HomeMy WebLinkAbout4.15 Govt Accounting StandardsSTAFF REPORT CITY CLERK
DUBLIN CITY COUNCIL File #
DATE: June 21, 2011
TO: Honorable Mayor and City Council Members
FRc$ Joni Pattillo, City Manager
SUBJECT: Establishment of Fund Balance Classifications in accordance with Governmental
Accounting Standards Board Statement (GASB) No. 54
Prepared By: Paul S. Rankin, Administrative Services Director
EXECUTIVE SUMMARY:
Changes in accounting standards have been enacted by the Governmental Accounting
Standards Board (GASB). These changes impact the calculation and presentation of fund
balance, which is shown on the City financial statements and in the Comprehensive Annual
Financial Report (CAFR). GASB has established a required implementation date of June 30,
2011. The new rules require that the City Council establish the classifications and policies prior
to June 30, 2011.
FINANCIAL IMPACT:
There is no direct fiscal impact of adopting GASB Statement No. 54. The amounts reported as
total fund balance will not change. Identified fund balance classifications are described in the
Staff Report and Resolution.
RECOMMENDATION:
It is recommended that the City Council: 1) Adopt the Resolution Adopting Principal
Components of Fund Balance in Accordance with GASB Statement 54, and 2) Direct Staff to
implement the changes in the financial records.
sgeJsl. Co
Submitted By: Reviewed
Administrative Services Director Assistant City Manager
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DESCRIPTION:
In 2009, the Governmental Accounting Standards Board (GASB) issued Statement No. 54,
"Fund Balance Reporting and Governmental Fund Type Definitions". This pronouncement
substantially alters the categories and terminology used to describe the components of fund
balance. Governmental accounting uses "fund accounting" to account for revenues and
expenditures. This allows for the segregation of revenues and expenditures that may be
subject to certain restrictions or reporting. Each fund has an appropriated budget. The
principal operating fund for the City of Dublin is the General Fund. The term fund balance is
used to describe the difference befinreen Assets and Liabilities.
Staff has previously reported to the City Council about the changes imposed by GASB
Statement No. 54. These discussions focused mostfy on the categorizing of fund balance in the
General Fund. As part of the acceptance of the June 30, 2010 Comprehensive Annual
Financial Report on December 21, 2010, the General Fund balances were established based
on City Council priorities, with the intent that this would also serve to more closely align with the
accounting standards. GASB Statement No. 54 will become effective for the year ending June
30, 2011, and the requirements are not limited to the General Fund. Staff has prepared a
Resolution that will establish the classification of fund balance in order to fully implement the
new standard.
Backqround
The following outline describes the five classifications which will be allowable for presentation of
fund balances in upcoming financial statements:
1) Nonspendable (Inherentlv nonspendable based on the form of the asset or a requirement
to remain in tact)
^ Resources that, by their very nature, cannot be spent (e.g., prepaid rent,
Inventory) _
^ Resources that are not yet available for spending (e.g., long-term
portion of loans receivable)
^ Resources externally restricted to a purpose narrower than the fund
(Cemetery Endowment)
2) Restricted (Net fund resources subject to e~ernally enforceable leqal restrictions)
^ E~cternally imposed by creditors (such as through debt covenants),
grantors, contributors, or laws or regulations of other governments.
^ Imposed by law through constitutional provisions or enabling legislation.
^ Note that there is no need for the limitation to be narrower than the
purpose of the fund.
^ Examples would include special revenue funds which have a legal
restriction imposed by external sources (e.g., grant funds, gas tax,
impact fees, etc.)
Page 2 of 3
3) Committed (Self-imposed limitations based on formal action of the highest level of the
qoverninq bodv)
^ The action to commit funds must occur before the end of fiscal year.
^ Can only be changed by action of Governing body.
^ Examples in this category would be similar to designations made in the
past by the City Council (e.g. the allocation of funds for a future Emerald
Glen Aquatic Center scope change, Civic Center expansion etc.)
4) Assiqned ~A limitation based on intended use - authorization to assign may be
delegated by the City Council - similar to designations expressin inq tent)
^ Intent would have to be established at either the highest level of
decision making, or by a body (e.g., finance committee) or an official
(i.e. City Manager) designated for that purpose.
^ It is proposed that the authority to calculate the assigned items be
granted to the City Manager. Examples include: e.g. accrued leave,
carry-over appropriations, etc.
5) Unassiqned ~Available for any purpose and has not been restricted, committed, or
assigned to specific ~urposes within the General Fund)
Anticipated Chanqes ln General Fund Balances
The exact amounts of change as of June 30, 2011 will not be available until all of the closing
entries are made. In accordance with City Council direction to continue to prudently identify
General Fund resources for the long term, the policy contains a section which defines how
certain General Fund resources will flow. The priorities identified include Fire Retiree
obligations, protection in the event of catastrophic loss of facilities or infrastructure, and
protection from interest rate fluctuations and investment impacts, which can also impact
operating costs in tecros of retiree benefit rates.
NOTICING REQUIREMENTS/PUBLIC OUTREACH:
Not applicable.
ATTACHMENTS:
1. Resolution Adopting Principa! Components of Fund
Balance in Accordance with GASB Statement 54
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RESOLUTION NO. - 11
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF DUBLIN
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ADOPTING PRINCIPAL COMPONENTS OF FUND BALANCE
IN ACCORDANCE WITH GASB STATEMENT 54
WHEREAS, the City of Dublin incorporates into its financial records the requirements issued
by Governmental Accounting Standards Board (GASB); and
WHEREAS, the Comprehensive Annual Financial Report (CAFR) for the period ending June
30, 2011 is required to comply with GASB Statement No. 54; and
WHEREAS, the GASB Statement modifies the manner in which fund balance is presented as
part of the CAFR; and
WHEREAS, the City Council has provided policy support on the desired allocation of fund
balance as presented December 21, 2010 with the adoption of the CAFR for the period ending June
30, 2010; and
WHEREAS, Staff have developed a comprehensive fund balance policy ("Exhibit A") that also
contains some refinements to the information previously presented to the City Council; and
WHEREAS, the Principal Components of Fund Balance in Accordance with GASB Statement
54 (Exhibit A) attached hereto and made a part of this Resolution, reflects the categorization of fund
balance; and
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Dublin does
hereby find, determine, declare and resolve as follows:
1. The Dublin City Council does hereby adopt Principal Components of Fund Balance in
Accordance with GASB Statement 54, as outlined in Exhibit A.
2. This shall serve as the basis for presenting fund balance in the Comprehensive Annual
Financial Report beginning with the report covering the period ending June 30, 2011.
3. The City Manager is responsible for administering and interpreting this policy, and has
been designated by the City Council to determine funds to be classified in the "Assigned" category in
accordance with this policy.
PASSED, APPROVED AND ADOPTED this 21st day of June, 2011.
AYES:
NOES:
ABSENT:
Mayor
ATTEST:
City Clerk ~
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H:\BUDGET 2012~Agenda Statements\Reserves\FINAL\Reso_Adopt_Fund_Balance_Policy.doc ~~ I~ b~(
ATTACHMENT 1
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EXHIBIT A
CIT,Y OF DUBLIN ESTABLISHMENT OF
PRINCIPAL COMPONENTS OF FUND BALANCE
IN ACCORDANCE WITH GASB STATEMENT 54
This document shall establish the foundation for the components of fund balance. The
presentation of fund balances is also presented in the Comprehensive Annual Financial
Report (CAFR) and the official City financial records. This document is intended to comply
with Governmental Accounting Standards Board (GASB) Statement No. 54. In the event of a
conflict between this policy and the provisions of GASB Statement No. 54 the accounting
statement shall prevail.
Where appropriate the General Fund balances as of June 30, 2010 have been noted and are
hereby confirmed by the City Council as part of this policy.
In accordance with the requirements of GASB, the City Council also confirms as part of this
policy the order of expenditures from resources available. The City considers "Restricted"
amounts to have been spent prior to "unrestricted" amounts when an expenditure is incurred
for purposes for which both are available ("unrestricted" would include Committed, Assigned,
and Unassigned). Similarly, when an expenditure is incurred for purposes for which
amounts in any of the unrestricted classifications of fund balance could be used; the City
considers "Committed". amounts to be reduced first, followed by assigned amounts and then
the unassigned amounts.
I. Nonspendable Fund Balance
Nonspendable fund balances are amounts in a form that cannot be spent because they are
either (a) in a non-spendable form such as pre-paid items or loans receivable; or (b) they
have external restrictions imposed by creditors, grantors, contributors, laws, regulations, etc.
The following are items that are expected to be recorded as "Nonspendable":
Prepaid Expenditures: The portion of fund balance that represents the asset amount of
prepaid expenditures, held by a given fund.
Endowments: The portion of fund balance established as an endowment by the donor and in
which the principal balance is not intended for expenditure. As of June 30, 2010, the City
recorded an endowment in the General Fund for the Cemetery of $60,000.
Advances To Other Funds: The portion of the fund balance that represents the asset amount
of cash advanced to other funds, held by a given fund. As of June 30, 2010 the City recorded
in the General Fund an advance to the Fire Impact Fee Fund of $1,808,886; and an advance
to the PERS Side Fund of $2,642,846.
Notes /Loans Receivable: The portion of fund balance that represents the asset amount of
notes or loans receivable, held by a given fund.
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EXHIBIT A
CITY OF DUBLIN ESTABLISHMENT OF
PRINCIPAL COMPONENTS OF FUND BALANCE
IN ACCORDANCE WITH GASB STATEMENT 54
11. Restricted Fund Balance
Restricted Fund Balance shall reflect that portion of 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) fmposed by law through constitutional provisions or
enabling legislation.
The following are items that are expected to be recorded as "Restricted":
Public Safetv Special Revenue Funds: The portion of fund balances derived from funds
collected to be used for Public Safety related activities. '
Transportation Special Revenue Funds: The portion of fund balances derived from funds
collected to be used for Transportation related activities.
Environmental Special Revenue Funds: The portion of fund balances derived from funds
collected to be used for Environmental related activities.
Parks Special Revenue Funds: The portion of fund.balances derived from funds collected to
be used for Pa~ks related activities.
Assessment District Special Revenue Funds: The portion of fund balances derived from
funds collected to be used for Public Safety and Transportation related activities, consistent
with the purpose under which the fee is collected.
Cultural & Arts Special Revenue Funds: The portion of fund balances derived from funds
collected to be used for Cuftural & Arts related activities.
Health & Welfare Special Revenue Funds: The portion of fund balances derived from funds
collected to be used for Social Services and Housing related activities.
Impact & Mitigation Capital Project Funds: The portion of fund balances derived from funds
collected to be used for parks, public facilities, fire and transportation related activities,
consistent with the purpose under which the fee is collected.
Other Restricted: The portion of fund balance in any governmental fund (except the General
Fund) that is restricted under the "Restricted Fund Balance" definition as otherwise
prescribed by Governmental Accounting Standards Board Statement No. 54 and not
otherwise described in this category above.
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EXHIBIT A
CITY OF DUBLIN ESTABLISHMENT OF
PRINCIPAL COMPONENTS OF FUND BALANCE
IN ACCORDANCE WITH GASB STATEMENT 54
III. Committed Fund Balance
Committed Fund Balance shall be comprised of amounts in which the City Council has taken
action to commit the funds before the end of fiscal year. The decision to modify the amount
or use of funds designated as committed can only be changed by action of the City Council.
Economic Stabilitv: The portion of General Fund Balance committed for the purpose of
stabilizing the delivery of City services during periods of severe operational deficits and to
mitigate the effects of uncertainties from unforeseen change in revenues and / or
expenditures. The balance as of June 30, 2010 is established as $5,868,847. City Council
approval shall be required before expending any portion of this fund balance. Reserve shall
be used only if: a) Sudden and unexpected decline in ongoing revenues greater than
5% of General Fund operating revenues; andlor b) Elimination or reduction of State revenue
source(s) received consistently for municipal purposes; and/or c) Reduction in projected or
actual property tax or sales tax of $1 million or more; and/or d) An increase in contracted
Police or Fire Services in excess of 10 percent more than the previous year.
Downtown Public Im~rovements Seed Fundinq: The portion of General Fund Balance
established by the City Council for public improvements in the downtown. The balance as of
June 30, 2010 is established as $1,000,000. The use of this balance is intended to address
public improvements within the Downtown Specific Plan Area. The expenditure is to be
identified as a specific appropriation made by the City Council. The appropriafion shall be a
minimum of $50,000.
Open Space Fundinq: The portion of General Fund Balance established by the City Council
for the acquisition and long term protection of open space in the City. The acquisition may be
in cooperation with other agencies. The balance as of June 30, 2010 is established as
$1,000,000. The expenditure is to be identified as a specific appropriation made by the City
Council.
Affordable Housinq Fundinq: The portion of General Fund Balance established by the City
Council to support the construction, acquisition, or creation of affordable housing in the City.
The acquisition may be in cooperation with other public and private entities. The balance as
of June 30, 2010 is established as $1,000,000. The expenditure is to be identified as a
specific appropriation made by the City Council.
Emerald Glen Recreation and Aquatic Center Scope Chanqe: The portion of General Fund
Balance established by the City Council to support the design and construction of added
features (beyond facilities described in the Park and Recreation Master Plan and impact fee
program). In 2007 the estimated cost was $6.93 million. The balance as of June 30, 2010 is
established as $1,500,000. The expenditure is to be identified as a specific appropriation
made by the City Council.
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EXHIBIT A ~
CITY OF DUBLIN ESTABLISHMENT OF
PRINCIPAL COMPONENTS OF FUND BALANCE
IN ACCORDANCE WITH GASB STATEMENT 54
Emergencv Communications Svstem: The portion of General Fund Balance established by
the City Council to fund the purchase of emergency radio system equipment. This includes a
pro-rata share of regional radio infrastructure as well as City owned radios for Police, Fire,
and Public Works The balance as of June 30, 2010 is established as $1,000,000. As part of
budgeted appropriations made in Fiscal Year 2010-2011, costs for regional infrastructure
were funded from this balance. The expenditure is to be identified as a specific appropriation
made by the City Council.
Fire Retiree Other Post-Employment Benefits (OPEB): The portion of General Fund Balance
established by the City Council for the future liability related to retiree medical benefits offered
to the inactive Dougherty Regional Fire Authority Staff, as well as the City share of
obligations with the OPEB benefits for Alameda County Fire Department. The balance as of
June 30, 2010 is established as $4,500,000. The expenditure is to be identified as a specific
appropriation made by the City Council.
Innovations & New O~portunities: The portion of General Fund Balance established by the
City Council to fund potential projects which require up-front costs, but would provide longer
term benefits and / or potential operating cost reductions. The balance as of June 30, 2010 is
established as $10,125,000. As part of budgeted appropriations made in Fiscai Year 2010-
2011, costs for an Energy Audit and Master plan were funded from this balance. The
expenditure is to be identified as a specific appropriation made by the City Council.
Future Maintenance Facilitv: : The portion of General Fund Balance established by the City
Council to fund design, improvements, and equipment required for the establishment of a City
maintenance yard. The balance as of June 30, 2010 is established as $664,602. As part of
budgeted appropriations made in Fiscal Year 2010-2011, project costs were budgeted in the
Capital Improvement Program. The expenditure is to be identified as a specific appropriation
made by the City Council.
Civic Center Expansion: The portion of General Fund Ba{ance established by the City
Council to fund design, improvements, and equipment required for the expansion of the Civic
Center. The balance as of June 30, 2010 is established as $1,445,257. In preparing this
policy, $400,000 allocated specifically for emergency power improvements are now shown as
a separate Committed Bafance, leaving a Civic Center balance of $1,0~5,257. As part of
budgeted appropriations made in Fiscal Year 2010-2011, project costs were budgeted in the
Capital Improvement Program. The expenditure is to be identified as a specific appropriation
made by the City Council.
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EXHIBIT A ~
CITY OF DUBLIN ESTABLISHMENT OF
PRINCIPAL COMPONENTS OF FUND BALANCE
IN ACCORDANCE WITH GASB STATEMENT 54
Civic Center Emerqency Generator. The portion of General Fund Balance established by the
City Council to fund design, improvements, and equipment required for the replacement and
improvement of emergency power supplies at the Civic Center. A balance of $400,000 was
segregated from the original Civic Center Expansion commitment established on June 30,
2010. As part of budgeted appropriations made in Fiscal Year 2010-2011, project costs were
budgeted in the Capital Improvement Program. The expenditure is to be identified as a
specific appropriation made by the City Council.
Fund Balance-Committed: The portion of Fund Balance that is in any non-general fund
governmental fund that is committed under the "Committed Fund Balance" definition as
otherwise prescribed by Governmental Accounting Standards Board Statement No. 54 and
not otherwise described in this category above. The portion of Fund Balance that was
restricted but later found to be unrestricted shall be designated as a"Committed" balance.
IV. Assiqned Fund Balance
Assigned fund balances are amounts constrained by the City's intent to be used for a specific
purpose, but are neither restricted nor committed.
The City Council has authorized the City Manager or his/her designee to make assignments
in accordance with this policy and in conformance with any formal direction provided by the
City Council.
Accrued Leave Subject To Year End Calculations: Certain fund balances are calculated
based on the financial performance of the reporting period including accrued Leave. These
amounts fluctuate each year and are reflected as part of the year-end financial statements.
The balance as of June 30, 2010 was $802,311 in Accrued Leave.
Carrv-Over ltems (Operatinq Budget & Capital Improvement Projects): Fund balance may be
assigned for operating expenditures (excluding personnel costs) which were not expended in
the current year and the expense will occur in the following year, i.e. encumbrances.
Similarly, a Capital lmprovement Project may have funds allocated in a specific year and the
project remains incomplete at year end. The City Manager or his/her designee may assign
fund balance representing the unexpended funds. These funds are available for authorized
appropriations in the subsequent year. The balance as of June 30, 2010 was $203,507 in CIP
Carryovers and $171,100 in Operating Budget Carry-overs.
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EXHIBIT A
CITY OF DUBLIN ESTABLISHMENT OF
PRINCfPAL COMPONENTS OF FUND BALANCE
IN ACCORDANCE WITH GASB STATEMENT 54
Catastrophic Facilitv ! Infrasfructure Loss & Citv Business Recovery: The City Council
recognizes the importance to maintain funds to recover from a catastrophic loss which are
unexpected and incur more than $500,000 in expenses to public facilities and infrastructure.
This may also be used for short-term recovery and business operations following a
catastrophic loss pending the reimbursement from insurance or grants to the extent that they
are available. The balance is established in the General Fund and the expenditure shall be
made only by City Council appropriation, which shall include a special emergency
appropriation. The target established for the maximum balance in this category is an amount
equal to 15% of the reported book value of the City owned Buildings and Improvements
recorded as Capital assets. The balance established at June 30, 2010 is $8,420,000.
Service Continuity Obliqations: The City Council recognizes the importance to maintain
funds for continued obligations to provide Building and Safety inspections in the event that
program supporting fees are collected in one year and the expenditures occur in a
subsequent year. The City Council hereby establishes as policy that the assigned funds shall
not exceed 125% of the budgeted Building and Safety Division operating cost. The balance
as of June 30, 2010 was $1,350,000. ,
Pension and Other Post Em~loyment Bene~ts: The City Council recognizes that investment
earnings can fluctuate from year to year and they are an important component of the funding
of retiree benefits. Investment performance impacts annual contributions and expenditures
made towards retiree obligations. The intent of the City Council is to establish a fund balance
that can provide supplemental financing to lessen the impacts from decreases in investment
performance on retiree obligations. The City Manager or designee may allocate from what
would otherwise be "Unassigned" fund balance to increase the fund balance. The use of
funds from this fund balance may be used: (a) if the City Employer share of the Public
Employee Retirement System (PERS) rate increases by 3 percent; and / or (b) If the City
Annual Required Contribution (ARC) for retiree medical benefits increases by 3 percent or
more; and / or (c) If the City Council by majority vote authorizes a lump sum use of the fund
balance to reduce pension or OPEB liabilities. The ba{ance as of June 30, 2010 was
$2,375,000.
IV. Unassiqned Fund Balance (General Fund Onlv)
Unassigned fund balance represents amounts that have not been restricted, committed, or
assigned and is available for any purpose. The City Councif at its discretion may modify
unassigned fund balance, and designate in the future an intended "Commitment" or
"Assignment".
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EXHIBIT A ~
CITY OF DUBLIN ESTABLISHMENT OF
PRINCIPAL COMPONENTS OF FUND BALANCE
IN ACCORDANCE WITH GASB STATEMENT 54
Unrealized Gain on investments: Used to. account for that portion of fund balance that is the
result of unrealized investment_ gains that have been recorded in accordance with
Governmental Accounting Standards Board Statement No. 31. The balance as of June 30,
2010 was $1,516,569.
Unresfricted For Cash Flow Purposes: The City Council recognizes the importance to
maintain funds for cash flow purposes to balance the fact that the receipt of major revenues
and major expenditure disbursements are not evenly distributed throughout the year. The
City Council establishes as policy that this fund balance shall be at a minimum equal to finro
months of budgeted operating expenditures with a goal to achieve a maximum of 4 months.
The balance as of June 30, 2010 was $9,360,000.
Chanqes In General Fund Resources
In accordance with the requirements of GASB the City Council also confirms as part of this
policy how General Fund resources shall impact changes in balances.
Revenue Sources A/located to Fire OPEB: The entire amount of the General Fund resources
derived from the repayment of funds advanced to the PERS Side Fund, shall be assigned to
the Fire OPEB Committed Balance, until such time that either there are no longer any
repayments made, or the balance equals $8.6 million, whichever occurs first.
Revenue Sources A/located to Service Continuitv: If the "Assigned" balance is below the
target maximum of 125% of Building & Safety Expenditures, the following criteria shall be
used for calculating an adjustment only if annual building permit revenue exceeds annual
Building and Safety expenditures. The Administrative Services Director shall complete an
analysis of major building permits issued in the period April - June and shall assign an
allocation of the portion of revenue that is expected to be related to expenditures occurring in
the subsequent year. The amount derived shall be recommended to the City Manager. If
annual building permit revenue is less than the annual Building and Safety expenditures, the
City Manager is authorized to reduce the assigned amount by the amount necessary to
balance revenues and expenditures.
Revenue Sources Allocated to Assiqnment For Cash Flow Purpose: The portion of fund
bafance derived fcom General Fund sales tax shalf be allocated as follows: a) 50% to the
Catastrophic Facility / Infrastructure Loss & City Business Recovery; b) 25% to Pension and
Other Post Employment Benefits; and c) 25% to Unassigned for Cash Flow Purposes.
Citv Council Modifications To Policy
Periodically the City Manager may recommend to the City Council a review of this policy
based on overall City initiatives and current batances. Any adjustments to the policy shall be
adopted by the City Council.
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