3D, Fund Balance Policy and the New GASB 54 Statement

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�� EN HILLS MEMORANDUM DATE: November 21, 2011 TO: Honorable Mayor and City Council Patrick Klaers, City Administrator FROM: Sue Iverson, Director of Finance and Administrative Services SUBJECT: Fund Balance Policy and the New GASB 54 Statement INTRODUCTION The Government Accounting Standards Board (GASB) issued Statement 54 "Fund Balance Reporting and Governmental Fund Type Definitions " in February 2009 and is effective with the 2011 reporting year. These new requirements will require us to change our presentation of fund balance and modify our fund balance policy. DISCUSSION New Fund Balance Classifications GASB 54 separates fund balance into five new categories. Under the old standards, there were three categories: Reserved, Designated, and Undesignated. The new categories are more descriptive, and focus o how the City plans to use its resources. A brief description of each of the new categories is listed below along with examples of each. Nonspendable fund balance — The nonspendable fund balance classification includes amounts that cannot be spent because they are either (a) not in spendable form, or (b) legally or contractually required to be maintained intact. "Not in spendable form" means items that are not expected to be converted to cash. Examples of items that are not in spendable form include inventories, prepaid items, long-term amounts of loans and notes receivable, and land held for resale. Restricted fund balance — Fund balance should be reported as restricted when constraints placed on the use of resources are either (a) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or (b) imposed by law through constitutional provisions or enabling legislation. Examples of items that may be considered restricted include unspent bond proceeds, unspent grant proceeds, tax increments, certain property tax levies approved by a referendum, and accumulated funds in debt service funds.