To:  Dave Corliss, City Manager

From:  Ed Mullins, Finance Director

Date:  January 12, 2009

Subject:  Interfund Transfer

            The City of Lawrence will likely need to transfer working capital to the Transportation Fund in 2009.  The new sales tax is not effective until April 1, 2009 and there is also a lag between collections and distributions.  The Transportation Fund ended 2008 with over $440,000 in cash and investments.  These funds will be disbursed before additional funds will be required. 

            An interfund transfer is an accounting entry between two funds.  The fund providing the loan has a “due from” asset account debited, while the borrowing fund has an offsetting “due to” liability account credited.  This avoids the need to budget a transfer between the funds.  The fund loaning the money may change.  During the year, some funds may temporarily be in a deficit situation because of the timing between expenditures and investment maturities.  This happens in the General Fund.  When this is the case, the interfund receivable with the Transportation Fund may be moved to another fund with idle cash such as the Debt Service Fund. 

            There has been interest expressed by the City Commission to take action to require the repayment to the general fund within a specified time period.   It is the opinion of our Legal Services Director that such action would be ineffective because there is no statutory authority for a current commission to bind a future commission.

             It is my understanding that any money borrowed by the Transportation Fund will be repaid within three years.  It is the intent of the Finance Department to eliminate the interfund transfer within that time period.  However, this can only occur if the Transportation Fund has sufficient cash to return the funds.  While this is anticipated to be the case, future revenues and expenditures will determine this.  The Finance Department does not feel that additional direction is needed by the City Commission to express its desire in this area.  If such action is taken, the wording needs to be broad enough to take into account that other funds besides the General Fund may be providing the needed working capital to the Transportation Fund.