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