As we begin formulating changes in our budget policies and improiving the Chart of Accounts to streamline the budget process and bring in line with GFOA (Government Finance Officer Association) Best Practices, I would like for the Council to consider the attached operating reserve policy. I think this would serve teh city well and protect our current credit rating of AA.
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Budget Operating Reserve Limits
- Thread starter Charles West
- Start date
Thank you Charles, this is where it is nice to have your experience as an asset to the City. I support having prudent reserves, which we currently have, if I am not mistaken in the math. Financial stability matters. I see this as a needed effort to ensure we have a policy in place. But we also need to be honest about where we actually stand.
Based on our adopted budget, the General Fund is sitting at roughly 330 days of operating reserves and the Utility Fund is over 550 days. The proposed policy sets a 180-day target. We already exceed that target by a wide margin.
Here are my attempts to add to your policy.
If we are going to formalize a 180-day floor, then we should also formalize transparency around how far above that floor we are. I would support an annual public report that shows:
• The number of reserve days held
• The adopted reserve target
• The amount held above that target
• The approximate per-household equivalent of any excess
Operating reserves are meant to address short-term volatility, not long-term capital projects. If reserves exceed the adopted target by a meaningful margin, there should be a defined reporting trigger.
For example:
• If reserves exceed 200 days at fiscal year end, staff should be required to present a public report explaining the reason.
• If reserves exceed 240 days for two consecutive fiscal years, Council should be required to publicly evaluate whether excess reserves should support rate stabilization, tax relief, or be formally assigned to capital.
This does not mandate refunds. It mandates transparency and evaluation.
I also believe this is an appropriate time to strengthen broader fiscal guardrails. If we are formalizing a reserve policy, we should also consider:
• A cumulative cap on mid-year budget amendments. For example, if total amendments exceed 3 percent of adopted expenditures in a fiscal year, a public hearing should be required.
• If cumulative amendments exceed 5 percent, require a unanimous vote of Council.
• Any amendment that creates a recurring expenditure should identify a recurring revenue source.
Mid-year adjustments should address true operational needs, not quietly expand the base budget. Maybe we should capture as well that amendments that are taking from somewhere, must be offset elsewhere?
Finally, I believe this framework is more appropriately incorporated into our updated Fiscal and Budgetary Policy rather than codified as an ordinance. Reserve targets are financial management tools that should retain flexibility as conditions change. I think we have not updated the Fiscal and Budgetary Policy since 2023?
I support a reserve floor. I also support structural discipline, reporting triggers, and clear guardrails so citizens understand how much of their money we are holding and how it is being managed. Appreciate you bringing this forward and we could put this on the first March meeting work session?
Based on our adopted budget, the General Fund is sitting at roughly 330 days of operating reserves and the Utility Fund is over 550 days. The proposed policy sets a 180-day target. We already exceed that target by a wide margin.
Here are my attempts to add to your policy.
If we are going to formalize a 180-day floor, then we should also formalize transparency around how far above that floor we are. I would support an annual public report that shows:
• The number of reserve days held
• The adopted reserve target
• The amount held above that target
• The approximate per-household equivalent of any excess
Operating reserves are meant to address short-term volatility, not long-term capital projects. If reserves exceed the adopted target by a meaningful margin, there should be a defined reporting trigger.
For example:
• If reserves exceed 200 days at fiscal year end, staff should be required to present a public report explaining the reason.
• If reserves exceed 240 days for two consecutive fiscal years, Council should be required to publicly evaluate whether excess reserves should support rate stabilization, tax relief, or be formally assigned to capital.
This does not mandate refunds. It mandates transparency and evaluation.
I also believe this is an appropriate time to strengthen broader fiscal guardrails. If we are formalizing a reserve policy, we should also consider:
• A cumulative cap on mid-year budget amendments. For example, if total amendments exceed 3 percent of adopted expenditures in a fiscal year, a public hearing should be required.
• If cumulative amendments exceed 5 percent, require a unanimous vote of Council.
• Any amendment that creates a recurring expenditure should identify a recurring revenue source.
Mid-year adjustments should address true operational needs, not quietly expand the base budget. Maybe we should capture as well that amendments that are taking from somewhere, must be offset elsewhere?
Finally, I believe this framework is more appropriately incorporated into our updated Fiscal and Budgetary Policy rather than codified as an ordinance. Reserve targets are financial management tools that should retain flexibility as conditions change. I think we have not updated the Fiscal and Budgetary Policy since 2023?
I support a reserve floor. I also support structural discipline, reporting triggers, and clear guardrails so citizens understand how much of their money we are holding and how it is being managed. Appreciate you bringing this forward and we could put this on the first March meeting work session?
Thank you, Mayor.
I appreciate your support for prudent reserves and agree completely that financial stability matters. You’re also correct that based on the adopted budget and current reporting, the City appears to be well above a 180-day operating reserve target (roughly 330 days in the General Fund and 550+ days in the Utility Fund). If we’re going to formalize a 180-day floor, I agree we should also formalize transparency around how far above that floor we are, so the public clearly understands what is being held and why.
I agree this framework is best incorporated into our Fiscal & Budgetary Policy, not codified as an ordinance. Reserve targets and guardrails are financial management tools that should retain flexibility as conditions change. This also supports the concept of annual review prior to adoption of the next budget.
Current Work Underway
As noted, we are conducting a deeper review of the City’s financial structure. Current reserve figures may be overstated due to obligated funds and other balances that have rolled into the General Fund but should be segregated into appropriate funds. Our expectation is to have this cleaned up by summer, which will improve financial transparency and strengthen budget preparation for this year.
I support placing this on the first March meeting work session to begin the policy discussion while the Fiscal & Budgetary Policy is under review.
Thanks,
Charles
I appreciate your support for prudent reserves and agree completely that financial stability matters. You’re also correct that based on the adopted budget and current reporting, the City appears to be well above a 180-day operating reserve target (roughly 330 days in the General Fund and 550+ days in the Utility Fund). If we’re going to formalize a 180-day floor, I agree we should also formalize transparency around how far above that floor we are, so the public clearly understands what is being held and why.
I agree this framework is best incorporated into our Fiscal & Budgetary Policy, not codified as an ordinance. Reserve targets and guardrails are financial management tools that should retain flexibility as conditions change. This also supports the concept of annual review prior to adoption of the next budget.
Current Work Underway
As noted, we are conducting a deeper review of the City’s financial structure. Current reserve figures may be overstated due to obligated funds and other balances that have rolled into the General Fund but should be segregated into appropriate funds. Our expectation is to have this cleaned up by summer, which will improve financial transparency and strengthen budget preparation for this year.
I support placing this on the first March meeting work session to begin the policy discussion while the Fiscal & Budgetary Policy is under review.
Thanks,
Charles
I would appreciate some discussion/explanation of what expenses go into the calculation of reserve days. In FY2025 for example, the total expense budget for the General Fund was $15.6M. Does this mean the 180 day target reserve would have been half that ($7.8M)? The GF expense budget for this year is $12.9M... so the target would be $6.45M? Or are some expense types such as Asset expenses not included?
Regarding limiting or capping budget amendments, I hold to my assertion that all expense increase amendments should be accompanied by a reduction in expense in another area to offset the increase. I do agree we should have safeguards in place to avoid budget creep by amendments. I am open to having the policy require super-majority approval if an offset is not provided. Requiring unanimous approval is never a good idea.
Regarding limiting or capping budget amendments, I hold to my assertion that all expense increase amendments should be accompanied by a reduction in expense in another area to offset the increase. I do agree we should have safeguards in place to avoid budget creep by amendments. I am open to having the policy require super-majority approval if an offset is not provided. Requiring unanimous approval is never a good idea.
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