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HomeMy WebLinkAbout2004-11-16 City CouncilCity of Palo Alto City Manager’s Report TO: ATTN: HONORABLE CITY COUNCIL FINANCE COMMITTEE FROM: DATE: SUBJECT: CITY MANAGER DEPARTMENT: .ADMINISTRATIVE SERVICES NOVEMBER 16, 2004 CMR: 475:04 APPROVAL OF A BUDGET AMENDMENT ORDINANCE IN THE AMOUNT OF $35,881,000 FOR A TRANSFER OF INFRASTRUCTURE RESERVE FUNDS FROM THE GENERAL FUND TO THE CAPITAL FUND RECOMMENDATION Staff recommends that Council approve a Budget Amendment Ordinance (BAO) in the amount of $35,881,000 to transfer General Fund Infrastructure Reserve funds to the Capital Fund. BACKGROUND On December 3, 2002, the City Auditor issued an audit report on her analysis of the Long Range Financial Plan. As a result of this audit, it was determined that a number of transfers accounted for the flow of the infrastructure funding. These included transfers in and out of the General Fund, Capital Projects Fund, Infrastructure Reserve, and Budget Stabilization Re;erve. In addition, the report noted that when a capital project is completed, any funds remaining in that project were returned to the originating funding source (e.g. General Fund). In the Auditor’s opinion, these transfers unnecessarily complicated the accounting for infrastructure funding. The City Auditor recommended a simplification of infrastructure funding by: (1) moving the Infrastructure Reserve from the General Fund to the Capital Projects Fund; and (2) retaining unspent project funds in the Capital Projects Fund. DISCUSSION As a result of the City Auditor recommendations, the City Council approved a Capital Fund Reserve Policy with the adoption of the 2004-05 budget. A BAO is now necessary to implement the policy by transferring the Infrastructure Reserve from the General Fund to the Capital Projects Fund. This reserve transfer also eliminates the need for most of the future year operating transfers between the General and Capital Funds. In the future, unspent monies from Infrastructure Management Plan (CityWorks) projects will be returned to the Infrastructure CMR:475:04 Page 1 of 2 Reserve and be retained within the Capital Fund. Investment income from this reserve will also be retained within the Infrastructure Reserve to fund future capital project needs. The Capital Fund Reserve Policy will be reviewed ammally during the budget process. RESOURCE IMPACT The attached BAO will move the Infrastructure Reserve balance of $35,881,000 from the General Fund to the Capital Fund. This move will mean a reduction of approximately $1,000,000 in interest earnings to the General Fund per year. This interest will now accrue to the Infrastructure Reserve and in the Capital Fund and will be used to fund IMP C.apital Projects. The 2004-05 Adopted Budget includes the interest income adjustment. ATTACHMENTS Attachrnent A: Budget Amendment Ordinance Attachment B: Capital Reserve Policy PREPARED BY: MARY DIVINSKI Sr. Financial Analyst DEPARTMENT HEAD: Director CITY MANAGER’S APPROVAL: Services HARRISON Assistant City Manager CMR:475:04 Page 2 of 2 ATTACHMENTA ORDINANCE NO. ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING THE BUDGET FOR THE FISCAL YEAR 2004-05 TO TRANSFER THE INFRASTRUCTURE RESERVE IN THE AMOUNT OF $35,881,000 FROM THE GENERAL FUND TO THE CAPITAL FUND The Council of the City of Palo Alto does ordain as follows: SECTION i. The~Council of theCity of Palo Alto finds and determines as follows: A. Pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto, the Council on. June 28, ~2004 ~did adopt a budget for fiscal year 2004-05; and B. On December 3, 2002, the City Auditor issued an audit report on the Long Range Financial Plan containing audit recommendations to move the Infrastructure Reserve from the General Fund to the Capital Projects Fund and retain unspent project funds in the .Capital Projects Fund; and C. On June 28, 2004, the City Cguncil adopted a Capital Fund Reserve policy in accordance with the City Auditor’s recommendations; and D. In order to implement the City Auditor’s recommendations and the Capital Fund Reserve policy, the Infrastructure Reserve must be transferred from the General Fund to the Capital Fund. As a result of this transfer unspent monies from the Infrastructure Management Plan (CityWorks) projects will be returned to the Infrastructure Reserve and be retained within the Capital Fund. Investment Income from this reserve will also be retained within the Infrastructure Reserve to fund future capital project needs;and E. City Council authorization is needed to amend the 2004-05 budget to implement the audit recommendations and policy as. hereinafter set forth. SECTION 2. The General Fund Infrastructure Reserve in its entirety in the amount of $35,881,000 is hereby transferred from the General Fund to the Capital Fund. SECTION 3. AS specified in Section 2.28.080(c) of the Palo Alto Municipal Code, a majority vote of the City Council is required to. adopt this ordinance. SECTION 4. As provided in Section 2.04.330. of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ~ABSENT: ATTEST:APPROVED : City Clerk Mayor APPROVED AS TO FORM:City Manager Senior Asst. City Attorney Director Services of Administrative ATTACHMENT B City of Palo Alto CAPITAL FUND RESERVE POLICY Infrastructure Reserve(IR) The Infrastructure Reserve (IR) was originally created as a mechanism to accumulate funding required to complete a 10 year, $100 million infrastructure rehabilitation program that would repair or renovate existing buildings and facilities, streets and sidewalks, parks and open space and transportation systems. Because of the need to maintain infrastructure on a systematic basis, it was recognized that the IR would of necessity never be exhausted but would act in perpetuity as the source of funding for General Fund infrastructure. From time to time, the Council has used the IR to fund new capital projects. However, the Council has not changed the original policy, adopted when the Infrastructure Management Plan was approved, to prioritize the care and maintenance of existing infrastructure over the acquisition of new infrastructure. The reserve would therefore be used primarily to fund the projects identified in the original Infrastructure Master Plan, or any other projects not identified in the plan but which are critical to the maintenance of existing infrastructure. Secondarily, should Council choose, the IR may be used for major capital projects involving the acquisition or renovation of infrastructure not previously included in the IMP. Because this reserve is to be used for priority capital projects that will be reviewed by the Council, no maximum reserve level is recommended. Conversely, because of the discretionary nature of this reserve, no minimum balance is required. Unspent monies from IMP projects will be returned to the IR and retained within the Capital Fund. Investment income from this reserve will also be retained within the IR tofund future capital project needs.