The Urban Development Authority (UDA) was created as a separate legal entity by an act of the state legislature and ‘‘activated’’ by action of the city council to plan and develop the downtown area of the city and to attract new businesses and residents. The governing board of the authority is appointed by the city council for fixed terms. The UDA has the complete authority to hire management and all other employees.
There is no significant continuing relationship between the city and the authority for carrying out day-to-day functions. The authority is a separate body and levies taxes against the property owners within the designated development district and may hold referendums of its constituents (for bond issues, tax increases, and so forth). The authority’s levy and the levies of the city are independent of each other and are related only by the fact that they are levied against a common tax base within the authority’s geographic boundaries. Property taxes from the authority’s levy are its primary revenue source.
The city council receives the annual budget of the authority for informational purposes, but in the opinion of the city’s legal counsel has no option except to ‘‘approve’’ the budget. Approval is considered to be a formality. The city is under no obligation to finance operating deficits of the authority and does not have claim to any surpluses. The authority has the power to issue bonds for its lawful purposes. The city has no responsibility for the debt of the authority.
Required
Using the flowchart shown in Illustration 17-2, indicate whether or not the city should incorporate the Urban Development Authority into its own financial statements. If so, how would the city accomplish this?