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Reserve Policy and General Fund -Page 2 of 3 - October 21, 2011 Related to Fund Balance Designations and Reserves Management the Financial Goals Statement spells out the following: C. Fund Balance Designations and Reserves Management The City will maintain fund or working capital balances of at least 20% of operating expenditures in the General Fund and Enterprise Funds. This is considered the minimum level necessary to maintain the City's credit worthiness and to adequately provide for: (i) Economic uncertainties, local disasters, and other financial hardships or downturns in the local or national economy. (ii) Contingencies for unseen operating or capital needs. (iii) Cash flow requirements. DISCUSSION The General Fund finances the operations of the City that have no special or dedicated revenue sources and pays for all basic municipal operations. The General Fund reserve, based on City Council direction, sets aside savings for economic uncertainty, emergencies, and other future contingency. Reserves allow for the designation of funds received for the Kaiser Hospital development, Street Improvement Funds and Community Impact Fund, and Other Designations (including equipment acquisitions, encumbrances, and the Plaza loan repayment on the worksheet). Together, the Major Emergencies and Economic Uncertainty designations reflect the General Fund reserves set aside for future unplanned contingencies. The amount of the Major Emergencies reserve has remained unchanged during the recent years of depressed economics. The reserve has remained at $5,000,000 since 2007 -08. The Economic Uncertainty reserve, at $10,033,000 in 2007 -08, has since been partially utilized for operations over the past several years. The balance in the Economic Uncertainty is $3,796,500. This amount reflects the June 30, 2011 unaudited balance and the 2011 -12 budget was approved without any further draw - down of the reserve. The Major Emergencies and the Economic Uncertainty reserves totaled $15,033,000 in 2007 -08, about 19% of the General Fund operating expenditures ($77,397,000). The percentage has declined over the past several years and was recorded at 13% as of June 30, 2011. Staff recommends a transfer of $2,000,000 from the General Funds fund balance to the Economic Uncertainty reserve as part of the mid -year budget amendment resolution to be presented to the City Council. This transfer will bring the Major Emergency reserve and the Economic Uncertainty reserve total $10,796,000, about 15% of the General Fund operating expenditures. This transfer moves the percentage significantly closer to the City Council's goal of 20 %. G:AFinance CommitteeA2011- 12 \10- 21 -11 \fc memo re cc reserve policy and GF reserves as of 6- 30- 11.docx