Fund Balance Policy
1. Statement of purpose
Fund balance is the net position of a governmental fund, meaning the difference between assets, liabilities, deferred outflows of resources, and deferred inflows of resources. Fund balance provides for operational stability of the Schaumburg Township District Library (the "Library") and to provide the capacity to a) offset significant economic downturns or revenue shortfalls, b) provide sufficient cash flow for daily financial needs, c) maintain or improve the Library's bond ratings, and d) provide funds for unforeseen expenditures relating to emergencies or opportunities. This policy provides a benchmark for the amount of fund balance the Library will strive to maintain for each of its funds.
2. Types of fund balance
Generally accepted accounting principles provides for five types of fund balance. Following is a brief definition of each type:
a) Non-spendable Fund Balance: Resources that cannot be spent because they are not in spendable form, such as inventory and prepaid items. Resources may also be non-spendable because of legal or contractual requirements.
b) Restricted Fund Balance: Resources that are subject to constraints by external parties or laws.
c) Committed Fund Balance: Formal constraints or limitations placed on resources by the highest level of decision-making authority at the government. In the Library's case, this would be the Board of Library Trustees.
d) Assigned Fund Balance: The portion of net position that is set aside (earmarked) for particular purposes. This differs from Committed Fund Balance in that it may have been established in a less formal method, and the authority to assign the resources may have been delegated to another individual, such as the Executive Director.
e) Unassigned Fund Balance: Net resources that do not fall into one or more preceding four fund balance types. There are no formal or informal restrictions, commitments, or assignments to this portion of fund balance.
3. Fund balance benchmarks
a) General Fund:
- Non-spendable fund balance of the General Fund shall have no benchmark level, but rather shall total the amounts reported for inventory and prepaid expenditures.
- Committed fund balance of the General Fund includes funds formally earmarked for art purchases and special projects approved by the Library Board of Trustees. Revenues dedicated to art and special projects include: Proceeds from the book sales (except for one book sale of which the proceeds are used for the employee picnic or holiday dinner), donations to the Library, and forfeitures of unspent EZ Pay receipts.
- The Library Board and Executive Director should try to maintain unassigned fund balance in the General Fund at a level of fifteen percent (15%) of the subsequent year's budgeted expenditures.
b) Building and Equipment Special Reserve Fund
- 100% of the fund balance reported in the Building and Equipment Special Reserve Fund shall be considered committed to capital projects and major building and system repairs. The Library Board must approve any expenditure of funds out of the Special Reserve Fund through the budget and appropriation process.
c) Working Cash Fund
- Non-spendable fund balance in the Working Cash Fund shall reflect the amount of property tax receipts received through a specific Working Cash Levy. The Library has not levied for a working cash purpose in several years. Currently, the amount reported as non-spendable fund balance is $4,764,095.
- The portion of the fund balance in excess of the amount reported as non-spendable shall be considered assigned for working cash purposes. The assigned portion of fund balance should only be used in the event of a fiscal emergency, and may be expended or transferred only by a resolution of the Board of Library Trustees
4. Replenishing fund balance shortfalls
Whenever the unassigned fund balance of the General Fund falls below the 15% benchmark provided for in this policy, the Executive Director shall present a plan to the Library Board of Trustees that would return unassigned fund balance to 15% over the next two fiscal years. The Executive Director's plan should try to avoid both significant service reductions and the delay of needed capital repairs and improvements.
5. Excess unassigned fund balance
Whenever unassigned fund balance of the General Fund exceeds 15% of the subsequent year's budgeted expenditures the Executive Director shall recommend the excess fund be transferred to the Building and Equipment Special Reserve Fund in the next proposed operating budget.
6. Utilizing fund balance
Fund balance should only be used or depleted in the following situations:
a) Revenue shortfalls result in an operating deficit
b) Unforeseen material expenditures arise which cannot be avoided or delayed
c) Excess fund balance exists and the Library intentionally draws down on fund balance to come into compliance with this policy
Approved by the Schaumburg Township District Library Board of Trustees on April 21, 2014.