Attachment 3
COUNCIL POLICY MANUAL
TITLE: General Fund Reserve Policy
POLICY NUMBER:
EFFECTIVE DATE: May 16, 2011
PAGES: 4
ENABLING ACTIONS:
REVISED DATES: May 17, 2016 February
21, 2017
APPROVED:
PURPOSE
The purpose of this policy is to establish a target minimum level of designated reserves in the
General Fund to:
Reduce the financial impacts associated with a disaster or catastrophic event;
Respond to the challenges of a changing economic environment, including prolonged
downturns in the local, state, or national economy; and
Demonstrate continued prudent fiscal management and creditworthiness.
BACKGROUND
General Fund reserves are classified into two categories: Restricted and Designated. Restricted
reserves are those which are restricted and not considered available due to financial,
accounting, or legal restrictions. Designated reserves are established by Council policy for an
intended purpose and are available for use per Council direction.
GUIDING PRINCIPLES
Following sound financial practices and adhering to the Government Finance Officers’ of
American (GFOA) recommendations, the Town’s designated reserves include reserves for
known and unknown contingencies, which take into consideration the:
Diversity of revenue base
Volatility of revenue structure
Changes in political environment
Frequency of operating surpluses/deficits
Cash flow management practices
Small Town Service Community Stewardship Future Focus
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TITLE: General Fund Reserve Policy
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POLICY NUMBER:
POLICY
Reserve Level
The Town currently sets aside funds into four key designated reserves to address unforeseen
emergencies or disasters, significant changes in the economic environment, unfunded pension
liabilities, and key infrastructure and capital projects. These include the Catastrophic Reserve,
Budget Stabilization Reserve, CalPERS/Other Post-Employment Benefits (OPEB) Reserve and
Capital and Special Projects Reserve.
The Town commits to maintaining these reserves at a minimum of 25% of General Fund
ongoing operating expenditures (minus one-time expenditures), equally divided between the
Catastrophic Reserve (12.5%) and Budget Stabilization Reserve (12.5%), excluding the
CalPERS/OPEB Reserve and the Capital and Special Projects Reserve. The General Fund Reserve
Policy is to be reviewed by the Town Council as part of the annual operating budget review and
adoption process. Appropriations of General Fund reserves require formal Council
authorization.
Should a catastrophic disaster or loss of the Town’s single hi ghest source of sales tax revenue
occur, the required reserve level should be adequate to meet the Town’s immediate financial
needs. For example, in the event of natural disaster, the Catastrophic Reserve would provide
necessary coverage for basic operating expenses, including salary and benefits for safety and
non-safety Town employees, while still meeting debt service obligations for approximately 60
days. This time frame would enable the Town to explore other available cash alternatives,
including the use of internal service funds. Likewise, should the Town experience a loss of a
primary sales tax contributor, the reserve level in the Budget Stabilization Fund would provide
for a 3 year transition period, giving the Town adequate time to realign its op erating costs with
available resources, while minimizing service impacts.
Catastrophic Reserve
Funds reserved under this category shall be used to mitigate costs associated with unforeseen
emergencies, such as a disaster or catastrophic event. Should unforeseen and unavoidable
events occur that require the expenditure of Town resources beyond those provided for in the
annual budget, the Town Manager or designee shall have authority to approve Catastrophic
Reserve appropriations. The Town Manager or designee shall then present to the Town Council
a budget amendment confirming the nature of the emergency and authorizing the
appropriation of reserve funds.
Budget Stabilization Reserve
Funds reserved under this category shall be used to mitigate annual revenue shortfalls (actual
revenues less than projected revenues) due to changes in the economic environment and/or
one-time uses that will result in future efficiencies and/or budgetary savings. Examples of
“economic triggers” and one-time uses include, but are not limited to:
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Significant decrease in property or sales tax, or other economically sensiti ve revenues;
Loss of businesses considered to be significant sales tax generators;
Reductions in revenue due to actions by the state/federal government;
Workflow/technical system improvements to reduce ongoing, personnel costs and
enhance customer service;
One-time maintenance of service levels due to significant economic/budget
constraints; and
One-time transitional costs associated with organizational restructuring to secure long-
term personnel cost savings.
CalPERS/OPEB Reserve
Effective upon the close of fiscal year 2015/16 and thereafter, if sufficient General Fund year -
end savings are available and targeted reserve levels of 25% of the next fiscal year’s operating
budget have been met, funds not to exceed $300,000 annually shall be deposited in to the
CalPERS/OPEB Reserve fund. These funds will be used as a funding source for potential “lump-
sum” pay downs of unfunded pension and other post-employment liabilities, or held in the
reserve account to be used as a supplemental funding source for increases to the annual
pension and other post-employment costs resulting from a Town “Fresh Start” (re-
amortization) of the miscellaneous, safety pension plans, and other post-employment
obligations.
Capital and Special Projects Reserve
Funds reserved under this category are designated for key infrastructure and capital/special
projects as identified in the Town 5-year Capital Improvement Plan, as there is no ongoing
funding source to support the Town’s capital needs.
Replenishment of Unreserved Fund Balance
In keeping with the principles discussed in this policy, when either fund is used, Town Council
will develop a 1 to 5 year reserve replenishment plan to meet the minimum threshold of 25% of
General Fund ongoing, operating expenditures, excluding one-time expenditures.
Excess Fund Balance
At the end of each fiscal year, the Finance and Administrative Services Department reports on
the audited year-end budgetary fiscal results. Should actual General Fund revenues exceed
expenditures and encumbrances, a year-end operating surplus shall be reported. Any year-end
surplus which results in the General Fund fund balance exceeding the level required by the
reserve policy shall be available for allocation for the following, subject to Council approval:
Offset projected future deficits
Anticipated intergovernmental fiscal impacts
One-time funding, non-recurring needs
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Upon funding of the above, any remaining surplus balances shall be divided equally between
the Budget Stabilization Reserve and Capital and Special Projects Reserve for appropriation
within the Capital Improvement Program budget.
APPROVED AS TO FORM:
Robert Schultz, Town Attorney