The accounting policies of the County conform to accounting principles generally accepted in the United States of America as applicable to governmental entities. Noted below are several accounting policies considered in budget development.
Fund Balance Classifications
Government Accounting Standards Board (GASB) pronouncements aim to improve the usefulness and understandability of governmental fund balance information. Presentation requirements provide clearly defined categories to make the nature and extent of the constraints placed on a government’s fund balance more transparent. This requirement only impacts governmental fund types (General, Special Revenue, Capital Projects and Debt Service). The following defines fund balance classifications and provides examples of fund balance amounts that would generally be reported within these classifications.
- Non-Spendable Fund Balance – Amounts that cannot be spent because they are either (a) not spendable in form or (b) legally or contractually required to be maintained intact. Examples include inventory, prepaid amounts, deposits, and any other amounts not expected to be converted to cash.
- Restricted Fund Balance – Amounts with constraints placed on use that are either (a) externally imposed by creditors, grantors, contributors or laws or regulations of other governments or (b) imposed by law through constitutional provisions or enabling legislation. Several of the County’s Special Revenue Funds and the Debt Service Fund have restricted fund balances.
- Committed Fund Balance – Amounts that can only be used for specific purposes pursuant to constraints imposed by ordinance or resolution of the County’s highest decision-making authority (Board of Supervisors) and that remain binding unless removed by an equally binding action.
- Assigned Fund Balance – Amounts that are constrained by the County’s intent to be used for specific purposes. The intent can be established by the County’s highest level of decision-making authority (Board of Supervisors) or by a body or an official to which the Board has delegated the authority (i.e. County Administrator). The Board has delegated the authority to assign fund balance to the County Administrator. This is also the classification for the Capital Project Fund and a portion of the General Fund.
- Unassigned Fund Balance – The residual classification for the General Fund that includes amounts not contained in the other classifications. In other funds the unassigned classification is used only if the expenditures incurred for specific purposes exceed the amounts restricted, committed, or assigned to those purposes (i.e. negative fund balance). The General Fund is the only governmental fund that should report a positive unassigned fund balance amount.
Sonoma County will regularly assess the condition of its assets that support delivery of County services (i.e. public facilities, infrastructure, technology, vehicle fleet, etc.) and plan for their maintenance and eventual replacement.
Normal maintenance and repairs are charged to operations when incurred. Betterments and major improvements that significantly increase values, change capacities, or extend useful lives are capitalized.
Capital assets include land, land improvements, buildings and improvements, machinery and equipment, infrastructure (e.g. roads, bridges, sidewalks), and intangible assets (e.g. land easements and computer software). Assets purchased or constructed are reported at historical cost or at estimated historical cost if actual historical cost is not available. Donated capital assets are valued at estimated acquisition value on the date of donation.
- Assets will be capitalized as summarized in the table below:
- Capital assets used in operations will be depreciated or amortized using the straight-line method over the lesser of the capital lease period or their estimated useful lives.
- The Board of Supervisors requires all departments to certify a detailed listing of all fixed asset inventory within their possession no later than May 31 every year.
- Capital replacement funds will be used to accumulate financial resources for future replacement of assets that will be retired from service. In addition, when feasible, replacement funding contributions will be included in applicable service charges from all system users. Specifically, the policy covers the following major system categories:
- Building & Fixed Facilities - As part of the annual Capital Project Plan and no less than every 5 years, and guided by Comprehensive County Facilities Plan, the General Services Director will regularly assess and adjust funding requests for each facility. The funding contributions would be placed in separate funds for each set of facilities and managed by the assigned department or agency director in conjunction with the County Administrator. Contributions for these funds will be included in service charge rates (including outside partner agencies) and grant costs where feasible and would be prioritized for available discretionary funding in the annual budget process. Consideration will always be given to annual operational maintenance funding (as opposed to contributions for future major repairs) necessary to preserve health and safety and overall asset life. Project funding recommendations will follow the priority criteria in the current Administrative Policy 5-2 which includes:
- Required to meet compelling health, safety, legal or code compliance, a mandate of the Board of Supervisors, or a court order.
- Previously approved phases of a project, which are integral to completing its initial scope.
- Required to keep an existing building, facility, or complex operational. Provides measurable economic benefit or avoids economic loss to the County. Serves to maintain or improve infrastructure of the County as a general benefit to County operations and services.
- Alleviates constraints and impediments to effective public access and service such as improvements regarding space limitations or inefficient layout of space in County buildings or facilities, provisions for expanded or changed programs or services, or improvements to heating, ventilation or other work environment conditions.
- Improves the environmental quality or aesthetics of County facilities and complexes.
- Information Technology Assets
- The policy directs the Director of Information Systems in conjunction with the County Administrator’s office to develop a plan to replace system components with the infrastructure contribution funding stream and potential one-time contributions within the remaining useful life of each component. The policy also directs a full infrastructure valuation of the computer and telephone communication systems every 5 years.
- The Public Safety radio infrastructure replacement review and funding request is the responsibility of the Sheriff’s Office in conjunction with General Services, Information Systems, and the County Administrator.
Fund Types Used by the County
Governmental Fund Types:
- General Fund: Accounts for all revenues and expenditures necessary to carry out basic governmental activities of the County that are not accounted for through other funds.
- Special Revenue Funds: A Special Revenue Fund accounts for the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. Sonoma County Special Revenue Funds include: Human Services, Health and Sanitation, Open Space Special Tax Account, and Roads, among other funds.
- Debt Service Funds: Debt Service Funds are used to account for financial resources that are restricted, committed, or assigned to expenditure for principal and interest.
- Capital Projects Funds: Capital Projects Funds account for financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets (other than those in Proprietary Fund Types).
Proprietary Fund Types
- Enterprise Funds: Enterprise Funds account for operations: (a) that are financed and operated in a manner similar to private business enterprises, where the intent of the Board is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis are financed primarily through user charges; or (b) where the Board has decided that periodic determination of revenues earned, expenses incurred, and net income or loss is appropriate for capital maintenance, public policy, management control, accountability, or other purposes.
Internal Service FundsInternal Service Funds: Internal Service Funds (ISF) account for the financing of goods or services provided by one department or agency to other departments or agencies of the County or other governmental units on a cost reimbursement basis. A common use of these fund types is to account for the County’s self-insurance programs. The following describes the funding and budgeting methodologies the County uses for some of the self-insurance programs.
The Accounting Basis Used in the Budget
The budget is developed on a modified accrual basis for governmental fund types (General Fund, Special Revenue Funds, Debt Service Funds, and Capital Project Funds), adjusted for encumbrance accounting. Appropriations for encumbrances are included and appropriations for expenditures against prior year encumbrances are excluded.
Under the modified accrual basis, obligations are generally budgeted as expenses when incurred, while revenues are recognized when they become both measurable and available to finance current year obligations. Proprietary fund types (e.g., Transit and Refuse) are budgeted on a full accrual basis. Not only are obligations recognized when incurred, but revenues are also recognized when they are incurred or owed to the County.
The government-wide, proprietary and investment trust fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when liabilities are incurred, regardless of when the related cash flows take place. Non-exchange transactions, in which the County gives (or receives) value without directly receiving (or giving) equal value in exchange, include property and sales taxes, grants, entitlements, and donations. On an accrual basis, revenues from property tax are recognized in the year for which the taxes are levied. Revenues from sales tax are recognized when the underlying transactions take place. Revenues from grants, entitlements, and donations are recognized in the fiscal year in which all eligibility requirements have been satisfied.
For business-type activities and enterprise funds, the County has elected under GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Property Fund Accounting, to apply applicable GASB pronouncements as well as any applicable pronouncements of the Financial Accounting Standards Board, the Accounting Principles Board or any Accounting Research Bulletins issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements.
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