08-14-07 FPAC Agenda - Laserfiche WebLink

Home Browse Search

if Fund Balance Policies•75 Invest Fund Balance Some argue that a healthy fund balance can save taxpayers money be- cause fund balance is a source for investment. Based on interest rates i} that were current when this book was published,a typical local govern- ment can expect to earn 1.57 percent per year on Treasury bills (a low-risk investment commonly found in municipal portfolios). A well-planned investment program that considers diversity, yield, and maturities can generate additional revenue (see Chapter 8 on invest- ment policies). Ensure Cash Availability When Revenue is Unavailable Implementation of a fund balance policy—and more specifically,a des- ignation for cash flows—allows governments to have funds available _' during periods of the year when revenues are not available. For in- • stance, a summer resort community may rely for a major share of its revenues on hotel taxes, collected by the state and then redistributed. The locality may not receive the largest share of such taxes until the third quarter of the calendar year(end of September),whereas seasonal employees must be paid during the summer months before these reve- nues are available.Maintaining a fund balance can balance intraperiod differences in demand for revenues and revenue availability. The remainder of this chapter describes three major sections of a • fund balance policy: 1)determining the appropriate size of unreserved fund balance (or budget stabilization fund),2)how financial resources are set aside for unreserved fund balance, and 3) methods of utilizing unreserved fund balance resources. DETERMINING THE APPROPRIATE SIZE OF UNRESERVED FUND BALANCE (OR BUDGET STABILIZATION FUND) What is the appropriate allocation among unreserved and reserved fund balance? The answer is: it depends. Varying obligations and pol- icy priorities among different local governments will dictate the size of reserved and unreserved fund balance and the type of reserved fund balance and designated fund balance(although GFOA strongly encour- ages establishment of a minimum unreserved fund balance). Reserved fund balance is determined based on the number of binding obligations ram.,