HomeMy WebLinkAboutResolution No. 2017-29COUNTY COUNCIL
COUNTY OF KAUAI
Rle.510 lutt, on No. 2017-29
RESOLUTION SUPPORTING A STRUCTURALLY BALANCED BUDGET
FOR THE COUNTY OF KAUAI
WHEREAS, Section 19.03 of the Charter of the County of Kauai requires
that the County adopt a balanced budget, where the total expenditures and
appropriations not exceed the estimated revenues and other financing resources;
and
WHEREAS, a budget that is merely "balanced" may not necessarily be
sustainable, because on -going expenditures could be supported by temporary or
highly volatile revenues, including one -time resources; and
WHEREAS, the County would experience financial distress when these
temporary or volatile revenues were no longer sufficient and one -time resources are
depleted and thus are unable to cover on -going expenditures; and
WHEREAS "recurring revenues" are the portion of the County's revenues
that can reasonably be expected to continue year -to -year, with some degree of
predictability; and
WHEREAS, a "non- recurring revenue" cannot be reasonably expected to
continue from year -to -year; and
WHEREAS, some revenue sources may have both non - recurring and
recurring components which require the County to exercise judgment in
determining how much of the source is truly recurring; and
WHEREAS, it may be prudent to regard unusually high revenue yields as
non - recurring revenue under the assumption that such revenues are unlikely to
continue, making it imprudent to use them for recurring expenditures; and
WHEREAS, "recurring expenditures" appear in the budget each year; and
WHEREAS, salaries, benefits, materials and services, and asset
maintenance /replacement costs are common examples of recurring expenditures;
and
WHEREAS, "non- recurring expenditures" are comprised of special projects
such as capital improvements, asset acquisition, and other costs that the County
incurs infrequently; and
WHEREAS, "reserves" are the portions of fund balances that are set aside to
hedge against risk.
WHEREAS, the Council deems it is desirable that the County's policy on a
structurally balanced budget be formally adopted 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 Council supports the on -goin financiai
sustainability of the County by advancing a more stringent definition o a balanced
budget —the structurally balanced budget.
BE IT FURTHER RESOLVED that the County of Kauai shall endeavor to
adopt a structurally balanced budget in regards to the General Fund.
BE IT FURTHER RESOLVED that generally, this means that recurring
expenditures should be covered by recurring revenues and that non - recurring
revenues should be used to fund non - recurring expenditures.
BE IT FURTHER RESOLVED on occasion, the recurring revenues may cover
the non - recurring expenditures when revenues increase due to property values or
State funding.
BE IT FURTHER RESOLVED that generally, non - recurring revenues, and
especially reserves, should not be used to fund employee compensation, although
limited exceptions may be made in response to severe economic downturns or
natural disasters.
BE IT FURTHER RESOLVED that the County shall consider the long -term
on -going operating and maintenance costs when funding capital assets with
non - recurring revenues, and that these maintenance costs should be included in the
County's five -year budget forecast to make sure that they can be sustained.
BE IT FURTHER RESOLVED that the County shall give preference to
using non - recurring revenues to replace assets that have outlived their useful life
where the replacement of the obsolete or expired assets is critical to the
maintenance of the County's core priorities and programs.
BE IT FINALLY RESOLVED that a copy of this Resolution be forwarded to
the Mayor and the Director of Finance.
Introduced by:
aw#mw�u&
ARRYL KANESHIRO
(By Request)
VARESOLUTIONS\2016 -2018 TERM\2017 -203 Structurally Balanced Policy Resolution AK JA mn.docx
Certificate Of 21boption
lVe herebp certifp that Resolution .eo. 2017 -29
baao abopteb by the 'Council of the Q'Countp of Raua`i, Otate of
jbabnai`i, llibu`e, Raua`i, jDabnaN, on March 22, 2017
Q%V
ountp Clerk
Mateb March 23, 2017
2
4tuw(_4t,�/
Q'Cb irman & pregibi g Officer
e
Pap
extugeb
Retugeb
3Brun
X
Cbocb
X
Ragama
X
Ranegbiro
X
Rabuabami
X
3R polo
X
Rubimura
X
1
Total
6
0
1
0
Certificate Of 21boption
lVe herebp certifp that Resolution .eo. 2017 -29
baao abopteb by the 'Council of the Q'Countp of Raua`i, Otate of
jbabnai`i, llibu`e, Raua`i, jDabnaN, on March 22, 2017
Q%V
ountp Clerk
Mateb March 23, 2017
2
4tuw(_4t,�/
Q'Cb irman & pregibi g Officer
Structurally Balanced Budget Policy
I. Introduction
The Charter of the County of Kauai requires that the County adopt a balanced
budget, where sources equal uses. However, a budget that is balanced by the
County's definition may not necessarily be sustainable because on -going
expenditures could be supported by temporary or highly volatile revenues,
including one -time resources. The County would experience financial distress
when these temporary or volatile revenues were no longer sufficient and one -time
resources are depleted, thus unable to cover on -going expenditures. This policy
supports the on -going financial sustainability of the County by advancing a more
stringent definition of a balanced budget —the structurally balanced budget.
II. Definitions
This section defines key terms related to a structurally balanced budget:
Recurring revenues are the portion of the County's revenues that can
reasonably be expected to continue year to year, with some degree of
predictability. Property taxes are an example of recurring revenue. Conversely,
non - recurring revenue cannot be reasonably expected to continue from year to
year. A grant with a term of one year is a good example of a non - recurring
revenue.
Some revenue sources may have both non - recurring and recurring components.
These sources require the County to exercise judgment in determining how much
of the source is truly recurring. For instance, the County regularly receives
shared revenue from the state, but at least part of the total revenues varies
according to the deliberations of the state legislature each year. In this case, it
may be prudent to regard unusually high revenue yields as a non - recurring
revenue under the assumption that such revenues are unlikely to continue,
making it imprudent to use them for recurring expenditures.
Recurring expenditures appear in the budget each year. Salaries, benefits,
materials and services, and asset maintenance /replacement costs are common
examples of recurring expenditures. In general, recurring expenditures should
be those that the County expects to fund every year in order to maintain
current /status quo service levels. Non - recurring expenditures are comprised
of special projects such as capital improvements, asset acquisition, and other
costs that the County incurs infrequently. In general, the County has a greater
degree of flexibility to defer non - recurring expenditures than recurring ones.
Reserves are the portions of fund balances that are set aside to hedge against
risk. The County has defined a minimum amount of funds it will hold in reserve
per the Reserve Fund Policy. This serves as a "bottom line measure" to help
determine the extent to which the County's structural balance policy is being
met —if reserves are maintained at their desired levels, it is an indication that
the County is maintaining a structurally balanced budget. If reserves are
Exhibit "A"
1
Structurally Balanced Budget Policy
declining, it may indicate an imbalance in the budget (e.g., if reserves are being
used to fund on -going expenditures).
III. Structurally Balanced Budget Goal
The County shall endeavor to adopt a structurally balanced budget. Generally,
this means that recurring expenditures should be covered by recurring revenues
and that non - recurring revenues should be used to fund non - recurring
expenditures. On occasion, the recurring revenues may cover the non - recurring
expenditures when revenues increase due to property values or state funding.
The County's finance staff shall develop a budget presentation that shows the
County's progress in achieving a structurally balanced budget.
IV. Structurally Balanced Budget Directives
While it is the County's intent to provide flexibility on how to pursue and achieve
a structurally balanced budget, there are some points which the County should
observe very closely when developing a budget.
• Employee compensation and non - recurring revenues. Non - recurring
revenues and especially reserves should not be used to fund employee
compensation. Examples of exceptions may include a severe economic
downturn or natural disaster where non - recurring revenues are
temporarily used to ease the transition to an expenditure structure that is
in line with new economic realities. Even this should only be done in the
context of plan to return to structure balance and replenish any reserves
that had been used.
• Operating and maintenance costs of capital assets purchased with
non - recurring revenues. While capital assets are often a good thing to
fund with non - recurring revenues, the County shall consider the long -term
on -going operating and maintenance costs of such purposes. These
maintenance costs should be included in the County's five -year budget
forecast to make sure that they can be sustained.
• Replacement of short -lived assets and non - recurring revenues.
The County shall give preference to using non - recurring revenues to
replace assets that have outlived their useful lives or purchasing entirely
new assets, where the replacement of the obsolete or expired assets is
critical to the maintenance of the County's core priorities and programs.
A replacement schedule for such assets is a good indicator of when to
budget for these items.
Exhibit "A'
2