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Home My WebLink About2002 10 28 Regular B Resolution 2002-36 Fund Balance Policy for the General Fund Date: 10/28/02 Regular "B" was not read on 1 0/23/02 due to time constraints. It should be on the 11/11/02 Agenda. "- , I COMMISSION AGENDA ITEM B CONSENT INFORMATIONAL PUBLIC HEARING REGULAR X Meeting ~ MGR~/,",\ /DEPT ~ Allthori7,atlon October 28,2002 REQUEST: The Finance Department Requests the City Commission Approve Resolution 2002-36 establishing a Fund Balance Policy for the General Fund. PURPOSE: The purpose of this agenda item is to request the City Commission approve a resolution that establishes a fund balance policy for the General Fund that establishes a minimum level of unreserved fund balance to be maintained and a goal to strive for. CONSIDERATIONS: . Fund balance is intended to serve as a measure of the financial resources available in a governmental fund. . Accountants distinguish between "reserved" and "unreserved" fund balance. Only ''unreserved'' fund balance is available for spending. · The Government Finance Officer's Association (GFOA) recommends that governments establish a formal policy on the level of unreserved fund balance that should be maintained in the general fund. . It is essential that governments maintain adequate levels of fund balance to mitigate current and future risks such as revenue shortfalls due to economic conditions and unanticipated expenditures. In addition, credit rating agencies carefully monitor levels of fund balance and unreserved fund balance in a government's general fund to evaluate a government's continued creditworthiness. . There is no one optimal fund balance level. The adequacy of unreserved fund balance in the general fund should be assessed based upon a government's own specific circumstances; however, the GFOA recommends, at a minimum, that governments, regardless of their size, maintain unreserved fund balance in their general fund of no less than 5 to 15 percent of general fund operating expenditures. . A government's particular situation may require levels of unreserved fund balance in the general fund significantly in excess of these recommended minimum levels. In practice, levels of fund balance, typically are less for larger governments than for smaller governments because of the magnitude of the amounts involved and because the diversification of their revenues and expenditures results in lower degrees of volatility. · Management may maintain the unreserved fund balance at a certain dollar threshold or a formula. Unreserved fund balance goals are normally expressed as a percentage of revenues/expenditures or as a multiple of monthly expenditures (ex. 25% or 3 months worth of annual operating expenditures). In practice the "three-months rule" is a solid, conservative rule and certainly a goal to strive for. · Given the City of Winter Springs dependency on revenues vulnerable to economic conditions (state monies and PST/Fees), management feels it is prudent to strive for the 3 month rule in an effort to protect against short term downturns in the economy versus reducing service levels. · The City of Winter Springs FY03 General Fund Operating Budget is $14,533,650. · 8.333% or 1 month is equal to an unreserved fund balance of $1,211,089 · 16.66% or 2 month's are equal to an unreserved fund balance of $2,422,178 · 20% is equal to an unreservedfund balance of $2,906,730 · The FY03 budgeted unreserved fund balance is $3,389,700 (23%) · 25% or 3 month's are equal to an unreservedfund balance of $3,633,412 FUNDING: None. RECOMMENDATION: The Finance Department Requests the City Commission Approve Resolution 2002-36 establishing a Fund Balance Policy for the General Fund. ATTACHMENTS: Resolution 2002-36 COMMISSION ACTION: RESOLUTION NO. 2002-36 A RESOLUTION OF THE CITY OF WINTER SPRINGS, FLORIDA, ESTABLISHING A GENERAL FUND FUND BALANCE POLICY AND PROVIDING AN EFFECTIVE DATE WHEREAS, the City Commission, in and for the City of Winter Springs, Florida, hereinafter referred to as Commission, endorses sound financial policies and practices; and, WHEREAS, the Commission has determined that a fund balance policy for the General Fund tailored to the particular needs of the City is the most responsible way to insure against unanticipated events which would adversely affect the financial condition of the City and jeopardize the continuation of necessary public services; and, WHEREAS, it is essential that the Commission maintain an adequate fund balance in its general operating fund to provide the capacity to: (1) provide sufficient cash flow for daily financial needs, (2) secure and maintain investment grade (i.e. A or above) bond ratings, (3) offset significant economic downturns or revenue shortfalls, and (4) provide funds for unforeseen expenditures related to emergencies; and, WHEREAS, the City has an informal goal establishing an amount equal to three months operating expense of the General Fund to be the desired General Fund fund balance; and, WHEREAS, the Commission desires to adopt a formal General Fund fund balance policy, now therefore be it resolved as follows: SECTION I - Definition: I. General Fund Operating Expense - For purposes of this resolution, operating expense shall mean General Fund expenses other than capital outlay and debt. II. Capital Outlays - For purposes of this resolution, capital outlay shall mean vehicles, equipment, real estate and improvements to real estate. SECTION II - Unreserved Fund Balance Goal: It shall be the goal of the City to maintain at all times an unreserved General Fund fund balance in an amount equal to not less than 25% of the total operating expenses ofthe . General Fund. SECTION III - Required Minimum Unreserved General Fund Fund Balance: Except as provided in Section ][V herein, the City shall not reduce the unreserved General Fund fund balance below an amount equal to 20% of the total operating expenses of the General Fund. ... t . SECTION IV - Reduction of Unreserved General Fund Fund Balance Below the Minimum: By a super majority vote of the Commission, supplemental appropriation from unreserved General Fund fund balance may be authorized by the Commission for a General Fund pmpose reducing the unreserved General Fund fund balance below the 20% minimum provided that the unreserved General Fund fund balance is restored to the minimum in the following year budget. SECTION V - Excess Unreserved General Fund Fund Balance: 1. Unreserved General Fund fund balances in excess of the 20% minimum may be appropriated in the budge~t for capital outlays as defined herein or one time expenditures when required to balance the adopted fmal budget of a given year. II. During the fiscal period the Commission by a majority vote of the Commission may authorize supplemental appropriations to fund unforeseen expenses from unreserved General Fund. fund balance in excess of the 20% minimum. SECTION VI - Effective Date: This Resolution shall take effect immediately upon its adoption. PASSED, APPROVED AND ADOPTED this 28th day of October, 2002. CITY OF WINTER SPRINGS, FLORIDA PauIP.Partyka,11ayor City of Winter Springs, Florida ATTEST: Andrea Lorenzo Luaces, City Clerk City of Winter Springs, Florida Approved as to form: City Attorney