Finance Committee Keeps Current Model for Allocating Investment Interest to Operating Funds

The Tracy finance committee on Oct. 22 heard an informational presentation on how interest earned on city cash and investments is allocated and voted to maintain the city’s current allocation model, which assigns interest to operating funds rather than directly to capital funds.

Finance staff told the committee the allocation approach follows accounting and industry practices, including Governmental Accounting Standards Board (GASB) requirements to report investments at fair market value. Staff emphasized the rationale: allocating interest to capital funds exposes capital projects to investment‑value volatility and could show negative revenue in a capital project if the market value fell.

The presentation explained that operating funds — principally the general fund — absorb market risk so that interest earnings (or losses) are reported consistently and capital projects receive transferred cash when their budgets and cash needs are established. Staff also noted their external auditor recommended maintaining a consistent allocation method rather than changing approaches in response to short‑term market movement.

A member of the public asked whether special funds (Measure B) receive interest income attributable to their balances. Staff and the treasurer explained that all city money is invested as a pooled portfolio and that a capital account that will be drawn down (for example, a large Measure B allocation that will fund an aquatic center) must be managed with liquidity in mind; allocating interest directly to capital funds can increase risk to projects if the portfolio must be liquidated to pay contractors.

After public comment and committee discussion, a member moved to accept the informational report and staff’s recommendation to maintain the current allocation model. The motion passed on a roll call.