RESOLUTION 15- A RESOLUTION CREATING A NEW FUND BALANCE POLICY; RESCINDING RESOLUTION ; AND PROVIDING AN EFFECTIVE DATE.

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1 Agenda Item 16 Meeting of 11/04/15 RESOLUTION 15- A RESOLUTION CREATING A NEW FUND BALANCE POLICY; RESCINDING RESOLUTION ; AND PROVIDING AN EFFECTIVE DATE. WHEREAS, the Governmental Accounting Standards Board (GASB) Statement 54 requires that government fund reserves be classified into one of the following five defined categories: Nonspendable, Restricted, Committed, Assigned and Unrestricted; and WHEREAS, the City s Fund Balance Policy adopted by Resolution requires updates; and WHEREAS, it is necessary to adopt this resolution to ensure the City s compliance with the GASB 54 fund balance requirements effective with the Fiscal Year , September 30, 2015 financial statements; NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF NAPLES, FLORIDA: Section 1. Section 2. Section 3. Section 4. That a new Fund Balance Policy, to assist in meeting the financial needs of the City, is hereby created to conform with the requirements of the Governmental Accounting Standards Board (GSAB) Statement 54, a copy of which is attached hereto and incorporated herein by this reference. That Resolution is superseded and thus rescinded in its entirety. That this resolution shall be effective for the financial statements ending September 30, 2015 and all successive years. This Resolution shall take effect immediately upon adoption. PASSED IN OPEN AND REGULAR SESSION OF THE CITY COUNCIL OF THE CITY OF NAPLES, FLORIDA, THIS 4 TH DAY OF NOVEMBER, Attest: Patricia L. Rambosk, City Clerk John F. Sorey III, Mayor

2 Resolution 15- Page 2 Approved as to form and legality: Robert D. Pritt, City Attorney Date filed with City Clerk:

3 Resolution 15- Page 3 City of Naples Fund Balance Policy 1. PURPOSE: The City hereby establishes a fund balance policy in accordance with Governmental Accounting and Financial Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This policy is tailored to the needs of the City of Naples (the City ) to establish a level of funding that protects against unforeseen events that would adversely affect the financial condition of the City and jeopardize the continuation of operations. This policy will ensure that the City maintains a prudent level of financial resources to: 1) protect against reducing service levels or raising taxes and fees because of seasonal or temporary revenue shortfalls, natural disasters, or unexpected one-time expenditures; 2) provide for sufficient cash flow for daily financial needs; 3) offset significant economic or revenue downturns; and 4) secure and maintain investment grade bond ratings Fund balance should be reported in two main categories nonspendable and spendable, with the spendable category further broken down into four sub-categories in order of relative strength: restricted, committed, assigned and unassigned. 2. CATEGORIES OF FUND BALANCE - DEFINITIONS: Nonspendable Fund Balance: Nonspendable fund balance represents amounts that will not or cannot be converted to cash. The items include inventories, advances to other funds, long-term amounts of loans or notes receivable, and prepaid items. Spendable (in order of relative strength) Restricted Fund Balance: Restricted fund balance is the portion of fund balance that is restricted to specific purposes. Amounts are restricted when they are created by an externally enforceable legal restriction. The restrictions can be imposed by creditors, grantors, contributors, laws or regulations of other governments. Committed Fund Balance: Committed fund balance is the portion of fund balance whose amounts have self-imposed limitations, established through actions of the City Council, the City s highest level of decision making authority, set in place prior to the end of the period. These amounts cannot be used for any other purpose unless the City Council takes the same action to remove or

4 Resolution 15- Page 4 change the constraint. Purchase orders or contracts that are rolled from the prior fiscal year to the new fiscal year are committed resources. Assigned Fund Balance: Assigned fund balance is the portion that reflects the City s intended use of the assets for a specific purpose. The intended use shall be established by the City Council or any other person the City Council delegates its authority. At a minimum, Fund balances in a Special Revenue fund are Assigned. Unassigned Fund Balance: Unassigned fund balance is the portion of fund balance which is not obligated or specifically designated and is available for any purpose. This amount classification represents fund balance that has not been restricted, committed, or assigned to specific purposes in the General Fund. Only the General Fund can have a positive balance. In other funds, balances are assigned to the fund s purposes; otherwise they would be accounted for in the General Fund. 3. OTHER DEFINITIONS Encumbrances: Encumbrances are the commitment of budgeted funds to purchase an item or service. To encumber funds means to set aside or commit funds for future expenditures. Expenditures: Expenditures are all uses of financial resources, budgeted for any purpose, and include operating and capital expenses, debt service, and transfers to other funds. Fund Balance: Fund balance means the difference between fund assets and fund liabilities in a governmental fund. Operating Expenditures: Operating expenditures are uses of financial resources for personnel, supplies, services and materials, and exclude capital expenses, debt service, and transfers to other funds. Unrestricted Net Assets: Unrestricted net assets in proprietary funds are roughly equivalent to unrestricted fund balance in governmental funds; however, in the case of proprietary funds unrestricted net assets do not necessarily represent funds available for appropriation. This is because some of the unrestricted net assets offset capital assets such as buildings and equipment. Spending Priority: When a governmental fund has multiple classifications of fund balance the expenditure is determined to reduce the restricted fund balances first, then committed fund balance followed by assigned. Working Capital: Current Assets minus Current Liabilities in a Proprietary Fund.

5 Resolution 15- Page 5 4. FUND BALANCE POLICY GENERAL FUND A. Restricted There is no restricted fund balance in the General Fund. Restricted amounts shall be tracked in special revenue, capital project, or debt service funds. B. Committed a. Commitment of fund balance may be made by resolution of City Council and commitments may be changed or lifted only by Council using the same formal action. Commitment of fund balance may be made for such purposes as establishing reserves for disasters. b. The City, by this policy, establishes an Emergency Operating Reserve. In order to provide the resources necessary to ensure continued operations of the City should a catastrophic event such as a hurricane or other natural disaster occur, the City establishes an emergency operating reserve within the general fund equal to 10% of the closed fiscal year s original adopted operating budget. C. Assigned a. By this policy, the City Manager and the City Council are designated the authorities to establish assignments as part of the budget or reporting processes. b. The City establishes and confirms the Handicap Reserve in the General Fund, in accordance with City Code relating to Disabled Person Parking Space Violations. c. The City establishes and confirms the General Fund Tax Stabilization Account. In years where General Fund revenue exceeds expenditures and encumbrances, creating a surplus and the unassigned fund balance exceeds 30% of the prior year original budgeted expenditures, staff shall place 50% of the surplus into the Tax Stabilization Account, after other commitments and obligations have been met. The surplus shall be based on the final Change in Fund Balance using the Statement of Revenues Expenditures and Changes in Fund Balances schedule in the Comprehensive Annual Financial Report. D. Unassigned a. Unassigned fund balance is the residual classification for the General fund and represents fund balance that has not been committed or assigned to specific purposes.

6 Resolution 15- Page 6 b. The General Fund Unassigned Fund Balance at year-end will range between 16% and 30% percent of the prior year s original budgeted expenditures. In any fiscal year where the City is unable to fund the minimum reservation of fund balance as required in this section, the City shall not budget any amount of unassigned fund balance for the purpose of balancing the budget. 5. FUND BALANCE POLICY - SPECIAL REVENUE FUNDS. A. The Community Redevelopment Agency (CRA) Fund The CRA Fund (180) Undesignated Fund Balance shall comply with Florida Statutes related to CRA Districts which states: (7) On the last day of the fiscal year of the community redevelopment agency, any money which remains in the trust fund after the payment of expenses pursuant to subsection (6) for such year shall be: B. The Streets Fund (a) Returned to each taxing authority which paid the increment in the proportion that the amount of the payment of such taxing authority bears to the total amount paid into the trust fund by all taxing authorities for that year; (b) Used to reduce the amount of any indebtedness to which increment revenues are pledged; (c) Deposited into an escrow account for the purpose of later reducing any indebtedness to which increment revenues are pledged; or (d) Appropriated to a specific redevelopment project pursuant to an approved community redevelopment plan which project will be completed within 3 years from the date of such appropriation. The Streets Fund (190) Undesignated Fund Balance shall be between 16% and 30% of the prior year s original operating budget, with any surplus reserved for future planned or unplanned capital projects. C. Other Operating Funds (excluding Enterprise Funds) All Other Operating Funds of the City, excluding Enterprise Funds, shall retain sufficient Undesignated Fund Balance, in an amount ranging from 8% to 35%, as recommended by the City Manager or his designee.

7 Resolution 15- Page 7 D. Building Permit Fund The Building Permit Fund shall keep an Undesignated Fund Balance between a range of a minimum of 40% and a maximum of 85%. 6. SPENDING ORDER OF FUND BALANCES The City will use restricted amounts first when both restricted and unrestricted fund balance is available unless there are legal document/contracts that prohibit doing this such as in grant agreements requiring dollar for dollar spending. Additionally, the City would first use committed fund balance, followed by assigned and then unassigned fund balance when expenditures are incurred for purposes for which in any of the unrestricted fund balance classifications could be used. 7. UTILIZATION OF SURPLUS RESERVES If it is determined at the fiscal year end that there is a surplus (an amount in excess of the excess of the upper limit of the fund balance range for any fund) the monies may be utilized for any purpose of the City or Fund. It may also be used for one-time costs including the establishment of or the increase in restrictions or commitments of fund balance. 8. REPLENISHMENT OF RESERVE DEFICITS If at the end of any fiscal year, the actual amount of unassigned fund balance falls below the minimum required fund balance level set forth herein, the City Manager shall prepare and submit a plan for expenditure or expense reductions and/or revenue increases to the City Council. As part of the annual budget review, the City Council shall review and, if necessary, amend the plan submitted by the City Manager for restoring the amounts of unassigned fund balance to the required levels. Any deficit in the required minimum amount must be restored no later than the end of the second fiscal year following the occurrence. 9. WORKING CAPITAL PROPRIETARY FUNDS A. Enterprise Funds a. The Enterprise Funds shall retain a Working Capital in an amount between 3 and 6 months of regular ongoing operating expenses. b. Enterprise Funds shall retain an infrastructure replacement account of 15-20% of Accumulated Depreciation. c. Surplus Enterprise Fund working capital, if any, shall be used or reserved for any lawful purpose.

8 Resolution 15- Page 8 B. Internal Service Funds The Internal Service Funds shall retain a minimum designated fund balance to meet any actuarially determined liability. For the Risk Management Fund, the actuarially determined liability shall follow the 90% discounted funded level. Other Internal Service Funds shall retain a minimum Unrestricted Net Assets in an amount between 8% to 16% of the annual budget plus 10% of net capital assets. 10. ANNUAL REVIEW AND DETERMINATION OF RESERVE AMOUNTS Compliance with the provision of this policy shall be reviewed as part of the annual budget process; and revisions to the levels of fund balance will be determined during this process if necessary _ /24/ :15:02 AM

CHAPTER 7.00 BUSINESS SERVICES

CHAPTER 7.00 BUSINESS SERVICES 7.101 FUND BALANCE POLICY POLICY: Purpose: The following policy has been adopted by the School Board of Sarasota County, Florida in order to address the implications of Government