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HomeMy WebLinkAbout; ; 2002-2003 CAFR; 2003-06-30COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED JUNE 30, 2003 1635 Faraday Avenue, Carlsbad, CA 92008 Website: www. ci. carlsbad. ca. us Prepared by the Finance Department Photos on Cover: Top left to bottom right: Fire vehicles in front of original fire station (early 1960's), Twin Inns (1970's), Carlsbad High School Junior Varsity cheerleaders (1959), Carlsbad's Little league (1960's), Building department Christmas card (1974), Carlsbad Triathlon professional division swim start (2001), Architectural rendering of Carlsbad City Hall Administration Building CITY OF CARLSBAD Comprehensive Annual Financial Report Year Ended June 30, 2003 TABLE OF CONTENTS Page INTRODUCTORY SECTION: Table of Contents i City Council's Five-Year Vision Statements 1 Letter of Transmittal 3 Certificate of Achievement for Excellence in Financial Reporting, Government Finance Officers Association 10 Location Map 11 List of City Officials 12 Organization Chart 13 FINANCIAL SECTION: Independent Auditor's Report 15 Management's Discussion and Analysis 17 Basic Financial Statements Government-wide Financial Statements: Statement of Net Assets 30 Statement of Activities 32 Fund Financial Statements: Balance Sheet - Governmental Funds 34 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets 36 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 38 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 40 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget to Actual - General Fund 42 Statement of Net Assets - Proprietary Funds 44 Statement of Revenues, Expenses and Changes in Net Assets - Proprietary Funds 48 Statement of Cash Flows - Proprietary Funds 50 Statement of Net Assets - Fiduciary Funds 54 Statement of Changes in Net Assets 55 Notes to the Financial Statements 56 Supplementary Information Combining and Individual Fund Statements and Schedules: Combining Balance Sheet - Nonmajor Governmental Funds 84 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds 88 Combining Schedule of Revenues and Expenditures - Budget and Actual (Budgetary Basis) - Special Revenue Funds 92 Combining Schedule of Revenue and Expenditures - Budget and Actual (Budgetary Basis) - Debt Service Funds 94 Combining Statement of Net Assets - Internal Service Funds 96 Combining Statement of Revenues, Expenses and Changes in Net Assets - Internal Service Funds 98 Combining Statement of Cash Flows - Internal Service Funds 100 Combining Statement of Net Assets - Fiduciary Funds 104 Combining Statement of Changes hi Net Assets - Fiduciary Funds 105 Schedule of Annual Debt Service Requirements 106 CITY OF CARLSBAD Comprehensive Annual Financial Report Year Ended June 30, 2003 TABLE OF CONTENTS (CONTINUED) Page STATISTICAL SECTION: (Not covered by Independent Auditor's Report) Government-wide Information: Government-wide Expenses by Function 112 Government-wide Revenues 114 Fund Information: General Governmental Expenditures by Function - Last Ten Fiscal Years 116 General Governmental Revenues by Source - Last Ten Fiscal Years 118 Computation of Legal Debt Margin 120 Schedule of Direct and Overlapping Bonded Debt 121 Construction and Business Activity - Last Ten Fiscal Years 122 Water Enterprise - Revenue Bond Coverage - Last Ten Fiscal Years 123 Schedule of Assessed Valuation - Last Ten Fiscal Years 124 Demographic Statistics - Last Ten Fiscal Years 126 Property Tax Levies and Collections - Last Ten Fiscal Years 127 Principal Employers, 2002 - 2003 128 Principal Taxpayers, 2002 - 2003 129 Top 30 Sales Tax Generators, 2002 - 2003 130 Miscellaneous Statistical Information, 2002 - 2003 131 Carlsbad City Council 2003 Five-Year Vision Statements City Council continues to clarify and pursue the vision of Carlsbad that reflects the pride and quality of life for all who live, work, and play here. Carlsbad's... 4 diverse and healthy economic base provides opportunities for employment to the residents of Carlsbad, economic vitality to the community, and the necessary revenues to support City services. 4 policies and decisions implement the General Plan, enforce the Growth Management Plan, maintain the safety and security of its citizens, and are based on what is best for Carlsbad. 4 leadership role in local and regional planning issues actively involves addressing governmental issues at the local, state, and national levels. 4 open government provides for the betterment of the community in a non-partisan manner while encouraging active citizen participation and involvement with the City Council, and the City's Boards and Commissions. And Carlsbad efficiently and effectively... * delivers top-quality public services. 4 manages environmental concerns proactively, including: * open space * water quality/conservation » beach erosion * air quality » resource conservation and waste reduction * wildlife habitats 4 has a safe and efficient integrated transportation system. 4 maintains Citywide "small town" community spirit. 4 has a community where continuous and life-long learning are supported and embraced for people of all ages. c City of Carlsbad Finance Department October 15, 2003 Honorable Mayor, City Council, and Citizens of the City of Carlsbad CITY OF CARLSBAD Carlsbad, California LETTER OF TRANSMITTAL 2002-03 COMPREHENSIVE ANNUAL FINANCIAL REPORT I am pleased to present the 2002-03 Comprehensive Annual Financial Report of the City of Carlsbad. The information found in this report is provided by management to the City Council and the public to assist those interested in understanding the fiscal condition of the City as of June 30, 2003. Responsibility for both the accuracy of the data and the completeness and reliability of the presentation, including all disclosures, rests with City management. This report has been prepared using the financial reporting requirements prescribed by the Governmental Accounting Standards Board (GASB) Statement No. 34 Basic Financial Statements- and Management's Discussion and Analysis -for State and Local Governments. The report is organized into three sections: 1. Introductory Section - Provides the background and context so that the reader can fully understand the information included in the rest of the report. The introductory section includes this transmittal letter, the City's organizational chart, awards and recognitions given the City for its financial reporting, and other relevant information. 2. Financial Section - Contains the basic financial statements for the City, management's discussion & analysis (MD&A) of the basic financial statements as well as other financial information necessary for the reader to assess the financial position of the City. This section also includes the audit report from the independent auditing firm of McGladrey & Pullen, LLP. 3. Statistical Section - Provides a broad range of trend data covering key financial indicators from the past ten fiscal years, as well as demographic and miscellaneous data about the City. This information is provided to assist the reader in more fully understanding the financial condition of the City. To provide a reasonable basis for making the representations shown in this report, management of the City has established a comprehensive internal control framework designed both to protect the City's assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City's financial statements in conformity with generally accepted accounting principles (GAAP). Because the cost of internal controls should not outweigh their benefits, the City's comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this report is complete and reliable in all material respects. Also, as a recipient of federal and state financial assistance, the City is required to have a "Single Audit" performed by our independent audit firm. The Single Audit was designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require that the independent auditor report not only on the fair presentation of the financial statement, but also on the audited 1635 Faraday Avenue • Carlsbad, CA 92008-7314 • (76O) 602-2430 • FAX (760) 6O2-8553 www ci carlsbad.ca.us • Business License (760) 602-2495 • Utility Billing (760) 602-242O • Purchasing (760) 602-246O - FAX (76O) 6O2-8556 - Bid Line (760) 602-2464 government's internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City's separately issued Single Audit Report. The results of the City's Single Audit for the fiscal year ended June 30, 2003 noted no material weaknesses in the framework of internal controls or significant violations of applicable laws and regulations. PROFILE OF THE CITY OF CARLSBAD Carlsbad incorporated in 1952 as a General Law city, although its "village" area dates back more than 100 years. It is located about 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. The City Council is elected at large on a staggered basis for a term of four years. The City Clerk and City Treasurer are also elected to four-year terms. The City Council appoints the City Manager and City Attorney. The City covers approximately 42 square miles and has a population of 90,300, with an expected build-out population of 120,000 residents. Industries in the area include a regional shopping center; a major family theme park, a specialty outlet center; an auto mall; 30 hotels offering 3,400 rooms for tourist lodging; high- technology, multimedia, communication, and biomedical businesses; electronics, golf apparel, and equipment manufacturers; several business and light- industry parks; and numerous land developers. This report includes financial statements for the City, the Housing Authority of the City of Carlsbad, the Carlsbad Public Improvement Corporation, the Carlsbad Redevelopment Agency, and the Carlsbad Municipal Water District. Through these entities, Carlsbad provides the following services to its citizens and customers: • Police department • Development services • Fire and paramedic services • Street construction and maintenance • Water delivery system • Library and arts programs Oregon Carlsbad • Sewer system • Recreation programming for all ages • Solid waste services • Park lands • Housing programs School programs and facilities are provided by four different school districts located within the City boundaries. Although the City Council has no direct control over these school districts, the City Council recognizes the importance of quality school facilities and programs to Carlsbad's residents. The City Council has worked closely with the schools in the past to provide assistance. Budget Process The Carlsbad Municipal Code requires with a message describing important features, and be responsible for the budget's administration after adoption. The budget process begins in January each year with a review and update of the City Council's five-year vision statements and strategic goals for the City. The goals outline the methods used to achieve the vision and call out areas upon which the City Council would like to place special emphasis during the year. Once these are developed, staff develops operational goals based on the City Council's direction. These operational goals are the basis for the development of the annual budget. Budgetary control for the City is maintained through its accounting systems. The City Council adopts the formal budget at the beginning of each year and may amend it throughout the year as necessary. Expenditures may not exceed budgeted figures at the fund level. Monthly reports summarizing the results of operations for the City's more significant funds are provided to the City Council. that the City Manager annually prepare a budget for the City Council City of Carlsbad 2002-2003 Strategic Goals Top Quality Services - Be a City that provides exceptional services on a daily basis. Transportation - Provide and maintain a multi-modal transportation system, which includes public transportation, and which moves goods, services and people through Carlsbad in a safe and efficient manner that is coordinated with community development. Balanced Community Development - Be a community that promotes community spirit, quality neighborhoods, establishes compatible residential and commercial uses, including entertainment venues, and manages growth by providing an appropriate balance of facilities and services. Parks/Open Space/Trails - Acquire, develop and maintain a broad range of fiscally responsible recreation and open space facilities that actively address citizen needs and are consistent with the General Plan and Growth Management Standards. Water - Ensure reliable, high quality, diversified potable and recycled water system leading to a drought-resistant community, in the most cost effective manner. Environmental Management - Be an environmentally sensitive community by focusing on: Clean storm water, sewage collection and treatment, solid waste and efficient use of energy including alternative energy. Finance. - Implement proactive strategies that provide and manage the necessary resources to ensure a high quality of life. Communication - Ensure that citizens, staff and Council are well informed, leading to a more responsive government and a higher level of confidence in government. Learning - Promote and support continuous learning opportunities within the community and the City organization. FACTORS AFFECTING FINANCIAL CONDITION Economic Profile Diversification of San Diego County's employment base after the recession of the early 1990's has helped the region to weather the recent economic malaise without the recent dramatic declines seen in northern California. However, growth has been sluggish in the San Diego region since the downturn and it is difficult to tell when it will begin to gain some momentum. The leading indicators for the San Diego region declined in June 2003 (the most recent data available) after advancing slightly in the previous month. The indicators are published by the University of San Diego School of Business Administration and according to their report, "The outlook for the local economy remains weak at this point. Of particular concern is the deterioration in the job market, as reflected in the loss of more than 11,000 nonfarm wage and salary jobs in June compared to the year before. It was the third straight month where jobs have declined compared to the year before. While an increase in jobs is Median SFD Home Prices expected for the year as a whole, a lack of job growth in the national economy and turmoil in the state of California over the state budget deficit and the recall of Governor Gray Davis may put that forecast hi jeopardy." Despite the lack of job growth, the housing market in the San Diego region and in Carlsbad remains strong. This' is attributable, in part, to continued low mortgage interest rates for purchases and refinances, which has in turn fueled both housing demand and consumer spending. In Carlsbad, the number of residential permits issued in fiscal year 2004 is expected to total 715, just slightly lower than the previous year. The impediment to higher development is mainly due to the lack of supply rather than a lack of demand. With supply relatively low, housing prices have continued to escalate. Median prices for single-family homes averaged $472,000 for calendar year 2002, an 11% increase from the previous year. Total assessed values in the City stand at over $14 billion, double what they were just five years ago. Although this accelerated pace will level out over the next few years, the City still expects to add about 4,100 more residential units and an additional 4.8 million square feet of commercial/industrial development over the next five years. The City's residential housing stock is about 80% built out, with approximately 9,000 housing units remaining to develop. 500 400 300 200 100 0 1998 1999 2000 2001 2002 Carlsbad, like the region, has benefited from diversification of its employment base and its sources of revenue. The City has been generating approximately 1,000 new jobs each year for the past five years. Some of the major businesses in the City include the Gemological Institute of America, ViaSat, Invitrogen, Callaway, Taylor Made, Upper Deck, and many others. Although commercial and industrial development has slowed over the past year, it is expected that an additional 4.5 million square feet of commercial/industrial development will occur over the next five years. Tourism is also one of Carlsbad's major industries and major sources of revenue. The City is host to Legoland, a family theme park, and has two luxury resorts available for its visitors, the Four Seasons Resort at Aviara and the La Costa Resort and Spa, as well as numerous other quality hotels and motels. Tourism in Carlsbad, as in the rest of the state, declined significantly following the terrorist attacks of September 11, 2001; however, we are beginning to see signs of growth in this industry. Carlsbad's prime coastal location, its two premier resort hotels, Legoland, the airport, and its many businesses make it a popular destination for both leisure and business travelers. For fiscal year 2003-04, the City's revenue projections reflect a return of consumer confidence with growth in base sales taxes at about 5%. Housing values are expected to level out, with some softening in the market, especially in the higher-end homes. Development is predicted at a rate similar to fiscal year 2003; again the constraint is based on the limited supply, not on the demand. And finally, tourism is expected to slowly recover over the year, with transient occupancy taxes possibly reaching 2001 's level by the end of 2004. The most significant areas of risk in the forecast for Carlsbad lie with the economy and the State deficit. If the economy does not pick up in the first half of 2004, sales taxes and transient occupancy taxes are most susceptible to significant variances from the forecast, although all other revenues may also be affected. A larger concern for the City's immediate financial future is the State's budget deficit and political instability. The recall of the Governor is on the ballot for the November election with many of the candidates pledging to repeal the increase in the Vehicle License fees (VLF), a local revenue source. In addition, the Legislative Analyst's office estimates that the State will continue to have operating deficits cumulating to roughly $8 billion by the close of 2004-05. The recently adopted State budget resulted in revenue losses to Carlsbad of over $1 million for the upcoming year mostly from VLF but also the result of miscellaneous deferrals and reductions and $144,000 from the City's redevelopment agency. Since most of the City's significant revenue sources go through the hands of a state agency, there are numerous ways in which the State can effect the City's future revenues. The situation over the next few years at the State level promises to be a difficult one that could have an adverse impact on the City's future revenues. Long-Term Financial Planning It is the City Council's goal to ensure that the City remains in good financial health, and the City has taken a number of steps to attain that goal. One of these is the Growth Management Plan. This plan was adopted by the citizens to ensure that all necessary public facilities were constructed along with development. It also ensures 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 support the growing population are provided without financially impacting the City or its current residents. The City also prepares a 20+ year Capital Improvement Program. As part of the Capital Improvement Program, the amounts needed to pay for the various projects as well as the operating budget impacts are calculated. In this way, we can anticipate the effects of development from both a capital and an operating perspective. In order to assure that the City has the funds to replace these facilities as they age, an Infrastructure Replacement fund was created. With this fund, the City has begun to set aside money on an annual basis for major maintenance and replacement of its infrastructure. Much of the City's infrastructure is relatively new; therefore, the City has not felt the full impact of maintenance. By setting aside funds now, the citizens of Carlsbad can be assured that the proper maintenance and replacement, when needed, will be performed on streets, parks, and the many facilities for which the City is responsible. In addition to these steps, the City also prepares a long-term financial model for its operating needs. With a growing city such as Carlsbad, it is imperative that we plan for the impacts of serving new development and operating new public facilities, as well as planning for the capital needed to build them. Therefore, the City prepares a ten-year operating forecast for the General fund and its major enterprise funds. The City has experienced remarkable revenue growth over the past five to seven years due to the development of the majority of its commercial sites. The future will bring a few more commercial sites but at a much slower pace, while residential development will continue for a number of years. There are also a number of new facilities - mainly parks - planned for the future to serve the growing population. The new facilities will add operating costs to the City's General fund budget as they are completed and opened for use. These factors alone will cause the General fund costs to escalate at a higher rate than inflation. In addition, a number of other factors - mainly rising retirement and health care costs - will create upward pressure on expenditures, especially over the next five years. These factors have been incorporated into the General fund forecast, shown below, and projected over the next ten years. While no forecast is ever totally accurate, it does represent a likely scenario given the assumptions on which it is built. This forecast assumes that revenue growth will pick up at a moderate pace in 2004 and continue at that pace into the future. It adds in known personnel costs, which have been negotiated with the employee groups. The City has multi-year agreements with all the major employee groups so the effects can be projected fairly accurately. It assumes 15% increases in health care costs in the near future but flattening out into the future. It also assumes personnel growth (new positions) to remain rather flat at no more than 2% per year. And finally, it includes estimated operating costs for all capital projects in the timeframes shown in the long-term capital improvement program. One important point is that this forecast assumes the State does not take any additional revenues from the City's General fund. The results show that the General fund would operate at a surplus until 2007, at which time the forecast goes into a deficit and the deficit continues to grow into the foreseeable future. The surpluses are caused by the surge in revenues that occurred over the past years. The City's costs are projected to continue to grow at a faster pace than revenues, so it will eventually lead into deficits. If the State takes $3.5 million from the City on a permanent basis in fiscal year 2004 (not unlike the events of the early 1990's), the budget would fall into a deficit position by 2006. General Fund in thousands Revenues over Expenditures $4 000 * '-*•*• ^ \ V f ^^^ *-~-^. ^ ^> — • 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Of course, the City does not allow for deficit spending, so it will need to balance the budget in the out years. This can be done by reducing costs, raising revenues, or slowing the addition of new facilities until the revenues have time to catch up. One of the goals adopted for fiscal year 2004 is to develop a comprehensive look at both the revenue as well as the expense side of the General fund and to prepare a plan that provides for sustainable economic health for the City of Carlsbad. Cash Management The City Treasurer is charged with the design of an effective cash management and investment program consistent with the California Government Code, the Carlsbad Municipal Code, and the Carlsbad Investment Policy. The City Council, with the advice of the City Treasurer, annually adopts a comprehensive investment policy specifying, among other things, investment objectives and strategy, type, and term of investments, reporting requirements, and investment oversight. Investments are made either as pooled investments or as investments held separately. Pooled investments include the inactive cash of agencies controlled by the City and the various funds of those agencies. Investments held separately generally include bond proceeds and other funds, which are individually invested. Pooled investments generally include federal agencies, corporate notes, and investments in the State Treasurer's investment pool. The average life of the investments in the City's investment pool as of June 30, 2003 was 2 years, with a modified duration of 1.85. The average return on the pooled investments for fiscal year 2002-03 was 4.24%. Investment income includes appreciation on the fair value of investments. Increases or declines in fair value during the current year, however, do not necessarily represent trends that will continue, nor is it always possible to realize such amounts, especially in the case of temporary changes in the fair value of investments that the City intends to hold to maturity. The majority of the City's investments are held to maturity. Risk Management The City is exposed to various risks of loss related to its operations, including losses associated with errors and omissions and injuries to employees and members of the public. The City maintains a combination of insurance coverage and cash reserves to manage and finance its various types of risk. The City's self-insured retention for both liability and Worker's Compensation insurance is $500,000. More information about the City's risk management activity can be found in Note 14 of the notes to the financial statements. Pension Benefits The City of Carlsbad contributes to the California Public Employees' Retirement System (PERS), an agent multiple-employer public employee defined benefit pension plan, for all of its full-time employees. PERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Each year, an actuary engaged by PERS calculates the amount of the annual contribution that the City must make to the pension plan to ensure that the plan will be able to fully meet its obligations to retired employees on a timely basis. Due to the sluggish economy and the stock market decline over the past few years, PERS has informed us that the City's contribution rate is expected to continue to increase over the next several years. In addition, benefit enhancements in the fire safety plan and the miscellaneous employee plan have been approved by the City Council as part of multi-year compensation packages. These changes are expected to further increase the City's benefit contributions. For more information on the funded status of the pension plans, please read Note 20 of the notes to the financial statements. AWARDS AND ACKNOWLEDGEMENTS The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Carlsbad for its Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2002. This was the fifth consecutive year 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 Report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement Program's requirements, and we are submitting it to GFOA to determine its eligibility for another certificate. In addition to the GFOA award, the California Society of Municipal Finance Officers (CSMFO) presented a Certificate of Award for Outstanding Financial Reporting to the City of Carlsbad for its Comprehensive Annual Financial Report for the fiscal year ended June 30, 2001. We believe our current report continues to conform to the program requirements. This report has been a joint effort by many people from many different areas of responsibility. It could not have been accomplished without their help and the dedicated efforts of all of the accounting staff, especially Kevin Branca, Assistant Finance Director, and Helga Stover, Senior Accountant. I also appreciate the staff of McGladrey & Pullen, LLP for the professional way in which the audit of this financial 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 Leadership Team for their leadership and unfailing support in maintaining the highest standards of professionalism in the management of the City of Carlsbad's finances. Respectfully submitted, c\i .*-—I V I, >•* LISA HILDABRAND Finance Director Certificate of Achievement for Excellence in Financial Reporting Presented to City of Carlsbad, California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2002 A Certificate of Achievement for Excellence in Financial •Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. President Executive Director 10 ORANGE COUNTY RIVERSIDE COUNTY OCEANSIDE CARLS BA ENCINITAS SOLANA BEACH DEL MAR 1 T-5 LAJOLLA SAN DIEGO CORONADO IMPERIAL BEACH TIJUANA 11 CITY OF CARLSBAD ELECTED CITY OFFICIALS Claude A. "Bud" Lewis, Mayor Ramona Finnila, Mayor Pro Tern Ann J. Kulchin, Council Member Matt Hall, Council Member Mark Packard, Council Member Lorraine M. Wood, City Clerk James M. Stanton, City Treasurer ADMINISTRATION AND DEPARTMENT HEADS Raymond R. Patchett, City Manager Frank Mannen, Assistant City Manager James F. Elliott, Administrative Services Director Lloyd Hubbs, Public Works Director Sandra Holder, Community Development Director Jim Hawks, Police Chief Kevin Crawford, Fire Chief Ron Ball, City Attorney Julie Clark, Human Resources Director Douglas Duncanson, Deputy Public Works Director, General Services Debbie Fountain, Housing & Redevelopment Director Robert J. Greaney, Deputy Public Works Director, Maintenance and Operations Lisa Hildabrand, Finance Director Michael Holzmiller, Planning Director Pat Kelley, Principal Building Inspector Clifford Lange, Library Director Erin Letsch, Risk Manager Ken Price, Recreation Director Glenn Pruim, Deputy Public Works Director, Engineering Services Aletha L. Rautenkranz, Information Systems Director CHAIRPERSONS, COMMISSIONS AND BOARDS Gary Hill Arts Commission Ed Andrews Beach Preservation Committee Don Polese Community Television Foundation Sarah Marquez Design Review Board Sue Ladouceur Historic Preservation Commission Edward Scarpelli Housing Commission Claude A. Lewis Housing and Redevelopment Commission Jerry Tarman Library Board of Trustees Jim Comstock Parks and Recreation Commission Donald Martin Personnel Board Julie Baker Planning Commission Arthur Wood Senior Commission VACANT Serra Cooperative Library System Advisory Board Leonard Martyns Sister City Committee Jim Courtney Traffic Safety Commission Steve Jantz Utility Coordinating Commission 12 CITY OF CARLSBAD ORGANIZATION CHART Arts Commission Sister City Committee Historic Preservation CommissionELECTORATE Library Board of TrusteesMAYOR & COUNCIL CITY TREASURERCITY CLERK Serra Cooperative Library System Advisory Board Parks & Kec Commission CITY MANAGER CITY ATTORNEY Senior Commission COMMUNITY DEVELOPMENT COMMUNITY SERVICES PUBLIC SAFETY ADMINISTRA TIVE SERVICES PUBLIC WORKS ADMINISTRATION HUMAN RESOURCES ENGINEERING SERVICES ECONOMIC DEVELOPMENT INFORMATION TECHNOLOGY GENERAL SERVICES GEOGRAPHIC INFO SYSTEMS RECREATION RISK MANAGEMENT MAINTENANCE & OPERATIONS SENIOR CENTER HOUSING AND REDEVELOPMENT RECORDS MANAGEMENT Personnel i Board ' Beach "} Preservation j — Committee i _! Community i Television ( — Foundation i _ ! Traffic ' Safety j — Commission i Underground I Committee i Design Review Board Housing Commission Housing & Redevelopment Commission Planning Commission Iii li I 11 1 1 L11 11 I11 KEY Elected Council Appointed i"-~l Staff Support Reporting Relationship Programs <O m •~ ~ —cn 14 71p I 00 5 McGladrey&Pullen Certified Public Accountants Independent Auditor's Report The Honorable Mayor and Members of the City Council City of Carlsbad Carlsbad, California We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Carlsbad, California (the City), as of and for the year ended June 30,2003, which collectively comprise the City's basic financial statements as listed in the accompanying table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these basic financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used in the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Carlsbad, California, as of June 30,2003, and the respective changes in financial position and the cash flows, where applicable, thereof and the respective budgetary comparison for the General fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated September 30, 2003 on our consideration of the City of Carlsbad's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The management's discussion and analysis and supplementary information on pages 17 to 28 and 84 to 109, are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the City's basic financial statements. The accompanying combining statements and schedules of annual debt service requirements, listed in the table of contents as supplementary information, are been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all presented for purposes of additional analysis and are not a required part of the basic financial statements. This information has material respects, in relation to the basic financial statements taken as a whole. The letter of transmittal and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. San Diego, California September 30, 2003 McGladrey & Pullen, LLP is an independent member firm of RSM International, an affiliation of independent accounting and consulting firms. 15 16 Management's Discussion and Analysis As management of the City of Carlsbad ("City"), we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2003. Our intent is to assist the reader of these financial 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 consider the information presented here in conjunction with the additional information furnished in our letter of transmittal. Overview of the Financial Statements Required Components of the City of Carlsbad's Annual Financial Report Management 's Discussion and Analysis 1 1 Basic Financial Statements 1 Required Supplementary Information This section of the annual report consists of four parts - management's discussion and analysis (this section), the basic financial statements, required supplementary information, and an optional section that presents combining statements for non- major governmental funds and internal service funds. The basic financial statements include two kinds of statements that present different views of the City. • The first two statements are Government-wide Financial Statements that provide both long-term and short- term information about the City's overall financial status. • The remaining statements are Fund Financial Statements that focus on individual parts of the City government, reporting the City's operations in more detail than the Government-wide Statements. - The Governmental Funds Statements detail how general government services such as public safety were financed in the short term as well as what remains for future spending. - Propriety Fund Statements offer short- and long-term financial information about the activities the City operates like businesses, such as the water and sewer services. - Fiduciary Fund Statements provide information about the financial relationships - such as contractor and miscellaneous deposits - in which the City acts solely as a trustee or agent for the benefit of others to whom the resources belong. The financial statements also include notes that explain some of the information 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, internal service funds, and fiduciary funds, which are added together and presented in single columns in the basic financial statements. The remainder of this overview section of management's discussion and analysis explains the structure and contents of each of the statements. 1 Government- wide Financial Statements 1 Fund Financial Statements Notes to the Financial Statements Summary Detail 17 Government-wide Financial Statements The Government-wide Financial Statements report information about the City as a whole using accounting methods similar to those used by private-sector companies. The Statement of Net Assets includes all of the City's assets and liabilities. All of the current year's revenues and expenses are accounted for in the Statement of Activities regardless of when cash is received or paid. The two Government-wide Financial Statements report the City's net assets and how they have changed. Net assets • the difference 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 financial health is improving or deteriorating, respectively. One needs to consider additional non-financial factors, such as changes in the City's property tax base and the condition of the City's infrastructure, to assess the overall health of the City. The Government-wide Financial Statements of the City are divided into two categories: • Governmental activities - Most of the City's basic services, such as police, fire, public works, community services, community development, and general administration, are included here. Taxes, revenues from other governments and agencies, income from property and investments, grants and contributions, 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 trash services are the primary business-type activities. Fund Financial Statements The Fund Financial Statements provide more detailed information about the City's most significant funds - not the City as a whole. Funds are accounting devices that the City uses to keep track of specific sources of funding and spending for particular purposes. Some funds are required by State law and bond covenants, while the City establishes other funds to control and manage money for particular purposes (such as the developer impact fee funds) or to show that it is properly using certain taxes and grants (such as the Section 8 Housing Assistance fund). The City has three kinds of funds: • Governmental funds — Most of the City's basic services are included in governmental funds. These funds are used to account for (1) cash and other financial assets that can readily be converted to cash flow in and out, and (2) balances left at year-end that are available for 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 reconciliation between the long-term and short-term focus of the Government-wide Financial Statements is provided immediately following each statement. • Proprietary funds - Services for which the City charges customers a fee are generally reported in proprietary funds. Proprietary funds, like the Government-wide Financial Statements, provide both long- and short-term financial information. - There are two types of proprietary funds: enterprise funds and internal service funds. - We use enterprise funds to report activities that provide business-type services, generally to external customers - such as water, sewer and trash services. In both the Government-wide Financial Statements and the Fund Financial Statements, these funds are shown under business-type activities. We use internal service funds to report activities that provide services and supplies for the City's other programs and activities - such as fleet, health insurance, and information technology. 18 • Fiduciary funds - These funds are used to account for situations where the City's role is purely custodial, such as the receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments. All of the City's fiduciary activities are reported in a separate Statement of Fiduciary Net Assets. We exclude these activities from the City's Government-wide Financial Statements because the City cannot use these assets to finance its operations. Financial Analysis of the City as a Whole Net Assets The City's combined net assets for the fiscal year ended June 30, 2003, as shown below, were $851 million. 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 infrastructure assets. GASB 34 allows the City an additional four years in which to have an accounting of its infrastructure complete. The City's net assets increased by $112 million during the current fiscal year. Approximately 42% of this increase represents the degree to which increases in ongoing revenues have exceeded increases in ongoing expenses. Approximately 58% represents one-time capital grants and contributions received by the City for the purchase and acquisition of infrastructure and other capital assets. CITY OF CARLSBAD'S NET ASSETS (in millions of dollars) Governmental Activities Current and other assets Capital assets Total assets Long-term debt outstanding Other liabilities Total liabilities Net assets Invested in capital assets, net of related debt Restricted Unrestricted Total net assets 2002 $296.5 217.3 513.8 19.2 11.7 30.9 198.8 154.0 130.1 $482.9 2003 $330.9 265.0 595.9 17.5 12.9 30.4 248.2 200.3 117.0 $565.5 Business-Type Activities 2002 $121.6 154.1 275.7 12.6 6.8 19.4 140.4 94.8 21.0 $256.2 2003 $128.0 175.1 303.1 10.8 7.1 17.9 163.2 96.7 25.2 $285.1 Total 2002 $418.1 371.4 789.5 31.8 18.5 50.3 339.2 248.8 151.1 $739.1 2003 $458.9 440.1 899.0 28.3 20.0 48.3 411.4 297.0 142.2 $850.6 Total Percentage Change 2002-03 9.8% 18.5% 13.9% -11.0% 8.1% -4.0% 21.3% 19.4% -5.9% 15.1% As noted earlier, net assets may serve over time as a useful indicator of the City's financial position. For the City of Carlsbad, assets currently exceed liabilities by $850.6 million at the close of the most recent fiscal year. A large portion of the City's net assets (48%) reflects its investment in capital assets (i.e., land, buildings, machinery, equipment, and infrastructure), less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City's investment hi its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources since the capital assets themselves usually won't be used to liquidate these liabilities. The net assets of the business-type activities for fiscal year 2001-02 were reclassified to more appropriately reflect that portion that is truly restricted. An additional portion of the City's net assets (35%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets ($142.2 million) may be used to meet the government's ongoing obligations to citizens and creditors. Over 58% of the $117 million in unrestricted governmental activities net assets is attributable to the General fund. Although the unrestricted net assets of our business-type activities total $25.2 million, these resources cannot be 19 used to help fund governmental activities. The City can only use these net assets to finance the continuing operations of the City's enterprises: water, sewer, trash, and golf operations. Changes in Net Assets The condensed summary of activities, which follows, shows that net assets increased by $111.5 million during the year. This increase can be attributed to several factors including: actual revenues exceeding expenses for the year; $12.9 million "savings" in the General fund being carried forward into the new fiscal year by the various major service areas within the City to enhance and provide for future services and programs; the build-up of cash reserves in the City's capital project funds for future capital project construction and acquisition; and the donation of infrastructure assets from developers. CITY OF CARLSBAD'S CHANGES IN NET ASSETS (in millions of dollars) Governmental Business-type Activities Revenues Program revenues Charges for services Operating grants and contributions Capital grants and contributions General revenues Property taxes Sales and use taxes Other taxes Income from property and investments Other Total revenues Expenses General government Public safety Community development Community services Public works Interest on long-term debt Carlsbad Municipal Water District Sewer Other business-type activities Total expenses Excess (deficiency) before transfers Transfers Increase (decrease) in net assets Beginning net assets Ending net assets 2002 $14.6 8.0 26.9 28.5 21.0 19.7 18.1 5.4 142.2 7.6 25.7 10.5 13.3 15.0 1.7 - - - 73.8 68.4 - 68.4 414.5 $482.9 2003 $17.0 10.1 45.2 31.4 25.8 15.6 13.3 5.5 163.9 8.5 27.7 12.0 14.6 16.8 1.1 - - - 80.7 83.2 (0.6) 82.6 482.9 $565.5 Activities 2002 $25.5 0.6 16.1 1.5 - - 7.0 0.8 51.5 - - - - - - 19.3 6.2 0.3 25.8 25.7 - 25.7 230.5 $256.2 2003 $25.5 1.3 19.5 1.7 - - 5.8 0.2 54.0 - - - - - - 19.3 6.1 0.3 25.7 28.3 0.6 28.9 256.2 $285.1 Total 2002 $40.1 8.6 43.0 30.0 21.0 19.7 25.1 6.2 193.7 7.6 25.7 10.5 13.3 15.0 1.7 19.3 6.2 0.3 99.6 94.1 - 94.1 645.0 $739.1 2003 $42.5 11.4 64.7 33.1 25.8 15.6 19.1 5.7 217.9 8.5 27.7 12.0 14.6 16.8 1.1 19.3 6.1 0.3 106.4 111.5 - 111.5 739.1 $850.6 Total Percentage Change 2002-2003 6.0% 32.6% 50.5% 10.3% 22.9% -20.8% -23.9% -8.1% 12.5% 11.8% 7.8% 14.3% 9.8% 12.0% -35.3% 0.0% -1.6% 0.0% 6.8% 18.5% 0.0% 18.5% 14.6% 15.1% 20 Virtually 45% of the City's governmental funds revenue is generated through taxes collected (property, sales, transient occupancy tax, etc.), and almost 47% of the City's business-type revenue is generated through charges for services. The following chart graphically depicts the City's revenue sources. The total cost of all programs and services was just over $106 million in fiscal year 2002-03. The City's expenses cover a range of services: • General Government (8%) City of Carlsbad Sources of Revenue for Fiscal Year 2002-03 $217.9 Million Other (less than 1 %) Grants/ Property Taxes (15%) Contributions (27%) Income from Property and Investments (9%) Other Taxes (6%) TOT (4%) Charges for Services (19%) Federal Aid (6%) State Aid (2%) This segment of the City is divided into two major groups, the Policy and Leadership group and the Administrative Services group. The Policy and Leadership group encompasses all elected officials and the chief executive offices for the City Public Safety (26%) Public Safety has always been a top City Council priority. The major service area includes the Police Department, whose goal is to provide quality service to the community to ensure the preservation of life and property and the maintenance of law and order. The Fire Department is also part of this major service area with a mission to enhance the quality of life by delivering exceptional services in safeguarding lives, property, and our environment. Community Development (11%) The mission of Community Development is to guide and facilitate the development of the City of Carlsbad. This is accomplished through the development of high-quality projects and public facilities, preservation of the local environment, diverse housing, employment and enrichment opportunities, and a strong and stable economic base. Community Development encompasses the Hiring Center, Geographic Information Systems (GIS), Economic Development, Community Promotion, Land Use Planning, Housing and Redevelopment, and Building Inspection. Community Services (14%) Community Services consist of the Library, Cultural Arts, Recreation, Park Planning, and Senior Citizen programs. These programs are provided to a wide range of people and assist in their education and cultural development. City of Carlsbad Functional Expenses for Fiscal Year 2002-03 $106.4 Million Sewer 6% General Government 8% Water 18% Public Safety 26% Public Works 16% Community Services 14% Community Development 11% 21 • Public Works (16%) Public Works is charged with building and caring for all of the assets of the City. It includes Engineering; Parks, Streets, Median, Street Tree, Buena Vista Channel, and Facilities Maintenance; Building Maintenance; Street Lighting; and Traffic Sign and Signal Maintenance programs. • Water Operations (18%) The Carlsbad Municipal Water District, a subsidiary of the City of Carlsbad, provides potable water service to approximately 85% of the City (75,000 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 provides recycled water for irrigational purposes. • Sewer Operations (6%) The City of Carlsbad operates and maintains a sanitary 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 and Vista, the Leucadia County Water District, the Vallecitos Water District, the Buena Vista Sanitation District, and the Encinitas Sanitary District. • Other Expenses (1%) Other expenses include costs associated with the City's Solid Waste division, development of a municipal golf course, and interest on the City's long-term debt that is associated with governmental activities. The following sections will discuss the operations of governmental and business-type activities separately. Governmental Activities The increase in net assets for governmental activities was $82.6 million. This increase was generated by total revenues of governmental activities of $163.9 million ($72.3 million in program revenues and $91.6 million in general revenues) offset by $80.7 million in total costs of governmental activities. The following table presents the total cost of each of the City's major programs, as well as each function's program revenues (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 taxpayers by each of these functions (costs covered by general revenues). $35 Governmental Activities Program Revenues and Expenses (in millions) D Program Revenues S Expenses General Public Safety Community Community Public Works Government Development Services 22 Revenues are generated through several sources to cover the cost of the City's programs. These revenues include fees and charges paid by those who directly benefit from the programs ($17 million), grants and contributions from other governments and organizations to subsidize certain programs ($55.3 million), and taxes and other revenues (such as income from property and investments and Vehicle License Fees) received by the City to pay for the "public benefit" portion, totaling $91.6 million. Program revenues exceed expenses in Public Works as a large majority of Public Works revenues are used to acquire and build capital assets (versus covering operating expenses), and the City does not acquire or build a capital asset until the related revenues have been received. The City is currently in a developing or growing stage, and master plans are being designed to construct and develop these new facilities, roads, parks, etc. Business-Type Activities Program revenues for the City's business-type activities totaled $46.3 million for the year, while functional expenses equaled $25.7 million. Business-Type Activities Program Revenues and Expenses (in millions) Q Program Revenues @ Expenses Water Golf Course Sewer Solid Waste As with the Public Works function in the governmental activities, program revenues are higher than program expenses, since the City received contributions for current and future capital asset acquisitions and construction that will be reflected as program expenses over time as depreciation expense. In addition, a small portion of the annual surplus is set aside for rate stabilization and unanticipated events. Financial Analysis of the City's Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds The focus of the City's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. 23 Reserved for Other Purposes ($34.4 million) Designated for Future Continuing Appropriations ($65.3 million) Governmental Fund Balances (in millions) $297.2 Million Reserved to Liquidate Contracts and Purchase Orders ($22.7 million) Undesignated ($70.2 million) Designated for Approved Capital Projects ($104.6 million) As of the end of the current fiscal year, the City's governmental funds reported combined ending fund balances of $297.2 million, an increase of $32.2 million in comparison with the prior year. Approximately 23% of this amount ($70.2 million) constitutes undesignated fund balance, which is available for spending at the government's discretion based on the purpose for which it was received. The remainder of the fund balance is reserved or designated to indicate that it is not available for new spending because it has already been committed (1) for future capital projects (35%), (2) to liquidate contracts and purchase orders of the prior period (8%), (3) for future programs (22%) or (4) for a variety of other restricted purposes (12%). GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE (in millions of dollars) Total Increase Percentage Total (Decrease) Revenues Taxes Intergovernmental Licenses and permits Charges for services Income from property and investments Interdepartmental charges Miscellaneous Total revenues Expenses General government Public safety Community development Community services Public works Principal and interest Total expenses Excess (deficiency) before transfers Transfers Increase (decrease) in fund balance Beginning fund balance Ending fund balance 2002 $63.6 6.2 2.0 6.0 5.5 2.2 1.8 87.3 7.3 25.2 5.7 11.9 12.6 0.2 62.9 24.4 (6.8) 17.6 70.6 $88.2 2003 S66.1 6.6 2.0 7.7 4.3 2.7 1.5 90.9 8.1 26.5 6.0 12.9 14.9 0.7 69.1 21.8 (38.8) (17.0) 88.2 $71.2 Change 2002-2003 $2.5 0.4 0.0 1.7 (1.2) 0.5 (0.3) 3.6 0.8 1.3 0.3 1.0 2.3 0.5 6.2 3.9% 6.5% 0.0% 28.3% -21.8% 22.7% -16.7% 4.1% 11.0% 5.2% 5.3% 8.4% 18.3% 250.0% 9.9% The General fund is the chief operating fund of the City, and at the end of the fiscal year had a total fund balance of $71.2 million, a decrease of $17 million. This decrease was the result of transferring $35 million to the General Capital Construction fund to assist in the construction of the following capital projects approved with the passage of Proposition C: • A new swimming pool complex. • Trails linkages and the acquisition of open space in the City. • A new City/safety training facility. • The construction of a major road. The unreserved fund balance portion of the General fund was $58.3 million, of which $12.9 million was designated for future programs and service enhancements. The increase in revenues was primarily due to three factors: the continuation of a strong housing market on property taxes, strong automobile sales combined with a modification of the methodology used in the year-end sales tax 24 accrual (increased sales taxes) and the first increase in three years in development within the City (higher charges for services). On the other hand, the effects of the stabilization of natural gas prices (lower franchise taxes) and a 20% drop in the yield of the City's cash portfolio for the year partially offset the increase in General fund revenues. The increase in General fund expenditures were driven by the following factors: • Normal salary and benefit increases. • The addition of a communications department within General Government. • The moving of state library grants and the senior nutrition program into the Community Services section of the General fund. • Additional outside consulting for engineering plan check services in Public Works. • New playground equipment at several park sites shown in Community Services. • The payoff of a regional communication equipment lease. Of all the major governmental funds, the only one with a negative fund balance is the Redevelopment debt service fund. It reflects a negative fund balance of just over $11 million. This deficit was created when the City's General fund loaned the agency money to cover debt service charges during the period soon after the agency's bonds were issued, but prior to the agency being able to support the debt service with property tax increment revenues alone. The agency has begun to repay the $13.1 million advance back to the City's General fund, as the tax increment collected within the redevelopment area grows. The majority of the other major governmental funds, which are all capital project funds, showed increases in their fund balances during the year. However, these increases in fund balances are all designated for the construction or purchase of future capital projects. The Bridge and Thoroughfare Districts funds are the only major governmental funds reflecting a reduction in fund balance, due to the use of funds to construct Poinsettia Lane. Proprietary Funds The City's proprietary funds provide the same type of information found in the Government-wide Financial Statements, but in more detail. The Water funds had an operating income of $496,000 for the year. Due to increased precipitation during the spring and summer of 2003, water sales were $746,000 lower than last year. The largest expenditure for the year was for purchased water, which was also lower than last year by $586,000 from decreased water usage. Sewer funds had an annual operating income of $770,000 for the fiscal year. Total revenues increased from the previous year due to a more accurate accrual at year-end combined with an increase in the customer base. Sewer plant operation expenses are based on estimated or budgeted costs for the current year at the facility, adjusted by any budget to actual variances calculated from the previous fiscal year. In fiscal year 2001-02, actual charges came in lower than the budgeted expenses that were charged to the City, and this difference was credited to the City in the current fiscal year. Unrestricted net assets for the Water, Golf, Sewer, and Solid Waste operations at the end of the year amounted to $25.3 million, almost 9% of the net assets of all proprietary funds. These assets will be used for future rate stabilization efforts as well as for any emergency situation. Approximately 34% of the net assets are restricted for future capital construction, and reside in the Water and Sewer funds. General Fund Budgetary Highlights Management monitors revenues during the year and will update estimated revenue figures when new information is received by the City. Net estimated revenues were increased during this year by $2.3 million to reflect the following changes: • Significantly lower franchise fees due to lower gas prices paid by consumers in fiscal year 2002 as compared to the price spike in fiscal year 2001. 25 • The combined effects of the continuing impact of the terrorist attacks on the tourism industry, and a remodeling project occurring at one of the City's largest hotels, on Transient Occupancy Taxes. • Higher than anticipated development affecting charges for services and licenses and permits. • Increased interest income based on a higher average daily cash balance as compared to last fiscal year. • Increase in the monthly administrative overhead revenue generated through charges to funds outside of the General fund. The increase from the total original budgeted expenditures to the final budget amounted to $780,000, due predominantly from appropriating funds received from developers during the year for developer-funded studies. The difference between the final budgeted expenditures and the actual expenditures for the year on a budgetary basis of $ 15.6 million can be generally summarized as follows: • $12.9 million "savings" being carried forward into the new fiscal year by the various major service areas within the City to enhance and provide for future services and programs. • $1.9 million representing unspent City Council Contingency money that was budgeted for unanticipated emergencies or unforeseen program needs. Budgeted transfers out were increased during the year by $35 million to transfer funds from the General fund to the General Capital Construction fund to assist in the construction of capital projects approved with the passage of Proposition C. Proposition C was approved by the citizens of Carlsbad in November 2002, allowing the City to spend more than $1 million out of the General fund for several capital projects. For purposes of budgetary presentation, actual revenues have been adjusted to exclude unrealized gains and losses pursuant to GASB 31, actual expenditures have been adjusted to include encumbrances outstanding, and transfers out have been adjusted to reflect any transfer that was approved through the budget process as an expenditure but recorded as an advance in the financial statements. Capital Asset and Debt Administration Capital Assets At the end of 2003, the City had recorded an investment of over $510 million in a broad range of capital assets, including park facilities, land, buildings, roads, bridges, water and sewer lines, police and fire vehicles, and other maintenance equipment. This number does not include infrastructure assets constructed prior to July 1, 2001, as the City has not completed its inventory of infrastructure assets. Under GASB 34, the City has until fiscal year 2005-06 in which to complete a full accounting of its infrastructure. New infrastructure purchased or constructed during the last two fiscal years in the City's governmental funds has been added into the total capital asset figures. CITY OF CARLSBAD'S CAPITAL ASSETS (in millions of dollars) Governmental Business-Type Activities Land Buildings and other structures Improvements other than buildings Machinery and equipment Infrastructure Construction in progress Sewage treatment facility Accumulated depreciation Total 2002 $47.1 66.6 10.3 20.6 24.4 70.0 . 239.ff (21.7) $217.3 2003 $54.3 66.7 10.4 21.5 57.4 80.2 - 290.5 (25.5) $265.0 Activities 2002 $8.7 2.2 5.1 1.6 115.8 27.5 35.4 196.3 (42.2) $154.1 2003 $8.7 2.2 5.5 1.6 128.6 37.8 35.9 220.3 (45.2) $175.1 Total 2002 $55.8 68.8 15.4 22.2 140.2 97.5 35.4 435.3 (63.9) $371.4 2003 $63.0 68.9 15.9 23.1 186.0 118.0 35.9 510.8 (70.7) $440.1 Change 2002-03 $7.2 0.1 0.5 0.9 45.8 20.5 0.5 75.5 (6.8) $68.7 Total Percentage Change 2002-03 12.9% 0.1% 3.2% 4.1% 32.7% 21.0% 1.4% 17.3% 10.6% 18.5% This year's major capital asset additions included: • The purchase and developer contribution of land for the Alga Norte Park site. 26 • Developer-dedicated streets, drainage facilities, water lines, sewer lines, streetlights, and drainage facilities. • City-constructed streets, drainage facilities, water lines and traffic signals. • Street work undertaken as part of the pavement management/overlay program. In addition to carrying forward appropriations of $105.6 million for previously budgeted projects, the City's fiscal year 2003-04 capital budget appropriates an additional $59.6 million for capital projects. These additional appropriations are principally for park development, the pavement management program, street projects, enhancing the sewer collection system, additional water lines and debt payments, traffic signals, and loan repayments. These projects will be financed by development fees, infrastructure and replacement transfers from the General fund, special district fees and taxes, water and sewer replacement reserves, and other sources including grants and contributions from other agencies. More detailed information about the City's capital assets is presented in Note 6 to the financial statements as well as the City's Capital Improvement Program document available from the Finance Department. Long-Term Debt At year-end, the City had $28.3 million in bonds, certificates of deposit, loans, leases, and accrued assessments payable, a decrease of $3.5 million from last year, as shown in the table below. More detail about the City's long- term liabilities is presented in Note 8 to the financial statements. CITY OF CARLSBAD'S OUTSTANDING DEBT (in millions of dollars) Governmental Business-Type Activities Bonds Certificates of participation Loans Obligations under capital leases Installment purchase agreement Accrued assessments Less: Deferred charges Total 2002 $13.6 4.5 0.3 0.8 - - - $19.2 2003 $13.2 3.9 0.2 0.2 - - - $17.5 Activities 2002 $0.0 2.3 1.6 - 8.9 0.6 (0.8) $12.6 2003 $0.0 1.2 1.5 - 8.4 0.4 (0.7) $10.8 Total 2002 $13.6 6.8 1.9 0.8 8.9 0.6 (0.8) $31.8 2003 $13.2 5.1 1.7 0.2 8.4 0.4 (0.7) $28.3 Total Percentage Change 2002-03 -2.9% -25.0% -10.5% -75.0% -5.6% -33.3% -11.0% Economic Factors and Next Year's Budgets and Rates • Total assessed values in the City stand at over $ 14 billion, almost double what they were just five years ago. • The May 2003 revision of the Governor's 2003-04 budget reports a projected $38.2 billion deficit through the 2003-04 fiscal year, or 50% of the State of California's General fund. • Per PKF Consulting, occupancy rates for north coastal San Diego County hotels are up 1.7%, and average room rates are up 3.3% for the period from January 2003 through May 2003 as compared to the same period last year. • PERS rates for our miscellaneous plan have increased for the 2003-04 fiscal year from 0% to 2.258%, and have increased from 3.504% to 9.367% for our safety plan. • Retail natural gas prices have stabilized during the past twelve months, impacting our future franchise fee revenue. • The Consumer Price Index (CPI) for the western region of the United States for urban households increased by 1.9% during the twelve months ended November 30, 2002, impacting our budgeted expenditures for fiscal year 2003-04. • The total number of housing units in Carlsbad grew by 1.6% in calendar year 2002, impacting our budgeted expenditures for fiscal year 2003-04. All of these factors were considered in preparing the City of Carlsbad's General fund budget for the 2003-04 fiscal year. Budgeted expenditures are expected to increase 2.4% to $84.8 million. The increase is mainly due to the 2% increase given to departments in their block budget. In addition, just over $12.9 million in unspent 2002-03 27 budgeted expenditures will be carried over to the 2003-04 fiscal year, as well as $3.1 million in open encumbrances as of June 30, 2003. During the current fiscal year, unreserved fund balance in the General fund decreased to $45.5 million. This decrease was the result of transferring $35 million to the General Capital Construction fund to assist in the construction of capital projects approved with the passage of Proposition C. If the City's budget estimates are realized, the City's budgeted unreserved General fund is expected to increase modestly by the close of fiscal year 2004. The City's business-type activities reflect the following: • No anticipated rate structure changes during the next fiscal year. • No projected significant changes in other revenue sources. • Other changes in the Enterprise funds are the result of normal fluctuations in operations. Contacting the City's Financial Management This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with 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 report or need additional information, contact the Finance Department, 1635 Faraday Avenue, Carlsbad, CA 92008, (760) 602-2430, or visit us online at www.ci.carlsbad.ca.us. 28 29 CITY OF CARLSBAD, CALIFORNIA Statement of Net Assets June 30, 2003 Primary Government ASSETS Cash and investments Receivables: Taxes Accounts, net Other Due from other governments Inventories Prepaid items Loans receivable Deposits Restricted assets: Cash and investments Accrued interest Internal balances Capital assets: Land Buildings and other structures Improvements other than buildings Machinery and equipment Infrastructure Construction in progress Sewage treatment facility Less accumulated depreciation Total capital assets Total assets Governmental Activities $ 303,749,655 6,562,459 450,677 282,558 3,084,307 117,304 530,133 9,464,443 3,196,408 669,684 15,600 2,737,200 54,385,184 66,638,374 10,384,245 21,463,208 57,431,872 80,252,719 - (25,508,118) 265,047,484 $ 595,907,912 Business-type Activities $ 124,330,827 $ 58,695 2,967,019 - 1,131,787 525,304 7,212 - - 1,694,695 28,557 (2,737,200) 8,663,600 2,258,064 5,556,571 1,565,983 128,559,111 37,792,947 35,903,734 (45,241,825) 175,058,185 $ 303,065,081 $ Total 428,080,482 6,621,154 3,417,696 282,558 4,216,094 642,608 537,345 9,464,443 3,196,408 2,364,379 44,157 - 63,048,784 68,896,438 15,940,816 23,029,191 185,990,983 118,045,666 35,903,734 (70,749,943) 440,105,669 898,972,993 The notes to the financial statements are an integral part of this statement. 30 CITY OF CARLSBAD, CALIFORNIA Statement of Net Assets (Continued) June 30,2003 Primary Government LIABILITIES Accrued liabilities Accrued interest payable Due to other governments Estimated claims payable Deposits payable Current liabilities payable from restricted assets - accrued interest Deferred revenue Noncurrent liabilities: Due within one year Due in more than one year, net of deferred charges and unamortized issuance costs of $644,083 Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital assets Other purposes Unrestricted Total net assets Governmental Activities $ 8,456,760 311,429 109,659 3,015,843 402,528 - 632,564 1,220,144 16,278,507 30,427,434 248,218,517 165.477,914 34,854,737 116.929,310 $ 565,480,478 Business-type Activities $ 3,085,307 - 2,300,045 - 384,690 219,995 1,147,349 1,976,975 8,832,405 17,946,766 163,206,299 96,666,368 - 25,245,648 $ 285,118,315 Total $ 11,542,067 311,429 2,409,704 3,015,843 787,218 219,995 1,779,913 3,197,119 25,110,912 48,374,200 411,424,816 262,144,282 34,854,737 142,174,958 $ 850,598,793 The notes to the financial statements are an integral part of this statement. 31 CITY OF CARLSBAD Statement of Activities For the Year Ended June 30,2003 Program Revenues Functions/Programs Primary government: Governmental activities: General government Public safety Community development Community services Public works Interest on long-term debt Total governmental activities Business-type activities: Carlsbad Municipal Water District Golf course Sewer Solid waste Total business-type activities Total primary government Expenses $ 8,517,581 27,747,646 12,004,364 14,537,925 16,825,872 1,048,264 80,681,652 19,261,199 93,341 6,103,668 218,014 25,676,222 $ 106,357,874 Charges for Services $ 749,616 3,269,323 4,261,402 2,085,740 6,668,081 - 17,034,162 18,275,590 - 6,286,216 868,033 25,429,839 $ 42,464,001 Operating Grants and Contributions $ 687,856 229,349 6,444,795 921,788 1,855,182 - 10,138,970 1,209,335 - - 57,861 1,267,196 $ 11,406,166 Capital Grants and Contributions $ 80,865 29,577 1,182,337 2,044,903 41,842,602 - 45,180,284 12,399,506 - 7,139,549 - 19,539,055 $ 64,719,339 General revenues: Property taxes Sales and use taxes Transient occupancy taxes Franchise taxes Business license taxes Real property transfer taxes Vehicle license fees Homeowners exemptions Income from property and investments Gain on sale of capital assets Other general revenues Transfers Total general revenues and transfers Change in net assets Net assets at beginning of year Net assets at end of year The notes to the financial statements are an integral part of this statement. 32 Net Revenue (Expense) and Changes in Net Assets Primary Government Governmental Activities $ (6,999,244) (24,219,397) (115,830) (9,485,494) 33,539,993 (1,048,264) (8,328,236) - - - - $ (8,328,236) $ 31,410,575 25,767,426 8,387,388 3,729,712 2,305,178 1,126,804 5,066,902 343,805 13,347,285 (9,676) 55,867 (600,000) 90,931,266 82,603,030 482,877,448 $ 565,480,478 Business-type Activities $ - - - - - - 12,623,232 (93,341) 7,322,097 707,880 20,559,868 $ 20,559,868 $ 1,671,552 - - - - - - 24,264 5,835,693 49,148 135,280 600,000 8,315,937 28,875,805 256,242,510 $285,118,315 Total $ (6,999,244) (24,219,397) (115,830) (9,485,494) 33,539,993 (1,048,264) (8,328,236) 12,623,232 (93,341) 7,322,097 707,880 20,559,868 $ 12,231,632 $ 33,082,127 25,767,426 8,387,388 3,729,712 2,305,178 1,126,804 5,066,902 368,069 19,182,978 39,472 191,147 - 99,247,203 111,478,835 739,119,958 $ 850,598,793 33 CITY OF CARLSBAD Balance Sheet Governmental Funds June 30,2003 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 Liabilities: Accrued liabilities Due to other funds Deposits payable Due to other governments Advances from other funds Deferred revenue Total liabilities General Fund $ 61,078,565 6,519,627 145,459 278,381 570,524 37,271 20,748 54,605 - 179,744 - 17,434,568 $ 86,319,492 $ 4,958,341 - 155,894 - - 10,068,374 15,182,609 Redevelopment Debt Service Funds $ 2,046,726 26,298 - 177 - - - - - - - - $ 2,073,201 $ - - 42,106 13,070,949 - 13,113,055 Bridge and Thoroughfare Districts $ 5,546,540 - - - - - - - - - 3,196,408 - $ 8,742,948 $ 222,487 - - - 5,483,344 - 5,705,831 Fund balances: Reserved Unreserved: Designated, reported in: General Fund Special Revenue Funds Capital Project Funds Undesignated, reported in: General Fund Special Revenue Funds Debt Service Funds Capital Project Funds Total fund balances 12,794,287 12,873,309 45,469,287 1,630,726 1,406,391 (11,039,854) 71,136,883 (11,039,854) 3,037,117 Total liabilities and fund balances The notes to the financial statements are an integral part of this statement. $ 86,319,492 $ 2,073,201 $ 8,742,948 34 Community General Facilities Capital District No. 1 Construction $ 33,869,062 $ 48,494,326 490 - - - - - - - - - 5,260,854 $ 33,869,552 $ 53,755,180 Public Other Facilities Governmental Construction Funds $ 34,582,534 $ 103,391,222 16,044 272,828 4,000 - 3,047,036 - 343,247 685,284 9,284,699 - 4,643,344 $ 34,582,534 $ 121,687,704 Total Governmental Funds $ 289,008,975 6,562,459 418,287 282,558 570,524 3,084,307 20,748 397,852 685,284 9,464,443 3,196,408 27,338,766 $341,030,611 $ 65,233 $ 78,875 - - - - 201,425 65,233 280,300 143,838 5,974,457 -. - 33,660,481 4,699,519 35,000,000 - - 7,800,904 33,804,319 53,474,880 $ 33,869,552 $ 53,755,180 $ 259,059 $ 2,120,442 570,524 246,634 67,553 6,047,273 181,474 259,059 9,233,900 2,171,968 34,344,151 . 4,156,248 32,151,507 45,980,831 - 16,854,136 591,125 10,527,313 34,323,475 112,453,804 $ 34,582,534 $ 121,687,704 $ 7,704,437 570,524 402,528 109,659 24,601,566 10,451,273 43,839,987 57,059,427 12,873,309 4,156,248 117,898,729 80,469,287 16,854,136 (10,448,729) 18,328,217 297,190,624 $341,030,611 35 CITY OF CARLSBAD Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets June 30,2003 Total fund balances - governmental funds. Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources, and therefore are not reported in the funds. Governmental funds Internal service funds Total capital assets Internal service funds are used by management to charge the costs of fleet management, health insurance, information technologies, records management, risk management and workers' compensation to individual funds. The assets and liabilities of the internal service funds are included in governmental activities in the statement of net assets. Total internal service fund net assets Internal service fund net assets included as part of total capital assets Internal service fund net assets included as part of long-term liabilities Internal service fund net assets less capital assets Accrued interest is not due and payable in the current period, and therefore is not reported in the funds. Interest receivable on advances to other funds is not a current financial resource, and therefore is not recognized as revenue in the funds until received. A portion of the taxes receivable are not available to pay for current-period expenditures and, therefore, are deferred in the funds. Long-term liabilities, including bonds payable, are not due and payable in the current period, and therefore are not reported in the funds. Governmental funds Internal service funds Total long-term liabilities Net assets of governmental activities. The notes to the financial statements are an integral part of this statement. $297,190,624 258,505,048 6,542,436 265,047,484 17,766,648 (6,542,436) 9,529 11,233,741 (311,429) 8,906,271 912,438 (17,489,122) (9,529) (17,498,651) $565,480,478 36 37 CITY OF CARLSBAD Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended June 30,2003 Revenues: Taxes Intergovernmental Licenses and permits Charges for services Fines and forfeitures Income from property and investments Interdepartmental charges 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 Proceeds of debt Total other financing sources (uses) Net change in fund balances Fund balances (deficits) at beginning of year Fund balances (deficits) at end of year The notes to the financial statements are an integral part General Fund $ 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 of this statement. Redevelopment Debt Service Funds $ 1,725,466 - - - - 86,482 - - - - 1,811,948 20,275 - - - - - 340,000 1,319,026 1,679,301 132,647 - (282,000) - (282,000) (149,353) (10,890,501) $ (11,039,854) Bridge and Thoroughfare Districts $ 240,831 - - - 253,703 - 36,600 - 288,632 819,766 - - - - - 1,456,593 - - 1,456,593 (636,827) - - - _ (636,827) 3,673,944 $ 3,037,117 38 Community Facilities District No. 1 $ 4,270,767 - - - - 1,527,372 - 701,561 - 1,000 6,500,700 106,169 - - - - 457,226 - - 563,395 5,937,305 (5,692,343) (5,692,343) 244,962 33,559,357 $ 33,804,319 General Capital Construction $ - - - - 1,433,309 - 320,650 - 2,959 1,756,918 - - - - 332,862 - - 332,862 1,424,056 35,196,189 (29,252) 35,166,937 36,590,993 16,883,887 $ 53,474,880 Public Facilities Construction $ - - - - 1,795,150 - 3,780,131 - 6,452 5,581,733 - - - ' 3,758,660 - - 3,758,660 1,823,073 584,905 - 584,905 2,407,978 31,915,497 $ 34,323,475 Other Governmental Funds $ 2,094,552 12,905,376 - 2,349,321 62,376 5,453,153 128,590 9,708,024 148,844 1,399,453 34,249,689 547,312 324,789 5,764,866 450,382 3,327,935 20,405,142 732,610 249,899 31,802,935 2,446,754 10,850,176 (2,517,146) 8,333,030 10,779,784 101,674,020 $ 112,453,804 Total Governmental Funds $ 74,156,244 19,775,324 2,042,529 10,058,671 923,068 14,801,549 2,815,407 14,546,966 148,844 2,348,835 141,617,437 8,805,313 26,797,864 11,798,832 13,373,756 18,176,697 26,410,483 1,671,496 1,628,495 108,662,936 32,954,501 47,845,742 (48,580,559) (734,817) 32,219,684 264,970,940 $ 297,190,624 39 CITY OF CARLSBAD Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2003 Net change in fund balances - total governmental funds.$ 32,219,684 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Purchase of capital assets Depreciation expense Governmental funds do not reflect the donation of capital assets as revenues. 26,730,686 (2,903,695) 24,397,507 Governmental funds report the entire proceeds from the sale of capital assets as revenue. However, in the statement of activities, the net gain or loss from the sale of capital assets is reported.(20,494) The repayment of the principal of long-term debt consumes the current financial resouces of governmental funds but has no effect on net assets.1,671,496 Some expenses reported in the statement of activities do not require the use of current financial resources, and therefore are not reported as expenditures in governmental funds.36,240 Unpaid interest income on advances to other funds is not a current financial resource, and therefore is not recognized as revenue in the funds.337,192 A portion of sales and use taxes is not available to pay for current-period expenditures and, therefore, is deferred in the funds. The net revenue of certain activities of internal service funds is reported with governmental activities. Change in net assets of governmental activities. 912,438 (778,024) $ 82,603,030 The notes to the financial statements are an integral part of this statement. 40 41 CITY OF CARLSBAD Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual General Fund For the Year Ended June 30,2003 Variance With Final Budget - Budgeted Amounts Revenues: Taxes Intergovernmental Licenses and permits Charges for services Fines and forfeitures Income from property and investments Interdepartmental charges Miscellaneous Total revenues Expenditures: Current: General government Public safety Community development Community services Public works Debt service: Principal retirement Interest and fiscal charges Total expenditures Excess of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Proceeds of debt Total other financing sources (uses) Net change in fund balances Fund balance at beginning of year Fund balance at end of year Original $ 64,943,000 6,426,000 1,545,000 5,338,000 854,000 3,735,000 2,500,000 700,000 86,041,000 14,015,623 29,441,489 8,469,163 16,440,592 17,997,982 598,886 59,570 87,023,305 (982,305) - (5,976,419) - (5,976,419) (6,958,724) 88,154,736 $ 81,196,012 Final S 64,016,000 6,659,000 1,715,000 7,234,000 900,000 4,350,000 2,800,000 700,000 88,374,000 13,664,563 29,608,279 8,921,563 16,748,587 18,202,371 598,886 59,570 87,803,819 570,181 1,214,472 (41,136,237) - (39,921,765) (39,351,584) 88,154,736 $ 48,803,152 Actual Amounts (Budgetary Basis) $ 66,065,459 $ 6,629,117 2,042,529 7,709,350 860,692 4,483,932 2,686,817 650,339 91,128,235 8,684,013 26,682,496 7,035,104 13,304,793 15,809,398 598,886 59,570 72,174,260 18,953,975 1,214,472 (41,136,237) - (39,921,765) (20,967,790) 88,154,736 $ 67,186,946 $ Over (Under) 2,049,459 (29,883) 327,529 475,350 (39,308) 133,932 (113,183) (49,661) 2,754,235 (4,980,550) (2,925,783) (1,886,459) (3,443,794) (2,392,973) - - (15,629,559) 18,383,794 - - - _ 18,383,794 . 18,383,794 The notes to the financial statements are an integral part of this statement. 42 CITY OF CARLSBAD Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual General Fund (Continued) For the Year Ended June 30,2003 BUDGET-TO-GAAP RECONCILIATION Actual Amounts (Budgetary Basis) Revenues Actual amounts (budgetary basis) "available for appropriation" from the budgetary comparison schedule (previous page). $ 91,128,235 Differences - budget to GAAP: The recording of unrealized gains and losses on the City's investments are shown for financial reporting purposes (pursuant to GASB 31), but are not shown for budgetary purposes. (231,552) $ 90,896,683 Expenditures Actual amounts (budgetary basis) "total charges to appropriations" from the budgetary comparison schedule (previous page). Differences - budget to GAAP: Encumbrances are shown in the year encumbered for budgetary purposes, but in the year paid for financial reporting purposes. $ 72,174,260 (3,105,070) $ 69,069,190 Other Financing Sources (Uses) Actual amounts (budgetary basis) "transfers out" from the budgetary comparison schedule (previous page). Differences - budget to GAAP: For budgetary purposes, the transfer to the Storm Water Program is shown as a transfer out, but on a GAAP basis, the transfer is shown as a loan. $ (41,136,237) 1,076,419 The notes to the financial statements are an integral part of this statement. $ (40,059,818) 43 CITY OF CARLSBAD Statement of Net Assets Proprietary Funds June 30,2003 ASSETS Business-type Activities - Carlsbad Municipal Water District Golf Course Sewer Current assets: Cash and investments Receivables: Taxes Accounts, net Due from other governments Inventories Prepaid items Total current assets Noncurrent assets: Restricted assets: Cash and investments Accrued interest Total restricted assets Capital assets: Land Buildings and other structures Improvements other than buildings Machinery and equipment Infrastructure Construction in progress Sewage treatment facility Less accumulated depreciation Total capital assets (net of accumulated depreciation) Total noncurrent assets Total assets The notes to the financial statements are an integral part of this statement. $ 52,938,871 $ 2,419,856 $ 64,076,138 25,336 1,957,496 1,131,787 518,018 7,212 56,578,720 740,483 6,832 747,315 1,909,565 2,258,064 2,185,604 992,094 88,827,203 16,894,231 - (22,296,372) 90,770,389 91,517,704 $ 148,096,424 ! - 742,906 - 7,286 - 2,419,856 64,826,330 954,212 21,725 975,937 5,075,228 1,678,807 - 3,370,967 573,889 39,731,908 3,663,019 17,235,697 35,903,734 (22,945,453) 8,738,247 75,549,549 8,738,247 76,525,486 5 11,158,103 $ 141,351,816 44 Enterprise Funds Solid Waste Totals $ 4,895,962 $ 124,330,827 33,359 58,695 266,617 2,967,019 1,131,787 525,304 7,212 5,195,938 129,020,844 1,694,695 28,557 Governmental Activities - Internal Service Funds $ 14,740,680 - 32,390 - 96,556 132,281 15,001,907 - 1,723,252 8,663,600 2,258,064 5,556,571 1,565,983 128,559,111 37,792,947 35,903,734 (45,241,825) 175,058,185 176,781,437 $ 5,195,938 $ 305,802,281 - - 14,840,719 - - - (8,298,283) 6,542,436 6,542,436 $ 21,544,343 (Continued) 45 '•*«*,*' CITY OF CARLSBAD Statement of Net Assets Proprietary Funds (Continued) June 30, 2003 Noncurrent liabilities: Advance from other funds Deferred revenue Loan payable Capital leases payable Installment purchase agreement, net of deferred charges of $622,821 1,343,173 Business-type Activities - LIABILITIES Current liabilities: Accrued liabilities Due to other governments Due to other funds Estimated claims payable Current portion of long-term debt, net of unamortized issuance costs and deferred charges of $21,262 Deposits payable Total current liabilities Current liabilities payable from restricted assets: Accrued interest Carlsbad Municipal Water District S 1,638,794 2,300,045 - - 1,270,915 128,859 5,338,613 33,321 Golf Course Sewer $ - $ 1,201,699 - - - 186,060 520,000 255,831 186,060 ' 1,977,530 7,276 179,398 2,737,200 1,147,349 7,232,179 Accrued assessments Total noncurrent liabilities Total liabilities NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital assets Unrestricted - 1,343,173 6,715,107 88,896,783 40,023,892 12,460,642 257,053 2,994,253 3,187,589 5,557,934 2,412,580 - 8,379,528 10,536,456 68,751,582 56,642,476 5,421,302 Total net assets $ 141,381,317 $ 7,970,514 $ 130,815,360 The notes to the financial statements are an integral part of this statement. 46 Enterprise Funds Solid Waste $ 244,814 - - . - 244,814 Total Proprietary Funds $ 3,085,307 2,300,045 - 1,976,975 384,690 7,747,017 Governmental Activities - Internal Service Funds $ 752,323 - 3,015,843 6,217 - 3,774,383 219,995 - - - - - - 244,814 2,737,200 1,147,349 1,343,173 - 7,232,179 257,053 12,716,954 20,683,966 - - 3,312 - - 3,312 3,777,695 - - 4,951,124 $ 4,951,124 163,206,299 96,666,368 25,245,648 $ 285,118,315 6,532,907 . 11,233,741 $ 17,766,648 47 CITY OF CARLSBAD Statement of Revenues, Expenses and Changes in Net Assets Proprietary Funds For the Year Ended June 30, 2003 Business-type Activities - Operating revenues: Water sales Sewer service charges Other charges for services Contributions from other government agencies Miscellaneous Total operating revenues Operating expenses: Sewer plant operations Purchased water Depreciation Fuel and supplies Claims expense General and administrative Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Income from property and investments Interest expense and fees Gain (loss) on sale of property Property taxes Amortization of issuance costs Total nonoperating revenues Income before transfers and capital contributions Transfers in Transfers out Capital contributions Change in net assets Total net assets at beginning of year Total net assets at end of year Carlsbad Municipal Water District $ 17,626,567 $ - 649,023 1,209,335 41,768 19,526,693 - 10,791,362 1,548,279 - - 6,691,205 19,030,846 495,847 2,562,335 (224,393) 6,322 1,695,816 (5,960) 4,034,120 4,529,967 - - 12,399,506 16,929,473 124,451,844 $ 141,381,317 $ Golf Course Sewer $ 6,192,845 93,371 - 85,661 6,371,877 1,924,973 - 1,519,403 - - 93,341 2,157,913 93,341 5,602,289 (93,341) 769,588 125,230 2,927,563 (501,379) 42,826 - - 125,230 2,469,010 31,889 3,238,598 600,000 - 7,139,549 631,889 10,378,147 7,338,625 120,437,213 7,970,514 $ 130,815,360 The notes to the financial statements are an integral part of this statement. 48 Enterprise Funds Solid Waste $ - 868,033 57,861 7,851 933,745 - - - - 218,014 218,014 715,731 220,565 - - - - 220,565 936,296 - _ 936,296 4,014,828 $ 4,951,124 Totals $ 17,626,567 6,192,845 1,610,427 1,267,196 135,280 26,832,315 1,924,973 10,791,362 3,067,682 - - 9,160,473 24,944,490 1,887,825 5,835,693 (725,772) 49,148 1,695,816 (5,960) 6,848,925 8,736,750 600,000 19,539,055 28,875,805 256,242,510 $ 285,118,315 Governmental Activities - Internal Service Funds $ - 12,021,653 - 152,240 12,173,893 - 1,683,324 471,773 5,665,924 6,049,176 13,870,197 (1,696,304) 657,739 - 3,404 - - 661,143 (1,035,161) 134,817 122,320 (778,024) 18,544,672 $ 17,766,648 49 CITY OF CARLSBAD Statement of Cash Flows Proprietary Funds For the Year Ended June 30,2003 Business-type Activities - Cash flows from operating activities: Receipts from customers and users Payments to suppliers Payments to employees Internal activity - payments to other funds Claims paid Other receipts (payments) (Decrease) in deposits payable Net cash provided by (used in) operating activities Cash flows from noncapital financing activities: Operating subsidies and transfers to other funds Cash flows from capital and related financing activities: Capital contributions Purchases of capital assets Principal paid on capital debt Interest and other fees paid Property taxes received Net cash provided by (used in) capital and related financing activities Cash flows from investing activities: Interest on investments Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Carlsbad Municipal Water District $ 18,931,990 $ (13,391,084) (2,107,045) (1,886,455) - 1,267,276 19,785 2,834,467 - 4,548,361 (9,813,345) (1,233,874) (188,382) 1,691,624 (4,995,616) 2,552,382 391,233 52,548,121 $ 52,939,354 $ Golf Course $ (4,766) - - - (93,341) - (98,107) 600,000 - (44,842) (177,912) - - (222,754) 125,230 404,369 2,015,487 2,419,856 $ Sewer 6,223,605 (2,660,398) (405,391) (960,017) - 94,470 - 2,292,269 - 4,371,070 (2,966,456) (495,000) (427,334) - 482,280 2,927,563 5,702,112 58,388,657 64,090,769 The notes to the financial statements are an integral part of this statement. 50 Enterprise Funds Solid Waste $ 33,170 (111,816) (73,865) (17,627) - 892,449 - 722,311 - - - - 220,565 942,876 3,953,086 Totals $ 25,188,765 (16,168,064) (2,586,301) (2,864,099) - 2,160,854 19,785 5,750,940 600,000 8,919,431 (12,824,643) (1,906,786) (615,716) 1,691,624 (4,736,090) 5,825,740 7,440,590 116,905,351 Governmental Activities - Internal Service Funds $ 12,022,267 (2,738,932) (2,691,112) (1,042,234) (5,178,497) 142,322 - 513,814 33,335 (813,263) (5,711) - - (818,974) 657,739 385,914 14,354,766 $ 4,895,962 $ 124,345,941 $ 14,740,680 (Continued) 51 CITY OF CARLSBAD Statement of Cash Flows Proprietary Funds (Continued) For the Year Ended June 30, 2003 Business-type Activities - Carlsbad Municipal Water District Golf Course Sewer Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization Change in assets and liabilities: (Increase) decrease in receivables (Increase) decrease in inventories (Increase) in prepaid items (Decrease) in accrued liabilities Increase in due to other governments Increase in estimated claims payable (Decrease) in deposits payable Net cash provided by (used in) operating activities Noncash capital financing activities: Capital assets contributed by other sources Reconciliation of cash and cash equivalents to amounts reported on the balance sheet: Reported on the balance sheet: Cash and investments Restricted assets: Cash and investments Less investments not meeting the definition of cash equivalents: Investment contracts 495,847 $ 1,548,278 (93,341) $769,588 1,519,402 672,573 (131,202) (1,204) 571,877 (341,487) 19,785 $ 2,834,467 $ - - - (4,766) - . (98,107) $ (62,611) (2,104) - 663,672 (604,487) 8,809 2,292,269 36,545 $ 10,111,309 $ 52,938,871 $ 2,419,856 $ 64,076,138 740,483 (740,000) 954,212 (939,581) Cash and cash equivalents at end of year $ 52,939,354 $ 2,419,856 $ 64,090,769 The notes to the financial statements are an integral part of this statement. 52 Enterprise Funds Solid Waste Totals Governmental Activities - Internal Service Funds $ 715,731 $ 1,887,825 $ (1,696,304) 3,067,680 1,683,324 (8,126) - - 14,706 - - - $ 722,311 $ 601,836 (133,306) (1,204) 1,245,489 (945,974) - 28,594 i 5,750,940 $ (9,304) (10,741) (61,480) 64,636 - 543,683 - 513,814 $ 12,173,203 $87,674 $ 4,895,962 $ 124,330,827 $ 14,740,680 1,694,695 (1,679,581) S 4,895,962 $ 124,345,941 $ 14,740,680 53 CITY OF CARLSBAD Statement of Net Assets Fiduciary Funds June 30,2003 ASSETS Total Agency Funds Current Assets: Cash and investments Taxes receivable Accrued interest Total current assets 15,267,302 29,766 83,592 15,380,660 Restricted Assets: Cash and investments Total assets LIABILITIES Accounts payable Total liabilities NET ASSETS Held in trust for contractors, bondholders and other purposes The notes to the financial statements are an integral part of this statement. 4,017,696 $ 19,398,356 24,862 24,862 $ 19,373,494 54 CITY OF CARLSBAD Statement of Changes in Net Assets Fiduciary Funds June 30,2003 ADDITIONS Contributions from property owners and developer deposits Payroll related deposits Interest income Other miscellaneous additions Total additions Total Agency Funds $ 9,109,104 20,383,761 915,890 9,108 30,417,863 DEDUCTIONS Administrative expenses Refunds of developer deposits Payroll related deposits Payments to bondholders Other miscellaneous deductions Total deductions Change in net assets Net assets - beginning Net assets - ending The notes to the financial statements are an integral part of this statement. 101,924 1,310,694 20,713,376 4,929,769 189,055 27,244,818 3,173,045 16,200,449 $ 19,373,494 55 CITY OF CARLSBAD Notes to the Financial Statements Note 1. Summary of Significant Accounting Policies The City of Carlsbad, California (City) was incorporated on July 16, 1952. The City operates under a Council-Manager form of government and provides the following services: general government, public safety, community development, community services and public works. The accounting policies of the City and its component units conform to accounting principles generally accepted in the United States of America as applicable to governmental units. The following is a summary of the more significant policies: Description and scope of the reporting entity As required by accounting principles generally accepted in the United States of America, these financial statements present the financial position of the City and its component units, entities for which the City is considered to be financially accountable. The City is considered to be financially accountable for an organization if the City appoints a voting majority of that organization's governing body and the City is able to impose its will on that organization or there is a potential for that organization to provide specific financial benefits to or impose specific financial burdens on the City. The City is also considered to be financially accountable for an organization if that organization is fiscally dependent upon the City (i.e., it is unable to adopt its budget, levy taxes, set rates or charges, or issue bonded debt without approval from the City). In certain cases, other organizations are included as component units if the nature and significance of their relationship with the City are such that their exclusion would cause the City's financial statements to be misleading or incomplete. Based upon the above criteria, the component units of the City are the Housing Authority of the City of Carlsbad, the City of Carlsbad Public Improvement Corporation, the Carlsbad Redevelopment Agency and the Carlsbad Municipal Water District (District). Since the City Council serves as the governing board for these component units, all of the City's component units are considered to be blended component units. Blended component units, although legally separate entities, are in substance part of the City's operations, and so data from these units is reported with the interfund data of the primary government. Only the City of Carlsbad Public Improvement Corporation and the Carlsbad Redevelopment Agency issue separate component unit financial statements. Upon their completion, the financial statements of these component units can be obtained from the Finance department. Government-wide and Fund Financial Statements The Government-wide Financial Statements (i.e., the Statement of Net Assets and the Statement of Changes in Net Assets) report information on all of the nonfiduciary activities of the City and its blended component units. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on user fees and charges for support. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable to a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly classified as program revenues are reported as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the Government-wide Financial Statements. Major individual governmental funds and major individual enterprise funds are reported in separate columns in the Fund Financial Statements. 56 CITY OF CARLSBAD Notes to the Financial Statements Note 1. Summary of Significant Accounting Policies (Continued) Measurement focus, basis of accounting, and financial statement presentation The Government-wide Financial Statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the Proprietary Fund and Fiduciary Fund Financial Statements. 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 intergovernmental revenues, the legal and contractual requirements of the individual programs are used as guidance. Property taxes are recognized as revenues in the year for which they are levied. Governmental Fund Financial Statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. Principal and interest on long-term debt are recorded as fund liabilities when due or when amounts have been accumulated in the debt service fund for payments to be made early in the following year. Revenues that are accrued generally include real property taxes, sales tax, transient occupancy taxes, franchise taxes, vehicle license fees, highway users tax, interest, and some state and federal grants. Real property taxes are levied on October 15 against property owners of record on January 1 of that year. The taxes are due in two installments, on November 1 and February 1, and become delinquent after December 10 and April 10, respectively. Tax liens attach annually as of 12:01 a.m. on the first day of January in the fiscal year for which the taxes are levied. Under the provisions of NCGA Interpretation 3, property tax revenue is recognized in the fiscal year for which the taxes have been levied, provided it is collected within 60 days of the end of the fiscal year. Fiduciary fund types are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Fiduciary fund assets and liabilities are accounted for on the accrual basis of accounting. The City reports the following major governmental funds: The General fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Redevelopment Debt Service Funds are used to account for the accumulation of resources for, and payment of, principal and interest on the Carlsbad Redevelopment Agency's bonds and other debt, used to finance improvements for the redevelopment areas of the City. The Bridge and Thoroughfare Districts capital project funds are used to account for the receipt of fees charged to developers and expenditures for street construction within designated district boundaries. The Community Facilities District No. 1 capital project fund is used to account for civic facilities, freeway interchanges, and road segments financed by Community Facilities District No. 1 "special tax revenues" (Mello Roos). The General Capital Construction capital project fund is used to account for transfers from the General fund and expenditures for various capital projects not financed through another capital project fund. The Public Facilities Construction capital project fund is used to account for the receipt of fees charged to developers, and expenditures for specific public facilities such as libraries and fire stations necessitated by growth. 57 CITY OF CARLSBAD Notes to the Financial Statements Note 1. Summary of Significant Accounting Policies (Continued) Measurement focus, basis of accounting, and financial statement presentation (continued) The City reports the following major enterprise funds: The Carlsbad Municipal Water District enterprise fund is used to account for the operation, maintenance, and capital facility financing of the City's water system. The Golf Course enterprise fund is used to account for revenues and expenses for the construction activities of the City's proposed municipal golf course. The Sewer enterprise fund is used to account for the operation, maintenance, and capital facility financing of the City's sewer system. The Solid Waste enterprise fund is used to account for the revenues and expenses of the City's solid waste source- reduction and recycling programs. Additionally, the City reports the following fund types: Internal Service funds account for fleet management, health insurance, information technology, records management, risk management and workers' compensation services provided to other departments or agencies of the City. The Fiduciary funds account for assets held by the City for other funds, governments or individuals. These funds include contractors' deposits for future development, miscellaneous deposits, as well as debt service transactions on assessment district bonds for which the City is not obligated. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the Government-wide and Proprietary Fund Financial Statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board (GASB). Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to 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 eliminated from the Government-wide Financial Statements. Exceptions to this general rule are payments of special taxes (CFD #1) by the golf course and charges between the Carlsbad Municipal Water District and various other functions of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions. Internally dedicated resources, such as taxes, are reported as general revenues rather than as program revenues. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's proprietary funds are charges to customers for sales and services. The City also recognizes new account charges, late fees and contributions from other agencies as operating revenues. Operating expenses for enterprise and internal service funds include the cost of sales and services, general and administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed. 58 CITY OF CARLSBAD Notes to the Financial Statements Note 1. Summary of Significant Accounting Policies (Continued) Implementation of new accounting principles > Governmental Accounting Standards Board Statement No. 40 The City adopted GASB Statement No. 40, Deposit and Investment Risk Disclosures - an amendment of GASB Statement No 3. This Statement modifies disclosure requirements for deposits and investments to address common deposit and investment risks related to credit risk concentration risk, interest rate risk and foreign currrency risk. Accordingly, certain footnote disclosures have been revised to conform to the provisions of GASB Statement No. 40. > Governmental Accounting Standards Board Statement No. 41 The City adopted GASB Statement No. 41, Budgetary Comparison Schedules - Perspective Differences - an amendment of GASB Statement No. 34. This Statement clarifies the required supplementary information budgetary presentation requirements for governments with significant budgetary perspective differences that result in their not being able to present budgetary comparison information for their general fund and major special revenue funds. The adoption of this standard did not have a material impact on the City. Cash and investments Cash includes amounts in demand and time deposits. Investments are reported in the accompanying balance sheet at fair value, except for certain certificates of deposit and investment contracts that are reported at cost because they are not transferable and they have terms that are not affected by changes in market interest rates. Changes in fair value that occur during a fiscal year are recognized as income from property and investments reported for that fiscal year. Income from property and investments includes interest earnings; changes in fair value; any gains or losses realized upon the liquidation, maturity, or sale of investments; property rentals and the sale of City owned property. The City pools cash and investments of all funds, except for assets held by fiscal agents. Each fund's share in this pool is displayed in the accompanying financial statements as cash and investments. Investment income earned by the pooled investments is allocated to the various funds on a monthly basis, based on each fund's average cash and investments balance. Restricted cash and investments represent amounts that are restricted under the terms of debt agreements. Inventories Inventories consist of materials and supplies that are valued at cost and are recorded as expenses or expenditures on a first- in, first-out basis when consumed. Compensated absences 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 fund liability. For compensated absences recorded at June 30, 2003, all balances are expected to be paid within the following 12 months. 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 insurance, and workers' compensation activities in internal service funds. The funds are responsible for collecting premiums from other City funds and departments and paying claims settlements and insurance premiums. Interfund premiums are based on the insured fund's claims experience. Incurred but not reported claims are accrued at year-end, if material. 59 CITY OF CARLSBAD Notes to the Financial Statements Note 1. Summary of Significant Accounting Policies (Continued) Unbilled services Unbilled water revenue of the enterprise funds is recognized as earned when the water is consumed. Capital assets Capital assets, which include land, buildings, equipment and infrastructure assets (e.g., roads, bridges, traffic signals, water and sewer systems, and similar items), are reported in the applicable governmental or business-type activities columns in the Government-wide Financial Statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $10,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The cost of normal maintenance and repairs that do not add to the value of an asset or materially extend an asset's useful life are not capitalized. Construction in progress costs are transferred to their respective fixed asset category upon completion. Depreciation is charged to operations using the straight-line method based on the estimated useful life of an asset. The estimated useful lives of depreciable assets are as follows: Years Buildings and other structures 10-50 Improvements other than buildings 20 - 50 Machinery and equipment 3-20 Infrastructure 10-100 Sewage treatment facility 50 The City capitalized all general infrastructure assets acquired during the two years ended June 30,2003. No infrastructure assets acquired prior to that time have been capitalized. In addition, the land upon which the streets and roads are constructed (right-of-way) has not been valued and capitalized. It will be addressed when the remaining infrastructure assets are capitalized and placed on the City's books. According to GASB 34, the City has until June 30, 2006 to record its general infrastructure assets acquired prior to the initial adoption of GASB 34. Deferred revenue The deferred revenue reported in the City's financial statements represents money received during the current or previous fiscal years that has not been earned by, or is not available to, the City as of the end of the fiscal year. These monies will be recognized as revenues in subsequent fiscal years, once the revenue has been earned or becomes available. Receivables and payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (short-term interfund loans) or "advances to/from other funds" (long- term interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the Government-wide Financial Statements as "internal balances." Advances between funds, as reported in the Fund Financial Statements, are offset by a fund balance reserve account in the applicable governmental fund to indicate that they are not available for appropriation and are not expendable available financial resources. All trade, service and tax receivables are shown net of an allowance for uncollectibles. The utility billing receivable allowance is equal to 1% of outstanding billings at June 30, 2003, the ambulance billing receivable allowance is equal to 40% of outstanding billings at June 30,2003, and the trade receivable allowance is reserved for on a case-by-case basis. 60 CITY OF CARLSBAD Notes to the Financial Statements Note 1. Summary of Significant Accounting Policies (Continued) Long-term obligations In the Government-wide Financial Statements, and proprietary fund types in the Fund Financial Statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type Statement of Net Assets. Bond premiums, discounts, and issuance costs are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the Fund Financial Statements, governmental fund types recognize bond premiums, discounts, and issuance costs during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Fund equity In the Fund Financial Statements, governmental funds report reservations of fund balance for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balance represent tentative management plans, and are subject to change. Note 2. Budgetary Data The City follows these procedures in establishing its budgetary data: » During May or June, the City Manager submits to the City Council a proposed operating and capital budget for the fiscal year commencing the following July 1. The budget includes estimated revenues and proposed expenditures on a departmental and/or project basis. » Public hearings are conducted at City Council meetings to obtain citizens' comments during June. » 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. The legal level of budgetary control is at the fund level. 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 were necessary. Budgets for governmental type funds are adopted on the modified accrual basis except that encumbrances are treated as budgeted expenditures in the year purchases are committed. Expenditures may not exceed budgeted appropriations at the fund level. All appropriations lapse at fiscal year-end unless City Council takes action in the form of a resolution to continue the appropriation into the following fiscal year. 61 CITY OF CARLSBAD Notes to the Financial Statements Note 2. Budgetary Data (Continued) For purposes of budgetary presentation, actual revenues have been adjusted to exclude unrealized gains and losses pursuant to GASB 31, actual expenditures have been adjusted to include encumbrances outstanding, and transfers out have been adjusted to reflect any transfer that was approved through the budget process as an expenditure but recorded as an advance in the financial statements. Annual budgets are adopted for the General, special revenue and debt service funds except for the Hosp Grove COPs. Accordingly, the revenues and expenditures for this fund have been excluded from the budget basis financial statements. Annual budgets are not adopted for the capital projects funds; therefore, budget basis financial statements have not been prepared because a comparison of such budgetary amounts to annual revenues and expenditures is not meaningful. Note 3. Deposit and Investment Risk Cash resources of the individual funds are combined to form a pool of cash and investments. The City maintains a formal investment policy, which is reviewed by the Investment Committee and adopted annually by the City Council. All investments held in the Treasurer's Pool are consistent with the City's investment policy objectives of safety of principal, adequacy of liquidity, and achievement of an average market rate of return. The risk disclosures below apply to the City's internal investment pool. Portfolio investments are exposed to two main types of risk: credit (investments and cash deposits, including custodial and concentration risk), and market or interest rate risk. Investments held outside the Treasurer's Pool consist mainly of required reserve funds for various bond issues. They are held by trustees, and are not available for the City's general expenditures. 62 CITY OF CARLSBAD Notes to the Financial Statements Note 3.Deposit and Investment Risk (Continued) As of June 30, 2003 the City had the following investments in its portfolio: Treasurer's Pool Investments U. S. Agencies: Federal Home Loan Bank Federal Home Loan Mortgage Corporation Federal National Mortgage Association Other U.S. Agencies Subtotal U. S. Agencies Medium-Term Corporate Notes: Citigroup/Associates/Commercial Credit Other medium-term corporate notees Subtotal Corporate Notes LAIF Cash Accounts Total Treasurer's Pool Investments held outside the Treasurer's Pool Debt Service Funds/Bond Proceeds Other Deposits Petty Cash Funds Total Cash and Investments Statement of Net Assets, Primary Government Cash and Investments Restricted Cash and Investments Statement of Net Assets, Fiduciary Funds Cash and Investments Restricted Cash and Investments Total Cash and Investments Fair Market Value 90,575,855 73,251,022 42,254,186 9,206,466 215,287,529 25,515,677 92,794,447 118,310,124 106,921,852 1366,042 441,885,547 7,488,993 349,256 6,063 $ 449,729^59" 428,080,482 2,364,379 15,267,302 4,017,696 $ 449,729^859" %of Total 20.5% 16.6% 9.6% 2.0% 48.7% 5.8% 21.0% 26.8% 24.2% 0.3% 100.0% Modified Duration 2.653 2.837 2.379 2.905 2.672 0.068 2.049 2.117 1.853 Custodial Credit Risk (Investments): The City uses Union Bank of California (UBC) as a third-party custody and safekeeping service for its investment securities. Custodial credit risk is the risk that the City will not be able to recover the value of its investments in the event of a UBC failure. All City investments held in custody and safekeeping by UBC are held in the name of the City and are segregated from securities owned by the bank. This is the lowest level of custodial credit risk exposure. Custodial Credit Risk (Deposits): The City maintains cash accounts at Wells Fargo Bank (WFB) and UBC. At the conclusion of each business day, balances in these accounts are "swept" into overnight investments, which are in either U.S. government securities (guaranteed) or in U.S. agency securities (government sponsored). The California Code and the City's Investment Policy authorize both of 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 payment. Amounts up to $100,000 are FDIC insured. 63 CITY OF CARLSBAD Notes to the Financial Statements Note 3. Deposit and Investment Risk (Continued) Concentration Credit Risk: Concentration credit risk is the heightened risk of potential loss when investments are concentrated in one issuer. The California state code requires that total investments in medium-term corporate notes of all issuers not exceed 30% of the portfolio. As of June 30,2003, approximately 25% of the City's total portfolio investments, based on cost, were in medium-term corporate notes. For concentration of investments in any one issuer, the City's Investment Policy requires that no more than 5% of investments in corporate notes be in any one issuer. There is no similar requirement in either the state code or the City's Investment Policy for U.S. agencies. As of June 30, 2003, 5.63% of the portfolio based on cost was invested in Citigroup Corporation. Mergers subsequent to the investments involved resulted in this exception. The credit ratings of Citigroup Corporation debt are AA1 and AA-. At this point, the City Treasurer intends to retain all Citigroup investments. This exception to City's Investment Policy will self-correct with maturities in March 2004. Default Credit Risk: Default credit risk is the risk that the issuer of the security does not pay either the interest or the principal when due. The debts of most U.S. agencies are not backed by the full faith and credit of the federal government; however, because the agencies are U.S. government-sponsored, they carry AAA credit ratings. The default credit risk of these investments is minimal. California state code limits investments in medium-term corporate notes to the top three credit ratings (AAA, AA, and A). It is the City's policy, however, to limit investments to the top two credit ratings (AAA and AA). As of June 30, 2003, approximately 49% of the investments in medium-term corporate notes had credit ratings below the AA limit set by the City's Investment Policy. All of these investments were made when the credit ratings were either AAA or AA. California state code and the City's Investment Policy allow the City Treasurer to determine the course of action to correct exceptions to the Policy. It is the intent of the City Treasurer to hold these investments in the portfolio until maturity unless events indicate they should be sold. The default credit risk for corporate notes with a credit rating of single A is lower than U.S. federal agencies or LAIF, but is considered by the City Treasurer to be within acceptable limits for purposes of holding to maturity. A credit rating of single A is within State code requirements. The Local Agency Investment Fund (LAIF) is an investment pool managed by the California State Treasurer. Its investments are short term and follow the investment requirements of the State. As of June 30, 2003, the average maturity of the LAIF investments was 220 days. The default credit risk of LAIF is minimal. Interest Rate Risk: Interest rate risk is the risk that investments will lose market value because of increases in market interest rates. A rise in market interest rates will cause the market value of investments made earlier at lower interest rates to lose value. The reverse will cause a gain in market value. As of June 30, 2003, the portfolio had a 3.3% gain in market value. The City's investment policy has adopted two means of limiting its exposure to market value losses caused by rising market interest rates: (1) limiting total portfolio investments to a maximum modified duration of 2.2, and (2) requiring maturing investments within one year be equal to an amount that is not less than the current fiscal year's operating budget. 1. As of June 30, 2003, the modified duration of the portfolio was 1.85. Modified duration is a measure of the sensitivity that the value of a fixed-income security has to changes in market rates of interest. Modified duration identifies the potential gain/loss in value before the gain/loss actually occurs. It is a prospective measurement, e.g., a modified duration of 1.5 indicates that when and if a 1% change in market interest rates occurs, a 1.5% change in the value of a security will result. Investments with modified durations of one to three are considered to be relatively conservative. 2. Maturities within one year were $203,000 below the required minimum of $140,000,000 (fiscal year 2002-03 operating budget). 64 CITY OF CARLSBAD Notes to the Financial Statements Note 4. Due to and from Other Funds The following table shows amounts due from funds within the City to other funds within the City at June 30, 2003: Due to Due from Other Funds Other Funds General $ - $ 570,524 Special Revenue Funds: Section 8 Housing Authority 502,000 Capital Project Funds: Federal Grants - Intermodal Surface Transportation Efficiency Act 67,182 Other Capital Project Funds 1,342 - Totals $ 570,524 $ 570,524 These balances resulted from expenditures being incurred prior to receipt of the related revenue source. Note 5. Advances to and from Other Funds The following table shows amounts advanced from governmental funds within the City to other funds within the City at June 30,2003: Advances From General Fund General Fund General Fund General Fund Special Revenue Funds: Gas Tax Capital Projects Funds: General Capital Construction Advances To Redevelopment Debt Service Fund Park Development Capital Projects Fund Storm Water Protection Special Revenue Fund Golf Course Enterprise Fund Bridge and Thoroughfare District Capital Project Fund Capital Projects Funds: Park Development Bridge and Thoroughfare District #2 Assessment and Other Districts Amount $ 13,070,949 550,000 1,076,419 2,737,200 4,643,344 3,430,000 840,000 990,854 $ 27,338,766 Advances to and from other funds are primarily long term advances used to fund capital projects in advance of related revenues. 65 CITY OF CARLSBAD Notes to the Financial Statements Note 6. Capital Assets Capital asset activity was as follows for the Governmental activities: Capital assets, not being depreciated: Land Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Buildings Improvements Machinery and equipment Infrastructure Total capital assets, being depreciated Less accumulated depreciation for: Buildings Improvements Machinery and equipment Infrastructure Total accumulated depreciation Total capital assets being depreciated, net year ended June 30, 2003: Balance at July 1,2002 $ 47,077,223 $ 69,948,610 117,025,833 66,638,374 10,328,751 20,636,182 24,402,704 122,006,011 (10,193,967) (2,022,953) (9,493,560) - (21,710,480) 100,295,531 Increases 7,307,961 25,789,221 33,097,182 - 55,494 2,136,641 33,029,168 35,221,303 (1,372,041) (404,063) (2,280,789) (530,126) (4,587,019) 30,634,284 Balance at Decreases June 30, 2003 $ - $ 54,385,184 (15,485,112) 80,252,719 (15,485,112) 134,637,903 66,638,374 10,384,245 (1,309,615) 21,463,208 57,431,872 (1,309,615) 155,917,699 (11,566,008) (2,427,016) 789,381 (10,984,968) (530,126) 789,381 (25,508,118) (520,234) 130,409,581 Governmental activities capital assets, net $ 217,321,364 $ 63,731,466 $ (16,005,346) $ 265,047,484 66 CITY OF CARLSBAD Notes to the Financial Statements Note 6. Capital Assets (Continued) Balance at July 1,2002 Business-type activities: Capital assets, not being depreciated: Land Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Buildings Improvements, other than buildings Machinery and equipment Infrastructure Sewage treatment facility Total capital assets, being depreciated Less accumulated depreciation for: Buildings Improvements Machinery and equipment Infrastructure Sewage treatment facility Total accumulated depreciation Total capital assets being depreciated, net $ 8,663,600 : 27,523,616 36,187,216 2,258,064 5,108,962 1,612,818 115,767,359 35,359,277 160,106,480 (720,375) (1,735,195) (1,128,882) (29,395,178) (9,247,690) (42,227,320) 117,879,160 Increases $ 12,488,763 12,488,763 - 447,609 36,147 12,791,752 573,869 13,849,377 (55,443) (104,238) (84,504) (2,132,823) (690,672) (3,067,680) 10,781,697 Balance at Decreases June 30, 2003 $ - $ 8,663,600 (2,219,432) 37,792,947 (2,219,432) 46,456,547 2,258,064 5,556,571 (82,982) 1,565,983 128,559,111 (29,412) 35,903,734 (112,394) 173,843,463 (775,818) (1,839,433) 53,175 (1,160,211) (31,528,001) (9,938,362) 53,175 (45,241,825) (59,219) 128,601,638 Business-type activities capital assets, net $ 154,066,376 $ 23,270,460 $ (2,278,651) $ 175,058,185 67 CITY OF CARLSBAD Notes to the Financial Statements Note 6. Capital Assets (Continued) Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities: General government $ 528,814 Community development 165,468 Public safety 440,501 Community services 1,112,285 Public works 656,627 Capital assets held by the internal service funds (charged to various functions based on their usage of the assets) 1,683,324 Total depreciation expense - governmental activities $ 4,587,019 5SZ ^^—• Business-type activities: Sewer $ 1,519,402 Water 1,548,278 Total depreciation expense - business-type activities $ 3,067,680 68 CITY OF CARLSBAD Notes to the Financial Statements Note 7.Accrued Liabilities Accrued liabilities were as follows at June 30,2003: Governmental Funds: General Fund Bridge and Thoroughfare Districts Community Facilities District No. 1 General Capital Construction Public Facilities Construction Other Governmental Funds Total Governmental Funds Business-type Activities: Enterprise funds: Carlsbad Municipal Water District Sewer Solid Waste * Internal Service Funds Total Business-type Activities Salaries and IFD Vendors Benefits Payable Refuse Disposal $ 1,229,843 $ 3,649,492 $ 79,006 222,487 65,233 78,875 259,059 1,953,873 166,569 $3,809,370 $3.816,061 $79,006 $ Total $4,958,341 222,487 65,233 78,875 259,059 2,120,442 $7,704,437 $1,260,001 1,136,908 14,807 539,114 $2,950,830 $ 378,793 $ 64,791 1,555 213,209 $ 658,348 $ $ - $1,638,794 1,201,699 228,452 244,814 752,323 $ 228,452 $ 3,837,630 *Intemal service funds have been included with governmental activities on the Government-wide Statement of Net Assets. 69 CITY OF CARLSBAD Notes to the Financial Statements Note 8.Long-term Debt The following is a summary of changes in the principal balance of long-term debt for the year ended June 30, 2003: Governmental activities: Bonds Certificates of participation HUD Section 108 loan Obligations under capital leases Total governmental activities Business-type activities: Certificates of participation Installment purchase agreement Loan payable Accrued assessments Less deferred charges Total business type activities Entity-wide total Principal Balance at June 30, 2002 Additions Reductions Principal Balance at June 30, 2003 Due Within One Year $13,540,000 4,515,000 329,950 790,907 19,175,857 340,000 565,000 160,000 612,206 $ 13,200,000 3,950,000 169,950 178,701 $ 360,000 590,000 169,950 100,194 1,677,206 17,498,651 1,220,144 2,295,000 $ 8,870,000 1,574,224 621,025 13,360,249 (751,229) 12,609,020 1,120,000 495,000 113,874 177,912 1,906,786 (107,146) 1,799,640 1,175,000 8,375,000 1,460,350 443,113 11,453,463 (644,083) 10,809,380 1,175,000 520,000 117,177 186,060 1,998,237 (21,262) 1,976,975 $31,784,877 $$3,476,846 $28,308,031 $3,197,119 70 CITY OF CARLSBAD Notes to the Financial Statements Note 8. Long-term Debt (Continued) Long-term debt at June 30, 2003 is comprised of the following issues: Balance at Governmentai long-term debt June 30, 2003 1993 Carlsbad Housing and Redevelopment Commission Tax Allocation Bonds, principal due in amounts ranging from $360,000 to $1,000,000 on September 1 of each year through 2024. Interest payable on March 1 and September 1 at rates varying from 5.25% to 5.30% per annum. The City posted a surety bond in lieu of cash reserve in the amount of $1,055,953. $ 13,200,000 1997 Hosp Grove Refunding Certificates of Participation, principal due in amounts ranging from $590,000 to $735,000 on August 1 of each year through 2009, interest payable on August 1 and February 1 at rates varying from 4.30% to 4.70% per annum. Payable from the General Fund, with a required reserve amount of $659,500. 3,950,000 Community Development Block Grant (CDBG) program - Section 108 loan payable to HUD. Funds used to acquire property for affordable housing project. Final payment of principal and interest due August 1, 2004. Principal is $ 169,950; interest is $7,030 at 8.27% per annum. 169,950 The City has entered into several office equipment lease-purchase agreements. As of June 30,2003, the City has purchased copier equipment totaling $456,783. All lease terms are for 60 months, with interest rates ranging from 5.56% to 16.82%. 178,701 Sub-total governmental long-term debt 17,498,651 Less current portion 1,220,144 Total long-term portion of governmental debt $ 16,278,507 71 CITY OF CARLSBAD Notes to the Financial Statements Note 8.Long-term Debt (Continued) Business-type long-term debt Balance at June 30, 2003 1997 Carlsbad Municipal Water District Refunding Certificates of Participation, final principal of $1,175,000 due on May 1, 2004, final interest payments of $25,850 payable on both November 1,2003 and May 1, 2004 at 4.4% per annum. The required reserve amount is $740,000. 1997 Encina Financing Joint Powers Authority (EFJPA) Installment Purchase Agreement, principal due in varying amounts ranging from $520,000 to $905,000 on August 1 of each year through 2015, interest payable on February 1 and August 1 each year at rates varying from 4.50% to 5.50% per annum. The required reserve amount is $939,581. 1993 Carlsbad Municipal Water District loan agreement with the State Water Resources Control Board. Principal is due in varying amounts ranging from $ 117,177 to $ 151,558 on November 30 of each year through 2013, interest payable on November 30 of each year at 2.90% per annum. In December 1994, the Golf Course Enterprise Fund purchased land with accrued assessments. Principal is due in varying amounts ranging from $186,060 to $196,925 through 2004-05. The 2005-06 principal amount of $206,432 will be reduced by a reserve fund credit of $146,304 which is already reflected on the City's books. Subtotal business-type long-term debt Less unamortized discounts, issuance costs and deferred charges Less current portion Total long-term portion of business-type debt The aggregate maturities of long-term debt are as follows: Governmental Activities Business-Type Activities $ 1,175,000 8,375,000 1,460,350 443,113 11,453,463 644,083 1,976,975 $ 8,832.405 Year ended June 30: 2004 2005 2006 2007 2008 2009-2013 2014-2018 2019-2023 2024-2028 Principal $ 1,220,144 1,069,907 1,037,896 1,090,704 1,140,000 3,315,000 3,330,000 4,295,000 1,000,000 $ 17,498,651 Interest $ 870,116 808,825 756,975 706,090 652,310 2,642,873 1,854,113 856,337 26,500 $ 9,174,139 Principal $ 1,998,237 867,500 759,200 732,670 771,372 4,436,265 1,888,219 - - $ 11,453,463 Interest $ 539,409 448,706 407,274 360,801 323,661 1,026,903 94,289 - - $ 3,201,043 72 CITY OF CARLSBAD Notes to the Financial Statements Note 9. Rate Covenants The 1997 Carlsbad Municipal Water District Refunding Certificates of Participation require that the District set its charges for services each year at rates sufficient to produce net revenues (after paying the operating and maintenance expenses of the District, excluding depreciation) at least 1.15 times the debt service for that year. The 1997 Encina Financing Joint Powers Authority Installment Purchase Agreement (Wastewater Revenue Bonds) require that the District set its charges for services each year at rates sufficient to produce net revenues (after paying the operating and maintenance expenses of the District, excluding depreciation) of at least 1.25 times debt service for that year. Note 10. Debt Without Government Commitment Special assessment bonds As of June 30, 2003, the City has four series of Assessment District Bonds outstanding in the amount of $36,986,881. These bonds were issued under the provisions of the Improvement Bond Acts of 1911 and 1915 and were used to finance public infrastructure improvement projects. The City collects assessments to pay the bond debt. These monies are accounted for in the Assessment District Agency Funds. Mortgage revenue bonds Multi-Family Housing Revenue Bonds are issued to provide construction and permanent financing to developers of multi- family residential rental projects located in the City which will be partially occupied by persons of low or moderate income. The total amount of mortgage revenue bonds outstanding as of June 30, 2003 is $49,552,000. The bonds, together with interest thereon, are limited obligations of the City payable solely from bond proceeds, revenues and other amounts derived solely from home 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 $3,172,500 in Industrial Development Revenue Bonds. Any costs relating to the issuance of the Bonds, as well as the principal and interest payments, are to be paid by the private party benefiting from the bond issue. In the opinion of City officials, the above bonds are not payable from any revenues or assets of the City, and neither the full faith and credit nor the taxing power of the City of Carlsbad, the State of California, nor any political subdivision thereof, is obligated to the payment of the principal or interest on the bonds. Accordingly, no liability has been recorded in the accompanying financial statements. 73 CITY OF CARLSBAD Notes to the Financial Statements Note 11. Fund Balances/Retained Earnings The following is a summary of reserved and unreserved Fund Balances Reserved for: Loans receivable $ Inventory Prepaid items Debt service Advances to other funds* Flower fields preservation Library endowment Low and moderate income housing Habitat and nearshore reef mitigation Encumbrances Subtotal Unreserved: Designated for approved capital projects Designated for continuing appropriations Subtotal General 179,744 20,748 54,605 - 8,528,297 - - - 905,823 3,105,070 12,794,287 - 12,873,309 12,873,309 fund balances as of June 30, 2003: Governmental Fund Types Special Debt Capital Revenue Service Projects $ 9,284,699 S - $ - 343,247 659,500 4,643,344 - 5,260,854 935,000 251,000 3,284,650 . 1,007,691 - 18,595,155 19,749,631 659,500 23,856,009 2,457,719 - 102,173,143 1,698,529 - 50,725,586 4,156,248 - 152,898,729 Total $ 9,464,443 20,748 397,852 659,500 18,432,495 935,000 251,000 3,284,650 905,823 22,707,916 57,059,427 104,630,862 65,297,424 169,928,286 Undesignated Total fund balances 45,469,287 16,854,136 (10,448,729) 18,328,217 70,202,911 $ 71,136,883 $ 40,760,015 $ (9,789,229) $195,082,955 $297,190,624 * Only reflects that portion of fund balance invested in interfund advances (the General fund amount is net of $8,906,271 in deferred revenue for measurable but unavailable interest earned on such advances). 74 CITY OF CARLSBAD Notes to the Financial Statements Note 11. Fund Balances/Retained Earnings (Continued) Business-type Funds Net Assets Invested in capital assets, net of related debt Restricted for capital assets Unrestricted Enterprise $ 163,206,299 5 96,666,368 25,245,648 $ 285,118,315 3 Internal Service i 6,532,907 11,233,741 ; 17,766,648 Reserves for loan receivables, inventory, prepaid items and advances to other funds, net of accrued interest recorded as deferred revenue, are established to show that certain assets are already committed to other purposes and are not available for discretionary expenditures. Reserves for debt service represent resources legally restricted to the payment of long-term debt principal and interest maturing in future years. Reserves for flower-fields preservation represent resources set aside to support floriculture research for the preservation of the "Flower Fields" located in Carlsbad. Reserves for library endowment represent resources set aside to support programs in the Dove Library auditorium. Reserves for habitat and nearshore reef mitigation represent resources set aside as security for the construction of wetland habitat to ensure the mitigation of certain species required as part of the Cannon Road West project, and for the City's share of potential environmental mitigation costs of the Regional Beach Sand project. Reserves for encumbrances represent commitments related to unperformed contracts for services and undelivered goods. Unreserved-undesignated and unrestricted represents the fund balance or net assets remaining after reduction for reserved and designated fund balances or net assets. Note 12. Accumulated Fund Deficits/Negative Net Assets The following funds reported deficits in fund balances or net assets as of June 30,2003: Deficit Balance Debt Service Funds: Redevelopment Areas Special Revenue Funds: Storm Water Program Internal Service Funds: Workers' Compensation $ (11,039,854) S (962,741) $ (798,981) 75 CITY OF CARLSBAD Notes to the Financial Statements Note 13. Interfund Transfers Interfund transfers for the year ended June 30, 2003, consisted of the following: Fund Transfers In From Other Funds Transfers Out To Other Funds Major Funds: General Redevelopment, Debt Service Funds Capital Project Funds: Community Facilities District No. 1 General Capital Construction Public Facilities Construction Nonmajor Governmental Funds Golf Course Enterprise Fund Internal Service Funds $ 1,214,472 35,196,189 584,905 10,850,176 600,000 134,817 $ 40,059,818 282,000 5,692,343 29,252 2,517,146 Totals $ 48,580,559 $ 48,580,559 Transfers are used to (1) move receipts restricted to debt service from the funds collecting the receipts to the debt service fund as debt service payments become due, (2) move the remaining fund balances of closed funds to the General fund, and (3) use unrestricted revenues collected in the General fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. Note 14. Risk Management The City is exposed to various risks of loss related to its operations, including losses associated with errors and omissions and injuries to employees and members of the public. The City uses a Risk Management Self-Insurance fund, a Health Insurance fund and a Workers' Compensation fund (all internal service funds) to account for and finance its uninsured risks of loss. All funds of the City make payments based on estimates of the amounts needed to pay prior and current year claims and to establish a reserve for catastrophe losses. Since July 1, 1999, the City has been a member of the California Municipal Excess Liability Program, a group purchase program for general liability coverage. Under this program, the pool provides coverage up to a maximum of $10,000,000 per occurrence with a self-insured retention provided by the City in the amount of $500,000. At June 30, 2003, the unencumbered fund equity for the Risk Management Self-Insurance fund was approximately $1,400,000. Health insurance coverage for City employees is provided by either Kaiser, CalPERS, Sharp Healthcare or the Reliastar plan. Approximately 21% of the City's benefited employees are covered through the Reliastar plan which is administered by CoreSource. Under the City's agreement with Reliastar, Reliastar will provide coverage for each individual claim over $75,000. As of July 1, 2003, the City moved all employees to a new CalPERS plan and is no longer administering a self- insured health insurance plan. The City is insured for workers' compensation claims by Continental Casualty. Continental Casualty provides coverage for losses which exceed the City's self-insured retention of $1,000,000 per claim. 76 CITY OF CARLSBAD Notes to the Financial Statements Note 14. Risk Management (Continued) The estimated claims payable reported at June 30, 2003 is based on the requirements of Governmental Accounting Standards Board Statement No. 10, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Changes in the estimated claims payable amounts in fiscal years 2002 and 2003 for the three internal service funds are as follows: Claims Health Insurance fund: 2001-2002 2002-2003 Beginning Balance $ 272,917 $ 324,340 Expense and Changes in Estimates $ 1,237,549 $ 1,223,712 Claim Payments $ (1,186,126) $ (1,247,103) Ending Balance $ 324,340 $ 300,949 Risk Management fund: 2001-2002 2002-2003 Workers' Compensation fund: 2001-2002 2002-2003 640,001 1,001,635 969,475 1,159,351 537,362 123,794 892,658 1,807,792 (175,728) (421,026) (702,782) (956,652) 1,001,635 704,403 1,159,351 2,010,491 Note 15.Joint Ventures Encina Water Pollution Control Facility The Encina Water Pollution Control Facility (the Facility) is a sewer facility owned jointly by the Cities of Carlsbad, Vista and Encinitas and the Leucadia County Water District, the Buena Vista Sanitation District and the Vallecitos Water District. The Encina Wastewater Authority (EWA) is a joint powers authority established to operate and administer the facility. It is responsible for the management, maintenance and operations of the joint system. Ownership interests in the facility are determined by joint agreement at the time the assets are acquired. As of June 30, 2003, the Cities and Districts have the following approximate ownership interest: City of Carlsbad City of Vista Leucadia County Water District Vallecitos Water District Buena Vista Sanitation District City of Encinitas 25% 22% 20% 20% 8% 5% EWA's financial statements for the fiscal year ended June 30, 2002 (the latest available) incorporated the provisions of GASB 34 and reflect the following: Total assets Total liabilities Net assets 47,869,634 1,999,516 $ 45,870,118 The EWA does not recognize net income or loss. Net operating expenditures in excess of users' assessments are treated as accounts receivable on EWA's books and charged to users' accounts in the following year. Conversely, users' assessments in excess of net operating expenditures are treated as a liability and credited against users' accounts, also in the following year. Under this basis, net operating revenue for the EWA totaled $417,044 in fiscal year 2002. The financial statements of the EWA can be obtained at 6200 Avenida Encinas, Carlsbad, California 92009. 77 CITY OF CARLSBAD Notes to the Financial Statements Note 15. Joint Ventures (Continued) Encina Financing Joint Powers Authority The Encina Financing Joint Powers Authority (the Authority) was created on February 1, 1989 between the City of Carlsbad (Carlsbad), the City of Vista (Vista), the Buena Vista Sanitation District (Buena) and the Leucadia County Water District (Leucadia). The primary purpose of the Authority is to issue revenue bonds in order to finance the expansion of the Facility. The Authority is governed by a Board of Directors, which consists of one director appointed by each member. The financial statements of the Authority can be obtained at the City of Carlsbad's Finance department. In August 1989, the Authority issued $33,500,000 of revenue bonds and executed installment purchase agreements for approximately the same amount. In February 1997, bonds were issued by the Authority to refinance and defease the outstanding bonds. Two of the members (Buena and Vista) defeased their 1989 obligations through available funds; while Carlsbad and Leucadia refinanced their obligations. Repayment of the bonds will be accomplished through payments made by Carlsbad and Leucadia pursuant to the new installment purchase agreements. The individual agreements set forth the purchase price and specify the debt service requirements for each member. The following is a table of the outstanding balance owed as of June 30,2003: Member City of Carlsbad Leucadia County Water District Agreement Balance $ 8,375,000 5,710,000 $ 14,085,000 The installment balances are secured by a pledge of the revenues from each member's wastewater system, net of a deduction for maintenance and operating costs. Significant covenants within the agreements require the members to maintain insurance on the facility, and establish wastewater rates which are sufficient to pay the operating costs and debt service on the bonds and which will result in net revenues equal to at least 1.25 times the annual installment payments due. The City's share in the accounts of the Authority is recorded in the Sewer Enterprise Fund. The expansion of the Facility is shown as a fixed asset of the Sewer Enterprise Fund. Note 16. Retirement Plan Plan description The City of Carlsbad contributes to the California Public Employees' Retirement System (PERS), an agent multiple- employer public employee defined benefit pension plan. PERS provides retirement and disability benefits, annual cost-of- living adjustments, and death benefits to plan members and beneficiaries. PERS 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. Copies of PERS' annual financial report may be obtained from their executive office: Lincoln Plaza, 400 P Street, Sacramento, California 95814. Funding policy Participants are required to contribute 7% (9% for safety employees) of their annual covered salary. The City makes the contributions required of the City's miscellaneous and fire employees on their behalf and for their account. The City makes 8% of the required 9% contributions for the City's police employees. The amount paid by the City on behalf of employees for the year ended June 30, 2003 was $2,630,411. The City is required to contribute at an actuarially determined rate. For the year ended June 30, 2003, the employer contribution rate for the City of Carlsbad (as a percentage of covered payroll) was 3.504% for safety employees and 0.0% for miscellaneous employees. The contribution requirements of plan members and the City are established by PERS. 78 CITY OF CARLSBAD Notes to the Financial Statements Note 16. Retirement Plan (Continued) In October 2003, the City was notified by PERS that for the year ended June 30, 2004, the employer contribution rate for the City of Carlsbad (as a percentage of covered payroll) will be 27.573% for safety employees and 6.938% for miscellaneous employees. Annual pension cost For 2003, the City's annual pension cost (employer contribution) of $473,370 for safety and $0 for miscellaneous to PERS was equal to the City's required and actual contributions. For 2003, the member contributions paid by the City were $1,072,984 for safety and $1,557,427 for miscellaneous. The required contribution was determined as part of the June 30, 2000, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) 8.25% investment rate of return (net of administrative expenses), (b) projected annual salary increases of 3.75%, and (c) 2% per year cost-of-living adjustments. Both (a) and (b) included an inflation component of 3.5%. The actuarial value of PERS assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a four-year period (smoothed market value). PERS unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period for miscellaneous employees at June 30, 2003 is through June 30, 2020; for safety employees at June 30,2003, it is through June 30, 2011. Three-year trend information for PERS (safety) Annual Pension Fiscal Year Ending 6/30/01 6/30/02 6/30/03 Cost (Employer Contribution) $ 370,444 $ 472,638 $ 473,370 Percentage of APC Contributed 100% 100% 100% Net Pension Obligation Three-year trend information for PERS (miscellaneous) Fiscal Year Ending 6/30/01 6/30/02 6/30/03 Annual Pension Cost (Employer Contribution) $ 5,607 $ $ Percentage of APC Contributed 100% 100% 100% Net Pension Obligation $ $ $ Required supplementary information Funded status of plan (safety) Valuation Date 6/30/99 6/30/00 6/30/01 Entry Age Normal Accrued Liability $ 59,160,306 $ 70,002,794 $ 77,957,502 Actuarial Value of Assets $ 73,078,737 $ 84,606,890 $ 87,913,468 Unfunded Liability/ (Excess Assets) $(13,918,431) $(14,604,096) $ (9,955,966) Funded Status 123.5% 120.9% 112.8% Annual Covered Payroll $ 9,784,191 $ 10,319,561 $ 11,581,444 UAAL As a % of Payroll (142.254%) (141.519%) (85.965%) 79 CITY OF CARLSBAD Notes to the Financial Statements Note 16. Retirement Plan (Continued) Funded status of plan (miscellaneous) Valuation Date 6/30/99 6/30/00 6/30/01 Entry Age Normal Accrued Liability $ 62,314,238 $ 71,350,783 $ 79,229,253 $ $ $ Actuarial Value of Assets 84,329,881 94,556,898 99,603,848 Unfunded Liability/ (Excess Assets) $(22,015,643) $(23,206,115) $(20,374,595) Funded Status 135.3% 132.5% 125.7% Annual Covered Payroll $ 16,405,530 $ 19,396,170 $ 21,056,410 UAAL As a % of Payroll (134.196%) (119.643%) (96.762%) Note 17.Post-Retirement Health Care In addition to the pension benefits described herein, per Resolution 614, all former employees of the Carlsbad Municipal Water District (including dependents) are eligible for post-retirement health care benefits if they voluntarily retire after the age of 50 with no less than 5 years of service and whose age, combined with years of service, equals 70 or more. Currently, fourteen retirees meet these eligibility requirements and are receiving benefits. The City pays for 100% of the premiums for health insurance which is coordinated with Medicare and other benefits provided by federal and state law, when available, to the extent it reduces the cost of insurance premiums. Expenditures for post-retirement health care benefits are funded on a pay-as-you-go basis. Expenditures were approximately $79,300 for post-retirement health care costs during 2002-2003. Based on an actuarial valuation performed as of November 1991, the District's liability for the current and past service costs of these benefits is approximately $1,600,000. Note 18. Commitments and Contingencies Operating lease In June 1988, the Carlsbad Redevelopment Agency entered into an agreement to lease a parking lot on State Street from a private party. The lease requires monthly rental payments, adjusted annually based upon an increase in the consumer price index, not to exceed 6% of the previous year's rents, and re-adjusted in years 10 and 15 based upon market rental values, through August 2007. Minimum future rental payments under the operating lease as of June 30,2003 are: 2004 2005 2006 2007 2008 Total minimum future rental payments 79,000 79,000 79,000 79,000 7,000 323,000 80 CITY OF CARLSBAD Notes to the Financial Statements Note 18. Commitments and Contingencies (Continued) Contingencies Litigation The City is a defendant in certain legal actions arising in the normal course of operations. In the opinion of management and legal counsel, any liability resulting from these actions will not result in a material adverse effect on the City's financial position, because the City has set aside sufficient monies to cover confirmed adverse actions. During the year ended June 30, 2002, the City was involved in a consolidated claim involving the acquisition of right-of- way for the construction of a public works project in which the City was ordered by the trial court to pay approximately $3,200,000 for physical and economic cost and damages and legal costs suffered by property owners. At June 30, 2003, the City had deposited with the San Diego County Treasury, approximately $3,200,000 related to the above claim. The City appealed the economic damages and legal costs of the judgment, consisting of damages to unaffixed, moveable personal property and to improvements pertaining to realty. The Court of Appeals reversed the original decision. The condemnees have petitioned the California Supreme Court for review; however, it is the belief of the City's legal counsel that a review of the case is unlikely. As such, as of June 30,2003, no amounts have been accrued for the claim. Property Taxes In November 2001, an Orange County Superior Court Judge ruled that the Orange County Assessor's Office violated Proposition 13 by increasing the taxable value of a Seal Beach residence by 4% in a single year (1998). County attorneys argued that the assessment was legal because it made up for years in which the property value did not increase. The county maintains it was merely "recapturing" the full tax value of the property, charging 2% for each of the years the property values did not rise. On December 12,2002, the Superior Court certified class action status for this case and the Court and Tax Collector are currently addressing when and if notification to the taxpayers should be executed. In 2002, two other local courts (Los Angeles and San Diego) ruled differently on the same issue and both affirmed the current statewide practice of property assessment restoration (i.e.; the local courts differ on this issue). The property tax laws are applied on a statewide basis and the contradicting ruling with two other local courts on the same legal issue require a uniformity review at the appellate level. With this notice, the Court of Appeals will establish a briefing and hearing schedule and that process may take several months to complete. Based on the Court of Appeals' briefing schedule, the respondent is required to submit a reply brief by October 17, 2003. Then, the appellants will answer the respondent's reply brief by November 7, 2003. The Court of Appeals has scheduled a hearing on December 16, 2003. If the Judge's decision is upheld on appeal, it could have financial ramifications throughout the State of California. The City's management is unable to reasonably estimate the financial effect to it, or the Redevelopment Agency, if the Orange County Superior Court's decision is upheld, because it would be dependent upon how the court's decides to apply its ruling. State of California Budget Crisis The State of California is facing significant deficits due to a number of factors, not the least of which include a slowdown in the State's economy and the effects of unfavorable long-term contracts entered into during the energy crisis of 2002. Current estimates of the State's budget shortfall for fiscal year 2004 range up to $39 billion. Since a significant portion of local government revenues come from the State through allocations to local governments, the current budget crisis in California could have a direct significant financial impact on all local governments, including the City of Carlsbad. As the revenues are allocated to a variety of local governments, the City's management is not able to predict what the ultimate impact the State's budget shortfall will have on the City's financial position. 81 82 SUPPLEMENTARY INFORMATION 83 CITY OF CARLSBAD Combining Balance Sheet Nonmajor Governmental Funds June 30, 2003 ASSETS Community Affordable Development Donations Federal Housing Block Grant and Bequests Grants Low and Moderate Gas Income Tax Housing Cash and investments Receivables: Taxes Other Accounts, net Due from other governments Prepaid items Restricted cash and investments Loan receivables Advances to other funds Total assets LIABILITIES AND FUND BALANCES 7,666,369 $ 14,251 $8,914,740 $ 72,873 $ 4,729,384 $1,826,092 36,616 6,989,107 225 10,258 5,568 6,575 44 2,290,024 4,643,344 $ 14,692,092 $ 30,077 $8,914,965 $ 72,873 S 9,372,728 $4,122,735 Liabilities: Accrued liabilities Due to other funds Deposits payable Due to to other governments Advances from other funds Deferred revenue Total liabilities Fund balances: Reserved for: Loans receivable Prepaid items Debt service Advances to other funds Flower fields preservation Library endowment Low and moderate income housing Encumbrances Unreserved: Designated for approved capital projects Designated for continuing appropriations Undesignated Total fund balances Total liabilities and fund balances 21,631 19,031 45,535 5,613 165,277 5,478 90,560 3,069 186,908 24,509 45,535 5,613 90,560 3,069 6,989,107 5,568 2,290,024 4,643,344 935,000 251,000 3,284,650 23,856 4,207,571 14,505,184 7,769 (7,769) 5,568 13,086 166,470 7,503,874 8,869,430 3,777 61,768 1,715 67,260 644,082 2,457,719 1,537,023 9,282,168 1,465 115,987 1,712,190 4,119,666 14,692,092 $ 30,077 $8,914,965 $ 72,873 $ 9,372,728 $4,122,735 84 Special Revenue Funds Other Special Police Sections Special Storm Tyler Revenue Asset Housing Benefit State Water Court Funds Forfeiture Authority Districts Grants Program Apartments $ 254,878 $595,109 $ 6,422 $2,963,052 $ 316,905 $ 216,374 $ 539,200 9,469 458 36,370 15,000 656,863 343,247 $ 254,878 $595,109 $ 1,006,532 $2,972,979 $ 353,275 $ 231,374 $ 539,200 1,002 470 29,176 168,578 14,035 117,696 502,000 .... 60,855 - - - 20,502 51,875 1,076,419 1,002 470 592,031 168,578 65,910 1,194,115 20,502 343,247 10,425 10,884 158,710 19,982 113,655 17,569 102,794 225,882 491,845 1,026,522 207,419 60,370 1,619,169 59,964 (1,076,396) 518,698 253,876 594,639 414,501 2,804,401 287,365 (962,741) 518,698 254,878 $595,109 $ 1,006,532 $2,972,979 $ 353,275 $ 231,374 $ 539,200 (Continued) 85 CITY OF CARLSBAD Combining Balance Sheet Nonmajor Governmental Funds (Continued) June 30, 2003 ASSETS Debt Service Fund Hosp Grove COPs Assessment and Other Districts Federal Grants Infrastructure Replacement Other Capital Project Funds Cash and investments Receivables: Taxes Other Accounts, net Due from other governments Prepaid items Restricted cash and investments Loan receivables Advances to other funds Total assets LIABILITIES AND FUND BALANCES $ 565,341 $2,926,979 $$11,636,869 $ 335,592 118,773 685,284 $1,250,625 $2,926,979 $ 118,773 $11,636,869 $ 335,592 Liabilities: Accrued liabilities Due to other funds Deposits payable Due to to other governments Advances from other funds Deferred revenue Total liabilities Fund balances: Reserved for: Loans receivable Prepaid items Debt service Advances to other funds Flower fields preservation Library endowment Low and moderate income housing Encumbrances Unreserved: Designated for approved capital projects Designated for continuing appropriations Undesignated Total fund balances Total liabilities and fund balances 659,500 591,125 1,250,625 21,193 990,854 51,186 67,182 506,708 591 1,342 1,012,047 118,368 506,708 1,933 162,536 607,077 1,145,319 298,136 218,185 456,005 (297,731) 10,455,971 11,153 9,340 313,166 1,914,932 405 11,130,161 333,659 $1,250,625 $2,926,979 $ 118,773 $11,636,869 $ 335,592 86 Capital Project Funds Park Development $6,031,908 _ - - - - - - - $6,031,908 Planned Local Drainage Facilities $8,155,552 _ - 181,474 - - - - - $8,337,026 Rancho Santa Fe Road Project $ 25,884,525 _ - - 2,041,333 - - - - $27,925,858 Redevelopment Agency $ 867,555 _ 3,956 2,685 - - - - - $ 874,196 Sales Tax/ TransNet $10,672,531 _ - - - - - - - $ 10,672,531 State Grants $ 513,744 _ - - 219,809 - - - - $ 733,553 Traffic Impact Projects $7,684,977 _ - - - - - - - $7,684,977 Total Other Governmental Funds $ 103,391,222 16,044 4,000 272,828 3,047,036 343,247 685,284 9,284,699 4,643,344 $ 121,687,704 3,082 - - - 3,980,000 - 3,983,082 - - - - - - 21,275 676,089 1,351,462 - 2,048,826 3,920 - - - - 181,474 185,394 - - - - - - 64,892 2,383,439 5,703,301 - 8,151,632 818,104 - - - - - 818,104 - - - - - - 12,345,173 8,467,052 6,295,529 - 27,107,754 37,144 - - - - - 37,144 - - - - - - 178,684 _ 658,368 - 837,052 69,761 - - - - - 69,761 - - - - - - 479,908 591,582 9,531,280 - 10,602,770 89,867 - - 10,200 - - 100,067 - - - - - - 141 509,596 67,842 55,907 633,486 2,490 - - - - - 2,490 - - - - - - 154,937 6,063,077 1,464,473 - 7,682,487 2,120,442 570,524 246,634 67,553 6,047,273 181,474 9,233,900 9,284,699 343,247 659,500 4,643,344 935,000 251,000 3,284,650 14,942,711 21,755,631 28,381,448 27,972,574 112,453,804 $6,031,908 $8,337,026 $27,925,858 $ 874,196 $10,672,531 $ 733,553 $7,684,977 $ 121,687,704 87 CITY OF CARLSBAD Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended June 30, 2003 Affordable Housing Community Development Block Grant Donations and Bequests Federal Grants Gas Tax Low and Moderate Income Housing Revenues: Taxes Intergovernmental Charges for services Fines and forfeitures Income from property and investments Interdepartmental charges 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 204,962 494 791,094 $ - $ 1,643,800 $ 442,280 51,354 12,000 113,539 960,882 624,180 23,175 1,721,776 - 32,906 - 824,000 - 394,880 3,801 621,633 148,844 190 1,165,547 55,155 - 195,317 - 1,851,117 - 140,349 - 582,629 225,291 401,036 81,275 347,415 12,188 30,123 2,889,494 75,798 47,216 1,370 160,000 664 20,651 207,490 806,978 359,603 1,514,286 17,022 805,944 25,000 (5,000) 20,000 - 111,398 (56,243) 5,706 (3,773) 1,933 ; 2,889,494 (1,038,377) 14,763 (8,752) 6,011 761 369 124,144 458,485 - 1,514,286 17,022 825,944 (54,310) (1,032,366) 458,485 12,990,898 (11,454) 8,043,486 121,570 10,314,534 3,661,181 $14.505.184 $ 5.568 $8.869,430 $ 67.260 $ 9,282,168 $4,119,666 88 Special Revenue Funds Other Special Police Revenue Asset Funds Forfeiture $ - $ - - - 62,376 11,707 27,000 - 11,707 89,376 60,162 - 29,109 - 18,048 _ - 29,109 78,210 (17,402) 11,166 (5,706) (5,706) (17,402) 5,460 271,278 589,179 $ 253,876 $ 594,639 Section 8 Housing Authority $ 5,084,652 - - 2,659 - 5,087,311 - 5,012,255 - - 1,531 3,576 1,735 5,019,097 68,214 68,214 346,287 $ 414,501 Special Benefit Districts $ - 1,851,534 - 127,021 128,590 2,107,145 - - - 2,234,302 - _ - 2,234,302 (127,157) (127,157) 2,931,558 $2,804,401 State Grants $ 338,726 - - 11,588 - 350,314 183,352 - 73,858 - 76,245 _ - 333,455 16,859 (825) (825) 16,034 271,331 $ 287,365 Storm Water Program $ 25,000 - - 83,872 - 108,872 - - - 1,093,633 9,974 _ - 1,103,607 (994,735) (1,190,300) (1,190,300) (2,185,035) 1,222,294 $ (962,741) Tyler Court Apartments $ 384,248 - 19,447 . 403,695 - 246,560 - - - _ - 246,560 157,135 157,135 361,563 $ 518,698 (Continued) 89 CITY OF CARLSBAD Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds (Continued) For the Year Ended June 30, 2003 Revenues: Taxes Intergovernmental Charges for services Fines and forfeitures Income from property and investments Interdepartmental charges Contributions from property owners Donations Miscellaneous Total revenues Debt Service Fund Assessment Hosp Grove and Other COPs Districts $ - $ - - - - 62,661 133,687 - 1,011,859 - 325 62,661 1,145,871 Federal Grants $ 208,467 - - 448 - - - - 208,915 Infrastructure Replacement $ 8,472 - - - 606,458 - - - - 614,930 Other Capital Project Park Funds Development $ $ - - - 14,244 271,779 - 2,044,903 - - 14,244 2,316,682 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 at beginning of year Fund balances at end of year 565,000 225,558 33,220 398,709 208,510 1,290,712 133,126 4,821,151 790,558 431,929 208,510 1,290,712 133,126 4,821,151 (727,897) 713,942 405 (675,782) (118,882) (2,504,469) 800,000 800,000 149,296 (184,783) (35,487) 3,500,000 3,500,000 (698,243) (698,243) ; . 72,103 678,455 1,178,522 1,236,477 405 2,824,218 (817,125) (2,504,469) 8,305,943 1,150,784 4,553,295 $1,250,625 $1,914,932 $ 405 $11,130,161 $ 333.659 $2,048,826 90 Capital Project Funds Planned Local Drainage Facilities $ - - - 356,621 - 378,752 - 4,432 739,805 - - - - 574,219 . - 574,219 165,586 - 165,586 7,986,046 $8,151,632 Rancho Santa Fe Road Project $ 2,041,333 - - 1,157,847 - 3,650,230 - 1,371,331 8,220,741 - - - - 6,849,077 _ - 6,849,077 1,371,664 5,829,276 - 5,829,276 7,200,940 19,906,814 $27,107,754 Redevelopment Agency $ 268,649 - - 27,397 - 5,257 - - 301,303 503,892 - - - - 322,343 1,903 922 829,060 (527,757) 282,000 - 282,000 (245,757) 1,082,809 $ 837,052 Sales Tax/ TransNet $ 3,559,996 - - 446,197 - - - - 4,006,193 - - - - 1,676,904 _ - 1,676,904 2,329,289 206,928 (38,696) 168,232 2,497,521 8,105,249 $10,602,770 State Grants $ 524,105 - - 23,600 - - - - 547,705 10,200 - - - - 242,031 . - 252,231 295,474 (381,068) (381,068) (85,594) 719,080 $ 633,486 Traffic Impact Projects $ - - - 340,785 - 1,371,210 - - 1,711,995 - - - - 402,011 _ - 402,011 1,309,984 37,207 - 37,207 1,347,191 6,335,296 $7,682,487 Total Other Governmental Funds $ 2,094,552 12,905,376 2,349,321 62,376 5,453,153 128,590 9,708,024 148,844 1,399,453 34,249,689 547,312 324,789 5,764,866 450,382 3,327,935 20,405,142 732,610 249,899 31,802,935 2,446,754 10,850,176 (2,517,146) 8,333,030 10,779,784 101,674,020 $ 112,453,804 91 CITY OF CARLSBAD Combining Schedule of Revenues and Expenditures Budget and Actual (Budgetary Basis) Special Revenue Funds Year Ended June 30, 2003 Affordable Housing Total revenues Total expenditures Net change in fund balance Community Dev Block Grant Total revenues Total expenditures Net change in fund balance Donations and Bequests Total revenues Total expenditures Net change in fund balance Federal Grants Total revenues Total expenditures Net change in fund balance Gas Tax Total revenues Total expenditures Net change in fund balance Low & Moderate Income Housing Total revenues Total expenditures Net change in fund balance Other Special Revenue Funds Total revenues Total expenditures Net change in fund balance Budget $ 810,000 329,136 480,864 770,000 1,599,044 (829,044) 250,835 560,367 (309,532) 65,170 178,726 (113,556) 1,550,000 5,991,295 (4,441,295) 493,500 241,596 251,904 25,000 57,103 (32,103) Actual Amounts (Budgetary Basis) $ 1,721,776 231,346 1,490,430 824,000 814,747 9,253 1,165,547 372,689 792,858 55,155 115,175 (60,020) 1,851,117 3,533,576 (1,682,459) 582,629 125,609 457,020 11,707 39,534 (27,827) Variance Over (Under) $ 911,776 (97,790) 1,009,566 54,000 (784,297) 838,297 914,712 (187,678) 1,102,390 (10,015) (63,551) 53,536 301,117 (2,457,719) 2,758,836 89,129 (115,987) 205,116 (13,293) (17,569) 4,276 92 CITY OF CARLSBAD Combining Schedule of Revenues and Expenditures Budget and Actual (Budgetary Basis) Special Revenue Funds (Continued) Year Ended June 30, 2003 Actual Amounts (Budgetary Budget Basis) Police Asset Forfeiture Total revenues Total expenditures Net change in fund balance Section 8 Housing Authority Total revenues Total expenditures Net change in fund balance Special Benefit Districts Total revenues Total expenditures Net change in fund balance State Grants Total revenues Total expenditures Net change in fund balance Storm Water Program Total revenues Total expenditures Net change in fund balance Tyler Court Apartments Total revenues Total expenditures Net change in fund balance Totals Total revenues Total expenditures Net change in fund balance 55,000 181,004 (126,004) 5,324,822 5,352,016 (27,194) 2,185,387 3,419,534 (1,234,147) 201,984 560,857 (358,873) 50,000 1,480,410 (1,430,410) 364,847 247,791 117,056 12,146,545 20,198,879 $ (8,052,334) $ 89,376 78,210 11,166 5,087,311 5,029,981 57,330 2,107,145 2,393,012 (285,867) 350,314 353,437 (3,123) 108,872 1,217,262 (1,108,390) 403,695 246,560 157,135 14,358,644 14,551,138 ; {192,494} $ Variance Over (Under) 34,376 (102,794) 137,170 (237,511) (322,035) 84,524 (78,242) (1,026,522) 948,280 148,330 (207,420) 355,750 58,872 (263,148) 322,020 38,848 (1,231) 40,079 2,212,099 (5,647,741) 7,859,840 93 CITY OF CARLSBAD Combining Schedule of Revenues and Expenditures Budget and Actual (Budgetary Basis) Debt Service Funds Year Ended June 30,2003 Redevelopment Areas Total revenues Total expenditures Net change in fund balance Budget $ 2,035,800 1,705,806 $ 329,994 Actual Amounts (Budgetary Basis) $ 1,811,948 $ 1,679,301 $ 132,647 $ Variance Over (Under) (223,852) (26,505) (197,347) 94 95 CITY OF CARLSBAD Combining Statement of Net Assets Internal Service Funds June 30,2003 ASSETS Current assets: Cash and investments Receivables: Accounts, net Inventory Prepaid items Total current assets Noncurrent assets: Capital assets: Machinery and equipment Less accumulated depreciation Total capital assets (net of accumulated depreciation) Total noncurrent assets Total assets LIABILITIES Current liabilities: Accrued liabilities Estimated claims payable Current portion of long-term debt Total current liabilities Noncurrent liabilities: Capital leases payable Total noncurrent liabilities Total liabilities NET ASSETS Invested in capital assets, net of related debt Unrestricted Fleet Management $ 7,030,267 32,390 96,556 - 7,159,213 11,846,896 (6,168,126) 5,678,770 5,678,770 12,837,983 416,329 - 2,981 419,310 1,580 1,580 420,890 5,674,209 6,742,884 Health Information Insurance Technology $ 1,091,085 $ 3,176,816 - - 752 54,801 1,091,837 3,231,617 2,936,054 (2,098,903) 837,151 837,151 1,091,837 4,068,768 7,060 211,624 300,949 3,236 308,009 214,860 1,732 1,732 308,009 216,592 832,183 783,828 3,019,993 Total net assets $ 12,417,093 $783,828 $ 3,852,176 96 Records Management $ 140,881 140,881 57,769 (31,254) 26,515 26,515 167,396 Risk Workers' Management Compensation Total $ 2,083,881 $ 1,217,750 $ 14,740,680 32,390 96,556 76,728 - 132,281 2,160,609 1,217,750 15,001,907 14,840,719 (8,298,283) 6,542,436 6,542,436 2,160,609 1,217,750 21,544,343 49,688 49,688 61,382 6,240 752,323 704,403 2,010,491 3,015,843 6,217 765,785 2,016,731 3,774,383 3,312 3,312 49,688 765,785 2,016,731 3,777,695 26,515 91,193 $ 117,708 6,532,907 1,394,824 (798,981) 11,233,741 $ 1,394,824 $ (798,981) $ 17,766,648 97 CITY OF CARLSBAD Combining Statement of Revenues, Expenses and Changes in Net Assets Internal Service Funds For the Year Ended June 30,2003 Operating revenues: Other charges for services Miscellaneous Total operating revenues Operating expenses: Depreciation Fuel and supplies Claims expense General and administrative Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Income from property and investments Gain (loss) on sale of property Total nonoperating revenues (expenses) Income (loss) before transfers and capital contributions Transfers in Transfers out Capital contributions Change in net assets Total net assets at beginning of year Total net assets at end of year Fleet Health Management Insurance S 2,896,560 $ 2,994,636 ! 100,569 2,997,129 2,994,636 1,147,960 471,773 2,674,714 1,150,109 2,769,842 2,674,714 227,287 319,922 313,154 49,365 22,808 335,962 49,365 563,249 369,287 - - 99,353 662,602 369,287 11,754,491 414,541 $ 12,417,093 $ 783,828 ! Information Technology 5 3,896,817 569 3,897,386 524,367 - - 3,539,115 4,063,482 (166,096) 139,208 (19,404) 119,804 (46,292) 21,512 - 22,967 (1,813) 3,853,989 S 3,852,176 98 Records Management $ 1,030,400 612 1,031,012 10,997 - - 894,875 905,872 125,140 25 - 25 125,165 - . 125,165 (7,457) $ 117,708 Risk Management $ 603,009 34,214 637,223 - 1,014,100 317,805 1,331,905 (694,682) 99,833 - 99,833 (594,849) 113,305 - (481,544) 1,876,368 $ 1,394,824 Workers' Compensation $ 600,231 ! 16,276 616,507 - 1,977,110 147,272 2,124,382 (1,507,875) 56,154 - 56,154 (1,451,721) - . (1,451,721) 652,740 $ (798,981) ! Totals S 12,021,653 152,240 12,173,893 1,683,324 471,773 5,665,924 6,049,176 13,870,197 (1,696,304) 657,739 3,404 661,143 (1,035,161) 134,817 122,320 (778,024) 18,544,672 5 17,766,648 99 CITY OF CARLSBAD Combining Statement of Cash Flows Internal Service Funds For the Year Ended June 30,2003 Cash flows from operating activities: Receipts from customers and users Payments to suppliers Payments to employees Internal activity - payments to other funds Claims paid Other receipts (payments) Net cash provided by (used in) operating activities Cash flows from noncapital financing activities: Operating subsidies and transfers to other funds Cash flows from capital and related financing activities: (Purchases) sales of capital assets Principal paid on capital debt Net cash provided by (used in) capital and related financing activities Cash flows from investing activities: Interest on investments Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Fleet Management $ 2,896,560 (814,947) (523,519) (253,338) - 90,651 1,395,407 Health Information Insurance Technology $ 2,995,250 $ 3,896,817 (1,751,859) (1,418,761) (346,832) (2,677,632) 569 317,618 379,934 21,512 (746,255) (2,759) (749,014) 313,155 959,548 6,070,719 (179,183) (2,952) (182,135) 49,365 139,208 366,983 358,519 724,102 2,818,297 $ 7,030,267 $ 1,091,085 $ 3,176,816 100 Records Management $ 1,030,400 (172,126) (503,445) (224,243) 612 131,198 (101,482) 111,140 111,140 25 140,881 $ 140,881 Risk Management $ 603,009 (161,274) (154,238) (1,375,275) 34,214 (1,053,564) 113,305 1,035 1,035 99,832 (839,392) 2,923,273 $ 2,083,881 Workers' Compensation $ 600,231 $ (84,113) (63,583) (1,125,590) 16,276 (656,779) - 56,154 (600,625) 1,818,375 $ 1,217,750 $ Total 12,022,267 (2,738,932) (2,691,112) (1,042,234) (5,178,497) 142,322 513,814 33,335 (813,263) (5,711) (818,974) 657,739 385,914 14,354,766 14,740,680 (Continued) 101 CITY OF CARLSBAD Combining Statement of Cash Flows Internal Service Funds (Continued) For the Year Ended June 30, 2003 Fleet Management Reconciliation of operating income (loss) to net cash provided by (used in) operating activities: Operating income (loss) Adjustments to reconcile operating income to net cash provided by operting activities: Depreciation and amortization Change in assets and liabilities: (Increase) decrease in receivables (Increase) decrease in inventory (Increase) decrease in prepaid items Increase (decrease) in accrued liabilities Increase (decrease) in estimated claims payable Net cash provided by (used in) operating activities Noncash capital financing activities: Capital assets contributed by other funds 1,147,960 (9,918) (10,741) 40,819 Health Insurance Information Technology $ 227,287 $ 319,922 $ (166,096) 524,367 614 57,934 (37,460) (23,392) (42,686) 64,349 $ 1,395,407 $ 317,618 $ 379,934 $ 84,201 $$ 3,563 102 Records Risk Workers' Management Management Compensation Total $ 125,140 $ (694,682) $ (1,507,875) $ (1,696,304) 10,997 1,683,324 - - - (4,939) - $ 131,198 $ - - (76,728) 2,292 (284,446) (1,053,564) $ - - - (425) 851,521 (656,779) $ (9,304) (10,741) (61,480) 64,636 543,683 513,814 $ 87,764 103 CITY OF CARLSBAD Combining Statement of Net Assets Fiduciary Funds June 30, 2003 ASSETS Current Assets: Cash and investments Taxes receivable Accrued interest Total current assets Restricted Assets: Cash and investments Total assets LIABILITIES Accounts payable Total liabilities Contractors' and Miscellaneous Deposits $ 12,088,228 - - 12,088,228 - $ 12,088,228 22,051 22,051 Assessment Districts $ 3,179,074 29,766 83,592 3,292,432 4,017,696 $ 7,310,128 2,811 2,811 Total Agency Funds $ 15,267,302 29,766 83,592 15,380,660 4,017,696 $ 19,398,356 24,862 24,862 NET ASSETS Held in trust for contractors, bondholders and other purposes 12,066,177 $7,307,317 S 19,373,494 104 CITY OF CARLSBAD Combining Statement of Changes in Net Assets Fiduciary Funds June 30, 2003 ADDITIONS Contributions from property owners and developer deposits Payroll related deposits Interest income Other miscellaneous additions Total additions DEDUCTIONS Administrative expenses Refunds of developer deposits Payroll related deposits Payments to bondholders Other miscellaneous deductions Total deductions Change in net assets Net assets - beginning Net assets - ending Contractors' and Miscellaneous Deposits $ 4,878,742 20,383,761 559,881 9,108 25,831,492 5,411 1,310,694 20,713,376 157,505 22,186,986 3,644,506 8,421,671 $ 12,066,177 Assessment Districts $ 4,230,362 $ 356,009 4,586,371 96,513 4,929,769 31,550 5,057,832 (471,461) 7,778,778 $ 7,307,317 $ Total Agency Funds 9,109,104 20,383,761 915,890 9,108 30,417,863 101,924 1,310,694 20,713,376 4,929,769 189,055 27,244,818 3,173,045 16,200,449 19,373,494 105 CITY OF CARLSBAD Schedule of Annual Debt Service Requirements $15,495,000 -1993 Carlsbad Housing and Redevelopment Commission Tax Allocation Bonds Fiscal Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 Totals Interest Due September 1 $ 347,426 337,976 328,001 317,633 306,607 295,058 282,851 269,989 256,470 242,295 227,332 211,583 195,045 177,589 159,214 139,920 119,576 98,182 75,525 51,675 26,500 $ 4,466,447 Interest Due March 1 $ 337,977 328,001 317,633 306,607 295,058 282,851 269,989 256,470 242,295 227,332 211,583 195,045 177,589 159,213 139,920 119,576 98,183 75,525 51,675 26,500 - $ 4,119,022 Total Interest $ 685,403 665,977 645,634 624,240 601,665 577,909 552,840 526,459 498,765 469,627 438,915 406,628 372,634 336,802 299,134 259,496 217,759 173,707 127,200 78,175 26,500 $ 8,585,469 Principal Due September 1 $ 360,000 380,000 395,000 420,000 440,000 465,000 490,000 515,000 540,000 570,000 600,000 630,000 665,000 700,000 735,000 775,000 815,000 855,000 900,000 950,000 1,000,000 $ 13,200,000 Total Annual Debt Service $ 1,045,403 ,045,977 ,040,634 ,044,240 ,041,665 ,042,909 ,042,840 ,041,459 1,038,765 1,039,627 1,038,915 1,036,628 1,037,634 1,036,802 1,034,134 1,034,496 1,032,759 1,028,707 1,027,200 1,028,175 1,026,500 $ 21,785,469 106 CITY OF CARLSBAD Schedule of Annual Debt Service Requirements (Continued) $6,595,000 - 1997 Hosp Grove Certificates of Participation (1988 Refunding) Fiscal Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Totals $1,199,950 - HUD Section Fiscal Year 2003-04 Totals Interest Due August 1 $ 88,743 76,058 62,418 48,448 33,373 17,273 $ 326,313 108 Loan Interest Due August 1 $ 7,030 $ 7,030 Interest Due February 1 $ 76,057 62,417 48,447 33,372 17,272 $ 237,565 Interest Due February 1 $ $ Total Interest $ 164,800 138,475 110,865 81,820 50,645 17,273 $ 563,878 Total Interest $ 7,030 $ 7,030 Principal Due August 1 $ 590,000 620,000 635,000 670,000 700,000 735,000 $ 3,950,000 Principal Due August 1 $ 169,950 $ 169,950 Total Annual Debt Service $ 754,800 758,475 745,865 751,820 750,645 752,273 $ 4,513,878 Total Annual Debt Service $ 176,980 $ 176,980 107 CITY OF CARLSBAD Schedule of Annual Debt Service Requirements (Continued) $7,400,000 - 1997 Carlsbad Municipal Water District Certificates of Participation (1988 Refunding Project) 2003-04 Totals Interest Due Fiscal Year November 1 S 25,850 $ 25,850 Interest Due Mayl $ 25,850 $ 25,850 Total Interest $ 51,700 $ 51,700 Principal Due May 1 $ 1,175,000 $ 1,175,000 Total Annual Debt Service $ 1,226,700 $ 1,226,700 $11,080,000 - Encina Financing Joint Powers Authority Installment Purchase Agreement 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Totals Interest Due Fiscal Year August 1 $ 215,278 200,978 188,603 172,791 156,153 139,353 122,816 105,191 86,228 66,241 45,228 23,190 $ 1,522,050 Interest Due February 1 $ 200,978 188,603 172,791 156,153 139,353 122,816 105,191 86,228 66,241 45,228 23,191 - $ 1,306,773 Total Interest $ 416,256 389,581 361,394 328,944 295,506 262,169 228,007 191,419 152,469 111,469 68,419 23,190 $ 2,828,823 Principal Due August 1 $ 520,000 550,000 575,000 605,000 640,000 675,000 705,000 740,000 780,000 820,000 860,000 905,000 $ 8,375,000 Total Annual Debt Service $ 936,256 939,581 936,394 933,944 935,506 937,169 933,007 931,419 932,469 931,469 928,419 928,190 $ 11,203,823 108 CITY OF CARLSBAD Schedule of Annual Debt Service Requirements (Continued) $2^31,489 - Carlsbad Municipal Water District State Loan for Reclaimed Water Projects Fiscal Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Totals $2,618,908 - Golf Course Accrued Assessment Fiscal Year 2003-04 2004-05 2005-06 Interest Due November 30 $ 42,350 38,952 35,455 31,857 28,155 24,345 20,425 16,391 12,240 7,969 2,680 $ 260,819 Interest $ 29,103 20,173 10,425 Principal Due November 30 $ 117,177 120,575 124,072 127,670 131,372 135,182 139,102 143,136 147,287 151,558 123,219 $ 1,460,350 Principal $ 186,060 196,925 60,128 Total Annual Debt Service $ 159,527 159,527 159,527 159,527 159,527 159,527 159,527 159,527 159,527 159,527 125,899 $ 1,721,169 Total Annual Debt Service $ 215,163 217,098 70,553 Totals 59,701 $ 443,113 $ 502,814 109 no I S 111 CITY OF CARLSBAD Government-wide Expenses by Function Fiscal Year 2001-02(1) 2002-03 General Government $7,599,821 8,517,581 Public Safety $25,659,586 27,747,646 Community Development $10,539,139 12,351,779 Community Services $13,269,566 14,190,510 Public Works $15,015,344 16,825,872 Interest on Long-Term Debt $1,673,516 1,048,264 (I)The City first began issuing Government-wide statements in fiscal year 2001-2002. GOVERNMENT-WIDE EXPENSES BY FUNCTION 2002-2003 Carlsbad Municipal Water District 18% Interest on Long- Term Debt 1% Public Works 16% Sewer 6%General Government 8% Community Services 13% Public Safety 26% Community Development 12% Source: City of Carlsbad Comprehensive Annual Financial Reports 112 Carlsbad Municipal Water Golf Solid District Course Sewer Waste Total $19,310,792 $98,565 $6,168,690 $212,605 $99,547,624 19,261,199 93,341 6,103,668 218,014 106,357,874 113 CITY OF CARLSBAD Government-wide Revenues PROGRAM REVENUES Fiscal Year 2001-02(l) 2002-03 Charges for Services $40,142,313 42,464,001 Operating Grants and Contributions $8,562,412 11,406,166 Capital Grants and Contributions $43,007,215 64,719,339 (l)The City first began issuing Government-wide statements in fiscal year 2001-2002. GOVERNMENT-WIDE REVENUES BY FUNCTION 2002-2003 Vehicle License Fees 2% Income from Property and Investments 9% Charges for Services 20% Operating Grants and Contributions 5% Capital Grants and Contributions 29% Source: City of Carlsbad Comprehensive Annual Financial Reports 114 GENERAL REVENUES Vehicle Income from License Property and Taxes Fees Investments Miscellaneous Total $70,676,433 $4,675,269 $25,105,269 $1,564,886 $193,733,797 74,398,635 5,066,902 19,182,978 598,688 217,836,709 115 CITY OF CARLSBAD General Governmental Expenditures by Function'1' Last Ten Fiscal Years Fiscal Year(2) 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Total $ 62,668,276 60,280,103 59,802,924 65,943,032 80,045,280 112,156,205 105,655,384 92,884,485 112,513,403 108,662,936 General Government $5,513,101 5,871,248 5,850,829 6,961,469 6,909,151 6,784,525 7,382,909 9,022,218 8,414,743 8,805,313 Public Safety $ 16,351,652 15,915,678 16,850,087 17,410,033 18,631,042 21,927,751 21,799,386 23,627,184 25,598,466 26,797,864 Community Development $ 6,255,252 6,465,977 7,363,194 7,431,539 7,894,536 8,636,634 11,538,444 9,351,917 10,315,783 12,146,247 (1) (2) Includes General, Special Revenue, Debt Service, and Capital Projects Funds. Beginning in fiscal year 1997-98, Park Maintenance expenditures are included in Public Works instead of Community Services. GENERAL GOVERNMENTAL EXPENDITURES BY FUNCTION 2002-2003 Capital Projects 24% Debt Service 3%General Government 8% Public Works 17% Community Services 12% Source: City of Carlsbad Comprehensive Annual Financial Reports Public Safety 25% Community Development 11% 116 Community Services $7,548,100 7,459,685 7,590,363 8,390,009 6,672,810 7,541,378 9,088,264 11,571,249 12,448,725 13,026,341 Public Works $ 8,847,328 8,111,572 8,956,757 8,816,767 11,437,101 12,689,683 13,822,429 14,402,096 15,404,566 18,176,697 Capital Outlay $12,933,253 12,159,653 9,654,082 13,556,164 23,693,412 52,106,587 39,543,074 22,066,731 37,503,175 26,410,483 Debt Service $5,219,590 4,296,290 3,537,612 3,377,051 4,807,228 2,469,647 2,480,878 2,843,090 2,827,945 3,299,991 SPENDING ON CAPITAL PROJECTS LAST TEN YEARS TOTAL EXPENDITURES LAST TEN YEARS $o $0 Fiscal Year Fiscal Year 117 CITY OF CARLSBAD General Governmental Revenues by Source01 Last Ten Fiscal Years Fiscal Year 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Total(2) $62,239,740 69,768,517 74,611,395 98,645,130 122,653,159 145,393,991 115,252,270 136,244,948 131,323,111 141,617,437 Property Taxes $13,920,220 13,537,893 13,576,407 14,516,474 15,226,827 17,121,586 19,916,613 23,143,014 28,495,155 31,410,575 Sales Taxes $10,840,115 11,399,568 11,542,970 12,495,143 14,817,057 17,129,474 19,493,247 21,196,726 21,660,902 25,542,844 Transient Occupancy Taxes $3,153,084 3,252,270 3,406,917 3,675,472 6,046,092 7,010,249 8,333,196 9,269,484 8,533,329 8,387,388 Business Licenses $1,093,827 1,245,830 1,491,159 1,510,462 1,603,744 1,737,850 1,863,514 2,300,367 2,440,387 2,305,178 Other Taxes $4,124,250 8,434,825 8,621,717 10,824,890 15,290,601 14,508,643 12,661,882 14,237,832 10,398,486 6,510,259 Includes General, Special Revenue, Debt Service, and Capital Projects Funds. (2) Includes interdepartmental services category added in 1991-1992, donations, and miscellaneous revenues. GENERAL GOVERNMENTAL REVENUE LAST TEN YEARS PROPERTY TAX AND SALES TAX REVENUE LAST TEN YEARS 160 140 • V) ol20-\ Fiscal Year Source: City of Carlsbad Comprehensive Annual Financial Reports Fiscal Year In Property Tax • Sales Tax 118 Inter- Governmental $ 8,019,308 7,590,323 6,426,262 11,764,760 17,091,140 17,801,614 14,094,118 14,285,677 14,266,527 19,775,324 Licenses and Permits $ 3,590,927 3,766,340 4,178,844 5,609,730 6,484,025 3,826,686 3,320,851 3,409,156 1,998,210 2,042,529 Charges for Services $9,181,814 9,819,230 6,805,386 10,707,653 7,614,902 6,805,147 5,749,416 6,427,307 7,751,065 10,058,671 Fines and Forfeitures $231,454 263,411 335,395 317,892 331,318 935,955 839,831 888,608 947,183 923,068 Income from Property and Investments $3,996,127 4,415,975 4,862,050 6,075,188 8,632,261 8,925,565 10,495,817 20,384,618 18,700,470 14,801,549 Contributions from Property Owners $ 344,851 2,148,548 9,359,802 15,450,861 25,861,948 45,763,304 14,733,063 15,982,528 11,250,770 14,546,966 Other(2) $ 3,743,763 3,894,304 4,004,486 5,696,605 3,653,244 3,827,918 3,750,722 4,719,631 4,880,627 5,313,086 oQ TRANSIENT OCCUPANCY TAX LAST TEN YEARS CHARGES FOR SERVICES LAST TEN YEARS Fiscal Year Fiscal Year 119 CITY OF CARLSBAD Computation of Legal Debt Margin June 30, 2003 Net assessed valuation $ 13.009.711.562 Debt limit ( 1 5% of 25% of net assessed valuation as adjusted) 487,864,184 Amount of debt applicable to debt limit: Bonded debt 13,200,000 Certificates of participation 3,950,000 Obligations under capital leases _ 178.701 Total amount of debt applicable to debt limit 17,328.701 Legal debt margin $ 470.535,483 Percent of debt limit Source: County of San Diego Office of the Auditor and Controller 120 CITY OF CARLSBAD Schedule of Direct and Overlapping Bonded Debt June 30, 2003 2002-03 Assessed Valuation: $13,265,871,448 Redevelopment Incremental Valuation: 256.159,886 Adjusted Assessed Valuation: $13,009,711,562 OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 6/30/03 San Diego County Water Authority 6.464% $ 106,333 Metropolitan Water District 1.164 5,171,594 Carlsbad Unified School District 98.076 23,837,477 Carlsbad Unified School District Lease Tax Obligations 98.076 907,203 Carlsbad Unified School District Community Facilities District No. 1 100.000 10,260,000 Oceanside Unified School District 0.009 4,429 Vista Unified School District 0.056 51,520 Encinitas Union School District 28.526 8,083,623 Encinitas Union School District Lease Tax Obligations 28.526 262,439 San Marcos Unified School District School Facilities Improvement District 36.762 7,078,379 San Marcos Unified School District Community Facilities District No. 5 100.000 24,840,000 San Dieguito Union High School District Community Facilities District No. 94-1 100.000 294,532 San Dieguito Union High School District Community Facilities District No. 94-2 98.327 21,180,029 San Dieguito Union High School District Community Facilities District No. 95-2 36.882 327,509 Olivenhain Municipal Water District, Assessment District No. 96-1 22.471 4,649,250 City of Carlsbad 1915 Act Bonds 100.000 36,550,000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $143,604,317 DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT: San Diego County General Fund Obligations 6.235% $ 29,669,171 San Diego County Pension Obligations 6.235 51,401,028 San Diego County Superintendent of Schools General Fund Obligations 6.235 128,909 Mira Costa Community College District Certificates of Participation 27.238 1,570,271 Carlsbad Unified School District General Fund Obligations 98.076 57,139,078 Encinitas Union School District Certificates of Participation 28.526 586,210 Other School District Certificates of Participation Various 267,926 City of Carlsbad General Fund Obligations 100.000 3,950,000 TOTAL DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT $144,712,593 COMBINED TOTAL DEBT $288,316,910(l) "'Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to 2002-03 Assessed Valuation: Total Overlapping Tax and Assessment Debt 1.07% Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($3,950,000) 0.03% Combined Total Debt 2.19% SHARE OF AUTHORIZED AND UNSOLD GENERAL OBLIGATION BONDS: Carlsbad Municipal Water District, I.D. No. 1 $99,414 Carlsbad Municipal Water District, I.D. No. 3 $200,000 STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/03: $0 Source: California Municipal Statistics, Inc. 121 Fiscal Year 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 CITY OF CARLSBAD Construction and Business Activity Last Ten Fiscal Years Building Permit Revenue $ 365,571 644,131 917,788 1,262,177 2,094,523 2,524,063 2,156,584 2,102,074 1,085,819 986,890 Business Percent Estimated License Chan 56 76 42 37 65 ge Valuation Revenue 1 $ 71,057,243 $1,093,827 2 145,344,099 1,245,830 4 162,116,427 1,491,159 6 305,247,426 1,510,462 9 479,909,805 1,603,744 20.5 588,527,417 1,737,850 (14 6) 468,596,775 1,863,514 (2.5) 513,763,904 2,300,367 (48 3) 272,671,912 2,440,387 (9.1) 265,175,025 2,305,178 ESTIMATED VALUATION OF BUILDING PERMITS ISSUED - LAST TEN YEARS $600 -( $500 - 'v)a •= $400 - •"i e $300 • " f/t 3 $200 - x oQ $100 -'4* $0 -M— 11 ^&. ^j=U _fmfmiflWlON ONON ON ]• r- oo ONON ON ONOS O\ ON r^^ i^-3| m m W>m By s o o o5 O O O Fiscal Year Percent Change 2.1 13.9 19.7 1.3 6.2 8.4 7.2 23.4 6.1 (5.5) Source: City of Carlsbad Comprehensive Annual Financial Reports 122 CITY OF CARLSBAD Water Enterprise Revenue Bond Coverage Last Ten Fiscal Years Fiscal Year 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Gross Revenue'1' $ 15,188,913 15,912,020 17,147,790 18,911,511 18,356,555 19,942,226 22,178,880 23,187,752 24,925,994 23,791,166 Total Expenses'2' $ 12,286,557 12,690,114 13,998,346 14,692,531 14,583,879 16,732,975 18,609,221 18,027,298 19,310,792 19,261,199 Net Revenue Available for Debt Service $ 2,902,356 3,221,906 3,149,444 4,218,980 3,772,672 3,209,251 3,569,659 5,160,454 5,615,202 4,529,967 Principal $ 775,000 825,000 880,000 1,040,000 955,000 995,000 1,040,000 1,075,000 1,120,000 1,175,000 Debt Service Interest $ 751,248 700,098 644,822 494,954 264,695 227,450 187,650 145,010 99,860 51,700 Requirements Total $ 1,526,248 1,525,098 1,524,822 1,534,954 1,219,695 1,222,450 1,227,650 1,220,010 1,219,860 1,226,700 Coverage 1.90 2.11 2.07 2.75 3.09 2.63 2.91 4.23 4.60 3.69 BO oO (I) (2) Includes operating and non-operating revenues. Includes operating and non-operating expenses. WATER ENTERPRISE GROSS REVENUE VS. TOTAL EXPENSES LAST TEN YEARS Fiscal Year D GROSS REVENUE B TOTAL EXPENSES WATER ENTERPRISE REVENUE AVAILABLE FOR DEBT SERVICE LAST TEN YEARS $6 Fiscal Year Source: City of Carlsbad Comprehensive Annual Financial Reports 123 CITY OF CARLSBAD Schedule of Assessed Valuation Last Ten Fiscal Years Less Property Fiscal Year Secured Property Unsecured Property Exemptions 1993-94 $ 5,858,987,695 $ 270,120,519 $ 36,151,898 1994-95 5,673,354,814 288,206,831 40,417,338 1995-96 5,676,061,219 310,402,764 46,279,594 1996-97 5,811,751,594 348,706,124 55,138,448 1997-98 6,232,883,670 352,854,173 57,681,797 1998-99 7,154,426,710 424,962,226 78,827,023 1999-00 8,675,347,964 419,824,253 85,462,447 2000-01 10,289,895,123 422,862,440 95,111,634 2001-02 11,586,003,633 519,294,090 115,461,551 2002-03 12,801,430,765 487,682,538 131,448,341 Does not include redevelopment incremental valuation or State-assessed unitary values. Source: County of San Diego Office of the Auditor and Controller 124 Total Homeowner's Net Assessed Assessed Valuation^1' Exemptions Valuation $ 6,092,956,316 $ 94,519,630 $ 5,998,436,686 5,921,144,307 96,173,142 5,824,971,165 5,940,184,389 98,488,810 5,841,695,579 6,105,319,270 100,249,766 6,005,069,504 6,528,056,046 103,825,400 6,424,230,646 7,500,561,913 108,623,200 7,391,938,713 9,009,709,770 119,026,600 8,890,683,170 10,617,645,929 127,530,200 10,490,115,729 11,989,836,172 139,157,200 11,850,678,972 13,157,664,962 147,953,400 13,009,711,562 NET TAXABLE VALUE LAST TEN YEARS $14 i" $12 •' CS> _- ._ _g $10--' « $8 • ^ ^ga ~ ^ J=m jam «m Hig $6 - ^ <^||| fsstja ^aa fssa ^m mr $0 M ^i ^J ^j -^J ^4 ^1TT in ^> t^ oo o\ o fZ • ^y. o oo o Percentage Change (1.1) (2.9) 0.3 2.8 7.0 15.1 20.3 18.0 13.0 9.8 f. t. rii Fiscal Year 125 Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 20 10 (Estimate) 2020 (Estimate) Square Miles 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 42.2 Population0' 66,481 66,652 66,479 68,010 70,532 73,688 77,550 82,030 83,469 88,013 90,271 102,739(2) 108,501(2) CITY OF CARLSBAD Demographic Statistics Last Ten Fiscal Years Population Percent Change 1.8 0.9 (0.2) 2.3 3.7 4.5 5.2 5.8 1.8 5.4 2.6 13.8 5.6 County Population'0 2,614,222 2,638,511 2,658,584 2,682,093 2,724,437 2,794,785 2,853,258 2,911,468 2,883,595 2,918,300 2,961,579 3,388,400<3) 3,863,500(3) City Population Percent of County 2.5 2.5 2.5 2.5 2.6 2.6 2.7 2.8 2.9 3.0 3.0 3.0 2.8 (1) Source: State Department of Finance. (2) Source: Based on City of Carlsbad projected residential construction estimates in 2003-2004 Capital Improvement Program. (3) Source: State Department of Finance Population Projections (May 2003). 100,000 -I" 90,000 - ' 80,000 • ' 70,000 - ' 60,000 • ' 50,000 • ' 40,000 • ' ' 30,000 - ' ' 20,000 • ' 10,000 -' POPULATION LAST TEN YEARS _^^ jam SI— -Jp•*ro\CT\ M V)o\0\ u iH •••• ";-| \o3 — p .'S 1 t^3 p l:y= 00a\o\ — p p a\o\o\ p si jfj. o >^ p #3 0o — p M !j^ i>* 30 p te t^§ - r Fiscal Year 126 CITY OF CARLSBAD Property Tax Levies and Collections Last Ten Fiscal Years Fiscal Year 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 $30 Y $25 • 'V)a03 $20 •'§ a $15 - ' £ f - $10-'oG $5 -' $0 -Mi- Total Current Lew $12,373,782 11,977,833 11,891,199 12,227,583 13,277,486 15,115,611 17,923,250 20,959,581 23,554,392 26,220,028 Total Current Collections $11,593,369 10,843,322 11,164,134 11,551,981 12,636,654 14,421,616 17,110,252 20,085,365 22,705,762 25,200,220 PROPERTY TAX LEVIES & COLLECTIONS LAST TEN FISCAL YEARS r*sat mm iiuiHJ »J PJ BJ i LI BJBJ HJ H- % of Levy Collected 93.7 90.5 93.9 94.5 95.2 95.4 95.5 95.8 96.4 96.1 |JU %ON ON Fiscal Year D LEVIES • COLLECTIONS Source: County of San Diego Office of the Auditor and Controller 127 CITY OF CARLSBAD Principal Employers 2002 - 2003 FIRM Manufacturing Callaway Golf Taylor Made Golf- Adidas Golf Company Acushnet Golf ViaSat Tyco-Healthcare Ashworth Modern Postcard/The Iris Group, Inc. Melles-Griot, Inc. Invitrogen Non-Man ufacturing Four Seasons Resort - Aviara LEGOLAND, California Carlsbad Unified School District La Costa Resort & Spa City of Carlsbad Gemological Institute of America 24-Hour Fitness SOMC Group, Inc. Wells Fargo Mortgage Resources ISIS Pharmaceuticals Grand Pacific Palisades PRODUCT/SERVICE EMPLOYEES Golf Equipment 2,500 Golf Equipment 727 Golf Equipment 540 Data Communications 465 Respiratory Products 450 Golf Apparel 350 Custom Promotional Cards 320 Laser Optics 300 Research Supplies 295 Resort 1,100 Family Theme Park 1,100 Education 875 Hotel/Health Spa 650 Municipal Government 603 Gemological School 500 Health Club Headquarters 450 Software Distributor 380 Banking 325 Research and Development 300 Hotel Mgmt/Timeshare Development 300 Source: City of Carlsbad, Chamber of Commerce 128 Taxpayer Callaway Golf Company Aviara Resort Associates La Costa Hotel & Spa Corporation Legoland California, Inc. Continuing Life Real Estate Collateral Mgmt. Co. Prentiss Properties Air Products & Chemicals H. G. Fenton Company Universe Institutional SSR Western MultiFamily, LLC Santa Fe Ranch LLC CITY OF CARLSBAD Principal Taxpayers 2002 - 2003 Type of Business Manufacturer Resort & Golf Course Hotel & Health Spa Family Theme Park Senior Retirement Community Real Estate Real Estate Manufacturer Distribution Warehouse Residential Apartment Rentals Real Estate Residential Apartment Rentals Valuation $178,033,606 127,260,300 125,837,967 105,000,000 95,321,386 69,264,936 68,418,264 63,640,951 61,714,726 51,711,630 47,853,207 46,039,800 $1,040,096,773 Percentage of Net Assessed Valuation(l) 1.4% 1.0% 1.0% 0.8% 0.7% 0.5% 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 8~0% (i)Net assessed valuation for 2002-2003:$13,009,711,562 Source: County of San Diego Office of the Auditor and Controller 129 CITY OF CARLSBAD Top 30 Sales Tax Generators 2002 - 2003 Firm Product/Service Aviara Resort Associates Banana Republic Bob Baker Jeep Bob Baker Volkswagen Carlsbad Toyota Carlsbad Volvo Costco Wholesale Discover Infiniti Carlsbad Dixon Ford Gap Outlet Hoehn Acura Hoehn Honda Invitrogen Corporation J C Penney Company Jim Finney Pontiac La Costa Resort & Spa Legoland Lexus Carlsbad Macy's Department Store Pacific Sales Kitchen & Bath Polo Ralph Lauren Outlet Reliable Wholesale Lumber Robinsons-May Department Store Rorick Buick/Cadillac Sears Roebuck & Company Townsend Lincoln/Mercury Toyota Motor Credit Vons Grocery Company Weseloh Chevrolet Worthington Dodge * Companies are listed in alphabetical order. Hotel/Food Sales Clothing Store Car Dealership Car Dealership Car Dealership Car Dealership General Stores Car Dealership Car Dealership Clothing Store Car Dealership Car Dealership Manufacturer of Research Supplies Department Store Car Dealership Hotel/Food Sales/Spa Family Theme Park Car Dealership Department Store Furniture/Appliance Clothing Store Building Materials Department Store Car Dealership Department Store Car Dealership Automobile Lessor Grocery/Food Markets Car Dealership Car Dealership Source: MBIA MuniServices Company 130 CITY OF CARLSBAD Miscellaneous Statistical Information 2002 - 2003 Date of Incorporation July 16, 1952 Type of City General Law Form of Government Council/Manager Area 42.19 sq. miles Population (CA Dept of Finance Report 01/01/03) 90,271 Net Assessed Valuation $13,009,711,562 Streets: Number of Street Lights 6,336 Miles of Streets 295 Fire Protection: Number of Stations 6 Number of Firefighters & Officers 73 Police Protection: Number of Stations 1 Number of Sworn Police Officers 107 Municipal Water District: Number of Customers 76,730 Number of Water Connections 24,500 Average Daily Consumption (in Millions of Gallons) 18.6 Miles of Lines and Mains 400 Miles of Sewers 149 Recreation and Culture: Number of Parks 39 Acres of Parks (Improved Community & Special Use Areas) 295 Acres of Open Space (Special Resource Areas & General City-Owned Open Space) 490 Number of Pools 1 Number of Libraries 2 Number of Materials in Circulation 319,032 Total Number of Authorized Full-Time City Employees 646 Source: City of Carlsbad, Finance Department 131