Council debates reserves and drainage funding; staff to propose CO notice while keeping 50% reserve target

The Fair Oaks Ranch City Council spent significant time May 15 reviewing a five‑year financial plan, drainage capital project funding options and the city’s quarterly financial and investment report.

"This plan is not a forecast, rather it provides projected outcomes based on specific assumptions," Director of Finance Summer Fleming told the council as she introduced three additional scenarios and a hybrid option for balancing reserves, certificates of obligation and use of the city’s unallocated fund balance.

Fleming said the drainage capital improvement program currently totals $1,615,000 over the next four years. Council asked staff to model whether to cash‑fund drainage projects or issue certificates of obligation (COs). In the CO scenario staff used a 5% interest assumption over 20 years and reported the debt service would add about $1,140,000 in interest, for a total repayment of roughly $2,750,000 over the term.

Fleming summarized three modeled approaches: (1) use unallocated fund balance to cash‑fund drainage while holding the reserve at 50 percent (higher tax impact over time), (2) lower the reserve target to 30 percent and use unallocated balance (reduced tax impact), and (3) issue debt for drainage while using a small portion of unallocated funds to smooth tax impacts and keep a 50 percent reserve (model labeled scenario 5). City staff recommended scenario 5 as a way to spread capital costs and reduce pressure on the maintenance and operations levy.

Council members questioned reserve policy and requested more explicit reserve rules. Fleming and council discussed that the city’s operating reserve is projected at about $4,850,000 (equal to six months of operating expenses) and that the projected ending fund balance is approximately $7,680,000 with $2,500,000 unassigned. Fleming told council the model assumes a 5% annual valuation increase (including new development) and that interest-earnings assumptions were conservative given uncertainty in market rates.

On the drainage question, council instructed staff to proceed with publishing a notice of intent to issue certificates of obligation for drainage (and other CO purposes) on June 5, with no obligation to complete a sale if council later declines. Assistant City Manager Jim Williams explained the June 5 action would be a standard "notice of intention" similar to prior years and reiterated that posting the notice does not obligate the city to issue the debt.

Fleming also presented a quarterly financial and investment update: year-to-date general fund revenues were about $8,090,000 (roughly 80% from property taxes), expenditures to date approximately $5,290,000, and the general fund was projecting a small surplus (about $8,800) versus a budgeted deficit of $469,000. The city’s total investments began the quarter at about $29.9 million and ended at about $28.4 million after withdrawals for capital and debt service; investments earned $312,936 this quarter and about $634,000 fiscal year-to-date.

Council direction for the budget process was to keep the 50 percent reserve target as the working assumption while staff prepares reserve policy language and the proposed FY25–26 budget; council and staff will reevaluate as appraisal values and budget details become available during work sessions.