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INTERFUND LOAN POLICY
I. PURPOSE
The City’s Interfund Loan Policy documents the methods used by the City to demonstrate prudent financial management over interfund loans.
The policy:
Requires City Council approval of interfund loans, except for short-term working capital loans.
Permits short-term interfund loans for working capital to cover Council-approved reimbursable grants and projects and other temporary timing differences in cashflows. Prohibits interfund loans from being used to solve ongoing structural budget issues or hindering the accomplishment of any function or project for which the lending fund was established.
II. BACKGROUND
Interfund loans are the lending of cash from one City fund to another for a specific purpose and with a requirement for repayment.
The practice of interfund lending is a recognized aspect of municipal finance and may be used to address temporary cash flow needs, finance capital projects, acquire assets, or support other approved governmental purposes. Interfund loans may be either short-term or long-term depending on the purpose and expected repayment period. All interfund loans must have a documented source of repayment and a reasonable expectation of repayment.
Under Governmental Accounting Standards Board (GASB) Statement No. 34 and GASB Codification Section 1800 (Interfund Activity), an interfund loan is a reciprocal interfund activity in which one fund provides resources to another fund with a requirement and expectation of repayment. Interfund loans are reported as interfund receivables and payables rather than transfers.
Short-term interfund borrowings are temporary loans expected to be repaid within the current fiscal year and are generally used to address timing differences in cash flows.
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Long-term interfund advances are loans not expected to be repaid within the current fiscal year and are used to finance specific projects, acquisitions, or other approved purposes with a documented repayment schedule.
III. POLICY
Long-term Loans
Interfund loans, other than short-term working capital loans, must be approved by the City Council. Council approval will include the following terms of the loan:
Purpose of Interfund Loan
Identification of the source fund
o Availability of unrestricted funds in the source fund o Review of multi-year plans for use of source fund cash o Analysis of legal or contractual restrictions
Repayment of Interfund Loan
o Repayment must have a payment source and funding stream o Specific repayment schedule
o Interest imposed at a rate equal to at least investment earnings if loan did not occur
o The maximum allowable term for long-term loans will be 10 years Other Considerations
o Feasibility of repayment
o Internal controls to monitor repayment
Any material modification to the repayment schedule, maturity date, or interest rate shall require City Council approval.
Short-term Loans
Short-term interfund loans for working capital to provide cash for Council-approved reimbursable grants and projects are permitted. Short-term working capital loans are also permitted for temporary timing differences in cash flows when expenditures are incurred before revenue is collected.
The General Fund shall be the primary source of short-term working capital interfund loans.
Short-term working capital loans may be approved administratively by the Finance Director or the City Manager and will be included in the annual financial reports submitted the City Council Prohibited Uses
Interfund loans will not be used to solve ongoing structural budget issues.
C:\Program Files\eSCRIBE\TEMP\1739898577\1739898577,,,Interfund Loan Policy 2026 DRAFT .docx 3 Interfund loans will not hinder the accomplishment of any function or project for which the lending fund was established.