September 5, 2012
Earlier this year, the Civic Federation published a blog describing the recent changes to the standards for how governments report fund balance. Fund balance is a term commonly used to describe the net assets of the governmental funds and serves as a measure of financial resources. Fund balance is the difference between the assets and liabilities in the governmental funds. Fund balance is more a measure of liquidity than of net worth and can be thought of as the savings account of the local government.
In their FY2011 Comprehensive Annual Financial Reports (CAFRs) released this year, governments will need to include a modification in fund balance reporting, as recommended by the Governmental Accounting Standards Board (GASB). The Governmental Accounting Standards Board, or GASB, sets the standards for government financial reporting. Previously, the categories for fund balance only focused on whether resources were available for appropriation by governments, or internal constraints. However, the updated GASB Statement No. 54 acknowledges that a variety of external and internal constraints may prevent portions of the fund balance from being available for budgeting.
New Components of Fund Balance
GASB Statement No. 54 creates five components of fund balance, though not every government or governmental fund will report all components. The five components are:
· Nonspendable fund balance – resources that inherently cannot be spent such as pre-paid rent or the long-term portion of loans receivable. In addition, this category includes resources that cannot be spent because of legal or contractual provisions, such as the principal of an endowment.
· Restricted fund balance – net fund resources subject to legal restrictions that are externally enforceable, including restrictions imposed by constitution, creditors or laws and regulations of non-local governments.
· Committed fund balance – net fund resources with self-imposed limitations set at the highest level of decision-making which remain binding unless removed by the same action used to create the limitation.
· Assigned fund balance – the portion of fund balance reflecting the government’s intended use of resources, with the intent established by government committees or officials in addition to the governing board. Appropriated fund balance, or the portion of existing fund balance used to fill the gap between appropriations and estimated revenues for the following year, would be categorized as assigned fund balance.
· Unassigned fund balance – in the General Fund, the remaining surplus of net resources after funds have been identified in the four categories above.
Historically, the focus of the Civic Federation fund balance analysis has been on the unreserved general fund balance. Given the new components of fund balance established by GASB Statement No. 54, the Civic Federation now focuses on a government’s unrestricted fund balance, which includes the committed, assigned and unassigned fund balance levels. The only difference between the two terms (unreserved and unrestricted) is that a portion of what used to be categorized as unreserved fund balance is now reported as restricted fund balance; otherwise, the two terms are nearly synonymous. For a detailed description of the new classifications, see our previous blog on the changes to GASB Statement No. 54.
In the interest of government transparency, the Civic Federation recommends that all local governments provide ten years of fiscal data in the updated GASB Statement No. 54 format in the statistical section of their audited financial statements. Each government should also provide a guide as to how different fund balance lines were reclassified. An accurate trend analysis can only be conducted with reclassified data.
In its FY2011 CAFR, DuPage County reorganized and restated its fund balances for governmental funds reported as of November 30, 2010, or the beginning of the County’s 2011 fiscal year, in response to the GASB classification changes. DuPage County’s CAFR also includes a detailed explanation as to how different fund balance lines were reclassified according to the new standards. The Civic Federation applauds DuPage County for reclassifying its FY2010 numbers and recommends that other governments model this transparent approach to following the new GASB Statement No. 54 standards.
 Government Finance Officers Association, Appropriate Level of Unrestricted Fund Balance in the General Fund (Adopted October 2009).
 Governmental fund are “generally used to account for tax-supported activities.” Governmental funds differ from other funds typically included in non-governmental financial reporting in that they include only subsets of assets and liabilities. Stephen J. Gauthier, The New Fund Balance (Chicago: GFOA, 2009), p. 34.
 Stephen J. Gauthier, The New Fund Balance (Chicago: GFOA, 2009), p. 34.
 Gauthier, Stephen J., “Fund Balance: New and Improved,” Government Finance Review, April 2009.
 Gauthier, Stephen J., The New Fund Balance (Chicago: GFOA, 2009), p. 34.
 DuPage County, FY2011 Comprehensive Annual Financial Report, pp. 73-76 and 131.