07-10-07 FPAC Agenda - Laserfiche WebLink

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unreserved fund balance in the general fund significantly in excess of these recommended minimum levels.' Furthermore, such measures should be applied within the context of long-term forecasting,thereby avoiding the risk of placing too much emphasis upon the level of unreserved fund balance in the general fund at any one time. In establishing a policy governing the level of unreserved fund balance in the general fund, a government should consider a variety of factors, including: • The predictability of it revenues and the volatility of its expenditures(i.e., higher levels of unreserved fund balance may be needed if significant revenue sources are subject to unpredictable fluctuations or if operating expenditures are highly volatile). • The availability of resources in other funds as well as the potential drain upon general fund resources from other funds (i.e.,the availability of resources in other funds may reduce the amount of unreserved fund balance needed in the general fund,just as deficits in other funds may require that a higher level of unreserved fund balance be maintained in the general fund). • Liquidity(i.e., a disparity between when financial resources actually become available to make payments and the average maturity of related liabilities may require that a higher level of resources be maintained). • Designations (i.e., governments may wish to maintain higher levels of unreserved fund balance to compensate for any portion of unreserved fund balance already designated for a specific purpose). • Naturally, any policy addressing desirable levels of unreserved fund balance in the general fund should be in conformity with all applicable legal and regulatory constraints. In this case in particular, it is essential that differences between GAAP fund balance and budgetary fund balance be fully appreciated by all interested parties. ' For the sake of clarity,this recommended practice uses the terms GAAP fund balance and budgetary fund balance to distinguish these two different uses of the same term. 2 Sometimes reserved fund balance includes resources available to finance items that typically would require the use of unreserved fund balance(e.g., a contingency reserve). In that case, such amounts should be included as part of unreserved fund balance for purposes of analysis. See Recommended Practice 4.1 of the National Advisory Council on State and Local Budgeting governments on the need to "maintain a prudent level of financial resources to protect against reducing service levels or raising taxes and fees because of temporary revenue shortfalls or unpredicted one-time expenditures" (Recommended Practice 4.1). 4The choice of revenues or expenditures as a basis of comparison may be dictated by what is more predictable in a government's particular circumstances. In either case, unusual items that would distort trends(e.g., one-time revenues and expenditures) should be excluded,whereas recurring transfers should be included. Once the decision has been made to compare unreserved fund balance to either revenues or expenditures,that decision should be followed consistently from period to period.