The Basic Financial Statements
Statement of Revenues, Expenditures, and Changes in Fund Balance
The Statement of Revenues, Expenditures, and Changes in Fund Balance is an income statement prepared on a modified accrual basis in the governmental fund statements. It lists the revenues, expenditures, and the change in fund balances. In this case, changes in fund balance are akin to changes in net assets or changes in net position.
Bothell's Statement of Revenues, Expenditures, and Changes in Fund Balances shows that its two largest overall revenue sources are taxes ($40.5 million in the General Fund, $62 million total). Other sources of revenue include licenses and permits ($4 million in the General Fund, $4.6 million total), intergovernmental revenue ($2.8 million in the General Fund, $14.9 million total), and charges for services ($12.7 million in the General Fund, $17.8 million total).
An expenditure is roughly equivalent to an expense, albeit on the modified accrual basis of accounting (again, more on this in Chapter 4). Nearly two-thirds of the city's total governmental funds expenditures are in the General Fund ($55.4 million). More than half of Bothell's General Fund expenditures are for public safety ($29.4 million). This is typical of mid- and large-sized suburban cities. The remainder of governmental fund expenditures go to administrative functions of the city ($14.2 million), transportation ($12.2 million), economic environment ($5.9 million), capital outlays ($18 million), and debt service ($4.3 million). In general, non-capital expenditures in the General Fund are a good proxy for a government's "operating costs". Most of its salaries, benefits, and operational spending will appear as General Fund expenditures. By contrast, most of the revenues and expenditures in the special revenue and debt service funds will be related to capital spending and debt repayments, neither of which are considered day-to-day operations costs.
At the bottom of this statement, we also see "other financing sources." These are inflows and outflows of resources that affect fund balance, which are neither revenues nor expenditures. They frequently include loan or bond proceeds, proceeds from the sale of assets, and insurance recoveries, to name a few.
| CITY OF BOTHELL | |||||||
|---|---|---|---|---|---|---|---|
| STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2021 | |||||||
| Special Revenue Funds | Capital Projects Fund | ||||||
| General | Arterial Street | American Rescue Plan Act | Capital Improvements | Public Safety Capital | Other Governmental Funds | Total Governmental Funds | |
| REVENUES | |||||||
| Taxes | $40,450,611 | – | – | $8,623,599 | – | $12,920,156 | $61,994,366 |
| Licenses and permits | $3,969,487 | – | – | $541,158 | – | $116,047 | $4,626,692 |
| Intergovernmental revenues | $2,842,205 | – | $214,759 | $10,863,104 | – | $1,026,162 | $14,946,230 |
| Charges for services | $12,663,650 | $3,501,226 | – | – | – | 1,626,978 | $17,791,854 |
| Fines and forfeitures | $197,922 | – | – | – | – | $88,034 | $285,956 |
| Interest earnings | $86,555 | – | – | – | $22,407 | – | $108,963 |
| Contributions | $11,363 | – | – | $66,542 | – | – | $77,906 |
| Other revenue | $787,452 | – | – | $83,046 | – | $1,247 | $871,744 |
| Total revenue | $61,009,245 | $3,501,226 | $214,759 | $20,177,450 | $22,407 | $15,778,624 | $100,703,711 |
| EXPENDITURES | |||||||
| Current | |||||||
| General government | $13,037,933 | – | $207,887 | – | – | $925,885 | $14,171,705 |
| Security of persons and property | $29,379,058 | – | – | – | – | $1,556,708 | $30,935,766 |
| Transportation | $5,271,282 | – | – | $4,370,189 | – | $2,522,019 | $12,163,491 |
| Physical environment | $22,322 | – | $6,871 | – | – | – | $29,193 |
| Economic environment | $5,218,407 | – | – | $681,344 | – | – | $5,899,751 |
| Culture and recreation | $2,074,024 | – | – | – | – | – | $2,074,024 |
| Other expenditures | – | – | – | $300 | $300 | $300 | $900 |
| Debt service | |||||||
| Debt service – principal | – | – | – | $1,976,759 | – | $2,000,000 | $3,976,759 |
| Debt service – interest | $11,012 | – | – | $1,820,835 | – | $2,307,700 | $4,139,547 |
| Issuance costs | – | – | – | – | $105,653 | – | $105,653 |
| Capital outlay | $365,048 | – | – | $9,890,413 | $7,464,886 | $291,819 | $18,012,166 |
| Total expenditures | $55,379,086 | – | – | $18,739,840 | $7,570,839 | $9,604,432 | $91,508,955 |
| Excess (deficiency) of revenue over expenditures | $5,630,160 | $3,501,226 | $214,759 | $1,437,610 | ($7,548,431) | $6,174,192 | $9,194,756 |
| OTHER FINANCING SOURCES (USES) | |||||||
| Sales of capital assets | $4,737 | – | – | $13,465,000 | – | – | $13,469,737 |
| Proceeds from public safety bonds | – | – | – | – | $8,135,000 | – | $8,15,000 |
| Proceeds from public safety bond premium | – | – | – | – | $1,859,659 | – | $1,859,659 |
| Transfer in | $6,750,194 | – | – | $5,363,973 | – | $1,691,963 | $13,806,130 |
| Transfer out | ($2,119,173) | ($1,959,609) | – | ($8,442,157) | – | ($1,996,100) | ($14,517,039) |
| Total other financing sources (uses) | $4,635,758 | ($1,959,609) | – | $10,386,816 | $9,994,659 | ($304,137) | $22,753,487 |
| Net change in fund balances | $10,265,917 | $1,541,617 | – | $11,824,426 | $2,446,227 | $5,870,055 | $31,948,243 |
| Fund balance – beginning | $13,991,231 | $3,236,572 | – | $6,682,050 | $22,972,584 | $11,751,025 | $58,633,462 |
| FUND BALANCE – ENDING | |||||||
| $24,257,148 | $4,778,189 | – | $18,506,476 | $25,418,811 | $17,621,081 | $90,581,705 | |
The last two lines of other financing sources are an important and sometimes controversial part of governmental accounting: inter-fund transfers. Transfers in are movements of resources into a fund from some other fund. Transfers out are movements of resources out of a fund into some other fund. For example, in 2021, the city transferred to the General Fund $6.8 million. Transfers from the General Fund ($2.1 million) were distributed to the Capital Improvement Fund and Internal Service Funds. How are we able to know this? Governments frequently chart the transfers to and from funds in the notes to the financial statements. Look for a note on "interfund transfers".
Critics say governments use inter-fund transfers to perpetuate a financial "shell game". By opportunistically transferring money in and out of funds (frequently known as fund sweeps) at just the right moment, the government can obscure its actual financial position. How and when transfers can and should happen are important parts of financial strategy and policy.
When Transfers Are Fraud?
In September 2016, the former mayor and finance director of the City of Miami, FL, was convicted in federal court of defrauding investors. Their crime, according to prosecutors from the Securities and Exchange Commission (SEC), was that they improperly transferred money that had been committed to debt service in other funds into the City's General Fund. City officials argued those transfers were common and were necessary to bolster the City's financial position just before the credit rating agencies updated the city's rating.
SEC officials and the jury disagreed. In their view, those transfers misled investors into thinking the City was financially stronger than it really was. Shortly after the verdict, City officials began negotiating a financial settlement with the SEC.
As we noted earlier, detailed information on every non-major fund can be found in the Combining Statements of Revenues, Expenses, and Changes in Fund Balance. Total Revenues reported in the "Other Governmental Funds" ($15.8 million) previously are now reported in the combining statement for every non-major fund. We see that much of the revenue is reported in the Street fund ($6.1 million), the Park Cumulative Reserve fund ($1.6 million), and the Public Safety GO ($1.6 million). There were no revenues reported in the permanent fund and transfers to the 2013 GO Bond and LIFT GO Bond fund were used to meet principal and interest payments on outstanding bonds. This is not unusual. General obligation bonds would be repaid with tax revenues. If there are no dedicated taxes, revenues would be to a bond fund to meet debt service obligations. This is a policy decision.
| CITY OF BOTHELL | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OTHER GOVERNMENTAL FUNDS, DECEMBER 31, 2021 |
||||||||||||
| Special Revenue Funds | Permanent Fund | Debt Service Funds | Total Other Governmental Funds | |||||||||
| Street | Park Cumulative Balance | Drug Forfeitures | Fire Impact Fees | Public Safety Levy | Total Special Revenue Funds | Cemetery Endowment | 2013 GO Bond | Lift GO Bond | Public Safety GO Bond | Total Debt Service Funds | Total Other Governmental Funds | |
| REVENUES | ||||||||||||
| Taxes | $5,002,944 | $163,463 | – | – | $5,137,364 | $10,303,771 | – | – | $1,000,000 | $1,616,386 | $2,616,386 | $12,920,156 |
| Licenses and permits | $116,047 | – | – | – | – | $116,047 | – | – | – | – | – | $116,047 |
| Intergovernmental revenue | $999,283 | – | – | – | $26,879 | $1,026,162 | – | – | – | – | – | $1,026,162 |
| Charges for services | $24,152 | $1,471,323 | – | $131,503 | – | $1,626,978 | – | – | – | – | – | $1,626,978 |
| Fine and forfeitures | – | – | $88,034 | – | – | $88,034 | – | – | – | – | – | $88,034 |
| Other revenues | $1,247 | – | – | – | – | $1,247 | – | – | – | – | – | $1,247 |
| Total revenues | $6,143,673 | $1,634,786 | $88,034 | $131,503 | – | $13,162,239 | – | – | $1,000,000 | $1,616,386 | $2,616,386 | $15,778,624 |
| EXPENDITURES | ||||||||||||
| Current | ||||||||||||
| General government | – | – | – | – | $925,885 | $925,885 | – | – | – | – | – | $925,885 |
| Security | – | – | $3,383 | – | $1,553,325 | $1,556,708 | – | – | – | – | – | $1,556,708 |
| Transportation | $2,522,019 | – | – | – | – | $2,522,019 | – | – | – | – | – | $2,522,019 |
| Physical environment | – | – | – | – | – | – | – | – | – | – | – | – |
| Capital outlay | – | – | – | – | $291,819 | $291,819 | – | – | – | – | – | $291,819 |
| Other expenditures | – | – | – | – | – | – | – | $300 | – | – | $300 | $300 |
| Debt service | – | – | – | – | – | – | – | – | – | – | – | – |
| Principal retirement | – | – | – | – | – | – | – | $425,000 | $795,000 | $780,000 | $2,000,000 | $2,000,000 |
| Interest | – | – | – | – | – | – | – | $271,013 | $1,200,650 | $836,038 | $2,307,700 | $2,307,700 |
| Total expenditures | $2,522,019 | – | $3,383 | – | $2,771,029 | $5,296,432 | – | $696,313 | $1,995,650 | $1,616,038 | $4,308,000 | $9,604,432 |
| Excess of revenues over (under expenditures) | $3,621,654 | $1,634,786 | $84,651 | $131,503 | $2,393,214 | $7,865,807 | – | ($696,313) | ($995,650) | $348 | ($1,691,615) | ($304,137) |
| OTHER FINANCING SOURCES (USES) | ||||||||||||
| Transfers in | – | – | – | – | – | – | – | $696,313 | $995,650 | – | $1,691,963 | $1,691,963 |
| Transfer out | ($1,942,944) | ($25,000) | – | – | ($28,156) | ($1,996,100) | – | – | – | – | – | ($1996,100) |
| Total other financing sources (uses) | ($1,942,944) | ($25,000) | – | – | ($28,156) | ($1,996,100) | – | $696,313 | $995,650 | – | $1,691,963 | ($304,137) |
| Net change in fund balances | $1,678,710 | $1,609,786 | $4,651 | $131,503 | $2,365,058 | $5,869,708 | – | – | – | $348 | $348 | $5,870,055 |
| Fund balance -beginning | $3,223,639 | $4,263,094 | $109,884 | $318,661 | $3,748,109 | $11,663,386 | $84,013 | – | – | $3,626 | $3,626 | $11,751,025 |
| FUND BALANCE – ENDING | ||||||||||||
| $4,902,348 | $5,872,879 | $194,535 | $450,164 | $6,113,168 | $17,533,093 | $84,013 | – | – | $3,974 | $3,974 | $17,621,081 | |
Governments account for their business-type activities using the accrual basis of accounting. This is the same basis of accounting used to prepare government-wide statements. The proprietary fund statements disaggregate information reported under business-type activities by fund type. We rewrite the fundamental equation of accounting as follows
Assets + Deferred Outflows = Liabilities + Deferred Inflows + Net Position