Loading...
HomeMy WebLinkAbout7346_CCv0001.pdf RESOLUTION NO. 7346 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF REDLANDS ESTABLISHING A FUND BALANCE POLICY WHEREAS, as Dart of City staff s continuing effort to enhance the fiscal and operational practices of the City, a Fund Balance Policy has been developed and submitted to the City Council for review; and WHEREAS, the purpose for establishing a Fund Balance Policy is to form and illustrate the structure of the City's governmental funds' fund balances in accordance with the Governmental Accounting Standards Board (GASB) Statement No. 54; to maintain a sufficient level of funds to provide for a continuation of City services to the community in the event of a natural disaster, downturns in the economy, the loss of economic resources to the City or any other fiscal emergency; and to adopt a balanced budget on an annul basis; NOW,THEREFORE, BE IT RESOLVED by the City Council of the City of Redlands as follows: Section 1. The City Council hereby adopts the Fund Balance Policy attached hereto as Exhibit"A." ADOPTED, SIGNED AND APPROVED this 19th day of November,2013. Pete Aguifi(r, Mayor ATTEST: Sam lrwin�, ify)Clerk I L\cclerk\Reso1utions\Res 7300-73991,7346 Adoption of Fund Balance Policy,doc I, Sam Irwin,City Clerk of the City of Redlands,hereby certify that the foregoing resolution was adopted by the City Council at a regular meeting thereof held on the 19th day of November, 2013,by the following vote: AYES: Councilmembers Harrison, Foster, Gardner, Gilbreath; Mayor Aguilar NOES: None ABSTAIN: None ABSENT: None Sam Irwin, City Clerk Exhibit 4£AIr City of Redlands POLICY& PROCEDURES Subject. Sand Balance Policy Department: Finance Policy No, F-002-2013 Effective dates Ordinance/Resolution No. 7346 Approval Date: BACKGROUND Fund balance is essentially the difference between the assets and liabilities reported in a governmental fund. In February 2009, the Governmental Accounting Standards Beard (GASB) issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions (GASB-54), One objective of this standard was to improve, including the understandability, the usefulness of fund balance information by providing clear fund balance classifications. GASB- 54 abandons the reserved, unreserved, and designated classifications of fund balance in governmental funds and replaced them with five classifications: • Nonspendable fund balance (inherently nonspendable) • Restricted fundbalance (externally enforceable limitation on use) • Committed fund balance (self-imposed limitations on use) • Assigned fund balance (limitation resulting from intended use) • unassigned fund balance (residual net resources) GASB-54 rewires local governments to focus on the constraints imposed upon resources when reporting fund balance in governmental funds. The fund balance classifications indicate the level of constraints placed upon how resources can be spent and identify the sources of those constraints. The following five classifications serve to inform readers of the financial statements of the extent to which the City of Redlands (City) is bound to honor constraints on the specific purposes for which resources in a fund can be spent. FUND BALANCE CLASSIFICATIONS Nonspendable, The nonspendable fund balance classification includes amounts that cannot be spent because they are either: (a) Net in spendable form, this includes items that are not expected to be converted to cash, for example, inventories and prepaid amounts. It also includes the long-term amount of loans and notes receivable, as well as property acquired for resale. However, if the use of the proceeds from the collection of those receivables or from the sale of those properties is restricted, committed, or assigned, thea they should be included in the appropriate fund balance classification (restricted, committed, or assigned), rather than nonspendable fund balance; or l:\ccletkxReso1utions\Res 7300-7399\7346 Adoption of Fund Balance Policy,doc (b) Legally or contractually required to be maintained intact, the principal of Permanent Fund is an example of an amount that is legally or contractually required to be intact. The amount that should be reported as nonspendable fund balance should be determined before classifying amounts in the restricted, committed, and assigned fund balance classifications. Restricted: Fund balance should be reported as restricted when constraints placed on the use of resources are either: (a) Externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or (b) Imposed by law through constitutional provisions or enabling legislation. Committed: Amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government's highest level of decision-making authority should be reported as committed fund balance. Those committed amounts cannot be used for any other purpose unless the government removes or changes the specified use by taking the same type of action (for example, legislation, resolution, ordinance) it employed to previously commit those amounts. Assigned: Amounts that are constrained by the government's intent to be used for specific purposes, but are neither restricted nor committed, should be reported as assigned fund balance. Intent should be expressed by (a) the governing body itself or (b) a body (a budget or finance committee, for example) or official to which the governing body has delegated the authority to assign amounts to be used for specific purposes. Unassigned: Unassigned fund balance is the residual classification for the general fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund. FUND BALANCE POLICY Policy on Committed Funds: 2.1 It is the policy of the City that fund balance amounts be reported as "Committed Fund Balance" only after formal action and approval by at least 4/5 votes of City Council. The action to constrain amounts in such a manner must occur prior to year end; however, the actual dollar amount may be determined in the subsequent period. 2.2 After approval by the City Council, the amount reported as Committed Fund Balance cannot be reversed without utilizing the same process required to commit the funds. Therefore, it is the policy of the City that funds can only be removed from the Committed Fund Balance category after 4/5 votes by City Council. 2.3 Certain commitments of fund balance will help ensure that there will be adequate financial resources to protect the City against unforeseen circumstances and events such as revenue shortfalls and unanticipated expenditures. Therefore, it is the policy of the City to commit a minimum of 15% of the sum of the General Fund's excess of revenues over expenditures (surplus) each fiscal year for rainy day fund, economic downturns, and natural and civil disasters such as earthquakes, fires, floods, rots, and health epidemics. If in any fiscal year there is no excess of revenues over expenditures or there was a deficit, no funds need to be committed for that category. 2.4 City Finance Department should post as Committed Fund Balance the amount calculated based on the percentage indicated in 2.3 above for rainy day fund, economic downturns, and natural and civil disasters such as earthquakes, fires, floods, rots, and health epidemics at the end of each fiscal year (if surplus exist). However, spending these funds requires 4/5 votes by City Council. Policy on Assigned Funds: 3.1 GASB-54 states that resources can be assigned by the governing body or by another internal body or person whom the governing body gives the authority to do so, such as a committee or employee of the City. Therefore, having considered the requirements to assign fund balance, it is the policy of the City that 3/5 votes by City Council will have the authority to assign fund balance of this organization. 3.2 After approval by the City Council, the amount reported as Assigned Fund Balance cannot be reversed without utilizing the same process required to assign the funds. Therefore, it is the policy of the City that funds can only be removed from the Assigned Fund Balance category after 3/5 votes by City Council. 3.3 It is the policy of the City to assign a minimum of 45% of the sum of the General Fund's excess of revenues over expenditures (surplus)each fiscal year for: a) Capital Equipment—large purchases over$50,000. (15%) b) Building purchases and/or improvements. (15%) c) Unfunded mandates—i.e. CaIPERS and health increases. (15%) If in any fiscal year there is no excess of revenues over expenditures or there is deficit, no funds need to be assigned for any of the above three categories. 3.4 City Finance Department should post as Assigned Fund Balance the amount calculated based on the percentages indicated in 3.3 above for the three categories indicated at the end of each fiscal year (if surplus exist). However, spending these funds requires 3/5 votes by City Council. Policy on Unassigned Funds: 4.1 The general fund is the only fund that would report a positive amount in the unassigned fund balance. In other governmental funds, unassigned fund balance is the amount expended in excess of resources that are nonspendable, restricted, committed or assigned (a residual deficit). In determining a residual deficit, no amount should be reported as assigned. Policy on Balanced Budget 5.1 It shall be the fiscal policy of the City Council to adopt a balanced budget on an annual basis. A balanced budget in a single fiscal year is defined as a condition wherein total current financial sources meet or exceed the total current financial requirements of the City, excluding one-time capital expenditures. This "pay as you go" approach suggests that any increase in financial requirements, decrease in financial sources, or a combination of the two, that would create a budget imbalance may result in cost cutting and/or revenue enhancements, rather than spending unassigned funds to support ongoing operations. Cost cutting measures may include reductions in capital expenditures, reductions in staffing levels, salaries and benefits through the negotiation process, or reductions in expenditures for equipment, supplies and services. Expenditure reductions may result in reduced service levels to the community. Policy on Fund Balance Classification 6.1 It is the policy of the City to consider restricted fund balances to have been spent first when expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available. Similarly, when expenditure is incurred for purposes for which amounts in any of the unrestricted classifications of fund balance could be used, the City considers committed amounts to be reduced first, followed by assigned amounts and then unassigned amounts.