I wanted to provide a little more context for my proposal to lower the Equipment Replacement Reserve allocation and also do some research to better understand this and other reserve funds. The attached picture was built from the reserve funds table from all of the budget documents available from 2005 to present. If I have gotten anything wrong I'd welcome figuring out the right answer.
The x axis on the graph are budget years from 2005-2014.
I collected 'projected' data from the actual budget document in the year it was proposed. I collected 'actual' data from the General Fund Balance Projection Detail Table. (For example, page 15 on this year's budget). For example, this year our projected ERR deletion is $685,742 and the 2013 actual ERR deletion is $361,220. If you look back at the 2013 budget, the 'projected' 2013 ERR deletion is $309,400 ( page 29 here; this is the only year where actual ERR spending seems to be even slightly above projected)
RED LINES: The red lines show the projected spending in each year's budget and then, looking at newer budgets, the actual spending. What it shows is that spending stays within and a little below budget and that there is really very little growth from year to year in ERR spending (i.e. it bounces around from $300-$700k). This is the equipment we plan to buy and then actually buy.
BLUE LINE: Meanwhile, the blue line shows that we have been adding 38% more to the reserve each year, from $100,000 in 2005 to $1.3 million today.
GREEN: The green lines show the projected balance and then the actual balance which has so far always been greater than the budget projection. Perhaps this is because the money is earning interest in addition to actual spending not quite equally projected spending.
FORKS IN THE LINES: At the end of the green line, I show what the projected balance would be if we dropped our deposit into the reserve from $1.3 m to $900k (this would still be the 3rd biggest deposit of all time). The result is that we still would have a significantly growing balance in our ERR.
If ERR were really a rainy day fund, set up to deal with some catastrophic future loss of all our equipment, perhaps this ever growing balance would be necessary, but that is not my understanding of the fund. My understanding is that it is for reasonably predictable replacements of equipment over a 30 year period. I believe we are putting too much funding aside into this fund which in turn has a consequence to our unreserved general fund balance and our ability to deal with other goals for services for residents today (or reducing taxes).
We could still take a very cautious approach. For example, if we chose to keep in this fund a balance that was equal to 3 future years of expected need, that would only be $1.9 million (using data from item E from the supplemental material we got last night) . As it is right now, we are expected at FY2014 year's end to hold a balance in this fund equivalent to 5 years of future equipment needs, even if we made no additional deposit. In modest contrast, the proposal we have on reconciliation still allows us to keep more than 4 years of future equipment replacement funding available.
On Monday I plan to propose (or second or vote for) a proposal to lower our contribution to the ERR by $400,000. This still leaves a deposit of $900,000 which is greater than what we expect to spend and would make for the 4th largest deposit ever to this fund. But I also plan to ask as part of reconciliation for Council to set a goal for this fund of keeping a balance that is equal to at least 4 times the expected equipment replacement needs. I think that is conservative enough in giving us a very large cushion to deal with future ups and downs in expected equipment costs. I expect this is just a policy issue that Council has not taken the time to address before but I think it would be a good time to do so.