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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) O. Net Assets Net assets represent the difference between assets and liabilities in the government-wide and Proprietary Funds financial statements. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any long-term debt used to build or acquire the capital assets. Net assets are reported as restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. P. Restricted Assets Restricted assets are cash and cash equivalents and the related interest receivable whose use is limited by legal requirements such as a bond indenture. Restricted assets are reported only in the city-wide financial statements. In the fund financial statements these assets have been reported as "cash and investments held by trustee" and the interest receivable is included within "accounts and interest receivable", Q. Budgets and Budgetary Accounting Each fall the City Council adopts a General Fund budget for the following fiscal year beginning January 1. The City has established budgetary control at the function level. Budget appropriations lapse at year-end. In addition, an annual budget is legally adopted for the Economic Development Authority, a non major special revenue fund, and the Housing and Redevelopment Authority (HRA) a major special revenue fund. Budget amounts are presented on a modified accrual basis of accounting. The City Council budget revisions had the net effect of a decrease in fund balance of $59,254. This decrease was the result of a decline in expected revenues from building activity, a large reduction in intergovernmental revenue from the state, and reduced interest earnings all due to the continued downturn in the economy. Encumbrance accounting is not used and there were no significant purchase commitments outstanding at year-end. The government's department heads may make transfers of appropriations within a function. Transfers of appropriations between functions require the approval of the council. All the appropriations for the Housing and Redevelopment Authority are approved by their governing board. The Economic Development Authority budget is recommended by their board and final approval comes from City Council. In the General Fund, total actual expenditures were less than appropriations. The change in the original to final budgeted amounts for the Housing Redevelopment Authority was related to the purchase of the RTC land. The capital outlay final budget amount reflected the land purchase price and transfers in reflected the various funding sources used to purchase the land. However, due to the intended purpose of the land, which is to resell the land, the capital outlay expenditure was reclassified as an asset held for resale and the funding sources that were loaned from other funds were reclassified as an advance from other funds. R. Statement of Cash Flows For purposes of the Statement of Cash Flows, the City considers all highly liquid debt instruments with an original maturity from the time of purchase by the City of three months or less to be cash equivalents. The Proprietary Funds' portion in the city-wide cash and investment management pool is considered to be cash equivalent. -35-