3.3. SR 11-15-2010REQUEST FOR ACTION
TO ITEM NUMBER
Ci Council 3.3.
AGENDA SECTION MEETING DATE PREPARED BY
Consent November 15, 2010 Lori Ziemer, Asst. Finance Director
ITEM DESCRIPTION REVIEWED By
Government Accounting Standards Board Statement No. 54 Tim Simon, Finance Director
Changes REVIEWED BY
^ General Fund Balance Policy Lori Johnson, City Administrator
^ Resolution Committing Specific Revenue
Sources in Special Revenue Funds
^ Resolution Committing General Fund
Balance for OPEB Obligation
^ Resolution Authorizing the Transfer of
Funds
ACTION REQUESTED
Council adoption of the following:
^ General Fund Balance Policy
^ A Resolution Committing Specific Revenue Sources in Special Revenue Funds
• A Resolution Committing General Fund Balance For OPEB Obligation
^ A Resolution Authorizing The Transfer of Funds
Adopt the General Fund Balance Policy and Resolutions Committing Specific Revenue Sources in Special
Revenue Funds, Committing General Fund Balance for OPEB Obligation, and Authorizing the Transfer
of Funds
BACKGROUND/DISCUSSION
As presented at the November 8 council work session, the Governmental Accounting Standards Board
(GASB) issued Statement No. 54, Fund Balance Deporting and Governmental Fund Type D~nition.r to address
issues related to how fund balance was being reported and to clarify the definitions of the governmental
fund types. Required implementation of Statement 54 would be for December 31, 2011, but the Finance
Department has decided to early implement Statement 54 for the fiscal year ending December 31, 2010.
General Fund Balance Policy
With the implementation of GASB 54, additional note disclosures of a government's fund balance policy
are required that are not addressed in the City's current fund balance policy. The City's fund balance
policy has been updated to include those additional note disclosures required by GASB 54.
Committing Specific Revenue Sources in Special Revenue Funds
GASB 54 makes clear that, for financial reporting purposes, a special revenue fund may only be
established to report one or more revenue sources that are restricted or committed to a specified purpose,
N:\Public Bodies\City Council\Council RCA\Agenda Packet\l 1-15-2010\GASB%2054%20Items%20Action%20Requested[1].docx
and that the revenue source should constitute a substantial portion of the resources reported in the fund.
The attached resolution formalizes the commitment of the specific revenue sources to the specified
purposes so that the funds may continue to be reported as special revenue funds.
Committing General Fund Balance For OPEB Obligation
GASB 54 definition of committed fund balance describes that portion of fund balance that represents
resources whose use is constrained by limitations that the government imposes upon itself at its highest
level of decision-making. Under the new general fund balance policy, the City Council may commit fund
balance for specific purposes by resolution designating the specific use of fund balance and will remain
binding unless removed in the same manner. The attached resolution formalizes the commitment of
general fund balance to fund the City's other postemployment(OPEB) obligation liability which was
previously designated in the severance pay fund and now must be reported in the general fund.
Authorizing The Transfer Of Funds
In preparation for implementation of GASB 54, all the City funds and fund classifications have been
reviewed. A basic principle of governmental accounting says that a government should use the least
number of individual funds possible, consistent with its particular circumstances. Upon review of the
capital projects funds, Fund 401 Capital Projects and Fund 405 NE Area Trunk Utilities are no longer
being utilized to account for resources or expenditures for capital related project activity and can be
transferred to another fund with a similar activity. The attached resolution authorizes the transfer of
Fund 401 Capital Projects to Fund 403 Street Improvement and Fund 405 NE Area Trunk Utilities to
Fund 406 Trunk Utilities.
FINANCIAL IMPACT
None
ATTACHMENTS
^ General Fund Balance Policy
^ A Resolution Committing Specific Revenue Sources in Special Revenue Funds
^ A Resolution Committing General Fund Balance For OPEB Obligation
^ A Resolution Authorizing The Transfer of Funds
Action Motion by Second by Vote
Follow Up
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City of Elk River
General Fund Balance Policy
Purpose:
It is important to establish sound financial management policies to ensure financial
stability of the City of Elk River for the benefit of residents and businesses. Fund
balance reserves are an important component in ensuring the overall financial health of a
community, by giving the City sufficient funds to meet contingency and cash-flow timing
needs. In establishing an appropriate fund balance, the City needs to consider the
demands of cash flow, need for emergency reserves, ability to manage fluctuations of
major revenue sources, credit rating and long-term fiscal health.
Policy:
• The City will maintain an unassigned General fund balance of not less than 40%
of budgeted operating expenditures; however, this need could fluctuate with each
year's budget objectives.
• Annual proposed General fund budgets shall include this benchmark policy.
Council shall review the amounts in fund balance in conjunction with the annual
budget approval, and make adjustments as necessary to meet expected cash-flow
needs.
• In the event the unassigned General fund balance will be calculated to be less than
the minimum requirement at the completion of any fiscal year, the City shall plan
to adjust budget resources in the subsequent fiscal years to bring the fund balance
into compliance with this policy.
• The City Council may consider appropriating (for authorized purposes) year-end
fund balance in excess of the policy level or increasing the minimum fund
balance. An example of preferred use of excess fund balance would be for one-
time expenditures, such as capital expenditures, which do not result in recurring
operating costs.
Appropriation from the minimum fund balance shall require the approval of the
City Council and shall be used only for non-recurring expenditures, unforeseen
emergencies or immediate capital needs that cannot be accommodated through
current year savings. Replenishment recommendations will accompany the
decision to utilize fund balance.
• At the discretion of the City Council, fund balance maybe committed for specific
purposes by resolution designating the specific use of fund balance and the
amount. The resolution would need to be approved no later than the close of the
reporting period and will remain binding unless removed in the same manner.
• The City Council authorizes the Finance Director and/or City Administrator to
assign fund balance that reflects the City's intended use of those funds.
• When both restricted and unrestricted resources are available for use, it is the
City's policy to first use restricted resources, and then use unrestricted resources
as they are needed. When committed, assigned or unassigned resources are
available for use, it is the City's policy to use resources in the following order; 1)
committed 2) assigned and 3) unassigned.
Definitions:
Fund balance -the difference between assets and liabilities reported in a governmental
fund.
Nonspendable fund balance -amounts that are not in a spendable form or are required
to be maintained intact.
Restricted fund balance -amounts subject to externally enforceable legal restrictions.
Unrestricted fund balance -the total of committed fund balance, assigned fund balance,
and unassigned fund balance.
Committed fund balance -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.
Assigned fund balance - amounts a government intends to use for a specific
purpose; intent can be expressed by the government body or by an official or body
to which the governing body delegates the authority.
Unassigned fund balance -residual amounts that are available for any purpose
in the general fund.
RESOLUTION 10-
A RESOLUTION OF THE CITY OF ELK RIVER
A RESOLUTION COMMITTING SPECIFIC REVENUE SOURCES
IN SPECIAL REVENUE FUNDS
WHEREAS, The Governmental Accounting Standards Board's Statement #54 definition of
special revenue funds states that special revenue funds are used to account for and report the
proceeds of specific revenue sources that are restricted or committed to expenditures for specified
purposes other than debt service or capital projects; and,
WHEREAS, The term "proceeds of specific revenue sources" establishes that one or more
specific restricted or committed revenues should be the foundation for a special revenue fund and
comprise a substantial portion of the fund's revenues; and,
WHEREAS, Investment earnings and transfers from other funds do not meet the definition of a
specific revenue source; and,
WHEREAS, Council action is required to formalize the commitment of the specific revenue
sources to specified purposes.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Elk River that
effective November 15, 2010 the specific revenue source of each special revenue fund and the
specific purposes for which they are committed are as follows:
5~cialRevenue Fund S cific Revenue Sources. Committed For
Lbrary Tax levy Lbrary maintenance and improvements
Ice arena Charges for services Ice arena operations, maintenance and
improvements
Pinewood golf course Charges for services Golf course operations, maintenance and
improvements
Senior citizens Activity fees, donations Senior citizen activities and programs
Micro ban Loan payments Financing for economic development
projects
Development Fund Tax levy, development fees Committed to promote economic
devebpment activities
Insurance reserve Insurance dividend Insurance deductbles, litigation costs
and safe ro am
Passed and adopted this 15`" day of November 2010.
Stephanie Klinzing, Mayor
ATTEST:
Tina Allard, City Clerk
RESOLUTION 10-
A RESOLUTION OF THE CITY OF ELK RIVER
A RESOLUTION COMMITTING GENERAL FUND BALANCE
FOR OPEB OBLIGATION
WHEREAS, The Governmental Accounting Standards Board's Statement #54 definition of
committed fund balance describes that portion of fund balance that represents resources whose use
is constrained by limitations that the government imposes upon itself at its highest level of decision-
making; and,
WHEREAS, City Council action is required to formalize the commitment of the general fund
balance for specific purposes; and,
WHEREAS, It has been determined to commit general fund balance for the City's other
postemployment benefit (OPEB) obligation in the amount as determined each year by the annual
audit.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the Ciry of Elk River that
general fund balance will be committed for the City's OPEB obligation.
Passed and adopted this 15~' day of November 2010.
Stephanie Klinzing, Mayor
ATTEST:
Tina Allard, City Clerk
RESOLUTION 10-,
A RESOLUTION OF THE CITY OF ELK RIVER
A RESOLUTION AUTHORIZING THE TRANSFER OF FUNDS
WHEREAS, Capital projects Fund 401 Capital Projects and Fund 405 NE Area Trunk Utilities
are no longer utilized to account for resources that are restricted, committed, or assigned to
expenditures for capital related projects these funds can be transferred to another capital projects
fund with a similar purpose; and,
WHEREAS, The City Council has reviewed the request to transfer the funds fox the purpose of
financing the acquisition or constructions of capital facilities and other capital assets and determined
it to be a sound financial practice.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Elk River
makes the following transfer of funds:
Fund 401 Capital Projects to Fund 403 Street Improvement
Fund 405 NE Area Trunk Utilities to Fund 406 Trunk Utilities
Passed and adopted this 15`" day of November 2010.
Stephanie Klinzing, Mayor
ATTEST:
Tina Allard, Ciry Clerk