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SAN BENITO — While building the biggest cash cache in the city’s history, officials are setting a state policy regulating revenue reserves — 12 years late.
Meanwhile, the new commission is setting City Hall’s minimum fund balance level required to run daily operations during emergencies.
As part of the city’s new $16.8 million general fund budget, officials are stockpiling a record $16.1 million fund balance.
Under past City Manager Manuel De La Rosa’s conservative fiscal management, the city began building its cash reserves in 2016.
Previously, administrations’ budgets had come with fund balances of about $4.5 million.
“I appreciate the fiscal conservatism that got us in the position we’re in,” City Commissioner Tom Goodman said in an interview. “What bothers me is we have a community in need. What I want to bring is leadership that can responsibly rebuild our community.”
Meanwhile, officials have not included about $7 million remaining from the city’s $9.6 million share of the federal American Rescue Plan Act, aimed at helping governments recover from the coronavirus pandemic’s economic slowdown.
“American Rescue Plan Act funds, like many other types of grant money, are typically considered one-time or restricted funds and should not be included in the fund balance,” David Favila, the city’s spokesman, stated. “Accounting standards and principles, such as Generally Accepted Accounting Principles and International Financial Reporting Standards, require that grant funds with specific restrictions be reported separately to provide a clear picture of an organization’s financial health. Commingling grant funds with general funds can make financial reporting less accurate.”
Setting minimum fund balance level
While De La Rosa recommended a 120-day cash reserve, the new commission is setting minimum fund balance requirements into policy.
Now, officials are setting the city’s minimum fund balance level based on the amount of revenue required to run daily operations for a period of 120 days, Favila stated.
“This funding is intended to provide stabilization in case of unforeseen events that may occur such as emergencies, contingencies, revenue shortfalls or budgetary imbalances,” the policy states. “If it is determined that the city is below this minimum established fund balance level, the governing body will be informed of this condition and take necessary budgetary steps to bring the fund balance level into compliance with this policy through budgetary actions.”
Regulating revenue reserves
Meanwhile, officials are setting a policy regulating revenue reserves — 12 years late.
In 2010, Texas lawmakers established the state’s comprehensive fund balance policy, making the law effective in 2011.
“The primary objective of this new standard is to improve the usefulness and comparability of fund balance information by reporting fund balance in more intuitive and meaningful components,” the Texas guidelines state. “This standard also clarifies the definitions of the different types of funds that a governmental entity may set up for financial reporting purposes.”
But previous administrations failed to implement the policy regulating the city’s cash reserve fund.
“It was something that should have been done 10 years ago,” Goodman said. “It was statutorily required of us to do.”
Before commissioners set the policy, officials had been designating revenue into areas they described as fund balance and unassigned funds.
Now, the policy requires revenues be designated under one of five categories — non-spendable fund balance, restricted fund balance, committed fund balance, assigned fund balance and unassigned fund balance.
“To me, it’s extremely important,” Goodman said. “We are fiduciaries of over $16 million. It’s a matter of making clear what we intend to spend and what we’ve already encumbered.”
So far, commissioners have not assigned revenues under the specified categories, Favila stated.
“The city has not designated specific amounts of money to any particular funds for the 2023-24 fiscal year, based on our auditor’s recommendations,” he stated.
Non-spendable fund balance
The policy restricts some revenues from expenditure.
Under the state’s guidelines, a non-spendable fund balance “represents fund balance associated with inventory or pre-paid items,” the policy states. “The cash outlay for these types of items has already been made and therefore the resources represented by this fund balance category cannot be spent.”
Restricted fund balance
Under a restricted fund balance, revenues “can be spent only on the specific purposes stipulated by law or by the external providers of those resources,” the policy states.
Committed fund balance
The policy specifies revenue designated under a committed fund balance “includes amounts that can be used only for the specific purposes determined by a formal action of our city’s highest level of decision-making authority,” the guidelines state.
Assigned fund balance
Under an assigned fund balance, revenues are “intended to be used for specific purposes but not meeting the criteria to be reported as committed or restricted fund balance. In addition, our governing body may grant to an administrator within our organization the authority to ‘assign’ fund balance,” the policy states, adding, “funds that are intended to be used for a specific purpose but have not received the formal approval action at the governing body level may be recorded as assigned fund balance.”
Unassigned fund balance
The policy specifies an unassigned fund balance “represents the residual classification of fund balance and includes all spendable amounts not contained within the other classifications.”
