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RES 2011-23TOWN OF TROPHY CLUB RESOLUTION NO. 2011-23 A RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF TROPHY CLUB, TEXAS ADOPTING A FUND BALANCE POLICY FOR THE TOWN IN ACCORDANCE WITH GOVERNMENT ACCOUNTING STANDARDS BOARD STATEMENT NO. 54 AS SET FORTH IN EXHIBIT "A"; AND PROVIDING AN EFFECTIVE DATE. WHEREAS, the Town Council has reviewed the Fund Balance Policy for compliance with the Government Accounting Standards Board (GASB) Statement No. 54, a copy of which is attached hereto as Exhibit "A"; and WHEREAS, upon consideration, the Town Council finds and determines it to be in the best interests of the Town to adopt the Fund Balance Policy set forth in Exhibit "A"; NOW, THEREFORE, BE IT RESOLVED BY THE TOWN COUNCIL OF THE TOWN OF TROPHY CLUB, TEXAS: Section 1. That the Town Council has reviewed the attached Fund Balance Policy, which contains policies that the Council has determined to be beneficial to the Town. Section 2. That the Town Council hereby adopts the Fund Balance Policy set forth in Exhibit "A', a copy of which is attached hereto and incorporated herein in its entirety. Section 3. That the Director of Finance is hereby designated as the Town's primary officer to perform the functions required by the attached Fund Balance Policy and is hereby authorized to do so. Section 4. That this Resolution shall take effect immediately upon its passage and approval. PASSED AND APPROVED this 1 ih day of September, 2011. Mayor, Connie White Town of Trophy Club, Texas ATTEST: [SEAL] T n Secretary, annon DePrater Town of Trophy Club, Texas APPROVED TO AS FORM: Town Attorney, Patricia A. Adams Town of Trophy Club, Texas RES 2011-23 Page 2 of 2 Town of Trophy Club, Texas Fund Balance Policy Purpose The purpose of this policy is to establish a key element of the financial stability of the Town by setting guidelines for fund balance. Unassigned fund balance is an important measure of economic stability. It is essential that the Town maintain adequate levels of unassigned fund balance to mitigate financial risk that can occur from unforeseen revenue fluctuations, unanticipated expenditures, and similar circumstances. The fund balance also provides cash flow liquidity for the Town’s general operations. Definitions Fund Equity–A fund’s equity is generally the difference between its assets and its liabilities. Fund Balance–An accounting distinction is made between the portions of fund equity that spendable and nonspendable. These are broken up into five categories: 1. Nonspendable fund balance – includes amounts that are not in a spendable form or are required to be maintained intact. Examples are inventory or permanent funds. 2. Restricted fund balance – includes amounts that can be spent only for the specific purposes stipulated by external resource providers either constitutionally or through enabling legislation. Examples include grants and child safety fees. 3. Committed fund balance – includes amounts that can be used only for the specific purposes determined by a formal action of the government’s highest level of decision-making authority. Commitments may be changed or lifted only by the government taking the same formal action that imposed the constraint originally. 4. Assigned fund balance – comprises amounts intended to be used by the government for specific purposes. Intent can be expressed by the governing body or by an official or body to which the governing body delegates the authority. In governmental funds other than the general fund, assigned fund balance represents the amount that is not restricted or committed. This indicates that resources in other governmental funds are, at a minimum, intended to be used for the purpose of that fund. 5. Unassigned fund balance – is the residual classification of the general fund and includes all amounts not contained in other classifications. Unassigned amounts are technically available for any purpose. Policy Committed Fund Balance The Town Council is the Town’s highest level of decision-making authority and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution approved by the Council at the Town’s Council meeting. Town Council 75 of 144 Meeting Date: September 12, 2011 The resolution must either be approved or rescinded, as applicable, prior to the last day of the fiscal year for which the commitment is made. The amount subject to the constraint may be determined in the subsequent period. Assigned Fund Balance The Town Council has authorized the Town’s Financial Director as the official authorized to assign fund balance to a specific purpose as approved by this fund balance policy. Minimum Unassigned Fund Balance It is the goal of the Town to achieve and maintain an unassigned fund balance in the general fund equal to 30% of expenditures. The Town considers a balance of less than 15% to be cause for concern, barring unusual or deliberate circumstances. If unassigned fund balance falls below the Town’s desired goal, the Town will access the severity of the issue and based on council direction will proceed with the following actions. Finance will review all assigned, committed, and reserved fund balances if feasible council/authorized official may convert these funds to unassigned. If this is not an option, council/authorized official will look to generate excess reserves to replenish these unassigned funds to maintain compliance with this policy. If the Town is unable to become compliant in the current year, the Town will look to replenish unreserved fund balance in the next budget cycle. Order of Expenditure of Funds When multiple categories of fund balance are available for expenditure (for example, a construction project is being funded partly by a grant, funds set aside by the Town Council, and unassigned fund balance), the Town will start with the most restricted category and spend those funds first before moving down to the next category with available funds. Town Council 76 of 144 Meeting Date: September 12, 2011 To w n o f T r o p h y C l u b GA S B S t a t e m e n t N o . 5 4 Le t ’ s R e v i e w … Ne w F u n d B a l a n c e C l a s s i f i c a t i o n s : • No n s p e n d a b l e • Re s t r i c t e d • Co m m i t t e d • As s i g n e d • Un a s s i g n e d Cl a s s i f i c a t i o n s – ba s e d o n c o n s t r a i n t s o n t h e p u r p o s e f o r w h i c h am o u n t s c a n b e s p e n t No n s p e n d a b l e Am o u n t s c a n n o t b e s p e n t be c a u s e : 1. No t i n s p e n d a b l e f o r m ( i . e . i n v e n t o r i e s , p r e p a i d s , lo n g - t e r m p o r t i o n o f l o a n s r e c e i v a b l e , p r o p e r t y he l d f o r r e s a l e ) • Ho w e v e r , i f t h e u s e o f t h e p r o c ee d s f r o m c o l l e c t i o n s o f t h e re c e i v a b l e s o r s a l e o f p r o p e r t y i s c o m m i t t e d , a s s i g n e d , o r re s t r i c t e d , t h e n t h e y s h o u l d b e r e p o r t e d i n t h e a p p r o p r i a t e ca t e g o r y r a t h e r t h a n n o n s p e n d a b l e 2. L e g a l l y o r c o n t r a c t u a l l y r e q u i r e d t o b e m a i n t a i n e d in t a c t ( i . e . c o r p u s o r p r i n c i p a l o f a n p e r m a n e n t f u n d ) Re s t r i c t e d Co n s t r a i n t s p l a c e d o n t h e u s e o f r e s o u r c e s e i t h e r : – Ex t e r n a l l y i m p o s e d b y c r e d i t o r s ( i . e . d e b t c o v e n a n t s ) , gr a n t o r s , c o n t r i b u t o r s , o r l a w s o r r e g u l a t i o n s o f o t h e r go v e r n m e n t s … . Or – Im p o s e d b y l a w t h r o u g h c o n s t i t u t i o n a l p r o v i s i o n s o r en a b l i n g l e g i s l a t i o n – wh e r e a u t h o r i z a t i o n t o r a i s e re v e n u e s i s c o n d i t i o n e d u p o n t h e r e v e n u e b e i n g u s e d f o r a p a r t i c u l a r p u r p o s e ( l e g a l l y e n f o r c e a b l e ) * E s s e n t i a l l y t h e s a m e d e f i n i t i o n as t h a t u s e d f o r r e s t r i c t e d n e t as s e t s u n d e r G A S B 3 4 Co m m i t t e d • Am o u n t s t h a t c a n o n l y b e u s e d f o r s p e c i f i c pu r p o s e s t h a t a r e i m p o s e d b y f o r m a l a c t i o n o f t h e go v e r n m e n t ’ s h i g h e s t l e v e l o f d e c i s i o n m a k i n g au t h o r i t y – Co m m i t t e d a m o u n t s c a n n o t b e u s e d f o r o t h e r p u r p o s e s un l e s s t h e s p e c i f i c u s e i s c h a n g e d o r r e m o v e d b y t h e sa m e a c t i o n ( i . e . – re s o l u t i o n , o r d i n a n c e , e t c ) e m p l o y e d to c o m m i t t h e f u n d s – Ac t i o n m u s t b e t a k e n n o l a t e r t h a n e n d o f t h e r e p o r t i n g pe r i o d ( a c t u a l a m o u n t c a n b e d e t e r m i n e d a f t e r y e a r - e n d if f o r m u l a - d r i v e n ) *( i . e . c a p i t a l r e p l a c e m e n t r e s e r v e s , “ G A S B ” ) As s i g n e d Co n s t r a i n e d b y t h e g o v e r n m e n t ’ s in t e n t to use the fu n d s f o r a p a r t i c u l a r p u r p o s e ( n o t c o m m i t t e d o r re s t r i c t e d ) – In t e n t c a n b e e x p r e s s e d b y t h e g o v e r n i n g b o d y i t s e l f o r a bo d y ( i . e . f i n a n c e c o m m i t t e e ) o r o f f i c i a l t o w h i c h t h e go v e r n i n g b o d y h a s d e l e g a t e d t h e a u t h o r i t y – Ne v e r i n e x c e s s o f t o t a l f u n d b a l a n c e l e s s s u m o f no n s p e n d a b l e , r e s t r i c t e d a n d c o m m i t t e d c o m p o n e n t s – Si m i l a r t o “ d e s i g n a t e d ” fu n d b a l a n c e *( i . e . g r a n t f u n d s , d o n a t i o n s , e t c . ) Co m m i t t e d v s . A s s i g n e d Th e p r i m a r y d i f f e r e n c e s ar e : – Th e l e v e l a t w h i c h a c t i o n m u s t b e t a k e n • Co m m i t t e d f u n d b a l a n c e r e q u i r e s a c t i o n b y t h e h i g h e s t l e v e l o f de c i s i o n - m a k i n g a u t h o r i t y ; w h e r e a s f u n d b a l a n c e c a n b e “a s s i g n e d ” by a u t h o r i t y d e l e g a t e d t o a n o t h e r b o d y / o f f i c i a l – Th e t y p e o f a c t i o n r e q u i r e d • Fo r m a l a c t i o n i s r e q u i r e d f o r “ c o m m i t t e d ” fund balance; wh e r a s , t h e p r o c e s s t o “ a s s i g n ” is m u c h l e s s f o r m a l Un a s s i g n e d • Re s i d u a l c l a s s i f i c a t i o n f o r t h e g e n e r a l f u n d – Ge n e r a l f u n d i s t h e o n l y f u n d t h a t s h o u l d r e p o r t a po s i t i v e u n a s s i g n e d b a l a n c e ( b e c a u s e a l l o t h e r f u n d s re p o r t p o s i t i v e f u n d b a l a n c e a s r e s t r i c t e d , c o m m i t t e d o r as s i g n e d ) – De f i c i t b a l a n c e p o s s i b l e i n a n y g o v e r n m e n t a l f u n d