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Calling Out The Reserves
Tom McGreal | Stratford Court

Updated Budget
Fiscal Year end
June 30, 2018
Governmental Reserves ($ Millions)
Contingency Reserves $2.5
Measure Q Reserves $2.1
Equipment Reserves $.8
Self Insurance $.4
Pension Reserves $.7
Other $.1
Total of Reserves $6.5
CIP Reserves $0
Special Fund Reserves $.9

 

Financial Reserves are maintained by the City as a mechanism for saving money for future needs. This includes accumulating money for infrastructure and equipment, ensuring that City services can be maintained in uncertain times and providing a hedge against future unknown financial risks.

The budget adopted by the City for fiscal year 2018, which has been updated for mid-year results and recent Council budgetary decisions, shows total Citywide Reserves of approximately $30 million. The Water and Wastewater funds represent $23 million of the total Reserves, which consists largely of the assets needed to deliver these utility services. The Water and Wastewater Funds are considered Proprietary or Enterprise Funds because they operate using regulated water and wastewater rates, which are set each year to ensure that revenues and operating costs are balanced.

The Governmental Reserves represent the remaining reserves totaling $7.4 million. Governmental Reserves are comprised of the General Fund Reserves, Special Fund Reserves and the Capital Improvement Plan Reserves. These Reserves support the operation of City government and deserve a closer look.
General Fund Reserves total $6.5 million (as shown in the chart on page 5). The Contingency Reserve of $2.5 million represents money that does not have a specifically designated purpose. It serves as a cushion, which according to City policy must be maintained between 10% and 20% of total operational spending. Based upon the updated Budget it represents 17.7% of total spending. This means that the Contingency Reserve represents 65 days of operating costs for the City. Given the modest level of variability in City revenues, a 65 day cushion is a good reserve position.

The General Fund also includes certain Designated Reserves. Measure Q revenues (the new 1% sales tax increase) are held in a designated Measure Q Reserve, which is expected to grow to $2.1 million by the end of the fiscal year 2018. These funds are intended for major Capital Improvement projects that couldn’t be otherwise funded with operational cash flows and include such projects as the undergrounding of utility wires, development of Shores Park and Downtown Streetscape. The City Council has recently allocated $400,000 from the Measure Q Reserve for the Downtown Streetscape project. This represents the first use of the Measure Q Reserve.

There is also a Designated General Fund Reserve for unfunded pension liability. It is noteworthy that the Pension Reserve in the General Fund now totals $663,000. Under the City’s Pension Reserve policy, Del Mar is proactively reserving additional funds beyond the mandatory contributions that the City is required to pay to CalPERS to ensure that the City will have sufficient Reserves to cover the unfunded pension liability by 2029.

The remaining General Fund Reserves include Self Insurance in the amount of $275,000, Equipment Replacement Reserves totaling just over $800,000 and Leave Liability in the amount of $100,000.

The City’s largest discretionary outlay is for Capital Improvement Projects, which are monitored by the City using a ten-year CIP Plan. Project decisions are made each year based upon available funding. By the end of this fiscal year the Capital Improvement Plan Reserves will be fully utilized as a result of the $6 million of projects being undertaken. These are largely roadway projects including the start of the Downtown Streetscape and the Camino Del Mar project extending from Carmel Valley Rd. to Del Mar Heights Road. The $6 million does not include City Hall development costs.

When we include the non-discretionary Special Fund Reserves (for Open Space, Regional Communications, Grants, Housing, AB 939 and the Peg Fee), the total Governmental Reserves are $7.4 million as shown.

These Reserves are funded and replenished each year with City cash flows that are available after paying the costs and expenditures required to operate the City government. The Reserve levels are managed through City policy and monitored by the Finance Committee. Having strong reserve positions is essential to maintaining the financial resilience to meet the City’s future needs.

 

 

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