Page 24 - FY 2021-22 Proposed Budget

CAPITAL AND TECHNOLOGY IMPROVEMENT POLICY

The City is responsible for the planning, development, acquisition, construction, and maintenance of
critical capital and technology infrastructure that ensures the health, safety, and well-being of its
residents. The City’s investment in these assets and infrastructure is essential to promote and improve its
ongoing economic development and vitality. The Office of the City Administrative Officer is responsible for
developing an Annual Capital and Technology Improvement Expenditure Program that the City
incorporates into the annual budget development process. In order to make sound and informed
decisions regarding projects with costs that span multiple years, the City will quantify and capture, to the
extent possible, project costs over a five-year term and present it in a five-year Capital and Technology
Improvement Plan. The City will update this Plan on an annual basis, incorporating approved projects.

The City will, to the extend feasible, invest an annual minimum target of 1.5 percent of the General Fund
revenue for new capital projects, maintenance of existing assets, and information technology
improvements.

PENSION AND RETIREMENT FUNDING POLICY

The City has made a commitment to its past and current employees to provide ongoing pension
payments and healthcare subsidies to them during their retirement. To fulfill this commitment, and
consistent with the City Charter, the City must make annual contributions to the Los Angeles City
Employees’ Retirement System (LACERS) and the Los Angeles Fire and Police Pension System
(LAFPP) as part of the budget. These contributions will fully fund these two systems based on annual
actuarial studies. It is important that the City continue to meet this commitment to ensure that the costs
associated with current services are borne at the current time. To this end, this Policy recognizes the risks
associated with mechanisms through which the City could defer contributions to future years. This policy
also establishes a discretionary use for any true-up credit adjustment, and dictates the City’s use of any
savings in the case that either pension system is overfunded.

GENERAL FUND RESERVES POLICY

The General Fund Reserves Policy provides guidelines on the purpose, sizing, uses, and restoration
requirements of the Reserve Fund (both the Emergency and Reserve accounts), the Budget Stabilization
Fund, and the Unappropriated Balance line item for mid-year adjustments. Taken together, these three
accounts compose the City’s General Fund reserves. The Policy is intended to ensure that the City
maintains sufficient reserves for unanticipated expenditures or revenue shortfalls, to preserve flexibility
throughout the fiscal year to make adjustments in funding for programs approved in connection with the
annual budget, and to prepare the City for potential revenue challenges. The objective is for the City to be
in a strong fiscal position to weather future economic downturns and financial challenges.

The Reserve Fund balance must be equal to five percent of the General Fund revenues with a minimum
of 2.75 percent in the Emergency Reserve Account and any additional funds allocated to the Contingency
Reserve Account. This Policy sets a goal that the cumulative balances of the Reserve Fund, the Budget
Stabilization Fund, and the Unappropriated Balance line item for mid-year adjustments will be equal to ten
percent of General Fund revenues

Emergency Reserve Account

To use funds from the Emergency Reserve Account, a finding by the Mayor with confirmation by at least
two thirds of the Council of “urgent economic necessity” will be required as well as a determination that no
other viable sources of funds are available. A finding of urgent economic necessity would be based on a
significant economic downturn after the budget is adopted, a natural disaster, or another significant event
requiring the expenditure of resources.

Contingency Reserve Account

In the event that there are unanticipated expenses or revenue shortfalls impacting programs approved in
the current year budget and the exhaustion of any funds in the Unappropriated Balance line item for mid-
year adjustments, the Contingency Reserve Account will be the source of any additional funding for those

10