FIN 2017-11-07 Item 2F - Resolution - Financial Reserve Policy Amendment

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TO: City of Tukwila INFORMATIONAL MEMORANDUM Mayor Ekberg Finance Committee FROM: Peggy McCarthy, Finance Director BY: Sherry Wright, Senior Fiscal Coordinator DATE: November 7, 2017 SUBJECT: Proposed Changes to City's Financial Reserve Policy ISSUE Allan Ekberg, Mayor Approve revisions to the City's Financial Reserve Policy due to recent changes in accounting standards. The Financial Reserve Policy dictates the minimum level of fund balance (reserves) and how the City will manage one-time revenues. BACKGROUND The Tukwila City Council approved the current Financial Reserve Policy on August 3, 2015 when it passed Resolution No. 1861. The Financial Reserve Policy outlines minimum fund balance (reserve) requirements, one-time revenues, and self-insurance reserves. The reserve policy needs to be updated based on recently adopted accounting standards which affected fund balance in Enterprise Funds. To address this impact, staff recommends making the changes highlighted in the attached resolution. DISCUSSION Resolution 1861 outlines the minimum level of financial reserves (fund balance) for the City's funds. Federal accounting requirements are constantly changing, and a recent change impacted the unrestricted balances reported in Enterprise Funds. Based on the change in accounting standards, staff recommends amending the Financial Reserve Policy by clarifying that the effects of specific accounting standards will be excluded from the calculation of unrestricted fund balance. In 2015, the City was required to implement a new federal accounting standard for pension plans, Governmental Accounting Standards Board Statement 68. This standard, commonly referred to as GASB 68, changed the way local governments calculate and report the costs associated with providing pension benefits for employees. The primary requirement of GASB 68 is for employers to report their share of any unfunded pension obligation as a balance sheet liability, and to recognize certain pension expenses immediately rather than over an extended period. Although the City is required to report these items on the financial statements, it is important to note that this is not an actual current liability of the City. In 2016, when the GASB 68 entry was booked in the Golf Course Fund, the unrestricted balance dropped to 8%, which is below the required unrestricted balance of 20% of the previous year's revenues. Since the accounting entry for GASB 68 doesn't impact actual available fund balance, staff is recommending a minor change to policy language. Clarifying language has been added 153