Purpose and Scope

Fiscal stability is an important factor to any local government agency. It is the Board's responsibility to provide for the continuation of services in the event of a natural or fiscal emergency as well as planning for short-term and long-term capital acquisition.

Realizing that District revenues are not stable and are dependent upon national, state, and local economic trends, it is prudent for the Northern Sonoma County Fire Protection District to have a financial reserve policy in place to address these needs and to set up reserve funds designated for specific purposes.

This policy is developed to consider the minimum level necessary to maintain the District's credit worthiness and to adequately provide for:

• Continuity of services during economic uncertainties,financial hardships, or downturns in the local or national economy.
• Essential functions and critical services when normal operations are disrupted by natural disasters, accidents, technological issues, or attacks.
• Replacing or augmenting the acquisition of apparatus and equipment utilized in the performance of duties.
• Maintaining a safe and adequate working environment.
• Replacing or maintaining the integrity of District buildings, equipment, and apparatus.

Definitions

Fund Balance - the difference between assets and liabilities.

Undesignated Funds - the combined balance of all District bank accounts in excess of the encumbered and designated reserve funds as shown on the monthly Financial Summary Report. These funds are available for any purpose that meets the current budget obligations, goals and objectives.

Encumbered Funds - Funds that have been committed in the current or future budgets for specific purchased equipment and/or services. Examples include purchase orders, contracts and grant funds received for designated purposes.

Designated Reserve Funds - Funds that are set aside for a specific purpose as determined and approved by the Board.

Policy

The Board of Directors shall be responsible for the establishing and management of all District fund accounts and balances. The Reserve fund accounts shall be established through adoption of this policy and codified by the passage of a resolution.

Changes to existing fund balances, establishing new fund accounts and balances, and authorization for expenditures from fund balances shall require action by the Board.

The balances of each Reserve Fund shall be reviewed by the Finance Committee in February and any recommended changes to fund balances for the upcoming fiscal year shall be presented to the full Board as an action item.

The following reserve fund accounts shall be established:

General Operating Fund

This account shall be inclusive of all undesignated funds as shown on the monthly Financial Summary Report. The Board shall strive to maintain a balance of 30% of the adopted General Fund Revenue budget to provide adequate funds to cover dry revenue periods and provide a margin of safety in the event that the District needs to evaluate alternatives due to financial hardships or any significant unanticipated or mandated expenditures which cannot be deferred or funded by borrowing.

Encumbered Funds

These funds shall be established and approved by the Board. The balance for these funds shall be updated monthly and provided on the monthly Financial Summary Report.

Apparatus Replacement Reserve Fund

This reserve account shall be maintained to ensure that adequate funds are available for the replacement of District apparatus as required to meet the adopted replacement schedule or as needed to maintain a reliable fleet. Funds to this account may be designated from undesignated funds or budgeted from current fiscal year revenues.

New Station/Building Reserve Fund

This reserve account shall be maintained to ensure that adequate funds are available for the addition, replacement, improvements and/or repair of District facilities. Funds to this account may be designated from undesignated funds or budgeted from current fiscal year revenues.

Fire Sales Tax Reserve Fund (General Fund)

This reserve account shall be maintained for revenue from the Fire Sales Tax (Measure H 2024) allocated for enhanced services that are not spent in the fiscal year received and to be designated for future services as needed.

Fire Sales Tax Reserve Fund (Vegetation Management)

This reserve account shall be maintained for revenue from the Fire Sales Tax (Measure H 2024) allocated to Countywide Vegetation Management that are not spent in the fiscal year received and to be designated for future services as needed.

Process for the use of Reserve Funds

The process to be utilized to draw down the Reserve Funds shall adhere to the following process:

• Uses shall be in line with the adopted budget or budget amendment. In the event of financial adversity or budget constraints, the Board may utilize Reserve Funds to finance the operation of the District until such time as replacement funds are available. Such use of funds will be followed by a financial plan to address the financial shortfall.
• Use of Reserve Funds are by direction of the Board and based on recommendation of the Fire Chief. The proposed financial plan will be presented to Board for review, discussion and adoption at a public meeting. Approval of the draw down of the Reserve Funds shall be a 4/5ths vote by the Board in the affirmative.
• Whenever expenditures or transfers are made from the Reserves for uses other than those specifically stated in the policy, it must be given a high priority for the District to reimburse such expenditures at the earliest possible date, normally by deferring other service or project expenditures.
• Should the Board opt not to draw on the Reserve Funds or should the financial hardship exceed the available reserve funds, the Board may direct that funding by augmented through the following options:
  • Use of Reserve Fund as collateral
  • External/Third Party Financing
  • Immediate spending freeze
  • Other financing options available at the point of need
• Financing levels of the inter-fund loan should not exceed 80% of the available fund balance and shall be documented by an established repayment schedule approved the District Board based on recommendation by staff. Repayment of this method of financing should become a priority in future budgeting cycles.

Informational Reports

The following reports are prepared and distributed on a timely basis to allow for informed decisions by both staff and the Board:

• Quarterly Financial Statements: Financial statements are provided to the Fire Chief by the District Treasurer on a quarterly basis.
• Quarterly Updates: As requested by the Fire Chief or the Board, each quarter the District Treasurer may provide a financial update on revenues, expenditures, trends, and other economic impacts to the Board at a regular public Board meeting.

Monitoring Reserve Levels

The Fire Chief, in collaboration with the District Treasurer and Finance Committee, shall perform a reserve status analysis annually, to be provided to the Board for the annual deliberation/approval of Budget and Reserve Funds.  

Additional information may be provided to the Board of Directors upon the occurrence of the following events:

• When a major change in conditions threatens the reserve levels established within this policy, or calls into question the effectiveness of this policy.
• Upon Board request.

Policy History

This policy replaces SOPA-32 Financial Reserve Policy.