It is recommended that the City Council adopt the attached Financial Management Policy Statements for Fiscal Year 2009-2010.

The Financial Management Policy Statements, (FMPS) initially adopted by the City Council on January 15, 1994, require an annual review by the City Council. The FMPS is periodically updated with revisions and refinements as deemed necessary.
  
Pursuant to the State's Public Funds Investment Act, the City Council is required to take formal action annually stating that the City's investment policy and investment strategy have been reviewed and any changes to those documents have been recorded.
    
On July 21, 2009, (M&C G-16632) the City Council amended the FMPS by revising the use of revenues generated from gas well development leases. M&C G-16632 also stated that staff would return to the City Council for final adoption of the FMPS and incorporate necessary changes resulting from the budget process.
  
Approval of this M&C will make several changes to the FMPS. The Revenues from Gas Well Development Lease section will be slightly amended for enhanced clarification; the DFW Car Rental Revenue Sharing section will be removed; the Culture and Tourism Fund Balance Undesignated Fund Balance requirement will be increased to 20 percent; the Water and Sewer Payment-in-Lieu-of-Taxes section will be added to be consistent with the Fiscal Year 2010 Adopted Budget; and the Retirement System chapter will be expanded to include healthcare for eligible employees, retirees and beneficiaries.
  
The Revenues from Gas Well Development Leases, DFW Airport Car Rental Revenue Sharing, Use of One-time Revenues and Use of Unpredictable Revenues sections will be evaluated for inclusion within a Budget Policies Document at a later date. An asterisk (*) identifies these sections in the FMPS.

The amendments are as follows:

I. REVENUES

I.  Revenues from Gas Well Development Leases (M&C G-14767, April 26, 2005; M&C G-15715, May 8, 2007; M&C G-16013, January 8, 2008; July 21, 2009, M&C G16632)

2.  Amendment of the Public Funds Investment Act

During the 81st Legislative Session, amendment of the Public Funds Investment Act (State of Texas Local Government Code Chapter 2256) was successfully shall be pursued in order to maximize investment flexibility. Amendments to the Act were shall be consistent with the Uniform Prudent Management of Institutional Funds Act (State of Texas Property Code Chapter 163.005).  Should such an amendment not be approved and effective by December 31, 2009, further attempts to amend the Act shall occur during the 82nd Legislative Session in the year 2011.  If such attempts to amend the act are unsuccessful by December 31, 2011, then the City Council may dissolve the Trust as dictated by the terms of the Trust Agreement.

3.  Ad Valorem Tax Revenue Management (suspended per Resolution 3784-9-2009 for Fiscal Years 2009 and 2010)   

4.  Bonus and Royalty Revenue Management

a.  Water and Sewer Fund

Bonus, and royalty and other natural gas related fee revenue derived from Water and Sewer assets, including pipeline easements and license agreements, will be allocated in the following manner, subject to compliance with the Master Ordinance No.10968 and, upon appropriate action by the City Council declaring a surplus in the Water and Sewer Fund on an annual basis in accordance with state law.

i. Funds from Water and Sewer property and park land located in and around Lake Worth (except the Nature Center and Refuge) shall be designated for qualified expenditures in the development and execution of the 2007 Lake Worth Capital Improvement Implementation Plan, until such time as the plan projects are completed.

All other revenue derived from Water and Sewer assets will be appropriated allocated as follows unless a surplus is declared for the purpose of funding other City projects:

i. Fifty 50 percent to Water and Sewer capital projects fund.

ii. Twenty-five percent of the revenues will be allocated to the Fort Worth Permanent Fund; and

iii. Twenty-five percent of the revenues will be allocated to the Utility Street Reconstruction Capital Improvement Projects Fund.

e. Municipal Golf Fund

Bonus, and royalty and other natural gas related fee revenue derived from designated golf course park property, including pipeline easements and license agreements, will be allocated in the following manner:

i. Fifty percent of the revenue will be used to retire existing debt in the Municipal Golf Fund and upon retirement of all debt, the revenue will be applied to the reserve fund balance until such time that the required fund policy reserve of 10 percent in excess of the annual operating budget is achieved; and

ii. Fifty percent of the revenue will be used to cash fund golf capital improvement projects.

f. Municipal Airports Fund

Bonus, and royalty and other natural gas related fee revenue derived from airport property, including pipeline easements and license agreements,will be recorded in the Municipal Airports Fund and will be allocated in the following manner:

i. Fifty percent of the revenue will fund aviation capital improvement projects; and

ii. Fifty percent of the revenue will be allocated to the Fort Worth Permanent Fund-Aviation Endowment Fund.

g. Pipelines in Public Rights of Way

Revenue derived from pipeline easements and license agreements in the public rights of way will be deposited to the General Fund to offset the staff costs associated with reviewing and managing the pipeline locations in relation to other utilities.

h. g. Local Development Corporations or Housing Finance Corporation Properties

All gas-related revenues derived from property held by Local Development Corporations or the Housing Finance Corporation shall be deposited to separate accounts to support lawful activities of such corporations per the policies and oversight of their respective governing boards.

i. h. All Other Revenue

Except as noted in prior sections, all other revenue from bonuses, royalties and fees from gas well leases, pipelines or related activities located on all other City property will be allocated as follows:

Bonuses, royalties and fees from gas well leases, pipelines or related activities located on all other City property, including but not limited to parks without federal, State, deed or other legal restrictions;landfills, general City facilities and street rights-of-way, will be allocated as follows:

i. Fifty percent of the revenue will be allocated to the Capital Projects Reserve Fund; and

ii. Fifty percent of the revenue will be allocated to the Fort Worth Permanent Fund.

J.  DFW Airport Car Rental Revenue Sharing

All revenues Revenues derived from the DFW Airport car rental revenue sharing shall be dedicated to facility improvements of the Fort Worth Convention Center and the Will Rogers Memorial Center. are first committed to repayment of the Fort Worth Convention Center (FWCC) debt service not fully met by the 2 percent local option Hotel Occupancy Tax. Revenues in excess of the FWCC debt requirements will be allocated for arts programming (30 percent) and repair, maintenance, and capital improvements of the Fort Worth Convention Center and Will Rogers Memorial Center (70 percent).

K. Water and Sewer Payment-In-Lieu-of-Taxes (PILOT)

The Water and Sewer Operating Fund shall make a Payment-In-Lieu-of-Taxes (PILOT) to the General Fund to offset the ad valorem taxes lost due to the non-profit status of the Water and Sewer System. The PILOT shall be calculated by applying the effective property tax rate to the net book value of the applicable assets. Assets subject to PILOT shall be limited to the assets classified as Plant and Property allocated to the retail portion of the Water and Sewer Systems.

An example of the PILOT calculation:

(Plant Assets – Accumulated Depreciation + Work in Progress) * Current Tax Rate

The Plant Assets are defined as the retail portion of audited plant and property assets of the utility as represented in the Fixed Assets Inventory and the Retail Cost of Service Rate Models. The Accumulated Depreciation is defined as the audited accumulated depreciation directly applied to the Plant Assets. The Work in Progress is defined as all audited Capital Project Expenditures not included in the Fixed Assets Inventory. The values used to complete the most recently available Comprehensive Annual Financial Report shall be used to determine the value of Plant Assets, Accumulated Depreciation and Work in Progress. The PILOT will be treated as a transfer to the General Fund from the Water and Sewer Fund, provided that the Water and Sewer Operating Fund balance shall remain in excess of the reserve requirements for Operating and Debt Service Funds. The transfer shall not exceed the PILOT calculation described above in any given year.

For the purposes of revenue recovery, the amount of the PILOT will be included in annual retail cost of service studies performed by the Water Department and included in the annual operating budget. The PILOT shall be treated as an operating expense of the Water and Sewer System. One twelfth of the budgeted PILOT transfer amount shall be transferred to the General Fund monthly.

L. K.    Use of One-time Revenues

The City shall discourage the use of one-time revenues for ongoing expenditures.

M. L.   Use of Unpredictable Revenues

The City shall exercise caution with the use of unpredictable revenues for ongoing expenditures.

III. FUND BALANCE/RETAINED EARNINGS

E. Culture and Tourism Fund Undesignated Fund Balance

The City shall strive to maintain the Culture and Tourism Fund undesignated fund balance at 20 percent 10 percent of the current year's budget appropriation for operations and maintenance, which is defined as the total budget less the annual transfer to the debt service funds.

XIII. RETIREMENT SYSTEM

A. To ensure that the Employees' Retirement Fund is adequately funded and operated for the exclusive benefit of the participants and their beneficiaries:

1. A.   Benefit Improvements

The Board of Trustees of the Employees' Retirement Fund (Retirement Fund) shall certify to the Council the actuarial impact of any proposed benefit improvements or changes in contribution levels. The City Council (City) will also obtain an independent actuary who will certify to the Council the actuarial impact of any proposed benefit improvements or changes in contribution levels.    

2. B.    Qualified Plan

The City and the Retirement Fund will maintain the qualified status of the Retirement System. As deemed necessary from time to time, the City and/or the Retirement Fund will request a "determination letter" from the IRS relative to whether or not the City's retirement system conforms to the Internal Revenue Code in order to assure the tax-exempt status of the income earned on the Retirement Fund's investments, the retiree pension payments, and the accrued benefits for active employees.

3. C.   Funding Level

In accordance with Article 16, Section 66 of the Texas Constitution which charges the City and the Retirement Fund with the responsibility for ensuring that accrued benefits are not reduced or impaired. The City shall continue to monitor contribution levels of both the City and employees, along with retirement benefits, to ensure that the Retirement Fund is sufficiently funded and benefits can be paid as they become due. If funding levels are insufficient, staff will update the City Council of the deficiency and make recommendations for corrective action.

4. D.   City Manager's Proposed Budget

The City Manager will provide assumptions included in the City Manager's Proposed Budget, such as compensation increases, retirement contributions, and any changes in staffing to the City's selected actuarial firm. The actuarial firm will determine the actuarial impact of assumptions included in the City Manager's Proposed Budget on the Employees' Retirement Fund. The City Manager will present the City Council with the results of the actuarial analysis, prior to the adoption of the budget and communicate the results of the actuarial study to the Employees' Retirement Fund's actuary.

B.  To ensure that the Health Fund is adequately funded and operated for the exclusive benefit of eligible employees, retirees, and beneficiaries:

1.  Benefit Improvements

Staff shall routinely present to the City Council the actuarial impact of any proposed benefit improvements or changes. The City Council will also obtain an independent actuary who will certify to the Council the actuarial impact of any proposed benefit improvements or changes.

2.  Funding Level

The City shall continue to monitor retiree healthcare benefits, to ensure that the Health Fund is sufficiently funded and City Council-approved benefits can be paid according to the approved benefit program. If funding levels are insufficient, staff will update the City Council of the deficiency and make recommendations for corrective action.

3.  City Manager's Proposed Budget

The City Manager will provide assumptions included in the City Manager's Proposed Budget related to the actuarially determined Annual Required Contribution (ARC) and the period of time necessary to fully fund the ARC in accordance with Governmental Standards Accounting Board Statement 45 (GASB 45).

The City staff recommends that the City Council adopt the Financial Management Policy Statements for Fiscal Year 2009-2010, effective October 1, 2009.