Memorandum

City of Lawrence

Finance Department

TO:	Dave Corliss, City Manager
FROM:	Ed Mullins, Finance Director
Date:	September 22, 2011
RE:	General Fund Balance Policy

Background 

The Government Accounting Standards Board (GASB) has adopted GASB 54 that establishes new standards for reporting fund balance and special revenue funds.  The standard is effective for fiscal years beginning after June 15, 2010.  As a result, the city will need to implement GASB 54 for our 2011 fiscal year to remain in compliance with generally accepted accounting principles. 

Description

GASB 54 reclassifies fund balance into three major categories, nonspendable, restricted and unrestricted.  The unrestricted category is further divided into committed, assigned, and unassigned.  The financial report will no longer specifically differentiate encumbered and unencumbered fund balance.  Instead encumbrance amounts may be included in the categories of restricted, committed or assigned depending upon the reason the encumbrance was authorized.

Nonspendable fund balance refers to assets included in fund balance that are not in the form of cash, such as inventory, or whose principal cannot be spent.  Restricted fund balance represents any amounts that outside parties can legally enforce how funds are to be spent, such as grant revenue.  The city commission, by resolution, may commit the city to the expenditure of funds for a specific purpose.  These committed funds are identified on the financial statement as a part of fund balance.  An assignment of fund balance may be made by a motion of the city commission or in writing by the city manager. 

A revised general fund balance policy incorporating the new terms and procedures is attached.  The new policy sets a minimum desired unrestricted fund balance of 15% of expenditures and a maximum of 30% of expenditures.  At the present time, there are no identified nonspendable or restricted assets in the general fund.  For 2010, the unrestricted general fund balance was slightly higher than the unencumbered fund balance.  The 2010 unencumbered fund balance was 19.9% of expenditures.  The 2010 unrestricted fund balance was 20.8%.

Action Requested   The City Commission is requested to approve the revised general fund balance policy in order for the city to become compliant with the new accounting standard in 2011.