16-54 - O TOWN OF PROSPER, TEXAS ORDINANCE NO. 16-54
AN ORDINANCE OF THE TOWN COUNCIL OF THE TOWN OF PROSPER,
TEXAS, ADOPTING A FUND BALANCE POLICY; AUTHORIZING THE TOWN
MANAGER TO ASSIGN FUND BALANCE FOR INTENDED SPECIFIC USES;
REPEALING ORDINANCE NO. 11-66 IN ITS ENTIRETY; PROVIDING FOR
REPEALING, SAVINGS AND SEVERABILITY CLAUSES; AND PROVIDING
FOR AN EFFECTIVE DATE OF THIS ORDINANCE.
WHEREAS, the Governmental Accounting Standards Board (GASB) released Statement
No. 54, "Fund Balance Reporting and Governmental Fund Type Definitions," on March 11, 2009,
effective for the fiscal year ending on September 30, 2011; and
WHEREAS, as part of GASB Statement No. 54, governments are required to adopt and
disclose information in the notes to the financial statements about amounts reported in fund
balance; and
WHEREAS, this Statement is intended to improve the usefulness of the amounts reported
in fund balance by providing more structured and consistent classifications; and
WHEREAS, the Town has long held formal policies and Charter requirements regarding
fund balance and unreserved fund balance targets, which this policy will serve to further solidify.
NOW, THEREFORE, BE IT ORDAINED BY THE TOWN COUNCIL OF THE TOWN OF
PROSPER, TEXAS, THAT:
SECTION 1
The findings set forth above are incorporated into the body of this Ordinance as if fully set
forth herein.
SECTION 2
The Town of Prosper does hereby approve and adopt the Fund Balance Policy for the
Town of Prosper, attached hereto as Exhibit A and incorporated by reference.
SECTION 3
Specific authority is hereby given to the Town Manager to assign fund balance amounts to
specific purpose as further described in the Fund Balance Policy. The Town Manager may also
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delegate this authority to a committee or staff member, as he or she may deem appropriate.
SECTION 4
Existing Ordinance No. 11-66 is hereby specifically repealed in its entirety and further, all
provisions of any ordinance in conflict with this Ordinance are hereby repealed to the extent they
n
are m conflict; but such repeal shall not abate any pending prosecution for violation of the
repealed ordinance, nor shall the repeal prevent a prosecution from being commenced for any
violation if occurring prior to the repeal of the ordinance. Any remaining portions of said
ordinances shall remain in full force and effect.
SECTION 5
Should any section, subsection, sentence, clause or phrase of this Ordinance be declared
unconstitutional or invalid by a court of competent jurisdiction, it is expressly provided that any
and all remaining portions of this Ordinance shall remain in full force and effect. Prosper hereby
declares that it would have passed this Ordinance, and each section, subsection, clause or
phrase thereof irrespective of the fact that any one or more sections, subsections, sentences,
clauses and phrases be declared unconstitutional or invalid.
SECTION 6
This Ordinance shall become effective from and after its adoption and publication as
required by the Town Charter and by law.
DULY PASSED, APPROVED, AND ADOPTED BY THE TOWN COUNCIL OF THE
TOWN OF PROSPER, TEXAS, ON THIS 19TH DAY OF SEPTEMBER, 2016.
Ray Smith, Ma r
T
own Secreta
Robyn at , T ry
APPROVED AS TO FORM AND LEGALITY:
Terrence S. Welch, Town Attorney
Ordinance No.16-54,Page 2
Err A
CHAPTER 14: FUND BALANCE POLICY
SECTION 14.01: PURPOSE AND OVERVIEW
The purpose of this policy is to establish guidelines for fund balance levels within each of the Town
of Prosper's funds. It is essential that the Town maintain adequate levels of fund balance to mitigate
financial risk that can occur from unforeseen revenue fluctuations, unanticipated expenditures, or
adverse circumstances. The Town of Prosper avoids appropriating fund balance for recurring
expenses. However,in the event that fund balance is used to support recurring expense,the budget
will clearly identify the uses of fund balance and provide an explanation of the circumstances
requiring the use of fund balance. In addition,the budget will also address the future potential uses
of fund balance for operating expenditures and a course of action to replenish fund balances to target
levels.
This policy ensures the Town maintains adequate fund balances in various operating funds for
capacity to:
1. Provide sufficient cash flow for daily financial needs,
2. Secure and maintain investment grade bond ratings,
3. Offset significant downturns or revenue shortfalls,and
4. Provide funds for unforeseen expenditures related to emergencies.
SECTION 14.02: DEFINITIONS AND CATEGORIES
A. Fund Balance
Defined as the difference between a fund's assets and liabilities reported in a governmental fund,
which is more a measure of liquidity than of net worth. This would be most similar to working
capital as used in the private sector.
According to the Governmental Accounting Standards Board (GASB)statement number 54, fund
balance must be allocated into one of the following five categories:
1. Nonspendable Fund Balance-includes amounts that either
a. are not in a spendable form, or
b. are legally or contractually required to be maintained intact.
Chapter 14, Page 1 Exhibit A
Ordinance No.16-54,Page 3
Examples include prepaid items, inventory, redevelopment properties held for resale, or
endowments.
2. Restricted Fund Balance - includes amounts for which constraints have been placed on the
use of the resources either
a. externally imposed by creditors (such as through a debt covenant), grantors,
contributors,or laws or regulations of other governments,
b. imposed bylaw through constitutional provisions or enabling legislation, or
c. imposed by Town Charter.
Examples include Contingency Appropriations in the Town Charter, grants, and debt
covenants.
3. Committed Fund Balance-includes 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. Commitments may be changed or lifted only by the government taking the same
formal action that imposed the constraint originally. Examples include any Council-imposed
use or limitation set by Town Ordinance or Resolution.
4. Assigned Fund Balance - includes amounts intended to be used by the government for
specific purposes.In governmental funds other than the general fund.assigned fund balance
represents the amount that is not restricted or committed. This indicates that resources in
other governmental funds are,at a minimum,intended to be used for the purpose of that fund.
S. Unassigned Fund Balance- is the residual classification of the general fund and includes all
amounts not contained in the other classifications. Unassigned amounts are technically
available for any purpose.
Note: The above fund balance categories only apply to governmental funds.
6. Restricted Fund Balance - While the Fund Balance Policy is intended to focus more on
unrestricted portions of fund balance. it is important to note a Town Charter provision in
Section 7.08 as amended in May 2011 that imposes a legal restriction on a Contingent Reserve
of the General Fund. It reads, "Provision shall be made in the annual budget maintaining a
contingency reserve fund balance designation in an amount not less than twenty percent
(20%) of the total general fund expenditures, to be used in case of unforeseen items of
expenditure or revenue shortfalls. This shall apply to current operating expenses and shall
not overlap with any other amount of reserves maintained by the Town. Such contingency
reserve appropriation shall be under the control of the Town Manager and distributed by him
or her only in the event of an emergency or after supplemental appropriation by the Town
Council. The proceeds of the contingency reserves shall be disbursed only by transfer to
departmental appropriation, the spending of which shall be charged to the departments or
activities for which the appropriations are made."
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Chapter 14, Page 2 ExhibitA
Ordinance No.16-54,Page 4
7. Committed Fund Balance-The Town Council is the Town's highest level of decision-making
authority and the formal action that is required to be taken to establish, modify, or rescAnd
a fund balance commitment is an ordinance or resolution adopted by the Town Council.The
formal action must either adopt or rescind the commitment, as applicable, prior to the last
day of the fiscal year for which the commitment is made.The amount subject to the constraint
may be determined in the subsequent period.
8. Assigned Fund Balance - The Town Council authorizes the Town Manager or his/her
designee as the official authorized person to assign fund balance to a specific purpose
approved by this fund balance policy.
9. Order of Expenditure of Fund Balance - While multiple categories of fund balance are
available for expenditure (for example, a construction project is being funded partly by a
grant,funds set aside by the Town Council,and unassigned fund balance),the Town will start
with the most restricted category and spend those funds first before moving down to the next
category with available funds. Normally this would result in the use of restricted, then
committed,then assigned,and lastly,unassigned fund balance.
The Town reserves the right to selectively spend unassigned resources first to defer the use
of these other classified funds if determined to be in the Town's best interest.
10. Minimum Unassigned Fund Balance - It is the goal of the Town to achieve and maintain an
unassigned fund balance in the general fund equal to five percent (5%) of budgeted
expenditures for unanticipated expenditures, unforeseen revenue fluctuations, or other
adverse circumstances. The unassigned fund balance level,however,may be reduced during
unusual financial circumstances. However, if such a situation occurs, the Town will
implement necessary corrective action within a five-year plan to restore the unassigned fund
balance to the equivalent of five percent(5%) of budgeted expenditures. This amount is in
addition to the twenty percent(20%) restricted fund balance amount required by the Town
Charter.
11. Non-governmental fund balances-The fund balance categories discussed above do not apply
to proprietary funds according to GASB 54. While not required by the GASB, the Town
recognizes the need to apply a minimum balance policy to the proprietary funds maintained
by the Town. Therefore,the Town shall strive to maintain a minimum ending working capital
balance (current assets minus current liabilities) of at least twenty-five percent (25%) of
budgeted non-capital expenditures for each of the proprietary funds. If the working capital
level should fall below the desired minimum,the Town will implement necessary corrective
action within a five-year plan to restore the working capital balance to twenty-five percent
(25%) of budgeted non-capital expenditures.
Chapter 14, Page 3 Exhibit A
Ordinance No.16-54,Page 5