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Resolution Number 11-06-30-04RESOLUTION NO. 11-06-30-04 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN JUAN CAPISTRANO, CALIFORNIA, ADOPTING THE CITY'S FUND BALANCE POLICY WHEREAS, the Governmental Accounting Standards Board (GASB) has issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions (GASB 54) with the intent of improving financial reporting by providing fund balance classifications that will be more easily understood; and, WHEREAS, GASB 54 defines the various fund balance components of governmental fund -types for financial reporting purposes; and WHEREAS, the classification and reporting of fund balance components as required by GASB 54 will be effective starting with the fiscal year 2010-2011 reporting and therefor need to be adopted by June 30, 2011; and WHEREAS, the Chief Financial Officer is delegated the authority to assign fund balance for specific purposes for inclusion in the annual financial reports WHEREAS, City Council has established guidelines for contingency reserves that should be reflected by the authority of City policy NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of San Juan Capistrano does hereby approve and adopt the Fund Balance Policy (EXHIBIT "A"). 6/30/2011 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss. CITY OF SAN JUAN CAPISTRANO ) I, MARIA MORRIS, appointed City Clerk of the City of San Juan Capistrano, do hereby certify that the foregoing Resolution No. 11-06-30-04 was duly adopted by the City Council of the City of Sart Juan Capistrano at a Adjourned Regular meeting thereof, held the 30th day of June 2011, by the following vote: AYES: COUNCIL MEMBERS: Freese, Reeve, Taylor, Kramer and Mayor Allevato NOES: 9OUNCIL MEMBER: None ABSENT -/I OOUNCIL MEMBER: None RrS, City 2 6/30/2011 CITY OF SAN .JUAN CAPISTRANO FUND BALANCE POLICY FIRST ADOPTED: I, PURPOSE The purpose of this policy is to establish parameters, provide guidance, and set forth authoritative governance for the classification of fund balance as reported by the City of San Juan Capistrano and the Community Redevelopment Agency, In February 2009, the Governmental Accounting Standards Board (GASB) issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions (GASB 54). GASB 54 changes the reporting presentation of fund balance components for governmental fund - types. While there is no prescribed change to the total amount of a given fund balance, the categorization and terminology used to describe fund balance components are substantially altered. The new approach focuses on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the fund can be spent, not on financial resources available for appropriation within a fund; see ATTACHMENT A. In addition to the GASB 54 compliance of governmental fund -types, this policy also defines the components of budget reserves for the enterprise funds, see ATTACHMENT B. II. POLICY STATEMENT This policy shall define the components of fund balance, authorize the. Chief Financial Officer to prepare financial reports which accurately categorize fund balance in compliance with GASB 54, and establish contingency limits. The term fund balance is used to describe the difference between assets (what is owned) and liabilities (what is owed) reported within a fund. Prior to GASB 54; fund balances were classified into three separate components: Reserved, Designated and Undesignated. Frequently, important limitations are placed on the purpose for which all or a portion of a fund's resources can be used. The authoritative level of these limitations can vary significantly, depending on their source. The five components of fund balance under the GASB 54 reporting standard are designed to indicate the extent to which the City is bound by limitations which may be placed upon resources. This policy shall also define the budget reserve components of the City's enterprise funds. P r 1 EXHIBIT "A" CITY OF SAN JUAN CAPISTRANO FUND BALANCE POLICY FIRST ADOPTED: III. FUND BALANCE GOVERNING POLICIES The City shall report governmental fund -type fund balances in compliance with GASB 54 and shall categorize budget reserves in the enterprise funds according to the following five components: Non -spendable Fund Balance: The portion of 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, non-current assets, or in certain instances, loans receivable; or (b) legally or contractually required to be maintained intact, such as the principal portion of an endowment. This category was reported as a "reserved" fund balance prior to GASB 54. Restricted Fund Balance: The portion of fund balance that reflects constraints placed on the use of resources (other than Non -spendable 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 reported as a "reserved" fund balance prior to GASB 54. UNRESTRICTED: Committed Fund Balance: The portion of fund balance that includes amounts which can only be used for specific purposes pursuant to constraints imposed by formal action of the highest level of decision making authority, City Council. Such constraints shall remain binding unless removed in the same manner. For example, City Council may enact an ordinance or adopt a resolution which identifies spending certain amounts of fund balance for specific purposes. 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. Action taken to commit fund balance shall occur within the fiscal reporting period; however, the amount may be subsequently determined. This category was reported as "designated" fund balance prior to GASB 54. Assigned Fund Balance: The portion of fund balance that includes amounts constrained by the City's intent to be used for specific purposes, but cannot be categorized as either restricted or committed. Such intent shall be established by non -formal action of City Council, the highest level of decision making, or by an official designated for that purpose_ This policy hereby delegates the authority to assign amounts to be used for specific purposes to a a g e 12 CITY OF SAN .JUAN CAPISTRANO FUND BALANCE POLICY FIRST ADOPTED: the Chief Financial Officer for the purpose of reporting these amounts in the annual financial statements. An example of assigned fund balance is an amount of existing fund balance that is planned to be used to eliminate a projected deficit in the subsequent year's budget. Assigned fund balance shall not exceed total fund balance less the sum of the non -spendable, restricted, and committed fund balance components. This category was reported as "designated" fund balance prior to GASB 54. Unassigned Fund Balance: The portion of fund balance that includes amounts that do not fall into one of the above four categories. The general fund shall include this classification for residual positive net resources in excess of amounts properly classified as one of the other four components. In funds other than the general fund, this classification shall be used only to report a deficit balance resulting from residual net resources which are less than total fund balance less the sum of the non -spendable, restricted, and committed, and assigned fund balance components. This category was reported as "undesignated" fund balance prior to GASB 54. IV, FUND BALANCE CLASSIFICATION AND RESERVES 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 could be used, the City considers committed amounts to be reduced first, followed by assigned amounts and then unassigned amounts. In order to maintain a stable revenue structure and provide reliable services to the community, the City reserves fund balance for contingencies. City Council guidelines for contingency reserves are: Governmental fund -types including the General Fund - target of 50% of current operating expenditures, excluding capital improvement projects transfers, with a minimum reserve of 25% Water and Sewer Enterprise Funds, approximately 25% to 100% of current operating expenditures s;age 13 CITY OF SAN JUAN CAPISTRANO FUND BALANCE POLICY FIRST ADOPTED: Water and sewer Replacement Funds, approximately one year's average capital costs. This policy is in place to provide a measure of protection for the City against unforeseen circumstances and to comply with GASB 54. No other policy or procedure supersedes the authority and provisions of this policy. a g 14 ATTACHMENT A VARIOUS COMPONENTS OF FUND BALANCE IN THE GENERAL FUND AS DEFINED BY GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 54 Non -spendable Fund Balance Long term receivables: The portion of fund balance that represents the asset amount of notes receivable held by a given fund. Prepaid expenditures: The portion of fund balance that represents the asset amount of prepaid expenditures held by a given fund. Advances to other funds: The portion of fund balance that represents the asset amount of advances to other funds held by a given fund. Committed Fund Balance Capital Projects: The portion of fund balance that has been appropriated for specific capital projects and remains unspent. Contingency. The portion of fund balance placed in reserve for spending in the event of an emergency or economic uncertainty. Contingency reserves can be spent down when the City's operations are impacted by factors outside the City's control. Examples of such circumstances would include unforeseen changes in anticipated costs in the case of local disasters or catastrophic events such as storm damage, landslides, energy costs, water main line breaks or well production shortages, financial hardships or downturns in the local or national economy, state budget implications, imposition of state or federal mandates or other unforeseen legal requirements, unexpected interruptions in cash flows. Assigned Fund Balance City Hall Replacement: The portion of fund balance that has been set aside to fund new City Hall facilities. Encumbrances: The portion of fund balance attributable to appropriations carried over from a prior year into the year under operation. Unassigned Fund Balance Fund Balance — Unassigned: Any portion of General Fund fund balance that does not comply with any other fund balance component category. ATTACHMENT B VARIOUS COMPONENTS OF BUDGETED RESERVES FOR ENTERPRISE FUNDS Committed Fund Balance Contingency: The portion of fund balance budgeted to reserves for spending in the event of an emergency or negative economic condition. Bond Reserve: The portion of fund balance budgeted to reserves for meeting required debt service obligations of bonds. Assigned Fund Balance Capital Projects: Budgeted fund balance of Enterprise Capital Improvement Projects Funds that has been appropriated for specific capital projects and remains unspent. Capital Replacement: The portion of fund balance budgeted for the replacement of existing capital assets. Unassigned Fund Balance Fond Balance — Unassigned: Any portion of budgeted fund balance that does not comply with any other fund balance component category.