HomeMy WebLinkAboutR-2024-216 Resolution updating financial policy 3-200: Fund Balance for General Fund & Operating Reserve RESOLUTION NO. R-2024-216
A RESOLUTION amending the Fund Balance for General Fund and Operating Reserve
Requirements for Enterprise Funds, Policy Number 3-200, for the City of
Yakima.
WHEREAS, the City is authorized to create its own policies as to how to manage
finances; and
WHEREAS, the City recognizes the importance of maintaining a healthy fund balance to
ensure financial stability and operational flexibility; and,
WHEREAS, the current fund balance policy requires a minimum fund balance of 16.7%
of annual operating expenditures for the general fund; and
WHEREAS, it has been determined that a revised fund balance policy of 12% would
adequately support the organization's financial health while allowing for more efficient allocation
of resources; and
WHEREAS, the City Council of the City of Yakima finds it is in the best interests of the City and
its residents to amend Policy 3-200 relating to the general fund reserve, reducing the fund
balance policy from 16.7% to 12%; now, therefore,
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKIMA:
The City of Yakima hereby amends Fund Balance for General Fund and Operating
Reserve Requirements for Enterprise Funds, Policy Number 3-200 to reduce the general fund
reserve to 12%. The amended policy is attached hereto and incorporated herein by this
reference.
ADOPTED BY THE CITY COUNCIL this 10th day of December, 2024.
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CITY OF'A6:024 ISSUED POLICY NUMBER: 3-200
ADMINISTRATIVE POLICIES FORMER POLICY NUMBER: n/a
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DEPARTMENT: Finance AUTHORIZED BY: City Council
EFFECTIVE DATE: 1211112024 ISSUE DATE: 12/1112024
SUPERSEDES: 05/17/2021
POLICY: FUND BALANCE FOR GENERAL FUND & OPERATING RESERVE
REQUIREMENTS FOR ENTERPRISE FUNDS
PURPOSE
The Fund Balance Policy of the City of Yakima is authorized, approved by, the City Council to:
• To establish reserve objectives and parameters necessary to safeguard public funds
entrusted to the City of Yakima.
• To articulate City Council's intent for the governance over city finances.
• To communicate clear policy and strategy guidelines for city financial administration.
• To demonstrate to citizens, taxpayers and voters a transparent and accountable
stewardship plan.
• To establish a fund balance target for the General Fund and an operating reserve
requirement for the Enterprise Funds.
GENERAL FINANCIAL GOALS
1. To provide a financial base sufficient to sustain municipal services to maintain the social
well-being and physical conditions of the City.
2. To provide a cushion for seasonal cash flow fluctuations, a financial safety net in the event
of natural disasters, local and regional emergencies, economic downturns, withstand local
and regional economic trauma, and to respond to other unforeseen circumstances.
3. To maintain available financial resources as a measure of the sound fiscal condition of the
primary government fund, for consideration by bond rating agencies when evaluating the
City's credit worthiness, and the governing body when making budgetary decisions.
4. To consider and provide for the needs of future generations in the Yakima community.
The distinction between "Fund Balance" and "Working Capital" comes from Government
Accounting Standards which require modified accrual accounting for governmental funds and full
accrual accounting for enterprise funds; this policy addresses each separately. Operating
Reserve, or Working Capital, is the primary measure for evaluating continued creditworthiness
and budgetary decisions for Enterprise Funds.
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GENERAL FUND'S FUND BALANCE TARGET
1. Target is to achieve and maintain a Fund Balance of at least 12% of the Total
Expenditures.
2. Fund Balance equals Total Assets minus Total Liabilities, on the Statement of Revenues,
Expenditures and Changes in Fund Balances — Government Funds in the City's Annual
Comprehensive Financial Report (ACFR).
3. Financial Reporting Definitions. Governmental Accounting Standards Board (GASB)
Statement 54 distinguishes fund balance classified based on the relative strength of the
constraints that control the purposes for which specified amounts can be spent. Beginning
with the most restrictive constraints, fund balance amounts will be reported in the following
categories:
a. Nonspendable fund balance — amounts that are not in a spendable form (e.g.,
inventory) or are legally or contractually required to be maintained intact (e.g.,
permanent fund principal).
b. Restricted fund balance — amounts that can be spent only for the specific
purposes stipulated by external parties either constitutionally or through enabling
legislation (e.g., grants or donations).
c. Committed fund balance — amounts that can be used only for the specific
purposes determined by a formal action of the City Council. Commitments may be
changed or lifted only by referring to the formal action that imposed the constraint
originally (e.g., the council's commitment in connection with future construction
projects).
d. Assigned fund balance — amounts intended to be used by the government for
specific purposes. Intent can be expressed by the City Council or by a designee to
whom that governing body delegates the authority. (In governmental funds other
than the general fund, assigned fund balance represents the amount that is not
restricted or committed but by definition, being account for in a separate fund, are
intended to be used for the purpose of that fund).
e. Unassigned fund balance — includes all amounts not contained in other
classifications and is the residual classification of the general fund only.
Unassigned amounts are available for any legal purpose.
4. Should City Council determine that it is prudent to mitigate current or anticipated risks
(e.g., significant revenue shortfalls, natural disasters, significant economic downturns, or
unanticipated expenditures), a budget amendment may be approved by City Council for
current-year expenditures that decrease the General Fund's fund balance below target.
5. During every annual budget review and approval process, City Council shall consider and
determine what dollar amount, or percentage of operating expenses, shall be identified in
the adopted budget to add to a revenue shortfall reserve for unforeseen future
circumstances.
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6. If General Fund's fund balance falls below target, then the next year's budget must include
projections of General Fund's fund balance levels to be considered as part of the annual
budget process and the budget must include a plan to restore the General Fund's fund
balance to target.
7. Cashflow rationale. The General Fund's principle sources of funds are Property Tax,
Sales Tax and Utility & Franchise Taxes. The bulk of Property Taxes are received every
year in April and October; Sales Tax and Utility & Franchise Taxes are received more
evenly, although with some seasonality. Debt payments are disbursed mostly in June and
December.
ENTERPRISE FUNDS' OPERATING RESERVE TARGET
1. Target is to maintain an Operating Reserve equivalent to 25% of total annual operating
expenses.
2. Operating Reserve is Current Assets minus Current Liabilities, on the Statement of Net
Position, Proprietary Funds, in the City's ACFR.
3. Unlike the general fund,which expenses long-term assets in the period purchased instead
of depreciating, much of the asset value in an enterprise fund is not spendable. A large
part of an enterprise fund's net position could be fixed assets which is not liquid, not a
usable reserve. Whereas Fund Balance is simply akin to subtracting total liabilities from
total assets, a Working Capital method of calculating Operating Reserves eliminates long-
term assets and long-term liabilities from the calculation.
4. If the operating reserve is projected to fall below the target, then appropriate action,
including rate increases and/or reductions in spending, will be taken to restore the reserve
to the target level at the time of annual budget adoption.
REPORTING & FORECASTING
1. At time of annual audit completion, the Finance Director shall report the General Fund's
fund balance and the Enterprise Funds' operating reserves to City Manager and City
Council.
2. Mid-period fund balance calculations prove difficult, due to the cyclical aspect of inflows
and outflows, the complex nature of one-time accruals and allocations available and
completed only during year-end closing. Budgetary controls should instead be relied on
during interim periods; quarterly financial revenue and expense reporting shall serve to
ensure budgeted fund balance targets are on track.
3. At time of budget adoption, the Finance Department and City Manager will include
forecasted General Fund's fund balance and Enterprise Funds' Operating Reserves in the
material presented to City council prior to budget adoption.
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POLICY GUIDANCE
1. The accounting policies of the City of Yakima conform to Generally Accepted Accounting
Principles (GAAP) and the City adopts the pronouncements of the Governmental
Accounting Standards Board (GASB) as the nationally-accepted standard-setting body for
establishing governmental accounting and financial reporting principles.
2. The city considers best practice advisories (whitepapers) of the Government Finance
Officers Association (GFOA) to apply uniform standards and procedures of governmental
finance management within the governmental accounting sector to the City's specific
circumstances.
3. The responsibility for designating funds to specific classifications shall be as follows:
a. Committed Fund Balance—the City Council, as the City's highest level of decision-
making authority, shall establish, modify, or rescind a fund balance commitment
by resolution.
b. Assigned Fund Balance—the City Manager or the Director of Finance and Budget
may assign fund balance to a specific purpose.
4. Order of Expenditure of Funds. When an expenditure can be charted to multiple
categories of fund balance (e.g., a project is being funded partly by a grant, funds set aside
by the City, and unassigned fund balance), the most restricted category will be used first,
then the next-most restricted category(ies).
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BUSINESS OF THE CITY COUNCIL
YAKIMA, WASHINGTON
AGENDA STATEMENT
Item No. 7.H.
For Meeting of: December 10, 2024
ITEM TITLE: Resolution updating financial policy 3-200: Fund Balance for General
Fund & Operating Reserve
SUBMITTED BY: Viren Mayani, Director of Finance and Budget
SUMMARY EXPLANATION:
The City Council convened on November 26, 2024, to address the critical steps needed to balance the
Biennial Budget for 2025-2026. The Council directed staff to reduce the Fund Balance Policy from 16.7%
to 12%. Policy 3-200 must be revised to implement these changes.
ITEM BUDGETED: N/A
STRATEGIC PRIORITY 24-25: A Resilient Yakima
RECOMMENDATION: Adopt Resolution.
ATTACHMENTS:
Resolution_financial policy 3-200
3-200-Fund-Balance-for-General-Fund-Operating-Reserve_redline
3-200-Fund-Balance-for-General-Fund-Operating-Reserve final
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