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City finance director proposes lower capital reserve target, council moves to adopt updated fund balance policy
Summary
City staff proposed updating the fund balance and reserve policy to reduce some capital reserve requirements and to phase a new 10-year capital budget process into policy; council discussed and indicated support for a proposed 50% phase-in of the capital reserve rather than 100%.
Sedona’s finance director presented an update to the city’s fund balance and reserve policy that recommends changes to how the city calculates capital reserves and calls for adoption of a 10‑year capital budget and forecast to align reserves with multi-year planning.
Staff said the prior capital reserve approach effectively double-funded capital projects by holding the average of the next three years’ capital spend as a reserve at the same time the city budgets for those projects. The proposed change would allow council discretion to establish a capital reserve for specific identified projects and would phase the reserve policy to 50% of the prior target rather than the earlier 100% level. Staff said this approach reduces the need for ‘‘double funding’’ while preserving a prudent operating cushion in the general fund.
City Manager Annette Spicker explained that, in preparing the FY26 budget, staff discussed phased implementation and are proposing a 50% reserve level in the near term while work on a 10-year capital budget and forecast is completed.
Councilors asked questions about GFOA (Government Finance Officers Association) best practices and how Sedona’s non‑property-tax revenue profile affects risk; staff said GFOA recommends a minimum operating reserve of roughly 16% (about two months of operations) but that Sedona’s revenue mix and reliance on sales and bed taxes argue for larger cushions. The finance director recommended staying with a higher overall general fund reserve (about 30% described in the presentation as 3½ months of reserves) while phasing capital reserve mechanics.
Council moved forward with the proposed updates and acknowledged the city will continue work on a 10-year capital plan to inform a longer-term capital reserve policy. The motion to adopt the policy changes was approved without opposition.
