[Ord. of 2-16-1999(1); Ord. No. 2000.91, 10-26-2000; amended 4-1-2014 by Ord. No. 2014.24; 6-5-2018 by Ord. No. 2018.45]
The purpose of this policy is to establish and provide for the sound financial management of the City's unassigned general fund balances. Establishing a minimum, adequate level for the unassigned general fund balance can provide the City the ability to meet financial uncertainties arising from declining real estate values or the loss of a major tax base, changes in spending requirements that may be imposed by the federal or state governments, by natural disasters or infrastructure failure, or by litigation. Maintaining an adequate level in the unassigned general fund balance is important to the stability of the City's financial management, especially towards contributing to adequate operating cash where all liabilities are recognized. Finally, an adequate general fund balance contributes to higher bond credit ratings, which offers the potential for lower interest costs on long-term financings.
Unassigned general fund balances above and beyond a twelve-and-one-half-percent level could then aid the City in meeting future capital project needs by setting aside funds assigned to a specific future use and which are otherwise not available for appropriation or expenditure unless the capital project is completed or canceled. The stated goal of maintaining an unassigned fund balance of 12 1/2% of the total operating budget as defined in this Division shall not be construed to require an appropriation to unassigned fund balance to meet the stated goal, unless said appropriation is the intent of the City Council and further shall not be construed to limit the City Council in approving an appropriation from unassigned fund balance in order to meet an emergency.
As used in this Division, the following terms shall have the meanings indicated:
FUND BALANCE
A term used to describe the net assets of governmental funds. It is calculated as the difference between the assets and liabilities reported in a governmental fund.
(1) 
Governmental fund balance is reported in five classifications that comprise a hierarchy based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. The five classifications of fund balance for the general fund are defined as follows.
a. 
NONSPENDABLE FUND BALANCEResources which cannot be spent because they are either:
1. 
Not in spendable form or
2. 
Legally or contractually required to be maintained intact.
b. 
RESTRICTED FUND BALANCEResources with constraints placed on the use of resources which are either:
1. 
Externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or
2. 
Imposed by law through constitutional provisions or enabling legislation.
c. 
COMMITTED FUND BALANCEResources which are subject to limitations the government imposes upon itself at its highest level of decisionmaking and that remain binding unless removed in the same manner.
d. 
ASSIGNED FUND BALANCEResources neither restricted nor committed for which a government has a stated intended use as established by the City Council or body or official to which the City Council has delegated the authority to assign amounts for specific purposes.
e. 
UNASSIGNED FUND BALANCEResources which cannot be properly classified in one of the other four categories. The general fund should be the only fund that reports a positive unassigned fund balance amount.
(2) 
The committed, assigned, and unassigned classifications are often referred to, in the aggregate, as the unrestricted fund balance.
(a) 
Use. The City's unassigned fund balance represents those funds held in reserve to cover unexpected expenditure needs and emergencies, revenue shortfalls and seasonal cash flow variations. The City Council has determined that maintenance of an adequate fund balance is essential to the financial health and security of the City of Biddeford.
(b) 
Goal. It is the goal of the City to maintain an unassigned fund balance approximating 12 1/2% of operating expenditures. Annually, prior to the first reading of the City's appropriation resolves for adoption of the general fund operating budget, the City Manager shall prepare and distribute to the City Council an estimate of the change to the general fund's unassigned fund balance expected at the closing of the fiscal year. This will be updated prior to the second reading of the appropriation resolves. An appropriation from unassigned fund balance for City expenditures when said balance is less than 10% of operating expenditures shall be avoided except during a most dire emergency. An appropriation from unassigned fund balance for City expenditures when said balance is greater than 15% of operating expenditures shall be proposed to the Budget Committee by the Manager prior to the completion of the Budget Committee's deliberations. An appropriation from unassigned fund balance for City expenditures when said balance is greater than 10% but less than 15% of operating expenditures may be proposed to the Budget Committee by the Manager. Any appropriation proposed from unassigned fund balance should be used for a capital project, capital equipment purchase, or infrastructure improvements; it Editor's Note: may be used to offset an increase in property taxes, with City Council approval, but shall require a six-person super majority vote. Funds cannot be spent or moved without a vote and approval of the City Council.
(c) 
Computation of unassigned fund balance percentage. This shall be calculated as follows: General fund budgeted total expenditures shall be taken from the schedule of revenues, expenditures, and changes in fund balance. Unassigned fund balance, as defined above, shall be divided by the budgeted total expenditures to arrive at a percentage figure to be used for unrestricted fund balance.
(d) 
Transfer or appropriation of unassigned fund balance. The City Council may, by appropriation resolve, transfer amounts from the City's unassigned fund balance to any assigned fund balance reserve. Funds may also be authorized for expenditure from unassigned fund balance through City Council appropriation.
(e) 
Priority uses for fund balance surplus. Any surplus unassigned fund balance carried as unassigned fund balance may be used for the purposes set forth below:
(1) 
To increase assigned fund balance reserves set aside to offset established or anticipated liabilities of the general fund where existing reserves, if any, are insufficient.
(2) 
To increase assigned fund balance reserves for capital improvements.
(3) 
To increase other established capital reserves where such reserves may be insufficient to meet their purposes.
(4) 
To increase the City's appropriated contingency account to address unanticipated current year needs.
(5) 
To offset the increase in property taxes.
(f) 
In general, unassigned fund balance should not be used to fund any portion of the ongoing and routine year-to-year operating expenditures of the City. It should be used primarily to ensure adequate assigned fund balance reserves, to respond to unforeseen emergencies, and to provide overall financial stability.
(a) 
Creation of new reserves. The City Council may create such other reserve funds as shall be deemed advisable. Such reserves shall be created by an appropriation resolve which shall include a statement as to the intent and purpose of the fund, the funding mechanism, the time line corresponding with the end of a fiscal year, and the authority to use and withdraw from the fund.
(b) 
Elimination of reserves. The City Council may, by appropriation resolve, eliminate any existing reserve. At the time such reserve is eliminated, the Council shall either transfer any remaining balance to another assigned fund balance reserve or unassigned fund balance or appropriate the remaining balance within the reserve to be used for the purpose for which the reserve was established.
(c) 
Administrative responsibilities. The Finance Director shall be responsible for monitoring the City's various reserves and for ensuring that this policy is adhered to. The Finance Director shall be authorized to create funds on the City's General Ledger, as necessary to provide for proper accounting for grants, special revenue sources not pertaining to the general fund, capital projects approved by the City Council or School Committee or trust/agency arrangements entered into by the City or schools, as provided for under the provisions of Governmental Accounting Standards Board (GASB) Statement No. 54. The City Manager is authorized to make recommendations to the City Council on the use of reserve funds both as an element of the annual operating budget submission and from time to time throughout the year as needs may arise.
(d) 
Quarterly. The Finance Director shall project the year-end general fund balance and report the projections to the Finance Committee within 30 days of the end of the quarter. Should the forecast predict that the year will end with an operational deficit, a memo shall be given to the entire Council stating how the deficit will be handled.