Source of funding for repayment is a separate tax levy. CO Proceeds used to acquire or construct real property, plant, or equipment.

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1 HOW DO I FINANCE MY CAPITAL PROJECTS? Consult Debt Experts and Legal Counsel General Obligation Bonds Purpose of General Obligation Bonds o Refund Bonds o Fund Judgments o Raise money for any purpose which the school district is authorized to spend funds Limitations o 60% voter approval o Not exceed 50 year term Source of funding for repayment is a separate tax levy. Capital Outlay Certificates Not in excess of 1 ½ % of assessed valuation o Authorized at meeting Exceeds 1 ½ % of assessed Valuation o Requires Public Notice o Requires a Hearing o Referable to vote of the district CO Proceeds used to acquire or construct real property, plant, or equipment. Limitations: o Total unpaid principal cannot exceed 3% of taxable valuation o Not exceed 20 year term CO certificates represent long-term debt with the intent to pay it back utilizing CO levy. Complete your 5-year CO plan to ensure that your district has sufficient resources available to take on a series of long-term debt payments SDCL Understand Mill Max regarding the CO levy. Notes School board power to borrow on notes--authorization, issuance and sale--maximum term. Any school board may borrow money, from any source willing to lend the money, by issuing a promissory note subject to the limitations and regulations set forth in to , inclusive. All notes shall be authorized, issued, and sold in accordance with the provisions of chapter 6-8B, except that no election shall be held and the notes may not be issued for a term in excess of twenty-four consecutive months Amount borrowed on notes limited by anticipated receipts. Except for obligations to the state, including the health and educational facilities authority, or federal

2 government, the money borrowed pursuant to may not exceed the sum of ninety-five percent of the amount of taxes levied or proposed to be levied by the school board but not collected at the date of borrowing by the school board pursuant to for the current or next full school fiscal year for the fund for which the money is borrowed plus other anticipated receipts for the fund which have not been collected at the date of borrowing Borrowing limit reduced by outstanding warrants or notes. In case any registered warrants or promissory notes are outstanding against the fund for which the money is to be borrowed, the borrowing limit as specified in shall be reduced by the amount of such warrants or promissory notes outstanding at the time the money is borrowed. Lease Financings Definition and use of capital outlay fund--levy required. The capital outlay fund of the school district is a fund provided by law to meet expenditures which result in the acquisition or lease of or additions to real property, plant, or equipment. Such an expenditure shall be for land, existing facilities, improvement of grounds, construction of facilities, additions to facilities, remodeling of facilities, or for the purchase or lease of equipment. It may also be used for installment or lease-purchase payments for the purchase of real property, plant, or equipment, which have a contracted terminal date not exceeding twenty years from the date of the installment contract or lease-purchase and for the payment of the principal of and interest on capital outlay certificates issued pursuant to Any purchase of one thousand dollars or less may be paid out of the general fund. The total accumulated unpaid principal balances of such installment contracts and lease-purchase and the outstanding principal amounts of such capital outlay certificates may not exceed three percent of the taxable valuation. The school district shall provide a sufficient levy each year under the provisions of to meet the annual installment contract, lease-purchase, and capital outlay certificate payments, including interest Bidders on installment purchases or lease-purchase agreement to state interest rate and installment schedule. Notwithstanding the provisions of chapters 5-18A and 13-20, if any proposed installment purchase contract or lease-purchase agreement authorized under chapter 13-16, is to be entered into by a school district, the notice for bidders shall require the bidders to state the rate of interest and the installment payment or lease-purchase schedule that would have to be made by the school district in fulfillment of the contract. However, the requirement of this section does not apply to any installment purchase or lease-purchase to be entered into between a school district and the health and educational facilities authority Hearing on installment purchase, lease-purchase or capital outlay certificates--approval or reference to voters. Any proposed installment purchase contract, lease-purchase, or issue of capital outlay certificates authorized pursuant to or which will obligate the school district for future payments on the principal, the total of which will exceed one and one-half percent of the taxable valuation of taxable property within the district, may not be entered into, or certificates issued, unless prior thereto the school board conducts a public hearing thereon after having given notice by publication at least twice in its official newspaper at least ten days before the hearing. Upon the hearing the board may approve the action or may refer the matter to the voters of the district

3 REMINDER: Public hearing for use of capital outlay fund--notice Any school district using the capital outlay fund for payment of construction of new facilities or construction of additions to facilities, the total of which requires advertising for bids under chapter 5-18A, shall have a public hearing at least ten days prior to the advertisement of any contract specifications. The public hearing shall be advertised in the legal newspaper of the school district. Following the public hearing, and approval of the school board, the school district may use the capital outlay fund as provided in > No school district may change the originally advertised use of the fund without holding another public hearing. WHICH FUND DO I USE CAPITAL OUTLAY FUND OR CAPITAL PROJECTS FUND? 20 SPECIAL REVENUE FUNDS Governmental Fund type used to account for the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects and exclusive of resources held in trust for individuals, private organizations, or other governments (GASB 54). Inherent in this description are two criteria that must be met before a special revenue fund may be used: Expenditure for specific purposes. Special revenue funds are designed to help determine and demonstrate that resources that must be used for a specified purpose are, in fact, used for that purpose. Such limitation on spending may be imposed by external parties (creditors, grantors, contributors, other governments), by constitutional provisions, by enabling legislation, or by action taken by the government s highest level of decision-making authority. Proceeds of specific revenue sources. A limitation on how resources may be spent is not enough, by itself, to justify the use of a special revenue fund. At the core of each special revenue fund must be resources derived from one or more specific revenue source; therefore a school board s decision to commit a portion of such a surplus to a specific project would not be sufficient to justify the use of a special revenue fund. Conversely, a special revenue fund would be appropriate for a specific tax revenue restricted for spending on project. Once a special revenue fund has been properly established, other resources that become available for the same purpose may be reported there as well, provided that inflows from the core revenue sources are expected to remain a substantial portion of the fund s total inflows. Frequently the use of a special revenue fund is legally required. Otherwise, the use of the special revenue fund is permitted rather than mandated for financial reporting purposes. 21 Capital Outlay Fund - a special revenue fund established by SDCL to meet expenditures which result in the acquisition of or additions to real property, plant or equipment Definition and use of capital outlay fund--levy required. The capital outlay fund of the school district is a fund provided by law to meet expenditures which result in the acquisition

4 or lease of or additions to real property, plant, or equipment. Such an expenditure shall be for land, existing facilities, improvement of grounds, construction of facilities, additions to facilities, remodeling of facilities, or for the purchase or lease of equipment. It may also be used for installment or lease-purchase payments for the purchase of real property, plant, or equipment, which have a contracted terminal date not exceeding twenty years from the date of the installment contract or lease-purchase and for the payment of the principal of and interest on capital outlay certificates issued pursuant to Any purchase of one thousand dollars or less may be paid out of the general fund. The total accumulated unpaid principal balances of such installment contracts and lease-purchase and the outstanding principal amounts of such capital outlay certificates may not exceed three percent of the taxable valuation. The school district shall provide a sufficient levy each year under the provisions of to meet the annual installment contract, lease-purchase, and capital outlay certificate payments, including interest. A school district which contracts its student transportation may expend from the capital outlay fund an amount not to exceed fifteen percent of the contract amount. In addition, a school district which reimburses for mileage instead of providing transportation pursuant to , may use the capital outlay fund to pay for fifteen percent of its mileage reimbursement costs. The capital outlay fund may be used to purchase textbooks and instructional software. The capital outlay fund may be used to purchase warranties on capital assets if the warranties do not include supplies. During the period of time beginning on July 1, 2009, and ending on June 30, 2018, any school district may make payments from its capital outlay fund for the purchase of property insurance and casualty insurance, for payments for energy costs and the cost of utilities, and for motor fuel or for any portion of a contract providing transportation to students or for any mileage reimbursements. However, the total amount that a school district expends from its capital outlay fund for these expenses may not exceed forty-five percent of the total tax revenues deposited in that fund during the current school fiscal year, and for any school district with a current tax levy for the capital outlay fund that is greater than its tax levy for the capital outlay fund in school fiscal year 2008, the total amount expended from the capital outlay fund for these expenses may not exceed forty-five percent of the total tax revenues that would have been deposited in that fund during the current school fiscal year if the tax levy for the capital outlay fund had not been increased since CAPITAL PROJECTS FUNDS Fund type used to account for financial resources that are restricted, committed, or assigned to expenditure for capital outlays including the acquisition or construction of capital facilities and other capital assets (excluding capital-related outflows financed by proprietary funds (food service) or for assets that will be held in trust for individuals, private organizations, or other governments). (GASB 54) Governments tend to distinguish their operating activities from their capital activities, just as they tend to distinguish their operating budgets from their capital budget. Accordingly, GAAP provided capital projects funds to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays including the acquisition or construction of capital facilities and other capital assets.

5 One important reason governments wish to distinguish capital outlays from operating outlays is to avoid distorting operating trend data ( spikes in operating expenditures during peak periods of major construction). The acquisition of many capital assets however is more or less routine from one period to the next (new vehicles for the motor pool). Typically a capital projects fund is not used for such routine capital outlays, which is reported instead by function in the capital outlay special revenue fund. Rather, capital projects funds tend to be used primarily for major projects and acquisitions (construction of a new school building) and for capital acquisition or construction financed with borrowed or contributed resources (and thus of special interest to the resource provider). Capital projects funds can be a valuable management tool for multi-year projects or for projects financed by multiple resources. The use of a capital projects fund frequently is required by debt covenants, grant contracts, law, or regulation. Otherwise the use of the capital projects fund type is permitted rather than mandated for financial reporting purposes. 41 Capital Projects Fund #1 Use separate number for each capital projects fund. HOW DO I ACCOUNT FOR IT? Basic Accounting for Bonds (Certificates): When governments issue bonds, there normally is a brief period between the issuance of debt instruments (closing date) and receipt of the proceeds (settlement date). For accounting and reporting purposes, the issuance of debt is reported as of the closing date. The appropriate accounting and financial reporting for debt depends on the measurement focus used to prepare a given set of financial statements. Financial statements prepared using the economic resources measurement focus (Governmentwide financial statements and Proprietary fund financial statements), governments record the issuance of debt much like their private-sector counterparts, except that issuance costs (other than prepaid insurance) are treated as an expense rather than deferred and amortized. Assume, for instance, the following circumstances: Face amount of debt: $ 1,000 Original issue discount: 60 Underwriter s discount: (withheld from proceeds): 40 The appropriate journal entry would be as follows: DR CR 101 Cash $ Debt Service Expense Issuance Cost Unamortized Discounts on Bonds Sold Bonds Payable $1,000 (To record the issuance of bonds)

6 Note that three permanent accounts (accounts that appear in the statement of financial position) are immediately affected by the issuance of debt. In contrast, under the current financial resources measurement focus (governmental fund financial statements), cash is the only permanent account affected by the issuance of debt. That is the other permanent accounts (bonds payable and original issue discount) are replaced by corresponding temporary accounts (accounts that appear in the statement of resource flows statement of revenues, expenditures, and changes in fund balances), as follows: DR CR 101 Cash $ Debt Service Expense Issuance Cost Other Financing Uses Discount on Bonds Issued Other Financing Sources-GO Bonds Issued $1,000 (To record the issuance of bonds) If debt is issued at a premium, rather than a discount, the premium is reported as a separate other financing source. Assume for example, that the debt is the previous example was issued at a $60 premium rather than a $60 discount. In that case, the appropriate journal entry would be as follows: DR CR 101 Cash $1, Debt Service Expense Issuance Cost Other Financing Sources-GO Bonds Issued $1, Other Financing Sources-Premiums on Bonds Issued 60 (To record the issuance of bonds) Basic Accounting for Leases: Lease-purchase agreements may be in the form of capital or operating leases. A capital lease is, for the most part, viewed as an installment purchase of property rather than the rental of property. An operating lease does not involve the purchase of property and payments represent the rental expenditures. Capital leases exist if ANY of the following conditions are met. (a) The lease transfers ownership of the property to the lessee by the end of the lease term. (b) (c) (d) The lease contains a bargain purchase option. The lease term is equal to 75% or more of the estimated economic life of the leased property. The sum of the principal lease payments equal 90% of the fair value of the asset.

7 Once it has been determined that a capital lease exists, then the following entries would be required for those capital leases that exceed the capitalization policy: 1. Equipment (Account No ) Net Assets Invested in Capital (90 706) To capitalize the present value of the minimum lease payments in the General Capital Asset Accounts. 2. Expenditure- (Applicable Department) Other Financing Source (Account 5124) Cash - Down payment if applicable At the start of the lease, the present value of the minimum lease payments must be recognized as an expenditure against the budget and as an other financing source. The expenditure category used should relate to the type of asset acquired. (typically recorded in the CO Fund) 3. Net Assets Invested in Capital (00 706) Other Long-Term Debt (Account No ) This entry is necessary to recognize the liability in the General Long-Term Liability Accounts. The amount capitalized should be the present value of the minimum lease payments. 4. Expenditure Cash To record the periodic payments in future periods. The expenditure account to recognize these payments to service the debt should be account "5000 Debt Services, more than likely from the CO Fund. If the lease is an operating lease, the lease would be recorded as follows: Expenditures - Rent Cash (Vouchers Payable) To record the operating lease at the inception of the lease. This would be coded to the respective function that correlates to the type of item purchased. The preceding reflects the standard approach in accounting for leases. There are many different types of leases out there, so consideration should be given for unique applications that may apply. GASB 62, para 213 GENERAL LONG-TERM LIABILITIES Fund 00 serves the purpose of keeping track of how much each district owes. It is only used to keep track of governmental debt.which is almost the only type of debt a school district has. Districts should periodically update Fund 00 so that it will have the proper balances at yearend.

8 Proper statement of net assets accounts such as Net Assets Invested in Capital (706) and Net Assets Unrestricted (708) should be used. To identify with the proper offset account, each liability should be assessed as to whether it is capital related or not. A sample trial balance of fund 00 is as follows: 706 Net Assets Invested in Capital 2,330, Net Assets Unrestricted 130, Bonds Payable 1,000, CO Certificate Payable H.S. 500, CO Certificate Payable Elementary 800, Compensated Absences 50, Early Retirement Benefits Payable 60, Net OPEB Obligation 20, Other Long-term Debt Payable (capital leases) 30,000