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it I <br /> • <br /> I1 <br /> CHAPTER 5 <br /> I' i <br /> ##ii+, <br /> )3 <br /> II t. <br /> Fund Balance Policies <br /> ,. , <br /> The economy's cyclical nature creates a need for comprehensive fund <br /> balance policies to ensure stable service delivery,smooth changes in tax <br /> rates or structure, and avoid revenue-expenditure imbalances. Finan- <br /> cial resources typically are amassed in a prosperous economy for use <br /> during a poor economy. Fund balance also can be allocated toward <br /> other government purposes that may require an accumulation of finan- <br /> cial resources over an extended time period.Another common and cru- <br /> cial purpose for fund balance is to smooth over periods in the fiscal year <br /> when tax revenues are unavailable.1 1`} <br /> A properly designed fund balance policy codifies the reasons for <br /> and proper size of various components of fund balance. Specifically, <br /> major sections of a fund balance policy should address: <br /> • The appropriate size of unreserved fund balance(or budget sta- <br /> bilization fund); <br /> • How financial resources are set aside for unreserved fund bal- <br /> ance;and <br /> • Methods of utilizing unreserved fund balance resources. <br /> This chapter explores fund balance terminology and major reasons <br /> for adopting a fund balance policy.It then describes in detail the major <br /> sections of a fund balance policy,using examples to illustrate important <br /> points. Note that fund balance in this chapter refers to generally ac- <br /> cepted accounting principles(GAAP)fund balance rather than budget- <br /> ary fund balance.2 <br /> } <br /> 71 <br />