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BACKGROUND In March 2009, GASB issued Statement No. 54 to clarify and bring consistency to fund balance reporting in the government sector. The City is required to implement these provisions no later than June 30, 2011 as part of our comprehensive annual financial report (CAFR) for the 2010/11 FY. Previously, the City reported fund balances as reserved, unreserved designated, or unreserved undesignated. With the implementation of GASB Statement No. 54 there are the following five new categories: • Nonspendable — amount that cannot be spent due to not being in a spendable form (prepaid expenses, inventory) or is legally or contractually required to be maintained intact. • Restricted — amount constrained for a specific purpose by external parties, constitutional provision or enabling legislation. • Committed — amount constrained for a specific purpose by the government entity and designated as such by its highest level of decision-making authority. • Assigned — amount intended to be used for specific purpose by a governing board or official that has been delegated by the authority to assign amounts. • Unassigned — portion of General Fund that is not classified as nonspendable, restricted, committed or assigned. In addition to the above fund balance classifications, GASB Statement No. 54 requires additional disclosure in the "Notes to the Financial Statements" regarding the establishment and classifications of fund balances. DISCUSSION The City's Financial Policies require that the City's finances are managed in a manner which provides for the delivery of quality services, maintains an enhanced service delivery as the community grows in accordance with the General Plan, guarantees a balanced budget annually assuring that the City is always living within its means, and maintains reserves necessary to meet known and unknown future obligations. The City currently sets aside a portion of the fund balance in the General Fund in to three categories to address unforeseen emergencies or disasters, significant changes in the economic environment, and key infrastructure and capital project needs that result in efficiencies and cost savings. These three categories are as follows: Economic Uncertainty Reserve. The City's fiscal policies require a General Fund reserve be maintained equal to 10% of General Fund Revenues. Funds reserved under this category can be used to mitigate costs associated with unforeseen emergencies, including natural disasters or catastrophic events where the state or federal government declares a natural disaster. Should unforeseen and unavoidable events occur that require the expenditure of City resources beyond those provided for in the annual budget, the City Council can approve appropriations from the Economic Uncertainty Reserve. Temporary Recession Reserve. Funds reserved under this category can be used to mitigate, should they occur, certain annual budget revenue shortfalls (actual revenues Page 2 of 3