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GENERAL FUND - FUND BALANCE POLICY 1 Policy Purpose The purpose of this policy is to establish a target level of fund balance for the general fund and to establish a process and criteria for the continued evaluation of that target level as conditions warrant. This policy shall also establish a process for reaching and or maintaining the targeted level of fund balance and the priority for the use of resources in excess of the target. Finally, this policy shall provide a mechanism for monitoring and reporting the City’s general fund balance. This policy applies only to the general fund. Definitions and Classifications Fund Balance is a term used to describe the net assets of governmental funds. It is calculated as the difference between the assets and liabilities reported in a governmental fund. Governmental fund balance is reported in five classifications that comprise a hierarchy based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. The five classifications of fund balance applicable to the General fund are defined as follows. Restricted Fund Balance Components: • Non-spendable – resources which cannot be spent because they are either a) not in spendable form or b) legally or contractually required to be maintained intact. • Restricted – resources with constraints placed on the use of resources which are either a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or b) imposed by law through constitutional provisions or enabling legislation. Unrestricted Fund Balance Components: • Committed – resources which are subject to limitations the government imposes upon itself at its highest level of design making (City Council) and that remain binding unless removed in the same manner. • Assigned – resources neither restricted nor committed for which a government has a stated intended use as established by the City Council or a body or official (management) to which the City Council has delegated the authority to assign amounts for specific purposes. • Unassigned – resources which cannot be properly classified in one of the other four categories. The General Fund should be the only fund that reports a positive unassigned fund balance amount. ---PAGE BREAK--- GENERAL FUND - FUND BALANCE POLICY 2 Background and Considerations Fund balance is intended to serve as a measure of financial resources in a governmental fund. The City’s management, credit rating agencies, and others monitor the levels of fund balance in the general fund as an important indicator of the City’s economic condition. While credit agencies have always analyzed fund balance as part of their evaluation of credit-worthiness, increased attention has been focused on determining sufficient levels because of recent events in the credit markets. In establishing an appropriate level of fund balance the City has considered the following factors: • Property Tax Base • Non-property Tax Revenues • Debt Profile • Liquidity • Budget Management • Future Uses • Employment Base Fund Balance Policy It is the policy of the City of Lewiston to maintain a minimum unassigned fund balance in the general fund of 8% of general fund revenues measured on a General Accepted Accounting Principles (GAAP) basis. In the event that the unassigned fund balance drops below this minimum level, the City will develop a plan, implemented through the annual budgetary process, to bring the balance back to the target level over a period of no more than three fiscal years. A super majority vote of five affirmative votes will be required for the City Council to take action on an item that temporarily reduces fund balance below this minimum target level. In no instance shall the unassigned fund balance in the general fund fall below 5% of general fund revenues for greater than a continuous two fiscal year period. Amounts in excess of the targeted maximum of 12% of general fund revenues measured on a GAAP basis shall be used for capital improvements or other one-time expenditures as identified by the City Council. The Finance Director shall report fund balance in the appropriate classifications and make the appropriate disclosures in the City’s financial statements. Unless already classified as restricted or committed, the following balances shall be classified as assigned, as per GAAP or as a matter of policy. Additional amounts may be assigned by the City Council. Encumbrances – Amounts encumbered at year-end by contract, including purchase order, or encumbered by some other means shall be classified as assigned. Budget Appropriation – Amounts appropriated in the annual budget resolve, or in any supplemental budget resolves, for expenditures in ensuing fiscal year shall be classified as assigned. ---PAGE BREAK--- GENERAL FUND - FUND BALANCE POLICY 3 Self-insurance Balances – Accumulated reserves for future unemployment and workers compensation claims. Compensated Absences – Actual accumulated employees’ vacation balances at the end of each fiscal year. City Council action must be taken to establish the types of assignments prior to the fiscal year end but will delegate to the Finance Director the determination of the proper amounts that are required. Policy Administration Annually during the Comprehensive Annual Financial Report (CAFR) presentation, the Finance Director shall report the City’s fund balance and the classification of the various components in accordance with GAAP and this policy. Should the City fall below the minimum target level, the Finance Director shall prepare a plan to restore the unassigned fund balance to the target level prior to the ensuing fiscal year’s budget adoption. Should the City exceed the maximum target level, the City Administrator shall prepare a recommendation to utilize excess funds for capital improvements or other one-time expenditures.