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9.g) Adopt GASB 54 Fund Balance Policy Meeting Date: 2/21/2012 Agenda Item: /� /v� City Council Agenda Report City of Scandia 14727 209`h St. North Scandia, MN 55073 (651) 433-2274 Action Requested: Adopt a Fund Balance Policy and commit fund balances to specific purposes, as required to implement GASB Statement 54. Deadline/Timeline: Effective for Scandia's fiscal year ending December 31, 2011. Background: • The Governmental Accounting Standard Board (GASB) released Statement 54 "Fund Balance Reporting and Government Fund Type Definitions"which requires more structured classifications for reporting fund balances. GASB 54 does not change how the City conducts business. The changes are strictly related to how fund balance is presented in the annual financial statements. • GASB 54 applies to fund balances reported in the General Fund, 2007 Road Improvement Debt Service Fund, 2000 Fire Hall Bond Fund, Capital Improvement Fund, Park Improvement Fund, and the Equipment Replacement Fund. It does not apply to the 201 Sewer Enterprise Fund. • GASB 54 separates fund balance into five new categories. Under the old standards there were three categories:Reserved, Designated, and Undesignated. The new categories are more descriptive and focus on how the City plans to use it resources. A brief description of each new category is listed below: ➢ Non-Spendable Fund Balance includes amounts not in spendable form (e.g. prepaids, inventory, or amounts required to be maintained intact legally or contractually). ➢ Restricted Fund Balance includes amounts constrained for a specific purpose by external parties. (previously Reserved fund balances) ➢ Committed Fund Balance includes amounts constrained for a specific purpose by a government using its highest level of decision-making authority (e.g. major maintenance, capital project). (previously Designated fund balance) ➢ Assigned Fund Balance includes amounts constrained Page 1 of 2 02/16/12 for a specific purpose by a government board or by an official that has been delegated authority to assign amounts. (previously Designated fund balance) ➢ Unassigned Fund Balance is the residual classification for the general fund. (previously Unreserved) • In addition, governments are required to disclose more information in the notes to financial statements about amounts reported in fund balance as follows: ➢ Description of authority and actions that lead to committed or assigned fund balance. ➢ Government's policy regarding order in which restricted, committed, assigned, and unassigned amounts are spent. ➢ Descriptions of formally adopted minimum fund balance policies. ➢ The purpose of each major special revenue fund. ➢ Encumbrances, if significant. Recommendation: Staff recommends the Council adopted Resolution 02-21-12-04 to establish a Fund Balance Policy as required by GASB 54. The resolution also assigns January 1, 2011 fund balances in the funds not already designated by law. Attachments/ • Draft Resolution 02-21-12-04 Materials provided: Contact(s): Prepared by: Colleen Firkus, Treasurer Page 2 of 2 02/16/12 CITY OF 5CANDIA RESOLUTION NO. 02-21-12-04 A RESOLUTION ESTABLISHING FUND BALANCE POLICIES AS REQUIRED BY GASB 54 WHEREAS, the Governmental Accounting Standards Board ("GASB") has adopted Statement 54 ("GASB 54"), a new standard for governmental fund balance reporting and governmental fund type definitions that became effective in governmental fiscal years starting after June 15, 2010, and WHEREAS, the City of Scandia elects to implement GASB 54 requirements, and to apply such requirements to its financial statements beginning with the January 1, 2011 to December 31, 2011 fiscal year; and NOW, THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF THE CITY OF SCANDIA, WASHINGTON COUNTY, MINNESOTA that it hereby adopts the following policy: FUND BALANCE POLICY Fund balances measure the net financial resources available to finance expenditures of future periods. The City's fund balances will be maintained to provide the city with sufficient working capital and a margin of safety to address emergencies without borrowing. The fund balances may only be appropriated by approval of the City Council. In circumstances where 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. FURTHER, BE IT RESOLVED that the Scandia City Council assigns its January 1, 2011 fund balance as follows: • Capital Improvement Fund: The existing fund balance is assigned to various infrastructure improvement projects within the City, except those projects paid from business type activities (enterprise fund). • Park Improvement Fund: The existing fund balance is assigned to acquisition and development of city parks. � Equipment Replacement Fund: The existing fund balance is assigned to purchasing motor vehicles and heavy machinery. Resolution No.: 02-21-12-04 Page 2 of 2 AND FURTHER, BE IT RESOLVED that the Scandia City Council establishes the following fund balance goal: • General Fund: Maintain fund balance of 35% to 50% of total annual General Operating Fund expenditures. Adopted by the Scandia City Council this 21 st day of February, 2012. Randall Simonson, Mayor ATTEST: Anne Hurlburt, Administrator/Clerk