Auburn council adopts revised financial policy, reallocates reserves and creates capital reserve

The Auburn City Council on Tuesday approved an update to the city's financial management policy that reduces the formal general fund reserve target from 30% of estimated expenditures to 25%, creates a new general fund capital reserve, and directs staff to return with implementation options for an existing $1 million pension-designated balance.

The move reflects council and staff efforts to rebalance long-term fiscal priorities while keeping a multi-tiered set of reserves for economic uncertainty, employee liabilities and self-insurance.

Finance Director Gretchen Johnson presented the city's third-quarter financial update and the proposed policy changes. Council members discussed the burden of rising pension costs and whether to retain or reallocate an existing $1 million pension reserve. Johnson said the city faces rising required payments to CalPERS in coming years and proposed either a direct payment against the unfunded liability or use of an IRS Section 115 irrevocable trust to earn higher returns than the city's current invested funds.

Under the revised policy council approved, the city will: - Set the general fund minimum reserve at 25% of estimated general fund expenditures (about $4.8 million under the drafted proposed budget in the presentation). - Maintain an economic contingency reserve at 40% of estimated sales tax (about $3.1 million in the draft figures) to cushion revenue shocks. - Establish a new general fund capital reserve, opening with $500,000 with a target of 5% of estimated expenditures to support a future capital improvement program. - Continue smaller reserves for employee liabilities and the city's self-insurance account.

Council members pressed for clarity on how reserves would be replenished if drawn. Johnson said the policy now includes a short list of replenishment mechanisms: curtail nonessential spending, implement hiring freezes for noncritical vacancies, and apply unassigned fund balance year-to-year until the minimum is restored. The council directed staff to come back with concrete recommendations for using the $1 million pension-designated balance; options discussed included an immediate principal payment to CalPERS or funding a Section 115 trust.

The council voted to adopt the policy update by resolution. Roll call recorded votes in favor by Council Members Bridal Harris, Vice Mayor Davis, Dowden Calvillo and Council Member Holmes; Mayor Sandra Amara voted yes on the final roll call as recorded.

Staff said the revised policy will accompany the city's upcoming budget documents, be published on the city's fiscal transparency pages, and that staff will return in the fall with preliminary year-end results.