RESOLUTION NO. 2024-38
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CORONADO, CALIFORNIA, APPROVING THE POLICY ON
FUND BALANCE AND THE SIZE AND USE OF COMMITTED
FUND BALANCE
WHEREAS, it is essential that governments maintain adequate levels of Fund Balance to mitigate current and future risk, to ensure stability, and in support of long-term financial planning; and WHEREAS, the Government Finance Officers Association recommends that governments establish a formal policy on the level of Committed Fund Balance which should be maintained in the General Fund; and
WHEREAS, on June 4, 2024, the City Council reviewed, updated, and approved its policy on the size and use of committed fund balance and the calculation of the minimum General Fund and other funds committed requirements.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Coronado as follows:
1. That the above recitations are true.
2. BE IT FURTHER RESOLVED by the City Council of the City of Coronado to review and adopt the policy attached hereto as Exhibit A establishing Fund Balance committed requirements for the General Fund, and other operating funds.
PASSED, ADOPTED, AND APPROVED by the City Council of the City of Coronado, California, at a regular meeting thereof this fourth day of June, 2024 by the following vote to wit:
AYES:
NAYS:
ABSTAIN:
ABSENT:
APPROVED:
____________________________________
RICHARD BAILEY, Mayor of the
City of Coronado, California
ATTEST:
__________________________________
KELSEA HOLIAN, City Clerk of the
City of Coronado, California
Attachment 3
CITY COUNCIL POLICY ON FUND BALANCE AND
THE SIZE AND USE OF COMMITTED FUND BALANCE
Adopted June 4, 2024
PURPOSE: A dictate of sound financial management practices is the maintenance of appropriate amounts of Fund Balance as committed to protect the City against unforeseen events such as a natural or man-made disaster, revenue shortfalls, or unanticipated expenditures. Fund Balance may also be committed for future capital projects, historic preservation, and for obligations accruing on a current basis which will be paid in the future, such as facility and equipment replacements. This policy statement articulates the Fund Balance policy and minimum committed fund balance requirements that should be maintained in the General Fund.
This policy and practice also establishes the procedure for reporting assigned and unassigned Fund Balance in the General Fund financial statements and provides authorization to the Director of Administrative Services to prepare financial reports, which accurately categorize Fund Balance as per Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions.
PROCEDURES: In governmental funds, there are five separate components of Fund Balance, each of which identifies the extent to which the City is bound to honor constraints on the specific purpose for which amounts can be spent.
CLASSIFICATIONS NATURE OF RESTRICTION
Non-spendable Cannot be readily converted to cash
Restricted Externally imposed restrictions
Committed City Council imposed commitment
Assigned City Manager assigned purpose/intent
Unassigned Residual balance not otherwise restricted
The first two components listed above are not addressed in this policy due to the nature of their restrictions. Examples of Non-spendable fund balance are as follows: 1) amounts paid in advance (prepaid items) of the period of time for which services will be consumed; 2) loans/ receivables.
Restricted Fund Balance is either imposed by law or constrained by grantors, contributors, laws or regulations of other governments.
This policy is focused on the financial reporting of the Committed, Assigned and Unassigned components listed above.
Attachment 3 Exhibit A
General Fund Committed Fund Balance
In order to mitigate current and future risks, at a minimum, there shall be a commitment of a portion of Fund Balance in the General Fund (Fund 100) which is held for the purpose of responding to locally proclaimed emergencies, such as natural or man-made disasters, and for revenue fluctuations caused by economic downturn.
For the year ending June 30, 2025, the City will commit an amount equal to fifty percent (six months) of the FY 2024-25 adopted operating expenditures budget for the General Fund. This amount is intended to provide for Emergency Response and/or Economic Stabilization. Such unforeseen events may be caused by economic downturns, or man-made and natural disasters.
This committed fund balance may be utilized only in the event of a locally proclaimed emergency as specified in Coronado Municipal Code Chapter 2.50. Within 60 days subsequent to the expenditure of funds committed for the purposes established in Coronado Municipal Code Chapter 2.50, the City Manager shall be required to bring an appropriation resolution before the City Council to affirm the use of amounts expended from the General Fund for emergency purposes. In addition, the unassigned portion of Fund Balance may be expended if there is a finding made of an unforeseen loss of revenue of at least 5% of budgeted transient occupancy tax, current property tax revenue, or the need for an unanticipated expenditure(s) of at least 5% of the current year adopted expenditures budget.
In addition to the amount of fund balance committed for emergency, for the year ending June 30, 2025, the City will commit $4,000,000 for future Capital Improvement Projects and $500,000 for future property tax reductions which have resulted from Mills Act property tax reduction agreements. The committed fund balance for capital improvements projects may only be reduced or increased by City Council action taken as part of the adoption or adjustment of the City’s annual budget.
The committed fund balance for historic preservation may be reduced or increased by City Council action taken as part of the adoption or adjustment of the City’s annual budget or reduced without further City Council action for the following reasons:
1) In the event of a proclaimed local emergency.
2) If there is an unforeseen loss of 5% or more in total General Fund actual revenues in comparison with the budgeted revenues for any subsequent year to FY 2022-23. 3) If the actual amount of Current Property Tax Revenues, in any subsequent year to FY 2022-23, is less than the highest amount of Current Property Tax Revenues over the previous ten-year period.
If an approved use of Committed or Unassigned Fund Balance results in the amount declining below the amount prescribed above, the City Manager will submit for approval, during the budget process of the subsequent year, a plan for restoring Committed Fund Balance to the defined minimum level as prescribed above.
Attachment 3 Exhibit A
Cash Flow
The City shall maintain a positive cash position in each fund at year end. Any funds that have a negative cash balance at the end of a fiscal year will be brought to a balance of zero through transfer or as a due from/to from the General Fund.
Assigned Fund Balance
The City’s financial system maintains 14 sub-funds of the General Fund. Although the activities that these funds account for are considered General Fund activities, they are segregated into these sub-funds to determine and evaluate the operational results of each activity. At the end of each fiscal year, an assigned Fund Balance equal to the beginning fund balance plus current year revenues and other financing sources minus current year expenditures and other financing uses will be maintained within the following General Fund sub-funds:
Recreation Services
Community Development
Liability Insurance
Employees Benefits
Workers' Compensation
CalPERS Stabilization
Solid Waste and Recycling
Vehicle and Equipment Replacement
Information Technology Equipment Replacement
Citizens Donations
Cultural Arts
Community Development Loan
Harpst Bequest Principal
Harpst Bequest Interest
The following Fund Balance assignments will be made for Capital Projects:
Facility Replacement and Refurbishment
There shall be an assigned Fund Balance for funding facility refurbishment and for the eventual replacement of public facilities. Annual transfers to the Fund Balance will be based upon accumulated depreciation schedules developed by the Public Services and Engineering Department and reviewed annually by the Administrative Services Department.
Capital Improvements
There shall be an assigned Fund Balance equal to the estimated cost of all capital improvement projects approved and funded by the City Council through the regular budget process. The purpose of this assigned fund balance is to pay all costs associated with designing, constructing, and/or acquiring approved and funded capital improvements.
Attachment 3 Exhibit A
Unassigned Fund Balance
Unassigned Fund Balance shall be that portion of the Fund Balance which is in excess of what can be properly classified as non-spendable, restricted, committed, or assigned.
Annual Review
Annual review of this policy is recommended at the time of budget adoption and at other times deemed appropriate by the City Council. Actual reserve levels will be monitored and presented to the City Council with each budget adoption, mid-year review, and in the case of an extraordinary economic downturn or disaster.
All moneys in these identified reserves shall be invested in a manner consistent with the adopted investment policy.
Attachment 3 Exhibit A