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HomeMy WebLinkAboutItem 2h: Resolution 6773: Classifying Components of Fund Balance as Defined by Government Accounting Standard Board Statement No. 54 ii ■■• m ikla wn liS • JI1 \`� \' tr " °`` T " s9' °6 REPORT STAFF Administrative Services Department DATE: June 7, 2011 TO: Mayor and City Council FROM: Hue Quach, Administrative Services Director Shannon Huang, Financial Services Manager/Treasurer 17v SUBJECT: RESOLUTION NO. 6773 CLASSIFYING THE VARIOUS COMPONENTS OF FUND BALANCE AS DEFINED IN GOVERNMENT ACCOUNTING STANDARD BOARD STATEMENT NO. 54. Recommendation: Approve SUMMARY The Governmental Accounting Standards Board has issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This new standard does not change the amount of any given fund balance. It substantially alters the categories and terminology reflecting an approach that focuses, not on financial resources available for appropriation with a fund but on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. These new classifications are applicable to Governmental funds but not to Enterprise funds such as Water and Sewer. The definitions are required to be used on external formal financial reporting documents, such as the Comprehensive Annual Financial Report (CAFR), starting with the fiscal year 2010 -11. This staff report is being presented to the City Council to provide information on the new reporting standard and to formally adopt the City's definition of reporting fund balances for Governmental funds. 1 DISCUSSION The term fund balance is used to describe the difference between assets (what is owned) and liabilities (what is owed) reported within a fund. In the past, fund balances have been classified into three separate components: Reserved, Designated, and Undesignated. There are always important restrictions on the purpose for which all or a portion of the fund can be used. The force of these limitations can vary significantly, depending on their source. The various components of the new fund balance reporting standard are designed to indicate the extent to which the City is bound by these limitations placed upon it. GASB Statement No. 54 defines five new components of fund balance that will replace the current existing three. The five new components are: Nonspendable Fund Balance. That portion of a fund balance that includes amounts that cannot be spent because they are either (a) not in a spendable form, such as prepaid items, inventories of supplies, or loans receivable; or (b) legally or contractually required to be maintained intact. However, if the use of the proceeds from the collection of those receivable or from the sale of those properties is restricted, committed, or assigned, then they should be included in the appropriate fund balance classification. Nonspendable fund balance includes the following: • Inventories: The portion of fund balance that represents the asset amount of supply inventories. • Prepaid Expense: The portion of fund balance that represents the asset amount of prepaid expenditures. • Notes Receivable: The portion of fund balance that represents the asset amount of notes receivable, held by a given fund. • Advances To Other Funds: The portion of fund balance that represents the asset amount of cash advanced to other funds. • Loans Receivable: The portion of fund balance that represents the asset amount of loans receivable. • Land Held For Resale: Investment in lands held for redevelopment purposes. • Fixed Assets: the amount invested in land, equipment, and property that is required for normal operation and cannot be easily converted to cash. 2 Restricted Fund Balance. That portion of a fund balance that reflects constraints placed on the use of resources (other than nonspendable items) that are either (a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or (b) imposed by law through constitutional provisions or enabling legislation. The City has the following restricted fund balances: • Cash reserve and project funds from bond issuance, the usage of those funds are stipulated by the bond documents. • Special Revenue fund balances: the usage of the fund balances in the following special revenue funds and their revenue sources are restricted either by the grantors or by regulation; ✓ Gas Taxes ✓ Narcotics Seizure funds ✓ COPS(SLESF) allocation ✓ Dwelling unit fees ✓ Solid Waste Assessment AB939 ✓ AQMD funding ✓ CDBG grant ✓ PropA &C ✓ Transportation Impact fees ✓ Measure R ✓ Lighting District Assessment ✓ Parking District Assessment ✓ Homeland Security grant ✓ Santa Anita Grade Separation fund ✓ TDA Article 3 Bikeway fund ✓ STPL & ITS grants ✓ Library State Grants ✓ Tax levy for General Obligation Bond debt services ✓ Redevelopment funds Committed Fund Balance. That portion of a fund balance that can only be used for specific purposes pursuant to constraints imposed by formal action of the City Council as the City's highest level of decision making authority, and remain binding unless removed in the same manner. The City does not currently have any fund balances meeting this definition. The City Council has assigned funds for specific purposes through the annual budgeting process, but no specific council action has been taken to formally designate any fund balances. The Council may adopt a resolution to formally 3 commit any of those funds listed in the Assigned Fund Balance below to their specific purposes. Assigned Fund Balance. The portion of fund balance that are constrained by the government's intent to be used for specific purposes, but that are neither restricted nor committed are included in this category of fund balance. The Council may establish such intent or delegate that responsibility to a staff. The following fund balances meet the definition: • Capital Improvement fund balance: The parimutual revenue from Santa Anita Race Track have traditionally been assigned for capital improvement projects through the annual budget adoption process. • Equipment Replacement fund balance: The Council authorizes transfers of funds to this fund and budgets it for equipment replacement purpose. The fund balance is assigned to equipment purchases. • Worker Compensation /Liability Insurance fund, amounts reserved for the City's self- insured Worker compensation and Liability insurance. The city maintains a reserve balance for this self- insured program. • Emergency Reserve fund: The fund was set aside as reserve for emergency purpose and for balancing operating shortfall. The use of the fund has not been formally authorized. • Misc. PERS fund: The fund was accumulated from the years that employer's PERS contribution was not required and is intended to be used for future PERS rate increases and to balance budget deficits. Like the Emergency Reserve fund, the specific usage of the fund has not been designated. • Medical /Dental fund balance: funds reserved for employee medical and dental expenditure. The fund is considered as a transition fund for transactions related to employee medical and dental insurances. • Carry-over budget to next fiscal year, balances for encumbered operating expenses and monies reserved for un- completed capital and equipment projects. Unassigned Fund Balance. The fund balance that do not fall into any one of the above four categories. General Fund is the only fund that should report this category of fund balance unless there are negative fund balances for other funds. All the revenue resources for general fund are available for the city's general operation, they can generally be considered as unassigned fund balance. 4 FISCAL IMPACT There is no direct fiscal impact of implementing GASB Statement No 54. 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 are changed RECOMMENDATION Adopt Resolution No. 6773 classifying the various components of fund balance as defined in Government Accounting Standard Board Statements No. 54. APPROVED: Donald Penman, City Manager 5 RESOLUTION NO. 6773 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ARCADIA, CALIFORNIA, CLASSIFYING THE VARIOUS COMPONENTS OF FUND BALANCE AS DEFINED IN GOVERNMENT ACCOUNTING STANDARDS BOARD STATEMENT NO. 54. WHEREAS, the Governmental Accounting Standards Board has issued Statement No. 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, the City Council of the City of Arcadia desires and intends to comply with Statement No. 54. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF ARCADIA, CALIFORNIA, DOES HEREBY FIND, DETERMINE AND RESOLVE AS FOLLOWS: SECTION 1. The City Council hereby approves the changes set forth in Governmental Accounting Standards Board Statement No. 54 for the City's financial reporting, effective starting with the City's 2010 -11 fiscal year. SECTION 2. This Resolution shall take effect upon its adoption and the City Clerk shall certify to the adoption of this Resolution. [SIGNATURES ON THE NEXT PAGE] 1 Passed, approved and adopted on this day of , 2011. Mayor of the City of Arcadia ATTEST: City Clerk APPROVED AS TO FORM: l Stephen P. Deitsch City Attorney 2 4