CITY COUNCIL: Allocation of FY 2006/07 General Fund Surplus of $1,904,018

Meeting Date: January 8, 2008
Prepared by: Joyce Giuffre,
Admin Services Director

City Council
Agenda Item Summary

Name: Consideration of a Resolution approving the use of the FY 2006/07 General Fund
Surplus of $1,904,018.

Description: The City’s audited financial statements for the year ended June 30, 2007 show a General Fund surplus of revenues over expenditures of $1,904,018 (Exhibit A).
At the December 4, 2007 City Council meeting, a staff report with recommendations on how to use the surplus was presented to the City Council with a request for policy direction. Council directed staff to prepare a resolution for the January 8, 2008 City Council meeting based on the staff recommendations, as outlined below.

Staff Recommendation: Staff recommends that the surplus be applied towards the following:
1) Debt reduction:
a) Sunset Center 2001 Series Bonds-establish new reserve $ 674,500
b) WestAmerica notes and leases payable 325,500
2) Equipment purchases 131,575
3) Transfer to Capital Project Reserve 772,443
Total $1,904,018

Important Considerations: By using the FY 2006/07 General Fund surplus as outlined above, the City will:
• Reduce the City’s outstanding debt and establish a new reserve to make Sunset Center 2001 Series Bonds prepayments starting in October 2011

• Provide funds for the Police Department Autofind Mobile GPS system to comply with
Resolution 2007-30 dated June 5, 2007

• Provide funds for a Fire Department generator replacement

• Transfer funds to the Capital Project Reserve to replenish the reserve

Decision Record:
Resolution 2007-15 dated March 13, 2007 approving the FY 2005/06 surplus be transferred from the General Fund to the Capital Improvement Reserve Fund. Resolution 2007-30 dated June 5, 2007 approving FY 2006/07 budget surpluses in Workers Compensation and Risk Management to cover the cost of the Autofind Mobile GPS equipment.

Reviewed by:
______________________________ _________________
Rich Guillen, City Administrator Date


CITY OF CARMEL-BY-THE-SEA
Staff Report
TO: MAYOR MCCLOUD AND COUNCIL MEMBERS
THROUGH: RICH GUILLEN, CITY ADMINISTRATOR
FROM: JOYCE GIUFFRE, ADMINISTRATIVE SERVICES DIRECTOR
DATE: JANUARY 8, 2008
SUBJECT: CONSIDERATION OF A RESOLUTION APPROVING THE USE OF THE FY 2006/07 GENERAL FUND SURPLUS OF $1,904,018

Recommendation:
Adopt the resolution approving the following use of the FY 2006/07 General Fund surplus:
1) Debt reduction:
a) Sunset Center 2001 Series Bonds-establish new reserve $ 674,500
b) WestAmerica notes and leases payable 325,500
2) Equipment purchases 131,575
3) Transfer to Capital Reserve 772,443
Total $1,904,018

Background:
The accounting firm of Nicholson & Olson audited the City’s books for the year ended June 30, 2007. The auditor’s Statement of Revenues, Expenditures, and Changes in Fund Balance show an excess of revenues over expenditures of $1,904,018 for the General Fund (see Exhibit A). General Fund revenues for the year were $13,556,103 and expenditures totaled $11,652,085, resulting in a surplus of $1,904,018.

The majority of the surplus came from revenues that were significantly higher than budget, including Transient Occupancy Tax (TOT), Property Tax, and Interest Income. Expenditures that were significantly under budget included the Regional Ambulance Subsidy, Salaries and Wages, and Capital Outlays/Improvements.

The City Council can decide to keep the surplus in the General Fund with no specific
designation. Alternatively, the Council can approve using the surplus for specific expenditures and/or transfers to City reserve funds. For the last two fiscal years, the City Council passed resolutions approving the year-end General Fund surplus be transferred to the Capital Reserve fund for future capital projects.

Below is a discussion of the staff’s recommendations.
Recommendation #1: Debt Reduction
Recommendation #1 is to apply a portion of the General Fund surplus from FY 2006/07 towards the City’s debt. Reducing the City’s debt will free up General Fund budget monies for other municipal projects that would normally be needed for the annual principal and interest payments.
The City currently owes $8,110,000 for the Sunset Center Certificates of Participation/Bonds issued in 2001. The trust agreement with Union Bank restricts bond prepayments until October 2011, unless prepayments are made from contributions and grants made to the City. The earliest date that the City can make a prepayment and incur no prepayment penalty is October 1, 2011. To prepare for future prepayments starting in October 2011, a new reserve could be established. The monies in the reserve can be invested in a long-term investment that meets the City’s
investment policy guidelines. The reserve balance would increase with the investment earnings and additional monies could be added at a later date by City Council resolution.
Below is an outline of what is recommended to apply towards debt reduction:
• Sunset Center Certificates of Participation-establish new reserve $ 674,500
• WestAmerica Notes Payable – Note 526-00598 (approx bal due) 175,000
WestAmerica Capital Lease – Contract 526-00685 (approx bal due) 101,500
• WestAmerica Capital Lease – Contract 526-00930 (approx bal due) 49,000
Total $1,000,000

Recommendation #2: Equipment Purchases
On June 5, 2007, the City Council passed Resolution 2007-30 authorizing the purchase of the Autofind Mobile License Plate Recognition System for the Police Department parking division in an amount not to exceed $71,575. This system was approved to be funded from the FY 2006/07 budget surplus. Staff recommends that $71,575 be set aside from the General Fund surplus.

There is a second equipment purchase that staff recommends funding with a portion of the FY 2006/07 General Fund surplus. Recently, the Fire Department’s main generator stopped working due to a mechanical failure. The generator is approximately 40 years old. It is no longer repairable. Currently, the City is leasing a temporary generator. The cost to purchase a replacement generator, including design work by an electrical engineer, is estimated at $60,000. It is recommended that $60,000 be left in the General Fund to cover the cost of the replacement Fire Department generator so that public safety needs are met.

In summary, Recommendation #2 is to purchase the equipment listed below with a portion of the General Fund surplus:
• Autofind Mobile License Plate Recognition System $ 71,575
• Fire Department replacement generator 60,000
Total $131,575

Recommendation #3: Transfer to Capital Reserve Fund
Assuming that portions of the FY 2006/07 General Fund surplus are applied according to Recommendations #1 and #2 above, there will be $772,443 remaining. Staff recommends a transfer of the remaining $772,443 to replenish the Capital Reserve fund. Currently, the City has reserve funds designated for specific purposes as outlined in Exhibit C.

It is important to note that over 50% of the total reserves balance is designated based on municipal code, City policy, or trust agreement provisions. The remaining reserve balances are based on previously approved Council resolutions. There are significant reasons why it is financially prudent for Carmel-by-the-Sea to maintain adequate reserves, including:
• Set aside funds for future capital needs, i.e. a “savings account”, to fund projects that can not be funded with annual operating revenues. Examples are street and road projects that will require funding once the Pavement Management Study is completed and presented to the City Council by Nichols Engineering;
• Prepare for possible revenue shortfalls due to economic downturns affecting tourism,
which is the main source of the City’s revenue stream;
• Possible decreases in State funding in lieu of the current State budget $10 billion
shortfall;
• Impending required financial resources to comply with Areas of Special Biological
Significance (ASBS) discharge regulations; and
• Prepare for financial losses related to natural disasters that can occur to City’s forest or beach area
Recommendation #3 is to transfer $772,443 from the General Fund to the Capital Reserve to replenish reserves.

CITY COUNCIL
CITY OF CARMEL-BY-THE-SEA
RESOLUTION 2008-
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA APPROVING THE USE OF THE FY 2006/07 GENERAL FUND SURPLUS OF $1,904,018

WHEREAS, the City’s audited financial statements for the year ended June 30, 2007
show a General Fund surplus of revenues over expenditures of $1,904,018; and

WHEREAS, it is recommended that the FY 2006/07 General Fund surplus be used for
debt reduction in the amount of $1,000,000, equipment purchases totaling $131,575, and for replenishing the Capital Project Reserve in the amount of $772,443.

NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY
OF CARMEL-BY-THE-SEA DOES:

1. Approve establishing a Reserve for Debt Reduction-Sunset Center Certificates of
Participation and transfer $674,500 from the General Fund to the new reserve.

2. Approve using General Fund monies to pay off the balance due on Westamerica
note #526-00598 and Westamerica leases 526-00685 and 526-00930 (approximate payoff amount = $325,500).

3. Approve General Fund expenditures for the Police Department Autofind Mobile
GPS system in an amount not to exceed $71,575.

4. Approve General Fund expenditures for a Fire Department generator in an
amount not to exceed $60,000.

5. Approve the transfer of $772,443 from the General Fund to the Capital Project
Reserve Fund.

PASSED AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF
CARMEL-BY-THE-SEA this 8th day of January 2008, by the following roll call vote:

AYES: COUNCIL MEMBERS:
NOES: COUNCIL MEMBERS:
ABSENT: COUNCIL MEMBERS:

SIGNED,

_______________________________
Heidi Burch, City Clerk

________________________
ATTEST, SUE McCLOUD, MAYOR