[Ord. No. 98-9, § 1, 5-12-1998]
In all instances where a change order is proposed to any existing
contract, where such change order or combination of prior change orders
to the same contract, will result in an increase in expenditures of
the greater of $5,000 or 5% of the initial total contract price, then,
in that instance, approval for said change order must be obtained
from the Town Council.
[Ord. No. 04-27A, §§ 1
— 4, 10-20-2004; Ord. No. 06-15A, § 1, 7-19-2006; Ord. No. 09-22A, § 1, 6-17-2009; Ord. No. 09-30, § 1, 11-4-2009; amended 6-19-2019 by Ord. No. 19-21]
In accordance with sound financial planning principles and recommended
practices of the Government Finance Officers Association (GFOA), the
Town of Cumberland should adopt a policy regarding adequate levels
of fund balance and reserves. It is essential for Cumberland to maintain
sufficient levels of fund balance and reserves to mitigate current
and future risks such as revenue shortfalls, natural disasters, and
unanticipated expenditures, and to ensure stable tax rates. It is
also critical to securing and maintaining an investment grade bond
rating. This policy has been developed to comply with Governmental
Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting
and Governmental Fund Type Definitions, and establishes a range for
the level of fund balance necessary in the general fund. This statement
provides more clearly defined fund balance categories to make the
nature and extent of the constraints placed on a government's fund
balance more transparent. The statement establishes fund balance classifications
that comprise a hierarchy based primarily on the extent to which government
is bound to observe constraints imposed upon the use of the resources
reported in governmental funds.
(1) Purpose.
a. The Town hereby establishes and will maintain fund balance, as defined
herein in accordance with Governmental Accounting and Financial Standards
Board Statement No. 54, Fund Balance Reporting and Governmental Fund
Type Definitions. Fund balance shall be composed of nonspendable,
restricted, committed, assigned and unassigned amounts. The general
fund will be the only fund that maintains an unassigned fund balance.
b. A fund balance policy is adopted in order to secure and maintain
investment grade ratings, meet cash flow needs, and reduce susceptibility
to emergency or unanticipated expenditures and/or revenue shortfalls.
(2) Definitions.
a. Governmental funds. There are five different types of governmental
funds: general fund, special revenue funds, debt service funds, capital
project funds, and permanent funds.
1. General fund: used to account for all financial resources except
those required to be accounted for in another fund or reserve.
2. Special revenue fund: used to account for and report the proceeds
of specific revenue sources that are restricted or committed to expenditure
for specific purposes other than capital projects and debt service.
3. Capital projects fund: used to account for and report financial resources
that are restricted, committed or assigned to expenditures for capital
outlays, including the acquisition or construction of capital facilities
and other capital assets.
4. Debt service fund: used to account for and report financial resources
that are restricted, committed or assigned to expenditures for principal
and interest payments on long-term bond issues.
5. Permanent fund: used to account for and report resources that are
restricted to the extent only the earnings, and not principal, may
be used for purposes that support the reporting of the government's
programs.
(3) Fund balance policy. As required by GASB Statement No. 54, there
are five new classifications of fund balance. The hierarchy of the
new fund balance classifications is outlined below:
a. Nonspendable fund balance. Nonspendable fund balance is established
to report amounts that are not expected to be converted to cash, such
as inventories and prepaid items; items not currently in cash form,
such as long-term amount of loans and notes receivables, as well as
property held for resale; and/or items legally or contractually required
to be maintained intact, such as the corpus or principal of a permanent
fund. An example of a nonspendable fund balance would be the amount
of an endowment held in a trust fund.
b. Restricted fund balance. Amounts that can be spent only for specific
purposes stipulated by external resource providers such as creditors
(by debt covenants), granters, contributors or laws or regulations
of other governments, or imposed by law through constitutional or
enabling legislation, will be reported in special revenue funds and
capital project funds.
c. Committed fund balance.
1. Commitment of fund balance may be made for such purposes including,
but not limited to, a) major maintenance or improvement; b) meeting
future obligations resulting from a natural disaster; and/or c) establishing
reserves for specific projects.
2. Commitment of fund balance may be made from time to time by resolution
of the Town Council. It would require the same type of formal action
by the Town Council to remove or change the constraints placed on
the resources. Action to commit resources must occur prior to fiscal
year-end; however, the amount can be determined in the subsequent
period.
d. Assigned fund balance. Assignment of fund balance may be based on
a Town Council resolution delegating the responsibility to the Finance
Director; and/or used to reflect the appropriation of a portion of
existing unassigned fund balance to eliminate the difference in the
subsequent year's budget in an amount no greater than the projected
difference of budgeted expenditures over budgeted revenues. For all
governmental funds other than the general fund, this amount is any
remaining positive amounts not classified as nonspendable, restricted
or committed. Amounts reported as assigned fund balance cannot result
in a deficit in unassigned fund balance.
e. Unassigned fund balance. Unassigned fund balance is the residual
classification for the general fund. This classification represents
fund balance that has not been assigned to other funds and that has
not been restricted, committed or assigned to specific purposes within
the general fund. The unassigned fund balance may also include negative
balances for any governmental funds if expenditures exceed amounts
restricted, committed or assigned (a residual deficit) for specific
purposes. The general fund is the only fund that can report a positive
amount in unassigned fund balance. For all governmental funds other
than the general fund, the amount expended in excess of resources
that are nonspendable, restricted, committed or assigned which creates
a residual deficit will report the negative balance in the unassigned
fund balance account. In determining a residual deficit, no amount
should be reported as assigned fund balance prior to reporting the
deficit.
(4) General fund balance range.
a. Based on best practices adopted by the Governmental Finance Officers
Association (GFOA), the GFOA recommends, at minimum, that general-purpose
governments, regardless of size, maintain fund balance of no less
than two months of regular general fund operating revenues or general
fund operating expenditures. Using the GFOA guidelines as a target,
the Town will maintain an unassigned fund balance in the range of
8% to 15% of the general fund budget. For this purpose, the general
fund budget shall include the municipal and school budgets.
b. If, after the annual audit, the unassigned fund balance falls below
8% of the general fund budget, the Finance Director will so advise
the Town Council that there is a priority to restore the unassigned
fund balance to an amount equal to or greater than 8% of the general
fund budget. The Town shall take action as necessary to restore the
unassigned fund balance to acceptable levels within three years based
on a plan prepared and submitted by the Finance Director to the Town
Council.
c. If, after the annual audit, the unassigned fund balance is greater
than 15% of the general fund budget, the excess may be used in one
or a combination of the following ways:
1. Left in the general fund to earn interest and roll forward into the
subsequent year's unassigned fund balance;
2. Appropriated by resolution of Town Council for a one-time expenditure
opportunity that does not increase recurring operating costs;
3. Committed to establish or increase a reserve (including but not limited
to contingency reserves), or a transfer to a reserve fund as authorized
by the Town Council.
(5) Spending order of fund balances. The Town uses restricted amounts
to be spent first when both restricted and unrestricted fund balances
are available unless there are legal documents/contracts that prohibit
doing this, such as in grant agreements which may have matching requirements.
Additionally, the Town would first use committed fund balance, followed
by assigned fund balance, and then unassigned fund balance when expenditures
are incurred for purposes for which amounts in any of the unrestricted
fund balance classifications could be used.
(6) Annual review. Compliance with the provisions of this policy shall
be reviewed as part of the annual audit process, and the amounts of
restricted, committed, assigned and the minimum and maximum amount
of the unassigned fund balance shall be determined during the process.
[Ord. No. 08-01, § 1, 3-5-2008; Ord. No. 08-23, § 1, 7-16-2008]
In the event that a particular accounting fund advances monies
to either the water enterprise fund or sewer special revenue fund
there shall be an interest charge levied to the borrowing fund. The
interest rate in order to calculate the actual interest charge shall
be the sum of the interest rate associated with the most recent issuance
of tax anticipation notes plus an administrative charge of 0.25% interest.