Resolution Adopting a Revised Fund Balance Policy for the City's General Fund 

Summary

The City has a fund balance and reserve policy for its major funds such as the General Fund and each of the three utility funds. This policy is annually included in the City’s budget document. This agenda item contains modifications to only the fund balance policy for the General Fund. Staff is working on modifications to the utility and other funds reserve policies, but those changes will be presented at a future date. Modifications to the General Fund reserve policy are being brought tonight for discussion and consideration based on past discussions. While no change is recommended to the existing 25% minimum policy threshold, the primary addition to the policy is to establish a 35% target threshold (in addition to the existing 25% minimum), and process for transferring or assigning those funds over that target for another purpose.

Highlights of Changes
The current policy articulates a minimum fund balance reserve of 25% of annual expenditures plus transfers out for various purposes (i.e. debt repayment). This is a common minimum threshold set by municipalities. The attached revised policy incorporates two primary changes to the policy.

1. Formally establishes, in addition to the 25% minimum, a target fund balance of 35% that the City would maintain for various reasons, including maintenance of an excellent credit rating for lower borrowing costs, and as contingency for various purposes as outlined in the policy. This memorializes an informal practice currently in place that has been administered over the last several years.
2. The policy then adds new language which establishes that if the fund balance of the General Fund exceeds the 35% threshold at the end of the fiscal year, the Finance Director will provide recommended options to transfer, assign or otherwise utilize a portion of the fund balance over the target amount for purposes that include, but are not necessarily limited to:

1. Funding for future capital projects or asset reinvestment to a Capital Fund.
2. Funding for the acquisition or replacement of equipment, vehicles, information technology software or systems, or other similar purposes in other Funds.
3. Strengthening reserves in other funds for future contingency purposes such liability insurance.
4. Providing additional employer funding for the City’s employee pension systems in order to improve the funded status of the plans.
5. Allocating resources for other initiatives identified by the City.

The City is finalizing year-end audit reports and numbers from the annual audit of the City’s financial statements as of April 30, 2026. After presentation of the City’s year-end financial statements in October, staff will discuss potential uses/re-allocations of the fund balance over the new 35% target and recommend options at a future date.

Recommendation: Approve