City of Berkeley Lake Reserves

Are Berkeley Lake's reserves too high?

I think so, but in this article, I am including information that will let you decide for yourself. Take a look at the table on this page that shows the level of reserves for eight Gwinnett County cities according to their 2024 audit reports. Berkeley Lake's reserves are 589% of their expenditures. This means the City has almost six years of expenditures in its stash of cash. Our 2024 audit report shows the City has over 4.7 million dollars in cash and investments.

It is troubling that the City has no set policy for the reserves level and has continued to add significant amounts to the reserves each year for the last several years. By spending far less than budget, the City generates substantial "profit" each year, adding that to the reserves. See my references beneath the table for an analysis of how the City accumulated so much money.

What are reserves?

Municipal reserves are funds set aside by local governments for future community projects, unexpected emergencies, economic downturns, and to ensure the continuity of essential services. These funds act as a financial safety net, analogous to a personal savings account, helping the municipality manage revenue shortfalls, cost increases, and unexpected expenses without immediately resorting to tax hikes or service cuts.

Guidelines

There is no single guideline for maximum municipal reserves, but best practices suggest keeping reserves between 15% and 30% of general fund expenditures, with some municipalities and bond-rating agencies defining upper limits. Excessively large reserves can face public scrutiny, so it is important for a local government to adopt a formal policy explaining the purpose of its reserve fund.

The Government Finance Officers Association (GFOA) generally recommends a minimum of two months (17%) of operating expenditures for the general fund. While the GFOA does not set a maximum, many municipalities follow standards for their unassigned reserves that consider revenue stability, size, and cash flow needs. GFOA has many publications and worksheets to help cities calculate a reasonable level of reserves and establish a formal reserves policy.

Reasons for setting a maximum level

It is generally recommended to keep reserves of at least two months of operating expenditures. But setting a maximum reserve level is considered a best practice for these reasons:

• Avoids public scrutiny: Holding unnecessarily large reserves can draw criticism from residents and political leaders who may argue that the money could be used to lower taxes, improve services, or fund other projects.
• Ensures responsible spending: An upper limit helps ensure that surplus funds are allocated to specific, high-priority uses instead of being stockpiled. This could include infrastructure projects, debt reduction, or adding to dedicated capital funds.
• Maintains transparency: Establishing a clear policy for what happens to reserves once they exceed a certain amount promotes accountability and demonstrates that the municipality is being a responsible steward of public funds.