Budget and Reserve Policy Item #32

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Cost Recovery Rate Structure Each year, the managing department shall estimate the cost of operations and any shortfall for the target Reserve balance. These estimates will serve as the basis for cross -department charges. Proportional use of the service will determine the allocation of estimated costs to departments/divisions. Employee compensation increases are limited to City Council approved agreements with bargaining groups. Any proposed workforce changes must follow the City's normal proposal and approval process. Other proposed cost increases, including Replenishment of Reserves, must be limited to the annual increase in the Consumer Price Index (CPI) at December 31, or otherwise submitted as a supplemental budget request subject to City Manager recommendation and City Council approval. The Budget Office may recommend spreading Reserve replenishment over a reasonable number of years to smooth the budget impact. 0i;1 101 it Other funds of the City account for revenues restricted to specific spending purposes. Many of these restrictions do not allow the City to carry a Reserve balance (e.g. federal grant funds). Funds with spending constraints self- imposed by the City (e.g. Cannabis Public Benefit Fund) do not need a Reserve, as the General Fund provides risk mitigation and cash flow. If allowed by external restrictions, the target Reserve balance for other funds shall be 20% of the fund's annual operating costs. Professionally developed rate studies for Enterprise Funds (e.g. Water, Sewer) may recommend a reserve requirement in excess of the 20% target. Budget and Reserve Policy, March 2021 Page 3