B5-M4 Govt Funds FS Part 2 (Capital Proj and Permanent Fund)

Question 1

What is a capital projects fund?

Answer 1

Used to fund “capital projects.” Construction is limited to 1-3 years

Question 2

What are the revenue and other financing sources of a capital projects Fund?

Answer 2

Revenue sources include:
1. Federal Capital Grant
2. Finance capital improvements

Other financing sources:
1. Bond proceeds (including premium and net of discounts)
2. Transfers from other funds

Question 3

What are special assessments?

Answer 3

These are taxes or fees levied against property owners who will directly benefit from the project

(Ex. The gov’t is does not want to fund a project but the propery owners wants the project to be done now and would like the government to charge them)

Question 4

How do you account for funds brought by special assessments (to property owners)

Answer 4

The accounting would depend on whether or not the governmental unit is primarily/potentially liable for special assessment debt.

If the Govt unit is primarily/potentially liable - cash received is accounted for as “contribution from property owners” on the operating statement to distinguish it from bond proceeds and is accounted for by the APPROPRIATE gov’t or proprietary Fund (ex. if water sewage = enterprise fund, for street lights = debt service fund)

If not liable = reported in custodial fund (and account for the special assessment) and not in the capital project fund (ex. state of Florida has an insurer which is underfunded. Property owners (condo owners) wants a seawall, but since the govt unit is not liable, then the funds should be under a custodian)

Question 5

What’s the rationale behind why CApital project funds do not have encumbrance?

Answer 5

It’s because Capital project funds are mainly funded by bonds. These resources are typically restricted. Encumbrances would be included as restricted an not “committed” fund balance. REMEMBER: Classification would not downgrade from Restricted to committed.

Remember the heirarchy (in declining order of restriction) :

1. Nonspendable - already spent
2. Restricted - By a higher legislation and bonds, indenture)
3. Committed - Encumbered appropriations (usually with a third party PO)
4. Assigned - Govt tends to obligate BUT No formal commitment
5. Unassigned - only the general fund should have unassigned