1. Slide 29-1 29 CHAPTER 29 GOVERNMENTAL ACCOUNTING: THE SPECIAL-PURPOSE FUNDS AND SPECIAL GENERAL LEDGER

2. Slide 29-2 29 FOCUS OF CHAPTER 29 l The Remaining Governmental Funds l The GCA-GLTL General Ledger l The Proprietary Funds l The Fiduciary Funds l Financial Reporting to the Public: General-Purpose Financial Statements

3. Slide 29-3 29 THE GOVERNMENTAL FUNDS: SPECIAL REVENUE FUNDS (#2 of 5) l Purpose: To account for the proceeds of specific revenue sources that are legally restricted to expenditure for specific purposes -- excluding inflows for: n Capital projects and Expendable trusts. l Inflows: U sually from specific taxes or nontax sources not directly related to services provided. lA General Fund “clone”--same structure.

4. Slide 29-4 29 THE GOVERNMENTAL FUNDS: CAPITAL PROJECTS FUNDS (#3 of 5) l Purpose: To account for the proceeds of financial resources that are to be used for the acquisition or construction of MAJOR CAPITAL FACILITIES -- other than : n Those financed by s Proprietary Funds and s Trust Funds.

5. Slide 29-5 29 THE GOVERNMENTAL FUNDS: CAPITAL PROJECTS FUNDS (#3 of 5) l A temporary fund -- at completion of the project: n The fund is closed and n The facility ’s cost is recorded as a capital asset in the GCA-GLTL g/l. n Costs incurred during construction are charged to expenditures ( outflows ). n Inflows : Bond sales and transfers from the General Fund.

6. Slide 29-6 29 THE GOVERNMENTAL FUNDS: DEBT SERVICE FUNDS (#4 of 5) l Purpose: To account for the servicing of debt initially recorded as a liability in the GCA- GLTL g/l. l “Servicing of Debt” defined: The payment of (1) interest and (2) debt principal at maturity. l Unusual Features: n Interest is not accrued until the due date. n Principal payments are not recorded as liabilities until the due date.

7. Slide 29-7 29 SPECIAL ASSESSMENTS l Special Assessments: Assessments made against properties that directly benefit from improvements: n Examples: Sidewalks, street lighting. l Special Assessment Bonds are usually issued to pay for the improvements. n All construction activity takes place in a Capital Projects Fund.

8. Slide 29-8 29 SPECIAL ASSESSMENTS l Bond Repayment: Assessees pay taxes over several years to pay off the bond issue. l Special Assessment Debt may or may not have the backing of the governmental unit in the event of default. l Special Assessment Debt (SAD) Categories: n SADs With Government Commitment. (This is the usual situation.) n SADs Without Government Commitment.

9. Slide 29-9 29 SPECIAL ASSESSMENTS l SADs With Government Commitment: n A Debt Service Fund is used to account for : s All collections from assessees. s All payments to bondholders. n The bond liability is recorded in the GCA- GLTL g/l. n Unique Item: The entire tax assessment is recorded as Property Tax Receivables --the noncurrent portion is Deferred Revenues.

10. Slide 29-10 29 SPECIAL ASSESSMENTS l SADs Without Government Commitment: n An Agency Fund is used to account for: s All collections of property taxes from assessees. s All payments to bond holders. s No liability is recorded in the GLTDAG. n The governmental unit is viewed merely as an agent for the assessees and the bondholders.

11. Slide 29-11 29 THE GCA-GLTL GENERAL LEDGER l Purpose: Accounts for capital assets (at historical cost) and debt not accounted for in: n Enterprise Funds, Internal Service Funds, or Trust Funds. l Not a fund--it has no cash for paying liabilities. l A self-balancing set of accounts.

12. Slide 29-12 29 GENERAL CAPITAL ASSETS l Categories of Assets: n Land. n Buildings. n Improvements other than buildings. n Equipment. n Construction work in progress (being performed by Capital Projects Funds). n Infrastructure assets (see next slide).

13. Slide 29-13 29 GENERAL CAPITAL ASSETS: Infrastructure Assets lCapitalization is mandatory for public domain or “infrastructure” capital assets such as: n Streets and roads. n Sidewalks. n Bridges and tunnels n Water & sewer systems n Lighting systems

14. Slide 29-14 29 GENERAL CAPITAL ASSETS: Infrastructure Assets l Infrastructure Assets : n Long-lived capital assets that normally are: s Stationary in nature s Normally can be preserved for a significantly greater number of years than most capital assets.

15. Slide 29-15 29 GENERAL CAPITAL ASSETS: Postcapitalization Periods l Depreciation is mandatory--except for certain infrastructure assets: n Depreciation Expense is never reported in the operating statement of governmental funds. n It is reported only in the two government-wide statements. l Sales of Assets: Record proceeds as OTHER FINANCING SOURCES in General Fund.

16. Slide 29-16 29 INFRASTRUCTURE ASSETS: Depreciation l Noneligible Infrastructure Assets : n Must be depreciated. (See following slide regarding eligible infrastructure assets.)

17. Slide 29-17 29 INFRASTRUCTURE ASSETS: Depreciation l Eligible Infrastructure Assets : n Need not be depreciated. n Defined: Assets being (1) managed using an asset management system having certain characteristics (described in GAS 34 ) and (2) preserved approximately at or above an established and disclosed condition level. s Condition assessments must be performed at least every 3 years.

18. Slide 29-18 29 GENERAL LONG-TERM LIABILITIES l L ong-term debt that is not properly shown in Proprietary Funds o r Trust Funds. GLTL includes: n DEBT issuance liabilities having a maturity date of more than one year at the time of issuance (these are borrowings). n NONDEBT issuance liabilities that would not “normally be liquidated with expendable available financial resources” (e.g., a lawsuit liability to be paid in 3 yrs.)

19. Slide 29-19 29 GENERAL LONG-TERM LIABILITIES l Examples of Debt Recorded in GCA-GLTL g/l: n General obligation bonds (usually issued to pay for capital projects). n Claims and judgments. n Compensated absences (vacation & sick pay). n Unfunded pension contributions. n Capital leases payable. n Special assessment debt having government commitment (explained earlier).

20. Slide 29-20 29 GENERAL LONG-TERM DEBT LIABILITIES l Consequences of Reporting “Nondebt Issuance Liabilities” in the GCA-GLTL g/l: n It enables governments to magically conceal whether they are living within their means at the fund-based reporting level. n It results in the fund-based “operating statement” being a “Statement of ALL of the Revenues and SOME of the Costs Incurred This Period.”

21. Slide 29-21 29 GENERAL LONG-TERM DEBT LIABILITIES l BAD NEWS: Many governmental units have tons of nondebt issuance liabilities that will have to be paid by future generations (which may find it quite burdensome or impossible to pay).

22. Slide 29-22 29 GENERAL LONG-TERM DEBT LIABILITIES l GOOD NEWS: GAS 34 (issued in 6/99) requires “government-wide financial statements” that measure the flow of economic resources on the accrual basis. Such statements reveal: (1) the cost of providing services. (2) the change in the financial condition.

23. Slide 29-23 29 GENERAL LONG-TERM DEBT LIABILITIES l Liquidation of GLTL: n Debt Issuance Liabilities: At the maturity date, the liability is transferred to a Debt Service Fund. n Nondebt Issuance Liabilities: At the payment date, the liability is transferred to the General Fund. Note that GLTL is not removed from the GCA-GLTL g/l when it becomes a current liability (due within 12 months).

24. Slide 29-24 29 THE GOVERNMENTAL FUNDS: PERMANENT FUNDS (#5 of 5) l Permanent Funds: n Accounts for endowment-type situations in which: s Only the endowment’s earnings can be used for purposes that support the reporting government’s programs. s Benefits the reporting government or its citizenry.

25. Slide 29-25 29 THE PROPRIETARY FUNDS: INTERNAL SERVICE FUNDS l Purpose: To account for activities that provide services solely to other departments. lManner of accounting parallels that of commercial businesses ( accrual basis & measurement of flow of economic resources ). n Balance sheet reports Long-Term Debt.

26. Slide 29-26 29 THE PROPRIETARY FUNDS: ENTERPRISE FUNDS l Purpose: To account for activities that provide services primarily to the public. lExamples: Gas, electric, water utilities. lManner of accounting parallels that of commercial businesses ( accrual basis & measurement of flow of economic resources ). n Balance sheet reports Long-Term Debt.

27. Slide 29-27 29 THE FIDUCIARY FUNDS lTwo categories (four funds) exist: n Agency Funds. n Trust Funds: s Pension (and other employee benefit) Trust Funds. s Investment Trust Funds s Private-Purpose Trust Funds.

28. Slide 29-28 29 THE FIDUCIARY FUNDS: AGENCY FUNDS l Purpose: To serve as conduits for the transfer of money-- purely custodial in nature. l ASSETS ALWAYS EQUAL LIABILITIES. lThe following items do not exist: n A fund balance/equity. n An operating statement. A = L

29. Slide 29-29 29 THE FIDUCIARY FUNDS: TRUST FUNDS l Purpose: To account for the investing and using of money in accordance with stipulated provisions of trust indenture agreements or statutes. s Pension (and other employee benefit) Trust Funds. s Investment Trust Funds (created by GAS 31 ). s Private-Purpose Trust Funds.

30. Slide 29-30 29 PRIVATE-PURPOSE TRUST FUNDS l Accounts for property held under trust arrangements in which: n Both the principal and income benefit: s Individuals, s Private organizations, or s Other governments.

31. Slide 29-31 29 FINANCIAL REPORTING TO THE PUBLIC: The CAFR l The Comprehensive Annual Financial Report (CAFR). Includes: n Government-wide statements (2) n Fund-based statements (7)

32. Slide 29-32 29 Government-Wide Statements l Two major statements that: n Are presented on the accrual basis. n Measure the flow of economic resources (same measurement flow as in commercial accounting ).

33. Slide 29-33 29 Government-Wide Statements lThese two statements are the: n Statement of Net Assets (includes all GCA and GLTL). n Statement of Activities ( includes depreciation expense). lThese two statements are presented in addition to the Fund-Based Financial Statements (7 of them).

34. Slide 29-34 29 Government-Wide Statements lThe two government-wide statements enable assessment of whether: n Current-year citizens paid for the services they received in the current year, or if the costs of services were shifted to future-year citizens FREE RIDE

35. Slide 29-35 29 Government-Wide Statements n A government’s financial position has improved or deteriorated as a result of the year’s operations.

36. Slide 29-36 29 Government-Wide Statements lEach of the two government-wide statements must distinguish between: n Governmental activities and business-type activities of the primary government. n The total primary government and its discretely presented component units by reporting each in separate columns. #2 #1

37. Slide 29-37 29 Government-Wide Statements l Fiduciary activities are: n Excluded from the government- wide statements if their resources are NOT available to finance the government’s programs.

38. Slide 29-38 29 Government-Wide Statements l IMPORTANT FEATURES of the government-wide Statement of Net Assets : n Reports all “general capital assets” -- including infrastructure. n Reports all debt-- including GLTL. #1 #2

39. Slide 29-39 29 Government-Wide Statements l IMPORTANT FEATURES of the government-wide Statement of Net Assets (cont.): n Reports net assets in 3 categories: s Invested in capital assets, net of related debt. s Restricted. s Unrestricted. #3 #2 #3 #1

40. Slide 29-40 29 Government-Wide Statements l IMPORTANT FEATURES of the government-wide Statement of Net Assets (cont.): n In general, interfund balances (loans, advances, and due to and due from accounts) are eliminated. #4

41. Slide 29-41 29 Government-Wide Statements l IMPORTANT FEATURES of the government-wide Statement of Activities: n Presented in at least the same level of detail provided in the governmental fund statements (generally, expenses and program revenues by function--e.g., public safety, public health, and recreation). #1

42. Slide 29-42 29 Government-Wide Statements l IMPORTANT FEATURES of the government-wide Statement of Activities: n Format must report expenses reduced by program revenues ---results in a measurement of “net (expense) revenue” for each of the government’s functions. #2

43. Slide 29-43 29 Government-Wide Statements l IMPORTANT FEATURES of the government- wide Statement of Activities (cont.): n Program expenses include all direct expenses. s Depreciation expense that can specifically be identified with a function is reported as a direct expense. s Allocated overhead and other indirect expenses to individual programs are presented in a separate column. #3

44. Slide 29-44 29 Government-Wide Statements l IMPORTANT FEATURES of the government-wide Statement of Activities (cont.): n Reports extraordinary items (items beyond control of mgt.) separately. n Reports special items (items within the control of mgt.) separately. #4 #5

45. Slide 29-45 29 Government-Wide Statements l IMPORTANT FEATURES of the government-wide Statement of Activities (cont.): n In general, interfund activity is eliminated: s Interfund services provided and used. s Interfund transfers. s Other interfund activity. #6

46. Slide 29-46 29 Fund-Based Statements n Purpose of fund-based statements: n These statements show the short-term performance of individual funds using the same measures that governments use to manage their money.

47. Slide 29-47 29 Fund-Based Statements l A SHARPENED FOCUS: n Must report information about the most important funds -- the “major funds” (including the General Fund).

48. Slide 29-48 29 Fund-Based Statements l Major funds are those whose revenues, expenditures/expenses, assets, or liabilities are at least: n 10% of the total for their fund category or type ( governmental or enterprise ) and n 5% of the aggregate amount for all governmental and enterprise funds.

49. Slide 29-49 29 Fund-Based Statements n Nonmajor funds are: s Aggregated and s Reported in a separate column (labeled “all other funds”).

50. Slide 29-50 29 Fund-Based Statements l IMPORTANT FEATURES of the fund-based statements n Must present two summary reconciliations that show the interplay between the two types of statements. s Both types of statements together constitute “an integrated set of statements.” #1

51. Slide 29-51 29 Fund-Based Statements l IMPORTANT FEATURES of the fund-based statements (cont.): n In general, interfund activity will be reported separately: s Interfund services provided and used. s Interfund transfers. s Other interfund activity s Interfund open balances. #2

52. Slide 29-52 29 Fund-Based Statements l IMPORTANT FEATURES of the fund-based statements (cont.): n Internal Service Funds are aggregated and presented in a separate column on the proprietary fund statements. #3

53. Slide 29-53 29 Fund-Based Statements l IMPORTANT FEATURES of the fund-based statements (cont.): n Proprietary Funds: s Statement of Net Assets (or Balance Sheet): l Displays net assets using the same categories used in government-wide statements. l Distinguishes between restricted and unrestricted assets. #4

54. Slide 29-54 29 Fund-Based Statements l IMPORTANT FEATURES of the fund-based statements (cont.): n Proprietary Funds (cont.): s Statement of Revenues, Expenses, and Changes in Fund Net Assets (or Equity): l Must distinguish between operating and nonoperating revenues and expenses. #4

55. Slide 29-55 29 Fund-Based Statements l IMPORTANT FEATURES of the fund-based statements (cont.): n Proprietary Funds (cont.): s The all-inclusive change in fund net assets includes (1) capital contributions; (2) contributions to term and permanent endowments, (3) special items, (4) extraordinary items, and (5) transfers. s Cash flow statement must use the direct method (interest expense is financing-- not operations as in private sector). #4

56. Slide 29-56 29 Required Supplementary Information (RSI) l RSI includes: n Budgetary comparison statements for the General Fund and each major Special Revenue Fund. s Use both original budget and s Any amended budget.. n Management’s discussion and analysis (the MD&A).

57. Slide 29-57 29 End of Chapter 29 l Time to Clear Things Up-- Any Questions?