Title
Subject: Operating Budget Policy
From: Financial Services Agency
Recommendation: Adopt a Resolution regarding the City of Oakland's Policy on Balanced Budgets
Body
(FFICE -HE CIT Y CLERK
CITY OF OAKLAND L
A GEiVDA REPORT
2003 JUN 1 2 PM 5: 0 6
TO: Office of the City Manager
ATTN: Robert C. Bobb
FROM: Budaet Office
DATE: June 24, 2003
RE: Adoption of Financial Policy on Balanced Budgets
SUMMARY
The purpose of this report is to propose a formal financial policy requiring that the City Council
always adopt a balanced budg-et. It is a follow up to an informational report presented to the Council
on February 18, 2003). That report presented the recommendations of the Moving Oak-land Forward
(MOF) Team #4A, on the adoption of a comprehensive set of financial policies by the City. The
Council requested that staff provide more detailed analysis and recommendations re.-arding each
proposed policy; this report is a response to that Council request.
FISCAL IMPACT
There would be no direct fiscal impact from implementing this policy. If adopted and implemented.
the policy will ensure that the City always has a balanced budget in place. A requirement to have a
balanced budget in place is likely to help ensure that the annual cost of services provided by the City
does not exceed the annual amount of resources received by the City.
BACKGROUND
The City currently does not have a formal policy requiring balanced budgets, or defining what
constitutes a balanced budget.
Team 94A of Moving Oakland Fonvard was established to review and make recommendations
regarding- the City's financial policies. One of Team #4A's firidinggs was that the City's current
financial policies are not consolidated under one authority, and cannot be found in a single location:
some are Council-adopted, some are reflected within Administrative Instructions, and others are
followed in practice but lack formal authority.
In September 2002, Tearn 44A presented a report recommending steps the City should take in order to
adopt and consolidate a comprehensive set of financial policies, and a process for staff to report to the
Council on the extent to which Citv operations are in compliance with these policies. A formal policy
on balanced budgets was one of the policies discussed in the September
Iternio.2.2X0
ORA/Council
July 15, 2003
Finance agemen
U I 03
Financial Policy on Balanced Buclaet Page. 2
KEY ISSUES AND IMPACTS
The Government Finance Officers Association (GFOA) recommends that jurisdictions adopt policies
that define a balanced bLidaet, encoura-e commitment to balanced bud-ets under normal
circumstances, and provide for disclosure when a deviation from a balanced budget is planned, or
when it occurs.
Over time. unbalanced bud-etin- can lead to the creation of lar--e fund deficits, which can curtail the
7
City's future ability to provide operations and services. In addition. unbalanced budgets can lead to
I -
financing charges and lost interest eamings, both of which also reduce funds available for operations
and services.
DISCUSSION OF PROPOSED POLICY
PuMqse/Definition
The City shall adopt balanced budgets, i.e., budgets where appropriated revenues equal to
appropriated expenditures. This policy entails the following, additional definitions and qualifications:
1. The budget must be balanced at an individual fund level.
2. City policies on reserve requirements for individual funds must be taken into account. The
appropriated expenditures to be included in the balanced budget equation must include the
appropriations necessary to achieve or maintain an individual fund's reserve target.
3. Appropriated revenues can include transfers from fund balance where Such fund balance is
reasonably expected to exist by the end of the fiscal year preceding the year of the adopted
budget. Transfers from fund balance are not to be counted as revenue if the fund balance is
not reasonably expected to exist by the end of the fiscal year preceding the year of the adopted
budget. (Note: The precise definition of 'fund balance' will vary from fund to fund. depending
on the fund's characteristics and accounting treatment.)
General Responsibilities
The City Manager shall be responsible for ensuring that the budget proposed to the City Council by
the Mayor/ City Manager adheres to the balanced budget policy. Currently, the Bud-et Office under
the supervision and direction of the City Manager, performs this function.
Annual Monitorinp &Reportiniz
Each fiscal year, once prior year information has been made available by the Controller's Office, the
City Mana-er, shall produce a balanced budget report to the Council. The report shall state. for each
fund in which current year appropriations exist. whether the actual year-end data from the prior year
has caused any individual fund to be in violation of the balanced bud-et policy. If so, the City
Manager, shall recommend steps to be taken to bring that fund back into compliance with the policy.
Currently, the Budget Office, under the supervision and direction of the City Manager performs these
functions.
Financial Polici, on Balanced Budget p(ja 3
e.-
SUSTAINABLE OPPORTUNITIES
Adoption of the balanced budget policy would not directly impact economic, environmental or social
equity opportunities. However, a requirement to have a balanced bud-et in place is likely to help
ensure that the annual cost of ser@ ices provided by the City does not exceed the annual amount of
resources received bv the Citv.
DISABILITY AND SENIOR CITIZEN ACCESS
There is no impact on disability or senior citizen access reSLIlting front the attached resolution.
ACTION REQUESTED OF THE CITY COUNCIL
Staff recommends that the Council adopt the attached resolution containing a financial policy on
balanced bud-ets.
Respectfully submitted,
-@'NLXRLANNA MAR`@SHEVA
ACTING BUDGET DIRECTOR
Prepared by:
Kirby Smith, Financial Analyst
Budget Office
APPROVED FOR FORWARDING TO THE
FINANCE AND MANAGEMENT COMMITTEE:
Item 10-2-2@cc
ORA/Council
July 15, 2003
OFFICE OF THE CITY MANAGER
ENT CMTE.
A2PRM ED-AS To FOR.%,L@\aLEG.A.L[Ti
[\TROD@-CED B@ C0LXC1L.%1E.%113FR
;)FFICE
OAKLAND CITY CO NQ1k
M - _ P@
2 21 J1 1@, 5: C,
RESOLUTION No. C. M. S.
RESOLUTION ADOPTING THE CITY OF OAKLAND'S POLICY ON BALANCED
BUDGETS
WHEREAS, the Government Finance Officers Association (GFOA) recommends
that jurisdictions adopt policies that define a balanced budget, encourage commitment
to balanced budgets under normal circumstances, and provide for disclosure when a
deviation from a balanced budget is planned, or when it occurs; and
WHEREAS, unbalanced budgets can lead to increased interest charges, which
reduces monies available for operations and services: and
WHEREAS, balanced budgets ensure responsible use of the taxpayers' dollars
to provide City services; now therefore, be it
RESOLVED: that the City Council of the City of Oakland hereby finds,
determines, declares and resolves as follows:
Section 1. All of the recitals set forth above are true and correct.
Section 2. The City Council hereby adopts a balanced budget policy, as set
forth below@
CITY OF OAKLAND'S POLICY ON BALANCED BUDGETS
PurposelDefinition
The City shall adopt balanced budgets, i.e., containing appropriated
revenues equal to appropriated expenditures. This policy entails the
following additional definitions and qualifications:
1 . The budget must be balanced at an individual fund level.
2. City policies on reserve requirements for individual funds must be taken
into account. The appropriated expenditures to be included in the
balanced budget equation must include the appropriations necessary to
achieve or maintain an individual fund's reserve target.
3. Appropriated revenues can include transfers from fund balance where
such fund balance is reasonably expected to exist by the end of the fiscal
year preceding the year of the adopted budget. Transfers from fund
balance are not to be counted as revenue if the fund balance is not
reasonably expected to exist by the end of the fiscal year preceding the ltezn&.A7@
year of the adopted budget. (Note: The precise definition k ' 'fRMNWM4AlA1 ORA/Councie&
July 15,2003
will vary from fund to fund, depending on the fund's characteristics and
accounting treatment.)
I/. General Responsibilities
The City Manager, shall be responsible for ensuring that the budget proposed to the
City Council by the Mayor / City Manager adheres to the balanced budget policy.
Currently, the Budget Office under the supervision and direction of the City Manager,
performs this function.
111. Annual Monitoring & Reporting
Each fiscal year, once prior year information has been nnade available by the
Controller's Office, the City Manager, shall produce a balanced budget report, to the
Council. The report shall state, for each fund in which current year appropriations exist,
whether the actual year-end data from the prior year has caused any individual fund to
be in violation of the balanced budget policy. If so, the the City Manager, shall
recommend steps to be taken to bring that fund back into compliance with the policy.
Currently, the Budget Office, under the supervision and direction of the City Manager
performs these functions.
In Council, Oakland, California, 2003
PASSED BY THE FOLLOWING VOTE:
Ayes- BROOKS, BRUNNER, CHANG, NADEL, QUAN, REID, WAN AND
PRESIDENT DE LA FUENTE
Noes-
Absent-
Abstention-
Attest:
Ceda Floyd
City Clerk and Clerk of the
Council of the City of
Oakland, California
Item 10. Z2.m
ORA/Council
July 15, 2003
2