City Council adopts 20% minimum reserve policy for FY2026 budget

The City Council voted to adopt a resolution setting a 20% minimum unassigned general fund reserve to guide preparation of the FY2026 operating and capital budgets.

City finance director Sergio Villasana presented the item at the council meeting, describing fund balance terminology and saying the proposed policy would set a 20% floor so the city can fund a “reserve for major contingencies.” He told the council that financial advisors recommended a minimum equivalent to roughly two months of operating expenses and a target in the 20–25% range; he concluded publicly: “I would recommend what we recommended is to go to the 20%.”

The policy matters because an unassigned fund balance is the principal local mechanism cities use to respond to revenue shortfalls, storm damage and other emergencies without immediate cuts or borrowing. Villasana told the council that maintaining 20% would equate to about 73–75 days of operation under current spending levels. “Yes. That’s correct,” Villasana said when asked whether 20% equaled roughly 75 days of operating funds.

Council members pressed staff on whether the policy should include an explicit restoration plan if the reserve fell below the minimum. Councilmember Caitlin Paxson noted the financial advisers recommended “a plan to replenish,” and asked where a restoration trigger would appear in the draft policy. Villasana acknowledged the city had not formalized written restoration language but said corrective actions would include reduced spending and that staff could add wording to require a restoration plan in the subsequent budget if reserves drop below the floor.

Several council members discussed whether to adopt a range (17–20%) or a single-number floor (20%). Supporters of a range said it would allow some flexibility—e.g., to fund a small, one‑time pilot sidewalk project—while proponents of a single 20% floor argued higher reserves are viewed favorably by rating agencies and provide more protection for the city. Councilmember Everett Roy and others emphasized the difference between large and small capital needs and favored a clear restoration trigger.

After debate, a motion was made to adopt option 1 (set the unassigned fund balance floor at 20%). There was no roll-call vote recorded in the audio transcript; the mayor pro tem declared the motion passed.

The council also approved the consent agenda (items 1–5) by voice vote earlier in the meeting.

The adopted policy will be used in preparing the FY2026 budget; staff told the council they would return with any redline language to add an explicit restoration trigger and with longer-term goals (council discussed a multiyear goal of ultimately reaching 25%).

Notes: the transcript did not record a roll‑call tally for the motion to adopt the 20% floor. The motion was presented as “option 1” (staff‑recommended 20% minimum) and the mayor pro tem declared the motion passed.

Ending: Council directed staff to proceed using the 20% unassigned fund balance floor for FY2026 budget development and to prepare language for a restoration plan to present with the next budget cycle.