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Local News

Santa Barbara Council Considers Policy Changes for City Budget Reserves

Finance Director Bob Samario illustrates how much has changed since the original policies were set in the mid-1990s

The future of Santa Barbara’s reserves, and when to spend or replenish them in the future, was discussed Tuesday by the City Council.

The original reserve policies were established in the mid-1990s, and the city’s Finance Committee had suggested some changes to the policies in May of this year, according to Finance Director Bob Samario.

The city’s reserves are currently at $18.2 million, $7.6 million short of the goal amount. Samario showed a dramatic chart on Tuesday illustrating this, in addition to the fact that the reserves have been below the required levels since 2005.

Tuesday’s discussion didn’t yield any final decisions, but the council did send the item back to the Finance Committee for discussion. Any changes ultimately would have to be approved by the City Council, which will look at the changes in October.

Reserve policies for the general and enterprise funds were the source of Tuesday’s discussion. Among the city’s policies, $1 million is to be kept aside to fund major capital costs, but Samario said this reserve has never been used since it was created 16 years ago.

The city’s reserves for emergencies is equal to 15 percent of each annually adopted operating budget. This reserve would provide funds in a natural disaster situation before agencies such as the Federal Emergency Management Agency or CalFEMA are able to kick in, Samario said.

A reserve is also kept for economic uncertainty in each operating fund, and must keep 10 percent of its budget aside for budgetary shortfalls. Samario said the city saw this in the earlier part of the decade, when it used reserves as a type of “soft landing” while revenues were down. Putting the money back and at what rate is something that will be hammered out at the committee level and will come back to council in the fall.

Looking to other cities for a standard doesn’t help much, Samario said. Each municipality is different, based on factors such as how susceptible revenues are to economic downturns. In Santa Barbara’s case, “we live and die by bed taxes, sales taxes and the like,” he said. Another variable is how susceptible a location is to natural disasters. All of those factors affect the size and scope of reserves, and “one size does not fit all,” Samario said.

Councilman Dale Francisco applauded the idea of setting targets for the disaster reserve, but said there should be more direction about when to spend that money.

“There was never any policy laid out about when they might be used and under what circumstances,” he said.

Samario’s chart “really does speak to the problem,” Councilman Bendy White said. While the council can’t bind the hands of future council members, “I do think we can set a tone,” he said.

The past decade has been filled with challenges for the city financially, and Samario called the past 10 years “very unusual and very volatile,” with PERS taking big hits and two recessions. The city is still dealing with a structural deficit — the city’s first priority, according to Samario.

“At least we’re not getting any worse,” he said, “but it’s going to take a conscious effort on behalf of the council to start replenishing those reserves.”

City Administrator Jim Armstrong provided context.

“We’re in good financial condition,” he said, adding that the dollar amounts in the city’s reserves are more than the county’s.

That comment drew some skepticism from Councilman Frank Hotchkiss. “I’m not sure that’s a good comparison,” he said.

Hotchkiss suggested that a small percentage be added each year to the city’s reserves, adding up over time.

Mayor Helene Schneider took aim at the $1 million in capital reserves. While that amount may have been adequate in 1995, she said it should now be adjusted.

“At the very least I hope we change that,” she said.

Schneider also referenced Samario’s chart, saying she didn’t think it told the whole story. The city has set aside money for capital expenses in separate funds, such as for the city’s motor pool, and those amounts weren’t included in the chart’s numbers.

The city is facing some massive capital improvements, including the possible construction of a new police station. Moving forward, Schneider said the committee might consider suggestions such as spending a set amount, even if small, on capital improvements each year. The discussion will pick up in August among Finance Committee members.

“The Finance Committee has work to do,” Schneider said.

Noozhawk staff writer Lara Cooper can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk or @NoozhawkNews.

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