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Agenda - Mail Packet - 10/17/2017 - Council Finance And Audit Committee Agenda - October 16, 2017
Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com AGENDA Council Finance & Audit Committee October 16, 2017 10:00 am - noon CIC Room - City Hall Approval of Minutes from the September 18th Council Finance meeting. 1. I25 / Prospect Funding & CDOT IGA 25 minutes M. Jackson 2. Housing Affordability Task Force – Policy Recommendation 25 minutes S. Beck-Ferkiss 3. Village on Horsetooth Fee Waiver Request 20 minutes S. Beck-Ferkiss 4. Financial Management Policy Updates – Budget, Investment, Fund Balance, PAB 25 minutes J. Voss 5. BFO Revenue Allocation Methodology 25 minutes L. Pollack Council Finance Committee & URA Finance Committee Agenda Planning Calendar 2017 RVSD 10/11/17 mnb Oct 16 I25 / Prospect Funding & CDOT IGA 25 min M. Jackson Housing Affordability Task Force – Policy Recommendation 25 min S. Beck-Ferkiss Village on Horsetooth Fee Waiver Request 20 min S. Beck-Ferkiss Financial Mgmt Policy Updates – Budget, Investment, Fund Balance, PAB 25 min J. Voss BFO Revenue Allocation Methodology 25 min L. Pollack URA Nov 20 KFCG Renewal Discussion 20 min G. Sawyer Utility CIP & LTFP Review 60 min L. Smith Audit Response Follow-Up 20 min T. Storin Vine/Lemay – Financing Alternatives 20 min C. Crager M. Beckstead URA Dec 18 URA N College URA Strategy 30 min J. Birks Whitewater Park 20 min P. Rowe Jan TBD URA Future Council Finance Committee Topics: County IGA – URA TIF Evaluation Process Phase II Fee Discussions – Development Review Fees & Wet Utilities Future URA Committee Topics: Annual URA District Updates – Anticipate memo format Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com Finance Committee Minutes 09/18/17 10:00 – noon CIC Room – City Hall Council Attendees: Mayor Wade Troxell, Ross Cunniff, Ken Summers Staff: Darin Atteberry, Mike Beckstead, Jeff Mihelich, Travis Storin, Noelle Currell, John Voss, John Duval, Andres Gavaldon, Laurie Kadrich, Jo Cech, Ryan Malarky, Tiana Smith, Lawrence Pollack Others: Kevin Jones (Chamber of Commerce), Dale Adamy (Citizen) Meeting called to order at 11:03 am (starting time changed to 11 am to accommodate conflicts) Ross Cunniff moved to approve Minutes for the August 29th Council Finance Meeting. Ken Summers seconded the motion. A. Annual Adjustment Ordinance Lawrence Pollack, Budget Director SUBJECT FOR DISCUSSION First Reading of Ordinance No. , 2017, Appropriating Unanticipated Revenue and Prior Year Reserves in Various City Funds and Authorizing the Transfer of Appropriated Amounts between Funds or Projects. EXECUTIVE SUMMARY The purpose of this Annual Adjustment Ordinance is to combine dedicated and unanticipated revenues or reserves that need to be appropriated before the end of the year to cover the related expenses that were not anticipated and, therefore, not included in the 2017 annual budget appropriation. The unanticipated revenue is primarily from fees, charges, rents, contributions and grants that have been paid to City departments to offset specific expenses. GENERAL DIRECTION SOUGHT • What questions or feedback does the Council Finance Committee have on the 2017 Annual Adjustment Ordinance? • Does the Council Finance Committee support moving forward with bringing the 2017 Annual Adjustment Ordinance to the full City Council? BACKGROUND/DISCUSSION This Ordinance appropriates unanticipated revenue and prior year reserves in various City funds, and authorizes the transfer of appropriated amounts between funds and/or projects. The City Charter permits the City Council to appropriate unanticipated revenue received as a result of rate or fee increases or new revenue sources, such as grants and reimbursements. The City Charter also permits the City Council to provide, by ordinance, for payment of any expense 2 from prior year reserves. Additionally, it authorizes the City Council to transfer any unexpended appropriated amounts from one fund to another upon recommendation of the City Manager, provided that the purpose for which the transferred funds are to be expended remains unchanged; the purpose for which they were initially appropriated no longer exists; or the proposed transfer is from a fund or capital project account in which the amount appropriated exceeds the amount needed to accomplish the purpose specified in the appropriation ordinance. If these appropriations are not approved, the City will have to reduce expenditures previously appropriated even though revenue and reimbursements have been received to cover those expenditures. The table below is a summary of the expenses in each fund that make up the increase in requested appropriations. Also included are transfers between funds and/or projects which do not increase net appropriations, but per the City Charter, require City Council approval to make the transfer. A table with the specific use of prior year reserves appears at the end of the AIS. Funding Unanticipated Revenue Prior Year Reserves Transfers between Funds TOTAL General Fund $590,677 $597,161 $0 $1,187,838 Sales & Use Tax Fund 0 511,398 0 511,398 Capital Projects Fund 177,503 0 0 177,503 Light & Power Fund 3,500,000 0 0 3,500,000 Natural Areas Fund 70,000 0 511,398 581,398 Storm Water Fund 123,262 0 0 123,262 Transportation Fund 25,000 500,000 0 525,000 Water Fund 229,613 0 0 229,613 GRAND TOTAL $4,716,055 $1,608,559 $511,398 $6,836,012 FINANCIAL / ECONOMIC IMPACTS This Ordinance increases total City 2017 appropriations by $6,836,012. Of that amount, this Ordinance increases General Fund 2017 appropriations by $1,187,838 including use of $597,161 in prior year reserves. Funding for the total City appropriations is $4,716,055 from unanticipated revenue, $1,608,559 from prior year reserves and $511,398 transferred from other funds. The following is a summary of the items requesting prior year reserves: Item # Fund Use Amount A2 General Manufacturing Equipment Use Tax Rebate $477,727 A4 General Land Bank Property Maintenance 11,850 A8 General Court-Appointed Defense Counsel 42,584 A10 General Transfer for City-paid portion of City employee garage parking permits 65,000 B1 Sales & Use Tax Transfer of 2016 sales tax revenue for Natural Areas 511,398 G2 Transportation Snow Removal 500,000 Total Use of Prior Year Reserves: $1,608,559 3 First Reading tentatively scheduled for October 3rd. Ross Cunniff; Good to go forward ‐ this looks straight forward ACTION ITEM: Ken Summers requested that some of the reserve categories be relabeled for the benefit of the Council and citizens to provide clarity and transparency of what we are looking at. Identify what can be used for priorities and what is not available. Mike Beckstead suggested a review of fund balances as of the end of 2016 be scheduled for a future Council Finance meeting. This is done annually with Council Finance and it would be good to revisit that as we move into the next budget process. Next Tuesday we are going to have a working session discussion that will address this as well. We had close to $6M unassigned and available – we used about 2 of that – using a bit more of it here – that is left is on a slide ACTION ITEM: Ross Cunniff asked if we could break out Development Review Fees and Building Inspection Fees could be separated out as this would be helpful for Council to understand – funds are collected for a purpose. Mike Beckstead will see what we can do to separate those out and add that to the information for next Tuesday. Darin Atteberry; Next Tuesday, we will have the initial conversation and in the interim, I think we are at an appropriate and responsible level. We are meeting TABOR and state requirements. B. Natural Gas Franchise Agreement Andres Gavaldon, Financial Planning & Analysis John Duval EXECUTIVE SUMMARY For Council’s review, the City Attorney’s Office and staff along with Xcel Counsel have developed Franchise Agreement for natural gas that could replace the City’s current Occupational Tax. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Does CFC support moving forward with a Natural Gas Franchise Agreement in conjunction with KFCG renewal efforts? BACKGROUND • Exploration of a Natural Gas Franchise is an initiative within Revenue Diversification discussions • Council Finance Committee discussion Sept 21, 2015 CFC direction was to continue exploration of Franchise Fee • Staff reviewed latest municipality franchise agreements from neighboring cities. Current iteration incorporates those improvements and accepted legal language. • Xcel Counsel and City Attorney’s Office along with staff negotiated current iteration of Franchise Agreement 4 Benefits Legal Steps for Franchise 5 Mayor Troxell; Who within the city organization owns the natural gas utility? Darin Atteberry; Primarily Engineering because of the right of way ‐ not cross utility connection to electric or gas ‐ some Finance ‐ some PDT – from a natural gas standpoint – challenges include limited capacity. Mayor Troxell; Who is the champion responsible for determining how this fits with our energy conservation / climate issues in terms of innovation economy? District heating? We need to have your provider there as a partner. Does this agreement allow for other sorts of partnerships to accomplish mutual goals? Xcel has a lot of programs through PUC. Andres Gavaldon; They will be assigning a special liaison. I don’t know who that would be on our side. Article 12 of the agreement has to do with partnership and collaboration around that information sharing. It addresses data sharing and partnerships in general. Jeff Mihelich; Does the agreement have the flexibility to address some of the goals? Mike Beckstead; the 2nd bullet on benefit slide (see below) addresses our energy conservation goals Not specific to initiative. We will collaborate, communicate and share information. We are not sure we have a champion yet. This will be part of the Climate Action team and John Phelan’s team but we don’t have a specific answer for who owns this on our side. • Partnership language has been included that helps address energy conservation (see Article 12 Environment and Conservation) • Communication on programs through newspaper, bill inserts and website • Conservation representative designated as primary liaison • Aggregate data availability for partnership opportunities Darin Atteberry; Jeff and Leadership would probably be where that falls. Ross Cunniff; franchise fee can make sense but it needs to be tied to KFCG. Darin Atteberry; Direction from Council and CFC ‐ we spent a lot of time discussing diversification of revenue including using this as an option to help lower KFCG. The franchise fee is tied to a percent of bill not to a Mill. We need to have the concurrent conversation about reducing something else if we are going to talk about franchise fee and revenue. There are also non‐monetary advantages that include coordination, being able to effect customer service and timing of projects and information flow. We could say we want to set up an exclusive franchise but no monetary element to it. Mike Beckstead; We will be talking about KFCG renewal at November Council Finance and will time this with the KFCG renewal. We could do the agreement today, keep it revenue neutral and achieve the benefit of coordination. We could elect to change that at a later time. 6 Ross Cunniff; agreed that it would be good to get an agreement in place now but not raise revenue until we have the KFCG renewal conversation. If we raise this then we can lower KFCG. Would be best if it was in conjunction with some other sales tax change. There is trust building value in showing that we are revenue neutral. John Duval; Charter requires that if voters approve an ordinance then they also have to approve revisions. Mayor Troxell; Waste energy ‐ presumably renewable natural gas is created. Would Xcel be a partner in that enterprise if we head in that direction? Mike Beckstead; Xcel to help share information and help us evaluate but beyond that it doesn’t compel Xcel. Jackie and her group are working on waste energy and my understanding is that they are 12‐24 months away from having something to recommend. This agreement reinforces Xcel’s willingness to participate in discussions. Mike Beckstead; would Council Finance prefer we just integrate this into the KFCG renewal discussion and not sign it now OR prefer we move forward to sign an agreement that is revenue neutral? John Duval; it is a tax ‐ it currently says franchise fee at the bottom of the bill. $450k per year ‐they calculated it at 1.07% ‐ We are proposing in place of this tax a 3% franchise fee. We are the rare city in the state that does not have a franchise fee. Mike Beckstead; Bills will look the same ‐ generic franchise fee. We will sort out next steps and make sure we are rock solid before we bring this to Council. Mayor Troxell and Ken Summers; good to move ahead Ross Cunniff; move forward with revenue neutral ‐ then wrap revenue discussion with KFCG renewal. C. Occupation Tax Category Changes Tiana Smith, Revenue and Project Manager EXECUTIVE SUMMARY The Colorado General Assembly has added three new liquor license categories. City Code allows for liquor occupation taxes to be charged to these liquor licensed businesses, and the Code contains a schedule of specific license categories. City Staff is recommending that City Code be updated to include these new types of license categories. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Are there any concerns from Council regarding the recommended changes to City Code that need to be addressed before bringing the ordinance forward to City Council? 7 BACKGROUND/DISCUSSION The City charges an occupation tax on businesses that sell at retail any fermented malt beverage, malt, special malt, vinous or spirituous liquors in addition to license fees that these businesses must pay to the City annually. The amount of tax charged is listed in Code Section 3‐76(b) according to the category of license the business holds. The Colorado General Assembly adopted new legislation that created three new types of liquor licenses, which qualifying businesses in the City may apply for. The new types are a vintner's restaurant license, a lodging and entertainment license, and a distillery pub license. Because these new licenses are not now specifically identified in the occupation tax schedule in Section 3‐76(b), an ordinance is being proposed by staff to amend Section 3‐76(b) to add these new license types. Under the current version of Section 3‐76(b), future businesses seeking any of the new license types would likely apply for a hotel and restaurant license. Section 3‐76(b) currently imposes a $1,600 occupation tax on hotel and restaurant licensees. The occupation tax rate for the three new license types is proposed to be set at $1600, so the effective cost to the licensees would be the same. City staff worked with the City Attorney’s Office and determined that because businesses that may qualify for the new license categories would be charged the same amount of $1,600, this is not a new tax policy, nor does it have any impact on the net revenues the City will collect from these taxes. If the General Assembly adds new categories in the future, staff will again work with the City Attorney’s Office to address any legal concerns. Mayor Troxell; thumbs up ‐ we are collecting now ‐ more specificity to be in alignment with the state ‐ Ross Cunniff and Ken Summers; ok to go forward Mike Beckstead; we will bring this forward for Council adoption within the next few weeks. Other Business; Topic will be coming forward next Tuesday ‐ This is consistent with the discussion we had at Council Finance a month ago. Ross Cunniff requested a list of proposed reductions we would need to make if we chose not to use $1M of the contingency. While we plan to include this as part of the packet we will recommend that we use the contingency as established. Darin Atteberry; I am not comfortable with the list and am not recommending we bring that forward ‐ We need to do some work on our end Mike Beckstead; I saw the report this morning and we are $2M ahead of budget in the General Fund – on‐going spending reductions to accommodate for sales tax reduction Ross Cunniff; in the most recent report dated 9/11 it looks like net sales has not increased YOY 8 Tiana Smith; YOY sales tax collected is up 3.7% for the month. Net sales and use tax is down 1.1% for the month. Use tax came in so high last year that it distorts YOY – there are months when we have significant audit revenue Ross Cunniff; .2 % down ‐ sales tax down 2.8% vs budget. Council needs to aware of alternatives. We need a strong explanation of why sales tax is down comparted to other communities. I would like to see the list at some point but I am ok if it doesn’t come in time for the work session. The AIS will reflect that staff is still evaluating options and if Council chose not to allocate the $1M from reserves ‐ staff is preparing the list. Mike Beckstead; on a positive note, the last couple of months it has grown at the 3.5 % rate. We assumed 2.6% for the remainder of year and we have 3% growth built into 2018. We pulled the forecast back and things are coming in consistent with the forecast. Meeting adjourned COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Mike Beckstead, Chief Financial Officer Laurie Kadrich, Planning, Development & Transportation Director Mark Jackson, Planning, Development & Transportation Deputy Director Josh Birks, Economic Health Director Chad Crager, Infrastructure Services Director Date: October 16, 2017 SUBJECT FOR DISCUSSION Prospect/I-25 Interchange Funding Partnership EXECUTIVE SUMMARY City of Fort Collins Staff is working with Colorado Department of Transportation (CDOT), Town of Timnath, and property owners/developers adjacent to the interchange of Interstate 25 (I-25) and Prospect Road to develop a funding partnership allowing CDOT to improve the interchange. This interchange is a key gateway entrance into Fort Collins and also Town of Timnath. It connects to a primary arterial route into and out of the community. Improving the interchange will help alleviate congestion and improve safety. The I-25/Prospect interchange is old and aging infrastructure not designed to handle the urban level of traffic currently experienced. There are significant financial benefits to partnering on the interchange at this time for all parties involved. CDOT agrees to pay for $12 million (half of the base cost) of the interchange. Timnath, Fort Collins and private interests will pay the balance of $19 million. City of Fort Collins’ share of the $19 million is approximately $8.1 million. Total cost of the improved interchange is estimated at $31 million. There is a potential savings of $7 million in improvement costs if the project can be included in the efficiencies of the overall I-25 corridor project. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED CDOT wishes to enter into an Intergovernmental Agreement (IGA) with the City of Fort Collins stating our intent to partner for $19 million of the total interchange improvements, with repayment to occur over a three year period. In the event staff is unable to complete final agreements with property owners and Town of Timnath is Council comfortable with entering into the IGA without final agreements yet in place? BACKGROUND/DISCUSSION The Colorado Department of Transportation will begin construction of the North I-25 Improvements Project in early 2018. CDOT has agreed to include improvements to the I-25 interchange at Prospect in the overall corridor project, if local funds are brought in partnership. Including the interchange improvements in the overall corridor project saves taxpayers, municipalities and stakeholders an estimated $7 million as opposed to improving the interchange as a stand-alone project. Including the interchange in the overall corridor project also accelerates the schedule for improving the interchange by five to ten years. 2 Staff is developing a fair share cost sharing agreement with Town of Timnath based on long range (2040) travel model analysis showing relative impacts from Fort Collins, Timnath and regional background traffic. Fort Collins assumes a fair share for Timnath is in the range of $2.85 million to $3.0 million. Timnath is requesting a lesser contribution. Timnath’s total contribution amount, as well as repayment terms, are under negotiation. The interchange is in an area of influence with Town of Timnath and may be eligible for potential revenue sharing agreements with Fort Collins (similar to that with Town of Windsor at SH-392 interchange). The anticipated Intergovernmental Agreement (IGA) outlining cost share and repayment method/schedule may take the form of a stand-alone agreement, or may be an amendment to a current IGA with Timnath. Staff is also working to develop a funding agreement with private property interests adjacent to the interchange which includes the following items: • Relative cost share for both the City of Fort Collins and private property owners is estimated at $8.1 million • Repayment timing and methodology • Property owners are requesting use of metro districts, and negotiable mill levy up to 80 mils • The City is requesting a mixture of repayment mechanisms to ensure revenue stream and minimize risk • The City has agreed in principal to: o Offset developer share with any right of way contribution made by property owners o Contribute approximately $1.4 million in Transportation Capital Expansion Fees (TCEF) towards the interchange o Assign a development review liaison to interchange area projects similar to other recent large scale developments. Colorado Department of Transportation (CDOT) requests an IGA with the City of Fort Collins prior to commencement of construction (anticipated March 2018) stating the City’s commitment to provide one half ($12M) plus $7M additional urban design costs of the interchange improvement costs. Funds to CDOT total $19 million. The City will subsequently enter into repayment agreements with Town of Timnath and interchange property owners (see above) to capture their share of costs. The City will pay CDOT the total owed over a three year period (2018-2021). Staff intends to bring Resolutions authorizing the City to enter into IGA with CDOT, IGA with Town of Timnath, and and Memorandum of Understanding (MOU) outlining property owner repayment agreements to Council for their consideration at the December 19 regular session. FINANCIAL IMPACTS Total project cost is estimated to be $31 million. Of this, $24 million is considered base design while $7 million makes up urban design elements. CDOT will share in 50% of the base design portion, or $12 million. The remaining $19 million will be split across the City, property owners, and Timnath at 43%, 43%, and 15%, respectively. Timnath’s share is based on traffic studies with the City and property owners splitting the remaining costs. 3 Partners Share Allocation Total FC Property Timnath Overpass Cost $ 19.00 $ 8.075 $ 8.0750 $ 2.85 % Share Cost 43% 43% 15% Less ROW Value 1.00 TCEF 0.70 0.70 Debt Obligation $ 16.60 $ 7.375 $ 6.375 $ 2.85 % Share Payments 44% 38% 17% The City proposes to finance the cost of this project through Certificates of Participation (COPs). The principal borrowed is the balance of the $19 million costs after accounting for right of way (ROW) contributions and Transportation Capital Expansion Fees (TCEF). The net amount currently projected is $16.6 million but will depend on final negotiations and ROW contributions. The City would be responsible for debt service in full and then separately collect from Timnath and the property owners under the aforementioned repayment agreements. Timnath’s repayments are still under negotiation but are currently modeled at $219,097 per year. The property owners’ repayments will be funded from a combination of the mill levy, impact fees, and public improvement fees collected by the metro districts and/or GID. Thus, there is uncertainty in the timing of the property owners’ repayments as the revenue generated is dependent on the timing of future development. The City is obligated to service the debt regardless of the timing of repayment. Ranges for the three potential revenue streams are provided below for context: • Mills – 6.0 to 7.5 mills • PIF - .60% - .75% • Additional Impact Fee $5K (will vary by land use, target $2M revenue) CHALLENGES FACED Given the very large amount of money plus numerous parties involved, combined with an aggressive CDOT timeline, reaching agreement has been complex and deliberate. While all parties involved agree there is a tremendous upside to partnership on the project, reaching agreement that protects the City’s interests, ensures fair share contributions, and allows private interests to develop viable projects is challenging: • CDOT has requested an IGA with City of Fort Collins committing funds before construction commences (estimated March 1, 2018) • Negotiations with Town of Timnath and private property owners are yet to be finalized • Private property owners requiring additional information from CDOT regarding ROW donation value before agreeing to a repayment plan 4 • Private property owners waiting for Council policy direction on Metro District changes (residential uses) • Potential for land use changes in the interchange area based upon updated conditions and markets (some existing land use designations make viable development problematic) • As a result of ongoing negotiations, there is a degree of uncertainty and risk to the City of Fort Collins • City of Fort Collins has limited negotiation leverage with private interests NEXT STEPS There are several key steps in place to move the I-25/Prospect Interchange partnership agreements forward: • Staff continues to meet regularly with both Town of Timnath and private property owners • Staff is in regular communication with CDOT as to construction schedule and IGA deadline • Council will discuss Metro District policy changes in October and November • Staff is scheduled to bring CDOT IGA, Timnath IGA, and private property repay agreements to Council on December 19 ATTACHMENTS 1. Powerpoint Slides I-25/Prospect Interchange 1 October 16, 2017 Council Finance Committee Proposed Public-Private Partnership 2 • Prospect/I-25 Interchange has failing LOS at peak travel times • Total Cost $31M ($24M + urban design) • CDOT cost $12M (half based design) • City cost $19M • Estimated savings of $7M if constructed with I25 expansion • Partnership with • City of Fort Collins • Town of Timnath • Interchange property owners Interchange Ownership & Development Plans 3 • NW Corner – 144.6 total acres, in PDP • 276 apartments • 27 single family homes • Additional single family homes and commercial development potential (Future) • NE Corner – 110 total acres, in ODP • Industrial/Employment • Commercial • Urban Estate • SE Corner – 17 acres, in ODP • Commercial • SW Corner – 96 acres, owned CSURF • No development plans in review Traffic Study Data Timnath Share Allocation 4 Determining Fair Share Based on Traffic Impacts: • Traffic Impact Analyses using MPO Long Range (2040) Regional Traffic Model. Percent use of traffic on interchange was: • Fort Collins 36% • Timnath 7% • Background 29% • From MPO data, 72%-28% split between traffic going to FC versus to Timnath. Timnath share (7%) plus background share (28% of 29%) is 15%; 15% of $19M is $2.85M. Timnath’s share estimated at $2.85M minimum Cost Sharing Proposal 5 Property Owners • 50% of remainder after Timnath • Form single GID covering all corners • 3 revenue sources • Impact Fee $32 to $34 per trip (Based on Average Daily Trip Count @ Permit) • Mills…. 7.0 to 8.5 • PIF……. .70% to .85% • Fee range dependent on ROW contribution value Timnath • Cost Share – per traffic studies • Range $2.85M to $3.0M • Timnath Option • 100% of payment from beginning • Grow in payments and pay interest on the carried balance Discussion with Timnath and Property Owners in Process Intersection Cost & Cost Share 6 Proposed Cost Share Timnath 15%, Property Owners 43% • Total Cost $31M • includes $7M for Urban Design • CDOT $12M - 50% of base design • City/Property Owners/Timnath $19M • FC = $8.1M • Property Owners = $8.1M • Timnath = $2.8M • Current Estimate - Borrow $16.6M • $19M less ROW & TCEF contribution Total FC Property Timnath Overpass Cost $ 19.00 $ 8.075 $ 8.0750 $ 2.85 43% 43% 15% Less ROW Value 1.00 TCEF 0.70 0.70 Debt Obligation $ 16.60 $ 7.375 $ 6.375 $ 2.85 % Share 44% 38% 17% Borrow - Principle $ 16,600,000 Term 20 Interest 4.50% Payment Share $1,276,144 $566,962 $ 490,085 $ 219,097 Partners Share Allocation Agreement Details/Status 7 1 Property Owners share in urban design cost OK 2 Fix formula in agreement (total – Timnath – ROW/TCEF) OK – owners asked for cap on $, City said no 3 ROW contribution reduce obligation OK – still negotiating minimum ROW contribution – 1st dollar importance 4 3 Revenue sources – Fee, Mills & PIF OK – recent concern from property owners on development cost – fees & roads 5 Fixed Fee beginning year 3 if develop has occurred NO – from property owners 6 Establish GID and sunsets once obligation met OK 7 Want to cap each corners payments NO - Delays payment, complicated, legal issues 8 GID sunsets by corner per #3 NO – same as above 9 Freeze all City fees NO from City 10 FC supports seeking lower water/sewer fees NO – City will provide information only 11 Offset to Street Oversizing given contribution OK – shared equally between City & owners 12 FC manages GID finances OK 13 FC agrees to approve Metro District for each Council Action Required 14 Metro District with mill levy up to 80 mills Council Action Required 15 FC agrees to accelerate ODP/FDP Liaison to be appointed 16 City charges interest on carried balance OK – per Interagency Loan Policy 17 Specific development agreement with each OK 18 Modification to Land Use may be appropriate TBD Current General Fund Debt Service 8 Debt Issue Project 2017 2018 2019 2020 2021 2001 ALPs Police Annex $60 $62 $64 $65 $67 2012 COPs* Police HQ 2,107 2,060 2,022 1,940 1,939 2007 COPs** 215 N Mason, Civ. Ctr. Parking 1,106 1,093 - - - 2017 COPs* Hotel Parking - 960 660 661 661 Total Debt Service $3,273 $4,175 $2,746 $2,666 $2,667 * Excludes debt amounts serviced by Natural Areas and Transportation Funds ** City portion only; excludes DDA contributions of $300K annually toward these COPs 215 Mason/Parking Debt Retirements Provides $433k Debt Capacity vs. 2017 ($ 000’s) Cash Flow Summaries 9 Base Case Growth Slow Growth Timing and Pace of Development Uncertain…. City Commitment to CDOT Without Certainty on Owners Repayment • Impact Fee $32 to per trip (Average Daily Trip Count @ Permit) • Mills…. 7.0 • PIF……. .75% • ROW Contr $2.0M Cash Flow Summaries 10 Base Case Growth Slow Growth Timing and Pace of Development Uncertain…. City Commitment to CDOT Without Certainty on Owners Repayment • Impact Fee $34 per trip (Average Daily Trip Count @ Permit) • Mills…. 8.5 • PIF……. .85% • ROW Contr $0.5M Alternative 1: Standalone COP Financing 11 New Debt Issue Project 2017 2018 2019 2020 2021 2018 COPs I-25 / Prospect: $16.6M - - $1,276 $1,276 $1,276 Less Timnath Share (219) (219) (219) 2018 COPs Police Training Facility: $8.5M - - 653 653 653 Alternative 1 New Debt Service - - $1,710 $1,710 $1,710 Base Debt Service (prev. slide) $3,273 $4,175 $2,746 $2,666 $2,667 Total Alternative 1 Debt Service $3,273 $4,175 $4,456 $4,376 $4,377 • Interchange + Police Training = Borrow $25.1M; 20 years @ 4.5% Standalone COP Financing on Both Projects adds $1.2M - $1.3M Debt Service Cost in 2019 vs. 2017 Depending on Timnath Option ($ 000’s) Collateral Choices: • Finance working with Real Estate to identify asset options • 2nd loan on Police HQ • 215 N. Mason / CCPS • Streets/Traffic Facilities • Aztlan Center, pending remediation issues Alternative 2: Refinance 2012 COPs 20 years @ 4.5% 12 Debt Project 2017 2018 2019 2020 2021 2001 ALPs Police Annex $60 $62 $64 $65 $67 2007 COPs 215 N Mason, Civ. Ctr. Parking 1,106 1,093 - - - 2012 COPs Police HQ, Soapstone, Streets Storage 2,107 2,060 - - - 2017 COPs Hotel Parking - 960 660 661 661 2018 COPs I-25/Prospect; Police Training; Refi Police HQ - - 3,042 3,042 3,042 Less Timnath Share (219) (219) (219) Alt. 2 Total Debt Service $3,273 $4,175 $3,547 $3,549 $3,551 Alt. 1 Total Debt Service (prev. slide) $3,273 $4,175 $4,456 $4,376 $4,377 Base Debt Service (prev. slide) $3,273 $4,175 $2,746 $2,666 $2,667 ($ 000’s) Lowers Yearly Debt Capacity Need by $.8M -- Increased Debt Service $.4M - $.5M…. However Adds to Interest Cost on Police HQ $6.7M with Additional Years & Interest Rate • Police Building Provides Attractive Asset Capable of Supporting Multiple Transactions • Refi on $14.5M from 2012 COPS extends existing debt by 12 years at higher interest rate • Requires Payoff of NA $1.3M and Transportation $.8M Cumulative Debt Possible 13 Alternative 1 Alternative 2 Capacity freed in 2019 ($433) ($433) Capacity needed with I25/Prospect* 1,276 1,276 Less Timnath share (219) (219) Capacity needed with Training Facility 653 653 Capacity needed with Vine/Lemay 769 769 Capacity freed with Police HQ Refinance - ($827) Capacity needed for potential projects $2,046 $1,219 *Given uncertainty on the timing of development, property owner contributions not included Staff Will Continue to Explore Options and Optimal Collateral Options to Explore • Refinance Police Building • Longer maturities • Partial cash funding from Reserves • Interest Rates • Vine/Lemay project discussion scheduled for Nov CFC • Included here to provide complete potential capacity estimate ($ 000’s) • Council Other Business Oct 10th – I25 Expansion in the range of $10M not included Summary and Next Steps 14 • CDOT seeking IGA in December - payment commitment • Resolve uncertainty on Timnath $2.85M • Several issues to resolve with Property Owners for repayment • Targeting Agreements with each prior to CDOT IGA - Challenge • Uncertainty on development timing requires commitment of City for Property Owners share COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Sue Beck-Ferkiss and Dean Klingner Date: October 16, 2017 SUBJECT FOR DISCUSSION The Affordable Housing Capital Fund EXECUTIVE SUMMARY The voters approved an Affordable Housing Capital Fund (AHCF) as part of the Community Capital Improvement Program (CCIP) to be used for the capital costs of one or more affordable housing community. Over ten years the fund will accumulate $4 million. Staff is offering suggested strategies for the use of this fund for Council Finance Committee direction and feedback. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Which Strategies do you support? • Fee Waiver backfill • Land Bank Program • Direct subsidy • Social innovation grant • Affordable Housing Demonstration Project 2. Is there feedback on the fee waiver backfill strategy? BACKGROUND In 2015, the voters approved the Affordable Housing Capital Fund (AHCF) as part of the dedicated sales tax initiative for City capital projects. The approved language states: This project will fund capital costs of development or rehabilitation of one or more public or private housing projects designated specifically for low-income individuals or families. The AHCF funds accumulate over time according to the following schedule: 2016 $200,000 2017-2018 $250,000 2019-2020 $400,000 2021-2015 $500,000 The current fund balance is $450,000. It will accumulate a total of $4 million over 10 years. Staff was asked to look at the best way to use this fund to incentivize one or more affordable housing projects. This task was given to the Internal Housing Task Force (Task Force) which is a multi - departmental group with representatives from over 10 City departments including: City Manager’s Office, Communications and Public Involvement Office, Economic Health Office, Environmental Services, Engineering, Finance, Planning, Social Sustainability, Utilities - Community Engagement, Utilities – Finance, and Utilities – Water. Other departments expertise is also tapped as needed. While this group has many deliverables, options for the best use of the AHCF is the current focus of their work. This group was created in recognition of the importance of the issue of affordable housing to our community and the fact that many City departments are involved in this type of development. In analyzing the approved language, staff focused on the capital costs purpose and the low- income target population. We looked at trying to maximize the productions of units while at the same time leaving flexibility to respond to future opportunities that present while also striving for innovation. That said, $4 million does not really go far in the production of affordable housing units that often cost more than $200,000 per unit to construct and not much less to rehabilitate units for preservation. With that in mind, the AHCF must be seen as a leveraging tool and something to add to the way the City is already supporting affordable housing projects. To further illustrate that point, here are examples of recent projects total development costs: Community Development Block Grants (CDBG) and HOME funding is federal funding from the federal department of Housing and Urban Development. The Affordable Housing Fund (AHF) is City general funds. Waivers are typically reimbursed with general funds too. The Private Activity Bond support is assigning tax free debt capacity and not actual funding. Recent rehabilitation projects have had similar big budgets. An example of a large acquisition and rehab project is the Village on Shields. Total cost for this was $64 million for 285 units. The City provided $3.14 million using CDBG, HOME and the AHF for this project. A small rehabilitation project was the Village on Matuka. To renovate 20 units it costs $1.1 million of which the City invested $380,000 of CDBG. Fee waivers are an incentive provided by City code at the discretion of City Council. Currently they are only available to the Housing Authority for the production of units targeting households Community Total cost Units City investment Source of investment Redtail $12.5 M 60 $1.68M CDBG/HOME $1,085,856 AHF (City) $229,416 Fee Waivers $288,000 Legacy $14.7 M 60 $717,000 CDBG/HOME $688,261 AHF (City)$28,890 Horsetooth $26.5 M 96 $2.25 M+ HOME $1.1M AHF (City) $1.1M Fee Waivers pending $360,136 Discounted land 20% Oakridge Crossing $22 M 110 PAB allocation State allocation with income of no more than 30% area median income (AMI) which is currently about $16,150 for a single person or $24,600 for a family of 4. However, the City is considering expanding the eligibility of this incentive to all developers of units for this income. That would require additional City resources because the City’s custom is to reimburse City departments for capital expansion fees that are waived. This has typically come from General Fund Reserves. An expansion of this incentive may require additional funding sources. Staff is recommending that this expansion be applied only to developments who have not yet received their certificate of occupancy to ensure we are using the incentives to bring on new units and not reimburse developers for units that have already been delivered. The last 4 projects that received waivers and backfill of CEFs were: 1. In 2011, $509,896 was backfilled for CARE Housing’s Provincetowne 2. In 2014, $288,000 was backfilled for Redtail Ponds 3. In 2017, $100,708 was backfilled for Village at Redwood 4. Pending request for $308,907 to backfill for Village at Horsetooth. In considering the best use of the AHCF, the Task Force considered many things including: • Immediacy – How quickly do we want to use these funds? • Number of investments – One project or multiple? • Flexibility – How do we respond to funding or innovation opportunities? • Metrics for success – Just more units or innovation factor? • Target population – The Lowest wage earners or more of the housing spectrum? In addition to regular monthly meetings, the Task Force conducted two focused sessions on the best use of the AHCF. We also convened a developer’s focus group to get industry input early in the process and to test our ideas. The following strategies are a result of this work to date. We looked at existing programs as ways to deploy these funds quickly, and also propose some ideas for new programs that may take some time to develop. Lastly, since the funds come in over time, strategies requiring more money may have to wait until more funds accumulate. Staff identified the following optional strategies for consideration: 1. Fee Waiver Backfill: • Existing program that could use funds quickly Targets households making no more than 30% AMI. • Responds to assist developers already bringing affordable housing projects and relies on those projects coming forward. • Total contribution to project limited to waivable fees. Since total fees not more than 9% of cost, impact small. 2. Land Bank Program: • Existing program that could use fund quickly if land is identified and would serve incomes in the affordable ranges. Currently capped at 50% AMI average for rental and 60% AMI for Home Ownership. Pending recommendations may increase to full affordable range or up to 80% AMI. Program specifies limit what may be constructed. • Relies on developers response to City issued Request for Proposals • Offers discounted land value, impact small to overall costs. 3. Direct Subsidy: • New program with parameters to be determined. Time would be required to develop. • Possible two prong approach with the City code providing specific amounts per unit in income ranges up to a maximum amount or the ability to ask Council for more than the amounts per unit if that is what is required. For instance, $15,000 per 30% AMI unit, $10,000 per 40% AMI unit and $5,000 per 50% AMI unit or a discretionary ask of Council for $4 million to close a funding gap in one development. • Could target lower incomes, for example up to 60% AMI. • Responds to assist developers already bringing affordable housing projects and relies on those projects coming forward. • Total contribution to each project would depend on whether Council approved a large amount for one project or if the City code small per unit investments were sought. 4. Social Innovation Grant: • New program with parameters to be determined. Time would be required to develop. • Possibly a competition approach for innovation in addition to affordable housing units. This could be innovation in an existing affordable housing concept and assist a developer bringing housing to the market, or it could be a new concept that traditional funding sources could not support. • Could serve the affordable housing income ranges and possibly include mixed income options. • Total contribution to development costs would depend on how much of the fund is offered. 5. Affordable Housing Demonstration project: • New program with parameters to be determined. Time would be required to develop. • Concept is that the City would purchase land or a building for adaptive reuse to be offered to a partner for an affordable housing development that would meet the goals of several City programs in addition to providing affordable housing. For instance, it could need to meet the City’s Climate Action goals and/or include Nature in the City. • More flexible than the Land Bank Program. • Could serve affordable ranges and possibly include mixed income if the City desires. • Would require a substantial portion of the AHCF. • Total contribution to the project would be in the range of 15-25%. Staff recommendations are preliminary as direction is sought from Council. Staff recommends using the AHCF for capital expansion fee backfills in combination with General Fund Reserves until a BFO offer is funded for fee waiver backfills. Staff would like to reserve some portion of the AHCF to respond to future opportunities. ATTACHMENTS 1. 2017 Income Limits 2017 Income Limits Income Limits (effective 06/15/17) 2017 Median Income: $76,800 City of Fort Collins Household Members AMI = Area Median Income *80%, 50% & 30% are the Section 8 income limits published by HUD. Income 1 2 3 4 5 6 7 8 100% of AMI $53,800 $61,500 $69,200 $76,800 $83,000 $89,100 $95,300 $101,400 80% of AMI* $43,050 $49,200 $55,350 $61,450 $66,400 $71,300 $76,200 $81,150 60% of AMI $32,280 $36,900 $41,520 $46,100 $49,800 $53,460 $57,180 $60,840 50% of AMI* $26,900 $30,750 $34,600 $38,400 $41,500 $44,550 $47,650 $50,700 30% of AMI* $16,150 $18,450 $20,750 $24,600 $24,900 $26,750 $28,600 $30,450 October 16, 2017 Affordable Housing Capital Fund Sue Beck-Ferkiss and Dean Klingner Questions to consider 1. What feedback do you have on the strategies staff presented? How many investments? How soon? 2. Are there additional strategies staff should explore? 2 1. Which Strategies do you support? • Fee Waiver backfill • Land Bank Program • Direct subsidy • Social innovation grant • Affordable Housing Demonstration Project 2. Is there feedback on fee waiver backfill strategy? 3 Citywide Task Force • Determine policy for $4M Affordable Housing Capital Fund • Inform/educate on Housing Affordability Policy • Align policies/programs/processes impacting affordability with City Strategic Plan • Recommend financial and non-financial incentives and partnerships to promote housing options Citywide Task Force • City Manager’s Office • CPIO • Economic Health Office • Environmental Services • Engineering • Finance • Planning • Social Sustainability • Utilities - Community Engagement • Utilities - Finance • Utilities - Water 4 Affordable Housing Strategic Plan Recommended best use of Affordable Housing Capital Fund including: • Investing in additional Land Bank parcels • Back-filling fee waivers • Investing in new housing Annual goal to produce 188 units Goal for leveraging all affordable housing funds = 1:10 5 Early Community Engagement Developers Focus Group • Attendees included: • Housing Catalyst • Habitat for Humanity • Homeward 2020 • Private developers: • Affordable Housing • Market rate and commercial • Homeownership and rental Positive response! 6 New Construction 7 Redtail Ponds 60 units $12.5M City $1.7M $233,781 backfill Village on Redwood 72 units $19.4M City $2.8M $100,703 backfill Legacy 60 units $14.7M City $717,000 New Construction 8 Village on Horsetooth 96 units $26.5M City $2.25M+ $308,907 backfill Oakridge Crossing 110 units $22M City PAB support Preservation 9 Village on Shields 285 units $64M City $3.14M & PAB Village on Plum 95 units $16.1M Village on Matuka Court 20 units $1.1M City $380,000 Sample Funding Stack 10 Waiver History Historic CEF Backfill for Affordable Housing projects 11 When CEF backfill CARE Provincetowne 2011 $509,896 Redtail Ponds 2014 $233,781 Redwood 2017 $100,708 Horsetooth 2017 $308,907* Waiver Backfill Pipeline 2017 Pipeline requests: • Village on Horsetooth $360,136 (pending request) • Oakridge Crossing $130,000 (estimate) 2018 Pipeline requests: • New Housing Catalyst PSH project 2019 BFO Offer for CEF Backfill funds If eligibility is expanded, may see new partners make requests 12 Voter Approved Language “This project will fund capital costs of development or rehabilitation of one or more public or private housing projects designated specifically for low-income individuals or families.” 13 Passed by the voters in 2016 = $4 million over 10 years – 2016: $200,000 – 2017 & 2018: $250,000 – 2019 & 2020: $400,000 – 2021-2025: $500,000 Current Balance: $450,000 Affordable Housing Capital Fund 14 Policy Challenges • Number of investments • Target demographic to serve • Ultimate goal: Units and/or achieve multiple City goals • Development costs • Flexibility • Leveraging funds 15 Strategies - Existing Programs Strategies Fee Waiver Backfill Land Bank Timeline Immediate Immediate Population target No more than 30% AMI 30-80% AMI % of total project cost No more than 10% Discounted land cost, less than 5% 16 Strategies – Potential New Programs Strategies Direct Subsidy Social Innovation Grant AH Demonstration Project Timeline 12-18 months 24+ months 24 months Population target 30-60 AMI% Affordable and/or Mixed Income Affordable and/or Mixed Income % of total project cost Depends – up to 20% (entire fund) Undetermined 15-25% 17 All Strategies Strategy Fee Waiver Backfill Land Bank Direct Subsidy Social Innovation Grant AH Demo Project Timeline Existing program Existing program 12-18 months 24+ months 24 months Population target 30% AMI 30-80% AMI 30-60% AMI AH and/or mixed income AH and/or mixed income % of total project cost No more than 10% Discount on land cost, less than 5% Depends – up to 20% (entire fund) Undetermined 15-25% 18 Staff Recommendations Fee Waiver CEF Backfill: • Utilize AHCF until we have BFO funds • Match AHCF with General Fund Reserves Funding guidelines: • Limit use for backfill to 25% AHCF 19 Questions to consider 1. What feedback do you have on the strategies staff presented? How many investments? How soon? 2. Are there additional strategies staff should explore? 20 1. Which Strategies do you support? • Fee Waiver backfill • Land Bank Program • Direct subsidy • Social innovation grant • Affordable Housing Demonstration Project 2. Is there feedback on fee waiver backfill strategy? COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Sue Beck-Ferkiss, Social Sustainability Specialist Date: October 16, 2017 SUBJECT FOR DISCUSSION Fee Waiver Request from Housing Catalyst for the Village on Horsetooth EXECUTIVE SUMMARY The Fort Collins Housing Authority, doing business as Housing Catalyst (HC), has requested that certain development and capital improvement expansion fees be waived for qualifying units at the Village on Horsetooth. In March 2013, City Council limited the types of projects for which fee waivers may be requested and made these waivers discretionary. Eligible projects are those constructed for homeless or disabled persons, or for households whose income falls at or below 30% of the area median income of all City residents. HC is requesting fee waivers in the amount of $360,136 for the 43 qualifying units at the Village on Horsetooth. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Does the Council Finance Committee (CFC) support granting the fee waiver request? 2. If so, does the CFC support a waiver of fees and backfilling or waiver without a backfill? 3. If CFC desires the Capital Expansion Fees to be backfilled, should this funding come from the General Fund or the Affordable Housing Capital Fund or from both? BACKGROUND/DISCUSSION HC is seeking the waiver of certain development and capital improvement expansion fees for the Village on Horsetooth affordable housing project as allowed by City Code, the Land Use Code, and an Intergovernmental Agreement between the City of Fort Collins and the Fort Collins Housing Authority dated July 3, 2013. The Village on Horsetooth will deliver 96 units, of which 43 will be targeted to households making no more than 30% of the area median income (AMI). The request from HC is attached as attachment 1. Under Colorado Statutes and City of Fort Collins ordinances and resolutions dating back to 1988, projects of housing authorities are exempt from taxes and some fees. For many years, the City waived building permit and development review fees and some capital expansion fees for housing authority projects. Historically they had been small amounts. In March 2013, City Council amended its policies on fee waivers for affordable housing to allow for more discretion in determining the kinds of housing authority sponsored projects for which City fees should be waived. This was after a large waiver was granted to a project that was being developed primarily by CARE Housing with the Housing Authority having only a very small interest. By adopting Ordinance No. 37, 2013, City Council limited the types of projects for which HC could ask for waivers. These are projects that are constructed for homeless or disabled persons, or for households whose income is no greater than 30% of the area median income of all City residents. Furthermore, these waivers will be granted at the discretion of City Council upon a determination that the proposed waiver will not jeopardize the financial interests of the City or the timely construction of the capital improvements to be funded by the fees for which a waiver is sought. This change also limited waiver eligibility to only the Housing Authority. Earlier this summer, staff was directed to bring forward for Council consideration, a change that would allow all developers who produce units targeting households making no more than 30% to request discretionary affordable housing fee waivers. That is now scheduled for November 7, 2017. The Village on Horsetooth is a 96 unit affordable housing community being constructed at 1506 W. Horsetooth Road in Fort Collins. See attachment 2 for map of location. Of the 96 total units, 43 units, equaling 45% of the total development, will be dedicated to households making no more than 30% AMI. HC is seeking the waiver of certain fees for those 43 qualifying units. The total of these fees for the project is $1,749,865 (including $608,994 not eligible for City fee waivers). The request is for 45% of eligible fees, $360,136, to be waived. This amount includes a request to waive a Larimer County capital expansion fee which is under review. If determined ineligible, the request moving forward will be reduced by about $10,000. The 2017 income limits published by the U. S. Department of Housing and Urban Development for 30% of the Fort Collins AMI is $16,150 for a household of 1 and $24,600 for a household of 4. Households at this income level are some of the City’s most vulnerable residents. These units fit the definition and are eligible for fee waivers as established by City Code, the Land Use Code, and the Intergovernmental Agreement (attachment 3). Funding for this $26.5 million project is a combination of city and state grants, Low Income Housing Tax Credit financing, owner equity and conventional financing. Current pro formas rely upon these fee waivers to complete the project’s funding. The City has established affordable housing production goals in the 2015-2019 Affordable Housing Strategic Plan (Plan). The need for financial support for these goals to be met is also stated in the Plan. The annual production goal for this 5 year plan is 188 units. This project will deliver 96 units which is 51 % of the City’s annual goal. Since the City does not develop housing, development partners are relied upon to bring this necessary housing product to the community. This project will increase the inventory of affordable rental units which is one of the strategies listed in the Plan. It is recommended that any capital expansion fees waived be subject to backfill by the City to reimburse city departments for fees if this waiver is granted, as has been the City’s custom to date. Traditionally backfill of capital expansion fees occurred and has come from General Fund reserves. Alternatively, funds for this request could come from the Affordable Housing Capital Fund that was approved by the voters as part of the City Capital Improvements Program. This fund will accumulate $4 million over ten years. Of that amount, $200,000 was scheduled for 2016, $250,000 for 2017 and $250,000 for 2018. The Affordable Housing Board supports this waiver request. The City’s waiver policy has greatly limited the types of projects that qualify for waivers. This policy recognizes that households earning no more than 30% AMI cannot afford market rate housing in our City at this time. The average rent is currently over $1,200 a month. A one person household at 30% AMI would need to pay 89% of their income to pay the average rent. A four person household would need to pay 59% of their income to afford the average market rate. Ideally, renters would never pay more than 30% of their income on housing. Developers need public subsidy to produce housing that this demographic can afford. Staff also supports granting this waiver request. Next Steps • This request is ready to be presented to Council after this committee’s review. • This committee will also be considering staff recommendations for the voter approved Affordable Housing Capital Fund, including the possibility funding reimbursement to City departments required by fee waivers of capital expansion fees. ATTACHMENTS 1. Housing Catalyst’s Waiver Request 2. Map of Village on Horsetooth Location 3. Intergovernmental Agreement between City of Fort Collins and Fort Collins Housing Authority. 4. Fee waiver presentation September 15, 2017 Sue Beck‐Ferkiss, Social Sustainability Specialist Office of Social Sustainability 22 Laporte Avenue Fort Collins, CO 80521 Re: Village on Horsetooth Development Fee Waivers Dear Mrs. Beck‐Ferkiss, On behalf of Housing Catalyst, I am writing this letter to formally request: $304,667.79 in certain fee waivers for the above referenced project under the City of Fort Collins City Council Ordinance: No. 037, 2013 and the associated intergovernmental agreement. $55,468.31 in certain fee reimbursement for the above referenced project under the City of Fort Collins City Council Ordinance: No. 037, 2013 and the associated intergovernmental agreement. To assist in this fee waiver and reimbursement request, I have enclosed the following information: 1. Schedule of units that will be at or below 30% of the Fort Collins/Loveland adjusted median income (43 units). 2. Schedule of waived fees. 3. Fee amounts due for development fee waiver values. 4. Village on Horsetooth Development timeline. Thank you for your time and attention to this request. Please contact me if you require additional information. Sincerely, Julie J. Brewen Executive Director Project Overview Village on Horsetooth is a 96‐unit affordable housing community being constructed at 1506 W. Horsetooth Rd on Fort Collins. Of the 96 total units, 43 units (45% of the total development) will be dedicated to households at the 0‐30% Area Median Income level. Target Population Number of Units Area Median Income * 43 units 0‐30% AMI 53 units 51‐60% AMI 96 units total Eligible for Fee Waivers Waived Fees Schedule 1. Development Review Fees Project Development Plan w/ Subdivision Plat Planning – Sign Posting Planning – APO Label Fee Final Development Plan w/ Subdivision Plat Transportation Development Review ‐ Residential Transportation Development Review – Commercial Transportation Development Review – Project Development Plan Transportation Development Review – Area to be developed Transportation Development Review – ROW Vacation Transportation Development Review – Final Plan Planning – Minor Amendment Transportation Development Review – Minor Amendment 2. Building Permit Fees Building Permit Fee w/ Subs Building Plan Check Fee 3. Capital Improvement Expansion Fees Residential Capital Improvement Expansion (Fire) Commercial Capital Improvement Expansion (Fire) Residential Capital Improvement Expansion (Government) Commercial Capital Improvement Expansion (Government) Residential Capital Improvement Expansion (Police) Commercial Capital Improvement Expansion (Police) Residential Street Oversizing Fee Commercial Street Oversizing Fee Residential Capital Improvement Expansion (Community Parkland) Residential Capital Improvement Expansion (Neighborhood Parkland) Village on Horsetooth ‐ All 10 Buildings Fee Amount Paid by Housing Catalyst Deferred Waiver Request (45%) Housing Catalyst to pay 12/01/17 City of Fort Collins to reimburse Housing Catalyst Building Permit Fee w/Subs $ 79,825.55 $ 79,825.55 $ ‐ $ 35,921.50 $ ‐ $ 35,921.50 Fire Capital Exp. (Res) $ 38,114.15 $ ‐ $ 38,114.15 $ 17,151.37 $ 17,151.37 $ ‐ General Govt. Capt. Exp. (Res) $ 46,327.93 $ ‐ $ 46,327.93 $ 20,847.57 $ 20,847.57 $ ‐ Larimer County Reg. Road (Res) $ 21,944.00 $ ‐ $ 21,944.00 $ 9,874.80 $ 9,874.80 $ ‐ Parkland: Community $ 147,056.00 $ ‐ $ 147,056.00 $ 66,175.20 $ 66,175.20 $ ‐ Parkland: Neighborhood $ 173,368.00 $ ‐ $ 173,368.00 $ 78,015.60 $ 78,015.60 $ ‐ Plan Check Fee $ 38,434.55 $ 38,434.55 $ ‐ $ 15,239.42 $ ‐ $ 15,239.42 Police Capital Exp. (Res) $ 19,003.62 $ ‐ $ 19,003.62 $ 8,551.63 $ 8,551.63 $ ‐ Poudre School District (5 or more Units) $ 88,920.00 $ 88,920.00 $ ‐ $ ‐ $ ‐ $ ‐ * Sewer Dev. Review $ 4,786.00 $ 4,786.00 $ ‐ $ 2,153.70 $ ‐ $ 2,153.70 Sewer PIF $ 275,330.00 $ ‐ $ 275,330.00 $ ‐ $ ‐ $ ‐ * Stormwater Dev. Review $ 5,441.83 $ ‐ $ 5,441.83 $ 2,448.82 $ 2,448.82 $ ‐ Stormwater PIF $ 22,764.56 $ ‐ $ 22,764.56 $ ‐ $ ‐ $ ‐ * Street Oversizing: Res‐Multi $ 225,784.00 $ ‐ $ 225,784.00 $ 101,602.80 $ 101,602.80 $ ‐ Water Dev. Review $ 4,786.00 $ 4,786.00 $ ‐ $ 2,153.70 $ ‐ $ 2,153.70 Water Meter $ 6,943.10 $ 6,943.10 $ ‐ $ ‐ $ ‐ $ ‐ * Water PIF $ 177,234.16 $ ‐ $ 177,234.16 $ ‐ $ ‐ $ ‐ * Water Right $ 373,801.91 $ ‐ $ 373,801.91 $ ‐ $ ‐ $ ‐ * Total $ 1,749,865.36 $ 223,695.20 $ 1,526,170.16 $ 360,136.10 $ 304,667.79 $ 55,468.31 *Not eligible for City of Fort Collins Fee Waiver Eligible City Fees and Waiver Schedule Village on Horsetooth Development Timeline Low Income Housing Tax Credit (LIHTC) Award ‐ April 2016 Project Development Plan Approval – September 2016 Building Permit submitted to City of Fort Collins – November 2015 LIHTC Partnership Closing – July 31, 2017 Construction Start – August 1, 2017 Fee Waiver Request – September 2017 Deferred Fees Due – December 1, 2017 Construction Complete – October 2018 Lease‐up Complete – September 2019 Construction – Permanent Loan Conversion – October 2019 W Horsetooth Rd Seneca St Chelsea Ct Avon Ct Dudley W ay Glasgo w Ct Imp e rial Dr Heidi Dr Churchill Ct Hic k ok Dr Seneca St Thames Ct West m inster St Sanford Dr Pembro k e S t Oregon Trl Eng l ish Ct Car m ela Ct Patterson P l Enfield St Birmingham D r W e stmi n ster Ct La r edo Ln Ambrosia Ct Crescent Dr Royal Dr Capitol Dr Kunz C t Big Be n Dr Sam Houston Cir 1 Fee Waiver Request for Village on Horsetooth Sue Beck-Ferkiss October 16, 2017 City’s Affordable Housing Supports 2 Development Incentives • Fee Waivers and Delays • Priority Processing • Density Bonus Grants and Loans • Acquisition, rehabilitation, construction •Financing Support •Policy Guidance •Community resource ©Copyright 2014 City of Fort Collins. All Rights Reserved. Strategic Plan Alignment 3 • City Plan – Policy LIV 8.3 Offer incentives: “offset the costs of City’s impact fees” • City Strategic Initiative NLSH 1.1 Improve access to a broad range of quality housing that is safe, accessible, and affordable • 2014 Housing Affordability Policy Study • 2015-2019 Affordable Housing Strategic Plan • Increase the inventory of affordable rental units Annual production goal of 188 units – Horsetooth 96 = 51% ©Copyright 2014 City of Fort Collins. All Rights Reserved. Fee Waivers Historically 4 • In the past 7 years, 12 Affordable Housing projects were awarded fee waivers. • Waivers amounts range from $125 to $509,896 • Last waiver granted Village on Redwood for $100,708 • In last 5 years more than $1 million in fees waived • Development fee waivers have only been provided to affordable housing projects. ©Copyright 2014 City of Fort Collins. All Rights Reserved. Fee Waiver Policy 5 • Historically, affordable housing projects received waivers of taxes and some fees • Policy amended in March 2013 • Waivers now discretionary for limited types of projects •HC only may request waivers for: Homeless Disabled 0-30% AMI • Must not jeopardize financial interests of City ©Copyright 2014 City of Fort Collins. All Rights Reserved. Village on Horsetooth 6 • Developed and managed by the Fort Collins Housing Authority d/b/a Housing Catalyst • $25.6M total development cost • 96 Affordable Units • 43 Units 30% AMI • 53 Units 51-60% AMI • 1 through 4 Bedroom Units ©Copyright 2014 City of Fort Collins. All Rights Reserved. 1506 W Horsetooth Rd ©Copyright 2014 City of Fort Collins. All Rights Reserved. 7 1506 W Horsetooth Rd 8 2017 Income Limits Income Family Size 1 2 3 4 5 6 7 8 30% $16,150 $18,450 $20,750 $24,600 $28,780 $32,960 $37,140 $41,320 50% $26,900 $30,750 $34,600 $38,400 $41,500 $44,550 $47,650 $50,700 60% $32,300 $36,900 $41,500 $46,100 $49,800 $53,450 $57,200 $60,850 ©Copyright 2014 City of Fort Collins. All Rights Reserved. 9 Sample Occupations Sample occupations for income-restricted apartments (Based on 2016 income limits for 4-person households) Restriction Income limit Hourly salary Sample occupations 30% of AMI $23,460 $11.27 Bank Teller or Personal Banker; City Utility Worker; Office Assistant; Sherwin Williams Branch Manager; Certified Nursing Assistant; Housekeeper; FCHA Janitor 40% of AMI $31,280 $15.03 City Office Support Specialist or Transportation Dispatcher; PSD School Custodian; Credit Union Financial Specialist; FCHA Administrative Asst; Forestry Field Worker; Maintenance Technician 50% of AMI $39,100 $18.80 PSD first thru fourth year teacher with BA; Larimer County Accountant I, Civil Engineer I or Health Dept Social Worker; FCHA Administrative Assistant or Accounting Clerk; Landscape Project Manager 60% of AMI $46,920 $22.56 PSD 5th through 9th year teacher with BA or 1st through 6th year teacher with MA; CSU Pharmacy Technician; CSU Financial Aid Counselor; County Employment Specialist; FCHA Property Manager 10 Current Waiver Request Fee Amount Waiver (45%) Paid by HC Development Review Fees $19,004 $8,552 $10,452 Building Fees $79,826 $35,922 $988,898 Capital Expansion Fees* $686,459 $308,907 $382,122 Storm Drainage DR Fee $15,014 $6,756 $8,258 Eligible fees for waiver $800,302.45 $360,137 $1,389,730 TOTAL PROJECT FEES $1,749,865 ©Copyright 2014 City of Fort Collins. All Rights Reserved. 11 Recommendations 12 Support for request: • Affordable Housing Board • Social Sustainability Staff ©Copyright 2014 City of Fort Collins. All Rights Reserved. COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: John Voss, Controller Date: October 16, 2017 SUBJECT FOR DISCUSSION: 2017 Financial Policy Review EXECUTIVE SUMMARY: Once a year a portion of Financial Policies are reviewed and updated is needed. Staff is committed to reviewing each policy no less than every 3 years. Policies up for review are Revenue, Fund Balance Minimums and Investment Policies. Additionally, the General Financial Policy staff is recommending changes with the addition of a new section and topic, Using Private Activity Bonds. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Does Council Finance Committee support the changes as recommended? 2. Does Council Finance Committee recommend presenting the proposed policy changes to City Council? BACKGROUND/DISCUSSION Revenue Policy 1 has a handful of minor language changes as the addition of two topics. One adds to the Budget Control System 1.5 a new subsection C. Order of Funding when Multiple Funding Sources Available. The language reflects a long-standing practice and clarification for when exceptions are allowed. The other addition is section 1.7 Contingency Planning for Unanticipated Revenue Shortfalls. This is meant to capture recent discussions with the City Council and the Executive Lead Team about responses to follow in the event of unanticipated revenue shortfalls. General Policy 3 covers numerous topics that do not warrant their own standalone policy. Updates section 3.3 Fund Organization to reflect current active funds. Section 3.4 D. Recreation Fund Fee Policy to reflect current practices. Most significantly a new section is proposed, 3.6 Using State Allocation of Private Activity Bonds. Because of increased interest by the private sector, it was agreed that a policy is needed to provide a structured framework for the use of Private Activity Bonds. Fund Balance Minimums 5 has two minor recommended changes. One lowers the minimum available working capital in the Golf from 25% to 12.5%. The second change is to the Self Insurance Fund; instead of measuring against Available Working Capital the standard will use Available Unrestricted Net Position. Investment Policy 8 has no recommended changes. ATTACHMENTS • Presentation Slides • Policy 1 – Budget, with changes highlighted • Policy 1 – Budget, clean version • Policy 3 – General, with changes highlighted • Policy 3 – General, clean version • Policy 5 – Fund Balance Minimums, with changes highlighted • Policy 5 – Fund Balance Minimums, clean version • Policy 8 – Investments, current version (no changes proposed) 1 2017 Financial Policy Review John Voss 10-16-2017 Policies for Review • Financial Management Policy 1 – Budget • Financial Management Policy 3 – General • Financial Management Policy 5 – Fund Balance Minimums • Financial Management Policy 8 – Investments 2 Policy 1 - Budget Sections: 1. Overview 2. Principles for Budget Planning (adding monthly budgeting) 3. Scope 4. Roles & Responsibilities 5. Budgeting Control System (adding Order of Funding) 6. Balanced Budget Definition 7. Contingency Planning for Unanticipated Revenue Shortfalls (entirely new section) 3 Policy 1 – Budget, continued 1.5 Budget Control System • Add section C Order of Funding when Multiple Funding Sources Available • Reflects long established practice of using most constrained funding sources before using least constrained • Allows for exceptions when authorizing ordinance, budget offer or contractual agreement stipulates another sequencing of funding sources. 4 Policy 1 – Budget, continued 1.7 Contingency Planning for Unanticipated Revenue Shortfalls (new section) • Steps in contingency methodology: Align ongoing expenditures with anticipated ongoing revenue Sweep vacancy savings and non-service related savings such as fuel or utilities if under budget If a Contingency Reserve has been established, utilize a portion of that reserve Develop a stop doing list utilizing the drilling platform prioritization. At a Service Area level, reduce expenditures related to: - discretionary expenditures - new hires/vacancies (postponement of posting positions) - travel and training - reduced levels of support to programs 5 Policy 3 - General Sections: 1. Administrative Charges 2. Medical Insurance and Retirement Plans 3. Fund Organization (updating list of funds) 4. Cost Recovery and Fee Setting (updating recreation fee standards) 5. Capital Improvement Program 6. Using State Allocation of Private Activity Bonds (entirely new section) 6 Policy 3 – General, continued 3.4 Cost Recovery and Fee Setting, C. Recreation Fund Fee Policy • Updated to reflect current practices • Simplified policy statement and methodology o Fees shall cover at least 70% of operating expenses o Operating expenses shall include equipment and rolling stock, for the purpose of this policy o Fees shall not be expected to cover facility and land acquisition or major facility maintenance. 7 Policy 3 – General, continued 3.6 Using State Allocation of Private Activity Bonds (new section) • Allows Private Sector to get lower interest rates when borrowing money for qualified activities • Limited interest in this financing option o No competing applications allows for a simple process o However, in 2017 the City received a second request after assigning full allocation to first requestor • Recognized need to develop a structured process 8 Policy 3 – General, continued 3.6 Summary of Private Activity Bond policy elements • Background about program and qualifying activities • Explains difference between Awarding and Assigning o Strong preference for Assigning • Application elements and due dates • Fees o Free for Assigning o Fees for Direct Award; greater of 0.25% of par value or $5,000. Not to exceed $25,000 • Review committee, process, evaluation factors, deadlines • City Council must approve 9 Policy 5 – Fund Balance Minimums Sections: 1. Governmental Funds and Fund Balance 2. Proprietary Fund and Working Capital 3. Minimum Balances (two modifications recommended) 4. Below Minimum 10 Policy 5 – Fund Balance Minimums, continued • 5.3 Minimum Balances • E. Enterprise Funds • Golf Fund minimum lowered to 12.5% • Historical analysis of fluctuations show 25% is not needed • F. Internal Service Funds • Self Insurance Fund: Change measurement standard away from Working Capital to Unrestricted Net Position • More conservative approach 11 Policy 8 - Investments No changes recommended to Investment Policy Objectives outlined in policy, in rank order of priority 1. Legal conformance 2. Safety and Preservation of Capital 3. Liquidity 4. Return on Investment 12 Return is subordinate to other priorities when selecting investments Policy 8 – Investments, continued * Limited to 10% of the Portfolio invested in any one issuer 13 Policy Investment Parameters Maximum Holdings as of 9/30 Cash and Cash Equivalents 100% 1.3% Treasury Securities and Agency Securities 90% 72.1% Repurchase Agreements 70% 0.0% Domestic Corporate Bonds * 40% 11.3% Bank Debentures*, Commercial Paper*, Bankers Acceptances* 25% 0.0% Local Government Investment Pools 20% 15.0% Money Market Funds, CD’s and CDARS 15% 0.3% Guaranteed Investment Contracts 5% 0.0% Feedback and Direction • Comments, concerns and requests 14 Next Steps • Bring Policy changes to City Council for consideration as soon as practical (before year end) • These specific policies will be reviewed again no later than 2020 15 Financial Management Policy 1 Budget Policy Issue Date: July 15, 2014 Version: 23 Issued by: Budget Director Financial Policy 1 – Budget 1 1.1 Overview The Fort Collins City Charter establishes time limits and the essential content of the City Manager’s proposed budget, however the budget preparation process is not prescribed, but is developed by the City Manager with input from the City Council. The fiscal year of the City is the calendar year. The City may adopt budgets for a budget term of one fiscal year or more. After the Charter amendment in 1997 allowing the budget term to be more than one fiscal year, the Council has adopted two-year budgets that correspond with the election cycle. The budget is a 2-year plan by which the City Council sets the financial and operational priorities for the City - through the budget, services are implemented. The budget along with the annual appropriation ordinance provides the basis for the control of expenditures. The State Constitution and the City Charter provide the basic legal requirements and time lines for the process. Council goals, ordinances and resolutions provide additional direction and respond to the needs of the community. 1.2 Principals Principles for Budget Planning The City provides a wide variety of services to the residents of the community. It is in the power of the City Council to adopt a budget and manage the available resources to best meet the service needs for the overall good of the community (City Charter Article II, Section 5 (c)). Objective: Governments allocate scarce resources to programs and services through the budget process. As a result, it is one of the most important activities undertaken by governments. The purpose of this policy is to establish parameters and provide guidance governing the budget for the City of Fort Collins (City). Applicability: This budget policy applies to all funds and Service Areas of the City. Authorized by: City Council Resolution 2014-058 Financial Policy 1 – Budget 2 In 2005 the City Council, on recommendation from the City manager, endorsed the Budgeting for Outcomes budget process. At a high level, the budgeting for outcomes methodology can be summarized as: 1. Determine how much money is available. The budget should be built on expected revenues. This would include base revenues, any new revenue sources, and the potential use of fund balance. 2. Prioritize results. The results or outcomes that matter most to citizens should be defined. Elected leaders should determine what programs are most important to their constituents. 3. Allocate resources among high priority results. The allocations should be made in a fair and objective manner. 4. Conduct analysis to determine what strategies, programs, and activities will best achieve desired results. 5. Budget available dollars to the most significant programs and activities. The objective is to maximize the benefit of the available resources. 6. Set measures of annual monthly progress, monitor, and close the feedback loop. These measures should assign monthly budget, spell out the expected results and outcomes and how they will be measured. 7. Check what actually happened. This involves using performance measures to compare actual versus budgeted results, and financial measures for budget versus actual results on a monthly basis. 8. Communicate performance results. Internal and external stakeholders should be informed of the results in an understandable format. At that time, the City Council also identified the key outcomes it believed should be used in the new budget process. In addition, the 2005-2007 Policy Agenda sets forth the implementation and continued improvement of the collaborative budget process, aligning spending with desired outcomes. In 2012, the City Council passed resolution 2012-076 promoting improved results through performance measures and data-driven decision making. In reference to the budget, an outcome-based performance measurement system will help ensure that available resources are used to achieve excellent results at low cost to the taxpayers and will enhance the citizen’s understanding of the City and the services it provides. 1.3 Scope A. Comprehensiveness The proposed budget shall provide a complete financial plan for each fund of the city and shall include appropriate financial statements for each type of fund showing comparative figures for the last completed fiscal year, comparative figures for the current year, and the Financial Policy 1 – Budget 3 City Manager's recommendations for the ensuing budget term (City Charter Article V, Part 1, Section 2). In addition, the City of Fort Collins Budget Document may include items such as: 1) Statement of organization-wide strategic goals. 2) A description of the budget process, including a timeline. 3) A Glossary of Budget Terms. 4) A City of Fort Collins organizational chart. 5) Letter from the City Manager. 6) Budget Overview which may include: a) The economic outlook; b) Revenue assumptions; c) Summary of use of reserves; d) Budget priorities and highlights. 7) Copy of signed appropriation ordinance and a schedule of 2P nd P year proposed appropriations. 8) Revenue, expense and changes in fund balance summaries. 9) Summary of employee full-time equivalent staffing by service area and department. 10) A section for each of the key strategic Outcomes, which may include: a) Information indicating how the Offers in the Outcome are funded, by fund; b) Major key purchases; c) Major enhancements purchased; d) Detailed listing of all offers funded and unfunded; e) Strategic objectives of the Outcome. 11) Fund Statements. 12) Overview of debt position. 13) Current Capital Improvement Plan. 14) Summary of changes to user fees. 15) Summary of property tax mill levy and assessments. The annual appropriation ordinance shall also include the levy in mills, as fixed by the Council, upon each dollar of the assessed valuation of all taxable property within the city, such levy representing the amount of taxes for city purposes necessary to provide, during the ensuing fiscal year, for all properly authorized expenditures to be incurred by the city, including interest and principal of general obligation bonds. If the Council fails in any year to make said tax levy as above provided, then the rate last fixed shall be the levy fixed for the ensuing fiscal year and the Financial Officer shall so certify (City Charter Article V, Part 1, section 5). B. Budget Form The City of Fort Collins uses the Budgeting For Outcomes model to create the City budget. A new budget is designed from the ground up based on the results desired in each of the Outcomes defined by the City. The BFO budget-building process includes four steps: Financial Policy 1 – Budget 4 1) Determine how much revenue will be available (the price people pay); 2) Determine the priorities of the City and its citizens and the results to be achieved; 3) Allocate the revenue needed to achieve the desired results; 4) Determine which budget items will best produce the desired results at the price allocated. C. Basis of Budgeting All budgetary procedures conform to state regulations and to generally accepted accounting principles. The basis or principle used for budgeting is the same as that used for accounting, with a few exceptions, and varies according to the fund type. Governmental Funds use the modified-accrual basis of accounting. This means that revenues are recognized when they are earned, measurable and available. Expenditures are recognized in the period that liabilities are due and payable. The budgetary basis is the same and is used in the General Fund, Special Revenue and Debt Service Funds, and Capital Project Funds. Proprietary and Fiduciary Funds use the full accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized when liabilities are incurred. However, the budgetary basis in these funds is primarily based on the modified-accrual approach. Instead of authorizing budget for depreciation of capital assets, the budget measures and appropriates cash outflows for capital acquisition and construction, which is a modified-accrual approach. In full accrual based accounting debt proceeds are recorded as liabilities rather than a revenue (funding source). For these reasons, a reconciliation and adjustment is made on these fund statements to show the difference between the budgetary basis and the accounting basis. D. Budget Calendar The fiscal and accounting year shall be the same as the calendar year. "Budget term" shall mean the fiscal year(s) for which any budget is adopted and in which it is to be administered. Council shall set by ordinance the term for which it shall adopt budgets in accordance with this Article (City Charter Article V, Part 1, section 1). On or before the first Monday in September, commencing in 2010 and every other year thereafter, the City Manager shall file with the City Clerk a proposed budget for the City for the ensuing two-year term (City Charter Article V, Part 1, section 2). The Council shall, within ten (10) days after the filing of said proposed budget with the City Clerk, set a time certain for public hearing and cause notice of such public hearing to be given by publication. At the hearing, all persons may appear and comment on any or all items and estimates in the proposed budget. Upon completion of the public hearing the Council may revise the budget estimates (City Charter Article V, Part 1, section 3). Financial Policy 1 – Budget 5 After said public hearing and before the last day of November preceding the budget term, the Council shall adopt the budget for the ensuing term. The adoption of the budget shall be by ordinance. Before the last day of November of each fiscal year, the Council shall appropriate such sums of money as it deems necessary to defray all expenditures of the city during the ensuing fiscal year. The appropriation of funds shall be accomplished by passage of the annual appropriation ordinance. Such appropriation of funds shall be based upon the budget as approved by the Council but need not be itemized further than by fund with the exception of capital projects and federal or state grants which shall be summarized by individual project or grant (City Charter Article V, Part 1, section 4). Appropriations for each year of the two-year budget will be approved by the City Council annually. Appropriations for the 2P nd P year of the biannual budget are adopted during the budget revision process. That process allows for adjustments to the originally adopted biennial budget that address new Council priorities or support changing needs based on economic conditions. The City Manager may present any budget adjustment recommendations to the City Council in Work Sessions and then Council may amend the budget and, as required by the State and City Charter, appropriate or authorize expenditures for the coming fiscal year. 1.4 Roles and Responsibilities All powers of the city and the determination of all matters of policy shall be vested in the Council except as otherwise provided by the Charter. Without limitation of the foregoing, the Council shall have power to adopt the budget of the city. The City Manager shall be responsible to the Council for the proper administration of all affairs of the City and to that end shall have power and be required to prepare the budget and submit it to the Council and be responsible for its administration after adoption. The City Manager and Chief Financial Officer, along with the other executive directors, known as the Budget Lead Team (BLT), develop the guidelines, consistent with the policies, to be used for budget preparation. During the development of the budget, various department and division representatives may be called upon to provide their expertise. From April through June, City staff from all departments and divisions prepares the Offers (budget requests) for inclusion in the budget. 1.5 Budgeting Control System No appropriation shall be made by the Council which exceeds the revenues, reserves or other funds anticipated or available at the time of the appropriation, except for emergency expenses incurred by reason of a casualty, accident or unforeseen contingency arising after the passage of the annual appropriation ordinance (City Charter Article V, Part I, Section 8 (a)). Financial Policy 1 – Budget 6 Control of expenditures is exercised at the fund level. Fund managers are responsible for all expenditures made against appropriations within their fund and can allocate available resources within the fund. All appropriations unexpended or unencumbered at the end of the fiscal year shall lapse to the applicable general or special fund, except for: • appropriations for capital projects which shall not lapse until the completion of the capital project; and • federal or state grants which shall not lapse until the expiration of the federal or state grant (City Charter Article V, Part I, Section 11). A. Budget Transfers Between Funds or Capital Projects During the fiscal year, the Council may, by ordinance, upon the recommendation of the City Manager, transfer any unexpended and unencumbered appropriated amount or portion thereof from one fund or capital project account to another fund or capital project account provided that: 1) the purpose for which the transferred funds are to be expended remains unchanged; 2) the purpose for which the funds were initially appropriated no longer exists; or 3) the proposed transfer is from a fund or capital project account in which the amount appropriated exceeds the amount needed to accomplish the purpose specified in the appropriation ordinance (City Charter Article V, Part I, Section 10 (b)). Within a Fund Budget control is maintained at the departmental level. The Chief Financial Officer Manager has the authority to approve departmental expenses greater than budget so long as expenses are less than budget within a fund. In no case may the total expenditures of a particular fund exceed that which is appropriated by the City Council (City Charter Article V, Part I, Section 10 (a)). B. Applicable Amendments to the Budget Budget Increases There generally are four opportunities during the fiscal year for supplemental additions to the current year annual appropriation approved by Council: 1) The first is through the encumbrance carry-forward process whereby approved purchase orders that cannot be executed prior to the end of the fiscal year will have available budget carried forward into the new year. Financial Policy 1 – Budget 7 2) The second is usually adopted in March/April to re-appropriate funds from the previous year’s ending balance for projects or obligations that were approved but not completed during that year. 3) The third opportunity in the 2nd half of the year is used to fine-tune (clean-up) the current fiscal year for previously unforeseen events. In addition, if revenue is received during the fiscal year from a source that was not anticipated at the time of budget adoption or appropriation for the fiscal year, such as grants or implementation of a new fee, Council may appropriate that unanticipated revenue for expenditure when received anytime during the year. 4) Lastly, the Council, upon recommendation of the City Manager, may make supplemental appropriations by ordinance at any time during the fiscal year; provided, however, that the total amount of such supplemental appropriations, in combination with all previous appropriations for that fiscal year, shall not exceed the then current estimate of actual and anticipated revenues to be received by the city during the fiscal year. This provision shall not prevent the Council from appropriating by ordinance at any time during the fiscal year such funds for expenditure as may be available from reserves accumulated in prior years, notwithstanding that such reserves were not previously appropriated (City Charter Article V, Part I, Section 9). Budget Decreases/Frozen Appropriations The budget may be decreased below adopted appropriations during the fiscal year due to changes in service demand, changes in economic conditions, and/or changes in Council goals. Each service area is responsible for developing a plan to reduce appropriations, which will be ready for implementation should the need arise. If the City Manager directs budget reductions, Council will be informed and the appropriations will be “set aside” through administrative action. While the appropriation amount is not changed, expenditures shall not exceed the reduced amount recommended by the City Manager. C. Order of Funding when Multiple Funding Sources Available Sometimes a given project or program has multiple sources of funding available. Examples of such projects include but are not limited to grant funded projects, jointly funded projects/programs between governmental and proprietary funds, or projects/programs where both dedicated tax revenues and General Fund tax revenues are available. Unless stated otherwise within the authorizing ordinance, budget offer, or a contractual agreement, funding sources will be applied in the order of most-constrained to least- constrained in the judgment of City staff. For example, a project jointly funded by the General Fund and the Natural Areas Fund would first fund project spending using all available and appropriated Natural Areas revenues prior to spending appropriated General Fund revenues. This is in an effort to maximize the benefit of available sources in accordance with the principles described in section 1.2 above. Formatted: Indent: Left: 0.5", No bullets or numbering Formatted: Font: +Headings (Cambria) Financial Policy 1 – Budget 8 1.6 Balanced Budget Definition All funds are required to balance. As such, total anticipated revenues must equal the sum of budgeted expenditures for each fund. Revenues are derived from two sources: current revenue charges and unallocated reserves carried forward from prior years. 1.7 Contingency Planning for Unanticipated Revenue Shortfalls During times when the City experiences significant unanticipated revenue shortfalls, a contingency plan will be developed that outlines the necessary steps to align expenditures to meet the actual revenue received. The contingency plan will target the funds being impacted by the revenue shortfall. In general, the priority order of the steps in our contingency methodology are: • Align ongoing expenditures with anticipated ongoing revenue • Sweep vacancy savings and non-service related savings such as fuel or utilities if under budget • If a Contingency Reserve has been established, utilize a portion of that reserve • Develop a stop doing list utilizing the drilling platform prioritization. • At a Service Area level, reduce expenditures related to o discretionary expenditures o new hires/vacancies (postponement of posting positions) o travel and training o reduced levels of support to programs Financial Management Policy 1 Budget Policy Issue Date: Version: 3 Issued by: Budget Director Financial Policy 1 – Budget 1 1.1 Overview The Fort Collins City Charter establishes time limits and the essential content of the City Manager’s proposed budget, however the budget preparation process is not prescribed, but is developed by the City Manager with input from the City Council. The fiscal year of the City is the calendar year. The City may adopt budgets for a budget term of one fiscal year or more. After the Charter amendment in 1997 allowing the budget term to be more than one fiscal year, the Council has adopted two-year budgets that correspond with the election cycle. The budget is a 2-year plan by which the City Council sets the financial and operational priorities for the City - through the budget, services are implemented. The budget along with the annual appropriation ordinance provides the basis for the control of expenditures. The State Constitution and the City Charter provide the basic legal requirements and time lines for the process. Council goals, ordinances and resolutions provide additional direction and respond to the needs of the community. 1.2 Principles for Budget Planning The City provides a wide variety of services to the residents of the community. It is in the power of the City Council to adopt a budget and manage the available resources to best meet the service needs for the overall good of the community (City Charter Article II, Section 5 (c)). Objective: Governments allocate scarce resources to programs and services through the budget process. As a result, it is one of the most important activities undertaken by governments. The purpose of this policy is to establish parameters and provide guidance governing the budget for the City of Fort Collins (City). Applicability: This budget policy applies to all funds and Service Areas of the City. Authorized by: City Council Resolution 2014-058 Financial Policy 1 – Budget 2 In 2005 the City Council, on recommendation from the City manager, endorsed the Budgeting for Outcomes budget process. At a high level, the budgeting for outcomes methodology can be summarized as: 1. Determine how much money is available. The budget should be built on expected revenues. This would include base revenues, any new revenue sources, and the potential use of fund balance. 2. Prioritize results. The results or outcomes that matter most to citizens should be defined. Elected leaders should determine what programs are most important to their constituents. 3. Allocate resources among high priority results. The allocations should be made in a fair and objective manner. 4. Conduct analysis to determine what strategies, programs, and activities will best achieve desired results. 5. Budget available dollars to the most significant programs and activities. The objective is to maximize the benefit of the available resources. 6. Set measures of monthly progress, monitor, and close the feedback loop. These measures should assign monthly budget, spell out the expected results and outcomes and how they will be measured. 7. Check what actually happened. This involves using performance measures to compare actual versus budgeted results, and financial measures for budget versus actual results on a monthly basis. 8. Communicate performance results. Internal and external stakeholders should be informed of the results in an understandable format. At that time, the City Council also identified the key outcomes it believed should be used in the new budget process. In addition, the 2005-2007 Policy Agenda sets forth the implementation and continued improvement of the collaborative budget process, aligning spending with desired outcomes. In 2012, the City Council passed resolution 2012-076 promoting improved results through performance measures and data-driven decision making. In reference to the budget, an outcome-based performance measurement system will help ensure that available resources are used to achieve excellent results at low cost to the taxpayers and will enhance the citizen’s understanding of the City and the services it provides. 1.3 Scope A. Comprehensiveness The proposed budget shall provide a complete financial plan for each fund of the city and shall include appropriate financial statements for each type of fund showing comparative figures for the last completed fiscal year, comparative figures for the current year, and the Financial Policy 1 – Budget 3 City Manager's recommendations for the ensuing budget term (City Charter Article V, Part 1, Section 2). In addition, the City of Fort Collins Budget Document may include items such as: 1) Statement of organization-wide strategic goals. 2) A description of the budget process, including a timeline. 3) A Glossary of Budget Terms. 4) A City of Fort Collins organizational chart. 5) Letter from the City Manager. 6) Budget Overview which may include: a) The economic outlook; b) Revenue assumptions; c) Summary of use of reserves; d) Budget priorities and highlights. 7) Copy of signed appropriation ordinance and a schedule of 2P nd P year proposed appropriations. 8) Revenue, expense and changes in fund balance summaries. 9) Summary of employee full-time equivalent staffing by service area and department. 10) A section for each of the key strategic Outcomes, which may include: a) Information indicating how the Offers in the Outcome are funded, by fund; b) Major key purchases; c) Major enhancements purchased; d) Detailed listing of all offers funded and unfunded; e) Strategic objectives of the Outcome. 11) Fund Statements. 12) Overview of debt position. 13) Current Capital Improvement Plan. 14) Summary of changes to user fees. 15) Summary of property tax mill levy and assessments. The annual appropriation ordinance shall also include the levy in mills, as fixed by the Council, upon each dollar of the assessed valuation of all taxable property within the city, such levy representing the amount of taxes for city purposes necessary to provide, during the ensuing fiscal year, for all properly authorized expenditures to be incurred by the city, including interest and principal of general obligation bonds. If the Council fails in any year to make said tax levy as above provided, then the rate last fixed shall be the levy fixed for the ensuing fiscal year and the Financial Officer shall so certify (City Charter Article V, Part 1, section 5). B. Budget Form The City of Fort Collins uses the Budgeting For Outcomes model to create the City budget. A new budget is designed from the ground up based on the results desired in each of the Outcomes defined by the City. The BFO budget-building process includes four steps: Financial Policy 1 – Budget 4 1) Determine how much revenue will be available (the price people pay); 2) Determine the priorities of the City and its citizens and the results to be achieved; 3) Allocate the revenue needed to achieve the desired results; 4) Determine which budget items will best produce the desired results at the price allocated. C. Basis of Budgeting All budgetary procedures conform to state regulations and to generally accepted accounting principles. The basis or principle used for budgeting is the same as that used for accounting, with a few exceptions, and varies according to the fund type. Governmental Funds use the modified-accrual basis of accounting. This means that revenues are recognized when they are earned, measurable and available. Expenditures are recognized in the period that liabilities are due and payable. The budgetary basis is the same and is used in the General Fund, Special Revenue and Debt Service Funds, and Capital Project Funds. Proprietary and Fiduciary Funds use the full accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized when liabilities are incurred. However, the budgetary basis in these funds is primarily based on the modified-accrual approach. Instead of authorizing budget for depreciation of capital assets, the budget measures and appropriates cash outflows for capital acquisition and construction, which is a modified-accrual approach. In full accrual based accounting debt proceeds are recorded as liabilities rather than a revenue (funding source). For these reasons, a reconciliation and adjustment is made on these fund statements to show the difference between the budgetary basis and the accounting basis. D. Budget Calendar The fiscal and accounting year shall be the same as the calendar year. "Budget term" shall mean the fiscal year(s) for which any budget is adopted and in which it is to be administered. Council shall set by ordinance the term for which it shall adopt budgets in accordance with this Article (City Charter Article V, Part 1, section 1). On or before the first Monday in September, commencing in 2010 and every other year thereafter, the City Manager shall file with the City Clerk a proposed budget for the City for the ensuing two-year term (City Charter Article V, Part 1, section 2). The Council shall, within ten (10) days after the filing of said proposed budget with the City Clerk, set a time certain for public hearing and cause notice of such public hearing to be given by publication. At the hearing, all persons may appear and comment on any or all items and estimates in the proposed budget. Upon completion of the public hearing the Council may revise the budget estimates (City Charter Article V, Part 1, section 3). Financial Policy 1 – Budget 5 After said public hearing and before the last day of November preceding the budget term, the Council shall adopt the budget for the ensuing term. The adoption of the budget shall be by ordinance. Before the last day of November of each fiscal year, the Council shall appropriate such sums of money as it deems necessary to defray all expenditures of the city during the ensuing fiscal year. The appropriation of funds shall be accomplished by passage of the annual appropriation ordinance. Such appropriation of funds shall be based upon the budget as approved by the Council but need not be itemized further than by fund with the exception of capital projects and federal or state grants which shall be summarized by individual project or grant (City Charter Article V, Part 1, section 4). Appropriations for each year of the two-year budget will be approved by the City Council annually. Appropriations for the 2P nd P year of the biannual budget are adopted during the budget revision process. That process allows for adjustments to the originally adopted biennial budget that address new Council priorities or support changing needs based on economic conditions. The City Manager may present any budget adjustment recommendations to the City Council in Work Sessions and then Council may amend the budget and, as required by the State and City Charter, appropriate or authorize expenditures for the coming fiscal year. 1.4 Roles and Responsibilities All powers of the city and the determination of all matters of policy shall be vested in the Council except as otherwise provided by the Charter. Without limitation of the foregoing, the Council shall have power to adopt the budget of the city. The City Manager shall be responsible to the Council for the proper administration of all affairs of the City and to that end shall have power and be required to prepare the budget and submit it to the Council and be responsible for its administration after adoption. The City Manager and Chief Financial Officer, along with the other executive directors, known as the Budget Lead Team (BLT), develop the guidelines, consistent with the policies, to be used for budget preparation. During the development of the budget, various department and division representatives may be called upon to provide their expertise. From April through June, City staff from all departments and divisions prepares the Offers (budget requests) for inclusion in the budget. 1.5 Budgeting Control System No appropriation shall be made by the Council which exceeds the revenues, reserves or other funds anticipated or available at the time of the appropriation, except for emergency expenses incurred by reason of a casualty, accident or unforeseen contingency arising after the passage of the annual appropriation ordinance (City Charter Article V, Part I, Section 8 (a)). Financial Policy 1 – Budget 6 Control of expenditures is exercised at the fund level. Fund managers are responsible for all expenditures made against appropriations within their fund and can allocate available resources within the fund. All appropriations unexpended or unencumbered at the end of the fiscal year shall lapse to the applicable general or special fund, except for: • appropriations for capital projects which shall not lapse until the completion of the capital project; and • federal or state grants which shall not lapse until the expiration of the federal or state grant (City Charter Article V, Part I, Section 11). A. Budget Transfers Between Funds or Capital Projects During the fiscal year, the Council may, by ordinance, upon the recommendation of the City Manager, transfer any unexpended and unencumbered appropriated amount or portion thereof from one fund or capital project account to another fund or capital project account provided that: 1) the purpose for which the transferred funds are to be expended remains unchanged; 2) the purpose for which the funds were initially appropriated no longer exists; or 3) the proposed transfer is from a fund or capital project account in which the amount appropriated exceeds the amount needed to accomplish the purpose specified in the appropriation ordinance (City Charter Article V, Part I, Section 10 (b)). Within a Fund Budget control is maintained at the departmental level. The Chief Financial Officer has the authority to approve departmental expenses greater than budget so long as expenses are less than budget within a fund. In no case may the total expenditures of a particular fund exceed that which is appropriated by the City Council (City Charter Article V, Part I, Section 10 (a)). B. Applicable Amendments to the Budget Budget Increases There generally are four opportunities during the fiscal year for supplemental additions to the current year annual appropriation approved by Council: 1) The first is through the encumbrance carry-forward process whereby approved purchase orders that cannot be executed prior to the end of the fiscal year will have available budget carried forward into the new year. Financial Policy 1 – Budget 7 2) The second is usually adopted in March/April to re-appropriate funds from the previous year’s ending balance for projects or obligations that were approved but not completed during that year. 3) The third opportunity in the 2nd half of the year is used to fine-tune (clean-up) the current fiscal year for previously unforeseen events. In addition, if revenue is received during the fiscal year from a source that was not anticipated at the time of budget adoption or appropriation for the fiscal year, such as grants or implementation of a new fee, Council may appropriate that unanticipated revenue for expenditure when received anytime during the year. 4) Lastly, the Council, upon recommendation of the City Manager, may make supplemental appropriations by ordinance at any time during the fiscal year; provided, however, that the total amount of such supplemental appropriations, in combination with all previous appropriations for that fiscal year, shall not exceed the then current estimate of actual and anticipated revenues to be received by the city during the fiscal year. This provision shall not prevent the Council from appropriating by ordinance at any time during the fiscal year such funds for expenditure as may be available from reserves accumulated in prior years, notwithstanding that such reserves were not previously appropriated (City Charter Article V, Part I, Section 9). Budget Decreases/Frozen Appropriations The budget may be decreased below adopted appropriations during the fiscal year due to changes in service demand, changes in economic conditions, and/or changes in Council goals. Each service area is responsible for developing a plan to reduce appropriations, which will be ready for implementation should the need arise. If the City Manager directs budget reductions, Council will be informed and the appropriations will be “set aside” through administrative action. While the appropriation amount is not changed, expenditures shall not exceed the reduced amount recommended by the City Manager. C. Order of Funding when Multiple Funding Sources Available Sometimes a given project or program has multiple sources of funding available. Examples of such projects include but are not limited to grant funded projects, jointly funded projects/programs between governmental and proprietary funds, or projects/programs where both dedicated tax revenues and General Fund tax revenues are available. Unless stated otherwise within the authorizing ordinance, budget offer, or a contractual agreement, funding sources will be applied in the order of most-constrained to least- constrained in the judgment of City staff. For example, a project jointly funded by the General Fund and the Natural Areas Fund would first fund project spending using all available and appropriated Natural Areas revenues prior to spending appropriated General Fund revenues. This is in an effort to maximize the benefit of available sources in accordance with the principles described in section 1.2 above. Financial Policy 1 – Budget 8 1.6 Balanced Budget Definition All funds are required to balance. As such, total anticipated revenues must equal the sum of budgeted expenditures for each fund. Revenues are derived from two sources: current revenue charges and unallocated reserves carried forward from prior years. 1.7 Contingency Planning for Unanticipated Revenue Shortfalls During times when the City experiences significant unanticipated revenue shortfalls, a contingency plan will be developed that outlines the necessary steps to align expenditures to meet the actual revenue received. The contingency plan will target the funds being impacted by the revenue shortfall. In general, the priority order of the steps in our contingency methodology are: • Align ongoing expenditures with anticipated ongoing revenue • Sweep vacancy savings and non-service related savings such as fuel or utilities if under budget • If a Contingency Reserve has been established, utilize a portion of that reserve • Develop a stop doing list utilizing the drilling platform prioritization. • At a Service Area level, reduce expenditures related to o discretionary expenditures o new hires/vacancies (postponement of posting positions) o travel and training o reduced levels of support to programs Financial Management Policy 3 General Financial Policies Issue Date: May 19, 2015 Version: 34 Issued by: City Council Financial Policy 3 – General Financial Policies 1 3.1 Administrative Charges Certain General Fund departments render services to departments in other funds and shall be equitably apportioned to those other funds. General Fund departments that do not have a direct billing mechanism shall have their costs allocated using the formula outlined in this section to other funds, and provide offsetting revenue in the General Fund. A. UGeneral Fund Departmental Costs to be Allocated Certain General Fund departmental costs to be allocated include City Council, City Manager, City Clerk, City Attorney, Human Resources, and Finance. Any services in these departments which are funded by user fees or dedicated revenues are excluded from the allocation. The amount of costs to be allocated is the current adopted budget for each of the departments listed above less user fees and dedicated revenue. With a multi-year budget, the charge to each fund is increased by a determined percentage for the second future year and then adjusted to the actual calculation with the next multi-year budget. B. UHow Costs Are Allocated The Human Resources costs are allocated on a prorated basis to funds based on the total number of budgeted full-time-equivalent positions in each fund. Objective: To outline the method and principles for allocation Administrative Charges; establishing the parameters for the Medical and Retirement Program; Fund Organization; Cost Recovery and Fee Setting; and Capital Improvement Program. Applicability: This policy applies to all City funds. It does not apply to URA, DDA, PFA and Library. Authorized by: City Council Resolution 2006-006, updated by Resolution 2015-055. Financial Policy 3 – General Financial Policies 2 All other General Fund administrative costs are allocated on a prorated basis to the funds based upon adjusted expenditure budgets for the current year. Adjustments are made to recognize the lower amount of administrative services required for Capital, Debt Service, and Purchased Power payments. Capital project budgets are reduced by two-thirds and averaged over three years. Debt Service budgets are reduced by three- fourths and the entire Purchased Power budget is deducted from the Light & Power budget. C. UAll Funds Receive Allocations but Not All Funds Are Charged While Administrative Charges are allocated among all City funds, only specified funds are charged. Charges are not made to a fund if it is not self-supporting, it is an Governmental Internal Service fund, or if the funds role is merely to facilitate proper accounting procedures. For example, the Sales and Use Tax fund and Debt Service fund receive amounts which are then transferred to other funds. Charging these funds would lead to double charging many transactions and would not correspond to the level of service provided by the departments in the General Fund. D. UReview During each budget process, the Administrative Charge calculation will be reviewed the Budget Office. Minor refinements in the allocation formulas are made as needed. Significant changes will be brought to the City Council for approval to assure that the equitable apportionment meets requirements of the Code/Charter. 3.2 Medical Insurance and Retirement Plan A. UMedical Insurance In 1981, the City of Fort Collins set up a partially self-funded medical insurance program. The objective of a self-funding program is to reduce the cost of medical insurance by assuming the risk for certain plan expenses. Assuming a portion of the risk lowers the amount of charges compared to a conventional full insurance plan. For most of the last 33 years, the City has found this funding method to be a cost-effective means of providing a very desirable employee benefit. To administer the self-funded and insured portions of the medical insurance plans, the City conducts a competitive proposal process every five years or more often if required. The insurance contracts are reviewed annually for both performance and cost. The types of services contracted for include plan administrative services, stop-loss protection against Financial Policy 3 – General Financial Policies 3 larger claims, life and accidental death and dismemberment insurance, and long-term disability coverage. B. Retirement Programs The City of Fort Collins contributes to two types of retirement plans: a Defined Benefit Plan and Defined Contribution Plans. 1. Defined Benefit Plan - the General Employees Retirement Plan (Plan). The pension plan is closed to new participants as of 1/1/1999. The Plan document approved by the City Council outlines the details of the program. A Board meets monthly to oversee the program. Board members, in consultation with annual actuary report and other information, make recommendations to City Council for any plan changes that may be needed from time to time. The Plan currently calls for the employer (City or PFA) to contribute 10.5%. Because the plan is underfunded, a Supplemental Contribution is made at a fixed dollar amount each year. The Supplemental amount is reevaluated every 2 years in conjunction with the budget cycle and based on the latest actuarial valuation report. 2. 401(a) and 457 Money Purchase Plans. Also known as Defined Contribution Plans, the contribution rates are as follows: 401 a 457 Employee Group Employer Employee Waiting Employer Employee Waiting Classified Employees 6.5% 3.0% 6 months 0.0% optional no wait Classified Employees hired on or before 3/31/07 7.5% 3.0% 6 months 0.0% optional no wait Unclassified Management 6.5% 6.0% 6 months 0.0% optional no wait Unclassified Management hired on or before 3/31/07 7.5% 6.0% 6 months 0.0% optional no wait Direct Reports of City Council 10.0% 0.0% no wait match up to 3% optional no wait Service Area Directors 10.0% 0.0% no wait match up to 3% optional no wait Police & Dispatch (per union agreement) * 8.0% 8.0% no wait match up to 3% optional 6 months Community Service Officer 7.5% 3.0% 6 months 0.0% optional no wait * All employee groups vest immediately, except Police and Dispatch who follow schedule in union agreement. Employee contributions to the 457 plan are limited to the amounts published by the IRS. Financial Policy 3 – General Financial Policies 4 The City will contract with a third party administrator to provide the Defined Contribution Plans. City Staff comprised of both Finance and HR will oversee the program and performance of the third party administrator. 3.3 Fund Organization Funds for accounting and financial reporting purposes have their own balance sheet and income statement. The organization of the City’s Funds is designed to enhance accountability and transparency, comply with Generally Accepted Accounting Principles, meet grant requirements, comply with City Code/Charter and comply with Colorado statutes. In City Article V, Part III, Section 25 the Financial Officer is empowered to create funds as appropriate. The number of funds established should be the minimum needed for legal and operating requirements. Unnecessary funds can result in inflexibility, undue complexity and inefficient financial administration. The City’s funds are organized at two levels of groupings; Fund Groups and Fund Types. Fund Groups Governmental Funds Used to account for activities primarily supported by taxes, grants and similar revenue sources. Proprietary Funds Used to account for activities that receive significant support from fees and charges. Fiduciary Funds Used to account for resources that a City holds as a trustee or agent on behalf of an outside party that cannot be used to support the City’s own programs. Within each Fund Group are Fund Types. Governmental Fund Types General Fund Main operating fund used to account for and report all financial resources not accounted for and reported in another fund. Special Revenue Funds Used to account for and report the proceeds of specific revenue sources that are restricted, committed or assigned to expenditure for specific purposes, other than debt service or capital projects. Debt Service Funds Used to account for and report resources that are restricted, committed or assigned to expenditure for principal and interest. Capital Project Funds Used to account for and report resources that are restricted, committed or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities or other capital assets. Financial Policy 3 – General Financial Policies 5 Financial Policy 3 – General Financial Policies 6 Proprietary Fund Types Enterprise Funds Used to account and report any activity for which a fee is charged to external users of goods and services Internal Service Funds Used to account and report any activity for which a fee is charged to other funds, departments, or agencies of the City and its component units on a cost reimbursement basis. Fiduciary Fund Types Pension Trust Fund Used to account and report resources that are required to be held in trust for the members and beneficiaries of defined benefit plans. Agency Funds Used to report resources held by the City in a purely custodial capacity. The following is a list of all funds of the City, including legally separate entities but from a financial reporting perspective are treated as a component unit of the City. Group and Type Legal Ref. Name Governmental General Fund City 100 General Fund Special Revenue Fund City 250 Capital Expansion Fund Special Revenue Fund City 251 Sales & Use Tax Fund Special Revenue Fund Separate 252 General Improvement District #1 Special Revenue Fund City 254 Keep Fort Collins Great Fund Special Revenue Fund City 255 Community Capital Improvement Program Special Revenue Fund City 272 Natural Areas Fund Special Revenue Fund City 273 Cultural Services & Facilities Special Revenue Fund City 274 Recreation Fund Special Revenue Fund City 275 Cemeteries Fund Special Revenue Fund City 276 Perpetual Care Fund Special Revenue Fund City 277 Museum Fund Special Revenue Fund City 280 Community Development Block Special Revenue Fund City 281 Home Investment Partnership Special Revenue Fund City 290 Transit Services Fund Special Revenue Fund City 291 Street Oversizing Fund Special Revenue Fund City 292 Transportation Services Fund Special Revenue Fund Separate 293 GID #15 - Skyview Special Revenue Fund City 294 Parking Fund Special Revenue Fund City 300 Timberline/Prospect SID #94 Debt Service City 303 Debt Service Fund Debt Service City 304 Capital Leasing Corporation Capital Projects Fund City 400 Capital Projects Fund Capital Projects Fund City 270 Neighborhood Parkland Fund Capital Projects Fund City 271 Conservation Trust Fund Proprietary Financial Policy 3 – General Financial Policies 7 Enterprise Fund City 500 Golf Fund Enterprise Fund City 501 Light & Power Fund Enterprise Fund City 502 Water Fund Enterprise Fund City 503 Wastewater Fund Enterprise Fund City 504 Storm Drainage Fund Internal Service Fund City 601 Equipment Fund Internal Service Fund City 602 Self-Insurance Fund Internal Service Fund City 603 Data And Communications Fund Internal Service Fund City 604 Benefits Fund Internal Service Fund City 605 Utility Customer Service & Admin Fiduciary Pension Trust Fund City 700 Employees' Retirement Fund Governmental Special Revenue Fund Separate 800 URA - N. College District Special Revenue Fund Separate 801 URA - Prospect South TIF District Special Revenue Fund Separate 803 URA - Mall Fund Special Revenue Fund Separate 820 DDA Operating Fund Special Revenue Fund Separate 822 DDA Debt Service Fund 3.4 Cost Recovery and Fee Setting A. Enterprise Funds shall rely on charges and user fees to recover their costs, rather than taxes. Utility rates will be based upon the cost of service approach to reflect full distribution of costs to appropriate rate classes in order to effect equitable sharing of costs. Rates shall be established and maintained at a level sufficient to maintain positive net income in each of the utility funds after paying the full cost of operating and maintaining the utilities and keeping them in good repair and working order. Such rates shall also be sufficient to enable each utility, where applicable, to meet rate requirements of City or utility enterprise bond ordinances. B. The Internal Service Funds shall operate under the following guidelines. 1. Internal service fund charges are limited to the recovery of the cost of the service, including depreciation, rather than making a profit. Each fund's prior year financial statements and estimates of future costs form the basis for the calculation of charges. 2. Charges should be set at a level to avoid significant adverse financial impacts on their customers. Fund customers and independent experts should be allowed to review and make Financial Policy 3 – General Financial Policies 8 recommendations about the level of charges. The Finance Department should approve the analysis and conclusions used to set rates. 3. Internal service funds should compete with similar services offered by the private sector. The City staff will compare rates every five years. If not competitive with the private sector, the Finance Department will analyze whether the private sector should provide the service. 4. Internal service funds may build up reserves. Customer-approved master plans and independent third-party actuarial reviews (for the Benefit and Self-Insurance funds) guide the level of reserves. Fund managers may spend reserves only for their approved purpose. 5. The City may buy equipment and facilities for the internal service funds through lease- purchase financing. Management's decision to recommend lease-purchase financing depends on: (1) cash flow needs; (2) budget constraints; (3) benefit to cost analysis; and (4) level of reserves. 6. Except for the Utilities Customer Service and Administration Fund, Internal service funds operate under the same guidelines and constraints as the General Fund and other governmental funds of the City. The Utilities Customer Service and Administration Fund shall operate under the guidelines of the Utilities Services Funds. C. Cultural Services & Facilities Fund Fee Policy 1. Total revenue from fees and charges shall cover a minimum of 55% of Lincoln Center Operation and Maintenance and Performing and Visual Arts Programming Budgets. This includes revenues generated at the Lincoln Center from rentals, equipment, concessions and other miscellaneous sources and all total direct revenues from the Performing and Visual Arts Programming. A transfer from the General Fund will make up the difference between total revenue and expenditures. 2. The Cultural Services and Facilities Administration and Museum budgets provide minimal financial support. These programs are funded primarily by a transfer from the General Fund. 3. Major capital improvements and renovations will be financed through sources other than Cultural Services and Facilities Fund. 4. Solicitation of funds through donations, fund-raising events, and non-traditional sources shall be encouraged by the City staff, Lincoln Center League, the Cultural Resources Board and the City Council. Funding collected for any special purpose shall be earmarked for that purpose and those funds will be processed through the Fort Collins Foundation. Financial Policy 3 – General Financial Policies 9 D. Recreation Fund Rates and ChargesFee Policy Recreation Rates and Charges shall cover between 68% to 75% of all operating costs, with the difference to be covered by the City’s General Fund and/or 50% of the Keep Fort Collins Great portion dedicated to Parks & Recreation. Equipment and rolling stock shall be considered operating costs in the application of this policy. Recreation Rates and Charges shall not be expected to cover major capital items such as facility and land acquisitions, major renovations to facilities or other costs such as utilities, custodial or grounds maintenance. The following fee policy for the Recreation Fund was adopted by Resolution 1990-132 on September 4, 1990. The goal of the policy is to provide for a more equitable distribution of the costs of recreational programs between program users and General Fund tax dollars. Costs associated with the Recreation Fund shall be defined as either Program Costs or Community Good Costs. 1. Program costs are directly associated with the activities and facilities used by the citizens, and include the following: (a) Activity Costs (1) part time staff (2) materials (3) equipment (4) participant transportation (5) other costs directly associated with conducting activities (b) Facility Operation and Maintenance Costs (1) minor repairs (2) custodial equipment and supplies (3) building utilities (4) specialized items (5) other operations and maintenance costs directly associated with operating facilities Fees should cover the cost of the direct program experience and facilities used. However, fees may be established in accordance with the market value of the recreational services provided. The fees charged will not exceed the cost of providing direct services to program users. Financial Policy 3 – General Financial Policies 10 2. Community Good costs are those costs that are necessary to provide a program but are not directly experienced by the user. Such costs include the following: (a) full time recreation staff (b) office operation costs such as telephone and computer charges (c) training costs (d) dues and subscriptions (e) insurance (f) office supplies and equipment (g) other costs not directly experienced by the users The General Fund shall cover "Community Good" costs. General Fund will also cover deficits in programs that cannot recover all their costs through fees. Generally, these include programs designed for special populations where it is not feasible to cover the total cost of participation, or programs, like youth sports where Council policy requires a fee discount. Because costs that are defined as "Community Good" costs are supported by the General Fund, they are subject to the same operational guidelines as established for other General Fund budgets. 3.5 Capital Improvement Program 1. Each Service Area or Department shall develop multi-year Master Plans for capital improvements. On a city-wide basis, staff shall compile a 10 year Capital Improvement Plan and update it every two years. Estimates of operating and maintenance costs should be included; 2. Appropriation requests must include not only the cost of construction or acquisition and the funding sources, but an estimate of operating and maintenance costs; 3. Capital improvements projects will be administered in accordance with the Capital Projects Procedures Manual; 4. Appropriations for capital improvements will be constructed and expenditures incurred only for the purpose as approved by City Council; 5. Staff should seek out grants and partnerships whenever appropriate. 3.6 Using State Allocation of Private Activity Bonds Financial Policy 3 – General Financial Policies 11 A. Background: Conduit debt is issued in a local government’s name, but the resources for repayment come from individuals or entities that are not part of government. Entities seek conduit debt because of the government’s ability to issue debt at favorable tax-exempt rates. Private Activity Bonds (PAB) are a form of conduit debt. Colorado’s Private Activity Bond allocation program is established by the Colorado Private Activity Bond Ceiling Allocation Act, Section 24-32-1701, et seq., C.R.S. Pursuant to Section 24-32-1706, annually the City of Fort Collins is offered a portion of the State ceiling as a local government. If the City does not issue bonds or assign bond capacity to an entity for a local project by September 15th annually, the cap automatically reverts back to the state’s pool. Historically, the City has provided this capacity on a first come first serve basis. It has not been uncommon for the City to receive no requests. Because more partners are using programs that can benefit from the lower interest rate that PAB’s offer, the City is establishing this process. B. Purpose: PAB’s allow certain private sector activities to receive lower interest rates. PAB’s may be used for affordable housing development and rehabilitation, specific economic development programs and for industrial development purposes, among other permitted uses. The City will attempt to find local uses for this development tool. C. Communication: Information about the program should be placed on the City’s website (fcgov.com). Consideration for other advertising and communication methods may be appropriate. D. Awarding and Assigning: Awarding PAB and Assigning PAB allocations are different processes. Assigning PAB to another qualified issuer is strongly preferred. This is to reduce the administrative investments and leverage the efficiency of qualified issuers who award PAB’s regularly. If an entity applies for a direct award under the City’s name, staff will attempt to find a qualified issuer that agrees to accept an assignment from the City and issue the PAB under their own authority. E. Application due date: Written applications to use of Fort Collin’s annual PAB allocation are due in theto the City’s Chief Sustainability Officer by MayMarch 15th. F. Application Elements: a. The following items are required when applying for both assignments and direct awards. Financial Policy 3 – General Financial Policies 12 i. A request letter signed by applicant describing the project the PAB would be used for and including: the applicant’s name, address, phone, email address, and principal contact. ii. Amount of allocation being requested. iii. Bond counsel firm name, address, phone, email address and principal contact. iv. Description of Applicant’s local projects and years of operation v. Number of years’ entity has been doing business in State of Colorado vi. Provide a Certificate of Good Standing from the Secretary of State’s office. vii. Description of assets to be purchased or constructed and expenses incidental to the project, including the sale of bonds. viii. Explanation of how the project aligns with City objectives. ix. Number of housing units and target demographics x. Statement from competent bond counsel that the project is eligible for qualified private activity bonds. b. The following additional items are required in applications for direct awards of PAB: Debt Information xi. Name, address, phone of principal contact of the proposed underwriter or lender. xii. Anticipated timetable for bond transaction. xiii. Estimated bond redemption and interest payment schedule xiv. Indicate the type of letter of credit or similar instrument, which will back the debt xv. Disclose if the applicant is involved in any litigation which may affect the validity or repayment of the bonds. Financial Information xvi. Audited financial statements for the applicant for the last three years and interim statements for the current year. If not available, please explain why. xvii. Projection of future revenues, expenditures and debt service coverage for the next five years supported by a feasibility study. Other xviii. Describe the arrangements that will ensure compliance with arbitrage reporting and payment requirements. xix. Name, address and principal contact person for applicant’s local bank. xx. Briefly describe any potential conflicts of interest of personal/ professional/ political relationships between the applicant’s officers and/or directors or applicant’s operations and the City of Fort Collins. xxi. Any other information which provides evidence of the applicant’s ability to repay the bonds and complete the project. Debt Security xxii. All arbitrage calculations and payments must be performed by the trustee under the terms of the trust agreement or by any such other arrangement Financial Policy 3 – General Financial Policies 13 that will insure compliance. The City must be provided with copies of 8088- T’s filed with the IRS. xxiii. The private entity must provide the City with information on the status of the debt annually and upon any material event. xxiv. The bond documents must indemnify the City against IRS assessments and legal fees arising from the financing. xxv. The issuer’s agent will be responsible for all continuing disclosure requirements. c. Items missing from application may result in disqualification from consideration. G. Fees: There are no fees for applications that request assignments to another qualifying issuer. However, the following fees apply to applications requesting a direct award of PAB from the City of Fort Collins. a. Issuance fee equal to the greater of: A. 0.25% of the par amount of the debt, or B. $5,000. The fee is capped at $25,000. b. The cost of a review of the financing by an independent fiscal agent (to be selected by the City) c. Any other direct cost incurred by the City related to the financing. d. There will not be additional issuance fees for any amendment or modification of the original transaction even if it requires official action by City Council, except for actual direct costs of the City. H. Review Process a. PAB Committee: Applications will be reviewed by a committee of at least 3 people. Members will include at least one representative each from Social Sustainability, Economic Health City Manager’s Office and Finance. Representatives from other departments, such as the City Manager’s Office will be added as needed. Service Area Directors will make the necessary appointments to the PAB Committee. b. At a minimum, the following factors should be considered by the PAB Committee when making a recommendation: i. How well the project applied for meets the land use, economic development and/or affordable housing goals of the City of Fort Collins. ii. Project feasibility and timing. iii. Leverage of other investment into the project. iv. Maintenance of or increase in local tax base. v. Competing uses for the City’s allocation. vi. Whether the City’s allocation should be used in multiple projects. vii. Whether the application should be considered by any City Board or commission. c. The PAB Committee will decide on a recommendation no later than July 15. d. City Council shall approve all PAB assignments or direct awards. The PAB Committee shall submit their recommendations to the City Council no later than August 15. Financial Policy 3 – General Financial Policies 14 Financial Policy 3 – General Financial Policies 15 Getting Help Please contact the Controller with any questions at 970.221.6772. Financial Management Policy 3 General Financial Policies Issue Date: Version: 4 Issued by: City Council Financial Policy 3 – General Financial Policies 1 3.1 Administrative Charges Certain General Fund departments render services to departments in other funds and shall be equitably apportioned to those other funds. General Fund departments that do not have a direct billing mechanism shall have their costs allocated using the formula outlined in this section to other funds, and provide offsetting revenue in the General Fund. A. UGeneral Fund Departmental Costs to be Allocated Certain General Fund departmental costs to be allocated include City Council, City Manager, City Clerk, City Attorney, Human Resources, and Finance. Any services in these departments which are funded by user fees or dedicated revenues are excluded from the allocation. The amount of costs to be allocated is the current adopted budget for each of the departments listed above less user fees and dedicated revenue. With a multi-year budget, the charge to each fund is increased by a determined percentage for the second future year and then adjusted to the actual calculation with the next multi-year budget. B. UHow Costs Are Allocated The Human Resources costs are allocated on a prorated basis to funds based on the total number of budgeted full-time-equivalent positions in each fund. Objective: To outline the method and principles for allocation Administrative Charges; establishing the parameters for the Medical and Retirement Program; Fund Organization; Cost Recovery and Fee Setting; and Capital Improvement Program. Applicability: This policy applies to all City funds. It does not apply to URA, DDA, PFA and Library. Authorized by: City Council Resolution 2006-006, updated by Resolution 2015-055. Financial Policy 3 – General Financial Policies 2 All other General Fund administrative costs are allocated on a prorated basis to the funds based upon adjusted expenditure budgets for the current year. Adjustments are made to recognize the lower amount of administrative services required for Capital, Debt Service, and Purchased Power payments. Capital project budgets are reduced by two-thirds and averaged over three years. Debt Service budgets are reduced by three- fourths and the entire Purchased Power budget is deducted from the Light & Power budget. C. UAll Funds Receive Allocations but Not All Funds Are Charged While Administrative Charges are allocated among all City funds, only specified funds are charged. Charges are not made to a fund if it is not self-supporting, it is an Governmental Internal Service fund, or if the funds role is merely to facilitate proper accounting procedures. For example, the Sales and Use Tax fund and Debt Service fund receive amounts which are then transferred to other funds. Charging these funds would lead to double charging many transactions and would not correspond to the level of service provided by the departments in the General Fund. D. UReview During each budget process, the Administrative Charge calculation will be reviewed the Budget Office. Minor refinements in the allocation formulas are made as needed. Significant changes will be brought to the City Council for approval to assure that the equitable apportionment meets requirements of the Code/Charter. 3.2 Medical Insurance and Retirement Plan A. UMedical Insurance In 1981, the City of Fort Collins set up a partially self-funded medical insurance program. The objective of a self-funding program is to reduce the cost of medical insurance by assuming the risk for certain plan expenses. Assuming a portion of the risk lowers the amount of charges compared to a conventional full insurance plan. For most of the last 33 years, the City has found this funding method to be a cost-effective means of providing a very desirable employee benefit. To administer the self-funded and insured portions of the medical insurance plans, the City conducts a competitive proposal process every five years or more often if required. The insurance contracts are reviewed annually for both performance and cost. The types of services contracted for include plan administrative services, stop-loss protection against larger claims, life and accidental death and dismemberment insurance, and long-term disability coverage. Financial Policy 3 – General Financial Policies 3 B. Retirement Programs The City of Fort Collins contributes to two types of retirement plans: a Defined Benefit Plan and Defined Contribution Plans. 1. Defined Benefit Plan - the General Employees Retirement Plan (Plan). The pension plan is closed to new participants as of 1/1/1999. The Plan document approved by the City Council outlines the details of the program. A Board meets monthly to oversee the program. Board members, in consultation with annual actuary report and other information, make recommendations to City Council for any plan changes that may be needed from time to time. The Plan currently calls for the employer (City or PFA) to contribute 10.5%. Because the plan is underfunded, a Supplemental Contribution is made at a fixed dollar amount each year. The Supplemental amount is reevaluated every 2 years in conjunction with the budget cycle and based on the latest actuarial valuation report. 2. 401(a) and 457 Money Purchase Plans. Also known as Defined Contribution Plans, the contribution rates are as follows: 401 a 457 Employee Group Employer Employee Waiting Employer Employee Waiting Classified Employees 6.5% 3.0% 6 months 0.0% optional no wait Classified Employees hired on or before 3/31/07 7.5% 3.0% 6 months 0.0% optional no wait Unclassified Management 6.5% 6.0% 6 months 0.0% optional no wait Unclassified Management hired on or before 3/31/07 7.5% 6.0% 6 months 0.0% optional no wait Direct Reports of City Council 10.0% 0.0% no wait match up to 3% optional no wait Service Area Directors 10.0% 0.0% no wait match up to 3% optional no wait Police & Dispatch (per union agreement) * 8.0% 8.0% no wait match up to 3% optional 6 months Community Service Officer 7.5% 3.0% 6 months 0.0% optional no wait * All employee groups vest immediately, except Police and Dispatch who follow schedule in union agreement. Employee contributions to the 457 plan are limited to the amounts published by the IRS. Financial Policy 3 – General Financial Policies 4 The City will contract with a third party administrator to provide the Defined Contribution Plans. City Staff comprised of both Finance and HR will oversee the program and performance of the third party administrator. 3.3 Fund Organization Funds for accounting and financial reporting purposes have their own balance sheet and income statement. The organization of the City’s Funds is designed to enhance accountability and transparency, comply with Generally Accepted Accounting Principles, meet grant requirements, comply with City Code/Charter and comply with Colorado statutes. In City Article V, Part III, Section 25 the Financial Officer is empowered to create funds as appropriate. The number of funds established should be the minimum needed for legal and operating requirements. Unnecessary funds can result in inflexibility, undue complexity and inefficient financial administration. The City’s funds are organized at two levels of groupings; Fund Groups and Fund Types. Fund Groups Governmental Funds Used to account for activities primarily supported by taxes, grants and similar revenue sources. Proprietary Funds Used to account for activities that receive significant support from fees and charges. Fiduciary Funds Used to account for resources that a City holds as a trustee or agent on behalf of an outside party that cannot be used to support the City’s own programs. Within each Fund Group are Fund Types. Governmental Fund Types General Fund Main operating fund used to account for and report all financial resources not accounted for and reported in another fund. Special Revenue Funds Used to account for and report the proceeds of specific revenue sources that are restricted, committed or assigned to expenditure for specific purposes, other than debt service or capital projects. Debt Service Funds Used to account for and report resources that are restricted, committed or assigned to expenditure for principal and interest. Capital Project Funds Used to account for and report resources that are restricted, committed or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities or other capital assets. Financial Policy 3 – General Financial Policies 5 Proprietary Fund Types Enterprise Funds Used to account and report any activity for which a fee is charged to external users of goods and services Internal Service Funds Used to account and report any activity for which a fee is charged to other funds, departments, or agencies of the City and its component units on a cost reimbursement basis. Fiduciary Fund Types Pension Trust Fund Used to account and report resources that are required to be held in trust for the members and beneficiaries of defined benefit plans. Agency Funds Used to report resources held by the City in a purely custodial capacity. The following is a list of all funds of the City, including legally separate entities but from a financial reporting perspective are treated as a component unit of the City. Group and Type Legal Ref. Name Governmental General Fund City 100 General Fund Special Revenue Fund City 250 Capital Expansion Fund Special Revenue Fund City 251 Sales & Use Tax Fund Special Revenue Fund Separate 252 General Improvement District #1 Special Revenue Fund City 254 Keep Fort Collins Great Fund Special Revenue Fund City 255 Community Capital Improvement Program Special Revenue Fund City 272 Natural Areas Fund Special Revenue Fund City 273 Cultural Services & Facilities Special Revenue Fund City 274 Recreation Fund Special Revenue Fund City 275 Cemeteries Fund Special Revenue Fund City 276 Perpetual Care Fund Special Revenue Fund City 277 Museum Fund Special Revenue Fund City 280 Community Development Block Special Revenue Fund City 281 Home Investment Partnership Special Revenue Fund City 290 Transit Services Fund Special Revenue Fund City 291 Street Oversizing Fund Special Revenue Fund City 292 Transportation Services Fund Special Revenue Fund Separate 293 GID #15 - Skyview Special Revenue Fund City 294 Parking Fund Special Revenue Fund City 300 Timberline/Prospect SID #94 Debt Service City 304 Capital Leasing Corporation Capital Projects Fund City 400 Capital Projects Fund Capital Projects Fund City 270 Neighborhood Parkland Fund Capital Projects Fund City 271 Conservation Trust Fund Proprietary Enterprise Fund City 500 Golf Fund Enterprise Fund City 501 Light & Power Fund Enterprise Fund City 502 Water Fund Financial Policy 3 – General Financial Policies 6 Enterprise Fund City 503 Wastewater Fund Enterprise Fund City 504 Storm Drainage Fund Internal Service Fund City 601 Equipment Fund Internal Service Fund City 602 Self-Insurance Fund Internal Service Fund City 603 Data And Communications Fund Internal Service Fund City 604 Benefits Fund Internal Service Fund City 605 Utility Customer Service & Admin Fiduciary Pension Trust Fund City 700 Employees' Retirement Fund Governmental Special Revenue Fund Separate 800 URA - N. College District Special Revenue Fund Separate 801 URA - Prospect South TIF District Special Revenue Fund Separate 803 URA - Mall Fund Special Revenue Fund Separate 820 DDA Operating Fund Special Revenue Fund Separate 822 DDA Debt Service Fund 3.4 Cost Recovery and Fee Setting A. Enterprise Funds shall rely on charges and user fees to recover their costs, rather than taxes. Utility rates will be based upon the cost of service approach to reflect full distribution of costs to appropriate rate classes in order to effect equitable sharing of costs. Rates shall be established and maintained at a level sufficient to maintain positive net income in each of the utility funds after paying the full cost of operating and maintaining the utilities and keeping them in good repair and working order. Such rates shall also be sufficient to enable each utility, where applicable, to meet rate requirements of City or utility enterprise bond ordinances. B. The Internal Service Funds shall operate under the following guidelines. 1. Internal service fund charges are limited to the recovery of the cost of the service, including depreciation, rather than making a profit. Each fund's prior year financial statements and estimates of future costs form the basis for the calculation of charges. 2. Charges should be set at a level to avoid significant adverse financial impacts on their customers. Fund customers and independent experts should be allowed to review and make recommendations about the level of charges. The Finance Department should approve the analysis and conclusions used to set rates. Financial Policy 3 – General Financial Policies 7 3. Internal service funds should compete with similar services offered by the private sector. The City staff will compare rates every five years. If not competitive with the private sector, the Finance Department will analyze whether the private sector should provide the service. 4. Internal service funds may build up reserves. Customer-approved master plans and independent third-party actuarial reviews (for the Benefit and Self-Insurance funds) guide the level of reserves. Fund managers may spend reserves only for their approved purpose. 5. The City may buy equipment and facilities for the internal service funds through lease- purchase financing. Management's decision to recommend lease-purchase financing depends on: (1) cash flow needs; (2) budget constraints; (3) benefit to cost analysis; and (4) level of reserves. 6. Except for the Utilities Customer Service and Administration Fund, Internal service funds operate under the same guidelines and constraints as the General Fund and other governmental funds of the City. The Utilities Customer Service and Administration Fund shall operate under the guidelines of the Utilities Services Funds. C. Cultural Services & Facilities Fund Fee Policy 1. Total revenue from fees and charges shall cover a minimum of 55% of Lincoln Center Operation and Maintenance and Performing and Visual Arts Programming Budgets. This includes revenues generated at the Lincoln Center from rentals, equipment, concessions and other miscellaneous sources and all total direct revenues from the Performing and Visual Arts Programming. A transfer from the General Fund will make up the difference between total revenue and expenditures. 2. The Cultural Services and Facilities Administration and Museum budgets provide minimal financial support. These programs are funded primarily by a transfer from the General Fund. 3. Major capital improvements and renovations will be financed through sources other than Cultural Services and Facilities Fund. 4. Solicitation of funds through donations, fund-raising events, and non-traditional sources shall be encouraged by the City staff, Lincoln Center League, the Cultural Resources Board and the City Council. Funding collected for any special purpose shall be earmarked for that purpose and those funds will be processed through the Fort Collins Foundation. Financial Policy 3 – General Financial Policies 8 D. Recreation Fund Rates and Charges Policy Recreation Rates and Charges shall cover between 68% to 75% of all operating costs, with the difference to be covered by the City’s General Fund and/or 50% of the Keep Fort Collins Great portion dedicated to Parks & Recreation. Equipment and rolling stock shall be considered operating costs in the application of this policy. Recreation Rates and Charges shall not be expected to cover major capital items such as facility and land acquisitions, major renovations to facilities or other costs such as utilities, custodial or grounds maintenance. 3.5 Capital Improvement Program 1. Each Service Area or Department shall develop multi-year Master Plans for capital improvements. On a city-wide basis, staff shall compile a 10 year Capital Improvement Plan and update it every two years. Estimates of operating and maintenance costs should be included; 2. Appropriation requests must include not only the cost of construction or acquisition and the funding sources, but an estimate of operating and maintenance costs; 3. Capital improvements projects will be administered in accordance with the Capital Projects Procedures Manual; 4. Appropriations for capital improvements will be constructed and expenditures incurred only for the purpose as approved by City Council; 5. Staff should seek out grants and partnerships whenever appropriate. 3.6 Using State Allocation of Private Activity Bonds A. Background: Conduit debt is issued in a local government’s name, but the resources for repayment come from individuals or entities that are not part of government. Entities seek conduit debt because of the government’s ability to issue debt at favorable tax-exempt rates. Private Activity Bonds (PAB) are a form of conduit debt. Colorado’s Private Activity Bond allocation program is established by the Colorado Private Activity Bond Ceiling Allocation Act, Section 24-32-1701, et seq., C.R.S. Pursuant to Section Financial Policy 3 – General Financial Policies 9 24-32-1706, annually the City of Fort Collins is offered a portion of the State ceiling as a local government. If the City does not issue bonds or assign bond capacity to an entity for a local project by September 15th annually, the cap automatically reverts back to the state’s pool. Historically, the City has provided this capacity on a first come first serve basis. It has not been uncommon for the City to receive no requests. Because more partners are using programs that can benefit from the lower interest rate that PAB’s offer, the City is establishing this process. B. Purpose: PAB’s allow certain private sector activities to receive lower interest rates. PAB’s may be used for affordable housing development and rehabilitation, specific economic development programs and for industrial development purposes, among other permitted uses. The City will attempt to find local uses for this development tool. C. Communication: Information about the program should be placed on the City’s website (fcgov.com). Consideration for other advertising and communication methods may be appropriate. D. Awarding and Assigning: Awarding PAB and Assigning PAB allocations are different processes. Assigning PAB to another qualified issuer is strongly preferred. This is to reduce the administrative investments and leverage the efficiency of qualified issuers who award PAB’s regularly. If an entity applies for a direct award under the City’s name, staff will attempt to find a qualified issuer that agrees to accept an assignment from the City and issue the PAB under their own authority. E. Application due date: Written applications to use of Fort Collin’s annual PAB allocation are due to the City’s Chief Sustainability Officer by March 15th. F. Application Elements: a. The following items are required when applying for both assignments and direct awards. i. A request letter signed by applicant describing the project the PAB would be used for and including: the applicant’s name, address, phone, email address, and principal contact. ii. Amount of allocation being requested. iii. Bond counsel firm name, address, phone, email address and principal contact. iv. Description of Applicant’s local projects and years of operation v. Number of years’ entity has been doing business in State of Colorado vi. Provide a Certificate of Good Standing from the Secretary of State’s office. Financial Policy 3 – General Financial Policies 10 vii. Description of assets to be purchased or constructed and expenses incidental to the project, including the sale of bonds. viii. Explanation of how the project aligns with City objectives. ix. Number of housing units and target demographics x. Statement from competent bond counsel that the project is eligible for qualified private activity bonds. b. The following additional items are required in applications for direct awards of PAB: Debt Information xi. Name, address, phone of principal contact of the proposed underwriter or lender. xii. Anticipated timetable for bond transaction. xiii. Estimated bond redemption and interest payment schedule xiv. Indicate the type of letter of credit or similar instrument, which will back the debt xv. Disclose if the applicant is involved in any litigation which may affect the validity or repayment of the bonds. Financial Information xvi. Audited financial statements for the applicant for the last three years and interim statements for the current year. If not available, please explain why. xvii. Projection of future revenues, expenditures and debt service coverage for the next five years supported by a feasibility study. Other xviii. Describe the arrangements that will ensure compliance with arbitrage reporting and payment requirements. xix. Name, address and principal contact person for applicant’s local bank. xx. Briefly describe any potential conflicts of interest of personal/ professional/ political relationships between the applicant’s officers and/or directors or applicant’s operations and the City of Fort Collins. xxi. Any other information which provides evidence of the applicant’s ability to repay the bonds and complete the project. Debt Security xxii. All arbitrage calculations and payments must be performed by the trustee under the terms of the trust agreement or by any such other arrangement that will insure compliance. The City must be provided with copies of 8088- T’s filed with the IRS. xxiii. The private entity must provide the City with information on the status of the debt annually and upon any material event. xxiv. The bond documents must indemnify the City against IRS assessments and legal fees arising from the financing. xxv. The issuer’s agent will be responsible for all continuing disclosure requirements. c. Items missing from application may result in disqualification from consideration. Financial Policy 3 – General Financial Policies 11 G. Fees: There are no fees for applications that request assignments to another qualifying issuer. However, the following fees apply to applications requesting a direct award of PAB from the City of Fort Collins. a. Issuance fee equal to the greater of: A. 0.25% of the par amount of the debt, or B. $5,000. The fee is capped at $25,000. b. The cost of a review of the financing by an independent fiscal agent (to be selected by the City) c. Any other direct cost incurred by the City related to the financing. d. There will not be additional issuance fees for any amendment or modification of the original transaction even if it requires official action by City Council, except for actual direct costs of the City. H. Review Process a. PAB Committee: Applications will be reviewed by a committee of at least 3 people. Members will include at least one representative each from Social Sustainability, Economic Health and Finance. Representatives from other departments, such as the City Manager’s Office will be added as needed. Service Area Directors will make the necessary appointments to the PAB Committee. b. At a minimum, the following factors should be considered by the PAB Committee when making a recommendation: i. How well the project applied for meets the land use, economic development and/or affordable housing goals of the City of Fort Collins. ii. Project feasibility and timing. iii. Leverage of other investment into the project. iv. Maintenance of or increase in local tax base. v. Competing uses for the City’s allocation. vi. Whether the City’s allocation should be used in multiple projects. vii. Whether the application should be considered by any City Board or commission. c. The PAB Committee will decide on a recommendation no later than July 1. d. City Council shall approve all PAB assignments or direct awards. The PAB Committee shall submit their recommendations to the City Council no later than August 15. Financial Policy 3 – General Financial Policies 12 Getting Help Please contact the Controller with any questions at 970.221.6772. Financial Management Policy 5 Fund Balance Minimums Issue Date: July 15, 2014 Version: 34 Issued by: City Council Financial Policy 5 – Fund Balance Minimums 1 5.1 Governmental Funds and Fund Balances To set minimum fund balances so as to mitigate risks, maintain good standing with rating agencies, and ensure cash is available when revenue is unavailable. The policy is sets minimum fund balances, not targets or maximum balances. Each fund should be evaluated by staff to determine the appropriateness of maintaining fund balances above the minimums set in this policy. Contingencies for severe weather, prolonged drought, and anticipated capital spending should be considered independently from this policy. The Equity on balance sheet of a governmental fund is called Fund Balance. The current classifications of Fund Balance in governmental funds are primarily based on the origin of the constraints. The following categories are in decreasing order of constraints. Non-Spendable Permanent endowments or assets in a non-liquid form Restricted Involve a third party: State Legislation or Contractual Agreements Committed Set by formal action of the City Council Assigned By staff, and/or residual balances in a Special Revenue Fund Unassigned Remaining balances in the General Fund Objective: To set minimum fund balances as to mitigate risk, maintain good standing with rating agencies, and ensure cash is available when revenue is unavailable. The policy sets minimum fund balances, not targets or maximum balances. Each fund should be evaluated by staff to determine the appropriateness of maintaining fund balances above the minimums set in this policy. Contingencies for severe weather, prolonged drought, and anticipated capital spending should be considered independently from this policy. Applicability: Funds—This policy applies to all City funds. It does not apply to URA, DDA, PFA and Library. Authorized by: City Council Resolutions 1994-174, 2008-038 and 2014-058. Financial Policy 5 – Fund Balance Minimums 2 Minimums outlined in section 5.2 relate only to UAssigned and UnassignedU balances. 5.2 Proprietary Fund and Working Capital Internal Service Funds and Enterprise Funds are accounted for nearly identical to the private sector. The balance sheets include long term assets and long term liabilities. The resulting Equity section on their balance sheet, called Net Position, is not always a good measure of spendable financial resources. To get to spendable financial resources, a common calculation is to take Current Assets and subtract Current Liabilities, with the net result called Working Capital. To further refine, for purposes of this policy, certain required restrictions are further subtracted and result in UAvailable Working CapitalU. Some examples of required restrictions are unspent monies for Art in Public Places, Water Rights, and existing appropriations for capital projects. The minimums outlined in section 5.5 relate to Available Working Capital. 5.3 Minimum Balances The following Minimum Balances refers to Assigned and Unassigned Fund Balances in governmental funds and Available Working Capital in the Internal Service Funds and Enterprise Funds. A. UGeneral Fund U60 Day Liquidity Goal U- The Commitment for Contingency should be at least 60 days (17%) of the subsequent year’s originally adopted budgeted expenditures and transfers out. The calculation for the minimum level shall exclude expenditures and transfers out for large and unusual one-time items. Important note – the 60 Day Liquidity Goal is in addition to the Restricted Balance required by Article X, Section 20 of the State Constitution. This reserve must equal 3% of non-exempt revenue and can only be used for declared emergencies. Fiscal emergencies are specifically excluded by the State Constitution as qualifying use of this reserve. B. USpecial Revenue Funds No minimum balance is required. Financial Policy 5 – Fund Balance Minimums 3 C. UDebt Service Funds No minimum balance is required. D. UCapital Project Funds No minimum balance is required. E. UEnterprise Funds Enterprise funds focus on working capital rather than fund balance. Enterprise Funds shall maintain a minimum Available Working Capital equal to 25% of Operating Expenses, less Depreciation. Exception1: In the case of L&P, operating expenses will include purchased renewable energy for resale but will not include regular purchased power for resale (i.e. Platte River Power Authority). Exception 2: In the case of Golf, the minimum fund balance will be 12.5%. Important note – The Water Fund holds a balance for Restricted Water Rights. The balance equals the amount of cash in-lieu-of water rights payments and raw water surcharges less any expenses for acquiring water rights and water storage; The enterprises funds should also be accumulating available working capital above these minimums for the purposes of funding future capital projects. F. UInternal Service Funds Each fund is a unique operation and will maintain a minimum Available Working Capital as follows: 601 Equipment Fund 8.3% Of annual operating expenses, excluding depreciation 602 Self-Insurance Fund * 25.0% Of annual operating expenses 603 Data & Communications Fund 0.0% N/A 604 Benefits Fund 30.0% Of annual medical and dental expenses 605 Utility Customer Service Fund 0.0% N/A * Self Insurance Fund will be measured against Available Unrestricted Net Position instead of Available Working Capital. Financial Policy 5 – Fund Balance Minimums 4 5.4 Below Minimum When circumstances result in balances below the minimum, staff should develop a plan to restore minimums fund balances and present it to Council Finance Committee. Financial Policy 5 – Fund Balance Minimums 5 Definitions Non Spendable Fund Balances: Applicable to governmental funds. Permanent endowments or assets in a non-liquid form such as long term inter-agency loans. Restricted Fund Balances: Applicable to governmental funds. Involve a third party such as State Legislative requirements, voter ballot language, or the Contractual Agreements with parties external to the City. Committed Fund Balances: Applicable to governmental funds. Involve a of formal action by the City Council. An example is traffic calming revenues are required to be spent on traffic calming activities. Any unspent monies at end of year are classified as Committed to Traffic Calming in the General Fund. Assigned Fund Balances: Are applicable to governmental funds. Assignments can be made by senior management. They represent the intent to use the monies for a specific purpose. An example of this it this the one time Harmony Road monies transferred by the State to the City. Although required to be used on Harmony Road, staff intends to use the monies only on Harmony Road improvements. These monies are considered when measuring compliance with minimum fund balances. Unassigned Fund Balances: Are applicable only to the General Fund. These monies are considered when measuring compliance with minimum fund balances. Working Capital: Is a term applicable to Internal Service and Enterprise Funds. It is the difference between Current Assets and Current Liabilities. Not all Working Capital is available. Available Working Capital does not include Restrictions for debt, Art in Public Places, approved capital appropriations, and other restrictions. Unrestricted Net Position: Is a term applicable to Internal Service and Enterprise Funds. Not all Unrestricted Net Position is available. Available Unrestricted Net Position does not include Restrictions for debt, unused Art in Public Places monies, approved capital appropriations, and other commitmentsrestrictions. Liquidity: Assets range from cash to land. The more easily and quickly an asset can be converted to cash determines its relative liquidity. Reserves: A legacy term that previously referred to fund balances, or fund balances set aside for a specific purpose. It is no longer used on financial statements. Fund Balance: Is a term applicable to Governmental Funds. Fund balance or Equity is the difference between Assets and Liabilities. Since governmental funds do not have long term assets and long term debt on their balance sheet, fund balance is similar and approximates working capital in the Financial Policy 5 – Fund Balance Minimums 6 Getting Help Please contact the Controller with any questions at 970.221.6772. Financial Management Policy 5 Fund Balance Minimums Issue Date: Version: 4 Issued by: City Council Financial Policy 5 – Fund Balance Minimums 1 5.1 Governmental Funds and Fund Balances To set minimum fund balances so as to mitigate risks, maintain good standing with rating agencies, and ensure cash is available when revenue is unavailable. The policy is sets minimum fund balances, not targets or maximum balances. Each fund should be evaluated by staff to determine the appropriateness of maintaining fund balances above the minimums set in this policy. Contingencies for severe weather, prolonged drought, and anticipated capital spending should be considered independently from this policy. The Equity on balance sheet of a governmental fund is called Fund Balance. The current classifications of Fund Balance in governmental funds are primarily based on the origin of the constraints. The following categories are in decreasing order of constraints. Non-Spendable Permanent endowments or assets in a non-liquid form Restricted Involve a third party: State Legislation or Contractual Agreements Committed Set by formal action of the City Council Assigned By staff, and/or residual balances in a Special Revenue Fund Unassigned Remaining balances in the General Fund Objective: To set minimum fund balances as to mitigate risk, maintain good standing with rating agencies, and ensure cash is available when revenue is unavailable. The policy sets minimum fund balances, not targets or maximum balances. Each fund should be evaluated by staff to determine the appropriateness of maintaining fund balances above the minimums set in this policy. Contingencies for severe weather, prolonged drought, and anticipated capital spending should be considered independently from this policy. Applicability: Funds—This policy applies to all City funds. It does not apply to URA, DDA, PFA and Library. Authorized by: City Council Resolutions 1994-174, 2008-038 and 2014-058. Financial Policy 5 – Fund Balance Minimums 2 Minimums outlined in section 5.2 relate only to UAssigned and UnassignedU balances. 5.2 Proprietary Fund and Working Capital Internal Service Funds and Enterprise Funds are accounted for nearly identical to the private sector. The balance sheets include long term assets and long term liabilities. The resulting Equity section on their balance sheet, called Net Position, is not always a good measure of spendable financial resources. To get to spendable financial resources, a common calculation is to take Current Assets and subtract Current Liabilities, with the net result called Working Capital. To further refine, for purposes of this policy, certain required restrictions are further subtracted and result in UAvailable Working CapitalU. Some examples of required restrictions are unspent monies for Art in Public Places, Water Rights, and existing appropriations for capital projects. The minimums outlined in section 5.5 relate to Available Working Capital. 5.3 Minimum Balances The following Minimum Balances refers to Assigned and Unassigned Fund Balances in governmental funds and Available Working Capital in the Internal Service Funds and Enterprise Funds. A. UGeneral Fund U60 Day Liquidity Goal U- The Commitment for Contingency should be at least 60 days (17%) of the subsequent year’s originally adopted budgeted expenditures and transfers out. The calculation for the minimum level shall exclude expenditures and transfers out for large and unusual one-time items. Important note – the 60 Day Liquidity Goal is in addition to the Restricted Balance required by Article X, Section 20 of the State Constitution. This reserve must equal 3% of non-exempt revenue and can only be used for declared emergencies. Fiscal emergencies are specifically excluded by the State Constitution as qualifying use of this reserve. B. USpecial Revenue Funds No minimum balance is required. Financial Policy 5 – Fund Balance Minimums 3 C. UDebt Service Funds No minimum balance is required. D. UCapital Project Funds No minimum balance is required. E. UEnterprise Funds Enterprise funds focus on working capital rather than fund balance. Enterprise Funds shall maintain a minimum Available Working Capital equal to 25% of Operating Expenses, less Depreciation. Exception1: In the case of L&P, operating expenses will include purchased renewable energy for resale but will not include regular purchased power for resale (i.e. Platte River Power Authority). Exception 2: In the case of Golf, the minimum fund balance will be 12.5%. Important note – The Water Fund holds a balance for Restricted Water Rights. The balance equals the amount of cash in-lieu-of water rights payments and raw water surcharges less any expenses for acquiring water rights and water storage; The enterprises funds should also be accumulating available working capital above these minimums for the purposes of funding future capital projects. F. UInternal Service Funds Each fund is a unique operation and will maintain a minimum Available Working Capital as follows: 601 Equipment Fund 8.3% Of annual operating expenses, excluding depreciation 602 Self-Insurance Fund * 25.0% Of annual operating expenses 603 Data & Communications Fund 0.0% N/A 604 Benefits Fund 30.0% Of annual medical and dental expenses 605 Utility Customer Service Fund 0.0% N/A * Self Insurance Fund will be measured against Available Unrestricted Net Position instead of Available Working Capital. Financial Policy 5 – Fund Balance Minimums 4 5.4 Below Minimum When circumstances result in balances below the minimum, staff should develop a plan to restore minimums fund balances and present it to Council Finance Committee. Financial Policy 5 – Fund Balance Minimums 5 Definitions Non Spendable Fund Balances: Applicable to governmental funds. Permanent endowments or assets in a non-liquid form such as long term inter-agency loans. Restricted Fund Balances: Applicable to governmental funds. Involve a third party such as State Legislative requirements, voter ballot language, or the Contractual Agreements with parties external to the City. Committed Fund Balances: Applicable to governmental funds. Involve a of formal action by the City Council. An example is traffic calming revenues are required to be spent on traffic calming activities. Any unspent monies at end of year are classified as Committed to Traffic Calming in the General Fund. Assigned Fund Balances: Are applicable to governmental funds. Assignments can be made by senior management. They represent the intent to use the monies for a specific purpose. An example of this it this the one time Harmony Road monies transferred by the State to the City. Although required to be used on Harmony Road, staff intends to use the monies only on Harmony Road improvements. These monies are considered when measuring compliance with minimum fund balances. Unassigned Fund Balances: Are applicable only to the General Fund. These monies are considered when measuring compliance with minimum fund balances. Working Capital: Is a term applicable to Internal Service and Enterprise Funds. It is the difference between Current Assets and Current Liabilities. Not all Working Capital is available. Available Working Capital does not include Restrictions for debt, Art in Public Places, approved capital appropriations, and other restrictions. Unrestricted Net Position: Is a term applicable to Internal Service and Enterprise Funds. Not all Unrestricted Net Position is available. Available Unrestricted Net Position does not include unused Art in Public Places monies, approved capital appropriations, and other commitments. Liquidity: Assets range from cash to land. The more easily and quickly an asset can be converted to cash determines its relative liquidity. Reserves: A legacy term that previously referred to fund balances, or fund balances set aside for a specific purpose. It is no longer used on financial statements. Fund Balance: Is a term applicable to Governmental Funds. Fund balance or Equity is the difference between Assets and Liabilities. Since governmental funds do not have long term assets and long term debt on their balance sheet, fund balance is similar and approximates working capital in the private sector and enterprise funds. Financial Policy 5 – Fund Balance Minimums 6 Getting Help Please contact the Controller with any questions at 970.221.6772. Financial Management Policy 8 Investment Policy Issue Date: 12/18/2012 Version: 5 Issued by: Investment Administrator Financial Policy 8 – Investments 1 8.1 Policy The City of Fort Collins, Colorado (the “City”) is a home rule municipality operating under the City Charter. Article V, Part III of the City Charter assigns to the Financial Officer the responsibility of investing City funds. Funds must be placed in investments authorized by the City Council (“Council”). The Financial Officer will administer the investment program to ensure effective and sound fiscal management. It is the policy of the City to invest public funds in a manner which will provide the highest investment return while protecting capital and meeting liquidity needs. 8.2 Scope This policy is to establish guidelines for the efficient management of City funds and for the purchase and sale of investments. This investment policy applies to the investment of all general and special funds over which the City exercises financial control, including operating funds, Poudre Fire Authority, the Downtown Development Authority, Fort Collins Objective: This policy is to establish guidelines for the efficient management of City funds and for the purchase and sale of investments. The City’s principal investment objectives, in priority order are: legal conformance, safety, liquidity and return on investment. All investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. Applicability: This investment policy applies to the investment of all general and specific funds over which the City exercises financial control, including operating funds, Poudre Fire Authority, the Downtown Development Authority, Fort Collins Leasing Corporation and the Fort Collins Urban Renewal Authority. Authorized by: City Council, Resolutions 90-44, 2008-121, 2009-109, 2010-065, & 2012-119. CFC reviewed March 2015 and no changes were made. Financial Policy 8 – Investments 2 Leasing Corporation and the Fort Collins Urban Renewal Authority. For purposes of this policy, operating funds include: General Fund; Special Revenue Funds; Debt Services Funds (unless prohibited by bond ordinance); Capital Projects Funds; Enterprise Funds; Internal Service Funds; Trust and Agency Funds; and Any newly created Fund, unless exempted by Council. Unless specifically provided for in the bond ordinance, all bond proceeds, bond reserve funds and pledged revenues must be invested in accordance with the operating funds guidelines set forth in this Investment Policy. Guidelines for investing the funds of the City’s defined benefit plan shall be included in the Investment Policy for the General Employees’ Retirement Plan, which is monitored and approved by the General Employees’ Retirement Committee. 8.3 Investment Objectives The City’s principal investment objectives, in priority order, are: legal conformance, safety, liquidity, and return on investment. All investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. 1. Legal conformance: The investment portfolio will conform to all legal and contractual requirements. 2. Safety: Safety of investment principal and the preservation of capital are primary objectives of the investment program. When making investment decisions, the Financial Officer will seek to ensure the preservation of capital in the overall portfolio by mitigating credit risk and interest rate risk. A. Credit Risk: The Financial Officer will minimize the risk of loss of principal and/or interest due to the failure of the security issuer or backer by: a. Limiting investments to the safest types of securities. b. Pre-qualifying financial institutions, securities brokers and dealers, and advisors. c. Diversifying the investment portfolio to reduce exposure to any one security type or issuer. Financial Policy 8 – Investments 3 B. Interest Rate Risk: The Financial Officer will minimize the risk that the market value of securities in the portfolio will fall due to changes in market interest rates by: a. Whenever possible, holding investments to their stated maturity dates. b. Investing a portion of the operating funds in shorter-term securities, money market mutual funds, or local government investment pools. 3. Liquidity: The investment portfolio must be sufficiently liquid so as to meet all reasonably anticipated operating cash flow needs. This is accomplished by structuring the portfolio so that securities mature to meet cash requirements for ongoing operations. Investments shall be managed to avoid, but not prohibit, sale of securities before their maturities to meet foreseeable cash flow requirements. Since all possible cash needs cannot be anticipated, the portfolio must consist largely of securities with active secondary or resale markets. 4. Return on Investment: The investment portfolio will be designed with the objective of maximizing the rate of return on investment while maintaining acceptable risk levels and ensuring adequate liquidity. Return on investment is of secondary importance compared to the safety and liquidity objectives described above. Investment pooling may be used to maximize the City’s investment income. Interest income, from pooling, will be distributed to the participating funds in proportion to each fund’s level of contribution. The Financial Officer will determine whether a security will be sold prior to maturity. The following are examples of when a security might be sold: a. A security with a declining credit rating may be sold early to minimize loss of principal; b. A security swap would improve the quality, yield, return, or maturity distribution of the portfolio; c. Liquidity needs of the portfolio require that the security be sold; or d. The Financial Officer will obtain the best rate of return on investments by taking advantage of market volatility and recognizing gains on a portion of the portfolio. 8.4 Standards of Care 1. Prudence: The City has a fiduciary responsibility to protect the assets of the City and to invest funds appropriately. The standard of care to be used by City officials is the “prudent person” rule as specified by CRS 15-1-304, which reads: Financial Policy 8 – Investments 4 “Standard for investments: In acquiring, investing, reinvesting, exchanging, retaining, selling, and managing property for the benefit of others, fiduciaries shall be required to have in mind the responsibilities which are attached to such offices and the size, nature, and needs of the estates entrusted to their care and shall exercise the judgment and care, under the circumstances then prevailing, which men of prudence, discretion, and intelligence exercise in the management of the property of another, not in regard to speculation but in regard to the permanent disposition of funds, considering the probable income as well as the probable safety of capital. Within the limitations of the foregoing standard, fiduciaries are authorized to acquire and retain every kind of property, real, personal, and mixed, and every kind of investment, specifically including, but not by way of limitation, bonds, debentures, other corporate obligations, stocks, preferred or common, securities of any open-end or closed-end management type investment company or investment trust, and participations in common trust funds, which men of prudence, discretion, and intelligence would acquire or retain for the account of another.” The Financial Officer and designees, acting within the guidelines of this investment policy and written procedures, the City Charter and Code, all applicable state and federal laws and after exercising due diligence, will not be held personally liable and will be relieved or personal responsibility for an individual security’s credit risk or market price changes, or for losses incurred as a result of specific investment transactions or strategies. (CRS 24-75-601.4, et seq.) 2. Ethics and Conflicts of Interest: City officers and employees involved in the investment process will refrain from personal business activity that could conflict with the proper execution and management of the investment program, or that could impair their ability to make impartial decisions. Employees and investment officials must disclose any material interests in financial institutions with which they conduct business. They must further disclose any personal financial and investment positions that could be related to the performance of the City’s investment portfolio. In addition they must adhere to the rules of conflicts of interest as stated in Art. IV, Section 9(b) of the Charter of the City of Fort Collins, Colorado. 3. Delegation of Authority: The City Charter assigns the responsibility for the collection and investment of all city funds to the Financial Officer, subject to direction from Council by ordinance or resolution. The Financial Officer, subject to City Manager approval, may appoint other members of the Finance Department to assist in the investment function. Financial Policy 8 – Investments 5 A. Administrative Procedures a. The Financial Officer is responsible for all investment decisions and activities, and must regulate the activities of subordinate employees for the operation of the City’s investment program consistent with this investment policy. b. No person may engage in an investment transaction except as provided under the terms of this Investment Policy and the procedures established by the Financial Officer. B. Authorized Designees a. The Financial Officer will maintain a list of individuals and institutions that are authorized to transfer, purchase, sell and wire securities or funds on behalf of the City. b. This list will be provided to the securities broker or dealer or financial institution prior to the City conducting any investment transactions with the institution. C. Investment Advisors a. The Financial Officer has the discretion to appoint one or more investment advisors, registered with the Securities and Exchange Commission under the Investment Advisors Act of 1940, to assist in the management of all or a portion of the City’s investment portfolio. b. All investments made through such investment advisors shall be within the guidelines of this Investment Policy. 4. Investment Committee: The Investment Committee consists of the Financial Officer and at least 2 other employees of the City that are knowledgeable in the area of governmental investments. The Investment Committee, at the discretion of the Financial Officer, may also include up to 2 private sector investment or banking professionals. The purpose of the Investment Committee shall be to provide advice to the Financial Officer regarding the operation of the investment program. 8.5 Safekeeping and Custody 1. Authorized Securities Brokers and Dealers and Financial institutions A. The Financial Officer will maintain a list of financial institutions authorized to provide investment services. The Financial Officer will also maintain a list of approved securities brokers and dealers. This list may include “primary” dealers or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15C3-1. Financial Policy 8 – Investments 6 B. All financial institutions and securities brokers and dealers who wish to provide investment services to the City must supply the following (as appropriate): a. Current audited financial statements; b. Completed securities broker and dealer questionnaire; c. Proof of National Association of Securities Dealers certification and registration in the State of Colorado; and d. Certification of their review, understanding and agreement to comply with the City’s Investment Policy. C. If a financial institution or securities broker or dealer wishes to enter into a repurchase agreement with the city, the institution must sign a Master Repurchase Agreement approved as to form and content by the City Attorney’s Office. D. The Financial Officer must conduct an annual review of the financial condition of authorized financial institutions and securities brokers and dealers. E. Investment transactions must be executed with an authorized financial institution or securities broker or dealer except in the following circumstances: a. Commercial paper, banker acceptances and guaranteed investment contracts may be purchased and sold directly from the issuer; b. Mutual funds and money market funds may be purchased, sold and held directly with the funds; c. Investments in local government investment pools may be transacted directly with the pool; and d. Bond refunding and lease escrow agreements will be executed as provided in the bond and lease documents. F. The Financial Officer will establish a safekeeping agreement with an approved financial institution to act as a third party custodian. Investment securities will be held for the City by the custodian. When applicable, the Financial Officer shall establish a separate securities lending agreement with the custodian bank. The selection of the City’s primary depository and primary custodian will be made through the City’s competitive Request for Proposals process. 2. Delivery versus Payment: All trades will be executed by delivery versus payment to ensure that securities are deposited in an eligible financial institution prior to the release of funds. Securities will be held by the City’s third-party custodian as evidenced by safekeeping receipts. Financial Policy 8 – Investments 7 3. Internal Controls: The Financial Officer is responsible for establishing and maintaining an internal control structure designed to provide reasonable assurance that the assets of the city are protected from loss, theft or misuse. 8.6 Suitable and Authorized Investments As a home rule city, the City may adopt a list of acceptable investment instruments differing from those outlined in CRS 24-75-601.1. Pursuant to Article V of the City’s Charter the Council has adopted the following Ordinances and Resolutions establishing the framework under which the Financial Officer must conduct his duties: Ordinance 90, 1993; Ordinance 108, 1988, Resolution 85-134; and Resolution 82-70. Council may adopt additional Ordinances or Resolutions that require modification of these investment tools. 1. Eligible Investments: City funds may be invested in the following: A. Any securities now or hereafter designed as legal investment for municipalities in any applicable statute of the State of Colorado; B. Interest-bearing accounts or time certificates of deposit, including collateralized certificates of deposit and certificates of deposit through the Account Registry Service, of financial institutions designated as depositories for public moneys by the State of Colorado; C. United States Treasury obligations for which the full faith and credit of the United States are pledged for payment of principal and interest. Such securities will include but not be limited to: Treasury bills, Treasury notes, Treasury bond and Treasury strips with maturities not exceeding five years from the date of purchase; D. Obligations issued by any United States government-sponsored agency or instrumentality. Maturities may not exceed five years from the date of purchase; E. Obligations issued by or on behalf of the City; F. Obligations issued by or on behalf of any state of the United States, political subdivision, agency, or instrumentality thereof. At the time of purchase the obligation shall have an investment grade rating of not less than AA- from Standard & Poor’s, Aa3 from Moody’s Investors Service or AA- from Fitch Ratings Service; G. Prime-rated bankers acceptances with a maturity not exceeding six months from the date of purchase, issued by a state or national bank which has a combined capital and surplus of at least 250 million dollars, whose deposits are insured by the FDIC and whose senior long-term debt Financial Policy 8 – Investments 8 is rated at the time of purchase at least AA- by Standard and Poor’s, Aa3 by Moody’s Investors Service, or AA- by Fitch Ratings Service; H. U.S. dollar denominated corporate notes or bank debentures. Authorized corporate bonds shall be U.S. dollar denominated, and limited to corporations organized and operated within the United States with a net worth in excess of 250 million dollars. At the time of purchase the debenture or corporate note shall have an investment grade rating of not less than AA- from Standard & Poor’s, Aa3 from Moody’s Investors Service or AA- from Fitch Ratings Service; I. Prime-rated commercial paper with a maturity not exceeding six months issued by U.S. corporations. At the time of purchase the paper shall be rated A1 by Standard and Poor’s and P1 by Moody’s Investors Service. If the commercial paper issuer has senior debt outstanding, the senior debt must be rated at the time of purchase at least AA- by Standard and Poor’s or Aa3 by Moody’s Investors Service; J. Guaranteed investment contracts of domestically-regulated insurance companies having a claims-paying ability rating of AA- or better from Standard & Poor’s at the time of purchase; K. Repurchase and reverse repurchase agreements. The structure of the agreements (including margin ratios and collateralization) shall be contained in the Master Repurchase Agreements. Repurchase agreements shall include but are not limited to delivery-versus-payment, tri-party and flexible repurchase agreements; L. Local government investment pools authorized under the laws of the State of Colorado with a rating of AAAm; and M. Money market mutual funds regulated by the Securities and Exchange Commission and whose portfolios consist only of dollar denominated securities. 2. Repurchase Agreements A. Before any repurchase agreements shall be executed with an authorized securities broker or dealer or financial institution, a Master Repurchase Agreement approved as to form and content by the City Attorney’s Office must be signed between the City and the securities broker or dealer or financial institution. B. The Financial Officer will maintain a file of all Master Repurchase Agreements. C. In addition to the straight forward repurchase agreement, wherein the financial institution or securities broker or dealer delivers the collateral Financial Policy 8 – Investments 9 versus payment to the City’s custodian for a fixed term at a fixed rate, the City may enter into other types of repurchase agreements which may include but not be limited to flexible repurchase agreements, tri-party agreements and reverse repurchase agreements. D. Repurchase agreements must be collateralized as provided in individually executed Master Repurchase Agreements at a minimum of 102 percent. E. Zero coupon instruments will not be accepted as collateral. F. The collateralized securities of the repurchase agreement can include but are not limited to: U.S Treasuries, Collateralized Mortgage Obligations or Agency securities. 8.7 Suitable and Authorized Investments 1. Diversification and Asset Allocation: It is the intent of the City to diversify its investment portfolio. Investments shall be diversified to eliminate the risk of loss resulting from over-concentration of assets in a specific maturity, issuer or class of securities. Diversification strategies and guidelines shall be determined and revised periodically by the Financial Officer. The investments may be diversified by: A. Limiting investments to avoid over-concentration in securities from a specific issuer or business sector (excluding U.S. Treasury securities); B. Limiting investment in securities that have higher credit risks; C. Investing in securities with varying maturities; and D. Maintaining a portion of the portfolio in readily available funds such as local government investment pools, money market funds or short term repurchase agreements to ensure that City liquidity needs are met. The maximum investment allowable for each investment category as a percentage of the entire portfolio is as follows (excluding collateral for repurchase agreements): CASH AND CASH EQUIVALENTS............................................................... 100% TREASURY SECURITIES ................................................................................. 90% GOVERNMENT-SPONSORED AGENCY SECURITIES .............................. 90% REPURCHASE AGREEMENTS ....................................................................... 70% CORPORATE NOTES OR BONDS* ............................................................... 40% BANK DEBENTURES*...................................................................................... 25% Financial Policy 8 – Investments 10 COMMERCIAL PAPER* ................................................................................... 25% BANKER’S ACCEPTANCES* ........................................................................... 25% LOCAL GOVERNMENT INVESTMENT POOLS .......................................... 20% MONEY MARKET FUNDS AND MUTUAL FUNDS ............................................................................. 15% CD ACCOUNT REGISTRY SERVICE (MAXIMUM 50 MILLION). ..................................................................... 15% CERTIFICATES OF DEPOSIT ......................................................................... 15% GUARANTEED INVESTMENT CONTRACTS ................................................ 5% * A maximum of 10 percent of the portfolio may be invested in any one provider or issuer. 2. Investment Maturity and Liquidity A. A portion of the portfolio should be continuously invested in readily available funds such as local government investment pools, money market funds, or short-term repurchase agreements to ensure that appropriate liquidity is maintained to meet ongoing obligations. The City must at all times maintain 5 percent of its operating investment portfolio in instruments maturing in 120 days or less. B. Reserved funds may be invested in securities exceeding 5 years if the maturities of such investments are made to coincide as closely as possible with the expected use of funds. C. The weighted average final maturity limitation of the total portfolio, excluding pension funds and long-term reserve funds, Uwill not exceed 3 yearsU. D. The City may collateralize repurchase agreements with longer-dated investments, final maturity not to exceed 30 years. 8.8 Inter-agency Loan Program 1. Purpose: The purpose of the Inter-agency loan program is to support City services, missions, and values by making loans to outside entities such as the Urban Renewal Authority and the Downtown Development Authority while maintaining an adequate rate of return for the City. 2. Eligible Applicants: The following are examples of situations in which City loans to outside agencies may be appropriate: Financial Policy 8 – Investments 11 A. An entity that was created wholly or in part by the City and is in a fledgling stage and does not yet have an established credit history to access the capital markets. Examples include the Urban Renewal Authority, etc. B. An entity related to the City desires to issue debt that will be repaid over a timeframe that would be unrealistic for a private lender. Examples include bonds issued by the Downtown Development Authority for less than 10 years. C. Any other situation in which the Council deems it appropriate to meet the financing needs of an entity that is engaged in services that support the mission and values of the City. 3. Program Guidelines: A. The borrowing entity must have approval from its governing body. B. The loan must be evidenced by a promissory note. C. There must be a reasonable probability of repayment of the loan from an identifiable source such as TIF revenues. D. The interest rate assigned to the loan must be the higher of the Treasury Note or Municipal Bond of similar duration (3 year, 5 year, etc.), plus 0.5%, subject to the following minimum (floor). FLOOR - Minimum Loan Rates Term Rate 0 – 5 years 2.75% 6 – 10 years 3.25% 11 – 15 years 3.75% 16 – 25 years 4.00% E. The loans must be limited to 25 years. F. City Council must review the request and approve the amount and terms and conditions of the loan. Financial Policy 8 – Investments 12 G. Loans of Utility reserves must be reviewed by either the Energy Board or Water Board in advance of City Council consideration, and must meet the following additional criteria: a. the City Council must make a formal finding that the funds will not be needed for utility purposes during the term of the loan, and that the terms and conditions of the loan represent a reasonable rate of return to the Utility; and b. utility rates must not be increased for the purposes of funding the loan. 4. Limit on Funds available for Loan Program A. Governmental Funds: Total loans shall not exceed 25% of the aggregate cash and investments balance of the governmental funds (i.e., General Fund and Special Revenue Funds). B. Enterprise Funds: Total loans shall not exceed 5% of the aggregate cash and investments balance in the enterprise funds (i.e. Utility Funds and Golf Fund). C. Operating and capital needs of the loaning funds shall not be significantly impaired by these loans. D. Loans should not impact the loaning funds compliance with minimum fund balance policies, timing of intended uses, etc. 8.9 Reporting 1. Methods: The Financial Officer will prepare an investment report on a quarterly basis. In addition, a comprehensive investment report may be published on the City’s website on an annual basis. All investment reports will be submitted in a timely manner to the City Manager. 2. Performance Standards: The investment portfolio will be managed in accordance with the parameters specified within this Investment Policy. The Financial Officer will establish a benchmark yield for the City’s investments equal to the average yield on the U.S. Treasury security which most closely corresponds to the portfolio’s actual weighted average maturity. In order to determine the actual rate of return on any portion of the portfolio managed by an investment advisor, the Financial Officer must include all of the advisor’s expenses and fees in the computation of the rate of return. Financial Policy 8 – Investments 13 3. Marking to Market: The market value of the portfolio will be calculated at least quarterly and a statement of the market value will be included in the quarterly investment report. 8.10 Policy Adoption This Investment Policy will be reviewed at least every two years by the Investment Committee, City Manager and the Financial Officer and may be amended by Council as conditions warrant. The Investment Policy may be adopted by Resolution of the Council. Financial Policy 8 – Investments 14 Definitions Agency: A bond, issued by a U.S. government-sponsored agency. The offerings of these agencies are backed by the U.S. government, but not guaranteed by the government since the agencies are private entities. Such agencies have been set up in order to allow certain groups of people to access low cost financing, especially students and first-time home buyers. Some prominent issuers of agency bonds are Student Loan Marketing Association (Sallie Mae), Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). Agency bonds are usually exempt from state and local taxes, but not federal tax. Average Life: The length of time that will pass before one-half of a debt obligation has been retired. Bankers’ Acceptance: A short-term credit investment which is created by a non-financial firm and whose payment is guaranteed by a bank. Often used in importing and exporting, and as a money market fund investment. Benchmark: A comparative base for measuring the performance or risk tolerance of the investment portfolio. A benchmark should represent a close correlation to the level of risk and the average duration of the portfolio’s investments. Book Value: The value at which a security is carried on the inventory lists or other financial records of an investor. The book value may differ significantly from the security’s current value in the market. Broker: An individual who brings buyers and sellers together for a commission. Cash Sale/Purchase: A transaction which calls for delivery and payment of securities on the same day that the transaction is initiated. Certificate of Deposit (CD): A time deposit with a specific maturity evidenced by a certificate. Collateralization: Process by which a borrower pledges securities, property, or other deposits for the purpose of securing the repayment of a loan and/or security. Commercial Paper: An unsecured short-term promissory note issued by corporations, with maturities ranging from 2 to 270 days. Coupon Rate: The annual rate of interest received by an investor from the issuer of certain types of fixed- income securities. Also know as the “interest rate”. Credit Quality: The measurement of the financial strength of a bond issuer. This measurement helps an investor to understand an issuer’s ability to make timely interest payments and repay the loan principal upon maturity. Generally, the higher the credit quality of a bond issuer, the lower the interest rate paid by the issuer because the risk of default is lower. Credit quality ratings are provided by nationally recognized rating agencies. Financial Policy 8 – Investments 15 Credit Risk: The risk to an investor that an issuer will default on the payment of interest and/or principal on a security. Current Yield (Current Return): A yield calculation determined by dividing the annual interest received on a security by the current market price of that security. Debenture: A bond secured only by the general credit of the issuer. Delivery versus Payment (DVP): A type of securities transaction in which the purchaser pays for the securities when they are delivered either to the purchaser or to their custodian. Diversification: A process of investing assets among a range of security types by sector, maturity, and quality rating. Duration: A measure of the timing of the cash flows, such as the interest payments and the principal repayment, to be received from a given fixed-income security. This calculation is based on three variables: term to maturity, coupon rate and yield to maturity. The duration of a security is a useful indicator of its price volatility for given changes in interest rates. Federal Deposit Insurance Corporation (FDIC): A federal agency that insures deposits in member banks and thrifts up to $100,000 ($250,000 through 12/31/2013). Federal Funds: Funds placed in Federal Reserve banks by depository institutions in excess of current reserve requirements. These depository institutions may lend fed funds to each other overnight or on a longer basis. They may also transfer funds among each other on a same-day basis through the Federal Reserve banking system. Fed funds are considered to be immediately available funds. Federal Funds Rate: The interest rate that banks charge each other for the use of Federal funds. Government Securities: An obligation of the U.S. government, backed by the full faith and credit of the government. These securities are regarded as the highest quality of investment securities available in the U.S. securities market. Green Investments: Mutual funds that are considered “ethical investments.” These funds screen companies to ensure that they have sound environmental practices such as: maintaining or improving the environment, industrial relations, racial equality, community involvement, education, training, healthcare and various other environmental criteria. Negative screens include but are not limited to: alcohol, gambling, tobacco, irresponsible marketing, armaments, pornography, and animal rights. Interest Rate Risk: The risk associated with declines or rises in interest rates which cause an investment in a fixed-income security to increase or decrease in value. Investment-grade Obligations: An investment instrument suitable for purchase by institutional investors under the prudent person rule. Investment-grade is restricted to those obligations rated BBB or higher by a rating agency. Financial Policy 8 – Investments 16 Liquidity: An asset that can be converted easily and quickly into cash without a substantial loss of value. Local Government Investment Pool (LGIP): An investment by local governments in which their money is pooled as a method for managing local funds. Mark-to-Market: The process whereby the book value or collateral value of a security is adjusted to reflect its current market value. Market Value: Current market price of a security. Master Repurchase Agreement: A written contract covering all future transactions between the parties to repurchase and reverse repurchase. Establishes each party’s rights in the transaction. Maturity: The date on which payment of a financial obligation is due. The final state maturity is the date on which the issuer must retire a bond and pay the face value to the bondholder. Money Market Mutual Fund: Mutual funds that invest solely in money market instruments (short-term debt instruments, such as Treasury bills, commercial paper, bankers’ acceptances, repurchase agreements, and federal funds). Mutual Fund: An investment company that pools money and can invest in a variety of securities, including fixed-income securities and money market instruments. Mutual funds are regulated by the investment company Act of 1940 and must abide by the Securities and Exchange Commission (SEC) disclosure guidelines. National Association of Securities Dealers (NASD): A self-regulatory organization of brokers and dealers in the over-the-counter securities business. Its regulatory mandate includes authority over firms that distribute mutual fund shares as well as other securities. Net Asset Value: The market value of one share of an investment company, such as a mutual fund. This figure is calculated by totaling a fund’s assets which includes securities, cash, and any accrued earnings, subtracting this from the fund’s liabilities and dividing this total by the number of shares outstanding. This is calculated once a day based on the closing price for each security in the fund’s portfolio. No Load Fund: A mutual fund which does not levy a sales charge on the purchase of its shares. Portfolio: Collection of securities held by an investor. Primary Dealer: A group of government securities dealers who submit daily reports of market activity and positions and monthly financial statements to the Federal Reserve Bank of New York and are subject to its informal oversight. Real Estate Investment Trust (REIT): A company that buys, develops, manages and sells real estate assets. Allows participants to invest in a professionally managed portfolio of real-estate properties. The main function is to pass profits on to investors; business activities are generally restricted to generation of property rental income. Financial Policy 8 – Investments 17 Repurchase Agreement (Repo): An agreement of one party to sell securities at a specified price to a second party and a simultaneous agreement of the first party to repurchase the securities at a specified price or at a specified later date. Reverse Repurchase Agreement: An agreement of one party to purchase securities at a specified price from a second party and a simultaneous agreement of the first party to resell the securities at a specified price to the second party on demand or at a specified date. Rule 2a-7 of the Investment Company Act: Applies to all money market mutual funds and mandates such funds to maintain certain standards, including a 13-month maturity limit and a 90-day average maturity on investments, to help maintain a constant net asset value of one dollar ($1.00). Securities and Exchange Commission (SEC): Agency created by Congress to protect investors in securities transactions by administering securities legislation. Total Return: The sum of all investment income plus changes in the capital value of the portfolio. For mutual funds, return on an investment is composed of share price appreciation plus any realized dividends or capital gains. This is calculated by taking the following components during a certain time period. (Price Appreciation) + (Dividends Paid) + (Capital Gains) = Total Return Treasury Bills: Short-term U.S. government non-interest bearing debt securities with maturities of no longer than one year. Treasury Bonds: Long-term U.S. government debt securities with maturities of more than ten years. Currently, the longest outstanding maturity is 30 years. Treasury Notes: Intermediate U.S. government debt securities with maturities of two to ten years. Tri-party Repurchase Agreement: In a “normal repurchase” transaction there are two parties, the buyer and the seller. A tri-party repurchase agreement adds a custodian as the third party to act as an impartial entity to the repurchase transaction to administer the agreement and to relieve the buyer and seller of many administrative details. Weighted Average Maturity (WAM): The average maturity of all the securities that comprise a portfolio. Yield: The current rate of return on an investment security. Generally expressed as a percentage of the security’s current price. Yield Curve: A graphical representation that depicts the relationship at a given point in time between yields and maturity for bonds that are identical in every way except maturity. A normal yield curve may be alternatively referred to as a positive yield curve. Yield-to-Maturity: The rate of return yielded by a debt security held to maturity when both interest payments and the investor’s potential capital gain or loss are included in the calculation of return. Zero-Coupon Securities: A security that is issued at a discount and makes no periodic interest payments. The rate of return consists of a gradual accretion of the principal of the security and is payable at par upon maturity. COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Lawrence Pollack Date: October 16, 2017 SUBJECT FOR DISCUSSION Budgeting for Outcomes (BFO) Revenue Allocation Methodology EXECUTIVE SUMMARY The City’s budgeting process is called Budgeting for Outcomes (BFO) which includes the forecasting of the various revenue sources and the allocation of those revenues to the City’s seven key strategic Outcomes to fund prioritized budget requests. The methodology used to allocate that revenue is the focus of this agenda item. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Does the Council Finance Committee understand the BFO Revenue Allocation Methodology? BACKGROUND/DISCUSSION Revenue and available reserves are forecasted for each budget cycle at the beginning of our BFO process. Individual revenue line items are rolled into ‘Funding Sources’ which are allocated across the City’s Outcomes. Offers submitted to each Outcome are prioritized from 1 to N and then funded by those funding sources until the available revenue runs out for any given funding source. Most funding sources are restricted in some way based on the type of revenue or in which funds the funding source resides. For instance, Light & Power Utility revenue is restricted to programs and services that benefit the City’s electric rate payers. There are a few funding sources like General Fund Ongoing Revenue, that can be used for nearly any purpose, which are initially allocated to Outcomes based on the following methodology in priority order: 1. Financial and legal obligations (e.g. debt services and insurance payments) 2. Cover expenses associated with ongoing programs and services 3. Specific targeted areas determined by the Budget Lead Team (aka the ‘BLT’ which is comprised of the City Manager and the executive team) 4. Remaining funding sources are then allocated based on a ratio of the Ongoing Offers within each Outcome The initial allocations are used by the BFO Teams in making their recommendations to the BLT about which Offers in their Outcome should be funded. The BLT reviews all Offers across all Outcomes along with the information provided by each BFO Teams to create the City Manager’s Recommended Budget. Those recommendations will often require shifting of revenue between Outcomes. City Council can also modify the allocations as necessary to finalize their Biennial Budget. ATTACHMENTS Attachment #1 – BFO Revenue Allocation Methodology Presentation 1 BFO Budget Allocation Methodology Council Finance Committee – October 16, 2017 Prerequisites to BFO Allocations 2 − Revenue line items are forecasted in BART by departments − All revenue line items are assigned to a single ‘Funding Source’ • A Funding Source is comprised of one or more revenue line items (e.g. Recreator program revenue is rolled into Recreation Ongoing Revenue) • Offers are funded by Funding Sources, not individual revenue line items • There are just over 200 different funding sources − Non-restricted fund balances (i.e. reserves) are also set up as Funding Sources − Funding Sources are allocated to specific Outcomes Funding Source Restrictions 3 − Most Funding Sources have restrictions on how they can be used (i.e. the types of Offers they can fund). For example: • Tree Donations are dedicated to tree related Offers which are submitted to the Culture and Recreation Outcome • Utilities Funding Sources can only be used to fund Offers in a given Utility fund − Dedicated Funding Sources can be allocated to multiple Outcomes if there are Offers in those Outcomes that are eligible to be funded by that Funding Source − In general, there are only two types of Funding Sources that can be spread to any Outcome • Various Funding Sources in the General Fund • KFCG – Other Community Priorities Initial Allocation Process 4 − General Fund allocation methodology: • First, revenue is allocated to the ‘Off the Top’ Outcome to fund expenses like debt service, insurance payments, etc. • Second, allocations are made to each Outcome to cover Ongoing Offers • Third, specific BLT guidance is factored in o e.g. Additional allocations were given to the Transportation Outcome to fund Enhancement Offers for the new MAX BRT operations • Fourth, remaining available revenue (or shortfalls) within a Funding Source is then spread acrosss the seven Outcomes as a ratio of the Ongoing Offers within those Outcomes Initial Allocation Process 5 − KFCG - Other Community Priorities allocation methodology: • Typically not allocated to Transportation and Safe Community Outcomes since they already have dedicated KFCG Funding Sources • First, allocations are made to each Outcome to cover Ongoing Offers that don’t have their own dedicated KFCG funding • Second, remaining available revenue is spread over the other Outcomes as a ratio of the Enhancement Offers within an Outcome − Allocations are communicated to the BFO Teams for their Offer prioritization and determination of the ‘above the line’ Offers BART Allocation Module 6 Funding Sources Outcomes Available $ BART Drilling Platform Report 7 Allocation Modifications 8 − BFO Teams submit their recommendations of which Offers to fund to the Budget Lead Team (BLT) • They also convey Offers they couldn’t fund based on their allocation, but for which they think funding should be made available − Revenue forecasts are updated in July and allocations are updated accordingly − BLT looks holistically across all seven Outcomes and modifies the allocations to fund prioritization trade-offs between Outcomes − City Council can also have allocations shifted between Outcomes to fund Offers in one Outcome by unfunding Offers in another Outcome (within Funding Source restrictions) 1506 W Horsetooth Fort Collins, Road CO Land 80526 Bank Property CITY GEOGRAPHIC These and were map OF not products FORT designed and INFORMATION COLLINS or all intended underlying for general data SYSTEM are use developed by members MAP for use of PRODUCTS the by the public. 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