Corrections, clarifications on article and comment regarding City of Edmonds reserves

By Shawn Hunstock, CPA
City of Edmonds Finance Director

A recent My Edmonds News article — Edmonds City Council changes reserve policy; catastrophic reserve disappear — and subsequent comments posted online contained statements that could lead to an inaccurate understanding of the new reserve policy.

The City Council’s Finance Committee considered at their Dec. 13, 2011 meeting a draft reserve policy. The policy was reviewed and the consensus at the time was that the draft policy was needlessly overcomplicated by setting up a few different types of reserve funds, each for different purposes. The draft policy was set aside for several months as Finance Department staff worked on completing the overdue audit for 2010 as well as the 2011 audit.

At the July 10, 2012 Finance Committee meeting a revised draft reserve policy was brought forth for consideration. The revised policy proposed creation of one overall reserve fund with a target of 16 percent of annual general fund revenue, as well as a smaller reserve fund of 2 percent of annual general fund revenue to be used for claims and litigation. The Finance Committee heard public testimony during that meeting and agreed unanimously to forward the policy to the full City Council with a recommendation to approve.

At the July 17 City Council meeting, the reserve policy was discussed by the full Council. During the presentation, it was explained that the new policy would consolidate the $1.9 million from the Emergency Financial Reserve Fund and the $1.3 million from the sale of fire department equipment into a new single reserve fund. It was also mentioned during that discussion that when the budget amendment is presented to Council to implement the new reserve policy (the budget amendment is scheduled for the Aug. 21 City Council meeting as a discussion item), the proposal will be to also move approximately $2 million from the City’s General Fund to fully fund the reserve at the 16 percent target, for a total of $5.2 million.

At no time during the discussion of the City’s reserves on July 17 was it mentioned that the current reserves were insufficient. Rather, it was pointed out to Council that the reserves were kept in two different funds and a portion of a third fund. Consolidating reserves into a single fund makes the accounting and financial reporting for them more transparent than the previous practice of maintaining them in three different funds.

The article on My Edmonds News mentioned that the catastrophic reserves would “disappear.” This is an inaccurate characterization of what the budget amendment for Council’s consideration on August 21st would accomplish. As previously mentioned, the reserve policy approved by Council on July 17 simply moves what is in the $1.9 million “catastrophic reserve” into the new Contingency Reserve Fund. The $1.3 million from the sale of fire assets is also proposed to be moved into the new fund, as well as $2 million from the General Fund in order to fully fund the reserve fund at the 16 percent target.

The article and subsequent comments also mention a “quiet policy change” and alleged “lack of discussion and disclosure.” The reserve policy was discussed at two separate Finance Committee meetings, both public meetings of course at which public comments were taken. The reserve policy was also discussed at the July 17 City Council meeting, during which citizens had the opportunity to make public comments. There was no “lack of discussion and disclosure.” A citizen also asked recently if the reserve policy was discussed at an executive session. The reserve policy is not an eligible topic for discussion at an executive session under the Revised Code of Washington. There was also no need to discuss the policy outside of a public meeting. As outlined above the policy was considered at three separate public meetings at which citizens had the opportunity to provide comments.

The article also mentions a change in calculation of fund balance for the City. It is correct that Edmonds and all other cities across the nation were required to implement a new accounting standard for the 2011 financial statements. The new standard, Governmental Accounting Standards Board Statement 54, requires cities to include in the General Fund all other funds that do not have legally or externally restricted revenue sources. The new definition of fund balance for the General Fund could be higher or lower than what Edmonds previously reported as “fund balance,” but was actually a different calculation based on cash liquidity.

Implementation of the new accounting standard, however, is irrelevant in the context of the reserve policy because the reserve target of 16 percent is calculated based on total revenue in the General Fund, not on fund balance. The 16-percent target is a minimum target identified by the Government Finance Officers Association as being a best practice for cities. If the City Council feels the $5.2 million set aside to meet the 16 percent target is not enough, the Council can simply increase the reserve beyond the $5.2 million. This is unlikely to happen at a time when the City will more than likely have to make significant cuts in order to balance the budget for 2013. In future years, though, when the economy might be better, the Council could decide to increase cash reserves beyond the $5.2 million.

The $9,562,638 mentioned in the article as city “reserves” is not the city’s reserves but rather an accumulation of that plus other fund balances in several additional funds. The $9,562,638 mentioned will not change as a result of the new reserve policy and the budget amendment to be considered by Council on Aug. 21. Instead, it will decrease the number of funds used to account for the $9,562,638 by virtue of the reserves being accounted for in one fund rather than three separate funds.

The suggestion in the article that consolidation of the reserves into one fund would make it easier to spend the money is inaccurate. It will be no easier or harder under the new policy to make use of the reserves. All that would have been necessary in the past to spend the “catastrophic reserve” was a majority vote of the Council to change or remove the restrictions in place then appropriate the money for any purpose desired. The previous restrictions did not make the catastrophic reserve money “untouchable.”

What would be necessary now under the new policy, and is no different than under the old catastrophic reserve policy, is an appropriation by Council to spend or move the reserve money. An appropriation can only occur at a City Council meeting either as part of the adoption of a budget, during which a public hearing is required, or as part of a budget amendment, during which citizens can make public comments. The suggestion that this could happen in secret or without transparency ignores the reality of what Council would be required to do under the laws of the state and according to city code.

The suggestion by a commentor that the city was about to “raid” the reserves is without merit and not based on facts. There has been no appropriation to spend the reserves and no such appropriation is being considered. Without an appropriation by Council, which can only happen at a City Council meeting, the reserve money simply stays where it is and accrues investment income over time. Although deep cuts are likely in order to balance the 2013 budget, the proposed budget the Mayor will present to Council in October will be balanced without the use of reserves.

Citizens are encouraged to contact me at if there are questions about this article or any other questions pertaining to the budget or City finances.


  1. Thank you, Mr. Hunstock, for presenting some facts. Always good to read something other than random opinions. Can you comment as to any downsides of the consolidation of the reserves? How transparent will any appropriations from a “consolidated contingency” fund be to the public?
    I guess my question is that it seems any appropriation from the “Catastrophic” fund would be obvious, but appropriations from a consolidated fund will not be as obvious in that it will be coming from a generalized contingency reserve fund which is much more specific as to the funds’ purpose. Stated another way, there would be more reasons to appropriate funds from a consolidated fund where with the specific funds it would be apparent as to the amount of the funds’ remaining after any appropriation for “catastrophic” or “public safety” purposes.
    Thanks again.

  2. Should say “generalized contingency reserve fund which is Much LESS specific as to the the fund’s purpose”. Sorry about that

  3. Mr. Hunstock, Thanks for the clarifaction. I must have missed the council meeting when this was discussed. My apoligy to the council on this one issue about transparency.

  4. Thank you Shawn for producing such a helpful, comprehensive article on this topic. As a citizen, I greatly appreciate your efforts in support of Open Government and Transparency.

    For citizens who haven’t done so, I highly recommend attending an evening of Council Committee meetings. It is an opportunity to get a close up, more informal view of how our City Government works.

    I do not believe formal minutes are kept of the Council Committee meetings, but reports related to the Committee Meetings are provided at the next regular City Council Meeting. For example purposes, following is such related to the July 10, 2012 Finance Committee Meeting:


    Finance Committee

    Councilmember Buckshnis reported staff provided the quarterly fiber project report. A business plan will be created next year. The committee also reviewed the July 2012 budget amendment, discussed a utility penalty waiver (approved on Consent Agenda), discussed the reserve policy, and reviewed the May monthly report (approved on Consent Agenda). Public comment referenced the creation of monthly budgets and having a presentation by WCIA on the City’s insurance coverage.

  5. Mr. Hunstock’s recap of the situation, while technically correct, misses the point of our previous article. I will try to clarify my thoughts in the same order that Mr. Hunstock reports them.

    1. In his third paragraph, he states that the reserve policy was discussed at a finance committee meeting. He suggests that this meeting was open to the public and therefore qualifies as transparency. I have been to finance committee meetings in the past and have never seen more than three or four members of the public attending. If one is to look at the approved report for the July 12 meeting, the description for the discussions on the reserve policy are as follows.

    Mr. Hunstock highlighted several sections:
    Section 4: Establish a Contingency Reserve Fund with an initial minimum balance of 8% of annual General Fund revenues and establish a schedule for reaching a minimum balance of16% by 2016. Committee recommended removing the schedule.

    Section 4.1: The Council will not use the reserve fund unless there is a 10% difference
    between actual General Fund revenue and expenses.

    Section 4.2: 10% of sales tax receipts from new construction will be directed into the
    Contingency Reserve Fund. Committee recommended changing this to 5%.

    Section 5: Establish a Risk Management Reserve Policy with a target balance of 2% of
    annual General Fund revenue.

    Nowhere is there given any indication of discussion of the implications of the removal of the public safety and/or catastrophic reserve funds. The other point regarding committee meetings is that they are not recorded and shown on the city’s television channel. The only way for the public to see what was discussed is either to show up in person or read the minutes in the next week’s Council agenda.

    2. In paragraph number four, Hunstock says that the entire Council discussed the new proposed policy. He also states that the elimination of the catastrophic reserve and the sale of the fire department reserve was discussed.

    In reviewing the minutes of the July 17 Council meeting, you will indeed see that Hunstock mentioned that the two reserves would be folded into the new “contingency” reserve. This was one sentence in a four-paragraph presentation and no discussion was offered or asked of the implications.

    In fact, the only questions asked were by Lora Petso. She wanted to know if the contingency reserve could be reduced to 14% so that the total of the two reserves would equal 16%. She also asked if maintaining these reserves was possible given the current budgetary constraints for the next few years.

    You can watch the video of this presentation and discussion and see just how much discussion was given to the implications. As soon as we can get a DVD of the meeting from the city, we will post it here on My Edmonds News.

    3. In paragraph number six, it is further argued that the original article was incorrect in claiming that the “catastrophic” reserve would disappear. This says that it would just be merged into the “contingency” reserve that is being established. According to GASB 54, which seems to me the impetus for this change, there really can be major differences for how the funds are spent. And Diane Buckshnis, when discussing the 2012 budget, wanted to remove the $165,000 contingency that Hunstock suggested for the budget, characterizing a contingency as just a slush fund. The details of the GASB 54 will be covered further down in this response.

    4. In the next paragraph, Huntstock questions my description of this as a “quiet policy change” and the “lack of discussion and disclosure.” You may make your own judgment based upon the facts presented in this response.

    5. The 11th and 12 paragraphs disputes the allegation that the new policy would make it easier to spend the money. While Huntstock is correct that under either circumstance the Council can just vote to transfer and spend money, if one reads GASB 54 closely you can see in paragraph number 10 that the “catastrophic disaster” reserve fund should be more accurately described as a “committed fund.” That is a fund where the spending constraints are imposed by the “highest legal authority,” which would be the City Council. As this reserve was set up with the expectations that it was only to be used in the event of a catastrophic disaster, it seems that to leave it “as is” the council would have to at the very least, provide more thought before using it than if it was a standard “contingency” fund. This point was brought up by Diane T and her first comment on the article.

    I have great respect for Mr. Hunstock and think he is doing an excellent job for the city. He works well in a difficult situation, reporting to the Mayor, but he is also being pushed by the finance committee of the City Council.

    As I said in the original article, this change was not fully discussed in a public forum (i.e. a public hearing) where all of the implications were thoroughly examined. The new policy still makes it easier, even if just politically, to spend down our city’s reserves. The new reserve policy in section 4.4 specifically states that the council may use the reserves in the event that the city cannot find enough revenue or reduce expenses enough to balance the budget.

    My point was not to say that these changes are incorrect, even though I question them personally, but rather that I think the policy has changed without full understanding by all of the Council members. As for the public being made properly aware. I am afraid that most of the public “really just doesn’t care, however, those citizens who do seem to care and listen most closely. have indicated, by their comments to my original article, did not feel THEY had been properly made aware.

  6. Your analysis is fine with me. Gives us all a starting point to build upon your views or counter your views. MY OPINION: But we should do less attacking Harry or other and more building on ideas. Yes I am for building ideas but did not say building buildings before someone attacks.

  7. As luck would have it if you watch this to the end or just go to the end you will get a choice of other You Tube videos and you can watch Harry discuss city issues for about 20 minutes as well.

    This is a good service to offer individual items from the council meetings on a topic by topic basis. This capability exists for all council meetings to be posted right on the city web site. For a few bucks we could even stream the meetings live. Such a move would be a step forward for open govt.

  8. From my point of view, both the Finance Director and the Mayor were at this meeting, and did not voice any objection. Since the budget is ultimately the Mayor’s responsibility, I assume that if he had been concerned he would have said so. Finally, the Council voted to approve this change 7-0. In addition, Shawn took the time to prepare a lengthy and thorough response to the concerns raised in the original article. Maybe that is not enough for some of you, but it is certainly enough for me. Let’s deal with problems that exist, not create them where they do not.

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