Ch8 LT Obligations

1
Ch8 LT Obligations
2
Overview

• Review LT Debt in Govt Funds vs. GWide
• ST vs. LT Demand, Ban, Tan, Ran
• Leases
• Debt Limit .. Overlapping Debt Various
  Disclosure Schedules
• General Issues in Public Finance

3
Review of Lt debt in Fund vs. GWide

• Govt Fund Cash X
• OFS-Bond Proceeds X
• GWide Cash X
• B/Payable
  X
• Premium X

4
Review of Interest in Fund vs. GWide

• Govt Fund
• Liab./Expend for LT General Debt not recorded
  until DUE
• CAN Accrue interest Expend/Payable for ST debt
• GWide
• Pure accrual basis for ST LT debt
• Accrue all interest expense payables
• See entries P 279

5
Complications in determining LT vs. ST
classification

• Demand bonds technically ST, may not be called
  for long time
• Issued when ST rates less than LT rates
• What if called?
• Would issue new replacement bonds
• TAKE OUT Agreement on replacements
• GASB says classify as ST unless have
• TAKE Agreement with life gt1 yr

6
Complications in determining LT vs. ST
classification

• BANs technically ST, may be replaced with LT
  bond
• Assume FY12/31 .. F/Stmt issued 3/31
• Look at what happens after 12/31
• If refinanced as LT bond
• OR, have noncancellable agreement to issue LT
  bonds
• THEN TREAT AS LT Debt otherwise ST debt of Govt
  Fund.

7
Complications in determining LT vs. ST
classification

• RANs, TANs
• Revenue Anticipation/ Tax Anticipation
• Name similar to BANs
• BUT always treated as Short Term

8
Leases Capital vs. Operating

• Operating Expenditure in Govt Fund, no LT liab.
• Capital .. In substance a LT purchase/debt
• Business criteria
• 1. Transfers title OR
• 2. BPO OR
• 3. gtor to 75 of life
• 4. PV min pmts gt to 90 of FV
• Nonappropriation clause .. cancellable

9
Leases Continued

• Nonappropriation clause .. Cancellable
• BUT nonsubstitution clause ..
• If you cancel ours, cant get same asset
• Almost assure will NOT cancel
• Therefore, common sense GASB says treat as
  LTerm

10
Capital Lease Entries P 287

• Gwide Asset PV
• LT Obligation PV
• At signing in Govt fund
• Expenditure lease PV
• OFS-Capital Lease PV
• Interest CV of lease X interest rate
• Plug for reduction in principal

11
Required Disclosures

• Schedule of Future Debt Service Requirements to
  Maturity similar to p. 288
• Debt Limit margin p. 34 in supp
• May not protect citizens as much as they think
• Overlapping Debt p. 291
• based on Assessed Value .. Not populations or
  land area

12
Misc Public Finance issues

• Conduit Debt
• For another entity, they make payments, get
  benefit of lower rate
• Ridgefield Christian School.. Busch
• Moral Obligation Debt
• Not really pledging FULL, FAITH CREDIT
• Bond Insurance brings all up to AAA
• Required Reserves for Debt

13
What questions do you have?