HomeMy WebLinkAbout2011-06-20_cityofsanrafael_f06cde12e01758a90b2e476077397ac0Agenda Item No: 8
Meeting Date: June 20, 2011
SAN RAFAEL CITY COUNCIL AGENDA REPORT
Department: FINANCE
Prepared by: Janet Pendoley, `V
Interim Finance Director
City Manager Approval:),
SUBJECT: ADOPT THE GENERAL FUND BALANCE RESOLUTION FOR THE
GENERAL FUND IN ACCORDANCE WITH GASB 54 AND APPROVE
THE FUND BALANCE POLICY FOR THE GENERAL FUND
RECOMMENDATION: Adopt Resolution and approve Fund Balance Policy for the
General Fund.
BACKGROUND:
In February 2009, the Governmental Accounting Standards Board (GASB) issued
Statement No. 54 ("GASB 54"), Fund Balance Reporting and Governmental Fund Type
Definitions. This new standard does not change the total amount of a given fund
balance, but it substantially alters the categories and terminology used to describe the
components that make up a fund balance. The new categories and terminology reflect
an approach that focuses, not on financial resources available for appropriation within a
fund, but on the extent to which the City is bound to observe constraints imposed on the
specific purposes for which amounts in the fund can be spent. This staff report is being
presented to provide information to the City Council on the new reporting standard and
to formally take action to classify fund balance as required by the statement.
ANALYSIS:
The requirements of this statement are intended to improve financial reporting by
providing fund balance categories and classifications that will be more easily
understood. The categories are more clearly defined to make the nature and extent of
the constraints placed on a government's fund balance more transparent.
The term fund balance is defined as the difference between the assets (what is owned)
and the liabilities (what is owed) that are reported within a fund. In the past, fund
balances have been classified into three separate components:
FOR CITY CLERK ONLY
File No.:
Council Meeting:
Disposition:
SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2
• Reserved
• Designated
• Undesignated
Because there are almost always important limitations on the purpose for which all or a
portion of a fund's resources can be used, it has been deemed important to distinguish
further between the nature and relative force of these limitations. The new fund
balance components are intended to indicate more clearly the extent to which the City
is bound by internal and external constraints placed upon resources.
GASB 54 defines five new components of fund balance that replace the current three
components listed above. The five new components are:
➢ Nonspendable: Amounts that cannot be spent because they are either: (a)
not in a spendable form, such as prepaid items, inventories, or loans
receivable; or (b) legally or contractually required to be maintained in tact,
such as the principal portion of an endowment.
➢ Restricted: Amounts in which the use of the funds is constrained by: (a)
externally sources such as creditors, grantors, contributors, or laws or
regulations of other governments; or (b) imposed by law through
constitutional provisions or enabling legislation.
➢ Committed: Amounts that can be used for specific purposes pursuant to
constraints imposed by formal action of the City Council, which remain
binding unless removed in the same manner.
➢ Assigned: Amounts that are constrained by the government's intent to be
used for specific purposes, but that are neither restricted nor committed, and
which may be established by the official designated by the City Council.
➢ Unassigned: Amounts that do not fall into any of the above categories and
exist in the General Fund Balance only.
A second GASB 54 requirement is that the City Council formally delegates an official to
manage the Assigned component in the fund balance (see arrow 4 above).
DISCUSSION
The attached' Fund Balance Policy establishes the procedures for reporting the
components of fund balance in the General Fund financial statements.
Per the policy, certain commitments and assignments of the fund balance can be made
by the Council and/or their designee to ensure that unforeseen circumstances and
events can be anticipated and managed more effectively. Staff recommends that the
City Council act to formally commit the emergency and cash flow reserves identified in
the City's Audited Financial Statements as of June 30, 2010 in the amount of
SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 3
$1,439,586. This action is consistent with category three of the City's financial
management policies, which states that the City will maintain a 10% General Fund
reserve to meet future capital needs, to offset economic hard times, to stabilize
fluctuations in cash flow requirements, and to provide for emergency situations.
Although $1,439,586, a 3% reserve, falls short of the Council's goal of 10%, this
commitment action does represent a formal step toward that goal. Further, staff
recommends that the City Council designate the City Manager as their designee for
management of the Assigned component of the fund balance. The attached resolution
outlines these actions.
FISCAL IMPACT:
There is no fiscal impact.
OPTIONS:
The Council can choose to adopt the resolution and approve the Policy as presented,
or propose changes at their discretion. Acceptance of a Policy is necessary to comply
with GASB 54 requirements. Approval of this resolution and policy fulfills our legal
obligation. Council action will be reviewed as part of the annual auditing process.
ACTION REQUIRED:
Staff recommends that the Council adopt the resolution and approve fund balance
policy as presented.
ATTACHMENTS
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL
ESTABLISHING THE CLASSIFICATIONS OF FUND BALANCE IN ACCORDANCE
WITH GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 54
WHEREAS, the Governmental Accounting Standards Board has issued Statement No. 54
("GASB 54") entitled "Fund Balance Reporting and Governmental Fund Type Definitions" with the
intent of improving financial reporting by providing fund balance categories that will be more easily
understood; and
WHEREAS, GASB 54 is a new standard that became effective in governmental fiscal
years starting after June 15, 2010; and
WHEREAS, the City Council elects to implement GASB 54 requirements and to apply
such requirements to its financial statements beginning with the current fiscal year (July 1, 2010 —
June 30, 2011); and
WHEREAS, the City Council of the City of San Rafael has considered the administrative
policy entitled "Fund Balance Policy for the General Fund" which outlines the policy and
procedures enacted to accurately categorize and report fund balance in the General Fund in
compliance with GASB 54; and
WHEREAS, GASB 54 states that the City Council may commit General Fund balance for
specific purposes by taking formal action and these committed amounts cannot be used for any
other purpose unless the City Council removes or changes the specific uses through the same
formal action taken to establish the commitment; and
WHEREAS, the City Council has determined that the emergency and cash flow
commitment should be established and approved at the level of the reserves identified in the
City's Audited Financial Statements as of June 30, 2010 in the amount of $1,439,586 with the goal
of restoring and maintaining this reserve to an amount equal to 10% of annual General Fund
budgeted operating expenditures; and
WHEREAS, the City Council has determined that when an expenditure is to be made for a
purpose for which amounts are available in multiple fund balance classifications, resources will be
expended in the following order: restricted fund balance, committed fund balance, assigned fund
balance, and lastly unassigned fund balance.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of San Rafael as
follows:
Section 1. The Council hereby approves and defines the various components of fund
balance reported by the City as defined in Governmental Accounting Standards Board
Statement No. 54 effective starting with the current fiscal year (July 2010 — June 2011).
Section 2. The City Council delegates to the City Manager the authority to define and
determine the portions of those components of fund balance that are reported as
"Assigned" in the City's Audited Financial Statements.
Section 3. The City Council has determined that the specific purposes for which the
emergency and cash flow commitment may be used are to meet future capital needs, to
offset economic hard times, to stabilize fluctuations in cash flow requirements, and to
provide for emergency situations. And that these uses may only be changed by approval
of a subsequent resolution.
I, ESTHER C. BEIRNE, Clerk of the City of San Rafael, hereby certify that the foregoing
resolution was duly and regularly introduced and adopted at a regular meeting of the City Council
of said City held on Monday the 20th day of June, 2011, by the following vote, to wit:
AYES: COUNCILMEMBERS:
NOES: COUNCILMEMBERS:
ABSENT: COUNCILMEMBERS:
ESTHER C. BEIRNE, City Clerk
Exhibit A
City of San Rafael
Fund Balance Policy for the General Fund
APPROVED June 20, 2011
PURPOSE
The purpose of the Fund Balance Policy is to establish the procedures for reporting
components of fund balance in the General Fund financial statements. Delineation of
components will help to ensure that there will be adequate financial resources to protect the
City against unforeseen circumstances and events such as revenue shortfalls and
unanticipated expenditures. This policy also authorizes and directs the City Manager to
determine and define the amounts of those components of fund balance that are classified
as "Assigned." Use of these funds will continue to require the approval of the City Council.
PROCEDURES
Fund balance is defined as the difference between the assets and liabilities reported in a
governmental fund. Under Governmental Accounting Standards Board Statement 54 there
are five separate components of fund balance, each of which identifies the extent to which
the City is bound to honor constraints on the specific purposes for which amounts can be
spent.
CLASSIFICATIONS OF FUND BALANCE
The following classifications shall be used for presentation of General Fund balance in City
financial statements:
➢ Nonspendable: That portion of the fund balance that cannot be spent because
it is either: (a) literally not in a spendable form, such as prepaid items,
inventories, or loans receivable; or (b) legally or contractually required to be
maintained in tact, such as the principal portion of an endowment. This
classification is used for non-cash assets.
➢ Restricted: That portion of the fund balance in which the use of the funds is
constrained by: (a) external sources such as creditors, grantors, contributors, or
laws or regulations of other governments; or (b) imposed by law through
constitutional provisions or enabling legislation. This classification is used for
funds that are constrained by legal requirements not under City control.
Page 1
City of San Rafael
Fund Balance Policy
June 6, 2011
➢ Committed: That portion of the fund balance that is reserved for specific
purposes pursuant to constraints imposed by formal action of the City Council,
and which remains binding unless removed in the same manner. This
classification is used when the City Council elects to formally set aside funds via
resolution for a specified purpose, such as the emergency and cash flow
reserve. Any future change to such a reserve must also be formally enacted by
the City Council.
➢ Assigned: That portion of the fund balance that is constrained by the City's
intent to be used for specific purposes, but that are neither restricted nor
committed, and which may be established by the City Manager as designated by
the City Council. This classification is used for specific reserves deemed prudent
by the City, such as liability and workers comp in which experience, actuarial
data and the status of ongoing claims provide reasonable estimates for future
payments.
➢ Unassigned: Amounts that do not fall into any of the above categories and exist
in the General Fund Balance only.
EXPENDITURES INVOLVING MULTIPLE CLASSIFICATIONS
When an expenditure is to be made for a purpose for which amounts are available in
multiple fund balance classifications, the order in which resources will be expended is as
follows: restricted fund balance, followed by committed fund balance, assigned fund
balance, and lastly unassigned fund balance. Reduction to committed fund balance due to
expenditure must have prior authorization by City Council ordinance or resolution.
CLASSIFICATIONS FOR OTHER FUND BALANCES
These components may also be used to classify fund balance in other funds such as
special revenue fund types, debt service fund types, and capital projects fund types. These
classifications are not appropriately used in internal service or enterprise fund types.
ONGOING MONITORING
The City Council shall review fund balance components annually to classify new sources of
revenue, to consider the management of assigned fund balances, and to act as needed to
update committed balances via ordinance or resolution.
Page 2
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