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Consultant urges Montgomery County to formalize new reserves, recommending rise from 10% to 13% of revenues
Summary
Davenport recommended keeping a 10% core reserve and adding a 2% risk mitigation reserve plus a 1% capital reserve (raising policy to 13% of adjusted governmental revenues), and suggested replenishment to targets within three years if funds fall below thresholds.
Jennifer Derrickson, senior vice president at Davenport and financial advisor to Montgomery County, told the Government Operations and Fiscal Policy Committee that the county should keep its combined unrestricted general fund balance and revenue stabilization fund at 10% of adjusted governmental revenues but create two additional reserves: a 2% risk mitigation reserve and a 1% capital reserve. "Our recommendation was that the county maintain its current, unrestricted general fund balance and revenue stabilization fund policy at the combined 10% of adjusted governmental revenues," Derrickson said.
Davenportprojected that adding the two new reserves would raise the policy level to about 13% of AGR and proposed removing the mandatory annual contribution to the RSF while setting rules that, if the reserves fell below target, they would be replenished to targets within a three-year period. The presentation compared the county's reserves and calculation methods with those used by Fitch, S&P and Moody's and noted rating agenciesattention to policy clarity: S&P and Fitch focus on general-fund calculations (showing ratios near the upper 20s by their metrics), while Moody's uses all funds.
Derrickson also highlighted operational benchmarks: using Montgomery County's fiscal 2024 figures, Davenport estimated the proposed risk mitigation reserve would be roughly $129.5 million (about 2% of AGR) and pointed to revenue and expenditure variability over the prior decade (average revenue shortfall years of about $42 million and expenditure overruns averaging about $70.3 million) as drivers for stronger buffers. The consultant emphasized the rationale: clearer, risk-based designation of reserves can provide targeted capacity for one-time capital investments and a measured buffer for revenue shocks while preserving a sacrosanct core reserve for catastrophic stress.
The committee received the study, asked technical questions about peer comparisons and methodology, and agreed to continue the conversation with executive-branch reactions and additional review in the fall.
