ACCRUAL BASIS OF ACCOUNTING: Revenues are recognized when both measurable and available; expenditures are recorded when services have been substantially performed or goods have been received and the liabilities incurred.
ADOPTED BUDGET: The official budget as approved by the City Council at the start of each fiscal year.
AD VALOREM TAX: (which means “according to its value”) A state or local government tax based on
the value of real property as determined by the county tax assessor.
AGENCY FUND: Used to account for assets held by the City in a fiduciary capacity for individuals, government entities, and others.
Such funds are operated by carrying out the specifications of trust indentures, statutes, ordinances, or other governing regulations.
AMENDED BUDGET: The adopted budget as amended by the City Council through the course of a fiscal year.
APPROPRIATIONS: A legal authorization granted by a legislative body to make expenditures and to incur obligations for specific purposes. An appropriation is usually limited in amount and to the time when it may be expended.
ARBITRAGE: The interest rate differential that exists when proceeds from a municipal bond – which is tax-free and carries a lower yield – are invested in taxable securities with a yield that is higher. The 1986 Tax Reform Act made this practice by municipalities illegal solely as a borrowing tactic, except under certain safe-harbor conditions.
ASSESSED VALUATION: A municipality’s property tax base stated in dollars based on real estate and/or other taxable business property for the purposes of taxation, sometimes expressed as a percent of the full market value of the taxable property within a community.
AUTHORITY OR AGENCY: A state or local unit of government created to perform a single activity or a limited group of functions and authorized by the state legislature to issue bonded debt.
AUTHORIZING ORDINANCE: A law that, when enacted, allows the unit of government to sell a specific bond issue or finance a specific project.
BOND: A security whereby an issuer borrows money from an investor and agrees and promises, by written contract, to pay a fixed principal sum on a specified date (maturity date) and at a specified rate of
interest.
BOND PREMIUM: The amount at which a bond or note is bought or sold above its par value or face value without including accrued interest.
BUDGET: A plan of financial operation comprised of estimated expenditures for a given period (usually a single fiscal year) and the proposed means of financing the expenditures (through revenues).
BUDGET MESSAGE: A written discussion of the budget presented by the City Manager to the City Council.
CAPITAL BUDGET: A budget which focuses on capital projects to implement the Capital Improvement Program.
CAPITAL IMPROVEMENT PROGRAM: A plan for capital improvements to be implemented each year over a number of years to meet capital needs arising from the assessment of long term needs. It sets
forth the estimated cost for each project and specifies the resources required to finance the projected
expenditures.
CAPITAL IMPROVEMENT PROJECT: The budget unit to group activities and costs necessary to implement a specific capital improvement and/or acquisition. A project can include the construction, acquisition, expansion, replacement, or rehabilitation of a physical facility or improvement. Projects often include planning and design, land acquisition, and project management costs related to such facilities and improvements.
CAPITAL PROJECTS FUNDS: Used to account for financial resources for the acquisition or construction of major capital facilities other than those financed by proprietary and trust funds.
CERTIFICATES OF PARTICIPATION (COPs): A form of lease revenue bond that permits the investor to participate in a stream of lease payments, installment payments or loan payments relating to the acquisition or construction of specific equipment, land, or facilities. COPs have become a popular financing device in California since the passage of Proposition 13. COPs are not viewed legally as “debt” because payment is tied to an annual appropriation by the government body. As a result, COPs are seen by investors as providing weaker security and often carry ratings that are a notch or two below an agency’s general obligation rating.
COMMUNITY FACILITIES DISTRICT 91-1: Established to account for a special tax received under the Mello-Roos Community Facilities Act of 1982. Bonds were issued to provide for improvements within the district and the special tax revenue is restricted for payment of principal and interest to the bondholder.
CONTRACTED SERVICES: Services rendered in support of City operations and activities by external parties. These may be based upon either formal contracts or ad hoc charges.
COUPON RATE: The specified annual interest rate payable to the bond or note holder as printed on the bond. This term is still used even though there are no coupon bonds anymore.
DEBT LIMIT: The maximum statutory or constitutional amount of debt that the general obligation bond issuer can either issue or have outstanding at any time.
DEBT SERVICE FUNDS: Account for the accumulation of resources set aside to meet current and future debt service requirements (payments) on general long-term debt.
DELINQUENT TAXES: Property Taxes that have been levied but remain unpaid on and after the due date. In California, the due dates are December 10 and April 10. Special taxes and assessments are often due on these dates as well. When tax delinquencies exceed 5%, the Bond Advisor places the issue on its internal Bond Watch.
DEPARTMENT: A major organizational group of the City with overall management responsibility for an operation or a group of related operations within a functional area.
DISCOUNT: The amount by which market value of a bond is less than par value or face value.
DIVISION: An organizational subgroup of a department.
ENCUMBRANCE: The commitment of appropriated funds to purchase goods, which have not yet been received, or services that has yet to be rendered
EXPENDITURES: Decreases in net financial resources. Expenditures include current operating expenses which require the current or future use of net current assets, debt service and capital outlays.
EXPENSES: Decreases in net total assets. Expenses represent the total cost of operations during a period regardless of the timing of related expenditures.
FEASIBILITY STUDY: A financial study provided by the issuer of a revenue bond that estimates service needs, construction schedules, and most importantly, future project revenues and expenses used to determine the financial feasibility and creditworthiness of the project to be financed.
FISCAL AGENT: Also known as the Paying Agent, the bank, designated by the issuer, to pay interest and principal to the bondholder.
FISCAL YEAR: A 12-month period to which the annual operating budget applies and at the end of which an entity determines its financial position, the results of its operations, and adopts a budget for the coming year. The City of Costa Mesa's fiscal year is from July 1 to June 30.
FIXED ASSETS: Equipment costing $5,000 or more, including tax, with a useful life longer than one year, and not qualifying as a capital improvement project. Includes automotive equipment, office equipment, office furniture, acquisitions, landscaping improvements, etc.
FULL FAITH AND CREDIT: The pledge of “the full faith and credit and taxing power without limitation as to rate or amount.” A phrase used primarily in conjunction with General Obligation bonds to convey the pledge of utilizing all taxing powers and resources, if necessary, to pay the bond holders.
FULL-TIME EQUIVALENT (FTE): The conversion of part-time employee hours to an equivalent of a full- time position. For example: one person working 20 hours a week for a year would be 0.5 FTE.
FUND: An independent fiscal and accounting entity with a self-balancing set of accounts, recording resources, related liabilities, obligations, reserves and equities segregated for the purpose of carrying out specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations.
FUND BALANCE: The equity (assets minus liabilities) of governmental fund and fiduciary fund types. However, for budgeting purposes, a working capital definition of current assets minus current liabilities is used for the computation.
GENERAL OBLIGATION (GO) BOND: A bond secured by a pledge of the issuer’s taxing powers (limited or unlimited). More commonly the general obligation bonds of local governments are paid from ad valorem property taxes and other general revenues. Considered the most secure of all municipal debt. Limited in California by Proposition 13 to debt authorized by a two-thirds vote in the case of local governments or a simple majority for State issuance.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP): Uniform minimum standards of and guidelines for financial accounting and reporting. They govern the form and content of the basic financial statements of an entity. GAAP encompasses the conventions, rules, and procedures necessary to define accepted accounting practices at a particular time. They include not only broad guidelines of general application, but also detailed practices and procedures. GAAP provides a standard by which to measure financial presentations.
GOVERNMENTAL FUNDS: Typically are used to account for tax-supported (governmental) activities. These include the General Fund, Special Revenue Funds, Capital Projects Funds, and Debt Service Funds.
HOMEOWNERS' SUBVENTION: Owner-occupied properties are eligible for an annual exemption of $7,000 of the assessed value of the property. This State exemption is reimbursed to the City through this subvention.
INTERFUND TRANSFERS: Defined as "flows of assets" (such as goods or services) without equivalent flows of assets in return and without requirement for repayment.
INTERGOVERNMENTAL REVENUE: Revenue collected by one government and distributed (usually through some predetermined formula) to another level of government(s).
INTERNAL SERVICE FUNDS: Account for the goods or services provided by one fund and/or department to another fund and/or department on a cost reimbursement basis.
INVESTMENT GRADE: A rating issued by the three major bond rating agencies, Moody’s, Standard & Poor’s, and Fitch, rated BBB, Baa or better. Many fiduciaries, trustees, and some mutual fund managers can only invest in securities with an investment grade rating.
ISSUER: A state or local unit of government that borrows money through the sale of bonds and/or notes.
JOINT POWERS AUTHORITY (JPA): The formation of two or more public entities with common powers to consolidate their forces and resources to acquire assets and/or provide services to the public. Their bonding authority and taxing ability is the same as their powers as separate units.
LETTER OF CREDIT: A form of supplement or, in some cases, direct security for a municipal bond under which a commercial bank or private corporation guarantees payment on the bond under certain specified conditions.
LIEN: A claim on revenues, assessments or taxes made for a specific issue of bonds.
MARKS-ROOS BOND: The State Legislature enacted the Marks-Roos (named after its legislative sponsors) Local Bond Pooling Act of 1985 to facilitate the financing of local government facilities by bond bank pools funded by bond proceeds. The pool, formed under a Joint Powers Authority, can buy any type of legally issued debt instrument within or without its geographic area. The idea was to save money through economies of scale by selling one large bond issue to finance several small projects. (Several Marks-Roos issues have defaulted and are under investigation by the Securities and Exchange Commission. Prospective investors should find out what sort of loans the pooled fund will make before buying such deals.)
MELLO-ROOS BOND: The Mello-Roos (named for its legislative sponsors) Community Facilities District Act of 1982 established another method where by almost every municipal subdivision of the state may form a special, separate district to finance a long list of public facilities by the sale of bonds and finance certain public services on a pay-as-you-go basis. These Community Facilities Districts are formed and bond issues authorized by a two-thirds vote of the property owners in the district. Typically, the only voters in a district are one or more real estate developers who own or have an option on all of the land in the district. These land-based financings were nicknamed "dirt bonds" by the Bond Advisor years ago. Bonds are sold to finance facilities that can include school, parks, libraries, public utilities and other forms of infrastructure. The Districts may provide public services that include police and fire protection, recreation programs, area maintenance, library services, flood and storm drainage. Bonded debt service and/or the public services are paid for by special taxes levied on the real property within the district. As the developer subdivides and sells off the land the new property owner assumes the tax burden. (Tax delinquencies can lead to fines and penalties and ultimately foreclosure and sale. The ultimate security for Mello-Roos bonds is the value of the real property being taxed, consequently a provision in the law requires the appraised value of the land be three times the bonded debt. Recent foreclosure sales have cast doubts on the skills of the appraisers and underscore the risk of some of this debt when a severe real estate slump hits developers.)
MODIFIED ACCRUAL BASIS: The accrual basis of accounting where revenues are recognized when they become both "measurable" and "available" to finance expenditures of the current period. All governmental funds and agency funds are accounted for using the modified accrual basis of accounting.
NET BUDGET: The legally adopted budget less interfund transactions. Those amounts in the budget representing transfers and interfund reimbursements are subtracted from the legally adopted budget amount.
OBJECTIVE: A simply stated, readily measurable statement of aim or expected accomplishment within the fiscal year. A good statement of objective should specify a standard of performance for a given program or stated goal.
OBJECT CODE: The classification of expenditures in terms of what is bought and paid for grouped into categories.
OFFICIAL STATEMENT (OS): A document (prospectus) circulated for an issuer prior to a bond sale with salient facts regarding the proposed financing. There are two OS, the first known as the preliminary, or “red herring” – so named because some of the type on its cover is printed in red – and it is supposed to be available to the investor before the sale. The final OS must be sent to the purchaser before delivery of the bonds.
OPERATING BUDGET: A budget which focuses on everyday operating activities and programs. Usually includes personnel, maintenance and operations and capital equipment.
OVERLAPPING DEBT: The proportionate share of the general obligation bonds of local governments located wholly or in part within the limits of the reporting unit of government, that must be borne by property owners within the unit.
PAR VALUE: The face value or principal amount of a bond, usually $5,000, due to the holder at maturity. It has no relation to the market value.
PERSONNEL EXPENSES: Compensation paid to or on behalf of City employees for salaries and wages, overtime and benefits.
PREMIUM: The amount, if any, by which the price exceeds the principal amount (par value) of a bond. Its current yield will be less than its coupon rate.
PRINCIPAL: The face value of a bond, exclusive of interest.
PROFESSIONAL SERVICES: Includes the cost of outside professional and specialized services purchased by the City, such as consultants for special studies, outside attorneys, architectural and engineering, etc.
PROGRAM BUDGET: A budget organized by a grouping of related activities, projects and services which are similar in purpose. The expenditure focus of a program budget is related to the nature of work and services performed.
PROPERTY TAX: A tax levied on real estate and personal property. The basic rate in Orange County is 1% of assessed value, of which Costa Mesa receives approximately 15 cents for every dollar collected.
PROPERTY TRANSFER TAX: An assessment on real property transfers at the current rate of $.55 per $500 in market value, and is collected at the time of the transfer with the County receiving half the collected amount. Also known as the Documentary Transfer Tax.
PROPOSED BUDGET: The budget as formulated and proposed by the City Manager. It is submitted to the City Council for review and approval.
RATINGS: Various alphabetical and numerical designations used by institutional investors, underwriters, and commercial rating companies to indicate bond and note creditworthiness. Standard & Poor’s and Fitch Investors Service Inc. use the same system, starting with their highest rating of AAA, AA, A, BBB, BB, B, CCC, CC, C, and D for default. Moody’s Investors Services uses Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C, and D. Each of the services use + or – or +1 to indicate half steps in between. The top four grades are considered Investment Grade Ratings.
REDEVELOPMENT AGENCY: A legislatively established subdivision of government established to revitalize blighted and economically depressed areas of a community and to promote economic growth. Tax Allocation Bonds are issued to pay the cost of land and building acquisition and their redevelopment and are repaid by the incremental increase in property tax revenues produced by the increase assessed value of the area after redevelopment. Redevelopment Agencies may also sell Housing Mortgage Revenue Bonds to finance housing units within the area, 20% of which must be for low-cost housing.
REFUNDING BOND: The issuance of a new bond for the purpose of retiring an already outstanding bond issue.
RETAINED EARNINGS: An equity account reflecting the accumulated earnings of Proprietary Fund types. For budgeting purposes, the working capital definition of fund balance is used.
REVENUE: Moneys that the City receives as income such as tax payments, fees from specific services, receipts from other governments, fines, forfeitures, grants, shared revenues and interest income.
REVENUE BOND: A municipal bond whose debt service is payable solely from the revenues received from operating the facilities acquired or constructed with the proceeds of the bonds.
SELF-INSURANCE: The retention of liabilities, arising out of the ownership of property or from some other cause, instead of transferring that risk to an independent third party through the purchase of an insurance policy. The City currently provides self-insurance for workers' compensation, general liability and unemployment, and purchases outside insurance for excess coverage in these areas.
SPECIAL REVENUE FUNDS: Account for the revenue derived from specific taxes or other earmarked revenue sources (other than expendable trusts or for major capital projects) that are restricted by law or administrative action to expenditures for specified purposes.
SUPPLEMENTAL ROLL PROPERTY TAXES: Assessed on property that changes ownership during the year and is based on the difference between the new and old assessed values.
TAX BASE: The total resource of the community that is legally available for taxation.
TAXES: Compulsory charges levied by a government for the purpose of financing services performed for the common benefit. This term does not include specific charges made against particular persons or property for current or permanent benefits such as special assessments. Neither does the term include charges for services rendered only to those paying such charges as, for example, user charges.
TRUSTEE: A bank designated as the custodian of funds and official representative of bondholders. Appointed to ensure compliance with trust indenture.
UNDERWRITER: A financial institution (investment or commercial bank), which purchases a new issue of municipal securities for resale; may acquire the bonds either by negotiated sale or based on competitive bidding.
USER CHARGES: Payments made by users or customers of publicly provided services that benefit specific individuals. These services exhibit "public good" characteristics. Examples of user charges are fees paid for recreational activities, building fees, police fees, etc.
From the City of Costa Mesa FY08-09 Adopted Budget
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