The URL can be used to link to this page

Home My WebLink AboutCC AG PKT 2011-06-27 #D AGENDA STAFF REPORT DATE: June 27, 2011 TO: Honorable Mayor and City Council THRU: Jill R. Ingram, City Manager FROM: Robbeyn Bird, Director of Administrative Services/ City Treasurer SUBJECT: ADOPT THE FUND BALANCE POLICY FOR THE CITY OF SEAL BEACH SUMMARY OF REQUEST: Approve Resolution No. 6149 adopting the Fund Balance Policy for the City of Seal Beach per GASB Statement No. 54. BACKGROUND AND ANALYSIS: The Governmental Accounting Standards Board (GASB), the rule making body for governmental accounting, has issued Statement No. 54, Fund Balance Reporting and Govemmental Fund Type Definitions, to address issues related to how fund balance was being reported. The GASB's research revealed that the existing standards guiding fund balance reporting were being interpreted inconsistently by different governments. It also became clear that the understandability of fund balance information was affected and that financial statement users were unable to readily interpret reported fund balance information. Effective for reporting periods after June 15, 2010, GASB Statement No. 54 creates five new classifications of fund balance. Each classification depicts the relative strength of the spending constraint for which the resources can be used. From the most to the least constrained, the new classifications of fund balance are; • Non - spendable fund balance — These are amounts that will never convert to cash (such as prepaid items), amounts that will not convert to cash soon enough to affect the current period (such as assets held for resale), and amounts that are required to be maintained intact (such as the principal of an endowment fund). Agenda Item D Page 2 • Restricted fund balance — These resources can be used only for those purposes that are specified by their providers, such as grantors, bondholders, or higher levels of government. It is important to note that these resources are constrained by external parties. • Committed fund balance — Constraints upon the resources in this classification are set in place internally by the governing body itself. Commitments are made by formal action of City Council and can be lifted or changed only by the same action. • Assigned fund balance — This classification includes funds that are intended for a specific purpose. Not as binding as a commitment, intent can be expressed by City Council or by the official(s) to whom Council delegates authority. This category was traditionally reported as "designated" fund balance under the old standard. • Unassigned fund balance — This classification is available for any purpose. These resources include all amounts not included in the other four classifications. This category was traditionally reported as "undesignated" fund balance under the old standard. As part of the City's implementation of GASB 54 for Fiscal Year 2010 -11, the City is required to adopt a Fund Balance Policy. The policy explains the five components of fund balance and formally delegates to the Director of Administrative Services or the City Manager, as required by GASB Statement No. 54, the authority to assign fund balances for specific purposes for inclusion in the annual financial reports. Prior to GASB Statement No. 54, these amounts were reported by the Director of Administrative Services as Reserved, Designated, and Undesignated and did not require City Council delegation. FINANCIAL IMPACT: There is no financial impact. The amounts reported as the total fund balance in any given fund are not altered. Only the reporting of the individual components that make up total fund balance is changed. RECOMMENDATION: Approve Resolution No. 6149 adopting the Fund Balance Policy for the City of Seal Beach. SUBMITTED BY: NOTED AND APPROVED: 6,-"et R Robbe , CPA 111 R. Ingram, IT Manager Director of Administrative Services Attachments: A. Resolution No. 6149 B. Policy 300 -11 RESOLUTION NUMBER 6149 A RESOLUTION OF THE SEAL BEACH CITY COUNCIL ADOPTING A FUND BALANCE POLICY AND AUTHORIZING THE CITY MANAGER AND /OR THE ADMINISTRATIVE SERVICES DIRECTOR TO ASSIGN FUND BALANCE TO A SPECIFIC PURPOSE IN RELATION TO THIS FUND BALANCE POLICY WHEREAS, The Govemmental Accounting Standards Board (GASB) is the rule making body for govemmental accounting; and WHEREAS, GASB, seeking to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing govemmental fund type definitions, has issued its Statement No. 54, Fund Balance Reporting and Govemmental Fund Type Definitions, effective for reporting periods beginning after June 15, 2010; THE SEAL BEACH CITY COUNCIL DOES HEREBY RESOLVE: Section 1. The Fund Balance Policy attached hereto as Exhibit "A" is hereby approved by the City Council of the City of Seal Beach, Califomia; and Section 2. The City Manager and /or Administrative Services Director are each hereby authorized and empowered, for and on behalf of the City to assign fund balance to a specific purpose in accordance with and in relation to the City's Fund Balance Policy, attached hereto. PASSED, APPROVED and ADOPTED by the Seal Beach City Council at a regular meeting held on the 27th day of June , 2011 by the following vote: AYES: Council Members NOES: Council Members ABSENT: Council Members ABSTAIN: Council Members Mayor ATTEST: City Clerk STATE OF CALIFORNIA } COUNTY OF ORANGE } SS CITY OF SEAL BEACH } I, Linda Devine, City Clerk of the City of Seal Beach, do hereby certify that the foregoing resolution is the original copy of Resolution Number 6149 on file in the office of the City Clerk, passed, approved, and adopted by the City Council at a regular meeting held on the 27th day of June , 2011. City Clerk CITY OF SEAL BEACH CITY COUNCIL POLICY SUBJECT: FUND BALANCE POLICY SECTION INDEX NO. ISSUE DATE REVISION DATE COUNCIL CITY MANAGER APPROVAL APPROVAL 300 11 06/27/11 06/27/11 Res. No. 6149 1. SCOPE • All Departments. 2. PURPOSE AND INTENT The purpose of this policy is to establish a key element of the financial stability of the City by setting guidelines for fund balance. Unassigned fund balance is an important measure 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 City's fund balance also provides cash flow liquidity for the City's general operations. 3. POLICY Classification of Fund Balances A fund's equity — commonly referred to as 'fund balance' is generally the difference between its assets and its liabilities. In accordance with Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Govemmental Fund Type Definitions, fund balance will be displayed in the following classifications depicting the relative strength of the spending constraints placed on the purposes for which resources can be used: • Non - spendable fund balance — amounts that will never convert to cash (such as prepaid items), amounts that will not convert to cash soon enough to affect the current period (such as assets held for resale), or are required to be maintained intact (such as the principal of an endowment fund). • Restricted fund balance — amounts constrained to specific purposes by their providers (such as grantors, bondholders, and higher levels of government) through constitutional provisions or by enabling legislation. 1 of 3 (300 -11) • Committed fund balance — amounts constrained to specific purposes by the government itself. This requires a formal action of the government's highest level of decision - making authority. Commitments may be changed or lifted only by the government taking the same formal action that imposed the constraint originally. • Assigned fund balance — amounts intended to be used by the government for specific purposes. Intent can be expressed by the governing body or by an official or body to whom the governing body delegates 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. • 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. Since there are practical and /or legal limitations on the use of non - spendable or restricted fund balances, they are not subject to the fund balance policies. The fund balance policies are relevant to the unrestricted fund balances, which include committed, assigned and unassigned fund balances. Authorization and Action to Commit Fund Balance The City Council is the government'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 a City 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. Authorization and Action to Assign Fund Balance The City Council may assign fund balance to a specific purpose in relation to this fund balance policy. By resolution, the Council has also authorized the City Manager and /or the Administrative Services Director to assign fund balance. Assignments of fund balance by the City Manager and /or the Administrative Services Director do not require formal action by the City Council; however, each assignment must be approved by either of the authorized officials before the item can be presented in the financial statements. Minimum Unassigned Fund Balance The City will strive to maintain an unassigned fund balance of between 20% and 25% of the budgeted operational expenditures in the City's General Fund. Due to the volatile nature of a majority of its revenues, it is not deemed excessive for the City to maintain fund balance in the General Fund at levels greater than 25% of the budgeted operational expenditures. The purpose of this unassigned 2of3 (300 -11) balance is to alleviate significant unanticipated budget shortfalls and to ensure the orderly provisions of services to the City's residents. Should unassigned fund balance fall below the goal or has a deficiency, the City will seek to reduce expenditures prior to increasing revenues to replenish fund balance within a reasonable timeframe. The City will try to avoid using fund balances for recurring operational expenditures. To the extent that the unassigned fund balance exceeds the minimum target, the City may draw upon the fund balance to provide cash financing for capital projects or other one -time purchases. Should economic projections and prudent measures warrant, City Council may also approve the systematic reduction of any excess fund balance as a tactic to prevent tax increases. 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 — spending those funds first — before moving down to the next category with available funds. 3 of 3 (300 -11)