MORAGA-ORINDA FIRE DISTRICT TABLE OF CONTENTS Elected Officials and Management Team Independent Auditors Report 1 Management s Discussion and Analysis 2 9 Basic Financial Statements: Statement of Net Position and Governmental Funds Balance Sheet 10 Statement of Activities and Governmental Fund Statement of Revenues, Expenditures, and Changes in Fund Balances 11 Notes to Basic Financial Statements 12 32 Required Supplementary Information: Statement of Revenue, Expenditures, and Changes in Fund Balances Budget and Actual All Governmental Fund Types 33
Moraga-Orinda Fire Protection District ELECTED OFFICIALS AND MANAGEMENT TEAM BOARD OF DIRECTORS Fred Weil, President Frank Sperling, Treasurer John Wyro, Director MANAGEMENT TEAM Randall Bradley, Fire Chief Stephen Healy, Division Chief Darrell Lee, Division Chief Sean Perkins, Battalion Chief Kathy Leonard, Assistant Fire Marshal Sue Casey, Administrative Services Director
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MANAGEMENT S DISCUSSION & ANALYSIS
Moraga-Orinda Fire Protection District MANAGEMENT S DISCUSSION AND ANALYSIS This section of the Moraga-Orinda Fire Protection District s (the District) basic financial statements presents management s overview and analysis of the financial activities of the organization for the fiscal year ended. We encourage the reader to consider the information presented here in conjunction with the financial statements as a whole. Introduction to the Basic Financial Statements This discussion and analysis is intended to serve as an introduction to the District s audited financial statements, which are comprised of the basic financial statements (pages 2-3). This annual report is prepared in accordance with the Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for States and Local Governments. The Single Governmental Program for Special Purpose Governments reporting model is used which best represents the activities of the District. The required financial statements include the Combined Government-wide and Fund Financial statements; Statement of Net Assets and Governmental Funds Balance Sheet; Statement of Activities and Governmental Fund Statement of Revenues, Expenditures and Changes in Fund Balances; and the Statement of Revenues, Expenditures and Changes in Fund Balances-Budget and Actual-General Fund. These statements are supported by notes to the financial statements. All sections must be considered together to obtain a complete understanding of the financial picture of the District. The Basic Financial Statements The Basic Financial Statements comprise the Combined Government-wide Financial Statements and the Fund Financial Statements; these two sets of financial statements provide two different views of the District s financial activities and financial position. The Government-wide Financial Statements provide a longer-term view of the District s activities as a whole, and comprise the Statement of Net Assets and the Statement of Activities. The Statement of Net Assets provides information about the financial position of the District as a whole, including all of its capital assets and long-term liabilities on the full accrual basis, similar to that used by corporations. The Statement of Activities provides information about all of the District s revenues and all of its expenses, also on the full accrual basis, with the emphasis on measuring net revenues or expenses of the District s programs. The Statement of Activities explains in detail the change in Net Assets for the year. All of the District s activities are grouped into Government Activities, as explained below. The Fund Financial Statements report the District s operations in more detail than the Government-wide statements and focus primarily on the short-term activities of the District s General Fund and other Major Funds. The Fund Financial Statements measure only current revenues and expenditures and fund balances; they exclude capital assets, long-term debt and other long-term amounts. Major Funds account for the major financial activities of the District and are presented individually. Major Funds are explained below. 2
Moraga-Orinda Fire Protection District MANAGEMENT S DISCUSSION AND ANALYSIS The Government-wide Financial Statements Government-wide financial statements are prepared on the accrual basis, which means they measure the flow of all economic resources of the District as a whole. The Statement of Net Assets and the Statement of Activities present information about the following: Governmental Activities The District s basic services are considered to be governmental activities. These services are supported by general District revenues such as taxes, and by specific program revenues such as user fees and charges. Fund Financial Statements The Fund Financial Statements provide detailed information about each of the District s most significant funds, called Major Funds. The concept of Major Funds, and the determination of which are Major Funds, was established by GASB Statement No. 34 and replaces the concept of combining like funds and presenting them in total. Instead, each Major Fund is presented individually; the District has no Non-major Funds. Major Funds present the major activities of the District for the year, and may change from year to year as a result of changes in the pattern of the District s activities. In the District s case, the Capital Projects Fund is the only Major Governmental Fund in addition to the General Fund. Governmental Fund Financial Statements are prepared on the modified accrual basis, which means they measure only current financial resources and uses. Capital assets and other long-lived assets, along with long-term liabilities, are not presented in the Governmental Fund Financial Statements. Comparisons of Budget and Actual financial information are presented for the General Fund. Analyses of Major Funds Governmental Funds General Fund revenues declined $302,386 this fiscal year due primarily to a decrease in secured, supplemental and prior secured property taxes. (For the past two years the District has been required to contribute $142,000 total - apportioned over two years - as part of a property tax rebate to the Chevron Refinery in Richmond. This was due to a property tax appeals ruling regarding the Chevron Refinery property stating it was overvalued by the Contra Costa County assessor and that Chevron overpaid property taxes in years 2004-2006. The amount for the 2011/12 fiscal year was $92,765 and this amount was debited from the prior secured property tax account.) Total revenues were more than budgeted amounts by $138,342. Property taxes were $24,665 less than the budgeted total assessed valuations. Investment earnings were lower than budget by $853, reflecting the current market interest rate climate. Budgeted ambulance service fees were anticipated to increase by approximately 3%, however, the anticipated increase did not occur: ambulance service fees were $42,531 less than budgeted. On a slightly positive note, bad debt write-off accounts decreased from the previous year by $18,856. (Bad debt write-off accounts are sent to a collection agency for further follow-up and collection efforts.) 3
Moraga-Orinda Fire Protection District MANAGEMENT S DISCUSSION AND ANALYSIS Strike Team recovery compensation this fiscal year totaled $56,025. Other revenue increased by $219,378 due to the following: an insurance reimbursement totaling $200,309 for legal fees and $19,070 for sale of surplus property. General Fund expenditures were $18,243,045 this year, a decrease of $16,148 from the prior fiscal year. Salaries and benefits were up $128,609 primarily because of a 36.4% increase in retirement contributions and a $114,404, or 5.1%, increase in the Pension Obligation Bond principal and interest payments. Program expenses were down by $258,699 largely due to a decrease in legal and actuarial services, property and liability insurance premium reduction, reduced training costs and fewer central garage repairs. Total expenditures were $38,328 less than budgeted. Governmental Activities Governmental Activities 2012 2011 Cash and Investments $ 6,567,574 $ 6,832,290 Other assets 26,337,624 27,232,238 Capital assets 9,081,906 8,348,722 Total assets 41,987,104 42,413,250 Long term debt outstanding 29,999,735 29,803,803 Other liabilities 1,575,254 1,684,859 Total liabilities 31,574,989 31,488,662 Invested in capital assets, net of debt 9,081,906 8,348,722 Restricted - 159,361 Unrestricted 1,330,209 2,416,505 Total net assets $ 10,412,115 $ 10,924,588 The District s governmental net assets amounted to $10,412,115 as of, a decrease of $512,473 from 2011. This decrease is the Change in Net Assets reflected in the Governmental Activities column of the Statement of Activities. The District s net assets as of were comprised of the following: Cash and investments of $6,567,574. Substantially all of these amounts were held in short term investments in government securities, as detailed in Note 4 of the financial statements. Current Receivables of $763,914 as explained in Note 11 of the financial statements. Prepaid items of $25,573,710 as explained in Note 15 of the financial statements. Capital assets of $9,081,906, net of accumulated depreciation, which includes all the District s capital assets used in governmental activities. 4
Moraga-Orinda Fire Protection District MANAGEMENT S DISCUSSION AND ANALYSIS Current liabilities, including accounts payable, claims and other amounts due currently, totaling $1,575,254. Accrued compensated absence liabilities payable to employees of $539,672 as detailed in Note 1 and Note 6. Unrestricted net assets, the part of net assets that can be used to finance day-to day operations without constraints established by debt covenants or other legal requirements or restrictions. The District has $1,330,209 of unrestricted net assets as of. The Statement of Activities presents program revenues and expenses and general revenues in detail. All of these are elements in the Changes in Governmental Net Assets are summarized below. 2012 2011 Expenses Fire protection operations $ 17,298,393 $ 17,095,060 OPEB benefits 1,262,063 1,188,000 Capital outlay - 104,099 Principal - - Interest 1,289,602 1,351,267 Total expenses 19,850,058 19,738,426 Revenues Program revenues: Charges for services 1,242,317 1,395,534 Total program revenues 1,242,317 1,395,534 General revenues: Taxes 17,592,571 17,950,245 Use of money and property 3,252 4,463 State and federal grants 280,069 149,845 Other Revenue 219,379 118,019 Total general revenues 18,095,271 18,222,572 Total revenues 19,337,588 19,618,106 Change in net assets $ (512,470) $ (120,320) 5
Moraga-Orinda Fire Protection District MANAGEMENT S DISCUSSION AND ANALYSIS Table 2 As the Sources of Revenue Chart and Table 2 above shows, $17,595,823 or 91% of the District s fiscal year 2011/12 governmental revenue came from general revenues such as taxes and interest. $1,242,317, or 6%, came from program revenues. State and federal grant revenue of $280,069, or 1%, was comprised of federal grants for the following items: $228,577 for a mobile training tower, $26,998 for two Lucas CPR devices and $24,494 for seven Rad 57 CO-Oximeters. Other Revenue of $219,379, also 1%, included an insurance reimbursement totaling $200,309 for legal fees and $19,070 for sale of surplus property. Program revenues of $1,242,317 were comprised of charges for services, which include ambulance service charges, weed abatement assessments, plan review fees, CPR and first-aide public education class fees, fire cost recovery fees, strike team recovery and reimbursement for a shared Emergency Preparedness Coordinator. General revenues are not allocable to programs. General revenues are used to pay for the net cost of governmental programs. Capital Projects Fund This fund accounts for the Fire Flow Tax proceeds and related expenditures. The Fire Flow Tax Ordinance stipulates that the revenues raised by this tax are to be used solely for the purpose of obtaining, furnishing, operating, and maintaining fire protection, prevention and suppression and emergency medical equipment, apparatus or facilities, including water distribution facilities for fire suppression purposes. This fund accounts for District capital asset purchases as well as miscellaneous tax collection fees. This fund also includes approved capital lease equipment purchase payments. The Fund s fiscal year-end fund balance of $3,041,382 represents tax revenues that have not been utilized thus far. 6
Moraga-Orinda Fire Protection District MANAGEMENT S DISCUSSION AND ANALYSIS Capital Assets As of, the District s investment in capital assets totaled $9,081,906, which is an increase of $733,184 over the capital asset balance of $8,348,722 at June 30, 2011. Capital assets include the District s entire major infrastructure incorporating land, fire stations and buildings, apparatus, vehicles, firefighting equipment and furniture exceeding the capitalization policy limit of $5,000, net of depreciation. For the next fiscal year, the District intends to continue the reconstruction of Fire Station 43, begin remodeling Station 41 and purchase approved equipment and apparatus as detailed in the 2012/13 Capital Projects Fund final budget. Debt Administration In October, 2005, the District issued bonds of $28,435,000 to finance the payment of the unfunded actuarial accrued pension liability. The District did not utilize long-term debt until its issuance of a Pension Obligation Fund on October 6, 2005. The bond has an average life of 11.38 years and is scheduled to be paid off on June 30, 2023. The average coupon rate is 5.22%, which is substantially less than the 7.9% the District would have been charged by CCCERA. The detail is discussed in Note 6 to the basic financial statements. Economic Outlook and Major Initiatives District financial planning is based on specific assumptions from recent trends in real property values, new residential development, State of California economic forecasts and historical growth patterns in the various communities served by the District. The economic condition of the District as it appears on the balance sheet reflects financial stability; however, recent downturns in the economy will play a major role in the future. Nearly all real estate in California is assessed under the terms of Proposition 13, the 1978 ballot initiative that requires real property to be taxed on the basis of its fair market value as of the most recent change in ownership. Under Proposition 13, once the base year value is established, it must be adjusted in subsequent years by an inflation factor, (the California Consumer Price Index). However, under the terms of Proposition 13, any increases resulting from these annual adjustments are capped at two percent per year. 7
Moraga-Orinda Fire Protection District MANAGEMENT S DISCUSSION AND ANALYSIS For the first time since the passage of Proposition 13, the 2009/10 California Consumer Price Index, (CCPI), was -.237%. Although most areas of Contra Costa County have experienced severe declines in property values over the last couple of years, property values in Orinda and Moraga were less affected by the drop in the economy. However, with the 2009/10 negative CCPI and continued weak economy the Moraga-Orinda Fire District tax rate base for fiscal year 2010/11 declined -.87% from 2009/10. The decline continued in 2011/12 with a -1.8% reduction in assessed property tax values. (While Moraga s secured property tax revenues increased by one half of one percent, the Orinda secured property tax revenues decreased by three percent which equated to a total secured property tax revenue decrease of 1.80 percent.) In Orinda, there were a number of properties that received reductions of in excess of $5 million between tax years; while in Moraga, there were a few reductions in excess of $2 million, but the positive adjustments more than made up for the largest negative reductions. That was not the case in Orinda. Also, in Moraga, the year to year change in value by use type showed growth in all use types except for miscellaneous and recreational, while in Orinda the majority of the property uses experienced declines and in the case of the vacant properties the decline was 20% and commercial properties declined 10.2% in value. This combined with lower than expected supplemental property taxes contributed to an overall decrease of $357,468 in District property tax revenues for fiscal year 2011/12. For the 2012/13 fiscal year, the tax assessor s roll shows that while most of the cities in Contra Costa County are still showing a decline in assessed property tax values, Moraga and particularly Orinda have seen some stabilization in home prices so the free fall seems to have come to an end. The City of Orinda showed a 1.05% increase in property tax values and Moraga a.87% increase. This equates to a.4% increase for the Moraga-Orinda Fire District. On October 14, 2009, the Contra Costa County Employee Retirement Association s, (CCCERA), Board of Directors voted to depool CCCERA s assets, liabilities and normal cost by employer when determining employer contribution rates. The Board action included a retroactive application of depooling back to December 31, 2002. This retroactive application did not involve recalculation of any employer rates prior to December 31, 2009. However, it did involve reflecting the separate experience of the employers in each individual employer cost group, (cost group is defined by benefit structure), from December 31, 2002 through December 31, 2009. The unprecedented losses in the stock market in 2008/09 coupled with the depooling action will contribute to significantly higher employer pension contribution costs over the next couple of years. On August 31, 2012, the California Legislature passed a pension reform bill, AB 340, which will make substantial changes to pension benefits for new members hired after January 1, 2013, as well as some changes that will affect current employees. AB 340 enacts the California Public Employee s Pension Reform Act of 2013, (PEPRA), and will also amend various sections of the Education and Government Codes, including the County Employees Retirement Law of 1937 (37 Act). For the most part, savings from AB 340 will come far in the future, as the majority of the changes apply only to newly-hired employees and will therefore have little effect on the Districts current unfunded pension liability. The new law was enacted in a last minute manner after lengthy discussions between the governor and the legislature and was ambiguously drafted. This will undoubtedly lead to significant litigation over the meaning of various provisions. In addition, the complex issue of vesting rights has also been raised and there will most likely be legal challenges regarding these issues as well. The Governor s office has suggested there will be clean-up legislation next year. 8
Moraga-Orinda Fire Protection District MANAGEMENT S DISCUSSION AND ANALYSIS Looking ahead, it is very difficult to accurately forecast just when the economy will recover. The District is encouraged by the stabilization of home values and future development throughout its boundaries, especially in the Wilder and Palos Colorados areas. Until then, the District will continue to exercise financial prudence and focus on continued cost cutting measures balancing the District s operational and capital needs with the District s long-term financial stability. In summary, the District remains committed to providing the highest level of emergency and public service in response to the needs of our community within its financial constraints. Financial Contact This Annual Financial Report is intended to provide citizens, taxpayers, and creditors with a general overview of Moraga-Orinda Fire Protection District s finances. Questions about this Report should be directed to the Fire Chief or the Administrative Services Director, at 33 Orinda Way, Orinda, CA 94563 or by calling (925) 258-4530. 9
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BASIC FINANCIAL STATEMENTS
MORAGA-ORINDA FIRE PROTECTION DISTRICT BALANCE SHEET GOVERNMENTAL FUND Capital General Projects 2012 Adjustments Statement of Fund Fund Total (Note 2) Net Position ASSETS Cash and investments $ 3,489,195 $ 3,078,379 $ 6,567,574 $ - $ 6,567,574 Taxes receivable 95,731-95,731-95,731 Other receivables 666,339 1,844 668,183-668,183 Prepaid items 101,742-101,742 25,471,968 25,573,710 Capital assets, net of accumulated depreciation - - - 9,081,906 9,081,906 Total assets $ 4,353,007 $ 3,080,223 $ 7,433,230 $ 34,553,874 $ 41,987,104 LIABILITIES AND FUND BALANCE Accounts payable 138,006 38,841 176,847-176,847 Salaries and benefits payable 753,606-753,606-753,606 Accrued interest - - - 644,801 644,801 Long-term liabilities: OPEB payable (note 13) - - - 4,755,063 4,755,063 Due within one year - - - 1,445,869 1,445,869 Due in more than one year - - - 23,798,803 23,798,803 Total liabilities 891,612 38,841 930,453 30,644,536 31,574,989 FUND BALANCES / NET POSITION Fund balances: Nonspendable 101,742-101,742 (101,742) - Restricted - - - - - Committed - - - - - Assigned - 2,959,234 2,959,234 (2,959,234) - Unassigned 3,359,653 82,148 3,441,801 (3,441,801) - Total fund equity 3,461,395 3,041,382 6,502,777 (6,502,777) - Total liabilities and fund equity $ 4,353,007 $ 3,080,223 $ 7,433,230 Net position: Invested in capital assets 9,081,906 9,081,906 Restricted - - Unrestricted 1,330,209 1,330,209 Total net assets $ 10,412,115 $ 10,412,115 The accompanying notes are an integral part of the financial statements 10
MORAGA-ORINDA FIRE PROTECTION DISTRICT STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUND For the Fiscal Year Ended Capital General Projects 2012 Adjustments Statement of Fund Fund Total (Note 3) Activities Expenditures / expenses Fire Protection - operations $ 15,870,908 $ 57,802 $ 15,928,710 $ 1,369,683 $ 17,298,393 OPEB benefits - - - 1,262,063 1,262,063 Capital outlay - 1,241,129 1,241,129 (1,241,129) - Debt service: Principal 1,055,000-1,055,000 (1,055,000) - Interest 1,317,137-1,317,137 (27,535) 1,289,602 Total expenditures/expenses: 18,243,045 1,298,931 19,541,976 308,082 19,850,058 Program revenues Charges for services 1,242,317-1,242,317-1,242,317 Net program expense 18,607,741 General revenues Property taxes 16,524,808-16,524,808-16,524,808 Fire flow taxes - 1,067,763 1,067,763-1,067,763 Investment earnings 647 2,605 3,252-3,252 State and federal grants - 280,069 280,069 280,069 Other revenues 219,379-219,379-219,379 Total general revenues 16,744,834 1,350,437 18,095,271-18,095,271 Excess (deficiency) of revenues over (under) expenditures (255,894) 51,506 (204,388) (308,082) (512,470) Other financing sources (uses) Transfers in - 461 461-461 Transfers out (461) - (461) - (461) Total other financing sources (uses) (461) 461 - - - Excess (deficiency) of revenues and other sources over (under) expenditures and other uses (256,355) 51,967 (204,388) 204,388 - Changes in net position - - - (512,470) (512,470) Fund Balance at beginning of period 3,717,750 2,989,415 6,707,165 4,217,420 10,924,585 Fund Balance at end of period $ 3,461,395 $ 3,041,382 $ 6,502,777 $ 3,909,338 $ 10,412,115 The accompanying notes are an integral part of the financial statements 11
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NOTES TO BASIC FINANCIAL STATEMENTS
MORAGA-ORINDA FIRE PROTECTION DISTRICT Notes to the Basic Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of the Reporting Entity The Moraga-Orinda Fire District (the District) was formed in 1997 from the consolidation of the Moraga Fire Protection District and the Orinda Fire Protection District. A five-member board, elected by voters, governs the District. The District furnishes fire protection, prevention, paramedic, rescue, and other emergency services to an area of approximately sixty-three square miles, including the Town of Moraga, the City of Orinda, and certain unincorporated areas of Contra Costa County. The District employs a full time staff of one Chief, three Battalion Chiefs, one Assistant Fire Marshal, sixteen Captains, sixteen Engineers, and thirty-one full time Fire Fighters. These employees are assisted by Reserves. Additionally, there are five administrative staff employed by the District: an Administrative Services Director, one Administrative Secretary, one Payroll Technician, one Accountant, and a Telecommunications Electronics Specialist Technician. The District currently maintains five fire stations, three in Orinda and two in Moraga. Basis of Presentation The District s basic financial statements are prepared in conformity with U.S. generally accepted accounting principles. The Governmental Accounting Standards Board (GASB) is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the U.S.A. The District has chosen to present its financial statements using the reporting model for special purpose governments engaged in a single government program. This model allows the fund financial statements and the government-wide statements to be combined using a columnar format that reconciles the individual line items of fund financial data to the government-wide data in a separate column on the face of the financial statements rather than at the bottom of the statements or in an accompanying schedule. Government-wide Financial Statements The District s financial statements reflect only its own activities; there are no component units (other government units overseen by the District). The statement of net assets and statement of activities display information about the reporting government as a whole. They include all funds of the reporting entity. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange revenues. 12
MORAGA-ORINDA FIRE PROTECTION DISTRICT Notes to the Basic Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Fund Financial Statements Fund financial statements of the reporting entity are organized into funds, each of which is considered to be a separate accounting entity. General fund operations are accounted for with a separate set of selfbalancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures (or expenses) as appropriate. The District s resources are accounted for based on the purposes for which they are to be spent and the means by which spending activities are controlled. An emphasis is placed on major funds within the governmental categories. A fund is considered major if it is the primary operation fund of the District or meets the following criteria: Total assets, liabilities, revenues or expenditures of the individual governmental fund are at least 10 percent of the corresponding total for all funds of that category or type. The District has determined that all of its funds are major funds. Governmental Funds General Fund The General Fund is the main operating fund of the District. It is used to account for all financial resources. The major revenue sources for this fund are property taxes and interest income. Expenditures are made for public safety and firefighters salaries and benefits. Capital Projects Fund Capital Projects Funds are used to account for the proceeds of specific revenue sources that are board restricted or committed for certain purposes. Fund Balance Reporting Under GASB Statement No. 54, Fund Balances for governmental funds are reported in classifications that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. The Board of Directors, as the highest level of decision-making authority of the District, commits fund balances through resolutions. The Board has designated certain members of management staff to assign fund balances. These captions apply only to Fund Balance classifications: Nonspendable fund balance are those amounts that cannot be spent because they are either not in spendable form, or are legally or contractually required to be maintained intact. 13
MORAGA-ORINDA FIRE PROTECTION DISTRICT Notes to the Basic Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Restricted fund balances are those amounts that should be reported as restricted when constraints placed on the use of resources are either externally imposed by creditors, grantors, contributors, or laws and regulations of other governments; or imposed by law through constitutional provisions or enabling legislation. Committed fund balances are those amounts that cannot be used for any other purpose unless the government removes or changes the specified use by taking the same type of action it employed to previously commit those amounts. Assigned fund balances are those amounts that are constrained by the government s intent to be used for specific purposes, but are neither restricted nor committed, except for stabilization arrangements. Unassigned fund balances are those residual funds that have not been assigned to other funds, are nonspendable, restricted, committed, or assigned to specific purposes. The general fund should be the only fund that reports a positive unassigned fund balance amount. It is the policy of the District to spend funds in order from restricted to unassigned, as listed above. Net Assets Net Assets is the excess of all the District s assets over all its liabilities, regardless of fund. Net Assets are divided into three captions under GASB Statement No. 34. These captions apply only to Net Assets, which is determined only at the government-wide level, and are described below: Invested in Capital, net of related debt describes the portion of Net Assets that is represented by the current net book value of the District s capital assets, less the outstanding balance of any debt issued to finance these assets Restricted describes the portion of Net Assets that is restricted as to use by the terms and conditions of agreements with outside parties, governmental regulation, laws, or other restrictions which the District cannot unilaterally alter. These principally include developer fees received for use on capital projects, debt service requirements, and redevelopment funds restricted to low and moderate income purposes. Unrestricted describes the portion of Net Assets that is not restricted to use. 14
MORAGA-ORINDA FIRE PROTECTION DISTRICT Notes to the Basic Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of Accounting The government-wide financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time of liabilities are incurred, regardless of when the related cash flows take place. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The District considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after fiscal year-end. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on long-term debt and claims and judgments, which are recognized as expenditures to the extent that have matured. Capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of long-term debt and acquisitions under capital leases are reported as other financing sources. Those revenues susceptible to accrual are property, certain charges for services, and interest revenue. Charges for services are not susceptible to accrual because they are not measurable until received in cash. Non-exchange transactions, in which the District gives or receives value without directly receiving or giving equal value in exchange, include grants, entitlements, and donations. On the accrual basis, revenue from taxes is recognized in the fiscal year for which the taxes are levied or assessed. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The District may fund programs with a combination of cost-reimbursement grants, categorical block grants, and general revenues. Program revenues include charges to customers or applicants for goods, services, privileges provided, operating grants, capital grants and contributions. Thus, both restricted and unrestricted net assets may be available to finance program expenditures. The District s policy is to first apply restricted grant resources to such programs, followed by general revenues, if necessary. Budgets and Budgetary Accounting The Board of Directors adopts a preliminary budget prior to July 1 st September 30 th of each year. and a final budget prior to Formal budgetary integration is employed as a management control device during the year for all funds. Budgets are adopted on a basis consistent with U.S. generally accepted accounting principles. Budget to actual comparisons in the report use this budgetary basis. These budgeted amounts are as originally adopted or as amended by the District Board. Individual amendments were not material in relation to the original appropriations that were amended. 15
MORAGA-ORINDA FIRE PROTECTION DISTRICT Notes to the Basic Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Property Taxes The County of Contra Costa is responsible for assessing, collecting and apportioning property taxes for the District. Taxes are levied for each fiscal year on taxable real and personal property situated in the District. The levy is based on the assessed values as of the preceding January 1 st, which is also the lien date. State code requires tax rates to be set no later than the first workday in September unless the County of Contra Costa Board of Supervisors elects to extend the deadline to October 3 rd. Property taxes on the second roll are due in two installments: November 1 st and February 1 st, and become delinquent after December 10 th and April 10 th, respectively. Supplemental property taxes are levied based on changes in assessed values between the date of real property sales or construction completion and the preceding assessment date. The additional supplemental property taxes are prorated from the first day of the month following the date of such occurrence. Property taxes on the unsecured roll are due on the lien date (January 1 st ), and become delinquent if unpaid by August 31 st. Fire flow taxes represent a special tax collected by the District since its inception. These taxes are collected in each service zone ($534,740 from the Moraga service zone and $533,023 for the Orinda service zone) for the benefit of the communities served by the District. Accumulated Compensated Absences Compensated absences are comprised of unpaid vacation and specified sick leave, which is accrued as earned. The liability for compensated absences is determined annually. The general fund has been used to liquidate compensated absences. Estimates Balance at 6/30/11 Additions (Reductions) Balance at 6/30/12 Estimated Current Portion $ 550,804 $ (11,132) $ 539,672 $ 215,869 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimated and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 16
MORAGA-ORINDA FIRE PROTECTION DISTRICT Notes to the Basic Financial Statements 2. RECONCILATION OF GOVERNMENTAL FUNDS BALANCE SHEET WITH THE STATEMENT OF NET POSITION Reconciling adjustments are as follows: Capital assets used in governmental activities are not current assets or financial resources and therefore are not reported in the government funds $ 9,081,906 Prepaid pension item, net of accumulated amortization 25,471,968 The liabilities below are not due and payable in the current period, and therefore, are not reported in the funds: Long-term debt (24,705,000) OPEB payable (4,755,063) Accrued interest (644,801) Compensated absences (539,672) Total fund balances governmental funds 6,502,777 Net position of governmental activities (page 10) $ 10,412,115 3. RECONCILIATION OF GOVERNMENTAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES WITH THE STATEMENT OF ACTIVITIES Reconciling adjustments are as follows: Net change in fund balance total governmental funds $ (204,388) Principal payment expenditure reclassified from governmental fund to reduction in long term debt on Statement of Net Position 1,055,000 Amortization of prepaid pension bond (872,869) Depreciation expense is deducted from the fund balance (507,946) OPEB benefit cost (1,262,063) Change in long term compensated absences 11,132 Change in accrued interest 27,535 Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is capitalized and allocated over their estimated useful lives and reported as depreciation expense. The capital outlay expenditures are therefore added back to fund balance. 1,241,129 Change in Net Position of Governmental activities (page 11) $ (512,470) 17
4. CASH AND INVESTMENTS Summary of Investments MORAGA-ORINDA FIRE PROTECTION DISTRICT Notes to the Basic Financial Statements Investments as of, are classified in the accompanying financial statements as follows: Cash with County $ 934,180 Demand deposit accounts 515,096 Cash and investments with fiscal agent 2,384,441 Pooled investments LAIF 2,733,857 $ 6,567,574 Authorized Investments Under provision of the District s Investment Policy, and in accordance with Section 53601 of the California Government Code, the District may invest in the following types of investments: Securities of the U.S. Government, or its agencies Negotiable Certificates of Deposits Local Agency Investment Fund (State Pool) Deposits Investments Authorized by Debt Agreements Investments of bond proceeds, held by bond trustees, are governed by the provisions of the debt agreements, rather than the general provisions for the California Government Code or the District s investment policy. Concentration of Credit Risk During the current fiscal year, the District invested in demand deposit accounts, and the State Investment Pool, which are permitted by the California Government Code or District Investment Policy. Investments in County Treasury The District is a participant in an external investment pool. The fair value of the District s investment in the pool is reported in the accounting financial statements at amounts based upon the District s pro-rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized cost basis. Investment in the State Pool The District is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by California government code Section 16429 under the oversight of the Treasurer of the State of California. The fair value of the District s investment in the pool is reported in the accompanying financial statement at amounts based upon the District 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). 18
MORAGA-ORINDA FIRE PROTECTION DISTRICT Notes to the Basic Financial Statements 4. CASH AND INVESTMENTS (continued) Concentration of Credit Risk (continued) The balance available for withdrawal is based on the accounting records maintained by LAIF, which is recorded on the amortized cost basis. Furthermore, the County Treasurer has a written investment policy, approved by the Board of Supervisors, which is more restrictive than state code as to terms of maturity and type of investment. Also, the County of Contra Costa has an investment committee, which performs regulatory oversight for its pool as required by California Government Code Section 27134. The County s investment policy authorizes the County to invest in obligations of the U.S. Treasury, its agencies and instrumentalities, certificates of deposit, commercial paper rated A-1 by Standard & Poor s Corporation, or P-1 by Moody s Commercial Paper Record, bankers acceptances, repurchase agreements, and the State Treasurer s investment pool. Custodial Credit Risk Deposits In the case of deposits, this is the risk that in the event of a bank failure, the District s deposits may not be returned to it. California Government Code requires that a financial institution secure deposits by pledging securities in an undivided collateral pool held by a depository regulated under state law. The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. The District s policy, as well as California law, allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits and letters of credit used by the Federal Home Loan Bank of San Francisco having a value of 105% of the secured deposits. As of the District s Citibank and Wells Fargo balances totaling $919,097 (before reduction for outstanding checks and additions for deposits in transit) were covered by federal depository insurance or by collateral held in an undivided collateral pool, as described above. In November of 2010, the FDIC issued a final rule implementing Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provides unlimited insurance coverage on non-interest bearing transaction accounts. At, the District held $934,180 with the County of Contra Costa. 19
MORAGA-ORINDA FIRE PROTECTION DISTRICT Notes to the Basic Financial Statements 4. CASH AND INVESTMENTS (continued) Custodial Credit Risk Investments Custodial credit risk for investments is the risk that, in the event of the failure of a counterparty, the District will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The California Government Code does not contain legal or policy requirements that would limit the exposure to custodial credit risk. The District s investment policy is to use the services of the Treasurer s Office of the County of Contra Costa, which will transact the District s investment decisions in compliance with the requirements of the District s policy. The County Treasurer s Office will execute the District s investments through such brokers, dealers, and financial institutions as are approved by the County Treasurer, and through the State Treasurer s Office for investment in the Local Agency Investment Fund. Disclosures relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the District manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the District s investments to market interest rate fluctuations is provided by the following table that shows the distribution of the District s investments by maturity: Remaining Maturity (in Months) Investment Type Held by Fiscal Agent: Fair Value Amount 12 Months or Less 13 24 Months 25 60 Months More Than 60 Months Money Market Accounts 2,377,847 2,377,847 Total $ 2,377,847 $ 2,377,847 $ - $ - $ - 20
MORAGA-ORINDA FIRE PROTECTION DISTRICT Notes to the Basic Financial Statements 4. CASH AND INVESTMENTS (continued) Disclosures Relating to Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the District s investment policy, or debt agreements, and the actual rating as of fiscal year end for each investment type. Rating as of Fiscal Year End Investment Type Not Required to Fair Value be Rated AAA AA A Not Rated Cash $ 521,690 $ 521,690 $ - $ - $ - $ - Local Agency Investment Fund 2,733,857 - - - - 2,733,857 County of Contra Costa 934,180 - - - - 934,180 Money Markets 2,377,847 - - - - 2,377,847 Total $ 6,567,574 $ 521,690 $ - $ - $ - $ 6,045,884 5. CAPITAL ASSETS All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Contributed capital assets are valued at their estimated fair value on the date contributed. Capital assets activity for the fiscal year ended, was as follows: Balance Balance At Cost July 1, 2011 Increases Decreases Capital assets not being depreciated Construction in progress $ 68,433 $ 289,274 $ - $ 357,707 Land $ 502,000 $ - $ - $ 502,000 Capital assets being depreciated Structures and improvements 7,084,211 - - 7,084,211 Equipment 6,355,521 951,856-7,307,377 Total capital assets, being depreciated 13,439,732 951,856-14,391,588 Less accumulated depreciation (5,661,443) (507,946) - (6,169,389) Total capital assets being depreciated, net 7,778,289 443,910-8,222,199 Capital assets, net $ 8,348,722 $ 733,184 $ - $ 9,081,906 21
5. CAPITAL ASSETS (continued) MORAGA-ORINDA FIRE PROTECTION DISTRICT Notes to the Basic Financial Statements GASB Statement No. 34 requires that all capital assets with limited useful lives be depreciated over their estimated useful lives. The purpose of depreciation is to spread the cost of capital assets equitably among all users over the life of these assets. The amount charged to depreciation expense each year represents that year s pro-rata share of the cost of capital assets. Depreciation is provided using the straight-line method in the governmental column in the governmentwide financial statements. Depreciation is charged as an expense against operations and accumulated depreciation is reported on the statement of net assets. The estimated useful lives are as follows: Buildings Apparatus 30 years 10 25 years Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. Capital assets with a value of $5,000 or more and with a useful life of one year or more are capitalized. 6. LONG TERM DEBT Pension Obligation Bonds The District issued Pension Obligation Bonds in the original principal amount of $28,435,000 on October 6, 2005. The bonds bear a fixed interest rate of 5.220%. Principal amounts are payable annually on July 1 and interest payments are due semi-annually July 1 and January 1, through July 1, 2022. A summary of general long-term debt transactions for the fiscal year ended, follows: Original Issue Balance June 30, 2011 Additions Retirements Balance Current Portion Accrued compensation N/A $ 550,804 $ - $ 11,132 $ 539,672 $ 215,869 Pension Obligation Bonds 28,435,000 25,760,000-1,055,000 24,705,000 1,230,000 $ 28,435,000 $ 26,310,804 - $ 1,066,132 $ 25,244,672 $1,445,869 22
6. LONG TERM DEBT (continued) MORAGA-ORINDA FIRE PROTECTION DISTRICT Notes to the Basic Financial Statements The following is the debt service obligation related to Pension Obligation Bonds issued in 2005: Year Ending June 30 Pension Obligation Bonds Principal Interest Total 2013 $ 1,230,000 $ 1,257,498 $ 2,487,498 2014 1,425,000 1,188,203 2,613,203 2015 1,630,000 1,108,467 2,738,467 2016 1,855,000 1,017,509 2,872,509 2017 2,100,000 914,283 3,014,283 2018-2022 14,820,000 2,524,480 17,344,480 2023 1,645,000 42,934 1,687,934 Total $ 24,705,000 $ 8,053,374 $ 32,758,374 7. PENSION PLAN Substantially all qualified permanent and probationary District employees are eligible to participate in pension plans offered by Contra Costa County Employee Retirement Association (CCCERA), a cost sharing multiple employer defined benefit pension plan (the Plan), which acts as a common investment and administrative agent for its participating member employers. CCCERA provides retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefit provisions under the Plan are established by State statute and County resolution. Benefits are based on years of credited service, equal to one year of full time employment. Funding contributions for the Plan are determined annually on an actuarial basis. CCCERA s fiscal year end is December 31, so funding contribution rates for the District do not go into effect until 18 months after the valuation date. Based on the December 31, 2009 valuation by CCCERA, the District must contribute these amounts. The Plans provisions and benefits in effect at July 1, 2011, are summarized as follows: Benefit vesting schedule 5 year service Benefit payments Monthly for life Retirement age Varies Required employee contribution rates Variable Required employer contribution rates (Safety) 23.16% Required employer contribution rates (General Tier I) 16.89% Cost of living adjustment (Safety) 14.56% Cost of living adjustment (General Tier I) 6.10% 23