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Local Budgeting Manual, 150-504-420 - Oregon State Library - State ...

Local Budgeting Manual, 150-504-420 - Oregon State Library - State ...

local option taxes. Also

local option taxes. Also included are any grants, transfers from other funds, or other revenues authorized for financing capital projects. A separate fund is normally established when a capital project or series of projects is authorized by the voters. It is dissolved when the project is completed. Several related projects financed from one bond issue may be accounted for in one fund if there are no provisions to the contrary in the authorization to sell the bonds. Establish a Capital Project Fund for the expenditure of bond sale proceeds. If voter approval is received after the regular budget is adopted and bonds are sold during the fiscal year, a supplemental budget is not required to expend the proceeds [ORS 294.326(5)]. However, it is good fiscal practice for the governing body to establish a special fund to account for the proceeds and adopt a resolution or ordinance authorizing the expenditure. If the bond sale receives voter approval prior to the adoption of the regular budget, then the expenditure of the proceeds must be included in the regular budget. Also, if the bonds were sold in the preceding year and the proceeds carried forward to the current year, then the expenditure of the proceeds must be budgeted in the regular budget. Bond proceeds may be used to pay attorneys’ fees and other expenses related to the preparation, authorization, issuance and sale of the bonds (ORS 287.012). These expenses cannot be paid from the Debt Service Fund; that fund can only be used to pay bond principal and interest. Debt Service Fund A Debt Service Fund is a fund to account for the payment of principal and interest on all general obligation long-term debt, including that payable exclusively from revenue-producing enterprises [OAR 150- 294.352(1)-(A)]. There may be several bond issues accounted for in one debt service fund, but you should establish separate funds for general obligation and revenue bonds. Set up separate accounts for each bond issue. Transactions to record the redemption of existing bonds with proceeds of refunding bonds are also recorded in debt service funds. Resources dedicated to repay bonds cannot be diverted or used for any other purpose [ORS 287.006(3), 287.072, 328.260(3), etc.]. Transfers from a Debt Service Fund are not allowed in most cases. There are two conditions under which a transfer may be made: 1. Transfer is lawful from this fund to repay an interfund loan. 2. If a surplus remains after all interest and principal are paid, the fund may be dissolved and the balance 16 transferred to any fund originally designated by the governing body, or as included in the bond contract (ORS 294.475). Oregon Revised Statute Chapters 287 and 288 relate generally to borrowing and bonding of counties, cities, and other local governments. Refer to the statute under which your local government was formed for more specific bonding information. Appendix C lists local governments’ taxing powers and limitations. Most Oregon Revised Statute chapters under which local governments are formed allow for the issuance of general obligation bonds after voter approval. They also set limits on the amount of indebtedness a local government may incur, and provide for payment of bond principle and interest through the levy of taxes. Disclosure concerning the issuance of municipal bonds is very important. It requires complete and accurate financial and economic information from all issuers. The Oregon Municipal Debt Advisory Commission was established to help local governments deal with the disclosure requirements. The commission consists of seven members: the state treasurer; representatives from cities, counties, school districts, and special districts; and two public members. Staffing of the commission is provided by the Debt Management Division of the Oregon State Treasury. The Debt Management Division publishes the Oregon Bond Manual which offers advice to issuers who wish to prepare for their own bond sale. The manual is available for a fee from Debt Management Division, 159 State Capitol, Salem OR 97310. Advance Refunding Bonds—Budget Requirements Public bodies, which includes local governments, have the authority to refund outstanding bond issues before their call dates. This is known as advance refunding (ORS 288.605 to 288.695). Advance refunding means selling new bonds before any right to call or otherwise retire the old bond issue arises. The proceeds of the advance refunding bond sale are used to buy low-risk government securities to place in escrow to secure the old bonds. The public body is prohibited from levying a tax to pay on the old bonds after the amount owed on the old bonds is secured by investing the advance refunding bond proceeds, plus other funds set aside to pay the old bonds. If a tax could be levied to pay the old bonds, a tax may be levied to pay the principal and interest on the advance refunding bonds (ORS 288.665). Debt service on the new bonds must be budgeted, because it will be paid by a tax levy or from the advance refunding bond proceeds and interest. The advance refund bond proceeds may also be used to pay adminis-

trative costs, expenses, or fees in connection with the advance refunding transaction [ORS 288.645(2)]. Revenues irrevocably placed in escrow for the purpose of defeasing and paying the bonds, or revenues received as a result of prepayments or other unforeseen circumstances used to redeem bonds or other obligations are not required to be budgeted [ORS 294.326(6)]. Bancroft Bonds The Bancroft Bonding Act (ORS 223.205 and 223.210 to 223.295) is a financing method that may be used by cities, counties, and certain special districts with specific statutory bonding authority. The purpose of the Bancroft Bonding Act is to provide a way for property owners to pay for improvements, such as streets, water supply systems, storm sewers, etc., in equal annual installments spread out over a period of years. A “Bancroft Bond Redemption Fund” is a type of debt service fund required to record the debt payments for principal and interest. Internal Service Fund An Internal Service Fund finances and accounts for services furnished by one department or agency to another department or agency of the local government. Amounts expended from the fund are restored from either operating earnings or as operating expenditures from other funds to the internal service fund. The original working capital is then kept intact. Enterprise Fund An Enterprise Fund is a fund established to finance and account for acquiring, operating, and maintaining facilities and services which are self-supporting from user charges and fees. Examples of Enterprise Funds are for water, gas and electrical utilities, swimming pools, airports, parking garages, and transit systems. Separate funds should be established for each utility or enterprise. Trust and Agency Fund Assets are sometimes held, or revenue received, by local governments in a fiduciary capacity to be used for a certain specified purpose. For example, investments or securities may be given to the local government with provisions that the income be used to aid the library or park system. In other cases, the municipality may charge a certain amount for perpetual repair of cemetery lots, with such amount to be invested and only the earnings used for the designated purposes. These revenues and expenditures are accounted for in a Trust and Agency Fund. Most Trust and Agency Funds are not exempt from local 17 budget law. Expenditures can be made from these funds only if the funds are included in the adopted budget and appropriations. Reserve Fund A local government may set up a Reserve Fund, a type of special revenue fund, to accumulate money for financing the cost of any service, project, property or equipment that the district can legally perform or acquire (ORS 294.525). Under Local Budget Law, a Reserve Fund is the appropriate way to save money from year to year. Any local government by resolution or ordinance can set up a Reserve Fund. The governing body may specify a time limit in which money can be added to the fund. At least every ten years after the establishment of a reserve fund, the governing body reviews the fund to decide if it should be continued or abolished. Any unexpended or unobligated balance left in the fund after it is abolished can be transferred to the General Fund or any other fund designated by the governing body. Money in a Reserve Fund can only be used for the purpose for which the fund was established. Expenditures are made directly from a Reserve Fund. School districts have special statutory authority to set up reserve funds for the purchase of automotive equipment. Schools should refer to ORS 328.470 for more details. Separate Funds for Local Option Taxes Establish a separate fund for each local option tax providing money for a specific purpose. The money received must be retained and spent only for the purpose for which the tax was approved. The requirements in this law provide fiscal integrity for the local option tax to carry out the purpose named in the ballot measure. If expenditures from a specific purpose local option tax fund are no longer needed, the governing body may abolish the fund and transfer the balance and any future proceeds to the General Fund or any other fund designated by the governing body. The tax imposed for the special fund then must be discontinued when it is abolished. During the period of a voter-approved local option tax, impose only the amount of tax necessary to meet requirements and balance the fund each year. Although a local government has the power to impose a tax, the budget must always justify the tax (ORS 294.326). The authorized period for a local option tax is consecutive years. If it is not levied for one of those years, the authority to impose is not extended. It is assumed that if no tax is certified, the local government intended to impose $00.00 for that year. Local governments can always impose less than their taxing authority.

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