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17-M-34 Amendment of GASB 54 Fund Balance StandardsAN ORDINANCE AUTHORIZING THE AMENDMENT OF GASB 54 FUND BALANCE STANDARDS, APPLICATIONS, AND POLICY OF THE CITY OF SCHERTZ; AND RELATED MATTERS IN CONNECTION THEREWITH WHEREAS, the Governmental Accounting Standards Board ( "GASB ") is the independent organization that establishes and improves standards of accounting and financial reporting for state and local governments and is recognized by governments, the accounting industry, and capital markets as the official source of generally accepted accounting principles (GAAP) for state and local governments; WHEREAS, the Governmental Accounting Standards Board ( "GASB ") has adopted Statement 54, a new standard for governmental fund balance reporting and governmental fund type definitions that became effective in governmental fiscal year starting after June 15, 2010; WHEREAS, the City Council (the "Council ") of the City of Schertz, Texas (the "City ") through Ordinance 12 -M -02, authorized the implementation of GASB 54 requirements, and directed that such requirements be applied to its financial statements beginning with the October 1, 2010 to September 30, 2011 fiscal year; WHEREAS, the City of Schertz has found it necessary to update the Fund Balance Policy to be effective October 1, 2017; and WHEREAS, the City hereby finds and determines that the adoption of this Ordinance is in the best interests of the citizens of the City; now, therefore, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SCHERTZ, TEXAS THAT: Section 1. The Council hereby approves the adoption of the new GASB 54 Standards Fund Balance Policy as attached in Exhibit A. Section 2. The Council delegates to the City Manager the responsibility to assign money in funds when authorized fund balance is available. Section 3. All ordinances and resolutions, or parts thereof, which are in conflict or inconsistent with any provision of this Ordinance are hereby repealed to the extent of such conflict, and the provisions of this Ordinance shall be and remain controlling as to the matters resolved herein. Section 4. This Ordinance shall be construed and enforced in accordance with the laws of the State of Texas and the United States of America. 50472688.1 -1- Section 5. If any provision of this Ordinance or the application thereof to any person or circumstance shall be held to be invalid, the remainder of this Ordinance and the application of such provision to other persons and circumstances shall nevertheless be valid, and the Council hereby declares that this Ordinance would have been enacted without such invalid provision. Section 6. It is officially found, determined, and declared that the meeting at which this Ordinance is adopted was open to the public and public notice of the time, place, and subject matter of the public business to be considered at such meeting, including this Ordinance, was given, all as required by Chapter 551, as amended, Texas Government Code. Section 7. This Ordinance shall be in force and effect from and after its final passage, and it is so ordered. PASSED ON FIRST READING on the 291h day of August, 2017. PASSED AND ADOPTED on second and final reading on the 5th day of September, 2017. CITY OF SCHERTZ, TEXAS By: c a R. Carpenter, Mayor ATTEST: ( 13MI'D Brenda Dennis, City Secretary (SEAL OF THE CITY) 50472688.1 [M.�i,�! IORI71III W-11 OLre, a Kli a ral (see Attached) 50472688.1 A -1 SCHHEIR CZ 11, OCOMMUNITY PPORTUNITY CITY OF SCIIERTZ FINANCIAL POLICY PREPARED i ,,,. Finance APPROVED i Counci DATEAPPROVED: i EFFECTIVE DATE: 10/01/2017 REPLACES r O O 1 111 Purpose: The purpose of this policy is to establish a key element of the financial stability of the City of Schertz by setting guidelines for fund balance. Unassigned fund balance is an important measure of economic stability and it is essential that the City maintain adequate levels of unassigned fund balance to mitigate financial risk that can occur from unforeseen revenue fluctuations, unanticipated expenditures, and other similar circumstances. This policy will ensure the City maintains adequate fund balances in the operating fund with the capacity to: 1. Provide sufficient cash flow for daily financial needs, 2. Provide funds for unforeseen expenditures related to Disasters, 25 %, and /or a Contingency, 1%. 3. Offset significant economic downturns or revenue shortfalls, and 4. Secure and maintain investment grade bond ratings. Definitions: Contingency - An amount over the minimum required fund balance that allows the City to achieve proposed levels of service in the event that revenues do not meet projections, expenses exceed projections for items that cannot be accurately projected for a particular year, such as building repair costs, or to provide an immediate increase in level of service or maintain the proposed level or service in the event of a changed condition. Disaster — A disaster is officially declared by the Mayor when an emergency situation has caused severe damage, injury, or loss of life or it appears likely to do so, of either man made or natural causes. Additional funds outside of operations would be required to support rescue operations and /or make up for lost revenue caused by large commercial property loss. Fund Balance - An accounting distinction is made between the portions of fund balance that are spendable and non - spendable. These are broken into five categories: 1. Non - spendable fund balance - includes amounts that are not in spendable form or are required to be maintained intact. Examples are inventory, endowment, permanent SCHIJERTZ = OCOMMUNITY PPORTUNITY CITY OF SCHERTZ FINANCIAL POLICY funds, and prepaid items (to the extent that such balances are not offset with liabilities and actually result in fund balance). 2. Restricted fund balance - includes amounts that can be spent only for the specific purposes stipulated by external resource providers either constitutionally or through enabling legislation. Examples include grants and child safety fees. 3. Committed fund balance - includes amounts that can be used only for the specific purposes determined by a 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. 4. Assigned fund balance - comprises amounts intended to be used by the government for specific purposes. Intent can be expressed by the governing body or by an official or body to which the government delegates the authority. In governmental funds, assigned fund balance represents the amount that is not restricted or committed. This indicates that resources in other governmental funds are, at a minimum, intended to be used for that fund. Such assignments cannot exceed the available (spendable, unrestricted, uncommitted) fund balance in any particular fund. 5. Unassigned fund balance - is the residual classification of the general fund and includes all amounts not contained in other classifications. Unassigned amounts are technically available for any purpose. In other funds, the unassigned classification should be used only to report a deficit balance from overspending for specific purposes for which amounts had been restricted, committed, or assigned. Fund Equity - A fund's equity is generally the difference between its assets and its liabilities and is the accounting equivalent to Fund Balance for non - governmental funds, ie the Water & Sewer Funds, the Drainage Fund, and the Emergency Medical Service (EMS) Fund. Non - Governmental Funds - City Funds set up to operate like a business and balance their expenditures based on fees collected for their services. Fund Balance Polic Committed Fund Balance The Council is the City's highest level of decision - making authority and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution approved by the City Council. The resolution must either be approved or rescinded, as applicable, prior to the last day of the fiscal year for which the commitment is made. The amount subject to the constraint may be determined in the subsequent period. C J HEll 1 TZ � OCOMMUNITY PPORTUNITY CITY OF SCERTZ FINANCIAL, POLICY Assigned Fund Balance The City Council has authorized the City Manager as the officials authorized to assign the fund balance to a specific purpose as approved by this fund balance policy. Target Unrestricted Fund Balance The City's goal is to achieve and maintain an unrestricted fund balance in the General Fund equal to 26% of budgeted operating expenditures, 25% for a Disaster, and 1% for Contingency. The unrestricted fund balance is made up of the committed fund balance, the assigned fund balance, and the unassigned fund balance. In the event the unrestricted fund balance is calculated to be less than the policy stipulates, the City shall plan to adjust budget resources in subsequent fiscal years to restore the balance. Appropriation of Unrestricted Fund Balance To reduce Unrestricted Fund Balance below 26 %, there must be council action to use this contingency amount. This 1% is set aside in the Fund Balance to be used on emergency or unexpected expenditures to repair or replace vital city infrastructure that was not identified in the City's five year forecast. It can also be used to prevent the reduction in fund balance below 25% at the onset of a recession. Once the recession has been identified the City will take steps to match the annual budget with the slow down or reduction in revenues. Steps taken to prevent the further reduction in fund balance from a recession would be to freeze or delay hiring for new or vacant positions, delay new programs or projects, freeze wages, and reduce or eliminate services, including wage reductions and layoffs. Any reduction or elimination of services would be looked at strategically for levels of utilization by the citizens and alignment with the City's Policy Values. The goal would be to adjust the budget and services enough to prevent further reduction in fund balance. To reduce the Unrestricted Fund Balance below 25 %, the Mayor must declare an emergency. The funds would be used to provide rescue operations and relief efforts and could be reimbursed by the State or Federal governments but would need to be fronted by the City. If the disaster causes significant reduction in city revenues, the fund balance could be reduced below 25% to provide funding to maintain city services at their pre- disaster levels. The fund balance could be used this way until revenues recover enough to sustain city services on their own or until it is determined the negative impact is much longer lasting, prompting a review of service levels to match the updated operational revenue without use of fund balance. Replenishment of Fund Balance Reserves If unrestricted fund balance falls below 26% or if it is anticipated that at the completion of any fiscal year the projected fund balance will be less than the minimum requirement, the City Manager shall prepare and submit a plan to City Council to restore the target required CL JHEIR TZ OCOMMUNITY PPORTUNITY level. The plan shall detail the steps necessary for the replenishment of fund balance as well as an estimated timeline for achieving such, not to exceed five years. Order of Expenditure of Funds When multiple categories of fund balance are available for expenditure, the City will start with the most restricted category and spend those funds first before moving down to the next category with available funds. Accumulation and Use of Fund Balance The unrestricted fund balance will be allowed to accumulate above the 26% target to accommodate irregular capital or operating expenses identified in the five -year budget forecast or capital improvements plan that cannot be covered with annual revenue sources during one fiscal year without a reduction in fund balance. City Council will be made aware of the specific known expenditures or projects that are expected to cause a reduction in fund balance as part of the budget process and will approve the accumulation of unrestricted revenues above the 26% target. If there is an unexpected increase in the unrestricted fund balance during the current fiscal year, those funds will be used in the following fiscal year to enhance the city's operations or reduce the tax rate as approved by City Council during the budget process. Monitoring and Reporting The Finance Director shall be responsible for monitoring and reporting the City's reserve balances. The City Manager is directed to make recommendations to the Council on the use of reserve funds both as an element of the annual operating budget submission and from time to time throughout the fiscal year as needs may arise. Compliance with the provisions of the policy shall be reviewed as a part of the annual operating budget adoption process and subsequent review will be included in the annual audit and financial statement preparation procedures. Fund Equity Policy Minimum Unrestricted Fund Equity The City's goal is to achieve and maintain an unrestricted fund balance in the Water & Sewer Funds, the Drainage Fund, and the EMS Fund equal to 26% of budgeted operating expenditures. In the event that the unrestricted fund equity is calculated to be less than the policy stipulates, the City shall plan to adjust budget resources in subsequent fiscal years to restore the balance. SCHHEIR TZ COMMUNITY Replenishment of Minimum fund Equity Reserves If unrestricted fund equity falls below 26% or if it is anticipated that at the completion of any fiscal year the projected fund balance will be less than the minimum requirement, the City Manager shall prepare and submit a plan to City Council to restore the minimum required level. The plan shall detail the steps necessary for the replenishment of fund balance as well as an estimated timeline for achieving such.