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HomeMy WebLinkAbout; ; 2006-2007 CAFR; 2007-06-30City of California 5610 I r e a t L n a a S n ,* t a L n a v a in m u n L Comprehensive Annual Financial Report For Fiscal Year Ended June 30, 2007 COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED JUNE 30, 2007 1635 Faraday Avenue, Carlsbad, CA 92008 Website: www. carlsbadca.gov Prepared by the Finance Department Introductory Section Financial Section Statistical Section CITY OF CARLSBAD Comprehensive Annual Financial Report Year Ended June 30, 2007 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 12 Location Map 13 List of City Officials 14 Organization Chart 15 FINANCIAL SECTION: Independent Auditor's Report 17 Management's Discussion and Analysis 19 Basic Financial Statements Government-wide Financial Statements: Statement of Net Assets 34 Statement of Activities 36 Fund Financial Statements: Balance Sheet - Governmental Funds 38 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets 40 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 42 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 44 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund 46 Statement of Net Assets - Proprietary Funds 48 Statement of Revenues, Expenses and Changes in Net Assets - Proprietary Funds 52 Statement of Cash Flows - Proprietary Funds 54 Statement of Fiduciary Assets and Liabilities - Agency Funds 58 Notes to the Financial Statements 59 Supplementary Information Combining and Individual Fund Statements and Schedules: Combining Balance Sheet - Nonmajor Governmental Funds 90 Combining Statement of Revenues, Expenditures and Changes in Fund Balances - Nonmajor Governmental Funds 94 Combining Schedule of Revenues and Expenditures - Budget and Actual (Budgetary Basis) - Special Revenue Funds 98 Combining Schedule of Revenue and Expenditures - Budget and Actual (Budgetary Basis) - Debt Service Funds 100 Combining Schedule of Revenue and Expenditures - Budget and Actual (Budgetary Basis) Capital Project Funds 100 Combining Statement of Net Assets - Internal Service Funds 102 Combining Statement of Revenues, Expenses and Changes in Net Assets - Internal Service Funds 104 Combining Statement of Cash Flows - Internal Service Funds 106 Combining Statement of Changes in Assets and Liabilities - Agency Funds 110 Schedule of Annual Debt Service Requirements 112 CITY OF CARLSBAD Comprehensive Annual Financial Report Year Ended June 30, 2007 TABLE OF CONTENTS (CONTINUED) v Page STATISTICAL SECTION: Financial Trends: Net Assets by Component - Last Six Fiscal Years 118 Changes in Net Assets - Last Six Fiscal Years 120 Fund Balances of Governmental Funds - Last Ten Fiscal Years 122 Changes in Fund Balances of Governmental Funds - Last Ten Fiscal Years 124 General Governmental Tax Revenues by Source - Last Ten Fiscal Years 126 Revenue Capacity: Water and Sewer Rates - Last Ten Fiscal Years 127 Assessed Value of Taxable Property - Last Ten Fiscal Years 128 Principal Property Taxpayers - Current Year and Nine Years Ago 129 Property Tax Levies and Collections - Last Ten Fiscal Years 130 Debt Capacity: Ratios of Outstanding Debt by Type - Last Ten Fiscal Years 132 Schedule of Direct and Overlapping Bonded Debt - Current Fiscal Year 135 Direct and Overlapping Debt - Last Ten Fiscal Years 136 Legal Debt Margin Information - Last Ten Fiscal Years 138 Pledged-Revenue Coverage - Last Ten Fiscal Years J40 Demographic and Economic Information: Demographic and Economic Statistics - Last Ten Fiscal Years 142 Principal Employers - Current Year and Nine Years Ago 144 Operating Information: Authorized Full and 3/4 Time City Government Employees by Major Service Area - Last Ten Fiscal Years 146 Operating Indicators by Function/Program - Last Three Fiscal Years 148 Capital Asset Statistics - Last Three Fiscal Years 149 COUNCIL VISION STATEMENTS Carlsbad City Council 2007 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... * Provides a 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. * Occupies a leadership role in local and regional planning, (e.g., water, beach, circulation, and environmental issues) important to local governments actively involved in addressing governmental issues at the local, state and national levels. * Provides an open government for the betterment of the community and encourages, in a non-partisan manner, active citizen participation and involvement with the City Council and the City's Boards and Commissions. And Carlsbad Efficiently and Effectively... * Delivers top-quality public services. * Manages its environment proactively, including: • Open space . Wildlife habitats . Water quality/conservation • Beach erosion • Air quality . Resource conservation and waste reduction * Promotes a safe and efficient integrated transportation system. * Maintains citywide "small town" community spirit. * Provides a community where continuous and life-long learning is supported and encouraged for people of all ages. * Looks ahead and works to anticipate changes that are required now in order to make a better future for its citizens. City of Carlsbad Finance Department November 29, 2007 Honorable Mayor, City Council. and Citizens of the City of Carlsbad CITY OF CARLSBAD Carlsbad, CA 92008 LETTER OF TRANSMITTAL 2006-07 COMPREHENSIVE ANNUAL FINANCIAL REPORT Honorable Mayor. City Council, and Citizens: I am pleased to present the 2006-07 Comprehensive Annual Financial Report for 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. 2007. Management assumes full responsibility for the completeness and reliability of the information contained in this report, based upon a comprehensive framework of internal controls that it has established for this purpose. Because the cost of internal controls should not outweigh its 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. State law and the City's Municipal Code require that an annual financial report is prepared. This report fulfills that obligation. It has been prepared in conformity with generally accepted accounting principles (GAAP) and with the financial reporting requirements prescribed by the Governmental Accounting Standards Board (GASB). The independent auditing firm of Mayer Hoffman McCann has issued an unqualified ("clean") opinion on the City of Carlsbad's financial statements for the year ended June 30. 2007. The independent auditor's report is located at the front of the financial section of this report. Management's Discussion & .Analysis (MD&A) immediately follows the independent auditor's report and provides a narrative introduction, overview, and analysis of the basic financial statements. MD&A complements this letter of transmittal and should be read in conjunction with it. 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 statements, but also on the audited 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 Compliance Reports and Other Financial Information. The results of the City's Single Audit for the fiscal year ended June 30, 2007 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 3 1635 Faraday Avenue - Carlsbad, CA 92008-7314 • (76O) 6O2-2430 • FAX (760) 602-8553 www.ci.carlsbad.ca.us • Business License (760) 602-2495 • Utility Billing (76O) 602-2420 • Purchasing (76O) 602-2460 - FAX (760) 6O2-8556 - Bid Line (76O) 602-2464 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 101,337, with an expected build-out population of 110,000 residents. Industries in the City include three shopping centers; a regional mall, a specialty outlet center and a community center; a major family theme park; an auto mall; over 3,700 hotel 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, the Carlsbad Public Financing Authority, and the Carlsbad Municipal Water District. Through these entities, Carlsbad provides a full range of services to its citizens and customers including: Carlsbad Police protection services Development services Fire and paramedic services Street construction and maintenance Water delivery system Library and arts programs Wastewater 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, in part, 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 that the City Manager annually prepare a budget for the City Council with a message describing important features, and assume responsibility 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 City of Carlsbad Strategic Goals Balanced Community Development - A city that connects community, place, and spirit through balanced and economically sustainable land uses. Citizen Connection & Partnership — A city that embraces Community connectivity through the effective use of technological and interpersonal mediums. Communication — Ensure that community members, Council and staff are well informed, continuing to be a more responsive government while providing a high level of citizen confidence in its government. Environmental Management — An environmentally sensitive community by focusing on: conservation, storm water, wastewater collection and treatment, solid waste, and cost-effective and efficient use of energy including alternative energy sources. Financial Health — Pursue and implement proactive strategies that support sustainable economic health and manage fiscal resources effectively. Learning, Culture & Arts — Promote and support continuous learning, cultural opportunities and the arts within the community and the City organization. Parks/Open Space/Trails - Acquire, develop, and maintain a broad range of open space and recreational facilities that actively address citizen needs, which are fiscally responsible, and are consistent with the General Plan and Growth Management Standards. Top-Quality Services - A city that provides exceptional services on a daily basis. Transportation/Circulation - Provide and support a safe and efficient transportation system that moves goods, services, and people through Carlsbad. Water — Ensure, in the most cost-effective manner, water quality and reliability to the maximum extent practical, to deliver high-quality potable and reclaimed water incorporating drought-resistant community principles. p m 1tt for the City. The City Council also provides the City with its top priority projects, which further defines the Council's vision. The goals and priority projects 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 fiscal 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. FACTORS AFFECTING FINANCIAL CONDITION tit 3 iH p» iii I 3 3 3 Economic Profile The University of San Diego (USD) tracks the San Diego economy through its Index of Leading Economic Indicators. The USD index tracks six items to evaluate growth trends in the San Diego economy: unemployment filings, want ads, local stock prices, consumer confidence, building permits and the strength of the national economy. The index declined in August 2007 by 1.4%, which makes the 16th consecutive monthly decline in the index in the last 17 months. The decline was primarily led by a weak housing market. The index reflects that local consumer confidence has fallen to its lowest level since October 2003. Index of Leading Economic Indicators Carlsbad's economy is tied closely to that of the San Diego region, although development patterns may differ. Carlsbad has experienced strong growth in Fiscal Year 2006-07 in property and Transient Occupancy Taxes (TOT). For Fiscal Year 2006-07, property taxes grew by 15%, reflecting the continued escalation in housing prices during Fiscal Year 2006-07, new development, as well as the return of $1.8 million in property taxes that the State of California took from the City of Carlsbad during Fiscal Years 2004-05 and 2005-06. TOT, the City's gauge of the tourism industry, ended Fiscal Year 2006-07 showing a 12% gain, with a large part of that coming from the reopening of a major portion of one of Carlsbad's premiere resorts, as well as reflecting a full year of the West Inn and Suites, which opened in May 2006. Sales taxes slowed during Fiscal Year 2006-07 due to the slower economy as well as a decline in auto sales, however, even with the slow down, an additional $600,000 came in over Fiscal Year 2005-06. Carlsbad's residential real estate market has slowed significantly throughout Fiscal Year 2006-07. The City issued 472 residential permits this year, a decrease from the 943 in the previous year. The number of permits declined due to a lack of supply and a slowing economy. There are a number of new residential communities under construction or in the final phases of development that will add to the residential housing stock in Carlsbad. The Villages of La Costa projects known as the Oaks North, the Greens and the Ridge are under construction, and will add approximately 970 single-family and 450 multi-family units. The Bressi Ranch area is almost complete with 523 single-family and 100 multi-family units developed. In addition, the Robertson Ranch area, which is expected to contain over 1,000 residential units, is finishing up tm ORIGINAL its master plan. The completion of these master planned communities will signal an end to the large-scale residential developments in Carlsbad. Median SFD Home Prices V)-ac.ro(/)3o.c 2004 2005 2006 As the housing market has cooled, the housing prices have slowed as well. The median price for single- family homes in Carlsbad was $777,000 for April 2006 compared to $750,000 for April 2007, a decrease of 3.5%. The total assessed values in the City stand at over $22 billion; an increase of nearly 58% over what they were just five years ago. With the new developments mentioned earlier starting to sell this year, the City has projected it will add about 2,117 more residential units and an additional 3.7 million square feet of commercial/industrial development over the next five years. The City's residential housing stock is about 90% built out, with approximately 4,658 housing units remaining to develop. Commercial and industrial development has been averaging 800,000 square feet per year. This is expected to remain about the same over the next five years to average 820,000 square feet per year with the large industrial developments including Carlsbad Raceway, Oaks North Industrial Park and the La Costa Town Center. Some of the major companies in town include the Gemological Institute of America, ViaSat, Invitrogen, Callaway, Taylor Made, Upper Deck, and many others. Commercial development has brought much needed entertainment and shopping venues to citizens and visitors alike, as well as generating additional sales taxes to help pay for City services. Carlsbad is home to Car Country Carlsbad - an auto mall; the Carlsbad Premium Outlets - a specialty outlet center; Plaza Camino Real - a regional shopping mall; a Costco center; and the Forum at Carlsbad - a commercial center with upscale retail shops, restaurants and other commercial uses. Development has also enhanced Carlsbad's reputation as a destination resort for tourism. The City is host to a major family theme park: Legoland, and has two luxury resorts available for its visitors: the Four Seasons Resort at Aviara and the La Costa Resort & Spa. There are also a number of other quality hotels and motels in the City, with the most recent addition being the West Inn and Suites, which opened in May 2006. The City of Carlsbad opened a municipal golf course in August 2007, which is expected to further enhance the tourism attractions the City offers. The municipal golf course, The Crossings at Carlsbad, is an 18 hole, destination golf course set in the rolling hills and canyons of Carlsbad. With ocean views, high quality golf experience, a first class restaurant and clubhouse, and linkages to hiking trails, The Crossings at Carlsbad will be a destination spot for golfers and non-golfers alike. For the future, there are several new tourist-serving projects in development. The La Costa Resort has been developing up to 197 commercial resort villas on their site, and part of the increases in TOT to date can be attributed to several of these villas coming on-line. As they are phased in over the next several years, it is expected to add over $1.4 million in TOT when completed. Two hotels near the airport are expected to open during Fiscal Year 2007-08. The two hotels are the Hampton Inn and Homewood Suites, located near the McClellan/Palomar Airport. They are expected to add 249 hotel rooms, bringing the total available hotel rooms in the City to over 3,700. These two new hotels are estimated to generate $500,000 per year in TOT. In addition, a new project next to Legoland is currently under construction and is expected to bring on 350 hotel rooms and 350 timeshare units. This project is expected to be phased in over time, and is expected to generate an additional $1.4 to $1.7 million per year in TOT. The City's base sales taxes are projected to grow by 1.8% for Fiscal Year 2007-08 due to the slowdown in the economy. While the growth in housing prices is expected to moderate due to the cooling of the real estate market, there is a lag with the property tax revenue and therefore, according to the County Assessor, the City should expect property tax revenues to increase by over 11% for Fiscal Year 2007-08. New building permits are expected to continue to slow and the development related revenue items have been reduced accordingly for Fiscal Year 2007-08. And finally, tourism is expected to continue to be strong, with TOT receipts projected to grow by over 6% in the future, with the addition of more available rooms. For Fiscal Year 2007-08, the City's revenue projections reflect a slowing of the economy due to a weak housing market, as well as higher oil and gas prices. Conservative increases are expected in most of the tax revenues with overall General Fund revenues increasing by 5.7%. One of the primary areas of risk in the forecast for Carlsbad is in the impact of the State of California's budget deficit discussed below. State of California In addition to the soft housing market and a slow economy, the State of California's fiscal problems also cast a shadow on the City's economic future: The State of California has been in a severe fiscal crisis for a number of years. Through a variety of loans, one-time revenues, interfund borrowings and raids on city, county and special district funds, the State has been **-—*' able to manage its cash flows and stay solvent. However, more drastic measures will be needed for the State to finally get its budget in balance. According to the Legislative Analyst's Office (LAO), the State is facing significant deficits in future years despite the stronger revenues seen in the past few years. The LAO's analysis of the Governor's budget proposal for 2007-08 reflects that the State is proposing to use a significant portion of their fund balance to cover their operating shortfall, and $3 to $5 billion shortfalls are expected to exist in each of the next several years. According to the LAO, the ongoing budget shortfalls result from the high reliance in the near term on one-time savings. The State has balanced its budget by taking City money in the past, and the risk is that they may find a way to make it happen again. As a result of the continued attacks on cities' revenues, a coalition of cities, counties and special districts supported Proposition 1A which was approved by the voters in November 2004. The measure included a provision to help prevent the Legislature from reducing the combined property tax shares of cities, special districts, and the county, except to borrow the funds on a temporary basis to address a "severe state fiscal hardship." 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 are either constructed along with development or 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 15+ 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 is setting 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. During Fiscal Year 2008, the City Council approved allocating $7.9 million or 6.5% of the General Fund revenues to the Infrastructure Replacement Fund. During Fiscal Year 2007, the City increased the allocation to the Infrastructure Improvement Fund from 4.0% of General Fund revenues to 6.5% of General Fund revenues due to the City's current financial strength, as well as the desire to plan for the future to create and maintain a sustainable community. In addition to these steps, the City prepares a ten-year financial forecast for the General Fund each year, in order to understand the effects of actions taken today on the City's future. The City has experienced strong revenue growth over the past ten years due to the development of the majority of its commercial sites. The future will bring a few more commercial sites but at a slower pace, while residential development is expected to slow over the next few years especially with the current weak housing market. There are also quite a few City facilities - mainly parks and civic facilities - planned in 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, including health care costs, have created upward pressure on expenditures, especially over the past several 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. General Fund Revenues and Expenditures Fiscal Year This forecast assumes that revenue growth will continue at a moderate pace in 2008 and into the future. To project the expenditures, the 10-year forecast includes all known personnel costs including any benefits negotiated with the employee groups. The forecast assumes 10% increases in health care costs in the near future, slowing to 5% in the future. It also assumes personnel growth (new positions) to remain rather flat at no more than 2% per year. Cost of living increases between 3% and 5% have been added to personnel costs. Pension plan costs are anticipated to remain essentially at current levels. It assumes that the contribution from the General Fund to the Infrastructure Replacement Fund remains at 6.5% of General Fund revenues. And finally, it includes estimated operating costs for General Fund capital projects in the timeframes shown in the Capital Improvement Program (CIP). One of the biggest assumptions in the forecast is that services as reflected in the Fiscal Year 2008 Adopted Budget will remain the same. No new services have been anticipated, although growth in current services to match the growing population and increases in the consumer price index have been incorporated. The results show that the General Fund is balanced into the future with a slight surplus in each year of 2% to 7% depending on which year. This achieves the goal set out by Council to maintain a balanced budget. The ability to understand the future impacts of both changes in revenue sources as well as program needs is crucial to ensure that the City has the funds available to make its future plans come true. The General Fund financial forecast is a tool available to the City to achieve the goal of managing its fiscal resources effectively and monitoring the achievement of 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 legal requirements and the Carlsbad Investment Policy. The City annually adopts a comprehensive investment policy specifying, among other things, investment objectives and strategy, type, and term of investments, reporting requirements, and investment oversight. The City's investments generally include federal agencies, corporate notes, and investments in the State Treasurer's investment pool. The modified duration of the investments in the City's investment pool as of June 30, 2007 was 1.686. The average return realized on the pooled investments rose from 3.98% in Fiscal Year 2005-06 to 4.37% for Fiscal Year 2006-07. Investment income shown in the financial statements includes changes in the fair value of investments as required under GAAP. 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. This is especially true as the City holds most of its investments to maturity rather than selling them at fair value. The graph at the right shows the amount of unrealized income reflected in the portfolio over the last few years. The total portfolio had an unrealized loss in Fiscal Year 2006-07. According to the City Treasurer, "The total portfolio had less of an unrealized loss in FY 06-07 than in FY 05-06. This unrealized loss occurred as investments with high interest rates matured and were reinvested in slightly lower market rates. It is likely that this trend will decline slightly in FY 07-08 as investments with higher interest rates are called and reinvested at today's lower market rates." Major Initiatives Public safety has always been, and remains, a top Council priority. After reviewing the current staffing requirements and the population growth in the City, it was evident that there was a need to add new Public Safety personnel to maintain the current service levels in the community. In Fiscal Year 2007-08, the Police Department added four positions to serve the public and the Fire Department added one position. Several significant projects are in design or under construction over the next few years. These include: • The Alga Norte- Park and Aquatic Center consists of 30 acres in the Southeast Quadrant with planned amenities that include ball fields, soccer fields, picnic areas, tot lots, a skate park, a dog park, restrooms, parking facilities, and an aquatic center. The aquatic center will include a 50-meter competition pool, a 12-lane instructional pool and a therapy pool as well as a water play area with slides. A swimming pool complex was one of the projects approved by the voters through Proposition C in 2002. The total cost of the park is estimated to be $22.1 million. The total cost of the aquatic center is estimated to be $28.3 million. At this time, construction is scheduled to start in early 2008. Construction will take approximately two years. Historical Unrealized Gains/Losses as Percent of Amortized Cost June 2002 - June 2007 | — Unreal SL%| V \\ ^~~~\^ ^, \^-""' Jur>02 Jun-04 Jun-05 Jun-06 JurvO? • The construction is complete on the City's new 18-hole golf course, The Crossings at Carlsbad. The golf course opened in the summer of 2007 and is located along the north side of Palomar Airport Road at Hidden Valley Road. The estimated cost for construction and start-up expenses are $55 million. This destination public golf course is 6,835 yards and includes a 28,000 sq. ft. clubhouse and a practice center. Half of the 400-acre site will be preserved for habitat and will help tie together more than 1,000 acres of Open Space in the central part of the City. The City has contracted with Kemper Sports Management (KSM) for operations of the course. • A 20,000 square foot community facility and gymnasium is planned for the Pine Park Community Center. The facility will include basketball, volleyball, gymnastics, multi-purpose rooms, meeting rooms, a teen center and office space. Design of this $9.4 million facility is expected to begin in Fiscal Year 2009-10 and construction is still scheduled to begin in Fiscal Year 2010-11. • Phase II of the 42-acre Poinsettia Park Community Center includes amenities such as a community facility/gymnasium, enclosed soccer field, tot lot, picnic areas, tennis complex including a clubhouse and stadium court, and additional parking. The total cost is expected to be approximately $12.5 million and the project is scheduled to start in Fiscal Year 2010-11. • Poinsettia Tennis Courts - Plans are currently underway to build seven tennis courts with lighting at the Poinsettia Park. The facility will also receive additional parking and construction is scheduled to begin in Fiscal Year 2008-09. The estimated cost of the Tennis Courts and Parking is $2.1 million. • The Public Works Center will include offices, shops, a yard, warehouse and parking to accommodate the Public Works Department. Initial estimates put the cost at approximately $27.3 million. • The Safety Training Center project was authorized under Proposition C, which was approved in 2002. Preliminary design work is currently underway. In addition to a shooting range, the facility may include a fire training tower, residential training prop, and a fire administration building with classroom and storage facilities. There is currently $950,000 budgeted for design only. Once the design is complete, the construction budget will be developed and funding sources will need to be identified. • The Library Learning Center will provide a permanent location for the Adult Learning and the Centre de Informacion programs. The existing building adjacent to Holiday Park will be remodeled and a second story, approximately 5,000 square feet, will be added for a total cost of $6.1 million. Fire Station No. 6 Relocation - Fire Station No. 6 is currently located in a temporary facility in the Southeast Quadrant of Carlsbad. The relocation of this station to a new 6,200 square foot permanent facility along the east side of Rancho Santa Fe Road is progressing and a contract has been awarded for construction. Total cost is approximately $5.8 million. This fire station is required to help ensure a five-minute response time within the southeast part of the City as development in that area occurs. 10 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, 2006. This was the ninth 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 GAAP 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. 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. I also appreciate the staff of Mayer Hoffman McCann 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, LISA IRVINE Finance Director 11 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, 2006 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 12 SOLANA BEACH DEL MAR I 1-5 13 CITY OF CARLSBAD ELECTED CITY OFFICIALS Claude A. "Bud" Lewis, Mayor Ann J. Kulchin, Mayor Pro Tem Matt Hall, Council Member Julie Nygaard, Council Member Mark Packard, Council Member Lorraine M. Wood, City Clerk Harold "Mac" McSherry, City Treasurer ADM1NISTRA TION AND DEPARTMENT HEADS Lisa Hildabrand, Interim City Manager James F. Elliott, Deputy City Manager Glenn Pruim, Public Works Director Sandra Holder, Community Development Director Tom Zoll, Police Chief Kevin Crawford, Fire Chief Ron Ball, City Attorney Julie Clark, Human Resources Director Greg Clavier, Public Works Manager, General Services Will Foss, Principal Building Inspector Debbie Fountain, Housing & Redevelopment Director Conrad "Skip" Hammann, Special Projects Director Lisa Irvine, Finance Director Robert Johnson, Deputy Public Works Director Erin Letsch, Risk Manager Donald Neu, Planning Director Gordon Peterson, Acting Information Technology Director Heather Pizzuto, Library Director Ken Price, Recreation Director Mark Stone, Deputy Public Works Director, Maintenance and Operations CHAIRPERSONS, COMMISSIONS AND BOARDS Heath Fox Arts Commission Richard Erhardt Beach Preservation Committee April Shute Carlsbad Tourism Business Improvement District Board Bob Bender Community Television Foundation Vacant Design Review Board Sue Ladouceur Historic Preservation Commission Vacant Housing Commission Claude A. Lewis Housing and Redevelopment Commission William Kamenjarin Library Board of Trustees Jim Craig Parks and Recreation Commission Donald Martin Personnel Board Julie Baker Planning Commission Jack Nelson Senior Commission Vacant Serra Cooperative Library System Advisory Board Jacquie Thye Sister City Committee Susan Gardner Traffic Safety Commission Vacant Underground Utility Advisory Committee 14 CITY OF CARLSBAD ORGANIZATION CHART , !Arts Commission Sister City Committee i DesignPersonnel Board Historic Preservation Commission ELECTORATE Beach Preservation Committee Housing [ mmission Library Board of TrusteesCITY TREASURERCITY CLERKCommunity Television Foundation ousingA , edevelopment iSerra Cooperative) Library System Advisory Board ,i Planning i Commission i Traffic Safety Commission Parks & Rec Commission CITY MANAGER CITY ATTORNEYUnderground Utility Advisory Committee i Carlsbad Tourism B.I.D. i Advisory Senior Commission PUBLIC SAFETY ADMINISTRATIVE SERVICES PUBLIC WORKS COM. DEVELOPME COMMUNITY SERVICES ADMINISTRATION & ENVIRONMENTAL PROGRAMS RECREATION ENGINEERING SERVICES HUMAN RESOURCES ECONOMIC DEVELOPMENT LIBRARY & THE ARTS INFORMATION TECHNOLOGY GENERAL SERVICES GEOGRAPHIC INFO SYSTEMS RISK MANAGEMENT MAINTENANCE & OPERATIONS HOUSING AND REDEVELOPMENT RECORDS MANAGEMENT Elected Council Appointed"-"' Staff Support Reporting Relationship— Programs Rev 1/19/06 16 Introductory Section Financial Section Statistical Section MHM Mayer Hoffman McCann P.C. An Independent CPA Firm Conrad Government Services Division 2301 Dupont Drive, Suite 200 Irvine, California 92612 949-474-2020 ph 949-263-5520 fx www.mhm-pc.com City Council City of Carlsbad, California Independent Auditors' Report 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, as of and for the year ended June 30, 2007, which collectively comprise the City's basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the management of the City of Carlsbad. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. 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, 2007, and the respective changes in financial position and cash flows, where applicable, of the City of Carlsbad, California and the respective budgetary comparison information for the general fund of the City for the year then ended in conformity with accounting principles generally accepted in the United States of America. The information identified in the accompanying table of contents as management's discussion and analysis and required supplementary information are not a required part of the basic financial statements, but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Carlsbad's basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and other schedules, and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements and other schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section 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. 17 MHM City Council City of Carlsbad, California Page Two In accordance with Government Auditing Standards, we have also issued a report dated November 19, 2007 on our consideration of the City's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Vr&iur-i srf* sSv Irvine, California November 19,2007 m m 18 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, 2007. 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 1i 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. > Proprietary Fund Statements offer short- and long-term financial information about the activities the City operates like businesses, such as the water and wastewater 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 accompanied by 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 fund 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. . : ,... . . 'i * 1 .... 1 , Government- wide Financial Statements Fund Financial Statements Notes to the Financial Statements Summary Detail 19 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, wastewater, solid waste services and municipal golf course 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 Rental 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. These statements are presented on a modified accrual basis of accounting. A reconciliation between the long-term and short-term focus of the Government-wide Financial Statements is provided immediately following each statement. There are currently four governmental fund types being used by the City: the General Fund, special revenue funds, debt service funds and capital project funds. • 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, and are presented on an accrual basis of accounting. > 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, wastewater, trash and golf services. In both the Government-wide Financial Statements and the Fund Financial Statements, these funds are shown under business-type activities. 20 > We use internal service funds to report activities that provide services and supplies for the City's other programs and activities - such as fleet, self-insured benefits, and information technology. • 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 Assets and Liabilities. 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 as of June 30, 2007, as shown below, were $1.4 billion. The City's net assets increased by $102.9 million during the current fiscal year. Approximately 28% of this increase represents the degree to which increases in operating revenues have exceeded increases in operating expenses. Approximately 72% represents one-time capital grants and contributions received by the City for the purchase and acquisition of infrastructure and other capital assets. CITY OF CARLS BAD'S NET ASSETS (in millions of dollars) Governmental Business-Type Activities Current and other assets Capital as sets Total assets Long-term debt outstanding Other liabilities Total liabilities Net assets Invested in capital assets, net of related debt Restricted Unrestricted Total net as sets 2006 $432.4 617.6 1,050.0 13.1 23.0 36.1 604.1 212.1 197.7 $1,013.9 2007 $474.8 658.4 1,133.2 13.1 20.0 33.1 646.0 221.4 232.7 $1,100.1 Activities 2006 $99.4 250.5 349.9 15.9 13.8 29.7 234.5 107.9 (22.2) $320.2 2007 $109.0 305.4 414.4 54.0 23.5 77.5 253.6 47.2 36.1 $336.9 Total 2006 $531.8 868.1 1,399.9 29.0 36.8 65.8 838.6 320.0 175.5 $1,334.1 2007 $583.8 963.8 1,547.6 67.1 43.5 110.6 899.6 268.6 268.8 $1,437.0 Total Percentage Change 2006-07 9.8% 11.0% 10.6% 131.4% 18.2% 68.1% 7.3% -16.1% 53.2% 7.7% 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 $1.4 billion at the close of the most recent fiscal year. A large portion of the City's net assets (63%) reflects its investment in capital assets (i.e., land, buildings, machinery, equipment, and infrastructure), less any related debt used to acquire those assets that are 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 in 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. An additional portion of the City's net assets (19%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets ($268.8 million) may be used to meet the government's ongoing obligations to citizens and creditors. 21 Just under 59% of the $232.7 million in unrestricted governmental activities net assets is attributable to the General Fund. Unrestricted net assets for the City's business activities increased by $58.3 million during Fiscal Year 2006- 07. Beginning in Fiscal Year 2006-07, the City began reflecting funds set aside for the replacement of water and wastewater infrastructure as unrestricted net assets, since these funds are not restricted per the GASB. The deficit unrestricted net assets at the end of Fiscal Year 2005-06 were the result of the General Fund advancing money to the Golf Course and Solid Waste funds. Changes in Net Assets The condensed summary of activities, which follows, shows that net assets increased by $102.9 million during the year. This increase occurs when spending is less than the revenues received. There were several reasons for the increase in net assets: an emphasis on efficiencies resulting in a reduction in expenses/expenditures, $15.5 million in "savings" in the General Fund being carried forward into the new fiscal year by 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 and enterprise funds for future capital project construction and acquisition, revenues received in the City's special revenue funds for future services and programs, and the donation of infrastructure assets from developers. CITY OF CARLS BAD'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 fromproperty 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 Wastewater Other business-type activities Total expenses Excess (deficiency) before transfers Transfers Increase (decrease) in net assets Beginning net assets Ending net as sets 2006 $18.1 12.1 39.3 43.9 25.4 21.9 11.7 1.3 173.7 15.4 35.8 14.3 16.8 36.0 1.0 - - - 119.3 54.4 (0.3) 54.1 959.8 $1,013.9 2007 $17.2 17.6 49.3 49.3 27.4 22.6 21.5 1.3 206.2 12.3 38.3 13.9 17.9 37.3 0.7 - - - 120.4 85.8 0.4 86.2 1,013.9 $1,100.1 Activities 2006 $28.2 0.7 11.2 2.3 - - 3.5 0.1 46.0 - - - - - - 24.1 8.3 4.2 36.6 9.4 0.3 9.7 310.5 $320.2 2007 $31.7 2.3 25.1 2.5 - - 7.6 - 69.2 - - - - - - 40.4 9.6 2.1 52.1 17.1 (0.4) 16.7 320.2 $336.9 Total 2006 $46.3 12.8 50.5 46.2 25.4 21.9 15.2 1.4 219.7 15.4 35.8 14.3 16.8 36.0 1.0 24.1 8.3 4.2 155.9 63.8 - 63.8 1,270.3 $1,334.1 2007 $48.9 19.9 74.4 51.8 27.4 22.6 29.1 1.3 275.4 12.3 38.3 13.9 17.9 37.3 0.7 40.4 9.6 2.1 172.5 102.9 - 102.9 1,334.1 $1,437.0 Total Percentage Change 2006-07 5.6% 55.5% 47.3% 12.1% 7.9% 3.2% 91.4% -7.1% 25.4% -20.1% 7.0% -2.8% 6.5% 3.6% -30.0% 67.6% 15.7% -50.0% 10.6% 61.3% 61.3% 5.0% 7.7% 22 t i i City of Carlsbad Sources of Revenue for Fiscal Year 2006-07 $275.4 Million Grants/ Contributions (25%) Income from Property and Investments (11%) Other Taxes (3%) TOT (5%) Other (1%) Property Taxes (19%) Charges for Services (18%) Sales Tax (10%) Federal Aid (6%) State Aid (2%) Just over 48% of the revenues of the City's governmental funds are generated through taxes collected (property, sales, transient occupancy tax, etc.), and just under 46% of the City's business-type revenue is generated through charges for services. The chart to the right graphically depicts the City's revenue sources. A major factor in the large increase in operating grants and contributions was the $6.3 million reimbursement the City received from the Federal Highway Administration for reimbursement of the 2005 winter storm damage in the City. In addition, developers in La Costa Greens, La Costa Oaks, La Costa Ridge, Calavera Hills, and Bressi Ranch contributed over $48 million in infrastructure to the City in Fiscal Year 2006-07, accounting for the large increase in capital contributions. Income from property and investments was impacted by a 41% increase in the fair market value of investments adjustment made at June 30, 2007 as compared to the previous year end adjustment (GASB 31 application), a 10% increase in the average yield on the Treasurer's portfolio for the fiscal year, an overall increase in the City's total cash of just under 10% for the year, and interest earned by the General Fund on the advance from the City's General Fund to the Golf Course Fund. The total cost of all programs and services was just under $173 million in Fiscal Year 2006-07. Some of the significant factors affecting the change in expenses from Fiscal Year 2005-06 to Fiscal Year 2006-07 included the cost of the 2005 winter storms in the previous fiscal year (reduction in general government expenses), the transfer of tourism funding from the General Fund to the Carlsbad Tourism Business Improvement District Agency Fund (a reduction in Community Development expenses), the City settled a lawsuit regarding a landslide at the Marbella Condominiums for $11.3 million (increase in Carlsbad Municipal Water District expenses), the transfer of funds from the enterprise funds to the Self Insured Benefits Fund for the proposed funding of retiree healthcare costs as required under GASB 45 (an increase in CMWD and wastewater expenses), and the capitalization of interest expense on the construction of the golf course (a reduction in Golf Course Fund expenses). The City's expenses cover a range of services: Wastewater 6% General Government 7% General Government (7%) 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, the chief executive offices for the City and the Communications team. The Administrative Services group includes Finance, Human Resources, Information Technology, Risk and Records Management. Public Safety (22%) Public Safety has always been a top City Council priority. This 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. City of Carlsbad Functional Expenses for Fiscal Year 2006-07 $172.5 Million Public Safety 22% Community Development 8% Public Works 22% Community Services 10% 23 • Community Development (8%) The mission of Community Development is helping people build a strong community by guiding and facilitating high quality projects, preserving the environment, providing for diverse housing and employment, and maintaining a strong economic base. Community Development encompasses the Land Use Planning, Geographic Information Systems (GIS), Economic Development, the Hiring Center, Housing and Redevelopment, and Building Inspection. • Community Services (10%) Community Services consists of the Libraries, 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. • Public Works (22%) Public Works is responsible for building and maintaining all of the infrastructure assets of the City. This service area includes Engineering, Parks, Streets, Medians, Street Trees, the Buena Vista Channel, and Facilities Maintenance, Building Maintenance, Street Lighting and Traffic Sign and Signal Maintenance programs. • Water Operations (23%) The Carlsbad Municipal Water District, a subsidiary of the City of Carlsbad, provides potable and recycled water service to approximately 85% of the City (approximately 27,000 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 irrigation purposes. • Wastewater 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 (2%) Other expenses include costs associated with the City's Solid Waste division, the City's Storm Water Protection Program, development of the City's new municipal golf course, and interest expense of the City's long-term debt that is associated with governmental activities. The following sections will provide information about the operations of the governmental and business-type activities separately. Governmental Activities The increase in net assets for governmental activities was $86.2 million. This increase was generated by total revenues of governmental activities of $206.2 million ($84.1 million in program revenues and $122.1 million in general revenues) offset by $120.4 million in total costs of governmental activities and a $400,000 transfer in from the Water Fund. The table on the next page presents the total cost of each of the City's major programs, as well as each function's program revenue (fees generated by the activities, contributions, and intergovernmental aid). The net cost (the difference between adjoining bars in the graph) shows the financial burden that was placed on the City's taxpayers by each of these functions (costs covered by general revenues). 24 Governmental Activities Program Revenues and Expenses Rscal Year 2006-07 (in millions) ^ Program Revenues H Expenses General Public Safety Community Community Public Works Government Development Services 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 ($17.2 million), grants and contributions from other governments and organizations which subsidize certain programs ($66.9 million), and taxes and other revenues (such as income from property and investments) received by the City to pay for the "public benefit" portion, totaling $122.1 million. Program revenues exceed expenses in Public Works. The majority of Public Works revenues are used to acquire and build capital assets (versus covering operating expenses) that have not yet been constructed. Capital assets are generally constructed or purchased once sufficient revenue has been accumulated to pay for the cost. The City is currently in a developing or growing stage, and master plans are continuing to be designed to construct these new facilities, roads, parks, and other City-owned infrastructure. Business-Type Activities Business-Type Activities Program Revenues and Expenses Fiscal Year 2006-07 (in millions) ^ Program Revenues • Expenses Water Wastewater Solid Waste Program revenues for the City's business-type activities totaled $59.1 million for the year, while functional expenses equaled $52.1 million. The City golf course has recently been completed, so the program revenues and functional 25 expenditures are still minimal, and therefore not shown on the graph above. The course opened to the public in August 2007. Water program expenses are unusually high in Fiscal Year 2006-07 due to two one-time expenses previously mentioned: CMWD settled a lawsuit regarding a landslide at the Marbella Condominiums for $11.3 million and the Water funds transferred money to the Self Insured Benefits Fund for the proposed funding of retiree healthcare costs as required under GASB 45. Wastewater program revenues are higher than program expenses primarily due to capital contributions in the form of capital connection fees, and developer constructed assets donated to the City. Capital construction expenses are spread over the life of an asset as annual depreciation charges (program expenses). A more detailed discussion of each of the enterprises can be found in the Proprietary Funds Section. 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. In the current Comprehensive Annual Financial Report (CAFR), no changes were made in the reporting of any funds. 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 balances may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. Governmental Fund Balances (in millions) Reserved for Advanc. $418.1 Million to Other Funds ($66.6 million) s—^ "^N./ \ Undesignated ($110.5 million)Reserved for Other Purposes -^ ^ ($18.9 million) Designated for Future Continuing Appropriations ($110.0 million) Designated for Approved Capital Projects ($96.7 million) Reserved to Liquidate Contracts and Purchase Orders ($15.4 million) As of the end of the current fiscal year, the City's governmental funds reported combined ending fund balances of $418.1 million, an increase of $33.7 million in comparison with the prior year. Approximately 27% of this amount ($110.5 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 because it has already been committed (1) for future capital projects - 23%, (2) to liquidate contracts and purchase orders of the prior period - 4%, (3) for future programs - 26%, (4) advances to other funds - 16% or (5) for a variety of other restricted purposes - 4%. 26 The General Fund is the main operating fund of the City, and at the end of the fiscal year had a total fund balance of $122.6 million, an increase of $16.0 million. The unreserved fund balance portion of the General Fund was $66.1 million, of which $13.9 million was designated for future programs and service enhancements. The increase in revenues was primarily due to the effects of a strong housing market (both resales and the construction of new homes) during the past couple of years on property taxes, continued strength in the tourism industry and the expansion of the La Costa Resort & Spa (higher transient occupancy tax), reimbursements received from the Federal Highway Administration (FHWA) for the 2005 winter storm damage in the City, interest received from the Golf Course Fund on the advance from the General Fund, and unrealized gains on the City's investments (required to be reported under GASB 31). The largest factor in the decrease in license and permit revenues can be attributed to the slowdown in the building industry. For Fiscal Year 2006-07, 472 residential permits were issued, as compared to 943 permits issued during last fiscal year. Other financing sources revenue of $ 1.4 million represented the sale of a piece of residential property that was donated to the City last fiscal year. The increase in General Fund expenditures were driven by the following factors: • Normal salary and benefit increases. • An increase in police staffing and additional police overtime for added enforcement in downtown Carlsbad. • The purchase of a new and a reserve ambulance. • The proposed funding of retiree healthcare costs as required under GASB 45. • A large decrease in expenditures to repair severe damage caused by the heavy rains from the 2005 winter storms. • An increase in sidewalk, curb, gutter and street repairs. • Continued focus on traffic signal maintenance and battery backup upgrades. • Additional maintenance expenditures related to the newest City parks: Aviara Community Park and Hidden Canyon Park. • Additional funds transferred to the Infrastructure Replacement Fund for the future major maintenance and replacement of City infrastructure. GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES (in millions of dollars) IN FUND BALANCE Total Increase Percentage Total (Decrease) Rewnues Taxes Intergovernmental Licenses and permits Charges for services Fines and forfeitures Income from property and investments Miscellaneous Total rewnues Expenses General government Interdepartmental charges Public safety Community development Community services Public works Total expenses Excess (deficiency) before transfers Other financing sources (uses) Transfers Increase (decrease) in fund balance Beginning fund balance Ending fund balance 2006 $87.2 1.1 2.5 7.8 1.1 2.4 1.3 103.4 16.1 (2.6) 36.2 7.1 15.4 18.0 90.2 13.2 0.0 (6.0) 7.2 99.4 $106.6 2007 $94.1 9.3 2.1 7.6 1.3 5.9 0.7 121.0 17.8 (2.1) 39.6 6.9 16.4 20.3 98.9 22.1 1.4 (7.5) 16.0 106.6 $122.6 20( $6.9 8.2 (0.4) (0.2) 0.2 3.5 (0.6) 17.6 1.7 0.5 3.4 (0.2) 1.0 2.3 8.7 Change )6-07 7.9% 745.5% -16.0% -2.6% 18.2% 145.8% -46.2% 17.0% 10.6% -19.2% 9.4% -2.8% 6.5% 12.8% 9.6% 27 One major governmental fund, the Redevelopment Debt Service Fund, had a negative fund balance of just over $12.9 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. Over the past couple of fiscal years, the agency has begun to repay the $14.9 million advance back to the City's General Fund, as the tax increment collected within the redevelopment area grows. Of the six remaining major governmental funds, only one fund saw their fund balance decline during the fiscal year. The Assessment and Other Districts Funds purchased several large infrastructure assets including Poinsettia Lane, and Melrose Drive. The five remaining major governmental funds, which are all capital project funds, had increases in their fund balances during the year. These increases in fund balances are predominantly designated for the construction or purchase of future capital assets. Proprietary Funds The purpose of the City's proprietary funds is to provide short and long-term financial information about the City's business-type activities. The analysis focuses on the determination of operating income, changes in net assets (cost recovery), financial position, and cash flows. Business-Type Activities Operating Revenues and Expenses Rscal Year 2006-07 (in millions) ^ Op crating Revenues • Op crating Exp enses Water Wastewater Solid Waste The Carlsbad Municipal Water District (CMWD) funds had an operating loss of approximately $16.0 million for the year. Although water sales increased by almost 15% for the year from a combination of a 5% rate increase and an 8% increase in the number of units sold, CMWD also settled a lawsuit (including attorney costs) during the same time period regarding a landslide at the Marbella Condominiums for $11.3 million. Another factor impacting the expenses in the water funds was the transfer of $2.8 million from the CMWD funds to the Self Insured Benefits Fund (shown as general and administrative expenses in the financial statements) for the proposed funding of retiree healthcare costs as required under GASB 45. Increased fixed and variable costs from Metropolitan Water District and the San Diego County Water Authority (suppliers of the City's potable water), as well as increased depreciation expense due to newly constructed infrastructure assets, added to the operating loss for the year. In addition, the Carlsbad Water Recycling Facility was operational for all of Fiscal Year 2006-07, resulting in increased operating revenues and costs associated with the facility. The Wastewater Funds had an annual operating loss of approximately $1.4 million for the fiscal year. Total revenues from operations increased 16% from the previous year; the result of an 8.5% rate increase, as well as additional revenues received from the City of Vista to reimburse the City for their share of a wastewater project. However, the settlement costs with a contractor for the construction of a wastewater interceptor, increased depreciation expenses, the transfer of funds to the Self Insured Benefits Fund for the proposed funding of retiree 28 healthcare costs as required under GASB 45 (shown as general and administrative expenses in the financial statements), and higher wastewater plant operating costs, led to an operating loss for the year. Non-operating revenues (investment earnings) more than offset the operating loss, resulting in a gain of $ 1.7 million for the year. Solid Waste operations and the Storm Water Protection Program are combined on the City's financial reports, and showed a slight operating income for the year of $107,000. Revenues increased slightly in the current year by approximately 4%. This increase is the result of additional customers receiving solid waste services in the City, as the City did not increase solid waste fees during the year. Operating costs increased 12% due to inflationary increases, the expansion of the Storm Water Protection Program and enhanced Solid Waste and recycling efforts. The construction of the City's municipal golf course was nearly complete by the end of fiscal year, and opened to the general public in August 2007. The Golf Course Fund issued $18.5 million in bonds during the year, with the first debt service payment due in September 2007. During the construction phase of the project, the City capitalized a portion of the interest expense incurred on the loan from the City's General Fund, netting an interest expense of only $191,000 for the year. The loan from the City and the bond proceeds are anticipated to be repaid through user fees and other revenues of the golf course. If the golf course net revenue is not sufficient to cover the debt service payment, the General Fund will make the payment. Unrestricted net assets for the Water, Wastewater, and Solid Waste operations at the end of the year amounted to $81.8 million, or approximately a quarter of the net assets of these proprietary funds. These assets will be used for future rate stabilization efforts, any emergency situations and the replacement of infrastructure assets. Approximately 14% of the net assets of all the proprietary funds are restricted for future capital construction of new water and wastewater infrastructure assets. As the funding for the replacement of infrastructure assets is not restricted, it is reflected in the Statement of Nets Assets as unrestricted. However, the City accounts for these amounts in separate funds, and monitors the balances maintained to ensure that water and wastewater assets can be replaced when needed. The unrestricted net assets in the Golf Course Fund represent funds advanced from the City's General Fund that can be used for either the construction or pre-opening operating costs of the municipal golf course. General Fund Budgetary Highlights for Fiscal Year 2007 Management monitors revenues during the year and updates estimated revenue figures when new information is received by the City. Estimated revenues were increased during this year by $2.3 million to reflect the net effect of the following changes: • The impacts on TOT from continued strength in the tourism industry and the expansion of the La Costa Resort &Spa. • A slow down in the sale of new automobiles, affecting the City's sales tax revenues. • Increased charges for planning services from the development activities at Robertson Ranch. • A 10% increase in the average yield on the Treasurer's portfolio for the fiscal year. The increase from the total original expenditure budget to the final budget amounted to $5.3 million, due predominantly to: • The transfer of funds from the General Fund to the Self Insured Benefits Fund for the proposed funding of retiree healthcare costs as required under GASB 45. • Appropriating funds received from developers during the year for developer-funded studies. • Budgeted expenditures associated with new grant revenues. • Appropriating donations received. • Appropriating additional sales tax revenues received as a result of sales tax auditing. The difference between the final budgeted expenditures and the actual expenditures for the year on a budgetary basis of $15.5 million can be generally summarized as follows: 29 • $13.9 million in "savings" by the various major service areas within the City. Current year savings were generated from: > Unfilled vacancies. > Overall awareness of fiscal responsibility throughout the City. > Deferral of projects. <« $ 13.9 million in "savings" are planned to be used for: => Financial information system software upgrade. => Human resources information system software upgrade. => Additional technology and software upgrades at the various City facilities. => Future replacement of the Police Department's 800 MHz radios and department-issued guns. =^> Upgrading the heating and air conditioning systems at several City facilities. => Installation of energy retrofits at the Safety Center. => Continuing the installation of emergency backup systems in the City's traffic signals. => Construction of picnic shelters at Poinsettia and Calavera Parks. => Enhancing security features at the various parks throughout the City. • $1.6 million in unspent budget was not carried forward into Fiscal Year 2007-08. This represents items that, according to the City's Budget Policy, are outside of the normal Block Budgeting Program, and therefore are not eligible to be carried forward into the new fiscal year. For purposes of budgetary presentation, actual revenues have been adjusted to exclude unrealized gains and losses pursuant to GASB 31, and transfers in have been adjusted to reflect any transfer that was approved through the budget process as a revenue, but recorded as an advance in the financial statements; actual expenditures have been adjusted to include remaining encumbrances, 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 Fiscal Year 2006-07, the City had recorded an investment of just over $963.8 million in a broad range of capital assets, including park facilities, land, buildings, roads, bridges, drainage facilities, water and sewer lines, police and fire vehicles, and other maintenance equipment. This number includes infrastructure assets of the general government which are required per GASB 34. CITY OF CARLSBAD'S CAPITAL ASSETS (in millions of dollars) Governmental Business-Type Activities Land Construction in progress Buildings and other structures Improvements other than buildings Machinery and equipment Infrastructure Wastewater treatment facility Accumulated depreciation Total 2006 $128.6 101.4 69.5 28.3 23.0 409.7 - 760.5 (142.9) $617.6 2007 $128.1 111.3 70.2 30.2 26.5 447.0 - 813.3 (154.9) $658.4 Activities 2006 $8.7 77.7 16.9 5.6 1.5 169.6 39.5 319.5 (69.0) $250.5 2007 $8.7 81.4 20.2 5.6 2.0 216.3 44.9 379.1 (73.7) $305.4 Total 2006 $137.3 179.1 86.4 33.9 24.5 579.3 39.5 1,080.0 (211.9) $868.1 2007 $136.8 192.7 90.4 35.8 28.5 663.3 44.9 1,192.4 (228.6) $963.8 Total Percentage Change 2006-07 ($0.5) 13.6 4.0 1.9 4.0 84.0 5.4 112.4 (16.7) $95.7 Change 2006-07 -0.4% 7.6% 4.6% 5.6% 16.3% 14.5% 13.7% 10.4% 7.9% 11.0% 30 This year's major capital asset additions included: • Pipes, pump stations and appurtenances related to the new Recycled Water Flow Equalization Facility • Mahr Reservoir improvements • Calavera Hills pump station • Developer-dedicated streets, drainage facilities, traffic signals, water and sewer lines and streetlights • Completion of Hidden Canyon Park • Seismic retrofitting of the Carlsbad Blvd. bridge • Cole Library heating and air conditioning replacement • Construction of the municipal golf course • Construction of the library learning center • Construction of Pine Avenue Park • Development of the Coastal Rail Trail • Intersection improvements at El Camino Real and Faraday Avenue • Acquisition of the easterly extension of Poinsettia Lane, northerly extension of Melrose Drive and the widening of Palomar Airport Road • Continued development of Rancho Santa Fe Road In addition to carrying forward appropriations of $150.7 million for previously budgeted projects, the City's Fiscal Year 2007-08 capital budget appropriates an additional $32.8 million for capital projects. These additional appropriations are principally for park development, completion of the municipal golf course, construction of fire station #6, the pavement management program, Faraday Avenue extension, El Fuerte extension, Poinsettia Lane extension, miscellaneous street projects, Lake Calavera reservoir improvements, enhancing the sewer collection system, additional water lines, traffic signals, and miscellaneous civic projects, loans and 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 and in the City's Capital Improvement Program document, which can be obtained from the Finance Department. Long-Term Debt At year-end, the City had $67.1 million in bonds, certificates of participation, loans, capital leases and agreements, an increase of $36.0 million from last year, as shown in the table below. The increase in debt is attributable to additional loans made by the State Water Resources Control Board to the Carlsbad Municipal Water District for construction of the new recycled water facility, the issuance of $18.5 million in bonds for the construction of the City's new municipal golf course, and capital leases for the purchase of golf course equipment. 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 Installment purchase agreement Obligations under capital leases Less: Deferred charges/discounts Total 2006 $12.1 2.1 - - - - $14.2 2007 $11.7 1.4 - - - - $13.1 Activities 2006 $0.0 - 10.6 6.7 (0.4) $16.9 2007 $18.5 - 29.1 6.1 0.7 (0.4) $54.0 Total 2006 $12.1 2.1 10.6 6.7 - (0.4) $31.1 2007 $30.2 1.4 29.1 6.1 0.7 (0.4) $67.1 Total Percentage Change 2006-07 149.6% -33.3% 174.5% -9.0% 100.0% 0.0% 115.8% 31 Economic Factors and Next Year's Budgets and Rates for Fiscal Year 2007 • The State of California adopted its Fiscal Year 2007-08 Annual Budget with the following provisions affecting the City: > The State implemented the "Triple Flip" in Fiscal Year 2004-05, whereby the City's sales tax receipts were reduced by one-quarter, and this reduction was made up with property taxes equating to the same amount. This will continue in the 2007-08 Fiscal Year. > The "Triple Flip" swap will have no effect on the ultimate amount of revenue the City receives, but it will result in a delay in the timing of the receipt of money by the City. > No additional "contributions" from cities are included in the State's Fiscal Year 2007-08 Annual Budget. • Net assessed values in the City stand at almost $22.8 billion, more than double what they were just seven years ago. • PERS rates for the miscellaneous plan have increased slightly for Fiscal Year 2007-08 from 19.810% to 20.478%, and have increased from 27.572% to 28.462% for the safety plan. • Annual increases in the costs of health insurance. • The Encina power plant continues to be reassessed downward annually due to a reduction in electricity generated, affecting tax increment revenues in the South Coastal Carlsbad Redevelopment Area and the franchise fees received by the City. • The Consumer Price Index (CPI) for the western region of the United States for urban households increased by 3.0% during the twelve months ended November 30, 2006. • The total number of housing units in Carlsbad grew by 3.9% in Calendar Year 2006, impacting budgeted expenditures for Fiscal Year 2007-08. • Median home prices in Carlsbad have decreased by 3.5% from April 2006 ($777,000) to April 2007 ($750,000). • Due to the results of the subprime mortgage markets on mortgage defaults and foreclosures, forecasted revenues for development related activities have been reduced. • The expansion of the La Costa Resort and the addition of two new hotels will impact future TOT revenues. All of these factors were considered when preparing the City of Carlsbad's General Fund budget for Fiscal Year 2007-08. Budgeted expenditures are expected to increase 9.5% to $116.5 million. The increase is mainly due to an increase in the number of positions and other personnel costs. Personnel costs make up approximately 64% of the General Fund budget so any changes in these costs can have a significant effect on the total budget. In addition, the annual transfer to the Infrastructure Replacement Fund is being increased by $700,000, to a total of $7.9 million. The Habitat Management Program is a newly funded program in 2007-08, to address the maintenance and management of the City's various open space areas. The opening of Pine Avenue Park has impacted Fiscal Year 2007-08 budgets for both Community Services and Public Works. Adding to the adopted budget of $116.5 for the General Fund, just under $13.9 million in unspent Fiscal Year 2006-07 budgeted expenditures will be carried over to Fiscal Year 2007-08, as well as $6.7 million in open encumbrances as of June 30, 2007. As the City is approaching the build out of its remaining vacant land, the City is now ushering in a new era focusing on maintaining the City's infrastructure rather than building it. In an effort to address this issue, the City has developed an Infrastructure Replacement Fund (IRF). With this fund, the City sets aside money on an annual basis for major maintenance and replacement of its infrastructure. In the Fiscal Year 2007-08 Operating Budget, the City has budgeted a $7.9 million transfer from the General Fund to the IRF, an increase of $700,000 from the prior fiscal year, to meet future needs. During the current fiscal year, the unreserved, undesignated fund balance in the General Fund increased to $52.2 million due to the City of Carlsbad's fiscal discipline and a diverse economy. With the exception of the Public Facilities Construction Fund (PFF), there appears to be sufficient revenues projected to build the projects listed in the Fiscal Year 2007-08 Capital Improvement Program (CIP). A large increase in the cost of construction materials has occurred over the past three years, pushing up the cost of all of the City's projects. This cost escalation has contributed to the projected shortfall of $12.7 million at buildout in the PFF Fund. The PFF Fund shortfall at buildout in the Fiscal Year 2007-08 CIP is down from the $1.7.0 million projected at buildout in the Fiscal Year 2006-07 CIP. This was achieved by reevaluating the proposed projects to be funded 32 through the PFF Fund, and finding alternative funding sources for some of these projects. The PFF Fund is not anticipated to be in a deficit position until Fiscal Year 2011-12, and City staff will continue to monitor the projected deficit in this fund, and bring additional solutions forward at the appropriate time. This will allow projects to be constructed from this funding source while the City evaluates future options. The City's business-type activities reflect the following: • Water rates will be increasing on average by 9.0% in Fiscal Year 2007-08. • Sewer rates will be increasing on average by 10.6% in Fiscal Year 2007-08. • No projected significant changes in other revenue sources. • The Recycled Water Operations Fund budget reflects a 39% increase, or $ 1,039,000, to fund costs associated with the new treatment plant: operations, depreciation expense, and debt service on a loan from the State. • New state and federal mandated storm and wastewater programs are reflected in the Fiscal Year 2007-08 budgeted expenses for the Solid Waste and Wastewater Funds. • Other changes in the Enterprise funds are the result of inflation, depreciation increases due to expanding infrastructure, and increased costs for maintenance and repair of the City's infrastructure. • The opening of the City's new municipal golf course, The Crossings at Carlsbad. Contacting the City's Financial Management This financial report is designed to provide our citizens, taxpayers, customers, 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.carlsbadca.gov. 33 CITY OF CARLSBAD Statement of Net Assets June 30,2007 Primary Government ASSETS Cash and investments Receivables: Taxes Accounts, net Other Due from other governments Inventories Prepaid items Loan and reimbursement receivables Internal balances Subtotal Capital assets: Land Construction in progress Buildings and other structures Improvements other than buildings Machinery and equipment Infrastructure Wastewater treatment facility Less accumulated depreciation Total capital assets Total assets • Governmental Activities $ 405,761,515 6,766,669 287,861 604,145 196,438 160,601 344,389 13,046,133 47,664,837 474,832,588 128,132,931 ' 111,317,618 70,232,559 30,192,088 26,463,958 446,960,843 - (154,883,982) 658,416,015 $ 1,133,248,603 Business-type Activities $ 145,883,744 : 27,576 5,753,445 24,800 3,957,828 574,463 - 437,510 (47,664,837) 108,994,529 8,663,600 81,368,923 20,213,224 5,556,571 2,019,241 216,253,793 44,929,167 (73,662,803) 305,341,716 $ 414,336,245 : Total $ 551,645,259 6,794,245 6,041,306 628,945 4,154,266 735,064 344,389 13,483,643 - 583,827,117 136,796,531 192,686,541 90,445,783 35,748,659 28,483,199 663,214,636 44,929,167 (228,546,785) 963,757,731 $ 1,547,584,848 The notes to the financial statements are an integral part of this statement. 34 CITY OF CARLSBAD Statement of Net Assets (Continued) June 30,2007 LIABILITIES Accrued liabilities Accrued interest payable Due to other governments Estimated claims payable Deposits payable Deferred revenue Noncurrent liabilities: Due within one year Due in more than one year, net of deferred charges ($789,409) and unamortized discounts ($291,635) Total liabilities Governmental Activities $ 10,741,586 232,215 4,544,203 3,691,335 220,207 609,308 1,140,000 11,940,000 33,118,854 Primary Government Business-type Activities $ 15,030,781 : 683,646 6,462,505 - 556,646 787,063 2,170,065 51,792,051 77,482,757 Total $ 25,772,367 915,861 11,006,708 3,691,335 776,853 1,396,371 3,310,065 63,732,051 110,601,611 NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital assets Affordable, low and moderate income housing Habitat and agricultural mitigation management Other purposes Unrestricted Total net assets 645,995,515 178,559,169 30,355,963 7,669,890 4,848,987 232,700,225 $ 1,100,129,749 253,644,743 47,164,402 - - - 36,044,343 $ 336,853,488 899,640,258 225,723,571 30,355,963 7,669,890 4,848,987 268,744,568 $ 1,436,983,237 The notes to the financial statements are an integral part of this statement. 35 CITY OF CARLSBAD Statement of Activities For the Year Ended June 30,2007 Functions/Programs Primary government: Governmental activities: General government Public safety Community development Community services Public works Interest and fiscal charges on long-term debt Total governmental activities Business-type activities: Carlsbad Municipal Water District Golf course Wastewater Solid waste Total business-type activities Total primary government Expenses $ 12,272,953 38,326,632 13,859,714 17,913,230 37,277,807 688,352 120,338,688 40,383,346 199,846 9,590,391 1,901,244 52,074,827 $ 172,413,515 Charges for Services $ 1,193,997 4,169,570 4,158,250 2,638,930 5,083,289 - 17,244,036 22,186,138 - 7,506,653 1,966,477 31,659,268 $ 48,903,304 Program Revenues Operating Grants and Contributions $ 7,147,802 521,787 6,563,577 860,725 2,503,475 - 17,597,366 2,268,147 - - 28,244 2,296,391 $ 19,893,757 Capital Grants and Contributions $ 92,268 152,502 478,604 594,514 47,935,718 - 49,253,606 17,902,453 - 7,150,697 - 25,053,150 $ 74,306,756 General revenues: Property taxes Sales and use taxes Transient occupancy taxes Franchise taxes Business license taxes Real property transfer taxes Vehicle license taxes (VLF) Income from property and investments Other general revenues Transfers Total general revenues and transfers Change in net assets Net assets at beginning of year (as restated) Net assets at end of year pm m The notes to the financial statements are an integral part of this statement. 36 Net Revenue (Expense) and Changes in Net Assets Primary Government Governmental Activities $ (3,838,886) (33,482,773) (2,659,283) (13,819,061) 18,244,675 (688,352) (36,243,680) - - - - (36,243,680) 49,283,589 27,444,779 12,929,007 5,346,107 3,055,710 1,261,848 608,256 21,455,134 700,271 400,000 122,484,701 86,241,021 1,013,888,728 Business-type Activities $ - - - - - - 1,973,392 (199,846) 5,066,959 93,477 6,933,982 6,933,982 2,504,080 - - - - . - 7,620,346 34,198 (400,000) 9,758,624 16,692,606 320,160,882 Total $ (3,838,886) (33,482,773) (2,659,283) (13,819,061) 18,244,675 (688,352) (36,243,680) 1,973,392 (199,846) 5,066,959 93,477 6,933,982 (29,309,698) 51,787,669 27,444,779 12,929,007 5,346,107 3,055,710 1,261,848 608,256 29,075,480 734,469 - 132,243,325 102,933,627 1,334,049,610 $ 1,100,129,749 $ 336,853,488 $ 1,436,983,237 37 CITY OF CARLSBAD Balance Sheet Governmental Funds June 30, 2007 ASSETS Cash and investments Receivables: Taxes Other Accounts, net Due from other governments Inventories Prepaid items Restricted cash and investments Loans receivable Advances to other funds Total assets LIABILITIES AND FUND BALANCES Liabilities: Accrued liabilities Deposits payable Due to other governments Advances from other funds Deferred revenue Total liabilities General Fund $ 71,282,954 6,709,275 491,147 18,845 14,907 22,306 - - 107,377 63,331,246 $ 141,978,057 $ 4,916,475 97,664 1,497 - 14,373,590 19,389,226 Redevelopment Assessment Debt and Other Service Funds Districts $ 1,906,596 $ 18,894,822 44,797 11,816 753 - - - - - - $ 1,952,146 $ 18,906,638 $ - $ 861,197 - - 14,857,658 - 14,857,658 861,197 Community Facilities District No. 1 $ 53,917,264 1,398 - - - - - . - - $ 53,918,662 $ 226,831 - - - - 226,831 Fund balances: Reserved Unreserved: Designated, reported in: General Fund Special Revenue Funds Debt Service Funds Capital Project Funds Undesignated, reported in: General Fund Special Revenue Funds Debt Service Funds Capital Project Funds Total fund balances Total liabilities and fund balances 56,505,428 13,891,802 37,302 18,008,139 52,191,601 (12,905,512) 122,588,831 (12,905,512) 18,045,441 m M m 3,351,913 50,339,918 53,691,831 $ 141,978,057 $ 1,952,146 $ 18.906.638 $ 53.918.662 The notes to the financial statements are an integral part of this statement. 38 m m General Public Rancho Santa Other Capital Facilities FeRoad Governmental Construction Construction Project Funds $ 46,017,587 $ 46,563,603 $ 17,620,843 $ 118,807,535 11,199 101,182 191,895 - - 36,853 181,531 . 344,389 659,500 12,938,756 8,700,021 4,550,000 - 3,643,344 $ 54,909,503 $ 51,113,603 $ 17,620,843 $ 136,724,289 Total Governmental Funds $ 375,011,204 6,766,669 604,145 248,346 196,438 22,306 344,389 659,500 13,046,133 80,224,611 $ 477,123,741 $ 271,744 $ 67,181 $ 76,805 •$ 755,534 57,472 - 65,071 4,542,706 7,100,000 - 10,602,116 136,841 - - 39,101 408,585 7,224,653 4,619,511 11,461,822 10,215,423 5,195,423 733,173 24,818,864 9,166,025 51,412 23,119,705 38,693,527 12,268,159 41,134,823 - 23,318,869 431,709 21,165,790 - - 26,340,765 54,500,918 43,888,950 13,001,332 125,262,467 $ 54,909,503 $ 51,113,603 $ 17,620,843 $ 136,724,289 $ 7,175,767 220,207 4,544,203 32,559,774 14,549,532 59,049,483 100,857,526 13,891,802 9,166,025 51,412 183,564,271 52,191,601 23,318,869 (12,473,803) 47,506,555 418,074,258 $ 477,123,741 39 CITY OF CARLSBAD Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets June 30,2007 Total fund balances - governmental funds. $ 418,074,258 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 651,012,047 Internal service funds 7,403.968 Total capital assets 658,416,015 Internal service funds are used by management to charge the costs of fleet management, self insured benefits, 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 30,415,435 Internal service fund net assets included as part of total capital assets (7,403,968) Internal service fund net assets less capital assets 23,011,467 Accrued interest is not due and payable in the current period and, therefore, is not reported in the funds. (232,215) 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. 13,612,192 A portion of the taxes receivable is not available to pay for current-period expenditures and, therefore, is deferred in the funds. 288,932 A portion of accounts receivables are not available to pay for current-period expenditures and, therefore, is deferred in the funds. 39,100 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 (13,080,000) Net assets of governmental activities. $ 1,100.129,749 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 Balances Governmental Funds For the Year Ended June 30,2007 Revenues: Taxes Intergovernmental Licenses and permits Charges for services Fines and forfeitures Income from property and investments Contributions from property owners Donations Miscellaneous Total revenues Expenditures: Current: General government Less: interdepartmental charges 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 (under) expenditures Other financing sources (uses): Proceeds from the sale of property 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 General Fund $ 94,132,566 9,312,901 2,093,806 7,593,091 1,262,006 5,884,805 - - 766,964 121,046,139 17,853,903 (2,122,938) 39,580,593 6,906,995 16,455,238 20,274,163 - 704 30 98,948,688 22,097,451 1,364,511 13,960 (7,511,821) (6,133,350) 15,964,101 106,624,730 $ 122,588,831 Redevelopment Assessment Debt and Other Service Funds Districts $ 2,664,424 $ - _ - - 116,949 1,248,281 64,257 - - 2,781,373 1,312,538 75,000 - - 24,093 - - 9,660,737 420,000 1,249,346 1,693,439 9,735,737 1,087,934 (8,423,199) - (1,420,000) (1,420,000) (332,066) (8,423,199) (12,573,446) 26,468,640 $ (12,905,512) $ 18,045,441 Community Facilities District No. 1 $ 1,931,102 - - - - 2,768,208 512,235 - - 5,211,545 31,707 - - - - - 1,029,548 - - 1,061,255 4,150,290 - - - _ 4,150,290 49,541,541 $ 53,691,831 The notes to the financial statements are an integral part of this statement. 42 General Public Rancho Santa Capital Facilities Fe Road Construction Construction Project $ - $ - $ 1,730,707 29,406 2,992,991 . . . 2,536,759 2,844,428 900,195 4,254,017 1,034,340 . 19 4,267,485 7,127,851 4,927,526 - . . . - 2,745,636 1,422,530 2,707,012 . . 2,745,636 1,422,530 2,707,012 1,521,849 5,705,321 2,220,514 . (28,133) (28,133) 1,521,849 5,705,321 2,192,381 52,979,069 38,183,629 10,808,951 $54,500,918 $43,888,950 $13,001,332 Other . Governmental Funds $ 2,467,995 11,031,147 - 3,343,481 124,684 5,970,479 4,446,164 172,668 183,531 27,740,149 52,321 (28,000) 251,281 7,067,196 211,447 2,206,835 13,199,715 670,000 83,994 23,714,789 4,025,360 9,709,264 (800,091) 8,909,173 12,934,533 1 12,327,934 $125,262,467 Total Governmental Funds $ 101,196,087 25,097,152 2,093,806 10,936,572 1,386,690 22,270,104 10,311,013 172,668 950,514 174,414,606 18,012,931 (2,150,938) 39,831,874 13,998,284 16,666,685 22,480,998 30,765,178 1,090,704 1,333,370 142,029,086 32,385,520 1,364,511 9,723,224 (9,760,045) 1,327,690 33,713,210 384,361,048 $ 418,074,258 43 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 30,2007 Net change in fund balances - total governmental funds.$ 33,713,210 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 21,526,957 (11,945,841) Governmental funds do not reflect the donation of capital assets as revenues.30,430,119 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.(697,181) The repayment of the principal of long-term debt consumes the current financial resources of governmental funds but has no effect on net assets.1,090,703 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. .472,161 Unpaid interest income on advances to other funds is not a current financial resource, and therefore is not recognized as revenue in the funds.1,044,624 A portion of sales and use taxes previously recoginized in the Statement of Activities, but had been deferred in the funds. The net revenue of activities of internal service funds is reported with governmental activities. Other Change in net assets of governmental activities. 449,924 10,193,959 (37,614) $ 86,241,021 The notes to the financial statements are an integral part of this statement. 44 45 CITY OF CARLSBAD Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual General Fund For the Year Ended June 30, 2007 Revenues: Taxes Intergovernmental Licenses and permits Charges for services Fines and forfeitures Income from property and investments Miscellaneous Total revenues Expenditures: Current: General government Less: interdepartmental charges 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): Proceeds from the sale of property Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balance at beginning of year Fund balance at end of year Budgeted Original $ 94,498,000 1,670,500 1,736,000 6,851,621 978,700 3,291,700 968,250 109,994,771 19,670,229 (2,180,000) 41,791,571 9,832,295 21,699,019 24,953,435 704 30 115,767,283 (5,772,512) - - (7,727,821) (7,727,821) (13,500,333) 106,624,730 $ 93,124,397 Amounts Final $ 95,265,000 1,843,000 1,930,000 7,766,000 1,050,000 3,710,000 750,000 112,314,000 23,368,835 (2,180,000) 42,358,729 10,257,046 21,533,221 25,745,273 704 30 121,083,838 (8,769,838) (46,295) 149,960 (7,727,821) (7,624,156) (16,393,994) 106,624,730 $ 90,230,736 Actual Amounts (Budgetary Basis) $ 94,132,566 9,312,901 2,093,806 7,593,091 1,262,006 5,272,906 766,964 120,434,240 18,854,043 (2,122,938) 40,056,325 9,363,836 17,534,596 21,918,782 704 30 105,605,378 14,828,862 (46,295) 149,960 (7,727,821) (7,624,156) 7,204,706 106,624,730 $ 113,829,436 Variance With Final Budget - Over (Under) $ (1,132,434) 7,469,901 163,806 (172,909) 212,006 1,562,906 16,964 8,120,240 (4,514,792) 57,062 (2,302,404) (893,210) (3,998,625) (3,826,491) . - (15,478,460) 23,598,700 - - - . $ 23,598,700 The notes to the financial statements are an integral part of this statement. 46 CITY OF CARLSBAD Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual General Fund (Continued) For the Year Ended June 30, 2007 BUDGET-TO-GAAP RECONCILIATION Actual Amounts (Budgetary Basis) Revenues Actual amounts (budgetary basis) "available for appropriation" from the budgetary comparison schedule (previous page). 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. 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. Other financing sources (uses) Actual amounts (budgetary basis) "total other financing sources (uses)" from the budgetary comparison schedule (previous page). Differences - budget to GAAP: The sale proceeds of a City-owned parcel of land were not estimated in the City's operating budget. Some advances are budgeted for as transfers in for budgetary purposes, but reflected as advances for financial reporting purposes. Some advances are budgeted for as transfers out for budgetary purposes, but reflected as advances for financial reporting purposes. $ 120,434,240 611,899 $ 121,046,139 $ 105,605,378 (6,656,690) $ 98,948,688 $ (7,624,156) 1,410,806 (136,000) 216,000 $ (6,133,350) The notes to the financial statements are an integral part of this statement. 47 CITY OF CARLSBAD Statement of Net Assets Proprietary Funds June 30,2007 Business-type Activities - ASSETS Carlsbad Municipal Water District Golf Course Wastewater Current assets: Cash and investments Receivables: Taxes Accounts, net Due from other governments Inventories Total current assets Noncurrent assets: Cash and investments - restricted for debt service Accrued interest - restricted for debt service Loans and reimbursement receivables Subtotal Capital assets: Land Construction in progress Buildings and other structures Improvements other than buildings Machinery and equipment Infrastructure Wastewater treatment facility Less accumulated depreciation Total capital assets (net of accumulated depreciation) Total noncurrent assets Total assets $ 68,360,837 $ 6,145,923 $ 60,966,109 27,576 4,162,253 1,635,156 570,560 74,756,382 - - - 1,909,565 11,800,865 20,213,224 2,185,604 811,313 147,877,148 - (30,403,476) 154,394,243 154,394,243 $ 229,150,625 - 1,696 - - 6,147,619 2,100,846 3,500 - 2,104,346 5,075,228 60,523,167 - - 721,131 - - - 66,319,526 68,423,872 $ 74,571,491 - 943,206 2,322,672 3,903 64,235,890 953,706 21,300 437,510 1,412,516 1,678,807 9,044,891 - 3,370,967 486,797 68,376,645 44,929,167 (43,259,327) 84,627,947 86,040,463 $ 150,276,353 The notes to the financial statements are an integral part of this statement. 48 Enterprise Funds Solid Waste Totals Governmental Activities - Internal Service Funds $ 7,356,323 $ 142,829,192 $ 30,090,811 27,576 646,290 5,753,445 3,957,828 574,463 8,002,613 153,142,504 3,054,552 24,800 437,510 3,516,862 8,663,600 81,368,923 20,213,224 5,556,571 2,019,241 216,253,793 44,929,167 (73,662,803) 305,341,716 308,858,578 $ 8,002,613 $ 462,001,082 - 39,515 - 138,295 30,268,621 - - - . - - - 18,131,808 - - (10,727,840) 7,403,968 7,403,968 $ 37,672,589 (Continued) 49 CITY OF CARLSBAD Statement of Net Assets Proprietary Funds (Continued) June 30,2007 Business-type Activities - LIABILITIES Current liabilities: Accrued liabilities Accrued interest payable Due to other governments Estimated claims payable Current portion of long-term debt Deposits payable Total current liabilities Carlsbad Municipal Water District $ 12,209,078 277,836 3,678,661 - 1,399,163 163,972 17,728,710 Golf Course $ 1,226,756 275,683 - - 130,902 4,749 1,638,090 Wastewater $ 1,102,695 130,127 2,783,844 - 640,000 387,925 5,044,591 Noncurrent liabilities: Advance from other funds Deferred revenue Capital leases payable Loans payable Revenue bonds payable, net of deferred charges of $412,460 and unamortized discounts of $291,635 Installment purchase agreement, net of deferred charges of $376,949 Total noncurrent liabilities Total liabilities 27,696,616 46,576,618 568,209 18,419,175 787,063 5,108,051 27,696,616 45,425,326 65,564,002 67,202,092 5,895,114 10,939,705 NET ASSETS Invested in capital assets, net of related debt Restricted for: Capital assets Unrestricted Total net assets 125,298,464 18,285,570 40,141,265 $ 183,725,299 48,889,626 - (41,520,227) $ 7,369,399 79,456,653 28,878,832 31,001,163 $ 139,336,648 The notes to the financial statements are an integral part of this statement. 50 Enterprise Funds Governmental Activities - Solid Waste $ 492,252 - - - - - 492,252 1,088,219 - - - - _ 1,088,219 1,580,471 Total Proprietary Funds $ 15,030,781 683,646 6,462,505 - 2,170,065 556,646 24,903,643 47,664,837 787,063 568,209 27,696,616 18,419,175 5,108,051 100,243,951 125,147,594 Internal Service Funds $ 3,565,819 - - 3,691,335 - - 7,257,154 - - - - - - 7,257,154 - _ 6,422,142 $ 6,422,142 253,644,743 47,164,402 36,044,343 $ 336,853,488 7,403,968 - 23,011,467 $ 30,415,435 51 CITY OF CARLSBAD Statement of Revenues, Expenses and Changes in Net Assets Proprietary Funds For the Year Ended June 30,2007 Income (loss) before transfers and capital contributions Transfers in Transfers out Capital contributions: Capital restricted fees Developer constructed assets Other Change in net assets Total net assets at beginning of year (as restated) Total net assets at end of year 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: Encina plant operations Purchased water Depreciation Fuel and supplies Claims expense Small equipment purchases General and administrative Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Income from property and investments Interest expense and fees Intergovernmental Gain on sale of property Property taxes Total nonoperating revenues Carlsbad Municipal Golf Water District Course $ 21,534,226 $ - 5 _ 651,912 968,444 1,299,703 24,454,285 145,979 13,472,842 2,422,333 - - • 24,279,047 9,226 40,320,201 9,226 (15,865,916) (9,226) 3,425,320 399,234 (63,145) (190,620) - 2,361 2,504,080 5,868,616 208,614 Wastewater I 7,397,978 108,675 397,681 17,972 7,922,306 2,579,155 - 2,421,928 - - - 4,337,370 9,338,453 (1,416,147) 3,403,625 (243,907) - (8,031) - 3,151,687 (9,997,300) (400,000) 2,775,652 13,003,903 2,122,898 7,505,153 176,220,146 199,388 199,388 7,170,011 1,735,540 1,361,147 5,391,869 8,488,556 130,848,092 $ 183,725,299 $ 7,369,399 $ 139,336.648 The notes to the financial statements are an integral part of this statement. 52 Enterprise Funds Solid Waste $ - 1,966,477 28,244 13,865 2,008,586 - - - - - 1,901,244 1,901,244 107,342 392,167 - - - - 392,167 499,509 - - _ - - 499,509 5,922,633 $ 6,422,142 Totals $ 21,534,226 7,397,978 2,727,064 1,394,369 1,331,540 34,385,177 2,725,134 13,472,842 4,844,261 - - - 30,526,887 51,569,124 (17,183,947) 7,620,346 (497,672) • (5,670) 2,504,080 9,621,084 (7,562,863) - (400,000) 4,136,799 18,395,772 2,122,898 16,692,606 320,160,882 $ 336,853,488 Governmental Activities - Internal Service Funds $ - 20,907,968 331,012 21,238,980 - 1,388,520 1,052,850 3,254,867 534,035 6,545,026 12,775,298 8,463,682 987,139 - 43,552 (31,344) - 999,347 9,463,029 436,821 - _ - 294,109 10,193,959 20,221,476 $ 30,415,435 53 CITY OF CARLSBAD Statement of Cash Flows Proprietary Funds For the Year Ended June 30,2007 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) Increase (decrease) in deposits payable Net cash provided by operating activities Cash flows from noncapital financing activities: Operating subsidies and transfers to other funds Cash flows from capital and related financing activities: Proceeds from capital debt Capital contributions Purchases of capital assets Principal paid on capital debt Interest and other fees paid Property taxes received Net cash (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 Carlsbad Municipal Water District $ 20,498,747 (7,151,583) (5,897,787) (2,303,693) - (9,047,853) 7,593 (3,894,576) (400,000) 19,040,965 4,012,777 (8,812,883) (537,565) (268,821) 2,503,990 15,938,463 3,425,320 15,069,207 53,291,630 $ 68,360,837 Golf Course $ (9,226) - - - - - (9,226) 9,682,317 18,836,839 - (26,488,196) (22,020) (2,389,293) - (10,062,670) 395,621 6,042 8,240,727 $ 8,246,769 Wastewater $ 7,475,240 (4,735,741) (1,204,869) (1,039,221) - (1,201,028) - (705,619) - - 1,347,536 (3,737,312) (605,000) (352,821) - (3,347,597) 3,403,625 (649,591) 61,629,825 $ 60,980,234 The notes to the financial statements are an integral part of this statement. 54 Enterprise Funds Solid Waste $ 2,014,631 (854,952) (813,749) (292,416) - 42,109 - 95,623 - - - - - 392,167 Totals $ 29,988,618 (12,751,502) (7,916,405) (3,635,330) - (10,206,772) 7,593 (4,513,798) 9,282,317 37,877,804 5,360,313 (39,038,391) (1,164,585) (3,010,935) 2,503,990 2,528,196 7,616,733 Governmental Activities - Internal Service Funds $ 20,871,299 (4,850,911) (2,951,937) (747,950) (2,935,523) 331,012 - 9,715,990 436,821 43,552 (2,556,134) - - - (2,512,582) 987,139 487,790 14,913,448 8,627,368 6,868.533 130.030,715 21,463,443 $ 7.356,323 $ 144,944,163 $ 30,090,811 (Continued) 55 CITY OF CARLSBAD Statement of Cash Flows Proprietary Funds (Continued) For the Year Ended June 30,2007 Business-type Activities - Carlsbad Municipal Water District Golf Course Wastewater Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization Change in assets and liabilities: (Increase) decrease in receivables (Increase) in inventories (Decrease) increase in accrued liabilities (Decrease) increase in accrued interest payable Increase in due to other governments Increase in estimated claims payable Increase in deposits payable Net cash provided by 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: Cash and investments Restricted assets: Cash and investments Less investments not meeting the definition of cash equivalents: Investment contracts Cash and cash equivalents at end of year $ (15,865,916) $ 2,422,333 (9,226) $ (1,416,147) 2,421,928 (1,687,391) (23,303) 11,012,732 94,918 144,458 7,593 $ (3,894,576) $ (31,413) 930 (64,235) - (1,631,679) 14,997 (9,226) $ (705,619) $ 13,003,903 $$ 5,391,869 $ 68,360,837 $ 6,145,923 2,100,846 $ 60,966,109 953,706 (939,581) $. 68,360,837 8.246,769 $ 60,980,234 The notes to the financial statements are an integral part of this statement. 56 Enterprise Funds Governmental Activities - Internal Solid Waste Totals Service Funds $ 107,342 $ (17,183,947) $ 8,463,682 4,844,261 1,388,520 48,154 - (59,873) - - - $ 95,623 $ (1,670,650) (22,373) 10,888,624 94,918 (1,487,221) - 22,590 (4,513,798) $ (36,919) 57,579 279,628 - - (436,500) - 9,715,990 $ 18,395,772 $ 294,109 $ 7,356,323 $ 142,829,192 $ 30,090,811 3,054,552 - (939,581) -_ $ 7,356,323 $ 144.944,163 $ 30,090,811 57 CITY OF CARLSBAD Statement of Fiduciary Assets and Liabilities Agency Funds June 30, 2007 ASSETS Current assets: Cash and investments Receiveables: Taxes Other Prepaid items Total current assets $ 24,072,496 45,035 78,031 544,060 24,739,622 Restricted assets: Cash and investments Total assets LIABILITIES 6,716,274 31.455.896 Accrued liabilities Deposits held for others Total liabilities 629,395 30,826,501 31,455.896 The notes to the financial statements are an integral part of this statement. 58 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, the Carlsbad Public Financing Authority 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 Activities) 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. 59 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, as long as the expenditure reflects a near-term cash outflow. 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 Assessment and Other Districts capital project funds are used to account for capital projects financed by the issuance of assessment and community facility district bonds. The Community Facilities District No. 1 capital project fund is used to account for civic facilities, parks, 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 parks and fire stations necessitated by growth. The Rancho Santa Fe Road Project capital project fund is used to account for the amounts paid by developers and costs for the construction and improvements related to Rancho Santa Fe Road. 60 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 funds are 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 new municipal golf course. The Wastewater enterprise funds are used to account for the operation, maintenance, and capital facility financing of the City's wastewater system. The Solid Waste enterprise funds are used to account for the revenues and expenses of the City's solid waste source- reduction, recycling and storm water programs. Additionally, the City reports the following fund types: Internal Service funds account for fleet management, self insured benefits, information technology, risk management and workers' compensation services provided to other departments or agencies of the City. The Agency 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. Financial Accounting Standards Board (FASB) statements and interpretations 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. An exception to this general rule are the 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. 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. 61 CITY OF CARLSBAD Notes to the Financial Statements Note 1. Summary of Significant Accounting Policies (Continued) 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 Compensated absences are comprised of vacation payable for all City employees and vested sick benefits for certain former District employees. Vacation pay is payable to employees at the time used or upon termination of employment. For governmental funds, the cost of accumulated vacation expected to be paid in the next 12 months is recorded as a liability in the Self Insured Benefits internal service fund. Since the City caps the amount of vacation employees are allowed to have on the books at any point in time, for compensated absences recorded at June 30, 2007, 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, self insured dental program, 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. Unbilled services Unbilled water, wastewater and solid waste revenues of the enterprise funds are recognized as earned when the services are used. Capital assets Capital assets, which include land (including right-of-way), buildings, equipment and infrastructure assets (e.g., roads, bridges, traffic signals, water and wastewater 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 capital asset category upon completion. 62 CITY OF CARLSBAD Notes to the Financial Statements Note 1. Summary of Significant Accounting Policies (Continued) 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 Wastewater treatment facility (including equipment) 5-75 The City has capitalized all general infrastructure assets acquired or constructed in compliance with GASB 34. In addition the land upon which the streets and roads are constructed (right-of-way) has also been valued and capitalized. 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. Interfund transactions 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. Receivables and payables 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, 2007, the ambulance billing receivable allowance is equal to 40% of outstanding billings at June 30, 2007, and the trade and false alarm receivable allowance is equal to the total of all outstanding receivables that are over 90 days past due plus 30% of all remaining balances. The only exception to these rules are receivables that were subsequently paid or were known to be collectible at year-end, were not reserved for at June 30, 2007. Encumbrances Encumbrance accounting, under which purchase orders, contracts and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation, is employed as an extension of formal budgetary integration in the governmental funds. Unexpended and unencumbered 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. Encumbrances at year end are a portion of the reserved fund balance and are reappropriated the following year. Net assets Net assets represent the differences between assets and liabilities. Net assets invested in capital assets, net of related debt, consist of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings, used for the acquisition, construction or improvement of those assets. Net assets invested in capital assets, net of related debt, excludes unspent debt proceeds. Net assets are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. The City first applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net assets are available. 63 CITY OF CARLSBAD Notes to the Financial Statements Note 1. Summary of Significant Accounting Policies (Continued) Cash flows Statements of cash flows are presented for proprietary fund types. Cash and cash equivalents include all unrestricted and restricted highly liquid investments with original purchase maturities of three months or less. Pooled cash and investments in the City's Treasury represent monies in a cash management pool and such accounts are similar in nature to demand deposits. 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. Long-term 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. Pronouncements issued, not yet effective The GASB has issued several pronouncements that have effective dates that may impact future financial presentations. Management has not currently determined what, if any, impact implementation of the following statements may have on the financial statements of the City. • GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. • GASB Statement No. 49, Accounting and Financial Reporting for Polution Remediation Obligations • GASB Statement No. 50, Pension Disclosures. 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. 64 CITY OF CARLSBAD Notes to the Financial Statements Note 2. Budgetary Data (Continued) 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. For purposes of budgetary presentation, actual revenues have been adjusted to exclude unrealized gains and losses pursuant to GASB 31, and transfers in have been adjusted to reflect any transfer that was approved through the budget process as a revenue, but recorded as an advance in the financial statements. 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 Fund, special revenue funds except for the Tyler Court Apartments Fund, and debt service funds except for the Hosp Grove COPs. Accordingly, the revenues and expenditures for these two funds have been excluded from the budget basis financial statements. Annual operating 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 five types of risk: custodial (investments and cash deposits); concentration; default; event; and market or interest rate risk. The City of Carlsbad and its agencies invest a portion of its funds in an external investment pool known as the Local Area Investment Fund (LAIF). Management and oversight are the responsibility of the California State Treasurer. As of June 30, 2007, the LAIF performance report shows a fair value factor of .999545022. The City of Carlsbad's position in the LAIF pool is calculated as a percentage of the fair value of the City's shares to the fair value of the pooled shares. 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. 65 CITY OF CARLSBAD Notes to the Financial Statements Note 3. Deposit and Investment Risk (Continued) As of June 30, 2007 the City had the following investments in its portfolio: Treasurer's Pool investments U.S. agencies: Federal Home Loan Mortgage Corporation Federal Home Loan Bank Federal National Mortgage Association Federal Farm Credit Bank Federal Farm Credit Bank Subtotal U.S. agencies Corporate notes: Medium-term corporate notes Subtotal corporate notes LAIF Cash accounts Total Treasurer's Pool Fair Market Value 158,434,962 180,720,102 108,768,856 10,922,175 1,004,088 459,850,183 55,361,801 55,361,801 36,458,932 4,783,845 556,454,761 %of Total 28.4% 32.5% 19.5% 2.0% 0.2% 82.6% 9.9% 9.9% 6.6% 0.9% 100.0% Modified Duration 1.938 1.568 1.641 2.497 1.926 1.736 2.663 2.663 - - 1.686 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 Statement of Fiduciary Assets and Liabilities, Agency Funds Cash and investments Restricted cash and investments Total cash and investments 24,942,987 1,029,966 6,315 $ 582,434,029 $ 551,645,259 24,072,496 6,716,274 $ 582,434,029" 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. Investments are settled on a Delivery vs. Payment (DVP) in accordance with the third party custodial agreement. 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 pooled investments, which are pooled into funds collateralized with U.S. government securities (guaranteed) or U.S. agency securities (government sponsored). The California Code authorizes 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 Federal Deposit Insurance Corporation (FDIC) insured. 66 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, 2007, approximately 9.8% 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, 2007, the portfolio was in compliance with this requirement. Default credit risk Default credit risk is the risk that the issuer of the security does not pay either the interest or principal when due. 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). However, it is the City's policy to limit investments to the top two credit ratings (AAA and AA). As of June 30, 2007, approximately 5.5% of the investments in medium-term corporate notes did not have one of these two credit ratings. This investment had a credit rating of A+. This investment was made when the credit rating was 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 greater than U.S. federal agencies, 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 external 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, 2007, the average maturity of the LAIF investments was 176 days. LAIF is not rated; however, the City Treasurer considers the default credit risk of LAIF to be 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, 2007, the portfolio had a 0.6% loss 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 are equal to an amount that is not less than two-thirds of the current fiscal year's operating budget. The City met those requirements as follows: 1. As of June 30, 2007, the modified duration of the portfolio was 1.686. Modified duration is a prospective measure of the sensitivity of a fixed-income security's value to changes in market rates of interest. Modified duration identifies the potential gain/loss in value before it actually occurs. For example, 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 security's value will result. Investments with modified durations of one to three are considered to be relatively conservative. 2. As of June 30, 2007, maturities within one year exceeded the required minimum of $115,000,000 (two-thirds of current year operating budget for the City per the 2006-07 Operating Budget adopted by the City Council). 67 CITY OF CARLSBAD Notes to the Financial Statements Note 4. Due To and From Other Funds There were no amounts due from funds within the City to other funds within the City at June 30, 2007. 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, 2007: Advances From Advances To Amount General Fund General Fund General Fund Redevelopment Debt Service Funds Financing Districts Special Revenue Funds Enterprise Funds: Go If Course Solid Waste $ 14,857,658 808,751 46,576,618 1,088,219 (1) Special Revenue Funds: Capital Project Funds: Gas Tax Bridge and Thoroughfare Districts 3,643,344 Capital Projects Funds: Capital Project Funds: General Capital Construction Park Development 1,180,000 Planned Local Drainage Facilities 420,021 Public Facilities Construction 7,100,000 Public Facilities Construction Park Development 4,550,000 $ 80,224,611 Advances to and from other funds are primarily long term advances used to fund capital projects in advance of related revenues. (1) The advance between the General Fund and the Golf Course Fund is estimated to be repaid over a 35-40 year period through possible disposition of golf course assets and residual operating income from golf course operations. 68 CITY OF CARLSBAD Notes to the Financial Statements Note 6. Capital Assets Capital asset activity was as follows for the year ended June 30, 2007: Balance at July 1,2006 Increases Governmental activities: Capital assets, not being depreciated: Land (including right-of-way) Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Buildings Improvements, other than buildings Machinery and equipment Infrastructure Total capital assets, being depreciated Less accumulated depreciation for: Buildings Improvements, other than buildings Machinery and equipment Infrastructure Total accumulated depreciation Total capital assets being depreciated, net $ 128,582,931 101,370,353 229,953,284 69,476,635 28,273,684 23,073,418 409,728,105 530,551,842 (15,742,296) (3,928,141) (14,537,906) (108,668,872) (142,877,215) 387,674,627 $ 20,696,700 20,696,700 941,924 2,000,487 4,965,861 37,232,738 45,141,010 (1,433,374) (1,163,713) (2,025,427) (8,711,847) (13,334,361) 31,806,649 Decreases $ (450,000) (10,749,435) (11,199,435) (186,000) (82,083) (1,575,321) - (1,843,404) 28,080 70,956 1,228,558 - 1,327,594 (515,810) Balance at June 30, 2007 $ 128,132,931 111,317,618 239,450,549 70,232,559 30,192,088 26,463,958 446,960,843 573,849,448 (17,147,590) (5,020,898) (15,334,775) (117,380,719) (154,883,982) 418,965,466 Governmental activities capital assets, net $ 617,627,911 $ 52,503,349 $ (11,715,245) $ 658,416,015 69 CITY OF CARLSBAD Notes to the Financial Statements Note 6. Capital Assets (Continued) Business-type activities: Capital assets, not being depreciated: Land (including right-of-way) Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Buildings Improvements, other than buildings Machinery and equipment Infrastructure Wastewater treatment facility Total capital assets, being depreciated Less accumulated depreciation for: Buildings Improvements, other than buildings Machinery and equipment Infrastructure Wastewater treatment facility Total accumulated depreciation Total capital assets being depreciated, net Balance at July 1,2006 $ 8,663,600 77,740,020 86,403,620 16,941,971 5,556,571 1,475,229 169,637,849 39,510,985 233,122,605 (1,226,904) (2,285,743) (1,265,265) (39,664,940) (24,592,244) (69,035,096) 164,087,509 Increases $ 35,129,093 35,129,093 3,280,016 - 777,437 46,615,944 5,418,182 56,091,579 (354,658) (148,693) (63,145) (3,427,646) (850,119) (4,844,261) 51,247,318 Decreases $ (31,500,190) (31,500,190) (8,763) - (233,425) - - (242,188) 8,763 - 207,791 - - 216,554 (25,634) Balance at June 30, 2007 $ 8,663,600 81,368,923 90,032,523 20,213,224 5,556,571 2,019,241 216,253,793 44,929,167 288,971,996 (1,572,799) (2,434,436) (1,120,619) (43,092,586) (25,442,363) (73,662,803) 215,309,193 Business-type activities capital assets, net $ 250,491,129 $ 86,376,411 $ (31,525,824) $ 305,341,716 70 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 $ 540,691 Community development 202 011 Public safety 45 j ^932 Community services 1,891,422 Public works 8,859,735 Capital assets held by the internal service funds (charged to various functions based on their usage of the assets) 1,388,520 Total depreciation expense - governmental activities $ 13,334,361 Business-type activities: Wastewater $ 2,421,928 Water 2,422,333 Total depreciation expense - business-type activities $ _4,844,261 71 CITY OF CARLSBAD Notes to the Financial Statements Note 7. Accrued Liabilities Accrued liabilities were as follows Governmental activities: General Fund Assessment and Other Districts Community Facilities District No. 1 General Capital Construction Public Facilities Construction Rancho Santa Fe Road Project Other Governmental Funds Subtotals * Internal Service Funds Total governmental activities Business-type activities: Enterprise funds: Carlsbad Municipal Water District Golf Course Wastewater Solid Waste at June 30, 2007: Marbella Vendors and Salaries and Settlement/ Miscellaneous Benefits Legal Exp. $ 2,045,630 $2,870,845 $ 861,197 226,831 271,744 67,181 76,805 665,115 90,419 4,214,503 2,961,264 374,280 3,191,539 $ 4,588,783 $6,152,803 $ $ 590,836 $ 302,142 $11,316,100 1,226,756 1,037,080 65,615 157,050 63,673 Refuse Disposal Total $ - $ 4,916,475 861,197 226,831 271,744 67,181 76,805 755,534 • 7,175,767 3,565,819 $ - $10,741,586 $ - $ 12,209,078 1,226,756 1,102,695 271,529 492,252 Total business-type activities $ 3,011,722 $ 431,430 $11,316,100 $ 271,529 $15,030,781 * Internal service funds have been included with governmental activities on the Government-wide Statement of Net Assets. 72 CITY OF CARLSBAD Notes to the Financial Statements Note 8. Long-term Debt The folowing is a summary of changes in the principal balance of long-term debt for the year ended June 30, 2007: Governmental activities: Bonds Certificates of participation Obligations under capital leases Total governmental activities Business-type activities: Bonds Installment purchase agreement Loans payable Obligations under capital leases Less deferred charges Plus issuance discount Total business type activities Principal Balance at June 30, 2006 Additions Principal Balance at Due Within Reductions June 30,2007 One Year $12,065,000 $ 2,105,000 703 $ 420,000 670,000 703 $11,645,000 $ 440,000 1,435,000 700,000 $14,170,703 $1,090,703 $13,080,000 $1,140,000 $ 6,730,000 10,592,380 - 17,322,380 (437,443) - $18,540,000 - 19,040,964 721,131 38,302,095 (419,821) 296,839 $ 605,000 537,565 22,020 1,164,585 (67,855) 5,204 $18,540,000 6,125,000 29,095,779 699,111 54,459,890 (789,409) 291,635 $ 640,000 1,399,163 130,902 2,170,065 - - ; 16,884,937 $38,179,113 ; 1,101,934 $53,962,116 $2,170,065 Long-term debt at June 30, 2007 is comprised of the following issues: Governmental long-term debt Balance at June 30, 2007 1993 Carlsbad Housing and Redevelopment Commission Tax Allocation Bonds, principal due in amounts ranging from $440,000 to $1,000,000 on September 1 of each year through 2023. 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. Payable from redevelopment property tax increment revenues. 1997 Hosp Grove Refunding Certificates of Participation, principal due in amounts ranging from $700,000 to $735,000 on August 1 of each year through 2008, interest payable on August 1 and February 1 at rates varying from 4.60% to 4.70% per annum. Payable from the General Fund, with a required reserve amount of $659,500. Sub-total governmental long-term debt Less current portion Total long-term portion of governmental debt $ 11,645,000 1,435,000 13,080,000 1,140,000 $ 11,940,000 73 CITY OF CARLSBAD Notes to the Financial Statements Note 8. Long-term Debt (Continued) Balance at Business-type long-term debt June 30, 2007 2006 Carlsbad Public Financing Authority (Golf Course) Revenue Bonds, principal due in varying amounts ranging from $275,000 to $1,185,000 on September 1 of each year beginning in 2008 through 2036, interest payable on March 1 and September 1 of each year through 2036, at rates varying from 4.00% to 5.00% per annum. The required reserve amount is $1,238,325. Payable from golf course operating . revenues and lease payments by the City. $18,540,000 1997 Encina Financing Joint Powers Authority (EFJPA) Installment Purchase Agreement, principal due in varying amounts ranging from $640,000 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 4.90% to 5.25% per annum. The required reserve amount is $937,169. Payable from sewer user fees. 6,125,000 1993 Carlsbad Municipal Water District loan agreement with the State Water Resources Control Board. Principal is due in varying amounts ranging from $123,222 to $151,558 on November 30 of each year through 2013, interest payable on November 30 of each year at 2.90% per annum. Payable from recycled water user fees. 970,858 2005 Carlsbad Municipal Water District loan agreement with the State Water Resources Control Board. Principal is due in varying amounts ranging from $409,896 to $631,082 on June 1 of each year through 2025, interest payable on June 1 of each year at 2.50% per annum. Payable from recycled water user fees. 9,284,608 2006 Carlsbad Municipal Water District loan agreement with the State Water Resources Control Board. Principal is due in varying amounts ranging from $765,539 to $1,152,734 on April 1 of each year through 2027, interest payable on April 1 of each year at 2.30% per annum. Payable from recycled water user fees. 18,840,313 The Carlsbad Public Financing Authority has entered into several golf course maintenance equipment lease purchase agreements. As of June 30, 2007, the City has purchased maintenance equipment totaling $721,131. The lease term for each lease is 60 months, with an interest rate of 4.90%. The leases expire in April 2012. Payable from golf course operating revenues and lease payments by the City. 699, 111 Subtotal business-type long-term debt 54,459,890 Less unamortized discounts, issuance costs and deferred charges (497,774) Less current portion (2,170,065) Total long-term portion of business-type debt $51,792,051 74 CITY OF CARLSBAD Notes to the Financial Statements Note 8. Long-term Debt (Continued) The aggregate maturities of long-term debt are as follows: Governmental Activities Business-type Activities Year ended June 30: 2008 2009 2010 2011 2012 2013-2017 2018-2022 2023-2027 2028-2032 2033-2037 Principal $ 1,140,000 : 1,200,000 490,000 515,000 540,000 3,165,000 4,080,000 1,950,000 - - S 13,080,000 ! Interest $ 652,310 595,182 552,840 526,459 498,765 2,024,606 1,077,296 104,675 - - $ 6,032,133 Principal $ 2,170,066 2,413,296 2,497,342 2,587,515 2,664,481 11,630,794 10,253,688 10,637,708 4,215,000 5,390,000 $ 54,459,890 Interest $ 1,740,368 1,768,300 1,683,794 1,595,131 1,499,575 6,178,732 4,594,517 3,023,053 1,706,062 630,000 $ 24,419,532 Note 9.Rate Covenants The 1997 Encina Financing Joint Powers Authority Installment Purchase Agreement requires 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. The 2005 Carlsbad Municipal Water District loan agreement with the State Water Resources Control Board requires that the District set its charges for services and rates for fees each year at rates sufficient to produce net revenues (after paying the operating and maintenance expenses of the District, excluding depreciation) of at least 1.0 times debt service for that year. The 2006 Carlsbad Public Financing Authority (Golf Course) Revenue Bonds is required to set rates, fees and charges which, when added to other revenues received from the Authority, are at least sufficient to yield gross revenues which are sufficient to pay all operating and maintenance expenses estimated by the Authority, and the principal and interest on the bonds as they become due and payable, reserve requirements, and all other payments requried to meet any other obligations of the Authority. All rate covenants requirements were met for the year ended June 30, 2007. 75 CITY OF CARLSBAD Notes to the Financial Statements Note 10. Debt without Government Commitment In the opinion of City officials, the bonds listed below 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 bond. Accordingly, no liability has been recorded in the accompanying financial statements. Special assessment bonds As of June 30, 2007, the City has six series of Assessment District Bonds outstanding in the amount of $71,473,433. 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 Districts Agency funds. Community Facilities District No. 3 As of June 30, 2007, the City has Community Facilities District No. 3 (CFD #3) Bonds outstanding in the amount of $11,490,000. These bonds were issued under the provisions of the Mello-Roos Community Facilities Act of 1982 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 CFD #3 Agency fund. 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, 2007 is $24,590,000. 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 of the City has issued a $2,070,000 Industrial Development Revenue Bond. The total prinicpal amount oustanding as of June 30, 2007 is $1,568,000. Any costs relating to the issuance of the Bond, as well as the principal and interest payments, are to be paid by the private party benefiting from the bond issue. Hi •I Ml n 76 77 CITY OF CARLSBAD Notes to the Financial Statements Note 11. Fund Balances The following is a summary of reserved and unreserved fund balances as of June 30, 2007: Governmental Funds Fund Balances Redevelopment Assessment Community Debt Service and Other Facilities General Funds Districts District No. 1 107,377 22,306 49,719,055 Reserved for: Loans receivable Inventory Prepaid items Debt service Advances to other other funds* Flower fields preservation Library endowment Low and moderate income housing Encumbrances Totals Unreserved: Designated for approved capital projects Designated for continuing appropriations Totals Undesignated Total fund balances * Only reflects that portion of fund balance invested in interfund advances (the General Fund amount is net of $13,612,191 in deferred revenue for measurable but unavailable interest earned on such advances). 6,656,690 56,505,428 13,891,802 13,891,802 37,302 37,302 2,118,942 15,889,197 18,008,139 3,351,913 3,351,913 48,508,891 1,831,027 50,339,918 52,191,601 (12,905,512) $122,588,831 $(12,905,512)$ 18,045,441 $53,691,831 ppto i m 78 CITY OF CARLSBAD Notes to the Financial Statements Note 11. Fund Balances (Continued) Governmental Funds General Capital Construction $ 8,700,021 1,515,402 10,215,423 Public Facilities Construction $ 4,550,000 645,423 5,195,423 Rancho Santa Other Fe Road Governmental Project Funds $ - $ 12,938,756 344,389 659,500 3,643,344 935,000 250,000 3,564,862 733,173 2,483,013 733,173 24,818,864 Total $ 13,046,133 22,306 344,389 659,500 66,612,420 935,000 250,000 3,564,862 15,422,916 100,857,526 10,269,687 5,944,198 29,856,084 96,697,802 23,119,705 23,119,705 21,165,790 28,423,840 38,693,527 _ 6,323,961 12,268,159 _ 20,496,176 50,352,260 50,091,343 109,975,708 206,673,510 110,543,222 $54,500,918 $43,888,950 $13,001,332 $125,262,467 $418,074,258 79 CITY OF CARLSBAD Notes to the Financial Statements Note 11. Fund Balances (Continued) 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 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, 2007: Deficit Balance Debt Service Funds: Redevelopment Areas $ (12,905,512) Internal Service Funds: Risk Management (232,391) 80 CITY OF CARLSBAD Notes to the Financial Statements Note 13. Interfund Transfers Interfund transfers for the year ended June 30, 2007, consisted of the following: Fund Transfers In From Other Funds Transfers Out To Other Funds Major Funds: General Redevelopment Debt Service Funds Rancho Santa Fe Road Project Capital Project Fund Nonmajor Governmental Funds Enterprise Funds, Carlsbad Municipal Water District Internal Service Funds Totals $ 13,960 ! - - 9,709,264 - 436,821 B 7,511,821 1,420,000 28,133 800,091 400,000 - $ 10,160,045 S 10,160,045 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, (3) move revenues and expenditures to the appropriate funds, and (4) 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 Self Insured Benefits 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 catastrophic 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, 2007, the unencumbered fund equity for the Risk Management Self-Insurance fund was approximately ($232,000) due to the large increase in legal fees and expenses associated with a substantial property damage claim. Although there is currently insufficient cash in the fund to pay all existing and anticipated expenditures at June 30, 2007, additional cash will be available in the fund to cover these claims through the rates being charged during the 2007-08 Fiscal Year. Dental insurance coverage for City employees is administered by MetLife. Under the City's agreement with MetLife, MetLife will pay dental claims for each covered member, up to a maximum of $1,500 per calendar year. 81 CITY OF CARLSBAD Notes to the Financial Statements Note 14. Risk Management (Continued) The City is insured for workers' compensation claims by Continental Casualty. Continental Casualty provides coverage up to a maximum of $2,500,000 per occurrence for losses which exceed the City's self-insured retention of $1,000,000 per claim for police and fire employees, and $750,000 for all other employees. At June 30, 2007, the unrestricted fund equity for the Workers' Compensation Self-Insurance fund was approximately $2,592,000. The estimated claims payable reported at June 30, 2007 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. Settled claims did not exceed insurance coverage during the past two fiscal years. However, in Fiscal Year 2006-07, the City settled a large property damage claim related to the Marbella condominiums that exceeded the City's insurance coverage. The City has received some reimbursements from their insurance carrier for this excess amount, and continues to pursue additional recoveries. Changes in the estimated claims payable amounts in Fiscal Years 2006 and 2007 for the three internal service funds are as follows: Self-Insured Benefits fund: 2005 - 06 2006 - 07 Claims Beginning Balance Expense and Changes in Estimates Claim Payments Ending Balance 78,486 77,866 396,579 457,325 (397,199) (459,983) 77,866 75,208 Risk Management fund: 2005 - 06 2006 - 07 1,927,843 752,020 (551,681) 307,805 (624,142) (517,304) 752,020 542,521 Workers' Compensation fund: 2005 - 06 2006 - 07 3,613,777 3,297,948 934,484 887,759 (1,250,313) (1,112,101) 3,297,948 3,073,606 Note 15. Joint Ventures Encina Water Pollution Control Facilities The Encina Water Pollution Control Facilities (the Facilities) are wastewater facilities 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 Facilities. It is responsible for the management, maintenance and operations of the joint system. Ownership interests in the Facilities are determined by joint agreement at the time the assets are acquired. As of June 30, 2007, the Cities and Districts have the following approximate ownership interest: City of Carlsbad City of Vista Leucadia Wastewater District Vallecitos Water District Buena Sanitation District City of Encinitas 25% 22% 20% 20% 8% 5% 82 CITY OF CARLSBAD Notes to the Financial Statements Note 15. Joint Ventures (Continued) EWA's financial statements for the fiscal year ended June 30, 2006 (the latest available) reflect the following: Total assets $ 75,229,524 Total liabilities 2,945,630 Net assets S 72,283,894 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 income (before member billings) for the EWA totaled $63,539 in Fiscal Year 2006. The financial statements of the EWA can be obtained at 6200 Avenida Encinas, Carlsbad, California 92011 or at www.encinajpa.com. 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, 2007: Member City of Carlsbad Leucadia Wastewater District Agreement Balance $ 6,125,000 4,175,000 $ 10,300,000 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 Wastewater Enterprise Fund. The expansion of the Facility is shown as a capital asset of the Wastewater Enterprise Fund. 83 CITY OF CARLSBAD Notes to the Financial Statements 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 8% (9% for safety employees) of their annual covered salary. The City makes 7% of the required 8% contributions for non-safety employess, and 8% of the required 9% contributions for the City's safety employees. The City is required to contribute at an actuarially determined rate. For the year ended June 30, 2007, the employer contribution rate for the City of Carlsbad (as a percentage of covered payroll) was 27.572% for safety employees and 19.810% for miscellaneous employees. The contribution requirements of plan members and the City are established by PERS. In October 2006, the City was notified by PERS that the employer contribution rate for the City of Carlsbad (as a percentage of payroll) will be 28.462% for safety employees and 20.478% for miscellaneous employees for the fiscal year ended June 30,2008. Annual pension cost For Fiscal Year 2006-07, the City's annual pension cost (employer contribution) of $4,453,495 for safety and $5,746,407 for miscellaneous to PERS was equal to the City's required and actual contributions. For Fiscal Year 2006-07, the member contributions paid by the City and its employees were $1,475,551 for safety and $2,343,208 for miscellaneous. The required contribution was determined as part of the June 30, 2004, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) 7.75% investment rate of return (net of administrative expenses), (b) projected annual salary increases of 3.25% to 14.45% depending on age, service and type of employment, (c) 3.0% inflation factor, (d) payroll growth of 3.25%, and (e) individual salary growth that utilizes a merit scale varying by duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25%. Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into PERS. Subsequent plan amendments are amortized as a level percentage of pay over a closed 20-year period. Gains and losses that occur in the operation of the plan are amortized over a rolling period, which results in an amortization of about 6% of unamortized gains and losses each year. If the plan's accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30 year amortization period. Three-year trend information for PERS (safety) Annual Pension Fiscal Year Cost (Employer Percentage of Net Pension Ending Contribution) APC Contributed Obligation 6/30/05 $ 3,917,550 100% $ 6/30/06 4,152,149 100% 6/30/07 4,453,495 100% 84 CITY OF CARLSBAD Notes to the Financial Statements Note 16. Retirement Plan (continued) Three-year trend information for PERS (miscellaneous) Annual Pension Fiscal Year Cost (Employer Ending 6/30/05 6/30/06 6/30/07 Percentage of Contribution) APC Contributed $ 3,112,596 5,667,848 5,746,407 100% 100% 100% Net Pension Obligation cj> - - Required supplementary information Funded status Valuation Date 6/30/04 6/30/05 6/30/06 Funded status Valuation Date 6/30/04 6/30/05 6/30/06 of plan (safety) Entry Age Normal Accrued Liability $ 110,306,847 ! 123,237,518 136,506,300 Unfunded Actuarial Liability/ Value (Excess of Assets Assets) B 92,529,369 $ 17,777,478 102,021,173 21,216,345 111,646,998 24,859,302 Funded Status 83.9% $ 82.8% 81.8% Annual Covered Payroll 13,382,181 14,305,227 15,030,260 UAAL As a % of Payroll 132.8% 148.3% 165.4% of plan (miscellaneous) ' Entry Age Normal Accrued Liability $ 132,074,893 1 149,626,877 164,803,264 Unfunded Actuarial Liability/ Value (Excess of Assets Assets) $ 105,423,856 $ 26,651,037 117,576,007 32,050,870 131,137,658 33,665,606 Funded Status 79.8% $ 78.6% 79.6% Annual Covered Payroll 1 26,476,671 26,688,294 28,237,819 UAAL As a % of Payroll 100.7% 120.1% 119.2% 85 CITY OF CARLSBAD Notes to the Financial Statements Note 17. Postretirement Healthcare The majority of City of Carlsbad employees are under the City of Carlsbad defined contribution plan. The Carlsbad Municipal Water District has a defined benefit plan. Carlsbad Municipal Water District The first plan is for active and retired employees that were employed with the Carlsbad Municipal Water District (CMWD) at the time the District was acquired by the City. Per Resolution 614, all former employees of CMWD (including dependents) are eligible for postretirement health care benefits if they voluntarily retire after the age of 50, with no less than five years of service and whose age, combined with years of service, equals 70 or more. There are approximately eleven active and thirteen retired plan members as of June 30, 2006. 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. This plan is administered by the Association of California Water Agencies (ACWA). Expenditures were approximately $128,000 for post-retirement health care costs during Fiscal Year 2006-07. Based on an actuarial valuation performed as of June 30, 2006, the District's liability for the current and past service costs of these benefits is approximately $2,549,000. City of Carlsbad City of Carlsbad retirees are eligible for a postretirement healthcare subsidy. This plan is administered by the California Public Employees Retirement System (PERS). There are approximately 630 active and 93 retired plan members as of June 30, 2006. Surviving spouses of eligible retirees are eligible for the City subsidy. Surviving spouses/domestic partners of deceased active members are eligible for the City subsidy only if the employee had attained age 50 with five years of service. The City pays a monthly subsidy per eligible employee/retiree regardless of coverage elected: Calendar year 2006 $64.60 Calendar year 2007 80.80 Calendar year 2008 97.90 Thereafter, the subsidy is adjusted annually to reflect changes in the medical component of the Consumer Price Index. Expenditures for postretirement health care benefits are funded on a pay-as-you-go basis. Expenditures were approximately $86,000 for City subsidy payments during Fiscal Year 2006-07. Based on an actuarial valuation performed as of June 30, 2006, the City's liability for the current and past service costs of these benefits is approximately $5,404,000. The GASB recently issued Statement No. 45 to address the accounting and disclosure treatment for this type of plan. Effective with the fiscal year ending June 30, 2008, the City will be required to recognize postretirement health care costs on an accrual basis over a period approximating the employees' years of service, and to provide information about actuarial liabilities associated with these benefits, and whether and to what extent progress is being made in funding the plan. Jji anticipation of implementing GASB 45, the City transferred over the actuarial calculated liabities ($2,549,000 for CMWD employees and $5,404,000 for City employees) to the Self Insured Benefits special revenue fund at June 30, 2007. These amounts were shown as expenditures/expenses in the respective funds. The City is currently evaluating irrevocable trust options to invest these funds in, and is anticipating transferring these funds into this trust by the end of Fiscal Year 2008, in accordance with GASB 45. 86 CITY OF CARLSBAD Notes to the Financial Statements 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. Current fiscal year lease payments totaled $94,044. Minimum future rental payments under the operating lease as of June 30, 2007 are: 2008 $ 16,614 Total minimum future rental payments $ 16,614 Water purchase agreements On March 25, 1991, CMWD entered into a twenty year agreement with the Leucadia County Water District, to purchase recycled water to be used primarily for irrigation at the La Costa Resort & Spa golf course, and for other appropriate uses within the CMWD's boundaries. CMWD agreed to purchase of minimum of 394 acre feet of recycled water per fiscal year, at a basic price of retail potable water charged to residential users within the CMWD boundary. The current cost is $724.49 per acre foot or a minimum of $285,449 per fiscal year, regardless of the actual amount used. On August 5, 2003, CMWD entered into a twenty-two year agreement with the Vallecitos Water District, to purchase three million gallons per day (3,360 acre feet) of recycled water for uses throughout CMWD's boundaries. The agreement stipulates that CMWD pay for the actual operating costs of the Mahr Reservoir, which produces the water, since CMWD is the only customer of the water produced. The estimated operating costs for the period ended June 30, 2007 is $638,000. Note 19. Prior Period Adjustments The City adjusted the net book value of Carlsbad's interest in the Encina wastewater treatment facility to more accurately reflect the value disclosed in the Encina Wastewater Authority Annual Report as of June 30, 2006 (the latest available). In addition, the City adjusted the previously capitalized interest on the golf course project. The cumulative effect of these changes on the beginning net assets balance of business-type activities is as follows: Business-type Activities Net assets at July 1,2006 $ 335,063,262 Reduction in waste water treatment facility capital asset acquired value (3,298,307) Increase in wastewater treatment facility capital asset accumulated depreciation (12,431,540) Adjust the capitalization of interest expense on the golf course project 827,467 Net assets at July 1, 2006, as restated $ 320,160,882 87 p to M M *in 88 SUPPLEMENTARY INFORMATION 89 CITY OF CARLSBAD Combining Balance Sheet Nonmajor Governmental Funds June 30,2007 Special Revenue Funds ASSETS Cash and investments Receivables: Taxes Other Accounts, net Due from other governments Prepaid items Restricted assets, cash and investments Loan receivables Advances to other funds Affordable Housing $ 12,443,742 - 36,616 - - - - 9,949,406 - Community Development Block Grant $ 11,492 - - - 7,834 - -' 224,404 - Donations and Endowments $ 1,729,934 - - 3,000 - - - - - Financing Districts $3,016,176 - 9,489 7,342 - - - - - Gas Tax $ 5,734,261 - - - - - - 3,643,344 Total assets LIABILITIES AND FUND BALANCES $ 22,429,764 $ 243,730 $ 1.732,934 $ 3,033,007 $ 9,377,605 Liabilities: Accrued liabilities Deposits payable 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 12,858 $ 39,481 $ 30,551 $ 151,418 $ 58,898 808,751 12,858 9,949,406 39,481 30,551 960,169 224,404 58,898 3,643,344 2,550,862 9,584 9,907,054 22,416,906 $ 22,429,764 1 106,626 (126,781) 204,249 $ 243,730 935,000 250,000 20,339 133,474 363,570 1,702,383 $ 1,732,934 175,795 1,897,043 2,072,838 $ 3,033,007 2,912 2,946,264 2,726,187 9,318,707 $ 9,377,605 90 Special Revenue Funds Low and Habitat and Moderate Agricultural Income Management Housing $ 7,669,890 $ 3,948,583 11,199 188 2,764,946 $ 7,669,890 $ 6,724,916 Other Police Special Grants and Revenue Asset Funds Forfeiture $ 1,221,255 $ 725,422 6,695 $1,221,255 $ 732,117 Section 8 Rental Assistance $ 907,892 19,729 344,389 $ 1,272,010 Tyler Court Apartments Totals $ 1,253,889 $ 38,662,536 11,199 46,293 30,071 14,529 344,389 12,938,756 3,643,344 $1,253,889 $ 55,691,117 $ - $ 3,931 3,931 2,764,946 1,014,000 15,583 3,309,968 4,359,922 2,926,456 7,669,890 6,720,985 $ 7,669,890 $ 6,724,916 $ - $ 4,717 4,717 192 50,132 1,221,255 677,076 1,221,255 727,400 $1,221,255 $ 732,117 $ 21,468 32,470 53,938 344,389 12,398 861,285 1,218,072 $ 1,272,010 $ - $ 323,322 21,900 54,370 808,751 21,900 1,186,443 12,938,756 344,389 3,643,344 935,000 250,000 3,564,862 343,429 2,946,264 6,219,761 1,231,989 23,318,869 1,231,989 54,504,674 $1,253,889 $ 55,691,117 (Continued) 91 CITY OF CARLSBAD Combining Balance Sheet Nonmajor Governmental Funds (Continued) June 30,2007 ASSETS Cash and investments Receivables: Taxes Other Debt Service Fund Hosp Grove COPs $ 469,333 15,788 Capital Project Funds Bridge and Thoroughfare Districts $ 10,691,189 Grants and Other Funds $ 795,092 Infrastructure Replacement $ 28,598,181 Park Development $ 9,045,807 Accounts, net Due from other governments Prepaid items Restricted assets, cash and investments Loan receivables Advances to other funds Total assets LIABILITIES AND FUND BALANCES 14,270 659,500 $ 1,144,621 $ 10,691,189 $ 809,362 $ 28,598,181 S 9,045,807 Liabilities: Accrued liabilities Deposits payable 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 1,144,621 3,643,344 3,643,344 659,500 2,000 6,660,735 51,412 387,110 431,709 - 7,047,845 13,142 $ 21,939 $ 8,550 5,730,000 13,142 21,939 5,738,550 321,495 474,725 206,679 2,028,798 26,340,765 796,220 28.576.242 178,506 2,909,651 219,100 3,307,257 $ 1.144,621 $ 10,691,189 $ 809.362 $28,598,181 $9,045.807 92 Capital Project Funds Planned Local Drainage Facilities $ 10,312,096 _ 39,101 - - - - - - $ 10,351,197 Redevelopment Agency $ 1,507,556 _ - 6,782 - - - - - $ 1,514,338 Traffic Sales Tax/ Impact TransNet Projects $ 7,821,023 $ 10,904,722 .. - - 152,732 - - - - $ 7,973,755 $ 10,904,722 Totals $ 79,675,666 _ 39,101 6,782 167,002 - - - - $ 79,888,551 Total Other Governmental Funds $ 118,807,535 11,199 101,182 36,853 181,531 344,389 659,500 12,938,756 3,643,344 $ 136,724,289 $ 19,030 - 420,021 39,101 478,152 - - - - - - 168,421 6,488,951 3,215,673 - 9,873,045 $ 10,351,197 $ 199,424 10,701 - - 210,125 - - - - - 435,230 - 868,983 - 1,304,213 $ 1,514,338 $ 42,365 $ 127,762 - - - 42,365 127,762 - - - - - - 228,881 598,372 3,085,369 7,290,389 4,617,140 2,888,199 - 7,931,390 10,776,960 $ 7,973,755 $ 10,904,722 $ 432,212 10,701 9,793,365 39,101 10,275,379 - - - - - - 2,137,584 26,909,820 14,225,003 26,340,765 69,613,172 $ 79,888,551 $ 755,534 65,071 10,602,116 39,101 11,461,822 12,938,756 344,389 659,500 3,643,344 935,000 250,000 3,564,862 2,483,013 29,856,084 20,496,176 50,091,343 125,262,467 $ 136,724,289 93 CITY OF CARLSBAD Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds For the Year Ended June 30,2007 Special Revenue Funds Revenues: Taxes Intergovernmental Charges for services Fines and forfeitures Income from property and investments Contributions from property owners Donations Miscellaneous Total revenues Expenditures: Current: General government Interdepartmental charges 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 (under) 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 at end of year Affordable Housing $ 6,663 85,832 641,978 530,551 1,265,024 341,795 341,795 923,229 - 923,229 21,493,677 $22,416,906 Community Development Block Grant $ 257,599 92,382 349,981 360,657 9,479 370,136 (20,155) - (20,155) 224,404 $ 204,249 Donations and Endowments $ 95,254 172,668 2,495 270,417 82,675 199,860 8,233 290,768 (20,351) - (20,351) 1,722,734 $ 1,702,383 Financing Districts $ 2,111,582 141,761 3,000 2,256,343 (28,000) 2,206,835 2,178,835 77,508 - 77,508 1,995,330 $2,072,838 Gas Tax $ 1,801,889 279,172 2,081,061 3,102,511 3,102,511 (1,021,450) (7,500) (7,500) (1,028,950) 10,347,657 $ 9,318,707 94 Special Revenue Funds Habitat and Agricultural Management $ . - - 390,963 240,627 - - 631,590 - - 3,215 _ - - 3,215 628,375 - 628,375 7,041,515 $ 7,669,890 Low and Moderate Income Housing $ 666,106 - - - 187,252 - - - 853,358 - - 92,131 - - - 92,131 761,227 - 761,227 5,959,758 $6,720,985 Other Special Revenue Funds $ - - - 65,846 ' - - 65,846 30,000 - - - 11,587 - '- 41,587 24,259 (6,330) (6,330) 17,929 1,203,326 $ 1,221,255 Police Grants and Asset Forfeiture $ 198,621 - 124,684 38,178 - - - 361,483 - 251,281 - - - 70,671 321,952 39,531 1,651 (1,781) (130) 39,401 687,999 $ 727,400 Section 8 Rental Assistance $ 6,030,279 - - 12,462 - 14,354 6,057,095 - - 5,208,220 - - - 5,208,220 848,875 - 848,875 369,197 $1,218.072 Tyler Court Apartments Totals $ - $ 2,467,995 6,493,162 433,086 2,630,500 124,684 53,815 1,999,063 774,178 172,668 16,849 486,901 14,679,099 30,000 (28,000) 251,281 249,254 6,337,947 211,447 2,206,835 3,190,894 249,254 12,200,404 237,647 2,478,695 1,651 (15,611) (13,960) 237,647 2,464,735 994,342 52,039,939 $1,231,989 $ 54,504,674 (Continued) 95 CITY OF CARLSBAD Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds (Continued) For the Year Ended June 30, 2007 Debt Service Fund Capital Project Funds Bridge and Grants Hosp Grove Thoroughfare and Other Infrastructure Park COPs Districts Funds Replacement Development Revenues: Taxes Intergovernmental Charges for services Fines and forfeitures Income from property and investments Contributions from property owners Donations Miscellaneous Total revenues Expenditures: Current: General government Interdepartmental charges 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 (under) 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 71,653 71.653 $$ 528,841 1,230,503 961,518 64,234 243,001 166,682 1,438,352 1,759,344 1.435,435 1.438,352 7,359 14,962 433,845 28,504 1,788,278 291,417 594,514 885,931 1,152,472 670,000 .... 83,994 .... 753,994 (682,341) 275,000 275,000 (407,341) 1,551,962 $ 1,144,621 441,204 43,466 1,318,140 1,391,969 99,852 (712,761) (612,909) 1,318,140 779,060 5,729,705 17,160 $ 7,047,845 $ 796,220 1,788,278 (349,926) 7,200,000 7,200,000 6,850,074 21,726,168 $ 28,576,242 1,152,472 (266,541) - (266,541) 3,573,798 $ 3,307,257 96 <** Capital Project Funds Planned Local Drainage Facilities $ 21,793 - - 543,464 626,564 - - 1,191,821 - - - - - 467,752 - - 467,752 724,069 - 724,069 9,148,976 $ 9.873.045 Redevelopment Agency $ - 11,055 - 63,858 10,000 - - 84,913 - - 729,249 - - 299,819 - - 1,029,068 (944,155) 1,420,000 (71,719) 1,348,281 404,126 900,087 $ 1,304,213 Traffic Sales Tax/ Impact TransNet Projects $ - $ 3,554,674 701,926 - 378,714 590,883 967,404 - - 4,635,314 1,558,287 - - - - - 4,374,268 1,463,883 - - 4,374,268 1,463,883 261,046 94,404 712,761 - 712,761 973,807 94,404 6,957,583 10,682,556 $ 7,931,390 $10,776,960 Totals $ 4,537,985 712,981 - 3,899,763 3,671,986 - 166,682 12,989,397 22,321 - - 729,249 - - 10,008,821 _ - 10,760,391 2,229,006 9,432,613 (784,480) 8,648,133 10,877,139 58,736,033 $ 69,613,172 Total Other Governmental Funds $ 2,467,995 11,031,147 3,343,481 124,684 5,970,479 4,446,164 172,668 183,531 27,740,149 52,321 (28,000) 251,281 7,067,196 211,447 2,206,835 13,199,715 670,000 83,994 23,714,789 4,025,360 9,709,264 (800,091) 8,909,173 12,934,533 112,327,934 $ 125,262,467 97 CITY OF CARLSBAD Combining Schedule of Revenues and Expenditures Budget and Actual (Budgetary Basis) Special Revenue Funds Year Ended June 30, 2007 Affordable Housing Total revenues Total expenditures Net change in fund balance Community Development Block Grant Total revenues Total expenditures Net change in fund balance Donations and Endowments Total revenues Total expenditures Net change in fund balance Financing Districts Total revenues Total expenditures Net change in fund balance Gas Tax Total revenues Total expenditures Net change in fund balance Habitat and Agricultural Management Total revenues Total expenditures Net change in fund balance Low and Moderate Income Housing Total revenues Total expenditures Net change in fund balance Budget $ 977,000 486,444 490,556 682,000 687,512 (5,512) 194,000 462,904 (268,904) 2,301,862 2,624,263 (322,401) 2,074,752 5,791,540 (3,716,788) 3,317,853 (3,317,853) 806,000 142,049 663,951 Actual Amounts (Budgetary Basis) $ 1,154,897 351,379 803,518 349,981 476,762 (126,781) 252,120 311,107 (58,987) 2,260,573 2,382,630 (122,057) 2,021,017 3,105,423 (1,084,406) 561,484 3,215 558,269 824,970 107,714 717,256 Variance Over (Under) $ 177,897 (135,065) 312,962 (332,019) (210,750) (121,269) 58,120 (151,797) 209,917 (41,289) (241,633) 200,344 (53,735) (2,686,117) 2,632,382 561,484 (3,314,638) 3,876,122 18,970 (34,335) 53,305 (Continued) 98 CITY OF CARLSBAD Combining Schedule of Revenues and Expenditures Budget and Actual (Budgetary Basis) Special Revenue Funds (Continued) Year Ended June 30,2007 Other Special Revenue Funds Total revenues Total expenditures Net change in fund balance Police Grants and Asset Forfeiture Total revenues Total expenditures Net change in fund balance Section 8 Rental Assistance Total revenues Total expenditures Net change in fund balance Totals Total revenues Total expenditures Net change in fund balance Budget $ 73,000 52,971 20,029 311,500 372,274 (60,774) 6,136,000 6,146,867 (10,867) 13,556,114 20,084,677 $ (6,528,563) Actual Amounts (Budgetary Basis) $ 53,124 41,587 11,537 354,134 322,144 31,990 6,057,962 5,220,618 837,344 13,890,262 12,322,579 $ 1,567,683 Variance Over (Under) $ (19,876) (11,384) (8,492) 42,634 (50,130) 92,764 (78,038) (926,249) 848,211 334,148 (7,762,098) $ 8,096,246 99 CITY OF CARLSBAD Combining Schedule of Revenues and Expenditures Budget and Actual (Budgetary Basis) Debt Service Funds Year Ended June 30,2007 Redevelopment Areas Total revenues Total expenditures Net change in fund balance Budget $ 2,708,000 1,696,846 $ 1,011,154 Actual Amounts (Budgetary Basis) $ 2,750,983 1,693,439 $ 1,057,544 Variance Over (Under) $ 42,983 (3,407) $ 46,390 Combining Schedule of Revenues and Expenditures Budget and Actual (Budgetary Basis) Capital Project Funds Year Ended June 30,2007 Budget Actual Amounts (Budgetary Basis) Variance Favorable (Unfavorable) Redevelopment Areas: Total revenues Total expenditures Net change in fund balance 65,300 2,482,471 96,088 1,446,704 30,788 1,035,767 (2.417,171) $ (1,350,616) $1,066,555 100 101 CITY OF CARLSBAD Combining Statement of Net Assets Internal Service Funds June 30, 2007 ASSETS Current assets: Cash and investments Receivables: Accounts, net Inventory 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 Total current liabilities Total liabilities NET ASSETS Invested in capital assets, net of related debt Unrestricted Fleet Self Insured Management Benefits $ 8,205,128 $ 11,655,155 1,698 138,295 8,345,121 11,655,155 14,965,378 (8,153,179) 6,812,199 6,812,199 $ 15,157,320 $ 11,655,155 $ 225,760 $ 2,894,242 75,208 225,760 2,969,450 225,760 2,969,450 6,812,199 8,119,361 8,685,705 Information Technology $ 4,174,164 4,174,164 3,166,430 (2,574,661) 591,769 591,769 $ 4,765,933 $ 327,409 327,409 327,409 591,769 3,846,755 Total net assets $ 14,931,560 $ 8,685,705 $ 4,438,524 102 Risk Management $ 419,477 419,477 Workers' Compensation $ 5,636,887 37,817 5,674,704 Total $ 30,090,811 39,515 138,295 30,268,621 18,131,808 (10,727,840) 7,403,968 7,403,968 $ 419,477 $ 109,347 542,521 651,868 651,868 $ 5,674,704 $ 9,061 3,073,606 3,082,667 3,082,667 $ 37,672,589 $ 3,565,819 3,691,335 7,257,154 7,257,154 (232,391) $ (232,391) 2,592,037 $ 2,592,037 7,403,968 23,011,467 $' 30,415,435 103 CITY OF CARLSBAD Combining Statement of Revenues, Expenses and Changes in Net Assets Internal Service Funds For the Year Ended June 30,2007 Fleet Self Insured Information Operating revenues: Other charges for services Miscellaneous Total operating revenues Operating expenses: Depreciation Fuel and supplies Claims expense Small equipment purchases General and administrative Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Income from property and investments Intergovernmental Gain (loss) on sale of property Total nonoperating revenues (expenses) Income (loss) before transfers and capital contributions Transfers in Capital contributions Change in net assets Total net assets at beginning of year Management $ 3,798,945 $ 19,558 3,818,503 1,216,054 1,052,850 - - 1,454,017 3,722,921 95,582 478,775 - ' (31,344) 447,431 543,013 36,821 294,109 873,943 14,057,617 Benefits Technology 8,841,627 $ 4,542,885 66 8,841,627 4,542,951 172,466 - 793,414 534,035 4,029,328 793,414 4,735,829 8,048,213 (192,878) 221,465 43,552 - 265,017 8,048,213 72,139 _ - 8,048,213 72,139 637,492 4,366,385 Total net assets at end of year $ 14,931,560 $ 8,685.705 $ 4,438,524 104 Risk Management $ 1,374,019 256,030 1,630,049 - 1,288,137 - 950,798 2,238,935 (608,886) 28,889 - - 28,889 (579,997) 400,000 (179,997) (52,394) $ (232,391) Workers' Compensation $ 2,350,492 55,358 2,405,850 - 1,173,316 - 110,883 1,284,199 1,121,651 258,010 - - 258,010 1,379,661 - 1,379,661 1,212,376 $ 2,592,037 < Totals $ 20,907,968 331,012 21,238,980 1,388,520 1,052,850 3,254,867 534,035 6,545,026 12,775,298 8,463,682 987,139 43,552 (31,344) 999,347 9,463,029 436,821 294,109 10,193,959 20,221,476 6 30,415,435 105 CITY OF CARLSBAD Combining Statement of Cash Flows Internal Service Funds For the Year Ended June 30,2007 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 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 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 Self Insured Management Benefits $ 3,798,945 $ 8,842,773 (1,399,685) (723,129) 136,947 (306,500) (793,414) 19,559 1,389,190 8,186,306 36,821 (2,187,047) (2,187,047) 478,775 (282,261) 8,186,306 8,487,389 3,468,849 $ 8,205,128 $ 11,655,155 Information Technology $ 4,542,885 (2,063,662) (2,049,778) (368,830) 66 60,681 43,552 (369,087) (325,535) 221,465 (43,389) 4,217,553 $ 4,174,164 106 Risk Management $ 1,374,020 (1,288,013) (220,076) (58,155) (845,915) 256,029 (782,110) 400,000 - Workers' Compensation $ 2,312,676 (99,551) (95,901) (14,465) (1,296,194) 55,358 861,923 - Total $20,871,299 (4,850,911) (2,951,937) (747,950) (2,935,523) 331,012 9,715,990 436,821 43,552 (2,556,134) (2,512,582) 28,889 (353,221) 772,698 $ 419,477 258,010 1,119,933 4,516,954 $ 5,636,887 987,139 8,627,368 21,463,443 $30,090,811 (Continued) 107 CITY OF CARLSBAD Combining Statement of Cash Flows Internal Service Funds (Continued) For the Year Ended June 30, 2007 Fleet Management Self Insured Benefits Information Technology 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) in inventory Increase (decrease) in accrued liabilities Increase (decrease) in estimated claims payable Net cash provided by (used in) operating activities 95,582 $ 8,048,213 $ (192,878) 1,216,054 (250) 57,579 20,225 1,147 139,604 (2,658) 172,466 81,093 $ 1,389,190 $ 8,186,306 $ 60,681 None ash capital financing activities: Capital assets contributed by other funds $ 294,109 $ m m m Ml pr m m 108 m m Risk Workers' Management Compensation Total (608,886) $ 1,121,651 $ 8,463,682 1,388,520 - - 36,275 (209,499) $ (782,110) 3 (37,816) - 2,431 (224,343) i 861,923 (36,919) 57,579 279,628 (436,500) $ 9,715,990 $ 294,109 109 CITY OF CARLSBAD Combining Statement of Changes in Assets and Liabilities Agency Funds For the Year Ended June 30, 2007 Contractors' and Miscellaneous Deposits ASSETS Current assets: Cash and investments Receivables: Other Prepaid items Total current assets LIABILITIES Accrued liabilities Deposits held for others Total liabilities Assessment Districts ASSETS Current assets: Cash and investments Receivables: Taxes Other Total current assets Restricted assets: Cash and investments Total restricted assets Total assets LIABILITIES Accrued liabilities Deposits held for others Total liabilities Balance July 1,2006 $ 18,656,071 10,242 - $ 18,666,313 $ 84,179 18,582,134 $ 18,666,313 Balance July 1, 2006 $ 5,703,585 168,283 79,298 5,951,166 6,891,655 6,891,655 $ 12,842,821 $ 113,408 12,729,413 $ 12,842,821 Additions $ 38,227,342 144,631 544,060 $ 38,916,033 $ 45,367,856 5,206,803 $ 50,574,659 Additions $ 7,874,768 45,035 82,197 8,002,000 6,395 6,395 $ 8,008,395 $ 369,430 8,015,227 $ 8,384,657 Deductions $ 39,549,583 154,873 - $ 39,704,456 $ 44,964,193 6,398,889 $ 51,363,082 Deductions $ 6,839,687 168,283 83,464 7,091,434 181,776 181,776 $ 7,273,210 $ 341,285 7,308,187 $ 7,649,472 Balance June 30, 2007 $ 17,333,830 - 544,060 $ 17,877,890 $ 487,842 17,390,048 $ 17,877,890 Balance June 30, 2007 $ 6,738,666 45,035 78,031 6,861,732 6,716,274 6,716,274 $ 13,578,006 $ 141,553 13,436,453 $ 13,578,006 (Continued) 110 CITY OF CARLSBAD Combining Statement of Changes in Assets and Liabilities Agency Funds (Continued) For the Year Ended June 30,2007 Total Agency Funds ASSETS Current assets: Cash and investments Receivables: Taxes Other Accrued interest Total current assets Restricted assets: Cash and investments Total current assets Balance July 1,2006 $ 24,359,656 168,283 89,540 - 24,617,479 6,891,655 6,891,655 Additions $ 46,102,110 45,035 226,828 544,060 46,918,033 6,395 6,395 Deductions $ 46,389,270 168,283 238,337 - 46,795,890 181,776 181,776 Balance June 30, 2007 $ 24,072,496 45,035 78,031 544,060 24,739,622 6,716,274 6,716,274 Total assets $ 31.509,134 $ 46,924,428 $ 46,977,666 $ 31,455,896 LIABILITIES Accrued liabilities Deposits held for others Total liabilities $ 197,587 31,311,547 $ 31,509,134 $ 45,737,286 13,222,030 $ 58,959,316 $ 45,305,478 13,707,076 $ 59,012,554 $ 629,395 30,826,501 $ 31,455,896 111 CITY OF CARLSBAD Schedule of Annual Debt Service Requirements $15,495,000 -1993 Carlsbad Housing and Redevelopment Commission Tax Allocation Bonds Interest Due Interest Due Fiscal Year 2007-08 2008-09 2009-10 2010-1 1 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 September 1 $. 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 $ 3,135,411 $ March 295 282 269 1 ,058 ,851 ,989 256,470 242 227 211 ,295 ,332 ,583 195,045 177,589 159,213 139 119 98 75 51 ,920 ,576 ,183 ,525 ,675 26,500 - 2,828,804 Total Interest S 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 5 5,964,215 Principal Due Total Annual September 1 Debt Service $ 440,000 $1,041,665 465,000 1,042,909 490,000 1,042,840 515,000 540,000 570,000 1,041,459 1,038,765 1,039,627 600,000 1,038,915 630,000 665,000 700,000 735,000 775,000 815,000 855,000 900,000 950,000 1,000,000 1,036,628 1,037,634 1,036,802 ,034,134 ,034,496 ,032,759 ,028,707 ,027,200 ,028,175 ,026,500 $ 11,645,000 $ 17,609,215 $6,595,000 -1997 Hosp Grove Certificates of Participation (1988 Refunding) Fiscal Year Interest Due August 1 Interest Due February 1 Total Interest Principal Due August 1 Total Annual Debt Service 2007-08 2008-09 Totals 33,373 17,273 17,272 $50,645 17,273 $700,000 735,000 750,645 752,273 50,646 $17,272 $67,918 $1,435,000 1,502,918 112 CITY OF CARLSBAD Schedule of Annual Debt Service Requirements (Continued) $11,080,000 - Encina Financing Joint Powers Authority Installment Purchase Agreement •«* Fiscal Year 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Totals Interest Due August 1 $ 156,153 139,353 122,816 105,191 86,228 66,241 45,228 23,190 $ 744,400 Interest Due February 1 $ 139,353 122,816 105,191 86,228 66,241 45,228 23,191 - $ 588,248 Total Interest $ 295,506 262,169 228,007 191,419 152,469 111,469 68,419 23,190 $ 1,332,648 Principal Due August 1 $ 640,000 675,000 705,000 740,000 780,000 820,000 860,000 905,000 $ 6,125,000 Total Annual Debt Service $ 935,506 937,169 933,007 931,419 932,469 931,469 928,419 928,190 $ 7,457,648 $2,331,489 - Carlsbad Municipal Water District State Loan for Reclaimed Water Projects Fiscal Year 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 Interest Due November 30 $ 28,155 24,345 20,425 16,391 12,240 7,969 2,682 Principal Due November 30 $ 131,372 135,181 139,102 143,136 147,287 151,558 123,222 Total Annual Debt Service $ 159,527 159,526 159,527 159,527 159,527 159,527 125,904 Totals $ 112.207 _$_970.858 $ 1.083.065 113 CITY OF CARLSBAD Schedule of Annual Debt Service Requirements (Continued) $9,694,504 - Carlsbad Municipal Water District State Water Resources Control Board Loan Fiscal Year 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 2024-25 Totals $18,840^13 Interest Due June 1 $ 232,115 $ 221,747 211,119 200,225 189,059 177,614 165,883 153,859 141,534 128,901 115,952 102,679 89,075 75,130 60,837 46,186 31,169 15,777 $ 2,358,861 J> - Carlsbad Municipal Water District Principal Due June 1 414,744 425,113 435,741 446,634 457,800 469,245 480,976 493,000 505,326 517,959 530,908 544,180 557,785 571,729 586,023 600,673 615,690 631,082 9,284,608 Total Annual Debt Service $ 646,859 646,860 646,860 646,859 646,859 646,859 646,859 646,859 646,860 646,860 646,860 646,859 646,860 646,859 646,860 646,859 646,859 646,859 $11,643,469 State Water Resources Control Board Loan Fiscal Year 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 2024-25 2025-26 2026-27 Totals Interest Due April 1 $ 326,199 $ 413,707 396,100 378,087 359,661 340,810 321,526 301,799 281,617 260,972 239,851 218,245 196,142 173,531 150,400 126,736 102,528 77,764 52,430 26,513 $ 4,744,618 $ Principal Due April 1 853,048 765,539 783,147 801,159 819,586 838,436 857,720 877,448 897,629 918,275 939,395 961,001 983,104 1,005,716 1,028,847 1,052,511 1,076,718 1,101,483 1,126,817 1,152,734 18.840.313 Total Annual Debt Service $ 1,179,247 1,179,246 1,179,247 1,179,246 1,179,247 1,179,246 1,179,246 1,179,247 1,179,246 1,179,247 1,179,246 1,179,246 1,179,246 1,179,247 1,179,247 1,179,247 1,179,246 1,179,247 1,179,247 1,179,247 $23,584,931 114 CITY OF CARLSBAD Schedule of Annual Debt Service Requirements (Continued) $18,540,000 - Carlsbad Public Financing Authority Carlsbad Municipal Golf Course Revenue Bonds •m m «• m m Ml m m «' »» m m m m m «• a Fiscal Year 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 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 2035-36 2036-37 Totals Interest Due September 1 $ 413,525 413,525 408,025 402,225 396,125 389,625 381,975 373,875 365,212 356,100 346,537 335,287 323,287 • 310,537 299,737 288,437 276,637 262,687 247,950 232,425 216,112 199,012 181,012 162,112 142,200 121,275 99,337 76,275 52,087 26,662 $ 8,099,817 Interest Due March 1 $ 413,525 408,025 402,225 396,125 389,625 381,975 373,875 365,213 356,100 346,538 335,288 323,288 310,538 299,738 288,438 276,638 262,688 247,950 232,425 216,113 199,013 181,013 162,113 142,200 121,275 99,338 76,275 52,088 26,663 . $ 7,686,308 Total Interest $ 827,050 821,550 810,250 798,350 785,750 771,600 755,850 739,088 721,312 702,638 681,825 658,575 633,825 610,275 588,175 565,075 539,325 510,637 480,375 448,538 415,125 380,025 343,125 304,312 263,475 220,613 175,612 128,363 78,750 26,662 $15,786,125 Principal Due September 1 $ 275,000 290,000 305,000 325,000 340,000 360,000 385,000 405,000 425,000 450,000 480,000 510,000 540,000 565,000 590,000 620,000 655,000 690,000 725,000 760,000 800,000 840,000 885,000 930,000 975,000 1,025,000 1,075,000 1,130,000 1,185,000 $ 18,540,000 Total Annual Debt Service $ 827,050 1,096,550 1,100,250 1,103,350 1,110,750 1,111,600 1,115,850 1,124,088 1,126,312 1,127,638 1,131,825 1,138,575 1,143,825 1,150,275 1,153,175 1,155,075 1,159,325 1,165,637 1,170,375 1,173,538 1,175,125 1,180,025 1,183,125 1,189,312 1,193,475 1,195,613 1,200,612 1,203,363 1,208,750 1,211,662 $ 34,326,125 115 CITY OF CARLSBAD 116 Introductory Section Financial Section Statistical Section CITY OF CARLSBAD Statistical Section This section of the City of Carlsbad's Comprehensive Annual Financial Report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. Contents Page Financial Trends 118 These schedules contain trend information to help the reader understand how the City's financial performance and well-being have changed over time. Revenue Capacity 127 These schedules contain information to help the reader assess the City's most significant local revenue source, property taxes. Debt Capacity 132 These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt, and the City's ability to issue additional debt in the future. Demographic and Economic Information 142 These schedules offer demographic and economic indicators to help the reader understand the environment within which the City's financial activities take place. Operating Information 146 These schedules contain service and infrastructure data to help the reader understand how the information in the City's financial report relates to the services the City provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual Financial Reports for the relevant year. The City implemented GASB Statement 34 in Fiscal Year 2001-02; schedules presenting government-wide information include information beginning in that year. 117 CITY OF CARLSBAD Net Assets by Component Last Six Fiscal Years (dollars in thousands) 2002(1)2003 2004 2005 2006 2007 Governmental activities Invested in capital assets, net of related debt Restricted for: Capital assets Affordable, low and moderate income housing Habitat and agricultural mitigation management Other purposes Unrestricted Total governmental activities net assets Business-type activities Invested in capital assets, net of related debt Restricted for: Capital assets Unrestricted Total business-type activities net assets Total government Invested in capital assets, net of related debt Restricted for: Capital assets Affordable, low and moderate income housing Habitat and agricultural mitigation management Other purposes Unrestricted Total net assets $ $ $ $ $ 198,808 $ 130,545 16,652 5,980 4,260 126,632 482,877 $ 143,175 $ 96,807 16,261 256,243 $ 341,983 $ 227,352 16,652 5,980 4,260 142,893 248,219 $ 139,760 18,625 6,840 6,019 146,018 565,481 $ 165,943 $ 96,666 22,509 285,118 $ 414,162 $ 236,426 18,625 6,840 6,019 168,527 282,728 $ 151,395 23,042 6,893 20,451 149,662 634,171 $ 185,971 $ 102,585 15,072 303,628 $ 468,699 $ 253,980 23,042 6,893 20,451 164,734 342,232 175,663 25,144 7,528 35,173 152,352 738,092 213,101 100,597 11,670 325,368 555,333 276,260 25,144 7,528 35,173 164,022 $ 604,1 17 $ 172,474 27,453 7,042 5,131 197,672 $ 1,013,889 $ $ 234,560 $ 107,841 (22,240) $ 320,161 $ $ 838,677 $ 280,315 27,453 7,042 5,131 175,432 645,995 (2) 178,559 30,356 7,670 4,849 (3) 232,701 1,100,130 253,645 47,164 (5) 36,044 (4),(5) 336,853 899,640 225,723 30,356 7,670 4,849 268,745 739.120 $ 850,599 $ 937,799 S 1.063,460 $ 1,334.050 $ 1.436.983 ft it Source: City of Carlsbad Comprehensive Annual Financial Reports. (1) The City first began calculating net asset balances in Fiscal Year 2001-02. (2) The large increase in 2005-06 reflects the addition of infrastructure assets as per GASB34 requirements. (3) Net Assets Restricted for Other Purposes increased significantly in Fiscal Years 2003-04 and 2004-05 to set aside funds for future golf course construction ($15 million in 2003-04 and an additional $15.3 million in 2004-05). (4) The large decrease in 2005-06 reflects an additional $30.3 million advance received from the General Fund by the Golf Course Fund. (5) Beginning in Fiscal Year 2006-07, the City began reflecting funds set aside for the replacement of water and wastewater infrastructure as unrestricted net assets since these funds are not restricted per the GASB. 118 119 CITY OF CARLSBAD Changes in Net Assets Last Six Fiscal Years (dollars in thousands) Expenses Governmental activities General government Public safety Community development Community services Public works Interest and fiscal charges on long-term debt Total governmental activities Business-type activities Carlsbad Municipal Water District Golf course Wastewater Solid waste Total business-type activities Total government Program Revenues Governmental activities Charges for services: General government Public safety Community development Community services Public works Operating grants and contributions Capital grants and contributions Total governmental activities Business-type activities Charges for services: Carlsbad Municipal Water District Wastewater Solid waste Operating grants and contributions Capital grants and contributions Total business-type activities Total government Net (Expense)/Revenue: Governmental activities Business-type activities Total government net expense 2002 2003 2004 2005 2006 2007 $ $ $ $ $ $ 7,600 $ 25,660 10,539 13,270 15,015 1,673 73,757 19,311 98 6,169 213 25,791 99,548 $ 582 $ 2,957 3,810 1,828 5,440 7,985 26,852 49,454 19,102 5,919 505 577 16,155 42,258 91,712 $ (24,303) $ 16,467 (7,836) $ 8,518 $ 27,748 12,004 14,538 16,826 1,048 80,682 19,261 93 6,104 218 25,676 106,358 $ 750 $ 3,269 4,261 2,086 6,668 10,139 45,180 72,353 18,276 6,286 868 1,267 19,539 46,236 118,589 $ (8,329) $ 20,560 12,231 $ 8,604 $ 30,894 13,814 15,035 . 19,534 996 88,877 20,950 54 6,891 1,300 29,195 118,072 $ 571 $ 3,699 4,203 2,102 4,533 14,570 42,215 71,893 18,862 6,203 1,673 1,504 17,377 45,619 117,512 $ (16,984) $ 16,424 (560) $ 11,353 34,366 14,363 16,033 22,064 1,014 99,193 21,422 25 7,235 1,488 30,170 129,363 926 3,232 5,934 2,292 4,633 12,817 74,414 104,248 18,788 6,378 2,348 508 17,122 45,144 149,392 5,055 14,974 20,029 $ 15,382 $ 35,822 14,332 16,790 35,937 1,036 119,299 24,124 2,471 8,265 1,699 36,559 $ 155,858 $ $ 945 $ 3,611 4,677 2,437 6,451 12,116 39,286 69,523 19,462 6,801 1,893 718 11,213 40,087 $ 109,610 $ $ (49,776) $ 3,528 $ (46,248) $ 12,273 38,327 13,860 17,913 37,278 688 120,339 40,383 200 9,590 1,901 52,074 172,413 1,194 4,170 4,158 2,639 5,083 17,597 49,254 84,095 22,186 7,507 1,966 2,296 25,053 59,008 143,103 (36,244) 6,934 (29,310) (1) (2) (3) (4) (4) 120 CITY OF CARLSBAD Changes in Net Assets Last Six Fiscal Years (dollars in thousands) General Revenues and Other Changes in Net Assets Governmental activities Taxes: Property taxes Sales and use taxes Transient occupancy taxes Franchise taxes Business license taxes Real property transfer taxes Vehicle license fees Income from property and investments Other general revenues Transfers Total governmental activities Business type activities Property taxes Income from property and investments Other general revenues Transfers Total business-type activities Total government Change in Net Assets Governmental activities Business-type activities Total government 2002 2003 2004 2005 2006 2007 $ 28,495 $ 21,004 8,533 7,495 2,440 1,193 4,675 18,095 762 17 92,709 1,516 7,010 804 (17) 9,313 $ 102,022 $ $ 68,406 $ 25,780 $ 94,186 $ 31,411 $ 25,767 8,387 3,730 2,305 1,127 5,067 13,347 390 (600) 90,931 1,672 5,836 208 600 8,316 99,247 $ 82,602 $ 28,876 111,478 $ 33,949 $ 24,578 8,813 5,027 2,872 1,587 4,125 3,124 637 963 85,675 1,842 1,193 14 (963) 2,086 87,761 $ 68,691 $ 18,510 87,201 $— ^^= 41,479 $ 24,759 10,072 5,683 2,890 1,646 2,136 9,910 441 (150) 98,866 2,025 4,162 579 - 6,766 105,632 $ 103,921 $ 21,740 125,661 $ 43,936 $ 25,429 11,513 5,429 3,040 1,906 587 11,682 650 (315) 103,857 2,257 3,538 56 315 6,166 110,023 3 54,081 3 9,694 63,775 3 i 49,284 27,445 12,929 5,346 3,056 1,262 608 21,455 700 400 122,485 2,504 7,621 34 (400) 9,759 ; 132,244 ! 86,241 16,693 i 102,934 Source: City of Carlsbad Comprehensive Annual Financial Report. Note: Data in this table is available from the date the City implemented GASB 34 (Fiscal Year 2001-02). (1) In Fiscal Year 2005-06, the City incurred clean-up and repair costs related to the winter storms of 2005. (2) In Fiscal Year 2006-07, the Water Enterprise settled a lawsuit regarding a landslide at the Marbella Condominiums for $11.3 million and the Enterprise transferred funds to the Self Insured Benefits Fund for the proposed funding of retiree healthcare costs as required under GASB 45. (3) The large increase in Fiscal Year 2006-07 reflects a $6.3 million reimbursement from the Federal Highway Administration for reimbursement of the 2005 winter storm damage in the City. (4) The large increase in Fiscal Year 2006-07 reflects the recording of infrastructure assets acquired by the City for development at Bressi Ranch, the Oaks South, the Ridge and the Greens communities. 121 CITY OF CARLSBAD Fund Balances of Governmental Funds Last Ten Fiscal Years (dollars in thousands) General Fund Reserved Unreserved Total General Fund All Other Governmental Funds Reserved Unreserved, reported in: Special revenue funds Debt service funds (1) Capital project funds 1998 10,346 31,498 41,844 27,255 15,016 433 87,336 Total all other governmental funds $130,040 1999(1) 12,893 39,221 52,114 30,938 18,639 291 102,038 151,906 2000 14,324 42,179 56,503 27,658 2001 11,746 58,857 70,603 36,030 2002 12,006 76,149 8,155 37,776 20,458 (11,092) 108,866 19,709 (11,586) 131,382 20,542 (10,371) 128,869 $145,890 $ 175,535 $ 176,816 $80,000 f General Fund Balance (in thousands) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Fiscal Year Source: City of Carlsbad Comprehensive Annual Financial Report. (1) Effective July 1, 1999, the City changed the manner in which it accounted for advances from the City to the Redevelopment Agency, and began recording such advances as a liability on the balance sheet of the funds obligated for the repayment. (2) A $35 million transfer was made in Fiscal Year 2003 from the General Fund to the General Capital Construction Fund to assist in the construction of four large projects. (3) $15 million was reserved at the end of the 2005 Fiscal Year for future advances to the Golf Course Fund. (4) $30.3 million was reserved at the end of the 2006 Fiscal Year for future advances to the Golf Course Fund. (5) A $9.7 million transfer was made in Fiscal Year 2007 from the General Fund to the Golf Course Fund to assist in the construction of the City's new municipal golf course. 122 2003 2004 2005 2006 2007 12,794 58,343 (2) 71,137 27,917 56,141 (3) $ 84,058 44,996 54,400 (4) 99,396 45,131 61,494 $ 106,625 56,505 (5) 66,084 $ 122,589 44,265 54,414 49,583 38,000 44,352 21,011 (10,449) 171,227 $ 226,054 29,841 (9,789) 171,194 $ 245,660 30,031 (11,317) 206,711 30,024 (11,681) 221,393 275,008 $ 277,736 32,485 (12,423) 231,071 $ 295,485 123 CITY OF CARLSBAD Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (dollars in thousands) 1998 1999 2000 2001 2002 Revenues: Taxes Intergovernmental Licenses and permits Charges for services Fines and forfeitures Income from property and investments Contributions from property owners Donations Miscellaneous Total revenues Expenditures: Current: General government Less: Interdepartmental charges Public safety Community development Community services Public works Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses): Proceeds from the sale of property Proceeds of advances Proceeds of debt Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Debt service as percentage of noncapital expenditures (1,2) $ 52,985 $ 20,296 3,279 7,615 331 8,632 16,610 220 1,514 111,482 6,748 (1,919) 18,631 7,895 6,673 11,437 23,854 1,663 3,144 78,126 33,356 579 9,252 2,069 (2,097) 9,803 $ 43,159 $ 57,508 $ 17,802 3,827 6,805 936 8,925 45,763 350 1,544 143,460 6,784 (1,934) 21,928 8,636 7,541 12,690 52,107 825 1,645 1 10,222 33,238 589 - 2,603 (2,603) 589 33,827 $ 62,268 $ 14,094 3,321 5,749 840 10,496 14,733 561 1,183 113,245 7,383 (2,007) 21,799 11,538 9,088 13,823 39,543 821 1,660 103,648 9,597 - 332 15,533 (15,533) 332 9,929 $ 70,147 $ 14,286 3,409 6,427 889 20,385 15,982 312 2,260 134,097 9,022 (2,148) 23,627 9,352 11,571 14,402 22,067 1,029 1,814 90,736 43,361 - 91 9,544 (9,651) (16) 43,345 $ 71,528 14,267 1,998 7,751 947 18,700 11,251 210 2,386 129,038 8,415 (2,284) 25,598 10,316 12,449 15,404 37,503 1,133 1,694 110,228 18,810 - 6 11,833 (11,816) 23 18,833 3. Source: City of Carlsbad Comprehensive Annual Financial Report. (1) Noncapital expenditures are total expenditures less capital outlay (to the extent capitalized for the Government-wide Statement of Net Assets) and expenditures for capitalized assets included within the functional expenditure categories. (2) Information not available for years prior to GASB 34 implementation. 124 2003 2004 2005 2006 2007 $ 74,156 $ 19,775 2,043 10,059 923 14,802 14,547 149 2,349 138,803 8,805 (2,815) 26,798 11,799 13,374 18,177 26,410 1,672 1,628 105,848 79,533 $ 22,506 2,329 9,899 1,092 3,902 23,682 141 1,543 144,627 9,745 (2,735) 30,799 13,644 13,915 18,045 26,406 1,214 1,466 112,499 84,065 $ 24,245 3,393 10,433 1,084 10,741 49,446 164 1,107 184,678 12,113 (2,700) 33,819 14,319 14,744 18,737 46,420 1,040 1,501 139,993 ; 94,862 5 13,027 2,504 11,038 1,178 10,387 25,365 130 2,077 160,568 16,311 (2,639) 36,365 14,300 15,637 20,327 47,032 1,037 1,599 149,969 1 101,196 25,097 2,094 10,937 1,387 22,270 10,311 173 950 174,415 18,013 (2,151) 39,832 13,998 16,667 22,481 30,765 1,091 1,333 142,029 32,955 32,128 44,685 10,599 32,386 1,364 47,846 (48,581) 8,729 (8,329) 10,228 (10,228) 11,685 (12,334) 9,723 (9,760) (735)400 (649)1,327 32,220 $32,528 $ 44,685 $ 9.950 $ 33,713 4.17%3.10%2.71%2.41%2.01% 125 CITY OF CARLSBAD General Governmental Tax Revenues by Source Last Ten Fiscal Years (in thousands) Real Fiscal Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Change 1998-2007 60,000 -i 50,000 40,000 - 30,000 20,000 - 10,000 Property Sales and Tax * Use Taxes $ 26,249 $ 14,817 26,688 17,129 27,335 19,493 30,656 21,197 28,512 21,661 31,412 25,543 33,949 25,571 35,650 (1) 26,331 43,936 27,294 49,284 27,289 88% 84% Total Transient Occupancy Franchise Taxes Taxes $ 6,046 $ 1,714 7,010 1,954 8,333 2,592 9,269 3,916 Business Property License Transfer Taxes Taxes Misc. Taxes $ 1,604 $ 1,738 1 1,864 2,300 1 8,533 (4) 7,495 (5) 2,440 1 (3) 8,387 3,730 8,814 5,027 10,072 5,683 11,513 5,429 12,929 5,346 114% 212% General Governmental (in thousands) 2,305 1 2,872 (2) 1 2,890 1 3,040 1 3,056 1 836 $ 1,719 ,081 1,908 993 1,658 ,095 1,714 ,193 1,694 ,127 1,652 ,587 1,713 ,646 1,793 ,906 1,744 ,262 (6) 2,030 91% 51% 18% Tax Revenues J^* -m. • 1 — *-^^ x *— ***—* 1998 1999 2000 2001 2002 2003 2004 Fiscal Year 2005 2006 2007 Total Tax Revenue $ 52,985 57,508 62,268 70,147 71,528 74,156 79,533 84,065 94,862 101,196 91% • Property Tax B Sales and Use Taxes — — Transient Occupancy Taxes-*- Other Source: City of Carlsbad. * Includes Vehicle License Fees (VLF) in lieu, property tax increment, low/moderate housing, set aside taxes and CFD#1 special taxes. (1) Vehicle License Fee revenue began decreasing in 2004-05 because the City began receiving property taxes in lieu of a portion of the VLF. (2) This reflects the results from hiring a company to assist in the identification of unlicensed businesses, and the recovery of non-reported and under-reported business license taxes. (3) The City modified the methodology used in accruing sales tax revenue for the year, in accordance with Generally Accepted Accounting Principles (GAAP). (4) The drop in transient occupancy tax was the result of the impacts from September 11, 2001 on tourism. (5) This was the result of higher natural gas prices paid by consumers in calendar year 2001. (6) Reflects the beginning of the downturn in the housing market. 126 CITY OF CARLSBAD Water and Wastewater Rates Last Ten Fiscal Years Water Fiscal Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Monthly Delivery Charge $9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.25 9.75 Base Price Per Unit (1) $1.70 1.70 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.68 Wastewater Monthly Base Rate $15.00 15.00 15.00 13.00 13.00 13.00 13.00 13.00 13.50 14.65 Source: City of Carlsbad. Note: Rates shown are for a 5/8" meter, which is the standard household meter size. (1) One unit of water equals 748 gallons. 127 CITY OF CARLSBAD Assessed Value of Taxable Property Last Ten Fiscal Years (dollars in millions) Fiscal Residential Year Property 1998 $ 1999 2000 2001 2002 2003 2004 2005 2006 2007 4,723 5,315 6,418 7,367 8,543 9,612 10,700 11,984 13,619 15,650 Commercial Property $ 766 954 1,036 1,192 1,310 1,413 1,516 1,749 1,962 2,181 Exemptions Industrial and Other Property Taxable Property (1) $ 631 $ 304 713 410 854 583 1,282 649 1,341 657 1,469 516 1,231 856 1,266 742 1,398 729 1,660 569 v . Total PropertyNet Assessed Tax RevenueValuation $ 6,424 $ 7,392 8,891 10,490 11,851 13,010 14,303 15,741 17,708 20,060 12.410 14.196 16.762 19.658 22.286 24.974 26.960 33.330 (4) 38.041 43.651 Total Direct Tax Rate (3) 0.193% 0.192% 0.189% 0.187% 0.188% 0.192% 0.188% 0.212% 0.215% 0.218% Taxable Assessed Value 20,000 - 15,000 - 10,000 - 5,000 - (in millions) ^m _ . 1 1 _ • i 1998 |_| 1EI it-, It-, L 1999 2000 2001 2002 2003 2004 Fiscal Year II 1ILLL 2005 2006 2007 D Residential Property • Commercial Property D Industrial Property Source: County of San Diego, California Auditor and Controller. Notes: Information about estimated actual value of property is not available; the assessed value is based on the most recent sales value and includes secured property only. (1) Other property includes farm, rural, institutional, recreational, state secured property, unsecured property, personal property and fixtures. (2) The total direct tax rate was calculated by dividing the total property tax revenue by the total taxable value. (3) Property tax revenues do not include special assessments, redevelopment tax increment or community facilities district revenues. (4) In Fiscal Year 2004-05, there was an increase in the property taxes received, offset by a decrease in Vehicle License Fees (VLF). 128 CITY OF CARLSBAD Principal Property Taxpayers Current Year and Nine Years Ago 2007 1998 Taxpayer Callaway Golf Company Aviara Resort Associates LLC KSL La Costa Resort Corp. Grey stone Homes Inc. Continuing Life Communities LLC CPG Carlsbad Holdings LLC Legoland California, Inc. Pulte Home Corp. H.G. Fenton Company Borders, Inc. San Diego Gas & Electric Co. Brehm-Aviara III Development Gemological Institute of America Craig Realty Group Carlsbad LLC Prentiss Properties Acquisition Air Products & Chemicals, Inc. Daniels Cablevision, Inc. Total Net assessed valuation Taxable Assessed Value $ 145,211,900 129,594,602 129,428,459 114,916,672 113,158,766 107,453,677 103,301,253 86,731,338 82,896,284 79,216,564 - - - - - - - $ 1,091,909,515 $ 20,059,893,358 Rank 1 2 3 4 5 6 7 8 9 10 Percentage of Total City Net Assessed Value 0.72% 0.65% 0.65% 0.57% 0.56% 0.54% 0.51% 0.43% 0.41% 0.39% - - - - - - - 5.43% Taxable Assessed Value $ 117,984,057 270,622,828 111,589,980 - - - - - - - 277,633,029 46,942,229 44,959,035 44,811,766 43,587,368 38,740,613 37,076,188 $ 1,033,947,093 $ 6,424,230,646 Rank 3 2 4 1 5 6 7 8 9 10 Percentage of Total City Net Assessed Value 1.84% 4.21% 1.74% - - - - - - - 4.32% 0.73% 0.70% 0.70% 0.68% 0.60% 0.58% 16.10% Source: County of San Diego Office of the Auditor and Controller, County Assessor, and MuniServices, LLC 129 CITY OF CARLSBAD Property Tax Levies and Collections Last Ten Fiscal Years Fiscal Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Total Current Levy (1) 15,885,090 18,159,348 21,153,690 24,597,515 27,351,054 30,178,314 33,117,599 44,057,622 49,806,112 51,854,596 (3) Total Current Collections (2) 15,061,614 17,303,313 20,176,885 23,572,005 26,360,056 29,018,421 31,753,020 42,251,018 47,723,226 49,219,793 % of Levy Collected 94.80% 95.30% 95.40% 95.80% 96.40% 96.20% 95.90% 95.90% 95.80% 94.90% Property Tax Levies & Collections Last Ten Fiscal Years ID Total Current Levy (1) • Total Current "P Source: County of San Diego Office of the Auditor and Controller. (1) Includes real property transfer taxes, homeowner exemptions and Proposition 172 public safety sales taxes. (2) Total Current Collections includes prior year delinquencies and adjustments; delinquency collections by year are not available. (3) Starting in Fiscal Year 2004-05, the City received additional property tax payments in lieu of vehicle license fees. 130 131 CITY OF CARLSBAD Ratios of Outstanding Debt by Type Last Ten Fiscal Years (dollars in thousands except per capita) Fiscal Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Governmental Activities Bonds / Special Debt $ 14,740 14,460 14,170 13,865 13,540 13,200 12,840 12,460 12,065 11,645 Certificates of Participation $ 6,595 6,075 5,570 5,055 4,515 3,950 3,360 2,740 2,105 1,435 Capital Leases $ 2,399 633 904 888 791 179 79 7 1 - Loans Payable $ 875 750 620 480 330 170 - - - - 800 600 400 200 0 Outstanding Debt per Capita illllllllll 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 m M Notes: Details regarding the City's outstanding debt can be found in the notes to the financial statements. (1) During Fiscal Year 2006-07, Carlsbad Municipal Golf Course Revenue Bonds were issued for $18.5 million. (2) The State Water Resources Control Board issued low interest loans for the Carlsbad Water Recycling Facility for $9.7 million during Fiscal Year 2005-06, and $18.8 million in Fiscal Year 2006-07. (3) Percentage of personal income is calculated using personal income for the prior year. Sources: SANDAG, California Department of Finance, American Community Survey. P 132 i Business-Type Activities Installment Accrued Bonds / Special Certificates of Purchase Assessments Debt (1) Participation Agreements $ 1,985 - $ 1,252 951 789 621 443 257 - - 18,540 6,360 ! 5,405 4,410 3,370 2,295 1,175 - - - - E 10,675 10,250 9,810 9,350 8,870 8,375 7,855 7,305 6,730 6,125 Loan Capital Payable (2) Leases S 1,999 $ 1,897 1,792 1,705 1,574 1,460 1,343 1,223 10,592 29,096 699 Total $ 45,628 40,722 38,227 35,502 32,536 28,952 25,734 23,735 31,493 67,540 Percentage of Personal Income (3) n/a 1.03% 0.88% 0.75% 0.66% 0.58% 0.52% 0.45% 0.57% 1.18% Per Capita $ 655.57 558.60 488.54 426.49 369.22 319.41 277.24 250.12 319.27 666.49 133 134 CITY OF CARLSBAD Schedule of Direct and Overlapping Bonded Debt Current Fiscal Year Fiscal Year 2006-07 Assessed Valuation: Redevelopment Incremental Valuation: Adjusted Assessed Valuation: OVERLAPPING TAX AND ASSESSMENT DEBT: Metropolitan Water District Palomar Community College District Carlsbad Unified School District Carlsbad Unified School District CFD No. 1 Oceanside Unified School District Vista Unified School District Encinitas Union School District San Marcos Unified School District School Facility Improvement District San Marcos Unified School District CFD No. 4 San Marcos Unified School District CFD No. 5 San Dieguito Union HS District CFD No. 94-1 San Dieguito Union HS District CFD No. 94-2 San Dieguito Union HS District CFD No. 95-2 San Dieguito Union High School District Combined CFD Palomar Pomerado Hospital District Olivenhain Municipal Water District, Assess. Dist. No. 96-1 City of Carlsbad CFD No. 3,1.A. No. 1 City of Carlsbad 1915 Act Bonds TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT DIRECT AND OVERLAPPING GENERAL FUND DEBT; San Diego County General Fund Obligations San Diego County Pension Obligations San Diego City Superintendent of Schools General Fund Obligations Mira Costa Community College District Certificates of Participation Palomar Community College District General Fund Obligations Carlsbad Unified School District General Fund Obligations San Marcos Unified School District General Fund Obligations Encinitas Union School District Certificates of Participation Other School District Certificates of Participation City of Carlsbad General Fund Obligations TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT COMBINED TOTAL DEBT (1) Percentage of overlapping agency's assessed valuation located within boundaries of the city. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to Fiscal Year 2006-07 Assessed Valuation: Total Overlapping Tax and Assessment Debt 0.99% Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($1,435,000) 0.01% Combined Total Debt 1.85% Source: MuniServices, LLC and County of San Diego Office of the Auditor and Controller $ 20,379,917,876 320,024,518 $ 20,059,893,358 Total Debt 06/30/07 $ 359,115,000 160,000,000 18,428,400 7,750,000 120,695,000 111,744,882 20,684,827 17,278,019 24,850,000 25,180,000 272,623 19,938,100 821,938 48,440,000 73,815,000 18,375,000 11,490,000 71,275,000 $ 1,110,153,789 $ 351,215,000 1,343,747,916 18,042,500 4,505,000 8,065,000 55,345,000 5,675,000 1,165,000 9,180,000 1,435,000 $ 1,798,375,416 $ 2,908,529,205 Percent Applicable (1) 1.25% 3.00% 97.64% 100.00% 0.01% 0.19% 31.20% 38.00% 24.40% 100.00% 100.00% 98.08% 12.03% 30.40% 2.16% 22.17% 100.00% 100.00% 6.43% 6.43% 6.43% 27.00% 3.00% 97.64% 32.79% 31.20% Various 100.00% City's Share of Debt 6/30/07 $ 4,488,938 4,792,000 17,992,753 7,750,000 6,035 216,785 6,453,459 6,565,820 6,064,146 25,180,000 272,623 19,555,288 98,920 14,725,276 1,595,880 4,073,370 11,490,000 71,275,000 $ 202,596,293 $ 22,576,100 86,376,116 1,159,772 1,216,575 241,547 54,036,644 1,860,946 363,468 15,060 1,435,000 $ 169,281,228 $ 371,877,521 135 CITY OF CARLSBAD Direct and Overlapping Debt Last Ten Fiscal Years (rate per $1,000 of assessed value) OVERLAPPING TAX AND ASSESSMENT DEBT; San Diego County Water Authority Metropolitan Water District Palomar Community College District Carlsbad Unified School District Carlsbad Unified School District Lease Tax Obligations Carlsbad Unified School District CFD No. 1 Oceanside Unified School District Vista Unified School District Encinitas Union School District Encinitas Union School District Lease Tax Obligations San Marcos Unified School District School Fac. Improv. Dist. Tri-City Hospital District Palomar Pomerado Hospital District Leucadia County Water District and I.D. No. 1 Vallecitos Water District and I.D. No. 6 San Marcos Unified School District CFD No. 4 San Marcos Unified School District CFD No. 5 San Dieguito Union HS District CFD No. 1 San Dieguito Union HS District CFD No. 94-1 San Dieguito Union HS District CFD No. 94-2 San Dieguito Union HS District CFD No. 95-2 San Dieguito Union HS District combined CFD Olivenhain Municipal Water District, I.D. No. 1 Olivenhain Municipal Water District, Assess. Dist. No. 96-1 City of Carlsbad CFD No. 3,1.A. No. 1 City of Carlsbad 1915 Act Bonds DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT: San Diego County General Fund Obligations San Diego County Pension Obligations San Diego City Superintendent of Schools General Fund Obligations Mira Costa Community College District Certificates of Participation Palomar Community College District General Fund Obligations Carlsbad Unified School District General Fund Obligations San Marcos Unified School District General Fund Obligations San Marcos Unified School District Certificates of Participation Encinitas Union School District Certificates of Participation Other School District Certificates of Participation City of Carlsbad General Fund Obligations 1998 0.068 0.696 4.009 1.076 1.778 1.032 0.226 1.023 0.012 0.004 0.017 0.683 4.702 3.958 2.935 0.017 0.061 1.733 0.103 0.268 0.026 1.027 1999 0.054 0.691 3.502 0.729 1.638 0.941 0.174 0.785 1.752 2.581 0.011 0.611 6.467 3.584 2.569 0.016 0.246 1.514 0.075 0.212 0.028 0.822 2000 0.040 0.611 2.909 0.186 1.315 0.874 0.131 0.682 1.457 1.319 0.005 0.553 4.908 3.524 2.149 0.014 0.207 1.460 0.050 0.166 0.021 0.626 Source: California Municipal Statistics, Inc. & MuniServices, LLC 136 2001 2002 2003 2004 2005 2006 2007 $ 0.028 $ 0.545 - 2.472 0.187 1.073 _ 0.756 0.138 0.615 - - 1.216 0.029 2.051 0.032 - 0.465 - 3.959 $ 3.016 $ 1.801 0.012 0.176 - 5.493 - 0.031 0.063 0.018 0.482 0.017 $ 0.481 - 2.099 0.122 0.909 0.005 0.678 0.050 0.629 - - 1.059 0.025 1.816 0.028 - 0.400 - 3.287 2.701 $ 1.470 0.011 0.145 - 4.843 - 0.015 0.078 0.022 0.381 0.008 $ 0.398 - 1.832 0.070 0.789 0.004 0.621 0.020 0.544 - - 1.909 0.023 1.628 0.025 - 0.357 - 2.809 2.281 $ 3.951 0.010 0.121 - 4.392 - - 0.045 0.021 0.304 $ 0.368 - 1.594 0.033 0.678 0.005 0.530 - 0.524 - - 1.886 0.020 1.456 0.023 0.973 0.314 3.145 1.881 $ 5.528 0.009 0.098 - 3.961 0.143 - 0.037 0.018 0.235 $ 0.319 - 1.342 - 0.578 0.005 0.471 - 0.448 - - 1.677 0.018 1.298 0.020 0.884 0.279 - 4.848 1.855 $ 5.008 0.051 0.085 - 3.557 0.122 - 0.032 0.015 0.174 $ 0.269 - 1.102 - 0.477 0.007 0.389 - 0.383 0.100 0.187 1.457 0.016 1.128 0.006 0.832 0.242 0.649 4.143 1.385 $ 4.376 0.044 0.072 0.013 3.106 0.106 - 0.024 0.001 0.119 0.224 0.239 0.897 - 0.386 0.011 0.322 - 0.327 0.080 0.302 1.255 0.014 0.975 0.005 0.734 0.203 0.573 3.553 1.125 4.306 0.058 0.061 0.012 2.694 0.093 - 0.018 0.001 0.072 137 CITY OF CARLSBAD Legal Debt Margin Information Last Ten Fiscal Years (dollars in thousands) 1998 1999 2000 2001 2002 Net assessed valuation Debt limit (25% x 15%) Less amount of debt applicable to limit: Bonded debt Certificates of participation Obligations under capital leases Total net debt applicable to limit Legal debt margin Total net debt applicable to the limit as a percentage of debt limit 6,424,231 $ 7,391,939 $ 8,890,683 $ 10,490,116 $ 11,850,679 240,909 277,198 333,401 393,380 444,400 14,740 6,595 2,399 23,734 $ 217,175 14,460 6,075 633 21,168 $ 256,030 14,170 5,570 904 20,644 $ 312,757 13,865 5,055 888 19,808 $ 373,572 13,540 4,515 791 18,846 $ 425,554 9.85%7.64%6.19% Percent of Debt Applicable to the Legal Debt Limit 12.00% 8.00% 4.00% 0.00% 5.04% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 4.24% Note: Under state finance law, the City's outstanding general obligation debt should not exceed 15 percent (as adjusted by 25% per the law) of total assessed property value. By law, the general obligation debt subject to the limitation may be offset by amounts set aside for repaying general obligation bonds. (1) $18.5 million in golf course bonds were issued in Fiscal Year 2006-07. If the golf course net operating revenue is not sufficient to cover the debt service payment, the General Fund will make the debt service payment. 138 2003 2004 2005 2006 13,009,712 $ 14,303,050 $ 15,741,122 $ 17,707,928 487,864 536,364 590,292 664,047 2007 20,059,893 752,246 13,200 3,950 179 17,329 S 470,53~ 12,840 3,360 79 16,279 520,085 12,460 2,740 7_ 15,207 S 575,08~ 12,065 2,105 1_ 14,171 649,876 30,185 (1) 1,435 31,620 S 720,626 3.55%3,04%2.58%2.13%4.20% -mi 139 CITY OF CARLSBAD Fledged-Revenue Coverage Last Ten Fiscal Years Wastewater Revenue Bonds Debt Service Fiscal Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Gross Revenues (1) $ 7,531,548 7,897,329 8,421,638 11,089,995 9,438,807 9,342,266 6,854,001 8,557,183 8,306,783 11,325,931 Less: Expenses (2) $ 3,037,634 3,762,721 3,792,799 4,352,912 4,707,348 4,584,265 5,284,357 5,156,663 6,009,282 7,168,463 Net Available Revenue $ 4,493,914 4,134,608 4,628,839 6,737,083 4,731,459 4,758,001 1,569,644 3,400,520 2,297,501 4,157,468 Principal $ 405,000 425,000 440,000 460,000 480,000 495,000 520,000 550,000 575,000 605,000 Interest $ 513,179 . 517,672 500,371 482,027 462,162 441,199 416,256 389,581 361,394 328,944 Coverage 4.89 4.39 4.92 7.15 5.02 5.08 1.68 3.62 2.45 4.45 Source: City of Carlsbad (1) Include operating and non-operating revenues. (2) Include operating and non-operating expenses, excluding depreciation. (3) Include recycled water operating and non-operating revenues and fees. (4) Include recycled water operating and non-operating expenses, excluding depreciation. (5) Fiscal Year 2006-07 is the first year loan payments were made. 140 Recycled Water Loans Debt Service Gross Less: Expenses Net Available Revenues (3) (4) Revenue n/a n/a n/a n/a n/a n/a n/a n/a n/a 4,187,043 n/a n/a n/a n/a n/a n/a n/a n/a n/a 2,205,573 n/a n/a n/a n/a n/a n/a n/a n/a n/a 1,981,470 Principal (5) n/a n/a n/a n/a n/a n/a n/a n/a n/a 537,565 Interest Coverage n/a n/a . n/a n/a n/a n/a n/a n/a n/a 268,821 n/a n/a n/a n/a n/a n/a n/a n/a n/a 2.46 141 CITY OF CARLSBAD Demographic and Economic Statistics Last Ten Fiscal Years •I «• Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Total Population 69,600 72,900 78,247 83,242 88,120 90,643 92,823 94,896 98,641 101,337 % of S.D. County Population 2.58% 2.65% 2.78% 2.91% 3.02% 3.05% 3.08% 3.12% 3.22% 3.27% % Change from Previous Year 3.73% 4.74% 7.33% 6.38% 5.86% 2.86% 2.41% 2.23% 3.95% 2.73% Median Age n/a n/a 38.9 38.9 39.4 39.7 40.2 40.6 40.9 41.2 Avg. Household Size n/a n/a 2.46 2.46 2.48 2.48 2.51 2.48 2.51 2.53 *m * m m m Sources: Population data is from the California Department of Finance and SANDAG. Household and demographic characteristics estimates are from SANDAG Current Estimates, the U.S. Census Bureau Census 2000 and American Community Survey. Income estimates are derived from data from the Bureau of Economic Analysis, U.S. Census Bureau Census 2000. Current population estimates are from SANDAG. Unemployment rate estimates are from the California Employment Development Department. (1) Values in inflation-adjusted 2005 dollars. (2) Per Capita Personal Income and Unemployment Rate are calculated on a calendar year basis, and therefore not yet available for 2007. (3) Personal Income is the total aggregate income that correlates to the total population. PR M m m m m 142 Educational Attainment % High School Graduate n/a n/a 93.10% n/a n/a n/a n/a 95.00% 95.40% n/a % Bachelor's Degree or Higher n/a n/a 45.60% n/a n/a n/a n/a 46.90% 53.00% n/a Personal Income (1,3) (millions) $ 4,291 4,614 5,028 5,261 5,476 5,545 5,842 6,017 6,338 n/a Per Capita Personal Income d)(2) $ 61,659 63,297 64,259 63,205 62,138 61,178 62,937 63,403 64,252 n/a Unemployment Rate (2) n/a n/a 2.50% 2.70% 3.40% 3.40% 3.10% 2.80% 2.60% n/a 143 2007 Employees Rank % of Total City Employment 2,000 900 727 535 391 300 300 270 260 250 250 1 2 3 4 5 6 7 8 9 10 10 3.60% 1.62% 1.31% 0.96% 0.70% 0.54% 0.54% 0.49% 0.47% 0.45% 0.45% CITY OF CARLSBAD Principal Employers Current Year and Nine Years Ago Employer Manufacturing Callaway Golf Invitrogen Corp. Taylor Made-Adidas Golf Co. Acushnet Golf Zimmer Dental Hoehn Motors Upper Deck Modern Postcard Beckman Coulter Syntron Bioresearch Inc. Schumacher Nellcor Puritan Bennett Corp. West Coast Composite Cobra Golf, Inc., II Ashworth, Inc. Palomar Products Asymtek Non-Manufacturing Four Seasons Resort Aviara Carlsbad Unified School District City of Carlsbad ViaSat, Inc. Gemological Institute of America La Costa Resort & Spa 24-Hour Fitness, USA San Diego Gas & Electric LEGOLAND California FedEx Express Jenny Craig Plaza Camino Real Carlsbad Company Stores Car Country Carlsbad SOMC Group, Inc. Subtotal Employees Total Employees Source: Carlsbad Business License Data (2007) and Carlsbad Chamber of Commerce (1998). (1) Total Employee count is not available for 1998. (2) These employers are now tracked by individual store versus combined by mall name. 1998 Employees Rank 2,400 1 450 6 500 5 280 1,500 700 675 394 300 280 10 2 3 4 7 1,000 950 834 811 660 501 350 325 251 250 250 n/a a/a in/a n/a 12,365 55,538 1 2 3 4 5 6 7 8 9 10 10 1.80% 1.71% 1.50% 1.46% 1.19% 0.90% 0.63% 0.59% 0.45% 0.45% 0.45% 22.26% 900 750 750 350 466 950 3,000 750 550 380 n/a (I) 3 5 6 10 8 2 1 4 7 9 (2) (2) (2) 144 145 CITY OF CARLSBAD Authorized Full and 3/4 Time City Government Employees by Major Service Area Last Ten Fiscal Years 1998 1999 2000 2001 Major Service Area General Government City Council City Manager Communications City Treasurer City Attorney Administration Records Management Information Technology Finance Risk Management Human Resources and Worker's Comp Public Safety Police Fire Community Development Community Development Administration Building Inspection Economic Development Geographic Information Planning Housing and Redevelopment Community Services Library Cultural Arts Recreation & Senior Programs Public Works Administration & Environmental Programs Engineering Services General Services Maintenance & Operations Full and 3/4 Time Authorized Employees Increase/(decrease) over prior year Source: City of Carlsbad Operating Budget Notes: A full-time employee is scheduled to work 2,080 hours per year (including vacation and sick-leave). A 3/4 time employee is scheduled to work 1,560 hours per year (including vacation and sick-leave). 2002 1.00 8.00 0.75 5.00 3.60 6.40 19.00 1.00 8.00 122.00 79.00 4.75 13.00 1.00 1.00 24.00 10.00 32.50 3.00 21.50 7.00 34.00 50.75 76.75 533.00 7.50 1.00 9.00 0.75 5.00 4.00 13.00 19.00 2.00 8.00 128.00 79.00 4.75 13.00 1.00 2.00 24.00 10.00 32.25 3.00 21.50 7.25 37.00 47.25 81.25 553.00 20.00 1.00 6.75 0.75 6.00 2.00 8.00 14.00 26.00 2.00 9.00 134.00 79.75 4.75 13.00 1.00 2.00 24.00 10.00 40.75 4.00 22.00 3.00 49.00 51.75 70.00 584.50 31.50 1.00 6.00 1.00 0.75 6.00 2.00 8.00 15.00 27.00 2.00 9.00 138.00 . 79.75 3.75 13.00 1.00 2.00 24.00 10.00 41.75 4.00 27.00 3.00 48.70 55.75 70.30 599.75 15.25 1.00 6.00 1.00 0.75 7.00 2.00 8.00 15.00 27.00 2.00 10.00 143.00 79.75 3.00 13.00 1.00 2.00 25.00 10.00 46.25 4.75 30.00 3.50 58.70 57.25 70.30 627.25 27.50 m m 1 m P tt 1ft I M iy a 1 i m m * M • 146 fl «• 2003 2004 2005 2006 2007 1.00 6.00 2.75 0.75 7.00 2.00 8.00 16.00 28.00 2.00 10.00 150.00 79.75 3.00 13.00 1.00 2.00 25.00 10.00 48.00 4.75 33.00 6.00 57.00 57.75 73.00 646.75 19.50 1.00 6.00 2.75 0.75 7.00 2.00 8.00 16.00 28.00 2.00 10.00 148.00 79.75 3.00 13.00 1.00 2.00 25.00 10.00 48.00 5.00 33.00 6.00 57.00 58.75 73.00 646.00 (0.75) 1.00 6.00 2.75 0.75 7.00 2.00 8.00 16.00 28.00 2.00 10.00 148.00 79.75 3.00 13.00 1.00 2.00 25.00 10.00 48.00 5.00 32.50 14.20 51.10 82.85 47.10 646.00 - 1.00 6.00 2.75 0.75 7.00 2.00 8.00 16.00 27.00 2.00 10.00 151.00 79.75 4.00 13.00 1.00 2.00 24.00 10.00 48.00 5.00 32.50 14.20 51.60 91.95 49.50 660.00 14.00 1.00 7.00 3.75 0.75 7.00 2.00 8.00 19.00 28.00 2.00 10.00 157.00 87.75 5.00 13.00 1.00 3.00 27.00 10.00 48.00 5.00 30.50 18.00 54.00 95.25 47.00 690.00 30.00 147 CITY OF CARLSBAD Operating Indicators by Function/Program Last Three Fiscal Years 2005 2006 2007 General Government Number of recruitments processed Number of new hires and promotions Business licenses processed Public Safety Police Calls for service Average priority one response (minutes) Cases Fire Emergency responses Fires extinguished Community Development Affordable housing units completed Financial assistance to affordable housing projects Residential building permits issued Code enforcement inspections Building inspections conducted Final inspections (dwelling units) Planning applications considered Community Services Library - total material circulation Library - patron visits Arts - number of events Arts - attendance of events Recreation - youth sports participants Recreation - adult sports participants Recreation - enrichment classes held Recreation - enrichment class enrollees Recreation - special events participants Public Works Streets Road miles - overlay or slurry seal Trees trimmed Carlsbad Municipal Water District Potable water deliveries - acre feet Average daily consumption (gal/single family) Water customers Wastewater Sewage pumped (millions of gallons per day) Annual flow (millions of gallons) Wastewater customers 67 50 8,507 74,546 6.8 10,059 6,705 220 439 $1,600,000 1,745 5,600 53,267 1,702 197 1,282,974 731,326 65 50,000 1,100 5,100 1,650 16,700 2,000 28.20 1,767 19,172 363 20,281 7.36 2,688 16,454 83 135 8,955 79,855 6.3 10,605 7,245 218 110 $1,440,000 943 5,600 51,000 1,440 162 1,237,311 898,511 62 65,000 1,150 5,150 1,650 16,700 3,500 32.30 1,800 19,885 398 23,099 6.62 2,416 18,754 78 119 8,926 95,002 6.0 8,857 7,861 234 110 $2,132,000 472 6,800 33,523 765 200 1,286,654 685,782 58 64,000 1,150 5,200 1,650 16,700 6,500 23.80 1,811 21,500 393 25,791 6.81 2,486 20,858 Source: City of Carlsbad 148 CITY OF CARLSBAD Capital Asset Statistics Last Three Fiscal Years 2005 2006 2007 Community Services Number of parks Acres of parks Acres of open opace Miles of trails Number of pools Number of community centers Number of libraries Number of materials in library collections Public Safety Fire Protection Number of stations Number of fire trucks Number of ambulances Number of other fire vehicles 30 295 625 13 1 2 2 373,998 6 11 4 11 30 295 625 27 1 2 2 356,385 6 11 4 11 31 348 625 35 1 2 2 371,885 6 11 5 13 Police Protection Number of patrol and other vehicles Number of motorcycles Public Works Carlsbad Municipal Water District Miles of lines and mains 85 13 431 82 13 434 90 12 442 Wastewater Miles of sewers 232 254 265 Streets Miles of streets Number of street lights Number of traffic signals 295 6,445 138 308 6,786 152 332 7,444 155 Source: City of Carlsbad * Includes new replacement vehicles, and excludes vehicles classified as out-of-service at June 30th of that particular fiscal year. 149 150