2016-287sAlegal\our documents\ordinances\16\fund balance policy proposed ordinance 2016.doc
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF DENTON, TEXAS,
AMENDING THE CITY'S FUND BALANCE POLICY;AND PROVIDING
DATE.
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 years starting after June 15, 2010;
and
WHEREAS, the City Council of the City of Denton adopted a "Fund Balance Policy" on
September 20, 2011 with passage of Ordinance No. 2011-157; and
WHEREAS, the City Council of the City of Denton amended its "Fund Balance Policy"
on September 15, 2015 with passage of Ordinance No. 2015-271; and
WHEREAS, the City Council of the City of Denton desires to amend its "Fund Balance
Policy" specifically for the General Fund's minimum unassigned fund balance and Non -
Governmental Funds' operating reserve levels; NOW, THEREFORE,
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SECTION 1. The City Council hereby amends the policy entitled "Fund Balance
Policy," attached hereto and made a part hereof, as an official policy of the City of Denton,
Texas.
SECTION 2. The attached amended Policy shall be filed in the official records with the
City Secretary.
SECTION 3. This Ordinance shall become effective immediately upon its passage and
approval.
PASSED AND APPROVED this the day of e .2016.
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CHRIS ATTS, MAYOR
ATTEST:
JEN IFEIR, WALTERS, CIT SECRETARY
BY: _4111 )p.
ARPT VED AS TO LEGAL FORM:
ANITA BURGESS, CITY ATTORNEY
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BY: ' "
U-71TY OF DENTON
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The purpose of this policy is to establish guidelines for fund balance levels within each of City of
Denton's funds. It is essential that the City maintain adequate levels of fund balance to mitigate financial
risk that can occur from unforeseen revenue fluctuations, unanticipated expenditures, or adverse
circumstances. The fund balance level is also designed to provide an appropriate amount of working
capital for the City's general operations. In general, the City of Denton should strive to avoid
appropriating fund balance for recurring expenses. However, in the event that fund balance is used to
support recurring expenses, the budget should clearly identify the uses of fund balance and provide an
explanation of the circumstances requiring the use of fund balance. In addition, the budget should also
address the future potential uses of fund balance for operating expenditures.
Definitions and Categories
Fund Balance — Defined as the difference between a fund's assets and liabilities. According to the
Governmental Accounting Standards Board (GASB) statement number 54, fund balance must be allocated
into one the following five categories:
1. Non -spendable Fund Balance — includes amounts that are not in a spendable form or are legally or
contractually required to be maintained intact. Examples include inventory or endowments.
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 hotel occupancy taxes.
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.
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
governing body delegates the authority. In governmental funds other than the general fund,
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 the purpose
of that fund.
5. Unassigned Fund Balance — is the residual classification of the general fund and includes all
amounts not contained in the other classifications. Unassigned amounts are technically available
for any purpose.
Note: The above fund balance categories only apply to governmental funds,
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Committed Fund Balance
The City 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 an ordinance adopted
by the City Council. The ordinance must either adopt or rescind the commitment, 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.
Assigned Fund Balance
The City Council authorizes the City Manager or his/her designee as the official authorized person to
assign fund balance to a specific purpose approved by this fund balance policy.
Order of Expenditure of Fund Balance
When multiple categories of fund balance are available for expenditure and approved for use by the City
Council (for example, a construction project is being funded partly by a grant, funds set aside by the City
Council, and unassigned fund balance), the City will start with the most restricted category and spend
those funds first before moving down to the next category with available funds. Normally this would
result in the use of restricted, then committed, then assigned, and lastly, unassigned fund balance.
Minimum Unassigned Fund Balance
It is the goal of the City to achieve and maintain a -minimum unassigned fund balance in the general fund
equal to 20% of budgeted expenditures. An additional 5% resiliency reserve (25% combined total) may
be maintained to safeguard against unusual financial circumstances or economic downturns.
Non-governmental fund balances
The fund balance categories discussed above do not apply to proprietary funds according to GASB 54.
While not required by the GASB, the City recognizes the need to apply a minimum balance policy to the
proprietary funds maintained by the City. Therefore, the City shall maintain a minimum ending working
capital balance (current assets minus current liabilities) of at least eight percent (8%) of budgeted
expenditures for each of the proprietary funds. If the working capital level should fall below the desired
minimum, the City will implement necessary corrective action within a five-year plan to restore the
working capital balance to 8% of budgeted expenditures.
Additionally, for the Electric, Water, Wastewater, and Solid Waste Funds, operating reserves are also
established according to the unique operational aspects of each utility. Factors that affect the target
operating reserve levels include revenue stability, expense and demand volatility, infrastructure age, debt
levels and management plans for the use of the operating reserve funds. The operating reserve levels are
intended to minimize the fluctuation in rates due to unforeseen revenue and expenditure variances. The
operating reserve level is established at a range of 8% - 12% of expenses for the Electric Fund, at a range
of 20% - 31% of expenses for the Wastewater Fund, at a range of 25% - 42% of expenses for the Water
Fund, and at a range of 6% - 10% of expenses for the Solid Waste Fund. If the operating reserve balance
falls below the desired minimum of the range, the City will implement necessary corrective action within
a five-year plan to restore the rate reserve balances to the levels outlined above.