City of Riverton: Property Tax Availability and Fund Balance Classification
The City of Riverton's fiscal year ends December 31. In October 20X4 the council levied $52.0 million of property taxes for 20X5. Cash collections were $47.5 million during 20X5, $3.2 million between January 1 and February 28, 20X6, and $1.3 million thereafter. Riverton's policy treats property taxes collected within 60 days after year-end as available. In November 20X5 the city also billed the $54.0 million levy for 20X6 and recorded a receivable. At December 31, 20X5 the General Fund reports total fund balance of $30.0 million, including $1.0 million of inventory and $0.5 million of prepaid insurance. Of the remainder, $6.0 million is restricted by state statute for debt service, $2.0 million is restricted by a federal grant agreement, $4.0 million was committed by a council resolution adopted December 30, 20X5, and $2.0 million was assigned by the finance director under authority delegated by the council. On January 12, 20X6 the council adopted a resolution designating $5.0 million for park improvements.
1. Compute property tax revenue recognized in the General Fund and in the government-wide statements for 20X5, and specify the balance sheet treatment of each unrecognized amount.
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General Fund (modified accrual). Revenue is recognized when measurable and available. Availability is satisfied by the 60-day policy - a period that may be as long as 60 days but never longer - so collections through February 28, 20X6 count.
- Recognized revenue: $47.5M + $3.2M = $50.7M
- Not available: $52.0M - $50.7M = $1.3M
- The $1.3M is reported as deferred inflow of resources, not deferred revenue. Unavailable revenue is a deferred inflow under current governmental accounting; labeling it deferred revenue is a classification error that shows up in the statement of net position.
20X6 levy billed in November 20X5. The $54.0M relates to a future period, so revenue is not recognized in 20X5. The receivable may be recorded, but it must be fully offset by a deferred inflow of $54.0M. Reporting it as revenue would double-count 20X6 taxes in 20X5 and is a frequent error where governments bill in advance.
Government-wide statements (full accrual). Availability does not apply. Property taxes are recognized in the period for which they are levied, so the full $52.0M is revenue, and the $1.3M is a receivable rather than a deferred inflow. The 20X6 levy remains unrecognized in 20X5 because it is levied for 20X6 - it is deferred on the same reasoning, not because of availability.
Net effect: fund-level revenue of $50.7M versus government-wide revenue of $52.0M, a $1.3M conversion entry that also appears in the reconciliation of the fund statements to the government-wide statements.
2. Classify the $30.0 million of General Fund balance into its components and show the amounts. Address the January 12, 20X6 council resolution.
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Classification order: nonspendable, restricted, committed, assigned, unassigned.
| Component | Amount | Reasoning |
|---|---|---|
| Nonspendable | $1.5M | Inventory $1.0M + prepaid $0.5M - not in spendable form |
| Restricted | $8.0M | Debt service $6.0M (statute) + grant $2.0M (external party) |
| Committed | $4.0M | Council resolution adopted December 30, 20X5 - within the year, by the highest decision-making authority |
| Assigned | $2.0M | Finance director acting under delegated authority |
| Unassigned | $14.5M | Residual |
| Total | $30.0M |
The January 12, 20X6 resolution cannot create a commitment. A commitment requires formal action by the governing body before year-end, and it can be removed only by the same level of action. A resolution passed eleven days after the balance sheet date is too late, so the $5.0M must not be shown as committed.
Where does it go instead? The defensible answer is unassigned: the intent underpinning an assignment must exist at the reporting date, and here the governing body expressed its intent after it. The subsequent action is disclosed as a subsequent event. An alternative view - presenting the $5.0M as assigned because the council has now expressed intent - is sometimes seen in practice, but it is the weaker position, and the choice must be applied consistently and disclosed.
One more test to apply: unassigned fund balance in the General Fund may never be negative, and the government should confirm that the restricted and committed amounts are actually spendable for their stated purposes. A restricted amount that exceeds the resources needed for its purpose is reclassified.
3. The council asks whether the 60-day availability period was a free choice, whether it can be shortened, and whether the same policy governs the government-wide statements.
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It is a policy choice, but a constrained one. Governments may define 'available' as any period up to 60 days after year-end; a period longer than 60 days is not permitted. The selected period must be applied consistently from year to year and disclosed in the summary of significant accounting policies. Riverton could adopt 30 days instead - which would pull the $3.2M collected in January through February 28 out of 20X5 revenue and into a deferred inflow - but it cannot change the period opportunistically to smooth a particular year's results. A change in the availability period is a change in accounting principle and carries its own reporting consequences.
It does not govern the government-wide statements. The government-wide statement of activities is prepared on the full accrual basis; property taxes are recognized in the period for which levied, and the availability test has no role. The 60-day policy is a modified-accrual concept that lives in the governmental fund statements, and it is one of the reconciling items between the fund statements and the government-wide statements.
Practical cautions to raise with the council.
- The 60-day policy applies to property taxes; other revenues (grants, fines, charges for services) have their own measurability and availability analysis, and a single blanket rule is a red flag.
- The $54.0M already billed for 20X6 is the larger exposure. If staff have recorded it as revenue rather than as a receivable offset by a deferred inflow, the General Fund is overstated by an amount far larger than the availability question, and the correction must be made before the statements are issued.