Budget Policies & Principles

  • The Proposed Budget is comprised of 131 separate funds which are used to finance a variety of County services. Each of these funds can be categorized as either governmental or proprietary. Governmental funds are used to account for most of the County's General government activities such as the General Fund and the Special Revenue Funds and proprietary funds such as internal service funds and enterprise funds are used to account for the County's services and programs which are similar to those often provided by the private sector. Special Districts represent independent County government units, generally established to perform a single specified service.

  • Governmentwide, proprietary and fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenue in the fiscal year for which the taxes are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met.

    Governmental Funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. Sales taxes, investment income, State and federal grants and charges for services are accrued at the end of the fiscal year if their receipt is anticipated within 180 days. Property taxes are accrued if they are collectible within 60 days after the end of the accounting period. Expenditures are generally recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, claims and judgments, are recorded only when payment is due. General capital asset acquisitions and general principal payments are reported as expenditures in governmental funds. Proceeds of general long-term debt and capital leases are reported as other financing sources.

    Proprietary Funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the County's enterprise funds and internal service funds are charges to customers for services. Operating expenses for enterprise funds and internal service funds include the costs of services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

    For governmentwide (governmental and business-type activities) and proprietary fund activities, the County applies all applicable Governmental Accounting Standards Board (GASB) pronouncements, as well as any applicable pronouncement of the Financial Accounting Standards Board (F ASB), the Accounting Principles Board, or any Accounting Research Bulletins issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The County has elected not to apply the FASB standards issued subsequent to November 30, 1989, in reporting business-type activities and proprietary funds. The GASB periodically updates its codification of the existing Governmental Accounting and Financial Reporting Standards, which, along with subsequent GASB pronouncements (Statements and Interpretations), constitutes Generally Accepted Accounting Principles (GAAP) for government agencies.

  • The General Fund includes expenditures and revenues associated with the delivery of services by County agencies funded mainly with property taxes, sales taxes, fees or charges for services, and available unrestricted fund balance.

  • This group of funds is used to account for specific revenue sources legally restricted or committed to expenditures for a specific purpose. The budget is comprised of the Health Services Agency, Human Services Department, and Transportation and Department of Public Works, and their associated pass­through transfer funds.

  • Less than Countywide Funds account for Special Revenue Funds like County Fire and Library services.

  • The Internal Service Funds comprise the financing of County services between departments or programs, which includes Fleet Services, Information Services, Risk Management Services and the Department of Public Works.

  • Enterprise Funds represent operations financed and operated similar to a business enterprise and include water and sewer services.

  • The majority of the Special Districts are included in the Department of Public Works budget and a detailed listing by fund is provided in the budget schedules in the Appendix.

  • The Capital Project funds are included in the Capital Projects section of the budget and a detailed listing by project is provided in the Appendix.

  • The County has adopted Budget Principles. The Budget Principles are designed to provide overall guidance in the preparation, adoption, implementation and evaluation of the annual budget. The budget principles can be found in the Appendix section. The major principles include:

    • Encouraging public input;
    • Balanced budgeting;
    • Targeting the use of Fund Balance for one-time costs and cyclical rather than structural budgetary imbalances;
    • Maintaining prudent reserves for cash flow, and for unforeseen or emergency events;
    • Prioritizing funding decisions;
    • Responding to changing conditions;
    • Developing strategic approach to address unfunded liabilities;
    • Maintaining a five-year Capital Improvement Program; and
    • Seeking cost recovery.
    • The proposed budget incorporates recommendations reflecting these policies.

  • State and federal revenue is the County's single largest revenue source. The majority of these revenues are used to support statutory programs, such as health and welfare services and some criminal justice programs. These funds are generally restricted in use and are not available for discretionary purposes. State and federal revenue projections are based upon economic conditions at both the State and federal level. To prepare for changes in State and federal revenue streams, the County closely monitors budget activity and the programmatic and funding decisions that are being made at the State and federal level.

  • Property taxes, sales tax, transient occupancy and other taxes are the County's second largest revenue source. Property tax levels are regulated by the State, and are collected and distributed to various governmental agencies by the County. Property Tax is the most important revenue source for the County. The formula for calculating property taxes is determined by Proposition 13 (the People's Initiative to Limit Property Taxation) which was passed by California voters in 1978. Proposition 13 sets the tax rate for real estate at one percent of a property's assessed value and limits changes to a property's assessed value based on the Consumer Price Index up to two percent each year. Property values are otherwise only reassessed upon a change of ownership or the completion of new construction. The County distributes property tax dollars to various government agencies and retains approximately 13% of the total property taxes collected, which is used to fund a variety of County programs and services. Property tax revenues are projected each year based on the total assessed value of the County which is estimated by taking into account inflationary factors such as the Consumer Price Index, new construction, sales activity, as well as the number of Proposition 8 ( decline in value) assessments.

  • Revenue in this category comes from fees that the County charges for a variety of specific services and activities. License revenues are received for activities including franchise fees paid by utilities, cable companies or trash haulers in order to do business within the County. Permit revenues are generated by charges for construction or inspection permits for building, electrical, plumbing or temporary use permits for holding events. Revenues are also generated by the collection of fees for value-added services that are not tax supported or might not otherwise be provided without fees and are used to fund those services. Revenue from licenses, permits, and charges for services is projected based on prior year levels, changes to the County's fee schedule and other trends such as construction activity or external economic factors which indicate demand for services.

  • Revenue from fines, forfeitures and penalties is generally received from court-ordered fees, other types of public safety violations (e.g. tickets) or penalties charged as the result of being late in making payments to the County (e.g. for property taxes or transient occupancy tax). Much like charges for services, revenue from fines, forfeitures and penalties is often used to fund enforcement activities. Revenue in this category is projected based on prior year levels and external economic conditions. Fine, forfeiture and penalty revenue tends to be counter cyclical, especially for penalties for late payments to the County. Changes in law enforcement priorities and staffing levels can also have an impact on the level of issuance and collection of fines, forfeitures and penalties.

  • Revenue in this category is received from the investment of County funds. The use of the revenue received from these sources is discretionary and is projected based upon prior year actual amounts. Estimates for revenues from interest earnings are based upon the projected treasury balance and current interest rates.

  • The Fund Balance Available is the portion of fund balance that is not reserved, encumbered or designated and therefore is available for financing a portion of the budgetary requirements for the upcoming fiscal year. The County has two types of reserves: general reserves and designations. General reserves are not designated for a specific purpose. They serve to stabilize the County's cash position prior to the receipt of property tax revenues and they provide protection against downturns in the economy or against major unexpected events. Designations are reserves that are set aside for specific purposes. These designations help provide for the County's long-term financial needs.

  • This category is a catch-all for revenues that do not fit into one of the major revenue categories discussed above. Revenues in this category come from a variety of sources including assessments, or revenue from reimbursement agreements or pass-through from trust funds. Other revenue sources vary from Department to Department and can be projected based upon either prior year actual amounts or from set annual costs such in the case of water or sewer assessments in County Service Areas.

  • This expenditure category accounts for the largest appropriation of County dollars. Salaries and benefits includes employee wages, the amount that the County appropriates for employee pensions, the County's contribution for life insurance and various health benefits for employees and their dependents, and other various employee benefits. Social security taxes, workers' compensation payments and unemployment insurance payments are also included in this expenditure category. Salary and benefit costs are driven by the number of County employees, negotiated labor agreements and the cost of employee benefits.

  • The County provides retirement benefits, disability benefits, periodic cost-of-living adjustments, and death benefits to plan members and beneficiaries (the Plans). The Plans are part of CalPERS, an agent multiple-employer plan administered by CalPERS, which acts as a common investment and administrative agent for participating public employers within the State. Benefit provisions are established by State statute and by County contracts with employee bargaining groups. The Plans cover three separate employee groups - Miscellaneous, Safety and Safety Sheriff. Active members in the Plans are required to contribute a percent of their annual covered Salary. The contribution requirements of Plan members and the County are established by CalPERS and labor negotiations. The County's net pension liability for the Plans is measured as the total pension liability, less the pension plan's fiduciary net position. Details regarding the County's contributions by Plan and the Unfunded Pension Liability can be found in the County Financial Statements.

  • Services and supplies is the County's second-largest expenditure category. Examples of services and supplies expenses include office supplies, computers and software purchases, maintenance contracts or other types of professional service contracts. The budget for services and supplies is driven by the cost of contracts, changes to the Consumer Price Index and the need for services and supplies which support County operations.

  • This category includes a variety of smaller expenditure categories such as debt service payments and pass through expenses to other agencies and/or funds, and accounts for a significant portion of the County's total expenditures.

  • Fixed asset costs make up the smallest portion of the County's total expenditures. They typically have a value of over $5,000 and include items like vehicles, copy machines, land or specialty equipment. The amount of fixed assets fluctuates from year to year based upon the age of equipment or vehicles and projects being carried out by departments.

  • Intra-Fund Transfers are interdepartmental cost allocations to offset the cost of services provided by various General Fund departments to other General Fund functions.

  • The County Budget's General Fund includes programs which are provided on a largely countywide basis (health care, welfare, courts and detention facilities) and municipal services to the unincorporated areas not otherwise included in a special district. The programs and services are financed primarily by the County's share of property taxes, revenues from the State and federal government, and charges for services provided. General Fund expenditures tend to occur in equal amounts throughout the fiscal year. Conversely, receipts follow an uneven pattern, primarily as a result of secured property tax installment payment dates in December and April and from delays in payments from other governmental agencies, two of the largest sources of General Fund revenues. As a result, the County incurs short-term borrowing using a Tax and Revenue Anticipation Note (TRAN) to facilitate cash flow until all the property taxes are received.

  • Taxes are levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding January 1. For assessment and collection purposes, property is classified either as secured or "unsecured," and is listed accordingly on the assessment roll. The "secured roll" is that part of the assessment roll containing State assessed property and real property having a tax lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is assessed on the "unsecured roll."

  • The County has adopted an alternate procedure authorized in Chapter 3, Part 8, Division 1 of the Revenue and Taxation Code of the State of California (comprising Sections 4701 through 4717, inclusive) commonly referred to as the ""Teeter Plan,"" for distribution of certain property tax levies on the secured roll. Pursuant to the Teeter Plan, the County adopted Resolution 541-93 on October 5, 1993 adopting the Teeter Plan. Generally, the Teeter Plan provides for a tax distribution procedure by which secured roll taxes are distributed to taxing agencies within the County included in the Teeter Plan on the basis of the tax levy, rather than on the basis of actual tax collections. The County then receives all future delinquent tax payments, penalties and interest, and a complex tax redemption distribution system for all participating taxing agencies is avoided. All taxing agencies within the County are participating in the Teeter Plan.

    In addition, pursuant to the Teeter Plan, the County is required to establish a tax losses reserve fund to cover losses which may occur in the amount of tax liens as a result of special sales of tax-defaulted property (i.e., if the sale price of the property is less than the amount owed). The appropriate amount in the fund is determined by one of two methods:

    1. an amount not less than 1 % of the total amount of taxes and assessments levied on the secured roll for a particular year for entities participating in the Teeter Plan, or
    2. >an amount not less than 25% of the total delinquent secured taxes and assessments calculated as of the end of the fiscal year for entities participating in the Teeter Plan.

    The County's tax losses reserve fund is fully funded at two times in accordance with the County's most current election (on October 29, 2013) to be governed by the second alternative estimated at $5.8 million. Accordingly, any additional penalties and interest that otherwise would be credited to the tax losses reserve fund are available to be credited to the County's General Fund.

  • The County levies a transient occupancy tax on hotel and motel bills. In November 2012, voters set this tax rate at 11 %.

  • Sales tax is collected and distributed by the State Board of Equalization. Each local jurisdiction receives an amount equal to 1 % of taxable sales within their jurisdiction. On March 2, 2004, voters approved a bond initiative formally known as the "California Economic Recovery Act." This act authorized the issuance of $15 billion in bonds to finance the 2002-03 and 2003-04 State budget deficits, which would be payable from a fund to be established by the redirection of tax revenues through the Triple Flip. Under the "Triple Flip," one-quarter of local governments' 1 % share of the sales tax imposed on taxable transactions within their jurisdiction will be redirected to the State. In an effort to eliminate the adverse impact of the sales tax revenue redirection on local government, the legislation provides for property taxes in a previously established Educational Revenue Augmentation Fund (ERAF) to be redirected to local government. Because the ERAF monies were previously earmarked for schools, the legislation provides for schools to receive other state General Fund revenues. The swap of sales taxes for property taxes has terminated, with final adjustments being made during 2016-17.

  • In November 2018, voters approved a half cent transaction tax, known as Measure G, as an add on sales tax on taxable sales of goods in the unincorporated area. The collection began in April 1, 2019. Tax was established to fund specific programs and projects and maintain essential services.

  • In November 2014, voters approved a tax of up to 10% on the gross sales of medical marijuana businesses in the unincorporated County. The initial year tax was established at 7%, and collection began in December 2014.

  • The payments of property tax in-lieu of Motor Vehicle license fees ("VLF") are a State backfill from property tax revenues for a portion of the VLF fees collected statewide.

  • A significant source of the County's revenues comes from State and federal funds. Payment of State funds depends on the adoption of the State budget, including the appropriations providing for local assistance. These revenues are shown in the statements as intergovernmental revenues. The significant categories of State aid include additional taxes in-lieu of VLF for a portion of fees realigned to the Health Services Agency, Proposition 172 (sales tax dedicated to public safety uses) and reimbursement for programs such as Aid to Families with Dependent Children, In-Home Supportive Services, Medi-Cal, food stamps, Short/Doyle medical and mental health services, AB 109 realignment, and AB 118 food programs. The significant categories of federal aid include various health programs, foster care programs, Aid to Families with Dependent Children, adoption assistance program, supplemental nutrition assistance program and child welfare programs.

  • In four of the last five years, the County has issued $50,000,000 of Tax and Revenue Anticipation Notes. Since FY 2011-12, the County has issued $48,000,000 of tax and revenue anticipation notes for cash flow purposes. The notes for FY 2020-21 in the amount of $48,500,000, are due on July 1, 2021, and the County has made the required set-asides for such notes. All other notes have been repaid on their respective maturity dates.

  • General Obligation Debt. The County has no long-term general obligation bonded indebtedness outstanding and has never defaulted on any of its bonded indebtedness previously issued. The County has no authorized but unissued general obligation debt.

  • The County has made use of various lease arrangements with joint powers authorities to finance capital projects and purchase equipment through the issuance of Certificates of Participation and Lease Revenue Bonds. Upon expiration of these leases, title to the projects or equipment vests in the County. There are currently ten outstanding Certificates of Participation and Lease Revenue Bonds aggregating $76 million in principal amount. All issues are fixed rate obligations. The County also leases other assets under both operating and capital leases. Details can be found in the Debt Service Budget.

The County's accounting policies conform to Generally Accepted Accounting Principles (GAAP) and reporting standards set forth by the State Controller. The audited financial statements also conform to the principles and standards for public financial reporting established by the National Council of Government Accounting and the Governmental Accounting Standards Board. The government-wide financial statements are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due. The County retained the certified public accounting firm of Brown Armstrong in Bakersfield, Calif., to examine the general purpose financial statements of the County as of and for the year ended June 30, 2016. Those Financial Statements can be found on the County's website.

  • The County was required to implement GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definition, for the Fiscal Year ending June 30, 2011. GASB No. 54 establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. The initial distinction that is made in reporting fund balance information is identifying amounts that are considered non-spendable, which are amounts that cannot be spent because they are either not spendable in form or legally or contractually required to be maintained intact. GASB No. 54 also provides for additional classification as “restricted,” “committed,” “assigned,” and “unassigned” based on the relative strength of the constraints that control how specific amounts can be spent.

  • Restricted fund balance includes amounts with constraints placed on their use that are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or improved by law through constitutional provisions or enabling legislation. The County currently has only a minor amount of “Restricted” fund balance.

  • Committed fund balance includes amounts that can only be used for a specific purpose determined by formal action of the Board of Supervisors and that remain binding unless removed in the same manner. The establishment of a “committed” fund balance requires (in accordance with the County's Fund Balance Policy) the passage of a resolution by a simple majority vote before June 30 of the applicable fiscal year.

    The Board of Supervisors established a separate committed fund balance account known as the Reserve for Working Capital. Funding of the Reserve for Working Capital is established by resolution during the annual budget process. The purpose of the reserve is to assist the County in maintaining a minimal fund balance. In accordance with the County's Fund Balance Policy, any use of funds requires a four-fifths vote of the Board of Supervisors appropriating the funds and a resolution of the Board of Supervisors declaring a Fiscal Emergency.

    The Board of Supervisors has also established a separate committed fund balance account known as the Reserve for Economic Uncertainty. Funding of the Reserve for Economic Uncertainty is established by resolution during the annual budget process. The reserve is to be used only during recessions or periods of economic distress as measured by periods of time when the local unemployment rate exceeds 8% and/or the rate of inflation exceeds the growth in property taxes. In accordance with the County's Fund Balance Policy, any use of funds requires a four-fifths vote of the Board of Supervisors appropriating the funds.

    The Board of Supervisors has also established a separate committed fund balance account known as the Reserve for Natural Disasters. Funding of the Reserve for Natural Disasters is established by resolution during the annual budget process. The purpose of the Reserve is to fund extraordinary operating costs, legal costs and cash flow associated with delays in State and federal reimbursements for any natural disaster. In accordance with the County's Fund Balance Policy, any use of funds requires a four-fifths vote of the Board of Supervisors appropriating the funds.

  • Assigned fund balance includes amounts that are constrained by the County's intent to be used for specific purposes. In accordance with the County's Fund Balance Policy, the Board of Supervisors has the authority to assign funds for a specific purpose, or change or remove an assignment, with a simple majority vote. The County Administrative Officer also has the authority to assign funds for specific purposes, and to change or remove the assignment, which action is to be reported to the Board of Supervisors at their next meeting.

    An appropriation of existing fund balance to eliminate a projected budgetary deficit in the subsequent year's budget may be classified as Assigned fund balance. The Board of Supervisors has approved establishment of assigned fund balance for federally qualified health programs. The amount assigned is for revenue already recognized in the General Fund and assigned to mitigate risk associated with health's managed care programs, provide an audit reserve for disallowed costs under State or federal programs, and hold for possible future required repayments.

  • The 2020-21 Adopted Budget includes a total committed and assigned fund balance of $44,037,509 or 7% of budgetary revenues. Established Board policy identifies 10% of General Fund revenues as the County's optimal reserve target. Due to prior year budget to actual savings the County achieved this reserve target early in FY 2017-18 and maintained the reserves at 10% through FY 2019-20 pre-COVID-19. As a result of the economic impacts and decline in revenues, the County used $13.2 million of assigned reserves to balance the FY 2020-21 Budget.

    The County anticipates restoring reserves to the 10% of revenues goal within five years. Based on the Proposed Budget 2021-22 revenues of $592.8 million, the projected 2021-22 year‐end General Fund committed and assigned reserve estimate is $47,037,509 million, or 8% of General Fund estimated revenues. For a breakdown of reserves see Schedules 3 and 4 under the Budget Schedules section. The complete Fund Balance Policy can be found in the Appendix Section.

County of Santa Cruz Policies and Procedures > General Fund Budgeting Principles > Title V >
Administrations and Legislations - Section 500 > General Fund Budgeting Principles

The Santa Cruz County Annual Budget is a resource-allocation document which serves as the financial plan for the County. Its purpose is to implement the goals and policies as determined by the Board of Supervisors. The following principles are designed to provide over-all guidance in the preparation, adoption, implementation and evaluation of the annual budget.

  • The County Administrative Officer shall present a Proposed Budget for the review of the Board of Supervisors and the public 6 to 8 weeks prior to the adoption of the County budget, or earlier if possible. This will ensure that the community recognizes what is at risk in the budget and to provide adequate time to plan for the outcome.

  • The County shall hold public hearings prior to the adoption of the budget to receive input. Opportunities shall be provided for public comment at the beginning of the hearings, during the Board of Supervisor’s public review, and before final budget adoption.

  • The budget should be structured to assure that ongoing operating revenues and expenditures are balanced on both a short and long term basis.

  • In accordance with applicable administrative requirements and including state regulations and Generally Accepted Accounting Principles (GAAP) for governmental agencies, the County shall adopt a balanced budget using reliable information to continue to build trust, confidence and credibility throughout the process.

  • Quality public service begins with employees that dedicate their careers to building and providing services to the public. Budget choices must value the contribution of employees and promote their continued dedication to provide services. The County shall limit the use of consultants where possible and train County staff to perform those tasks.

  • The budget shall use realistic revenue and expenditure projections based on past actual experience, projected outside funding, and other financial conditions. The County shall rely on new revenues from anticipated growth or revenues contingent upon passage of legislation only when reasonably assured. Future costs shall only be budgeted if there is a high probability that the funds shall be available to support them.

  • Fund balances should be used to address one-time costs, maintenance of reserves and addressing cyclical rather than structural budgetary imbalances. The budget shall distinguish between cyclical and structural deficits. Temporary downturns shall be addressed by using reserves, putting a freeze on hiring, deferring capital or maintenance spending and other similar short term measures. Long-term structural budget issues require permanent restructuring of services and operations, which may be phased in over an appropriate interval of time and based on the magnitude of the imbalance.

  • The status of expenses and revenues for each department shall be closely and thoroughly monitored by Department Heads. Any deviations from planned revenue receipts and expenses shall be addressed by the Department Head by recommending adjustments to assure the year end actuals are in balance.

  • The County shall endeavor to establish and maintain a diversified and reliable revenue base to reduce the effects of fluctuations in any single revenue source. Efforts shall be directed to optimize existing revenue sources while reviewing potential new revenue sources. The County shall attempt to identify revenues to meet the service needs determined by the Board of Supervisors.

  • The County shall maintain total reserves and contingencies in accordance to the Fund Balance policy (Title 1, Section 450). These amounts will fluctuate based on the economy, the needs of the County, the requirements of the rating agencies, and other related considerations. The County shall maintain a working capital reserve to meet the financial obligations of the County as they come due. The County shall maintain designated reserves to address uncertainties. Examples of these designated reserves could include program reserves, capital project accumulation reserves and the like. The need and extent of these reserves shall reflect the current and future needs of the County. The County shall maintain an emergency reserve to address some of the costs of natural disasters and unforeseen calamities. The County shall limit the use of contingencies to emergencies and/or unusual or non-planned expenses.

  • The County shall evaluate the feasibility and legality of imposing fees or other charges for any service provided by the County. The County shall charge fees for services where the cost can be accurately attributed to specific users and where the cost of charging the fee is appropriate. The full cost of providing a service shall be calculated in order to provide a basis for setting the charge or fee. Full cost incorporates direct and indirect costs, including operations and maintenance, overhead, and charges for the use of capital facilities.

    The County shall review and update charges and fees periodically based on factors such as the impact of inflation, other cost increases, the adequacy of the coverage of costs, and current competitive rates. Charges and fees shall be established to ensure that they are reasonable, fair, equitable in nature, and are proportionately representative of the costs incurred by the County. The County shall make information on charges and fees available to the public, including information about the amounts of charges and fees, current and proposed, both before and after adoption.

The County shall, through the annual adoption of the Treasurer's Investment Policy by the Board of Supervisors, assure continued compliance with state Government Code requirements for prudent management of County and other local government money. The Investment Policy is a public, transparent and enforceable document that assures the safety and liquidity of public monies for timely use by public agencies with funds on deposit in the Investment Pool. With regard to yield, the Investment Policies provide guidance for prudent investment of public monies commensurate with market conditions.

The County’s Debt Management Policy shall conform to all federal and State requirements.

The Debt Management Policy confirms the commitment of the Board of Supervisors, County staff, advisors and other decision makers to adhere to sound financial management practices. The County shall not use long-term debt financing for any recurring purpose such as current operating and maintenance expenditures.

The term of any County debt issue shall not exceed the useful life of the assets being acquired or constructed by the debt issue. No bond issue shall be undertaken without consulting appropriate external financial advisers, bond counsel and disclosure counsel and reviewed by the County’s Debt Oversight Committee.

The County shall provide full disclosure on every financial report and bond prospectus and shall strive to maintain the best possible bond rating on all debt issuances. The County shall endeavor to maintain the creditworthiness of the County’s bond rating and the marketability of its debt.

Title I - Finance and Accounting- Section 450- Fund Balance Policy

herein, in accordance with Governmental Accounting and Financial Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The Fund Balance Policy will help the County maintain a strong fiscal position to weather negative economic trends, and provide financial resources to protect the County against unforeseen circumstances and events such as revenue shortfalls and unanticipated expenditures. It also is intended to preserve flexibility to make adjustments in funding for programs approved in connection with the annual budget. The Fund Balance Policy is established with a long-term perspective, recognizing that stated thresholds are considered minimum balances. This Policy shall only apply to the County's governmental funds.

Fund balance is essentially the difference between the assets and liabilities reported in a governmental fund. There are five separate components of fund balance, each of which identifies the extent to which the County is bound to honor constraints on the specific purpose for which amounts can be spent.

  • consists of funds that cannot be spent due to their form, such as inventories or prepaid invoices, or funds that legally or contractually must be maintained intact.
  • includes amounts that can be spent only for the specific purposes stipulated by constitution, external resource providers, or through enabling legislation.
  • includes amounts that can be used only for the specific purposes determined by a formal action of the Board of Supervisors. Formal action must be taken prior to the end of any fiscal year to establish, change or remove the limitation placed on these funds.
  • consists of funds set aside for specific purposes but do not meet the criteria for Restricted or Committed. These can be established, changed or removed by the Board of Supervisors or delegated to an official. Assigned funds cannot cause a deficit in Unassigned fund balance. Governments are required to disclose information about the processes through which constraints are imposed on amounts in the Committed and Assigned classifications.
  • is the residual classification for the General Fund and includes all spendable amounts not contained in the other classifications. These funds are available for any purpose in the fund.

Provisions

  • Funds will be classified as Nonspendable based upon the underlying nature of the related asset. No policy statement is required for funds to be classified as Nonspendable.
  • Funds will be classified as Restricted based upon the nature of the externally stipulated restriction. No policy statement is required for funds to be classified as Restricted.
  • The Board of Supervisors has the authority to set aside funds for a specific purpose. The establishment of Committed fund balance requires the passage of a resolution by a simple majority vote before June 30 of the applicable fiscal year. Board action is required to change or remove the commitment. The Board resolution shall identify the title of the commitment, describe the specific purpose for the commitment, and the actual amount of the commitment or the process or formula necessary to calculate the actual amount. Funding for Committed fund balance shall be approved annually by the Board of Supervisors as part of the budget approval process.
    • The Board of Supervisors has the authority to assign funds for a specific purpose with a simple majority vote. The same action is required to change or remove an assignment.
    • The County Administrative Officer also has the authority to assign funds for specific purposes, and to change or remove the assignment. The establishment, change or removal of an assignment by the County Administrative Officer must be reported to the Board of Supervisors at the earliest opportunity. The Board may change or remove an assignment established by the County Administrative Officer with a simple majority vote.
    • An appropriation of existing fund balance to eliminate a projected budgetary deficit in the subsequent year's budget may be classified as Assigned fund balance.
  • Unassigned fund balance is the residual amount of fund balance in the General Fund. It represents the resources available for future spending. An appropriate level of Unassigned fund balance should be maintained in the General Fund to cover unexpected expenditures and revenue shortfalls. Unassigned fund balance may be accessed in the event of unexpected expenditures.

A stabilization arrangement may be established to provide funds for an urgent event that affects the safety of employees, residents or property. A stabilization arrangement will be classified as either Restricted or Committed fund balance, depending on the source of constraint on its use. The Board of Supervisors has the authority to establish a stabilization arrangement that will be classified as Committed fund balance. The Board resolution establishing the committed stabilization arrangement shall identify the title of the stabilization arrangement, and describe the specific, non-routine circumstances under which the stabilization arrangement may be spent. Stabilization arrangements that do not meet the criteria to be classified as Restricted or Committed are required to be classified as Unassigned fund balance.

The minimum fund balance in the County General Fund's Committed and Assigned fund balance categories shall be no less than a total of 7% of the upcoming budget year's estimated revenues. The amount of each fund balance classification shall be estimated and reported in both the Proposed Budget and the Adopted Budget based on the upcoming budget year's revenues as estimated in those documents. If the General Fund fund balance falls below the minimum, the County shall develop a funding plan and a timeframe to bring it to the minimum balance.

Unless the Board of Supervisors takes action stating otherwise at the time the expenditure is approved, the County considers Restricted fund balances to be spent first when an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available. Similarly, when an expenditure is incurred for purposes for which amounts in any of the unrestricted classifications of fund balance could be used, the County considers Committed amounts to be reduced first, followed by Assigned amounts and then Unassigned amounts.

The County Executive Officer and Auditor-Controller shall jointly prepare an annual report documenting the status of fund balance for the Board's review in conjunction with consideration of the annual budget. The County's Fund Balance Policy shall be reviewed annually to evaluate its sufficiency.

    • Purpose – The Reserve for Working Capital is intended to remain intact and unused to assist the County in maintaining a minimal fund balance.
    • Establishment and Approval – This stabilization arrangement will be established by a resolution of the Board of Supervisors, and will be approved annually by the Board during the budget approval process.
    • Use of Funds – Requires a four-fifths vote of the Board of Supervisors appropriating the funds, and a resolution by the Board of Supervisors declaration of Fiscal Emergency.
    • Fund Balance Classification – Committed fund balance stabilization arrangement.
    • Purpose – The purpose of the strategic reserve is to:
      1. Mitigate economic downturns that reduce County general revenue;
      2. Mitigate state or federal budget actions that may reduce County revenue; and
      3. Maintain core services essential to public health, safety, and welfare.

      The funds are separate monies used only for the purposes stated above. The funds are used only to support the operating budget during recessions or periods of economic distress as measured by periods of time when the local unemployment rate exceeds 8% and/or the rate of inflation exceeds the growth in property tax revenue. The target funding level of the strategic reserve is an amount equivalent to 1.5% of general fund operating revenues.

    • Establishment and Approval – This stabilization arrangement will be established by a resolution of the Board of Supervisors, and will be approved annually by the Board during the budget approval process.
    • Use of Funds – Requires a four-fifths vote of the Board of Supervisors appropriating the funds.
    • Fund Balance Classification – Committed fund balance stabilization arrangement.
    • Purpose – The Reserve for Natural Disasters is to fund the extraordinary operating costs, legal costs and cash flow problems associated delays in State and Federal reimbursements for any natural disaster declared by County's Director of Emergency Services and subsequently ratified by the Board of Supervisors, and the State of California or the federal government.
    • Establishment and Approval – This reserve will be established by a resolution of the Board of Supervisors, and will be approved annually by the Board during the budget approval process.
    • Use of Funds – Requires a four-fifths vote of the Board of Supervisors appropriating the funds.
    • Fund Balance Classification – Committed fund balance.

    • Purpose – This assignment for Federal Qualified Health Programs is intended to provide a reserve for federally qualified health service programs 1) to provide a cushion to mitigate risk associated with mental health managed care programs, (2) to provide an audit reserve for disallowed mental health costs under State or federal programs, and (3) to hold for possible future repayments of grant funds. Other cost savings and unanticipated revenues should be relied on first before the use of the assignment for federally qualified health service programs.
    • Establishment and Approval – This assignment will be established by the County Administrative Officer, and will be approved annually by the Board during the budget
    • Use of Funds – Requires a simple majority vote of the Board of Supervisors appropriating the funds.
    • Fund Balance Classification – Assignment for federally qualified health programs.
    • Purpose – Assignment for Unanticipated Liabilities is intended to provide a reserve to mitigate the risk of unanticipated liabilities not covered by the Property and;
    • Establishment and Approval – This assignment will be established by the County Administrative Officer, and will be approved annually by the Board during the budget
    • Use of Funds – Requires a simple majority vote of the Board of Supervisors appropriating the funds.
    • Fund Balance Classification – Assignment for unanticipated liabilities.
    • Purpose – The Assignment for Human Services Programs is intended to provide a reserve for human services programs 1) to provide a cushion to mitigate risk.
    • Establishment and Approval – This assignment will be established by the County Administrative Officer, and will be approved annually by the Board during the budget approval process.
    • Use of Funds – Requires a simple majority vote of the Board of Supervisors appropriating the funds.
    • Fund Balance Classification – Assignment for Human Services programs.
    • Purpose – The Assignment for the Budgeted Structural Deficit is to provide adequate funding when the current year budget to actual savings does not fund the
    • Establishment and Approval – This assignment will be established by the County Administrative Officer, and will be approved annually by the Board during the budget
    • Use of Funds – Requires a simple majority vote of the Board of Supervisors appropriating the funds.
    • Fund Balance Classification – Assignment for federally qualified health programs.
    • Purpose – The Assignment for the Budgeted Salary Savings is to provide coverage for the salary and benefit cost which is typically not budgeted and relies on turnover.
    • Establishment and Approval – This assignment will be established by the County Administrative Officer, and will be approved annually by the Board during the budget approval process.
    • Use of Funds – Requires a simple majority vote of the Board of Supervisors appropriating the funds.
    • Fund Balance Classification – Assignment for Budgeted Structural Deficit.

  • Special revenue funds are created to account for the proceeds of specific revenue sources that are legally restricted to expenditure for specified purposes. Special revenue funds shall maintain a positive fund balance without the need for support from the County General Fund. If the fund balance is not positive at any year end, the County shall develop a funding plan and a timeframe to bring it into a positive state. Unless the Board of Supervisors takes action stating otherwise at the time the expenditure is approved, fund balance in special revenue funds shall be spent in the following order of priority when possible: Restricted, Committed, and then Assigned.
  • Debt service funds are typically required to create specific reserve amounts as part of the ordinance or resolution which authorizes the issuance of the bonds. This policy does not create any specific fund balance requirement within any debt service fund. Reserve requirements for any outstanding bond issue will be consistent with the ordinance or resolution authorizing the issuance of the bonds.
  • The Capital Projects Fund is created to account for resources designated to construct or acquire capital assets and major improvements. These projects may extend beyond a single fiscal year. No specific fund balance requirement is established for this fund. However, the fund should maintain, at a minimum, a fiscal year end fund balance plus estimated revenues sufficient to meet all outstanding projects.
  • Internal service funds are dependent upon a reasonable level of working capital reserve to operate from one billing cycle to the next. Charges by an internal service activity to fund the establishment and maintenance of a reasonable level of working capital reserve, in addition to the full recovery of costs, are allowable. Internal service funds shall maintain a positive fund balance without the need for support from the County General Fund. If the fund balance is not positive at any year end, the County shall develop a funding plan and a timeframe to bringi t into a positive state. The only exception to this general rule is the Workers' Compensation Internal Service Fund because of the nature of actuarial liabilities in that fund.
TITLE I - FINANCE AND ACCOUNTING 800 - DEBT MANAGEMENT POLICY

The purpose of the County of Santa Cruz Debt Management Policy (Policy) is to ensure sound and uniform practices for issuing and managing debt. The County of Santa Cruz (County) recognizes that it may need to enter into debt obligations to finance projects and to meet fiscal responsibilities. Accordingly, this Policy confirms the commitment of the Board of Supervisors (Board), County staff, advisors and other decision makers to adhere to sound financial management practices.

The Policy is also intended to comply with Government Code Section 8855(i), effective on January 1, 2017.

The objectives of this Policy are as follows:
  1. Establish a systematic and prudent approach to debt issuance and debt management;
  2. Ensure access to debt capital markets and direct purchase investors. (private placement providers) through prudent and flexible policies;
  3. Define specific limits or acceptable ranges for general fund-support debt obligations;
  4. Minimize debt service and issuance costs;
  5. Maintain access to cost-effective borrowing;
  6. Achieve the highest practical credit rating;
  7. Ensure full and timely repayment of debt;
  8. Maintain full and complete financial disclosure and reporting; and
  9. Ensure compliance with applicable State and federals laws.

The objectives of this Policy are as follows:
  • The County's Comprehensive Annual Financial Report includes legally separate entities for which the Board is financially accountable. This Policy informs the actions of these entities to ensure a uniform approach to the issuance of debt. This Policy establishes the parameters within which debt may be issued by the County of Santa Cruz, Santa Cruz County Public Financing Authority, Santa Cruz County Capital Financing Authority, Santa Cruz County Redevelopment Successor Agency and the Santa Cruz County Sanitation District, or any related entity of the County for which the governing body consists of the same individuals as the Board of Supervisors of the County. Additionally, the Policy applies to debt issued by the County on behalf of assessment, community facilities, or other special districts, and conduit-type financing by the County for multifamily housing or industrial development projects.
  • Supplemental policies, tailored to specifics of certain types of financings, may be adopted by the Board in the future. These supplemental policies may address, but are not limited to, the general obligation, lease revenue, enterprise, multifamily housing, and land-secured financings.
  • The debt policies and practices of the County are subject to and limited by applicable provisions of State and federal law and to prudent debt management principles.

The Debt Advisory Committee (DAC) is advisory to the County Administrator's Office. The DAC consists of personnel from the following departments: (1) County Administrative Office (“CAO”), (2) Auditor- Controller-Treasurer-Tax Collector, and (3) County Counsel. The role of the DAC is as follows:
  1. Review and make recommendations regarding department debt financing requests;
  2. Select, subject to ratification by the Board of Supervisors, all financing professionals required to assist in the structuring of public financings (bond counsel, disclosure counsel, underwriters, trustees, financial advisors, etc.);
  3. Review and provide content for all debt financing documents;
  4. Ensure that proper due diligence is completed for each public financing in the preparation of the Official Statement; and
  5. Advise on ongoing administration and compliance of debt issuances.

Government Code §53635.7 requires that all borrowing be placed on the Board Agenda and the agenda of any separate financing participant as a separate item of business. This Policy requires that the Board specifically authorize each financing proposal based on the recommendation of the CAO. Policy implementation and the day-to-day responsibility for the authority over the County's debt program will lie with the Auditor-Controller-Treasurer-Tax Collector's Office and the CAO with participation by County Counsel, and other departments as necessary. The Auditor-Controller-Treasurer-Tax Collector and CAO will be supported on an as-needed basis by the DAC and a financial

This Policy will be reviewed annually and updated as necessary. Any changes to this Policy are subject to recommendation by the DAC and the approval of the Board. The revised Policy will be provided to all County entities. While adherence to the Policy is required, the County recognizes that changes in capital markets, County programs, and other unforeseen circumstances may produce situations not covered by this Policy. This may require modification or exception to achieve Policy objectives. In these cases, flexibility is appropriate until specific authorization from the Board or related entities Board of Directors is obtained.

The County will issue debt for the following purposes:
  1. Long-term Borrowing

    Long-term borrowing may be used to finance the acquisition or improvement of land, facilities, or equipment for which it is appropriate to spread these costs over more than one budget year. Long-term borrowing may also be used to fund capitalized interest, costs of issuance, required reserves, and any other financing-related costs which may be legally capitalized. Long-term borrowing shall not be used to fund County operating costs, but may fund one-time extraordinary expenses, as appropriate.

    Whenever possible, the County will first attempt to fund capital projects with grants or state/federal funding, as part of its broader capital improvement plan. When such funds are insufficient, the County will use dedicated revenues to fund projects.

  2. Short-term Borrowing

    Short-term borrowing may be issued to generate funding for cash flow needs in the form of Tax Revenue Anticipation Notes (TRAN). Short-term borrowing, such as commercial paper, and lines of credit, will be considered as an interim source of funding in anticipation of long-term borrowing. Short-term debt may be issued for any purpose for which long-term debt may be issued, including capitalized interest and other financing-related costs. Prior to issuance of the short-term debt, a reliable revenue source shall be identified to secure repayment of the debt. The final maturity of the debt issued to finance the project shall be consistent with the economic or useful life of the project and, unless the Board determines that extraordinary circumstances exist, must not exceed seven (7) years.

  3. Refunding

    Periodic reviews of outstanding debt will be undertaken to identify refunding opportunities. Refunding will be considered (within federal tax law constraints, if applicable) if and when there is a net economic benefit of the refunding. Refundings which are non-economic may be undertaken to achieve County objectives relating to changes in covenants, call provisions, operational flexibility, tax status of the issuer, or the debt service profile.

    In general, refundings which produce a net present value savings of at least four (4) percent of the refunded debt will be considered economically viable. Refundings which produce a net present value savings of less than four (4) percent will be considered on a case-by- case basis, and will be subject to specific approval by the Board of Supervisors. All refundings will require approval of the Board of Supervisors.

  1. Debt Capacity

    The County will keep outstanding debt within the limits of applicable law and at levels consistent with its creditworthiness objectives. The County shall assess the impact of new debt issuance on the long-term affordability of all outstanding and planned debt issuance. Such analysis recognizes that the County has limited capacity for debt service in its budget, and that each newly issued financing will obligate the County to a series of payments until the bonds are repaid.

  2. Credit Quality

    The County seeks to obtain and maintain the highest possible credit ratings for all categories of short- and long-term debt. The County will not issue bonds directly or on behalf of others that do not carry investment grade ratings. However, the County will consider the issuance of non-rated special assessment, community facilities, multifamily housing and special facility bonds.

  3. Types of Debt That May Be Issued
    1. Debt Repayment
      Debt will be structured for a period consistent with a fair allocation of costs to current and future beneficiaries of the financed capital project. The County shall structure its debt issues so that the maturity of the debt issue is consistent with or less than the economic or useful life of the capital project to be financed.
    2. b. Variable-rate Debt

      To maintain a predictable debt service burden, the County will give preference to debt that carries a fixed interest rate. An alternative to the use of fixed rate debt is floating or variable rate debt which shall require approval the Board of Supervisors after a recommendation of the County's Financial Advisor.

      The Board may choose to issue securities that pay a rate of interest that varies according to a pre-determined formula or results from a periodic remarketing of securities. When making the determination to issue bonds in a variable rate mode, consideration will be given to the useful life of the project or facility being financed or the term of the project requiring the funding, market conditions, credit risk and third party risk analysis, and the overall debt portfolio structure when issuing variable rate debt for any purpose. The maximum amount of variable-rate debt should be limited to no more than 20 percent of the total debt portfolio, unless otherwise directed by the Board of Supervisors.

    3. c. Derivatives
      The County will not employ derivatives, such as interest rate swaps, in its debt program. A derivative product is a financial instrument which derives its own value from the value of another instrument, usually an underlying asset such as a stock, bond, or an underlying reference such as an interest rate. Derivatives are commonly used as hedging devices in managing interest rate risk and thereby reducing borrowing costs. However, these products bear certain risks not associated with standard debt instruments.
    4. d. Credit Enhancement
      The County will consider the use of credit enhancements on a case-by-case basis, evaluating the economic benefit versus the cost for each case. Bond insurance, stand-by letters of credit other credit enhancements should be used only when they clearly demonstrate a net present value savings to the County or required as a basis to obtain a surety bond in lieu of cash funding of a reserve fund.
    5. e. Senior/Subordinate Debt
      Senior and Subordinate debt will be utilized in a manner that will minimize the costs of financing or maximize debt capacity.
    6. f. Debt Service Reserve Fund
      For long term debt and where appropriate for short-term debt, a Debt Service Reserve Fund will be utilized to achieve optimal pricing. Alternately, a Surety Bond may be evaluated and used if found to be economically advantageous.

The County intends to issue debt for the purposes stated in this Policy and to implement policy decisions incorporated in the County's capital budget and the capital improvement plan.

The County shall integrate its debt issuances with the goals of its capital improvement program by timing the issuance of debt to ensure that projects are available when needed in furtherance of the County's public purposes and to avoid having to make unplanned expenditures for capital improvements or equipment from its general fund.

The County is committed to financial planning, maintaining appropriate reserves levels and employing prudent practices in governance, management and budget administration. The County intends to issue debt for the purposes stated in this Policy and to implement policy decisions incorporated in the County's annual operating budget.

It is a policy goal of the County to protect taxpayers, ratepayers and constituents by utilizing conservative financing methods and techniques so as to obtain the highest practical credit ratings (if applicable) and the lowest practical borrowing costs.

The County will comply with applicable state and federal law as it pertains to the maximum term of debt and the procedures for levying and imposing any related taxes, assessments, rates and charges.

Except as described in Section F.3., when refinancing debt, it shall be the policy goal of the County to realize, whenever possible, and subject to any overriding non-financial policy considerations minimum net present value debt service savings equal to or greater than 4% of the refunded principal amount.

The County shall utilize the services of independent financial advisors and bond counsel on all debt financings. The Assistant County Administrative Officer and Auditor-Controller-Treasurer-Tax Collector shall have the authority to periodically select service providers as necessary to meet legal requirements and minimize net County debt costs. Such services, depending on the type of financing, may include financial advisory, bond counsel, disclosure counsel, underwriting, trustee, verification agent, escrow agent, arbitrage consulting, and special tax consulting. The goal in selecting service providers, whether through a competitive process or sole-source selection, is to achieve an appropriate balance between service and cost.

The County's goal is to protect the public's interest by obtaining the lowest possible interest cost. To obtain this goal, the County may use a competitive negotiated, limited-competitive (hybrid), or private placement method of sale with input from the County's financial advisor. The appropriate method should be determined on a case-by-case basis.

  1. Investment of Bond Proceeds

    Investment of bond proceeds shall be consistent with federal tax requirements, the County's Investment Policy as modified from time to time, and with requirements contained in the governing bond documents.

  2. Use of Bond Proceeds

    The Auditor-Controller-Treasurer-Tax Collector and other appropriate County personnel shall implement Internal Control procedures outlined below to ensure that the proceeds of the proposed debt issuance will be directed to the intended use:

    1. Monitor the use of Bond proceeds, the use of Bond-financed assets (e.g., facilities, furnishings or equipment) and the use of output or throughput of Bond-financed assets throughout the term of the Bonds to ensure compliance with covenants and restrictions set forth in applicable County resolutions and Tax Certificates. Monitoring will include providing an annual report to the DAC;
    2. Maintain records or contracts identifying the assets or portions of assets that are financed or refinanced with proceeds of each issue of Bonds and to document compliance with all covenants and restrictions set forth in applicable County resolutions and Tax Certificates. An applicable Record Retention Policy will be maintained by the Auditor-Controller-Tax Collector's;
    3. c. Consult with Bond Counsel or other professional expert advisors in the review of any contracts or arrangements involving use of Bond-financed facilities to ensure compliance with all covenants and restrictions set forth in applicable County resolutions and Tax Certificates;
  3. Financial Disclosure

    The County is committed to full and complete primary and secondary market financial disclosure in accordance with disclosure requirements established by the Securities and Exchange Commission and Municipal Securities Rulemaking Board, as may be amended from time to time. The County is also committed to cooperating fully with rating agencies, institutional and individual investors, other levels of government, and the general public to share clear, timely, and accurate financial information as identified in its Continuing Disclosure and Compliance Procedures.

  4. Arbitrage Compliance

    The Auditor-Controller-Treasurer-Tax Collector's Office shall maintain a system of record keeping and reporting to meet the arbitrage compliance requirements of federal tax law.

By publicly posting a written notice on the County's website, the County and related entities intend that market participants receive and use it for purposes of the independent registered municipal advisor exemption to Rule 15B of the Securities and Exchange Commission (SEC) regarding Registration of Municipal Advisors (Municipal Advisors Rule). All solicitations or written proposals received shall be reviewed by the County's Financial Advisor before being seriously considered. The notice may be relied upon until it is removed from the website or replaced with a subsequent notice.

The County has adopted a Statement of Goals and Policies for the Use of the Mello-Roos Community Facilities Act of 1982, included as Exhibit A hereto. Special Tax Bonds issued on behalf of a community facilities district will also comply with these policy requirements.

EXHIBIT A
LAND SECURED FINANCING
POLICIES AND PRACTICES OF THE COUNTY OF SANTA CRUZ
SUBJECT: SPECIAL DISTRICT FINANCING OF PUBLIC IMPROVEMENTS

To set policy for the financing of public improvements through the creation of Assessment Districts and Community Facilities Districts (collectively referred to as Special Districts). These Special Districts may also be called Land Secured Financings, as bonds are secured by a lien on real property. This policy addresses the financing of public improvements and infrastructure, in conjunction with the associated administrative costs of a bond financing, and excludes funding for the operation and maintenance of facilities and other public services.

Additionally, this policy establishes the standards and criteria to determine the feasibility of special district financing given the public policy direction of the Board of Supervisors (the “Board”).

The Board will consider the use of special benefit Assessment Districts (AD'S) to fund the cooperative and orderly construction and/or acquisition of infrastructure improvements throughout the County.

(AD'S) to fund the cooperative and orderly construction of infrastructure improvements throughout the County. The Board will also consider the use of Community Facilities Districts (CFD's) when, in the County's sole opinion, the public facilities to be constructed or acquired represents a significant public benefit. Significant public benefit may be defined as a public facility having regional impact and/or benefit beyond the proposed development.

In the case of undeveloped land the proposed development project must be consistent with the County's General Plan and have secured appropriate land use entitlements from the County to allow for the implementation of the ultimate development of the area.

Additionally, the combined total of property taxes, special assessments and special taxes collected on the property tax roll shall not exceed 2% of the average anticipated property sales price. Special Districts shall have a finite duration coinciding with the term of the bonds, typically 25 - 30 years. The rates, along with the calculation methodology and duration, will be clearly identified in the Engineer's Report submitted at a Public Hearing for each proposed Special District.

The underlying principles of this policy are:

  • TO PROTECT THE PUBLIC INTEREST
  • TO ASSURE FAIRNESS IN APPLICATION OF THE ASSESSMENTS, SPECIAL TAXES OR FEES TO CURRENT AND FUTURE PROPERTY OWNERS
  • TO ASSURE FULL DISCLOSURE OF THE SPECIAL DISTRICT
  • TO INSURE THE CREDITWORTHINESS OF ANY SPECIAL DISTRICT DEBT
  • TO PROTECT THE COUNTY'S CREDIT RATING AND FINANCIAL POSITION
  • To assure that the applicants for Special District proceedings or parties benefited thereby, pay all costs associated with the formation of any Special District.
  • All costs of County initiated proceedings shall be paid by the affected landowners.

This policy is intended to provide Staff and owners and developers of property located within the County with guidance in the application for and consideration of the establishment of Special Districts. It is not the intent of this policy to relieve any developer of responsibilities for public improvements or conditions of development related to the subdividing of property, the processing of tentative or final maps, or master plan developments. This policy does not supersede any law but the intent is to further restrict or clarify its use.

A written request for Special District financing may be initiated by the owners of the property or residents of the area subject to payment of the assessments or special tax, as defined per statutory requirements, as provided in the applicable statutes.

An advance reimbursement agreement shall be executed and a sum sufficient to pay all fees and costs for the Special District formation shall be deposited with the County by the proponents of the district prior to the beginning of formation proceedings, unless said advance funding requirement is waived by the Board in its discretion. The factors that the Board will consider in determining whether to waive the advance funding requirements are:

  1. Whether the land is improved or unimproved;
  2. Whether the land is owned by a single or small group of persons or whether diverse ownership exists;
  3. Whether sixty percent (60%) or more of the landowners in the case of an Assessment District or sixty percent (60%) of the registered voters who voted in the last general election residing in the proposed Community Facilities District in the case of a Community Facilities District have signed the Petition requesting formation;
  4. The nature of the public facilities; and
  5. The public purpose and public benefits of the project.

An appraisal of the property may be required, in the discretion of the County, if the property is subject to any lien or tax required to secure any public financing. The appraisal shall be a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion of defined value of an adequately described property as of a specific date, supported by presentation and analysis of relevant market information. The appraisal shall reflect nationally recognized appraisal standards.

A minimum property value to lien ratio is 3:l (all ratios to be calculated assuming the public facilities being finances are completed and including any overlapping assessment districts or community facilities districts).

Credit enhancements may be required at the discretion of the County. These enhancements may include, but are not limited to, letters of credit and/or bond insurance.

A market absorption study of the proposed development project may be required, in the discretion of the County. The absorption study shall be used to determine if the financing of the public facilities is appropriate given the timing of development and if sufficient revenues will be generated by the project to retire the debt service.

A fiscal feasibility report may be required, in the discretion of the County if forty percent (40%) or more of the land within a district is substantially undeveloped. The report shall be prepared by or at the direction of the County. All costs for preparing the report shall be borne by the applicant/developer. An estimate of the report costs will be prior to initiating the study and the applicant/developer shall deposit that amount prior to starting the report.

With regard to community facilities districts, the proposed rate and method of apportionment of the special tax shall comply with the following criteria:

  1. The primary emphasis of the special tax formula shall be equitable for the future property owner.
  2. The projected annual special tax revenues shall include annual administrative expenses and other direct operational costs to the community facilities districts as a
  3. The projected ad valorem property tax and other direct and overlapping debt for the proposed development project, including the proposed maximum special tax, shall not exceed two percent (2%) of the anticipated assessed value of each improved residential parcel upon completion of the improvements.
  4. Each bond issue shall be structured to protect bond owners from default of the issue and to ensure the bonding capacity and credit rating of the County.

Full disclosure of the special tax or assessment lien shall be in compliance with applicable statutory authority. The disclosure notices provided to purchasers of property shall clearly state the amount of the maximum annual special tax or assessment which the property owner can be expected to incur. The County, in its sole judgment, may require additional property owner notification if it deems such disclosure will assist subsequent property owners' awareness of the lien obligation.

All statements and material related to the sale of special tax bonds (community facilities districts) and improvement bonds (assessment districts) shall emphasize and state that neither the faith, credit, nor the taxing power of the County is pledged to the repayment of the bonds, nor that there is an obligation of the County to replenish the reserve fund from revenue sources other than special taxes, annual assessments or proceeds from foreclosure proceedings. The County has no contingent liability for the debt service.

The County shall, in its sole discretion, select all professionals including, without limitation, Bond Counsel, Disclosure Counsel, Underwriter, Financial Advisor, Appraiser, Absorption Consultant, Special Tax Consultant, Engineer, and others.