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r BACKGROUND The City currently has a reserve policy for the City's General Fund that requires reserves equal to 10% of General Fund revenues be held for economic uncertainties The City does not currently have a reserve policy for the City's other operating funds The Government Finance Officers Association (GFOA) recommends establishing reserve policies for operating funds GFOA recommends that general purpose governments maintain at a minimum an unrestricted general fund balance of no less than two months 1 of operating expenditures This amounts to 16 7% of operating expenditures Water and sewer utilities typically have higher levels of operating reserves than general funds due to less diversified revenues and the need to quickly repair system damages to continue operating The purpose of operating reserves is to ® reduce the risk of financial impacts resulting from natural disasters or other catastrophic events respond to the challenges of a changing economic environment, including prolonged downturns in the local, state, or national economy • demonstrate continued prudent fiscal management and creditworthiness. DISCUSSION A summary of the proposed reserve levels as compared to current reserve levels by operating fund is included in Attachment 2 In summary, staff is proposing four categories of operating reserve levels to match the City's requirements to draw upon reserves in the event of a natural disaster 1 General Fund The City would utilize General Fund operating reserves to cover revenue shortfalls that would likely occur after a natural disaster The target level of reserves equal to 2 5 months of operating expenses ensure the City can continue to make payroll and cover other operating expenses while the City recovers from the event 2 Enterprise Funds —Water and Sewer The City would utilize enterprise fund reserves to cover revenue shortfalls that would likely occur after a natural disaster as well as repair damages to the utility infrastructure The target level of reserves equal to 4 2 months should be sufficient to accomplish those goals 3 Internal Services Funds— Facility and Infrastructure Replacement and Renovation The City would utilize these reserves to make emergency repairs to the City's facilities and infrastructure The target of 35% of the operating budget for each fund should be sufficient to provide the City with a means to address immediate repairs in the event of a natural disaster Page 2 of 3