Internal Audit. Sonoma County. Auditor Controller Treasurer Tax Collector. Reporting Package Sonoma County Airport Enterprise Fund:

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1 Auditor Controller Treasurer Tax Collector Internal Audit Sonoma County Reporting Package Sonoma County Airport : For the Fiscal Year Ended Audit No: 3040 Report Date: September 30, 2014 Audit Manager: Kanchan Charan, CPA Audit Supervisor: Damian Gonshorowski, CPA Auditor: Carmela Boudreaux

2 Reporting Package For the Fiscal Year Ended Basic Financial Statements: Statement of Net Position... Statement of Revenues, Expenses, and Changes in Net Position... Statement of Cash Flows... Notes to the Basic Financial Statements... Other Matters... Proposed and Posted Adjustments... Page

3 Statement of Net Position Assets Current assets: Cash and investments Due from other governments Receivables Restricted assets: Deposits with others Cash and investments $ 15,929,210 7,981, , ,512 87,872 Total current assets 24,512,734 Noncurrent assets: Restricted cash and investments: Customer security deposits 30,208 Total noncurrent assets Capital assets: Non-depreciable Depreciable, net Total capital assets (net of accumulated depreciation) 30,208 46,163,800 16,080,796 62,244,596 Total noncurrent assets 62,274,804 Total assets $ 86,787,538 (Continued) - 1 -

4 Statement of Net Position (continued) Liabilities Current liabilities: Accounts payable and accrued liabilities $ 7,922,389 Notes Payable 1,000,000 Advances from other governments 505,425 Contract retention payable 507,684 Unearned revenue 67,532 Interest payable 60,150 Compensated absences 12,196 Total current liabilities 10,075,376 Current liabilities payable from restricted assets: Customer deposits payable 30,208 Noncurrent liabilities: Notes Payable 13,500,000 Advances from other governments 5,354,776 Compensated absences 113,479 Net Position Total noncurrent liabilities 18,968,255 Total liabilities 29,073,839 Net investment in capital assets 41,884,395 Restricted for: PFC projects 87,872 Unrestricted 15,741,432 Total net position $ 57,713,699 The notes to the basic financial statements are an integral part of this statement

5 Statement of Revenues, Expenses, and Changes in Net Position For the Fiscal Year Ended Operating Revenues Rents and concessions $ 3,926,280 Charges for services 351,679 Miscellaneous 6,852 Total operating revenues 4,284,811 Operating Expenses Services and supplies 1,775,504 Salaries and employee benefits 1,520,445 Depreciation & amortization 926,445 Total operating expenses 4,222,394 Operating income 62,417 Non-operating Revenues Passenger facility charges 499,152 Investment income 165,504 Fines, forfeitures, penalties 1,379 Total non-operating revenues 666,035 Income before contributions and transfers 728,452 Capital Contributions & transfers Capital contributions - FAA grants 23,814,328 Transfer to other funds (5,902) Transfer from other funds 5,182 Change in net position 24,542,060 Net assets, beginning of the year 33,171,639 Net assets, end of the year $ 57,713,699 The notes to the basic financial statements are an integral part of this statement

6 Statement of Cash Flows For the Fiscal Year Ended Cash Flows from Operating Activities Received from customers and other funds $ 4,323,733 Payments to employees (1,520,787) Payments for interfund services used (1,027,382) Payments to suppliers (755,003) Net cash provided by operating activities 1,020,561 Cash Flows from Non-capital Financing Activities Fines, forfeitures and penalties 1,379 Net cash provided by non-capital and related financing activities 1,379 Cash Flows from Capital and Related Financing Activities Grants and other contributions 15,964,906 Acquisition and construction of capital assets (15,154,707) Proceeds from issuance of Notes - County of Sonoma 21,000,000 Principal paid on Notes - County of Sonoma (7,310,000) Principal paid on state loans (505,425) Principal paid on capital leases (336,652) Interest paid on capital leases (393,732) Receipts from passenger facility charges 457,556 Net cash provided by capital and related financing activities 13,721,946 Cash Flows from Investing Activities Interest received 165,504 Net cash provided by investing activities 165,504 Net increase in cash and cash equivalents 14,909,390 Cash and cash equivalents, beginning of year (including $465,798 reported in restricted accounts 1,443,412 and $399,000 deposits with others) Cash and cash equivalents, end of year (including $118,080 reported in restricted accounts $ 16,352,802 and $305,512 deposits with others) (Continued) - 4 -

7 Statement of Cash Flows (continued) For the Fiscal Year Ended Reconciliation of operating income to net cash provided by operating activities: Operating income Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization Decrease in Accounts receivable Decrease in unearned revenue Decrease in Accounts payable Decrease in restricted customer deposits Decrease in compensated absences payable $ 62, ,445 54,772 (13,207) (6,161) (3,363) (342) Total adjustments 958,144 Net cash provided by operating activities $ 1,020,561 Noncash investing, capital and financing activities: Capital contributions receivable Acquisition of capital assets through payables Contract retention payable Capitalized interest Total noncash investing, capital and financing activities $ Reconciliation of cash and cash equivalents to the Statement of Net Position: Cash and investments Deposits with others Restricted cash and investments Total cash and cash equivalents $ 7,849,422 7,506, , ,117 16,277,645 15,929, , ,080 16,352,

8 Notes to the Basic Financial Statements I. Reporting Package This reporting package was prepared by the Fiscal Services Division and reviewed by the Audit Division of the office of the Sonoma County Auditor-Controller. The information contained in this reporting package is intended solely for use by Vavrinek, Trine, Day and Co. in their role as independent auditors for the County of Sonoma. Significant disclosures required of general purpose financial statements have been omitted from this reporting package. Accordingly, the financial information included in this reporting package is not intended for those who are not informed about such matters. II. Cash and Investments Cash Balance The cash balance consists of: Amortized Cost Fair Value Cash with County Treasurer $ 15,800,355 $ 15,928,710 Cash with County Treasurer, restricted 118, ,080 Deposits with others 305, ,512 Cash with Bank of America Petty Cash Total $ 16,224,447 $ 16,352,802 The fair value of the cash investments with the Treasurer is $127,855 greater than the amortized cost of those investments. An adjustment was made for the difference between cost and fair value. The restricted portion represents cash and investments that are restricted as customer deposits or restricted as to use by the Federal Aviation Administration

9 Notes to the Basic Financial Statements III. Changes in Long-Term Liabilities Long-term liability activity for the fiscal year ended was as follows: Beginning Ending Due Within Balance Additions Reductions Balance One Year Notes payable $ - $ 21,000,000 $ (6,500,000) $ 14,500,000 $ 1,000,000 Advances from other governments 6,342,508 - (482,307) 5,860, ,425 Advances from other funds 810,000 - (810,000) - - Capital lease obligation 336,652 - (336,652) - - Compensated absences 126,017 - (342) 125,675 12,196 Total long-term liabilities $ 7,615,177 $ 21,000,000 $ (8,129,301) $ 20,485,876 $ 1,517,621 IV. Capital Lease Obligations: During the Fiscal Year , the Airport entered into a new capital leases for Security equipment. The maturity date for the lease obligation is 2015, the original issue amount is $650,000, principal payments are made semiannually and yearly principal amounts range between $69,276 and $135,606 and the interest rate is 2.89%. These capital leases were fully repaid during Fiscal Year

10 Notes to the Basic Financial Statements V. Notes Payable The County of Sonoma entered into the following loan agreements with the Sonoma County Treasury Pool as follows: Annual Original Outstanding Interest Principal Issue at June 30, Type of Indebtedness Maturity Rates Installments Amount 2014 Treasury Note 2017 Variable $ - $ 10,000,000 $ 10,000,000 Treasury Note 2017 Variable - 10,000,000 3,500,000 Treasury Note 2015 Variable - 1,000,000 1,000,000 Total County of Sonoma indebtedness $ 14,500,000 Less: Current portion due (1,000,000) Total long-term portion $ 13,500,000 Grant Anticipation Note Series with the Sonoma County Treasurer for $10M and annual interest at the pooled investment rate plus 75 basis points. The note is used for expenditures related to the Runway Safety Area Enhancement Project, is secured by the Federal Aviation Administration grants and matures in April Grant Anticipation Note Series with the Sonoma County Treasurer for $10M and annual interest at the pooled investment rate plus 75 basis points. The note is used to fund expenditures related to the Runway Safety Area Enhancement Project, is secured by Federal Aviation Administration grants and matures in September Outstanding balance of $3.5M remaining after principal payment of $6.5M was made during Fiscal Year Airport Series with the Sonoma County Treasurer for $1M and annual interest at the pooled investment rate plus 75 basis points. The note is used for land acquisition related to the Runway Safety Area Enhancement Project, is secured by Federal Aviation Administration grants and matures in March

11 Notes to the Basic Financial Statements VI. Advances from Other Governments The County of Sonoma entered into the following loan agreements with the State of California, Department of Transportation as follows: Annual Original Outstanding Interest Principal Issue at June 30, Type of Indebtedness Maturity Rates Installments Amount 2014 Hangar Construction % $ 40, ,527 $ 1,000,000 $ 180,461 Hangar Construction % $ 21, ,727 $ 1,297,000 $ 358,695 Building Purchase % $ 67, ,270 $ 1,690,000 $ 738,688 Runway Extension % $ 204, ,198 $ 5,000,000 $ 4,582,357 Total State of California, Department of Transportation indebtedness $ 5,860,201 Less: Current portion due (505,425) Total long-term advances from other governments $ 5,354,776 The annual long-term obligation requirements to maturity for advances from other governments at are as follows: - 9 -

12 Notes to the Basic Financial Statements Year Ending Principal Interest Total June 30, 2015 $ 505,425 $ 263,790 $ 769, , , , , , , , , , , , , ,585, ,194 2,199, ,863, ,290 2,114,529 Total long-term liability for advances from other governments $ 5,860,201 $ 1,940,669 $ 7,800,870 There are a number of limitations and restrictions contained in the above loan agreements. Airport management believes it is in compliance with all significant limitations and restrictions

13 Notes to the Basic Financial Statements VII. Grants and other contributions Summary of funding received by the Sonoma County Airport from federal sources during the fiscal year ended : Agency Description Federal Funds: FAA - AIP 33 Airport Improvements FAA - AIP 42 Land Acquisition FAA - AIP 44 Airport Improvements FAA - AIP 45 Land Acquisition FAA - AIP 46 Airport Improvements State Funds: DOT Usage of recycled products Total grants and other contributions Eligible Costs $ 70,606 9,260 15,214,010 8,234, , ,216 $ 23,814,328 $ Receivable $ - - 7,723, , ,216 7,981,

14 Notes to the Basic Financial Statements VIII. Net investment in Capital Assets The net investment in capital assets is calculated as follows: Capital assets, net of accumulated depreciation Less: Notes Payable (non-current) Advances from other governments (non-current) Notes Payable (current) Due to other governments (current) Net investment in capital assets $ $ 62,244,596 (13,500,000) (5,354,776) (1,000,000) (505,425) 41,884,

15 Notes to the Basic Financial Statements IX. Capital Assets Capital asset activity for the year ended was as follows: Beginning Retire- Transfers & Ending Balance Additions ments Adjustments Balance Capital assets, not being depreciated: Land $ 13,803,595 $ $ 2,141,788 $ - $ - $ 15,945,383 Construction in progress 8,788,330 21,430, ,218,417 Total capital assets not being depreciated: 22,591,925 23,571, ,163,800 Capital assets being depreciated: Buildings & Improvements 33,920, ,920,272 Equipment 1,474,553 11, ,485,608 Total capital assets being depreciated 35,394,825 11, ,405,880 Less accumulated depreciation for: Buildings & Improvements (17,612,238) (822,901) - - (18,435,139) Equipment (786,401) (103,544) - - (889,945) Total accumulated depreciation (18,398,639) (926,445) - - (19,325,084) Total capital assets being depreciated, net 16,996,186 (915,390) ,080,796 Total capital assets, net $ 39,588,111 $ 22,656,485 $ - $ - $ 62,244,596 Construction in progress included capitalized interest of $414,

16 Notes to the Basic Financial Statements X. Changes in Restricted Cash and Investments Beginning Balance Increase Decrease Ending Balance Customer deposits $ 33,571 $ - $ (3,363) $ 30,208 Passenger facility charges 432, ,803 (847,158) 87,872 Total restricted cash and investments $ 465,798 $ 502,803 $ (850,521) $ 118,080 XI. Passenger Facility Charges In accordance with FAA regulation, the Sonoma County Airport began receiving Passenger Facility Charges (PFCs) in May of In 1990, Congress approved the Aviation Safety and Capacity Expansion Act, which authorized domestic airports to impose a PFC on enplaning passengers. In May 1991, the FAA issued the regulations for the use and reporting of PFCs. PFCs may be used for airport projects that must meet at least one of the following criteria: (1) preserve or enhance safety, security, or capacity of the national air transportation system, (2) reduce noise or mitigate noise impacts resulting from an airport, or (3) furnish opportunities for enhanced competition between or among carriers. The PFC funds are recognized on the accrual basis of accounting and the funds collected are restricted and may be used on specifically approved projects. Due to their restricted use, PFCs are categorized as non-operating revenues. All funds collected must be maintained in an interest bearing account prior to disbursement. Cumulative PFC collections and the related interest received as of were as follows: PFC Cash at 6/30/13 $ 432,227 Plus: FY13/14 Collections 499,152 FY13/14 Interest Income 3,651 Less: FY13/14 Expenses (847,158) PFC Cash at 6/30/14 $ 87,

17 Notes to the Basic Financial Statements Collected but unexpended PFC revenue is included on the statement of net position as restricted cash and investments. Related PFC receivables are also reported as restricted assets. Federal Air Regulations at section of 14 CFR requires inclusion of the Passenger Facility Charges program in the annual single audit

18 Other Matters 1. Please describe any changes in significant accounting policies (e.g. revenue, recognition, depreciation methodologies, expense recognition, capitalization thresholds, etc.). None. 2. Describe the nature of any current, pending or threatened claims, assessments and/or litigation. Also indicate the dollar amounts involved and who at County Counsel is working on the case. None. 3. Did the department receive any Federal funding during the year? If so, describe the grant and the dollars and types of expenditures involved. Also attach a copy of the grant agreement. The Airport was approved for grants totaling $42.8M from the Federal Aviation Administration for three projects related to land acquisition, airport improvements and environmental assessment. The allowable costs incurred in accomplishing the projects consisted of land acquisition and associated relocation, demolition, site clearance, collecting airport data, conducting environmental assessment study and construction of the runway extensions. 4. Describe new debt issuance and/or refinancing during the year. Also attach a copy of the debt agreement. Grant Anticipation Note Series with the Sonoma County Treasurer for $10M and annual interest at the pooled investment rate plus 75 basis points. The note is used to fund expenditures related to the Runway Safety Area Enhancement Project, is secured by Federal Aviation Administration grants and matures in September Outstanding balance of $3.5M remaining after principal payment of $6.5M was made during Fiscal Year Grant Anticipation Note Series with the Sonoma County Treasurer for $4M and annual interest at the pooled investment rate plus 75 basis points. The note is used for expenditures related to the Runway Safety Area Enhancement Project, is secured by Federal Aviation Administration grants and matures in September Funds from the note have not been issued. Grant Anticipation Note Series with the Sonoma County Treasurer for $10M and annual interest at the pooled investment rate plus 75 basis points. The note is used for expenditures related to the Runway Safety Area Enhancement Project, is secured by the Federal Aviation Administration grants and matures in April Airport Series with the Sonoma County Treasurer for $1M and annual interest at the pooled investment rate plus 75 basis points. The note is used for land acquisition related to the Runway Safety Area Enhancement Project, is secured by Federal Aviation Administration grants and matures in March Please add any other information that might be deemed important or material to the financial statements. None

19 Proposed and Posted Adjustments Account Description W/P Ref Debit Credit Adjusting Journal Entries JE # 1001 To adjust for GASB 31 unrealized gains III-A-2 Total EQUITY IN POOLED CASH INTEREST ON POOLED CASH 128, , , , Adjusting Journal Entries JE # 1002 Client proposed adjustment - Reverse duplicate expenses for OC Jones retention III-D-4 Total DEPOSITS IN ESCROW CONSTRUCTION IN PROGRESS 305, , , , Adjusting Journal Entries JE # 1003 III-B-3 To accrue for FAA grants received in FY14-15 but pertaining to FY13-14 (Journal ID 5279, 5543) DUE FROM OTHER GOVERNMENTS FAA GRANTS Total 175, , , , Adjusting Journal Entries JE # 1004 To accrue for Cal Recycle grant for tire derived mulch III-B-6 Total DUE FROM OTHER GOVERNMENTS STATE GRANTS 142, , , , Adjusting Journal Entries JE # 1005 Client proposed adjust for additional Depreciation Expense III-D-2 Total DEPRECIATION ACCUMULATED DEPRECIATION - FIXED ASSETS 21, , , ,

20 Proposed and Posted Adjustments Account Description W/P Ref Debit Credit Reclassifying Journal Entries JE # 2001 To reclassify PFC related assets as restricted assets III-A-1 Total RESTRICTED CASH/SHORT TERM INVESTMENTS 87, EQUITY IN POOLED CASH 87, , , Reclassifying Journal Entries JE # 2002 Client RJE to reclass deposits with others to land for Ritter/Ravani land purchase III-A FIXED ASSETS - LAND 399, DEPOSITS WITH OTHERS 399, Total 399, , Reclassifying Journal Entries JE # 2003 III-F-1 Client RJE to reclass deposits from others as restricted cash Restricted Cash (non-current) 30, EQUITY IN POOLED CASH 30, Total 30, , Reclassifying Journal Entries JE # 2004 III-D-4 Client proposed adjustment - Reclass retention held by Mechanics Bank to deposits with others and contract retention payable DEPOSITS IN ESCROW 305, CONTRACT RETENTION PAYABLE 305, Total 305, , Reclassifying Journal Entries JE # 2005 III-F-1 Client RJE to reclassify Airport Series to Notes Payable DUE TO OTHER GOVERNMENTS 1,000, NOTES PAYABLE 1,000, Total 1,000, ,000,