Special Revenue Funds, Capital Project Funds, Debt Service Funds, Permanent Funds, Proprietary Funds, and Fiduciary Fund

1. Chapter 16 Governmental Accounting: Special Revenue Funds, Capital Project Funds, Debt Service Funds, Permanent Funds, Proprietary Funds, and Fiduciary Funds

2. Special Revenue Fund • Same accounting as the General Fund • May have expenditure-driven grants • If “on behalf” payments are administered by the government, activities are accounted for here • Accounts for expendable trust fund activity where both principal and earnings are used to support government activities or programs C16

3. Permanent Fund • Used to account for nonexpendable trusts where the earnings, but not the principal, are used to support government activities and programs C16

4. Capital Projects Fund (CPF) • The acquisition of major general fixed assets through • purchase • construction • capital lease • Same basic accounting and reporting model as General Fund or Special Revenue Funds C16

5. CPF:Funding Sources • Interfund operating transfers (credit OFS) • Long-term borrowing (credit OFS) • general obligation term or serial bonds • Intergovernmental grants (credit revenue) • Special assessments (credit revenue) • levied against property owners or other beneficiaries C16

6. CPF:Activities • Record budget on an annual basis • Interim financing (bond anticipation notes) • Record costs charged to projects • Interest on temporary investments is revenue • Intergovernmental grants are revenues • Disposition of bond premiums, discounts, accrued interest, and issuance costs C16

7. Project complete close revenues and expenditures to F.B. and transfer any residual fund equity to source(s) Project incomplete close revenues & OFS, expenditures & OFU to the F.B. close open encumbrances against F. B. -- leave F.B.- Reserve for Encumbrance reestablish at beginning of next year: Encumbrance xx F.B. xx CPF:Year End C16

8. CPF Acquisition:Capital Lease • Use FASB 13 criteria to assess lease contract • Entries: Expenditure - Fixed Asset xx Other financing sources xx (lease liability recorded in GLTDAG) Expenditure - lease principal xx Expenditure - lease interest xx Cash xx (fixed asset recorded in GFAAG) C16

9. CPF Resources:Bond Issued at Premium Issue bond: Cash 1,509,000 OFS - Bond Proceeds 1,509,000 Transfer premium to Debt Service Fund: Other Financing Uses 9,000 Cash (or Due to Debt Service Fund) 9,000 C16

10. CPF Resources:Bond Issued at Discount Issue bond: Cash 1,491,000 OFS - Bond Proceeds 1,491,000 Additional financing may have to come from a transfer from the general fund or project may have to be scaled back. C16

11. CPF Resources:Bond Anticipation Notes (BANS) • Issued as short-term “interim” financing • In essence, a long-term debt • accounted for in GLTDAG if • maturity > 1 year or • maturity  1 year and • all steps have been taken to refinance on long-term basis • intent is supported by ability to consummate refinancing • All other BANS are current (fund liabilities) C16

12. CPF Resources:Special Assessments • Compulsory levy made against certain property to defray part or all of the cost of an improvement or service • Assume general benefit and specific benefit to property owners assessed C16

13. CPF Resources:Special Assessments, continued • Proceeds from special assessment-related debt • is government obligated in some manner? • yes: credit OFS-Bond Proceeds • no: credit Contributions from Property Owners • Debt not issued • credit OFS-Transfer from Other Funds C16

14. Debt Service Fund (DSF) • Used to account for the financial resources accumulated to cover the payment of principle and interest on general government obligations C16

15. DSF:Types of Debt Serviced • Bond issues are most common • usually serial • term bonds are rare • Capital lease obligations • Notes and warrants payable • Other C16

16. DSF:Use required only if either: • Legally mandated, or • Accumulating resources for future years’ debt service payments (to satisfy term bond indenture requirements) C16

17. DSF:Sources of Financing • Property taxesusually transferred in from another fund • Sales tax • Special assessments • Income from investments (net of any arbitrage) • Refunding or defeasance C16

18. DSF:Special Assessment Special assessments levied to provide for debt service on indebtedness incurred for general government special assessment projects. • Noncurrent special assessments receivable included in fund assets • is offset by deferred revenue • does not result in revenue and does not affect fund balance C16

19. DSF:Expenditure Recognition • Modified accrual • report principal and interest expenditures when legally payable (i.e., do not accrue unmatured principal or interest) • Accrual permitted, but not required, if: • resources for debt service accumulated in fund by year end and • payment due early next year • if accrual option is used, must accrue entire debt service payment due early next year C16

20. DSF:Reserves • Excess of assets over liabilities • FB-Reserved for Debt Service • amount usually equal to highest year’s principal and interest payments • “Amount Available” in GLTDAG at year end should equal amount in debt service fund balance designated for future principal payments • If not, then adjustment entry is made: Amount Available xx Amount to be Provided xx C16

21. DSF:Refunding & Defeasance of Debt • Reasons for refunding or defeasance: • lower effective interest rates • extend maturity dates • revise payment schedules • remove or modify restrictions C16

22. DSF:Refunding, defined • Issuance of new debt to finance payment of interest and principal of existing debt • current refunding - use refunding proceeds to retire debt immediately • advance refunding - place proceeds in escrow and use to pay interest and principal in future (in-substance defeasance) C16

23. DFS:Reporting Refunding & Defeasances • DSF entry: Cash xx OFS-Proceeds of Refunding Bonds xx • Refunding issue is reported in GLTDAG • Defeased/retired debt is removed from GLTDAG C16

24. In Substance Defeasance • if achieved - remove from GLTDAG --- if new debt used record Amt to be Prov & New GLTDG (as if refunded or defeased) • if attempted, but not achieved - do not remove old debt --- assets that are placed in trust are recorded as investments in Debt Service Fund -- new debt recorded in GLTDAG C16

25. Proprietary Funds • Pertaining to a proprietor • Users of goods or services will be charged on the basis of consumption • Types • enterprise: goods or services provided to the general public • internal service: goods or services provided inter- or intra- governmental unit C16

26. Proprietary Funds:Interfund / Intrafund Transactions • Operating • intrafund: record other financing sources or uses • interfund: record revenue or expenditure [or expense] • Nonoperating: • government funds: record as other financing sources/uses • proprietary funds: interfund transfers • Reimbursements (adjust expenditures) C16

27. Proprietary Funds:Common Features • Accounting equation - full accrual • Fixed assets and long-term debt maintained in the fund • Applicability of pertinent business (i.e., FASB) pronouncements • Reporting interfund transactions • Required financial statements C16

28. Proprietary Funds:Accounting Principles • Similar to for-profit enterprises • Apply GAAPexcept where it has been specifically overridden by a GASB pronouncement • GASB #20 (Sept ‘93): • must apply all pertinent GAAP (ARBs, APBs, SFASs, etc.) through SFAS 102 unless conflict • may apply GAAP from SFAS 103 to present • apply ALL, unless conflict or • apply NONE, unless adopted by GASB C16

29. Proprietary Funds:Accounting Principles, continued • GASB #34 (June ‘99): • may apply those FASB standards and interpretations limited to NFP organizations C16

30. Proprietary Funds:Financial Statements • Balance Sheet • Statement of Revenues, Expenses, and Changes in Net Assets • Statement of Cash Flows • Plus: • Combining statements • Segment information C16

31. Proprietary Funds:Statement of Cash Flows • Must use the direct method • 4 categories of cash flows • 1) Cash flows from operating activities • cash received from sales of goods/services • cash paid to suppliers, employees, and providers of services • excludes most items not related to operating income C16

32. Proprietary Funds:Statement of Cash Flows, continued • 2) Cash flows from noncapital financing activities • borrowings for noncapital construction, acquisition, and/or improvement purposes • repayments and interest on above borrowings • certain intergovernmental receipts/payments • interfund transfers from other funds except those made to finance capital activities • all interfund transfers to other funds C16

33. Proprietary Funds:Statement of Cash Flows, continued • 3) Cash flows from capital and related financing activities • acquisition and disposal of capital assets • proceeds of fixed asset disposals • borrowing for capital assets acquisition /construction/ improvements C16

34. Proprietary Funds:Statement of Cash Flows, continued • 3) Cash flows from capital and related financing activities, continued • repayments and interest on those borrowings • intergovernmental receipts restricted solely for capital assets acquisition /construction/ improvements • interfund transfers from other funds made clearly and specifically to finance capital assets acquisition/construction/improvement C16

35. Proprietary Funds:Statement of Cash Flows, continued • 4) Investing activities • making/collecting loans • acquiring/disposing of investments • collection of related interest and dividends Reconciliation of net operating income to net cash flow from operating activities must be provided in a separate schedule C16

36. Enterprise Funds • Use mandatory when • to account for operations financed/operated like a business • provide goods/services • to the public • on continuing basis • for fee • intended to recover (most of) the full costs of providing goods/services C16

37. Enterprise Funds, continued • Use optional when • the entity engages in activities for which governing body deems net income type information appropriate C16

38. Enterprise Funds, continued • Common examples • public utilities • public transportation systems • recreational facilities • parking facilities • lotteries • airports • hospital/healthcare facilities • landfills C16

39. Enterprise Funds:Non-operating Revenues • Capital contributions • Operating transfers • Loans • Others • grants • tap fees • impact fees • internal and external subsidies • debt forgiveness from general government C16

40. Enterprise Funds:Capital Contributions • Recorded as interfund transfer • Included in the Statement of Revenues, Expenses, and Changes in Net Assets as Nonoperating Revenue • No longer a separate Contributed Capital on Balance Sheet • No longer “residual equity transfers” C16

41. Enterprise Funds:Restricted Assets • A way to have a “fund within a fund” • distinctively titled restricted asset, liability and equity reserve accounts • customer deposits • construction financed by bond issue • debt service • contingencies C16

42. Enterprise Funds:Landfills • Significant amounts involved • Recognize the liability for closure and post-closure care over remaining life of landfill • Current period expense: estimated total cost  (capacity used so far  total capacity) = to-date cost based on used capacity – costs already recognized = current period expense • Liability: amount of expense not funded C16

43. Internal Service Fund • Services to other departments • Cost-reimbursement basis • Intermediary fiscal and accounting entity • economy/efficiency • equitable cost sharing C16

44. Internal Service Fund:Pricing Policies • Charges should be based on cost • Charges cannot be excessive • Pricing often includes total costs and total consumption of goods or services C16

45. Self-Insurance • If risk financing is not centralized • do not use Internal Service Fund (ISF) • record expenditures/expenses/losses in affected funds • record liability in appropriate fund and/or GLTDAG • If risk financing is centralized • use general fund or internal service fund • if general fund, reimburse for actual claims paid • additional charges - operating transfers C16

46. Self-Insurance ISFs • Recognize claims and judgments in ISF • when probable and reasonably estimable • charges to user departments must be reasonable and equitable • Revenues and expenses must be equal over a reasonable time period • provision for future catastrophic losses allowed in charges to user departments • reflected as Reserve or Designation of Retained Earnings & in notes • Over (& under) payments are operating transfers C16

47. Trust and Agency Funds Used to account for assets received and held by government acting as trustee or custodian for individuals, organizations, businesses, or other governments Difference - duration of the fiduciary responsibility Agency Fund – short-term fiduciary responsibility Trust Funds – long-term fiduciary responsibility

48. Types of Trust Funds • Private Purpose • expendable • nonexpendable • Investment Trust • Pension Trust C16

49. Trust Funds:Private Purpose Expendable • Can spend both principal (corpus) and earnings • Financial statements • Statement of Net Assets • Statement of Changes in Net Assets C16

50. Trust Funds:Private Purpose Nonexpendable • Can only spend earnings • Principal (corpus) stays intact • Financial statements • Statement of Net Assets • Statement of Changes in Net Assets C16