Item 4HCITY OF
0 5UU 1 HLAKE
MEMORANDUM
August 31, 2011
TO: Shana Yelverton, City Manager
FROM: Sharen Jackson, Director of Finance
SUBJECT: Approval of Fund Balance Policy Amendment
Action Requested: Approval of amendment to the fund balance policy.
Background
Information: The Governmental Accounting Standards Board ( "GASB ")
has adopted Statement 54, a new standard for governmental
fund balance reporting and governmental fund type
definitions that became effective in governmental fiscal year
beginning after June 15, 2010. The purpose of the new
statement is to improve financial reporting by providing fund
balance categories and classifications that will be more
easily understood.
The new categories are:
• The restricted fund balance category includes
amounts that can be spent only for the specific
purposes stipulated by constitution, external
resource providers, or through enabling legislation.
• The committed fund balance classification includes
amounts that can be used only for the specific
purposes determined by a formal action of the
government's highest level of decision - making
authority. Resolution scheduled for September
20 if amended policy approved on September 6 th
• Amounts in the assigned fund balance
classification are intended to be used by the
government for specific purposes but do not meet
the criteria to be classified as restricted or
committed.
• Unassigned fund balance is the residual
classification for the government's general fund
and includes all spendable amounts not contained
in the other classifications.
Financial
Considerations: None. The proposed amendment will only change the
reporting presentation of fund balance.
Strategic Link: F1 Adhere to financial management principles and budget
F3 Achieve fiscal wellness standards
Citizen Input/
Board Review: None required
Legal Review: None required
Alternatives: In the absence of approving the proposed amendment,
several of the special revenue funds will be presented with
the General fund as unassigned fund balance.
Supporting
Documents: Fund Balance Policy
Staff
Recommendation: Approval of amended Fund Balance Policy
CITY OF
SOUTH LADE
Fund Balance Policy
Purpose
The purpose of this policy is to establish a key element of the financial stability of the City by
setting guidelines for fund balance. Unassigned fund balance is an important measure of
economic stability. It is essential that the City maintain adequate levels of unassigned fund
balance to mitigate financial risk that can occur from unforeseen revenue fluctuations,
unanticipated expenditures, and similar circumstances. The fund balance also provides cash flow
liquidity for the City's general operations.
This policy is aligned with the strategic focus area "Performance Management and Service
Delivery" and stated strategic objectives of "Achieve fiscal wellness standards" and "Adhere to
financial management principles and budget."
Definitions
Fund Equity- A fund's equity is generally the difference between its assets and its
liabilities.
Fund Balance- An accounting distinction is made between the portions of fund equity
that are spendable and nonspendable. These are broken up into five categories:
I. Nonspendable fund balance- includes amounts that are not in a spendable
form or are required to be maintained intact (example - inventory or
permanent funds).
2. Restricted fund balance- includes amounts that can be spent only for the
specific purposes stipulated by external resource providers either
constitutionally or through enabling legislation (example -court technology
and court security funds).
3. Committed fund balance- includes amounts that can be used only for the
specific purposes determined by City Council. Commitments may be
changed or lifted by City Council (example- reforestation and park
dedication).
4. Assigned fund balance- comprises amounts intended to be used by the City
for specific purposes. Intent can be expressed by the City Council or their
designee. In governmental funds other than the general fund, assigned fund
balance represents the amount that is not restricted or committed. This
indicates that resources in other governmental funds are, at a minimum,
intended to be used for the purpose of that fund (example - Facility
Maintenance and Strategic Initiative Fund).
5. Unassigned fund balance- is the residual classification of the general fund
and includes all amounts not contained in other classifications
Fund Balance Policy - Proposed to City Council September 6, 2011 - Page I of 2
Policy
Committed Fund Balance- The City Council is the City's highest level of decision - making
authority and approval by resolution is required to establish, modify, or rescind a fund balance
commitment. The resolution must either be approved or rescinded, as applicable, prior to the last
day of the fiscal year. The amount subject to the constraint may be determined in the subsequent
period.
Assigned Fund Balance - The City Council has authorized the City's Finance Director as the
official authorized to assign fund balance to a specific purpose as approved by this fund balance
policy.
Unassigned Fund Balance- It is the goal of the City to maintain a fund balance in the General
Fund, equal to a minimum of 15% of General Fund budgeted operating expenditures, with the
optimum goal of 25 %. The City considers a balance of less than 15% to be cause for concern,
barring unusual or deliberate circumstances.
It is the goal of the City to maintain 60 days of working capital in the Utility Fund, an Enterprise
Fund, with the optimum goal of 90 days of working capital.
The City shall also maintain Reserve funds for all statutorily required reserve funds to guarantee
debt service.
Order of Expenditure of Funds - When multiple categories of fund balance are available for
expenditures, the City will start with the most restricted category and spend those funds first
before moving to the next category with available funds (restricted, committed, assigned and
unassigned).
Fund Balance Policy - Proposed to City Council September 6, 2011 - Page 2 of 2