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HomeMy WebLinkAboutReso 85-18 Finance Reserve PoliciesRESOLUTION NO. 85-18 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MORRO BAY, CALIFORNIA, RESCINDING RESOLUTION NO. 33-15 IN ENTIRETY, AND ESTABLISHING A GENERAL FUND EMERGENCY RESERVE POLICY, INTERNAL SERVICE FUNDS RESERVE POLICY, HARBOR ACCUMULATION FUND RESERVE POLICY AND MORRO BAY TOURISM BUSINESS IMPROVEMENT DISTRICT FUND RESERVE POLICY THE CITY COUNCIL City of Morro Bay, California WHEREAS, on June 28, 1993, the Morro Bay City Council adopted Resolution No. 55-93, which adopted the Fiscal Year 1993-94 Budget and Appropriations Limit; and WHEREAS, Section 5 of Resolution No. 55-93 states "A reserve for emergencies of $800, 000 shall be established out of the City's General Fund. This amount will be reported in the General Fund's Equity section of the balance sheet. The City Administrator must receive prior approval from the City Council for any use of these reserve funds," and WHEREAS, with this Resolution, the Morro Bay City Council is rescinding Section 5 of Resolution No. 55-93; and WHEREAS, on May 24, 2010, the Morro Bay City Council adopted Resolution No. 27-10, which established the parameters for use of the General Fund (Accumulation) Reserve; and WHEREAS, with this Resolution, the Morro Bay City Council is rescinding Resolution No. 27-10 in its entirety; and WHEREAS, on June 28, 2011, the Morro Bay City Council adopted Resolution No. 42-11, which amended the parameters of Resolution No. 27-10; and WHEREAS, on June 9, 2015, the Morro Bay City Council adopted Resolution No. 33-15, which rescinded Resolution No. 42-11 in its entirety; and WHEREAS, with this Resolution, the Morro Bay City Council is rescinding Resolution No. 33-15 in its entirety; and WHEREAS, staff recommends the City Council adopt the proposed General Fund Emergency Reserve Policy, which demonstrates the City's commitment to fiscal responsibility and prudent management and is consistent with Government Accounting Standards; and WHEREAS, staff recommends the City Council adopt the proposed Internal Service Funds Reserve Policy, which demonstrates the City's commitment to fiscal responsibility and prudent management and is consistent with Government Accounting Standards; and WHEREAS, staff recommends the City Council adopt the proposed Harbor Accumulation Fund Reserve Policy, which demonstrates the City's commitment to fiscal responsibility and prudent management and is consistent with Government Accounting Standards; and WHEREAS, staff recommends the City Council adopt the proposed Morro Bay Tourism Business Improvement District Fund Reserve Policy, which demonstrates the City's commitment to fiscal responsibility and prudent management and is consistent with Government Accounting Standards, NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Morro Bay, California: 1. Section 5 of Resolution No. 55-93 and Resolution Nos. 27-10, 42-11 and 33-15 in their entirety are hereby rescinded; and 2. the "General Fund Emergency Reserve Policy," as set forth in Exhibit A, attached hereto and incorporated herein, is hereby approved; and 3. the "Internal Service Funds Reserve Policy," as set forth in Exhibit B, attached hereto and incorporated herein, is hereby approved. 4. the "Harbor Accumulation Fund Reserve Policy," as set forth in Exhibit C, attached hereto and incorporated herein, is hereby approved. 5. the "Morro Bay Tourism Business Improvement District Fund Reserve Policy," as set forth in Exhibit D, attached hereto and incorporated herein, is hereby approved. PASSED AND ADOPTED, by the City Council of the City of Morro Bay, at a regular meeting thereof held on the 23th day of October 2018, by the following vote: AYES: Irons, Davis, Headding, Makowetski, McPherson NOES: None ABSENT: None ABSTAIN: None JAMI� L. IRONS, Mayor ATTEST: t!(/YLsq� D A SWANSON, City Clerk Resolution No. 85-18 Exhibit A I - UZVOIE0alII COUNCIL POLICY GENERAL FUND EMERGENCY RESERVE POLICY Policy Statement The City of Morro Bay (City) is afull-service city, providing essential services to over 10,000 residents related to public safety, planning, building, public works and recreation. In addition, the City has a vibrant tourism industry, attracting thousands of visitors annually, all of whom utilize City services in some fashion. As such, it is prudent for the City to establish and maintain reserve funds to mitigate a variety of emergency situations and ensure that core, essential services are maintained. The City first established a General Fund Emergency Reserve in 1993, which has since been modified four times by Council resolution, the most recently being in 2015 per Resolution 33-15. The City Council of the City has been proactive in setting aside emergency reserves and recognizing the need to utilize reserves during recessionary periods. The City Council sets legislative financial management policies, as recommended by staff and advisory committees. This General Fund Emergency Reserve Policy (Policy) is designed to establish guidelines to ensure fiscal stability of the City and provide guidance to staff in the financial management of City operations. Purpose A properly designed reserve policy is not only a financial best practice, but also sends a positive signal to ratepayers, investors, regulatory, and credit rating agencies the City is committed to maintaining the long -run fiscal strength of the City. Strong and transparent financial policies, including maintaining prudent reserves for emergencies, working capital, and capital improvements, are consistent with Government Accounting Standards and are important to the City as they help to: • Maintain the short-term and long-term financial health of the City • Maintain stable user fees for customers and help ensure manageable rate increases • Fund unanticipated expenditure contingencies, including emergencies • Ensure funds exist for system and infrastructure improvements • Ensure cash exists for the timely payment of bills • Act as a significant positive credit factor in bond ratings After the City's financial records are finalized and audited, with legal obligations and liability reserves funded, revenues in excess of expenditures are closed out to the General Fund Emergency Reserve. A base amount, both minimum and target levels, are established by Council with adoption of this policy. Staff shall bring forward a recommendation for Council consideration to provide direction on use of funds above the target levels. Definitions The General Fund Emergency Reserve ("GFER") is classified as an "Unrestricted-Undesignated Reserve," representing funding that is being set aside to provide temporary financing for budget stabilization caused by fiscal downturns, unanticipated extraordinary expenditures related to a natural disaster or calamity, or from an unexpected liability or funding decrease created by a legislative action. Those moneys may be used for any lawful purpose, as approved by the City Council, and have not been designated for specific capital and operating needs. The following Unrestricted-Undesignated Reserve Policy addresses the level, use and replenishment of those types of unrestricted cash. The GFER will be accounted for within the General Fund, Unrestricted-Undesignated Reserve Policy The General Fund will have sufficient Unrestricted-Undesignated cash accumulated to maintain or improve its credit ratings, ensure operating and maintenance costs will be paid in a timely manner, pay debt service obligations, invest in needed capital improvements and equipment replacement and other uses on a timely basis. In addition, the GFER will maintain sufficient cash accumulation to minimize impacts from economic downturns, departmental expenditure freezes due to market volatility, other economic impacts on demands, contingencies, and regulatory changes. This GFER Policy outlines minimum and target funding levels. Minimum Level: Equal to twenty-five percent of annual on -going operating expenditures (excluding transfers out) based on the most recent adopted budget. Target Level: Equal to twenty-eight percent of annual on -going operating expenditures (excluding transfers out) based on the most recent adopted budget. Example: FY 2018/19 General Fund Expenditures $13,704,544 (on -going annual expenditures, excluding transfers) Target Level 28%: x 0.28 Target Cash Accumulation $ 378377272 In calculating the minimum target funding level, one-time expenditures and transfers out are not considered ih the base for determining the operating expenditures. The minimum target funding level is intended to ensure sufficient resources to pay budgeted operating and maintenance expenses, recognizing the timing differences between payment of expenditures and receipt of revenues. It also provides a source of funding to allow the City to operate during short term fluctuations in revenues and/or expenditures. Withdrawal &Replenishment of Accumulation Reserves The City will treat the minimum levels as practical reserve floors and allow reserves to increase or decrease within the minimum and target levels, as approved by City Council during the annual budget process. To the extent cash in the GFER is above the target levels, the Council has the flexibility to direct staff to utilize those available funds to fund internal service funds to target levels, fund other one- time operating needs, capital projects (reducing the need for future debt), or pay down liabilities in accordance with this policy as defined in the purpose statement above. Reserve levels below the minimum target reserves would leave the City exposed to operational risks. The City may only draw down the reserve levels with Council approval and the City Manager, in conjunction with the Finance Department, will implement plans to return cash accumulation reserves to their minimum target levels within three years and subject to approval by City Council. DRAFT Page 2 General Fund Emergency Reserve Policy Reporting and Oversight GFER levels will be monitored during the fiscal year and reported in the quarterly financial reports, as provided by the Finance Department. GFER minimum and target levels will be analyzed annually by the Finance Department and an over/under reserve determination shall be made in conjunction with year-end financial results. Those results will be reported to the City Council as part of the year-end financial report presentation. If GFER levels need adjustment due to new risk factors or changes in the industry, then that information will be brought to the City Council as part of the year-end report or sooner, as determined by the City Manager and Finance Department, This Policy will be reviewed during the City's annual budget process; and .updated, if needed, as a result of material changes in the risk exposures or new conditions that required changes in this Policy. DRAFT Page 3 General Fund Emergency Reserve Policy Resolution No. 85-18 IM �9�9ATEp NLV 11 �9j: COUNCIL POLICY INTERNAL SERVICE FUNDS RESERVES POLICY Policy Statement Exhibit B Internal Service Funds are established to provide centralized cost centers for shared expenses and services in order to efficiently track costs and manage resources. Costs are then allocated back to the operational programs based on usage to more accurately determine cost of services. The City of Morro Bay's internal service funds include eight internal service/support funds: Information Technology, facility maintenance, vehicle replacement, capital replacement, compensable leave, and three equipment replacement funds, one each for the water, sewer and harbor enterprise funds. In addition, the City of Morro Bay (City) has one insurance internal service fund, Risk Management, which includes worker's compensation. As each fund is accounted for as a separate entity, operational revenues less expenditures result in either a positive or negative fund balance at any given point in time — Internal Service Funds are similar to the separate checking and savings accounts a person may use for different purposes. At year end, each fund's net balance is represented at the "Fund Balance Reserve." The City Council sets legislative financial management policies, as recommended by staff and advisory committees. This Internal Service Fund Reserves Policy (Policy) is designed to establish guidelines to ensure fiscal stability for the City, accumulating funds and maintaining adequate reserves to repair and replace infrastructure, equipment and/or insurance needs that may be either planned or unexpected, and provides guidance to staff in the financial management of the City. Purpose A properly designed reserve policy is not only a financial best practice, but also sends a positive signal to constituents, investors, regulatory, and credit rating agencies that the City is committed to maintaining the long -run fiscal strength. Strong and transparent financial policies, including maintaining prudent reserves for emergencies, working capital, and capital improvements, are consistent with Government Accounting Standards and are important to the City as they help to: • Maintain the short-term and long-term financial health of the City • Fund unanticipated expenditure contingencies • Ensure funds exist for unexpected and planned infrastructure, equipment and insurance needs • Ensure cash exists for the timely payment of bills • Act as a significant positive credit factor in bond ratings The intent of the Internal Service Funds Reserves is twofold: 1. To ensure sufficient resources exist in each internal service fund to pay for annual ongoing expenses while maintaining a reasonable reserve to fund replacement purchases (i.e. annual vehicle replacement); and, 2. Establish a fund balance level for each fund that is reasonable and prevents the over - accumulation of resources beyond what is needed for normal operating needs plus any amount required for emergency or contingency needs, hold appropriate levels of reserves to support cash flow needs and minimize interfund loans, as well as maintain a reasonable fund balance for contingency purposes. Therefore, this policy will enumerate minimum fund balance levels for each Internal Service Fund based on specific fund -type metrics. This Policy will also address the, use, and replenishment of those types of unrestricted reserves. The Internal Service Funds Reserves will be accounted for within individual and specific funds designated for each reserve. Information Technology Services Fund Information Technology Services provide for the delivery of technology -based services throughout the City's operations, including maintenance of the City's information systems and infrastructure, program implementation, internet, landline, and wireless communications systems, cloud -based technology, and support of all existing information technology as well as new technology initiatives. For technology oversight, security, and efficiency, information technology costs are managed collectively and funded through a charge -back to the various funds and departments. At year end, unspent funding flows into Unrestricted Net Position. Accumulated funds are held in the Information Technology Services Fund for working capital cash flow. Requests for use of the reserve are approved by Council through budget adoption or by a Council approved budget adjustment Resolution during the year. This Information Technology Services Fund outlines minimum and target funding levels. Minimum Level: $100,000 Target Level: $150,000 The target reserve level should allow for periodic upgrades and enhancements to the City's collection of information and communications technology, while also providing sufficient funds to meet annual operating costs. Vehicle Replacement and Enterprise Fund Equipment Replacement Funds The Vehicle and Equipment Maintenance program provides for the maintenance, and servicing of the City's fleet and major equipment to ensure all vehicles and equipment comply with manufacturer's recommendations and safety requirements. The Vehicle Replacement Fund is for all General Fund -owned equipment such as the City's Police, Fire, Public Works, Recreation and pooled vehicles. The City has three equipment maintenance funds, one each for the enterprise funds of water, sewer and harbor. Each individual enterprise fund supports their own equipment maintenance fund and those funds are restricted to the specific enterprise activity. To fund the program, vehicle &equipment replacement costs transfers into the funds are accounted for through the budget process. The enterprise fund operating revenue funds account for the enterprise fund equipment replacement funds while the General Fund is the primary funding source for the Vehicle Replacement Fund. Accumulated funds will be held in the Vehicle and Equipment Replacement Funds for working capital cash flow. At year end, unspent funding flows into Unrestricted Net Position. Requests for use of the reserve are approved by Council through budget adoption or by a Council approved budget adjustment resolution during the year. The Vehicle Replacement Fund, to be funded by the General Fund, minimum and target funding levels are as follows: Minimum Level: Equal to twenty percent of the replacement value of the general fund fleet. DRAFT Page 2 Internal Service Fund Reserves Policy Target Level: Equal to thirty-three percent of the replacement value of the general fund fleet. The Enterprise Equipment Replacement Funds, to be funded by the specific enterprise fund, minimum and target funding levels are as follows: Minimum Level: Equal to twenty percent of the replacement value of the respective enterprise fund fleet. Target Level: Equal to thirty-three percent of the replacement value of the respective enterprise fund fleet. The replacement value shall be calculated based on the most recently updated Vehicle Insurance Coverage list, or other internal tracking list developed by staff. The target reserve level will provide sufficient funds should there be a need for a one-time, larger than normal expenditure related to fleet services. State and Federal reimbursements for use of City -owned equipment, i.e. for fire strike -team support, shall be placed in the appropriate vehicle or equipment replacement fund to support future maintenance or replacement of those vehicles. Facility Maintenance Fund The Facility Maintenance Fund provides for maintenance and non -major repairs and building improvement services for all City -owned facilities that are not part of an enterprise fund (i.e. water, sewer or harbor). Additionally, the fund supports the maintenance and repair needs of the tenants of City -leased buildings and properties as defined in the lease agreements. The program's funding has primarily been derived from rental income from City -owned leased facilities; however, the City is transitioning to funding the program through charge backs to departments based on building space usage. Accumulated net operations are held in the Facility Maintenance Fund for working capital cash flow. At year end, unspent funding flows into Unrestricted Net Position. Requests for use of the reserve are approved by Council through budget adoption or by a Council approved budget adjustment resolution during the year. The Facility Maintenance Fund, to be funded by the General Fund, minimum and target funding levels are as follows: Minimum Level: $50,000 Target Level: $75,000 Given the age of the City's facilities, increased maintenance needs are anticipated. The target funding level of $75,D00 represents a reasonable contingency for unanticipated maintenance issues which do not rise to the capital project level. Compensated Absences Reserves Under the Unassigned Fund Balance classification, the Compensated Absences Reserve is established to smooth expenditure fluctuations resulting from the payout of accrued leave to employees at service separation and distribution payouts. Use of the reserve occurs when total annual compensated absences payouts exceed budgeted salary funds. Large payouts decrease the compensated absences liability at year-end, thereby supporting the practice of utilizing the reserve as needed. Year-end reconciling allocations to and from the reserve are approved through Council's budget resolution adoption each fiscal year, with the liability and resulting reserve amounts determined as part of the year-end close process. It is DRAFT Page 3 Internal Service Fund Reserves Policy the Citys policy to maintain Compensated Absences Reserve funds for the General Fund, Harbor Fund, Water Fund, and Sewer Fund. Each fund shall be maintained separately within the minimum and target levels defined below. The Compensated Absences Reserve minimum and target funding levels are defined as follows: Minimum Level: Equal to thirty percent of the compensated absences liability that is established at year-end. Target Level: Equal to thirty-five percent of the compensated absences liability that is established at year-end. City staff will report to Council on Fund Reserve levels in comparison to the minimum and target funding levels defined by this policy during the annual budget adoption process. Reserve funding in excess of one-third (thirty-three percent) of the liability will be available for the Council to allocate during the budget process. Withdrawal � Replenishment of Accumulation Reserves The City will treat the minimum levels as practical reserve floors and allow reserves to increase or decrease within the minimum and target levels, as approved by City Council during the annual budget process. To the extent moneys in any of the above funds are above the target levels, the Council has the flexibility to direct staff to utilize those available funds to pay for other capital needs, other one-time expenditures, or pay down liabilities as long as the funds legally support that purpose. Reserve levels below the minimum target reserves would leave .the Clty exposed to operational risks. If the City draws down the reserves below the minimum targeted level, then the City Manager, in conjunction with the Finance Department, will implement plans to return cash accumulation reserves to their minimum target levels within three years and subject to approval by City Council. Reporting and Oversight The Internal Service Funds Reserve levels will be monitored during the fiscal year and reported in the quarterly financial reports, as provided by the Finance Department. Internal Service Fund Reserves minimum and target levels will be analyzed annually by the Finance Department and an over/under reserve determination shall be made in conjunction with year-end financial results. Those results will be reported to the City Council as part of the year-end financial report presentation and annual budget adoption process. If Internal Service Fund Reserves levels need adjustment due to new risk factors or changes in the industry, then information will be brought to the City Council as part of the year-end report or sooner, as determined by the Finance Department, This Policy will be reviewed during the City's annual budget process, and updated, if needed, as a result of material changes in the risk exposures or new conditions that required changes in this Policy. DRAFT Page 4 Internal Service Fund Reserves Policy COUNCIL POLICY HARBOR ACCUMULATION FUND RESERVE POLICY Policy Statement Resolution No. 85-18 Exhibit C The City of Morro Bay (City) Harbor Department is responsible for the management of the City's Tidelands Trust stewardship of the State -granted tidelands in Morro Bay, providing for waterfront property and lease management, public service, public safety, and municipal code enforcement on the waterfront, waters and beaches of Morro Bay. The Harbor Department is also responsible for the Harbor facilities maintenance, repair, capital improvement and replacement. The City Council sets legislative financial management advisory committees. This Harbor Accumulation Fund establish guidelines to ensure fiscal stability of the Harb the financial management of the Harbor Department. Purpose policies, as recommended by staff and Reserve Policy ("Policy") is designed to �r Fund and provide guidance to staff in A properly designed reserve policy is not only a financial best practice, .but also sends a positive signal to ratepayers, investors, regulatory, and credit rating agencies the City is committed to maintaining the long -run fiscal strength of the Harbor Department. Strong and transparent financial policies, including maintaining prudent reserves for emergencies, rate stability, working capital, and capital improvements, are consistent with Government Accounting Standards and are important to the Harbor Department as they help to: • Maintain the short-term and long-term financial health of the Harbor Department • Maintain stable user fees for customers and help ensure manageable rate increases • Fund unanticipated expenditure contingencies, including emergencies • Ensure funds exist for system and infrastructure improvements • Ensure cash exists for the timely payment of bills • Act as a significant positive credit factor in bond ratings Definitions The Harbor Accumulation Fund Reserve will be classified as an "Unrestricted-Undesignated Reserve." Those moneys may be used for any lawful purpose, as approved by the City Council, and have not been designated for specific capital and operating needs. The following Unrestricted- Undesignated Reserve Policy addresses the level, use and replenishment of those types of unrestricted cash. The Harbor Accumulation Fund Reserve will be accounted for within fund balances held in the Harbor Accumulation Fund, Unrestricted-Undesignated Reserve Policy The Harbor Department will have sufficient Unrestricted-Undesignated cash accumulated to maintain or improve its credit ratings, ensure operating and maintenance costs will be paid in a timely manner, pay debt service obligations, invest in needed capital improvements and equipment replacement and other uses on a timely basis. In addition, the Harbor Accumulation Fund Reserve will maintain sufficient cash accumulation to minimize user fee increases and departmental expenditure freezes due to market volatility, economic impacts on demands, contingencies, and regulatory changes. This Harbor Accumulation Fund Reserve Policy outlines minimum and target funding levels. Minimum Level: Equal to fifteen percent of annual on -going operating and maintenance expenses based on the most recent adopted budget. Target Level: Equal to twenty five percent of annual on -going operating and maintenance expenses based on the most recent adopted budget. Example: FY 2018/19 Harbor Operating Fund Total Expenditures $1,666,706 (on -going annual expenditures) Target Level 25%: x0.25 Target Cash Accumulation $ 416,677 In calculating the minimum target funding level, one-time expenditures are not considered in the base for determining the operating expenditures. The minimum target funding level is intended to ensure sufficient resources to pay budgeted operating and maintenance expenses, recognizing the timing differences between payment of expenditures and receipt of revenues. It also provides a source of funding to allow the Harbor Department to operate during short-term fluctuations in revenues and expenditures. Withdrawal &Replenishment of Accumulation Reserves The Harbor Department will treat the minimum levels as practical reserve floors and allow reserves to increase or decrease within the minimum and target levels, as approved by City Council during the annual budget process. To the extent cash in the Harbor Accumulation Fund Reserve is above the target levels, the Council has the flexibility to direct staff to utze those available funds to pay for capital projects (reducing the need for future debt), or pay down liabilities related to the Trust lands. Reserve levels below the minimum target reserves would leave the Harbor Department exposed to operational risks. If the City Council authorizes the reserves to fall below the minimum targeted level, then the Harbor Department, in conjunction with the Finance Department will implement plans to return cash accumulation reserves to their minimum target levels within three years and subject to approval by City Council. Reporting and Oversight Harbor Accumulation Fund Reserve levels will be monitored during the fiscal year and reported in the quarterly financial reports, as provided by the Finance Department. The Harbor Accumulation Fund Reserve minimum and target levels will be analyzed annually by the Harbor Department and an over/under reserve determination shall be made in conjunction with year-end financial results. Those results will be reported to the City Council as part of the year-end financial report presentation. If Harbor Accumulation Fund Reserve levels need adjustment due to new risk factors or changes in the industry, then that information will be brought to the City Council as part of the year-end report or sooner, as determined by the Finance Department, in consultation with the Harbor Department. This Policy will be reviewed during the City's annual budget process, and updated, if needed, as a resuIt of material changes in the risk exposures or new conditions that required changes in this Policy. DRAFT Page 2 Harbor Fund Accumulation Reserve Policy Resolution No. 85-18 4 e WA i V '� COUNCIL POLICY Exhibit D MORRO BAY TOURISM BUSINESS IMPROVEMENT DISTRICT FUND ACCUMULATION RESERVE POLICY Policy Statement The City of Morro Bay (MB) Tourism Business Improvement District (TBID) was merged under the City's management in June 2016 to carry out tourism operations and marketing. With Transient Occupancy Tax being leading revenue generator for the City's general fund, the City of Morro Bay relies heavily on tourism and tourist driven activity and events. Therefore, it is in the City's best interest to reserve monies to continue funding tourist related activities during economic downturns when revenues generated into the TBID would likely decline. The City Council sets legislative financial management policies, as recommended by staff and advisory committees. This TBID Accumulation Reserve Policy ("Policy") is designed to establish guidelines to ensure fiscal stability of the MB TBID Fund and provide guidance to staff in the financial management of the Tourism Department, Purpose A properly designed reserve policy is not only a financial best practice, but also sends a positive signal to ratepayers, investors, regulatory, and credit rating agencies the City is committed to maintaining the long -run fiscal strength of the Tourism Department. Strong and transparent financial policies, including maintaining prudent reserves for emergencies, working capital, and capital improvements, are consistent with Government Accounting Standards and are important to the Tourism Department as they help to: • Maintain the short-term and long-term financial health of the Tourism Department • Fund unanticipated expenditure contingencies • Ensure funds exist for tourism promotion • Ensure cash exists for the timely payment of bills • Act as a significant positive credit factor in bond ratings Definitions The MB TBID Fund Accumulation Reserve will be classified as an Unrestricted-Undesignated Reserve. Those reserves may be used for any lawful purpose, as approved by the City Council, and have not been designated for specific operating needs. The following Unrestricted- Undesignated Reserve Policy addresses the level, use, and replenishment of those types of unrestricted reserves. The MB TBID Fund Accumulation Reserve will be accounted for within fund balance of a newly created MB TBID Accumulation Fund. Unrestricted-Undesignated Reserve Policy The Tourism Department will have sufficient Unrestricted-Undesignated cash accumulated to ensure operating and maintenance costs will be paid in a timely manner, invest in .any capital improvements and equipment replacement, continuously promote tourism and tourism events within the City of Morro bay, and other uses on a timely basis. Cash held in the accumulation reserve may only be used for tourist related activities, events or projects, in accordance with section 3,60.030 of the Morro Bay Municipal Code which includes the following: A. "The general promotion of tourism within the district is to include costs as specified in the business plan to be adopted annually; B. The marketing of conference, group, and film business that benefits local tourism and the local hotel industry in the district; and C. The marketing of the district to the travel industry in order to benefit local tourism and the local hotel industry in the district. The MB TBID Accumulation Fund will maintain sufficient cash accumulation to minimize departmental expenditure freezes due to market volatility, economic impacts on demands, and contingencies. This Accumulation Reserve Policy outlines minimum and target funding levels. Minimum Level: Equal to twenty percent of annual on -going operating and maintenance expenses based on the most recent adopted budget. Target Level: Equal to twenty five percent of annual on -going operating and maintenance expenses based on the most recent adopted budget. Example: FY 2018/19 MB TBID Operating Fund Total Expenditures $ 997,135 Less: Accumulation Fund Transfer - 21.653 Total on -going annual expenditures $ 975,482 Target Level 25%: x0.25 Target Cash Accumulation $ 243,871 In calculating the minimum and target funding levels, one-time expenditures are not considered in the base for determining the operating expenditures. The minimum target funding level is intended to ensure sufficient resources to pay budgeted operating and maintenance expenses, recognizing the timing differences between payment of expenditures and receipt of revenues. It also provides a source of funding to allow the Tourism Department to operate during short term fluctuations in revenues and/or expenditures. Withdrawal &Replenishment of Accumulation Reserves The Tourism Department will treat the minimum. levels as practical reserve floors and allow reserves to increase or decrease within the minimum and target levels, as approved by the City Council during the annual budget process. To the. extent Unrestricted-Undesignated Accumulation Reserves are above the target levels, the MB TBID Board and Council has the flexibility to direct staff to utilize those available funds to pay for tourist related events or needs, or pay down liabilities. DRAFT Page 2 MB TBID Fund Accumulation Reserve Policy Reserve levels below the minimum target reserves would leave the Tourism Department exposed to operational risks. If the Tourism Department draws down the reserves below the minimum targeted level, then the Tourism Department, in conjunction with the Finance Department will implement plans to return cash accumulation reserves to their minimum target levels within three years and subject to approval by City Council. All recommended use of reserve cash will be presented to the MB TBID Board for consideration and input prior to being presented to the City Council. Proposed uses of funds may originate at the staff level, MB TBID Board levels or City Council level, however in no circumstance will use of cash within the reserve fund be authorized prior to both the City Council and MB TBID Board having an opportunity to provide input and a recommendation on the use of rserve funds. Reporting and Oversight MB TBID Fund Accumulation Reserve Levels will be monitored during the fiscal year and reported in the quarterly financial reports, as provided by the Finance Department. Accumulation Reserve minimum and target levels will be analyzed annually by the Tourism Department and an over/under reserve determination shall be made in conjunction with year-end financial results. Those results will be reported to the TBID Board and City Council as part of the year-end financial report presentation. If Unrestricted-Undesignated Accumulation Reserve levels need adjustment due to new risk factors or changes in the industry, that information will be brought to the TBID Board and City Council as part of the year-end report or sooner, as determined by the Finance Department, in conjunction with the Tourism Department as needed. This Policy will be reviewed during the City's annual budget process, and updated, if needed, as a result of material changes in the risk exposures or new conditions that required changes in this Policy. DRAFT Page 3 MB TBID Fund Accumulation Reserve Policy