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R503RESOLUTION NO. 503 A RESOLUTION ADOPTING AN AMENDED CITY OF KENNEDALE FUND BALANCE POLICY WHEREAS, on September 22, 2011, City Council adopted the document entitled, "Fund Balance Policy," a framework for fiscal decision - making to ensure that financial resources are available to meet the present and future needs of the citizens of Kennedale; and WHEREAS, the City of Kennedale, Texas ( "City ") elected to implement Governmental Accounting Standards Board ( "GASB 54 ") requirements, and to apply such requirements to its financial statements beginning with the October 1, 2010 — September 30, 2011 fiscal year; and WHEREAS, GASB has adopted a new standard in GASB 54 for governmental fund balance reporting and governmental fund type definitions that the City desires to implement in its Fund Balance Policy. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF KENNEDALE, TEXAS: The City Council of the City of Kennedale, Texas hereby approves the amended Fund Balance Policy dated October 17, 2016, attached hereto as "Exhibit A." PASSED, ADOPTED AND APPROVED by the City Council of the City of Kennedale, Texas, this the 17th day of October, 2016. A MR ATTEST: is City Secretary, Leslie Galloway CITY OF KENNEDALE FUND BALANCE POLICY ORIGINALLY ADOPTED BY CITY COUNCIL: SEPTEMBER 22, 2011 PREFACE The purpose of this policy is to establish guidelines for fund balance levels within each of City of Kennedale'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 Kennedale 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. It is our intent to bring forth this policy to Council for review at least annually. In order to demonstrate that review, it will be custom practice for the governing board of a municipality to adopt a resolution to make the review an official public record. SUBSEQUENT REVIEW & ADOPTION OCTOBER 3, 2012 OCTOBER 1, 2013 OCTOBER 13, 2014 OCTOBER 19, 2015 OCTOBER 17, 2016 2 I. BACKGROUND The Governmental Accounting Standards Board (GASB) has adopted Statement 54 (GASB 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. The City of Kennedale elects to implement GASB 54 requirements, and to apply such requirements to its financial statements beginning with the current October 1, 2010 — September 3, 2011 fiscal year. II. DEFINITIONS & CATEGORIES Fund Balance is 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: 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. 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. 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. 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. 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. 3 III. POLICY 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, Director of Finance or their 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 (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 an unassigned fund balance in the general fund equal to eighteen percent (18 %) with a goal of twenty -five percent (25 %) of budgeted expenditures for unanticipated expenditures, unforeseen revenue fluctuations, or other adverse circumstances. The fund balance level, however, may be reduced to the equivalent of twelve percent (12 %) of budgeted expenditures in unusual financial circumstances. However, if such a situation occurs, the City will implement necessary corrective action within a five -year plan to restore the unassigned fund balance to eighteen percent (18 %) to twenty percent (25 %) of budgeted expenditures. As for the General Fund Debt Service Fund, it is the goal of the City to achieve and maintain an unassigned fund balance equal to seven percent (7 %) with a goal of ten percent (10 %). Should the fund balance level be reduced to five percent (5 %) in unusual financial circumstances, the City will implement necessary corrective action within a five -year plan to restore the unassigned fund balance to seven percent (7 %) to ten percent (10 %) of budgeted expenditures. 4 Non - Governmental Fund Balance 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 eighteen percent (18 %) with a goal of twenty -five percent (25 %) of budgeted expenditures for the Water /Sewer Fund. 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 eighteen percent (18 %) to twenty percent (25 %) of budgeted expenditures. IV. ANNUAL REVIEW The Director of Finance shall, at a minimum, submit proposed amendments of this policy to the City Council annually.