7
CAPITAL CHAPTER PROJECTS FUNDS
Prentice Hall Publishing Governmental and NonProfit Accounting 7e 1-1 Freeman / Shoulders
7-1
LEARNING OBJECTIVES
Understand
the nature, purposes and
use of Capital Projects Funds and the
Funding sources
Number of funds required
Life cycle
Determine
the costs that should be
charged to a Capital Projects Fund
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7-2
LEARNING OBJECTIVES
Understand
the accounting and reporting for
General long-term debt issuances to finance
capital projects
Bond proceeds, premiums and discounts
Bond issuance costs
Bond anticipation notes
Arbitrage and its potential impact
Understand
typical budgeting and budgetary
reporting issues of Capital Projects Funds
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7-3
MAJOR TOPICS
Overview
2. CPF operations and accounting
standards
3. CPF case illustration - begun
(20X1) and concluded (20X2)
4. Other CPF operations,
accounting, and reporting
matters
1.
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7-4
CAPITAL PROJECTS FUNDS
OVERVIEW
Use
of CPFs
To account for financial resources used
to construct or acquire
Major general government capital projects
Buildings / parks
Streets / highways / bridges (Infrastructure)
Nonmajor capital acquisitions if legally or
contractually required
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7-5
CAPITAL PROJECTS FUNDS
OVERVIEW
Use
of CPFs Interpretation of terms relative
to size
Major and capital projects not defined by GASB
Example: consider a $10 million street
improvement project may be:
Capital Project Funds in a small city or town
Special Revenue Fund (especially if part grant funded)
or General Fund in a state (if routine maintenance)
assuming no legal or contractual requirements to
record in a Capital Projects Fund
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7-6
CAPITAL PROJECTS FUNDS
OVERVIEW
Use
of other funds
General or Special Revenue Funds
Commonly used for capital asset acquisitions
Vehicles
Equipment
Capital leases
unless legally or contractually
prohibited
Proprietary or Trust Funds
2003 PrenticeUsed for capital NonProfit Accounting 7e Freeman /those funds
Hall Publishing Governmental and acquisitions of Shoulders
7-7
CAPITAL PROJECTS FUNDS
OVERVIEW
Purpose
is to
Ensure economical and legal expenditure
of restricted capital resources such as
Serve as a cost accounting tool
Control and account for project costs
A choice of many finance officers
Systems designed to transfer or accumulate
multiple resources in a multi-year capital fund
versus an annual operating fund
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7-8
CAPITAL PROJECTS FUNDS
OVERVIEW
Major
capital projects
Often financed with
Long-term bond issue proceeds
Intergovernmental capital grants
Related agreements plus GAAP often
require use of CPFs to account for project
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7-9
CAPITAL PROJECTS FUNDS
OVERVIEW
Apply
the same basic accounting and
financial reporting standards as:
General funds
Special revenue funds
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 10
CAPITAL PROJECTS AND
CAPITAL
DEBT PROCEEDS
DEBT
Not
required for all capital projects or capital
asset purchases
GASB
recommends recording in CPF for general government capital projects
Debt Service Fund for debt refunding
Proprietary & Trust Funds if debt serviced
by those funds
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 11
OTHER DEBT PROCEEDS
GASB
standards do not address debt issued for
other purposes, but recording is appropriate as
follows for debt issued to:
Finance a deficit the fund having the deficit
Provide disaster relief, depending on the type of
relief or expenditure has fund options as follows:
Capital Projects to rebuild capital assets
Special Revenue - to provide individual or city
relief, especially if partially grant reimbursed
General to provide interim cash flow financing
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 12
CAPITAL PROJECTS FUNDS
SPECIAL ASSESSMENTS
Some
capital projects financed with special
assessments (a special tax) imposed only
against benefited properties
Project examples:
Street improvements
Sidewalks
Neighborhood beautification
Street improvements
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 13
CAPITAL PROJECTS FUNDS
SPECIAL ASSESSMENTS
Long-term
debt often issued since
assessments are repaid over 5-10 years
Debt proceeds recorded in CPF
Assessment collections to service the
related debt service transactions are
recorded in a Debt Service Fund
(Chapter 8)
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 14
CAPITAL PROJECTS FUNDS
SPECIAL ASSESSMENTS
Accounted
for like other major general
government capital projects in a Capital
Projects Fund and Bonds payable in the General Long-Term Debt
Accounts
Capital assets in the General Capital Asset
accounts in all cases, except business-type activities,
even if no obligation debt finances project
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 15
CAPITAL PROJECTS FUNDS
SPECIAL ASSESSMENTS
Role
of the government
Provides construction financing (CPF)
(own funds or borrowed funds)
Levies property assessments (DSF)
(a special property tax)
Bills / collects assessments (DSF)
(receivable and interest)
Services the debt (DSF)
(principal and interest)
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 16
CAPITAL PROJECTS FUNDS
SPECIAL ASSESSMENTS
Almost
always used to record -
Financial resources
Capital expenditures
Financial
resources (geography)
OFS - Bond proceeds (government obligation debt)
OFS - Owner contributions (no obligation debt)
OFS - Transfers from other funds (own funds)
Revenues - Assessments - Pay-go (rare)
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 17
CAPITAL PROJECTS FUNDS
CAPITAL
DISCUSSION TOPICS
DISCUSSION
Sources
of financing
Required number of funds
Life cycle of capital projects
CPF budget
Interim financing
Costs charged to projects
Intergovernmental revenues
Bond premium/discount & issuance costs
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 18
FINANCING SOURCES
Revenues
(When earned and available):
Intergovernmental grants
Investment income (from unspent proceeds)
Other
financing sources:
General obligation debt proceeds
Special assessment debt proceeds
Interfund transfers
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 19
NUMBER OF FUNDS
Common
to have a separate CPF for each -
Project and debt issue
Combining statements present financial
operations and financial position of each
Purpose
of separation:
Nature of projects vary widely
Budgeted and financed separately
Legal and contractual requirements vary widely
Demonstrate use only for authorized purposes
Fund balance legal / contractual compliance
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 20
NUMBER OF FUNDS
However,
a single CPF may be used for
similar if projects financed with:
Single debt issue
Single grant
Internal transfers
A
single CPF may also be used with different
financing restrictions and projects by using
Sub-funds or funds within a fund
Still requires proper controls and compliance
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 21
LIFE CYCLE (Figure 7-1)
(Figure
Authorized
by legislative action
Life is commonly two or more years
Fund established by
Project or
Bond issue
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 22
LIFE CYCLE (Figure 7-1)
(Figure
Receipt
of financial resources
Long-term debt proceeds
Simultaneous recording of liability in
General Long-Term Liability accounts
Short-term debt proceeds
Repaid as resources become available
Interfund transfers (GF / SRF)
Interest on unspent resources
Intergovernmental (state/federal) grants
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 23
LIFE CYCLE (Figure 7-1)
(Figure
Capital
expenditures incurred;
usually over two or more fiscal years
Contracts encumbered
Services delivered
Payments made
Construction
capital assets
in progress / completed
Simultaneous recording in General
Capital Assets accounts
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 24
LIFE CYCLE (Figure 7-1)
(Figure
Fund
terminated when
Project completed
All costs paid
Disposition of any unspent grant balances
or bond proceeds determined by
Grant agreements / contracts (i.e., pro rata rebate)
Bond indentures (i.e., transferred for debt service)
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 25
CAPITAL BUDGET
Planned
in long-term capital
improvement plan CIP
Annual
capital budget appropriated
on a project basis
Appropriations
do not lapse annually
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 26
CAPITAL BUDGET
Controls
without budgetary process
Appropriations
not made
Reasons:
Single project financed from a single fund
Controls provided by contractual process
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 27
CAPITAL BUDGET
Budget
control is important when -
Multiple projects in a single fund
Budgeted in detail
Government labor forces
Budgeted annually
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 28
INTERIM FINANCING
Nature
and purpose
Usually in early stages of the project
Prior to debt issuance or grant receipts that
are timed with bulk of expenditures
Other reasons:
Improved bond market conditions
Avoid project delays awaiting bond issuance
Repaid when bond proceeds or other
resources are received
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 29
INTERIM FINANCING
Most
types are current liability of the CPF
BANs, interfund borrowing, RANs, notes
The loan is not Other financing resources
Principal repayment is not an expenditure
Interest is accrued as an expenditure
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 30
INTERIM FINANCING
Criteria for treatment of BANs as longterm debt:
1. BANs were issued pursuant to a legally
authorized bond issue and definitely issuable
2. Two specific GASB refinancing criteria met:
1. Legal steps taken to refinance the BANs
2. Intent to refinance supported by ability to do so
If criteria not met, BANs must be reported as
a CPF liability
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 31
INTERIM FINANCING
BANs that qualify for long-term
debt treatment
BAN proceeds reported as Other
financing resources of CPF
BAN liability is recorded in the GLTL
accounts; not the CPF
Interest is recorded as an expenditure
only when due
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 32
COSTS CHARGED TO PROJECTS
All
costs to bring to state of readiness are
appropriate expenditures of CPF
Direct costs
Land, buildings, materials, labor
A&E fees, transportation, damages
Overhead / indirect costs
Rarely charged unless reimbursable
Interest on interim short-term CPF debt
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 33
INTERGOVERNMENTAL
INTERGOVERNMENTAL
REVENUES
REVENUES
As
revenues they are subject to modified
accrual basis for recognition
Must be measurable and available
Determined by legal and contractual requirements
Capital
grants - most are expenditure driven
Revenue recognized as expenditures are incurred
Defer revenue if received prior
Footnote disclosure if awarded and no receipt or
expenditure
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 34
BOND PREMIUM, DISCOUNT &
BOND
ISSUANCE COSTS
ISSUANCE
Bond
proceeds recorded in CPF
Recorded at par value
Any bond premium or discount recorded
separately
Bond issuance costs recorded as expenditure
Above
may impact available funds and
project authorization levels
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 35
CASE ILLUSTRATION
Case
begun - 20X1
Establish budgetary entry (B)
Review transactions and events
-Entries (1) (8) & Figure 7-9
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 36
LIFE CYCLE VERSUS FISCAL
LIFE
YEAR (Figure 7-3)
(Figure
Appropriations
made for project life
Compliance and project cost reported
upon completion
Fiscal year statements for CPFs are
interim financial statements
Relevant statements are from inception
to completion
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 37
FINANCIAL STATEMENTS
Two
annual statements required
Balance Sheet (Figure 7-4)
Statement of Revenues, Expenditures, and
Changes in Fund Balances (Figure 7-5)
Budgetary
statement or schedule may
be legally or contractually required
(Figure 7-7)
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 38
CASE ILLUSTRATION
Case
concluded - 20X2
Review transactions and events
-Entries (1) (6)
See budgetary comparison
statement Figure 7-7
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 39
OTHER MATTERS
Investment
of idle cash / Arbitrage
Federal regulations require governments
rebate excess interest to the Federal
government
Interest earned on taxable investments in excess
of
Interest paid on tax-exempt debt issued
Investment revenues reduced and liability
established for arbitrage liabilities, if any
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 40
OTHER MATTERS
Disposing
of fund balance or deficit
In absence of legal or contractual
restrictions
Often determined by governing body
Usually transferred to Debt Service Fund
Makeup of any deficit may come from
the General Fund or through added
bond proceeds
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 41
OTHER MATTERS
Reporting
several projects financed
through one fund
Several projects may be accounted for
on a funds within a fund approach
Financial statements presented in a
series of separate fund statements or
combining statements (Figure 7-8)
2003 Prentice Hall Publishing Governmental and NonProfit Accounting 7e Freeman / Shoulders
7 - 42