COMPREHENSIVE ANNUAL FINANCIAL REPORT. of the CITY OF PALM DESERT, CALIFORNIA. For the Fiscal Year Ended JUNE 30, 2003

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1 Accounting Technician James Bounds Accounting Technician Horacio Celaya Accounting Technician Veronica Tapia Accounting Technician Alana Townsend Accounting Technician Barbara Wright Administrative Secretary Diana Leal COMPREHENSIVE ANNUAL FINANCIAL REPORT of the CITY OF PALM DESERT, CALIFORNIA For the Fiscal Year Ended JUNE 30, 2003 Prepared by the Finance Department City Treasurer/Director of Finance Paul S. Gibson Assistant Finance Director Jose Luis Espinoza, CPA Finance Staff (in alphabetical order by positions and names) Business License Technician Rob Bishop Deputy City Treasurer Thomas Jeffrey G.I.S. Technician Robert Riches Information Systems Analyst Patrick J. Salaver Information Systems Manager Doug Van Gelder Information Systems Technician Troy Kulas Information Systems Technician Clay Von Helf Office Assistant II Benjamin Druyon Senior Financial Analyst Anthony Hernandez

2 CITY OF PALM DESERT COMPREHENSIVE ANNUAL FINANCIAL REPORT JUNE 30, 2003 TABLE OF CONTENTS Page Number INTRODUCTORY SECTION Table of Contents Letter of Transmittal GFOA Certificate of Achievement for Excellence in Financial Reporting CSMFO Certificate of Award for Outstanding Financial Reporting List of Principal Officials Organization Chart i v xii xiii xiv xv FINANCIAL SECTION AUDITORS' REPORT Independent Auditors' Report 1 MANAGEMENT S DISCUSSION AND ANALYSIS 3 BASIC FINANCIAL STATEMENTS Exhibit A - Statement of Net Assets 15 Exhibit B - Statement of Activities 16 Exhibit C - Balance Sheet - Governmental Funds 18 Exhibit D - Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets 21 Exhibit E - Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 22 Exhibit F - Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 24 Exhibit G - Statement of Net Assets - Proprietary Funds 25 Exhibit H - Statement of Revenues, Expenses and Changes in Fund Net Assets - Proprietary Funds 26 Exhibit I - Statement of Cash Flows - Proprietary Funds 27 Exhibit J - Statement of Fiduciary Net Assets - Fiduciary Funds - Agency 28 NOTES TO BASIC FINANCIAL STATEMENTS 29 -i-

3 Continued REQUIRED SUPPLEMENTARY INFORMATION Schedule 1 - Budgetary Comparison Statement - General Fund 69 Schedule 2 - Budgetary Comparison Statement - Prop A Fire Tax - Special Revenue Fund 70 SUPPLEMENTARY SCHEDULES General Fund: Schedule 3 - Budgetary Comparison Schedule by Department - General Fund 72 Other Governmental Funds - Combining Statements: Schedule 4 - Combining Balance Sheet - Other Governmental Funds 75 Schedule 5 - Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Other Governmental Funds 76 Other Governmental Funds - Nonmajor Special Revenue: Schedule 6 - Combining Balance Sheet - Nonmajor Special Revenue Funds 80 Schedule 7 - Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Special Revenue Funds 86 Schedule 8 - Budgetary Comparison Schedules - Special Revenue Funds: A. Traffic Safety 91 B. Gas Tax 92 C. Housing Mitigation Fees 93 D. Community Development Block Grant 94 E. El Paseo Assessment District 95 F. City-Wide Business License 96 G. Landscape and Lighting Districts No Other Governmental Funds - Nonmajor Debt Projects: Schedule 9 - Combining Balance Sheet - Nonmajor Debt Service Funds 100 Schedule 10 - Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Debt Service Funds 104 Other Governmental Funds - Nonmajor Capital Service: Schedule 11 - Combining Balance Sheet - Nonmajor Capital Project Funds 110 Schedule 12 - Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Capital Project Funds 114 Agency Funds: Schedule 13 - Combining Balance Sheet - All Agency Funds 120 Schedule 14 - Combining Statement of Changes in Net Assets and Liabilities - All Agency Funds 121 -ii-

4 STATISTICAL SECTION Continued Revenue and Expenses Statistics Governmental-Wide Expenses by Function 123 Government-Wide Revenues 124 Revenue and Expenditures Statistics Graphs - Historical Revenue and Expenditures Combined General, Special, Debt Service and Capital Project 125 Historical Revenue and Expenditures Combined General, Special, Debt Service and Capital Project 126 Historical General Revenue and Expenditures 128 Historical General Fund Actual Statement of Revenues 130 Graph - Historical General Fund Actual Statement of Revenues 131 Historical General Fund Actual Statement of Expenditures 132 Graph - Historical General Fund Actual Statement of Expenditures 133 Historical General Revenue and Expenditures Per Capita 134 Top 40 Sales Tax Generators Graph - Historical Sales Tax Trends 135 FY and FY Breakdown of Basic 1% Property Tax Rate (Not in Redevelopment Project Area) 136 Graph - FY Breakdown of Basic 1% Property Tax Rate (Not in Redevelopment Project Area) 137 Historical Net Assessed Taxable Values City-Wide 138 Change in Taxable Value City-Wide - FY and FY Assessed Value by Economic Category FY Graph - Assessed Value by Economic Category FY Property Tax Levy and Collections 142 Special Assessment Levy and Collections 143 FY Top Ten Property Tax Payers 144 Historical Net Assessed Taxable Values City-Wide Graph - Assessed Valuation Growth 145 Demographic Statistics 146 Building Permits, Taxable Transactions and Bank Deposits 147 Miscellaneous Statistics 148 Bonded Debt Statistics Computation of Legal Debt Margin 149 Direct and Overlapping Bonded Debt 150 Revenue Bond Coverage 151 Ratio of Annual Debt Service Expenditures for General Bonded Debt to Total General Governmental Expenditures 152 Ratio of Net General Obligation Debt to Assessed Value and Net General Obligation Debt Per Capita 153 -iii-

5 Continued Special Assessment Information 154 Revenue Statistics Redevelopment Agency Project Area Statistics 155 Tax Allocation Bond Issue Information 156 FY Breakdown of Basic 1% Property Tax Levy Rates 157 Historical Tax Increment Summary Redevelopment Project Area #1 - Original 158 Historical Tax Increment Summary Redevelopment Project Area #1 - Amended 159 Historical Tax Increment Summary Redevelopment Project Area #2 160 Historical Tax Increment Summary Redevelopment Project Area #3 161 Historical Tax Increment Summary Redevelopment Project Area #4 162 Historical Net Assessed Taxable Values Redevelopment Project Area #1 - Original 163 Change in Taxable Value Redevelopment Project Area #1 - Original 164 Historical Net Assessed Taxable Values Redevelopment Project Area #1 - Amended 165 Change in Taxable Value Redevelopment Project Area #1 - Amended 166 Historical Net Assessed Taxable Values Redevelopment Project Area #2 167 Change in Taxable Value Redevelopment Project Area #2 168 Historical Net Assessed Taxable Values Redevelopment Project Area #3 169 Change in Taxable Value Redevelopment Project Area #3 170 Historical Net Assessed Taxable Values Redevelopment Project Area #4 171 Change in Taxable Value Redevelopment Project Area # iv-

6 November 25, 2003 Citizens of the City of Palm Desert, Honorable Mayor and Members of the City Council The Comprehensive Annual Financial Report (CAFR) of the City of Palm Desert for the fiscal year ended June 30, 2003, is submitted herewith. This report was prepared by the City s Finance Department. Responsibility for the accuracy of the data, the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data is accurate in all material respects, reported in a manner designed to present fairly the financial position and results of operations of the various funds and all disclosures necessary to enable the reader to gain an understanding of the City s financial activities have been included. For the fiscal year ended June 30, 2003, the City once again complied with the new financial reporting model developed by the Governmental Accounting Standards Board (GASB) Statement 34. In addition to the customary fund statements included in the CAFR, Statement 34 requires that the City prepare government-wide financial statements, which include, a Statement of Net Assets and a Statement of Activities. These statements are prepared using the accrual basis of accounting, which is consistent with private business accounting, in contrast to the modified basis of accounting that is used in accounting for fund financial statements. In the financial section of this report, the reader is provided with reconciliation statements that will take the reader from the Fund Financial Statement to the Statements of Net Assets and Activities. GASB Statement 34 also requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City of Palm Desert MD&A can be found immediately following the report of the independent auditors. v

7 CAFR Structure The format and content of this report comply with the principles and standards of accounting and financial reporting adopted by the Governmental Accounting Standards Board. It is presented in three sections: Introductory Section, provides the reader with the organizational structure of the City, its services and operating environment. This section includes a title page, table of contents, a letter of transmittal, an organizational chart, a list of the City of Palm Desert s elected and appointed officials, and the certificates of award from the California Society of Municipal Finance Officers and the Government Finance Officers Association of the United States and Canada. Financial Section, presents the City s independent auditor s report on the Basic Financial Statements, the Management s Discussion and Analysis (MD&A), the Basic Financial Statements, the notes to the financial statements, the Required Supplementary Information (RSI), and the non-major supplementary schedules. Statistical Section, provides the reader with additional historical financial data and other information concerning the City. GENERAL INFORMATION ABOUT THE CITY OF PALM DESERT The City of Palm Desert is located in the geographical center of the Palm Springs Desert Resorts area, also known as the Coachella Valley area, in the County of Riverside. It was incorporated on November 26, 1973, as a General Law City; however, on November 4, 1997, the voters overwhelmingly approved Measure LL adopting a city charter. Under the provisions of the charter, the City has full authority over its own municipal affairs which can include but are not limited to bidding and contracting procedures, regulation of parks, libraries and other facilities, certain franchise fees and other fees, imposition of taxes, zoning for municipal purposes, salaries of officials and employees, municipal utilities and municipal election procedures. The City is subject only to such limitations and restrictions under state laws on matters of statewide importance, examples of which are environmental regulations, general plan requirements, open meeting laws and redevelopment. The City of Palm Desert operates under a Council-Manager form of Government. The City Council consists of five members elected by the residents of the City. Council terms are for four years. In October of 1998, the City Council approved to shift elections every two years in November of even-numbered years, which was approved by the County of Riverside at its Board of Supervisors meeting on November 24, Previously, elections were held every two years in November of odd-numbered years in conjunction with the Unified School District elections. The City Council selects the Mayor from its own members for a one-year term. The City vi

8 Citizens of the City of Palm Desert, Honorable Mayor and Members of the City Council November 25, 2003 Council appoints the City Manager and the City Clerk. The City operates as a contract city utilizing, primarily, agreements with other governmental entities, private firms and individuals to provide services. Contracted services include: police and fire protection through the County of Riverside, animal control, health services, legal services and landscape maintenance. The City provides traditional municipal, public enterprise and redevelopment services as shown below: Municipal Services Public improvements, infrastructure and maintenance Public art and community promotion Planning, zoning, building and engineering Housing and community development Code enforcement and inspections Economic development and business support Legislative, city clerk and public information General administration and fiscal services Public Enterprise Services Golf Course Office Complex Internal Service Blended & Discretely Component Units PD Redevelopment Agency PD Financing Authority PD Housing Authority PD Recreational Facilities Corp. ECONOMIC OUTLOOK Local Economy The City encompasses an area of approximately 26 square miles. As of January 1, 2003, according to data provided by the State Department of Finance, the City has a population of 43,917. In addition to permanent residents, the City has approximately 15,000 seasonal residents who live three to six months in the city. The City of Palm Desert has cultivated a sound foundation of general fund revenue including sales tax, transient occupancy tax, licenses and permits, property tax and investment earnings. The City s main sources of revenue are derived from tourism and sales tax. Tourism, retail, culture and education are part of the City s many facets. Palm Desert is the ideal getaway destination for families and friends. It is home to numerous attractions which include: the Bob Hope Cultural Center/McCallum Theater, a 1,166 seat theater which hosts some of the biggest names and well-known productions in show business; the Living Desert Wildlife & Botanical Park, a 1,200-acre facility containing a wide array of plants and animals from desert regions around the world; Art in Public Places, a vii

9 Citizens of the City of Palm Desert, Honorable Mayor and Members of the City Council November 25, 2003 museum without walls, features more than 100 works of art on permanent display throughout the City; the Westfield Shopping Town Palm Desert, Desert Crossing; and the Gardens, are collection of fine stores, adding to the upscale shopper paradise known as El Paseo; the Desert Willow Golf Resort, a unique and premier 36-hole golf course; the College of the Desert, a community college; first class hotel accommodations and fine dining restaurants. Currently, the City s labor force is as strong as the economy. The State of California Employment Development Department Labor Market Information Division reported that the City of Palm Desert had an unemployment rate of 3.8% compared to Riverside County, which had a rate of 6.4%. Our balanced foundation of tourism, culture and education has strengthened the City s labor force. Outlook for the Future In June 2003, the City Council approved a total of $ million in funding for various capital improvement projects for the fiscal year of Projects include traffic signals, sidewalk repairs and implementation, street widening, construction of landscaping medians where none existed, improving drainage areas, construction of a bridge, design and constructions of two parks, improvements to the Mesa View Fire Station and completion of the development called Entrada El Paseo. With all these projects slated for the coming fiscal year, it is evident that the City of Palm Desert is committed to promoting tourism, business, culture and education in an effort to maintain the high quality of life that the private and business community enjoys. Annual and Independent Audit It is the policy of the City of Palm Desert to have an annual audit performed by an independent certified public accountant. The independent audit of the City s financial statements for fiscal year ended June 30, 2003, was conducted by Lance, Soll & Lunghard, LLP as appointed by the City Council. The auditor s unqualified opinion on the basic financial statements is included in the Financial Section of this report. As part of the City s annual audit engagement, the auditors review the City s internal control structure, as well as compliance with applicable laws and regulations. The results of the City s annual audit for fiscal year ended June 30, 2003, provided no instances of material weaknesses in connection with the internal control structure or significant violations of applicable laws and regulations. As recipients of federal, state and county financial resources, the City of Palm Desert is required to undergo an annual single audit. When applicable, information related to this single audit, viii

10 Citizens of the City of Palm Desert, Honorable Mayor and Members of the City Council November 25, 2003 including the schedule of federal financial assistance, findings and recommendations and auditor s reports on the internal control structure and compliance with applicable laws and regulations are included in a separately issued report. For the fiscal year ended June 30, 2003, the City is required to have a single audit performed. Internal Accounting Controls Management of the City is responsible for establishing, maintaining and evaluating the City s accounting system with great consideration to the adequacy of an internal control structure. The internal accounting controls are designed: 1) to ensure that the assets of the government are protected against loss, theft or misuse, 2) to ensure the reliability of adequate accounting data for the preparation of financial statements in conformity with generally accepted accounting principles and, 3) to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that the costs of control should not exceed the benefits likely to be derived from it and that the evaluation of costs and benefits require estimates and judgment be made by management. The City s internal control evaluations occur within the above framework, which ensure adequate safeguard of the City s assets and reasonable assurance of proper recording of financial transactions. Budgetary Controls In addition, the City maintains budgetary controls. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City Council. Activities of the General, Special Revenue, Debt Service and Capital Project Funds are included in the annual appropriated budget. Budgetary amounts for Debt Service, Capital Projects, and Certain Special Revenue Funds are adopted annually, however, budgets are considered to be long-term in nature. The City also maintains an encumbrance accounting system of purchase orders and contracts at the fund level as a means of accomplishing budgetary control. Open encumbrances are reported as a reservation of fund balance at the end of the fiscal year. Purchase orders are reviewed to ensure that funds are available and that requests are properly authorized prior to being released to vendors. The adopted budget for fiscal year was prepared in accordance with accounting principles generally accepted in the United States of America. As reflected in the statements and schedules included in the financial section of this report, the City continues to meet its responsibility for sound financial management. ix

11 Citizens of the City of Palm Desert, Honorable Mayor and Members of the City Council November 25, 2003 Cash Management Cash resources of the individual funds are combined to form a pool of cash and investments. Cash which may be temporarily idle during the year, is invested in various instruments consistent with the City s and Redevelopment Agency s (the Agency ) adopted investment policy, with the majority of the maturities under one year. The investment policy authorizes investments in United States treasury bills, bonds and notes, obligations issued by the United States Government Agencies, bankers acceptances, commercial paper, medium term notes, certificates of deposit, demand accounts, California Local Agency Investment Fund, and in the California Asset Management Program. The City and Agency s portfolio at June 30, 2003 is $229,611,128. The City and Agency continue to maintain an investment policy, which is submitted annually to the City Council. Monthly Treasurer s Reports reporting investment activities and portfolio balances are also submitted to the Investment/Finance Committee and forwarded to the City Council. The primary goal of the City s and Agency s investment policy is to invest public funds in a manner which will provide the highest investment return with the maximum security, while meeting the daily cash flow demands of the City and Agency, and conforming to all State and local statutes governing the investment of public funds. Accordingly, deposits are either insured by federal depository insurance or collateralized. Criteria for selecting investments and the order of priority are risk, liquidity and yield. At all times, there was compliance with the City and Agency s investment policy. Risk Management The City joined the California Joint Powers Insurance Authority (the Authority ) on September 1, 1995 to arrange and administer programs of insurance for the pooling of self-insured losses and to purchase excess insurance coverage. Additionally, the City has all the risk property insurance with Robert Driver, an insurance company sub-contracted by the Authority to provide replacement cost coverage with varying deductibles as scheduled. The City s Workers Compensation program is covered both under the Public Entity Risk Management Authority for old claims and the CJPIA for new claims. The Authority is a pool of cities and organized under a Joint Powers Agreement pursuant to the California Government Code. Each member city has a representative on the Board of Directors with officers of the Authority being elected annually by the Board Members. Annual deposits are paid by member cities and adjusted retrospectively to cover costs. Each member city selfinsures for the first $20,000 of each loss. Participating cities then share in claims from $20,000 to $500,000 per loss occurrence. In addition, various risk control techniques, including annual safety audits and employee accident prevention training, have been implemented to minimize loss. All claims are investigated, valued, reserved, defended and/or settled in accordance with x

12 Citizens of the City of Palm Desert, Honorable Mayor and Members of the City Council November 25, 2003 generally accepted insurance industry practices. There are no known existing claims, which would exceed the City s applicable coverage. Certificates of Awards for Outstanding Financial Reporting The Government Finance Officers Association of the United States and Canada (GFOA) and the California Society of Municipal Finance Officers (CSMFO) have awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Palm Desert for its comprehensive annual financial report for the fiscal year ended June 30, This was the sixth consecutive year that the government has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both general accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program s requirements and we are submitting it to both the GFOA and CSMFO to determine its eligibility for another certificate. Acknowledgments The preparation of this report could not have been accomplished without the efficient and dedicated services of the entire staff of the finance department whose names are listed individually in the title page. Due credit is given to the Mayor and the City Council Members for their interest and support in planning and conducting the operations of our City in a responsible and progressive manner. Recognition is also given to all employees of the City of Palm Desert who continue to serve our community with commitment and dedication throughout the year, and to the citizens of Palm Desert our greatest appreciation for your continued support, input and guidance in helping us serve you better, thus preserving our City s quality of life and reputation for innovation and leadership! Respectfully submitted, Carlos L. Ortega City Manager Paul S. Gibson Director of Finance/City Treasurer JLE:jle xi

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15 CITY OF PALM DESERT List of Principal Officials as of June 30, 2003 City Council - Manager Form of Government CITY COUNCIL JEAN M. BENSON Mayor ROBERT A. SPIEGEL Mayor Pro-Tempore BUFORD A. CRITES JIM FERGUSON RICHARD S. KELLY Council Member Council Member Council Member CITY ADMINISTRATION CARLOS L. ORTEGA City Manager City Attorney - Best, Best & Krieger Assistant City Manager for Community Services/City Clerk Assistant City Manager for Development Services Assistant City Manager for Redevelopment Agency/Housing Director of Finance/City Treasurer David J. Erwin Sheila S. Gilligan Homer Croy Justin McCarthy Paul S. Gibson REDEVELOPMENT AGENCY Executive Director CARLOS L. ORTEGA xiv

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