City Reserves and Long-term Funding Commitments
Learn about the City’s annual financial report for FY 2018–19
Each June, the City adopts a balanced operating budget for the following fiscal year (July 1-June 30), using ongoing revenues to pay for ongoing service costs. The City is consistently rated by auditors and outside experts as having excellent financial planning, discipline and management best practices. The City releases an annual financial report called the Comprehensive Annual Financial Report (CAFR), which is based on an outside auditing firm’s evaluation of City finances. The CAFR shows all revenues, expenses/expenditures, assets, and liabilities for all City activities from the previous fiscal year. The most recent CAFR showed that the City’s net position improved by $62.9 million compared to the prior fiscal year (from $382.1 million to $445.0 million). Importantly, 87.4% of the City’s net financial position reflects the value of capital assets such as land, buildings, machinery, and equipment. The City’s net position improved in the last fiscal year due to revenues exceeding expenses/expenditures.
Most of these funds are legally restricted for specific purposes, and cannot be used to pay operating expenses such as public safety, parks and recreation, and library services. This blog helps to explain why reserves and restricted funds set aside for future needs are not available to pay for ongoing City services.
Long-Term and Legally Required Funding Commitments
The funding commitments listed in the CAFR are funds set aside to support long-term commitments and cannot be used for operating expenses such as public safety, parks, and libraries. In most cases, the City is legally restricted from using these funds for general ongoing operating costs such as public safety, parks and recreation, and library services.
Restricted funds, such as special revenue funds and enterprise funds, account for $37.7 million, or 60 percent, of the $62.9 million change in net position. These activities include parking operations, the sewer utility, the water utility, and the Port of Redwood City. Revenues collected for these activities can only be used to pay for these activities. For example, $12.3 million of the $37.7 million is within the Water Fund. When customers pay water charges, those payments go to the Water Fund and Water Fund resources can only be used for water operations. Water Fund revenues cannot be used for other City activities, such as public safety.
Other restricted and committed funds, such as capital project funds, account for $13.0 million, or 21 percent, of the $62.8 million change in net position. A majority of the $13.0 million is related to capital asset infrastructure that was donated by developers, and is considered revenue.
To view a financial breakdown of the $62.9 million in long-term funding commitments and restricted uses, see below:
The City also created budget reserves to help avoid sharp service reductions in the event of an emergency, an economic crash, or a catastrophic event such as an earthquake. This policy serves the City well through economic downturns when the City need to borrow temporarily from the reserves for operating costs. However, these reserves are a one-time funding source; they cannot be used to fund ongoing costs. The Fiscal Year 2019–20 Adopted Budget maintains a reserve of 15 percent, or $23.6 million, for an unforeseen adverse economic event.
