California Comprehensive Annual Financial Report - City of Temecula

City of Temecula
Notes to Financial Statements (Continued)
Note 1:
Summary of Significant Accounting Policies (Continued)
Component units are those entities which are financially accountable to the primary
governmental unit either because the City appoints a voting majority of the component unit
Board, or because the component unit will provide financial benefit or impose a financial
burden on the City. The City has accounted for TRA, TCSD, Corporation, Authority, and
TPFA as "blended" component units. Despite being legally separate, these units are so
intertwined with the City that they are in substance, part of the City's operations.
Accordingly, the balances and transactions of the blended component units are included in
the Special Revenue, Debt Service and Capital Projects funds. The following specific
criteria were used in determining that TRA, TCSD, Corporation, Authority, and TPFA were
blended component units:
1. The members of the City Council also act as the governing body of TRA. The City and
TRA are financially interdependent. The City makes loans to TRA for use on
redevelopment projects. Property tax revenues of TRA are used to repay the loans
from the City. TRA is managed by employees of the City. A portion of the City's salary
and overhead expenses is billed to TRA each year.
2. The members of the City Council serve as members of the governing body of TCSD,
Authority, and TPFA. City employees manage these entities and provide all support
functions for them including financial reporting and investment decisions.
b. Government-Wide and Fund Financial Statements
The government-wide financial statements (i.e., the statement of net assets and the
statement of changes in net assets) report information about the reporting government as
a whole, except for its fiduciary activities. Governmental activities, which normally are
supported by taxes and intergovernmental revenues, are reported separately from
business-type activities, which rely to a significant extent on fees and charges for support.
Likewise, the primary government (including its blended component units) is reported
separately from discretely presented component units for which the primary government is
financially accountable. The City has no business-type activities or discretely presented
component units. For the most part, the effect of interfund activity has been removed from
these statements.
The statement of activities demonstrates the degree to which the direct expenses of a
given function or segment are offset by program revenues. Direct-expenses are those
that are clearly identifiable with a specific function or segment. Program revenues include
1) charges to customers or applicants who purchase, use, or directly benefit from goods,
services, or privileges provided by a given function or segment and 2) grants and
contributions that are restricted to meeting the operational or capital requirements .of a
particular function or segment. Taxes and other items not properly included among
program revenues are reported instead as general revenues.
The underlying accounting system of the City is organized and operated on the basis of
separate funds, each of which is considered to be a separate accounting entity. The
operations of each fund· are accounted for with a separate set of self-balancing accounts
that comprise its assets, liabilities, fund· equity, revenues and expenditures or expenses,
as appropriate. Governmental resources are allocated to and accounted for in individual
funds based upon the purposes for which they are to be spent and the means by which
spending activities are controlled.
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