The Menlo Park Fire Protection District’s Fund Balance Reserve Policy establishes a framework for maintaining healthy reserve levels across all District funds to ensure long-term financial stability and resilience. It aims to provide adequate funding for operational needs, capital asset replacement, unanticipated costs, economic downturns, and rising pension obligations. The policy follows GAAP and GASB 54 standards for fund balance classification and applies to all governmental funds of the District. It replaces prior regulations, emphasizing the importance of sufficient reserves to support both short- and long-term financial obligations and to safeguard the District’s fiscal health. 

The District’s fund balance represents the difference between its assets and liabilities in governmental funds and is categorized according to the constraints placed on how those resources can be used, as defined by GASB Statement No. 54. These categories include non-spendable, restricted, committed, assigned, and unassigned fund balances. Non-spendable funds include resources like prepaid assets that cannot be used for general spending. Restricted funds are legally required to be used for specific purposes, such as debt service obligations. Committed funds are set aside through formal Board action for designated purposes such as capital asset replacement, capital improvement projects, and managing budgetary deficits during economic downturns.

Assigned fund balances reflect the District’s intended use of funds, including reserves for encumbrances, pension stabilization, workers' compensation, and compensated absences. The unassigned fund balance, available only in the general fund, serves as a contingency reserve to address financial uncertainties or emergencies. It ensures financial stability but is not intended to fund new programs or ongoing operational costs. Together, these fund classifications help the District responsibly manage its financial resources, maintain operational stability, and plan for future capital and service needs.

The long-range five-year financial forecast is a key planning tool that helps the District align its resources with its strategic goals. By projecting revenues, expenditures, and fund balances over time, the forecast supports informed decision-making, identifies potential financial and budget challenges early, and ensures long-term sustainability. It plays an essential role in both operational planning, helping to maintain service levels, support core programs, and manage pension liabilities, and capital planning by guiding investments in improvement projects and the timely replacement of assets. This proactive approach enables the District to prioritize initiatives and strategically allocate resources in support of its mission and long-term objectives.

For Fiscal Year 2025–26, the District anticipates an increase of approximately $13.4 million in the fund balance compared to the amended budget for FY 2024–25. This projected increase is primarily driven by an unexpected rise in other operating revenues, particularly from deployment reimbursement claims, which are inherently unpredictable and stronger-than-anticipated investment earnings, due to fewer interest rate cuts that positively impacted the District’s investment portfolio. Additionally, property tax revenues remained stable and came in higher than originally projected, further contributing to the increase in available funds. On the expenditure side, budget savings were realized from unfilled personnel positions, lower-than-expected operational costs, and the postponement or cancellation of certain projects. These factors also played a significant role in improving the fund balance.

While this positive change strengthens the District’s financial position, it is not expected to have an immediate operational impact. The District plans to allocate the resulting budget surplus to various fund balance reserve categories in accordance with its established financial policies. 

Property Tax: The projected growth rate for FY 2026-27 and beyond is estimated at 2%.

Other Operating Revenue:

• Licenses and Permits: The amount is fixed at $880,000 per year.
• Current Service Charges: An annual increase of 2% is anticipated based on historical contracts.
• Use of Money and Property: Starting in FY 2026-27, the interest rate used to calculate revenue from investments will be 3%, a reduction of about 150 basis points from the current rate.
• Intergovernmental: Deployment reimbursements are based on average historical claims.
• Miscellaneous: Set at a fixed amount of $50,000 annually.

Salaries, Benefits, and Retirement:

Salaries, Stipends, Benefits, and Retirement (Excluding CalPERS UAL): The projected cost increase is based on historical data and current market surveys.

CalPERS Retirement Cost: For the UAL, following the implementation of the 10-year soft (“virtual”) fresh start approach to manage the unfunded liability, the cost is expected to remain stable at approximately $8.3 million annually. Additionally, the normal cost contribution rate is expected to stay consistent from FY 2025-26 through FY 2029-30 due to the smoothing effect of the fresh start approach.

Overtime: Overtime costs will be maintained at the same level as FY 2025-26 and applied to subsequent fiscal years.

Other Operating Expenditures: Materials and supplies, as well as contract services, are projected to increase by 3% each year.

Excess Revenue: Any surplus revenue over expenditure will be fully transferred to the CIP fund to support capital projects.

The Capital Improvement Program (CIP) fund balance for FY 2025–26 is projected to increase by approximately $14.8 million compared to the amended FY 2024–25 budget. This increase is primarily driven by the periodic transfer of unallocated funds from the General Fund to the CIP fund, in alignment with the District’s fund balance policy. These transfers are part of a deliberate strategy to ensure that resources are set aside to support both current and future capital needs.

The systematic allocation of funds ensures that currently approved capital projects are adequately funded, while also maintaining sufficient reserves to address both anticipated and unforeseen future capital needs. This proactive approach enhances the District’s ability to plan and execute capital improvement projects in a timely and efficient manner, ensuring that funding is available when needed to support infrastructure, facility upgrades, and long-term asset replacement.

Operating Transfer: This transfer is sourced from the general fund and is expected to partially or fully fund the current capital projects.

Construction Projects: The projected cost for the Station 1 rebuild project over the next five years is based on analyzed estimates, assuming that the

construction phases align with the projected timeline. Other capital projects are estimated at $3 million annually.

Fixed Assets/Capital Outlay: Fixed asset purchases are set at $2 million per year based on historical spending patterns, with the exception of FY 2028-29. During this year, an additional $2.5 million will be allocated to account for the purchase of a tiller truck, as previously approved by the Board.

The fund balance is expected to be zero, as this fund contains cost-reimbursement grants and assumes that revenues will be received within 60 days following the end of the fiscal year.

The forecast assumes 2% increase in funding each year.