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HomeMy WebLinkAboutRes 2143 - Fund Balance PolicyResolution No. City of Tukwila Washington Li A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, ADOPTING THE CITY OF TUKWILA FUND BALANCE POLICY. WHEREAS, the City Council of the City of Tukwila is committed to maintaining sound financial management practices and ensuring the long-term fiscal stability of the City through responsible stewardship of public resources; and WHEREAS, the City has previously established reserve guidance within its Financial Policies, adopted as Resolution No. 2096 on March 14, 2024, including Section 9, Reserves, which outlined minimum reserve levels and the treatment of certain reserve balances; and WHEREAS, the City Council desires to update and expand these reserve provisions in order to provide a clearer and more comprehensive framework governing fund balance classifications, reserve levels, and the appropriate use of financial reserves; and WHEREAS, the Fund Balance Policy establishes guidelines to support financial resiliency, maintain adequate reserves for economic uncertainty and emergency conditions, and ensure consistent and transparent financial decision making. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY RESOLVES AS FOLLOWS: Section 1. Findings Incorporated and Adoption of the Fund Balance Policy. The above "whereas" recitals are adopted as findings in support of this resolution, and the City of Tukwila Fund Balance Policy attached hereto as Exhibit A is adopted. [signatures to follow] 2026 Legislation: Fund Balance Policy Version: C4/06/2026 Staff; T, Culierton Pagel of 2 PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at a Regular Meeting thereof this '/M" day of C? y , 2026, ATTEST/AUTHENTICATED: Ak h A Q \ 4d'Youn\Barnett, CMC, City Clerk APPROVED AS TO FORM BY: Office of the City Attorney Armen Papya Council President Filed with the City Clerk: 0 /Y))0 Passed by the City Council: G7 Resolution Number: ai13 Attachment: ExhibitA— City of Tukwila Fund Balance Policy 2026 Legislation: Fund Balance Policy Version: 04/05/2026 Staff: T Culierton Page 2 of 2 CITY OF TUKINI A FUND BALANCE POLICY Purpose The purpose of the Fund Balance Policy is to establish guidelines for the classification and use of fund balance in accordance with Generally Accepted Accounting Principles (GM,* ) and the requirements of the Governmental Accounting Standards Board (GASB) Statement No, 54. This policy is designed to ensure long-term financial stability and sound fiscal management for the City of Tukwila by maintaining adequate fund balance levels and providing a framework for appropriate use. Scope This policy applies to all City funds, where applicable, including the General Fund, Special Revenue Funds, Internal Service Funds, and Enterprise Funds. While this policy is centered on the General Fund, other funds shall maintain balances sufficient to meet their operational needs, consistent with the purpose of each fund, Fund EWance Poky Page 1 of 7 Version 02/17/2026 501 502 503 611 List of Funds Residential Street Bridges and Arterial Street Contingency UTGO Bonds LID Guaranty 2013 LID Land Acquisition, Rec & Parks Deer Genera( Governmentat mprovements Fire improvements Public Safety Plan City Facilities Water Sewer Foster Gof_Course Surface Water Equipment Rental. Self- Insurance Healthcare Plan Fund Firemen's Pension Special Revenue Special, Revenue SpecaL Revenue Debt Svs Debt Svs Capital Projects Capital Projects Enterprise Enterprise Enterprise Internal Svs Yes Yes Funds 'Where th Policy Does Not Apply The Fund Balance Policy is not applicable to the City's Contingency Fund, Drug Seizure Fund (100-Series), Debt Service Funds (200-level), Capital Project Funds (300-levei), and certain Restricted/Fiduciary Funds (600-level), These funds are excluded because their resources are restricted, externally governed, or tied to fixed financial obligations, such as debt schedules or capital project timelines, and therefore do not accumulate Fund Balance Policy Version: 02/17/2026 Page 2 of 7 discretionary operating reserves for which minimumminmum ar rnaximumfund balance targets would apply. The City's Canting ncy Fund (Special Revenue Fund 105) The Contingency Fund is excluded because its balance is restricted for declared emergencies or extraordinary events and governed througn separate statutory and budgetary authority. Drug Seizure Fund (Sp t clial Revenue 109) The Drug Seizure Fund is excluded from the Fund alarce Policy because its revenues are legally restricted for law -enforcement purposes and cannot be used for general governmental operations. The balance in this fund is governed by federal and state asset forfeiture laws and is expended based on allowable uses tied to police activities, training, equipment, or community safety initiatives, Because these resources do not function as discretionary operating reserves and their accumulation is driven by external enforcement activity rather than budgetary alarming, establishing minimum or maximum fund balance targets is not appropriate. Debt Service Funds (200-Series) Debt Service Funds are legally restricted for the payment of principal and interest on outstan ing debt These funds do not retain ongoing operating reserves and are not intended to accumulate fund bal. nce beyond required annual debt service payments or bond covenant provisions. Minimum or maximum fund balance targets are not relevant for these funds Capital Proj:ct Funds (300-Series) Capital Project Funds account for the financing and construction of capital improvements and are typically funded through restricted revenues or bond proceeds, Fund balances fluctuate based on project timing and do not operate on a cyclical or recurring basis, Because resources in these funds are either restricted or committed for specific capital purposes, they are not intended to support general operating activities and ther fore fall outside the scope of fund balance reserve requirements, Fiduciary Funds(600-Series) Fiduciary Funds accumulate funds that are legally restricted or held in a trustee or custodial capacity, These resources cannot be used for general governmental purposes, and their balances are governed by external requirements, or fiduciary standards rather than reserve policy standards. Applying minimum or maximum fund balance targets to these funds would be inappropriate. Fund Elaance Policy Version: 02/17/2026 Page 3 of 7 Fund Beane, Classifications In accordance with GASB Statement No, 54, fund balances will be re following classifications: ported usingusinci the Nonspendable und Balance Amounts not in spendable form (e,g, inventory, prepaid items) or legally required to remain intact, Restrictec Fund Balance Amounts constrained for specific purposes by external parties, constitutional provisions, or enabling legislation, or imposed by faw, Committed Fund Balance —Amounts constrained for specific purposes by fomial action of the City Council, the City's highest level of decision -making authority. Such commitments can only be changed or removed by the same type of formal acfion. Assigned Fund Balance Amounts intended to be used for specific purposes but not formally committed, The authority to assign fund balance is delegated by the City Council to the City Administrator and/or Finance Director, Assignments are typically made during the budget process or through administrative action consistent with Council direction, Unassigned Func Balance — Represents the residual classification for the General Fund and includes all amounts not contained in other classifications, The General Fund is the only fund that may report a positive unassigned fund balance, Fund balance policy targets are measurec aganst end -of -year balances and are not tied to specific fund balance classifications, Priority of Use Win an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the City shall apply resources in the f Rowing order unless it is determined that it is in the City's best interest to modify the order on a case -by -case basis: 1, Restricted Fund Balance 2 Committed Fund Balance 3, Assigned Fund lt alance 4, Unassigned Fund Balance This order of spending ensures that externally imposed restricfions are honored first, followed by Council -directed commitments, management assignments, and finally general resources. Fund Balance Pollcy Version: 027/2026 Page 4 of 7 Minimum Fund Balance Requirement At the close of each fiscal year, the City shall maintain an Unassignec Fund Balance in the General Fund equal to no less than 1O% of prior year General Fund operating expenditures. This level is consistent with Government Finance Officers Association (GFOA) best practice guidance and is intended to provide adequate resources for cash flow needs, temporary revenue shortfalls, emergency expenditures, and economic downturns or other unforeseen events such as natural disasters. Unassigned Fund Balance may only be used for one-time purposes that do not create ongoing costs or for fiscal emergencies that compromise the City's ability to maintain essential services. A fiscal emergency may include, but is not limited to, catastrophic natural events, a sudden and significant loss of revenue,. or other events posing material financial risk to the City Any use of fund balance, that reduces it below tne minimum target must be approved by the City Council and include a replenishment plan to restore balances within three fiscal years, with semi-annual progress reporting, Under no circumstances snail Unassigned Fund Balance fall below 1O% of prior year's General Fund operating expenditures without a formal Council emergency declaration. Maximum Fund Balance Threshold The City shall maintain an Unassigned Fund Balance in the General Fund notto exceed 25% of prior year's General Fund operating expenditures, The maximum threshold is intended to prevent the accumulation of reserves beyond what is necessary for prudent fiscal management whileensuring financial resources remain activelysupporting government services and priorities, If balances exceed the maximum target, the excess should be designated for one-time strategic purposes, unless otherwise identified for a specific use, such as capital improvements, asset replacement, early retirement of outstanding debt, or other non- recurring expenditures. For purposes of calculating minimum and maximum fund balance targets, "operating expenditures" include all General Fund expenditures related to ongoing governmental operations, but exclude capital outlays, transfers to oher funds, and debt service expenditures. This ensures that fund baance. targets reflect normal operating activities and are not artificially impacted by one-time or non -operating transactions. Use of One -Time Revenues One-time or non -recurring revenues —such as year-end operating surpluses, proceeds from asset sales, legal settlements, or other non -operating revenues shall be used for one-time purposes, including capital investment, technology upgrades, debt reduction, enhancement of reserves, or initial funding for new programs expected to become self- sustaining .. One-time revenues shall not be used to support ongoing operating expenditures. Use of these resources shall be aligned with the City's. long-term financial planning objectives and communicated as part of the annual budget process,. Fund BaWnce Policy Page 5 of 7 Version: 02117/2026 Applicable Special Revenue Funds Applicable Special Revenue Funds include Hotel/Motel (101), Residential Streets (103), and 11; ridges and Arterial Streets (104). These funds must maintain positive cash flow and sufficient balances for ongoing operations but are not subject to minimum or maximum fund balance requirements Proprietary Fund Reserve Treatment (400 & 500-Series) For Proprietary Funds (Enterprise and Internal Service Funds), reserve targets are expressed in terms of Net Position rather than Fund Balance. Because Proprietary Funds are operated in a business -like manner, reserve levels may be established based on factors such as operating expenses, system replacement and renewal needs, and debt service obligations. Reserve levels are intended to support rate stability, ensure the reolacement of capital assets, and maintain compliance with applicable legal and regulatory req U irements. Replenishm,nt of Fund Balanc In the event that the Unassigned Fund Balance is drawn down De low the 18% threshold, the City siall develop a restoration plan to rebuild the balance within a reasonable period, not to exceed three fiscal years. Options for replenishment may include: • Expenditure reductions • Revenue enhancements • Collection of one-time revenues The General Fund reserve target is intended to serve as the City's prirnary fiscal stabilizaticn mechanism for managing revenue volatility and unforeseen financial events. Natural Disasters In the event of a natural disaster, such as an earthquake, flood, windstorm, or other catastrophic event, the City may utilize unassigned fund balance to ensure continuity of essential government operations, protect public health and safety, and expedite recovery efforts. Expenditures may include, but are not limitec to, emergency response services, temporary facilities, infrastructure repairs, and other urgent needs directly attributable to the disaster. Use of fund balance for this purpose must he authorized by the City Council and wild include a replenishment plan to restore balances to policy levels. The City will also actively pursue available state and federal disaster relief funds, insurance recoveries, and other external resources to minimize reliance an fund balance, Em rgency D.claration For the City to use fund balance in response to a natural disaster or similar event, an "emergency" must first be formally declared, An emergency exists when conditions threaten public health or safety, essential governmz nt services, or critical infrastructure, and immediate action is needed to protect the community, The declaration may be made by the Mayor or City Council. An emergency declaration provides the basis for accessing Fund Balance Policy Version y 02/17/2026 age of 7 fund balance, outlines the scope of response activities, and authorizes temporary adjustments, :to normal spending or operational procedures as allowed by law, Capital Reserve Policy The City may establish and maintain reserves within the Proprietary Funds, or other applicable funds to provide for capital replacement, infrastructure improvements, and technology upgrades. These reserves are intended to: • Ensure funding is available for major asset replacement without creating sudden financial stress on the operating budget, Support the City's long-term capital improvement program (CIP). • Provide a buffer against unexpected capital needs or cost overruns, Reserves may be funded through annual appropriations, one-time revenues, or excess fund balance above policy minimums. Use of capital reserves shall require notification to the City Council at the next reasonable opportunity and must be consistent with adopted capital planning priorities,, Roles and Responsibilities • City Council: Approves fund balance commitments, assignments, and policy changes. • City Administrator: Recommends use of fund balance and proposes replenishment strategies • Finance Director: Monitors fund balance levels, prepares fund balance reports, and advises on compliance with the policy. Monitoring and Reporting Fund balance levels will be monitored throughout the year and reported in the: • Annual Budget Document • Annual Comprehensive Financial Report (ACFR), and mid -year and year-end budget amendment updates to the City Council, Policy Review This policy should be reviewed at least every three years or more frequently, if necessary, due to changes in governmental accountingstandards, financial condition, or best practices. Policy Exceptions Any deviations from this policy must be approved by a majority vote of the City Council and should be accompanied by documentation outlining the rationale and any mitigating strategies. Polley Name Fund Balance Policy Adopted Last Reviewed Next Scheduled view: Fund Balance Policy Version: 02/17/2026 Page 7 of 7