Attachment 1GENERAL FUND RESERVE POLICY
December 2018
ATTACHMENT 1
General Fund Reserve Policy
TABLE OF CONTENTS
Report Purpose 1
Proposed Policy Overview 1
Minimum Target Reserve 1
Accounting for the Reserve 2
Setting the Base 3
Continuing to Include the Reserve Policy in the Budget Document 4
Discussion 4
The Power of Fiscal Policies 4
Prudent Reserves Reflect Ability to Manage Risk, Not Fiscal Strength Per Se 5
What’s the Right Amount? 5
Rating Agency Recommendations 5
Benchmark Analysis: Policies in Comparable Cities 5
GFOA Structured Assessment Methodology 7
Alternatives
Setting the Minimum Target Reserve at Lower or Higher Amounts than 30% 9
Segregating the Reserve into Separate Components 10
Setting the Base 11
Conclusion 11
APPENDIX
A.Current General Fund Reserve Policy A-1
B.Benchmark Analysis: Policies in Comparable Cities B-1
C.Selection of Benchmark Cities
D.General Fund Reserve Risk Factors: GFOA Structured Assessment Methodology C-1
E.Cash Flow Analysis D-1
F.Consultant Background E-1
- 1 -
Town of Los Gatos
GENERAL FUND RESERVE POLICY
The purpose of this report is to review the Town’s current minimum General Fund reserve
policy and make recommendations for change as appropriate. The Town’s current policy is
provided in Appendix A, which includes the six key areas that should be covered in effective
reserve policies:
• Sets the minimum reserve target.
• Identifies when it is appropriate to use reserves below the target amount .
• Provides a strategy for restoring the reserve if it falls below the target minimum.
• Presents guidelines for accounting and financial reporting of the reserve.
• Discusses other areas where the Council may decide to set reserve amounts.
• Compares actual versus target .
As noted above, of these six components, this review focuses on setting the minimum
“operating reserve” target. The current combined minimum target is 25% of ongoing
operating expenditures, minus one-time expenditures, with 12.5% assigned to Budget
Stabilization and 12.5% assigned to Catastrophic events. Based largely on the structured
approach developed by the Government Finance Officers Association of the United States
and Canada (GFOA) in assessing risk factors (www.gfoa.org/financialpolicies), the
recommended target minimum is 30% of operating and debt service expenditures.
PROPOSED POLICY OVERVIEW
Minimum Reserve Target
The recommended policy sets the target minimum unrestricted General Fund balance at 30%
of operating and debt service expenditures. This is largely based on the structured
assessment methodology for setting reserve levels developed by the GFOA in considering a
city’s exposure to the following eight fiscal risk factors, which are discussed in greater detail
later in this report:
• Vulnerability to extreme events and public safety concerns
• Revenue source stability
• Expenditure volatility
124 Cerro Romauldo Avenue
San Luis Obispo, CA 93405
805.544.5838 ◼ Cell: 805.459.6326
bstatler@pacbell.net
www.bstatler.com
William C. Statler
Fiscal Policy ◼ Financial Planning ◼ Analysis ◼ Training ◼ Organizational Review
. . . . . . . . .
General Fund Reserve Policy
- 2 -
• Leverage, such as unfunded pensions and asset maintenance
• Liquidity (cash flow)
• Dependence of other funds on the General Fund
• Growth: revenue and expenditure imbalance
• Unfunded high priority capital projects
Depending on the results of this assessment, the GFOA methodology provides recommended
targets ranging from a minimum of 16.6% of expenditures (60 days cash flow) to
circumstances where more than 35% might be warranted. Based on the Town’s
circumstances, the GFOA’s structured methodology recommends a target of 26% to 35%.
Based on a “rating” at the middle range of the scale, combined with benchmark results for
comparable cities, this report recommends a target of 30% of operating and debt service
expenditures as follows.
The Town will strive to maintain a minimum General Fund unrestricted balance (less
encumbrances and reappropriation carryovers) of at least 30% of operating and debt
service expenditures for budget stability, cash flow and contingencies such as
catastrophic events and unforeseen operating or capital needs. This is based on the risk
assessment methodology for setting reserve levels developed by the Government Finance
Officers Association of the United States and Canada.
Accounting for the Reserve
As noted in side bar, under
generally accepted accounting
policies, General Fund balances
are classified into the following
categories:
• Non-spendable
• Restricted
• Unrestricted
- Committed
- Assigned
- Unassigned
While categorizing fund balance
as non-spendable or restricted is
generally clear between cities, the
classification of the unrestricted
fund balance between committed,
assigned and unassigned amounts
varies between cities based on
their budget and fiscal policies.
General Fund Balance Classifications
Under generally accepted accounting principles set
by the Government Accounting Standards Board
(GASB) in Statement No. 54, General Fund balance
is classified into five components:
• Non-Spendable. Amounts that are not in
spendable form, such prepaid items or
inventories.
• Restricted. Amounts subject to externally
enforceable restrictions imposed by outside third
parties.
• Committed. Amounts whose use is constrained
internally by the agency itself for specific
purposes set by the governing body.
• Assigned. Amounts intended for specific
purposes as determined by the governing body
or others it has formally designated.
• Unassigned. Residual classification of
spendable amounts available for other
purposes.
General Fund Reserve Policy
- 3 -
For this reason, in setting the target as well as in benchmarking the Town’s policy and actual
results with comparable cities, it makes sense to conceptually organize reserves into two
broad components, regardless of how they are classified :
Conceptual Components
Operating Reserve Other Reserves
• Economic uncertainties
• Contingencies for unforeseen operating
or capital needs
• Cash flow
• Insurance
• Fleet replacement
• Equipment/information technology
replacement
• Facilities
• Capital projects
• Uncompensated absences
• Encumbrances/carryovers
• Unfunded pension and retiree health
care obligations
Within this conceptual framework, the Town’s current policy establishes the following
reserves:
Operating Reserve Other Reserves
Committed balance of 25% of ongoing
operating expenditures, minus one-time
expenditures for:
• Catastrophic events: 12.5%
• Budget stabilization: 12.5%
After assessing other reserve needs, any
reserves in excess of 25% are allocated to
the capital projects reserve. Under this
policy, three is no unassigned General Fund
balance.
Commitment and Assignments for:
• Unfunded pensions/retiree health care
obligations
• Almond Grove street project
• Encumbrances
• Reappropriations
• Open space
• Capital projects
• Compensated absences
• Other special projects such as
sustainability and strategic planning
The proposed policy sets the operating reserve target of 30% based on the unrestricted
General Fund balance, less encumbrances and reappropriation carryovers. This is based on
the Town’s current policy of identifying reserves for other purposes besides budget
stabilization and catastrophic events within the unrestricted balance; and ensuring that the
commitment to the “operating reserve” target will be met first .
Setting the Base
The Town’s current policy sets the “base” for the target as “ongoing operating expenditures,
minus one-time expenditures.” While the difference in result is likely to be insignificant, for
General Fund Reserve Policy
- 4 -
clarity and transparency in calculating the reserve, a minor change in the base is
recommended to “operating and debt service expenditures.”
Continuing to Include the Reserve Policy in the Budget Document
Having a clearly stated reserve policy has its greatest value during the budget preparation,
review and adoption process. According, this report recommends continuing the Town’s
practice of including the reserve policy in the budget document itself (along with other
significant budget and fiscal policies), along with an analysis of changes in General Fund
reserves.
DISCUSSION
The Power of Fiscal Policies
As we know from experience over the past 25 years, with the recession and recoveries of
1992-94, 2003-05 and the Great Recession beginning in 2008, good times come and go. But
an organization’s values shouldn’t. And that’s what fiscal policies are all about: articulating
your financial management values before they are place under stress.
Stated simply, clearly articulated policies – and being guided by them – are the best way of
ensur ing long-term fiscal health. While the strength of the local econo my and related
General Fund revenues are important, no city is immune from economic downturns. In
navigating tough fiscal times, effective financial management is the most critical factor for
long-term fiscal success; and clearly articulated policies provide an essential framework and
foundation for effective decision-making.
Fiscal policies are important in both good times and bad. The roots of fiscal adversity for
most governments take hold in the good times, by making commitments that are not
sustainable. They rarely surface in the “bad” times, when most agencies act on the “First
Rule of Holes” (when you find yourself in one, stop digging).
They are both preventative and curative:
• Clearly articulated policies – and following them – help prevent problems from arising in
the good times.
• And provide more effective responses when the inevitable bad times occur.
They are most powerful when it put in place before the need for them arrives, recognizing
that not all financial decision-making situations can be reasonably anticipated.
Policies should be set based on the agency wants to be, which may not be where it is today.
However, setting the course for where it wants to be significantly enhances its ability to get
there. Accordingly, each policy should include a brief “compliance status.” And if it is not
there yet, the policy should provide the agency’s plan for getting there. (As noted above, the
Town’s reserve policy includes this component.)
General Fund Reserve Policy
- 5 -
Policies Versus Plans. Planning is essential for success. However, plans change over time as
actual results replace assumptions. But fiscal policies are the “north star” guiding the
preparation of plans. They help making tough decisions easier by articulating values before
they are put placed under stress by adverse circumstances. An organization can reasonably do
something else, but policies are a powerful starting point for asking: but for “this”
unexpected circumstance, what would we have otherwise done?
Lastly, of all the fiscal policies that cities should set, minimum reserve targets are among the
most important.
Prudent Reserves Reflect Ability to Manage Risk, Not Fiscal Strength Per Se
Reserves – whether large or small – do not per se reflect on a city’s financial capacity or
underlying fiscal strength. There are much better indicators than reserves for this, most
notably the ability over time for ongoing revenues to adequately meet day-to-day service
needs, capital improvement goals and debt service requirements.
Stated simply, reserves are a risk management tool: how much can things go differently than
the organization otherwise thought they would before it must take corrective action?
Reserves can also serve as a bridge to the future, providing time to develop and implement
thoughtful solutions.
Typical risks that reserves help mitigate include economic uncertainties, such as downturns
in the economy and external revenue hits (like State takeaways); responding to local
disasters; contingencies for unforeseen operating or capital needs ; strategic opportunities; and
cash flow.
What’s the Right Amount? It depends on each agency’s unique fiscal circumstances and
capacity for risk. In answering this question, there are three sources to consider:
• Rating agency recommendations.
• Benchmarking: policies in comparable cities with a reputation for being well-managed.
• GFOA structured assessment approach.
Rating Agency Recommendations
All three of the major rating agencies – Moodys, Standard and Poors and Fitch – identify
reserve policies as one of their most important factors in assessing an agency’s financial
management and assigning bond ratings. While they do not provide recommended
minimums, they are interested in their basis a nd the agency’s track record in following them.
Benchmark Analysis: Policies in Comparable Cities
When carefully prepared, benchmark analysis can be a powerful tool in assessing a wide-
range of topics, including staffing, performance, financial condition, policies, organizational
structure – and in this case – reserve policies. However, making meaningful comparisons
General Fund Reserve Policy
- 6 -
requires carefully selecting both the data that will be collected (“metrics”) and the benchmark
cities to ensure they represent as close a match to the Town as possible, recognizing that a
“perfect” match is not possible.
This means that along with selecting comparably sized cities, it is important to select cities
that share other important service, economic, geographic and demographic characteristics
with Los Gatos as well. Additionally, to avoid a “race to the bottom,” comparison cities
should also be selected that have a reputation for being well-managed and leaders in the use
of “best practices.”
Selecting Benchmark Cities. While the process in selecting benchmark cities is discussed in
greater detail in Appendix C, the following out lines the key criteria used in selecting twelve
comparable cities:
• Similar population, ranging between 22,000 to 80,000.
• Location: All are located in Santa Clara or San Mateo County.
• Ten of the twelve have significant wildland interfaces.
• Suburban, affluent communities part of larger geographic area
• Similar range of services.
• Nine of the twelve have been used by Town before in fee and compensation studies.
• Use “best practices:” all have received the GFOA’s excellence in financial reporting
award and have formal reserve policies.
Of the 482 cities in California, 138 are larger than 15,000 in population and smaller than
45,000 (about 50% smaller and 50% larger than L os Gatos). Of these, 19 are suburban
communities with significant wildland int erfaces (including Los Gatos). A close look at
these cities (along with five others that the Town has previously used for comparison fee and
compensation studies: Cupertino, Gilroy, Milpitas, Mountain View and Palo Alto) resulted in
the following twelve comparison cities (population in parenthesis):
• Burlingame (30,294)
• Campbell (42,696)
• Cupertino (60,091)
• Gilroy (55,615)
• Los Altos (31,361)
• Millbrae (22,854)
• Milpitas (74,865)
• Morgan Hill (44,513)
• Mountain View (81,527)
• Palo Alto (69,721)
• San Carlos (29,897)
• Saratoga (31,435)
Benchmarking Results. A detailed matrix of current reserve policies and actual results
(based on audited results for the last completed year available for all cities, which is the fiscal
General Fund Reserve Policy
- 7 -
year ended (FYE) June 30, 2017 in these twelve cities (along with Los Gatos) is provided in
Appendix B, summarized as follows:
Note: As discussed in Appendix B, some cities’ policies are set as a percent of revenues and/or fixed amounts.
For comparison purposes, in these cases reserves have been converted to percent of operating expenditures.
As reflected in this summary:
• “Operating reserve” policies range from 15% to 38% of operating expenditures (excludes
“other reserves,” which are in place in nine of the twelve benchmark cities).
• The average reserve policy is 25%.
• All meet or exceed their target policy minimum, with actual reserves ranging from 26%
to 89% of operating expenditures.
• The average actual operating reserve is 47%, or about twice the average policy.
GFOA Structured Assessment Methodology
The GFOA has developed a structured assessment methodology for setting reserve levels in
considering an agency’s exposure to the following eight fiscal risk factors:
1. Vulnerability to Extreme Events and Public Safety Concerns. Major extreme events the
community could reasonably be subject to and the likelihood and potential magnitude of
loss for each event.
General Fund Reserve Policy
- 8 -
2. Revenue Source Stability. Volatility of each major revenue source based on factors such
as past experience and trends with that revenue, characteristics of the tax or rate payers,
state or federal revenue takeaways and economic factors.
3. Expenditure Volatility. Spikes in expenditures, usually arising from special, non-
recurring circumstances such as lawsuits; critical special projects without a funding
source; or new state or federal spending requirements and unfunded mandates.
4. Leverage. Common examples include unfunded pensions and unfunded asset, as well as
outstanding bonded indebtedness and compensated absences. Is the source of leverage
very large? Does it have an off-setting funding source or asset?
5. Liquidity (Cash Flow). Intra-period cash imbalances, such as property taxes that are
only received at two major points during the year (December and June).
6. Dependence of Other funds. Are there other funds that have a significant dependence on
the General Fund?
7. Growth. Is significant growth a realistic possibility in the next three to five years ? This
includes assessing likely potential marginal costs associated with serving new growth
compared with marginal revenues and resulting gaps.
8. Capital Projects. Are there high priority projects without a funding source, where
reserves may be looked to as a funding source?
As discussed in greater detail in Appendix D, the methodology uses a scale of 5-1 in
assessing how important reserves are in mitigating each risk:
5: Very important
4: Important
3: Neutral
2: Unimportant
1: Very unimportant
Since there are eight mitigation factors, total scores will range from 8 (the least risk) to 40
points (greatest risk). Along with these eight risk factors, the methodology also considers:
• City size (assumes larger cities have more mitigation strategies than smaller ones)
• Other reserve/contingency funds
• Borrowing capacity
• Benchmark study results
Depending on the results of this assessment, the GFOA methodology provides recommended
targets ranging from a minimum of 16.6% of expenditures (60 days cash flow) to
circumstances where more than 35% might be warranted.
The following summarizes the GFOA’s rating scale.
General Fund Reserve Policy
- 9 -
GFOA Reserve Rating Scale
Rating Target Minimum General Fund Reserve
8 -16 Minimal risk to retain through reserves. Consider target equal to the GFOA
minimum recommended reserve of 16.6% (two months cash flow) of
revenues/expenditures.
17-24 Low to moderate level of risk to retain through reserves. Consider reserve target of
17% to 25%.
25-31 Moderate to high level of risk to retain through reserves. Consider reserve target of
26% to 35%.
32-40 High level of risk to retain through reserves. Consider reserve target greater than
35%.
As detailed in Appendix D, the Town’s rating under this methodology is 26, which indicates
that the target minimum should be 30% (middle range of this scale).
Five of the assessment factors were
largely responsible for this rating:
• Extreme events
• Liquidity/cash flow (19% needed
to cover low points during the
year)
• Unfunded capital projects
• Revenue stabilit y
• Expenditure volatility
The other t hree factors (leverage, new
development/growth and dependence
of other funds on the General Fund)
were not significant in this rating.
ALTERNATIVES
Setting the Minimum Target
Reserve at Lower or Higher
Amounts than 30%
Based on both the benchmark ing
results and the GFOA structured
assessment methodology, the risks
facing the Town support a reserve of
30% compared with the current target
of 25%.
Mitigating Cash Flow with TRANS
A possible mitigation for cash flow needs (or
responding in the short term to other risks) is the
use of Tax and Revenue Anticipation Notes
(TRANS).
TRANS are short-term borrowings by local
government agencies who are not able to meet
their cash flow needs during the year. They are
typically issued early in the fiscal year and repaid
before year-end.
At one time, many TRANS were issued as an
investment strategy, since the proceeds could be
invested at higher yields than their tax-exempt
interest rate. However, this favorable variance
between interest costs and yields has not been the
case since the Great Recession.
Stated simply, while incurring debt to meet cash
flow needs is an option, it is preferable to avoid it if
possible. Moreover, TRANS are not free: there are
financing and interest costs in issuing them.
Appendix E provides a cash flow analysis for the
General Fund, which shows the need for 19% to
cover several low points in the fiscal year, most
notably in October/November prior to the receipt of
property tax revenues (the Town’s most important
General Fund revenue source).
General Fund Reserve Policy
- 10 -
However, the Council is the ultimate “decider” in balancing risks and reserves. Stated
simply, the Town’s fiscal resources do not exist to amass large fund balances but rather, to
deliver important services that help make Los Gatos a good place to live, work and play. On
the other hand, prudent reserves are essential in helping assure stability in the delivery of
services.
Accordingly, the Council could reasonably set reserves at levels that are lower or higher than
the recommended target.
Lower Target than 30%. Given other reserves established by the Town, it would be
reasonable to continue the minimum reserve policy at 25%.
Higher Target than 30%. Two of the benchmark cities have effective operating reserve
policy target s that are greater than 30% (Burlingame at 38% and Cupertino at 33%).
Additionally, seven cities had actual operating reserves at June 30, 2017 in excess of 30%:
Burlingame: 65%
Cupertino: 82%
Gilroy: 51%
Los Altos: 39%
Millbrae: 89%
Morgan Hill: 41%
Mountain View: 51%
Accordingly, a target higher than 30% would also be reasonable.
Segregating the Reserve into Separate Components
The proposed policy sets a unified reserve target of 30% to meet the aggregate of the risks it
is intended to meet. Since not all factors are likely to come into play at the same time, this
approach makes sense: “pooling” purposes serves to lower the overall reserve amount that
might otherwise be needed to meet each of the risk factors individually. Moreover,
budgeting and accounting for the reserve is simpler and more straightforward, as is
communicating its purpose to the community and organization.
That said, there may be interest in continuing to separate the reserve into component parts. In
that case, the following are recommended:
• Budget Stability: 15%
• Contingencies: 15%
Note: While cash flow also plays an important role in setting the minimum reserve target, if
the other targets are maintained, they should also cover cash flow needs. However, this is
another reason for setting a unified target rather than segregating it.
General Fund Reserve Policy
- 11 -
Setting the Base
As noted above, the Town’s current policy sets the “base” for the target as “ongoing
operating expenditures, minus one-time expenditures.” This is a reasonable basis for setting
the target and as such, it would make sense to continue using it .
However, while the difference in result is likely to be insignificant, for clarity and
transparency in calculating the reserve, a minor change in the base is recommended to
“operating and debt service expenditures.” Additionally, debt service, until it is paid off, is
also an ongoing cost, and as such, it makes sense to include it in the target base.
CONCLUSION
Establishing a reserve policy – and being guided by it – is among the most important of the
Town’s fiscal policies by mitigating financial risks. Based on the results of the
benchmarking analysis and the GFOA structured assessment methodology, this report
recommends that the minimum reserve target be set at 30% of operating and debt service
expenditures.
William C. Statler
Fiscal Policy ◼ Financial Planning ◼ Analysis ◼ Training ◼ Organizational Review
APPENDIX
A. Current General Fund Reserve Policy
B. Benchmark Analysis: Policies in Comparable Cities
C. Selection of Benchmark Cities
D. General Fund Reserve Risk Factors: GFOA Structured Assessment Methodology
E. Cash Flow Analysis
F. Consultant Background
. . . . . . . . . . . . . . . . . . . . .
TITLE: General Fund Reserve Policy
EFFECTIVE DATE: 05/16/2011
ENABLING ACTIONS:
APPROVED:
PURPOSE
POLICY NUMBER: 4 -03
PAGES: 4
REVISED DATES: 02/21/2017; 05/15/2018
The purpose of this Policy is to establish a target minimum level of designated reserves in the
General Fund to:
Reduce the financial impacts associated with a disaster or catastrophic event;
Respond to the challenges of a changing economic environment, including prolonged
downturns in the local, state, or national economy; and
Demonstrate continued prudent fiscal management and creditworthiness.
BACKGROUND
The Town of Los Gatos has always maintained a high level of General Fund reserves, which has
contributed to superior ratings by credit rating agencies; provided financial flexibility in
economic downturns; contributed a source of investment income for General Fund operations;
and assured financial coverage in the event of future emergencies.
GUIDING PRINCIPLES
Following sound financial practices and adhering to the Government Finance Officers of
American (GFOA) recommendations, the Town's designated reserves include reserves for
known and unknown contingencies, which take into consideration the:
Diversity of revenue base
Volatility of revenue structure
Changes in political environment
Frequency of operating surpluses /deficits
Cash flow management practices
Appendix A: Current Town Reserve Policy
A-1
TITLE: General Fund Reserve Policy PAGE: POLI
2 of 6 4 -03
The General Fund Reserve Policy is to be reviewed by the Town Council as part of the annual
operating budget review and adoption process.
POLICY
The fund balance is the difference between the assets and liabilities reported in a governmental
fund. Under current accounting standards, there are five separate components of fund
balance, each of which identifies the extent to which the Town is bound to honor constraints on
the specific purposes for which amounts can be spent.
The following components are defined by Governmental Accounting Standards Board (GASB)
Statement No. 54 and shall constitute the Town's Fund Balance:
Nonspendable Fund Balance (inherently nonspendable)
Restricted Fund Balance (externally enforceable limitations on use)
Committed Fund Balance (self- imposed limitations on use)
Assigned Fund Balance (limitation resulting from intended use)
Unassigned Fund Balance (residual net resources)
The first two components listed above are not specifically addressed in this Policy due to the
nature of their restrictions. The example of nonspendable fund balance is inventory. Restricted
fund balance is either imposed by law or constrained by grantors, contributors, or laws or
regulations of other governments. This Policy is focused on financial reporting of unrestricted
fund balance, or the last three components listed above. These three components are further
defined below.
The accounting policies of the Town consider restricted fund balance spent first when
expenditure is incurred for purposes for which both restricted and unrestricted fund balance is
available. Similarly, when an expenditure is incurred for purposes for which amounts of the
unrestricted classifications of fund balance could be used, the Town considers committed
amounts to be reduced first, followed by assigned amounts and then unassigned amounts.
Committed Fund Balance
The Town Council, as the Town's highest level of decision - making authority, may commit fund
balance for specific purposes pursuant to constraints imposed by formal action taken, such as
an ordinance or resolution. These committed amounts cannot be used for any other purpose,
unless the Town Council removes or changes the specific use through the same type of formal
action taken to establish the commitment. The Town Council action to commit fund balance
needs to occur within the fiscal reporting period; however, the amount can be determined
subsequently at the final close of the fiscal year.
Appendix A: Current Town Reserve Policy
A-2
TITLE: General Fund Reserve Policy POLICY NUMBER:
4 -03
The Town currently sets aside funds into four committed reserves to address unforeseen
emergencies or disasters, significant changes in the economic environment, unfunded pension
and Other Post - Employment Benefits (OPEB) obligations, and key infrastructure and capital
projects. These include the Catastrophic Reserve, Budget Stabilization Reserve, Pension (OPEB)
Reserve and Almond Grove Street Projects Reserve.
Catastrophic Reserve
Funds reserved under this category shall be used to mitigate costs associated with unforeseen
emergencies, such as a disaster or catastrophic event. Should unforeseen and unavoidable
events occur that require the expenditure of Town resources beyond those provided for in the
annual budget, the Town Manager or designee shall have authority to approve Catastrophic
Reserve appropriations. The Town Manager or designee shall then present to the Town Council
a budget amendment confirming the nature of the emergency and authorizing the
appropriation of reserve funds.
The Town currently commits to maintaining this reserve at a minimum of 12.5% of General
Fund ongoing operating expenditures (minus one -time expenditures).
Should a catastrophic disaster occur, the required reserve level should be adequate to meet the
Town's immediate financial needs. For example, in the event of natural disaster, the
Catastrophic Reserve would provide necessary coverage for basic operating expenses, including
salary and benefits for safety and non - safety Town employees, while still meeting debt service
obligations for approximately 60 days. This time frame would enable the Town to explore other
available cash alternatives, including the use of internal service funds.
Budget Stabilization Reserve
Funds reserved under this category shall be used to mitigate annual revenue shortfalls (actual
revenues less than projected revenues) due to changes in the economic environment and /or
one -time uses that will result in future efficiencies and /or budgetary savings. Examples of
economic triggers' and one -time uses include, but are not limited to:
An unplanned, major event such as a catastrophic disaster requiring expenditures which
exceed the General Fund Catastrophic Reserve;
Drop in projected /actual revenue of more than five percent in property or sales tax, or
other economically sensitive revenues;
Budgeted revenue taken over by another entity exceeding $100,000;
Loss of businesses considered to be significant sales tax generators;
Reductions in projected /actual revenue of more than five percent due to actions by the
state /federal government;
Workflow /technical system improvements to reduce ongoing, personnel costs and
enhance customer service;
One -time maintenance of service levels due to significant economic /budget constraints;
and
Appendix A: Current Town Reserve Policy
A-3
TITLE: General Fund Reserve Policy PAGE: POLICY
4 of 6 4 -03
One -time transitional costs associated with organizational restructuring to secure long-
term personnel cost savings.
The Town currently commits to maintaining this reserve at a minimum of 12.5% of General
Fund ongoing operating expenditures (minus one -time expenditures).
Should a loss of the Town's single highest source of sales tax revenue occur, the required
reserve level should be adequate to meet the Town's immediate financial needs. For example,
the reserve level in the Budget Stabilization Fund would provide for an approximate 3 -year
transition period, giving the Town adequate time to realign its operating costs with available
resources, while minimizing service impacts.
Pension /OPEB Reserve
Funds reserved under this category shall be used to further mitigate costs associated with
pension and OPEB unfunded obligations. These funds will be used as a funding source for
potential additional discretionary payments to pay down unfunded pension and other post -
employment obligations, or held in the reserve account to be used as a supplemental funding
source for unanticipated increases to the annual pension and other post - employment costs
resulting from future actuarial assumptions and investment market volatility.
This Policy requires the Town to set aside additional annual discretionary payments (ADPs) to
reduce the effective amortization period of the Town's pension unfunded actuarial liabilities
from approximately 30 years to 20 years. To facilitate the implementation of this Policy, staff
shall update the estimated unfunded amortization schedules in conjunction with the Town's
and CalPERS actuaries. This process will coincide with the annual proposed budget process to
determine the additional annual discretionary payment levels required to maintain the goal of
lowering the amortization period from a 30 -year to a 20 -year amortization period for all prior
year actuarial bases through FY 18/19. The ADP is currently projected at $390,000 for FY
2018/19. Per Council direction instead of paying future ADPs directly to CaIPERS, the Town will
deposit ADPs into the IRS 115 Trust Fund.
As part of the proposed budget for each forthcoming fiscal year, staff shall annually
appropriate, to the extent possible, the amount of annual discretionary payments necessary to
maintain the unfunded pension liability amortization shortening from 30 to 20 years.
In the event the annual amount required for additional discretionary payments is not available
from operating revenues, the ADP shall be funded by a first lien on any one -time excess
revenues above expenditures once other General Fund required reserve levels have been
established at the appropriate levels as per the Town's General Fund Reserve Policy. If in any
given year neither budgetary appropriations or a first lien on one -time excess revenues are
sufficient to fund the annual ADP, that years ADP will be accrued to the following year until
paid.
Appendix A: Current Town Reserve Policy
A-4
TITLE: General Fund Reserve Policy PAGE: POLICY
5 of 6 4 -03
Additionally, effective upon the close of fiscal year 2015/16 and thereafter, if sufficient General
Fund year -end savings are available and targeted reserve levels of 25% (12.5% for Catastrophic
Reserve and 12. 5% for Budget Stabilization Reserve) of the next fiscal year's operating budget
and the funding the following year's proposed budget ADP have been met, upon final close of
the fiscal year, a minimum of $300,000 annually shall be deposited into the Pension /OPEB
Reserve fund. In addition, Council can assign additional amount deposited to the Pension /OPEB
Reserve with a formal Council action from available year end savings.
Almond Grove Street Project Reserve
Funds reserved under this category shall be used to reconstruct the 10 streets identified in the
Almond Grove Street Rehabilitation Project specification.
The Council awarded the bid in April 2017 allowing for $2.9 million savings within the project.
The Council reappropriated the use of the savings through the FY 2017/18 budget process. The
Almond Grove Reserve should be reduced by the identified $2.9 million savings. The Almond
Grove Street Reserve balance will be reduced at each fiscal year end by the funds expended on
the Almond Grove Street Rehabilitation Project during the fiscal year.
Assigned Fund Balance
Amounts that are constrained by the Town's intent to be used for specific purposes, but are
neither restricted nor committed, should be reported as assigned fund balance. This Policy
hereby delegates the authority to assign amounts to be used for specific purposes to the Town
Manager for the purpose of reporting to assign amounts in the annual financial statements. A
few examples of assigned fund balance follow.
Encumbrances — material s and services on purchase order and contracts which are
unperformed.
Reappropriations — appropriated by the Council for specific projects or programs that
were not completed and not encumbered by year end.
GASB 31 Adjustments — unrealized investment gains that have been recorded in the
financial statements in accordance with GASB 31.
Capital and Special Projects Reserve
Funds reserved under this category are designated for key infrastructure and capital /special
projects as identified in the Town 5 -year Capital Improvement Plan, as there is no ongoing
funding source to support the Town's capital needs.
Appendix A: Current Town Reserve Policy
A-5
TITLE: General Fund Reserve Policy
PAGE: POLICY NUMBER:
6 of 6 4 -03
Unassigned Fund Balance
At the end of each fiscal year, the Finance Department reports on the audited year -end
budgetary fiscal results. Should actual General Fund revenues exceed expenditures and
encumbrances, a year -end operating surplus shall be reported. Any year -end surplus which
results in the General Fund balance exceeding the level required by this Reserve Policy shall be
available for allocation for the following, subject to Council approval:
Offset projected future deficits
Anticipated intergovernmental fiscal impacts
One -time funding, non - recurring needs
Upon funding any of the above reserve levels pursuant to this General Fund Reserve Policy, any
remaining surplus of fiscal year revenues above expenditures shall be placed in the Capital and
Special Projects Reserve for appropriation within the Capital Improvement Program budget.
Replenishment of Unreserved Fund Balance
In keeping with the principles discussed in this Policy, when either fund is used, Town Council
will develop a 1 to 5 year reserve replenishment plan to meet the minimum threshold of 25% of
General Fund ongoing, operating expenditures, excluding one -time expenditures.
APPROVED AS TO FORM:
1`'
A
Robert Schultz, To ttorney
Appendix A: Current Town Reserve Policy
A-6
Appendix B: Reserve Policy Benchmarks
B-1
The follow ing presents the results of the benchmark analysis of reserve policies in twelve
comparable California cities. Appendix C provides the basis for how these benchmark cities were
selected. (The use of twelve cities reflects the Town staff’s direction to expand the selection from
nine to twelve cities as outlined in the Alternatives section of Appendix C.)
General Fund Operating Reserve Other General Fund
City Policy Actual (Notes 1 and 2) Reserves (Note 3)
Burlingame • Economic stability
reserve: 24% of
budgeted revenues
• Catastrophic
reserve: $2.0 million
• Contingency
reserve: $500,000
65%
• Encumbrances
Campbell • Economic
fluctuation
stabilization: $6.0
million
• Emergency: 10% of
revenues
26%
• General Plan update
• Council reserve
• Civic center plan
• Compensated
absences
• Capital projects
• Heritage theater
• Insurance
Cupertino • Economic
uncertainty: $19.0
million
• Other contingencies:
$500,000
82% • Pensions
• Encumbrances
Gilroy • Contingency for
unbudgeted costs or
revenue shortfall:
20% of expenditures
• Economic stability:
10% of expenditures
51%
• None
Los Altos • 20% of operating
expenditures
39% • Pensions
• Retiree health care
• Technology
• Capital and
equipment
Millbrae • 15% of expenditures 89% • None
Appendix B: Reserve Policy Benchmarks
B-2
General Fund Operating Reserve Other General Fund
City Policy Actual (Notes 1 and 2) Reserves (Note 3)
Milpitas • Budget stabilization:
$8.3 million
• Contingency:
16.67% of operating
expenditures
32% • Pensions
• Unpaid claims
• Capital projects
• Other contracts
Morgan Hill • 25% of revenues 41% • None
Mountain View • Budget contingency:
25% of budgeted
expenditures, net of
savings
51% • Development
services
• Earned lease revenue
• Property
management
• Site maintenance
• Capital
improvements
• Open space
• Strategic property
acquisitions
• Childcare
commitment
• Compensated
absences
Palo Alto • Budget stabilization:
20% of operating
expenditures
30% • Reappropriations
• Other purposes
San Carlos • Economic
uncertainties: 20%
of expenditures
26% • Strategic property
acquisition
• Unfunded liabilities
• Facility/infrastructure
improvements
• Emergency
Saratoga • 20% of expenditure
appropriations, net
of transfers out
30% • Hillside stability
• Future capital and
stability
• Facility replacement
• Compensated
absences
• Development
services
Appendix B: Reserve Policy Benchmarks
B-3
General Fund Operating Reserve Other General Fund
City Policy Actual (Notes 1 and 2) Reserves (Note 3)
Los Gatos • 25% of ongoing
operating
expenditures, minus
one-time
expenditures as
follows:
- Catastrophic:
12.5%
- Budget Stability:
12.5%
25% • Pensions and retiree
health care
• Almond Grove street
project
• Open space
• Sustainability
• Strategic planning
• Capital projects
• Encumbrances
• Compensated
absences
1. Based on audited results for the last completed year available for all cities, which is the fiscal year ended
(FYE) June 30, 2017.
2. As noted above, some cities’ policies are set as a percent of revenues and/or fixed amounts. For
comparison purposes, in these cases actual reserves have been converted to percent of operating
expenditures and are net of any other General Fund reserves.
3. These are other General Fund commitments or assignments and e xclude reserves in other
governmental funds, enterprise funds and internal service funds.
C-1
MEMORANDUM
November 29, 2018
TO: Arn Andrews, Assistant City Manager
Stephen Conway, Finance Director
Gitta Ungvari, Finance and Budget Manager
FROM: Bill Statler
SUBJECT: RESERVE POLICY: SELECTION OF BENCHMARK CITIES
RECOMMENDATION
Select the combined nine cities used by the Town for comparison purposes in recent fee
and compensation studies in benchmarking reserve policies (population as of January 1,
2018 in parentheses):
• Campbell (42,696)
• Cupertino (60,091)
• Gilroy (55,615)
• Los Altos (31,361)
• Milpitas (74,865)
• Morgan Hill (44,513)
• Mountain View (81,527)
• Palo Alto (69,721)
• Saratoga (31,435)
Alternative. As discussed below, if the Town is interested in expanding the selection to
include cities that are geographically close to Los Gatos, have similar wildland interface
characteristics and would expand the diversity of population size at the lower end of the
range, then the following three additions are recommended.
• Burlingame (30,294)
• Millbrae (22,854)
• San Carlos (29,897
124 Cerro Romauldo Avenue
San Luis Obispo, CA 93405
805.544.5838 ◼ Cell: 805.459.6326
bstatler@pacbell.net
www.bstatler.com
William C. Statler
Fiscal Policy ◼ Financial Planning ◼ Analysis ◼ Training ◼ Organizational Review
. . . . . . . . .
Appendix C: Selection of Benchmark Cities
Reserve Policy: Selection of Benchmark Cities
C-2
OVERVIEW
The workscope for the reserve analysis authorized by the Town on November 9, 2018
includes benchmarking reserve policies in six to ten comparable cites. These nine cities
share the following characteristics with Los Gatos:
• Similar population, ranging between 30,000 to 80,000
• Northern California location (in fact, all are located near each other within Santa
Clara County)
• Suburban, affluent communit ies part of a larger geographic area
• Similar range of services
Suburban/Wildland Interface. Except for Campbell and Mountain View, these cities
also share significant suburban/wildland interfaces . Like Los Gatos. wildland areas are
included within the city limit s (or immediately adjacent) in Cupertino, Gilroy, Milpitas.
Morgan Hill and Saratoga; and very near (and thus a lso a threat) in Los Altos and Palo
Alto.
Accordingly, since the Town has already identified these as comparable cities for other
purposes, it makes sense to also use them as benchmark agencies in comparing reserve
policies. Nevertheless, as discussed below under Alternatives, I have also explored other
options. While none of these others offered clear advantages over the nine cit ies the
Town has already identified, three cities in San Mateo County have similar wildland
interface characteristics and would expand the diversity of population size at the lower
end of the range that the Town may want to consider adding: Burlingame, Millbrae and
San Carlos.
BACKGROUND
As discussed above, the work program includes a “benchmark” analysis of how the
Town’s current reserve policy compares with six to ten similar cities. When carefully
prepared, benchmark analysis can be a useful tool in assessing a wide-range of topics,
including staffing, performance, organizational structure – and in this case – reserve
policies. However, making meaningful comparisons requires carefully selecting the
benchmark agencies to ensure they represent as close a match to t he Town as possible,
recognizing that a “perfect” match is not possible.
This means that along with selecting comparably sized cities, it is important to select
cities that share other important service, economic, geographic and demographic
characteristics with Los Gatos as well. Additionally, to avoid a “race to the bottom,”
comparison cities should also be selected that have a reputation for being well-managed
and leaders in the use of “best practices.”
ALTERNATIVES
There are 482 cities in California. As presented in Table 1, 136 of them have populations
between 15,000 and 45,000 (about 50% smaller and 50% larger than Los Gatos). The
Appendix C: Selection of Benchmark Cities
Reserve Policy: Selection of Benchmark Cities
C-3
four cites already used by Los Gatos for comparison purposes that fall within this
population range are highlighted in blue, as well as the Town itself. The other five cities
that the Town currently uses for comparison purposes that are larger than 45,000 are also
provided at the end of Table 1.
Table 1 also highlights in green (Southern/Central Coast California) and purple (Northern
California) nineteen other suburban cities that have significant wildland interfaces in this
population range. For ease of comparison, Table 2 presents these “candidate” benchmark
cities separately by region, summarized as follows:
Southern/Central Coast California Northern California
• Agoura Hills
• Atascadero
• Calabasas
• La Canada Flintridge
• Monrovia
• San Gabriel
• Santa Paula
• South Pasadena
• West Hollywood
• Burlingame
• Danville
• Lafayette
• Millbrae
• Moraga
• Orinda
• Pacifica
• Rohnert Park
• San Carlos
• Windsor
In reviewing these cities, there are no compelling reasons to include them over the nine
cities that the Town as already identified. However, keeping in mind that the work
program target was to select six to ten cities, if the Town wants to expand this list, then
adding Burlingame (30,294), Millbrae (22,854) and San Carlos (29,897) would make
sense:
• Like the other nine cities, they are geographically close to Los Gatos (all three are in
San Mateo County).
• They would expand the diversity of population size at the lower end of the range.
While this would result in 12 benchmark cities (two more than the work program target),
this is a workable result.
ATTACHMENTS
• Table 1: California Cities: Population 15,000 to 45,000
• Table 2: California Cities: Population 15,000 to 45,000 with Suburban/Wildland
Interfaces
. . . . . . . . . . . . . . . . . . . . .
Appendix C: Selection of Benchmark Cities
Appendix C: Table 1
CALIFORNIA CITIES: POPULATION 15,000 to 45,000
1/1/2018
City County Population
Adelanto San Bernardino 35,293
Agoura Hills Los Angeles 20,878
Albany Alameda 19,053
American Canyon Napa 20,990
Arcata Humboldt 18,398
Arroyo Grande San Luis Obispo 17,912
Artesia Los Angeles 16,792
Arvin Kern 21,696
Atascadero San Luis Obispo 31,147
Atwater Merced 31,235
Banning Riverside 31,282
Barstow San Bernardino 24,411
Bell Los Angeles 36,325
Bell Gardens Los Angeles 43,051
Belmont San Mateo 27,388
Benicia Solano 27,499
Beverly Hills Los Angeles 34,504
Blythe Riverside 19,389
Brawley Imperial 27,417
Brea Orange 44,890
Burlingame San Mateo 30,294
Calabasas Los Angeles 24,296
Calexico Imperial 41,199
Campbell Santa Clara 42,696
Chowchilla Madera 18,835
Claremont Los Angeles 36,446
Clearlake Lake 15,917
Coalinga Fresno 16,791
Corcoran Kings 21,450
Coronado San Diego 21,683
Cudahy Los Angeles 24,343
Culver City Los Angeles 39,860
Dana Point Orange 34,071
Danville Contra Costa 44,396
Desert Hot Springs Riverside 29,742
Dinuba Tulare 24,873
Dixon Solano 19,896
Duarte Los Angeles 22,013
East Palo Alto San Mateo 30,917
El Cerrito Contra Costa 24,939
El Paso de Robles San Luis Obispo 31,559
El Segundo Los Angeles 16,784
Eureka Humboldt 26,362
Fillmore Ventura 15,953
Foster City San Mateo 33,490
Galt Sacramento 26,018
Goleta Santa Barbara 31,949
Greenfield Monterey 18,007
C-4
Appendix C: Table 1
CALIFORNIA CITIES: POPULATION 15,000 to 45,000
1/1/2018
City County Population
Hercules Contra Costa 26,317
Hermosa Beach Los Angeles 19,673
Hollister San Benito 36,703
Imperial Imperial 19,372
Imperial Beach San Diego 28,163
Kerman Fresno 15,083
La Canada Flintridge Los Angeles 20,683
La Palma Orange 15,948
La Puente Los Angeles 40,686
La Quinta Riverside 41,204
La Verne Los Angeles 33,260
Lafayette Contra Costa 25,655
Laguna Beach Orange 23,309
Laguna Hills Orange 31,818
Laguna Woods Orange 16,597
Lathrop San Joaquin 24,268
Lawndale Los Angeles 33,607
Lemon Grove San Diego 26,834
Lemoore Kings 25,892
Loma Linda San Bernardino 23,946
Lomita Los Angeles 20,715
Lompoc Santa Barbara 43,599
Los Altos Santa Clara 31,361
Los Banos Merced 40,986
Los Gatos Santa Clara 30,601
Manhattan Beach Los Angeles 35,991
Marina Monterey 22,424
Martinez Contra Costa 38,097
Maywood Los Angeles 28,044
McFarland Kern 15,105
Menlo Park San Mateo 35,268
Millbrae San Mateo 22,854
Monrovia Los Angeles 38,787
Montclair San Bernardino 39,326
Monterey Monterey 28,323
Moorpark Ventura 37,044
Moraga Contra Costa 16,991
Morgan Hill Santa Clara 44,513
Norco Riverside 26,761
Oakdale Stanislaus 23,324
Oakley Contra Costa 41,742
Orinda Contra Costa 19,199
Oroville Butte 18,144
Pacific Grove Monterey 15,660
Pacifica San Mateo 38,418
Paradise Butte 26,572
Parlier Fresno 15,493
Patterson Stanislaus 22,679
C-5
Appendix C: Table 1
CALIFORNIA CITIES: POPULATION 15,000 to 45,000
1/1/2018
City County Population
Pinole Contra Costa 19,236
Pleasant Hill Contra Costa 35,068
Port Hueneme Ventura 23,929
Rancho Mirage Riverside 18,738
Rancho Palos Verdes Los Angeles 42,723
Reedley Fresno 26,390
Ridgecrest Kern 28,822
Ripon San Joaquin 15,847
Riverbank Stanislaus 25,244
Rohnert Park Sonoma 43,598
San Carlos San Mateo 29,897
San Dimas Los Angeles 34,507
San Fernando Los Angeles 24,602
San Gabriel Los Angeles 40,920
San Juan Capistrano Orange 36,759
San Pablo Contra Costa 31,593
Sanger Fresno 26,648
Santa Fe Springs Los Angeles 18,335
Santa Paula Ventura 31,138
Saratoga Santa Clara 31,435
Seal Beach Orange 25,984
Seaside Monterey 34,270
Selma Fresno 24,742
Shafter Kern 19,271
Soledad Monterey 26,246
South El Monte Los Angeles 20,882
South Lake Tahoe El Dorado 21,892
South Pasadena Los Angeles 26,047
Stanton Orange 39,470
Suisun City Solano 29,192
Temple City Los Angeles 36,411
Truckee Nevada 16,681
Twentynine Palms San Bernardino 27,046
Ukiah Mendocino 16,226
Walnut Los Angeles 30,457
Wasco Kern 27,691
West Hollywood Los Angeles 36,723
Wildomar Riverside 36,287
Windsor Sonoma 28,060
Yucca Valley San Bernardino 21,834
Other Comparison Cities
Cupertino Santa Clara 60,091
Gilroy Santa Clara 55,615
Milpitas Santa Clara 74,865
Mountain View Santa Clara 81,527
Palo Alto Santa Clara 69,721
C-6
Appendix C: Table 2
CALIFORNIA CITIES: POPULATION 15,000 to 45,000
Suburban/Wildland Interface
1/1/2018
City County Population
Southern/Central Coast California
Agoura Hills Los Angeles 20,878
Atascadero San Luis Obispo 31,147
Calabasas Los Angeles 24,296
Monrovia Los Angeles 38,787
La Canada Flintridge Los Angeles 20,683
San Gabriel Los Angeles 40,920
Santa Paula Ventura 31,138
South Pasadena Los Angeles 26,047
West Hollywood Los Angeles 36,723
Northern California
Burlingame San Mateo 30,294
Danville Contra Costa 44,396
Lafayette Contra Costa 25,655
Millbrae San Mateo 22,854
Moraga Contra Costa 16,991
Orinda Contra Costa 19,199
Pacifica San Mateo 38,418
Rohnert Park Sonoma 43,598
San Carlos San Mateo 29,897
Windsor Sonoma 28,060
C-7
D-1
Analyzing the General Fund Reserve Risk Factors
The sections below provide guidance on analyzing the risk factors described in Chapter 4
on general fund reserves. Each heading corresponds to a worksheet in the Excel
workbook that is available at www.gfoa.org/financialpolicies. The blue cells in the sheet
are entry cells. There should be no need to type in other cells. Complete the sheets
starting with the left-most and continue all the way to the final sheet at the right.
The first eight sheets ask you to analyze each risk factor in the book. First, you identify
your basic sources of risk. Then you assess the level of risk you face. Next, you identify
other available risk mitigation approaches. The sections below provide more specific
guidance on how to accomplish this for each risk factor. Finally, you decide how
important it is for your government to retain risk through general fund reserves. The level
of importance is indicated by assigning a 1 through 5 score, where 5 indicates the greatest
need to retain risk. Each sheet contains guidelines to help you decide the most
appropriate score for each risk factor.
The ninth and final sheet helps you to zero in on a final reserve target by summarizing the
results of the prior eight sheets and bringing in other drivers of reserve size. Note that this
sheet does not provide you with a precise suggested target. Rather it suggests a broad
range and strategies for arriving at a final target.
Below is more specific guidance for analyzing the risk factors in the first eight sheets.
Vulnerability to extreme events and public safety concerns
Identify Risks. List out the major extreme events to which the community could
reasonably be subjected. This could include both natural and man-made events. Public
safety professionals may have a community disaster preparedness plan that could help
identify these risks; linking the reserve analysis to such a plan would increase the
credibility of the resulting policy.
Assess Risks. Consider the potential magnitude of loss for each event. The magnitude of
loss should be based on past experiences with similar extreme events or reasonable
estimates based on the disaster preparedness plan (note that the estimate is not necessarily
a worst-case scenario).
Identify Other Risk Mitigation Approaches. If extreme events a are serious risk for the
community, also consider risk transfer options. Might more comprehensive insurance
coverage be a better option than very high levels of fund balance? If the source of risk is
man-made, such as the potential for an accident at a hazardous chemical plant, might the
chemical company be able to take greater responsibility for the risk they pose to the
community? Also consider how quickly federal assistance can be accessed and the speed
with which funds spent responding to a disaster might be reimbursed.
Appendix D: GFOA Structured Assessment Methodology
D-2
Assess Necessity of Risk Retention. Assign a score for the importance of risk retention
through the use of reserves, when it comes to extreme events.
Revenue Source Stability
Identify Risks. Start by listing out major revenue sources.
Assess Risks. Consider the volatility of each source, based on factors such as past
experience and trends with that revenue, characteristics of the tax or rate payers, and
economic factors.
Identify Other Risk Mitigation Approaches. Think about other approaches that the
government has to deal with declining revenues. This might include means to easily
reduce variable costs or the ability to access other sources of funding.
Assess Necessity of Risk Retention. Assign a score for the importance of risk retention
through the use of reserves, when it comes to revenue stability.
Expenditure Volatility
Identify Risks. Start by listing sources of potential spikes in expenditure (usually arising
from special, non-recurring circumstances) that could be expected to occur within the
next three to five years. Examples might include lawsuits against the government or
critical special projects without a funding source. Typically, recurring sources of
expenditure volatility, such as health care benefit costs, would not be included because
they should be dealt with in the context of an annual budget process. An exception to this
might be highly variable and difficult-to-predict costs, such as energy or fuel (in the case
of a fleet).
Assess Risks. Enumerate a reasonable estimate of the potential cost of each source (i.e.,
the magnitude of the risk), taking into account the probability of it occurring (i.e., an
unlikely event is less of a risk than a more likely event of similar potential loss).
Identify Other Risk Mitigation Approaches. Think about other approaches to dealing
with these expenditure spikes. For example, the finance officer may find that some events
(like an essential special project) have a very high chance of occurring, but will not occur
for a number of years into the future. In this case, the finance officer could suggest a
“sinking fund” where the project would be gradually funded over time. This could be
made a commitment or assignment within the fund balance to help differentiate it from
funds used to manage more uncertain risks. A similar approach could be used for known
lawsuits.
Assess Necessity of Risk Retention. Assign a score for the importance of risk retention
through the use of reserves, when it comes to expenditure spikes.
Appendix D: GFOA Structured Assessment Methodology
D-3
Leverage
Identify Risks. Start by listing major sources of leverage. Common examples include
pensions, unfunded asset maintenance, and debt.
Assess Risks. Then assess each source’s implications for the organization’s future
financial flexibility by consider the size of the obligation. Is the source of leverage very
large? Does it have an off-setting funding source or asset?
Identify Other Risk Mitigation Approaches. It is often better to use other approaches
to risk management on these sources of leverage, rather than retaining the risk through
reserves. For example, if unfunded asset maintenance is a problem, then the finance
officer might use an asset maintenance plan (or other suitable estimate) to demonstrate
the magnitude of the risk and encourage the governing board create a special set-aside to
begin funding this liability – and avoid managing this risk with general fund reserves. In
another example, if unfunded pension liabilities are an issue, the organization should
develop a strategy to pay down those liabilities. In this situation, the finance officer could
point out how pension liability constrains the financial flexibility of the organization,
thereby decreasing the reserve’s ability to manage other types of risk.
Assess Necessity of Risk Retention. Assign a score for the importance of risk retention
through the use of reserves, when it comes to leverage.
Liquidity
Identify Risks. List major sources of intra-period cash imbalances. A good example is
property taxes that are only received at one or two points during the year.
Assess Risks. Describe the size of the problem created by these sources of imbalance.
Does it have the potential to significantly interfere with operations?
Identify Other Risk Mitigation Approaches. To what extent can tools like internal
borrowing or tax anticipation notes provide a cost-effective alternative to keeping a
reserve?
Assess Necessity of Risk Retention. Assign a score for the importance of risk retention
through the use of reserves, when it comes to liquidity.
Other Funds’ Dependency
Identify Risks. Start by listing other funds that have significant dependence on the
general fund. Dependence will usually be indicated by regular operating transfers that are
an unusually high percentage of the receiving fund’s expenditure budget.
Assess Risks. Assess the level of reserves in these other funds. Are reserves low? If so, is
this fund subject to potential risks that could require a substantial draw on reserves? If so,
is the general fund expected to backstop this fund?
Appendix D: GFOA Structured Assessment Methodology
D-4
Identify Other Risk Mitigation Approaches. A major point for the finance officer to
explore is whether the general fund should be “back stopping” these other funds in the
first place. For example, an under-performing enterprise fund may be receiving operating
transfers not because it is good public policy, but because the political will has not been
mobilized to make the enterprise self-sufficient or to divest of it.
Assess Necessity of Risk Retention. Assign a score for the importance of risk retention
through the use of reserves, when it comes to other funds.
Growth
Identify Risks. This factor is only relevant if significant growth is a realistic possibility
in the next three to five years. Start by identifying major potential sources of growth.
Assess Risks. Estimate the potential marginal costs associated with serving new growth
and compare it to marginal revenues (this information should be available from long-term
financial plans and forecasts). If there is a gap due to significant timing differences
between when revenue is received from growth and when expenditures are made on
services for that growth, then reserve targets could be adjusted to account for that gap.
Identify Other Risk Mitigation Approaches. Special growth or impact fees could be
assessed at the time of construction to avoid this risk. For example, if a new development
is expected to generate $10M annually in new taxes starting three years in the future (but
nothing before then), but costs $7M to service starting in two years, then a reserve (or
impact fees) may be needed. If the gap between revenue growth and service expenditures
is due to a structural mismatch between costs and revenues (i.e., the growth does not pay
for itself), then the government should re-examine its tax-fee structures, service provision
methods, and/or land use plans to correct this imbalance.
Assess Necessity of Risk Retention. Assign a score for the importance of risk retention
through the use of reserves, when it comes to growth.
Capital Projects
Identify Risks. Use a capital improvement plan to determine if there are high priority
projects without a funding source.
Assess Risks. Assess whether decision-makers might consider pay-as-you-go financing,
using general fund reserves as at least part of the source.
Identify Other Risk Mitigation Approaches. If pay-as-you-go financing is something
decision-makers might consider, then the finance officer may wish to broach the
possibility of a commitment or assignment for the project so that pay-as-you-go financing
does not detract from the general reserve’s ability to manage other risks.
Appendix D: GFOA Structured Assessment Methodology
D-5
Assess Necessity of Risk Retention. Assign a score for the importance of risk retention
through the use of reserves, when it comes to capital projects.
Your Target
Step 1. Determine Your TotalSscore from the Risk Factors
Step 1 on this sheet totals your scores from the foregoing sheets.
Step 2. Preliminary Analysis
In Step 2, find your score in the ranges presented and consult the analytical guidance.
This is preliminary, as the analytical guidance will be refined in the next steps.
Step 3. Consider the Impact of Government Size, Budget Practices, and Borrowing
Capacity
In Step 3, you consider additional drivers of fund balance: government size, budget
practices, and borrowing capacity. In each blue box, enter the indicated number of
positive or negative points for each driver (totaling them for each driver, as might be
needed).
Size of Government. GFOA’s analysis of the thousands of governments that participate
in GFOA’s comprehensive annual financial report presentation award program shows a
very weak direct relationship between population size and size of fund balance. In fact, a
statistical analysis of the data shows that although there is an inverse relationship
between population size and size of fund balance, only about between 10% and 20% of
the variation in fund balance size between governments can be explained by population.i
Hence, the sheet only provides points for the very largest and smallest governments.
Budget Practices. The presence of formal or informal contingencies already built into
the budget may relieve the need to carry some additional reserves. The finance officer
can search directly for the presence of informal contingencies by searching prior years’
budget-versus-actual reports for areas with consistent positive variances – this may
indicate areas that are consistently over-budgeted. The finance officer can also look
indirectly for contingencies by examining the budgeting system for practices that
unintentionally encourage informal contingencies. For example, systems that provide
little flexibility for managers to transfer budgets between different accounts will
encourage managers to build additional slack into their budget since they do not have the
ability to move surpluses in one account to counteract a deficit in another.
Borrowing Capacity. You can evaluate your borrowing capacity by comparing your
current level of debt against your financial policy for debt. If no policy standards are in
place, consider the rating agency guidelines below.
Appendix D: GFOA Structured Assessment Methodology
D-6
Standard and Poor’s Debt Ratios and Rangesii
Overall Net Debt
per Capita
Overall Net Debt as a %
of Market Value
Debt Service as a %
of Expenditures
Low Below $1,000 Below 3% Below 8%
Moderate $1,000 - $3,000 3% - 6% 8% - 15%
Moderately High $3,000 - $5,000 6% - 10% 15% - 20%
High Above $5,000 Above 10% Above 25%
The finance officer should also consider internal borrowing capacity. Inventory reserves
in other funds and assess the extent to which these reserves are necessary to deal with the
risks with which these funds are faced. If other funds have sizable reserves compared to
the risks they are retaining, they could serve as an alternative to larger general fund
reserve targets. However, internal borrowing should not be considered an alternative
without a strong internal borrowing policy in place.
Step 4. Consider the Impact of Commitments/Assignments, Outsider Perceptions, and
Political Support
In Step 4, you consider the drivers of Commitments/Assignments, Outsider Perceptions,
and Political Support. Put an “X” in the blue cell next to all the statements that apply to
you.
Commitments or Assignments. Think about all assignments and commitments that
impact fund balance. Then assess how constraining those assignment and commitments
are and how available that portion of the fund balance might be to retain risk. For
instance, a board might “commit” a certain amount to a “rainy day” reserve. This sort of
commitment would be very consistent with the purpose of retaining the types of risk
defined in this analysis, and so could be considered part of the total amount of general
fund balances available for a reserve. Conversely, an assignment or commitment for asset
maintenance or a special project is intended to be spent on a particular use, and therefore
is not really available for risk retention. These sorts of uses should be subtracted from the
definition of fund balance available for a reserve.
Outsider Perceptions. Take stock of relevant outsider perceptions. What have rating
agencies said in the past about your level of reserves? Could failure to carry a certain
level of reserves contribute to a ratings downgrade? Also consider citizen perspectives –
ould having too high of a reserve provoke a backlash? Take these perceptions into
account when settling on a final reserve target.
Political Support. A reserve target must be formally adopted by the board in order to do
much good. Therefore, consider what might lead to a politically acceptable target level.
For instance, governing boards often place great weight on benchmarking studies with
similar organizations – a proposed target might garner more support if it is seen as
consistent with the practices of comparable governments.
Step 5: Putting It All Together
The green cell contains a revised risk score, which takes account of your point totals from
Step 3. Using this revised score, revisit the ranges and analytical guidance in Step 2.
Appendix D: GFOA Structured Assessment Methodology
D-7
Also, consider the boxes you checked in Step 4. Add the advice from these statements to
your final analytical guidance from Step 2. Using this advice, you can finalize a reserve
target and present it to the board.
i The range comes from using different permutations of the data set, such as removing or including certain
outliers.
ii The ratios are taken from David G Hitchcock, Karl Jacob, and James Wiemken, “Key General Obligation
Ratio Credit Ranges – Analysis vs. Reality,” Standard & Poor’s: 2008. However, the ranges have been
modified slightly by the authors to provide a more streamlined presentation. Specifically, in the original
document, the overall net debt per capita “low” range is $1,000 to $2,000 and the “moderate” range is
$2,000 to $5,000.
Appendix D: GFOA Structured Assessment Methodology
Vulnerability to Extreme Events
1. Identify Risks
What extreme events are you at risk for?
A Fire
B Flood
C Drought
D Earthquake
2. Assess Risks
What is your vulnerability to each extreme event, given past experience?
A Very High: Wildland Interface
B High (but City not directly responsible for flood protection)
C High (but City not responsible for water service)
D Low probability; depending on epicenter, losses could be significant
3. Identify other risk mitigation approaches
What options do you have to avoid, reduce, or transfer the risk (i.e., manage it without reserves)
A FEMA reimbursement
B FEMA reimbursement
C State drought relief, possible FEMA reimbursement
D FEMA reimbursement
E FEMA reimbursement
Note: While significant reimbursements from FEMA are likely, it is also likely that there will be significant
lags between when recovery costs are incurred and when payments will be received. Lastly, based on
experiences in other cities, even under the best of circumstances, it is unlikely that the City will be
reimbursed for all recovery costs. And even where costs are largely recovered, there is no reimbursement
for key lost revenues - like property tax, sales tax and TOT - during the disaster and recovery period.
4. Considering the above, how important for you is it to retain the risks of extreme events through reserves ?
5 < Enter your score here
5 Very important. We are subject to extreme events of severe potential magnitude which would require a quick and
decisive response from our government. There are few alternative risk management approaches.
4 Important. We are subject to extreme events of severe potential magnitude, but our government does not have an
important disaster response role and/or we have other risk management alternatives.
3 Neutral. We do not face an unusually high or low level of risk from extreme events.
2 Unimportant. We are subject to one or two types of significant extreme events and we have other risk management
options.
1 Very unimportant. We are subject to very few, if any, potential extreme events of significant potential damage
D-8
Appendix D: GFOA Structured Assessment Methodolgy
Revenue Source Stability
1. Identify Risks
What are your major revenue sources?
A Property Tax/VLF Swap (38%)
B Sales Tax (18%)
C Franchise Fees (6%)
D TOT (5%)
E Business License Tax (4%)
F State Takeaways (Always a Threat)
Note: Top 5 revenues account for over 70% of total.
2. Assess Risks
How stable are your revenue sources?
A Historically stable, but experienced downturn/flattening in "Great Recession"
B Subject to significant swings with economy
C Stable
D Subject to significant swings with economy
E Subject to swings with economy
F Historically significant
3. Identify other risk mitigation approaches
What options do you have to avoid, reduce, or transfer the risk (i.e., manage it without reserves)
Limited in all cases
4. Considering the above, how important for you is it to retain the risks of revenue instability through reserves ?
4 < Enter your score here
5 Very important. We rely on just one or two sources of revenue, and they are unstable
4 Important. We rely on unstable sources for a significant portion of our revenue and/or have particular unstable
payers as part of our tax base (e.g., sales tax from an industry with volatile sales)
3 Neutral. We do not face an unusually high or low level of risk from revenue instability
2 Unimportant. While some portion of our revenue base has instability, the majority of revenues are pretty stable.
1 Very unimportant. Our revenues are very stable and diverse.
D-9
Appendix D: GFOA Structured Assessment Methodolgy
Expenditure Volatility
1. Identify Risks
What are sources of potential expenditure spikes?
A Increased pension costs
B Retiree health care
C Unexpected infrastructure repairs
D State/federal mandates
2. Assess Risks
What is the potential cost of these spikes?
A Based on CalPERS investment losses and approved funding methodology changes, very high
B Significant
C Unknown
D Moderate
3. Identify other risk mitigation approaches
What options do you have to avoid, reduce, or transfer the risk of these potential spikes? (i.e., manage it without
reserves)
A Need to address on ongoing basis
B Need to address on ongoing basis
C Unknown
D Limited (legislative advocacy)
4. Considering the above, how important for you is it to retain the risks of expenditure spikes through reserves ?
4 < Enter your score here
5 Very important. There are expenditure spikes with very high potential to open a significant hole in our budget.
4 Important. We are subject to important potential expenditure spikes, such that we need reserves but we also have
other risk mitigation approaches available.
3 Neutral. We do not face an unusually high or low level of risk from expenditure spikes
2 Unimportant. There are one or a few potential spikes but the risk of them occurring is low, the impact not great
and/or we have other risk management options.
1 Very unimportant. We have no important risk from expenditure spikes.
D-10
Appendix D: GFOA Structured Assessment Methodolgy
Leverage
1. Identify Risks
What are major sources of leverage you are subject to?
A Pension liabilities
B OPEB liabilities
C
D
2. Assess Risks
What are the implications of leverage for the organization's financial flexibility?
A Higher future costs
B
C
D
3. Identify other risk mitigation approaches
What options do you have to avoid, reduce, or transfer the risk of leverage? (i.e., manage it without reserves)
A Need to address these higher cost on an ongoing basis.
B
C
D
4. Considering the above, how important for you is it to retain the risks of leverage through reserves ?
3 < Enter your score here
5 Very important. We are subject to significant leverage and have no other risk management approach
4 Important. We are subject to significant leverage and do not have equally significant offsetting risk management
approaches.
3 Neutral. We do not face an unusually high or low level of risk from leverage
2 Unimportant. We have one or two sources of leverage, but these are largely addressed with other risk management
strategies.
1 Very unimportant. We have no important sources of leverage that aren't already managed with out reserves.
Note: Given unfunded liabilities, normally this would be assigned a "5." However, the City has proactively addressing
set aside separate reserves for this as well as making significant payments to reduce unfunded liabilities.
D-11
Appendix D: GFOA Structured Assessment Methodolgy
Liquidity
1. Identify Risks
What are your major sources of potential intra-period cash imbalances? (See cash flow worksheet)
A Property tax collections in November-January and April-June (38% of revenues):
B Gas and electric franchise payments in April
C Business tax collections in January and February
D Pension obligation payments in July
E COP debt service payments
2. Assess Risks
How likely are these risks to occur and what is their potential magnitude?
A Ongoing
B Ongoing
C Ongoing
D Ongoing
E Ongoing
3. Identify other risk mitigation approaches
What options do you have to avoid, reduce, or transfer the risk of liquidity? (i.e., manage it without reserves)
A Tax/revenue anticipation notes - but results in added interest costs
B Borrow from other funds - but adds "leverage" to them
C
4. Considering the above, how important for you is it to retain the risks of liquidity spikes through reserves ?
5 < Enter your score here
5 Very important. We have very important potential intra-period imbalances with few risk management alternatives.
4 Important. We have important potential intra-period imbalances, but do have some off-setting risk management
alternatives.
3 Neutral. We do not face an unusually high or low level of risk from intra-period cash imbalances.
2 Unimportant. We have some minor potential intra-period cash imbalances.
1 Very unimportant. Our cash flows are very stable.
D-12
Appendix D: GFOA Structured Assessment Methodolgy
Other Funds Dependency
1. Identify Risks
What other funds rely on the general fund for an important part of their funding?
A Very limited
B
C
2. Assess Risks
How likely is it that these funds will need the general fund to "backstop" them in an emergency?
A
B
C
3. Identify other risk mitigation approaches
What options do you have to avoid, reduce, or transfer the risk of other funds' dependency? (i.e., manage it without
reserves)
A
B
C
4. Considering the above, how important for you is it to retain the risks of other fund dependency through reserves
?
1 < Enter your score here
5 Very important. A number of funds rely on the general fund for backstopping, with few, if any, risk management
alternatives.
4 Important. We have at least some funds that rely on the general fund and this includes reliance for backstopping.
3 Neutral. We do not face an unusually high or low level of risk from other fund dependency.
2 Unimportant. There are a small number of funds that rely on the general fund, and the potential for the general fund
to need to backstop them is small.
1 Very unimportant. No other funds rely on the general fund for backstopping.
This score is based on the fact that other funds depending on the General Fund are subordinate to the General Fund:
they are not subsidies per se.
D-13
Appendix D: GFOA Structured Assessment Methodolgy
Growth
1. Identify Risks
What are potential major sources of growth in the next three to five years?
A Very limited new development opportunities
2. Assess Risks
What is the potential for these sources of growth to cause imbalances in the revenue received from the
growth and the expenditures needed to serve it?
A Limited
3. Identify other risk mitigation approaches
What options do you have to avoid, reduce, or transfer the risk of growth? (i.e., manage it without reserves)
A Limited, if significant growth does occur
4. Considering the above, how important for you is it to retain the risks of growth through reserves ?
2 < Enter your score here
5 Very important. We expect significant growth with imbalances in the timing of revenues and expenditures
4 Important. We have some growth that will cause imbalances in the timing of revenues and expenditures.
3 Neutral. We do not face an unusually high or low level of risk from growth
2 Unimportant. We have a small potential for future growth and/or only minor potential imbalances in the
timing between revenues and expenditures.
1 Very unimportant. We expect no growth or growth will fully pay for itself as expenditures are incurred.
Population as of January 1: Last Ten Years
2018 30,601
2017 30,448
2016 31,376
2015 30,505
2014 30,443
2013 30,247
2012 29,808
2011 29,651
2010 30,802
2009 30,497
2008 30,170
Sources
For 2017 and 2018: State of California, Department of Finance, Demographic Research Unit
http://www.dof.ca.gov/Forecasting/Demographics/Estimates
For 2008 to 2016: Town of Los Gatos Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2017
D-14
Appendix D: GFOA Structured Assessment Methodolgy
Capital Projects
1. Identify Risks
What high priority capital projects don't have a funding source?
A The City has a significantly underfunded CIP.
B
C
2. Assess Risks
What is the likelihood that reserves will be looked to as a funding source for the project?
A Likely - but separate reserves have been set aside for this from General Fund revenues in the past.
B
C
3. Identify other risk mitigation approaches
What options do you have to avoid, reduce, or transfer the risk of capital projects using reserves as a funding source?
(i.e., manage it without reserves)
A Not applicable
B
C
4. Considering the above, how important for you is it to retain the risks of unfunded capital projects through
reserves ?
5 < Enter your score here
5 Very important. There are very high profile projects with out a funding source and reserves are likely to be
considered as a funding source.
4 Important. There are at least some high profile projects where reserves may be called upon to provide at least some
of the funding.
3 Neutral. We do not face an unusually high or low level of risk from unfunded high-priority projects
2 Unimportant. High priority capital projects will probably have funding sources, if they don't already.
1 Very unimportant. All high priority capital projects have funding sources.
D-15
Appendix D: GFOA Structured Assessment Methodolgy
Guiding Your Selection of a Fund Balance Target
Step 1. Determine your total score from the risk factors
29 Your total score from the risk factors (calculated if you entered a score in other sheets)
Step 2. Preliminary Analysis
Compare your score from Step 1 to the guidelines below.
Your Score Analytical Guidance
8 - 16 You face minimal risk to retain through reserves. Consider a target equal to the GFOA minimum
recommended reserve of 16.6% of revenues/expenditures.
17-24
You face a low to moderate level of risk to retain through reserves. Consider adopting a reserve target
somewhat higher than the GFOA minimum (e.g. 17-25% of revenues/expenditures). Since risk is low,
do not invest excessive analytical effort in determining an exact target amount. Consider a short,
informal benchmarking study with peer agencies to provide guidance.
25-31
You face a moderate to high level of risk to retain through reserves. Consider adopting a target amount
of reserves significantly higher than the GFOA recommended minimum (e.g., 26 - 35%). Consider a
short, informal benchmarking survey as a starting point, but then analyze your most significant risk
factors to make sure they are adequately covered by what the survey suggests is reasonable.
32 - 40 You face a high level of risk to retain through reserves. Consider adopting a much higher target than
the GFOA minimum (e.g., greater than 35%). Consider performing a more in-depth analysis of the risks
you face to arrive at target level of reserved that provides sufficient coverage.
Step 3. Consider Impact of Government Size, Budget Practices, & Borrowing Capacity
For each driver pick which description best fits you and enter the appropriate number of points.
2 Government Size
+2 We are under 50,000 in population
0 We are between 50,000 and 300,000 in population
-4 We are over 300,000 in population
-3 Budget Practices
-3 The budget has a formal contingency beyond what is being considered for this reserve.
-2 The budget has informal contingencies beyond what is being considered for the reserve.
0 The budget is lean and has no contingencies in it.
-2 Borrowing Capacity
-3
We have excellent external and internal borrowing capacity, including a good rating, little existing debt,
and political will to use it.
-2
We have some external and/or internal borrowing capacity and political will could be mobilized to use
it.
D-16
Appendix D: GFOA Structured Assessment Methodolgy
0 We have little or no borrowing capacity.
Step 4. Consider Impact of Commitments/Assignments, Outsider Perceptions & Political Support
Place an "X" next to each statement that applies to you.
Commitments and Assignments
x
We have commitments or assignments that designate fund balance for uses other than retaining the
types of risk described in this analysis. If so, these commitments/assignments should not be included in
the total reserve used to reach your target.
Outsider Perceptions
Rating agencies have given us a target level of reserve for getting a good rating. If so, use that target in
place of or in addition to a benchmarking survey to provide guidance on starting point for your target.
The public is likely to question reserve levels as too high. If so, be sure to document your analysis
findings in the other sheets.
Political Support
The governing board places great weight on the policies of comparable jurisdictions. If so, conduct a
benchmarking survey that includes governments the board perceives as relevant.
The board places great weight on rating agency recommendations. If so, tie the reserve target
recommendation to rating agency recommendations or standards.
The board places great weight on GFOA recommendations. If so, use this analysis and GFOA's Best
Practices to support your recommendation.
Step 5. Putting it All Together
A. Consider your adjusted risk score and re-consult the analytical guidance.
26 < Your adjusted risk score (risk score modified with results from Step 3)
B. Review results of Step 4.
Review each item you checked from Step 4 and add the advice to your analytical guidance.
C. Proceed with finalizing target
Proceed with setting a final reserve target based on analytical guidance.
D-17
Appendix D: GFOA Structured Assessment Methodolgy
Appendix E: Town of Los Gatos Cash Flow: 2018-19 General Fund Budget
Total % Total July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June Total
REVENUES/SOURCES
Property Tax 12,507,071 30%100,057 100,057 100,057 750,424 1,375,778 2,376,343 2,376,343 100,057 1,500,849 1,500,849 100,057 2,126,202 12,507,071
VLF Backfill 3,482,060 8%- - - - - - 1,741,030 - - 1,741,030 - - 3,482,060
Sales & Use Tax 7,744,208 18%645,351 645,351 645,351 645,351 645,351 645,351 645,351 645,351 645,351 645,351 645,351 645,351 7,744,208
Franchise Fees 2,386,910 6%95,476 214,822 214,822 95,476 214,822 214,822 95,476 214,822 214,822 501,251 95,476 214,822 2,386,910
TOT 2,272,500 5%227,250 227,250 159,075 159,075 159,075 159,075 227,250 136,350 136,350 227,250 227,250 227,250 2,272,500
Business License Tax 1,657,000 4%33,140 33,140 33,140 33,140 33,140 33,140 828,500 497,100 33,140 33,140 33,140 33,140 1,657,000
Debt Service Reimb 1,909,073 5%- - - - - - 381,815 - - - - 1,527,258 1,909,073
Total Top Sources 31,958,822 75%1,101,274 1,220,619 1,152,444 1,683,466 2,428,165 3,428,731 6,295,765 1,593,679 2,530,511 4,648,870 1,101,274 4,774,023 31,958,822
Licenses and Permits 3,304,199 8%275,350 275,350 275,350 275,350 275,350 275,350 275,350 275,350 275,350 275,350 275,350 275,350 3,304,199
Town Services 4,457,258 11%371,438 371,438 371,438 371,438 371,438 371,438 371,438 371,438 371,438 371,438 371,438 371,438 4,457,258
Transfers In 544,836 1%45,403 45,403 45,403 45,403 45,403 45,403 45,403 45,403 45,403 45,403 45,403 45,403 544,836
All Other Sources 2,098,542 5%174,879 174,879 174,879 174,879 174,879 174,879 174,879 174,879 174,879 174,879 174,879 174,879 2,098,542
Total Revenues/Sources 42,363,657 100%1,968,343 2,087,689 2,019,514 2,550,536 3,295,235 4,295,801 7,162,835 2,460,749 3,397,581 5,515,940 1,968,343 5,641,093 42,363,657
ANNUAL COSTS/USES
PERS Unfunded Liability 3,088,308 6%3,088,308 3,088,308
Capital Projects Transfer 2,365,220 5%2,365,220 2,365,220
Cash Outs 480,000 1%300,000 180,000 480,000
COP Debt Service 1,909,073 4%1,527,258 381,815 1,909,073
All Other Costs 39,679,469 83%3,306,622 3,306,622 3,306,622 3,306,622 3,306,622 3,306,622 3,306,622 3,306,622 3,306,622 3,306,622 3,306,622 3,306,622 39,679,469
Total Costs/Uses 47,522,070 100%6,394,930 4,833,881 3,306,622 3,306,622 3,306,622 3,606,622 3,306,622 3,688,437 3,306,622 3,306,622 3,306,622 5,851,842 47,522,070
NET REVENUES (5,158,413) - (4,426,587) (2,746,192) (1,287,109) (756,087) (11,387) 689,178 3,856,212 (1,227,688) 90,958 2,209,317 (1,338,279) (210,750) (5,158,413)
Cumulative Net (5,158,413) (4,426,587) (7,172,779) (8,459,888) (9,215,975) (9,227,362) (8,538,184) (4,681,971) (5,909,660) (5,818,701) (3,609,384) (4,947,663) (5,158,413) -
% OF ANNUAL COSTS -9%-15%-18%-19%-19%-18%-10%-12%-12%-8%-10%-11%
E-1
Appendix F: Consultant Background
F-1
Bill Statler has extensive experience in organizational review, strategic planning and policy
analysis, as well as in a broad range of financial management practices that have received
state and national recognition for excellence in financial planning and reporting.
His work ranges from San Luis Obispo (the city that Oprah Winfrey calls the “Happiest City
in America”) to volunteer service helping the troubled City of Bell reform their government.
SENIOR FINANCIAL MANAGEMENT EXPERIENCE
Bill Statler has over 30 years of years of senior financial management experience, which
included serving as the Director of Finance & Information Technology/City Treasurer for the
City of San Luis Obispo for 22 years and as the Finance Officer for the City of Simi Valley
for 10 years before that.
Under his leadership, the City of San Luis Obispo received national recognition for its
financial planning and reporting systems, including:
• Award for Distinguished Budget Presentation from the Government F inance Officers
Association of the United States and Canada (GFOA), with special recognition as an
outstanding policy document, financial plan and communications device. San Luis
Obispo is one of only a handful of cities in the nation to receive this special
recognition.
• Awards for excellence in budgeting from the California Society of Municipal Finance
Officers (CSMFO) in all four of its award budget categories: innovation, public
communications, operating budgeting and capital budgeting. Again, San Luis Obispo is
among a handful of cities in the State to earn recognition in all four of these
categories.
• Awards for excellence in financial reporting from both the GFOA and CSMFO for the
City’s comprehensive annual financial reports.
• Recognition of the City’s financial management policies as “best practices” by the
National Advisory Council on State and Local Budgeting.
The financial strategies, policies and programs he developed and implemented resulted in
strengthened community services and an aggress ive program of infrastructure and facility
improvements, while at the same time preserving the City’s long -term fiscal health.
CONSULTING AND INTERIM ASSIGNMENTS
Long-Term Financial Plans
City of Salinas
City of Camarillo
City of Carpinteria
City of Pismo Beach
City of Grover Beach
Appendix F: Consultant Background
F-2
City of Twentynine Palms
City of Bell
Bear Valley Community Services District
Strategic Planning and Council Goal-Setting
In collaboration with the HSM Team
City of Monrovia
City of Sanger
City of Pismo Beach
City of Bell (Pro Bono)
City of Willits
Organizational Analysis and Policy Advice
Financial Management Advice During Finance Director Transition: City of Monterey
Organizational Review (Plans/Public Works and Community Services): City of Monterey
Finance Organizational Review: Ventura Regional Sanitation District
Benchmark Analysis: City of Capitola
Financial Management Imp rovements: Cit y of Capitola
Organizational Review: Cit y of Willits (in collabo ration with the HSM Team)
Finance Division Organizational Review: Sacramento Metropolitan Fire District
Finance Department Organizational Review: Cit y of Ceres (in collabo ration with national
consulting fir m)
Financial Management Transition Team and Policy Advice: City of Bell (Pro Bono)
Preparation for Possible Revenue Ballot Measure: Cit y of Monterey
Fund Accounting Review: State Bar of California
Construction Project Contracting Review: Central Contra Costa Sanitary District
Focused Financial Review: City of Watsonville
Financial Assessment: Cit y of Guadalupe
Financial Condition Assessment: Cit y of Grover Beach
General Fund Reserve Policy: City of Pacific Grove
General Fund Reserve Policy: City of Twentynine Palms
General Fund Reser ve Policy: Cit y of Lompoc
General Fund Reser ve Policy: Cit y of Willits
Reserve Policy: State Bar of California
Budget and Fiscal Policies: City of Santa Fe Springs
Interim Finance Director
City of Monterey
San Diego County Water Authority
City of Capitola
Appendix F: Consultant Background
F-3
Other Financial Management Services
Revenue Options Study: Santa Clara Valley Water District
Revenue Options Study: City of Greenfield
Revenue Options Study: City of Pismo Beach
Cost Allocation Plan: City of Greenfield
Cost Allocation Plan: City of Guadalupe
Cost Allocation Plan: City of Port Hueneme
Cost Allocation Plan: City of Grover Beach
Cost Allocation Plan Review: State Bar of California
Cost Allocation Plan Review: City of Ukiah
Disciplinary Proceedings Cost Recovery Review: State Bar of California
Water and Sewer Rate Reviews: Avila Beach Community Services District
Water and Sewer Rate Reviews: City of Grover Beach
Solid Waste Rate Review: County of San Luis Obispo, Los Osos and North County Areas
Joint Solid Waste Rate Review: Cities of Arroyo Grande, Grover Beach, Pismo Beach and
Oceano Community Services District
PROFESSIONAL LEADERSHIP
• Member, Board of Directors, League of California Cities (League): 2008 to 2010
• Member, California Committee on Municipal Accounting: 2007 to 2010
• Member, GFOA Budget and Fiscal Policy Committee: 2005 to 2009
• President, League Fiscal Officers Department: 2002 and 2003
• President, CSMFO: 2001
• Member, Board of Directors, CSMFO: 1997 to 2001
• Chair, CSMFO Task Force on “GASB 34” Implementation
• Fiscal Officers Representative on League Policy Committees: Community Services,
Administrative Services and Environmental Quality: 1992 to 1998
• Chair, Vice-Chair and Senior Advisor for CSMFO Committees: Technology, Debt,
Career Development, Professional and Technical Standards and Annual Seminar
Committees: 1995 to 2010
• Member, League Proposition 218 Implementation Guide Task Force
• Chair, CSMFO Central Coast Chapter: 1994 to 1996
TRAINER
League of California Cities
Institute for Local Government
California Debt and Investment Advisory Commission
Government Finance Officers Association of the United States and Canada
Appendix F: Consultant Background
F-4
California Society of Municipal Fina nce Officers
Municipal Management Assistants of Southern California and Northern California
National Federation of Municipal Analysts
Probation Business Manager’s Association
Humboldt County
California Association of Local Agency Formation Commissions
American Planning Association
Topics included:
• Long-Term Financial Planning
• The Power of Fiscal Policies
• Financial Analysis and Reporting
• Fiscal Health Contingency Planning
• Effective Project Management
• Providing Great Customer Service in
Internal Service Organizations: The
Strategic Edge
• Strategies for Downsizing Finance
Departments in Tough Fiscal Times
• Top-Ten Skills for Finance Officers
• Telling Your Fiscal Story: Tips on
Making Effective Presentations
• What Happened in the City of Bell
and What We Can Learn from It
• Multi-Year Budgeting
• Top Challenges Facing Local
Government Finance Officers
• Fiscalization of Land Use
• Debt Management
• Transparency in Financial
Management: Meaningfully
Community Involvement in the
Budget Process
• Financial Management for Non-
Financial Managers
• Preparing for Successful Revenue
Ballot Measures
• Integrating Goal-Setting and the
Budget Process
• Financial Management for Elected
Officials
• 12-Step Program for Recovery from
Fiscal Distress
• Strategies for Strengthening
Organizational Effectiveness
• Budgeting for Success Among
Uncertainty: Preparing for the Next
Downturn
PUBLICATIONS
• Guide to Local Government Finance in California, Solano Press, Second Edition, 2017
(Co-Author)
• Setting Reserve Policies – and Living Within Them, CSMFO Magazine, May 2017
• Presenting the Budget to Your Constituents, CSMFO Magazine, July 2016
• Planning for Fiscal Recovery, Go vernment Finance Review, Februar y 2014
Appendix F: Consultant Background
F-5
• Managing Debt Capacity: Taking a Policy-Based Approach to Protecting Long-Term
Fiscal Health, Government Finance Review, August 2011
• Fees in a Post-Proposition 218 World, League of California Cites, District Attorney's
Department Spring Conference, May 2010
• Municipal Fiscal Health Contingency Planning, Western City Magazine, November
2009
• Understanding the Basics of County and City Revenue, Institute for Local Government,
2008 (Contributor)
• Financial Management for Elected Officials, Institute for Local Government, 2010
(Contributor)
• Getting the Most Out of Your City’s Current Revenues: Sound Fiscal Policies Ensure
Higher Cost Recovery for Cities, Western City Magazine, November 2003
• Local Government Revenue Diversification, Fiscal Balance/Fiscal Share and
Sustainability, Institute for Local Government, November 2002 (Co -Author)
• Why Is GASB 34 Such a Big Deal?, Western City Magazine, November 2000
• Understanding Sales Tax Issues, Western Cities Magazine, June 1997
• Proposition 218 Implementation Guide, League of California Cities, 1997 (Contributor)
HONORS AND AWARDS
• Cal-ICMA Ethical Hero Award (for service to the City of Bell)
• CSMFO Distinguished Service Award for Dedicated Service and Outstanding
Contribution to the Municipal Finance Profession
• National Advisory Council on State and Local Government Budgeting: Recommended
Best Practice (Fiscal Polices: User Fee Cost Recovery)
• GFOA Award for Distinguished Budget Presentation: Special Recognition as an
Outstanding Policy Document, Financial Plan and Communications Device
• CSMFO Awards for Excellence in Operating Budget, Capital Improvement Plan, Budget
Communication and Innovatio n in Budgeting
• GFOA Award of Achievement for Excellence in Financial Reporting
• CSMFO Certificate of Award for Outstanding Financial Reporting
Appendix F: Consultant Background
F-6
• National Management Association Silver Knight Award for Excellence in Leadership and
Management
• American Inst itute of Planners Award for Innovation in Planning
• Graduated with Honors, University of California, Santa Barbara
Visit my web site for additional information at www.bstatler.com