FROM:
Finance
SUBJECT:
Title
General Fund Balance and Reserve Policy
End
RECOMMENDATION:
Recommendation
Approve the revised General Fund Balance and Reserve Policy.
End
COUNCIL GOALS:
• Practice sound fiscal management by living within our means while investing in the future.
• Practice sound fiscal management by fully funding liabilities and reserves.
• Practice sound fiscal management by developing long-term funding and debt management plans.
• Practice sound fiscal management by emphasizing capital formation.
• Invest in the City’s infrastructure (streets, sewers, parks, etc.) by maintaining and improving the city's existing infrastructure.
• Invest in the City’s infrastructure (streets, sewers, parks, etc.) by providing for the development of new infrastructure.
DISCUSSION:
The Government Finance Officers Association (GFOA) has established a series of best practices for financial policies to guide governmental entities in achieving sound fiscal health, transparency, and accountability. One of these recommended best practices is establishing a fund balance and reserve policy. A fund balance and reserve policy is a formal document to manage and maintain a certain level of financial resources in reserve. This policy is aimed at ensuring fiscal stability, enhancing financial management, and building the capacity to absorb financial uncertainties. In addition to having an established policy in place, a best practice is to conduct regular reviews of the policy to ensure financial stability, adaptability, and transparency.
On October 24, 2023, the City Council adopted the General Fund Balance and Reserve Policy (Policy). Because the City is committed to prudent fiscal practices, the Policy’s main objective is to maintain adequate General Fund reserves to ensure consistent, uninterrupted municipal services in the event of unexpected temporary revenue shortfalls or unpredicted one-time expenditures, as well as the creditworthiness of the City.
In alignment with best practices and with the passage of Measure T, a district transaction use tax, in November 2024, the City reviewed the Policy and is recommending the following revisions:
• Contingency Reserve - The City currently maintains a 25% contingency reserve with a goal of 30%. The contingency reserve is calculated as 25% of budgeted operating expenditures, excluding one-time expenditures. The revised policy recommends a 40% contingency reserve with a goal of 50%.
• New Ongoing Revenue Allocation (New) - It is recommended that all new recurring General Fund revenue that exceeds $100,000 annually and is expected to be received for a minimum of 20 years be allocated 50% for Infrastructure and Equipment and 50% for General Government Services.
• Format - The policy has been reformatted to increase readability and clarity.
FISCAL IMPACT:
Although there is no fiscal impact associated with the approval of this item, the proposed Policy revisions will result in an increase of General Fund reserves from 25% of operating expenditures with a goal of 30% to 40% with a goal of 50%.
MOTION:
Approve staff’s recommendation.