Resolution 2014-02 I
RESOLUTION NO , 2014- 02
RESOLUTION APPROVING A REVISED
FUND BALANCE POLICY
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WHEREAS , the City Council of the United City of Yorkville has considered and
discussed the importance of updating the United City of Yorkville Fund Balance Policy, and
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WHEREAS , the text of the United City of Yorkville Fund Balance Policy the City
Council now desires to adopt is set forth on the attached Exhibit "A" which is incorporated
herein, and
WHEREAS , it has been determined to be in the best interests of the United City of
Yorkville to repeal the previous Fund Balance Policy, approved by Resolution No . 2012- 11 on
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April 24 , 2012 , and adopt a revised Fund Balance Policy in the form attached hereto in Exhibit
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NOW THEREFORE BE IT RESOLVED , by the Mayor and City Council of the
United City of Yorkville, Kendall County, Illinois, that the Fund Balance Policy in the forin set
forth on Exhibit "A" attached hereto and incorporated herein is hereby adopted as the Fund
Balance Policy of the City and the previous Fund Balance Policy heretofor adopted by the City
Council is hereby repealed in its entirety.
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Passed by the City Council of the United City of Yorkville, Kendall County, Illinois this
14t" day of January, A . D . 2014 .
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�Fu-r y CITY ERK
Resolution No . 2014-02
Page 1
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CARLO COLOSIMO KEN KOCH
JACKIE MILSCHEWSKI LARRY KOT I
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CHRIS FUNKIIOUSER JOEL FRIEDERS
ROSE ANN SPEARS - DIANE TEELING
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Approved by me, as Mayor of the United City of Yorkville, Kendall County, Illinois, this
o� g day of January, A. D . 2014 .
GtlY"t, a
MAYO
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Resolution No. 2014-02
Page 2
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UNITED CITY OF YORKVILLE
FUND BALANCE POLICY
Purpose
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A Fund Balance Policy establishes a minimum level at which the projected end-of-year fund balance
should observe, as a result of the constraints imposed upon the resources reported by the governmental
funds . This policy is established to provide financial stability, cash flow for operations, and the
assurance that the United City of Yorkville will be able to respond to emergencies with fiscal resiliency.
More detailed fund balance financial reporting and the increased disclosures will aid the user of the
financial statements in understanding the availability of resources .
It is the City' s philosophy to support long-term financial strategies, where fiscal sustainability is its first
priority, while also building funds for future growth. It is essential to maintain adequate levels of funds
balance to mitigate current and future risks and to ensure tax rates . Fund balance levels are also crucial
consideration in long-term financial planning. Credit rating agencies carefully monitor levels of fund
balance and unassigned fund balance in the General Fund to evaluate the City ' s continued
creditworthiness.
Definitions
Governmental Funds
The fund balance will be composed of three primary categories : j
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1 ) Nonspendable Fund Balance — portion of a Governmental Fund ' s fund balance that are not
available to be spent, either in the short-term or long-term, or through legal restrictions (e. g. ,
inventories, prepaid items, land held for resale and endowments) .
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2) Restricted Fund Balance — portion of a Governmental Fund ' s fund balance that are subject to
external enforceable legal restrictions (e. g. , grantor, contributor and property tax levies) .
3 ) Unrestricted Fund Balance — is made up of three components :
A) Committed Fund Balance — the portion of a Governmental Fund ' s fund balance with
self-imposed constraints or limitations that have been placed at the highest level of
decision making through formal City Council action. The same action is required to
remove the commitment of fund balance.
B) Assigned Fund Balance — the portion of a Governmental Fund ' s fund balance to
denote an intended use of resources but with no formal City Council action.
C) Unassigned Fund Balance - available expendable financial resources in a
governmental fund that is not the object of tentative management plan.
Some funds are funded by a variety of resources, including both restricted and unrestricted (committed,
assigned and unassigned) .
Flow of Funds
The United City of Yorkville assumes that the order of spending fund balance is as follows : restricted,
committed, assigned, unassigned.
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Authority
Governmental Funds
Committed Fund Balance — A self-imposed constraint on spending the fund balance must be approved
by ordinance or resolution of the City Council . Any modifications or removal of the self-imposed
constraint must use the same action used to commit the fund balance. Formal action to commit fund
balance must occur before the end of the fiscal year. The dollar amount of the commitment can be
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determined after year end.
Assigned Fund Balance — An informal, self-imposed constraint on spending the fund balance based on
the City' s intent to use fund balance for a specific purpose . The Budget Officer will determine if a
portion of fund balance should be assigned.
Minimum Unrestricted Fund Balance Levels
Governmental Funds
General Fund
Purpose — Is a major fund and the general operating fund of the United City of Yorkville. I
It is used to account for all activities that are not accounted for in another fund.
Fund Balance — Unrestricted fund balance targets should represent no less than 30% of
the annual General Fund appropriations budget.
Special Revenue Fund
Pinpose - Used to account for and report the proceeds of specific revenue sources that
are legally restricted or committed to expenditures for specified purposes other than debt
service or capital projects .
Financing — Special revenue funds are provided by a specific annual property tax levy or
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other restricted and/or committed revenue source. Financing may also be received from
charges for services, etc.
Fund Balwice — Derived from property taxes (or another restricted revenue source) ;
therefore, legally restricted. The portion of fund balance derived from property taxes will
be legally restricted . The remaining fund balance amount (restricted and/or committed)
will vary and be adjusted annually with the adoption of the annual budgets for these
funds .
Debt Service Fund
Purpose — Established to account for financial resources that are restricted, committed, or
assigned to expenditure for principal and interest.
Financing — The municipality levies an amount or transfers in an amount close to the
principal and interest that is anticipated to be paid. j
Fund Balance — Derived from property taxes ; therefore, legally restricted. Any fund
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balance accumulation should be at maximum the amount of the subsequent fiscal year' s
principal and interest payments . j
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Capital Projects Fund
Pinpose - Established to account for and report financial resources that are restricted,
committed, or assigned to expenditure for capital outlays including the acquisition or
construction of capital facilities and other capital assets, excluding those types of capital
related outflows financed by proprietary funds.
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Financing — Debt financing, grants, licenses and permits and interfund transfers are used
to finance projects.
Fund Balance — Considered segregated for maintenance, construction and/or
development; therefore, considered committed, restricted, or assigned depending on the
intended source and use of the funds .
Proprietary Funds
Proprietary funds include enterprise and internal service funds .
Enterprise Fund
Purpose — For financial reporting purposes, and Enterprise Fund is established to account
for and report financial resources at are invested in capital assets, net of related debt,
restricted, or unrestricted for future spending related to the fund. The focus of enterprise
fund measurement is based upon determination of operating income, changes in net
assets, financial position, and cash flows. The generally accepted accounting principles --
applicable are those similar to businesses in the private sector. Enterprise funds are r
required to account for operations for which a fee is charged to external users for goods
or services and the activity (a) is financed with debt that is solely secured by a pledge of
the net revenues, (b) has third party requirements that the cost of providing services ,
including capital costs, be recovered with fees and charges or (c) establishes fees and
charges based on a pricing policy designed to recover similar costs .
Financing — User fees, debt financing, and/or grants are used to finance operations ,
capital outlay and improvements, and debt service retirements.
Fund Balance Equivalent — For financial reporting purposes, the equity portion of a
proprietary (enterprise or internal service) fund ' s balance sheet is comprised of "Net
Assets", which is equal to total fund assets less total fund liabilities . Net Assets are
comprised of three primary components : 1 . ) bwested in Capital Assets, Net of Related
Debt (i. e. , amounts capitalized as capital assets, less the outstanding debt related to the
acquisition of said assets) ; 2 . ) Restricted Net Assets relate to bond covenant reserves as
outlined in the bond ordinance; and 3 .) Unrestricted Net Assets .
For budgetary purposes management has chosen to deviate from the traditional full accrual presentation
of enterprise funds, and instead uses a modified accrual approach. This modified accrual approach
converts net assets into a "fund balance equivalent", by excluding long-term assets and liabilities . It is
management' s assertion that the modified accrual approach is preferable for budgetary purposes,
because it more accurately reflects the funds ability to satisfy short-term obligations (operations, capital
outlay and debt service) in current and subsequent fiscal years . Fund Balance Equivalency targets for
enterprise funds should be maintained at no less than 25 % of the annual appropriations budget.
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Other Considerations
In establishing the above policies for unrestricted fund balance levels, the United City of Yorkville
considered the following factors :
• The predictability of the City' s revenues and the volatility of its expenditures (i. e. , higher levels
of unrestricted fund balance may be needed if significant revenue sources are subject to
unpredictable fluctuations or if operating expenditures are highly volatile) .
• The City ' s perceived exposure to significant one-time outlays (e. g. , disasters, immediate capital
needs, state budget cuts) .
• The potential drain upon General Fund resources from other funds as well as the availability of
resources in other funds (i. e. , deficits in other funds may require a higher level of unrestricted
fund balance be maintained in the General Fund, just as, the availability of resources in other
funds may reduce the amount of unrestricted fund balance needed in the General Fund) .
• Liquidity (i. e. , a disparity between when financial resources actually become available to make
payments and the average maturity of related liabilities may require that a higher level of
resources be maintained) .
• Commitments and assignments (i . e. , governments may wish to maintain higher levels of
unrestricted fund balance to compensate for any portion of unrestricted fund balance already
committed or assigned by the government for a specific purpose) .
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If any of the above factors change, the City should readdress current unrestricted fund balance levels to
ensure amounts are appropriate.
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