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7 COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED JUNE 30, 2005 TABLE OF CONTENTS INTRODUCTORY SECTION: Page No. Table of Contents...i Letter of Transmittal...v Certificate of Achievement for Excellence in Financial Reporting... xii Certificate of Award for Outstanding Financial Reporting... xiii Organization Chart...xiv Elected Positions and Administrative Personnel...xv FINANCIAL SECTION: Independent Auditors' Report...1 Management s Discussion and Analysis (Required Supplementary Information)...3 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Assets...17 Statement of Activities...18 Fund Financial Statements: Governmental Funds: Balance Sheet...22 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets...25 Statement of Revenues, Expenditures and Changes in Fund Balances...26 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities...28 Proprietary Funds: Statement of Net Assets...29 Statement of Revenues, Expenses and Changes in Fund Net Assets...30 Statement of Cash Flows...31 Agency Funds: Statement of Fiduciary Assets and Liabilities...32 Notes to the Financial Statements...33 i

8 TABLE OF CONTENTS (Continued) Required Supplementary Information: Budgetary Comparison Schedule - General Fund...86 Budgetary Comparison Schedule - Redevelopment Agency Housing Fund...87 Notes to Required Supplementary Information...88 Supplementary Schedules: Non-Major Governmental Funds: Combining Balance Sheet...89 Combining Statement of Revenues, Expenditures and Changes in Fund Balances...90 Special Revenue Funds: Combining Balance Sheet - Non-Major Special Revenue Funds...92 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Non-Major Special Revenue Funds...94 Budgetary Comparison Schedules: Sanitation...96 Transportation System Improvement Program (TSIP)...97 EMT Transport...98 Gas Tax...99 Proposition Air Pollution Reduction Measure M Asset Seizure O.C.P.T. Building Maintenance Federal, State, and Local Grants Landscape Maintenance Assessment Districts Debt Service Funds: Budgetary Comparison Schedules: Redevelopment Agency Debt Service City Debt Service Capital Project Funds: Combining Balance Sheet - Non-Major Capital Project Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Non-Major Capital Project Funds Budgetary Comparison Schedules: Capital Improvement Community Facilities & Assessment Districts Redevelopment Agency Fire Facilities Fees Police Facilities Fees Library Facilities Fees ii

9 TABLE OF CONTENTS (Continued) 800 MHz Sewer Construction Drainage District Park Acquisition, Development and Maintenance Internal Service Funds: Combining Statement of Net Assets Combining Statement of Revenues, Expenses and Changes in Net Assets Combining Statement of Cash Flows Agency Funds: Combining Statement of Changes in Assets and Liabilities STATISTICAL SECTION: General Revenue by Source - Last Ten Fiscal Years General Governmental Expenditures by Function - Last Ten Fiscal Years Summary of Taxable Sales by Category - Last Ten Calendar Years Secured Property Tax Levies and Collections - Last Ten Fiscal Years Assessed and Estimated Actual Values of Taxable Property - Last Ten Fiscal Years Property Tax Rates - Direct and Overlapping Governments - Last Ten Fiscal Years Special Assessment Billings and Collections - Last Ten Fiscal Years Construction Permits - Last Ten Fiscal Years Summary of Bank and Related Deposits - Last Ten Fiscal Years Ratio of Net General Bonded Debt to Assessed Value and Net General Bonded Debt Per Capita - Last Ten Fiscal Years Computation of Legal Debt Margin Computation of Direct and Overlapping Bonded Debt Summary Schedule of Insurance Coverage Major Employers Principal Taxpayers - Property Tax Miscellaneous Statistics Demographic Statistics - Last Ten Fiscal Years iii

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20 Organizational Chart CITIZENS OF ORANGE City Clerk Mary Murphy CITY COUNCIL Mayor Mark A. Murphy Mayor Pro Tem Carolyn Cavecche Council Member Steve Ambriz Council Member Teresa Smith Council Member Jon Dumitru City Treasurer Helen Walker City Attorney David De Berry City Manager John W. Sibley Commissions & Committees Finance Richard Jacobs, Director Police Robert Gustafson, Chief Public Works Harry Thomas, Director Fire Vince Bonacher, Chief Personnel Steven Pham, Director Economic Development Jim Reichert, Director Community Services Gary Wann, Director Community Development Alice Angus, Director Library Services Nora Jacob, Director Information Management ACS, Contractor xiv

21 ELECTED POSITIONS Mark A. Murphy..... Mayor Carolyn Cavecche Mayor Pro Tem Steve Ambriz Council Member Jon Dumitru Council Member Teresa Tita Smith..... Council Member Helen Walker City Treasurer Mary Murphy City Clerk ADMINISTRATIVE PERSONNEL John W. Sibley. City Manager David De Berry City Attorney Robert Gustafson Police Chief Harry Thomas Public Works Director Vince Bonacker... Fire Chief Steven Pham.... Personnel Director Richard Jacobs Finance Director Jim Reichert Economic Development Director Gary Wann Community Services Director Alice Angus... Community Development Director Nora Jacob.... Library Services Director xv

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27 Management s Discussion and Analysis

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29 MANAGEMENT S DISCUSSION AND ANALYSIS The purpose of this Management s Discussion and Analysis section is to interpret and summarize the financial changes in the City of Orange Financial Statements for Fiscal Year This analysis will focus on the significant changes in an effort to explain the City s overall financial condition. We encourage readers to consider the information presented here in conjunction with the additional information furnished in our Letter of Transmittal, Notes to the Financial Statements, and the Statistical Section. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City s Basic Financial Statements. The City s Basic 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 and required information, 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 financial position, in a manner similar to that of a private-sector business. These statements are reported on the full accrual basis of accounting. Thus, revenues and expenses are reported for some items that will not affect cash flows until future fiscal periods. The Government-wide Financial Statements separate Governmental Activities that are principally supported by taxes and revenues from other agencies, from Business-type Activities 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, Public Works, Parks and Library, Community Development, Economic Development, Health and Sanitation, and Gas Tax Exchange. The City s sole Business-type Activity is the Water Utility. The Government-wide Financial Statements include not only the City, but also all legal entities for which the City is financially accountable. Accordingly, the financial information for the Orange Redevelopment Agency (Agency) is included as an integral part of the City s financial statements and reported as a blended component unit. The Statement of Net Assets presents information on all of the City s assets and liabilities; the difference between the two is reported as net assets. Total assets include all capital items including infrastructure. Evaluating increases or decreases in net assets over time will serve as a useful indicator of whether the financial position of the City is improving or declining. The Statement of Activities presents information on the net cost of each governmental function (activity) during the fiscal year. This statement also identifies the amount of general revenues needed to fully fund each governmental function. 3

30 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 demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: Governmental Funds, Proprietary Funds, and Fiduciary Funds. Governmental Funds (General Fund, Special Revenue, Debt Service and Capital Projects Funds) are used to account for the same functions reported as Governmental Activities in the Government-wide Financial Statements. However, unlike the Government-wide Financial Statements, Fund Financial Statements focus on short-term inflows and outflows of spendable resources. These funds are reported using the modified accrual basis of accounting, which measures cash and all other financial assets that can readily be converted to cash. This information may be useful in evaluating the City s short-term financing requirements. The focus of the Fund Financial Statements is more narrow than that of the Government-wide Financial Statements. The various fund Balance Sheets and the Statement of Revenues, Expenditures, and Changes in Fund Balances, require a reconciliation to facilitate the comparison between the fund statements and the Government-wide statements. This reconciliation is required because the Government-wide statements are prepared on the full accrual basis of accounting while the Fund Statements are prepared on the modified accrual basis of accounting. This reconciliation can be found in Note 2 of the Notes to the Financial Statements. Proprietary Funds are Enterprise and Internal Service Funds. The City uses an Enterprise Fund to account for its Water Utility. Internal Service Funds are used to accumulate and allocate costs internally to various functions. The City uses Internal Service Funds to allocate equipment expenses, equipment replacements, major building improvements, information systems, computer replacements, liability, and medical and workers compensation selfinsurance costs. All of the Internal Service Funds are combined into a single, aggregated presentation in the Proprietary Fund Financial Statements. Individual fund data for the Internal Service Funds is provided in the form of combining statements found on pages Fiduciary Funds are used to account for resources held for the benefit of parties outside of the City such as the collection of charges and fees for other governmental agencies. The fiduciary fund resources are not available to support City programs. Fiduciary Funds are reported in the Supplementary Schedules section. 4

31 Notes to the Financial Statements. The notes provide additional information that is essential to the reader for a full understanding of the data provided in the Government-wide and Fund Financial Statements. Other Information. In addition to the Basic Financial Statements and accompanying notes, this report also presents certain Supplementary Information such as Budgetary Comparison Schedules for all of the Non-Major Special Revenue Funds, Debt Service Funds, Capital Projects Funds, General Fund, along with Major Special Revenue Funds (Required Supplementary Information). The inclusion of the Statistical Section provides useful historical trend data on the City. GOVERNMENT-WIDE FINANCIAL HIGHLIGHTS AND ANALYSIS City of Orange Net Assets (expressed in thousands of dollars) Governmental Activities Business-type Activities Total i Current and other assets $177,347i 164,633i 14,915 15, , ,460 Capital assets 590,116i 593,118i 62,478 62, , ,101 Total assets 767,463i 757,751i 77,393 78, , ,561 Long-term liabilities outstanding 76,304i 76,887i ,654 77,677 Other liabilities 18,998i 18,909i 2,470 3,331 21,468 22,240 Total liabilities 95,302i 95,796i 2,820 4,121 98,122 99,917 Invested in capital assets, net of related debt 577,903i 579,828i 61,688 61, , ,606 Restricted 98,838i 89,430i -iii -iii 98,838 89,430 Unrestricted (4,580) (7,303) 12,885 12,911 8,305 5,608 Total net assets $672,161i 661,955i 74,573 74, , ,644 The assets of the City exceeded liabilities at the close of the fiscal year by $746.7 million. The majority of this excess is due to the capitalization of the City s infrastructure including streets, sidewalks, rights-of-way, street lights, traffic signals, sewer system, storm drain system, and bridges. Total assets increased by $8.3 million primarily due to increased cash and investments as the result of large developer in-lieu fees being received up-front, prior to construction, for park and housing development projects. Total liabilities decreased $1.8 million primarily due to the reduction of long-term debt through scheduled debt service payments and a lowering of amounts due to vendors and outside parties at the end of the year. The restricted portion of the City s net assets of $98.8 million represents resources that are subject to external restrictions such as debt service reserves, special revenue funds restricted for a specific purpose, and special grant funding. 5

32 The unrestricted net assets of $8.3 million are comprised of $12.9 million earmarked for the Water Utility, and negative $4.6 million for Governmental Activities. Governmental Activities net assets are negative because of that part of debt incurred by the City that was used for noncapitalizable redevelopment expenditures and the acquisition of assets owned by others. GASB Statement No. 34 requires that local governments record in the Statement of Net Assets the local government's liability for debt issued to finance noncapitalizable redevelopment expenditures and acquisition of assets owned by other parties. The City s combined governmental funds (activities) reported net assets of $672.2 million. This was an increase of $10.2 million in comparison with the prior year. Key elements of this increase are shown in the following table: City of Orange Changes in Net Assets (expressed in thousands of dollars) Governmental Activities Business-type Activities Total i Program Revenue: Charges for services $ 17,739i 16,544i 19,216i 18,917 36,955 35,461 Operating grants and contributions 8,062i 10,410i -iii -iii 8,062 10,410 Capital grants and contributions 13,118i 5,516i -iii -iii 13,118 5,516 General Revenues Property taxes 32,544i 29,967i -iii -iii 32,544 29,967 Sales taxes 30,926i 30,346i -iii -iii 30,926 30,346 Other taxes 8,138i 8,323i -iii -iii 8,138 8,323 State revenue 8,694i 6,405i -iii -iii 8,694 6,405 Capital contributions 116i 400i -iii -iii Other 3,716i 3,403i 457i 258 4,173 3,661 Total revenues 123,053i 111,314i 19,673i 19, , ,489 Expenses General government 5,762i 5,054i -iii -iii 5,762 5,054 Public safety 52,036i 47,303i -iii -iii 52,036 47,303 Public works 22,245i 28,277i -iii -iii 22,245 28,277 Community dev. 3,085i 2,713i -iii -iii 3,085 2,713 Parks and library 10,016i 9,076i -iii -iii 10,016 9,076 Economic development 3,300i 3,252i -iii -iii 3,300 3,252 Sanitation 8,648i 8,174i -iii -iii 8,648 8,174 Interest on l/t debt 3,365i 2,874i -iii -iii 3,365 2,874 Pass-through payments 3,681i 4,014i -iii -iii 3,681 4,014 ERAF 3,094i 720i -iii -iii 3, Water - I - i 19,824i 18,301 19,824 18,301 Total expenses 115,232i 111,457i 19,824i 18, , ,758 Increase (decrease) in net assets before transfers 7,821i (143) (151) 874 7, Transfers (1) (1) 1i 1 - I - I Increase (decrease) in net assets 7,820i (144) (150) 875 7, Net assets at beginning of year, as restated 664,341i 662,099i 74,723i 73, , ,913 Net assets at end of year $672,161i 661,955i 74,573i 74, , ,644 6

33 The City s total revenues increased by $12.2 million or 9.4%, while the total cost of all programs and services increased by $5.3 million or 4.1% over the prior fiscal year. Charges for services in the Governmental Activities were up $1.2 million due mainly to increased refuse collection, sanitation and building services. In addition, fines and penalties increased slightly. Operating grants and contributions were down $2.5 million primarily due to decreases in state gas tax revenues and federal Housing and Urban Development grants. Capital grants and contributions were up $7.6 million due to increases in developer fees collected up front for future park development and housing projects. Property taxes were up $2.6 million due to increasing home values and a strong real estate market which re-values each property upon resale and new construction. State revenues increased by $2.4 million mainly due to the receipt of vehicle license fees that were due from the prior fiscal year. Public Safety expenditures increased by $4.7 million due to increasing retirement costs associated with the poor investment returns on the California Public Employee s Retirement System (CalPERS) investment portfolio. Public Works expenditures decreased by $6.0 million, primarily as a result of decreased construction activity related to the Serrano Heights housing development and decreases in other various street rehabilitation projects. Education Augmentation Revenue Fund (ERAF) expenditures increased by $2.4 million due to the State increasing the shift of resources from cities and redevelopment agencies to help balance the State budget (see note 29). Water expenses increased slightly by $1.5 million due once again to higher purchased water costs to service additional customers, the filling of several vacant positions and the increased demand for water service. (This space intentionally left blank) 7

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35 As indicated in the above table, revenues increased by 11.0% for the Fiscal Year, as compared to the prior year. This increase was due in part once again to a steady increase in property tax revenues as well as a turn around in interest income being earned on City investments. In addition, some large developer deposits were received which were allocated to future capital improvement projects. Increases in assessed values due to property sales and new construction resulted in an increase in property tax and redevelopment tax increment of $1,572,199 or 10.8% and $1,001,452 or 6.3%, respectively. A schedule showing the changes in assessed valuations for the last ten years is included in the Statistical Section. GENERAL FUND SALES TAX REVENUE Fiscal Years $35,000,000 Percentages represent change from preceeding year. $30,000,000 $25,000,000 11% 14% 2% 10% (6%) 9% 2% $20,000,000 5% 1% 9% $15,000,000 $10,000,000 $5,000,000 $

36 Sales tax, including Measure M and Proposition 172, is one of the City's largest revenue sources and is directly related to general economic conditions within the City. Sales tax revenue increased by $708,282 or 2.2% from the previous fiscal year. The reduced increase in sales tax was due in part to a slowing in automobile sales partially offset by higher fuel costs. The historical change in sales tax revenue, excluding Measure M and Proposition 172 sales tax revenues (which are restricted for transportation and public safety purposes), is presented in the bar graph above. A summary of taxable sales by category for the last ten years is included in the Statistical Section. Revenue from other taxes increased $143,663 or 4.0% from the prior fiscal year. This increase was due in part to increases in transient occupancy taxes and real property transfer taxes as a result of the vibrant real estate market. Revenue from franchise fees increased $119,404 or 5.5% from the prior fiscal year as the result of higher energy prices. Revenue from licenses and permits increased $5.6 million or 154.8% from the prior fiscal year. This was due to the collection of developer fees up front for a large housing development Revenue from use of money (i.e., investment income) increased $2.2 million or 134.7% from the prior fiscal year. This increase was primarily due to the increasing rate of return on the City s investment portfolio. Revenue from other agencies increased $1.1 million or 6.3% from the prior fiscal year. This increase was the result of receiving motor vehicle in-lieu revenues due from Fiscal Year , and developer fees being paid up front, partially offset by lower Department of Housing and Urban Development grant revenue. Charges for services increased $1.1 million or 7.0% from the prior fiscal year. This increase was due to an increase in building permit activity related to a large housing development. Fines and forfeitures increased $211,581 or 12.3% from the prior fiscal year. This increase was due to increased vehicle code fines and City ordinance fines. Other revenues decreased $1.1 million or 32.8% from the prior fiscal year. This decrease was due mainly to the prior year sale of the Manchester property to the Agency for $900,

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38 Overall expenditures decreased by $3.7 million or 3.1%. This decrease was due mainly to a reduction in capital outlay expenditures for the Serrano Heights housing development and various street rehabilitation projects, partially offset by an increase in public safety costs. Some of the significant increases and decreases in expenditures are summarized below: Public Safety expenditures increased by $2.9 million or 6.2% due primarily to increasing retirement costs associated with the continued poor investment returns on the PERS investment portfolio. General Government, Public Works, Community Development, Parks and Library, and Sanitation functions all had slightly increased expenditures due to various increases in salary and benefits, maintenance and operation, and contractual services costs. Capital Outlay decreased by $9.1 million or 40.6% when compared to the previous fiscal year primarily due to the continued decrease in infrastructure costs related to the Serrano Heights housing development as well as decreases in several street rehabilitation projects. Debt Service expenditures decreased by $1.6 million or 19.8% due mainly to the prior year costs of issuance for the Merged Northwest and Southwest Redevelopment Project Refunding bonds (see note 12). Pass-through Payment expenditures decreased by $332,431 or 8.3% due to the prior year one-time payment to Orange Unified School District of $800,000 partially offset by increased pass-through payments as the result of increased tax increment received by the Agency. ERAF expenditures increased by $2.4 million or 329.7% due to the State continuing to shift property tax revenues away from cities and redevelopment agencies to fund State education programs (see note 29). FUND BALANCE ANALYSIS OF THE GOVERNMENTAL FUNDS As noted earlier, the City uses fund accounting to demonstrate compliance with financerelated legal requirements. Governmental Funds. The focus of the statements presenting the City s governmental funds is to provide information on the short-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City s current financial requirements. In particular, unreserved fund balance may serve as a useful measurement of a government s net resources available for spending during the subsequent fiscal year. As of the end of the fiscal year, the City s governmental funds reported combined ending fund balances of $133.4 million, an increase of $9.5 million as compared to the prior fiscal year s restated fund balances primarily due to an increase in cash and investments as a result of developer fees collected up front for major housing development projects. The General Fund is the major operating fund of the City. The total fund balance of the General Fund was $33.4 million of which $2.9 million was reserved and $30.5 million was 12

39 unreserved. Of the unreserved balance, $16.8 million is designated for contingencies, and $13.7 million was undesignated. The current $13.7 million dollar unreserved/undesignated fund balance has been partially designated in the Operating Budget to fund future unanticipated changes in the economy and increased retirement costs. The total fund balance in the General Fund increased $327,475 in the Fiscal Year. The significant changes were as follows: Actual revenues exceeded actual expenditures by $1.6 million due equally to revenues exceeding estimates and expenditure savings. Operating transfers out exceeded transfers in by $1.3 million and was primarily for Internal Service funding and capital improvements. Other General Fund highlights include: Unreserved/undesignated fund balance of $13.7 million was 18.4% of total General Fund expenditures. Actual General Fund revenues exceeded the final budget by $6.9 million due primarily to property and sales tax collections exceeding their estimates. This was a result of higher property taxes and the re-opening of the newly remodeled Village shopping center. General Fund original expenditure budget was increased by City Council actions totaling $511,961 or 0.7%. General Fund actual expenditures totaled $74.1 million as compared with the ending amended budget of $76.7 million; a savings of $2.6 million primarily due to unfilled, budgeted positions throughout the City. The Major Special Revenue Fund has a total fund balance of $20.1 million which is an increase of $4.1 million from the prior year s restated fund balance. The increase is due primarily to the receipt of developer fees allocated to future low and moderate income housing construction projects. The Major Debt Service Fund has a total fund balance of $8.0 million, of which 96.3% is reserved for the payment of future debt service obligations. The net decrease in fund balance in the Major Debt Service Fund of $661,591 was due primarily to the increased transfer of funds to the Major Capital Projects Fund Redevelopment Agency. The Major Capital Projects Fund Capital Improvement has a total fund balance of $11.4 million which is an increase of $1.8 million from the prior year s fund balance. The increase is due to decreased capital improvement project costs as well as decreased transfers to the General Fund for certain capital projects. The Major Capital Projects Fund Community Facilities & Assessment Districts has a total fund balance of $2.8 million which is a decrease of $1.7 million from the prior year s restated fund balance. The decrease is due to continued capital improvement expenditures in the Serrano Heights Community Facilities District. 13

40 The Non-Major Capital Projects Fund Park Acquisition, Development and Maintenance has a total fund balance of $6.4 million which is an increase of $5.5 million from the prior year s fund balance. The increase is due to the receipt of developer fees for future park and recreation development projects and maintenance programs. PROPRIETARY FUND HIGHLIGHTS AND ANALYSIS The Enterprise Fund for the City consists of the Water Utility. This operation provides potable water to approximately 38,000 residential, industrial, and commercial customers. The Water Fund is also the only Business-Type Activity (Proprietary Fund) that is reported on the Government-wide Financial Statements. Enterprise Fund - Revenues. During Fiscal Year the Water Fund had total revenues of $19.7 million. This represents a $498,333 increase over the prior year. The increase was due to increased developer donations as well as increased interest earnings. Enterprise Fund - Expenses. The total Water Fund expenses for were $19.8 million which was an increase of $1.5 million over the prior year. This increase was primarily due to an increase in the cost of purchased water and the filling of vacant water positions. Enterprise Fund - Net Assets. The unrestricted net assets of the Water Utility at year-end totaled $12.9 million. The Water Utility s total net assets decreased by $115,818 as compared to the prior fiscal year, primarily due to the increased water costs netted against the increased water sales. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets. The City s Seven Year Capital Improvement Plan estimates spending another $146.3 million through Fiscal Year Funding will come from current fund balances, projected revenues over the next seven years, and private donations to the Orange Community Services Foundation and the Orange Library Foundation. In FY , the City received a $9.13 million state grant to help fund the new Main Library. In addition, the Library Foundation is actively pursuing fundraising to help support this project and to date have collected over $1.0 million in cash contributions and in-kind services. Construction of this 45,000 square foot main library facility is currently underway. The Community Services Foundation is actively raising money to fund a proposed Gymnasium/Community Center at Grijalva Park and to date has raised approximately $700,000. In addition, the City has obtained approximately $3.0 million in grants so far for the construction of this facility. 14

41 City of Orange Capital Assets (shown in thousands, net of depreciation) Governmental Activities Business-type Activities Total i Land $ 48,596i 48,596i 2,505 2,505 51,101 51,101 Rights of way 336,080i 334,502i -iii -iii 336, ,502 Infrastructure 162,075i 166,150i -iii -iii 162, ,150 Structures/improvements 22,085i 22,452i 56,348 56,936 78,433 79,388 Furniture/fixtures/equip. 11,304i 12,886i 1,937 1,955 13,241 14,841 Construction in progress 9,976i 8,532i 1,688 1,587 11,664 10,119 Total $590,116i 593,118i 62,478 62, , ,101 More detailed information on the City s capital asset activity can be found in note 4 on pages 55 through 57. Long-term debt. At year-end, the City had total bonded debt outstanding of $72.9 million. Of this amount, $63.9 million comprises debt backed by future tax increment and $9.0 million is debt backed by the full faith and credit of the City. City of Orange Outstanding Debt Tax Allocations and Certificate of Participation Bonds (expressed in thousands of dollars) Governmental Activities Business-type Activities Total i Tax Allocation bonds $63,940i 66,030i -iii -iii 63,940 66,030 Certificates of Participation 8,225i 8,870i 756 1,155 8,981 10,025 Total $72,165i 74,900i 756 1,155 72,921 76,055 The City s Tax Allocation and Certificate of Participation bonded debt decreased by $3.1 million or 4.1% during the current fiscal year. This decrease was due primarily to principal payments made during the fiscal year. For more detailed information on the City s longterm debt activity, see note 12 on pages 63 through 69. REQUEST 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. This financial report can also be found on the City s website at Questions concerning any of the information provided in this report or request for additional financial information should be addressed to the Finance Department, City of Orange, 300 East Chapman Avenue, Orange, California

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43 Government-wide Financial Statements

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45 Statement of Net Assets June 30, 2005 Governmental Business-Type Totals Activities Activities ASSETS: Cash and investments (note 3) $ 66,782,933 9,290,220 76,073,153 72,045,532 Receivables (net of allowance for estimated uncollectibles): Accounts 3,601,451 3,809,259 7,410,710 6,878,055 Taxes (note 5) 5,419,437-5,419,437 5,846,751 Interest 727,681 57, , ,800 Intergovernmental 127, ,526 1,749,142 Inventories 264, , , ,672 Prepaid items 27,988-27,988 54,106 Due from other agencies - 1,304,390 1,304,390 1,493,686 Loans receivable (note 17) 155, , ,534 Bond issuance costs 1,401,800-1,401,800 1,497,377 Restricted assets: Cash and investments (note 3) 77,194,841-77,194,841 67,142,531 Cash and investments with fiscal agent (note 3) 4,341,373 41,642 4,383,015 5,731,486 Accounts receivable 302, ,827 - Taxes receivable 1,109-1,109 - Interest receivable 140, ,246 21,457 Loans receivable (note 17) 11,587,681-11,587,681 11,898,355 Land held for resale (note 25) 5,269,883-5,269,883 4,677,255 Capital assets, undepreciated (note 4) 394,651,610 4,091, ,742, ,721,882 Capital assets, net (note 4) 195,463,886 58,386, ,850, ,379,009 Total assets 767,462,762 77,393, ,856, ,560,630 LIABILITIES: Accounts payable 2,680,956 1,601,931 4,282,887 6,157,297 Accrued items 4,206, ,623 4,412,844 5,273,583 Deposits payable 736, , ,456 Contracts payable 165,713 52, , ,622 Due to other agencies 3,207,235-3,207,235 1,314,584 Deferred revenue 2,652, ,760 2,820,583 1,320,176 Noncurrent liabilities (note 12): Due within one year 5,348, ,717 5,788,676 7,133,449 Due in more than one year 76,303, ,482 76,654,206 77,677,497 Total liabilities 95,301,799 2,820,189 98,121,988 99,916,664 NET ASSETS: Invested in capital assets, net of related debt 577,902,874 61,688, ,590, ,606,390 Restricted for: Capital projects 43,740,497-43,740,497 36,245,577 Debt service 6,987,400-6,987,400 7,684,334 Specific projects and programs 48,110,063-48,110,063 45,499,684 Unrestricted (4,579,871) 12,843,385 8,263,514 5,607,981 Total net assets $ 672,160,963 74,531, ,692, ,643,966 See accompanying notes to the financial statements. 17

46 Statement of Activities Year ended June 30, 2005 Program Revenues Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions Governmental activities: General government $ 5,761, ,344 15,920 - Public safety 52,035,536 5,373,104 1,284, ,724 Public works 22,244, ,079 4,670,180 7,180,643 Community development 3,085,173 1,892, Parks and library 10,016, ,380 45,522 2,935,280 Economic development 3,299, ,801,644 2,103,300 Sanitation (note 8) 8,647,858 8,193, ,677 - Interest on long-term debt 3,365, Pass-through payments (note 13) 3,681, ERAF (note 29) 3,094, Total governmental activities 115,232,090 17,738,787 8,062,418 13,117,947 Business-type activities: Water 19,824,425 19,215, Total business-type activities 19,824,425 19,215, Totals $ 135,056,515 36,954,569 8,062,418 13,117,947 General revenues: Taxes (note 5): Property taxes Sales taxes Transient occupancy taxes Franchise taxes Other taxes Investment income (note 26) State motor vehicle in lieu (unrestricted) State revenue - other (unrestricted) Other Capital contributions Transfers Total general revenues and transfers Change in net assets Net assets at beginning of year, as restated (note 20) Net assets at end of year See accompanying notes to the financial statements. 18

47 Net (Expense) Revenue and Changes in Net Assets Governmental Business-type Totals Activities Activities (5,024,340) - (5,024,340) (4,791,072) (44,479,233) - (44,479,233) (40,761,312) (9,572,644) - (9,572,644) (16,615,202) (1,193,064) - (1,193,064) (747,583) (6,298,236) - (6,298,236) (7,927,139) 605, ,292 (504,554) (209,680) - (209,680) (32,909) (3,365,280) - (3,365,280) (2,873,584) (3,681,320) - (3,681,320) (4,013,751) (3,094,433) - (3,094,433) (720,190) (76,312,938) (76,312,937) (78,987,296) - (608,643) (608,643) 614,951 - (608,643) (608,643) 614,951 (76,312,938) (608,643) (76,921,581) (78,372,345) 32,543,770-32,543,770 29,967,008 30,926,470-30,926,470 30,345,566 2,790,198-2,790,198 2,749,617 2,277,614-2,277,614 2,158,210 3,070,114-3,070,114 3,414,942 2,729, ,869 3,185,913 1,191,273 8,633,722-8,633,722 6,149,732 59,849-59, , , ,449 2,470, , , ,343 (1,545) 1, ,132, ,414 84,590,921 79,103,028 7,819,569 (150,229) 7,669, , ,341,394 74,723, ,064, ,913,283 $ 672,160,963 74,573, ,734, ,643,966 See accompanying notes to the financial statements. 19

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49 Fund Financial Statements

50

51 Governmental Funds Major Governmental Funds Individual funds whose assets, liabilities, revenues or expenditures are at least 10% of the total assets, liabilities, revenues or expenditures of the governmental funds and at least 5% of the total assets, liabilities, revenues or expenditures of the governmental and enterprise funds combined, will be classified as major funds. The General Fund must be classified as a major fund and is used to account for revenues and expenditures that are not required to be accounted for in another fund. Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than for major capital projects) that are legally restricted to expenditure for specified purposes. Redevelopment Agency Housing This fund is used to account for the activities funded with Housing Set-Aside Funds for very low and moderate income households. This is the first year the Housing Fund has been classified as a major fund. Debt Service Funds are used to account for the accumulation of resources for, and payment of, general long-term debt principal, interest, and related costs. The following has been classified as a major fund in the accompanying financial statements: Redevelopment Agency This fund is used to account for the payment of interest and principal on the tax allocation bonds and other debt of the Redevelopment Agency. Capital Projects Funds are used to account for the acquisition and construction of capital facilities. The following Capital Projects Funds have been classified as major funds in the accompanying financial statements: Capital Improvement This fund is used to account for general purpose capital improvement and cooperatively funded projects. Community Facilities & Assessment Districts This fund is used to account for capital projects financed by the issuance of Mello Roos Bonds and 1915 Act Bonds in accordance with the provisions of Section 8683 of the Streets and Highways Code. Redevelopment Agency This fund is used to account for receipts and expenditures relating to the City s redevelopment project areas in accordance with the California Health and Safety Code. Non-Major Governmental Funds Other Governmental Funds These funds constitute all other governmental funds that do not meet the major fund test described above. These funds include all Special Revenue Funds, the City s Debt Service Fund, and several smaller Capital Projects Funds. 21

52 Balance Sheet Governmental Funds June 30, 2005 Special Debt Service Capital Projects Funds Revenue Fund Fund Community Redevelopment Redevelopment Capital Facilities & General Agency Housing Agency Improvement Assmnt. Dists. ASSETS: Cash and investments (note 3) $ 32,537,910 9,711,245 8,977,351 13,111,634 - Receivables (net of allowance for estimated uncollectibles): Accounts 877, ,282,345 - Taxes (note 5) 4,794,261 44, , Interest 421,854 55,721 67,255 9,399 5,749 Intergovernmental Inventories 83, Prepaid items 10, Advances to other funds (note 21) 283, Due from other funds 188, Loans receivable (note 17) - 9,460, Land held for resale (note 25) - 900, Restricted assets: Cash and investments with fiscal agent (note 3) ,097-2,946,755 Total assets $ 39,197,438 20,172,370 10,061,448 14,403,378 2,952,504 LIABILITIES AND FUND BALANCE: Liabilities: Accounts payable $ 1,099,269 3,350-82, Accrued items (note 9) 2,697,987 26, Deposits payable 629,352 51, Contracts payable 22, ,730 - Due to other agencies 1,106,402-1,804, Due to other funds , ,736 Deferred revenue 252, ,846,975 - Advances from other funds (note 21) Total liabilities 5,808,089 80,864 2,080,754 2,998, ,060 Fund Balance: Reserved: Debt service 1,030,000-7,688, Inventories 83, Land held for resale - 900, Encumbrances 518,227 15,868-1,289, ,177 Continuing appropriations 1,264,654 1,619, ,133 24,838,465 1,671,835 Noncurrent portion of loans receivable - 9,423, Settlement agreement Prepaid items 10, Unreserved: General fund: Designated for contingencies 16,825, Undesignated 13,656, Special revenue funds - 8,132, Capital project funds (14,722,864) 982,432 Total fund balance 33,389,349 20,091,506 7,980,694 11,404,883 2,763,444 Total liabilities and fund balance $ 39,197,438 20,172,370 10,061,448 14,403,378 2,952,504 See accompanying notes to the financial statements. 22

53 Capital Projects Funds Other Redevelopment Governmental Totals Agency Funds ,927,859 36,693, ,959, ,897,973 54,923 1,659,701 3,874,150 2,999, ,104 5,420,546 5,846,751 84, , , , , ,526 1,749, ,271 82, ,488 21, , , , , ,000 1,025,923 1,256,324 11,743,205 12,050,889 4,369,883-5,269,883 4,677, ,751 4,249,603 5,598,227 19,739,315 40,828, ,354, ,444,793 81,230 1,026,773 2,293,731 3,302,711 44, ,404 3,009,570 5,233,421 1,000 54, , ,229 7,538 67, , , ,202 20,079 3,207,235 1,314, , , ,770 3,839,554 2,346, , , , ,861 2,432,533 14,000,656 14,122, ,597 8,852,158 8,872, ,271 82,494 4,369,883-5,269,883 4,677, ,551 1,851,050 4,230,155 4,535, ,838 10,659,027 40,982,798 28,510, ,689 1,247,561 11,587,681 11,898, , , , ,488 21, ,825,890 16,825, ,656,819 12,326,358-15,299,844 23,432,205 19,815,924 12,958,493 8,304,791 7,522,852 13,855,741 19,328,454 38,395, ,354, ,322,084 19,739,315 40,828, ,354, ,444,793 See accompanying notes to the financial statements. 23

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55 RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS June 30, 2005 Fund balances of governmental funds $ 133,354,200 Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital assets net of depreciation have not been included as financial resources in governmental fund activity: Capital assets less accumulated depreciation 590,115,496 Less capital assets (net) included in internal service funds (below) (7,376,254) Long term debt and compensated absences that have not been included in the governmental fund activity: Long-term liabilities (73,130,725) Compensated absences (4,952,351) Accrued interest payable for the current portion of interest due on Tax Allocation Bonds has not been reported in the governmental funds. (1,126,891) Governmental funds report the effect of issuance costs as an expenditure when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. The remaining balance of unamortized issuance costs must be added to the Statement of Net Assets. 1,401,800 Certain revenues in the governmental funds are deferred using the modified accrual basis and are recognized as revenue under the full accrual basis for reporting in the Government-wide Financial Statements. 1,186,731 Internal Service Funds are used by management to charge the costs of certain activities to individual funds. The assets and liabilities of the Internal Service Funds are included in the Statement of Net Assets because they are not included within the Balance Sheet of the Governmental Funds. 32,688,957 Net assets of governmental activities $ 672,160,963 See accompanying notes to the financial statements. 25

56 Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Year ended June 30, 2005 Special Debt Service Capital Projects Funds Revenue Fund Fund Community Redevelopment Redevelopment Capital Facilities & General Agency Housing Agency Improvement Assmnt. Dists. REVENUES: Taxes (note 5) $ 50,393,789 3,364,001 13,456, Franchise fees 2,277, Licenses and permits 3,348, ,980 - Revenues from use of money (note 26) 1,782, , ,874 11,304 52,756 Revenues from other agencies 8,834,867 2,103,300-3,115,754 - Charges for services and fees 6,262, Fines and forfeitures 1,784, Gas tax exchange Other revenues (note 6) 1,009,669 20,070-5,000 - Total revenues 75,694,650 5,715,183 13,716,877 3,163,512 52,756 EXPENDITURES: Current: General government 6,532, , Public safety 48,212,527 7, Public works 4,285, Community development 2,933, Parks and library 8,697, Economic development - 425, , Sanitation (note 8) Gas tax exchange 1,399, Capital outlay (note 24) 247,534 12,997-1,747,779 1,717,323 Debt service: Principal (note 12) - - 2,090, Interest 13,557-2,866, Cost of issuance Pass-through payments (note 13) - - 3,681, ERAF (note 29) 1,790,297-1,304, Total expenditures 74,112, ,729 10,070,992 1,747,779 1,717,682 Excess (deficiency) of revenues over (under) expenditures 1,582,272 5,100,454 3,645,885 1,415,733 (1,664,926) Other financing sources (uses): Transfers in (note 22) , ,800 - Transfers out (note 22) (1,255,732) (991,374) (5,298,850) - - Issuance of long-term debt Retirement of long-term debt Total other financing sources (uses) (1,254,797) (991,374) (4,307,476) 354,800 - Net change in fund balances 327,475 4,109,080 (661,591) 1,770,533 (1,664,926) Fund balances, beginning of year, as restated (note 20) 33,061,874 15,982,426 8,642,285 9,634,350 4,428,370 Fund balances, end of year $ 33,389,349 20,091,506 7,980,694 11,404,883 2,763,444 See accompanying notes to the financial statements. 26

57 Capital Projects Funds Other Redevelopment Governmental Totals Agency Funds ,070,706 70,284,499 66,858, ,277,614 2,158,210-5,815,768 9,195,371 3,609, ,332 1,012,842 3,801,419 1,619,965-4,797,837 18,851,758 17,740,245 6,247 11,080,177 17,349,567 16,221, ,147 1,928,067 1,716,486-1,399,920 1,399,920 1,399,920 41,382 1,232,431 2,308,552 3,434, ,961 28,552, ,396, ,759, , ,820 7,095,260 6,712,380-1,835,020 50,054,615 47,128,749 36,412 3,745,683 8,067,530 7,659,763 37,284-2,971,027 2,688, ,620 9,306,713 8,693,279 2,183, ,236 3,136,091 3,191,542-8,463,224 8,463,224 8,102, ,399,920 1,399,920 2,510,215 7,016,523 13,252,371 22,315,464 19,485 1,032,610 3,142,095 2,491,922 61, ,345 3,372,118 4,040, ,592, ,681,320 4,013, ,094, ,190 5,130,076 23,643, ,036, ,752,159 (4,629,115) 4,909,747 10,360,050 (5,992,898) 5,298, ,981 6,833,940 8,816,458 - (197,664) (7,743,620) (12,182,107) ,115, (61,659,275) 5,298,850 (9,683) (909,680) (5,909,924) 669,735 4,900,064 9,450,370 (11,902,822) 18,658,719 33,495, ,903, ,224,906 19,328,454 38,395, ,354, ,322,084 See accompanying notes to the financial statements. 27

58 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES June 30, 2005 Net change in fund balances - total governmental funds $ 9,450,370 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 costs of those assets are allocated over their estimated useful lives as depreciation expense. This is the amount by which depreciation exceeded capital outlays in the current period. (1,780,316) Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Assets 3,153,715 Accrued interest for Tax Allocation Bonds. This is the net change in accrued interest for the current period. 31,950 Governmental funds report the effect of issuance costs as an expenditure when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. This is the annual amortization of those costs over the life of the debt. (95,577) Compensated absences expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. (2,399,623) Certain revenues in the governmental funds are deferred using the modified accrual basis and must therefore be recognized as revenue under the full accrual basis for reporting in the Government-wide Financial Statements. This is the net change in deferred revenue for the current period. (165,405) Internal Service Funds are used by management to charge the costs of certain activities to individual funds. The net revenues (expenses) of the Internal Service Funds are reported with governmental activities. (375,545) Changes in net assets of governmental activities $ 7,819,569 See accompanying notes to the financial statements. 28

59 ASSETS: Current assets: CITY OF ORANGE Statement of Net Assets Proprietary Funds June 30, 2005 Business Type Governmental Activities - Activities - Enterprise Fund Internal Service Totals Water Funds Cash and investments (note 3) $ 9,290,220 29,018,202 38,308,422 37,290,090 Accounts receivable 3,809,259 30,128 3,839,387 3,878,692 Interest receivable 57,739-57,739 43,936 Inventories 411, , , ,178 Prepaid items - 17,500 17,500 33,019 Due from other agencies 1,304,390-1,304,390 1,493,686 Restricted assets: Cash and investments with fiscal agent (note 3) 41,642 91, , ,259 Total current assets 14,915,017 29,339,295 44,254,312 43,481,860 Capital assets: Property, plant and equipment, net (note 4) 62,478,253 7,376,254 69,854,507 71,581,333 Total capital assets 62,478,253 7,376,254 69,854,507 71,581,333 Total assets 77,393,270 36,715, ,108, ,063,193 LIABILITIES: Current liabilities: Accounts payable 1,601,931 2,486,612 4,088,543 4,417,069 Accrued expenses 206,623 69, , ,351 Deposits payable ,227 Contracts payable 52,871-52,871 56,286 Deferred revenue 167, , ,175 Lease payable - current 439, , ,221 Total current liabilities 2,469,707 2,556,372 5,026,079 6,120,329 Long-term liabilities: Claims payable - 1,470,220 1,470,220 1,203,845 Lease payable 350, , ,199 Total long-term liabilities 350,482 1,470,220 1,820,702 1,994,044 Total liabilities 2,820,189 4,026,592 6,846,781 8,114,373 NET ASSETS: Invested in capital assets, net of related debt 61,688,054 7,376,254 69,064,308 70,359,237 Restricted for: Debt service 41,642-41,642 41,489 Claims - 91,770 91,770 91,770 Unrestricted 12,843,385 25,220,933 38,064,318 36,456,324 Total net assets $ 74,573,081 32,688, ,262, ,948,820 See accompanying notes to the financial statements. 29

60 Statement of Revenues, Expenses, and Changes in Fund Net Assets Proprietary Funds Year ended June 30, 2005 Business Type Governmental Activities - Activities - Enterprise Fund Internal Service Totals Water Funds OPERATING REVENUES: Water sales and services $ 18,423,249-18,423,249 18,446,957 Charges for services and fees 331,754 10,667,656 10,999,410 10,901,722 Other revenues 460,779 71, , ,543 Total operating revenues 19,215,782 10,739,255 29,955,037 29,485,222 OPERATING EXPENSES: Salaries and wages 3,673,431 1,807,590 5,481,021 5,185,683 Maintenance and operations 12,577,300 2,023,460 14,600,760 12,697,622 Contractual services - 1,730,055 1,730,055 1,652,527 Depreciation 1,864,510 1,466,898 3,331,408 3,215,613 Interfund charge for administrative services 1,640,468-1,640,468 1,619,014 Insurance claims and charges - 5,070,276 5,070,276 4,405,173 Other expenses - 37,978 37, ,553 Total operating expenses 19,755,709 12,136,257 31,891,966 29,409,185 Operating income (loss) (539,927) (1,397,002) (1,936,929) 76,037 NONOPERATING REVENUES (EXPENSES): Interest revenue (note 26) 456, , ,089 Loss on retirement of assets - (2,500) (2,500) (117,252) Interest expense (68,716) - (68,716) (81,649) Total nonoperating revenues (expenses) 388,153 (2,500) 385,653 59,188 Income (loss) before contributions and transfers (151,774) (1,399,502) (1,551,276) 135,225 Capital contributions - 115, , ,343 Transfers in (note 22) 1,545 1,708,135 1,709,680 4,965,649 Transfers out (note 22) - (800,000) (800,000) (1,600,000) Change in net assets (150,229) (375,545) (525,774) 3,901,217 Net assets, beginning of year, as restated (note 20) 74,723,310 33,064, ,787, ,047,603 Net assets, end of year $ 74,573,081 32,688, ,262, ,948,820 See accompanying notes to the financial statements. 30

61 Statement of Cash Flows Proprietary Funds Year ended June 30, 2005 Business Type Governmental Activities - Activities - Enterprise Fund Internal Service Totals Water Funds Cash flows from operating activities: Cash received from customers $ 18,226, ,346 18,954,561 21,074,903 Cash received from user departments 284,533 9,908,305 10,192,838 7,964,546 Cash payments to suppliers for goods and services (13,250,758) (7,880,841) (21,131,599) (18,501,828) Cash payments to employees for services (5,282,318) (1,863,016) (7,145,334) (6,869,093) Cash received for other activities 460,779 71, , ,543 Net cash provided by (used for) operating activities 438, ,393 1,402,844 3,805,071 Net cash flows from noncaptial financing activities: Transfers in from other funds 1, , ,680 3,365,649 Net cash provided by noncapital financing activities 1, , ,680 3,365,649 Cash flows from capital and related financing: Acquisition and construction of capital assets (1,359,953) (83,512) (1,443,465) (3,303,719) Payment on financing obligation (414,220) - (414,220) (390,730) Interest paid on financing obligation (68,716) - (68,716) (81,649) Proceeds from the sale of capital assets 189, , ,322 Net cash used for capital and related financing activities (1,653,593) (83,512) (1,737,105) (3,541,776) Cash flows from investing activities: Interest and dividends on investments 443, , ,093 Net cash provided by (used for) investing activities 443, , ,093 Net increase (decrease) in cash and cash equivalents (770,531) 1,789,016 1,018,485 3,887,037 Cash and cash equivalents at beginning of year 10,102,393 27,320,956 37,423,349 33,536,312 Cash and cash equivalents at end of year $ 9,331,862 29,109,972 38,441,834 37,423,349 Cash flows from operating activities: Operating income (loss) $ (539,927) (1,397,002) (1,936,929) 76,037 Adjustments to reconcile operating income to net cash provided by (used for) operating activities: Depreciation 1,864,510 1,466,898 3,331,408 3,215,613 Changes in assets and liabilities: (Increase) decrease in accounts receivable (64,418) 103,723 39,305 (541,986) (Increase) decrease in inventories 30,420 (14,704) 15,716 (42,057) (Increase) decrease in other assets - 15,519 15,519 (12,183) Increase (decrease) in accounts payable (700,461) 559,335 (141,126) 818,385 Increase (decrease) in accrued expenses 31,579 (35,751) (4,172) 96,712 Increase (decrease) in deposits payable (21,422) - (21,422) (8,136) Increase (decrease) in contracts payable (3,415) - (3,415) 3,144 See accompanying notes to the financial statements. 31

62 Statement of Fiduciary Assets and Liabilities Agency Funds June 30, ASSETS: Cash and investments (note 3) $ 5,917,954 6,401,269 Accounts receivable 48,436 - Interest receivable 96,518 81,628 Restricted assets: Cash and investments with fiscal agent (note 3) 2,808,508 2,778,395 Total assets $ 8,871,416 9,261,292 LIABILITIES: Accounts payable $ 125,547 33,196 Deposits payable 1,837,764 1,758,190 Due to bondholders 6,908,105 7,469,906 Total liabilities $ 8,871,416 9,261,292 See accompanying notes to the financial statements. 32

63 Notes to the Financial Statements

64

65 In Order of Presentation Year ended June 30, 2005 NOTE DESCRIPTION N PAGE 1. Significant Accounting Policies Reconciliation of Government-wide and Fund Financial Statements Cash and Investments Capital Assets Taxes Other Revenues Retirement Plan Sanitation Subsidy Accrued Items Insurance Programs Other Post Employment Benefits Long-Term Liabilities Tax Increment Shift Fund Equity Community Facilities & Assessment Districts and Other Revenue Bond Issues Joint Ventures Loans Receivable Leases Related Party Transactions Restatement of Beginning Fund Balance/Net Assets Interfund Advances Transfers Expenditures in Excess of Appropriations Capital Outlay Land Held for Resale Unrealized Loss on Investments Reclassification of Prior Year Governmental Activities & General Revenues Contingencies Education Revenue Augmentation Fund 83 33

66 Notes to the Financial Statements Year ended June 30, Significant Accounting Policies Description of the Reporting Entity The City of Orange (City) was incorporated in April 1888 under the general laws of the State of California. The City operates under a Council-Manager form of government and provides the following services: public safety, public works, community development and redevelopment, parks and library, health and sanitation, and general administrative services. As required by generally accepted accounting principles, the accompanying basic financial statements include the financial activities of the City and its blended component unit, the Orange Redevelopment Agency (Agency), for which the City is considered to be financially accountable. Blended component units, although legally separate entities, are in substance, part of the City's operations. Therefore, data from these units are combined with data of the City. Blended Component Unit. The Agency is accounted for in the City's financial statements in accordance with principles defining the governmental reporting entity adopted by the Governmental Accounting Standards Board (GASB). City Council members, in separate session, serve as the governing board of the Agency. The Agency is reported in the Debt Service Funds, Capital Projects Funds and Special Revenue Funds. The Agency s separate financial statements can be obtained from the City s Finance Department. Basis of Accounting and Measurement Focus The basic financial statements of the City are composed of the following: Government-wide Financial Statements Fund Financial Statements Notes to the Financial Statements Financial reporting is based upon all GASB pronouncements, as well as the Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board Opinions, and Accounting Research Bulletins that were issued on or before November 30, 1989 that do not conflict with or contradict GASB pronouncements. 34

67 Notes to the Financial Statements Year ended June 30, Significant Accounting Policies (continued) Government-wide Financial Statements Government-wide Financial Statements display information about the reporting government as a whole, except for its fiduciary activities. These statements include separate columns for the governmental and business-type activities of the primary government (including its blended component units), as well as its discreetly presented component units. The City has no discretely presented component units. Eliminations have been made in the Statement of Activities so that certain allocated expenses are recorded only once (by the function to which they were allocated). However, general government expenses have not been allocated as indirect expenses to the various functions of the City. Government-wide Financial Statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under the economic resources measurement focus, all (both current and long-term) economic resources and obligations of the reporting government are reported in the Government-wide Financial Statements. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Under the accrual basis of accounting, revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. Revenues, expenses, gains, losses, assets, and liabilities resulting from nonexchange transaction are recognized in accordance with the requirements of GASB Statement No. 33. Program revenues include charges for services, operating grants and contributions, capital grants and contributions, special assessments, and payments made by parties outside of the reporting government s citizenry if that money is restricted to a particular program. Program revenues are netted with program expenses in the Statement of Activities to present the net cost of each program. Amounts paid to acquire capital assets are capitalized as assets in the Governmentwide Financial Statements, rather than reported as an expenditure. Proceeds of longterm debt are recorded as a liability in the Government-wide Financial Statements, rather than as an other financing source. Amounts paid to reduce long-term indebtedness of the reporting government are reported as a reduction of the related liability, rather than as an expenditure. 35

68 Notes to the Financial Statements Year ended June 30, Significant Accounting Policies (continued) Fund Financial Statements The underlying accounting system of the City is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Fund Financial Statements for the primary government s governmental, proprietary, and fiduciary funds are presented after the Government-wide Financial Statements. These statements display information about major funds individually and non-major funds in the aggregate for governmental and enterprise funds. Fiduciary statements include financial information for fiduciary funds and similar component units. Fiduciary funds of the City primarily represent assets held by the City in a custodial capacity for other individuals or organizations. Governmental Funds In the Fund Financial Statements, governmental funds are presented using the modified-accrual basis of accounting. Their revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated, or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period. The City uses an availability period of 60 days. Major revenue sources that are susceptible to accrual are sales tax, property tax, motor vehicle in-lieu fees, franchise fees, license and permit fees, charges for services and interest earnings. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Locally imposed derived tax revenues are recognized as revenues in the period in which the underlying exchange transaction upon which they are based takes place. Imposed non-exchange transactions are recognized as revenues in the period for which they were imposed. If the period of use is not specified, they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received, whichever occurs first. Governmentmandated and voluntary non-exchange transactions are recognized as revenues when all applicable eligibility requirements have been met. 36

69 Notes to the Financial Statements Year ended June 30, Significant Accounting Policies (continued) Reimbursement grants are those grants for which the recipient government must first incur allowable costs in order to qualify for the reimbursement. For these grants, funds received in advance of incurring the allowable costs are recorded as deferred revenue in both the Fund Financial Statements and the Government-wide Financial Statements. A receivable (and related revenue) is recorded for costs incurred during the year for which reimbursement has not yet been received. In the Fund Financial Statements of governmental funds, however, deferred revenue (rather than revenue) is recorded at the establishment of this receivable if the amount of the reimbursement is not expected to be received during the recipient s availability period. Allocations are voluntary non-exchange transactions received from other governments that are not in the form of reimbursement grants. The entitlement of the recipient government for the receipt of these funds is not based upon the recipient government first incurring allowable expenditures. These amounts are recorded as revenue when the recipient government becomes entitled to the allocation. Deferred revenue is not recorded in either the Fund Financial Statements or in the Government-wide Financial Statements for receipt of allocations prior to the recording of related expenditures. In some cases the amounts not spent within a specified number of years (the spending period) must be returned to the providing agency. The requirement to return unspent funds within the spending period is not considered to be a requirement pertaining to the eligibility of funding and does not affect the recognition of revenue for this funding. This is because there is no requirement to spend the allocated resources in specific amounts or proportions for each of the fiscal years covered by the spending period. The entire allocation may be spent in any of the fiscal years covered by the spending period. Any amounts returned at the end of the spending period are required by generally accepted accounting principles to be recorded at that time as an expenditure. In the Fund Financial Statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. The reported fund balance (net current assets) is considered to be a measure of available spendable resources. Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of available spendable resources during a period. Non-current portions of long-term receivables due to governmental funds are reported on their balance sheets in spite of their spending measurement focus. However, 37

70 Notes to the Financial Statements Year ended June 30, Significant Accounting Policies (continued) special reporting treatments are used to indicate that they should not be considered available spendable resources since they do not represent net current assets. Recognition of governmental fund type revenue represented by non-current receivables is deferred until they become current receivables. Non-current portions of other long-term receivables are offset by fund balance reserve accounts. Due to the nature of their spending measurement focus, expenditure recognition for governmental fund types excludes amounts represented by non-current liabilities. Since they do not affect net current assets, such long-term amounts are not recognized as governmental fund type expenditures or fund liabilities. Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long-term debt are recorded as an other financing source rather than as a fund liability. Amounts paid to reduce long-term indebtedness are reported as fund expenditures. When both restricted and unrestricted resources are combined in a fund, expenditures are considered to be paid first from restricted resources, and then from unrestricted resources. Proprietary and Agency Funds The City s Enterprise Fund (Water) is a proprietary fund. Proprietary Fund Financial Statements include a Statement of Net Assets, a Statement of Revenues, Expenses, and Changes in Fund Net Assets, and a Statement of Cash Flows. A column representing internal service funds is also presented in these statements. However, internal service balances and activities have been combined with the governmental activities in the Government-wide Financial Statements. In the Fund Financial Statements, proprietary funds and agency funds are presented using the accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized when the related goods or services are delivered. In the Fund Financial Statements, proprietary funds are presented using the economic resources measurement focus. This means that all assets and all liabilities (whether current or non-current) associated with their activity are included on their balance sheets. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in total net assets. Agency funds do not have a measurement focus. 38

71 Notes to the Financial Statements Year ended June 30, Significant Accounting Policies (continued) Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Non-operating revenues, such as subsidies, taxes, and investment earnings, result from non-exchange transactions or ancillary activities. Operating expenses include the cost of sales, maintenance, administration and depreciation on capital assets which are essential to the primary operations of the fund. All other expenses are reported as nonoperating expenses. Amounts paid to acquire capital assets are capitalized as assets in the Enterprise Fund Financial Statements, rather than reported as an expense. Proceeds of long-term debt are recorded as a liability in the Enterprise Fund Financial Statements, rather than as an other financing source. Amounts paid to reduce long-term indebtedness of the Enterprise Fund are reported as a reduction of the related liability, rather than as an expenditure. Agency funds are custodial in nature (assets equal liabilities) and do not involve the recording of City revenues and expenses. Fund Classifications The funds designated as major funds are determined by a mathematical calculation consistent with GASB Statement No. 34. Once a fund has met the criteria for becoming a major fund, it will continue to be considered a major fund by management to provide consistency and comparability between the years. The City reports the following major governmental funds: General Fund. This is the primary operating fund of the City. It is used to account for all revenues and expenditures that are not required to be accounted for in another fund. Housing Fund. This fund is used to account for the activities funded with Housing Set-Aside funds for very low and moderate income households. Redevelopment Agency Debt Service Fund. This fund is used to account for the payment of interest and principal on the tax allocation bonds and other debt of the Agency. Capital Improvement Fund. This fund is used to account for general-purpose capital improvement and cooperatively funded projects. 39

72 Notes to the Financial Statements Year ended June 30, Significant Accounting Policies (continued) Community Facilities & Assessment Districts Fund. This fund is used to account for capital projects financed by the issuance of 1915 Act bonds in accordance with the provision of Section 8683 of the Streets and Highways Code. This also includes Mello Roos debt issued to finance developer constructed infrastructure. Redevelopment Agency Capital Projects Fund. This fund is used to account for receipts and expenditures relating to the City s redevelopment project areas in accordance with the California Health and Safety Code. The City reports the following major enterprise fund: Water Enterprise Fund. This fund is used to account for the provision of water services to residential, commercial and industrial customers. The City s fund structure also includes the following fund types: Internal Service Funds. These funds are used to account for the financing of special activities that provide services within the City. Such activities include: equipment expense, equipment replacement, major building improvements, information systems, computer replacement, employee accrued liability and workers compensation. Agency Funds. These funds are used to account for money and property held by the City as trustee or custodian. They are also used to account for various assessment districts for which the City acts as an agent for debt service activity, as the City is prohibited from levying additional taxes for these districts. Cash and Cash Equivalents For purposes of the Statement of Cash Flows, the City considered cash and cash equivalents (investments with maturities of three months or less at the time of purchase) as short term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. The City follows the practice of pooling the cash and investments of all funds, including the City's Enterprise and Internal Service Funds. As amounts are available to these funds on demand, all cash and investments are considered to be cash and cash equivalents for Statement of Cash Flows purposes. 40

73 Notes to the Financial Statements Year ended June 30, Significant Accounting Policies (continued) Investments Investments are reported at fair value, except for investment agreements and certificates of deposit that are reported at cost because they are not transferable and have terms that are not affected by changes in market rates. Changes in fair value that occur during a fiscal year are recognized as revenues from use of money reported for that fiscal year. Revenues from use of money include interest earnings, changes in fair value, gains or losses realized upon the liquidation, maturity, or sale of investments and rental income. Changes in the fair value of investments during this year were calculated and booked. In addition, fund balance was reserved for an equal amount. The City pools cash and investments for all funds, except for assets held by fiscal agents. Each fund s share in the pool is displayed in the accompanying financial statements as cash and investments. Investment income earned by the pooled investments is allocated monthly to the various funds based on each fund s prior month-end cash and investment balance, except for approximately $978,412 of investment income that has been assigned to and recorded as revenue of the General Fund, as provided by California Government Code Section Inventories and Prepaids Inventories of office supplies, gasoline and oil are maintained by the General and Internal Service Funds. The inventory maintained by the Water Utility Enterprise Fund consists primarily of water meters, water pipe, valves and fittings. Proprietary Fund inventories are priced at the lower of cost or market, determined on a first-in, first-out basis. The General Fund and Internal Service Funds inventories are valued at cost, determined on a weighted average basis utilizing the consumption method of accounting for inventories. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the Government-wide Financial Statements. Land Held for Resale Land held for resale represents land that was acquired in accordance with the objectives of the Agency. Land held for resale is generally valued at cost. In instances where an anticipated sales price is known to be lower than cost, a write down is recorded. 41

74 Notes to the Financial Statements Year ended June 30, Significant Accounting Policies (continued) A portion of fund balance is reserved for land held for resale to indicate that a portion of fund balance is not available for future expenditures. Capital Assets Capital assets (including infrastructure) are recorded at cost where historical records are available and at an estimated original cost where no historical records exist. Contributed capital assets are valued at their estimated fair market value at the date of contribution. Generally, capital asset purchases in excess of $5,000 are capitalized if they have an expected useful life of two years or more. Capital assets include additions to public domain (infrastructure), certain improvements including pavement, curb and gutter, sidewalks, traffic control devices, streetlights, sewers, storm drains, bridges and right-of-way corridors within the City. The City has valued and recorded all infrastructure asset data in its entirety as of June 30, Capital assets used in operations are depreciated over their estimated useful lives using the straight-line method in the Government-wide Financial Statements and in the Fund Financial Statements of the Enterprise Fund. Depreciation is charged as an expense against operations and accumulated depreciation is reported on the respective balance sheet. The lives used for depreciation purposes for each capital asset class are: Structures and improvements Infrastructure Wells, reservoirs and tanks Water lines/pipelines Pumps & booster pumps Vehicles and other equipment years years years 60 years 60 years 2-25 years Arbitrage Liability Any liability for arbitraged interest is recorded in the fund incurring the liability. Interest income is reduced by the amount of liability incurred during the year. There is no liability for arbitrage at June 30,

75 Notes to the Financial Statements Year ended June 30, Significant Accounting Policies (continued) Compensated Absences In accordance with GASB Statement No. 16, the employee benefits payable liability is recorded for unused vacation and similar compensatory leave balances. The employees entitlement to these balances are attributable to services already rendered and it is probable that virtually all of these balances will be liquidated by either paid time off or payments upon termination or retirement. Under GASB Statement No. 16, a liability is recorded for unused sick leave balances only to the extent that it is probable that the unused balances will result in termination payments. Other amounts of unused sick leave are excluded from the liability since their payment is contingent solely upon the occurrence of a future event (illness) that is outside the control of the City and the employee. In prior years a short-term liability was accrued in the governmental funds for leave benefits expected to be paid in the next fiscal year with all other amounts recorded as long-term liabilities. Additionally, a proprietary fund liability was accrued for all leave benefits relating to the proprietary funds. Based on recent guidance as it relates to GASB Statement No. 16, the City has changed how it accounts for compensated absences in governmental funds. Short-term liabilities are only accrued in governmental and proprietary funds for leave benefits which are due and payable, but not yet paid, as of June 30, as the result of an employment separation. The City had no short-term liabilities for compensated absences at June 30, All liabilities for compensated absences are considered to be long-term and are reflected in the Statement of Net Assets. Comparative Data Comparative total data for the prior year have been presented in the accompanying financial statements in order to provide an understanding of changes in the City's financial position and operations. However, comparative data by fund type have not been presented in each of the statements since their inclusion would make the statements unduly complex and difficult to read. Implementation of New GASB Pronouncement The City adopted a new accounting standard in order to conform to Governmental Accounting Standards Board Statement No. 40, Deposit and Investment Risk Disclosures, an amendment of GASB Statement No

76 Notes to the Financial Statements Year ended June 30, Significant Accounting Policies (continued) GASB Statement No. 40 updates the custodial credit risk disclosure requirements of Statement No. 3 and establishes more comprehensive disclosure requirements addressing other common risks of deposits and investments of state and local governments, such as credit risk, concentration of credit risk, interest rate risk, and foreign currency risk. 2. Reconciliation of Government-wide and Fund Financial Statements Explanation of Differences between Governmental Funds Balance Sheet and the Statement of Net Assets The total fund balances of the City s governmental funds of $133,354,200, differs from net assets of the governmental activities of $672,160,963, reported in the Statement of Net Assets. This difference primarily results from the long-term economic focus of the Statement of Net Assets versus the current financial resources focus of the Governmental Funds Balance Sheet. The following adjustments have been made to affect this difference and are further illustrated in the detail schedule on pages and in the summary on page 25. Capital Related Items When capital assets (property, plant and equipment) that are to be used in governmental activities are purchased or constructed, the cost of those assets are reported as expenditures in governmental funds. However, the Statement of Net Assets includes those capital assets among the assets of the City as a whole. The cost of capital assets of $752,345,650 is reduced by accumulated depreciation in the amount of $162,230,154 for a net capital assets value of $590,115,496 as of June 30, Long-Term Debt Transactions Long-term debt applicable to the City s governmental activities are not due and payable in the current period and, accordingly, are not reported as fund liabilities. All debt (both current and long-term) is reported in the Statement of Net Assets consisting of tax allocation bonds of $47,935,000, taxable tax allocation bonds of $16,005,000, leases payable of $9,080,988 and a note payable of $109,737. The total long-term debt payable in future years as of June 30, 2005 is $73,130,

77 Notes to the Financial Statements Year ended June 30, Reconciliation of Government-wide and Fund Financial Statements (continued) Accrued Interest Accrued liabilities in the Statement of Net Assets differ from the amount reported in governmental funds due to accrued interest on outstanding debt payable. The amount of $1,126,891 represents accrued interest expense on the bonds through June 30, Unamortized Costs of Issuance In governmental funds, bond issuance costs are expensed in the year they are incurred. However, in the Government-wide Financial Statements they are accrued over the life of the bonds. Internal Service Funds Internal Service funds are used by management to charge the costs of certain activities to individual City funds. The assets and liabilities of the Internal Service funds are included in governmental activities in the Statement of Net Assets, because they primarily serve governmental activities of the City. Reclassifications and Eliminations Interfund balances must generally be eliminated in the government-wide statements, except for net residual amounts due between governmental activities. Amounts involving fiduciary funds should be reported as external transactions. Any allocations must reduce the expenses for the function from which they originated, so that expenses are reported only once in the function. (This space intentionally left blank) 45

78 Notes to the Financial Statements Year ended June 30, Reconciliation of Government-wide and Fund Financial Statements (continued) Explanation of Differences between Governmental Funds Balance Sheet and the Statement of Net Assets (continued) Total Capital Long-term Governmental Related Accumulated Debt Interest Funds Items Depreciation Transactions Payable ASSETS: Cash and investments $ 114,959, Receivables (net of allowance for estimated uncollectibles): Accounts 3,874, Taxes 5,420, Interest 867, Intergovernmental 127, Inventories 83, Prepaid items 10, Advances to other funds 283, Due from other funds 464, Loans receivable 11,743, Land held for resale 5,269, Bond issuance costs Restricted assets: Cash and investments with fiscal agent 4,249, Capital assets, net of accumulated depreciation - 734,899,048 (152,159,806) - - Total assets $ 147,354, ,899,048 (152,159,806) - - LIABILITIES AND FUND BALANCES/NET ASSETS: Liabilities: Accounts payable $ 2,293, Accrued items 3,009, ,126,891 Deposits payable 736, Contracts payable 165, Due to other agencies 3,207, Due to other funds 464, Deferred revenue 3,839, Advances from other funds 283, Current portion - long-term liabilities Long-term liabilities ,130,725 - Total liabilities 14,000, ,130,725 1,126,891 Fund balances/net assets 133,354, ,899,048 (152,159,806) (73,130,725) (1,126,891) Total liabilities and fund balances/net assets $ 147,354, ,899,048 (152,159,806)

79 Notes to the Financial Statements Year ended June 30, 2005 Unamortized Compensated Internal Reclassifications Statement Costs of Absences Deferred Service and of Issuance Payable Revenue Funds Eliminations Net Assets ,018, ,977, ,128-3,904, ,420, , , , , ,500-27, (283,747) (464,938) ,743, ,269,883 1,401, ,401, ,770-4,341, ,376, ,115,496 1,401, ,715,549 (748,685) 767,462, ,225-2,680, ,760-4,206, , , ,207, (464,938) (1,186,731) - - 2,652, (283,747) ,099,387 3,249,572 5,348,959-4,952,351-1,470,220 (3,249,572) 76,303,724-4,952,351 (1,186,731) 4,026,592 (748,685) 95,301,799 1,401,800 (4,952,351) 1,186,731 32,688, ,160,963 1,401, ,715,549 (748,685) 767,462,762 47

80 Notes to the Financial Statements Year ended June 30, Reconciliation of Government-wide and Fund Financial Statements (continued) Explanation of Differences between Governmental Fund Operating Statements and the Statement of Activities The net change in fund balances for governmental funds of $9,450,370, differs from the change in net assets for governmental activities of $7,819,569, reported in the Statement of Activities. The differences arise primarily from the long-term economic focus of the Statement of Activities versus the current financial resources focus of the governmental funds. The following adjustments have been made to effect this difference and are further illustrated in the detail schedule on pages and in the summary on page 28. Capital Related Items When capital assets that are to be used in governmental activities are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. As a result, fund balance decreases by the amount of financial resources expended, whereas net assets decreases by the amount of depreciation expense charged for the year. Capital outlay in the amount of $4,697,686 was capitalized and is reduced by depreciation expense of $6,478,002. Long-term Debt Transactions Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Repayment of debt service is reported as an expenditure in governmental funds and, thus, has the effect of reducing fund balance because current financial resources have been used. For the City as a whole, however, the principal payments reduce the liabilities in the Statement of Net Assets and do not result in an expense in the Statement of Activities. Principal payments made during the year and a reduction of long-term debt as a result of the refunding totaled $3,153,715. Accrued Interest Interest expense in the Statement of Activities differs from the amount reported in the governmental funds due to accrued interest on outstanding debt payable. Accrued interest deducted was $31,

81 Notes to the Financial Statements Year ended June 30, Reconciliation of Government-wide and Fund Financial Statements (continued) Amortization of Costs of Issuance Bond issuance costs are amortized over the life of the bonds in the Government-wide Financial Statements. Compensated Absences Governmental funds have always reported the short-term portion of the compensated absences liability whereas the total liability, including short-term and long-term portions, are recorded in the Statement of Activities. Due to the accounting policy change in the way short-term compensated absences were calculated in the current fiscal year, the net change to long-term compensated absences expense is $2,399,623. Internal Service Funds Internal Service funds are used by management to charge the costs of certain activities to the individual funds of the City. The adjustments for Internal Service funds closes those funds by charging additional amounts to participating governmental activities to completely cover the Internal Service Funds costs for the year. The amount by which expenses exceeds revenues in the Internal Service funds was $375,545. Reclassifications and Eliminations Interfund balances must generally be eliminated in the Government-wide Financial Statements, except for net residual amounts due between governmental activities. Amounts involving fiduciary funds should be reported as external transactions. Any allocations must reduce the expenses of the function from which they originated, so that expenses are reported only once in the function. (This space intentionally left blank) 49

82 Notes to the Financial Statements Year ended June 30, Reconciliation of Government-wide and Fund Financial Statements (continued) Explanation of Differences between Governmental Fund Operating Statements and the Statement of Activities (continued) Total Capital Long-term Amortization Governmental Related Accumulated Debt Accrued of Costs of Funds Items Depreciation Transactions Interest Issuance REVENUES: Taxes $ 70,284, Franchise fees 2,277, Licenses and permits 9,195, Revenues from use of money 3,801, Revenues from other agencies 18,851, Charges for services and fees 17,349, Fines and forfeitures 1,928, Gas tax exchange 1,399, Capital contributions Other revenues 2,308, Total revenues 127,396, EXPENDITURES/EXPENSES: Current: General government 7,095, , Public safety 50,054, , Public works 8,067,530 8,554,685 5,154, Community development 2,971, Parks and library 9,306, , Economic development 3,136,091-36, Sanitation 8,463, Gas tax exchange 1,399, Capital outlay 13,252,371 (13,252,371) Debt service: Principal 3,142, (3,142,095) - - Interest 3,372, (11,620) (31,950) 95,577 Pass-through payments 3,681, ERAF 3,094, Total expenses 117,036,717 (4,697,686) 6,478,002 (3,153,715) (31,950) 95,577 Excess (deficiency) of revenues over (under) expenses 10,360,050 4,697,686 (6,478,002) 3,153,715 31,950 (95,577) OTHER FINANCING SOURCES (USES): Capital contributions Transfers in 6,833, Transfers out (7,743,620) Total other financing sources (uses) (909,680) Net change in fund balances/ net assets 9,450,370 4,697,686 (6,478,002) 3,153,715 31,950 (95,577) Fund balances/net assets, beginning of year, as restated 123,903, ,201,362 (145,681,804) (76,284,440) (1,158,841) 1,497,377 Fund balances/net assets, end of year $ 133,354, ,899,048 (152,159,806) (73,130,725) (1,126,891) 1,401,800 50

83 Notes to the Financial Statements Year ended June 30, 2005 Internal Reclassifications Compensated Deferred Service and Statement of Absences Revenue Funds Eliminations Activities ,284, ,277, ,195, (58,845) 3,742,574 - (165,405) ,686, (2,020,764) 15,328, ,928, (1,399,920) , , ,599 (886,050) 1,494,101 - (165,405) 71,599 (4,249,757) 123,053, , ,155 (2,020,764) 5,761,604 1,386, ,486 (886,050) 52,035, , ,209-22,244,546 64,503-49,057-3,085, , ,670-10,016,418 75,612-51,782-3,299,922 44, ,742-8,647, (1,399,920) (58,845) 3,365, ,681, ,094,433 2,399,623-1,471,101 (4,365,579) 115,232,090 (2,399,623) (165,405) (1,399,502) 115,822 7,821, ,822 (115,822) ,708,135 (8,542,075) (800,000) 8,542,075 (1,545) - - 1,023,957 (115,822) (1,545) (2,399,623) (165,405) (375,545) - 7,819,569 (2,552,728) 1,352,136 33,064, ,341,394 (4,952,351) 1,186,731 32,688, ,160,963 51

84 Notes to the Financial Statements Year ended June 30, Cash and Investments Cash and investments are presented in the accompanying statements as follows: Statement of Net Assets: Unrestricted cash and investments $ 76,073,153 Restricted cash and investments 77,194,841 Restricted cash and investments with fiscal agent 4,383,015 Statement of Fiduciary Assets and Liabilities: Cash and investments 5,917,954 Cash and investments with fiscal agent 2,808,508 Total cash and investments $166,377,471 Cash and investments at June 30, 2005 consisted of the following: Petty cash $ 36,600 Deposits 7,354,167 Investments 158,986,704 Total $166,377,471 The California Government Code requires California banks and savings and loan associations to secure a city's deposits by pledging government securities as collateral. The market value of pledged securities must equal at least 110% of a city's deposits. California law also allows financial institutions to secure city deposits by pledging first trust deed mortgage notes having a value of 150% of a city's total deposits. Cities may waive collateral requirements for deposits that are fully insured up to $100,000 by federal depository insurance. The City has not waived this requirement. The City follows the practice of pooling cash and investments of all funds except for funds required to be held by outside fiscal or other agents under provisions of the U.S. Department of Housing and Urban Development or provisions of bond indentures. Authorized Investments Under the provisions of the City's investment policy amended by Council on July 27, 2004 (Resolution 9899), and in accordance with Section of the California Government Code, the City may invest in the following types of investments: 52

85 Notes to the Financial Statements Year ended June 30, Cash and Investments (continued) United States Treasury notes, bonds, bills or certificates of indebtedness, or other securities for which the faith and credit of the United States are pledged for the payment of principal and interest (Limits: Maximum time to maturity at purchase 5 years). Obligations or other instruments issued by any federal agency or United States government-sponsored enterprise (Limits: Maximum time to maturity at purchase 5 years; maximum concentration 50% of portfolio with no more than 35% of total portfolio in any single agency; and excluding Government National Mortgage Association bonds). Money market mutual funds that invest only in securities and obligations of the United States government (Limits: Maximum 90 days weighted average maturity; maximum $15 million or 20% of portfolio, whichever is less). State of California Local Agency Investment Fund (Limits: Maximum 35% of total portfolio). The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 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. Included in LAIF s investment portfolio are collateralized mortgage obligations, mortgage-backed securities, other asset-backed securities, loans to certain state funds, and floating rate securities issued by federal agencies, government-sponsored enterprises, and corporations. Risk Disclosures Interest Rate Risk. As a means of limiting its exposure to fair value losses arising from rising interest rates, the City s investment policy requires that at least 35% of the City s investment portfolio must be invested from one to 365 days; no more than 50% of the portfolio be invested from 366 to 730 days; no more than 30% of the portfolio be invested from 731 to 1,095 days; no more than 25% of the portfolio be invested from 1,096 to 1,460 days; and no more than 20% of the portfolio be invested from 1,461 to 1,825 days. At June 30, 2005 the City Treasury had the following investment maturities: 53

86 Notes to the Financial Statements Year ended June 30, Cash and Investments (continued) Investment Maturities (In Years) Investment Type Fair Value Less than 1 1 to 2 2 to 3 3 to 4 4 to 5 FHLB $ 45,326,825 5,971,200 15,745,937 6,582,500 4,499,844 12,527,344 FHLMC 19,801,974 3,989,068 7,370,455 8,442,451 -iiiii -iiiii FNMA 10,790,469 1,975,000 6,842,969 1,972,500 -iiiii -iiiii US T Bills 1,999,375 1,999,375 -iiiii -iiiii -iiiii -iiiii US T Notes 50,426,719 21,894,062 11,387,344 4,859,375 12,285,938 -iiiii LAIF 30,641,342 30,641,342 -iiiii -iiiii -iiiii -iiiii Total $158,986,704 66,470,047 41,346,705 21,856,826 16,785,782 12,527,344 Credit Risk. It is the City s policy to limit its investments to the investment types that receive the top rating issued by at least two of the three largest national rating agencies including Standard & Poor s. At June 30, 2005 the City s credit risks, expressed on a percentage basis, are as follows: Credit Quality Distribution for Securities with Credit Exposure as a Percentage of Total Investments Investment Type e S & P Rating % of Investments Federal Home Loan Bank AAA 28.51% Federal Home Loan Mortgage Corporation AAA 12.46% Federal National Mortgage Association AAA 6.79% U.S. Treasury Bills AAA 1.26% U.S. Treasury Notes AAA 31.71% California Local Agency Investment Fund Not Rated 19.27% Total % Summary of Investments to Maturity Investments held in the City Treasury, grouped by maturity date at June 30, 2005 were as follows: Maturity Fair Value Current to one year $ 66,470,047 One to two years 41,346,705 Two to three years 21,856,826 Three to four years 16,785,782 Four to five years 12,527,344 Total $158,986,704 54

87 Notes to the Financial Statements Year ended June 30, Capital Assets Capital asset activity for the year ended June 30, 2005 was as follows: Governmental activities: Beginning Balance Additions Deletions Ending Balance Land (1) $ 48,596, ,596,287 Rights of way (1) 334,502,369 1,578,901j 1, ,079,518 Infrastructure 294,052,406 1,134,449j 79, ,107,285 Structures and improvements 35,808, ,055j - 36,234,805 Furniture, fixtures and equipment 25,934, ,357j 146,789 26,351,950 Construction in progress (1) 8,531,896 1,618,987j 175,078 9,975,805 Totals 747,426,090 5,322,749j 403, ,345,650 Less accumulated depreciation for: Infrastructure 127,903,087 5,169,496j 40, ,032,299 Structures and improvements 13,356, ,206j - 14,149,648 Furniture, fixtures and equipment 13,048,480 2,145,786j 146,059 15,048,207 Total accumulated depreciation 154,308,009 8,108,488j 186, ,230,154 Total capital assets, net $593,118,081 (2,785,739) 216, ,115,496 (1) Not depreciated 55

88 Notes to the Financial Statements Year ended June 30, Capital Assets (continued) Business-type activities: Beginning Balance Additions Deletions Ending Balance Land (1) $ 2,504, ,504,574 Buildings and structures 1,652,959 29,499-1,682,458 Improvements other than buildings 103,360,749 1,191,597 77, ,475,149 Machinery and equipment 2,460,444 77,077 38,700 2,498,821 Construction in progress (1) 1,586, , ,663 1,687,730 Totals 111,565,482 1,873, , ,848,732 Less accumulated depreciation for: Buildings and structures 382,069 48, ,573 Improvements other than buildings 47,695,154 1,745,392 62,085 49,378,461 Machinery and equipment 505,449 70,614 14, ,445 Total accumulated depreciation 48,582,672 1,864,510 76,703 50,370,479 Total capital assets, net $62,982,810 9, ,857 62,478,253 (1) Not depreciated Construction in Progress at June 30, 2005 in the Governmental Activities includes $6,946,469 of park improvements, $1,275,126 of library improvements, $781,564 of building improvements, and $972,646 of trail improvements. In the Business-Type Activities it includes $32,120 of building and parking lot improvements, $767,527 of wells, $607,103 of pump stations, $275,664 of water mains, and $5,316 of relocations. 56

89 Notes to the Financial Statements Year ended June 30, Capital Assets (continued) Depreciation expense was charged to the following functions in the Statement of Activities: 5. Taxes Governmental Activities Business-Type Activities General government $ 280,123 - Public safety 654,275 - Public works 6,785,155 - Community development Parks and library 351,912 - Economic development 36,437 - Water - 1,864,510 Total $8,108,488 1,864,510 Property taxes are attached 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. Any unpaid amounts at the end of the fiscal year are recorded as taxes receivable in accordance with the City's accrued revenue policy as stated in note 1. The County of Orange bills and collects the property taxes and subsequently remits the amount due to the City of Orange in installments during the year. Historically, the City has received substantially all of the taxes levied within two years from the date they are levied. The County is permitted by State Law (Article XIII A of the California Constitution) to levy taxes at one percent (1%) of full market value at time of purchase and can increase the property's value no more than two percent (2%) per year. The City receives a share of this basic levy proportionate to what it received in the 1976 to 1978 period. In March 2004, voters approved Proposition 57, the California Economic Recovery Bond Act, which allowed the State to sell bonds to reduce the State budget deficit. The legislature then enacted provisions that would change how sales and use taxes and other revenues are distributed to schools and local governments on or after July 1, 2004, to generate a dedicated revenue stream for repayment of the bonds. These changes will remain in effect until the State Director of Finance notifies the Board of Equalization that the State s bond obligations have been satisfied. 57

90 Notes to the Financial Statements Year ended June 30, Taxes (continued) Under this new revenue distribution method, commonly referred to as the triple flip, the following changes have occurred: Local sales and use tax revenues decreased, beginning July 1, While the statewide base sales and use tax rate has remained at 7.25%, the local government portion of the statewide rate has decreased by 0.25%, and the State portion has increased by 0.25%. Local sales and use tax losses to local agencies have been offset by property tax revenues. The County Auditor-Controller has used property tax revenues to reimburse the county and cities within the county. They have set aside some funds from the County Education Augmentation Revenue Fund (ERAF) and placed them in a Sales and Use Tax Compensation Fund. The State Director of Finance has instructed the County Auditor-Controller to allocate revenues from the Sales and Use Tax Compensation Fund to the county and cities within the county in January and May of each year. The State General Fund revenues have been used to help schools. Since a portion of the County ERAF has been set aside to offset sales and use tax losses, schools have received less revenue from county property taxes. The State has used its General Fund revenues to protect the minimum funding guarantee of Proposition Other Revenues Other revenues in the General Fund consists mainly of reimbursement for the Annual Street Fair, reimbursements from the Office of Emergency Services, and project reimbursements for salaries and benefits. Other revenues in the Other Governmental Funds consist mainly of the Police Facility C.O.P. lease payment reimbursement from the Agency to the City s Debt Service Fund. 7. Retirement Plan Plan Description The City contributes to the California Public Employees' Retirement System (CalPERS), an agent multiple-employer public employee defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and their beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities 58

91 Notes to the Financial Statements Year ended June 30, Retirement Plan (continued) within the State of California. Benefit provisions and all other requirements are established by state statute and city ordinance. Copies of CalPERS annual financial report may be obtained from their executive office at 400 P Street, Sacramento, CA Funding Policy The City contributes a portion or all of the contributions required for City employees on their behalf and for their accounts. The miscellaneous rate is 8%. The safety employee rate is 9%. The City is required to contribute at an actuarially determined rate; during Fiscal Year the rate was 9.283% for non-safety employees, and % for safety employees based on annual covered payroll. The contribution requirements of plan members and the City are established and may be amended by CalPERS. Annual Pension Cost For 2005 the City s annual pension cost of $6,662,164 for CalPERS was equal to the City s required and actual contributions. The required contribution was determined as part of the June 30, 2002, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) a rate of return on investment of present and future assets of 7.75% a year compounded annually, and (b) projected annual salary increases of 3.25% a year compounded annually, attributable to inflation. The actuarial value of CalPERS assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a 15-year period (smoothed market value). CalPERS uses the level percentage of payroll method to amortize any unfunded actuarial liabilities. The unfunded liabilities of both the Miscellaneous and Safety Plans are amortized over a 30-year period, as of the valuation date. 59

92 Notes to the Financial Statements Year ended June 30, Retirement Plan (continued) THREE-YEAR TREND INFORMATION FOR CalPERS Annual Pension Cost (APC) Percentage of APC Contributed Net Pension Obligation Fiscal Year 6/30/03: Misc. $ - 100% - Safety 620, % - 6/30/04: Misc. 1,000, % - Safety 4,791, % - 6/30/05: Misc. 1,516, % - Safety 5,145, % - SCHEDULE OF FUNDING PROGRESS FOR CalPERS (Required Supplementary Information) Entry Age Normal Accrued Liability (AL) Actuarial Value of Assets Unfunded/ (Overfunded) Liability (UAL) Annual Covered Payroll UAAL as a % of Payroll Valuation Date Funded Status 6/30/02: Misc. $127,867, ,291,183 (4,423,692) 103.5% 21,331,611 (20.7%) Safety 205,334, ,344,511 19,990, % 20,993, % 6/30/03: Misc. 140,057, ,976,767 6,080, % 21,972, % Safety 217,317, ,014,935 30,302, % 22,222, % 6/30/04: Misc. 151,365, ,377,005 9,988, % 22,043, % Safety 233,917, ,657,678 35,260, % 22,810, % 8. Sanitation Subsidy The Sanitation Fund accounts for all the sanitation, sewer and solid waste removal services the City provides to its residents. The fund continues to operate at a deficit because it s providing a subsidy for trash removal services of $944,878 for the year ended June 30, This subsidy is allocated to residential customers ($807,862) at a rate of $2.25 per month, and commercial customers ($137,016) at a rate ranging from $0.87 to $7.80 per month. This subsidy is scheduled to end in Fiscal Year

93 Notes to the Financial Statements Year ended June 30, Accrued Items As mentioned in Note 1, the City changed the way it accounts for short-term compensated absences. As a result, governmental funds that had previously recorded a short-term liability, have had the liability removed along with a corresponding adjustment to beginning fund balance (Note 20) as no short-term liability was determined to exist for the year ended June 30, Adjustments made to individual funds for compensated absences are as follows: 10. Insurance Programs Fund Amount General Fund $1,301,844 Special Revenue Funds: Housing 16,326 Sanitation 5,945 EMT Transport 25,201 Gas Tax 16,043 Proposition Air Pollution Reduction 376 Federal, State and Local Grants 1,590 Landscape Maint. Assessment Dist. 1,437 RDA Capital Projects 30,431 Water Fund 34,414 Internal Service Funds: Equipment Maintenance 1,585 Employee Accrued Liability 556,614 Workers Compensation 4,190 Liability 6,994 Total $2,003,028 The City is exposed to various risks of loss related to torts, theft, damage and destruction of assets, errors and omissions, road and walkway design hazards, vehicle accidents, and natural disasters for which the City maintains various insurance programs. The City has entered into contracts to supervise and administer these programs. General Liability The City is self-insured for General and Auto Liability claims up to $350,000. For amounts in excess of $350,000 and up to $2,000,000 the City participates in a public 61

94 Notes to the Financial Statements Year ended June 30, Insurance Program (continued) entity risk pool maintained through the California Insurance Pool Association (CIPA). CIPA is a consortium of 10 cities in California, which was established to pool resources, share risks, purchase excess insurance, and to share costs for professional risk management and claims administration. For amounts in excess of $2,000,000, the pool purchases commercial insurance and has coverage up to $40,000,000. Workers Compensation The City has a self-insurance program for any liability to City employees arising under the Workers Compensation laws of the State of California. The City will pay up to $300,000 per claim and has insurance in excess of that amount through CIPA. Liabilities are recorded when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNR). The liability for claims and judgments is reported in the appropriate Internal Service Fund. An amount for current claims payable is calculated based on the current year expenses and the remainder is shown as noncurrent claims payable. Changes in claims payable for the year ended June 30, 2004 and June 30, 2005 are as follows: General Liability Workers Compensation Totals Unpaid claims, July 1, 2003 $ 268,370i 2,013,974i 2,282,344i Incurred claims 383,309i 2,638,636i 3,021,945i Less claim payments (220,911) (2,317,049) (2,537,960) Unpaid claims, June 30, ,768i 2,335,561i 2,766,329i Less current portion of unpaid claims (302,484) (1,260,000) (1,562,484) Noncurrent unpaid claims, June 30, 2004 $ 128,284i 1,075,561i 1,203,845i Unpaid claims, July 1, 2004 $ 430,768i 2,335,561i 2,766,329i Incurred claims 1,574,950i 2,427,013i 4,001,963i Less claim payments (1,416,281) (1,782,404) (3,198,685) Unpaid claims, June 30, ,437i 2,980,170i 3,569,607i Less current portion of unpaid claims (584,387) (1,515,000) (2,099,387) Noncurrent unpaid claims, June 30, 2005 $ 5,050i 1,465,170i 1,470,220i 62

95 Notes to the Financial Statements Year ended June 30, Other Post Employment Benefits The City provides post employment health care benefits for eligible City retirees and their dependents through the California Public Employees' Retirement System (CalPERS). Retirees from the City enrolled in the Public Employees Medical and Hospital Insurance Program through CalPERS are eligible for these benefits. These health insurance benefits are authorized through City Resolutions/Memoranda of Understanding defining health care benefits and contribution levels and through the contractual agreement between the City and CalPERS. The City contributes $48 per month for each retiree and the retiree is responsible for the balance of the premium amount. The City finances the plan on a pay as you go basis. For the year ended June 30, 2005, the City recognized $89,125 in expenditures, net of retiree contributions. There were 179 retired eligible employees. 12. Long-Term Liabilities Following is a reconciliation of long-term liabilities for the year ended June 30, 2005: Beginning Balance Additions Deletions Ending Balance Amounts Due Within One Year Amounts Due Beyond One Year Governmental activities: Tax allocation bonds $66,030,000-2,090,000 63,940,000 2,135,000 61,805,000 Certificates of participation 8,870, ,000 8,225, ,000 7,550,000 Note payable 129,222-19, ,737 21,102 88,635 Lease payable 1,255, , , , ,518 Compensated absences 4,555,758 2,425,141 2,028,548 4,952,351-4,952,351 Claims payable 2,766,329 4,001,963 3,198,685 3,569,607 2,099,387 1,470,220 Business-type activities: MWDOC 1,154, , , , ,000 Lease payable 49,782-15,770 34,012 16,530 17,482 Total $84,810,947 6,427,104 8,795,169 82,442,882 5,788,676 76,654,206 Tax Allocation Bonds To provide funds to refund the 1993 Southwest Redevelopment Project Tax Allocation Refunding Bonds, Issue A, and the 1993 Northwest Redevelopment Project Tax Allocation Refunding Bonds, Issue B, the Agency sold Orange Merged and Amended Redevelopment Project Area 2003 Tax Allocation Refunding Bonds Series A, on September 24, 2003 in the amount of $45,915,000 maturing September 1, The serial bonds are payable in annual installments of $395,000 to $4,210,000 and mature in years 2004 to The interest rate on the bonds ranges from 2.00% to 4.80%. 63

96 Notes to the Financial Statements Year ended June 30, Long-Term Liabilities (continued) Costs of issuance for the bonds are being amortized over the life of the bonds in the government-wide statements. A surety bond was purchased in lieu of a cash funded debt service reserve fund in order to satisfy the reserve requirement. This reduced cash with fiscal agent by $4.96 million and resulted in a lower debt amount being issued. The total of the bonds outstanding at June 30, 2005 were $45,520,000. A summary of the cash flow and the economic gain are as follows: Prior Debt Service Refunding Debt Service Savings Present Value of 4.53% $90,557,220 73,357,903 17,199,317 10,975,158i Present value of savings from cash flow $10,975,158i Less: Prior funds on hand (7,600,390) Plus: Refunding funds on hand 1,229,658i Net present value of economic gain $ 4,604,426i To provide funds to refund the 1993 Southwest Redevelopment Project Tax Allocation Refunding Bonds, Issue B, and the 1993 Northwest Redevelopment Project Tax Allocation Refunding Bonds, Issue A, the Agency sold Orange Merged and Amended Redevelopment Project Area 2003 Taxable Tax Allocation Refunding Bonds Series B, on September 24, 2003 in the amount of $11,170,000 maturing September 1, The serial bonds are payable in annual installments of $415,000 to $1,530,000 and mature in years 2004 to The interest rate on the bonds ranges from 1.30% to 5.00%. Costs of issuance for the bonds are being amortized over the life of the bonds in the government-wide statements. A surety bond was purchased in lieu of a cash funded debt service reserve fund in order to satisfy the reserve requirement. This reduced cash with fiscal agent by $1.21 million and resulted in a lower debt amount being issued. The total of the bonds outstanding at June 30, 2005 were $9,640,

97 Notes to the Financial Statements Year ended June 30, Long-Term Liabilities (continued) A summary of the cash flow and the economic gain are as follows: Prior Debt Service Refunding Debt Service Savings Present Value of 4.53% $17,524,814 12,960,105 4,564,709 4,080,342i Present value of savings from cash flow $4,080,342i Less: Prior funds on hand (4,862,881) Plus: Refunding funds on hand 1,855,829i Net present value of economic gain $ 1,073,290i To provide funds to advance refund the 1986 Tustin Street Tax Allocation Bonds, the Agency sold Tax Allocation Refunding Bonds - Series A dated June 10, 1997, in the amount of $3,280,000, maturing September 1, The bonds maturing in the years prior to 2007 are serial bonds payable in annual installments of $110,000 to $165,000; bonds maturing in the years 2008 to 2016 are term bonds payable in annual installments of $170,000 to $265,000. Interest rates on the bonds range from 3.90% to 5.50%. Funds in the amount of $237,955 are currently in cash reserves and are sufficient to cover the maximum annual debt service. The bonds outstanding at June 30, 2005 were $2,415,000. To provide funds to refund the 1992 Tustin Street Subordinated Taxable Tax Allocation Notes, the Agency sold Taxable Tax Allocation Refunding Bonds - Series B dated June 10, 1997, in the amount of $6,500,000, maturing September 1, The bonds maturing in the years prior to 2013 are serial bonds payable in annual installments of $15,000 to $45,000; bonds maturing in the years 2013 to 2027 are term bonds payable in annual installments of $350,000 to $765,000. Interest rates on the refunding bonds range from 6.38% to 7.83%. Funds in the amount of $595,121 are currently in the cash reserves and are sufficient to cover the maximum-annual debt service. The bonds outstanding at June 30, 2005 were $6,365,

98 Notes to the Financial Statements Year ended June 30, Long-Term Liabilities (continued) Refunding Certificates of Participation In April 1998 the City issued Certificates of Participation (Orange Police Facility Headquarters Project) in the amount of $12,215,000 to refund and defease the outstanding 1989 Certificates of Participation (Orange Police Facility Headquarters Project). The certificates mature annually from August 1, 1998 through August 1, 2014 with principal payments ranging from $495,000 to $1,000,000. Interest rates range from 4.0% to 5.0%. The certificates outstanding at June 30, 2005 were $8,225,000. Installment Note Payable In November 1999, the Agency approved a purchase agreement with Ann Post to acquire property at the northwest corner of West Almond Avenue and South Olive Street for the purpose of future expansion of parking facilities for the adjacent Senior Citizens Center. The property is currently leased to an automotive repair business. As a part of the purchase agreement, the Agency has agreed to continue the lease of the property to the existing tenant for as long as he chooses to conduct business at that location. The purchase price was $250,000, with a down payment of $50,000 and an Installment Note in the amount of $200,000, dated December 23, The note is amortized over a ten-year period bearing an annual interest rate of 8%, with monthly principal and interest payments of $2,427. The note matures on December 23, The automobile repair business closed in December 2001, and the property was converted to a parking lot in FY The note outstanding at June 30, 2005 was $109,737. Lease Payable The portion of the 800 MHz lease payable recorded in the governmental activities is $855,988 at June 30, The balance of the lease payable for the 800 MHz lease payable recorded in the business-type activities is $34,012 at June 30, Financing Obligations Municipal Water District of Orange County: The City has entered into a capital lease agreement that is recorded in the Water Enterprise Fund. The lease is part of an agreement between the City, other cities and local water agencies (the agencies) and the Municipal Water District of Orange County (MWDOC) that resulted in the April 1978 formation by MWDOC of the MWDOC 66

99 Notes to the Financial Statements Year ended June 30, Long-Term Liabilities (continued) Water Facilities Corporation (WFC). The WFC is a California non-profit corporation formed to assist the City and other agencies in financing construction of the Allen- McColloch Pipeline (AMP) to improve water quality and provide capacity for urban expansion. The original pipeline project was funded primarily by Leasehold Mortgage Bonds issued in March Under the terms of lease and sublease agreements between WFC, MWDOC, the City and other agencies, MWDOC leased the site to WFC for construction of the AMP. Upon completion of construction, WFC subleased the site and the improvements to MWDOC, which simultaneously subleased the capacity in the AMP to the City and other agencies. The original project was augmented in 1989 with the construction of a parallel pipeline and flow control facility, known as the Allen-McColloch Pipeline Flow Augmentation Project (AMP-FAP). This project was primarily financed through Certificates of Participation issued by WFC and participation in the project entitles the City to the right to sublease capacity in the AMP. The specific terms and obligations of the AMP- FAP lease agreement were added as an amendment to the City's original AMP lease agreement. As a result of this amendment, the City's lease obligation was increased by $1,645,000. Effective July 1, 1994, the City s equity interest was sold to Metropolitan Water District of Southern California (MET). The City has recorded as a receivable the net present value of payments to be made by MET to MWDOC and subsequently remitted to the City. At June 30, 2005, the receivable was reflected as due from other agencies in the Enterprise Fund in the amount of $756,187. The City has also recorded as a part of its lease payable its portion of the 1989 and 1996 Certificates of Participation issued by MWDOC on behalf of the financing participants. Lease payments will be made to MWDOC who will then pay the trustee for the Certificates of Participation. MWDOC remains the primary obligor and in the event of default by MET, will be obligated for the full amount of the debt and must look to AMP Participants for rent payments. If the City defaults on the lease obligation, MWDOC may sell or lease the City's rights to another agency. 67

100 Notes to the Financial Statements Year ended June 30, Long-Term Liabilities (continued) Countywide Public Financing Authority: On July 1, 1996, Revenue Bonds were issued in the amount of $27,725,000 by the Countywide Public Financing Authority. The Authority is made up of the City and other member cities pursuant to a joint powers agreement. The bonds were issued primarily to provide financing for each member city s pro-rata portion of a Countywide communications system. Member cities had the option to use this financing mechanism to finance other projects within their geographical boundaries. The City opted to finance only their pro-rata portion of the communications system and not other capital projects. In order to repay the bonds, each member of the Authority has agreed to lease certain real property and improvements to the Authority and to lease back said leased premises from the Authority. The aggregate of each member s pro-rata lease payment will be sufficient to enable the Authority to pay the principal and interest payments on the bonds. The obligation for this lease payment is recorded in both the Water Utilities Fund and the City s Governmental Funds. The City s remaining portion of the lease payment is currently $890,000, payable through Fiscal Year with principal payments ranging from $305,000 to $455,000. (This space intentionally left blank) 68

101 Notes to the Financial Statements Year ended June 30, Long-Term Liabilities (continued) Annual requirements to amortize all tax allocation bonds, notes payable, leases payable, and certificates of participation outstanding as of June 30, 2005 (including interest payments of $37,917,434) are as follows: 1998 A Police Year Facilities Certificates Ending Tax Allocation Bonds of Participation Lease Payable June 30 Principal Interest Principal Interest Principal Interest 2006 $ 2,135,000 2,825, , , ,470 34, ,185,000 2,772, , , ,518 11, ,255,000 2,708, , , ,335,000 2,630, , , ,555,000 2,543, , , ,320,000 11,146,661 4,565, , ,725,000 7,762, ,300,000 2,913, ,130, , Total $63,940,000 35,561,390 8,225,000 2,098, ,988 45,974 Year Ending Installment Note MWDOC 800 MHz June 30 Principal Interest Principal Interest Principal Interest 2006 $ 21,102 8, ,187 45,193 16,530 1, ,854 6,265 24,000 23,593 17, ,750 4,368 26,000 21, ,805 2,314 27,000 20, , ,000 18, ,000 56, ,000 3, Total $109,737 21, , ,466 34,012 1, Tax Increment Shift The Agency has entered into agreements with various governmental entities to "passthrough" portions of tax increment received to entities that are located within the Agency's project area. Tax increment revenue passed through to other agencies during Fiscal Year totaled $3,681,320 of which $1,804,552 was due and payable at year-end and is reflected as due to other agencies in the Agency s Debt Service Fund. 69

102 Notes to the Financial Statements Year ended June 30, Fund Equity At year-end, that portion of various funds' equity not available for appropriation is reserved. The purpose of the various reserves is as follows: Reserved for Debt Service - Segregation of fund balance for resources legally restricted to the payment of general long-term debt principal and interest maturing in future years. Reserved for Inventories - This reserve is maintained as the aggregate of the balances in the inventory accounts and does not represent resources available for appropriation. Reserved for Land Held for Resale - This reserve is maintained for land held by the Agency to be sold and used for commercial development in future years. Reserved for Encumbrances - This reserve is maintained to account for outstanding purchase orders and contractual commitments. Reserved for Continuing Appropriations - This reserve is maintained to account for current year appropriations that have been carried over to the next fiscal year. Reserved for Noncurrent Portion of Loans Receivable - The City has made loans to its citizens under the provisions of certain grant programs. The City also provides loans to private businesses to fund development projects. This reserve is representative of the noncurrent portion of those loans receivable (see note 17). Reserved for Settlement Agreement - The City is holding these funds as trustee pending the outcome of litigation which will determine the final disposition in accordance with certain terms and conditions of the settlement agreement. Reserved for Prepaid Items - This reserve is maintained for prepaid payroll related items. Designated for Contingencies - This reserve equals 22.7% of operating expenditures in the General Fund set aside for operating contingencies and catastrophic events. While it is the City s policy to keep this reserve at a minimum of 25%, it has been allowed to drop below the minimum during these fiscally challenging times and will return to 25% as soon as possible. 70

103 Notes to the Financial Statements Year ended June 30, Community Facilities & Assessment Districts and Other Revenue Bond Issues In December 1986 Special Assessment District 86-1 bonds of $20,228,731 were issued to fund various capital improvements. In September 1989 Special Assessment District 88-1 issued bonds in the amount of $1,770,000 to finance the cost and expenses of the acquisition of public infrastructure improvements. In November 1990 Special Assessment District 90-1 issued bonds in the amount of $4,003,393 to finance the acquisition of improvements to Crawford Canyon Road. In July 1996 Special Assessment District 95-1 bonds in the amount of $1,200,000 were issued to finance the acquisition of public improvements to Sycamore Crossing. In February 2004 Community Facilities District No issued refunding bonds in the amount of $37,530,000 to finance the acquisition and/or construction of public improvements. Beginning Ending Description Balance Additions Deletions Balance Special Assessment 86-1 $ 3,490, ,000 2,675,000 Special Assessment ,000-95, ,000 Special Assessment ,780, ,000 1,560,000 Special Assessment ,015,000-30, ,000 Community Facilities District ,530, ,000 36,605,000 Total $44,630,000-2,085,000 42,545,000 The City has no obligation or duty to pay any delinquency out of any available funds of the City. The City is only acting as an agent for the property owners in collecting the assessments, and neither the faith and credit nor the taxing power of the City is pledged to the payment of the bond. Therefore, the bond indebtedness is not shown in the financial statements of the City. The City issued $13,500,000 of Mortgage Revenue Bonds on behalf of F.C. Orange Associates L.P. on October 18, These bonds are due on October 1, The City also issued $5,000,000 of Industrial Development Revenue Bonds on behalf of Control Air Conditioning Corporation and Ellis Enterprises on May 21, These bonds are due on May 1, Both the Mortgage Revenue Bonds and the Industrial Development Revenue Bonds are not included in the accompanying financial statements as neither the City nor the Agency are liable for these bonds, and neither the faith and credit nor the taxing power of the City or the Agency have been pledged to the payment of these obligations. 71

104 Notes to the Financial Statements Year ended June 30, Joint Ventures The City is a participant in the Anaheim-Garden Grove-Orange Fire Training Facility Authority, a joint powers authority created to finance fire training. These cities have one representative each on the Authority's three-member Board of Directors. The City's share of the Authority s costs is included in the accompanying financial statements as expenditures of the General Fund and is immaterial to the operations of the City. Separate financial statements may be obtained for the Fire Training Facility Authority from the City of Garden Grove. In addition to the Fire Training Facility Authority, the Cities of Orange, Anaheim, Fountain Valley, Fullerton, Garden Grove, Huntington Beach and Newport Beach have formed a regional dispatch operation to provide dispatch services for those cities. The City of Orange s share of costs for these dispatch services is immaterial to the operations of the City. The financial management and administration of this operation is the responsibility of the City of Anaheim. Separate financial statements may be obtained for the Metro Cities Fire Authority from the City of Anaheim. On October 24, 1984, the Cities of Orange and Santa Ana (including the Community Redevelopment Agency of the City of Santa Ana, a political subdivision of the City of Santa Ana, and others named as defendants by the City of Orange) entered into an agreement to settle certain disputes resulting from the development of Santa Ana Fashion Square, a project of the Community Redevelopment Agency of the City of Santa Ana. The settlement agreement provided for the formation of a joint powers Transportation System Improvement Authority (TSIA) between the Cities of Orange and Santa Ana to mitigate the adverse effects on traffic circulation and parking resulting from the development of a specified area including portions of the two member cities. Members of the City Council for both the Cities of Orange and Santa Ana make up the TSIA Board. Separate financial statements for the TSIA are prepared by the City of Orange and are available in the Finance Department. A summary of TSIA s financial position for the year ended June 30, 2005 is as follows: Total assets $777,020 Total liabilities 0 Total fund balance $777,020 72

105 Notes to the Financial Statements Year ended June 30, Loans Receivable The City provides loans to private businesses to fund development projects within the Orange Merged and Amended Redevelopment Project Area through the Commercial Rehabilitation Loan Program. Loans bear interest from 3% to 7.5% per annum and are to be repaid in monthly installments over an established time period. The City additionally provides housing loans for the rehabilitation and expansion of housing for low and moderate income families in the City. First-time homebuyer loans assist new homebuyers with 10% of the purchase price, up to a maximum of $22,500. Repayment is deferred for five years at 0% interest and then payable in monthly installments in years 6 through 15 at 5% per annum. Housing rehabilitation loans are for the purpose of upgrading existing housing due to structural deficiencies. Housing loans also assist in the construction of new multi-family housing projects or the rehabilitation of existing multi-family units. Loan balances at June 30, 2005 are comprised of the following: 18. Leases Unrestricted Restricted Commercial loans outstanding $ 109, ,689 Housing loans outstanding 37,527 9,423,431 Deferred loans outstanding 8,763 1,247,561 Total loans $ 155,524 11,587,681 In July 1990 the Agency entered into a lease agreement with the City (for the Fire Department) for a building the Agency owns at 174 South Orange Street. The lease is for a term of one year with one year renewals. Rental payments are to be made on a monthly basis at $1 per month. In May 2000 the Agency entered into a lease agreement with Orange Cask, Inc. for a building the Agency owns at 186 North Atchison Street. The lease is for a term of ten years (through June 30, 2010), subject to two five-year renewal options. Basic rental payments are to be made on a monthly basis at $5,760 per month. In the event there is a first renewal term, the amount will increase to $6,000 monthly. In the event there is a second renewal term, the amount will increase to $6,240 monthly. In addition, Orange Cask, Inc. pays all repairs, real estate and real property taxes, personal property taxes, and any levy for the installation, maintenance or operation of local improvements affecting the premises as may be assessed. 73

106 Notes to the Financial Statements Year ended June 30, Leases (continued) In January 2002 the Agency entered into a first amendment to lease with Sam Franciosa, Trustee of the Sam Franciosa and Susan Franciosa Family Trust and the City of Orange for the building at 216 East Chapman Avenue. The real property and improvements are leased to the City and the Agency, and the Agency as sublessor, entered into a First Amendment to Sublease and License Agreement with California National Bank. The first amendment is for a term of five years (terminating on December 31, 2006). The rental payments are to be made on a monthly basis at $8,525 per month. On the anniversary date of the first extension commencement date, the monthly rental shall increase based on the Consumer Price Index, but not less than five percent per annum compounded annually from the first extension commencement date. The rent received from California National Bank shall be in the same amount that is paid by the Agency to Franciosa. In March 2004 the Agency entered into a ground lease with Karen J. Hafer, Trustee of Trust A of the Hafer Family Trust dated September 16, 1991, for the property at 1037 West Chapman Avenue. The lease is for a term of 35 years. The rental payments are to be made on a monthly basis at $2,125 per month for the first five years of the lease. Thereafter, the rental amount will be adjusted based on the Consumer Price Index. In 2003 the Agency entered into a lease with William Mountain for the property at 206 North Manchester. The lease ended in June 2005 due to pending approval of an 18- unit town home residential project that included affordability covenants on nine of the units. The rental payments were made through a property management company. 19. Related Party Transactions The Agency Board approved a reimbursement agreement with the City of Orange in August 2004 to advance the Agency the sum of $2,043,354 to enable the Agency, in turn, to pay administrative costs and salary expenses attributable to costs incurred by the Agency during Fiscal Year , which the Agency deems necessary for implementation of the Redevelopment Plan. The Agency pays interest thereon at the City Treasurer s earnings rate on the investment of City funds on the outstanding principal balance until paid in full. The Agency paid the outstanding principal balance, together with accrued but unpaid interest, on June 30, The Agency Board approved another reimbursement agreement with the City of Orange in June 2005 for Fiscal Year The amount is $2,155,424 and will be advanced to the Agency on July 1,

107 Notes to the Financial Statements Year ended June 30, Restatement of Beginning Fund Balance/Net Assets The accompanying Fund Financial Statements reflect adjustments that resulted in a restatement of certain beginning fund balances/net assets. The restatement adjusts the matching of prior years revenues and expenditures in the proper funds. The following schedule summarizes the effects of the prior period adjustments to the beginning fund balances/net assets as of July 1, 2004: Government-wide Financial Statements: Beginning Net Assets, as Previously Activity Reported Adjustment of Prior Year Revenue/ Expenditure Beginning Net Assets, as Restated Governmental $661,955,069 2,386, ,341,394 Business-Type 74,688,897 34,413 74,723,310 Totals $736,643,966 2,420, ,064,704 Governmental Funds: Fund Beginning Fund Balance, as Previously Reported Adjustment of Prior Year Revenue/ Expenditure Beginning Fund Balance, as Restated General Fund $ 31,762,030 1,299,844 33,061,874 RDA Housing 15,966,100 16,326 15,982,426 Community Facilities & Assessment Districts 4,243, ,514 4,428,370 RDA Capital Projects 18,628,288 30,431 18,658,719 Other Major Governmental 18,276,635 -iiii 18,276,635 Other Non-Major Governmental 33,445,175 50,631 33,495,806 Totals $122,322,084 1,581, ,903,830 The above adjustments, with the exception of the Community Facilities & Assessment Districts Fund, are due to the reduction of prior year s expenditures for short-term compensated absences in accordance with the change in accounting policy as stated in footnote 1. The adjustment to the Community Facilities & Assessment Districts Fund is due to the recording of prior year s interest earnings related to debt service reserves for the Serrano Heights Community Facilities District

108 Notes to the Financial Statements Year ended June 30, Restatement of Beginning Fund Balance/Net Assets (continued) The difference between adjustments to Governmental Activities and Governmental Funds is due to Business-Type Activities and the inclusion of Internal Service Funds in Governmental Activities on the Government-wide Financial Statements. The adjustments to the Business-Type Activities and the Internal Service Funds in the Governmental Activities are also due to the reduction of prior year s expenditures for short-term compensated absences as previously mentioned. 21. Interfund Advances The City has authorized interfund advances to be used for the operations of the funds receiving the advances. At June 30, 2005, outstanding advances of $283,747 are due to the General Fund from the Fire Facilities Fees Fund (Non-major Capital Projects Fund). The Fire Facilities Fees Fund received $330,548 from the General Fund for the purchase of the North Net Communications Computer-Aided Dispatch Records Management System. The interest rate on this loan is variable and principal and interest are paid annually in amounts equal to the cash balance of the Fire Facilities Fee Fund at June 30 each year until paid in full. 22. Transfers A listing of transfers between funds for the year ended June 30, 2005 are as follows: Transfers In General Fund Housing Fund RDA Debt Service Fund Transfers Out Non-Major Governmental Funds Internal Service Funds Totals General Fund iiiii RDA Debt Service Fund - 991,374 (3) ,374 Capital Improvement Fund $ 347,800 (1) - - 7,000iiiii - 354,800 RDA Capital Projects Fund - - 5,298,850 (4) - - 5,298,850 Non-Major Governmental Funds ,981iiiii - 187,981 Water Fund ,545iiiii - 1,545 Internal Service Funds 907,932 (2) iiiii 800,000 (5) 1,708,135 Totals $1,255,732i 991,374( ) 5,298,850( ) 197,664iiiii 800,000( ) 8,543,620 76

109 Notes to the Financial Statements Year ended June 30, Transfers (continued) Interfund transfers were principally used to (1) provide the Capital Improvement Capital Projects Fund with funding necessary to accomplish those projects approved by City Council, (2) provide the City s Internal Service Funds with funding needed to meet projected expenditure requirements, (3) provide the RDA Debt Service Fund with the 20% share of Housing Set-Aside funds for debt service payments, (4) transfer operational and capital project costs to the Orange Merged and Amended Redevelopment Project Fund and (5) properly fund the Workers Compensation Fund and the Computer Replacement Fund. 23. Expenditures in Excess of Appropriations Expenditures for the year ended June 30, 2005 exceeded appropriations in the following funds: Appropriations Actual Expenditures Variance General Fund ERAF (see note 29) $ -iiiii 1,790,297 (1,790,297) Debt Service Funds: Redevelopment Agency: Pass-through payments 3,577,000 3,681,320 (104,320) ERAF (see note 29) -iiiii 1,304,136 (1,304,136) Capital Projects Funds: Redevelopment Agency: Debt service interest 59,635 61,348 (1,713) Totals $3,636,635 6,837,101 (3,200,466) The ERAF line item has exceeded the appropriation in the General Fund and the RDA Debt Service Fund due to the fact that the outlay was budgeted as a reduction of property tax revenues and not as an expenditure. We have chosen to show the ERAF payment in the fund financial statements as an expenditure to more accurately reflect total revenues and expenditures. The Pass-through payment line item has exceeded the appropriation due to the receipt of additional tax increment at the end of the fiscal year of which a portion was required to be passed through to other agencies. The timing of the receipt of this revenue and the pass-through payments required to be accounted for in FY did not allow for an additional appropriation to be made. 77

110 Notes to the Financial Statements Year ended June 30, Expenditures in Excess of Appropriations (continued) The Debt service interest line item has exceeded the appropriation due to the rising interest rates that were used to calculate the payments owed to the City for the loan made to the Agency at the beginning of the fiscal year. 24. Capital Outlay Capital outlay in the Fund Financial Statements represents the costs associated with various capital improvement projects as well as the costs to acquire capital assets. Capital outlay is not recorded as capital outlay in the Government-wide Financial Statements, but rather as maintenance expense or capital assets. Those costs associated with the ongoing maintenance of capital improvement projects are reclassified into a current expenditure function and the costs related to acquisition of capital assets are capitalized in the Statement of Net Assets. Capital outlay in the General Fund consists mainly of furniture, fixtures and equipment expenditures. Capital outlay in the Special Revenue Funds consists mainly of expenditures for housing rehabilitation projects, street projects, storm drains and park improvements. Capital outlay in the Capital Projects Funds consists mainly of expenditures for street projects, park improvements, Community Facilities District improvements, landscape improvements and redevelopment projects. 25. Land Held for Resale The following is a reconciliation of land held for resale for the year ended June 30, 2005: Description Beginning Balance Additions Deletions Ending Balance Chapman Ave. right of way $ 170,000 -iiiii -iiiii 170,000 Manchester St. property 900,000 -iiiii -iiiii 900,000 Water St. property 1,813,881 -iiiii -iiiii 1,813,881 Citrus properties 1,793,374 23,200 -iiiii 1,816,574 State College Blvd. Property -iiiii 569,428 -iiiii 569,428 Total $4,677, ,628 -iiiii 5,269,883 In August, 2002 the Redevelopment Agency Capital Projects Fund purchased a portion of street right-of-way along Chapman Avenue for $170,000 as part of an owner participation agreement with Ronald P. Beard Trust and the HLP Family Limited 78

111 Notes to the Financial Statements Year ended June 30, Land Held for Resale (continued) Partnership. The Agency intends to sell the right-of-way to the City for the future widening of Chapman Avenue at the Tustin Street intersection. In July 2003 the Redevelopment Agency Housing Fund purchased property on North Manchester Street from the City for $900,000. On September 27, 2005 the Agency Board approved the sale of the property to Olson Urban Housing, LLC for the construction of an 18-unit town home project. Per the Disposition and Development Agreement, the sale price is $900,000. In August/September 2003 the Redevelopment Agency Capital Projects Fund purchased property on South Water Street for $1,813,881 from the City/Orange County Fire Authority. It is expected that the site will be sold for market-rate housing. In March 2004 the Agency acquired either title or a leasehold interest in several properties on West Chapman Avenue and North Citrus Street from Orange Housing Development Corporation (OHDC). An Acquisition and Predevelopment Grant Agreement by and between the City, Agency and OHDC was entered into on September 24, 2002, for the acquisition and predevelopment of the Citrus Community Apartments projects. As part of the Agreement, the City and Agency provided funds to OHDC for the acquisition of the Citrus properties. In May 2003, OHDC withdrew their entitlement application and decided not to pursue development of the Project. The Agency exercised its option to obtain title of the Citrus properties in March The value is the funds provided to OHDC for the acquisition ($1,777,727) and the escrow costs to transfer the property ($15,647) for a total value of $1,793,374. During Fiscal Year , $23,200 of additional costs were incurred to bring the total value to $1,816,574 as of June 30, 2005 In March/April 2004 the Redevelopment Agency Capital Projects Fund purchased unimproved real property by Manchester Avenue and Sheringham Street from the City for $64,526. Concurrently, the parcel was sold to City Town Center, L.P. for $64,526. The Agency was holding a promissory note to be paid over ten years with a 4.40% interest rate in that same amount. The note was fully paid in March In February 2005 the Redevelopment Agency Capital Projects Fund purchased property at 215 and 218 State College Blvd. from the Orange County Transportation Authority for $569,428. The Agency intends to sell it to a developer for redevelopment purposes. 79

112 Notes to the Financial Statements Year ended June 30, Unrealized Loss on Investments The Governmental Accounting Standards Board (GASB) has established in their Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, that investments held by the City should be reported at their fair value as of the end of the fiscal year. Calculating the fair value of all investments as of June 30, 2005 resulted in a value lower than the amount recorded on the City s books by $1.28 million. This unrealized loss has been deducted from the City s investment earnings in Fiscal Year for financial statement presentation and is added back in Fiscal Year to properly reflect the City s policy of holding all investments until maturity. 27. Reclassification of Prior Year Governmental Activities & General Revenues Prior year expenses and revenues have been reclassified in the accompanying Government-wide Financial Statements to correspond to the current year s presentation. Pass-through and ERAF payments in prior years have been classified as reductions of revenue on the Statement of Activities and are now being classified as expenses. The following is a summary of the reclassification at the fund level. (This space intentionally left blank) 80

113 Notes to the Financial Statements Year ended June 30, Reclassification of Prior Year Governmental Activities & General Revenues (continued) As Previously Reported As Reclassified Adjustments Governmental Activities: General government $ (4,791,072) - (4,791,072) Public safety (40,761,312) - (40,761,312) Public works (16,615,202) - (16,615,202) Community development (747,583) - (747,583) Parks and library (7,927,139) - (7,927,139) Economic development (504,554) - (504,554) Sanitation (32,909) - (32,909) Interest on long-term debt (2,873,584) - (2,873,584) Pass-through payments - (4,013,751) (4,013,751) ERAF - (720,190) (720,190) Total governmental activities (74,253,355) (4,733,941) (78,987,296) Business-type activities: - Water 614,951j - 614,951j Totals (73,638,404) (4,733,941) (78,372,345) General revenues: Taxes: Property taxes 29,967,008j - 29,967,008j Less pass-through payments (4,013,751) 4,013,751j - Less ERAF payments (720,190) 720,190j - Sales taxes 30,345,566j - 30,345,566j Transient occupancy taxes 2,749,6178j - 2,749,6178j Franchise taxes 2,158,210j - 2,158,210j Other taxes 3,414,942j - 3,414,942j Investment income 1,191,273j - 1,191,273j State motor vehicle in lieu 6,149,732j - 6,149,732j State revenue other 255,900j - 255,900j Capital contributions 400,343j - 400,343j Other 2,470,437j - 2,470,437j Transfers Total general revenues 74,369,087j 4,733,941j 79,103,028j Change in net assets 730,683j - 730,683j Net assets at beginning of year 735,913,283j - 735,913,283j Net assets at end of year $736,643,966j - $736,643,966j 81

114 Notes to the Financial Statements Year ended June 30, Contingencies Tam v. City of Orange Ms. Tam is a former employee who was fired approximately 8 years ago. For various reasons, including two appellate appeals, her claim of wrongful termination was not held before an arbitrator until 8 years post termination. The arbitrator ruled that the City did not have good cause to terminate her. Ms. Tam had also filed a lawsuit claiming the City s firing was in retaliation for whistle blowing activity. The City settled the back pay portion of damages for $525,000. The City also settled the retaliation lawsuit for an additional $600,000 including her attorney s fees. Aguilar v. City of Orange Mr. Aguilar was shot and killed by Orange Police Officers in the line of duty. Officers fired in self-defense as Mr. Aguilar approached with a knife. He had methamphetamine in his system at the time of the incident. Witnesses support the Officers version of events. The City of Orange has been served with a Federal Civil Rights lawsuit filed on behalf of a minor child of Mr. Aguilar. There is also another minor out there who claims to also be a child of Mr. Aguilar who we expect to see a lawsuit from shortly. This case appears to be defensible however, should the City of Orange lose at trial, damages are very speculative as discovery is just beginning. If a jury should find against the City of Orange, the damages appear limited as Mr. Aguilar doesn t appear to have been contributing significantly financially to either child however, there are emotional damages for growing up without a father. Underwood v. City of Orange Ms. Underwood was riding a bicycle westbound La Veta when a City employee opened the driver s door of a City Ford Pick-up in Underwood s path. Underwood struck the door and was thrown to the pavement. She suffered a broken clavicle with subsequent blood clotting. Underwood had approximately $38,000 in lost earnings and $35,000 in medical specials. The case was clear liability against the City and it recently settled for $145,000. In addition, the City is involved in other pending lawsuits of a nature common to many similar jurisdictions. City management estimates that these potential claims against the City, not covered by insurance, will not have a material adverse effect on the financial position of the City. 82

115 Notes to the Financial Statements Year ended June 30, Education Revenue Augmentation Fund In connection with its approval of the budget for the , , and fiscal years, the State Legislature enacted legislation which, among other things, reallocated funds from redevelopment agencies to school districts by shifting a portion of each agency s tax increment, net of amounts due to other taxing agencies, to school districts for deposit in the Education Revenue Augmentation Fund (ERAF). In July, 2004 the Governor signed SB 1113, the main State budget bill for Fiscal Year SB 1096, a trailer bill to SB 1113, contains provisions for a $250 million shift from cities and a $250 million shift from redevelopment agencies to ERAF for Fiscal Years and SB 1096 was passed by the State Assembly and the State Senate in July, The City and Agency paid $1,790,297 and $1,304,136, respectively, into ERAF for Fiscal Year as their share and are anticipating a similar payment in Fiscal Year

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117 Required Supplementary Information

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119 General Fund General Fund This fund has been classified as a major fund and is used to account for revenues and expenditures that are not required to be accounted for in another fund. Special Revenue Fund Redevelopment Agency Housing This fund has been classified as a major fund and is used to account for the activities funded with Housing Set-Aside Funds for very low and moderate income households. 85

120 Budgetary Comparison Schedule General Fund Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Taxes $ 46,590,584 45,635,286 50,393,789 4,758,503 48,093,911 Franchise fees 2,219,010 2,219,010 2,277,614 58,604 2,158,210 Licenses and permits 3,409,701 3,409,701 3,348,623 (61,078) 3,358,311 Revenues from use of money 1,182,725 1,182,725 1,782, , ,787 Revenues from other agencies 7,699,304 7,852,875 8,834, ,992 6,467,509 Charges for services and fees 6,211,417 6,261,417 6,262,669 1,252 6,099,096 Fines and forfeitures 1,547,582 1,547,582 1,784, ,068 1,625,020 Other revenues 585, ,421 1,009, ,248 1,884,637 Total revenues 69,445,438 68,841,017 75,694,650 6,853,633 70,482,481 EXPENDITURES: General government: City council 240, , , ,526 City manager 2,530,642 2,367,990 1,783, ,759 1,748,588 City attorney 1,070,455 1,076, , , ,324 City clerk 606, , , , ,383 Finance 2,411,232 2,470,638 2,207, ,781 2,035,475 Personnel services 904, , ,030 46, ,200 Public safety: Police 29,691,423 29,768,240 28,594,031 1,174,209 27,441,884 Fire 19,631,127 19,820,729 19,618, ,233 17,448,863 Public works 4,991,432 5,000,614 4,285, ,538 3,954,537 Community development 3,192,960 3,321,137 2,933, ,394 2,688,547 Parks and library: Library 3,479,564 3,457,197 3,126, ,840 3,033,337 Community services 5,750,054 5,758,994 5,570, ,258 5,120,978 Gas tax exchange 1,400,000 1,400,000 1,399, ,399,920 Capital outlay 307, , , , ,178 Debt service 14,337 14,337 13, ,020 ERAF - - 1,790,297 (1,790,297) 14,020 Total expenditures 76,222,095 76,734,056 74,112,378 2,621,678 67,572,780 Excess (deficiency) of revenues over (under) expenditures (6,776,657) (7,893,039) 1,582,272 9,475,311 2,909,701 OTHER FINANCING SOURCES (USES): Transfers in ,273,411 Transfers out (864,732) (1,255,732) (1,255,732) - (4,264,000) Total other financing sources (uses) (864,732) (1,255,732) (1,254,797) 935 (1,990,589) Net change in fund balances (7,641,389) (9,148,771) 327,475 9,476, ,112 Fund balance, beginning of year, as restated 33,061,874 33,061,874 33,061,874-30,828,898 Fund balance, end of year $ 25,420,485 23,913,103 33,389,349 9,476,246 31,748,010 86

121 Budgetary Comparison Schedule Redevelopment Agency Housing Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Taxes $ 3,296,525 3,296,525 3,364,001 67,476 3,163,710 Revenues from use of money 186, , ,542 41, ,198 Revenues from other agencies - - 2,103,300 2,103,300 - Fines and forfeitures Other revenues 1,000 1,000 20,070 19,070 11,228 Total revenues 3,483,685 3,483,685 5,715,183 2,231,498 3,276,461 EXPENDITURES: Current: General government: City council 5,791 5,877 5,877-5,681 City manager 90,716 91,105 87,512 3,593 81,491 City attorney 36,020 36,414 35, ,542 Finance 44,059 44,279 40,306 3,973 41,009 Total general government 176, , ,193 8, ,723 Public safety: Police 7,183 7,183 7, ,643 Public works 13,343 13,343-13,343 29,426 Community development 9,775 9,775-9,775 2,424 Economic development 598, , , , ,903 Capital outlay 2,053,356 2,053,356 12,997 2,040, ,886 Total expenditures 2,858,525 2,863, ,729 2,249, ,005 Excess (deficiency) of revenues over (under) expenditures 625, ,952 5,100,454 4,480,502 2,518,456 OTHER FINANCING SOURCES (USES): Transfers out (991,374) (991,374) (991,374) - (1,311,881) Total other financing sources (uses) (991,374) (991,374) (991,374) - (1,311,881) Net change in fund balances (366,214) (371,422) 4,109,080 4,480,502 1,206,575 Fund balance, beginning of year, as restated 15,982,426 15,982,426 15,982,426-14,759,525 Fund balance, end of year $ 15,616,212 15,611,004 20,091,506 4,480,502 15,966,100 87

122 Notes to Required Supplementary Information Year ended June 30, Budgetary Accounting Annual budgets are adopted by July 1 of each year on a basis consistent with generally accepted accounting principles for all governmental funds. The budget is monitored to ensure compliance with legal provisions embodied in the appropriated budget as approved or amended by the City Council and Redevelopment Agency Board throughout the year. Department heads are responsible for monitoring their department s appropriated budget. The legal level of budgetary control is at the department level. The City s management may make budget transfers between line items within a particular department; however, transfers between departments or between funds or overall increases in the budget require Council approval. The City Council and the Redevelopment Agency Board made several supplementary appropriations throughout the year, which are reflected in the statements. The City Council approved supplemental appropriations during the year in the amount of $902,961 in the General Fund, $2,312,049 in the Special Revenue Funds, $855,203 in the Debt Service Funds and $3,527,491 in the Capital Projects Funds. Unencumbered appropriations of the governmental funds automatically lapse at the end of the fiscal year. Ongoing, unfulfilled encumbrances and their appropriations automatically carry over and will be honored during the subsequent year. 88

123 Supplementary Schedules

124

125 Combining Balance Sheet Non-Major Governmental Funds June 30, 2005 Special Debt Capital Revenue Service Projects Totals Funds Fund Funds ASSETS: Cash and investments $ 26,497,667 8,386 10,187,520 36,693,573 32,209,576 Receivables (net of allowance for estimated uncollectibles): Accounts 1,625,011-34,690 1,659, ,470 Taxes 404, , ,166 Interest 162,540-60, , ,876 Intergovernmental 127, ,526 1,109,545 Loans receivable 1,256, ,256,324 1,321,806 Restricted assets: Cash and investments with fiscal agent - 125, , , ,457 Total assets $ 30,073, ,597 10,621,634 40,828,403 36,597,896 LIABILITIES AND FUND BALANCES: Liabilities: Accounts payable $ 977,401-49,372 1,026,773 2,230,140 Accrued items 240, , ,319 Deposits payable 14,226-40,359 54,585 71,864 Contracts payable 62,735-4,440 67, ,650 Due to other agencies 20, ,079 27,962 Deferred revenue 739, , Advances from other funds , , ,291 Total liabilities 2,054, ,918 2,432,533 3,152,721 Fund balances: Reserved: Debt service - 133, , ,508 Encumbrances 1,457, ,269 1,851,050 1,684,699 Continuing appropriations 9,113,371-1,545,656 10,659,027 11,088,679 Noncurrent portion of loans receivable 1,247, ,247,561 1,314,430 Settlement agreement 900, , ,000 Unreserved: Designated for: Capital projects - - 8,304,791 8,304,791 1,989,476 Undesignated 15,299, ,299,844 16,295,383 Total fund balances 28,018, ,597 10,243,716 38,395,870 33,445,175 Total liabilities and fund balances $ 30,073, ,597 10,621,634 40,828,403 36,597,896 89

126 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Non-Major Governmental Funds Year ended June 30, 2005 Special Debt Capital Revenue Service Projects Totals Funds Fund Funds REVENUES: Taxes $ 3,070, ,070,706 2,946,440 Licenses and permits 3,800-5,811,968 5,815, ,932 Revenues from use of money 875,178 2, ,558 1,012, ,880 Revenues from other agencies 4,727,451-70,386 4,797,837 7,475,706 Charges for services and fees 9,817,708-1,262,469 11,080,177 10,121,900 Fines and forfeitures 143, ,147 91,141 Gas tax exchange 1,399, ,399,920 1,399,920 Other revenues 346, ,050-1,232,431 1,372,057 Total revenues 20,384, ,156 7,280,381 28,552,828 23,990,976 EXPENDITURES: Current: General government 111, ,820 96,209 Public safety 1,821,238-13,782 1,835,020 2,238,002 Public works 3,721,786-23,897 3,745,683 3,704,867 Parks and library 526,422-83, , ,964 Economic development 398, , ,047 Sanitation 8,463, ,463,224 8,102,835 Capital outlay 6,525, ,740 7,016,523 8,663,324 Debt service: Principal 387, ,000-1,032, ,930 Interest 31, ,403 7, , ,824 Total expenditures 21,987,930 1,036, ,748 23,643,081 25,275,002 Excess (deficiency) of revenues over (under) expenditures (1,603,639) (148,247) 6,661,633 4,909,747 (1,284,026) OTHER FINANCING SOURCES (USES): Transfers in 37, , , ,813 Transfers out - (40,664) (157,000) (197,664) (188,344) Total other financing sources (uses) 37, ,336 (157,000) (9,683) (2,531) Net change in fund balances (1,565,658) (38,911) 6,504,633 4,900,064 (1,286,557) Fund balances, beginning of year, as restated 29,584, ,508 3,739,083 33,495,806 34,731,732 Fund balances, end of year $ 28,018, ,597 10,243,716 38,395,870 33,445,175 90

127 Non-Major Special Revenue Funds The following Special Revenue Funds have been classified as non-major funds in the accompanying financial statements: Sanitation This fund is used to account for receipts and expenditures relating to refuse collection, street sweeping, sewer cleaning and weed abatement services. Transportation System Improvement Program (TSIP) This fund is used to account for the collection of fees assessed to developers and expenditures made to improve the City s transportation system. EMT Transport This fund is used to account for the receipts and expenditures related to ambulance transportation. Gas Tax This fund is used to account for receipts and expenditures of money apportioned under Streets and Highway Code Sections 2105, 2106 and 2107 of the State of California. Proposition 172 This fund is used to account for sales tax restricted by voter mandate for public safety service enhancements. Air Pollution Reduction This fund is used to account for revenues and expenditures related to air pollution reduction programs pursuant to the California Clean Air Act of Measure M This fund is used to account for receipts and expenditures relating to street capital improvement projects and Transportation System Improvement Authorities for the Department of Public Works. Asset Seizure This fund is used to account for assets seized as a result of drug enforcement efforts. O.C.P.T. Building Maintenance This fund is used to account for lease payments and maintenance on the Headstart/Preschool building. Federal, State and Local Grants This fund is used to account for grant programs such as Community Development Block Grant, State Urban Grant, California Parklands Grant, SCAG Grant, State Bond Grant, CEC Fuel Grant, SAFE Grant and others. Landscape Maintenance Assessment Districts This fund is used to account for the collection of assessments from property owners and the associated city expenditures for the maintenance of landscaped areas within the districts. 91

128 Combining Balance Sheet Non-Major Special Revenue Funds June 30, 2005 Transportation System Improvement EMT Proposition Sanitation Program Transport Gas Tax 172 ASSETS: Cash and investments $ 8,931,625 5,254, ,501 6,751, ,517 Receivables (net of allowance for estimated uncollectibles): Accounts 685,710 23,275 2, ,780 - Taxes ,112 Interest 54,862 32,032 4,178 39,777 3,806 Intergovernmental Loans receivable Total assets $ 9,672,197 5,310, ,093 6,918, ,435 LIABILITIES AND FUND BALANCES: Liabilities: Accounts payable $ 510,629-7, ,692 85,955 Accrued items 82,134-30,581 71,016 8,017 Deposits payable ,590 - Contracts payable - 3,970-42,815 - Due to other agencies Deferred revenue Total liabilities 592,763 3,970 38, ,113 93,972 Fund balances: Reserved: Encumbrances 239,709 55, ,966 80,721 Continuing appropriations 667,936 1,853,630-1,318, ,475 Noncurrent portion of loans receivable Settlement agreement 900, Unrealized gain on investments Unreserved: Undesignated 7,271,789 3,396, ,025 5,068, ,267 Total fund balances 9,079,434 5,306, ,025 6,647, ,463 Total liabilities and fund balances $ 9,672,197 5,310, ,093 6,918, ,435 92

129 Federal, Landscape Total Air O.C.P.T. State and Maintenance Special Revenue Pollution Asset Building Local Assessment Funds Reduction Measure M Seizure Maintenance Grants Districts ,607 2,266, ,962 94, , ,206 26,497,667 28,247,628 45,406 1, ,070-1,625, , , , , , ,265 4, ,723 2, , , , ,526 1,109, ,256,324-1,256,324 1,321, ,611 2,611, ,253 94,806 2,615, ,849 30,073,172 32,122,026 52,406 33,971 8,394 3,833 93,332 29, ,401 2,018,892 4, ,528 3, , , ,219-1,648-14,226 38,628-1, ,050-62, , ,079-20,079 27, , , ,036 35,871 14,613 3, ,407 32,969 2,054,615 2,588,442 18, ,063 4, ,788 6,171 1,457,781 1,536,492-1,183,715 6,000-3,939,353-9,113,371 9,487, ,247,561-1,247,561 1,314, , , ,500 1,234, ,025 90,973 (4,114,764) 327,709 15,299,844 16,295,383 68,575 2,575, ,640 90,973 1,705, ,880 28,018,557 29,533, ,611 2,611, ,253 94,806 2,615, ,849 30,073,172 32,122,026 93

130 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Non-Major Special Revenue Funds Year ended June 30, 2005 Transportation System Improvement EMT Proposition Sanitation Program Transport Gas Tax 172 REVENUES: Taxes $ ,596 Licenses and permits 3, Revenues from use of money 236, ,472 9, ,250 11,976 Revenues from other agencies 78, ,526,190 - Charges for services and fees 7,985, ,671 1,368, Fines and forfeitures 99, ,300 - Gas tax exchange ,399,920 - Other revenues 104,659 56, ,342 - Total revenues 8,508, ,492 1,378,306 4,241, ,572 EXPENDITURES: Current: General government Public safety , ,630 Public works - 36,295-3,252,776 - Parks and library Economic development Sanitation 8,463, Capital outlay 28, ,919-1,004,459 56,869 Debt service: Principal 9, , ,200 Interest ,090 29,972 Total expenditures 8,502, , ,648 4,271, ,671 Excess (deficiency) of revenues over (under) expenditures 6,052 (370,722) 455,658 (30,603) (42,099) OTHER FINANCING SOURCES (USES): Transfers in ,301 35,785 Net change in fund balances 6,947 (370,722) 455,658 (29,302) (6,314) Fund balances, beginning of year, as restated 9,072,487 5,677, ,367 6,676, ,777 Fund balances, end of year $ 9,079,434 5,306, ,025 6,647, ,463 94

131 Federal, Landscape Total Air O.C.P.T. State and Maintenance Special Revenue Pollution Asset Building Local Assessment Funds Reduction Measure M Seizure Maintenance Grants Districts ,865, ,227 3,070,706 2,946, ,800 5,100 2,922 96,340 17,105 11,757 99,504 9, , , , ,956,619-4,727,451 7,475, , ,900-9,817,708 9,726, ,147 91, ,399,920 1,399, , , , ,214 1,963, ,625 11,757 2,138, ,406 20,384,291 22,430, , ,820 96,209 4, , ,276-1,821,238 2,224, ,529-11, ,721,786 3,680, , , , , , , ,463,224 8,102, ,334 2,782,772 34,809 30,000 1,555,694-6,525,783 7,393, , , ,811 72, ,656 3,204, ,991 41,186 2,398, ,638 21,987,930 22,915,975 (72,442) (1,240,984) 40,634 (29,429) (260,472) (59,232) (1,603,639) (485,053) ,981 35,813 (72,442) (1,240,984) 40,634 (29,429) (260,472) (59,232) (1,565,658) (449,240) 141,017 3,816, , ,402 1,966, ,112 29,584,215 29,982,824 68,575 2,575, ,640 90,973 1,705, ,880 28,018,557 29,533,584 95

132 Budgetary Comparison Schedule Sanitation Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Licenses and permits $ 6,000 6,000 3,800 (2,200) 5,100 Fines and penalties 92,056 92,056 99,847 7,791 91,141 Revenues from use of money 144, , ,195 91,234 72,426 Revenues from other agencies 74,232 74,232 78,385 4,153 74,348 Charges for services and fees 8,145,838 8,345,838 7,985,196 (360,642) 7,748,060 Other revenues 115, , ,659 (10,341) 138,499 Total revenues 8,578,087 8,778,087 8,508,082 (270,005) 8,129,574 EXPENDITURES: Current: Sanitation: Information management 57,767 57,767 49,621 8,146 73,367 Public works 9,853,540 10,062,844 8,413,603 1,649,241 8,029,468 Total health and sanitation 9,911,307 10,120,611 8,463,224 1,657,387 8,102,835 Capital outlay 553, ,549 28, , ,597 Debt service: Principal 9,130 9,130 9,130-8,690 Interest 1,266 1, ,716 Total expenditures 10,475,252 10,684,556 8,502,030 2,182,526 8,311,838 Excess (deficiency) of revenues over (under) expenditures (1,897,165) (1,906,469) 6,052 1,912,521 (182,264) OTHER FINANCING SOURCES (USES): Transfers in Net change in fund balances (1,897,165) (1,906,469) 6,947 1,913,416 (181,420) Fund balance, beginning of year, as restated 9,072,487 9,072,487 9,072,487-9,247,963 Fund balance, end of year $ 7,175,322 7,166,018 9,079,434 1,913,416 9,066,543 96

133 Budgetary Comparison Schedule Transportation System Improvement Program Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 85,773 85, ,472 49,699 40,319 Charges for services and fees 550, , ,671 (169,329) 728,163 Other revenues ,349 56,349 27,270 Total revenues 635, , ,492 (63,281) 795,752 EXPENDITURES: Current: Public works 36,295 36,295 36,295-36,295 Capital outlay 2,891,165 3,301, ,919 2,394, ,581 Total expenditures 2,927,460 3,337, ,214 2,394, ,876 Net change in fund balances (2,291,687) (2,701,687) (370,722) 2,330, ,876 Fund balance, beginning of year 5,677,019 5,677,019 5,677,019-5,560,143 Fund balance, end of year $ 3,385,332 2,975,332 5,306,297 2,330,965 5,677,019 97

134 Budgetary Comparison Schedule EMT Transport Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 7,841 7,841 9,478 1,637 4,244 Charges for services and fees 996, ,320 1,368, ,492 1,246,788 Other revenues Total revenues 1,004,161 1,004,161 1,378, ,145 1,251,226 EXPENDITURES: Current: Public safety: Fire 968, , ,648 49,636 1,601,993 Capital outlay ,048 Total expenditures 968, , ,648 49,636 1,603,041 Net change in fund balances 35,626 31, , ,781 (351,815) Fund balance, beginning of year, as restated 281, , , ,981 Fund balance, end of year $ 316, , , , ,166 98

135 Budgetary Comparison Schedule Gas Tax Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 184, , ,250 61, ,574 Revenues from other agencies 2,446,016 2,446,016 2,526,190 80,174 4,256,552 Charges for services and fees ,149 Fines and forfeitures ,300 43,300 - Gas tax exchange 1,400,000 1,400,000 1,399,920 (80) 1,399,920 Other revenues ,342 26,342 64,748 Total revenues 4,030,112 4,030,112 4,241, ,890 5,868,943 EXPENDITURES: Current: Public works 3,605,953 3,775,397 3,252, ,621 3,242,903 Capital outlay 2,512,055 2,796,055 1,004,459 1,791,596 1,389,482 Debt service: Principal 13,280 13,280 13,280-12,640 Interest 1,841 1,841 1, ,496 Total expenditures 6,133,129 6,586,573 4,271,605 2,314,968 4,647,521 Excess (deficiency) of revenues over (under) expenditures (2,103,017) (2,556,461) (30,603) 2,525,858 1,221,422 OTHER FINANCING SOURCES (USES): Transfers in - - 1,301 1,301 1,227 Net change in fund balances (2,103,017) (2,556,461) (29,302) 2,527,159 1,222,649 Fund balance, beginning of year, as restated 6,676,723 6,676,723 6,676,723-5,438,031 Fund balance, end of year $ 4,573,706 4,120,262 6,647,421 2,527,159 6,660,680 99

136 Budgetary Comparison Schedule Proposition 172 Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Taxes $ 729, , ,596 17, ,947 Revenues from use of money 44,695 44,695 11,976 (32,719) 4,513 Charges for services Total revenues 774, , ,572 (14,966) 717,642 EXPENDITURES: Current: Public safety: Fire 82,020 82,020 80,337 1,683 10,650 Police 284, , ,293 15, ,368 Total public safety 366, , ,630 16, ,018 Capital outlay 279, ,280 56, , ,149 Debt service: Principal 365, , , ,600 Interest 50,631 50,631 29,972 20,659 68,633 Total expenditures 1,061,930 1,065, , ,989 1,160,400 Excess (deficiency) of revenues over (under) expenditures (287,392) (291,122) (42,099) 249,023 (442,758) OTHER FINANCING SOURCES (USES): Transfers in ,785 35,785 33,742 Net change in fund balances (287,392) (291,122) (6,314) 284,808 (409,016) Fund balance, beginning of year, as restated 721, , ,777-1,130,754 Fund balance, end of year $ 434, , , , ,

137 Budgetary Comparison Schedule Air Pollution Reduction Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 1,282 1,282 2,922 1, Revenues from other agencies 145, , ,257 21, ,519 Charges for services Total revenues 146, , ,214 22, ,514 EXPENDITURES: Current: General government: Personnel services 112, , ,820 1,741 96,209 Public safety: Police 4,000 4,754 4, ,177 Capital outlay 143, , ,334 17,872 82,990 Total expenditures 260, , ,656 19, ,376 Net change in fund balances (114,227) (115,239) (72,442) 42,797 (23,862) Fund balance, beginning of year, as restated 141, , , ,502 Fund balance, end of year $ 26,790 25,778 68,575 42, ,

138 Budgetary Comparison Schedule Measure M Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Taxes $ 1,787,518 1,787,518 1,865,883 78,365 1,773,155 Revenues from use of money 66,818 66,818 96,340 29,522 47,335 Revenues from other agencies ,575 Charges for services and fees - - 1,094 1, Total revenues 1,854,336 1,854,336 1,963, ,981 1,839,505 EXPENDITURES: Current: Public works 490, , ,529 68, ,012 Capital outlay 3,594,071 4,346,205 2,782,772 1,563,433 1,620,017 Total expenditures 4,084,103 4,836,237 3,204,301 1,631,936 2,013,029 Net change in fund balances (2,229,767) (2,981,901) (1,240,984) 1,740,917 (173,524) Fund balance, beginning of year 3,816,895 3,816,895 3,816,895-3,990,419 Fund balance, end of year $ 1,587, ,994 2,575,911 1,740,917 3,816,

139 Budgetary Comparison Schedule Asset Seizure Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 10,374 10,374 17,105 6,731 2,988 Other revenues 137, , ,520 21, ,531 Total revenues 147, , ,625 28, ,519 EXPENDITURES: Current: Public safety: Police 126, , ,182 26,635 98,015 Capital outlay 32,679 37,426 34,809 2,617 52,737 Total expenditures 158, , ,991 29, ,752 Net change in fund balances (11,397) (16,869) 40,634 57,503 79,767 Fund balance, beginning of year 717, , , ,239 Fund balance, end of year $ 705, , ,640 57, ,

140 Budgetary Comparison Schedule O.C.P.T. Building Maintenance Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 10,472 10,472 11,757 1,285 6,931 EXPENDITURES: Current: Public works 11,487 11,487 11, ,760 Capital outlay - 30,000 30, Total expenditures 11,487 41,487 41, ,760 Net change in fund balances (1,015) (31,015) (29,429) 1,586 (1,829) Fund balance, beginning of year 120, , , ,231 Fund balance, end of year $ 119,387 89,387 90,973 1, ,

141 Budgetary Comparison Schedule Federal, State and Local Grants Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 63,472 63,472 99,504 36,032 - Revenues from other agencies 3,305,881 3,532,613 1,956,619 (1,575,994) 2,968,712 Charges for services - 42,000 81,900 39, Other revenue Total revenues 3,369,353 3,638,085 2,138,518 (1,499,567) 2,969,102 EXPENDITURES: Current: Public safety: Police 330, , ,276 77, ,017 Parks and library: Community services Economic development 977, , , , ,047 Capital outlay 5,328,494 5,578,801 1,555,694 4,023,107 2,932,552 Total expenditures 6,637,189 7,063,698 2,398,990 4,664,708 3,629,400 Net change in fund balances (3,267,836) (3,425,613) (260,472) 3,165,141 (660,298) Fund balance, beginning of year, as restated 1,966,410 1,966,410 1,966,410-2,625,118 Fund balance, end of year $ (1,301,426) (1,459,203) 1,705,938 3,165,141 1,964,

142 Budgetary Comparison Schedule Landscape Maintenance Assessment Districts Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Taxes $ 458, , ,227 (1,252) 460,338 Revenues from use of money 7,726 7,726 9,179 1,453 2,876 Total revenues 466, , , ,214 EXPENDITURES: Current: Parks and library: Community services 538, , ,638 13, ,982 Net change in fund balances (72,731) (72,731) (59,232) 13,499 (66,768) Fund balance, beginning of year, as restated 393, , , ,443 Fund balance, end of year $ 320, , ,880 13, ,

143 Major and Non-Major Debt Service Funds The following Debt Service Fund has been classified as a major fund in the accompanying financial statements: Redevelopment Agency This fund is used to account for the payment of interest and principal on the tax allocation bonds and other debt of the Redevelopment Agency. The following Debt Service Fund has been classified as a non-major fund in the accompanying financial statements: City Debt Service This fund is used to account for the payment of interest and principal on debt of the City. 107

144 Budgetary Comparison Schedule Redevelopment Agency Debt Service Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Taxes $ 12,465,910 11,881,964 13,456,003 1,574,039 12,654,842 Revenues from use of money 203, , ,874 57,602 90,370 Total revenues 12,669,182 12,085,236 13,716,877 1,631,641 12,745,212 EXPENDITURES: Economic development 125, , ,668 27, ,805 Debt service: Principal 2,090,000 2,090,000 2,090,000-1,485,000 Interest 2,866,869 2,866,869 2,866, ,481,453 Cost of issuance ,592,954 Pass-through payments 3,577,000 3,577,000 3,681,320 (104,320) 4,013,751 ERAF - - 1,304,136 (1,304,136) 720,190 Total expenditures 8,658,869 8,690,269 10,070,992 (1,380,723) 11,428,153 Excess (deficiency) of revenues over (under) expenditures 4,010,313 3,394,967 3,645, ,918 1,317,059 OTHER FINANCING SOURCES (USES): Transfers in 991, , ,374-1,311,881 Transfers out (5,459,819) (6,283,622) (5,298,850) 984,772 (4,145,353) Issuance of long-term debt ,085,000 Retirement of long-term debt (61,659,275) Total other financing sources (uses) (4,468,445) (5,292,248) (4,307,476) 984,772 (7,407,747) Net change in fund balances (458,132) (1,897,281) (661,591) 1,235,690 (6,090,688) Fund balance, beginning of year 8,642,285 8,642,285 8,642,285-14,732,973 Fund balance, end of year $ 8,184,153 6,745,004 7,980,694 1,235,690 8,642,

145 Budgetary Comparison Schedule City Debt Service Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ ,106 1,406 - Other revenues 886, , ,050 (353) 886,578 Total revenues 887, , ,156 1, ,578 EXPENDITURES: Debt service: Principal 645, , , ,000 Interest 391, , , ,025 Total expenditures 1,036,403 1,036,403 1,036,403-1,037,025 Excess (deficiency) of revenues over (under) expenditures (149,300) (149,300) (148,247) 1,053 (150,447) OTHER FINANCING SOURCES (USES): Transfers in 150, , , ,000 Transfers out - - (40,664) (40,664) (38,344) Net change in fund balances (38,911) (39,611) (38,791) Fund balance, beginning of year, 172, , , ,299 Fund balance, end of year $ 173, , ,597 (39,611) 172,

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147 Major and Non-Major Capital Projects Funds The following Capital Projects Funds have been classified as major funds in the accompanying financial statements: Capital Improvement This fund is used to account for general purpose capital improvement and cooperatively funded projects. Community Facilities & Assessment Districts This fund is used to account for capital projects financed by the issuance of 1915 Act Bonds in accordance with the provisions of Section 8683 of the Streets and Highway Code as well as Community Facilities District (CFD) Mello Roos debt for the purchase and construction of capital projects. Redevelopment Agency This fund is used to account for receipts and expenditures relating to the City s redevelopment project areas in accordance with the California Health and Safety Code. The following Capital Projects Funds have been classified as non-major funds in the accompanying financial statements: Fire Facilities Fees This fund is used to account for fees collected from the developers to improve the fire protection within specified areas. Police Facilities Fees This fund is used to account for fees collected from developers to construct or improve police facilities. Library Facilities Fees This fund is used to account for fees collected from developers to construct or improve library facilities. 800 MHz This fund is used to account for capital equipment related to the County-wide communications system within Orange County. Sewer Construction This fund is used to account for the construction of and improvements to sanitary sewer mains in the City. Drainage District This fund is used to account for the construction of major storm drains identified in the master plan for storm drains. Park Acquisition, Development and Maintenance This fund is used to account for the acquisition, development and maintenance of parks that are financed by developer fees. 111

148 Combining Balance Sheet Non-Major Capital Project Funds June 30, 2005 Fire Police Library Facilities Facilities Facilities Sewer Fees Fees Fees 800 MHz Construction ASSETS: Cash and investments $ 2,108, , , ,862 Receivables (net of allowance for estimated uncollectibles): Accounts 21,199 4,259 9, Interest 12,449 1,891 2, ,483 Restricted assets: Cash and investments with fiscal agent ,540 - Total assets $ 2,141, , , , ,345 LIABILITIES AND FUND BALANCES: Liabilities: Accounts payable $ Accrued items Deposits payable ,359 Contracts payable 4, Advances from other funds 283, Total liabilities 288, ,359 Fund balances: Reserved: Encumbrances 32, Continuing appropriations 1,135, ,483 Unreserved: Designated for: Capital projects 685, , , , ,503 Total fund balances 1,853, , , , ,986 Total liabilities and fund balances $ 2,141, , , , ,

149 Park Acquisition, Total Development Capital Projects Drainage and Funds District Maintenance ,493 6,414,483 10,187,520 3,953, ,690-3,489 37,982 60,884 15, , , ,982 6,452,465 10,621,634 4,303,362-49,372 49, , ,359 33, ,440 24, , ,291-49, , , , , , , ,983 1,545,656 1,601, ,519 5,865,358 8,304,791 1,989, ,982 6,403,093 10,243,716 3,739, ,982 6,452,465 10,621,634 4,303,

150 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Non-Major Capital Project Funds Year ended June 30, 2005 Fire Police Library Facilities Facilities Facilities Sewer Fees Fees Fees 800 MHz Construction REVENUES: Licenses and permits $ Revenues from use of money 44,774 3,002 4,454 4,790 6,343 Revenues from other agencies Charges for services and fees 473, , ,912-2,560 Other revenues Total revenues 518, , ,366 4,790 8,903 EXPENDITURES: Current: Public safety 9,169 4, Public works ,146 Parks and library Capital outlay 85, ,654 Debt service: Interest 7, Total expenditures 101,372 4, ,800 Excess (deficiency) of revenues over (under) expenditures 416, , ,366 4,790 (14,897) OTHER FINANCING SOURCES (USES): Transfers out - (150,000) Total other financing sources (uses) - (150,000) Net change in fund balances 416, , ,366 4,790 (14,897) Fund balances, beginning of year 1,436, ,918 78, , ,883 Fund balances, end of year $ 1,853, , , , ,

151 Park Acquisition, Development Total Capital Project Drainage and Funds District Maintenance ,811,968 5,811, ,832 17,466 54, ,558 30,319-70,386 70, ,262, , ,237 17,886 5,937,083 7,280, , ,782 13,782 7,751-23,897 23,897-83,198 83,198 8,198 68, , ,740 1,270, ,131 5,954 75, , ,748 1,322,002 (58,030) 5,524,036 6,661,633 (648,526) - (7,000) (157,000) (150,000) - (7,000) (157,000) (150,000) (58,030) 5,517,036 6,504,633 (798,526) 642, ,057 3,739,083 4,537, ,982 6,403,093 10,243,716 3,739,

152 Budgetary Comparison Schedule Capital Improvement Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Licenses and permits $ 17,200 17,200 30,980 13,780 24,815 Revenues from use of money 17,992 17,992 11,304 (6,688) - Revenues from other agencies 8,135,959 10,325,959 3,115,754 (7,210,205) 3,797,030 Charges for services and fees Other revenues - - 5,000 5,000 98,850 Total revenues 8,171,151 10,361,151 3,163,512 (7,197,639) 3,921,156 EXPENDITURES: Capital outlay 15,684,881 17,814,881 1,747,779 16,067,102 5,690,305 Excess (deficiency) of revenues over (under) expenditures (7,513,730) (7,453,730) 1,415,733 8,869,463 (1,769,149) OTHER FINANCING SOURCES (USES): Transfers in 2, , , ,000 Transfers out (2,272,529) Total other financing sources (uses) 2, , ,800 - (1,372,529) Net change in fund balances (7,510,930) (7,098,930) 1,770,533 8,869,463 (3,141,678) Fund balance, beginning of year, as restated 9,634,350 9,634,350 9,634,350-12,776,028 Fund balance, end of year $ 2,123,420 2,535,420 11,404,883 8,869,463 9,634,

153 Budgetary Comparison Schedule Community Facilities & Assessment Districts Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 50,400 50,400 52,756 2,356 31,346 Other revenue Total revenues 50,400 50,400 52,756 2,356 31,464 EXPENDITURES: Current: Public works Capital outlay 2,645,729 2,645,729 1,717, ,406 4,989,196 Total expenditures 2,646,088 2,646,088 1,717, ,406 4,989,555 Excess (deficiency) of revenues over (under) expenditures (2,595,688) (2,595,688) (1,664,926) 930,762 (4,958,091) OTHER FINANCING SOURCES (USES): Issuance of long-term debt ,030,000 Net change in fund balances (2,595,688) (2,595,688) (1,664,926) 930,762 (2,928,091) Fund balance, beginning of year, as restated 4,428,370 4,428,370 4,428,370-7,171,947 Fund balance, end of year $ 1,832,682 1,832,682 2,763, ,762 4,243,

154 Budgetary Comparison Schedule Redevelopment Agency Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 422, , ,332 31, ,384 Charges for services and fees - - 6,247 6, Other revenues ,382 41,382 67,759 Total revenues 422, , ,961 78, ,511 EXPENDITURES: Current: General government: City council 11,586 11,759 11,759-11,362 City manager 91,717 92,106 87,647 4,459 82,338 City attorney 92,974 93,961 90,824 3,137 76,777 Finance department 97,819 98,240 91,386 6,854 71,475 Total general government 294, , ,616 14, ,952 Public works 64,476 64,900 36,412 28,488 - Community development 38,202 38,425 37,284 1,141 - Economic development 2,932,095 2,939,307 2,183, ,591 2,144,294 Capital outlay 3,515,202 4,443,064 2,510,215 1,932,849 2,598,575 Debt service: Principal 19,485 19,485 19,485-17,992 Interest 59,635 59,635 61,348 (1,713) 49,566 Total expenditures 6,923,191 7,860,882 5,130,076 2,730,806 5,052,379 Excess (deficiency) of revenues over (under) expenditures (6,500,973) (7,438,664) (4,629,115) 2,809,549 (4,740,868) OTHER FINANCING SOURCES (USES): Transfers in 4,487,954 5,184,954 5,298, ,896 4,145,353 Net change in fund balances (2,013,019) (2,253,710) 669,735 2,923,445 (595,515) Fund balance, beginning of year, as restated 18,658,719 18,658,719 18,658,719-19,223,803 Fund balance, end of year $ 16,645,700 16,405,009 19,328,454 2,923,445 18,628,

155 Budgetary Comparison Schedule Fire Facilities Fees Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 25,903 25,903 44,774 18,871 11,986 Charges for services and fees 864, , ,318 (390,992) 165,094 Total revenues 890, , ,092 (372,121) 177,080 EXPENDITURES: Current: Public safety: Fire 29,169 29,169 9,169 20,000 9,169 Capital outlay 1,238,748 1,238,748 85,072 1,153, ,782 Debt service: Interest 8,800 8,800 7,131 1,669 5,954 Total expenditures 1,276,717 1,276, ,372 1,175, ,905 Net change in fund balances (386,504) (386,504) 416, ,224 (301,825) Fund balance, beginning of year 1,436,951 1,436,951 1,436,951-1,738,776 Fund balance, end of year $ 1,050,447 1,050,447 1,853, ,224 1,436,

156 Budgetary Comparison Schedule Police Facilities Fees Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 1,133 1,133 3,002 1,869 - Charges for services and fees 100, , , , ,225 Total revenues 101, , , , ,225 EXPENDITURES: Current: Public safety: Police 8,268 8,268 4,613 3,655 4,613 Excess (deficiency) of revenues over (under) expenditures 92,865 92, , , ,612 OTHER FINANCING SOURCES (USES): Transfers out (150,000) (150,000) (150,000) - (150,000) Net change in fund balances (57,135) (57,135) 195, ,783 (37,388) Fund balance, beginning of year 135, , , ,306 Fund balance, end of year $ 78,783 78, , , ,

157 Budgetary Comparison Schedule Library Facilities Fees Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 4,459 4,459 4,454 (5) - Charges for services and fees 468, , ,912 (29,926) 78,852 Net change in fund balances 473, , ,366 (29,931) 78,852 Fund balance, beginning of year 78,852 78,852 78, Fund balance, end of year $ 552, , ,218 (29,931) 78,

158 Budgetary Comparison Schedule 800 MHz Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ ,790 4, Net change in fund balances ,790 4, Fund balance, beginning of year 334, , , ,606 Fund balance, end of year $ 334, , ,200 4, ,

159 Budgetary Comparison Schedule Sewer Construction Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 3,879 3,879 6,343 2,464 1,892 Charges for services and fees 3,000 3,000 2,560 (440) 5,627 Total revenues 6,879 6,879 8,903 2,024 7,519 EXPENDITURES: Current: Public works 16,146 16,146 16,146-16,146 Capital outlay 139, ,084 7, ,430 2,728 Total expenditures 155, ,230 23, ,430 18,874 Net change in fund balances (148,351) (148,351) (14,897) 133,454 (11,355) Fund balance, beginning of year 224, , , ,238 Fund balance, end of year $ 76,532 76, , , ,

160 Budgetary Comparison Schedule Drainage District Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Revenues from use of money $ 13,992 13,992 17,466 3,474 7,430 Charges for services and fees 1,000 1, (580) 28,290 Other revenues ,237 Total revenues 14,992 14,992 17,886 2,894 62,957 EXPENDITURES: Current: Public works 7,751 7,751 7,751-7,751 Capital outlay 304, ,945 68, , ,021 Total expenditures 312, ,696 75, , ,772 Net change in fund balances (297,704) (297,704) (58,030) 239,674 (484,815) Fund balance, beginning of year 642, , ,012-1,126,827 Fund balance, end of year $ 344, , , , ,

161 Budgetary Comparison Schedule Park Acquisition, Development and Maintenance Year ended June 30, Variance with 2004 Budgeted Amounts Final Budget Positive Original Final Actual (Negative) Actual REVENUES: Licenses and permits $ 149, ,924 5,811,968 5,662, ,832 Revenues from use of money 15,189 15,189 54,729 39,540 8,207 Revenues from other agencies ,386 70,386 - Total revenues 165, ,113 5,937,083 5,771, ,039 EXPENDITURES: Current: Parks and library: Community services 8,198 83,198 83,198-8,198 Capital outlay 490, , , , ,640 Total expenditures 499, , , , ,838 Excess (deficiency) of revenues over (under) expenditures (333,917) (786,717) 5,524,036 6,310,753 (42,799) OTHER FINANCING SOURCES (USES): Transfers out - (7,000) (7,000) - - Net change in fund balances (333,917) (793,717) 5,517,036 6,310,753 (42,799) Fund balance, beginning of year 886, , , ,856 Fund balance, end of year $ 552,140 92,340 6,403,093 6,310, ,

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163 Internal Service Funds Internal Service Funds are used to account for the financing of special activities and services provided by one department of a government to another. The following Internal Service Funds are included in the accompanying financial statements: Equipment Maintenance This fund is used to account for the operating costs of the City s rolling stock. Equipment Replacement This fund is used to account for the replacement of the City s rolling stock. Major Building Improvements This fund is used to account for replacement costs of the City s building improvements. Information Systems This fund is used to account for the development, administration and maintenance of the City s information management services. Computer Replacement This fund is used to account for the replacement costs of the City s computers. Employee Accrued Liability This fund is used to account for the City s vacation, sick and compensation time payouts for all City departments. Liability This fund is used to account for liability claims, premiums and administrative costs. Medical This fund is used to maintain a sinking fund for future claims. Workers Compensation This fund is used to account for workers compensation claims, premiums and administrative costs, and to maintain a sinking fund for future claims. 127

164 ASSETS: Current assets: CITY OF ORANGE Combining Statement of Net Assets Internal Service Funds June 30, 2005 Major Equipment Equipment Building Information Maintenance Replacement Improvements Systems Cash and investments $ 561,079 11,033, , ,017 Accounts receivable Inventories 181, Prepaid items Restricted assets: Cash and investments with fiscal agent Fixed assets: Property, plant and equipment, net 15,754 7,360, Total assets 758,528 18,394, , ,017 LIABILITIES: Current liabilities: Accounts payable 197,644 14,414 30,786 2,702 Accrued expenses 38, Long-term liabilities: Claims payable Total liabilities 236,588 14,414 30,786 2,702 NET ASSETS: Invested in capital assets, net of related debt 15,754 7,360, Restricted for claims Unrestricted 506,186 11,019, , ,315 Total net assets $ 521,940 18,379, , ,

165 Employee Self-Insurance Funds Computer Accrued Workers' Totals Replacement Liability Liability Medical Compensation ,481,209 2,267,411 2,640, ,896 6,586,843 29,018,202 27,229, ,128 30, , , , ,500-17,500 33, ,770 91,770 91, ,376,254 8,598,523 4,481,209 2,267,411 2,640, ,396 6,708,741 36,715,549 36,253,340 9, ,222 24,793 1,608,045 2,486,612 2,114,677-6,713 13,644-10,459 69, , ,050-1,465,170 1,470,220 1,203,845 9,006 6, ,916 24,793 3,083,674 4,026,592 3,993, ,376,254 8,580, ,770 91,770 91,770 4,472,203 2,260,698 2,022, ,603 3,533,297 25,220,933 23,587,306 4,472,203 2,260,698 2,022, ,603 3,625,067 32,688,957 32,259,

166 Combining Statement of Revenues, Expenses and Changes in Net Assets Internal Service Funds Year ended June 30, 2005 Major Equipment Equipment Building Information Maintenance Replacement Improvements Systems OPERATING REVENUES: Charges for services and fees $ 1,763,863 1,950, ,541,565 Other revenues - 71, Total operating revenues 1,763,863 2,021, ,541,565 OPERATING EXPENSES: Salaries and wages 693, Maintenance and operations 1,086,446 98, ,932 4,944 Contractual services 33, ,577,052 Depreciation - 1,466, Insurance claims and charges Other expenses 2, Total operating expenses 1,815,560 1,565, ,932 1,581,996 Operating income (loss) (51,697) 456,725 (136,472) (40,431) NONOPERATING REVENUES (EXPENSES): Interest revenue Gain (loss) on retirement of assets - (2,500) - - Total nonoperating revenues (expenses) - (2,500) - - Income (loss) before operating transfers (51,697) 454,225 (136,472) (40,431) Capital contributions - 115, Transfers in ,000 - Transfers out (300,000) Change in net assets (51,494) 570, ,528 (340,431) Net assets, beginning of year, as restated 573,434 17,809, , ,746 Net assets, end of year $ 521,940 18,379, , ,

167 Employee Self-Insurance Funds Computer Accrued Workers' Totals Replacement Liability Liability Medical Compensation , ,911 2,366, ,278 2,014,180 10,667,656 10,568, , , ,911 2,366, ,278 2,014,180 10,739,255 10,568, , , ,520 1,807,590 1,815, ,318 24,111 45,189 4,562 43,697 2,023,460 1,287, ,497 30,918 10,833 1,730,055 1,652, ,466,898 1,396, ,294, ,254 2,622,869 5,070,276 4,405, , , , , ,132 2,706, ,734 2,888,067 12,136,257 11,189,468 (489,250) 54,779 (340,313) 23,544 (873,887) (1,397,002) (620,563) (2,500) (117,252) (2,500) (117,252) (489,250) 54,779 (340,313) 23,544 (873,887) (1,399,502) (737,815) , , , ,000 1,708,135 4,964, (500,000) - - (800,000) (1,600,000) 135,682 54,779 (840,313) 23,544 (373,887) (375,545) 3,026,720 4,336,521 2,205,919 2,863, ,059 3,998,954 33,064,502 29,233,203 4,472,203 2,260,698 2,022, ,603 3,625,067 32,688,957 32,259,

168 Combining Statement of Cash Flows Internal Service Funds Year ended June 30, 2005 Major Equipment Equipment Building Information Maintenance Replacement Improvements Systems Cash flows from operating activities: Cash received from customers $ Cash received from user departments 1,763,863 1,860, ,541,565 Cash payments to suppliers for goods and services (1,005,016) (41,847) (109,887) (1,581,899) Cash payments to employees for services (688,237) Cash received for other activities - 71, Net cash provided by (used for) operating activities 70,610 1,889,864 (109,427) (40,334) Net cash flows from noncaptial financing activities: Transfers in from other funds ,000 (300,000) Net cash provided by noncapital financing activities ,000 (300,000) Cash flows from capital and related financing: Acquisition and construction of capital assets 1,921 (85,433) - - Proceeds from the sale of capital assets Net cash used for capital and related financing activities 1,921 (85,433) - - Net increase (decrease) in cash and cash equivalents 72,734 1,804, ,573 (340,334) Cash and cash equivalents at beginning of year 488,345 9,229, , ,351 Cash and cash equivalents at end of year $ 561,079 11,033, , ,017 Cash flows from operating activities: Operating income (loss) $ (51,697) 456,725 (136,472) (40,431) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation - 1,466, Changes in assets and liabilities: (Increase) decrease in accounts receivable (Increase) decrease in inventories (14,704) (Increase) decrease in other assets Increase (decrease) in accounts payable 132,134 (33,759) 27, Increase (decrease) in accrued expenses 4, Increase (decrease) in claims payable Total adjustments 122,307 1,433,139 27, Net cash provided by (used for) operating activities $ 70,610 1,889,864 (109,427) (40,334) 132

169 Employee Self-Insurance Funds Computer Accrued Workers' Totals Replacement Liability Liability Medical Compensation , , ,346 2,638,182 90, ,474 1,904, ,122 1,812,441 9,908,305 7,683,159 (581,567) - (2,256,529) (176,779) (2,127,317) (7,880,841) (7,049,958) - (709,427) (252,165) - (213,187) (1,863,016) (1,883,780) , (491,499) 15,047 (175,867) 34,343 (228,344) 964,393 1,387, ,932 - (500,000) - 500, ,135 3,364, ,932 - (500,000) - 500, ,135 3,364, (83,512) (1,414,549) , (83,512) (1,373,472) 133,433 15,047 (675,867) 34, ,656 1,789,016 3,378,444 4,347,776 2,252,364 3,316, ,553 6,406,957 27,320,956 23,942,512 4,481,209 2,267,411 2,640, ,896 6,678,613 29,109,972 27,320,956 (489,250) 54,779 (340,313) 23,544 (873,887) (1,397,002) (620,563) ,466,898 1,396, , ,723 (118,264) (14,704) (20,809) , ,519 (12,183) (2,249) - 270,391 10, , , ,879 - (39,732) 1,770 - (2,666) (35,751) 92, (123,234) - 389, , ,123 (2,249) (39,732) 164,446 10, ,543 2,361,395 2,008,287 (491,499) 15,047 (175,867) 34,343 (228,344) 964,393 1,387,

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171 Agency Funds Agency Funds are used to account for money and property held by the City as trustee or custodian. The following Agency Funds are included in the accompanying financial statements: Special Assessment Districts This fund is used to account for the collection of assessments from property owners and for the remittance of such assessments to the bond holders as required by the 1915 Improvement Act in California state statutes. County Sanitation Districts This fund is used to account for the distribution of sanitation fees collected in these districts. Cash Bond Deposit Fund This fund is used to account for deposits placed with the City by developers and other individuals for future services. When the cost of the service has been determined, the deposit is reduced and the funds are recognized as revenue in the General Fund. Any excess funds in a deposit account are returned to the developer. Flexible Benefits Plan Fund This fund is used to account for eligible employees deposits and reimbursements for health care. Eastern/Foothill Transportation Corridor Fund This fund is used to account for the major thoroughfare and bridge construction fees collected for and remitted to the Eastern/Foothill Transportation Corridor Agency. Transportation System Improvements Fund This fund is used to account for the receipts and disbursements of funds per the terms of the joint powers agreement between the cities of Orange and Santa Ana. 135

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175 Statistical Section

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