12-07-2020 Council Packet - Laserfiche WebLink

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City of Orono, Minnesota Notes to the Financial Statements December 31, 2019 Note 1: Summary of Significant Accounting Policies (Continued) Fund Balance In the fund financial statements, fund balance is divided into five classifications based primarily on the extent to which the City is bound to observe constraints imposed upon the use of resources reported in the governmental funds. These classifications are defined as follows: Nonspendable - Amounts that cannot be spent because they are not in spendable form, such as prepaid items. Restricted - Amounts related to externally imposed constraints established by creditors, grantors or contributors; or constraints imposed by state statutory provisions. Committed - Amounts constrained for specific purposes that are internally imposed by formal action (resolution) of the City Council, which is the City’s highest level of decision-making authority. Committed amounts cannot be used for any other purpose unless the City Council modifies or rescinds the commitment by resolution. Assigned - These are amounts that are constrained by the City’s intent to be used for specific purposes but are neither restricted nor committed. Pursuant to the Fund Balance Policy approved by City Council, the City Administrator has been delegated the authority to assign and remove assignments of fund balance amounts for specific purposes. Unassigned - These are residual amounts in the General fund not reported in any other classification. The General fund is the only fund that can report a positive unassigned fund balance. Other funds would report a negative unassigned fund balance should the total of nonspendable, restricted and committed fund balances exceed the total net resources of that fund. The City considers restricted amounts to be spent first when both restricted and unrestricted fund balance is available. Additionally, the City would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made. The City formally adopted a fund balance policy for the General Fund. The policy establishes a year-end target unassigned fund balance of 45% of the fund’s annual operating budget. Unassigned fund balance in excess of 50% will be transferred to the Pavement Management Plan Fund pursuant to Council approval Note 2: Stewardship, Compliance and Accountability A. Budgetary Information Each fall, after holding a meeting to obtain public comments, the City Council legally adopts the General Fund and any major special revenue funds. These budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. The City has established budgetary control at the department level. City management must request City Council approval before exceeding the budget at that level. City management may transfer appropriations within the department level without City Council approval. Appropriations lapse at year-end; however, the City Council may approve the carryover of specific amounts. Encumbrance accounting is not used. These are residual amounts in the General fund not reported in any other classification. The General These are residual amounts in the General fund not reported in any other classification. The General fund is the only fund that can report a positive unassigned fund balance. Other funds would report a negative fund is the only fund that can report a positive unassigned fund balance. Other funds would report a negative unassigned fund balance should the total of nonspendable, restricted and committed fund balances exceed the total unassigned fund balance should the total of nonspendable, restricted and committed fund balances exceed the total net resources of that fund.net resources of that fund. The City considers restricted amounts to be spent first when both restricted and unrestricted fund balance is available. The City considers restricted amounts to be spent first when both restricted and unrestricted fund balance is available. Additionally, the City would first use committed, then assigned, and lastly unassigned amountAdditionally, the City would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund s of unrestricted fund balance when expenditures are made.balance when expenditures are made. The City formally adopted a fund balance policy for the General Fund. The policyThe City formally adopted a fund balance policy for the General Fund. The policy establishes a yearestablishes a year 67