Resolution Restricting and/or Committing Revenue Sources in Special Revenue Funds and Resolution Amending the Fund Balance Financial Policy in Regard to the Implementation of Governmental Accounting Standards Board (GASB) Statement 54

The city is required to implement GASB (Governmental Accounting & Standards Board) 54 as part of its audit reporting requirements in 2011.  GASB 54 states how an entities fund balance is to be presented within its financial statements.  This helps demonstrate financial planning for accumulated resources and subsequently how they may or will be spent. 

New Fund Balance Classifications:
GASB 54 separates fund balance into five new categories. Under the old standards, there were three categories: Reserved, Designated, and Undesignated. The new categories are more descriptive, and focus on how the City plans to use its resources. A brief description of each of the new categories is listed below along with examples of each.

Nonspendable fund balance- amounts that are not in a spendable form or are required to be maintained intact. An example of nonspendable fund balance is inventory. Inventory cannot be spent without being converted to cash first.

Restricted fund balance- amounts subject to externally enforceable legal restrictions. An example of restricted fund balance is grant proceeds required to be spent for a specific purpose. Tax Increment received from he County is an example of a restricted fund.  Tax Increment laws dictate how tax increment funds may be used.

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 (City Council). Commitments may be changed or lifted only by the government taking the same formal action that imposed the constraint originally. An example of committed fund balance would be the City Council committing developer fees to storm water management projects in the city.

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 (City Administrator and/or Finance Director). An example of assigned fund balance would be the City’s portion of a construction project where other funding was received with the requirement of a match.

Unassigned fund balance- residual amounts that are available for any purpose in the general fund. This category can only be found in the general fund, as by being in any other fund, the City has stated its intent to use it for the purpose of that fund.

Committed, assigned, and unassigned fund balance combine to make unrestricted fund balance.

Changes Due to GASB 54:

This does not change how the City of Ramsey conducts business. All of the changes will be from a presentation standpoint in the City’s Comprehensive Annual Financial Report (CAFR) and the Fund Balance Policies. Other than the new classifications being presented in the CAFR, there are several other changes of note.

One change will be related to the City’s Park Fund. This fund is currently classified as a Special Revenue Fund. Under GASB 54, this fund no longer meets the definition of a Special Revenue fund, as there are no specific revenue sources.
The fund will still be tracked separately, but for reporting purposes, will be reflected under General Fund Activities.  Another fund that will be reclassified is the Trott Brook Cemetery Fund.  The majority of the expenditures in this fund are capital related - fencing, head stones.   This allows the City to reclassify the fund to a Capital Projects Fund. This does not change how the City uses the Fund; it only changes what section of the CAFR it is presented in.

The second change is related to fund balance commitments. To meet the Special Revenue Fund definition, a fund must have “specific revenue sources that are restricted or committed to expenditure for specified purposes”. This requires the Council to adopt a resolution “committing” specific revenues to each of the special revenue funds prior to the end of the year.  The attached resolution gives the anticipated fund balance classifications for each Governmental Fund.  This document may change as we go through the audit process and determine other revenues that fall under a specific category. The commitments made by the Council cannot change without Council taking similar action to remove them.

The final change of note is related to the City’s Fund Balance Policies originally adopted on February 22, 1994 and last amended on April 13, 2010. The Fund Balance Policy needs to be revised to authorize the City Administrator and/or Finance Director to assign fund balance to reflect the City’s intended use of funds. This does not change the authority to actually spend resources, but to assign resources for a presentation standpoint only. The Fund Balance Policy also needs to include how the City intends to use its resources when multiple categories of fund balance are available.  There have been several minor changes made to reflect the new terminology used in GASB 54 and to reflect how funds are currently being used. Again, the revised policy does not change how the City conducts business or the General Fund reserve. Changes to the policies have been highlighted in the attached resolution.

None required.  Reporting requirement only.

Motion to authorize City Council to adopt the Resolutions related to the required implementation of GASB 54:  Resolution #11-10-XXX Resolution Restricting and/or Committing Specific Revenue Sources in Special Revenue FUnds and Resolution #11-10-XXX Resolution Establishing a Financial Policy for the City's General Fund Balance.