RES 2013-017CITY OF SOUTH LAKE TAHOE
RESOLUTION NO. 2013 -17
RESOLUTION AMENDING THE FINANCIAL POLICIES OF THE CITY
OF SOUTH LAKE TAHOE REGARDING CAPITAL ASSETS, BUDGET
MANAGEMENT, BUDGET PREPARATION, DEBT MANAGEMENT,
FINANCIAL REPORTING, STRENGTHENING FINANCIAL POSITION,
CASH, AND GRANT FUNDING AND COMPLIANCE
WHEREAS, it is prudent to adopt Financial Policies to provide operating and
planning guidelines that support the City's financial operations and ensure its fiscal
health; and
WHEREAS, the Financial Policies guide City staff in evaluating the financial
implications of program and policy recommendations to the City Council; and
WHEREAS, the Financial Policies also serve as parameters for City Council
action to ensure a long -term, stable economic base for the City; and
WHEREAS, the Financial Policies require amendments from time to time to
ensure compliance with the requirements set forth in State law, the South Lake
Tahoe City Code, Generally Accepted Accounting Principles (GAAP) and best
practices in municipal financial management, and in the case of any conflict, the
provisions of such laws, ordinances or GAAP will control; and
WHEREAS, the updated Financial Policies of the City of South Lake Tahoe
have been presented to the City Council for review, comment and direction to staff,
NOW THEREFORE, BE IT RESOLVED, that the City Council of the City of
South Lake Tahoe does hereby adopts the amendments to the Financial Policies of
the City of South Lake Tahoe regarding Capital Assets, Budget Management, Budget
Preparation, Debt Management, Financial Reporting, Strengthening Financial
Position, Cash, and Grant Funding and Compliance.
PASSED AND ADOPTED by the City Council of the City of South Lake Tahoe
at a meeting on February 19, 2013 by the following vote:
AYES:
NOES:
ABSTAIN
CABSENT:
ATTFRT?
Councilmembers DAMS, COLE, CONNER, LAINE & SWANSON
Councilmembers
Councilmembers
Councilmembers
Susan Alessi, City Clerk
om Davis, Mayor
Financial Policies - Budget Preparation
The City Manager shall submit a proposed Annual Budget to the City
Council for approval in accordance with City Code Section 2-24, H. The
Annual Budget shall meet the following criteria:
A. Structural Balance
The City shall maintain a balanced budget. The total of proposed
expenditures shall not exceed the total of estimated revenues plus carried
forward fund balance, exclusive of reserves, for any fund.
The Annual Budget shall clearly identify anticipated revenue for all funds for
the upcoming fiscal year. Current revenue shall be sufficient to support
current expenditures (defined as "structural balance"). Estimates of current
revenue shall not include beginning fund balances (whether General Fund,
Revenue Funds, or other Specially Designated Funds).
If projected revenue is insufficient to support projected funding
requirements, the City Manager and Finance Director may recommend
allocation of all or a portion of an unreserved fund balance if it appears that:
1. The expenditure requiring the appropriation of additional revenues is
not likely to be recurring, or
2. The revenue source leading to the development of the available
revenues is likely to remain stable in future years,
3. The City Manager and Finance Director can otherwise establish an
appropriate match of revenue/expenditures that will not lead to
structural imbalance in future years.
B. Appropriations Limit
Appropriations in the Annual Budget shall comply with the annual
determination of the City's appropriations limit, calculated in accordance with
Article XIIIB of the Constitution of the State of California and Government
Code section 7900.
C. Operating Carryover
Operating program appropriations not spent during the fiscal year will not
automatically carry-over into the next fiscal year, and shall lapse at
year-end. These un-spent appropriations shall be subject to re-
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appropriation into the subsequent fiscal year, except for long-term projects
in progress that are carried forward to the following year and reserved for
encumbrances. This policy shall not preclude the adoption by the City
Council of an expenditure control program that may be designed as an
incentive to encourage departments to achieve annual cost savings to fund
large capital expenditures.
D. One-Time Revenues
One-time revenues shall only be used for one-time expenditures. Prior to
allocating anyone-time revenues, the Finance Director shall determine that
such revenues are not being used to subsidize an imbalance between
operating revenues and expenditures. If the Finance Director determines
that one-time revenues are needed to correct a structural imbalance, the
Finance Director shall present the City Manager and City Council with a
financial forecast demonstrating that the operating deficit will not continue.
E. Internal Service Funds
The City may establish and operate Internal Service Funds to report any
services that are provided to other City departments for which the Cost
Allocation Plan does not recoup that cost. Internal Service Funds should not
be created unless it is clearly established that no other fund type is
applicable. At the same time that it adopts the budget resolution, the City
Council must approve a balanced financial plan for each Internal Service
Fund, where estimated expenditures do not exceed estimated revenue.
F. Maintenance
Equipment and buildings shall be maintained at reasonable levels to avoid
service disruptions, and to achieve maximum useful life, and to ensure
safety of employees and the public. Maintenance and replacement funding
shall be allocated each year consistent with this policy.
G. Level of Contingency Appropriations
A General Fund Contingency of 1 % of total budgeted departmental
expenditures shall no longer be budgeted.
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Financial Policies - Budget Management
A. Internal Controls
A comprehensive system of financial internal controls shall be
maintained to protect the City's assets and sustain the integrity of the
City's financial systems. Managers at all levels shall be responsible for
implementing City Financial Policies and sound controls, and for
regularly monitoring and measuring their effectiveness.
B, Revenue Forecast
Revenue estimates shall be monitored on a monthly basis to identify any
potential trends that would significantly impact revenue sources. The
Finance Director shall consult with stakeholders to review current local
economic trends that may impact City revenues sources.
C. Fiscal Impact Statement
Effective management dictates that the City Council and citizens be
presented with the direct and indirect costs of all items as part of the
decision making process. Items presented to the City Council for
approval shall include a Statement of Projected Fiscal Impact. Proposals
that were not included in the annual budget work plan shall be identified,
and funding shall be based on the identification of savings or additional
revenue necessary to fund the unanticipated needs. The Finance
Director shall also review state and federal legislative items that might
result in a fiscal or policy impact on the City and shall promptly report on
such items to the City Manager and City Council.
D. Financial and Management Report
The Finance Director shall submit a periodic financial report to the City
Council. The report shall analyze budgeted versus actual revenues and
appropriations, expenditures, and encumbrances.
E. Mid-Year Budget Review
The Finance Director shall prepare and submit a mid-year budget
analysis for the City Council's review. The report shall review the City's
fiscal condition, and make recommendations to amend appropriations if
necessary. Budget amendments may be presented to the City Council
at mid-year, but are not intended to provide additional avenues for
departments to request funding for items not approved in the annual
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budget. All departmental requests for mid-year budget adjustments must
be submitted to the Finance Director and City Manager for review.
F. Appropriations During Fiscal Year
1, Supplemental Appropriations
Prior to the City Council making any supplemental appropriation, the
Finance Director shall certify that monies in excess of those
estimated in the budget are available for appropriation. Any such
supplemental appropriation may be made for the fiscal year by
resolution up to the amount of any available excess funds.
2. Emergency Appropriations
The City Council may appropriate City funds during an emergency as
defined in South Lake Tahoe City Code Section 9-4 to ensure the
safety, health and welfare of the community.
3. Reductions in Appropriations
Appropriations may be reduced any time during the fiscal year by the
City Councilor City Manager if it appears probable that either the
revenues or fund balances available will be insufficient to finance the
expenditures for which appropriations have been authorized. The
Finance Director shall report any appropriation reductions to the City
Council.
4. Budgetary Categories
The City's annual budget is approved with the following categories:
· Salaries
· Benefits
· Operations and Maintenance
· Capital Outlay
· Debt Service
· Capital Improvement Program
5. Budget Transfers
a, Transfers within a Departmental Category - Department Heads
may transfer budget within a departmental category as defined
above, if the transfer does not exceed the category's total
budget.
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b. Transfers between Categories and Departments - transfers
between categories, not to exceed total budget, and transfers
between departments require the approval of the City Manager
and the Finance Director.
c. Transfers between Funds - Only the City Council, by resolution,
may transfer monies between funds and from unappropriated
balances or fund balances to any fund or appropriation account.
G. Inter-fund Borrowing
From time to time it may become necessary for the City to loan funds
from one fund to another. If this need arises a written request shall be
made to the Finance Director. The Finance Director shall make a written
recommendation to the City Manager regarding the request and the
appropriate repayment schedule and interest rate. If approved by the
City Manager the Finance Department and the requesting department(s)
shall prepare an agenda item seeking City Council approvals. Any
intrafund borrowing contemplated shall be consistent with documents
establishing the fund.
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Financial Policies:
Preserving Capital Investments - Fixed Assets
Capitalization and Inventory Control Policy
The City invests in capital assets such as property, plant, equipment, facilities
and infrastructure. Preservation of such investments through regular
maintenance and a long-term renovation plan is necessary to preserve the value
of such capital investments. The City must also plan for the replacement of
capital investments (particularly vehicles and equipment). The following policy
requirements are intended to ensure the proper accounting and preservation of
capital investments; and to provide a sound economic base for their replacement.
1. The budget should provide sufficient funding for adequate maintenance,
renovation and the orderly replacement of capital assets such as
equipment, fleet, facilities, streets and parks.
2. All capital assets should be maintained at a level that protects capital
investment and minimizes future maintenance and replacement costs.
3. A five-year schedule of equipment replacement and maintenance needs, as
well as facilities, streets and parks renovation and maintenance needs
should be prepared on an annual basis. Expenditures consistent with such
plans shall be included in annual budget appropriations.
A. Capital Assets Definition, Classes, and Capitalization Thresholds
The City defines capital assets as any assets used in operations with an
estimated useful life in excess of three years that have a value equal to or
greater than the capitalization threshold for their respective asset class.
The Asset Classes and Capitalization Thresholds have been established as
follows:
Asset Class Threshold
$50,000
$50,000/$7,000
$7,000
ment $7,000
$100,000
$200,000
$50,000
Use threshold for the
a ro riate asset class
The threshold will generally not be applied to components of fixed assets.
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1. Cost of Capital Assets
Capital Assets are recorded at historical cost or estimated historical cost if
purchased or constructed. The cost should include ancillary charges
necessary to place the asset into its intended location and condition for
use. Items to include in the cost of capital asset are as follows:
· Original contract or invoice price
· Freight and transportation charges
· Handling and storage charges
· In-transit insurance charges
· Sales, use, and other taxes imposed on the acquisition
· Installation charges
· Charges for testing and preparation for use
· Site preparation costs
· Professional fees
· Capitalized interest should be included in the cost of a proprietary
fund asset when it meets the criteria of Financial Accounting
Standards Board No. 34.
The costs of normal maintenance and repairs that do not add to the value
of the asset or materially extend assets lives are not capitalized.
Donated capital assets are valued at their fair value on the date of
donation.
2. Depreciating Capital Assets
Property, plant and equipment, depreciable infrastructure and intangible
assets of the City shall be depreciated using the straight-line method and
applying the half-year convention method over the following useful lives.
Asset Class Years
Infrastructure
1 0-40
3-10
3-20
As limited by
contractual or legal
revisions.
1 0-40
It is the City's policy that capital assets have no residual value at the end
of their lives. Land, Construction-in-Progress and certain intangible assets
are not depreciated. If the asset is disposed of before the end of its useful
life, a half-year of depreciation is allowable for the year of disposition.
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3. Capital Assets Classes
Land
The surface of the earth, which can be used to support structures and
roadways. Land is characterized as having an unlimited life
(inexhaustible). Includes the cost of land itself and the cost of preparing
land for its intended uses. Examples of items that might be capitalized as
part of the cost of land include basic site improvements (e.g., excavation,
fill, and grading), as well as the cost of removing, relocating, or
reconstructing the property of others (e.g., power lines).
Buildinas and Buildina Improvements
A structure that is permanently attached to the land, has a roof, is partially
or completely enclosed by walls, and is not intended to be transportable or
moveable.
Improvements to existing buildings that materially extend the useful life of
a building, increase the value of a building, or both should be capitalized.
The improvement must meet one of the following criteria:
· The improvement adds square footage to the existing building.
· The improvement is a major renovation that prepares an existing
building for a new use.
· The improvement expenditure increases the life or value of the
building by 25 percent of the original life or cost.
The cost of an improvement (or betterment) normally is added to the cost
of the related structure, rather than treated as a separate asset.
Examples of expenditures to be capitalized as building improvements are
as follows:
· Replacement of an old shingle roof with a new fireproof tile roof
· Upgrade of heating and cooling systems
· Structures attached to the building such as covered patios,
sunrooms, garages, carports, enclosed stairwells, etc.
· Structural changes such as reinforcement of floors or walls,
installation or replacement of beams, joists, steel grids, or other
interior framing.
The following are examples of expenditures not to capitalize as
improvements to buildings. Instead, these items should be recorded as
maintenance expense:
· Adding, removing and/or moving of walls relating to renovation
projects that are not considered major rehabilitation projects and do
not increase the value or life of the building
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· Plumbing or electrical repairs
· Cleaning, pest extermination, or other periodic maintenance
· Interior decoration, such as draperies, blinds, curtain rods,
wallpaper
· Maintenance-type interior renovation, such as repainting, touch-up,
plastering, replacement of carpet, tile, or panel sections; sink and
fixture refinishing, etc.
· Maintenance-type exterior renovation such as repainting,
replacement of deteriorated siding, roof, or masonry sections
· Replacement of a part or component of a building with a new part
of the same type and performance capabilities, such as
replacement of an old boiler with a new one of the same type and
performance capabilities
Improvements Other Than Buildinas
This major asset class is used for permanent (i.e., non-moveable)
improvements, other than buildings, that add value to land, but do not
have an indefinite useful life. Examples include fences, retaining walls,
parking lots, and most landscaping. Moveable items (e.g., picnic table in a
park) should be classified as furnishings and equipment.
Vehicles, Machinery, Specialty and Office Eauipment
Fixed or movable tangible assets to be used for operations, the benefits of
which extend beyond one year from date of acquisition and rendered into
service.
Examples of expenditures to be capitalized in this class include but are not
limited to:
Vehicles
Computers and servers
Machinery
Furniture and fixtures
Intanaible Assets
Intangible assets are characterized as lacking physical form (e.g.,
computer software, water rights, easements, and patents). Certain
intangibles provide benefits indefinitely. In that case, no amortization
expense would be recognized. Intangibles with the length of their life
limited by contractual or legal provisions should be amortized over the
period stated in the provisions.
Easements are interest in land owned by another that entitles its holder to
a specific limited use. The estimated value of easements is immaterial and
therefore will not be capitalized.
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A right-of-way is a type of easement in which title remains with the
property owner and therefore is not capitalized.
Infrastructure
Long-lived capital assets that normally are stationary in nature and are of
value only to the City. Include, but are not limited to: roads and streets,
curbs, gutters, bridges, streetlights, sidewalks, streetscape, bike paths,
storm-water drainage improvements, roadway resurfacing, basin and
stream environment zone construction, ramps, airfields and runways in
Airport Enterprise fund. For the purpose of reporting this major class is
separated into subclasses, such as Streets, Bike Paths, Streetscape,
Basin and SEZ Construction, and Runways.
Construction in Prooress
This major class is used for costs incurred to construct or develop a
tangible or intangible capital asset before it is substantially ready to be
placed into service. The costs should remain in this category until all
retention money has been paid (at which time the asset would be
reclassified into the appropriate major class).
B. Capital Assets Accountability and Control
When capital assets are acquired or deeded to the City, copies of related
documents shall be routed to the Finance Department in a timely manner to
ensure these assets are recorded in the City's financial records.
Department heads are ultimately responsible for safeguarding its fixed assets
from theft or loss. However, the Finance Department does recognize and
acknowledge its responsibility to establish and maintain systems and procedures
that enable department heads and program managers to properly safeguard their
assets.
In general, inventory control is applied only to movable fixed assets (generally
these falling into the "Vehicles, Machinery and Equipment" category), and not to
land, buildings, or other immovable fixed assets. Fixed assets subject to
inventory control will be accounted for and controlled through the same systems
and procedures used to account and control fixed assets subject to capitalization.
Fixed assets will be subject to inventory control if they meet at least one (1) of
the following criteria:
a. The original cost of the fixed asset is equal to or greater than $5,000 if
classified as equipment, $50,000 if classified as buildings or land, or
$200,000 if classified as infrastructure.
b. Any asset less than the capitalization threshold, as recommended by the
Finance Director. This may include certain machinery and equipment that,
due to portability, value outside of the office, or character, are susceptible
to theft and/or loss. It may include computer equipment and electronic
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devices such as laptops and iphones, guns, weapons, and other movable
items. Also included may be any asset requested by a department to be
controlled in order to satisfy an internal (operational) or external
requirement. For example, the Finance Department (may wish to) tracks
all computer hardware in order to establish replacement and upgrade
requirements for both hardware and system software.
c. Any asset required to be controlled and separately reported pursuant to
grant conditions or any other externally imposed reporting requirement.
Procedure: The goal is to tag all fixed assets that fall within the above categories
without affecting the functionality or value of the product. Tags should be placed
on the back of the equipment, somewhere where they can be found, but not
necessarily stand out. The fixed asset addition form (Exhibit I) should be filled
out as much as possible. A complete description of the asset should be obtained
showing manufacturer, model, serial #, color and any other identifying criteria.
The date purchased and cost should be entered when known. If not known,
please estimate and mark (est) after the data. It is understood that logistically
some items can not be tagged. These items still need to be inventoried and the
information maintained in a department file.
Surplus property shall be identified by the department, officially declared to the
City Council, and after approval, sold at auction and eliminated from the fixed
asset accountability list. Proceeds from sale of surplus property will be allocated
to the City's General fund unless the property was originally purchased with
monies from a specific fund, in which case, the proceeds will be returned to that
fund.
Accounting for Leases: Leases that do not transfer substantially all the benefits
and risks of ownership are operating leases.
Capitalize a lease that transfers substantially all of the benefits and risks of
property ownership, provided the lease is non-cancelable (only non-cancelable
leases may be capitalized). One or more of four criteria must be met:
1. Transfers ownership to the lessee.
2. Contains a bargain purchase option.
3. Lease term is equal to or greater than 75 percent of the estimated
economic life of the leased property.
4. The present value of the minimum lease payments (excluding executor
costs) equals or exceeds 90 percent of the fair value of the lease property.
Account Coding: The account coding to be used for the purchase of capital
outlay will be as follows:
For items costing $5,000 or more (these are considered Fixed Assets) use:
Object code # 46010 - Land
Object code # 46020 - Buildings and Building Improvements
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Object code # 46030- Improvements Other Than Buildings
Object code # 46110 - Machinery & Equipment ($5,000)
Object code # 46122 - Software
Object code # 46130 - Vehicles
Object code # 46140 - Furniture and Fixtures
For items costing less than $5,000 per unit (these are NOT considered Fixed
Assets) use:
Object code # 46120 - Tools, Parts and Leases less than $5,000
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Attachments:
Exhibit I - Sample of Fixed Asset Addition Form
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