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HomeMy WebLinkAboutRes2006-024 I I I Sponsored by: Corbridge CITY OF SEWARD, ALASKA RESOLUTION 2006-24 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA, ESTABLISHING A NEW INTERNAL SERVICE F.'UND FOR THE PURPOSE OF ACCUMULATING CASH TO PAY EMPLOYEE COMPENSATED ABSENCE LIABILITIES, AND APPROPRIATING FUNDS WHEREAS, the 2003 implementation of the Governmental Accounting Standards Board Statement No. 34 (GASB34) resulted in a number of changes in how governments report certain accounting transactions; and WHEREAS, one such change results in liabilities for the current portion of employee compensated absences (unpaid accrued annual leave) no longer appearing in the fund financial statements ofthe General Fund; and WHEREAS, prior to (and since) the implementation ofGASB34, the long-term portion of employee compensated absences is not reflected in the fund financial statements of the General Fund; and WHEREAS, the impact of these accounting rules is such that the financial resources necessary to pay for employee compensated absences are not being accumulated to pay liabilities, and when employees either terminate from employment or cash-out annual leave, there is an unanticipated increase in General Fund expenditures, which is difficult to anticipate when projecting budgeted expenditures; and WHEREAS, in order to set aside the cash to pay for employee compensated absences as benefits are accrued, the administration proposes to establish a new Internal Service Fund (the Employee Compensated Absences Fund) and to transfer $297,063.39 from the General Fund into this newly established Internal Service Fund, reflecting the value of employee compensated absence liabilities at December 31, 2005. NOW THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA, that: Section 1. The city manager is authorized to establish a new Internal Service Fund called the Employee Compensated Absences Fund, for the purpose of accumulating cash resources to pay employee compensated absences. CITY OF SEWARD, ALASKA RESOLUTION 2006-24 Section 2. The amount of$297,063.39 is hereby appropriated from the General Fund fund balance account number 101-0000-3070-0104 to the Employee Compensated Absences account number 104-0000-3070-0101. Section 3. This resolution shall be effective immediately, provided that the actions described herein shall be retroactive to December 31, 2005. PASSED AND APPROVED by the City Council of the City of Seward, Alaska, this 13th day of March, 2006. THE CITY OF SEWARD, ALASKA vi.~M.~ AYES: NOES: ABSENT: ABSTAIN: Valdatta, Dunham, Lorenz, Schafer, Thomas, Bardarson, Shafer None None None ATTEST: (City Seal) .,f~,~ ';' u 1I',f: (' '~I,;l~ r,' '"';. t....., __ ".....~... -r-f>4.~"~~ \...1- ~<.,}:_'~ ;~~.., '~.,.'\. ~~~ ~, ..Il;....~_.;.;_~~<-.:.. " ~- '\ ~ U .0- O~r'Uil'L'....>> ,. ~~ ,t.. '/1' .- ~ V """'.". ."'.\ ,,-" 1 ~ ". . ....,,. '\ . u ,1 ~ i ~ -...- V .II~ : 0 i 8::.7', ,'~:J . i c, \. ~ . . . " -..... ~, .; . ~ iJl '" ," eo, f~, q... (>.. :to , . _,.1,\ '. ....~'!__ ,\r:!\ .," ,iI>'--. ./ ..~, :'>':"':.~~"'.~~,,,1~..~.~:.!,,,:.t.~5 .,~., .~<. ~J:;"':: ';'",. ~ I I I COUNCIL AGENDA STATEMENT Meeting Date: March 13, 2006 Through: Clark Corbridge, City Manager From: Kristin Erchinger, Finance Director Agenda Item: Establishing New Employee Compensated Absences Internal Service Fund BACKGROUND & JUSTIFICATION: The manner in which government entities report and book financial accounting transactions is determined according to Generally Accepted Accounting Principles (GAAP). One primary source of GAAP for governmental entities is Governmental Accounting Standards Board (GASB) Statements. In 2003, the City of Seward implemented GASB Statement No. 34 which changed the manner in which certain accounting transactions were reported. One minor result of GASB34 is that the short-term portion of accrued annual leave -- which was previously reflected as a liability in the General Fund financial statements -- is no longer shown as a liability in the General Fund financial statements. Even prior to GASB34, the long-term portion of accrued annual leave was not reported in the General Fund financial statements. Why is that? In short, because of the unique focus of governmental funds --focusing on flows of current financial resources-- certain liabilities related to the General Fund are only reported when they are expected to be paid with resources already available in the General Fund at the end of the current fiscal year. Long-term or non-current liabilities are intended to be paid with resources not yet available in a governmental fund, and therefore, are not reflected on the financial statements. What does this all have to do with the City of Seward? In short, these accounting practices do not set aside cash necessary to pay for accrued vacation time that is owed to employees, and when an employee terminates employment, cashes in annual leave, or takes extended leave, there may be a significant increase in a General Fund department’s expenditures that was not anticipated, without the designated resources to pay this liability. Also, failure to set aside resources to pay this liability overstates the amount of spendable resources in the General Fund. In order to fully fund vacation leave as it is earned by employees, the administration recommends creating a new Internal Service Fund called the Employee Compensated Absences Fund, and appropriating $297,063.39 from the General Fund to the Employee Compensated Absences Fund, reflecting the value of employee compensated absence liabilities at December 31, 2005. CONSISTENCY CHECKLIST: Yes No 1. Comprehensive Plan 2. Strategic Plan 3. Other 4. Not applicable X Resolution 2006- New Employee Compensated Absences Internal Service Fund Page Two FISCAL NOTE: This resolution has the effect of transferring cash out of the General Fund into the newly created Employee Compensated Absences Internal Services Fund, in the amount of $297,063.39, representing the outstanding balance of accrued annual leave at December 31, 2005. Approved by Finance Department ___________________________ RECOMMENDATION: Council approve Resolution 2006-____, establishing the newly created Employee Compensated Absences Internal Services Fund, and transferring the amount of $297,063.39 from the General Fund to this new Internal Service Fund, retroactive to December 31, 2005.