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Fund Balance - Net Position Policy and Procedures (BF-8, Rev. 0)DEPARTMENT: SUBJECT: REVISION: APPROVED BY: PURPOSE CITY OF DELRAY BEACH ADMINISTRATIVE POLICIES AND PROCEDURES Finance Fund Balance/Net Position Policy and Procedures POLICY NUMBER: BF-8 SUPERSEDES : �A EFFECTIVE DATE: 10/17/2024 Terrence Moore, ICMA-CM, City Manager This policy will ensure that the City maintains adequate fund balance/net position and reserves in the City's various operating funds to: 1) provide sufficient cash flow for daily financial needs, (2) secure and maintain investment grade bond ratings, (3) offset significant economic downturns and revenue shortfalls and (4) provide funds for unforeseen expenditures related to emergencies. POLICY The City will maintain reservations of unassigned fund balance in the General Fund and unrestricted net positions in the Proprietary Funds of the City as described herein. Maintaining reservations of unassigned fund balance for Other Governmental Funds is not allowable as per Governmental Accounting Standards Board (GASB) Statement No. 54, paragraph 17. A.General Fund: The General Fund is the City's main operating fund. There shall be a reserve balance in its unassigned fund balance of 21 % to 25% of the current fiscal year's budgeted operating expenditures, excluding transfers. For calculation purposes, the current fiscal year budget shall be the budget as originally adopted by the City Commission on or before September 30th. The reserve shall be in addition to all other categories of fund balance which include Non-Spendable, Restricted, Committed, and Assigned. B.Other Governmental Funds: Other Governmental Funds are used to account for assets that are restricted or committed for specific purposes. The City is not allowed to make reservations of a positive unassigned fund balance as defined above. For negative unassigned fund balances, see Procedures Section C ("Replenishment of Reserve Deficits"). Other Governmental Funds include: 1.) Special Revenue Funds: Special Revenue Funds are used to account for proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. Examples of Special Revenue Funds include the Law Enforcement Trust Fund, Special Projects Fund, Neighborhood Services Fund, Beautification Fund, and Developers Land Contribution Fund. Fund Balance/Net Position Policy and Procedures BF-8 Page 2 of 4 2.) Debt Service Fund: This fund accounts for assets held and restricted for the repayment of principal and interest on debt reported in the government-wide financial statements. Examples of Debt Service Funds include General Obligation Debt Service Fund and Utilities Tax Fund. 3.) Capital Projects Funds -These funds are used to account for financial resources that are restricted or assigned for the acquisition or construction of major capital facilities ( other than those financed by proprietary funds). Examples of Capital Projects Funds include Beach Renourishment Fund, General Construction Fund and the 2004 General Obligation Fund. C.Proprietary Funds: Proprietary Funds are used for business type activities. These funds may be used to report any activity in which a fee is charged to external users for goods or services, but must be used whenever there is outstanding debt backed solely by fees and charges, or there are laws and regulations that require fees and charges to recover costs or there is a pricing policy that fees and charges be set to recover costs. The City will maintain a minimum level of Working Capital (current assets minus current liabilities) of its Water & Sewer and Stormwater Enterprise Funds equal to three months (25%) of regular, on-going operating expenses. The minimum level for all other enterprise funds shall be not less than 15% of regular ongoing operating expenses. In the event that the reserves are used resulting in a balance below the specified minimum levels, the Chief Financial Officer, or designee, will develop a plan to be presented during the annual budget process. For the purposes of calculation, the current year shall be the budget as originally adopted by resolution on or before September 30th. Proprietary Funds are as follows: City Marina, Sanitation Fund, Water and Sewer Fund, Municipal Golf Course Fund, Lakeview Golf Course Fund, Cemetery Fund and the Stormwater Fund. D.Internal Service Funds: Internal Service Funds are used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the City, or to other governmental units on a cost reimbursement basis. The City will maintain a minimum level of unrestricted net position equal to 15% of the fund's total operating budget. Unrestricted net position is that portion of net position that is the residual amount of the net position (the sum of total assets and deferred outflows less the sum of total liabilities and deferred inflows of resources) that is not included in the net investment in capital assets or restricted net position. The City has the following Internal Service Funds: Central Garage Fund and the Insurance Fund. E.Definitions of Fund Balance/Net Assets Fund Balance of Governmental Funds: Fund Balance -As defined by the Governmental Accounting, Auditing and Financial Reporting of the Government Finance Officers Association, fund balance is net position of a governmental fund (difference between assets, liabilities, deferred outflows of resources and deferred inflows of resources). Non-Spendable Fund Balance -Amounts that are (a) not in spendable form or (b) legally or contractually required to be maintained intact. "Not in spendable form" includes items that are not expected to be converted to cash (such as inventories and prepaid amounts), items such as long-term amount of loans and notes receivable as well as property acquired for resale. Fund Balance/Net Position Policy and Procedures BF-8 Page 3 of 4 Restricted Fund Balance -Amounts that can be spent only for specific purposes stipulated by (a) external resource providers (such as creditors, granters, or contributors), or laws or regulations of other governments or (b) imposed by law through constitutional provisions or enabling legislation. Committed Fund Balance -Amounts that can be used only for the specific purposes determined by a formal action (ordinance or resolution) of the City Commission, the City's highest level of decision-making authority. Commitments may be changed or lifted only by the City Commission taking the same formal action (ordinance or resolution) that imposed the constraint originally. Resources accumulated pursuant to stabilization arrangements sometimes are reported in this category. Assigned Fund Balance -Consists of amounts that the City intends to use for specific purposes that are neither restricted nor committed. The intent shall be expressed by the management of the City. This balance can include encumbrances or amounts set aside for a subsequent year's budget. Unassigned Fund Balance -Unassigned fund balance is the residual classification for the General Fund. This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the General Fund. For other governmental Funds, unassigned fund balances shall not include positive balances but may include negative balances if expenditures exceed amounts restricted, committed, or assigned for those specific purposes. Unrestricted Fund Balance -Consists of the total of the last three categories (Committed Fund Balance, Assigned Fund Balance and Unassigned Fund Balance) and includes only resources without a constraint on spending or for which the constraint on spending is imposed by the government. Net Position of Proprietary Funds: Restricted Net Position -Amounts that can be spent only for specific purposes stipulated by (a) external resource providers (such as creditors, granters, or contributors) or laws or regulations of other governments or (b) imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Position -The residual balance of net position after the elimination of the amounts invested in capital assets net of related debt and the restricted net position. PROCEDURE A.UTILIZATION OF SUR PLUS RESERVES In the event that the unassigned fund balance of the General Fund or working capital of the proprietary funds, the excess may be utilized for any lawful purpose. It is recommended, however, that priority be given to utilizing the excess within the fund in which it was generated. It may also be used for one-time costs including the establishment of or increase in legitimate restrictions, commitments or assignments of fund balance or restrictions of net assets. B.SPENDING ORDER OF FUND BALANCES The City shall use restricted amounts to be spent first when both restricted and unrestricted fund balance is available unless there are legal documents/contracts that prohibit doing this, such as grant agreements requiring dollar for dollar spending. Additionally, the City shall first use committed fund balance, followed Fund Balance/Net Position Policy and Procedures BF-8 Page 4 of 4 by assigned fund balance and then unassigned fund balance when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used. C.REPLENISHMENT OF RESERVE DEFICITS If, at the end of any fiscal year, the actual amount of unassigned fund balance or working capital falls below the required fund levels set forth herein, the City Manager shall prepare and submit a plan for expenditure or expense reductions and/or revenue increases to the City Commission. As a part of the annual budget review, the City Commission shall review and, if necessary, amend the plan submitted by the City Manager for restoring the amounts of unassigned fund balance or working capital to the required levels. Any deficit in the required amount must be restored no later than the end of the third fiscal year following the occurrence. D.ANNUAL REVIEW Compliance with the provisions of this policy shall be reviewed as a part of the annual budget adoption process and the amounts of restricted, committed, assigned, non-spendable and the minimum level of unassigned fund balance shall be determined during this process. E.ADDITIONAL REQUIREMENTS It will be the responsibility of the Chief Financial Officer to keep this policy current.