Montgomery County advisers recommend raising reserve target to 13% and adding two named reserves

Jennifer Derrickson, senior vice president at Davenport, presented an updated reserve policy study to the Montgomery County Government Operations and Fiscal Policy Committee recommending changes to how the county holds and uses its fund balance. Derrickson said the county should maintain its current combined unrestricted general fund balance and revenue stabilization fund policy but eliminate the mandatory annual contribution to the RSF and establish two new targeted reserves — a 2% risk mitigation reserve and a 1% capital reserve — bringing the recommended policy level to 13% of adjusted governmental revenues. “The 1 change that we're recommending though for that, particular, fund, reserve is that you'd have this mandatory annual contribution to the RSF. And we're suggesting that that would should be removed,” Derrickson said.

The recommendation is aimed at strengthening the county's cushion for credit-rating agencies and aligning policy with recommended practice. The consultant noted rating agencies and the Government Finance Officers Association (GFOA) consider reserve levels a key credit metric; Davenport recommended replenishing any of the proposed reserves to target levels within three years if they fall below threshold. Derrickson explained the two new reserves would be used differently: the risk mitigation reserve “is really there that, you know, if those risks come come to fruition, you could utilize some of that,” while the capital reserve would be available for one-time strategic investments.

Committee members pressed for context and clarity. Derrickson described comparisons with rating-agency methodologies and peer jurisdictions and noted that Montgomery County’s combined reserves stood at about 15.9% of adjusted governmental revenues in fiscal 2024 and are expected to decline under the current fiscal plan. She also noted the consultant excluded Prince George’s County from some peer charts because “Prince George's was downgraded by Moody's.” Nancy Feldman of the Department of Finance clarified rules for current funds: “The RSF is very clear that it can only be used for unfunded appropriations,” she said, emphasizing the legal limits on the revenue stabilization fund.

Several council members asked the committee to treat reserve policy as part of broader fiscal decisions. Councilmember Andrew Friedson said, “The reserve conversation shouldn't be its own conversation. It has to be in the broader context of our budget decisions and our fiscal policies,” and urged definition of when reserves may be used and limits on recurring spending that depends on reserves. Councilmember Sidney Katz pressed about whether the additional reserves would be treated the same as the base 10% and how the public would understand the difference.

The committee did not take a formal vote on changes; members asked the county executive’s office to respond with its position before the committee considers amendments in the fall. Council President Stewart asked for that response so the committee’s next review is informed by the executive’s views. The consultant and county staff said they would provide follow-up clarifications on methodology and the mechanics of any policy changes.

Ending The committee concluded the presentation without adopting policy changes and asked the county executive to provide reactions before the group resumes debate in the fall. Staff and the consultant were asked to return with clarifying materials if the committee decides to pursue any legislative changes.