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Carmel council signals support for new budget rules, 90/10 CIP guideline and larger reserve goal
Summary
Councilmembers reviewed proposed changes to the city’s budget policies, including raising the capital threshold, adopting a 90/10 operating/CIP guideline and targeting a larger reserve (50% of operating expenditures). Council gave staff direction to return with formal code and budget book language.
CARMEL-BY-THE-SEA, Calif. — The Carmel-by-the-Sea City Council on May 5 reviewed a package of proposed changes to the city’s fiscal policies and signaled support for several major shifts in how the city plans and sets reserves.
City finance staff and the council’s Financial Stewardship ad hoc committee proposed reorganizing and clarifying the budget book and municipal policies, raising the asset capitalization threshold (a staff recommendation to move from $10,000 to $50,000), and adopting new budgeting guidance that prioritizes capital projects. Staff recommended a 90/10 operating-to-capital guideline — i.e., budget to keep operating costs at or below 90% of revenue and target 10% of revenue for capital improvements — and an aspirational reserve goal equivalent to 50% of annual operating expenditures to insulate the city from downturns.
Jamie, the city’s finance presenter, walked the council through inconsistencies in the published budget book and explained the rationale for clarifying definitions of capital improvement projects and for changing the accounting treatment of certain work (for example, moving some tree work into CIP rather than operations).
Council members praised the ad hoc committee’s work. Several members asked for more detail in two areas: (1) how the recommended ninety/ten guideline would alter the five‑year capital plan and near‑term spending, and (2) what the practical impacts would be of consolidating several reserve “pots” into a single rainy-day fund sized at 50% of annual operating expenditures. Staff said the recommended 50% figure was developed by modeling the revenue drops experienced during the 2007–2009 recession and scaling that impact to today’s revenues; staff also cited other tourism-dependent cities that have adopted large reserves.
Councilmembers discussed tradeoffs between saving more now and having funds available to do capital work to address deferred maintenance. Several members favored adopting the 90/10 guideline, consolidating reserves, and pursuing the 50% reserve goal as an aspirational target; one member urged caution and requested additional detail on how the changes would be implemented in the FY 2025–26 budget.
Council did not adopt formal ordinance language during the session. Staff was directed to draft formal municipal code amendments and revised budget-book text, and to return with those redlines in time for the upcoming budget process. Staff also agreed to come back with modeling and implementation options showing the effect of the proposed changes on planned capital programs and fund balances.
If adopted later this spring, the changes would reorganize the budget book’s presentation of policy language, raise the capitalization threshold for fixed assets, and shift budgeting practice to make capital spending a clearer line-item priority rather than residual spending after operating costs.
