08-14-07 FPAC Agenda - Laserfiche WebLink

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76 IN Financial Policies:Design and Implementation Benchmarking for Size of Unreserved Fund Balance One useful method for determining size of unreserved fund balance in the general fund is to gather quantitative information from other local governments and make comparisions.In such cases,it is best to seek out government units in the same region because these typically have similar economic conditions and will most likely have similar revenue structures (whether due to state laws that limit taxation or traditional practice). Benchmarking information is easily found in the balance sheets of local government compre- hensive annual financial reports.Unreserved fund balance in the general fund as a percent- age of general fund revenues or general fund operating expenditures should be checked for consistency across all benchmarked governments.Outliers that are significantly below or above the average may indicate extenuating circumstances,such as a high build up of funds for capital projects.A government may want to consider dropping outliers that skew the comparison. Benchmarks provided by Moody's Investor Services can also provide direction for setting a targeted level of unreserved fund balance in the general fund.See http://www.moodys.com for more information. • of a government. Designation indicates the desire to earmark funds on hand for a particular use or uses.For instance,a local government may • be concerned with increasing the number of low-income housing units within its boundaries, and, thus, may designate resources for low-income housing. The adequacy of unreserved fund balance in the general fund should be assessed based upon a local government's own specific cir- cumstances. According to GFOA's 2002 Recommended Practice, "Ap- j propriate Level of Unreserved Fund Balance in the General Fund," a government should consider a variety of factors,including: • The predictability of its revenues and the volatility of its expen- ditures (i.e., higher levels of unreserved fund balance may be needed if significant revenue sources are subject to unpredict- able fluctuations or if operating expenditures are highly volatile); • The availability of resources in other funds as well as the poten- tial 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 unre- served fund balance be maintained in the general fund); • Liquidity(i.e., a disparity between when financial resources ac- tually become available to make payments and the average ma- turity of related liabilities may require that a higher level of re- sources be maintained);and 1