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2006-11-21; City Council; 18816 part 2; Public Financing Authority Revenue Bonds 2006 Series A Carlsbad Municipal Golf Course
NEW ISSUE-BOOK ENTRY ONLY RATINGS (S&P): "AAA" (Ambac-Insured) "AA-" (Underlying) In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however, to the qualifications set forth herein, under existing law, interest on the Bonds is excluded from gross income for federal income tax purposes, and such interest is not an item of tax preference for the purpose of computing the federal alternative minimum tax imposed on individuals and corporations; provided, however, that for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes) such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. See "CONCLUDING INFORMATION - Tax Matters" herein. $18,540,000 CARLSBAD PUBLIC FESfANCING AUTHORITY REVENUE BONDS, 2006 SERIES A (CARLSBAD MUNICIPAL GOLF COURSE PROJECT) Dated: Date of Delivery Due: September 1, as shown below The Bonds are being issued to provide funds to finance a portion of the costs of acquisition, construction and improvement of the Carlsbad Municipal Golf Course (the "Golf Course") in the City of Carlsbad (the "City"). A portion of the proceeds of the Bonds will be used to fund a reserve fund, to capitalize interest on the Bonds through March 1, 2008, and to pay the costs of issuing the Bonds. Issuance of the Bonds is authorized pursuant to Article 4 of the Joint Exercise of Powers Law, commencing with Section 6584 of the California Government Code (the "Bond Law") and an Indenture of Trust, dated as of December 1, 2006, by and between the Carlsbad Public Financing Authority (the "Authority") and The Bank of New York Trust Company, N.A., as Trustee (the "Trustee"). The Bonds are special, limited obligations of the Authority, payable solely from (i) Net Revenues of the Golf Course of the Authority, as described in this Official Statement, (ii) Lease Payments payable by the City pursuant to a Lease Agreement, dated as of December 1,2006 (the "Lease Agreement"), to the extent necessary and (iii) certain funds held under the Indenture. See "SECURITY FOR THE BONDS" and "BONDOWNERS' RISKS". The Bonds are subject to optional, sinking fund and mandatory redemption. See "THE BONDS - Redemption". Interest on the Bonds is payable on September 1 and March 1 of each year, commencing March 1, 2007. The Bonds are being issued in fully registered book-entry form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). Beneficial owners of the Bonds will not receive physical certificates representing their interest in the Bonds purchased, but will receive a credit balance on the books of the nominees of such beneficial owners. Individual purchases will be in integral multiples of $5,000. Payments of principal of and interest on the Bonds will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the Bonds. See "THE BONDS - Book-Entry System". Payment of the principal of and interest on the Bonds when due will be insured by a financial guaranty insurance policy to be issued by Ambac Assurance Corporation simultaneously with the delivery of the Bonds. See "BOND INSURANCE". Ambac THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM NET REVENUES (AS DEFINED IN THE INDENTURE) GENERATED FROM OPERATION OF THE GOLF COURSE, LEASE PAYMENTS MADE BY THE CITY UNDER THE LEASE AGREEMENT, AND AMOUNTS DEPOSITED BY THE AUTHORITY IN THE BOND SERVICE FUND AND RESERVE FUND. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE COUNTY OF SAN DIEGO, THE STATE OF CAUFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS OR THE LEASE PAYMENTS. THE AUTHORITY HAS NO TAXING POWER. THE CITY'S OBLIGATION TO MAKE LEASE PAYMENTS IS AN OBUGATION PAYABLE FROM THE CITY'S GENERAL FUND OR ANY OTHER SOURCE OP FUNDS LEGALLY AVAILABLE TO THE CITY TO MAKE LEASE PAYMENTS, SUBJECT TO THE LIMITATIONS DESCRIBED IN THE LEASE AGREEMENT. This cover page contains certain information for quick reference only. It is not a summary of this issue. Potential investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Investment in the Bonds involves elements of risk. See "BONDOWNERS' RISKS" in this Official Statement for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds. MATURITY SCHEDULE (See Inside Cover) The Bonds are being offered when, as and if issued and accepted by the Underwriter, subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California. Jones Hall is also acting as Disclosure Counsel. Certain legal matters will be passed upon for the Authority and the City by the City Attorney. It is expected that the Bonds will be available for delivery on or about December 20, 2006. STONE &YOUNGBERG LLC Dated: December 8, 2006 MATURITY SCHEDULE (Base CUSIP:t 142653) $6,245,000 Serial Bonds Due (September 11 2008 2009 2010 2011 2012 2013 2014 2015 Principal 1 Amount $275,000 290,000 305,000 325,000 340,000 360,000 385,000 405,000 Interest Rate 4.000% 4.000 4.000 4.000 4.500 4.500 4.500 4.500 Yield 3.420% 3.450 3.470 3.500 3.520 3.540 3.570 3.600 CUSIPt Suffix AA2 ABO ACS AD6 AE4 AFl AGO AH7 Due (September 11 2016 2017 2018 2019 2020 2021 2022 Principal 1 Amount $425,000 450,000 480,000 510,000 540,000 565,000 590,000 Interest Rate 4.500% 5.000 5.000 5.000 4.000 4.000 4.000 Yield 3.650% 3.730* 3.850* 3.980* 4.100 4.150 4.200 CUSIPt Suffix AJ3 AKO AL8 AM6 AN4 AP9 AQ7 $5,975,000 4.500% Term Bond Due September 1, 2030 Yield 4.430%* CUSIPt AV6 $6,320,000 4.500% Term Bond Due September 1, 2036 Yield 4.450%* CUSIPt AW4 *Priced to first par call date of September 1, 2016. t Copyright 2006, American Bankers Association. CUSIP data are provided by Standard & Poor's CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only. Neither the City, the Authority nor the Underwriter assumes any responsibility for the accuracy of these CUSIP data. CARLSBAD PUBLIC FINANCING AUTHORITY CITY OF CARLSBAD AUTHORITY BOARD AND CITY COUNCIL MEMBERS Claude A. "Bud" Lewis, Mayor, Chair Matt Hall, Mayor Pro Tern, Vice Chair Ann J. Kulchin, Council Member, Boardmember Mark Packard, Council Member, Boardmember Norine Sigafoose, Council Member, Boardmember CITY STAFF Raymond R. Patchett, City Manager Lisa Hildabrand, Assistant City Manager James F. Elliott, Administrative Services Director Glenn Pruim, Public Works Director H. V. (Mac) McSherry, City Treasurer Lisa Irvine, Finance Director Lorraine Wood, City Clerk Ronald R. Ball, City Attorney FINANCIAL ADVISOR Fieldman, Rolapp & Associates Irvine, California BOND COUNSEL AND DISCLOSURE COUNSEL Jones Hall, A Professional Law Corporation San Francisco, California TRUSTEE The Bank of New York Trust Company, N.A. Los Angeles, California GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of Bonds referred to in this Official Statement and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the City or the Authority in any press release and in any oral statement made with the approval of an authorized officer of the City or the Authority or any other entity described or referenced in this Official Statement, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "forecast," "expect," "intend" and similar expressions identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the City or the Authority to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained in this Official Statement and if given or made, such other information or representation must not be relied upon as having been authorized by the City, the Authority, the Financial Advisor or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Involvement of Underwriter. The Underwriter has submitted the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinions in this Official Statement are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the Authority or any other entity described or referenced in this Official Statement since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside front cover page hereof and said public offering prices may be changed from time to time by the Underwriter. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. TABLE OF CONTENTS INTRODUCTION 1 The Bonds 1 The Golf Course 1 Miscellaneous 2 Continuing Disclosure 2 THE FINANCING PLAN 3 Sources and Uses of Funds 3 THE BONDS 4 General Provisions 4 Redemption 5 Book-Entry Only System 7 Parity Obligations 7 Subordinate Bonds 8 Debt Service Schedule 9 SECURITY FOR THE BONDS 10 General 10 Net Revenues 10 Receipt, Deposit, Application and Management of Gross Revenues and Net Revenues 11 Golf Course-Related Covenants 12 Management Agreement 14 Lease Agreement 14 Insurance 15 Bond Service Fund 16 Reserve Fund 16 Redemption Fund 17 Remedies 17 BOND INSURANCE 18 THE AUTHORITY AND THE CITY 21 The Authority 21 The City 21 THE GOLF COURSE 23 General 23 Description of the Golf Course 23 Construction Schedule and Budget 24 The Operator 26 Management Agreement 26 Projected Rate Structure; Rate Structure of Competing Courses 27 Supply of Competing Courses 29 Projected Revenues, Expenditures and Debt Service Coverage 29 BONDOWNERS' RISKS 31 General 31 Limited Obligation; Limited Remedies 31 Biological Resources 31 Geologic, Topographic and Climatic Conditions 31 Hazardous Substances 32 Additional Bonds, Dilution of Security 32 Loss of Tax-Exemption 32 Secondary Market 33 Unique Risk Factors Relating to the Net Revenues 33 Unique Risk Factors Relating to the Lease Agreement 35 CONCLUDING INFORMATION 36 Approval of Legal Proceedings 36 Tax Matters 37 Absence of Litigation 37 Rating 38 Undenwriting 38 Miscellaneous 38 APPENDIX A - Comprehensive Annual Financial Report for the City of Carlsbad, Fiscal Year 2005-06 APPENDIX B - Financial and Demographic Information About the City of Carlsbad APPENDIX C - Summary of Principal Legal Documents APPENDIX D - Continuing Disclosure Certificate APPENDIX E - Form of Bond Counsel Opinion APPENDIX F - Specimen Bond Insurance Policy APPENDIX G - Book-Entry Provisions • ^WSfefiiP $18,540,000 CARLSBAD PUBLIC FINANCING AUTHORITY REVENUE BONDS, 2006 SERIES A (CARLSBAD MUNICIPAL GOLF COURSE PROJECT) INTRODUCTION This Official Statement, which includes the cover page and appendices (the "Official Statement") provides information concerning the sale of the Carlsbad Public Financing Authority Revenue Bonds, 2006 Series A (Carlsbad Municipal Golf Course Project) (the "Bonds"). The Bonds The Bonds are being issued by the Carlsbad Public Financing Authority (the "Authority") pursuant to the provisions of Article 4 of the Joint Exercise of Powers Law, commencing with Section 6584 of the California Government Code (the "Bond Law") and an Indenture of Trust (the "Indenture") dated as of December 1, 2006, by and between the Authority and The Bank of New York Trust Company, N.A., as trustee (the "Trustee"). The Authority was formed pursuant to a joint exercise of powers agreement dated April 1,2000, by and between the City of Carlsbad (the "City") and the Carlsbad Municipal Water District (the "Water District"). The Bonds are being issued and sold for the purpose of financing a portion of the costs of acquisition, construction and improvement of the Carlsbad Municipal Golf Course (the "Golf Course"), to pay costs of issuing the Bonds, to pay interest on the Bonds through March 1, 2008, and to fund a reserve fund for the Bonds. The Bonds are special, limited obligations of the Authority payable solely from (i) "Net Revenues" of the Golf Course, as described in this Official Statement, (ii) lease payments ("Lease Payments") payable by the City pursuant to a Lease Agreement, dated as of December 1, 2006 (the "Lease Agreement"), to the extent necessary and (iii) moneys deposited in certain funds under the Indenture. See "SECURITY FOR THE BONDS". Payment of the principal of and interest on the Bonds when due will be insured by a financial guaranty insurance policy (the "Insurance Policy") to be issued by Ambac Assurance Corporation (the "Insurer" or "Ambac Assurance") simultaneously with issuance of the Bonds. See "BOND INSURANCE" below and APPENDIX F — "Specimen Bond Insurance Policy." The Golf Course The Golf Course, to be known as The Crossings at Carlsbad, is a proposed 18-hole championship golf course, which is scheduled to open in July 2007. The construction of the almost 400-acre Golf Course complex is divided into three phases: mass grading (which, except for certain punch-list items, was completed in February 2006), course construction, and building construction. The Golf Course will be open to the public, and residents of the City will receive a preferred rate. The Authority will construct a large outdoor event venue, a driving range, a full-service clubhouse, and restaurant to complement the Golf Course. See "THE GOLF COURSE" below. The City has leased its interests in the Golf Course site to the Authority pursuant to a Site Lease, dated as of December 1, 2006 (the "Site Lease") between the Authority and the City. The Authority has contemporaneously leased back its interest in the Golf Course site and related improvements (not including the proposed outdoor event venue, driving range, clubhouse and restaurant) to the City under the Lease Agreement. The Authority's interests under the Lease Agreement, including the right to receive the Lease Payments, have been assigned to the Trustee pursuant to an Assignment Agreement (the "Assignment Agreement") dated as of December 1, 2006. The City is obligated to make Lease Payments under the Lease Agreement only if and to the extent Net Revenues of the Golf Course are insufficient to pay debt service on the Bonds. See "SECURITY FOR THE BONDS - Lease Agreement". THE BONDS ARE SPECIAL LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM NET REVENUES (AS DEFINED IN THE INDENTURE) GENERATED FROM OPERATION OF THE GOLF COURSE, LEASE PAYMENTS MADE BY THE CITY UNDER THE LEASE AGREEMENT, AND AMOUNTS DEPOSITED BY THE AUTHORITY IN THE BOND SERVICE FUND AND RESERVE FUND. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE COUNTY OF SAN DIEGO, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS OR THE LEASE PAYMENTS. THE AUTHORITY HAS NO TAXING POWER. THE CITY'S OBLIGATION TO MAKE LEASE PAYMENTS IS AN OBLIGATION PAYABLE FROM THE CITY'S GENERAL FUND OR ANY OTHER SOURCE OF FUNDS LEGALLY AVAILABLE TO THE CITY TO MAKE LEASE PAYMENTS, SUBJECT TO THE LIMITATIONS DESCRIBED IN THE LEASE AGREEMENT. Miscellaneous This Official Statement speaks only as of its date and is in a form deemed final, as of its date, by the Authority and the City, for the purpose of Rule 15c2-12 under the Securities Exchange Act of 1934, as amended. The information set forth in this Official Statement has been obtained from the Authority, the City and other sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness, nor has it been independently verified and is not to be construed as a representation by the Financial Advisor, the Underwriter, the City or the Authority. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described, are intended as such and are not to be construed as representations of fact. The information and expressions of opinion in this Official Statement are subject to change without notice. The delivery of this Official Statement shall not, under any circumstances, create any implication that there has been no change in the information or opinions set forth or in the affairs of the Authority since the date of the Official Statement. The summaries and references in this Official Statement relating to the Indenture, the Lease Agreement, the Bonds, and other statutes or documents, do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute, and references to the Bonds are qualified in their entirety by reference to the forms thereof included in the Indenture. Copies of the Indenture and other documents described in this Official Statement are available for inspection during the period of initial offering of the Bonds at the Authority at 1200 Carlsbad Village Drive, Carlsbad, CA 92008. Continuing Disclosure The City, on behalf of itself and the Authority, has covenanted in a Continuing Disclosure Certificate for the benefit of the Underwriter and the beneficial owners of the Bonds to provide certain financial information and operating data relating to the Authority, the City and the Golf Course not later than nine months after the end of the Authority and the City's fiscal year, commencing (based on the City's current fiscal year ending June 30) March 31, 2008, and to provide notices of the occurrences of certain enumerated events, if material. The specific nature of information to be contained in the annual reports described above or the notice of material events is set forth in Appendix D. These covenants have been made by the City in order to assist the Underwriter in complying with Rule 15c2-12(b)(5) (the "Rule") promulgated by the Securities and Exchange Commission The City has not failed to comply with all material provisions of its continuing disclosure undertakings in the previous five years. THE FINANCING PLAN The Authority is issuing the Bonds to finance a portion of the costs of acquisition, construction and improvement of the Golf Course. See "THE GOLF COURSE" below. The Golf Course also constitutes the leased asset under the Lease Agreement. A portion of the proceeds of the Bonds will be used to fund a reserve fund, to pay interest on the Bonds through March 1, 2008 and to pay the costs of issuing the Bonds. Sources and Uses of Funds The table below sets forth the estimated sources and uses of funds with respect to the Bonds. Sources of Funds Principal Amount of Bonds $18,540,000.00 Plus: Original Net Issue Premium 296,839.45 Less: Underwriter's Discount (115.875.00) Total Sources $18,720,964.45 Uses of Funds Project Fund <^' $16,113,826.32 Reserve Fund 1,238,325.00. Bond Service Fund <^' 990,162.64 Costs of Issuance <^' 378.650.49 Total Uses $18,720,964.45 (1) Proceeds deposited in the Project Fund will be used to reimburse the City for previous expenditures from its general fund to pay costs of acquiring and constructing the Golf Course. (2) Represents capitalized interest on the Bonds through March 1, 2008. (3) Includes printing costs, fees of financial advisor, bond counsel and disclosure counsel, trustee's fees and expenses, the premium for the Insurance Policy, and other costs relating to the Issuance of the Bonds. THE BONDS General Provisions Principal and Interest. Bonds will be issued in fully registered form in integral multiples of $5,000. Each Bond will be dated as of the Date of Delivery, and related interest will be payable from the Interest Payment Date next preceding the date of authentication, unless (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event interest will be payable from such Interest Payment Date, or (b) it is authenticated on or before February 15, 2007, in which event related interest will be payable from the Date of Delivery; provided, however, that if, as of the date of authentication of any Bond, interest with respect to any Bond is in default, interest represented by such Bond will be payable from the Interest Payment Date to which interest has previously been paid or made available for payment with respect to the Bonds. The principal and redemption price with respect to all Bonds at maturity or upon prior redemption will be payable upon surrender of the Bonds at the corporate trust office of the Trustee in Los Angeles, California. Interest with respect to the Bonds will be payable by check or draft of the Trustee mailed by first class mail on the Interest Payment Dates to the Owners thereof provided that in the case of an Owner of $1,000,000 or greater in principal amount of Outstanding Bonds, such payment may, at such Owner's option, be made by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided prior to the Record Date to the Trustee by such Owner. The Owners of the Bonds shown on the Registration Books on the Record Date for the Interest Payment Date will be deemed to be the Owners of the Bonds on said Interest Payment Date for the purpose of the paying of interest. Interest on the Bonds will be calculated on the basis of a 360-day year comprised of twelve 30-day months. The Bonds will be delivered in fully registered form only, and when delivered will be registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository for the Bonds. Ownership interests in the Bonds may be purchased in book-entry only form. Transfer or Exchange of Bonds. Any Bond may, in accordance with its terms, be transferred or exchanged, pursuant to the provisions of the Indenture, upon surrender of such Bond for cancellation at the corporate trust office of the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer or exchange, the Trustee will authenticate and deliver a new Bond or Bonds for the same maturity, interest rate and aggregate principal amount. The Trustee may require the payment by the Bondowner requesting such transfer or exchange of any tax or other governmental charge required to be paid with respect to such transfer or exchange. The Trustee is not required to transfer or exchange (a) any Bonds during the period established by the Trustee for the selection of Bonds for redemption and such date of selection, or (b) the portion of any Bonds selected for redemption. Bonds Mutilated, Lost, Destroyed or Stolen. The Indenture provides for replacement of mutilated, lost, destroyed or stolen bonds. Redemption Optional Redemption. The Bonds maturing on or after September 1, 2017 are subject to redemption prior to their maturity date, at the option of the Authority, as a whole or in part, from any source of available funds, on any date on or after September 1, 2016, at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. The Authority will provide the Trustee with written notice at least 60 days (or such shorter period of time acceptable to the Trustee in its sole discretion) prior to such redemption date. Mandatory Redemption From Proceeds of Sale, Condemnation or Insurance. The Bonds are subject to mandatory redemption as a whole or in part, on any date, to the extent of the proceeds of disposition or condemnation of the Golf Course or the proceeds of hazard insurance not used to repairer rebuild the Golf Course or the proceeds of title insurance, which proceeds are required to be used for such purpose pursuant to the Indenture, at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest to the date fixed for redemption, without premium. There can be no assurance that such proceeds will be adequate to redeem all of the Bonds. See "BONDOWNERS' RISKS". Mandatory Sinking Payment Redemption. The Bonds maturing on September 1, 2030 are subject to redemption in whole, or in part by lot, on and after September 1, 2023, from sinking fund payments made by the Authority into the Bond Service Fund for that purpose, at a redemption price equal to the principal amount to be redeemed, without premium, plus accrued interest to the date of redemption, in the aggregate respective principal amounts and on September 1 in the respective years as set forth in the following table; provided, however, that if some but not all of the Bonds maturing on September 1, 2030 have been redeemed as a result of an optional redemption or a mandatory redemption from proceeds of sale, condemnation or insurance, as described above, the total amount of all future sinking fund payments will be reduced.by the aggregate principal amount of Bonds that have been redeemed, to be allocated among sinking fund payments on a pro rata basis in Authorized Denominations as determined by the Authority. Sinking Fund Redemption Date Principal Amount to be (September 1) Redeemed or Mature 2023 $620,000 2024 656,000 2025 690,000 2026 725,000 2027 760,000 2028 800,000 2029 840,000 2030 (maturity) 885,000 The Bonds maturing on September 1, 2036 are subject to redemption in whole, or in part by lot, on and after September 1, 2031, from sinking fund payments made by the Authority into the Bond Service Fund for that purpose, at a redemption price equal to the principal amount to be redeemed, without premium, plus accrued interest to the date of redemption, in the aggregate respective principal amounts and on September 1 in the respective years as set forth in the following table; provided, however, that if some but not all of the Bonds maturing on September 1, 2036 have been redeemed as a result of an optional redemption or a mandatory redemption from proceeds of sale, condemnation or insurance, as described above, the total amount of all future sinking fund payments will be reduced by the aggregate principal amount of Bonds that have been redeemed, to be allocated among sinking fund payments on a pro rata basis in Authorized Denominations as determined by the Authority. Sinking Fund Redemption Date Principal Amount to be (September 1) Redeemed or Mature 2031 $930,000 2032 975,000 2033 1,025,000 2034 1,075,000 2035 1,130,000 2036 (maturity) 1,185,000 In lieu of redemption of mandatory sinking fund redemption of the Bonds maturing on September 1, 2030 and September 1, 2036 as described in the preceding paragraph, amounts on deposit in the Authority Golf Course Fund may be used and withdrawn by the Authority, and amounts on deposit in the Bond Service Fund may also be used and withdrawn by the Trustee for the purchase of such Bonds at public or private sale as and when and at such prices (including brokerage and other charges) as the Authority may in its discretion determine. The par amount of any Bonds purchased by the Authority as described in this paragraph in any 12-month period ending on July 1 in any year will be credited towards and reduce the par amount of Bonds maturing September 1, 2030 and September 1, 2036 required to be redeemed on September 1 in such year. Selection of Bonds for Redemption. Whenever provision is made in the Indenture forthe redemption of less than all of the Bonds, selection of Bonds shall be by lot; and in each case, the Trustee will select the Bonds to be redeemed by lot in any manner which the Trustee in its sole discretion will deem appropriate. For purposes of such selection, all Bonds will be deemed to be comprised of separate Authorized Denomination portions and such portions will be treated as separate Bonds which may be separately redeemed. Notice of Redemption. So long as the Bonds are held in book-entry form, notice of redemption will be mailed by the Fiscal Agent only to DTC and not the Beneficial Owners (as defined below) of Bonds under the DTC book-entry only system. Neither the Authority nor the Trustee is responsible for notifying the Beneficial Owners, who are to be notified in accordance with the procedures in effect for the DTC book-entry system. See "Book-Entry System." When redemption is authorized or required, the Trustee is required to give written notice of redemption of Bonds to the Bondowners designated for redemption at their addresses appearing on the Bond registration books, by first class mail, postage prepaid, no less than 30, nor more than 60, days prior to the date fixed for redemption, and to the Securities Depositories, and to one or more Information Services, as provided for in the Indenture; provided, however, that no such notice of redemption will be mailed unless, the notice of redemption shall either (i) state that the proposed redemption is conditioned on there being on deposit in the applicable fund or account on the redemption date sufficient money to pay the full redemption price of the Bonds to be redeemed, or (ii) be sent only if sufficient money to pay the full redemption price of the Bonds to be redeemed is on deposit in the applicable fund or account. Neither failure to receive such notice nor any defect in the notice so mailed will affect the sufficiency of the proceedings for redemption of such Bonds or the cessation of accrual of interest to the redemption date. The rights of Bondowners to receive interest will terminate on the date, if any, on which the Owner's Bond is to be redeemed pursuant to a call for redemption. The Indenture contains no provisions requiring any publication of notice of redemption, and Bondowners must maintain a current address on file with the Trustee to receive any notices of redemption. Book-Entry Only System DTC will act as securities depository for the Bonds. The Bonds will be issued as fully- registered bonds registered in the name of Cede & Co. (DTC's partnership nominee). One fully- registered Bond will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. See "APPENDIX G - Book-Entry Provisions." The Authority and the Trustee cannot and do not give any assurances that DTC, DTC Participants or others will distribute payments of principal, interest or premium, if any, with respect to the Bonds paid to DTC or its nominee as the registered owner, or will distribute any prepayment notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. The Authority and the Trustee are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a Beneficial Owner with respect to the Bonds or a related error or delay. Parity Obligations In addition to the Bonds, the Authority may issue or incur other loans, advances or indebtedness payable from Net Revenues on a parity with the Bonds to provide financing for the Golf Course in such principal amount as shall be determined by the Authority, subject to the following specific conditions precedent: (a) No Event of Default may have occurred and be continuing; (b) The Net Revenues, calculated in accordance with sound accounting principles, as shown by the books of the Authority for the most recent completed Fiscal Year for which audited financial statements are available, or for any more recent consecutive 12-month period selected by the Authority, in either case verified by a certificate or opinion of an Independent Accountant or Fiscal Consultant, plus the Additional Revenues, at least equal 120% of the amount of Maximum Annual Debt Service on all Outstanding Bonds (including the Parity Obligations then proposed to be issued); and (c) The Supplemental Indenture authorizing the issuance of the Parity Obligations must provide that: (i) The proceeds of the Parity Obligations will be applied to the acquisition, construction, improvement, financing or refinancing of additional facilities, improvements or extensions relating to or of benefit to the Golf Course, or for the purpose of refunding any Bonds (or Parity Obligations) in whole or in part, including all related costs (including costs of issuing such Parity Obligations and including capitalized interest on such Parity Obligations during any period which the Authority deems necessary or advisable); (ii) Interest on the Parity Obligations must be payable on March 1 and September 1 in each year of the term of such Parity Obligations except that the first date for payment of such interest will not be required to be less than 6 months following the date of issuance of the Parity Obligations; (iii) The principal of such Parity Obligations shall be payable on September 1 in any year in which principal is payable; and (iv) Money must be deposited in the Reserve Fund from the proceeds of the sale of the Parity Obligations or otherwise to increase the amount on deposit in the Reserve Fund to an amount equal to the Reserve Requirement See "BONDOWNERS' RISKS -Additional Bonds; Dilution of Security." Subordinate Bonds The Indenture does not limit the ability of the Authority to issue bonds secured by a claim on Net Revenues that is subordinate to the claim of the Bonds on such Net Revenues. Any Bonds issued by the Authority that do not constitute Parity Bonds as described below, will have a claim on Net Revenues that is subordinate to the claims of the Bonds on such Net Revenues. Debt Service Schedule The following table presents the debt service schedule for the Bonds based on the maturity date and interest rate set forth on the cover of this Official Statement, assuming no redemptions other than mandatory sinking fund redemptions are made. Interest on the Bonds through March 1, 2008 will be funded with proceeds of the Bonds. CARLSBAD PUBLIC FINANCING AUTHORITY DEBT SERVICE SCHEDULE Bond Year Ending (September 1) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 Total Principal $ 0 275,000 290,000 305,000 325,000 340,000 360,000 385,000 405,000 425,000 450,000 480,000 510,000 540,000 565,000 590,000 620,000 655,000 690,000 725,000 760,000 800,000 840,000 885,000 930,000 975,000 1,025,000 1,075,000 1,130,000 1,185,000 $18,540,000 Interest $ 576,638 827,050 816,050 804,450 792,250 779,250 763,950 747,750 730,425 712,200 693,075 670,575 646,575 621,075 599,475 576,875 553,275 525,375 495,900 464,850 432,225 398,025 362,025 324,225 284,400 242,550 198,675 152,550 104,175 53,325 $15,949,238 Annual Debt Service $ 576,638 1,102,050 1,106,050 1,109,450 1,117,250 1,119,250 1,123,950 1,132,750 1,135,425 1,137,200 1,143,075 1,150,575 1,156,575 1,161,075 1,164,475 1,166,875 1,173,275 1,180,375 1,185,900 1,189,850 1,192,225 1,198,025 1,202,025 1,209,225 1,214,400 1,217,550 1,223,675 1,227,550 1,234,175 1,238,325 $34,489,238 SECURITY FOR THE BONDS General The Bonds are special, limited obligations of the Authority, payable solely from and secured by a first pledge of the following (in the following order of priority): • Net Revenues, • Moneys in the Bond Service Fund and the Reserve Fund, and • Lease Payments received from the City under the Lease Agreement. Lease Payments will be made by the City to the Authority only if amounts in the Bond Service Fund established under the Indenture (which will be funded with Net Revenues) are insufficient to pay debt service on the Bonds. Net Revenues are equally pledged to the Bonds and any Parity Obligations. However, Lease Payments payable under the Lease Agreement are intended to provide additional security only for the Bonds, and will not be additional security for Parity Obligations unless specifically provided for in a Supplemental Indenture and through an amendment of the Lease Agreement. Net Revenues "Net Revenues" is defined in the Indenture to mean, with respect to any period, the amount of the "Gross Revenues" received during such period, less the amount of "Operation and Maintenance Costs" becoming payable during such period; provided, however, that during the term of the Management Agreement, Net Revenues will mean amounts characterized as "Available Funds" and paid by the Operator to the Authority under the "Management Agreement". See "BONDOWNERS' RISKS - Net Revenues, Limited Liability." "Gross Revenues" is defined in the Indenture to mean all gross charges received for, and all other gross income and receipts derived by the Authority or the Trustee from, the ownership and operation of the Golf Course or otherwise arising from the Golf Course, including but not limited to amounts paid to the Authority or the Trustee pursuant to the terms of the Management Agreement,. as well as interest earnings on the Reserve Fund. "Operation and Maintenance Costs" is defined in the Indenture to means the reasonable and necessary costs and expenses paid by the Authority for maintaining and operating the Golf Course, including but not limited to the following: • the cost of operating the Golf Course and any improvements thereon, • salaries, wages and benefits, • utilities, • insurance; • the cost of maintaining, repairing and restoring the Golf Course and any improvements thereon, • amounts paid to any third party to operate or manage the Golf Course and improvement thereon, and • contributions to a capital reserve account; provided, however, that during the term of the Management Agreement the term "Operation and Maintenance Costs" means the expenditures which the "Operator" is permitted to make from 10 Gross Revenues to pay "Golf Course Expenses" (as defined in the Management Agreement), plus management fees payable to the Operator under the Management Agreement. "Golf Course Expenses" is defined in the Management Agreement as the total of (a) all expenses specifically identified as "Golf Course Expenses" in the Management Agreement; and (b) all other expenses incurred by the Operator in connection with the Golf Course or the Management Agreement, which expenses were not reasonably anticipated by the parties or otherwise provided in the Management Agreement (except for emergency expenditures, any unplanned expense in excess of $5,000 must have prior written approval from the Executive Director). Golf Course Expenses do not include any expenses of the Operator's corporate office or the compensation of any Key Management Employees as defined in the Management Agreement, except as otherwise provided in the Management Agreement. "Management Agreement" is defined in the Indenture as the Golf Course Management Agreement, originally dated as of May 10,2006, by and between the Authority and the Operator, as amended from time to time, and includes any management agreement between the Authority and an Operator while the Bonds are Outstanding, to the extent that such management agreement affects the operation and management of the Golf Course. "Operator" is defined in the Indenture as Kemper Sports Management or any other entity responsible for the management and operation of the Golf Course while the Bonds are Outstanding. Receipt, Deposit, Application and Management of Gross Revenues and Net Revenues Receipt, Deposit and Application of Moneys in the Autfiority Golf Course Fund. The Authority agrees in the Indenture to hold and maintain the Authority Golf Course Fund, for the purposes and uses described below. If the Authority continues to cause the Golf Course to be operated by an Operator pursuant to a Management Agreement, and such Management Agreement provides that the Operator collects Gross Revenues, out of which all Operation and Maintenance Costs are paid, with Net Revenues paid to the Authority, then the Authority will deposit all Net Revenues in the Authority Golf Course Fund promptly upon receipt. If the Authority does not renew the Management Agreement, or does not contract with an Operator to manage the Golf Course, the Authority will deposit Gross Revenues in the Authority Golf Course Fund, and will apply Gross Revenues first, to pay Operation and Maintenance Expenses, and second, to make the deposits provided for below. The Indenture provides that the Authority will withdraw amounts on deposit in the Authority Golf Course Fund and apply such amounts at the times and for the purposes, and in the priority, as follows: Bond Service Fund. On or before the fifth Business Day preceding each Interest Payment Date, the Authority will withdraw from the Authority Golf Course Fund and pay to the Trustee for deposit to the Bond Service Fund, an amount equal to interest, principal (if any), and the principal amount of any Term Bonds (if any) being redeemed on such Interest Payment Date (although no such deposit is required if there are sufficient funds in the Capitalized Interest Account to pay interest on the Bonds when due). See "Bond Service Fund" below. Reserve Fund. In the event that the amount on deposit in the Reserve Fund at any time falls below the Reserve Requirement, the Trustee, to the extent it is aware of such deficiency from a valuation made by it, shall promptly notify the Authority of such fact, and 11 the Authority will promptly (i) withdraw the amount of such insufficiency from available Net Revenues on deposit in the Authority Golf Course Fund, and (ii) transfer such amount to the Trustee for deposit in the Reserve Fund. No deposit need be made in the Reserve Fund so long as the balance therein at least equals the Reserve Requirement. See "Reserve Fund" below. Redemption Fund. On or before the date which is at least 45 days prior to any date on which Bonds are subject to optional redemption, or on which any Parity Obligations are subject to optional redemption pursuant to the provisions of the Supplemental Indenture authorizing such Parity Obligations, the Authority will withdraw from the Authority Golf Course Fund and transfer to the Trustee, for deposit into the Redemption Fund an amount at least equal to the redemption price (excluding accrued interest, which is payable from the Bond Service Fund) of such Bonds (and any Parity Obligations) coming due and payable on such date. In addition, the Authority will transfer or cause to be transferred to the Trustee all amounts required to redeem any Bonds (and any Parity Obligations) which are subject to mandatory redemption from proceeds of sale, condemnation or insurance, when and as such amounts become available. See "Redemption Fund" below. Management of Funds in Authority Golf Course Fund. The Authority will manage, conserve and apply moneys in the Authority Golf Course Fund in such a manner that all deposits required to be made (as described above) will be made at the times and in the amounts required. Subject to the foregoing sentence, so long as no Event of Default under the Indenture has occurred and is continuing, the Authority may use and apply moneys in the Authority Golf Course Fund after the payments described above, for the following: • the payment of the Operation and Maintenance Costs of the Golf Course, • the acquisition and construction of extensions and betterments to the Golf Course; • the redemption of any of the Bonds which are then subject to redemption, or the purchase from time to time in the open market of any Bonds, whether or not then subject to redemption (irrespective of the maturity or number of such Bonds), at prices and in such manner, either at public or private sale, or otherwise, as the Authority in its discretion may determine; or • any other lawful purpose of the Authority. Golf Course-Related Covenants The Authority has covenanted in the Indenture as follows with respect to the Golf Course: Operation of Golf Course in Efficient and Economical Manner. The Authority covenants and agrees to operate the Golf Course, or to cause the Golf Course to be operated by the Operator, in an efficient and economical manner, and to operate, maintain and preserve the Golf Course in good repair and working order, or cause the Golf Course to be operated, maintained and preserved by the Operator in good repair and working order. Sale or Condemnation of Golf Course. The Authority covenants that the Golf Course will not be encumbered, sold, leased, or pledged, or any charge placed thereon, or otherwise disposed of, as a whole or substantially as a whole, except for the Lease, Site Lease and Assignment Agreement. Neither the Gross Revenues nor any other funds pledged or otherwise made available to secure payment of the Bonds will be mortgaged, encumbered, sold, leased, or pledged, or any charge placed thereon, or disposed or used except as authorized by the terms of this Indenture. 12 The Authority will not enter into any agreement which impairs the operation of the Golf Course or any part of it necessary to secure adequate Net Revenues to pay the Bonds, or which otherwise would impair the rights of the Bond Owners with respect to the Net Revenues. If any substantial part of the physical facilities of the Golf Course are sold or taken under the power of eminent domain, the payment will either (a) be used for the acquisition or construction of improvements, extensions or replacements of facilities constituting part of the Golf Course, or (b) to the extent not so used, be paid to the Trustee to be applied to redeem the Outstanding Bonds, in accordance with written instructions of the Authority filed with the Trustee. Insurance. The Authority covenants that it will at all times maintain with responsible insurers all such insurance on the Golf Course as is customarily maintained with respect to works and properties of like character against accident to, loss of or damage to such works or properties. In addition, the Authority covenants in the Lease Agreement to maintain certain insurance with respect to the Golf Course. See Appendix C for a summary of the applicable insurance requirements. If any useful part of the Golf Course is damaged or destroyed, such part will be restored to use. The money collected from insurance against accident to or destruction of the physical facilities of the Golf Course will either (a) be used to repair or rebuild such damaged or destroyed facilities or (b) to the extent not so applied, be paid to the Trustee to be applied to redeem the Outstanding Bonds, in accordance with written instructions of the Authority filed with the Trustee. Any proceeds received by the Authority or the Trustee from title insurance on the Golf Course Site and the Lease Agreement will be used at the direction of the Authority either: (i) to acquire other property in the Authority's name in order to preserve and maintain the Golf Course; or (ii) deposited in the Redemption Fund and applied to redeem Bonds. Management of the Golf Course; Rates and Charges. In general, the management of the Golf Course will be under the control of the Authority. The Authority will maintain reasonable fees adequate to achieve the financial performance of the Golf Course, and the Authority will set fees for use of the Golf Course which are comparable to other comparable public golf courses in the San Diego County area, as reasonably determined by the Authority. The Authority will not enter into any Management Agreement that would impair its ability to comply with the covenants contained in the Indenture, including the covenants described below. Subject to the preceding paragraph, the Authority will, or will cause the Operator to, fix, prescribe, revise and collect rates, fees and charges for the use of the Golf Course during each calendar year (or such other fiscal period as the Authority shall select as the annual financial period for the Golf Course) which, when added to other revenues received by the Authority from other property and facilities controlled by the Authority are at least sufficient, after making allowances for contingencies and error in the estimates, to yield Gross Revenues which are sufficient to pay the following amounts in the following order of priority: (i) All Operation and Maintenance Costs estimated by the Authority to become due and payable in such fiscal period; (ii) The principal of and interest on the Bonds as they become due and payable during such Fiscal Year, without preference or priority, except to the extent such principal and interest are payable from the proceeds of the Bonds or from any other source of legally available funds of the Authority which have been deposited with the Trustee for such purpose prior to the commencement of such fiscal period; 13 (ill) All amounts, if any, required to restore the balance in the Reserve Fund to the full amount of the Reserve Requirement; (iv) All other payments required to meet any other obligations of the Authority which are charges, liens, encumbrances upon, or which are otherwise payable from. Gross Revenues during such fiscal period. The Indenture provides that a failure to comply with the covenants described in this subsection ("Management of the Golf Course; Rates and Charges") will not constitute an Event of Default so long as the City continues to pay Lease Payments, if needed, to assure the timely payment of debt service on the Bonds and any Parity Obligations additionally secured by Lease Payments. Management Agreement The Management Agreement establishes the terms under which the Operator will manage the Golf Course and how revenues from operation of the Golf Course will be held and expended. See "THE GOLF COURSE - Management Agreement" below. Lease Agreement Lease Payments will be made by the City to the Authority only if amounts in the Bond Service Fund established under the Indenture (which will be funded with Net Revenues as described in "Receipt, Deposit, Application and Management of Gross Revenues and Net Revenues" above) are insufficient to pay debt service on the Bonds. Lease Payments. The Lease Agreement provides that the City will make Lease Payments for use and possession of the Golf Course, but only if and to the extent Net Revenues are insufficient to pay debt service on the Bonds as it becomes due. Appropriation; Use of Golf Course. The City covenants in the Lease Agreement to take such action as may be necessary to include all Lease Payments in each of its annual budgets and to make the necessary annual appropriations for ail such Lease Payments, except that Lease Payments need not be budgeted or appropriated to the extent amounts on deposit in the Bond Sen/ice Fund are sufficient to pay Bond Payments on a timely basis. The Lease Agreement provides that these covenants are duties imposed by law, and it is the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the budget and appropriation covenants. The obligation of the City to pay Lease Payments is not a debt of the City in contravention of any applicable constitutional or statutory limitation or requirement concerning the creation of indebtedness by the City, and nothing in the Lease Agreement constitutes a pledge of the general tax revenues, funds or moneys of the City. Lease Payments are payable only from current funds which are budgeted and appropriated, or otherwise legally available, for the purpose of paying Lease Payments as consideration for use of the Golf Course during the fiscal year of the City for which such funds were budgeted and appropriated or otherwise made legally available for such purpose. The Lease Agreement does not create an immediate indebtedness for any aggregate payments which may become due thereunder. The City has not pledged the full faith and credit of 14 the City, the State of California or any agency or department thereof to the payment of the Lease Payments, the Certificates or the interest thereon. Fair Rental Value. The aggregate amount of the Lease Payments coming due and payable during each Rental Period will constitute the total rental for the Golf Course for such Rental Period, and shall, subject to the limitation that Lease Payments need not be paid if Net Revenues from the Golf Course are sufficient to pay debt service on the Bonds, be paid by the City in each Rental Period for and in consideration of the right of the use and occupancy of, and the continued quiet use and enjoyment of the Golf Course during each Rental Period. The Authority and the City agree in the Lease Agreement that the total Lease Payments represent the fair rental value of the Golf Course, either as a golf course or as open space, and that the value of the Golf Course as open space has a fair rental value at least equal to the Lease Payments. In making such determination, consideration has been given to the value of the Golf Course as an operating golf course and as open space, the costs of financing the acquisition and rehabilitation of the Golf Course, other obligations of the City and the Authority under the Lease Agreement, the uses and purposes which may be served by the Golf Course and the benefits from the Golf Course that will accrue to the City and the general public. See "BONDHOLDERS' RISKS - Certain Unique Risks Relating to the Lease Agreement" below. The City is authorized under the Lease Agreement to sublease the Golf Course, subject to satisfaction of certain conditions. The City and the Authority are also authorized to amend the Lease Agreement, subject to satisfaction of certain conditions. See Appendix C for a summary of the sublease and amendment provisions. Limitations on Operation and Management of the Golf Course. The Lease Agreement provides that the City's rights and obligations under the Lease Agreement are subject to the following limitations on the management and operation of the Golf Course: (1) The Golf Course will remain open to the public and accommodate primarily public play at all skill levels; (2) Management and operation of the Golf Course will be under the control of the Authority, pursuant to and in accordance with the provisions of the Indenture; (3) The Authority will, to the extent possible, maintain reasonable fees adequate to achieve the financial performance of the Golf Course, including specifically the timely payment of Bond Payments, and the Authority will set fees for use of the Golf Course which are comparable to other comparable public golf courses in the San Diego County area, as reasonably determined by the Authority; and (4) The Authority will operate or cause the Operator to operate, the Golf Course in such manner as will not jeopardize the tax-exempt status of the Bonds. Insurance The Indenture requires the Authority to maintain or cause to be maintained with respect to the Golf Course, comprehensive general public liability and property damage insurance and fire insurance with extended coverage, which insurance may be in the form of participating in a pooled insurance program. The Authority is not required to maintain earthquake insurance or rental interruption insurance. See "APPENDIX C - Summary of Principal Legal Documents." 15 In the event any facilities of the Golf Course are damaged or destroyed, the Authority may apply the net proceeds of any insurance award to replace, repair, restore, modify or improve (collectively, "repair") such facilities, or if repairing such facilities is not economically feasible, or in the best interest of the Authority, to redeem the Bonds. In the event the Golf Course has been damaged or destroyed and the Authority directs the Trustee to apply Net Proceeds arising from such damage or destruction to the payment or prepayment of the Bonds, then the Trustee will apply such proceeds to the redemption of bonds as described under the caption "THE BONDS - Special Mandatory Redemption" above. There can be no assurance that such proceeds will be adequate to redeem all of the Bonds. See "BONDOWNERS' RISKS". Bond Service Fund Moneys will be deposited into the Bond Service Fund established under the Indenture as described in "Receipt, Deposit, Application and Management of Gross Revenues and Net Revenues" above. In addition, a portion of the proceeds of the Bonds will be deposited in a Capitalized Interest Account within the Bond Service Fund (which will be used to pay interest on the Bonds through March 1, 2008). Amounts in the Bond Service Fund will be applied by the Trustee solely for the purpose of paying the interest on the Outstanding Bonds when and as such interest becomes due and payable (including accrued interest on any Bonds purchased or redeemed pursuant to the Indenture), for the purpose of paying the principal of the Serial Bonds at maturity, and for the purpose of paying the principal of the Term Bonds upon the mandatory sinking fund payment date or upon the purchase in lieu of such redemption. If five Business Days prior to each Interest Payment Date there is not then on hand in the Bond Service Fund an amount equal to principal of and interest due on the Bonds or the next occurring Interest Payment Date, the Trustee will immediately notify the Authority and the City of such fact. The Trustee will deposit any Lease Payment received after such notification into the Bond Service Fund. If after all of the Bonds have been paid or deemed to have been paid, there are moneys remaining in the Bond Service Fund, such moneys will be transferred by the Trustee to the Authority for deposit into the Authority Golf Course Fund; provided, however, that if such moneys are part of the proceeds of refunding bonds, such moneys will be transferred to the fund or account created for the payment of the principal of and interest on such refunding bonds. Reserve Fund Moneys will be deposited into the Reserve Fund established under the Indenture as described in "Receipt, Deposit, Application and Management of Gross Revenues and Net Revenues" above. Moneys in the Reserve Fund will be used solely for the purpose of paying the principal of and interest on the Bonds, or mandatory redemption of the Bonds or the mandatory sinking fund payments required to be made for any Term Bonds, in the event that the moneys in the Bond Service Fund are insufficient therefor, and for that purpose the Trustee will withdraw and transfer moneys from the Reserve Fund to the Bond Service Fund. In the event that the amount on deposit in the Reserve Fund at any time exceeds the Reserve Requirement, the amount of such excess will be withdrawn therefrom by the Trustee and transferred to the Bond Service Fund. 16 Redemption Fund Moneys will be deposited into the Redemption Fund established under the Indenture as described in "Receipt, Deposit, Application and Management of Gross Revenues and Net Revenues" above. Amounts in the Redemption Fund will be applied by the Trustee solely for the purpose of paying the redemption price of Bonds (and any Parity Obligations) to be redeemed as a result of an optional redemption or a mandatory redemption from proceeds of sale, condemnation or insurance. If after all of the Bonds have been paid or deemed to have been paid, there are moneys remaining in the Redemption Fund, such moneys will be transferred by the Trustee to the Authority for deposit into the Authority Golf Course Fund. Remedies If the Authority defaults on its obligations under the Indenture, the Trustee may pursue any available remedy at law or in equity under the Indenture (including but not limited to acceleration of the Bonds) and under the Lease Agreement to enforce the payment of the principal of, premium, if any, and interest on the Bonds, including specifically the right to repossess the Golf Course in accordance with the terms of the Lease Agreement, subject to the provisions of the Lease Agreement summarized in "Lease Agreement - Limitations on Operation and Management of the Golf Course" above, and use reasonable efforts to operate, or engage a consultant, manager or otherwise cause to be operated, the Golf Course (including specifically the right to determine the necessary fees to be charged for use of the Golf Course), and the Authority assigns to the Trustee its rights under the Management Agreement, but solely for the purpose of enabling the Trustee to exercise its rights in the Event of Default, and to enforce any rights of the Trustee under or with respect to the Indenture. See Appendix C for a more complete summary of Events of Default under the Indenture and applicable remedial provisions. See "BONDOWNERS' RISKS - Limitations on Management and Operation of Golf Course." 17 BOND INSURANCE The following information has been furnished by Ambac Assurance Corporation ("Ambac Assurance" or the "Insurer") for use in this Official Statement. Reference is made to Appendix F for a specimen of the financial guaranty insurance policy (the "Financial Guaranty Insurance Policy" or the "Insurance Policy") to be issued by the Insurer relating to the Bonds. Payment Pursuant to Financial Guaranty Insurance Policy Ambac Assurance has made a commitment to issue the Financial Guaranty Insurance Policy relating to the Bonds, effective as of the date of issuance of the Bonds. Under the terms of the Financial Guaranty Insurance Policy, Ambac Assurance will pay to The Bank of New York, in New York, New York, or any successor thereto (the "Insurance Trustee"), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor (as such terms are defined in the Financial Guaranty Insurance Policy). Ambac Assurance will make such payments to the Insurance Trustee on the later of the date on which such principal and/or interest becomes Due for Payment or within one business day following the date on which Ambac Assurance shall have received notice of Nonpayment from the Trustee. The insurance will extend for the term of the Bonds and, once issued, cannot be canceled by Ambac Assurance. The Financial Guaranty Insurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund installment dates, in the case of principal, and on stated dates for payment, in the case of interest. If the Bonds become subject to mandatory redemption and insufficient funds are available for redemption of all outstanding Bonds, Ambac Assurance will remain obligated to pay the principal of and interest on outstanding Bonds on the originally scheduled interest and principal payment dates, including mandatory sinking fund redemption dates. In the event of any acceleration of the principal of the Bonds, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration, except to the extent that Ambac Assurance elects, in its sole discretion, to pay all or a portion of the accelerated principal and interest accrued thereon to the date of acceleration (to the extent unpaid by the Obligor). Upon payment of all such accelerated principal and interest accrued to the acceleration date, Ambac Assurance's obligations under the Financial Guaranty Insurance Policy shall be fully discharged. In the event the Trustee has notice that any payment of principal of or interest on a Bond that has become Due for Payment and that is made to a holder by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, non-appealable order of a court of competent jurisdiction, such registered owner will be entitled to payment from Ambac Assurance to the extent of such recovery if sufficient funds are not otherwise available. The Financial Guaranty Insurance Policy does not insure any risk other than Nonpayment (as set forth in the Financial Guaranty Insurance Policy). Specifically, the Financial Guaranty Insurance Policy does not cover: 1. payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity; 2. payment of any redemption, prepayment or acceleration premium; and 18 3. nonpayment of principal or interest caused by the insolvency or negligence of the Trustee, if any. If it becomes necessary to call upon the Financial Guaranty Insurance Policy, payment of principal requires surrender of the Bonds to the Insurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such Bonds to be registered in the name of Ambac Assurance to the extent of the payment under the Financial Guaranty Insurance Policy. Payment of Interest pursuant to the Financial Guaranty Insurance Policy requires proof of holder entitlement to interest payments and an appropriate assignment of the holder's right to payment to Ambac Assurance. Upon payment of the insurance benefits, Ambac Assurance will become the owner of the Bond, appurtenant coupon, if any, or right to payment of the principal of or interest on such Bond and will be fully subrogated to the sun^endering holder's rights to payment. In the event that Ambac Assurance were to become insolvent, any claims arising under the Financial Guaranty Insurance Policy would be excluded from coverage by the California Insurance Guaranty Association, established pursuant to the laws of the State of California. Ambac Assurance Corporation Ambac Assurance is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin, and is licensed to do business in 50 states, the District of Columbia, the Territory of Guam, the Commonwealth of Pueri:o Rico and the U.S. Virgin Islands, with admitted assets of approximately $9,699,000,000 (unaudited) and statutory capital of approximately $6,223,000,000 (unaudited) as of September 30,2006. Statutory capital consists of Ambac Assurance's policyholders' surplus and statutory contingency reserve. Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., Moody's Investors Service, Inc. and Fitch Ratings have each assigned a triple-A financial strength rating to Ambac Assurance. Ambac Assurance has obtained a ruling from the Internal Revenue Service to the effect that the insuring of an obligation by Ambac Assurance will not affect the treatment for federal income tax purposes of interest on such obligation and that insurance proceeds representing maturing interest paid by Ambac Assurance under policy provisions substantially Identical to those contained in the Financial Guaranty Insurance Policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Obligor. Ambac Assurance makes no representation regarding the Bonds orthe advisability of investing in the Bonds and makes no representation regarding, nor has it participated in the preparation of, this Official Statement other than the information supplied by Ambac Assurance and presented under the heading "BOND INSURANCE". Available Information The parent company of Ambac Assurance, Ambac Financial Group, Inc. (the "Company"), is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). These reports, proxy statements and other information can be read and copied at the SEC's public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC maintains an internet site at http://www.sec.gov that contains 19 reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including the Company. These reports, proxy statements and other information can also be read at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. Copies of Ambac Assurance's financial statements prepared in accordance with statutory accounting standards are available from Ambac Assurance. The address of Ambac Assurance's administrative offices is One State Street Plaza, 19th Floor, New York, New York 10004, and its telephone number is (212) 668-0340. Incorporation of Certain Documents by Reference The following documents filed by the Company with the SEC (File No. 1-10777) are incorporated by reference in this Official Statement: 1. The Company's Annual Report on Form 10-K for the fiscal year ended December 31,2005 and filed on March 13,2006; 2. The Company's Current Report on Form 8-K dated and filed on April 26, 2006; 3. The Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 31, 2006 and filed on May 10, 2006; 4. The Company's Current Report on Form 8-K dated July 25, 2006 and filed on July 26, 2006; 5. The Company's Current Report on Form 8-K dated and filed on July 26, 2006; 6. The Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended June 30, 2006 and filed on August 9, 2006; 7. The Company's Current Report on Form 8-K dated and filed on October 25, 2006; and 8. The Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended September 30, 2006 and filed on November 8, 2006. All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in the same manner as described above in "Available Information". 20 THE AUTHORITY AND THE CITY The Authority The Authority was formed pursuant to the Joint Exercise of Powers Agreement dated as of April 1, 2000, between the City and the Water District. The Joint Exercise of Powers Agreement was executed pursuant to Article 1 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California in order that the Authority may construct, own, manage, operate and maintain the Golf Course and exercise the powers authorized under the Bond Law. The Authority is a separate public entity separate and apart from the City and the Water District. The Authority is governed by a board of five directors consisting of the members of the City Council. The City The City of Carlsbad is located approximately 35 miles north of the City of San Diego on the southern California coast. The City is governed by a five member City Council under the Council/Manager form of government. For further general and demographic information regarding the City, see "APPENDIX B - Financial and Demographic Information About the City of Carlsbad". 21 i • 1 THE GOLF COURSE General The Golf Course is a proposed 18-hole championship golf course, which is scheduled to open in July 2007. The City-owned property upon which the golf course will be developed is a 400- acre site of rolling hills with ocean view. The project is a "stand alone" golf course with no associated residential or resort development onsite. The property is immediately adjacent to the Legoland family theme park on the west. A major resort / hotel project is proposed to the north and west of the Golf Course site. Plans call for 350 Sheraton Hotel units and 350 Hilton Grand Vacation timeshare units. Restaurants, health club facilities, swimming pools, and related resort amenities are also planned. As of November 1, 2006, all site grading has been completed on the resort/hotel project, and the project was estimated to be at 5% completion. Construction began in September 2006 and the City is informed that the project is expected to be complete in January 2008. In anticipation of this resort project being developed, the City has already installed a direct golf cart/pedestrian linkage from the resort to the Golf Course. The Golf Course project took more than 17 years to receive state and federal approvals because it lies within the state's coastal zone and is surrounded by federally protected habitat. Half of the 400-acre Carlsbad Municipal Golf Course will be preserved for habitat and will help tie together more than 1,000 acres of open space in the central part of the city. The Golf Course will be open to the public, and residents of the City will receive a preferred rate. The Authority is also building a large outdoor event venue, a full-service clubhouse, and a restaurant to complement the Golf Course; these facilities are not part of the Leased Premises and revenues from them are not included in Gross Revenues. Description of the Golf Course Golf Course Description. The golf course was designed by Phoenix-based golf course architect Greg Nash. The course will be open for use seven days per week. It is an 18-hole, par-72, 6,900-yard championship course with an environmentally-friendly layout. It is set in coastal terrain, highlighted by views of the Pacific Ocean, infused with massive pine, oak and sycamore trees and Bermuda grass. Multiple sets of tees will present a challenging, yet accommodating on-course experience to players of all calibers. The course will also provide a lighted driving range for public use. Clubhouse. The full service clubhouse, and all other onsite buildings, have been designed by architect Douglas Fredrikson, also of Phoenix, Arizona. The 23,000 square foot upscale clubhouse will house banquet facilities, a spacious dining room equipped with a full-service kitchen, and an outdoor deck with ocean views. In addition, it will have a golf shop, and men's and women's locker rooms. 23 Construction Schedule and Budget Construction began on the golf course in September, 2005 with completion of construction and opening to the general public anticipated to occur in July, 2007. The construction of the project is currently on schedule and approximately 75% complete as of November 1, 2006. There are no disputes or contractor claims between the City and the three prime contractors whose work is described below. A portion of the proceeds of the Bonds will be deposited in the Project Fund established pursuant to the Indenture and applied to pay a portion of the costs of developing the Golf Course. The Authority is a party to the following contracts: • Mass Grading: A contract with SEMA Construction, Incorporated, of Lake Forrest, California, was awarded in August, 2005. SEMA Construction's work included mass grading, site utilities, drainage, limited site improvements, and site preparation for succeeding work by other contractors. The SEMA work, including all mass grading, was successfully completed in February, 2006. A total of 1.5 million cubic yards were graded and placed in about 16 weeks time. SEMA remains under contract with the City to complete "punch list" items and finalize the scope of work. • Golf Course Construction: A contract with Wadsworth Golf Construction, Incorporated, of Buckeye, Arizona, was awarded in August, 2005. Wadsworth's work includes all construction activities associated with the golf course including final shaping, irrigation, cart paths, landscaping, utilities, water service delivery system, and related work. The Wadsworth work began in November, 2005 and is expected to conclude in the first quarter of 2007. As of November 1, 2006, Golf Course construction was approximately 80% complete. Several months of landscape establishment and maintenance will be required to ready the turf for public play. • Golf Course Buildings: A contract with the Jaynes Corporation of San Diego, California, was awarded in August, 2005. Jaynes' work involves construction of all buildings on the site, including a 23,000 square foot-clubhouse with restaurant, pro shop, administrative offices, underground golf cart storage and maintenance, and related facilities, two on-course restrooms and a "half way" house, and an 18,000 square foot, full-service maintenance facility which will house all maintenance crews and equipment customary for a large golf course operation. As of November 1,2006, construction of the buildings was approximately 75% complete. 24 Based on the price specified in the contracts listed above, the Authority estimates the following construction budget for the Golf Course as of December 8, 2006: Uses Budgeted Item Amount Grading $10,549,381 Construction 20,397,925 Buildings 11,984,849 Contingency 929,000 Construction misc. 5,965,000 Subtotal Construction 49,826,155 Grow-in/start-up/pre-opening costs 2,500,000 Mitigation maintenance & monitoring 1,500,000 Furniture, Fixtures & Equipment 990,000 Debt Service Reserve Fund 1,238,325 Capitalized Interest Through March 1, 2008 990,163 Cost of Issuance '^> 494,525 Total Uses $57,539,168 Sources Proceeds of the Bonds $18,836,839 Advanced from General Fund '^' 38.702.329 Total Sources $57,539,168 (1) Includes all costs of issuance paid with proceeds of the Bonds, including the premium for the Insurance Policy and the underwriter's discount. (2) This amount has already been advanced or transferred by the City to the Authority from the General Fund. The City has an Undesignated General Fund Reserve of $47,519,083 (see Appendix B, Table 2) which, with City Council approval, could be available to pay for increased project costs. The advance between the General Fund and the Golf Course Fund is estimated to be repaid over a 35-40 year period through bond proceeds, possible disposition of golf course assets, and residual operating income from golf course operations. The City will use a portion of the proceeds of the Bonds to capitalize interest on the Bonds through March 1, 2008. The City believes that the Golf Course can be constructed within the estimated project schedule and increased its project budget on November 21, 2006 by approximately 10%. Neither the Authority nor the City can provide any assurances that the Golf Course will be completed as expected, or at all, and the City believes the project budget may be subject to further increases as a result of unforeseen costs. Failure to complete the Golf Course as expected could impact the availability of Net Revenues. 25 The Operator The current Operator is Kemper Sports Management, Inc. ("Kemper"). Kemper has over 25 years of experience in developing and managing golf courses for both the private sector and public agency clients. Kemper currently manages approximately 65 golf courses across the United States. Over 70% of Kemper's clients are public agencies. Management Agreement Term; Termination. The Management Agreement between the Authority and the Operator extends through the fifth anniversary of the date the Golf Course is first opened to the public (the "Opening Date"). At the termination date, the Management Agreement may be extended for one additional five-year term upon mutual agreement of the parties. Either party may terminate the Management Agreement as a result of a default on the part of the other party, and the Authority may terminate the Management Agreement, without cause or penalty, at any time after the third anniversary of the Opening Date. Compensation. The Management Agreement calls for the Operator to receive as compensation (i) a fixed management fee and (ii) a percentage management fee (together, the "Management Fees"): Fixed Management Fee: The fixed management fee is equal to $150,000 per year, payable in 12 monthly installments, subject to annual increase (but not decrease) according to a consumer price index, plus amounts for the salaries and benefits of Key Management Employees (as defined in the Management Agreement). Percentage Management Fee: The percentage management fee is equal to 5% of "Gross Revenues" (as defined in the Management Agreement) in excess of $4.5 million; provided, however, the percentage management fee may not exceed $150,000 per year. Gross Revenues generally includes all money received as a result of the operation of the Golf Course and the sale of goods and services at the Golf Course. Insurance. The Operator is required by the Management Agreement to maintain certain insurance, including the following: • Worker's compensation insurance that complies with State law and covers all Golf Course employees that are the Operator's employees. • Commercial general liability insurance with a minimum combined single limit of $10 million per occurrence. • Automobile liability and garage keeper's liability insurance with a combined single limit per occurrence of $1 million. • Property insurance covering loss or damages to the buildings, structures or other improvements, contents, equipment and supplies on a replacement cost per occurrence basis (with some exceptions). • Business interruption, loss of income and extra expense insurance in an amount that will reimburse the Authority for direct and indirect loss of earnings attributable to the annual value of lost business in connection with insured physical damage. Annual Plan. The Management Agreement requires Kemper to prepare an Annual Plan for the Golf Course prior to October 1 of each year. The Annual Plan must include an operating budget, a capital improvement program, a marketing and business plan, a course maintenance plan and a 26 recommendation for all fees and charges. The Operator and the Authority agree in the Management Agreement to use commercially reasonable efforts to limit the increase in Golf Course expenses to the increase in the specified consumer price index or increases due to increases in Gross Revenues (as defined in the Management Agreement). The Management Agreement establishes a mechanism by which the Operator and the Authority will agree upon the Annual Plan. The Authority and the Operator will meet and discuss the operating results of the Golf Course and review the Annual Plan on a quarterly basis. Rates and Charges. The Management Agreement provides that greens fees (which will include use of a golf cart), golf club rental and driving range fees and charges will be comparative and competitive with other first class public golf courses in San Diego County and approved by the Authority. All fees and charges will be set first to ensure coverage of Golf Course Expenses, Management Fees and debt service, and next to provide a benefit to residents of the City. Operation and Maintenance. The Management Agreement provides that the Operator will operate and maintain the Golf Course as a first class golf course, which is defined to mean a golf course comparable to the following golf courses in San Diego County: Arrowood, Oceanside; The Vineyard - City of Escondido; and Encinitas Ranch - City of Encinitas. Goif Course Accounts; Treatment of Gross Revenues. The Management Agreement provides for establishment of "Golf Course Accounts" in the Authority's name. The Operator is obligated to deposit in the Golf Course Accounts all monies received from the operation of the Golf Course. The Authority is obligated to maintain in the Golf Course Accounts an amount equal to the highest monthly operating budget identified in the current approved Annual Plan (the "Operating Expense Minimum"). The funds in the Golf Course Accounts may be expended by the Operator on the following: Golf Course Expenses as and when incurred; Management Fees. All accrued but undisbursed Capital Improvement Funds. Amounts needed to maintain the Operating Expense Minimum. Available Funds, i.e., amounts remaining after paying the preceding expenses, are payable to the Authority. The Indenture provides that Available Funds constitute "Net Revenues" during the term of the Management Agreement. See "SECURITY FOR THE BONDS - Net Revenues" above. Projected Rate Structure; Rate Structure of Competing Courses General. Play at the Carlsbad course will consist of discount resident and non-resident golfers. Nonresident play will derive from several sources: • San Diego County residents outside the City of Carlsbad • Visitors to San Diego County • Hotel guests at La Costa, Aviara and other local overnight facilities • Businesses in and near Carlsbad, particularly those affiliated with golf products Projected Rate Structure. The City Council has not adopted rates for the Golf Course yet, and does not expect to do so until closer to the time the Golf Course opens. However, the following projection of Net Revenues assumes an average fee per round of $65.00. 27 Rate Structure of Competing Courses. The following summarizes the fee structures of competing North San Diego County golf courses as of August 4, 2006: Greens Fees: Standard (18 holes) Weekday Friday Weekend Twilight* Weekday Friday Weekend Resident (18 holes) Weekday Friday Weekend Resident Twilight Weekday Friday Weekend Seniors (18 holes) Weekday Friday Weekend Cart Fees (18/9 holes) Range Fees *Twilight Supertwilight Average Fee Per Round Maderas Poway 155 195 195 75 95 95 120 150 150 75 95 95 70 (1) 195 195 Included Included 2:30 PM Not available Vineyard Escondido 49 49 65 40/22 (2) 40/22 (2) 45/23 (2) 44 44 60 35 35 40 34/27 (3) 34/27 (3) 60/40 (3) Included $6Avg 2:00 PM 4:00 PM $34/round Encinitas Ranch Encinitas 63 68 83 30 34 51 40/58 (4) 46/63 (4) 55/78 (4) 30 34 51 63 68 83 $12 per rider $8Avg 3:00 PM $57/round Eagle Crest Escondido 37 39 42 33 33 33 37 39 42 33 33 33 28 (5) 39 42 Included $4Avg 4:00 PM Not available Arrowood Oceanside 62 70 90/85 (6) 40/30 (2) 47/35 (2) 50/40 (2) 57 65 85/80 (6) 40/30 (2) 47/35 (2) 50/40 (2) 62 70 90/85 (6) Included $8Avg 2:00 PM 4:00 PM Not available (1) Monday & Tuesday only (2) Twilight/Supertwilight (3) Senior resident; Regular/Twilight (4) Encinitas/Southern California (5) Tuesday only (6) Saturday/Sunday Source: City of Carlsbad 28 Supply of Competing Courses Existing Courses. The following summarizes the existing supply of competing North San Diego County golf courses as of August 4, 2006: Golf Course Arrowood Encinitas Ranch Fallbrook Golf Club Pala Mesa Resort Vineyard at Escondido Torrey Pines (2 courses) San Luis Rey Downs Twin Oaks Golf Club Oceanside Golf Course IVIaderas Morgan Run Resort and Club City Oceanside Encinitas Fallbrook Fallbrook Escondido San Diego Bonsall San Marcos Oceanside Poway Rancho Santa Fe # of Holes 18 18 18 18 18 18 18 18 18 18 18 Future Courses. The City is not aware of any golf courses that would compete with the Golf Course that are under construction or being considered. Projected Revenues, Expenditures and Debt Service Coverage Availability of Net Revenues from the Golf Course depends upon the ability of the Authority to realize certain assumptions relating to income and expenses, which are stated below. The Operator and the Authority believe the assumptions to be reasonable; however, the Golf Course is not yet open and, therefore, there is no operating history, some assumptions may not materialize and unanticipated events and circumstances may occur (see "BONDOWNERS' RISKS" below). To the extent that the assumptions are not actually realized, the Authority's ability to generate Net Revenues in an amount sufficient to pay debt service on the Bonds may be adversely affected. In the event Net Revenues are insufficient to pay debt service on the Bonds, the City has agreed to make Lease Payments under the Lease Agreement. See "SECURITY FOR THE BONDS - Lease Agreement". The projection of Net Revenues is based on the following assumptions: • The projected number of annual rounds (59,611) is a post-start-up, stabilized number of rounds (which the City projects occurring in the fifth year of operation). • Fees are assumed to be an initial-year level of $65.00 per round (without increase for inflation or otherwise). • Operation and maintenance expenses are assumed at a stabilized level, i.e., after completion of the start-up phase. • Management Fees will be as described under "Management Agreement" above. The projection separately identifies revenues and expenses of the Golf Course, which are included in the calculation of Net Revenues, and revenues and expenses of complementary services to the Golf Course (generally food, beverage and merchandise), which are not included in the calculation of Net Revenues. 29 CARLSBAD MUNICIPAL GOLF COURSE PROJECTION OF NET REVENUES, EXPENDITURES AND DEBT SERVICE COVERAGE (In Thousands) Estimated Revenues Cost of Sales Personnel Supplies and Services Total Estimated Expenses Net Operating Income Capital Reserve Capitalized Equipment Lease Management Fee Estimated Net lncome/(Loss) Debt Service (Principal and Interest) *^' Estimated Balance Golf $4,200,562 1,346,908 1,235.682 2.582.590 1,617,972 84,011 204,000 177,992 1,151,969 1.119.250 $32,719 F&B/Merch *'' $1,749,250 590,907 818,934 244.870 1.654,711 94,539 34,985 0 44,498 15,056 0 $15,056 Combined $5,949,812 590,907 2,165,842 1,480.552 4.237.301 1,712,511 118,996 204,000 222.490 1,167,025 1.119.250 $47,775 (1) Revenues and expenses in this column are not included in the calculation of Net Revenues available to pay debt service on the Bonds. (2) Debt service is equal to the fifth full year of debt service on the Bonds, i.e., the Bond Year ending September 1,2012. Source: Kemper Sports Management, Inc. 30 BONDOWNERS' RISKS General The purchase of the Bonds involves investment risk. If a risk factor materialized to a sufficient degree, it could delay or prevent payment of principal of and interest on the Bonds. Such risk factors include, but are not limited to, the matters listed below. Limited Obligation; Limited Remedies Limited Obligation. The Bonds are special, limited obligations of the Authority payable solely from (i) Net Revenues of the Golf Course, as described in this Official Statement, (ii) Lease Payments payable by the City pursuant to a Lease Agreement, to the extent necessary and (iii) moneys deposited in certain funds under the Indenture (including the Reserve Fund). Neither the full faith and credit nor the taxing power of the Authority, the City or the Water District is pledged to the payment of the Bonds. The Authority has no taxing power. No representation or assurance can be given that the Net Revenues or the Lease Payments will be in amount sufficient to pay principal of, premium, if any, and interest on the Bonds when due. Limited Remedies. The enforceability of the rights and remedies of the Owners of the Bonds, and the obligations of the City and the Authority, are subject to the following: the Federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it under the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. Biological Resources The City and the Authority have secured all necessary permits for construction and operation of the Golf Course, including a Streambed Alteration Agreement with the California Department of Fish and Game, a 404 Permit from the U.S. Army Corps of Engineers and a Coastal Development Permit from the California Coastal Commission. Although these permits require the City and the Authority to comply with certain one-time and ongoing mitigation measures, the City and the Authority do not expect any such mitigation measures to adversely impact their ability to operate the Golf Course as proposed. Geologic, Topographic and Climatic Conditions The areas in and surrounding the City, like those in much of California, may be subject to unpredictable seismic activity. Other natural disasters could include, without limitation, landslides, floods, droughts or tornadoes. One or more natural disasters could occur and could result in damage to the Golf Course, some or all of which could be uninsured. The Authority may be unable or unwilling to repair or restore the Golf Course to its previous condition. Any damage could entail significant repair or replacement costs. Under any of these circumstances, the Net Revenues 31 available to pay debt service on the Bonds may be adversely impacted as could the City's ability or willingness to pay Lease Payments. Hazardous Substances Discovery of hazardous substances on the Golf Course could impact the use and availability of the Golf Course and discovery on parcels in the City could adversely impact revenues to the City's general fund. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Superfund Act" is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has any thing to do with creating or handling the hazardous substance. The effect, therefore, should the Golf Course or any substantial amount of property within the City be affected by a hazardous substance, would be to reduce the marketability and value of the property by the costs of, and any liability incurred by, remedying the condition, since the purchaser, upon becoming an owner, will become obligated to remedy the condition just as is the seller. Such reduction in the value of the Golf Course could adversely impact Net Revenues and could adversely impact the fair rental value of the Golf Course and potentially result in abatement of the Lease Payments. In addition, reduction in the value of property in the City as a whole could reduce property tax revenues received by the City and deposited in the general fund, which could significantly and adversely affect the ability of the City to make Lease Payments. The Golf Course site is crossed by 3 overhead electrical transmission lines with support towers owned and operated by San Diego Gas and Electric Company. A high-pressure underground gas line also traverses the Golf Course site along with several underground water transmission lines. The Golf Course layout has been designed primarily parallel to these corridors and no conflicts exist between the proposed use of the Golf Course and the utilities. Additional Bonds, Dilution of Security Pursuant to the Indenture, the Authority may sell additional bonds under specified circumstances. See "THE BONDS - Parity Obligations" above. From and after such date, the Bondowners' security will be shared with owners of Parity Obligations and/or diluted in accordance with such provisions. Because Net Revenues would be used to pay debt service on the Bonds and any Parity Obligations on a pro rata basis, if Net Revenues were ever less than projected, they may not be sufficient to pay debt service on the Bonds . Loss of Tax-Exemption As discussed under the caption "CONCLUDING INFORMATION - Tax Matters" below, interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued, as a result of future acts or omissions of the Authority in violation of its covenants in the Indenture. Moreover, such covenants may severely restrict the ability of the Trustee to realize value from the security provided in the Indenture without causing such loss of tax-exemption. Should such an event of taxability occur, the Bonds are not 32 subject to a special redemption and will remain outstanding until maturity or until redeemed under other provisions set forth in the Indenture. Secondary Market There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that such Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. Unique Risk Factors Relating to the Net Revenues General. The Golf Course is not yet constructed or operational. Accordingly, the projection of Net Revenues in an amount sufficient to pay debt service on the Bonds is based on projections which the Operator and the Authority believe are reasonable. However, if those projections are not met for any reason, Net Revenues may be inadequate to pay timely debt service on the Bonds. Many factors could cause such inadequacy of Net Revenues, such factors include, among others, national and local economic conditions, operator competence and effectiveness, increased competition from recreational activities, including other golf courses, changes in demand for golf courses, unexpected expenses, physical factors pertaining to the playability of the Golf Course whether related to weather factors or other physical conditions, inflation, demographic changes, liability claims and other litigation. Such events could adversely affect utilization, market share, profitability and ability to generate operating and non-operating revenue. There will usually be differences between the budgeted or forecasted results and actual results because events and circumstances frequently do not occur as expected, and such differences may be material. Future conditions may reduce Net Revenues below the projected Net Revenues and could adversely impact the Authority's ability to pay principal of and interest on the Bonds. Nature of the Golf Course. Unlike other municipal enterprises, the Golf Course is considered a non-essential public recreational facility. Therefore, its use is elective with the public, and it is subject to reduced use. Lack of Operating History. The Golf Course is under construction and has no operating history; therefore investors in the Bonds must evaluate the risks of purchasing the Bonds without a history of generating Net Revenues in an amount sufficient to pay debt service on the Bonds. The land on which the Golf Course is situated may not be useful or usable for other purposes. Inability to Establish Rates in Accordance with Rate Covenants. Pursuant to the Indenture, the Authority has covenanted to fix or cause the operator to fix, prescribe, revise and collect rates, fees and charges for the use of the Golf Course which are at least sufficient to provide for the payment of Operation and Maintenance Costs and payments of debt service on the Bonds required pursuant to the Indenture. See "SECURITY FOR THE BONDS - Golf Course-Related Covenants" above. The rates for the use of the Golf Course will be set by the governing body of the Authority and will be determined in concert with the Operator. However, demand characteristics or other factors may make the Authority unable as a practical matter to raise rates to a level which will 33 permit Net Revenues to be adequate to make timely payment of principal and interest on the Bonds. Management of the Golf Course. Successful operation and management of the Golf Course is essential to generate sufficient Net Revenues to pay debt service on the Bonds. Management practices, such as course maintenance, marketing, cost containment, fiscal practices and personnel will impact the availability and amounts of Net Revenues. If the Operator and the City were to be involved in a dispute under the l\4anagement Agreement regarding either party's performance, there could be a delay or a reduction in Net Revenues. In particular, if the Authority elects not to renew the Management Agreement at the end of its current term (or any subsequent extension), a negative relationship with the Operator could reduce or delay the flow of Net Revenues to the Authority and the Trustee. The Authority does not currently have the personnel or experience to manage the Golf Course. If the Authority were to terminate the Management Agreement, the Authority would currently need to contract (but is not legally obligated to contract) with another experienced golf course manager. Failure to do so could adversely affect Net Revenues and the ability of the Authority to timely pay principal of and interest on the Bonds when due. Future contracts, if any, may require increased compensation which could result in Net Revenues being less than estimated. Limitations on Management and Operation of Golf Course. The Indenture and the Lease Agreement restrict the operation of the Golf Course to that of a public course. In the event remedies are pursued by the Trustee under the Indenture and the Lease Agreement in an Event of Default, then the management and operation of the Golf Course is subject to the following limitations: (1) The Golf Course will remain open to the public and accommodate primarily public play at all skill levels; (2) Management and operation of the Golf Course will be under the control of the Authority, pursuant to and in accordance with the provisions of the Indenture; (3) The Authority will, to the extent possible, maintain reasonable fees adequate to achieve the financial performance of the Golf Course, including specifically the timely payment of Bond Payments, and the Authority will set fees for use of the Golf Course which are comparable to other comparable public golf courses in the San Diego County area, as reasonably determined by the Authority; (4) The Authority will operate or cause the Operator to operate, the Golf Course in such manner as will not jeopardize the tax-exempt status of the Bonds. Such limitations could affect the Net Revenues available to pay debt service on the Bonds. Competition. There are several other existing and proposed golf courses that are competitive with the Golf Course. This competition could impact the ability of the Authority to comply with the rate covenants established in the Indenture and consequently the ability of the Authority to generate Net Revenues to pay debt service on the Bonds. Insurance. The Indenture obligates the Authority to obtain and keep in force various forms of insurance, subject to deductibles, for repair or replacement of the Golf Course in the event of 34 damage or destruction to the Golf Course. The Authority makes no representation as to the ability of any insurer to fulfill its obligations under any insurance policy provided for in the Indenture and no assurance can be given as to the adequacy of any such insurance to fund necessary repair or replacement or to pay principal of and interest on the Bonds when due. In addition, certain risks, such as damage from earthquake, are not covered by such insurance. Unique Risk Factors Relating to the Lease Agreement No Tax Pledge. The obligation of the City to pay the Lease Payments does not constitute an obligation of the City or the State for which the City or the State has levied or pledged any form of taxation. The obligation of the City to pay Lease Payments does not constitute a debt or indebtedness of the City, the State of California or any of its political subdivisions, within the meaning of any constitutional or statutory debt limitation or restriction. Appropriation. Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease Agreement, so long as the Golf Course is available for its use and possession, to pay Lease Payments from any source of legally available funds (subject to certain exceptions) and has covenanted in the Lease Agreement that, for so long as the Golf Course are available for its use, it will make the necessary annual appropriations within its final approved budget for all Lease Payments. See "Abatement" below. However, the City may incur obligations payable from general revenues which have a priority over the Lease Payments, and the Lease Agreement does not prohibit the City from incurring additional obligations payable from general revenues on a parity with the Lease Payments. In the event the City's revenue sources are less than its total obligations, the City could choose to fund other municipal services before making Lease Payments and other payments due under the Lease Agreement. The City's ability to collect, budget and appropriate various revenues is subject to current and future State laws and constitutional provisions, and it is possible that the interpretation and application of these provisions could result in an inability of the City to pay Lease Payments when due (see "APPENDIX B - Financial and Demographic Information About the City of Carlsbad"). No Limit on Additional Debt The City has the ability to enter into other obligations which may constitute additional charges against its general revenues, and has previously issued certificates of participation similarly payable from its general fund. Abatement. Under California law, the City may not promise to pay Lease Payments during any period in which the Golf Course is unavailable for its use and possession. The City and the Authority have found in the Lease Agreement that the total Lease Payments represent the fair rental value of the Golf Course, either as a golf course or as open space, and that the value of the Golf Course as open space has a fair rental value at least equal to the Lease Payments. As a result, the City may conclude that the Lease Payments do not need to be abated in the event the Golf Course is not completed as scheduled or during any period of damage or destruction to the Golf Course. If all of the Golf Course is taken permanently under the power of eminent domain, the term of the Lease Agreement will cease as of the day possession is taken. If less than all of the Golf Course is taken permanently, or if all of the Golf Course or any part thereof is taken temporarily. 35 under the power of eminent domain, (1) the Lease Agreement will continue in full force and effect, and (2) there may be a partial abatement of Lease Payments as a result of the application of the Net Proceeds of any eminent domain award to the prepayment of the Lease Payments. Limitation on Enforcement of Remedies; No Acceleration. The enforcement of any remedies provided in the Lease Agreement could prove both expensive and time consuming. Although the Lease Agreement provides that the Trustee may take possession of the Golf Course and lease them if there is a default by the City, and the Lease Agreement provides that the Trustee may have such rights of access to the Golf Course as may be necessary to exercise any remedies, portions of such Golf Course may not be easily recoverable and could be of little value to others. Furthermore, depending upon whether the Golf Course is considered to serve an essential governmental function, it is not certain whether a court would permit the exercise of the remedies of repossession and leasing with respect thereto. IN THE EVENT OF A DEFAULT UNDER THE LEASE AGREEMENT, THERE IS NO AVAILABLE REMEDY OF ACCELERATION OF THE TOTAL LEASE PAYMENTS DUE OVER THE TERM OF THE LEASE AGREEMENT. THE CITY WILL ONLY BE LIABLE FOR LEASE PAYMENTS ON AN ANNUAL BASIS AS THEY COME DUE, AND THE TRUSTEE WOULD BE REQUIRED TO SEEK SEPARATE JUDGMENTS FOR THE LEASE PAYMENTS AS THEY COME DUE. IN ADDITION, ANY SUCH SUIT FOR MONEY DAMAGES COULD BE SUBJECT TO LIMITATIONS ON LEGAL REMEDIES AGAINST PUBLIC AGENCIES IN CALIFORNIA, INCLUDING A LIMITATION ON ENFORCEMENT OF JUDGMENTS AGAINST FUNDS NEEDED TO SERVE THE PUBLIC WELFARE AND INTEREST AND A LIMITATION ON ENFORCEMENT OF JUDGMENTS AGAINST FUNDS OF A FISCAL YEAR OTHER THAN THE FISCAL YEAR IN WHICH THE LEASE PAYMENTS WERE DUE. CONCLUDING INFORMATION Approval of Legal Proceedings Jones Hall, A Professional Law Corporation, as Bond Counsel, will render an opinion stating that the Indenture, the Lease Agreement and the Bonds are valid and binding contracts of the Authority and are enforceable in accordance with their respective terms. The legal opinion of Bond Counsel will be subject to the effect of bankruptcy, insolvency, moratorium and other similar laws affecting creditors' rights and to the exercise of judicial discretion in accordance with general principles of equity. Neither the City nor the Authority has any knowledge of any fact or other information which would indicate that the Indenture or the Lease Agreement are not enforceable, except to the extent such enforcement is limited by principles of equity and by state and federal laws relating to bankruptcy, reorganization, moratorium or creditors' rights generally. See "APPENDIX E - Form of Bond Counsel Opinion. Certain legal matters will be passed on for the Authority by Jones Hall, A Professional Law Corporation, as disclosure counsel. In addition, certain legal matters will be passed on for the Authority and the City by the City Attorney. Payment of the fees of the Financial Advisor, Bond Counsel and Disclosure Counsel is contingent upon the sale and delivery of the Bonds. 36 Tax Matters In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, subject, however, to certain qualifications described below, under existing law, interest payable on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding paragraph are subject to the condition that the Authority comply with all requirements of the Internal Revenue Code of 1986 (the "Tax Code") that must be satisfied subsequent to the issuance of the Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The Authority has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above. Absence of Litigation Concurrently with execution and delivery of the Certificates, the City Attorney, as counsel to the City and the Authority, will opine, and the City and the Authority will furnish a certificate to the effect, that they (i) are not aware of any pending or threatened litigation concerning the validity of the Bonds, the Indenture or the Lease Agreement or challenging any action taken by the City or the Authority with respect to the Bonds, the Indenture or the Lease Agreement and (ii) are not aware of any pending or threatened litigation to restrain, enjoin, question or otherwise affect the Bonds, the Indenture or the Lease Agreement or in any way contesting or affecting the validity or enforceability of any of the foregoing or any proceedings of the Authority or the City taken with respect to any of the foregoing. Although there are a number of unrelated lawsuits and claims pending and threatened against the City, the City believes that such litigation, claims and threatened litigation will not materially adversely affect construction of the Golf Course, the projected availability of revenues from the Golf Course, the Authority's or the City's finances, the Authority's ability to pay debt service on the Bonds, the City's ability to make the Lease Payments, or otherwise adversely impact the Authority and the City's ability to meet their respective obligations under the Bonds, the Indenture and the Lease Agreement. 37 Rating Standard & Poor's Credit Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P") has assigned the Bonds a rating of "AAA" upon the understanding that the Insurer will issue the Insurance Policy simultaneously with the issuance of the Bonds. S&P has also assigned an underlying rating to the Bonds of "AA-". These ratings reflect only the views of the rating agency(ies) referred to in the previous paragraph. Explanations of the significance of such ratings must be obtained from the rating agency(ies). There is no assurance that such ratings will continue for any given period of time or will not be revised downward or withdrawn entirely by such rating agency(ies), if, in the judgment of such rating agency(ies), circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Bonds. Underwriting The Bonds are being purchased for reoffering by Stone & Youngberg LLC (the "Underwriter"). The Underwriter has agreed to purchase the Bonds for a purchase price of $18,720,964.45 (calculated as the principal amount of the Bonds, less an Underwriter's discount in the amount of $115,875.00, plus a net original issue premium of $296,839.45). The purchase contract pursuant to which the Underwriter is purchasing the Bonds provides that the Underwriter will purchase all of the Bonds if any are purchased. The obligation of the Underwriter to make such purchase is subject to certain terms and conditions set forth in such contract of purchase. The Underwriter may offer and sell the Bonds to certain dealers and others at prices different from the prices stated on the cover page of this Official Statement. The offering prices may be changed from time to time by the Underwriter. IVlisceltaneous The quotations from, and summaries and explanations of the Indenture and other statutes and documents contained in this Official Statement do not purport to be complete, and reference is made to such documents, the Indenture, and statutes for full and complete statements of their provisions. This Official Statement is submitted only in connection with the sale of the Bonds by the Authority. All estimates, assumptions, statistical information and other statements contained in this Official Statement, while taken from sources considered reliable, are not guaranteed by the Authority. The information contained in this Official Statement should not be considered as representing all conditions affecting the Authority or the Bonds. This Official Statement does not constitute a contract with the purchasers of the Bonds. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. 38 The execution and delivery of this Official Statement has been duly authorized by the Authority. CARLSBAD PUB NANCING AUTHORITY \s\ Raymond R. Patchett Executive Director CITY OF C, \s\ Raymond R. Patchett City Manager The execution and delivery of this Official Statement has been duly authorized by the Authority. CARLSBAD PUBLIC FINANCING AUTHORITY By: \s\ Raymond R. Patchett Executive Director CITY OF CARLSBAD By: \s\ Raymond R. Patchett City Manager 39 » y [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX A COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE CITY OF CARLSBAD, FISCAL YEAR 2005-06 [THIS PAGE INTENTIONALLY LEFT BLANK] 3 • f- V COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED JUNE 30,2006 1635 Faraday Avenue, Carlsbad, CA 92008 Website: %vww. ciB-hhudca.guv Prepared by the Finance Department CITY OP CARLSBAD Comprehensive Anuual Financial Report Year Ended June 30,2006 TABLE OF CONTENTS INTRODUCTORY SECTlOfe ii%pi- Table of Contents Ji City Couficii's Five-Year VisSooStateiTKsnts ! l^ter of Transmittai 3 Certificate of Achievement for ExceHence ii» Financial Reporting, Goveinnietit Finance Officers Association ! 3 Location Map 14 List of City Officials 15 Organization Chart 16 FINANCiAJ.. SECTION: independent Auditor's Report If Manageruent's Discussion and Analysis W Basic Financial Statements Govemment*W!de Rnancial Statements: Statement of Net Assets M Statonent of Activities 36 Fund Financial Statements: Balance Sheet ~ GovernnieHtal Ftuids 3| Reconciliation of the Balance Sheet of Govcrnmeniai Funds lo the Statentienl of Net Assets 40 Statemei^i of Revenues, Expenditures and Changes in Fund Balances ~ Governmental Funds 42 ReconcHiation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 44 StateHient of Revenues, Exfjenditures atid Changes, in Fund Balance - Budget and Actual - General FuiKi 4& Statement of Net Assets - Proprietary Fursis 4i Staternertt of Revenues, Expenses artd Changes in Net Assets - Proprietary FwMs 52 Statement of Cash Flows ••• Proprietary Funds S4 Statement of Fiduciary Assets -dni Liabilities - Agency Funds 58 Notes to the Financial Statements 59 Supplementary Itiformatton Combining and Individual Fund Statements artd Schedules: Cotnfoinsng Balance Siteet ~ Nonmajor Governmental Funds §0 Combining Staten^nt of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds f>4 Combining Schedule of Revenues and Expetiditures ~ Budget and Actual (Budgetary Basis) - Special Revenue Funds ^| Combining Schedule of RevejHie and Expenditures ~ Budget and Actual (Budgetary Basis) - Debt Service Funds iOO Combining Statement of Net Assets - Interna! Service Funds 102 Combining Statement of Revenues, Expenses and Changes in Net Assets - Internal Service Funds i04 Combining Statement of Cash Flows — Internal Service Funds 106 Combining Statement of Changes in Assets and IJabitilies ~ Ag^icy Funds il6 Schedule of Annua! Debt Service Requirements 113 CITY OF CARLSBAD Comprehensive Annual Financial Report Year Ended June 30,2006 TABLE OF CONTENTS (CONTINUED) if At ISTICAL SECTION: iFap Financial Trends: Net Asseis by Component - Last Five Fiscal Years 116 Changes in Net Assets - Last Five Fiscal Years 117 Fund Balances of Governmental Funds - Last Ten Fiscal Years 120 Changes in Fund Balances of Governmental Funds - Last Ten Fiscal Years 122 General Governmental Tax Revenues by Scnirce - Last Ten Fiscal Years 124 Revenue Capacity: Water and Sewer Rates • • l^st Ten Fiscal Years 125 Assessed Valiie of Taxable Property 126 Principal Property Taxpayers 127 Prc^rty Tax levies and Collections 128 Debt Capacity: Ratios of Outstanding IJebt by Type - l^ist Ten Fiscal Years 130 Schedule of Direct and Overlapping Bonded Debt - Current Fiscal Year 133 Direct and Overlapping Debt - Last Nine Fiscal Years 134 Legal Debt Margin Information - Last Ten Fiscal Yeans 136 Ptedged-Revenite Coverage - Last Nine Fiscal Years 138 Demographic ami Ecoi»mie Information: ttenKjgraphic and Economic Statistics 140 Principal Hmployers - Current Year and Nine Years Ago 142 Operating Information: Authorized Full and M Tirrae City Government Employees by Major Service Area 144 Operating Irtdicafors by Function/Prtigram - Last Two Fiscal Years 146 Capital Asset Statistics - l-a&t Two Fiscal Years 147 INTRODUCTORY SECTION COUNCIL VISION STATEiiENTS Carlsbad City Council 2006 Five-Year Visiori Statements City Council continues to clarify and pursus the vision of Carlsbad that tB^&cts the pride and quality of life for all who iivB, work, and play here. • Provides a diveme and healthy economic base, provides opportunities for employment to tfie residents of Carlsbad, economic vitality to the community, and the necessary revenues to support City services. • Policies and decisions Implennent the General Plan, enforce the Growth Management Plan, maintain ttie safety and security of its citizens, and are based on what is best for Carlsbad. • Occupies a leadership role in local and regional planning, (e.g., water, beach, circulation, and environmental issues) important to local governments actively involved in addressing governmental issues at the local, state and national levels. • Provides an open government for the betterment of the community and encourages, in a non-partisan manner, active citizen participation and involvement with the City Council and the City's Boards and Commissions. And Carlsbad Efficmntly and Effectively... • Delivers top-quality public services. • Manages its environment proactivety, intruding; • Open space • Wildlife habitats • Water quality/conservation • Beach erosion • Air quality . Resourcie conservation and waste reduction • Promotes a safe and eflRcient integrated transportation systtm, • Maintains citywide "small town" community spirit. • Provides a community w^ere continuous and life-long learning is supported and encouraged for people of all ages. • Looks ahead and works to anticipate changes that are required now in order to mske a better future for its citizens. October 3, 2(WJ(:s Honorable ^fa\Ol, City CuumriL and Citizens uf the City of (.\srLbad CITY OF CARLSBAD" Carlsbad, CA <>200g LETTER OF TRANSMITTAL 200S-06 COMPREHENSIVE ANNUAL FLNANCiAL REPORT Honorable Major, City Council, aitd Cittaeas: f am pleased to present the 2005-06 Comprehet»sive Annual Fircinciai Report of the City <if Carlsbad. The informatjon found in this report is provided by n»aaagement to the City Courrcii and the public to a.siist those imeresJed in istiderstanding the fiscal condition of the City as of June 30,2006, Management assumes full responsibility for the coropletenexs and reliabiiity of the inftirmation contatned in this reptjrt, based upon a comjwrehensive frame^vork of internal controls that it has established for this purpose. Because the cost of internal controls should not outweigh their benefits, the City's compreliensive frameworik of internal controls Ims been designed to provide reas<.>nab!e rather than absolute as.';;urance that the financial statements will be free fr«.vm material misstatement. State law and the City's Municipal Code require *at an annual financial repoit is piepared. This report fulfills that obligation. It has been prepared in conformity with generally accepted accounting principles fGA;\P) and ivith the financial reptjrting requirenwnts prescribed by the Governnnental Accounting Standards Board (GASB). The indepettdcnt auditing firm of McGIadrey & Fallen, LLP has issued an unqualified ("clean") opinion on the City of Carlsbad's financial .statements for the year ended June 30, 2006. The independent auditor's report is located at the front oftb& financial section of this report. Management's discus.siort & analysis (MD&A) immediately follows the indepereJem auditor's report ami jxovides a narrative introduction, overview, and analysis of she basic financial statements. MD&A cotnplements this letter of transmittal and should be read in eonjunctic^ with it. Also, as a recipient of federal and slate financiai assistance, the City is rt^muired to have a "Single Ai«iit" (>erformed by our independent audit firm. The Single Audit was designed to meet the special needs of federal grantw agencies. The statKiards governing Singie Audit engagetnents j^utre that the tnctependent auditor report not only <}n the fair presentation of the fittanctaJ ^atesnents, but also on the audited government's internal controls and compHance with legal requirements, with special emphasis on interna! comrols and legal requir<^nents in%'otving the administration of federal avvards. Tliese rejHjrts arc available in the City's .separately issued Compliance Reports and Other Financial Inforniation. The restilts of the City's Single Amiit for the fiscal year ended June 30, 2006 n<Med no material weaknesses in the frame«.-ork (}f internal controls, or stgnificant vjoiatiorrs tif applicable laws and regulalioas. t'ROFlLE OF THE CITY OF CARLSB.VP Carlsbatl iixoiptsated in I9y2 :is a General Lim cit>, although its "vdlage" area dates b.ick smsre Ihan fOO ycats. It IS located about 35 miles nosth of the CUy uf San Diego on the southern California coast. The City h guvcrtwd by a five-member t.'ity Council under tin; Council/Manager limn of govcrnmcm. Ilw City 1635 Fataday Avenu-j * CailiSb.ui. CA 9i?O0«-/J1 I » (760J f/j;^.;.i430 » FAX (TGtl) 'iOi^-ahbS ^. .nMx.iA:-Arl.yh^ii viiAis * Bis.sin :sss } Iconso (7G0) GOa-'-J'ID'S » UttS-ty iJilhf^j (:/00j r,n"> :->4PO » Putchasinq (7BO> (JOa P.'mu FAX (760) fiO'^-'iSCe Bid Lsno iTCO) HT? 24"'t Council is elected at large on a staggered basis for a term of four years. The City Clerk a!id City Treaairer are also elected to four-year terms. The City Council ap|)«inls the City Manager ami City Attorney. The City covers app««xitna£ely 42 square niil&s and has a fK>|Mita!i4jn of 98,607, with an expected build-out population of 110,000 residents. Industries in the City include 3 shop|>ing centers; a regional mail, a specialty outlet center and a community center; a major family therne park; an auto mall; over 33 hotels offering over 3.400 rooms for tourist lodging; high- technology, rauldmedia, comnmnicatiiwi, and biomedical businesses; electronics, golf apparel, and equipment mamifacturers; several busit^iss and light-iruiu^ry parks; and numertms land developers. This report incliides financia} statements for the City, the Hotting Authority of tite City of Carlsbad, the CarLshad Public Improvement Corporation, the Carlsbad Redevelopment Agency, the Carlsbad Pirf>lic Fiiwuwing Authority, and the Carlsbad Municipal Water District. Through shese entities, Carlsbad provides a full range of services to its citizeiLS and customers including: Csrisbad Police protection services Development services Fire and paranu;dic services Street consti-uction and majntenaiKe Water delivery system Litaary and arls programs SewigT system Recreation programmii^ for all ages Solid waste services Park lands Housing programs School programs and fwilitics are provided by four different school districts located, in part. within the City boundaries. Although the City Council has no direct control over these school dti^ricts, the City Courwii recognizes the importance of quality school facilities and programs to Carlsbad's residents. The City Council has worked closely vifith the schools in the past to provide assi-stance. Bfidget Process The Carlsbad Municipal Code requires that the City Manager annually prepare a bmiget for the City CoiirK:il with a message describing impcH'tatU features, and assume responsibility for the budget's administration after adofrtion. The budget process begins in JaiMiary each year with a review and update of the City Council's five-year vision statements and strategic goals City ofCadsbad Strate^k Goals Balanced Commuttity Demlopment ~ A city that connects comnmnity, place, and sjMnt through bdaticed and ec(inoT«ically sustainable land uses. Citizen Connection ~ A city that erabi^-es Coramunity conMcsivity through ihe effective use of technologicai and jnttrperswial mediums. CommuniCdtiott ~- Ensure that comn^anity menibers. Council and staff are wel! infonncd, corainuing lo be a n»re respotisive government while providing a high Jew! of cju?en confidence in its goverament. Environmental Management ~ An environmentally sensitive community by focusing on: ctaiservMton, st<»Tn water, sewage collection and treatmt^t, solid waste, and cost-effecfive and efficient use of eaergy inclatiing a!terM4ive energy sources, Financial Health - Pursue Bisd inclement proactive strategies thj^ support sustainable econonidc health and manage fiscrf resoua-ces effectively. Learning, C^Hwe & Am - Promote and sup^xat continuous learning, cultural opportunities and die arts within the conui^nity ssA the City urganiE^ion. ParksfOpen Space/Tm'ds - Acquire, develop, and n^nt^n a feroad range of open space and recreationdl facilities thM actively address citizen needs, which are fiscally respomible. and are ecKisistcnt with die General Plan and Growth Management Standards. Top-Quality Services - A city that fs-ovides excei^Jonal services on a daily basis. Transportation/Circulation - Provide aad support a safe and efficient transpcMtation system that trKJves goods, services, and people through C^lsbad- Water — foisare. in the nxis* cost-effective inaainer, water qusdtty and reliability to die maxirmim extent i^acucai, to deliver high-cpiality potable and icdain^sl wafw incOTBomting drought-resistant comiTMinitv princiirfes. for the City. The City Council also provides the City with its top 15 priority projects, which further detliies the Council's vision. The goals aiKi priority projects outline tlic methods used to achieve the vision and call out areas upon which the City Council wouid like to place special emphai.is during the year. Once these are developed, staff develops operational goais based on the City Councirs direction. These operational goais are the basis for the development of She annual bwdget. Budgetary control for the City is maiistained through its ac<;ou5«ing systera.s. The City Council adopts the formal budget at the beginning of each fiscal year and may amend it throughout the year as necessary. Exfsenditures may not exceed budgeted figures at the fund level. Monthly reports surnmaiiiing the results of operations for the City's more significant funds ane provided to the City Council. FACTORS AFFECTING FINANCIAL CONDITION Economic Profll* feiiSis c-f Uaft-^ EcotstmK fttdt^^&rit Diversificatioej of San Diego County's employment base after the recession of the early i9'>0's has helped the region to weather the ups and downs of the business cycles without the dramatic declines seen in recent years in other parts of the State. The University of San Diego (USD) tracks the San Diego economy through its JIKJCX of Leading Economic Indicators. The USD index tracks six items to evaluate growth trends in IIM!! San Diego sscononry; unemployment filings, want ads, local stock prices, consumer conftdertce, building permits and the strength of the national economy. The index declined in September 2006 by t}.6%, which makes the sixth consecutive monthly decline in the index. Tlie decline was primarily led by a decliiK: in building permits, unemployment insuraiKre and help wanted advertising. Local stock prices, consume*' confidence, and the outkx>k for the national ecomimy were slightly positive, USD has indicated, "Job growth is exf»cted to coo! considerably in the year ahead." In addition, according to Alan Gin, USD Bconomist. the housing market and retail sales are also expected to be slow, while consumer confidence and local stock prices are slightly positive f« September 2006. In addition. Mr. Gin primarily attributed the consume confidence increase to falling gas prices. Carlsbad's economy is tied closely to that of the San EHego region, although development patterns may differ. Carlsbad experienced strong growth in Fiscal Year (FY) 200.5-06 in revenues from property and transient occuparKy taxes (TOT). Propo-ly taxes grew by over 34% in FY 2005-06, reflecting the continuing escalation in housing prices as well as the State of California exchanging vehicle license fee and sales ta.!i; revenues for property tax fe\«nue. TOT, the City's puge of the tourism industry, erxled the ye^ showing a 14% gain, with a large psa-t of that wsming from the reopening of a major portion of one of C^isbad's premiere resorts. Sales taxes added an additional $750,000 for FY 2005-06 du® to good con^mer demand after taking ituo coRsideration the closing of the Robinsons- May department store at Plaza CamiiKJ Real, as well as She State of Caiifwnia taking a portion of the City's sales tax in exchange tor property tax revenue. With suffily relatiwiy low, hcwsing prices have continued to escalate. The median price for single-family tomes in Carlsbad was .$748,000 f<H- calendar year 2(X)5, a 5,1% increase from the previotis year. Tc^ai assessed values in the City for FY 2006-07 stand at over $20 billion; a 69% increase over what they were just five years ago. The City has projected it will ad<J about 2,380 more residential units and an additional 4.1 miHion square feet of confMnercial/industriaJ development over the next five years. The City's residential hrtusing stock is about 89% buitf out, with approximately 5,270 housing units remaining to develop. Carlsbad's residential reaJ estate marto has continued strong tiiroughout FY 20f)5'06. The City expects to issue t,0(K> restdoirtial p^mits this year, a decrease from the 1,663 issued m the previous yem. The raiitifcer of permits is expected to decline due to the nearing of build-out and a slowing economy. There are a number of new residentiaf communiaes under construction or in tfie finai phases of devijlopment that will add significantly to the residential housing stock in Carlsbad. Home sales are well under way in the Calavera Hills project in northeast Carlsbad, with 331 single-family homes and 358 multi-family untls planned. The Villages of La Costa projects known as the Oaks, the Greens and the Ridge are urtder construction, and will add approximately 970 single-family and 450 multi-family units. The Bressi Ranch area is also under construction with 523 single-family and tOO multi-family units to be developed. And tlnaity, the Robertson Ranch area, which is expected to contain over 1,000 residential units, is finishing up its master plan. The completion of these planned communities will signal an end to the large-scale residential developments in Carlsbad. Gefleral Fund Revenues & Sate tax B Prajssisy TSK a TOT e Vf.f s mx. ten^tsfi s fSte Francifes Commercial and industrial developments have been averaging 800.000 square feet per year. This is expected to remain about the same over the next five years to average 820,000 squme feet per year, with *e large industrial developments of the Forum, Carlsbad Raceway, and OaLs North. Some of the major companies in town include the Oemological Institute of America, ViaSat, Inviirogen, Callaway, TaylorMade, Upper Deck, and many others. Commercial development has brought much tteeded enterlainmenf and shopping venues to citizens and visitors alike, and has geiKfated additional sales taxes to help pay for City services. Carlsbad is home to Car Country Carlsbad - an auto mail; the Carlsbad PreiTsium Outlets - a specialty outlet center; Plaza Canano Real - a regional shopping mall; a Costco center; and the most recent addition, the Fwum at Carlsbad - a commercial center with retail shops, restaurants and other commercial uses. Development has also eabanced Carlsbad's reputation as a destination resort for tourism. The City is host to a major family tlisme park; Legoland, and has two luxury resorts availabte for its visitors: the Four Seasorts Resort at Aviara and the La Costa Resort & Spa. There are also a number of other quality hotels and motels in the City with the most recent addition being the West Inn, which opened in May 2006 bringing the total available totel rooms in the City to about 3,400. Bor the future, ^ttete are several new tourist-serving projects in development. The La Costa Resort received approval to develc^ up to S97 commercial resort villas on their site. Thes^e are expected to be phased in over the next several years adding over $L4 miHion in TOT when completed. Two hotels near the airport have been approved, which would add an additional 249 jjotel rooiis, bringing in an estimated $500,000 per year in TOT. In addition, a new project next to Legoland has been approved for 350 hotel rooms and 350 timeshare units. This project will also Iw phased in over time and is expected to gerserate an additional $1.4 to $1.7 million per year in TOT, The Citv's base sales taxes are projected to grow by 4,0'^', while year-over-year sates lax growth is projected to grow by about 9.2% for FY 2006-07, due to one-time adjustments during FY 2005-06. While the growth in housing prices is expected to tTKHierate as interest rates rise, there is a lag with the piopeHy lax revenue and therefore, according to the County Assessor, the Oty should expect assessed values {t> increase by over 15% in l-'Y lMM)6-07. New building permits are predicted to sk>w slightly as new housing dcvetopmeflts come on line and aksorptiort rates of new homes slows. And fmaiiy, tourisnn is expected lo continue to be strong, with TOT receipts projected to grow by 6% in ihc future, with the addilion of more available rcxsms. R>r Fiscal Year 2006-07, the City's revenue pfojecttons reflect a slowing of ihe economy due to rising interess rates, an anticipated softening in the housing market, as well as higher oil a?td gas prices- Conservative increases are expected in most of the lax revalues with overall General Fund revenues increasing by 8.8%. The most significant area of risk in the forecast for Carlsbad is in the impact of the State of California's budget deficit di&cussed below. State of California Budget In addition to the risk of a softening of the housing market or a slow down in the economy, the State of California's fiscal problems also cast a shadow on the City's economic future. The State of California has been in a severe fiscal crisis for a number of years. Through a variety of loans, one-time revenues, interfund borrowings atKi raids on city, county and spcx;ial district funds, the State has been able to maunage its cash flows and stay solvent. However, more drastic measures will be needed for the State to finally get its budget in balance. Accoiding to the Legislative Atialyst's Office <LAO), the State is facing significant deficits in foture years despite the stronger revenues seen in the past few months. The LAO's report indicates that the State's 200607 budget is using a significant portion of the fund balance to cover the State's current operating shortfall, and a $4..5 to $5 bdiion shortfall is CKpected to exist in Fiscal Years 2007-08 and 2008-09. The ongoing budget shortfalls result from expenditures growing faster than revenues. The State has baiancsjd its budget by taking city money in the past, and tliere is a risk that they may continue tliis practice in the future. In Fiscal Year 2003-04, tfie State took approximately SI.5 million in Vehicle I.,5cense Fees from the City's General Fund with tlie {womisie to pay it back in the future. Then, in November 2003, a ballot iiseasure was passed authorising what is known as the 'Triple Flip." This is a complicated method of securing paynseni for the Deficit Reduction Bonds, issued by the State to balance their budget. It i,5 essentially a temporary swap of a V4 cent of the cities' sales lax in return for property tax. It should have no effect on the anwunt of tax reventje-s the cities receive, but it will result in the loss of some interest earnings due to the delay in flic timing of the rsxeipt of the taxes. As a result of the continued attacks on cities revenues, a coalition of cities, counties and special districts got a measwe placed on the November 2004 ballot to fmt some fwotections in place for kscal governments. The measure included the following provisions; • Permanently reduces the vehicle license fee ^VIF) rale to its current .65% and provides prv^perty taxes to cities and counties to offset the loss on a dollar for dollar basis. • Guarantees rei^ayment in Fiscal Year 2007 of the VLF amounts taken by the State. (The payment was repaid by the State during Fiscal Year 2006.) • Guarantees that the "Triple Flip" will be reversed when the bonds are repaid. • Prevents the Legislature from reducing the combined property tax shares of cities, special districts, and the county, except to borrow the funds cm a temjx>rary basis to address a "severe state fiscal hardship." • Provides for mandate relief if the State does not pay the mandated costs. All of this in return for a contribution to the State totaling $1.3 billion in both tte 2005 and 2006 Fiscal Years from cities, couisties and special districts. The measure passed and as a result, the City of Carlsbad gave the Slate $i.S niillion from tbs Getieral Fiittd and $220,000 from its Redevelopment Agency in Fiscal Years 2004-05 and 2005-06. However, in e.Kchange for Shis two year "contribution" to the State, the cities have gained |xx)tection from furthar raids on their major tax revenues by the .State. Long-Term I^lnanclai Ptanoiiig It is the CSty Council's goal to ensure that the City remains in good financial health, and the City has taken a tiumbar of steps to attain that goal. One of these is ttie Growth Management Plan. This plan was adopted by the citizens to ensure that all necessary public facilities are either constructed along with development ix that a financing plan is in place to pay for the facilities prior to the development of the property. Thus, the initial capital facilities needed to si4>pttft the p-owing population are provided without fnianciaily in^cting the City or its current residents. The City also prepares a 15+ year Capital In^oveinent Pmgram. As part of the Capital Improvement Pro-am, the anjcmnts tseeded to pay for the variotis projects as well as the qperating Imdget impacts are calculated. In (his way. we can anticipate the effects of developtnem from both a capital and an operating perspective. In order to assure that the City has the ftjinds to replace these feeilitJes as they age. an Infrastructure Rqjiacement Fuml was created. With this ftsKi, tte City is setting aside ntoney on an annual basis for major maintfisiance and repl^-anent of its infrastructure. Much of the City's infrastructure is relatively new; therefcms, the City has not fett the full impact of maint^iance. By setting aside funds now, the citizens of Carlsbad can be assured that the proper maintenance and repiacennenl, when neetled, will be performed on streets, parks, and tiie many facilities Iw which the City is responsible. During Fiscal Year 2007, the City Council approved allocating $7.2 million or 63% of the GCT*eral Fujid revenues to the Infrastructure Replacement Fund. During Fiscal Year 2006, $4.2 raJiKon or 4.0% of the General Fund revenues were allocated to the Infrastructare Repiaccmoit Fund Itie increase in the allocation is due to the City's cufrein* ftnancja] strength as w'ell as the desire to plan for the future to create and maintain a sustainable community. In addition to these steps, the Ciiy prep«anis a ten-year financial forecast tor the General Fund each year, in order to understand the effects of actions taken today on the City's future. The City has experienced strong revenue growth over the past ten years due to the devcioprtjent of the majority of its commercial sites. The future will bring a few more commercial sites but at a slower pace, w^iile residemial development is expected to slovi' over the next few years, Tliere are also quite a few City facilities - mainly parks and civic facilities - planned in Ae future to serve the Rowing population. The new faciiities will add opwattng costs to the City's General Fund budj^t as they are cort^eted arui operwd for use. These facic^s alone will cause the General Fund costs to escalate si a higlisar rale than inf!ati<Mi. In a<ldition, a number of crther factors, includii^ retirement umi health care costs, have created upward pressure on expenditures, especially over the past several years. These factors have been incwporated into the General Fund fijrecast shown on the next page and projected over the next ten years. While my foreseast is ever lotaity accurate, it does represent a likely scenario given the assiraipticms on which it is built. This forecast assumes that revenue growth will General Fund coatinue at a nKxJerate pace in 2007 atKJ into the Mwe. To project the expenditwes, it includes all known personnel costs including any benefits negotiated with the employee groups. The forecast assumes 15% increases in health care costs in the near future, slowing to 5% in the future. It also assumes personnel grovrth (new pt^ittons) to remain raiha- flat at no more than 2% per year. Cost of living increases [ ^'^<^'^<^^^'^ <^ f^ #"' between 3 and 5% have been added to personnel costs. Pension plan costs are anticipated to I {••iREyEHUES-»-TOTA!.BUKiGEr| remain esseiitiaily at current levels. It assunw.'i that the contribution! from the General Fund to tiic InfrasStructwre Replacement Fund is increased to 6.51- of General Fund reventies. This ss an increase from last year's forecast assumpiioii of 4% of the General Fund revenues. And finally, tt includes estimated operating costs fiw ail capital pro|ects in the timeframes shown in the Capita! Improvement Program (CIP). One of the biggest assumptions in the forecast is that services as reflected in the Fiscal Year 2(XJ7 Adopted Budget will remain the same. No new sei vices have betsn anticipated although growth in current services to match lh« growing population has been iiKorfwrated. The results show that the General Rund is balanced into the future with a slight suiplus in each year of less dian 5%. This achieves the goal set out by Ccwncii: to maintain a balanced budget. The situation was different just a couple of >'ears ago wfien the forecast projected that the City was headed for deficits unless corrective measures were taken. For the past few years. Council and staff have worked to bring ttie fcs-ecast back into ha1ar»ce. Through a combination of enhancing revenue sources and finding more efficient methods of providing services (and with the help of a strong kx:a! economy), the City was aWe to turn the forecast around from heading into deficits to a healthy balance. One of the more significant re\'enue enhancentents that occurred in 2004 was the passage of the teauthorisatian of Transnet revenues. Transnet is a 14 cent additional sales tax. collected coitntywide and used to improve the transportation systems. The current authorization for the sales tax was to end in 2008. SANDAG, the San Diego Association of Governments, placed a measure on the Movemfeer 2CK)4 ballot to reauthorize the sales tax for another 40 years. The measure passed providing the City over $!.5 milHoti in annual taxes to be spent on street repair, maintenance ami construction, in addition to other potential project fuTKls. Forecast Comparison 'M *06 '08 '10 '12 *I4 '16 The ability to understand the future impacts of both changes in reveraie sources as well as program needs is crucial to ensure that the City ha,« the funds available tu make its future plans come true. The General Fund fmancial foreca,iit is a tool available to die City to achieve die goal of managing its fiscal resources effectively and monitoring the achievement of sustainable economic health for the City of Carlsbad. The City Treasurer is charged with the d«ign of an effective cash managenKnt and investment program consistent with legal requirements and the Carlsbad Investment Policy. Tlie City atwualty adopts a comprehensive investrt*ent policy specifying, among c^her things, investment o^eetives and sirat<^, lype, and la"m of inwestments, icponing requirenKinLs, and investment ov^sight. The City's investments generally include federal agencies, corpwate notes, and inv^n^snts in the Siate Treasurer's invesstment pool. The nKxlified duration of the inve^menis in the City's investment pool JK of June 30, 2006 was 2.022. The average return realized on the pooied investments rose from 3.55% in Fiscal Year 2004-05 to 3.98% fw Fiscal Year 2005-06. investment income shown in the financial statements includes chanj^s in the fair valtie of inves&»ents as required under GAAP. IntTeases at declines in fair value during the awrent year, however, do ran iieces.sartly represent treaids that will cotwinue, nor is it always possible to realize such amounts. This is especially frue as the City holds most of its investments to maturity rather than selling thcsn at fair value. I i Vttixsi d Ataorthed Cost July 1996-jHiie 2006 The graph at the right shows the aniount of unrealized income (loss) reflected in the porlfolio over the last few yeara. The total portfolio had an unrealized loss in Fiscal Year 2006. According to the City Treasurer, "This ura-^lizcd loss occurred as investments with high interest rates matuned and were reinvested in lower market rates. It is likely tha{ this trend will reverse in FY 2007 as inv^tments with lower int«a-est rates mature," This is discussed more thotoughly in the MD&A, Major Initiatives Public saf^y has always been, ami remains, a tap Council priority. After rcviewng the current staffing requirements and the population growth in the City, it was evident that iheie was a need to add new Public Safety personnel to maintain the current service levels in the cx>inmunity. In Fiscal Year 2006-07, the Police Department added five positions (tn serve the public and the Fire Department added seven positions. Six of the seven positions in the Fire Department were added to suppott a third ambulance. Jun41 MrVi Jtiiv^ Several signJtlcatJt projects in design or uoder construction over the next few years. These include: • 'i'^ Al^§ Nwte park and .Aqg^fic Center consists of 30 acres in the Southeast Quadrant with planned antenities that include ball fields, soccer fields, picnic areas, tot lots, » skate pari, a dog park, restioonss airf parking facilities, and an aquatic center. Construction is scheduled to begin in Fiscal Year 2<K)7-08, The park is expected to cost $15.9 million asid the aquatic center is estitnated at $23,3 million. Funding to come from impact fees and the General Fund. /%>^ The Carlsbad Municipal Golf Course is an 18-hoIe championship golf course on property located north of Paloatat Airport Road along College Boulevard. The estimated costi for building and start up expenses are anticipated to be between $50 - $60 miiHon. The project will incUtde a 23,000 sq. fi. chiWiouse and the total course length will be 6,850 yards. The proje^rt is. to be funded with General Fuml advances a.s well as tax exempt bonds. • The 1^ fltKST area of ibe existing Seaior Center will foe remodeled to include additioral aittenitte,<; few the senior communiiy. These may include item-s such as an e,xercise room, art room, TV room, multi- purpose room, game room, health screening nxmi and a computer room. The 2"* floor will be remodeled to house City offices. The estimated cost fM ^e renovation is just under S1.6 railiionand wiJ! be funded tVom Redevelopment bonds and the; General Fund. 10 • A 2(l,C)t)0 square foot tommiinity facility and gymnasium are planned for the Piatji Paik Community Center. Tte facility will include basketball, voHeybali, gymnastics, multi-purpose rooms, meeting ro<ims. a teen center and office space. Design of this S9,0 million facility is expected to begin irj the 2009- iO Fiscal Year, Funded by impact tiees. • Phase II of the 42-acre Poiasettia Park Community Center includes amenities such as a community facility/gymnasium, enclosed soccer field, tot lot, picaVe areas, tenni-S complex irRiuding a clubhouse and stadium court, and additional parking. The total cost is cxpectesd to be approximately $14.! milHon. The construction of seven tennis courts are .scheduled to begin in 2006-0? and tlsc ronainder of the project is expected to be completed in 2011-12. Funded by imjjact fees. In addition tL» the projects listed above, there are several significant civic projects being pian!^e<l for the City of Carlsbad. These projects include; • The Pabilc Works Center includes oifices. shops, a yard, warehouse and parking to accommodate ths Public Works Department, initial estimates put the cost at approximately $26.4 million. • The Ptiblic Safety Training FacililY project was authorized under Proposition C, which was approved in 2002. Preiitninary design work is underway. The facility may include a fire training tower, residential training prop, outdoor seating pavilion, fire administration building with classroom astd storage facilities, in addition to the siK)oling sange. • The Library Learning Center will provide a pennanent location for the .^duit Learning and the Centre de Informacidn programs. The existing building adjacent to Holiday Park will be remodeled and a second story, approximately 5.1X10 square feet, will be added for a total cmi of $6. i miilion. • Fina Station No. 3 is currently located at the cornes of Chestnut atnl Catalina. As the City grows castvtard, relocation of this station is needed to help ensure the five- minute response tin^e. The new station is budgeted as a 6,200 square foot facility ard the cost is projected at $6,6 milltnn. AWARDS AND ACKNQWLEDGKMKNTS The Government Finance Officers Association of the Untied States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to she City of Carlsbad for its Comp-ehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2005, This was the eighth consecutive yem that the City has achieved this prestigious award. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Rqxjrt. This report must satisfy both GAAP and applicable legal retjuirements. A Certificate of Achievement is valid for a period of one year only. We believe our current Comprehensive Annual Finarscial Report continues to meet the Certificate of Achievement Pro^am's requirements, aiKl we are submstting it to GFOA to determine its eligibility for aijolber certificate. 11 This report has been a joint effort by many peqpie from many different areas of resptmsibtlity. ft could rvot have been accotnpJished wjthoiri their help and the dedicated efforts of ail of ttie accounting staff, especially Kevin Branaia, Assistant Finance Dijiector. I also appreciate the Staff of McGladiey & Pulien, LLP for the professional way in viiiich the audit of this finaiKrtal report was conducted. It has been a pleasure to work with them throughout this period. Additionally, I would like to thank the City Council and the City's L^dership Team for their leadership and unfailing support in maintaining the highest standards of professionalism in the management of the City of Carisbad^s finances. Eespegtiilly sufetiiitei,. LISA IRVINE Finance Director 12 Certificate of Achievement for Excellence in Financial Reporting Presented to City of Carlsbad, California For its Comprehensive Ajiimal Financial Report for the Fiscal Year Ended June 30, 2005 A C«rttficate of Achievt-meat fur Excellence in Financtal Repoftmg is presented by the GovenatKnt Finance Officers Assuciaiion of the United States jmd Canada fo govenanent uriits arid public en^Ioyee retirement systems wiiose comprehensive annua! financial reports <CAFRs) achieve Che highest starKJards in government accounting and fmajicial report ing. ^4A^4atj^^^ President Executive Director m ORANGE COUNTY RIVERSiOECOLNTY QCEANSDE mm$BAD imANA BEACH DEL MAR lAjOltA / r SAN DIEGO CORONADO '•?^ . . 1" LAVBrA i.WPIRJAt BEACH i TIjLANA i# CITY OF CARLSBAD ELECTED CITY OFFICIAIS Claude A. "Bud" Ixwis, Mayor Matt Hall,. Mayor Pro Tcni Ann }. Kukhtn, Council Member Mark Packard, Council Menibar Norine Sigafocjse, CourKi! Member Lorraine M, Wood, City Clerk Harold "Mac" McSherry. City Treasurer MBMINISTRATION AND DEPARTMENT HEADS RayiiRtnd R. Patchett, City Manager Lisa HiidabratuJ, Assistant City Manager James F. Elliott, Administrative Services Director Glenn Pruim, Public Worfe Director Sandra Holder, Community Development Director Tom Zoil, Police Chief Kevin Crawford^ Fire Chtcf Ron Ball, City Att«ney Julie Clark, Human Restswces Director Conrad "Skip" Hammann, City Engineer Debbie Fountain, Housing & RedevebfHnent Director Mark Stone, Deputy Public Works Director, Maintenance arKi Operations Lisa Irvine, FiiisaBce i>irector Vacant, Planning Director Pat Kelley, Principal Building Inspector Heather Pizzuto, Library Director Ersn L^sch. Risk Manager Ken Price, Recreation Director C5reg Clavier, F^jbtic Works Manager, Geneial Services Aletha L. Rautenkranz, Information Systems Director CHAIRPERSONS, COMMISSIONS AND BOARDS Gary Hill Arts Commission Richard Erhardi Beach Preservation Committee Afwil Shute Carlsbad Ttnirism Business Improvement District Board Bob Bender Community Television Foundation Courtney Hcineman: Design Review Board Sue Ladouceur Historic Presservation Commission Edward ScatpeHi Housing Commission Claude A. Lewis Housing and Redeveiqpmenf Comnisssicsi Re* Swette Library Board of Truirtees Jim Craig Parks and Recreation Commission I>onald Martin Personnel B«trd Marty Montgomery Wanning Cotnmission Mike O'Connell Senior Commission Vacant Serra Cooperative Library Sy,^em Advisory B(3ard < Christine Peiroti Sister City Committee Susan Gardner Traffic Safety Commission Vacant Underground Utility Advisory Cximmtttee it; HW < t6 an '^•^ >• H <^ » < < «J H 4J ^ ?' Uif2 c © ^ » !»« f i 3? w is o 9i si; < A. ^ ?•. ^ 2 ^ « X. o 3? O Q w ?a Si, i" ^ "fa Nj i<: <fi ir C 5! ^ i o a: < z •fl 1-2; < i~ 1 1 1 5*^1 Oi: !D i QL '1 i S. 't 1 c ^ < a » * g 0 tf) t: g * i a ® a uj u to s: CL IS Xiwmijiiuutt^^ FINANCIAL SECTION McGladrey&Pullen The Hanyable Mayor and Members of the City Coitnci! City of Cadsbad, CaJiforrea We have auiSted the accompanying finand^ staterr^nts of the governmental activities, the buaress-t^e acfivrfes, each major ftmd, and the aggregate reniaintng teuJ informatioo of the City of Caa'i^jad, C^ifomia, (the Ctly) as of and for te year ended June ^, 20(^, %ftidi affectively comprise the Ci^'s bask; firsarwal statemerrts as listed in fie table of conrtents. These financial statements are ttie respcmabiiity of the Qty of Carlsb^'s management. Cto respoflsibifity is to expn^s cpnicms on these firmncfe! staten^nts based on our audit We conducted our audit in acowdance witti auditing standards generally acc^ted in he Urfted States of Ammioa mi tfie standards appBc^e to finandai audits obtained in Gwemnrn^ AmMmg StmHiards, Issued by the Comptroller General t^&je Urst^ Slates. Those standards reqisre teat we plan and perforrrj tfte audit to <Mam nsasonaWe assurance about vrfieSier flie Snand^ statements are free d rnateriai nMsslatement, An audit includes examlfA^, on a test basis, evider»ce supportaig the amounts and disctosures in the finaa^cia! statements. An audit ^so includes assessing Sie accounting fHinci{rfes used and significant estimates macte by nanagement, as well as evaluaing the oveicii! finam;iaf statement p^^saitalfoa We believe Itet mt auM provides a reascMiable basis for our tpnfems. In our opinion, the finandaJ statements refwed to above present fairly, in alt matenal respects, U>8 respecfive financial portion of tt^ gov^rmiental actl^Ses, flie bi^iness-type activi^, eadi major fund, and We aggregate r^nairang fund infonniatton of the City as of June 30,2606, and the respective changes in finandai posKlon and cash flews, where appfeable, thweof for the year than ended, in confwmKy V!«th account^g prindpfes generally accepted in ftie United States of America. As described m Note 19 to the basic financial statemwts, the City retroacUvely af^ied 8>e pro^sions of the Gov^nmental Accounting Standards Board Statament Ho. 34 vi«th respect to accounting and refK>rfing f(^ mfrastfudts-e <aptal assets. In accordance m^ Govemtmnt Auditing Sfam/ards, we have also issued our report dated Odober 5,2(M on our considerafen of ttw Cit/s internal conbt}l over finandai reporting and our tests of its comf^lance with cerfein provisions of laws, regulations, contr^ts and grant agreemente, arvd other matters. The purpose of thai report is to desaibe the scq)e of our tesft'ng of internal cm\fd over finandai reporting and COTrspliance and the resists of that testing, and not to prowde m opinion on the internal control over finandai rqjorfing w on cwnpliance. That report is an integral part of an audit performed in accc^dance wth Governmeri AmiSmg Standards and should be considered in assessir^ the results of our audit. The management's discussion and anaf^s. as listed in tfse tai:^ (^ contents. Is not a required part of the basic financial sls^emente but is supplem^tary infomiation required by the acccHinting prirrafrfes gepwalty accepted in H^ United ^tes of Pm&rm. We have applied CKlain 1 Wt^ procedures, t^tjidi assisted jKindpally of inquiries of managem^^t regarding the m#jods d measurement and presenti^ion of tt^ requfeed supptenentary Informsrtion. Howev^. we (fid ml audit the informalkm and express no opirrim on it McGM«y & Man U.f> is a mei>)tier Srm e( R^ ftv^mai6»n4 an aftfox^ separi^ a it? Our audit was conducted for the purpose of forming opinions on ttie fmanciat statements ihat collectively comprise tihe Cit/s basic financial statements. The combirting and individual nonmajcM' fund financial statements and other schediJes, listed in the table of corjtenis as supplementary information, are presented for purposes of addilionat arjaiysis and are not a required part of the basic financial stateiTients. Sudi information has been subjected to the autfting procedures apptied in the audit of the basic firjanciai statements arid, In our opinion, is fairly stated m at! materia! respects in relatton to the basic financial statements taken as a whole. The accompan^ng introdudory and statistical sections, as fistal in the tabie ol contents, are presented fw purposes of addJtfona! anaiy^ and are not a required part of the basic inanciai statw^ents. This infonnalion t^as not been subjected to the auditing procedures applied in the audit of the basic firjanda! statements and, accordingly, we express no opinion on them. Riverside. California Ock*er 5, "m^ As management of the City of Carlsbad ("City'*), -we offer readers of the City's fttianciai statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2005. Our intent is to assist the reader of these fiiMncial statements in better understanding the impact of financial decisions made by the City, This analysis will focus on the significant changes in an effort to explain the City's overall financial condition. We encourage readers to ctmsider the information presenteci here in conjunction with the addilioiial information furnished in oitr toter of transmittal. Overview of tfee Fmancial Statements Required Components of the City of Carlsbad's Annual FiaaRcial Report Management's Oiscmsivn ami Analysis Basic Kmanrial Statements Required Siipplementary Information This section of the annual report consists of four parts ••• management's discussion and analysis (this section), the basic financial statemenUt required supplementary information, aijd an optiotial section that presents combining stateinenis for non- maj« governmental funds and infernal service funds. The bask finaiKiai stateojenis include two kinds of statements that present different views of the City. * The first two statements are Govemmenl-yvide Financial Statements that provide both long-term and short- lerm informatioTJ about !he City's overait fiRancial status. » The remaining statements are Fund Fmxmcial Statements that focus on individual parts of the City government, reporting the City's operations In more detail than the Gkuvernmeot-wide Statements. > The Governmental Funds StaSernenis cktail how general government services such as public safi^y were financed in the idiart term as well as what remains for future spending. > Propriety Fund Statements offer short- and lon^-rerm financial information about the activities the City operates like businesies. Such as the water and sewer services, y Fiducmry Fund Statements provide information about the fmancial relationships - such as contractor and miscellareous deposits ~ in which the City acts solely as a trustee or agent for the benefit of others to whom the resources belong. GovcmiHcni- wide FitnatiK J Statements, Fnrid FinaiKt.ii Statemcr- Notes to the Financial Statemoati. -T7f" m Summary "<^ Detail The financial statements also include notes that ex.piain some of the inibrmation in the financial statements and provide more detailed data. The statements are followed by a section of required supplementary information that further explains and supports the information in the financial statements. In addition to these required elements, we have included a section with combining statements that provide detail about our non-major governmental funds, iniernal service funds, and fiduciary funds, which aie jKldcd together and presented in single columns in the basic fittancial statements. The remainder of this overview section of management's discussion and analysis explains the structure and contents of each of she statements. 19 The GovemiT»ent-wi<ie Financial Statements report information about the City as a whole using accounting methcHls similar to those used by private-sector companies. The Statenient of Net Assets includes ail of the City's assets and iiabJtities. Ail of the current year's revenues and expenses are accounted for in the Statement of Activities regardless of when cash is receivtjd or paid. The fwo Governtrvcnt-wide Financial Statements report the City's net assets and how they have changed. Net assets - the differetsce between the City's assets and liabilities -- are one way to measure the City's financial health, or position. Over time, increases or decreases in the City's net assets are an indicator of whether the City's finaiKial health is inaproving or deteriorating, resijectively. One needs to consider additional non-fnjancial factors, such as changes in the Cily's property tax base and the condition of the City's infrastrsicture. to assess the overall health of the City. The. GoverntBent-wide Financial Statements of the City are divided into two categories: • Govemncntai activities - Most of the City's basic services, Msch as police, fire, jHiblic works, community services, community deveiopmem, and general administration, are included here. Taxes, revenues from other governments and agencies, inccsme from property atid investments, grants and coittributrorts, and charges for services finance most of these activities.. • Business-type activities - The City charges fees to customers to cover the costs of certain services it provides. The City's water, sewer, and tsasb services aie the primary business-type activities. Fund Financial Statements The FuTKi Financial Statements provide more detailed intbrir^lion abo«l the City's itiosi significant funds - not the City as a whole. Funds are accounsing devjices that tbe City uses to keep track of specific sources of funding and spending for particular purposes. Some funds a»e required by State law and bond covenants, while the City establishes other funds to coi^rol and manage itjoney for particular purposes (such as the developer impact fee funds) or to show that i! is properly using certain taxes zM grants (such a.s the Section 8 Rental Assistance funii). The City has three kinds of funds: • Governmental funds - Most of the City's basic services aie included in governinenla! funds. These fuiKls art- used to account for (I) cash and other financial assets that can readily be converted to cash flow in and out, and (2) balaiKes left at year-end that are available ff.>r spending. Consequently, the Governmental Funds Statements provide a detailed short-term view that helps the reader determine the amount of financial resources that can be spent in the near future to finance the City's programs. A recxjnciliation between the long-term and short-fenn focus of the Government-wide Financial Statements is provided inunediately following each statement. « Prnpnetary funds - Service,s for which the City charges custon^rs a fee are generally re{x>rted in propiietary fiinds, Profwietary funds, like tl«; Government-wide Financial Statemenis, provide both long- and short-t^'m financsai information. > There are two types of proprietary funds; enterprise funds and internal service fwuh- > We use enterprise funds to report activities that provide business-type services, ^ne-ratly to external customers - suets as water, sewer and trash services. In both the Government-wide Financial Statements arid the Fund Financial Statements, these funds are shown urKJer business-type activities. > We use internal service funds to report activities that provide services and supplies for tlie City's other programs and activities - such as fleet, self-insuied benefits, and information technologv. m • Fiduciary fimds - These funds are used to account for situations where the City's role is purely CHStodial, such as the receipt, tesnporary investment, and remittance of fiduciary resources to individuals, private organizations, c>r tsther governments. All of the City's fiduciary activities are reported in a separate Statement of Fiditciary Assets at«j Liabiitties. We exclude these activities from the City's Government-wide Financial Statements because the City cannot use these assets to finance its operations. MiBaitCiatf.?AaMysis :0f the Clif .:as'»' Wlioie H*?t Assets The City's combined net assets for the fiscal year ended June 30, 2005, as shown below, were Sl.l billion- The capital asset figure for governmental activities does not include all of the City's infrastructure assets, since the City has not completed its inventory of infrastnicture assets. Under GASB 34, the City has until fiscal year 2005-06 in which to complete a full accounting of its infrastructure. The City'.s net a,ssets increased by $125.7 million during the current fiscal year. Approximately 27% of this increase represents the degree to which increases in operating revenues have ejsLceetied ijKreases in ojserating expenses. Approximately 73% repiescnts orse-time capital grants and contributions received by the City for the purchase and acquisition of infrastructure ami other capital assets. CiHretU and oiher assess Capjlai assets 'fatal 'itsiet^ l,0!iig-i«rrn dela wststanding Other iiabiiitifb Total iiabiUtiesi Net assets Invested in cajista! assets. net of relaied debt Restricted Unffestiicjcd Total net a.>>sets CITY OF < ARLSB.AD'S NET ASSKTS im itiUHoBii of «{oi]ars) Coveriunentat Activities 200.4 $370.3 29S.4 66S,7 15.2 19,3 34.S 282.7 1^5.7 155-8 $634.2 2005 S4i9.t 356.8 775.9 !4,2 33.6 37.8 342.2 243.3 1.12.6 $73^1 Bii$ia«s$-Type ActSvjties 2004 $129,9 193.9 323.S S.i 13.1 20.2 183.2 102.& t7-8 $303.6 2005 $t25,« 220.2 346J0 7.4 13.2 20.* 2mXi 100.6 !5,8 %M5A Totst 2004 S50a2 492.3 »2.5 23.3 3 J-4 S4.7 465.9 29S.3 173.6 $937.8 2Jm> S^44.9 .'>77.0 2i.<S 36 8 58.4 551.2 343.9 l«S.4 $3,t)^,3.5 TofM Penfi'Btage Change 2004.fl5 S.9* !7.2» -7.3% 17.2% 18.3* n.yni -3.0% 53-4% As noted earlier, net assets may serve over lime as a useful indicator of the City's Onancial position. For the City of Carlsbad, assets currently exceed liabilities by $1.1 billion at the close of the most recent fiscal year. A large ptMtion of the City's net assets (52%) reflects its investment in capital assets (i.e., land, buildings, machinery, cquipnient, and infrastructure), less any related dd>t used to actjuire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets MC not available for future spending. .Aitbough the City's investment in its capital assets is reported net of related debt, it sh(»ild be noted that the resotures needed to repay this debt must be provided from other sources since the capital assets themselves usually won't be used to liquidate tiiese liabilities. An additional portion of die City's net assets (32%) represents resources that are subject tti external restrictions on how tliey may be used. The remaining balar^e of unrestricted net assets ($168.4 million) may be used to meet the government's ongoing obligations to citizens and creditors. Just under 52% of the $152,6 miilioit in unrestricted governnwntal activities riet assets is allributable to the General fund. Although the unrestrictetl net assets of our business-type activities total $15.8 million, these resources canrKrf m be used «o help fund governmental activities. The City can only use the-s^e net as.iets to ifinaaee the eontimjfeg operations of the City's enterprises: water, sewer, trash, and golf oiierations. Changes in Net Assets The condensed swmnMiry of activities, which follows, stows that net assets increased by $125,7 million during the year. TThis iiKjreasc occurs when spending is less than the revenues received. There were several reasons for the increase in net assets: an emphasis on efficiencies resulting in a reduction in expenses/expenditures, $1..?5 million In "savings" in the General land being carried forward into die new fiscal year by various major service areas within the City to enhance arsd provide for future services and programs, the build-up of cash reserves in the City's capital project and enteiprise funds for future capital project constriction and acquisition, revenues received in the City's special revenue fiinds for firiure services and programs, ami the doration of infrastruclim; assets from developers. Kevetiiues Program revenaes Charges for icrwes C^railmg grants anrf conlribrnjons C^»taJ gracts smtt coatritjuiion's Geaorai rtiV8»aes Property taxes Sai« a»d BSe taxes. (M« taxes. iiKome from jM-operty smd mvestmetits CHher Total revenues Exp«s!ses Genera! soverome-nt Public safely Coiwnusaty tte'veJopment ConwBUiMty semces Publit; liitsrks iBterest on long lerara lithi CarisiMd Muaieipai Water Diitriet Sewer Other busiacss-type activities. Total expenses Excess ((tefjcicncyt before Iransfes Transfers Increase (decrease) in net assets Beginning net a$set.« Ending net assets CITY OF CARi,}iBAI>*S CHANGES IN NltT ASSKtS (m iiiilli<>]»i of d^yurs) GsTWHHieDta! Adirities 30«4 S15.1 i46 •12.2 33.9 24.6 ts.^ 3.1 4.S 156.6 l.b 30 9 i3.8 15.1 19.'j 1.0 - - - 88,9 67.7 1.0 68.7 565.5 $634.2 2«05 S17 0 13.8 74.4 4i.5 24.7 20,4 9.9 2.4 283J 11.3 34.4 14.4 16,0 22. i !.0 - - - ^a 103.9 163.« 634.2 $738.1 Ba«Bsesi-tyj>c Activities 2«g4 S26.7 t.5 n.4 1.9 - 1.2 - 48.7 i - - -- - 21.0 6.'9 !,3 29J 19.5 UO) IBS 285..1 $303.6 2(15 $27.,1 05 t7.1 20 -- 4.2 0.6 51.9 -- - -- - 21-4 7.2 L5 30.t 21.8 -2I.S 303,$ $325.4 T<*lal 2M $41.8 16.1 59,« 35,S 24.6 18.3 4.3 4,8 2«5.5 S.6 38.9 138 15.1 19.5 1.0 2!.0 6.^ 1-3 II 8.1 87.2 -87.2 850,6 $937.8 ms. S44.5 i3,3 91.5 43.5 24.7 20.4 14.1 3.0 2S5.0 !1.3 34.4 14.4 16.0 22.! I.O 21.4 7.2 1-5 I29..3 125.7 -125.7 937.8 $1,W5.5 tsrtai PCTieenSafte Change 2004-05 6.5% -17.4% 33 5%- 2!.5'5^ 0.4^. H.5% 227.9% -3?.5'X 24,2?!? 31.4% n 3% 4..1* d.m, 13 3«.- 0.0% 1 <>% 4.3% 15.4% S.5% 44.2% -100,0% 44.2% 10.3% 13.4% 22 $255 MilJiOB Other <1%) Contriburion.'i (32*5 income from Proi«5«y :md ln\e«tmtaits (5%) Property Ta,«s(l 7% > Just over 42% of the levenues of the City's governmetital fuHd.s are generated through taxes collected {property, sales, transient occupancy ta.x. etc.), mid almost 34% of the City's business-type revenue is generated through charges for services. The following chart graphically <lepicts the City's revenue sources. The large increase in income from profMirly and investiisents was primarily the result of a 4% rise in the average interest late eain«d on the City's cash portfolio for the year artd an average porttbHo that was 10% higher duurjng tlie- fiscal ye^. In addition, tlie difference In the unrealized loss from last fiscal year to the current fiscal year was $10. J million when reporting the value of the City's investments on a market value basis. This "paper toss", however, will rtevcr matcriali2;e, as the City holds its investments until maturity. The total cost of aii programs and services was just over $129.3 million in fiscal year 2004-05. The City's expenses cover a range of services: Oaiges fer Se[Vk«:(t$*) Federal Aid (7*) 0(}>«r Taxes. (,«* TOT (4%) State Aid (2%> Safes Tax {iO%> General Qovemment (9%) This segment of the City is divided into two major groups, the Policy and Leadership g^oup and the Administrative Services group. The Policy and Leadership group encompasses ail elected officials and the chief execu^ve offices for the City Puirfk Safety (26%) I^blic Safety has always been a top City Council priority. Ttie major service area includes the Polic« EJepartment, vi^iose goal is to |»o¥ide quality service to the community to ensisre the pr^sfflrvalion of life and property ^n«i the maintenatice of law arrf cwder. The Fire Department is also part of this major service area with a missitffl to enhance the quality of life by delivering excqrtional services in safeguarding liv^s, property, and our envirtmment. Comm.untlv Developmem (11%) The mission of Community Devek^ment is to guide and facilitate the development of the City of Carlsbad. This is accomplished by ensuring the devek^menl of hj^- quality projects ami public facililies, preservation of tbe local envifDnin«»>t, diverse hcMising, empJoyment and enrichment opportunities, and a strong ard stable economic base. Community IlJevelr^merH eiKompaKses the Hiring Center, Geographic Information Systems (GIS), Economic DevelopriKint, Ctjmmunity ProRK>rk>n, Land Use Planning, Housing and RedevelOfHnent, arsd Building !ns|}ection. CilyolCaj-i^MI FtiBftWaal ExiH!BS«s tor Fiscal Year 2(}W-«5 Water 17% 2% S J^»c Worts^ 17% $129JMiHien Sewo- Geneiraf 6% OoverniBMt o>it ''iaHn ihabStc Safety •^•HHIill'**^ CamtsuBJty Coimntmity Devctopnwnt Services jj^ 12% 23^ I Community S^vices (12%) Coiiununity Semces consist of the Libraries, Cultiifa! Aits, Recreation, Park Piajining, and Senior Citizen progranK. These programs are provided to a Vk'ide range of people and assist in tlseir education and calluraf development, t Public Wor.ksfl7'%) Public Works is responsible for building and maintaining all of tte infrastructure assets of the City, This service area includes Engineei^ing, Parks, Streets, Median, Street Tree, Buena Viste Channel, and Facilities Maintenance, Building Maintenance, Street Lighting and Traffic Sign and Signal Maintenance programs. * Water Operations (17%) 'lite Carlsbad Municipal Water District, a subsidiary of the City of Carlsbad, provides potable water service to approximately &5% of the City (78,000 customers). The District purchases 100% of its potable water as treated water from the Metropolitan Water District and the San Diego County Water Authority. The District also pjovides recycled water foa" irrigational purptses. * Sewer Operations (6%) The City of Carlsbad operates aiKl maintains a sanilaty sewer collection system, which covers approximately 65% of the geographic area of the City. Sewage is treated by the Encina Wastewater Treatment Plant, a facility Jointly owned by the Cities of Carlsbad attd Visia, the Leucadia Coanty Water District, the Vatlecitos Water District, the Buena Vista Sanitation District, and the Encinitas Sanitary District. * Other Expenses (2%) Other expejtses include costs associated witf» the City's S(jlid Waste division, the City's Storm Water Protection Program, development of a municipal golf course, and interest expense of the City's long-term debt that is associated with governmental activities. The following sections will provide information abi>ut the operations of the governmental and business-tyjje activities separately. Governmental Activities The increase in net assets for govemmenmt activities was $103.9 million. TTiiis increase was generated by total revenues of gavemmenml activities of $203.1 milHon ($104.3 million in program revenues and $98.9 million in general revenues) offset by $99.2 million in lota! costs of governmental activities. The following table presents the total cost of each of tlve City's major programs, as well as each function's program revenue (fees generated by the activities, contributions, and intergovernmental aid). The net cost (the difference between adjoining bars in the graph) shows the Financial burden that was placed on the City's taxpayws by each of ijhcse functiores (costs covered by general revenues). M (joverniiieiitat Acti\iti«$ Prc^ratn Rewnueii; and Expenses Mseal Year 2G04-OS (in mtilions) E3 Program Revisiues H Expenses tktieal Pubhe Safety Commeafty Conii»un«y I'ufcisc WofKs Revenues arc geiiterated through several sources to COVCT the cost of the C3ty\s programs. These revenues incfude fees and charges paid by those who directly benefit from the programs ($17 miilioii), grants atid contributions from other governments and organisations which subsidize certain programs (S87.3 iniliicjn), and taxes and other reveiraes (such as income from property and investments and vehicle license fees) received by the City to pay for the "public berteftf portion, totaling $99.2 million. During the 2004-O.*; fiscal year, the City received additional affordable housing revenue from shared appreciation, when many <9f the participants it> the various loan programs sold their homes for more than the originai purchase price. This one-iirne community development revenue resulted m pro-am revenues exceeding expenses for tlie fiscal year. In addition, development within She City grew at a fast pacie during the year, pushinig developmeni revenues from charges for services up by over $1,3 million when compared to last fiscal year. Program revenues exceed expenses in Public Works. The majority of Public Works revenues are used to acquire and baild capital asset,s (versus covering operating exjiensesj that Isive not yet Nsen consiructed. Capital assets are generally constructed or purchased once sufficient revenue has been accumulated to pay fw the cost. The City is currently in a developing oi growing stage, and master plans are continuing to l?e designed to c<instnict these new facilities, roads, parks, and other City-owned infrastructure. |f,itsin(^Trirpf;4Ktif »%«•: • Basiness-Type ArtivUies Program Revcsiucs and Expenses Fiscal Year 2004-05 (ill nulilons) Q Program Revenues QSxpeoscs Wistsr Sewet Solid Waste m' Program revenues for the City's business-type activities tivtaied $45 J miilion for the year, while funciional expenses equaled S30,i million. Tlie City golf course is currently under coii&truciion, so the program revenues and functional expendilures are still minimai, and therefore not shown on the previous page graph. The course is anticipated to be operational in fiscal year 2007, Program revenues are higher than program expenses primarily due to capital contributions in the form of capital connection fees, developer constructed assete donated to the City, and Federal and Slate capital construction grants earmarked to help fund the Recycled Water facilities. Capita! construction expeases are spread over the life of an a.sset as annua! depreciation charges (program expenses). In a<klition, a small portion of the annual surplus is set aside for rate stabilization and unanticipated events. Financial Analysis of the City's Frnids As noted earlier, the City uses fund accounting to etisure and denKMistrate compliance with tlnance-rclated legal requirements, in the current CAFR, several changes were made in the reporting of sijeciai revenue fursds, including: • Special Benefit Districts have been combitved widt the Bissiness Improvement District in tlse Financing Districts column. • Habitat and Agricultiirai Management have been segi-egated from the Doisations and Bequests column. • State ami Federal Orants have been combined with Police Asset Forfeiture. GovernmentBl Funds The focus of the City's governmental funds is to piovide information t»n near-term inOows. outflows, and balaiK;es of sper«labJe resources. Such information is useful in as.sessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a governuient's net resources available for spending at the end of the fiscal vcar. G»vernmcntal Fund Balances Heserved tat Other Parposes. ^'^ millions) {$.^.^.8 rmilion) $374.4 MilllQIl fJesigirateii fof fiitoc ContiEtamj; Reserved fix Go!f CoiJfSf ($?0.^!iMll!on) / :: .;:3illlil||iii.;- . f- • \ lfn<Jesignat£a(S!07.9iiHi!Joii) tteignati'd foi Future Ctaamuing Appropriatlt'sss <$*»4railJirai) Desigaateij for Approved Capisa! Projects Reserved toLiqaiidate r.t"ajff(3Cis and " t$gl.6im)llkw) Pisrchaie Orders (,$30.4 miiSionl As of the end of the current fiscal year, the City's governmental funds reported combined ending fund balances of $374.4 million, an increase of $44.7 million in comparison with the prior year, Approxinuslely 29% of this amount <$ 107.9 million) constitutes undesignated fund balance, which is available for spending at the gov«-nmcnt's di.iicretion based on the purpose for which it was receive*!. The remainder of the fund balance is reserved or designated to indicate that it is not available because it has already been commilted (1) for future capital projects - 22%, (2> to Hquidaie conttact.s and purchase orders of the prior periiKi - 8%, (3) for future programs - 24%, (4) the future construction of a municipal golf course - iiVr w (5) for a variety of other restricted purposes - 9%. The General fund is the rsiain t^x:iating ftind of the City, and at the end of the fiscal year had a total fund balance of S99.4 milJfon, an increa.se of $15.3 million. The unieserved furid balance portion of die Gertera! fund was $54.4 million, of which $15 million was designated for ftjture programs and service enhancements. GENERAL ftlND STATEMENT OF RKVK-NI'IIS, E.\PENnm!«RS ANE> CHAN6KS iS HWO BALANCE Kevemte; T<t?tes Jmcfgotvcnsmenta I l,ken3es sad persms Charges for senices Inctsoe (reus pfopersy siri rnvtsaaenti. taerttepanimcfitaJ charges Mi«ofl8aiieoBS Tetiil revesnes Geoerat government PeWs safety Ctmmmty itevek^njsiBt Conifl^ssity $&rvi££& f^bSc vtmis Priwrpai ajHi isww^ T^alexptns^ Excess <defic!C-fic>') t^efofe rran&ft?r^ frarssfers tocrease (decrease) ia tuix! batanee Be^Bsiag faad iaiibnce I^H^ tvaosd btt]anc« i'si mitfions «f doHans) Te»s\ Mi S70 9 3,7 2.i 76 1 5 36 24 9.\« a. 7 395 6.6 !3.7 !S,8 ttl 75.4 n,« ?•«.'?> «.*> 71.i $84.1 MS $75.0 9.8 .^4 80 j.a 16 30 iUuS n .^ 33.6 7.0 U6 164 0.0 S2.9 ».9 (3 6) I5L3 S4.! $».4 bserestse ^ElWrease) Tobil percentage ChsBS^ 2fle**5 S4.J 4.1 t 3 0.4 1.5 0.0 «a4> loi 16 3.i 0.4 m 06 (0,1) 7.5 5«% 7J .9% 41S% 5.3% iS0.O« o.e* -56,7% tl.$% i9.9% 102% &!«> 6 6% XS% -1808% S.9% and a larger average cash balance in tte General fund (increased income from The increase in revenues was primarily due to four factors: the effects of a strong bousiag market on property and transfer taxes, a rebound in the tourism industry <higher transient occupancy tax), the repayment of the vehicle license fee backfill from fiscal year 2003-04 by the .State of California, increased development-related revenue (building permits, planning fees and building fees), and the effects of higher interest rates property and irjvestments). The increase in General fuiKl expenditures were driven by the following factors: • Normal salary and benefit increases. • PERS rates for our miscellaneous plan increased from 2.258% to 16.664%, and rates for the safety plan increased from 9.367% to 27,573*^ for a total impact of $4.3 million. • Significant costs to repair severe damage caused by the heavy rains from the 2005 winter storms, • The inclusion of the Records Manage»nent department within the Gene^-al fund this year (last year it was classified as an internal service fund). One major governntentaj fund, the Redevelopment debt service fund, had a negative fund balance of Just under $12.1 milUon. lliis deficit was created when the City's General fund loarsed the age?x;y money to cover debt .service charges dttring tte period soon after the agency's bonds were issued, but prior to the agwicy being able to support the debt service with fwoperty tax increment revenues alone. The agency has begun to repay the $13.1 million advance back to the City's C3eneral fund, as the tax increment collected wi^in tte redevelopment area growx. Five of the six remaining nsajor governmental funds, which are all c^tal project fiji«ls, l»ad iiKreases in their fund balances diuring the year. These increases in fund balances are aH desigrtated for the construction ifM- purchase of fmire capital assets. The Rancho Sania Fe Road Project fuiul liad a decrease in fund balance dtie to the rtear completion of construction of this major arteiial roadway in die City of Carlsbad. Proprkhiry Funds The purpose of the City's prq>r!etary funds is to provide short and long-term financial information about the City's business-type activities. The analysts focuses on the determination of operating incotne, changes in net assets (cost nscovcry), financial position, and cash flows- The Carlsbad MisBtcif>al Water District funds had an operating loss of approximately S2,l million fw the year. Heavy rains during the wittier and spring led to a decrease in water sales revenue of 3^^ for the year. Irjcrensed Metropolitan Water District and County Water Authority fixed charges (sappliers of the City's jjotable water), as w-ell as consulting expenses ass(Kiat«j with a pmposed new desalination plant, added to the operating loss for the year. On llic other har«S, non-operating revenues ^primarily property tax and investment earnings) naore than offset the operating loss, re,s,u!ting in an overall gain of $1,5 miition. Tte Sewer funds had an anauaj operating loss of approximately $341,0(K) for the frscal year. Total revenues from charges fur services increased 3% from the previous year; however, higher sewer plant operating costs led to an operating loss fot the year. Staffing costs rose almost S% due to normal salary increases and an increase in r^irenKnt and healthcare costs. In addition, there were higher outeide services and maintenance expenditures related to the rebafeilitation and repair of sewer lines and pump stations. As with the water fursds, tise non-operating revejHie (investment earnings and a one-time gain on the sale of property) rTK»re than offset the operating loss, resulting in an overall gain of $1.7 million. Solid Waste operations antl the Storm Water Protection Program are combined on tte City's financial reports. Revenues itKreased in the current year by appKtxtmately 48% due to the fact that the storm water protection fee was collected for only a potftiojt of the prevjoas year (the fe® v«en{ into effect in December 2003), BHsiness-Type Activities Oparfttlag Revetmes aii^ E3q»««s»s Fiscal Year 2OO4-0S (In millloi^) DC^p^^ing Revenues BO^rMing Estpenses W4W S«wer SoUsl Waste ITie new municipal golf course will begin constntction in fiscal year 2005-06, and will be funded with a combination of a loan frc«n the General fijtid and bonds. Tfee advance from the City and the bonds will be repaid through fees charged to the users of the golf course. Unrestricted net assets for the Water, Cjolf, Sewer, atxi Solid Waste operations at the sad of the year amounted tt> $15.8 million, or approximately 5% of the net assets of ail proprietary funds. TlK«e assets will be used fw futune rate stabilization efforts as well as for any emergency sitaation. Approximately 31% of the net assets are rearicied for future capital construction of new and replacensjut water and sewer infrastructure assets. General Fund Bt«lgetaf $ Highlights ManageHKnt monitors revenues during the yesar atKl will update estimated revenue figures when new information is recdved by the City. Estimated revenues vt-ere increased during this year by $3.5 million to reflect the following changes: The islets on TOT from a rebound in the toi«rtsm ifjdustry. Highw firaiKhJse taxes due in part to increased natural gas |Mices. Studies paid for by dex-elopers. • Higher rate of residential and comrnercia[/industrial development than anticipated. « Slate and federal grants not originally budgeted. • Donations received by she City. • Additional State reimbursements for hooking fees and mandated costs. The increase from the total original exjx^nditure budget to the final budget amounted to $2.6 milion, due predominantly to: • Local emergency repair w«rk from winter storms- • Appropriating funds received from developers during the year for deve!oper-f«nde<! studies, • Budgeted expenditures associated! with new grant revenues. • Aji^roprsating donations received. • Appropriating transfers from police grants for the City's purchase and instaJbtion of a new Computer Aided Dispatch (CAD) system. • Traffic signal battery backup system^ The difference betw-een the final budgeted expenditures and the actual expenditures for the year on a budgetary basis of $17.3 million, can be generaiiy summarized as follows; • $15.3 tniUron in "savings" by tl»e vaiious major service areas within ite City. Current year savings were gemsrated from; > Unfilled vacaiKies. > Overall awareness of fiscal responsibility throughout the City. > Planned delay in the fmrchase arsj installation of new library radio frequency identification system. > Anticipated purchase of a fire ladder truck in the upcoming fiscal year. > Projected costs in the next fiscal year for several key executive positions due to recent and anticipated retirements. > Upcoming rerK>vation costs resulting from the purchase of the former Carlsbad Unified School District building ^jacent to the Sensor Center. > Expected expansion of the Senior Cenier. > Future purchases of replacement radios for the Police Department. > Funds accumulated for facility maintenance projects and traffic signal battery backup systems. > Anticipated costs associates! with updating the City's General I*ian and Local Coastal Program, and revising the associatcsd Municipal Code, • $2 million in wnsjMsnt major capital outlay appropriatiotis was not carried forward and remaining balances from programs with a one-year life cycle, including: > A fire engine not purchased. > Unspent employee development and training furaJs. > Unspent administrative special project funds. > Unspent unfunded litigation funds. > Unspent miscetlaneous professional service fees for building inspection servk-es. > Unspent engineering plancbeck funds. > Remaining council and non-departmental contingency funds. > Unspent budget for citywide goals. For purposes of budgetary presentation, acttsal revenues have been adjusted to exclude unrealized gains and losses pursuant to GASB 31; actual expenditures have been iwJjusled to include remaining encitmbrances, and transfers out have been adjusted to reflect any transfer that was approved through the budget process as an expeiuiiture but recorded as an advance in the financial statements. •m Capital Asset and Debt AdrnMsfe^ytoli Capital Assets At the ersd of 2(K)5, the City had reeorde<J am investment of jusi over $6M.l miilion in a broad range of capital assets, inclndirsg park facilities, land, tniildings, roads, bridges, water and sewer lines, police and fire vehicles, atKl other maint«»?ance equipment. This number does not tnclude governmental infrastructure assets constructed prior to Jtiiy I, 2f)0l, as the City has not completed its inventory of these i«sets. Under GASB 34, the City has until fiscai year 2005 06 to complete a full accounting of its infrastructure. New infrastructure purchased or construcled during the last four fiscal years tn the City's governnieRtal funds has been added to ttie total capital asset figures. Loiid BuikJings and other sanicttHies Improvemoiu alicr Uian boiWings Machinery and equipment lnfra.<*iuctwe CcHKliuciion in progress. 5Iewagc tr<;atine»l fadiity Accurmilated depreciaaoa Total CITY OF CARLSBAD'S CAPITilL ASSETS {m nnltioiiis of d«tiar$> Govemnxetital Activities ^m S55.1 66.9 10.9 21.? 112.9 61.8 - 328.8 <30.4) $2984 2W5 S57.I 69.2 17.6 21.9 155.8 72.2 - 393.8 (37,0) Business -Tj'pe Activities iSM $8.7 2.2 5.6 1.6 !3«.3 4g.4 37.7 242.5 t4K,6) $193.9 IMS $8.7 16.2 5.6 1 5 159 7 40.3 40.3 272.3 (.•52.1) $226.2 Total 2«M $63,8 69.! !6.5 22.« 251 2 110.2 37.? .S71.3 i79 0) $492.3 2ms S65.S 85.4 23.2 23.4 315.5 112.5 40.3 (M.i (89.ii $577-9 CJian^e 2M4-05 .$2.0 t&.3 6.7 0.6 64.3 2-3 2.6 94.8 (10.!) $UJ1 T«tal I*erceid.£g« Change 2Qd4-«5 3-1% 23.6% 40.6% 2.6% 25 6% 2-1% 6.9% 16.6% 12.8<^ 17.2% This year's major capita! asset additions included: • The water recycliug facility and the Visia-Carlsbad interceptor. • I1ie second jiba&e of Leo Carrillo Park and the Poitisettia Park synthetic turf siiceer field. • Developer-dedicated streets, drainage facilities, water lines, sewer lines, stteetHghts, and drainage facilities at Calavera Hitls and Rancho Carrillo. In addition to carrying forward appropriations of $139.4 sniOion for previously budgeted projects, the City's fiscal year 2005-06 capital budget apfM'opriates an additional $88.7 million for capital projects. These additional appropriations are principally for consfcructiorj of the golf course, park devejoptnent, a new fire station, the pavement management program, street projects, enhancing the sewer collection system, additional water lines, traffic signals, miscellaneous civic j:H'ojects and loan inpayments. These projects will be financed by development fees, infrasttucturc and rejjlacement transfer's from the General fund, special district fees and taxes, water and sewer replacement itsserves, and other .sources iijcluding grants ami contributions from otiier agencies. More detailed information about the City's capital assets is presented in Note 6 to the financial statements and in the City's Capital Improvement Program docutmsnt, which can be obtained from the Finance Department. : lL(^g'^l|>im:|)e|M > At year-end, the City bad $2.1.2 million in bonds, certificates of participation, loans, leases, and accrued assessments payable, a decrease of $2 million from last year, as shown in the tsble below. More detail abt^ut the City's long- term liabilities is presented in Note 8 to the financial statements. m Bonds Osutkaif 5 of participajton Ixjans OWigations smkT capital Jcascs insiallnient purctsase agrifemeni Accrued asssssmenis Lejs DeJcrred t haa gex Totai crrv or CARI^SBAD'S OI ITSTAM«N<: i'm imMons of dollars) (attvermnefitai Acti'kitJteK 2M4 SJ2.« 3.4 - Oi - - - SIO ims $12.5 2,7 -- - - - $JS.2 DEBT BmiBiess-Tjipe Act'mties 2004 aees S0.0 - i 3 - 79 0.3 $8.9 $00 - 1 1 7,3 - T«tal 2fiM sns 5.4 n 0.i 7,<) 0,3 „.fi>.<U $25.2 ims Sf2.5 2,7 1.2 - 7.,1 - (0S> $23.2 T«tat Ptrccntage Chaste 2M445 -2.3'?t -30.6% -7.7'S- -too.o^ -7.6% -iOO.f!* -U>7% t$0.i) EcoiaoaMC Factors and Next Year's Badgete and Rates The State of California adopted its 2005-06 anmta! budget with the following provisions affecting the City: > Vehicle License Fee revenue will be reduced by 67%, and offset by an increase in property taxes in the same amount. > The City will be required to make a $J-S miJ!i«n "contribution" to the Stale in the fiscal year, > The State implemented the 'Triple Flip" in fiscal year 2004-0.5, whereby the City's sales tax receipts were reduced by iHsc-quaiter, at\d this reduction was made up with property taxes equating tu the same amount. This will continue in the 2005-06 fiscal year. > Both the VLF and "Triple Flip" swaps will have no effect on the ultimate amount of revenue tijc City receives, but it will result in a delay in the timing of tte receipt of money by the City. Total assessed values in the City stand at alrr»st $16 billion, alrrK>st double what they were just five ye^rs ago. PERS rates for our miscellaneous plan have increased for the 2005-06 fiscal year from 16.664% to 20,869%. and have increase*! from 27.573% to 27.927% for our safely plan. Retail natural gas prices have increased recently due to the hurricanes that recently hit the Gulf Coast, impacting our future franchise fee revenue. The Consurragr Price Index (CPI) far the western region of tte United States for urban hous^votds increased by 3.5'X> during the twelve months ended November 30,2005. The total number of housing units in Carlsbad grew by 3.7%' in calendar yeas 2004, impacting our budgeted e.K{K:Bditufes for fiscal year 2005-06. Median home prices increased by 22% in calendar year 2004. All of these factors were considered whai preparing tlic City of Carlsbad's Genera! fund budget for the 2005-06 fiscal year. Budgeted expenditures are expected to increase 6.7% to $97.2 million. The increase is mainly due to the increase in persomKl costs. Personnel costs make ^p approximately (d>% of the General fund budget so any changes in these costs can have a signtficant effect on the total budget. In addition, just over $i5..1 million in unspetit 2{K>4-05 budgeted expenditures will be carried t>ver to the 2005-06 fiscal year, as well as $3.S million in open eiKumbrances as of June 30,2005. During the current fiscal year, the unreserved fund balance in the Genera! fund decrea-sed to $39 million. This decrease was the result of reserving an additional $15 aiillion fof the upcoming coastrxiction of an 18-hoie championship golf course. If the City's budget estimates are reali?xd, the City's budgeted unreserved Gerteral fuml balance is expected to increase modestly by the close of fiscal year 2006. The City's business-type activities reflect the following: * No anticipated rate structure changes during the next fiscal year for watet operations. * Sewer rates will be increasing by 4% in fiscal year 2005-06. * No projected significant changes in other revenue sources. $1: • Additional water personnel will be hired to operate and maintain the cxpasKled recycled water distribution system. • The Solid Waste Manageinent fund budget reflects a 20% increase, or $320,000, to fund costs associated with negotiating a new solid waste contract, a loan repayrrjent and street sweeping costs, which were previously, funded elsewhere, • Other changes in the Enterprise funds are the result of normal fluctuations in c^rations. CoBJRctmg the City's Financial Maiia^ement This financial report is designed to provide our citizens, taxpayers, customers, invest<M-$, and creditors wjis a general overview of the City's finances and to demonstrate the City's accountability for the money it receives. If you have any questions about this rejXSft or need additionaJ information, contact Ihe Finance Department, 1635 Faraday Avenue, Carlsbad, CA 92008, (760) ^2-2430, or visit us online at www.carlsbadca.gov. 32 '33; i:n'Y OF CARLSBAD Sta*ein«ni of Net Assets Ptimsry Govcminent ASSETS Ca<^ and inve&trHents Receivables. Taxes AccouMs, net Dae from other govenSraSMs inventories Frepad items Loa« and reimbtBsenieat rec^ita^Scs Re&trictcxi assets- Ca* and iavestmeats Accrued tBtsHt'st tBt«*iiai fealaoces C^itaJ asssets: BfjiidiBgs and tstber stroctures h)q>toveineflts other th^ buiyings Machiacry aatl eqtHpmeM itjftastrtKture Ctmstf tfcti<xi in progress Sewage treMniCBt facility Less accumulated dqfweclatifM Total capital assets Total assets Govertmsenial Activities $ 572,576.531 5.936,0 J 4 4S0J06 203,595 709,340 2! 5,441 332,760 13,112,974 «5^,5Mi - 3S, 118,520 128,582,931 69,476,635 28,273,6S4 23.073,418 4C»,72S,I05 101,370,3S3 - (142,877,215) 617,627,911 $ $^9,972,292 Btisittess^vpe Activities $ 130.016,590 27,456 4,082,681 - 1,440,376 552,090 - 437.510 953,706 21,300 (38,118,520) S.663,600 16,941,971 5,556,571 1,475,229 169.637,849 76,912JJ53 42,809,292 (56,603.556> 265,393.509 $ 364.»56,72S TMai $ 502,593,121 5,963.500 4,563,387 202,595 2,149.716 767.53) 332.7fo0 13,550,484 1,613,206 21,300 - 137,246,531 &fe.41g.606 33,830.255 24.548,647 579,365,954 i78,2g2,«)6 42,809.292 (199.480,775) 883,021,420 $ i.414,779,020 The fKHcs to the fiuaJKial st8t«Tiefits are an integral pan «f this statcmcw. Mi Slatemest <rf Net Assets SCoatlnued) iuHe,MS,2006 Primary Ck>v«*«Bitent LIABILITIES Accrued liabjliites Accrued iMeiest payable Due to oilier gowfuntenls EstimaeU claims payable Deposits payabie Curretrt tiabijaies payable from rc^!ricic<l assets - jtccnied iaicrest f>efei red revenue Cur teat t'^f'io" *>f king-t«rni debt Nwjcarreal Habilkites; Doe in more <han one yeai, !tct of OefeireJ chwges and unam'srlkctl issxiatH'c cotts of $437,443 GovETOsneatai Activities $ 13,467.878 252. i 27 4,198,70! 4.f27,S34 199,890 ^ 6«i,43l t.090,703 Business-type Aclivsties $ 6^SI.065 $ 182,918 4,915,825 - 534,055 143,992 800,674 993,382 Total ; 3 $.748,943 435,043 9,114.526 4,127,834 733,945 143.992 i.467.105 2.084,085 t3,0SO,000 15,891.555 28,971,.555 Total liabilities 36,083,564 29,743,466 63.82'',030 NET ASSETS Invested t« capital assets, net of related del;« Reslricltd for: Capital assets Affw<M'>ie, Jow aitsi tiRXleiate iHctane l^tumsjng Habitat and agrtcuUural iratigation trunagcnvent Other purposes Vmeaitieied 604,116,708 172,473,473 27,453,435 7,041,515 5,131,431 197.672.176 853,578.986 249,4i&2,278 107,841,010 280,314,483 27.453,435 7.041,515 5,131,42! (22,240,026) 175,432,1.50 Total net 3$s«t$ $ 1,013.838.728 $ 335,063,262 $ 1,348,951.990 Thei notes to the finarwiaf sfelsinmts «e at* iSeyB pall flf this statetuent. 3S CTTVOFCARIJSBAP Statement of Activities FtH- ike Year EadeA Jtm« 30| |Mi Funciions/Prt^rams Primary (^Tentatent: GowinisKntat activities: Generai governme«B PaWie safely Commuttity devek^aneat Conimuflity ^rvices Public works l»leres< and fiseai charges oa ksiig-term debt Total ^verimtental ^tcti'ritles Biisii^ss-type activities: CarisbaJ Munki{)a! W^er DisiHei Golf coarse Sewer Solid wast« Total bffiiiaess-typ* activities :TotMi>ri«iaitf g^wrnmetit^ Expenses S !5.3S2,334 35.822,457 I4,3?.2r?29 16,789,555 35.937,03^ J.036,061 IJ9,2W,775 24,124,143 2,470,778 8,264,520 1,699.120 36,558,5611 S i55,858.336 C!!ha^es for Services S 945,047 3.6 U,524 4,676.899 2,436,657 6,450,852 - 18,! 20.939 19,462,185 - 6,S00,9}8 },Sy2,746 28,153,849 $ 46.276,788 Program Rei'cnues C^psefMuig Gfant^ and CofitritwtfOBS $ 1,113,994 285,408 7,674,2M 825.731 2.216,485 - 12,115,908 688,961 - - 29,214 7iS,l75 % 12,834,083 Capilai Grants and Coniribuiions $ (:{,1!1,525) 21.690 895,077 J.510,!00 37,970,552 - 39,385,854 7,593,789 - .^6 J 8,992 - 11,212.781 $ 50,498,635 Gwnia'sf revewies: Property taxes Sales atKi use tates Transteal occupancy laxcs PtajKhjse taxes Business iieettsc taxes Real property uansfrr taxes Vehjcfe license fees Htwneowiiess exeiii^jtjotjs Incoaie from property ari<i iavestmetjts Other ge»cfaJ revenues Traostes Total gMteral revenues and iiamims Change in aet assets Net assets at {jegiaoiBgof yearfas^statedJ Net assets at end af year Tfej Botes tiStefiflaiscital ssMaraeias a*e im iib^pai ^art of thisslafeftM; 36= Net Revenue (Expense) and Oanges m Net Assets tiovenvinciUa! Activities 1 t!4,434,St8> 03,903,8.15) (3,036,063) {t2,0i7,0&'?) 10,700,770 (1,036.063) f49.777.074) - - - - (49,777.074) 43,W6,095 25,429,074 U,,532,552 5,429,313 3,039,678 1,905,842 .587,! 79 371,640 1I>681,9I2 278,S;24 (315,215) 103,856,892 54.079,838 9S9.8(«,930 $ i 033,888.728 Primary Governjuent 8usincss-f>pe Aciivtties $ - - - - - - 3,620.792 (2,470,778) 2.155.390 222,840 3,538,244 3,528.244 2,2.57,324 - - - - - - - 3.538,004 56,223 315,235 6,I«.566 9,694,830 325,368,452 $ 335,063,262 Total $ (14,434,818) (33,903,8351 (1,086,063) (32,017,067) 30,700.770 (SJD36.061) (49.777,074) 3,620,792 0,470,773) 2,155,390 222,840 3,528,244 (46,248,830) 46,193,219 25,429,074 13,532,552 5,42^33 3 3,039 j67S 1,905,842 587,379 373,640 15,239,936 335,047 - 130,023.458 63,774,628 1,285,177,362 $1,348,951,990 ...m Balance Sh««t Covermnental Funds JHIK M, 20A6 ASSETS Ca$h and invcsHnents ReceJvaMcs' Taxes Oih«F AccouBU, net Due frcwn odwt fundi Dtse from o?h« goveramcnts laveuteftes J^paid Uems Restricted eaiA and jnvesunems Loans jxcaivahte Deposits Advances to other ftmds Total sxsxets iJABiLrnes AND FUNDBAIJIHCJES. liabUilJes: Accrued Ikbilitks Due toother funds DqKJsiis payabie Due to aihet goveramems Ailvanas frorn oihw funtfe Deferred revenue Totai liabiBiie$ FumlbalarKes: Itectved Umcservetl: Designated, reported m; <3e»eraJ Fund Special RevemK! Funds Debt Service Funds Capmi Prtjjeet Fumfa Utidesigflatcd, rep(»ted in: Genera! fund Special RcvcniK! Funds Debt S^vke Funds Capital Pt»jcct Fumis Total ftimi ba]»n«e$ T»tai ikMiiUes andi fund bataei^ ftedevekytr^Bt Assessmeot Camnainiiy Getierat Ddbt aadC^her Fadiiiies Fund Service Fuads Districts District No. t $ 64,42WS2 $> 1,524,825 $ 26,436,794 S 49.561.783 5,76330! 61,07.^ 403,2)1 62,873 19,568 124,417 52,98 i,823 135,490 t,471 36,270 12,795,248 #,Sii?i«3 4.342.870 71,658 2.284 %' 2M0 14,232.552 17,212,020 14,235,232 4.424 45,131,»8 ! 3,974.339 7.936 i6i4(S0i70l (12.573.446) $ 123,836.7.^ $ t,66l,7S6 $ 26.473,064 S 49461.784 4yt24 $ ; 20,243 20,243 99,796 49,441,745 106.624,730 (12,573,446) 26,468,640 49.541.541 $ 123,836,750 $ J,661,716 $ 2$,473>064 $ 49,561,784 Ite iotes t» Smfmmmal UM^s^fM are a» ttaegrd j^t of this stMemeni. m Genera! Capital CfjnsiTiicuon $ 56,920,111 ^ - WMi ' - - ^ - - Public Hacilitjes Coastruction S 39,082,547 -r. - •.. - - i T - - Rartcho Sania FeRoiad Pioject $ 16,805.496 •i ' . 116^33 • • r - Olher Governmeatal Funds S 102,365.050 37,222 103,781 42,023 123.468 646,465 - 332,760 659,500 12,988,557 Total Govemmcata! Funds $351,113,088 5,936.014 202,595 478.2S5 260,401 7<».340 19.568 332,760 659.500 13,112,974 2,850.021 4,643,344 60,475,188 % 53,803.183 $ 39,082,547 .$ 16,938,429 $ 121,942,170 $ 433,299,7!3 $ 689,054 % 698.747 $ 1,935,741 $ 1,082,265 S 8.773,284 260,401 260,401 57,472 70,800 199,890 4,193,737 - 4,!9S.7r)J 8,124 J16 23,356,668 135,<»0 142,699 - 76,714 13,149,721 824J 14 898.918 6,129,478 9.614,236 48.938,665 5,816,469 926,220 2,352,258 28,897.315 83.131.302 16,507,666 37,257,409 8,556,693 5.576,058 41.358 35,078,750 13,974,339 5,576,058 41,358 173,302,967 3MH9^ 52,979,069 3S.1?3,639 I0,808,9'5l 24.448.169 85J.104 17,435,180 112,327,934 47.519,083 24,448.169 (11,722,342) 48,090, it4 384,36 J,048 $ 53,803.183 $ 39.082,547 $ 16,9.38.429 $ 121,942,l-n> $ 433,299,713 CITY OF CARLSBAD ReoBMciKatioti «^ the Balance Sheet of Govemnttentat Funds to the Statem«sft of N«t Assets June JEO, 2606 Total fund t»tances - ^ovornsieaia) fuads. $ 384.36{,<M8 AmouiHs r^jCKled for gowmnenta! Ktivhtes it) ffie staefineat of net as-sets aje<iiffereiH bceauie; Capita! assets used ia governraemal aetjvi«ie& are not fiijancta! resowces MICI, therefore, me not r^KSrted in the ftttwis. OoveTtuiieMat htncts internal service fuiods Total capital assets Ima-aal serwe fuwis j»e used by maaa^m^t to charge the costs <rf fleet jtianagcsneat. self inswed betvefits, Jtsfwrrttatioa iechaftk)gi«s, tecwds maaageiiKEt, risk management and wwtes' comperKatioB to tndividuat fijacSs. Ttje assets and KabBities of the iaternaj Sfsrvice fussJs are included in govefntneatai activities iet tttes staiemeat of tiet assets- Total istersa! service foisd ctet assets ijaerttal service fund net assets intcluded as part of total capital assets internal service faad net assets less coital assets Accrued interest is ne* doe mad payable it* the current period and, therefore, is tKH rep«*e<J in the fasids. 611,697,993 5.929.91S 20;>21,476 < 5,929,9 tS) 14,291,558 llsi^iSi Retentions pa>ahie are noi dire mil paysfole in the ctaretrt p«^tod a»d, therefore,^ are tjot rqwjted i» the ftintis. (452;249) Interest receivable oti advances to oUier fuads is, not a current financial resoiircc and. therefore, is rte* recognlEed as revenue in the funds uwii receiwei. 0.567,568 A pwtfotr of the taxes receivable is not available to pay fw carrent-period expenditures a»d« therefore, is def^red in the funds. ||»»2| A potttonof accottBts rccciv^les are not available to pay fwcurrent-paiod expenditures ami, therefore, is defared tn the fsisUs. IMW Long-term liabilities, includinj^ bonds payable, are n<x due and payable ia Uie carretS fseriod atwl, tt»refore, are o<« reported in the funds. GqwnanMJtsi fiMjds iiti ss$^S«f gpypapjK^trf: Wiviite. (14.170,703) $ 1,0I3.88S,72S Hie notes to the fm^icial statements are an integ^^ part of IIHS stat^tiCRl. m 41 CITY OF CARLSBAD Statmj«»t of R«y*nBfes, Ex|>enditures and C»««^ tit VMSt Batti&s Govenuneniai Fund; For th« y«ar Eod^d ivmf 30, 2006 Revenues: Taxes intergoverwinenta! Charges ft* services RIesjs fmd ftMfdtBres IrKwne from ptopetty and invesunenls IraerdepMmiMitaS charges CofttrSHJlions ficxn propetly owners DaaatKais Total revemjes Exp<?«dtares: CtExent: Oeiasrat goverameot Public safety Cormnaniiy devekspn^^ Go«)r»Mnily ssrvic«$ Public works Capital txA\ay D*i service: Pria<%a} reliremem ItUarest aixl fiscal charges Total «x|>eHdttUFe$ Excess ^delldeijcy) of re¥«»tt*ji OYer (wider) expendUares Olhea- fiijanctng swarccs (uses): Ttansf^s in Transfers oui TaisA (^imt (tnsmtcktg seurces |uiM^J: Net chax^ in foitd bataaces Bsifi balances idleOcitsJ ai b^nnii^ of ye^ Hmc! babmces (ili^ciisl i^ end (^ year General Debt Service Funds Assessment andOdsef Distfici; $ 87,223,261 S 2,384,57! 1.102^40 2,504,019 7,751,673 1>063,26S CtUJMWtrtily f-acilitjes Disuiet No. i % 2,9tJ,55a 2,4tU27 2,SU380 - 1,280,462 105,947,530 40,429 - - . 2,42'>,0aG 1,085.231 - i 0^14,741 39,S57 11,139,829 1,068.745 - &I2,S4? ^ 4,5«.150 16,051,181 36,20l,W!) 7,0*9,027 15.406.372 1S,046.54& - 6,«&3 460 92,762,1S8 13,185,372 76,666 (6,033,432) (5,956,766} 7,228,606 99,J%,I24 $ 106,624,730 18,503 - - - - - y95,ma 1.485357 i.898.S60 526,340 U.000.000> (1,000,000) (473,860) (12,099,5S6> $ (12,573,446) .4^: •'• - - - 15,7«7,793 » •* 15,787,793 (4,647,964) 3,861,887 {4,184,941) (323,054) (4.971.018) 31.439,65S $ :^.46S,640 181.972 - - - - 6,310 . - 188,282 4,406,868 - . 4.406,868 45,134,673 S 49,541,541 The notes to te fmaocta} stst^nenls isre an iategral pari of Siis M$it«»iKim. m Geaerai Capital Consiroctiwj $ 493,774 - - •' :i,3*f2,gi$ •- + - 212,939 2.099,58? Public Facilities ConsHTietion - - i -.-- I,217ii« ' S,900;48S -• 312 7,177,941 Rancho Santa Fe Road fVoject $ 1J24,8!0 - - 43SM:i 3,198,340 - 495,342 5.256,575 Other GovCTameatat Binds $ 2,340,505 I0,306.I2& - 3..286.329 114,926 2,673,187 28,QC» 5.638,356 129,558 4S.H7 24,565,104 Total G<ivernt»eni:a! Fiinds S 94,861,895 13X126,950 2,504.019 11,03S,002 I.17S,!»-1 10,386,924 2,6393S0 25,364,767 129,558 2.077,029 163,206,718 - ^ - ? - 2i#4,734 ; 2,684,734 <585.14S) 600,000 - 600.000 14,855 52,964,214 $ 52,979,059 - - - ^• - 7,653^«5 i - 7,653,585 (47.5,644) „ - „ (475,644J 38JS59,2?3 $38,1»3,629 '. - - - - 7,944.216 -. - 7.944,316 (2.687,641) 136,933 - 136,933 {2.550,7<M) 13,359,659 $10,808,951 59.193 163.124 7,251.070 230,947 2,281,010 12,954,970 535,000 i 13.058 23,688.372 876,732 7,009,367 (1,115,127) 5,894,240 6,770,972 105,556,962 $112,327,934 16.310,849 36,365,033 14.300,097 15,637,359 20,327,556 47.031,608 1,036,663 1.,598.875 152,608,000 10,598,718 11,684,853 (12,335,500) {648.647) 9,950.071 374,410.977 S 384,361.048 m RecoftclIiaMtm of the Slatemeitt 6f Reveitties, ExpendUiHres and Chaises in Fuad Balances of Govensnental Funds to the Statetneni of ActHities For the Year KiKteti June 30,2m6 Net chaage jn fuaJ balances - toiai govertHneatal fiwds. Araounts repca-ted for govwnnientai activities in the stalet^Mit of activities are differem becatJse: :f m^Mi: Gov'wametttid funds report coital otnlays as ex}>entiki^s. Uewevcr, in ibc siatesnent of activities, the cost of those assets is aUoeaied {ivar ttwir estimatesi wsefisl lives wd reported as depreciation exptsisK, Pis^^hase of c«^ttai assets De(HBci«*ton expense 40,516,194 {13,476,971) Govemiaental funds do not reflect the dooaliisn of capital assets as revenues. m^gmmv: Gov«f RmeRtal ft«Kls report die entire proceeds froiB fise sate of coital assets as rcvemre. However, in the statement of aaivitjes, the net gaia or loss frwn tije sale of capital assets is repwted. 05,142) The repayment of ^e p!iacii>a! of Iftn^-term ffcbt consitiis;s the ciHrcBt financial resources of isovernmcntal funds but has n« fcffett OH iiet assets. 1.036 663 Sonic expeases reported tn the statemeat of actunies ik> not require tlie use t>f curreat finaiKsal resoitfces, aiKJ thoefwe aie nm refXM-tetl as expenrfstufCi in goverBipeBta! funds. MM& Utipai^ interest incorne on advances to mher fuoJs i.s. nm a Citrrent financial reswtfcc, ami therefore is not recognised as revenue in the fuitds smijsm A postion of sales at»d use taxes previously recogmi/ed in fte Statement of Activitses, bat had been deferred in tiie fuads. The But reveaue of activities of iaterna! service funds is reported with govetntneBtat activities. $974360) 2,363,57? 06.476) C:i«ijge ji fi^ £^s^s#p»vertmiet\ia! activities. the jKiWS ioi the liaaiKaai «atfert*!i*s atsw* p»? «f this :St#fi»«i, I 54,079,Si8 44: # CJiYOrCARlJSBAI) Statement «f Revenuess, Ksp£»ditttri»i and ChangeK in Vumi Balance - Btidget and Actnal G^neritl Fund r«r the Year Ended Ju«e 30,2#«S: Budgeted Amounts Origjaal Actitai Amoim'is (Badgesary Basis) Variance With Piiial &i3(lgc( - Over (Under) Revenues: Taxes InlCTgovcinmcnlaJ Licenses and pwiMts Oiargcs for services FiMS aad forfeiture* Income frt»n property aasi invcstMiiis InterdeparEmental charges Miscetiaaeous Total revenues Expcndkures: Cairent; OcneraJ govertiinent FiA>iic safety CuintmMitty <fcvel<^raest CoHM3i«nity sctvkres PuWic w«to Debt service: PrincipaJ reufes«e»t iateresi and fiscal charges Total ex{)>en<litures Rscess «f reveiwcs s¥«r eS^«!iti(Mir«s Otto- financing sc«irces fuses): Tf as»ftars ia Transfcrimit T«tdl other Bnaitcing sooctes Ctises) N«t dtadfi^ in fimd l«dait£«» Faml balsmce at bepaning of yeir: Fond baksice »l «»3d of year $ 85,% 1.000 1,647,000 2,750,000 7,091,000 926,(»0 2,9m,(m 2.700,000 756,000 ifl4,7g5,(K)S 19,776,477 38,<)5 8.970 9,122,761 20,434,491 22,36«,295 6.663 460 110,628,117 (5,843.117) - {5,875,0005 (5,875,000) Cn,7l8,!l7) 9^,39i6,}24 $ «7^78.9Q7 $ S3,649,0(» $ 87,223,261 2.031,000 2,750.000 7,114.(»0 926.0tX) 2,9«),{»0 2.700,000 984,000 103.114,000 21,703,254 38.922,233 10,071,706 20.493,265 22,442,82? 6,663 460 113^0,408 If 0.526.408) 101,444 (6,258,432) t4156.,98g) (16,6833%) 99396J24 $ 8?,712J3I i 1.102,240 2,504,019 7,751,673 1,063,268 3,3.39.741 2,611,380 1,280,462 !06,S76.eM4 17,345,S27 36,417,911 7,S47,923 16,195,437 19,516.416 6,66.3 460 97330,637 9.545,407 76,666 (6.258,432) (6,l8i.76&> 3,363.641 «>,396,i24 I02.759.7«5 $ 3,574.26! (928,760) (245,98!) 637,673 137,268 379,741 (88,620) 296,462 3,762,044 (4,357.42?) (2,564,322) (2,223,783) «4,297,S28)f (2,926,41!) - - (16,309,771) 20,071,815 (24,778) - (24.7?8> S 20,047,«37 The fKMes to the fitmecial ^t^anents are »B imegral part <rf itts stalcmcRt. CITY OK CARLSBAD Statement <»f Rereniiesi, ExpeiHfitiwss and 0*Mtges in ¥\mA Batenee Btidg^ stnd Acttiat GeiKarai rund (Coi^nued) For tbe Year Ended June 30,2006 BUDGEI-TCWJAAP RECONCIUATION Actual AmcHHtIs Actual amounts Jbu<%;tary Jsasis) "dvaiiabie ftrr ^pfM-opriattott" from £be bwjgetary cwnpariscm schedule (prevjcsus page). $ 106,876,044 The rccordtag of «(ueal«.ed! gains aaij losses m the City's tavesttnetits are ^K>WB f«r fiuMiciaJ repottis® fHirposes {ptsrswatw to GASB 3 i), im are BCH AxiWB fcsr tm<%etary pwposes. (»28,5J4> $ 105,947.530 UxpesKittures Actual ajnouBts ^budgetary basis) "^caa! charges to apf^opfiation*" frrostt the budge-iary coropsM'iscsi schestalc {p»evioas page). Oifferenccs - ixKJgettoGAAP: EncufiBbtaoces are shown in the yeajr etjctanbered {(» budgetaf>' fsat^ses, btst m the j-car paid fof fiaanci;^ repcstrng jfiurpyscs. if 9^330,637 {4,56S,479) $ 92.762.! 58 Other fiBanctt^ smirces (uses) Actual aroeunts ibadgeJafy basis) "total other finaaciug sources tuses)"' from the bmi^euify ccmtp&fiiA-m SKhextete (prcvkxts p^e>. Differences- budget toOAAP: Se«iie sdvaBces »« budgetied for (fs transtos oa« for budgetary purposes, but reflected as advances for finaocial reporting purpes. S (6.{Sl,766j( 225,000 Tbe notes to the fiiauci^ ^atetMCHis are an inte^ra! psn of this statemem. $ <5,9S6.766> t? CITY (JFCARLSBAD Stateinent of Net As&eto; Proprietary KiBJdte June 30,2«06 ASSETS Ctm-eM assets: ReeeivaWes; Taxes Aec<MHts, net DiK from 0fhet govettMnents InveiJtarJes Total carrent assets Busincss-tj|)c Activilks Water District Gtdf Course 27,4S6 2.474,862 ?49,3S3 547,257 57,090.618 l,5S3 8,242310 Scwcr $ 53,291,630 $ 8,240,727 $ 61,6i5,70« 911,793 690,'993 4,833 63,223,319 Cash a«d investmenis Accrued Jtiferest Total current rtistricted as$ete 953,706 21,300 975,Ot» fkmcurrent assets: loans and reitiftturseraeM receivables; Capital assets: Land Buildings afsl otiier $trttctuies: {t!!iptx>v»»ents other itian buildings Matdhtery and et^ipiBei^ it^a^ucture Constructkm is jH^ogrcss Sewage ttesamerU facility he^ aceum^Iated (iqprectatton Tcita) ca|HtaJl assess (net of accuruMlated depreciaticH)) T«t»l ncmcmxcnl assets T^i^tissets 1,909,565 16,941.971 2.185.604 958,900 108,384,891 33,766,924 (28,127,^0) 13fe.0H.99S 136,011,995 5,075.228 33,055.162 38,130,390 38,130,390 437,510 3,370,967 524.329 6l.2S2,9SS ia090,467 42^69.292 (28,475^^^) 9t.2Sl,l24 !»l,j6$Sj634 Hie notes to rtie fHtandai stateme^s aits m intt^a! p«t of thU state^KBt. Entejprisse Funds Sdlid Wasfc Totals Go*f3!«nental ActiviJies - iBteraal Service Funds $ 6.S68 533 $ 130^16,590 $ 21,463.443 6%»443 7362,976 27,486 4.0&2,68t 1,440.376 552.090 136,119,223 953jm 2i,3«} 973.006 :^ 2,421 - 195,873 21,661,737 - - 437,510 8.663.600 16,941.971 5.556,571 1,475,229 169.637,849 76,913,553 42,809.292 156,603,556) 16.212,542 (10,282,624) 265,393,569 265,831,019 5,929,918 5,929.918 $ 7,562,9'76 $ 402.925,248 $ 27,59i.655 49 CITYOFC;AHLSBAJ> Sa»iein«atii of Net Assets Proprietary Funds (C<witinped) JuuK M, 2006 Business-type Aciivjties - LIABILITIES Ctirreat iisdJiUises: Accrued liabilities Accrued iittere*!; payable EHic to o4her scn'cnimejsis E^intated claims payable Cwreat pfH-timt of king-term deJs Deposits payable T«itU»I current Hat>ilities Carlsbad Muaicipal Water District S 2,416,587 I82,9!S 3^54,203 3&S,382 156379 6J6?8,469 GoH' Course 1 3,131,106 4,749 3J35,855 Sewer i 317,248 1,38!.622 605,000 372,927 2,676,797 Cmrem li^iliiies payaWe from restricted assets' Accrued interest I43.W2 NoncurreM iiabtiities: Advance from other funds Deferred revenue Loan payable fostaHrtieitt piffchasc agreentea), m't of deferr^ cfearges of $437,443 Total ticHieatrrent Uahtlitie;. Total UabiSitNs NET ASSETS Invested io capitaj assets, na of related ilebt Rearieted for: Capital tsssets Unrestricted 10,203,998 10.203,998 }fe,8«2,467 !25,419,615 50,725,006 75,52.'! 36,894,301 36,«*t.30! 40,030,156 38,130,390 (31,787,846) 800,674 5,«7,5S7 6.488,23! 9.309,020 83,912.273 57,116,004 3,549,662 fMa} net iffiseis' $ 176,220,146 6,342,544 S 146,577,939 The iiotes lo the finaaciaj siate»nem$ sre an integral part of this :slat«mct!^. M Eater^ise Funds SdW Waste $ 4i6,!24 - ' * r- - 4i6,{24 Tola! ffo^ktsty Fimds $ 6,28{j065 182,918 4,9i5,S25 - W3,382 534,055 I2.9»7,245 GoveriHnenUl Activities • l84en»i S^'V'ke f^ntis $ 3,242,345 - - #,I2?J34 » - 7.3mt79 143992 ams^t 3S,U 8,520 800,674 10.203,9% 1,224,219 1^0,343 5,6S7,557 54,810,749 67,S6i.9S6 7J70,179 249,462,278 5,929,9IS 5.922,633 !0?,S4l.0!a (22,240,026) 14,291,558 I 5,922,633 $ 335.063,262 $ 20,22 i,476 fi; CITYOFCARUSBAD Statement of Revenaes, Expenses and Changes in Net Asset*; Prflprietary Vm\d» For the Year Ended June 30,2006 Business-type Acsivjiies • Operaiing revtrtue*' WMcf sales Se*er service trhasges Othcj- ehaigcs for SCTvtccs CoMribuctonts Imm other goverament agejicies MisceiSaneous Tot;^ operating rev^«e$ O^rajttig expenses; Sewer piam operj^ions PtwciiasKd water DeprecJatJOB Ftsci Mid siq)pi!ies ClainK expense Small •ecjtjffKnem purchases (jeaera) and admimstraiive TrK^l qperatti^ expenses Operating i»coi»e (iess) Nonopenaiag re\cni!cs (expenses): jBctHiie from prvjperty and it)\»es^nents imcR'M expense and fees fatergoveatnmental Gaia (Ml sale of pr«^?eny Prcqjef ty taxes Tofal nonoperatitijg rmeimes^ lamaxi <ioss) Wore Ij^aiKieis i Cailsbad Mankipai WattrDsstjict S } 8,757,65.1 - 704.53.2 688,% J S2,838 20,! 63,984 Golf Cijufse $ - - - - ^ t Semx 6.707, S 25 93,793 - 27,07S 6,827,996 Tra*sfes m Transfers 08t Capilal ccHitribwkMis Change In »et assets Tot;^ nu a$^ei^ at hsgittakg of )«:ar Toial net assets at end of year 52,121,527 2.2«J4.4!? 2,:MX),28I 2,256,075 ^j^tttti: 9.738,205 24,124,143 13,^60, IS'?) l„i48,<K» - 4,450 2,357,124 3,6<»,583 (350,576! 55,687 7.593,789 7.29S,90e 168,921,246 $ 176,220.,146 $ 13,677 13,677 (13,677) 551,149 (2.457,101) - - (\,<M^,952) < 1,919,629) - .. < 1,919.629) 8,262,173 6.342,544 3,377,370 7,933,726 (J.105.730) 1.478,787 (.^lO,?^) f837) 1,147,156 41,426 259.528 3.618,992 3.919,946 142,657,993 & 146,377.939 Tbe f)ote$ to the fmmmsi iitmetsents are i^ integral p^ of this staieniatt. Entetjwise Fiwds Solid Waste i: - ),S92.746 29.214 12,694 1.934,654 - -• - - - 1,699.1» i,699,i20 233,534 1«).059 • - - 160,059 395,593 - : - - 395,593 5,527,040 -$ 5,922.633 Totals $ 18,757,653 6,707,135 2,»1,07J 73S,!75 52,610 28.926,634 2..30O,28J 12,i2t,527 4.520,488 - - 14.S2S.370 33,770.666 (4.«44,032) 3,538.004 (2,787,g95j - 3,613 2,257,124 3.0iO.S4fi (1.833,186) 315.215 - n,212,7Si 9.694,SiO 325,368,452 $ 335,063.262 Ooverrmiental Activities •• Internal Service Funds $ - 11,897,287 395,225 12,292,512 - 1.438,534 928,615 1,951,182 22,317 6,601 .S57 10,942,505 1.350,007 379,655 27.87S 41.516 :449,049 1,799,056 633,432 (30O,(K)0) 23 f,089 2,363,577 17,857 J99 $ 20.221,476 m CITY OF CARLS8A0 Statement of Cash Hows Prqjrietary Funds For «l»e Year Ended Jtine M, 2d06 Busitsess-lypc Activities - Carlsbad Munkipa! Water Distiict Goif Cou! se Cash ftows frc>m i>peratinf activities: Receis>ts from ttwtfOTJors and «sws PaymeBis lo sui>piiers Paymcflis to en^>k>yees Inleinai activity - paynwMs to mhet toxls Claims paid Other icfdtHs (payments) Jncrease f decrease) ia deposits pays^k- Net cash }»ovk3cd by operating flctivities Cash flows from isomrapitai financing activities: Opej^ng sul?sidie*i aisl ifaHsfere iaoiiKT funds Cash flows ftfwi capital and rels^eti fijiasctHg activities; Proceed* from cs^ital Mst Capita! ct««nbt3iioos PuTcfiascs of c^itaj assess ftrincipal }K»iil on i-apita! tIelH Interest and cxhra^ fees pai«{ Propesty taxes feeeived Net cash (used tn\ capiial and related fitianciag acinitics Casli flows from itivessing ac!:i'wii& Inteiest on investments Net increase (decrease) jtiscash and casS egiivaiMfts Cash and cash etj^ivalcnts ai beginning of ye^w Cash asid casli ecjuilvaSeftts at end of year Sewer i9,366,4W $ - $ 6J08J23 (17,700,854) tB,677) p,664.755> (2,762,327) (I,586,0(>1) (2,214,513) - (967,976) 70t,7?>9 S,367 (.2.{J01,H9) 55.687 9,493,852 4,<l75,iM (1535.143) (124,071) (35,455) 2,266,743 1,281,050 1,348,009 83,627 53,208,.003 $ 53,291,630 (26,074) - (39,751) 52,757,101 ^ - (23,353,585) - {2,457,101) (25,8tO,6fS6) S51,14<J 7,457,893 782,834 $ 8.240.72? ! 8,275 - 497,606 259 128 . 1.605,479 (4,126, J 67) (575,000) (365,482) - (3,461,170) 1,478,787 (5.225,249) 62,S55,074 i 61,629.825 IBe «i^es fc) &?: fimm¥i «ta««a«fts#e;aiS iWegra^fat tf #»s sfstewiit Enterprise Funds Soiid Waste $ t,830,221 (775,705) («i71,635) (332,112) - 75 267 - }26,a% - 7- - - -• i 60.059 2S6.093 6,582.438 $ 6,868,533 Tcrtals $ 27,904,753 (22,!54,9SH} (5,020,023) (3,514.601) - 759.267 8,367 (2,017.238) 33,0?2,3i6 9.493,852 6.5SO,603 (42,774,8 J 5> (699,07 {> (2,858,038) 2,266,743 (27,990,726^ 3,338,0<M 6,602.366 123.428.349 S 130.030,7 »S Oovo-anwcital Activities - tiitetnal Service Fimds $ 11.897,286 (4.223,761) (2,904.217) (878,380) (3,164,183) 224Mi - 950,828 333,432 7S2,747 (i.469,435) - -• - (686,688) 379,655 977,227 20,486.216 $ 3L463,443 Si.; CfTY Ol' CARLSBAD Statement of Cash Flows Propritlary KMndslContintted) For thp Year lsnd*d June -JO, 2006 BusiiKis-type Activilies - RetoncHiaticsn of opw^ing income {kissi to nes cash provided by t^rating ijctjivities: Opet^ling income {lossj Ad|ustnwots to rccoacjk; opa-aling income (loss) to net cash provided by (used ia) operating actjviiiew D^ecJMion and anioitJzauoB Change in assets aad tiabifities: (Increase) decrease isi receivables llncrtase) Ea mvemories ifiX-crease) increase in acwuc*} Itabiiiltes {Dccreaset increase in accrued iweresi payable Increase in due to mhst goverwaents increase in essimateJ claims pay^te Increase in tlqpc^Jts paysbic Net cash provjded by opcratir^ activities NOBca^i coital fiiiaftcing activities: Capatal assets, ctsatrii-Kited hy (Abet swurcei RcconcsHatioa of cash and cadi equivalents to atnounts repc«t«dc)n ite bdlaece short; Cash and investttieMs Restricted anxeis: Cash and itti-es^tiiftcnts Less tttvestmeols not nweling the dcfiintjoii of cajSi etjuivak'tils; lnv«siisei« ccMUracts Cash and cash equivalents at end ftf ye» C^l^jad Municipal Water Disttict Golf Course S«wer $ P.960,159) $; CPJ?B f: {!,105,730) 2.264,413 - 2.256,075 (95J77> - (92.795) (8,536) •• 2.6W {84,782} {26.074} (543.810) i 62,236 i[SS6,8Sl> - 29.677 S,367 ,....^^..^^_^ * (4g,4Sl.> S (2,601.119) ,|_ (39.75S3 S 497.6'(M $ 6.»I»,(K)1 $ I t.9Q5.918 $ 53.2^1,630 $ 8,240.727 $ 51,615,700 953,706 - - (939.5S!i $ .53.291.630 $ 8.240.727 $ 6ij629,S25 ;11te.tM|!S:^ i^ ii^pM^si^ta^^ iciliis Sitstt^s^ia.. m^ B»qd| „___^..^ Govemmemal Activities • &!SiJ-;Mas£fe Totals Service Piiwte :235iS34 I: (4.844 AJ2> $ i.550,«r? - (29,167) - (80,33 i) - - - 4.520.488 (217,7393 (5,866) (734,997) i62,2S6 (857,204) - 1,438,534 (1,170) (25,2385 (319,034) - - {1,4«,271) <40,II4) 126.036 $ (2.GI7,22S> $ 950,82S $ 8.824,919 $ 231.0 $ 6,l;6S,533 S 130,016,590 S: i}.4^3;443 «53.706 ^ (939.585) $ €,g^;SPj $ 13(3,030,715 $ 21.463,443 B7 CITY OK CARLSBAD Statement of Fiduciary Assets and IJaMlities AgMtcy Fimds JBII« 30, 2jm6 ASSETS Citfrew assets: Cash ancJ mvestmeats $ 24,359,656 Other teceivables 257.S23 The M>tes to the finaacial statements are ati insegrai paxt of this aMement. T^al current assets 24,6! 7,479 Restikted assets: Casli and inwsttneats 6,891.655 Total assets $ 31.509,134 UABUJTIES Accrued Jiabiljtks $ 197,587 OeposslilaHdlctMb^s 313H,547 Total liaMUties $ 3U509J34 S8 CItV::OP:CAfttSBAI> Notes to the Finaadat Jkatemegts Nete 1. Summary at Significast Accounting PftlW«!s The City of Carlsbati Caiifcmiia, (City) was incorpoiated on July 16, 1952. The City operates under a Council-Manager form of goveminent and {wovtdes the foiiowing services: general govemnM^st, pafetic safety, community development, coifflnunity services and public worfes. The accounting policies of the City and its c«n^pone«t units conform to accounting principles generally accepted in tlse United States of America as applicable to governmental units. The foiiowing is a sumniary of the more significant policies: Description and scqpe of the reporting entity As rojuired by accounting principles generally accepted i« the United States of America, disese finanicial statetueBis present the financial positi<Mi of the City and its component units, entities for which the City is considered to be fiisanciaily accountid)le. The City is ccmsidered to be financially accountable for an organization if the City appoints a voting r»ajority of that orgacizafiiKi's governing body and the City is able to impose its will on that cwgantzaticm or there is a psj^ential for that organization to proviile specific lloaiiciai benefits to or impose specific fiisancial burdeas on tte City. The City is also considered m be financially accounfabie for an organization if that organization is fiscally depesdent upon the City <j.e., ii is unable to adopt its budget, levy taxes, set rates or charges, m issue bojiderf debt widioat approval ftom the City). In certain cases, other iwganizaiions are iacltfded as cojnponeat units if the nature and significance of their relationship with the City are such that their exclusion would cause tlw City's financial statements bo be misleadiag or incomplete. Based upon the above criteria, the component units of the (jty are the Housing Authority of the City of Carlsbad, the City of Carlsbad Public Improvement Cmporation, the Carlsbad Redevelopment Agency, tlw Carlsbad Pnblic Financing Atiihority and the Carlsbad Municipal Water District (District). Since the City Council ser\'es as the governing board for these con^oeot units, all of the City's component units are considered to be blended component units. Blended component units, altboitgh legally separate entities, are in substance part of the City's operations, and so data from the.se units is reported with the interfund data of the primary government. Oidy the City of Carlsbad Public Improvenwiif C^poration and the Carlsbad Redevelopment Agency isstie separate component unit financial STateraents. Upon their completion, the financial statements of ttsese component units can be obtatjied from the Finance department. Government-wide attd Fund Financial Statements The Govcnmtent-wide Financial Statements (i.e., the Statement of Net Assets and the Statenien! of Activities) report information on ail of the nonfidnciary activities of the City ami its blended component units- For the most part, the effect of interfiind activity l>as been removed from these statements. Governmental jKrtJvities, which noimally arc suj^ported by taxes and intergovemmenta! revenues, are reported separately from busines.s~type activities, which rely to a significant extent on user fees and diargcs for supp«jrt. The Stateitjcnt of Activities demonstrates the degree to which the direct expenses of a given faaction or segment are offset by program revenues. Direct expef>ses are those that are clearly idemifiable to a specific function or segment. Program revenues include 1) charges to cu.storaers or applicants who purchase, use, or directly beaeftt from goods, services, or privileges (»ovided by a given function or segment and 2) grants and contributions that are restricted to meetitig tite operational or capital requirements of a {lartiotiiar function or segment. Taxes and other items not property classified as program revenues are reported as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fidtjctary funds, even tliough die latter are exckded from the Government-wide Pinascial Statements. Major individual govenimental funds and nsajor itjdivjdual enterprise fands axe reported in separate columns in the Fund Financial Statements. S9 Girilf OF .CABJ-SBAO Notfcs to the Financial StateraieHts Note 1. SMnimary of Significant Accountisg Policies (CoBtinued) Measurement focus, bitsis of accounting, and ilnancial statentent prresentatimi The GoversMiKnt-wide Financial Statements are reported using the econotiac resources measurement focus and the accrual basis of aceouniing, as are the Proprietary Fund and Fiduciary Fund Financial Staiements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows, in applying the susceptible to accrual concept to intergt>vemme«tal revenues, the kgal and coatractua! teqairetrsents of the individual programs are used as guidance. Property taxes are recognized a& revemies in the year for which they are levied. Oovemmentai Fu»d Financial Statements -are reported using the current financial t^scmrces measurement focus and the mjxlifietl accrual basis of accounting. Revenues axe recognized as soon as they are both ijseasurable atid available. Revenues are cottsidered availabie when they are cotleetible within the current period or &oon enough thereafter to pay liatsiilties of the currestt period. For this purpose, the government considers revenues to be available if they aje collected within 60 ilays of the end of the current fiscal peritKl, RxpeBditures generally are recorded when a liability is incurred, as under accrual accounting, as kimg as the expenditure reflects a near-term cash outflow. Principal and interest on long-term debt are recwded as fund liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early in the folltnvit»g year. Reven«e-s that are accrued generally include real fwroperty taxes, sales tax, transient occupatjcy ta.xes, franchise taxes, vdiicle license fees, higtiway nsers tax, interest, aiad .some state and federal grants. Real prc^ity ra.xes are levied on October 15 against {Mropetty owners of iec«rd on January 1 of that year. ITie taxes are due in two installments, on November I and February 1, and become delinquent after December 10 and April 10, ies}>ecti vely. Tax liens attach annually as of 12:01 a.ni, on the first day of January i« the fiscal year tor which tine taxes are leviai. Under the provisions of NCGA Interpretation 3, property tax revenue is recognised in the fiscal year for which the taxes have been levied, provided it is collected wilhii* &i days of the end of the fiscal jear. Fiduciary fund types are custodial in nature (as.^ets equal liabilities) and do not involve measssrement of results of operations. Fiduciary futid assets and liabilities are accounted for on the accrual basis of accounting. The City repwts the following major governnterttai funds; The General I?\ii»d is the City's primary Ojperating fund. It accounts for all financial resources of the general government, except tiio.se required to be accounted for in another fund. The Redevelopment Debt Service Funds are used to account for the accutnulaiiois of resources for. and tiayment of, principal and interest on the Carlsbad Redeveloprrjent Agency's bonds and other debt, used to finance improvements for the redevelopment areas of the City. The As.s€ssmei»t and Other Districts capital project funds are used to account for capital projects financed by the issuance of assessment and community facility district bonds. Tlie Comtntinit; Facilities District No. 1 capital project fund is used to account for civic facilities, freeway interchaiiges. and road segments finaitced by Community FiKiiliries Di-strict No. I "special tax reventie.s"' (Melb Roos>. TTie General Capital Construction capital project fund is sjsed to account for transfers from the General Ft«id and exjieiulitures for varicjus capital projects not fmanced ihrough anmher capital project fund. ITie Public Fadiitie^ ConstnicUoii capital project fmul is used to account for die receipt of fees charged to devetopers, and expenditures for specific public facilities such as libraries and fire stations stece4.sitated by growdi. The Ranciio Santa Fe Road Project capital project f«»sd is used to account for the amcsints paid by developers and costs ftw the construction and improvements related to Rancho Saata Fe Road . CITY OF CARLSBAD Notes to the Hnandal SlatoneHts Not* I. Summary of Significant Accminting Policies (Cjuntiniied) Measurement focus, basis of accounting, and financial statement presetitatiott (continued) The City reports the following major enterprise funds: The Carlsbad Miirridpal Water Oislrict enterprise funds are used to account for the uperaiion, oiaiiitenancc, and capital facility fmancing of the Clt/s water system. The Golf Course enterprise fund is used to account for revenues aod expenses for the coastmefion activities of the City's new municipal golf course. The Sewer enterprise fuittls are used to account for the t^ration, maintetsance, and capital facility finaticing of the City's sewer system. 'l"he Solid Waste enterprise funds are used to account for tlie revenues atid cxpajses of the City's solid waste stnirce- rediKtion, recycling and storm water programs. Additionally, the City reports the following fand types: Internal Service funds account for fleet tnairagetnent, self insured benefits, information technology, risk management and wotkers' ccsnpeasation services provided to other departisiients or ageticies of the City. The Agency junds account for assets held by the City for other funds, governments or jmlividuais. These funds include contractors' deposits for fumre developtnent, nasceiiancous deposits, as well as debt swvice transactions on assessment district bonds for which the City is not obligated. FinsMiciai Accounting Standards Board <FASB> statements aad interpretations issued prior to Dece^nber I, I9S9, generally are followed in bc^i the Government-wide and Proprietary F«nd Financial Statettjents to the extent that those standards do not conflict with or conljadict guidance of the Gtsveramental Accounting Standards Board (GASB). Goveintnents also have the opliort of following subsequent private-sector guidance for their busitjess-type activities and enterprise funds, subject ti! this same, limitation. The City has elected to follow the standards set by the GASB as opposed to subsequently issued private-sector guidance. As a general rule, the effect of interfund activity has been elirainated from the Governrwertt-wide Financial Staiensents. An exception to this genera! rule are the charges betweetj the Carlsbad Municipal Water Disnict and various other funeutMis of the City, Elimination of tlsese charges would distwt the direct costs and pnigrara revenues reported t<.rr the various futictions concerned. Proprietary funds distinguish operating revenues asid etpense^ from noaoperating Items. Operating revenues and expenses generally result from providing services asid producing and delivering gotKls in connection with a proprietary fund's principal ongoing (^rations, Tlie principal operating revenues of the City's proprietary funds are charges to customers for sates and services. The City also recogniics new account charges, late fees and contributions from other agencies as operating revenues, Operating expenses li.»T enterprise and internal service funds inclade the cost of sates and services, general and administrative expenses, ^KI depreciation on capital assets. Al! revenues and expenses not meeting this defiflttion are reported as nonoperating revenues and expenses. When both restrictetl and luiresfricted resources are available for use, it is tl»e City's policy to use restricted resources first, then unrestricted resources as they are needed. 61 CITY OF CA RLSBA 1> Nutes to the Fliiaticial Statements Note 1. Summary of Sigttjficant At;p»»ijtii^ PolicifS (Gii>H|ln»»e<(| Cash and investinents Cash iacludes amounts in demand and time deposits. !n%'estments are rept-srted in tfe accompanying halance sheet at fair value, except fos certain certifii.-a(es of <lepK>sit and investment contracts that are reported at cost because they are mK transferable and they fiave terms that are not affected by changes in market interest r^es Changes in tair value that occur during a fiscal year are recognized as incotise from prttperty and investments reported for tisat fiscat year. Income from property and investntents tnciitdes interest earnings; changes in fair value; any gains or losses realized lipon the liquidaiios, maturity, or sale uf investtnents; pro(«rty rentals and the sale of City owned property. T\K City pools cash and investments of al! ftinds, except for assets held by fiscal agents. Kach fund's share in this poo! is dj.splayed in the accompanying financial statensetits as cash and in%-estinents. investtnetrt income earned by tl»e poofed investtsienti is alhx-ated to the various funds on a t?wnthiy basis, hasexl on each fund's average cash and investments balance. Restricted cash and investnwnts represent araoimts that Me restricted mnder the terms of debt agreements. Jnvsnt«>ries fnventorie.s consist of tnaterials and supplies that are valued at cost and are recotiJed a$ expenses or expenditures on a first- in, first-oul basis when consuniedi. Compensated absences Compensated absences are comprised of vacation payable for all City employees and vested sick benefits for certain fotmer District employees. Vacation pay is payable to employees at the time used or upon termination of employment. For governmental funds, the cost of accumulated vacation expected to be paid in the next 12 months is recorded as a liability in the Self Insured Benefits Special Revenue Fiind. For compensate*} absences recorded at June 30, 2006, all balances are expectai to be paid within the following 12 nK>nths. For proprietary funds, the cost of vacation is recorded as a liability when earned. Risk management The City accounts for its general liability, a portion of its health insutance, artd workers' coiispensation activities in intenia! service funds. The funds are responsible for collecting premiaa»s from odier City funds and departments and paying chums settlements and insurance premiums, Interfund plemil!m^ are based on the tn.'surcd fund's claims expenence Inetirred but not reported claims are acciued al year-end, if matetiaf. Unbilled .services Unbilled water reveisue of die enteiprise fands is recognized as eanied when the water is consumcii. Capital assets Capital assets, which include load, buildings, eqajpment and infrastructure assets (e.g., roads, bridges, traffic signals, water and sewer s>'Stems, and similar items), are repotted in tlie applicable govemjnenlai or tKisiiiess-type activities columns in the Govemiiftent-wide Financial Statements. Capital as.sets are defined by the City as assets with an iaitiaj, itHJividual cost of more than $10,tXiO and an estimated usefttl life in exces-S of one year. Such a«ets ar« recorded al historical cost or estimated historical cost if ptjfchased or constructed. Donated capital assets arc recorded at estimated fair tnarScel value at ihe date of donation. •Rje cost of noriiMi tnaintenaace and repairs tbat do not add to the value of M asset or materially extend an asset's useful life are not capitalized. Construction in progress costs are transfened So their respective fixed a.sset category upon completion. CITY OF CARLSBAD fioUs to tli« Flnaocift) Sfatem«nte 10- 20- 3- 10- 50 -50 •50 -20 -100 N(jt« t. I^mtnary of Significant Accounting Pottcies (Continued) Depreciaiion is charged to operations using the siraight-Iinc method based on the estimated useful life of an asset. The esttraated useful lives of depreciable assets are as follows: Year;; Buildings and other structnres Improveinents other than tKiildings Macliinery and eqtiipttjent Infrastnwture Sewage treatment facility "Ote City has capitalized ail general infrasfarticture assets acquired or eoastrucfed in compliance with GASB MiMdfluttte 30, 2006. In adWiticm the land upon which the streets and roads are constnicted {right-of-way) has also beett vafafd atfd: capitalized as of June 210, 2006. Deferred revenue Ttse deferred revenue repotted in the City's financial statements represents money received during the cuirent or previous fiscal years that has not been earned by, or is not avaijabte to, the City as of the end of tiie fiscal year. These monies will be recognized as revefiues in subseqtKnt fiscal years, once the revenue has been eamed or becomes available. interfuad Transactions Activity between ftinds tfial are. repre-scnttative of leadingflborrowiag aiTangements outstMding at tte end of the fiscal year are referred to as either "due to/from other funds" {short-term interfund ioansli or "advances to/fron* other funds" flong- tenn tnterfimd loans). Any residual balances outstaiKting between the govemmenial activities and bustrsess-typc activities are reported in the Govemjwnt-wide Financial Statetitents as "internal halaMes.'" Advances between fund.s, as reported in the Fund Financial Statements, are offset by a fund balatKre reserve account in the applicable governmental fund lo indicate that ths;y are not available for apprtspriation and are not expendable available financial resources. : jReceivayeSi'aiid i»ajf#fe AH trade, service and tax receivables are shown t>et of an allowance foi uncoliectiWes. TIK uiittiy billing receivable allowance is equal to 1% of outstaBding billing.s at June 30, 2006, the ambulance billing rcoeivabte altowance is equal to 40% of oatstanding bilKtsgs at June 30, 2006, and the trade mtd false alarro receivable allowance is equal to the total of all oiitstaiiding receivables that are over W days past due plas 30% of all remaining balances. The only exception to these rates are receivables that were subsequently paid or were known to be collectible at year-end, were not reserved for at June 30, 2006. Kmxtmhrancts Etscamfarance accounting, under which purchase orders, contracts and other conimittnents for the ex|)«a«iiture of tturaies are recorded in order to reserve that portion of the ^plicable appropriation, is employed as an extension of formal t^dgetary integration in the governmental funds. Unexpended and uaencBtnbered apprc^iiatians lapse at fiscal y^ear-end otiless City Council tAkes action is the form of a resolution ta continue the appropriation into the following fiscal yesa. EncuKibrances at year end are a portion of the reserved fund balance and arc reapproptiated the following ye^. Net Assets Net assets represent the differences between assets and liabilities. Net assets invested in e^tal assets, net of related debt, consist of capital assets, net of accumulated deprecialiim. reduced by the <»itstand!t»g balances of any bontjwings, used for the acquisition, construction or improvement of those assets. Net assets invested in capital assets, set of related debt, excludes unspent debt pn>ceeds. Net assets are reported as restricted when there are limitations imposed on tlieir u.se either through the enabling legislation adk^ted by the City or througli external restrictions imposed by creditors, grantors or laws or regulations of oUier govemmcnt.'ii. The City first applies restricted res«.Mnces when an expense is inctirresd for purposes for which both restricted and unrestricted net assets are available. 63 Hf ies tiii> tlie Financial Stateroents ISjete ii Suaimary of Sii«ificant Accounting Piriiides (Continued) Csssh flows Statements of cash flows are presented for proprietary fund types. Cash and cash equivale»its i«clatle all unrestricted and restricted highly li^aid investments with origirsal p«»rchase maturities of three nnonths «r less. Pooled cash and ti}%'cstmenis in the t'ity's Treasury represent tis>o»les in a cash managemenl pool smd such accounts are simikr in nature to demand deposits. In the Govertin^nt-wide Finascial Statements, aiid prc^rictary fund tjpes in the Fund Financial Statements, long-term deirt and other long-term obligations are reported as iiabiiitses in the aj^ticabk governmental activities, busitiess-type activities, or proprietary fund type Statemeat of Net Assets. Bond premiums, discounts, and issuance costs are deferred and amortized over the life of the bonds using the effective interest method, lk»Hds payable are reporter} net of the applicable bond premiuttj or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the relaied debt. In the F«»d Financial Siateraents. goveramental fond types recognize bond prenuuias, discounts, and issuance costs daring the current period. The face amount of debt issued is reported as olher finatjcing sources. Ptetrtsuirss received on debt Issuaaces are reported as other financing soarces while disco«Bts on debt issuances are reportetl as other financing uses. Issaaiice costs, whether or not withheld from the actual det^ proceeds received, are reported as debt .service CKpenditxties. Fund equity In the Futvd Financiai Statements, governrtjerttal funds report reservations of fund balance for amounts that are not available for appropriation or ate legally restricted by outside parties for use for a specific purpose. fJesignations of fund balance represent tentative man^ement plans, and are subject t»change. Pranouncenieiits is^ised, not yet eiTeeti^'He Tlie GASB has issued several prononncements that have effective dates that may impact future financial presentations. Managefm^nt has not currently dctcrmhied what, if any. impact iniplemcntation of tlie foliowing statettieats may have cm the financial statetnessts of the City. • GASB Statement No. 45, Accounting and Fmancial Reparrin^ by Empioyen for Poxtemphyment Benefits Other Than Penuonn. • GASB Statement No. 48, Sides ami Pledges of Receivahies and Future Rt;vemws and Infra-Equity Tnmsjerg of Assets and Future Hf venues. Not« Z. Budgetary Data The City ftdlows these procedures in esta|lisyag itsifeadgefaryJsta: • During May or Juae, the City Manager sabrtBts to the City Council a proposed operating and capital budget for the fiscal year cotnniencing the following July I, The budget includeis estimated tevosues and proposed expeaditures on a dep^fmental andfor project basis. • Public hearings are canducted at City Council meetings to obtain citizens' coraments during June. » Prior to Jssty I, the bttdget is enacted legally through passage of an apjwopriatioa resolatjtHt. ^m- CITY OF CARLSBAD Notes to the FinandaJ Statements Note 2. Budgetary Data (Continued) Tlie City Manager is authorized to make transfers of af^ropriaied amoants from one d^artment to another witttin a fund. The legal level of budgetary control is at the fwnd level. Revisions that alter the total ^propriatioiss of any fund must he approved by the City Coasncil wirfs the exception of budget adjtistments that involve off.'ieaing revenues and expenditures. The City Manager is aathorixed to increase or decrease an ^projMlation for a specific }>urposc where the a^)ropriation is offset by unbndgeted revenue, which is designated for said specific parptjse. Monthly re.parts are provided to the City Council during the year, and any changes to the adopted budget are approved by tte City CsMtn-cil as necessary. During the year, several supplementary appropriations were necessary. Budgets for govemin«jtal type funds are adopted on the modified accrual basis except that enctHnbrasces arc treated as budgeted expenditures in the year fwrchases arc committed. Expaiditures nsay not exceed budgeted apprnpriations at the ftmd level. Ail appropriations lapse at fiscal year-end tififess City Council takes action in the form of a resolutism to oominue the appropriation into tlie following fiscal year. R)T purposes of budgetary presentation, actual revenues have been adjusted to exclude unrealized gains and losses pursuant to GASB 31, actual expenditures ha\e been adjusted to inchjde encumbrances outstanding, and transfers otu have been adjusted to reflect any transfer that vi?as appn^ved tlirough the budget process as an expenditure but recorded as an advance is the financial statements. Annual budgets are adopted for the General Fund, special revenue ftinds except for the Tyler Court Apartments Fund, and debt s^-vice funds except for the Hosp Gro%'e COPs. Accordingly, the revenues and expenditures for these two funds have been excluded frons the budget basis financial .statements. Annual i>perating budgeui are not adopted for the capital projects funds; therefore, tedget basis fitiaacial siatensiHts have not been prepared because a comparison of such budgetary amounts to annual revenues and expenditures is not meaningful. %te$.. . B^iieisil 8»tj limis^eM Cash resources of the individual funds are combined to fomi a pool of cash and investments. The City maintains a forma! investn^em policy, which is reviewed by the Investmem Committee and adopted annually by the City Council. All investrt^nts held in the Treasurer's Pool are consistent with the City's iavestment policy objectives of safety of principal, adequacy of Ittjuidity, and achievetnent of an average mafket rate of return. The risk disclosures below apply to the City's internal investment pool. Portfolio investments are exposed to five types of risk: custodial Onvestments and cash deposits); concentration; default; event; and market or interest rate risk. The City of Carlsbad and its agencies invest funds in an external investtnent pool known as the Local Area Investtnent Fund (LAIF). Management and oversight are the resj^wisibility of the Caiifo«iia State Tr^siuer. As of June 30, 2006, the LAIF perfonnance report shows a fair value factor of .998185821. The City of Carlsbad's position in the LAIF pool is calculated as a percentage of the fair value of die City's shares to the fair value of the pookd shares, InvestiTventi; held outside the Treasurer's Pool consist mainly of retpired reserve funds for various kKxai issues. Tbsy are held by trustees, and are not available for the City's general expenditures. m CITY OF CARLSBAD Notes U} Ihe Financial Statements Note 3. Depoidt and Investment Risk (Continued) As of June 30, 2006 the City had the foliowing investments in its pwtfolio: Treasurer's Pool investments U.S. agencies: Federal Home Loan Mongage Corporation Federal Home LOM Bank Federal National Moitgage Association Federal Farm Credit Bank Subtotal U.S. agencies Corporate notes: Medimji-term corporate notes ComnierciaJ paper Sobtotal corporate m>tes LAIF Cash accounts Total Treasurer's P<x>t investments held outside the Treasurer's Pool Debt Service funds/bond proceeds Otlier deposits Petty cash fuftds Total cash aijd investments Statement of Net Assets, Mrnai->- Goveminent Cash and investments Restricted cash wad investments Statement of fiduciary Assets and Liabilities, Ageiu-y Funds Cash atsd inves«ne«ts Restricted cash and investirseBts TolaJ ca^h and investments Fair Market Value $ 154,006,457 17.1.993,.U()i 101,572,403 5.873,73} 435,445,931 51,334,928 - 51,334,928 16.736.038 2.742,727 506,259,624 28,657,669 534,030 6,315 $ 535,457,638 S 502,593,121 1,613.206 24,359,656 6.891,655 $ 535.457,638 %of Total 30.4% 34.4% 20.1% 1.2% 86.l'/f' 10.1% 0.0% 10.1% 3,3% 0.5% 100.0% Modified Duration 2,478 1.837 2.246 2.123 2.163 1.864 - 1.864 - - 2.022 Custodial credit risk {investmentsl TTte City uses Uaion Bank of California <UBC> as a third-parly custody and safekeeping service for its investrnent seeariiies. Custodial credit risk is tlie risk that the Oty vtfill not be able to recover the value of its investments in the event of a UBC failure. All City investments hcW in custody and safekeeping by IJBC are held in the name of the City and are segregated from securities owned by Use bank, lias is the lowest ievel of custodial credit risk exposare. Cusiodia! eredit risk (deposits) The City maintains cash accounts at Wells Fargo Bank (WFB} and UBC. At the conclusion of each business day, fealaices ill these acctmats are "swept" into overaight pooled investmests, which are pooled into funds collateralized with U.S. goveniment securities (gijaranteed) or U.S. agescy securities (govemniojt sponsored). Tlte Califotnia Code aeihorizes fcoth i>f these types of investments. A small amount of cash is not swept from the WFB checking accounts to cover checks that may be presented for payinent. Amounts up to $100,000 are Federal Deposit Insurance Cojpioration (FDIC) insured. CITY OF CARLSBAD Notes- to tiie Financial Statement ^ Note 3. Deposit and Iti^'estnienl Risk (CctntinBed) CortcentratiOB credit risk is the heightenedl risk of potential !o&s w3ie» investmeriits are conc^Jtrated irt one issuer. The California state code reqaires that total ttsvestnients in mediiim-term co!|>onite notes of all issuers not exceed 30% of the poitfofio. As of June 30, 2006, approxii«ateiy WX- of the City's total portfolio investments, based on cost, were in mediunvterHj corporate notes. I^r concentration of investments in any one isstjer, tfie City's tavesanent Policy requires that no more than 5% of invesfrrtents in corporate msotes be in any one hmei. There is no similar requirement in either the .state code or ti-ie City's Investment BoHcy foT U.S. agencies. As of June 30,2006, the portfolio was in compliance with this rcquifeawant. DefauU eredit risk Default credit risk is the risk Aat the issuer of the security does not pay either the inierest or principal when due. Debts of rjK*st LLS, agencies are not backed by the full faith and credit of the federal government; however, because the agencies are U.S. (iovemment-sponsored, (hey carry AAA credit ratings. The default credit risk of these invKstnjents is niiniiMl. California state code limits investraents in nsedjmn-term corporate notes to the top three credit ratings (AAA, AA, and A), It is the City's policy, however, to iioHt investments to the top two credit ratings {AAA awl AA). As of June 30, 2006, approximately 2% of the ittvesSiHeats in medium-term corporate notes did not have oac of the.sc two credit rating*; however, these investments liad credit ratings of at least an A rating. All of these invesanents were nrade when the credit ratings were either AAA or AA. California sutte code and the City's Invcsmtent Policy alk** the City Treasurer to determine the course of action to correct exceptions to ilte Policy. It is the intent of the City Treasurer to hold the,se investtuents in the portfolio until matarity unless events indicate ihey should be sold. The default cxeiMt risk for corporate notes with a credit rating of single A is lower than U.S. federal agencies, but is considered by the City Treasurer to be within acceptable limits for fwrposes «f holding to maturity. A credit rating of single A is within State code requirements. The Local Agency Investment Fund <LAIF) is an externa! investment p<x>i managed by the Caiiforaia State Treasurer, Its investments are short-term and follow tte investment resjuiremenls of the State. As of June iO, 2006, the average inatarisy of the LAIF investments was 142 days. L.AIi* is not rated; however, the City Treasurer considers the default credit risk of LAIF til be nunimai. Interest rate risk is tfe risk tftat investments will lose market value because of increases in market interest rates. A rise in market interest rates will cause the market value of invesrments mJKie earlier at lower interest rates to lose vahie. The reverse will cause a gain in market value. As of June 30, 2006, the portfolio had a 1.9% loss In itj^ket vahte. nie Ciiy'.s investment policy has adopted two means of limiting its exposure to market value losses caused by risisig market interest rates: (1) limiting total portfolio iavestments to a maximum modified duration of 2.2, and (2> requiring mattiring iavestments within one year are eq»a! to an amount that is not less tlwn two-thirds of the ctirreast fiscal year's operating budget. The City met ll»se retjairements as folbws: 1. As of Jurie 30,2006, the moditied duration of Ae portfolio was 2.02. Modified duration is a prospective measure of the sensitivity of a fixed-income security's vaJue to changes in maricet rates of interest. Modified duration identifies the potential gain/tes in value before it actually occurs. Far example, a modified duratiosi of 1.5 indicates that when and if a 1% change in market interest rates ticcwrs, a 13% change in tlie security's value will result. Jnvestrraents with modified durations of one to three are considered to be relatively coisservative. 2. As of June .W, 2{X)6, maturities within one year exce^ed the reqaired minimum of $106,000,000 (two-thirds of carrent year operating budget for the City per the 2005-06 Operating Budget adopted by the City Council). ^m CITY OF CARLSBAD N«tes to the Finaiicial Stateiwients Not* 4. Due to and from Other Funds Tfie fofiowing tabk shows amounts due from funds within the City to other funds within the City at June 30,2XM36: D«e to Other Fotjds Capital Project Fatids: Grants a»d Other Funds - TDA Grants asd Other Funds - Traffic Congestion Raneho Santa Fe Road Project Sales Tax/TransNet - Local Totals 'Iljesc balances resulted from expenditores being incurred prior to receipt of the related revenue source. Note S. Advances to and from Other Funds Due from Otiier Funds $ $ 136,933 123,468 - - 260,401 $ $ ~ 136,933 123,46« 260,401 The following table shows amounts advanced from govefnmentai funds within the City to other funds within the City af June 30, 2006: Advances From Advances To Aniowttt CieneralFund Genera! Fund Cteneral Fund Speciiji Revenue Fundsi Gas Tax Capital Pidjeets Funds: Getisera! Capital Construction Redevetopinsnt Debt Setvice Funds Financing Distiicts SpecialHevenae Funds Enterprise Funds: GoJfOurse SolW Waste Capital Project Funds: Br^ge and Thoroughfare Dtstritrts Sates Tax/Trans Net Capital Project Funds; Park I>e vetopiTEiU Planned Local IJraaiage FaeBJes $ I4;232,552 630,751 36,894,301 O) 1,224,219 5,643344 1,000,000 2,430,000 420,021 S 60,475,188 Advances to and from other funds arc primarily long term advances used to ftmd capital projects in advance of relate revenues. i I) The advance between the General Fafid and the. Golf Course Fund i.s estimated to be repaid over a 35-40 year period through borvd proceeds, possible disposition of golf course as,sets, and residual operating sncc«ne from golf course opeiXJticMiis. CITYOFCARJLSBAIi Notes to the Ftnandal Statements Note 6. Capital Assets Capital asset activity was as foliows for the j«ar ended Juae 30,2006; GoveniMKnui activities; Capstai assets, not being depreciaited; Construction in prngress Total capital as.st;t.%, not being depredated Capital assets, being depreciated: Buildings Improvefnenis Machitvery and equipment Infrastructure Total capital assets, being depreciated Balartce at jHJy 1,2(K)5 fesiea$#s .©teeases Balance at June 30.2006 $ 124,136,131 $ 4,446,800 $ - $ 128,582.931 72.2Q9,56S 46,938,677 07.777,892) 101.370.353 196,345,699 69,203,460 17,629,241 21,890,701 402,314,322 3l|.03f»7i4 51,385,477 273,175 10,962,982 2,515,666 7,486,577 ilv23S^4Wi (17,777,892) 229,953,284 {318,539) (1.332,949) (72,794) 69.476,635 28.273,684 23,073,418 409,72$. I O.'i (i,i24i2S3) smmmm. jss accumulated depreciation for: Btnldit>gs Improvements Machinery and equipmeat Isfrastructure Tntal accumulated depreciation (14.314,396) (3,264,087) (13,268.461) (98,047,170) (128,894,114) (1.427,900) <737,053) (i.056,057) (10,694.496) 414.915,506) - 72.999 786.612 72,794 932,405 (15J42,296) (3.928,141) (14,5.37,906) i 108,668,872) (142,877,213) Total capital assets being depreciated, net Goveniiiiental activities capita! assets, net 382,143.610 6,322,894 (791,877) 387,674,627 $ 578.489,309 $ 57,708,371 $ (18,569.769) S 6}7,627,911 CITY OF CARLSBAD Notes to the Financiai Stateniente Note 6. Capital Assets {Continued) Baiance at July 1,2005 Increases Decreases Balance at June 30, 2006 Business-type activities: C'^ital assets, not feeing depreciated: Land Coastructtorj in progress 8,663,600 % - $ - $ S.663,f^0 40,328,185 42,098,354 (5,513,986) 76,912,553 Total capita! assets, not being dcpreciaJedi Capital assets, being depreciated: Buildings Improvem^its. other th^i buildings Machinery and equipment Ittfrastmcturfi Sewage txeatnwn! facility Total capital a,ssets, being depreciated 48,901,785 16,208.704 5,556,571 U35,443 159,709,825 40,318,093 223,328,636 4209b,354 740,028 - 81,267 9,92S,024 2,491,199 13,240.518 <5,513,986) (6,761) - (141.481) - - (148,242) 85,576,153 16,941,971 5.556,571 1,475.229 169,637.849 42,809,292 236.420,912 Less accumulate depreciation for: Buildiags ImprovenicsB Machinery and equiptreent Infrastraciiire Seu'age treaiment facility Total accumuiated deprecjalian (886.70B) (2-136,973) (1,260,623) (36.497,731) (11,360,409) O40.I96) (148.770) <64.018) (3,I67;209) (800,295) 39,3 76 (52,142,444) (4,520.488) (1,226,904) !:2,285,743) (1.265.265) (39.664,940) (1Z1«X704) S9J76 (56,603.556) Total capital assets being depreciated, net 171,186,192 8,720,030 (.88,866) 179,817,356 BusitJe<.«-type activities capital assets, net $ 220,177,977 $ 50,818,384 $ (5,602,852) $ 265,393,509 70 CITY OF CARLSBAD N«tes to the Finatictal Stetenieiits Note 6. Capita! Assets (Ctwitinued) Depreciation expense was charged to functions/programs of ihe prlimary go vein meat as follows; GGvenitnental activities: Geijci^l goveramem Community development Ptiblic saf^y Commanity servjsje^ Public works Capita} assets held by tlie iitteroal service fuatis (charged to various fiuictions based on tiieir asage of the assets) Total depreciation expense - govejitmestat activities Business-tj'pe activities; Sewer Water 538,458 202,621 454,287 1,440,344 10,841.262 mMim:. $ 14,915,506 $ 2,256,075 2,264.413 Total depreciation expense - business-type activities $ 4.520.488 m CITY OF CARLSBAD Nutesi tu the Financial Statements Note?. Accrued Liabilities Accrued liabiliJies were as follows at June 30, 2006: Oovemnie«»tai actlvifies: Genera! Fund Assessment and Other Districts Comjuanity I'adfities District No- 1 Ge«eral Capital Constfuetl&j!; Public Facilities COBS traction Rancho Santa Ve Road Project Other GovoTimentai Funds Subtotals * Internal Service Funds * Retentions Payable Vendors aiKf Miscellaneous $ !,6t5,CX)l 4jm 20,243 689,054 698,747 U935J41 1,016,194 5,979,404 223315 452,249 Salaries and Benefits $2,646,123 •• - - T ^ 66.0U 3.017,030 - WD Payatjk $ 81,746 r > ^. - - - 81,746 - - Refuse Disposal $ r - r, •r *• i ^ - Total $ 4.342,870 4,424 20,243 689.054 698.747 1,935,741 1,082,205 8,773,284 3,242,345 4,52.249 Tolai govemmenta activities Business-type activities: Enterprise funds; Carlsbad Municipal Wafer District Golf Course Sewer Soiid Waste $ 6,656,968 $5,729,164 $ 81.746 $ 1,966,289 3.131,106 242,452 100,838 S 450,298 $ 74,796 44,814 $ 12.467,878 270,472 $ 2,416,587 3.131.106 317,248 416,124 Total business-!)^ aetiviSes $ 5,440,685 $ 569.908 $ 270,472 $ 6,281,065 * Internal service funds and retentic^is payable have beeit incladed with governmental activitiess on the Gove*nmetit-wide Stateitieat of Net Assets. 7% CITY OF CARLSBAD Nates to the Finaisciai Statements Notes. Long-term Debt Hie foiowing is a siiimnary of changes in the principal htlawf of loag-fcrtitdebtte ended Jane 30, 2006: Govern mental activities: Bonds Certificates of jparticipation Obligations under eajMtal leases Total governmental activities Busitiess-lype activities: Instalhtietu purchase agreiement Loan payable Less deferred charges Ibtal btssiness fy|)e activities Entity-wide total Pfificipal Balance at June 30.2005 $ 12.460,000 2,740,000 7,366 15,207,366 7,305.000 1,222.599 S,527,599 (497,365) §,030,234 $23,237,600 AddititMis $ '>,493.852 9,493,852 9,493,852 $9,493,852 Reductions $ 395.000 635,000 6,663 1,036,663 575,000 124,071 699,071 (59,922) 639,149 $l,675,8i2 Principal Balarsce at June 30, 201% $ 12,065,000 2,I05,{»0 703 14,170,703 6,730.000 10,592.380 17,322.380 (437,443) 16,884,937 $31,055,640 Due WfthJtJ One Year $ 420,000 670,000 703 1,0<M),703 605,000 388,382 993,382 (60,494) 932,888 $2,023,591 ^13: CITY OF CARLSBAD Notes t« th« Financial Stateroeats Note 8. Ij«Mig-lerm Debt (Continued) Ijcmg-terrB del>t at June 30, 2006 is comprised &f tte; WfeMingJiss^sl Balaiice at GovemTTgrttai kwg-term debt June 30, 2006 1993 Carlsbad Housing aiid Redeveio^mcnt Commission Ta,x AMocation Bcmds, principal due in amounts ranging from $420,0<K} to $ 1,000.000 on September 1 of eadi year through 2023. iKtercst payable OR March 1 a«d September I at rates varjing from 5.25% to 5.30% per annum. ITieCity posted a surety bond in lieu of cash reserve it! the aoKiunt of $1,055,953, Payable i'mm redcvelopmanl property tax increment revenues. 4< 12,065,000 1997 Hosp Ofove Refunding Certificates of Participatioij, priiKipal due in amounts ranging from $670,000 to $735,000 on August 1 of each year through 2008, interest payable on August I and February I at rates varying from 4.50% to 4.70% per annum. Payabie from the General Fund, with a reqaired reserve anKHint of $639,3<X>. 2 105 000 The City ija*; altered into oite office equiprraent lea.*e:-purchase agreement. As of June 30,2006, the City has purchased copier «quipiiM:nt totaling $5,926. Hie lease term h for 60 aiojsths. with an inieTe.sl tMe of 16.82%. This lease expires in November 2006. Payable from Genera! Fund revenues. 703 Sub-total govenimental kwg-tetni debt 14.170,703 I..es.s; current portion 1,090.703 Total ioag-term portion of govemnaental debt $ 13.080.000 n: CITl' OF CARLSBAD Notes to the Financiai Statemente Note 8. L»ag-term Debt (Continued) Business-t\'}?e long-tetm debt Balance at June 30. 2006 1997 Eneina Financing Joint Powers Authority {EViPA) Installrtiem Purchase Agreement, principal dt»e in varying anK)unts ranging from $605,000 to %905M>0 on August I of each year through 2015, interest payable on February 1 and August ! each year at rates varying from 4.'9Q% (o 5.50^- per annum. Tiie requiied reserve atnouat is $937,169. Payable from sewer user fees. 6i73a.«»;: J 903 Carlsbad Municipal Water Disttict loan agreement with the State Water Re^oua'es Control Board. Principal is due in varying amounLs ranging from $123,222 to $151,5.58 on November 30 of each year tiwough 2013, interest payable on November 30 of each year at 2,90'% per annum. Payabfe fiom recycfed water u.ser fees. 1JM;S28 2{XS5 Carisbad Municipal Water District loan apeenient with the State Water Resources Control Boarsj. Principal is due in varying amount-s ranging from $260,712 to $627,584 on June 1 of each year throagh 2G25, interest payable on June 1 of each year at 2.50% per annum. Payable from recj-cled Vf ater user fees. SubttJtal busitsess-type long-term debt Le&% unamortized discounts, issuance costs and deferred charges Less ciment portion Total Jong-tenn portion of business-type debt 9,493,S52 17,322,380 437,443 993.382 S 15,891.555 The aggregate maturities of long-term debt are as fol!ows: Governmental Activities. Business-type .Activities Year tn6t4 2007 2tX)8 2009 2010 2011 2012-2016 2017-2021 2022-3025 Note 9. fune 30: Rate Covenants Principal 1,090.703 1.140,00) i,2m,(m 490,000 515,0{K) imsfim 3,S80,(»O 2,850,0(» $ 14.170.703 Interest 706.090 632,310 595,182 552,840 526,459 2,tS6,569 1,286,898 231,875 1 6,738,223 Principal 993,3«2 l.lS3,8i7 1,232,937 1,277,427 1,327,294 6,180.075 2,707.469 2,419,979 $ 17,322.380 Interest 743,363 554,490 507,031 458,380 406,925 1,201,798 508.899 :53,il7 1 4,534,003 The 1997 Endna Financing Joint Powers Authority Instaihnent Purchase A^ement (Wastewater Revenue Bonds) require that tile District set its charges for services each year at rates sufficient to produce net revenues {after paying the operaiing ai»d maintenance expenses of the District, excluding depreciation) of at least 1.25 times debt service for that year. 7$; Notes to the Finandai Statcnieats N«te 9. Rate Covenante (Continued) The 2(K)S Carlsbad Maaicipal Water District Umn agreement mih the State Water Resources Control Board reqiiires that the District set its charges fi»" services and rates for fees each 3feat at rates sufficient to produce net revenues (after paying the operating and maintenance exjienses of the District, excluding depreciation) of at least 1.0 tinses debt service for that year. ifj>|ie|tt!: l|<fW'««^wt i^^ As of lane 30, 2006, tlie City has six series of Asscssnsent District Bonds outetandjisg in the anKsant of $73,621,457. These bonds were hsmni under t!ie provisions of the Improvement Bond Acts of 19JI and 1915 and were used to fmaace p«Wic infrastructure improvement projects. The City collects assessments to pay the bond debt. TTiese nu>nies are accounted for in tlje Assess-nient Districts AgeiKy fands. Community Facilities IMstrkt No. 3 As of June 30, 2006, the City has CormtMinity Facilities District No. 3 {CFD #3) Boods outstanding in the amoimt of $11,490,000. These bonds were issued uader the provisions of the Melio-Roos Commtinity Facilities Act of 19B2 and were used to finance paWic infrastructare impravesnent projects. The City collects assessments to pay the bond debt, Tlie.ie iinonies are accounted for in ti>e CFD #3 Agency fund. Mortgage revenue bonds Muitj-Family Housing Revenue Bonds are issued to provide constraction and pemiaiieiit financing to developers of muUi- famiiy residestia! rental projects lueated in the City which will be partially occupied by p^sons of low or nmderate income. The total amount of mortgage revenue bonds outstanding as of Jane 30, 2006 is $4S,477,(XK). TTK; ?5onds, together with interest tliereoti, ate limited obligations of the City payabie solely fwrni bond jsroceeds, revenues and «her amounts derived solely from hoKie mortgage and developer loans secured by first deeds of trust, irrevocable letters of credit, and irrevocable surety bonds. Industrial development bonds The Industrial Development Authority (Authority) of the City has issued .'S3,l?2,.50{) in Industrial r>evelopmen{ Revenue Bonds. Any costs relating to the isitiance of &)c Bonds. a.s well as the principal and interest payments, are lo be paid by the private parly benefiting from the bond issue. In the opinion of City officials, the above bonds are not payable frum any revenues or assets of ti»c City, imii neither the full faith and credit nor the taxing power of the City of Carlsbad, tlie State of Califomia, nor any fvolitical subdivision thereof, is obligated to the paynsent of the princifsal or interest on the bonds. Accordingly, no liability has been recordal in tjie accompanying financial statetivents. 7€ fi CnVOFCARi.SBAO Note!( to the Finaiidal Statements Note 11. Fund Balances The following is a sutiimary of reserved and unreserved bat designated fund bsdsuices a* of Jimc 30,20(^: GovermnentaJ Fwnds Fund BalarsiXS Reserved for; LoMis rcccfvaMe Inventory Piepwi iteriB Defct service Advarsxs to other other funds* Flower fields preservation Library emkiwinejit Low and moderae income bousing &icain*rances Totsds Vm^&etvid: Designaied for approved cs^ital projects Designaied for oominuing ^propriaitonsi Totals Undesigrtated Toti^ fund b^,mces Genera! $ 124,417 19,568 r. - mM*Ms >• •< - 4,573.068 45,131.308 - 13,974,339 13.974,339 47,519,083 $ 106,624,730 Redevdopment I>eibt Service Funds t • - - - ~ • - - - - - - (12,573.446) $(12,573,446) Assesstnent and Other Distrias $ - ^ ^ - ? , - - 7,936 7,936 },320,833 25,B9,87t 26.460.704 - $ 26,4^,640 Conuiwnity Fa«rtteie& Distrk* No- t $ - - - - - - 99,796 99,796 44,897,160 4.544.385 49.441.745 ;r: •$0^iMi; • Only reflects that fiortjon of ftifid balance invested in intsrfand advances (the General Fund amount is net of $12,567,568 in deferred revenue for rneasurabk but unavailable intera,st earned (m .such advaaces). •78 CITY OF CARLSBAD Notes to the FInanciai Staiemests Note 11. Fu nd Bala nces (C!»ntimied> Oovernnientai Punds GeneraJ Cap Ha! Construct KHJ $ - - - %$mjm ^ - - 2.966.44S 5.816.4^ Publk Fatiiit^s Ccaistntction $ - - - - ' ' - 926,220 926,220 Rancho Santa FeRoad l>rojea $ - - - -. - ^ - 2.252.258 2,252,258 Other OovejmnKnial Funds $ 12.988,557 - 332.760 659,500 4,643,344 935,000 251,000 2,142.000 6,945.154 28,897,315 Tota! $ 13,112.974 19,568 332,760 659.500 47,907,620 935,000 251,000 •2,142,000 17,770,880 S.3,131,302 16,507,666 30,654.934 '7,|#^«2 29,878.347 ^$miW* 4,690.584 W^iM^ lOnXGlQ 37,257.409 8.556,693 40,696,166 77,885.660 II5,00«>.062 192,894,722 42,734.453 108.335,024 $52,979,069 $38,183,629 $10,808,95! $112,327,934 $384,361,048 W. CITY OF CAR1.SBAD Notes to die Finandai Siatemettts Nolell. Fund Balances (Coatiaued) Reserves for ioajj receivabtes, inventory, prepaid items and advances to other funds, net of accrued interest recorded as deferred revenue, are established to show that certaits assets are already voninBited to other pmposes and are not available for discretictiary expejnditures. Reserves for defer service represent resources legally restricted to the payment of long-terra debt principal and interest maturing jn future years. Reserves for llower-fieids preservation represent resources set aside to support floricuhare research fw the preservation of the "Hower Fields" located in Carlsbad. Reserves for library endowment represent resotirces set aside to support programs in tiie I>ow Library auditoriiiin. Reserves for encumbrances represent commitnsenss relaeti to anperfornied contracts for services and uadelivered goods. Unreserved-ttiHiesigitated and unrestricted represests the fund balasce <w net assets remaining after reduction for reserved and designated fund baknces or net assets. Note 12. Accumulated Fund Defidts/Negative Net Assets The following funds rq>orted deficits in fuad balances or net as.sets as of June 30,2006: , Deficit Balance Debt Service Funds: Redevelopn^nt Areas $ (12,573,446) lateraal Service Fands: Risk Management (Il;|i4| CITY OF CARLSBAD Notes to the Financial Siatetnents Note IX interfund Transfers Interfund transfers for the year ended June 30, 20tt|> (^wsisMof to foSfcwirig: Riod TVansfers In From Other Funds $ 76,6^ - 3,861,887 «K>.«X) 136,933 7,009,367 55,68? 259,528 633,432 $ 12,633,500 $ $ Transfers C^tTo OtJjer Funds 6,033.432 1,000,000 4,184,941 - - 1.115,127 - - 300,000 12,633,300 Major Funds; General RedevetopiTseat Debt .Service Faids Capital PSroject Funds: Assessment and Other Districts Cieneral Capita! Cotutn»ctto»i RanclKJ Smita Be Road Project Nonmajor Govemnwnial Funds Enterprise Funds, Carlsbad Municipal Water District Enterprise Funds, Sewer Internal Service Funds Totals Trastsfers are used to 0) niove receipts restrteted to del^ service front the funds asllecting the receipts to the debt service fuiKl as debt service payments becotue due, (2) move tl^ remaiiHBg fwnd balances of closed funds to the General Fund, (3> move revenues and expenditures to the appropKriatc funds, and {4S use anrestricted revenues collccte*} in the Gerjeral Fund to finance various programs accounted fiw in other funds in accordance witih budgetary authorizations. WttteMi ^Bisk Management Tt>e City is exposed to varioas risks of loss related to its aerations, including losses associated with etrors and omissions and injuries to employees and members of the public. The City uses a Risk Management Sdlf-Insara»ce Fund, a Self Insured Benefits Fund and a Workers' Compensation Fund (a(} internal s^vjce funds) to account for and finance its artinsured risks of loss. AU funds of the City make payntents based on estimates of the asBounts rjceded to pay JKIOT and current year claims ^}d to establish a reserve few catastrophe losses. Since July 1, 1999, the City has been a member of the CaltftHnia Municipal Excess Liability Program, a group purchase progiat» for general liability coverage. Under this (Hfo^am, the pool provides coverage up to a majdmum of $10,000,000 per occurrence with a self-insured retemion provided by the City in tine aaiount of $500,000. At June 30, 20(fe, the aaencnmbered ftmd equity for the Risk Management Self-tesuraiK« fund was a|>pro!Xitnatcly ($52,000) dtK to the large increase in estimated claims payable reserves in Fiscal Year 2004-05. AlAougb there is currently insnfJicient cash in the fund to pay all dxisttitg ^d anticipated expenditures at June 30,20(^, additkmal cash will be available in the fund to cover the^ ciairtts through 6tt ra^ being charged during the 2006-07 Fiscal Year. The existing deficit will also be addressed throtigh rt)e r^^ set in the 2006-0? annual budget. The City is a defendant in a substantial property damage dmm ressltitsg from the heavy rains tha« occurred in fiscal year 2CXJS. in ^ opinio® of the City's legal cwinsel, this claim is without sutetantial rntwlt and should i«^ lessh in a judgement wbjch would have & n^teriat luiverse effect of the City's Unancial statements. Howev^-, should the t^er party prevail, the City will be financially obligated. It is not possible at this titne to determine the ulti:ame amount, if any, that the City Hiay be i^Hgated for. Dental insurance a>verage for City emploj^ees is administered by CoreSource. Under the City's agteeineal with CoreSource, C(»reSource will pay dental claims for each covered member, tip to a maximum of $1,^)0 per caletMlar year. 81 CITY OF CARI.SBAD Notes U> the Finaiociai Statements Note 14. Risk Mattagentent (Continued) The City is insured for workers' compensation claJras by Costiisenlal Casualty. Cofvtinenlai Casualty piuvides coverage few tosses which exceed ttteCity's self-insured rctentioB of $l,O00,0(K}perciainri. At June 30, 2006, tlie uaeacumbered fund equity for the Wtwfcers' Compensation Self-lnsu.ra»ce fond was approximately $1,212,000. llie estieiaied claims payable reported at June 30, 2006 is based on tJie reqiiirements of Govemmeatal Accounting Standards D(«rd Statement No- 10, which requires that a liaWltty for claims be reported if infonnation prior to the issuance of the fiaancial Matements indicates that it is jH-obabk that a liability has been tncunred an tfie date of Ihe fmrnidal slatem^its and tiie amount of the loss can be reasonably estimated. Settled claims have ntH exceeded insurance coverage in any of the past three fiscal years. Changes in tlie estimated claims payable amounts in Fiscal Year-s 2(X35 and 2006 for the three intereal service fands are as fottows: Claims Self-Insured Benefits fund; 2004-2005 2005-2006 Risk Management fund; 2004-2005 2{K)5-2006 Workers" Compensation fund: 2004-2005 2005-2006 $ $ $ S $ Beginning Balance 77.8^3 78,486 620,678 1,927,843 3,613,777 $ $ % $ $ S Expense and Changes in Estimates 403.965 396.579 1,537,137 <551,^l) {,838,796 934,484 $ $ $ $ $ Claim Pajments (403,342) (397,199) (229,972) (624,142) (1,133,909) (1,250,30) $ $ $ S s $ Ending Balance 7$,4$6 77866 1,927.843 752,020 3,613.777 3,297.948 Note 15. Joint Ventures Enciita Water Pollution Control Fadlities The Encina Water PolUnton Control Facilities (the Facilities) are sewer facilities owned jointly by the Cities of Carlsbad, Vista and Encinitas and the Leaeadia County Water District, Uie B«ena Vista Sanitation District and the Vallecitos WMer District, Tlte Encina Wastewater Authority (EWA) is a joint powers authority established to operate and administer the facilities. It is responsible for tfie management, maintenance and operations of the joint system. Ownership interests in the faciKtks are detetmined by joint agreement at tlse time tihe asseis ans acquired. As of June 30, 2006. the Cities sad Districts have the following apjwoximate ownership interest: City of Carlsbad IS* City trf Vista 12^ Leucadia Wastewater District 2Q%- Vallecitos Water District 2ftii Buena SsmitatSon District 8% City <# Encinitas 5% EWA's financial statements for the fiscal year ended June 30, 2005 (the latest available) incoiporated dte provisions of OASB 34 and reflect the fdllowing: Total assets TotaJ Itafoiliiles Net assets 66,487,445 3,649,739 62,837,706 Ihe EWA does i»ot recognize net income or loss. Net c^peradng expenditures in excess of users' assessm^its are treated as accounts receivable on EWA's books and charged to «se!^' accounts in the following year. Conversely, users' m CITY OV CARLSBAD Notes io Oie Finusncial Sisteinente Note 15. Joint Ventures iContinued) assessnients ie excess of net operating expenditures are treated as a liability and credited against users' accounts, also in the following ytar. Under this basis, set operating income for the EWA totaled $12,088 in Fiscal Year 2005. The financial statements of the EWA can be obtained at 6200 Avenida Encinas, Cartsb^, California 92011 or at www.encin3jpa.com. Enriiia Financing Joint Powers Authority The Encina Financing .Foint Powers Authority (the Authority) was created on February 1, 1989 between the City of Carlsbad Carlsbad), the City of Vista (Vtsla), the Buena Vista Sanitation District {Buena) and the Leucadia County Water District (Leticadia). The primary purpose of the Authority is to issue revenue bonds in ordet to finance the expansion of the Rjcllily. Tlie Authority is governed by a Board of Directors, which consists of one director appointed by estch member. The financial statements of the Authwity can be obtained at the City of Carlsbad's Finance departnjenl. in August 19S9. tJie Authority issued $33,500,000 of revenue bonds and executed instaltaient parchase agreements for approximately the same ariKHtnt. In Fd)ruary 1997, botids were issued fay the Authority to refinance and defease the OHtstamliag bonds. Two of the members (Buetja and Vista) defeased their 1989 obligations through available funds; white Casflsbad as»d Ixncadia refinanced their obligations. Repayment of the bonds will be accomplished through payments made by Carlsbad and Ixucadia iHsrsuasst to the new installment purchase agreements. The individual agreements set forth the purchase price and specify the debt service reqairenients for each member. The following is a table of the outstanding balance owed as of June 30.2006; Agt«cmcnt Member Balance City of Carlsbad $ 6,730,000 Leucatiia Wastewater District 4,590,000 $ 11,320,000 The installnieflt balances are secured by a pledge of the revenues from each nKsmljei's wastewater systejii, net of a deduction tm Miaintenance at»d operating costs. Significant covenants within the agreements require the members to maiatain insutrwjce on the facility, and establish wastewater rates which are sufficient to pay the operating costs and debt service on the bofKls aivd which will result ia siet revenues equal to at least 1,23 times the annual installment payments due. The Oty's share isi the accounts of the Authority is recorded in the Sewer Enterprise Fund, The expansion of the Facility is shown as a capital asset of the Sewer Kiiterpfise Rind. Mote t& Retirvnieitt Plan Plan description The City of Cstflsbad contributes to the Califon^ia Public Employees' Retirement System (PERS), an agent tmiltiple- employer public employee defined benefit pensi<H5 plan. PERS provides retirerreint and disability benefits, annual cost-of- living adjustments, and death benefits to plan nwmbers and beneficiaries. PERS ac*s as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions, and all otter reqairemeaSs, are established by state statates and city wdjnances. Copies of PERS* annual financial ttpart may be obtained from their exccotive office: Lincoln Plaza, 400 P Street, Sacramento, California 95814. Funding polky Participants are required to contribute B% (9% for safety employees) of their annual covered salary. The City makes 7% of the required 8% contrilmtions for non-safety empioyess, and 8% of the required 9% contributions for the City's safety employees. Tlie City is required to contribute at an actuarially determined rate. For the year ended June 30, 2006, the employer contribution rate for tlw City of Carlsbad i!as a percentage of covered payroll) was 27.927% for safely employees ;i83l^ CITY OF CARLSBAD Notes to Ihe Financial Statements Note m. Retirement Plan (Coatiaued) and 20.869% for miscellaneous employees. Use contribution requirements of plan mensbers and the City are established by PERS. In October 2006, t!ie City was notified by HSRS that the employer contribution rate for the City of Carlsbad (as a percentage trf payroil) will be 28.462% fw safety employees and 20.478% for niiscellafteous en^Joyees k« the fiscal year ended Juae 30, 2<K)8. Annual f»ens!an cost For Fiscal Year 2005-1^, the City's annaai pension cost (employer contriNjtion) of $4,152,149 for safety and $5,667,848 for miscellaneous to PERS was e<|ua! to the City's required and Mrtual cotitributi^ms. For Fi.scai Year 2005-06, ftc member contributions paid by the City and sis employees were $l,377,S83 for safety and $2,254,137 for HHscellaneotts. Tlie required contributitMs was determined as part of the June 30, 2003, aciuarial valuation using the entry age nonna! iKtoaria! cost ttjethod, lite actu^ai assumptions iiscladcd (a) 7.75% investment rate of return (net of administrative expenses), (b) projected annual salary iiicrease,s of 3.25*% to 14,43% dt^ending on age, service and type of empioytiaent, (c) 3.0% inflation factor, (d) payroll growth of 3.25%, aiid (e) individual salary growth that utilizes a merit scale varying by duration of etnploya«:nt coupled witfi an assum«sd anaual Inflaticm growth of 3.0% and an annual production growth of 0.25%. Initial anfunded liabilities are aKK>rti2esd over a closed period that depend-s cm the plan's date of entry into CalPERS. Subsequent plan amendmems are an»rtized a,s a level percentage of pay over a closed 20-year period. Gains and losses Hiat occar in the operaticsj of the plan are MntKtized over a rolling period, which results in an amortization of about 6% of unaniortized gains and losses each year. If the plan's accrued liability exceeds Ihe actaarial value of plats ^sets, then the amortization payment on the lotaj unfunded liability may not be lower than the payment calculated over a 30 year amortization period. Three-year trend information for PERS (safety) Fiscal Year Ending Annual Pension Cost (Emploj-er ContrilHHion) Percentage of Arc Contributed Net Pension Ofoligaiioa 6/30/05 mome % 1,704,651 $ 3.917,550 .$ 4,152,149 I00«- 100%: 100% Three-year trend information for PERS ((mi^eellaneons) Fiscal Year Eliding Annual Petiston Cost (Employer Contiibotion) Percentage <»f APC Ccwtributed Net Pension Obligation mom 6/30/05 6/30/06 579,190 3,112,596 5.667,848 100* 100^. CITY OF CARLSBAD Notes to the Fiaa»dal Statements Note 16« Retirement Plan (Continued) Required sui^ptetnentary iRformatioit Funded status of plan (safety) ValuatioB Date mom 6/30/04 mmis $ $ s Entry Age Normal Accrued Liability 99,827,853 110,306,847 123,237,518 $ $ $ Actuarial Value of Assets 85,963,105 92.529,369 102.021,173 Unfunded LialnUty/ (Excess Assets) $ 13,864,748 $ 17,777,478 $ 21,216,345 Funded St^us 86.1% 83.9% 82.8% $ $ $ Annual Covfwed Payroll 12,709,908 13382,181 14,303,227 UAAL Asa% of Payroll 109.1% 132.8% 148.3% Funded status of f^jin (niiscdlaneoas) V^dtiation Date 6/30/03 6mm4 6/30/05 5 S $ Entry Age Normal Accrued Liability 121,455,280 132,074,893 149,626,87? $ $ $ Actuarial Value of Assets 98,339,566 105,423.856 117,576,007 Unfunded Liability/ (Excess Assets) $ 23,11-5,714 $ 26,651,037 $ 32,050,870 Funded Status 81.0% 79.8% 78.6% S $ $ Aatiual Covared Payroll 25,059,422 26.476,671 26.688,294 UAAL As.a% of Payroll 92.2% 100.7% 120. i% Note 17. f^te-etirenteiit Meaitheare The majority of City of Carlsbad ctnployees are under the City of Carlsbad defined contribution plim. The Carlsbad Municipal Water CHstrict has a defined benefit plan. Carbbad Municipal Water IHstrict The first plan is for active md retired emptoyees that were enjoyed with the Carlsbad Municipal Water District (CMWD) at the time ifce District was acquired hy the City. Per Resolutioii 614, all former employees of CMWD (iiKludlttg depe«det»ts) are eligible for postrctifetnent health care benefits if they voluntarily retire after tlie n^e of 50, witii no less tfian five years of service and wfK>se ags, combined wifti years of service, equals 70 or ivme. There are ^proximately eieveu active and thirteen retired plan members as of June 30,2006. tl» City pays for 100% of the premiutns for health insurance which is coofdinated with Medicare ai^ otter tenefits pxjvided by federal and state law, vdtei available, to tte extent it reduces the cost of insur^»ce premiuins. This plau b ad»»nistered by flie Association of Califeroia Water Agencies (ACWA), Expenditures were approximately ,$103,CX)0 fm post-relireroeBt heahh care costs during Fiscal Year 2005-06. Based oa au actuarial vali»at«Hi perf<xnwd as (rf June 30, ^506, the District's liability for the cunreot and past service costs <rf these benefits is aj^Jiwxita^ely $2,821,000. City of Carlsbad City of CarlslwKl rMirees are eligible for a postrettnemcat healthcare subsidy, Tlus plan is admitsistered by the Public Empk>^«s Retireiaeat System <reRS}. There are aj^roximately 6M)» active and 93 retired plan nwmbers as of Juue 30, :^0O6. Surviving spouses of digible retirees ««« eligible for ite Qty subsidy. Surviving spouses/domestic paruiers of deceased active members are eligible for IIK City subsidy only if tfee eiK^jtoyee had attained age 50 with five yeai^ of service. m CITY OF CARLSBAD Notes to th« Fiaaadal Statements Note 17, PiKstretirement Healthcare (Continued) The City pays a usonthly subsidy per ehgible employee/retiree regardliess of covefa^ elected; Calendar year 2006 $64,60 Calendar year 2007 $80.80 Calendar year 2{K)8 $97.90 Thereafter, the subsidy is adjusted anmially to reflect cliuMiges in the medical cowipoaent of the Comamer Price Index, ExpcndiSares for postretiretaent health caie benefits are funded on a pay-as-you-go basis. Expenditures were approximateiy $63,000 for City subsidy paynwnts during Fiscal Year 2005-06, Based on an actuarial valuation perfcwnfied as of June 30. 2006, the City's liability for the current and past service costs of these benefits is ^proximately n,T7!,000. TTie GASB recently Issued Statwnent No. 45 to address the accounting and disclosure br^atment for this type of plan. Effective witfi the fiscal year e«ding June 30, 2008, tlte City wilt be required to recogniyje postretireiBent health care cosfe on an accrual basis over a period approximating the employees' ye^ffs of service, and to provide information ab<mt actuarial liabilities associated with these benefits, and whether and to what extent progress is being made in funding tte plan. Operating lease In June 1988, dus Carlsbad Recfevetopment Agency entered into an agreerreent ta lease a parking ic« on State Street from a private party. Hie lease requires nsonthly rental payments, adjusted annuMly based upon an increase in the cwisumer price index, not to e,Kceed 6% of the previous year's rents, and re-adjusted in ycsffs 10 and 15 based upon market rental values, through August 2007. Current fiscal year lease payinents totaled $88,720. Minimum fniurc rental payments under the operjtting lease as of Jaae 30.2006 are: WOff 94,044 Wm 15,674 T0^i*aairftuiJf«WrefWialpj»3?ttfents $ 109,718 On March 25, 1991, die Carlsbad Mimicipai Water District (CMVVD) entered iato vt twenty >«ar ^reeinent with the Leueadia Coroly Water District, to purchase recycled water to be usaj primarily for irrigation at the La Costa Resort & Spa golf tx>arse, and fcff other aj^topriate uses widiin the CWWD'is boundaries. CMWD agreed to purchase of HMnimam of 394 acre feet of recycled water per fiscal year, at a basic price of retail potable water charged to residential usere within the CMWD bouudary. Tlie current cost is $688.25 per acre foot or a mininiam of $271,170.50 per fiscal year, regardless of the actual aittcrant used. On August 5, 2003, CMWD entered into a twenty-two year agreen^nt with the VaJtecitos Water IMstrict, to purchi^e three nallion gallons per day (3,360 acre feet) of recycled water few: ases throaghout CMWD's h«M»ndaries. The agreen^at stipaiates that CMWD pay f<» the actual operating costs of tlw Mabr Reservoir, which produces rtie water, since CMWD is the CHJIy custonKr of ti«; wa*er produced. The cstimatwl operating costs fca the period ended June 30,2006 is $640,(K>0. m CITY OF CARLSBAD Notes to the Financial Statements Note 19. Change in Accounting Principle Effective Jiiiy 1, 2005, tfie City capitalized all general iiifra^itructure assets acquired prior to July !, 200! in the Stateroent of Net Assets, in accordance with GASB 34. Thw cumulative effect of this change in aceouiuing principle upon tlie beginning net assets balance of govcmmsMital activities is as follows: Govern mental Activities Net assets at July 1.2003 $ 738,09943i CapitaJizanon of all genwaj infrastructure assets acquired prim to July 1, 2001 221.709.779 Net assets at July 1,2005, as restated $..agl»^eg^lO m^ SUPPLEMENTARY INFORMATION ClTYOFCARl-SBAD Cnflabitting Balance Sheet Nei)inaj««* Coveromenlal Funds Jime 30,23e« Special Reveiw« Funds ASSETS Cash and Snvestmentii Receivables; Taxes Other Ac«»i«u&, net thie from other funds Due from otfKar govitnuxnts Prej^jd aeriK Restncted assets, cash a»d investments lAsaa rccdvabfcs AdviBices to mh» fBTids Totai assets LIABILiTtKS ANIJ l-XJND BALANCKJ Lfe*iljities: Due to <Xha fui»}s Dqposiis payaMe AJvaaces (tam otfser faiuls Deferred Kvenue Affradabte C<maismny Dev^o^iment Donations and Finaitcing Block Gtani Endowmanis Distr i<:*s 10,175 a,015 9,494 295,407 10,001,933 16,232 224,404 Tax $ ii,2i».014 $ 18,S42 $ !.734,312 S2,697.640 S .1,711,247 4.643.344 $ 21.506,354 $ 259,198 $ 1.744.487 $2.718.149 $10.354,591 12,677 S 34,?94 $ 21,753 $ 92,068 $ 6,934 630,75 S Total BabiBties Fuiui balances: Reserved fw: LiaaftSfeceJv^^ Prcfjaid items De(H service AdvMtoes m crtber funds Hower ffekJs (wcsorvation Library esdowsn^it Low an<J moder a*e iacome housing H«c«»ni«r«iiK-es UnresiTved: Designated fca- approved capital parojects Oei^gnated tot contit^tuittg a{!{)ro|matkms Undesign^ed Total tmad balances Tobtl li^ffiiils and font} lid|3Be«$ 12.677 10.001,933 - - - - - 1,932,000 25,SI0 - - 9,533,934 21,493,677 $ 21,506354 : 34.794 224,4W: ,-: - - - - l(iB,956 - - (I(«,9.'i6> 224404 5 359,1^ 2l,7."i3 -: - - - §35,000 2Si sm - 21,431 - 172,401 342,902 },722.734 S !.744,487 722,819 •-: - ••. - - - - 131,506 - • 1,863,824 1,995330 $2,718,149 6,934 T - - 4,643,344 - - ' 364.450 1,269,574 4,870,289 - 10,347 j657 $ 10,354,595 m Habitat and Agticttltwa! Maisageinent S 7,04!,SI5 • ' Low and McxJeraie Housing $ 3.163,802 37,222 36S •••*• Other Special Revenue Funds $t.2iO,814 ' - Police Grants and Asset Fcofetture $ 715,830 - - Seclkjii 8 Rcnntaf Assistance S 92,767 n,7(B 332.7IIKJ T>fcT Court Apartnaents $ 1.016.066 ^ ' Totals $ 34,611,549 37J22 11,383 32.372 311,659 332,760 2,762.2^ $ 7.04t,5t5 $ 5.963,612 $l,2iO,Sl4 12,988,557 4,643,344 71.1^30 $ 438,23G $1,016,066 $ 52,%a,846 3,854 $ 7.488 ,$•:. 3,854 27.831 $ 26^33 $ - S 233.632 42.800 21,724 64,524 630,751 27,831 69,033 21,724 928.907 4,669 2J(a,2m 210,000 .5,739 4,762 12,684 7,024,162 7.041.515 $ 74MS315 2.981.799 5,959,758 S 5,963^612 309 1,198,355 i.203,326 Sl,3t(]b,at4 53,553 »,90t 5&3,545 6S7.999 .332,760 2,175 34.262 369,19> 994.342 994,342 }2,988,557 332,760 4,643,344 935,000 251.000 2,142.000 723,051 1.2W,574 4,306,484 24.448,169 52A39,939 715.830 $ 438.?30 $ ljS)|.i6.066 $ 52.96g>g46 H CITYOFCARIJSBAD Ceind>Ieli^ Baiasce Sheet NoEtmajctr Governmental Fnads (CoBttoMedl) Jane 30,200$ ASSETS Cash and investments Taxes Accsouats, net Dtie frata other fuiuls Due from \ytiser ^wmm&nii Prejmki it«»ns Rcstrieuxl assets, cash arai m¥es*ffl8«i {jc^n tecexvatries Advances to other fsnds Total assets LlABILrriES AND PUN0 BALANCES ti^Utties: Accruedi iiabiltties D«etoolterfu«<}s Dqxi^ts payable Advances fcfsn aUter feadfe rWeired revenue Total fial^ties Rind bakiscts- Reserved for: Loans ref«jvable fV^ajd itetres Debt service Advances W oibcr faocfe Bower fteWs jprcservMkw Library endowment IJOW a»d tnotterate income housing Unreserved: Dewgtiated for approved capita! projects De^goated im cta^uing apftropa-iatifms Debt Service Capitis ^i;^U Pmxis Bridge ami Oasts Ht>^ Grove nicffougfifaie aiwl Other InFrastmctfire Total ftmd balanm Total G»IMIiMtt!S ai»l Aiad balances IS,«4 659t^ :»eilU:: imma ns $ 177,379 $ 260.401 3.6«,344 3,644J42 437,9^0 S 876.77S $ 9,373,S47 S 188.859 $21,744.4% $6,004,845 $ 1,551.962 $ 9373>847 $ 455,140 $ 2},744.4^8 $&,p04.S45 !,330 $ 1,047 2,430,(K» 18,330 2,43t,£M7 - 41,358 855. i04 f,551,%2 .1 1,551.962 $ 21,416 4,901,391 806,824 5.729,703 9,373.847 464,867 C44?,707> 17,160 $ 455,140 1,441,725 2,40! ,556 17,882.887 2IJ26J^ $ 21,744,498 974,443 2,344,866 254,489 5.573.798 $6,004,845 m Planned tocai Drainage Facjiitics $ 9,<j«0,S24 . 76.714 - - - ^ t - - $ 9.757,338 S 1H,627 - - 420,02 r 76,714 6(^.362 -. • • , - ^• 434,021 5,297,J3i 3,4!7,834 - 9,148.976 $ 9.757,338 ReSeveHofOB&m & $ S $ Agency 930,122 » - 9,6'i] - - - - - - 939,773 33.410 - 6.276 - - 39^686 - - - - - - 233,203 . 666,S84 - 900,087 939,773 S $ S $ Sales Tax/ TfajisNat 8,148.844 - - - 123,468 68,525 - - - - 8,340i837 383,^54 - - i,oa),ooo 1,383,254 - - - - - 1,062,799 282.4J2 5,Si2,352 - 6.957,583 8,340,837 Traffic impac! Pwjeess $ 10,80S,084 . ,, :; s - *.. - - - S 10.K»,C«4 $ 122,528 - - - - 122,528 - - - - 1,589,555 6,327,102 2,765.899 - 10,682,556 $ 10,805,084 $ :i s — A. Tr^s 66,876.723 - 76,714 9,651 123.468 334,806 ~ - - - 67,421.363 848,573 ^«,4Dt 6,276 7,493.365 76,714 8,685,329 - - - - - • 6,222,103 19,152,922 15,925,828 17,43.5.180 58,736,033 67,421,362 $ i $ — — JL Total UtDei Gov^ninenta! Btixis 102,365,050 37,222 103,781 42,023 123,468 646,465 332,760 659,500 12,988,557 4,643,344 121.942,170 1,082^05 260401 70,800 8,124,116 76,714 9,614,236 12,988,557 332.760 659.500 4,643,344 935,000 251,000 2,142,000 6,945,154 •20,422,496 20,273,670 42,734,453 112,327,934 121,942,170 93 CITY (»' CARI^BAD Combining Statement of Revenues, ilxp$Btiitur«$ and Chang«$ in Fund Balances Noaimajor Ooverninei^al Foods For the Year Endesi JiHie 30,2006 Spi't'ia} Revenue Fumis Reverttwss- Taxes Inlcfgoveramenital Qiarge^ fw services Fines and forfdtitfes Snt-tsne from property and investmems (ntwde^ia'Jmciital charges Ccntiibut Joas from property owners DtHjatio»$ Miscellaneous Total revenues AffwdaWe Housing $ 295,407 57,102 240,700 - uism - - 1.440.709 Comtmrnity DevefojMiiem Block Graai $ 1,046,363 - - 143,195 - - - - 1.1S9.55S DooaiioBs and EndowHients $ - 54,850 - 39,787 - - !29>558 - 324.195 Finaocing Districts $ - 1,989,367 - 62,664 28,000 6,000 - - 2,086,031 Gas Tax S 1,743,693 - 169,708 • - 3,735 - - 1,917,136 Exjsenditures: Cmrenl: Gewaral goverament Pablk safety ComHHimty services SHtblic wcaks Capital txalay Debt sefvice; Piiftcipal fetirernent Interest and fiscal chs^gei 'fDt^ expenditures Esc«ss (deficiency) of reveKtaes over f imder) expenditwnes Other finanicing sources (uses): Transfers in Traasfes out T«)tal cither CInaacmg soiirci%|«^) Net change In fund balattces Fund balances (ctefidis) at begjrais^ <d */^ Faoil fealaaccs at end <rf year 252.157 252.157 1,15S,552 472,573 472,573 1.661,125 19.832,552 $21,493,677 249,045 243.536 492,58! 696,977 <4?2,573) <472,573} 224,404 $ 224.404 67.870 lSl.964 249.834 125,639) {35,639j l.?4g373 $ }.722.734 2.281,010 144,423 2,425,433 (339.402) (339,402) 2334.732 .$1,995,330 2,82«.665 2,820,665 (^3,529) 57,839 (7,500j 50,339 (853,190) 11.200.847 $10347,657 W; Special Reveaae Faads Habitat and Agrktijtural Manageraeni S - - - 158,796 82.888 - - 24t.6S4 - 2,316: - •s i 2,ii6 m^m. - 239,368 6.802,147 $7,041.515 Letvi And Miv^sde fnccwae IfeHising $ 596,812 ' - - 14SJ91 - - - - 745.603 - 9M39 ^ T * ,,64l.2#l ^ - 648,264 5,311,494 $5,959,758 Other Spevist Revenue Puads $ 32,462 - - 28.610 - - - - 61,072 2a.05& - - 48,983 - v 77,041 f,IS.969) - t}5,%9> 1,319,295 $ 1,203,326 Poisce Grafts ami Asset ft^i^jture $ 158,974 - 114.926 12,624 - - - - 286.524 163,324 - • 51,124 214.24a 72,276 - 72.276 615,723 S 687,999 Section % Rcma! Assistaace $ 6,013,874 - - 1,577 - - - 13,257 6,028,708 - : Si?32i3r2 : - ' 5.732.312 296,396 296,396 72,801 $ 369,197 Tyief Court Apartn^Rts $ - 431,118 - I7,78« - - - - 448,906 y: smm'j^ ^ - :•, 280,377 168,529 - 168.529 825,813 S 994,.'}42 Ti^als $ 2,340,505 7,547.080 2,532,437 114,926 1,024,240 28.000 940.123 129,558 13,237 14,670,126 28,058 163,124 6,681,4!6 250,947 2,281,010 3,259,748 12,644.303 2.025,823 .530,412 (4S0,O73i 50.339 2.076,162 49,963,777 % 52,039.939 m tllTV OrCSARl:^Mt>. Comhinln^ Statement of ReTenoes, Expenditures and Changes NojBuajor Goveriaa«3itai Fuads {Continawl) For the Year F^ded June 3d, 2006 Revenues; Taxes IiKergovcmmental Charges fer services Roes ami fcdeitures Inctwne frosn pjopaty and investmeaits [Merdep<uitnent2t! ciiatg^ CwMirilsrtions fscm pro})«*ty otvaers Do»^io»$ Misceilaoeousi 'T0tsil revenues ExpMnfitsires: Carrcja: G^e^;^ goverttntefit Pubfic safety DHJamimity development CoB»nw5Hty services PaWic works Capita! outlay !>eJ« service: Principal retireinaot iBteresl and fiscal cSiMges Total ejyyenditures Excejss (defidency) of revenues over (under) eii;p«nditar«$ CHficr tmancjng sources (Use*): Tiansfers in TraiBsfers om Total other finaadn^ source's imi^} Net cbasge in fund halaaces Fund bataaccs m beginning of year Fand balances at end ofyeiM- Debt Ssrvtte Pund HospCiTOve COPs $ - - - 58,!97 - - - 58 J 97 - • - - ^ •• 635,008 U3.05S 748,058 i^9Sm SOO,(MO - 800.000 i 10.139 U44j,S23 $ U55I.962 in Fttnd Baiattce.s Bridge asd Tl»>rougbfare Disltitts $ - $ - - 197.49f - 1,273332 - 540 r.471,263 20.312 - - - .s 116 - 20.428 1.450.835 - - i,450.S35 4.278,870 ^ 5,729,705 $ Capital Project Funds Grants and Other Funds - 5,6^,046 - - 9.407 - r . - 1,708.453 s ^ - ' •i iM9M» - i.549,i5SS 159.295 - (565.888) <565,S88) {406,593) 423,753 J?,160 fafiastractufe Replaceaiofl ;$ - - ~ 512,908 - - - 24,862 537,770 •i - - - L457,72S - - 1.457,72S (919,958) 4,250,000 • 4.250,000 3,330,042 }S,396.126 $2!,726J68 Park Development $ - - . 109,261 - !.510,100 - - I,«.19,36i i- - - - - 216,470 - 216.470 1.402,891 - - I.402,«9t 2.170,907 $ 3.573,798 m Ca^iitaj fioject Pwtds Ftanned lx)ca! Drainage Faeaitks % ... - ~ 233,658 - 74fiJ38 T - . tm396 - - ' ~ 1.263,885 - - !.2<>3.8«5 (289,489) - (289,489) 9,438,465 S 9,148,976 Redevelopment Agency $ - 21,675 - 90,993 - 20,0(K} • - 132,668 569,654 - - 232,199 ^• - 801.85^ (669.1 SS) i.000.000 (69,166) 930,834 261,649 638.438 S 900.087 Ss^es Tax/ Tr^fisNet 1 1,060,000 732,217 - 201.165 - - - - 1,993,382 7.41 S - - - -: 4m&mi . r 4.477,079 {2,483.697) 428,955 - 428,955 (2,054,742i 9,012,325 $ 6,957,583 Traffk Impact Projects * - - - 235,867 - t,154.163 - 9.458 l,399,4SS 3,405 - - =. - smjm i. s 509,410 890.078 - 890,078 9,792,478 S 10,682.556 l^Mis. :$ 2,759,046 753,892 - 1,590,750 - 4JS98.233 . 34.860 9,836,781 31,135 - 569,654 - - 9,-6i95i222, „ - ! 0,296,011 (459.230) 5,678,955 (635,054) 5,043,W1 4.584A71 54,15 J.362 $ 58.736,033 Total Other GovernnKWai Futsds $ 2,340,505 10,306.126 3.286,329 H4.926 2,673, {87 28^)00 5,638,356 !29,55S 48, tl? 24,565,104 59,193 163,124 7,251,070 230,947 2,281,010 12,954,970 635,000 t B,058 23,688.372 876,732 7,009,367 {1,115,127) 5,894,240 6,770,972 105.356,962 S I {2327,934 97 CiTY OF CARLSBAD Combining Schedule of RereuurK ami Kx})eu(lltur<r!f> Bud^t and Actual (Bttdgetary Basis) Spfcfeit Revsttiie Funds Year Ended June M, 29W AffordaWe Hoasmg Total revenues Total expendituj-es Net thaage in fuad balance Community Dcvekiproent Block Graal Tola? expenditures Net change in tad bailee; Donations aniJ &»d«w!inf nts Total revBjniw Total expenditmes Nrt change in fund ijai^tee ; Fmaiscsng JWsSricts Total revenues T«a] expeaditares N«t change to fund batape Gas Tax Total revwtics Total expsmdiiures Net change in fund balance Habitat aod Agricullarrf Man^ement Total reve«!es Total e^pwKlinires Net change in fund balance Lo» aad Moderate income Htnisirig Total rcwBues ToiaJ CJtpcijditurcs Net change in fund balance Budget $ l,570.flOO 438.599 1,131,401 1.080,000 1,092,916 (12,916) 202.000 585,975 13.83,975) 2J! 1,000 3.195,03! (1,084,031) 2fi(i9.2U 7,O0,35« (5,06i,J47j 9,669 (9.66Q) W8.000 134,793 563,207 Actual AamtiMs (IMigmmy Basis) $ iMAMl MiM^L.. !|5Mj§i4; !:il#.SS8: ifisi: ••••••""'•Slllil'" 24'>,340 271,265 (21,935) 2.120,569 2,55iS,939 <436,370) 1,995,664 3,iS5,US (1,!S9,451) 344,308 6,985 337,323 791,418 103,078 6S8,340 Variance Over flflKfcf) i 34.48! (J60.632) 195,113 109,558 (491,379) ^0.957 47^340 (314,710) 362,050 9,569 (fo?«,0^2) 647,661 (73.547) (3,945,243) 3,871,696 344,308 (2.684> 346,992 93.418 (31,715) 135,133 (Conwnued) CITY OF CARLSBAD Combiah^ Schedule of Revenues and Expeiadititres Budget and Actual (Budgetary Uasis) Y«ar Ended June 30,3806 Other Special Revertue Funds Total reveimes Total expemiittxrcs Net change in fwxl baiswce ?oik:e Grajts and Asset ForfeiUtfe TM^ rcvesues TotstI exp^jtfiturcs Net ehiange in fund balasiscc ScctwB 8 Reslat Asstslaace T«al rcvce»tes Total expen^Iittires Net change ia fuiKl balance Trtals Total reveaaes Total wpcoditwes N« chMige it* fund balance BtKifet $ 43,000 98.712 {55,712) 269,000 318,704 (4V04) 6,OOS,O0O 5,981.340 26.660 14,050-21} 18,986,097 $ i4,935,886) Actual AiBotjHts (Badgcaairy Basis) S 78,631 : Sl,»f)3 f3,n2) 297,005 267,801 2S>,204 6,028,?0S 5.734,487 294.221 14.699,682 !3,0S6,97? Variance Over (Under) S 35,631 (i6,909> 52,5'MS 28,005 (50,903) 78,908 20,708 {246,853} 267,561 649,471 (5.899,128) $ 1,612,705 $ 6,548,591 m CITY Ol< CARl ^8A1> Combiiang Sebedule <rf Revenues and K^ Budget am) Actual (Bintgrtary Basis) IHb* Service {•'uncis Year £nded June 30,2006 Redlevetc^ineni Areas Total reveoues. Total expemStures Net chaa^ in fiajsJ balsmce $ $ Budget 3,265,000 350,024 $ S Actual Aisiouats (Bedgetary Basis) 2,46!.8S! !,S^S.860 562,995 S $ Variaiice Over iVmkr) 196,851 (16,116) 2\2M1 181 CiTY OF CARLSBAD Combimng Statero*8t of Net Assets fnteroat Service FUJMIS June 30,2066 ASSETS CiBTcnt assets: Cash aud invesiineRis Receivables; Accounts, net InvtJitwy Ti^al ciareBl sisse# NwjcurrenS as.»is: Capital assets: Machio^Y and eqi:e|»neitt Less accumulated depreciaSton TfitaS caf^kal assets (net of accumuteied iteprecitaiton) Total iioacurrent assets LIABILITIES Currem Jssrtijiifks: Accrued fiabihsies Estimated elaisns }>ayat>Je Tm.$A current tlabiltties Ti^ai HabiiUies NET ASSETS lB\T2Ste!j in capital assess, net of related debt Uarestrktod Total net assets Maaa|emeat Srff Inssured Benefits InfcsrmaJion Technology $ 8,487,389 $ 3,^68,849 S 4,2 i 7,553 i ,449 972 195,873 8,684,711 3,469,S21 4,217,553 J 3,07!,542 (7,536.772) 5,534.770 5,5M,770 3,141,000 «2,745,SS2> 395.148 395.J4S 14,219.48! 3.469.821 $ 4.612.701 161,864 $ 2,754.463 $ 77.866 246.316 16i,S64 16i,8&'* 5,534,770 8,532,847 $ H,057,617 .1 2.832,329 2,832,329 „ 637,492 246,316 246,316 3.95,148 3,971.237 ; 637,492 $ 4.:566,385 ^i» Risk W<wke*s' TiiHa! 772,^8 $ 4,516.954 $ 21,463,443 2,421 J95.S73 772,69« 4,5i6,954 21,66i.737 16,212,542 (10,282,6241 $ $ - 772.698 73,072 752,020 825.092 825,092 <52J94) $ $ - 4,516,954 6.630 3,297,948 3,304,578 3,304,578 1.212,376 5,929,918 5,929,918 4.127,834 7,370,} 79 7,370, J 79 5,929,9I« I4,29U5S (52.394) $ \,liZJin $ 20^21,476 m CITY OK CARLSBAO Co«nbtnuiig Statement of RevettaeSj: EsiieM;^ aad (Jhanges In Net Assets Interaal Service Funds F«r the Year Ended June 30,2866 Operating luvctiues: Other charge* ft* services Total operating r«v«n««s C^ratifig expenses: Dcprcv:itati«n Fuel and supplies Ctanns expense StxjaH cqurjproem pmchases Ckticral aiwJ aiknimstrative T<^al opei^tii^ expenses Operatic imxtme (ioss) Nwiopwating rcvoBSjes (expenses): IfKome frore ptopen^f and invcstsneiSs teergovernn)fii«al Gain Jjoss) on s^e of pr<^e»ty Tt^l aoaofieratiiig r&itiMiS i^^0^i^ IiKiome ^kKis) befixne traii^|t$ aiid Transfas in C;^ital cofta-ttMUKM^ Cban^ in net assets Totfd net assets at begtimit^ (tf ye^ Tot^ aet assets sa Mitt cf ye^ Fleet Maaagemcnt Self Irtsiffcd Benefits Teehndlqgy $ 3,437,293 $ 84S,48I $ 4,I26,8J6 3,433,303 i,27&,09S ^28.615 848,48 i 735.589 4,126.816 162,436 1.443,359 3,648,072 (195.764) iSS.itl 39.516 227.62? 3tM3 353,432 n\m9 596,384 13,461,233 $ I4.<^,$n $ ^ 735,589 ii2,«92 - n2.8<a (3(»,000> S24.600 ..WAn i 22,3!7 3,936,688 4,121.441 5,375 86,996 27,878 2,a» $16374 {22.249 122.249 '< 4 Ji^»^5,, im Risk $ 1,284,459 309,763 1494.222 i,t«,l40 $,{04,140 4%.0S2 2l39t 21,39! 5n,473 SU,473 (563,867) $ (52394) Wofkors' Cors|>easaffon Totals $ 2,200,239 $ n,897.287 70,446 395,225 2,27t>.685 t.215,593 117.670 1,333,263 937.422 83,1.57 83,! 5? I,02CS.5?9 3«»,000 1,320,579 {108,203) $ 1,212,376 3 12,292,512 1,438,534 928,615 1,951,182 22317 6,«3il.857 !0,942,53D5 1,350,007 379,655 27.878 41,516 449,049 1,799,056 633A32 (300.000) 231,(K9 2,363,577 17,857,899 ! 20,221,476 tm ClTYOFCARl^BAD Cottibii^g Stattrment of Cash Hows Internal Servfce Funds For ifae Vear emiea JfHi« 30, JQM Cash flous f'rt«n c^iatiijg activities; Ret*if«s fronicustosncrs and users Payments lo st^pliers Payments ID etsjployecs Imeraal aetivUy - paytrtenis tv other funds Claims paid Oilier receipts Net cash provided by <oseci iaj i^>ariliBg:afet|¥H|# Cash flaws frotn noticspta! fioandng activities; 0{>ef ating subsidies aad t;sa&f«rs to otto' fuods Cash flows fmm capital and rels^d fiaoBcmg activities: Cs^itaJ contriiMttioBs J^ucttases of capita} assets Net cash provided by (used in) e^itai Mtd retesed ' activities Ca* flows &t*m investing activjiirs: I>U^e» OB itivestmeitt^ Net increase (decrease) m ca^ acK) cash Ca^h and cash eqaiv^ms ai begitHuag of year Cash and casit «(|aiv^ents at end of year Fleet Manageitietit $ 3,437.2^1 <t,576.3l3i t719,564i {276,93 3> - I5,0}6 «?9.517 S«lf Insured Benefii"; $ 848,48! - - - (735.SS8> 107,507 220.400 information TeclMology $ 4,{26,S16 (1,858.956) 0,S86,W7) (433,030) - (5S,267) 333,432 (J.426,969 J (1,426,969) lS«,iM (25.M?) &,5I3,298 <300,000> {79,«») 3,34M4^ 782.747 (42.466) 740.281 %6S9& 7764)10 3,441.543 I M8?J^ I .?,46g.»t9> . § 4M1M %m Risk WcH-fc«s* Manageincot CojnpeBsalJOR Total $ 1,284,45«> {78S,492) {211.564) (137,947) (897,174) 3t,H4 (7!9,604> $ 2.200,239 - (86.992) (30,490) (1,531,421) 70,446 621,782 S 11,897,286 (4.223,761) (2.904,217) (878.380) (3.164,183) 224,083 950,828 300 (XSO 333,432 782,747 (1.469,435) (68&,688) 21,39! 83,157 379.655 (698,213) 1.004,939 977,22? 1,470,911 3,512,015 20.486.2)6 772.698 $ 4,516.954 $21,463,443 IC&eijBaed) 19? Cri-Y OF CARLSBAD Combining Statemcrnt of Cash Flows Internal Servke Fwmts (Co»t»niS*«3) For the Year F.ndeci Jum 30,2006 Reco8cil(Mion of opiwating jneome (kvssli to nei casij IS'ovidal by (used ia) operating activities: Operaiisg iaconte (toss) AdjuswieMs 10 recoftciSe aperatiag iftconie to eei cash jKOviiiW by opertiiig activities; Depreciation and aii»riix^ii>n Ownge in ass^s aod liabiiiaes: (Itscrease) decrease in receivaWes (lRcreas«) in inventory Decrease in prqpaid il«ns iacrease (decrease) in accrued liabilities increase (decrease) in estimated cJaisTis payabk Fleet Self Inswed Managemeat Benefits lufortnatian TechnoSt^y $; I19S3MI M immz :f; ^ims^- 1,276,098 (367) (25,23«) 162 436 (Spj; (n5,2m 108.951 (219,078) (620) Net casli jwovidcsj bv (sised in) opetaiing acri%'ities Nc»cash ci^kat fmancing aclivuies: Opital assets ctmiiibuted by other fusds $ 87^,517 % 220,400 % (S 1,267) $ 23},089 $ m Risk Woriners' Managemesl Ctwipensdlioo iR^aJ * m^Mt $ «7.422 S l,350,{M7 1.438434 (1,170) (25,23811 (33,863) 188 {319,034) U,t75,S23) P{5,&28) (1,492,2?}) (719,604) $ 62I,?S2 $ $50,828 $ 231,08$ i# CITY OF CARI^BAD €i»nbinhig Statesnent of Civauges in Assefs aisa iia|i|tilks Agency Funds For the Year Ended J«*je 30,2006 CtHilractors' and Miscellaneous Deposits ASSETS Ctareat assets: Cash and ittv^JstmeMs Acciued jtaareii TotiSl ctirrest a^ete Balance My L2003 Additions I>edutik»BS Balaace June 30, 2006 S 17,540.809 $ 56,307,836 $ 35.IM,574 $ 18,656,071 35,619 26,255 51.632 10,242 $ 17.576,428 $ 36.334,091 $ 35,244.206 $ 18^66.313 LIABILITIES Accrued li^iBlks DeposKs feeJd for others Total tlabiUtie^ $ 3,017,775 14,558,65:^ $ 23,124,226 39,31S,731 $ 2<>,OS7,822 35,295,250 $ 84,579 18,582.134 S 17.576,428 5 62.442.9.57 $ 61,353,072 $ 18.666.313 As$«$$Ri«nt Bistrkls ASSETS Catreat assta*; Cash ^ui inves^BHi^ts Acttueij imerest Total cttrr«^ assets Restticttd assets: Cash and mveamraiss Accrucid iasaest Total re^i1rt«i assets Total assets $ $ Balance July 1,2005 5,073.928 106,853 5,180,781 7,200.334 88,335 7,2S$,6^ 12.469,450 $ $ Addition? $9,112,012 334,864 19,446,873 958,101 958,101 20.404,974 $ $ Deductioas 18.482,355 194,133 lS.6?6,4«a 1,266.7^ t8,,335 1.3.55,115 20,031.603 $ Balai^e ane3O,2006 5,703,^5 247.531 5,951.166 6,891,655 6,891,655 12,«42,S2l UABILnT|>:$ AccTBGd Uabilities Deposits heH ffx others $ $1,Tm $ 178,951 $ 153,243 $ 413,418 JIA38IP50 8J!»7.422 7.74».7?9 XtW^ ^2&etim^i 1X0 CITY OF CARl^BAI) Combiaing Statement <4 Changes in Assets i Agency Funds <C<Mit!aned) ¥»r the Year Ended June 3«, 2006 lW0^^0ff\vmiSM ASSETS Cuneist assets: Cash and siivcstineBts Accrued intere^ Tota} nirreni asseti! Resa'icted assas: Cash and iBvestmenls Accrued interest Total current asletS i Totaf a«sef s IJ ABILITIES Accreed liaWUtles Deposit held few cM;J«!rs Total ItaMUties $ $ $ $ ;• Palace iuly 1,2005 22^I4J37 142.472 22,757,209 7,200,334 88,333 7,2SS.669 30,045,878 .1,105,473 26,«0,403 30.(MS,87S S $ .$ $ Additions 55,4 J ^,848 361,U6 55,780.964 958,101 - 938.101 56,759,065 23,303,177 47,416.153 70,719,330 $ .1. s $ Deductiwas 53,674,929 245,765 53,920,694 1,266,780 88,333 J,.355,1! 5 53,275,809 2«>.211.065 43,043,009 69,256.074 i $ $ $ $ Balance une 30,2006 24.359,636 25?,S23 24JSS7,479 6,891,655 - 6,891,655 31,509,134 197,587 31,3n,547 ,? 1,509.134 m CnyOfCARl«BM> Sciiedi^e of Annua! Debt Service Rf (juircmlSSs $15,495,W0 -1993 Carlsbad IJ<HJs!flg aa<J Redevelt^naent CoiiH)us$to» Tax AUocittiiW Bonds; KscaJ Year M06-fl7 imi-m 2008-OT WB-IQ 30!€H! 20i!-i2 2m2~l3 2013-14 2014-15 2055-16 2016-17 2017-IS 20SS-19 2019-30 M20-2J 2021-22 2022-23 2023-24 Tcvtals intefesi l>«e $ 3 {7.633 306,607 295.058 2S2,851 269,989 256,470 242.295 227,332 2U.55S3 195.045 177,589 119.214 139.920 119.576 9S,182 75,525 51,673 26,-500 $ 3,453,044 Interest Doe M^ch 1 $ 306,607 ; 295,058 3S2.S5I 269,989 256,470 242,295 227332 2H,583 195,045 177,589 159.213 139.920 119.576 98.183 75.525 51,675 26,500 - $ 3,135,411 Tmai Inieresi I 624,240 601,665 .577.W9 552,840 526.459 498,765 469,627 438.915 406,628 372,634 336,802 299.134 259,496 217.759 173,707 127,200 78,175 26,500 $ 6,588,455 Principal iHie Sqwerafccr 1 % 420,000 440,000 465,0€© 490,000 515,0C» 540,000 570,000 6(Xf,0Gf0 6.30.000 66S,0«} 700,«» 735,000 775.000 815.000 855,000 900.000 950,000 1,000,000 % 12,065,000 'f<*a! Annual Debs Service $ 1.044.340 },04i.e^S 1.042,909 1.042,840 1,041.459 1.038.765 1.039,627 1,038.915 1,036,628 1,037,634 l,O36,«02 1.034.134 1,034,496 1,032,759 1,028,707 t,(t27.2!K5 1.028,175 1,026,500 % 18.653,455 $6^5JW0 -1997 tti»^ (Giwe SriBcates of Pariicipatiim (t98$R<rfsii(lins> Fiscal Yew 20(»-O7 2007-0« 2008-09 Totals S % imeresl Due August i 48,448 33,373 17,273 99,094 $ $ iBWrest Due F^biuai'y 1 33,372 17,272 50.644 $ $ l«ere.<st 81,820 50,645 17.275 349,738 S $ Prmcipa! Due Augusl 1 700,000 735,0a> 2,105,000 $ % Total AEn«al D^bt Service 751,S20 750,645 752,273 2,254,738 Hi CITY OF CARLSMAD Scbedt^e of Annaa! Deiit Servl<»; fteqnbienienSs C(;«»^ $1 i,«S0,090 - Eadiia rmanciim jeiiNt F^^p: AatlH»l|)! losUdimei^ Purcbasse Agr««nienf Fiscal Year 2006-07 2007-Og 2008-09 2009-10 2QiO-Ii 20IJ-12 2012-13 2013-14 2014-15 ToSals interest Due Avij^JSt i $ 172,791 156,153 B9.353 122,816 105.f9! S6,228 66,24! 45,228 23,190 $ 917J91 lijtH-est Due Fehraiary i $ 156,153 139,353 122,816 ia5J91 86,228 «6,241 45,228 23.191 - S 744.401 Total !Bt€«lEat $ 32S.944 295.506 262,169 228.tm 191.419' }52,4«» 111,4® 68,419 23,190 S J.661,592 Wnc^l Due Augusi i $ ms.fm 640,000 675.000 705,a» 740,000 780,000 820,000 860,000 905,000 $ 6J3O.00O Tctai AniwaJ Debt Sei-vice .$ 933,944 935306 937.169 933,007 931,419 932,469 931,469 928,419 928.190 $ 8.391.592 $2^31*489 - Carkbad MtHddpa] Water District State I^a» for Redaltned Water l't«j«ct$ Fiscal Year 2006-07 2007-08 2008-09 a)09-t0 2010~il 20U-t2 :K>f2™13 ^13-14 Tots^s imercstDue Novessbcr 30 $ S 3KS57 28,155 24.345 20,425 !6,391 {2,240 7,969 2M2 144.064 Principal Dee NovcHterSO $ 127,670 131,372 135,181 139, UK 143,136 147,287 151.558 123,222 S 1J098,528 Totaa ABWial Debt Service $ 159,527 1.59„527 159,526 159327 159,527 159,527 1.59,527 125.904 S J.242,592 lU: CITV OF CARI^SBAD Sdteduie of Annual Debt Service Requirements (CMKISHM) : $9,495,SS2 • Carload Munkipal Wat«r DliHrict State Water Sesonrces t.'oiUrol Board Loan Piscal Year 2006-07 2007-08 2008-09 2009-10 2010-1! 20J t-12 2012-13 20i3-J4 2014-15 2015-16 2016-17 20l7~tS 2018-19 2019-20 2020-21 2021-22 2022-23 2023-34 :»)24-25 Totals Interest Du<? JuBe 1 $ 382,562 230,829 2m517 im.u^ S99.US 18S.0H I76,6M 164,964 153,006 H0J49 128.1 &6 153,309 102,110 88,5S1 74,713 60,500 45,930 M.997 15,690 $ 2.728.347 Principal Due JHBIS 1 $ 260,712 412,445 422,756 433.325 444,158 455.262 466.644 478,310 490^68 502,524 5I5,OS7 527,965 541.164 554,693 5m,5m 5S2.774 597,344 612.277 627.584 $ 9,493.852 Total ABnua! Debl Servke $ 643,274 643,274 643,273 643,273 643,2 ?3 643,273 643,274 643,274 643,274 643.273 643,273 643.374 643,274 643,274 643,273 643,274 643,274 643.274 643,274 ^12,222,1*^ ,. m STATISTICAL SECTION iBlimilMilMMtM'llllinTlTl ;•;: : «"", -11111111 niiniiinillliniiiiillli : CITY OF CARLSBAD Statistical Section This section of the City of Carlsbad's Comprehensive Annual Financial Report presents detailed information as a context for understanding what the infonnation in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. Contents Financial Trends TTiese schedules contain trend information to help the reader understand how the City's financial perforaiance and well-being have changed over time. Revenue Capacity These schedules contain information to help the reader assess the City's most significant local revenue source, pro|>erly taxes. Debt C.apaclty These schedules present information to help the reader assess the affordabiiity of the City's current levels of outstanding debt, and the City's ability to issue additional debt in the future. Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment withiti which the City's financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the City's financial report relates to the services the City pnjvides and the activities it :perfonns. Mm im wm- 13®: 14©: iM: S»i»urcei: Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual Financial Reports for the relevant year. The City implemented GASB Statement 34 in Fiscal Year 2001-02; schedules presenting government-wide information include information beginning in that year. :itS: Net Aisets by ConqxHi^^t I-ast Five Fiscat Years ;d<jliars ia thtwisands) 2002(1) 2604 2005 2006 Govemnt^ntal activities It3v«sted in capital assets, sset of rdaicd detit Restricted for: Capital assets Affordable, tow ami modei^e ittccBne housing Hsrfjit^ aad agricultural mitigation raareagement Ocher purposes {3) Uareiitricted Tcitd governmetaaJ acttvkies net assets s $ 198.808 130,545 16,652 5.9S0 4,260 126,632 482,877 $ $ :248.219 139,760 18,625 6,84a 6,019 146,0 IS 565,4«1 $ $ 282,728 151,395 23,042 6,893 20,451 14^.662 634,171 $ $ 342,232 175,663 25,144 7,528 35,173 152352 738,092 $ $ 604,117 (25 172,474 27,453 7,042 5,131 197,672 l,eJ3,8S9 "BasmtsS'type: activitfe$ InwBsted itt caj^tat assets, net of related debt Hcslricfcd for: Capital assets Utwesh-tcted Totai iHisiacss-type activities net a,tset$ $ $ 143.175 96,S07 J6.26I 256,243 $ $ 165,943 96,666 22,509 285,1 IS .$ $ 185,971 102,585 15,072 303,628 $ $ 213,101 100,597 11,670 325,368 S $ 249,462 107,841 (22,240) <4! 335,063 Total goverameBt Invested sa coital assets, met of related debt Restricted for; Capital assets Affordable, low and rmxlcrate incojne hsxtsioig Habitat and agricuitura! tnittgauon maaagement Other purposes Unrestricted TtJtai net assets $ 341,983 $ 414,162 $ 468,699 $ 555,333 $ 853,579 227,352 16.652 5,980 4,260 142.893 236,4.26 18,625 6,840 6.019 168.527 253,980 23,042 6.893 20,451 164,734 276,260 25,144 7,538 35,173 164.022 280,315 27,453 7.042 5,13! 175,433 $ 739.120 $ . $S0,?9^ $ 937,799 $ 1,063,460 $ 1.348.952 Total Governmental Net Assets (in tnlUlons) 2002 2003 2004 2005 Fiscal Year 2006 • Total' Restricted 9 Invested in'Capital Assets Source City of CarisJsati CompreheBsive Aitnaal Financial Reports. (1 jTheCity fir.'.t i>tfgaii calcuiaiiKg BC! a,s.Si;t balances irt FiicsJ Year 2€0!-02. (2) Ths," large increase in 2005-06 reflects the addition of iirfra.s(ructt!ie assets as per GA.SB34 ret|aireniieais. (3) Net Assets Restricted hw Other Purposes increased •iignifk-antly iss Fiscal Years 200.3-04 and 2004-05 to set asijide: faitds for futuie gr>lf course consirtscsion <S15 million ia 2003-04 and an addiliimal $15.3 iniliion in 2004-05). (4) llie large decrease in 2005-06 lellects an addirmnai ,t30.3 mjtiiaa advance receiveti from tfee General FMSKI IM Chaugtjs in Net Assfts Laid Five Fiscal Years, iStMnTs in tJboasands) Expenses OovernmcRt^ jKtivJties General govwfBTjeovt Public safely C«iBi»m!ty developtnem CcwnaKmity services PuWic works iiaerest a«1 fiscal charges OB fcg- ao® JCW; wm Mm 7,600 8.518 8.604 11.353 2006 ! 5,382 2S,660 10,539 13,270 15.015 1,673 27,748 12,004 14,538 16^826 !,(HS 30.894 B.&14 15.035 (9.534 996 34.366 14,363 16.033 22,064 1,014 35.822 14,332 16,790 35,937 1.036 Total governnteirtai activities Bustness-lype acltvkies CsarlAad Munkipal Waer DlSttiCi Goif ojurse Sewer S<^id wasie Tola! b«siaess-l)|>e aclivities TonA goveraKKBi $ 73,757 19,311 98 6.169 213 25,79} 99,548 3 80,682 1931 93 6,104 218 25,676 106,358 S 88,877 2a950 54 6.89i !,3C0 29,195 118,672 i 99.193 21,422 25 7,235 1,488 30,170 • 129,363 3 119,299 24,124 2.471 8,365 1,699 36,559 135.858 i*r6gr«un ReveaDes Govemniffittial wtivities Charges for ssrvtses: Geiusrd go\'C!rrameni Poblic saf«sjf CiHimwBity swvices Public works Capkat gtmts smd c<»»ril^kH}s Total f^vemmeDta} activkks 583 $ 750 $ 571 926 $ 945 2.957 3,810 1,828 5,440 7,985 26,852 49.454 3,269 4,261 2,086 6^8 10,139 45,180 72,353 3,699 4,203 2,102 4,533 14.570 42.215 71,893 3,232 5,934 2,292 4^33 12,817 74,414 104,248 3.611 4.677 2,437 6,451 12,116 39,286 69,523 : activities Ch^gcs tm servjces: Carlsbad Mumeifi^ W^er i^ibtne| Sewct Sdfd waste Total j^orvenffiRKBt Bs$i»!e$s'-t)fie activities Total govenim^ ti$t expe^e 19,1(K 5,919 566 577 J6.}S5 ^.zn $ 91,71 ji $ t24.M3> 16.4^? * asm $ $ ? 18,276 6,2S6 86S 1,267 19,539 46,336 ,U8.5^„ (8329) 20.^, n2H $,. $ ^ 18,862 6,2(8 1,673 lf504 17,377 4^n U7J12 (t6,984> 16.4?4, -.,.4^ $, $ X 18,788 6,378 2,348 508 n,i22 45.144 l,#J92 sms 14,^74 mm % 19,462 6,801 t.»93 718 11,213 4^mi m.m <49.776} 3,528 {4^,24«> ',W^ :cltYOF€iiRiJSRAfe Cb;iinige$ in N«< Assets Last Five Fist-al Years (d^Hars in thousand^) ^82 mm mm sms' lees General Reveivaes and Otb^r Changes in Governmental activities Taxes: Ftc^serty (axes Saiesi and use taxes Transient ocxwpancy taxes Franchise taxes BasiBess {ic«»se taxes ReaJ }»»pe«y iraftsfer taxes V^tck ticease fees Income from gropetty and «nvestmet»$ (Mier general nrt'eiwes Tratjsfers Tiatat gftvertjntentat activities Busiitess type activities Property taxes Income from jpjt^rty and invesiiaeiWIS Otb«r geaera] revetHJes Trasisfas Total busineSkS-lype activities Ttnaf governijiesa Change in Net Assets Govemmentaj activities Business-type activities Tcaai goveranieat Net Assets 1 ..:i.... $ $ 28,495 2t,0C» 8,533 7,495 2,440 t,l93 4,675 |g,095 762 57 92,709 1,516 7,010 804 (1?) 9,313 i02,022: 68,406 25,780 94,186 $ A. $ $ 3U4H $ 25.767 8,387 3,730 2,303 1.127 5,067 13.347 390 (600) 90,<J31 1,672 5,836 208 600 8,316 99,247 $ 82.602 $ 28,876 Hl,478 $ 33,949 24.578 8,813 5,027 2.872 L5S7 4,125 3,124 637 %3 85.675 1.S42 1,193 14 «%3) 2,0^ 87.761 68,691 18.510 &7,20J $ $ $ $ 41,479 24.759 10,072 5,683 2,890 1,646 2,136 9,910 441 (150) 98,866 2.025 4,162 579 - 6,766 305,632 103.921 21,740 125.661 $ $ $ $ 43,936 25,429 11,513 5,429 3,040 1,906 587 11^683 650 (31,5) 103,857 2.257 3,538 56 315 6.166 110^23 54.1^1 9,694 63.775 Source: City of Carisbad Corriprehensive .Annual Rnanciai Report. Note; Data in this taWe is available ftatn the date the City tmpleraeBied GASB 34 (RscaJ Year 2001-02>. :.tis: IM CITY OF CARLSBAD Fund Balanos of Governmciitai Funds Last Ten Fiscal Years (tlt^iars in thousands) 1991 1998 1999 2000 2001 Genera] ¥uaA Reserved Unreserved Total Geoerai FiBd AH Other Govensneotai Ftmds Reserved Unreserved, reported in; Special rex^enue fonds Ciipital project funds DdH sca^ice fwmls (1 ^ Total a!{ oth^ goveraaxmtal iufidis $ S $ $ 9,825 21,17} 30,996 12.107 11.517 72.097 2.498 98JEI9 $ $ $ $ 10,346 3i,49a 4L844 27,253 f5,0{6 87,336 433 130.040 $ $ $ $ 12,893 39,221 52,114 30,938 18.639 102,03S 291 151,906 S $ S S 14,324 42,179 56,503 27,65« 20,458 108,866 (lUmi) 145.890 $ $ $ $ it,746 5*.857 70,603 36.030 19,709 131382 (l!,586) 175,535 f $60,0««i ! General Fund Balance (in ttiousands) r IH Reserved liiUnreser\'ed 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Fkeal Year Source: City of Carlsbad Cx)r»fM'ehensi¥e Annual HiMBCta! R€^)OK, i I} Effective July 1,1999, the City changed the nsanner in whkb it accounted fw advances from the City lo the Redevelopment Ageacy, and began recording such advances as a lisJjility on tte balance sheet of ihe funds obligated fw the repayment. (2) A $35 mitliOFn transfer was made ftora the Generat Fund to the General Capital CoasB'Bctkm Ptsnd to assi^ in the construction of four large projects. 12® .:imi: ;a!ffiM......,, sgoi; mm. ^m... 12,006 $ 12,794 $ 27,917 $ 44,9% $ 45,131 76.149 5S,343 56.141 54,400 6t,494 &S.155 $ 71,137 $ 84,058 $ 99.3% $ 106.625 37,776 5 44,265 $ 54,414 | 49383 $ 38,008 20,542 128.869 (10,371) 2!.OH 171,227 (10.449) 29,$4! 171J94 (9,789) 30,031 206,711 (11.317) 30,024 231,393 <}}.68}) 176,S16 $ 226,054 $ 245,660. $ llSSm . % 277.736 ill eiTWQRCAM^BAft Changes in Vmiid Balances «r(k>v«rBW^M Last Ten fiscal Years (dtdlarsi in thoos^nds) 1997 (1) 15f98 1^9 2m Excess {dkrficicncy} of revenues over tiMufcr) expenifitwes 32.702 33 356 ^3,23S ^W' 2001 Reveattes: Taxes It3Ser^iw^W!!£3:tlal Licenses and peoniis Charges fm services Fines attdf forfeitures htcome from pmep&cty anst iBvesUBeats teefifcpar ittMiMal chas'^s CoBWilMitjOBS from {ffoperty owners Bottsai&ns MiscdlancMis Total revcBioes Exipen^tures: CttrretJl; General govcramcm PuWic safety CcwttttiBflJty devek^netit Comt»BB(!y services PuWic W(t»ks Capita! outlay Debt service: Priticipa! lM«)est ami fiscal chis-ges Tola! expenditures $ 4L512 $ 14^50 4^35 {0,T08 318 6,075 2,042 15.451 220 3,434 98.645 49.010 - - - - 13,556 99-2 2,3S5 65,943 51MI $ 20J96 4,583 7,615 331 8.632 L919 16,6! 0 2M 1,514 U3,4&1 6,748 18,631 7.895 6^73 11,437 23.854 1,663 3,144 80,045 57.508 $ 17,802 3,827 6,805 936 8.92S 1,934 45,763 350 1,544 145,394 6.7S4 21,928 8,636 7,541 12,690 52,107 825 1,645 H2,t56 62,268 $ 14,694 3,321 5.749 840 10,496 2,007 14,733 561 i,l83 115,252 7,383 21,799 11,538 9,<^8 13,823 39,543 S2i L660 105,655 70.14? 14,286 3,409 6,427 889 20,385 2,148 15,982 312 2,260 136^5 9,022 23,627 9,352 11,571 14402 22,067 1,(K9 1,814 92,884 43.361 Otber finaaeing sources (i]»e$>f Transfers in Transfers out Proceeds of advances ft-ocee<is of d^t Tcftal tHhcr financiajg som^s Net ciiange in fusni balances (wsesj $ 3.530 (3,525) .539 - 544 33,246 $ 2,069 (2,097> 579 9,252 9,803 4.3,159 $ 2,603 (2.603) 589 . 589 33,827 $ 15,533 (15,533) - 332 332 9,929 $ 9,544 <9,65}) . 91 (16) 43,345 Dd>{ sefWce as pacetitage of am^^ exp^idiitM^s (2.3) .Swirce: City of CarlsbaJ Coti^irefceBsJve A imMJ Rnaacial Report, (1 MB Fiscal Year 1997-98, the City weia ihrougft a majt^ rewgsaiizaKoa, At iKs ilBiei liw ni^i0-MTMei^eriiB:^Miitci&iie4i as i^ected in fiscal Year 1997-98 ami thereafter. (2) Noncapital expcndiltires are wt^ expeiMiitures less ca^atal omlay <tt> the extwit capita!i2ed for the Govesrament-wide Staemeiit of Net Assess) and exp^iditttres for cspiutlized assets incMed withm the fuactiosal expenditure categories. (3) infflf tnatjroa twit available f<* years prior to 0 ASB 34 impkmftamsou. m 2002 2003 2004 2005 2006 1 7i,528 S 14.2((7 1.998 7.75 r 947 18,700 2,2&4 H,251 2t0 2.386 131,322 74,156 $ IV75 2,043 10,059 923 14,802 2,815 14,547 149 2,349 14i,6!$ 79,533 S 22.506 2,329 9,S99 L092 3.902 2,735 23,682 Ul 1.S43 147,362 ; 84,065 $ 94,862 24,245 3.393 10,433 t,0S4 10,741 2,700 49.446 164 1,107 187,378 13,027 2,504 H,038 t.na 10,38? 2,639 25365 130 2,077 163.207 8,4} 5 25.59X 10.3J6 12.449 15,404 37.503 1,133 1.694 n2,5S2 8.805 26,798 11.799 13,374 18.177 26,410 1,672 1,628 JD8.663 9,745 30,799 13,644 13.915 58.045 26,406 1,214 1.466 115334 12,113 33.819 14,319 14.744 18.737 46.420 1.040 l,SS)l 142,693 16311 36,365 Hjm 15,637 20,327 47,032 1,037 1,599 I52,(m 18,810 32,955 32,I2S 4|j6|S 10,599 11,833 47,646 8,729 10.228 11,685 {11.816) <48.58:l) (S,329i (10,228) 02,334) _23 <735) 400 :; ^649) 3 18.833 $ 32^20 $ 32,528 $ A4MS $ 9,9» 3.7» 4 01% 3.01% 2.65'!l- 2.48% 'iM G«ft«raJ Gotemaiemal Tax Revesues by Source 1^^ Ten Flscai Years tfnthousaii»]$} Fiscal Year J997 i9m 1999 2000 200! 2002 2003 2004 2005 2006 Change 1997-2006 Pr0p«rty Tax* $ 32,126 26,249 26,68B 27,335 30,656 28.512 31.412 33,949 35,650 {!> 43.936 ;99S Sales and Use Taxes S 12,495 14,517 17,129 19,493 21,19? 21,661 25,543 25,571 26,331 27,294 mm. Tr&mAnit Oectipaiicy Taxes $ 3,67.^ 6,046 7,010 8,333 9.269 8,533 t3l 8,387 8,814 10.072 11,513 l|3:% (6) (4) liVaBchise Taxes $ !,SI3 1,714 1.954 2,592 3,916 7,495 {5) 3,730 5,027 5,683 5,429 jssm Busittfss LlcMtse Taxes $ 1.510 1,604 1,738 1.864 2.300 2.440 2.305 2,872 m 2,890 3,040 JSK' Real Property Transfer Taxes $ 466 836 1,081 993 1,095 1,193 1,127 1,587 1.646 !.906 mm%: Misc. Taxes $ 1.237 1,719 1,908 1,65S 1,714 1.694 1,652 1,713 1,793 1,744 *l^ Total Tax Reventse $ 43,022 52.985 57.508 62.268 70.147 71,538 74,156 79,533 84,065 94,862 !20* 50,000 40,000 30,000 20,000 i 0,000 Total General Governmental Tax Revenues (In thousands) Properly Tax Sales and Use Taxes Transieiit i Occupancy Taxes I Other 1997 1998 1999 20(X) 31)01 2002 2(X)3 2004 2005 2»06 Fiscal Year Source, Ctt;^ of Carlsbad, * iBcludes Vehicle License Fees (VLF) in lie». propert) tax increaiMl, low/issoderate iKmsitig, set aside taxes andCPDfl special taxes. (1) VdKide license l^ee leveniae began decreasing in 2004-05 bec^se the City began recetviag pvopeny taxes in lieu of a pwtioB of the VLF. (2) Tttls feflects rhe icOTils frwrs liii-mg a company lo assist in the MentificaJioa of onfieensed basinesses, aad the rccovsry of tK>n-rcpoited and utidef-reponed business Itcense taxes- i 3) The City modified tbr irtethoilology ujsed is acecuing sales lax revenue itx the year, its accordance with GeraeSlly Aocfpied Acco«ntJag Principles (GAAP), 14) Ttie drop in iransietit occupancy tax was the result of the iir^iacts from September 11.200} oa tottfiSHt, (5) This was the resolt of W^nsr natural gas prices paid hy consimief s in cateBdar >ear 2000. 16) Reflects llie openiag of the Four Scastsis Reseat at Aviara. 1-24 CITY m cAMMm Water and $ew«r Rates Last Ten Fiscal Yeaurs Water St'wer Fiscal Year 1997 19M 1999 2(X»^ 2001 20CS i<m 2064 aofts 2006 Moftthl)' DeHvery Change S9.2S 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.25 Base Price Per Unit 11} $1.70 i.TO 1.70 1.60 J.60 L6G IM 1.60 !.60 1,60 MtxHthly Base Rate $15.00 15.00 15.00 15.00 13.00 13.00 !3,00 13.00 }3.oa 53.50 !*«e: Raies shown are fi» tm 5/8" me««r, whirfi is te staadatd hcajsAoW meJsa- size, < t) Qae vast of wsae* ecjuals 748 gallons. 125 CITY OF CARLSBAD Assessed Value oi TaxaMe Property <(toUars m soiltkii^) Fiscal year 1997 199* 1999 2000 200! 2002 2003 2004 2005 2006 Reddenttal I'irojierty $ 4.4S8 4,723 5,315 6,418 7.367 S.S43 9,612 10.700 tl.984 13,619 Comtdereiat Propfsrty % 68$ 766 954 ixm IJ92 1,310 1,413 1,516 1.749 l.^J Industrial Property $ 552 631 713 854 1J282 1,341 1,469 1,231 1,266 i;j9« Exemptions and (HhKf TsxaMe Property {1} $ 307 304 410 583 649 657 516 856 742 729 Net Assessed VMiiatfaMi $ 6,005 6,424 7.392 8,891 10,490 U.85! 13,010 14.303 15.741 17,708 Total Property Tax $ Revenue 11.238 12,410 14.196 16.762 19.658 22.286 24.974 •iftMO 30.220 33.751 T«^l>ir«<4 TaxRnHlZ) 0.187% 0.193% 0.192% 0.189% 0,187% 0.188* 0.192% 0.1S8% 0.192% 0.191% Taxable Asse&<$ed Value (in millions) IS Residential Property H Commercial Property jOfaduiarial Property 1997 1998 i999 2000 2mi 2002 Fiscal Year 2002 2004 2005 2006 Source; Co«»ty of San EHtefo, C^iforBia Auctoor and CoiUrc^kr. Not«s; infonnaiitsi about estimated actual vsiat of ja-operty is not avatlal>le-, the assessed value Ls based <HJ the tsnost recent sales vriae and includes secwed |>Fi£^)€«y only, i 1} Qtiter i^operty includes fartn, rural, iastituttiHial, lecfeationa}, state scoured i^^op^ty. unsecured pt%f«rty. personal ^nypetty attd fixttite!;. and llx.t(!fes. (2> The t<*al direct lax rate wa.s c^a^atedl by dividiBg die tc«al prc^erty tax rcvesuc by ilie total taxable VS&MC. (3) in Rscal Year 200304. there was an increase ia ^tt ^isessed valuation of the power plant suitsequeBt to its pardiase by CaliMllQ '^fi^S^^ 1^ CtTY OF CARLSBAD Fniu:i|iii!t Property Taxp3;yet^ Ctirr«nt Year and Kine Ye^rs Ag<» .l«j. Taxpayer Greysione Homes Jnc Avjara Resort Asstjcialcs KSL La Costa RifstHt Cpg Carlsbad HoMrags LLC Cwrtinuing Life Prentiss Pfap^des Boriters, [nc. Legoisffid CaKtonia, Inc. H.G. Person CeaiiftaBy pMiteHwneCorp CiJiaway GoJfCcsuKiny S&a Dkgo Gas & Electric Upper Deci Company Real EstaJe CoUat«Fal Mgmt, C©. Purttan-Befindt OaipcsratkJB Piaza Caaiwo R«al Shcw''»g Cvt Avia^a Land Associates LTD Hughes Airaaft Ctxeimty Vcms Cc^np^es, I&c. fetti Ne( assessed valuation Taii;abi« Assessed Vsim S 144,779.270 125,256,(K» 124,657,356 > 05.346,743 93,828,207 76,456,459 75,213,933 iijomxm 68,998,021 68,322,34* I 2 3 4 5 6 7 8 9 to Percentage of TotaJ City Taxabk Assessed Valae <1) 0.$2% 0.7 i% 0.7<» 0.59% 0.53% 0.43% 0.42% 0.40% 0.39% 0.39% Taxable Assessed Value 0 0 109,176.«»7 0 ' ' -•: ' - - Rank $ 953358335 $ 17,707.928.4^ 5.39% P«n:e8tage of Tetal City Assessed Vajne (1> 0 0 63,171,578 298,803,993 59,670.485 48,680.000 33,023,600 3l,405,{»7 26,022,165 23,412,450 23.090,328 $ 7»M55;753 $ 6,065,069.504 3 1 4 5 6 7 S 9 10 LOS% 4.98% 0.99% 0.81% 0-55% 0.52% 0.43% 0.39% 0.38% !l,5% Source: County ^rf San DtegoOfiketrf the AtKfitoron^CoMmilOT. ^Wl- CITY Ob' CA1U.SBAD Property Tax Levies and Ctdiecii^is l.<ast Ten fiscal Years Fiscal Year 1996-97 1997-'98 1998-99 1999-00 wmm imi-w. 2002-03 20&3-04 a(KM-05 2005-06 Trtal CiHrem Uvy^l) 12.010,693 13,601,772 15,717,747 18,306,661 3i.55i,102 24,108,706 26,709,09? 29,382 J034 39.7g5,892 <3) 44,915.159 Total Ctarent CailectKms (2) ti.265,012 f2,9i6,890 i4,995,54i {7,4.72,632 20,662,671 23.237,535 25,674,795 2a, J 54,961 38,162.630 43.053.536 % of Levy Cotkcted 93.8% 95.0% 95.4% 95.4% 95.9% 96.4% 96.!% 95.8% 95.9% 95,9% Property Tax Levies & CoUections tast Ten Fiscal Years 9 o R 9 cvt a B 9 n o ^ 9 I aTotal Cirrent Levy (!) I BTo^l CiKTent Colteottons (2) I SoiB'ce: Couflty ol S^» Diego Office of the Auditw and Coairolter. (]} 1tsc!ude<i reai (^t^ierty tran^^ taxes, honEteowner exemptieats and Pro]>os>itk>n 172 ptd^ic safety sales taxes. (2) Total Daient CoMeciioiis includes prior yesa- deJinqocncies and adjustmcats; ^HnqacBcy collcctioas by year are tiot available. P) In. Fiscal Year 2004-05, the City received $4.9 tniilkm ia property tax payraetiis in lieu of vciacle license fees. m im CITY OF CARLSBAD Katt«» of OatstaRditig Oeht by T^rpe J^ast Ten Fiscal Years (dMtans in tbousstnds except per capita) GovgrnHicBtal Activities Ffecat Year 1W7 m& 1999 2000 2001 2«)2 2W3 2«M M05 2006 Bo«d$/${>edai $ iJteM 21.18.1 14,740 14,460 14,170 13,865 13,540 13^00 12,840 12,460 12.065 Certificates of ParticijftatiiMt $ 6,6! 5 6,595 6,075 5.5?0 5.055 4,515 3,<3SO 3,360 2.74Q 2,505 Capital $ Lreases 2,5!2 2,jm 633 904 SSS 791 179 w; • T 1 L«>ans $ Payable 990 875 750 620 480 330 170 - - i : C)iit|tii4ili)#::Pibtt w0: 'Oipiii. ^ ,1997 1998 1999 20CM) 2001 2002 2003 WS 2«S HtHes: Details regardisig ihe City's CMitstaftding d^ caa be found in ibe notes to She fJBaBciaJ siaicwenils. (I) }n Fiscal Year 2005-06, the State WafCT Rcso«rccs Coulrol Board issued a tow interest loan for the C^isbad Water Recycling Facility for ,$9.5 miiiion. (2> PwcciUage of pers<»5al itRSMme is t:alc«lat«j using persrartal imx«me far t1» pri« year. Scarce; Cmxaiy of San Diego, California Auditor and CoRtroifer. Informafea ^ixmi essumatirf ^lual value of property is not presently availabk and theiefi>re IKA pjesentcd on these sfateaKBts. im BawHess-Type ActfviOesi Aecnied Assessments S 2,375 J,985 U52 951 789 621 443 357 - - Certificates 4>t f»rUcipati«n $ 8J60 6.360 5,405 4,410 3,370 2,295 IMS - • - fustaUment Purchase AsreesBwirts $ 11,080 iO.675 10,250 9,8 iO 9.350 8,870 8,375 7,855 7305 6,730 iMsm Pa^aMe m $ 3,097 t,999 1,S97 1,792 1.705 1.574 1,460 1,343 1,223 10392 Totat $ 55.0J4 45,628 40,722 38.227 35,.502 32,536 28,952 25,734 23,735 31,493 Percentage of Fersonai Income <2) - - - - 0.69% 0.60% 0.53« 0.47% 0.42% 0.53% Ver Capita $ S19.88 655.57 558.60 4S8.54 426.49 369.22 319.41 277.62 249.46 3f9.38 im 132^ CITY OF CARLSBAD Sdtedute of Direct and Overlapping Boitdeti n«bt Current Mscal Year 2005-% Assessed Valuaiioa: Restevekijitrrnt lacteraenial Valuatiwi: Adjustisd Assei.sedl Valuaikm: 0\'ERJL,VFPING TAX AND ASSESSiHiiTNT DEBT; Mctrc^x>iiiaB Water Dis^ict CarJsb:»d Unified Schtxs! District Carlsbad Unified School District CTO Ho. I Oceansiife Unified Sci»oo! Distffct Vista Uajfkd School District Encinttas Vnkn School DJstric! Sa« Marcos Unified School Distrtct ScJjool Facility Uia|Movesnent Dislrict San Marcos Unified School Dislrict CFD No. 4 Sari Marcos Einifted School District CFD No 5 San Dieguifo Union HS District CFD No. 94-1 San Dieguito Unjoit tiS District CH> Ho. 94-2 San Diegutta Union HS Dislrict CFD No. 95-2 San Dieguito Uaiort Hi^ School District ctsnbincd CFD Paksmar Pomerado Ho.spttal Di^ict OHvcBhaia Municipal Water Distrtct, Assess. Di^, No. 96-1 City of Carkbisd CFD No, 3. l.A. No. i City of Carlsbad 1913 Act Boads TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT DIRECT AND OVER! JityP»N<? GENER,4l. 11111^ DEBT; San Diego CouBly Genefal Fund Obtigatiotss Sart Dtego Couttfy Pension Ob!igati<M>s San Die^o City SuperiiHEindeat of Schools Oeneral Fuiid Obtigstidtis; Mira Costa CcxBHHajity Ct^tcge Dist Ccrtific^es of Partiopation Pakanar Co«MiHinity College District General i^itid 0!>iigati<M!S Carlsbad Unified Schofrf Disuiet Gencnrf PMWJ Obltgaicms Sa« Marcos Unitled Scltool District General Fuad Obligations Encioitas Uaiot! Scfoool District Certtficases of Particlpatiwt Other ScjKJOi District Ccrtifscates of Par£icq>Mton Cily of Carlsbad General Fund OWiga{i««js TOTAL DIRECT AND OVERLAPPING GEN FUND DEBT COMBINED TOTAL i>EBf 17,%5,43«,228 257..'>OL7g $ 17,707.928,440 Total Debt 6/30/2006 $ 389.565.0(K) 19,985,811 S,445,000 96,920.0(» 108.749.882 22,506.805 18,328.019 14,115,000 25.795,000 278,485 20,366.850 839,613 48,440,000 80,000,000 19,335,000 11,490,000 73,370,000 $ 9S8,53a465 I 389,852,147 1,23L2S3,916 12,495.000 4,760,000 8,425,000 36,3.30,000 5,910,000 L410,000 iOJ40,a>0 2,WiM>00 1 1,722,710,063 1 2,681.,240.528 PerccBt Af!|>licabte(^l} 1.223% 97.627% i 00.000% 0.006% 0.}I5% 30.607% 37.048% 23.403% 100.000% 100,000% 98.080% 12.035% 30.399% 2.204% 22.168% loaooo* 100.000% 6.293% 6.293% 6.293% 26.708% 2.816% 97.627% 3L?71% 30.607% Various 100.000% City's Share of 0el>t6/3(M)6 $ 4,764.380 19,511,548 8,445,000 5,815 125,062 6,888,658 6,790,164 3.303,333 25.795.000 278.485 19,975,806 101,047 14.725,276 IJ6X2W 4,286,183 }1,490.0«> 73.370.000 $: 201,618,957 ;|: 24,533,396 77.484,634 786,310 1,271.301 337,248 54,993,289 1,877,666 431..559 9.802 2,1«5,009 * 163.730,205 $ 365.349,162 (2) {I) PCTcctrtage of overiapptiig agency's assessed vaJsiti*® fe^ed ^iibiB ;b<^|*d*iBiS of Ae city. obl(gJU;ioB!>. Raaios to 2005.<S6 Assessed Vakiatitai: Total Overiappiag Tax and Asscssmcst Debt 1,12% RMias to Adjttaed Asse-ssed Valaation: C<mibitted Direct VtiU i%Z,imjSm) Coml^oed Tc*al DdM 0.01% 2.06% Source: Oilifornia Mimicipal Statistics, lac. 113 CITYOFCARLSBAIJ Direct and Overiapipin^ Debt Last Ntec fiscal Years (rate per $1,000 of assessed value) 1998 t999 2QM 2001 OVERLAPPING TAX AND ASSIffliSMElSrr DEBT; San Diego Coumy Water AuJhORty MetropoiitaH Water Dsstrict Cart:*®!} Unifssd SCSJOUJ DisfricS Cartsbad Unified Scfeoc^ Dssaict Lease Tax OWigatic«is Carlshsd Usified ScJjoc^ Disfirirt CFD No. I Ocean&iiite Uuified School Distria Visa Untfied Schtxt Di«f ict Enciaitas Uni<m Schcx:* District EiKinaas Urtiw* Sdjool Di^ict Lease Tax OMgaiiorts Sati M'^«os UfiiRetf &}»oi DisHict Sehotd Fac. lm{»ov. Hist. Tri-CSty Hcsspjtsl Distjrict P^sanar Ftmwrsdo HostMtai District Leuca4iaCp«nty Water District aewi i.D. No. 1 Valiecttos Water Disfrk* and I.D. No. 6 San Marcfx'; Unified School District CFD No, 4 San ^fercos Umfied School District CH> N«, S Saa Dieguito UnioH HS Owlrict CPD No. 1 Sail Di^uito Uiikm HS Dtsteict CFD No. 94-1 San Diegiiito Union HS District CFD No. W-2 San Dieguilo Union HS Dtstria CH> Na 95-2 San Dieguito Union HS Dtstrwt cvwsSMtjed CFD Oliveaaliasn Manieipaj Waur District, ID- No. 1 Oiivenhajn MBflkipai WaSer Disttict, A.ssess, DisL No. 96-1 City «rfCarM>ad CFD Ho. 3. i.A. Na i City o(Cmisbad 19!5 Act Bonds OiRECT AN!) OVF.RLAPPI.NG GENEM^ W^^. P^U^^M^Qh fiEBT^ San Diegi> Coumy (Jessera! Fttnsl Obligations S8« Diego County Pension ObltgatiMis Ssw Diegoi Ciu SupenntemfeRt o( Sciiools Ctrjerai Bind Ohligatioos Mira Cnsta Coninuinity CoUege District C^Tlificates of Participation PaJotnar Communtty College District General Bjnd Ohiigaiions Cartel-sad Unified School Di^rtria General Flmd Obligations Sam Marcos Unified Sckxrf Disaiicl Cknt^ai Fund Obligalitsns San MMCOS Uaifitd Schotd Dis^-ict Certificates rf PartJci{>a&>« Eiicinitas Uaiori Sdit«.>l District Certificates of P^tKipatitxi Olhett Schoirf District CerlificMes of ParlicipaJion City «f Carload General Fund ObSgatiom s 0.068 0.«?6 4.009 L0f76 LT7S L032 0.226 t.023 0.012 % O.D54 0.6«l 3.S)2 0,729 1.638 0.94i 0-174 0.7S.5 - S O,tM0 0,6! i 2.9m 0,186 1.315 C.S74 0.131 0,682 , S 0.02S 0,545 2,472 0.18? 1.073 0,756 0138. 0.613 - 0.004 r J ^ - - 0,0S7 0.6S3 4.702 3,9.S8 2.933 con 0.06! $ 'M^' mmi - - - O.OH 0.611 (iM7 3.,'i84 2..%9 O.Olo 0.246 $ 1.457 L3J9 - - - 0.00.1 0,.553 4.908 3,524 .1.149 0.014 0.207 $ t.216 - 0.029 2.{K1 0.032 - 0.465 3.95^ 3,016 1.80 J 0.012 0.t76 L733 1,514 1.460 5.493 0.103 0.26S 0026 !.«27 0.075 0.212 002S 0.«22 0.050 0,166 0.021 MU 0.031 0,063 0,018 0.482 Note: Data is unavaiiabfe for 1997. ScsBittT Catifwnia Municipal Ssatistics, Inc. 134 20^ 2W4 2005 2W6 S 0.017 : 0.485 2.099 0.i22 0909 0.005 0,678 0.050 0.639 - •^ 5-059 0.02.5 i.8!6 0.{BS - 0.400 - 3.2S7 S 0.008 0.398 1.S32 0.O7O 0.789 0.W4 0.621 0020 0.544 - ^ 1.909 0.023 1.628 0.025 - 0.357 - 2.809 $ - 0,368 1.594 0.033 0.67S 0.00.*5 0,530 - 0..S24 - : L8S6 0.020 5.456 0.023 0.973 0.314 - :s.t45 $ 0.319 1.342 - 0.578 O.005 0.471 0.448 - -• 1.677 aois l.29g 0.020 0.884 0.279 - 4.848 t 0.269 1.102 - 0.477 0,007 0.389 - 0,383 0.100 0.J87 1-457 0.016 1.128 OJ006 0.832 0.242 0.649 4.143 f: 2.705 :$; 2.2Si f LgSl $: J.855 $ I.3S5 t.470 O.Oil 0.145 - 4.843 0.015 0.0?8 0.022 ^Ml 3.951 0.010 0.121 - 4.392 - 0.045 0.021 O.M»4 5..53S 0.00? 0.09S - 3.%l 0.143 - 0-037 0.018 ^M$ 5Jm 0051 0.0S5 - 3-557 0.122 - 0 032 0.055 0.174 4.376 O.ftW 0-072 O0i3 3.106 0.106 - 0XC4 OiJOt 0.119 'iMi CITYOFCARI^BAD I>«gal Debt Margin Intomi^tton Last Tm. Fiscal Yeats (dollars in thousjotds) 199? i9m 2000 200! N« assesseiJ valtmkm i>«btli™t<23%xJ5^> Atnotmt of debt ^^Ikabte to liinit: Bonded deiK Certificates of piarticipalk>» Ofeligatiotss itBdet capita) leases Total isei fld^ appiicaWe to Umit Legal debt margifi Total net (kbt appllcaiflc to the Sniit as a percentage t>{ debt limt $ $ 6.005,070 225,100 21JS5 6,6i5 113 27,913 197.277 $ $ 6,424;23! 240,909 WJ40 6,595 2J9"5 23,734 217.P5 $ $ 7.391,939 277.198 14,4«) 6,075 633 3).168 256,030 $ % 8.890,68.^ 333,401 14.570 5,570 904 20,644 3i2J57 $ „;i.. 10.490,116 393,380 13,865 5,055 S88 (9,808 :. 373,572 12,4% 9.9% 7.6 6.2^ 16.0% 12.0% Percent of Debt ApplkaMe to the L«gal Debt Linilt 1997 1998 1999 20m 2001 2002 Fiscal Year H»3 2CX>4 2005 20W Note: llitdw state finance law, tlie CiJy's outsis assessed jSft^joty v^ue. By law, tlie g repa^ng geti^ral obligation liotsds. gL^jeml obiigalicai debt .'shcwW not exct'cd 15 percent {as adjusted) <rf laal t*ligaljf»i debt object to the iimitasinjn snay he rffset by airouuiHs set aside for IM 2002 ima 2&IH 2ms 200« 1 f {,850,679 444,400 ! 3.540 4,515 791 18,84& t 425.554 4.2^ $ $ 13,009,712 487,i^ 13,200 3,950 179 17,329 47Gk,535 3:,6* % 34.303,050 $ 15,741,122 $ 17,707,928 536.364 5<X),2« 664,047 $ 12.840 3360 79 16,279 520.085 .Jl'..- 12.460 3,740 7 15,207 .., 575.085 12,065 2,105 1 14,171 $ 649,876 iJs* §jm f;» il37 CiTY OF CARLSBAD Hedged-Revemie C«verag« !ia«t Nine Rscai Years Sewtr Reve»Be Bends Fiscait Year 1998 1999 2000 2001 2O02 2003 2004 2005 2006 Groiis ReveiiHJes (1) S3> $ 7,331,548 7,897,329 8,421,638 J 1,089,995 9,43S,80? 9,342,266 6,854.00! 8,557,18-t 8,306,783 I^ess: Expewses (2) $ 3,037,634 3,762,721 3,792,799 4,352,912 4,707,348 4,584,265 5,284.357 5,156,663 6.009.2S2 Net Availafote Revenue $ 4,493.9!4 4,134.608 . 4,628.839 6,737,083 4,731,4,59 4,758,001 1,569,644 3,400,520 2.297,501 0eht Servke PrincipiftI $ 405.000 423,000 440,000 460,000 480,000 495,000 520,000 550,000 575.000 Interest $ 513.179 517,672 5(K)371 482.027 462.162 441,199 416,256 387,585 36l,.394 Coverage 4.89 4.39 4.92 7,15 5.02 5.08 L6S 3.63 2.45 Source; City of CarSsbad (U Include opcrat!»ga«d non-t^erating revenues. (2) Include operating and noci-operating expenses. excliKiiag deprcciation, t3> Fiscal Yesir 1997-98 is ibe first year debt service paym«Ss were made, (4) iftclude recyciej water opcratiag ami non-cperating leveaucs asH* tees. (5) Include recycled watC! operjaistg and nonoperaiing expMtse.'s, cxckwliHg depicciatiofl. (6> No debt seivice payments will be made on the oatsiasdittg loais unitl Fistai Year 2006-07. 138 Rccycted Water htrnt Gross Rtremies (4^ n/ii ij/a a/a n'a a/a ti/a nfa in/a Less: Expenses (5) a/& n/a n^a n/3 n/a a/a s/a ri/a Net Available Revenue n/a jn/a n/a n/a a/a n/a o/a n/a 0eW Senftee Pritidpal («) o/a aS A n/a tt^a ifa i^ eHt Interest {6> ft/a !i% a^a ni^ a*3 n^ •^ i^ Covers*:*' a/a n/^ n/a itfa n^ B/a li/a n/a 2,404,369 2,347.032 57337 im ClITOFCAHtiiBAD nenii^raphic and Kcornxme Sialistic^ l.ast T«B Klseal Years Year 19% 1997 1998 1999 aooo 2001 2002 2003 2004 2005 2006 Twal 65,500 67,100 &9.600 72,900 78,247 &.i242 8&.t20 90,643 92,695 95,146 98,607 %ofS.0. Ctxsmy Popalat'ioB 2% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% % Oiaege from Previous Year i.m. 2.4% 3,7% 4.7% 7..19J 6.4% 5.9% 2.9% 2.3% 2.2% 4.0% Median Age n/a n/a fi/a n/a 38,9 38.9 39.4 39.7 46-9 40.4 40.7 Avg, Ht)as«*(dd Sixe n/a a/a n/a n/a 2.46 2.46 2.4S 2.48 2.» 2.47 2.52 Soarces; Population data is froiH ri«e Cajifts^ia OefKBtmest <tf Fmaacc and SANl>AG. HcsusehoW and cteniographic cteracterjstics estiinales JBTC fiom SANDAG C«nti^^itS»e;it ste UiS. CJeams iamii Census 2006 aad America CoHHBuiHty Sia vey. Incwi^ estimates are deiived bosa isAa from tiie Bureau of E«3»K»r»ic Analysis, U.S. Census Bureau Census 2000. Cfsreax {jopul^jon estimates are from SANDAG. Unes^ymcHi r^e ewknaies sa:e fr<»ti Use C^ifwnia En^>k>!^vient Deveiopnsent DepMUnent, (t) Values IB iaflMicHi-adjusted 2005 ddlars. (2) Per Capita Personal IfKrcsne and UnejnploynWrt RateareeakliteesdonacalesKlarye^basis, smdtherefaeisatpt avajij*le fer 2006. (3) PersoBal Income is ihe Mai aggregate J6c<wne HUM con«lates to the %oin\ pojMjatsoB. mm Editcsticaial Atuirnneitf % High School Gjaduate a/a ii/3 a/a n/a 93% n/a n/a li/a i)/a 95% n/a % Bachelor's De^ecor Higher js/a n/a B/a n/a 46* a/a n/a a/a a/a 47% n/a Personal iscome It/a n/a n/a n/a $4,S63 $5,087 S5,»2 $5,331 $5,552 $5.70S n/a Per Ci^ita P^s«»l income UH2) n/a n/a a/a a/a $e2,im $61,1©0 $60J0O $58,800 S59.SW $60,200 tt'a llnenqjioynicta RMet2) n/a R/a n/a It/a 2.5^ 2,7% 3,4% S.a^'e 3.1% 2.8-% n/a 141 rn-\' OF CARLSBAD Priitcipal Employers Current Year aud Hmn Years Ago 2(m i997 Mgtaufactnriiig Caliaway Go^f ViaSat Taylor Made OoJf - Adidas Golf Cana^aay AcBshnet OoSf the Upper Deck Ziimnet Dealai As>nKek Dot iiiU Sysleats BeckinanCwultw Cobra Golf Inc. il Nclicof Psaritan Bennsit Ciwp. Smith & Nefrftew Donit^, Inc. Asbwtffth, {nc. Republic Tod & Mfg. Gom^aHy Paloniar Prodacts Employees Rank % of Total Ci?y Bjaptoyiaent i.63? 9S2 736 65Q 530 333 321 278 275 263 1 2 3 4 5 6 7 8 9 10 2.9^' l.S%. 1.3% 1.2% 1.0% 0.6% 0.6^ 0.5^' 0S% 0.5% Hrr^^loyees Raiifc 275 400 700 1 10 1,000 l.QCO 602 400 400 300 2 3 5 6 7 9 NoB-Mauufactaring La Cos;ta Resort & Spa Carisbad Unified Scfwol Diseiel LEGOI^ND, Caiifartiia Fc»a' Spasoas Resort - Aviaira Cny of Carisbad Grand Pacific Reswls Gesnological lastiluS'e of Atwrfca Prescription Solutions Eastridge Costco ISIS Phannaceuiicak Plaza Camino Real Car G>antry Carisbad Farmcis inswasKe Sam Diego Cias & Electric Software trf the Montli Club SoWoteJ Eropiojces Total Em^oye«s 1,068 950 801 78} 660 465 421 420 415 379 I 2 3 4 5 6 7 S 9 10 i.9% i,7% 1.4% 1.4% L2% O-S*?. 0,8't 0.8^ Q.r/c 0.7% 12^55 55,538 2i.l% Source: Carisbad Business License Data (2006) and Carlsbad Chamber of Ctanmerce( 1997 V {I) Tot:^ Employs* count is not available fm i997. (2) Tbfi^ einployers are now iiacked hy ittrHvidual store versus combined by mall name- 1,050 610 526 450 2 3 4 # 300 .3.000 500 400 300 245 S i 5 ? 9 M m m 14,7M n/aUi W' 143 AuifmtixeA Vuli and 3/4 Tinne City Govemnienl Employees by Major Service Area l»as( Hiae Kiscal Years Major Servke Area 19?7 wm :2«J General iJovenmsenf Chj' Council Ci»y Mana^ Cona«anicaik>as Ciiy Treasurer City Attoritey AilininistratioiJ Recwds Manageroesjl InfwnKttion Tedhnology Fiaance Risk Managemesit Human Resources and Werfceft PubKe Safety Poike Rre Communiiy Development Comnuinity Dcvelaf«tieM Bttildiag i&spection EcomsiBJe Develojjnwni Geograj^Jc InftKtnattcsj fiatiRing Housing aad RcdevelopmeBt CcHRfunttnity Services Ubraiy CuUuiat Arts tecreattOB & Sesior Prc^aBis P«iWic Works Administration & EnvirsjanKalal Propsuns Eogtneeriag Services GeBsrai Services Maimcoance & Operations Fid] and 3/4 Time Aothnnzed Employees iacrejtse/(«JecTease) over prJOT year im &m 0.75 S.CiO - 3.60 5.40 19.00 i.OO 8.00 1500 79-00 4.00 H.OO 100 1.00 24,00 10,00 31.50 3-00 20.00 6,75 38,00 52,7.5 76.75 25.50 - 1-00 S.OfS 0.75 5.00 - 3.60 6.40 19.00 100 8.00 122.00 79.00 4.75 13.00 S.OO 1.00 24m 10.00 32,50 3.m 21.50 7.00 34.00 50.75 76.75 533.00 7,50 1.00 9,00 0.75 5.00 - 4.00 13.00 19.00 2.00 8.00 128.<» 79.00 4.75 13,00 1,00 2.00 24.ro 10.00 32.25 3,00 21,50 7.25 37.00 47.25 81.25 553.00 20.00 1.00 6.75 0.75 6.00 •2.00 8.00 14.00 26,00 2,00 9,00 134.00 79.75 4,75 13.00 1.00 2.m 24.00 10.00 -t0,75 4,00 22.00 3,00 49.00 51.75 70.00 584.-50 31..50 1,00 6m 1,00 0,73 6.00 2.00 S.OO 15.00 27.00 2.00 9,00 13&.00 79 75 3.75 13.00 1.00 2.00 24.00 10.00 41.75 4.W 27,00 3.00 48.70 55.75 70.30 599.75 15.25 Sotwce; City «f Carlsbad C^ierating Budget Notes: A MMime etnpJoyee is scheduled to work 2,080 hwirs per year liaciuUing vacaiion and sick-leave). A 3/4 time eruployee is sdiedulcd to wmk ! ,560 hours per year (iacluding vacation and sicli-leave). 1B 1997 the City went tlxHrgh a lewgaajxatjon atHJ M^at Service Arcias tMSAs> were created. im zmfz zwi 20«4 tms imm 1.00 6,00 1,00 0.75 7.00 2.00 S.O0 I5J)0 27.00 2.00 i0.00 143.W 79.75 3.00 S3.00 too 2.00 2%m 10.00 46.25 4.75 3000 3.50 58.70 57.25 70.30 627.25 27,50 1,00 6.00 2.75 0.75 7.00 2.00 8.00 16.00 28.00 2.00 to.oo 15000 79 75 3.00 13.00 1.00 2.00 25.00 lO.OG 4S00 4 75 33-00 6.00 57.00 57 75 73 00 646,75 19.50 1.00 6.00 2.75 0.75 7.00 2.0) 8.00 16,00 28.00 2.00 to.oo 148,00 79 75 3.00 13.00 J-00 2.00 25.00 10.00 4S.0O 5.00 33.00 6.0) 57,(» 58,7S 73,00 646.00 (0 75) i.OO 6.W 2.75 0.73 7.00 2-60 SM 1600 28J30 2.00 10.00 ! 48.00 7975 3.00 13.00 im 2,00 25.00 10.00 48.00 5.00 32.50 14.20 5!.!0 82.83 47.10 6mm -, i.OO 6.00 2.75 0.75 7.00 2.00 8.00 i6m nm 2.00 mm 151.00 7$.75 4.00 13.00 t.oo 2,00 24,00 10,00 4S.00 5X» 32,50 14,20 51.60 91.95 49.50 6^.00 H.m 145 CITY OF CARLSBAO Upcrating Indicators by Fuiictiun/I>r(^ran< l-ast Two Fi<;cal Y«irs General Government Number of lectaitnients pifKiesseiJ Number of aew hires atwl j»is>tmj&ans. Basiaess licci»s«s& jsroccssctl Public Safety Police Ca8s ftsf service Average priority ime resp«Kise (minutes) Cases Fire faspecfiosi - sew ctmstructjoa E«»cr^«cy rcs^orscs Fires exlMgui^sed CaBtnmiaty i>evel^Ri«ii Affordafck hoasiag wriis ictw^tted FinaiKtal assistance » afft«dabk hoastsg jir^ecte Hesi^enbst! building permits i^ued Code enforcwncnt inspeetitms Bmldmg t»^[)ect>on$ coiUbKied Final irispections (dwelSng units) f batuag 3|>pii£^ti(Kis considered CwnmiiiMty Services Ubrary - Mit) matmai circula^ss Ltte-jcfy - ffatuM* vfetls Aiti - ajjinber wf evca& A«s - jtttMMtoce of cixnis Retfcaoos • youth sfKats parBCi|>a»Hs 8ecreaii<B! - admit sports fi!Wticif>aots Recreation - eoikiraent cfasses held R^crfii^tkM - jfrniickment dass «^r(dtees R«a«ation - spcdiU events. partJcipsBts Publit; Wwlis SirtHs Road mites ~ overlay or slurry sea! Tiws tfimnved Carisb»d Munk^ Water DN;r)ei Pwable water deiiveiies - acre feet Average ^fly cossumptiaa tgaVsin^ fesiiyj Vtlaiei castDsacfs Sewtr Sewage l»JS()Cit (mgd) Ansuaj tlow (mg(!> Sewer cBsssners Sowee: &^MC0^i^ taS: 'm& m m tMi fi IM ;«^5 74,546 6.8 10,859 79,S5? 6.3 19.605 6J03 22t> 439 .1,600,000 1,745 5,600 53,J67 5.702 197 1.382.974 751,326 63 5Dflr» 1,100 5.100 1.650 16,700 2.000 7,245 21S 110 $1,440,000 94g S,60sl 31,000 1,440 162 1,237,311 8*)S,5n 62 65,0(X5 1,150 S,i30 !,6S0 36,700 3.S00 28.20 1J67 19,172 363 83,<«» 7.36 2,688 62.57'e 32.30 1,800 19,885 198 83,800 6,62 2,416 64,095 ^AM CITV OF CAKtSBAU Capita! Asset Statistics lisst Two Fiscal Years 39 295 625 13 J 2 t 373.998 39 2&5 625 27 i 2 2 380^)00 ComniiHtitv Services Nusite* of parks Acre^ of partes Acres of open c^iace Mites of traii^ NuTi^)« of pools Nuiiy>er of comitamjty cttAen Ntmrfjw of libraries Nuffiber of materials in Itls-a^ collectHais Ftre Prot«cti(m Nambw of stations Number of fire tracks Naraber of aH^alajtees Narnber of other fire vdiicles Poike Pr0l«cti«n Nwmbf r of patrol and «her vchkJes Nuftrf>er of rncwxcyeies labile Woiics Carlsbad Muskipal Water District Nun*ertrf water cxsincciioRS 15,900 27,<X)0 Mifcs of bnes and maias 434 488 Number <rf sesfer cosneclkms 20,500 21,839 Miles of sewtars 254 2S2 Miles of streets 295 338 Nun*erMf str«ljighis 6,445 6,186 N*ijsbej of teafffc sigstals 13S 152 Source City ofCarisbad 6 tl 4 i| 85 13 ::6 11 4 It; S2 B tm tM APPENDIX B FINANCIAL AND DEMOGRAPHIC INFORMATION ABOUT THE CITY OF CARLSBAD GENERAL The City covers approximately 42 square miles. The City hosts a diverse array of commercial, industrial and recreational venues including three shopping centers (a major regional shopping center, a specialty outlet center and a community center); a major family theme park; an auto mall; more than 30 hotels offering 3,500 rooms for tourist lodging; high-tech, multimedia, communication and biomedical businesses; electronics, golf apparel and equipment manufacturers; several business and light industry parks. In addition, numerous land developers are active in the community. The City provides the full range of services normally associated with a municipality including police, fire, parks and recreation, library, planning and zoning, building and engineering, various maintenance services and administration. The City provides water and sewer services through the Carlsbad Municipal Water District, a subsidiary district of the City. Solid waste collection is provided through a franchise arrangement with a local refuse collection service. The City operates a redevelopment agency that encompasses two areas: the Village Redevelopment area, which includes the downtown and historic district of the City, and the South Carlsbad Coastal Redevelopment area, which includes Ponto Beach and the Encina Power Plant. The City also operates a housing authority that provides low and moderate income families with housing assistance. CERTAIN FINANCIAL INFORMATION The following selected financial information provides a brief overview of the City's finances. This financial information has been extracted from the City's audited financial statements, its adopted budgets and, in some cases, from unaudited information provided by the City's Finance Department. The most recent audited financial statements of the City with an unqualified auditor's opinion is included as Appendix A. See "APPENDIX A - Comprehensive Annual Financial Report for the City of Carlsbad, Fiscal Year 2005-06." The City's audited financials are available on-line at www.ci.carlsbad.ca.us/finance. Accounting Policies and Financial Reporting The City's accounting records are organized and operated on a "fund" basis, which is the basic fiscal and accounting entity in governmental accounting. The three broad fund categories include governmental, proprietary and fiduciary funds. The operations of the different funds are accounted for with separate sets of self-balancing accounts with assets, liabilities, fund balance or equity, and revenues and expenses. The basis of accounting for all funds is more fully explained in the Notes to the City of Carlsbad General Purpose Financial Statements contained in Appendix A. B-1 Budgetary Process The budget of the City is a detailed operating plan which identifies estimated costs and activities in relation to estimated revenues. The City follows the following procedures in establishing its budget: 1. During May or June, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing July 1. The budget includes proposed expenditures and estimated revenues on a departmental basis. 2. Public hearings are conducted at City Council meetings to obtain citizens' comments during June. 3. Prior to July 1, the budget is enacted legally through passage of an appropriation resolution. The City Manager is authorized to make transfers of appropriated amounts from one department to another within a fund. Revisions that alter the total appropriations of any fund must be approved by the City Council with the exception of budget adjustments that involve offsetting revenues and expenditures. The. City Manager is authorized to increase or decrease an appropriation for a specific purpose where the appropriation is offset by unbudgeted revenue which is designated for said specific purpose. Monthly reports are provided to the City Council during the year, and any changes to the adopted budget are approved by the City Council as necessary. During the year, several supplementary appropriations may be necessary. Expenditures may not exceed budgeted appropriations at the fund level. All appropriations lapse at fiscal year-end unless the City Council takes action in the form of a resolution to continue the appropriation into the following fiscal year. B-2 Set forth below is a summary of the City's adopted budgets for fiscal years 2004-05, 2005- 06 and 2006-07. Table 1 CITY OF CARLSBAD General Fund Budgets For Fiscal Years 2004-05 through 2006-07 Revenues: Taxes Intergovernmental Licenses and permits Charges for services Fines and forfeitures Income; property/investments Interdepartmental charges Other revenue sources Miscellaneous Total revenues Expenditures: Policy and Leadership Group Administrative Services General Government Public Safety Community Development Community Services Public Works Principal Retirement Interest and Fiscal Charges Non-Departmental Contingencies Total Expenditures Final Budget 2004-05 <^' $ 74,487,000 6,767,000 3,000,000 7,778,000 900,000 3,010,000 2,600,000 0 1,000,000 $99,542,000 0 0 17,158,714 37,125,031 9,970,360 19,730,580 20,001,480 32,577 2,894 0 0 $104,021,636 Adopted Budget 2005-06 $85,961,000 1,647,000 2,750,000 7,091,000 926,000 2,960,000 2,700,000 750,000 0 $104,785,000 $ 4,062,276 6,448,166 0 35,486,224 6,567,449 15,775,902 18,955,549 0 0 7,600,720 2,300,000 $97,196,286 Adopted Budget 2006-07 $ 94,498,000 1,670,500 1,736,000 6,851,621 978,700 3,291,700 2,180,000 968,250 0 $112,174,771 $ 4,453,776 6,836,872 0 39,209,726 6,832,961 16,616,715 20,965,681 0 -....•0, 9,146,350 2,300,000 $106,362,081 (1) Adopted budget numtiers reflect the final budget adopted by the City Council, not the budget adopted at the beginning of the fiscal year See Table 3 for a summary of actual revenues and expenditures for fiscal year 2004-05. Source: City of Carlsbad adopted budgets. B-3 In connection with adoption of its fiscal year 2006-07 operating budget, the City's management discussion included the following: Carlsbad's residential real estate market has continued strong throughout fiscal year 2005- 06. The City expects to issue approximately 1,000 residential permits in fiscal year 2006-07, a decrease from the 1,663 in the previous year. The number of permits is expected to decline due to a lack of supply and a slowing economy. With supply relatively low, housing prices have continued to escalate. Commercial and industrial development has been averaging 800,000 square feet per year. This is expected to remain about the same over the next five years. The effect of the new development and the demand for housing in Carlsbad is an increasing tax base. the four major revenue sources for the City, property taxes, sales taxes, transient occupancy taxes and franchise taxes provided approximately $82 million, or approximately 94.3%, of the City's General Fund revenues in fiscal year 2005-06. These taxes and fees are the major source of funding for most of the City's services. The City'^ fiscal year 2006-07 General Fund budget includes total expenditures of $106.4 million, which is 9.4% more than the previous budget of $97.2 million. The increase is mainly due to a 7.3% increase in personnel costs, including the addition of 15.25 positions. Personnel costs make up approximately 65% of the General Fund budget so any changes in these costs can have a significant effect on the total budget. General Fund Financial Summary The information contained in the following tables of revenues, expenditures and changes in fund balances, and assets, liabilities and fund equity has been derived from the City's audited financial statements for the past three fiscal years. A copy of the City's audited financial statements for the twelve months ended June 30,2006 is attached as Appendix A. B-4 Table 2 CITY OF CARLSBAD General Fund Balance Sheet As of June 30 for Fiscal Years 2003-04 through 2005-06 Assets Cash and investments Receivables: Taxes Accounts, net Other Due from other funds Due from other governments Inventories Prepaid items Restricted cash and investments Loans receivable Deposits Advances to other funds • Total assets Liabilities and Fund Balances Credits Liabilities: Accrued liabilities Due to other funds Deposits payable Due to other governments Advances from other funds Deferred revenue Total liabilities Fund balances: Reserved *^' Unreserved Designated, report In: General Fund Special Revenue Funds Debt Service Funds Capital Project Funds Undesignated, report In: General Fund Special Revenue Funds Debt Service Funds Capital Project Funds Total fund balances Total liabilities and fund balances 2003-04 (audited) $71,632,522 7,116,026 95,130 300,476 339,296 65,040 15,165 6,600 - 158,844 - 17,896,310 <R97.fi?5.4n9 $ 3,477,383 - 56,558 2,027 - 10,031,893 13,567,861 27,916,775 13,124,942 - - - 43,015,831 - - - 84,057,548 S,<^7 fi?5 409 2004-05 (audited) $85,055,541 7,512,236 285,731 157,209 720,942 1,324,553 14,733 15,813 - 144,138 - 19,564,964 $114.795 860 $4,175,784 - 455,350 5,585 - 10,763,017 15,399,736 44,996,160 15,042,975 - - - 39,356,989 - - - 99,396,124 $114 795 860 2005-06 (audited) $64,420,482 5,763,301 61,073 403,211 0 62,875 19,568 0 - • 124,417 52,981,823*^' $1?3.836.75n $ 4,342,870 • - 71,618 2,284 - 12,795,248 17,212,020 45,131,308 13,974,339 - - - 47,519,083 - - - 106,624,730 SI 73.836 750 (1) Increases in fiscal years 2003-04 and 2004-05 reflect a reservation of an additional $15 million each year for Golf Course construction expenses. (2) Primarily reflects advances from the General Fund to the Golf Course Enterprise Fund. Source: City of Carlsbad, Finance Department, Comprehensive Annual Financial Reports (2003-04, 2004-05, 2005-06). B-5 Table 3 CrTY OF CARLSBAD General Fund Summary of Revenues and Expenditures Fiscal Years 2002-03 through 2005-06 Revenues: Taxes Intergovernnnental Llcertses and permits Charges for services Fines and forfeitures Income from property and investments Interdepartmental services Contributions from property owners Donations Miscellaneous Total revenues Expenditures: Current: General Government*^' Public Safety Community Development Community Services Public Works Capital outlay Debt service: Principal retirement Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses): Transfers in Transfers out *^* Total other financing sources (uses) Net change in fund balances Fund balances (deficits) at beginning of year Fund balances (deficits) at end of year 2002-03 (audited) $66,065,459 6,629,117 2,042,529 7,709,350 860,692 4,252,380 2,686,817 - - 650.339 90.896.683 8,131,557 26,473,075 6,033,966 12,923,374 14,848,762 - 598,886 59.570 69.069.190 21.827.493 1,214,472 (40,059,818) (38.845.346) (17,017,853) 88.154,736 $71,136,883 2003-04 (audited) $70,831,211 5,717.861 2,328,524 7,583,932 936,406 1,476,749 2,604,355 - - 1.479.370 92.958.408 8,718,703 30,478,373 6,564,344 13,705,769 15,821,803 - 85,136 9.881 75.384.009 17.574.399 314,266 (4,968,000) (4.653.734) 1.2,920,665 71.136.883 $84,057,548 2004-05 (audited) $75,003,646 9,815,218 3,392,682 8,023,260 950,813 2,956,876 2,565,543 - - 1.066.032 103.774.070 11,341,515 33,544,123 6,999^415 14,561,441 16,397,864 - 32,577 2.894 82.879.829 20.894.241 139,765 (5,695,430) (5.555.665) 15,338,576 84.057.548 $99,396,124 2005-06 (audited) $87,223,261 1,102,240 2,504,019 7,751.673 1,063,268 2,411,227 2,611,380 - - 1.280.462 105.947.530 16,051,181 36.201.909 7.049,027 15,406.372 18.046,546 - 6,663 460 92.762.158 13.185.372 76,666 (6,033,432) (5.956.766) 7,228,606 99,396,124 $106,624,730 (1) Increases in fiscal year 2004-05 and 2005-06 reflect one-time emergency capital projects required to repair damage resulting from winter storms in calendar year 2005. (2) In fiscal year 2002-03, the City's voters approved Proposition C, which set aside $35 million for specific capital projects. As a result, the City transferred $35 million from the General Fund to a capital fund. Source: City of Carlsbad, Finance Department, Comprehensive Annual Financial Reports. B-6 Tax Receipts Taxes received by the City and deposited in the General Fund include property taxes, sales taxes, transient occupancy taxes, franchise taxes and others. Of such taxes, property taxes (approximately 43.6% of the City's 2005-06 tax revenues), sales taxes (approximately 31.3% of 2005-06 tax revenues), and transient occupancy taxes (13.2% of 2005-06 tax revenues) constitute the major sources of tax revenues. The City believes that none of the general taxes currently imposed by or for the benefit of the City are affected by Proposition 218. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS - Proposition 218." The following table sets forth tax revenues received by the City and deposited in the General Fund for fiscal years 2001-02 through 2005-06 by source: Table 4 CITY OF CARLSBAD General Fund Tax Revenues by Source For Fiscal Years 2001-02 through 2005-06 Fiscal Year Ended June 30: Source: Property Tax Sales Tax Transient Occup. Tax Franchise Taxes Business Licenses Real Property Transfer Tax Total Tax Revenues 2001-02 (unaudited) $22,286,368 21,660,902 8,533,329 7,494,684 2,440,387 1,193,198 $63,608,868 2002-03 (unaudited) $24,973,532 25,542,844 8,387,388 3,729,712 2,305,178 1,126,804 $66,065,458 2003-04 (unaudited) $26,960,253 25,571,192 8,813,426 5,027,425 2,871,715 1,587,201 $70,831,212 2004-05 (unaudited) $28,381,557 26,330,537 10,072,278 5,682,953 2,889,989 1,646,331 $75,003,645 2005-06 (unaudited) $38,041,495 27,294,382 11,512,552 5,429,311 3,039,678 1,905,842 $87,223,261 Source: City of Carlsbad, Finance Department. Property Taxes In its fiscal year 2006-07 budget, the City projected property taxes in fiscal year 2006-07 to grow to over $43 million, a 21% increase over projected property tax revenue for fiscal year 2005- 06. This includes a 15% estimated increase in assessed valuation as provided by the County Assessor in May 2006, as well as the return of $1.8 million from the State of California, with the conclusion of the two-year Education and Revenue Augmentation Fund transfer ("ERAF"). The 2004-05 State budget reallocated Property Taxes for Vehicle License Fees (VLF). See "Impact of State Budget" below. Thus, instead of receiving approximately $5 million in VLF in 2005-06, the City now gets additional property taxes in an equal amount. These amounts will continue to grow at the same rate as the City's assessed values. Assessed Valuation. The valuation of property in the City is established by the San Diego County Assessor, except for public utility property which is assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the full value of the property, as defined in Article XI MA of the California Constitution. Prior to 1981-82, assessed valuations were reported at 25% of the full value of the property. See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS," above. A State-reimbursed exemption currently provides a credit of $7,000 of the full value of an owner-occupied dwelling for which application has been made to the County Assessor. Revenue B-7 estimated to be lost to local taxing agencies due to the this exemption has in the past been reimbursed from State sources. Reimbursement is based upon total taxes due upon such exemption values and therefore is not reduced by any estimated amount of actual delinquencies. The following table shows assessed valuations for fiscal years 2001-02 through 2006-07. Table 5 CITY OF CARLSBAD Assessed Valuation Fiscal Years 2001-02 through 2006-07 Fiscal Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Secured $11,586,003,633 $12,801,430,765 $14,054,283,700 $15,473,484,241 $17,393,240,183 $19,596,144,879 Unsecured 519,294,090 487,682,538 559,694,669 600,161,425 679,328,354 860,837,118 Less; Exemptions (115.461.551) (131.448.341) (153.968.422) (175.992.876) (203.221.497) (229.922.470) Total Assessed 11,989,836,172 13,157,664,962 14,460,009,947 15,897,652,790 17,869,347,040 20,227,059,527 Valuation Less: Homeowner's (139.157.200) (147.953.400) (156.959.600) (156.531.200) (161.418.600) (167.166.169) Exemptions NetAssessed $11,850,678,972 $13,009,711,562 $14,303,050,347 $15,741,121,590 $17,707,928,440 $20,059,853,358 Valuation Percent Change 13.0% 9.8% 9.9% 10.1% 12.5% 13.3% Source: City of Carlsbad, Finance Department. Does not include state-assessed unitary values or redevelopment incremental valuation. Ad Valorem Property Taxes. Taxes are levied for each fiscal year on taxable real and personal property which is situated in the City as of the preceding January 1. For assessment and collection purposes, property is classified either as "secured" or "unsecured," and is listed accordingly on separate parts of the assessment roll. The "secured roll" is that part of the assessment roll containing State-assessed property, the taxes on which are a lien on real property sufficient to secure payment of the taxes. Other property is assessed on the "unsecured roll." See "CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS." County Tax Loss Reserve Account ("Teeter Plan"). Although the Board of Supervisors of San Diego County adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan") in 1994-95, as provided for in Section 4701 et seq. of the California Revenue and Taxation Code, the City is not a participant under the Teeter Plan. Therefore, the City's property tax revenues reflect actual collections. The City's property tax revenue is based on the City's portion of the 1% tax rate of the assessed value of residential and commercial properties. B-8 Property Tax Collections and Delinquencies. The table below sets forth for fiscal years 2000-01 through 2004-05, the property tax levies, total current collections and percent of levy collected in the City for property tax accruing to the City's General Fund. Table 6 CITY OF CARLSBAD Property Tax Levies, Total Current Collections and Percent of Levy Collected For Fiscal Years 2001-02 through 2005-06 Fiscal Year 2005-06 2004-05 <^* 2003-04 2002-03 2001-02 Total Current Lew $44,915,159 39,785,892 29,382,034 26,709,097 24,108,706 Total Current Collections $43,053,536 38,162,630 28,154,961 25,674,795 23,237,535 Percent Collected 95.9% 95.9 95.8 96.1 96.4 (1) In Fiscal Year 2004-05, the City received $4.9 million in property tax payments in lieu of vehicle license fees. Source: County of San Diego Office of the Auditor and Controller. Top Taxpayers. The ten largest property owners based on net assessed values in the City for fiscal year 2005-06 are as follows: Taxpayer Greystone Honnes Inc Aviara Resort Associates K S L La Costa Resort Cpg Carlsbad Holdings LLC Continuing Life Prentiss Properties Borders, Inc. Legoland California, Inc. H.G. Fenton Company Pulte Home Corp TOTAL Table 7 CITY OF CARLSBAD Top Ten Taxpayers Fiscal Year 2005-06 Taxable Assessed Value $144,779,270 125,256,000 124,657,356 105,346,743 93,828,207 76,456,459 75,213,933 71,000,000 68,998,021 68,322,346 $953,858,335 Percentage Of Total City Taxable Assessed Value '^' 0.8% 0.7 0.7 0.6 0.5 0.5 0.4 0.4 0.4 M 5.4% (1) Fiscal year 2005-06 net assessed value (see Table 5): $17,707,928,440. Source: County of San Diego Office of the Auditor and Controller. B-9 Sales Taxes In its fiscal year 2006-07 budget the City projected sales taxes to total $29.0 million, an increase of 9% over fiscal year 2005-06 projections. These projections assume a base increase of 4.0% over the fiscal year 2005-06 projections, after adjusting the fiscal year 2004-05 estimate for a one-time "Triple Flip" adjustment by the State, as well as an adjustment to refund sales taxes to a major business within Carlsbad. The "Triple Flip" is essentially a temporary swap of a % cent of the cities' sales taxes in return for property tax. It was done in order to give the State a revenue source against which they could issue deficit reduction bonds. The City's sales tax estimates continue to show this amount as sales tax since the amount is reflective of the amount of sales taxes the City would have received. It should have no effect on the ultimate amount of tax revenues, but it did result in a delay in the timing of the receipt of the taxes, most noticeably in the first year of the swap (fiscal year 2004-05). A sales tax is imposed on retail sales or consumption of personal property. The tax rate is established by the State Legislature. Effective March 15, 1991, the statewide tax rate is 7.25%. An additional .50% is collected in San Diego County for transportation purposes. The State collects and administers the tax, and makes distributions on taxes collected within the City as follows: Tables CITY OF CARLSBAD Sales Tax Rates State General Fund 6.00% County Transportation Fund (Transp. Dev. Act) 0.25 County Transportation Fund (Prop. A) 0.50 City 1.00^^' Total 7.75% (1) Although, as a result of the "Triple Flip" described in "Impact of State Budget" and "Impact of Sales and Use Tax Redirection" below, one-fourth of the City's 1% share of the sales tax is redirected to the State, property taxes are directed to the City to make up the loss and the City continues to recognize this amount as sales tax revenue. The State's actual administrative costs with respect to the portion of sales taxes allocable to the City are deducted before distribution and are determined on a quarterly basis. B-10 During the fourth quarter of 2005, total taxable transactions occurring in the City amounted to $619,155,800, a 1.1% decrease from the total taxable transactions of $626,195,000 that occurred during the fourth quarter of 2004. The following table shows taxable transactions in the City by type of business during calendar years 2001 through 2005. Table 9 CITY OF CARLSBAD Taxable Transactions by Type of Business For Calendar Years 2001 through 2005 ($'s in thousands) Business Retail Stores Apparel Stores General Merchandise Food Stores Eating/Drinking Places Home turn. & appliances BIdg. matrl. & farm implmt. Auto dealers, auto supplies Service Stations Other retail stores Retail Stores Total All Other Outlets TOTAL ALL OUTLETS Percentage Change 2001 $ 133,666 239,356 51,455 118,499 40,708 47,046 627,438 61,802 163.083 1,483,053 385.886 $1,868,939 2002 $ 146,328 236,996 53,587 125,990 41,630 43,153 654,860 61,426 170.451 1,534,421 396.471 $1,930,892 3.31% 2003 $ 160,632 258,183 51,084 131,326 44,951 50,941 727,053 68,533 185.093 1,677,796 419.332 $2,097,128 8.61% 2004 $ 194,957 269,763 53,492 150,996 56,513 67,112 766,106 102,711 192,247 1,853,897 428.458 $2,282,355 8.83% 2005''' $ 226,428 271,800 66,278 233,258 54,707 74,314 776,376 115,188 206.087 2,024,436 357.156 $2,381,592 4.35% (1) Source: MBIA Annual Sales Tax Analysis Source: California State Board of Equalization. The following table shows the top 10 sales taxpayers for calendar year 2005: Table 10 CITY OF CARLSBAD Top 10 Sales Taxpayers (2005) Name Toyota Carlsbad Hoehn Mercedes-Benz Costco Wholesale Lexus Carlsbad Ken Grody Ford Hoehn Used Cars Weseloh Chevrolet Invitrogen Cal Worthington Dodge Bob Baker Chrysler Jeep Type of Business New Car Dealer New Car Dealer General Store New Car Dealer New Car Dealer Used Car Dealer New Car Dealer Chemical Products New Car Dealer New Car Dealer B-11 Transient Occupancy Tax The City's transient occupancy tax is imposed on "transients" who occupy a room or rooms in a hotel, inn, motel, bed & breakfast, or other lodging facility within the City's limits for stays of less than one month. The amount of the tax is 10% of the total rental amount. In its fiscal year 2006-07 budget, the City estimated transient occupancy tax revenue will be $11.8 million for 2006-07, an increase of 6% over fiscal year 2005-06 estimates which, in turn, was an approximately 10% gain over fiscal year 2004-05. The fiscal year 2006-07 budget assumes 3.5% growth for the base and 2.5% growth attributable to the new West Inn & Suites, located at Cannon Court, which opened in June 2006 with 86 rooms. The transient occupancy tax is a gauge of the City's tourism industry. During fiscal year 2005-06, transient occupancy taxes generated approximately 13% of the City's tax revenues. Long-Term General Fund Obligations As of June 30, 2005, the following was the only long-term obligation of the City's General Fund: 1997 Hosp Grove Refunding Certificates of Participation: principal due in amounts ranging from $635,000 to $735,000 on August 1 of each year through fiscal year 2009, interest payable on August 1 and February 1 at rates varying from 4.40% to 4.70% per annum. The outstanding balance as of June 30, 2006, was $2,105,000. B-12 Direct and Overlapping Debt Contained within the City are overlapping local agencies providing public services which have issued general obligation bonds and other types of indebtedness. Direct and overlapping bonded indebtedness is shown in the following table. The table does not include the Bonds. Table 11 CITY OF CARLSBAD Statement of Direct and Overlapping Debt As of August 1, 2006 2005-06 Assessed Valuation: $18,126,848,828 Redevelopment Incremental Valuation: 257,501.788 Adjusted Assessed Valuation: $17,869,347,040 OVERLAPPING TAX AND ASSESSMENT DEBT: Metropolitan Water District Carlsbad Unified School District Carlsbad Unified School District Community Facilities District No. 1 Oceanslde Unified School District Vista Unified School District Encinitas Union School District San Marcos Unified School District School Facilities Improvement District San Marcos Unified School District Community Facilities District No. 5 San Dieguito Union High School District Community Facilities District No. 94-1 San Dieguito Union High School District Community Facilities District No. 94-2 San Dieguito Union High School District Community Facilities District No. 95-2 San Dieguito Union High School District Combined Community Facilities District Olivenhain Municipal Water District, Assessment District No. 96-1 City of Carlsbad Community Facilities District No. 3, I.A. No. 1 City of Carlsbad 1915 Act Bonds TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT DIRECT AND OVERLAPPING GENERAL FUND DEBT: San Diego County General Fund Obligations San Diego County Pension Obligations San Diego County Superintendent of Schools General Fund Obligations Mira Costa Community College District Certificates of Participation Carlsbad Unified School District General Fund Obligations San Marcos Unified School District General Fund Obligations Encinitas Union School District Certificates of Participation Other School District Certificates of Participation ^ City of Carlsbad General Fund Obligations TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT COMBINED TOTAL DEBT (1) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to 2005-06 Assessed Valuation: Total Overlapping Tax and Assessment Debt 1.08% Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($1,435,000) 0.01% Combined Total Debt 2.02% SHARE OF AUTHORIZED AND UNSOLD GENERAL OBLIGATION BONDS: Oceanside Unified School District $1,530 Vista Unified School District $31,787 STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/05: $0 Source: California Municipal Statistics, Inc. % Applicable 1.223% 97.627 100. 0.006 0.115 30.607 37.048 100. 100. 98.080 12.035 30.399 22.168 100. 100. 6.293% 6.293 6.293 26.708 97.627 31.771 30.607 Various 100. Debt 8/1/06 $ 4,764,380 19,511,548 8,445,000 5,712 123,999 6,331,005 6,401,160 25,795,000 272,623 19,555,288 98,920 14,725,275 4,286,182 11,490,000 74,410,000 $196,216,092 $ 26,142,516 77,484,634 786,310 1,271,301 54,993,289 1,877,666 431,559 247,050 1.435.000 $164,669,325 $360,885,417 (1) B-13 Retirement Programs The City contributes to the California Public Employees' Retirement System ("CalPERS"), an agent multiple-employer public employee defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions, and all other requirements, are established by state statutes and city ordinances. Participants are required to contribute 8% (9% for safety employees) of their annual covered salary. The City makes 7% of the required 8% contributions for non-safety employees, and 8% of the required 9% contributions for the City's safety employees. The City is required to contribute at an actuarially determined rate. For the year ended June 30, 2006, the employer contribution rate for the City of Carlsbad (as a percentage of covered payroll) was 27.927% for safety employees and 20.869% for miscellaneous employees. The contribution requirements of plan members and the City are established by CalPERS. In October 2006, the City was notified by CalPERS that the employer contribution rate for the City (as a percentage of payroll) will be 28.462% for safety employees and 20.478% for miscellaneous employees for the fiscal year ended June 30, 2008. For fiscal year 2005-06, the City's annual pension cost (employer contribution) of $4,152,149 for safety and $5,667,848 for miscellaneous to CalPERS was equal to the City's required and actual contributions. For fiscal year 2005-06, the member contributions paid by the City and its employees were $1,377,883 for safety and $2,254,137 for miscellaneous. The required contribution was determined as part of the June 30, 2003, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) 7.75% investment rate of return (net of administrative expenses), (b) projected annual salary increases of 3.25% to 14.45% depending on age, service and type of employment, (c) 3.0% inflation factor, (d) payroll growth of 3.25%, and (e) individual salary growth that utilizes a merit scale varying by duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25%. Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into CalPERS. Subsequent plan amendments are amortized as a level percentage of pay over a closed 20-year period. Gains and losses that occur in the operation of the plan are amortized over a rolling period, which results in an amortization of about 6% of unamortized gains and losses each year. If the plan's accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30-year amortization period. Three-year trend information for CalPERS funding is set forth in the following table: Three-year trend information for CalPERS (Safety) Annual Pension Cost Fiscal Year Endina 6/30/04 6/30/05 6/30/06 (Employer Contributions) $1,704,651 3,917,550 4,152,149 Percentage of ARC Contributed 100% 100 100 Net Pension Obliqation $ - - B-14 Three-year trend information for CalPERS (Miscellaneous) Fiscal Year Endina 6/30/04 6/30/05 6/30/06 Annual Pension Cost (Employer Contributions) $ 579,190 3,112,596 5,667,848 Percentage of APC Contributed 100% 100 100 Net Pension Obliaation $ - - The City is amortizing its CalPERS unfunded actuarial accrued liability, as set forth in the following table, as a level percentage of projected payroll on a closed basis over 30 years. The following tables describe the schedule of funding for CalPERS, including Unfunded Actuarial Accrued Liability (UAAL) (unaudited): Funded status of plan (Safety) Entry Age Valuation Date 6/30/02 6/30/03 6/30/04 6/30/05 Normal Accrued Liabilitv $ 92,896,916 99,827,853 110,306,847 123,237,518 Actuarial Value of Assets $ 83,572,239 85,963,105 92,529,369 102,021,173 Unfunded Liablllty/(Excess Assets) $ 9,324,677 13,864,748 17,777,478 21,216,345 Funded Status 90.0% 86.1 83.9 82.8 Annual Covered Pavroll $ 12,110,117 12,709,908 13,382,181 14,305,227 UAAL as a %of Pavroll 77.0% 109.1 132.8 148.3 Funded status of plan (Miscellaneous) Valuation Date 6/30/02 6/30/03 6/30/04 6/30/05 Entry Age Normal Accrued Liabilitv $ 88,036,696 121,455,280 132,074,893 149,626,877 $ Actuarial Value of Assets 95,730,136 98,339,566 105,423,856 117,576,007 Unfunded Liability/(Excess Assets) $ (7,693,440) 23,115,714 26,651,037 32,050,870 Funded Status 108.7% 81.0 79.8 78.6 Annual Covered Pavroll $ 23,279,207 25,059,422 26,476,671 26,688,294 UAAL As a %of Pavroll (33.0)% 92.2 100.7 120.1 Post-Retirement Health Care The City has two post-retirement healthcare plans. Carlsbad Municipal Water District. All former employees of the Carlsbad Municipal Water District (including dependents) are eligible for post-retirement health care benefits if they voluntarily retire after age of 50 with no less than 5 years of service and whose age, combined with years of service, equals 70 or more. There are approximately 11 active and 13 retired plan members as of June 30, 2006. The City pays for 100% of the premiums for health insurance. Expenditures are funded on a pay-as-you-go basis, and were approximately $103,000 during fiscal year 2005-06. This plan is administered by the Association of California Water Agencies (ACWA). Based on an actuarial valuation performed as of June 30, 2006, the District's liability for the current and past services for B-15 these benefits is approximately $2,821,000. In addition, the annual required contribution is $318,982, assuming a 12-year amortization period. City of Carlsbad. City of Carlsbad retirees are eligible for a post-retirement healthcare subsidy. This plan is administered by the Public Employees Retirement System (PERS). There are approximately 630 active and 93 retired plan members as of June 30, 2006. Surviving spouses of eligible retirees are eligible for the City subsidy. Surviving spouses/domestic partners of deceased active members are eligible for the City subsidy only if the employee had attained age 50 with 5 years of service. The City pays a monthly subsidy per eligible employee/retiree regardless of coverage elected: Calendar year 2006 $64.60 Calendar year 2007 $80.80 Calendar year 2008 $97.90 Thereafter, the subsidy is adjusted annually to reflect changes in the medical component of the Consumer Price Index. Expenditures are funded on a pay-as-you-go basis, and were approximately $63,000 during fiscal year 2005-06. Based on an actuarial valuation performed as of June 30, 2006, the City's liability for the current and past service for these benefits is approximately $7,771,000. The General Fund's share of this unfunded liability is approximately 83.9% or $6,520,000. In addition, the annual required contribution is $1,318,038, assuming a 12-year amortization period. According to GASB 45, the City has until June 30, 2008 to record the actuarial determined liabilities and associated expenses. The City is currently evaluating the available alternatives to recording and funding these liabilities and will reflect these decisions prior to the GASB timeframe. B-16 Investment of City Funds The City Treasurer is charged with the responsibility of safeguarding the City's assets, receiving all payments due the City and investing all inactive pooled funds. The Finance Director manages investments held outside the Treasurer's pool. These funds are generally bond proceeds, employee contributions to deferred compensation pfans, and other funds which are individually invested. The City Treasurer manages the investment portfolio, a pool of assets and cash received into the pool which is invested without regard to the agency or fund from which it originated. Funds are invested in various types of instruments as described below. The City's investment policy and state statutes authorize the City to invest in obligations of the U.S. Government, its agencies and instrumentalities, commercial paper rated A-1 by Standard and Poor's Corporation or P-1 by Moody's Commercial Paper Record with a maximum maturity of 180 days or 15% of the portfolio, banker's acceptances with a maximum maturity of 270 days or 25% of the portfolio, repurchase agreements with a maximum maturity of one week, certificates of deposit with national and state licensed or chartered banks or federal or state savings and loan associations, medium-term corporate notes with a maximum five-year maturity rated in the top two rating categories and not to exceed 30% of the portfolio, money market funds whose portfolios consist of one or more of the foregoing investments, a sweep account, and the State Treasurer's investment pool. According to the City Treasurer's Monthly Report dated as of September 30, 2006, the City had invested funds with a market value totaling approximately $497,612,026. As of September 30, 2006, more than 85% of the portfolio consisted of U.S. government securities. As of September 30, 2006, the average maturity of the portfolio was 2.1 years and the average yield on the portfolio was 4.26%. Impact of State Budget The State of California is likely to continue to face significant budget issues for the foreseeable future. In connection with its approval of former budgets, the State Legislature enacted legislation that has a direct impact on the financial situation of cities and counties in the State. The Budget Process. Through the State budget process, the State can enact legislation that significantly impacts the source, amount and timing of the receipt of revenues by local agencies, including the City. As in recent years. State budget deficits can result in legislation that adversely impacts local agency budgets. The State's fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the "Governor's Budget"). Under State law, the annual proposed Governor's Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor's Budget, the Legislature takes up the proposal. Under the State Constitution, money may be drawn from the Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a two-thirds majority vote of each House of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the B-17 entire bill. Such individual line item vetoes are subject to override by a two-thirds majority vote of each House of the Legislature. Appropriations also may be included in legislation otherthan the Budget Act. Bills containing appropriations (except for K-14 education) must be approved by a two-thirds majority vote in each House of the Legislature and be signed by the Governor. Bills containing K-14 education appropriations only require a simple majority vote. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. Recent State Budgets. Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State's website, where recent official statements for State bonds are posted. The references to internet websites shown below are shown for reference and convenience only; the information contained within the websites has not been reviewed by the City and is not incorporated in this Official Statement by reference. The California State Treasurer's Internet home page at www.treasurer.ca.gov, under the heading "Financial Information," posts the State's audited financial statements. In addition, the "Financial Information" section includes the State's Rule 15c2-12 filings for State bond issues. The "Financial Information" section also includes the "Overview of the State Economy and Government, State Finances, State Indebtedness, Litigation" from the State's most current Official Statement, which discusses the State budget and its impact on school districts. The California Department of Finance's Internet home page at www.dof.ca.gov, under the heading "California Budget," includes the text of proposed and adopted State Budgets. The State Legislative Analyst's Office prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst's Internet home page at www.lao.ca.gov under the heading "Products." 2005-06 State Budget. On July 11, 2005, Governor Schwarzenegger signed the 2005-06 Budget Act. The 2005-06 Budget Act projects 2005-06 General Fund revenues of $84.2 billion, expenditures of $90 billion and an ending reserve balance of $1.3 billion (including an allowance for $900 million of tax refunds which the State may be obligated to make). The 2005-06 Budget Act includes funding for local governments to make up the difference between the 0.65-percent rate of the VLF and the previous 2 percent rate through a reallocation of property tax from schools and community colleges to cities and counties. The 2005-06 Budget Act also includes the accelerated repayment of all of the VLF revenue that the local governments did not receive in 2003-04 due to the suspension of the VLF backfill, which was not required to be paid until fiscal year 2006-07. Among the measures in the 2005/06 State budget affecting local governments are the following: Vehicle License Fee Backfill. The State has enacted Vehicle License Fee reductions forthe current and prior fiscal years, but under the law authorizing these reductions, the State is required to "backfill" local governments for their revenue losses resulting from the lowered rates, and the B-18 Vehicle License Fee rate must be increased whenever there are insufficient moneys in the State general fund to pay for the backfill. The 2004/05 and 2005/06 State budgets deleted the requirement for backfill payments and, instead, provided that the amount of the backfill requirement will be met by an increase in the property tax allocation to cities and counties. Property Tax Shift to the ERAF. The budget included a $1.3 billion shift of local government property taxes to the ERAF. The budget apportioned the $1.3 billion among cities ($350 million), counties ($350 million), special districts ($350 million) and redevelopment agencies ($250 million) and limited the $1.3 billion ERAF transfer to the two fiscal years 2004/05 and 2005/06. The City's share of this additional shift of property taxes was $1.8 million in fiscal year 2004/05 and $1.8 million in 2005/06. Deferral of Mandate Reimbursement. The budget defers reimbursement to counties, cities and special districts for State mandates (i.e.. State-mandated requirements that local agencies must carry out without regard to the timing of State reimbursement of the costs of those mandates). Other Measures. In addition to the ERAF shift, the budget contained numerous other changes that reduce local government funds or increase local costs, including the elimination of booking fee subventions. Triple Flip. Legislation, commonly referred to as the "Triple Flip," which was submitted to the voters on March 2, 2004, as part of a bond initiative formally known as the "California Economic Recovery Act," authorized the issuance of $15 billion in bonds to finance the 2002/03 and 2003/04 State budget deficits, which are payable from a fund established by the redirection of tax revenues through the Triple Flip. Currently, $11.3 billion of the $15 billion authorization has been sold, with the remaining authorization being held in reserve to assist in defraying any future State budget deficits. Under the "Triple Flip" one-quarter of local governments' one percent share of the sales tax imposed on taxable transactions within their jurisdiction is redirected to the State. In an effort to eliminate the adverse impact of the sales tax revenue redirection on local government, the legislation provides for property taxes in the ERAF to be redirected to local government. Because the ERAF moneys were previously earmarked for schools, the legislation provides for schools to receive other state general fund revenues. The "Triple Flip" legislation was approved by voters at the election on March 2, 2004 and the bonds were sold in May 2004. See" - Impact of Sales and Use Tax Redirection" (below) for further discussion of the Triple Flip and its expected duration. 2006-07 State Budget. On June 30, 2006 the Governor signed the fiscal year 2006-07 budget act (the "2006-07 State Budget"). The 2006-07 State Budget projects that the State will be able to fund much more than a current-law budget and still maintain fiscal balance in fiscal year 2006-07, primarily due to both a major increase in revenues and a significant amount of savings adopted in the fiscal year 2005-06 budget. The 2006-07 State Budget provides for over $4 billion in higher spending. The main increase involves Proposition 98 education, where $2.8 billion more than the minimum guarantee will be provided over the current and budget year combined. The 2006-07 State Budget, at the time of adoption, showed a stronger state revenue outlook with projected revenues of $92 billion, and included a number of specific proposals that will benefit cities. These include $424 million in Proposition 42 transportation funds; $98 million reimbursement to local governments for state mandated programs; $23.3 million increased funding for public safety programs; and a number of other items. B-19 Future State Budgets. The City cannot predict what actions will be taken in future years by the State Legislature and the Governor to address the State's current or future budget deficits. Future State budgets will be affected by national and state economic conditions and other factors over which the City has no control. To the extent that the State budget process results in reduced revenues to the City, the City will be required to make adjustments to its budget. Decrease in such revenues may have an adverse impact on the City's ability to pay Lease Payments. However, the State's voters approved Proposition 1A in November 2004, which implements an understanding negotiated between Governor Schwarzenegger and local government officials concerning the State's control over local government revenues. Pursuant to Proposition 1 A, (i) after the California Economic Recovery Act bonds (see "Impact of State Budget" above) are repaid, the redirection of the 0.25% portion of the local sales and use taxes from local governments to the State must end, and (ii) thereafter, the State cannot reduce the local sales and use tax rate, change the allocation of local sales and use tax revenues, or shift to schools or community colleges any share of property tax revenues allocated to local governments under the laws in effect as of November 3, 2004 unless the Governor declares a fiscal necessity and two-thirds of the Legislature approve the suspension (and suspended funds must be repaid within 3 years). Impact of Sales and Use Tax Redirection As described in "Impact of State Budget" above, the State will temporarily redirect local sales and use taxes to the State, including 0.25% that would otherwise be available to the City, to pay debt service on its "economic recovery" bonds; the State will increase local governments' share of local property tax by a corresponding amount. However, it should be noted that certain features and consequences of this redirection could impact the availability of revenues to pay Lease Payments. First, there may be a timing issue associated with the "backfill" of redirected sales and use taxes with property tax revenue: while sales and uses taxes are distributed by the-State Board of Equalization on a monthly basis, the County would only backfill with property taxes on a semi-annual basis. This timing issue would not only impact the City's cash flow, but would cause the City to lose investment earnings on the sales and uses taxes it otherwise would have received on a monthly basis. Second, the redirection of sale and use taxes by the State reflects the vulnerability of local government to the State budget process. If, in the future, the State elects to further reallocate sales and use taxes or property tax revenue, or any other source of revenue used by the City to make Lease Payments, the City may not know the exact amount of revenue available to pay Lease Payments. See "Impact of State Budget" above for a discussion of Proposition 1 A. B-20 Employee Relations and Collective Bargaining City employees are represented by four labor unions associations. Currently 80% of all City employees are covered by negotiated agreements. Negotiated agreements have the following expiration dates: CITY OF CARLSBAD NEGOTIATED EMPLOYEE AGREEMENTS (As of July 3, 2006) Bargaining Unit Carlsbad City Employees' Association Carlsbad Police Officers' Association Carlsbad Firefighters' Association Carlsbad Police Managennent Association Contract Expiration Date 12/31/07 12/31/07 12/31/06 N/A Number of Employees 315 119 68 8 Source: City of Carlsbad. CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIIIA of the California Constitution In 1978 California voters approved Proposition 13, adding Article XIIIA to the California Constitution. Article XIIIA was subsequently amended in 1986, as discussed below. Article XIIIA limits the amount of any ad valorem tax on real property to 1 % of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978 and on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1,1978 by two-thirds of the voters voting on such indebtedness. Article XIIIA defines full cash value to mean "the county assessor's valuation of real property as shown on the 1975-76 tax bill under "full cash" or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership have occurred after the 1975 assessment." This full cash value may be increased at a rate not to exceed 2% per year to account for inflation. Article XIIIA has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster. Legislation Implementing Article XIIIA Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1 % property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1979, but is subject to legislative change at any time. B-21 Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the "taxing area" based upon their respective "situs." Any such allocation made to a local agency continues as part of its allocation in future years. Article XIIIB of the California Constitution At the statewide special election on November 6, 1979, the voters approved an initiative entitled "Limitation on Government Appropriations" which added Article XIIIB to the California Constitution. Under Article XIIIB, state and local government entities have an annual "appropriations limit" which limits the ability to spend certain moneys which are called "appropriations subject to limitation" (consisting of tax revenues and certain state subventions together called "proceeds of taxes" and certain other funds) in an amount higher than the "appropriations limit." Article XIIIB does not affect the appropriation of monies which are excluded from the definition of "appropriations limit" including debt service on indebtedness existing or authorized as of September 1,1979, or bonded indebtedness subsequently approved by the voters. In general terms, the "appropriations limit" is to be based on certain 1978-79 expenditures, and is to be adjusted annually to reflect changes in the consumer price index, population and services provided by these entities. Among other provisions of Article XIIIB, if those entities' revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. Section 7910 of the Government Code of the State of California requires the City to adopt a formal appropriations limit for each fiscal year. The City's appropriations limit for fiscal year 2006-07 was established as $166,499,391. The City's appropriations subject to limitation for fiscal year 2006-07 were $97,455,248. Proposition 62 Proposition 62 was a statutory initiative adding Sections 53720 to 53730, inclusive, to the California Government Code. It confirmed the distinction between a general tax and special tax, established by the State Supreme Court in 1982 in City and County of San Francisco v. Farrell, by defining a general tax as one imposed for general governmental purposes and a special tax as one imposed for specific purposes. Proposition 62 further provided that no local government or district may impose (i) a general tax without prior approval of the electorate by majority vote or (ii) a special tax without such prior approval by two-thirds vote. It further provided that if any such tax is imposed without such prior approval, the amount thereof must be withheld from the levying entity's allocation of annual property taxes for each year that the tax is collected. By its terms. Proposition 62 applies only to general and special taxes imposed on or after August 1,1985. Proposition 62 was generally upheld in Santa Clara County Local Transportation Authority v. Guardino, a California Supreme Court decision filed September 28, 1995. The City has neither imposed any new general taxes nor increased any existing general taxes since August 1,1985 without first obtaining an approving majority vote. On June 6,1989,65.8 percent of the City's voters approved an increase of the transient occupancy tax from 8 percent to 10 percent. The transient occupancy tax is deposited in the City's general fund and used for general governmental purposes. B-22 Proposition 218 On November 5, 1996, California voters approved Proposition 218^Voter Approval for Local Government Taxes—Limitation on Fees, Assessments, and Charges—Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. Proposition 218 states that all taxes imposed by local governments shall be deemed to be either general taxes or special taxes. Special purpose districts, including school districts, have no power to levy general taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote. Proposition 218 also provides that no tax, assessment, fee or charge shall be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (i) the ad valorem property tax imposed pursuant to Article XIII and Article XIIIA of the California Constitution, (ii) any special tax receiving a two-thirds vote pursuant to the California Constitution, and (iii) assessments, fees and charges for property related services as provided in Proposition 218. Proposition 218 then goes on to add voter requirements for assessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sewer, water, and refuse collection services. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water, and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. The effect of such new provisions will presumably be to increase the difficulty a local agency will have in imposing, increasing or extending such assessments, fees and charges. Proposition 218 also extended the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairments of contracts. Like its antecedents. Proposition 218 has undergone and is likely to undergo further judicial and legislative scrutiny. The City is not able to predict the outcome of any such scrutiny. None of the City's general fund revenues are derived from general taxes which, at their current level, are purported to be governed by Proposition 218. However, there are certain fees deposited to other City funds that are subject to Proposition 218; if those fees were reduced, the City might decide to divert funds from the General Fund to pay the expenses previously paid from the reduced fees. The City believes that its finances will not be significantly impacted by Proposition 218. The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues. The City does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard. Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of Proposition 218 on the City's general fund. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of Proposition 218. B-23 Unitary Property AB 454 (Chapter 921, Statutes of 1986) provides that revenues derived from most utility property assessed by the State Board of Equalization ("Unitary Property"), commencing with the 1988-89 fiscal year, will be allocated as follows: (i) each jurisdiction will receive up to 102% of its prior year State-assessed revenue; and (ii) if county-wide revenues generated from Unitary Property are less than the previous year's revenues or greater than 102% of the previous year's revenues, each jurisdiction will share the burden of the shortfall or benefit of the excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any State- assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. Future Initiatives Article XIIIA, Article XIIIB and Proposition 218 were each adopted as nneasures thatqualified for the ballot through California's initiative process. From time to time other initiative measures could be adopted, further affecting the City's revenues. GENERAL AND DEIVIOGRAPHICINFORIVIATION RELATING TO THE CITY OF CARLSBAD Climate and Topography The City has mild summers with a mean temperature for the month of July of 73 degrees and moderate winters with an average winter temperature of 58 degrees. The relative humidity is low. Average rainfall, which occurs generally in the period between October and February, is less than 9 inches. The City is located on the Pacific Ocean, 31 miles north of San Diego at an altitude of sea level to 585 feet above sea level. B-24 Population Population figures for the City, San Diego County and the State of California for the prior four census evaluations and the last five years are shown in the following table. CITY OF CARLSBAD Population Estimates Calendar Years 2001 through 2005 Calendar Year 1970 1980 1990 2000 2001 2002 2003 2004 2005 City of Carlsbad 14,944 35,490 63,292 78,306 83,242 88,120 90,643 92,719 95,146 County San Dieao 1,357,854 1,861,846 2,498,016 2,813,833 2,863,657 2,920,010 2,971,805 3,013,014 3,051,280 State of California 19,953,134 23,667,902 29,758,213 33,873,086 34,441,561 35,088,671 35,691,442 36,271,091 36,810,358 Source: State Department of Finance estimates (as of January 1). B-25 Employment and Industry The City is included in the San Diego Metropolitan Statistical Area, which includes all of San Diego County. As of January 2006, the labor force for San Diego County was 1,509,600 of which 1,447,800 were employed and 61,800 were unemployed. The unemployment rate as of January 2006 was 4.1 percent, a 0.5 percent decrease from the January 2005 unemployment rate of 4.6 percent. Set forth below is data from 2001 to 2005, reflecting San Diego County's civilian labor force, employment and unemployment. Metropolitan Statistical Area (San Diego County) Civilian Labor Force, Employment and Unemployment (Annual Averages) Civilian Labor Force (1) Employment Unemployment Unemployment Rate Wage and Salary Employment: (2) Agriculture Natural Resources and Mining Construction Manufacturing Wholesale Trade Retail Trade Transportation, Warehousing and Utilities Information Finance and Insurance Real Estate and Rental and Leasing Professional and Business Services Educational and Health Services Leisure and Hospitality Other Services Federal Government State Government Local Government Total, All Industries 2001 1,408,500 1,349,600 58,900 4.2% 11,400 300 75,100 119,000 41,500 135,600 32,000 38,800 44,900 27,200 198,200 116,000 131,400 44,900 40,200 36,100 137,500 1,229,800 2002 1,447,500 1,373,100 74,400 5.1% 11,000 300 76,400 112,300 41,300 138,000 29,300 37,700 47,300 27,700 201,700 119,700 133,800 45,600 40,100 37,700 141,800 1,241,700 2003 1,467,400 1,391,100 76,300 5.2% 11,200 300 80,200 105,300 41,600 140,800 27,300 36,900 51,200 28,800 201,200 121,800 140,700 46,800 40,100 38,100 139,000 1,251,300 2004 1,490,300 1,420,000 70,300 4.7% 11,100 , 400 87,700 104,300 41,900 144,900 28,400 36,600 52,800 29,100 204,500 121,700 145,700 47,900 39,700 38,000 136,600 1,271,500 2005 1,507,100 1,442,400 64,700 4.3% 10,700 400 91,400 104,200 43,700 146,900 28,500 37,300 53,300 29,900 209,800 122,800 150,200 48,700 39,500 38,200 137,200 1,292,500 (1) Labor force data is by place of residence; Includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. Source: State of California Employment Development Department. (2) B-26 Major Employers The largest manufacturing and non-manufacturing employers as of February 1, 2006 in the County are shown below. SAN DIEGO COUNTY Largest Employers Employer Name 32nd St Naval Station Goodrich Aerospace Grossmont College Kaiser Permanente Kyocera Wireless Corp National Steel & Shipbuilding North Island Nas Palomar Medical Ctr Palomar Pomerado Outpatient San Diego Community College San Diego Mc Recruit Depot San Diego Naval Medical Ctr Science Applications IntI Corp Scripps Research Institute Sea World Sempra Energy Solutions Sharp Grossmont Hospital Sharp Mary Birch Hospital Sharp Memorial Hospital Solar Turbines Inc Solar Turbines Inc Sycuan Poker Room Tri-City Medical Ctr UCSD Medical Ctr UCSD Neurosurgery Medical Grp Source: State Board of Equalization. Location Industry San Diego Federal Government-National Security Chula Vista Electronic Equipment & Supplies-Mfrs El Cajon Schools-Universities & Colleges Academic San Diego Clinics San Diego Cellular Telephones (Services) San Diego Ship Design and Building Coronado Federal Government-National Security Escondido Hospitals Escondido Physical Therapists San Diego Schools-Universities & Colleges Academic San Diego Recruiting-Us Armed Forces San Diego Medical Centers San Diego Scientific Apparatus & Instruments-Whol La Jolla Research Service San Diego Amusement Places San Diego Energy Conservation Prods-Retail La Mesa Hospitals San Diego Hospitals San Diego Hospitals San Diego Turbines-Manufacturers San Diego Turbines-Manufacturers El Cajon Race Tracks Oceanside Hospitals San Diego Hospitals San Diego Physicians & Surgeons B-27 The following tables list the major employers within the City and their estimated number of employees as of June 30, 2006. The major manufacturing employers located within Carlsbad are summarized in the table below. GITY OF CARLSBAD Principal IVIanufacturing Employers (as of June 30, 2006) Manufacturing Employer Callaway Golf Invitrogen ViaSat Taylor Made Golf- Adidas Golf Company Acushnet Golf The Upper Deck Zimmer Dental Asymtek Dot Hill Systems Beckman Coulter Product/Service Golf Equipment Research Supplies Data Communications Golf Equipment Golf Equipment Sports Memorabilia Dental Implants Automated Fluid Dispensing Equipment Electronic Storage Equipment Medical Supplies Emplovees 1,637 982 726 650 530 333 321 278 275 263 % of Total City Employment 2.9% 1.8 1.3 1.2 1.0 0.6 0.6 0.5 0.5 0.5 Source: Carlsbad Business License Data (2006) A list of major non-manufacturing employees as of June 30, 2006 in the City is set forth in the table below. CITY OF CARLSBAD Principal Non-Manufacturing Employers (as of June 30, 2006) Employer La Costa Resort & Spa Carlsbad Unified School District LEGOLAND, California Four Seasons Resort - Aviara City of Carlsbad Grand Pacific Resorts Gemological Institute of America Prescription Solutions Eastridge Costco Product/Service Hotel/Health Spa Education Family Theme Park Resort Municipal Government Hotel/Resort Gemological School Mail Service Pharmacy Technology Staffing Retailer Emplovees 1,068 950 801 781 660 465 421 420 415 379 % of Total City Employment 1.9% 1.7 1.4 1.4 1.2 0.8 0.8 0.8 0.7 0.7 Source: Carlsbad Business License Data (2006) B-28 Building Activity The table below summarizes building activity in the City for the past five years: Permit Valuation New Residentiai New Commerciai/industrial New DweHina Units Single Family IVfuIti Famiiy CITY OF CARLSBAD Building Activity and Valuation Fiscal Years 2002-2006 (Dollars 2002 $187,641 $20,919 543 226 ; in thousands) 2003 2004 $175,072 $260,385 $45,806 $13,642 421 634 520 628 2005 $434,670 $46,684 1194 551 2006 $251,208 $65,701 552 396 Source: City of Carlsbad. Effective Buying Income "Effective Buying Income" is defined as personal income less personal tax and nontax payments, a number often referred to as "disposable" or "after-tax" income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as "disposable personal income." B-29 The following table summarizes the total effective buying income for the City of Carlsbad, County of San Diego, the State and the United States for 2001 through 2005. CITY OF CARLSBAD COUNTY OF SAN DIEGO EFFECTIVE BUYING INCOME 2001 THROUGH 2005 Year 2001 2002 2003 2004 2005 Area CityofGarlsbad San Diego County California United States City of Carlsbad San Diego County California United States City of Carlsbad San Diego County California United States City of Carlsbad San Diego County California United States City of Carlsbad San Diego County California United States Total Effective Buying Income fOOO's Omitted) $ 2,122,186 55,210,119 650,521,407 5,303,481,498 $ 2,426,533 54,831,958 647,879,427 5,340,682,818 $ 2,809,885 57,680,880 674,721,020 5,466,880,008 $ 2,896,963 60,578,879 705,108,410 5,692,909,567 $ 2,986,230 61,891,933 720,798,106 5,894,663,364 Median Household Effective Buvina Income $54,601 44,146 43,532 38,365 $55,753 42,315 42,484 38,035 $56,291 43,346 42,924 38,201 $57,659 44,506 43,915 39,324 $59,148 45,571 44,681 40,529 Source: Sales & Marketing Management Survey of Buying Power for 2001 througln 2004; Claritas Demographics for 2005.. Transportation Surface, sea and air transportation facilities serve County residents and businesses. Interstate 5 parallels the coast from Mexico to the Los Angeles Area and points north. Interstate 15 runs inland, leading the Riverside-San Bernardino, Las Vegas, and Salt Lake City. Interstate 8 runs eastward through the southern United States. San Diego's International Airport (Lindbergh Field) is located approximately one mile west of the downtown area at the edge of San Diego Bay. The facilities are owned and maintained by the San Diego Airport Authority and are leased to commercial airlines and other tenants. The airport is California's third most active commercial airport, served by 20 major airlines. In addition to San Diego International Airport, there are several general aviation airports located in the County, including McClellan-Palomar Airport in Carlsbad. B-30 Public transit in the metropolitan area is provided by the Metropolitan Transit Development Board and the North County Transit District ("NCTD"). The San Diego Trolley, developed by the Metropolitan Transit Development Board beginning in 1979, has been expanded. A total of 17.6 miles were added to the original 108 miles; construction was completed in 1990. Buses operated by NCTD carry passengers in the north San Diego County region, which includes the area south to and including Del Mar, east to Escondido, north to the Orange County and Riverside County lines, and includes Camp Pendleton. NCTD has 165 vehicles in its bus fleet. NCTD's bus fleet carries more than 11 million passengers every year. San Diego is the terminus of the Santa Fe Railway's main line from Los Angeles. Amtrak passenger service is available at San Diego, with stops at Solana Beach and Oceanside in the North County. San Diego's harbor is one of the world's largest natural harbors. The Port of San Diego is administered by the San Diego Unified Port District, which includes the cities of San Diego, National City, Chula Vista, Imperial Beach and Coronado. B-31 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following is a brief summary of certain provisions of the Trust Indenture, the Site Lease, the Lease Agreement, and the Assignment Agreement, as well as definitions of certain terms used therein and in this Official Statement. Such summary is not intended to be definitive. Reference is directed to said documents for the complete text thereof. Copies of said documents are available from the Authority and from the Trustee. CERTAIN DEFINITIONS "Additional Revenues" means, with respect to the issuance of any Parity Obligations, an allowance for Net Revenues from any additions or improvements to or extensions of the Golf Course to be made with the proceeds of such Parity Obligations, and Net Revenues from any such additions, improvements or extensions which have been made from moneys from any source, but in any case which, during all or any part of the latest Fiscal Year or for any more recent consecutive twelve (12) month period selected by the Authority, were not in service, all in an amount equal to ninety percent (90%) of the estimated additional average annual Net Revenues to be derived from such additions, improvements and extensions for the first thirty-six (36) month period in which each addition, improvement or extension is respectively to be in operation, all as shown by the certificate or opinion of a Fiscal Consultant employed by the Authority. "Annual Debt Service" means principal of and interest on the Bonds due and payable during any Bond Year, including scheduled siriking fund redemption amounts set forth in the Indenture). "Authority" means the Carlsbad Public Financing Authority, a joint exercise of powers agency organized and existing under the laws of the State, and any successor thereto. "Authority Golf Course Fund" means the fund of that name established and held by the Authority pursuant to the Indenture. "Authorized Denominations" means $5,000, or any integral multiple thereof. "Authorized Investments" means any securities in which the Authority may legally invest funds subject to its control. "Bond Service Fund" means the fund by that name established and held by the Trustee pursuant to the Indenture. "Certificate of the Authority" means a certificate in writing signed by the Chairperson or Executive Director of the Authority, or by any other officer of the Authority duly authorized by the Board of Directors for that purpose, with the seal of the Authority affixed. C-1 "Code" means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Bonds or (except as otherwise referenced in the Indenture) as it may be amended to apply to obligations issued on the date of issuance of the Bonds, together with applicable temporary and final regulations promulgated, and applicable official public guidance published, under the Code. "Continuing Disclosure Agreement" shall mean that certain Continuing Disclosure Certificate executed by the City on behalf of itself and the Authority and dated the date of issuance and delivery of the Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "Event of Default" means any of the events described as such in the Indenture. "Fiscal Consultant" means any consultant or firm of such consultants appointed by the Authority, and who, or each of whom: (a) is judged by the Authority to have experience in matters relating to the financing and operation of facilities such as the Golf Course; (b) is in fact independent and not under the domination of the Authority; (c) does not have any substantial interest, direct or indirect, with the Authority, other than as original purchaser of any Bonds; and (d) is not connected with the Authority as an officer or employee of the Authority, but who may be regularly retained to make reports to the Authority. "Fiscal Year" means the period commencing on July 1 of each year and terminating on the next succeeding June 30. "Golf Course" means the Carlsbad Municipal Golf Course owned by the Carlsbad Public Financing Authority, located on the Golf Course Site. "Golf Course Site" means the real property comprising the site of the Golf Course, as more particularly described in Exhibit A to the Lease Agreement. "Golf Course Site Lease" or "Site Lease" means that certain Golf Course Site Lease, dated as of December 1, 2006, between the City and the Authority, as amended in accordance with the terms thereof. "Gross Revenues" means all gross charges received for, and all other gross income and receipts derived by the Authority or the Trustee from, the ownership and operation of the Golf Course or otherwise arising from the Golf Course, including but not limited to amounts paid to the Authority or the Trustee pursuant to the terms of the Management Agreement, as well as interest earnings on the Reserve Fund. "Independent Financial Advisor" means any firm nationally recognized for having expertise in the area of advising public agencies on tax-exempt financings chosen by the Authority, which (a) is in fact independent and not under domination of the Authority; (b) does not have any substantial interest, direct or indirect, with the Authority; and (c) is not connected with the Authority as an officer or employee of the Authority, but who may be regularly retained to make annual or other audits of the books of or reports to the Authority. "Insurer" means Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance company, including its successors, as issuer of the Insurance Policy. C-2 "Insurance Policy" means the Municipal Bond Insurance Policy issued by the Insurer insuring the payment when due of the principal of and interest on the Bonds as provided therein. "Interest Payment Date" means March 1 and September 1 in each year, beginning March 1, 2007, and continuing so long as any Bonds remain Outstanding. "Lease Agreement" means that certain Lease Agreement, dated as of December 1, 2006, between the City and the Authority, as amended from time to time in accordance with the terms thereof. "Management Agreement" means that certain Golf Course Management Agreement, originally dated as of May 10, 2006, by and between the Authority and the Operator, as amended from time to time, and includes any management agreement between the Authority and an Operator while the Bonds are Outstanding, to the extent that such management agreement affects the operation and management of the Golf Course. "Maximum Annual Debt Service" means, as of the date of any calculation, the maximum sum obtained for the current or any future Bond Year by totaling the following amounts for such Bond Year: (a) the aggregate amount of principal of the Outstanding Bonds coming due and payable in such Bond Year pursuant hereto, including the aggregate principal amount thereof which is required to be redeemed in such Bond Year by operation of mandatory sinking fund redemption; and (b) the aggregate amount of interest which would be due during such Bond Year on the aggregate principal amount of all Outstanding Bonds, if any, which would be outstanding in such Bond Year if such Bonds are retired as scheduled; provided, however, that with respect to any Parity Obligations which bear interest at a variable rate, such interest shall be calculated at an assumed rate equal to the average rate of interest per annum for each of the five previous whole calendar years as shown by the J. J. Kermy Index (or, in the event and to the extent such index is not maintained for all or any portion of such period, any similar index of variable rate interest for tax-exempt obligations as may be selected by the Authority in its sole discretion). "Moody's" means Moody's Investors Service, its successors and assigns. "Net Revenues" means, with respect to any period, the amount of the Gross Revenues received during such period, less the amount of Operation and Maintenance Costs becoming payable during such period; provided, however, that during the term of the Management Agreement, Net Revenues shall mean amounts characterized as "Available Funds" and paid by the Operator to the Authority under the Management Agreement. "Operation and Maintenance Costs" means the reasonable and necessary costs and expenses paid by the Authority for maintairung and operating the Golf Course, including but not limited to (1) the cost of operating the Golf Course and any improvements thereon, (2) salaries, wages and benefits, (3) utilities, (4) insurance, (5) the cost of maintaining, repairing and restoring the Golf Course and any improvements thereon, (6) amounts paid to any third party to operate or manage the Golf Course or C-3 portion thereof and improvement thereon, and (7) contributions to a capital reserve account; provided, however, that during the term of the Management Agreement the term "Operation and Maintenance Costs" shall mean expenditures which the Operator is permitted to make from Gross Revenues to pay Golf Course Expenses (as defined in the Management Agreement), plus management fees payable to the Operator under Article IV of the Management Agreement. "Operator" means Kemper Sports Management, or any other entity responsible for the management and operation of the Golf Course while the Bonds are Outstanding. "Original Purchaser" means Stone & Youngberg LLC, as the original purchaser of the 2006 Bonds upon their delivery by the Trustee on the Closing Date. "Outstanding", when used as of any particular time with reference to Bonds, means (subject to the provisions of the Indenture) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except: (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with the Indenture; and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to the Indenture. "Parity Obligations" means all bonds, notes or other obligations of the Authority payable from and secured by a pledge of and lien upon any of the Net Revenues issued or incurred on a parity with the 2006 Bonds pursuant to the Indenture. "Participating Underwriter" shall have the meaning ascribed thereto in the Continuing Disclosure Agreement. "Permitted Encumbrances" means: (i) the Development Agreement; (ii) the Site Lease, the Lease Agreement and the Assignment Agreement; and (iii) such use restrictions, minor easements, encumbrances, rights of way and other matters of record in existence on the Closing Date or thereafter which are set forth in a Certificate of the Authority which states that such encumbrances do not materially adversely affect the ability of the Authority to use the Golf Course for its intended purpose. "Permitted Investments means any of the following investments which are authorized under the laws of the State of California for investment of the funds proposed to be invested therein: (a) Federal Securities; (b) obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including: —Export-Import Bank; —Rural Economic Community Development Administration (formerly the Farmers Home Administration); —U.S. Maritime Administration; —Small Business Administration; —U.S. Department of Housing & Urban Development (PHAs); —Federal Housing Administration; —Federal Financing Bank; C-4 (c) direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: —^Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC); —Obligations of the Resolution Funding Corporation (REFCORP); —^Senior debt obligations of the Federal Home Loan Bank System; —^Senior debt obligations of other agencies sponsored by the federal government approved by the Insurer; (d) U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks, including the Trustee and its affiliates, which have a rating on their short-term certificates of deposit on the date of purchase of "A-1" or "A-1+" by S&P and "P-1" by Moody's and maturing no more than 360 calendar days after the date of purchase (ratings on holding companies are not considered as the rating of the bank); (e) commercial paper which is rated at the time of purchase in the single highest classification, "A-1+" by S&P and "P-1" by Moody's, and which matures not more than 270 calendar days after the date of purchase; (f) investments in a money market fund rated "AAAm" or "AAAm-G" or better by S&P, including funds for which the Trustee or its affiliates receive fees for investment advisory or other services to the fund; (g) pre-refunded municipal obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (i) which are rated, based on an irrevocable escrow account or fund (the "Escrow"), in the highest rating category of S&P and Moody's or any successors thereto; or (ii) (A) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in clause (b) of the definition of Government Securities, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate; and (B) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate; C-5 (h) municipal obligations rated "Aaa/AAA" or general obligations of states with a rating of least "A2 / A" or higher by both Moody's and S&F; (i) investment agreements approved in writing by the Insurer; (j) other forms of investments, including repurchase agreements, approved in writing by the Insurer; and (k) the Local Agency Investment Fund of the State of California. "Redemption Fund" means the fund by that name established and held by the Trustee pursuant to the Indenture. "Request of the Authority" means a request in writing signed by the Authority Manager of the Authority, or by any other officer of the Authority duly authorized by the Board of Directors for that purpose. "Reserve Fund" means the fund by that name established pursuant and held by the Trustee pursuant to the Indenture. "Reserve Requirement" means an amount equal to the lesser of (i) 10% of the principal amount of the Bonds then Outstanding; (ii) Maximum Annual Debt Service; or (iii) 125% of average armual debt service on the Bonds. INDENTURE OF TRUST Funds and Accounts; Flow of Funds Golf Course Enterprise Fund. The Authority has agreed to establish the Golf Course Enterprise Fund, which the Authority has agreed to hold and maintain for the purposes and uses set forth in the Indenture. The Authority shall deposit all Net Revenues in the Golf Course Enterprise Fund promptly upon the receipt thereof, so long as the Authority is in compliance with the rate covenant provisions of the Indenture. Amounts in the Golf Course Enterprise Fund shall be applied solely for the uses and purposes set forth in the Indenture. The Authority shall withdraw amounts on deposit in the Golf Course Enterprise Fund and apply such amounts at the times and for the purposes, and in the priority, as follows: Bond Service Fund. On or before the fifth Business Day preceding each Interest Payment Date, the Authority shall withdraw from the Golf Course Enterprise Fund and pay to the Trustee for deposit to the Bond Service Fund, an amoimt equal to interest, principal (if any), and the principal amount of any Term Bonds (if any) being redeemed on such Interest Payment Date. Amounts in the Bond Service Fund shall be applied by the Trustee solely for the purpose of paying the interest on the Outstanding Bonds when and as such interest becomes due and payable (including accrued interest on any Bonds purchased or redeemed pursuant to the Indenture), for the purpose of paying the principal of the Serial Bonds at the maturity thereof, and for the purpose of paying the principal of the Term Bonds upon the mandatory sinking fund or mandatory redemption or maturity thereof or upon the purchase thereof in lieu of such redemption. C-6 Reserve Fund. Under the Indenture there is established a separate fund to be known as the "Reserve Fund", which shall be held in trust by the Trustee. On the Closing Date the Trustee shall deposit into the Reserve Fund, from the proceeds of the sale of the Bonds, an amount equal to the Reserve Requirement. An amount equal to the Reserve Requirement shall be maintained in the Reserve Fund at all times, and any deficiency therein shall be replenished from the first available Net Revenues. The amount required to be maintained in the Reserve Fund may be increased by any Supplemental Indenture authorizing the issuance of any Parity Obligations. In the event that the amount on deposit in the Reserve Fund at any time falls below the Reserve Requirement, the Trustee shall promptly notify the Authority of such fact and the Authority shall promptly (i) withdraw the amount of such insufficiency frorh available Net Revenues on deposit in the Golf Course Enterprise Fund, and (ii) transfer such amount to the Trustee for deposit in the Reserve Fund. No deposit need be made in the Reserve Fund so long as the balance therein at least equals the Reserve Requirement. In the event that the amount on deposit in the Reserve Fund at any time exceeds the Reserve Requirement, the amount of such excess shall be withdrawn therefrom by the Trustee and transferred to the Bond Service Fund. Moneys in the Reserve Fund shall be used solely for the purpose of paying the principal of and interest on the Bonds, or mandatory redemption of the Bonds in accordance with the Indenture, or the mandatory sinking fund payments required to be made for any Term Bonds, in the event that the moneys in the Bond Service Fund are insufficient therefor, and for that purpose the Trustee shall withdraw and transfer moneys from the Reserve Fund to the Bond Service Fund. Issuance of Parity Obligations. In addition to the 2006 Bonds, the Authority may, by Supplemental Indenture, issue or incur other loans, advances or indebtedness payable from Net Revenues on a parity with the 2006 Bonds to provide financing for the Golf Course in such principal amount as shall be determined by the Authority, The Authority may issue or incur any such Parity Obligations subject to the following specific conditions, which are hereby made conditions precedent to the issuance and delivery of such Parity Obligations: (a) No Event of Default shall have occurred and be continuing; (b) The Net Revenues, calculated in accordance with sound accounting principles, as shown by the books of the Authority for the most recent completed Fiscal Year for which audited financial statements are available, or for any more recent consecutive twelve (12) month period selected by the Authority, in either case verified by a certificate or opinion of an Independent Accountant or Fiscal Consultant, plus the Additional Revenues, at least equal one hundred one hundred twenty percent (120%) of the amount of Maximum Annual Debt Service on all Outstanding Bonds (including the Parity Obligations then proposed to be issued); and (c) The Supplemental Indenture authorizing the issuance of such Parity Obligations under the Indenture shall provide that: (i) The proceeds of such Parity Obligations shall be applied to the acquisition, construction, improvement, financing or refinancing of additional facilities, improvements or extensions relating to or of benefit to the Golf Course, or for the purpose of refunding any Bonds in whole or in part, including all costs C-7 (including costs of issuing such Parity Obligations and including capitalized interest on such Parity Obligations during any period which the Authority deems necessary or advisable) relating thereto; (ii) Interest on such Parity Obligations shall be payable on March 1 and September 1 in each year of the term of such Parity Obligations except that the first date for payment of such interest shall not be required to be less than six (6) nronths following the date of issuance of such Parity Obligations; (iii) The principal of such Parity Obligations shall be payable on September 1 in any year in which principal is payable; and (iv) Money shall be deposited in the Reserve Fund from the proceeds of the sale of such Parity Obligations or otherwise to increase the amount on deposit in the Reserve Fund to an amount equal to the Reserve Requirement Pledge of Net Revenues. The Bonds are special, limited obligations of the Authority, payable solely from Net Revenues, moneys in the Bond Service Fund, and the Reserve Fund, and shall be secured by a first pledge (which pledge shall be effected in the manner and to the extent hereinafter provided) of all of the Net Revenues, and a pledge of all of the morteys in the Bond Service Fund and the Reserve Fund, including all amounts derived from the investment of such moneys as well as any Lease Payments received from the City under the Lease Agreement. The 2006 Bonds are additionally secured by any Lease Payments received by the Trustee from the City under the Lease Agreement. The Bonds shall be equally secured by a pledge, charge and lien upon the Net Revenues and such moneys without priority for series, issue, number, date of Bonds, date of sale, date of execution or date of delivery; and the payment of the interest on and principal of the Bonds and any premiums upon the redemption of any thereof shall be and are secured by an exclusive pledge, charge and lien upon the Net Revenues and such moneys. So long as any of the Bonds are Outstanding, the Net Revenues and such moneys shall not be used for any purpose not specified in the preceding sentence. Lease Payments payable under the Lease Agreement are intended to provide additional security for the 2006 Bonds, and shall not be treated as additional security for Parity Obligations unless specifically provided for in a Supplemental Indenture and through an amendment of the Lease Agreement. Investments. All moneys in the Golf Course Enterprise Fund may be invested by the Authority from time to time in any Authorized Investments. AH moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture shall be invested by the Trustee solely in Permitted Investments, as directed pursuant to the Request of the Authority filed with the Trustee at least two (2) Business Days in advance of the making of such investments. In the absence of any such directions from the Authority, the Trustee shall invest any such moneys in Permitted Investments described in clause (g) of the definition thereof. Covenants of the Authority Punctual Payment; Compliance With Documents. The Authority shall punctually pay or cause to be paid the interest and principal to become due with respect to all of the Bonds in strict conforn\ity with the terms of the Bonds and of the Indenture, and will faithfully observe and perform all of the conditions, covenants and requirements of the Indenture and all Supplemental Indentures. C-S Discharge of Claims. The Authority covenants in the Indenture that in order to fully preserve and protect the priority and security of the Bonds, the Authority shall pay from the Net Revenues and discharge all lawful claims for labor, materials and supplies furnished for or in connection with the Golf Course which, if unpaid, may become a lien or charge upon the Net Revenues prior or superior to the lien of the Bonds and impair the security of the Bonds. The Authority shall also pay from the Net Revenues all taxes and assessments or other governmental charges lawfully levied or assessed upon or in respect of the Golf Course or upon any part thereof or upon any of the Net Revenues therefrom. Operation of Golf Course in Efficient and Economical Manner. The Authority covenants and agrees to operate the Golf Course, or cause the Golf Course to be operated by the Operator, in an efficient and economical manner and to operate, maintain and preserve the Golf Course in good repair and working order, or cause the Golf Course to be operated, maintained and preserved by the Operator in good repair and working order. Sale or Condemnation of Golf Course. The Authority covenants in the Indenture that the Golf Course shall not be encumbered, sold, leased, pledged, any charge placed thereon, or otherwise disposed of, as a whole or substantially as a whole. Neither the Gross Revenues nor any other funds pledged or otherwise made available to secure payment of the Bonds shall be mortgaged, encumbered, sold/ leased, pledged, any charge placed thereon, or disposed or used except as authorized by the terrns of the Indenture. The Authority shall not enter into any agreement which impairs fhe operation of the Golf Course or any part of it necessary to secure adequate Net Revenues to pay the Bonds, or which otherwise would impair the rights of the Bond Owners with respect to the Net Revenues. If any substantial part of the physical facilities of the Golf Course shall be sold or taken under the power of eminent domain, the payment therefor shall either (a) be used for the acquisition or construction of improvements, extensions or replacements of facilities constituting part of the Golf Course, or (b) to the extent not so used, be paid to the Trustee to be applied to redeem the Outstanding Bonds, in accordance with written instructions of the Authority filed with the Trustee. Insurance. The Authority covenants in the Indenture that it shall at all times maintain with responsible insurers all such insurance on the Golf Course as is customarily maintained with respect to works and properties of like character against accident to, loss of or damage to such works or properties. If any useful part of the Golf Course shall be damaged or destroyed, such part shall be restored to use. The money collected from insurance against accident to or destruction of the physical facilities of the Golf Course shall either (a) be used to repair or rebuild such damaged or destroyed facilities or (b) to the extent not so applied, be paid to the Trustee to be applied to redeem the Outstanding Bonds, in accordance with written instructions of the Authority filed with the Trustee. Any such insurance shall be in the form of policies or contracts for insurance with insurers of good standing and shall be payable to the Authority. The Authority may satisfy the insurance requirements of the Indenture by participating in a pooled insurance program sponsored by a joint exercise of powers agency. The Authority shall file or cause to be filed with the Trustee, annually within one hundred twenty (120) days after the close of each Fiscal Year, a Certificate of the Authority (a) setting forth a description in reasonable detail of the insurance then in effect, including any self- insurance fund, maintained pursuant to the requirements of the Indenture, (b) stating C-9 that the Authority is then in compliance with the requirements of the Indenture, and (c) stating whether during the preceding Fiscal Year any loss has been incurred with respect to the Golf Course and, if so, the amount of insurance proceeds, including the proceeds of any self-insurance fund, covering such loss and specifying the reasonable and necessary costs of repair, reconstruction or replacement thereof. Any proceeds received by the Authority or the Trustee from title insurance on the Golf Course Site and the Lease Agreement shall be used either: (i) to acquire other property in order to preserve and maintain the Golf Course; or (ii) redeem Bonds in accordance with the Indenture. The Authority covenants in the Indenture that it will cause the books and accounts of the Golf Course to be audited annually by an Independent Accountant and will make available for inspection by the Bond Owners, upon reasonable request, a copy of the report of such Independent Accountant. The Authority covenants in the Indenture that it will cause to be prepared annually, not more than one hundred eighty (180) days after the close of each Fiscal Year a summary statement showing the amount of Gross Revenues and the amount of all other funds collected which are required to be pledged or otherwise made available as security for payment of principal of and interest on the Bonds, the disbursements from the Gross Revenues and other funds in reasonable detail, and a general statement of the financial and physical condition of the Golf Course. The Authority shall furnish a copy of the statemeiit to the Trustee, and upon written request, to any Bond Owner; provided, that extension of the Management Agreement in accordance with its existing terms shall not be deemed to constitute a breach of the covenant made under the Indenture. Management of the Golf Course; Rates and Charges. (a) Management of the Golf Course. In general, the management of the Golf Course shall be under the control of the Authority. The Authority shall maintain reasonable fees adequate to achieve the financial performance of the Golf Course, and the Authority shall set fees for use of the Golf Course which are comparable to other comparable public golf courses in the San Diego County area, as reasonably determined by the Authority. The Authority shall not enter into any Management Agreement that would impair its ability to comply with the covenants contained in the Indenture, including specifically the covenants contained in the Indenture. (b) Covenant Regarding Gross Revenues. Subject to subdivision (a) of the Indenture, the Authority shall, or shall cause the Operator to, fix, prescribe, revise and collect rates, fees and charges for the use of the Golf Course during each calendar year (or such other fiscal period as the Authority shall select as the annual financial period for the Golf Course), which, when added to other revenues received by the Authority from other property and facilities controlled by the Authority, are at least sufficient, after making allowances for contingencies and error in the estimates, to yield Gross Revenues which are sufficient to pay the following amounts in the following order of priority: (i) All Operation and Maintenance Costs estimated by the Authority to become due and payable in such fiscal period; (ii) The principal of and interest on the Bonds as they become due and payable during such Fiscal Year, without preference or priority, except to the extent such principal and interest are payable from the proceeds of the Bonds or C-10 from any other source of legally available funds of the Authority which have been deposited with the Trustee for such purpose prior to the commencement of such fiscal period; (iii) All amounts, if any, required to restore the balance in the Reserve Fund to the full amount of the Reserve Requirement; (iv) All other payments required to meet any other obligations of the Authority which are charges, liens, encumbrances upon, or which are otherwise payable from. Gross Revenues during such fiscal period. Superior and Subordinate Obligations. The Authority shall not issue or incur any additional bonds or other obligations during the term of the Indenture having any priority in payment of principal or interest out of the Net Revenues over the Bonds. Nothing in the Indenture is intended or shall be construed to limit or affect the ability of the Authority to issue or incur (a) Parity Obligations, or (b) obligations which are either unsecured or which are secured by an interest in the Net Revenues which is junior and subordinate to the pledge of and lien upon the Net Revenues established under the Indenture, the proceeds of which are used to pay the amounts needed to complete the Golf Course. Enforcement of Management Agreement. The Authority shall diligently enforce its rights and remedies under the Management Agreement, so as to protect the security of the Bond Owners, and shall not agree to any amendment to the Management Agreement which would materially impair the security of the Bond Owners. Private Activity Bond Limitation. The Authority shall assure that the proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private business tests of section 141(b) of the Code or the private loan financing test of section 141(c) of the Code. Federal Guarantee Prohibition. The Authority shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Code. Rebate Requirement. The Authority shall take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable to the Bonds. No Arbitrage. The Authority shall not take, or permit or suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of the Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Bonds would have caused the Bonds to be "arbitrage bonds" within the meaning of section 148 of the Code. Maintenance of Tax-Exemption. The Authority shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Bonds. Continuing Disclosure. The Authority covenanted and agreed that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the Indenture, failure of the C-11 Authority to con\ply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, the Trustee may (and, at the request of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Bonds, shall) or any holder or beneficial owner of the Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. Further Assurances. The Authority will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture, and for the better assuring and confirming unto the Owners of the Bonds the rights and benefits provided in the Indenture. Amendment by Consent of Bond Owners. The Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Indenture which shall become binding when the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Indenture, are filed with the Trustee. No such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Authority to pay the principal, interest or redemption premiums at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee. The Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may also be modified or amended at any time by a Supplemental Indenture which shall become binding upon adoption, without consent of any Bond Owners, but only to the extent permitted by law and only for any one or more of the following purposes- (a) to add to the covenants and agreements of the Authority in the Indenture contained, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power in the Indenture reserved to or conferred upon the Authority; or (b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Indenture, or in any other respect whatsoever as the Authority may deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not adversely affect the interests of the Owners of the Bonds, in the opinion of nationally- recognized bond counsel; or (c) to provide for the issuance of any Parity Obligations, and to provide the terms and conditions under which such Parity Obligations may be issued, including but not limited to the establishment of special funds and accounts relating to such Parity Obligations and any other provisions relating solely to such Parity Obligations; or (d) to amend any provision of the Indenture relating to the Code, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the C-12 exemption from federal income taxation of interest on any of the Bonds, in the opinion of nationally-recognized bond counsel. Events of Default and Acceleration of Maturities. The following events shall be Events of Default under the Indenture: (a) Default in the due and punctual payment of the principal of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for mandatory sinldng fund redemption, by declaration or otherwise. (b) Default in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable. (c) Default by the Authority in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such default shall have continued for a period of sixty (60) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority by the Trustee; provided, however, that if in the reasonable opinion of the Authority the default stated in the notice can be corrected, but not within such sixty (60) day period, such default shall not constitute an Event of Default under the Indenture if the Authority shall commence to cure such default within such sixty (60) day period and thereafter diligently and in good faith cure such failure in a reasonable period of time. (d) The filing by the Authority of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the Authority, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Authority or of the whole or any substantial part of its property. Upon the occurrence and during the continuance of any Event of Default, the Trustee may, and upon written notice from the Owners of a majority in aggregate principal amount of the Bonds at the time Outstanding shall, declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the Bonds contained to the contrary notwithstanding. This provision, however, is subject to the condition that if, at any time after the principal of the Bonds shall have been so declared due and payable and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Authority shall deposit with the Trustee a sum sufficient to pay all of the principal of and interest on the Bonds having come due prior to such declaration, with interest on such overdue principal and interest calculated at the net effective rate of interest per annum then borne by the Outstanding Bonds, and the reasonable fees and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of the principal of and interest on the Bonds having come due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of a majority in aggregate principal amount of the Bonds at the time Outstanding may, by written notice to the Authority and to the Trustee, on behalf of the C-13 Owners of all of the Outstanding Bonds, rescind and annul such declaration and its consequences. However, no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon. Application of Funds Upon Acceleration. All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the Indenture shall be applied by the Trustee in the following order upon presentation of the several Bonds, and the stamping thereon of the amount of the payment if only partially paid, or upon the surrender thereof if fully paid - First, to the payment of the costs and expenses of the Trustee in declaring such Event of Default and in carrying out the provisions of Article VIII of the Indenture, including reasonable compensation to its agents, attorneys and counsel; and Second, to the payment of the whole amount then owing and unpaid upon the Bonds for interest and principal, with interest on such overdue amounts to the extent permitted by law at the net effective rate of interest then borne by the Outstanding Bonds, and in case such moneys shall be insufficient to pay in full the whole amount so owing and unpaid upon the Bonds, then to the payment of such interest, principal and interest on overdue amounts without preference or priority among such interest, principal and interest on overdue amounts ratably to the aggregate of such interest, principal and interest on overdue amounts. Other Remedies; Rights of Bond Owners. Upon the occurrence of an Event of Default, the Trustee may pursue any available remedy, in addition to the remedy specified above, at law or in equity under the Indenture and under the Lease Agreement to enforce the payment of the principal of, premium, if any, and interest on the Outstanding Bonds, including specifically the right to repossess the Golf Course in accordance with the terms of the Lease Agreement, subject to the limitations on use of the Golf Course, as specified in the Lease Agreement, and operate the Golf Course (including specifically the right to determine the necessary fees to be charged for use of the Golf Course, subject to the limitations on use of the Golf Course set out in the Indenture), and the Authority has assigned to the Trustee its rights under the Management Agreement, but solely for the purpose of enabling the Trustee to exercise its rights in the Event of Default, and to enforce any rights of the Trustee under or with respect to the Indenture. If an Event of Default shall have occurred and be continuing and if requested so to do by the Owners of a majority in aggregate principal amount of Outstanding Bonds and indemnified as provided in the Indenture, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by Article VIII of the Indenture, as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bond Owners. Discharge of Indenture. If the Authority shall pay and discharge any or all of the Outstanding Bonds in any one or more of the following ways- (a) by well and truly paying or causing to be paid the principal of and interest and premium (if any) on such Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money which, together with the available amounts then on deposit in the funds and accounts C-14 established pursuant to the Indenture, is fully sufficient to pay such Bonds, including all principal, interest and redemption premiums; (c) by depositing with the Trustee, in trust. Federal Securities in such amount as the Authority shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates; and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been mailed pursuant to the Indenture or provision satisfactory to the Trustee shall have been made for the mailing of such notice; or (d) by delivering such Bonds to the Trustee for cancellation- then, at the election of the Authority, and notwithstanding that any of such Bonds shall not have been surrendered for payment, the Gross Revenues and other funds provided for in the Indenture with respect to such Bonds, and all other pecuniary obligations of the Authority under the Indenture with respect to all such Bonds, shall cease and terminate, except only the obligation of the Authority to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose as aforesaid, and all expenses and costs of the Trustee. Notice of such election shall be filed with the Trustee. Any funds thereafter held by the Trustee, which are not required for said purposes, shall be paid over to the Authority. Rights of the liisurer. Upon the occurrence and continuation of an Event of Default, the Insurer will be entitled to control and direct the enforcement of all rights and remedies granted to the Certificate Owners, or to the Trustee for the benefit of the Certificate Owners, including but not limited to the right to approve all waivers of any Events of Default. The rights granted to the Insurer will be deemed terminated and shall not be exercisable by the Insurer during any period during which the Insurer giiall be in default under the Insurance Policy, SITE LEASE The Site Lease, dated as of December 1, 2006, is by and between the City, as lessor, and the Authority, as lessee. Site Lease. Under the Site Lease, the City leases the Golf Course Site to the Authority and the Authority leases the Golf Course from the City, on the terms and conditions set forth in the Site Lease. Term; Possession. The term of the Site Lease shall commence, and the Authority shall become entitled to possession of the Golf Course under the Site Lease, on the date of issuance of the Bonds. The Site Lease shall end, and the right of the Authority thereunder to possession of the Golf Course shall thereupon cease, on September 1, 2036, or such earlier or later date on which the principal of and interest on the Bonds are paid in full or provisions made for such payment. Limitations on Management and Operation of Golf Course. The Golf Course Site Lease is subject to the following limitations on the management and operation of the Golf Course: C-15 1) The Golf Course shall remain open to the public and accommodate primarily public play at all skill levels; 2) Management and operation of the Golf Course shall be under the control of the Authority, pursuant to and in accordance with the provisions of the Indenture; 3) The Authority shall, to the extent possible, maintain reasonable fees adequate to achieve the positive financial performance of the Golf Course, including the timely payment of debt service on the Bonds, and secondarily, repayment to the City of monies advanced for payment of debt service on the Bonds and/or for maintenance or operation of the Golf Course. The Authority shall set fees for use of the Golf Course which are comparable to other comparable public golf courses in the San Diego County area, as reasonably determined by the Authority. 4) The Authority shall operate, or cause the Operator to operate, the Golf Course in a manner that will not jeopardize tfie status of the R)nds as tax-exempt obligations. Rental. The Authority shall pay to the City as and for rental of the Golf Course thereunder, the sum of $10.00, which shall become due and payable upon the execution and delivery thereof, and which shall be paid by the Authority from proceeds of the Bonds issued pursuant to the Trust Indenture. No other amounts of rental shall be due and payable by the Authority for the use and occupancy of the Golf Course under the Site Lease. Termination. The Authority agrees, upon the termination of the Site Lease, to quit and surrender the Golf Course in the same good order and condition as the Golf Cburse was in at the time of commencement of the term thereof, reasonable wear and tear excepted, and has agreed that all buildings, improvements and structures then existing upon the Golf Course shall remain thereon and title thereto shall vest thereupon in the City for fto additional consideration. Default. In the event the Authority shall be in default in the performance of any obligation on its part to be performed under the terms of the Site Lease, which default continues for thirty (30) days following notice and demand for correction thereof to the Authority, the City may exercise any and all remedies granted by law, except that no merger of the Site Lease and of the Lease Agreement shall be deemed to occur as a result thereof. LEASE AGREEMENT The Lease Agreement, dated as of December 1, 2006, is by and between the Authority and the City. Lease. Under the Lease Agreement, the Authority leases the Golf Course to the City and the City leases the Golf Course from the Authority, upon the terms and conditions set forth in the Lease Agreement. Term. The Tenn of the Lease commences on the Closing Date and ends on the earliest of the date on which the Trust Indenture shall be discharged pursuant to its terms, but under any circumstances not later than September 1, 2046. The provisions of this paragraph are subject to the provisions relating to the taking of the Golf Course in C-16 eminent domain proceedings or the sale of the Golf Course under threat of such proceedings. Lease Payments. (a) Lease Payments. The City agrees to pay to the Trustee, as assignee of the Authority, as rental for the use and occupancy of the Golf Course thereunder during each Rental Period, for the Golf Course in the respective amounts specified in the Lease Agreement, to be due and payable on the respective Lease Payment Dates specified in the Lease Agreement, but only if and to the extent the Net Revenues of the Golf Course are ever insufficient to pay Bond Payinents as the same becomie due and payable. If the City receives notification from the Trustee pursuant to the Indenture that there is not then on hand in the Bond Service Fund sufficient funds to pay principal of and interest on the Bonds on the next occurring Interest Payment Date, the City shall immediately pay the next scheduled Lease Payment to the Trustee, less a credit for any amounts then on hand in the Bond Service Fund. Any amount held in the Bond Service Fund on any Lease Payment Date shall be credited towards the Lease Payment then due and payable; and no Lease Payment need be made on any Lease Payment Date if the amounts then held in the Bond Service Fund are at least equal to the Bond Payments then required to be paid. The Lease Payments for the Golf Course payable in any Rental Period shall be for the use of the Golf Course during such Rental Period. (b) Effect of Prepayment. In the event that the Authority redeems all Bonds Outstanding pursuant to the Indenture, the City's obligations under the Lease Agreement shall thereupon cease and terminate, including but not limited to the City's obligation to pay Lease Payments under the Lease; subject however, to the provisions of the Lease in the case of prepayment by application of a security deposit. In the event that the City purchases the Golf Course pursuant to the Lease, the amount paid pursuant to the Lease shall be credited entirely towards the prepayment in full or in part of the Lease Payments. In the event that the City prepays the Lease Payments in part but not in whole pursuant to the Lease as a result of any insurance award or condemnation award with respect to the Golf Course, such prepayment shall be credited entirely towards the prepayment of the Lease Payments as follows: (i) the principal components of the remaining Lease Payments shall be reduced on a pro rata basis in integral multiples of $5,000; and (ii) the interest component of the remaining Lease Payments shall be reduced by the aggregate corresponding amount of interest which would otherwise be payable on the Bonds thereby prepaid pursuant to the Trust Indenture. (c) Fair Rental Value. The aggregate amount of the Lease Payments, as shown on Exhibit B, coming due and payable on Lease Payment Dates during each Rental Period, shall constitute the total rental for the Golf Course for such Rental Period, and shall, subject to the limitations set forth in paragraph (a) above, be paid by the City in each Rental Period for and in consideration of the right of the use and occupancy of, and the continued quiet use and enjoyment of the Golf Course during each Rental Period. The parties hereto have agreed and determined that the total Lease Payments represent the fair rental value of the Golf Course, either as a golf course or as open space, it being hereby found and determined that the value of the Golf Course as open space has a fair rental value at least equal to the Lease Payments. In making such determination, consideration has been given to the value of the Golf Course as an operating golf course and as open space, the costs of financing the acquisition and rehabilitation of the Golf C-17 Course, other obligations of the City and the Authority under the Lease, the uses and purposes which may be served by the Golf Course and the benefits therefrom which will accrue to the City and the general public. (d) Budget and Appropriation. The City covenants to take such action as may be necessary to include all Lease Payments due thereunder in each of its budgets during the Term of the Lease Agreement and to make the necessary armual appropriations for all such Lease Payments, except that such Lease Payments need not be budgeted or appropriated to the extent amounts on deposit in the Bond Service Fund are sufficient to pay Bond Payments on a timely basis. The covenants on the part of the City shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the Lease Agreement agreed to be carried out and performed by the City. (e) Assignment. The City understands and agrees that all Lease Payments have been assigned by the Authority to the Trustee in trust, pursuant to the Assignment Agreement, for the benefit of the Owners of the Bonds, and the City hereby assents to such assignment. The Authority hereby directs the City, and the City hereby agrees to pay to the Trustee at its Principal Corporate Trust Office, all payments payable by the City pursuant to the Lease and all amounts payable by the City pursuant to the Lease. Possession. The City is in possession of the Golf Course on the Closing Date, and shall cause the Site Lease, the Lease Agreement and the Assignment Agreement to be recorded against the Golf Course Site. Title. At all times during the Term of the Lease, the City shall hold title to the Golf Course, subject to the provisions of the Site Lease and other Permitted Encumbrances. Upon the termination of the Lease, all right, title and interest of the Authority under the Lease in and to the Golf Course shall be transferred to and vested in the City. Upon the payment in full of all Bond Payments, or upon the deposit by the Authority of security for such Bond Payments as provided in the Indenture, all right, title and interest of the Authority under the Lease in and to the Golf Course shall be transferred to and vested in the City. The Authority agrees to take any and all steps and execute and record any and all documents reasonably required by the City to consummate any such transfer of title. Limitations on Management and Operation of Golf Course. The Lease is subject to the following limitations on the management and operation of the Golf Course: 1) The Golf Course shall remain open to the public and accommodate primarily public play at all skill levels; 2) Management and operation of the Golf Course shall be under the control of the Authority, pursuant to and in accordance with the provisions of the Indenture; 3) The Authority shall maintain reasonable fees adequate to achieve the financial performance of the Golf Course, including specifically the timely payment of debt service on the Bonds, and the Authority shall set fees for use of the Golf Course which C-18 are comparable to other comparable public golf courses in the Encinitas area, as reasonably determined by the Authority. Maintenance, Utilities, Taxes and Assessments Throughout the Term of the Lease, as part of the consideration for the rental of the Golf Course, all improvement, repair and maintenance of the Golf Course shall be the responsibility of the Authority, and the Authority shall pay for or otherwise arrange for the payment of all utility services supplied to the Golf Course, which may include, without limitation, janitor service, security, power, gas, telephone, Ught, heating, water and all other utility services, and shall pay for or otherwise arrange for the payment of the cost of the repair and replacement of the Golf Course resulting from ordinary wear and tear or want of care on the part of the Authority, the Operator or any assignee or sublessee thereof. The Authority shall also pay or cause to be paid all taxes and assessments of any type or nature, if any, charged to the Authority or the City affecting the Golf Course or the respective interests or estates therein; provided that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the Term of the Lease as and when the same become due. The Authority may, at the Authority's expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the City shall notify the Authority that, in its reasonable opinion, by nonpayment of any such items the interest of the City in the Golf Course will be materially endangered or the Golf Course or any part thereof will be subject to loss or forfeiture, in which event the City shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss which may result from nonpayment, in form satisfactory to the Authority and the'Trustee. Modification of Golf Course. The Authority shall, at its own expense, have the right to remodel the Golf Course; or to make additions, modifications and improvements thereto. AH additions, modifications and improvements to the Golf Course shall thereafter comprise part thereof and be subject to the provisions of the Lease. Such additions, modifications and improvements shall not in any way damage the Golf Course, or cause the Golf Course to be used for purposes other than those authorized under the provisions of state and federal law; and the Golf Course, upon completion of any additions^ modifications and improvements made thereto pursuant to this Section, shall be of a value which is not substantially less than the value thereof immediately prior to the making of such additions, modifications and improvements. The Authority will not permit any mechanic's or other lien to be established or remain against the Golf Course for labor or materials furnished in connection with any remodeling, additions, modifications, improvements, repairs, renewals or replacements made by the Authority pursuant to this Section; provided that if any such lien is established and the Authority shall first notify or cause to be notified the Authority of the City's intention to do so, the Authority may in good faith contest any lien filed or established against the Golf Course, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest and any appeal therefrom and shall provide the Authority with full security against any loss or forfeiture which might arise from the nonpayment of any such item, in form satisfactory to the City. The Authority will cooperate fully in any such contest, upon the request and at the expense of the Authority. C-19 Insurance Public Liability and Property Damage Insurance. The Authority shall, maintain or cause to be maintained, throughout the Term of the Lease Agreement, insurance policies, including a standard comprehensive general liability insurance policy or policies in protection of the City, the Authority and the Trustee, including their respective members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in each accident or event, and in a minimum amount of $100,000 (subject to a deductible clause of not to exceed $5,000) for damage to property resulting from each accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be miaintained as part of or in conjunction with any other liability insurance coverage carried by the Authority and may be maintained in the form of insurance maintained through a joint exercise of powers authority created for such purpose or in the form of self-insurance by the Authority. Fire and Extended Coverage Insurance. The Authority shall maintain, or cause to be maintained throughout the Term of the Lease Agreement, insurance against loss or damage to any part of the improvements constituting a portion of the Property by fire aiid lightning, with extended coverage and vandalism and malicious mischief insurance. Said extended coverage insurance shall, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance. Such insurance shall be in an amount equal to the lesser of (a) one hundred percent (100%) of the replacement cost of the improvements constituting a portion of the Property, or (b) die aggregate principal amount of the Outstanding Certificates. Such insurance may be maintained as part of or in conjunction with any other fire and extended coverage insurance carried by the Authority and may be maintained in whole or in part in the form of insurance maintained through a joint exercise of powers authority created for such purpose. Rental Interruption Insurance. The Authority shall maintain, or cause to be maintained, throughout the Term of the Lease Agreement rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of any part of the improvements constituting a portion of the Property during the Term of the Lease Agreement as a result of any of the hazards covered in the insurance required by the Lease Agreement, in an amount at least equal to the Lease Payments due in an 24 month period. Title Insurance. The Authority shall provide, from moneys in the Delivery Costs Fund or at its own expense, on the Closing Date, a CLTA title insurance policy covering, and in the amount of not less than the principal amount of the 2006 Bonds, insuring the City's leasehold estate in the Golf Course Site, subject only to Permitted Encumbrances. Insurance Net Proceeds; Form of Policies. Each policy or other evidence of insurance required by the Lease Agreement shall provide that all proceeds thereunder shall be payable to the Trustee as and to the extent required under the Lease Agreement and shall be applied as provided in the Lease Agreement. All required insurance policies C-20 shall be provided by a commercial insurer rated "A" by A.M. Best & Company or rated in one of the two highest rating categories by Moody's and S&P. The Authority shall pay or cause to be paid when due the premiums for all insurance policies required by the Lease Agreement. The Trustee shall not be responsible for the sufficiency of any insurance required in the Lease Agreement, including any forms of self-insurance and shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss. Annually, not later than September 1 in each year during the Term of the Lease Agreement, the Authority shall furnish or cause to be furnished evidence of such insurance, which may consist of a certificate describing material terms of the policy, to the Insurer. In the event that any insurance maintained pursuant to Section 5.3 shall be provided in the form of self-insurance, then (a) the Authority shall maintain reserve balances with respect thereto which are held by an independent trustee, (b) such self- insurance program shall be maintained by the Authority on an actuarially sound basis, (c) the Authority shall obtain, and file with the Insurer annually not later than September 1 in each year, the opinion of an independent insurance consultant engaged by the Authority approving the program of self-insurance and stating that the reserve balances with respect thereto are sufficient, and (d) in the event the self-insurance program is discontinued at any time, the.actuarial soundness of the reserve balances shall be maintained. Recordation. On or immediately after the Closing Date, the Authority shall, at its expense cause the Site Lease, the Lease or a memorandum thereof in form and substance approved by Bond Counsel, and the Assignment Agreement to be recorded in the office of the San Diego County Recorder with respect to the Site. Application of Net Proceeds. The Net Proceeds of any insurance award resulting from any damage to or destruction of the Golf Course by fire or other casualty shall be paid to the Trustee, and applied as set forth in the Trust Indenture. The Net Proceeds of any eminent domain award with respect to the Golf Course shall be paid by the Authority to the Trustee and applied as set forth in the Trust Indenture. Termination Due to Eminent Domain. If the Golf Course shall be taken permanently under the power of eminent domain or sold to a government threatening to exercise the power of eminent domain, the Term of the Lease shall cease with respect thereto as of the day possession shall be so taken. If less than all of the Golf Course shall be taken permanently, or if the Golf Course shall be taken temporarily, under the power of eminent domain, the Lease shall continue in full force and effect with respect thereto and shall not be terminated by virtue of such taking and the parties waive the benefit of any law to the contrary. Assignment and Subleasing by the City. The Lease may not be assigned by the City. The City may sublease the Golf Course, or any portion thereof, but only after satisfaction of the following conditions: (a) The City shall, within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority and the Trustee a true and complete copy of such sublease. (b) No such sublease by the City shall cause the Golf Course to be used for a purpose other than as may be authorized under the provisions of the laws of the State of California. C-21 (c) The City shall furnish the Authority and the Trustee with a written opinion of Bond Counsel stating that such sublease does not cause the interest on the Bonds to become includable in gross income for purposes of federal or State of California personal income taxation. (d) The Insurer shall have consented in writing to such sublease. Amendment of Lease Agreement. The Authority and the City may at any time amend or modify any of the provisions of the Lease, but only (a) with the prior written consent of the Insurer or Owners of a majority in aggregate principal amount of the Outstanding Bonds; or (b) with the consent of the Insurer, but without the consent of the Trustee or any of the Bond Owners, but only if such amendment or modification is for any one or more of the following purposes- (i) to add to the covenants and agreements of the City contained in the Lease, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power reserved to or conferred upon the City in the Lease, or (ii) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Lease, or in any other respect whatsoever as the Authority and the City may deem necessary or desirable, provided that, in the opinion of Bond Counsel, such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds; or (iii) to amend the description of the Golf Course to reflect accurately the property originally intended to be included therein; or (iv) to secure an issue of Parity Obligations. Events of Default Defined. Any one or more of the following events shall constitute an Event of Default under the Lease: (a) Failure by the City to pay the Lease Payments as the same become due and payable under the Lease Agreement. (b) Failure by the City to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in the preceding clause (a), for a period of sixty (60) days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Authority or the Trustee; provided, however, that if in the reasonable opinion of the City the failure stated in the notice can be corrected, but not within such sixty (60) day period, such failure shall not constitute an Event of Default if the City shall commence to cure such failure within such sixty (60) day period and thereafter diligently and in good faith shall cure such failure in a reasonable period of time. (c) The filing by the City of a voluntary petition in bankruptcy, or failure by the City promptly to lift any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by C-22 the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the Federal Bankruptcy Code, as amended, or under any similar acts which may hereafter be enacted. Remedies on Default. Whenever any Event of Default shall have happened and be continuing, it shall be lawful for the Authority to exercise any and all remedies available pursuant to law or granted pursuant to the Lease; provided, that the exercise of any remedy thereunder shall be subject to the limitations set forth in the Lease. Each and every covenant hereof to be kept and performed by the City is expressly made a condition and upon the breach thereof the Authority may exercise any and all rights granted thereunder; provided, that no termination of the Lease shall be effected either by operation of law or acts of the parties hereto, except only in the manner expressly provided. Upon the occurrence and during the continuance of any Event of Default, the Authority shall have and is granted each and every one of the following remedies. (a) Enforcement of Lease Without Termination. The City hereby irrevocably appoints the Authority as the agent and attorney-in-fact of the City to enter upon and re-lease the Golf Course in the event of default by the City in the performance of any covenants in the Lease Agreement or in the Indenture contained to be performed by the City and to remove all personal property whatsoever situated upon the Golf Course, to place such property in storage or other suitable place in the County of San Diego for the account of and at the expense of the City, and the City hereby exempts and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising or occasioned by any such entry upon and re-leasing of the Golf Course and the removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions contained in the Lease Agreement. The City agrees that the terms of the Lease constitute full and sufficient notice of the right of the Authority to re-lease the Golf Course in the event of such re-entry without effecting a surrender of the Lease, and further agrees that no acts of the Authority in effecting such re-leasing shall constitute a surrender or termination of the Lease irrespective of the term for which such re-leasing is made or the terms and conditions of such re- leasing, or otherwise, but that, on the contrary, in the event of such default by the City the right to terminate the Lease shall vest in the Authority to be effected in the sole and exclusive manner hereinafter provided for in subparagraph (b) of this Section. (b) Termination of Lease. If an Event of Default occurs and is continuing thereunder, the Authority at its option may terminate the Lease and re-lease all or any portion of the Golf Course. In the event of the termination of the Lease by the Authority at its option and in the manner hereinafter provided on accotint of default by the City (and notwithstanding any re-entry upon the Golf Course by the Authority in any manner whatsoever or the re-leasing of the Golf Course), the City nevertheless agrees to pay to the Authority all costs, loss or damages howsoever arising or occurring payable at the same time and in the same manner as is provided in the Lease Agreement in the case of payment of Lease Payments and other amounts payable thereunder. Any surplus C-23 received by the Authority from such re-leasing shall be deposited in the Authority Golf Course Fund. Neither notice to pay rent or to deliver up possession of the premises given pursuant to law nor any proceeding in unlawful detainer taken by the Authority shall of itself operate to terminate the Lease, and no termination of the Lease on account of default by the City shall be or become effective by operation of law, or otherwise, unless and until the Authority shall have given written notice to the City of the election on the part of the Authority to terminate the Lease. The City covenants and agrees that no surrender of the Golf Course, or of the remainder of the Term hereof or any termination of the Lease shall be valid in any manner or for any purpose whatsoever unless stated or accepted by the Authority by such written notice. (c) Proceedings at Law or In Equity. If an event of default occurs and continues thereunder, the Authority may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due thereunder or to enforce any other of its rights thereunder. No Remedy Exclusive. No remedy conferred upon or reserved to the Authority is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Lease or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon the occurrence of any Event of Default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Authority to exercise any remedy reserved to it in the Lease it shall not be necessary to give any notice, other than such notice as may be required in the Lease or by law. ASSIGNMENT AGREEMENT The Assignment Agreement (Lease Agreement, made and entered into as of December 1, 2006, is by and between the Authority and the Trustee. Assignment. The Authority has transferred, assigned and set over to the Trustee, for the benefit of the Owners of the Bonds issued under the Trust Indenture, all of the Authority's rights under the Lease Agreement (excepting only the Authority's rights to indemnification and attorneys' fees, including without limitation (a) the right to receive and collect any proceeds of any insurance maintained thereunder, or any eminent domain award (or proceeds of sale under threat of eminent domain) paid with respect to the Golf Course, and (b) the right to exercise such rights and remedies conferred on the Authority pursuant to the Lease Agreement as may be necessary or convenient to protect the interests of the Owners in the event of a default by the Authority under the Trust Indenture. All rights assigned by the Authority shall be administered by the Trustee in accordance with the provisions of the Trust Indenture and for the benefit of the Owners of the Bonds. Acceptance. The Trustee has accepted the assignments made in the Assignment Agreement for the purpose of securing the payment of debt service due on the Bonds, subject to the provisions of the Trust Indenture. C-24 APPENDIX D CONTINUING DISCLOSURE CERTIFICATE [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX D CONTINUING DISCLOSURE CERTIFICATE CARLSBAD PUBLIC FINANCING AUTHORITY Revenue Bonds 2006 Series A (Carlsbad Municipal Golf Course Project) This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the City of Carlsbad (the "City"), by and on behalf of itself and the Carlsbad Public Financing Authority (the "Authority") in connection with the issuance by the Authority of the above-referenced bonds (the "Bonds"). The Bonds are being issued pursuant to an Indenture of Trust, dated as of December 1, 2006 (the "Indenture of Trust"), between the Authority and The Bank of New York Trust Company, N.A., as trustee (the "Trustee"). The Bonds are special, limited obligations of the Authority, payable solely from (i) "Net Revenues" of the Golf Course, (il) lease payments ("Lease Payments") payable by the City pursuant to a Lease Agreement, dated as of December 1, 2006 (the "Lease Agreement"), to the extent necessary, and (ill) certain funds held under the Indenture. The City hereby covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2- 12(bK5). Section 2. Definitions. In addition to the definitions set forth in the Indenture of Trust, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Reporf shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "CPCT means the Internet-based filing system currently located at www.DisclosureUSA.org, or such other similar filing system approved by the Securities and Exchange Commission. "Dissemination Agent" shall mean the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Information on the National Repositories as of a particular date is available on the Internet at www.sec.gov/consumer/nrmsir.htm. D-1 "Official Statement' shall mean the Official Statement relating to the Bonds. "Participating Underwriter" shall mean Stone & Youngberg LLC. "Repository" shall mean each National Repository and each State Repository. "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. Section 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than nine months after the end of the City's fiscal year (which currently would be March 31 based upon the City's current June 30 fiscal year), commencing March 31, 2008 with the report for the 2006- 07 FiscalriYear, provide to the Participating Underwriter and each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than fifteen (15) Business Days prior to said date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the City's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). (b) If the City is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the City shall, by written direction, cause the Dissemination Agent to provide to (i) each National Repository or the Municipal Securities Rulemaking Board and (ii) each appropriate State Repository (with a copy to the Trustee) a notice, in substantially the form attached as Exhibit A. In lieu of filing the notice with each Repository, the City or the Dissemination Agent may file such notice with the CPO. (c) With respect to the Annual Report, the Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and (ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided. (d) In lieu of filing the Annual Report with each Repository in accordance with the preceding paragraph (c), the City or the Dissemination Agent may file such Annual Report solely with the CPO. D-2 Section 4. Content of Annual Reports. The City's Annual Report shall contain or incorporate by reference the following: (a) Audited Financial Statements of the City prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If such audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) Additional Items relating to the Authority. (i) Outstanding principal amount of the Bonds as of the end of the most recent fiscal year; and (ii) Balance of the Reserve Fund as of the end of the most recent fiscal year. (iii) Until such time as the Golf Course is completed and in use, the status of its construction, including the estimated opening date. (iv) For the most recently-completed reporting period, the Gross Revenues, Operation and Maintenance Costs and Net Revenues from the Golf Course. (v) A description of any new Management Agreement executed during the most recently-completed calendar year and/or a description of any new Operator. (vi) A statement of the amount of Lease Payments made by the City during the most recently-completed fiscal year, if any. (c) Additional Items relating to the Citv. Unless otherwise provided in the audited financial statements filed on or prior to the annual filing deadline for the Annual Reports provided for in Section 3 above, financial information and operating data with respect to the City for the preceding fiscal year, substantially similar to that provided in the corresponding tables and charts in the Official Statement for the Bonds, as follows: (i) summary of investments held in the City's investment portfolio for the preceding fiscal year, including market value, book value and a description of any investments that do not comply with the City's investment policies; (ii) general fund budget for the fiscal year during which the annual report is filed, in substantially the form of Table No. 1; (iii) general fund balance sheet in substantially the form of Table No. 2; (iv) general fund summary of revenues and expenditures in substantially the form of Table No. 3; (v) assessed valuation of property in the City, property tax levies and collections in substantially the form of Table No. 5 and Table No. 6; D-3 (vi) general fund tax revenues by source in substantially the form of Table No. 4; (vii) taxable transactions in the City in substantially the form of Table No. 9; and (viii) description of the City's outstanding general fund debt and lease obligations, including long-term general fund obligations. (d) In addition to any of the information expressly required to be provided under paragraphs (a) through (c) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material: (1) Principal and interest payment delinquencies. (2) Non-payment related defaults. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions or events affecting the tax-exempt status of the security. (7) Modifications to rights of security holders. (8) Contingent or unscheduled bond calls. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the securities. (11) Rating changes. (b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under applicable Federal securities law. (c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall, or by written direction cause the Dissemination Agent (if not the City) to, promptly file a notice of such occurrence with (i) each National Repository or the Municipal Securities Rulemaking Board and (ii) each D-4 appropriate State Repository with a copy to the Trustee, together with written direction to the Trustee whether or not to notify the Bond holders of the filing of such notice. In the absence of any such direction, the Trustee shall not send such notice to the Bond holders. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Trust Agreement. In lieu of filing the notice of Listed Event with each Repository in accordance with the preceding paragraph, the City or the Dissemination Agent may file such notice of a Listed Event with the CPO. Section 6. Termination of Reporting Obligation. The City's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the City. Section 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture of Trust for amendments to the Indenture of Trust with the consent of holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the D-5 differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5(c). Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, the Trustee may (and, at the request of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Bonds, after receiving indemnification satisfactory to it, shall), or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture of Trust, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties. Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. D-6 Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Authority, the Dissemination Agent, the Participating Underwriter and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: December , 2006 CITY OF CARLSBAD By: Authorized Representative D-7 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Carlsbad Public Financing Authority Name of Bond Issue: Carlsbad Public Financing Authority Revenue Bonds, 2006 Series A (Carlsbad Municipal Golf Course Project) Date of Issuance: December , 2006 NOTICE IS HEREBY GIVEN that the City of Carlsbad (the "City") has not provided an Annual Report with respect to the above-named Bonds as required by that certain Continuing Disclosure Certificate dated December , 2006 with respect to the Bonds. The City anticipates that the Annual Report will be filed by . Dated: CITY OF CARLSBAD By_ cc: Trustee D-8 APPENDIX E FORM OF BOND COUNSEL OPINION [LETTERHEAD OF JONES HALL] December 20, 2006 Carlsbad Public Financing Authority 1200 Carlsbad Village Drive Carlsbad, CA 92008-7314 OPINION: $18,540,000 Carlsbad Public Financing Authority Revenue Bonds, 2006 Series A (Carlsbad Municipal Golf Course Project) Members of the Board of Directors: We have acted as bond counsel in connection with the delivery by the Carlsbad Public Financing Authority (the "Authority") of $18,540,000 aggregate principal amount of bonds of the Authority designated the "Carlsbad Public Financing Authority Revenue Bonds, 2006 Series A (Carlsbad Municipal Golf Course Project)" (the "Bonds"), issued pursuant to the provisions of Marks-Roos Local Bond Pooling Act, constituting Article 4 of the Joint Exercise of Powers Law (the "Bond Law"), and pursuant to an Indenture of Trust dated as of December 1, 2006 (the "Indenture"), by and between the Authority and The Bank of New York Trust Company, N.A., as trustee, and a resolution of the Board of Directors of the Authority adopted on December 10, 2006. We have examined the Bond Law, an executed copy of the Indenture, an executed copy of the Lease Agreement, between the City of Carlsbad (the "City") and the Authority, dated as of December 1, 2006 (the "Lease Agreement"), and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Authority contained in the Indenture and in the certified proceedings and other certifications of public officials furrushed to us, without undertaking to verify the same by independent investigation. Based upon our examination, we are of the opinion, under existing law, that: 1. The Authority is a joint exercise of powers agency duly organized and existing under the Constitution and laws of the State of California, with power to enter into the Indenture, to perform the agreements on its part contained therein and to issue the Bonds. E-1 Carlsbad Public Financing Authority December 20, 2006 Page 2 2. The Bonds have been duly authorized, executed and delivered by the Authority and are legal, valid and binding obligations of the Authority, payable solely from the sources provided therefor in the Indenture. 3. The Indenture has been duly approved by the Authority and constitutes a legal, valid and binding obligation of the Authority, enforceable against the Authority in accordance with its terms. 4. The Lease Agreement has been duly approved by the City and constitutes a legal, valid and binding obligation of the City, enforceable against the City in accordance with its terms. 5. Pursuant to the Bond Law, the Indenture establishes a valid lien on and pledge of the Net Revenues of the Golf Course (as such terms are defined in the Indenture) for the security of the Bonds and any obligations issued on a parity therewith. If the Net Revenues are ever insufficient to pay debt service on the Bonds as the same becomes due and payable, the City has agreed under the Lease Agreement to pay Lease Payments to the Trustee equal to such deficiency. 6. Interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; provided, however, that for the purpose of computing the alternative minimum tax imposed on such corporations (as defined for federal income tax purposes), such interest is required to be taken into account in determining certain income and earnings. The opinions set forth in the preceding sentence are subject to the condition that the Authority comply with all requirements of the Internal Revenue Code of 1986, as amended, which must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal income tax purposes. The Authority has covenanted in the Indenture and in other instruments relating to the Bonds to comply with each of such requirements, and the Authority has full legal authority to make and comply with such covenants. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. The rights of the owners of the Bonds and the ervforceability of the Bonds, the Indenture and the Lease Agreement, may be subject to bankruptcy, insolvency, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity. Respectfully submitted, Jones Hall, A Professional Law Corporation E-2 APPENDIX F SPECIMEN BOND INSURANCE POLICY [THIS PAGE INTENTIONALLY LEFT BLANK] Financial Guaranty Insurance Policy Ambac Assurance Corporation One State Street Plaza, 15 th Floor New York, New York 10004 Telephone: (212) 668-0340 Obligor: Policy Number: Obligations: Premium: Ambac Assurance Corporation (Ambac), a Wisconsin stock insurance corporation, in consideration of the payment of the premium and subject to the terms of this Policy, hereby agrees to pay to The Bank of New York, as trustee, or its^uacessor (the "Insurance Trustee"), for the benefit of the Holders, that portion of the principal of and interest on the above-describeoio&jigations (the "Obligations") which shall become Due for Payment but shall be unpaid by reason of Nonpayment by Ambac will make such payments to the Insurance Trustee within one (I) business day following Nonpayment. Upon a Holder's presentation and surrender to the Insurance Trustee of such unpai uncanceled and in bearer form and free of any adverse claim, the Insurance Trustee will d principal and interest which is then Due for Payment but is unpaid. Upon such disbursei the surrendered Obligations and/or coupons and shall be fully subrogated to all of the. Ho In cases where the Obligations are issued in registered form, the Insurance Trustee\h( presentation and surrender to the Insurance Trustee of the unpaid Obligation, uncafcc' with an instrument of assignment, in form satisfactory to Ambac and the-4nsurance Holder's duly authorized representative, so as to permit ownership of siich nominee. The Insurance Trtistee shall disburse interest to a Hplder o Insurance Trustee of proof that the claimant is the person entitlecWo\lie p Insurance Trustee of an instrument of assignment, in form satisfacPorywo A Holder or such Holder's duly authorized representayjifC.JLDir'JferrinX t\A t |urisH(Ction, rwise availabTeT olHer only upon i claim, together y the Holder or such name of Ambac or its upon presentation to the e Obligation and delivery to the nsurance Trustee, duly executed by the under such Obligation to receive the le subrogated to all of the Holders' rights to made. notiOe" that any payment of principal of or interest on an a Holder by or on behalf of the Obligor has been deemed a nt to the United States Bankruptcy Code in accordance with !i Holder will be entitled to payment from Ambac to the extent interest in respect of which the insurance disbursi payment on registered Obligations to the extent o In the event that a trustee or paymg as Obligation which has become Due fa preferential transfer and theretofq a final, nonappealable order of a c\ur\ot com, of such recovery if sufficierixJi,inds\re!(iQjK)t As used herein, the underlying securj a coupon relating the schedwled^atiii reachea apd-doe^ not of rAjufred sinking fu O b If g 4t i o n s,,J«°^SflTet!H.h e of tl on the This Poli0S&4j®ffca«lelable. The premium on this Policy is not refundable for any reason, including payment of the Obligations prior to rnttwitityr This Policy does not insure against loss of any prepayment or other acceleration payment which at any time may become due in respect of any Obligation, other than at the sole option of Ambac, nor against any risk other than Nonpayment. In witness whereof, Ambac has catised this Policy to be affixed with a facsimile of its corporate seal and to be signed by its duly authorized officers in facsimile to become effective as its original seal and signatures and binding upon Ambac by virtue of the countersignature of its duly authorized representative. meanfeany perspfTofner than (i) the Obligor or (ii) any person whose obligations constitute the ymeftt tW tlT^><jJ?Mgations who, at the time of Nonpayment, is the owner of an Obligation or of 1. As\seaWrein, "Due for Payment", when referring to the principal of Obligations, is when mandatory\PMemption date for the application of a required sinking fund installment has been any earlier date on which payment is due by reason of call for redemption (other than by application stallments), acceleration or other advancement of maturity; and, when referring to interest on the led date for payment of interest has been reached. As used herein, "Nonpayment" means the failure A'CtoroVV^d .sufficient funds to the trustee or paying agent for payment in full of all principal of and interest ations \|h|ch are Due for Payment. President Effective Date: SEAL *k'--..^'»cot.»»*.--''4 ^v • —• • \?1 • * • / 0 0 THE BANK OF NE'W YORK acknowledges that it has agreed to perform the duties of Insurance Trustee under this Policy. Form No.: 2B-0012 (1/01) Secretary Authorized Representative Authorized Officer of Insurance Trustee F-1 Ambac Endorseiiieiif Aaibac Assurance Corporatioti c/'o CT CorporaSioii Systems 44 East Miffljo Street, Macfison, Wsscorisia 53703 Adnsinistrative Office; One State Street Plaza, New York, New York i! Teleplwne: a 12) 668-0340 Policv for: Attftched to aod fomiiog paat of Policy No,: Effective Date of Endorsemer l^^t^'^^laims arising suMice Guaranty N<;!thing herein e? l!mitati«na.,^»iiw as In the event that Ambac Assurance Corporation wer under the Policy would be excluded from coverj^e Association, established pursuant to the laws d held l^v'iffy^/ffef, waive or extend any of tiie tctiiis, conditions provisions, agrecsBents or (i PoiicvWw Shan as above slateui. :i^has caused Shis Eftclorsement to be afnxeci with a facsimile of its coq)Ofate seal aatf to be sigjied by its sniie to become eflcctive as its origitial seal and signatures and binding upeus Ambac by virtue oftlie ulyliithorized represeotaiix-e. Ambac AssHrsiiice Corp0ratiom Presiiiens /:fi^^^^. I :*$ • 0 ! 0 • 0 / 0 Secretary Form No.: 26-0015(7/97) Authorized Reprcscntiitivj F-2 APPENDIX G BOOK-ENTRY PROVISIONS The following description of the Depository Trust Company ("DTC"), the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and other payments with respect to the Bonds under the authorizing document (the "Trust Agreement") to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, the entities responsible for the execution and delivery of the Bonds (the "Issuer") makes no representations concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) prepayment or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC to be followed in dealing with DTC Participants are on file with DTC. DTC and its Participants. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered security certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (respectively, "NSCC", "GSCC", "MBSCC", and "EMCC", also subsidiaries of DTCC), as well as by the New York G-1 stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More informationaboutDTCcanbefoundatwww.dtcc.com. Book-Entry Only System. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee. Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example. Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Prepayment notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). G-2 Payments of principal, premium, if any, and interest evidenced by the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Issuer or the Trustee, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC (nor its nominee), the Trustee, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, if any, and interest evidenced by the Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered. The Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event. Certificates will be printed and delivered. Discontinuance of DTC Services. In the event that (a) DTC determines not to continue to act as securities depository for the Bonds, or (b) the Issuer determines that DTC will no longer so act and delivers a written certificate to the Trustee to that effect, then the Issuer will discontinue the Book-Entry Only System with DTC for the Bonds. If the Issuer determines to replace DTC with another qualified securities depository, the Issuer will prepare or direct the preparation of a new single separate, fully registered Certificate for each maturity of the Bonds registered in the name of such successor or substitute securities depository as are not inconsistent with the terms of the Trust Agreement. If the Issuer fails to identify another qualified securities depository to replace the incumbent securities depository for the Bonds, then the Bonds will no longer be restricted to being registered in the Certificate registration books in the name of the incumbent securities depository or its nominee, but will be registered in whatever name or names the incumbent securities depository or its nominee transferring or exchanging the Bonds designates. If the Book-Entry Only System is discontinued, the following provisions would also apply: (i) the Bonds will be made available in physical form, (ii) principal, and prepayment premiums, if any, with respect to the Bonds will be payable upon surrender thereof at the corporate trust office of the Trustee, (iii) interest on the Bonds will be payable by check mailed by first-class mail or, upon the written request of any Owner of $1,000,000 or more in aggregate principal amount of Certificates received by the Trustee on or prior to the 15th day of the calendar month immediately preceding the interest payment date, by wire transfer in immediately available funds to an account with a financial institution within the continental United States of America designated by such Owner, and (iv) the Bonds will be transferable and exchangeable as provided in the Trust Agreement. G-3 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] • . • . • i _. _-. ' - I Recycled Paper - Printed by IMAGEMASTER 800.452 5152