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Statement: “I remember when I was first elected to City Council the reserves were at 3 percent, I think, as we were teetering on the edge of going over the cliff, and now with everybody working together, we’re at 14 percent, where we have the ability to have those fully funded,” Mayor Kevin Faulconer said at an April 14 press conference.
Analysis: Like most responsible budgeters, cities set aside cash for unexpected bills and unforeseen disasters.
This stash has been particularly crucial to San Diego, which was once essentially boxed out of the municipal bond market in part because of significantly diminished reserves.
Mayor Kevin Faulconer, who was elected to the City Council in January 2006, claimed this week that the city’s savings were down to a meager 3 percent when he took his Council office and have since surged to 14 percent.
The city’s reserve fund plays a pivotal role in the city’s credit rating and Wall Street’s interest issuing bonds to the city, which allow the city to build fire stations and repair crumbling sidewalks.
I reviewed past audited financial reports to assess the actual cash in the city’s reserve account over the past 10 years. These reports tell us how much the city had in hand at the end of each fiscal year.
The city’s reserve account has grown a lot over the last decade.
Those raw numbers don’t reveal the percentages Faulconer mentioned. Those are covered in the city’s reserve policy.
Until earlier this year, city rules mandated that the equivalent of at least 8 percent of the city’s day-to-day fund revenues sit in the city’s general fund reserve account.
Those rules were updated in February. The City Council – including Faulconer – unanimously approved new guidelines that require the city to hold 14 percent of those revenues in reserves. And rather than base that percentage on one year’s revenues, the city’s budget team now averages the past three years’ revenue collections.
Under the old calculation, the $39.9 million in the general fund reserve account about six months after Faulconer took office amounted to about 3.8 percent of revenues, close to what Faulconer claimed.
But the fund fell even lower earlier that year, as a 2010 Fact Check revealed:
Government accounting standards recommend that cities keep between 5 percent and 15 percent of the revenues that fund their day-to-day budget in a reserve. In 2006, reserves dipped toward 2 percent of revenues and city officials described that level as “very, very serious” and “very concerning.”
That year’s audited financial statements show the city’s reserves were as low as 2.8 percent. That translated to $24.3 million, which sounds like a lot of money, but it only would have covered roughly two weeks of payroll.
The city’s general fund reserve account is much larger today. City officials predict it will be at $163.9 million by June 30, the final day of the city’s fiscal year. That equals about 15.3 percent of revenues.
The percentage – and the total amount in reserve – is projected to fall slightly in fiscal year 2015. Faulconer’s proposed budget suggests $149.8 million will be available for emergencies in 2015, which translates into 14 percent of operating fund revenues.
So Faulconer’s claim that the city’s reserve account was only at 3 percent when he was elected to the City Council and are now at 14 percent is true. And, in fact, the amount currently in the city’s reserve account is even slightly higher than what the new standard requires.
If you disagree with our determination or analysis, please express your thoughts in the comments section of this blog post. Explain your reasoning.