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Title:
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(1) Adoption of a Resolution Classifying the Various Components of Fund Balance as Defined in Governmental Accounting Standards Board Statement Number 54 Effective with Fiscal Year 2010/2011 and (2) Delegation of Certain Authority to the City Manager and Chief Financial Officer.
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City of Culver City, California
Agenda Item Report
Meeting Date: 07/25/2011 Item Number: C-7
CITY COUNCIL AGENDA ITEM: (1) Adoption of a Resolution Classifying the
Various Components of Fund Balance as Defined in Governmental Accounting
Standards Board Statement Number 54 Effective with Fiscal Year 2010/2011 and (2)
Delegation of Certain Authority to the City Manager and Chief Financial Officer.
Contact Person/Dept.: Jeff Muir/Finance Phone Number: (310) 253-5865
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Public Hearing: [] Action Item: [] Attachments: [X]
Commission Action Required: Yes [] No [X] Date: _______________
Public Notification: (E-Mail) Meetings and Agendas – City Council (07/20/11)
Department Approval:
Jeff Muir (07/13/11)
City Attorney Approval:
Carol Schwab (by H. Baker) (07/18/11)
Chief Financial Officer Approval:
Jeff Muir (07/13/11)
City Manager Approval:
John M. Nachbar (07/20/11)
RECOMMENDATION
Staff recommends that the City Council adopt the proposed resolution (1) classifying
the various components of fund balance as defined in Governmental Accounting
Standards Board (GASB) Statement No. 54 (GASB 54) effective with Fiscal Year
2010/2011 and (2) delegating certain authority to the City Manager and Chief
Financial Officer.
BACKGROUND
In February 2009, GASB 54, titled Fund Balance Reporting and Governmental Fund
Type Definitions, was issued. This new standard does not change the total amount
of a given fund balance, but it substantially alters the categories and terminology
used to describe the components that make up a fund’s balance. The new
categories and terminology reflect an approach that focuses not on financial
resources available for appropriation within a fund, but on the extent to which the
City is bound to comply with constraints on the specific purposes for which amounts
in the fund can be spent. This staff report is being presented to provide information
to the City Council on the new reporting standard and to request the City Council
formally adopt the City's definitions of reported fund balances. The City’s auditors
recommended this action be taken as soon as possible, with its requirements being
applicable to Fiscal Year 2010/2011.
City of Culver City, California
Agenda Item Report
DISCUSSION
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
balances have been classified into three separate components: Reserved,
Designated and Undesignated. 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 reporting standard are designated to indicate
the extent to which the City is bound by these limitations placed upon the resources.
GASB 54 defines five new components of fund balance that will replace the current
existing three components. The five new components are:
Nonspendable Fund Balance: That portion of a fund balance that includes amounts
that cannot be spent because they are either (a) not in a 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 a 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 a 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 a 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 an "undesignated" fund balance under
the old standard.
Unassigned Fund Balance. That portion of a 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.
City of Culver City, California
Agenda Item Report
The City’s financial statements include the information for its various component
units, which include that of the Redevelopment Agency. While the Agency is
considered a separate legal entity, its accounting services are provided by the City,
and its financial transactions are recorded in various Special Revenue funds.
Therefore, this policy will extend to the Agency and any other component units of the
City.
The auditors have also recommended that the City Council specifically designate the
City Manager and the Chief Financial Officer as having the authority to create new
funds when required. While this does not happen frequently, occasionally the City
receives grants or other monies that require separate accounting and the creation of
a new fund. The attached resolution also includes such language.
FISCAL IMPACT
There is no direct fiscal impact of implementing GASB 54. The amounts reported as
the total fund balance in any given fund are not altered. Only the reporting of the
individual components that make up total fund balance are changed. These new
classifications are required to be used on external formal financial reporting
documents, such as the Comprehensive Annual Financial Report (CAFR). As
mentioned above, should the City Council adopt the proposed resolution, these new
categories will be used in the CAFR produced for the recently ended Fiscal Year
2010/2011.
ATTACHMENTS:
Proposed Resolution
MOTION:
That the City Council:
Adopt a Resolution classifying the various components of fund balance as
defined in GASB 54 effective with Fiscal Year 2010/2011 and to delegate certain
authority to the City Manager and Chief Financial Officer.
MEETING DATE: 07/25/2011
AGENDA ITEM: (1) Adoption of a Resolution Classifying the Various
Components of Fund Balance as Defined in
Governmental Accounting Standards Board
Statement Number 54 Effective with Fiscal Year
2010/2011 and (2) Delegation of Certain Authority to
the City Manager and Chief Financial Officer.
ATTACHMENTS
1. Resolution
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