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City Council sets 20% general-fund reserve floor for FY2026 after debate
Summary
The City Council approved amending financial policies to set a 20% minimum unassigned general-fund balance for FY2026. Council and staff debated a 17–20% range, restoration triggers and whether reserves can be partly used for one-time sidewalk pilots before adopting the staff-recommended 20% floor.
The City Council voted to amend its financial budgetary policies and set an unassigned general-fund reserve floor at 20% for preparation of the FY2026 operating and capital budgets.
Sergio Villasana, director of finance and procurement, briefed the council on the policy background, peer city comparisons and recommendations from the city's financial adviser, noting that 20% approximates roughly 73–75 days of operating funds. Villasana said the city had generally maintained 20% in recent years and that advisers view a 20–25% target favorably with rating agencies.
Council members debated two options: staff recommended option 1, a single 20% floor; option 2 would have kept a 17% minimum with a 17–20% targeted range. Council member Caitlin Paxson pressed for explicit restoration language if the reserve dropped below the minimum. Villasana and City Manager Peter Zanoni said staff could add a requirement to develop a restoration plan in a subsequent budget should the balance fall below the policy floor; Council member Gil Hernandez said he preferred resolving the detailed language during the next budget cycle.
Council members also discussed whether a range would allow a small, one-time use of reserves to pilot sidewalk improvements in limited council districts. Villasana said 1% of the general-fund reserve is roughly $3,500,000 and that any draw below 20% would reduce the reserve and require actions to rebuild it. He described the policy as guidance rather than law and said the council could adopt a one-time exception if it chose.
After discussion and a motion to adopt the staff recommendation, the council voted to approve the resolution as presented. No roll-call vote tally identifying each council member was recorded in the meeting minutes provided; the mayor pro tem announced the motion passed.
The adopted resolution amends the city's financial policy to set a 20% unassigned fund balance floor, preserves the city's practice of excluding one-time appropriations when calculating the reserve, and directs staff to stand by to provide implementation details as the FY2026 budget is developed.
Villasana summarized the policy history for council: the reserve floor began at 10% in 2015, rose to 17% in 2017, was adjusted to a 20% practice in subsequent budgets and recommended now as a 20% minimum for FY2026. He also described peer-city approaches, noting that coastal peers vary widely (90 days in some coastal cities; 7–17% in some larger Texas cities).
Council members asked for clarifications the record shows: 17% is roughly two months (about 60 days) while 20% is roughly 73–75 days; staff said they would include restoration language in upcoming budget documents or in the policy as directed by council discussion; staff confirmed a one-time operating contingency of $500,000 historically has been proposed for the budget and that staff recommended eliminating that contingency for FY2026 to balance the recommended budget.
The council did not adopt additional binding language at the meeting requiring an immediate, written restoration plan in the policy; some members requested staff draft a specific restoration sentence for consideration in the next budget cycle.
The action affects FY2026 budget preparation and establishes fiscal guardrails the city will use when finalizing next year’s operating and capital budgets.
