CITY OF SANTA MARIA
RESERVE POLICY & 115 Trust
APRIL 7, 2026
13 General Fund History of Reserves
Note:
• The LEAF Reserve was established long ago.
• There was $19.8 million committed to the Economic Stabilization Reserve in FY 2010-11. • There was $6.9 million assigned to the OPEB Reserve in FY 2010-11. The balance today is $6,248,027. • There was $6.2 million assigned to the Pension Reserve in FY 2017-18. The balance today is $15.8 million.
Reserve % or $ Target Balance
June 30,2025
Projected Balance
June 30, 2026
Unassigned Fund
Balance *
25% of General Fund
operating
appropriations
$28.7 M $8.8 M $0 M
Economic
Stabilization *
25% of operating
appropriations
$28.7 M $19.8 M $19.8 M
Local Economic
Augmentation
Fund *
5% of General Fund and
Measure U
appropriations
$7.4 M $22.1 M $11.5 M
OPEB Reserve No Target N/A $6.2 M $6.2 M
Unfunded
Pensions
Reserve
No Target N/A $15.8 M $15.8 M
* Discussed in detail on pp. 64-65 of the FY 2024-
26 Adopted Biennial Budget Book
Note: Should Economic Stabilization reserve be used, and its level falls below the minimum amount, the goal is to replenish within two fiscal years.
13 General Fund Reserve Policies and Available Reserves – Current Policy
Reserve % or $ Target Balance June 30,2026
Unassigned Fund Balance
Available
Will be directed per policy N/A TBD
General Fund Reserve
(Operating Reserve)*
16.7% of General Fund and
Measure U expenditures
$24.7 M $24.7 M
Local Economic Augmentation
Fund (Emergency Reserve)
10 - 15% of General Fund and
Measure U expenditures
$22.1 M $15.9 M
Emergency/Catastrophic
(Disaster Reserve)
5% of General Fund
expenditures
$5.75 M $1.0 M
OPEB Reserve Move to 115 Trust N/A $0.0
Unfunded Pensions Reserve Move to Various N/A $0.0
General Fund Budget Contingency is a
budgeted expense at 5% of operating
expenditures
13 General Fund Reserve Policies and Available Reserves – New Recommended Policy
* GFOA standard recommendation for
General Fund minimum reserve is two
months (~17%) of annual operating
Before & New Policy Direction
General Fund Reserves – Projected Year End
Existing June 30, 2026 New Policy
Unrestricted Fund Balance
Available $ 2,607,426 $ 2,607,426
General Reserve
(Core Operating Reserve) $ 19,800,000 $ 24,650,000
Local Economic
Augmentation Fund
(Emergency Reserve)
$ 11,494,306 $ 15,894,306
Emergency/Catastrophic
Reserve (Disaster Reserve) - $ 1,000,000
Contingencies* - $ 2,519,324
OPEB $ 6,200,000 -
PENSION $ 15,769,324 -
Total GF Reserves $ 53,263,630 $ 44,063,630
* Contingencies are
budgeted annually
and used for
General Fund
unanticipated
emergent costs
during the year, and
must be re-
budgeted annually
15,769,324$ Pension Reserve
(4,850,000)$ GF Reserve (Operating Reserve)
(4,400,000)$ LEAF
(1,000,000)$ Disaster Reserve
(2,519,324)$ Contingencies
(3,000,000)$ 115 Trust for Pension
-$ Balance
Long Term Debt Requirements
Other Post-employment Benefits
• GASB 75 – the City is required to measure
and report its OPEB liability
• FY 2022-23 OPEB Liability = $19.1 million
• The City makes an annual pay-as-you-go
payment towards the debt
Net Pension Liability
• GASB 68 – the City is required to measure
and report its Pension liability
• FY 2023-24 Pension Liability = $195.7 million
• The City pays an annual payment towards its
unfunded liability
Section 115 Trust Vs. Government Investment Pool
Section 115 Trust
• Established under Internal Revenue Code
115.
• Allows public agencies to invest public funds
• Designed specifically to prefund government
liabilities, typically:
– OPEB such as retiree healthcare
– Pension stabilization funds
• Assets are held in a separate irrevocable trust
dedicated to those liabilities.
Government Investment Pool
• Examples include Local Agency Investment
Fund (LAIF) and California Asset
Management Program (CAMP).
• Designed for short-term cash management
and liquidity.
• Funds remain part of the agency’s general
investment portfolio.
Investment Flexibility and Returns
Section 115 Trust
• Allows a broader investment authority, often
similar to pension funds:
– Equities
– Fixed income
– Diversified portfolios
• Long-term expected returns often 5–7%+
depending on asset allocation as compared
to LAIF at 2-3%.
Government Investment Pool
• Highly conservative portfolios:
– Treasuries
– Agencies
– Highly rated short-term securities
• Designed for capital preservation and
liquidity, not growth.
• Returns are usually closer to short-term
interest rates.
Accounting and Actuarial Advantages (GASB)
Assets in a Section 115 Trust
• Can be used to offset the OPEB liability in
actuarial valuations.
• Allows use of a higher long-term investment
return assumption in the discount rate.
• This can significantly reduce the reported net
OPEB liability.
Assets in a Government Investment Pool
• Do not qualify as plan assets under GASB.
• Cannot reduce the actuarial liability.
Legal Protection of Funds
Section 115 Trust
• Assets are irrevocably dedicated to the
benefit plan.
• Cannot easily be diverted for other
governmental purposes.
• Provides credibility to rating agencies and
auditors.
Government Investment Pool
• Funds remain fully available to the agency.
• Can be used for any purpose.
Budget Stabilization Use
Section 115 Trust
• Some governments create Pension
Stabilization Trusts under Section 115.
Benefits include:
– Smoothing CalPERS contribution
volatility.
– Building reserves during good years.
– Using funds when employer contribution
rates spike.
Summary Comparison
Feature Section 115 Trust Government Investment
Pool
Purpose Prefund pension/OPEB
liabilities
Short-term cash
investment
Legal Structure Irrevocable trust Pooled investment account Investment Strategy Long-term diversified Conservative short-term Expected returns Higher (long horizon) Lower
GASB liability reduction Yes No
Investment Plan Comparisons ($6.2M OPEB Investment)
Investment Plan Comparisons – ($3M Pension Investment)
Recommendation
• Adopt a Resolution approving an updated General Fund Reserve Policy and Section 115 Trust; and
• Authorize the Finance Director to take steps to establish a Section 115 Trust for the City’s other post-employment and unfunded pension long-term debt; and • Authorize the Finance Director to align funding the reserves and the Section 115 trust as outlined in the Fiscal Considerations section to this report.
Discussion
• Discussion
– Questions & Comments