The Sedona City Council gave a unanimous nod to updating its fund balance policy — the first time in six years. As part of their analysis the city’s Fiscal Sustainability Work Group reviewed the current policy, which was adopted by the council in 2011, and made several recommendations.
The group believed some reserves are higher than necessary and there is an opportunity to free up one-time cash reserves. Council voted 7-0 to reduce the fund balance to 30 percent during its Tuesday, Nov. 14, meeting.
According to City Manager Justin Clifton, the fund balance “is the total accumulation of resources that have not been spent by the city. The fund balance reserve requirement is a designated minimum amount that needs to remain unspent except for the specific conditions allowed by the policy.”
The most significant changes recommended by the group include:
- The General Fund operating reserve was reduced from a range of 50 to 75 percent to a target of 30 percent. This would free up approximately $3.8 million of the Fiscal Year 2018 reserve for capital needs.
- The debt service reserve for the Wastewater Fund was reduced from an average of one year of all debt service payments to an average of one year of just those debt issuances not covered by bond insurance. This would free up approximately $400,000 for FY 2018 and the remaining approximately
$4.1 million in FY 2020 since the remaining debt issuances would be covered by bond insurance.
- Reserves established in the budget process or anticipated to be established have been memorialized in the policy, including the budget carryover reserves, equipment replacement reserves, wastewater major maintenance reserve, and wastewater capital improvements reserve.
- A discussion of when the operating reserves can be used was added. This allows the council discretion to utilize those reserves to bridge any gaps in recession periods.
In addition, staff recommended that the streets fund balance range of 10 to 50 percent be eliminated.
“While the target is maintenance of an annual average of four and a half to five miles per year, the actual number of miles per year can vary based on a variety of operational efficiencies and needs,” Finance Director Cherie Wright said. “The recommended policy now reflects that balances will be carried over based on maintaining a level funding amount to average at approximately four and a half to five miles per year over time.”