What is the City's Projected Reserve Balance?

Q#1: What is the most updated reserve balance for the City going into this fiscal year? Answer: $5,118,799. This is the beginning reserve that was reported in the Budget approved on June 27 ($3,527,869), plus the ~$1.6M ($1,590,930) in additional reserve funds identified by the Audit completed after the June 27 approval of the Budget by the City Council. This healthy updated reserve is what carries us through this year's shortfall of ~$1.7M, next year's shortfall of ~$1.5M), and 25-26's shortfall of ~$1.6M, leaving us with ~$400,000 going into FY 2026-27 as we face a $1.7M deficit.

Q#2: Why is the City's reserve balance important? Answer: If the City spends more than it can raise in revenue, that shortfall is covered out of the general fund reserve balance. The reserve is the City's "safety net" or "rainy day fund."

In good times when more revenue comes in than is needed to cover expenses, the City adds to the reserve fund, and in bad times when expenses are more than revenue, the City dips into reserve funds to make ends meet.
The City policy is to keep in reserves at least 15% of the amount that is expected to be spent that year. To state the obvious: If we are spending more than we are raising we can't replenish our reserve fund. Even more obvious: If we are spending more than we are raising and we expect our reserve fund to be depleted to below zero, we are in a crisis.

Q#3: Can you give me an example of how the reserve balance is calculated? Answer: Yes, let's use this year as an example.

We'll use the updated numbers for this fiscal year in the October 17 Revenue Options Staff Report (page 2 of 12). It states that our expenses for this fiscal year (July 1, 2023-June 30, 2024) are projected to be $12,537,996. With those expenses, we'd want our reserve at the end of the year to be at least $1,880,699 (15% x $12,537,996).
This fiscal year we've met that goal. We are projected to have a reserve balance of $3,441,264, which is 27% of our $12,537,996 in expenses. That's a relief, and easily meets our minimum 15% reserve policy. (But before you get too excited, see this my news posting on the City's structural deficit here.)

Q#4: Why is the reserve balance for this fiscal year different in the October 17 Report than it was in the 2023-24 Budget approved by the Council on June 27? Answer: Between June and October the City closed and audited the books for last year (FY 2022-23). The audit disclosed that last year's revenue was higher and expenses lower than expected, which added more money to the City's reserves for the start of this year.

By October 17 the fiscal year had ended, the books for that year had been closed, and actual numbers could be produced. The "estimated actual" numbers available for the June 27 Council meeting were estimated because the fiscal year had not yet ended, and so actual revenue received and expenses paid for 2022-23 were still subject to change. After the fiscal year ended on June 30th, the Administrative Services Dept's next task was to close the books for 2022-23 and oversee the City's annual audit to finalize the 2022-23 revenue, expenses, and reserve for the end of that year (2022-23).
The audit process is not yet final, but much of the work had been completed as of the October 17 Staff Report. The results of that auditing/closing the books process increased the end of year reserve for 2022-23. That result was then carried into the current fiscal year, increasing our end of year reserve balance for this fiscal year 2023-24. That increase in the 2022-23 reserve (cascading into the 2023-24 fiscal year) is what is reflected in the October 17 Staff Report.

The Reserve Numbers: End of Year for June 27 vs October 17:

$1,850,334 (14.8% of expenses): Reserve in June 27, 2023 Adopted Budget (at page 42)
$3,441,264 (27.4% of expenses): Reserve in October 17, 2023 Revenue Options Staff Report (at page 2)
=$1,590,930 ($1.6M): This is the additional reserve funds identified in the post June 27 Audit

Q#5: How much did last year's reserves go up? Answer: After the audit, the City showed an increase in last year's reserves of ~$1.6M (~$1M in increased revenue + ~$600K saved because departments spent less. That $1.6M more at the end of last year meant the City had $1.6M more to start this year. See answer to question #3.

Q#6: Was there a one time Covid grant that was part of the reason for the $1.6M increase in reserves? Answer: Yes, a Covid grant helped raise last year's reserves. It came to the City in two payments. Part could not be accessed right away because of reporting and usage limitations. After the recent audit the full amount was made available to the City and was added to revenue. There were other revenue categories that went up and some that went down as a result of the audit, but the Covid grant had the largest impact on the revenue side. (See Recording of October 17 Council Meeting at timestamp 2:27:38).

Q#7: When will the Final 2022-23 Audit be Released? The audit is still being finalized (and yes, that means some of the numbers may still change!). It's expected to be final at the beginning of 2024. (The 2021-22 Audit was presented to the City Council at the January 17, 2023 meeting.

Q#8: Is the $1.6M additional reserve included in the projections in the October 17 Revenue Options Report? Answer: Yes, it's already been factored into the October 17 Report. The additional $1.6M saved in 2022-23 is why the reserve increased going into this year from 14.8% (in the June 27 approved Budget) to 27.4% (in the October 17 Staff Report).

Q#9: Does the $1.6M additional reserve money help our deficit? Answer: Yes, in the short term. It bought the City a bit more time, providing enough reserves to make it until July 2026 (when the City is projected to enter that fiscal year with a $1.7M deficit and only $400,000 in reserves to cover it). Without that additional $1.6M in the reserves, the City would be running out of money even earlier, in July 2025.

Q#10: Does the City have any other one-time grant funds or similar amounts that have been received but the City can't currently use? Answer: No, according to City Staff. See link to the recording of the October 17 Council meeting - go to timestamp 2:26:31-2:26:33).

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