CCMA
CALIFORNIA COMMITTEE ON MUNICIPAL ACCOUNTING
April 2000
To:
City Finance Officers, CPAs and Other Interested Parties
From:
The California Committee on Municipal Accounting
Subject: CCMA WHITE PAPER
Accounting and Financial Reporting for Loans between California Cities
and Related Redevelopment Agencies
GASB Statement No. 34 requires changes in the way California cities account for loans
between a city and its redevelopment agency. GFOA has recommended that these
loan transactions be excluded from the General Long-term Debt Account Group of the
CAFRs that are submitted for the GFOA award.
This white paper provides guidance on applying these new rules in California. The
paper also contains suggested language on how a city should respond to the GFOA if it
receives a GFOA CAFR award comment suggesting that this accounting change be
made prior to the implementation of GASB Statement No. 34.
The California Committee on Municipal Accounting is comprised of representatives of
the California Society of Certified Public Accountants and the League of California
Cities. The purpose of CCMA is to serve the public interest by providing the highest
degree of sound financial administration and ensuring the fullest cooperation between
city officials and members of the independent accounting profession.
Other CCMA publications may be obtained by using the order form on the back of this
page. If you have questions concerning CCMA, please call Dan Harrison in the
League’s Sacramento office at 916-658-8267.
Now Available: The CCMA White Papers
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___Accounting for Taxpayer-assessed Tax Revenues in Governmental Funds (1995)
___Agreed-upon Procedures Applied to the Appropriations Limitation Prescribed by Article XIII-B of the California Constitution (1997)
___Agreed-upon Procedures Applied to Investment Portfolios of Local Government (1997)
___Accounting for Pensions for State and Local Governments (1997)
___Auditing Procedures to Consider in the Evaluation of the Sufficiency of Disclosure of the Impact of Proposition 218 on the
Financial Statements of a Local Government in the State of California (1998)
___Accounting and Financial Reporting for Loans Between California Cities and Related Redevelopment Agencies (1999)
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g:\mss\member\rid\ccma\whiteord.doc
CCMA Members
California Society of CPAs
Mike Morehead, Co-chair
Ken Al-Imam
Clyde Brown
Mollie Marshall
League of California Cities
Derek Hanway, Co-chair
Barbara Hennessy
Larry Hurst
Nick Rives
Rob Stout
ACCOUNTING AND FINANCIAL REPORTING FOR
LOANS BETWEEN CALIFORNIA CITIES AND
RELATED REDEVELOPMENT AGENCIES
Revised May 1999
PUBLISHED BY THE
CALIFORNIA COMMITTEE ON MUNICIPAL ACCOUNTING
(a joint committee comprised of representatives of the League of California Cities and the
California Society of Certified Public Accountants)
ACCOUNTING AND FINANCIAL REPORTING FOR
LOANS BETWEEN CALIFORNIA CITIES AND
RELATED REDEVELOPMENT AGENCIES
I.
INTRODUCTION
Purpose of Paper
One of the most significant transactions occurring between California cities and their
redevelopment agencies is loans (or advances) from the City to the redevelopment
agency. Millions of dollars in loans are made and repaid each year subject to a variety of
loan repayment provisions. As a result, questions have arisen regarding the accounting
and financial reporting treatment of these loans.
In April of 1987, the California Committee on Municipal Accounting published its
“white paper” on this topic, entitled Accounting and Financial Reporting for Loans
Between California Cities and Related Redevelopment Agencies. In May of 1996, this
white paper was revised and reissued. The position of these prior white papers was that
long-term loans from the City to the Redevelopment Agency should be reported as a
liability in the Agency’s General Long-term Debt Account Group. As a result of GASB
Statement No. 34 and certain recommendations made by GFOA, this accounting will no
longer be appropriate.
The Special Review Executive Committee (SREC) of the Government Finance Officers
Association (GFOA) is responsible for overseeing the operations of the Government
Finance Officers Association (GFOA) Certificate of Achievement for Excellence in
Financial Reporting Program. In June of 1998, the SREC issued a program policy
statement calling for certain changes in the reporting of loans between a primary
government and its component unit. Specifically, the SREC adopted the following new
program policy for those governments submitting for the GFOA award:

Governments currently reporting long-term interfund liabilities in the General
Long-Term Debt Account Group (GLTDAG) of the CAFR’s submitted for the
GFOA award may continue to report those specific liabilities in the GLTDAG of the
CAFR submitted by the reporting entity as a whole. These governments may also
apply this same treatment to interfund liabilities incurred prior to fiscal year 1999.
However, all such liabilities incurred after fiscal year 1999 (on or after July 1,
1999) will need to be reported in the appropriate governmental fund.

Governments that historically have not reported long-term interfund liabilities in the
GLTDAG will be precluded henceforth from doing so as a matter of program
policy.
For purposes of preparing the CAFR for the reporting entity as a whole, GFOA believes
that the reporting recommended by the SREC should be applied at a minimum to all loans
from the City to the Redevelopment Agency incurred on or after July 1, 1999. GFOA also
has indicated that failure to apply SREC guidelines to such transactions will result in a
GFOA award comment for those local governments submitting for the GFOA award.
However, GFOA has indicated that such comments will not result in the denial of the
GFOA award for that government as long as that government responds to the GFOA award
comment in a manner similar to the following: “The reporting government intends to
implement the SREC guidance regarding these transactions in conjuction with the entity’s
implementation of GASB Statement No. 34. Accordingly, these changes will be made on
the effective date required by GASB for GASB Statement No. 34.”
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CCMA recommends that whenever a City chooses to implement the SREC guidance, that
the accounting recommended by the SREC be applied not only to the new loans, but that
this guidance also be retroactively applied to loans previously funded by the City that are
still outstanding (in order to promote consistency of accounting treatment for all
transactions similar in nature). CCMA also recommends that all local governments follow
the guidance of the SREC (in conjunction with the implementation of the new financial
reporting model), not just those governments submitting for the GFOA award.
In order to minimize confusion to the reader and to facilitate financial statement
preparation, CCMA also recommends that the separate component unit Redevelopment
Agency financial statements use the same reporting that is recommended by GFOA for the
CAFR of the reporting entity as a whole. Accordingly, this white paper has been revised to
reflect this new accounting treatment (to be used both in the separate RDA financial
statements and in the CAFR of the reporting entity as a whole). The State Controller’s
Office has indicated that it will accept the reporting recommended in this white paper both
for purposes of submitting separate audited financial statements to the State Controller’s
Office for redevelopment agencies within California and for preparation of the State
Controller’s Report for those agencies. On the forms used for the State Controller’s
Report, the loans owed to the City could be shown on the loans payable line in the column
established for debt service funds.
Materiality
The provisions of this paper need not be applied to immaterial items.
Consistency
The accounting principles discussed in this paper should be followed consistently from
year to year. The implementation of these principles and changes in the application of
these principles from year to year, if material, could result in prior period adjustments and
a consistency qualification in the independent auditors’ report.
Authoritative References
The following authoritative references relate to the accounting and reporting issues
discussed herein and are provided for the convenience of the reader:
a. Measurement Focus of Governmental Funds (GASB Cod. Sec. 1300.102a):
“...The governmental fund measurement focus is on determination of financial
position and changes in financial position (sources, uses, and balances of financial
resources), rather than on net income determination. The statement of revenues,
expenditures, and changes in fund balance is the primary governmental fund
operating statement. It may be supported or supplemented by more detailed
schedules of revenues, expenditures, transfers, and other changes in fund balance.”
Accounting for Fund Balance Reserves (GASB Cod. Sec. 1800.123):
“...The use of the term ‘reserve’ should be limited to indicating that a portion of the
fund balance is not appropriable for expenditure or is legally segregated for a
specific future use.”
b. Revenue Recognition Criteria (GASB Cod. Sec. 1600.106):
Generally, revenues are not recognized unless they are both “measurable” and
“available”. Available means received during the current fiscal year, or soon enough
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after year end to be used to pay liabilities of the current year. Each governmental
unit should adopt its own policies to implement the measurable and available
criteria, and apply them consistently. Revenues earned by Proprietary Funds are
recognized in essentially the same manner as in commercial accounting, i.e., on the
accrual basis.
c.
Operating Transfers Between Component Units (GASB Cod. Sec. 2600.120):
Operating transfers between the primary government and its component units have
historically been reported as intergovernmental revenues, operating
revenues/expenditures/expenses and/or as operating transfers. For presentation
within the financial statements of the reporting entity, such operating transfers
should be reported as if they were between funds of the primary government.
d.
Related Receivables and Payables (GASB Cod. Sec. 2600.120):
Related receivables and payables between what were previously separately reported
governmental units, which are included as component units of a reporting entity,
should be reclassified as amounts due to and due from other funds.
II. RECOMMENDED ACCOUNTING POLICIES - SEPARATE STATEMENTS
The accounting and reporting recommended by CCMA below relates to both the separate
financial statements of a Redevelopment Agency, as well as the reporting of the reporting entity
as a whole (in the general purpose financial statements of the reporting entity).
This section has been divided to address the following accounting issues:
1. Short-term loans
2. Long-term loans
3. Revolving loans
1. SHORT-TERM LOANS
Short-term loans are those that are to be repaid from “available current financial resources”.
Such resources would typically include proceeds from the sale of land held for resale or interest
earnings on investments, but would not include tax increment revenue.
The required entries to record short-term loans are as follows:
CITY (GOVERNMENTAL) FUND
Due from Redevelopment Agency
Cash
1,000,000
1,000,000
RDA CAPITAL PROJECTS FUND
Cash
Due to City of ____________
1,000,000
1,000,000
When the loans are repaid, the entries above would be reversed.
Occasionally, the City may make a loan to the Agency that is to be repaid within the same
fiscal year or shortly after year-end from tax increment monies to be received by the Agency
during the fiscal year. In these cases, the short-term borrowing would be treated similar to
revenue anticipation debt (i.e., as a fund liability). However, since the source of repayment is
4
normally received in the debt service fund, additional entries are required to record the transfer
of funds from the debt service fund to the capital projects fund as follows:
RDA DEBT SERVICE FUND
Operating transfers out
Cash
1,000,000
1,000,000
RDA CAPITAL PROJECTS FUND
Cash
Operating transfers in
1,000,000
1,000,000
2. LONG-TERM LOANS
Long-term loans are those that are to be repaid from future resources, i.e., not from “available
current financial resources”. A reserve of fund balance is made for the long-term receivable in
the City Fund (lender), as these funds are not available to finance current operations.
The RDA should not record the receipt of the loan proceeds as an other financing source, as
was done prior to the implementation of GASB Statement No. 34. After the implementation of
GASB Statement No. 34, the RDA’s receipt of the loan proceeds should be recorded as a
liability of the fund responsible for repayment, i.e. the debt service fund. The cash associated
with this borrowing should then be transferred to the capital projects fund so that it can be
expended for project purposes as required by state law.
The required entries to record long-term loans are as follows:
CITY (GOVERNMENTAL) FUND
Advances receivable
Cash
1,000,000
Fund balance—Unreserved
Fund balance—Reserved for long-term advances
1,000,000
1,000,000
1,000,000
RDA DEBT SERVICE FUND
Cash
Advances payable
1,000,000
Operating transfers out
Cash
1,000,000
1,000,000
1,000,000
RDA CAPITAL PROJECTS FUND
Cash
Operating transfers in
1,000,000
1,000,000
When the advance is repaid, the following entries are required:
5
CITY (GOVERNMENTAL) FUND
Cash
Advances receivable
1,000,000
Fund balance—Reserved for long-term advances
Fund balance—Unreserved
1,000,000
1,000,000
1,000,000
RDA DEBT SERVICE FUND
Advances payable
Cash
1,000,000
1,000,000
3. REVOLVING LOANS
Revolving loans are those loans made on an ongoing basis, where repayment is sporadic or
otherwise unscheduled. Typically, these loans are associated with administrative charges made
by the City to the Agency for salary and overhead costs allocable to the Agency. The loans
usually accumulate and are repaid from future tax increment revenues as they become
available.
The required entries to record revolving loans are as follows:
CITY (GOVERNMENTAL) FUND
Advances receivable
Administrative costs recovered (revenue)
1,000,000
Fund balance—Unreserved
Fund balance—Reserved for long-term advances
1,000,000
1,000,000
1,000,000
As an alternative, the credit above to revenue could be made against the appropriate expenditure
accounts, particularly in the combined financial statements, in order to avoid the double counting
of administrative and overhead expenditures.
The liability is recorded in the Redevelopment Agency fund responsible for repayment (the debt
service fund). An operating transfer out is then recorded into the capital projects fund in order to
provide for the recording in that fund of the administrative costs being incurred for the project:
RDA DEBT SERVICE FUND
Operating transfers out
Advances payable
1,000,000
1,000,000
RDA CAPITAL PROJECTS FUND
Administrative costs
Operating transfers in
1,000,000
1,000,000
When advances are repaid from tax increment revenue, the entries required are the same
as shown above for “long-term loans”.
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Entries to record direct charges to the Redevelopment Agency:
When administrative costs are charged directly to the Redevelopment Agency Capital Projects
Fund through automated payroll journal entries, etc., additional entries must be made in the
City and Agency funds to record the loan and effects on cash at the time of the payroll journal
entry. Assume a direct monthly charge of $10,000.
CITY (GOVERNMENTAL) FUND
Advances receivable
Cash
10,000
Fund balance—Unreserved
Fund balance—Reserved for long-term advances
10,000
10,000
10,000
RDA DEBT SERVICE FUND
Cash
Advances payable
10,000
Operating transfers out
Cash
10,000
10,000
10,000
RDA CAPITAL PROJECTS FUND
Cash
Operating transfers in
10,000
10,000
III. UNPAID ACCRUED INTEREST
Unpaid accrued interest on loans between a City and a Redevelopment Agency can result from
the following:
1. The accrued interest is due, but will not be paid currently as sufficient funds are
unavailable to meet the interest payment (i.e., the interest payment is delinquent); or
2. The accrued interest is not due, but payable in future years.
Each of these scenarios is discussed below.
1. ACCRUED INTEREST DUE BUT UNPAID
When accrued interest is “due” but goes unpaid because of unavailable Redevelopment Agency
funds, the City will typically agree to add the unpaid interest to the outstanding balance through
a refinancing of, or an amendment to, the existing loan. Subsequent interest will be calculated
based on the adjusted balance (which includes the accumulated unpaid accrued interest).
However, the recommended treatment discussed below is not affected by the method used to
calculate subsequent accrued interest (compound vs. simple method).
Based on the above, the unpaid accrued interest would be recorded when incurred as an
addition to the recorded liability in the debt service fund, as shown in the following
entries:
RDA DEBT SERVICE FUND
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Interest expenditures
Advances payable
100,000
100,000
CITY (GOVERNMENTAL) FUND
Advances receivable
Deferred revenue
100,000
100,000
Because the interest included above within the Advances Receivable is not available to finance
current operations, it is offset by a corresponding entry to deferred revenue.
Footnote disclosures of both Advances Receivable and Advances Payable balances in the City
and Agency financial statements, respectively, may disclose the accumulated accrued, but
unpaid, interest amounts included within the respective balances.
When the accumulated unpaid accrued interest is ultimately repaid, the following entries
are required:
CITY (GOVERNMENTAL) FUND
Cash
Advances receivable
100,000
Deferred revenue
Interest revenue
100,000
100,000
100,000
RDA DEBT SERVICE FUND
Advances payable
Cash
1,000,000
1,000,000
As a less preferable alternative, the unpaid accrued interest can be disclosed in the footnotes
each year, but not added to the liability recorded in the debt service fund. The interest would
then be recorded as an expenditure in the debt service fund only in the year paid.
2. ACCRUED INTEREST NOT DUE AND UNPAID
Loan agreements between a City and its Redevelopment Agency may provide that interest on
loans is payable at a specified date in the future or otherwise “when sufficient tax increment
revenues are available”.
1. In general when accrued interest is not paid simply because it is NOT DUE, then the
Redevelopment Agency should apply the same treatment described above for unpaid
interest that is due (i.e., treating the interest as accrued and added to the liability
recorded in the fund responsible for repayment—the debt service fund).
2. If the repayment of interest (and/or principal) is dependent upon the availability of
future tax increment revenues, treatment would be the same as “1.” above, unless the
likelihood of future tax increment being available is remote and the City has agreed, by
resolution, to forgive the entire debt. If the debt is forgiven, the City should record a
loss, and the Redevelopment Agency should remove the forgiven liability from the
balance sheet of the debt service fund and record as revenue the forgiveness of debt
owed to the City (recorded as “contribution from the City”).
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