Fiscal and Budgetary Policies

Review and recommend adoption by the City Council, as revised

The current Fiscal and Budgetary Policies were first prepared in 2007. Vice-Mayor Jospeh proposes to update them and staff agrees.

Some changes have been made over the years, most notably in late 2025, when the Fund Reserve section was revised and updated. The Finance Committee was tasked with reviewing and making any changes or revisions to the policies. Any approved revisions would then be forwarded to the full City Council for action.

After reviewing the document, it became clear that many of the policies are technical in nature, and State Law or professional standards may have changed over the years. In many cases, dollar amounts are used that are likely out of date by today’s standards. These provisions need to be evaluated by Finance Staff and any revisions brought back at a later date.

There are also some provisions that do not appear to be in effect. Most notably is the “Expenditure Control Account,” in which Departments are allowed to save half of whatever budget appropriations are left over at the end of the fiscal year. Although this was likely intended to reward Department Heads to be more efficient, it also is subject to “gaming”—for example, some line-item accounts may be higher than needed and never adjusted downwards. There may be better ways to encourage efficiency.

With these caveats in mind, the suggested edits reflect significant revisions in Section 2 (Operating Budget). At a later date, changes to “Mandatory Professional Services Review” (Section 5 – Expenditure Control) and a new section, entitled “Fiscal Impact Statements in Council Reports” are warranted.

Two other changes were added. The first was formatting—the current policy has numbered sections, but all sub-sections are simply given a title (sometimes). The revised policy adds a simple numbering system: Section 1, 2, 3, etc. with subsection a), b), c), etc. and then any further detail is in 1) 2) 3), etc. format. This formatting change should make it easier to identify and reference sections in the policy.

The second change was to add an “Overview” to each section. As noted above, these policies are often technical in nature and may not be as relevant to Council as they are to staff—and Finance Staff in particular. The Overviews are intended to provide context and policy relevance to the topic—hopefully, to help Council (and the public) appreciate why these policies should be considered when conducting public business.

With this in mind, the following is a more detailed explanation of the suggested changes to Section 2: Operating Budget. Although this section was completely rewritten, not all of the current language is discarded; rather, the language was rearranged into other sub-sections. The format (and some of the details) of the revised Section 2 is presented below and shown in Attachment 1:

1. Overview
2. Budgeting Goals [1) To ensure funds are balanced; 2) To authorize expenditures at the line-item level; 3) To offer Council and the public insight on how well the City has performed over the past year and in the next; and 4) To provide financial forecasts to demonstrate the City’s financial condition over the next 5 years.]
3. Budget Calendar [1) Staff assesses the budget at Mid-year and makes initial revenue/expenditure forecasts for the next year; 2) Staff presents to the Finance Committee; 3) Council reviews the Mid-Year budget Review and provides direction to staff on budget priorities for the next year, based in part on input from the Council’s Commissions and the General Public; 4) Staff develops a recommended budget based on Council direction; 5) Staff presents to the Finance Committee; 6) Council takes action on the budget prior to June 30.]
4. Budget Document [1) City Manager’s Message—essentially an Executive Summary of the budget, but may also include general information on American Canyon, such as population and demographics, employment and business information, etc. 2) Departmental Summaries, including budget and staff, past year accomplishments and next year goals; Division or Program level summaries, which provide revenue and expenditure summaries as well as Key Performance Indicators; 3) Fund Summaries, including Beginning Balances, Recommended Revenues and Expenditures, and Ending Balance; 4) A Capital Budget Summary, listing all capital projects in the current budget; 5) a Fiscal Forecast for the next 5 years, including a baseline forecast, a forecast based on the Recommended Budget and a forecast that includes anticipated development projects; 6) an Appendix that includes enabling Resolutions, Glossary of terms, etc.
5. Budget Guidelines 1) Structurally and Sustainably Balanced Budget—ongoing revenues are used for ongoing costs; and funds are set aside to cover anticipated but non-annual expenses (for example, major repairs and renovations of streets, parks and infrastructure); Financial reporting requirements; Contingency appropriations; Forecasting; Legal level of control; Administrative Cost Recovery; Appropriations lapse at year end (except encumbrances).
6. Key Performance Indicators (KPI). As noted in the third Budget Goal above, KPI’s are a critical means of showing how well the City is performing, including how we compare to other, similar jurisdictions. Although important, adopting KPIs have been challenging and the Council needs to conduct whatever study and analysis is needed to complete this task. Once adopted, they should not change substantially over time, so the investment will be worth it. KPIs may be broken down into three components:

• • Performance Ratios: These are fairly simple to calculate, dividing a program’s budget or staffing into its essential inventory. For example, street maintenance cost per lane mile or per Full Time Equivalent (FTE) staffing. Quantifying what is the “essential inventory” should be discussed and agreed upon in advance. The ratios are useful when calculating the cost of new development or whether workloads require additional staffing or support. They can also be used to compare with other jurisdictions. Some caution is needed, however. For example, we could significantly reduce our cost per mile in road maintenance by simply letting our roads fall apart.
    o    Qualitative Indicators: These KPI reflect how well we are doing, in terms of qualify of life. Using the Road analogy, the Pavement Condition Index (PCI) defines the quality of our roads. The higher the PCI, the better. Analyzing our PCI score with the Performance Ratios above begin to show how efficient we really are—for example, increasing our PCI while maintaining our cost per mile. Identifying a reliable qualitative indicator for the various City services will be challenging, and the Council should endorse those indicators in advance, based on staff input and public comment.
    o    Milestone Targets: Each program should have one or more major targets it wants to achieve. These should be identified and an accomplishment month provided. These milestone targets help focus staff’s energy and gives the Council a basis for evaluating the effectiveness of the program.