Document Woodburn_doc_fdb51f12db

1 City of Woodburn FY 2024/25 Financial Plan Budget Policies, Fiscal Strategy, & Five-Year Forecast FY 2024/2025 Budget Goal. Woodburn’s challenge will be associated with development related service demands, maintaining a sound financial position in the face of changing community dynamics, and working within the constraints of limited General Fund resources to fully rebuild popular parks, recreation, and aquatics programming, which is still recovering from the pandemic. It should also be noted that in the prior year American Rescue Plan ACT (ARPA) funding has been mostly expended, meaning that the City’s social service programing and project support will be likely ending within the next 18 months. As residential and industrial development continues at an aggressive rate, additional property tax revenue will lag behind the demands for service. Consequently, the financial challenge for the City will be maintaining current levels of service while accommodating demand without jeopardizing the City’s cash reserves and contingencies. These factors will result in a 2024/25 proposed budget that conservatively allocates projected resources. 1. Working in the framework of the City Council’s FY 2024/25 Financial Plan and Oregon Budget Law, the City Administrator will present a balanced FY 2024/25 Budget, working to prevent General Fund revenue shortfalls over time while protecting cash balances to the greatest extent possible. It is acknowledged that future revenues and service costs are difficult to predict in the face of unprecedented growth. 2. When possible, the City will seek to build cash reserves with the understanding that growth in future service levels may lag behind the actual revenue forecast. 3. ARPA “roll-up” savings will be redistributed or reallocated as authorized by the City Council for programs and services consistent with federal rules. The City Council’s ARPA plan, including any new or reallocated resources, will be reflected in the Proposed Budget. This will be the final year of the City’s ARPA program, as remaining ARPA resources are expected to be fully expended in FY 24/25. 4. In addition, it is also the goal of the City to prioritize existing resources on and services such as public safety funding, economic aid, planning, parks and recreation programming, including aquatics and library services, and maintaining current service levels as resources allow. In order to keep up with the increasing demands for public safety services necessitated by growth, it is anticipated that two additional police officers will be included in the FY 24/25 proposed budget. 129 ---PAGE BREAK--- 2 5. As a primary economic goal, the City is continuing to pursue an Urban Growth Boundary Adjustment, which will incorporate the Urban Reserve Area to meet the strong demand for additional employment lands. 6. The City anticipates placing a general obligation bond measure on the November 2024 ballot that would fund the construction of the community center project that has been in the planning stage for many years. In addition to the funds generated by the bond measure, capital construction funding will be comprised of a $15 million grant awarded by the Oregon State Legislature and a potential $5 million contribution from the Urban Renewal program. If the measure is successful, additional general fund resources must be wisely allocated to covering the increased operational subsidy the significantly expanded facility would require. BUDGET POLICY • SECTION 1. ANNUAL REVIEW & POLICY A. Fiscal Responsibility. The policy of the City of Woodburn is to return the highest level (or sustain the current levels) of service with the least amount of taxpayer investment and to plan accordingly. B. Balanced Budget. The City’s budget shall be balanced. For each fund, ongoing costs are not to exceed ongoing revenues plus available fund balances used in accordance with reserve policies. The budget resolution will be adopted by the fund at a summary level. C. Budget Process. The annual budget process is intended to weigh all competing requests for City resources within expected fiscal constraints. Levels of service will increase or decrease based on the availability of resources. Requests for new programs made outside the annual budget process will be discouraged. New initiatives will be funded by reallocating existing City resources to services with the highest priorities. D. Fiscal Recommendations. Consistent with the administrative responsibilities outlined in the Charter, the City Administrator will make fiscal recommendations to the City Council on all measures necessary to sustain current levels of service and avoid reductions in City programs, including the consideration by the City Council of new revenue sources if this is determined to be in the best interest of the community. E. Budget Policy Updates. The City Council will review and adopt the Fiscal Year Budget Policies on an as-needed basis as determined by the City Administrator or as circumstances require. F. Annual Five-Year Forecast. The City Council will review and approve the Five-Year Forecast as needed. The forecast is an estimate of future revenues and expenses intended to serve as an estimate and a guideline for making sound financial decisions in the current fiscal year and budget preparation. The Five-Year Forecast and the Budget Policies together will constitute the City’s annual Financial Plan. 130 ---PAGE BREAK--- 3 G. Policy Direction. Consistent with the role outlined in the Woodburn City Charter, the City Council is responsible for providing policy direction to determine the City’s overall financial health. In response to the fiscal recommendations made by the City Administrator, the City Council shall consider all measures necessary to sustain current levels of service. In addition, the City may avoid reductions in City programs by considering new revenue sources if this is determined to be in the best interest of the community. H. Budget. Under the Woodburn City Charter, the City Administrator serves as Woodburn’s Budget Officer. The Finance Director assists the City Administrator with the preparation and presentation of the annual budget, budget administration, and the day-to-day finance operations. The Budget Officer is responsible for the administration of the annual budget and may approve or disapprove the expenditures contained in the adopted budget if deemed in the best financial interest of the City. I. Budget Administration. As authorized by the City Charter, the City Administrator is responsible for taking actions necessary to keep expenditures within anticipated revenues, including initiating layoffs, reorganizations, downsizing, program reductions, and adjustments to service levels. The City Administrator will keep the City Council informed as to any steps taken to reduce expenditures, and whenever possible, the Council will review the decisions and consider options during a mid-year budget review. • SECTION 2. DISCRETIONARY & DEDICATED RESOURCES A. Recognizing Financial Limits. Woodburn will make a distinction between two different types of services; 1) those funded primarily from City discretionary resources, and 2) those funded primarily from dedicated resources. B. Discretionary Resources. The General Fund collects resources to provide discretionary programs and services as recommended by the Budget Officer and approved as part of the City’s cycle. The City will continue to fund these programs primarily from General Fund discretionary resources. These include police, park and recreation, economic development, land use, financial services, and other programs. C. Dedicated Resources. Dedicated resources are normally subject to restrictions via state and federal law, grant agreements and contracts, City policy, and ordinances. City services funded primarily through dedicated funds include such items as speed and safety belt enforcement, grant-funded transportation, utility services, etc. • SECTION 3. GENERAL FUND BUDGET (DISCRETIONARY) A. Annual Budget Goal. The goal shall be to prepare a budget that maintains existing high priority programs supported by the General Fund while at the same time seek savings and alternative revenue sources wherever possible. Funding for lower priority programs will be reduced or eliminated to ensure that expenditures remain in balance with resources. 131 ---PAGE BREAK--- 4 B. General Fund Emphasis. The highest priority shall be to conserve General Fund discretionary resources to fund high priority programs as defined by the City Council and City Administrator. C. Maximize City Council’s Discretion. Wherever legally possible, revenues are to be treated as discretionary resources, rather than as dedicated to a particular program or service. The goal is to give the City Council flexibility in allocating resources to local priorities. D. New Revenues. In order to sustain current levels of service, avoid reductions in public safety programs, or increase services needed to meet community demands, the City Council may consider new discretionary revenues if it is determined to be in the best interest of the community. E. Use of Dedicated Funding Sources. Whenever legally possible, funding responsibility for existing programs or activities should be transferred to appropriate dedicated funding sources, freeing up scarce discretionary resources to fund City Council priorities. F. Cost Efficiency. Staff will prepare fiscally conservative budgets and will seek savings wherever a balance between cost efficiency and the quality of public service can be achieved. G. Materials & Services. Departments are to prepare “base budgets” with a goal of holding General Fund or other discretionary resources for materials and services expenditures to no more than prior year budget levels. H. No General Fund Street Maintenance Support. No discretionary General Fund revenues will be used to support street maintenance activities. General Fund street lighting transfers are exempted from this policy. I. Revenue Estimates. Departments should budget for revenues based on the best information available during the annual process. If additional information becomes available during the budget process, it should be provided to the Finance Director’s Office. Accuracy in revenue/expenditure estimates is critical. Subsequent annual estimates should also take into consideration the actual receipts from the previous year. J. Pursuit of New Departmental Revenues. Departments shall pursue revenue sources to the fullest extent possible for all services as well as total cost identification (including indirect costs) for fee-setting purposes, grants, or other funding opportunities. Any new revenue sources should be used to offset the cost of existing staff and programs, rather than funding new staff or programs. Fee schedules will be reviewed annually to ensure costs are recovered. Fee schedules will be updated as part of the annual budget process. 132 ---PAGE BREAK--- 5 K. Expenditure Reductions. Reductions in revenues may require expenditure reductions from the “base budget” level. If reductions are required, the City Administrator will be guided by the City Council’s adopted Resource Reduction Strategy (See Section 19). L. New Discretionary Programs. New discretionary programs, deemed a high priority activity, may be included in the Proposed Budget with the prior approval of the City Administrator. If programs are added/expanded, an evaluation will be made on the impact to supporting services (e.g. information, finance, facilities, human resource, budget, etc.). Any increases in overhead services attributed to additional programs shall be included in the analysis of the total cost of new programs. Should outside funding for a program expire, the program may be terminated by the City Administrator or the City Council. M. Full Cost Recovery. City staff shall make every effort to assign costs where they occur through the use of interdepartmental/interfund charges and indirect cost percentage assignments. The intent is to clearly define the actual cost of each direct service the City provides internally or externally. The first priority is the recovery of overhead costs from all funds and grant programs. N. Annual Budget Savings. To the extent General Fund supported departments experience savings during the year (due to position vacancies, etc.) that money shall be designated first to meeting the established contingency and reserve levels. Should the contingency and reserve levels be met, any remaining savings may be allocated towards the PERS Reserve and/or one time projects as determined by the City Administrator. • SECTION 4. NON-GENERAL FUND / UTILITY BUDGETS (DEDICATED) A. Bottom-Line Emphasis. For activities or programs funded primarily from non-General Fund sources, departments are to prepare “base budgets” with a goal of holding any General Fund contribution to no more than the amount provided in the current fiscal year, subject to the availability of funds. Whenever possible, reductions in General Fund contributions should be achieved. B. No Backfilling. General Fund discretionary dollars will not be used to backfill any loss in water and/or sewer City utility revenue, state-shared or federal revenues, grants, or dedicated funding programs (for further information, see the Resource Reduction Strategy). C. Revenue Estimates. Departments should budget for revenues based on the best information available at the time the budgets are prepared. If additional information becomes available during the budget process, it shall be provided to the Finance Department. New revenues should be estimated based on available information for the first year. Subsequent annual estimates should also take into consideration actual receipts from the previous year. 133 ---PAGE BREAK--- 6 D. Overhead Cost Allocation Charges. All non-General Fund departments should budget the amount allocated to that department. E. Cost Efficiency. As with the General Fund, staff responsible for non-General Fund budgets will prepare fiscally conservative budgets, and will seek savings wherever a balance between cost efficiency and the quality of public service can be achieved. F. Utility Revenue Allocations. It is the policy of the City of Woodburn that revenue generated by City-owned utilities will first be used to meet operational expenses, and subsequently fund capital projects in a manner consistent with Woodburn’s Capital improvement plans and operating requirements. G. Utility Rates. The City will maintain utility rates at a level that ensures that all debt service, operating, and capital costs, are adequately recovered and debt covenant requirements are met. Capital costs identified in the approved capital improvement plan will be used as the basis for forming the capital costs recovery portion of utility rates. H. System Development Charges. As permissible under state law, the City will pursue the recovery of infrastructure-related development costs relating to water, sewer, street, storm, and parks. These costs will be delineated via a defensible methodology, which will be revised from time to time to ensure accuracy. In order to ensure that the cost of providing infrastructure required to support new development does not burden existing residents, the City will not waive or reduce system development charges, except as required by state law and City ordinances. • SECTION 5. FUND RESERVES & CONTINGENCIES A. PERS Side Account Savings. In 2019, the City Council goal of establishing a PERS side account was achieved with a City contribution of $2,823,043, which received a PERS match. The City will continue to add resources to the City’s PERS Fund as resources allow, but will direct any PERS savings to help maintain current service levels. It is the overall goal of the City to continue to increase the balance in the City’s PERS Reserve Fund in order to make future Side Account contributions. B. General Fund Contingency. Consistent with Government Finance Officers Association (GFOA) best practices, at least 25 percent of the General Fund’s operating appropriation shall be placed into the operating contingency in order to meet cash flow needs. In addition, it is the goal of the City to preserve the contingency balance to the greatest extent possible. No new General Fund program or service will be created that diminishes the General Fund Contingency below established minimum levels. C. Contingency Replenishment. If contingency funds are expended, an effort will be made to reduce expenses to retain a minimum of 25 percent General Fund contingency. 134 ---PAGE BREAK--- 7 D. Shortfall Management Reserve (SMR). The SMR is intended to subsidize future shortfalls estimated in the Five-Year Forecast. If SMR funds are expended, an effort will be made to replenish funds as savings are identified in the annual budget process. E. Water & Sewer Fund Contingencies. The Water and Sewer Funds will maintain annual contingencies of not less than 10%. F. Equipment Replacement. This fund is for the replacement of vehicles and equipment. The goal is for City departments to transfer one-tenth the value of its fixed asset inventory every year as budget allows to ensure future replacement funding is available. Replacement fund transfers may be limited or delayed in order to preserve operational budgets. • SECTION 6. GRANT APPLICATIONS (ALL FUNDS) A. Approval to Pursue. The City Administrator’s approval is necessary before any employee pursues lobbying efforts on matters having budget implications, and before grant applications are submitted to the granting agency. Department Heads should advise the City Administrator before official positions are taken on matters that might have budget implications. B. General Fund Matching Funds. Upon approval by the City Administrator, matching fund requirements will be presented to the City Council for final approval. • SECTION 7. NEW POSITIONS, PROGRAMS, AND OVERTIME (ALL FUNDS) A. Base Budget & New Positions. Departments are to prepare “base budgets” with no new regular positions unless specifically authorized by the City Administrator in advance of budget preparations. Reorganizations of departments or programs resulting in changes in staffing or positions may be considered if the change is cost-neutral or cost savings from the current costs. No position compensation or increase will be provided beyond the amounts budgeted for the position without prior approval from the City Administrator. B. Considerations of New Positions/Programs. Unless otherwise authorized by the City Administrator, consideration of new programs and positions will occur only if the cost of the position or program is offset by non-General Fund sources legally tied to the new position or if the cost of the position is offset by new external revenues, reductions within existing funds and/or the position is required to generate those revenues. Cost estimates for new positions will include office facility space, equipment, rent, utilities, supplies, related increases in overhead services, etc. Additional personnel or programs shall be requested only after service needs have been thoroughly documented or after it is substantiated that the new employees will result in increased revenue or enhanced operating efficiencies. C. Annual Overtime Budgets. Departments will anticipate their annual overtime costs to be included in the proposed budget. Once the budget is adopted, overtime costs are to be 135 ---PAGE BREAK--- 8 managed within adopted levels. No overtime costs can exceed budgeted levels without first obtaining the authorization of the City Administrator. • SECTION 8. MID-YEAR BUDGET REDUCTIONS A. Revised Revenue or Expense Estimates. If additional information concerning revenue reductions or significant expense increases becomes available after the start of the fiscal year, it may be necessary to make budget adjustments. These adjustments will be made in accordance with the City Council’s adopted Resource Reduction Strategy. • SECTION 9. MID-YEAR REQUESTS, CONTINGENCY (ALL FUNDS) A. Non-Emergency Requests. In those cases where a department is required to absorb an unanticipated cost beyond its control of a non-emergency nature, departmental resources must first be exhausted prior to a transfer from General Fund contingencies. Upon conducting a final financial review of departmental budgets towards the end of the year, a transfer from contingency will be presented to the City Council through a budget resolution or supplemental budget. B. Emergency Requests. Emergency requests during the fiscal year will be submitted to the City Administrator for recommendation and forwarded to the City Council for consideration. • SECTION 10. COMPENSATION & BENEFITS (ALL FUNDS) A. Wage Policy. Historically, the biggest factors forcing budget growth are increases in employee compensation and increased benefit costs. The City will have a compensation and benefits program that: 1) reflects the value of work performed by our employees, 2) compares favorably with the compensation and benefits paid for similar work in both the private and public sectors, and considers the community’s ability to pay. Both our employees and the public must understand the mutual respect that such a policy warrants. B. Health Care & PERS Costs. Continue the City’s policy on wage increases which evaluate the cost of health insurance and PERS contributions as part of the total compensation package. It is the goal of the City to reduce annual escalations of health insurance, and other benefit costs by getting the employees to bear an equitable portion of the annual premium increases and/or selecting lower cost-benefit programs. C. Cost of Living Adjustments (COLA). The City Administrator will make a recommendation either to include, or not include, a COLA for non-represented employees in the Proposed Budget. COLAs included in the Proposed Budget are considered and approved by the Budget Committee and City Council as part of the budget process. COLAs or other compensation provided for in collective bargaining agreements will be provided for in the annual Proposed Budget. 136 ---PAGE BREAK--- 9 D. Step Adjustments. Budgeted personnel services expenditures will include an amount to account for annual step adjustments for all employees who are not currently at the top of their range. Annual employee step adjustments will not exceed 5% without the expressed permission of the City Administrator. • SECTION 11. BUDGET CONTROLS A. Legal Compliance. The City Administrator and Finance Director will continue to review and control departmental budgets at the appropriation level. B. Personnel Services & Benefits. With the exception of overtime pay and temporary help accounts, which shall be developed by Department Heads with the advice of the Finance Director and the approval of the City Administrator, personnel services and benefits cost calculations will be provided by the City Administrator and the Finance Director and will be used as provided. The City Administrator and the Finance Director will also provide estimates for insurance and internal service expenses. These amounts will not be altered by Department Heads. C. Wages & Benefit Control. Positions not entitled to receive benefits will be managed in a manner that keeps them below mandatory benefit thresholds (such as PERS, health insurance, etc.). Positions will only be eligible for benefits if approved by the City Administrator and/or designated in Job Descriptions. All benefit costs must be anticipated and included in the annual Budget. D. One-Time Revenues. One-time revenues will be used only for one-time expenses. • SECTION 12. UNAPPROPRIATED ENDING FUND BALANCES (ALL FUNDS) A. Limit Unappropriated Ending Fund Balances. To provide the most budget flexibility during the year, the City will limit the use of unappropriated ending fund balances to circumstances where they are required by law. Rather than use unappropriated fund balances, the goal should be to place any monies not needed for current expenditures in the relevant funds’ operating contingencies or a City Council approved reserve. • SECTION 13. CAPITAL IMPROVEMENT GUIDELINES A. Capital Improvement Program. A 6-year Capital Improvement Program will be adopted as part of the annual budget process. It will include all projects anticipated to be initiated and/or delivered in the 6-year planning period. The Capital Improvement Program will be consistent with the City’s adopted Capital Improvement Master Plans. Funding availability will determine the rate at which Capital Improvement Program projects are initiated or completed. B. Exceptions. The City will fund dedicated programs and services with dedicated funding sources. Exceptions may be made, on a case-by-case basis, by the Budget Committee, City 137 ---PAGE BREAK--- 10 Council, or by the City Administrator if appropriate. One criterion will be whether the City would incur more costs elsewhere as a result of the reduction. C. Capital Planning Consideration. Recognizing that it does not necessarily make sense to fund current operations at the expense of long-term capital or planning programs, every effort will be made to continue capital and planning programs geared to the City’s long- term needs. • SECTION 14. DEBT ISSUANCE (ALL FUNDS) A. Debt Issuance. The City will issue debt in accordance with the adopted Master Debt Resolutions for Sewer and Water. General Obligation debt will only be issued in compliance with state statutes. Debt will only be issued (for all fund types) when a dedicated resource is available to meet the required debt service and reserve. No debt will be issued without the approval of the City Administrator and authorization of the City Council. B. Interfund Transfers. Interfund transfers are allowed if the City Council determines the transfer to be in the best interest of the City. All interfund transfers will be managed consistent with state budget law. C. Debt Compliance. On an annual basis the Finance Director and shall ensure that annual reporting requirements have been met and will review the condition of the corresponding debt funds to ensure compliance with existing financing agreements. • SECTION 15. DEBT REFINANCING/REFUNDING A. Debt Refinancing/Refunding. From time to time, the City Council and/or the City Administrator may direct the Finance Director to determine the feasibility of refinancing/refunding existing debt. Refinancing may include restructuring to meet unanticipated revenue expectations, achieve cost savings, mitigate irregular debt service payments, release reserve funds, or remove unduly restrictive bond covenants. B. Responsibility. The Finance Director, with the assistance of consultants as needed, shall have the sole responsibility for conducting the analysis of outstanding bond debt for refinancing/refunding opportunities that may be presented by underwriting and/or financial advisory firms and making a recommendation to the City Administrator. C. Term of Refinancing/Refunding Issues. The City may refund bonds within the term of the originally issued debt. However, the City may consider maturity extension, when necessary to achieve a desired outcome, provided that such extension is legally permissible. The City may also consider shortening the term of the originally issued debt to realize greater savings. The remaining useful life of the financed facility and the concept of inter- generational equity should guide this decision. 138 ---PAGE BREAK--- 11 D. Analysis and Report. The City will evaluate each refinancing/refunding candidate on a case-by-case basis. When analyzing possible refinancing/refunding opportunities: the City establishes a guideline net present value savings threshold goal of three percent of the refinanced/refunded bond principal amount. The net present value savings will be net of all related issuance costs. In addition, the Finance Director will make a full report on the potential saving generated and any financial risk associated with refinancing/refunding the debt. • SECTION 16. INVESTMENTS A. Administration. The City of Woodburn’s Investment Policy is attached as Exhibit A. • SECTION 17. ANNUAL FINANCIAL AUDITS A. Annual Audit Required. The Oregon Municipal Audit Law (ORS 297.405 – 297.555) requires a financial audit and examination be made of the accounts and financial affairs of the City at least once a year. Consistent with State law, the City of Woodburn will conduct an annual independent audit of the preceding fiscal year. B. Audit Standards. Woodburn’s annual financial audits will be conducted in accordance with auditing standards generally accepted in the United States. Those standards require that an independent auditor plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. The audit will examine, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. The audit will also assess accounting principles used and significant estimates made by management, as well as evaluating the overall basic financial statement presentation. The audit will contain an assessment of the City’s internal financial controls and procedures to make any necessary recommendations for improvement. C. Finance Director and City Administrator Oversight. It will be the responsibility of the Finance Director and the City Administrator to oversee the annual audit process. D. Preparation of Financial Statements. When feasible, City staff will prepare and provide annual financial statements to the auditor’s satisfaction. If staffing levels or other barriers exist to internal preparations of financial statements, the City Administrator may authorize the auditor’s preparation of financial statements for the purposes of completing the annual audit on time. E. Audit Deadlines & Extensions. Per Section 17 the annual audit will be provided to the City Council no later than December 31. Consistent with State law, the annual audit will also be filed with the Oregon Secretary of State’s Audit Division no later than December 31. Any and all requests for audit filing or presentation extensions must be approved by both the City Administrator and the auditor. In the event that an audit filing extension is requested and/or granted, the City Administrator will inform the City Council of the reason for the extension request and an estimated time line for completing, presenting, and filing the audit. 139 ---PAGE BREAK--- 12 F. Audit Presentation to Council. The annual audit findings will be presented to the Woodburn City Council during a regularly scheduled City Council meeting by a representative of the audit firm. All audits presented to the City Council must be complete and signed by a representative of the audit firm. G. Budget Committee Review. A copy of the annual financial report will be provided to the Woodburn Budget Committee for their review. • SECTION 18. PROGRAMS A. Discretionary Programs. To the extent discretionary resources are available, high priority services areas will be slated for growth. Lower priority service areas will receive constant or decreasing discretionary support. Based on the direction of the City Council, discretionary programs are identified, and prioritized, as follows: Police Patrol & Public Safety Police Support Services Financial Services Legal Services Land Use Planning Economic Development Code Enforcement General Administration Library Aquatic Center Recreation Programming Parks and Park/Tree Maintenance Other General Fund Supported Non-Essential Program & Services Computer/Network transfers (new and replacements of equipment and servers) Discretionary Transfers (i.e. Transit, Streets, RSVP, etc.) Community Services (i.e. flower baskets, TOT Grants – where permissible, etc.) Intergovernmental Agreements that provide no direct offsetting revenues • SECTION 19. RESOURCE REDUCTION STRATEGY (ALL FUNDS) A. Goal & Reduction Approach. When faced with a potential reduction in resources, the City’s goal is to continue to provide services in a professional, effective and efficient manner. Consequently, to the extent possible, across-the-board reductions in expenditures will be avoided. B. Case-by-Case Consideration. Reductions will be made on a case-by-case basis, focusing on each individual program or service. If possible, the reduction will be made proportional to the programs and services identified by the City Council. 140 ---PAGE BREAK--- 13 C. Moderation When Possible. If, as a result of a loss of a significant amount of discretionary resources, expenditure reductions become necessary they will be made on a moderate case- by-case basis to discretionary supported programs and services. D. Discretionary Contributions. If further reductions are required, any discretionary funding that supplements or supports services mostly supported with dedicated resources will be reduced or eliminated. This may apply to programs or activities expanded or started with discretionary resources within the last few years. Exceptions may be made on a case-by- case basis by the City Council. E. Furlough Days. If personnel budget/salary savings are required, the City may consider a reduced workweek or furlough days prior to laying off staff. F. Consideration List. Programs funded by discretionary resources will be reduced or eliminated as needed. Legal restrictions or the City’s ability to maintain minimal service levels will be considered. The City Administrator can determine the appropriate level of consideration at his/her sole discretion when making mid-year reductions or comprising the annual budget proposal. Based on the direction of the City Council, the order of City service areas to be considered for reductions are: Intergovernmental Agreements that provide no direct offsetting revenues Community Services (i.e. flower baskets, TOT Grants – where permissible, etc.) Discretionary Transfers (i.e. Transit, Streets, RSVP, etc.) Computer/Network transfers (addition or replacement of computers and servers) Other General Fund Supported Non-Essential Program & Services Parks and Park/Tree Maintenance Recreation Programming Aquatic Center Library General Administration Code Enforcement Economic Development Land Use Planning Legal Services Financial Services Police Support Services Police Patrol & Public Safety G. Indirect Costs. The City’s overhead programs will not be prioritized but will be sized to the need and size of the overall organization. Generally, wherever possible, the City’s goal is to make fee-supported programs self-sufficient. This includes recovering those programs’ appropriate share of the City’s overhead costs. If reductions occur, then indirect costs will be sized to the needs and size of the rest of the organization. The Transit Fund indirect costs will be per the federally allowed de minimis overhead rate of 10 percent. 141 ---PAGE BREAK--- 14 H. Dedicated Funding for Programs. Where legally possible, the City will consider using dedicated resources to fund high priority programs related to the purpose for which the dedicated funds are received. 142 ---PAGE BREAK--- Page 1 of 8 EXHIBIT A CITY OF WOODBURN INVESTMENT POLICY I. Purpose This Investment Policy defines the parameters within which funds are to be invested by the City of Woodburn (the "City”). This policy also formalizes the framework, pursuant to ORS 294.135, for the City’s investment activities to ensure effective and judicious management of funds within the scope of this policy. These guidelines are intended to be broad enough to allow designated City staff to function properly within the parameters of responsibility and authority, yet specific enough to adequately safeguard the investment assets. II. Governing Authority The City’s investment program shall be operated in conformance with Oregon Revised Statutes and applicable federal law. Specifically, this investment policy is written in conformance with Chapter 294 of the Oregon Revised Statute ("ORS") and the Woodburn City Charter. Any revisions or extensions of applicable sections of the ORS 294 shall be assumed to be part of this Investment Policy immediately upon being enacted. III. Scope This policy applies to activities of the City with regard to investing the financial assets of operating funds, capital funds, bond proceeds, and bond reserve funds. Funds managed by the City that are governed by other investment policies are excluded from this policy; however, the management of all funds remain subject to Oregon Law. Except where legally required to hold separate funds, the City will consolidate cash balances from all funds to maximize investment earnings. Net investment income will be allocated to the various funds based on generally accepted accounting principles. IV. General Objectives The City's investment objectives, in priority order are: 1. Safety & Preservation of Invested Capital Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio (i.e. the principal balance). The goal is to mitigate credit risk and interest rate risk. The City will also reduce custodial risk through the use of a third-party custodian who will hold securities in the City's name evidenced by contract and statements. 2. Liquidity The investment portfolio shall remain sufficiently liquid to meet all reasonably anticipated operating requirements. Where possible and prudent, the portfolio should be structured so that investments mature concurrent with anticipated demands. ---PAGE BREAK--- Page 2 of 8 3. Return The investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into consideration the safety and liquidity needs of the portfolio. V. Standards of Care 1. Prudence The standard of prudence to be used by investment officials shall be the "prudent person" standard and shall be applied in the context of managing an overall portfolio. The "prudent person" standard states: "Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived." The Investment officer and staff acting in accordance with this Investment Policy, written procedures, and Oregon Revised Statutes 294.004 to 294.990, and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes in accordance with ORS 294.047. 2. Ethics and Conflicts of Interest In carrying out authorized activities under this Policy, Officers and employees shall, at all times, comply with the State of Oregon Government Standards and Practices code of ethics set forth in ORS Chapter 244. Additionally, Employees and officers shall refrain from undertaking personal investment transactions with the same individual with whom business is conducted on behalf of the City. 3. Delegation of Authority and Responsibilities i. Governing Body The City Council will retain ultimate fiduciary responsibility for invested funds. The governing body will receive reports, pursuant to, and with sufficient detail to comply with ORS 294.085 and 294.155. The City Council may engage the services of one or more external investment managers to assist in the management of the entity’s investment portfolio in a manner consistent with this investment policy. Investment advisers may be hired on a non-discretionary basis. All investment transactions by approved investment advisers must be pre-approved in writing by the Investment Officer and compliant with this Investment Policy. ii. Delegation of Authority Authority to manage investments within the scope of this policy and operate the investment program in accordance with established written procedures and internal controls is also granted to the City's Finance Director, hereinafter referred to as Investment Officer. The Investment Officer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. ---PAGE BREAK--- Page 3 of 8 VI. Transaction Counterparties, Investment Advisers and Depositories 1. Broker/Dealers The Investment Officer shall determine which broker/dealer firms and registered representatives are authorized for the purposes of investing funds within the scope of this investment policy. The following minimum criteria must be met prior to authorizing investment transactions. i. Broker/Dealer firms must meet the following minimum criteria: A. Be registered with the Securities and Exchange Commission (SEC) B. Be registered with the Financial Industry Regulatory Authority (FINRA) C. Provide most recent audited financials D. Provide FINRA Focus Report filings ii. Approved broker/dealer employees who execute transactions with the City must meet the following minimum criteria: A. Be a registered representative with the Financial Industry Regulatory Authority (FINRA); B. Be licensed by the state of Oregon; C. Provide certification (in writing) of having read; understood; and agreed to comply with the most current version of this investment policy. iii. Periodic (at least annual) review of all authorized broker/dealers and their respective authorized registered representatives will be conducted by the Investment Officer. Factors to consider would be: A. Pending investigations by securities regulators B. Significant changes in net capital C. Pending customer arbitration cases D. Regulatory enforcement actions 2. Direct Issuers Obligations that are permitted for purchase by this policy may be purchased directly from the issuer. 3. Investment Advisers Investment advisers engaged by the City must meet the following minimum criteria. i. The following items are required for all approved Investment Advisers: A. The investment adviser firm must be registered with the Securities and Exchange Commission (SEC) or licensed by the state of Oregon (Note: Investment adviser firms with assets under management > $100 million must be registered with the SEC, otherwise the firm must be licensed by the state of Oregon). B. All investment adviser firm representatives conducting investment transactions on behalf of the City must be registered representatives with FINRA. C. All investment adviser firm representatives conducting investment transactions on behalf of the City must be licensed by the state of Oregon. D. Certification, by all of the adviser representatives conducting investment transactions on behalf of this entity, of having read, understood and agreed to comply with this investment policy. ---PAGE BREAK--- Page 4 of 8 ii. A periodic (at least annual) review of all investment advisers under contract will be conducted by the Investment Officer to determine their continued eligibility within the portfolio guidelines. Factors to consider would be: A. Pending investigations by securities regulators B. Significant changes in net capital C. Pending customer arbitration cases D. Regulatory enforcement actions 4. Depositories All financial institutions who desire to become depositories must be qualified Oregon Depositories pursuant to ORS Chapter 295. VII. Suitable and Authorized Investments 1. Permitted Investments The following investments are permitted pursuant to ORS 294.035, 294.040, and ORS 294.810. • US Treasury Obligations: U.S. Treasury and other government obligations that carry the full faith and credit guarantee of the United States for the timely payment of principal and interest. • US Agency Obligations: Senior debenture obligations of US federal agencies and instrumentalities or U.S. government sponsored enterprises (GSE). • Oregon Short Term Fund • Corporate Indebtedness 1. Commercial Paper issued under the authority of section 3(a)2 or 3(a)3 of the Securities Act of 1933. 2. Corporate Bonds • Banker's Acceptances • Qualified Institution Time Deposits/Savings Accounts/Certificates of Deposit 2. Approval of Permitted Investments If additional types of securities are considered for investment, per Oregon state statute they will not be eligible for investment until this Policy has been amended and the amended version adopted by the City. 3. Prohibited Investments i. Private Placement or “144A” Securities Private placement or “144A” securities are not allowed. For purposes of the policy, SEC Rule 144A securities are defined to include commercial paper privately placed under section 4(a)(2) of the Securities Act of 1933. ii. US Agency Mortgage-backed Securities US agency mortgage-backed securities such as those securities issued by FNMA and are not allowed. iii. Securities Lending The City shall not lend securities nor directly participate in a securities lending program. ---PAGE BREAK--- Page 5 of 8 VIII. Investment Parameters 1. Credit Risk Credit risk is the risk that a security or a portfolio will lose some or all of its value due to a real or perceived change in the ability of the issuer to repay its debt. Credit risk will be mitigated by the following guidelines: i. Diversification It is the policy of the City to diversify its investments. Where appropriate, exposures will be limited by security type; maturity; issuance, and issuer. Allowed security types and Investment exposure limitations are detailed in the table below. ii. Recognized Credit Ratings Investments must have a rating from at least one of the following nationally recognized statistical ratings organizations (NRSRO): Moody’s Investors Service; Standard & Poor’s; and Fitch Ratings Service as detailed in the table below. Ratings used to apply the guidelines below should be investment level ratings and not issuer level ratings. A single rating will be determined for each investment by utilizing the lowest security level rating available for the security from Standard and Poor’s, Moody’s Investor Services and Fitch Ratings respectively. iii. Portfolio Average Credit Rating The minimum weighted average credit rating of the portfolio’s rated investments shall be Aa/AA/AA by Moody’s Investors Service; Standard & Poor’s; and Fitch Ratings Service respectively. iv. Exposure Constraints and Minimum Investment Credit Ratings The following table limits exposures among investments permitted by this policy. Issue Type Maximum % Holdings Minimum Ratings Moody’s / S&P / Fitch US Treasury Obligations 100% None US Agency Securities 100% - Per Agency (Senior Obligations Only) 33% - Oregon Short Term Fund (Local Gov. Investment Pool "LGIP") Maximum allowed per ORS 294.810 - Bankers’ Acceptances 25% A1+/P1/F1+ Time Deposits/Savings 50% - Accounts/Certificates of Deposit Per Institution 25% Corporate Debt (Total) Corporate Commercial Paper Per Issuer 15% - 15% 2.5% A1/P1/F1 Corporate Bonds 10% Per Issuer 2.5% Aa/AA/AA ---PAGE BREAK--- Page 6 of 8 v. Restriction on Issuers with Prior Default History Per ORS 294.040, the bonds of issuers listed in ORS 294.035 to may be purchased only if there has been no default in payment of either the principal of or the interest on the obligations of the issuing county, port, school district, or city, for a period of five years next preceding the date of the investment. 2. Liquidity Risk Liquidity risk is the risk that an investment may not be easily marketable or redeemable. The following strategies will be employed to mitigate liquidity risks: i. The value of at least six months of budgeted operating expenditures will be invested in the Oregon Short Term Fund, with a qualified depository institution, or investments maturing in less than 90 days to provide sufficient liquidity for expected disbursements. ii. Funds in excess of liquidity requirements are allowed for investments maturing in greater than one year. Portfolio investment maturities will be limited as follows: Total Portfolio Maturity Constraints: Maturity Constraints Minimum % of Total Portfolio Under 90 days Six Months Estimated Operating Expenditures Under 1 year 50% Under 3 years 100% iii. Reserve or Capital Improvement Project monies may be invested in securities exceeding the maximum term if the maturities of such investments are made to coincide as nearly as practicable with the expected use of the funds. 3. Interest Rate Risk Longer-term investments have the potential to achieve higher returns but are also likely to exhibit higher market value volatility due to the changes in the general level of interest rates over the life of the investment(s). Interest rate risk will be mitigated by providing adequate liquidity for short term cash needs, and by making longer-term investments only with funds that are not needed for current cash flow purposes. The following strategies will be employed to control and mitigate adverse changes in the market value of the portfolio due to changes in interest rates: i. Where feasible and prudent, investment maturities should be matched with expected cash outflows to mitigate market risk. ii. To the extent feasible, investment maturities not matched with cash outflows, including liquidity investments under one year, should be staggered to mitigate re- investment risk. iii. No commitments to buy or sell securities may be made more than 14 days prior to the anticipated settlement date, or receive a fee other than interest for future deliveries. iv. The maximum percent of callable securities in the portfolio shall be 10%; v. The maximum stated final maturity of individual securities in the portfolio shall be three years, except as otherwise stated in this policy. ---PAGE BREAK--- Page 7 of 8 IX. Investment of Proceeds from Debt Issuance Investments of bond proceeds are restricted under bond covenants that may be more restrictive than the investment parameters included in this policy. Bond proceeds shall be invested in accordance with the parameters of this policy and the applicable bond covenants and tax laws. X. Investment of Reserve or Capital Improvement Funds Pursuant to ORS 294.135(1)(b), reserve or capital Improvement project monies may be invested in securities exceeding three years when the funds in question are being accumulated for an anticipated use that will occur more than 18 months after the funds are invested, then, upon the approval of the City Council, the maturity of the investment or investments made with the funds may occur when the funds are expected to be used. XI. Guideline Measurement and Adherence If the portfolio falls outside of compliance with adopted investment policy guidelines or is being managed inconsistently with this policy, the Investment Officer shall bring the portfolio back into compliance in a prudent manner and as soon as prudently feasible. Violations of portfolio guidelines as a result of transactions; actions to bring the portfolio back into compliance; and reasoning for actions taken to bring the portfolio back into compliance shall be documented and reported to the City Council. XII. Reporting and Disclosure 1. Compliance The Investment Officer shall prepare a report at least that allows the City Council to ascertain whether investment activities during the reporting period have conformed to the investment policy. The report will include, at a minimum, the following: i. A listing of all investments held during the reporting period showing: par/face value; accounting book value; market value; type of investment; issuer; credit ratings; and yield to maturity (yield to worst if callable). ii. Distribution by type of investment iii. Transactions since last report iv. Distribution of transactions among financial counterparties such as broker/dealers v. Violations of portfolio guidelines or non-compliance issues that occurred during the prior period or that are outstanding. This report should also note actions (taken or planned) to bring the portfolio back into compliance. 2. Performance Standards/ Evaluation At least annually, the Investment Officer shall report comparisons of investment returns to relevant alternative investments and comparative Bond Indexes. The performance of the portfolio should be compared to the performance of alternative investments such as available certificates of deposit; the Oregon Short Term Fund; US Treasury rates; or against one or more bond indices with a similar risk profile Bond indexes comprised high grade investments and maximum maturities of three years). When comparing performance, all fees and expenses involved with managing the portfolio shall be included in the computation of the portfolio’s rate of return. 3. Audits ---PAGE BREAK--- Page 8 of 8 Management shall establish an annual process of independent review by the external auditor to assure compliance with internal controls. Such audit will include tests deemed appropriate by the auditor. XIII. Policy Maintenance and Considerations 1. Review The investment policy shall be reviewed at least annually to ensure its consistency with the overall objectives of preservation of principal, liquidity and return, and its relevance to current law and financial and economic trends. 2. Policy Adoption and Amendments This investment policy and any modifications to this policy must be formally approved in writing by the City Council. This policy will also be submitted to the Oregon Short Term Fund (OSTF) Board for review where the policy: Allows maturities beyond 18 months unless the funds are being accumulated for a specific purpose, including future construction projects, and upon approval of the City Council, the maximum maturity date matches the anticipated use of the funds (ORS 294.135(1)(b) and 294.135(3)), And either: A. This policy has never been submitted to the OSTF Board for comment; Or B. Material changes have been made since the last review by the OSTF Board.