San Mateo makes changes to reserve fund policies

“We manage our cash and investments in a pooled investment with every single fund pooling together and investing together,” Finance Director Karen Huang said. “So although we only set aside 15% … it’s OK because if there’s an emergency, this $25 million will provide us immediate cash to take care of immediate needs, but when we need more we can use the pooled cash through interfund borrowing for short-term relief.”

She said that, in the event of a natural disaster or emergency, the city, like many other jurisdictions, typically relies on federal funds from the Federal Emergency Management Agency and the state. 

“You cannot survive a natural disaster just relying on your reserves. That’s not enough for anybody to do that,” Huang said. “We are in a really good situation. … We don’t have liquidity issues.”

The rainy day reserve, which will be renamed to the budget stabilization reserve, will also be set at 15%. The changes, along with a few other modifications the council approved, will free up a total of $35 million, much of which will go toward setting up a capital investment reserve. 

“If we put $25 million into this new capital investment reserve, we can provide seed money for all the critical projects that we currently have no funding for,” Huang said. 

Some of those projects include initial investment in the Martin Luther King renovation and Joinville pool updates, City Manager Alex Khojikian said. 

“We’re just identifying what buckets are to be used. Looking at budget stabilization, that’s how we’ve been able to get through the previous year where we ran a $5 million deficit. This year, we’re looking at about a $6 million deficit. … These are difficult times,” Khojikian said, adding that the city’s financial position also fluctuates due to reliance on real property transfer taxes, which are subject to market conditions. 

Funds from the contingency reserve would be spent on nonfiscal emergencies, such as natural disasters or public health crises, Huang said. The budget stabilization funds could go toward future deficits. The approved changes would also establish a pension reserve fund, with $10 million of initial funding. 

The city projected a general fund deficit this fiscal year, though in February, staff reported that it’s trending lower than originally predicted — down to $6 million from $10 million. The new reserve policies will be finalized during the budget adoption process in June.