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Home My WebLink About5K, GASB 54 Revenue Commitments and Fund Changes� EN HILLS ' Request for Council Action Prepared By: Sue Iverson, Director of Finance and � Council Meeting Date: December 12, 2012 Administrative Services GASB 54 Revenue Commitments and Fund Changes Budgefed Amount: Actual Amount: Funding Source: N/A N/A N/A Recommendation: 1. Motion to approve the reclassifcation/elimination effective January l, 2011 of: • The Risk Management fund from a Special Revenue fund to an Internal Service fund • The Parks fund from a Special Revenue fund to a Capital fund • The elimination of the Community Service fund and its contents transferred to tfie Public Safety Capital fund • The elimination of the TCAAP fund and its contents transferred to a department in the General fund. 2. Motion to approve Resolution 20ll-060, a resolution committing specific revenue sources in Special Revenue funds. : 5uppoMinE Documents: 1. Memorandum from Sue Iverson, Director of Finance and Administrative Services, dated December 12, 2011. 2. Resolution 2011-060. � EN HILLS MEMORANDUM DATE: December 12, 2011 TO: Honorable Mayor and City Council Patrick Klaers, City Administrator FROM: Sue Iverson, Director of Finance and Administrative Services SUBJECT: GASB 54 Revenue Commitments and Fund Changes 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. T'he new categories are more descriptive, and focus on 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. Memo City Council Fund Balance Policy and the New GASB 54 Statement 2 Committed fund balance — Fund balance should be reported as committed for amounts that can only be used for specific purposed uses pursuant to constraints imposed by formal action of the government's highest level of decision-making authority (City Council). Commitments may be changed or lifted only by the government taking the same formal action that imposed the constraint originally. An example of committed fund balance would be the City Council committin� funds for economic development purposes. Assigned fund balance — Amounts that are constrained by the government's intent to be used for specific purposes, but are neither restricted nor committed, should be reported as assigned fund balance. Assigned fund balance includes (a) all remaining amounts (except for negative balances) that are reported in governmental funds other than the general fund, that are not classified as nonspendable and are neither restricted nar committed and (b) amounts in the general fund that are intended to be used for a specific purpose in accordance with iirst sentence of this paragraph. Intent can be expressed by the government body or by an official or body to which the governing body delegates the authority (Director of Finance and Administrative Services and/or City Administrator). An example of assigned fund balance would be the City's portion of a construction project where other funding was received with the requirement of a match. Unassigned fund balance — residual amounts that are available for any purpose in the general fund. This category can only be found in the general funds, as by being in any other fund, the City has stated its intent to use if for the purpose of that fund. Committed, assigned, and unassigned fund balance combine to make unrestricted fund balance. Chan�es Due to GASB 54 This does not change how the City of Arden Hills conducts business. All of the changes will be from a presentation standpoint in the City's Comprehensive Annual Financial Report (CAFR) and the Fund Balance Policies. This will also affect how we present the budget. Other than the new classifications being presented in the CAFR and budget, there are several other changes of note. One change will be related to the classification of the City's current Special Revenue Funds. The only funds that will remain Special Revenue Funds will be the Cable Fund and the EDA funds. The Cable Fund has external restrictions and the EDA is a blended component unit of the City which requires this to be reported as a Special Revenue Fund. The Community Service Fund and Parks Fund are used for capital purposes and thus, reassigned to Capital Funds. Since the charitable gambling revenue (currently in the Community Service Fund) is restricted for public safety capital uses, this will be folded into the Public Safety Capital Fund and the Parks Fund will just be moved to the Capital Fund category. Per GASB 54, TCAAP must be folded into the General Fund as a department, thus eliminating the need to transfer General Fund monies to sustain this fund, and Risk Management will be moved to an Internal Service Fund. Memo City Council Fund Balance Policy and the New GASB 54 Statement 3 The second change is related to fund balance commitments. To meet the definition of committed fund balance, the Council is required to adopt a resolution "committing" specific revenues prior to the end of the year. The commitments made by the Council cannot change without Council taking similar action to remove them. The final change is related to the City's Fund Balance Policies which the Council adopted at the last meeting on November 28, 2011. DIRECTION REQUESTED: 1. Motion to approve the reclassification/elimination effective January 1, 2011 of • The Risk Management Fund from a Special Revenue fund to an Internal Service Fund • The Parks Fund from a Special Revenue fund to a Capital fund � The elimination of the Community Service fund and its contents transferred to the Public Safety Capital fund • The elimination of the TCAAP fund and its contents transferred to a department in the General fund. 2. Motion to approve Resolution 2011-060, a resolution committing specific revenue sources in Special Revenue funds. �� EN HILLS CITY OF ARDEN HILLS COUNTY OF RAMSEY STATE OF MINNESOTA RESOLUTION NO. 2011-060 A RESOLUTION COMMITTING SPECIFIC REVENUE SOURCES IN SPECIAL REVENUE FUNDS WHEREAS, the Governmental Accounting Standards Board's Statement #54 definition of special revenue funds states that special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditures for specified purposes other than debt service or capital projects; and, WHEREAS, the term "proceeds of specific revenue sources" establishes that one or more specific restricted or committed revenues should be the foundation for a special revenue fund and comprise a substantial portion of the fund's revenues; and, WHEREAS, investment earnings and transfers from other funds do not meet the definition of a specific revenue source; and, WHEREAS, Council action is required to formalize the commitment of the specific revenue sources to specified purposes. THEREFORE BE IT RESOLVED, by the City Council of Arden Hills that effective December 31, 2010, the specific revenue source of each special revenue fund and the specific purposes for which they are committed are as follows: EDA General Fund "Excess" TIF ° Continued investment in Economic Development EDA Revolving Loan Fund Loan Repayments Continued investment in Economic Development ADOPTED BY THE CITY COUNCIL OF THE CITY OF ARDEN HILLS THIS 12th DAY OF DECEMBER, 2011. David Grant, Mayor ATTEST: Patrick Klaers, City Administrator