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HomeMy WebLinkAboutResolution No. 2022-35COUNTY COUNCIL COUNTY OF KAUA'I l\,esolution No. 2022-35 RESOLUTION AMENDING RESOLUTION NO. 2017-29, RELATING TO SUPPORTING A STRUCTURALLY BALANCED BUDGET FOR THE COUNTY OF KAUA'! BE IT RESOLVED BY THE COUNCIL OF THE COUNTY OF KAUA'I, STATE OF HAWAI'I SECTION 1. to read as follows: Resolution No. 2017-29 is hereby amended in its entirety "WHEREAS, Section 19.03 of the Charter of the County of Kaua'i 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 1 WHEREAS, salaries, benefits, materials and services, and asset maintenance/replacement costs are common examples of recurrmg expenditures; and WHEREAS, the County defines General Fund appropriations for affordable housing projects in an amount of no less than two percent (2%) of the certified real property tax revenues for the year as recurrmg 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 KAUA'I, STATE OF HAWAI'I, that the Council supports the on-going financial sustainability of the County by advancing a more stringent definition of a balanced budget-the structurally balanced budget. BE IT FURTHER RESOLVED that the County of Kaua'i 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. 2 BE IT FINALLY RESOLVED that a copy of this Resolution be forwarded to the Mayor and the Director of Finance." SECTION 2. Such portions of Resolution No. 201 7-29, passed by the Kaua'i County Council on March 22, 2017, as are inconsistent with the terms of this Resolution, be, and hereby are, repealed. SECTION 3. This Resolution shall take effect upon its approval. SECTION 4. A copy of this Resolution shall be forwarded to the Mayor and the Director of Finance. Introduced by: BILL DECOSTA BERNARD P. CARVALHO, JR. V:\RESOLUTIONS\2020-2022 TERM\2-Amendment to Structurally Balanced Policy Resolution BD _BC _SS_jy.docx ~pe QCarualbo X QCbock X QCobJben X 11BeQCosta X QE:uslin X 1sanesbiro X 1suali'i X m:otal 7 ~ap (l[:xcu~el) 3Recu~el) 0 0 0 QCertifitate @f ~boption We berebp certifp tbat l\esolution ~o. 2022-35 bJas abopteb bp tbe QCouncil of tbe QCountp of 1saua'i, ~Mate of T!)abJai'i, JLibu'e, 1saua'i, T!)abJai'i, onSeptember 21, 2022. ountp QClerk 71Bateb September 21, 202 3 Structurally Balanced Budget Policy I. Introduction The Charter of the County of Kaua'i 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. IL 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, a 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. In addition, recurring expenditures shall include the appropriations of general fund revenues to affordable housing projects in an amount of no less than two percent (2%) of the year's certified real property tax revenues. 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. Exhibit "A" 1 Structurally Balanced Budget Policy 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 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 Structurally Balanced Budget Policy • Appropriation to affordable housing projects. The County shall give preference to appropriate no less than two percent (2%) of real property tax revenues to the Housing Development Fund for affordable housing projects. · Exhibit "A" 3