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Establishing an appropriate level of fund balance or restricted reserves to meet the demands of a fund during periods of the year when revenues are not available is vitally important to the fiscal health of the fund. Depending upon the answers to some of the questions below, a city may need to adjust its fund balance levels to better deal with local fiscal issues. Key questions to consider: • Is the city(and particularly the General Fund) dependent on cyclical or volatile revenue sources? For example, property taxes in Illinois are very cyclical, but in Decatur most property tax revenues go to public safety pensions and some other non-General Fund accounts. Do State of Illinois shared revenues (which can vary based on the whims of the legislature, be unpredictable for economic, political or other reasons, and are not guaranteed in the future) contribute significantly to a program or service? Is the tax base heavily dependent upon one industry, or one or two major employers? • Are the city's finances vulnerable to natural disasters such as tornadoes and flooding? If so, funds be set aside to prepare for and protect against such future risks. • Does the city have a sufficient buffer against economic downturns? If and when the local economy slows, will Decatur be able to sustain most of its staffing and operations, or be forced to make layoffs and service cuts (which will have a further detrimental impact on the economy)? Reserves help protect the city against these inevitable economic cycles. This is an important consideration for all jurisdictions, but especially for those entities or funds that rely heavily on sales taxes or similar revenues that are highly sensitive to changing economic conditions. • Will lenders, credit agencies, and others be evaluating the city's fund balance levels? For instance, entities that receive USDA, EDA, EPA and HUD loans may be subject to more stringent debt covenants as a result of insufficient reserves and/or inadequate financial policies to address fund balance fluctuations. These covenants can potentially create ongoing compliance issues, such as annual federal single audits until the loan balance is below a specified level or additional reserve requirements for short-lived assets. Similarly, if the city is considering issuing bonds, the city's fund balance policies, or lack thereof, will be one of the factors considered by credit rating agencies to help determine interest rates and creditworthiness. Inadequate fund balances and policies could result in a reduced credit rating, thereby increasing debt issuance costs. I do not believe there is an established and quantified nationwide (or state-wide) "best practice" for a city's General Fund restricted reserve—certainly not one that fits Decatur. GFOA's recommended minimum is 60 days. Best practice, arguably, is therefore anything substantively above 60 days. I have seen local governments with restricted reserve policies (or even loose practices) resulting in 90, 180, 360-day and greater restricted (or unrestricted) reserve levels. In some cities, there may be instances where revenue and expenditure fluctuations warrant significantly higher reserve levels, e.g., where a city loses its home rule