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R-68-11 Res Adopting Fund Balance PolicyVillage of Lemont, Illinois Fund Balance Policy Adopted September xx, 2011 TABLE OF CONTENTS A. Purpose and Scope 1 B. Defmitions 1 C. Minimum Unrestricted /Unassigned Fund Balance Levels 2 1. General Fund 2 2. Working Cash Funds 2 3. Special Revenue Funds 2 4. Debt Service Fund - 3 5. Capital Project Funds 4 D. Flow Assumptions 4 E. Authority 4 F. Minimum Targets 4 G. Exceptions to the Policy 5 Village of Lemont, Illinois Fund Balance Policy Adopted September 26, 2011 A. Purpose and scope Fund Balance is defined as the excess of assets over liabilities. This Fund Balance Policy establishes a minimum level (target range) at which the projected end -of -year fund balance should be maintained to provide financial stability, cash flow for operations, and the assurance that the Village will be able to respond to emergencies with fiscal strength. The purpose of this policy is to establish fund balance classifications that establish a hierarchy based on the extent to which the Village must observe constraints imposed upon use of the resources that are reported by the governmental funds. More detailed fund balance financial reporting and the increased disclosures will aid the user of the financial statements in understanding the availability of resources. The fund balance will be composed of three primary categories: 1) Nonspendable Fund Balance, 2) Restricted Fund Balance and 3) Unrestricted Fund Balance. B. Definitions 1. Governmental Funds - are used to account for all or most of the Village's general activities, including the collection and disbursement of earmarked monies (special revenue funds), the acquisition or construction of general capital assets (capital projects funds) and the servicing of general long -term debt (debt service funds). The General Fund is used to account for all activities of the Village not accounted for in some other fund. 2. Fund Balance — the difference between assets and liabilities in a Governmental Fund. 3. Nonspendable Fund Balance — the portion of a Governmental Fund's net assets that are not available to be spent, either short-term or long -term, in either form or through legal restrictions (e.g, prepaid items) 4. Restricted Fund Balance — the portion of Governmental Fund's net assets that are subject to external enforceable legal restrictions (e.g., property tax levies). 5. Unrestricted Fund Balance — is made up of three components: a. Committed Fund Balance — the portion of a Governmental Fund's net assets with self - imposed constraints or limitations that have been placed at the highest level of decision making b. Assigned Fund Balance — the portion of a Governmental Fund's net assets to denote an intended use of resources c. Unassigned Fund Balance — available expendable financial resources in a governmental fund that are not the object of tentative management plan (i.e., assignments). Positive unassigned fund balance can only be reported in the general fund. Any residual fund balance in all other governmental funds is assumed at a minimum to be assigned for the purpose of the fund. 1 Village of Lemont, Illinois Fund Balance Policy Adopted September 26, 2011 C. Minimum Unrestricted Fund Balance Levels This policy applies to the Village's governmental funds as follows: 1. General Fund — The General Fund is a major fund and the general operating fund of the Village. It is used to account for all financial resources except those that are accounted for in another fund. Each year a portion of the spendable fund balance will be determined as follows: a. Restricted - A portion of the fund balance may be restricted through external legal requirements. b. Committed — A portion of the fund balance may be committed through formal action of the Village's Board of Trustees through a resolution or ordinance adopted before the end of the fiscal year. c. Assigned — A portion of the fund balance may be committed by action of the Village Administrator/Budget Officer. The amount will represent the funds the Village intends to use for a specific purpose. This will be adjusted annually. d. Unassigned — The unassigned fund balance will be reviewed annually during the budget process. This unassigned fund balance will be maintained at a target level of 10% to 40% of annual budgeted expenditures. Balances in excess of 40% of annual budgeted expenditures may be transferred to the Capital Project Fund to support future capital projects. 2. Working Cash Fund — The working cash fund is a permanent fund. The Working Cash fund provides the Village with a source for internal borrowing to meet short- term liquidity needs. Working cash revenues are restricted by Illinois state statute (65 ILCS 5/). Therefore, no specific target range is established for this fund 3 Special Revenue Funds — Special revenue funds are used to account for and report the proceeds of specific revenue sources that are legally restricted to expenditure for specified purposes other than debt services or capital projects. Financing for most special revenue funds is provided by a specific annual property tax levy. In some cases, financing is received from a motor fuel tax imposed by the state. These proceeds are devoted exclusively to the purposes for which the special tax was authorized. Village of Lemont, Illinois Fund Balance Policy Adopted September 26, 2011 a. Motor Fuel Tax Fund — this is a fund established to account for revenues derived from a specific motor fuel allotment and expenses of these monies for the highways and streets throughout the Village. Per state statute, Motor Fuel Tax Fund program revenue is legally restricted to the purpose of the fund. Therefore, the entire balance of the fund will be restricted. Furthermore, the fund balance of the Motor Fuel Tax Fund is 100% committed for maintenance and construction. Increases and decreases in fund balances are associated with the specific projects planned. Therefore, no specific target range is established for this fund. b. IMRF Fund - The IMRF Fund accounts for the activities resulting from the Village's participation in the Illinois Municipal Retirement Fund. Revenues are provided by a specific annual property tax levy which produces a sufficient amount to pay the Village's contributions to the Fund on behalf of the Village's employees. Fund balances in this fund are derived from property taxes and are therefore legally restricted to the purpose of the fund. The fund balance should represent no less than three months (25 %) with a target range of 3 to 6 months (50 %) of operating expenditures. This fund will be monitored and the taxes levied to support the expenditures will be adjusted to ensure that the Fund operates within the target range. It may take more than one levy cycle to ensure that the funds are operating in the proper range. c. Social Security Fund — The Social Security Fund accounts for all activities resulting from the Village's contributions for social security. Revenues are provided by a specific annual property tax levy which produces a sufficient amount to pay the Village's contributions on behalf of the Village's employees. Fund balances in this fund are derived from property taxes and are therefore legally restricted to the purpose of the fund. The fund balance should represent no less than three months (25 %) with a target range of 3 to 6 months (50 %) of operating expenditures. This fund will be monitored and the taxes levied to support the expenditures will be adjusted to ensure that the Fund operates within the target range. It may take more than one levy cycle to ensure that the funds are operating in the proper range. 4. Debt Service Fund — This fund was established to account for financial resources that are restricted, committed, or assigned to payment of principal and interest owed on debt. The Village budgets an amount of approximately the principal and interest that is anticipated to be paid. Any fund balance accumulation should be minimum and less than 5 %. The Debt Service Fund's fund balance is 100% restricted for debt service. 3 Village of Lemont, Illinois Fund Balance Policy Adopted September 26, 2011 5. Capital Project Funds — These funds are established to account for and report the financial resources that are restricted, committed, or assigned to expenditure for capital outlays including the acquisition or construction of capital facilities and other capital assets, excluding those types of capital related outflows financed by proprietary funds. The Capital Project Fund's fund balance will be considered restricted, committed, or assigned depending on the intended source /use of the funds. D. Flow Assumptions Some projects (funds) are funded by a variety of resources, including both restricted and unrestricted (committed, assigned and unassigned). When restricted funds exist, those funds are used first, then unrestricted. For unrestricted funds, committed funds are used first, then assigned, then unassigned. E. Authority 1. Committed Fund Balance — A self - imposed constraint on spending the fund balance must be approved by ordinance or resolution of the Village Board. Any modifications or removal of the self - imposed constraint must use the same action used to commit the fund balance. Formal action to commit fund balance must occur before the end of the fiscal year. The dollar amount of the commitment can be determined after year -end. 2. Assigned Fund Balance — A self - imposed constraint on spending the fund balance based on the Village's intent to use fund balance for a specific purpose. The authority may be delegated to the Village Administrator. F. Minimum Targets Management will monitor the major revenue collections and the amount of cash available by reviewing the monthly financial reports. During the year, if revenue projections suggest that revenue will not meet expectations and the fund targets will not be met by the end of the year, the Village Administrator will take the following actions to reach the goals established in the adopted budget: • Review expenses with management, • Reduce capital asset expenditures, • Reduce operational expenditures, where appropriate, while maintaining the adopted budget goals, • Present to the Village Board other expenditure control options, including those that might modify the goals established in the adopted budget. 4 Village of Lemont, Illinois Fund Balance Policy Adopted September 26, 2011 G. Exceptions to the Policy If the Village Board adopts a budget that does not meet the parameters of this policy, then the budget will include a plan for adhering to this Policy within a three -year period.