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Larson: SF 2472 adds reserve caps and limits on property-tax debt; audit compliance will increase
Summary
CFO Larson told the council the bill limits unassigned general fund reserves to 35% of current-year expenditures starting FY28, creates a bond-rating exception, and stops issuance of property-tax-supported debt to cover operating expenses; she said auditors will review compliance and legal counsel is advising on mixed capital/operating financings.
Jennifer Larson told the council that Senate File 2472 creates a new 35% cap on unassigned general fund reserves beginning in fiscal year 2028 and requires auditor-of-state review of compliance. She said an exception exists for governments that maintain the highest qualifying bond rating, but the bill does not yet define which bond ratings qualify or how to measure "obligated funds." "Any unassigned general fund reserves are limited to 35% of the current year general fund expenditures," Larson said, noting the city needs guidance on measurement and allowable designations.
Larson also said a debt-financing restriction effective immediately prevents cities from issuing property-tax-supported debt for normal operating expenses, although capital expenditures remain excluded. She described practical uncertainties because many financing arrangements include both capital and operating components—such as large software implementations with multi-year maintenance—and recommended consulting bond counsel and legal advisors. City manager Michael Van Milligen echoed that the city will need to review capital planning and debt strategies under the new rules.
