Comprehensive Financial Policies
Financial policies shall be adopted by the City Council annually and will establish the framework for the overall fiscal planning and management of the City of Beverly Hills. These policies set forth guidelines against which current budgetary performance can be measured and proposals for future programs can be evaluated. The financial policies also improve the City's fiscal stability by helping City officials plan fiscal strategy with a consistent approach. Adherence to adopted financial policies promotes sound financial management, which can lead to improvement in bond ratings, a lower cost of capital and a minimum of unexpected impacts upon taxpayers and users of public services.
Financial Reporting Entity - City of Beverly Hills
The City (primary government) was incorporated in 1914 under the general laws of the State of California. The City provides the full range of municipal services as contemplated by statute. Services provided include public safety (police and fire), street construction and maintenance, sanitation, refuse collection, water and sewer utilities, culture-recreation, public improvements, planning and zoning, and general administrative and support services.
The City operates under a Council-Manager form of government. The City Council consists of five members elected at large for overlapping four-year terms. The Mayor is selected from the City Council members and serves a one-year term. The City's only other elected official is the City Treasurer whose term of office is four years. The City Council appoints a City Manager, City Attorney and City Clerk. In addition, the City Council appoints the members of advisory Commissions and Boards.
In addition to sitting as the governing board of the City, the City Council also acts as the Board of Directors of the Parking Authority of the City of Beverly Hills and the Beverly Hills Public Financing Authority.
Parking Authority of the City of Beverly Hills
The Parking Authority of the City of Beverly Hills (Parking Authority) is a public financing agency established by the City under the State of California Parking Law of 1949 to provide public parking facilities on a citywide basis. The Parking Authority provides for the acquisition and/or construction of parking facilities that are leased to the City for the general benefit of its citizens.
During the year ended June 30, 1994, the assets of the Parking Authority were transferred to the Parking Facilities Enterprise Fund and no Parking Authority financial transactions have occurred in subsequent fiscal years. However, the Parking Authority still remains a legal entity.
Beverly Hills Public Financing Authority
The City of Beverly Hills Public Financing Authority (Public Financing Authority) is a joint powers authority, organized pursuant to a Joint Exercise of Powers Agreement, dated November 10, 1992 between the City and the Parking Authority. The Joint Powers Agreement was entered into pursuant to the provisions of Article 1 of Chapter 5 of the California Government Code (the Act). The Public Financing Authority was created for the purpose of providing financing for public capital improvements for the City through the acquisition by the Public Financing Authority of such public capital improvements and/or the purchase by the Public Financing Authority of local obligations within the meaning of the Act. Under the Act, the Public Financing Authority has the power to issue bonds to pay the costs of public capital improvements.
Required lease payments between the City and the Public Financing Authority exactly match debt service requirements of the underlying debt. Accordingly, the leases between the City and the Public Financing Authority are eliminated and the underlying debt is reported as debt of the City. Separate financial statements are not prepared for the Public Financing Authority.
Financial Reporting Policies
The City's accounting and financial reporting systems will be maintained in conformance with all state and federal laws, generally accepted accounting principles (GAAP) and standards of the Governmental Accounting Standards Board (GASB) and the Government Finance Officers Association (GFOA). Further, the City will make every attempt to implement all changes to governmental accounting practices at the earliest practicable time.
An annual audit will be performed by an independent public accounting firm with an audit opinion to be included with the City's published Comprehensive Annual Financial Report (CAFR).
The City's CAFR will be submitted to the GFOA Certification of Achievement for Excellence in Financial Reporting Program. The financial report should be in conformity with GAAP, demonstrate compliance with finance related legal and contractual provisions, disclose thoroughness and detail sufficiency, and minimize ambiguities and potentials for misleading inference.
The City's CAFR will also be submitted to the California Society of Municipal Finance Officers (CSMFO) Awards Program and to national repositories identified by the City's bond trust agent as a continuing commitment to disclose thoroughness to enable investors to make informed decisions.
The City's Budget should satisfy criteria as a financial and programmatic policy document, as a comprehensive financial plan, as an operations guide for all organizational units and as a communications device for all significant budgetary issues, trends and resource choices.
To provide a reasonable basis for making management's required representations concerning the finances of the City of Beverly Hills, the City has established a comprehensive internal control framework that is designed both to protect the City's assets from loss, theft or misuse and to compile sufficient reliable information for the preparation of the City's financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City's comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatements.
The City shall evaluate the fiscal impact of proposed changes in retirement benefits to be provided. Prior to assuming liability for expanded benefits, a viable funding plan with estimates of longer term impacts shall be incorporated in the analysis.
The City shall endeavor to avoid committing to new spending for operating or capital improvement purposes until an analysis of all current and future cost implications is completed.
The City shall endeavor to maintain cash reserves sufficient to fully fund the net present value of accruing liabilities including self insurance provisions, obligations to employees for vested payroll and benefits and similar obligations as they are incurred.
The City shall prepare and present to the City Council quarterly analyses of interim revenue and expenditure trends to allow evaluation of potential discrepancies from budget assumptions.
Operating Management Policies
All departments will participate in the responsibility of meeting policy goals and ensuring long-term financial health. Future service plans and program initiatives will be developed to reflect current policy directives, projected resources and future service requirements.
The budget process is intended to weigh all competing requests for City resources within expected fiscal constraints. Requests for new, ongoing programs made outside the budget process will be discouraged.
Budget development will use strategic multi-year fiscal planning, conservative revenue forecasts, and program based cost accounting that requires every program to be justified annually in terms of meeting intended objectives (?effectiveness criteria?) and in terms of value received for dollars allocated (?efficiency criteria?). The process will include a diligent review of programs by staff, management and City Council.
Utilization of a program budget format will provide a basis for evaluation of service and other impacts of potential increases or decreases in funding.
Revenues will not be dedicated for specific purposes, unless required by law or generally accepted accounting practices (GAAP). All non-restricted revenues will be deposited in the General Fund and appropriated by the budget process.
Current revenues will fund current expenditures and a diversified and stable revenue system will be developed and maintained to protect programs from short-term fluctuations in any single revenue source.
Current operating expenditures for all fund types will include all allocable overhead operating costs. For the most part these expenses will be charged to individual divisional program elements as internal service fund charges. Included within the allocated service charges to Governmental Fund types will be funding adequate to maintain the approved capital program on a pay-as-you-go basis.
The City shall strive to identify entrepreneurial solutions to recover costs of operating programs.
The City shall strive to avoid returning to the City Council mid-year for new or expanded appropriations. Exceptions may include emergencies, unforeseen impacts or new opportunities.
Addition of personnel will only be requested to meet program initiatives and policy directives; after service needs have been thoroughly examined and it is substantiated that additional staffing will result in increased revenue or enhanced operating efficiencies. To the extent feasible, personnel cost reductions will be achieved through attrition.
All non-enterprise user fees and charges will be examined or adjusted annually to determine the direct and indirect cost of service recovery rate. The acceptable recovery rate and any associated changes to user fees and charges will be approved by the City Council following public review.
Development impact fees, as permitted by state law, for capital expenses attributable to new development will be reviewed annually to ensure that fees recover all direct and indirect development-related expenses and be approved by City Council. Any unfavorable balances in cost recovery will be highlighted in budget documents reviewing operating and capital budget recommendations from a departmental, program, and goals perspective.
Capital equipment replacement will be accomplished through the use of a ?rental? rate structure. The rates will be revised annually to ensure that charges to operating departments are sufficient for operation and replacement of vehicles and other capital equipment (fleet, computers, phones and copier systems). The City shall endeavor to maintain adequate cash reserves to fund 100% replacement of capital equipment. Replacement costs will be based upon equipment lifecycle financial analysis.
Grant funding will be considered to leverage City funds. Inconsistent and/or fluctuating grants should not be used to fund ongoing programs. Programs financed with grant monies will be budgeted in separate cost centers, and the service program will be adjusted to reflect the level of available funding. In the event of reduced grant funding, City resources will be substituted only after all program priorities and alternatives are considered during the budget process.
Balanced revenue and expenditure forecasts will be prepared to examine the City's ability to absorb operating costs due to changes in the economy, service demands, and capital improvements. The forecast will be updated annually and include a five-year outlook.
Alternative means of service delivery will be evaluated to ensure that quality services are provided to our citizens at the most competitive and economical cost. Departments, in cooperation with the City Manager, will identify all activities that could be provided by another source and review options/alternatives to current service delivery. The review of service delivery alternatives and the need for the service will be performed annually or on an ?opportunity? basis.
Cash and Investment programs will be maintained in accordance with the Government Code and the adopted investment policy and will ensure that proper controls and safeguards are maintained. City funds will be managed in a prudent and diligent manner with an emphasis on safety of principal, liquidity, and financial return on principal, in that order. Pursuant to State law, the City, at least annually, revises, and the City Council affirms, a detailed investment policy. In addition to liquidity requirements, the City will also consider the appropriateness of investment decisions vis-?-vis debt management.
The City will follow an aggressive, consistent, but sensitive to the circumstances policy of collecting revenues to the limit of our ability.
Capital Management Policies
A five-year Capital Improvement Plan will be developed and updated annually, including anticipated funding sources. Capital improvement projects are defined as infrastructure or equipment purchases or construction which results in a capitalized asset and having a useful (depreciable life) of two years or more.
The capital improvement plan will include, in addition to current operating maintenance expenditures, adequate funding to support repair and replacement of deteriorating infrastructure and avoidance of a significant unfunded liability.
Proposed capital projects will be reviewed and prioritized by a cross-departmental team regarding accurate costing (design, capital, and operating) and overall consistency with the City's goals and objectives. Financing sources will then be identified for the highest ranking projects.
Capital improvement lifecycle costs will be coordinated with the development of the Operating Budget. Future operating, maintenance and replacement costs associated with new capital improvements will be forecast, matched to available revenue sources and included in the Operating Budget. Capital project contract awards will include a fiscal impact statement disclosing the expected operating impact of the project and when such cost is expected to occur.
Pay-as-you-go Capital Improvement Plan financing should account for a minimum of 50 percent of all capital improvement projects for each five-year planning period. Pay-as-you-go financing is defined as all sources of revenue other than City debt issuance, i.e., fund balance contributions, developer contributions, grants, endowments, etc. Pay-as-you-go financing should generally be considered as the preferred option. However, the potential for debt issuance that provides additional economic and/or strategic values should be considered.
The City shall endeavor to apply restricted funds (i.e., In-lieu Parking, Gas Tax Funds or existing Bond proceeds) to capital projects before using ?unrestricted? funds.
Debt Management Policies
The City will seek to maintain and, if possible, improve our current bond rating(s) in order to minimize borrowing costs and preserve access to credit.
New debt issues, and refinancing of existing debt, must be analyzed for compatibility within the City's overall financial planning. The review shall include, but not be limited to, cash flow analysis, potential for unexpected revenue surprises, and the maintenance of the City's bond ratings. Annual debt service shall not produce an inordinate impact upon future operations.
City Debt Service costs within the General Fund should not exceed 15% of the City's operating revenue in order to control fixed costs and ensure expenditure flexibility. Improvement District debt service is not included in this calculation because it is paid by district property owners and is not an obligation of the general citizenry. (Based upon an adopted budget of $160 million, the upper limit would be $24 million, approximately 48% greater than current debt service costs).
General Obligation debt, which is supported by property tax revenues and grows in proportion to the City's assessed valuation and/or property tax rate increases, may be utilized if/when authorized by voters. Other types of debt (e.g., water, sewer, and parking) may also be utilized when they are supported by dedicated revenue sources (e.g., fees and user charges).
Debt financing should not exceed the useful life of the infrastructure improvement with the average (weighted) bond maturities at or below twenty years.
A ratio of current assets to current liabilities of at least 2/1 will be maintained to ensure the City's ability to pay short-term obligations.
Utility rates will be set, as a minimum, to ensure the ratio of revenue to debt service meets our bond indenture requirement (generally a minimum of 125% of debt service). When calculating debt services coverage for internal purposes, the minimum pay-as-you-go capital expense for each enterprise fund will be considered a part of the operating costs to be covered by pre-debt service revenues. The City goal will be to maintain the required debt service coverage with this additional cost factored into the equation. Use of a 5 year budget projection, including capital project requirements, will provide assurance that all needs are considered by the Public Works Commission and City Council as revenue requirements are considered.
All fund designations and reserves will be evaluated annually for long-term adequacy and use requirements in conjunction with development of the City's balanced five year financial plan.
It is a goal of the City to obtain and maintain a general operating reserve in the form of cash, of at least 25% of operating revenues. The first 25% shall be considered a contingency reserve to cover normal seasonal cash flow variations, as well as unforeseen emergency or catastrophic impacts upon the City. Funds in excess of 25% may be used for economic investment in the community when justified by projected financial return to the City and specifically authorized by the City Council.
In addition to cash specifically maintained in the General Fund, we recognize the following cash reserve resources as being available to meet sudden negative fiscal impacts in the short term:
- Liability Self-Insurance Fund
- Worker's Compensation Self-Insurance Fund
- Employee Benefits Fund
- Information Technology Fund
One-time revenue windfalls should be designated as a reserve or used for one-time expenditures. The funds should not to be used for on-going operations. To the extent such funds are not required for current expenditures and/or capital improvements such funds should be maintained as operating reserves or used to reduce debt.
For purposes of this policy, one-time revenue windfalls shall include:
- Proceeds from new taxes or increases in existing tax rates.
- Lump sum (net present value) savings from debt restructuring
- CalPERS Rebates
- Tax Revenue growth in excess of 5% in a single year
- Sale of city-owned real estate
- Pure unexpected revenues (i.e. litigation settlement)
- Any other revenues the City Council may elect to designate as extraordinary
- Sufficient reserves shall be maintained in internal service funds to prevent extended disruption of service in the event of natural disasters or other interruptions of revenue collections. Determination of adequate reserves will be guided by the following:
- Self-Insurance Reserves [liability, workers' compensation, (other)] will be maintained at a level, which, together with purchased insurance policies, will adequately indemnify the City's property, liability, and health benefit risk. A qualified actuarial firm shall be retained on an annual basis in order to recommend appropriate funding levels, which will be approved by Council. The City shall endeavor to maintain reserves equal to 100% of the net present value of such liabilities.
- Fleet Management, Building and Information Technology reserves will be maintained based upon lifecycle replacement plans to ensure adequate fund balance required for systematic replacement of fleet vehicles, buildings and computer and related equipment and operational contingencies. Operating departments will be charged over the useful life of the asset used. The City shall endeavor to stabilize funding by maintaining reserves equal to the current replacement cost of each asset class.
- Enterprise Fund (Water, Solid Waste, Wastewater, Parking and Stormwater) user fees and charges will be examined annually to ensure that they recover all direct and indirect costs of service, provide for capital improvements and maintenance and maintain adequate reserves. Secondarily, maintenance of cash reserves will provide a de facto rate stabilization plan. Rate increases shall be approved by the City Council following formal noticing and public hearing. Rate adjustments for enterprise operations will be based on five-year financial plans unless a conscious decision is made to the contrary. The target level of cash reserves shall be 50% of gross annual user revenues.
- Contingency Reserves to be determined annually will be maintained to offset unanticipated revenue shortfalls and/or unexpected expenditure increases. Contingency reserves may also be used for unanticipated and/or inadequately budgeted events threatening the public health or safety. Use of contingency funds should be utilized only after all budget sources have been examined for available funds, and subject to City Council approval.
Annual Review of Financial Policies
The City shall revise these financial policies annually as a part of its budget review. This review shall include a staff report as to the State of Compliance, noting exceptions, if any. These policies, amended as deemed appropriate, shall be affirmed by the City Council prior to approval of the budget.