Can Pensacola reduce reserves to avoid tax increase?

City Finance Director Richard Barker has argued that it’s the best practice of the Government Finance Officer Association (GFOA) to have no less than two months of regular general fund operating revenues or expenditures in unrestricted reserves. For the past 14 years Barker has worked to meet a 15% minimum. As of Sept. 30, 2009, the reserves were $7,616,279 or 15.69%. This year the City Council budgeted another $203,179 for reserves to get them to $8,089,400 to meet the larger budget.

Council member Maren DeWeese has argued that the purpose of the reserves to help maintain levels of service during tight budget years…..which is what the City is experiencing now.

She did more research on the GFOA best practices and found this on policies a city should have in place to deal with reductions in revenue:

1. ALERT: An anticipated net reduction in available reserves or reduction in major revenue source(s) from 1% up to 9%. The actions associated with this phase would best be described as delaying expenditures where reasonably possible, while maintaining the “Same Level” of service. Each department will be responsible for monitoring its individual budgets to ensure that only essential expenditures are made. The City Council may consider transferring CIP funds designated for future projects to the affected fund during an “Alert” situation.

2. MINOR: A reduction in reserves in excess of 9%, but less than 23%. The objective at this level is still to maintain “Same Level” of service where possible. Actions associated with this level would be:
a. Implementing the previously determined “Same Level” Budget.

b. Intensifying the review process for large items such as contract services, consulting services, and capital expenditures including capital improvements.

c. Closely scrutinizing hiring for vacant positions, delaying the recruitment process, and using temporary help to fill in where possible.

3. MODERATE: A reduction in reserves in excess of 23%, but less than 50%. Initiating cuts of service levels by:

a. Requiring greater justification for large expenditures.

b. Deferring capital expenditures.

c. Reducing CIP appropriations from the affected fund.

d. Hiring to fill vacant positions only with special justification and authorization.

e. Closely monitoring and reducing expenditures for travel, seminars, retreats and bonuses.

4. MAJOR: A reduction in reserves of 50% to 100%. Implementation of major service cuts.

a. Instituting a hiring freeze.

b. Reducing the temporary work force.

c. Deferring merit wage increases.

d. Further reducing capital expenditures.

e. Preparing a strategy for reduction in force.

5. CRISIS: Reserves have been 100% depleted and potential for having a deficit is present.

a. Implementing reduction in force or other personnel cost-reduction strategies.

b. Eliminating programs.

c. Eliminating capital improvements