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NYS Comptroller

THOMAS P. DiNAPOLI

Local Government and School Accountability

Previous Accounting Releases (Advisories and Bulletins)

July 2001: Budgeting and Fund Balance Legislation


Issued To: County, City, Town, Village, and Fire District Chief Executive and Fiscal Officers


Purpose of Bulletin

The purpose of this bulletin is to alert you to legislative changes requested by the State Comptroller that apply to budgets for fiscal years commencing on or after January 1, 2001 and to provide information that will help determine a reasonable level of fund balance for your government. Chapter 528 of the Laws of 2000 gives local governments more flexibility in managing their fiscal affairs as noted below:

  1. Counties, towns, villages and fire districts can carry over a "reasonable amount" of unappropriated unreserved fund balance from one year to the next. Previously, the County law, Village law and Town law had been construed to prohibit municipalities governed by those laws to plan to carry over unappropriated unreserved fund balance.
  2. Counties, towns and villages can fund supplemental appropriations from unappropriated unreserved fund balance or unanticipated revenues, if the total of all revenues recognized or reasonably expected to be recognized, together with unappropriated unreserved fund balance, exceeds the total of all revenues estimated in the budget and appropriated fund balance. Previously, the computation was based on "cash surplus" and units could not fund supplemental appropriations until the total budgeted revenues were actually received.
  3. Counties, cities, towns, villages and fire districts can expend monies from a contingency and tax stabilization reserve to reduce projected real property tax increases in excess of 2½%(previously 5%), subject to certain limitations.

Determining a Reasonable Fund Balance

A fixed percentage (of fund operations) or a fixed dollar amount is not specified in the legislation because a fixed percentage might be insufficient for small units and excessive for large units, while a fixed amount might be excessive for small units and insufficient for large units. A "reasonable amount" of unappropriated unreserved fund balance, may be retained for each fund, consistent with prudent budgeting practices, necessary to ensure the orderly operation of the government and the continued provision of services. Each unit needs to assess what's "reasonable" for their particular situation considering various factors including:

  • Timing of receipts and disbursements - A cash flow projection for the following year should already be prepared, as a good management practice and as part of the budget process, to plan for receipts, disbursements, investments and borrowings. If disbursements are expected before receipts, then a larger unappropriated unreserved fund balance may be justifiable. If the unit receives reimbursements such as state and federal grants, disbursements may occur before receipts, resulting in the need for borrowings or a sufficient cash balance to avoid the need for borrowing.
  • Volatility of revenues and expenditures - The uncertainty of some revenue estimates (like sales tax) and some expenditure estimates (like social services costs, pending labor contracts, etc.) may justify an increased need for unappropriated unreserved fund balance.
  • Contingency appropriations - Contingency appropriations in the ensuing year's budget may offset the amount needed in unreserved unappropriated fund balance.
  • Reserves that have been established for various purposes - Units that have created reserves (like capital reserves) through effective long-range planning may need less unreserved unappropriated fund balance.

The factors discussed above have an impact on the amount that is reasonable. A reasonable, stable fund balance is one element of effective long-range planning and can have several benefits including improving bond ratings, reducing reliance on short-term borrowings thereby reducing interest costs, stabilizing tax rates, and protecting programs from cutbacks.

Each local government should adopt a policy that indicates how these factors will be applied in determining the unappropriated unreserved fund balance. This policy can be used from year-to-year in preparing the budget to ensure that the unappropriated unreserved fund balance is consistently maintained at an adequate level.

Specific Statutes Changed by Chapter 528 of the Laws of 2000

The finance articles of the County Law (article 7), the Town Law (article 8) and the Village Law (article 5) are amended to permit municipalities governed by these provisions to retain up to a "reasonable amount" of any remaining estimated unappropriated unreserved fund balance for each fund, consistent with prudent budgeting practices, necessary to ensure the orderly operation of their government and the continued provision of services. In making this determination, the municipality must take into account factors including, but not limited to, the size of the fund, cash flows, the certainty with which the amounts of revenues and expenditures can be estimated and the municipality's experience in prior fiscal years. Municipalities governed by these provisions must include in their budgets a statement of the estimated fund balance for each fund, together with a breakdown of the amount of the fund balance estimated for encumbrances, amounts appropriated for the ensuing fiscal year's budget, amounts reserved for stated purposes pursuant to law and the remaining estimated "unappropriated unreserved fund balance" for each fund. An "unappropriated unreserved fund balance" is defined as the difference between the total assets for a fund and the total liabilities, deferred revenues, encumbered appropriations, amounts appropriated for the ensuing fiscal year's budget, and amounts reserved for stated purposes pursuant to law, as determined through application of the system of accounts prescribed by the State Comptroller.

Town Law §181 concerning the annual estimate of revenues and expenditures of a fire district is amended. For those fire districts that employ the cash basis of accounting, the term "fund balance" means the cash surplus estimated to be on hand at the close of the current fiscal year less claims payable therefrom and amounts reserved pursuant to law for stated purposes.

The supplemental appropriation provisions of the finance articles of the Town, County and Village Laws are amended to: delete the word "received"; generally substitute the term "unreserved fund balance" for "cash surplus"; and make reference to revenues "recognized or reasonably expected to be recognized". These changes make those provisions consistent with the modified accrual accounting system prescribed for most local governments. Also makes conforming changes to County Law §307 and General Municipal Law §§6-e and 98.

General Municipal Law §6-e is amended to authorize municipal corporations and fire districts to expend moneys from a contingency and tax stabilization reserve to reduce projected real property tax increases in excess of 2½% (previously 5%), subject to certain limitations.