Are there "Reserves" Totaling $22 Million that can Solve the City's Budget Problems?
Facts about the City's Unrestricted Net Assets in Internal Service Funds
The City is grappling with a fiscal challenge that is without precedent. This is not a short-term problem and it requires a long-term and structural solution. To help make progress in the ongoing contract negotiations with SEIU, the City wants to set the facts straight. Sometimes the City issues informational statements on its own and at other times responds to issues or questions raised by SEIU. The City is committed to productive negotiations and exploring any realistic alternatives that produce a contract agreement.
Recent claims have been made related to the City's reserves that must be corrected. It has been suggested that the City has "accounts" with a reserve balance of $22 million available that could be used to balance the budget and resolve negotiations.
The $22 million figure comes from the Comprehensive Annual Financial Report (CAFR) as of June 30th, 2008. The $22 million represents the totals of the Technology, Vehicle and General Benefits Internal Service Funds' "Unrestricted Net Assets" line (CAFR, Page 123).
The majority ($17.1 million) of the funds were already contractually obligated, appropriated or budgeted.
The actual balance in these funds as of that date was $4.9 million.
This $4.9 million needs to be available to address costs that run over estimates or emergencies in those funds.
The $4.9 million belongs to all funds, not just the General Fund. Also, prudent financial management practices dictate that one-time funding not be used to solve on-going, recurring financial needs.
In addition, the data SEIU has been citing is from the FY 2008 Comprehensive Financial Report published in December 2008. The FY 2009 Comprehensive Annual Financial Report will be published in December 2009, following the conclusion of the audit by the City's independent financial auditor.
If you would like to learn more about this issue there is detailed information below.
Cities are required to use fund accounting. Thus, the City's finances are organized into funds. The fund that is most commonly known is the General Fund, which serves as the City's primary spending account. The General Fund is primarily funded by tax revenues and provides for most of the typical services in the City, such as police, fire, parks, libraries and administration. The City also has funds for individual utility services, such as the Electric and Gas Funds. These funds are known as Enterprise Funds. Enterprise Funds have specific revenues that are paid directly by the users as fees for those services. Another set of funds important to the operations of the City are Internal Service Funds. In a typical year, the General and Enterprise Funds transfer dollars to the Internal Service Funds to coordinate and manage important organizational expenditures in one place.
The $22 million figure identified by SEIU refers to the unrestricted net assets from three of the City's five Internal Service Funds as reported in the Comprehensive Annual Financial Report dated June 30th, 2008 (CAFR, Page 123). Those three funds are:
Technology Fund This fund accounts for the cost of computer equipment and services provided to the entire City organization.
Vehicle Fund This fund accounts for the maintenance and replacement of all City vehicles.
General Benefits Fund This fund accounts for the costs associated with City-wide employee benefits.
As an example, the General Fund has a number of vehicles that are used by departments to perform City functions, such as building inspections. Likewise, the Enterprise Funds have vehicles needed to perform utility work. The General Fund and Enterprise Funds pay the Vehicle Internal Service Fund for the cost of replacing and maintaining their vehicles. Similarly, the General Fund and Enterprise Funds pay the Technology and General Benefit Service Funds for the cost of technology services (computers and software) and employee benefits (pension, healthcare, dental, vision, life insurance, workers' compensation, etc.).
The term Unrestricted Net Assets is dictated by the Government Accounting Standards Board. While we must use this language, "unrestricted" does not mean uncommitted. Most of the assets reported in 2008 were specifically allocated for certain necessary costs. The $22 million figure includes a:
Reserve for Encumbrances (legal contract obligations)
Reserve for Reappropriations (Council approved budget appropriations for purchases such as those for the Capital Improvement Program (CIP))
Balance (necessary to provide for unexpected needs or costs for services and equipment in these three areas)
These three Internal Service Funds, as shown in the City's Comprehensive Annual Financial Report for the fiscal year ending June 30, 2008 and summarized below, had a combined available balance of $4,965,565.
This information is for the three Internal Service Funds from the June 30th, 2008 Comprehensive Annual Financial Report.
The charts and information below detail the reserve for encumbrances, reserve for reappropriations, balance and uses for the balance for each of the three Internal Service Funds.
In the Technology Fund the balance of $2,947,964 includes funding that will be necessary for the replacement of the telephone system and an information technology strategic plan. The balance also provides flexibility for unexpected equipment failures that require the purchase of replacement computers or servers. The City maintains a data network that consists of 1,279 personal computers, 140 servers, 115 network switches, and 262 printers/copiers. Click here for details on the reserves for encumbrance and reappropriation.
In the General Benefits Fund balance of $3,034,348 is maintained to cover expenses related to employee benefits, worker's compensation and legal claims against the City that can fluctuate from year to year. Therefore, a balance in this fund is important. Further detailed information is not provided for the General Benefits Fund as the reserve for encumbrance of $250,185 is minimal.