Replaces 02/22/2012
The Board of Library Trustees (“board”) is committed to the responsible accounting for all public funds. Within a given fiscal year, the board and staff make every effort to use funds as budgeted. Any funds that are unexpended at the end of the fiscal year are classified into one of five categories of fund balance in accordance with the Governmental Accounting Standards Board (GASB) Statement 54. The fund balances may be used for cash flow requirements, projected building maintenance and improvements, capital projects and other purposes to ensure successful ongoing library operations.
Purpose
A fund balance policy establishes a hierarchy in the use of funds and a minimum level at which the projected end-of-yearfund balance must observe, as a result of the constraints imposed upon the resources reported by governmental funds. This policy is established to provide financial stability, cash flow for operations, and the assurance that the Arlington Heights Memorial Library (“library”) will be able to respond to emergencies with fiscal strength. More detailed fund balance financial reporting and increased disclosures will also aid users of our financial statements in understanding the availability of resources.
It is the library’s philosophy to support long-term financial strategies, where fiscal sustainability is our first priority, while also providing funds for future needs. It is essential to maintain an adequate fund balance to mitigate current and future risks and to ensure a stable tax levy. Fund balance levels are also a crucial consideration in long-term financial planning.
Definitions
Governmental Funds
The fund balance will be composed of three primary categories:
- Nonspendable Fund Balance – portion of a Governmental Fund’s fund balance that is not available to be spent, either in the short-term or long-term, or through legal restrictions (e.g., inventories, prepaid items, land held for resale and endowments).
- Restricted Fund Balance – portion of a Governmental Fund’s balance that is subject to external enforceable legal restrictions (e.g., grantor, contributor and property tax levies).
- Unrestricted Fund Balance – is made up of three components:
- Committed Fund Balance – the portion of a Governmental Fund’s fund balance with self-imposed constraints or limitations that have been placed at the highest level of decision-making through formal board action. The same action is required to remove the commitment of fund balance.
- Assigned Fund Balance – the portion of a Governmental Fund’s fund balance to denote an intended use of resources, but no formal board action is required.
- Unassigned Fund Balance – available expendable financial resources in a governmental fund that are not the object of tentative management plan.
Some funds are funded by a variety of resources, including both restricted and unrestricted (committed, assigned and unassigned). The library’s order of spending fund balance is as follows: restricted, committed, assigned, unassigned.
Authority
Governmental Funds
Committed Fund Balance – A self-imposed constraint on spending the fund balance that must be approved by ordinance or resolution of the board. Any modifications or removal of the self-imposed constraint must use the same action used to commit the fund balance. Formal action to commit fund balance must occur before the end of the fiscal year. The dollar amount of the commitment can be determined after year end.
Assigned Fund Balance– A self-imposed constraint on spending the fund balance based on the library’s intent to use fund balance for a specific purpose. While the authority may be delegated to members of the management team by the board, at the current time, this authority has not been delegated.
Unrestricted Fund Balance Levels
Governmental Funds
General Fund
- Purpose - This is a major fund and the general operating fund of the library. It is used to account for all activities that are not accounted for in the Capital Projects Fund.
- Fund Balance – Unrestricted fund balance targets should represent no less than four months (33%) and no more than nine months (75%) of expected annual operating expenditures for the coming year, without a Board of Library Trustees resolution. Balances above the maximum may be transferred to the Capital Projects Fund through a resolution of the board.
Capital Projects Fund
- Purpose – This is a major fund and was established to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays including the acquisition or construction of capital facilities and other capital assets.
- Financing – Interfund transfers, debt financing or grants are used to finance this fund.
- Fund Balance – The fund balance is reviewed in developing the Long Range Fiscal Plan and is maintained at a level appropriate with upcoming capital requirements.
Other Considerations
In establishing the above policies for unrestricted fund balance, the board considered the following factors:
- The predictability of the library’s revenues and the volatility of its expenditures (i.e., higher levels of unrestricted fund balance may be needed if significant revenue sources are subject to unpredictable fluctuations or if operating expenditures are highly volatile)
- The library’s perceived exposure to significant one-time outlays (e.g., disasters, immediate capital needs, state budget cuts)
- The potential drain upon General Fund resources from the Capital Projects Fund (i.e., a deficit in the Capital Projects Fund may require a higher level of unrestricted fund balance be maintained in the General Fund, just as the availability of resources in the Capital Projects Fund may reduce the amount of unrestricted fund balance needed in the General Fund)
- Liquidity (i.e., a disparity between when financial resources actually become available to make payments and the average maturity of related liabilities may require that a higher level of resources be maintained)
- Commitments and assignments (i.e., the library may wish to maintain higher levels of unrestricted fund balance to compensate for any portion of the unrestricted fund balance already committed or assigned by the library for a specific purpose)
If any of the above factors change, the board will readdress the current unrestricted fund balance policy to ensure amounts are appropriate to maintain fiscal sustainability.