Township of Pine, PA Chapter 20 Fund Balance Policy [1]

[HISTORY: Adopted by the Board of Supervisors of the Township of Pine 12-6-2021 by Res. No. 1089. Amendments noted where applicable.]

[1] Editor's Note: Former Ch. 20, Impact Fee Advisory Committee, adopted 8-5-1991 by Res. No. 379, was superseded 2-19-2008 by Res. No. 776. See now Ch. 42, Transportation Impact Fee Advisory Committee.

§ 20-1 Purpose.

To establish a fund balance policy tailored to the needs of the Township of Pine to insure against unanticipated events that would adversely affect the financial condition of the Township and jeopardize the continuation of necessary public services. This policy is intended to assure that the Township maintains adequate fund balance in the various operating funds to: 1) provide sufficient cash flow for daily financial needs; 2) secure and maintain investment grade bond ratings; 3) offset significant economic downturns or unanticipated revenue shortfalls; and 4) provide funds for unforeseen expenditures related to emergencies. This policy shall apply only to the Township's governmental funds.

§ 20-2 Fund balance reporting.

Fund balance will be reported in the governmental funds under the following categories using the definitions provided by GASB Statement No. 54:

A. Nonspendable fund balance. Amounts that cannot be spent because they are either a) not in spendable form (e.g., inventories, prepaid expenses, long-term receivables) or b) legally or contractually required to be maintained intact (e.g., developer escrow).

B. Restricted fund balance. Amounts for which constraints on the use of resources are placed by external parties, constitutional provisions or enabling legislation.

C. Committed fund balance. Amounts set aside for a specific purpose by the Township's highest level of decision making authority. Formal action to commit funds must be taken prior to the end of the calendar year. The same formal action must be taken to remove or change the limitations placed on the funds.

D. Assigned fund balance. Amounts intended to be used for specific purposes that do not meet the criteria to be classified as restricted or committed. In governmental funds other than the General Fund, assigned fund balance represents the remaining amount that is not restricted or committed.

E. Unassigned fund balance. The residual classification of the Township's General Fund consists of all spendable amounts not contained in other classifications. In other funds, the unassigned classification is used only to report a deficit balance from overspending for specific purposes for which amounts had been restricted, committed, or assigned.

§ 20-3 Fund types.

The following definitions will be used in reporting activity in the Township's governmental funds. All fund types may or may not be reported in any given reporting period, based on actual circumstances and activity.

CAPITAL PROJECTS FUNDS

Used to account for and report all financial resources restricted, committed or assigned for the acquisition or construction of capital assets.

DEBT SERVICE FUNDS

Used to account for and report all financial resources restricted, committed or assigned to expenditure for principal and interest payments on debt.

GENERAL FUND

Used to account for all financial resources not accounted for and reported in another fund.

SPECIAL REVENUE FUNDS

Used to account for and report the proceeds of specific revenue sources that are restricted or committed for specific purposes other than debt services or capital projects.

§ 20-4 Prioritization of fund balance.

When an expenditure is incurred for purposes for which both restricted and unrestricted (committed, assigned, or unassigned) amounts are available, it shall be the policy of the Board of Supervisors to consider restricted amounts to be expended first. When an expenditure is incurred for purposes for which amounts in any of the unrestricted fund balance classifications may be used, it shall be the policy of the Board of Supervisors that committed amounts shall be reduced first, followed by assigned amounts and then unassigned amounts.

§ 20-5 Authority to commit funds.

Only the Township's highest level of decisionmaking authority, the Board of Supervisors, may commit fund balance for specific purposes. A resolution is required to approve a commitment of fund balance, as well as to remove a commitment. The passage of a resolution must take place prior to December 31 of the applicable calendar year. If the actual amount of the commitment is not available by December 31, the resolution must state the process or formula necessary to calculate the actual amount as soon as information is available.

§ 20-6 Authority to assign funds.

The Township of Pine Board of Supervisors hereby delegates the Township Manager the authority to assign fund amounts that will be used for specific purposes and do not meet the criteria of being classified as restricted or committed. Assignment of fund balance may be made for a specific purpose and/or used to reflect the appropriation of a portion of existing unassigned fund balance to eliminate a projected deficit in the subsequent year's budget in an amount no greater than the excess of expected expenditures over expected revenues.

§ 20-7 Minimum level of unassigned fund balance.

Unassigned fund balance is the residual amount of fund balance in the General Fund. It represents the resources available for future spending. An appropriate level of unassigned fund balance should be maintained in the General Fund in order to cover unexpected expenditures and revenue shortfalls. This policy establishes a minimum unassigned fund balance in the General Fund as recommended by the Government Finance Officers Association. The minimum unassigned fund balance in the General Fund as of December 31 is hereby set at 15% of annual General Fund expenditures (including operating transfers to other funds) as set by the officially adopted budget for the subsequent calendar year. In the event that the balance drops below 15%, the Board of Supervisors will develop a plan to replenish the fund balance to the established minimum level within two years.

§ 20-8 Economic stabilization arrangement.

A. Purpose. An economic stabilization arrangement will be established and maintained within the General Fund, the purpose of which is to set aside General Fund resources to mitigate impacts of future unanticipated declines in revenue and to provide resources in case of emergencies. The funds set aside will be part of the existing unassigned General Fund balance and will be disclosed in the notesto the annual financial statements.

B. Minimum and maximum amount. The minimum funding for the economic stabilization arrangement will be 5% of the subsequent year's budgeted General Fund revenues (excluding transfers in). The maximum funding will be 10% of subsequent year's budgeted General Fund revenues (excluding transfers in).

C. Acceptable use. Use of the economic stabilization arrangement fund balance is limited to the following:

(1) Emergency situations for life, health, or public safety issues for which no existing appropriation exists.

(2) Unanticipated loss of a significant revenue source which results in a decline in excess of 5% of General Fund original budgeted revenues (excluding transfers in) and for which no new revenue source is available.

(3) The fund balance set aside for the economic stabilization arrangement shall not be appropriated for the acquisition, construction, or alteration of a facility as part of a general capital improvements program, or to pay off debt incurred to construct such facility.

D. Authorization to use stabilization funds. The existence of circumstances qualifying as criteria for acceptable use must be acknowledged by majority of the Township's Board of Supervisors and then ratified by a majority vote at the next available public meeting.

E. Repayment of stabilization funds. If authorized use of stabilization funds will cause the balance to fall below the established minimum, the Board will also establish the time frame in which the minimum balance is expected to be restored. This time frame will be based on management's recommendation, taking into consideration the circumstances which led to the use of the funds and future economic conditions.

F. Distinction between stabilization arrangement and minimum fund balance policy. A stabilization arrangement establishes spending constraints so that fund balance may be expended only when certain specific circumstances or conditions exist which are not expected to occur routinely. A minimum fund balance policy established a savings target that the Township believes should be maintained. For financial reporting purposes, resources set aside under a stabilization arrangement may be expended only when certain specific circumstances exist. A minimum fund balance policy generally does not stipulate the conditions under which fund balance may fall below the minimum but, rather, establishes a target amount that the Township believes should be maintained to provide a reasonable level of assurance that day-to-day operations can continue if revenues are insufficient to cover expenditures.

§ 20-9 Budgeting.

A. Appropriation of unrestricted fund balance. The actual amount of unrestricted fund balance (total of committed, assigned and unassigned fund balance) is not known until the completion of the annual audit which takes place approximately four months after the end of the fiscal year, December 31. However, an estimate of unrestricted fund balance must be made during the annual budget adoption process, which is prior to the end of the fiscal year.

B. Estimated beginning fund balance. In order to achieve the most accurate estimate possible, the Township Manager or designee shall project both sources of funds (revenues, prior years unrestricted fund balances carried forward and other financing sources) and uses of funds (operating and nonoperating expenditures), including accruals, for each governmental fund through December 31 of the then current fiscal year. These projections will be shown in a separate column for each fund in the proposed and final budget documents. The difference between the projected sources of funds and projected uses of funds is the calculated estimated beginning fund balance for the subsequent fiscal year (budget year). If planned for use in the subsequent fiscal year, committed and assigned fund balance may be included in the estimated beginning fund balance.

C. Estimated ending fund balance. For the year being budgeted, a calculation of estimated ending fund balance shall also be made. This calculation shall be the difference between the budgeted sources of funds and the budgeted uses of funds as described above. Since there is no unassigned fund balance in any of the governmental funds other than the General Fund, there is no policy governing the amount of ending fund balance in these other funds. After the spendable/unrestricted/uncommitted General Fund balance is determined by the annual audit, the Township Manager or designee shall assign the remaining fund balance to reflect management's intended use of resources as set forth in the annual budget, while ensuring that an amount of at least 15% of subsequent year budgeted expenditures remains as unassigned fund balance.

§ 20-10 Annual review.

Compliance with the provisions of this policy shall be reviewed as part of the annual budget adoption process and the year-end financial reporting process.