion for unforeseen expenditures or revenue shortfalls and helps to ensure that adequate cash flow is available to meet the cost of operations.”

• “Most reserve funds are established to provide resources for an intended future use. An important concept to remember is that a reserve fund should be established with a clear intent or plan in mind regarding the future purpose, use and, when appropriate, replenishment of funds from the reserve. Reserve funds should not be merely a “parking lot” for excess cash or fund balance. Local governments and school districts should balance the desirability of accumulating reserves for future needs with the obligation to make sure taxpayers are not overburdened by these practices. There should be a clear purpose or intent for reserve funds that aligns with statutory authorizations.”

• “...this article suggests that local officials consider benchmarking as an aid in establishing individual city fund balance policies.”

• “All of these funds, however, are intended to help local governments accomplish two goals: achieve tax stability and contribute to the orderly provision of services.
Various "rules of thumb" are commonly used to evaluate the adequacy of a local government’s unreserved, undesignated balance. A commonly cited standard is five per cent (5.0%) of annual operating expenditures. Others argue that the standard should be anywhere from one month’s operating expenditures (roughly 8.3% of budgeted operating expenditures) to three months’ expenditures (about 25%).”

• “Why does a city need a positive fund balance? …First, a fiscal year is an artificial construct used for budgeting, control, and financial reporting purposes. Expenses do not cease simply because we change fiscal years. A city has to continue to pay employees and operate. Revenues in the new fiscal year often do not come in precisely when they are needed...”

“A second reason for maintaining a positive fund balance is that many governments it as a means of financing large capital expenditures, such as vehicles and other equipment, land acquisition, and buildings or building maintenance projects.”

“Finally, a positive fund balance can indeed serve as a contingency fund which enables the governmental entity to respond to unanticipated events or emergencies during the years.”

• “Thus, there are many sound reasons for a government to maintain an adequate fund balance. At the same time, it is also possible for a governmental entity to accumulate an excessively large fund balance. An excessively large fund balance would be one beyond the contingency and cash flow needs of the community in the short term, and which lacks any planned use for other longer term projects or expenditures. In such a case, taxpayers are either paying unnecessarily high taxes or other charges, or they are not receiving an adequate return on their tax dollars in services and facilities. Hence, the need for city policy makers to engage in some type of planning, but also to have some yardstick to use to set a general fund balance policy. One yardstick which can be used is to look at what other cities maintain as a fund balance.”

• “What does this mean for local government officials?...First, elected officials need to make a conscious decision about how large a balance they need to cover their cash flow and contingencies each year. Next, they need to anticipate capital outlay and capital project needs and have a plan for financing those needs. If operating revenues are to be used, are such funds available from annual revenues? If operating revenues will be the financing vehicle and the annual budget cannot accommodate those needs, it would be prudent to plan ahead and designate portions of their reserves, or fund balance, to assist in such purchases. Such a decision will give a community time to assure that money is available when those expenditures must be made.”

“The operative word here is planning. Assuming basic liquidity needs are met, the target fund balance range itself is less important than the fact that the community has a policy and periodically gives it conscious review. It is important that the elected officials and staff have given constructive thought to the reasons for maintaining a fund balance, that they have considered what size balance is right for their community, and that they understand and are reasonably prepared to deal with the risks inherent in whatever policy they craft.”

Sources:
Division of Local Government and School Accountability
Office of the New York State Comptroller
Reserve Funds
BENCHMARKING AND MUNICIPAL RESERVE FUNDS:
THEORY VERSUS PRACTICE
By Michael Shelton and Charlie Tyer with the Assistance of Holly Hembree

Absence of Context for City’s “reasons to maintain adequate reserves”

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.

City Reserve Policy: “at least 10% of its annual revenues”

In the April 20, 2007 issue of The Carmel Pine Cone, reporter Mary Brownfield wrote, as follows:

“Job cuts in 2004 and 2005 helped the city bring its reserve fund balances up to an above-average $8.4 million from a 2003 low of $4 million. Some of the savings could be used for capital projects in the coming years, though city policy required reserves to be at least 10 percent of its annual revenues, expected to exceed $12 million in 2006/07.”
(Source: Wall Street gives Carmel good grades, Mary Brownfield, The Carmel Pine Cone, April 20, 2007, page 13A.)

Review the following “Fund Balances” from the CITY OF CARMEL-BY-THE-SEA California, Annual Financial Reports, completed by Nicholson & Olson, Certified Public Accountants.

CITY OF CARMEL-BY-THE-SEA
California
Annual Financial Report
June 30, 2006

BALANCE SHEET
Government Funds
June 30, 2006

FUND BALANCES
Reserved for debt service: $627,309

Unreserved:
Designated: $5,359,692
Reserved: $552,884 (Parking)
Undesignated: $3,053,341

Total Fund Balances: $9,040,342 $552,884

TOTAL: $9,593,226.00
Note: $9,593,226 represents an increase of $694,804 over the previous fiscal year.

(Source: Financial Statements, CITY OF CARMEL-BY-THE-SEA, BALANCE SHEET, Government Funds, June 30, 2006, CITY OF CARMEL-BY-THE-SEA, California, Annual Financial Report, June 30, 2006.)

COMMENTS:
Apparently, according to reporter Mary Brownfield, the City of Carmel-by-the-Sea has a policy requiring reserves to be at least 10% of its annual revenues. Annual revenues of $12 million in fiscal year 2006/07 translate into a reserve minimum of $1.2 million, compared to an audited amount of $9.6 million.

Note: For a related post, see the Carmel-by-the-Sea WATCHDOG!, Sunday, March 25, 2007, ATTENTION CARMELITES: Now is the Time for an Honest & Informed Debate over City Reserve Policy by clicking on the post title above.

ATTENTION CARMELITES: Now is the Time for an Honest & Informed Debate over City Reserve Policy

CITY OF CARMEL-BY-THE-SEA
CITY COUNCIL
Regular Meeting
Tuesday, March 13, 2007

X. Resolutions

A. Consideration of a Resolution to approve the transfer of the fiscal year 2005-06 General Fund surplus of $636,273 to the Capital Improvement Reserve Fund.

During City Council deliberations, City Administrator Rich Guillen stated the following:

“There was a question, do these funds or revenues that we place into capital improvement program funds have to remain those type of funds, and the answer is no, you can use them for something else if you decided to do that. So basically…we’re putting into a saving account for future use that the council can deliberate at your workshop during the budget process.”

Later, Mayor Sue McCloud and City Administrator Rich Guillen had the following exchange:

Mayor Sue McCloud: “...that $10 million you’ve referred for reserves, a lot of that isn’t available for reserve spending because it is like deferred workmen’s compensation and things that are restricted for use, when you factor those out, I’m not sure of the exact figure is, but it’s way less, is it half?"

Rich Guillen: “Yea, about half.”

Mayor McCloud: “About half that our reserves actually show because they’re not restricted.”

COMMENTS:
Review the following “Fund Balances” from the CITY OF CARMEL-BY-THE-SEA California, Annual Financial Reports, completed by Nicholson & Olson, Certified Public Accountants.

CITY OF CARMEL-BY-THE-SEA
California
Annual Financial Report
June 30, 2006

BALANCE SHEET
Government Funds
June 30, 2006

FUND BALANCES
Reserved for debt service: $627,309

Unreserved:
Designated: $5,359,692
Reserved: $552,884 (Parking)
Undesignated: $3,053,341

Total Fund Balances: $9,040,342 $552,884

TOTAL: $9,593,226.00
Note: $9,593,226 represents an increase of $694,804 over the previous fiscal year.

(Source: Financial Statements, CITY OF CARMEL-BY-THE-SEA, BALANCE SHEET, Government Funds, June 30, 2006, CITY OF CARMEL-BY-THE-SEA, California, Annual Financial Report, June 30, 2006.)

CITY OF CARMEL-BY-THE-SEA
California
Annual Financial Report
June 30, 2005

BALANCE SHEET
Government Funds
June 30, 2005

Fund Balances
623,709 Reserved for debt service

Unreserved
$37,662 Designated for street and traffic safety
$740,451 Designated for liability insurance
$647,527 Designated for health insurance
$1,370,334 Designated for capital improvements
$249,579 Designated for equipment replacement
$1,432,394 Designated for benefits and wc insurance
$657,000 Designated for reserves
$549,690 Designated for economic uncertainty
$165,011 Designated for emergency response
$140,000 Designated for general services and operations
$468,857 Designated for customer deposits
$1,240,439 Undesignated

8,322,653 Total Fund Balances

TOTAL: $8,898,422 (including Parking & Grants)
Note: $8,898,422 represents an increase of $266,264 from the previous fiscal year.

(Source: CITY OF CARMEL-BY-THE-SEA California, Annual Financial Report, June 30, 2005, FINANCIAL STATEMENTS, Fund Financial Statements, Balance Sheet – Governmental Funds.)

• The Government Funds, or commonly referred to as reserve funds, are categorized for auditing purposes as Reserved, Unreserved /Designated and Unreserved/Undesignated. To use Fiscal Year 2004/05 as a reference due to the itemization of the Unreserved/Designated items, of the total $8,898,422, benefits and workmen’s compensation equaled 16%; liability and health insurance equaled 16%; capital improvements, equipment replacement and street/traffic safety equaled 19%; Undesignated equaled 14%; Reserved for debt service and other Unreserved/Designated equaled 35%.

• An analysis indicates that the City Council has the discretion and ability to spend up to all of the Unreserved/Undesignated amount for any project. (FY 2005/06 Undesignated: $3,053,341). Furthermore, for capital improvement projects, the city has approximately $1.7 million available for expenditure. The City Council also has the discretion at any time to move amounts from one Unreserved/Designated item to another item.

• Basically, the City is the authority over allocations and amounts in reserve fund items.

• On a City Reserve Policy: The reserve policy of any given city is at the discretion of the elected representatives of a given city. Given that the City of Carmel-by-the-Sea is a one industry tourism village, a “prudent” reserve policy may be a goal of reserve fund amounts between 6 months to 1 year of income; or in the case of Carmel, between $6 million and $12 million. Still, reserve funds are reserve funds, whether Reserved, Unreserved/Designated or Unreserved/Undesignated; $9.6 million in reserve funds relative to an annual budget of approximately $12 million is extraordinarily high compared to other California cities.

• Voters ultimately decide whether they want a City Council which views reserves as a savings account to accrue more and more money or a City Council which views reserves for basis employee and insurance obligations, emergencies and long-term projects. If voters continue to support the present City Council, residents will continue to see deferred maintenance projects unfunded. Alternatively, if voters come to believe that there is a dire need to fund projects such as the Scout House, the Forest Theatre and, as required by law and now the formal order of a Superior Court Judge, the Flanders Mansion, residents will seek to influence the present City Council to do more for the city’s infrastructure and historical and cultural assets or elect other residents to the City Council.

ESTABLISHING RESERVE POLICY: Are Carmel-by-the-Sea's City Administrator & Finance Mananger Using These Criteria & Asking/Answering These Questions?

As follows, selected excerpts from MANAGEMENT OF PUBLIC FUNDS – THE ADOPTION OF RESERVE POLICIES IN CALIFORNIA CITIES by Anita Lawrence, Finance Director for the City of Camarillo (2000, 2001, 2005) concerning questions and criteria managers should consider when formulating a city’s reserve policy.

In Evaluating Financial Condition, a 1994 publication by the International City/County Management Association (ICMA), p. 198, one of the appendices includes a discussion on analyzing reserves. The discussion offers the following commentary:

There are no rules for determining which kinds of reserves a government should have or what level of funding should be in any reserve. Much depends on the kinds of natural disasters or hardships that the jurisdiction is subject to and the adequacy of its insurance coverage, the flexibility of the jurisdiction’s revenue base, the overall financial health of the local government, state regulations, and national economic conditions.

The need for reserves is determined primarily by the degree of risk associated with revenues and revenue sources, and by the likelihood of major contingencies and the amount of funds required to respond to them. The following are questions managers can ask to see how well their community is protected against risk, as well as how much flexibility is available to meet special needs.

• What is the potential for revenue shortfalls – that is, how stable is the tax base in the face of adverse economic conditions?

• How much of the budget now depends on intergovernmental funds, and what are the chances that these funds might be terminated?

• What is the present policy on equipment replacement? Would replacement of a large item, such as a fire truck or road grader, severely distort the budget or disrupt service?

• What kinds of insurance protects the government against loss from legal suits or destruction of assets? Will the insurance cover all the loss or only a portion of it?

• What kinds of losses might the government suffer from natural disasters? What federal or state programs can help?

• How much and how quickly could the government borrow in the event of a problem?

• How much liquidity is usually available in the government’s accounts?

“…the National Advisory Council on State and Local Budgeting
(NACSLB)…They encourage a policy that identifies the use of these funds for temporary
cash flow shortages, emergencies, unanticipated economic downturns, and one-time opportunities.

“Taxpayers expect government to use taxes to provide essential services, not to create huge savings accounts.”

The specific criteria that were identified for establishing reserve policies:
1) cash flow
2) exposure to natural or other disasters
3) exposure to economic conditions
4) vulnerability to State actions which results in reduction of income

Respondents were also provided the opportunity to supplement this list with other criteria they thought was important. The additional criteria provided is as follows:

♦ Ability of Council to review and adjust accordingly -Council direction/actions/ opinion/education level - political issues and considerations.

♦ Unanticipated needs/projects - to sustain quality service/meet service demands/ contingencies/cost overruns – ability to respond to contractor actions.

♦ Insurance deductibles.

♦ Capital replacement - project or program facilitation pool - asset condition.

♦ Opportunity - ability - deterrent to overspending - management policy.

♦ Reliance on Reserves to generate investment income for operations.

♦ Increasing public safety contract costs/labor negotiations.

♦ Community sentiment/expectations - bad information.

♦ Indenture requirement - improved bond ratings - long term liabilities/debt.

♦ Size of annual budget - predictability of income and expenditure requests.

♦ The overall flexibility and capability of the management system to provide resources to match fortuitous events without special reserves for contingencies.

(Source: MANAGEMENT OF PUBLIC FUNDS – THE ADOPTION OF RESERVE POLICIES IN CALIFORNIA CITIES by Anita Lawrence, Finance Director for the City of Camarillo 2000, 2001, 2005).


QUESTIONS UNIQUE TO CARMEL-BY-THE-SEA
• What is the City’s Reserve Policy?

• What criteria has the City used to determine the appropriate level of reserves?

• What is the City’s rationale for Fund Balance as % of General Fund Budget 82%?

• With Fund Balance as % of General Fund Budget 82% and Fund Balance Per Capita – General Fund $2,341, and millions and millions of dollars in deferred maintenance, is the Fund Balance “tantamount to hoarding taxpayers’ money” or “prudent?”

• Is the City violating taxpayers expectation that “Taxpayers expect government to use taxes to provide essential services, not to create huge savings accounts?”

CARMEL-BY-THE-SEA’S RESERVE POLICY: “tantamount to hoarding taxpayers’ money” or “prudent?”

For an informative and insightful article on city reserve policies, click on the title post above or http://www.csmfo.org/download/index.cfmfuseaction=download&cid=1456.

Selected excerpts from the article, MANAGEMENT OF PUBLIC FUNDS – THE ADOPTION OF RESERVE POLICIES IN CALIFORNIA CITIES by Anita Lawrence, Finance Director for the City of Camarillo (2000, 2001, 2005), as follows:

CHAPTER 1
PROJECT OBJECTIVES
Introduction

...when determining the amount to set aside, how much is too little and how much is too much? In other words, what is the “prudent” or right amount for that individual city? How much would be enough to cover certain unanticipated events and develop a sense of security for the organization and the community? On the other hand, at what level would the constituency begin to question it as too much? What is the risk tolerance of the organization and the community? And what criteria should be used in making that decision?

Objectives of Project
Guidelines which could assist cities in setting reserve level policies generally do not exist. The final outcome of this project will be the development of a product that will support finance professionals in California cities when they formulate and recommend reserve level policies to best fit the cities they work in.

Political Culture
It is expected that city finance professionals will likely have different points of view regarding what level of reserves is tantamount to hoarding taxpayers’ money and what level is prudent. This project will recognize that it is possible to find differences in opinions and provide an additional dimension which will measure the role of political culture in establishing the level of adequate reserves. There really is no right or wrong answer. Cities must define their own political culture as the foundation from which their own reserve level policy should be developed. It is also important to recognize that while certain criteria may need to be considered when setting reserve policies, it may not be necessary, nor politically advisable, to reserve 100% for every contingency considered. It is very unlikely that all contingencies would arise at once requiring the need to exhaust the entire reserve.

Bill Statler served as the Director of Finance/City Treasurer for the City of San Luis Obispo for twelve years.

In the context of a balanced budget policy, it tells you when you have too little and even when you have too much. “Having a policy forces you to think about the underlying reasons why you set that limit in the first place which is probably more important than the number you arrive at. It makes you analyze each of the reasons you have a policy at all.”

...cities should have an articulated minimum and maximum reserve level. Having a minimum allows the city to respond to a downturn in the economy or cover a major unforeseen contingency in a construction project without having to make drastic decisions that may have an immediate impact. Having a maximum prevents the city
from building its reserves beyond a reasonable amount.

Of 205 respondents, one hundred eighty-nine (189) or 92.1% of them either somewhat agreed, agreed or strongly agreed that California cities should have reserve policies.

Sixty percent of those that said they had a policy said they express it as a percentage of operating expenditures.

RESERVE POLICY RANGES
Method of Measurement Range
As a flat amount $1 to $20 Million
As a % of either revenues or expenditures 2% to 150%

MOST COMMON RESERVE POLICIES
(IN BRIEF)
Number of
Respondents Policy (In Brief)
15 10% of operating expenditures
11 15% of operating expenditures
10 20% of operating expenditures
9 25% of operating expenditure
6 50% of operating expenditures

For the General Fund, less than 10% (19) of those that responded reported reserves of less than 5%. Fifty-nine percent (118) fell in the 10% to 49.99% range. Only 5% were above 100%.

Seventy-five percent of the cities report a General Fund reserve of more than 10%.

CONCLUDING REMARKS
The results of this research demonstrate that a vast majority of finance professionals think that cities should develop reserve policies. It is also clear that certain criteria should be examined when formulating a reserve policy; however, there is a wide range of opinions regarding the degree of importance that should be placed on each of them. It is also clear that selecting the criteria to be considered varies from city to city depending upon the experience and political culture of that particular city. Each city should look to the past to determine which criteria should be considered when developing a policy to protect the future. At the very least, they should consider the following four criteria when formulating policies for their city:

♦ Cash Flow
♦ Exposure to Natural Disasters,
♦ Exposure to Economic Impacts
♦ Vulnerability to Actions from the State.

Public officials have been given the task of preserving the public trust and making decisions that are in the best interest of their city. A reserve policy is one of the most important policies a city can adopt to ensure the fiscal health of the city. By keeping a close watch on the reserve levels compared to the adopted policy, public officials can be forewarned of trends that may jeopardize the city’s ability to provide essential services to the community.

Another interesting item is the City of Glendale’s INTERDEPARTMENTAL COMMUNICATION of October 17, 2001 on City Financial Reserves (http://www.ci.glendale.ca.us/admin-svcs/pdf/city_financial_reserves.pdf)

The communication cites the Purposes of Reserves:
1. Legal and Accounting Requirements
2. Emergencies and Natural Disasters
3. General Fund Revenue
4. Economic Uncertainties
5. Financial Flexibility
6. Financial “Peace of Mind”

The communication surveyed 13 California cities; the most common method of comparing Fund Balances was as a percentage of General Fund budget. Another method and meaningful comparison for Fund Balance analysis/policies is Fund Balance Per Capita – General Fund.

FUND BALANCE AS % OF GENERAL FUND BUDGET
Range: 7.8% San Bernadino – 134.4% Burbank Average 42.8%
Note: Carmel-by-the-Sea 82%

FUND BALANCE PER CAPITA - GENERAL FUND
Range: $32 San Bernadino - $1,875 Santa Monica
Average $218
Note: Carmel-by-the-Sea $2,341.

Survey Cities:
13 California Cities

Glendale
Burbank
Pasadena
Inglewood
Anaheim
Htg. Beach
San Bern.
Riverside
Torrance
Santa Monica
Santa Ana
Long Beach
Garden Grove

79% of Fiscal Year 2005/06 Capital Improvement Program Funded from Capital Improvement Reserves

For the Fiscal Year 2005/06, the City Council of Carmel-by-the-Sea transferred approximately $612,000 from the Capital Improvement Reserves to the General Fund in order to fund a Capital Improvement Budget of $772,135. In other words, 79% of the funding for Capital Improvement Projects in FY 2005/06 was from the Capital Improvement Reserves. While the practice of transferring funds from reserves to the General Fund to fund projects in not unusual, it is atypical for a city to have 80% of its annual budget in reserves ($9.6 million reserves of a total $11.9 million budget).

Furthermore, in City Administrator Rich Guillen’s May 2006 Budget Message, he stated the following:

“Subsequent Fiscal Years 2007/2008 and 2008/2009 return to prior year funding levels or in the range of $600,000 to $700,000. The success of returning to this spending level for subsequent Fiscal Years will depend on how prudent expenditures are managed, whether revenues will continue to grow, and the availability of grant funding. The sale of non-working City assets, such as, Flanders Mansion, Rio Park and other City properties can also contribute to a successful reinvestment in Capital Improvement Projects.”

As background on Capital Improvements:
Actual Capital Improvements (FY 2004/05): $321,166
Revised Capital Improvements (FY 2005/06): $772,135
Proposed Capital Improvements (FY 2006/07): $69,594
Proposed Capital Improvements (FY 2007/08): $344,321
Proposed Capital Improvements (FY 2008/09): $394,000

While City Administrator Guillen claims that the city’s objective is to return to funding levels of $600,000 to $700,000, the proposed budget figures for FY 2007/08 and FY 2008/09 do not support this contention.

In city Administrator Guillen’s June 2006 Budget Questions & Answers, he stated:

"Staff agrees with the need to maintain and improve our infrastructure. However like many cities, capital outlays and capital improvements are deferred in place of providing public services. When revenues are generally flat as has been the case in recent years, the only capital projects and capital outlays that receive funding are typically through grant programs.”

And in City Administrator Guillen’s May 2006 Budget Message, he stated:

"The remainder of the Capital Outlays and Capital Improvements projects were deferred to future Fiscal Years, assuming that growth of revenues will fund those items. Based on the large capital demands for future years, the City will need some infusion of cash to fund these projects, such as from the sale of City properties or through some other special financing mechanism."

To reiterate, it is atypical for cities have reserves totaling 80% of the city’s annual budget. With the city’s millions and millions of dollars in deferred maintenance, it is fiscally imprudent to maintain the current level of reserves. Moreover, the City of Carmel-by-the-Sea has never publicly offered any rationale for the present fiscal situation.

And in City Administrator Guillen’s May 2006 Budget Questions & Answers, he stated:

“The Capital Improvement Reserve fund is a separate reserve fund established in 1988. It has no minimum funding requirement. The proposed transfers will add to the reserve fund to make up for some of the amounts transferred to the General Fund for FY 05-06’s capital improvement projects, including the Fire Department seismic retrofit.”

Again, the city’s reserve funds should be brought into conformance with other cities; that is, 10% -20% of annual budget in reserve funds. For FY 2006/07, this means using the surplus, not to reinfuse the reserves, but to use from the General Fund to fund deferred maintenance projects. Otherwise, the City of Carmel-by-the-Sea’s infrastructure and historical and cultural assets will continue to deteriorate and in the case of the Scout House and Flanders Mansion, not even be available to the public.

References:
CITY OF CARMEL-BY-THE-SEA CALIFORNIA
DRAFT BUDGET
FISCAL YEARS 2006/07 THROUGH 2008/09

CAPITAL IMPROVEMENTS PROGRAM

Funds are budgeted to provide for planning and construction of major capital improvements. The capital projects, submitted by departmental staff and their respective commissions or boards, are selected through an in-depth evaluation prioritization process and then reviewed and approved by the City’s Planning Commission as part of the City's Five-Year Capital Improvement Program.

Proposed Capital Improvements (2007/08)
4th Avenue Riparian Restoration $ 89,321
Parking lot-Sunset Center $ 50,000
Tennis Court Reconstruction $ 40,000
Repave Mission between 3rd & 4th $ 150,000
City Hall Carpeting (Admin area) $ 15,000
Subtotal $ 344,321

Capital Improvements (2008/09)
Parking lot-Del Mar $ 159,000
Underground Water Tank/Booster Pump $ 100,000
Pedestrian Path - S. Antonio bet 2nd & 4th $ 60,000
City Hall Carpeting (Bldg/Planning area) $ 25,000
Scout House ADA Upgrades (design work) $ 50,000
Subtotal $ 394,000

Proposed Capital Improvements (2006/07)
4th Avenue Riparian Restoration $ 44,594
Del Mar Restrooms $ 25,000
Subtotal $ 69,594

Revised Capital Improvements (2005/06)
$ 15,227 Professional fees-Sunset Ctr Roof
$ 12,707 Sunset Yoga Ctr Repairs
$ 577,285 Fire Dept Seismic Retrofit
$ 119,616 Resurface Beach Bluff Pathway
$ 9,300 4th Avenue Riparian Restoration
$ 8,000 Forest Hill Park Improvements
$ 18,000 Forest Theater Fire Sprinklers
$ 12,000 Sunset Ctr Roof/Fire System
$ 772,135 Subtotal

Actual Capital Improvements (2004/05)
$ 321,166


CITY COUNCIL AGENDAS (FY 2005/06)

Meeting Date: July 5, 2005
Prepared by: Mike Branson
City Council
Agenda Item Summary
Name: Consideration of a Resolution awarding a professional services agreement for preparation of a preliminary design for the Fourth Avenue Riparian Habitat Restoration project to Hall Landscape Design at a fee not-to-exceed $25,000 and authorizing a transfer of funds from Capital Improvement Reserves to the general fund Capital Improvement Account.

The Capital Improvement Reserve Fund will be reimbursed from the Grant Funds.

City Council Agenda
Regular Meeting
September 6, 2005

VII. Consent Calendar
C. Consideration Of A Resolution Authorizing The Transfer Of Funds In An Amount Of $12,707.06 From The Capital Improvement Reserve Account For Repairs To The Yoga Center Cottage At The Sunset Center.

City Council Agenda
Regular Meeting
October 4, 2005

VII. Consent Calendar
D. Consideration Of A Resolution Authorizing The Transfer Of Funds In An Amount Not To Exceed $12,000 From The Capital Improvement Reserve Account For The Erection Of A Roof Structure At The Sunset Center.

City Council Agenda
Regular Meeting
November 1, 2005

VII. Consent Calendar
E. Consideration of a Resolution authorizing the transfer of $68,046 from the Capital Improvement Reserve Account 01-24013 to cover costs associated with the temporary move of the Fire Department.

City Council Agenda
Regular Meeting
February 7, 2006

VII. Consent Calendar
C. Consideration of a Resolution authorizing the City Administrator to transfer funds in an amount not to exceed $493,907 from the Capital Improvement Reserve Fund to the General Fund for the Fire Station Seismic Retrofit and Remodel Project.

X. Resolutions
B. Consideration of a Resolution authorizing the transfer of the fiscal year 2004-05 year-end surplus to the Capital Improvement Reserve Fund.

Staff Recommendation: Approve the transfer of $493,907 from the Capital Improvement Reserve Fund to the General Fund. A portion of the costs, $280,000, was already budgeted as a capital improvement in the fiscal year 05-06 budget.

Important Considerations: Below is an accounting of the Capital Improvements Reserve Fund:
Balance July 1, 2005 $1,370,334
Projects approved per resolution since July (225,228)
Other budgeted projects, not yet started (100,600)
Subtotal $1,044,506
Amount needed to cover fire station retrofit (493,907)
Estimated balance at June 30, 2006 $ 550,599

Fiscal Year 2005/06: Use of Capital Improvement Reserves?

“For the 2005/06 fiscal year, revenues totaled $12,273,173 - $1.2 million more than anticipated – and expenses came in almost $400,000 lower than expected, putting Carmel solidly in the black.”

“We had to spend down capital improvement reserves so much last year, my suggestion is to replenish that account before we put other projects in place,” stated City Administrator Rich Guillen.

(AUDITS GIVE CITY, SUNSET CENTER CLEAN BILLS OF HEALTH, Mary Brownfield, The Carmel Pine Cone, December 15, 2006.)

“As of June 30, 2006, the City’s government funds (general fund and special revenue funds) had a combined fund balance of approximately $10 million, an increase of almost $1 million from the previous year. Of the total fund balance, $1.3 million was reserved; $5.4 million was designated for capital acquisitions and future expenditures; and $3 million was neither reserved nor designated.”
(Source: Nicholson & Olson, Certified Public Accountants, Independent Auditor’s Report, http://ci.carmel.ca.us/)

QUESTIONS:

With Carmel-by-the-Sea “solidly in the black,” and accountant Ralph Marcello of Nicholson & Olson stating that “While the city budgeted to break even, you actually came out ahead,” how is it that any reserves were used in FY 2005/06 as City Administrator states capital improvement reserves were “spend down” so much last year?

If, as City Administrator Rich Guillen states, capital improvement reserves were spent down so much last year, then what Capital Improvement Projects were funded from the Capital Improvement Reserves, above and beyond the $772,135 budgeted for Capital Improvements Program in FY 2005/06?

REFERENCES:

CAPITAL IMPROVEMENTS PROGRAM
Funds are budgeted to provide for planning and construction of major capital improvements. The capital projects, submitted by departmental staff and their respective commissions or boards, are selected through an in-depth evaluation prioritization process and then reviewed and approved by the City’s Planning Commission as part of the City's Five-Year Capital Improvement Program.

Capital Improvements

Revised 05-06
$ 15,227 01-89277 Professional fees-Sunset Ctr Roof
$ 12,707 01-89409 Sunset Yoga Ctr Repairs
$ 577,285 01-89483 Fire Dept Seismic Retrofit
$ 119,616 01-89627 Resurface Beach Bluff Pathway
$ 9,300 01-89636 4th Avenue Riparian Restoration
$ 8,000 01-89637 Forest Hill Park Improvements
$ 18,000 01-89676 Forest Theater Fire Sprinklers
$ 12,000 01-89994 Sunset Ctr Roof/Fire System
$ 772,135 Subtotal

Proposed 2006/07
4th Avenue Riparian Restoration $ 44,594
Del Mar Restrooms $ 25,000
Subtotal $ 69,594

(Source: CITY OF CARMEL-BY-THE-SEA CALIFORNIA BUDGET FISCAL YEARS 2006/07 THROUGH 2008/09, http://ci.carmel.ca.us/)


CITY OF CARMEL-BY-THE-SEA
California
Annual Financial Report
June 30, 2006

BALANCE SHEET
Government Funds
June 30, 2006

FUND BALANCES
Reserved for debt service:$627,309

Unreserved:
Designated: $5,359,692
Reserved: $552,884 (Parking)
Undesignated: $3,053,341

Total Fund Balances: $9,040,342 $552,884

TOTAL: $9,593,226.00

(Source: Financial Statements, CITY OF CARMEL-BY-THE-SEA, BALANCE SHEET, Government Funds, June 30, 2006, CITY OF CARMEL-BY-THE-SEA, California, Annual Financial Report, June 30, 2006.)


CITY OF CARMEL-BY-THE-SEA
California
Annual Financial Report
June 30, 2005

BALANCE SHEET
Government Funds
June 30, 2005

Fund Balances
623,709 Reserved for debt service

Unreserved
$37,662 Designated for street and traffic safety
$740,451 Designated for liability insurance
$647,527 Designated for health insurance
$1,370,334 Designated for capital improvements
$249,579 Designated for equipment replacement
$1,432,394 Designated for benefits and wc insurance
$657,000 Designated for reserves
$549,690 Designated for economic uncertainty
$165,011 Designated for emergency response
$140,000 Designated for general services and operations
$468,857 Designated for customer deposits
$1,240,439 Undesignated

8,322,653 Total Fund Balances

(Source: CITY OF CARMEL-BY-THE-SEA California, Annual Financial Report, June 30, 2005, FINANCIAL STATEMENTS, Fund Financial Statements, Balance Sheet – Governmental Funds.)

Poorly Managed Little RICH City

City Council Agenda
Regular Meeting
November 7, 2006

V. Announcements from Closed Session, from City Council Members and the City Administrator.

C. Announcements from City Administrator.

• Receive City’s annual audited financial statements for the fiscal year ended June 30, 2006.

CITY OF CARMEL-BY-THE-SEA
CALIFORNIA
ANNUAL FINANCIAL REPORT
June 30, 2006

Nicholson & Olson
Certified Public Accountants
729 Sunrise Av, Suite 303
Roseville, CA. 95661

Independent Auditor’s Report
September 29, 2006

Financial Highlight:

“As of June 30, 2006, the City’s government funds (general fund and special revenue funds) had a combined fund balance of approximately $10 million, an increase of almost $1 million from the previous year. Of the total fund balance, $1.3 million was reserved; $5.4 million was designated for capital acquisitions and future expenditures; and $3 million was neither reserved nor designated.”
(Source: Nicholson & Olson, Certified Public Accountants, Independent Auditor’s Report, web page 5.)

The following, “As prepared by the Carmel-by-the-Sea Finance Department:”

CITY OF CARMEL-BY-THE-SEA
BALANCE SHEET
Government Funds
June 30, 2006

FUND BALANCES
Reserved for debt service:$627,309

Unreserved:
Designated: $5,359,692
Reserved: $552,884 (Parking)
Undesignated: $3,053,341

Total Fund Balances: $9,040,342 $552,884

TOTAL: $9,593,226.00

(Source: Financial Statements, CITY OF CARMEL-BY-THE-SEA, BALANCE SHEET, Government Funds, June 30, 2006, web page 17 of CITY OF CARMEL-BY-THE-SEA, California, Annual Financial Report, June 30, 2006.)

NOTES:
• GENERAL FUND:
Total Revenues: $12,273,173
Total Expenditures:$11,636,900
Excess of Revenues Over Expenditures: $636,273

• GOVERNMENT FUND BALANCES increased from approximately $8.8 million in Fiscal Year 2004/05 to over $9.7 million for Fiscal Year 2005/06.

(Reference: http://www.ci.carmel.ca.us/, Segment3QuarterlyReportNovember2006.pdf)

RESIDENT UNFRIENDLY: City's Budgetary Priorities Atypical

“We need to start paying our reserves,” McCloud said.

(Source: “$11.75 million budget gives $35K for more library hours, Mary Brownfield, The Carmel Pine Cone, July 7, 2006)


CITY OF CARMEL-BY-THE-SEA
California

Annual Financial Report
June 30, 2005

BALANCE SHEET
Government Funds
June 30, 2005

Fund Balances
623,709 Reserved for debt service

Unreserved
$37,662 Designated for street and traffic safety
$740,451 Designated for liability insurance
$647,527 Designated for health insurance
$1,370,334 Designated for capital improvements
$249,579 Designated for equipment replacement
$1,432,394 Designated for benefits and wc insurance
$657,000 Designated for reserves
$549,690 Designated for economic uncertainty
$165,011 Designated for emergency response
$140,000 Designated for general services and operations
$468,857 Designated for customer deposits
$1,240,439 Undesignated

8,322,653 Total Fund Balances


(Source: CITY OF CARMEL-BY-THE-SEA California, Annual Financial Report, June 30, 2005, FINANCIAL STATEMENTS, Fund Financial Statements, Balance Sheet – Governmental Funds, Pg. 4)


COMMENT & QUESTION:

• For Fiscal Year 2006/07, the City of Carmel-by-the-Sea has an $11.75 million budget, an estimated $10-$25 million deferred maintenance and over $8.3 million in reserves.

• Yet Mayor McCloud publicly states, “we need to start paying our reserves.” What is her rationale for such a statement, given the City’s deteriorated and decayed infrastructure and the magnitude of the reserves vis a vis the annual budget?

Penny Wise & Pound Foolish!

Information on the City's Funds and Fund balances, although not included in the CITY OF CARMEL-BY-THE-SEA CALIFORNIA DRAFT BUDGET FISCAL YEARS 2006/07 THROUGH 2008/09, is included in the CITY OF CARMEL-BY-THE-SEA California Annual Financial Report June 30, 2005.

Of the 12 Total Unreserved Funds, totaling $8,322,653, the “Undesignated” Fund Balance is $1,240,439.

The cost to the city of restoring library hours to 2004 levels is $123,000.
$123,000 represents less than 10% of the “Undesignated” Fund Balance.

Recommendation: To restore hours to the Harrison Memorial Library and Park Branch, take $123,000 from the “Unreserved, Undesignated” Fund balance of $1,240,439, leaving $1,117,439.

Similarly, of the 12 Total Unreserved Funds, the “Unreserved, Designated for capital improvements” Fund balance is $1,370,334.

The Capital Improvements Program was $321,166 in Fiscal Year 2004/05 and $772,135 in Fiscal Year 2005/06. The Proposed Capital Improvements Program is $69,594 for FY 2006/07, $344,321 for FY 2007/08 and $394,000 for FY 2008/09.

With the magnitude of Carmel-by-the-Sea’s deferred maintenance, (ex. Sewer, Stormwater System, Streets, Restrooms, Pedestrian Paths, Public Buildings/Historical & Cultural Assets, Parks, etc.), the Capital Improvement Programs should be funded at a consistently high level of at least $600,000 to $700,000/year. To achieve these levels, the difference between $600,000 and the proposed expenditures, should be funded from the “Unreserved Designated for capital improvements” Fund, totaling $1,370,344.

Instead of having wildly fluctuating Capital Improvement Programs from year to year, that is, $321,166 in FY 2004/05, $772,135 in FY 2005/06 and $69,594 in FY 2006/07, the Capital Improvement Programs should be funded at consistent levels of $600,000 - $700,000/year.

For example, the Capital Improvement Program for Fiscal Year 2006/07, instead of being $69,594, should be at least $600,000. To achieve this level, the deficit of $530,406 should be taken from the “Unreserved Designated for capital improvements” Fund.

A total Fund balance of $8,322,653, or 70% of the City’s annual budget, indicates that the City has allowed the city’s infrastructure to deteriorate beyond a reasonable condition, thereby causing deferred maintenance to balloon out-of-control costing Carmel-by-the-Sea taxpayers significantly more money later on for more costly projects.