HomeMy WebLinkAboutCC Policy No. 201 - Maintenance of Reserve Funds - Amended 05-04-2021.docxTITLE: Maintenance of Reserve Funds POLICY #201
ADOPTED: June 26, 1985 AMENDED: May 4, 2021
Page 1 of 4
Purpose
The purpose of this policy is to ensure the City’s ability to withstand unexpected financial
emergencies such as those that may result from natural disasters, revenue shortfalls, or
unanticipated expenditures of a non-recurring nature, and to accumulate funds for large-scale
purchases.
Policy
The City will accumulate and maintain reserves in the categories and at the target levels described
below. The actual amount of any of the reserves may exceed its target level because any additional
amounts would increase the financial security of the City.
GENERAL FUND ECONOMIC CONTINGENCY RESERVE: an amount equal to
twenty percent (20%) of a single year’s budgeted General Fund operating expenditures.
“Operating expenditures” shall be defined as all expenditures, except those of a capital nature,
plus operating subsidies provided to the Library Fund, Parks Fund, and Personnel
Compensation Fund (OPEB benefits payments), or to any other fund as determined by the City
Council. Formal City Council action is required to increase the balance in the reserve or to
authorize the use of any portion of its balance. This reserve is intended to be used in the event
of a catastrophic event or significant downturn in the economy that cannot be mitigated with
other funding sources.
GENERAL FUND UNASSIGNED FUND BALANCE: an amount equal to ten percent
(10%) of a single year’s budgeted General Fund operating expenditures. The general fund
unassigned fund balance is determined annually as part of the preparation of the City’s
Comprehensive Annual Financial Report (CAFR). Amounts in excess of the target level will
be used to increase or replenish other reserves (with priority given to the Economic
Contingency and Facilities Maintenance reserves), to set aside resources for specific one-time
uses, or as a funding source for one-time expenditures included in the annual budget or for
needs that arise subsequent to budget adoption.
GENERAL FUND FACILITIES MAINTENANCE RESERVE: an amount equal to three
times the annual amount budgeted to provide major maintenance for the City’s building assets.
“Building assets” shall be defined as all permanent or nonpermanent structures constructed or
installed to provide a workplace for City employees or house City assets and/or operations.
The annual amount to be budgeted for major maintenance projects is 1.5% of the City’s
General Fund operating budget. Formal City Council action is required to increase the balance
in the reserve or to authorize the use of any portion of its balance. This reserve is to be used
for extraordinary major maintenance costs that cannot be met within the annual budgeted
amount and for which no other funding source is available.
TITLE: Maintenance of Reserve Funds POLICY #201
ADOPTED: June 26, 1985 AMENDED: May 4, 2021
Page 2 of 4
GAS TAXES FUND CONTINGENCY RESERVE: an amount equal to a minimum of five
percent (5%) of the estimated annual revenue of the Gas Taxes Fund.
SEWER SERVICE FUND OPERATIONS / CASH FLOW RESERVE: an amount equal
to between twenty-five percent (25%) and fifty percent (50%) of a single year’s budgeted
Sewer Service Fund operating expenditures.
SEWER SERVICE FUND METRO CASH FLOW RESERVE: an amount equal to the
City’s estimated portion of the projected cash needs for capital costs of the San Diego
Metropolitan Sewerage System’s wastewater treatment program.
SEWER SERVICE FUND CAPITAL REPLACEMENT RESERVE: an amount equal to
between ten percent (10%) and fifteen percent (15%) of a single year’s budgeted Sewer Service
Fund operating expenditures.
SEWER SERVICE FUND CAPITAL EXPANSION RESERVE: an amount equal to
between ten percent (10%) and fifteen percent (15%) of a single year’s budgeted Sewer Service
Fund operating expenditures.
SEWER SERVICE FUND EMERGENCY / NATURAL DISASTER RESERVE: an
amount equal to a minimum of fifteen percent (15%) of a single year’s budgeted Sewer Service
Fund operating expenditures.
GENERAL LIABILITY INSURANCE RESERVE: an amount of assets in the Liability
Insurance Fund (an internal service fund) sufficient to meet the eighty percent (80%)
confidence level of adequacy for net claims liability as updated annually by the City’s actuary.
The reserve level requirements will be reviewed as part of the annual budget process
whereupon internal service fund charges will be set such that anticipated expenditures for the
budget year can be met and the reserve level maintained.
WORKERS’ COMPENSATION RESERVE: an amount of assets in the Liability Insurance
Fund (an internal service fund) sufficient to meet the eighty percent (80%) confidence level of
adequacy for net claims liability as updated annually by the City’s actuary. The reserve level
requirements will be reviewed as part of the annual budget process whereupon internal service
fund charges will be set such that anticipated expenditures for the budget year can be met and
the reserve level maintained.
IRREVOCABLE SUPPLEMENTAL PENSION TRUST RESERVE: an amount equal to
two years of unfunded liability payments as determined by the most current CalPERS valuation
reports for both the Safety and Miscellaneous plans. The assets of this reserve are held in an
TITLE: Maintenance of Reserve Funds POLICY #201
ADOPTED: June 26, 1985 AMENDED: May 4, 2021
Page 3 of 4
irrevocable Section 115 pension trust that may be used only for pension related costs and upon
direction of the City Council. Investment earnings on the assets in the trust will be the primary
vehicle for reaching the target level of reserves, although periodic contributions may be made
from other sources upon direction of the City Council. Once the target level is reached, the
earnings on the assets in the trust may be used to fund a portion of the City’s pension related
payments to CalPERS. This target will be reevaluated should the City issue pension obligation
bonds.
IRREVOCABLE OTHER POST-EMPLOYMENT BENEFITS TRUST RESERVE: an
amount equal to eighty percent (80%) of the total net other post-employment benefits (OPEB)
liability of the City’s OPEB plan. Under the plan, the City provides payments to City retirees
to be used towards medical insurance premiums. The City’s net OPEB liability is updated
annually and reported in the City’s CAFR. The assets of this reserve are held in an irrevocable
Section 115 OPEB trust that may be used only for the City’s OPEB plan and upon direction of
the City Council. Investment earnings on the assets in the trust will be the primary vehicle for
reaching the target level of reserves, although periodic contributions may be made from other
sources upon direction of the City Council. Once the assets in the trust reach the target level,
the earnings on the assets may be used to offset a portion of the OPEB plan benefits that are
routinely annually budgeted and paid for using other resources of the general fund.
VEHICLE REPLACEMENT RESERVE: an amount equal to thirty percent (30%) of the
recorded (book) value of the motor vehicles and associated assets accounted for in the Vehicle
Replacement Fund (an internal service fund). Internal service fund charges to benefitting
departments provide the mechanism for building the reserves in the fund. The charges take
into account the initial acquisition cost of the assets, their expected years of service, and the
estimated cost to replace them at that the end of their useful life. Once the target level is
reached, the adequacy of the reserve with respect to the status of the fleet should be reevaluated
along with the formula used for developing the ISF charges.
The status of each reserve shall be reviewed each year by the City Manager as part of the budgeting
process. The City Manager shall take into account the most recently completed CAFR and any
other pertinent data and make recommendations to the City Council regarding any adjustments to
reserve levels; however, nothing in this policy shall prevent determining or reporting on the level
of any of the reserves at other times during the year.
Replenishment of Reserves
If a reserve balance falls below the targeted level, the City shall strive to restore it to the targeted
level through budgetary or other means according to the following guidelines:
TITLE: Maintenance of Reserve Funds POLICY #201
ADOPTED: June 26, 1985 AMENDED: May 4, 2021
Page 4 of 4
If a reserve is drawn down to 75-99% of its targeted balance, it shall be restored to 100% over
a 1 to 3 year period.
If a reserve is drawn down to 50-74% of its targeted balance, it shall be restored to 100% over
a 3 to 5 year period.
If a reserve is drawn down below 50% of its targeted balance, it shall be restored to 100% over
a 5 to 7 year period.
These guidelines may be suspended, in whole or in part, if financial or economic circumstances
prevent meeting any or all of the timelines.
Related Policy References
None
Prior Policy Amendments
September 17, 2019
November 21, 2017
June 7, 2016
October 7, 2014
December 10, 2013
March 12, 2002