On June 27, 2005, the City established the Stabilization Fund, a Special Revenue Fund, to provide an emergency reserve to be maintained in a statutory stabilization fund as authorized by NRS 354.6115. Most of the fund balance ($625,000) was transferred to the General Fund in fiscal year 2009 to alleviate some of the recessionary impact.

In January of 2009, the Governmental Accounting Standards Board issued Statement 54, Fund Balance Reporting and Governmental Fund Type Definitions, which, in part, redefined special revenue funds. The standard requires that a substantial portion of the resources in a Special Revenue fund be designated as restricted or committed resources, and that transfers from the General fund (as was the practice to build the Stabilization Fund) were not considered to be such a resource.

In fiscal year 2012, the City approved committing $200,000 of the City’s business license revenue to the Stabilization Fund. However, the business license revenue was not committed in fiscal year 2013 and is not expected to be committed in fiscal year 2014. As a result, the only revenue to the fund is interest earnings.

Without a committed revenue stream such as business license revenue, the only resource of the Stabilization fund is interest earnings. Per GASB 54, a ‘significant’ portion of the earnings are required to be restricted or committed, therefore the interest earnings must be committed in order for the Stabilization Fund to be separately reported as a Special Revenue Fund. If the commitment is not made, the Stabilization fund transactions would have to be reported as if they were General Fund transactions. Interest earnings are allocated to city funds according to the amount of investments held in the various funds and the interest earned from the City’s investments.

The resolution attached applies to all Special Revenue funds, rather than just the Stabilization Fund. This is to prevent having to address this issue again should another Special Revenue Fund realize a decrease in revenues other than interest earnings. By approving the attached resolution, Council would be indicating a commitment to spend the interest earnings of the special revenue funds on expenses/transfers that are in line with the purpose of the fund.

The City has traditionally allocated expenses to special revenue funds based on the fact that they conform with the purpose of the fund, therefore, no change in accounting practice would occur from approving the resolution. However, if the resolution is not approved, GASB would not consider the fund to be a special revenue fund and as such the City would be required to combine reporting with the General Fund, or abolish the special revenue fund completely.

1) Council could approve the resolution to commit interest earnings to the purpose of the special revenue funds to which the earnings are allocated. No difference in accounting would occur and reporting of the fund as a special revenue fund could continue.

2) Council could deny the commitment of interest earnings to the purpose of the special revenue Funds to which the earnings are allocated. The Stabilization fund would be blended into the General Fund for reporting or it would be abolished.