Yorba Linda's reserve fund policy has changes

A couple of new wrinkles have been added to Yorba Linda's policy regarding funds held in reserve – cash that's been saved from several decades of spending fewer dollars than the number raised from taxes, fees and other income sources.

Currently, the city has close to $17.7 million in reserves, nearly 57 percent of the $31.2 million general fund budget. A city survey notes that's the ninth highest percentage in the county's 34 cities, and the only city with both a larger population and a larger reserve is Buena Park at 96 percent.

A written City Council policy has long stated that reserves should be 50 percent of each year's operating budget. That won't change under a revised policy adopted on a 4-1 vote at a recent council meeting, with Mark Schwing dissenting.

But two specific categories of reserves have been created, along with a potential for more spending whenever the level of reserves reaches more than 60 percent of a year's budget.

One category is an “emergency reserve,” which will be set each June 30 at 40 percent of the upcoming fiscal year's general fund budget. The other is an “economic contingency reserve,” which would be fixed at 10 percent of the budget.

The 40 percent reserve “would only be utilized in a time of emergency, which would be an extremely unusual and infrequent occurrence, such as a major natural disaster or a major unforeseen settlement,” Finance Director Scott Catlett told council members.

The 10 percent reserve “would only be accessible to address unforeseen sudden revenue loss that could not be balanced with other measures,” Catlett noted, adding the fund would allow “a measured and thoughtful reduction in expenditures” during an economic downturn.

Once the emergency or period of declining revenues ended, the city staff would be required to present a plan to council to replenish the fund levels over no more than a five-year period.

Catlett also noted: “In cases where the reserve balance exceeds 50 percent at any time, the policy would allow (council) to appropriate these excess reserves for one-time expenditures.”

But, he stated: “Any appropriation from reserves that causes the reserve balance to drop below 50 percent must be backfilled in the subsequent fiscal year, which absent revenue growth would mean a corresponding reduction in budgeted expenditures.”

Also, to avoid “accumulation of excess operating reserves,” Catlett noted the policy includes “a requirement that when reserves exceed 60 percent, staff would present...options for appropriate uses” of the excess funds to bring the balances below the 60 percent level.

“These uses would likely include deferred capital projects, vehicle or equipment purchases, contributions to special reserves, reductions to unfunded liabilities or other expenditures of a one-time nature,” he explained.

The policy also eliminates specific reserve levels for landscape district, library and golf course funds.