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5.d) Fund Balance Policy Update �c' , , � � : �� � SCANDIA Staff Renort Date of Meeting: November 20, 2012 To: City Council From: Kristina Handt, City Administrator Re: Fund Balance Policy update Agenda Item#: S.d) 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. At the November work session the Council reviewed proposed updates to the Fund Balance Policy. Issue: Should the existing Fund Balance Policy be amended to outline how fund balance above the goal of 50%is distributed? Proposal Details: There are two proposed amendments to the Fund Balance Policy: 1) 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. 2) The City Administrator would be required to report on the projected unassigned fund balance each year during the budgeting process. Fiscal Impact: 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) Approve Resolution No. 11-20-12-01 2) Amended Resolution No. 11-20-12-01 and then approve it 3) Make no changes to the current Fund Balance Policy. Recommendation: Option 1 CITY OF SCANDIA RESOLUTION NO. 11-20-12-01 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 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 infrashucture 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 R�lacement Fund: The existing fund balance is assigned to purchasing motor vehicles and heavy machinery. 1 Resolution No.: 11-20-12-01 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 RESOLVED, that if the balance of the unassigned account rises above 50% at the end of the fiscal year, the amount above 50% shall either be budgeted in the next year's annual operating budget or transferred to a capital improvement account, BE IT FURTHERR RESOLVED, that the City Administrator shall annually report the projected unassigned fund balance of the General Fund when the annual budget for the forthcoming year is presented to the City Council. Adopted by the Scandia City Council this 20th day of November, 2012. Randall Simonson, Mayor ATTEST: Kristina Handt, Administrator/Clerk