The URL can be used to link to this page

Financial Report 06-30-2005 CITY OF CUPERTINO, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2005 PREPARED BY: CITY OF CUPERTINO FINANCE DEPARTMENT CAROL A. ATWOOD DIRECTOR OF ADMINISTRATIVE SERVICES NOTES INTRODUCTORY SECTION CITY OF CUPERTINO, CALIFORNIA Comprehensive Annual Financial Report For the Year Ended June 30, 2005 Table of Contents Page INTRODUCTORY SECTION Table of Contents . Letter of Transmittal . Organization Chart Commissions and Committees . City Council and Directory of City Officials. . . . . Certificate of Award for Excellence in Financial Reporting. I IV XIV xv XVI XVII FINANCIAL SECTION Independent Auditor's Report on Basic Financial Statements Management's Discussion and Analysis Basic Financial Statements: 3 4 Government-wide Financial Statements: Statement of Activities 20 21 Statement of Net Assets Fund Financial Statements: Major Governmental Funds: Balance Sheet . 23 Reconciliation of the Governmental Funds - Balance Sheet with the Statement of Net Assets . 24 Statement of Revenues, Expenditures, and Changes in Fund Balance 25 Reconciliation of the Net Change in Fund Balances Total Governmental Funds with the Statement of Activities 26 Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual: General Fund . 27 Major Proprietary Funds: Statement of Net Assets 29 Statement of Revenue, Expenses, and Changes in Fund Net Assets. 30 Statement of Cash Flows . 31 CITY OF CUPERTINO, CALIFORNIA Comprehensive Annual Financial Report For the Year Ended June 30, 2005 Table of Contents Page FINANCIAL SECTION (Continued) Fiduciary Funds: Statement of Fiduciary Net Assets 33 35 Notes to Basic Financial Statements Supplemental Information: Major Governmental Funds Other Than the General Fund and Special Revenue Funds: Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual: Public Facilities Corporation Debt Service Fund. Non-major Governmental Funds: 62 Combining Balance Sheets 64 Combining Statements of Revenues, Expenditures, and Changes in Fund Balance. 66 Combining Schedule of Revenues, Expenditures, and Changes in Fund Balance- Budget and Actual 68 Internal Service Funds: Combining Statement of Net Assets 73 Combining Statements of Revenues, Expenses and Changes in Net Assets. 74 Combining Statements of Cash Flows 75 Fiduciary Funds: Combining Statement of Changes in Assets and Liabilities - All Agency Funds 77 ii CITY OF CUPERTINO, CALIFORNIA Comprehensive Annual Financial Report For the Year Ended June 30, 2005 Table of Contents Page STATISTICAL SECTION General Governmental Expenditures by Function - Last Ten Years (Table 1) 82 General Governmental Revenues by Source - Last Ten Years (Table 2) 84 Assessed and Estimated Actual Values of Taxable Property - Last Ten Years (Table 3) 85 Property Tax Rates - Direct and Overlapping Governments - Last Ten Years (Table 4) 86 Principal Taxpayers (Table 5) 87 Computation of Legal Debt Margin (Table 6) 88 Ratio of General Bonded Debt to Assessed Value and Bonded Debt Per Capita - Last Ten Years (Table 7) . 89 Ratio of Annual Debt Service Expenditures for General Bonded Debt to Total General Governmental Expenditures - Last Ten Years (Table 8) 90 Demographic Statistics - Last Ten Fiscal Years (Table 9) . 91 Property Values, Construction and Bank Deposits - Last Ten Years (Table 10). 92 Computation of Direct and Overlapping Bonded Debt (Table 11) 93 Community Profile 97 111 i~;~1 't'I\\ /, ---:::J ITV F CUPEIQ1NO December 1, 2005 To the Citizens of Cupertino, Honorable Mayor, Members of the City Council and City Manager It is our pleasure to submit the Comprehensive Annual Financial Report (CAFR) for the City of Cupertino (the City) for the fiscal year ended June 30, 2005. The Introductory Section includes 1) this transmittal letter, 2) an organizational chart, and 3) a list of principle officials. The Financial Section includes 1) the independent audit firm's report, 2) a narrative section referred to as Management's Discussion and Analysis (MD&A), 3) the basic financial statements and related notes, 4) required supplemental information, and 5) the combining financial statements for non-major funds. The Statistical Section includes several tables of unaudited data depicting the financial history of the City as well as miscellaneous statistics. The City's annual report is prepared in accordance with Accounting Principles Generally Accepted in the United States of America (GAAP) as promulgated by the Governmental Accounting Standards Board (GASB). The report presents City information on an entity-wide basis and on a more detailed fund level basis. The fund-level reports emphasize the City's major funds. The MD&A presents a comparative analysis of current and prior year results, changes in financial position, a comparison of actual versus budget, financial highlights, trends, and disclosure of any known significant events or decisions that affect the financial condition of the City. This transmittal letter is designed to complement the MD&A, and should therefore be read in conjunction with it. The MD&A is required supplementary information and is found in the Financial Section of the CAFR. The accuracy of the data presented and the completeness and fairness of the presentations, including all disclosures, are the responsibility of the management of the City. To provide a reasonable basis for making these representations, management has established a comprehensive internal control framework that is designed to protect the City's assets and provide sufficient, reliable information for the proper preparation of these financial statements. We believe the data is accurate in all material respects and is presented in a manner that fairly sets forth the City's financial position. Furthermore, we believe that all disclosures necessary to enable the reader to gain an understanding of the City's financial activity have been included. IV Printed on Recycled Paper REPORTING ENTITY This Comprehensive Annual Financial Report includes all component units, funds and account groups of the City. It reports all activities for which the City is considered to be financially accountable. The general governmental funds provide a full range of services, including planning, building, parks and recreation, public works, engineering, maintenance and general administrative activities. This financial report incorporates data for the City of Cupertino, the Cupertino Public Facilities Corporation and the Cupertino Redevelopment Agency. The City operates under a Council-City Manager form of government. There are five council members, including the Mayor, who serve four-year terms. The City Council appoints the City Manager who is responsible for the daily administration of the City affairs. The City Council also appoints the City Attorney and the City Treasurer. All other employees are appointed by the City Manager. FACTORS AFFECTING ECONOMIC CONDITIONS The City of Cupertino is located in Santa Clara County at the southern end of the San Francisco Bay Peninsula. The City is comprised of 11 square miles and is bordered by the cities of San Jose, Saratoga, Sunnyvale, Santa Clara and Los Altos. 'I';/i( (Ift'jlll -Fremont CUPERTINV Milpitas -Sunnyval. 'San J... Situated at the west end of Silicon Valley, Cupertino has earned the reputation of a balanced community with a healthy climate for business and well maintained residential neighborhoods, community parks and public facilities. The excellent reputation of Cupertino's schools has been a major attraction for families wishing to settle in close proximity to jobs in the Santa Clara Valley. The City recognizes the importance of quality school facilities and programs to all Cupertino residents, and works in partnership with the schools in many programs affecting education and youth. Cupertino is the world headquarters for major corporations such as Apple Computer, Portal Software and Syrnantec. Key divisions of Hewlett-Packard and Borland Software are also located in Cupertino. The City has eight large shopping centers including its own regional mall, Vallco Fashion Park, which is undergoing a massive renovation. v The July 2005 Employment Development Department monthly survey showed that the Bay Area added 26,600 jobs, led by the East Bay with 15,900 jobs and the South Bay with 900 jobs. The gains are widespread and strong enough in the region to indicate sustainability of this through 2005. Construction, finance and insurance, telecommunications, health care, private education and transportation have led the gains over the past year, with software, utilities and government employment still showing weakness. The long suffering manufacturing sector has even added jobs, especially in computers and electronics. A quarter of the job growth for the year has come from construction, mostly in the commercial sector, and the City saw related evidence of this with a doubling of building permit, planning and engineering monies coming to the City during fiscal 2004-05 for recent and current development projects. However a September 2005 Field Poll indicated growing consumer pessimism in California. Just 22 percent of registered voters in the State expected the economy to improve, down from 44 percent almost a year ago with 30 percent of voters expecting a worsening of the economy, up from 14 percent a year ago. Inflation and rising fuel prices worried survey respondents with nearly half of them concerned that inflation will become a problem, a level of concern not seen since 1992. Economists are concerned that high gasoline prices could cause higher shipping costs for retailers who would pass the costs onto consumers of food, clothing and household products. Nationwide consumer inflation rose significantly by 0.9 percent in September 2005, led by energy prices, following a 0.5 percent increase in August 2005. September consumer spending rose 0.5 percent from the previous month. Nationwide personal income increased 1.7 percent in September, the biggest rise since December 2004, fueled by insurance payments from hurricanes Katrina and Rita. The overall U.S. economy grew at an upbeat 3.8 annual percent for the quarter ending in September, however analysts believe that high energy prices and a reduction in auto sales due to the end of generous buying incentive programs, will cause the growth rate to slow down in the final three months of this calendar year. The housing market is showing some signs of coming off the torrid sales pace and price appreciation of recent years. The California Association of Realtors forecasts home sales in California to decline 2% in 2006, with median home prices statewide to increase 10% next year, which would be a falloff from the projected 16 percent increase of2005. This could affect future property taxes and household sales driven by a strong housing market. vi SALES TAX TREND Locally, sales taxes rose in 2004-05, breaking a three-year period of decline. Sales taxes rose nearly 7%, led by increases in the business-to-business and oft'ice equipment sector, which reached three-year highs in tax receipts. However, the general retail and transportation sectors endured three-year lows in sales taxes. As a result, sales tax has become more concentrated in the business-to-business at the expense of the general retail sector, with business-to-business (mostly office equipment) comprising almost 54% of the sales tax base. ,¥""""",_,,~,~,,~,_,_,",_~______.____________'___M'_'_'"_~'M___~~_~...__~.__.________",_____~~m____,,_____.~.~_____._.~___._____"___.___",,___,,__,__,m"'__'_',,.~....,,_~.) ¡' i , I ~ '" '8 $10,000 ..... .. '" '" ;:;, $8,000 ~.~~~ x: ¡:;: $6.000 if) ~ $4,000'" '" ,-".,-~~._._._._.-.._.-.~-.--------.--'--"""""~- 'm_._.__.___"__m"__w__"___m.__,M_._,__, I- I i i i ì ~~~~'~""II II ACTUAL I ..~.....~~.... I I $14,000 $12,000 $2,000 .. __"___"vm___'_"~.__,_..,,_~~._.....m_...'_..__,, $0 1997 1998 1999 2000 200] 2002 2003 2004 2005 YEAR I '".,,_'''.._._m.__._.._ ..-,,,--,--,-, '_._",___"""'_"""_''''',,.'',,,~.~._.~__...'_.__m_m__.____''m.___ __,,___,,_____,,_____'_,m"___m_m_,,_______'__.____.._._.._.___~_,____,,_. ""-,--,, ,'''''-'',''',-, , ì , I I "__,."",,.,.,J The renovation and expausion of Vall co Fashion Park is a key part of the future tax base. With the recent extension of the development agreement, the securing of the ml!Jor anchor tenants and the possibility of a new rna,jor hotel become more of a reality for the complex. The relocation of a major grocery store to a former auto dealer site along with the retail development of the former Rosebow1 site next to Vallco are other major economic projects that will help the City's revenue base. General retall comes in second at 25%. Busmess-to-busmess has historically been a more volatile sector that foUows the ups and downs of the economy more closely than cousumer sectors such as retail. Apple Computer, headquartered in the City, has become even more of a driving force in sales taxes, with their hot roster of products such as the I·Pod definitely providing a benefit to City revenues. However the competitive and innovative environment of products in that field and the concentration of the tax base in that area brings up the need for the City to work on diversiJYíng its sales ta,'{ base mto other business sectors. .. Vll MAJOR INITIATIVES Current Year Projects 1. Foster a Sense of Community · Continue to offer opportunities and prográms to promote cultural understanding and address the needs of our diverse community. · Continue to identifY translation needs in our community · Evaluate methods to communicating to non-English speaking population regarding crime prevention, emergency preparedness, civic activities, and major capital projects. · Pursue partnership opportunities with the three school districts. · Hold a Golden Jubilee celebration. 2. Ensure Land Use is Compatible with Community Character · Complete the General Plan update. · Complete the Stevens Creek Corridor Master Plan, and seek funding for it. · Commence planning for a park in the Rancho Rinconada area. · Explore possibility of parks in the Homestead and Vallco areas. · Implement a streetscape plan for the Crossroads block of Stevens Creek Boulevard, DeAnza Boulevard and Stelling Road. · Have a mixed-use wa1kable plan for the new Town Center. · Ensure that the walkable city concept is present in all City development and redevelopment projects. 3. Protect and Promote our Public Safety · Study, implement or complete, traffic safety issues such as those involving the Kim Avenue area, the Safe Routes to School program, and the Streets Smarts Program. · Continue emphasis and expansion of Neighborhood Watch. · Continue emphasis on emergency response and preparedness, including expansion of CERT training, improving community notification and coordination, and providing emergency response training for businesses and schools. 4. Enhance Services · Pursue E-Government initiatives to allow residents, businesses and job applicants to move more of the permit, licensing, and application process on-line. · Provide affordable housing opportunities for Cupertino workers and teachers. · Review Below Market Rate Program criteria. · Pursue an affordable housing project on Cleo Avenue. viii 5. Ensure the Financial Health of the Community · Encourage, retain and support healthy environment for retail growth. · Assist Vallco Fashion Park in their redevelopment efforts. · Present a strategic plan to ensure the long-term health of the City. · Investigate a revenue enhancement incentive policy for new development and means to supplement revenues on developments that are non-sales tax generating. 6. Pursue Infrastructure Improvements · Complete grading for the Mary Avenue Bicycle Footbridge and award bids for the construction phase of the project. Future Projects The City is currently constructing several major capital improvements throughout the community. In addition to the Mary Avenue bridge, Safe Routes to Schools and Stevens Creek Corridor Plan projects mentioned above, various pavement resurfacing, curb, gutter and sidewalk repair, storm drain improvement, traffic signal and pedestrian safety projects will be undertaken this year. ix DIJP1U'ÚillJilt FOlJlls - Efforts and AClJomplishments Cupertino Rel:eives Helen Putnam Awards In an effort to educate the community about the City's budget, the Parks and Recreation Department developed a board game, Balance or Bust, to increase community awareness about the budget process. Often times residents lack an understanding of what revenues come to the city and what the city can do to stTengthen its tax base. There is also a general lack of knowledge about what it costs to deliver basic services. The challenge, then, was to design an interactive exercise that would raise the participants' budget literacy and engage more residents in the budget process. Participants at a commnulty fonan broke into groups and were faced with the challenge ofreçommending service cuts and balancing the budget with decliulng revenues and increases in demand for services. At the conclusion of the forum, residents had gained more insight into the challenges facing their local government and the difficult choices city council has had to make. The City also received an additional Putnam award i112004-05 with the "What's Your Vision?" kits. The community Was asked to answer this question as we worked toward conseusus on how to program the last 60 acres of park property along Steveus Creek. The vision kits were created with the belief that giving participants appropriate tools and expert support would allow them to reach consensus on the best way to use the property. The cost to produce the kits was approximately $50 each and they were distributed nee. Each kit contained an aerial photo, three 30" x 40" base maps, scaled templates for a variety of park amenities, a circulation kit cousisting of liS" ribbon, yam and thread, a ruler, and background information in printed and video form. Approximately 320 kits were distributed to individnals and groups; 108 completed kits from 500 participants were returned. At the conclusion of the visioning process, staff was able to take the best points nom the many ideas received and craft a program for the park, which eventually won community support. x LONG TERM FINANCIAL PLANNING The City will continue to focus on a number of important long-term issues. These issues include developing a long-term economic strategic plan, enhancing economic development efforts, looking at partnership opportunities with our schools and other agencies, continued automation, funding of the capital improvement program, and building up reserves for rising retirement and insurance costs. In order to assure that the City can maintain capital facilities and infrastructure as they age, and can continue to conduct essential business while providing expected services to its residents, the City prepares a five-year forecast for all funds, which is detailed in the annual budget. The General Fund forecast assumes operating revenues still not keeping pace with operating expenditures and debt service obligations by approximately $1.5 million per year, with one-time revenues covering the shortfall in the next three years. The resulting deficit spending could deplete the City's reserves by fiscal year 2008-09. A strategic plan to address these issues will be presented in January 2006. The plan will propose both revenue enhancements and expenditure program reductions that will accomplish a balanced budget that can meet the City's growing facility maintenance needs, determine appropriate staffing for unsurpassed customer service and provide funding for future capital projects. Up to now, the City has been able to maintain its fiscal stability through prudent use of reserves, proactive debt refinancing, aggressive pursuit of available revenues, and conservative fiscal management. As the economy shows mixed signals in terms of inflation, employment, the housing market, and economic growth, the City plans to increase its efforts in the area of economic development, make the most of the Redevelopment Agency to improve utilization at Vallco Mall, and collaborate with other local agencies to maximize resources and funding for regional programs. As revenues are generated from additional mixed-use development, they will accelerate the City's ability to avoid deficit spending, replenish its Capita11mprovement Projects funding and fund other long-term reserves. ACCOUNTING SYSTEM AND BUDGETARY CONTROL The City's accounting records are maintained on a modified accrual basis of accounting for all governmental fund types and agency funds. Under this basis, revenues are recognized when susceptible to accrual, i.e., both measurable and available, and expenditures, other than interest on long-term obligations which is recorded when paid, are recognized when the liability is incurred. The accrual basis of accounting is used by the proprietary fund types where revenues are recognized when earned and expenses are recorded when incurred. In compiling the government-wide financial statements, the accrual basis of accounting is used to report all of the City's financial activities. Since the fund financial statements are still compiled using the modified accrual method for governmental funds, a reconciliation report is provided to show the changes between the two reporting methods. Xl In developing and evaluating the City's accounting system, consideration is given to the adequacy of internal accounting controls. Such controls are designed to provide reasonable, but not absolute, assurance regarding the safeguarding of assets against losses from unauthorized use or disposition and the reliability of financial records for preparing financial statements and maintaining accountability of assets. The concept of reasonable assurance recognizes that the costs of a control should not exceed the benefits likely to be derived and that the evaluation of costs and benefits requires estimates and judgments by management. The City's internal accounting controls adequately safeguard assets and provide reasonable assurance of the proper recording of financial transactions. The City's budget is a detailed operating plan that identifies estimated costs and results in relation to estimated revenues. The budget includes 1) the programs, projects, services and activities to be provided during the fiscal year; 2) estimated revenue available to finance the operating plan; and 3) the estimated spending requirements of the operating plan. The budget represents a process through which policy decisions are made, implemented and controlled. The level of budgetary control (i.e., the level at which expenditures cannot legally exceed the appropriated amount) is the departmental level within the General and Special Revenue funds, and the project level within the Capital funds. Changes in Financial Reporting The enclosed Notes to the Basic Financial Statements reflect the implementation of GASB #40 providing more investment information to help readers assess the credit quality of the City's investment portfolio, to judge the portfolio's sensitivity to market interest rate changes, and to judge the City's concentration of credit risk. Cash Management The City maintains a cash and investment pool for all City funds. The City's funds are invested by the City Treasurer according to the investment policy adopted by the City Council. The objectives of the policy are legality, safety, liquidity, diversity and yield. The policy addresses soundness of financial institutions and the types of investments permitted by the California government code. The City investments may include obligations of the U.S. Treasury and Federal agencies, commercial paper, banker's acceptances, corporate bonds, repurchase agreements, certificates of deposit and the State Treasurer's Local Agency Investment Fund. Total investment earnings for all funds were $0.9 million. Risk Management Risk management issues factor substantially in the City's long term financial planning. Whether through partnership or self-insurance programs, the City strives to maintain sufficient assets to pay expected losses, maintain funding stability to avoid substantial fluctuation in annual expense, and monitor risk management policies and claim administration to mitigate future losses. xii The City maintains a program of commercial insurance combined with self-insurance for substantially all of its governmental operations except for major construction projects and contractor-supplied services. In such circumstances, insurance to protect the City is provided by each contractor. INDEPENDENT AUDIT City Ordinance requires an annual audit of the financial records by an independent certified public accounting firm selected by the City Council. The City's general purpose financial statements were audited by Maze and Associates, and their opinion thereon is included in the Financial Section of this report. CERTIFICATE OF ACHIEVEMENT The Government Finance Officers Association ofthe United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Cupertino for its Comprehensive Annual Financial Report for the year ended June 30, 2004. In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report, whose contents conform to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to meet the program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. ACKNOWLEDGMENTS 1 would like to express my appreciation to the City employees, City Manager, and the members of the City Council for their interest in conducting the financial operations of the City in a responsible manner. Special thanks go to the Finance staff - Dixie Farley, Tina Mao, Beth Ebben, and Yulia Rumalean - for their continued support and dedication. Special recognition goes to David Woo, Dorothy Steenfott, and Jennifer Chang for their efforts in the preparation and production of this report. Respectfully submitted, c~of'~ Director of Administrative Services xiii . .ª " " u u .~ §' u~ o ~"g .- . u 0 u ¡:'"g o . . .~ ~ ::: ;a.2·1;;: 0( ¡: E3 ~¡Š ~ :Ë § U uu .-g . 0 ~ t "< ....- ¡:.e .- . uu ä@: ~ " ~~ þ';;: UQ ~~ Ëi5 0,", " . < u ¡:." .- .!! Uu u iË o . " .g .~ ~::; <2.!:! .E'" ." " . ~ 'õ-E=a .. g ~ s~O ~ ~ ~ '=.c - Qæ~ " o .~ oS 'õ M 1; . u ~ § '" . .g] ~ 0.!2~ ~.... ~ ~ ~ g-;.g ~i~ ~öø: ,I::.~ !: Qã~ s s o U ij . ... '~"8 o ~ 0 èi ~ ð t·,::: 0( q£ Q:5 ð s ~ < xiv '" · " £1.I.It: o , J! ,g J:! e- o èi 0 ë ~ C ~." ã ';;;:E.,!¡ ·'0 <:: o · g ; ~ "0 g ._ u u.... o .. t . ~ 8. = E · u . ~u-' g èi.~ ".¡; '2 -; ~~..., · ~ ~ E"~ 8. Ë .. ªð'rl g t! ~ ".¡; 0 =: · ~ 0 .~O · ~ 13_ Ë !í ~ð .5 ~ " . ":¡ C OJ .. .:.Iï§ .£rn uz- ",. .- ~ u .§ '"' ~ äê ~~ :;:-:i f-·è -~ . - ~. ä ~ a ë;:g;:g ê 8 ,13 ._ ... u ð tb ¡; "'2-' ~ ~ t1~ 15 ~ ~ ~ . ~ ~:;:-' ~ t: 5 ~"5> Ë ~ . . ~u o 'Ë š"i; 8. e ; . ~" ~ 2 u c Q.,.5 .g -5 ;;; ... ð] ~>-u ~ ~ .- E c: ..1 !!.~ 0 ª Ë'f:I " u 0 "g:@ ~ ...:;: .OJ ~ ·õ ê] ;;:" "'.¡;. .- ~ u .- u u ~ Is 1! ~-< ~ë-è' ~ë~ . " ....g¡t' g ~ ð u " " I!' . . u ~i! Ji ~ OIl ~:;: " .. '¡¡¡ s:;: ~ ' ¡:¡ is ~.~ =~~ . . 0 .!!!._ co ::¡z <~ ~ o ~ .~ 8 f !!. " u ªð~ gÉ~ '0 5 8 Ë&~ ~ '" ¡; ~ 8 ." ,. ~;g g ~ ·0 .s ~ ~ u ~ ~ u o " u'" " "' -E !s ~ £.~ ~ .!:! g, I:: =§ª~ ~ . 5 o~ ~.~ .. g ~ ~ on go ; V1Õ ... 6 ,2] ~.~ ~ æ~~ " ~ ~õ ..- . t:c:oo ~ §..â ~.g ~ "§ ë g g- Oõ . > "' u o AUDIT COMMITTEE Myoung Kang Dolly Sandoval Garrett Wade Kris Wang Jim Weber CITY OF CUPERTINO, CALIFORNIA Fiscal Year 2004/05 COMMISSIONS AND COMMITTEES HOUSING COMMISSION Richard Abda1ah Sarah Hathaway-Feit Kim Mosleh Mahesh Nihalani Frances Seward FINE ARTS COMMISSION Martha Bills Nancy Canter Robert Harrison Hema Kundargi Janet Mohr PUBLIC SAFETY COMMISSION Charles Caldwell Jay Cena Barry Chang Nolan Chen Hugh Riddell TEEN COMMISSION Nathaniel Fung Andrew Grossman Vrinda Gupta Cordelia Jiang Diane Keng June Kim Benjamin Lin Natasha Pradhan Roya Rahgozar Apoorva Rajagopa1 Rukmani Sahay Ana Yglesias Sinan Zafar BICYCLE PEDESTRIAN COMMISSION [)avid C1reenstein May Koski Geoffrey Paulsen Joseph Walton James Wiant PARKS & RECREATION COMMISSION Rod Brown Jeanne Bradford Cary Chien Frank J elinch Roger Peng TELECOMMUNICATIONS COMMISSION L. T. Guttadauro Eric Klein Charlon Mcintosh Andrew Radle Steven Ting LIBRARY COMMISSION Ronald Miller Sheila Mohan Janet Riddell Katherine Stakey Susanna Tsai PLANNING COMMISSION Angela Chen Lisa Giefer Marty Miller Taghi Saadati Gilbert Wong ECONOMIC DEVELOPMENT Carol Atwood Angela Chen Christine Giusiana Shawna Holmes Jack Hubby Sandra James David Knapp Richard Lowenthal Mark McKenna Steve Piasecki Ralph Qualls SENIOR COMMISSION Estelle lncociati Christine Kennedy Pierce Mavis Smith Linda Walker Frank Yap xv CITY OF CUPERTINO, CALIFORNIA Fiscal Year 2004/05 CITY COUNCIL Y ~ -'" ,,/ë{ /<i?" ,d_",,, J;«:i,}5/' iF»' "v Patrick K wok Mayor Richard Lowenthal Vice Mayor Sandra James Councilmember " Dolly Sandoval Councilmember I(ris Wang Councilmember DIRECTORY OF CITY OFFICIALS David W. Knapp - City Manager Charles T. Kilian· City Attorney Carol Atwood - Director of Administrative Services Rick Kitson - Public Information Officer Steve Piasecki - Director of Community Development Ralph Qualls - Director of Public Works Kimberly Smith - City Clerk Therese Smith· Director of Parks and Rel-'1'eation . xV! Certificate of Achievement for Excellence in Financial Reporting Presented to City of Cupertino, California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2004 A Certificale of Achievemenl for Excellence in Financial Reporting is presenled by the Government Finance Officers Associalion of the Uniled Stales and Canada to governmenl units and public employee retirement systems whose comprehensive annual fmancial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. ---;c~~~ President ~/~ Executive Director xvii FINANCIAL SECTION 1 NOTES 2 AAAZE & · r" ASSOCIA TES -- ------ ---- --...--------- ------- INDEPENDENT AUDITOR'S REPORT ON BASIC FINANCIAL STATEMENTS ACCOUNTANCY CORPORATION 1931 San Miguel Drive - Suite 100 Walnut Creek, California 94596 (925) 930-0902· FAX (925) 930-0135 E-Mail: maze@mazeassociates.com Website: www.mazeassociates.com To the City Council City of Cupertino, California We have audited the basic financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Cupertino as of and for the year ended June 30, 2005, which collectively comprise the City's basic financial statements as listed in the Table of Contents. These basic financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these basic financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards in the United States of America and generally accepted government audit standards issued by the Comptroller General of the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In accordance with Government Auditing Standards, we have also issued a report dated September 20, 2005 on our consideration of the City's internal control structure and on its compliance with laws and regulations. In our opinion, the basic financial statements referred to above present fairly in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Cupertino at June 30, 2005 and the results of its operations and the cash flows of its proprietary fund types thereof and the respective budgetary comparisons listed as part of the basic financial statements for the year then ended, in conformity with generally accepted accounting principles in the United States of America. Management's Discussion and Analysis is required by the Government Accounting Standards Board, but is not part of the basic component unit financial statements. We have applied certain limited procedures to this information, principally inquiries of management regarding the methods of measurement and presentation of this information, but we did not audit this information and we express no opinion on it. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental section listed in the Table of Contents are presented for purposes of additional analysis and are not a required part of the basic financial statements of the City of Cupertino. Such information has been subjected to the auditing procedures applied in our audit of the basic financial statements, and in our opinion are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The statistical section listed in the Table of Contents was not audited by us, and we do not express an opinion on this information. on;~;~ September 20, 2005 3 A Professional Corporation MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) This is intended to provide an objective and easily readable analysis of the City of Cupertino's financial perfonnance for the year. Please read it in conjunction with the accompanying Transmittal Letter and Basic Financial Statements. FISCAL 2004-05 FINANCIAL HIGHLIGHTS A strong showing in building activities in the City brought in a healthy dose of development related revenues to the City. An early payback of vehicle license fee (VLF) monies that the State had borrowed from the City last year plus modest rises in sales and other taxes contributed to a healthy revenue picture. All major revenue sources were either better on consistent with last year. Conversely the City maintained a measured approach to restoring ongoing expenses that had been cutback in recent years, prefening to build up reserves that could be drawn upon for capital improvements, future retirement costs, insurance increases, State budget actions, and potential downturns in the economy. Financial highlights of the year include the following: · The City's total net assets increased $2.3 million during fiscal 2004-05. At June 30, 2005, net assets totaled $121.7 million. · Total City revenues, including program and general revenues, were $44.4 million, while total expenses were $42.1 million in fiscal 2004-05. · Net assets in Governmental funds were $115 million, while net assets in business activities were $6.6 million. · Governmental program revenues were $8.1 million compared with $9.3 million in fiscal 2003-04. · Governmental expenses were $34.4 million in fiscal 2004-05, compared with $34.8 million in the prior year. · Revenues from Business-type activities were $7.8 million in current year, compared with $7.4 million from the prior year. · Expenses of Business-type activities were $7.8 million in current year, compared with $6.5 million in the prior year. · General Fund revenues of $33.1 million represented an increase of $6 million from the prior year; General Fund expenditures increased from $23.8 to $24.8 million in fiscal 2004-05. · Actual expenditures in the General Fund were $3.6 million less than the final fiscal 2004-05 budget primarily because of significant expenditure reduction efforts by City departments and management under the direction of the City Council. · Unreserved General Fund balance of $18.3 million at June 30, 2005 compared favorably with the budgeted fund balance of $14.2 million. OVERVIEW OF THE FINANCIAL STATEMENTS The Basic Financial Statements comprise the City-wide Financial Statements and the Fund Financial Statements; these two sets of financial statements provide two different views of the City's financial activities and financial position. The City-Wide Financial Statements provide a longer-tenn view of the City's activities as a whole, and comprise the Statement of Net Assets and the Statement of Activities. These statements are prepared on the accrual basis, which means they measure the flow of all economic resources of the City as a whole. The accrual basis of accounting is similar to the accounting used by most private sector companies. The Statement of Net Assets provides infonnation about the financial position of the City as a whole, including all its capital assets and long-tenn liabilities. The Statement of Activities provides infonnation about all the City's revenues and all its expenses, also on the full accrual basis, with the emphasis on measuring net revenues or expenses for each of the City's programs. The Statement of Activities explains in detail the change in Net Assets for the year. Over time, increases or decreases in net assets can be indicators of whether the financial condition of the City is improving or deteriorating. 4 All of the City's activities presented are grouped into Governmental activIties and Business-type activities, as explained below. All the amounts in the Statement of Net Assets and the Statement of Activities are separated in order to provide a summary of these two types of activities for the City as a whole. . Governmental activities-Most of the City's basic services are considered to be governmental activities, including general government, community development, public safety, public works, culture-recreation, public improvements, planning and zoning, and general administration services. These services are supported by general City revenues such as property, sales and other taxes, and by specific program revenues such as developer fees and grants. The City's governmental activities include the activities of a separate legal entity, the Cupertino Redevelopment Agency, because the City is considered to be financially accountable for the Agency. The Cupertino Public Facilities Corporation, from which the City leases its major facilities through the payment of long-term debt, is also included as a component unit. . Business-type activities-All the City's enterprise activities are reported here, including solid waste collection and disposal and the recreational operations of each of the City's various community facilities. . Unlike governmental services, these services are supported by charges paid by users based on the amount of the service they use. The Fund Financial Statements report the City's operations in more detail than the government-wide statements and focus primarily on the short-term activities of the City'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. Because these statements focus on the near-term inflows and outflows of spendable resources, such information may be useful in evaluating near-term financing requirements. The Fund Financial Statements provide detailed information about each of the City's most significant funds, called Major Funds. Cupertino's Fund Financial Statements include governmental, enterprise and internal service funds as discussed below. The concept of major funds, and the determination of which are major funds, was established by GASB Statement 34 and replaces the concept of combining like funds and presenting them in total. Instead, each Major Fund is presented individually, with all Non- major Funds summarized and presented only in a single column. (Subordinate schedules, which follow the Notes to the Financial Statements, present the detail of these Non-major funds.) Major Funds present the major activities of the City for the year, and may change from year to year as a result of changes in the pattern of City's activities and public interest. For example, the Capital Improvement Projects Fund may or may not appear as a Major Fund depending on the volume of construction activity in a certain year. Governmental Fund Financial Statements are prepared on the modified accrual basis, which means they measure only current financial resources and uses. They present essentially the same functions reported as governmental activities in the government-wide financial statements. However, capital assets and other long-lived assets, along with long-term liabilities, are not presented in the Governmental Fund Financial Statements. Reconciliations are provided to facilitate a comparison between governmental funds and governmental activities statements to allow abetter understanding of the long-term impact of the government's near-term financial decisions. Enterprise and Internal Service Fund financial statements are prepared on the full accrual basis, as in the past, and include all their assets and liabilities, current and long-term. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements, and in more detail in the fund fmancial statements. Since the City's Internal Service Funds provide goods and services only to the City's governmental and business-type activities, their activities are reported only in total at the Fund level. Internal Service Funds may not be Major Funds because their revenues are derived from other City Funds. These revenues are 5 eliminated in the City-wide financial statements and any related profits or losses are returned to the activities which created them, along with any residual net assets of the Internal Service Funds. For the City of Cupertino, the internal service activities predominantly benefit governmental rather than business- type functions, and are therefore included within governmental activities in the government-wide financial statements. Comparisons of budget and actual financial information are required in the Major Governmental Fund Financial Statements only for the General Fund and other Major funds that are Special Revenue Funds. Since none of the City's Special Revenue funds are considered Major funds for financial statement purposes, budgetary comparison statements for these funds are included in this document as supplemental statements only. Fiduciary Fund statements provide fmancial information about the activities of certain assessment districts. The City acts strictly as an agent for these districts holding amounts collected from property owners which await transfer to the districts' bond trustees. The City's fiduciary activities are reported in the separate Statement of Fiduciary Net Assets and the Agency Funds Statement of Changes in Assets and Liabilities. These activities are excluded from the City's other financial statements because the City cannot use these assets to finance its own operations. Notes to the Financial Statements provide additional detail that is essential to a full understanding of the information provided in the government-wide and fund financial statements. FINANCIAL ACTIVITIES OF THE CITY AS A WHOLE This analysis focuses on the net assets and changes in net assets of the City's Governmental Activities (Tables 1,2 and 3) and Business-Type Activities (Tables 4,5 and 6) presented in the City-wide Statement of Net Assets and Statement of Activities that follow. Governmental Activities Table 1 Governmental Net Assets at Jnne 30 (in Millions) Governmental Activities 2005 2004 Cash and investments $ 34.2 $ 38.7 Other assets 5.6 5.2 Capital assets 136.4 132.2 Total assets 176.2 176.1 Long-term debt outstanding 52.3 53.6 Other liabilities -.1L2 ill Total liabilities 61.2 64.7 Net assets: Invested in capital assets, net of debt 86.5 85.4 Restricted 7.3 7.4 Unrestricted 21.2 ~ Total net assets lli5JI IDlA 6 The City's net assets from govemmental activities increased $3,6 million or 3% from the prior year. This Í11crease is the Change in Net Assets reflected in the Statement of Activities, as shown Í11 Table 2, and is explained below: . Cash and investments decreased $4.5 mi\!ìon, principally as a result of the disbursement of tùnds to complete the new ¡¡brary. .. Capits1 assets increased $4.2 minion primarily for the new library. .. Restricted net assets decreased $0.1 million as various street and bridge projects utilized the capital funds set-aside for this purpose. .. Payments on the 2002 certificates of participation decreased long-term debt by $1.3 million. " Other liabilities decreased $2.2 million as large capital project bills outstanding at the end of last year were paid off. .. Net assets invested in capital assets net of related debt increased $1.1 million representÍ11g infrastructure improvements and City equipment purchases financed by govemment revenues and reserves, rather than by debt. .. Unrestricted net assets is the part of net assets that can be used to finance day-t¡¡..day operations or reserved for certain purposes by the City Council, without constraints established by debt covenants or other legal requirements. $21.2 million of unrestricted net assets existed at June 30, 2005, $2.6 million higher than a year ago. In.v@"",,1( Í!(:\Ij»cQI1u.TC~fur Motw:Vcttictc Z% 1% I)¡;¡viç¢¡ 1;S% Ûll,!<:µ 11% !~A<1!,µm¡¡irJ1íoo 1".4 % Fiscal Year 20114-115 Govcmmental Activities I" ..n 1 ._. _____VM"_~___m_...~~._,_.._._,,_,,~_ n v"mn."."..~m~.~m_.m__n ~_v_ '_"'''N_"_,,,_,·,,m.___..__ ['_"mv_____.._m..~_'"______.__ I .____v"__,,,__'_m"~.~mm_~m____m__n__"__n""'.."'____m____~·~~·_____-, Sources of Revenues Functional EX~Qse QlpitalOraf1:!S,& ÇuJ:lJJit>¡¡tiØM 6% ~!1;yTa.'i 12% """ W"'" 42,% ,-- --'". Admi1I¡:>IfaIÌI'I) """" 11% Oùu:rT1IX¢> 26% {)p<:;;>ting C{!Q1rUmMII$/t "".. ,% ,,,,"'_,,,____,,____,,_"___._n___"_ I I I n__________" CDmmumly ~1IL'f11 ¡O"I<. S;;I<:s'f;¡x "" ------"'_.--~..---..--------_.~---------- ___"_______,,___"',,.,,___...__"~n"m._..~~__mm_____. _"'n"_____' ,,__~__"____"_m..~__._.~___,,_.____ As the Sources of Revenue chart above shows, $9.9 miUion, or 26% of the City's Fiscal 2004-05 revenues, came from other taxes, overtaking,sales taxes as the leading source m revenue. Trus category rose significantly, $2.2 million, from the prior year hecause this was the first year that the City's received property taxes that replaced the 0.25% portion of sales taxes that the State is using as security toward repayment of its deficit recovery bonds, which was passed hy the voters Í11 2004. There was also a significant increase in park dedication taxes. Other taxes also contaÍ11 transient occupancy taxes, utility user taxes, francruse fees, and husiness Jícenses. In spite of the ioss of this 0.25%, sales taxes still rose, increasing from $8.7 million to $9.2 million in 20114-05 due to growth in the business-t¡¡..business and high tech sectors. It is the second largest category of rl'venues at 25%. 7 The Functional Expenses Chart above includes only current year expenses, which are discussed in detail below. It does not include capital outlays, which are added to the City's capital assets. During fiscal 2004-05, the City added $4.2 million in governmental net capital assets, as shown in detail at Table II. The Statement of Activities presents program revenues, expenses, and general revenues in detail. These are all elements of the Changes in Governmental Net Assets summarized below. Table 2 Change in Governmental Net Assets (in Millions) Governmental Activities 2004-05 2003-04 4.3 4.0 9.2 8.7 9.9 7.7 3.9 2.5 .7 .5 .5 .2 28.5 23.6 36.6 32.9 2.2 f!.,2} --1A --1. $3& $~ Expenses Administration Law Enforcement Public Information Administrative Services Recreation Services Community Development Public Works Interest on long-term debt Total expenses $1.3 6.2 .8 3.7 2.2 3.3 14.6 2.3 34.4 Revenues Program revenues: Charges for services Operating contributions and grants Capital grants and contributions Total program revenues 5.3 .6 2.2 tl General revenues: Taxes: Property taxes Sales taxes Other taxes Motor vehicle in lieu & other intergovernmental Investment income Miscellaneous Total general revenues Total revenues Excess/(deficiency) of revenues over expenses, before transfers Transfers Change in net assets $1.4 6.1 .7 3.9 2.2 2.7 15.5 2.3 34.8 3.2 2.5 3.6 9.3 Table 2 shows that total government revenues increased $3.7 million during fiscal 2004-05, driven by the $2.7 million increase in sales and other taxes discussed previously. The rise in Motor vehicle in-lieu (VLF) and other intergovernmental revenues reflects the payback to the City of $0.8 million in VLF that the State did not remit to the City in 2003-04. The rise was tempered by $0.6 million in new ERAF (Educational Revenue Augmentation Fund) monies that the State has taken from the City, the first of two annual State takeaways that cities agreed to in exchange for the support and passage of Proposition I A in 8 November 2004, which protects cities from future state revenue raids. Charges for services prospered from active commercial and multi-family housing development in the City, which helped bring in noteworthy amounts of permit and plan check revenue. Total governmental spending decreased by $0.4 million from fiscal 2003-04. Because of the changing nature of charges of services, sales taxes and State fiscal actions, the City maintained a conservative approach to governmental expenses in spite of the rise in revenues and as a result, the City's governmental revenues in excess of expenditures climbed to $2.2 million at June 30, 2005, a turn around from the $1.9 million deficiency a year ago. After $1.4 million in transfers from business-type activities, for reimbursement of waste cleanup costs, debt payments on the 2002 debt issue, and funding for the Stevens Creek Corridor Park project, overall net assets of governmental activities increased $3.6 million during 2004-05, compared to a decrease of$1.8 million during 2003-04. Table 3 presents the net cost of each of the City's largest programs-general government, public safety, development and engineering, public works, parks and recreation, capital asset maintenance and preservation, and interest on long-term debt. Net cost is defined as total program cost less the revenues generated by those specific activities; it reflects the financial burden placed on the City's taxpayers by each function. Table 3 Net Cost (Revenue) of Governmental Activities (iu Millious) Net Cost (Revenue) Of Activities 2004-05 2003-04 Administration $1.3 $1.4 Law Enforcement 5.5 5.0 Public Information .8 .7 Administrative Services 3.7 3.9 Recreation Services 2.0 2.1 Community Development (2.7) (.1) Public Works 13.4 10.2 Interest on Long-term Debt 2.3 2.3 Totals $26.3 $25.6 · The total cost for all governmental activities this year was $34.3 million. The City's taxpayers more than paid for of these costs through general revenues and charges for services ($34.7 million), setting aside about $0.4 million to replenish operating reserves that were utilized in the recent economic downturn. Grants and contributions added $2.8 million to the reserves for upcoming capital projects. · Administrative costs comprise 4 percent of governmental services expenses, and include activities of the City Council, City Manager and City Attorney. Administrative Services activities, which include Finance, Human Resources, Information Technology, City Clerk, Code Enforcement and Emergency Preparedness services, accounts for 11 percent of all governmental services. Net costs in these areas were relatively unchanged from prior year. · The City's costs for Law Enforcement, procured by contract with the Santa Clara County Sheriffs Office, were partially offset by $0.7 million in various fines and reimbursements. Because of a decrease in parking citations, fines, and grants in 2004-05, partially due to some one 9 time corrections from the State received in 2003-04, the City's net cost for law enforcement increased by $0.5 million in fiscal 2004-05. · Public Works expenses included Transportation, Engineering, Environmental Programs and the maintenance of the City's streets, grounds and facilities. Also included are the costs of capital improvement projects. Offsetting revenues this year include state grants, capital contributions, environmental fees, facility rental, damage restitutions, and stonn drain fees of $1.2 million. Because of the completion of large capital projects in early 2004-05, the construction portion of public works funded by capital grants and contributions decreased, while the maintenance and general engineering portion of public works remained, funded by general revenues such as gasoline taxes. · Community Development programs include Planning, Building and Housing Services. Because of the boom in development fees for plan checks, building pennits and park dedication, net revenues of community development activities climbed from $0.1 million last year to $2.7 million this year. · Most of the costs of the City's Park and Recreation programs are reported as business-type activities for which fees are charged to recover the costs of the programs. However, many community events, programs and services are available to the public free of charge. The costs of administering these general (governmental) activities are partially offset by facility rental fees, which amounted to $0.2 million in fiscal year 2004-05. · Interest on the long-tenn debt that was re-financed in 2002 was unchanged at $2.3 million. Business Type Activities Table 4 Business-Type Net Assets at June 30 (in Millions) Business-Type Activities 2005 2004 Cash and investments $6.8 $7.9 Other current assets 0.8 1.0 Capital assets 0.6 0.7 Total assets 8.2 9.6 Total liabilities 1.6 1.6 Net assets: Invested in capital assets, net of debt 0.6 0.6 Unrestricted 6.0 7.3 Total net assets $6.6 $8.0 The net assets of business-type activities decreased $1.4 million in fiscal 2004-05, primarily in cash and investments and other current assets. Business-type activities as a whole operated on a break-even basis, prior to a $1.4 million transfer to governmental activities to reimburse the general government for waste cleanup, debt service, and the Stevens Creek Corridor Park capital project. 10 Table 5 Change in Bnsiness- Type Net Assets (in Millions) Business-Type Activities 2004-05 2003-04 Expenses Resource Recovery Blackberry Farm Sports Center Recreation Programs Senior Center Total expenses $2.9 1.3 1.5 1.7 .4 7.8 $1.8 1.3 1.3 1.6 .5 6.5 Revenues Program revenues: Charges for services Operating contributions and grants Total program revenues . General revenues: Investment income 7.6 7.2 .0 .1 7.6 7.3 .2 .1 7.8 7.4 .0 .9 (1.4) ( .2) $(1.4) $ .7 Total revenues Excess/(deficiency) of revenues over expenses, before transfers Transfers Change in net assets Table 6 Net Cost (Revenue) of Business-Type Activities (in thousands) Net Cost (Revenue) Of Activities 2004-05 2003-04 Resource Recovery $(503) $690 Blackberry Farm (122) (52) Cupertino Sports Center (67) (168) Recreation Programs 478 320 Senior Center ~ 1m Total Business-type Activities $Q121 $ill The implementation of a weekly recycling program, which involved a $1.2 million purchase of new recycling containers, caused Resources Recovery program expenses and the associated net cost of activities to rise by $1.1 million. Franchise fees remained unchanged. The commencement of a half million-dollar payback from Resources Recovery to the General Fund for waste cleanup plus Recreational Programs' higher contribution toward debt service on the 2002 financing for recreational facilities, brought about a significant increase in transfers to governmental activities. 11 THE CITY'S FUND FINANCIAL STATEMENTS Governmental Funds At June 30, 2005, the City's governmental funds reported combined fund balances of $30.2 million, which is a decrease of $2.1 million or 7% compared with the prior year. With the October 2004 completion and grand opening of the new library, the Library Construction Fund exhausted its $8 million fund balance, while robust permit, charges for services, tax and intergovernmental revenues, plus a one- time sale of land, combined with limited expenditure growth caused the General Fund balance to increase by $5.6 million. Non-major fund balances increased $276 thousand, with the completion of the Civic Center project and the kickoff of the Stevens Creek Corridor Park project. The table below presents governmental fund revenues by source and the related changes for the prior year. Governmental fund revenues rose $3.7 million or 11.2% this year to a new total of $37.1 million. $2.0 million of the increase came in licenses and permits and charges for services, the outcome of a banner year in building permit, planning and development fees. A $2.6 million increase in tax revenues resulted from a $1.4 million growth in park dedication taxes from new City developments and increases in sales, property tax, and transient occupancy tax receipts from an improving economy and booming housing market. Other revenues of $1.7 million in 2004-05 include a $1.2 million sale of an Oak Valley parcel, the completion of the community fund raising effort for the new library's furnishings and fixtures, and funding for other capital projects. These healthy results more than offset a $1.7 million decline in intergovernmental revenues. One-time Proposition 12, CMAQ, HES, and State intergovernmental revenues declined due to the completion or progression of the related capital project in fiscal 2003-04, such as the PortallWilson Park improvement, the DeAnza traffic management system, the adaptive traffic signal control system, the Highway 280/85 ramp meter signal and the Mary Ave bicycle footbridge. This decline also reflects the first of two annual State takeaways of tax dollars, a loss ofwruch cities agreed to in exchange for the support and passage of Proposition IA in 2004-05, which protects cities from future state revenue raids. This decline would have been worse had it not been for a repayment from the State of vehicle license fee revenues that the State had borrowed in 2003-04. Table 7 Revenues Classified by Source Governmental Fund Types (in thousands) Increase/(Decrease) From previous vear Revenues bv Source Amount % of Total Amount Percent Taxes $23,615 63.7% $2,611 12.4% Use of Money & Property 1,119 3.0 178 18.9 Intergovernmental 5,566 15.0 (1,671) (23.1) Licenses and Permits 2,896 7.8 1,355 87.9 Charges for Services 1,569 4.2 639 68.7 Fines and Forfeitures 560 1.5 (164) (22.7) Other Revenue 1. 793 4.8 784 77.7 Total $J:Z.!ll lOOJ)% $l.ill 11.2% Governmental fund expenditures decreased $9.2 million this year to $40.2 million, primarily from $10.2 million in less capital outlays due to the completion of the library and civic center projects during the year. Community development costs rose $594 thousand or 23.3% because of the boom in building permit and plan check revenue-generating work. Expenditures by major service area and the related changes from the prior fiscal year are shown in the following table: 12 Table 8 Expenditures Classified by Major Service Area Governmental Fund Types (in thousands) Increase/( (Decrease) from previous vear Expenditures bv Service Area Amount % of Total Amount Percent Administration $ 1,162 2.9% $ (61) (4.9)% Law Enforcement 6,145 15.3 194 3.3 Public Information 758 1.9 71 10.3 Administrative Services 3,671 9.1 (87) (2.3) Recreation Services 2,121 5.3 (20) (0.9) Community Development 3,157 7.9 594 23.3 Public Works 9,637 24.0 315 3.4 Capital Outlay 10,026 24.8 (10,221) (50.5) Debt Service: Principal 1,245 3.1 25 2.0 Interest 2.290 5.7 ill} (12) Total $~ lill!..Q% $(9.218) illß% Proprietary Funds Proprietary funds include the City's enterprise" and internal service funds. Entetprise funds are used to account for operations that are financed and operated in a manner similar to private business entetprise where the intent is that the costs of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges. Entetprise activities are included as business- type activities in the City-wide Financial Statements, and each fund is considered a major proprietary fund in the Fund Financial Statements. Entetprise fund net assets totaled $6.6 million at June 30, 2005, a decline of $1.3 million from the prior year. Entetprise operating revenues were $7.7 million this year, a 4% increase of$3ll thousand over last year, while net non-operating revenues more than doubled from $95 thousand to $216 thousand this year. Entetprise operating expenses were $7.8 million in 2004-05, up $\.3 million or 19% ITom the prior year. Operating loss was $179 thousand in 2004-05 as opposed to an operating income of $777 thousand in the prior year. Transfers out rose significantly to $1.4 million in fiscal 2004-05, up $1.2 million ITom fiscal 2003-04. Individual entetprise funds comprising this performance are discussed in the Entetprise Funds portion of this MD&A. Internal Service Funds are used to account for the financing of services provided by one department or agency to other departments or agencies of the City on a cost-reimbursement basis. Because the services are provided primarily to the general government, these operations are reported as part of government activities in the City-wide Financial Statements. In essence, any income or losses that are related to an internal service fund activity represent an adjustment of the expenses recorded by the various governmental functions. The following table shows actual revenues, expenses (including depreciation) and results of operations for the fiscal year ended June 30, 2005. 13 Table 9 Revenues, Expenses, and Cbange in Net Assets Internal Service Funds, 2004-05 (in thousands) Operating Operating Operating Incr/(Decr) Fund Revenues Expenses Income/(Loss ) Net Assets Management Infonnation Systems $717 $730 $(13) $132 Workers' Compensation 149 330 (181) 147 Equipment Revolving 892 831 61 97 Long-Tenn Disability ~ 44 ~ ~ Totals $U!U $LW, $(32) $ill Resources are being accumulated in the Management Infonnation Systems fund (which received a budgeted $120 thousand transfer in from the General Fund for new hardware purchases), and the Equipment Revolving fund to provide for future replacement of existing equipment. The Workers' Compensation fund expense for future and current claims was subsidized by a transfer from the General Fund, resulting in net assets increasing from $9 thousand to $156 thousand at fiscal year end. Maior Governmental Funds General Fund Revenues General Fund revenues increased $6 million or 22% to $33.1 million this fiscal year, due to a robust year in pennit and building fee revenues, gains in property, sales and transient occupancy taxes, and some one- time payments in intergovernmental revenues and from a sale of property. The result exceeded the budget by $4.1 million or 14%. Licenses and pennits nearly doubled from $1.5 inillion in 03-04 to $2.9 million in 04-05. It exceeded budget expectations by $0.9 million. Charges for services doubled from $0.6 million to $1.2 million and surpassed the budget by $0.7 million. Implementation of a cost recovery fee system along with a boom in commercial and residential building activity caused building pennit, inspection, zoning, planning, and engineering review revenues to come in strongly this year. The intergovernmental revenue surge was led by a $2 million increase in Motor Vehicle In-Lieu Fees (VLF) over last year, the result of a repayment of what the State had borrowed and withheld from the City in fiscal year 03-04 plus an additional correcting payment unrelated to the borrowing. These factors also caused VLF to come in $1.2 million higher than budget. Overall taxes came in 9% or $1.7 million over budget and 6% or $1.2 million over last year. Property taxes were $0.5 million and $0.3 million over budget and last year, respectively. The real property roll growth ended up at 9% for the year. Sales taxes were up $0.9 million or II % from budget and $0.6 million or 7% higher than last year. The City had budgeted a 4% sales tax decrease from last year, but the business-to-business and high tech sector continued the growth that they were showing in recent years. Transient occupancy taxes were $0.2 million or 14% better than budget and increased $0.2 million and 10% from last year, due to increased occupancy and room rates from increased business and leisure travel. The sale of one Oak Valley parcel plus a refund for the City's withdrawal from the Silicon Valley Animal Control Authority caused other revenues to increase by $1.4 million over last year. 14 Use of money and property rose slightly by $0.1 million, up 14% from the previous year, but was below budget by $0.2 million or 20%. Rising yields helped the portfolio, but a relatively conservative approach to investments due to a staffing vacancy in the Treasury function kept the return below budgeted expectations. Expenditures Fiscal 2004-05 overall expenditures, at $24.8 million were $1 million or 4% higher than last year's total of$23.8 million. However this result came in 13% or $3.6 million under the final budget. Law enforcement was under budget by $0.8 million or 12% due to the lower usage of general law enforcement, service and emergency calls, patrol, and investigations. Public works was $1.3 million under budget due to frozen vacant positions, lower spending on facilities maintenance and repairs, and less than expected costs on library maintenance since the facility was closed two days a week instead of being open all week. Grounds and park maintenance utility, materials, and supplies costs were down due to a more wetter than nonnal season which required less water, fertilizer and other supplies. Street lighting costs were lower due to relief in utility rates, fewer replacements of light bulbs and the deferred removal and replacement of some older, rusted-out light fixtures. The completion of the civic center capital projects resulted in net operating transfers out of the General Fund decreasing from $3.7 million last year to $2.7 million this year. Table 10 General Fund Budget and Actual Comparison, 2004-05 (in millions) Budgeted Amounts Original Final Actual Variance m.2) $29.0 (28.4) ß2) m.u $33.1 (24.8) ß2) $.5...6 $4.1 3.6 Revenues (amount available for appropriation) Expenditures of appropriations $27.2 (27.0) ..íW Net transfers out to other funds Increase (decrease) in fund balance $"L1 Fund Balance At June 30, 2005, the City's General Fund reported a combined ending fund balance of $22.2 million, up $5.6 million from the prior year. Of the combined current year balance, $6.1 million represented unreserved, undesignated balances, $12.2 million was designated for contingencies and future retirement liabilities and $3.9 million was reserved for loans, purchase order commitments, advances to other funds, affordable housing, and the public access television program. The $3.9 million reserved portion is not available in liquid resources since it represents monies due the City or specific future purchases. The $12.2 million designated by the City Council is not available for new spending because it has already been committed for (I) operating expense contingencies, (2) long- tenn actuarial liabilities of the City's retiree medical program, (3) fluctuations in the City's CalPERS retirement rates, and (4) a buffer in times of future economic uncertainty. These are detailed (as with other govenunental fund balances) in Note 7 to the Basic Financial Statements. The unreserved, 15 undesignated balance in the future may be designated for capital projects, for augmenting the retirement reserves, or for building up the self-insurance reserves. Public Facilities Corporation This fund accounts for the payments of principal and interest on the 2002 certificates of participation (COPs), the refinanced the long-tenn debt that funded many of the City's major parks and facilities. As in the previous year, fund activity reflects General Fund and Proprietary Fund transfers that cover debt service payments of $3.5 million. Library Construction Fund This fund accounted for the completed construction and furnishing of a new $21 million public library at the City's Civic Center. The new 54,000 square foot, two-story library had a grand opening in October 2004. The project was funded through the issuance of the 2002 Public Facilities Corporation debt, contributions from various residents and community groups, and a $476 thousand advance from the City's Resource Recovery Fund. $120 thousand of the advance was paid-off by the General Fund this year. Other Governmental Funds Non-major funds are not presented separately in the Basic Financial statements, but are individually presented as Supplemental htfonnation. They include all the City's Special Revenue and Capital Project funds, which account for revenue sources that are legally restricted to expenditure for specific purposes such as streets and roads, parks, housing, stonn drainage, and the Redevelopment Agency. Street and road expenditures of the Transportation fund this year was $1.8 million, with an ending fund balance of $2.6 million, much of it eannarked for future capital projects such as the Mary Avenue pedestrian and bikeway bridge over htterstate 280. Enterprise Funds Resource Recovery Fund The Resource Recovery fund incurred one-time costs of $1.2 million in 2004-05 in order to implement a weekly recycling pickup service. A new four-year payback to the General Fund for waste cleanup costs began in the same year. Revenues were unchanged. As a result of these actions, the Recovery fund experienced an $830 thousand decrease in net assets to $5.7 million, which is entirely unrestricted. Blackberry Farm Fund Blackberry Fann incurred an operating loss of $122 thousand in the current year, compared to $48 thousand in the prior year. Operating revenues were down to $1.2 million, compared to $1.3 million in 2003-04. Operating expenses were maintained at last year's total of $1.3 million. Net assets of this Fund decreased $117 thousand to end the current fiscal year at $564 thousand, with $553 thousand of this invested in capital assets, $11 thousand in unrestricted assets. 16 Cupertino Sports Center Fund Revenues rose 17% or $200 thousand over 2003-04 mostly from increased memberships attracted by the enhancements offered by the newly remodeled facility and from a fee increase in annual passes. Expenditures rose $100 thousand or 7% over last year due to more instructors for the increased enrollment in sports classes. The center had an operating loss of $67 thousand compared to $162 thousand in 2003-04. After adding interest income onto the operating loss, net assets decreased $58 thousand, to $221 thousand at June 30, 2005, with $203 thousand of it unrestricted. Recreation Programs Fund Charges for services increased 16% or $256 thousand over the prior year. A robust offering and enrollment of cultural youth classes and sports programs contributed to this improvement. Operating expenses rose about $100 thousand or only 6% over last year for additional instructors to cover the increased class attendance. Income before transfers improved by nearly $176 thousand or 54% over last year ending up at $504 thousand for 2004-05. With a transfer out of $888 thousand for 2002 COPs debt service and Stevens Creek Corridor capital funding, the fund ended up with a decrease in net assets of $384 thousand, leaving an ending net asset balance of $1 0 1 thousand, nearly all of it unrestricted. Senior Center Fund Expenses dropped 13% or $55 thousand to $438 thousand in 2004-05 while maintaining the same level of service revenues from year-to-year. The center's goal is to operate on an overall break-even basis. Vacation packages, memberships, and educational classes must run at a profit in order to cover salaries, bingo, the newsletter, debt service, overhead and certain other senior center services. To achieve this, the center reduced staff, newsletter costs, recreational trip costs, and computer classes. CAPITAL ASSETS At June 30, 2005 the City had $137 million, net of depreciation, invested in a broad range of capital assets used in governmental and business-type activities, as shown in the table on the following page (further detail may be found in Note 5 to the Basic Financial Statements): 17 Table 11 Capital Assets, Net of Depreciation, at June 30 (in Millions) Total Business-type Activities 2005 2004 $ 60.2 $ 60.8 .3 19.3 31.8 10.3 9.0 4.5 1.5 1.7 22.5 24.2 9.4 10.1 J2 --LJ $136.4 $132.2 $ .4 $ .4 .2 .2 -'-º J $ Q..6 $ (U $137.0 $132.9 Governmental Activities: Land Construction in progress Buildings Improvements other than buildings Machinery and equipment Roads, curbs, gutters, sidewalks, medians and bridges Storm drain structures and mains Traffic signals Total Governmental Activities Business-type Activities: Land Improvements other than buildings Machinery & equipment Total City With the October 2004 grand opening of the City's new library, community hall and civic plaza, $19.2 million of construction in progress was re-classed to buildings and improvements. The Oak Valley land parcel, sold for $1.2 million this year, had a cost of $600 thousand removed from the capital asset list this year. DEBT ADMINISTRATION The City's debt issues are discussed in detail in Note 6 to the Basic Financial Statements. Unchanged from last year, except for scheduled debt service payments, the City's debt comprise Certificates of Participation (COPs) issued by the Cupertino Public Facilities Corporation, and is serviced by the City through lease payments to the corporation. The total outstanding issuance at June 30, 2005 is $52.3 million. At June 30, 2005, a total of $150 thousand in special assessment district debt was outstanding, issued by one special assessment district. This debt is secured by a traffic impact fee, charged as a special assessment on the real property in the district issuing the debt, and is not the City's responsibility. The City acts solely as the District's agent in the collection and remittance of the assessment. ECONOMIC OUTLOOK AND MAJOR INITIATIVES The impact of the economic environment and a description of the City's major initiatives for the coming year are discussed in detail in the accompanying Transmittal Letter. CONTACTING THE CITY'S FINANCIAL MANAGEMENT This Comprehensive Annual Financial Report is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the City's finances. Questions about this Report can be directed to the Finance Department at City Hall, 10300 Torre Avenue, Cupertino CA 95014, (408) 777-3220. 18 CITY OF CUPERTINO STATEMENT OF NET ASSETS AND STATEMENT OF ACTMTIES The Statement of Net Assets and the Statement of Activities summarize the entire City's financial activities and financial position. They are prepared on the same basis as is used by most businesses, which means they include all the City's assets and all its liabilities, as well as all its revenues and expenses. This is known as the full accrual basis-the effect of all the City's transactions is taken into account, regardless of whether or when cash changes hands, but all material internal transactions between City funds have been eliminated. The Statement of Net Assets reports the difference between the City's total assets and the City's total liabilities, including all the City's capital assets and all its long-tenn debt. The Statement of Net Assets presents similar infonnation to the old balance sheet fonnat, but presents it in a way that focuses the reader on the composition of the City's net assets, by subtracting total liabilities from total assets. The Statement of Net Assets summarizes the financial position of all the City's Governmental Activities in a single column, and the financial position of all the City's Business-Type Activities in a single column; these columns are followed by a Total column which presents the financial position of the entire City. The City's Governmental Activities include the activities of its General Fund, along with all its Special Revenue, Capital Projects and Debt Service Funds. Since the City's Internal Service Funds service these Funds, their activities are consolidated with. Governmental Activities, after eliminating inter-fund transactions and balances. The City's Business Type Activities include all its Enterprise Fund activities. The Statement of Activities reports increases and decreases in the City's net assets. It is also prepared on the full accrual basis, which means it includes all the City's revenues and all its expenses, regardless of when cash changes hands. This differs from the "modified accrual" basis used in the Fund financial statements, which reflect only current assets, current liabilities, available revenues and measurable expenditures. The fonnat of the Statement of Activities presents the City's expenses first, listed by program, and follows these with the expenses of its business-type activities. Program revenues, that is revenues which are generated directly by these programs, are then deducted from program expenses to arrive at the net expense of each governmental and business-type program. The City's general revenues are then listed in the Governmental Activities or Business-type Activities column, as appropriate, and the Change in Net Assets is computed and reconciled with the Statement of Net Assets. Both these Statements include the financial activities of the City, the Cupertino Redevelopment Agency, and the Cupertino Public Facilities Corporation, which are legally separate but are component units of the City because they are controlled by the City, which is financially accountable for their activities. 19 CITY OF CUPERTINO STATEMENT OF NET ASSETS JUNE 30, 2005 Governmental Business-Type Activities Activities Total ASSETS Cash and investments (Note 2) $34,210,610 $6,800,451 $41,011.061 Receivables: Accounts 2.774,374 493,191 3,267,565 Loans (Note 3) 2,543,339 2,543,339 Prepaid expenses and other assets 532,340 66.226 598,566 Internal balances (Note 4) (260.157) 260,157 Capital assets, net of accumulated depreciation (Note 5) 136,435.165 578,962 137,014,127 Total Assets 176,235,671 8,198,987 184,434.658 LIABILITIES Accounts payable and accruals 3,829,118 241,706 4,070,824 Accrued payroll and benefits 862,716 114,107 976,823 Deposits 1.166,789 196,744 1,363,533 Deferred revenue 115,933 949,543 1,065,476 Non-current portion of compensated absences (Note 19) 2,081,110 88.936 2,170,046 Non-current portion of claims payable 850.268 850,268 Long-term debt (Note 6): Due within one year 1,270,000 1,270.000 Due in more than one year 51,035,000 51,035.000 Total Liabilities 61.210,934 1.591,036 62,80 I ,970 NET ASSETS (Note 7) Invested in capital assets, net of related debt 86,530,017 578.962 87,108,979 Restricted for: Special revenue projects 5,645,303 5,645,303 Affordable housing 818,296 818,296 Public access television 805,215 805,215 Debt service 23,111 23,111 Total Restricted Net Assets 7,291,925 7,291,925 Unrestricted 21,202,795 6,028.989 27,231,784 Total Net Assets $115,024,737 $6,607,951 $121,632,688 See accompanying notes to financial statements 20 FunctionslPrograms Governmental Activities: Administration Law enforcement Public infonnation Administrative services Recreation services Community development Public works Interest on long term debt Expenses SI,280.339 6.179,326 824.317 3,750.174 2.173,936 3,269,475 14,585,232 2.289,526 Total Governmental Activities 34,352,325 Business-type Activities: Resource recovery Blackberry fann Cupertino sports center Recreation programs Senior center Total Business-type Activities Total General revenues: Taxes: Property taxes Incremental property tax Sales taxes Other taxes Motor vehicle in lieu & intergovernmental Investment earnings Miscellaneous Transfers (Note 4) Total general revenues and transfers Change in Net Assets Net Assets-Beginning Net Assets-Ending CITY OF CUPERTINO STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2005 Charges for Services S694,952 163,462 4,164.792 286.280 5.309.486 Promm Revenues Operating Grants and Contributions S42.381 103.791 447,485 593.657 28.860 Capital Grants and Contributions SI,723.050 441,857 2,164.907 S2,164.907 See accompanying notes to financial statements 28.860 2.927.060 2.395.282 1.341,712 1.218.958 1.452,957 1,385,837 1.689.436 2.167.705 438.440 473,787 7,849.605 7.641.569 $42,201.930 SI2,951,055 S622.517 21 (S502.918) (502.918) (122.754) (122.754) (67,120) (67,120) 478.269 478.269 35,347 35.347 (179,176) (179.176) (179,176) (26,463.451) 4,296,940 4,296,940 15.974 15.974 9,224.661 9,224.661 9.860,634 9,860.634 3,908.059 3.908,059 684,952 215,769 900,721 545.155 545,155 1.388,000 ( 1.388,000) 29.924,375 (1.172.231) 28.752.144 3,640.100 (1,351,407) 2,288,693 111.384.637 7.959.358 119.343.995 SI15,024,737 S6.607.951 SI21,632,688 Net (Expense) Revenue and ChanRes in Net Assets Governmental Activities Business-type Activities (SI,280.339) (5,484.374) (824,317) (3.707,793) (2.010.474) 2,722,158 (13.409,610) (2.289,526) (26.284,275) (26.284.275) Total (SI,280,339) (5,484.374) (824.317) (3.707.793) (2.010.474) 2,722,158 (13.409.610) (2.289.526) (26.284.275) FUND FINANCIAL STATEMENTS hI the Fund Financial Statements only individual major funds are presented, while non-major funds are combined in a single column. Major funds are defined generally as having significant activities or balances in the current year. The funds described below were detennined to be Major Funds by the City for fiscal 2005. hIdividual non-major funds may be found in the Supplemental section. GENERAL FUND The general fund is the general operating fund of the City. It is used to account for all financial resources except those that are required to be accounted for in another fund. PUBLIC FACILITIES CORPORATION DEBT SERVICE FUND This fund accounts for the payments of principal and interest on certificates of participation issued to provide for the financing of the Civic Center/Library, Wilson Park and Memorial Park and other City facilities, through the issuance of certificates of participation. LmRARY CONSTRUCTION FUND This fund accounts for costs associated with demolition of an old library building, and the design and construction of a new library on that site. 22 CITY OF CUPERTINO GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2005 Public Other Total Facilities Library Governmental Governmental General Corporation Construction Funds Funds ASSETS Cash and investments (Note 2) $20.817,750 $2,411,323 $2,513 $7,268,188 $30,499,774 Receivables: Accounts 2,620.316 154.058 2,774,374 Loans (Note 3) 1,582,680 960.659 2.543,339 Prepaid items 117,822 117,822 Advance to other funds (Note 4) 258,712 258,712 Other assets 3.884 400,000 403.884 Total Assets $25,401,164 $2,411,323 $2,513 $8,782,905 $36.597,905 LIABILITIES Accounts payable and accruals $1,163,446 $2,388,212 $714 $256,579 $3,808,951 Accrued payroll and benefits 524,442 34,794 559,236 Deposits 1,166,789 1,166,789 Advance ITom other funds (Note 4) 260,157 258,712 518,869 Deferred revenue 107,515 274,816 382,331 Total Liabilities 3,222,349 2,388,212 714 824,901 6,436,176 Fund ha1ance (Note 7) Reserved for: Encumbrances 282,244 3,600 1,541,667 1,827,511 Debt service 23,111 23,111 Advances to other funds 258.712 258,712 Prepaid items and other assets 117,822 400,000 517,822 Loans receivable 1,582,680 694,261 2,276,941 Affordable housing 818,296 818,296 Low and moderate income housing 38,428 38,428 Public access television 805,215 805,215 Unreserved, reported in: General Fund 18,313,846 18,313,846 Special Revenue Funds 3,618,814 3,618,814 Capital Projects Funds (1,801) 1.664,834 1,663,033 TOTAL FUND BALANCES 22.178,815 23,1 II 1,799 7,958.004 30,161,729 Total Liabilities and Fund Balances $25,401,164 $2,411,323 $2,513 $8,782,905 $36,597,905 See accompanying notes to financial statements 23 CITY OF CUPERTINO Reconciliation of the GOVERNMENTAL FUNDS -- BALANCE SHEET with the STATEMENT OF NET ASSETS JUNE 30, 2005 Total fund balances reported on the governmental funds balance sheet Amounts reported for Governmental Activities in the Statement of Net Assets are different ITom those reported in the Governmental Funds above because of the following: CAPITAL ASSETS Capital assets used in Governmental Activities are not current assets or financial resources and therefore are not reported in the Governmental Funds. ALLOCATION OF INTERNAL SERVICE FUND NET ASSETS Internal service funds are not governmental funds. However, they are used by management to charge the costs of certain activities, such as insurance and central services and maintenance to individual governmental funds. The net current assets of the Internal Service Funds are therefore included in Governmental Activities in the following line items in the Statement of Net Assets. Cash and investments Prepaids Capital assets, net of accumulated depreciation Accounts payable and accruals Accrued payroll and benefits Noncurrent portion of claims payable ACCRUAL OF NON-CURRENT REVENUES AND EXPENSES Revenues which are deferred on the Fund Balance Sheets because they are not available currently are taken into revenue in the Statement of Activities. LONG TERM ASSETS AND LIABILITIES The assets and liabilities below are not due and payable in the current period and therefore are not reported in the Funds: Long-tenn debt Non-current portion of compensated absences NET ASSETS OF GOVERNMENTAL ACTIVITIES See accompanying notes to financial statements 24 $30,161,729 135,498,345 3,710.836 10,634 936,820 (20,167) (303,480) (850,268) 266,398 (52,305,000) (2,081,110) $115,024.737 CITY OF CUPERTINO GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2005 Public Other Total Facilities Library Governmental Governmental General Corporation Construction Funds Funds REVENUES Taxes $21,822,298 $1,792,325 $23,614,623 Use of money and property 959,887 $657 158,855 1.119,399 Intergovernmental 4,321,649 1.245,617 5.567,266 Licenses and pennits 2,896,000 2,896,000 Charges for services 1,207,893 361,042 1,568,935 Fines and forfeitures 559,791 559,791 Other revenue 1,370,611 $276,500 145,684 1.792,795 Total Revenues 33,138,129 657 276,500 3,703.523 37,118,809 EXPENDITURES Current: Administration 1. J 62,096 1,162,096 Law enforcement 6,144,695 6,144.695 Public ¡nfonnaticn 758,314 758,314 Administrative services 3.671,303 3.671,303 Recreation services 2,121,366 2,121,366 Community development 2,830.633 326,275 3,156;908 Public works 8,076,341 1,560,973 9,637.314 Capital outlay 8,340,572 1,685,363 10,025,935 Debt service Principal 1,245,000 1,245,000 Interest and fiscal charges 2,289,526 2,289.526 Total Expenditures 24,764,748 3,534,526 8.340,572 3.572,6 J 1 40,212,457 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 8,373,381 (3,533,869) (8,064,072) 130,912 (3,093.648) OTHER FINANCING SOURCES (USES) Transfers in (Note 4) 2,439,878 3,547,000 1,917,885 7,904,763 Transfers (out) (Note 4) (5, I 64,000) (1,772.763) (6,936,763) Total Other Financing Sources (Uses) (2.724,122) 3,547,000 145,122 968,000 NET CHANGE IN FUND BALANCES 5,649,259 13,131 (8,064.072) 276,034 (2,125,648) BEGINNING FUND BALANCES 16,529.556 9,980 8,065,871 7,681,970 32,287,377 ENDING FUND BALANCES $22, I 78,815 $23,111 $1.799 $7,958,004 $30,161,729 See accompanying notes to financial statements 25 CITY OF CUPERTINO Reconciliation of the NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS with the STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2005 The schedule below reconciles the Net Changes in Fund Balances reported on the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balance, which measures only changes in current assets and current liabilities on the modified accrual basis, with the Change in Net Assets of Governmental Activities reported in the Statement of Activities, which is prepared on the full accrual basis. NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS ($2, I 25,648) Amounts reported for governmental activities in the Statement of Activities are different because of the following: CAPITAL ASSETS TRANSACTIONS 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 (Net of internal service fund additions of $54,399) 9,247,635 Depreciation expense is deducted from the fund balance (Depreciation expense is net of internal service fund depreciation of $5 I 2,270 which has already been allocated to serviced funds) (4,845,791) LONG TERM DEBT PROCEEDS AND PAYMENTS Repayment of bond principal is an expenditure in the governmental funds, but in the Statement of Net Assets the repayment reduces long-term liabilities. Repayment of debt principal is added back to fund balance 1.245,000 ACCRUAL OF NON-CURRENT ITEMS The amounts below included in the Statement of Activities do not provide or (require) the use of current financial resources and therefore are not reported as revenue or expenditures in governmental funds (net change): Non-current portion of compensated absences Deferred revenue (190,099) (68,249) ALLOCATION OF INTERNAL SERVICE FUND ACTIVITY Internal Service Funds are used by management to charge the costs of certain activities, such as equipment acquisition, maintenance, and insurance to individual funds. The portion of the net revenue (expense) of these Internal Service Funds arising out of their transactions with governmental funds is reported with governmental activities, because they service those activities. Change in Net Assets - All [nternal Service Funds 377,252 CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $3,640, I 00 See accompanying notes to financial statements 26 CITY OF CUPERTINO GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2005 Budgeted Amounts Variance with Final Budget Positive Actual Amounts (Negative) Original Final Revenues: Taxes $19,572,000 $20,069,000 $2 I ,822,298 $ I ,753,298 Use of money and property 1,187,000 1,200.900 959,887 (241,013) Intergovernmental 3.444,000 2,953,255 4,321,649 1,368,394 Licenses and pennit5 1,600,000 2.000,000 2,896,000 896,000 Charges for services 492,000 495,600 1.207.893 712.293 Fines and forfeitures 600,000 600,000 559.791 (40,209) Other revenue 310.000 1,676,300 1,370,611 (305.689) Amounts available for appropriation 27.205,000 28.995,055 33,138,129 4,143.074 Charges for appropriation (outflows) Administration 1,360,000 1,348,707 1.162.096 186.61 I Law enforcement 6.723,000 6.976.075 6,144,695 831,380 Public information 718,000 758,314 758.314 Administrative services 4,095,000 4,316,741 3.671,303 645,438 Recreation services 2,255,000 2,266,819 2,121,366 145,453 Community development 2,596.000 3.396.050 2,830,633 565,417 Public works 9.279,000 9.372.795 8,076,341 1,296,454 Total charges for appropriations 27,026,000 28,435.501 24.764,748 3,670,753 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 179.000 559.554 8,373,381 7,813.827 OTHE.R FINANCING SOURCES (USES) Transfers in 2,737,000 2,439,878 2,439.878 Transfers (out) (4,864.000) (5,164,000) (5.164,000) Total other financing sources (uses) (2,127,000) (2.724,122) (2,724,122) NET CHANGE IN FUND BALANCES ($ I ,948,000) ($2.164,568) 5,649.259 $7.813.827 BEGINNING FUND BALANCES 16,529,556 ENDING FUND BALANCES $22,178.815 See accompanying notes to financial statements 27 MAJOR PROPRIETARY FUNDS Proprietary funds account for City operations financed and operated in a manner similar to a private business enterprise. The intent of the City is that the cost of providing goods and services be financed primarily through user charges. The concept of major fùnds established by GASB Statement 34 extends to Proprietary Funds. The City has identified the funds below as major proprietary funds for fiscal 2005. GASB 34 does not provide for the disclosure of budget vs. actual comparisons regarding proprietary funds that are major funds. RESOURCES RECOVERY FUND This fund accounts for activity related to the collection and disposal of solid waste. A private company has been issued an exclusive franchise to perfonn these services. BLACKBERRY FARM FUND This fund accounts for activities related to operating the picnic area and golf course. CUPERTINO SPORTS CENTER FUND This fund accounts for the operation and maintenance of the Cupertino Sports Facility. RECREATION PROGRAMS FUND This fund accounts for activities of the City's community center. SENIOR CENTER FUND This fund accounts for the activities of the City's senior center. 28 CITY OF CUPERTINO PROPRIETARY FUNDS STATEMENT OF NET ASSETS FOR THE YEAR ENDED JUNE 30, 2005 Business-type Activities-Enterprise Funds Governmental Cupertino Activities- Resources Blackberry Sports Recreation Senior Internal Service Recovery Fann Center Programs Center Totals Funds ASSETS Current assets: Cash and investments (Note 2) $5,297,378 $293.780 $392,560 $627.252 $189,481 $6,800,451 $3.710.836 Accounts receivable 325,594 6,459 21 81,353 79,764 493,191 Prepaid expense 972 65,254 66,226 10,634 Advance to other funds (Note 4) 260,157 260.157 Total current assets 5,883.129 300,239 393,553 708.605 334,499 7.620.025 3.721,470 Capital assets, net of accumulated depreciation (Note 6) 553,541 17,865 5,212 2.344 578,962 936.820 Total Assets 5.883,129 853.780 411,418 713,817 336,843 8,198,987 4,658,290 LIABILITIES Current Liabilities: Accounts payable and accruals 162,829 37,214 21,748 19,915 241,706 20,167 Accrued payroll and benefits 4,052 46,830 11,071 46,179 5.975 114,107 303,480 Deposits 116,508 80,236 196,744 Deferred revenue 157,945 547,117 244,481 949.543 Total current liabilities 166,881 200.552 190.764 613,211 330,692 1,502.100 323,647 Non-current Liabilities: Compensated absences (Note 1 G) 88,936 88,936 Claims payable (Note 9) 850,268 Total Liabilities 166.881 289,488 190,764 613,211 330,692 1.591.036 1,173,915 NET ASSETS Invested in capital assets, net of related debt 553,541 17,865 5,212 2,344 578,962 936.820 Unrestricted 5,716,248 10,751 202,789 95,394 3.807 6,028,989 2,547.555 Total Net Assets (Deficit) $5,716,248 $564,292 $220.654 $100.606 $6,151 $6,607,951 $3,484.375 See accompanying notes to financial statements 29 CITY OF CUPERTINO PROPRIETARY FUNDS STATEMENT OF REVENUE, EXPENSES AND CHANGES IN FUND NET ASSETS FOR THE YEAR ENDED JUNE 30, 2005 Business-type Activities-Enterprise Funds Governmental Cupertino Activities- Resources Blackberry Sports Recreation Senior Internal Service Recovery Fann Center Programs Center Totals Funds OPERATING REVENUES Charges for services $2,420,810 $\,107.761 $1.324,388 $2.\67.706 $473.788 $7.494,453 $1.802,916 Other 3,332 111,195 61,449 175,976 Total Operating Revenues 2,424,142 1,218,956 1,385,837 2,167,706 473,788 7,670,429 1,802,916 OPERATING EXPENSES Salaries and benefits 86,075 616.615 235,431 515.629 53,132 1,506,882 610,839 Materials and supplies 5,071 292,761 161,316 132.525 377,030 968.703 288.039 Contractual services 2,835,914 357,857 1,050,257 1,037,717 6,715 5,288,460 240,640 Insurance and claims 358.640 Depreciation 74,479 5,953 3,565 1,563 85,560 437,072 Total Operating Expenses 2,927,060 1,341,712 1,452,957 1,689,436 438,440 7,849,605 1,935,230 Operating Income (Loss) (502.918) (122.756) (67.120) 478,270 35,348 (179.176) (132.314) NONOPERATING REVENUES (EXPENSES) Interest income 173.158 6,074 8.614 25.527 2,396 215,769 89,566 Total Nonoperating Revenues (Expenses) 173,158 6,074 8,614 25,527 2,396 215,769 89.566 Income (Loss) Before Contributions and Transfers (329,760) (116.682) (58.506) 503,797 37,744 36.593 (42.748) Transfers in (Note 4) 420,000 Transfers (out) (Note 4) (500,000) (888.000) (1.388,000) Net transfers (500.000) (888.000) (1.388.000) 420,000 Change in net assets (829.760) (116.682) (58.506) (384.203) 37,744 (1.351.407) 377.252 Net Assets (Deficit)-Beginning 6,546,008 680,974 279,160 484,809 (31.593) 7,959,358 3,107,123 Net Assets (Deficit)-Ending $5,716.248 $564.292 $220,654 $100.606 $6,15\ $6,607,951 $3,484,375 See accompanying noles to financial statements 30 CITY OF CUPERTINO PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2005 Business-type Activities-Enterprise Funds Governmental Cupertino Activities- Resources Blackberry Sports Recreation Senior Internal Service Recovery Fann Center ProRl'ams Center Totals Funds CASH FLOWS FROM OPERATING ACTIVITIES Cash received ITom customers $2,476,942 $1,221,161 $I,392,168 $2,168,701 $526,880 $7.785,852 $1,806,666 Cash payments to suppliers for goods and services (2,942,660) (655,963) (1,213,086) (I.165,08I) (371,320) (6,348,110) (902.571) Cash payments to employees (85,900) (595,805) (240.265) (518,877) (75,458) (1,516,305) (664,596) Net cash provided by operating activities (551,618) (30,607) (61,183) 484,743 80,102 (78,563) 239,499 CASH FLOWS FROM NONCAPIT AL FINANCING ACTIVITIES Advance to other funds 216,456 216,456 Transfers in 420,000 Transfers (out) (500,000) (888,000) (1,388,000) Cash Flows from Noncapital Financing Activities (283,544) (888,000) (I,17I.544) 420,000 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchase of capital assets (19,234) (19,234) (274,177) Cash Flows from Capital and Related Financing Activities (19,234) (19,234) (274,177) CASH FLOWS FROM INVESTING ACTIVITIES Interest received 173,158 6,074 8,615 25,528 2,396 215,771 89,566 Cash Flows ITom Investing Activities 173,158 6,074 8,615 25,528 2,396 215.771 89,566 Net Cash Flows (662,004) (43,767) (52,568) (377,729) 82,498 (1,053,570) 474,888 Cash and investments at beginning of year 5,959.382 337.547 445,128 1,004,981 106,983 7,854,021 3,235,948 Cash and investments at end of year $5,297,378 $293.780 $392,560 $627,252 $189,481 $6,800,451 $3,710,836 Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) ($502,918) ($122,756) ($67,120) $478,270 $35,348 ($179,176) ($132,314) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 74,479 5,953 3,565 1,563 85,560 437,072 Change in assets and liabilities: Accounts receivable 52,800 2,205 3,192 (13,303) 10.600 55,494 3,750 Prepaid expense (972) (50,754) (51,726) (10,634) Accounts payable and accruals (101,675) (21,528) (541) 5,161 (2,075) (120,658) (55,032) Accrued payroll and benefits 175 7,264 (I67) (3,248) 3,130 7,154 10.955 Deposits 16,183 (250) (4,611) 11,322 Deferred revenue 3,389 14,298 112,357 130,044 Noncurrent portion of compensated absences 13.546 (4,667) (25,456) (16,577) (64,712) Noncurrent portion of claims payable 50,414 Net cash provided by operating activities ($551,618) ($30,607) ($61.183) $484,743 $80,102 ($78.563) $239,499 See accompanying notes 10 financial statements 31 FIDUCIARY FUNDS Fiduciary Funds include all agency funds that account for assets held by the City as an agent for individuals, private organizations, other governmental units and/or other funds. All Agency Funds, representing all fiduciary funds of the City, are custodial in nature and do not involve measurement of results of operations, Such funds have no equity since any assets are due to individuals or other entities at some future time. 32 ASSETS CITY OF CUPERTINO FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2005 Cash and investments (Nole 2) LIABILITIES Deposits T olal Assets Tolal Liabilities See accompanying notes to financial statements 33 Agency Funds $237,932 $237,932 $237,932 $237,932 NOTES 34 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended Jnne 30, 2005 (I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Reporting Entitv The City of Cupertino, Califomia (the City) was incorporated on October 3, 1955, under the laws of the State of California. The City operates under a Council - City Manager fonn of government and provides services through the following departments: Administrative Services, Community Development, City Manager, Parks and Recreation, Public Infonnation, and Public W orks/Engineering. Fire services are provided by the Santa Clara County Fire District, and the City contracts with the Santa Clara County Sheriffs Department for police services, and with the Los Altos Garbage Company for garbage and recycling services. The accompanying basic financial statements include all funds, account groups, and boards and commissions that are controlled by the City Council. The basic financial statements include the City's blended component units, entities for which the City is considered to be financially accountable, A blended component unit, although a legally separate entity, is in substance, part of the City's operations and so data from this unit is combined with the City. Blended component units - The Cupertino Public Facilities Corporation (the Corporation) was incorporated in May 1986, under the Nonprofit Public Benefit Corporation Law of the State of California. The Corporation was organized as a nonprofit corporation for the purpose of assisting the City in the acquisition, construction, and financing of public improvements which are of public benefit to the City, The Corporation, after acquiring certain properties from the City, leases these back to the City. The lease money provides the funds for the debt service for the Certificates of Participation issued by the Corporation to acquire the properties, The Cupertino Redevelopment Agency was fonned in 2000 under the Califomia Health & Safety Code to assist in the elimination of areas considered to be in a blighted condition, The City Council acts as the Board of Directors of the Corporation and the Agency, The Mayor and Vice Mayor of the City have been elected President and Vice President, respectively, of the Corporation. The City Clerk has been elected Secretary, and the City's Director of Administrative Services has been appointed Treasurer of both entities, Separate financial statements for those component units that issue them are available from the City at 10300 Torre Avenue, Cupertino, CA 95014-3202. (b) Measurement Focus. Basis of Accounting and Basis of Presentation The City's Basic Financial Statements are prepared in confonnity with accounting principles generally accepted in the United States of America. The Government Accounting Standards Board is .the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the U.S.A. 35 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 200S (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Measurement Focus. Basis of Accounting and Basis of Presentation (continued) Government-wide Statements: The Statement of Net Assets and the Statement of Activities display infonnation about the primary government (the City) and its component units, These statements include the financial activities of the overall City government, except for fiduciary activities, Eliminations have been made to minimize the double counting of internal activities. These statements distinguish between the governmental and business-type activities of the City. Governmental activities generally are financed through taxes, . intergovernmental revenues, and other nonexchange transactions. Business-type activities are financed in whole or in part by fees charged to external parties. The Statement of Activities presents a comparison between expenses and program revenues for each segment of the business-type activities of the City and for each function of the City's governmental activities. Expenses include direct and indirect types, Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Indirect expenses such as depreciation, infonnation technology, insurance and equipment replacement are included in expenses for individual activities and functions, Program revenues include (a) charges paid by the recipients of goods or services offered by the programs, (b) grants and contributions that are restricted to meeting the operational or capital needs of a particular program and (c) development fees which are considered capital grants under California law. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide infonnation about the City's funds, including fiduciary funds and blended component units. Separate statements for each fund category - governmental. proprietary, and fiduciary - are presented. The emphasis of fund financial statements is on major individual governmental and enterprise funds, each of which is displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. Proprietary fund operating revenues, such as charges for services, result ITom exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Nonoperating revenues, such as subsidies and investment earnings, result from nonexchange transactions or ancillary activities, 36 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Measurement Focus. Basis of Accounting and Basis of Presentation (continued) Major Funds - GASB Statement 34 defines major funds and requires that the City's major governmental and business-type funds be identified and presented separately in the fund financial statements, All·other funds, called non-major funds, are combined and reported in a single column, regardless of their fund-type. Major funds are defined as funds, which have either assets, liabilities, revenues or expenditures equal to ten percent of their fund~type total and five percent of the grand total. The General Fund is always a major fund. The City may select other funds it believes should be presented as major funds. The City reported the following major governmental funds in the accompanying financial statements: The General Fund is the general operating fund of the City, It is used to account for all financial resources except those that are required to be accounted for in another fund. The Public Facilities Corporation Debt Service Fund accounts for the payments of principal and interest on certificates of participation issued to provide for the advance refunding of the City Hall/Library, Wilson Park and Memorial Park certificates of participation, The Library Construction Fund accounts for costs associated with demolition of an old library building, and the design and construction of a new library on that site The City reports all its enterprise funds as major funds in the accompanying financial statements: The Resources Recovery Fund accounts for activity related to the collection and disposal of solid waste. A private company has been issued an exclusive rranchise to perform these services. The Blackberry Farm Fund accounts for activities related to operating the picnic area and golf course. The Cupertino Sports Center Fund accounts for the operation and maintenance of the Cupertino Sports Facility, . The Recreation Programs Fund accounts for activities of the City's community center, The Senior Center Fund accounts for the activities of the City's senior center. 37 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended Jnne 30, 2005 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continned) (b) Measurement Focus. Basis of Accounting and Basis of Presentation (continued) The City also reports the following fund types: Internal Service Funds. These funds account for workers' compensation, management infonnation system maintenaÌtce and replacement, equipment maintenance and replacement, and long-tenn disability coverage; all of which are provided to other departments on a cost-reimbursement basis. Fiduciary Fund. This fund accounts for deposits held by the City as an agent. Basis of Accounting - The government-wide, proprietary, and fiduciary fund 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 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 City considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after year-end, Expenditures are recorded when the related fund liability is incurred, except for principal and interest on long-tenn debt which are recognized as expenditures to the extent they have become due and payable. General capital asset acquisitions are reported as expenditures in governmental funds, Proceeds from long-tenn debt and acquisitions under capital leases are reported as other financing sources, Property taxes, utility taxes, franchise taxes, interest and special assessments are susceptible to accrual. Sales taxes collected and held by the state at year end on behalf of the City are also recognized as revenue. Other receipts and taxes are recognized as revenue when the cash is received. Grant revenues are recognized in the fiscal year in which all eligibility requirements are met. Under the tenns of grant agreements, the City may fund certain programs with a combination of cost-reimbursement grants, categorical block grants, and general revenue. Thus, both restricted and unrestricted net assets may available to finance program expenditures. The City's policy is to first apply restricted grant resources to such programs, followed by general revenues if necessary. 38 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (I) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Measurement Focus. Basis of Accounting aud Basis of Presentation (continued) The City follows statements and interpretations of the Financial Accounting Standards Board and its predecessors that were issued on or before November 30, 1989, in accounting for its business-type activities, unless they conflict with Government Accounting Standards Board pronouncements, GASB 33 Non-Exchange Transaction - Non-exchange transactions, in which the City gives or receives value without directly receiving or giving equal value in exchange, include property taxes, grants, entitlements, and donations, On the accrual basis, revenue from property 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, (c) Budgetarv Practices The budget of the City is a detailed operating plan which identifies estimated costs and results in relation to estimated revenues, The budget includes (I) the programs, projects, services and activities to be provided during the fiscal year; (2) estimated revenue available to finance the operating plan; and (3) the estimated spending requirements of the operating plan. The budget represents a process through which policy decisions are made, implemented and controlled, The City prohibits expending funds for which there is no legal appropriation, All appropriations lapse at fiscal year end. In May of each year, the City Manager submits to the City Council a proposed budget for the fiscal year beginning July I. Public hearings on the proposed budget are held during the month of June and the budgets for all fund types are legally adopted by Resolution prior to June 30. Original budget amounts are presented on the accompanying budgetary statements include these legally adopted amounts. The City Manager is responsible for controlling the City's expenditures in accordance with the adopted budget. The City Manager is authorized to transfer appropriations within functional expenditure classifications, Any revision which requires transfers between functional expenditure classifications or increases total appropriations must be approved by the City Council. Requests for additional personnel or capital outlay also require the approval of the City Council. The legal level of budgetary control is at the departmental or project level. Budgets for governmental funds are adopted on a basis consistent with generally accepted accounting principles. Budget infonnation is presented for the general, special revenue and debt service funds only. Capital project funds are budgeted on a long-tenn project-by-project basis and, hence, budgets for these funds are not presented in the basic financial statements, 39 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (d) Cash and Investments The City pools its cash resources, consisting of cash and investments, of all funds for investment except for restricted funds generally held by an outside fiscal agent. Cash amounts are reported net of outstanding warrants, Investments are stated at fair value. (e) Caoital Assets Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Donated fixed assets are recorded at their estimated fair value on the date donated. Public domain (infrastructure) capital assets consisting of roads, bridges, curbs, gutters, medians, sidewalks, drainage and lighting systems have been capitalized and depreciated. Depreciation is recorded using the straight-line method over the following useful lives: Buildings Improvements Vehicles Street equipment Water equipment Office equipment Road, curbs, gutters, sidewalks, medians and bridges Streetlights Storm drain structure and mains Traffic signals The City capitalizes fixed assets exceeding $1,000, Years 25 31 4-10 3-20 3-50 3-5 30-40 20 40 20 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 eamedon the invested proceeds over the same period, Some capital assets may be acquired using federal and state grant funds, or they may be contributed by developers or other governments. GASB Statement 34 requires that these contributions be accounted for as revenues at the time the capital assets are contributed. 40 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (I) Claims and Jud!!IDents Pavable Claims and judgments payable are accrued when the liability is incurred and the amount can be reasonably estimated. Claims and judgments payable are recorded in an internal service fund for workers' compensation and long-tenn disability, General liability claims and judgments are not material and are not accrued, (g) Compensated Absences Compensated absences comprise vested accumulated vacation and sick leave. The City's liability for compensated absences is recorded in Governmental Activities or various Proprietary funds as appropriate. The liability for compensated absences is detennined annually. For all governmental funds, amounts expected to be "pennanently liquidated", such as what is due to be paid because Of a realized employment action, are recorded as fund liabilities; the long-tenn portion is recorded in the Statement of Net Assets. In prior years, the governmental fund associated with the ongoing salary and benefit cost of the employee has liquidated the long-tenn liability. The changes in compensated absences were as follows: Governmental Business-Type Activities Activities Total Beginning Balance $1,994,620 $105,513 $2,100,133 Additions 239,955 73,161 313,116 Payments (153.464) (25.315) (178.779) Ending Balance $2.081.111 $153.359 $2.234.470 Current Portion $ 64.423 $ 64.423 (h) Fund E()uitv Reservations of fund balances represent those portions of fund balances which are not available for appropriation or expenditure or are legally restricted for a specific future use, Designated fund balances represent management's tentative plans for future use of financial resources, (i) Propertv Tax Calendar All property taxes are levied and collected by the County of Santa Clara. Secured taxes are levied on July I, are due in two installments on November 1 and March I and become delinquent on December 10 and April 10. Unsecured taxes are due on July I and become delinquent on August 31, The lien date for secured and unsecured property taxes is March 1. 41 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended Jnne 30, 2005 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (i) Propertv Tax Calendar (continued) The City, in fiscal year 1993-94, adopted an alternative method of property tax distribution (the "Teeter Plan"), Under this method, the City receives 100% of its secured property tax levied in exchange for foregoing any interest and penalties collected on delinquent taxes. The City receives remittances as a series of advances made by the County during the year. U) Interfund Transactions Transactions constituting reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund, expenditures/expenses in the reimbursing fund and as expenditures/expenses in the fund that is reimbursed. are recorded as reductions of (k) Statement of Cash Flows For purposes of reporting cash flows for the City's proprietary funds, pooled cash and investments are considered cash equivalents as the proprietary funds can access pooled cash and investments in a manner similar to a demand deposit account. (I) Bond Discounts and Issue Costs Debt discounts and issuance costs are recognized in the current period. Debt discounts and issuance costs incurred by proprietary fund types are amortized over the term of the debt using the bonds-outstanding method, which approximates the effective interest method. (m) Inventories and Prepaids Inventories are accounted for under the purchases method, which considers inventories to be recognized as an expenditure upon purchase, with inventories insignificant at year- end. Prepaid expenses are reported under the consumption method, which recognizes the expense in the period associated with the service rendered or goods consumed, (2) CASH AND INVESTMENTS The City's pooled idle funds are invested pursuant to investment policy guidelines adopted by the City Council. The objectives of the policy are to invest funds to the fullest extent possible and to invest in accordance with the provisions of the California Government Code with the priority of safety, liquidity and yield, The policy addresses the safekeeping of securities, types of investment instruments The City maintains a cash and investment pool that is available for use by all funds. Each fund type's portion of this pool is displayed on the combined balance sheet as "cash and investments. " 42 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended Jnne 30, 2005 (2) CASH AND INVESTMENTS (continned) (a) Policies California Law requires banks imd savings and loan institutions to pledge government securities with a market value of 110% of the City's cash on deposit, or first trust deed mortgage notes with a market value of 150% of the deposit, as collateral for these deposits. Under California Law this collateral is held in a separate investment pool by another institution in the City's name and places the City ahead of general creditors of the institution. The City and its fiscal agents invest in individual investments and in investment pools, Individual investments are evidenced by specific identifiable securities instruments, or by an electronic entry registering the owner in the records ofthe institution issuing the security, called the book entry system. Security instruments owned by the City are held in safekeeping by a third party custodian acting as agent for the City under the tenus of a custody agreement. Individual investments are generally made by the City and its fiscal agents. The City's investments are carried at fair value, as required by generally accepted accounting principles, The City adjusts the carrying value of its investments to reflect their fair value at each fiscal year end, and it includes the effects of these adjustments in income for that fiscal year. (b) Class¡[¡cation The City's total cash and investments, at fair value, are presented on the accompanying statement of net assets in the following allocation: Statement of Net Assets Cash and investments Cash and investments with fiscal agent Subtotal Fiduciary Funds Cash and investments $38,611,210 2,399,851 41,011,061 237,932 Total Cash and investments $41,248,993 43 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (2) CASH AND INVESTMENTS (continued) (c) Authorized Investments bv the Citv The City's Investment Policy and the California Government Code allow the City to invest its pooled idle funds in the following, under limits and provisions that address interest rate risk, credit risk, and concentration of credit risk. This does not include the City's investments of debt proceeds held by fiscal agents that are governed by the provisions of debt agreements of the City, Maximum Maximum Minimum Percentage of Authorized Investment Type Maturity Credit Quality Portfolio U.S. Treasury obligations 5 years N/A None Federal Agency securities (A) 5 years (B) N/A None Up to $40 California Local Agency Investment million, per State Fund N/A N/A law Non-negotiable Certificates of Deposit 5 years N/A None (time deposits) State of Cali fomi a registered state 5 years N/A None warrants, treasury notes, or bonds California local agency bonds, notes, 5 years N/A None warrants or other obligations Bonds issued by the local agency 5 years N/A None Bankers Acceptances 180 days N/A 40% Commercial Paper 180 days A-I+/P·I 25% Maximum Investment In One Issuer None None None 10% of portfolio ; 5% of issuer's net worth 10% 10% 10% None 10% of portfolio; 5% of issuer's net worth; 10% of outstanding paper of issuer. Negotiable Certificates of Deposit 5 years N/A 30% Repurchase Agreements I year N/A None Medium Tetm Corporate Notes 5 years A or better 30% Money market mutual funds investing in U.S. Treasury or Government N/A N/A 20% Agency securities 10% of portfolio; 5% of issuer's net worth 10% of portfolio; 5% of issuer's net worth 10% of portfolio ; 5% of issuer's net worth 10% (A) Securities issued by agencies of the federal government such as the Government National Mortgage Association, (GNMA), the Federal Home Loan Bank (FHLB), the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), and the Federal Fann Credit Bank (FFCB), (B) As allowed by City investment policy, the City Council approved an exception to the 5-year maturity limit with an investment in 1993 of three FHLMC securities with maturities in 2007 and 2008. Such investments have a maturity value of$6.26 milJion. 44 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (2) CASH AND INVESTMENTS (continued) (d) Authorized Investments bv Debt Agreements The City must maintain required amounts of cash and investments with trustees or fiscal agents under the tenus of certain debt issues. These funds are unexpended bond proceeds or are pledged reserves to be used if the City fails to meet its obligations under these debt issues. The California Government Code requires these funds to be invested in accordance with City ordinances, bond indentures or State statutes, The City's Investment Policy allows investments of bond proceeds to be governed by provisions of the related bond indentures, The following identifies the investment types that are authorized for investments held by fiscal agents under the tenus of the bond indentures of the related debt issue: Authorized Investment Type Money market mutual funds California Local Agency Investment Fund U.S. Treasury obligations u.s. Federal agency obligations (A) Pre-refunded local agency municipal obligations that are non-callable or irrevocably callable on a specified date General obligations of states U.S. dollar denominated deposit accounts, federal funds and bankers acceptances Commercial paper Time or demand accounts or certificates of deposits, collateralized Investment agreements or other fanns of investments, including repurchase agreements, approved by the financial guaranty insurance camer. Maximum Maximum Minimum Credit Percentage of Maturity Quality Portfolio Aaam or N/A AAAm-G None Up to $40 million, per N/A N/A State law N/A N/A None N/A N/A None Highest rating N/A category None N/A A2/A None 360 days P-I,A-I+,A-I None 270 days P-l,A-1 None N/A N/A None N/A N/A None (A) Securities issued by agencies of the federal government such as the Government National Mortgage Association, (GNMA), the Federal Home Loan Bank (FHLB), the Federal National Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation (FHLMC), and the Federal Fann Credit Bank (FFCB). 45 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (2) CASH AND INVESTMENTS (continued) (e) 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. Information about the sensitivity of the fair values of the City's investments (including investments held by bond trustees) to market interest rate fluctuations is provided by the following table that shows the distribution of the City's investments by maturity or earliest call date: Investments with Fiscal Agent 12 Months or less 13 to 24 Months 25 to 60 Months Total 986.000 $986,410 \9,75\,861 \4,907,053 2,966.038 986.000 u.s. Treasury Securities Federal Agency Obligations Local Agency Invesnnent Fund Government Securities Money Market Funds Non-negotiable Certificates of Deposit $986,410 2,795,210 14,907,053 2,966,038 $7,659,090 $9,297,561 Total Investments $2\ 654711 $7 659 090 $10 283561 39,597,362 Cash in banks and on hand Total Cash and Investments \ 651.631 $4\ 248 993 The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by Califomia Government Code Section 16429 under the oversight of the Treasurer of the State of California, The City reports its investment in LAIF at the fair value amount provided by LAIF, which is the same as the value of the pool share, The balance is available for withdrawal on demand, and is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. Included in LAIF's investment portfolio are collateralized mortgage obligations, mortgage-backed securities, other asset- backed securities, loans to certain state funds, and floating rate securities issued by federal agencies, govemment-sponsored enterprises, United States Treasury Notes and Bills, and corporations. At June 30, 2005, these investments matured in an average of 151 days, Money market funds are available for withdrawal on demand and at June 30, 2005, matured in an average of 15 days. 46 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30,2005 (2) CASH AND INVESTMENTS (continued) (f) 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 actual rating as of June 30, 2005 for each investment type, including those with fiscal agents, as provided by Moody's ratings: Investment Type Federal Agency Obligations Government Securities Money Market Funds Aaa $19.669,519 2,966,038 Total $19,669,519 2,966,038 Totals Exempt /Tom Credil Rating Disclosure: U.S. Treasury Securities Not Rated: Federal Agency Obligations Local Agency Investment Fund Certificates of deposil $22,635,557 22,635,557 986,410 82,342 14,907,053 986,000 Total Investments $39,597,362 (g) Concentration of Credit Risk The City's investment policy contains certain limitations on the amount that can be invested in anyone issuer, In certain categories, these limitations are more restrictive than those required by California Government Code Sections 53600 et seq. Investments in anyone issuer, other than V,S, Treasury securities, mutual funds, and external investment pools, that represent 5% or more of total Entity-wide investments are as follows at June 30, 2005: Issuer Investment Type Reported Amounl Federal Home Loan Bank Federal National Mortgage Association Federal Home Loan Mortgage Corporation Federal Agencies Obligation Federal Agencies Obligation Federal Agencies Obligation $10,373,646 5,035,936 4,342,279 47 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (3) RELATED PARTY LOAN In conjunction with the City's executive housing assistance program, loans totaling $1,535,860 have been provided to three executive managers. These 40-year loans bear an interest rate equal to the II th District Cost of Funds at the time of the loan, and require monthly principal and interest payments. In addition, there is a two percent deferral on the interest rate for the first five years of the loan, at which time the interest rate may be adjusted to the current 11 th District Cost of Funds for the remainder of the loan. At June 30, 2005, the balance remaining on the three loans was $1,049,123, (4) INTERFUND TRANSACTIONS Transfers between funds during the fiscal year ended June 30, 2005 were as follows: Amount Fund Making Transfers Fund Receiving Transfers Transferred General Fund: Non-major governmental funds $1,197.000 (D) Public Facilities Corporation Debt Service Fund 3,547,000 (F) Internal Service Funds 420,000 (B) Special Revenue Funds: Non-major governmental funds General Fund 1,730,726 (A) Capital Projects Funds: Non-major governmental funds General Fund 1,153 (E) Non-major governmental fund Non-major governmental funds 40.884 (I) Enterprise Funds: Resource Recovery General Fund 500,000 (H) Recreation Program General Fund 208,000 (C) Recreation Program Non-major governmental funds 680.000 (G) Total Interfund Transfers $8,324,763 The reasons for these transfers are set forth below: (A) To move all park dedication fees to the General Fund and to close the Leadership Cupertino program. (B) To cover Workers' Compensation Fund shortfall and to provide budgeted new technology equipment. (C) Budgeted (enterprise funds) transfer of excess earnings over expenditures for cost reimbursement to the General Fund. (D) To fund street maintenance and capital projects (budget and midyear adjustment) (E) To closeout Sports Center construction fund. (F) For debt service (G) For capital projects (budget and midyear adjustments) (H) To reimburse General Fund costs for waste cleanup. (I) To consolidate Blackbeny Fann and Stevens Creek Trail master plans into the Stevens Creek Corridor Park Project Fund. 48 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (4) INTERFUND TRANSACTIONS (continued) As of June 30, 2005 the owners of the Vallco redevelopment project area submitted plans to the RDA and were in the process of securing letters of intent and additional approvals for property redevelopment. As new building has not yet commenced, tax increment revenues are not yet sufficient to finance Agency operations. To assist the Agency until project redevelopment generates additional tax increment revenues, the City has advanced funds to the Agency, a part of non-major governmental funds, to fmance operations, As of June 30, 2005 the balance of the advance is $258,712, In fiscal year 2001/02, City Council approved a budget of approximately $20,800,000 for the construction of a new library. At that time, the library community pledged to raise an additional $1.2 million to pay for the furniture and fixtures in the new building which effectively increased the size of the building. However, the campaign committee fell short of its fundraising effort, In order to keep the project on its construction schedule, the City Council approved a loan from the Resource Recovery Enterprise Fund for this shortfall, At June 30, 2005, the General Fund owes the Resource Recovery Enterprise Fund $260,157, Internal Balances - Internal balances are presented only in the City-wide financial statements. They represent the net interfund receivables and payables remaining after the elimination of all such balances within governmental and business-type activities. 49 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (5) CAPITAL ASSETS A summary of changes in capital assets follows: Balance at Balance at June 30. 2004 Additions Retirements Transfers June 30, 2005 Governmental activities Capital assets not being depreciated: Land $60.835,080 ($600,000) $60,235.080 Construction in progress: Infrastructure 919,660 $287.545 ($919.660) 287,545 Other capital projects 18.373,470 (18,373,470) Total capital assets not being depreciated 80,128,210 287.545 (600.000) (19,293,130) 60.522,625 Capital assets being depreciated: Buildings 17,405,025 8.489,478 13,616,908 39.511.411 Improvements other than buildings 19.523.576 8,704 5,285,583 24.817,863 Machinery and Equipment - governmental funds 1,558.137 149,609 (7,092) 1,700,654 Machinery and Equipment - internal service funds 4,339,704 274.178 (135,120) 4.478.762 Road, curbs, gutters. sidewalks, medians and bridges 96,223,587 572,098 136,265 96,931,950 Streetlights 6,500,000 6,500.000 Stann drain structure and mains 31,228,683 59.833 31,288,516 Traffic signals 5,202.919 284.317 254,374 5,741,610 Total capital assets being depreciated 181.981.631 9,838,217 (142.212) 19,293.130 210.970,766 Less accumulated depreciation for: Buildings 7.077,299 645,848 7,723,147 Improvements other than buildings 15.070,704 790,388 15.861,092 Machinery and Equipment - governmental funds 1,011.736 168,271 (3,142) 1.176.865 Machinery and Equipment - internal service funds 3,239,990 437.072 (135,120) 3,541.942 Road, curbs, gutters, sidewalks, medians and bridges 72.012,671 2.372.021 74,384,692 Streetlights 6,500.000 6,500,000 Storm drain structure and mains 21,092.195 780.717 21.872,912 Traffic signals 3,909,030 88,546 3,997,576 Total accumulated depreciation 129.913.625 5,282,863 (138,262) 135,058,226 Net capital assets being depreciated 52,068.006 4,555,354 (3.950) 19,293.130 75,912,540 Governmental activity capital assets, net $132,196,216 $4.842.899 ($603,950) $136,435,165 50 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended Jnne 30, 2005 (5) CAPITAL ASSETS (continued) Balance at Balance at June 30, June 30, 2004 Additions 2005 Business-type activities: Capital assets not being depreciated: Land and improvements $389,929 $389,929 Total capital assets not being depreciated 389,929 389,929 Capital assets being depreciated: bnprovements other than buildings 638,464 638,464 Machinery and Equipment 314,078 $19,232 333,310 Total capital assets being depreciated 952,542 19.232 971.774 Less accumulated depreciation for: Improvements other than buildings 471,316 471,316 Machinery and Equipment 225,865 85,560 311,425 Total accumulated depreciation 697,181 85.560 782,741 Net capital assets being depreciated 255,361 (66.328) 189,033 Business-type activity capital assets, net $645,290 ($66,328) $578.962 Depreciation expense was charged to functions and programs based on their usage of the related assets. The amounts allocated to each function or program were as follows: Governmental Activities Administration Law enforcement Public information Administrative services Recreation services Community development Public works Internal service funds $90,642 2,172 54,524 34,396 16,571 574 4,646,912 437,072 $5,282,863 51 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (5) CAPITAL ASSETS (continued) Business- Type Activities Blackberry F anns Cupertino Sports Center Recreation Programs Senior Center $74,479 5,953 3,565 1,563 $85,560 (6) LONG-TERM DEBT (a) Cupertino Public Facilities Corporation Certificates of Participation Original Balance Balance Issue June 30, June 30. Current Amount 2004 Retirements 2005 Portion Governmental Activity Debt: 2002 Refinancing and Capital Improvement Project, 2.00-5.00%, due 07/01/203 1 $56,640.000 $53,550,000 $1.245.000 $52,305,000 $1,270,000 The Cupertino Public Facilities Corporation issued Certificates of Participation to provide financing for the construction of the Community Center, remodeling of City Hall and the Library in July of 1986, to purchase Wilson Park in 1989, to finance Memorial Park Expansion in 1990, and to purchase Blackberry Fann and Fremont Older site in 1991. Cupertino Public Facilities Corporation, as lessor, leased real property to the City (under the lease agreement with the lessee) and assigned the base rental payments to the trustee for the benefit of the owners of the certificates of participation, The rental payments are scheduled to be sufficient in both time and amount, when the principal and interest of the certificates are due. On October I, 2002, $56,640,000 principal amount of 2002 Refinancing and Capital Improvement Project Certificates of Participation, (2002 COPs) were issued to finance the costs of acquiring and constructing a new public library and to refund the 1992A COPs, the 1992B COPS and the 1993A COPs ("Refunded COPS"), 52 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended Jnne 30, 2005 (6) LONG-TERM DEBT (continned) (a) Cupertino Public Facilities Corporation Certificates of Participation (continued) Annual debt service requirements for the Certificates of Participation are shown below: Governmental Activities For the Year Ending June 30 Principal mterest 2006 $1,270,000 $2,262,738 2007 1,295,000 2,237,338 2008 1,355,000 2,179,063 2009 1,415,000 2,116,394 2010 1,460,000 2,073,944 2011-2015 8,035,000 9,625,681 2016-2020 9,795,000 7,868,555 2021-2025 12,280,000 5,385,174 2026-2030 15,400,000 2,262,187 Total $52,305,000 $36,011,074 (b) 1915 Act Bonds Without Citv Commitment The City acts as agent for the property owners of parcels upon which assessments were made for local improvements. The City collects the assessments and forwards the collections to bond holders. The City is not directly liable for the repayment of special assessment district bonds as such bonds and interest payable are secured by fixed lien assessments on real property; however, the City has determined that it is not probable that the government would assume responsibility for all or part of the debt in the event of default, The amount ofumnatured bond principal at June 30, 2005 was $150,000, (c) Conduit Debt On October 1, 2001, the City authorized the issuance of the Multi-Family Housing Revenue Bonds in an amount up to $1.6 million to assist a developer in financing the cost of site acquisition and construction of a 24 unit multi-family rental housing project. The bonds are payable solely out of loan repayments received from the developer, The City has no legal or moral liability with respect to the payment of this debt, 53 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (7) NET ASSETS AND FUND BALANCES Net Assets are measured on the full accrual basis while Fund Balance is measured on the modified accrual basis, Net Assets - Net Assets is the excess of all the City's assets over all its liabilities, regardless of fund. Net Assets are divided into three captions under GASB Statement 34, These captions apply only to Net Assets, which is detennined only at the Government-wide level, and are described below: Invested in Capital Assets, net of related debt describes the portion of Net Assets which is represented by the current net book value of the City's capital assets, less the outstanding balance of any debt issued to finance these assets. Restricted describes the portion of Net Assets which is restricted as to use by the tenns and conditions of agreements with outside parties, governmental regulations, laws, or other restrictions which the City 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. Governmental fund balances represent the net current assets of each fund, Net current assets generally represent a fund's cash and receivables, less its liabilities. Portions of a fund's balance may be reserved or designated for future expenditure, Fund Balances, Reserves and Designations - In the Fund financial statements, fund balances represent the net current assets of each fund. Net current assets generally represent a fund's cash and receivables, less its liabilities, Portions of a fund's balance may be reserved or designated for future expenditure. The unreserved fund balances include amounts which have been internally designated to be set aside and are not considered to be available for immediate appropriation. The components of the unreserved fund balance for the Governmental Funds at June 30, 2005 are as follows: General Fund: Economic Uncertainty designation Disaster Preparedness designation Retiree Medical designation PERS Future Liability designation Undesignated, unreserved Special Revenue Funds Capital Projects funds, CIP $2,500,000 7,500,000 1,151,000 1,000,000 6,162,846 3,618,814 1,663,033 Total unreserved fund balances $23,595,693 54 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (7) NET ASSETS AND FUND BALANCES (continued) (a) New. closed and renamed funds The City renamed the Gas Tax Special Revenue Fund and the Four Seasons Capital Project fund to the Transportation Special Revenue Fund and the Cali Mill Plaza Capital Project Fund, respectively. In fiscal 2005 the City started the Stevens Creek Corridor Park Capital Project Fund and closed the Sports Center Building Capital Project fund. (8) COMMITMENTS AND CONTINGENCIES The City participates in a number of federal and state grant programs subject to financial and compliance audits by the grantors or their representatives, Audits of certain grant programs, including those for the year ended June 30, 2005, have yet to be conducted. The amount, if any, of expenditures that may be disallowed by the granting agencies cannot be determined at this time. Management believes that such disallowances, if any, would not have a material effect on the financial statements. (9) LIABILITIES UNDER SELF-INSURANCE AND RISK MANAGEMENT The City is self-insured for the first $100,000 of general and automobile liability for each occurrence, and the excess (up to $10,000,000) is covered through the City's participation in the Association of Bay Area Governments (ABAG) general liability risk pool. The pool consists of 31 agencies within the San Francisco Bay area. The stated purpose of the ABAG pool is to provide certain levels of liability insurance coverage, claims management, risk management services, and legal defense to each participating city within the pool. Each city was required to make an initial deposit premium based on an actuarial study of each City's risk exposure. The premium consists of a risk portion and administrative portion. The premium is revised each year based on claims experience and risk exposure. Complete financial statements for ABAG plan may be obtained from their offices at the following address: ABAG Plan Corporation, Finance Department, P.O. Box 2050, Oakland, CA 94604, In January 2004, the City joined the California Public Entity Insurance Authority (CPEIA), a joint power authority which provides excess workers' compensation liability claims coverage above the City's self-insured retention of $500,000 per occurrence, Losses above the self-insured retention are pooled with excess reinsurance purchased to a $100,000,000 limit. CPEIA was established in 2001 for the purpose of creating a risk management pool for all California public entities. CPEIA is governed by a Board of Directors consisting of representatives of its member public entities, During the fiscal year 2003/04, an outside independent actuary performed a two-year analysis of the City's workers' compensation program. The resulting unpaid claims liability recorded by the City includes those based on existing open claims plus those estimated on an incurred but not reported basis. Allocated loss adjustment expenses, such as fees paid to outside attorneys, were also considered, . 55 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For tbe Year Ended Jnne 30, 2005 (9) LIABILITIES UNDER SELF-INSURANCE AND RISK MANAGEMENT (continued) Changes in the balances of claim liabilities during the past two fiscal years are as follows: Workers' Compensation Claims liability, June 30, 2003 Incurred claims Claim payments/credits $661,056 567,506 (164,562) Claims liability, June 30, 2004 1,064,000 Incurred claims Claim payments/credits 213,731 (213,731) Claims liability, June 30, 2005 $1,064,000 (10) OTHER POST EMPLOYMENT RETIREMENT BENEFITS Pennanent employees who retire under the City's retirement plan (PERS) are, pursuant to their respective collective bargaining agreements, eligible to have their medical insurance premiums paid by the City. Retirees receive the amount necessary to pay the cost of hislher enrollment, including the enrollment of hislher family members, in a health benefit plan up to tbe maximum received by active employees in their respective bargaining unit. The cost of retiree medical insurance premiums are recognized as an expenditure when benefits are paid. There were 80 retirees participating in the plan as of June 30, 2005. The City bas established a designation of General Fund Balance to fund the liabilities associated with this retiree medical benefit. Retiree medical insurance premium expenses for the past five fiscal years ended June 30, are as follows: 2001 2002 2003 2004 2005 $299,054 346,202 427,312 501,568 536,190 56 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 2005 (11) DEFERRED COMPENSATION PLAN Due to the passage of the Small Business Job Protection Act (Act) of 1996, and the issuance of Governmental Accounting Standards Board Statement No. 32 "Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans," governmental entities who have established deferred compensation plans under Internal Revenue Code Section 457 are required to establish trusts to hold plan assets for the exclusive benefit of plan participants and their beneficiaries. This Act supercedes previous regulations, which required that plan assets remain the property of the City until paid or made available to the participants, subject only to the City's general creditors. In compliance with the new regulations, the City established separate trusts to hold plan assets, The value of assets held in trust under Section 457 deferred compensation plans is approximately $9,898,20 I as of June 30, 2005, These assets have been excluded from the financial statements. (12) DEFINED BENEFIT PENSION PLAN (a) Plan Description The City of Cupertino's defined benefit pension 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 multiple-employer plan administered by CaIPERS, which acts as a common investment and administrative agent for participating public employers within the State of California, A menu of benefit provisions as well as other requirements are established by State statutes within the Public Employees' Retirement Law. The City selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through local ordinance, CalPERS issues a separate comprehensive annual financial report. Copies of the CalPERS' annual financial report may be obtained from the CalPERS Executive Office, 400 P Street, Sacramento, CA 95814, (b) Funding Policv Active plan members are required to contribute 7% of their annual covered salary, which is paid by the City on behalf of the employee. The City is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. The required employer contribution rate for fiscal year 2004/05 was 8.315%. The contribution requirements of the plan members are established by State statute and the employer contribution rate is established and may be amended by CalPERS. . 57 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended June 30, 200S (12) DEFINED BENEFIT PENSION PLAN (continued) (c) Annual Pension Cost The required contribution for fiscal year 2004/05 was detennined as part of the June 30, 2002 actuarial valuation using the entry age nonnal actuarial cost method with the contributions detennined as a percent of pay. The actuarial assumptions included a) 8.25% investment rate of return (net of administrative expenses); b) projected salary increases that vary by duration· of service ranging from 3.75% to 14,20% for miscellaneous members and c) no cost-of-living adjustment, Both (a) and (b) include an inflation component of 3.5% and a payroll growth of 3,75%. The actuarial value of the City of Cupertino's assets was detennined using a technique that smoothes the effect of short-tenn volatility in the market value of investments over a three year period. The City of Cupertino's overfunded actuarially accrued liability is being amortized as a level percentage of projected payroll on a closed basis. The average remaining amortization period at June 30, 2005 was 3 years. Three year trend infonnation for City of Cupertino: Annual Percentage Fiscal Year Pension of APC Ending Cost (APC) Contributed 6/30/03 $712,014 100,0% 6/30/04 877,928 100,0% 6/30105 870,110 100.0% Funding Analysis from CALPERS (in thousands) Miscellaneous Plan: Actuarial Unfunded Entry Age Unfunded Annual (Overfunded) Valuation Accrued Value of (Overfunded) Funded Covered Liability as % Date Liability Assets Liability Ratio Payroll of Payroll 2000 $29,259,413 $37.433,639 ($8,174,226) 127.9% $7,849,639 (104.1%) 2001 32,474,733 38,534,381 (6,059,648) 118.7% 8,533.904 (71.0%) 2002 35.125,628 36,012,654 (887.026) 102.5% 9,370,084 (9.5%) 58 CITY OF CUPERTINO, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS For the Year Ended Jnne 30, 2005 (13) DEFICIT FUND BALANCE As of June 30, 2005, the General Fund had advanced funds to the Redevelopment Agency (RDA) for staffing costs, legal and consulting fees. As the Valleo Agency Project Area was not fonnalized until October 19, 2000, such expenditures have resulted in a deficit fund balance of $222,322. Once the project tax increment is generated, the RDA will repay the advance. 59 NOTES 60 MAJOR GOVERNMENTAL FUNDS OTHER THAN THE GENERAL FUND AND SPECIAL REVENUE FUNDS This section is provided for the presentation of Budget-to-Actual Statements for the Public Facilities Corporation Debt Service Fund. Although the fund is considered to be a major government fund, GASB Statement 34 dictates that budget-to-actual infonnation in the basic fmancial statements should be limited to the General Fund and major Special Revenue Funds, All other major governmental fund schedules with such infonnation must be included as Supplemental Infonnation. Public Facilities .Corporation Debt Service Fund - Accounts for the accumulation of resources for and the payments of principal and interest on certificates of participation issued in 2002 to advance refund debt that was previously issued to finance City Hall, Library, Wilson Park and Memorial Park projects, 61 CITY OF CUPERTINO PUBLIC FACILITIES CORPORATION DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2005 Variance Positive Budget Actual (Negative) REVENUES Use of money and property $657 $657 Total Revenues 657 657 EXPENDITURES Debt service: Principal $1,220,000 1,245,000 (25,000) Interest 2,327,050 2,289,526 37,524 Total Expenditures 3,547,050 3,534,526 12,524 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (3,547.050) (3,533,869) 13.181 OTHER FINANCING SOURCES (USES) Transfers in 3,547,000 3,547,000 Total Other Financing Sources (Uses) 3,547,000 3,547.000 NET CHANGE IN FUND BALANCES ($50) 13,131 $13,181 BEGINNING FUND BALANCE 9,980 ENDING FUND BALANCE $23,111 62 NON-MAJOR GOVERNMENTAL FUNDS All funds not defined as major funds for the Fund Financial Statements are consolidated in one column entitled "Other Governmental Funds". These non-major funds are identified and included in this supplemental section and includes all the City's Special Revenue Funds and several distinct Capital Project Funds. The Special Revenue Funds are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. Storm Drain - Accounts for the construction and maintenance of stonn drain facilities including drainage and sanitary sewer facilities. Park Dedication - Accounts for the activity granted by the business and professions code of the State of California in accordance with the open space and conservation element of the City's General Plan. Revenues of this fund are restricted for the acquisition, improvement, expansion and implementation of the City's parks and recreation facilities, Environmental Management - Accounts for all activities related to operating the non-point source pollution program, Transportation - Accounts for the City's gas tax, sales tax and grant revenues and expenditures related to the maintenance and construction of city streets, All revenue in this fund is restricted exclusively for street and road purposes including related engineering and administrative expenses, Housing Development - Accounts for the Federal Housing and Community Development Grant Program activities administered through the county. Monies in this fund are governed by the program rules. Leadership Cupertino - Accounts for revenue and expenditures for the purpose of supporting a leadership training course in the community. Redevelopment Vallco - Accounts for revenue and expenditures related to the Redevelopment Agency project area at Vallco Fashion Park, The Capital Project Funds are used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by Proprietary Funds), Capital Improvement Projects - Accounts for activities related to the acquisition or construction of major capital facilities. Cali Mill Plaza - Accounts for activities related to the construction of Cali Mill Plaza located at the southeast comer of DeÄnza Boulevard and Stevens Creek Boulevard. Sports Center Building - Accounts for the completion of the new Sports Center, Stevens Creek Corridor Park - Accounts for the development of the master plan and the design and construction ofthe Stevens Creek Corridor Park. 63 CITY OF CUPERTINO NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEETS JUNE 30, 2005 SPECIAL REVENUE FUNDS Stonn Park Environmental Housing Drain Dedication Management Transportation Development Assets Cash and investments $1,120.106 $179,254 $168,701 $2,737,860 $ 1,083,610 Accounts receivable 74,341 2,647 32,912 23,915 Loans receivable 960,659 Other assets Total assets $1,194,447 $181,901 $168,701 $2.770,772 $2,068,184 Liabilities Accounts payable and accruals $37,364 $42 $132,504 $38,898 Accrued payroll and benefits 1,197 5,809 22.078 3,672 Advance trom other funds Deferred revenue 8,418 266,398 Total Liabilities 38,561 5,851 163.000 308,968 Fund balances Reserved for: Encumbrances 123,673 $171,492 19.625 979,010 Loans receivable 694,26 I Low and moderate income housing Prepaids and other assets Unreserved, reported in: Special Revenue Funds 1,032,213 $10,409 143,225 1,628,762 1,064,955 Capital Project Funds Total fund balances 1,155.886 181,901 162.850 2,607,772 1.759,216 Total liabilities and fund balances $1.194,447 $181,901 $168,701 $2,770,772 $2,068, 184 64 SPECIAL REVENUE FUNDS CAP IT AL PROJECT FUNDS Tota[ Capital Cali Sports Stevens Creek Nonmajor Leadership Redevelopment Improvement MiU Center Corridor Governmental Cupertino Valleo Projects Plaza Building Park Funds $38,428 $[,218.6[5 $2,524 $7[9,090 7,268,188 257 19,986 154,058 960,659 400,000 400,000 $38,428 $1,618,872 $2,524 $739.076 $8,782,905 $36,100 $11,671 $256,579 $2.038 34,794 258,712 258,712 274,816 260,750 36,100 11,671 824.901 57,002 190.865 1.541,667 694,261 38,428 38,428 400,000 400,000 (260,750) 3,618,814 1,125,770 $2,524 536,540 1,664.834 (222,322) 1.582,772 2,524 727,405 7,958,004 $38,428 $1,618,872 $2,524 $739.076 $8,782,905 65 CITY OF CUPERTINO NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENTS OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2005 SPECIAL REVENUE FUNDS Sto"" Park Environmental Housing Drain Dedication Management Transportation Development REVENUES Taxes $50,500 $1.723,050 Use of money and property 29,282 3,133 $606 $75,908 $49,926 Intergovernmental 991,083 202,234 Charges for services 361,042 Other revenue Total Revenues 79,782 1,726,183 361,648 1,066,991 252,160 EXPENDITURES Current Community development 264,091 Public works 37,513 332.856 1.190,604 Capital outlay 50,327 652,346 Total Expenditures 50,327 37,513 332,856 1.842,950 264,091 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 29,455 1,688.670 28.792 (775.959) (11,931) OTHER FINANCING SOURCES (USES) Transfers in 750,000 Transfers (out) (1,723,050) Total Other Financing Sources (Uses) (1,723,050) 750.000 NET CHANGE IN FUND BALANCES 29,455 (34,380) 28,792 (25,959) (11,931) BEGINNING FUND BALANCES (DEFICIT) 1,126,431 216,281 134,058 2,633,731 1,771,147 ENDING FUND BALANCES (DEFICIT) $1,155,886 $181,901 $162,850 $2,607.772 $1,759,216 66 SPECIAL REVENUE FUNDS CAPITAL PROJECTS FUNDS Total Capital Cali Sports Stevens Creek Nonmajor Leadership Redevelopment Improvement Mill Center Corridor Governmental Cupertino Valleo Projects Plaza Building Park Funds $18,775 $1,792.325 158,855 $52,300 1.245,617 361,042 $145.684 145,684 18,775 145,684 52.300 3,703,523 62,184 326,275 1.560,973 857,567 $79.343 45,780 1.685,363 62,184 857,567 79.343 45,780 3,572,611 (43,409) (711.883) (79,343) 6,520 130,912 447,000 720,885 1,917.885 ($7.676) (40,884) ($1,153) (1.772,763) (7,676) 406,116 (1.153) 720,885 145,122 (7,676) (43,409) (305,767) (79,343) (1,153) 727.405 276,034 7,676 (178,913) 1,888,539 81,867 1,153 7,681 ,970 ($222,322) $1,582,772 $2,524 $727,405 $7,958,004 67 CITY OF CUPERTINO BUDGETED NON-MAJOR FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30. 2005 SPECIAL REVENUE FUNDS STORM DRAIN PARK DEDICATION Variance Variance Positive Positive Budget Actual (Negative) Budget Actual (Negative) $50,000 $50,500 $500 $1,723,050 $1,723.050 25.000 29,282 4.282 3.133 $3.133 REVENUES Taxes Use of money and property (ntergovemmental Charges for services Total Revenues 75,000 79,782 4,782 1,723,050 1.726,183 3.133 EXPENDITURES Current: Community development Public works Capital outlay Total Expenditures 37,513 (37,513) 1,014,952 50,327 964,625 211,652 211 ,652 1.014,952 50,327 964,625 211,652 37.513 174,139 (939,952) 29,455 969.407 1,511,398 1.688,670 177.272 (1,723.050) (1,723.050) ( 1,723,050) ( 1.723,050) ($939,952) 29,455 $969,407 ($211.652) (34.380) $177,272 1,126,431 216,281 $1.155,886 $181.901 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers (out) Total Other Financing Sources (Uses) NET CHANGE IN FUND BALANCES BEGINNING FUND BALANCES (DEFICIT) ENDING FUND BALANCES (DEFICIT) 68 SPECIAL REVENUE FUNDS ENVIRONMENTAL MANAGEMENT TRANSPORTATION HOUSING DEVELOPMENT Variance Variance Variance Positive Positive Positive Budget Actual (Negative) Budget Actual (Negative) Budget Actual (Negative) $1,000 $606 ($394) $50,000 $75.908 $25,908 $31,000 $49,926 $18,926 6.050,000 991.083 (5.058,917) 476,000 202.234 (273,766) 360,000 36 1,042 1,042 361,000 36 I ,648 648 6,100,000 1,066,991 (5,033,009) 507,000 252,160 (254.840) 1,206.856 264,091 942,765 406,882 332,856 74.026 1,570,381 1,190,604 379,777 8,11 1,145 652,346 7,458,799 406,882 332.856 74,026 9.681,526 1,842.950 7,838,576 1,206,856 264.091 942.765 (45.882) 28,792 74.674 (3,581,526) (775,959) 2,805,567 (699.856) (11,931) 687.925 750,000 750,000 750,000 750.000 ($45,882) 28.792 $74,674 ($2,83 I ,526) (25,959) $2,805.567 ($699,856) (11,931) $687,925 134,058 2,633,731 1,771.147 $ I 62,850 $2.607,772 $1,759,216 (Continued) 69 CITY OF CUPERTINO BUDGETED NON-MAJOR FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2005 SPECIAL REVENUE FUNDS LEADERSHIP CUPERTINO Variance Positive (Negative) Actual REOEVELOPMENT V ALLCO Variance Positive Budget Actual (Negative) Budget REVENUES Taxes Use of money and property Intergovernmental Charges for services $35.000 3,000 $18,775 ($ I 6,225) (3,000) Total Revenues 38,000 18.775 (19,225) EXPENDITURES Current: Community development Public works Capital outlay 204,474 62,184 142,290 Total Expenditures 204,474 62,184 142,290 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (166,474) (43,409) 123,065 OTHER FINANCING SOURCES (USES) Transfers in Transfers (out) (7,676) (7,676) (7,676) (7,676) ($7,676) (7,676) ($166,474) (43,409) $123.065 7,676 (178,913) ($222,322) Total Other Financing Sources (Uses) BEGINNING FUND BALANCES (DEFICIT) ENDING FUND BALANCES (DEFICIT) 70 TOTALS Variance Positive Budget Actual (Negative) $1,808,050 $1,792,325 ($15,725) 110,000 158.855 48,855 6,526.000 1,193,317 (5,332,683) 360,000 361,042 1,042 8,804,050 3,505,539 (5,298,511) 1,411,330 326.275 1,085,055 1,977,263 1,560,973 416,290 9,337,749 702,673 8.635,076 12.726,342 2,589,921 10,136,421 (3,922.292) 915,618 4,837,910 750,000 750,000 (1.730,726) (1,730,726) (980,726 ) (980.726) ($4,903,018) (65,108) $4,837,910 5.710,411 $5,645,303 71 INTERNAL SERVICE FUNDS The Internal Service Funds are used to account for the financing of goods or services provided by one department to other departments of the City on a cost reimbursement basis. The concept of major funds does not extend to internal service funds because they do not do business with outside parties. For the Statement of Activities, the net revenues and expenses of each internal service fund are eliminated by netting them against the operations of the City departments that generated them, The remaining balance sheet items are consolidated with these same funds in the Statement of Net Assets. However, internal service funds are still presented separately in the Fund Financial Statements. Management Information Systems - Accounts for the activities related to the maintenance and replacement of the City's technology infrastructure. Workers' Compensation - Accounts for the activities in support of the self-insured workers' compensation program. Equipment Revolving - Accounts for the activities related to the maintenance and replacement of the City's vehicle fleet. Long-Term Disability - Accounts for the activities related to the City's program for long term disability, 72 CITY OF CUPERTINO INTERNAL SERVICE FUNDS COMBINING STATEMENT OF NET ASSETS JUNE 30, 2005 Management lnfomation W orkers' Equipment Long- Tenn Systems Compensation Revolving Disability Total ASSETS Cash and investments $1,040,888 $1,221.123 $1,434,560 $14,265 $3,710,836 Prepaid expense 10,634 10,634 Total current assets 1.051,522 1,221,123 1.434,560 14,265 3,721,470 Capital assets, net of accumulated depreciation 221,965 714,855 936.820 Total Assets 1,273,487 1,221.123 2,149,415 14,265 4,658,290 LIABILITIES Current Liabilities: Accounts payable and accruals 15,355 150 4,662 20,167 Accrued payroll and benefits 25.998 214.589 62.893 303,480 Total current liabilities 41,353 214,739 67.555 323,647 Non-current Liabilities: Claims payable 850,268 850,268 Total Liabilities 41,353 1,065.007 67.555 1,173,915 NET ASSETS Invested in capital assets, net of related debt 221,965 714,855 936,820 Unrestricted 1,010,169 156,116 1,367,005 14,265 2,547,555 Total Net Assets $1,232,134 $156,116 $2,081.860 $14,265 $3,484.375 73 CITY OF CUPERTINO INTERNAL SERVICE FUNDS COMBINING STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS FOR THE YEAR ENDED JUNE 30, 2005 Management Infonnation Workers' Equipment Long-Tenn Systems Compensation Revolving Disability Total OPERATING REVENUES Charges for services $716,500 $149,429 $891,520 $45.467 $1,802,916 Total Operating Revenues 716,500 149,429 891,520 45,467 1,802,916 OPERATING EXPENSES Salaries and related expenses 305,786 16,434 288.619 610.839 Materials and supplies 111,741 176,298 288,039 Contractual services 182,737 57,903 240,640 Insurance claims 313,896 44,744 358.640 Depreciation 129,572 307,500 437,072 Total Operating Expenses 729,836 330,330 830,320 44,744 1,935,230 Operating Income (Loss) (13,336) (180,901) 61,200 723 (132.314) NONOPERATING REVENUES (EXPENSES) Interest income 25,718 27,745 35,723 380 89,566 Total Nonoperating Revenues (Expenses) 25,718 27,745 35,723 380 89.566 Income (Loss) Before Transfers 12,382 (153,156) 96,923 1,103 (42,748) Transfers in 120,000 300.000 420,000 Change in Net Assets 132,382 146,844 96,923 1,103 377,252 BEGINNING NET ASSETS 1,099,752 9,272 1,984,937 13,162 3,107,123 ENDING NET ASSETS $1,232,134 $156,116 $2,081,860 $14,265 $3,484,375 74 CITY OF CUPERTINO INTERNAL SERVICE FUNDS COMBINING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JUNE 30. 2005 Management Infannation Workers' Equipment Long-Term Systems Compensation Revolving Disability Total CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $720,250 $149,429 $891,520 $45,467 $1,806.666 Cash payments to suppliers for goods and services (350.660) (269,591) (237,576) (44,744) (902,571) Cash payments to employees (307.92 I) (66,715) (289,960) (664,596) Cash Flows from Operating Activities 61,669 (186,877) 363,984 723 239,499 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers in 120,000 300.000 420,000 Cash Flows from Noncapital Financing Activities 120,000 300,000 420,000 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchase of capital assets (134,413) (139,764) (274,177) Cash Flows from Capital and Related Financing Activities (134,413) (139,764) (274,177) CASH FLOWS FROM INVESTING ACTIVITIES Interest received 25,718 27,745 35.723 380 89,566 Cash Flows from Investing Activities 25,718 27,745 35,723 380 89,566 Net Cash Flows 72,974 140,868 259,943 1,103 474,888 Cash and investments at beginning of year 967,914 1,080,255 1,174.617 13,162 3,235,948 Cash and investments at end of year $1.040,888 $1,221,123 $1,434,560 $14,265 $3,710,836 Reconciliation of operating income (loss) to net cash flows from operating activities: Operating income (loss) ($13,336) ($180.901) $61,200 $723 ($132,314) Adjustments to reconcile operating income (loss) to net cash flows from operating activities: Depreciation 129,572 307,500 437,072 Change in assets and liabilities: Accounts receivable 3,750 3,750 Prepaid expenses (10,634) (10,634) Accounts payable and accruals (45,548) (6,109) (3,375) (55,032) Accrued payroll and henefits 12,106 (50,281) 49,130 10,955 Compensated absences (14,241) (50,471) (64,712) Claims Payable 50,414 50.414 Cash Flows from Operating Activities $6 I ,669 ($186,877) $363,984 $723 $239,499 75 FIDUCIARY FUNDS Fiduciary Funds include all agency funds that account for assets held by the City as an agent for individuals, private organizations, other governmental units and/or other funds. All Agency Funds, representing all fiduciary funds of the City, are custodial in nature and do not involve measurement of results of operations. Such funds have no equity since any assets are due to individuals or other entities at some future time. These funds are presented separately from the Governmental and Fund Financial Statements, 76 CITY OF CUPERTINO Combining Statemenl of Changes in Assets and Liabililies All Agency Funds For the Fiscal Year Ended June 30, 2005 Balance Balance June 30, 2004 Additions Deletions June 30, 2005 All Agency Funds Assets Cash and investments $234,130 $3,802 $237,932 Liabilities Deposits $234,130 $3,802 $237,932 77 NOTES 78 STATISTICAL SECTION 79 NOTES 80 STATISTICAL SECTION This section contains comprehensive statistical data that relates to physical, economic, social and political characteristics of the City. It is intended to provide users with a broader and more complete understanding of the City and its financial affairs than is possible from the financial statements and supporting schedules included in the financial section, This section includes comparative information related to the City's revenue sources, expenditures, property tax valuations, property tax rates, and demographic statistics, all for the last ten years. Also presented is the computation of the City's legal debt margin, and a listing of principal taxpayers, In contrast to the financial section, the statistical section information is not subject to independent audit. 81 CITY OF CUPERTINO GENERAL GOVERNMENTAL EXPENDITURES BY FUNCTION (I) LAST TEN FISCAL YEARS Table I Fiscal Law Public Administrative Recreation Community Year Administration Enforcement Information Services Services Development 1996 $809,492 $4,123,214 $513,106 $1,817,122 $1,045,300 $1,580,017 1997 $854,531 $4,118,027 $537,268 $1,750,575 $1,121,666 $1,608,010 1998 $856,836 $4,393,319 $590,667 $1,991,328 $1,164,822 $1,850,490 1999 $1,133,408 $4,892,704 $631,035 $2,008,976 $1,363,41 ° $2,101,942 2000 $1,242,310 $4,693,565 $796,458 $2,410,754 $1,536,152 $2,349,874 2001 $1,387,086 $5,351,653 $617,894 $3,033,073 $1,774,484 $2,700,888 2002 $1,464,165 $5,765,208 $707,885 $3,314,944 $1,858,338 $4,473,788 2003 $1,474,924 $6,015,036 $703,431 $3,475,991 $2,104,167 $3,177 ,406 2004 $1,222,581 $5,950,849 $686,798 $3,758,806 $2,141,431 $2,563,242 2005 $1,162,096 $6,144,695 $758,314 $3,671,303 $2,121,366 $3,156,908 Note: (1) Includes General, Special Revenue, Debt Service and Capital Project Funds, (Does not include other financing uses). (2) Beginning in 1999 the debt service for 1915 Act and special assessment debt were excluded from these tables as it was determined that the City has no obligation for the debt. Source: City Administrative Services 82 Public Capital Debt Works Outlay Service (2) Total $6,209,090 $5,005,071 $6,196,680 $27,299,092 $6,786,574 $1,234,165 $7,125,413 $25,136,229 $9,047,794 $4,412,291 $5,193,242 $29,500,789 $9,167,386 $8,059,124 $5,\78,897 $34,536,882 $12,480,766 $3,404,088 $4,953,360 $33,867,327 $10,979,150 $5,348,378 $4,944,710 $36,137,316 $11,079,959 $5,435,850 $4,934,973 $39,035,110 $10,440,335 $6,812,856 $9,865,705 $44,069,851 $9,322,086 $20,246,237 $3,537,837 $49,429,867 $9,637.314 $10,025,935 $3,534,526 $40,212,457 83 CITY OF CUPERTINO GENERAL GOVERNMENTAL REVENUES BY SOURCE (I) LAST TEN FISCAL YEARS Table 2 Fiscal Use of Money Inter- Licenses & Charges Fines and Other Year Taxes (2) and Property lZovernmental Pennits (3) for Services Forfeitures Revenue Total 1996 $18,626,169 $2,417,589 $4,660,903 $2,241,106 $193,720 $1,320,878 $29,460,365 1997 $18,182,889 $2,671,812 $2,903,880 $2,077,637 $205,366 $792,679 $26,834,263 1998 $20,447,603 $2.776,441 $3,602,596 $2,366.376 $241,293 $1,146,454 $30,580,763 1999 $18,837,091 $3,114,595 $5,650,954 $2,578,015 $503,223 $475,266 $31,159,144 2000 $23,587,459 $2,866,012 $4,807,077 $1,359,949 $887,907 $524,057 $737,066 $34,769,527 2001 $23,859,776 $3,336,651 $5,483,956 $1,230,060 $987,563 $470,627 $435,351 $35,803.984 2002 $24,321,923 $2,262,622 $7,205,476 $1,310,470 $993,890 $616,227 $127,186 $36,837,794 2003 $20,200,250 $1,910,503 $6,318,523 $1,410,572 $855,844 $550,377 $59,219 $31,505,288 2004 $21,004,405 $940,963 $7.236,955 $1,540,760 $930,050 $723,748 $1,009,260 $33,386,141 2005 $23,614,623 $1,119,399 $5,567,266 $2,896,000 $1,568,935 $559,791 $1,792,795 $37,118,809 Nole: (1) Includes General, Special Revenue, Debt Service and Capital Projects Funds. (Does not include other financing sources,) (2) Beginning in 1999 the debt service for 1915 Act and special assessmenl debt were excluded from these tables as il was detennined that the City has no obligation for the debt. (3) Prior to the fiscal year ended June 30, 2000, revenues derived from Licenses and Penn its were included as Charges for Services. Source: City Administrative Services 84 CITY OF CUPERTINO ASSESSED AND ESTIMATED ACTUAL VALUES OF TAXABLE PROPERTY LAST TEN FISCAL YEARS Table 3 Total Estimated Fiscal Total Assessed Full Market Year Secured Exemptions Unsecured Valuation Valuation 1996 $4,585,406,820 $65,248,400 $470,880,987 $5,121,536,207 $5,121,536,207 1997 $4,730,865,467 $66,172,400 $440,005,909 $5,170,871,376 $5,298,764,322 1998 $5,078,070,121 $57,445,281 $452,549,925 $5,538,936,459 $5,538,936,459 1999 $5,591,299,195 $67,859,400 $443,973,509 $6,043,669,471 $6,043,669,471 2000 $6,045,504,382 $73,148,676 $500,020,465 $6,553,278,115 $6,553,278,115 2001 $6,986,833,015 $67,242,848 $416,844,493 $7,407,208,836 $7,407,208,836 2002 $7,836,349,904 $82,089,594 $634,624,124 $8,562,981,335 $8,562,981,335 2003 $8,119,969,820 $75,795,294 $565,212,987 $8,685,515,766 $8,685,515,766 2004 $8,689,558,802 $80,704,482 $530,097,614 $9,219,879,996 $9,219,879,996 2005 $9,159,184,070 $80,678,889 $367,378,773 $9,526,841,379 $9,526,841,379 Source: The HdL Companies 8S CITY OF CUPERTINO PROPERTY TAX RATES - DIRECT AND OVERLAPPING GOVERNMENTS (PER $100 OF ASSESSED Y ALUE) LAST TEN FISCAL YEARS Table 4 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 County 1.000 1.000 1. 000 1.000 1.000 1.000 1. 000 1.000 1.000 1.000 County Bond 0.239 County Retirement ,0332 .0341 ,0388 .0388 ,0388 .0388 ,0388 .0388 ,0388 0,031 Library Retirement .0024 .0024 .0024 .0043 .0043 ,0043 .0043 .0043 .0043 .0043 Cupertino City Bond Elem and/or Unif Sch Bonds ,0182 ,0303 .0292 ,0247 ,0247 ,0247 .0247 .0247 ,0247 ,0247 High School Bonds Junior College Bonds Loan Repay-Cupertino Cupertino San Dist-Bond SCYWD-State Water Proj ,0072 ,0076 .0076 ,0053 .0053 ,0053 .0053 ,0053 ,0053 .0053 SCVWD-Zone W-1 Bond ,0023 ,0026 0.002 0,002 0.002 0,002 0.002 0,002 0,002 ,0014 TOTALS LQ11 1Q§i 1.080 1.075 1.075 .LQ1.2. .LQ1.2. LQ1l LQ1l 1.306 Source: The HdL Companies 86 CITY OF CUPERTINO PRINCIPAL TAXPAYERS JUNE 30, 2005 Table 5 2004-05 Percentage of Assessed Total Assessed Taxpayer Type of Business Valuation Valuation Hewlett Packard Electronic Equipment $414,763,638 4,31% Apple Computer Electronic Equipment $245,206,446 2,55% Tandem Computers Electronic Equipment $177,492,375 1.84% Vallco International Shopping Commercial $88,049,781 0.92% Cupertino City Center Land Developer $77,496,551 0,81% Symantec Commercial $70,444,743 0,73% V ilia Serra Apartments Residential $64,309,295 0.67% RWC LLC Industrial $63,749,704 0.66% Irvine Apartment Commons Residential $58,303,911 0.61% Ridgeview Court Associates Industrial $57,838,255 0,60% $1.317 .654.699 14.70% Source: The HdL Companies 87 CITY OF CUPERTINO COMPUTATION OF LEGAL DEBT MARGIN JUNE 30, 2005 Table 6 Total Assessed Valuation $9,526,841,379 Debt limit - 15 percent of Total Assessed Valuation $1,429,026,207 Less - outstanding bonded debts Legal debt margin $1,429,026,207 Source: HdL Companies 88 CITY OF CUPERTINO RATIO OF GENERAL BONDED DEBT TO ASSESSED VALUE AND BONDED DEBT PER CAPITA LAST TEN FISCAL YEARS Table 7 Ratio of General Fiscal Assessed General Bonded Debt Bonded Debt to Year Population Value Bonded Debt Per Capita Assessed Value 1996 43,627 $5,121,536,207 1997 44,775 $5,298,764,322 1998 46,682 $5,538,936,459 1999 50,000 $6,043,669,471 2000 52,000 $6,553,278,115 2001 50,546 $7,407,208,836 2002 50,546 $8,562,981,335 2003 52,000 $8,685,515,766 2004 52,628 $9,219,879,996 2005 52,600 $9,526,841,379 Source: (1) State of California, Department of Finance, Demographics Research Unit (2) County of Santa Clara and City Administrative Services 89 CITY OF CUPERTINO RATIO OF ANNUAL DEBT SERVICE EXPENDITURES FOR GENERAL BONDED DEBT TO TOTAL GENERAL GOVERNMENTAL EXPENDITURES LAST TEN FISCAL YEARS Table 8 Ratio of Debt Fiscal Total Debt Total General To General Year Principal Interest Service Expenditures (1 ) Expenditures 1996 $27,299,092 1997 $25,136,229 1998 $29,500,789 1999 $34,536,882 2000 $33,867,327 2001 $36,137,316 2002 $39,035,110 2003 $44,069,851 2004 $49,429,867 2005 $40,212,457 (1) Includes General, Special Revenue, Debt Service, and Capital Projects Funds Source: City Administrative Services 90 CITY OF CUPERTINO DEMOGRAPHIC STATISTICS LAST TEN FISCAL YEARS Table 9 School Fiscal Median Age Enrollment Unemployment Year Population (1 ) Years (2) Grades 9-12 (3) Rate (4) 1996 43,627 N/A 8,199 2,2% 1997 44,775 N/A 8,380 1.8% 1998 46,682 N/A 8,380 1.7% 1999 50,000 N/A 8,762 1.9% 2000 52,000 N/A 8,822 1,3% 2001 50,546 N/A 8,822 2.4% 2002 50,546 N/A 9,063 4.6% 2003 52,000 N/A 9,108 5.1% 2004 52,600 N/A 9,147 3,7% 2005 52,600 N/A 9,138 3.2% Source: (1) State of California, Department of Finance, Demographics Research Unit (2) Cupertino Chamber of Commerce (3) Fremont Union High School District (4) Department of Employment Statistics 91 CITY OF CUPERTINO PROPERTY VALUE, CONSTRUCTION, AND BANK DEPOSITS LAST TEN YEARS Table 10 Property Commercial Value (!) Residential Construction (2) Construction (2) Fiscal Assessed Number Year Valuation of Units Value Value 1996 $5,121,536,207 126 $23,423,228 $271,222 1997 $5,298,764,322 521 $51,129,923 $31,775,355 1998 $5,538,936,459 578 $62,019,693 $45,254,694 1999 $6,043,669,471 125 $42,771,247 $7,476,590 2000 $6,553,278,115 207 $72,983,009 $9,092,350 2001 $7,407,208,836 83 $22,251,562 $3,000,000 2002 $8,562,981,335 72 $17,674,435 $20,109,541 2003 $8,685,515,766 362 $69,763,102 $6,172,755 2004 $9,219,879,996 41 $19,258,573 $13,340,587 2005 $9,526,841,379 201 $44,368,084 $24,158,373 Source: (I) County of Santa Clara, Department of Finance (2) City of Cupertino Building Department (3) Findley Reports 92 CITY OF CUPERTINO COMPUTATION OF DIRECT AND OVERLAPPING BONDED DEBT JUNE 30, 2005 Table 11 2004-05 Assessed Valuation: Redevelopment Incremental Valuation: Adjusted Assessed Valuation: $9,526,841,379 1.323.121 $9,525,518,258 OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Santa Clara County Flood Control and Water Conservation District, Zone W-l Foothill-DeAnza Community College District Santa Clara Unified School District Fremont Union High School District Cupertino Union School District Santa Clara Valley Water District Benefit Assessment District City of Cupertino 1915 Act Bonds TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT 4,931% 13.848 2.686 29.423 49.094 4.803 100, DIRECT AND OVERLAPPING GENERAL FUND DEBT: Santa Clara County General Fund Obligations Santa Clara County Board of Education Certificates of Participation Foothill-DeAnza Community College District Certificates of Participation West Valley-Mission Community College District Certificates of Participation Santa Clara Unified School District Certificates of Participation Cupertino Union School District Certificates of Participation City of Cupertino Certificates of Participation Midpeninsula Regional Open Space Park District Certificates of Participation EI Camino Hospital Authority TOTAL GROSS DIRECT OVERLAPPING GENERAL FUND DEBT Less: El Camino Hospital Authority TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT 4.803% 4,803 13.848 0,881 2.686 49,094 100, 7.771 1.641 GROSS COMBINED TOTAL DEBT NET COMBINED TOTAL DEBT Debt 6/30/05 $ 185,406 25,663,820 3,222.931 42,192,582 61,968,928 9,157,400 150.000 $142,541,067 $ 38,675,197 863,820 3,108,184 198,137 203,465 2,707,534 53,550,000 8,886,153 7.138 $108,199,628 7.138 $108,192,490 $250,740,695 (1) $250,733,557 (1) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to 2004-05 Assessed Valuation: Total Overlapping Tax and Assessment Debt 1.50% Ratios to Adiusted Assessed Valuation: Combined Direct Debt ($53,550,000) Gross Combined Total Debt Net Combined Total Debt 0.56% 2.63% 2,63% ST ATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/05: $0 93 NOTES 94 COMMUNITY PROFILE 95 NOTES 96 .7íístory Cupertino owes its name and earliest mention in recorded history to the 1776 expedition led by the Spaniard, Don Juan Bautista de Anza, from Sonora, Mexico to the Port of San Francisco to found the presidio of St. Francis, Leaving the majority of the party of men, women, and children in Monterey to rest from their travels, deAnza, his diarist and cartographer, Petrus Font, and 18 other men pressed on through the Santa Clara Valley in late March to their San Francisco destination. With the expedition encamped in what is now Cupertino, Font christened the creek next to the encampment the Arroyo San Joseph Cupertino in honor of his patron, San Guiseppe (San Joseph) of Cupertino, Italy, The arroyo is now known as Stevens Creek, The village of Cupertino sprang up at the crossroads of Saratoga- Sunnyvale Road (now DeAnza Boulevard) and Stevens Creek Boulevard, It was first known as West Side; but by 1898 the post office at the Crossroads needed a new name to distinguish it from other similarly named towns, John T. Doyle, a San Francisco lawyer and historian, had given the name Cupertino to his winery in recognition of the name bestowed on the nearby creek by Petrus Font. In 1904 the name was applied to the Crossroads and to the post office when the Home Union Store incorporated under the name, The Cupertino Stores, Inc. Many of Cupertino's pioneer European settlers planted their land in grapes, Vineyards and wineries proliferated on Montebello Ridge, on the lower foothills, and on the flat lands below, After 1906 a lot more than grape growing was going on in Cupertino. Orchards were thriving and new businesses were being started. In the late 1940' s Cupertino was swept up in Santa Clara Valley's postwar population explosion. Concerned by unplanned development, higher taxes, and piecemeal annexation to adjacent cities, Cupertino's community leaders began a drive in 1954 for incorporation. Cupertino rancher Nonnan Nathanson, the Cupertino - Monta Vista Improvement Association, and the Fact Finding Committee played important roles in this movement. Incorporation was approved in the September 27, 1955 election. Cupertino officially became Santa Clara County's 13th City on October 10,1955. A major milestone in Cupertino's development was the creation by some of the city's largest landowners of Vallco Business and Industrial Park in the early 1960's, Of the 25 property owners, 17 decided to pool their land to fonn Vallco Park, six sold to Varian Associates, a thriving young electronics finn, founded by Russell Varian, and two opted for transplanting to fanns elsewhere, The name Vallco was derived ¡¡-om the names of the principal developers: Varian Associates and the Leonard, Lester, Craft, and Orlando families, 97 PI1 Cupertino, with a population just over 52,QOO and city Jimits stretching across 1 J square miles, is considered to be one of the San Francisco Bay Area's most prestigious cities in which to live and work. Economic health is an essential component to maintaining a balanced enviromnent, which provides high-level opportunities, and services that create and help sustain a sense of community and quality of life. >ubJic and private interests must be mutual in that our success as a par1!lersJ:¡ip is a direct reflection of our success as ¡¡ community, The cornerstone of this partnership is that of a cooperative and responsive government that provides an environment tor business and residential prosperity and fosters strong working relationships with aJl sectors of the community. Our economic development strategies are tailored to address the specific needs of the community. As the City of Cupertino is a mature city with over 90"10 bllildout, our focus conc<:mtrntes more on business retention and revitalization. Business recruitment is site specific and targeted to industries that enhance, rather than draw from, our existing business base. Town Center Complex 2004 Town Center Complex 2005 As home to many well-known high.tech companies, Cupertino offers a dynamic and exciting business climate. Apple Computer is headquartered in the city along with Symantec and Portal Software. In addition, key divisions of Hewlett Packard, Sun Microsystems and Borland are also located in Cupertino. The City's proactive economic development efforts have resulted in a number of J¡movative, mutually beneficial partnerships with local eempanies. The City strives to retain and attract local companies through policies of balanced growth and streamlined permitting. Vallee Fashion Park, includes Macy's, Penney's and Sears as anchors and features popular chain stores such as Victoria's Secret, Express and Natural W oooers. Shoppers CaII also enjoy ìceskating at the mal!' s ice skating rink or a nice meal at Todai Restaurant. The man is undergoing m!\Ïor clumges in the next two years with the addition of a 16-screen movie theater and many new shops aIld restaurants. V ¡¡lIco Mall is becoming a vibrant, exciting place for residents and visitors to enjoy, The City of Cupertino has a history of providing high-level municipal services to complement the sense of community and qeality ofJife enjoyed by our constituents. The City wi!! continue to enhance and promote a strong local economy to provide municipal services that malœ Cupertino a place that people are proud to call home. 98 c Stat;'~~ Faets and Figures Population in City Limits Median Household Income Median Age Sales Tax Rate Registered Voters Democrats Republicans Independent Other Did Not State 52,600 $100,411 38 11.25% 26,128 9,685 8,188 357 533 7,365 Top 40 Sales Tn Prodl1eem First Ql1arter 2005 (Ill Alplmbetical Order) Anderson Chevrolet Apple Computer Benihana's BJ's Bar and Grill Chevron Service Station Crossroads Chevron Station Cupertino Clean Scene Cupertino US Gas Car Wasb Cypress Hotel & Park Place DeAnza College Campus Center DeAnza Sheil Service Station Dental Arts of California Hewlett-Packard IBM Rational Software Jade Galore JC Penney Joann fabrics Joy Luck Place Long's Drug Store Macy's Marina Foods Mervyn's Michael's Arts & Crafts Outback Steakhouse PW Supermarket Rite Aid Drug Store Rotten Robbie Service Station Sears Shane Diamond Jewelers Sodexho Marriott Management Suburban House Target TGl Friday's TJ Man Todai Restaurant Union 76 Service Station Valero Service Station VefÍzon Wireless Whole Foods Market Vamagami's Nursery Demographic Infol'IMtwn White Asian Hispanic Black American Indian Native Hawaiian 50.1% . 44.4% 4,0% 0.7% 0,2% 0.1% 99 2005 CíJ::y py~ The City of Cupertino operates as a general law city with a city council-city manager form of government. Five council members serve four year, overlapping terms, with elections held every two years, The council meets twice a month on the first and third Tuesday at 6:45 p,m, in the Community Hall. The City has 155 authorized full-time benefited employees. Due to a hiring freeze, 144 full-time employees provide municipal services for the community. City departments include administrative services (finance, human resources, IT, city clerk, emergency preparedness, code enforcement, and economic development); community development (planning and building); parks and recreation; public works (engineering, maintenance, transportation, and environmental): and public information. Police service is provided by the Santa Clara County Sheriffs Department, and fire service is provided through the Santa Clara County Fire District. Assisting the city council are several citizen advisory commissions/committees which include housing, telecommunications, fine arts, library, planning, audit, parks and recreation, bicycle and pedestrian, teen, senior, and public safety. Members of the volunteer boards are appointed by the city council and vacancies are announced so that interested residents may apply for the positions. Residents are kept informed about city services and programs through the Cupertino Scene, a monthly newsletter; Cupertino's government access cable TV channel; The City Channel; and the city's website. Housing Rentals for one and two bedroom apartments and duplexes range /Tom $1,100 to $2,100 per month. Rent for a two bedroom house ranges from $2,200 to $3,250 per month, The average price of existing single family homes is $950,000 as of June 2004. The average condo- minimum/townhouse sale price is $597,742. Community Health Care Facilities Cupertino is served by the Cupertino Medical Clinic, NovaCare Occupational Health Services, Nearby hospitals include El Camino Hospital in Mountain View, O'Connor Hospital in San Jose, Community Hospital of Los Gatos, Kaiser Permanente Medical Center in Santa Clara, Stanford Hospital in Palo Alto, and the Saratoga Walk-in Clinic in Saratoga, Utilities Natural gas and electric - Pacific Gas and Electric Company, (800) 743-5000. Telephone - SBC, For residential service call (800) 894- 2355; for business service call (800) 750-2355, Cable - Comcast, (800) 945-2288, Garbage - Los Altos Garbage, (408) 725-0420, Water - San Jose Water Company (408) 279-7900 and California Water (650) 917-0152, Sewer Service - Cupertino Sanitary District (408) 253-7071 Tax Rates and Government Services Residential, commercial, and industrial property is appraised at full market value, as it existed on March I, 1975, with increases limited to a maximum of2% annually. Property created or sold since March I, 1975 will bear full cash value as of the time created or sold, plus the 2% annual increase. The basic tax rate is $1.00 per $100 full cash value plus any tax levied to cover bonded indebtedness for county, city, school, or other taxing agencies. Assessed valuations and tax rates are published annually after July 1. Retail Sales Tax: Santa Clara County: 1.25%; City: 1%; State General Fund: 5%; State Local Public Safety Fund: 0.50%; State Local Revenue Fund: 0.25%; County Transportation Fund: 0.25%. Total: 8.25%. Assessed Valuation: (Secured and Unsecured) Cupertino: $9,526,841,379 (6/30/05) County: $222,166,528,031 (6/30/05) Transportation Rail- Southern Pacific, San Jose to San Francisco, with spur line in Cupertino. Air - Seven miles north of San Jose International Airport; 32 miles south of San Francisco airport. Bus - Santa Clara County Transit Systems, Greyhound bus lines Highways - Interstate Route 280, State Route 85. 100 Civic: Center and Library The new Civic Center complex opened in Octooor 2004. The complex boasts a new 6,000 sqnare foot Community Han, plaza with fountain, trees and seating areas. City Council meetings are now held in the Community Hall as well as Planning Commission and Parks and Recreation Commission. A covered walkway connects City Hall with the Community Hall and Library. The new 54,000 square foot library, despite reduced hours due to budget cuts, contiuues to 00 one of the busiest in the Santa Clara County Library system. During the first two months, circulation reached nearly 200,000 and demand continues to increase. For more information call (408) 446- 1677. Cupertino Senior Center Adults over age 50 can find a full calendar of opportunities for leaming, volunteering, and enjoying life. There are exercise classes, a computer lab and classes, language instruetiolJ including English as a second language, and cultural and special interest classes. Too Senior Center is located at 2 I 251 Stevens Creek Boulevard and is open Monday through Friday 8 a.m. to 5 p.m. Telephone: (408) 777-3150, The (luin/an Communi1y Center The City of Cupertino's Quinlan Community Center is a 27,000 square foot facility that provides a variety of recreational opportunities. Most prominent is the Cupertino Room - a multi-purpose room that can accommodate 300 people in a banquet format. For more information, can (408) 777-3120. Cupertino Sports Center The Sports Center is a great place to meet friends. The facility features 17 tennis courts, complete locker room facilities, and a fully equipped fitness center featuring free weights, Cybex, and cardio equipment. A teen center is also included as well as a child watch center. The center is located at the corner of Stevens Creek Boulevard and SteJling Road. Telephone: (408) 777- 3160. __,B' 0 ~~1~~\jj¡í~¥t\\ì~'~~'&s¿;;~Á¥¡yt%M~~tþ~~#"/;1it\4'{ ';,>t:;ft}~g.£if:ìG¿'/\';':;'~A {' 'ß i'Øf(fJJ!),VØJ, Vj 'IWJ¡¿'¿HfiXf'Ý'f¿\;);""';'Þ:?;;' '/1+' (,' , "' /;';'<'\+;1W;>á /'/ " x' ';",' ' )jf,d"Xß\3'» \l'1!0'Mk;¡<i%f!}£',j'(1\\;0~fs:;><%?rtAj(''''' ' i'iV''';:''''' )\cJ' tV/'WX" <í['i1hÝY1s};<;1Z>:fYI; ó !,;vY}" 'i'; \ >" <^' i' ,'/ %i~¥~!ÆW~,/¡\;"1J~1~i?;~<f~i0Æ~~~;i~%;;:'~~*'iV,\iii~~( ..,' ," ,""",W,""'''¡;>' 'i,d,,'I "n,,"," ,,«< ,<, ,/', ')í¡w>¡'PY0'Ý<'0JAy,;J<ë«;,) , ,\ ,,< ,',i",/'< /LÙ'!L;X\:<Ji>;,''"/<'/></~<'''''' ",/;, <,< , i;i>'¡1~'\if?i~\;;\ .... ..... Blackberry Farm This 33-a¡;re recreational facility offers two large swimming pools, softball field, basketball courts, voUeyhall courts, horseshoe pits, and a nine-hole golf course. The picnic grounds are located at 2 1975 San Fernando A venue and the golf coarse is located at 22100 Stevens Creek Boulevard. Telephone: (408) 777-3140. Blackberry Farm Retreat Center is a 2,000 square foot house that overlooks the picnic grounds and golf course. The center has one large conference room that will accommodate up to 25 people, The retreat center is located at 2 I 979 San Fernando Avenue. Telephone: (408) 777-3140. McClellan JJanch Par! A horse ranch during the 1930'and 40's, this 18-acre park has the appearance of a working ranch, Preserved on the property are the original ranch house, milk barn, livestock barn, and two historic buildings: Baer's Blacksmith Shop, originally located at DeÅnZa and Stevens Creek, and the old water tower from the Parish Ranch, now the site of Memorial Park. Rolling I-lil!s 4-1-1 Club members raise rabbits, chickens, sheep, swine, and cattle and a Junior Nature Museum, which features small live animal exhibits and dispenses information about bird, animal, and plant species of the area. McCle!1an Ranch is located at 22221 McClel!an Road. Telephone: 777-3120. 101 lðrI/ Winner of numerous state and national awards for excellence, our city's schools are widely acknowledged to be models of quality instruction. Cupertino Union School District serves 15,700 students in a 26 square mile area that includes Cupertino and portions ofjive other cities. The district has 20 elementary schools and four middle schools, including several choice programs. Eigbteen schools have received state and/or national awards for educational excellence, Student achievement is exceptionally high. Historically, district test scores place Cupertino among the premier public school districts in California, The district is a leader in the development of a standards- based system of education and is nationally reco¡p:1Ízed for leadership in the use of technology as an effective tool for learning, Quality teaching and parent involvement are the keys to the district's success. The Fremont Union Higb School District serves over 9,000 students in a 42 square mile area covermg all of Cupertino, mOot of Sunnyvale and portions of San Jose, Los Altos, Saratoga, and Santa Clara. The five high schools of the district have garnered many awards and recognition based on both the achievement of students and the programs designed to support student achievement. Student achievement is at an all time higb based on the statewide Academic Performance Index (API). All five high schools in the district exceeded their stste established achievement targets tòr the 2000 API. District students am encouraged to volunteer !lJ\d/or provide service to organizations within the community. During their senior year, if students complete 80 hoors of service to II non-profit community organization, they are recognized with a "Community Service Award" medal that may 00 wom during their graduation ceremollies. Cupertino is !!H!!f'\led by four local institutions of higher educatllm: DeAm;a College, the University of San Francisco, National University and the UCSC Extension. In addition to these schools, Cupertino's location offers easy access to Stanford University, Santa Clara University and San Jose State University. Buildillg 011 its tradition of excellellce alld innovation, DeAnza College challenges students of every background to develop their intellect, character and abilities; to achieve their educational goals; and to serve their comm\1Uity m a diverse and changing world. DeAnza College offers a wide range of q¡¡ality programs and services to meet the work force development needs of our region. The college prepares current and future employees of Silicon Valley in traditional classroom settings and througb customized training arranged by employers. Several DeAnza programs encourage economic development througb college credit COill'Ses, short-term programs, services for manufacturers, techuical assistsnce, and/or recruitment and retention services. 102 ""'" """""^.",, '" ""'''M",,,^N,','u,',''U^'-^' 'to-dh~Seßt Euphrat MWll!um of Art The highly regarded Euphrat Museum of Art adjaceut to the Fliut Center on the DeAnza College campus traditionally presents one-of-a-kind exhibitions, publications and events reflecting the rich diverse heritage of our area. The Museum prides itself on its clmuging exhibitions of national atld international stature, emphasizmg Bay Area artists. Museum hmJ1'£ are 11 a.m. - 4 p.m. Tuesday, Wednesday, Thursday; 6-8 p.m. Tuesday and 11 a,m. - 2 p.m. Saturday. Telephone: 408-864-8836. Minolfa DeAm;a Planetarium Stargazers have II Cupertino facility catering to their interests, me Minolta Planetsriam on tlte DeA= College canlpus. it hosts a variety of platletarium shows and events, including educational programs for school groups and íàmily astronomy evenings on Saturdays at 7:00 p.m. For more wformation and C!!!Tellt schedule of events, visit the website at www.planetarium,doonza.fuda or call408-864-88J4, Flint Center The cultural life of the Peninsula and South Bay is enhanced by programs presented at the Flint Center for Performing Arts located at 21250 Stevens Creek Boulevard at DeAnza College campus. The center opened in 197111nd was named ÍlI honor of Calvin C. f1wt, the first chancellor of the FoothiIl-DeAnza Community CoJlege District. The box office ís open 10 a.m. - 4 p.m. Monday through Friday and one and one half hours prior to any performance. Box office: 408-864- 118] 6; administrative office: 4011-864-8820. Cupertino Historical Society 011 May 2, J 966, the Cupertino Historical Society was founded as a non-profit organizatiun by a group of ¡ 77 longtime residents concerned about the rapid growth in the area and its impact on the quickly vanishing Cupertino heritage. On March 30, ] 990, the Society opened the Cupertino Historical Museum dedicated to the preservation and exltibition of the city's history, Through its exhibits tbe museam attempts to develop and expand the leaming opportunities that it offers to the etlmically diverse community of the City of Cupertino. The Society contîrmes to build partuurships with the local school districts to ensure that the history of Cupertino is offered as part of the educational curriculum. The Society is located at the Quinlan Community Center, 10185 N. Stelling Roed. Telephone: 408-973.8049. Farmers' Market Residents and visitors can visit the farmers' market every Friday from 9:00 a.m. to 1 :00 p.m. The market is located at the Valko fashion Park behind Macy's. Cflli/Qmifl History Center The California History Center is located on the DeAnza College campus. The center has published 39 volumes on Califomia history and has a changing exhibit program. The center's Stocklmeir Library Archives boasts a large collection ofbcoks, a pamphlet file, oral history tapes, videotapes and a couple thousand student research papers. The library's collection is for reference only. Heritage events focusing on California's cultural or natural history are offered by the center each quarter. For more information, call 408- 864-8712. The center is open September through June 8:30 a.m. to noon and 1:00 p.m. to 4:30 p.m. Monday through Thursday. 103 NOTES 104