Fiscal Year 2013-2015 Special Budget Meeting

HONORABLE MAYOR AND CITY COUNCIL Subject: Proposed EY 13-15 Proposed Policy Budget Date: June 12, 2013 ^ Page 5 1100 and 4100 negative balances in terms of the specific total amounts owed by other funds into each negative balance. In FY 2008-09; the Extemal Auditor's issued a material weakness finding on the Internal Service Funds (ISF) deficit because the City's accumulated internal borrowings have reached $50.8 million as of June 30, 2009. The Auditor's recommended "that the City monitor the progress of its restructured repayment plan very closely to ensure its feasibility. If it is determined that the plan is not feasible and the City does not intend to or cannot recover the full cost ofproviding goods or services .within a reasonable period of time, then the use of Internal Service Funds is no longer appropriate under GAAP and should not be used for financial reporting purposes" (refer to Attachment B). The City has been able to maintain its repayment plan and in the FY 2010-11 audit, the Auditors considered the repayment plan implemented. BY the end of FY 2012-13, the City will have reduced deficit from the high of $50.8 in FY 2008-09 to $31.4 million (projected). That is approximately $19.4 million in repayment to the ISF deficit. At this time; the'City Administration considers the current repayment plan prudent and good for the long-term fiscal stability for the City. As such, it is recommended that the City maintains the repayment plan. It should be noted that if the City chooses not to continue with the repayment plan, the Extemal Auditors will recommend for the City to discontinue the use of Internal Service Funds for financial reporting purpose because they would no longer be appropriate under GAAP (Generally Acceptable Accounting Principles). For example, if this occurred in FY 2012- 13 with the ISF's accumulated borrowing or deficit at the estimated $31.4 million, the General Purpose Fund (GPF) would have to absorb approximately 60% or ($18.84 million of the $31.4 million) of the ISF's deficit and hence would have to reduce GPF fund balance in one year instead of participating in the gradual repayment plan. Attachment C 'accounts for the detail accounting of currently scheduled repayment for Self- Insurance Liability Fund (Fund #1100) and Equipment Fund (Fund #4100). The City Council adopted the negative fund balance repayment plan in FY 2009-11 for 10 years. It was projected by 2020-21, Fund # 1100 will net zero. However, expenditures have exceeded revenue in this fund since 2009. As proposed in the FY 2013-15 Policy Budget, the fund balance of fiind #1100 is projected to be negative 1,904,953, and by 2020-21, the fund balance is projected to be positive $583,222; Of note, the Mayor's Proposed Policy Budget includes three additional positions for the City Attomey's Office from Fund #1100, which will cost the City $615,000 each year and it has not been factor into this.fund's expenditure. Without changing the repayment plan, the fund is projected to be negative at the end of FY 2020-21 unless the City Attomey's Office reduces outside counsel costs: This fund has been in negative fund balance for at least the last ten years. The all-time high was negative $28 million. For the Equipment Fund (Fund #4100), City Council adopted the repayment plan in FY 2009-11 to repay the negative fund balance back to zero by FY 2020-21. The current proposed FY 2013- 15 Policy Budget projected the fund balance will be positive $754,388. At the City Council's