AGENDA REQUEST. AGENDA ITEM NO: XIV.4. BY Financial Administration John Lege Financial Administration Director Lege. New Business.

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1 AGENDA HEADING: New Business AGENDA REQUEST COMMISSION MEETING DATE: December 7, 2015 AGENDA ITEM NO: XIV.4. BY Financial Administration John Lege Financial Administration Director Lege Originating Department SUBJECT: Department Head Presenter Adoption Re: Proposed Resolution No. 16R-2544 Establishing a Revenue Stabilization Fund Financial Policy for the City of Sarasota's General Fund COMMISSION PRIORITIES: Budget and Finance EXPLANATION: (see next page for additional explanation) During the Fiscal Year budget process, the City first established a Revenue Stabilization Fund ( Fund ) for the City s General Fund. The Fund was established by transferring $2,937,500 from the General Fund s Unassigned Fund Balance to the newly established Revenue Stabilization Fund. The Revenue Stabilization Fund remained at the initial $2,937,500 level from the initial funding in Fiscal Year through Fiscal Year In Fiscal Year , the Revenue Stabilization Fund was reduced from $2,937,500 to $1,406,468, a decrease of $1,531,032. The decrease was required because Fiscal Year actual revenues for the six revenue sources determined by the policy were lower than the 10-year trend analysis and as required by the policy set forth in Fiscal Year Staff is in the process of closing out the books for Fiscal Year and has calculated the impact of the current Revenue Stabilization Fund Policy. Based on staff's calculation and the current Revenue Stabilization Fund Policy, the City would be required to reduce the current Revenue Stabilization Fund by $900,780 from $1,406,468 to $505,688 even though ADMINISTRATION'S RECOMMENDATION: Recommend motion to adopt proposed Resolution No. 16R APPROVAL SUMMARY: Approval Department Head Approval City Manager Approval City Auditor and Clerk Approval Required Date Completed Y 12/02/2015 Y 12/02/2015 Y 12/02/2015 Completed By John Lege Marlon Brown Pamela Nadalini Status APPROVED APPROVED APPROVED

2 ADDITIONAL EXPLANATION: AGENDA REQUEST unaudited General Fund Revenues exceed unaudited General Fund Expenditures by approximately $4.8 million (Less approximately $2.1 million for the BP Oil Spill proceeds). Staff believes that in a year where actual total revenues exceed actual total expenditure, the City should be adding to its Revenue Stabilization Fund and not reducing it. The Government Accounting Standards Board issued Statement No. 54 Fund Balance Reporting and Governmental Fund Type Definitions (GASB-54) in February 2009 and it was effective for financial statements for periods beginning after June 15, The City implemented GASB-54 during Fiscal Year GASB-54 established reporting standards for all governments that report governmental funds. It established criteria for classifying fund balances into specific defined classifications and clarified definition for governmental fund types. GASB-54 also defined and outlined the guidelines for stabilization agreements. Staff is recommending the City Commission adopt Resolution No. 16R-2544 to formally establish a Revenue Stabilization Fund Financial Policy for the City of Sarasota s General Fund. The adoption of this Resolution would accomplish two things. It would eliminate the 10-year trend line analysis which proves to reduce the Revenue Stabilization Fund in years where General Fund Revenues exceed General Fund Expenditures and it would formalize the City s Revenue Stabilization Fund Policy and bring it into compliance with GASB-54. The details of the formalized Revenue Stabilization Fund Policy are set forth in Resolution No. 16R-2544 and is based on the following seven principles that will guide the initial funding, subsequent funding, withdrawing and replenishment of the City s Revenue Stabilization Fund: 1) The maximum balance of the Fund will be equal to three and a half percent of budgeted General Fund recurring revenues for the then current fiscal year. For Fiscal Year , this target amount is $1,997,301. 2) The Fund will be financed initially through an additional transfer of $590,833 of available resources from the General Fund Unassigned Fund Balance. 3) Subsequent transfers to the Fund may be recommended by the City Manager and be based on the General Fund financial results of the most recently ended fiscal year or included as part of the City Manager s budget recommendations for the upcoming fiscal year. 4) Withdrawals from the Fund can only be considered if there is an unexpected General Fund recurring revenue decline of at least three percent below the original budget projections for the then current fiscal year. 5) Only one-third of the anticipated General Fund recurring revenue decline can be recovered through a transfer from the Fund in any one fiscal year. 6) No more than twenty-five percent of the balance in the Fund can be withdrawn in any one fiscal year. 7) Withdrawals from the Fund must be approved by the City Commission as a formal budget action. Staff recommends adoption of Resolution No. 16R-2544 to formally establish a Revenue Stabilization Fund Financial Policy for the City of Sarasota s General Fund in accordance with the Governmental Accounting Standards Board Statement No. 54 Fund Balance Reporting and Governmental Fund Type Definitions. 2

3 ADDITIONAL ADMIN RECOMMENDATION: AGENDA REQUEST FUNDING SOURCE: AMOUNT: HOUSING IMPACT (Per House): NEW CONSTRUCTION: REHABILITATION: $ 0 $ 0 SUPPORT DEPARTMENTS: - COMMISSION ACTION: Final Action Motion: Motion By: AGENDA DISPOSITION Second By: Vote: 3

4 Memorandum Date: December 7, 2015 To: Tbru: From: Subject: City Commission Thomas W. Barwin, City Manager John Lege, Finance Director ESTABLISIDNG A REVENUE STABILIZATION FUND FINANCIAL POLICY FOR THE CITY OF SARASOTA'S GENERAL FUND Staff is recommending the City Commission adopt Resolution No. 16R-2544 to formally establish a Revenue Stabilization Fund Financial Policy for the City of Sarasota's General Fund in accordance with Governmental Accounting Standards Board Statement No Fund Balance Reporting and Governmental Fund Type Definitions (GASB-54). Background During the Fiscal Year budget process, the City first established a Revenue Stabilization Fund ("Fund") for the City's General Fund. The Fund was established by transferring $2,937,500 from the General Fund's Unassigned Fund Balance to the newly established Revenue Stabilization Fund. In the City Managers budget letter to the City Commission dated September 15, 2008, it states, "The budget includes implementation strategies to minimize the impact of economic conditions of the City's budget. In the past, major downturns in the statewide economy have necessitated large cutbacks in expenditures. With the creation of a new stabilization fund, which is included in this recommendation, the City budget will not be subject to the wide swings of the past. Revenues will be projected on a I 0-year trend line analysis. If revenues exceed the trend line, the excess will be transferred to the stabilization fund. If revenues fail to meet the trend line projections, the stabilization fund will be tapped. The new stabilization fund will be established by reducing the City's General Fund unrestricted reserve fund balance by $2,937,500." The Revenue Stabilization Fund remained at the initial $2,937,500 level from the initial funding in Fiscal Year through Fiscal Year In Fiscal Year , the Revenue Stabilization Fund was reduced from $2,937,500 to $1,406,468, a decrease of$1,531,032. The decrease was required because Fiscal Year actual revenues for the six revenue sources determined by the policy were lower than the 1 0- year trend analysis and as required by the policy set forth in Fiscal Year Staff is in the process of closing out the books for Fiscal Year and has calculated the impact of the current Revenue Stabilization Fund Policy. That calculation is listed below: Fiscal Year year Revenue Trend Communication Services Tax $3,085,623 $3,779,740 Electric Franchise Fees $4,687,866 $4,877,640 Natural Gas Franchise Fees $80,011 $134,106 State Revenue Sharing $1,828,400 $1,822,827 Half Cent Sales Tax $4,501,743 $3,999,429 Investment Earnings $215,943 $686,624 Total $14,399,586 $15,300,366 Fiscal Year 2015 $14,399,586 Reduction in RSF $900,780 1 of 5

5 Based on the calculation above and the current Revenue Stabilization Fund Policy, the City would be required to reduce the current Revenue Stabilization Fund by $900,780 from $1,406,468 to $505,688 even though unaudited General Fund Revenues exceed unaudited General Fund Expenditures by approximately $4.8 million (Less approximately $2.1 million for the BP Oil Spill proceeds). Staff believes that in a year where actual total revenues exceed actual total expenditure, the City should be adding to its Revenue Stabilization Fund and not reducing it. GASB-54 The Government Accounting Standards Board issued Statement No Fund Balance Reporting and Govemmental Fund Type Definitions (GASB-54) in February 2009 and it was effective for financial statements for periods beginning after June 15, The City implemented GASB-54 during Fiscal Year GASB-54 established reporting standards for all governments that report governmental funds. It established criteria for classifying fund balances into specific defined classifications and clarified definition for governmental fund types. GASB-54 also defined and outlined the guidelines for stabilization agreements. Governments formally set aside amounts for use in an emergency situations or when revenue shortages arise. Those amounts are subject to controls that dictate the circumstances under which they can be spent. Many governments have formal arrangements to maintain amounts for budget or revenue stabilization. The authority to set aside those amounts generally comes from statute, ordinance, resolutions, charter or constitution. Stabilization amounts may be expended only when certain specific circumstances exist. The formal action that imposes the parameters for spending should identify and describe the specific circumstances under which a need for stabilization arises. Those circumstances should be such that they do expect to occur routinely. For example, a stabilization amount that can be accessed "in an emergency" would not quality to be classified within the committed category because the circumstances or condition that constitute an emergency are not sufficiently detailed, and it is not unlikely that an "emergency" of some nature would routinely occur. Similarly, a stabilization amount that can be accessed to offset an "anticipated revenue shortfall" would not qualify unless the shortfall was quantified and was of a magnitude that would distinguish it from other revenue shortfalls that occur during the normal course of governmental operations. The Revenue Stabilization Fund Financial Policy that staff is proposing meets this criterion. Conclusion Staff is recommending the City Commission adopt Resolution No. 16R-2544 to formally establish a Revenue Stabilization Fund Financial Policy for the City of Sarasota' s General Fund. The adoption of this Resolution would accomplish two things. It would eliminate the 1 0-year trend line analysis which proves to reduce the Revenue Stabilization Fund in years where General Fund Revenues exceed General Fund Expenditures and it would formalize the City's Revenue Stabilization Fund Policy and bring it into compliance with GASB-54. The details of the formalized Revenue Stabilization Fund Policy are set forth in Resolution No. 16R-2544 and is based on the following seven principles that will guide the initial funding, subsequent funding, withdrawing and replenishment of the City's Revenue Stabilization Fund; 1) The maximum balance of the Fund will be equal to three and a half percent of budgeted General Fund recurring revenues for the then current fiscal year. For Fiscal Year , this target amount is $1,997,301. 2) The Fund will be financed initially through an additional transfer of $590,833 of available resources from the General Fund Unassigned Fund Balance. 3) Subsequent transfers to the Fund may be recommended by the City Manager and be based on the General Fund financial results of the most recently ended fiscal year or included as part of the City Manager's budget recommendations for the upcoming fiscal year. 4) Withdrawals from the Fund can only be considered if there is an unexpected General Fund recurring revenue decline of at least three percent below the original budget projections for the then current fiscal year. 5) Only one-third of the anticipated General Fund recurring revenue decline can be recovered through a transfer from the Fund in any one fiscal year. 2 of 5

6 6) No more than twenty-five percent of the balance in the Fund can be withdrawn in any one fiscal year. 7) Withdrawals from the Fund must be approved by the City Commission as a formal budget action. Staff recommends adoption of Resolution No. 16R-2544 to formally establish a Revenue Stabilization Fund Financial Policy for the City of Sarasota's General Fund in accordance with the Governmental Accounting Standards Board Statement No. 54- Fund Balance Reporting and Governmental Fund Type Definitions. Finance Director 3 of 5

7 RESOLUTION NO. 16R-2544 A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF SARASOTA, FLORIDA, ESTABLISHING A REVENUE STABILIZATION FUND FINANCIAL POLICY FOR THE CITY OF SARASOTA S GENERAL FUND; PROVIDING FOR READING BY TITLE ONLY; AND PROVIDING FOR AN EFFECTIVE DATE. WHEREAS, the City Commission, after careful and thorough study of the matter and in keeping with its mission to protect and manage the City s financial assets in a sound and prudent manner, establishes a Revenue Stabilization Fund as part of the City s financial policies; and WHEREAS, the purpose of the Revenue Stabilization Fund (the Fund ) is to soften or minimize serious negative repercussions due to sudden, unanticipated reductions in major City revenue sources; and WHEREAS, the Fund operates by sequestering certain amount of available resources which, in the event of an economic downturn, can be used to provide a certain level of general operating support; and WHEREAS, the following seven principles will guide the initial funding, subsequent funding, withdrawing and replenishment of the City s Revenue Stabilization Fund; 1) The maximum balance of the Fund will be equal to three and a half percent of budgeted General Fund recurring revenues for the then current fiscal year. For Fiscal Year 2015, this target amount is $1,997,301. 2) The Fund will be financed initially through an additional transfer of $590,833 of available resources from the General Fund Unassigned Fund Balance. 3) Subsequent transfers to the Fund may be recommended by the City Manager and be based on the General Fund financial results of the most recently ended fiscal year or included as part of the City Manager s budget recommendations for the upcoming fiscal year. 4) Withdrawals from the Fund can only be considered if there is an unexpected General Fund recurring revenue decline of at least three percent below the original budget projections for the then current fiscal year. 5) Only one-third of the anticipated General Fund recurring revenue decline can be recovered through a transfer from the Fund in any one fiscal year. 4 of 5

8 6) No more than twenty-five percent of the balance in the Fund can be withdrawn in any one fiscal year. 7) Withdrawals from the Fund must be approved by the City Commission as a formal budget action. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF SARASOTA, FLORIDA: Section 1: The City Commission of the City of Sarasota, Florida hereby establishes a Revenue Stabilization Fund as part of its financial policies and adopts the seven guiding principles described above for the initial funding, subsequent funding, withdrawing and replenishment of this Fund. Section 2: This Resolution shall take effect immediately upon its adoption. ADOPTED by the City Commission of the City of Sarasota, Florida, upon reading by title only, after posting on the bulletin board at City Hall for at least three (3) days prior to adoption, as authorized by Article IV, Section 2, Charter of the City of Sarasota, Florida, this day of, Attest: _ Willie Charles Shaw, Mayor Pamela M. Nadalini City Auditor and Clerk Mayor Willie Charles Shaw Vice-Mayor Suzanne Atwell Commissioner Susan Chapman Commissioner Liz Alpert Commissioner Shellie Eddie 5 of 5