2008 Niki Charitable Art Foundation Kurt Lightfoot Photographer

Transcription

1 2008 Niki Charitable Art Foundation Kurt Lightfoot Photographer

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3 FISCAL YEAR ENDED JUNE 30, 2008 MAYOR CITY COUNCIL CITY MANAGER ASSISTANT CITY MANAGER DEPUTY CITY MANAGER DIRECTOR OF COMMUNITY DEVELOPMENT DIRECTOR OF COMMUNITY SERVICES DIRECTOR OF FINANCE DIRECTOR OF HUMAN RESOURCES DIRECTOR OF INFORMATION SYSTEMS DIRECTOR OF ENGINEERING SERVICES CHIEF OF POLICE FIRE CHIEF CITY ATTORNEY CITY CLERK CITY TREASURER Lori Holt Pfeiler Sam Abed, Mayor Pro Tem Ed Gallo Marie Waldron Dick Daniels Clay Phillips Charles Grimm Gail Sullivan Jonathan Brindle Jerry Van Leeuwen Gilbert Rojas Sheryl Bennett Mark Becker Ed Domingue Jim Maher Vic Reed Jeffrey Epp Marsha Whalen Kenneth Hugins

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5 Comprehensive Annual Financial Report Table of Contents June 30, 2008 INTRODUCTORY SECTION: Page Principal Officers 1 Table of Contents 3 Organization Chart 7 Letter of Transmittal 8 Certificate of Achievement for Excellence in Financial Reporting 11 FINANCIAL SECTION: Independent Auditors Report 15 Management s Discussion and Analysis (Unaudited) 17 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets 28 Statement of Activities 30 Fund Financial Statements: Governmental Funds: Balance Sheet 32 Reconciliation of the Balance Sheet to the Statement of Net Assets 36 Statement of Revenues, Expenditures, and Changes in Fund Balances 38 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 42 Proprietary Funds: Statement of Net Assets 43 Statement of Revenues, Expenses, and Changes in Fund Net Assets 45 Combining Statement of Cash Flows 47 3

6 Comprehensive Annual Financial Report Table of Contents (Continued) June 30, 2008 FINANCIAL SECTION (Continued): Page Basic Financial Statements: Government-wide Financial Statements: Fiduciary Funds: Statement of Fiduciary Net Assets 49 Notes to Basic Financial Statements 50 Required Supplementary Information (Unaudited): Schedule of Funding Progress Safety and Miscellaneous Public Employees Retirement System 92 Budgetary Comparison Schedules: General Fund 93 Low and Moderate Income Housing Special Revenue Fund 97 Notes to Required Supplementary Information 98 Supplementary Information: Budgetary Comparison Schedules: Community Development Commission Debt Service Fund 100 Nonmajor Governmental Funds: Combining Balance Sheet 106 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances 110 Certain Special Revenue Funds: Street Fund 114 Parks and Recreation Fund 115 Arts Center 116 Community Development Block Grant Fund 117 4

7 Comprehensive Annual Financial Report Table of Contents (Continued) June 30, 2008 FINANCIAL SECTION (Continued): Page Supplementary Information: Budgetary Comparison Schedules: Certain Special Revenue Funds: Landscape and Assessment District Fund 118 HOME Fund 119 Miscellaneous Fund 120 Debt Service Fund: Golf Course Fund 121 General Obligation 122 Internal Service Funds: Statement of Net Assets 126 Statement of Revenues, Expenses and Changes in Fund Net Assets 128 Combining Statement of Cash Flows 130 Agency Funds: Combining Statement of Assets and Liabilities 135 Statements of Changes in Assets and Liabilities 136 STATISTICAL SECTION (Unaudited): Financial Trends Information: Net Assets by Component Last Seven Fiscal Years 142 Changes in Net Assets Last Seven Fiscal Years 144 Fund Balances of Governmental Funds Last Seven Fiscal Years 148 Changes in Fund Balances of Governmental Funds Last Seven Fiscal Years 150 5

8 Comprehensive Annual Financial Report Table of Contents (Continued) June 30, 2008 STATISTICAL SECTION (Unaudited) (Continued): Page Revenue Capacity Information: Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years 152 Direct and Overlapping Property Tax Rates Last Ten Fiscal Years 153 Principal Property Taxpayers Current Year and Nine Years Ago 154 Property Tax Levies and Collections Last Ten Fiscal Years 155 Debt Capacity Information: Ratios of Outstanding Debt by Type Last Ten Fiscal Years 156 Ratio of General Bonded Debt Outstanding Last Ten Fiscal Years 158 Direct and Overlapping Debt 159 Legal Debt Margin Information Last Ten Fiscal Years 160 Pledged-Revenue Coverage Last Ten Fiscal Years 162 Demographic and Economic Information: Demographic and Economic Statistics Last Ten Calendar Years 166 Principal Employers Current Year and Nine Years Ago 167 Operating Information: Full-time and Part-time City Employees by Function Last Seven Fiscal Years 168 Operating Indicators by Function Last Seven Fiscal Years 169 Capital Asset Statistics by Function Last Seven Fiscal Years 170 6

9 Comprehensive Annual Financial Report Organization Chart June 30, 2008 Electorate City Treasurer City Council Community Development Commission Mobile Home Rent Review Board City Attorney Assistant City Manager City Manager Deputy City Manager Engineering Services Fire Department Finance Community Development Police Department Information Systems Utilities Community Services Human Resources City Clerk 7

10 Gilbert Rojas Director of Finance 201 North Broadway, Escondido, CA Phone: Fax: December 15, 2008 Honorable Mayor, City Council, and Citizens of the City of Escondido: It is our pleasure to present the Comprehensive Annual Financial Report (CAFR) of the City of Escondido for the fiscal year ended June 30, This report consists of management's representations concerning the finances of the City of Escondido. Consequently, management assumes full responsibility for the completeness and reliability of all of the information presented in this report. To provide a reasonable basis for making these representations, management of the City of Escondido has established a comprehensive internal control framework that is designed both to protect the government's assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City of Escondido's financial statements in conformity with Generally Accepted Accounting Principles (GAAP). Because the cost of internal controls should not outweigh their benefits, the City of Escondido's comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The City of Escondido's financial statements have been audited by Mayer Hoffman McCann P.C., a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Escondido for the fiscal year ended June 30, 2008, are free of material misstatement. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Escondido's financial statements for the fiscal year ended June 30, 2008, are fairly presented in conformity with GAAP. The Independent Auditors Report is presented as the first component of the financial section of this report. Management has provided a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This Letter of Transmittal is designed to complement the MD&A and should be read in conjunction with it. The City of Escondido's MD&A can be found immediately following the Independent Auditors Report. Profile of the Government The City of Escondido is located in north San Diego County, approximately 30 miles north of the City of San Diego, California. Escondido is an established community incorporated on October 8, 1888 under the general laws of the State of California. The City has grown to a current population of 143,389. Within the 36 square miles that comprise the City, there are many residential communities; the largest enclosed regional mall in San Diego County; a regional hospital; 19 hotels; an auto center; many office, industrial, and commercial centers; and civic, cultural, and recreational facilities. The City operates under a Council-Manager structure. The City Council is comprised of five Council members, elected at large on a staggered basis for a term of four years. The Mayor is directly elected for a four-year term. The City Treasurer is also elected to a four-year term. The City Council appoints the City Manager and the City Attorney. The operating departments include Finance, Human 8

11 Letter of Transmittal December 15, 2008 Resources, Planning and Building, Community Development, Community Services, Police, Fire, Information Systems, City Clerk, and Public Works. The City provides the following services to its residents: police and fire protection, water and wastewater services, building safety regulation and inspection, circulation and public facility capital improvement construction, street and park maintenance, refuse collection, planning and zoning, a full range of recreational programs for citizen participation, a senior center, and two libraries. The City of Escondido also is accountable for the Community Development Commission (CDC), which is the Redevelopment Agency of the city. This Agency is reported separately as a Blended Component Unit within the City of Escondido financial statements. Additional information on the CDC can be found in the notes to the financial statements (see note IA). The City Manager is required to prepare and submit to the City Council an annual proposed budget. Budget hearings are held and a final budget is adopted before July 1, which is the start of the new fiscal year. The legal level of budgetary control is at the fund level. The City Manager is authorized to transfer budgeted amounts between departments within a fund with notification to the Council. Financial administration of the City is the responsibility of the Director of Finance. The Finance Department management staff includes a Finance Manager, which supervises the City's day-to-day accounting and budget operations and a Revenue Manager, which oversees the day-to-day treasury and utility billing operations. The City Treasurer is responsible for investing the City's portfolio and bond administration. Factors Affecting Financial Condition Local Economy. As of June 2008, the unemployment rate in Escondido was 6.3%. The San Diego countywide unemployment rate was 6% with the State of California recording a 7% rate. Long-term Financial Planning. The City s general fund currently has $8.1 million designated for economic uncertainty. The balance does not meet the Council policy guideline of 15% of total general fund revenues. Due to a slowing economy, the use of the economic uncertainty funds were necessary to balance the budget in fiscal year and will also be utilized in the coming year. Future projections indicate continuing challenges in balancing the general fund budget. Construction continued this year on the new Public Safety Facility that will need additional resources to run and maintain. In addition, a new fire station set to open in fiscal year will need to be staffed and maintained. The City faces many challenges in balancing available resources against the demand for services. Economic development is a major focus in planning for the future needs of the City. The City signed a disposition and development agreement in August of 2006 that will result in building a seven story, 196 room Marriott hotel on a city owned parking lot between the California Center for the Arts and Escondido City Hall. The hotel includes a pool and upscale restaurant. The City will build an underground parking garage and allow the hotel control of the conference rooms within the Arts Center. The construction of the facility is anticipated to have a positive impact on City finances by generating increased transient occupancy and property tax revenues. Awards and Acknowledgments. The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Escondido for its Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, In order to 9

12 Letter of Transmittal December 15, 2008 be awarded a Certificate of Achievement, the City published an easily readable and efficiently organized CAFR. This report satisfied both GAAP and applicable legal requirements. Certificate of Achievement is valid for a period of one year only. We believe that our current CAFR continues to meet the Certificate of Achievement program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the Finance Department. We would like to express our appreciation to all members of the department who assisted and contributed to the preparation of this report. We would like to extend our appreciation to the Mayor, City Council, City Manager, and each City department for their cooperation and support in conducting the fiscal operations of the City. Respectfully submitted, Gilbert Rojas Director of Finance Joy Canfield Finance Manager 10

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17 City Council City of Escondido, California Independent Auditors' Report We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Escondido, California, as of and for the year ended June 30, 2008, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the management of the City of Escondido. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Escondido, California, as of June 30, 2008, and the respective changes in financial position and cash flows, where applicable, of the City of Escondido, California for the year then ended in conformity with accounting principles generally accepted in the United States of America. The information identified in the accompanying table of contents as management's discussion and analysis and required supplementary information are not a required part of the basic financial statements, but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Escondido's basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules, and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. 15

18 City Council City of Escondido, California Page Two In accordance with Government Auditing Standards, we have also issued a report dated December 8, 2008 on our consideration of the City of Escondido's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Irvine, California December 8,

19 Management s Discussion and Analysis As management of the City of Escondido (City), we offer readers of the financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, We encourage readers to consider the information presented here in conjunction with additional information furnished in our Letter of Transmittal, which can be found on pages 8-10 of this report. Financial Highlights At the close of the most recent fiscal year, the assets of the City exceeded its liabilities by $500,573,548 (net assets). Of this amount, $95,432,716 (unrestricted net assets) may be used to meet the government s ongoing obligations to citizens and creditors. The government s total net assets increased by $21,369,555. Governmental activities increased by 3.9 percent, while business-type activities increased by 5.9 percent. As of the close of the current fiscal year, the City s governmental funds reported combined ending fund balances of $219,556,798, a reduction of $24,980,252 in comparison with the prior year. Approximately 19 percent of this total amount, $41,975,251, is available for spending at the government s discretion (unreserved fund balance). At the end of the current fiscal year, the unreserved fund balance for the General Fund was $36,232,667, or 42 percent of total General Fund expenditures. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City s basic financial statements. These financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. In addition to the basic financial statements, this report also contains other supplementary information. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City s finances, in a manner similar to a private-sector business. The statement of net assets presents information on the City s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the government s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). 17

20 Management s Discussion and Analysis The government-wide financial statements distinguish governmental functions of the City, which are mainly supported by taxes and intergovernmental revenues, from the business-type functions that are intended to recover all or a significant portion of their costs through user fees and charges. The governmental activities of the City include general government, public safety, community services, public works, and community development. The business-type activities of the City include Water and Wastewater services. The government-wide financial statements include not only the City itself (known as the primary government), but also the legally separate Community Development Commission (the redevelopment authority). The Community Development Commission functions as an integral part of the primary government and has been included in these financial statements. The government-wide financial statements can be found on pages of this report. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Escondido can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government s near-term financing requirements. Because the focus of governmental funds are more narrow than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains 23 individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures and changes in fund balances for the General Fund, Low and Moderate Income Housing Fund, Community Development Commission Debt Service Fund and the Public Safety Facilities Capital Projects fund, which are considered to be major funds. Data from the other eighteen governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds are provided in the form of combining statements elsewhere in this report. 18

21 Management s Discussion and Analysis The City adopts an annual appropriated budget for its General Fund. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with this budget. The governmental fund financial statements can be found on pages of this report. Proprietary funds. The City maintains two different types of proprietary funds, the Enterprise and the Internal Service Funds. The Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The enterprise funds are used to account for its Water and Wastewater Funds. The Internal service funds are an accounting device used to accumulate and allocate costs internally among the City s various functions. The City uses internal service funds to account for its Vehicle and Equipment Maintenance, General Liability, Workers' Compensation, Central Services, Insurance, and Building Maintenance Funds. Because these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide detailed information for the Water and Wastewater Funds, both of which are considered to be major funds. Conversely, all internal service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds are provided in the form of combining statements elsewhere in this report. The proprietary fund financial statements can be found on pages of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City s own programs. The fiduciary fund financial statements can be found on page 49 of this report. Notes to the financial statements. The notes provide additional information that is essential for a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages of this report. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City s progress in funding its obligation to provide pension benefits to its employees. Required supplementary information can be found on pages of this report. The combining statements referred to earlier, in connection with nonmajor governmental funds and internal service funds can be found on pages of this report. 19

22 Management s Discussion and Analysis Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government s financial position. At the close of the most recent fiscal year, the City s assets exceeded liabilities by $500,573,548. The largest portion of the City s net assets, 64 percent, reflect investments in capital assets (e.g., land, buildings, machinery, and equipment), less any related debt used to acquire those assets that are still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City s investments in capital assets are reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources. Capital assets themselves cannot be used to liquidate these liabilities. City of Escondido's Statement of Net Assets (Amounts expressed in thousands) Governmental Business-type activities activities Total Current and other assets $ 270,386 $ 282,404 $ 67,144 $ 48,197 $ 337,530 $ 330,601 Capital assets 295, , , , , ,603 Total assets 565, , , , , ,204 Long-term liabilities outstanding 185, , , , , ,312 Other liabilities 33,280 21,648 12,352 11,040 45,632 32,688 Total liabilities 218, , , , , ,000 Net assets: Invested in capital assets, net of related debt 197, , , , , ,270 Restricted 83,690 77,955 83,690 77,955 Unrestricted 65,128 80,217 30,304 26,762 95, ,979 Total net assets $ 346,736 $ 333,869 $ 153,837 $ 145,335 $ 500,573 $ 479,204 An additional portion of the City s net assets, 17 percent, represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets, $95,432,716, may be used to meet the government s ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City is able to report positive balances in all three categories of net assets, both for the government as a whole, as well as for its separate governmental and businesstype activities. The same situation held true for the prior fiscal year. 20

23 Management s Discussion and Analysis City of Escondido s Changes in Net Assets (Amounts expressed in thousands) Governmental Business-type activities activities Total Revenues: Program revenues: Charges for services $ 19,315 $ 17,907 $ 62,644 $ 61,731 $ 81,959 $ 79,638 Operating grants and contributions 15,514 29,979 2,658 18,172 29,979 Capital grants and contributions 9,042 19,574 3,555 11,036 12,597 30,610 General revenues: Sales tax 24,471 28,419 24,471 28,419 Property taxes 43,124 39,321 43,124 39,321 Other taxes 29,442 31,208 29,442 31,208 Other 15,190 7,868 4,712 2,909 19,902 10,777 Total revenues 156, ,276 73,569 75, , ,952 Expenses: General government 9,647 8,373 9,647 8,373 Public safety 57,285 53,982 57,285 53,982 Community services 29,728 15,005 29,728 15,005 Public works 18,340 24,159 18,340 24,159 Community development 13,975 12,635 13,975 12,635 Interest and fiscal charges 14,338 10,447 14,338 10,447 Water 37,990 37,584 37,990 37,584 Wastewater 26,995 24,660 26,995 24,660 Total expenses 143, ,601 64,985 62, , ,845 Increase in net assets before transfers 12,785 49,675 8,584 13,432 21,369 63,107 Transfers 82 1 (82) (1) Increase in net assets 12,867 49,676 8,502 13,431 21,369 63,107 Net assets July 1 333, , , , , ,097 Net assets June 30 $ 346,736 $ 333,869 $ 153,837 $ 145,335 $ 500,573 $ 479,204 21

24 Management s Discussion and Analysis Expenses and Program Revenues Governmental Activities (expressed in thousands of dollars) Expenses Program Revenues $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 General Government Public Safety Community Services Public Works Community Development Interest & Fiscal Charges Revenues by Source Governmental Activities Property Taxes 27.63% Other Taxes 18.86% Other 9.73% Sales Tax 15.68% Charges for Se rvice 12.37% Capital Grants and Contributions 5.79% Grants and Contributions 9.94% Governmental activities. Governmental activities increased the City s net assets by $12,867,066. Key elements of this increase are as follows: Property taxes increased by over $3.8 million, or approximately 10 percent, during the year. Increases in Investment and Rental Income increased by approximately $6.8 million, or by over 93%. This increase accounted for over 53% of the total governmental activities increase in net assets. Property tax in lieu of Vehicle License Fees increased by $.8 million, or approximately 8 percent. 22

25 Management s Discussion and Analysis Expenses and Program Revenues Business-type Activities (expressed in thousands of dollars) Expenses Program Revenues $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 W ater W astewater Revenues by Source - Business-type Activities Investment Income 4.75% Miscellaneous 1.65% Capital Grants & Contributions 4.83% Operating Grants & Contributions 3.61% Business-type activities. Business-type activities increased the City s net assets by $8,502,489. Key elements of this increase are as follows: Charges for Service 85.15% Operating grants and contributions increased by $2.7 million in business-type activities. Investment and Rental Income increased by $.8 million, or approximately 29%, during the year. Charges for services increased by 1.5% 23

26 Management s Discussion and Analysis Financial Analysis of the Government s Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental funds. The focus of the City s governmental funds is to provide information on nearterm inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City s governmental funds reported combined ending fund balances of $219,556,798, a decrease of $24,980,252 in comparison with the prior year. Approximately 19 percent of this total amount, or $41,975,251, constitutes unreserved fund balance, which is available for spending at the government s discretion. The remainder of fund balance is reserved to indicate that it is not available for new spending because it has already been committed to pay debt service of $15,721,514 or for a variety of other restricted purposes. The General Fund is the chief operating fund of the City. At the end of the current fiscal year, unreserved fund balance of the General Fund was $36,232,667, while total fund balance was $46,381,965. As a measure of the General Fund s liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund expenditures. The unreserved fund balance represents 42 percent of total General Fund expenditures, while total fund balance represents 54 percent of that same amount. During the current fiscal year, the fund balance of the City s General Fund decreased by $4,692,118 resulting in a 9 percent reduction in fund balance for the fiscal year. The Low and Moderate Income Housing Fund has a total fund balance of $39,470,989, all of which is reserved. The net increase of $5,787,893 is primarily due to the receipt of over $2 million in new debt proceeds, as well as increases in tax revenues and investment income amounting to over $1 million. The Community Development Commission Debt Service Fund has a total fund balance of $10,496,102, all of which is reserved for the debt service payment. The $4,520,996 increase in fund balance is primarily due to increases in tax revenues and investment income amounting to almost $3 million. The Public Safety Facilities Capital Project Fund has a total fund balance of $56,337,508, all of which is reserved for current projects. The $22,509,381 decrease in fund balance is due primarily to capital project expenditures of $26 million. Proprietary funds. The City s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. At the end of the current fiscal year, the unrestricted net assets of the Water and Wastewater Fund amounted to $19,249,700, and $12,073,237 respectively. The total growth in net assets was the result of an increase of $6,203,904 in the Water Fund and $2,305,592 in the Wastewater Fund. Other factors 24

27 Management s Discussion and Analysis concerning the finances of these two funds have already been addressed in the discussion of the City s business-type activities. General Fund Budgetary Highlights Comparison of the fiscal year original general fund budgeted expenditures of $85.6 million to the final general fund budgeted expenditures of $89.4 million results in a net increase of $3.8 million. Differences between the original and the final budget can be briefly summarized as follows: $ 943,425 in miscellaneous increases in general government activities 987,960, in increases allocated to the police department 683,5106 in increases allocated to the fire department (585,125 in increases allocated for public works (301,310 in increases in community services (266,800 in increases in community development activities Actual General Fund expenditures were $3,451,275 less than the final fiscal year budget amounts. Items carried over to fiscal year comprised $1,132,452 of that amount During the year, revenues exceeded revised budgetary estimates by $.3 million and along with the reserves, provided funding for all amendments to the budget. Capital Asset and Debt Administration Capital assets. As of June 30, 2008, the City s investments in capital assets for its governmental and business-type activities are $517,065,001 (net of accumulated depreciation). This investment in capital assets includes land, buildings, land improvements, machinery and equipment, motorized vehicles, park facilities, roads, bridges, water and wastewater systems, and a golf course. The total increase in the City s investment in capital assets for the current fiscal year is 7 percent. City of Escondido s Capital Assets (net of depreciation / in thousands) Governmental activities Business-type activities Land $ 40,909 $ 36,329 $ 1,815 $ 1,815 $ 42,724 $ 38,144 Buildings and systems 64,560 68,623 9,572 10,070 74,132 78,693 Improvements other than buildings 15,584 19, ,904 19,816 Machinery and equipment 5,965 5, ,284 6,003 Infrastructure 101,223 90, , , , ,708 Construction in progress 67,042 42,543 17,033 23,696 84,075 66,239 Total $ 295,283 $ 263,192 $ 221,782 $ 218,411 $ 517,065 $ 481,603 Additional information on the City s capital assets can be found in the notes on pages of this report. 25 Total

28 Management s Discussion and Analysis Long-term debt. At the end of the current fiscal year, the City has total bonded debt outstanding of $242,169,220. The City debt represents bonds secured solely by specified revenue sources (i.e., revenue bonds or lease obligations). City of Escondido's Outstanding Debt Certificates, Lease Revenue and Revenue Bonds Governmental Business-type activities activities Total Certificates of participation $ 3,585 $ 3,950 $ 86,515 $ 70,350 $ 90,100 $ 74,300 Special assessment debt with governmental commitment Lease revenue bonds 72,000 74,400 72,000 74,400 Tax allocation bonds 7,347 9,002 7,347 9,002 GO bonds 83,180 84,350 83,180 84,350 Capital lease Total $ 166,112 $ 171,779 $ 86,535 $ 70,390 $252,647 $ 242,169 Additional information on the City s long-term debt can be found in the notes on pages of this report. Economic Factors and Next Year s Budgets and Rates The unemployment rate for the City as of June 2008 was 6.3 percent, which is an increase from a rate of 4.8 percent a year ago, and it continues to show an upward trend. Inflationary trends in the region compare unfavorably to national indices. The increasing unemployment rate and slowing economy were considered in preparing the City s General Fund Operating Budget for the fiscal year. The economic downturn has had a significant impact on the City s ability to provide services. The General Fund budget was adopted utilizing $1.7 million from the Economic Uncertainty Reserve. Requests for Information This financial report is designed to provide a general overview of the City s finances for all those with an interest in the government s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Escondido, Finance Department, 201 North Broadway, Escondido, CA

29 Basic Financial Statements 27

30 Statement of Net Assets June 30, 2008 Assets Governmental Business-type Activities Activities Total Cash and investments $ 187,101,758 $ 28,723,075 $ 215,824,833 Cash and investments with fiscal agent 14,695,073 27,620,910 42,315,983 Receivables, net of allowances 54,856,423 8,481,068 63,337,491 Internal balances (2,158,675) 2,158,675 Due from other governments 5,605,165 53,296 5,658,461 Inventory, at cost 435, ,860 Prepaid Expenses 1,204,436 1,204,436 Deposits 3,965,978 2,000 3,967,978 Deferred bond issuance costs 2,198,121 2,198,121 Land held for resale 2,481, ,573 2,586,364 Capital assets: Not being depreciated 116,812,258 18,847, ,660,086 Being depreciated, net 178,470, ,934, ,404,915 Liabilities Total Assets 565,668, ,925, ,594,528 Payables: Accounts 13,183,167 5,812,978 18,996,145 Retentions 1,670,062 2,000 1,672,062 Interest 2,597,719 1,349,303 3,947,022 Deposits 1,680, ,340 2,039,186 Accrued expenses 4,660, ,791 5,294,610 Unearned revenue 418, ,563 Noncurrent liabilities: Payables due within one year: Employee leave benefits 526, , ,570 Employee retirement benefits 13,918 13,918 Claims 2,295,000 2,295,000 Loans 108,747 2,004,152 2,112,899 Bonds 5,730,000 20,000 5,750,000 Certificates of participation 395,000 2,065,000 2,460,000 Payables due in more than one year: Connection rights 14,114,295 14,114,295 Employee leave benefits 6,217, ,731 7,173,158 Employee retirement benefits 13,918 13,918 Claims 9,183,580 9,183,580 Loans 7,326,675 27,985,978 35,312,653 Bonds, net 159,720, ,720,820 Certificates of participation, net 3,190,000 79,680,581 82,870,581 Total Liabilities 218,932, ,088, ,020,980 See Accompanying Notes to Basic Financial Statements. 28

31 Statement of Net Assets (Continued) June 30, 2008 Net Assets Governmental Business-type Activities Activities Total Invested in capital assets, net of related debt 197,917, ,532, ,450,670 Restricted for: Community services Expendable 5,456,874 5,456,874 Nonexpendable 191, ,563 Debt service 6,532,215 6,532,215 Capital Projects 2,360,080 2,360,080 General government 1,940,247 1,940,247 Low and moderate income housing 44,862,187 44,862,187 Public safety 4,477,614 4,477,614 Public works 17,869,382 17,869,382 Unrestricted 65,128,364 30,304,352 95,432,716 Total Net Assets $ 346,736,272 $ 153,837,276 $ 500,573,548 See Accompanying Notes to Basic Financial Statements. 29

32 Statement of Activities For the Year Ended June 30, 2008 Program Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Governmental activities: General government $ 9,646,524 $ 290,007 $ 2,116,853 $ 478,095 Public safety 57,284,755 9,241,808 4,373, ,628 Community services 29,728,378 6,864,643 6,392, ,484 Public works 18,340,037 1,411,020 2,630,933 7,024,363 Community development 13,974,447 1,507,452 Interest and fiscal charges 14,338,384 Total Governmental Activities 143,312,525 19,314,930 15,513,780 9,042,570 Business-type activities: Water 37,989,541 38,944,163 2,656, ,646 Wastewater 26,995,420 23,699,984 1,076 3,127,329 Total Business-type Activities 64,984,961 62,644,147 2,657,685 3,554,975 Total $ 208,297,486 $ 81,959,077 $ 18,171,465 $ 12,597,545 General Revenues Taxes: Sales tax Property tax Property tax in lieu of sales tax Property tax in lieu of VLF tax Property transfer tax Franchise tax Franchise tax in lieu Transient occupancy tax Business license tax Transfer station tax Refuse collection tax Intergovernmental, unrestricted Investment and Rental Income Miscellaneous Transfers Total General Revenues and Transfers Change in Net Assets Net Assets - Beginning of Year Net Assets - End of Year See Accompanying Notes to Basic Financial Statements. 30

33 Net (Expense) Revenue and Changes in Net Assets Governmental Business-type Activities Activities Total $ (6,761,569) $ $ (6,761,569) (42,698,215) (42,698,215) (15,902,361) (15,902,361) (7,273,721) (7,273,721) (12,466,995) (12,466,995) (14,338,384) (14,338,384) (99,441,245) (99,441,245) 4,038,877 4,038,877 (167,031) (167,031) 3,871,846 3,871,846 (99,441,245) 3,871,846 (95,569,399) 24,471,382 24,471,382 43,123,943 43,123,943 7,224,983 7,224,983 11,226,919 11,226, , ,295 4,088,986 4,088,986 2,099,083 2,099,083 1,322,688 1,322,688 1,589,437 1,589, , ,365 77,044 77, , ,923 14,217,786 3,497,943 17,715, ,977 1,214,200 2,186,177 81,500 (81,500) 112,308,311 4,630, ,938,954 12,867,066 8,502,489 21,369, ,869, ,334, ,203,993 $ 346,736,272 $ 153,837,276 $ 500,573,548 See Accompanying Notes to Basic Financial Statements. 31

34 Balance Sheet Governmental Funds June 30, 2008 Assets General Special Revenue Low and Moderate Income Housing Debt Service Community Development Commission Cash and investments $ 32,699,001 $ 6,969,897 $ 18,601,523 Cash and investments with fiscal agent 4,902,536 Receivables (net): Accounts 2,006,949 Interest 516,853 87, ,799 Taxes 6,167, , ,069 Loans 7,394 27,476,973 Due from: Other funds 806,762 Other governments 220, ,565 Inventory, at cost Prepaid expenditures 1,202,500 Deposits Land held for resale, at cost 1,606,670 Advances to other funds 10,141,904 3,399,292 Total Assets $ 53,769,499 $ 39,668,311 $ 24,830,492 Liabilities and Fund Balances Liabilities: Payables: Accounts $ 1,119,863 $ 176,268 $ 902,444 Deposits 190,964 Retentions Accrued expenditures 3,542,654 21,054 Due to other funds 620,342 Deferred revenue 1,913,711 Advances from other funds 13,431,946 Total Liabilities 7,387, ,322 14,334,390 See Accompanying Notes to Basic Financial Statements. 32

35 Capital Projects Public Nonmajor Total Safety Governmental Governmental Facilities Funds Funds $ 62,498,490 $ 40,871,368 $ 161,640,279 9,792,537 14,695, ,600 2,871, , ,339 1,895, ,184 6,927,922 15,270,774 42,755, ,342 1,427,104 4,606,672 5,583,659 19,441 19,441 1,936 1,204,436 2,131,804 1,541,274 3,673, ,121 2,481, ,988 14,411,184 $ 65,160,590 $ 76,157,576 $ 259,586,468 $ 7,313,015 $ 3,204,173 $ 12,715,763 1,489,882 1,680,846 1,510, ,019 1,670, ,773 4,439, ,762 1,477,104 1,240,195 3,153,906 1,460,538 14,892,484 8,823,082 9,287,342 40,029,670 See Accompanying Notes to Basic Financial Statements. 33

36 Balance Sheet Governmental Funds (Continued) June 30, 2008 General Commission Fund Balances: Reserved for: Advances to other funds 10,141,904 3,399,292 Noncurrent loans receivable 7,394 27,476,973 Inventory Prepaid expenditures Deposits Land held for resale 1,606,670 Low and moderate income housing 6,988,054 Specific purpose Debt service 10,496,102 Reserved for current projects: Special revenue funds Capital projects funds Unreserved; designated - general fund: Capital improvements 8,074,382 Carryovers 1,132,452 Daley ranch improvements 715,170 Economic development 2,463,216 Economic uncertainty 8,123,842 Library trust 295,726 Underground waivers 170,403 Downtown hotel 15,226,000 Unreserved; designated for future projects: Special revenue funds Capital projects funds Undesignated 31,476 Special Revenue Low and Moderate Income Housing Debt Service Community Development Total Fund Balances 46,381,965 39,470,989 10,496,102 Total Liabilities and Fund Balances $ 53,769,499 $ 39,668,311 $ 24,830,492 See Accompanying Notes to Basic Financial Statements. 34

37 Capital Projects Public Nonmajor Total Safety Governmental Governmental Facilities Funds Funds 869,988 14,411,184 15,259,074 42,743,441 19,441 19,441 1,936 1, ,761 1,327,839 1,949, ,121 2,481,791 6,988,054 5,104,679 5,104,679 5,225,412 15,721,514 4,409,890 4,409,890 55,715,747 28,034,270 83,750,017 8,074,382 1,132, ,170 2,463,216 8,123, , ,403 15,226, , ,378 4,822,008 4,822,008 17,198 48,674 56,337,508 66,870, ,556,798 $ 65,160,590 $ 76,157,576 $ 259,586,468 See Accompanying Notes to Basic Financial Statements. 35

38 Reconciliation of the Balance Sheet to the Statement of Net Assets Governmental Funds June 30, 2008 Fund balances for governmental funds $ 219,556,798 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. Capital assets allocated from internal service funds are included in the internal service fund adjustment below. Capital assets $ 527,166,191 Ending accumulated depreciation (237,771,606) 289,394,585 Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the funds. 2,735,343 Internal service funds are used by management to charge the costs of activities involved in rendering services to departments within the City. The assets and liabilities of the internal service funds are included in the statement of net assets. 17,320,365 Noncurrent liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds. Noncurrent liabilities allocated from internal service funds are included in the internal service fund adjustment above. Employee Benefits Payable (6,507,867) Loans Payable (6,327,535) Bonds Payable (166,111,752) Bond Premium (3,099,752) Bond Discount 175,685 Deferred bond costs 2,198,121 (179,673,100) Interest on noncurrent liabilities is not accrued in governmental funds, but rather is recognized as an expenditure when due. Interest payable (2,597,719) Net assets of governmental activities $ 346,736,272 See Accompanying Notes to Basic Financial Statements. 36

39

40 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2008 Special Debt Revenue Low and Moderate Service Community Development General Income Housing Commission Revenues: Sales Tax $ 30,165,853 $ $ Other taxes 20,820,101 5,267,305 21,069,222 Licenses and permits 1,042,675 Fines and forfeits 2,775,808 Intergovernmental 14,690, Charges for services 6,332,064 Special assessments Lease income 65,380 Investment income 8,900, ,731 1,355,936 Miscellaneous 3,732,998 86,433 Total Revenues 88,460,374 5,990,510 22,425,158 Expenditures: Current: General government 7,681,652 Public safety 55,788,700 Public works 11,140,310 Community services 6,746,842 Community development 4,607,311 1,535, ,563 Capital projects Debt service: Principal retirements 4,208,863 Interest and fiscal charges 9,764,461 Cost of issuance Payment to refunding bond escrow agent Agency tax sharing agreement 3,697,911 Total Expenditures 85,964,815 1,535,981 18,620,798 Excess (Deficiency) of Revenues Over Expenditures 2,495,559 4,454,529 3,804,360 See Accompanying Notes to Basic Financial Statements. 38

41 Capital Projects Public Safety Facilities Nonmajor Governmental Funds Total Governmental Funds $ $ 2,239,130 $ 32,404, ,382 48,022,010 40,337 1,083,012 2,775,808 10,290,204 24,981,294 10,360 8,192,063 14,534,487 6,114,007 6,114,007 65,380 3,308,169 3,054,436 17,189, ,339 1,961,315 6,037,085 3,574,868 32,756, ,207,784 1,445,830 9,127,482 1,706,517 57,495,217 5,390,117 16,530,427 12,389,993 19,136, ,920 7,484,775 26,084,249 19,955,131 46,039,380 1,685,000 5,893,863 4,507,185 14,271,646 3,697,911 26,084,249 47,471, ,677,536 (22,509,381) (14,714,819) (26,469,752) (Continued) See Accompanying Notes to Basic Financial Statements. 39

42 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds (Continued) For the Year Ended June 30, 2008 Special Debt Revenue Low and Moderate Service Community Development General Income Housing Commission Other Financing Sources (Uses): Issuance of debt 2,050,000 Transfers in 1,643,655 81, ,843 Transfers out (8,831,332) (797,843) (81,207) Total Other Financing Sources (Uses) (7,187,677) 1,333, ,636 Net Change in Fund Balance (4,692,118) 5,787,893 4,520,996 Fund Balances (Deficits) at Beginning of Year 51,074,083 33,683,096 5,975,106 Fund Balances at End of Year $ 46,381,965 $ 39,470,989 $ 10,496,102 See Accompanying Notes to Basic Financial Statements. 40

43 Capital Projects Public Safety Facilities Nonmajor Governmental Funds Total Governmental Funds 2,050,000 9,572,994 12,095,699 (2,945,817) (12,656,199) 6,627,177 1,489,500 (22,509,381) (8,087,642) (24,980,252) 78,846,889 74,957, ,537,050 $ 56,337,508 $ 66,870,234 $ 219,556,798 See Accompanying Notes to Basic Financial Statements. 41

44 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2008 Net change in fund balances - total governmental funds: $ (24,980,252) Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of these assets are allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays, contributed capital assets, retirements, and capital related expenditures exceeded depreciation in the current period. Capital asset activity from internal service funds are reported in the internal service activity below. Capital outlay $ 46,039,380 Contributed capital assets 1,728,048 Capital asset expenditures within the functions (8,156) Depreciation (12,895,786) Retirement and sale of capital assets (3,257,847) 31,605,639 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Internal service funds are used by management to charge the costs of activities involved in rendering services to departments within the City. The assets and liabilities of the internal service funds are included in the statement of net assets. (1,122,881) 2,989,686 The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction however, has any effect on net assets. Proceeds from long-term debt (2,050,000) Principal retirements 5,893,863 Interest accrual and deferred bond issuance costs 531,011 4,374,874 Change in net assets of governmental activities $ 12,867,066 See Accompanying Notes to Basic Financial Statements. 42

45 Statement of Net Assets Proprietary Funds June 30, 2008 Assets Internal Service Water Wastewater Total Funds Current Assets: Cash and investments $ 7,890,004 $ 20,833,071 $ 28,723,075 $ 25,461,479 Restricted: Cash and investments with fiscal agent 5,470, ,713 5,981,510 Receivables (Net): Accounts 6,062,632 1,077,239 7,139, ,552 Interest 107, , , ,639 Loans 6,219 36,268 42,487 2,809 Assessments 20,000 20,000 Due from: Other funds 50,000 50,000 Other governments 51,754 1,542 53,296 21,506 Land held for resale 104, ,573 Inventory 416,419 Deposits 2,000 2, ,900 Total Current Assets 19,693,268 22,799,928 42,493,196 26,598,304 Noncurrent assets: Receivables (Net): Loans 902, ,326 Total Noncurrent Receivables 902, ,326 Advances to other funds 5,041, ,300 5,522,848 Restricted: Cash and investments with fiscal agent 15,745,882 5,893,518 21,639,400 Capital assets: Land 1,494, ,360 1,814,559 Land improvements 347,855 47, ,564 Buildings 14,420,645 9,607,944 24,028,589 1,121,796 Water system 79,088,999 79,088,999 Electric system 3,609,179 3,609,179 Recycled water system 24,163,391 24,163,391 Sewer system 146,298, ,298,644 Machinery and equipment 1,729,928 1,421,371 3,151,299 23,378,962 Construction in progress 14,972,500 2,060,769 17,033, ,883 Total Capital Assets 115,663, ,920, ,583,493 24,652,641 Less accumulated depreciation (37,340,707) (40,460,766) (77,801,473) (18,764,245) Total Capital Assets (Net of Accumulated Depreciation) 78,322, ,459, ,782,020 5,888,396 Total Noncurrent Assets 99,110, ,736, ,846,594 5,888,396 Total Assets 118,803, ,536, ,339,790 32,486,700 See Accompanying Notes to Basic Financial Statements. 43

46 Statement of Net Assets Proprietary Funds (Continued) June 30, 2008 Liabilities Internal Service Water Wastewater Total Funds Current Liabilities: Payables: Accounts 3,645,351 2,167,627 5,812, ,406 Bonds 20,000 20,000 Certificates of participation 740,000 1,325,000 2,065,000 Loans 88,344 1,915,808 2,004,152 Retentions 2,000 2,000 Accrued interest 813, ,061 1,349,303 Employee leave benefits 47,565 58, ,192 26,378 Accrued expenses 336, , , ,314 Total Current Liabilities 5,671,485 6,321,931 11,993, ,098 Noncurrent Liabilities: Payables: Bonds Certificates of participation 47,774,175 31,906,406 79,680,581 Connection rights payable 9,521,394 4,592,901 14,114,295 Deposits 213, , ,340 Employee leave benefits 428, , , ,392 Estimated claims 11,478,580 Loans 1,627,666 26,358,312 27,985,978 1,107,890 Advances from other funds 5,041,548 5,041,548 Net Assets Total Noncurrent Liabilities 59,565,210 68,571, ,136,473 12,823,862 Total Liabilities 65,236,695 74,893, ,129,889 13,538,960 Invested in capital assets, net of related debt 34,316,901 86,570, ,886,964 5,888,396 Unrestricted 19,249,700 12,073,237 31,322,937 13,059,344 Total Net Assets $ 53,566,601 $ 98,643, ,209,901 $ 18,947,740 Adjustment to reflect the consolidation of internal service fund activities to related enterprise funds 1,627,375 Net assets of business-type activitie $ 153,837,276 See Accompanying Notes to Basic Financial Statements. 44

47 Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds For the Year Ended June 30, 2008 Internal Service Water Wastewater Total Funds Operating Revenues: Charges for services $ 37,889,377 $ 23,699,985 $ 61,589,362 $ 24,543,964 Operating Expenses: Personnel services 7,547,853 7,092,118 14,639,971 3,693,389 Purchased water 14,382,883 14,382,883 Administrative expenses 4,473,549 2,762,163 7,235,712 1,848,363 Benefit claims 1,011,402 Supplies 2,015,049 1,763,248 3,778, ,698 Repairs and maintenance 1,194,503 1,550,914 2,745,417 1,024,657 Depreciation 2,352,188 4,431,668 6,783,856 1,698,951 Utilities 1,628,181 2,028,680 3,656,861 1,191,912 Fuel 1,186,123 Professional services 1,095,425 2,672,800 3,768,225 3,495,377 Insurance premiums 407, , ,922 8,565,996 Rent 242, , ,153 24,443 Other 259,951 1,706,556 1,966, ,535 Total Operating Expenses 35,599,947 24,801,857 60,401,804 24,325,846 Operating Income 2,289,430 (1,101,872) 1,187, ,118 Nonoperating Revenues (Expenses): Investment income 1,003,428 1,717,774 2,721,202 1,582,133 Rents and concessions 776, ,741 Interest and fiscal charges (2,383,021) (2,193,129) (4,576,150) (108,949) Intergovernmental 413, ,865 Miscellaneous 519,012 2,297,293 2,816, ,416 Total Nonoperating Revenues (Expenses) (83,840) 2,235,803 2,151,963 1,841,600 Income Before Transfers and Capital Contributions 2,205,590 1,133,931 3,339,521 2,059,718 See Accompanying Notes to Basic Financial Statements. 45

48 Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds (Continued) For the Year Ended June 30, 2008 Water Wastewater Total Internal Service Funds Transfers in 642,000 Transfers out (44,000) (37,500) (81,500) Total Transfers (44,000) (37,500) (81,500) 642,000 Income Before Capital Contributions 2,161,590 1,096,431 3,258,021 2,701,718 Capital Contributions: Connection fees 1,021, ,347 1,720,450 Developer contributions 3,021, ,814 3,531, ,961 Total Capital Contributions 4,042,314 1,209,161 5,251, ,961 Changes in Net Assets 6,203,904 2,305,592 8,509,496 2,982,679 Net Assets at Beginning of Year 47,362,697 96,337, ,700,405 15,965,061 Net Assets at End of Yea $ 53,566,601 $ 98,643,300 $ 152,209,901 $ 18,947,740 Change in Net Assets $ 8,509,496 Adjustment to reflect the consolidation of internal service fund activities to related enterprise funds (7,007) Change in net assets of business-type activitie $ 8,502,489 See Accompanying Notes to Basic Financial Statements. 46

49 Combining Statement of Cash Flows Proprietary Funds For the Year Ended June 30, 2008 Internal Water Wastewater Totals Service Funds Cash Flows from Operating Activities: Cash received from customers $ 37,675,876 $ 24,043,047 $ 61,718,923 $ 24,499,337 Cash paid to employees for services (7,436,735) (7,028,790) (14,465,525) (3,654,064) Cash paid to other suppliers of goods or services (26,125,131) (12,298,547) (38,423,678) (19,888,765) Cash from rents and concessions 776, ,741 Cash from other sources 462,904 2,337,858 2,800, ,910 Net Cash Provided by Operating Activities 5,353,655 7,053,568 12,407,223 1,303,418 Cash Flows from Noncapital Financing Activities: Operating grants received 413, ,865 Cash received from other funds 100,775 50, , ,000 Cash paid to other funds (44,000) (138,275) (182,275) Net Cash Provided by Noncapital Financing Activities 56, , , ,000 Cash Flows from Capital and Related Financing Activities: Purchase and construction of capital assets (5,286,032) (1,336,192) (6,622,224) (1,902,835) Payments on connection rights (30,362) (678,031) (708,393) Cash received for connection fees 1,021, ,347 1,720,450 Cash received from special assessments 21,464 21,464 Cash received from principal payments on loans Interest payments on certificates of participation (3,024,666) (1,952,075) (4,976,741) Principal payments on certificates of participation (12,995,000) (1,280,000) (14,275,000) Principal payments on bonds (20,000) (20,000) Principal payments on loans (86,165) (1,998,840) (2,085,005) Interest payments on leases (108,949) Principal payments on leases (58,726) Proceeds from certificates of participation 30,440,000 30,440,000 Net Cash (Used for) Capital and Related Financing Activities 10,038,878 (6,544,327) 3,494,551 (2,070,510) Cash Flows from Investing Activities: Investment income received 1,034,227 1,710,064 2,744,291 1,629,345 Net Increase in Cash and Cash Equivalents 16,483,535 2,544,895 19,028,430 1,504,253 Cash and Cash Equivalents at Beginning of Year 12,623,148 24,692,407 37,315,555 23,957,226 Cash and Cash Equivalents at End of Year $ 29,106,683 $ 27,237,302 $ 56,343,985 $ 25,461,479 See Accompanying Notes to Basic Financial Statements. 47

50 Combining Statement of Cash Flows Proprietary Funds (Continued) For the Year Ended June 30, 2008 Internal Water Wastewater Totals Service Funds Reconciliation of Cash Equivalents to the statement of net assets: Cash and investments $ 7,890,004 $ 20,833,071 $ 28,723,075 $ 25,461,479 Restricted assets 21,216,679 6,404,231 27,620,910 Cash and Cash Equivalents at the End of Year $ 29,106,683 $ 27,237,302 $ 56,343,985 $ 25,461,479 Reconciliation of Operating Income to Net Cash Provided by Operating Activities: $ 2,289,430 $ (1,101,872) $ 1,187,558 $ 218,118 Adjustments to Reconcile Operating Income to Net Cash Provided by (Used for) Operating Activities: Depreciation expense 2,352,188 4,431,666 6,783,854 1,698,951 Cash from rents and concessions 776, ,741 Cash from other sources 519,012 2,297,293 2,816, ,910 Change in Assets and Liabilities: (Increase) decrease in accounts receivable (204,506) 200,390 (4,116) (44,627) (Increase) in employee tuition loans (2,809) (Increase) in inventories (3,860) (Increase) in notes receivable (4,354) (1,542) (5,896) Decrease in loans receivable 44,107 44,107 (Increase) in due from other governments (51,754) (51,754) (Decrease) in accounts payable (425,225) 979, ,301 (509,379) Increase in accrued expenses expenses 144, , ,893 81,344 Increase (decrease) in employee leave benefits payable (33,827) 35,508 1,681 (39,210) (Decrease) in employee retirement benefits payable (107,128) (107,128) Increase (decrease) in customer deposits (8,995) 140, ,677 (Decrease) in estimated claims payable (442,020) Total Adjustments 3,064,225 8,155,440 11,219,665 1,085,300 Net Cash Provided by Operating Activities $ 5,353,655 $ 7,053,568 $ 12,407,223 $ 1,303,418 Noncash Investing, Capital and Financing Activities: Contributed property, plant and equipment $ 3,021,211 $ 509,814 $ 3,531,025 $ 280,961 Bond amortization 56, , ,100 See Accompanying Notes to Basic Financial Statements. 48

51 Statement of Fiduciary Net Assets Fiduciary Funds June 30, 2008 Assets Agency Funds Cash and investments $ 8,485,265 Restricted: Cash and investments with fiscal agent 2,275,222 Receivables: Interest 11,738 Taxes 1,882 Liabilities Total Assets $ 10,774,107 Accounts payable $ 436,497 Deposits payable 6,844,807 Due to bondholders 3,492,803 Total Liabilities $ 10,774,107 See Accompanying Notes to Basic Financial Statements. 49

52 Notes to Basic Financial Statements June 30, 2008 I. Summary of Significant Accounting Policies A. Reporting Entity The City of Escondido (City) was incorporated in 1888 and operates under a Council/Manager form of government. The Council is composed of five members. As required by generally accepted accounting principles, the financial statements present the government and its component units for which the government is considered financially accountable. Blended component units, although legally separate entities, are, in substance, part of the government s operations and so data from these units are combined with the data of the primary government. Each blended component unit as described below has a June 30 year end. Blended Component Units Escondido Community Development Commission The Escondido Community Development Commission (Commission) was established in 1984 for the purpose of preparing and carrying out plans for improvement, rehabilitation and redevelopment of blighted areas within the territorial limits of the City. The City Council acts as the Commission s governing board and exerts significant influence over its operations. The funds of the Commission have been included in the governmental activities of the financial statements. Separate financial statements of the Escondido Community Development Commission can be obtained from the Finance Department at: Escondido Vehicle Parking District City of Escondido 201 North Broadway Escondido, California The Escondido Vehicle Parking District (District) was established in 1962 for the purpose of acquiring and improving parking lots in Escondido. The City Council acts as the District s governing board and exerts significant influence over its operations. The funds of the District have been included in the governmental activities of the financial statements. Separate financial statements are not prepared for this blended component unit. Escondido Joint Powers Financing Authority The City and Commission formed the Escondido Joint Powers Financing Authority (Authority). The Authority was established in 1991 for the purpose of providing for the financing of public capital improvements for the Members through the issuance of bonds by the Authority and the leasing of the public capital improvements to the Members and/or the acquisition of obligations pursuant to which 50

53 Notes to Basic Financial Statements (Continued) June 30, 2008 public capital improvements are financed by or for the benefit of the Members. The City Council acts as the Authority s governing board and exerts significant influence over its operations. The funds of the Authority have been included in the governmental activities of the financial statements. Separate financial statements are not prepared for this blended component unit. Other Information California Center for the Arts, Escondido Foundation The California Center for the Arts, Escondido Foundation (Foundation) was established in 1988 to provide a variety of visual and performing arts events, to encourage other cultural activities, and to provide a venue for local events and presentations. In 2004, the City entered into an occupancy license and management agreement with the Foundation whereby the City paid an annual management fee of $1.3 million for the operation of the Foundation. In addition, the City paid approximately $666,862 for routine expenses related to the upkeep and maintenance of the Foundation. In July 2007, the City and the Foundation amended the previous agreement. The revised operation and management agreement stipulates that the Foundation s unrestricted assets and revenues are the assets and revenues of the City. The City will also pay any and all expenses of operating the Foundation if the expenses exceed the Foundation s revenue and any excess of the Foundation s revenues over expenses with respect to operations shall be remitted to the City. Accordingly, the accompanying financial statements include the operating activity of the Cityowned Foundation, but the non-foundation activities and assets of the Foundation have been excluded. The other activities have been excluded from the accompanying financial statements because the Foundation did not meet the criteria to be a component unit of the City (i.e. the City does not appoint a voting majority of the Foundation s Board of Directors, is not financially accountable for the Foundation, and the City is not entitled to, nor has the ability to otherwise access, the assets of the Foundation). Separate financial statements of the Foundation can be obtained at: California Center for the Arts, Escondido Foundation 340 North Escondido Boulevard Escondido, California B. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements and eliminations have been made to minimize the double counting of internal activities. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely, to a significant extent, on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include: 1) charges to customers or applicants who purchase, use or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the 51

54 Notes to Basic Financial Statements (Continued) June 30, 2008 operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide, proprietary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when the liability is incurred, regardless of the timing of the related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Fiduciary funds have no measurement focus. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal year. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, claims and judgments are not recognized until paid. Property taxes, charges for services, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the government. The City reports the following major governmental funds: The General Fund is the general operating fund of the City. All general tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund are accounted for in this fund. General operating expenditures not paid through other funds are paid from this fund. The Low and Moderate Income Housing Special Revenue Fund was established to account for the 20 percent tax increment housing set-aside required by the State when a redevelopment project area is created. The funds will be used to assist low and moderate income families within the city. The Community Development Commission Debt Service Fund was established to account for the receipt of tax increment funds received through the creation of a redevelopment project area. The 52

55 Notes to Basic Financial Statements (Continued) June 30, 2008 funds will be used to service debts related to the project area which include advances from other funds and 1989 Tax Allocation Bonds that have been refunded by Lease Revenue Bonds. The debt was issued to provide financing for the construction of a new City Hall and Civic Center complex. The Public Safety Facilities Fund was established to account for projects related to the fire, police, and paramedic 911 emergency response measure (Proposition P). These projects are intended to improve fire and police response time. On November 2, 2004, Escondido voters approved Proposition P, which authorized the sale of up to $84,350,000 in municipal bonds to finance the new public safety facilities. Funding is provided through special assessments on the property tax rolls. The Proposition P General Obligation Bonds were issued during the fiscal year ended June 30, The City reports the following major proprietary funds: The Water Enterprise Fund is used to account for the financial activity of the City s water utility. The costs of providing these services to the general public are financed or recovered primarily through user charges. The Wastewater Enterprise Fund is used to account for the financial activity of the City s sewer utility. The costs of providing these services to the general public are financed or recovered primarily through user charges. Additionally, the City reports the following non-major fund types: Governmental Funds: The Special Revenue Funds are used to account for proceeds of specific revenue sources that are legally restricted or otherwise designated for specific purposes. The Debt Service Funds are used to account for the accumulation of resources for and the payment of principal and interest on general long-term debt. The Capital Projects Funds are used to account for financial resources used for the acquisition or construction of major capital facilities. The Permanent Funds are used to account for resources that are legally restricted, to the extent that only earnings and not principal, may be used for purposes that support the City s programs. 53

56 Notes to Basic Financial Statements (Continued) June 30, 2008 Proprietary Funds: The Enterprise Funds are used to account for operations that are financed and operated in a manner similar to private business enterprises. Costs are financed or recovered primarily through user charges. The Internal Service Funds are utilized to finance and account for activities involved in rendering services to departments within the City. Costs of services are accumulated in these funds and charged to user departments as such costs are incurred. Services provided by these funds include insurance, building maintenance, equipment maintenance and central services. Fiduciary Funds: Fiduciary Fund financial statements include a Statement of Net Assets. The City fiduciary funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The City has a private purpose trust fund and agency funds. The Agency Funds do not have a measurement focus. The City reports the following fiduciary funds which are excluded from the government-wide financial statements: The Private-Purpose Trust Fund is used to account for resources legally held in trust for the Hidden Trails Community Facilities District. The Agency Funds are used to account for money and property held by the City as trustee or custodian. These funds include refundable deposits and also account for the collection of special assessments levied on various assessment districts for the payment of debt service on no commitment debt. For both the government-wide and proprietary fund financial statements, the City applies all Governmental Accounting Standards Board (GASB) pronouncements currently in effect as well as only those Financial Accounting Standards Board Statements and Interpretations, Accounting Principals Board Opinions and Accounting Research Bulletin of the Committee on Accounting Procedure that were issued on or before November 30, 1989 that do not conflict with or contradict GASB pronouncements. As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the government s water and sewer function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include: 1) charges to members, customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants 54

57 Notes to Basic Financial Statements (Continued) June 30, 2008 and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. The principal operating revenues of the Water Enterprise Fund, the Wastewater Enterprise Fund, and of the government s internal service funds are charges to customers for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. D. Assets, Liabilities, and Net Assets or Equities 1. Cash and Investments Investments are reported in the accompanying statement of net assets at fair value, except for certain certificates of deposit and investment contracts that are reported at cost because they are not transferable and they have terms that are not affected by changes in market interest rates. Changes in fair value that occur during a fiscal year are recognized as investment income reported for that fiscal year. Investment income includes interest earnings, changes in fair value, and any gains or losses realized upon the liquidation, maturity, or sale of investments. The City pools cash and investments of all funds, except for assets held by fiscal agents. Each fund s share in this pool is displayed in the accompanying financial statements as cash and investments. Investment income, earned by the pooled investments, is allocated to the various funds based on each fund s average cash and investment balance. For purposes of the statement of cash flows, the City considers all highly liquid investments (including restricted assets) with maturity of three months or less when purchased to be cash equivalents. Cash invested in the City s cash management pool is also considered to be cash equivalents. 2. Receivables and Payables Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either due to/from other funds (i.e., the current portion of interfund loans) or advances to/from other funds (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as due to/from other funds. Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as internal balances. 55

58 Notes to Basic Financial Statements (Continued) June 30, 2008 Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. The amounts recorded as a receivable due from other governments include amounts collected or provided by Federal, State and County governments and not remitted to the City as of June 30, Property taxes attach as an enforceable lien on property as of January 1. Taxes are levied on July 1 and are payable in two installments on December 10 and April 10. The County of San Diego (County) bills and collects the property taxes and remits them to the City in installments during the year. City property tax revenues are recognized when levied to the extent that they result in current receivables. The County is permitted by State Law (Proposition 13) to levy taxes at 1% of full market value (at time of purchase) and can increase the property tax value base no more than 2% per year. The City receives a share of this basic levy proportionate to what it received in the 1976 to 1978 period. 3. Inventories Inventories within the various fund types consist of materials and supplies valued at cost, which approximates market, on the first-in, first-out basis. The costs of governmental fund type inventories are recorded as expenditures when consumed rather than when purchased. 4. Land Held for Resale Land held for resale is valued at lower of cost or market. The reported amount is equally offset by a fund balance reserve, which indicates that it does not constitute available spendable resources. The land held for resale primarily consists of lots in two mobilehome parks that the City owns and is holding until sold. It is anticipated that these lots could take several years to sell. 5. Cash and Investments with Fiscal Agents The City has monies held by trustees or fiscal agents pledged to the payment or security of certain bonds. The California Government Code provides that these monies, in the absence of specific statutory provisions governing the issuance of bonds, may be invested in accordance with the ordinance, resolutions or indentures specifying the types of investments its trustees or fiscal agents may make. These ordinances, resolutions and indentures are generally more restrictive than the City s investment policy. 56

59 Notes to Basic Financial Statements (Continued) June 30, Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated assets are valued at the fair value of the assets on the date on which they were contributed. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. The City utilizes a capitalization threshold of $5,000 - $10,000 depending on asset type. Depreciation is charged to operations using the straight-line method over the estimated useful lives of the assets as follows: Structures and improvements Machinery and equipment Infrastructure years 3-15 years years 7. Accounting for Capital Leases The City has entered into several leases that provide for the transfer of title to the City upon the exercise of a bargain purchase option or upon the payment of all required lease payments. These leases are classified as capital leases. In the accompanying financial statements, the assets acquired by means of capital leases are reported in the amount of the present value of the total lease payments. The related liability is presented in the amount of the present value of the future lease payments. 8. Employee Leave Benefits Depending upon length of employment, City employees earn 12 to 27 vacation days a year. Sick leave is accrued at the rate of 12 days per year except for Fire Safety which earns six twenty-four hour shifts. Employees can carry forward to subsequent years two to three years worth of earned but unused vacation leave benefits depending on employee group. Upon termination, the City is obligated to compensate employees for all earned but unused vacation days. The earned but unused sick leave benefits are not payable in the event of employee termination. These benefits are considered to be contingent liabilities subject to the continuation of the employee relationship. Such sick leave benefits are therefore not recorded as liabilities in the accompanying financial statements. In the government-wide financial statements, a liability is accrued for all earned but unused vacation leave benefits relating to the operations of the funds. This liability will be liquidated as either additional cash payments in the event of employee termination or as part of budgeted salary expenditures if used by employees as compensated leave time while still employed by the City. In the fund financial statements, governmental funds accrue current liabilities for material 57

60 Notes to Basic Financial Statements (Continued) June 30, 2008 vacation leave benefits due on demand to governmental fund employees that have terminated prior to year-end. Non-current amounts will be recorded as fund expenditures in the year in which they are paid or become due on demand to terminated employees. 9. Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the straight line method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 10. Claims and Judgments The City records a liability for litigation, judgments and claims when it is probable that an asset has been impaired or a liability has been incurred prior to year-end and the probable amount of loss (net of any insurance coverage) can be reasonably estimated. This liability is recorded in the internal service funds, which account for the City s self-insurance activities. 11. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans that are subject to change. 12. Use of Estimates The preparation of basic financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the reporting date and revenue and expenses during the reporting period. Actual results could differ from those estimates. 58

61 Notes to Basic Financial Statements (Continued) June 30, 2008 II. Stewardship, Compliance and Accountability A. Budgetary Data The City adopts an annual operating budget prepared on the modified accrual basis for its general, certain special revenue and certain debt service funds. Under Section 2-59 of the Escondido City Code, the City Manager is required to prepare and submit to the City Council the annual budget of the City and administer it after adoption. Each year, the City Manager submits a proposed budget to the City Council in May. The City Council holds budget hearings in June and the final budget is adopted by the City Council before June 30. The legal level of budgetary control is at the fund level. The City Manager is authorized to transfer budgeted amounts between the accounts of any fund; however, any revisions that alter the total appropriations of any fund must be approved by City Council. No budgetary comparisons are presented for certain special revenue, certain debt service, capita1 projects or proprietary funds as the City is not legally required to adopt an annual budget for those funds. The funds with legally adopted budgets include the: General Fund, Low and Moderate Income Housing Special Revenue Fund, Street Special Revenue Fund, Parks and Recreation Special Revenue Fund, Community Development Block Grant Special Revenue Fund, Landscape and Assessment District Special Revenue Fund, Home Special Revenue Fund, Miscellaneous Special Revenue Fund, Golf Course Debt Service Fund, General Obligation Debt Service Fund, Arts Center Special Revenue Fund and Community Development Commission Debt Service Fund. The City holds a midyear budget review meeting at which time revenue and expenditure projections are reviewed. Any necessary changes are approved by the City Council. Prior period appropriations lapse unless they are reappropriated through the formal budget process or through the carryover process. The City controls its expenditures using encumbrance accounting. In addition to the annual operating budget, the City adopts a Five-Year Capital Improvement Program. Funds are appropriated for the first year of the plan with years two through five included for planning purposes. Funds are appropriated on a project basis and are carried over until expended or the project is closed. The legal level of budgetary control is at the project level. The City Manager is authorized to transfer budgeted amounts between projects when transfers are less than $50,000 or 10% of the project. Transfers in excess of the budget policy amount must be approved by the City Council. B. Excess of Expenditures Over Appropriations The following individual fund exceeded its expenditures budget: Fund Type of Fund Amount Over Budget Community Development Commission Debt Service $ 1,117,222 59

62 Notes to Basic Financial Statements (Continued) June 30, 2008 These expenditures were funded with a combination of excess revenues over expenditures during the current fiscal year and by the available fund balance. III. Detailed Notes on All Funds A. Cash and Investments Cash and investments as of June 30, 2008 are classified in the accompanying financial statements as follows: Statement of net assets: Cash and investments $215,824,833 Cash and investments held by fiscal agent 42,315,983 Fiduciary funds: Cash and investments 8,485,265 Cash and investments held by fiscal agent 2,275,222 Total cash and investments $268,901,303 Cash and investments as of June 30, 2008 consist of the following: Cash on hand $ 8,981 Deposits with financial institutions 4,716,169 Investments 264,176,153 Total cash and investments $268,901,303 60

63 Notes to Basic Financial Statements (Continued) June 30, 2008 Investments Authorized by the California Government Code and the City s Investment Policy The table below identifies the investment types that are authorized for the City by the California Government Code and the City s investment policy. The table also identifies certain provisions of the California Government Code (or the City s investment policy, if more restrictive) that address interest rate risk and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee (i.e. fiscal agent) that are governed by the provisions of debt agreements of the City rather than the general provisions of the California Government Code or the City s investment policy. Authorized *Maximum *Maximum Investment Types By Investment *Maximum Percentage Investment Authorized by State Law Policy Maturity Of Portfolio in One Issuer Local Agency Bonds No 5 years None None U.S. Treasury Obligations Yes 5 years None None U.S. Agency Securities Yes 5 years None None Banker's Acceptances Yes 180 days 20% 10% Commercial Paper Yes 180 days 15% 10% Negotiable Certificates of Deposit Yes 5 years 5% $1,000,000 Repurchase Agreements Yes 1 year 10% None Reverse Repurchase Agreements No 92 days 20% of base value None Medium-Term Notes No 5 years 30% None Mutual Funds No N/A 20% 10% Money Market Mutual Funds No N/A 20% 10% Mortgage Pass-Through Securities No 5 years 20% None County Pooled Investment Funds Yes N/A None None Local Agency Investment Fund (LAIF) Yes N/A 20% None JPA Pools (other investment pools) No N/A None None *Based on state law requirements or investment policy requirements, whichever is more restrictive. 61

64 Notes to Basic Financial Statements (Continued) June 30, 2008 Investments Authorized by Debt Agreements Investment of debt proceeds held by bond trustee (i.e. fiscal agent) are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City s investment policy. The table below identifies the investment types that are generally authorized for investments held by bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk and concentration of credit risk. Maximum Maximum Authorized Maximum Percentage Investment Investment Type Maturity Allowed In One Issuer U.S. Treasury Obligations None None None U.S. Agency Securities 365 days None None Banker s Acceptances 360 days None None Commercial Paper 270 days None None Money Market Mutual Funds N/A None None Repurchase Agreements None None None Investment Contracts 30 years None None State or Municipal Obligations None None None State Pooled Investment Fund None None None 62

65 Notes to Basic Financial Statements (Continued) June 30, 2008 Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the City s investments (including investments held by bond trustee) to market interest rate fluctuations is provided by the following table that shows the distribution of the City s investments by maturity: Remaining Maturity (in Months) 18 Months 18 to More Than Investment Type Total Or Less Months Months 66 Months U.S. Treasury Notes $ 3,574,957 $ 754,515 $ 2,218,202 $ 602,240 $ Federal Agency Securities 129,628,683 57,605,494 60,117,086 11,906,103 State Investment Pool (LAIF) 86,381,308 86,381,308 Subtotal 219,584, ,741,317 62,335,288 12,508,343 Held by fiscal agent: Federal Agency Securities 12,532,280 12,532,280 Money Market Funds 32,058,925 32,058,925 Subtotal 44,591,205 44,591,205 Total $264,176,153 $189,332,522 $62,335,288 $12,508,343 $ Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the City s investment policy, or debt agreements, and the actual rating as of year end for each investment type. Investment Type Total Minimum Legal Rating Rating as of Year End Exempt From Disclosure AAA Aa Not Rated U.S. Treasury Notes $ 3,574,957 N/A $3,574,957 $ $ $ Federal Agency Securities 129,628,683 N/A 129,628,683 State Investment Pool (LAIF) 86,381,308 N/A 86,381,308 Subtotal $219,584,948 $3,574,957 $129,628,683 $ $86,381,308 63

66 Notes to Basic Financial Statements (Continued) June 30, 2008 Investment Type Total Minimum Legal Rating Rating as of Year End Exempt From Disclosure AAA Aa Not Rated Held by fiscal agent: Federal Agency Securities $ 12,532,280 N/A $ $ 12,532,280 $ $ Money Market Funds 32,058,925 AAA 32,058,925 Subtotal 44,591,205 44,591,205 Total $264,176,153 $3,574,957 $174,219,888 $ $86,381,308 Concentration of Credit Risk Investments in any one issuer (other than U.S. Treasury securities, mutual funds, and external investment pools) that represent 5% or more of total City investments are as follows: Issuer Investment Type Reported Amount Federal National Mortgage Association Federal agency securities $40,297,377 Federal Farm Credit Agency Federal agency securities 29,138,891 Federal Home Loan Bank Federal agency securities 47,977,199 Federal Home Loan Mortgage Corp. Federal agency securities 24,747,496 Investments in any one issuer that represent 5% or more of total investments by report unit (primary government, component unit, governmental activities, major fund, nonmajor funds in the aggregate, etc.) are as follows. Generally, this is applicable for investments held by the bond trustee. $4,649,983 of the cash and investments held by bond trustee reported in the Community Development Commission (a component unit of the City) are held in the form of FHLB federal agency securities. Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by 64

67 Notes to Basic Financial Statements (Continued) June 30, 2008 the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. As of June 30, 2008, all of the City s deposits in excess of the federal depository insurance limit were held in collateralized accounts. For investments identified herein as held by bond trustee, the bond trustee selects the investment under the terms of the applicable trust agreement, acquires the investment, and holds the investment on behalf of the reporting government. Investment in State Investment Pool The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the City s investment in this pool is reported in the accompanying financial statements at amounts based upon the City s pro-rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. LAIF is not rated. B. Receivables and Allowances for Uncollectible Receivables Receivables The Community Development Commission (CDC) has entered into agreements with various parties to establish low and moderate income housing loans. At June 30, 2008, the CDC outstanding loans receivable total $27,476,973. Outstanding loans receivable in the HOME grant fund and other funds totaled $15,278,168. Uncollectible Receivables All receivables are shown net of an allowance for uncollectibles which is at June 30 as follows: Fund Allowance Amount General Fund $1,107,864 Water Enterprise Fund 485,227 $1,593,091 The General Fund allowance is mainly for paramedic and DUI cost recovery activities. 65

68 Notes to Basic Financial Statements (Continued) June 30, 2008 C. Capital Assets A summary of changes in capital asset activity for the City s governmental and business type activities for the year ended June 30, 2008 is as follows: Governmental activities: Balance at Balance at July 1, 2007 Increases Decreases June 30, 2008 Capital assets, not being depreciated: Art and historical treasures $ 8,861,037 $ $ $ 8,861,037 Land 36,329,496 8,917,341 (4,337,846) 40,908,991 Constructions in progress 42,543,470 41,146,295 (16,647,535) 67,042,230 Total capital assets, not 87,734,003 50,063,636 (20,985,381) 116,812,258 being depreciated Capital assets, being depreciated: Land improvements 16,796,332 1,062,079 17,858,411 Buildings 126,098, ,098,460 Machinery and Equipment 28,309, ,590 28,652,605 Motorized vehicles 9,201,117 2,196,791 (254,339) 11,143,569 Infrastructure 232,667,848 14,258, ,926,693 Golf course 4,326,835 4,326,835 Total capital asset, being depreciated 417,399,607 17,861,305 (254,339) 435,006,573 Less accumulated depreciation for: Land improvements (9,831,911) (1,302,751) (11,134,662) Buildings (57,475,163) (4,063,220) (61,538,383) Machinery and Equipment (27,337,059) (396,303) (27,733,362) Motorized vehicles (4,471,940) (1,626,040) (6,097,980) Infrastructure (142,153,102) (7,062,151) (149,215,253) Golf course (671,938) (144,272) (816,210) Total accumulated depreciation (241,941,113) (14,594,737) (256,535,850) Total capital assets, being depreciated, net 175,458,494 3,266,568 (254,339) 178,470,723 Governmental activities capital assets, net $263,192,497 $53,330,204 $(21,239,720) $295,282,981 66

69 Notes to Basic Financial Statements (Continued) June 30, 2008 Business-type activities: Balance at Balance at July 1, 2007 Increases Decreases June 30, 2008 Capital assets, not being depreciated: Land $ 1,814,559 $ $ $ 1,814,559 Construction in progress 23,695,957 6,632,799 (13,295,487) 17,033,269 Total capital assets, not being Depreciated 25,510,516 6,632,799 (13,295,487) 18,847,828 Capital assets, being depreciated: Land improvements 395, ,564 Buildings 23,939,079 89,510 24,028,589 Machinery and equipment 3,034, ,603 3,151,299 Water system 72,781,844 6,307,155 79,088,999 Electrical system 3,609,179 3,609,179 Sewer system 140,843,358 5,455, ,298,644 Recycled water system 19,314,008 4,849,383 24,163,391 Total capital assets, being depreciated 263,917,728 16,817, ,735,665 Less accumulated depreciation for: Land improvements (59,754) (16,100) (75,854) Buildings (13,869,044) (587,685) (14,456,729) Machinery and equipment (2,733,274) (98,969) (2,832,243) Water system (20,352,192) (1,854,561) (22,206,753) Electrical system (2,698,766) (93,719) (2,792,485) Sewer system (29,325,856) (3,567,544) (32,893,400) Recycled water system (1,978,731) (565,278) (2,544,009) Total accumulated depreciation (71,017,617) (6,783,856) (77,801,473) Total capital assets, being depreciated, net 192,900,111 10,034, ,934,192 Business-type activities capital assets, net $218,410,627 $16,666,880 $(13,295,487) $221,782,020 Construction in progress in the governmental activities consists primarily of additions to infrastructure, parks, and the construction of a new public safety facility. 67

70 Notes to Basic Financial Statements (Continued) June 30, 2008 Business-type construction in progress consists primarily of expansion of the wastewater treatment plant, construction of a reclamation distribution system and water and sewer line installation projects. Depreciation expense of $21,378,593 was charged to the following functions: Governmental Activities Business-type Activities General government $ 645,907 $ Public safety 535,544 Community services 1,836,207 Public works 7,134,039 Community development 2,744,089 Water 2,352,188 Wastewater 4,431,668 Capital assets held by the government's internal service funds are charged to the various functions based on their usage of the assets 1,698,951 Total $ 14,594,737 $ 6,783,856 D. Interfund Receivable, Payable and Transfers Due to/from other funds: Due To Other Funds Nonmajor General Governmental Due from other Funds Fund Funds Totals General Fund $ $806,762(1) $ 806,762 Wastewater Fund 50,000(2) 50,000 Nonmajor governmental funds 620,342 (3) 620,342 $620,342 $856,762 $1,477,104 (1) The $806,762 due from Nonmajor Governmental Funds to the General Fund are short term borrowings due to negative cash balances at the end of this fiscal year. (2) This balance represents the current portion due for an interfund loan agreement. (3) The $620,342 due from General Fund to Nonmajor Governmental Funds is the General Fund subsidy for the Center for the Arts Fund expenditures incurred during the current fiscal year. 68

71 Notes to Basic Financial Statements (Continued) June 30, 2008 Advances to/from other funds: Advance To: General Fund Low and Moderate Income Housing Advances From: Nonmajor Governmental Fund Water Fund Wastewater Fund Total CDC Debt Service $ 9,832,654 $3,399,292 $200,000 $ $ $13,431,946 Wastewater Fund 5,041,548 5,041,548 Nonmajor Governmental Funds 309, , ,300 1,460,538 Total $10,141,904 $3,399,292 $869,988 $5,041,548 $481,300 $19,934,032 The advances were primarily used for the following: 1. The Community Development Commission Debt Service Fund has received monies from the General Fund, Street Special Revenue Fund and Community Development Commission Low and Moderate Income Housing Fund for use in its operations, capital improvement projects, and Educational Revenue Augmentation Fund payments made for fiscal years through and through For certain of these advances, interest is accrued at the average annual 20-year municipal bond rate plus one percent, which equated to 5.6% for the year ended June 30, Accrued interest on the advances amounting to $19,990,021 is not reflected in the accompanying financial statements. Interest is recorded when it becomes payable from available spendable resources. The amount of the long-term advances to other funds has been offset by a fund balance reserve amount. At June 30, 2008, the outstanding balance of the advances from other funds totaled $13,431, In March 2001, the City issued $25,730,000 Revenue Certificates of Participation Water Bonds of which, $5,500,000 was advanced to the Wastewater Fund. See Note III E. The repayment of the advance has been calculated based on the Wastewater Funds prorata share over the life of the bonds. The principal payments range from $82,323 to $376,129. At June 30, 2008 the amount of $ 5,041,548 remains outstanding. 3. The Escondido Vehicle Parking District entered into agreements with the General Fund and the Community Development Commission Capital Projects Fund for the purchase of the downtown parking lots. These advances totaled $629,238 at June 30, The Public Facilities Capital Projects fund entered into an agreement with the Wastewater Enterprise fund for an advance to purchase land for the public works yard. At June 30, 2008 the amount of $481,300 remained outstanding. 69

72 Notes to Basic Financial Statements (Continued) June 30, The General Fund and Parks and Recreation Special Revenue fund entered into an agreement for an advance in the amount of $150,000. The Parks and Recreation Special Revenue fund also entered into an agreement with the Street Improvement Capital Projects fund in the amount of $200,000. Interfund Transfers: Transfer Out: General Fund Low and Moderate Income Housing Community Development Commission Debt Service Transfer In Nonmajor Governmental Internal Service Total General Fund $ $ $ $8,189,332 $642,000 $ 8,831,332 Low & Moderate Income 797, ,843 Housing CDC Debt Service 81,207 81,207 Nonmajor Governmental 1,643,655 1,302,162 2,945,817 Enterprise: Water 44,000 44,000 Wastewater 37,500 37,500 Total $1,643,655 $81,207 $797,843 $9,572,994 $642,000 $12,737,699 Transfers are used to: (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, and (3) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. 70

73 Notes to Basic Financial Statements (Continued) June 30, 2008 E. Long-Term Liabilities Governmental Activities: Employee Leave Benefits Payable The City s policies relating to employee leave benefits are described in Note I D. This liability will be paid in future years from future resources primarily from the General Fund. $6,743,805 Employee Retirement Benefits Payable On June 4, 2003, the City of Escondido adopted a separation incentive program. This program offered to certain eligible employees monetary incentives to encourage early separation of service in order to produce long-term financial and budgetary benefits to the City. Substantive requirements to be eligible for the program included requirements that an employee must have been actively employed and in good standing as of June 6, 2003, be at least fifty years of age, have at least five years of regular City service, and must have committed to retire or resign on or before September 5, The plan is administered through the Public Agency Retirement System (PARS). The plan provided a variety of payment options that are agreed to by the City and each individual employee, including lump sum payment options and annuitized payment options. The predetermined payments to fund the program are made annually over a five year period. $ 27,836 Claims Payable (Note I D) $11,478,580 Loans Payable In 2004, the City was granted an energy conservation loan from the California Energy Commission to fund various energy conservation projects. The term of the loan is 15 years with an annual interest rate of 3.95%. $1,107,887 In 2002, 2004, 2006, 2007 and 2008, the Community Development Commission of the City of Escondido received loans from the California Housing Finance Agency. The proceeds of the loan are to be used to finance the acquisition of Washington Plaza Apartments, Trinity Apartments, Brotherton, Las Ventanas, and SoCal Housing. The terms of the loans are ten years with an annual interest rate of 3%. Payment is deferred for the term of the loan. 6,100,000 71

74 Notes to Basic Financial Statements (Continued) June 30, 2008 The Escondido Community Development Commission (Commission), a component unit of the City of Escondido, entered into a Disposition and Development Agreement on July 22, 1992 with Arroyo Energy Limited Partnership, a California limited partnership (Developer). The Agreement was entered into for the purpose of developing an ice arena and health club facility within the redevelopment area. Under the terms of the Agreement, the Commission would pay $1,000,000 to the Developer, attributable to the site of the development (net of the site s pro rata share of any existing pass-through agreements and the required low and moderate income housing deposits). The interest rate on the loan is 10%, and the annual payment of interest and principal is $131,500 commencing 1995 and ending ,535 Total Loans Payable $7,435,422 Certificates of Participation In December 1993, the City of Escondido issued $6,775,000 of taxable Certificates of Participation to provide financing for the construction of an 18-hole golf course. The principal is due annually in amounts ranging from $160,000 to $645,000 on September 1 of each year commencing with 1995 through the year Interest is payable semiannually on March 1 and September 1 of each year commencing September 1, 1994, at rates ranging from 5.5% to 8.4%. The reserves are fully funded. $3,585,000 General Obligation Bonds On August 1, 2006, the City issued General Obligation Bonds, election of 2004, Series A amounting to $84,350,000 to construct, upgrade, and acquire land for City fire stations, an emergency response training center, and a combined police and fire headquarters facility. The bonds mature serially on September 1, beginning 2007 through 2036 in amounts ranging from $1,170,000 to $5,225,000 and pay interest at rates varying from 3.55% to 4.75%. Interest is payable semiannually on March 1 and September 1 of each year, commencing on March 1, The reserves are fully funded. Unamortized bond deferred charges were $732,007 at June 30, $83,180,000 Tax Allocation Bonds In January 1992, the Escondido Joint Powers Financing Authority issued $35,986,152 Revenue Bonds Series 1992 for the purpose of making a loan to the Escondido Community Development Commission. In December 2001, the Commission issued $22,420,000 Revenue Bonds to advance refund $23,585,000 of the bonds. The remaining bonds consist of capital appreciation bonds in the initial amounts of $612,259 and $568,893 due on September 1, 2012 and September 1, 2013, respectively, in the accreted amounts of $2,240,000 each. The 72

75 Notes to Basic Financial Statements (Continued) June 30, 2008 outstanding balance at June 30, 2008 includes $2,155,600 of accreted value of the capital appreciation bonds. $3,336,752 In March 1993, the Escondido Joint Powers Financing Authority issued $24,790,000 Revenue Bonds Series 1993A for the purpose of making a loan (advance) to the Escondido Community Development Commission. Principal is due annually in amounts ranging from $1,050,000 to $2,055,000 on September 1 of each year through the year Interest is payable semiannually on March 1 and September 1 of each year commencing September 1, 1993 at rates ranging from 3.00% to 5.20%. The reserves are fully funded. 4,010,000 Total Tax Allocation Bonds $7,346,752 Lease Revenue Bonds In April 2001, the City of Escondido issued $6,300,000 in Lease Revenue Bonds to provide financing for the acquisition and construction of an 18-hole golf course. The principal is due annually on September 1 in amounts ranging from $70,000 to $240,000, commencing 2003 and ending In addition, $3,770,000 of Term Bonds are due September 1, Interest is payable semiannually on March 1 and September 1 of each year commencing September 1, 2001, at rates ranging from 3.5% to 5.12%. The reserves are fully funded. Unamortized bond discount was $175,685 at June 30, $5,660,000 In January 2007, the Escondido Joint Powers Financing Authority issued $40,025, A Lease Revenue Refunding Bonds and $16,525, B Taxable Lease Revenue Refunding Bonds to refund the 1995 Certificates of Participation (COP) Lease Revenue Bonds, originally issued in the principal amount of $51,385,757 to provide financing for the Civic Center Construction project. As a result, the 1995 COP is considered to be defeased and the respective liability has been removed from the statement of net assets. The 2007A Lease Revenue Refunding Bonds bear interest rates between 3.6% to 4.02% payable semiannually on March 1 and September 1 of each year. The 2007A Lease Revenue Refunding Bonds mature between September 1, 2009 and September 1, 2018 in amounts ranging from $850,000 to $5,025,000. The 2007B Taxable Lease Revenue Refunding Bonds mature on September 1, 2018 at 5.53% rate. The 2007B bonds are subject to mandatory redemption from a sinking fund account in amounts ranging from $930,000 to $2,045,000 commencing September 1, Both 2007A and 2007B bonds are subject to mandatory redemption as a whole or in part on any date without premium, from unused insurance or condemnation proceed as described in the bond covenants. The reserve for 2007A and 2007B bonds was in form of surety bond and fully funded. Unamortized bond deferred charges were $1,351,823 at June 30, ,550,000 73

76 Notes to Basic Financial Statements (Continued) June 30, 2008 December 2001, the Escondido Community Development Commission issued $22,420,000 of Lease Revenue Bonds to refund $22,005,000 of the 1992 Certificates of Participation which were issued to refund certain certificates of participation originally issued by the City of Escondido in 1986 to finance a portion of the construction of the City Hall. The bonds are due in annual installments from 2002 through 2011, with interest rates ranging from 3.00% to 4.25% and annual installments of $1,970,000 to $2,580,000. Unamortized bond deferred charges were $114,288 at June 30, ,790,000 Total Lease Revenue Bonds $72,000,000 Debt Service Requirements to Maturity Governmental Activities The annual requirements to amortize outstanding long-term debt including accreted values of the City s Governmental Activities through maturity, excluding amounts for employee leave benefits payable, claims payable and loans payable are as follows (expressed in thousands of dollars): Certificates of Tax Allocation Lease Revenue General Obligation Year Ending Participation Bonds Bonds Bonds June 30 Principal Interest Principal Interest Principal Interest Principal Interest 2009 $395 $284 $ 1,955 $157 $2,395 $3,380 $1,380 $3, , ,610 3,227 1,440 3, ,995 2,952 1,500 3, ,420 2,612 1,565 3, ,240 6,830 2,263 1,630 3, , ,240 29,250 7,079 9,395 16, ,270 1,171 11,995 14, , ,305 10, , ,525 7, ,445 1,904 Total Debt Service Payments $ 3,585 $ 1,151 $ 8,490 $ 210 $ 72,000 $ 23,410 $ 83,180 $ 69,061 These totals include Capital Appreciation of $1,143,248 for Tax Allocation Bonds that will be accrued in future years. 74

77 Notes to Basic Financial Statements (Continued) June 30, 2008 Summary of Changes in Long-term Liabilities for Governmental Activities Balance at July 1, 2007 Additions Reductions Balance at June 30, 2008 Due Within One Year Due Beyond One Year Employee Leave Benefits Payable $ 6,908,964 $ 9,793 $ (174,952) $ 6,743,805 $ 526,378 $ 6,217,427 Employee Retirement Benefits Payable 372,490 (344,654) 27,836 13,918 13,918 Claims Payable 11,920, ,980 (938,000) 11,478,580 2,295,000 9,183,580 Capital Lease Payable 76,921 16,974 (93,895) Loans Payable 5,484,285 2,050,000 (98,863) 7,435, ,747 7,326, Taxable Certificates of Participation 3,950,000 (365,000) 3,585, ,000 3,190, Public Safety Facilities 84,350,000 (1,170,000) 83,180,000 1,380,000 81,800, Tax Allocation Revenue Bonds 3,132, ,453 3,336,752 3,336, Tax Allocation Revenue Bonds 5,870,000 (1,860,000) 4,010,000 1,955,000 2,055, Reidy Creek Lease Revenue Bonds 5,810,000 (150,000) 5,660,000 70,000 5,590, A & B Lease Revenue Bonds 56,550,000 56,550,000 56,550, Lease Revenue Bonds 12,040,000 (2,250,000) 9,790,000 2,325,000 7,465,000 Totals $ 196,465,559 $ 2,777,200 $ (7,445,364) $ 191,797,395 $ 9,069,043 $ 182,728,352 Table excludes a bond premium of $3,099,753 and a bond discount of $175,685. Business-type Activities: Connection Rights Payable In 1982, the City raised funds for water and sewer improvements by selling in advance rights to connect to the utility system. The holders of those rights could sell or transfer those rights to others. The value of the rights resulted from the ability of the holder to redeem the rights to the City in order to connect to the system. The amounts collected represent connection fees collected in advance of the connection. The amounts collected are recorded as a liability until earned at the time of connection. 75

78 Notes to Basic Financial Statements (Continued) June 30, 2008 The purchase price for sewer connection rights sold was $1,500 per right. Per the contract, the rights increased in value at 10% per year until May 31, As of that date, a sewer right was valued at $21,872. The purchase price for water connection rights sold was $900 per right. Per the contract, the rights increased in value at 10% per year until July 1, At that time, each right was valued at $3,230. There was no limit to the number of rights purchased under a contract or the number of contracts an individual might purchase. Both contracts allowed several options to the purchaser. These options were: 1) The rights could be used by the purchaser at the time of pulling building permits, thus waiving the current fee being charged by the Building Department; 2) if the owner of the rights sold the property for which the rights were originally purchased, the rights could be transferred to the new owner; 3) the last option was to turn in the right to the City of Escondido for the purpose of resale on a first come, first served basis. Resales are determined monthly and paid based on receipts from current connection fees on building permits. Interest on connection rights represents the increase in the obligation of the City to the holders of the rights as a result of rates of increase stipulated in the City s agreement with the holders of the rights. $14,114,295 Employee Leave Benefits Payable The City s policies relating to employee leave benefits are described in Note I D8 of the Notes to Financial Statements. This liability will be paid in future years from future resources. $1,061,923 Special Assessment Debt with Government Commitment In February 1994, the City issued bonds for the Assessment District No (Bernardo Avenue/Hamilton Lane Sewer). Proceeds from the bonds are to be used by the City to provide sewer service to specific residences. The bonds were issued in the amount of $242,461 and bear an interest rate of 3.75% to 6.10%, depending on the date of maturity. Bonds are payable annually beginning September 2, 1995 through September 2, The property owners benefiting from the 1915 Act Assessment District improvements are directly liable for repayment of the Special Assessment Bonds pursuant to the Improvement Bond Act of 1915 and the Municipal Improvement Act of The City is not directly liable for repayment of the bonds. The City may, at its sole option and in its sole discretion, elect to advance available surplus funds of the City to pay for any delinquent installments pending sale, reinstatement, or 76

79 Notes to Basic Financial Statements (Continued) June 30, 2008 redemption of the delinquent property. However, bond owners should not rely upon the City to advance monies to the Redemption Fund if the Reserve Fund were ever depleted. The liability for the bonds along with a corresponding assessments receivable have been included in the Wastewater Fund. $ 20,000 Revenue Certificates of Participation In March 2001, the City issued $25,730,000 in Revenue Certificates of Participation with an average interest rate of 5.4% to: (i) finance certain improvements to the City s Hale Avenue Resource Recovery Facility (the HARRF Project ) (ii) finance various capital improvements to the Water System (the Water Project ) and (iii) advance refund $6,860,000 of outstanding 1996 Water Revenue Bonds with an average interest rate of 5%, which were originally executed and delivered to provide funds for the refunding of certain water revenue bonds of the City issued in 1974 and 1989 which in turn financed the acquisition, construction and improvement of certain elements of the Water System. The $25,730,000 Revenue Certificates of Participation are due in annual installments beginning March 1, 2001 through 2032 of $85,000 to $7,050,000 with varying interest rates from 5% to 6% per annum. At June 30, 2008, the reserve was fully funded. The Certificates with stated maturities on or after September 1, 2011, will further be subject to prepayment prior to their respective stated maturities, as a whole or in part on any date in the order of maturity as directed by the City in a Written Request provided to the Trustee at least 60 days prior to the prepayment date and by lot within each maturity in integral multiples of $5,000, on or after September 1, 2010 from amounts prepaid by the City pursuant to the Installment Purchase Agreement at a Prepayment Price (expressed as a percentage of the principal amount of such Certificates to be prepaid) ranging from 100% to 101% plus interest accrued. In addition the term bonds maturing on September 1, 2018 through 2031, in the amounts ranging from $1,925,000 to $6,000,000 and with interest ranging from 5.625% to 6%, are subject to mandatory sinking fund prepayment. In the fiscal year ended June 30, 2008 these bonds have been partially defeased by the Issuance of the Revenue Certificates of Participation, series Unamortized bond discounts and deferred charges are $266,108 at June 30, $10,860,000 On August 2002, the City issued $9,170,000 in Revenue Certificates of Participation, Series 2002A, to finance the cost of construction of certain replacements to water lines and other capital improvements to the water system. The $9,170,000 Revenue Certificates of Participation are due in annual installments beginning September 1, 2004 through 2023 of $70,000 to $145,000 with varying interest rates from 1.7% to 5% per annum. In addition, there is 77

80 Notes to Basic Financial Statements (Continued) June 30, 2008 $7,275,000 of term bonds with an interest rate of 5% due September 2024 through 2033 in amounts ranging from $145,000 to $2,275,000, which are subject to mandatory sinking fund prepayment. At June 30, 2008, the reserve was fully funded. The Certificates with stated maturities on or after September 1, 2011, will further be subject to prepayment prior to their respective stated maturities, as a whole or in part on any date in the order of maturity as directed by the City in integral multiples of $5,000, on or after September 1, 2011 from amounts prepaid by the City pursuant to the Installment Purchase Agreement at a Prepayment Price (expressed as a percentage of the principal amount of such Certificates to be prepaid) ranging from 100% to 101% plus interest accrued. Unamortized bond discounts and deferred charges are $252,120 at June 30, ,890,000 In September 2007, the City issued $30,440,000 in Revenue Certificates of Participation to finance certain capital projects and to advance refund $12,450,000 of outstanding Revenue Certificates of Participation, series 2000A, which were originally issued to finance the cost of construction of certain replacements to water lines and other capital improvements to the water system. The principal is due annually on September 1 in amounts ranging from $430,000 to $990,000, commencing 2008 and ending 2025 and pay interest at rates varying from 3.5% to 4.375%. In addition, $5,775,000 and $13,325,000 Term certificates are due September 1, 2030 and September 2037, respectively. The $5,775,000 term certificates pay interest at 5.0% and the $13,325,000 term certificates pay interest at 4.75%. Interest is payable semi-annually on March 1 and September 1 of each year, commencing on March 1, The reserve is fully funded. This partial advance refunding at June 30, 2008 was undertaken to reduce total debt service payments over the next 10 years by $1,250,298 and resulted in an economic gain of $895,950. The certificates maturing on or after September 1, 2018 are subject to optional prepayment prior to their respective maturities, as a whole or in part on any date in the order of maturity as directed by the City in a Written Request provided to the Trustee at least 45 days prior to the prepayment date and by lot within each maturity in integral multiples of $5,000, on or after September 1, 2007 from amounts prepaid by the City pursuant to the Installment Purchase Agreement at a Prepayment Price equal to 100% of the principal amount of such Certificates to be prepaid. Additionally, the term certificates maturing on September 1, 2030 and 2037 are subject to mandatory prepayment in part (by lot) on each September 1 on and after September 1, 2026 and 2031, respectively, in integral multiple of $5,000 at a prepayment price as described in the Certificate covenants. Unamortized deferred charges are $1,398,988 at June 30, ,440,000 Total Revenue Certificates of Participation $50,190,000 78

81 Notes to Basic Financial Statements (Continued) June 30, 2008 Certificates of Participation In December 2004, the City of Escondido issued $28,805,000 Certificates of Participation to provide funds for a refunding of City of Escondido 1996 Wastewater Refunding Project COP. The 1996 Certificates of Participation were used to refund the City s 1972 Sewer Revenue Bonds, Series A, which were used for the acquisition of Daley Ranch and related water and sewer connection rights. Accordingly, the trust account assets and the liability for the defeased bonds are not included in the City s financial statements. The 2004A refunding COP bear interest rates between 2.50% and 4.75% and were issued under a trust agreement dated December 1, 2004 with the Bank of New York Trust Company as trustee. The refunding COP mature between September 1, 2005 through September 1, 2026 in the amounts ranging from $725,000 to $1,975,000. At June 30, 2008, the reserve was fully funded. Unamortized bond discounts and deferred charges are $2,941,649 at June 30, $26,220,000 In December 2004, the City of Escondido issued $10,775,000 Certificates of Participation to provide funds for certain capital improvements to the City s Wastewater System. The COP were executed and delivered concurrently with the City s 2004A Certificates of Participation. The 2004B COP bear interest rates between 3.31% and 4.18%. MBIA Insurance Corporation was the issuer of the COP and has simultaneously issued a financial guaranty insurance policy with the COP. The rate covenant requirement for the COP is net revenues equal to one hundred fifteen percent (115%) of the debt service for each fiscal year. At June 30, 2008, the reserve was fully funded. Unamortized bond discounts and deferred charges are $151,949 at June 30, ,105,000 Total Certificates of Participation $36,325,000 Loans Payable In 1999, the City of Escondido entered into an agreement with the State Water Resources Control Board (State Board) for a revolving fund loan program. The fund was established with a combination of Federal Clean Water Act funds and State matching funds. The proceeds were used to construct a Tertiary Treatment Facility for local wastewater and a delivery system for recycled water to a specified number of local users. There are two phases in the Tertiary Treatment Facility project, and the loan was set up with sub-loan amounts for each phase. The City is obligated to repay the State Board on the Federal Disbursement Amount as principal and the Local 79

82 Notes to Basic Financial Statements (Continued) June 30, 2008 Match Amount as interest on the loan. The Federal Disbursement portion is 83.33% and the Local Match portion is 16.67% of the total loan balance. The first phase of the Tertiary Treatment Facility project was completed on May 25, During fiscal year the City increased the outstanding loan balance on the second phase of the projects by $4,912,366. The project was competed on April 1, The principal and interest on the first phase loan is due annually on May 25 in the amount of $488,990 commencing 2002 and ending The principal and interest on the second phase loan is due annually on April 1 in the amount of $1,728,852 commencing 2004 and ending $26,907,944 In 2002, the City of Escondido entered into an agreement with the Department of Water Resources for a loan program. The funds were provided in part from the Federal Capitalization Grant for Drinking Water State Revolving Funds program. The proceeds were used to construct the Gravity Float Line Capital Project. Repayment began on January 1, 2005, with semi-annual payments of $65,459 with varying interest rates from 1.94% to 3.16%. The repayment ends on July 1, ,716,010 In 2005, the City entered into an agreement with the Department of Water Resources for a loan program. The funds were provided in part from the Federal Capitalization Grants for Clean Water State Revolving Funds program. The proceeds of $1,572,306 were used for the HARRF Aeration Blower Replacement Project. Principal and interest is due annually on December 30 in the amount of $98,817 commencing 2005 and ending The project was completed as of June 30, ,366,176 Total Loans Payable $29,990,130 80

83 Notes to Basic Financial Statements (Continued) June 30, 2008 Debt Service Requirements to Maturity Business-type Activities The annual requirements to amortize outstanding long-term debt of the City s Business-type Activities as of June 30, 2008, excluding amounts for connection rights payable, employee leave benefits payable, deposits payable, loans payable, and discounts on Certificates of Participation are as follows (expressed in thousands of dollars): Special Assessment Year Ending Water Revenue COP Wastewater COP Bonds June 30 Principal Interest Principal Interest Principal Interest 2009 $ 740 $ 2,425 $ 1,325 $ 1,587 $ 20 $ ,393 1,365 1, ,359 1,415 1, ,323 1,470 1, ,285 1,525 1, ,045 10,774 8,625 5, ,375 9,439 10,780 3, ,635 7,637 9, ,440 5, ,660 1,810 Total Debt Service $ 50,190 $ 46,471 $ 36,325 $ 18,033 $ 20 $ 1 Summary of Changes in Long-term Liabilities for Business-type Activities: Balance at Balance at Due Within Due Beyond July 1, 2007 Additions Reductions June 30, 2008 One Year One Year Connection Rights Payable $ 14,822,689 $ $ (708,394) $ 14,114,295 $ $ 14,114,295 Employee Leave Benefits Payable 1,060,242 35,508 (33,827) 1,061, , ,731 Employee Retirement Benefits 107,128 (107,128) Special Assessment Debt ,000 (20,000) 20,000 20, Water Revenue COP 23,780,000 (12,920,000) 10,860, ,000 10,620, Water Revenue COP 8,965,000 (75,000) 8,890,000 70,000 8,820, Water revenue COP 30,440,000 30,440, ,000 30,010, A Wastewater COP 27,160,000 (940,000) 26,220, ,000 25,250, B Wastewater COP 10,445,000 (340,000) 10,105, ,000 9,750,000 Loans payable 31,988,970 (1,998,840) 29,990,130 2,004,152 27,985,978 Total $ 118,369,029 $ 30,475,508 $ (17,143,189) $ 131,701,348 $ 4,195,344 $ 127,506,004 Table excludes COP discounts and deferred charges of $5,010,811 and premium of $241,

84 Notes to Basic Financial Statements (Continued) June 30, 2008 F. Rate Covenants Under various debt issues, the City has agreed to set charges for water and wastewater services each year at rates sufficient to produce net revenues (after paying operating and maintenance expenses, excluding depreciation and interest) of at least 1.20 and 1.15 times the debt service on the bonds for that year for the Water and Wastewater Fund, respectively. For the year ended June 30, 2008, the City met this requirement, as follows: Water Wastewater Gross revenues, excluding Intergovernmental revenue $41,209,661 $28,414,399 Operating and maintenance expenses, Excluding depreciation and interest 33,247,759 20,370,189 Net revenues 7,961,902 8,044,210 Amount required: Debt service payments 2,702,186 5,221,508 Coverage required IV. Other Information Amount required 3,242,623 6,004,734 Excess of net revenues $ 4,719,279 $ 2,039,476 A. Self-Insurance and Contingent Liabilities The City is a member of the San Diego Pooled Insurance Program Authority (SANDPIPA) which provides liability coverage to its members. As a member, the City carries a self-insured retention of $500,000 and is insured through SANDPIPA from $500,000 to $2,000,000. In addition, SANDPIPA has purchased excess insurance coverage above $2,000,000 to $35,000,000 for all of its members, including the City. The Board of Directors elects three members (including a President and Vice President) to the Executive Committee, which has the responsibility for overseeing all operations of SANDPIPA, including preparation and submission of the annual operating budget to the Board of Directors for its approval and modification, if deemed necessary. 82

85 Notes to Basic Financial Statements (Continued) June 30, 2008 Annual premiums and assessments are approved by the Board of Directors and are adjusted each year based on the following criteria: Each city s incurred losses; Each city s share of such losses and other expenses as a proportion of all cities such losses; Each city s contribution to reserves, including reserves for incurred-but-not reported losses; Each city s share of costs to purchase excess insurance; and Each city s share of costs to purchase any additional coverage. If and when SANDPIPA is dissolved, the remaining assets, after all premiums and assessments have been paid and final disposition of all claims has been determined, will be distributed to members proportionate to each city s cash contributions made during the life of SANDPIPA. Until dissolution, however, no city has identifiable equity in SANDPIPA. As of June 30, 2008, the City has recorded general self-insurance and workers compensation liabilities of $11,478,500. The City is self-insured for workers compensation, but has purchased outside insurance coverage for individual claims in excess of $500,000 up to a maximum of $5,000,000 per claim through the California Public Entity Insurance Authority (CPEIA) pool, with additional reinsurance of $300,000,000 per occurrence. Only the probable amounts of loss as estimated by legal counsel and the City, including an estimate for incurred but not reported losses, have been recorded as liabilities in the accompanying financial statements. Increases and decreases in claim liabilities for changes in estimates are charged to expense in the period in which the estimates are adjusted. For the past three years, no settlements or claims payments have exceeded the amount of the applicable insurance coverage. For the past two fiscal years, the changes in the City s liability for claims payable are summarized as follows: Claims Incurred Beginning and Changes Less Claim Ending Balance in Estimates Payments Balance $12,053,500 $1,972,893 $(2,105,793) $11,920, ,920,600 1,874,893 (2,317,089) 11,478,580 83

86 Notes to Basic Financial Statements (Continued) June 30, 2008 B. Mortgage Revenue Bonds Without Government Commitment The City has issued mortgage revenue bonds for low-income multifamily dwellings. These bonds are not included in the accompanying financial statements, as these bonds are payable solely from the related mortgage loans in which the bond proceeds were invested. They are as follows: Original Balances at Issue Amount June 30, 2008 Due Date Via Robles $ 9,500,000 $ 6,900,000 November 15, 2036 Heritage Park 7,450,000 4,250,000 July 15, 2033 Total Mortgage Revenue Bonds $16,950,000 $11,150,000 C. Special Assessment Debt Without Government Commitment In January 1998 the City issued $4,435,000 in Limited Obligation Improvement Refunding Bonds for the Auto Parkway project. Interest payments commenced March 2, 1999 and are paid semiannually thereafter on September 2 and March 2 of each year. Principal payments commenced September 2, 1999 and are paid annually in amounts ranging from $10,000 to $190,000, commencing 1999 and ending In addition, $2,575,000 of Term Bonds are due September 2, These bonds were issued to refund the Limited Obligation Bonds issued in July 1988 for Assessment District No R. On June 30, 2008 the 86-1-R Limited Obligation Improvement Refunding Bonds outstanding were $2,690,000. In August 1998 the City issued $5,105,000 in Limited Obligation Refunding Bonds for Assessment District No (Rancho San Pasqual). Interest payments commenced March 2, 1999 and are paid semiannually thereafter on March 2 and September 2 and annual principal payments are made on September 2 in amounts ranging from $80,000 to $165,000 commencing in 1999 and ending in In addition, $3,215,000 of Term Bonds are due September 2, These bonds were issued to refund the Limited Obligation Improvements Bonds issued in September 1995 for Rancho San Pasqual Assessment District No On June 30, 2008 the 98-1 Limited Obligation Refunding Bonds outstanding were $3,855,000. In October 2001, the City issued $3,085,000 in Special Tax Bonds for Community Facility District No (Hidden Trails). Interest payments commenced September 1, 2002 and are paid semiannually thereafter on September 1 and March 1 of each year. Principal payments commence September 1, 2003 and are paid annually in amounts ranging from $45,000 to $110,000, commencing 2003 and ending In addition, $1,785,000 of Term Bonds are due September 1, The bonds were issued to finance various public improvements needed to develop property located within Community Facilities District No (Hidden Trails). The principal outstanding balance as of June 30, 2008 was $2,840,

87 Notes to Basic Financial Statements (Continued) June 30, 2008 In October 2006, the City issued $18,080,000 in Special Tax Bonds for Community Facility District No (Eureka Ranch). Interest payments commenced March 1, 2007 and are paid semiannually thereafter on September 1 and March 1 of each year. Principal is paid annually in amounts ranging from $330,000 to $530,000, commencing September 1, 2009 and ending September 1, In addition, $3,760,000 and $9,305,000 of Term Bonds are due September 1, 2026 and 2036 respectively. The bonds were issued to finance various public improvements needed to develop property located within Community Facilities District No (Eureka Ranch). The principal outstanding balance as of June 30, 2008 was $18,080,000. The bonds are secured by and payable from the proceeds of annual special assessment taxes levied and collected on the property within the Districts. The bonds are not general or special obligations of the City of Escondido. The City is not obligated in any manner for the payment of debt service in the event of default by the property owners but is only acting as an agent for the property owners in collecting the assessments, forwarding the collections to bondholders, and initiating foreclosure proceedings, if appropriate. Neither the faith and credit nor taxing power of the City is pledged to the payment of these bonds. Accordingly, no liability for these bond issuances has been recorded and all debt service transactions have been recorded as an agency fund. D. Defeasance of Debt from Previous Years In prior years the City defeased certain general obligations and other bonds by placing the proceeds of new bonds in irrevocable trusts to provide for all future debt service payments on the old bonds. Accordingly the trust account assets and liability for the defeased bonds are not included in the City s financial statements. On June 30, 2008, $32,650,000 of bonds outstanding are considered defeased. E. Other Guarantees, Commitments, and Disclosures 1. The City has executed a commercial guarantee agreement which establishes a commercial line of credit in the amount of $1,700,000 for the California Center for the Arts, Escondido. 2. In May 2005, the City executed a commercial loan guarantee agreement which establishes a loan amount of $1,150,000 for the Escondido Humane Society to refinance a 2003 loan of $1,250,000 (which the City also guaranteed). The 2005 guarantee was based on a 5 year term with a 25 year amortization schedule. 85

88 Notes to Basic Financial Statements (Continued) June 30, 2008 F. City Employees Retirement Plans 1. Defined Benefit Pension Plan (PERS) Plan Description The City of Escondido contributes to the California Public Employees Retirement System (PERS), an agent multiple-employer public employee defined benefit pension plan. PERS provides retirement, disability benefits, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California Copies of PERS annual financial reports may be obtained from its executive office at 400 Q Street, Sacramento, California Funding Policy Participants are required to contribute 8% (9% for safety employees) of their annual covered salary. The City makes 7% of the 8% contributions required of City employees on their behalf and for their account. Benefit provisions and all other requirements are established by state statute and City contract with employee bargaining groups and the employer contribution rate is established and may be amended by PERS. Annual Pension Cost Under GASB 27, an employer reports an annual pension cost (APC) equal to the annual required contribution (ARC) plus an adjustment for the cumulative difference between the APC and the employer s actual plan contributions for the year. The cumulative difference is called the net pension obligation (NPO). The ARC for the period July 1, 2007 to June 30, 2008 has been determined by an actuarial valuation of the plan as of June 30, The contribution rate indicated for the period is % of payroll for the miscellaneous plan and % of payroll for the safety plan. In order to calculate the dollar value of the ARC for inclusion in financial statements prepared as of June 30, 2008, the contribution rate is multiplied by the payroll of covered employees that were paid during the period from July 1, 2007 to June 30,

89 Notes to Basic Financial Statements (Continued) June 30, 2008 A summary of principle assumptions and methods used to determine the ARC is shown below. Miscellaneous Plan Safety Plan Valuation Date June 30, 2005 June 30, 2005 Actuarial Cost Method Entry Age Actuarial Cost Method Entry Age Actuarial Cost Method Amortization Method Level Percent of Payroll Level Percent of Payroll Average Remaining Period 21 Years as of the Valuation Date 27 Years as of the Valuation Date Asset Valuation Method 15 Year Smoothed Market 15 Year Smoothed Market Actuarial Assumptions: Investment Rate of Return 7.75% (net of administrative expenses) 7.75% (net of administrative expenses) Projected Salary Increases 3.25% to 14.45% depending on Age, Service, and type of employment 3.25% to 13.15% depending on Age, Service, and type of employment Inflation 3.00% 3.00% Payroll Growth 3.25% 3.25% Individual Salary Growth A merit scale varying by duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25% A merit scale varying by duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25% Initial unfunded liabilities are amortized over a closed period that depends on the plan s date of entry into CalPERS. Subsequent plan amendments are amortized as a level percentage of pay over a closed 20-year period. Gains and losses that occur in the operation of the plan are amortized over a rolling 30-year period, which results in an amortization of 6% of unamortized gains and losses each year. If the plan s accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30-year amortization period. 87

90 Notes to Basic Financial Statements (Continued) June 30, 2008 Three-Year Trend Information Annual Pension Cost (Employer Contribution) Fiscal Year Safety Miscellaneous Percentage of APC Contributed Net Pension Obligation 6/30/06 $6,205,118 $3,425, % 6/30/07 6,471,727 4,017, % 6/30/08 6,645,597 7,228, % 2. Defined Contribution Plan In accordance with the Federal Omnibus Budget Reconciliation Act of 1990, the City established pension benefits for all of its part-time employees through Public Agency Retirement Services (PARS) which is a private administrator of pension plans that administers for the City a defined contribution plan, qualifying under sections 401 and 501 of the Internal Revenue Code. PARS acts as a common investment and administrative agent for participating public entities within the State of California. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. The City by Council action and agreements with labor bargaining units has the authority to establish or amend the plan provisions and contribution requirements, subject to the constraints and limitations imposed by PARS as a part of the plan design options it offers to participating employers. For the year ended June 30, 2008, the City s total covered payroll was $2,917,463. The City made employer contributions of $109,407 (3.75 percent of covered payroll), and employees contributed $109,407 (3.75 percent of covered payroll). All eligible employees are covered by the plan and are fully vested. Employer liabilities are limited to the amount of current contributions. The plan covers part-time, seasonal, or temporary employees, and all employees not covered by another retirement system, subject to the requirements of Section 3121 of the Internal Revenue Code. G. Other Disclosures On February 8, 2006, the City entered into a developer agreement with Palomar Pomerado Health (Hospital). The Hospital made a one time payment to the City in the amount of $13 million (deposit) for the City to construct certain Citracado Parkway improvements (project). The deposit is to be jointly controlled by the City and the Hospital. The City is entitled to draw from the deposit so long as the funds are used exclusively on the project. The Escondido Community Development Commission (Commission) owns certain property which is currently used for public parking and, in part, for a conference center. The site is currently encumbered by an outstanding bond issue. Subject to the Commission s ability to cause the release of the lien of the Conference Center Bond Issue on the site, the City of Escondido (City) will enter into an agreement with the Commission to acquire the site. On August 23, 2006, the City entered 88

91 Notes to Basic Financial Statements (Continued) June 30, 2008 into a disposition and development agreement with Escondido Development LLC (developer) to construct a hotel and subterranean parking on the site. Upon the completion of the shell for subterranean parking, the developer will convey the fee simple interest in the site to the City. At the closing of City Conveyance, the City will advance the City purchase price of approximately $9 million for the subterranean parking which advance will be used by the developer to construct the subterranean parking. Upon completion of the entire project, the City will agree to convey the site to the developer subject to all terms stipulated in the developer agreement. The consideration for the City conveyance will be base rent (ranging from 1% to 7% of the hotel s gross revenue, of which no payments will be do the first 10 years) and additional rent (5% of the excess of gross revenues over the pro forma gross revenue). H. Contingent Liabilities Various claims and suits have been filed against the City in the normal course of business. Although the outcome of these matters is not presently determinable in the opinion of legal counsel, the city believes that the resolutions of these matters will not have a material adverse effect on the financial condition of the City. 89

92

93 Required Supplementary Information 91

94 Public Employees Retirement System Schedule of Funding Progress June 30, 2008 The Schedule of Funding Progress below shows the recent history of the actuarial value of assets, actuarial accrued liability, their relationship, and the relationship of the unfunded actuarial accrued liability to payroll. In addition, the schedule presen ts multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Safety Employees Actuarial Valuation Date Accrued Liability (AAL) Entry Age Actuarial Value of Assets Unfunded AAL (UAAL) Funded Ratio Covered Payroll UAAL as a % of Covered Payroll 6/30/05 $ 178,769,348 $ 143,776,075 $ 34,993, % $ 19,896, % 6/30/06 196,650, ,060,616 39,590, ,006, /30/07 212,421, ,850,308 40,571, ,950, Miscellaneous Employees Actuarial Valuation Date Accrued Liability Actuarial Unfunded (AAL) Value of AAL Funded Covered Entry Age Assets (UAAL) Ratio Payroll UAAL as a % of Covered Payroll 6/30/05 $ 154,668,867 $ 138,856,657 $ 15,812, % $ 31,709, % 6/30/06 193,491, ,593,496 41,897, ,333, /30/07 215,442, ,559,289 46,883, ,261, See Note to Required Supplementary Information. 92

95 General Fund Budgetary Comparison Schedule For the Year Ended June 30, 2008 Original Budget Final Budget Variance Over Amounts Amounts Actual (Under) Revenues: Sales Tax: Sales tax $ 25,148,585 $ 22,308,995 $ 22,468,880 $ 159,885 In-lieu sales tax 8,218,945 7,683,835 7,696,973 13,138 Total Sales Tax 33,367,530 29,992,830 30,165, ,023 Other Taxes: Property taxes 11,616,290 11,859,865 11,303,584 (556,281) Property transfer tax 818, , ,295 (43,410) Franchise tax 6,133,195 6,256,440 6,085,053 (171,387) Transient occupancy tax 1,328,030 1,481,090 1,322,688 (158,402) Business license tax 1,751,720 1,751,720 1,589,437 (162,283) Refuse collection 176,755 77,044 (99,711) Total Other Taxes 21,647,235 22,011,575 20,820,101 (1,191,474) Licenses and Permits: Bicycle licenses (138) Building permits 1,472,930 1,103,500 1,032,177 (71,323) Mobilehome setup 20,400 20,400 10,386 (10,014) Total Licenses and Permits 1,493,580 1,124,150 1,042,675 (81,475) Fines and Forfeits: Vehicle code fines 1,000,000 1,000, ,354 (211,646) Parking ticket fines 255, , ,681 45,681 Library fines 135, , ,060 (27,940) Booking fees 100, ,000 91,684 (8,316) Red light photo citations 512, , , ,446 Other fines 880, , ,583 (37,417) Total Fines and Forfeits 2,882,000 2,882,000 2,775,808 (106,192) (Continued) See Note to Required Supplementary Information. 93

96 General Fund Budgetary Comparison Schedule (Continued) For the Year Ended June 30, 2008 Original Budget Final Budget Variance Over Amounts Amounts Actual (Under) Intergovernmental: State motor vehicle in lieu 1,019, , ,923 (282,077) Property tax in-lieu 11,003,650 11,208,915 11,226,919 18,004 Grants 322, , ,800 75,230 Rincon fire operation fees 1,890,900 2,059,000 1,999,743 (59,257) Miscellaneous agencies 183, , ,044 69,859 Total Intergovernmental 14,419,840 14,868,670 14,690,429 (178,241) Charges for Services: Zoning and subdivision fees 210,120 75,000 85,226 10,226 Annexation fees 10,930 10,930 2,806 (8,124) Sale of maps and publications 30,605 3, (2,331) Plan check fees 246, , ,308 (59,692) Environmental impact report 55,080 55,080 10,450 (44,630) Engineering and inspection fees 838, , ,653 (87,857) Special police services 697, , ,388 59,398 Fire and paramedic services 3,307,020 3,534,035 3,495,489 (38,546) Processing fees 106, , ,427 (71,973) Senior services 142, , ,128 55,228 Audio visual rentals 115, ,000 99,821 (15,179) Other 490,950 97, , ,744 Total Charges for Services 6,250,810 6,325,800 6,332,064 6,264 Investment income 7,698,392 7,798,392 8,900,446 1,102,054 Miscellaneous: Rent 2,898,525 2,698,525 3,029, ,266 Contributions 115,990 58,990 21,970 (37,020) Mobile home fees 58,240 58,240 34,986 (23,254) Library trust donations 7,760 7,760 Literacy program donations 4,789 4,789 Other 298, , , ,972 Total Miscellaneous 3,371,485 3,120,485 3,732, ,513 Total Revenues 91,130,872 88,123,902 88,460, ,472 (Continued) See Note to Required Supplementary Information. 94

97 General Fund Budgetary Comparison Schedule (Continued) For the Year Ended June 30, 2008 Original Budget Final Budget Variance Over Amounts Amounts Actual (Under) Expenditures: General Government: City council 304, , ,852 3,482 City manager 987,840 1,154,460 1,171,121 16,661 City attorney 194, , ,897 73,927 City clerk 518, , ,163 (49,687) City treasurer 336, , ,353 (24,592) Finance 1,266,440 1,464,515 1,271,385 (193,130) Human resources 565, , ,125 (181,465) Information systems 2,330,835 2,411,185 2,328,764 (82,421) Other 2,084,255 2,313, ,992 (1,413,968) Total General Government 8,589,420 9,532,845 7,681,652 (1,851,193) Public Safety: Police 35,539,150 36,527,110 36,837, ,112 Fire 18,307,155 18,990,665 18,951,478 (39,187) Total Public Safety 53,846,305 55,517,775 55,788, ,925 Public Works: Highways and streets 11,267,730 11,852,855 11,140,310 (712,545) Community Services: Library 4,190,115 4,236,565 4,344, ,473 Community services 1,343,650 1,384,315 1,311,586 (72,729) Community relations 1,759,835 1,959,835 1,077,047 (882,788) Grants and contracts 14,195 14,171 (24) Total Community Services 7,293,600 7,594,910 6,746,842 (848,068) (Continued) See Note to Required Supplementary Information. 95

98 General Fund Budgetary Comparison Schedule (Continued) For the Year Ended June 30, 2008 Original Final Variance Budget Budget Over Amounts Amounts Actual (Under) Community Development: Planning 2,054,740 2,158,065 2,061,147 (96,918) Building 913, , ,926 (112,024) Code enforcement 1,277,375 1,295,500 1,265,564 (29,936) Economic development 405, , ,674 (71,516) Total Community Development 4,650,905 4,917,705 4,607,311 (310,394) Total Expenditures 85,647,960 89,416,090 85,964,815 (3,451,275) Excess (Deficiency) of Revenues Over Expenditures 5,482,912 (1,292,188) 2,495,559 3,787,747 Other Financing Sources (Uses): Transfers in 1,653,655 1,653,655 1,643,655 Transfers out (20,494,275) (22,194,275) (8,831,332) 13,362,943 Total Other Financing (Uses) (18,840,620) (20,540,620) (7,187,677) 13,352,943 Net Change in Fund Balance (13,357,708) (21,832,808) (4,692,118) 17,140,690 Fund Balance at Beginning of Year 51,074,083 51,074,083 51,074,083 Fund Balance at End of Year $ 37,716,375 $ 29,241,275 $ 46,381,965 $ 17,140,690 See Note to Required Supplementary Information. 96

99 Low and Moderate Income Housing Special Revenue Fund Budgetary Comparison Schedule For the Year Ended June 30, 2008 Original Final Variance Budget Budget Over Amounts Amounts Actual (Under) Revenues: Other taxes $ 4,500,000 $ 4,500,000 $ 5,267,305 $ 767,305 Intergovernmental Lease income 72,300 58,995 65,380 6,385 Investment income 75,000 88, , ,426 Miscellaneous 86,433 86,433 Total Revenues 4,647,300 4,647,920 5,990,510 1,342,590 Expenditures: Community development 1,663,615 1,674,210 1,535,981 (138,229) Excess of Revenues Over Expenditures 2,983,685 2,973,710 4,454,529 1,480,819 Other Financing Sources (Uses): Proceeds from long-term debt 2,050,000 2,050,000 Transfers in 81,207 81,207 Transfers out (797,843) (797,843) Total Other Financing (Uses) 1,252,157 1,333,364 81,207 Net Change in Fund Balance 2,983,685 4,225,867 5,787,893 1,562,026 Fund Balance at Beginning of Year 33,683,096 33,683,096 33,683,096 Fund Balance at End of Yea $ 36,666,781 $ 37,908,963 $ 39,470,989 $ 1,562,026 See Note to Required Supplementary Information. 97

100 Notes to Required Supplementary Information June 30, 2008 Budgetary Data The City adopts an annual operating budget prepared on the modified accrual basis for its general, certain special revenue and certain debt service funds. Under Section 2-59 of the Escondido City Code, the City Manager is required to prepare and submit to the City Council the annual budget of the City and administer it after adoption. Each year, the City Manager submits a proposed budget to the City Council in May. The City Council holds budget hearings in June and the final budget is adopted by the City Council before June 30. The legal level of budgetary control is at the fund level. The City Manager is authorized to transfer budgeted amounts between the accounts of any fund; however, any revisions that alter the total appropriations of any fund must be approved by City Council. No budgetary comparisons are presented for certain special revenue, capital projects or proprietary funds as the City is not legally required to adopt an annual budget for those funds. The special revenue funds with legally adopted budgets include the: Street, Parks and Recreation, Arts Center, Community Development Block Grant, Landscape and Assessment District, HOME, Miscellaneous and Low and Moderate Income Housing Funds. The City holds a midyear budget review meeting at which time revenue and expenditure projections are reviewed. Any necessary changes are approved by the City Council. Prior period appropriations lapse unless they are reappropriated through the formal budget process or through the carryover process. The City controls its expenditures using encumbrance accounting. In addition to the annual operating budget, the City adopts a Five-Year Capital Improvement Program. Funds are appropriated for the first year of the plan with years two through five included for planning purposes. Funds are appropriated on a project basis and are carried over until expended or the project is closed. The legal level of budgetary control is at the project level. The City Manager is authorized to transfer budgeted amounts between projects when transfers are less than $50,000 or 10% of the project. Transfers in excess of the budget policy amount must be approved by the City Council. 98

101 Supplementary Information 99

102 Community Development Commission Debt Service Fund Budgetary Comparison Schedule For the Year Ended June 30, 2008 Final Variance Budget Over Amounts Actual (Under) Revenues: Taxes $ 17,914,725 $ 21,069,222 $ 3,154,497 Investment income 622,965 1,355, ,971 Total Revenues 18,537,690 22,425,158 3,887,468 Expenditures: Community development 21, , ,918 Principal retirements 4,208,861 4,208,863 2 Interest and fiscal charges 10,070,900 9,764,461 (306,439) Agency tax sharing agreement 3,202,170 3,697, ,741 Total Expenditures 17,503,576 18,620,798 1,117,222 Excess of Revenues Over Expenditures 1,034,114 3,804,360 2,770,246 Other Financing Sources (Uses): Transfers in 797, ,843 Transfers out (81,207) (81,207) Total Other Financing Sources 797, ,636 (81,207) Net Change in Fund Balance 1,831,957 4,520,996 2,689,039 Fund Balance at Beginning of Year 5,975,106 5,975,106 Fund Balance at End of Year $ 7,807,063 $ 10,496,102 $ 2,689,

103

104 SPECIAL REVENUE FUNDS STREET FUND This fund was established to account for transactions related to: Gasoline taxes received under Sections 2106, 2107, and of the Streets and Highways Code. These funds are utilized solely for street-related purposes such as new construction, rehabilitation or maintenance. Traffic impact fees which are collected from developers. These fees are used exclusively for street improvements that are required as the result of growth and development. Traffic Congestion Relief grants received from the California Department of Transportation. These funds provide monies to cities based on population levels for the rehabilitation and improvement of streets and other transportation purposes. PARKS AND RECREATION FUND This fund was established to account for transactions related to: The purchase and development of parks with funding received from park development fees collected from developers. All Park and Recreation transactions. This includes operation of the East Valley Community Center, Kit Carson Park Sports Center, and the Reidy Creek Municipal Golf Course. The revenue received from the sale of mitigation credits. The funds will be used to provide fund restoration projects at Daley Ranch. ART CENTER FUND This fund was created to account for the operations of the California Center for the Arts. The visual and performing arts center is operated by the California Center for the Arts, Escondido Foundation. COMMUNITY DEVELOPMENT BLOCK GRANT FUND This fund was created to account for transactions related to the Community Development Block Grant provided by the Federal Government. The resources are expended for community development and housing assistance. 102

105 SPECIAL REVENUE FUNDS (Continued) LANDSCAPE AND ASSESSMENT DISTRICT FUND This fund was created to account for transactions related to the maintenance of landscaping in various subdivision areas throughout the City. There are currently 34 active assessment districts. LAW ENFORCEMENT FUND This fund was established to account for transactions related to: Revenue received by the Police Department through the asset forfeiture program. The funds must be used to supplement and enhance existing law enforcement budgets. Transactions related to the law enforcement grants received from the Federal and State Government. These funds are used to provide front line law enforcement services and must supplement existing services. CABLE TECHNOLOGY FUND This fund was created to account for a Technology Grant from Cox Communications for the purchase and installation of telecommunications equipment and services. HOME FUND This fund was created to account for transactions related to the HOME grant provided by the Department of Housing and Urban Development (HUD). The resources are expended for affordable housing programs. MISCELLANEOUS FUND This fund was established to account for transactions related to: The maintenance and operation of the City-owned public parking lots. Funding is provided by parking permit revenues. Revenue received from the sale of recycled materials. The funds are used to further the effort of recycling within the city. The Hegyi Family Trust. Funds are used to recognize library volunteers. Public art fees, which are assessed when development occurs. The funds will be used to provide public art throughout the city. Monies received from the Frances B. Ryan Trust. The Trust was established to create the Pioneer Room, a historical perspective of Escondido, and to provide financing for its ongoing operation. 103

106 DEBT SERVICE FUNDS GOLF COURSE DEBT SERVICE FUND This fund was created to account for transactions related to debt issued for the development of two Municipal Golf Courses. Funding is provided by repayment of a loan to American Golf Corporation and a General Fund transfer. GENERAL OBLIGATION DEBT SERVICE FUND This fund was created to account for transactions related to debt issued for the construction of the new public safety facilities. On November 2, 2004, Escondido voters approved Proposition P, which authorized the sale of up to $84,350,000 in municipal bonds. Funding is provided through special assessments on the property tax rolls. CAPITAL PROJECT FUNDS STREET IMPROVEMENT FUND This fund was created to account for projects related to street improvements. Funding is provided from a variety of sources, which include transfers from Gas Tax and Traffic Impact Funds. STORM DRAIN FUND This fund was created to account for funds collected from developers when projects create a need for improvements to the City s storm drain basin system. Funds are held until collections for a specific basin make an improvement. GENERAL CAPITAL PROJECTS FUND This fund was created to account for transactions related to general capital projects. These projects are typically funded through transfers from General, Public Facilities, and Water and Sewer funds. 104

107 CAPITAL PROJECT FUNDS (Continued) COUNTY TRANSPORTATION STREET AND BICYCLE PROJECTS FUND This fund was established to account for funds received: Through the adoption of the 1987 San Diego County Special Proposition A, which provides a transportation sales tax override to fund local street improvements. From SANDAG relative to the Transportation Development Act. Expenditures in this fund pertain to the development of bike paths. PUBLIC FACILITIES FUND This fund was created to account for developer fees collected for public facility needs that are created as the result of growth and development in the city. COMMUNITY DEVELOPMENT COMMISSION FUND This fund was established to account for transactions related to projects in the Community Development Commission. Projects were primarily related to the Civic Center project and improvements in the downtown area. Funding was primarily provided through bond issues and advances from the City s General Fund. Advances will be repaid through tax increment funds received from the redevelopment project area. STATE PARK BOND ACT FUND This fund was established to account for funds received from the State Bond Act of 2000 that are to provide for the acquisition, development, or improvement of safe, open and accessible local park and recreational facilities. PERMANENT FUNDS DALEY RANCH FUND This fund was created to fund the City's long-term management and maintenance efforts, of Daley Ranch, as stated in the agreement with the Wildlife Agencies. 105

108 Combining Balance Sheet Nonmajor Governmental Funds June 30, 2008 Special Revenue Funds Parks Community and Arts Development Street Recreation Center Block Grant Assets: Cash and investments $ 502,834 $ 2,946,517 $ $ Cash and investments with fiscal agent Receivables: Accounts 201,316 Interest 36,207 39,678 Taxes 219,332 Loans 3,438,047 56,194 Due from other Funds 620,342 Due from other governments 3,114, ,831 Inventory, at cost 19,441 Prepaid expenditures 1,936 Deposits 1,340,655 Land held for resale Advances to other funds 200,000 Total Assets $ 3,853,369 $ 8,206,922 $ 620,342 $ 692,025 Liabilities and Fund Balances: Liabilities: Payables: Accounts $ 559,328 $ 103,346 $ $ 49,345 Deposits 102,950 Retentions Accrued expenditures 211, ,342 12,083 Due to other funds 574,403 Deferred revenue 89, ,772 Advances from other funds 350,000 Total Liabilities 559, , , ,603 Fund Balances (Deficits): Reserved for: Advances to other funds 200,000 Non-current receivables 3,426,347 56,194 Inventory 19,441 Prepaid expenditures 1,936 Deposits 1,287,239 Land held for resale Specific purpose 1,142,618 Debt service Reserved for current projects: Special revenue funds 3,094, ,494 Capital projects funds Unreserved; designated for future projects Special revenue funds 144,426 Capital projects funds Unreserved; undesignated 336,970 (319,772) Total Fund Balances 3,294,041 7,349,471 (263,578) Total Liabilities and Fund Balances $ 3,853,369 $ 8,206,922 $ 620,342 $ 692,

109 Landscape and Assessment District Law Enforcement Special Revenue Funds Debt Service Funds Cable Golf General Technology HOME Miscellaneous Course Obligation $ 716,165 $ 522,093 $ 294,405 $ 3,531 $ 3,293,772 $ $ 4,082,964 1,300, ,284 8,796 9,890 3, ,723 1,727 39,971 3,940 32,912 11,436, , ,934 1,589 $ 728,901 $ 770,914 $ 298,323 $ 11,578,701 $ 4,002,368 $ 1,301,924 $ 4,155,847 $ 32,621 $ 1,633 $ $ $ 81,817 $ $ , , ,369 9, ,238 32, ,515 9, , ,359 11,436, , , ,371 2,502,423 1,069,565 4,155, , , , , , ,323 11,569,319 3,288,407 1,069,565 4,155,847 $ 728,901 $ 770,914 $ 298,323 $ 11,578,701 $ 4,002,368 $ 1,301,924 $ 4,155,847 (Continued) 107

110 Combining Balance Sheet Nonmajor Governmental Funds (Continued) June 30, 2008 Capital Projects Funds County General Transportation Street Storm Capital Street and Improvement Drain Projects Bicycle Projects Assets: Cash and investments $ 3,338,755 $ 922,406 $ 8,605,187 $ 8,407,783 Cash and investments with fiscal agent Receivables: Accounts Interest 29,276 12,349 8,492, , ,211 Taxes Loans 339,585 Due from other Funds Due from other governments 11, ,414 Inventory, at cost Prepaid expenditures Deposits 117,496 83,123 Land held for resale 875,121 Advances to other funds 200,000 Total Assets $ 3,579,676 $ 934,755 $ 17,683,340 $ 9,948,652 Liabilities and Fund Balances: Liabilities: Payables: Accounts $ 55,031 $ $ 1,254,539 $ 882,830 Deposits 1,374,919 9,573 2,440 Retentions 117,496 42,523 Accrued expenditures 19,566 Due to other funds Deferred revenue 459,207 Advances from other funds Total Liabilities 1,429,950 9,573 1,394,041 1,384,560 Fund Balances (Deficits): Reserved for: Advances to other funds 200,000 Non-current receivables 339,585 Inventory Prepaid expenditures Deposits 40,600 Land held for resale 875,121 Specific purpose Debt service Reserved for current projects: Special revenue funds Capital projects funds 1,949, ,164 15,949,714 7,648,371 Unreserved; designated for future projects Special revenue funds Capital projects funds 615,018 Unreserved; Undesignated Total Fund Balances (Deficits) 2,149, ,182 16,289,299 8,564,092 Total Liabilities and Fund Balances $ 3,579,676 $ 934,755 $ 17,683,340 $ $ 9,948,

111 Permanent Public Facilities Capital Projects Funds Community State Development Park Bond Commission Act Fund Daley Ranch Total Nonmajor Governmental Funds $ 6,969,376 $ 43,932 $ $ 221,648 $ 40,871,368 9,792, ,600 93, , , ,184 15,270, ,342 4,606,672 19,441 1,936 1,541, , , ,988 $ 7,062,424 $ 514,505 $ $ 224,588 $ 76,157,576 $ 183,683 $ $ $ $ 3,204,173 1,489, ,019 8, ,773 50, ,762 1,240, ,300 1,460, ,656 9,287, , ,988 15,259,074 19,441 1,936 1,327, , ,588 5,104,679 5,225,412 4,409,890 2,176,295 28,034, ,378 4,162,473 44,517 4,822,008 17,198 6,338, , ,588 66,870,234 $ 7,062,424 $ 514,505 $ $ 224,588 $ 76,157,

112 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended June 30, 2008 Parks and Arts Community Development Street Recreation Center Block Grant Revenues: Sales tax $ $ $ $ Other taxes 865,382 Licenses and permits Intergovernmental 4,798, ,896 90,000 1,171,757 Charges for services 520,289 2,627,759 2,732,146 Special assessments Investment income 191, ,032 (437) Miscellaneous 374,635 1,174,250 5,250 Total Revenues 5,510,837 5,145,704 3,995,959 1,177,007 Expenditures: Current: General government 5,946 Public safety 10,000 Public works 1,082,489 Community services 5,407,009 5,916, ,975 Community development 76,214 Capital projects 4,883, , ,450 Debt Service: Principal retirements Interest and fiscal charges Total Expenditures 5,976,395 5,611,230 5,916,301 1,440,585 Excess (Deficiency) of Revenues Over Expenditures (465,558) (465,526) (1,920,342) (263,578) Other Financing Sources (Uses): Transfers in 798,470 1,920,342 Transfers out (1,600,000) (682,210) Total Other Financing Sources (Uses) (1,600,000) 116,260 1,920,342 Net Change in Fund Balances (2,065,558) (349,266) (263,578) Fund Balances (Deficits) at Beginning of Year 5,359,599 7,698,737 Special Revenue Funds Fund Balances at End of Year $ 3,294,041 $ 7,349,471 $ $ (263,578) 110

113 Special Revenue Funds Debt Service Funds Landscape Assessment District Law Cable Enforcement Technology HOME Miscellaneous Golf Course General Obligation $ $ $ $ $ $ $ 40, , ,926 2,049 1,047, ,175 5,483,832 25,607 29,418 14,405 9, ,357 76, ,255 4,653 4,301 8, , ,879 14, ,063 1,241,380 76,526 5,686, , , ,851 77,666 85,930 68, ,000 1,170, ,230 3,906, , ,516 85, ,334 1,115,230 5,076,955 57, ,363 14, , ,046 (1,038,704) 609,132 25,000 1,116,730 (91,500) (43,655) (91,500) (18,655) 1,116,730 57, ,363 (77,095) 894, ,391 78, , , , ,418 10,675,186 2,584, ,539 3,546,715 $ 696,280 $ 406,399 $ 298,323 $ 11,569,319 $ 3,288,407 $ 1,069,565 $ 4,155,847 (Continued) 111

114 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds (Continued For the Year Ended June 30, 2008 Capital Project Funds General County Street Storm Capital Transportation Improvement Drain Projects Street Projects Revenues: Sales tax $ $ $ $ 2,239,130 Other taxes Licenses and permits Intergovernmental 428, ,345 Charges for services 157, ,111 Special assessments Investment income 137,781 40, , ,605 Miscellaneous 97, ,088 Total Revenues 820, ,119 1,029,823 3,233,080 Expenditures: Current: General government 1,439,884 Public safety Public works 646,280 11, ,367 1,874,529 Community services 276,146 Community development 136,848 24,111 Capital projects 1,253, ,638 6,572,349 5,929,271 Debt Service: Principal retirements Interest and fiscal charges Total Expenditures 1,899, ,213 9,225,594 7,827,911 Excess (Deficiency) of Revenues Over Expenditures (1,079,068) 12,906 (8,195,771) (4,594,831) Other Financing Sources (Uses): Transfers in 1,270,000 4,396,000 Transfers out (46,452) Total Other Financing Sources (Uses) 1,270,000 4,349,548 Net Change in Fund Balances 190,932 12,906 (3,846,223) (4,594,831) Fund Balances at Beginning of Year 1,958, ,276 20,135,522 13,158,923 Fund Balances at End of Year $ 2,149,726 $ 925,182 $ 16,289,299 $ 8,564,

115 Public Facilities Capital Projects Funds Community Development Commission State Park Bond Act Permanent Fun Daley Ranch Total Nonmajo Governmental Funds $ $ $ $ $ 2,239, ,382 40, ,000 10,290, ,025 8,192,063 6,114, ,840 1,893 9,451 3,054,436 34,433 6,450 1,961,315 1,260,298 1, ,000 15,901 32,756,874 1,445, ,001 1,706,517 5,390,117 75,896 12,389, , ,030 19,955,131 1,685,000 4,507,185 1,040,927 47,471, ,371 1, ,000 15,901 (14,714,819) 46,452 9,572,994 (482,000) (2,945,817) (435,548) 6,627,177 (216,177) 1, ,000 15,901 (8,087,642) 6,554, ,612 (653,000) 208,687 74,957,876 $ 6,338,768 $ 514,505 $ $ 224,588 $ 66,870,

116 Street Special Revenue Fund Budgetary Comparison Schedule For the Year Ended June 30, 2008 Final Variance Budget Over Amounts Actual (Under) Revenues: Intergovernmental $ 4,880,560 $ 4,798,725 $ (81,835) Charges for services 200, , ,289 Investment income 175, ,823 16,823 Total Revenues 5,255,560 5,510, ,277 Expenditures: Public safety 179,502 10,000 (169,502) Public works 1,886,423 1,082,489 (803,934) Capital projects 7,068,767 4,883,906 (2,184,861) Total Expenditures 9,134,692 5,976,395 (3,158,297) Excess (Deficiency) of Revenues Over Expenditures (3,879,132) (465,558) 3,413,574 Other Financing Sources (Uses): Transfers out (1,600,000) (1,600,000) Net Change in Fund Balance (5,479,132) (2,065,558) 3,413,574 Fund Balance at Beginning of Year 5,359,599 5,359,599 Fund Balance at End of Year $ (119,533) $ 3,294,041 $ 3,413,

117 Parks and Recreation Special Revenue Fund Budgetary Comparison Schedule For the Year Ended June 30, 2008 Final Variance Budget Over Amounts Actual (Under) Revenues: Other taxes $ 770,000 $ 865,382 $ 95,382 Intergovernmental 836, ,896 (23,364) Charges for services 3,174,330 2,627,759 (546,571) Investment income 412, ,032 52,732 Miscellaneous 218, , ,340 Total Revenues 5,411,185 5,145,704 (265,481) Expenditures: Community services 5,338,175 5,407,009 68,834 Capital projects 2,734, ,221 (2,530,273) Total Expenditures 8,072,669 5,611,230 (2,461,439) (Deficiency) of Revenues Over Expenditures (2,661,484) (465,526) 2,195,958 Other Financing Sources (Uses): Transfers in 798, ,470 Transfers out (682,210) (682,210) Total Other Financing Sources 116, ,260 Net Change in Fund Balance (2,545,224) (349,266) 2,195,958 Fund Balance at Beginning of Year 7,698,737 7,698,737 Fund Balance at End of Year $ 5,153,513 $ 7,349,471 $ 2,195,

118 Arts Center Special Revenue Fund Budgetary Comparison Schedule For the Year Ended June 30, 2008 Final Variance Budget Over Amounts Actual (Under) Revenues: Intergovernmental $ $ 90,000 $ 90,000 Charges for services 3,870,889 2,732,146 (1,138,743) Investment income (437) (437) Miscellaneous 1,180,650 1,174,250 (6,400) Total Revenues 5,051,539 3,995,959 (1,055,580) Expenditures: Community services 6,519,430 5,916,301 (603,129) Total Expenditures 6,519,430 5,916,301 (603,129) (Deficiency) of Revenues Over Expenditures (1,467,891) (1,920,342) (452,451) Other Financing Sources (Uses): Transfers in 1,300,000 1,920, ,342 Net Change in Fund Balance (167,891) 167,891 Fund Balance at Beginning of Year Fund Balance at End of Year $ (167,891) $ $ 167,

119 Community Development Block Grant Special Revenue Fund Budgetary Comparsion Schedule For the Year Ended June 30, 2008 Final Variance Budget Over Amounts Actual (Under) Revenues: Intergovernmental $ 3,292,863 $ 1,171,757 $ (2,121,106) Miscellaneous 5,250 5,250 Total Revenues 3,292,863 1,177,007 (2,115,856) Expenditures: General government 18,277 5,946 (12,331) Community services 1,422, ,975 (785,168) Community development 92,800 76,214 (16,586) Capital projects 1,759, ,450 (1,038,193) Total Expenditures 3,292,863 1,440,585 (1,852,278) Excess of Revenues Over Expenditures (263,578) (263,578) Net Change in Fund Balance (263,578) (263,578) Fund Balance (Deficit) at Beginning of Year Fund Balance (Deficit) at End of Year $ $ (263,578) $ (263,578) 117

120 Landscape and Assessment District Special Revenue Fund Budgetary Comparison Schedule For the Year Ended June 30, 2008 Final Variance Budget Over Amounts Actual (Under) Revenues: Special assessments $ 643,000 $ 630,175 $ (12,825) Investment income 25,607 25,607 Miscellaneous 4,655 4,653 (2) Total Revenues 647, ,435 12,780 Expenditures: Public works 894, ,026 (291,404) Net Change in Fund Balance (246,775) 57, ,184 Fund Balance at Beginning of Year 638, ,871 Fund Balance at End of Year $ 392,096 $ 696,280 $ 304,

121 HOME Special Revenue Fund Budgetary Comparison Schedule For the Year Ended June 30, 2008 Final Budget Variance Over Amounts Actual (Under) Revenues: Intergovernmental $ 846,030 $ 970,926 $ 124,896 Investment income 12,000 9,137 (2,863) Total Revenues 858, , ,033 Expenditures: Community development 88,000 85,930 (2,070) Net Change in Fund Balance 770, , ,103 Fund Balance at Beginning of Year 10,675,186 10,675,186 Fund Balance at End of Year $ 11,445,216 $ 11,569,319 $ 124,

122 Miscellaneous Special Revenue Fund Budgetary Comparison Schedule For the Year Ended June 30, 2008 Final Variance Budget Over Amounts Actual (Under) Revenues: Licenses and permits $ 50,000 $ 40,337 $ (9,663) Intergovernmental 111,686 2,049 (109,637) Charges for services 848,000 1,047, ,706 Investment income 67, ,357 74,387 Miscellaneous 8,931 8,931 Total Revenues 1,077,656 1,241, ,724 Expenditures: Public works 626, ,851 (254,785) Community services 77,666 77,666 Community development 400,272 68,817 (331,455) Total Expenditures 1,026, ,334 (508,574) Excess (Deficiency) of Revenues Over Expenditures 50, , ,298 Other Financing Sources: Transfers in 25,000 25,000 Transfers out (43,655) (43,655) Total Other Financing Sources (18,655) Net Change in Fund Balance 50, , ,643 Fund Balance at Beginning of Year 2,584,016 2,584,016 Fund Balance at End of Year $ 2,634,764 $ 3,288,407 $ 653,

123 Golf Course Debt Service Fund Budgetary Comparison Schedule For the Year Ended June 30, 2008 Final Variance Budget Over Amounts Actual (Under) Revenues: Investment income $ $ 76,526 $ 76,526 Expenditures: Principal retirements 515, ,000 Interest and fiscal charges 601, ,230 (1,500) Total Expenditures 1,116,730 1,115,230 (1,500) (Deficiency) of Revenues Over Expenditures (1,116,730) (1,038,704) 78,026 Other Financing Sources (Uses): Transfers in 1,116,730 1,116,730 Net Change in Fund Balance 78,026 78,026 Fund Balance at Beginning of Year 991, ,539 Fund Balance at End of Year $ 991,539 $ 1,069,565 $ 78,

124 General Obligation Debt Service Fund Budgetary Comparison Schedule For the Year Ended June 30, 2008 Final Variance Budget Over Amounts Actual (Under) Revenues: Special assessments $ 5,078,170 $ 5,483,832 $ 405,662 Investment income 202, ,255 Total Revenues 5,078,170 5,686, ,917 Expenditures: Principal retirements 1,170,000 1,170,000 Interest and fiscal charges 3,908,170 3,906,955 (1,215) Total Expenditures 5,078,170 5,076,955 (1,215) Excess of Revenues Over Expenditures 609, ,132 Net Change in Fund Balance 609, ,132 Fund Balance at Beginning of Year 3,546,715 3,546,715 Fund Balance at End of Year $ 3,546,715 $ 4,155,847 $ 609,

125