HomeMy WebLinkAboutIR 7089 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7089
*,,RTtAfd February 11, 1986
�44foRr�A To the Mayor and Members of the City Council
'rFxp.C> Subject:
RECORDING OF INTEREST EARNINGS
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The City's outside financial auditor has requested the City Council 's
endorsement of the City staff's current practice of recording interest
earnings from the investment of unexpended general obligation bond funds. As
budgeted for fiscal year 1985-86, interest earnings from bond funds are to be
recorded in the Debt Service Fund rather than in the General Fund. Addi-
tionally, an amount equal to these estimated interest earnings was budgeted to
come out of the Debt Service Fund and be applied to the current year's debt
service expenditure requirement.
The issue of the recording of interest earnings was dealt with in Informal
Report No. 6904, "Bond Fund Financing (January 10, 1984)". That report
expressed the City Attorney's opinion that interest earnings of the Debt
Service Fund must stay in that Fund. The question of the recording of
interest earnings from unexpended bond funds was not addressed. The City
Staff and the auditor concur that it is more prudent and financially
conservative to record the interest from the bond funds in the Debt Service
Fund. In so doing, these interest earnings are restricted for use in the
repayment of debt and cannot be diverted to other types of expenditures.
Recording the interest in the General Fund could result in false picture of
oPhl operating revenue and lead to volatility in the tax rate.
The practice recommended herein allows the Council the discretion to determine
annually how much of our debt service costs should be supported through the
tax levy and how much should be financed from interest earnings in the Debt
Service Fund. In this process, the City should, for safety reasons, attempt
to see that the fund balance in the Debt Service Fund continues to grow as the
City's outstanding indebtedness and annual debt service requirements increase.
Unless the City Council directs otherwise, the staff will continue to record
interest earnings from unexpended bond proceeds as planned in the 1985-86
budget.
1�* Douglas Harman
U City Manager
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS --