Conditions precedent to all financing
Source version current through Sep 15, 2021
Later State Register activity may affect this section.
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The execution of this contract, wherein the State agrees to lend and the local agency agrees to borrow the sums required for the development of the project, is the first condition precedent to all financing.
Accounting entry: No accounting entry is made to reflect the execution of the contract for State aid.
The passage of this resolution, which implements the local agency's agreement to borrow from the State, as set forth in the contract for State aid, is the second condition precedent to all financing. This resolution must be passed before any financing, whether it be borrowing from the State or from private investors, is undertaken. The resolution authorizes, among other things, the issuance, as evidence of the local agency's indebtedness to the State, of certificates of indebtedness, as required, in the aggregate maximum principal amount of the loan to be made under the contract for State aid. Where the contract for State aid includes a margin of safety provision, the aggregate maximum principal amount is determined by adding the margin of safety to the principal amount of the loan to be made. Where there is no margin of safety provision, the aggregate maximum principal amount of debt to be authorized is the same as the principal amount of the loan, as set forth in the contract for State aid. To illustrate:
| Principal amount of loan contract | Margin of safety | Aggregate maximum principal amount of debt to be authorized | |
|---|---|---|---|
| Case 1 | $2,000,000. | none | $2,000,000. |
| Case 2 | $2,000,000. | 10% | $2,200,000. |
Accounting entry: Passage of the resolution authorizing the contracting of indebtedness in the aggregate maximum principal amount of the contract for State aid is reflected in a journal entry, as follows:
Entry (1):
Debit: Account 2312, Certificates of Indebtedness Unissued $XXX
Credit: Account 2311, Certificates of Indebtedness
Authorized $XXX
Explanation.:
To record the authorization for the contracting of indebtedness and for the issue of certificates of indebtedness, as per resolution no. ____, dated____19__.