HomeMy WebLinkAboutReso 89-18 Risk Management Fund Reserve PolicyRESOLUTION RV. 89-18
RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF MORRO BAY, CALIFORNIA,
RESCINDING RESOLUTION NO.32=15 AND
ESTABLISHING A RISK MANAGEMENT FUND RESERVE POLICY
THE CITY COUNCIL
City of Morro Bay, California
WHEREAS, the City Council is adopting Accounting and Financial policies to provide
guidance to staff and transparency surrounding the City's financial management; and
WHEREAS, staff recommends the City Council adopt the proposed Risk Management
Reserve Fund Policy, which demonstrates the City's commitment to fiscal responsibility and prudent
management and is consistent with Government Accounting Standards; and
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Morro Bay,
California:
SECTION 1. Rescinds Resolution No. 32-15 and
SECTION 2. Establishes the "Risk Management Fund Reserve Policy," as set forth in
Exhibit A, 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 theday %J November 20181 by the following vote:
AYES: Irons, Davis, Headding, Makowetski, McPherson
NOES: None
ABSENT: None
ABSTAIN: None
ATTEST:
LORI M. KUDZMA, Deputy City Clerk
COUNCIL POLICY
RISK MANAGEMENT RESERVE POLICY
Policy Statement
Resolution No.89-18
Internal Service Funds are established to provide centralized cost centers for shared expenses and
services in order to track costs and manage resources, efficiently. Costs are then allocated back to
the operational programs based on usage to determine cost of services, more accurately.
The City of Morro Bay's Risk Management Fund is an internal service fund used to account for the
City's self -insured liability program and for the purchase of various types of property and casualty
insurance protection and fund damages not covered by that insurance, all as required by the City.
The funds are used to pay any liability losses, program operating costs, insurance premiums and
insurance deductibles. Revenues for this fund are generated from assessments made to all City
departments for their pro rata share of the total costs of the insurance administration program.
The City of Morro Bay is a member of the California Joint Powers Insurance Authority (CJPIA),
which is a pooled insurance program that allows the City of Morro Bay, as a small city, to receive
insurance coverage costs to a reasonable amount.
The City Council sets legislative financial management policies, as recommended by staff and
advisory committees. This Risk Management Policy ("Policy") is designed to establish guidelines
to ensure fiscal stability for the City of Morro Bay, accumulating funds and maintaining adequate
reserves to provide sufficient funding to cover annual insurance expenses while providing
additional funds for unforeseen, emergency needs such as an adverse legal judgement, a large
one-time deductible payment, or other similar one-time expenses. It should be noted the City's
General Fund Emergency Reserve Fund could also be utilized as a further source of funds in the
event of a large insurance related claim.
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 showing the City is
committed to maintaining its 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 Risk Management Fund Reserve is twofold:
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Resolution No. 89-18
1. To ensure sufficient resources exist to purchase various types of property and casualty
insurance protection as required by the City, including liability losses, program operating
costs and insurance premiums and deductibles; and,
2. Establish a fund balance level reasonable enough to support current and future liability
claims as well as any catastrophic event, which may occur in the City.
Therefore, this policy will enumerate minimum fund balance levels for the Risk Management
Reserve fund based on specific metrics. The Policy will also address the, use, and replenishment
of those types of reserves. The Risk Management Reserve Fund will be accounted for within the
Risk Management Fund.
Risk Management Fund provides for the City's liability and insurance premiums, workers
compensation insurance expenditures and potential exposure to claims the City would pay outright
due to not being a qualified covered claim or the amount of the claim. At year end, unspent
funding flows into Unrestricted Net Position. Accumulated net operations are held in the Risk
Management Fund for cash flow to help offset unexpected increases in insurance premiums,
claims costs paid directly by the City, including personnel related claims and workers
compensation expenses. 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 Risk Management Fund outlines minimum and target funding levels.
Minimum Levet: $350,000
Target Level: $500,000
The target reserve level should allow for adequate funding to support unexpected expenses,
including premium increases and city paid claims.
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 or as needed by the Finance Department.
To the extent Unrestricted Accumulation Reserves (UAR) are above the target levels, the Council
has the flexibility to direct staff to utilize those available monies to pay for other capital needs, other
one-time expenditures, or pay down liabilities as long as use of the UAR legally supports that
purpose.
Reserve levels below the minimum target reserves would leave the City exposed to operational
risks. If the City draws down the UAR below the minimum targeted level, then the City Manager, in
conjunction with the Finance Department will implement plans to return cash in the UAR to their
minimum target levels within three years and subject to approval by City Council.
The Risk Management Fund Reserve Level will be monitored during the fiscal year and reported in
the quarterly financial reports, as provided by the Finance Department. Fund Reserve 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
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Resolution No. 8948
reported to the City Council as part of the year-end financial report presentation and annual budget
adoption process. If 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.
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.
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