City of Red Wing

GASB 54 Implementation

Tuesday, December 13 2011 12:00 AM

At its December 12 meeting, City Council adopted Resolution No's. 6357 and 6358 implementing the requirements necessary to comply with GASB No. 54.   At the meeting, staff explained that GASB No. 54 allows the City to use different methods to show anticipated spending of its financial resources and spoke to how this helps demonstrate financial planning for accumulated resources and subsequently how they may or will be spent.  Below is some of the information staff provided in an agenda report detailing the requirements. 

GASB 54 separates fund balance into five new categories.  Under the old standards, there were three categories: Reserved, Designated, and Undesignated.  The new categories are more descriptive and focus on how the City plans to use its resources.  A brief description of each of the new categories is listed below along with examples of each. 

  • Nonspendable fund balance-amounts that are not in a spendable form or are required to be maintained intact.  An example of nonspendable fund balance is inventory.  Inventory cannot be spent without being converted to cash first. 
  • Restricted fund balance-amounts subject to externally enforceable legal restrictions.  An example of restricted fund balance is grant proceeds required to be spent for a specific purpose. 
  • Committed fund balance-amounts that can be used only for the specific purposes determined by a formal action of the government's highest level of decision-making authority (City Council).  Commitments may be changed or lifted only by the government taking the same formal action that imposed the constraint originally.  An example of committed fund balance would be the City Council committing fund balance for future CIP. 
  • Assigned fund balance-amounts a government intends to use for a specific purpose; intent can be expressed by the government body or by an official or body to which the governing body delegates the authority.  An example of assigned fund balance would be the City's portion of a construction project where other funding was received with the requirement of a match. 
  • Unassigned fund balance-residual amounts that are available for any purpose in the general fund.  This category can only be found in the general fund, as by being in any other fund, the City has stated its intent to use it for the purpose of that fund. 

Committed, assigned, and unassigned fund balance combine to make unrestricted fund balance. 

This does not change how the City of Red Wing conducts business.  All of the changes will be from a presentation standpoint in the City's Comprehensive Annual Financial Report (CAFR) and the Fund Balance Policy.  Other than the new classifications being presented in the CAFR, there are several other changes of note. 

The first change is related to the classification of several Special Revenue funds.  Under GASB 54, these funds no longer meet the definition of a Special Revenue fund, and therefore they have been reclassified as other fund types.  This reclassification of fund types does not change how the City uses the Funds; it only changes what section of the CAFR they are presented in. 

The second change is related to fund balance commitments.  To meet the Special Revenue Fund definition, a fund must have "specific revenue sources that are restricted or committed to expenditure for specified purposes".  This requires the Council to adopt a resolution "committing" specific revenues to each of the special revenue funds prior to the end of the year.  GASB No. 54 also permits the Council to adopt fund balance commitments prior to year-end to demonstrate its intended use of fund balance. The commitments made by the Council cannot change without Council taking similar action by resolution to remove them. 

The final change of note is related to the City's Fund Balance Policies that were adopted on November 28.  The Fund Balance Policies were revised to authorize the Council Administrator and/or Finance Director to assign fund balance to reflect the City's intended use of funds.  This does not change the authority to actually spend resources, but to assign resources for a presentation standpoint only.  The Fund Balance Policy now complies with GASB No. 54 and includes how the City intends to use its resources when multiple categories of fund balance are available and reflects the new terminology used in GASB No. 54 and to reflect how funds are currently being used. 

Again, these items do not change how the city conducts business. All of the changes will be from a presentation standpoint in the City's Comprehensive Annual Financial Report (CAFR) and the Fund Balance Policy.

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