Folsom looks to increase reserve minimum

With a relatively small rainy-day fund compared to neighboring cities, the Folsom City Council agreed last week to raise the strategic reserve minimum. The council reviewed the city's general fund unassigned (reserve) balance policy of at least 15 percent of expenditures. Nearby cities with deeper pockets have 20-percent policies and up, said Folsom Finance Director Stacey Tamagni. Staff reviewed more than 20 reserve policies from cities and studied the Government Finance Officers Association recent publication, "Rethinking Reserves." Savings protect a city against unexpected interruptions in revenues, vulnerability to federal or state actions, economic downturns, unpredictable one-time costs and exposure to natural disasters and emergencies such as COVID. Public agencies accumulate and maintain adequate reserves to provide essential services in hard times. Folsom currently spends roughly $110 million a year with $31 million (29 percent) in reserve funds, staff said. When last surveyed, Rancho Cordova, West Sacramento and Elk Grove were all in the 80- to 88-percent range. Roseville was at 51 percent. While Folsom has kept a minimum 15-percent policy for two decades, all four other cities studied have policies of 20 percent or higher. Roseville is at 25 percent with Elk Grove set at 30 percent, staff said. Rancho Cordova was at the top of the survey with $66 million in total reserves, or 88 percent of a $75 million annual budget. Along with standard, general fund reserves, cities also have "other unrestricted funds" set aside for specific risks or to plan for anticipated future costs. While Rancho Cordova has only $14 million in general fund reserves, the city boasts $51 million in "other reserve funds" compared to Folsom's $8 million, staff said. "We only have $8 million outside our comfort area," Councilperson YK Chalamcherla said. Impressed with tax-rich Rancho Cordova, Chalamcherla asked staff to study that city's and others' alternate reserves. "I'm going to quote Rancho Cordova here, $66 million in various funds. So, they're loaded. Where? How?" Chalamcherla asked. "Those cities don't have the pension obligations we do. They've only been around for 25 years or less," said Councilperson Sarah Aquino. Mayor Rosario Rodriguez added those other cities have more money to save because they already have sales tax income, now sought by Folsom. Folsom adopted a comprehensive set of financial policies in 2004, setting the strategic reserve at 15 percent of total expenditures. On the bright side, Tamagni said the Folsom total reserve has stayed steady at 20 percent the last eight years. Technically, Folsom is supposed to move any funds beyond the limit to the capital improvement fund. Before the recession began to hit Folsom in 2008, the average level of reserves was at 23 percent of expenditures for the 10 years prior, reaching a high of 26.6 percent in FY 2005-06, Tamagni said. The contingency funds allowed Folsom to get through the recession, but service cuts and layoffs were still needed, staff said. Even with that level of reserves as a starting point, total reserves reached a low point of $4 million, or 6 percent of costs by fiscal year 2010-11. Although it was not an action item but "direction to staff," the council polled 5-0 to raise Folsom's strategic reserve minimum from 15 percent of costs to a "range" of 17 percent to 20 percent. For future discussion, the council also wants an Information Technology contingency fund created. The city also announced the regular bi-monthly council meeting Dec. 26 has been cancelled. The next Folsom City Council meeting is scheduled for Jan. 9, 2024.