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MEMORANDUM to Orange Co. November 2, 2016 Page 2 rainy day fund. Instead, most local governments use budget surpluses or unreserved fund balances as a rainy day fund, but one without the constraints of a formal fund policy. Searching in the public finance literature for guidance when a jurisdiction wants to establish a policy on reserve fund balances can be confusing. Unlike state funds, local reserve funds for solid waste agencies, in SCS' opinion, are diverse and varied. It is not uncommon to see a group of solid waste agencies with a zero fiend balance and a nearly identical group of jurisdictions with fund balances at 70 to 80 percent of operational expenses. The average seems to be in the range of 15 to 25 percent of annual operational expenses, or 3 months of budget spending. The differences among municipalities and lack of benchmarking data seem to be centered on the following basic issues: • Political Decision Making — Politicians are bombarded with problems that an individual or an interest group wants solved on a short-term basis. Thus, most local solid waste agencies in the U.S. oftentimes fail to plan beyond 1 year at a time, particularly in terms of their budgets, which are universally annual budgets. Different Business Lines — Solid waste agencies differ in the types of business lines and service programs offered — some only deal with collection, or transfer station operations, or those that provide an integrated system (collection, recycling, transport, and disposal). Those with landfill disposal responsibilities oftentimes need to provide reserve funds for landfill contingencies (liner and contamination remediation emergencies, closure, and post closure). Some of these require state mandated reserve funds pursuant to state and federal landfill regulations. Revenue Stabilization — Many local solid waste agencies attempt to secure enough reserve funds to stabilize operational revenues to minimize the need for ever increasing rate increases. Based on SCS experience, there is no uniformity across the country for the level of these funds as a percentage of operational expenses. The amounts in these fiends are usually developed as part of overall rate study for the agency. Overall Community Financial Polices — Again, local communities vary in the types of standard financial policies related to their General Fund and Enterprise Funds. Based on our understanding, there are no uniform benchmarks across the country. Those with more conservative financial leanings tend to require their individual departments to match the requirements of the General Fund. For example, a recent rate study completed by SCS for a client in St. Louis, Missouri required the reserve fund for solid waste services to match the overall requirement of 100 percent of the annual operational expenses. In comparison, another rate study completed for a community in Virginia Beach, VA used a 25 percent reserve funds rate goal which aligned with that of the General Fund.