BUDGET AND FISCAL POLICY (REVISED) - 4-2017

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1. The budgetary reasons behind the fund balance targets; 2. Recovering from an extreme event, 3. Political continuity; 4. Financial planning time horizons; 6. Long -term forecasts and economic conditions; 6. External financing expectations. Revenue sources that would typically be looked to for replenishment of a fund balance include nonrecurring revenues, budget surpluses, and excess resources In other funds (if legally permissible and there Is a defensible rationale). Year -end surpluses are an appropriate source for replenishing fund balance. Unrestricted Fund Balance Above Formal Policy Requirement. In some cases, governments can find themselves in a position with an amount of unrestricted fund balance in the general fund over their formal policy reserve requirement even after taking Into account potential financial risks In the foreseeable future, Amounts over the formal policy may reflect a structural trend, in which case governments should consider a policy as to how this would be addressed. Additionally, an education or communication strategy, or at a minimum, explanation of large changes in fund balance is encouraged. In all cases, use of those funds should be prohibited as a funding source for ongoing recurring expenditures. Notes: 1. For the sake of clarity, this recommended practice uses the terms GAAP fund balance and budgetary fund balance to distinguish these two different uses of the same term. 2. These categories are set forth in Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund 7ype Definitions. 3. Sometimes restricted fund balance includes resources available to finance items that typically would require the use of unrestricted fund balance (e.g., a contingency reserve). In that case, such amounts should be included as part of unrestricted fund balance for purposes of analysis. 4. See Recommended Practice 4.1 of the National Advisory Council on State and Local Budgeting governments on the need to "maintain a prudent level of financial resources to protect against reducing service levels or raising taxes and fees because of temporary revenue shortfalls or unpredicted one -time expenditures" (Recommended Practice 4.1). 5, In practice, a level of unrestricted fund balance significantly lower than the recommended minimum may be appropriate for states and America's largest governments (e.g , cities, counties, and school districts) because they often are in a better position to predict contingencies (for the same reason that an insurance company can more readily predict the number of accidents for a pool of 500,000 drivers than for a pool of fifty), and because their revenues and expenditures often are more diversified and thus potentially less subject to volatility. 6. In either case, unusual items that would distort trends (e.g., one -time revenues and expenditures) should be excluded, whereas recurring transfers should be included. Once the decision has boon made to compare unrestricted fund balance to either revenues and/or expenditures, that decision should be followed consistently from period to period. 203 N. LaSalle Street - Suite 27001 Chicago, IL 60601 -12101 Phone: (312) 977 -9700 - Fax: (312) 977 -4806 65C -13