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Finance Committee Meeting Date: 10/25/2011 By: Diana Lund, Finance 4.2. Title: Resolution Restricting and /or Committing Revenue Sources in Special Revenue Funds and Resolution Amending the Fund Balance Financial Policy in Regard to the Implementation of Governmental Accounting Standards Board (GASB) Statement 54 Background: The city is required to implement GASB (Governmental Accounting & Standards Board) 54 as part of its audit reporting requirements in 2011. GASB 54 states how an entities fund balance is to be presented within its financial statements. This helps demonstrate financial planning for accumulated resources and subsequently how they may or will be spent. New Fund Balance Classifications: GASB 54 separates fund balance into five new categories. Under the old standards, there were three categories: Reserved, Designated, and Undesignated. The new categories are more descriptive, and focus on how the City plans to use its resources. A brief description of each of the new categories is listed below along with examples of each. Nonspendable fund balance - amounts that are not in a spendable form or are required to be maintained intact. An example of nonspendable fund balance is inventory. Inventory cannot be spent without being converted to cash first. Restricted fund balance - amounts subject to externally enforceable legal restrictions. An example of restricted fund balance is grant proceeds required to be spent for a specific purpose. Tax Increment received from he County is an example of a restricted fund. Tax Increment laws dictate how tax increment funds may be used. Committed fund balance- 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. An example of committed fund balance would be the City Council committing developer fees to storm water management projects in the city. Assigned fund balance - amounts a government intends to use for a specific purpose; intent can be expressed by the government body or by an official or body to which the governing body delegates the authority (City Administrator and /or Finance Director). An example of assigned fund balance would be the City's portion of a construction project where other funding was received with the requirement of a match. Unassigned fund balance- residual amounts that are available for any purpose in the general fund. This category can only be found in the general fund, as by being in any other fund, the City has stated its intent to use it for the purpose of that fund. Committed, assigned, and unassigned fund balance combine to make unrestricted fund balance. Changes Due to GASB 54: This does not change how the City of Ramsey conducts business. All of the changes will be from a presentation standpoint in the City's Comprehensive Annual Financial Report (CAFR) and the Fund Balance Policies. Other than the new classifications being presented in the CAFR, there are several other changes of note.