Understanding Public Finance

FUND ACCOUNTING PRINCIPLES

•City follows GAAP, GASB and AIC and guidance and standards to meet state procedures.

•GAAP (generally accepted accounting principles), used to provide direction on governmental accounting

•GASB (government accounting standards board) – provides specific guidance on reporting standards, changes in asset values or classes, and certain financial records updates.

•AIC (association of Idaho cities) provides specific reporting guidelines, example reports, and support for local finance departments

FUND ACCOUNTING

 The city receives various kinds of income that can only be used for specific purposes. This creates a necessary barrier and expectation for separation. The solvency is à FUND ACCOUNTING!

­There is no limit on the number of funds a city can have, however it can only have one general fund (funded by property taxes)

­Funds should be specific enough to provide transparency but not so specific that it becomes a reporting/tracking nightmare (number of funds principle)

­Inside of the funds, you can create line items to provide more information for your constituents and provide easier access to information. This should be used instead of creating new funds for certain projects, grants, etc. that may only exist for a specific time frame

­Funds must be looked at separately to understand each fund’s financial position

­Aggregate of the funds show the city’s net financial position

­Certain funds have function differences

TYPES OF FUNDS

 Governmental funds

Tax supported funds (property taxes, special assessment taxes, LIDs, URAs, district taxes, etc)           

• ­General fund
• ­Special revenue funds
• ­Debt service funds
• ­Capital projects funds
• ­Permanent funds

 Proprietary funds

Business activities of governments – separates the TAX BASE from the USERS of the service

• ­Enterprise funds
• ­Internal service funds

 Fiduciary funds 

Used to report funds that are held by the city that are not able to be used. These are usually managed by an entity outside of the city

• ­Pensions
• ­Investment trust funds
• ­Private purpose trust funds
• ­Agency funds

GOVERNMENTAL FUNDS

 GENERAL FUND: State of Idaho only allows one general fund per city (primarily funded by property tax), it is the primary account for the city's operations

 SPECIAL REVENUE FUND: Specify the purpose of the fee and outline specific functions of that fee, think of impact fees and how the projects are specified prior to collection and must be used for those projects

 DEBT SERVICE FUNDS: Bond payments and special assessments. Think of LID’s and the split of debt repayment. These funds are necessary if the interest and payments last longer than one year

 CAPITAL PROJECTS FUND: These funds are not required to be created but do help to separate certain projects from the general operations budget. The city may use a capital projects fund for a project they receive a large grant for, or a separate funding source, or any other major improvement that they want to show progress on over a period of time. This is a great way for councils and governments to show improvements in a city outside of other funds (sewer, water, impact fees, LIDs, etc). Think of something like a new bridge, new road, etc.

PERMANENT FUNDS: Legally restricted funds. Only the interest from the endowment can provide money for the city. Think of a cemetery fund

PROPRIETARY FUNDS

 ENTERPRISE FUNDS: Created for specific services that city provides that may not benefit every taxpayer. Think of sanitation, sewer, and water. These funds must cover the cost of the service without using the general tax base to fund.

 INTERNAL SERVICE FUNDS: these funds function as a “cost-reimbursement” meaning, they will be realized over a longer period. These are not necessary funds to be created unless a city elects to do so. They should not be created if a city does not plan to recuperate the full the cost of a service.

LINE ITEMS IN FUNDS

 There is no statutory limit of line items for funds. They should provide enough information to discern the use of the funds, but not be so specific that they create a larger problem trying to classify expenditures and revenues.

 An audit will generally look at the following classifications of expenses: salaries and wages, professional fees, utilities, operations, capital outlays. Different auditors may have different classifications. Detailing each of the above may be helpful in some cases but repetitive and confusing if a new line item is created for each kind of expense (think “supplies”, “office supplies”, “custodial supplies”, “city supplies”). You want to create transparency without bogging down your financial reports. Each city will vary on how specific they need to be with their funds. Consider the time to classify, the amount of money in each line item, and the possible overlap that may occur in different line items.

RESERVES 

 Reserves play an integral part of the city financial standing. There are different classifications for reserves which specifically dictate what the funds can be used for. All uses of reserves requires explicit council approval. Statement of net position will be available after the audit (sometime in January). Cash balances are provided on the monthly statements.

RESERVES CLASSIFICATIONS

 CLASSIFICATIONS  // NATURE OF RESTRICTION

 Non‐spendable - Legally/contractually required to be maintained (think: Debt service)

 Restricted - Externally imposed restrictions (think: Impact fees)

 Committed - City Council formally imposed commitment (think: Equipment reserves)

 Assigned -  City’s intent for specific purpose, not restricted or committed (think: Specific projects)

 Unassigned  - Residual balance not otherwise restricted: Contingency Reserve of target 50% of ‘operating budget’, and a Residual Fund Balance which is above and beyond the Contingency Reserve.

  Contingency’s are necessary for the city to be able to operate in case of a complete halt in revenue or dramatic slow down in receipts.