Annual Expenditure Limitation ReportsPreparing an AELR

Meghan Hieger and Megan SmithOffice of the Auditor GeneralAccounting Services Division

ELR BasicsWebinar available on our Web site

www.azauditor.gov/ASD/Webinar/Cities_Towns_Webinar.html

History and

Background

Uniform Expenditur

e Reporting System

Purpose of the ELR

Structure and

Overview of the ELR

ELR Format

Reconciliation

• Total Expenditures

• Additions and Subtractions

Part II

• Exclusions• Expenditures

subject to expenditure limit

Part I

• Expenditures under (in excess of) expenditure limit

Support for the AELR

Reconciliation

Part IIPart I

Financial Statements

Notes to the

Financial Statements

Schedule of Expenditur

es of Federal Awards

Notes to the ELR

ReconciliationLine A –

Total Expenditur

es

Governmental Funds

Total Expenditur

es

Other Financing

Uses

Special or Extraordinar

y Items

Enterprise and Internal

Service Funds

Total Operating Expenses

Non-operating expenses

Special or extraordinar

y items

Fiduciary Funds

Total Deductions

Do not include transfers out

ReconciliationUERS

Expenditures

Financial Statement

Expenditures

OPEB

Present Value of Lease Payments

Separate Legal Entities

Depreciation

OPEB

Acquisition of Capital Assets

Principal Payment on

Debt

Reconciliation: Subtractions

Items not requiring use of working capital

Depreciation

Loss on disposal of capital assets

Bad debt expense

Other post employment benefits expense

Claims incurred but not reported

Landfill closure and postclosure care costs

Two ways to determine subtraction amount for future costs

Subtract the increase in the related liability

Subtract the ending liability

balance

Both amounts can be found in the Notes to the Financial Statements

Reconciliation: Subtractions

Separate Legal Entity Subtraction

Total expenditure

s of fund

General Revenues

transferred in

SLE Revenues

transferred out

Reconciliation: Subtractions

Expenditures of Separate

Legal Entities

Municipal Property Corporation Fund

Present value of net minimum capital lease payments

Governmental Funds only

Only in the year the entity enters into a new lease agreement

Should not be used if the entity receives cash that will be expended for the lease

Involuntary Court Judgments

Must be the result of an involuntary acts

Court judgments arising from a contract are voluntary

Attorney General Opinion I86-031

Reconciliation: Subtractions

Contributions to Fire Districts

• Tax levied by county for fire districts

• Portion of tax proceeds received paid to fire district

• 1980’s court ruling determined not subject to expenditure limit

CCD Reimbursement

Payments

• Required by statute for counties that are not part of a CCD

• Payments are for pupils admitted to CCDs in other counties

• Amount withheld from county sales tax distribution

Long-term Care Contributions Withheld by

State• Contributions

paid to ALTCS• Amount

withheld from county transaction privilege taxes

• Counties base limits have been adjusted for required payment

Payments Made to Reimburse AZ

DHS

• Contributions required by session laws

• Session law specifies they are not subject to expenditure limit

• Cities also required to make contributions but cannot be subtracted

Reconciliation: County Subtractions

Principal on LT Debt

• Payment recorded as reduction of a liability

• Related interest already included on Line A

Capital Asset Acquisitions

• Assets that are not fully expensed when purchased

• Assets acquired through non-cash transactions are not included

Reconciliation: Additions

Subtracted the increaseSubtracted the ending balance

Reconciliation: Additions

OPEB, Claims, and Landfill Closure Costs Paid in the Current Year but Reported as

Expenses in Previous Years

Add the decrease Add the

beginning balance

Questions

Part II: Exclusions

What is an exclusion?

Arizona Constitution: Article 9, Section 20

Revenue-driven Expenditure-driven

Part II: Exclusions

Onl

y ex

clud

able

once

the

expe

nditu

re is

mad

e

• Determined by revenue source:

• Dividends, interest income

• Grants and aid from federal government

• Amounts received from State

• HURF revenues

• Unspent revenues carried forward

• Determined by expenditure purpose:

• Debt service payments

• Excludable no matter what type of revenue is used

• Can’t exclude both revenue used and expenditure made

• Cannot be carried forward and excluded in future years

Part II: ExclusionsFund A

RevenueTaxes

$50,000Interest Income

$100,000Federal Grants

$150,000State Grants

$200,000Total

$500,000

ExpendituresGeneral Government

$250,000Debt Service

$150,000Total

$400,000

Excluded

Federal Grants

$150,000

Debt Service$150,00

0

Interest$100,00

0

Carried Forward

State Grants$100,000

Spent

Taxes$50,000

Federal Grants

$150,000

State Grants

$100,000

State Grants

$100,000

Flow Assumption – Maximizing Carryforward

Local(nonexcludable)

Revenues

Nonlocal (excludable) Revenues

Total Expenditures

Carried Forward

Part II: Exclusions

Expenditure Limit

Flow Assumption – Maximizing Exclusions

Total Expenditures

Local (nonexcludable

) Revenues

Nonlocal (excludable)

Revenues

Part II: Exclusions

Part II: Exclusions

Fund A:Receives

$5,000 grant revenue

Transfers grant revenue

to Fund B

Grant revenue spent from

Fund B

Exclusion taken in Fund

B

No exclusion in Fund A

Transfers: Exclusions follow the money

Notes to the AELR

Revenue reported in

F/S$2,000,000

Exclusion claimed on

AELR$1,500,000

Difference$500,000

Note to the AELR Required

Part II: Exclusions

Debt Service Requirements

Principal and Interest payments

Governmental Funds: Statement of Revenues, Expenditures & Changes in Fund BalanceEnterprise/Internal Service Funds: Statement of Cash Flows & Statement of Revenues, Expenses & Changes in Fund Net Position

Part II: Exclusions Grants and Aid from the Federal Government

Audited Financial

Statements

Schedule of Expenditure of Federal

Awards

Exclusions claimed on the AELR

• State Grants

• Judicial Collection Enhancement Fund

• Sales Tax• Motor

Vehicle License Tax

• HURF

Part II: Exclusions Amounts Received from the State

Excludable Not Excludable

General Fund

Local Revenues $500,000Expenditures $75,000Transfers Out $5,000

Water and Sewer Fund

Revenues $75,000Transfers In $5,000Expenditures $75,000 $5,000

Excludable

Not Excludable

Part II: Exclusions Quasi-External Interfund Transactions

Road (HURF) Fund

HURF Revenue

Miscellaneous Revenue

Investment Income

Part II: Exclusions Highway User Revenue Funds

Part II: Exclusions Contracts with Other Political Subdivisions

Excludable Expenditures

City/Town

School District

Community College

State of Arizona

County, City, Town

Political Subdivisi

on

• $50,000 expended

• $10,000 reimbursement

• Reduces expendituresFY

2013

• $5,000 reimbursement from FY 2013 expenditures

FY 2014 • Expenditure of

$5,000 reimbursement received in 2014

FY 2015

Part II: Exclusions Refunds, Reimbursements, or Recoveries

Carry-forward

General Fund

Road Fund

Water & Sewer Fund

Utilities Fund

Part II: Exclusions Prior Years Carryforward

Flow Assumption• Determines which

revenues were spent and in which order

• Determines carryforward earned and spent

Fund Balance• Should be considered

in flow assumption• Limits the amount of

carryforward available

Part II: Exclusions Carryforward

Revenues Local Revenues $7,000Non-local revenues $11,000

Expenditures $20,000

Beginning Fund Balance $10,000

Ending Fund Balance $8,000

General Fund Beginning Fund Balance

Local Revenue $6,000Non-local Revenue

$4,000Total $10,000

Carryforward

Accumulated $4,000Used $ -0-

Part II: Exclusions Carryforward

Revenues Local Revenues $7,000Non-local revenues $11,000

Expenditures $20,000

Beginning Fund Balance $10,000

Ending Fund Balance $8,000

General Fund Beginning Fund Balance

Non-local Revenue

$4,000Total $4,000

Carryforward

Accumulated $ -0-Used $2,000

Part II: Exclusions Carryforward

Part I: AdjustmentsNatural or Man-Made Disasters

Declared by the Governor

Expenditures authorized by 2/3 of

Board

Expenditures subtracted from total expenditures subject

to the limit

Approved by Voters

Expenditures authorized by 70%

of Board

Expenditures subtracted from total expenditures subject

to the limit

Not Declared by Governor or

Approved by Voters

Expenditures authorized by 70%

of Board

Expenditures added to total expenditures subject to the limit

in following FY

Part I: AdjustmentsOne-time Override

One-Time Override

What it Is• Voter approval to exceed the constitutional

expenditure limit by a specific amount

What it Isn’t

• Approval to establish an alternative expenditure limit for one year

Reporting• The specific amount the voters approved the

city/town to exceed it’s limit by should be included on Part I, Line 7.

Contact UsMeghan Hieger and Megan Smith

Office of the Auditor GeneralAccounting Services Division

602-553-0333www.azuditor.gov

Questions