City Council Policies

The City Council has adopted several policies that specify how Carlsbad will manage its finances to ensure fiscal responsibility and transparency. 

General Fund Reserve Guidelines (Policy 74)
Establishes a target of maintaining in reserve at least the equivalent 40% of the previous fiscal year’s annual operating expenditures. This is like a savings account or rainy day fund that is available for the following uses:

• Reduce the risk of financial impacts resulting from a natural disaster or other catastrophic events
• Respond to the challenges of a changing economic environment, including prolonged downturns in the local, state or national economy
• Demonstrate continued prudent fiscal management and creditworthiness

Pension Funding (Policy 86)
Establishes a goal for maintaining a pension funding ratio of 80% and the strategies the city will use to achieve this goal. This means the city will aim to have a pension debt no larger than 20% of the actual projected cost to pay the current and future retirement benefits owned to employees. Keeping this debt low reduces the amount of money the city will pay in the long run.

General Fund Surplus (Policy 87)
Defines what counts as general fund surplus funds and outlines how these funds will be used, starting with making sure the city’s reserves and pension funding are meeting their targets. After that, surplus funds may be used to pay for one-time needs. Surplus funds should generally not be used to pay for ongoing expenses.

Internal Audits (Policy 89)
Outlines how performance audits will be conducted on a regular basis to improve the economy, efficiency and effectiveness of city government. Specifies the reporting relationships of the city’s internal auditor to maximize independence and accountability.

Long Term General Fund Capital Funding (Policy 91)
Describes how the city will help ensure funding is available for long-term, large value capital purchases, such as roads, buildings, parks and information technology infrastructure. The policy commits to the goal of setting aside the equivalent of 6% of budgeted general fund annual revenues to pay for future capital needs.

Debt Management (Policy 94)
Establishes guidelines for how the city will manage current and future debt.

Cost Recovery (Policy 95)
Authorizes fees and charges for certain municipal services, provided the fees and charges do not exceed the reasonable cost of providing such services. This policy sets forth cost recovery targets, timelines for fee increases, annual cost inflation adjustments, and how often the city will evaluate the current cost of providing services.

Utilities Reserve (Policy 96)
Sets targeted reserve account balances to ensure the stability of the water and wastewater funds and provides guidance for how these funds will be managed.

Pension Trust (Policy 98)
Describes how the city will pre-fund pension costs through a trust account so if pension costs suddenly increase, the city will have money available to cover the increase. A trust account also allows the city to direct how those funds are invested, with the goal of earning a better rate of return than the city’s General Fund.

Additional budget laws and best practices

In addition to the Carlsbad-specific policies, several state and federal codes and laws govern the preparation, adoption, and management of city budgets. These include constitutional amendments, statutes and regulatory frameworks.

California Government Code
Provides general laws on how local governments, including cities, should prepare and adopt their budgets. It outlines the processes for public hearings, budget adoption timelines, and requirements for budget publication.

GANN Limit (Article XIII B of the California Constitution)
Enacted in 1979 through Proposition 4, the GANN Limit, named after Paul Gann, restricts the amount of revenue that California state and local governments can spend. It essentially sets a spending ceiling based on the prior year's expenditures adjusted for changes in cost of living, population, and other factors. 

Government Finance Officers Association
The GFOA provides best practices and guidelines on various aspects of government finance, including budgeting, financial reporting, capital planning and debt management. These guidelines help ensure that financial operations are conducted ethically, legally and efficiently. The City of Carlsbad’s budget and financial reports comply with these standards.

Proposition 218 (The Right to Vote on Taxes Act)
Passed in 1996, this constitutional amendment enhances taxpayer rights and requires voter approval for new or increased general taxes, assessments, and certain user fees. It emphasizes transparency and accountability in local government fiscal management.

Proposition 13
A significant property tax reform measure passed in 1978, it caps the annual increase of real property taxes to no more than 2% per year until the property is sold. It also requires a two-thirds majority vote in the Legislature for California state taxes and a two-thirds vote requirement for local taxes designated for specific projects or programs.

The Brown Act (California Government Code Sections 54950-54963)
This act requires open meetings for local legislative bodies, ensuring that deliberations and actions, including those related to budgeting, are conducted openly.