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Welcome to the Finance Department’s questions and answers page. Using the form at this link, you can submit a question to the Finance Department regarding topics such as the City’s outstanding debt, budget, and investments. Following review and research by Finance Department staff, detailed answers to your questions will be sent to you via email and posted to the page below. Answers will also be presented to the City Council’s Finance Committee quarterly. Inquiries regarding the questions and answers process can be directed to Scott Catlett, Assistant Finance Director, at 951-826-5609 or

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Issuance of Pension Obligation Bonds

On April 21, 2015, we received the following question:

“Could you explain the mechanics behind the California Statewide Communities Development Authority Taxable Pension Obligation Bonds issued in 2004, the Pension Obligation Bonds issued in 2005, and the Pension Obligation Refunding Bond Anticipation Notes issued in 2014?  How have these investments in CalPERS performed versus what the City’s paid in interest and fees as part of these issuances?”

In 2004, as a result of the City Council granting retroactive pension benefit increases to existing City employees (as most public agencies in California did around the same time), the City’s unfunded pension liability increased.  The increase in pension rates was the result of granting a benefit that the pension actuaries at CalPERS did not anticipate in setting the prior pension rates for the City.  CalPERS charges public agencies such as the City a rate in the form of a percentage of payroll each year to recover 100% of the amount of pension costs calculated by CalPERS as due that year.  When actual experience differs from the actuaries’ estimates, an unfunded pension liability or a surplus of funds on hand at CalPERS will result.  The City does not have the ability to pay less than the required 100% contribution set by CalPERS each year, but the City may prepay any unfunded amounts owed, either in cash or via the issuance of pension obligation bonds.   Absent such a prepayment, CalPERS amortizes the unfunded amounts over a set period through higher pension rates.  The amortization period in 2004 was approximately 20 years.

Options were discussed to address the unfunded liability and related increases in CalPERS rates, and it was deemed more advantageous at the time to issue pension bonds than to allow CalPERS to amortize the unfunded liability.  On June 29, 2004, the City issued bonds to prepay a portion of the unfunded pension liability associated with public safety employees in the amount of $89,540,000.  On June 30, 2005, the City issued bonds in two series to prepay a portion of the unfunded pension liability associated with non-public safety employees in the amount of $30,000,000 (Series A) and $30,000,000 (Series B).   These bonds were all 20 year bonds, designed to mirror the amortization period then in use by CalPERS. Issuance of the bonds allowed the City to borrow funds at a lower interest rate than CalPERS would have charged the City through its rates as the unfunded liability was repaid over time, with the difference accruing to the City as savings.  The annual rates charged by CalPERS decreased as a result of the issuance of the bonds, and the bond debt service took the place of a portion of the otherwise required annual payments to CalPERS.

The three series of bonds were all approved by the City Council in open session at the time of issuance, however the 2005 Series B bonds require an annual re-approval by the City Council because of the variable rate format in which this debt was issued.  The issuance of a pension obligation refunding note is therefore on the City Council’s agenda annually in the spring each year.  This is not new debt; rather, it is just a re-authorization of the Series B debt outstanding since 2005.  All of the City’s pension obligation bonds will be paid in full by June 1, 2025. As of today, $66,320,000 remains outstanding from the 2004 bonds and $49,455,000 remains outstanding from the 2005 bonds.  On June 1, 2015, the City will be making a total scheduled payment of $7,050,000 on the bonds, further reducing the balance outstanding.

The amounts paid to CalPERS back in 2004 and 2005 from the original bond proceeds are the extent of what has been used to “prepay” the City’s pension liability. No bond proceeds or other additional funds have been sent to CalPERS since that time.  However, 100% of the required payments to CalPERS have been made each year as required under California law.  The City receives an “Annual Valuation Report” from CalPERS each year in approximately October, which sets the contribution rates required in the following fiscal year (beginning July 1).  Those rates are then entered into the City’s payroll system and appropriate amounts are remitted to CalPERS each pay period.  Again, the City does not have discretion relative to the minimum contribution amount, and must contribute at a minimum the percentage of payroll outlined in the Annual Valuation Report each year.  Copies of the City’s most recent Annual Valuation Reports can be found here:    Safety   Miscellaneous

In terms of evaluating the savings associated with these bond issuances versus allowing the unfunded pension liability to amortize with CalPERS, the City analyzes the benefit associated with these transactions each year due the variable rate structure of the 2005 Series B debt.  CalPERS amortized its unfunded liabilities at 7.75% through 2012 and at 7.50% thereafter.  The 2004 bonds were issued at an average rate of approximately 5.1%, while the 2005 bonds were issued at an average rate of 4.5% for Series A and 2.42% to date for Series B.  While it is not possible to quantify the exact savings associated with the issuance of all three bonds, the City is comfortable saying that the savings has been considerable versus allowing CalPERS to amortize a larger unfunded liability through rates.  This strategy was a cost-effective way to decrease the total cost of funding the City’s pension liability, which has allowed additional resources to be directed to core City services in lieu of higher pension costs.  In 2025 when these bonds are paid in full, a significant reduction in annual pension costs is anticipated of approximately $18.5 million per year.

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General Fund Reserve Target

On April 21, 2015, we received the following question:

“A target of 15% is often quoted as the minimum level the City needs to have in reserves for the General Fund.  Where does this target come from?  And what would happen if the City were to drop below this percentage?”

The City’s current General Fund reserve target of 15% is calculated at the beginning of each fiscal year as a percentage of the upcoming fiscal year’s General Fund expenditure budget.  The 15% target was set by the City Council on February 13, 2001, during a mid-year budget review.  The previous target of 10% had been set on April 4, 2000, during a similar mid-year review.   Prior to the 10% target, the reserve target was set at $10 million in fiscal year 1999/00 and $5 million in fiscal year 1998/99.  Prior to 1998/99, the reserve target was $1,820,000 at least back to fiscal year 1995/96.  the following table outlines the historical reserve levels over the past 20 years.  In many of these years, actual reserves exceeded these numbers, however only the required 15% or prior reserve target amount was designated for economic contingencies.  The remainder of the reserve was available for use at the discretion of the City Council.

Date Percentage Reserve Amount
FY 1995/96 N/A $1,820,000
FY 1996/97 N/A $1,820,000
FY 1997/98 N/A $1,820,000
FY 1998/99 N/A $5,000,000
FY 1999/00 N/A $10,000,000
FY 2000/01 10.00% $11,350,000
FY 2001/02 15.00% $19,700,000
FY 2002/03 15.00% $21,400,000
FY 2003/04 15.00% $22,500,000
FY 2004/05 15.00% $23,500,000
FY 2005/06 15.00% $27,000,000
FY 2006/07 15.00% $30,000,000
FY 2007/08 15.00% $34,000,000
FY 2008/09 15.00% $34,000,000
FY 2009/10 15.00% $30,000,000
FY 2010/11 15.00% $30,000,000
FY 2011/12 15.00% $32,000,000
FY 2012/13 15.00% $33,000,000
FY 2013/14 15.00% $34,000,000
FY 2014/15 15.00% $36,000,000


During the economic boom times experienced at various points during the 1990′s and 2000′s, the City made a choice to augment its reserves to guard against future fiscal challenges.  This has been one of the primary reasons why the City’s General Fund continues to receive strong ratings from the bond rating agencies.  Recognizing that the current reserve levels are approaching the 15% target including the excess available balance, the City is in a unique situation in the upcoming fiscal year of needing to augment reserves as the budget continues to grow in order to maintain the 15% target level.  The budget that will be presented to the City Council in June will include a surplus of revenues over expenditures, with the surplus to be allocated to growing the General Fund reserve and maintaining the 15% reserve target.

The primary concern if the reserve level drops below the 15% target level is that the bond rating agencies would perceive this as a weakening of the City’s financial management and a credit negative.  The exact level of reserves set is less important than management and the City Council’s willingness to maintain it in the face of other spending pressures.  Because of the current situation with reserves approaching the 15% level, staff is reviewing the 15% policy to determine whether a higher or lower level of reserves is appropriate as the City continues to grow and the programs in the General Fund continue to diversify.  Any recommendations relative to adoption of a more formal written policy or a change in the current reserve target level would come after adoption of the budget for the upcoming fiscal year and a change in the target level would be only following review and approval by the City Council.

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Calculation of the Amount of the General Fund Transfer

On January 21, 2015, we received the following question:

“For the purposes of calculating the annual transfer from our utilities to the General Fund, what specifically constitutes, ‘gross operating revenues,’ as found in Section 1204(f) of the Riverside City Charter?  Who decides exactly how much money is actually transferred, and when is this decision made?”

Section 1204(f) of the City Charter says in part that “the revenue of each public utility for each fiscal year shall be kept separate and apart from all other moneys of the City by deposit in the appropriate revenue fund and shall be used…for the annual payment by each utility into the general fund in twelve equal monthly installments during each fiscal year, an amount not to exceed 11.5 percent of the gross operating revenues, exclusive of surcharges, of each specific utility for the last fiscal year ended and reported upon by independent public auditors.”  For purposes of Section 1204, “public utility” includes the City’s electric and water utilities only.  The City Council sets the specific percentage of gross operating revenues to be transferred each year, not to exceed the 11.5 percent cap.  Currently, both the electric and water utilities are transferring 11.5 percent of gross operating revenues to the General Fund.

The computation of gross operating revenues is completed by the accounting staff at Riverside Public Utilities.  This calculation is memorialized in memo form each year and sent to the Finance Department.  The most recent example of this memo is attached.  The transfer is set at the time of adoption of the City’s Annual Budget based on an estimate.  The amount is then adjusted in November of each year once the City’s external audit is complete.  This adjustment is required because the transfer is based on audited revenues, which differ slightly from the estimate used in the adopted budget.  At the time the memo is received, the year-to-date monthly transfers for July through November are adjusted up or down, as required, and then the remaining transfers for December through June are set based on the final numbers contained in the memo.

The specific calculation of the gross operating revenues is set forth in the attachment to the memo.  The revenue numbers utilized in the calculation are taken directly from the City’s accounting records and multiplied by 11.5 percent to determine the amount to be transferred.

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Funding for City Parks

On November 1st we received an inquiry asking the following questions regarding the City’s funding for parks:

  1. How is funding allocated to each park?
  2. How and when will funding be allocated to less developed parks to increase available facilities and/or programming?
  3. Can information be made available to the public regarding how much funding is allocated to each park and how many citizens are served at each park?

The City has adopted a standard for developed park acreage of three acres per one thousand residents. The standard is further broken down to favor neighborhood parks, with two acres of neighborhood park provided per one thousand persons, and one acre of community park land per one thousand persons, for a 2:1 ratio.  Based on adopted classifications and standards, neighborhood parks should be located within a one-half-mile radius of every residence and community parks within a two-mile radius. The Park and Recreation Master Plan identifies shortages of neighborhood park coverage throughout the City.  During the Riverside Renaissance Initiative (2006 through 2011), the City developed, improved, and renovated a number of park sites.  The process for determining which parks received funding involved community input, guidance from planning documents, and direction from the City Council.  From an annual operations perspective, resources are allocated based on the size, location, features, and amenities of each park facility.  Programming levels at the park facilities are adjusted incrementally to meet demand while operating within the constraints of the City’s annual budget.  Future funding, when available, would be allocated by the City Council and those allocations would be made with input from the community.

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Assets Related to Interfund Loan Liabilities

A question was recently asked as to why the “asset” side of the inter-fund loans are not included in the monthly investment report provided to the City Council.  A good question…

The answer involves understanding what the monthly investment report is intended to do.  The City Treasurer is delegated authority from the City Council to make a broad range of investment decisions regarding the investment of City funds within various investment categories, consistent with the City’s Investment Policy.  The monthly investment report communicates how the Treasurer has invested the City’s cash within that delegated authority. Investments outside the policy limits can be made (consistent with the Charter and State law), but require specific authorization by the City Council.  The “asset” component of the inter-fund loans is an investment of City cash the Treasurer does not have delegated authority to make without specific City Council authority.  Thus it, and other ways in which the City “invests” it’s cash with specific City Council authority (inventory purchases, capital asset purchases, etc.) are not required to be reflected in the monthly investment report.  All assets of the City, including inter-fund loan assets, are included in the City’s annual financial report, the Comprehensive Annual Financial Report (or “CAFR”).

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Monthly Reports of Purchases of $50,000 or Less

On September 18, 2014, we received a question asking us to explain the types of purchases of $50,000 or less that would not be shown on the reports of purchases of $50,000 or less posted on the Finance website monthly.  The $50,000 threshold is the amount delegated through the City Charter and the City’s Purchasing Resolution to the City Manager so that routine, low dollar procurements can proceed without requiring City Council action.

The short answer to the question is that the reports posted on the Finance website capture all purchases procured through a purchase order, but omit those procured through a request for payment.  A purchase order is the standard document that the City generates to memorialize most purchases from vendors.  A request for payment is an administrative form that allows an invoice to be paid when a purchase order has not been generated.  Article 2 of the City’s Purchasing Resolution establishes exceptions to competitive procurement in addition to those authorized by the City Charter.  These exceptions are memorialized in the City’s Administrative Manual, specifically in policy number 07.006.00 “Request for Payment”.  This policy lists the types of “services exempt from competitive bidding” that do not require a purchase order.  These include:

  • Advertising
  • Assessments
  • Claims
  • Payments to other Agencies
  • Insurance Premiums
  • Library Book
  • Membership and Subscriptions
  • Museum Artifacts
  • Petty Cash Reimbursements
  • Postage
  • Refunds
  • Retirement Costs
  • Software License Renewal
  • Software Maintenance
  • Settlements
  • Taxes
  • Utility Services
  • Training/Meeting Registrations
  • Legal Costs


The policy also states that “in situations of uncertainty, the CFO or his designee can determine when a Request for Payment is to be used in lieu of a Purchase Requisition and Purchase Order.”

The report on the Finance Department website of purchases of $50,000 or less was generated at the request of the City Council’s Finance Committee and first presented to them in September of 2010.  At that time, their request was to see agreement-related purchases only with other purchases omitted to cover a period of the previous two fiscal years.  Staff was unable to retroactively narrow the information pulled from the City’s financial system easily, and so the list provided showed all procurements via purchase order regardless of whether they were for agreements or other purchases.  Subsequently, a manual process was undertaken to remove the items that were not agreement-related when future reports were presented to the Finance Committee.  The Committee was fully aware that purchases made under the Request for Payment process would not be included in these reports.

From that point forward, the report was presented to the Finance Committee quarterly until the February 2012 meeting, when the Committee directed staff to discontinue bringing the report to the Committee quarterly and instead publish the report monthly on the Finance website.  The Committee also approved removing the manual component of the report generation process and returning to the automated report that includes non-agreement-related items in order to save staff time in publishing the report.  Appropriate footnotes were added to the Finance website to indicate the types of purchases included in the list.  Since that time, the reports have been posted monthly and the content has remained unchanged.

We hope that this history will be helpful for those who may misunderstand the intent of these reports.  We have added an additional footnote to the Finance website to also indicate the types of purchases that are not included in the reports.

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City Investment and Cash Accounting Inquiries

On August 21, 2014, we received two similar inquiries regarding the City’s accounting practices associated with its pooled investment portfolio and cash.  The questions can be summarized as follows:

  1. When cash is withdrawn from the city’s pooled investment portfolio, how are the expenditures accounted for?
  2. How does the City track the allocation of cash held in the pooled investment portfolio to the City’s various funds (General Fund, Electric Fund, Sewer Fund, etc.)?
  3. When cash enters or leaves the pooled investment portfolio, where did it come from and where does it go?
  4. When revenues are collected that belong to a specific fund (Electric Fund, Parking Fund, etc.), are they all received by the General Fund, and if not, how does the receipt of funds work?

First, it makes sense to discuss the basic concept of a pooled investment portfolio.  The City typically has over $400 million of cash on hand.  This cash belongs to a variety of funds, primarily the City’s enterprise funds (Electric, Water, and Sewer, among others) and the General Fund.  Managing cash in this way is a common practice for large organizations, which allows all of the cash to be combined and invested as a “pool” of funds to increase earnings and enhance flexibility.  The City never needs all $400 million of cash at any one time.  Therefore, the cash is invested in various types of investments as authorized by the City’s investment policy.  The primary investments are in government agency securities, US Treasury notes and bonds, medium term corporate bonds, the State’s Local Agency Investment Fund (LAIF), and money market accounts.  The longer term investments represent cash that is not likely to be needed during the next 12-month period, while the funds held in LAIF and money market accounts are intentionally kept liquid to be available for any immediate cash needs.  The decision as to how much cash to invest in the various investments changes over time as interest rates change.  Due to the current low interest rate environment, the City has a larger percentage of its cash held in shorter term investments than is usually the case.  It is also important to mention that the City is advised by a professional external investment advisor who makes recommendations for optimizing earnings in the portfolio on a regular basis.  The City consistently outperforms market benchmarks for comparable portfolios, though the difference is small, as appropriate, given the low-risk, low-yield nature of the investments permitted by the City’s investment policy.

The City has a single banking relationship with Bank of America to address its depository and disbursement requirements – it pays all payroll and accounts payable disbursements through its bank accounts with the bank.  The City’s Treasury Office manages the amount of cash needed for these payments daily as well as processes all cash receipts, which includes recording each receipt to the appropriate revenue account (Electric, Sewer, Water, Business License, etc.).  In this way, the amount of funds not immediately needed is identified and can be invested to earn a higher rate of return.  The City undertakes extensive cash flow analysis to anticipate its need for cash and is therefore able to maximize its investment earnings by not sitting on too much cash at the bank, or by investing too much in longer term securities and possibly having to sell an investment before maturity losing out on a portion of interest it would otherwise have earned.

From an accounting perspective, without getting into too much detail, each fund of the City keeps track of its share of the large cash pool in the City’s accounting system.  Revenues come in and payments go out, and each of these changes causes an increase or a decrease in the related fund’s cash.  Cash is reconciled daily to ensure that all transactions recorded in the accounting records are accurately reflected in the bank’s record of cash activity.  Contrary to the assumption made in one of the inquiries, cash is not “first received” into the General Fund before being recorded into its correct City fund; rather, it is immediately recorded in the appropriate fund based on the accounting provided by the Treasury office at the point of deposit.  It is important to understand that the movement of cash between various investment options does not increase or decrease cash balances in total.  Also, accounting transactions (payments and receipts) do not immediately impact the City’s portfolio of investments/securities – only the cash balance at the bank is affected.  Over time, decrease or increases in the balance of cash at the bank will affect the investment portfolio, as surplus cash will be pulled from the bank and higher yielding securities purchased, or if cash declines, as existing securities mature, that cash may be required to secure the bank balance at that time.  The daily reconciliation and monitoring processes ensure that the two are in sync.

Once one understands these pieces of the puzzle, the natural next question is “What happens to the interest earned on investments and how is it allocated amongst the various City funds?”  Good question!  The City employs a monthly process by which interest is allocated to each of the City’s funds based on the fund’s  average cash balance for the month.  For example, if the General Fund held $10 and the Electric Fund held $20 in average balances over the month, and if $3 of interest was earned, $1 would go to the General Fund and $2 would go to the Electric Fund.

Complicating the matter are instances where funds have a “negative cash” balance recorded in the City’s accounting system.  Grant funds are like this – monies are expended up front for a grant-funded project and the City is made whole on a reimbursement basis at a later date.  In these situations, the cash pool “fronts” the money to cover the required project payments and is reimbursed when the grant revenue is received.  The cash pool is made whole because during the period of negative cash the interest allocation process charges interest to the funds with a deficit cash balance rather than paying them interest.  In the previous example, the General Fund had $10 and the Electric Fund had $20.  If instead the General Fund had $50 and the Electric Fund had negative $20, then the Electric Fund would pay interest to the General Fund to compensate for the fact that the pool really only held $30 ($50 – $20).  If the interest earnings should have been $5, then the General Fund would still receive the $5 due, but $3 would come from investment earnings and $2 would come from the Electric Fund.  The fund with a negative cash balance would record interest expense for the amount “borrowed’ from the cash pool temporarily and the other funds in the pool would record additional interest income.  In this way, all funds are made whole each month whether they have positive or negative cash.  This is a common practice in agencies with pooled investment portfolios.  Both cash activity and the monthly interest allocation process are areas of focus by the City’s independent external auditors each year to ensure that all cash balances and interest income are properly recorded in the City’s financial statements.  The City’s annual financial statements specifically call out any of these negative cash conditions that exist as of June 30 each year as described in Note 12 to the financial statements.  At June 30, 2013, these transactions (referred to as “Due To” or “Due From” transactions) amounted to approximately $22 million due to the General Fund, primarily related to pending grant receipts, and a small amount due to the Electric and Water Funds related to Central Stores inventory.

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Keep Riverside Clean and Beautiful and Shopping Cart Retrieval

On August 21, 2014, we received the following inquiry:

“Why are the keep riverside clean and beautiful and the shopping cart program in the cost of service for refuse collection?”

The City has partnered with the Greater Riverside Chambers of Commerce since 1995 through its Keep Riverside Clean and Beautiful (KRCB) program to provide litter prevention, waste reduction, beautification, and community improvement services.  In 2007, the City entered into a professional services agreement with KRCB to formalize and enhance their efforts on behalf of the City.  These efforts are directly related to the City’s Refuse Fund activities and represent tasks that would otherwise fall to City staff at what would likely be a higher cost.  The funds paid to KRCB cover the staff salaries of employees working on KRCB activities and related office expenses and in no way subsidize other activities of the Greater Riverside Chambers of Commerce.  Additionally, thousands of volunteer hours per year are coordinated through KRCB, which according to the Point of Light Institute have an estimated value of $22.14 per hour.  These volunteer hours resulted in a value to the City of approximately $660,000 during fiscal year 2013/14.

Fiscal   Year Number of Volunteers Volunteer Hours
2013-14 15,196 29,913
2012-13 26,446 34,430
2011-12 11,880 40,975
2010-11 14,235 33,538
2009-10 13,565 23,091
2008-09 11,139 24,002
2007-08 4,873 11,453
2006-07 3,691 9,972


The cost of the City’s shopping cart retrieval program is almost entirely offset by revenue received from the owners of shopping carts collected by the contractor.  The small deficit created by the program is funded by the General Fund and the contract is budgeted in the General Fund’s non-departmental cost center.

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Water Fountain at Victoria and Mary

On August 27, 2014, we received the following inquiry:

“What was the cost of the water fountain, since stolen, that was put at the corner of Victoria and Mary? Was it donated or was it paid by taxpayer money?   It was obvious from those of us who walk Victoria that it was going to be stolen by someone who wanted the metal. And it was, within weeks of installation.   Considering stolen metal was a subject at a recent council meeting regarding guards in the parks, who decided that it would be safe there, that it was a prudent decision to spend money on such a beautiful fountain that would inevitably have a short life on that corner?”

The fountain in question was installed by Stater Brothers Markets as a result of the adjacent project to expand the shopping center containing one of their grocery stores.  That project resulted in the need to reconfigure the footprint of the park to allow the shopping center to expand, and additional land was added to another area of the park by Stater Brothers to compensate for the loss.  The privately-funded project also added new features to the park, including the water fountain.  The entire fountain was not stolen; rather one of the three bowls of the fountain was stolen and the City’s park maintenance staff then removed the remainder of the damaged fountain.  The City has several other fountains of this type in other parks elsewhere in the City.  The decision was made to utilize the removed fountain for parts to maintain the other fountains and to replace the damaged fountain with a different model given the high visibility location.  The replacement fountain, which is less desirable to thieves but unfortunately also less attractive, will be installed at a cost of $4,135 to be funded from the City’s General Fund park maintenance budget.

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Posting of Interfund Loan Receivable Movement Journal Entries

On August 7, 2014, we received a question regarding the journal entries attached to a previous post that showed movements of interfund loan receivables between funds.  In this post we will illustrate the accounting entries that occur when these loans are moved in an attempt to assist interested members of the public with reading the previously provided accounting records.  These entries do not include any principal and/or interest payments made as of the same date, which are booked in separate journal entries.  These entries, therefore, are limited to the actual movement of the loan receivable.

The movement of an interfund loan receivable for an enterprise fund would look like the following example, which shows a loan made to the Parking Fund moving from the Electric Fund to the Workers Compensation Trust Fund.  This transfer was made as of June 30, 2009, and is reflected in the report attached to our original loan post on page 10 as JE00039832.  You can find that document here.

Description Debit Credit
Electric Claim on Cash $3,000,000
Workers Comp Claim on Cash $3,000,000
Increase and decrease in cash to reflect the transfer of the loan
Workers Comp Advances to Parking Fund 570 $3,000,000
Electric Advances to Parking Fund 570 $3,000,000
Increase and decrease in loan receivable due from Parking Fund
Parking Advances from Electric Fund 510 $3,000,000
Parking Advances from Workers Comp Fund 610 $3,000,000
Decrease and increase in loan payable from Parking Fund


Two things are important to note in this transaction.  First, the cash transfer is making the original lending fund whole because it has now exchanged liquid cash for a receivable, both of which are assets.  The future loan payments, including the principal, will now be paid to the new lending fund and the original lending fund is completely out of the picture.   Second, in accounting, debits and credits can have the opposite effect on account balances depending on the type of account.  For example, a debit to an account such as loans (advances) receivable is an increase while a debit to a liability account such as loans (advances) payable is a decrease.  While there are $9,000,000 of debits and $9,000,000 of credits in the above example, the transaction only results in a $3,000,000 transfer of cash.  The other entries are simply correctly recording the payable and the receivable in the three funds involved in the transaction.

The movement of an interfund loan receivable for a governmental fund would look like the following example, which shows a loan made to the former Redevelopment Agency moving from the Electric Fund to the Sewer Fund.  This transfer was made as of June 30, 2009, and is reflected in the report attached to our original loan post and linked above on page 5 as JE00039827.

Description Debit Credit
Electric Claim on Cash $4,018,391.21
Sewer Claim on Cash $4,018,391.21
Increase and decrease in cash to reflect the transfer of the loan
Sewer Advances to RDA Fund 478 $4,018,391.21
Electric Advances to RDA Fund 478 $4,018,391.21
Increase and decrease in loan receivable due from RDA
RDA Advances from Electric Fund 510 $4,018,391.21
RDA Advances from Sewer Fund 550 $4,018,391.21
Decrease and increase in loan payable from RDA (shown twice)


You will note if you look at the actual journal entry in the report that the only difference between this entry and the one above is that the last set of entries recording the movement of the payable are reflected twice, once in Fund 910 and once in Fund 978.  Fund 910 is a “memo fund” used to record certain obligations of the City’s governmental funds and Fund 978 is a similar “memo fund” used to record certain obligations of the former Redevelopment Agency.  Here, as was the case in the entry above, though there are approximately $16 million of debits and $16 million of credits, the transaction only has a cash impact of approximately $4 million.  The other entries are simply properly recording the transaction as receivable and payable in the various funds involved in the transaction.

While the City’s accounting systems are complex, the accounting above is quite straight forward to those familiar with government accounting.  These are routine entries made in government agencies throughout the United States, whose format is dictated by accounting guidance.  We hope that this post, though complicated, will serve to better educate those with an interest about the City’s recording of interfund loans.

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