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HomeMy WebLinkAbout2011 Fund Balance PolicyCity of West University Place A Neighborhood City ELM)*) Fund Balance Policy Revised for GASB 54 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 maintenance. In the name 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. 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 spendable and non-spendable. These are broken up into five categories: 1) Non-spendable fund balance - includes amounts that are not in a spendable form or are required to be maintained intact. Examples are 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. Examples include grants and child safety fees. 3) Committed fund balance - includes amounts that can be used only for the specific purposes determined by a formal action of the City Council. Commitments may be changed or lifted only by the City Council taking the same formal action that imposed the constraint originally. 4) Assigned fund balance - comprises amounts intended to be used by the City for specific purposes. Intent can be expressed by City Council or by an official or body to which the City Council has delegated the authority. 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. 5) Unassigned fund balance - is the residual classification of the General Fund and includes all amounts not contained in other classifications. Unassigned amounts are technically available for any purpose. Policy City of West University Place Fund Balance Policy Committed Fund Balance - The City Council is the City's highest level of decision-making authority and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution approved by the Council at the City's Council meeting. The resolution must either be approved or rescinded, as applicable, prior to the last day of the fiscal year for which the commitment is made. 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 to assign fund balance to a specific purpose as approved by this fund balance policy. Minimum Unassigned Fund Balance It is the policy of the City to achieve and maintain an unassigned fund balance in the General Fund equal to 20% of estimated revenue for the current Annual Budget. All other operating fund reserves will be maintained at 10% of the estimated revenue for the current Annual Budget. Balances of less than the prescribed levels shall only be allowed with specific approval of City Council. If unassigned fund balance exceeds the target set by policy, the City may use surpluses for one-time expenditures. If unassigned fund balance falls below the target, the City will reduce recurring expenditures to eliminate any structural deficit for such period as necessary until the unassigned fund balance meets the minimum balance as required by this policy. Order of Expenditure of Funds When multiple categories of fund balance are available for expenditure (for example, a construction project is being funded partly by a grant, funds set aside by the City Council, and unassigned fund balance), the City will start with the most restricted category and spend those funds first before moving down to the next category with available funds.