5.b) Update Fund Balance Policy ,
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SCANDIA
Staff Revort
Date of Meeting: November 13, 2012
To: City Council
From: Kristina Handt, City Administrator
Re: Fund Balance Policy update
Agenda Item#: S.b)
Background:
At the February 21, 2012 regular meeting, the Council adopted a Fund Balance Policy to be
compliant with GASB 54: "Fund Balance Reporting and Government Fund Type Definitions."
GASB 54 separates fund balance into five categories: non-spendable, restricted, committed,
assigned and unassigned. The policy passed by the Council also established a goal for the
General Fund to maintain a fund balance equal to 35-50%of General Fund Expenditures. At the
end of 2011 the unassigned general fund balance was equal to 51%of general fund expenditures.
At the October work session, the Fire Department asked about using some of their unused budget
in 2012 to apply towards the purchase of a fire engine in 2013. Past practice has been that
unspent funds are added to the fund balance at the end of each year, unless specific action is
taken by the Council to commit those funds for some other purpose. I suggested at the meeting
that the Council develop a policy for how to handle unspent funds so we could be consistent in
dealing with these types of requests for all departments.
Issue:
Should the existing Fund Balance Policy be amended to include a contingency and outline how
fund balance above the goal of 50%is distributed?
Proposal Details:
There are three proposed amendments to the Fund Balance Policy:
1) Each year the Council would include a contingency reserve in the General Fund
Expenditures to be used for unforeseen expenses/emergencies. The reserve would be
equal to 1%of General Fund Revenues. For example, if this policy was required for the
2013 budget, a contingency of$21,839 would be included in the General Fund
Expenditures. The purpose for including a policy like this is to safeguard against
emergency expenses that would otherwise result in lowering the fund balance below the
stated goal.
2) If the balance of the unassigned fund balance goes above the 50% goal at the end of the
year, this policy establishes two options for how the funds could be spent. Either applied
to the following year's budget or transferred to a capital improvement account. If there is
a balance projected above 50%, the Council would decide during the budgeting process
how those funds would be allocated.
3) The City Administrator would be required to report on the projected unassigned fund
balance each year during the budgeting process.
Fiscal Impact:
Requiring a contingency fund as part of the general fund expenditures would create a new
expense line that hasn't previously been included in the budget. It would be added to the Admin
Dept but the budget could be amended if an emergency expense occurred in a different
department.
The exact fiscal impact of allocating excess fund balance will be determined at the time the
Council decides how to allocate it. However,this would provide a tool and a guideline to help in
determining how to dispense with excess funds.
Options:
1) Direct staff to prepare the proposed resolution for the Nov. 20`h regular council meeting
and to place it on the consent agenda.
2) Amended the proposed resolution and direct staff to prepare it for the Nov 20`"regular
council meeting.
3) Make no changes to the current Fund Balance Policy.
Recommendation:
Option 1
CITY OF SCANDIA
RESOLUTION NO. XXX
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 l, 2011 to
December 31, 2011 fiscal year; and
WHEREAS, the City Council of the City of Scandia adopted the following Fund
Balance Policy on February 21, 2012:
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.: xxxx
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.
NOW, THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL
OF THE CITY OF SCANDIA, WASHINGTON COUNTY, MINNESOTA that it hereby
adopts the following amendments to the Fund Balance Policy:
BE IT FURTHER RESOVLED, that within the General Fund Expenditures a contin�encv
reserve will be set aside for unforeseen circumstances/emergencies and said reserve will be
maintained at a minimum of 1% of General Fund Revenues,
BE IT FURTHER RESOLVED, that if the balance of the unassi�ned account rises above 50%
at the end of the fiscal year the amount above 50% shall either be budgeted in the next e�
annual operatin�get or transferred to a capital improvement account,
BE IT FURTHERR RESOLVED, that the Citv Administrator shall annuallv renort the
projected unassigned fund balance of the General Fund when the annual bud�et for the
forthcomin� ey ar is presented to the City Council.
Adopted by the Scandia City Council this_th day of_, 2012.
Randall Simonson, Mayor
ATTEST:
Kristina Handt, Administrator/Clerk