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6.1 B Page 78 NOTE 1O — NET ASSETS AND FUND BALANCES (CONTINUED) Restricted describes the portion of net assets which is restricted as to use by the terms and conditions of agreements with outside parties, governmental regulations, laws, or other restrictions which the City cannot unilaterally alter. These principally include developer fees received for use on capital projects, debt service requirements, and redevelopment funds restricted to low and moderate income purposes. Unrestricted describes the portion of net assets which is not restricted as to use. 8. Fund Balances, Reserves and Designations In the fund financial statements, fund balances represent the net current assets of each fund. Net current assets generally represent a fund's cash and receivables, less its liabilities. Portions of a fund's balance may be reserved or designated for future expenditure. Reserves: Portions of fund balance have been reserved for specific purposes as follows: Encumbrances — A reservation is reported for encumbrances outstanding at year-end since they are not considered an expenditure or liability and are reappropriated in the subsequent year. Loans — An amount equal to the non-current portion of loans is reserved as it is not available to finance current operations. The non-current portion is that principal portion of a loan which is not ex ected to be re aid within 12 months. P p Land Held for Redevelopment — Land held by governmental funds for redevelopment is reserved as it is not available to finance current operations. Low Income Housing - Pursuant to California Health and Safety Code, Division 24, Section 3334.2, 20% of all property tax increment revenues received by the Redevelopment Agency must be set aside and used exclusively for projects related to low and moderate income housing. Inventory - Inventory held within governmental funds is reserved as it is not available to finance current operations. Prepaid Items - Expenditures that are paid in the current fiscal year for services or products to be provided in the following fiscal year. Advances to Other Funds - Long-term amounts to be repaid by other funds are reserved. Debt Service - Funds which legally may only be used for debt service are reserved within the appropriate fund. Desi�nations: Subsequent Year's Expenditures - In accordance with Article XIII B of the California Constitution, any unspent funds at the year-end should either be returned to the taxpayers or designated for expenditures in the subsequent year. It is the Council's desire to appropriate this money in the following year. Capital Projects - The City maintains reserves for unexpended appropriations for capital outlay projects within the fund in which these projects have been appropriated. 55