HomeMy WebLinkAboutReso-explanation-financeExplanation:
In March 2009, the Governmental Accounting Standards Board (GASB) issued Statement No. 54,
Fund Balance Reporting and Governmental Fund Type Definitions. The purpose of Statement
No. 54 is to enhance the usefulness of the fund balance information, to clarify governmental fund
type definitions and to promote greater comparability among municipal financial statements.
The new standard does not change the total amount of a given fund balance, but it alters the
categories and terminology used to describe the components that make up the fund balance.
Fund Balance is essentially the difference between assets (what is owned) and liabilities (what is
owed) reported in a governmental fund. Prior to GASB 54, fund balances have been classified
into three components: Reserved, Designated, and Undesignated.
GASB Statement No. 54 defines five new components of fund balance that will replace these
existing three components. The five new components are:
Nonspendable Fund Balance
• The portion of fund balance that cannot be spent due to form, such as inventories and
prepaid items. Long-term loan and notes receivables and property held for resale would
also be classified under this category, unless the proceeds are restricted, committed or
assigned.
• The portion of fund balance that must be maintained intact legally or contractually, such as
the principal portion of an endowment. This category was treated as "reserved" fund
balance before GASB 54.
Restricted Fund Balance
• The portion of fund balance constrained for a specific purpose by external parties, such
as creditors, grantors, and contributors; or, by constitutional provisions or enabling
legislation. This category was previously reported as "reserved" fund balance.
• The fund balances of various special revenue funds like the Gas Tax, Prop A, Section 8,
Development Impact Fees, Asset Forfeiture and CDBG will fall into this category.
Committed Fund Balance
• The portion of fund balance that includes amounts that can only be used for specific
purposes pursuant to constraints imposed by formal action of the City Council and
remains binding unless changed or removed in the same manner. This category was
reported as "designated" fund balance prior to GASB 54.
• Amounts approved by Council action for capital projects or committed as matching funds
for various grants will be classified as committed fund balance.
Assigned Fund Balance
• That portion of fund balance that includes amounts that are constrained by the
government's intent to be used for specific purposes, but that are neither restricted nor
committed. Such intent needs to be established either by the City Council or by a City
official, such as the City Manager, delegated with the authority.
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• This category was previously reported as "unreserved, designated" fund balance. For the
General Fund, this classification included the amounts designated for contingencies,
continuing appropriations, employees' accrued benefits and capital projects.
Unassigned Fund Balance
• That portion of fund balance that includes the amounts that do not fall into one of the
previous four classifications. The General Fund is the only fund that should report this
category. Prior to GASB 54, this category was reported as "unreserved, undesignated"
fund balance.
Starting with Fiscal Year 2010-2011, the City of National City will use GASB 54 definitions of fund
balance for the annual financial reports.
In addition, GASB 54 allows the City Council authority to "assign" ending fund balances or to
delegate this authority to a city official. Staff recommends that the City Council delegate to the
City Manager the authority to determine the amounts of a fund's fund balance that will be reported
as "Assigned Fund Balance" in the City's financial reports.
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