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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.