FUND BALANCE POLICYI oW n o
�°�t- s COUNCIL AGENDA REPORT
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DATE: MAY 25, 2012
TO: MAYOR AND TOWN COUNCIL
FROM: GREG LARSON, TOWN MANAGER
MEETING DATE: 6/4/12
ITEM NO: b
SUBJECT: ADOPT A RESOLUTION APPROVING A FUND BALANCE POLICY FOR
THE GENERAL FUND AND DELEGATING AUTHORITY TO THE TOWN
MANAGER TO "ASSIGN" ENDING FUND BALANCES IN ACCORDANCE
WITH GOVERNMENTAL ACCOUNTING STANDARDS BOARD
STATEMENT NO. 54
RECOMMENDATION
Adopt the attached resolution approving a fund balance policy classifying the various
components of fund balances for the General Fund in accordance with Governmental Accounting
Standards Board Statement No. 54.
BACKGROUND
The Governmental Accounting Standards Board (GASB) has issued its Statement No. 54 Fund
Balance Reporting and Governmental Fund Type Definitions (GASB 54). The requirements of
this statement are intended to improve financial reporting by providing fund balance categories
and classifications that will be more easily understood. The categories are more clearly defined
to make the nature and extent of the constraints placed on a government's fund balance more
transparent. Part of the City's implementation of this statement for Fiscal Year 2012/13 is the
formal adoption of a fund balance policy.
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. hi the past, Rind balances were classified into
three separate components: Reserved, Unreserved Designated, and Unreserved Undesignated.
GASB Statement 54 defines five new components or classifications of fund balance that will
replace the current existing three components. The five new components are:
Non - spendable 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, such
PREPARED BY : Jetun,y Director /Budget Manager
C: \Users \Iseastrom \Desktop \Delft TC Repo st ouncit Staff Reports \Reserves\TC Report.GASB 54.docx
Reviewed by: Assistant Town Manager Town Attorney Fiance
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MAYOR AND MEMBERS OF THE TOWN COUNCIL
SUBJECT: ADOPT A RESOLUTION APPROVING A FUND BALANCE POLICY FOR THE
GENERAL FUND N ACCORDNANCE WITH GOVERNMENTAL
ACCOUNTNG STANDARDS BOARD STATEMENT NO. 54
kfay 25, 2012
as the principal portion of an endowment. This category was previously reported as a "reserved"
fiord balance under the old reporting standard.
Restricted Fund Balance That portion of a fund balance that reflects constraints placed on the
use of resources (other than non - spendable 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.
This category was previously reported as a "reserved" find balance under the old standard.
Committed Fund Balance That portion of a fiord balance that includes amounts that can only be
used for specific purposes pursuant to constraints imposed by formal action of the government's
highest level of decision- making authority, and remain binding unless removed in the same
manner. This category was previously reported as "unreserved, designated" fund balance under
the old standard.
Assigned Fund Balance That portion of a fund balance that includes amounts that are
constrained by the government's intent to be used for specific purposes, but that are neither
restricted nor committed. Such intent needs to be established at either the highest level of
decision - making, or by an official designated for that purpose. This category was previously
reported as "unreserved, designated" fiord balance under the old standard.
Unassiened Fund Balance That portion of a fiend balance that includes amounts that do not fall
into one of the above four categories. The General Fund is the only fiend that will report this
category of fund balance. This category was previously reported as "unreserved, undesignated"
fund balance under the old standard.
It is recommended that the Town use GASB's definitions of fund balance for the annual
financial reports (audits) and for all other financial reporting. The Fund Balance Policy, attached
as Exhibit A to the resolution, supplements the recently adopted General Fund Reserve Policy and
explains the five components of fund balance which are required for inclusion in the annual
financial reports, such as the Comprehensive Annual Financial Report (CAFR). These new
classifications are reflected in the FY 2010/11 CAFR, but have not yet been formally adopted by
Council.
GASB 54 also allows the Council to "assign" ending fiord balances or bestow this authority to a
Town appointed official or designee. It is recommended that the Council give the Town
Manager or the Town Manager's designee authority to assign resources and ending funding
balances if applicable, with reporting to the full Council.
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MAYOR AND MEMBERS OF THE TOWN COUNCIL
SUBJECT: ADOPT A RESOLUTION APPROVING A FUND BALANCE POLICY FOR THE
GENERAL FUND N ACCORDNANCE WITH GOVERNMENTAL
ACCOUNTING STANDARDS BOARD STATEMENT NO. 54
May 25, 2012
CONCLUSION:
Based on preliminary discussions with the Town's auditing firm, staff recommends that Council
adopt the attached resolution and policy (Exhibit A) which appropriately defines the various
components of fund balance in accordance with GASB 54 standards.
FISCAL IMPACT:
There is no direct fiscal impact of implementing GASB Statement No. 54. The new
classifications are required to be used on external formal financial reporting documents, such as
the Comprehensive Annual Financial Report (CAFR).
Attachments:
Attachment 1: Resolution Approving a Fund Balance Policy for the General Fund in Accordance
with Governmental Accounting Standards Board Statement No. 54
THIS PAGE
INTENTIONALLY"
LEFT BLANK
RESOLUTION 2012 -XXX
RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS
APPROVING A FUND BALANCE POLICY FOR THE GENERAL FUND AND
DELEGATING AUTHORITY TO THE TOWN MANAGER TO °ASSIGN" ENDING
FUND BALANCES IN ACCORDNANCE WITH GOVERNMENTAL 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;" and
WHEREAS, the Town Council desires to classify the various components of fund
balance reported by the Town as defined in Governmental Accounting Standards Board
Statement No. 54; and
WHEREAS, the Town Council approves and defines various components of fund
balance as reported by Governmental Accounting Standards Board Statement No. 54 as
presented as Exhibit A to this resolution; and
WHEREAS, the Town Council designated the Town Manager as the Town Official
to determine and define the amounts of those components of fiend balance that are classified as
"Assigned Fund Balance."
RESOLVED, that the Town Council does hereby adopt a Fund Balance Policy in
accordance with Governmental Accounting Standards Board Statement No. 54.
PASSED AND ADOPTED at a regular meeting of the Town Council of the Town
of Los Gatos, California, held on the 4` day of June, 2012 by the following vote:
AYES:
NAYS:
ABSENT:
ABSTAIN:
COUNCIL MEMBERS:
SIGNED
MAYOR OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA
ATTEST:
CLERK OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA
Tfus PAGE
INTENTIONALLY
LEFT BLANK
owH.eF
Exhibit A
<� TOWN OF LOS GATOS
!ps =�A
GASB 54 FUND BALANCE POLICY
SUBJECT: GASB 54 FUND BALANCE POLICY
PURPOSE
To outline the policies and procedures adopted by the Town Council regarding provisions for
identifying and classifying fund balances in accordance with Governmental Accounting
Standards Board (GASB) Statement No. 54.
BACKGROUND
Fund balance is the difference between the assets and liabilities reported in a governmental
fund. As outlined in Governmental Accounting Standards Board (GASB) Statement No. 54,
there are five separate components of fund balance. Each separate component is identified by
the extent to which the City is bound to honor the constraints on the specific purposes on
which amounts can be spent.
• Non - spendable fund balance (inherently unspendable)
• Restricted fund balance (external 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 -no restrictions)
The first two components listed above are not addressed in this policy due to the nature of
their restrictions. This policy is focused on the financial reporting of previously unrestricted
fund balance, or the last three components listed above. All components further defined below
and reflected per this policy are in accordance with GASB 54.
POLICY:
Committed Fund Balance
The Town Council, as the Town'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. Town Council action to commit fund balance needs
to occur within the fiscal reporting period; however, the amount can be determined
subsequently. This category was previously reported as "unreserved, designated" under the
old standard. The following funds are committed:
Capital Outlay
Debt Service
• Advances to Other Funds
Repairs and Maintenance
• Low & Moderate Housing
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Exhibit A
Assigned Fund Balance
The Town Council delegates the authority to assign fund balance to the Town Manager, for
intended specific purposes, to be reported to the full Council. The following assignments are
established and may be modified by the Town Manager or his /her designee as deemed
appropriate. This category was previously reported as "unreserved" under the old standard:
Vasona Land Sale Reserve
■ Open Space Reserve
Post- Retirement Medical Reserve
Parking Reserve
Market Fluctuations Reserve
• Manager's Contingency Reserve
■ Productivity Reserve
Sustainability Reserve
• Catastrophic Reserve
• Capital and Special Projects Reserve
Carryover Reserve
Comcast PEG Fund
• Budget Stabilization Reserve
Special Studies Reserve
Debt Service Reserve
• Year End Budget Savings
■ Special Revenue Fund
Compensated Absences Reserve
Unassigned Fund Balance
These are residual positive new resources in the General Fund in excess of what can properly be
classified in one of the other four categories. The General Fund may only report a positive
unassigned balance. Conversely, any governmental fund in a negative (deficit) position could
report a negative amount of unassigned fund balance.
Fund Balance Classification:
The accounting policies of the Town considers restricted fund balance to have been spent first
when an 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 unrestricted classifications of fund balance could be used, the Town considers
committed amounts to be reduced first, followed by assigned amounts and then unassigned
amounts.
Annual Reporting and Periodic Review:
Annually, after the completion of the Town's Comprehensive Annual Financial Report, the
Finance Director or designee shall prepare and present a Summary of Fund Balance as part of
the Financial Reporting and Town Annual Budget process. At least every two years, the Town
Council will affirm or revise this Policy (usually during the budget process).
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