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S-1297 - 11/09/2010 - FINANCE - Ordinances Supporting DocumentsITEM 6.F.2) AGENDA ITEM Regular Board of Trustees Meeting of November 9, 2010 SUBJECT: Amendment to Financial Policy Ordinance FROM: Sharon Dangles, Finance Director BUDGET SOURCE/BUDGET IMPACT: N/A RECOMMENDED MOTION: Approve an amendment to ordinance S -957 of the Village of Oak Brook to amend a fund balance and reserve policy 2010, revised with technical changes for financial reporting. Background/History: On January 24, 1995, the Village Board passed an ordinance to adopt a reserve policy. This policy has been reviewed and revised in October 26, 1999. The reserve policy officially recognizes the policy decision that some funds are legally or otherwise obligated for specific or general purposes. The Governmental Accounting Standards Board (GASB), the rulemaking authority for governmental accounting, has issued a pronouncement relating to how we report fund balance. Up to now, we have used terms such as Restricted and Unrestricted, Reserved and Unreserved, and Designated and Undesignated. More detailed fund balance reporting and the increased disclosures will aid the user of the financial statements in understanding the availability of resources. This pronouncement (GASB Statement No. 54) seeks to make this reporting much clearer. The new terms are easier to use and implement and provide a more logical framework for presenting the Village's fund balance. The section that was added on the Village's financial policy is Section 16, which is adding in some technical language per GASB No. 54. This is not changing any other part of the financial policy, which includes the Village's six month cash reserve policy. I� ,v GASB Statement No. 54 has identified 5 levels of restrictions on fund balance, listed in a hierarchy from most constrained to the least: ❑ Nonspendable (i.e. prepaids, inventory, etc.) ❑ Restricted (limited by external actions such as state or federal law) ❑ Committed (self - imposed restraints imposed by the Village Board) ❑ Assigned (for an intended purpose) ❑ Unassigned (anything left over and available) The three less constrained (committed, assigned, unassigned) are locally controlled. Other key changes are that we must make any commitments prior to the end of the fiscal year (necessitating this proposed action now), noting in what order dollars from these categories will be spent, and who can determine assignments. 52P W I P[ISSifAIIr HOM 1111 1 3StE1112 ^w 2 It ]Y8I PJJ I S.Uflf P 1XS It tfJiO' I I IM l u Governmental Accounting Standards. Board Summaries / Status Summary of Statement No. 54 Fund Balance Reporting and Governmental Fund Type Definitions (Issued 03 /09) The objective of this Statement is to enhance the usefulness of fund balance information by prodding clearer fund balance classifications that can be more consistently applied and by clarifying the wasting governmental fund type definitions. This Statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. The initial distinction that is made in reporting fund balance information is identifying amounts that are considered mnspendable, such as fund balance associated with inventories. This Statement also provides for additional classification as restricted, commted, assigned, and unassigned based on the relative strength of the constraints that control how specific amounts can be spent The restrictedfund balance category includes amounts that can be spent only for the specific purposes stipulated by constitution, external resource prodders, or through enabling legislation. The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a forms] action of the governments highest level of decision- making authority. Amounts in the assigredfund balance classification are intended to be used by the government for speck purposes but 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 conndted. Unassigned fund balance is the residual classification for the governments general fund and includes all spendable amounts not contained in the other classifications. In other funds, the unassigned classification should be used only to report a deficit balance resulting from overspending for specific purposes for which amounts had been restricted, committed, or assigned. Governments are required to disclose information about the processes through which constraints are imposed on amounts in the conrnited and assigned classifications. Governments also are required to classify and report amounts in the appropriate fund balance classifications by applying their accounting policies that detemhine whether restricted, comnited, assigned, and unassigned amounts are considered to have been spent. Disclosure of the policies in the notes to the financial statements is required. This Statement also provides guidance for classifying stabilization amounts on the face of the balance sheet and requires disclosure of certain information about stabilization arrangements in the notes to the financial statements. The definitions of the general fund, special revenue fund type, capital projects fund type, debt service fund type, and permanent fund type are clarified by the provisions in this Statement Interpretations of certain terms within the definition of the special revenue fund type have been prodded and, for some governments, those Interpretations may affect the activities they choose to report in those funds. The capital projects fund type definition also was clarified for better alignment with the needs of preparers and users. Definitions of other governmental fund types also have been modified for clarity and consistency. The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2010. Early implementation is encouraged. Fund balance reclassifications made to conform to the provisions of this Steternent should be applied retroactively by restating fund balance for all prior periods presented. 11[11 I111111111111111$C 6}£PMIX1159 kFCMPillI MLYMIIIM %I How the Changes in This Statement Will Improve Financial Reporting The requirements in this Statement will improve financial reporting by providing fund balance categories and classifications that will be more easily understood. Elirnination of the reserved component of fund balance in favor of a restricted classification will enhance the consistency between information reported in the government -wide statements and information in the governmental fund financial statements and avoid confusion about the relationship between reserved fund balance and restricted net assets. The fund balance classification approach in this Statement will require governments to classify amounts consistently, regardless of the fund type or column in which they are presented. As a result an amount cannot be classified as restricted in one fund but unrestricted in another. The fund balance disclosures will give users information necessary to understand the processes under which constraints are imposed upon the use of resources and how those constraints may be modified or e0mdnated. The clarifications of the governmental fund type definitions will reduce uncertainty about which resources can or should be reported in the respective fund types. Unless otherwise specified, pronouncements of the GASB apply th financial reports of all state and local governmental entities, including general purpose governments; public benefit corporations and authorities; public employee retirement systems; and pubic utilities, hospitals and other healthcare providers, and colleges and universities. Paragraph 3 discusses the applicability of this Statement I1XII IIIl III( lIif lit I$C ORDINANCE 2010- FI- TX -BU -S -1297 A COMPREHENSIVE AMENDMENT TO ORDINANCE S -957 WHICH AMENDED CERTAIN FINANCE, TAXATION AND BUDGET POLICIES OF THE VILLAGE PRESIDENT AND BOARD OF TRUSTEES OF THE VILLAGE OF OAK BROOK WHEREAS, on January 24, 1995, the President and Board of Trustees adopted Ordinance S- 793, entitled, "An Ordinance Establishing Certain Finance, Taxation and Budget Policies of the Village President and Board of Trustees of the Village of Oak Brook (Finance Policy Ordinance), as an advisory statement concerning said policies and procedures; and WHEREAS, on October 26, 1999, the President and Board of Trustees of the Village of Oak Brook adopted Ordinance S -957 entitled "Comprehensive Amendment to an Ordinance Establishing Certain Finance, Taxation and Budget Policies of the Village President and Board of Trustees of the Village of Oak Brook" (Finance Policy Ordinance); and WHEREAS, the President and Board of Trustees desire to amend certain policies and procedures concerning finance, taxation and budget which are in the Finance Policy Ordinance and include these changes in this Comprehensive Amendment to the Finance Policy Ordinance. NOW, THEREFORE, BE IT ORDAINED BY THE PRESIDENT AND BOARD OF TRUSTEES OF THE VILLAGE OF OAK BROOK, DU PAGE AND COOK COUNTIES, ILLINOIS, as follows: Section 1: The foregoing preambles are restated and incorporated herein by reference as though fully set forth herein. Section 2: The Village will conduct a continuing and comprehensive program of financial planning in all funds, encompassing both operating and capital needs. The principal objective of this program will be to identify and address potential financial problems in advance, thereby avoiding financial difficulties before they arise. Section 3: The Village financial plans and budgets shall be based on reasonable assumptions which recognize the limitations on the revenues available to the Village and which adhere to sound principles of municipal fund accounting and financial management. Section 4: The budgeting and management of the Village shall be based on a system of goals and objectives, developed by the Village staff under the leadership and direction of the Board and integrated into the annual Municipal Budget. Section 5: It is the policy of the Board that the Board should at all times encourage and solicit public participation in the processes of setting goals and objectives, reviewing proposed long -range financial plans, and reviewing proposed annual budgets. The annual schedule for obtaining such formal public participation shall, insofar as possible, be as follows: Section 6: The Village's Five -Year Financial Plan and annual Municipal Budget will be prepared and presented on a cash basis and the Comprehensive Annual Financial Report will be prepared on an accrual or modified accrual basis, as applicable and consistent with generally accepted accounting principles as promulgated by the Governmental Accounting Standards Board. Further, it is the policy of the Village Board that the Village strive annually to receive the Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting. Section 7: It is the policy of the Board that the general operations of the Village continue to be financed without the imposition of a general tax on real property. Section 8: It is the policy of the Board that it will consider the imposition of a tax on real property within the Village only to meet financial obligations of the Village which have been approved by the voters at referendum. Section 9: With respect to the imposition of a utility tax on natural gas and electricity, it is the policy of the Board to impose the tax for periods not to exceed one year and, thereby, to obligate the Board to consider the continuance of the tax at least annually. Section 10: It is the policy of the Board that enterprise and utility funds shall be financially self - supporting. Rates or other charges for services shall be established and maintained at levels which produce revenues sufficient to defray expenditures within each fund, including reasonable reimbursements to other funds for services or benefits received therefrom. Enterprise and utility funds shall not receive transfers from other funds except in the form of loans made pursuant to Section 15 hereof, or as grants authorized by the Board. Section 11: For the General Corporate Fund, it is the policy of the Board that every effort be made to maintain the greater of: a. an uncommitted cash balance equal to not less than six (6) months of budgeted expenditures for the forthcoming fiscal year, exclusive of budgeted capital projects; or b. an uncommitted cash balance equal to not less than six (6) months of projected expenditures, exclusive of capital projects, based on the average of the first three (3) years of the most recent Five Year Financial Plan adopted by the Village Board. Section 12: Investment of idle funds will be guided by a comprehensive Investment Policy, the principal objectives of which shall be to strive for full investment at the best possible return, consistent with appropriate liquidity and security of capital. Section 13: The Budget Officer, with the approval of the Village Manager, may authorize transfers of budgeted funds between accounts or between account categories within a single budget program. Section 14: Any transfer of budgeted funds from one budget program to another, any increase in the total appropriation within any fund, or any expenditure from any budgeted contingency amount shall be subject to the approval of the Board upon recommendation of the Village Manager. Section 15: Loans between funds made in order to transcend temporary operating shortfalls or cash shortages and which can reasonably be expected to be repaid within the fiscal year in which the loan is made, and in an aggregate amount not greater than $250,000, may be authorized by the Village Manager upon recommendation of the Finance Director/Treasurer and after appropriate notice to the Village Board. Loans between funds in an aggregate amount greater than $250,000, or in any amount if the loan is not expected to be repaid during the fiscal year in which it is made, are subject to the specific approval of the Village Board. All loans shall be documented in writing. Section 16: Attached hereto and made a part hereof as Exhibit A is the Fund Balance and Reserve Policy, 2010, which outlines technical changes of the standards for governmental accounting. Section 17: The validity of any action otherwise taken by the Board in accordance with applicable State law shall not be invalidated, impaired or otherwise affected by noncompliances with any part of the procedures or policy set forth in this Ordinance. Section 18: This Ordinance supercedes Ordinance S -957, passed on October 26, 1999, and entitled "Comprehensive Amendment to an Ordinance Establishing Certain Finance, Taxation and Budget Policies of the Village President and Board of Trustees of the Village of Oak Brook ". Section 19: All ordinances or parts of ordinances in conflict with this ordinance are hereby repealed to the extent of the conflict. Section 20: This ordinance shall be in full force and effect from and after its passage, approval and publication as required by law. APPROVED THIS 91" day of November, 2010. John W. Craig Village President PASSED THIS 91" day of November, 2010. ATTEST: Charlotte K. Pruss Village Clerk Village of Oak Brook EXHIBIT A Fund Balance and Reserve Policy, 2010 Definitions Fund Balance — the difference between assets and liabilities in a Governmental Fund. 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. Restricted Fund Balance - the portion of a Governmental Fund's net assets that are subject to external enforceable legal restrictions. Unrestricted Fund Balance is made up of three components: 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. Assigned Fund Balance - the portion of a Governmental Fund's net assets to denote an intended use of resources. Unassigned Fund Balance - available expendable financial resources in a governmental fund that are not the object of tentative management plan (i.e. designations). Note: In non - governmental funds, management may decide to "assign" funds for a specific purpose. This will be done as an internal budgeting procedure rather than as a formal accounting entry. Policy A. It is the policy of the Village of Oak Brook that every effort be made to maintain the greater of: a) an uncommitted cash balance equal to not less than six months of budgeted expenditures for the forthcoming fiscal year, exclusive of budgeted capital projects; or b) an uncommitted cash balance equal to not less than six months of projected expenditures, exclusive of capital projects, based on the average of the first three years of the most recent Five Year Financial Plan adopted by the Village Board. B. It is also the policy of the Village of Oak Brook to assign a portion of Fund Balance in the amount of debt service payments for governmental debt for the following year. C. This policy may be amended from time to time according to the wishes of the Village of Oak Brook Board of Trustees. D. The Village will spend the most restricted dollars before less restricted, in the following order: 1) Nonspendable (if funds become spendable), 2) Restricted, 3) Committed, 4) Assigned, 5) Unassigned. E. The Finance Director will determine if a portion of fund balance should be assigned. Adopted: January 24, 1995 (1995 -S -793) Revised: October 26, 1999 (1999 -S -957) November 9, 2010 (technical revision for GASB 54, 2010 -S -1297)