State Of Idaho
Office Of The State Controller
2017 GAAP Closing Procedures Manual

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05 Long-Term Liabilities and Short-Term Debt GL 2430, 2604, 2605, 2607, 2608, 2609, 2707, 2795

Due Date: July 11

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Complete this closing package if you have long-term liabilities of $200,000 or more per fund at June 30 or short-term debt with total activity of $50,000 or more per fund during the fiscal year.

PURPOSE

The purpose of this closing package is to gather information regarding long-term liabilities and short-term debt. This information will be used to prepare the State's Comprehensive Annual Financial Report (CAFR).

Liabilities reported in this closing package include the following:

• Bonds payable
• Notes payable for a period in excess of one year
• Contracts payable for a period in excess of one year, including software licensing agreements
• Bonds authorized but not yet issued
• Arbitrage rebate liability
• Miscellaneous payables that exceed one year
• Conduit Debt
• Lines of credit, similar loans
• Anticipation notes

This closing package does not apply to the following:

• Capital leases (report on the Leases Payable Closing Package)
• Claims and judgments (report on the Miscellaneous Closing Package)
• Contracts for goods and services your agency received after June 30 (report under "Commitments" in the Miscellaneous Closing Package)
• Contracts payable that are due in July and August (report on the Accounts and Other Payables Closing Package)
• Contract retentions (report on the Accounts and Other Payables Closing Package)
• Employee payroll and fringe benefits payable
• P-Card purchases
• Unfunded pension contributions

ACCOUNTING PRINCIPLES AND POLICIES

The State prepares its financial statements in accordance with Generally Accepted Accounting Principles (GAAP). GAAP require the State to record a liability for long-term obligations and short-term debt on its financial statements at June 30. The State will disclose major features of the liability in the Notes to the financial statements.

The State policy is to report all long-term liabilities if the total long-term obligation is $200,000 or more per fund at June 30, and all short-term debt with total activity of $50,000 or more per fund during the fiscal year.

See the following guidance:

• Governmental Accounting Standards Board (GASB) Statement No. 34
• GASB Codification Sections 1500
• GASB Codification 1600 paragraphs .116-.127
• GASB Statement No. 7
• GASB Statement No. 23
• GASB Statement No. 38, paragraphs 10-12, and 46-53
• GASB Interpretations No. 2 and 6
• National Council on Governmental Accounting Statement No. 1, paragraphs 32 and 42-45.

A clear distinction must be made between governmental and business-type activities. All liabilities are recognized on the government-wide statement of net position and the proprietary fund statements. However, governmental funds recognize liabilities only to the extent they are expected to be liquidated with available financial resources (including those collected within 60 days of the end of the fiscal period). The required disclosure should provide:

• Separate information for each major class of long-term liability (e.g., bonds, notes, and contracts payable)
• The portion of the liability balance payable within 12 months and the portion of the liability balance payable in more than 12 months
• Separate identification of principal and interest for each of the subsequent five years and in five-year increments thereafter
• Interest requirements for variable-rate debt computed using the effective interest rate at year-end
• Terms of interest rates for variable-rate debt
• The governmental funds that have typically been used in prior years to liquidate liabilities other than debt

GASB Statement No. 38, paragraphs 12, 52, and 53, requires the State to provide details in the Notes to the financial statements regarding short-term debt activity during the year, even if no short-term debt is outstanding at year-end.

GASB Interpretations No. 2 clarifies the requirement for the State to make the following note disclosures related to conduit debt:

• A general description of the conduit debt transaction
• The aggregate amount of conduit debt outstanding at the balance sheet date
• A clear indication that the issuer has no obligation for the debt beyond the resources provided by related leases, revenues of the projects, or loans

DEFINITIONS

Advance - Amounts lent with the expectation the monies will be repaid in the future.

Advance Refunding – Transaction in which new debt is issued to refinance existing debt (old debt), and the proceeds must be placed in escrow pending call date or maturity (i.e., refunding in advance of redemption).

Anticipation Notes – Short-term notes are issued in anticipation of future collection of taxes or revenues. Short-term notes are generally expected to be retired in the same fiscal year from current tax revenues.

Arbitrage Rebate Liability – Arbitrage, as related to governments, refers to the issuance of debt at relatively low, tax-exempt rates of interest and the investment of the proceeds in taxable securities yielding a higher return. The Internal Revenue Code (IRC) regulates the amount and conditions under which arbitrage on the investment of bonds’ proceeds is permissible. An arbitrage rebate liability occurs when a rebate is owed to the federal government because the amount or conditions of the arbitrage do not meet the IRC requirements. An arbitrage rebate liability would only be an issue if your agency issues tax-exempt debt and reinvests the proceeds in taxable securities.

Bond – Written promise to pay the face amount at the maturity date. Periodic interest payments are usually required.

Bond Indenture Agreement – An agreement between a bond issuer and bond holder covering the terms of issue and providing for the appointment of a trustee to act on behalf of the bondholders. Terms of the agreement include such conditions as dollar amount of issue, pledged assets, covenants, events of default, redemption rights, and call privileges.

Conduit Debt – Certain limited-obligation revenue bonds, certificates of participation, or similar debt instruments issued by a government entity for the express purpose of providing capital financing for a specific third party that is not part of the issuer's financial reporting entity. Although conduit debt obligations bear the name of the governmental issuer, the issuer has no obligation beyond the resources provided by a lease or loan with the third party on whose behalf the debt is issued.

Contracts Payable – A legal obligation to pay money to another. Terms of payment may be covered by an installment agreement (a portion of the total amount is paid over time at specific periods) or a single amount to be paid at a later date. Contracts payable include software licensing agreements (but not software maintenance contracts, which should be reported on the Miscellaneous Closing Package, question 7, for long-term commitments). Contract retentions should not be included with contracts payable.

Contract Retentions – On some contracts, the amounts your agency may withhold from the contractor's payments until a specific portion of the project is complete. (Contract retentions should be included on the Accounts and Other Payables Closing Package.)

Current Refunding – Issuance of debt to immediately repay previously issued debt.

Debt Defeasance – Transaction in which new debt is issued to refinance existing debt. Defeased debt is no longer reported as a liability on the balance sheet.

Defeasance in Substance – When cash or other risk-free assets are placed in escrow to be used solely for principal and interest payments on defeased (old) debt.

Liability – A present obligation to sacrifice resources that the government has little or no discretion to avoid.

Line of Credit – Bank's moral commitment to make loans for a specified maximum amount for a given period of time, typically one year. Usually no commitment fee is charged on the unused line. However, a compensating balance requirement often exists.

Long-Term Debt – An obligation resulting from past transactions that will likely result in future payments for a period greater than one year, or obligations expected to be liquidated with non-current resources.

Maturity (Payment) Schedule – Schedule showing the due dates of payments.

Net Carrying Amount – The amount due at maturity, adjusted for any unamortized premium or discount related to the old debt, as well as any deferred outflows of resources or deferred inflows of resources associated with a derivative instrument that is an effective hedge of the old debt.

Obligation – A social, legal, or moral requirement, such as a duty, contract, or promise that compels one to follow or avoid a particular course of action.

Pledged Revenue – Revenue used as security for revenue bonds or other long-term debt.

Reacquisition Price – The amount required to repay previously issued debt in a refunding transaction. In a current refunding, this includes principal of the old debt and any call premium. In an advance refunding, the reacquisition price is the amount placed in escrow that, together with interest earnings, is necessary to pay interest and principal on the old debt and any call premium.

Restricted Cash or Investment – Cash or investments subject to constraints imposed by law or external parties, and the constraints change the nature or normal understanding of the availability of the cash or investment.

Serial Bond – Bonds that mature in installments rather than at a single maturity date.

Short-Term Debt – Money payable by the debtor to the creditor within one year, (e.g., borrowings characterized by anticipation notes, use of lines of credit, and similar loans). Short-term debt does not apply to accounts payable, the current portion of long-term debt, obligations under reverse repurchase agreements, securities lending agreements, p-card purchases, or credit card purchases.

Sinking Fund – Fund or account established to accumulate resources for the payment of long-term debt principal and/or interest.

Special Assessment Debt – A debt which is payable from the proceeds of a special assessment, or compulsory levy made against certain properties.

Term Bond – Debt issues whose component bonds mature on a single date.

WORKING PAPERS
Click here for a definition of Working Papers
Working papers may include the following:

• How you obtained each amount
• The source(s) of data for each amount
• Methods used to arrive at estimated amounts
• June 30 statements from financial institutions and brokers
• Maturity (payment) schedules
• Sinking fund schedules
• Other related documents

COMPLETING THE LONG-TERM LIABILITIES AND SHORT-TERM DEBT CLOSING PACKAGE
Agencies are required to complete the Long-Term Liabilities and Short-Term Debt Closing Package for long-term liabilities of $200,000 or more per fund as of June 30, or short-term debt with total activity of $50,000 or more per fund during the fiscal year.

1. Enter the header information.
2. As you consider the questions in this closing package, keep in mind the following:

• If a question is applicable to your agency, indicate “YES" and provide the required data.
• Provide the relevant fund number(s).
• If the form area is insufficient to respond adequately to a particular question, use the Comments box at the end of this closing package, attach additional files to this document, or e-mail the information to cafr@sco.idaho.gov. Clearly identify the closing package question for your response.

CLICK HERE FOR SUBMISSION INSTRUCTIONS

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05 Long-Term Liabilities and Short-Term Debt

Date Due: July 11

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