Chino finance staff propose new reserve policy; council told $20 million committed reserve is realistic step toward 50% goal

City finance staff on March 10 presented a draft fund-balance policy that sets a long-term goal of a 50% general-fund operating reserve while proposing more modest, near-term reserve targets and specific minimums for internal-service and enterprise funds.

Kim Sow, director of finance, reviewed the policy history and the accounting framework under GASB 54 and said the city's audited fund balance for the fiscal year is roughly $40 million. "When we last discussed, the City Council wanted to establish a 50% operating reserve," Sow said, adding the staff's recommended path toward that goal: "At this point this year, we can only afford about $20,000,000." Sow framed the $20 million as an increase from the prior minimum and a reachable intermediate target while the council works toward the 50% objective.

Budget manager Sherry Beckett outlined recommended reserve levels for internal-service funds: a central services reserve of $500,000, a liability insurance reserve of $3,000,000, an employee-benefits reserve of $1,000,000 (reduced from a prior higher level), a building-management reserve of $500,000 and an equipment-replacement reserve sized to fund the next three years of scheduled vehicle and equipment replacements. Beckett said the equipment-replacement schedule currently lists about $23,000,000 in replacement needs and staff proposed reserving roughly $8,000,000 to cover a two- to three-year rolling replacement window.

On enterprise funds, staff recommended a four-month operating reserve for each enterprise and a capital-reserve formula that, for the water fund, includes a $20,000,000 base plus 20% of average annual CIP costs. Utilities staff noted that several major projects will require joint funding and that one major drainage project (Line I) has an estimated total cost of about $104,000,000, with the city's share roughly in the high 30s percent range (staff cited an approximate 38% share, or about $38,000,000).

Councilmembers asked for clarification on how continuing appropriations and carryovers will be displayed in budget documents; staff said carryovers and reserved continuing appropriations will be shown as separate columns in fund-balance schedules and that the proposed policy is a "living document" to be reviewed annually.

Staff said the recommendations will be incorporated into the water-rate study and the FY2027 budget process. Council did not vote on the policy at the March 10 study session; staff requested direction and acknowledged that the policy would be adjusted as budget figures are finalized.