R-68-11 Res Approving Fund Balance Policy-40777
Village of Lemont, Illinois
Fund Balance Policy
Adopted September xx, 2011
TABLE OF CONTENTS
A. Purpose and Scope 1
B. Definitions 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.
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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.
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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.
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.
Forma l 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.
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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.
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