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HomeMy WebLinkAbout; ; 2012-2013 CAFR; 2013-06-30Fiscal Year Ended June 30, 2013 Comprehensive Annual Financial Report COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED JUNE 30, 2013 1635 Faraday Avenue, Carlsbad, CA 92008 Website: www.carlsbadca.gov Prepared by the Finance Department i CITY OF CARLSBAD Comprehensive Annual Financial Report Year Ended June 30, 2013 TABLE OF CONTENTS Page INTRODUCTORY SECTION: City Council’s 2013 Strategic Goals 1 Letter of Transmittal 3 Certificate of Achievement for Excellence in Financial Reporting, Government Finance Officers Association 14 Location Map 15 List of City Officials 16 Organization Chart 17 FINANCIAL SECTION: Independent Auditor’s Report 19 Management’s Discussion and Analysis 22 Basic Financial Statements Government-wide Financial Statements: Statement of Net Position 38 Statement of Activities 40 Fund Financial Statements: Balance Sheet – Governmental Funds 42 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 44 Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds 46 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 48 Statement of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual – General Fund 49 Statement of Net Position – Proprietary Funds 52 Statement of Revenues, Expenses and Changes in Net Position – Proprietary Funds 56 Statement of Cash Flows – Proprietary Funds 58 Statement of Net Position – Fiduciary Funds 62 Statement of Changes in Net Position – Fiduciary Funds 63 Notes to the Financial Statements 64 Supplementary Information Combining and Individual Fund Statements and Schedules: Combining Balance Sheet – Nonmajor Governmental Funds 100 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Governmental Funds 104 Combining Schedule of Revenues and Expenditures – Budget and Actual (Budgetary Basis) – Special Revenue Funds 108 Combining Schedule of Revenue and Expenditures – Budget and Actual (Budgetary Basis) – Capital Project Funds 110 Combining Statement of Net Position – Internal Service Funds 112 Combining Statement of Revenues, Expenses and Changes in Net Position – Internal Service Funds 114 Combining Statement of Cash Flows – Internal Service Funds 116 Combining Statement of Changes in Assets and Liabilities – Agency Funds 120 Combining Statement of Fiduciary Net Position by Project Area – Private Purpose Trust Funds 122 Combining Statement of Changes in Fiduciary Net Position by Project Area – Private Purpose Trust Funds 123 Schedule of Annual Debt Service Requirements 124 ii CITY OF CARLSBAD Comprehensive Annual Financial Report Year Ended June 30, 2013 TABLE OF CONTENTS (CONTINUED) Page STATISTICAL SECTION: Financial Trends: Net Position by Component – Last Ten Fiscal Years 128 Changes in Net Position – Last Ten Fiscal Years 130 Fund Balances of Governmental Funds – Last Ten Fiscal Years 134 Changes in Fund Balances of Governmental Funds – Last Ten Fiscal Years 136 General Governmental Tax Revenues by Source – Last Ten Fiscal Years 138 Revenue Capacity: Water and Wastewater Rates – Last Ten Fiscal Years 139 Assessed Value of Taxable Property – Last Ten Fiscal Years 140 Direct and Overlapping Property Tax Rates – Last Ten Fiscal Years 141 Principal Property Taxpayers – Current Year and Nine Years Ago 142 Property Tax Levies and Collections – Last Ten Fiscal Years 143 Debt Capacity: Ratios of Outstanding Debt by Type – Last Ten Fiscal Years 144 Schedule of Direct and Overlapping Bonded Debt – Current Fiscal Year 146 Direct and Overlapping Debt – Last Ten Fiscal Years 148 Legal Debt Margin Information – Last Ten Fiscal Years 150 Pledged-Revenue Coverage – Last Ten Fiscal Years 152 Demographic and Economic Information: Demographic and Economic Statistics – Last Ten Fiscal Years 154 Principal Employers – Current Year and Nine Years Ago 156 Operating Information: Authorized Full and ¾ Time City Government Employees by Major Service Area – Last Ten Fiscal Years 158 Operating Indicators by Function/Program – Last Eight Fiscal Years 160 Capital Asset Statistics – Last Eight Fiscal Years 162 Introductory Section Introductory Section Introductory Section Introductory Section City of Carlsbad provides exceptional, top quality services on a daily basis by proactively listening, engaging and responding to its residents. ¾ Balanced community development: Be a city that connects community, place and spirit, through balanced and economically sustainable land uses. ¾ Resident connection and partnership: Be a city that embraces community connectivity through the effective use of technological and interpersonal mediums. ¾ 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. ¾ Economic Development: Strengthen the city’s strong and diverse economy, supporting local businesses, attracting new businesses in targeted industries and solidifying the city’s position as a key employment hub. ¾ Environmental management: An environmentally sensitive community by focusing on conservation, storm water, sewage collection and treatment, solid waste, and cost effective and efficient use of energy including alternative energy sources. ¾ Financial health: Pursue and implement proactive strategies that support sustainable economic health and manage city resources effectively. ¾ Learning, culture and arts: Promote and support continuous learning, cultural opportunities and the arts within the community and the city organization. ¾ Parks, open spaces and 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. ¾ Safe community: Maintain a safe and secure community through collaborative partnerships. Public safety providers support high standards, deliver protection of life and property and encourage community involvement in prevention and preparedness efforts. ¾ Transportation and circulation: Provide and support a safe and efficient transportation system that moves people, services and goods throughout the city. ¾ 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. Carlsbad City Council Fiscal Year 2013-14 Strategic Goals City Council continues to clarify and pursue the vision of Carlsbad that reflects the pride and quality of life. 1 2 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 39 square miles and has a population of 108,246, with an expected built out population of 117,000 residents. Industries in the city include a major regional shopping center; a specialty outlet center; 34 hotels offering over 3,900 rooms for tourist lodging; over 20 auto dealers; 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 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: x Police protection services x Development services x Fire and paramedic services x Street construction and maintenance x Water delivery system x Library and arts programs x Wastewater system x Recreation programming for all ages x Solid waste services x Park lands x Housing programs In addition to the full range of services normally associated with a municipality, Carlsbad offers programs to help local residents and businesses. 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 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. 4 achieve the vision and call out areas upon which the City Council would like to place special emphasis during the year. Once the vision and priority projects are developed, city staff develops operational goals and work plans based on the City Council’s direction. These goals and work plans provide the basis for the development of the annual budget. The City Council adopts the formal budget for all funds at the beginning of each fiscal year and may amend those budgets throughout the year as necessary. Budgetary control for the city is maintained through its accounting systems. 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) monitors the health of the San Diego economy through its Index of Leading Economic Indicators. The USD index tracks six variables to evaluate growth trends in the San Diego economy: unemployment filings, help wanted advertising, local stock prices, consumer confidence, building permits and the strength of the national economy. The index shows a continued four-year upward trend, as the Index has improved by almost 4.5 percent from June of last year. Carlsbad’s economy is tied closely to that of the San Diego region. General Fund revenue estimates indicate that Carlsbad is benefitting from an improving state and local economic climate. The city’s largest revenue sources, which are derived from property tax, sales tax, and transient occupancy tax (TOT), are expected to improve in Fiscal Year 2013-14. Revenues from sales tax and TOT are highly sensitive to changes in economic activity, unlike property tax revenues, which tend to lag behind economic growth and remain relatively stable over time.Overall, General Fund revenues are expected to increase by $3.7 million, or 3.2 percent in Fiscal Year 2013-14, as revenues from sales taxes and transient occupancy taxes are projected to continue a strong growth trend. Development related revenues have stagnated in the past year, as the city matures and growth declines. From 1992 to 2008, commercial and industrial development in Carlsbad averaged approximately 1.1 million square feet per year. As opportunities for new development diminish, commercial and industrial development is tapering off, falling to an average of approximately 245,000 square feet per year over the next five fiscal years. Large industrial commercial developments in the next five years include Bressi Ranch, Carlsbad Raceway and Palomar Forum, Dos Colinas Retirement Community, and the Floral Trade Center. Commercial office space vacancy has witnessed a decline over the past two years, falling from over 30 percent in the last quarter of 2009 to just over 20 percent in the first quarter of 2013. Industrial vacancy fell to 12.4 percent from 15 percent, last year. 5 0 100 200 300400 500 600 700800 900 2005 2006 2007 2008 2009 2010 2011 2012 2013Thousands Fiscal Year Median SFR Home Prices Housing prices in Carlsbad are following national, state and regional trends. Data on single family residence (SFR) sales from DataQuick indicate that the median sales price increased to approximately $655,000 in the first quarter of 2013, an increase of over 13 percent compared to the same quarter in 2012. According to Movoto, inventory of units for sale have dropped in Carlsbad, from 428 units in April 2012 to 255 units for sale, this April. The total assessed values in the city are close to $24 billion, a decrease of less than one-tenth of a percentage point compared to the prior fiscal year (Fiscal Year 2011-12). According to recent growth projections prepared for the city, Carlsbad will add 683 residential units over the next five fiscal years. 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. A new Lowe’s also opened in the fall of 2013. 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 Park Hyatt 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 Hilton Oceanfront Resort & Spa and the Legoland California Resort. 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 Fiscal Year 2013-14, General Fund revenue is projected to increase by 3.2 percent from the previous year’s estimates. Most major sources of tax revenue are expected to increase slightly in Fiscal Year 2013-14, including property tax (1.5 percent increase), following several years of stagnant growth. Sales tax is expected to increase by 4 percent and TOT revenues are projected to increase by 6.2 percent as average daily rates (ADR) increase and additional rooms are placed in the inventory, including the new Legoland Hotel. Home values are showing substantial appreciation, which is expected to improve assessed values in the coming years. Development related revenue items are forecast to increase modestly in Fiscal Year 2013-14, due primarily to an increase in commercial and industrial activity, as compared to the previous fiscal year. State of California – In January, Governor Jerry Brown submitted a balanced budget to the California legislature. The passage of Proposition 30, which temporarily increases income tax rates and sales tax rates, increased revenue projections and, coupled with budget cuts made in past years, allowed the governor to claim a fiscal balance for the first time in over a decade. The proposed budget aims to maintain a $1 billion reserve and to pay down budgetary debt from prior years, earmarking $4.2 billion of the budget for this purpose. However, this accumulated debt is projected at $27.8 billion at the end of Fiscal Year 2012-13. The state also will have to address looming deficits in state employee health and pension plans, currently over $100 billion in the red and another $100 billion 6 deficit in the state’s Unemployment Insurance Fund. The governor’s budget identifies prospective risks that could adversely affect the budget, including precarious economic conditions at the state and national level, the threat that the federal government could shift costs to states in order to address federal deficits, and rising health care costs that continue to plague the state budget. The proposed budget focused spending on K-12 and higher education and to an expansion of Medi-Cal as the state implements federal health care reform. In an effort to address growing pension costs, the California legislature enacted Assembly Bill 340 during this fiscal year. This legislation strives to reduce pension costs by addressing future and current employee plans, statewide. The bill reduced pension benefit formulas for new employees; for example, the new formula for miscellaneous employees is 2 percent at 62 years of age. Another cost reducing measure was a cap on the amount of compensation that can be used to calculate pension benefits for employees. Under the new legislation, employees can no longer purchase “airtime” (service credit for years the employee was not with the pension system) and limited post-retirement employment of public employees. 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 this 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 city annually calculates the amounts needed to pay for the various projects as well as the anticipated operating budget impacts from those projects. In this way, the city can anticipate the effects of development from both a capital and an operating perspective. In order to ensure that the city has the funds to replace these facilities as they age, an Infrastructure Replacement Fund was created. With this fund, the city sets aside money on an annual basis for major maintenance and replacement of its infrastructure. Much of the city’s infrastructure is relatively new; thus, the city is just now beginning to experience the impact of major maintenance requirements. By setting aside funds now, the citizens of Carlsbad can be assured that the proper maintenance and replacement, as needed, will be performed on streets, parks, and the many facilities for which the city is responsible. For Fiscal Year 2013-14, the City Council approved allocating 6.5 percent of General Fund revenues, or $7.8 million, to the Infrastructure Replacement Fund. 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, which was revised in Fiscal Year 2010- 11. The General Fund Reserve Policy sets a minimum reserve of 30 percent of the General Fund expenditures and also establishes a target reserve of between 40 percent to 50 percent. This reserve can be used by the City Council for emergencies or one-time purposes. In addition to these steps, the city also prepares a ten-year financial forecast for the General Fund each year, in order to understand the fiscal impact of actions taken today on the city’s future. The current forecast assumes limited growth in residential and commercial development over the next decade and captures the expected revenue impacts from major projects that are expected to be completed during the forecast period. The operating costs of new city facilities supported by the General Fund, such as Alga Norte Park, are also captured in the ten-year forecast. The forecast also assumes that the Carlsbad Crossings Golf Course will require an ongoing subsidy from the General Fund and, while this subsidy is expected to decrease over time, it is no longer treated as a loan. Economic conditions at the national, state, and local level are expected to continue improving at a modest rate and to provide a boost to most of our major sources of revenue. Home sales, which have been slumping for several years, are starting to increase substantially and will begin to provide a boost to the city’s property tax revenues in the following years. Overall, the outlook for General Fund revenues has improved, since the last year, and revenues are expected to exceed ongoing operating costs, as depicted on the following graph: 7 The forecast assumes that General Fund revenues will increase by a little over three percent in Fiscal Year 2013-14, as improving economic conditions buoy revenues from the property taxes, sales taxes and TOT. To project the expenditures, all known changes in personnel and maintenance and operations costs are accounted for. However, the effects of future negotiations with employee bargaining units are not contemplated in the current ten-year forecast. The city is currently undertaking an evaluation of services in order to pursue a managed competition process, known as Best Value Services. The financial impact of a change in service delivery is also not considered in the ten-year forecast. The forecast assumes that the city’s cost for employee health care will increase by five percent, annually, over the life of the forecast. Pension benefits continue to be a major driver of overall personnel costs for the city. CalPERS, the pension plan which funds city employee pensions, has recently decided to substantially increase required annual pension contributions from participating agencies in order to fully fund outstanding pension obligations within 30 years; this decision will have a substantial effect on personnel costs for the city and is not contemplated in the current ten-year forecast. In order to address the underfunded status of pensions, the City Council has set aside $3.2 million to mitigate these increasing costs and the forecast assumes that another $2 million is set aside in the Fiscal Year 2013-14 budget. The forecast further assumes that no new positions are authorized, except those that may be related to the operating costs of new city facilities supported by the General Fund. Negotiated salary step increases and cost of living increases are included in personnel costs, in order to provide a conservative estimate of future costs. The contribution from the General Fund to the Infrastructure Replacement Fund is forecasted to remain at 6.5 percent of General Fund revenues. Finally, the forecast includes estimated operating costs for all capital projects in the timeframes shown in the Capital Improvement Program (CIP). As indicated in the above graph, the General Fund is balanced for Fiscal Year 2013-14 and revenues exceed expenses over the life of the forecast. Although the revenue forecast is optimistic, Carlsbad is still exposed to a fragile and slowly recovering economy, which could rapidly deteriorate and adversely affect local revenues. The forecast also does not contemplate the effects of future budget decisions by the state and CalPERS, which is expected to address actuarial assumptions relating to mortality rates and investment returns in the coming years. Despite these threats, responsible fiduciary stewardship and planning have placed the city in a position to benefit from even modest improvements in the economic environment. 0 20 40 60 80 100 120 140 160 180 2012-132013-142014-152015-162016-172017-182018-192019-202020-212021-222022-23$ MillionsFiscal Year General Fund Revenues and Expenditures REVENUES TOTAL EXPENDITURES 8 Cash Management The City Treasurer, an elected official, is charged with the design of an effective cash management and investment program consistent with legal requirements and the city’s Investment Policy. The city annually adopts a comprehensive investment policy specifying investment objectives, such as 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, 2013 was 2.136. The average return realized on the pooled investments declined from 1.65 percent in Fiscal Year 2011-12 to 1.144 percent for Fiscal Year 2012-13, and it is expected to further decline this fiscal year. 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 of 0.36 percent for Fiscal Year 2012-13. According to the City Treasurer, “Should interest rates retrace to recently experienced historical lows, an additional unrealized loss would be anticipated. If however, interest rates continue at current levels, the unrealized losses will narrow as existing positions mature or are called. When interest rates begin to rise, a portion of the portfolio will benefit as a result of its short duration. Reinvestment of maturing positions and new investments will begin to capture and reflect new money rates over time.” Major Initiatives and Projects In the city’s Fiscal Year 2013-14 Capital Budget, several significant projects are in design or under construction over the next few years. Some of the notable capital projects include the following: Park Development Projects Alga Norte Community Park and Aquatic Center – Completion of this park, located on 32 acres in the Southeast Quadrant along Poinsettia Lane between El Camino Real and Alicante Road is expected towards the end of Calendar Year 2013. Amenities include: x A 50 meter Olympic sized competition pool with viewing bleachers x A 25 meter, 12 lane swim instruction pool x A 10 by 25 foot therapeutic pool with jets x A 22 foot diameter 6 inch deep kids pool x A “spray-ground” play area for young children x Three lighted softball/baseball fields x One lighted full basketball court and one half court x Batting cages and a concession stand at the ball fields x Picnic areas with barbecues x Playground with 100 percent universally accessible play equipment 9 x An off-leash dog park divided into areas for larger and smaller dogs, including obstacle course- type play equipment x A 18,500-square-foot lighted skate park that will include a "street course" section, an area with challenging elements for more skilled skateboarders and a beginners’ area Leo Carrillo Phase III – 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 2016-17. Civic Facilities Civic facilities include a variety of facilities from which the city can offer its services to the public. Fire Station No. 3 Relocation – Fire Station No. 3 is currently located at the corner of Chestnut and Catalina. As the city grows eastward, relocation of this station is needed to help ensure a six minute response time. The land was previously acquired in the Robertson Ranch site, and the remaining construction cost is estimated at $9.4 million. Library Renovation Projects – Significant renovation projects are planned at the Dove and the Cole libraries. Improvements are designed to accommodate current staffing needs, meet patron demands for modern library services and allow for better wireless and communications services for the public. The estimated renovation cost for both libraries is $3 million. Facilities Maintenance – As the city facilities begin to age, maintenance and repair projects are needed to keep them in good condition. Twelve projects have currently been identified at a total cost of about $8.3 million. Included are major refurbishment projects at the Cole and Dove libraries which will be constructed in conjunction with the renovation projects mentioned above, as well as synthetic turf replacement at Poinsettia Park soccer fields. Village and Barrio Area Projects – There are seven new projects proposed this next year for making improvements to the downtown Village Area and Barrio neighborhoods. The projects include bike and pedestrian way finding signage and traffic circles, decorative lighting, parking way finding, safety lighting, and streetscape improvements. Street and Circulation Projects Livable Streets continues to be a top Council priority. To help improve the flow of traffic throughout Carlsbad and to keep the city’s street and pedestrian ways in top condition, there are a number of projects planned in the next five years. Some of the larger projects are listed below: Traffic Signal Program – In keeping with the City Council’s goal of improving traffic flow, the Fiscal Year 2013-14 CIP includes the continuation of the Traffic Signal Program project. This project will upgrade traffic signal hardware and software in conjunction with the creation of a communications network that will be used to manage traffic signal operations and thereby improve the flow of traffic. Another area of focus is a concept called “complete streets” which uses street design to create a sense of place and community through green spaces, medians and signage, while encouraging a healthier, less vehicle dependent lifestyle. The City Council identified complete streets as a top priority. One project which incorporates these concepts could begin this fall with construction of a traffic circle “roundabout” along the northern end of Carlsbad Boulevard next to Buena Vista Lagoon, making it easier for vehicles, pedestrians and bicyclists to move through the intersection. 10 ADA Improvements – ADA projects throughout the city are scheduled for $1.3 million in funding over the next five years. The project includes various accessibility improvements, including sidewalk curb ramps and pedestrian signals. Avenida Encinas Widening – Widening to full secondary arterial standards along Avenida Encinas from Palomar Airport Road to just south of Embarcadero Lane is scheduled for design in Fiscal Year 2014-15. The CIP includes $5.2 million to fund this project in the next five years. Carlsbad Boulevard Bridge Concrete Barriers – Installation of a concrete barriers on the existing bridges located on Carlsbad Boulevard are planned at a total cost of about $2.3 million, primarily funded through a federal grant. The bridges are located north of Cannon Road over the power plant outlet channel, and over the railroad tracks south of State Street. El Camino Real Widening – There are a number of projects that are scheduled over the next five years that will focus on the widening of El Camino Real to prime arterial roadway standards, in addition to other improvements. The projects include widening from Cassia Road to Camino Vida Roble, Arenal Road to La Costa Avenue, Lisa Street to Crestview Drive and Tamarack to Chestnut. In the next five years, $5.9 million in additional funding is included for these projects. Pavement Management – Carlsbad’s local streets are maintained on a regular cycle to ensure a good riding surface and to extend the life of the streets. 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 Fiscal Year 2013-14 CIP has $18.5 million budgeted in the next five years for this program. Parking Lot Maintenance Program – Parking lot maintenance is a new program scheduled to begin in Fiscal Year 2013-14 at a total cost of $1.5 million in the next five years. Water and Wastewater Projects The city’s water and wastewater projects are vital to the continued health and welfare of its citizens. Most new lines are built and paid for by developers. As the city ages, it will become necessary to repair and replace the lines that already exist, and an increase in these projects is anticipated in future years. In the next five years, an additional $105.4 million in funding is scheduled for both new and replacement water and sewer projects. Vista/Carlsbad Interceptor & Agua 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 Agua 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 $56.2 million, of which an estimated $17.5 million is to be funded by the City of Carlsbad, with the remaining $38.7 million to be funded by the City of Vista. Wastewater Other major wastewater facilities scheduled for construction or replacement within the next five years include: x Buena Interceptor Sewer Improvements x Faraday/El Camino Real Sewer Replacement x Foxes Landing Lift Station and Forcemain x Las Palmas Trunk Sewer x Poinsettia Lane Lift Station Emergency Overflow Basin x Quarry Creek Sewer Extension x Terra Mar Sewer Replacement 11 Water Lines Major water facilities scheduled for construction or replacement within the next five years include the following locations: x Aviara Parkway and Plum Tree x Carlsbad Boulevard – South of Avenida Encinas x College Boulevard – Cannon Road to Badger Lane x Desalinated Seawater Transmission Main x Fire Flow System Improvements x Hydroelectric Generator at Palomar Airport Road x La Costa High Reservoir Inlet Pipeline x Maerkle Reservoir Floating Cover Replacement x Tri-agencies Water Transmission Pipeline Replacements Recycled Water Expansion Expansion to the Carlsbad Water Recycling Facility, including construction of additional pipelines and a reservoir, are anticipated to cost $29.4 million over the next five years. Drainage Projects The city’s drainage infrastructure plays an important role in handling storm water runoff flows, as well as maintaining the water quality of the city’s creeks, lagoons and ocean. Carlsbad supports programs that will ensure that all water bodies within the city are safe and clean and, where possible, open to the public at all times. The system consists of drainage pipes 30-inches or larger in diameter, large concrete and rock lined channels, permanent sedimentation basins and miscellaneous large facilities. As the city continues to age, it will become necessary to repair and replace the lines that already exist. An increase in these projects is anticipated in future years. Northwest Quadrant and Park Drive Drainage Improvements – The next five years include continued improvements to drainage systems in the older parts of Carlsbad, particularly the northwest quadrant, with an additional $3.6 million programed. 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, 2012. This was the fifteenth 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. The city strives to develop a Comprehensive Annual Financial Report which will continue to meet the Certificate of Achievement Program’s requirements, and this report will be submitted to GFOA to determine its eligibility for another certificate. 12 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, City Manager and the city’s Executive Management 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, Chuck McBride Administrative Services Director 13 14 15 16 ArtsCommissionHistoricPreservationCommissionLibrary BoardofTrusteesParks & RecCommissionSeniorCommissionBeachPreservationCommitteeHousingCommissionTraffic SafetyCommissionPlanningCommissionCarlsbad TourismB.I.D. AdvisoryBoardELECTORATECity ManagerCity TreasurerMayor & CouncilCity ClerkCity Attorney3/12/2013KEYElectedCouncil AppointedCity of CarlsbadOrganization ChartFire DepartmentAdministrative Services Department Police DepartmentAssistant City ManagerPublic WorksDepartmentFinanceHuman ResourcesInformation TechnologyRecords ManagementLibrary & Cultural Arts DepartmentCommunity & Economic Development DepartmentParks & Recreation DepartmentHousing & Neighborhood ServicesTransportationUtilitiesProperty & Environmental ManagementCarlsbad Golf Lodging B.I.D. Advisory Board17 18 Financial Section Financial Section Financial SectionFinancial Section 19 20 21 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, 2013. 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 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 greater detail. 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 financial information 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 content 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 22 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 Position 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 position and how it has changed. Net position – the difference between the city’s assets and liabilities – is one way to measure the city’s financial health, or position. Over time, increases or decreases in the city’s net position 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 internal services 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 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 future 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 three governmental fund types being used by the city: the General Fund, special revenue 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.  Enterprise funds are used to report activities that provide business-type services, generally to external customers – such as water, wastewater, solid waste and golf services. In both the Government-wide Financial Statements and the Fund Financial Statements, these funds are shown under business-type activities. 23  Internal service funds are used to report activities that provide services and supplies for the city’s other programs and activities – such as fleet, workers’ compensation, 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 Net Position. 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 Position The city’s combined net position as of June 30, 2013, as shown below, was $1.74 billion. The city’s net position increased by $4.2 million during the current fiscal year. This increase was derived in large part to a significant increase in current and other assets, a direct result of revenues exceeding expenditures by over $4 million for the year. The decrease in capital assets was the result of current year depreciation expenses exceeding the addition of new capital assets. The decrease in long-term debt outstanding was generated from the annual debt service requirements being met on the city’s outstanding debt. Other liabilities increased due to the reassessment of outstanding workers’ compensation claims payable (a more conservative estimate was used during the fiscal year) and accounts payable invoices outstanding at year-end related to the construction of the new Alga Norte Park. As noted earlier, over time net position may serve as a useful indicator of the city’s financial position. For the City of Carlsbad, assets currently exceed liabilities by $1.74 billion at the close of the most recent fiscal year. A large portion of the city’s net position (63 percent) reflects its net investment in capital assets (i.e., land, buildings, machinery, equipment, and infrastructure), less any related debt used to acquire those assets that is still outstanding. The city uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the city’s investment 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 pay for these liabilities. An additional portion of the city’s net position (16 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position ($375.1 million) may be used to meet the government’s ongoing obligations to citizens and creditors. 24 Just over 54 percent of the $319 million in unrestricted governmental activities net position is attributable to the General Fund. The net investment in capital assets for the city decreased by $2.6 million during Fiscal Year 2012- 13 due primarily to an increase in depreciation expense in the water and wastewater funds from the recent acquisition over the past couple of years of several major capital assets. This increase in depreciation expense exceeded the addition of new capital assets for the fiscal year, thereby reducing the net investment in capital assets. A portion of business-type net position represents the city’s municipal golf course. At the end of Fiscal Year 2012- 13, there is a large deficit in unrestricted net position 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 and partially subsidizing the operations of the course in prior fiscal years. Changes in Net Position 25 The condensed summary of activities shows that net position increased by $4.2 million during the year. This increase occurs when spending is less than the revenues received. There were several reasons for the increase in net position: an emphasis on efficiencies resulting in a reduction in expenses/expenditures; a citywide restructuring initiative that either eliminated or unfunded 10.75 positions; $19.8 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. Approximately 67 percent of the revenues of the city’s governmental funds are generated through taxes collected (property, sales, transient occupancy, etc.), and just over 91 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 continuous recovery from the great recession has resulted in increases in the city’s leading revenues: sales taxes and transient occupancy taxes. Property taxes tend to be a lagging revenue source, meaning they don’t rebound as quickly as the leading revenues. However, the city did receive some one-time property tax revenue from the dissolving of the former Redevelopment Agency, completely offsetting the reduction in ongoing property tax revenues. The Federal Reserve, in an effort to stimulate the economy, continues to lower interest rates to historic lows, affecting the city’s income from property and investments. Development throughout the city continues to increase from prior years, resulting in increased developer impact fees (capital contributions), developer contributed assets (capital contributions) and permitted activity (charges for services). Some additional one-time revenues were received during the year including reimbursement of prior year administrative fees collected by the county from the implementation by the state of the “Triple Flip” sales tax and the VLF-in-lieu programs (charges for services) and reimbursement received for the street lighting retrofit program (charges for services). Another factor affecting charges for services was water and wastewater rate increases that went into effect in January 2013. The extraordinary gain in the prior year was due to the dissolving the city’s former Redevelopment Agency. The total cost of all programs and services was just over $225.4 million in Fiscal Year 2012-13. This was a $29.9 million, or 15.3 percent, increase over Fiscal Year 2011-12 costs. The increase in governmental activity expenses (general government in particular) was driven by using the remaining cash balance in the Poinsettia Lane Capital Project Fund to call outstanding bonds and from returning unused TransNet funds back to the appropriate agency. Public Works expenses reflect the expensing of a couple of projects that were previously accounted for in construction in progress. Higher community development expenses reflect the transfer of an outstanding affordable housing construction loan due to the city to the city’s Successor Agency due to a finding made by the California Department of Finance. Higher purchased water costs and implementation costs related to the automated meter reading program in the Water Fund, and higher wastewater depreciation expenses created the increase for the year in business-type activities. • General Government (10 percent) 26 This segment of the city is divided into three major groups: the Policy and Leadership group, the Internal Services group and non- departmental charges. The Policy and Leadership group encompasses all elected officials, the chief executive offices for the city, the Communications team and Records Management. The Internal Services group includes Finance, Human Resources, Information Technology, Risk Management, and Property and Environmental Management. Also included in General Government are any Council directed special projects. • 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 and Economic Development (10 percent) The mission of Community and Economic Development is helping people build a strong community by guiding and facilitating high quality projects, preserving the environment, providing for, and maintaining a strong economic base and strengthening neighborhoods through partnerships and collaboration to improve or enhance the quality of life and sense of community within Carlsbad. Community Development encompasses Land Use Planning, Economic Development, the Hiring Center, Housing and Neighborhood Services, and Building Inspection. • Community Services (11 percent) Community Services consists of the Libraries, Cultural Arts, Parks and Recreation, and Senior Citizen programs. These programs are provided to a wide range of people, and enhance their education and cultural development. • Public Works (16 percent) Public Works is responsible for building and maintaining all of the infrastructure assets of the city. This service area includes Transportation, Storm Drains, Medians, Street Trees, the Buena Vista Channel, Street Lighting, and Traffic Sign and Signal Maintenance programs. • Golf Course (5 percent) The City of Carlsbad opened a municipal golf course in the summer of 2007, which further enhances the tourist 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. 27 • Solid Waste (1 percent) The Solid Waste Division of the Utilities Department administers and monitors the solid waste contract and the Palomar Transfer Station agreement, and is responsible for the waste reduction and recycling components of the Source Reduction and Recycling Element and Household Hazardous Waste Element to comply with state mandated AB939 and SB1016 diversion and disposal requirements. • Water Operations (19 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 29,000 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. • Wastewater Operations (6 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, Vista and Encinitas; the Leucadia Wastewater District; the Vallecitos Water District; and the Buena Sanitation District. The following sections will provide information about the operations of the governmental and business-type activities separately. Governmental Activities The decrease in net position for governmental activities was $0.2 million. This decrease was generated by total revenues of governmental activities of $157.2 million ($48.5 million in program revenues and $108.7 million in general revenues) offset by $156.7 million in total costs of governmental activities and $700,000 in transfers to the Golf Course and Solid Waste 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). 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 ($17.6 million), grants and contributions 28 from other governments and organizations which subsidize certain programs ($30.9 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 $108.7 million. 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 has entered 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, there will be fewer master planned projects being developed. In past years, these projects constructed new facilities, roads, parks, and other city-owned infrastructure. The city is shifting its focus towards maintenance of existing facilities, and will use funding sources such as the Infrastructure Replacement Fund to maintain and replace these assets. However, there are still some master planned communities that were recently completed or are near completion (La Costa Oaks and Robertson Ranch); the developers of these communities recently dedicated infrastructure to the city, a requirement for development. Business-Type Activities Program revenues for the city’s business-type activities totaled $68.9 million for the year, while program expenses equaled $68.7 million. Water 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 $1.9 million. Additionally, a $1.6 million reimbursement from the prior Marbella lawsuit was another large factor contributing to the operating gain. 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 sixth full year of operation. Golf course revenues were sufficient to fund normal golf course operating expenses. However, golf course operating expenses also included interest on the advance from the General Fund, principal and interest related to the golf course bonds issued for the construction of the course, and depreciation related to the new golf course assets, resulting in a net loss of $4.3 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), the implementation of Government Accounting Standards Board (GASB) No. 54 resulted in the Community Activity Grants Fund being combined with the General Fund for financial statement presentation. 29 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, unassigned fund balances may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. The city implemented GASB 54 in Fiscal Year 2010-11, which created five fund balance classifications instead of the three shown previously. These fund balance classifications: nonspendable, restricted, committed, assigned and unassigned, comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Detail of the fund balances by classification is shown in note 11 of the financial statements. As of the end of the current fiscal year, the city’s governmental funds reported combined ending fund balances of $505.7 million, up $500,000 from the year before. Approximately 12 percent of this ($58.1 million) constitutes nonspendable fund balances, mostly comprised of advances and loans to other funds. Restricted fund balances can only be spent for a specific purpose stipulated by law and make up about 45 percent ($228.9 million). Assigned fund balances are intended to be used by the city for specific purposes but do not meet the criteria to be classified as restricted or committed. These make up 29 percent ($148.1 million) of the city’s fund balance. Approximately 14 percent ($69.6 million) of the fund balance is unassigned, which is available for spending at the city council’s discretion. 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 $154.5 million, an increase of $12.1 million. The unassigned fund balance portion of the General Fund was $69.6 million. 30 The increase in revenues was primarily due to the increases in the leading tax revenues, sales tax and transient occupancy taxes. As the economy continues to show signs of improvement, these revenues rose which resulted in the majority of the increases in the General Fund. The city did receive some one-time property tax revenues, the result of the State of California dissolving the city’s former redevelopment areas. In addition, the city received a large refund of prior year administrative fees collected by the county from the implementation by the state of the “Triple Flip” sales tax and the Vehicle License Fee (VLF)-in-lieu programs (miscellaneous revenues). Decreases were realized in ongoing property taxes, which are lagging revenues, and in the yield on the Treasurer’s portfolio (decreased income from property and investments). In the city’s 2012-13 Fiscal Year budget, maintenance and operations budgets were kept relatively flat for all departments, unless increases were required for new facilities. A total of 10.75 full-time positions were eliminated and 1.0 full-time, limited term position was created. These reductions were partially offset by anticipated increases in health, retirement and previously negotiated salary and benefit increases. Additional costs associated with the opening of the City of Carlsbad’s Safety Training Center and a $1.8 million transfer from the General Fund to the city’s Self Insured Benefits Fund to assist with anticipated future pension rate increases were also incorporated into the Fiscal Year 2012-13 budget. Overall, the General Fund budget increased by $3.3 million for the 2012-13 Fiscal Year. The majority of this increase ($2.9 million) was due to an increase in budgeted transfers out from the General Fund to other city funds for infrastructure replacement, PERS stabilization, and median and street tree maintenance. The General Capital Construction (GCC) Fund had just under $8.8 million in capital expenditures during the fiscal year, which was predominantly for the construction of Alga Norte Park, the Safety Training Facility, and the traffic signal program. These costs led to a reduction in the GCC fund balance of just over $8.6 million. Due to the construction of the new Alga Norte Park, the Public Facilities Construction Fund (PFF) saw its fund balance decrease by just under $9.7 million. The reduction in the fund balances of both the GCC and PFF funds was anticipated, as the city has been setting aside money for several years for the construction of various projects within each of these funds. Historically, the city has not issued debt to fund the construction of capital projects, and sets aside funds on an annual basis until sufficient funds have been collected for the construction of the project. In addition, projects will not be constructed until anticipated annual operating costs can be absorbed into the city’s budget without creating a deficit. The two remaining major governmental funds, which are both 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 position (cost recovery), financial position, and cash flows. 31 The Carlsbad Municipal Water District (CMWD) funds had an operating gain of approximately $3.3 million for the year. Operating revenues were $44.2 million and operating expenses were $40.9 million. The largest factor resulting in the operating gain is the increase in water sales revenue due to increased rates. Impacted by the continued annual increases in water rates (about 8 percent in January 2013), residents continued to conserve water during the year. The drought, technically speaking, is over and most restrictions have been lifted. Consumers are being advised, however, to continue to use water wisely and reduce where practical because water in general, is a dwindling resource. The cost of purchased water from the Metropolitan Water District and the San Diego County Water Authority (suppliers of the District’s potable water) continues to increase and, therefore, CMWD rates must increase to cover the added cost. Another large factor contributing to the operating gain was a $1.6 million reimbursement from the prior Marbella lawsuit. Non-operating revenues from investment earnings on the capital replacement funds and property tax receipts added to the operating gain, resulting in income before transfers and capital contributions of $6.1 million. In the sixth year of operation, the Golf Course Fund had an operating loss of $3 million, primarily due to depreciating the enterprise's assets ($3.3 million). The other factor contributing to this loss was a timing difference. This timing difference resulted from changing the budgeting from a calendar year basis to a fiscal year basis. 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. Food and beverage sales at the golf course restaurant (The Canyons) remain strong, and golf rounds and revenues are on the rise. The Wastewater Funds had an annual operating loss of $1.1 million for the fiscal year. Total revenues from operations increased $1.3 million from the previous year due to service charge rate increases and reimbursement from the City of Vista for their share of a portion of the Vista-Carlsbad Wastewater Interceptor project. However, operating expenses increased by $2.1 million from the previous fiscal year. Increases in depreciation expense, a result of new sewer system infrastructure, and a decrease in capitalized assets, account for the increase in operating expenses. Non-operating revenues of $126,000 helped to offset the operating loss, resulting in a net loss of $1 million before transfers and capital contributions. Solid Waste Operations and Storm Water Programs are combined on the city’s financial reports, and showed a net operating income of $238,000 for the year. Revenues were relatively flat when compared to the prior fiscal year and expenses decreased about $75,000, primarily due to a reallocation of interdepartmental charges to better reflect the enterprise’s share of those charges. The unrestricted net position for the Water, Golf Course, Wastewater, and Solid Waste Operations at the end of the year amounted to $55.7 million, or approximately 13.6 percent of the total enterprise fund net position. The unrestricted net position may be used for rate stabilization, fluctuations in operating expenses, and unforeseen repairs and maintenance. Approximately $46 million, or 11.3 percent, of the net position of all the proprietary funds are restricted for the future capital construction of new and replacement water and wastewater infrastructure assets. 32 Since the funding for the replacement of infrastructure assets is not restricted, it is reflected in the Statement of Net Position 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 position deficit balance in the Golf Course Fund represents funds advanced from the city’s General Fund that were used to fund construction, former operating losses and debt expenses of the municipal golf course. General Fund Budgetary Highlights for Fiscal Year 2013 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 $1.1 million increase in revenue estimates included: • Several new federal and state grants were applied for and received during the year. • Increased transient occupancy tax (TOT) revenue received as a result a new hotel and an increase in tourism. • One-time property tax revenue received as a result of the dissolution of the former redevelopment areas by the State of California. The slight increase from the total original expenditure budget to the final budget amounted to $348,000, due primarily to the appropriations of the grant money received, sales tax audit expenses, and developer funded studies. The difference between the final budgeted expenditures and the actual expenditures for the year (on a budgetary basis) of $20.9 million can be generally summarized as follows: • $19.8 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.  Accumulated savings set aside for future technology and innovation enhancements.  $19.8 million in “savings” are planned to be used for: ⇒ Professional consultant services for the desalination project ⇒ Fire and Police equipment replacement ⇒ Additional communication efforts for the new Alga Norte Park ⇒ Redesign of the city’s website ⇒ City Hall lobby and office remodeling ⇒ Council Chambers audio/visual updates ⇒ Lighting retrofits at several city parks ⇒ Synthetic turf replacement/installation at several park sites ⇒ Fuel island cover ⇒ City facility improvements ⇒ Hardware and software upgrades related to a new permitting system ⇒ City-owned real estate title, surveying and consulting services ⇒ Envision Carlsbad/zoning update ⇒ Innovation projects throughout the city ⇒ Conversion to a new integrated library system ⇒ Other one-time capital outlay items, as needed, throughout the city • Contributing to the increase in the unassigned General Fund balance of $1.1 million. 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. 33 Capital Asset and Debt Administration Capital Assets At the end of Fiscal Year 2012-13, 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: • The completion of several road segments: o Rancho Santa Fe Road o College Blvd./Cannon Road reach 3 • The Rancho Santa Fe Road bridge over San Marcos Creek • Construction of the Joint First Responders Training Facility • Lake Calavera Reservoir improvements • North Agua Hedionda sewer interceptor • Several waterline projects • Several storm drain projects In addition to carrying forward appropriations of $170.1 million for previously budgeted projects, the city’s Fiscal Year 2013-14 capital budget appropriates an additional $44.7 million for capital projects. These additional appropriations are principally for various improvements to the Village and Barrio areas of the city, the remodeling and refurbishments at both the Cole and Dove Libraries, the pavement management program, the acquisition of open space (Prop C projects), continuing work on the coastal rail trail, park and Senior Center improvements, facilities maintenance projects, the replacement and upgrade of the Carlsbad Blvd. bridge, 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, 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. 34 Long-Term Debt At year-end, the city had $40.5 million in bonds, loans, capital leases and agreements, a decrease of $2.9 million from last year, as shown in the table below. Payments made on all of the city’s outstanding debt created the reduction in the city’s. 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 2014 • The State of California adopted its Fiscal Year 2013-14 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 2013-14 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.  Through the passage of Proposition 30, additional sales tax and income tax revenues are expected to be generated at the state level.  If state revenues fall short of projections there is a trigger to determine if cuts are necessary which could impact local agencies.  Assembly Bill 340 was passed in an effort to address growing pension costs at both the state and local levels. • Net assessed values in the city stand at almost $23.9 billion, a 2.5 percent increase from the prior fiscal year due to new construction and increasing home prices. • Sales tax revenues are projected to continue to grow moderately with a 4 percent forecasted increase in the Fiscal Year 2013-14 Budget due in part to the opening of the new Legoland Hotel and Palomar Commons (Lowes) shopping center. • Due to the opening of the new Legoland Hotel and projected higher room rates, transient occupancy taxes (TOT) are expected to grow by 6.2 percent. • PERS rates for the miscellaneous plan have increased for Fiscal Year 2013-14 from 23.1 percent to 24 percent, and rates have also increased from 33.2 percent to 33.9 percent for the safety plan. • The city will set aside an additional $2,000,000 to assist in the stabilization of future PERS rates. • Median home prices in Carlsbad have increased by 13 percent from March 2012 ($580,000) to March 2013 ($655,000). • City departments were given maximum increases of 2 percent for maintenance and operational funding to cover changes in the Consumer Price Index (CPI), minimal new capital outlay, and additional personnel funding for only existing contractual obligations. • The city eliminated 12 full-time positions and added 5.25 positions in the General Fund. The additional staff is primarily for the operating of the new Alga Norte Park due to open in Fiscal Year 2013-14. 35 • Through Memorandum of Understandings (MOU’s): o The Carlsbad City Employees’ Association (CCEA) will now be part of a pay for performance compensation program effective January 1, 2014. o CCEA employees received a 3 percent raise in July 2013 and will receive a 3 percent raise and/or stipend in January 2014. o Management and Fire Management employees received an allocated share of a 3 percent raise/stipend pool in September 2013 and will receive a $1,600 stipend in January 2014. o Carlsbad Police Officers’ Association (CPOA) employees will receive a $2,400 stipend in October 2013 and a $2,700 stipend in January 2014. • The Carlsbad Firefighters Association (CFA) and the Carlsbad Police Management Association (CPMA) are currently in negotiations. These factors were considered when preparing the City of Carlsbad’s General Fund budget for Fiscal Year 2013-14. Budgeted expenditures are expected to increase 3.9 percent to $119.7 million. The total personnel budget for Fiscal Year 2013-14 is $74.2 million, which is 1.3 percent more than the previous year’s personnel budget of $73.3 million. The total maintenance and operations (M&O) budget for Fiscal Year 2013-14 is $31.6 million, which is 2.7 percent higher than the previous year’s budget of $30.7 million. The increase in personnel and M&O budgets is due primarily to the opening of the new Alga Norte Park and CPI adjustments given to the various operating departments. Operating transfers out of the General Fund are budgeted at $13.8 million, a $2.8 million increase from the prior fiscal year. This increase is due to the city budgeting an additional $200,000 transfer to the city’s Self-Insured Benefits Fund as a set aside to address anticipated future pension rate increases from CalPERS, a $1.5 million transfer to the city’s General Capital Construction Fund to pay for seven new village and barrio revitalization projects, a $750,000 additional transfer to the city’s General Liability Fund for increases to settlements and estimated claims payable, and an additional $300,000 transfer to the city’s Infrastructure Replacement Fund for major maintenance and replacement of city infrastructure. Adding to the adopted budget of $119.7 million for the General Fund, approximately $19.8 million in unspent Fiscal Year 2012-13 budgeted expenditures will be carried over to Fiscal Year 2013-14, as well as $6.4 million in open encumbrances as of June 30, 2013. As the city is approaching the buildout of its remaining vacant land, the city is 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 2013-14 Operating Budget, the city has budgeted a $7.8 million transfer from the General Fund to the IRF to meet future needs. During the current fiscal year, the unassigned fund balance in the General Fund increased by $8.2 million to $69.6 million due to fiscal discipline, additional one-time revenues received from the dissolution of the former redevelopment areas within the city, a strong tourism season (increased TOT revenues), higher than anticipated development within the city (increased development related services revenue) and one-time revenue received from actions taken by the California Supreme Court regarding administrative fees associated with the collection of the “Triple Flip”. Based on Fiscal Year 2013-14 projections, the unassigned General Fund balance is expected to grow approximately $1 million. There appears to be sufficient revenue projected to build the projects listed in the Fiscal Year 2013-14 Capital Improvement Program (CIP). The city’s business-type activities reflect the following: • The combined fixed and variable costs of water purchased from the San Diego County Water Authority are projected to rise about 3.75 percent and 5 percent respectively in Fiscal Year 2013-14. In November 2013, a public meeting will be held to determine how much water rates will increase effective January 1, 2014. The proposed rate increases are needed to fund the additional cost of purchased water, and to maintain an adequate reserve balance. • Proposed wastewater rate increases will also be discussed during the public meeting to be held in November 2013. If approved, these rates would be effective January 1, 2014. This proposed rate increase is needed to assist with higher depreciation expenses from the addition of completed facilities to the inventory, and to maintain an adequate reserve balance. 36 • The timing of the golf course budget changed this year from being brought forward on a calendar year basis in December of each year to now aligning with the city’s fiscal year budget which is brought forward every June. The Fiscal Year 2014 budget reflects a projected operating loss of over $998,000. The City Council has authorized the General Fund to transfer the anticipated loss to the Golf Course Fund during the fiscal year. • There are 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 Administrative Services Department, 1635 Faraday Avenue, Carlsbad, CA 92008, (760) 602-2430, or visit us online at www.carlsbadca.gov. 37 June 30, 2013 Governmental Business-Type ASSETS Activities Activities Total Cash and investments 464,469,701 $ 157,711,216 $ 622,180,917 $ Receivables: Taxes 7,151,820 16,051 7,167,871 Accounts, net of allowances 311,752 8,000,163 8,311,915 Other 1,050,281 43,408 1,093,689 Due from other governments 680,115 2,641,990 3,322,105 Inventories 245,841 1,276,861 1,522,702 Prepaid items 880,258 18,604 898,862 Land held for resale 454,000 - 454,000 Loan and reimbursement receivables, net of allowances 22,310,423 - 22,310,423 Due from Successor Agency 18,817,228 - 18,817,228 Deposits 25,000 - 25,000 Internal balances 55,463,119 (55,463,119) - Subtotal 571,859,538 114,245,174 686,104,712 Capital assets: Land 150,588,126 9,318,388 159,906,514 Construction in progress 47,333,665 7,560,463 54,894,128 Buildings and other structures 101,312,100 40,596,836 141,908,936 Improvements other than buildings 45,458,749 50,856,805 96,315,554 Machinery and equipment 28,298,901 2,793,263 31,092,164 Infrastructure 655,780,796 314,518,463 970,299,259 Wastewater treatment facility - 52,584,214 52,584,214 Intangible assets 3,186,520 -3,186,520 Less accumulated depreciation (249,299,808) (133,182,186) (382,481,994) Total capital assets 782,659,049 345,046,246 1,127,705,295 Total assets 1,354,518,587 $459,291,420 $1,813,810,007 $ The notes to the financial statements are an integral part of this statement. Primary Government CITY OF CARLSBAD Statement of Net Position 38 June 30, 2013 Governmental Business-Type LIABILITIES Activities Activities Total Accrued liabilities 11,899,201 $ 2,316,578 $ 14,215,779 $ Accrued interest payable - 391,857 391,857 Due to other governments - 6,555,689 6,555,689 Estimated claims payable 7,878,007 - 7,878,007 Deposits payable 951,831 999,177 1,951,008 Unearned revenue 2,430,823 10,000 2,440,823 Noncurrent liabilities: Due within one year, net of unamortized discounts ($36,634) and unamortized premiums ($9,895)159,052 2,691,821 2,850,873 Due in more than one year, net of unamortized discounts ($30,909) and unamortized premiums ($222,372)- 37,578,039 37,578,039 Total liabilities 23,318,914 50,543,161 73,862,075 NET POSITION Net investment in capital assets 782,499,997 307,000,440 1,089,500,437 Restricted for: Capital assets 182,685,135 45,989,562 228,674,697 Affordable housing 37,390,269 - 37,390,269 Habitat and agricultural mitigation management 2,664,405 - 2,664,405 Other purposes 6,642,478 - 6,642,478 Unrestricted 319,317,389 55,758,257 375,075,646 Total net position 1,331,199,673 $ 408,748,259 $ 1,739,947,932 $ The notes to the financial statements are an integral part of this statement. Primary Government CITY OF CARLSBAD Statement of Net Position (Continued) 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 CITY OF CARLSBAD Notes to the Financial Statements Note 8. Long-term Debt (continued) The aggregate maturities of long-term debt are as follows: Year ended June 30:Principal Interest Principal Interest 2014 159,052 $ 798 $ 2,718,560 $ 1,328,096 $ 2015 - - 2,697,932 1,230,828 2016 - - 1,846,300 1,156,494 2017 - - 1,900,461 1,103,660 2018 - - 1,960,433 1,047,875 2019-2023 - - 10,791,495 4,331,842 2024-2028 - - 9,344,955 2,711,256 2029-2033 - - 4,430,000 1,511,550 2034-2037 - - 4,415,000 409,387 159,052 $ 798 $ 40,105,136 $ 14,830,988 $ Governmental Activities Business-Type Activities Note 9. Rate Covenants and Pledged Revenue Rate covenants The 1997 Encina Financing Joint Powers Authority Installment Purchase Agreement requires that the Wastewater Fund set its charges for services each year at rates sufficient to produce net revenues (after paying the operating and maintenance expenses of the Fund, 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 (authority) Revenue Bonds require the authority 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 equal to or greater than amounts required 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 required to meet any other obligations of the authority. If the authority is unable to generate adequate revenues to make the principal and interest payments on the bonds as they become due, the City of Carlsbad’s General Fund will make the payments. All of the revenues of the Wastewater Fund, Water District, and the Golf Course Fund are pledged to meet these rate covenants and to secure the related debt. All rate covenants requirements were met for the fiscal year ended June 30, 2013. Pledged revenue The city and its component units have a number of debt issuances outstanding that are collateralized by the pledging of certain revenues. The amount and term of the remainder of these commitments are indicated in the debt service to maturity tables presented in the accompanying notes. The purpose for which the proceeds of the related debt issuances were utilized are disclosed in the debt descriptions of the accompanying notes. For the current year, debt service payments as a percentage of the pledged gross revenue (net of certain expenses where so required by the debt agreement) are indicated in the table on the following page. These percentages also approximate the relationship of debt service to pledged revenues for the remainder of the term of the commitment: 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 Statistical Section Statistical Section Statistical SectionStatistical 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 128 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 139 These schedules contain information to help the reader assess the City’s most significant local revenue source, property taxes. Debt Capacity 144 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 154 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 158 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. 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164