Fund Balance Policy for General Fund

General
1. The County desires to maintain the financial operation of the County in a manner consistentwith sound financial management principles, including guidelines and criteria established byrating agencies and bond insurance firms.
2. Sound financial management principles include the establishment of designated andundesignated fund balances sufficient to maintain required cash flows and provide reservefor unanticipated expenditures, revenue shortfalls and other specific uses.
3. Fund Balance levels that fall below recommended levels can result in the need for costlyshort-term financings, reduce interest earnings and, as such, can increase the cost ofproviding service to tax payers
4. This policy also authorizes and directs the Finance Director to prepare financial reports which accurately categorize fund balance as required by GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions.
Governing Standards
1. Governmental Accounting Standards Board (GASB)
2. Generally Accepted Accounting Principles (GAAP)
3. Government Financial Officers Association (GFOA)
4. Nationally recognized Rating Agencies (i.e. Standard & Poor’s, Moody’s Investors Service, Fitch Ratings)
Planning and Performance
1. Compliance with the fund balance policy will be reviewed in conjunction with the budget process, audit process and upon changes made to the budget throughout the fiscal year.
General Fund (GASB 54)
1. Components of Fund Balance
  Fund balance is the difference between the assets and liabilities reported in a governmental fund. The following five fund balance classifications describe the relative strength of the spending constraints placed on the purposes for which the resources can be used:
  
  Nonspendable fund balance – amounts that are not in spendable form (such as inventory and prepaids) or are required to be maintained intact (corpus of a permanent fund);
  
  Restricted fund balance – amounts constrained to specific purposes by their providers(such as grantors, bondholders, and higher levels of government), through constitutional provisions, or by enabling legislation;
  
  Committed fund balance – amounts constrained to specific purposes by a government itself, using its highest level of decision-making authority; to be reported as committed, amounts cannot be used for any other purpose unless the government takes the same highest level action to remove or change the constraint;
  
  Assigned fund balance – amounts a government intends to use for a specific purpose; intent can be expressed by the governing body or by an official or body to which the governing body delegates the authority; for all funds except the general fund, assigned fund balance is the residual fund balance classification;
  
  Unassigned fund balance – amounts that are available for any purpose; positive amounts are only reported in the general fund.
  
  This fund balance exists to provide resources for unanticipated expenditures, to provide for cash flow reserves during the fiscal year due to the timing difference between the receipt of revenues and disbursement of expenditures, to meet desired reserve levels in order to maximize the County’s standing in the credit markets and to maximize the County’s credit rating(s), to maximize interest earnings thereby reducing the stress on other key General Government revenues.
2. Committed Fund Balance Policy
  The Board of Supervisors is the County’s highest level of decision-making authority and the formal action that is required to be taken to establish, modify, or rescind a fund balance commitment is a resolution approved by the Board of Supervisors.
  
  Examples: Outstanding encumbrances (i.e., purchase orders, contracts and other commitments) at fiscal year-end.
  
  Inventory balances at fiscal year-end which represent amounts invested in inventory and not available for appropriation.
  
  Advances to other funds at fiscal year-end which are currently not available for appropriation.
  
  All appropriated funds are committed.
3. Revenue Stabilization Fund Policy (Committed)
  The County maintains a Revenue Stabilization Fund that is designed to provide funding for unplanned cash-flow fluctuations or financial emergencies. In the event of an unplanned cash-flow fluctuation (i.e. revenue shortfall, expenditure increase) or financial emergency, the County intends to utilize the Revenue Stabilization Fund as the primary source of funding from reserves versus the unassigned fund balance. (See Stabilization Policy)
  
  Should the Revenue Stabilization Fund be depleted in the face of a severe financial emergency, the County may, from time to time, reduce the unassigned Fund Balance below the 15% policy for the purposes of a declared fiscal emergency; financial opportunity to enhance the well-being of King George County; or, other such global purpose as to protect the long-term fiscal security of King George County. In such circumstances, after legally available fund balances have been calculated as part of closing-out a fiscal year, the Board of Supervisors will adopt a plan as part of the following year’s budget process to restore the legally available fund balances to the policy level within 24 months from the date of the budget adoption.
4. Assigned Fund Balance Policy
  The Board of Supervisors has authorized the County Administrator as the official authorized to assign fund balance to a specific purpose as approved by this fund balance policy.
  
  Examples: Re-appropriation of unencumbered balances to continue existing projects which shall equal the continuing project balance for which the revenue source was recorded prior to fiscal year end.
  
  Funding of subsequent fiscal year’s budget shall be equal the use of fund balance appropriated in the adopted budget.
  
  Reservations for funding of planned projects in a future period to reduce the financial demands placed upon a subsequent budget. These specific designations are to indicate tentative plans for financial resource utilization in a future period.
  
  Note: All funds in the Capital Improvement Fund are Assigned.
5. Minimum Unassigned Fund Balance Policy
  The County will maintain an unassigned fund balance in the general fund equal to 15% of the total operating budget of the County. The Total Operating Budget of the County shall include the General Fund, Inter-fund Transfers (so long as they are not double counted), the School Fund(s), and operating revenues in the Capital Projects Fund.
  
  The County considers a balance of less than 10% to be cause for concern, barring unusual or deliberate circumstances. Balances shall be at such a level that the County will not incur costly short-term borrowing as a means to fund operations (see Debt Policy).
6. Unassigned Fund Balance in excess of the Minimum
  General Fund, unassigned fund balance in excess of a 15% policy will be available for appropriation by the Board of Supervisors, as needed. These funds should be used for nonrecurring expenditures, one-time capital expenditures or economic development-related
  expenditures.
7. Resource Flow Policy
  When fund balance resources are available for a specific purpose in more than one classification, it is the County’s policy to use the most restrictive funds first in the following order: restricted, committed, assigned, and unassigned as they are needed.

Fund Balance Policy for General Fund

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