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FIN-2.07 - Reserve Funds

RESERVE FUNDS

Binding City Policy

BCP-FIN-2.07


 

Policy

 

Reserve funds shall be established and maintained to ensure the continued delivery of City services to address emergencies, address temporary revenue or cash shortfalls, or provide stability during economic cycles. Reserve funds shall contain amounts that have a specific non-routine purpose and may contain amounts that are set aside for temporary routine shortfalls.

 

Reserve funds that formally set aside amounts for use in emergency situations or revenue shortfalls are considered “stabilization arrangements” under Government Accounting Standards Board (GASB) guidance. Stabilization arrangements can only be expended when certain specific non-routine circumstances exist. Per GASB, the portion of ending fund balance in reserve funds dedicated to stabilization arrangements should be treated as “restricted” or “committed”.

 

Amounts set aside in reserve funds to provide temporary coverage in the event of a cash or revenue shortfall, or a negative fund balance at fiscal year-end, are considered routine in nature, and may be treated as “committed” or “assigned” segments of ending fund balance. The City shall maintain adequate cash reserves in each fund to maintain a positive cash position and ending fund balance at year end.

 

General Reserve Fund

 

The City shall maintain a General Reserve Fund to:

 

  Insulate General Fund programs and current service levels from large and unanticipated one-time expenditure requirements, a revenue reduction due to a change in state or federal legislation, adverse litigation, or any similar unforeseen action.

 

  Temporarily insulate General Fund programs and current service levels from slower revenue growth that typically occurs during an economic recession.

 

The level of the General Reserve Fund shall be at least 10 percent of General Fund discretionary and overhead resources less beginning fund balance.

 

There are two required components of the General Reserve Fund: the emergency reserve and the countercyclical reserve.

 

General Reserve Fund: Emergency Reserve

 

The Council reserves one half of the required General Reserve Fund as an emergency reserve. The emergency reserve is available to address one-time emergencies and unanticipated expenditure requirements or to offset unanticipated revenue fluctuations occurring within a fiscal year. The Council may withdraw funds from the emergency reserve when the Council has declared an emergency by ordinance and after the General Fund’s budgeted contingency is exhausted. The emergency reserve shall be accessed only when emergency expenditures or an unexpected revenue reduction would result in a negative General Fund ending fund balance.

 

The Council shall begin to restore emergency reserves used under this policy within 24 months after their first use and shall include a timeline for full reimbursement in the ordinance declaring the emergency.

 

General Reserve Fund: Countercyclical Reserve

 

The second half of the required General Reserve Fund is designated as a countercyclical reserve. The Council may use this to transition expenditure growth to match slower revenue growth during an economic recession.

 

The countercyclical reserve is designated for use as “bridge funding” necessary to offset slower revenue growth during a recession. For purposes of the policy, slower revenue growth triggers the Council’s assessment of use of this reserve when year-over-year basic revenue growth falls to below three percent for two consecutive quarters or the financial forecast estimates that basic revenue growth shall be below three percent for the next fiscal year. Basic revenue is defined as the sum of General Fund property tax, business license tax, utility license/franchise fees, cigarette and liquor taxes, transient lodging taxes and interest income.

 

In addition, one or more of the following conditions must occur in conjunction with slower basic revenue growth:

 

1.  Local housing prices have fallen by more than 10% at any time in the prior 24 months.

 

2.  The year-over-year change in the unemployment rate for the City of Portland has risen by more than two percentage points at any time in the prior 12 months.

 

3.  Year-over-year metro area employment has fallen by at least 2% at any time in the last 12 months.

 

The Council shall begin to restore countercyclical reserves used under this policy within 24 months after their first use, and shall include a timeline for full reimbursement via ordinance.

 

Authorized Uses of the General Reserve Fund

 

Prior to the use of General Reserve Fund resources for either emergency or countercyclical purposes, the City Budget Office shall prepare and distribute a report to Council addressing the requirements for use of the reserve and the amount of funds requested. The report shall be presented to the Council prior to the meeting at which the Council makes a decision on use of General Reserve Fund resources.

 

Unauthorized Uses of the General Reserve Fund

 

Revenue shortfalls associated with bureau service reimbursement income, contract income or cost recovery revenues may not be offset by a transfer of resources from the General Reserve Fund. The General Reserve Fund is not intended to be used to fund labor contract settlements.

 

Transportation Reserve Fund

 

The Portland Bureau of Transportation shall maintain a Transportation Reserve Fund. There are two stabilization agreement components to the Transportation Reserve Fund: the emergency reserve and the countercyclical reserve.

 

Transportation Reserve Fund: Emergency Reserve

 

The transportation reserve policy sets this reserve amount at five percent of the Portland Bureau of Transportation's Adopted Budget gas tax and on-street parking revenues. Fund emergency reserve amounts are used to fund major one-time unexpected requirements, such as those related to a structural failure or road emergency associated with a natural disaster or event.

 

Transportation Reserve Fund: Countercyclical Reserve

 

The transportation reserve policy sets the countercyclical reserve amount at five percent of the Portland Bureau of Transportation’s Adopted Budget gas tax and on-street parking revenues. Countercyclical reserves are used to maintain current service level programs or buffer the impact of major revenue interruptions, such as those caused by an economic recession.

 

When the Transportation Reserve Fund drops below the levels called for by policy, the Portland Bureau of Transportation shall transfer funding annually to the Transportation Reserve Fund until the policy requirements are met.

 

Fire & Police Disability & Retirement Reserve Fund

 

The Fire & Police Disability & Retirement Reserve Fund was established by City Charter and is to be maintained in the amount of $750,000. It is for use only in the event the Fire & Police Disability & Retirement Fund becomes depleted to the extent that current obligations cannot be met.

 

Debt Reserve Funds

 

In conformance with FIN 2.12 Debt Management, debt reserve funds may be established to comply with legally required bond covenants, or may be voluntarily established to support timely repayment of debt obligations.

 

Responsibility

 

The City Budget Office shall manage and monitor the General Reserve Fund. All other reserve funds shall be managed and monitored by the managing bureau as identified in the Adopted Budget. The City Budget Office shall report on the current and projected level of allreserve funds during each budget process.

 


HISTORY

 

Resolution No. 34722, adopted by City Council May 3, 1990.

Replaced by Ordinance No. 181829, passed by City Council May 14, 2008 and effective July 1, 2008.

Amended by Resolution No. 37086, adopted by City Council August 6, 2014.