Loading...
HomeMy WebLinkAbout2011/06/07 Item 10CITY COUNCIL AGENDA STATEMENT ~~ "~ ~tt~i cirroF '"~` CHULA VISTA JUNE 7, 2011, Item_~ 0 ITEM TITLE: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA ADOPTING A CITY COUNCIL POLICY TITLED FUND BALANCE POLICY FOR THE CITY'S GOVERNMENTAL FUNDS AS REQUIRED BY GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 54 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING THE CATEGORIZATION OF UP TO $2.4 MILLION IN THE ECONOMIC CONTINGENCY RESERVE AS A COMMITTED FUND BALANCE FOR FISCAL YEAR 2010/2011, IN ACCORDANCE WITH GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 54 SUBMITTED BY: DIRECTOR OF FIN /TREASURER/ ~'yZ~ REVIEWED BY: CITY MANAGE ASSISTANT CITY NAGER 5~ 4/STHS VOTE: YES ~ NO ^X SUMMARY The Governmental Accounting Standards Board (GASB) has issued its Statement No. 54, "Fund Balance Reporting and Governmental Fund Type Definitions". 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 2010-11 is the formal adoption of a fund balance policy for governmental funds. The policy explains the five components of fund balance and formally delegates to the Director of Finance, as required by the statement, the assignment of fund balance for specific purposes for inclusion in the annual fmancial reports. 10-1 JiJNE 7, 2011, Item ~~ Page 2 of 4 ENVIRONMENTAL REVIEW The Environmental Review Coordinator has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that adoption of a policy is not a "Project" as defined under Section 15378 of the State CEQA Guidelines because it will not result in a physical change to the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the actions proposed are not subject to CEQA. RECOMMENDATION Council adopts the resolutions. BOARDS/COMMISSION RECOMMENDATION Not applicable DISCUSSION In February 2009, the Governmental Accounting Standards Board (GASB) issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This new standard does not change the total amount of a given fund balance, but it substantially alters the categories and terminology used to describe the components that make up a fund balance. The new categories and terminology reflect an approach that focuses, not on financial resources available for appropriation within a fund, but on the extent to which the City is bound to honor constraints on the specific purposes from which amounts in the fund can be spent. 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: Reserve, Designated and Undesignated. There are almost always important limitations on the purpose for which all or a portion of the resources of a 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 the resources. GASB Statement No. 54 defines five new components of fund balance that will replace the current existing three components. The five new components are: Nonspendable Fund Balance. The 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 as the principal portion of an endowment. This category was traditionally reported as a "reserved" fund balance under the old standard. Restricted Fund Balance. The 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. This category was traditionally reported as a "reserved" fund balance under the old standard. 10-2 JUNE 7, 2011, Item Page 3 of 4 Committed Fund Balance. The portion of a fund balance that included 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 traditionally reported as "designated" fund balance under the old standard. Assiened Fund Balance. That portion of a fund balance 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 authority, or by an official designated for that purpose. The policy formally delegates to the Director of Finance, as required by the statement, the assignment of fund balance for specific purposes for inclusion in the annual financial statements. This category was traditionally reported as a "designated" fund balance under the old standard. Unassigned Fund Balance. The portion of a fund balance that includes amounts that do not fall into one of the above four categories. The General Fund is the only fund that should report this category of fund balance. This category was traditionally reported as "undesignated" fund balance under the old standard. Economic Contingency Reserve -Committed Fund Balance The fiscal year 2011-12 proposed budget anticipates using $2.4 million from the Economic Contingency Reserve to balance the fiscal year 2011-12 budget. The reserve will be funded from fiscal year 2010-11 budgetary savings. The funding of the Economic Contingency Reserve is considered a commitment of fund balance and therefore requires City Council action to approve the designation in accordance with GASB 54. The approval of the resolution will enable the classification of up to $2.4 million to Committed Fund Balance in the City's fiscal year 2010-11 audited financial statements. DECISION MAKER CONFLICT Staff has reviewed the decisions contemplated by this item and have determined that the actions contemplated are not site specific and, consequently, the 500-foot rule found in California Code of Regulations section 18704.2(a) is not applicable. CURRENT YEAR 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 individual components that make up total fund balance are changed. These new classifications are required to be used on external formal financial reporting documents, such as the Comprehensive Annual Financial Report (CAFR). ONGOING FISCAL IMPACT The approval of the resolution will set aside $2.4 million in the Economic Contingency Reserve that will be used to balance the fiscal year 2011-12 general fund budget. 10-3 NNE 7, 2011, Item~_~ Page 4 of 4 ATTACHMENTS City Council Policy "Fund Balance Policy for Governmental Funds" Prepared by: Phillip Davis, Assistant Director, Finance Department 10-4 COUNCIL POLICY CITY OF CHULA VISTA SUBJECT: Fund Balance Policy for Governmental POLICY EFFECTIVE Funds per Governmental Accounting NUMBER DATE PAGE Standards Board Statement No. 54 June 7, 2011 1 OF 3 ADOPTED BY: (Resolution No.) DATED: AMENDED BY: Resolution No. (date of resolution) BACKGROUND In February 2009, the Governmental Accounting Standards Board (GASB) issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This new standard does not change the total amount of a given fund balance, but it substantially alters the categories and terminology used to describe the components that make up a fund balance. The new categories and terminology reflect an approach that focuses, not on financial resources available for appropriation within a fund, but on the extent to which the City is bound to honor constraints on the specific purposes from which amounts in the fund can be spent. 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: Reserve, Designated and Undesignated. There are almost always important limitations on the purpose for which all or a portion of the resources of a 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 the resources. PURPOSE This fund balance policy establishes the procedures for reporting the various components of fund balance for the City's governmental funds. This policy does not apply to proprietary funds which were not addressed by GASB 54. The policy also authorizes and directs the Director of Finance to prepaze financial reports which accurately categorize fund balance as per Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. POLICY 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: Reserve, Designated and Undesignated. There aze almost always important limitations on the purpose for which all or a portion of the resources of a 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 standazd are designed to indicate the extent to which the City is bound by these limitations placed upon the resources. 10-5 COUNCIL POLICY CITY OF CHULA VISTA SUBJECT: Fund Balance Policy for Governmental POLICY EFFECTIVE Funds per Governmental Accounting NUMBER DATE PAGE Standards Board Statement No. 54 June 7, 2011 2 OF 3 ADOPTED BY: (Resolution No.) DATED: AMENDED BY: Resolution No. (date of resolution) GASB Statement No. 54 defines five new components of fund balance that will replace the current existing three components. The five new components are: Nonspendable Fund Balance The 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 as the principal portion of an endowment. This category was traditionally reported as a "reserved" fund balance under the old standazd. Restricted Fund Balance The 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. This category was traditionally reported as a "reserved" fund balance under the old standard. 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 that amount can be determined subsequently. This category was traditionally reported as "designated" fund balance under the old standard. Assigned Fund Balance. The 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 authority, or by an official designated for that purpose. This policy hereby delegates the authority to assign amounts to be used for specific purposes to the Director of Finance for the purpose of reporting these amounts in the annual financial statements. 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. This would include capital projects and purchase orders. 10-6 COUNCIL POLICY CITY OF CHULA VISTA SUBJECT: Fund Balance Policy for Governmental POLICY EFFECTIVE Funds per Governmental Accounting NUMBER DATE PAGE Standards Board Statement No. 54 June 7, 2011 3 OF 3 ADOPTED BY: (Resolution No.) DATED: AMENDED BY: Resolution No. (date of resolution) • Debt Service. Established to provide for future debt service obligations. • Budget Balancing Measures. Funds set aside for the purpose of stabilizing the delivery of City services during natural disasters or 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. The portion of a fund balance that includes amounts that do not fall into one of the above four categories. The General Fund is the only fund that should report a positive balance in this category of fund balance. The general fund, as the principal operating fund of the government, often will have net resources in excess of what can properly be classified in one of the four categories already described. If so, that surplus is presented as unassigned fund balance. If resources were not at least assigned, they could not properly be reported in a fund other than the general fund to begin with. Therefore, only the general fund can report a positive amount of unassigned fund balance. Conversely, any govemmental fund in a deficit position could report a negative amount of unassigned fund balance. This category was traditionally reported an "undesignated" fund balance under the old standard. Fund Balance Classification The accounting policies of the City consider 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 (committed, assigned or unassigned) could be used, the City considers committed amounts to be reduced first, followed by assigned amounts and then unassigned amounts. The policy of the City of Chula Vista is to follow the guidelines of GASB Statement No. 54 and its required practices. No other policy or procedure supersedes the authority and provisions of this policy. 10-7 RESOLUTION NO. 2011- RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA ADOPTING A CITY COUNCIL POLICY TITLED "FUND BALANCE POLICY FOR THE CITY'S GOVERNMENTAL FUNDS," AS REQUIRED BY GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 54 WHEREAS, in February 2009, the Governmental Accounting Standards Board (GASB) issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions; and WHEREAS this new standard does not change the total amount of a given fund balance, but it substantially alters the categories and terminology used to describe the components that make up a fund balance; and WHEREAS, the new categories and terminology reflect an approach that focuses, not on financial resources available for appropriating within a fund, but on the extent to which the City is bound to honor constraints on the specific purposes from which amounts in the fund can be spent; and WHEREAS, the term fund balance is used to describe the difference between assets (what is owned) and liabilities (what is owed) reported within a fund; and WHEREAS, in the past, fund balances have been classified into three separate components: Reserve, Designated and Undesignated; and WHEREAS, there are almost always important limitations on the purpose for which all or a portion of the resources of a fund can be used; and WHEREAS, the force of these limitations can vary significantly, depending on their source; and WHEREAS, 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 the resources; and WHEREAS, GASB Statement No. 54 defines five new components of fund balance that will replace the current existing three components; and WHEREAS, the five new components are Nonspendable Fund Balance, Restricted Fund Balance, Committed Fund Balance, Assigned Fund Balance, and Unassigned Fund Balance; and ~~-$ Resolution No. 2011- Page 2 WHEREAS, part of the City's implementation of GASB Statement No. 54, is the City's formal adoption of a fund balance policy for governmental funds; and WHEREAS, the policy formally delegates to the Director of Finance, as required by the statement, the assignment of fund balance for specific purposes for inclusion in the annual financial statements. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Chula Vista does hereby adopt a City Council policy entitled, "Fund Balance Policy for the City's Governmental Funds," as Required by Governmental Accounting Standards Board Statement No. 54. Presented by Maria Kachadoorian Director of Finance Approved as to form by (~~ i _ ~.L_ '~'i1e ~ .Goggins City Attorney 10-9 RESOLUTION NO. 2011- RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING THE CATEGORIZATION OF UP TO $2.4 MILLION IN THE ECONOMIC CONTINGENCY RESERVE AS A COMMITTED FUND BALANCE FOR FISCAL YEAR 2010/2011, IN ACCORDANCE WITH GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 54 WHEREAS, in February 2009, the Governmental Accounting Standards Board (GASB) issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions; and WHEREAS this new standard does not change the total amount of a given fund balance, but it substantially alters the categories and terminology used to describe the components that make up a fund balance; and WHEREAS, the new categories and terminology reflect an approach that focuses, not on financial resources available for appropriating within a fund, but on the extent to which the City is bound to honor constraints on the specific purposes from which amounts in the fund can be spent; and WHEREAS, the term fund balance is used to describe the difference between assets (what is owned) and liabilities (what is owed) reported within a fund; and WHEREAS, in the past, fund balances have been classified into three separate components: reserve, Designated and Undesignated; and WHEREAS, there are almost always important limitations on the purpose for which all or a portion of the resources of a fund can be used; and WHEREAS, the force of these limitations can vary significantly, depending on their source; and WHEREAS, 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 the resources; and WHEREAS, GASB Statement No. 54 defines five new components of fund balance that will replace the current existing three components; and WHEREAS, the five new components are Nonspendable Fund Balance, Restricted Fund Balance, Committed Fund Balance, Assigned Fund Balance, and Unassigned Fund Balance; and WHEREAS, the Fiscal Year 2011/2012 proposed budget anticipates using $2.4 million from the Economic Contingency Reserve to balance the Fiscal Year 2011/2012 budget; and 10-10 Resolution No. 2011- Page 2 WHEREAS, the reserve will be funded from Fiscal Year 2010/2011 budgetary savings; and WHEREAS, the funding of the Economic Contingency reserve is considered a commitment of fund balance and therefore requires City Council action to approve the designation in accordance with GASB 54; and WHEREAS, the approval of the resolution will enable the classification of up to $2.4 million to Committed Fund Balance in the City's Fiscal Year 2010/2011 audited financial statements. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Chula Vista does hereby approve the categorization of up to $2.4 million in the Economic Contingency Reserve as a Committed Fund balance for Fiscal Year 2010/2011, in accordance with Governmental Accounting Standards Board Statement No. 54. Presented by Maria Kachadoorian Director of Finance 10-11 Approved as to form by