ENCINITAS — Following a watchdog report on government reserve fund overflows, appearing in the U-T in late April, officials with the City of Encinitas claimed a chart depicting the percentage the city had in their general fund reserves for the Fiscal Year 2010/11 was misleading.
The chart, based on the U-T’s interpretation of local government agencies’ financial statements, showed that the City of Encinitas had 4 percent of its expenses in reserve.
Matt Clark, a U-T Watchdog reporter who co-authored the report, said that the numbers used in the chart were based on the city’s audited financial statements, which follow GASB (Government Accounting Standards Board) standards. In reviewing the city’s fund balance, Clark said he used a Standard & Poor’s methodology that focuses on “the least-constrained funds.” That is, funds that hadn’t been restricted for use. The figure used in the chart ($1,850,582) signifies the amount of unassigned funds for the city, of which the result of having 4 percent reserves to a general fund expense of $47,397,326 is accurate.
But, according to the City of Encinitas Interim Finance Director Paul Bussey, the total amount in the general fund reserves from the FY2010/11 budget report is $16.9 million, resulting in a 36 percent expense in reserves for that particular time at the end of the 2011 fiscal year.
“When you do a comprehensive annual finance report, which you’re required to do each year…one of the things they request is what your fund balance is,” Bussey said.
He added that there are five categories you can put fund balances in. The $1.8 million figure as reported in the U-T article was an amount in just one category, he explained. The money was unrestricted, he said, but that doesn’t mean that’s our total fund balance.
In March 2009, the GASB issued Statement 54, which established the five categories designed to depict how specific amounts in funds are spent. The categories are also meant to improve on how fund balances are reported. Statement 54 became required for agency use for the Fiscal Year ending June 30, 2011.
Encinitas operates under a designated three-tier system for distributing the General Fund Reserves; the tiers include a contingency reserve, a budget-stabilization reserve and a future projects reserve.
The future projects reserve, which is also referred to as the unappropriated fund balance, is not technically a true reserve, Bussey said. “It’s the end-of-the-year fund balance and it’s carried over into the next year and it’s used as part of the following year’s budget and there’s usually some left over.
“It is there for future projects if the Council has a project that comes up…It’s also there if, for some reason, they add a person to the budget because they want to do a new program or something; it comes out of that, so it’s not necessarily a project. So it’s used for a number of purposes and it changes throughout the year; it’s not set as a percentage, it goes up and down throughout the year.”
Bussey said the budget stabilization fund has basically come into effect in the last five or eight years, and became more emphasized once the recession hit. There was concern that agencies would have to go into their contingency reserves, which are thought of more as a disaster-type of reserve.
In determining what amount is ideal to keep in reserves, it varies from city to city, Bussey explained. There is no number set to determine what is best. “It’s the risk level that a particular agency feels they want to take, and in addition, it’s how much money are they comfortable setting aside…but it’s not unusual to say it’s somewhere between 15 and 25 percent.”
As of Feb.15, 2012, the total of Encinitas’ contingency reserve and budget-stabilization reserve equaled 24 percent, or $11.8 million; the futures project reserve remains a variable figure but for the Feb. 15 date, was calculated to be $4,338,198. While the amounts for the FY 2010/11, which included the contingency reserve, budget-stabilization reserve and a future project reserve amounted to $16.9 million.
“As the expenditures and revenues change, those contingency and the budget stabilization reserve dollar numbers change,” said Bussey.
City Council will next discuss budgetary matters in June.