HomeMy WebLinkAbout8757RESOLUTION NO. 8757
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF REDLANDS
RESCINDING RESOLUTION NO. 7346 AND ADOPTING AN UPDATED
FUND BALANCE POLICY
WHEREAS, the City Council previously adopted Resolution No. 7346 establishing a Fund
Balance Policy to illustrate fund balance reporting and classifications as described in Governmental
Accounting Standards Board (GASB) Statement No. 54 and to support adequate reserve funding as
well as overall financial stability; and
WHEREAS, the City Council desires to update the Fund Balance Policy to clarify its
provisions and reflect current practices; and
WHEREAS, the City Council finds that adoption of an updated Fund Balance Policy supports
prudent financial management and ongoing fiscal sustainability of the City's governmental funds;
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
REDLANDS AS FOLLOWS:
Section 1. Resolution No. 7346 is hereby rescinded effective upon adoption of this
resolution.
Section 2. The City Council hereby adopts the updated Fund Balance Policy attached
hereto as Exhibit "A."
Section 3. This resolution shall take effect immediately upon adoption.
ADOPTED, SIGNED AND APPROVED this 17t1i day of March, 2026.
Mario Saucedo, Mayor
ATTEST:
e Donaldson;_, Cite Clerk
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I, Jeanne Donaldson, City Clerk of the City of Redlands, hereby certify that the foregoing resolution
was duly adopted by the City Council at a regular meeting thereof held on the 17t1' day of March,
2026, by the following vote:
AYES: Councilmembers Barich, Tejeda, Davis, Shaw; Mayor Saucedo
NOES: None
ABSENT: None
ABSTAIN: None
J e Donaldson, City Clerk
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EXHIBIT "A"
City of Redlands Fund Balance Policy
Updated March 2026
Supersedes Resolution No. 7346
Adopted by Council on March 17, 2026
1. Background
In February 2009, the Governmental Accounting Standards Board (GASB) issued Statement No. 54, Fund
Balance Reporting and Governmental Fund Type Definitions (GASB 54).
GASB 54 requires 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.
• Nonspendable fund balance (inherently nonspendable)
o This includes amounts that cannot be spent because they are not in a spendable form (like
inventories and prepaid items), or they are legally or contractually required to remain intact
(e.g., principal in a permanent fund).
• Restricted fund balance (externally enforceable limitation on use)
o Amounts constrained to specific purposes by external parties or legal requirements (e.g., debt
covenants, grant restrictions, state and/or federal law, etc.).
• Committed fund balance (self-imposed limitations on use)
o Amounts constrained to specific purposes by formal action of the City Council, which required
the highest level of internal constraint (i.e, a four -fifths vote).
• Assigned fund balance (limitation resulting from intended use)
o Amounts intended for specific purposes that do not meet the definition of restricted or
committed. Assignments reflect Council intent and are less formal than commitments.
• Unassigned fund balance (residual net resources)
o The residual balance available for general purposes in the General Fund, The General Fund is
the only fund that may report a positive unassigned fund balance; other governmental funds
may report unassigned only as a deficit.
The policy is intended to:
• Illustrate the form and structure of the City's governmental funds' fund balances in accordance with
GASB 54; and
• Assist in maintaining a sufficient level of funds to provide for a continuation of City services to the
community in the event of a local, state of federal emergency or fiscal crisis; and
• Promote disciplined, transparent fiscal decision -making
2. Policy on Committed Funds
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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 fimd balance can help ensure adequate financial resources to protect the
City against unforeseen circumstances and events such as revenue shortfalls and unanticipated
expenditures. Therefore, when the General Fund closes the fiscal year with a surplus, the City
Council may consider, as part of the year-end financial review and budget process, committing an
amount of the General Fund's excess of revenues/sources over expenditures/uses (surplus) for rainy
day needs, economic downturns, and natural and civil disasters such as earthquakes, fires, floods,
riots, and health epidemics. If in any fiscal year there is no surplus or there is a deficit, no
commitment under this section is required.
3. 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 315 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 When the General Fund closes the fiscal year with a surplus, the City Council may consider
assigning an amount of the General Fund's excess of revenues/sources over expenditures/uses
(surplus) for one or more of the following purposes:
a) Capital Equipment — large purchases over $50,000.
b) Building purchases and/or improvements.
c) Unfunded mandates —i.e. Ca1PERS and health increases.
Consideration may occur as part of the budget or year-end financial review process, or at the request of the
City Council.
4. Policy on Unassigned Funds
4.1 Operating 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
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resources that are nonspendable, restricted, committed or assigned (a residual deficit). In determining a
residual deficit, no amount should be reported as assigned.
5. General Fund Reserve Objectives & Targets
The City's General Fund reserve structure may include the components below.
5.1. Unassigned Fund Balance — (often referred to as the Operating Reserve)
The City's goal is to maintain an unassigned fund balance in the General Fund sufficient to:
• Manage cash flow timing and revenue volatility;
• Address unforeseen costs and operational disruptions; and
• Preserve credit quality and fiscal resilience.
As recommended by the Government Finance Officers' Association, the City will work to establish and
maintain an unassigned fund balance in their general fund of no less than two months (16.67%) of
regular general fund operating revenues or regular general fund operating expenditures, including
operating revenue and expenditure transfers. One-time (non -recurring) revenue and expenditures are
excluded from this reserve calculation.
The two -month reserve level represents a long-term target rather than a rigid annual requirement.
Because General Fund operations are subject to economic conditions, revenue timing, expenditure
variability, and other operational factors, the unassigned fund balance may fluctuate above or below this
target in any given fiscal year. Fund balance provides financial capacity to manage volatility and
address unplanned needs while maintaining service continuity; accordingly, when the unassigned fund
balance falls below the target, the City will evaluate appropriate strategies to restore it over a reasonable
period, consistent with fiscal conditions and adopted financial plans.
5.2. Stabilization / Emergency / Contingency Reserve (Committed Fund Balance)
To increase resilience against severe emergencies and economic disruptions, the City Council has
established a Committed Fund Balance through Ordinance No. 2660. For financial reporting purposes,
the City reports this reserve consistent with GASB 54 as comritted fund balance. The Committed Fund
Balance ("the Reserve for Contingency") policy target is equivalent to at least twelve percent (12%) of
the General Fund approved operating expenditures and operating transfers out. One-time (non-
recurring) expenditures are excluded from this reserve calculation.
5.3. Strategic / Project -Specific Reserves (Assigned Fund Balance)
For capital, facilities, technology lifecycle, compliance costs, and other one-time or non -recurring
priorities, the City Council may assign funds by vote (see Section 3.2).
The General Fund Operating Reserve (Unassigned Fund Balance) and the Reserve for Contingency
(Committed Fund Balance), and other reserves (Assigned Fund Balance) are intended to be
approximately twenty-eight (28%) of general fund operating expenditures and operating transfers out.
One-time (non -recurring) expenditures are excluded from this reserve calculation. "Reserves"
(Unassigned, Committed, and Assigned Fund Balance) for the General Fund may be funded in amounts
consistent with the targets established by this Fund Balance Policy. Additional fimding of "reserves"
may be made by the City Council in accordance with the Policy.
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6. Policy on Balanced Budget
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
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 should generally be addressed through
ongoing cost controls and/or revenue enhancements, rather than spending unassigned fund balance to support
ongoing operations.
From time to time, and as part of prudent financial management, the City Council may consider the planned
use of accumulated unassigned fund balance for non -recurring purposes that benefit the cormnunity and
strengthen long-term fiscal sustainability (e.g., one-time capital, deferred maintenance, technology lifecycle
needs, or other time -limited initiatives). Any such use should be structured to avoid creating ongoing
operating commitments and should be evaluated in the context of maintaining appropriate reserve levels and
long-term financial stability.
7. Fund Balance Classification
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.
8. Reporting & Review
If General Fund reserve balances trend below the targets established in Section 5, the City Manager will
monitor reserve levels in the context of overall fiscal conditions and will bring forward recommendations to
the City Council as appropriate. Replenishment actions, if needed, should be calibrated to restore reserve
levels over time while prioritizing operational flexibility and minimizing service impacts. In considering
corrective actions, the City will generally evaluate and implement available non -recurring and non -personnel
cost controls before relying on measures that create long-term operational impacts.
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