Oak Harbor leaders changed a policy created during a time of political agitation in the city which resulted in the squirreling away of a sizable portion of the budget.

The action approved Tuesday night will change the amount of funds in one of the city’s reserve accounts and free up more than $2 million in the general fund in the process.

Currently, about 38 percent of the city’s general fund budget sits in different reserve funds, Finance Director Patricia Soule told the council during a workshop last week.

“I understand we need funds to save for a rainy day,” she said, “but do we need almost 40 percent to be saved for a rainy day and is that reasonable? I don’t know.”

Soule asked the council to consider changing the parameters on the city’s “general fund stability fund.”

The policy states that the fund should equal 25 percent of the prior year’s revenue or $3 million, which ever is greater.

It can only be used for emergencies or cases of exigent circumstances.

The fund currently consists of about $3 million, but that’s after a portion was spent earlier this year.

The council set up the fund in 2012 after council members became alarmed when Scott Dudley, the former mayor, fired a series of department heads, which resulted in severance payouts of well over $500,000.

In addition to that, a downturn in sales taxes and other revenue impacts compelled council to take action to protect the budget.

The city also has several other reserve funds, Soule explained.

The city maintains an unencumbered beginning fund balance for each city fund, which is held outside the budget, of 16.67 percent.

Soule said the result of large reserves is that the city’s budget is artificially tight to some extent, which has resulted in maintenance shortcomings.

In April, the city council authorized the use of about $700,000 of the stabilization fund for Windjammer Park reconstruction and work on the sewage treatment plant.

The resolution cited an exigent circumstance, which was identified as the ability to accept a bid for the work on the park and plant.

The policy for the stabilization fund doesn’t explain how it can be paid back if used, which means any money spent would have to be repaid in the same year, Soule said.

Soule researched professional recommendations about municipal reserves and found that maintaining a reserve that would carry the city through two months is considered ideal.

The city currently has about five months worth of reserves.

Soule recommended reducing the stability fund to between 8.5 and 10 percent of the general fund.

The council members present at the workshop said they preferred a more conservative approach of keeping 10 percent, or about $1.5 million, in the stability fund.

Tuesday, the council approved changing the stability fund to 10 percent.

The council will consider what to do with the freed-up funds next year.