BACKGROUND
The purpose of this agenda item is to present a draft of potential revisions to the Budget Policies and Financial Guidelines (hereafter referred to as "Budget Policies") which are routinely included in the annual operating budget book. These policies were part of discussions with the Council appointed Financial Stewardship Workgroup (FSW). The proposed revisions are intended to organize and clarify existing Financial Policies. The proposed changes are also designed to enhance budgeting and fiscal management practices by simplifying and clarifying fiscal guidelines, encouraging the limitation of operating expenses and the increase of spending on Capital Improvement Projects. The proposed revisions were informed by meetings with the FSW, reviewing the policies of other similar cities and discussions with external auditors.
The Budget Policies are included in the operating budget book originate from the City's Policy C94-01: Financial Policies for the City of Carmel-by-the-Sea which is included for reference as Attachment 3. This policy was adopted in 1994, revised over the years, and last revised by Resolution 2020. This policy can be amended to include the proposed revisions by Resolution at a future meeting at the Council's direction.
EXECUTIVE SUMMARY
Proposed immediate revisions to Budget Policies include:
- Organize Policy into a Budget Section and a Financial section, eliminating duplication between sections (see green edits) and clarifying titles.
- Deleted duplicate policy statements.
- Clarify the definition of Capital Improvement Project (“CIP Project”)
- Increased Capital Budget Guideline 1 requirement for CIP expenditures to be 10% of revenue instead of 3.5% of revenue.
- Added Operating Budget Guideline 1 requirement that Operating Expenditures be no more that 90% of revenues, replacing the requirement that the budget surplus be 5% of expenditures.
- Change Capital Project Policy to allow approved capital projects to carried over and stay open until completed or closed, instead of automatically closing at the fiscal year end.
- Eliminated Fund Balance Guideline 6 requiring a capital reserve target balance of 20% of the estimated total five-year capital improvement plan expenditures, replacing it with the above 90% reserve target.
- Eliminated reference to minimum reserve level chart.
The redlined version of the existing Budget Policy is included as Attachment 1. The clean version of these proposed changes is included as Attachment 2.
Next Steps
Following direction regarding the proposed changes to the Budget Policy (Attachment 2) staff will return at the June meeting with a Resolution to formally adopt a revised Policy C94-01 and to include any amended policies in the FY 2025-2026 Annual Operating Budget Book.