HomeMy WebLinkAboutRes2006-024
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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)
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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.