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Council presses finance staff on $73 million payroll reserve and 27th‑pay planning
Summary
Members questioned the $73 million payroll reserve (accumulated compensated absences) and the $17 million used for a 27th payroll, asking whether the city is double‑budgeting separation costs and whether some reserve could be used for current needs without harming bond ratings.
Council members spent extended time on the payroll reserve fund during the finance committee meeting, probing the city’s reserves for separation pay and the mechanics of the 27th payroll transfer.
Finance staff said the payroll reserve was established to cover (1) an occasional 27th payroll (the last transfer for that purpose was about $17 million) and (2) the city’s accumulated compensated‑absences liability recorded on the balance sheet. At the time the reserve was calculated in 2022, staff said the total liability for accumulated vacation and other earned time was roughly $146 million and the reserve contained approximately $73 million after transferring $17 million to the general fund to cover the 27th payroll payment.
Council members, including Carrie McCormick and Chris Harsh, asked whether departments are already budgeting annually for separation payments and whether the city is effectively double‑covering those liabilities by both budgeting department‑level separation amounts and holding a large central reserve. Finance staff said departments do budget anticipated separation payments for each year (estimates of likely retirements/separations for that year) and the central reserve is intended as a backstop in the event operating budgets cannot meet separation obligations.
Council members asked for a follow‑up breakdown showing (a) the current total liability for compensated absences recalculated for 2024 wage levels, (b) the sum of department‑level separation amounts budgeted for 2025, and (c) the composition and source of the payroll reserve (finance said it originated from revenue recovery and other one‑time sources). Several members requested that finance produce a single spreadsheet summing department separation budgets so the council can see how much of the liability is budgeted annually versus held centrally.
Finance staff cautioned that the reserve supports the city’s credit rating because rating agencies examine balance sheet liabilities and available reserves; members acknowledged that rating considerations factor into the policy question of how much reserve to hold versus freeing money for current needs. No formal decision was made; council members asked staff to return with updated calculations and a department‑by‑department rollup.
