To move cash from one fund to another, a council must be prepared to take formal action during the budget or budget amendment process and/or through a resolution. Below is a listing of allowed transfers.
- These transfers account for cash transfers out of one budgeted fund to another budgeted fund:
- Required by bond covenant into a sinking fund. Many revenue bonds require some type of assurance that the amount due, which includes principal and interest amounts, be transferred from the revenue fund, where all funds are receipted into a “sinking fund”. This typically may be one-twelfth of the annual requirement, be sure to check the bond documents for the amount stipulated for each bond, as it may be different. This monthly transfer is set up by resolution as part of the proceedings when bonds are sold. As such, the monthly transfer can be done without additional action of the council.
- Required by bond or grant agreement to establish an improvement fund. Many times a grant agreement or bond will require that the city establish an improvement fund, in essence to force the city to plan for future repairs or improvements on a cash basis. This agreement is adopted by resolution so no additional action of the council is required.
- If a general obligation bond is sold with the intent of payments coming from the utility fees, the city should include the transfer in the budget adoption process. If it is included in the budget, separate council approval is not required.
- When the council decides (through the budgeting process) a certain amount be transferred to fund for a future purchase, such as a reserve for a fire truck, when that transfer is actually done, it is advised a transfer resolution be approved by the council.
- When a city collects special revenue funds, such as property taxes for the Federal Insurance Contributions Act (FICA), but reflects the expenditure in the area where the employee works, such as the General or Road Use Tax Fund, then the transfer should be reflected in the budget preparation and no further council approval is required.
- A transfer may be needed if special assessment projects are completed and all assessments are collected yet deficit balances and inactive funds remain, reflecting liabilities for the city share of the project.
- Review capital projects accounts for inactive accounts and schedule transfers to close these accounts.
Internal Service and Other Non-Budgeted Funds
Any money moved from budgeted funds to non-budgeted funds must be classified as expenditures within the proper expenditure class and a revenue in the non-budgeted fund. An appropriate method of moving money from budgeted to non-budgeted funds would be the use of a warrant or journal entry charged to the appropriate expenditure area.
Special Handling of Tax Increment Financing for Transfers
The Tax Increment Financing (TIF) Debt Service sub-fund requires a transfer out from the TIF Special Revenues Fund (internally TIF Debt Service sub-fund) and into any other major fund to signify repayment of an “internal loan”. TIF revenues cannot be transferred from the TIF Special Revenues Fund (internal TIF Debt Service sub-fund) and into the Capital Projects Fund. However, to service a general obligation bond, TIF can be transferred to the Debt Service Fund. Another consideration for TIF is that Proceeds of Debt (TIF Proceeds of Debt sub-fund) should not be transferred into the Capital Projects Fund. Money recorded under the Capital Projects Fund should be receipted in from the source (proceed of debt, internal borrowing, etc.).
Other Transfers: Guidelines from the Administrative Code
Administrative Code 545—2.5(1)(384,388) Cash fund transfers – general provision: Transfers between funds in one fund type are types of transfers that do not require budgeting, but must comply with the state laws regarding the funds and the following sub-rules:
- 545—2.5(2)(384,388) Emergency fund. No transfer may be made from any fund to the emergency fund.
- 545—2.5(3)(384,388) Debt Service fund. In most cases, cash can be transferred from any city fund to the Debt Service fund to pay for principal and interest payments. Such transfers must be authorized by the budget or an amendment.
City utility fund and city enterprise fund: any governing body of a city utility, combined utility system, city enterprise, or combined city enterprise which has a surplus in its fund may transfer such surpluses to any other city fund, excepting the emergency fund, by resolution of the appropriate governing body. For purposes of this sub-rule, a surplus may exist only after all required transfers have been made to any restricted accounts in accordance with the terms and provisions of any revenue bonds of loan agreements relating to the utility or enterprise fund. A surplus shall be defined as the cash balance in the operating account or the unrestricted retained earnings calculated in accordance with GAAP in excess of:
a) The amount of the expenses of disbursements for operating and maintaining the utility or enterprise for the preceding three months, and
b) The amount necessary to make all required transfers to restricted accounts for the succeeding three months. These rules are intended to implement state code Chapters 384 and 388.