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Council committee adopts clearer, expanded fund-balance reserve policy with sustainability reserve
Summary
The Budget & Finance Committee approved a revised fund-balance reserve policy that keeps existing 17% operating and 50% debt-service targets and adds a new budget sustainability reserve (1% minimum, up to 6%), plus clarified use and replenishment rules.
The Budget & Finance Committee voted to adopt a revised fund-balance reserve policy for the Metropolitan Government of Nashville and Davidson County, keeping the general operating reserve target at 17% and the debt-service reserve at 50% while adding a new budget sustainability reserve that will range from a 1% minimum up to 6% of budgets as determined by the finance director.
The policy update, introduced by Davenport & Company municipal advisor Roland Kooch and presented by Metro finance staff, frames the sustainability reserve as a flexible layer intended “to be calculated in an amount that’s estimated to be sufficient to cover transfers to help support the two key reserves,” and to help the city remain in compliance with credit-rating expectations. “Metro received an upgrade in July of 2023 to a double A plus,” Kooch said, describing how reserve policy supported that rating and noting agencies cite reserves when assessing creditworthiness.
Why it matters: the committee’s presentation emphasized that clear reserve targets and replenishment rules support credit ratings and lower borrowing costs. Finance staff said maintaining robust reserves both helped secure Metro’s recent rating gains and provided a contingency to smooth revenue shortfalls or cash-flow variability.
Details of the change: the existing 17% target for operating reserves in governmental funds remains unchanged; the debt-service reserve target remains at 50%. The new budget sustainability reserve sits in addition to those targets, with a minimum target of 1% that the finance director may set higher (up to 6%) as part of each budget ordinance. The policy also codifies use conditions and replenishment timelines: if reserves are drawn down, Metro must adopt a plan to restore minimum targets within 36 months, with an outer allowance of no more than 60 months under hardship conditions.
During committee discussion, Council Member Allen said the policy represents a needed improvement from earlier requirements and helps avoid past budget shortfalls that forced steep tax increases. “We had a time when the charter only requires us to keep 5%. ... We have lived through what it's like to only have that much cash in our back pocket and it's not good,” Allen said in support. Council Member Soria asked whether the finance director’s determination of the sustainability percentage is a one-time decision; Assistant Finance Director Amanda Deaton Moyer replied the amount will be set with each annual budget ordinance and can change year to year.
Other committee members praised the clarity and the policy’s flexibility. Council Member Johnston said she hopes the city can continue to increase reserves toward a three-month (about 25%) target in future years to reach peer-city medians and further improve the credit profile.
The committee also clarified administrative rules in the policy: appropriations released from surplus that are not used within 12 months must be reviewed annually; the finance director is authorized to return unused appropriations to their fund of origin after review; and the policy’s “waterfall” for surplus application prioritizes replenishing operating and debt-service reserves, then the sustainability reserve, then allocations to next-year budget balance or targeted capital/debt reduction when targets are met.
The committee approved an amendment to the resolution and then approved the resolution as amended. The amendment vote was 11 in favor, 0 opposed, 0 not voting; the final vote on the resolution as amended was 11 in favor, 0 opposed, 0 not voting. The resolution is listed as RS2025-11-39 and sponsors are Porterfield, Allen and Gadd.
The committee also heard public comment before the presentation; a resident asked the administration to work with Samaritan Ministries, a neighborhood food provider, to find an alternate location if property changes around Hadley Park proceed. That concern was noted but is separate from the reserve-policy legislation.
The revised policy will be incorporated into the Metro budget process and implemented as part of upcoming budget ordinances; the finance director will set the sustainability percentage annually based on revenue and expenditure projections.
