HomeMy WebLinkAboutAgenda - 09-08-2016 - 3 - General Fund Unassigned Fund Balance Policy 1
ORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: September 8, 2016
Action Agenda
Item No. 3
SUBJECT: General Fund Unassigned Fund Balance Policy
DEPARTMENT: Finance and Administrative
Services
ATTACHMENT(S): INFORMATION CONTACT:
A. BOCC Fund Balance Policy Bonnie Hammersley, 919-245-2300
B. PowerPoint Presentation Travis Myren, 919-245-2308
Gary Donaldson, 919-245-2453
Paul Laughton, 919-245-2152
PURPOSE: To continue a review of the County's Unassigned General Fund Balance policy.
BACKGROUND: On April 5, 2011 the BOCC adopted a fund balance policy that states:
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.
The Finance Director made a presentation to the Board at the June 16, 2016 budget work
session which provided information on the County's General Fund balance policy, best
practices, and benchmarking with other peer North Carolina counties.
The BOCC requested continuation of this discussion as part of the September 8 work session
agenda. In addition, the Finance Director as part of:
1) Each Quarterly Financial Report; provide an update of the County General Fund
reserve levels to the BOCC
2) The new Five Year Financial Plan framework; include County General Fund Balance
data which will be presented to the BOCC
FINANCIAL IMPACT: There is no financial impact from this work session presentation.
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SOCIAL JUSTICE IMPACT: There is no Orange County Social Justice Goal impact associated
with the Board continuing discussion on this item.
RECOMMENDATION(S): The Manager recommends that the Board continue discussion on
the County's Unassigned General Fund Balance policy and provide any direction to staff.
Attachment A 3
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. Nonspendable - 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.
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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.
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Rescission
This policy supersedes any policy in place prior to this date.
April 5, 2011
Attachment B
Work Session Update on Appropriate Level of
Unassigned Fund Balance
Presentation to Orange County Board of County Commissioners
Gary Donaldson, Chief Financial Officer
September 8, 2016
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Regular Finance Updates to BOCC and Manager
Fin a n cia I Reporting
• Quarterly Financial Report Provide
General Fund Reserve Updates as part of
regular financial reporting
• New Five Year Financial Plan Provide
County General Fund balance information as
part of the long-term financial planning
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Best Practices for Unassigned Genera/ Fund Balance
The Government Finance Officers
Association (GFOA) of U. S. and Canada:
• Updated the Best Practice on unassigned general
fund balances in 2009
• At a minimum an unassigned general fund
balance of no less than 2 months of regular general
fund operating revenues or operating
expenditures
• Equates to 16.7% of either general fund
operating revenues or operating expenditures
Appropriate Use of Unassigned Genera/
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Fund Balance
➢ The essential uses of General Fund
reserves :
• Mitigate risk attributed to revenue shortfalls
or unanticipated non-recurring expenditures
• Provide a financial bridge during recessions
or weak economic conditions
• Use for natural disasters and emergencies
• Cash Balance cushion
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S& P Scorecard
Rating Factor 4 Weighting Imputed Score
Institutional Framework 100/0
Uniform score for all of the same type of
governments in same state
Economy 3O%
Total Market Value Per Capita and Projected
Per Capita Effective Buying Income as a % of US
Projected Per Capita EBI
Management 2O%
Issuer's Financial Management Assessment
Score considered with other certain qualitative
factors
Financial Measures 30%
Liquidity (10%)- Total Government Available
Cash as % of Total Governmental Funds Debt
Service and % of Total Governmental Funds
Expenditures
Budgetary Performance (1O%)- Total
Governmental Funds Net Result (%) and
General Fund Net Results (%)
Budgetary Flexibility (10%)- Available Fund
Balance as a % of Expenditures
Debt and Contingent Liabilities 100/0
Net Direct Debt as % of Total Governmental
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Moody's Scorecard
Rating Factor Weighting
Economy/Tax Base 30%
Tax Base Size (full value) 10%
Full Value per Capita 10%
Wealth (median family income) 10%
Finances 30%
Fund Balance (% of Revenues) 10%
Fund Balance Trend (5-Yr Change) 5%
Cash Balance (%of Revenues) 10%
Cash Balance Trend (5-Yr Change) 5%
Management 20%
Institutional Framework 10%
Operating History 10%
Debt/Pensions 20%
Debt to Full Value 5%
Debt to Revenue 5%
Moody's adjusted Net Pension Liability 5%
(3-Yr average) to Full Value
Moody's adjusted Net Pension Liability 5%
(3-Yr average) to Revenue
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County Government Unassigneod Fund Balance Policy
The Ten 'AAN Rated Counties of North Carolina
As of /o Expenditures
1. Mecklenburg County 28%
2. Durham County '
3. Wake County '
4. New Hanover County '
5. Union County
20%
6. Orange County '
7. Chatham County '
8. Forsyth County • '
9. Buncombe County '
10. Guilford County 14.8% 2
Average
equates
2) Not policy; represents unassigned fund balance as of June 30, 2015
General Obligation Bond Rating Scale '
STANDARD &
MOODY'S POOR'S FITCH
Am AAA AAA
�l AA AA
A Q
RIM HIM 111313
7� Ba BB BB
B B B
Caa CCC CCC
Ca CC CC
` C C C
0
Z NN 1" 1�F'S V C D D
These Bond Ratings are reflective of General Obligation Bonds
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Audited Unassigned Fund Balance as a
Percent of Expenditures - General Fund
Zs%
18.5% 18.9%
Zo%
is%
■ Zois
io% ■ Zola
s°io - di - 7
o%
2015 2014
2015- $3515481843 / $192,0781545
2014- $3319131229 / $ 17914251656
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Best Practice Unassigned Fund Balance
In Summary
• GFOA Recommends Unassigned Fund
Balance at 2 Months of Expenditures or
16. 7%
• North Carolina AAA Rated County Peers
Maintain at Least 2 Months; one exception
• Strong Fund Balance provides Financial
Bridge in Recession and Emergencies
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General
Jul-15 Aug-15 Sep-15
BEGINNING CASH BALANCE $ 60,812,461 $ 48,464,119 $ 46,821,563
REVENUES $ 294159302 $ 1292909160 $ 999919833
EXPENDITURES $ 1497639644 $ 1399329716 $ 2098359949
NET CASH $ (1293489342) $ (196429556) $ (1098449116)
ENDING CASH BALANCE $ 4894649119 $4698219563 $3599779447
The first quarter of the fiscal year specifically the month of September represents
the County's lowest cash balance period.
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