2011 Archive - Lane Community College - College Operations

The Board may require the president to establish a separate “reserve fund” (as described in ORS 341.321 and ORS 294.525) for the purpose of providing short-term stabilization in anticipation of possible shortfalls in revenue.

A stabilization reserve fund may be established under one or more of the following circumstances:

State budget appropriations for community colleges are not approved by the time the college budget is approved and adopted.
A situation exists where significant changes in enrollment are possible but not reasonably predictable.
When any major revenue source has a reasonable possibility of decreasing after the college budget is approved and adopted.
When any operating expenditure that is beyond the control of the college could reasonably be expected to increase after the college budget is approved and adopted.
Any other situation in which the Board determines that there is a reasonable expectation that major shifts in revenue or expenditures could occur during the budget year.

Stabilization reserve levels:

Minimum reserve levels shall be at the discretion of the board under advice from the budget committee and the president.
Maximum reserve levels shall be no more than the maximum reasonably estimated shortfall at the time of the adoption of the budget.

Stabilization reserves will be reviewed annually as part of the budget development process. The stabilization reserve fund shall be closed out when the Board determines that the precipitating threat to revenues and/or expenditures no longer exists. As long as the conditions exist that caused the fund to be established, the funds shall be kept in reserve for the purpose intended. If and when the fund is closed out, any remaining balance shall be returned to operating funds.

Stabilization Reserve Fund: Discussion and Rationale

The Government Finance Officers Association (GFOA) publication Recommended Budget Practices: A Framework For Improved State And Local Government Budgeting (1998) advises all public organizations to authorize the creation of a stabilization fund as one of its set of comprehensive financial policies fundamental to prudent budgeting.

The rationale GFOA provides for the creation of stabilization funds is that “Governments should maintain a prudent level of financial resources to protect against reducing service levels or raising taxes and fees because of temporary [emphasis added] revenue shortfalls or unpredicted one-time expenditures.”

GFOA explains that such “rainy day” funds “may be used at a government’s discretion to address temporary cash flow shortages, emergencies, unanticipated economic downturns, and one-time opportunities. They provide flexibility to respond to unexpected opportunities that may help a government achieve its goals. Policies on the use of these funds may also be tied to an adverse change in economic indicators (such as declining employment or personal income) to ensure that the funds are not depleted before [emphasis added] an emergency arises.”

BAG views a stabilization reserve fund as a key component of Lane’s fundamental financial policies. It is a vehicle that the Board can utilize to smooth the bumps in the financial road to the accomplishment of Lane’s mission.

This policy will also provide better transparency to Lane’s budgeting process. The amount proposed to be budgeted to fund a stabilization reserve (if any, for a given year) will be specifically stated, and subject to discussion by all stakeholders during budget development, rather than “buried” as a component of the Ending Fund Balance. It will be a visible, not “hidden,” pot of money.

GFOA advises that a stabilization reserve fund policy “should establish how and when a government builds up stabilization funds and should identify the purposes for which they may be used.” To accomplish this purpose BAG’s recommended policy specifies four conditions which would require funding levels for the reserve. To avoid being too restrictive, the policy also provides the Board discretionary authority to add funds to the reserve in any other situation where there is “a reasonable expectation that major shifts in revenue or expenditures could occur during the budget year.”

It is important to note that this is an enabling policy, not a mandate to fund the reserve. It provides the Board and Budget Committee authorization to reserve funds for financial stabilization. The minimum reserve level is appropriately at the annual discretion of the Board. BAG hopes that, as Lane’s financial prospects improve, the Board will recognize the advisability of setting aside some of Lane’s future revenue increases for this “rainy day” fund. The policy also contains a “sunset” provision: when Lane’s finances are no longer threatened by the exigencies that necessitated a given reserve level, any balance will be returned to general operating funds.