Finance Highlights 2009 0908 - Laserfiche WebLink

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CITY OF SAN LEANDRO MEMORANDUM DATE: September 8, 2009 TO: Finance Committee FROM: Perry H. Carter, Interim Finance Director/" SUBJECT: Budget and Fund Balance Impact of Loan Repayments Each year the City's General Fund receives cash payments from a variety of sources. For the most part the payments represent revenues to the General Fund. One notable exception, however, is the repayment of any loans or advances due to the General Fund. While such repayments do represent cash payments to the General Fund, they are not revenue, and do not increase total fund balance. This distinction is of particular importance during budget preparation. From a budget standpoint, loans and advances either made or repaid can have a significant impact on both the Reserved and Unreserved (Council Designated) components of fund balance. For example, when a loan or advance is made, a reservation of fund balance equal to the loan is also made. Such a reservation reduces the Council designated portion of fund balance (Unreserved Fund Balance) and increases the reserved portion (Reserved Fund Balance). Similarly, when a loan or advance is paid back, the reverse is true. That is, Reserved Fund Balance is decreased and Unreserved Fund Balance is increased. In both cases, total Fund Balance, (Reserved plus Unreserved components) is not changed. At a personal level it would be akin to moving funds from checking to a restricted savings account. The total amount of funds would not change, but access to those funds would be changed significantly. In FY 2008-09 a loan receivable (from sale of trash/garbage trucks and equipment) was repaid which significantly impacts the Council Designated portion of fund balance. The balance of that loan, approximately $1.5 million, was paid off in June 2009. The payoff was not expected and represented an unanticipated but welcome inflow of funds to the General Fund. As a result of the payoff, the Reserved portion of fund balance was decreased by the $1.5 million. In turn, the Unreserved or Council Designated portion of fund balance was increased by $1.5 million. The availability of these funds is certainly timely and can provide some needed relief to the General Fund budget, should Council desire. However to the extent that these funds are used to balance the budget, then total fund balance is diminished. This would be true for other loans that the City has made, for example to the RDA or Enterprise Funds.