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
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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.
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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.
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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
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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.
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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
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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]
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Passed, approved and adopted on this day of , 2011.
Mayor of the City of Arcadia
ATTEST:
City Clerk
APPROVED AS TO FORM:
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Stephen P. Deitsch
City Attorney
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