In a move to protect the city against another economic downturn, the Irvine City Council this week voted unanimously to increase the amount in its budgetary reserve or rainy day fund from 15 percent to 20 percent of the overall $146-million general fund budget over the next three years.

“Increasing your reserves when you’re as dependent as we are on sales taxes is wise,” said City Manager Sean Joyce. Sales tax is the city’s largest revenue source and accounts for approximately 36 percent of the general fund. Property tax is second at around 33 percent.

The health of the city’s current reserve can be attributed to the “Bridge Plan” that the city implemented at the onset of the Great Recession. Its goal was to cut costs without laying off workers or significantly reducing city services.

The original projection was that the fund would be depleted when the 2011-12 fiscal year ended in June. But the city exceeded its own revenue expectations and was able to meet the target of 15 percent of the general fund, which amounts to more than $20 million.

If the city is able to add another 5 percent to the reserve, the fund will increase by $7 million, based on current budget projections, Joyce said.

Joyce said that transfers into the reserve fund will most likely come as the result of future year-end surpluses. The city ended fiscal year 2011-2012 with a surplus of $6.7 million but chose not to put any of that money into the reserve.

It was instead allocated for, among other things, the city’s general plan update, the insurance fund and its infrastructure and rehabilitation fund.

Officials intend to allocate the remainder later to give the council flexibility in a tenant improvement project at the Irvine train station. The tenant space is expected to be occupied by Orange County Great Park staff.

The council unanimously approved the budget report along with the recommendation to increase the reserve.

Before Councilman Larry Agran cast his vote, he reminded his colleagues of a time when the council did not take such a wise course.

In the early 1990s, he said, the city decided to shift money into the Orange County investment pool, which was run by then County Treasurer-Tax Collector Robert Citron, “in order to try and squeeze out a few hundred thousand instead of deploying the rainy day reserves.”

The investment pool went bust and led to the county’s bankruptcy in 1994.

“Should tough times return, then we should in a disciplined way return to the rainy day reserves,” Agran said.


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