2019 Comprehensive Annual Financial Report (CAFR)

8. Long-Term Liabilities Long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business- type activities, or proprietary fund-type statement of net position in the government-wide financial statements, and proprietary fund-types in the fund financial statements. Bond premiums and discounts and losses on extinguishment of debt are unearned and amortized over the life of the bonds using the effective interest method. These latter amounts are now classified as Deferred Outflows of Resources. Bond issuance costs are expensed in the reporting period in which they are incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance cost during the current period. The face amount of debt issued is reported as an “Other Financing Source”. Premiums received on debt issuances are reported as “Other Financing Sources” while discounts on debt issuances are reporting as “Other Financing Uses”. Issuance cost, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures as “Fees and Other”. 9. Fund Equity In the governmental fund financial statements, the fund balances are composed of five classifications designed to disclose the spending hierarchy of constraints placed on how fund balance can be spent. The City reports nonspendable funds, restricted, committed, assigned and unassigned fund balances. Fund balances are further segregated into the following classifications: Nonspendable Fund Balance - This classification includes amounts that cannot be spent because they are either not in spendable form or legally or contractually required to be maintained intact. Amounts that cannot be spent due to form, include inventories, prepaid amounts, long-term amounts of loans and notes receivable funds permanently held for cemetery care and property held for resale, unless future property sale proceeds are restricted, committed or assigned. Inventories and Miscellaneous Prepaids - This represents that portion of fund balance segregated for year-end inventories of supplies and prepaid items such as rent and postage; these are current assets and do not represent available spendable resources. Assets Held for Resale - This represents that portion of fund balance segregated for assets that are intended to be resold and not used in operation. Perpetual Maintenance – This represents Cemetery resources that are required to be retained in perpetuity for maintenance of the City’s three cemeteries. Restricted Fund Balance – This classification can be spent only for specific purposes, as stipulated by external resource providers and creditors, by constitution or through enabling legislation that is legally enforceable by an external party. Enabling legislation that creates a revenue stream must also stipulate the purposes for which that revenue can be used. Restrictions may only be changed by parties external to the entity or imposed by law. Restricted for Stabilization by State Statute – North Carolina G.S. 159-8 prohibits units of government from budgeting or spending a portion of their fund balance. This is one of several statutes enacted by the North Carolina State Legislature in the 1930’s that were designed to improve and maintain the fiscal health of local government units. Restricted by State statute (RSS), is calculated at the end of each fiscal year for all annually budgeted funds. The calculation in G.S. 159-8(a) provides a formula for determining what portion of fund balance is available for appropriation. The amount of fund balance not available for appropriation is what is known as “restricted by State statute”. Appropriated fund balance in any fund shall not exceed the sum of cash and investments minus the sum of liabilities, encumbrances, and deferred revenues arising from cash receipts, as those figures stand at the close of the fiscal year next preceding the budget. Per GASB guidance, RSS is considered a resource upon which a restriction is “imposed by law through constitutional provisions or enabling legislation.” RSS is reduced by inventories and prepaids as they are classified as nonspendable. Outstanding encumbrances are included within RSS. RSS is included as a component of Restricted Net position and Restricted fund balance on the face of the balance sheet. Restricted for Debt Covenants – This fund balance is derived from debt proceeds and is governed by certain covenants contained in financing agreements and is mainly restricted to finance major capital improvements. Restricted for Grantor Requirements - Highway Improvements – This represents the amount of fund balance which can only be spent on streets, such as Powell Bill. The Powell Bill Fund is reported as a Special Revenue Fund for reporting 37j