Fund Balance Policies
A policy on the use of fund balance or, described in the reverse, a policy on the level of fund balance retainage, is one of the more difficult policies for a governing body to adopt and consistently implement. This is due to several factors. First, the volatile nature of revenues and expenditures may result in fluctuation of fund balance amounts from year to year. Also, various elected officials as well as citizens may define what constitutes an “adequate amount” of fund balance very differently. While some may maintain that a minimum amount of fund balance is sufficient in order to keep the tax burden as low as possible, others may consider higher levels of fund balance necessary to address contingencies and unexpected emergencies.
There is much flexibility in calculating the amount of unreserved fund balance to retain. The policy adopted should reflect each municipality’s own unique circumstances in terms of cash flow needs, contingencies, availability of funds to mitigate revenue shortfalls or unexpected emergency expenditures, credit rating implications and taxpayer acceptance when determining the appropriate level of fund balance to retain.
Policies should address:
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Example policies: (Word format) |
Please note: All example policies are for illustrative purposes only. None of these example policies have been reviewed by LGC legal staff for enforceability or compliance with applicable laws. LGC makes no express or implied endorsement or recommendation of any example policy, nor does it make any express or implied guarantee of the legal enforceability, legal compliance, or quality of any particular policy. Likewise, we do not represent that any particular policy or portion of a policy is appropriate for any particular municipality. Legal counsel should review any proposed financial policy before a municipality adopts it.