Just Sayin’: Supervisors vote to compromise county reserves

Municipalities, schools and other government agencies are struggling to fully fund their civil obligations. It’s not a good situation and shortages will mean the loss of valuable services, or postponement of scheduled maintenance.

Nevertheless, traditional options for additional income are equally unwelcome. In the past few years, voters have resisted new taxes and bonds. With limited choices, San Diego County is looking to raid its reserves.  

The new majority on the San Diego County Board of Supervisors intends to imprudently balance its operating budget by monkeying with its reserve structure and reducing its size. Apparently, the Democrats on the board do not recognize the necessity for a fully defined reserve fund or respect the sanctity of not taking money from authorized reserves to pay for items that are (or should be) covered in the operating budget.

For example, should reserves, that are put aside for emergencies or long-term capital needs, be reallocated to pay for the recently negotiated employee bonuses?

Often, when an organization declares that the amount of reserves is excessive, it’s not that it exceeds the needs to respond to emergencies, but rather thinking that the likelihood or impact of any emergency is less than previously assumed.

How did this kind of thinking help the flooded-out city residents in San Diego? Or the staff and students at Rancho Bernardo High and Middle Schools who lost their A/C last year?

It is irresponsible and foolish to disregard the full importance of reserves. In business, standard practice dictates that allowances be made for items outside of the operating budget. These are often referred to as “known unknowns” and “unknown unknowns.

Organizations conduct extensive risk reviews, putting aside funding, both for events that are known to happen and for the unexpected.

Those of us that live in HOA communities should be familiar with reserves. Every HOA community has an operating budget and a reserve fund (usually defined by a certified reserves analyst). The reserve account is funded by designated transfers from the operating budget.

It is verboten to use funds from reserves for operating expenses, or (as I experienced in one HOA) to reduce contributions to reserves to make up for operating budget shortfalls.

Reserves are required for far more than unexpected risks. They are also put aside for planned maintenance that would fall outside of the periodic budgeted expense. This has been a critical issue for local municipalities and agencies that are known to delay planned maintenance in order to redirect funding to budget shortfalls.

Deferred maintenance, as they call it, turns into NO maintenance. That is, until the facility fails and it costs way more to replace than if it had been maintained.

Apparently, this widely respected reserves philosophy does not apply to the county budget. Are we suddenly to believe that the downside won’t happen? In the face of upward trends in natural disasters, can we allow funding for response to such disasters to be significantly reduced? 

Supervisors Lawson-Remer and Montgomery-Steppe are justifiably concerned with the loss of federal and state funding for various safety-net services that are traditionally provided by the county. Does this, and employee bonuses, justify dipping into so-called rainy-day funds?

Perhaps this quandary is best expressed in a quote from a 9/1/25 editorial in the Union-Tribune, by Bob Stonebrook: “Using temporary funds to expand permanent programs is how structural defects begin.”

Structural defects is a term that is used to define budgeting that has ongoing deficits — where the operating budget repeatedly has greater expenses than income. This will result in borrowing from reserves for a current shortfall and then realizing that such borrowing cannot be sustained. Then what? 

Borrowing is only justified when there is an impending planned replenishment of funds. But that is not what the Board of Supervisors is suggesting. They are banking on lesser needs for the allocated reserves. Can we put our trust on an economic plan that is based on wishful thinking? Or, might we assume that the Supervisors are looking, once again, to a tax increase to compensate for the short-fall.

By a 3 – 2 vote, the county board has voted to reduce total reserves and to increase flexibility in accessing what is left for non-reserve purposes. They would eliminate funding of capital costs in the two-month emergency reserve. They would also free-up $350M to $380M that could be used to compensate for employee bonuses, federal or state funding cuts, or an economic downturn.

This would appear to violate the cardinal rule of reserves. That is; allocation of reserves to normal operating costs should be avoided, and, if absolutely essential, should be combined with a plan to replace the borrowed amount.

While the new policy has been approved, any proposal to actually unlock the redefined reserve funds would require at least four (out of five) supporting votes. To date, the two Republican supervisors have not shown support for this change.

Changes to the reserve policy, such as these, may put the county at significant risk. If you agree, let your supervisor know.

A Rancho Bernardo resident, Levine is a retired project management consultant and the author of three books on the subject. Write to Levine at levine-rbnews@earthlink.net