MEETING DATE:
June 11, 2024
SUBJECT:
Title
RESOLUTION NO. 2024-9299 - AMEND THE GENERAL FUND RESERVE POLICY NO. 2012-04
Body
Recommendation
Recommendation
ADOPT a resolution to amend the General Fund Reserve Policy No. 2012-04.
Body
Board or Commission Action
Not applicable.
Relevant Council Strategic Theme
Good Governance.
Relevant Department Goal
Not applicable.
Executive Summary
In March 2012, City Council adopted a General Fund Reserve Policy No. 2012-04 (Policy) establishing parameters governing the classification and reporting of fund balance in the financial reports to help ensure that there will be adequate financial resources to protect the City against unforeseen circumstances and events such as revenue shortfalls and unanticipated expenditures. In May 2015, the Policy was amended to lower the minimum unassigned, liquid reserve amount to 40% of the General Fund operating expenditures. In December 2019, the Policy was amended to re-characterize the Economic Contingency/Budget Stabilization Reserve category, change the allocation of General Fund reserves and incorporate Section 115 Pension Trust language.
As government municipalities re-baseline revenues and adjust to keep pace with the new post-pandemic economic environment of volatility and inflationary pressures, the ability to maintain service levels and take advantage of special infrastructure project opportunities for future efficiencies has been a challenge. At the April 11, 2024 budget workshop, staff provided options to mitigate the use and replenishment of the general fund reserves. The City Council indicated its inclination to consider updating the reserve replenishment plan of the General Fund Reserve Policy. Staff is making recommendations to amend the Replenishment of Unassigned Fund Balances section of the Policy.
Discussion
In March 2012, City Council adopted a General Fund Reserve Policy No. 2012-04 (Policy) establishing parameters governing the classification and reporting of fund balance in the financial reports to help ensure that there will be adequate financial resources to protect the City against unforeseen circumstances and events such as revenue shortfalls and unanticipated expenditures. In May 2015, the Policy was amended to lower the minimum unassigned, liquid reserve amount to 40% of the General Fund operating expenditures. In December 2019, the Policy was amended to:
• Rename the “Economic Contingency/Budget Stabilization” Reserve category to Economic Contingency/Pension Stabilization Reserve.
• Change the allocation of General Fund reserves to Catastrophic/Emergency Reserve (33 1/3%), One-time Recurring Savings/Opportunity Reserve (33 1/3%), and Economic Contingency/Pension Stabilization Reserve (33 1/3%).
• Authorize up to 50% of the Economic Contingency/Pension Stabilization Reserve to be designated as Pension Stabilization Reserve funds that may be invested in a Section 115 Pension Trust.
During the April 11, 2024 City Council Budget Workshop, City Council was presented with budget challenges that the City, among other municipalities, faces which included slower revenue growth and adjusting to keep pace with more rapid expenditure growth in the new post-pandemic economic environment of volatility and inflationary pressures. Despite these difficulties, the City is still able to maintain the 40% minimum reserve level per Policy, which is in line with the reserve level of other cities in the region. While the Policy does allow for specific uses of the general fund reserves, the current payback period of 1 to 5 years is no longer feasible in the challenging economic environment that cities are facing. Policy options presented and discussed during the workshop included extending the payback period and defining the interest rate. The Council’s discussion during the workshop indicated that it was willing to consider a Policy amendment to extend the repayment period and set an interest rate.
To allow the City to realize future efficiencies and/or budgetary savings sufficient for replenishment of reserve funds, a 10-year payback period is being proposed. Additionally, allowing the interest rate for repayment of reserve funds to match the current earnings rate in reserve funds would generate a cost savings to the City as opposed to being subject to bank loan market rates. To prepare for probable budgetary pressures resulting from the adverse trajectory of the economy, Staff is recommending the following amendments to the Replenishment of Unassigned Fund Balance section of the General Fund Reserve Policy No. 2012-04:
• Change the 1 to 5 year reserve replenishment period to 10 years.
• Authorize the rate of interest to be paid for the use of reserve funds to be equivalent to the investment earnings that the reserve fund would have received.
Fiscal Impact
There is no fiscal impact to revising the General Fund Reserve Policy.
Attachments
1) Resolution - Amending the General Fund Reserve Policy
2) Amended General Fund Reserve Policy
Prepared/Submitted by: Donna Apar, Finance Director
Reviewed/Approved by: Michelle Bender, City Manager