Resolution - 2016-18RESOLUTION NO. 2016-18
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST COVINA,
CALIFORNIA, AMENDING THE FUND BALANCE RESERVE POLICY FOR THE
GENERALFUND
WHEREAS, in an effort to become more financially secure, the City Council amended the
Fund Balance Reserve Policy for the General Fund on July 7, 2015 with the adoption of Resolution
No. 2015-52; and
WHEREAS, the City Council has previously adopted a fund balance reserve policy of 10%
of operating expenditures of the General Fund with the goal of bringing the total level of reserves
up to 20% of operating expenditures, with funding to occur annually by adding 25% of the surplus
in the General Fund to unassigned fund balance; and
WHEREAS, the City Council has determined that the City has met the reserve level of 20%
of operating expenditures which is a Government Finance Officers Association (GFOA)
recommended fund balance reserve level.
NOW, THEREFORE, the City Council of the City of West Covina does resolve
as follows:
SECTION 1. This resolution supersedes Resolution No. 2015-52 and adopts the Amended
Fund Balance Policy for the General Fund as reflected in Exhibit A to this resolution.
SECTION 2. That the City Clerk shall certify to the adoption of this resolution and the
same shall be in full force in effect immediately upon adoption.
PASSED, APPROVED AND ADOPTED on this I" day of March, 2016.
APPROVED AS TO FORM:
Kimberly H911 Barlow
City Attorney
CS roll,
yor
ATTEST -
Nickolas S. Lewis
City Clerk
1, HEREBY CERTIFY that the foregoing resolution was duly adopted by the City Council of the
City of West Covina, California, at a regular meeting thereof on the I" day of March, 2016, by the
following vote of City Council:
AYES:
Johnson, Spence, Warshaw, Wu, Toma.
NOES:
None
ABSENT:
None
ABSTAIN:
None
Nickolas S. Lewis
City Clerk
EXHIBITA
CITY OF WEST COVINA
FUND BALANCE POLICY
POLICY
In February 2009, the Governmental Accounting Standards Board (GASB) issued Statement No.
54, Fund Balance Reporting and Governmental Fund Type Definitions. This new standard has
not changed the total amount of reported fund balance, but has substantially altered the
categories and terminology used to describe its components. The new categories and terminology
reflect an approach that will focus, not on financial resources available for appropriation within a
fund, but 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.
This Fund Balance Policy establishes the procedures for reporting unrestricted fund balance in
the City's financial statements. Certain commitments and assignments of fund balance will help
ensure that there will be adequate financial resources to protect the City against unforeseen
circumstances and events such as revenue shortfalls and unanticipated expenditures. The policy
also authorizes and directs the Finance Director to prepare financial reports which accurately
categorize fund balance as per Governmental Accounting Standards Board (GASB) Statement
No. 54, Fund Balance Reporting and Governmental Fund Type Definitions.
PROCEDURES
The term "Fund Balance" is used to describe the difference between assets (what is owned) and
liabilities (what is owed) reported within a fund. In the past, fund balance has been classified into
basically three separate components: Reserved, Designated, and Unclesignated. There are
almost always important limitations on the purpose for which all or a portion of the resources of a
fund can be used. The force of these limitations can vary significantly, depending on their source.
The various components of the "new" fund balance are designed to indicate the extent to which
the City is bound by these limitations placed upon the resources.
GASB Statement No. 54 defines five separate components of fund balance, each of which
identifies the extent to which the City is bound to honor constraints on the specific purposes for
which amounts can be spent. These new components of fund balance will replace the current
existing three components. The five components are:
Nonspenclable fund balance (inherently nonspenclable)
Restricted fund balance (externally enforceable limitations on use)
Committed fund balance (self-imposed limitations on use)
Assigned fund balance (limitation resulting from intended use)
Unassigned fund balance (residual net resources)
The first two components listed above are not addressed in this policy due to the nature of their
restrictions. Some examples of nonspenclable fund balance are prepaid expenses, notes
receivable, inventory and land held for resale. Restricted fund balance is either imposed by law
or constrained by grantors, contributors, or laws or regulations of other governments. This policy
is focused on financial reporting of unrestricted fund balance, or the last three components listed
above. These three components are further defined below.
Committed Fund Balance
The City Council, as the City's highest level of decision -making authority, may commit fund
balance for specific purposes pursuant to constraints imposed by formal actions taken, such as
an ordinance or resolution. These 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. City Council action to commit fund balance needs to
occur within the fiscal reporting period; however, the amount can be determined subsequently.
Assigned Fund Balance
Amounts that are constrained by the City's intent to be used for specific purposes, but are neither
restricted nor committed, should be reported as assigned fund balance. Such intent needs to be
established at either 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
the City Manager for the purpose of reporting these amounts in the annual financial statements.
Unassigned Fund Balance
These are residual positive net resource of the general fund in excess of what can properly be
classified in one of the other four categories.
Reserve Policies
The City shall maintain a minimum unassigned fund balance of at least 20% of General Fund
operating expenditures. This policy also requires that internal service funds be funded every fiscal
year to ensure there is no deficit at June 30th . This is considered the minimum level necessary to
maintain the City's credit worthiness and to adequately provide for:
• Economic uncertainties, local disasters and other hardships/downturns in the local economy
• Contingencies for unforeseen operating or capital needs
• -Cash flow requirements
At the end of the fiscal year, 25% of any surplus in the General Fund will be transferred to the
Internal Service Funds for deferred maintenance purposes and the remaining funds will go to
unassigned fund balance. If the reserve level ever falls below 20%, the City must amend this
policy with a Plan to rebuild it within three years.
Fund Balance Classification
When an expenditure is incurred for purposes for which both restricted and unrestricted fund
balance is available the policy shall be to expend the restricted fund balance first before expending
the unrestricted fund balance. Similarly, when an expenditure is incurred for purposes for which
amounts in any of the unrestricted classification of fund balance could be used, the City considers
committed amounts to be reduced first, followed by assigned amounts and then unassigned
amounts.
This policy is in place to provide a measure of protection for the City against unforeseen
circumstances and to comply with GAS13 Statement No. 54. No other policy or procedure
supersedes the authority and provisions of this policy.