Exhibit A 1
FUND BALANCE POLICY
Policy: Fund Balance Policy for the General Fund
POLICY
This Fund Balance Policy establishes the procedures for reporting the unrestricted fund balance in the General Fund financial statements. Certain commitments and assignments of fund balance will help ensure that there will be adequate financial resources to protect the City against unforeseen circumstances and events such as revenue shortfalls and unanticipated expenditures. The policy also authorizes and directs the Finance Director 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
Fund balance is essentially the difference between the assets and liabilities reported in a governmental fund. 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 purposes for which amounts can be spent. • Non-spendable fund balance (inherently non-spendable) • Restricted fund balance (externally enforceable limitations on use) • Committed fund balance (self-imposed limitations on use) • Assigned fund balance (limitation resulting from intended use) • Unassigned fund balance (residual net resources)
The first two components listed above are not addressed in this policy due to the nature of their restrictions. An example of non-spendable fund balance is inventory. Restricted fund balance is either imposed by law or constrained by grantors, contributors, or laws or regulations of other governments. This policy is focused on financial reporting of unrestricted fund balance, or the last three components listed above. These three components are further defined below.
Committed Fund Balance
The City Council, as the City’s highest level of decision-making authority, may commit fund balance for specific purposes pursuant to constraints imposed by formal actions taken, such as an ordinance or resolution. These committed amounts cannot be used for any other purpose unless the City Council removes or changes the specified use through the same type of formal action taken to establish the commitment. City Council action to commit fund balance needs to occur within the fiscal reporting period; however the amount can be determined subsequently.
Exhibit A 2
• General Fund Emergency Contingency
The City Council has resolved to increase this amount to (5) months of regular general fund operating expenditures. As defined in the resolution establishing this commitment, the specific uses are listed as the declaration of a state or federal state of emergency or a local emergency as defined in Patterson Municipal Code Section 2.36.020. In addition, Council may authorize use of the Emergency Contingency Reserve funds for other extenuating circumstances in order to stabilize the city in the event of an economic downturn, shortfalls of revenues, or unanticipated or unfunded expenditures through interfund loans.
The interfund loans shall be repaid with interest based on the Local Agency Investment Fund (LAIF) earning rate. The Finance Officer (or designee) shall also exercise due diligence to ensure that it is financially prudent for the Fund making the loan.
Interfund loans will be evaluated on a case-by-case basis. Any borrowing between two City funds requires approval by City Council. The purpose of interfund borrowing is to finance high priority needs and to reduce costs of interest, debt issuance and/or administration.
The City Council may, by the affirming vote of three members, change the amount of this commitment and/or the specific uses of these monies.
Assigned Fund Balance
Amounts that are constrained by the City’s intent to be used for specific purposes, but are neither restricted nor committed, should be reported as assigned fund balance. This policy hereby delegates the authority to assign amounts to be used for specific purposes to the City Manager and the Finance Director for the purpose of reporting these amounts in the annual financial statements. A few examples of assigned fund balance follow.
• Continuing Appropriations
Fund balance levels must be sufficient to meet funding requirements for projects approved in prior years and which must be carried forward into the new fiscal year.
• Debt Service
Established to provide for future debt service obligations.
Exhibit A 3
• Budget Balancing Measures
Funds set aside for the purpose of stabilizing the delivery of City services during periods of operational budget deficits and to mitigate the effects of major economic uncertainties resulting from unforeseen changes in revenues and/or expenditures.
Unassigned Fund Balance
These are residual positive net resources of the general fund in excess of what can properly be classified in one of the other four categories.
Fund Balance Classification
The accounting policies of the City consider restricted fund balance to have been spent first when expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available. Similarly, when an expenditure is incurred for purposes for which amounts in any of the restricted classifications of fund balance could be used, the City considers committed amounts to be reduced first, followed by assigned amounts and then unassigned amounts.
This policy is in place to provide a measure of protection for the City against unforeseen circumstances and to comply with GASB Statement No. 54. No other policy of procedure supersedes the authority and provisions of this policy.