What is Fund Balance?
Fund balance is an accumulation of revenues minus expenditures. Each fund maintained by the city has a fund balance. Fund balance can be used in future years for purposes determined by City Council. To understand fund balance, it is important to understand fund accounting. Fund accounting is unique to the public sector (i.e. governments, schools, etc.) and requires separate self-balancing accounting entries to track each fund’s revenues and expenditures. Funds are created for various reasons and separated into fund types which dictate the accounting rules that apply (i.e. basis of accounting can be full accrual or modified accrual).
Funds are typically restricted in use by Michigan law, the City Charter and local ordinances to assure the funds are used for their intended purposes. The source of funding generally determines the restriction applicable to funds and thus what fund type it is. The city has more than 50 such distinct funds.
Expenditures for each fund are authorized through the budget process, which requires approval of the service area administrators, the city administrator, and, ultimately, City Council. The managers of the service units operating within the funds typically oversee approval of expenditures throughout the fiscal year. Expenses are audited annually to ensure compliance with policies.
Any surplus revenues in excess of expenditures at the end of a fiscal year fall to a fund balance within that particular fund. Each day, these funds are invested in the city’s pool of invested funds and earn interest in proportion to their participation in the pool. Fund balance from any fund can be re-appropriated for future use through the budget process, but the ongoing restrictions on that particular fund continues to apply to re-appropriated funds.
The below chart reflects how the City's fund balances reserves are restricted for use. Please see the restrictions on use of fund balance below.
Non-Spendable - this includes amounts that either can't be spent because they aren't in a spendable form or there are legal or contractual requirements that keep them from being spent.
Restricted - this money can only be used to pay creditors, or it has a restricted use by law.
Committed - can only be used for specific purposes based on the constraints imposed by formal actions of the governing body.
Assigned - money intended for a specific purpose but aren't specifically restricted or committed.
Unassigned - money that is not restricted, committed or assigned a specific purpose. It is found only in the General Fund.
