HomeMy WebLinkAbout; ; 2009-2010 CAFR; 2010-06-30
COMPREHENSIVE ANNUAL
FINANCIAL REPORT
FISCAL YEAR ENDED
JUNE 30, 2010
1635 Faraday Avenue, Carlsbad, CA 92008
Website: www.carlsbadca.gov
Prepared by the Finance Department
Cover design by: Kelly Gilfillen
Carlsbad . . .
Provides a diverse and healthy economic base that creates opportunities for
employment to the residents of Carlsbad, economic vitality to the community, and
the necessary revenues to support City services.
Provides programs, policies and decisions to 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
involves addressing governmental issues at the local, state and national levels.
Provides an open government leading to 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 preservation
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.
Carlsbad City Council
2010
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.
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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
106,804, with an expected build-out population of 117,000 residents.
Industries in the city include a major regional shopping center; a specialty
outlet center; 20 auto dealers; 34 hotels offering over 3,600 rooms for tourist
lodging; high technology, multimedia and biomedical businesses;
electronics, golf apparel and equipment manufacturers; several business and
light industry parks; and numerous land developers building single and
multi-family housing in a variety of community settings.
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:
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
In addition to the full range of services normally associated with a municipality, Carlsbad offers programs
to help local residents and businesses. The city’s Redevelopment Agency is comprised of two areas: the
0.4 square mile Village Redevelopment
area in downtown and the South
Coastal Carlsbad Redevelopment Area,
which borders the Pacific Ocean south
of the Village Redevelopment Area.
Low-income families in Carlsbad
receive assistance from the city’s
Housing Authority and older residents
can take advantage of Carlsbad’s senior
citizen programs.
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 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
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S a n F r a n c i s c o
L o s A n g e l e s
S a n D i e g o
Oregon
N e v a d a
P a c i f i c O c e a n
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E W
S Carlsbad
City of Carlsbad Community Vision
Small town feel, beach community character and connectedness Enhance Carlsbad’s defining attributes - its small town feel and beach community
character. Build on the city’s culture of civic engagement, volunteerism and
philanthropy.
Open space and the natural environment - Prioritize protection and enhancement
of open space and the natural environment. Support and protect Carlsbad’s unique
open space and agricultural heritage.
Access to recreation and active, healthy lifestyles - Promote active lifestyles and
community health by furthering access to trails, parks, beaches and other recreation opportunities.
The local economy, business diversity and tourism - Strengthen the city’s strong
and diverse economy and its position as an employment hub in north San Diego
County. Promote business diversity, increased specialty retail and dining
opportunities, and Carlsbad’s tourism.
Walking, biking, public transportation and connectivity - Increase travel options
through enhanced walking, bicycling and public transportation systems. Enhance
mobility through increased connectivity and intelligent transportation management.
Sustainability - Build on the city’s sustainability initiatives to emerge as a leader in
green development and sustainability. Pursue public/private partnerships,
particularly on sustainable water, energy, recycling and foods.
History, the arts and cultural resources - Emphasize the arts by promoting a
multitude of events and productions year round. Cutting edge venues to host world
class performances, and celebrate Carlsbad’s cultural heritage in dedicated facilities
and programs. High quality education and community services
Support quality, comprehensive education and lifelong learning opportunities,
provide housing and community services for a changing population, and maintain a
high standard for citywide public safety.
Neighborhood revitalization, community design and livability
Revitalize neighborhoods and enhance citywide community design and livability.
Promote a greater mix of uses citywide, more activities along the coastline and link density to public transportation. Revitalize the downtown Village as a community
focal point and a unique and memorable center for visitors, and rejuvenate the
historic Barrio neighborhood.
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the City Council would like to place special emphasis during the year. Once the vision and priority projects
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
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 was unchanged in August 2010, breaking a string of 16 consecutive
increases in this indicator. Negative indications in building permits and unemployment insurance offset
positive movements in the other four items. While the Index does not indicate an impending downturn, it
does reflect continued weakness in the economy, and future growth is expected to be uneven, with little
improvement in job growth.
Carlsbad’s economy is tied
closely to that of the San Diego
region. Continued fallout from
the recession that began in 2007
can be seen in the city’s General
Fund revenues, which are
projected to decrease by $4.4
million, or almost four percent
in fiscal year 2010-11.
Although the city forecasts
moderate growth in sales tax
and transient occupancy tax
revenues, property taxes are
expected to decline almost two
percent compared to the
previous fiscal year. Property
tax revenues represent 44
percent of the General Fund
Budget.
Carlsbad’s residential real estate market slowed significantly throughout FY 2008-09, but it has picked up
in 2009-10. For FY 2008-09, the city issued 107 dwelling units as compared to 339 dwelling units for FY
2007-08. For 2009-10, the city is projecting it will issue 265 dwelling units. For industrial and commercial,
the city has permitted 109,149 square feet for FY 2009-10 through April 2010, compared to 237,935 square
feet for FY 2008-09 for the same time frame. Development has picked up recently due to 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 nearing completion, with the final phases under construction. In addition, the
Robertson Ranch area East and West Villages, which is expected to contain a little over 1,100 residential
units, has began to pull building permits for three communities in the East Village. The completion of
these master planned communities will signal an end of the larger-scale residential development in
Carlsbad.
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As the housing market cooled, the
housing prices declined as well.
However, we are now starting to see a
slight increase in housing prices. The
median price for single-family homes
in Carlsbad was $681,000 for March
2010, an increase of 6.6 percent from
the previous year. Total assessed
values in the city stand at over $21
billion, an increase of nearly 50
percent over what they were just five
years ago. The city is projecting it will
add about 1,088 more residential units
and an additional 1.5 million square
feet of commercial/industrial
development over the next five years. The city’s residential housing stock is about 90 percent built out,
with approximately 4,850 housing units remaining to develop.
Prior to the downturn of the economy in 2007, commercial and industrial development had been averaging
1,129,000 square feet per year over the five years prior to that. Due to the economic recession, commercial
and industrial development now is expected to average 300,000 square feet per year over the next five
years with the large industrial commercial developments including Bressi Ranch, Carlsbad Raceway and
Palomar Forum, Dos Colinas Retirement Community, Paseo Carlsbad Retail and Restaurants and the
desalination plant. Some of the major companies in town include Callaway Golf, the Gemological Institute
of America, ViaSat, Life Technologies, TaylorMade-adidas Golf, 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 additions being the Sheraton Carlsbad Resort and Spa, Homewood Suites
and Hampton Inn.
The City of Carlsbad opened a municipal golf course in the summer of 2007 which has further enhanced
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 is
a destination spot for golfers and non-golfers alike.
Overall, for FY 2010-11, the General Fund revenue is projected to decline by 3.9 percent from the previous
year’s estimates. Most of the tax revenue, with the exception of property taxes, is expected to increase
slightly in 2010-11. Sales tax and TOT are both projected to increase over three percent due to the upward
trend we see in the economy. Due to the decline in housing values, the County Assessor has estimated that
the city should expect property tax revenues to decrease by almost 1.8 percent for FY 2010-11. New
building permits are expected to increase slightly and the development related revenue items have been
adjusted accordingly for Fiscal Year 2010-11. More information on all of the city’s revenues and programs
can be found in the later sections of the document.
$0
$100
$200
$300
$400
$500
$600
$700
$800
2003 2004 2005 2006 2007 2008 2009 2010
Fiscal Year
Median SFD Home Prices Thousands 6
State of California
California appears to be emerging from the most severe economic downturn since the Great
Depression, although the pace of recovery is almost imperceptible and a significant budget
imbalance continues to plague the state, as it has for a number of years. Through a variety of
loans, one-time revenues, interfund borrowings, and raids on city, county and special district
funds, it has been able to manage its cash flows and stay solvent. Federal and state
maintenance-of-effort requirements and other legal constraints have also increased costs and substantially
restricted the areas of the Budget that can be reduced. As a result, the state’s choices are more limited and
more difficult.
The state adopted its budget for Fiscal Year 2010-11 in October 2010, an historic 100 days late. The
budget closes a gap of $17.9 billion and provides a modest reserve of $1.3 billion. The package of budget
actions agreed upon by the Governor and the Legislature include expenditure-related solutions, projected
federal funding (including funding not yet approved by Congress), revenue actions, and the use of one-time
loans, transfers and funding shifts. Expenditure reductions of $7.8 billion include savings in education and
the effects of current and future negotiations with state unions. Additional federal funding of $5.4 billion is
projected in the state budget, although only a portion of this has been approved by Congress and the
President to date. Revenue actions include the suspension of business deductions for net operating losses
and proceeds from the sale and leaseback of state office buildings. Other measures for closing the budget
deficit include transfers, loans, and shifts, such as the use of previously authorized state take of
redevelopment agency funds for state courts. Unlike previous years, the state budget appears to have a
minimal impact on local governments.
As a result of previous 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.” According to Proposition 1A, if the state borrows funds from local governments, the state is
required to pay back the funds within three years including interest. The state can only borrow two times
within a 10 year period and is required to pay back the first loan before another borrowing can occur.
There is also a statewide ballot measure aimed for the November 2010 election that would protect funding
for local public safety, emergency response, transportation, transit and other vital local services.
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, the city can anticipate the effects of
development from both a capital and an operating perspective.
While the City of Carlsbad has a long-term history of maintaining sufficient reserves, the City Council took
formal action during Fiscal Year 2007-08 to adopt a reserve policy. The General Fund Reserve Policy sets
a minimum reserve of 30 percent of the General Fund expenditures and also establishes a target reserve of
40 percent to 50 percent. This reserve can be used by the City Council for emergencies or one-time
purposes.
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
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streets, parks, and the many facilities for which the city is responsible. For Fiscal Year 2010-11, the City
Council approved allocating $7.1 million, or 6.5 percent, of General Fund revenues to the Infrastructure
Replacement Fund.
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. While the ten-year forecast
indicates that the city maintains a balanced budget in the coming years, surpluses will not be as robust as in
past years. The future will bring a few more commercial sites but at a much slower pace, especially in the
next few years, due to the economy. Until the housing and employment crisis can recover, it is anticipated
that residential development will continue at a slower pace. 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. The
timing of opening these facilities has been reviewed to ensure that the facilities are opened during a time
when the General Fund can support these additional operating costs.
These new facility operating costs have been incorporated into the General Fund forecast shown at the
bottom of this page and projected over the next ten years. The emphasis will continue to be maintaining
existing infrastructure. New civic facilities will be planned when there is anticipated financial capacity to
operate and maintain those new facilities when they are opened. While no forecast is ever totally accurate,
it does represent a likely scenario given the assumptions on which it is built.
The forecast assumes that ongoing revenue (excluding one-time revenues received in FY 2009-10) will
begin to turn positive in FY 2010-11, although at a very moderate rate, assuming that the economy does not
go into a double-dip recession. To project the expenditures, it includes all known personnel costs.
However, the city is currently in negotiations with its Fire and Police associations, and the results of those
negotiations have not been reflected in the current ten-year forecast.
The forecast assumes 10 percent annual increases in health care costs in the near future with the employees
paying half of those increases. It also assumes no personnel growth (new positions) until FY 2012-13.
Negotiated salary step increase and cost of living increases between 0.5 percent and 3.5 percent have been
added to personnel costs. In order to help maintain a balanced ten-year forecast, position growth has been
limited. Pension plan costs are anticipated to increase by approximately five percent for miscellaneous
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60
80
100
120
140
160
180 $ MillionsFiscal Year
General Fund Revenues and Expenditures
Revenues
Expenditures
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employees and 7.5 percent for safety employees in FY 2011-12 as a result of the significant investment
losses CalPERS sustained in FY 2008-09. It assumes that the contribution from the General Fund to the
Infrastructure Replacement Fund is 6.5 percent of General Fund revenues. And finally, it includes
estimated operating costs for all capital projects in the timeframes shown in the Capital Improvement
Program (CIP). One of the significant assumptions in the forecast is that the recession, if it has not already,
will bottom out during 2010, with modest growth during the economic recovery.
The results show that while the General Fund is balanced for FY 2010-11, there are small projected deficits
projected for the following three years due predominantly to the increase in the projected PERS rates. One-
time transfers are currently programmed in the forecast in the event that these deficits materialize in these
years. Additional budget solutions will be pursued to help balance those years as well. In addition, for the
years that appear to be balanced, there are much smaller surpluses than in previous years’ forecasts. This
reflects the current economic recession and uncertainty.
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 realize its future plans. The General Fund 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. When there is economic
uncertainty, this long-term perspective becomes even more important.
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, 2010 was
1.401. The average return realized on the pooled investments declined from 3.72 percent in Fiscal Year
2009-10 to 2.52 percent for Fiscal Year 2010-11.
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 gain of 1.16 percent for
Fiscal Year 2009-10. According to the City
Treasurer, “It is likely that a downward trend
will continue in Fiscal Year 2010-11 as
investments with higher interest rates are
called and reinvested at today’s lower
market rates.”
Major Initiatives and Projects
Due to ongoing economic uncertainty, the Fiscal Year 2010-11 Operating Budget did not provide for
additional major initiatives. Several significant projects are in design or under construction over the next
few years. Some of the notable capital projects include the following:
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-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
Unreal G/L %
Historical Unrealized Gains/Losses
as Percent of Amortized Cost
July 2004 –June 2010
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Alga Norte Park and Aquatic Center – This park site 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 55-meter competition pool, a 12-lane instructional pool
and a therapy pool as well as a water play area for toddlers (Phase I).
In addition, a moving river, water slides and wet play structure are
planned for Phase II. A swimming pool complex was one of the
projects approved by the voters through Proposition C in 2002. The
total cost of the park and aquatic center, Phase I, is estimated to be
$39.8 million. Total appropriation for the park and Phase I and Phase
II of the aquatic center is currently at $50.4 million.
Leo Carrillo Park Barn – Phase III of this historic park facility includes
transformation of the existing barn into a community theatre. The total budget is
$500,000. The project is expected to be complete in the Spring of 2011. In
addition, Phase III includes the renovation of additional buildings, construction of
additional restrooms and an arboretum area. The total cost of the remainder of
Phase III is approximately $1.9 million and design is expected to begin in FY
2013-14.
The Public Works Center – The city has planned the construction of a Public Works Center to
bring together many of the maintenance functions to a single facility for a number of years. In
2010, the City Council took action to purchase 3.08 gross acres of land with an existing 5,400
square foot industrial building on site. This property is adjacent to an existing city facility, a 5.8
gross acres site located on Las Palmas Drive. In the coming year, staff will develop updated
estimates and plans to locate offices, shops, a yard, warehouse and parking to accommodate the
city’s maintenance personnel. The total cost of the project is approximately $28.1 million.
The Joint First Responders Training Facility project was authorized under Proposition C, which
was approved in 2002. The contract for this facility has been awarded, and construction began in
June 2010. The facility is being constructed on a site at the Carlsbad Safety Center adjacent to
Fire Station No. 5 with a total project budget of $24.5 million. Plans for this facility include a 25-
yard and 100-yard shooting range, a four-story fire training tower, and a two-story residential
training facility.
The Relocation of Fire Station No. 3, which is currently located at the
corner of Chestnut and Catalina, is needed to help ensure a five-minute
response time as the city grows eastward. The site for the new station is in
Robertson Ranch. Total cost is projected at $9.2 million.
The Carlsbad Boulevard Encinas Creek Bridge Replacement - This project has been identified as
one of the City Council’s top priorities for the coming year. The FY 2010-11 CIP includes an
appropriation of $3.0 million for preliminary engineering and environmental studies to analyze
roadway realignment alternatives, infrastructure needs, land uses, commercial land development
options, public park and coastal access opportunities and related long-term coastal planning issues and
constraints.
Traffic Management Center and ATMS – In keeping with City Council’s goal of improving
traffic flow throughout the city, a project to develop an Automated Traffic Management System
(ATMS) and a Traffic Management Center has been added to the CIP program. A pilot study is
currently being conducted to test the effectiveness of the proposed system. Once the study is
complete the system will be expanded to incorporate key locations throughout the city. A total of
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$912,000 has been included in the CIP with a $203,000 appropriation in FY 2010-11.
The Pavement Management Program helps ensure that Carlsbad’s local streets are maintained
on a regular cycle to ensure a good riding surface and to extend the life of the street. Part of the
maintenance program is the sealing and overlay of the existing street surface. In addition, any
problem areas are addressed as they are identified. The FY 2010-11 CIP has $2.7 million
budgeted for this program.
Poinsettia Lane Reach E is a project which includes completion of the final link along Poinsettia
Lane between Cassia Road east to Skimmer Court. The total cost is approximately $13.5 million
and the city expects to begin the design in FY 2013-14.
Vista/Carlsbad Interceptor and Aqua Hedionda Lift Station Replacement –
This project consists of a set of individual projects that will ultimately construct a
parallel sewer interceptor system to accommodate existing and future sewer flows
from the cities of Vista and Carlsbad. The individual projects include a main in
Jefferson Street, replacement of the Aqua Hedionda Lift Station, and a main from
the lift station to the Encina Wastewater Facility. The overall total cost estimate
for this set of projects totals $48.8 million, of which $15.3 million is to be funded
by the City of Carlsbad, with the remainder of $33.5 million to be funded by the
City of Vista.
Major wastewater facilities scheduled for construction or replacement within the
next five years include:
- Buena Interceptor Sewer Improvements
- Home Plant Lift Station Replacement and Forcemain
- Buena Vista Lift Station Improvements
The Maerkle Reservoir Storage project is for the construction of a buried 16 million gallon
water storage reservoir next to the existing reservoir in order to provide additional emergency
storage and to meet the ten-day storage criteria based on ultimate demands. The total cost is
estimated at $14.8 million.
The Hydroelectric Pressure Reducing Station project at the Maerkle Reservoir is an electricity
generating project that will provide a renewable energy source for the city. The cost estimate for
this project is approximately $2.0 million.
Several major water lines are scheduled for construction within the next five years:
- Carlsbad Boulevard – south of Avenida Encinas
- Maerkle Transmission Main
- Tri-Agencies Water Transmission Pipeline Replacement
- Reservoir Repair/Maintenance Program
- Palomar Business Park Recycled Water Pipelines
Aqua Hedionda Channel – the project included dredging approximately 30,000 cubic yards of
accumulated sediment from the Aqua Hedionda and Calavera Creek Channels adjacent to the
Rancho Carlsbad Community. Current cost estimates have been updated to include the need to
acquire and restore 5.6 acres of wetland mitigation. The total estimated cost of the project is $5.2
million.
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DEPUTY CITY MANAGERASSISTANT CITY MANAGERFIREPOLICEELECTORATECITY CLERKMAYOR &COUNCILCITYTREASURERCITY MANAGERCITY ATTORNEYPUBLICSAFETYPUBLICWORKSCOMMUNITYDEVELOPMENTCOMMUNITY SERVICESBeachPreservationCommitteeTrafficSafetyCommissionUndergroundUtility AdvisoryCommitteeHousing &RedevelopmentCommissionHousing CommissionHistoricPreservationCommissionCITY OF CARLSBAD ORGANIZATION CHARTArtsCommissionParks & RecCommissionSeniorCommissionElectedCouncil AppointedReporting RelationshipProgramsKEYPlanningCommissionLibrary Boardof TrusteesSerra CooperativeLibrary SystemAdvisory BoardCarlsbad Tourism B.I.D. Advisory BoardRev 08/03/10PARKS & RECREATIONLIBRARY & ARTSCOMMUNITY & ECONOMIC DEVELOPMENTHOUSING & NEIGHBORHOOD SERVICESINFORMATIONTECHNOLOGYFINANCEHUMANRESOURCESPROPERTY &ENVIRONMENTALMANAGEMENTTRANSPORTATIONUTILITIESINTERNALSERVICES16
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Management’s Discussion and Analysis
Management of the City of Carlsbad (“city”) provides readers this overview and analysis of the financial activities
of the city for the fiscal year ended June 30, 2010. The 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. The information presented here should be
considered in conjunction with the additional information furnished in the letter of transmittal.
Overview of the Financial Statements
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 providing of 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, included is
a section with combining fund statements that provides detail about the 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.
Management’s
Discussion
and
Analysis
Basic
Financial
Statements
Required
Supplementary
Information
Required Components of the City of Carlsbad’s
Annual Financial Report
Notes
to the
Financial
Statements
Government-
wide Financial
Statements
Fund
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 cost of certain services it provides.
The city’s water, wastewater, solid waste services and municipal golf course operations 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.
We use internal service funds to report activities that provide services and supplies for the city’s other
programs and activities – such as fleet, workers’ compensation, and information technology.
20
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. These activities are excluded 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, 2010, as shown below, were $1.7 billion. The city’s net assets
increased by $45.6 million during the current fiscal year. Over $50 million in one-time capital grants and
contributions (to be used for the purchase and acquisition of infrastructure and other capital assets) were received
during the year which offset the $4.6 million deficit created by operating expenses exceeding operating revenues
during the year. A large factor in this deficit was the refunding of over $10 million in Rancho Santa Fe Road fees
due to a surplus in the fund.
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 $1.7 billion at the close of the most recent fiscal year.
A large portion of the city’s net assets (65 percent) 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 would not be used to liquidate these liabilities.
An additional portion of the city’s net assets (16 percent) represents resources that are subject to external restrictions
on how they may be used. The remaining balance of unrestricted net assets ($314.4 million) may be used to meet
the government’s ongoing obligations to citizens and creditors.
Just under 48 percent of the $314.4 million in unrestricted governmental activities net assets is attributable to the
General Fund. Net assets invested in capital assets net of related debt for the city increased by $34 million during
Fiscal Year 2009-10 due primarily to the receipt of developer donated assets during the year (infrastructure assets in
Carlsbad Raceway, Kelly Ranch and Robertson Ranch), the construction of the North Agua Hedionda interceptor
Total
Percentage
Change
2009 2010 2009 2010 2009 2010 2009-10
Current and other assets $517.8 $523.0 $84.2 $90.9 $602.0 $613.9 2.0%
Capital assets 753.2 778.0 356.8 363.4 1,110.0 1,141.4 2.8%
Total assets 1,271.0 1,301.0 441.0 454.3 1,712.0 1,755.3 2.5%
Long-term debt outstanding 10.7 10.3 50.9 48.4 61.6 58.7 -4.7%
Other liabilities 15.4 16.2 10.0 9.9 25.4 26.1 2.8%
Total liabilities 26.1 26.5 60.9 58.3 87.0 84.8 -2.5%
Net assets
Invested in capital assets,
net of related debt 742.5 767.7 308.4 317.2 1,050.9 1,084.9 3.2%
Restricted 233.6 227.0 43.2 44.2 276.8 271.2 -2.0%
Unrestricted 268.8 279.8 28.5 34.6 297.3 314.4 5.8%
Total net assets $1,244.9 $1,274.5 $380.1 $396.0 $1,625.0 $1,670.5 2.8%
Total
CITY OF CARLSBAD'S NET ASSETS
(in millions of dollars)
Governmental
Activities
Business-Type
Activities
21
and lift station and the completion of the Library Learning Center. A portion of business-type net assets represents
the city’s municipal golf course. At the end of Fiscal Year 2009-10, there is a large deficit in unrestricted net assets
for the Golf Course Fund. This is the result of the General Fund advancing money to the Golf Course Fund for the
construction of the course.
Changes in Net Assets
The condensed summary of activities, which follows, shows that net assets increased by $45.6 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; a citywide
restructuring initiative that either eliminated or unfunded 23.75 positions; $17.5 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.
Total
Percentage
Change
2009 2010 2009 2010 2009 2010 2009-10
Revenues
Program revenues
Charges for services $14.2 $15.1 $42.0 $48.1 $56.2 $63.2 12.5%
Operating grants and contributions 12.1 11.4 1.9 1.7 14.0 13.1 -6.4%
Capital grants and contributions 27.7 32.5 14.6 17.9 42.3 50.4 19.1%
General revenues
Property taxes 55.3 55.1 2.8 2.8 58.1 57.9 -0.3%
Sales and use taxes 23.1 23.0 - - 23.1 23.0 -0.4%
Other taxes 22.4 21.0 - - 22.4 21.0 -6.2%
Income from property and investments 19.8 12.5 5.9 3.7 25.7 16.2 -37.0%
Other 0.4 0.4 0.2 0.2 0.6 0.6 0.0%
Total revenues 175.0 171.0 67.4 74.4 242.4 245.4 1.2%
Expenses
General government 12.9 23.0 - - 12.9 23.0 78.3%
Public safety 44.6 44.4 - - 44.6 44.4 -0.4%
Community development 16.1 18.9 - - 16.1 18.9 17.4%
Community services 20.3 18.8 - - 20.3 18.8 -7.4%
Public works 35.2 35.4 - - 35.2 35.4 0.6%
Interest on long-term debt 0.6 0.5 - - 0.6 0.5 -16.7%
Carlsbad Municipal Water District - - 30.2 33.9 30.2 33.9 12.3%
Golf course - - 13.1 11.9 13.1 11.9 -9.2%
Wastewater - - 11.8 10.4 11.8 10.4 -11.9%
Solid waste - - 2.6 2.6 2.6 2.6 0.0%
Total expenses 129.7 141.0 57.7 58.8 187.4 199.8 6.6%
Excess (deficiency) before transfers 45.3 30.0 9.7 15.6 55.0 45.6 -17.1%
Transfers (0.1) (0.4) 0.1 0.4 - -
Increase (decrease) in net assets 45.2 29.6 9.8 16.0 55.0 45.6 -17.1%
Beginning net assets 1,199.7 1,244.9 370.3 380.0 1,570.0 1,624.9 3.5%
Ending net assets $1,244.9 $1,274.5 $380.1 $396.0 $1,625.0 $1,670.5 2.8%
Activities Activities Total
CITY OF CARLSBAD'S CHANGES IN NET ASSETS
(in millions of dollars)
Governmental Business-type
22
Just under 58 percent of the
revenues of the city’s
governmental funds are generated
through taxes collected (property,
sales, transient occupancy tax,
etc.), and just under 65 percent 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.
The current economic recession
has significantly impacted sales tax
revenues, property taxes, and
transient occupancy taxes. The
stabilization of energy prices has
impacted the city’s franchise taxes
(other taxes). The Federal
Reserve, in an effort to stimulate
the economy, has lowered interest
rates to historic lows, affecting the
city’s income from property and
investments. As development
throughout the city has picked up slightly from the prior year, developer impact fees (capital contributions),
developer contributed assets (capital contributions) and permitted activity (charges for services) have increased as
well. Another factor affecting charges for services were water and wastewater rate increases as well as a new tiered
rate system put in place to better align the costs of providing residential water service and to encourage water
conservation.
The total cost of all programs and services was just over $199.8 million in Fiscal Year 2009-10. Some of the
significant factors affecting the change in expenses from Fiscal Year 2008-09 to Fiscal Year 2009-10 included the
refunding of over $10 million of Rancho Santa Fe Road fees originally paid by developers, another large increase in
the cost of purchased water, agricultural mitigation grants approved by the city Council, and a state mandated
SERAF (Supplemental Educational Revenue Augmentation Funds) payment of $1.4 million. The city’s expenses
cover a range of services:
General Government (12 percent)
This segment of the city is divided
into three major groups: the Policy
and Leadership group, the
Administrative Services group and
non-departmental charges. 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, Geographic Information
Systems, Information Technology,
Risk and Records Management.
Also included in General
Government are any Council
directed special projects.
Property Taxes
(23%)
Charges for
Services (26%)Federal Aid (3%)
State Aid (2%)
Sales Tax (9%)
Other Taxes (4%)
Income from
Property and
Investments (7%)
Contributions
from Property
Owners (21%)
City of Carlsbad
Sources of Revenue for Fiscal Year 2009-10
$245.4 Million
TOT (5%)
General Government
12%
Public Safety
22%
Community
Development10%Community
Services9%
Public Works
18%
Golf Course
6%
Solid Waste1%
Water17%
Wastewater5%
City of Carlsbad
Functional Expenses for Fiscal Year 2009-10
$199.8 Million
23
Public Safety (22 percent)
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.
Community Development (10 percent)
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,
Economic Development and Real Estate Management, the Hiring Center, Housing and Redevelopment, and
Building Inspection departments.
Community Services (nine percent)
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 (18 percent)
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, Facilities
Maintenance, Building Maintenance, Street Lighting, and Traffic Sign and Signal Maintenance programs.
Golf Course (six percent)
The City of Carlsbad opened a municipal golf course in the summer of 2007, which further enhances 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, a high quality golf
experience, a first class restaurant and clubhouse, and linkages to hiking trails, The Crossings at Carlsbad is a
destination spot for golfers and non-golfers alike.
Solid Waste (one percent)
The Solid Waste Division of the Public Works Department promotes cost-effective solid waste management
programs through recycling, source reduction, composting, solid waste transfer, and other non-traditional
programs. In addition, funding for citywide programs related to storm water protection from pollution;
coordination with local, state and federal governments; and compliance with the Existing Development section
of the National Pollutant Discharge Elimination System (NPDES) Urban Storm Water Permit issued by the San
Diego Regional Water Control Board are accomplished in this area.
Water Operations (17 percent)
The Carlsbad Municipal Water District, a subsidiary of the City of Carlsbad, provides potable and recycled
water service to approximately 85 percent of the city (approximately 28,000 customers). The District
purchases 100 percent 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.
24
Wastewater Operations (five percent)
The City of Carlsbad operates and maintains a sanitary wastewater collection system, which covers
approximately 65 percent of the geographic area of the city. Wastewater is treated by the Encina Wastewater
Treatment Plant, a facility jointly owned by the cities of Carlsbad and Vista, the Leucadia Wastewater District,
the Vallecitos Water District, the Buena Sanitation District, and the City of Encinitas.
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 $29.6 million. This increase was generated by total
revenues of governmental activities of $171 million ($59 million in program revenues and $112 million in general
revenues) offset by $141 million in total costs of governmental activities and $444,000 in transfers to the Solid
Waste and Golf Course Funds.
The table below 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).
$0
$20
$40
$60
$80
General
Government
Public Safety Community
Development
Community
Services
Public Works
Governmental Activities
Program Revenues and Expenses
Fiscal Year 2009-10
(in millions)
Program Revenues
Expenses
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 ($15.1 million), grants and contributions
from other governments and organizations which subsidize certain programs ($43.9 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 $112 million.
Program revenues are almost equal to program expenses in Public Works. The majority of Public Works revenues
are used to acquire and build capital assets (versus covering operating expenses). In addition, the donation of capital
assets from developers is reflected in the program revenues for Public Works. Capital assets are generally
constructed or purchased once sufficient revenue has been accumulated to pay for the cost. The city is entering into
a new stage of its lifecycle, from a developing or growing stage to a mature stage. As the city continues to mature
and approach build-out, the city will not see as many master planned projects being developed. In past years, these
projects constructed new facilities, roads, parks, and other city-owned infrastructure. The city is now moving to a
more maintenance oriented city and will use funding sources such as the Infrastructure Replacement Fund to
maintain and replace these assets. However, there were still several master planned communities that were recently
25
completed or are near completion (La Costa Greens, La Costa Oaks, La Costa Ridge and Robertson Ranch); these
developers recently dedicated infrastructure to the city as required to develop in the city.
Business-Type Activities
Program revenues for the city’s business-type activities totaled $67.7 million for the year, while functional expenses
equaled $58.8 million.
Water and 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; the combined amount of
these contributions was just under of $17.9 million. Capital construction expenses are spread over the life of an
asset as annual depreciation charges (program expenses).
The city’s golf course enterprise was in its third full year of operations. Golf course operating expenses included
interest on the advance from the General Fund and interest related to the golf course bonds issued for the
construction of the course, and the second full year of depreciation related to the new golf course assets, resulting in
operating losses in excess of $6.3 million.
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.
$0
$10
$20
$30
$40
Water Golf Course Wastewater Solid Waste
Business-Type Activities
Program Revenues and Expenses
Fiscal Year 2009-10
(in millions)
Program Revenues
Program Expenses
26
As of the end of the current fiscal year, the city’s governmental funds reported combined ending fund balances of
$465.4 million, identical in comparison with the prior year. Approximately 28 percent of this amount ($129.9
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 - 22 percent, (2) for
future programs - 26
percent, (3) advances to
other funds - 13 percent, (4)
to liquidate contracts and
purchase orders of the prior
period - six percent, or (5)
for a variety of other
restricted purposes - five
percent.
Designated for Future Continuing
Appropriations
($122.4 million)
26% Reserved to Liquidate Contracts and
Purchase Orders
($29.0 million)
6%
Reserved for Advances
to Other Funds
($59.9 million)
13%
Reserved for Other Purposes
($21.3 million)
5%
Undesignated ($129.9 million)
28%
Designated for Approved
Capital Projects
($102.9 million)
22%
Total
Increase Percentage
(Decrease)Change
2009 2010
Revenues
Taxes $97.3 $93.1 ($4.2)-4.3%
Intergovernmental 1.8 1.7 (0.1)-5.6%
Licenses and permits 1.0 1.5 0.5 50.0%
Charges for services 6.2 6.7 0.5 8.1%
Fines and forfeitures 1.3 1.1 (0.2)-15.4%
Income from property and investments 4.3 3.7 (0.6)-14.0%
Miscellaneous 0.9 1.0 0.1 11.1%
Total revenues 112.8 108.8 (4.0)-3.5%
Expenditures
General government 12.6 12.3 (0.3)-2.4%
Interdepartmental charges (3.7)(4.0)(0.3)8.1%
Public safety 44.8 44.5 (0.3)-0.7%
Community development 7.5 7.0 (0.5)-6.7%
Community services 17.2 16.2 (1.0)-5.8%
Public works 21.5 21.1 (0.4)-1.9%
Capital outlay 0.0 4.0 4.0 100.0%
Total expenses 99.9 101.1 1.2 1.2%
Excess (deficiency) before transfers 12.9 7.7
Transfers in 0.1 5.3
Transfers out (8.4)(10.1)
Increase (decrease) in fund balance 4.6 2.9
Beginning fund balance 121.0 125.6
Ending fund balance $125.6 $128.5
2009-10
Total
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE
GENERAL FUND
(in millions of dollars)
27
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
$128.5 million, an increase of $2.9 million. The unreserved fund balance portion of the General Fund was
$68.9 million, of which $17.5 million was designated for future programs and service enhancements.
The decrease in revenues was primarily due to the impacts of the current recession facing the world on consumer
confidence (a reduction in sales and transient occupancy taxes); foreclosures and short sales on property values (a
reduction in property taxes); a reduction in the yield on the Treasurer’s portfolio (decreased income from property
and investments); and fewer moving violation tickets being written by the Police Department. These decreases were
partially offset by a small recovery in residential activity (both resales and the construction of new homes) on
development related services revenues (charges for services), building permits, miscellaneous licenses and permits,
and real property transfer taxes.
As the city was preparing their 2009-10 Fiscal Year budget, departments were asked to reduce their budgets by five
percent due to a projected decrease in General Fund revenues. At the same time, a citywide restructuring was
occurring. As a result of the five percent reduction in department budgets and the citywide restructuring, 23.75
General Fund positions were either eliminated, left vacant or unfunded during the year. These salary savings, along
with their associated benefits, resulted in a reduction of General Fund expenditures of approximately $800,000. In
addition, due to excess reserves accumulated at CalPERS in their health insurance program, CalPERS granted a
“health premium holiday” of one month’s premium for all employees enrolled in one of their PPO plans. This saved
the General Fund approximately $468,000 during the fiscal year. Through these savings, the General Fund budget
remained in balance, even with the reduced revenues. The General Fund also sold two parcels of land to the
Redevelopment Agency, increasing the transfers in from the prior year. Transfers out increased during the year due
to the fact that the city raised the annual contribution to the Infrastructure Replacement Fund back up to 6.5 percent
of budged General Fund annual revenues.
One major governmental fund, the Redevelopment Debt Service Fund, had a negative fund balance of just over
$17.8 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 $19.6 million advance back to the city’s General Fund, as the tax increment collected within the
redevelopment area grows. During the fiscal year, the Agency transferred over $6.8 million to the Redevelopment
Agency Capital Funds to assist with the purchase of two parcels of property from the General Fund and to fund the
costs associated with opposition to the expansion of the Cabrillo Power Plant. These transfers led to a reduction in
the fund balance of the Redevelopment Debt Service Funds of just under $6.7 million.
The four 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.
28
The Carlsbad Municipal Water District (CMWD) funds had an operating loss of approximately $1.4 million for the
year. Impacted by the fact that water rates increased by an average of 15.5 percent in August 2009 (after increasing
by 20 percent in January 2009), residents continued to conserve water by cutting back on water usage by about 14
percent during the year. CMWD also implemented a new tiered rate structure in August 2009, increasing water
rates for high-end users. The State of California has been in a drought for the past eight years, so the CMWD has
continued conservation outreach efforts in order to achieve a reduction in water usage throughout the District.
Operating expenses of $33.4 million exceeded operating revenues by $1.4 million. The largest factor in the increase
in expenses can be attributed to a 17 percent per unit cost increase for purchased water and a 17 percent increase in
fixed charges from the Metropolitan Water District and the San Diego County Water Authority (suppliers of the
District’s potable water). In addition to the increases in purchased water, CMWD began to implement the
automated meter reading system (AMR). This project required the replacement of all existing water meters with
new meters that can be read automatically (versus manually). The replacement of the existing meters began during
the year, and will continue for the next couple of years. Investment earnings on the capital replacement funds and
property tax receipts completely offset the operating loss, resulting in income before transfers and capital
contributions of $4.2 million.
In the third year of operation, the Golf Course Fund had an operating loss of $4.1 million, largely due to the second
full year of depreciation expenses on the newly constructed golf course assets. When golf course operating revenues
are not sufficient to cover golf course operating expenses, the General Fund will make contributions in the form of
lease payments to pay for the shortfall. Although food and beverage sales at the golf course restaurant (The
Canyons) were strong, golf rounds were below anticipated levels due to the economic recession.
The Wastewater Funds had an annual operating income of $1.6 million for the fiscal year. Total revenues from
operations increased $3.5 million from the previous year, the result of a nine percent rate increase and a $2.4 million
reimbursement from the City of Vista for their share of a portion of the Vista-Carlsbad Wastewater Interceptor
Project. On the other hand, wastewater operating expenses decreased by $1.2 million due in part to lower costs
passed through from Encina compared to the prior fiscal year, lower capital outlay expenses (a Vactor truck, a video
inspection van and a generator were purchased in the prior fiscal year), a one-time fine in the prior fiscal year for the
Buena Vista Lagoon wastewater spill, and a reduction in the replacement transfer from the Wastewater Operations
Fund to the Wastewater Replacement Fund.
Solid Waste Operations and Storm Water Programs are combined on the city’s financial reports, and showed a net
operating income of $520,000 for the year. Both revenues and expenses were relatively flat as compared to the prior
fiscal year.
Unrestricted net assets for the Water, Golf Course, Wastewater, and Solid Waste Operations at the end of the year
amounted to $33.9 million, or approximately 8.6 percent of the total enterprise fund net assets. The unrestricted net
assets may be used for rate stabilization, fluctuations in operating expenses, and unforeseen repairs and
maintenance. Approximately 11.2 percent of the net assets of all the proprietary funds are restricted for future
capital construction of new and replacement water and wastewater infrastructure assets. Since the funding for the
$0
$10
$20
$30
$40
$50
Water Golf CourseWastewater Solid Waste
Business-Type Activities
Operating Revenues and Expenses
Fiscal Year 2009-10
(in millions)
Operating Revenues
Operating Expenses
29
replacement of infrastructure assets is not restricted, it is reflected in the Statement of Net Assets as unrestricted.
The city does, however, account for and monitor these amounts in separate funds to ensure that water and
wastewater assets can be replaced when needed. The large unrestricted net assets deficit balance in the Golf Course
Fund represents funds advanced from the city’s General Fund that were used to fund construction and pre-opening
costs, as well as operating losses of the municipal golf course.
General Fund Budgetary Highlights for Fiscal Year 2010
Management monitors revenues during the year and updates estimated revenue figures when new information is
received by the city. General Fund revenue estimates were only modified slightly during the year as compared to
the originally budgeted estimates. Some of the factors that led to the $730,000 increase in revenue estimates
include:
A small increase in residential activity (both construction and resales) impacting development related revenues
(licenses, permits and charges for services) and real property transfer taxes.
Several new federal and state grants were applied for and received during the year.
Reimbursement from the City of Los Angeles for the Batiquitos Lagoon enhancement project (charges for
services).
A decrease in moving violation tickets issued by the Police Department (fines and forfeitures).
The decrease in interest rates affecting the treasurer’s portfolio.
The decrease from the total original expenditure budget to the final budget amounted to $1.9 million, due
predominantly to:
23.75 General Fund positions were eliminated, unfunded or left vacant during a portion of the year.
A reduction in health care expenses due to a “health insurance premium holiday” of one month for employees
who are on PPO plans with CalPERS.
The purchase of two parcels of land from the Golf Course Fund (increase in capital outlay).
An increase in the city’s engineers charging to capital projects (interdepartmental charges).
The transfer of over $900,000 from the Human Resources budget to the General Capital Construction Fund to
partially fund the new Human Capital Management System.
The difference between the final budgeted expenditures and the actual expenditures for the year (on a budgetary
basis) of $18 million can be generally summarized as follows:
$18 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.
$18 million in “savings” are planned to be used for:
Human resources information system software upgrade.
Upgrading the city’s Document Management System (DMS).
Fire apparatus and Emergency Medical Systems (EMS) equipment.
Library automation system upgrade and equipment replacement.
Innovation projects throughout the city.
Additional training and development throughout the city.
Public outreach efforts regarding Envision Carlsbad Phase II, Car Country dialogue and a climate
action plan.
An asphalt grinder and mobile solutions in the Transportation area.
Monroe Street pool maintenance upgrades, relocation and replacement initiated from the recent
Carlsbad High School renovations.
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For purposes of budgetary presentation, actual revenues have been adjusted to exclude unrealized gains and losses in
investments pursuant to GASB 31; actual expenditures have been adjusted to include remaining encumbrances.
Capital Asset and Debt Administration
Capital Assets
At the end of Fiscal Year 2009-10, the city had recorded investments of just over $1.1 billion 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.
Some of this year’s major capital asset additions included:
Developer-dedicated streets, drainage facilities, traffic signals, water and sewer lines and streetlights at:
o Carlsbad Raceway
o Kelly Ranch
o Robertson Ranch
Construction of the North Agua Hedionda interceptor and lift station.
Several waterline projects.
Completion of the Library Learning Center.
In addition to carrying forward appropriations of $176.7 million for previously budgeted projects, the city’s Fiscal
Year 2010-11 capital budget appropriates an additional $61.5 million for capital projects. These additional
appropriations are principally for the pavement management program, the replacement of a bridge on Carlsbad
Boulevard near the power plant, exploring the realignment of Carlsbad Boulevard., six new traffic signals,
development of a traffic management center, miscellaneous street projects, enhancing the wastewater collection
system, additional water and recycled water lines, the water reservoir repair/replacement program, several drainage
projects, improvements at the Encina water pollution control facility, construction of the Vista/Carlsbad sewer
interceptor, 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 wastewater 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.
Total
Percentage
Change Change
2009 2010 2009 2010 2009 2010 2009-10 2009-10
Land $139.7 $145.3 $9.5 $9.3 $149.2 $154.6 $5.4 3.6%
Construction in progress 142.9 144.1 15.4 22.0 158.3 166.1 7.8 4.9%
Buildings and other structures 72.4 78.8 40.2 40.2 112.6 119.0 6.4 5.7%
Improvements other than buildings 39.2 45.1 53.0 50.9 92.2 96.0 3.8 4.1%
Machinery and equipment 26.9 26.7 2.4 2.4 29.3 29.1 (0.2) -0.7%
Infrastructure 514.3 536.0 274.5 286.0 788.8 822.0 33.2 4.2%
Wastewater treatment facility - - 50.7 51.8 50.7 51.8 1.1 2.2%
935.4 976.0 445.7 462.6 1,381.1 1,438.6 57.5 4.2%
Accumulated depreciation (182.2) (198.0) (88.9) (99.2) (271.1) (297.2) (26.1) 9.6%
Total $753.2 $778.0 $356.8 $363.4 $1,110.0 $1,141.4 $31.4 2.8%
Activities Activities Total
CITY OF CARLSBAD'S CAPITAL ASSETS
(in millions of dollars)
Governmental Business-Type
31
Long-Term Debt
At year-end, the city had $58.7 million in bonds, loans, capital leases and agreements, a decrease of $2.9 million
from last year, as shown in the table on the following page. Loan payments made on all of the city’s outstanding
debt created this reduction in the city’s debt. More detail about the city’s long-term liabilities is presented in Note 8
to the financial statements.
Economic Factors and Next Year’s Budgets and Rates for Fiscal Year 2011
The State of California adopted its Fiscal Year 2010-11 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 2010-11 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.
The city will be required to “contribute” approximately $278,000 from its Village Project Area
Redevelopment Funds to the state’s Education Revenue Augmentation Fund.
The state will delay the remittance of Gas Tax funds to the city until April 2011. In April 2011, the city
will receive nine months of Gas Tax funds, thereby making the city whole.
Net assessed values in the city stand at almost $22.9 billion, a 0.7 percent decrease from the prior fiscal year.
Sales tax revenues are projected to rebound slightly from a three year low with a 3.6 percent forecasted
increase in the Fiscal Year 2010-11 Budget.
PERS rates for the miscellaneous plan have decreased slightly for Fiscal Year 2010-11 from 21.2 percent to
21.1 percent, and have decreased slightly from 28.4 percent to 28.0 percent for the safety plan.
The prior downward reassessment of the Encina power plant due to a reduction in electricity generated
continues to affect projected tax increment revenues in the South Coastal Carlsbad Redevelopment Area and
the franchise fees received by the city.
Median home prices in Carlsbad have increased by 6.6 percent from March 2009 ($639,000) to March 2010
($681,000).
Due to recent indicators that the economy may be slowly recovering from the recession, forecasted revenues
for sales taxes, transient occupancy taxes and development related activities have been increased slightly.
Due to the overall downturn in the economy, most city departments were not given additional maintenance and
operational funding to cover changes in the Consumer Price Index (CPI) and growth in the city, minimal new
capital outlay, and additional personnel funding for only existing contractual obligations.
Through Memorandum of Understandings (MOUs), the Carlsbad Police Officers’ Association (CPOA) will be
receiving a two percent salary increase January 1, 2011. The Carlsbad City Employees’ Association (CCEA)
and the Carlsbad Firefighters’ Association are currently negotiating new contracts, with the expiration of their
existing contracts on December 31, 2010.
Total
Percentage
Change
2009 2010 2009 2010 2009 2010 2009-10
Bonds $10.7 $10.3 $18.3 $18.0 $29.0 $28.3 -2.4%
Loans - - 27.1 25.7 27.1 25.7 -5.2%
Installment purchase agreement - - 4.8 4.1 4.8 4.1 -14.6%
Obligations under capital leases - - 0.7 0.5 0.7 0.5 -28.6%
Less: Deferred charges/discounts - - - 0.1 - 0.1 100.0%
Total $10.7 $10.3 $50.9 $48.4 $61.6 $58.7 -4.7%
Activities Activities Total
CITY OF CARLSBAD'S OUTSTANDING DEBT
(in millions of dollars)
Governmental Business-Type
32
Due to the recent citywide redesign, personnel costs have been reduced in the General Fund (shifted to the
enterprise funds) and corresponding interdepartmental revenues have been reduced in the General Fund (with a
similar reduction in interdepartmental costs in the enterprise funds).
These factors were considered when preparing the City of Carlsbad’s General Fund budget for Fiscal Year 2010-11.
Budgeted expenditures are expected to increase 0.3 percent to $109.4 million. Due to the citywide redesign, the
General fund will see a reduction in personal expenditures (shifted to the enterprise funds) with a corresponding
increase in maintenance and operations expenditures due to an increase in chargebacks to the General Fund from the
other funds providing services to the fund. The total personnel budget for Fiscal Year 2010-11 is $72.5 million,
which is 2.7 percent less than the previous year’s personnel budget of $74.5 million. The total maintenance and
operations budget for Fiscal Year 2010-11 is $29.3 million, which is five percent higher than the previous year’s
budget of $27.9 million. There is no major capital outlay purchases planned in the General Fund for Fiscal Year
2010-11. Operating transfers out of the General Fund are budgeted at $7.6 million, a $900,000 increase from the
prior fiscal year. This is due to the city increasing the annual funding of the Infrastructure Replacement Fund to pre-
Fiscal Year 2009-10 levels. Adding to the adopted budget of $109.4 million for the General Fund, approximately
$17.5 million in unspent Fiscal Year 2009-10 budgeted expenditures will be carried over to Fiscal Year 2010-11, as
well as $7.1 million in open encumbrances as of June 30, 2010.
As the city is approaching the buildout of its remaining vacant land, the city is now ushering in a new era focusing
on maintaining infrastructure rather than building it. In an effort to address this issue, the city has developed an
Infrastructure Replacement Fund (IRF). In this fund, the city sets aside money on an annual basis for major
maintenance and replacement of its infrastructure. In the Fiscal Year 2010-11 Operating Budget, the city has
budgeted a $7.2 million transfer from the General Fund to the IRF to meet future needs.
During the current fiscal year, the unreserved, undesignated fund balance in the General Fund increased by $3.1
million to $51.4 million due to fiscal discipline and the elimination and/or unfunding of 23.75 positions.
There appears to be sufficient revenue projected to build the projects listed in the Fiscal Year 2010-11 Capital
Improvement Program (CIP). In the 2008-09 CIP, the Public Facilities Construction Fund (PFF) and the Planned
Local Drainage Funds (PLDA), projected fund deficits by build-out of the city. Through revised growth estimates
(which impact future revenues), an increase in PLDA fees approved by the City Council, and updating future costs
of projects in these funds, these two funds are no longer projected to have deficits at build-out.
The city’s business-type activities reflect the following:
The combined fixed and variable cost of water purchased from the San Diego County Water Authority is
projected to rise over 18 percent and 9 percent respectively in Fiscal Year 2010-11. In November 2010, a
public hearing will be held to determine how much water rates will increase effective January 1, 2011.
Proposed wastewater rate increases will also be discussed during the public hearing to be held in November
2010. If approved, these rates would be effective January 1, 2011. This proposed rate increase is needed to
assist with higher costs associated with the Encina Wastewater Plant, higher depreciation expenses from the
addition of completed facilities to the inventory, and to maintain an adequate reserve balance.
The golf course budget is brought forward on a calendar year basis in December of each year. The Calendar
Year 2010 budget reflects a projected operating loss of over $1.3 million and habitat maintenance and
monitoring costs of $441,000. This projected deficit will require additional advances from the city’s General
Fund during the calendar year.
No projected significant changes in other revenue sources.
Contacting the City’s Financial Management
This financial report is designed to provide the 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.
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