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HomeMy WebLinkAboutResolution 100-25 SignedRESOLUTION 100-25 RESOLUTION 100-25 RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF LOS ALTOS HILLS APPROVING THE FUND BALANCE AND RESERVE POLICY WHEREAS, financial reserves are an essential component to demonstrating financial stability and strength of the organization; and WHEREAS, a fund balance and reserve policy enable an organization to plan for contingencies, maintain good standing with credit rating agencies, generate interest income, and ensure that funds are available during emergencies and economic downturns; and WHEREAS, the Town adopted Resolution 57-23 on June 15, 2023, to update the Town of Los Altos Hills Fund Balance and Reserve Policy; and WHEREAS, the Town desires to replace the existing reserve policy with the new policy in Exhibit A; and WHEREAS, the Town approves the updated reserve balances as of June 30, 2025: Pension Trust (Restricted) $2,209,137 General Fund Stabilization Reserve 3,113,623 Capital Projects Reserve 3,407,739 Disaster Contingency Reserve 1,250,000 Facilities Replacement Reserve 3,017,081 Pension Contribution Reserve 535,439 Vehicle & Equip Reserve 409,000 WHEREAS, the City Manager is responsible for presenting annually an updated reserve threshold report during the annual budget cycle; and NOW, THEREFORE, BE IT RESOLVED, by the City Council of the Town of Los Altos Hills approves the Fund Balances and Reserve Policy. The above and foregoing Resolution passed and adopted by the City Council of the Town of Los Altos Hills at a regular meeting held on the 26th day of June 2025, by the following vote: AYES: TANKHA, BHATEJA, MOK, SWAN, TYSON NOES: NONE ABSTAIN: NONE ABSENT: NONE BY: ATTEST: Kavita Tankha, Mayor Arika Birdsong-Miller, City Clerk Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan Reserve Policy for City Council Adoption on June 26, 2025 Resolution 100-25 Purpose This policy establishes reserve targets for the Town’s governmental funds to ensure financial stability, operational continuity, and long-term planning. Reserves provide: >Working capital for operations and maintenance >Funding for equipment, technology, and capital needs >Resources to meet legal, regulatory, and contractual obligations >A buffer against revenue shortfalls and unforeseen emergencies Maintaining adequate reserves enhances transparency, supports credit ratings, and helps manage risk through economic or operational disruptions. Policy This policy ensures that the Town maintains sufficient cash flow to meet current and future obligations while providing transparency to the public. By establishing targeted reserve levels for each of the Town’s governmental funds, the policy supports financial stability, risk mitigation, and long-term planning. Reserves are essential to address both planned and unplanned needs: >Planned needs may include: •Funding operating requirements •Meeting debt service obligations (if any) •Addressing pension and other post-employment benefit (OPEB) liabilities >Unplanned needs may include: •Offsetting revenue shortfalls •Covering unanticipated expenses •Responding to emergencies or disasters Establishing formal reserve targets helps the Town: >Maintain adequate working capital >Prepare for financial contingencies and emergencies >Support strong credit ratings and reduce borrowing costs This policy defines specific reserve accounts by outlining their purpose, target thresholds, allowable uses, and replenishment procedures. It distinguishes between committed reserves, which are formally designated by City Council for specific purposes, and assigned reserves, which offer greater flexibility and may be used for a range of Town-identified needs. Both committed and assigned reserves may be established, modified, applied, or eliminated by City Council resolution. Committed reserves are restricted to the purposes explicitly stated at the time of designation. In contrast, assigned reserves may support multiple related activities, provided they align with the stated intent of the reserve. EXHIBIT A 1 2 Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan Policy Review and Monitoring This policy will be reviewed annually during the budget process to ensure alignment with the Town’s financial goals and compliance with applicable regulations. As part of the annual review, the Administrative Services Director/ Finance Director will: >Recalculate reserve thresholds based on the most recent financial data >Evaluate reserve usage and replenishment >Recommend any policy or funding adjustments for inclusion in the budget In addition to the annual review, reserve balances will be monitored mid-year and presented to the City Council as part of the mid-year financial update to promote transparency and timely decision-making. Committed Reserves 1.Pension Contribution Reserve Purpose of the Reserve: The Pension Contribution Reserve is to set aside funds for the Town’s estimated unfunded liability. CalPERS prepares an annual Actuarial Report for each of the Town’s three pension plans. This reserve is for amounts not included in the Accrued Liability and represents the difference between the currently applied Discount Rate and the lowest Discount Rate measured by CalPERS in its most recent actuarial report. This difference is updated to the most recent past fiscal year end as reported in the related ACFR Pension Footnote. Threshold of the Reserve: The Pension Contribution Reserve shall maintain a maximum threshold based on the CalPERS annual actuarial report for each of the Town’s three pension plans. The reserve threshold amount is calculated by the following: the difference between the accrued liability at the current discount rate and the accrued liability calculated using the discount rate that is one percentage point lower than the current rate, as shown in the most recent ACFR pension footnote. The balance of the Town’s Section 115 Pension Trust shall be included in the calculation of the Pension Contribution Reserve. The sum of the Pension Contribution Reserve and the Pension Trust balance shall be used to evaluate compliance with the policy threshold. Usage of the Reserve: Adjustments to the reserve will result from the discount rate changes in succeeding years per the CalPERS annual report per the Analysis of Discount Rate Sensitivity as updated in the most recent ACFR Pension footnote. Replenishment of the Reserve: During the annual budget cycle, the Pension Contribution Reserve will be adjusted to reflect the new threshold amount as described in the preceding Threshold of the Reserve section. These adjustments will be approved by the City Council as part of the annual budget cycle. 2.Technology Reserve 3Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan Purpose of the Reserve: The Technology Reserve is to set aside funds for the Town’s future Audio and Visual equipment and software replacement needs. Threshold of the Reserve: The threshold will be calculated based on $460K, the budgeted amount of the AV system, and will be $46K for the following 10 years for upgrades and replacement of the equipment. Usage of the Reserve: Eligible expenditures will be for AV System and software to be upgraded or replaced throughout the fiscal year. These expenditures will be determined on an annual basis. Replenishment of the Reserve: The Technology Reserve will be adjusted up or down, as necessary, to equal the threshold. These expenditures will be determined on an annual basis. 3.Vehicle and Equipment Replacement Reserves Purpose of the Reserve: The Vehicle and Equipment Replacement Reserve is to set aside funds for the Town’s current and future vehicle and equipment replacement needs. The Town maintains a vehicle and equipment replacement schedule for all Town vehicles and equipment. This schedule is updated as equipment is added or removed from service. Threshold of the Reserve: The threshold of the Vehicle and Equipment Replacement Reserve will be calculated each year during the annual budget cycle. This threshold will be the sum of the amount determined for each piece of equipment on the Vehicle and Equipment replacement schedule based on future replacement costs of the item divided by its useful life and multiplied by the number of years in service, but in no event greater than the future replacement cost. Usage of the Reserve: Eligible expenditures include vehicles and/or equipment replacements purchased throughout the fiscal year. These expenditures will be determined on an annual basis. Replenishment of the Reserve: During the annual budget cycle, the Vehicle and Equipment Replacement Reserve will be adjusted up or down, as necessary, to equal the threshold. Any adjustments will be approved by the City Council as part of the annual budget cycle. 4.Facilities Replacement Reserves Purpose of the Reserve: The Facilities Replacement Reserve is to set aside funds for the Town’s current and future facility improvement and replacement needs. The Town maintains a facility schedule for all Town facilities. Additions to the facilities schedule occur when Town facilities are either improved or new Town facilities are added. Deletions occur as Town facilities are demolished and removed from service. 4 Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan Threshold of the Reserve: The threshold of the Facilities Replacement Reserve will be calculated each year during the annual budget cycle. This threshold will be comprised of two parts. For existing buildings, it will be the cumulative depreciation of the buildings listed in the fixed asset schedule as reported in the most recent ACFR Capital Asset Footnote. Added to this amount is any remaining unspent funds appropriated to construct additions or improvements to facilities. Usage of the Reserve: Eligible expenditures include facilities improvements, renovations, or demolitions that occur throughout the fiscal year. These expenditures will be determined on an annual basis. Replenishment of the Reserve: During the annual budget cycle, the Facilities Replacement Reserve will be adjusted up or down, as necessary, to equal the threshold. Any adjustments will be approved by the City Council as part of the annual budget cycle. 5.Disaster Contingency Reserve: The Disaster Contingency Reserve is to set aside funds for emergencies that may arise within the Town that have not been federally and or state declared disasters. To constitute a Town emergency, the disaster or emergency would be natural disasters (i.e. earthquakes, landslides, flooding) or temporary service outages of Town facilities and infrastructure (i.e. extensive debris cleanup from wind events that prohibits travel on Town roads). To be declared a Town Emergency, the Emergency Operations Center and team would be activated for any length of time. Town emergencies are smaller in nature than presidentially declared federal disasters and governor declared state disasters and are typically contained within the Town boundaries. Threshold of the Reserve: The Disaster Contingency Reserve shall maintain a balance not less than $1,250,000. This amount shall be adjusted up or down, as necessary, each year. Adjustments will be based on the risk assessment performed by the Town’s emergency services personnel. Usage of the Reserve: The City Manager is the Director of Emergency Services. In the event of a Town emergency, the City Manager would determine eligible expenditures allowable for use of the reserve on a case-by-case basis. If expenditures are incurred, use of the reserve will be considered on an annual basis. Replenishment of the Reserve: During the annual budget cycle, the Disaster Contingency Reserve will be adjusted as necessary to equal the threshold. Any adjustments will be approved by the City Council as part of the annual budget cycle. 6.Capital Projects Reserve Purpose of the Reserve: The Capital Projects Reserve is to set aside funds to start or complete projects for which the Council has previously appropriated funds, but the projects have not been started or completed. 5Town of Los Altos Hills | FY 2025-26 Operating Budget and FY 2026-2030 Five Year Capital Improvement Plan Threshold of the Reserve: The Capital Projects Reserve shall maintain a balance equal to the unused prior appropriated funds as shown in the list of capital projects prepared as part of the annual budget process. This amount shall be adjusted up or down, as necessary, each year. Usage of the Reserve: The Capital Projects Reserve will be used to fund the completion of the prior appropriated projects as shown in the list of capital projects in the budget. Replenishment of the Reserve: During the annual budget cycle, the Capital Projects Reserve will be adjusted as necessary to equal the threshold. Any adjustments will be approved by the City Council as part of the annual budget cycle. Assigned Reserves 1.General Fund Stabilization Reserve Purpose of the Reserve: The General Fund Stabilization Reserve is to establish a minimum unassigned fund balance and to set aside funds for the Town’s current and future operational needs in the event of economic downtowns or unexpected expenditures. Threshold of the Reserve: The General Fund Stabilization Reserve shall maintain a maximum threshold that is equivalent to three months of average operating expenditures in the general fund. Operating expenditures are defined as those expenditures before transfers to other funds and exclude capital expenditures (less that portion of Community Development costs that are recovered through charges for services). The figures from the most recent ACFR shall be used for calculating the threshold amount. Usage of the Reserve: Allowable expenditures for use in this reserve shall be determined on a case-by-case basis. Examples of allowable expenditures include, but are not limited to, significant economic downturn that result in diminished property taxes revenues, thus resulting in a need for use of the reserve to balance the annual general fund budget. These expenditures will be recommended by the City Manager and approved by the City Council. If expenditures are recommended and approved, use of this reserve will be considered on an annual basis. Replenishment of the Reserve: During the annual budget cycle, the General Fund Stabilization Reserve will be reviewed and updated based on the most recent audited and issued Annual Comprehensive Financial Report. Any adjustments will be approved by the City Council as part of the annual budget cycle.