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NOTES TO THE FINANCIAL STATEMENTS (Continued) Department of Housing and Urban Development (HUD). To implement these programs, the City and the Housing Authority have entered into agreements with various lending institutions to provide funding for loans at below-market rates of interest. To enable the lender to make the below-market loans, the City deposits funds varying from 20 to 33 percent of participant loans into noninterest bearing reserve accounts with the lender. These reserves along with the property owners' notes and deeds of trust are pledged as a collateral for the loans. Potential losses to the City are limited to the deposits in the reserve account. In addition to loans made available by the lending institutions, the City and the Housing Authority have elected to make other direct deferred payment rehabilitation loans made available from CDBG funds and from funds borrowed from the State Department of Housing and Community Development. Under the program, loans made using CDBG funds accrue interest at rates varying from 0 to 6 percent and are due when the property is sold. Funds borrowed from the state are loaned to participants at an annual rate of 3 percent and become due in five years. The City accounts for these programs in the Housing Rehabilitation Loan Program Agency Fund. The Fund's primary assets consist of the noninterest-bearing deposits pledged as collateral and notes receivable from participants which originated from City and/or State funds. Loans to participants made by the outside lending institutions are not reflected in the financial statements. Self-Funding Residential Rehabilitation Loan Program. During April 1983, the City Council implemented a self- funding residential loan program to replace the aforementioned interest-rate buydown programs implemented through banks and savings and loan associations. The program makes direct loans to qualifying persons for both single-family and multiple units in amounts up to$30,000 at 5 to 8 percent interest amortized over 15 years for single-family units, and up to $30,000 to$40,000 for 1 to 3 multiple units amortized over 10 years. Generally, all loans are due upon sale and are secured by a deed of trust. The program is funded by CDBG and property tax increment revenues in the redevelopment project areas, from which 20 percent of such revenues must be set aside for low and moderate housing related activities per State law. At June 30, 1993, loans totaling $3,643,792 and $11,709,965 were recorded as "notes receivable" in the CDBG and Redevelopment Agency funds, respectively. 3K. Reserves and Designations of Fund Equity. The City has set up "reserves" of fund equity to segregate fund balances which are not appropriated for expenditure in future periods or which are legally set aside for a specific future use. Fund "designations" also may be established to indicate tentative plans for financial resource utilization in a future period. The City's reserves and designations at June 30, 1993 are tabulated below followed by explanations as to the nature and purpose of each reserve and designation.