TITLE
Recommendation to adopt the Fund Balance Policy; approve the Assignment and Commitment of Fund Balances; and approve new fund classifications and additions. (Citywide)
DISCUSSION
New accounting standards (GASB 54 - Fund Balance Reporting and Governmental Fund Type Definitions) require a number of changes to our financial policies and fund accounting effective with this fiscal year (FY 11) ending September 30, 2011. The primary purpose of these changes is to improve standardization of national governmental reporting of funds and fund balances. Compliance with accounting standards is essential for Long Beach to participate in the debt markets and to have a good financial reputation.
As part of compliance with the revised standards, a Fund Balance Policy is proposed for adoption by the City Council (Attachment A). The Fund Balance Policy adopts a percentage level for total fund balance based on the recommendations of the Government Finance Officers Association (GFOA). The policy will also serve to enhance the City Council's ability to provide for fiscal sustainability and strength of the City.
GASB 54 changes the definitions of certain fund types. As such, it is recommended that the following actions be taken to provide for the City's compliance with GASB 54:
· A general debt service fund is re-established to account for governmental debt service activities.
· The Development Services Fund is reclassified as an enterprise fund. This reclassification better reflects how the activities in this fund actually operate (self-supporting).
· The Upland Oil Fund remains the same from a budgetary viewpoint (a separate fund), but is reclassified as a subset of the General Fund in the City's official financial statements in order to bring this fund into compliance with GASB 54.
GASB 54 also required the City to assess the existing fund balances of all governmental funds and to take any necessary action to align fund balances with the new accounting standard. Based on that assessment, the following chart identifies the status of the General Fund (inclusive of Upland Oil) as of September 30, 2010, and provides the recommended classification in accordance with GASB 54. The percentage column shown below uses a definition of expenditures consistent with the way rating agencies define expenditures.
The commitment for future Oil Field Abandonment Costs is from the Upland Oil Fund. The purpose of the Emergency Reserve, the Operating Reserve (old Budget Stabilization reserve), the Subsequent Years Appropriations, Infrastructure Reserve and the Systems Replacement and Technology Reserve are all described in the attached Fund Balance Policy. The balances are based on the audited financials of the City for September 30, 2010. The balances for September 30, 2011, are expected to increase significantly as Upland Oil funds are added. Staff will report back to the City Council when updated balances are available.
This matter was reviewed by Assistant City Attorney Heather A. Mahood on August 2, 2011, and Budget Management Officer Victoria Bell on August 3, 2011.
TIMING CONSIDERATIONS
City Council action is requested on September 20, 2011, to ensure sufficient time to complete the implementation of GASB 54 mandates by the required fiscal year end (FY 11) on September 30, 2011.
FISCAL IMPACT
There is no fiscal impact associated with this action.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
JOHN GROSS
DIRECTOR OF FINANCIAL MANAGEMENT/CFO
APPROVED:
PATRICK H. WEST
CITY MANAGER