SPECIAL CONSTRUCTION ACCOUNTS
5.31
TURNBACK CONSTRUCTION ACCOUNT
NARRATIVE
A portion of the Highway User Tax Distribution (HUTD) is set aside to fund the transfer of roads that
have been determined to be on the wrong system. Either through realignment of a trunk highway or
through changes in traffic patterns the road may need to move from the Trunk Highway System to the
County State Aid System. These projects must be applied for and final projects are determined by
SALT based on funds available and project impact.
Turnback projects can be funded with either a Payment in Lieu or the usual encumbrance method. The
method to be used is determined by the negotiations and is stated in the Turnback Agreement. The
Encumbrance Method will be discussed first, followed by the Payment in Lieu Method.
When a project is let a State Aid Payment Request can be submitted for 95% of the turnback eligible
work. The remaining 5% is encumbered and will be paid when the project is complete and all costs are
verified. Upon final any unspent funds will need to be returned to State Aid, it will not be considered
an overpayment and applied to the next project, since this is not an annual allotment. Any unspent funds
that remain encumbered will be released back to the Turnback Fund.
ACCOUNTS NEEDED
(const exp)
(revenue)
(asset)
(asset)
(liability)
(liability)
- TURNBACK CONSTRUCTION EXPENSES
- TURNBACK CONSTRUCTION - REVENUE
- CASH
- TURNBACK CONSTRUCTION - RECEIVABLE
- CONTRACTS PAYABLE
- TURNBACK CONSTRUCTION - DEFERRED REVENUE
SEQUENCE OF EVENTS
PROJECT IS AWARDED
Once a Turnback project is approved an encumbrance will be set up for the estimated project cost. After
the project is let the county can set up Turnback Construction Receivable and Turnback Deferred
Revenue Accounts.
Accounting Entry
Record Turnback Receivable
Debit Account: (asset)
Turnback Construction - Receivable
Credit Account: (liability)
Turnback Construction - Deferred Revenue
Rev. 02/16
SPECIAL CONSTRUCTION ACCOUNTS
5.32
95% PAYMENT IS RECEIVED FOR THE PROJECT
After the initial SAPR has been approved you will receive the requested percentage payment, up to 95%
for the project. State Aid advances 95% of the total Turnback Construction Obligation and the
remaining 5% remains encumbered.
To keep contract costs clear it is a good idea to make two entries if you are being paid for Project
Development, Construction Engineering, Utility Relocation and/or Right of Way.
Accounting Entry
Record receipt of Turnback contract funds
Debit Account: (asset)
Credit Account: (asset)
Accounting Entry
Cash
Turnback Construction - Receivable
Record receipt of Turnback engineering, force account and
ROW funds
Debit Account: (asset)
Cash
Credit Account: (revenue)
Turnback Construction - Revenue
WORK BEGINS ON THE PROJECT
Work progresses and Turnback eligible items are certified. Payments are made to the contractor less
retained funds in the same manner as a regular construction project. The following entries will need to
be made to recognize the construction expense, earned Turnback revenue, and the disbursement to the
contractor.
Accounting Entry
Recognize expense for work certified
Debit Account: (expense)
Turnback Construction Expense
Credit Account: (liability)
Contracts Payable
Accounting Entry
Recognize Turnback revenue for work certified
Debit Account: (liability)
Turnback Construction - Deferred Revenue
Credit Account: (revenue)
Turnback Construction - Revenue
Accounting Entry
Record contractor disbursement
Debit Account: (liability)
Credit Account: (asset)
Rev. 02/16
Contract Payable
Cash
SPECIAL CONSTRUCTION ACCOUNTS
5.33
PROJECT IS FINALED
Numerous partial payments may be made to the contractor and SAPRs completed following the same
process as in the steps above. The final SAPR must indicate that the project is final and request any
remaining unpaid Turnback funds equal to the value of eligible work certified or the Turnback allocation
whichever is less. Upon final four main situations can occur relating to the State Park funds. These are:
A)
B)
C)
D)
- Project is completed exactly as estimated
- Project overruns original estimate
- Project Underruns original estimate without a Turnback overpayment
- Project Underruns original estimate with a Turnback overpayment
A) PROJECT IS COMPLETED AS ESTIMATED
The remaining unpaid Turnback funds are released to the county upon the receipt of the executed SAPR.
Accounting Entry
Record receipt of Turnback funds
Debit Account: (asset)
Credit Account: (asset)
Cash
Turnback Construction - Receivable
B) PROJECT OVERRUNS ORIGINAL ESTIMATE
The remaining Turnback funds up to original encumbrance amount are released to the county upon the
receipt of the executed SAPR. If additional funds are requested and granted it is the county will receive
additional Turnback funds; if not the overage will be paid from local funds.
Accounting Entry
Recognize Turnback work certified over original allocation
Debit Account: (liability)
Turnback Construction - Receivable
Credit Account: (revenue)
Turnback Construction - Revenue
Accounting Entry
Recognize expense greater than Turnback allocation
Debit Account: (expense)
Construction Expense
Credit Account: (liability)
Contracts Payable
Accounting Entry
Record receipt of Turnback contract funds
Debit Account: (asset)
Credit Account: (asset)
Accounting Entry
Record receipt of Turnback engineering, force account or
ROW funds
Debit Account: (asset)
Credit Account: (asset)
Rev. 02/16
Cash
Turnback Construction - Receivable
Cash
Turnback Construction - Revenue
SPECIAL CONSTRUCTION ACCOUNTS
5.34
C) PROJECT UNDERRUNS ORIGINAL ESTIMATE WITHOUT OVERPAYMENT
The remaining Turnback funds up to an amount equal to the value of eligible work certified are released
to the county upon the receipt of the executed SAPR, if no further Turnback eligible costs remain any
retained funds will be released to the county.
Accounting Entry
Record underrun
Debit Account: (liability)
Credit Account: (asset)
Accounting Entry
Turnback Construction - Deferred Revenue
Turnback Construction - Receivable
Record receipt of Turnback funds
Debit Account: (asset)
Credit Account: (asset)
Cash
Turnback Construction - Receivable
D) PROJECT UNDERUNS ORIGINAL ESTIMATE WITH AN OVERPAYMENT
Upon the receipt of the executed SAPR, no further Turnback to the county. These funds will have to be
repaid to the Turnback fund.
Accounting Entry
Record underrun
Debit Account: (liability)
Credit Account: (asset)
Accounting Entry
Turnback Construction - Deferred Revenue
Turnback Construction - Receivable
Record repayment of Turnback Funds
Debit Account: (asset)
Credit Account: (asset)
Turnback Construction - Receivable
Cash
Note: The Turnback fund overpayments must be repaid by the county. They are not left as outstanding
overpayments and applied to future projects like regular allotment overpayments.
FINAL PAYMENT TO CONTRACTOR
When the project is finaled and all the required documentation is received from the contractor,
the county will release the retained funds to the contractor.
Accounting Entry
Record disbursement to contractor
Debit Account: (liability)
Credit Account: (asset)
Rev. 02/16
Contracts Payable
Cash
SPECIAL CONSTRUCTION ACCOUNTS
5.35
TURNBACK – LUMP SUM METHOD(PAYMENT IN LIEU)
A lump sum turnback occurs when the state agrees to either transfer funds from the turnback account
into the county’s construction account or make a payment from the turnback account for an agreed upon
amount of the value of work needed to bring the road to acceptable standards. The amount is
established, an agreement is executed, and a transfer or payment is made. The amount is final and is not
a reimbursement for actual costs. If the work done later overruns this amount, the local agency must
fund the additional costs. There are different reasons that the Lump Sum Method is used, generally
though, the state wants to turnback the road and the county is not ready to or able to do the work. In
these cases an agreement is executed determining the value of any work needed to get the road up to
standards for the county and it is understood that the work will be completed by the county in the future.
The road is transferred to the jurisdiction of the county and is added to the appropriate system.
The State Aid Rules (8820.230 subp. 6a) refer to the Payment in Lieu practice. The intent is that the
amount determined through negotiations in the Turnback Agreement will be transferred into the
receiving county’s (regular or municipal) construction allotment account based on the road system the
turnback is added to. It is possible for the local agency to negotiate a direct payment of the turnback
funds, but this is not the standard practice. To allow for possible inflation of costs, the rule states that
the payment should reflect the “net value of eligible turnback costs for a project to be constructed within
20 years of the release date.” This is not stating the project is to be constructed within the next 20 years.
TURNBACK ALLOCATION – TRANSFER
After the agreement is executed and the funds are transferred, the county will see an increase in the
construction allotment balance. An entry must be made to record the change. The funds are then
requested and spent on projects just like any other state aid construction project and no more turnback
entries will be needed. State Aid encourages the use of this method.
Accounting Entry
Record construction allotment increase
Debit Account: (asset)
Regular or Municipal Construction - Allotment
Credit Account: (liability)
Regular or Municipal Construction - Deferred
Revenue
TURNBACK CASH PAYMENT
In some cases the Payment in Lieu is paid directly to the county as a cash disbursement. These funds
are still considered State Aid funds and must be spent for the specific purpose of the law for
“constructing, reconstructing, and improving state aid highways”. In these cases it is good practice to
isolate the funds and keep a record of the expenditures. Once the funds are received an entry must be
made to record the receipt of cash. It is recommended that each lump sum turnback be tracked
separately.
Accounting Entry
Record receipt of Turnback funds
Debit Account: (asset)
Cash
Credit Account: (liability)
Turnback Construction - Deferred Revenue
Rev. 02/16
SPECIAL CONSTRUCTION ACCOUNTS
5.36
SEQUENCE OF EVENTS
WORK BEGINS ON THE PROJECT
The county already has the funds so a receivable is not required. As work progresses on eligible
projects and becomes certified, entries are made to decrease the liability, record the revenue earned, and
record contractor payments.
Accounting Entry
Recognize Turnback revenue
Debit Account: (liability)
Turnback Construction - Deferred Revenue
Credit Account: (revenue)
Turnback Construction - Revenue
Accounting Entry
Record contractor disbursement
Debit Account: (liability)
Credit Account: (asset)
Contract Payable
Cash
PROJECT IS FINALED
The lump sum turnback payment received by the county was a defined amount. Funds are expended on
eligible projects until they are depleted.
Rev. 02/16