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HomeMy WebLinkAboutResolution No. 2017-28COUNTY COUNCIL COUNTY OF KAUAI 'Re5oCutiutt No. 2017-28 RESOLUTION REVISING THE COUNTY OF KAUAI RESERVE FUND AND RESERVE FUND POLICY AND REPEALING CERTAIN SECTIONS OF RESOLUTION NO. 2011 -77, DRAFT 1 WHEREAS, the County of Kauai has determined that it is in its best interest to establish a clear financial policy of maintaining a Reserve Fund within the General Fund with a target minimum of 30% of the previous year's General Fund revenues, as identified in the most recent Comprehensive Annual Financial Report (CAFR); and WHEREAS, the County of Kauai has previously established a Reserve Fund Policy and created a Reserve Fund; and WHEREAS, the Reserve Fund Policy was established based on industry best practices and recommendations set forth by the Government Finance Officers Association (GFOA); and WHEREAS, the GFOA has recently revised its recommendations for the County of Kauai, and these revised recommendations should be reflected in the County's Reserve Fund Policy; and WHEREAS, the County of Kauai needs to retain sufficient funds for County operations; and WHEREAS, the second largest revenue source to the County of Kauai, the Transient Accommodations Tax (TAT), is controlled by the State of Hawaii and not the County of Kauai; and WHEREAS, the County needs to fiscally buffer impacts of revenue reductions within the County, such as real property taxes and miscellaneous other taxes and fees; and WHEREAS, the County has experienced economic volatility as a result of local, state, national, and world economic events and natural disasters and must sustain adequate levels of services through these periods; and WHEREAS, the County has and will need to continue to mitigate State or Federal Government budgetary actions and unfunded mandates that affect County revenues and expenditures; and WHEREAS, the County has historically experienced multiple years of revenue reductions attributable to declining real property values; and WHEREAS, the County has experienced two significant weather events in the last thirty (30) years that had significant impacts on the County budget and delivery of services and the County must be able to absorb initial emergency and disaster related costs; and WHEREAS, the County's economic base is not as large or as diversified as other city or county governments; and WHEREAS, the County needs to be able to absorb liability settlements and deductible costs; now therefore, WHEREAS, the Council deems it desirable that the County revise its Reserve Fund Policy and Reserve Fund requirements by formal adoption by resolution as expressed herein and attached hereto as Exhibit "A." BE IT RESOLVED BY THE COUNCIL OF THE COUNTY OF KAUAI, STATE OF HAWAII, that the County of Kauai revise its Reserve Fund Policy and Reserve Fund requirements. BE IT FURTHER RESOLVED that the Reserve Fund is intended to be used for unanticipated and non - recurring costs and is reserved based on priority in the following order: 1. Disaster response to significant /extreme events 2. Self - Insurance Provision 3. Revenue Volatility 4. Unfunded Mandates and Legal Claims BE IT FURTHER RESOLVED that the aforementioned categories shall not limit the County from moving available funds from one category to another in the event of unforeseen conditions. BE IT FURTHER RESOLVED that the Reserve Fund should only be used to provide a short -term solution to maintaining necessary services until revenue growth and/or expenditure reductions are instituted to balance the budget and normalize cash flow. Reserves shall not normally be applied to recurring annual operating expenditures. The reserves may, however, be used to allow time for the County to restructure its operations in a deliberate manner. BE IT FURTHER RESOLVED that if funds from the Reserve Fund are utilized, the County Council and County Administration shall timely propose and approve a financial plan to replenish the Reserve Fund to prescribed policy levels. Depending on the circumstances, strategies to replenish reserves could include accessing budget surpluses, reducing expenditures and adoption of revenue enhancement measures. Revenue measures may include but are not limited to: long- term and short -term financing; adjusting real property tax rates; fuel taxes; vehicle weight taxes; and various other established fees for services. Effort should be made to restore necessary funds to required policy levels within three (3) years. BE IT FURTHER RESOLVED that at the end of each Fiscal Year, the Department of Finance will provide a report on the audited year -end financial results. Should annual General Fund revenues exceed expenditures and other financing sources, a year -end excess of revenues over expenditures and other financing sources shall be reported. Any portion of the year -end revenues over expenditures and other financing sources that contributes to the General Fund balances in excess of the established Reserve Fund targeted minimum of 30% shall be deemed available for allocation amongst the following priority items: 1. Transfer to the capital program fund for appropriation to capital improvement program budget and/or deferred maintenance needs. 2. Transfer to road/bridge repairs or reconstruction initiatives. 2 3. Transfer to existing long term debt reduction efforts, debt service payments related to long term borrowing, other post - employment benefit contributions, and pension liabilities. 4. Re- appropriate to offset one -time shortfalls contributing to budget -year operating expenditures. BE IT FURTHER RESOLVED that such portions of Resolution No. 2011 -77, Draft 1, passed by the Kauai County Council on December 1, 2011, as are inconsistent with the terms of this Resolution, be, and hereby are, repealed; and BE IT FINALLY RESOLVED that a copy of this Resolution be forwarded to the Mayor and the Director of Finance. Introduced by: aj�4 Ko� ARRYL KANESHIRO (By Request) VARESOLUTIONS\2016 -2018 TERM\2017 -202 Reserve Fund Policy AKJA mn (002).docx Certificate Of Moption 3Ve berebp certifp that 3 ealution .0o. 2017 -28 boas abopteb by the Council of the Countp of Raua`i, btate of joabo N, libu`e, Raua`i, jbaboai`i, on March 22, 2017 c4ML_� ountp Clerk �Dateb March 23, 2017 3 - W"W4-1�j Chairman & Pregibi g Officer zi e Pap Qixcugeb Recugeb Arun X Chock X Ragaboa X Ranegl)iro X Raboabami X tiapo3o X Rubimura X dotal 6 0 1 0 Certificate Of Moption 3Ve berebp certifp that 3 ealution .0o. 2017 -28 boas abopteb by the Council of the Countp of Raua`i, btate of joabo N, libu`e, Raua`i, jbaboai`i, on March 22, 2017 c4ML_� ountp Clerk �Dateb March 23, 2017 3 - W"W4-1�j Chairman & Pregibi g Officer Reserve Fund Policy I. Introduction A general fund reserve helps ensure that the County of Kauai can provide consistent, uninterrupted services in the event of disruption. The purpose of the policy is to establish a target level of reserves in the general fund to: • Reduce the risk of financial impacts resulting from natural disasters or other catastrophic events; • Respond to the challenges of a changing economic environment, including prolonged downturns in the local, state, or national economy; • Demonstrate continued prudent fiscal management and creditworthiness. This policy establishes the amounts the County will strive to maintain in the general fund reserve, how the reserve will be funded, and the conditions under which the reserve may be spent. II. Amounts Held in Reserve The County will strive to hold the amount listed below in the unrestricted fund balances less amounts related to encumbrances in the general fund balance, expressed as a percentage of the County's annual operating revenues for the general fund. These amounts are expressed as approximate percentages, recognizing that fund balance levels can fluctuate from year to year in the normal course of operations for any local government. Overall the general fund reserve target is 30% of total general fund revenues as determined by the most recent Comprehensive Annual Financial Report. The County aims to reach the 30% target by FY 2017. The reserves are broken into three separate categories: • 18.5% Revenue Volatility • 10.0% Extreme Events / Natural Disasters • 1.5% Expenditure Volatility 30.0% The three separate categories are defined as follows: ■ Revenue Volatility. Used to cushion the County against swings in revenues and economic conditions that affect the County's real property tax revenues and other tax and fee revenues. Trends that may warrant the use of this reserve include decline in projected/actual revenue of more than 3% percent of the General Fund's adopted revenue budget from prior year. ■ Extreme Events / Natural Disasters. Allows the County to respond quickly and decisively to events such as natural disasters, unexpected infrastructure repair /replacement, etc. ■ Expenditure Volatility. Used to absorb property damage claims, liability settlements, and deductible costs related to the County being self - insured. Exhibit "A" 1 Reserve Fund Policy If, based on the Director of Finance's analysis and forecasting, the target balance is not being met or is likely to not be met at some point within a five -year time horizon, then the Administration will develop a plan to meet the target balance. This plan will then be presented to Council for consideration. III. Funding Reserve Targets Funding of unreserved fund balance targets will come generally from one -time revenues, unusually high yields from regular revenues, and actual revenues in excess of actual expenditures. They will generally be reserved in the following priority order: 1. Disaster response to significant /extreme events 2. Self- Insurance Provision 3. Revenue Volatility 4. Unfunded Mandates, Legal Claims IV. Conditions for Use of Reserves A. Use of Reserves It is the intent of the County to limit use of the general fund reserves to address unanticipated or non - recurring needs. Reserves shall not normally be applied to recurring annual operating expenditures. The reserves may, however, be used to allow time for the County to restructure its operations in a deliberate manner (such as might be required in the case of change in economic or political conditions that negatively impact the County's revenues), but such use will only take place in the context of an adopted long -term plan to reach a sustainable structure. Further, the categories shall not limit the County from moving available funds from one category to another in the event of unforeseen conditions. As an example, a natural disaster may require the use of reserves from other categories beyond what is categorized under disaster response to significant /extreme events. B. Authority to Use Reserves The Mayor may initiate, by majority vote of the Council, use of reserves consistent with the purposes described in Policy IV -A above. C. Replenishment of Reserves If funds from the Reserve Fund are utilized, the County Council and County Administration shall timely propose and approve a financial plan to replenish the Reserve Fund to prescribed policy levels. Depending on the circumstances, strategies to replenish reserves could include accessing budget surpluses, reducing expenditures and adoption of revenue enhancement measures. Revenue measures may include but are not limited to: long -term and short -term financing; adjusting real property tax rates; fuel taxes; vehicle weight taxes; and various other established fees for services. Effort should be made to restore necessary funds to required policy levels within three (3) years. Exhibit "A" 2 Reserve Fund Policy At the end of each fiscal year, the Department of Finance will report on the audited year -end financial results. Should annual general fund revenues exceed expenditures and other finance sources, a year -end operating surplus shall be reported. Any portion of the year -end operating surplus that contributes to the General Fund balances in excess of established General Fund Reserve target range identified in this policy shall be deemed available for allocation amongst the following priority items: a) Transfer to the capital program fund for appropriation to capital improvement program budget and/or deferred maintenance needs. b) Transfer to road/bridge repairs or reconstruction initiatives. c) Transfer to existing long term debt reduction efforts, debt service payments related to long term borrowing, other post - employment benefit contributions, and pension liabilities. d) Re- appropriate to offset one -time shortfalls contributing to budget -year operating expenditures. Exhibit "A" 3