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HomeMy WebLinkAboutReso 51-21 Readopting Harbor Reserve PolicyRESOLUTION NO. 51-21 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MORRO BAY, CALIFORNIA, RESCINDING RESOLUTION NO. 85-18 IN ENTIRETY, AND REESTABLISHING A HARBOR ACCUMULATION FUND RESERVE POLICY THE CITY COUNCIL City of Morro Bay, California WHEREAS, on October 23, 2018, the City Council adopted Resolution No. 85-18 establishing various reserve policies, including the 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, the City Council acknowledges that further review of this policy is warranted when the City has fuller understanding of the necessary investments in capital improvements and asset maintenance at the Harbor and Embarcadero; and WHEREAS, staff recommends the City Council rescind Resolution No. 85-18 and adopt separate resolutions for each of its financial policies; and NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Morro Bay, California: 1. Resolution No. 85-18 is hereby rescinded; and 2. The "Harbor Accumulation 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 the 22nd day of June 2021, by the following vote: AYES: Headding, Addis, Barton, Davis, Heller NOES' None ABSENT: None ABSTAIN: None JOH ATTEST: ANA SWANSON, City Clerk Clerk 9 H � De GiVlayor EXHIBIT "A" CITY OF MORRO BAY HARBOR ACCUMULATION FUND RESERVE POLICY P olicy Statement 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 policies, as recommended by staff and advisory committees This Harbor Accumulation Fund Reserve Policy ( Policy") is designed to establish guidelines to ensure fiscal stability of the Harbor Fund and provide guidance to staff in the financial management of the Harbor Department. P urpose 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 Tong -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- U ndesignated 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. U nrestricted-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 maintenance expenses based on the most recent adopted Target Level: Equal to twenty five percent of annual maintenance expenses based on the most recent adopted Example: FY 2018/19 Harbor Operating Fund Total Expenditures (on -going annual expenditures) Target Level 25%n Target Cash Accumulation on -going operating and budget. on -going operating and budget. $1,666,706 x0.25 $ 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 utilize 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 result of material changes in the risk exposures or new conditions that required changes in this Policy.