RES 2024-07 Fund Balance PolicyTOWN OF TROPHY CLUB
RESOLUTION NO.2024-07
A RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF TROPHY
CLUB, TEXAS, REPEALING THE TOWN'S EXISTING POLICY TITLED
"FUND BALANCE POLICY" IN ITS ENTIRETY AND REPLACING SAID
POLICY WITH A NEW POLICY TITLED "FINANCIAL RESERVES
POLICY" FOR THE TOWN IN ACCORDANCE WITH GOVERNMENT
ACCOUNTING STANDARDS BOARD STATEMENT NO. 54 FUNDS FOR
THE TOWN OF TROPHY CLUB; DESIGNATING THE TOWN'S FINANCE
DIRECTOR AS THE OFFICIAL AUTHORIZED TO ASSIGN FUND
BALANCES; AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, the Town of Trophy Club, Texas (the "Town") is a home rule municipality
acting under its charter adopted by the electorate pursuant to Article XI, Section 5 of the Texas
Constitution and Chapter 9 of the Local Government Code; and
WHEREAS, the Town adopted the Fund Balance Policy on September 12, 2011, by Town
Resolution No. 2011-23; and
WHEREAS, the Town Council seeks to repeal the Fund Balance Policy and replace it with
the Financial Reserves Policy; and
WHEREAS, the Financial Reserves Policy is in compliance with Government Accounting
Standards Board (GASB) Statement No. 54; and
WHEREAS, the Town Council reviewed and considered the Financial Reserves Policy on
April 22, 2024; and
WHEREAS, the Town Council designates the Town's Finance Director as the official
authorized to assign fund balances for the specific purposes provided in the attached Financial
Reserves Policy; and
WHEREAS, the Town Council hereby finds and determines it to be in the best interests of
the public health, safety, and welfare of the Town's residents and the general welfare to adopt Exhibit
"A," as the Financial Reserves Policy.
NOW, THEREFORE, BE IT RESOLVED BY THE TOWN COUNCIL OF THE
TOWN OF TROPHY CLUB, TEXAS, THAT:
SECTION 1. The facts and recitals set forth in the preamble of this Resolution are hereby
found to be true and correct and are incorporated into this resolution as if fully set forth herein.
SECTION 2. The Town of Trophy Club's Financial Reserves Policy, attached hereto and
incorporated herein by reference as Exhibit "A," having been reviewed by the Town Council and
found to be acceptable and in the best interest of the Town and its citizens, is hereby in all things
approved. The Town Manager and staff shall implement and execute the procedures and policies
RESOLUTION NO. 2024-07
PAGE 2
adopted therein.
SECTION 3. A true and correct copy of the Town of Trophy Club Financial Reserves Policy,
as adopted herein, shall be maintained by the Town Secretary's Office.
SECTION 4. The Town Finance Director is designated as the official authorized to assign
fund balances for the specific purposes provided in the Financial Reserves Policy.
SECTION 5. This Resolution shall take effect immediately upon its passage and approval.
PASSED and APPROVED by the Town Council of the Town of Trophy Club, Texas on
this the 22ND day of April 2024.
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Exhibit "A" Financial Reserves Policy
TOWN OF
G:,' TROPHY CLUB
FINANCIAL RESERVES POLICY
Town Council Policy
Policy Number
TC - 003
Implementation Date:
DRAFT
Last Revised Date:
04/23/2024
Policy Contact:
Director of Finance
Resolution Number:
2024-07
A. GENERAL FUND FINANCIAL RESERVES POLICY
Section 1— Purpose of the General Fund - Financial Reserves Policy
The purpose of the General Fund Financial Reserves Policy (the "Financial Reserves Policy") of the Town of Trophy
Club, Texas, is to maintain a prudent level of financial resources in the General Fund as additional insurance against
disasters, emergencies, and unforeseen expenditures within the Town. In addition, this Financial Reserves Policy is
intended to document the appropriate unassigned reserve level to protect the Town's credit worthiness and provide
adequate cash flow based upon the traditional operating cycle.
Section 2 — Delegation of Authority
The Town of Trophy Club Town Council is responsible for the approval of financial policies which establish and direct
the operations of the Town of Trophy Club. The Town Manager is responsible for carrying out the policy directives of
the Town Council and managing the day-to-day operations of the departments, including the Finance Department.
This Financial Reserves Policy will be administered on behalf of the Town Manager by the Finance Director. The Town
Council has authorized the Town's Finance Director as the official authorized to assign fund balance to a specific
purpose as approved by this Financial Reserves Policy.
Section 3 — Establishing the General Fund Policy
The Town is committed to maintaining an unassigned fund balance, as defined by standards established by the
Governmental Accounting Standards Board (GASB), within the range of 30% to 50% of operating expenditures in the
General Fund. This upper limit represents 180 days of cash flow. The Town's specific target of unassigned fund balance
for budgetary and planning purposes is set at 45% of operating expenditures in the General Fund. For the purposes
of this Financial Reserves Policy, the General Fund refers to the General Fund for GAAP purposes.
The Town will measure its compliance with this Financial Reserves Policy on an annual basis during the budgeting
process. During the course of the fiscal year, the Finance Department will monitor revenues and expenditures to ensure
that projections remain consistent with this Financial Reserves Policy. Funding the unassigned reserve target will
generally come from excess revenues over expenditures; unspent expenditures; or one-time, unappropriated
revenues.
In the event that unassigned reserves exceed maximum balance requirements at the end of each fiscal year, excess
reserves may be utilized in the following ways, as directed by the Town Manager and approved by the Town Council.
Excess reserve options are presented in order of short-term, more immediate needs to long-term needs for capital and
programming purposes that may reduce the Town's reliance on future tax dollars to support one-time uses. The Town
Page I of 4
Exhibit "A" Financial Reserves Policy
Council and staff may consider uses consistent with any of these options when determining the utilization of excess
reserves.
1. One-time transfers to other funds, as appropriate, to offset year-end cash deficits (whether an ongoing deficit or
annual deficit) within those funds.
2. Appropriated to provide additional funding to complete current capital projects in the current Capital
Improvement Plan where actual project costs exceed pre -established budget amounts.
3. Appropriated for new, one-time capital project expenditures without significant recurring costs, as recommended
to and approved by the Town Council. An emphasis will be placed on one-time uses that reduce future operating
costs.
4. Appropriated to lower the total amount of a future bond issuance.
S. Appropriated as start-up expenditures for new programs as recommended to and approved by the Town Council.
Such programs will be reviewed in the context of multi -year revenue and expenditure projections as prepared by
the Finance Department.
6. Fund accrued liabilities, including but not limited to debt service, pension, and other employment benefits. Priority
will be given to those items that relieve budget or financial operating pressure in future periods.
7. Appropriated or assigned as recommended by the Town Manager, as recommended to and approved by the Town
Council.
As the purpose of the Financial Reserves Policy is to stabilize Town operations during times of unforeseen loss of
revenues or unforeseen increase in expenditures, it may be necessary and appropriate to take unassigned reserve
levels below those targets established in this Financial Reserves Policy. When multiple categories of fund balance are
available for expenditure (for example, a construction project is being funded partly by a grant, funds set aside by the
Town Council, and unassigned fund balance), the Town will start with the most restricted category and spend those
funds first before moving down to the next category with available funds. Circumstances where taking reserves below
policy levels would be appropriate include responding to the risks that reserves are intended to mitigate, such as:
1. One-time uses in meeting cash -flow needs;
2. Closing a projected short-term revenue/expenditure gap;
3. Responding to unexpected expenditure requirements or revenue shortfalls; or
4. Where a forecast shows an ongoing structural gap until such time as the structural gap can be corrected.
If or when the Town falls below the targets established by this Financial Reserves Policy, the Town Manager will submit
a plan ("Replenishment Plan") to the Town Council to increase unassigned reserves to achieve compliance with this
Financial Reserves Policy. Revenue sources that would typically be looked to for replenishment of unassigned fund
balance reserves include nonrecurring revenues, budget surpluses, year-end surpluses, and excess revenues in other
funds (if legally permissible and with a defensible rationale). The Town Manager will prepare and distribute a
Replenishment Plan to the Town Council no later than June 1 following the completion of the Town's financial
statements for the prior fiscal year.
B. GOVERNMENTAL AND BUSINESS -TYPE FUNDS LIQUIDITY POLICY
Section 1— Purpose of the Governmental and Business -Type Funds Liquidity Policy
The essential purpose of the Governmental Liquidity Policy and Business -Type Liquidity Policy (the "Liquidity Policy")
of the Town of Trophy Club, Texas, is to ensure sufficient resources to meet short-term financial obligations. Sufficient
levels of liquid assets facilitate cash -flow needs during traditional operating cycles and provide additional insurance
against disasters, emergencies, and unforeseen expenditures within the Town. In addition, the Liquidity Policy is
intended to document the appropriate level of unrestricted current assets of cash and investments to protect the
Town's credit worthiness.
Page 2 of 4
Exhibit "A" Financial Reserves Policy
Section 2 — Delegation of Authority
The Town of Trophy Club Town Council is responsible for the approval of financial policies that establish and direct the
operations of the Town of Trophy Club. The Town Manager is responsible for carrying out the policy directives of the
Town Council and managing the day-to-day operations of the departments, including the Finance Department. This
Liquidity Policy will be administered on behalf of the Town Manager by the Finance Department.
Section 3 — Establishing the Liquidity Policy for Governmental Funds
The Town will strive to maintain total current assets in excess of total current liabilities for all funds collectively reported
together as Governmental Activities, as defined by GASB standards. Additionally, the Town will strive to maintain
unrestricted cash and short-term investments of at least 100% of current liabilities as reported in the Town's statement
of net assets at the close of each fiscal year.
The Town will measure its compliance with this Liquidity Policy on an annual basis during the budgeting process. During
the course of the fiscal year, the Finance Department will monitor revenues and expenditures to ensure that
projections remain consistent with the Liquidity Policy. Funding the target will generally come from excess revenues
over expenditures, unspent expenditures, or one-time unappropriated revenues.
From time to time, it may be necessary and appropriate to reduce current assets below the target level to respond to
the risks that reserves are intended to mitigate, such as:
1. One-time uses in meeting cash -flow needs;
2. Closing a projected short-term revenue/expenditure gap;
3. Responding to unexpected expenditure requirements or revenue shortfalls; or
4. Where a forecast shows an ongoing structural gap until such time as the structural gap can be corrected.
If or when the Town falls below the targets established by the Liquidity Policy, the Town Manager will submit a
Replenishment Plan to the Town Council to increase current assets and/or cash and short-term investments to achieve
compliance with this Liquidity Policy. Revenue sources that would typically be looked to for replenishment include
nonrecurring revenues, budget surpluses, year-end surpluses, and excess revenues in other fund types (if legally
permissible and with a defensible rationale). The Town Manager will prepare and distribute a Replenishment Plan to
the Town Council no later than June 1 following the completion of the Town's financial statements for the prior fiscal
year.
Section 4 — Establishing the Liquidity Policy for Business -Type Funds
It is recognized that funds held for the purpose of accounting for business -type activities will fluctuate more than
governmental activities funds. Business -type activities operated by government entities as opposed to a willing private
sector entity regularly operate on the margins and are, therefore, more prone to incurring operational deficits in any
given year. The Town will strive to maintain total current assets of at least 75% of total current liabilities for all funds
collectively reported together as Business -Type Activities, as defined by GASB standards. Additionally, the Town will
strive to maintain unrestricted cash and short-term investments of at least 50% of current liabilities as reported in the
Town's statement of net assets at the close of each fiscal year.
The Town will measure its compliance with this policy on an annual basis during the budgeting process. During the
course of the fiscal year, the Finance Department will monitor revenues and expenses to ensure that projections
remain consistent with the Liquidity Policy. Funding the target will generally come from excess revenues over
expenses, unspent expenses, or one-time unappropriated revenues.
From time to time, it may be necessary and appropriate to reduce current assets below the target level to respond to
the risks that reserves are intended to mitigate, such as:
Page 3 of 4
Exhibit "A" Financial Reserves Policy
1. One-time uses in meeting cash -flow needs;
2. Closing a projected short-term revenue/expense gap;
3. Responding to unexpected expense requirements or revenue shortfalls; or
4. Where a forecast shows an ongoing structural gap until such time as the structural gap can be corrected.
If or when the Town falls below the targets established by the Liquidity Policy, the Town Manager will submit a
Replenishment Plan to the Town Council to increase current assets and/or cash and short-term investments to achieve
compliance with this Liquidity Policy. Revenue sources that would typically be looked to for replenishment include
nonrecurring revenues, budget surpluses, year-end surpluses, and excess revenues in other fund types (if legally
permissible and with a defensible rationale). The Town Manager will prepare and distribute a Replenishment Plan to
the Town Council no later than June 1 following the completion of the Town's financial statements for the prior fiscal
year.
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