Financial Policies

Fiscal year 2023/24 - 2024/25

The guiding principles of the City’s budget development process are financial and operational polices. These policies promote and ensure organizational continuity, consistency, transparency, and responsibility from year to year. This section identifies some of the major financial and operational policies that the City of Yorba Linda employs in order to guarantee fiscal and programmatic integrity and to guide the development of the City’s Two-Year Budget.

Two-Year Budget Policy

City Council Policy A-3, adopted on February 18, 1992, formally established the City’s policy to adopt budgets covering a two-year fiscal period. This policy had been informally followed since the 1987/88 fiscal year. This policy also allows for unspent capital project appropriations and encumbered funds to be carried forward automatically between the first and second years of the Two-Year Budget. Any other carryover funds as well as all carryover funds at the conclusion of the two-year fiscal period covered by the Two-Year Budget may be carried forward only through an action of the City Council.

After the conclusion of the first year of the Two-Year Budget, it is the City’s policy to undertake a comprehensive Mid-Term Budget Update, which validates the assumptions included in the second year of the Two-Year Budget and requests City Council approval of any required adjustments to the budget as originally adopted.

Budget Reserves Policy

City Council Policy A-4, adopted on October 4, 2016, is the third iteration of the City’s Budget Reserves Policy. This policy governs the City’s operating and capital reserves for various funds. In particular, it establishes an operating reserve for the General Fund equal to 50% of the expenditure budget excluding transfers, with 40% reserves for emergencies and 10% reserves for economic contingencies. The policy further established criteria by which these funds may be accessed and a timeline for their replenishment following use. In addition, the policy establishes what are termed “Special Reserves” for the General Fund, which include capital reserves for infrastructure, facilities, vehicles, and equipment, and cash reserves for self-insurance and employee leave liabilities.

Importantly, the policy also establishes requirements for the disposition of surplus General Fund operating reserves, with uses limited to unfunded capital projects, unfunded liabilities, and vehicles and equipment purchases. Through this policy, the City is dedicating resources to paying down its unfunded pension liability at an accelerated rate and funding an other post-employment benefits (OPEB) trust to pay down its unfunded retiree health insurance liability.

Policy Governing Supplemental Appropriations and Budget Transfers

The Two-Year Budget, as adopted by the City Council, establishes the total appropriation provided for each City Department's operations. City Council Policy A-15, adopted on October 16, 2018, governs modifications to the adopted budget. This policy delegates to the City Manager the authority to make supplemental appropriations up to $25,000 each and any transfer that is not between Funds or Departments. Any supplemental appropriations that exceed $25,000 or transfers between Funds or Departments must be approved by the City Council. All supplemental appropriations and budget transfers, regardless of amount, are reflected in the City’s quarterly budget reports provided to the City Council.

Balanced Budget Policy

The City’s policy is to adopt a balanced budget, which means that budgeted expenditures do not exceed available funds. Available funds may include the use of budget reserve funds, provided that the use of those funds is consistent with the City’s Budget Reserves Policy.

Budget Monitoring Policy

The Finance Department has a policy of providing the City Council with a quarterly budget update report, which provides current revenue, expenditures, and fund balance projections for the General Fund. At mid-year the City Council is presented with a more comprehensive update for the second quarter, which includes an analysis of other major funds and any recommendations for adjustments to the budget as adopted.

One-Time Revenue Policy

The City’s policy is to avoid the use of one-time revenues to fund ongoing operations, though when considered as part of the City’s General Fund Five-Year Financial Plan, usage of one-time revenue may be appropriate to bridge short-term gaps in available resources.

Proposition 4 (Gann) Appropriation Limit

Article 13-B of the California Constitution was added by the November 1979 passage of the Gann Initiative. This legislation mandated that California Cities must compute an appropriation limit, which places a ceiling on the total amount of tax revenues that the City can appropriate annually. The legislation also provides that the governing body shall annually establish its appropriations limit by resolution. The appropriations limit is calculated by determining appropriations financed by proceeds of taxes in the 1978/79 base year and adjusting the limit each subsequent year for changes in the cost of living and population. This Appropriation Limit is the maximum limit of proceeds from taxes the City may collect or spend each year. Budgeted appropriations are limited to actual revenues if they are lower than the limit. The Appropriations Limit may be amended at any time during the fiscal year to reflect new data.

Debt Management

The California Constitution requires that long-term debt pledged by the full faith and credit of the City can only be approved by voter referendum. Per State of California statute, the City’s debt limit is set at 15 percent of total adjusted assessed valuation of all the real and personal property within the City. Currently, the City has no outstanding debt subject to this limit. The City acting as Successor Agency to the former Yorba Linda Redevelopment Agency does have outstanding bonded debt secured by a pledge of tax-increment funds. Specific details on the City’s outstanding debt can be found in the Budget Summary Section.

Risk Management

The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. Adequate Special Reserve funds have been set aside to cover the City’s current actuarial obligations plus a reserve of $500,000. Various insurance policies are carried by the City to cover risks of loss beyond the self-insured amounts.