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HomeMy WebLinkAboutPolicy - Fund Balance Management Policy~y"_// 11 ~~ ORANGE COUNTY BOARD OF COMMISSIONERS FUND BALANCE MANAGEMENT POLICY The Fund Balance Management Policy is intended to address the needs of Orange County (County), in the event of unanticipated and unavoidable occurrences which could adversely affect the financial condition of the.. County and thereby jeopardize the continuation of necessary public services. This policy will ensure the County. maintains adequate fund balance and reserves in the County's Governmental Funds to provide the capacity to: 1. Provide sufficient cash flow for daily financial needs, 2. Secure and maintain investment grade bond ratings, 3. Offset significant economic downturns or revenue shortfalls, and 4. Provide funds for unforeseen expenditures related to emergencies Fund Balance for the County's Governmental Funds will be comprised of the following categories: 1. Nonsgendable -amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. 2. Restricted -amounts externally imposed by creditors (debt covenants), grantors, contributors, laws, or regulations of other governments. 3. Committed -amounts used for a specific purpose pursuant to constraints imposed by formal action of the government's highest level of decision-making authority. a. Amounts set aside based on self-imposed limitations established and set in place prior to year-end, but can be calculated after year end. b. Limitation imposed at highest level and requires same action to remove or modify c. Ordinances that lapse at year-end 4. Assigned -amounts that are constrained by the government's intent to be used for specific purposes, but are neither restricted nor committed. 5. Unassigned -amounts that are not reported in any other classification. The General Fund will be the only fund that will have an unassigned fund balance. The Special Revenue Funds and Capital Project funds will consist of only nonspendable, restricted, committed and assigned categories of fund balance. Unassigned Fund Balance -General Fund Orange County has adopted a fiscal policy that provides for capital projects to be financed with debt and pay-as-you-go funding. In order to obtain the best possible financing, the County has adopted policies designed to maintain bond ratings at or better than AAA (Fitch), Aa2 (Moody's Investor Services) and AA+ (Standard & Poor's). Part of the County's fiscal health is maintaining a fund balance position that rating agencies feel is adequate to meet the County's needs and challenges. 12 Orange County has therefore adopted a policy that requires management to maintain an unassigned balance as follows: 1. The County will strive to maintain an unassigned fund balance in the General Fund of 17% percent of budgeted general fund operating expenditures each fiscal year. The amount of unassigned fund balance maintained during each fiscal year should not fall below 8% percent of budgeted general fund operating expenditures, as recommended by the North Carolina Local Government Commission. 2. To the extent that the General Fund unassigned fund balance exceeds 17% percent, the balances may be utilized to fund capital expenditures or pay down outstanding County debt: 3. The County's budget and revenue spending policy provides for programs with multiple revenue sources. The Financial Services Director will use resources in the following hierarchy: bond proceeds, Federal funds, State funds, local non-county funds, county funds. For purposes of fund balance classification, expenditures are to be spent from restricted fund balance first, followed in-order by committed fund balance, assigned fund balance, and lastly, unassigned fund balance. The Financial Services Director has the authority to deviate from this policy if it is in the best interest of the County with Board of County Commissioner's approval. 4. Management is expected to manage the budget so that revenue shortfalls and expenditure increases do not impact the County's total unassigned fund balance. If a catastrophic economic event occurs that requires a 10% or more deviation from total budgeted revenues or expenditures, then unassigned fund balance can be reduced by action from the Board of County Commissioners; the Board also will adopt a plan of action to return spendable fund balance to the required level. Enterprise Funds - (Solid Waste, Efland Sewer, and the Orange County Sportsplex) -The County will strive to maintain unrestricted net assets greater than 8% of total operating revenues at fiscal year-end, net of any donated assets recognized,. to provide reserves for operations and future capital improvements. Restrictions, reservations, and designations of Net Assets for Enterprise Funds For external reporting purposes, net assets will be reported as restricted or unrestricted in accordance with GAAP. For internal purposes, net assets will be reserved or designated as follows: 1. Encumbered balances to continue existing projects are designated. 2. Designations for funding of planned projects in a future period to reduce the financial demands placed upon a subsequent budget. Internal Service Funds -Dental Insurance Fund -total net assets shall maintain a positive balance to illustrate the internal nature of recovery fees for services performed in self-insuring employees of the County. Additionally, the net assets of the fund will demonstrate adequate funding for incurred, but not reported claims. 13 Rescission This policy supersedes any policy in place prior to this date.