The Riverbank City Council has approved a new General Fund Reserve Target of a range from 13 percent to 15 percent and the revised Reserve policies, agreeing to some changes that were recently proposed. City Manager Sean Scully noted that for the first time in a long time, the City of Riverbank is in a very good financial position in regards to the General Fund Reserves.

Marisela H. Garcia, Assistant City Manager/Director of Finance presented the report to the public and the City Council at the regular meeting held last Tuesday. In a brief overview Garcia explained that one of the ‘best practices for all municipalities is to maintain an adequate level of reserves for any revenue shortfalls or expenditure increases. In 1995 the city council adopted a 15 percent reserve and then it was revised in 2008 to 10 percent since the city was never able to achieve the 15 percent reserve.

During the presentation Garcia gave the council some factors to consider in establishing a reserve level, including the predictability of the revenues, how volatile are the expenditures, any perceived exposure to one-time or on-going outlays, potential to drain on the General Fund resources from other funds, are there liquidity issues, commitments from the city council for those general fund revenues in the future, and the public’s perception of the percentage to be held.

“Obviously if you are holding onto reserve levels of 30, 40 percent then the public may perceive that you’re not providing them with adequate services because those funds can be used for enhanced services such as police,” stated Garcia. “When you are looking at some of the risks that your revenue and expenditures are vulnerable to, you are looking at how vulnerable they are to extreme events such as aging infrastructure that might all of a sudden collapse.”

With factors to consider including sales tax, pension costs that will be coming up, the law enforcement contract that may have increases as well and growth risks like new residents’ needs for services and dependency on other funds, council members had plenty of items to take into consideration.

“Over the past two fiscal years we have gone over and above that 15 percent level,” stated Garcia. “So we feel confident that we will be able to meet that but we also understand that there will be times and years when the city council may have to use our reserve funds for one-time capital expenditures or for an emergency. So dropping down to a 13 percent level we feel is still adequate for the city to hold those funds.”

In addition to the new target General Fund Reserve percentage change, the council was asked to consider policy changes as well. Currently the General Fund reserve is calculated based on a percentage of total revenues that are both on-going and one time revenues. Garcia proposed that the calculation be based on a percentage of discretionary revenues only. Those revenues received for a specific purpose like grant funds and Transfers In of Management Fees will not be taken into consideration as part of the calculation since these are non-discretionary funds and are not able to be allocated towards any governmental purpose.

The current practice is to use reserve funds for “one-time expenditures” or “emergency” expenditures with no clear definition as to what constitutes an emergency. The revised policy establishes the reserve as a source of funding for (1) Economic Uncertainties in order to mitigate periodic revenue shortfalls, (2) Emergency Reserves for catastrophic losses of critical infrastructure, or state or federally declared states of emergency, and (3) Reserves to Accommodate Capital Needs.

It was recommended that the City Council shall be the sole authority to allocate reserves if being used to mitigate economic uncertainties. The policy also requests that the City Manager be provided with the discretion to allocate reserves for emergency purposes, and to fund capital needs with subsequent formal approval from the City Council confirming the allocation.

The proposed policy allows for the City Council to have the discretion to allocate excess reserves (which may include an end of year structural surplus or reserves above the target reserve level) for items such as offsetting projected future deficits, anticipated intergovernmental impacts, re-appropriation to subsequent years for one-time expenditures, transfers to other funds with structural deficits, or transfer to a capital program fund.

the General Fund Reserve be used for either economic uncertainty or emergency purposes, the policy will require that a replenishment plan be established to bring the level of reserves back to the target amount.

The council also approved the changes to the policy.