Page 4 - FY 2021-22 Supporting Information

programs supported by ARP may need to be curtailed after one year. Without a recovery of the
City’s own revenues to backfill these lost federal dollars, the austerity measures that City relied on
and considered over the last year may need to be revisited. A strong Reserve Fund alleviates the
burden on the City to make such a drastic about face on new commitments.

Furthermore, even when we have moved past the immediate COVID-19 pandemic, the
distress left in too many of our communities, particularly our communities of color, will take years
of investment to begin the healing process. Finally, the Proposed Budget assumes robust recovery
in many areas of the local economy that have struggled over the last year: tourism, parking related
revenues, and retail. These revenue estimates assume the end of pandemic restrictions and the
recovery in receipts with widespread vaccination and herd immunity reached by the end of July.
No additional closures are assumed. If vaccination efforts stall, or if variants prove to be vaccine
resistant, there is risk of new outbreaks prompting renewed restrictions which ultimately will impact
revenues.

Financial Policies

The Proposed Budget meets most of the City’s basic financial obligations. As noted earlier,
the ARP funds have greatly increased one-time revenues although they are not being exclusively
used on one-time expenditures, including many for homeless support services. The following is a
review of the City’s compliance with several of the key financial policies as provided in the
Proposed Budget.

Reserve Fund
The Reserve Fund Policy requires the Fund to have a minimum balance of 5 percent of all
General Fund revenues. In 2020-21, the Reserve Fund levels fell below 5 percent for the first time
in seven years. This drop was due to unbudgeted COVID-19 related spending in 2019-20.
Furthermore, revenue losses associated with the response to the pandemic in 2020-21 kept the
Reserve Fund below 5 percent throughout the year.

The Proposed Budget significantly improves the Reserve Fund’s position. The Reserve
Fund will begin the year at $696.1 million, or 9.49 percent of General Fund revenues. This amount
includes a $50.0 million transfer to the Reserve Fund from the General Fund.

The City’s experience in managing through the pandemic has magnified the importance of
having healthy reserves. Even if projected revenues were falling short, the City’s response
required immediate access to cash and resources beyond what departments were budgeted.
Maintaining healthy General Fund reserves will also mitigate the pressure on the budget as the
City both begins to pay for deferred employee compensation adjustments beginning in 2022-23
and considers continuing the one-time spending added in this budget. In this way, reserves can
provide a buffer as revenues gradually grow into the new service levels.

Consistent with the General Fund Reserves policy, the Proposed Budget also includes an
appropriation to the Unappropriated Balance - Reserve for Mid-Year Adjustments of $12.5 million.
Taken together with the Reserve Fund, this account increases our cumulative reserves to $708.6
million, or 9.66 percent of the General Fund.