Council begins reserve‑policy review; staff recommends thematic reserve categories and prioritizing budget stabilization

City finance staff presented an overview of Lacey’s committed and assigned reserves and proposed a thematic reserve framework to guide designations for year‑end and the 2026 budget.

Chelsea Orward (Finance) told the council the starting point is the city’s available cash and investments less restricted balances and amounts already assigned for 2026. After those deductions, staff said the current expense fund has approximately $11.5 million available for commitment or assignment once 2026 planned uses are considered. Staff illustrated that historical one‑time revenues and strong construction activity previously allowed higher reserve balances, but those sources have diminished and the city has used reserves to fund projects such as the police station and other capital work.

To make council decisions about reserve priorities more transparent, staff proposed grouping reserves into broad categories rather than many small line‑item reserves. Proposed categories include: capital maintenance/asset preservation; revenue stabilization (budget implementation); comprehensive capital/facility plan implementation; economic development strategies; innovation (technology/efficiency); human and social services; sustainability; and catastrophic‑event reserves. Staff suggested benchmark ranges (floors and ceilings) for each category to evaluate reasonableness and to prevent excessive accumulation in any single bucket.

Council discussion focused on priorities. Several council members expressed that budget‑stabilization (the reserve that smooths revenue shortfalls and avoids service layoffs) should be the top priority. Council also discussed the need to rebuild capital‑maintenance reserves for facilities and equipment (several councilors noted those balances are low), and the potential to set modest, recurring contributions to long‑standing projects (for example the museum/cultural center fund) so those accounts grow rather than remain static.

Staff proposed returning in December with a recommended set of formal designations consistent with council guidance and with benchmark ranges. The council asked staff to show comparable reserve tracking for other utilities and funds and to prepare refined proposals for the December budget adoption process.

Ending: Council indicated general support for the thematic approach and prioritized budget stabilization first and capital preservation second; staff will return with specific recommendations by the December budget schedule.