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NOTE 1— SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) <br />O. Net Assets <br />Net assets represent the difference between assets and liabilities in the government -wide and Proprietary <br />Funds financial statements. Net assets invested in capital assets, net of related debt consists of capital <br />assets, net of accumulated depreciation, reduced by the outstanding balance of any long -teen debt used to <br />build or acquire the capital assets. Net assets are reported as restricted when there are limitations imposed <br />on their use through external restrictions imposed by creditors, grantors, or laws or regulations of other <br />governments. <br />P. Restricted Assets <br />Restricted assets are cash and cash equivalents and the related interest receivable whose use is limited by <br />legal requirements such as a bond indenture. Restricted assets are reported only in the city -wide financial <br />statements. In the fund financial statements these assets have been reported as "cash and investments <br />held by trustee" and the interest receivable is included within "accounts and interest receivable ". <br />Q. Budgets and Budgetary Accounting <br />Each fall the City Council adopts a General Fund budget for the following fiscal year beginning <br />January 1. The City has established budgetary control at the function level. Budget appropriations lapse <br />at year -end. In addition, an annual budget is legally adopted for the Economic Development Authority, a <br />non major special revenue fund, and the Housing and Redevelopment Authority (HRA) a major special <br />revenue fund. <br />Budget amounts are presented on a modified accrual basis of accounting. The City Council budget <br />revisions had the net effect of a decrease in general fund balance of $957,194. This decrease was the <br />result of a city policy change in fund balance. In prior years, the General Fund retained a fund balance <br />equivalent to 60% of the following years adopted budgeted expenditures. The city amended its policy to <br />require 50% of the following years adopted budgeted expenditures be retained within the General Fund. <br />Due to this policy change, a 10% reduction in fund balance amounted to approximately $835,000. The <br />remainder of the decrease in fund balance was due to the continued down turn in the economy. Property <br />tax collections came in lower than anticipated. <br />The government's department heads may make transfers of appropriations within a function. Transfers of <br />appropriations between functions require the approval of the council. All the appropriations for the <br />Housing and Redevelopment Authority are approved by their governing board. The Economic <br />Development Authority budget is recommended by their board and final approval comes from City <br />Council. <br />Expenditures exceeded appropriations in the General Fund and Housing and Redevelopment Authority <br />Special Revenue Fund by $17,032 and $4,306 respectively. These variances were financed with revenues <br />that exceeded amounts planned in the budget. <br />R. Statement of Cash Flows <br />For purposes of the Statement of Cash Flows, the City considers all highly liquid debt instruments with an <br />original maturity from the time of purchase by the City of three months or less to be cash equivalents. <br />The Proprietary Funds' portion in the city -wide cash and investment management pool is considered to be <br />cash equivalent. <br />