CITY OF SANTA MONICA, CALIFORNIA

Transcription

1 Financial Statements and Required and Other Supplementary Information (with Independent Auditor s Reports Thereon)

2 Table of Contents Independent Auditor s Report... 1 Management s Discussion and Analysis (Required Supplementary Information Unaudited)... 5 Financial Statements: Statements of Net Position Statements of Revenues, Expenses and Changes in Fund Net Position Statements of Cash Flows Notes to Financial Statements Supplementary Information: 50% Expenditure Limitation Tests Independent Auditor s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Page

3 Los Angeles 777 S. Figueroa Street, Suite 2500 Los Angeles, CA Sacramento Walnut Creek To the Honorable City Council City of Santa Monica, California Report on the Financial Statements INDEPENDENT AUDITOR S REPORT Oakland Century City Newport Beach San Diego We have audited the accompanying financial statements of (BBB), an Enterprise Fund of the City of Santa Monica (City), as of and for the year ended June 30, 2013 and 2012, and the related notes to the financial statements, as listed in the table of contents. Seattle Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BBB, as of June 30, 2013 and 2012 and the changes in its financial position and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

4 Emphasis of Matter As discussed in Note 1, the financial statements of BBB are intended to present the financial position, the changes in financial position, and cash flows of only the major fund of the City that is attributable to the transactions of BBB. They do not purport to, and do not present fairly the financial position of the City, as of June 30, 2013 and 2012, the changes in its financial position and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to these matters. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion on pages 5 through 14 be presented to supplement the financial statements. Such information, although not a part of the financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the financial statements, and other knowledge we obtained during our audit of the financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise BBB s financial statements. The 50% Expenditure Limitation Tests schedule is presented for purposes of additional analysis and is not a required part of the financial statements. The 50% Expenditure Limitation Tests schedule is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the 50% Expenditure Limitation Tests schedule is fairly stated, in all material respects, in relation to the financial statements as a whole. 2

5 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 13, 2014, on our consideration of BBB s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering BBB s internal control over financial reporting and compliance. Los Angeles, California February 13,

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7 Management s Discussion and Analysis (Unaudited) As management of the (BBB), an enterprise fund of the City of Santa Monica, California (City), we offer readers this narrative overview and analysis of the financial activities of the BBB for the fiscal year ended June 30, We encourage readers to consider the information presented here in conjunction with the accompanying financial statements. FINANCIAL HIGHLIGHTS As of June 30, 2013, the BBB s assets exceeded liabilities by $251.3 million (net position). Of this amount, $216.2 million is invested in capital assets, $13.7 million is restricted, $1.7 million for rail system and $12.0 million for Prop 1B projects; and $21.4 million is unrestricted. Net position increased by $6.9 million primarily due to operating revenues of $18.2 million, sales tax proceeds of $38.2 million, gain on fixed asset disposals of $3.9 million, other nonoperating revenue of $2.2 million, and capital grants and contributions of $21.5 million offset by operating expenses of $77.1 million. OVERVIEW OF THE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION Management s Discussion and Analysis is intended to serve as an introduction to the BBB s financial statements. The State Controller s office requires that public transportation services be accounted for as an enterprise fund. The financial statements include only the activities for the BBB and provide comparative information for the prior fiscal year. Information on City-Wide financial results is available in the City s Comprehensive Annual Financial Report as of June 30, The BBB s financial statements are comprised of two components: 1) Financial statements 2) Notes to financial statements The financial statements include the following three separate statements: The Statement of Net Position presents information on the BBB s assets, deferred outflows of resources, liabilities, and deferred inflows of resources. The difference between (a) assets and deferred outflows of resources and (b) liabilities and deferred inflows of resources was reported as net position. BBB currently has no deferred outflows or inflows or resources to report. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial condition of the BBB is improving or deteriorating. The Statements of Revenues, Expenses and Changes in Fund Net Position presents information showing how the BBB s net position changed. Results of operations are reported as underlying events occur, regardless of the timing of cash flows. Thus, revenues and expenses are reported in these statements using the accrual basis of accounting, which is more fully described in the accompanying Notes to Financial Statements. 5

8 Management s Discussion and Analysis (Continued) (Unaudited) The Statement of Cash Flows provide information about cash receipts and payments classified as to operating, noncapital financing, capital and related financing or investing activities.. The Notes to Financial Statements provide additional information that is essential to the full understanding of the data provided in the basic financial statements. The BBB s Supplementary Information consists of the 50% Expenditure Limitation Tests. The 50% Expenditure Limitation Tests is a funding eligibility requirement contained in the general guidelines of the Transportation Development Act (TDA). A transit operator subject to the 50% expenditure limitation may not spend Article 4 funds received from the Local Transportation Fund (LTF) in an amount that exceeds the following: 50% of the sum: operating costs, capital requirements, and debt service requirements less revenues from federal grants, LTF capital intensive, and the State Transit Assistance (STA) Fund. The Big Blue Bus passed its 50% Expenditure Limitation Tests for fiscal year FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of the BBB s financial position. In the case of the BBB, assets exceed liabilities by $251.3 million at the close of June 30, A portion of the BBB s net position (86%) reflects its investment in capital assets (e.g. land, buildings, buses, radio and fare box equipment, transit mall amenities, fleet management system, and other transitrelated equipment), less depreciation. The BBB uses these capital assets to provide services to customers; consequently, these assets are not available for future spending. The remaining portion of the BBB s net position (14%) is comprised of resources that are restricted for rail system development and Proposition 1B projects (5%) and unrestricted net position (9%). The following is a condensed summary of BBB s net position: Schedule of Net Position (in thousands) Increase/(Decrease) Current and other assets $ 46,272 38,328 36,998 7,944 1,330 Capital assets, net 216, , ,620 3,005 4,532 Total assets 262, , ,618 10,949 5,862 Current liabilities 10,781 6,767 5,966 4, Non-current liabilities (237) Total liabilities 11,089 7,019 6,455 4, Investment in capital assets 216, , ,620 3,005 4,532 Restricted for rail system development & Prop 1B 13,740 16,043 13,527 (2,303) 2,516 Unrestricted 21,444 15,266 17,016 6,178 (1,750) Total net position $ 251, , ,163 6,880 5,298 6

9 Management s Discussion and Analysis (Continued) (Unaudited) Year ended June 30, 2013 Current and other assets increased by $7.9 million or 21% primarily due to year-end accruals of receivables related to grant reimbursements and a CalPERS payment in excess of the annual required contribution, which resulted in a prepaid expense. Capital assets increased by $3.0 million resulting from a net increase in capital assets acquisition of $6.7 million offset by $3.7 million increase in accumulated depreciation. This increase was primarily due to the purchase of twenty Compressed Natural Gas (CNG) powered buses offset by the sale of twenty-seven old buses. Current liabilities increased by $4.0 million or 59% due to an increase in unearned revenue from Measure R subsidies received but unearned. Year ended June 30, 2012 Current and other assets increased by $1.3 million or 4% primarily due to an increase in receivables as a result of timing differences in year-end accruals. Capital assets increased by $4.5 million or 2% due to increase in capital assets acquisition of $10.2 million offset by $5.7 million increase in accumulated depreciation. This was primarily a result of the purchase of additional buses, facility upgrades and other construction in progress. Current liabilities increased by $0.8 million primarily due to subsidies received but not earned of $0.7 million. 7

10 Management s Discussion and Analysis (Continued) (Unaudited) The following is a condensed summary of BBB s changes in fund net position: Schedule of Changes in Fund Net Position (in thousands) Increase/(Decrease) Operating revenues: Passenger fare revenue $ 14,091 13,748 13, Advertising 1,647 1,442 1, (94) Charter services (73) (121) Contract transit services (7) (43) Other 1,868 1,306 2, (1,318) Total operating revenues 18,152 17,122 18,153 1,030 (1,031) Operating expenses: Personnel services 41,649 44,417 40,092 (2,768) 4,325 Administrative indirect 4,877 4,475 4, Contractual and specialized transit services 3,219 3,359 4,001 (140) (642) Repairs & maintenance 5,924 5,025 6, (1,754) Materials and supplies 5,488 6,003 6,842 (515) (839) Utilities (11) (27) Casualty, property and liability costs 2,811 1,030 2,992 1,781 (1,962) Other (5) 24 Depreciation 12,238 13,311 11,137 (1,073) 2,174 Total operating expenses 77,142 78,572 76,903 (1,430) 1,669 Loss from operations (58,990) (61,450) (58,750) 2,460 (2,700) Nonoperating revenue: Sales tax proceeds 38,228 38,398 35,834 (170) 2,564 Investment income, net (147) (35) Homeland Training Security Grant (25) (141) Gain on disposal of capital assets 3, , Other 2,221 2,391 1,718 (170) 673 Total nonoperating revenue 44,381 41,139 37,937 3,242 3,202 Loss before capital contributions (14,609) (20,311) (20,813) 5, Capital contributions 21,489 25,609 32,047 (4,120) (6,438) Changes in fund net position 6,880 5,298 11,234 1,582 (5,936) Beginning net position 244, , ,929 5,298 11,234 Ending net position $ 251, , ,163 6,880 5,298 8

11 Management s Discussion and Analysis (Continued) (Unaudited) Year ended June 30, 2013 Operating Revenue Operating revenue of $18.2 million increased by $1.0 million or 6% over last year s revenue of $17.1 million. This increase is attributed to increases in passenger revenue, advertising revenue and other operating revenue of $0.3 million, $0.2 million and $0.5 million, respectively. Passenger fare revenue of $14.1 million is the primary local operating revenue source for the BBB. It represents 78% of total operating revenue and has increased by $0.3 million or 2% mostly generated from Access Certified Riders. Access Services is a non-profit public benefit corporation chartered to provide Americans with Disabilities Act (ADA) mandated complementary paratransit service to qualified disabled individuals in Los Angeles County (County). Access Services is also the Consolidated Transportation Services Agency of the County. In January 2012, the City entered into an agreement with Access Services wherein the City agreed to allow fare-free boarding to Access Certified Riders on the BBB bus service. Access Services agrees to reimburse the City for each trip taken by these riders. Revenue generated from this agreement increased 516%, from $64 thousand in FY 11/12 to $394 thousand in FY 12/13. The composition of current year s passenger revenue is presented below. Passenger Revenue by Source (in thousands) $917 $394 $1,079 $1,166 $1,220 $9,315 Farebox Cash SMC Any-Line Any Time EZ Pass Passes, Tokens & others UCLA Bruin Go Access Paratransit Increase in advertising revenue of $0.2 million or 14% is primarily generated from providing management services for Culver City Bus advertising sales program. Revenue generated from these services increased 167% from $107 thousand in FY11/12 to $286 thousand in FY12/13. 9

12 Management s Discussion and Analysis (Continued) (Unaudited) Other operating revenue increase of $0.6 million is attributed to alternative fuel credits. The passage of the American Taxpayer Relief Act of 2012 extended fuel tax credits to December 31, Credits received in FY 12/13 totaled $1.2 million compared to $0.5 million in FY 11/12. Operating Expenses Operating expenses before depreciation of $64.9 million is slightly lower compared to the prior year s total of $65.3 million. However, a few expense items showed significant changes in FY12/13. Total personnel services decreased by $2.8 million or 6.2%, mostly due to a $3.9 million decrease in retirement expenses. In FY10/11 and FY11/12 the City made pension payments to CalPERS in excess of the required annual contribution. BBB s share of the payments was $1.4 million each year which were recorded as expenses. $2.8 million was recorded as a prepaid in FY 12/13 and is being amortized over a 30 year period thereby reducing current year s expenses. Administrative indirect expenses of $4.9 million represent reimbursement to the City s general fund for various administrative support services. These expenses increased $0.4 million or 9%. Repairs and maintenance of $5.9 million increased by $0.9 million or 17.9%, which includes bus components used to maintain the fleet. Materials and supplies decreased by $0.5 million or 9%. The disposal of diesel powered buses resulted in reduced diesel fuel consumption. Diesel fuel usage in FY11/12 was $2.1 million compared to usage of $1.3 million in FY12/13, a reduction in diesel expense of $0.8 million. Diesel buses will be completely phased out in FY13/14. Natural gas usage increased by $0.3 million. Casualty, property and liability costs of $2.8 million increased by $1.8 million. In FY11/12, annual contributions to the self insurance fund were reduced by $1.8 million based on prior year s payments and the actuarial evaluation of reserves. The FY12/13 contributions were restored to $2.8 million thereby creating an increase of $1.8 million. Non-operating Revenue FY12/13 sales tax proceeds of $38.2 decreased slightly by 0.4% when compared to prior year s $38.4 million. Current year s revenues from Proposition A, TDA and STA increased by $0.2 million (2%), $0.8 million (5%) and $1.5 million (55%) respectively for a total increase of $2.5 million. Included in the STA increase is a $0.7 million funding allocation adjustment by the Los Angeles County Metropolitan Transportation Authority (LACMTA) for FY 11/12. Measure R allocation for FY 12/13, including local return, totals $7.2 million; however only $4.2 million was recognized as revenue based on operating need while $3.0 million was recorded as unearned revenue. State sales tax proceeds (Proposition C, Proposition A, TDA, and Measure R) are allocated to local jurisdictions based on a relative percentage share. Measure R is the ordinance establishing a ½ percent sales tax for better public transportation. Gain from disposal of capital assets of $3.9 million was primarily from the sale of City-owned property located at 2525 Michigan Avenue to the Exposition Construction Authority for the construction and 10

13 Management s Discussion and Analysis (Continued) (Unaudited) operation of the Exposition Rail Transit station. This parcel of property acquired by the City in 1989 cost $809,201. On June 3, 2013, the Los Angeles Superior Court ruled that the just compensation for this property along with temporary easements was $4.1 million. Gain from this disposal is $3.3 million. The remaining gain of $0.6 million is from the disposal of 27 buses. Capital Grants & Contributions In FY12/13, BBB received $21.5 million in capital grants and contributions: $11.7 million or 54% from federal sources and $9.8 million or 46% from State and local sources. In comparison, capital grants and contributions were $4.1 million or 16% lower than the $25.6 million received in the prior fiscal year as there were more capital projects undertaken in FY11/12 than in FY12/13. Except for Prop 1B, capital revenues are received on a reimbursement basis. In FY12/13, the majority of federal grants and contributions were used to purchase twenty Gillig 40-ft CNG replacement buses, the Universal Fare System (UFS) project and Bus Stop Amenities. Local funds were used as match for federal funding, capital preventive maintenance for the fleet, computer enhancements and other projects. Year ended June 30, 2012 Operating revenue Operating revenue of $17.1 million decreased by $1.0 million due to the $1.3 million reduction in other operating revenues. The decrease in other operating revenue was primarily due to a reduction in alternative fuel tax credits from the prior year. Passenger fare revenue of $13.7 million made up 80% of total operating revenue. Passenger revenue increased by $0.5 million or 4%. Of this increase, 60% came from combined increases in UCLA Bruin Go program, and EZ Pass ridership, which brought in increases of $0.2 million and $0.1 million respectively. Operating expenses Operating expenses before depreciation of $65.3 million decreased by 1%. Significant changes include $2.0 million decrease in casualty, property and liability costs due to reduction in budget based on actuarial evaluation of reserves; $1.8 million decrease in repairs and maintenance due to reduced expenditures on bus components and the replacement of fifteen diesel buses with five articulated natural gas and ten compressed natural gas fueled buses; and $4.3 million increase in personnel services due to increases in retirement, medical and workers compensation insurance and reduction in capitalized labor. Non-operating Revenue Sales tax proceeds increased by $2.6 million or 7% from $35.8 million in FY10/11 to $38.4 million in FY11/12 primarily due to an increase in Transportation Development Act, Proposition A and Measure R 11

14 Management s Discussion and Analysis (Continued) (Unaudited) allocations of $3.9 million offset by a decrease in Proposition C and State Transportation Fund allocations of $1.3 million. Capital Grants & Contributions In FY11/12, BBB received $25.6 million in capital grants and contributions which was $6.5 million or 20% lower than FY10/11. Of this amount, $8.0 million or 31% came from federal sources, including $2.8 million from the American Recovery and Reinvestment Act (ARRA) and $17.8 million or 69% were from State and local sources, including $6.9 million from Proposition 1B. CAPITAL ASSETS Year ended June 30, 2013 The BBB s capital assets, net of accumulated depreciation, amount to $216.2 million. This includes land, facility and infrastructure improvements, vehicles, machinery and equipment, radio and fare box equipment, etc. Net capital assets increased by $3.0 million, primarily due to current year additions of $16.1 million offset by current year disposals of $809 thousand and depreciation expense of $12.2 million. 40-ft CNG powered Bus Changes in capital assets for this fiscal year include: (in thousands) Purchase of ft CNG powered buses $ 10,174 Auction of 27 old buses - original cost (8,546) Additions, maintenance & admin building 1,184 Additions, miscellaneous equipment 2,354 Fuel and wash facility upgrades 1,426 Facility upgrade 203 Work in progress 711 Sale of land (809) Increase in accumulated depreciation (3,692) Net change in capital asset $ 3,005 12

15 Management s Discussion and Analysis (Continued) (Unaudited) Year ended June 30, 2012 Capital assets, net of accumulated depreciation, totaled $213.2 million. Capital assets increased by $4.5 million due to the $17.8 million additions reduced by the $13.3 million depreciation. Of the $17.8 million additions, $10.3 million were for new buses, $3.3 million were for facility upgrades, $3.1 million were work in progress and other fixed assets were $1.1 million. Buses added include ten 30 ft. and five lowfloor articulated compressed natural gas buses. The BBB s capital assets are as follows: City of Santa Monica Capital Assets (in thousands) Land $ 60,277 61,086 61,086 Construction in progress 14,390 13,679 10,589 Buildings and improvements 129, , ,933 Improvements other than buildings 7,400 5,974 5,974 Machinery and equipment 123, , ,136 Less accumulated depreciation (118,486) (114,794) (109,098) Total $ 216, , ,620 For additional information on capital assets, see note 3 of the notes to basic financial statements. ECONOMIC FACTORS AND COMMUNITY PRIORITY The adopted FY 13/14 BBB s operating budget supports the basic responsibilities of local government, the policy interests of the City Council Members and diverse concerns of the residents. Management confirms there are adequate resources available to fund the proposed expenses. The following factors were considered in preparing the BBB s budget for the FY 13/14: Big Blue Bus operating subsidy allocations are estimated using funding calculations supplied by LACMTA. BBB s objectives and benchmarks for the next year include: Achieve a 74% on-time performance rate on fixed routes system-wide by June Achieve a 90% on-time performance rate on Dial-a-Ride by June

16 Management s Discussion and Analysis (Continued) (Unaudited) Develop Route Performance Standards and set benchmarks to evaluate the effectiveness and efficiency of all BBB routes by January Provide quarterly analysis to measure performance. Increase the miles between road calls to more than 10,000 by June Introduce 58 new buses into service by January Introduce a new fare collection system that will include Ticket Vending Machine (TVM), mobile ticketing (fare payment through mobile phone app) and Smartcards in Initiate construction phase of the Bus Stop Redevelopment Project and install the first five shelters (including Real Time Signs) by April 30, Reduce reliance on unscheduled overtime through improved attendance and reduction in the number of lost work days by June 30, Develop a comprehensive community outreach process to introduce the vision for BBB fixedroute service interfacing with the Expo Light Rail line to the community that began in September 2013 and end by the opening of Expo Light Rail. Analyze, revise and update plan to reflect community input and present to Council by October Reduce total vehicle accident rate to no more than 8 per 100,000 miles by June Correct all safety hazards identified by Health and Safety Survey and Quarterly Safety Inspection within 60 days of the hazard being identified. Work with Human Resources Department to implement a Wellness Program for an 8% reduction of total lost work days due to work related injuries by June REQUESTS FOR INFORMATION The basic financial statements are designed to provide a general overview of the BBB s finances. Questions concerning any information provided in this report or requests for additional financial information should be addressed to the City of Santa Monica s Finance Department at or at (310)

17 June 30, 2013 and Assets: Current assets: Cash and investments (note 2) $ 6,480,379 9,475,675 Restricted cash and investments (note 2) 13,783,158 15,820,055 Accounts receivable 11,976,508 10,433,143 Due from Los Angeles County Metropolitan Transportation Authority 9,427, ,434 Interest receivable 35,632 47,711 Other receivables 65,176 - Inventory 1,935,828 1,611,790 Prepaid expense 178,294 86,859 Total current assets 43,882,307 38,327,667 Noncurrent assets: Prepaid expense 2,389,989 - Capital assets (note 3): Land 60,276,362 61,085,563 Buildings 129,417, ,233,725 Improvements other than buildings 7,400,307 5,974,444 Machinery and equipment 123,159, ,973,045 Construction in progress 14,389,632 13,679,054 Total capital assets 334,642, ,945,831 Less accumulated depreciation (118,485,799) (114,793,712) Net capital assets 216,157, ,152,119 Total noncurrent assets 218,547, ,152,119 Total assets 262,429, ,479,786 Liabilities: Current liabilities: Accounts payable 2,039,161 1,581,689 Accrued liabilities 2,754,158 2,743,472 Compensated absences, current 1,630,853 1,382,728 Unearned revenue 4,356,988 1,059,539 Total current liabilities 10,781,160 6,767,428 Noncurrent liabilities: Compensated absences, non-current 307, ,565 Total liabilities 11,088,735 7,018,993 Net Position: Investment in capital assets 216,157, ,152,119 Restricted for: Rail system development 1,741,420 1,730,988 Prop 1B projects 11,997,991 14,312,412 Unrestricted 21,444,150 15,265,274 Total net position $ 251,340, ,460,793 See accompanying to basic financial statements. 15

18 Statements of Revenues, Expenses, and Changes in Fund Net Position Years ended June 30, 2013 and Operating revenues: Fixed route service: Passenger revenue $ 14,091,097 13,748,074 Advertising 1,646,503 1,442,347 Other 1,868,324 1,305,659 Total fixed route service revenues 17,605,924 16,496,080 Charter service 1,476 74,164 Specialized transit services 544, ,863 Total operating revenues 18,152,249 17,122,107 Operating expenses: Fixed route and charter service: Personnel services 41,649,440 44,417,335 Administrative indirect charges 4,877,198 4,474,494 Contractual services 2,674,411 2,806,608 Repairs and maintenance 5,924,329 5,025,309 Materials and supplies 5,487,448 6,003,302 Utilities 389, ,821 Casualty, property and liability costs 2,811,081 1,029,914 Other 546, ,577 Total fixed route and charter service expenses 64,360,016 64,709,360 Specialized transit services 544, ,863 Total operating expenses before depreciation 64,904,865 65,261,223 Depreciation 12,237,870 13,310,913 Total operating expenses 77,142,735 78,572,136 Operating loss (58,990,486) (61,450,029) Nonoperating revenue (expenses): Sales tax proceeds: Proposition C funds 2,219,680 2,278,527 Proposition A funds 11,956,220 11,702,357 Transportation Development Act funds 15,529,025 14,768,621 State Transit Assistance Fund sales taxes 4,318,114 2,791,872 Measure R 4,204,774 6,856,313 Homeland Security Training Grant 1,905 26,667 Investment income: Interest income 199, ,192 Unrealized loss (164,428) (37,384) Gain on disposal of capital assets 3,895, ,594 Other 2,221,275 2,391,067 Total nonoperating revenue 44,381,211 41,138,826 Loss before capital contributions (14,609,275) (20,311,203) Capital grants and contributions 21,489,216 25,609,158 Changes in fund net position 6,879,941 5,297,955 Net position, beginning 244,460, ,162,838 Net position, ending $ 251,340, ,460,793 See accompanying notes to basic financial statements. 16

19 Statements of Cash Flows Years ended June 30, 2013 and Cash flows from operating activities: Cash received from customers $ 16,532,704 15,202,526 Cash received from specialized transit services 544, ,863 Cash payments for materials and services (18,184,715) (16,884,990) Cash payments to employees for services (48,753,319) (48,464,917) Other nonoperating revenues received 2,221,275 2,391,067 Net cash used in operating activities (47,639,206) (47,204,451) Cash flows from noncapital financing activities: Sales tax proceeds: Proposition C funds 2,131,931 2,278,527 Proposition A funds 10,989,712 11,702,357 State Transit Assistance Fund sales taxes 3,936,554 2,093,904 Transportation Development Act funds 14,234,940 14,768,621 Measure R 6,670,558 7,530,329 Homeland Security Grant 1,905 26,667 Net cash provided by noncapital financing activities 37,965,600 38,400,405 Cash flows from capital and related financing activities: Capital contributions received 15,942,039 33,659,984 Proceeds from sales of capital assets 4,704, ,685 Acquisition and construction of capital assets (16,052,125) (17,856,503) Net cash provided by capital and related financing activities 4,594,181 15,958,166 Cash flows from investing activities: Interest received on investments 47, ,473 Net cash provided by investing activities 47, ,473 Net decrease in cash and cash equivalents (5,032,193) 7,361,593 Cash and cash equivalents at beginning of year 25,295,730 17,934,137 Cash and cash equivalents at end of year $ 20,263,537 25,295,730 Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (58,990,486) (61,450,029) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation 12,237,870 13,310,913 Changes in assets and liabilities: Increase in accounts receivable (1,274,801) (1,434,350) (Increase) decrease in inventory (324,038) 116,647 Increase in prepaid expense (2,481,424) (28,696) Increase (decrease) in accounts payable 457,472 (603,547) Increase (decrease) in compensated absences 304,135 (207,052) Increase in accrued liabilities 10, ,964 Increase in unearned revenue 200,105 66,632 Other nonoperating revenue received 2,221,275 2,391,067 Total adjustments 11,351,280 14,245,578 Net cash used in operating activities $ (47,639,206) (47,204,451) There were no significant noncash investing or financing activities for the years ended June 30, 2013 and See accompanying notes to basic financial statements. 17

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21 Notes to Financial Statements 1. Summary of Significant Accounting Policies The City of Santa Monica, California (City) began operating its own bus line in 1928 calling it the Santa Monica Municipal Bus Lines. In 1999 the name was changed to Santa Monica s Big Blue Bus. The (BBB) operates a fleet of over 200 buses of various types and provides a variety of transportation services such as: Fixed Route Services Daily bus service with 20 different fixed routes and various timetables, including the Mini Blue service. Specialized Transportation Services The Dial a Ride Service, which is a low cost, shared ride service offering door-to-door transportation in Santa Monica for senior passengers. The accounting policies of the BBB conform to accounting principles generally accepted in the United States of America. The following is a summary of the significant policies applied in the preparation of the accompanying basic financial statements. (a) Basis of Accounting The BBB is reported as a major enterprise fund in the City s basic financial statements presented in its Comprehensive Annual Financial Report. The accompanying financial statements present the net position and changes in net position and cash flows of the BBB. These financial statements are not intended to present the financial position and the results of operations of the City, or cash flows of the City s enterprise funds. The financial statements of the BBB are presented using the economic resources measurement focus and the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. Revenues are recorded in the period in which they are earned and become measurable. Expenses are recognized in the period in which they are incurred. For the year ended June 30, 2013, the City implemented the provisions of Governmental Accounting Standards Board (GASB) Statement No. 61, The Financial Reporting Entity: Omnibus, an amendment of GASB Statements No. 14 and No. 34; GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements; and GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. GASB Statement No. 61 modifies existing requirements for determining which component units should be included in the financial reporting entity and the related display and disclosure requirements. GASB Statement No. 62 incorporates certain accounting and financial reporting guidance in FASB Statements and Interpretations issued on or before November 30, 1989, Accounting Principles Board Opinions, and Accounting Research Bulletins into GASB s authoritative literature. GASB Statement No. 63 provides guidance for reporting deferred outflows of resources, deferred inflows of resources, and net position in a statement of financial position and related disclosures. 19

22 Notes to Financial Statements (Continued) The BBB s principal operating revenues are charges to customers for transportation services. Operating expenses include the cost of providing transportation services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. Other operating revenue consists primarily of rental income. (b) Cash and Cash Equivalents Cash and investments of the BBB are pooled and invested with funds of the City (see note 2). BBB s cash and investments balance represents BBB s equity share of the City s cash and investment pool. As the City places no restrictions on the deposit or withdrawal of it s equity from the pool by a particular fund, the pool operates like a demand deposit account for each participating fund. The BBB s investments are stated at fair value, and the increase or decrease of fair value of investments is included as a component of interest income. Interest income earned on pooled cash and investments is allocated quarterly to the various funds based on quarter-end balances and is adjusted at year-end. The City s investments are carried at fair value, except for guaranteed investment contracts, which are carried at cost because they are not transferable and they have terms that are not affected by changes in market interest rates. The fair value of equity and debt securities is determined based on sales prices or bid-and-asked quotations from Securities and Exchange Commission (SEC) registered securities exchanges or National Association of Securities Dealers Automated Quotation (NASDAQ) dealers. The fair value of the City s share of Local Agency Investment Fund (LAIF) is reported to the City on a quarterly basis. LAIF operates in accordance with laws and regulations of the State of California. The reported value of the pool is the same as the fair value of pool shares. Changes in fair value are allocated to each participating fund on an annual basis. For purposes of the statement of cash flows, the City has defined cash and cash equivalents to be change and petty cash funds and equity in the City s cash and investment pool. (c) Accounts Receivable Accounts receivable represents amounts due to the BBB for services rendered or capital reimbursements that have been earned as of year-end but cash had not been received as of that date. (d) Inventory Inventory consisting of spare parts, fuel, and similar items are stated at cost on a weighted average basis. 20

23 Notes to Financial Statements (Continued) (e) Capital Assets Capital assets, which include land, buildings and improvements, equipment, and infrastructure assets, are defined by the City as assets with an initial individual cost of $1 or more and an estimated useful life in excess of one year. Buildings and improvements other than buildings are defined by the City as assets with an initial individual cost of $1 or more and an estimated useful life in excess of one year. Such assets are recorded at historical cost. Donated capital assets are recorded at estimated fair market value at the date of donation. The cost of normal maintenance and repairs that do not increase utility of the assets or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Depreciation of capital assets is provided for on a straight-line basis over the following estimated useful lives: (f) Investment Income Assets Years Buildings 2 to 50 Improvement other than buildings 5 to 50 Machinery and equipment 2 to 20 All idle funds of the City are invested on a pooled basis. In accordance with an administrative policy of the City, interest and change in fair value of investments on such pooled resources are accrued to each fund based on the proportionate share that a particular fund has in the pooled cash. (g) Interest on Unused Capital Contributions Interest earned arising from unused capital grant proceeds and other restricted assets is allocated to unspent capital contribution amounts, thereby having the effect of increasing the BBB s transportation-related capital contributions. (h) Accounts Payable and Accrued Liabilities Accounts payable consists primarily of liabilities for goods or services rendered to the BBB, which have not been paid by year end. Accrued liabilities consist primarily of personnel services rendered by year end which have been paid in the following year. (i) Compensated Absences It is the City s policy to permit employees to accumulate earned but unused vacation and sick leave benefit up to a maximum determined by bargaining unit agreements. Employees are paid 100% of their accumulated vacation when they terminate employment for any reason. All 21

24 Notes to Financial Statements (Continued) vacation is accrued in the financial statements. Members of the United Transportation Union, upon retirement after ten or more years of service and having accumulated fifty or more sick days, are entitled to reimbursement for health insurance premiums up to the cumulative dollar equivalent of those sick days. (j) Unearned Revenue Funds received from the Los Angeles County Metropolitan Transportation Authority (LACMTA), and not used in the current fiscal year, including unredeemed tokens, are carried over to the next fiscal year and included in unearned revenue. (k) Grant Revenues Grant revenue, for both state and federal grants, is recorded when earned. (l) Net Position Net position is reported in three categories: Net investment in capital assets, restricted net position and unrestricted net position. Net investment in capital assets represents capital assets less accumulated depreciation less outstanding principal of related debt. Restricted net position represents assets restricted by parties outside of the City (such as creditors, grantors, contributors, laws and regulations of other governments). All other net position is considered unrestricted. (m) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date the financial statements and the reported amounts of changes in net position during the reporting period. Actual results could differ from those estimates. (n) Reclassifications Certain reclassifications have been made to the fiscal year 2012 amounts in order to conform to the fiscal year 2013 presentation. Such reclassifications had no effect on the previously reported change in net position. (o) Future Accounting Pronouncements BBB is evaluating the potential impacts of the following GASB statements on its accounting practices and financial statements. Issued in March 2012, GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, establishes accounting and financial reporting standards that reclassify, as deferred 22

25 Notes to Financial Statements (Continued) outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. Implementation of this statement is effective fiscal year Issued in April 2013, GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees, requires a state or local government guarantor that offers a nonexchange financial guarantee to another organization or government to recognize a liability in its financial statements when it is more likely than not that the guarantor will be required to make a payment to the obligation holders under the agreement. A nonexchange financial guarantee is a credit enhancement or assurance offered by a guarantor without receiving equal or approximately equal value in exchange. Implementation of this statement is effective fiscal year Cash and Investments Cash and Investments in City Investment Pool The BBB has no separate bank accounts or investments other than investments in the BBB s equity in the cash and investment pool managed by the City of Santa Monica (the Pool). The BBB is a voluntary participant in the Pool. The Pool is governed by and under the regulatory oversight of the Investment Policy adopted by the City Council of the City pursuant to the California Government Code and the Santa Monica City Charter, Section 711. The BBB has not adopted an investment policy separate from that of the City. The fair value of the BBB s investment in this pool is reported in the accompanying financial statements at amounts based upon the BBB s pro-rata share of the fair value calculated by the City for the entire City portfolio. The balance available for withdrawal is based on the accounting records maintained by the City, which are recorded on an original cost basis. As of June 30, 2013 and 2012, the BBB s portion of the Pool was $20,263,537 and $25,295,730, which represent approximately 4% of the Pool in both years. The City will issue a publicly available Comprehensive Annual Financial Report that includes complete disclosures related to the entire cash and investment pool. 23

26 Notes to Financial Statements (Continued) 3. Capital Assets Capital assets activity for the years ended June 30, 2013 and 2012 is as follows: Balance at June 30, 2012 Increases Decreases Transfers Balance at June 30, 2013 Capital assets, not being depreciated: Land $ 61,085,563 - (809,201) - 60,276,362 Construction in progress 13,679,054 3,320,056 - (2,609,478) 14,389,632 Total capital assets, not being depreciated 74,764,617 3,320,056 (809,201) (2,609,478) 74,665,994 Capital assets, being depreciated: Buildings 128,233, ,183, ,417,340 Improvements other than buildings 5,974, ,425,863 7,400,307 Machinery and equipment 118,973,045 12,732,069 (8,545,783) - 123,159,331 Total capital assets, being depreciated 253,181,214 12,732,069 (8,545,783) 2,609, ,976,978 Less accumulated depreciation for: Buildings (28,910,069) (3,517,522) - - (32,427,591) Improvements other than buildings (2,761,546) (84,464) - - (2,846,010) Machinery and equipment (83,122,097) (8,635,884) 8,545,783 - (83,212,198) Total accumulated depreciation (114,793,712) (12,237,870) 8,545,783 (118,485,799) Total capital assets, being depreciated, net 138,387, ,199-2,609, ,491,179 Total $ 213,152,119 3,814,255 (809,201) - 216,157,173 24

27 Notes to Financial Statements (Continued) Balance at July 1, 2011 Increases Decreases Transfers Balance at June 30, 2012 Capital assets, not being depreciated: Land $ 61,085, ,085,563 Construction in progress 10,588,724 3,090, ,679,054 Total capital assets, not being depreciated 71,674,287 3,090, ,764,617 Capital assets, being depreciated: Buildings 124,933,182 3,300, ,233,725 Improvements other than buildings 5,974, ,974,444 Machinery and equipment 115,136,181 11,465,629 (7,628,765) - 118,973,045 Total capital assets, being depreciated 246,043,807 14,766,172 (7,628,765) - 253,181,214 Less accumulated depreciation for: Buildings (25,406,505) (3,503,564) - - (28,910,069) Improvements other than buildings (2,370,240) (391,306) - - (2,761,546) Machinery and equipment (81,321,730) (9,416,043) 7,615,676 - (83,122,097) Total accumulated depreciation (109,098,475) (13,310,913) 7,615,676 - (114,793,712) Total capital assets, being depreciated, net 136,945,332 1,455,259 (13,089) - 138,387,502 Total $ 208,619,619 4,545,589 (13,089) - 213,152, Employee Benefit Programs Santa Monica Public Employees Retirement Plan The BBB s employees participate in the City s defined benefit pension plan; Santa Monica Public Employees Retirement Plan (Plan) provides retirement and disability benefits, annual cost-of living adjustments, and death benefits to plan members and beneficiaries. The Plan is part of the Public Agency portion of the California Public Employees Retirement System (CalPERS), an agent multipleemployer plan administered by CalPERS, which acts as a common investment and administrative agent for participating public employers within the State of California. State statutes within the Public Employees Retirement Law establish a menu of benefit provisions as well as other requirements. The City selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through City ordinance. CalPERS issues a separate comprehensive annual financial report available from the CalPERS Executive Office, 400 Q Street, Sacramento, California