|Effective for Fiscal Year 2010/11, GASB Statement No. 54 creates five new classifications of fund balance. Each classification depicts the relative strength of the spending constraint for which the resources can be used. From most to least constrained, the new classifications of fund balance are as follows:
Nonspendable Fund Balance – that portion of fund balance that includes amounts that cannot be spent because they are either (a) not in spendable form, such as prepaid items, inventories of supplies, or loans receivable; or (b) legally or contractually required to be maintained intact, such as the principal portion of an endowment. This category was traditionally reported as a “reserved” fund balance under the old standard.
Restricted Fund Balance – 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) imposed by law through constitutional provisions or enabling legislation. This category was traditionally reported as a “reserved” fund balance under the old standard.
Committed Fund Balance – that portion of fund balance that includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision-making authority and remain binding unless removed in the same manner. This category was traditionally reported as a “designated” fund balance under the old standard.
Assigned Fund Balance – that portion of fund balance that includes amounts that are constrained by the government’s intent to be used for specific purposes, but that are neither restricted nor committed. Such intent needs to be established at either the highest level of decision-making or by an official designated for that purpose. This category was traditionally reported as a “designated” fund balance under the old standard.
Unassigned Fund Balance – that portion of fund balance that includes amounts that do not fall into one of the above four categories. The General Fund is the only fund that should report this category of fund balance. This category was traditionally reported as an “undesignated” fund balance under the old standard.
GASB Statement No. 54 also requires local governments to implement or update their financial and budgetary policies to reflect the new fund balance classifications and comply with the requirements of the Statement. The Town’s amended Financial and Budgetary Policies are included as EXHIBIT A.
Restricted Fund Balances
Under the new GASB 54 fund balance classification definitions above, the fund balances in the following Town funds will be classified as “Restricted”:
State and Justice Seizure Funds – Restricted by State Statute
Impound Fees Fund – Restricted by State Statute
Municipal Debt Service Fund – Restricted by Debt Covenants
Oracle Road Improvement District Fund – Restricted by Debt Covenants
Townwide Roadway Impact Fee Fund – Restricted by State Statute
Parks & Recreation Impact Fee Fund – Restricted by State Statute
Library Impact Fee Fund – Restricted by State Statute
Police Impact Fee Fund – Restricted by State Statute
General Government Impact Fee Fund – Restricted by State Statute
Committed Fund Balances
Under the new GASB 54 rules, if the fund balance of a Special Revenue Fund is not formally restricted or committed by fiscal year end, then it must be reported as part of the General Fund for fiscal year end audited financial statement purposes. Special Revenue Funds are used to account for the proceeds of specific revenue sources that are (a) restricted or committed to expenditure for specific purposes other than debt service or major capital projects; and (b) must be a substantial portion of revenues reported in the fund. Therefore, staff recommends that the following Special Revenue funds be classified as “Committed” based on the specific purposes for each outlined below:
Highway Fund – fund established to collect State shared highway user funds (gas taxes) and local construction sales taxes to be used for roadway maintenance and preservation purposes.
Bed Tax Fund – fund established to collect local 6% transient lodging tax to be used for local economic development purposes.
The following is a Capital Projects Fund whose fund balance would also be classified as “Committed:”
Naranja Park Fund – fund established to collect donations toward improvements at Naranja Park.
Assigned Fund Balances
In addition, GASB 54 gives authority to the Town Council to “assign” ending fund balances or delegate this authority to the Town Manager or a designee. This classification would be for fund balance resources that are intended for a specific purpose, but are not classified as restricted or committed.
Two areas would fall within the assigned fund balances category, and they are shown in the General Fund and the Highway Fund. First, the Town has historically set aside amounts for the payout of compensated absences (i.e. for accrued vacation, sick and compensatory time leave) and for unemployment compensation claims. These amounts are not appropriated in the budget, however, they are included in the fund balance totals shown in the audited financial statements. Staff recommends that Council authorize the Town Manager or a designee (typically Finance Director) to record these amounts as assigned fund balance.
Collapsing of Funds into the General Fund
Two funds currently shown as Capital Projects Funds in the Town’s financial statements, the Steam Pump Ranch Fund and the Capital Asset Replacement Fund (CARF), are recommended to be combined with the General Fund for next fiscal year, FY 2011/12. The Steam Pump Ranch Fund is expected to complete its current stage of restoration and rehabilitation at the end of the current fiscal year, exhausting all remaining Pima County bond funds designated for this purpose. The FY 2011/12 budget includes only operations and maintenance funds of approximately $40,000 transferred in from the General Fund, which can be shown within the General Fund as a separate program area within Cultural Resources.
The CARF Fund was originally created to accumulate resources primarily from the General Fund for the routine replacement of computer equipment, vehicles and other equipment needs of the Town. As the Town has faced revenue shortfalls over the past several years, the needed resources to replace these assets have not been readily available, therefore, staff recommends collapsing this fund into the General Fund beginning in the FY 2011/12 budget to simplify the Town’s fund structure. Staff will continue to prepare and update the five-year asset replacement schedule in order to identify the Town’s needs in this area and can budget for these needs separately within the General Fund.
A third fund, the Assurances Fund, was originally created to account for funds placed on deposit with the Town by developers as a form of security or assurance that certain conditions and standards would be met with regard to each specific development project. These funds are to be reimbursed to the developers upon successful fulfillment of those standards of development. Staff recommends collapsing this fund into the General Fund as well.