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HomeMy WebLinkAboutR-2021-189 Fund Balance and Reserves PolicyRESOLUTION NO.2021-189 A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF DANIA BEACH, FLORIDA, ADOPTING A CITY "FUND BALANCE AND RESERVES POLICY"; PROVIDING FOR CONFLICTS; FURTHER, PROVIDING FOR AN EFFECTIVE DATE. WHEREAS, in 2009, the Governmental Accounting Standards Board (GASB) issued Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, to clarify the meaning of fund balance on financial statements; and WHEREAS, the City followed the accounting treatment consistent with GASB Statement No. 54; and WHEREAS, the City Finance Department has prepared a Fund Balance and Reserves Policy and hereby submits such policy to the City Commission for approval and adoption. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF DANIA BEACH, FLORIDA: Section 1. That pursuant to this Resolution, the City Commission adopts a Fund Balance and Reserves Policy, a copy of which Policy is attached, marked as Exhibit "A", and it is made a part of and incorporated into this Resolution by this reference. Section 2. That all resolutions or parts of resolutions in conflict with this Resolution are repealed to the extent of such conflict. Section 3. That this Resolution shall be in full force and take effect immediately upon its passage and adoption. PASSED AND ADOPTED on December 14, 2021. ATTEST: THOMAS SCHNEIDER, CMC CITY CLERK. , gQtIS14 APPROVED AS TO FORM AND C( r THOMAS J A B O CITY ATT Y TAMARA JAMES MAYOR EXHIBIT A CITY OF DANIA BEACH FUND BALANCE AND RESERVES POLICY A. PURPOSE The City hereby establishes and will maintain Fund Balances of all Governmental Funds, as defined herein, in accordance with Governmental Accounting and Financial Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This policy shall apply to the City's General Fund and all governmental funds. Fund Balance shall be composed of non -spendable, restricted, committed, assigned and unassigned amounts. A Fund Balance and Reserves Policy is adopted in order to secure and maintain the City's investment -grade credit ratings, meet seasonal shortfalls in cash flow, and reduce susceptibility to emergency or anticipated expenditures and/or revenue shortfalls. Fund balance information is used to identify the available resources to repay long-term debt, reduce property taxes, add new governmental programs, expand existing ones, or enhance the financial position of the City, in accordance with policies established by the City Commission. This Fund Balance Policy and Reserves Policy establishes: • Fund Balance Policy for the City's General Fund and all other governmental funds; • Reservations of fund balance for the City's General Fund and all other governmental funds; • The spending order of fund balances; and • The establishment of strategic or other reserve accounts to provide for future financial stability. B. DEFINITIONS Fund Balance - refers to the difference between assets and liabilities reported in a governmental fund. It may also be referred to as net position. Non -Spendable Fund Balance - Amounts that are (a) not in spendable form or (b) legally or contractually required to be maintained intact. "Not in spendable form" includes items that are not expected to be converted to cash (such as inventories and prepaid amounts) and items such as long- term amount of loans and notes receivable, as well as property acquired for resale. Restricted Fund Balance - Amounts that can be spent only for specific purposes stipulated by (a) external resource providers such as creditors (by debt covenants), grantors, contributors, or laws or regulations of other governments; or (b) imposed by law through constitutional provisions or enabling legislation. Restrictions may be changed or lifted only with the consent of the resource providers. 1 RESOLUTION #2021-189 Committed Fund Balance - Amounts that can be used only for the specific purpose(s) determined by a formal action (ordinance/resolution) of the City Commission, the City's highest level of decision -making authority. Commitments may be changed or lifted only by the City Commission taking the same formal action that originally imposed the constraint. Resources accumulated pursuant to stabilization arrangements sometimes are reported in this category. Assigned Fund Balance - Includes spendable fund balance amounts established by management of the City that are intended to be used for specific purposes that are considered neither restricted nor committed. Amounts should not be reported as assigned to a specific purpose if the assignment would result in a deficit unassigned fund balance. Unassigned Fund Balance - Unassigned fund balance is the residual classification for the General Fund and includes all amounts not contained in the other classifications. Unassigned amounts are technically available for any purpose. If a governmental fund, other than the General Fund, has a fund balance deficit, then it will be reported as a negative amount in the unassigned classification in that fund. Positive unassigned amounts will only be reported in the General Fund. C. FUND BALANCE POLICY Non -Spendable Fund Balance Non -spendable fund balance is established to report items that are not expected to be converted to cash such as inventory and prepaid items; items not currently in cash form such as the long-term amount of loans and notes receivable as well as property acquired for resale; and items legally or contractually required to be maintained intact. The following Non -spendable Fund Balance classifications are examples of those that may be used in reporting the City's financial position: Inventory Reserve - The Inventory Fund Balance Reserve reflects those amounts relating to inventories that are not in spendable form Property held for sale- The property held for sale fund balance reflects the amounts relating to property and land that the City owns and are not in spendable form. Restricted Fund Balance The following Restricted Fund Balance classifications are examples of those that may be used in reporting the City's financial position: Building Code Costs - The Building Code Costs reflect those amounts relating to building fund permitting revenues collected in excess of actual building fund expenditures, and which are thereby restricted to be used for future payment of building fund expenditures, which may also include employee benefits, such as pension obligations. Impact Fees — Impact fees reflect fees charged to property developers, to be used for infrastructure improvements that are built due to the impact new property developments. 2 RESOLUTION #2021-189 These fees may only be used to offset the cost of providing additional services because of the increase in residents. The City currently charges for Police, Fire, Recreation, and Administrative impact fees. Items that could otherwise qualify as a restricted fund balance of the General Fund may instead be budgeted and reported in special revenue funds or capital project funds as appropriate, in the case of the example above for Building Code Costs. Committed Fund Balance Commitment of fund balance may be made for such purposes including, but not limited to the following: 1. Major maintenance and repair projects; 2. Establishing reserves for disasters; 3. Accumulating resources pursuant to stabilization arrangements; and 4. Any amounts set aside for specific projects, programs, or initiatives Commitment of fund balance may be made from time -to time by ordinance or resolution of the City Commission. Commitments may be changed or lifted only by the City Commission taking the same formal action that imposed the constraint originally. The use (appropriation) of committed fund balances will be considered in conjunction with the annual budget adoption process or by budget amendment approved by the City Commission during the fiscal year. The City previously established a Disaster Recovery Operating Reserve. This reserve shall be maintained at a minimum of Twenty Percent (20%) of the total dollar amount of the General Fund reserve balance, across all fund balance designations. This reserve is established for the purposes of responding to and providing relief and recovery efforts to ensure the maintenance of services to the public during emergency or disaster situations. Such emergencies include, but are not limited to natural disasters, pandemics, terrorist activity and other natural or man-made disasters which have demonstrable economic and operational impacts on the City. Additional funds may be appropriated, when necessary, through a City Commission Resolution authorizing a budget amendment. The balance of this reserve will be considered in conjunction with the annual budget adoption process or by budget amendment approved by the City Commission at any time during the fiscal year. In the event these funds are utilized, they should be replenished to ensure the City is prepared for possible future events. The City will make every effort to replenish this reserve over a five-year period beginning with the completion of recovery from the event for which the reserve funds were used. The City Commission hereby establishes the following committed fund balance reserves, which may represent Special Revenue Funds separate and apart from the General Fund: Community Redevelopment - The Community Redevelopment Funds are provided to the City's Community Redevelopment Agency (CRA), which is a legally separate entity that is funded by the City and treated as a blended component unit. The City recognizes that this is an ongoing funding source for various development initiatives within the CRA designated area of the City. 3 RESOLUTION #2021-189 Perpetual Care - The City owns cemeteries which it is required to maintain through its Perpetual Care Fund and receives funding from the depositing of a portion of the monies received from the sale of lots or plots, which are administered by the City Commission acting as a board of trustees for the cemetery. Capital projects - The Capital Projects Fund Balance Reserve is committed by the City Commission as set forth in the annual Capital Improvement Plan for the upcoming fiscal year (and any amendments thereto) to be utilized in future years to fund various capital needs. Tree Preservation - The City maintains a Tree Preservation Fund for the purposes of accepting and disbursing the replacement fees paid to the City Commission as part of the tree removal licenses and any other monies deposited with the City for tree preservation purposes. The fund may only be used for tree conservation projects pursuant to City Code. Assigned Fund Balance Assignment of fund balance may be made for a specific purpose that is narrower than the general purposes of the government itself. Assigned fund balance shall reflect City management's intended use of resources as established by either (1) the annual budget process (and any amendments thereto) or (2) by agreement of the Finance Director and City Manager (or designee) prior to the end of each fiscal year. Assigned fund balance may or may not be appropriated for expenditure in the subsequent year depending on the timing of the project/reserve for which it was assigned. Unassigned Fund Balance Unassigned fund balance is the residual classification and represents fund balance that has not been restricted, committed, or assigned to specific purposes within the General Fund. Within the unassigned fund balance category, the City shall maintain at least Twenty -Five Percent (25%) of the total dollar amount of budgeted annual operating expenditures in accordance with the Government Finance Officers' Association (GFOA) recommendations. Disbursement of Fund Balance Reserves Individual disbursements of fund balance reserves below Twenty -Five Thousand Dollars ($25,000.00) may be authorized by the City Manager from time to time for a single purpose/initiative, until the aggregate total of all such disbursements has exceeded One Hundred Thousand Dollars ($100,000.00) within a single fiscal year, upon which all disbursements, regardless of amount, shall be authorized by a resolution of the City Commission. Additionally, fund balance disbursements may be approved by inclusion in the approved annual budget and amendments thereto or shall be authorized pursuant to any resolutions or procedures adopted by the City Commission such as the City's procurement policy. 4 RESOLUTION #2021-189 D. SPECIAL REVENUE FUNDS Special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. The restricted or committed proceeds of specific revenue sources should be expected to continue to comprise a substantial portion (hereby established as a minimum of 50%) of the inflows reported in the fund. The Finance Department will discontinue reporting a special revenue fund, and instead report the fund's remaining resources in the General Fund, if the government no longer expects that a substantial portion of the inflows will derive from restricted or committed revenue sources. E. CAPITAL PROJECT FUNDS Capital project funds are used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets. Capital project funds exclude those types of capital - related outflows financed by proprietary funds or for assets that will be held in trust for individuals, private organizations, or other governments. F. BUDGETING The actual amount of unrestricted fund balance (total of committed fund balance, assigned fund balance and unassigned fund balance) is not known until the completion of the annual audit which normally takes place between six to nine months after the end of the fiscal year being audited. However, an estimate of unrestricted fund balance (also called estimated fund balance) will be made during the annual budget adoption process is included with the budget for formal adoption before September 30'`. G. SPENDING ORDER OF FUND BALANCES The City spends restricted amounts first when both restricted and unrestricted fund balances are available unless there are legal documents/contracts that prohibit doing this, such as in grant agreements requiring dollar for dollar spending. Additionally, the City would first use committed fund balance, followed by assigned fund balance and then unassigned fund balance when expenditures are incurred for purposes for which amounts in any of the restricted fund balance classifications could be used. Open encumbrances at the end of the fiscal year may only be classified as committed or assigned, depending on at what level of authorization originally established them. H. ANNUAL REVIEW Compliance with the provisions of this policy shall be reviewed as a part of the annual budget adoption process. Minimum reserve targets may also be reviewed during the budget process. Any changes to the targeted amounts established herein must be approved by the City Commission. RESOLUTION #2021-189 I. ADDITIONAL INFORMATION, REQUIREMENTS/RESPONSIBILITIES It will be the responsibility of the Finance Department to maintain this policy and recommend changes, in consultation with the City Manager, and upon approval of the City Commission. J. EFFECTIVE DATE This policy shall take effect immediately upon adoption and will be applied to the City's September 30, 2021, Annual Comprehensive Financial Report. 6 RESOLUTION #2021-189