HomeMy WebLinkAboutReso - CC - 004-2020RESOLUTION NO.004-2020
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF BURLINGAME ADOPTING AN
INTERFUND LOAN POLICY
WHEREAS, the practice of interfund loans has long been a recognized and necessary
aspect of municipal finance, allowing for the short-term borrowing between funds for working cash
purposes; and
WHEREAS, interfund loans provide a means of low-cost borrowing that can be used to
respond to opportunities that arise in the advancement of quality projects, programs, and services
to the citizens of Burlingame; and
WHEREAS, communities are encouraged to adopt Interfund Loan Policies to ensure
arrangements do not transgress legal principles and generally accepted accounting practices; and
WHEREAS, staff has prepared the attached Interuund Loan Policy for the City Council's
consideration.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF BURLINGAME
RESOLVES AND ORDERS AS FOLLOWS:
Section 1. Adoption of Policy. The Council approves and adopts the Interuund Loan
Policy as shown on the attached Exhibit A. The Interuund Loan Policy shall govern the
issuance and administration of all interfund borrowings by the City.
Section 2. Effective Date. This Resolution shall take effect immediately upon its
adoption.
I, Meaghan Hassel -Shearer, City Clerk of the City of Burlingame, certify that the foregoing
Resolution was duly and regularly introduced and adopted at a regular meeting of the Burlingame
City Council held on the 21s' day of January, 2020, by the following vote:
AYES:
NOES:
ABSENT:
Councilmembers
Councilmembers
Councilmembers
BEACH, BROWNRIGG,
NONE
NONE
COLSON, KEIGHRAN, ORTIZ
City of Burlingame, California
Financial Policy Document
Interfund Loan Policy
Adoption Date:
Last Revision Date:
Owner Department: Finance
Introduction
An Interfund Loan Policy sets forth certain fund management objectives, establishes overall
parameters, and provides general direction in the appropriate establishment and administration
of the City's interfund borrowings. The purpose is to maintain the City's ability to utilize
existing resources to pursue opportunities that require financing in the short-term, where
resources are not yet available in the appropriate funds. Accessing the capital markets for such
short-term borrowings is not cost-effective. This policy supports the Council's goal of
sustaining long-term financial strength in all funds.
The guidelines established by this policy will govern the issuance and management of all
interfund borrowings and repayment. The Finance Department recognizes that funds are
segregated according to their intended purpose and may be used only in compliance with
finance -related legal and contractual provisions. Interfund loans may be used to forward
specific capital financing needs or to initiate specific programs, and not for general operating
functions. In cases that require exceptions to this Interfund Borrowing Policy, approval from
the City Council will be necessary for implementation.
Objectives
The purpose of this Interfund Loan Policy is to establish a framework in which the City can
work to effectively use the cash balances of other funds to provide a short-term financing option
to funds in anticipation of revenues adequate to cover the loan. This low-cost borrowing will
allow the City maximum flexibility in responding to opportunities that arise in the advancement
of quality projects, programs, and services to the citizens of Burlingame, while maintaining
financial integrity.
Such short-term financing is an efficient use of City resources in that it avoids the cost of
issuance or establishment of debt with external entities. The City may not utilize this form of
debt obligations between funds to finance long-term capital projects. However, interfund
borrowing may be used for any interim financing purposes that meet the conditions and
purposes outlined in this policy.
CONDITIONS AND PURPOSES OF INTERFUND LOANS
Acceptable Conditions for the Use of Interfund Loans — In the event of temporary shortfalls
in cash flow in any fund established by the City, due to timing of receipt of revenues and the
lack of cash on hand to cover the temporary deficit, the City may consider the use of an interfund
loan. In compliance with applicable state law, any such note shall be payable either (i) not later
than the last day of the fiscal year in which it is issued, or (ii) during the fiscal year succeeding
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City of Burlingame, California
Financial Policy Document
Interfund Loan Policy
the fiscal year in which issued, but in no event later than 24 months after the date of issue, and
only if such note is payable only from revenue received or accrued during the fiscal year in
which it was issued.
Interfund loans are not permitted without an identified repayment source. The borrowing fund
must anticipate sufficient revenues to be in a position over the period of the loan to make
specified principal and interest payments. The lending fund may loan only that portion of the
fund's cash that is clearly inactive or in excess of current needs.
Interfund loans may not be used to solve ongoing structural budget problems, unless a rigorous
plan is in place to resolve the budget issue.
Acceptable Uses of Interfund Loans — From time to time, interfund borrowings may be
appropriate. Such borrowings are subject to the following criteria in ensuring that the fiduciary
purposes of the affected funds are met:
The Finance Director is authorized to approve temporary interfund borrowings for cash
flow purposes whenever the cash shortfall is expected to be resolved within 90 days.
The most common use of interfund borrowing under this circumstance is for grant
programs, where costs are incurred before drawdowns on the grant funds are initiated
and received (reimbursements). However, receipt of funds is typically received shortly
after the request for funds has been made.
• Any other interfund borrowings for cash flow or other purposes require case -by -case
approval by the City Council.
Any transfers between funds where reimbursement is not expected within 24 months
shall not be recorded as interfund borrowings; they shall be recorded as interfund
operating transfers that affect equity by moving financial resources from one fund to
another.
All interfund loan proposals require an analysis by the Finance Department demonstrating that:
• The borrowing fund has the capacity to repay the debt;
• The lending fund has the capacity to lend the funds, beyond its own operating and capital
needs; and
• The loan does not violate any debt covenants or other provisions of the borrowing and
lending funds.
Any adjustment of the terms of an interfund loan that will result in the extension of repayment,
an increase in the repayment amount, a write-off, or cancellation must be approved by the City
Council.
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City of Burlingame, California
Financial Policy Document
Interfund Loan Policy
Interfund Documentation Requirements
Each interfund loan will be documented by formal agreements that specify the following terms
and conditions:
• The purpose of the loan
• The identification of the borrowing and lending fund or funds
• The dollar amount of the loan and the interest rate*
• The terms for repayment, including the dates for installment payments and maturity date
on which all principal and unpaid interest will be due
• The source of repayment and the ability to repay the loan within the terms without
causing a negative impact to the fund's financial position
* All interfund loans are interest bearing, and the amount of interest to be paid on the loan
must be at least equal to the investment earnings the fund making the loan would have
received had the loan not occurred. There is no prepayment penalty on an interfund loan.
Repayment of the interfund loan must be the top priority of the borrowing fund once cash
is available.
The Finance Department will review all inter -fund borrowing at least annually to determine
compliance with the agreed -upon terms.
Administration — Ultimate responsibility for all matters relating to the administration and
proper reporting of interfund borrowings rests with the City's Finance Director. The Finance
Director and other appropriate City personnel may also consult with legal counsel, auditors,
and advisors as needed in establishing such loans, to ensure compliance with all applicable
covenants and to safeguard the integrity of the purpose of all funds established by the City.
A copy of all debt -related records shall be retained at the City's offices. At minimum, these
records shall include all legal documents/transcripts, resolutions, leases (if applicable), and
notes.
The Finance Director is responsible for efficient cash management that ensures the timely and
accurate payment of all interfund borrowings as delineated in the financial documents
governing the loan.
Periodic Review of Policy
This Interfund Loan Policy will be reviewed from time to time as conditions warrant, or at any
time it is determined that changes are necessary, to safeguard its effectiveness and relevance to
the City's needs. All changes to this policy will be approved by resolution of the City Council.
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