Monday, May 20, 2024

County discusses draft of fund balance policy


The Hood County Commissioners Court discussed a draft of its first ever fund balance policy during a regularly scheduled meeting April 23.

Precinct 2 Commissioner Nannette Samuelson explained that a few months ago, the county’s investment advisor, Jim Sabonis, recommended that the court adopt a fund balance policy, saying “all well-run counties” have such a policy in place.

“At that time, though, our new auditor, Mrs. (Stephanie) Matlock was pretty new. She had just arrived on the job, and the court felt that it was appropriate to give her several months to kind of get her feet on the ground and understand fund accounting,” Samuelson said. “Fortunately, Mrs. Matlock is a very quick study. She's doing a fantastic job as our county auditor, so today is discussion only and I have provided a draft.”

A fund balance policy allows a local government to set a goal or a range for its unrestricted fund balance. In essence, the policy will serve as a guideline for how the county’s funds can be spent.

According to the draft of the Comprehensive Fund Balance Policy, the Governmental Accounting Standards Board (GASB) issued Statement No. 54 to improve the usefulness of fund balance information by providing clear fund balance classifications. GASB-54 abandoned the reserved, unreserved and designated classifications of fund balance and replaced them with five classifications: nonspendable, restricted, committed, assigned and unassigned. The five constraints serve to inform readers about the specific purposes for which resources can be spent.

The fund balance policy, according to the draft, provides guidelines during the preparation of and deliberation on the annual budget to ensure that sufficient resources are maintained for unanticipated expenditures, revenue shortfalls, and to preserve the flexibility throughout the fiscal year to adjust funding for programs approved in connection with the annual budget.

The policy will establish the level of unassigned fund balance required for the county’s general fund, road and bridge fund and library fund balance management.

The five classifications are also outlined:

  • Nonspendable fund balance – Fund balance reported as nonspendable represents fund balance associated with inventory or prepaid items.
  • Restricted fund balance – Fund balance reported as restricted represents amounts that can be spent only on the specific purposes stipulated by creditors, grantors, contributors or other governments like tax levy funds, probation fees and construction programs.
  • Committed fund balance – Fund balance reported as committed includes amounts that can be used only for specific purposes determined by a formal action of the Hood County Commissioners Court, like approved projects, grants and funds.
  • Assigned fund balance – Fund balance reported as assigned represents amounts intended to be used for specific purposes, but not meeting the criteria to be reported as committed or restricted fund balance, like program startup costs, insurance deductibles and recommended use of fund balance at year-end.
  • Unassigned fund balance – Fund balance reported as unassigned represents the residual classification of fund balance and includes all spendable amounts not contained within the other classifications.

The fund balance of the general fund is of primary significance as it is the primary fund, which finances most functions of county government. According to the draft, the county desires to maintain stabilization funds in the unassigned fund balance of up to four months of regular general fund operating expenditures (35%) based on the most recently completed fiscal year. This funding is intended to provide stabilization in case of unforeseen events that may occur such as emergencies, contingencies, revenue shortfalls or budgetary imbalances.

After Samuelson finished going over the draft, resident Tina Brown asked if there is a law regarding the county’s reserve balance or if the four months outlined in the draft is just a recommendation.

“I just went to an auditor's conference,” Matlock responded. “I actually was in a question-and-answer forum, and I pulled all the other counties that were equivalent to our size within a range, and there was a multitude of responses. Some follow the GASB rule of three months (of reserves). Others extend it out a little bit further. I think it's discretionary and dependent on how you run. I prefer a conservative, closer to six months number (in reserves) but that's just what the other counties were doing. It was definitely like a wide variety there.”

"I looked to see if there was a law or statute or anything like that, and I couldn't find one,” Brown said.

“I would classify this as a best practice,” Samuelson said. “And as Mr. Sabonis said, most well-run counties adopt a fund balance policy. To me, it's just a guiding principle of how you manage your budget. This is taxpayer money, and we want to be sure that we're doing everything we can to have the best policies in place to make sure we're doing the right thing.”

Brown asked if Hood County had a fund balance policy before and Precinct 1 Commissioner Kevin Andrews replied with, “Not that I know of.”

Hood County Judge Ron Massingill asked Matlock if the reserve balance has always consisted of six months under previous County Auditor Becky Kidd.

"I did find something from 2011, from Stan (McBroom) before Becky and it was when we were in a cash flow crisis,” Matlock said. "At that time, we could implement a five-to-six-month reserve balance because we were having trouble. It was a shrinking economy, rather than what we're facing now as a growing economy. It's a decision based on a conservative viewpoint and the ability to maintain our budget and the ability to fund it fully, even if we don't receive all the anticipated revenues. It's better to have more in there just like on your own personal budget."

“I'm happy to say that six months sounds good to me, too,” Brown said. “Especially if they encounter another drop (in cash flow).”

Precinct 4 Commissioner Dave Eagle said he researched GASB about three or four years ago and that he is in total agreement with having a written policy about the fund balance.

“I think there's been disagreement. Before we had five to eight months in the unassigned, and I'm leaning more towards three to four months,” he said. “I look at it this way. Every penny that's in that unassigned balance — to look at it in a practical way — is in a savings account. It's money that we're taking from the taxpayers, and it's sitting over in an account to be used as something comes up. It's unassigned, so the question becomes, do you want to put six or seven months in a savings account of taxpayers money, or do you want a little bit less?

"In my opinion, the lesser that we have in the fund balance — leaning towards the three-to-four-month side — the more it puts us in a position to make sure we're staying within our budget, and that we don't have this extra fluff.”

Eagle said it is also prudent for business to have more money in reserves in case the economy suffers a downturn.

"I don't know if we need six or seven months of operating expenses in a savings account, but I'm very happy that Commissioner Samuelson has actually brought this to the table,” he said. “I think that this is a very good, prudent idea, and it also gives the taxpayers out here one more piece of information where they can see what we're doing — and I think that's very important.”

Samuelson also added the unassigned fund balance is the last category, so if the economy suffered a crisis, the court would start with the most restricted category and spend those funds first before moving to the next.

"If we had assigned some amount of money for projects that we anticipate coming up and ran into some sort of economic crisis, we would, in essence, cancel those capital projects and use those funds for the crisis before we ever went into the unassigned category, so that's what that order of expenditure of funds states,” she said.

Because the commissioners court doesn’t meet again until May 12, Samuelson said the court will have extra time to review the policy, and it will be placed on the agenda at a later date.

The current draft of the Comprehensive Fund Balance Policy can be viewed online at under the April 23 agenda.