CITY OF EAST PALO ALTO, CALIFORNIA
Basic Financial Statements
June 30, 2006
CITY OF EAST PALO ALTO
Basic Financial Statements
For the Year Ended June 30, 2006
TABLE OF CONTENTS
PAGE
Independent Auditors’ Report 1
Management’s Discussion and Analysis ( Unaudited) 3
Basic Financial Statements:
Government- wide Financial Statements:
Statement of Net Assets 17
Statement of Activities 18
Fund Financial Statements:
Balance Sheet – Governmental Funds 20
Reconciliation of the Balance Sheet of
Governmental Funds to the Statement of Net Assets 23
Statement of Revenues, Expenditures and Changes in
Fund Balances – Governmental Funds 24
Reconciliation of the Statement of Revenues, Expenditures and Changes in
Fund Balance of Governmental Funds to the Statement of Activities 26
Statement of Net Assets – Proprietary Funds 27
Statement of Revenues, Expenses and Changes in Fund Net Assets –
Proprietary Funds 28
Statement of Cash Flows – Proprietary Funds 29
Statement of Fiduciary Net Assets – Fiduciary Funds 30
Statement of Changes in Fiduciary Net Assets – Fiduciary Funds 31
Notes to Financial Statements 33
Required Supplementary Information ( Unaudited):
PERS Schedule of Funding Progress 64
General Fund- Budgetary Comparison Schedule 65
Note to Required Supplementary Information 66
Supplementary Information:
Nonmajor Funds:
Balance Sheet – Nonmajor Governmental Funds 68
Statement of Revenues, Expenditures and
Changes in Fund Balances – Nonmajor Governmental Funds 72
1
November 9, 2006
The Honorable City Council of
the City of East Palo Alto, California
Independent Auditors’ Report
We have audited the accompanying financial statements of the governmental activities, the business- type activities,
each major fund, and the aggregate remaining fund information of the City of East Palo Alto, California, as of and for
the year ended June 30, 2006, which collectively comprise the City’s basic financial statements as listed in the table
of contents. These financial statements are the responsibility of the City of East Palo Alto’s management. Our
responsibility is to express opinions on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and
the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller
General of the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective
financial position of the governmental activities, the business- type activities, each major fund, and the aggregate
remaining fund information of the City of East Palo Alto, California, as of June 30, 2006, and the respective changes
in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued our report dated November 9, 2006 on our
consideration of the City of East Palo Alto’s internal control over financial reporting and our tests of its compliance
with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report
is to describe the scope of our testing of internal control over financial reporting and compliance and the results of
that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That
report is an integral part of an audit performed in accordance with Government Auditing Standards and should be
considered in assessing the results of our audit.
The management’s discussion and analysis and other required supplementary information identified in the
accompanying table of contents are not a required part of the basic financial statements but are supplementary
information required by the Governmental Accounting Standards Board. We have applied certain limited procedures,
which consisted principally of inquiries of management regarding the methods of measurement and presentation of
the required supplementary information. However, we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
comprise the City’s basic financial statements. The accompanying combining nonmajor fund financial
statements listed as supplementary information in the table of contents are presented for purposes of additional
analysis and are not a required part of the basic financial statements. The combining fund financial statements
have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our
opinion, are fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
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3
MANAGEMENT'S DISCUSSION AND ANALYSIS
The management’s discussion and analysis is designed to provide for the fiscal year ended June
30, 2006 ( a) an overview of the City’s financial activities, ( b) highlights of significant financial
issues, ( c) challenges facing the City’s financial position in future years, and ( d) identification of
any material deviations from the approved budget.
We advise readers to consider the information presented here in conjunction with additional
information furnished in other sections of this financial statement report.
FINANCIAL HIGHLIGHTS
The City continues to face significant financial challenges. The General Fund, which accounts
for the City’s basic services, continues to incur an annual operating deficit. In recent years, the
annual deficit has been funded through accelerated repayments of a long- term receivable from
the City of East Palo Alto Redevelopment Agency ( Agency).
In the current year, the City was able to dramatically reduce the structural deficit through tighter
fiscal controls, elimination of vacant authorized positions and, increased property tax revenue.
The City had to address its deficit, because the accelerated payments from surplus cash reserves
in the Agency had decreased significantly over the past several years. The City transferred
approximately $ 320,000, from the Agency to offset the General Fund’s operating obligations for
the current year. This amount represented a decrease of $ 1.8M from the $ 2.0M transfer required
in the previous year to address the structural deficit. Currently, the General Fund does not have
significant reserves set aside for economic uncertainties. Accordingly, the City is required to
cope with these uncertainties with careful planning, budgeting, and continued strategic
authorization of new development measures that collectively reduce expenditures and/ or
generate additional revenues. The City has identified ways to address these challenges in next
year’s budget by, as alluded to earlier, abolishing unfilled positions, implementing a twelve day
mandatory furlough program, promoting a parcel tax initiative to generate more revenues for
public safety and crime prevention services. Furthermore, the city adopted for the first- time, a
framework for a multi- year financial plan to be used as a tool to develop strategies and policies
to more effectively manage the City’s General Fund for the next four fiscal years.
The following are some key financial highlights for the current fiscal year:
• The government- wide assets exceed liabilities by $ 14.3M ( net assets). The net assets are
comprised of capital assets, restricted assets, and an unrestricted deficit in the amount of
$ 18.4M. Overall, analysis of the statement of net assets shows that the City is able to
meet current obligations; however long- term financial obligations must be paid through
continued annual funding from operations.
• The government- wide total assets increased by approximately $ 17.7M over the prior year
primarily due a $ 18.0M bond issued by the City’s Public Financing Authority ( PFA)
during the current fiscal year.
• The government- wide net liabilities increased by approximately $ 16.7M. Net liabilities
and net assets increased almost by the same amount as the bond assets are offset by a
liability for the same amount of bonds outstanding by the PFA.
4
• Governmental revenues resulted in a slight decrease of approximately $ 200,000 from
prior year.
• Governmental expenditures decreased by $ 400,000 over prior year as a result of the
reduction in development activities and programs.
OVERVIEW OF THE FINANCIAL STATEMENTS
Government- wide Financial Statements
The government- wide financial statements are design to provide the readers with a broad view of
the City’s finances in a manner similar to a private- sector business.
Statement of Net Assets: Presents information on all of the City’s assets and liabilities, with the
difference between the two reported as net assets ( deficit). Over time, the change in net assets
( deficit) may serve as a useful indicator of whether the financial position of the City is improving
or declining.
Statement of Activities: Presents information showing how the City’s net assets ( deficit) changed
during the most recent fiscal year. All changes in net assets ( deficit) are reported as soon as the
underlying event giving rise to the change occurs, regardless of timing of related cash flows.
Thus, revenues and expenses are reported in this statement for some items that will result in cash
flow in future fiscal periods ( e. g. revenues pertaining to uncollected taxes and expenses
pertaining to earned unused vacation leave). Non- financial factors, such as changes in the City's
property tax base and the condition of the City's roads must be considered in order to properly
assess the overall financial health of the City.
• In the Statement of Net Assets and the Statement of Activities, we divide the City into
two types of activities:
• Governmental activities - Most of the City's basic services are reported here, including
police, public works, community development, and general administration. Taxes, user
fees, and state and federal grants finance most of these activities.
• Business- type activities - The City charges a fee to cover all or most of the cost of certain
services it provides. The City's water system and franchised garbage collection services
are reported here.
Fund Financial Statements
A fund is a grouping of related accounts used to maintain control over resources that have been
segregated for specific activities or objectives. The City, like other State and local governments,
uses fund accounting to ensure and demonstrate financial compliance with legal requirements.
The remaining statements provide financial information about activities for which the City acts
solely as a trustee or agent for the benefit of those outside of the government. . Fund financial
statements also report the City's operations in more detail than the government- wide statements
by providing information about the City's most significant funds.
5
Reporting the City's Major Funds
The analysis of the City's major funds begins on page 20. The fund financial statements provide
detailed information about the most significant funds - not the City as a whole. Some funds are
required to be established by State law and by bond covenants. However, the City establishes
many other funds to help it control and manage money for particular purposes ( like the Capital
Project Fund) or to show that it is meeting legal responsibilities for using certain taxes, grants,
and other money ( like grants received from the Federal Government). The City's two types of
funds - governmental and proprietary - use different accounting approaches.
• Governmental funds - Most of the City's basic services are reported in the governmental
funds, which focus on how money flows into and out of those funds and the balances left
at year- end that are available for spending. These funds are reported using an accounting
method called modified accrual accounting, which measures cash and all other financial
assets that can readily be converted to cash. The governmental fund statements provide a
detailed short- term view of the City's general government operations and the basic
services it provides. Governmental fund information helps determine whether there are
more or fewer financial resources that can be spent in the near future to finance the City's
programs. We describe the relationship ( or differences) between governmental activities
( reported in the Statement of Net Assets and the Statement of Activities) and
governmental funds in reconciliation at the bottom of the fund financial statements.
• Proprietary funds - When the City charges customers for the services it provides -
whether to outside customers or to other units of the City - these services are generally
reported in proprietary funds. Proprietary funds are reported in the same way that all
activities are reported in the Statement of Net Assets and the Statement of Activities. In
fact, the City's enterprise funds ( a component of proprietary funds) are the same as the
business- type activities we report in the government- wide statements but provide more
detail and additional information, such as cash flows, for proprietary funds.
The City as Trustee
The City is the trustee, or fiduciary, for its employees' 401K and 401A pension plans. It is also
responsible for other assets that - because of a trust arrangement - can be used only for the trust
beneficiaries. All of the City's fiduciary activities are reported in separate Statements of
Fiduciary Net Assets and Changes in Fiduciary Net Assets. We exclude these activities from the
City's other financial statements because the City cannot use these assets to finance its
operations. The City is responsible for ensuring that the assets reported in these funds are used
for their intended purposes.
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Notes to the Financial Statements
The notes provide additional information that is essential to a full understanding of the data
provided in the government- wide and fund financial statements.
Government- wide Financial Analysis
The City provides comparative information in its Management Discussion & Analysis by
presenting two years of financial information in the GASB Statement No. 34 format and a
comparative analysis of government- wide data. Net assets serve as a useful indicator of a
government’s financial position. For the City, assets exceeded liabilities by approximately
$ 14.3M. However a significant portion of these assets are not liquid, and are not available to pay
liabilities. Of the $ 71.0M total assets; only $ 43.2M has short or long term liquidity. The
remaining assets are capital assets such as roadways, storm drains, water system and other
infrastructures owned by the City.
Analysis of Net Assets
Government- wide assets exceeded liabilities by $ 14.3M at the end of the current fiscal year. The
following table is a summary of the government- wide net assets for the governmental and
business- type activities:
STATEMENT OF NET ASSETS
( Dollars in thousands)
2006 2005 2006 2005 2006 2005
Assets:
Current and other assets $ 42,506 $ 24,319 $ 1,648 $ 1,657 $ 44,154 $ 25,976
Capital Assets 21,129 21,356 5,658 5,887 26,787 27,243
Total assets 63,635 45,676 7,306 7,544 70,941 53,220
Liabilities:
Current and other liabilities 4,110 5,646 462 503 4,572 6,149
Noncurrent liabilities 52,081 33,823 52,081 33,823
Total liabilities 56,191 39,469 462 503 56,654 39,972
Net Assets:
Investment in capital, net of debt 20,575 20,799 5,702 5,887 26,277 26,686
Restricted 6,426 4,814 6,426 4,814
Unrestricted ( 19,557) ( 19,407) 1,142 1,155 ( 18,415) ( 18,252)
Total Net Assets $ 7,444 $ 6,206 $ 6,844 $ 7,042 $ 14,288 $ 13,248
Governmental Activities Business- Type Activities Total
Governmental Activity
• Total assets of $ 63.6M consist of current and other assets of $ 42.5M and capital assets of
$ 21.1M. Current and other assets increased $ 17.0M. This increase reflects the net
difference between the addition of $ 18.0M bond issuance by the PFA and approximately
$ 1.0M reduction in receivables and prepayments from the previous year; such as the
prepaid excise tax and grant receivables. The proceeds from the bond issue ( assets) are
being held by a trustee and will be used to purchase the Agency 1999 Bonds scheduled to
mature on October 1, 2010.
7
• Total liabilities of $ 56.2M consist of $ 4.1M of current liabilities and $ 52.1M of long-term
debt. Total liabilities increased by $ 16.7M. This increased reflects the net difference
between the additional $ 18.0 million bond issue by the PFA and the elimination of $ 1.3M
in debt related to scheduled debt payments such as bond principal and excise tax
settlement payments.
• Net assets are comprised of 1) $ 21.1M investment in capital assets ( e. g. land building,
improvements, infrastructure, etc.) less any outstanding debt used to acquire those assets.
The City utilizes capital assets to provide services to citizens. These assets, however, are
not available for future spending. Although the investment in 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 cannot be liquidated for
these liabilities; ( 2) $ 6.4M represents resources that are subject to external restrictions on
how they may be expended and ( 3) a remaining deficit of $ 20.1M. Of the $ 20.1M deficit,
$ 18.5M relates to long- term obligations secured by future tax increments. The remaining
$ 1.6M deficit relates to liabilities for claims and judgments and compensated absences.
The City intends to liquidate those liabilities as the payments become due from continued
annual operations.
Business- type Activity
The City’s business- type activities reflect a $ 5.7M investment in capital assets, which primarily
consists of water- service type assets and infrastructure. Approximately, $ 1.1M unrestricted net
assets are available at year- end to pay current and future obligations. No major capital
improvements were added to the water system during the current fiscal year.
8
Analysis of Statement of Activities
The statement of activities shows the net increases / ( decreases) of net assets during the fiscal
year- end. The following table indicates the changes in net assets for governmental and business-type
activities:
2006 2005 2006 2005 2006 2005
Revenues
Program revenues:
Charges for services $ 2,056 $ 1,673 $ 1 ,976 $ 1 ,869 $ 4 ,032 $ 3,542
Operating grants and contributions 2,257 2 ,953 277 2,257 3,230
Capital grants and contributions 461 729 461 729
General revenues:
Property taxes 10,605 9 ,705 10,605 9,705
Sales taxes 2,750 2 ,710 2,750 2,710
Vehicle in lieu 231 818 231 818
Utility user tax 1,418 1 ,254 1,418 1,254
Non regulatory franchise and business 981 989 981 989
Investment earnings 645 635 7 1 4 9 715 684
Gain on sale of assets ( 2) ( 2)
Other general revenues 72 223 72 223
Total revenues $ 21,472 $ 21,689 $ 2,047 $ 2,195 $ 2 3,520 $ 23,884
Expenses
Program expenses:
General government $ 2,991 $ 3,169 $ 2 ,991 $ 3,169
Public safety 9,011 8 ,627 9,011 8,627
Public works 2,191 2 ,995 2,191 2,995
Culture and recreation 779 919 779 919
Community development 3,304 3 ,081 3,304 3,081
Water services $ 512 $ 5 98 5 12 598
Garbage collection 1,733 1 ,604 1,733 1,604
Interest on long- term debt 1,959 1 ,771 1,959 1,771
Total expenses 20,235 2 0,562 2 ,245 2,202 2 2,480 22,764
Increase ( decrease) in net assets 1,237 1,127 ( 198) ( 7) 1,040 1,120
Beginning net assets 6,206 5,081 7,042 7,048 13,248 12,129
Ending net assets $ 7,443 $ 6,207 $ 6,844 $ 7,042 $ 1 4,287 $ 13,249
Total
Statement of Activities
( Dollars in thousands)
Governmental Activities Business- Type Activities
9
The government- wide net assets increased by approximately $ 1.2M as noted in the table above.
The primary reason for the increase is the result of revenues exceeding expenses in the
governmental activities. Further explanations on governmental and business- type revenue and
expenditure are illustrated in the charts below:
Governmental activities
• Overall total revenues are approximately $ 21.5M; a decrease $ 200,000 ( 1%) from the
prior year. General revenues increased nearly $ 400,000 from prior year. This was mainly
attributed to increased property tax revenues as a result of increased assessed valuation
on property within the City. However that was offset by a $ 600,000 reduction in program
revenues, resulting from a reduction in spending of grant related projects.
Governmental Activities
Expenditures by Type
Public safety
44%
General government
Interest on long- term debt 15%
10%
Community development
16%
Culture & recreation
4%
Public works
11%
Governmental Activities
Revenues by Source
Capital grants & contributions
2%
Grants & contributions
11%
Charges for services
Other 9%
0%
Property tax
49%
Vehicle in lieu
1%
Sales tax
13%
Utility user tax
7%
Non regulatory franchise &
business
5%
Investment earnings
3%
10
• Overall total expenses are approximately $ 20.2M; a decrease of $ 400,000 ( 2%) from the
prior year. The significant components of the decrease are a reduction of public works
projects and infrastructure improvement expenses from the prior year.
Business- type activities decreased City’s net assets by $ 198,000 in the current fiscal year. Key
factors of this decrease are as follows:
• Water net assets decreased by $ 258,000, primarily due to reduction in water service fees
and depreciation expense related to water resource development projects. This decrease is
offset by charges for services.
• Garbage service revenues ( charges for services) exceeded expenditures by $ 60,720
mainly as a result of South Bayside Waste Management Authority settlement with the
City’s garbage collection service provider to refund the City for the over charges in the
garbage fee rates from previous years.
FINANCIAL ANALYSIS OF THE GOVERNMENT'S FUNDS
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with
finance- related legal requirements.
Governmental Funds
The focus of the City’s governmental funds is to provide information on near- term inflows,
outflows and balances of resources that are available for spending. Such information is useful in
assessing the City’s financing requirements. Types of governmental funds reported by the City
include the General Fund, Special Revenue Funds, Debt Service Funds and Capital Project
Funds.
At June 30, 2006, the City’s governmental funds reported a combined ending fund balance of
$ 37.4M, an increase of $ 18.2M in comparison to the prior year.
• The $ 18.2M in increased assets was mainly a result of the bonds issued by the City’s
PFA and a slight increase cash and cash equivalents in some of the restricted funds.
• Governmental revenues at fiscal year end were $ 21.8M, an increase of $ 1.0M in revenues
from the previous year. This was mainly a result of increased property tax revenues due
to increased assessed valuation of properties within the City.
• Governmental expenditures totaled approximately $ 22.2M, an increase of $ 1.0M ( 5%)
over the previous year. There were minor fluctuations within the various expenditure
programs resulting in no significant change overall. However, the primary cause of the
$ 1.0M increase in expenditure resulted from interest and fiscal charges related to the cost
of issuance of the PFA 2005 Bond in the current year.
The General Fund is used to account for all revenues and expenditures necessary to carry out
basic government activity of the City that is not accounted for through other funds.
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At June 30, 2006 fund balance was $ 12.6M; a decrease of $ 500,000 (- 4%) from the prior year.
Of the total fund balance approximately $ 231,000 is unreserved and undesignated and is
available for spending at City’s discretion. The City designated the remaining fund balance to
purchase City vehicles and related equipment for various City departments from the vehicle- in-lieu
( VLF) proceeds generated from the sale of the California Statewide VLF bonds issued on
behalf of some local and governmental agencies. Unreserved fund balance represents 1.5 % of
the total fund expenditures of $ 13.7M, which means the City does not have adequate reserves for
unanticipated emergencies. Management intends to meet this challenge with careful planning,
budgeting and by identifying ways to reduce cost and/ or generate more revenues for the City.
Revenues equaled $ 13.3M; an increase of $ 500,000 ( 4%) over prior year. The increase was
mainly due to increased property tax as a result of additional housing and business development.
Expenses equaled $ 13.8M; an increase of $ 400,000 ( 3%) over prior year. The increase was
largely due to an overall increase in salary and cost of living adjustments, ranging from 3% up to
25%; and, an increase in program activities related to public safety; including the lease of land
and modular’s for a new police facility.
Although revenue increased, over the prior year, expenses continued to exceeded revenues,
creating an operating deficit of approximately $ 463,422. The General Fund has an unreserved
fund balance of $ 729,939 and the Agency approved an accelerated repayment of debt owed to
the General Fund in the amount of $ 320,000 to fund other current obligations due and payable
shortly after June 30, 2006.
The East Palo Alto Redevelopment Agency accounts for the activities of the Agency, which was
created to prepare and carry out redevelopment plans for designated areas within the City.
The Capital Project Fund’s revenues were $ 3.7M in the current year, a decrease of approximately
$ 1.1M from the previous year. Approximately $ 900,000 of this decrease was a revenue
reclassification of the 20% low and moderate set- aside. In previous years, the 20% set- aside was
recorded as revenue in the capital project funds and then transferred to the low- mod funds; this
year the 20% set- aside was recorded directly to the low- mod funds, which resulted in less
revenue to the capital projects funds. Therefore, the decrease in property tax revenue was only
$ 200,000 from prior year. The decrease was as a result of a reduction in assessed valuation
related to property within the redevelopment project area. Expenditures in the current year were
$ 3.0M; an increase of approximately $ 300,000 from the prior year. The increase is primarily due
to more redevelopment activities in the current year.
In the current year, the Agency reserved for encumbrances of approximately $ 40,000, land held
for resale for approximately $ 537,000 and $ 325,000 reserved fund balance, leaving an
unreserved fund deficit of approximately $ 10.6M. This deficit is a result of long- term debt the
Agency owes, which is not uncommon for Redevelopment Agencies.
Low and Moderate Income Housing accounts for the legally required set- aside of 20% of
property tax increment revenues received from within the Agency’s redevelopment project areas
and accounts for expenditures restricted to low and moderate income housing projects.
Total tax increment revenues received in the current year were approximately $ 882,000, a
portion of which was used to repay low and moderate housing related debt.
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Proprietary Funds: The City’s proprietary funds provide the same type of information found in
the government- wide financial statements but in more detail.
At the end of the fiscal year, the unrestricted net assets for the Water and Garbage Funds were
$ 6.4M and $ 486,458, respectively. The combined decrease in net assets for both funds was
$ 198,000 compared to prior year. Further discussions of these funds have been addressed
previously in the discussion of the City’s business- type activities.
General Fund Budgetary Highlights
Differences between the original FY 2006 General Fund budget and the final amended budget
resulted in an approximate $ 166,000 decrease in budgeted revenues and a $ 696,000 increase in
expenditure appropriations. Following are the main components of the changes in revenues and
expenditure appropriations.
• The fiscal year 2006 adopted revenues equaled $ 14.4M and the final amended revenue
was $ 14.2M; no significant changes from the original budget. When the adopted budget
was approved, the City was anticipating a General Fund deficit of approximately $ 1.9M.
However due to higher than anticipated increased property tax revenue of approximately
$ 1.1M and a estimated $ 200,000 in settlement funds from a developer, the amended
budget deficit was reduced to $ 600,000. The deficit does not account for the additional
$ 1.3M estimated advance from the Agency as a pass- through to the City to cover the
operating deficit in the Ravenswood Project Area.
• The fiscal year 2006 adopted appropriations equaled $ 14.8M, an increase of $ 700,000
from the final amended appropriations of $ 15.5M. The increase is mainly attributed to a
$ 385,000 settlement to a previously leased City facility; whereby the City had agreed to
make various improvements to the facility. The improvements were not made by the City
and a final settlement agreement was reached during the current year that was not
originally budgeted.
CAPITAL ASSET AND DEBT ADMINISTRATION
Capital Assets
The City’s capital assets for its governmental and business- type activities as of June 30, 2006
amounted to $ 26.8M ( net of accumulated depreciation). Capital assets include land, construction
in progress, buildings and improvements, machinery and equipment, and infrastructure. The total
decrease in the City’s capital assets for the fiscal year was approximately $ 463,000 or 1.7
percent.
Capital assets, net of accumulated depreciation, for the governmental and business- type activities
are presented below to illustrate changes from the prior year:
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June 30, 2006
( Dollars in thousands)
2006 2005 2006 2005 2006 2005
Land $ 605 $ 605 $ 207 $ 207 $ 812 $ 812
Construction in Progress 1,489 2,991 1,138 1,489 4,129
Buildings and Improvements 3,494 3,486 44 44 3,538 3,530
Improvements Other than Buildings 2,741 1,864 6,981 5,756 9,722 7,621
Furnishings & Equipment 1,102 1,003 63 63 1,165 1,066
Vehicles 1,170 977 90 90 1,260 1,067
Street and Roadways 31,559 30,642 31,559 30,642
Storm Drain System 3,261 3,261 3,261 3,261
Less Accumulated Depreciation ( 24,292) ( 23,474) ( 1,727) ( 1,410) ( 26,019) ( 24,883)
Total $ 21,129 $ 21,356 $ 5,658 $ 5,888 $ 26,787 $ 27,244
Governmental Activities Business- Type Activities Total
Major capital assets events during the current fiscal year included the following:
Governmental Activities:
• Capital assets increased a total of $ 585,000, net of current year depreciation of $ 818,000.
• Construction in progress ( CIP) decreased $ 1.5M over the prior year. This is a result of the
completion of the Bus Route Rehabilitation project and the Martin Luther King Park
Phase II project, totaling $ 1.8M. The offset of $ 300,000 was due to YMCA project for
design services of $ 87,000. This project is primarily funded through a State capital grant.
The remaining balance is comprised of office building improvements, vehicle and
technology assets.
Business- Type Activities:
• Water Services’ capital assets decreased by $ 230,000 ( net of accumulated depreciation).
This is a result of the depreciation of the water assets in the amount of $ 317,000 net of an
$ 87,000 increase in improvements being made to the water system.
For government- wide financial statements presentation, all depreciable capital assets were
depreciated from acquisition date to the end of the current fiscal year. Fund financial statements
record capital assets purchases as expenditures.
The City’s infrastructure assets are recorded at historical cost in the government- wide financial
statements as required by GASB Statement No. 34.
Additional information about the City’s and Water Services’ capital assets can be found in Note
III C. to the financial statements.
Debt Administration
At year- end, the City had $ 52.9M in debt related to governmental activities. There was no debt
related to the business- type activities. Debt outstanding increased by $ 17.4M or 49 % from prior
year. Debt outstanding as of June 30, 2006 with a comparison to prior year, including net change
follows:
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As of As of
June 30, 2006 June 30, 2005 Net Change
Tax Allocation Bonds $ 25,620 $ 26,005 $ ( 385)
Revenue Bonds 17,995 17,995
Amortized Bond Premium 806 333 472
Loan from other governments 6,914 6,792 122
Claims & Judgements 555 1,502 ( 947)
Compensated Absences 968 826 142
Total government activity debt $ 52,858 $ 35,458 $ 17,399
Debt Outstanding
( Dollars in Thousand)
A $ 17.4M net change in debt; resulted from an $ 18.0M bond issuance and approximately
$ 600,000 net change in addition and retirements during the current fiscal year. The City’s PFA
issued $ 18.0M of revenue bonds which will be used to execute a purchase in lieu of redemption
of the 1999 Bonds scheduled to mature on October 1, 2010 through and including October 1,
2029 on their October 1, 2009 call date; pay interest costs on the 2005 PFA Bonds until October
1, 2009; and provide the City, through the PFA, with an estimated $ 1.4M in additional funds for
government infrastructure projects throughout the City. The net change of $ 600,000 was an
addition of $ 594,000 for amortized premium on the 2005 debt issuance and an increase in pass-thru
obligations. This amount was offset by a $ 1.3M retirement resulting from scheduled bond
payments and excise tax judgment payments.
In FY 2006 no debt activity was reported in the business- type activities.
Additional information about the City’s debt can be found in Note III E to the financial
statements.
ECONOMIC FACTORS AND NEXT YEAR'S BUDGET
• The City population has slightly increased over the past several years, with a slight
increase of 0.8% in 2006. The City unemployment rate decreased from 11.6% to 10.2%
in 2006. Historically, the City’s unemployment rates are higher than the rates of the
County and the State of California. In 2005, the County unemployment rate was 4.3%.
The City attributes the higher rates to both less- than- optimal business development and
retail activity within the City and, to broader socio- economic issues such as challenges to
City residents relative to educational opportunities and employment preparedness. The
City is trying to address these challenges through a variety of approaches such as First
Source Hiring ( FSH) employment training initiatives, small business retention programs,
and collaborative efforts with the local school district and other education local providers.
• The unemployment rate decreased in 2005, despite the closing of Home Expo and
CompUSA retail outlets, due to overall improved economic conditions related to the
creation of temporary construction- related and permanent jobs that East Palo Alto
residents were able to successfully compete for as a result of employment opportunities
created by the opening of a Four Seasons Hotel, tenant improvement- related construction
in the University Circle development, construction of the Courtyard at Bay Road Housing
development project and, sustained efforts to achieve employment targets through the
city’s First Source Hiring program related to existing retail jobs in the Gateway 101
shopping center. Approximately 39% and 45% of the employees in the shopping center
15
were from the City of East Palo Alto in the third quarter and fourth quarter of 2005
respectively.
• The “ Measure R” tax, which increases the business license tax on toxic waste facilities
from 1% to 10% of gross revenues, was approved by the voters two years ago. However
this tax is being challenged and, to date, has not resulted in available revenue ( estimated
to gross approximately $ 2M annually) for the city.
• The “ Measure J” Utility User Tax was passed by the voters on the November 2005 ballot.
The measure removed the sunset date ( November 2006), thereby authorizing the City to
continue imposing the tax. The utility user’s tax is currently $ 1.4 million annually. There
are current discussions, both on the State and Federal level, that could result in legislation
or regulations that have fiscal implications related to the collection of the tax as it is
related to telephone services.
• The City placed “ Measure K”, a special parcel tax for police and youth services on the
November 2005 ballot. The measure did not meet the two- thirds majority required under
Prop 218 and accordingly failed. The City placed a similar measure on the November
2006 ballot known as “ Measure C”, which also required a two- thirds majority under Prop
218. This tax was approved by the voters and is expected to generate approximately $ 1.0
million annually to be used to improve public safety services and violence prevention
programs beginning in the 07- 08 fiscal year.
• The City purchased a parcel at the corner of Bay and University from San Mateo County
for $ 250,000 using funds from the bond proceeds set- aside for infrastructure within the
City. As a part of this purchase agreement, the County is transferring both its Drainage
and Lighting District assets to the City.
• The City recently reached a settlement agreement with a developer and anticipates
approximately $ 500,000 in one- time revenue this fiscal year related to the sale of condo
conversion units.
• The City continues to have fiscal challenges implementing its FY06- 07 budget. In order
to adopt a balanced budget for FY06- 07, the City Council eliminated fifteen positions
from its authorized position strength; and, implemented a twelve- day mandatory furlough
program for all City services, excluding public safety. Although these initiatives were
successful in reducing the General Fund structural deficit gap by $ 1.8M; improved
productivity and cost controls will only go so far to solve the City’s ongoing
revenue/ expenditure imbalance in the General Fund. New revenues must be found in
order to avoid significant service cuts and program elimination in the future. The recent
parcel tax approved by the voters will help to improve services related to public safety
and youth services for the upcoming FY 07- 08 budget.
• All of these factors were considered in preparing the City’s budget for FY 2007.
CONTACTING THE CITY'S FINANCIAL MANAGEMENT
This financial report is designed to provide our citizens, taxpayers, customers, and investors and
creditors with a general overview of the City's finances and to ensure transparency relative to
city fiscal operations. If you have questions about this report or need additional financial
information, contact the City’s Finance Department, 2415 University Avenue, East Palo Alto,
CA 94303.
16
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CITY OF EAST PALO ALTO
Statement of Net Assets
June 30, 2006
Primary Government
Governmental Business- type
Assets Activities Activities Total
Current assets:
Cash and cash equivalents $ 12,269,348 $ 1,626,244 $ 13,895,592
Cash and investments with fiscal agent 19,503,181 19,503,181
Receivables, net 1,399,106 22,232 1,421,338
Prepayments 141,501 141,501
Total current assets 33,313,136 1,648,476 34,961,612
Noncurrent assets:
Deposits and other assets 146,565 146,565
Deferred charges 1,552,957 1,552,957
Property held for resale 537,429 537,429
Loans receivable 6,956,465 6,956,465
Capital assets:
Nondepreciable assets 2,094,015 206,750 2,300,765
Capitial assets net of depreciation 19,034,126 5,451,022 24,485,148
Total noncurrent assets 30,321,557 5,657,772 35,979,329
Total assets 63,634,693 7,306,248 70,940,941
Liabilities
Current liabilities:
Accounts payable 1,116,265 373,911 1,490,176
Accrued liabilities 708,506 708,506
Deferred revenue 301,485 301,485
Deposits payable and advances 947,099 88,258 1,035,357
Advances from developers 141,514 141,514
Interest payable 118,485 118,485
Current portion of noncurrent liabilities 776,557 776,557
Total current liabilities 4,109,911 462,169 4,572,080
Noncurrent liabilities:
Tax allocation bonds payable, net of unamortized
premium of $ 805,812 44,020,812 44,020,812
Due to other governmental agencies -
long- term pass- through 5,663,695 5,663,695
Compensated absences 967,967 967,967
Claims and judgments 355,000 355,000
Other loans and notes payable 1,073,872 1,073,872
Total noncurrent liabilities 52,081,346 52,081,346
Total liabilities 56,191,257 462,169 56,653,426
Net Assets
Invested in capital assets, net of related debt 20,574,619 5,657,772 26,232,391
Restricted for:
Public safety 239,521 239,521
Highways and streets 2,622,482 2,622,482
Parks and recreation 1,431,231 1,431,231
Low and moderate income housing 2,132,049 2,132,049
Unrestricted net assets ( deficit) ( 19,556,466) 1,186,307 ( 18,370,159)
Total net assets $ 7,443,436 $ 6,844,079 $ 14,287,515
See Accompanying Notes to Financial Statements.
17
CITY OF EAST PALO ALTO
Statement of Activities
For the Year Ended June 30, 2006
Program Revenues
Operating Capital
Charges for Grants and Grants and
Functions/ Programs Expenses Services Contributions Contributions
Governmental activities:
General government $ 2,991,380 $ 16,227 $ 72,223
Public safety 9,010,553 222,306 436,396 $ 184,494
Culture and recreation 779,360 7,235 106,641 186,489
Public works 2,190,525 539,740 1,011,823 90,231
Community development 3,303,821 1,270,591 231,240
Interest on long- term debt 1,959,772 398,659
Total governmental activities 20,235,411 2,056,099 2,256,982 461,214
Business- type activities:
Water service 511,861 218,900
Garbage collection 1,732,952 1,757,508
Total business- type activities 2,244,813 1,976,408
Total primary government $ 22,480,224 $ 4,032,507 $ 2,256,982 $ 461,214
General revenues and losses:
Taxes:
Property taxes
Sales taxes
Vehicles in lieu taxes
Utility users taxes
Nonregulatory franchise and business taxes
Investment earnings
Loss on sale of property held for resale
Miscellaneous
Total general revenues and gains
Change in net assets
Net assets - beginning
Net assets - ending
See Accompanying Notes to Financial Statements.
18
Net ( Expense) Revenue and
Changes in Net Assets
Primary Government
Governmental Business- type
Activities Activities Total
$ ( 2,902,930) $ ( 2,902,930)
( 8,167,357) ( 8,167,357)
( 478,995) ( 478,995)
( 548,731) ( 548,731)
( 1,801,990) ( 1,801,990)
( 1,561,113) ( 1,561,113)
( 15,461,116) ( 15,461,116)
$ ( 292,961) ( 292,961)
24,556 24,556
( 268,405) ( 268,405)
( 15,461,116) ( 268,405) ( 15,729,521)
10,604,932 10,604,932
2,750,392 2,750,392
230,561 230,561
1,417,642 1,417,642
980,973 980,973
644,602 70,822 715,424
( 2,426) ( 2,426)
71,607 71,607
16,698,283 70,822 16,769,105
1,237,167 ( 197,583) 1,039,584
6,206,269 7,041,662 13,247,931
$ 7,443,436 $ 6,844,079 $ 14,287,515
19
CITY OF EAST PALO ALTO
Balance Sheet
Governmental Funds
June 30, 2006
Low and
Moderate
Income Housing
General Special Revenue
Assets Fund Fund
Cash and cash equivalents $ 2,179,670 $ 1,342,105
Cash and investments with fiscal agent
Receivables, net 375,696 304,464
Due from other funds 68,717
Prepayments 141,501
Deposits 46,269
Advances to other funds 11,577,014
Property held for resale
Loans receivable 6,600,000
Total Assets $ 14,388,867 $ 8,246,569
Liabilities and Fund Balances
Liabilities:
Accounts payable $ 283,216 $ 4,403
Retention payable 9,807
Other accrued liabilities 383,551
Deposits 844,494
Deferred revenue
Advances from developers 2,182
Excise taxes payable 219,605
Due to other funds
Advances payable
Notes payable
Total Liabilities 1,742,855 4,403
Fund Balances:
Reserved for:
Encumbrances 339,059
Debt service
Property held for resale
Advances to other funds 11,577,014
Loans receivable 6,600,000
Capital projects
Unreserved, reported in:
General Fund 729,939
Capital project funds
Special revenue funds 1,642,166
Total Fund Balance ( Deficit) 12,646,012 8,242,166
Total Liabilities and Fund Balance $ 14,388,867 $ 8,246,569
See Accompanying Notes to Financial Statements.
20
Redevelopment
Agency Capital Nonmajor
Debt Service Projects Governmental
Fund Fund Funds Total
$ 1,435,285 $ 2,086,014 $ 5,226,274 $ 12,269,348
19,503,140 41 19,503,181
735,461 1,415,621
68,717
141,501
26 97,605 2,665 146,565
11,577,014
537,429 537,429
60,000 296,465 6,956,465
$ 20,938,451 $ 2,781,089 $ 6,260,865 $ 52,615,841
$ 665,401 $ 163,245 $ 1,116,265
92,907 102,714
2,636 386,187
102,605 947,099
175,443 175,443
139,332 141,514
219,605
68,717 68,717
11,577,014 11,577,014
520,350 520,350
12,486,988 1,020,662 15,254,908
40,485 362,645 742,189
$ 20,938,451 20,938,451
537,429 537,429
11,577,014
60,000 6,660,000
264,382 264,382
729,939
( 10,608,195) 177,976 ( 10,430,219)
4,699,582 6,341,748
20,938,451 ( 9,705,899) 5,240,203 37,360,933
$ 20,938,451 $ 2,781,089 $ 6,260,865 $ 52,615,841
21
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CITY OF EAST PALO ALTO
Reconciliation of the Balance Sheet to the Statement of Net Assets
Governmental Funds
June 30, 2006
Fund balances of all governmental funds $ 37,360,933
Amounts reported for governmental activities in the statement of
net assets are different because:
Capital assets are not included in the governmental funds. 21,128,141
( 52,337,553)
1,552,957
( 118,485)
( 142,557)
Net Assets of Governmental Activities $ 7,443,436
See Accompanying Notes to Financial Statements.
Interest payable on long- term debt is not accrued as a liability in the
balance sheet of governmental funds.
Bond issuance costs are expended in governmental funds when paid,
and are capitalized and amortized over the life of the bonds for
purposes of the statement of net assets. Deferred charges, net of
accumulated amortization.
Long- term liabilities are not due and payable in the current period and,
therefore, are not reported in the balance sheet of governmental funds.
Certain revenues in the governmental funds are deferred because they
are not collected within the prescribed period after year- end. However,
the revenues are included on the accrued basis used in government-wide
statements.
23
CITY OF EAST PALO ALTO
Statement of Revenues, Expenditures
and Changes in Fund Balances
Governmental Funds
For the Year Ended June 30, 2006
Low and
Moderate
Income Housing
General Special Revenue
Fund Fund
Revenues:
Taxes and assessments $ 10,320,062 $ 882,101
Licenses and permits 854,222
Intergovernmental 350,150
Charges for services 1,364,050
Interest 327,578 124,982
Contributions and donations 69,053
Other revenues 40,926
Total Revenues 13,326,041 1,007,083
Expenditures:
Current:
General government 2,069,490
Public safety 8,696,534
Culture and recreation 531,889
Public works 577,733
Community development 839,121 161,228
Administration
Tax increment pass- through payments
Capital outlay 190,186
Debt service:
Principal 884,510
Interest and fiscal charges
Bond issuance costs
Total Expenditures 13,789,463 161,228
Excess ( Deficiency) of
Revenues Over Expenditures ( 463,422) 845,855
Other Financing Sources ( Uses):
Bond issued
Premium on bonds issued
Transfers in 36,351 86,441
Transfers out ( 65,847) ( 568,346)
Total Other Financing Sources ( Uses) ( 29,496) ( 481,905)
Net Change in Fund Balances ( 492,918) 363,950
Fund Balances ( Deficits) at Beginning of Year 13,138,930 7,878,216
Fund Balances ( Deficits) at End of Year $ 12,646,012 $ 8,242,166
See Accompanying Notes to Financial Statements.
24
Redevelopment
Agency Capital Nonmajor
Debt Service Projects Governmental
Fund Fund Funds Total
$ 3,527,534 $ 14,729,697
854,222
$ 2,098,024 2,448,174
276,143 1,640,193
$ 612,459 120,946 126,092 1,312,057
629,263 698,316
49,099 90,025
612,459 3,697,579 3,129,522 21,772,684
707,665 217,455 2,994,610
117,485 8,814,019
94,187 626,076
52,511 1,031,245 1,661,489
935,035 201,195 2,136,579
388,413 388,413
648,776 648,776
5,548 380,389 576,123
385,000 1,269,510
2,078,919 268,800 14,140 2,361,859
686,269 686,269
3,150,188 3,006,748 2,056,096 22,163,723
( 2,537,729) 690,831 1,073,426 ( 391,039)
17,995,000 17,995,000
507,958 507,958
1,833,582 131,697 2,088,071
( 1,268,236) ( 185,642) ( 2,088,071)
20,336,540 ( 1,268,236) ( 53,945) 18,502,958
17,798,811 ( 577,405) 1,019,481 18,111,919
3,139,640 ( 9,128,494) 4,220,722 19,249,014
$ 20,938,451 $ ( 9,705,899) $ 5,240,203 $ 37,360,933
25
CITY OF EAST PALO ALTO
Reconciliation of the Statement of Revenues, Expenditures and
Changes in Fund Balances of Governmental Funds to the Statement of Activities
For the Year Ended June 30, 2006
Net change in fund balances - total governmental funds: $ 18,111,919
Amounts reported for governmental activities in the statement of activities are
different because:
Capital asset purchases/ deletions capitalized $ 591,207
Depreciation expense ( 818,878) ( 227,671)
Payments on long- term debt $ 1,565,681
Proceeds from long- term debt ( 18,822,976) ( 17,257,295)
Change in accrued compensated absences $ ( 142,162)
Amortization of deferred charges and bond
issuance costs 618,599
Change in accrued interest on debt 144,218
Current year receipts earned ( 10,441)
610,214
Change in net assets of governmental activities $ 1,237,167
See Accompanying Notes to Financial Statements.
Other differences in items reported in the statement of activities and items
reported in the governmental funds:
Governmental funds report capital outlays as expenditures while
governmental activities report depreciation expense to allocate those
expenditures over the life of the assets.
Proceeds from long- term debt provide current financial resources to
governmental funds, but issuing debt increases long- term liabilities in the
statement of net assets. Repayments of debt principal is an expenditure in
the governmental funds, but the repayment reduces long- term liabilities in
the statement of net assets:
26
CITY OF EAST PALO ALTO
Statement of Net Assets
Proprietary Funds
June 30, 2006
Business- type Activities
Garbage Water
Collection Service Totals
Assets:
Current assets:
Cash and cash equivalents $ 860,368 $ 765,876 $ 1,626,244
Receivables, net 22,232 22,232
Total current assets 860,368 788,108 1,648,476
Noncurrent assets:
Land 206,750 206,750
Structures and improvements 43,790 43,790
Other improvements 6,981,034 6,981,034
Furniture and equipment 63,943 63,943
Vehicles 89,890 89,890
Accumulated depreciation ( 1,727,635) ( 1,727,635)
Total noncurrent assets 5,657,772 5,657,772
Total assets 860,368 6,445,880 7,306,248
Liabilities:
Current liabilities:
Accounts payable 373,911 373,911
Noncurrent liabilities:
Deposits 88,258 88,258
Total liabilities 373,911 88,258 462,169
Net assets:
Invested in capital assets 5,657,772 5,657,772
Unrestricted 486,457 699,850 1,186,307
Total net assets $ 486,457 $ 6,357,622 $ 6,844,079
See Accompanying Notes to Financial Statements.
27
CITY OF EAST PALO ALTO
Statement of Revenues, Expenses and Changes in Fund Net Assets
Proprietary Funds
For the Year Ended June 30, 2006
Business- type Activities
Garbage Water
Collection Service Totals
Operating revenues:
Charges for services and other fees $ 1,582,534 $ 218,900 $ 1,801,434
Other reimbursements 174,974 174,974
Total operating revenues 1,757,508 218,900 1,976,408
Operating expenses:
Depreciation 316,891 316,891
Outside services 1,539,866 194,970 1,734,836
Administration 193,086 193,086
Total operating expenses 1,732,952 511,861 2,244,813
Operating income ( loss) 24,556 ( 292,961) ( 268,405)
Nonoperating revenues:
Interest income 36,163 34,659 70,822
Change in net assets 60,719 ( 258,302) ( 197,583)
Net assets at beginning of year 425,738 6,615,924 7,041,662
Net assets at end of year $ 486,457 $ 6,357,622 $ 6,844,079
See Accompanying Notes to Financial Statements.
28
CITY OF EAST PALO ALTO
Statement of Cash Flows
Proprietary Funds
For the Year Ended June 30, 2006
Garbage Water
Collection Service
Fund Fund Totals
Cash flows from operating activities:
Receipts from customers and contractors $ 1,757,508 $ 221,106 $ 1,978,614
Payments to suppliers ( 1,543,612) ( 272,272) ( 1,815,884)
Payments to employees ( 193,086) ( 193,086)
Net cash provided ( used)
by operating activities 20,810 ( 51,166) ( 30,356)
Cash flows from capital and related financing activities:
Acquisition and construction of capital assets ( 46,338) ( 46,338)
Cash flows from investing activities:
Interest received on investments 36,163 34,659 70,822
Net increase ( decrease) in cash
and cash equivalents 56,973 ( 62,845) ( 5,872)
Cash and cash equivalents, beginning of year 803,395 828,721 1,632,116
Cash and cash equivalents, end of year $ 860,368 $ 765,876 $ 1,626,244
Reconciliation of operating income to net cash
provided by operating activities:
Operating Income ( Loss) $ 24,556 $ ( 292,961) $ ( 268,405)
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation expense 316,891 316,891
Decrease ( increase) in accounts receivable 2,207 2,207
Increase ( decrease) in accounts payable ( 3,746) ( 77,303) ( 81,049)
Net cash provided by operating activities $ 20,810 $ ( 51,166) $ ( 30,356)
See Accompanying Notes to Financial Statements.
29
CITY OF EAST PALO ALTO
Statement of Fiduciary Net Assets
Fiduciary Funds
June 30, 2006
Trust Funds
Section 401( a) Section 401( k)
Retirement Retirement
Assets Plan Plan
Cash and investments with fiscal agent $ 265,437 $ 1,826,953
Participant loans receivable 287,208
Total assets $ 265,437 $ 2,114,161
Net Assets
Held in trust for pension benefits $ 265,437 $ 2,114,161
Total liabilities $ 265,437 $ 2,114,161
See Accompanying Notes to Financial Statements.
30
CITY OF EAST PALO ALTO
Statement of Changes in Fiduciary Net Assets
Fiduciary Funds
For the Year Ended June 30, 2006
Trust Funds
Section 401( a) Section 401( k)
Retirement Retirement
Plan Plan
Additions:
Contributions from participants $ 23,591
Interest 100,325
Gain in fair value of investments $ 14,892 33
Total additions 14,892 123,949
Deductions:
Expenses 144 100,516
Change in net assets 14,748 23,433
Total net assets at beginning of year 250,689 2,090,728
Total net assets at end of year $ 265,437 $ 2,114,161
See Accompanying Notes to Financial Statements.
31
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33
CITY OF EAST PALO ALTO
Notes to Financial Statements
June 30, 2006
I. Summary of Significant Accounting Policies
A. Description of Reporting Entity
The City of East Palo Alto ( City) was incorporated in 1983, under the General Laws of
the State of California and enjoys all the rights and privileges pertaining to “ General
Law” cities. The City uses the City Council/ Manager form of government. Local
government is comprised of five Council members who are elected every four years and
act under powers granted under State law. The City provides a variety of services
including general administration, public safety, street and highway maintenance,
redevelopment, and public works.
The financial reporting entity consists of ( a) the primary government, City of East Palo
Alto and its component units, which are either ( b) organizations for which the primary
government is financially accountable, or ( c) other organizations for which the nature
and significance of their relationship with the primary government are such that
exclusion would cause the reporting entity’s financial statements to be misleading or
incomplete.
The City Council acts as the governing body and is able to impose its will on the
following organizations, establishing financial accountability. As a result of this close
relationship, those organizations are considered component units of the City and are
included within the financial statements of the City using the blended method.
Blended Component Units
East Palo Alto Redevelopment Agency. The East Palo Alto Redevelopment
Agency ( Agency) was established pursuant to the State of California Health and
Safety Code, Section 33000. The Agency is responsible for rehabilitation and
economic revitalization of certain areas within the City. Complete financial
statements of the Agency may be obtained at the City of East Palo Alto, 2415
University Avenue, East Palo Alto, California 94303.
East Palo Alto Public Financing Authority. The East Palo Alto Public Financing
Authority ( Authority) was organized in October 1999 under a joint exercise of
power agreement to provide financing for public improvements for the City and
the East Palo Alto Redevelopment Agency. The Authority’s financial activity is
reported in the Debt Service Fund. Separate financial statements of the Authority
are not prepared.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
3 4
B. Government- wide and Fund Financial Statements
The basic financial statements of the City have been prepared in conformity with
accounting principles generally accepted in the United States of America ( GAAP). The
Governmental Accounting Standards Board ( GASB) is the accepted standard- setting
body for establishing governmental accounting and financial reporting principles. The
more significant of the City’s accounting policies are described below.
The statement of net assets and statement of activities display information about the
reporting government as a whole. They include all funds of the reporting entity except
for fiduciary funds. The statements distinguish between governmental and business-type
activities. Governmental activities generally are financed through taxes,
intergovernmental revenues, and other nonexchange revenues. Business- type activities
are financed in whole or in part by fees charged to external parties for goods or services.
Fund financial statements of the reporting entity are organized into funds each of which
is considered to be a separate accounting entity. Each fund is accounted for by
providing a separate set of self- balancing accounts, which constitute its assets,
liabilities, fund equity, revenues, and expenditures/ expenses. Funds are organized into
three major categories: governmental, proprietary, and fiduciary. An emphasis is placed
on major funds within the governmental and proprietary categories.
C. Measurement Focus and Basis of Accounting
Measurement focus is a term used to describe “ which” transactions are recorded within
the various financial statements.
The government- wide statement of net assets and the statement of activities are
presented using the economic resources measurement focus using the accrual basis of
accounting. Under the accrual basis of accounting, revenues are recognized when
earned and expenses are recorded when the liability is incurred or economic asset used.
Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and
exchange- like transactions are recognized when the exchange takes place. As a general
rule the effect of interfund activity has been eliminated from the government- wide
financial statements.
In the governmental fund financial statements, the “ current financial resources”
measurement focus and the modified accrual basis of accounting is used. Only current
financial assets and liabilities are generally included on their balance sheets. Their
operating statements present sources and uses of available spendable financial resource
during a given period. These funds use fund balance as their measure of available
spendable financial resources at the end of the period.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
3 5
When both restricted and unrestricted resources are available for use, it is the City’s
policy to use restricted resources first, then use unrestricted resources as needed.
All proprietary funds are accounted for on an “ economic resources” measurement focus,
which means that all assets and all liabilities associated with their activity are included
on their balance sheets. Proprietary fund type operating statements present increases
( revenues) and decreases ( expenses) in total assets.
Pension trust funds are accounted for on the “ flow of economic resources” measurement
focus.
The governmental funds are accounted for using the modified accrual basis of
accounting. Revenues are recognized when they become measurable and available.
Measurable means the amount of the transaction can be determined, and available
means the amount is collectible within the current period or soon enough thereafter
( generally sixty days) to be used to pay liabilities of the current period. Amounts which
could not be measured or were not available were not accrued as revenue in the current
fiscal year.
Those revenues considered susceptible to accrual are franchise taxes, property taxes,
grant revenues, special assessments, and certain other intergovernmental revenues and
interest. Fines, licenses, and permits are not susceptible to accrual because they are not
measurable until received in cash.
Property taxes and interest are susceptible to accrual. Sales taxes collected and held by
the State on behalf of the City for sales transactions occurring through June 30, 2006,
are also recognized as revenue. Other receipts and taxes become measurable and
available when cash is received by the City and are recognized as revenue at that time.
Amounts reported as program revenues include 1) charges to members, customers or
applicants for foods, services, or privileges provided, 2) operating grants and
contributions, and 3) capital grants and contributions, including special assessments.
Internally dedicated resources are reported as general revenues rather than as program
revenues. Likewise, general revenues include all taxes.
Expenditures are generally recognized under the modified accrual basis of accounting
when the related fund liability is incurred. An exception to this general rule is principal
and interest on general long- term debt which is recognized when due.
Proprietary and pension trust funds are accounted for using the accrual basis of
accounting. Under this method, revenues are recorded when earned and expenses are
recorded at the time liabilities are incurred.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
3 6
Private- sector standards of accounting and financial reporting issued prior to December
1, 1989, generally are followed in both the government- wide and proprietary fund
financial statements to the extent that those standards do not conflict with or contradict
guidance of the Governmental Accounting Standards Board. Governments also have
the option of following subsequent private- sector guidance for their business- type
activities and enterprise funds, subject to this same limitation. The City has elected not
to follow subsequent private- sector guidance.
Fund Accounting
The accounts of the City are organized on the basis of funds, each of which is
considered a separate set of self- balancing accounts that comprise its assets, liabilities,
fund equity, revenues, and expenditures or expenses, as appropriate. Government
resources are allocated to, and accounted for, in individual funds based upon the
purposes for which they are to be spent and the means by which spending activities are
controlled.
The various funds are combined into broad fund types:
Governmental fund types
General Fund – The General Fund is the general operating fund of the City and
accounts for all financial resources except those accounted for by another fund.
Significant sources of revenues are property taxes, sales and use taxes, investment
earnings, and business licenses. Activities included are general government,
public works, public safety, and culture and recreation.
Special Revenue Funds – Special Revenue Funds are used to account for the
proceeds of specific revenue sources that are legally restricted to expenditures for
specific purposes.
Debt Service Funds – Debt Service Funds are used to account for the
accumulation of resources for, and the payment of, long- term debt principal and
interest.
Capital Projects Funds – Capital Projects Funds are used to account for financial
resources segregated for the acquisition and construction of major capital projects
or facilities.
Proprietary fund type
Enterprise Funds – Enterprise Funds are used to account for operations that are
financed and operated in a manner similar to private business.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
3 7
Fiduciary fund type
Trust Funds – Trust Funds are used to account for assets held by the City in a
trustee capacity for others.
Major funds
The City reports the following major governmental funds: the General Fund, the
Low and Moderate Income Housing Special Revenue Fund, the Debt Service
Fund, and the Redevelopment Agency Capital Projects Fund. Additionally, the
City reports the Garbage Collection and Water Service Enterprise funds as major
proprietary funds.
D. Assets, Liabilities, Net Assets, and Budgeting
1. Cash and Investments
The City pools cash and investments from all sources, except the fiscal agent cash
and investments, for the purpose of increasing income through investment
activities. The City considers pooled cash and investment amounts, with original
maturities of three months or less, to be cash equivalents.
2. Investments Valuation
In accordance with GASB Statement No. 31, Accounting and Financial Reporting
for Certain Investments and for External Investment Pools, highly liquid market
investments with maturities of one year or less at time of purchase are stated at
amortized cost. All other investments are stated at fair value. Market value is
used as fair value for those securities for which market quotations are readily
available. Changes in market value and recognition of both realized and
unrealized gains are recorded to investment income and are each individual
components of investment income.
3. Property Taxes
State statutes provide that the property tax rate be limited generally to one percent
of market value, be levied only by the County, and be shared with applicable
jurisdictions. The County of San Mateo collects the taxes and distributes them to
taxing jurisdictions on the basis of assessed valuations subject to adjustments for
voter- approved debt. Property taxes are levied March 1 and are due on November
1 and March 1, and become delinquent on December 10 and April 10. The City
receives property taxes pursuant to an arrangement with the County known as the
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
3 8
“ Teeter Plan”, whereby the County assumes responsibility for the collection of
delinquent taxes and pays the full allocation to the City.
The City receives tax increment revenues allocated to the City from the
redevelopment project area.
4. Interfund Transactions
Transactions between funds that are representative of lending/ borrowing
arrangements outstanding at the end of the fiscal year are referred to as either
“ interfund receivable/ payables” ( i. e. the current portion of interfund loans) or
“ advances to/ from other fund” ( i. e. the noncurrent portion of interfund loans). All
other outstanding balances between funds are reported as “ due to/ from other
funds.”
Advances between funds are offset by a fund balance reserve account in applicable
governmental funds to indicate they are not available for appropriation and are not
expendable available financial resources.
5. Deposits
Condemnation payments made by the City relating to the acquisition of property
are carried as a fund asset until the close of escrow or the release of the deposits to
the landowners and the transfer of possession of the property to the City. Such
deposits are generally held by the State of California or by the applicable Superior
Court. Fund balance accounts are reserved to indicate that such assets are not
available for appropriation.
6. Prepayments
Payments made for services that will benefit periods beyond June 30, 2006 are
recorded as prepaid items. In the governmental fund types, there is a reservation
of fund balance equal to the amount of prepaid items since these are not available
for appropriation.
7. Compensated Absences
Compensated absences are recorded as long- term debt. This liability is reflected
as a non- current liability in the government- wide financial statements. The
proprietary funds do not accrue compensated absences because the City uses
contract labor.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
3 9
8. Capital Assets
Capital assets used in governmental fund operations, including infrastructure
assets ( i. e. roads, curbs, gutters, bridges, sidewalks, drainage systems, lighting
systems, and other assets) are reflected in the government- wide financial
statements, along with related depreciation. Capital assets are defined by the City
as assets with an initial individual cost of more than $ 5,000. Purchased capital
assets are valued at historical cost or estimated historical cost. Donated capital
assets are valued at their fair value on the date donated.
Capital assets acquired under lease or purchase agreements are capitalized when
the City accumulates an ownership equity in the assets acquired.
Depreciation of capital assets in the proprietary funds and the government- wide
financial statements has been provided over the estimated useful lives of the assets
using the straight- line method. The estimated useful lives are as follows:
Buildings and improvements 30 years
Furniture, fixtures and equipment 5- 10 years
Vehicles 5 years
Infrastructure 7- 55 years
9. Bond Discounts, Premiums, Issuance Costs, and Costs in Excess of Net
Assets Acquired
For governmental funds, bond premiums and discounts, and any related issuance
costs, are recognized during the period of issuance. Bond proceeds are reported as
other financing sources net of the applicable premium or discount. Issuance costs,
whether or not withheld from the actual net proceeds received, are reported as debt
service expenditures.
Debt is reported net of unamortized issuance costs and discounts/ premiums in the
government- wide financial statements.
10. Fund Equity
Reservations of fund balance represent amounts that are not appropriable or are
legally segregated for a specific purpose. Fund balance reservations used by the
City include:
• Encumbrances – reflects balances for purchases of goods or services
ordered, but not received.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
4 0
• Debt service – represents funds reserved for the payment of principal and
interest on long- term debt.
• Property held for resale – represents funds reserved for property that the
Agency is holding for resale in the construction of capital projects.
• Long- term advances and loans receivable – represents amounts, of a
long- term nature that do not represent available, spendable resources.
• Capital projects fund – represents amounts reserved for the acquisition
and construction of major capital projects or facilities.
11. Property Held for Resale
Property acquired by the City for resale to developers and other third parties is
carried as an asset of the respective fund. Such property is recorded at the lower
of cost or estimated realizable value. Fund balance accounts are reserved to
indicate that such assets are not available for appropriation. At June 30, 2006, the
carrying amount of property held for resale totaled $ 537,429, with this amount
offset by a reservation of fund balance.
12. Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain amounts and disclosures.
Accordingly, actual results could differ from those estimates.
II. Stewardship, Compliance, and Accountability
A. Budgetary Policy and Control
The City adopts a budget annually for all governmental fund types, except for capital
projects. This budget is effective July 1 for the ensuing fiscal year. From the effective
date of the budget, which is adopted at the department level, the amounts stated therein
as proposed expenditures become appropriations to the various City departments. The
legal level of budgetary control is the fund level. The City Council may amend the
budget by resolution during the fiscal year. The City Manager has the authority to make
adjustments to the operating budget between departments. Transfers of operating
budgets between funds, use of unappropriated fund balances, and significant changes in
capital improvement project budgets require the approval of the City Council.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
4 1
Annual budgets are adopted on a basis consistent with accounting principles generally
accepted in the United States except for capital projects, which are adopted on a project
length basis. Supplemental appropriations made during the fiscal year were not
substantial.
Under encumbrance accounting, purchase orders, contracts and other commitments for
the expenditures of monies are recorded in order to reserve that portion of the
applicable appropriation. Encumbrance accounting is employed as an extension of the
formal budgetary process. Encumbrances outstanding at year- end are carried over to
the next fiscal year as part of that year’s budget resolution.
The City does not budget for individual Redevelopment Agency funds, therefore, a
detailed budgetary comparison schedule has not been included for the Low and
Moderate Income Housing Special Revenue Fund or Debt Service Fund.
III. Detailed Notes on All Funds
A. Cash and Investments:
Cash and investments as of June 30, 2006 are classified in the accompanying financial
statements as follows:
Statement of net assets:
Cash and investments $ 13,895,592
Cash and investments with fiscal agent 19,503,181
Total Cash and Investments 33,398,773
Fiduciary funds:
Cash and investments with fiscal agent 2,092,390
Total Cash and Investments $ 35,491,163
Cash and investments as of June 30, 2006 consist of the following:
Cash on hand $ 6,200
Deposits with financial institutions 22,908,922
Investments 12,576,041
Total cash and investments $ 35,491,163
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
4 2
Investments Authorized by the California Government Code and the City’s Investment Policy
The table below identifies the investment types that are authorized for the City by the
California Government Code ( or the City’s investment policy, where more restrictive).
The table also identifies certain provisions of the California Government Code ( or the
City’s investment policy, where more restrictive) that address interest rate risk, credit
risk, and concentration of credit risk. This table does not address investments of debt
proceeds held by bond trustee that are governed by the provisions of debt agreements of
the City, rather than the general provisions of the California Government Code or the
City’s investment policy.
Maximum Maximum
Authorized Maximum Percentage Investment
Investment Type Maturity of * Portfolio in One Issuer
U. S. Government Securities 2 years None None
U. S. Agency Securities 2 years None None
Banker’s Acceptances 180 days 40% 30%
Commercial Paper 5 years 25% None
Demand Deposits 5 years None None
Money Market Mutual Funds 5 years 20% None
Repurchase Agreements 30 days 20% None
Passbook Savings Accounts 5 years None None
Certificates of Deposit 5 years 30% None
Local Agency Investment Fund ( LAIF) 5 years None None
County Investment Fund 5 years None None
Guaranteed Investment Contracts 5 years None None
Medium Term Notes 2 years 30% None
* Excluding amounts held by bond trustee that are not subject to California Government
Code Restrictions.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
4 3
Investments Authorized by Debt Agreements:
Investment of debt proceeds held by bond trustee are governed by provisions of the debt
agreements, rather than the general provisions of the California Government Code or
the City’s investment policy. The table below identifies the investment types that are
authorized for investments held by bond trustee. The table also identifies certain
provisions of these debt agreements that address interest rate risk, credit risk, and
concentration of credit risk.
Maximum Maximum
Authorized Maximum Percentage Investment
Investment Type Maturity Allowed in One Issuer
U. S. Treasury Obligations None None None
U. S. Agency Securities None None None
Repurchase Agreements None None None
Money Market Mutual Funds N/ A None None
Certificates of Deposit None None None
Commercial Paper 92 days None None
Local Agency Investment Fund N/ A None None
Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the
fair value of an investment. Generally, the longer the maturity of an investment, the
greater the sensitivity of its fair value to changes in market interest rates. One of the ways
that the City manages its exposure to interest rate risk is by purchasing a combination of
shorter term and longer term investments and by timing cash flows from maturities so that
a portion of the portfolio is maturing or coming close to maturity evenly over time as
necessary to provide the cash flow and liquidity needed for operations.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
4 4
Information about the sensitivity of the fair values of the City’s investments ( including
investments held by bond trustee) to market interest rate fluctuations is provided by the
following table that shows the distribution of the City’s investments by maturity:
Remaining
Maturity
( in Months)
12 Months
Investment Type or Less
San Mateo County Pool Investment $ 1 0,049,263
Local agency investment fund 2 ,426,778
Certificate of Deposit 1 00,000
Total $ 1 2,576,041
Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its
obligation to the holder of the investment. This is measured by the assignment of a
rating by a nationally recognized statistical rating organization. The following
presentation is the minimum rating required by ( where applicable) the California
Government Code, the City’s investment policy, or debt agreements, and the actual
rating as of year end for each investment type:
Exempt
Minimum From
Investment Type Rating Rating
San Mateo County Pool Investment $ 10,049,263 Not Rated $ 10,049,263
Local agency investment fund 2,426,778 Not Rated 2,426,778
Certificate of Deposit 100,000 Not Rated 100,000
Total $ 12,576,041 $ 12,576,041
Concentration of Credit Risk
The investment policy contains no limitations on the amount that can be invested in any
one issuer beyond that stipulated by the California Government Code.
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a
depository financial institution, a government will not be able to recover its deposits or
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
4 5
will not be able to recover collateral securities that are in the possession of an outside
party. The custodial credit risk for investments is the risk that, in the event of the failure
of the counterparty ( e. g., broker- dealer) to a transaction, a government will not be able
to recover the value of its investment or collateral securities that are in the possession of
another party. The California Government Code and the City’s investment policy do not
contain legal or policy requirements that would limit the exposure to custodial credit
risk for deposits or investments, other than the following provision for deposits: The
California Government Code requires that a financial institution secure deposits made
by state or local governmental units by pledging securities in an undivided collateral
pool held by a depository regulated under state law ( unless so waived by the
governmental unit). The market value of the pledged securities in the collateral pool
must equal at least 110% of the total amount deposited by the public agencies.
California law also allows financial institutions to secure City deposits by pledging first
trust deed mortgage notes having a value of 150% of the secured public deposits.
Investment in State Investment Pool
The City is a voluntary participant in the Local Agency Investment Fund ( LAIF) that is
regulated by California Government Code Section 16429 under the oversight of the
Treasurer of the State of California. The fair value of the City’s investment in this pool
is reported in the accompanying financial statements at amounts based upon the City’s
pro- rata share of the fair value provided by LAIF for the entire LAIF portfolio ( in
relation to the amortized cost of that portfolio). The balance available for withdrawal is
based on the accounting records maintained by LAIF, which are recorded on an
amortized cost basis.
B. Note Receivable, Long- term
A $ 5,500,000 note receivable is payable by Nairobi Housing Associates. The
$ 5,500,000 loan made by the Agency to Nairobi Housing Associates was funded by a
loan made by the David and Lucille Packard Foundation ( Packard Foundation) to
Bridge Housing Corporation and then passed through to Nairobi Housing Associates via
the Agency. The note bears interest at one percent per annum payable annually, and the
entire principal amount is due 35 years after issuance of a certificate of occupancy for
the related housing development. A $ 1,100,000 note is from Nugent Square Partners,
LLP at 1% per annum due January 2045.
The City also has a loan receivable of $ 60,000 from a local property owner and
$ 296,465 of Housing Assistance Loans.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
4 6
C. Capital Assets
Capital asset activity for the year ended June 30, 2006 was as follows:
Balance Balance at
July 1, 2005 Additions Disposals June 30, 2006
Governmental activities:
Nondepreciable:
Land $ 605,146 $ 605,146
Construction- in- progress 2,991,045 $ 278,742 $ ( 1,780,918) 1,488,869
Total nondepreciable
capital assets 3,596,191 278,742 ( 1,780,918) 2,094,015
Depreciable:
Buildings and improvements 3,473,788 20,852 3,494,640
Improvements other
than buildings 1,876,756 864,114 2,740,870
Furnishings and equipment 1,002,913 98,829 1,101,742
Vehicles 976,619 192,784 1,169,403
Streets and roadways 30,642,099 916,804 31,558,903
Storm drain system 3,260,989 3,260,989
Total depreciable
capital assets 41,233,164 2,093,383 43,326,547
Less accumulated
depreciation ( 23,473,543) ( 818,878) ( 24,292,421)
Total depreciable
capital assets, net 17,759,621 1,274,505 19,034,126
Governmental activities
capital assets, net $ 21,355,812 $ 1,553,247 $ ( 1,780,918) $ 21,128,141
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
4 7
Balance Balance at
July 1, 2005 Additions Disposals June 30, 2006
Business- type activities
Nondepreciable:
Land $ 206,750 $ 206,750
Construction- in- progress 1,138,057 $ ( 1,138,057)
Total nondepreciable
capital assets 1,344,807 ( 1,138,057) 206,750
Depreciable:
Buildings and improvements 43,790 43,790
Improvements other
than buildings 5,756,139 $ 1,224,895 6,981,034
Furnishings and equipment 63,943 63,943
Vehicles 89,890 89,890
Total depreciable
capital assets 5,953,762 1,224,895 7,178,657
Less accumulated
depreciation ( 1,410,744) ( 316,891) ( 1,727,635)
Total depreciable
capital assets, net 4,543,018 908,004 5,451,022
Business- type capital assets, net $ 5,887,825 $ 908,004 $ ( 1,138,057) $ 5,657,772
Depreciation expense of $ 818,878 was charged to the following functions/ programs of
the primary government as follows:
Governmental Activities:
General government $ 7,058
Public safety 139,520
Culture and recreation 146,320
Community development 7,650
Public works 518,330
Depreciation Expense - Governmental Activities $ 818,878
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
4 8
D. Property Held for Resale
The $ 537,429 in land held for resale consists of one parcel of land acquired by the
Redevelopment Agency for the purpose of resale to developers in regard to the
development of the Gateway 101 Retail Center and related projects.
E. Long- term Debt
Long- term debt activity for the year ended June 30, 2006 was as follows:
Balance Balance Due Within
July 1, 2005 Additions Retirements June 30, 2006 One Year
Redevelopment Agency:
Bonds:
' 99 Tax allocation bonds $ 17,415,000 $ ( 320,000) $ 17,095,000 $ 335,000
' 03 Tax allocation bonds 8,590,000 ( 65,000) 8,525,000 65,000
' 05 Revenue Bond $ 17,995,000 17,995,000
Plus unamortized premium 333,334 507,958 ( 35,480) 805,812
Long- term pass- through
Due to other governments:
Menlo Park Fire
Protection District 4,378,532 300,000 ( 126,476) 4,552,056 127,337
East Palo Alto Sanitary District 1,337,083 ( 48,887) 1,288,196 49,220
Notes payable:
University Circle Investors 5 56,342 20,018 ( 22,838) 553,522
Total Redevelopment Agency 32,610,291 18,822,976 ( 618,681) 50,814,586 576,557
City of East Palo Alto:
Loans from other governments:
CHFA 5 20,350 5 20,350
Excise tax payment 1,100,000 ( 900,000) 200,000 200,000
Claims and judgments 402,000 ( 47,000) 355,000
Compensated absences 8 25,805 1 42,162 967,967
Total City of East Palo Alto 2,848,155 142,162 ( 947,000) 2,043,317 200,000
Total $ 35,458,446 $ 18,965,138 $ ( 1,565,681) $ 52,857,903 $ 776,557
1. Tax Allocation Bonds
The City issued $ 22,785,000 in University Circle- Gateway 101 Corridor Merged
Project Area Tax Allocation Bonds, Series 1999, dated October 21, 1999. The
bonds were issued to finance the redevelopment activities within the City’s
Gateway 101 Corridor Redevelopment Project Area, to refinance and retire certain
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
4 9
obligations related to the project area, to fund capitalized interest on a portion of
the 1999 bonds, and to fund a reserve account for the bonds, and to pay issuance
costs.
The bonds are secured by a pledge of the City’s tax increment revenues including
the City’s housing set- aside tax increment revenues. The annual tax increment
revenues expected to be received by the City and pledged to secure repayment of
the 2003 bonds are sufficient to pay annual debt service.
To provide additional security, pursuant to the 1999 bond agreement, $ 1,966,397
is held in a bond reserve fund with a trustee.
The bonds are due in annual principal installments of $ 335,000 to $ 1,340,000
through 2029. Interest rates range from 4.2 to 6.6 percent and are payable semi-annually
on April 1 and October 1. The total amount outstanding as of June 30,
2006 was $ 17,095,000.
The 1999 bonds maturing on or after October 1, 2010 are subject to optional
redemption by the City on or after October 1, 2009, with premiums up to 2
percent.
Future debt service on the 1999 bonds at June 30, 2006, assuming no redemptions
of the 1999 bonds other than scheduled mandatory sinking account redemption
was:
Year Ending
June 30, Principal Interest Total
2007 $ 335,000 $ 1,310,278 $ 1,645,278
2008 350,000 1,292,547 1,642,547
2009 370,000 1,273,416 1,643,416
2010 390,000 1,252,747 1,642,747
2011 410,000 1,230,337 1,640,337
2012- 2016 2,455,000 5,742,995 8,197,995
2017- 2021 3,330,000 4,831,216 8,161,216
2022- 2026 4,575,000 3,539,572 8,114,572
2027- 2029 4,880,000 1,762,938 6,642,938
Total $ 17,095,000 $ 22,236,045 $ 39,331,045
The Redevelopment Agency of the City issued $ 5,155,000 in University Circle-
Gateway 101 Corridor Merged Project Area Tax Allocation Bonds, Series 2003A
and $ 3,600,000 Refunding Bonds, Series 2003B, dated December 11, 2003. The
bonds were issued to refund the portion of the 1999 Bonds that mature on October
1, 2032, to refinance and retire certain obligations related to the project area, to
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
5 0
fund capitalized interest on a portion of the 2003 bonds, to fund a reserve account
for the bonds, and to pay issuance costs.
The bonds are secured by a pledge of the tax revenues from the Project Areas.
The annual tax increment revenues expected to be received by the City and
pledged to secure repayment of the 2003 bonds are sufficient to meet annual debt
service.
However, the City has also entered into an agreement in connection with certain
freeway off- ramp and related improvements whereby it has agreed to remit, for a
period of up to twenty years, any tax increment revenues from the University
Circle Project Area in excess of $ 1,700,000 in any fiscal year to a developer to
reimburse the costs of construction of such improvements. For details see Note III
E. 3.
The bonds bear interest at rates of 4.00 to 6.45 percent and the interest is payable
each April 1 and October 1 commencing April 1, 2004. Principal on the bonds is
payable each October 1, commencing October 1, 2004. On December 11, 2003,
the original bonds consisted of $ 5,155,000 and $ 3,600,000 with annual principal
installments ranging from $ 10,000 to $ 1,610,000 through 2032.
The 2003A bonds and the 2003B bonds maturing on or after October 1, 2014 are
subject to optional redemption by the City on or after October 1, 2013, at a
redemption price of par, together with accrued interest to the date fixed for
redemption.
Future debt service on the 2003A bonds at June 30, 2006, assuming no redemptions
of the 2003A bonds other than scheduled mandatory sinking account redemption
was:
Year Ending
June 30, Principal Interest Total
2007 $ 10,000 $ 252,150 $ 262,150
2008 10,000 251,750 261,750
2009 15,000 251,250 266,250
2010 15,000 250,650 265,650
2011 15,000 250,050 265,050
2012- 2016 75,000 1,241,326 1,316,326
2017- 2021 95,000 1,221,817 1,316,817
2022- 2026 120,000 1,196,257 1,316,257
2027- 2031 1,580,000 1,127,750 2,707,750
2032- 2033 3,145,000 159,125 3,304,125
Total $ 5,080,000 $ 6,202,125 $ 11,282,125
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
5 1
Future debt service on the 2003B bonds at June 30, 2006, assuming no redemptions
of the 2003B bonds other than scheduled mandatory sinking account redemption
was:
Year Ending
June 30, Principal Interest Total
2007 $ 55,000 $ 210,495 $ 2 65,495
2008 60,000 208,128 2 68,128
2009 60,000 205,658 2 65,658
2010 65,000 202,658 2 67,658
2011 70,000 198,999 2 68,999
2012- 2016 400,000 932,678 1 ,332,678
2017- 2021 535,000 643,067 1 ,178,067
2022- 2026 725,000 597,477 1 ,322,477
2027- 2031 990,000 324,114 1 ,314,114
2032 485,000 31,767 5 16,767
Total $ 3,445,000 $ 3,555,041 $ 7 ,000,041
The City issued $ 17,995,000 University Circle- Gateway 101 Corridor Merged
Project Area Revenue Bonds, 2005 Series A, dated August 1, 2005. The proceeds
of the 2005 Authority Bonds were used to: execute a purchase in lieu of
redemption of the 1999 Bonds scheduled to mature on October 1, 2010 through
and including October 1, 2029 on their October 1, 2009 call date; pay interest
costs on the 2005 Authority Bonds up to and including October 1, 2009; and,
provide the City, through the Authority, with additional funds for infrastructure
costs. The purchase in lieu of redemption of the 1999 Bonds through the issuance
of the 2005 Authority Bonds generated $ 1,360,000 in additional funds for general
government projects throughout the City. The City completed the Cross- Over
Purchase in Lieu of Redemption ( considered a debt refunding) to reduce its total
debt service payments over the next 25 years by $ 52,554 and to obtain an
economic gain ( difference between the present values of the old and new debt
service payments) of $ 1,406,212.
The purchase in lieu of redemption structure used is somewhat different from a
standard refunding in that on their October 1, 2009 call date, the 1999 Bonds
scheduled to mature on October 1, 2010 through and including October 1, 2029
will be purchased from bond holders and instead of being cancelled, will instead
become property of the Authority. In other words, there will be no changes to the
1999 Bonds until the October 1, 2009 purchase date. After the October 1, 2009
purchase date, the Authority, in its role as a Joint Powers Authority ( the “ JPA”)
will become the owner of the 1999 Bonds. The Agency will continue to make
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
5 2
debt service payments on the 1999 Bonds as previously scheduled. Additionally,
up to and including the October 1, 2009 purchase date, debt service on the 2005
Authority Bonds will be payable solely from an investment agreement with XL
Asset Funding Company I LLC. The principal invested under the investment
agreement, together with interest earnings thereon will be sufficient to pay the
interest cost of the 2005 Authority Bonds up to and including October 1, 2009 and
to purchase the 1999 Bonds in lieu of redemption on October 1, 2009.
To provide security to the owners of the 2005 Authority Bonds after the October
1, 2009 purchase date, the Authority has assigned all principal and interest
payments to be received from the 1999 Bonds to the benefit of the 2005 Authority
Bonds, through a Bond Assignment and Purchase Agreement. According to the
provisions of the Bond Assignment and Purchase Agreement, all debt service
payments on the 1999 Bonds will be received by the Trustee and applied directly
to the payment of debt service on the 2005 Authority Bonds. The City will not
hold, nor have access to the debt service payments received from the 1999 Bonds.
As such, the source of repayment for the 2005 Authority Bonds after the October
1, 2009 purchase date is the principal and interest paid on the 1999 Bonds, which
is paid from tax increment revenue generated from the Project Areas.
The bonds bear interest at rates of 3.4 to 5 percent and the interest is payable each
April 1 and October 1 commencing October 1, 2005. Interest on the Bonds will be
computed on the basis of a 360- day year consisting of twelve 30- day months.
Principal on the bonds is payable each October 1, commencing October 1, 2010.
Future debt service on the 2005 bonds at June 30, 2006, assuming no redemptions
of the 2005 bonds other than scheduled mandatory sinking account redemption
was:
Year Ending
June 30, Principal Interest Total
2007
2008
2009
2010 $ 580,000 $ 846,644 $ 1,426,644
2011 600,000 826,294 1,426,294
2012- 2016 3,370,000 3,760,878 7,130,878
2017- 2021 4,230,000 2,897,194 7,127,194
2022- 2026 5,330,000 1,797,000 7,127,000
2027- 2029 3,885,000 394,750 4,279,750
Total $ 17,995,000 $ 10,522,760 $ 28,517,760
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
5 3
2. Long- term Pass- through Due to Other Governments
Menlo Park Fire Protection District – In 1988 the City’s Redevelopment Agency
( RDA) entered into an agreement with the Menlo Park Fire Protection District
( District) whereby the RDA will pay to the District the equivalent of 10.24% of
the tax increment received by the RDA from the University Circle Project Area
( Project Area), up to a maximum of $ 300,000 per year, to help defray the
additional costs to the District to manage the new risk in the Project Area. In the
event that the RDA is not able to make the payment, the District has agreed that
the payment will be deferred to future years when tax increment is available. At
June 30, 2006, the RDA owes the District $ 4,552,056. No repayment schedule is
available as the repayment is based on future tax increment received.
East Palo Alto Sanitary District – In 1988 the RDA entered into an agreement with
the East Palo Alto Sanitary District ( EPSD) whereby the RDA will pay to the
EPSD the equivalent of 3.968% of the tax increment received by the RDA from
the University Circle Project Area up to a cumulative total of $ 1,500,000 to defray
the additional costs to the EPSD to provide wastewater transport facilities to the
University Circle Project Area. At June 30, 2006 the RDA owes the EPSD
$ 1,288,196. No repayment schedule is available as the repayment is based on the
future tax increment the RDA receives from the University Circle Project Area.
3. Notes Payable
University Circle Investors – During 2000 the RDA entered into an agreement
with University Circle Investors ( UCI) whereby UCI will advance to the RDA
$ 3,900,000 for the completion of Stage 2A of the University Circle
Redevelopment Project. The funds will be advanced to the RDA when the RDA
requests the funds and provides the required documentation. No interest rate is
stated so interest has been imputed. At June 30, 2006, the RDA owed UCI
$ 553,522 with interest rates ranging from 3% to 5%. Payment will commence
after the first advance when the tax increment generated by the University Circle
Redevelopment Project exceeds $ 1.7 million.
4. Loan from Other Government
The City entered into a $ 1,000,000 loan agreement with the California Housing
Finance Agency in September 2001. The agreement allows revolving borrowings
by the City to finance acquisition of properties for affordable housing projects.
The agreement provides for payment of 3% annual interest on outstanding
balances. The City has borrowed $ 1,000,000 under this agreement. There is no
specific payment schedule under this agreement through its expiration in 2011.
The balance at June 30, 2006 is $ 520,350.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
5 4
5. Excise Tax Payment
Class Action Judgment – On January 30, 1996, a judgment was entered in
Superior Court of California against the City for the refund, together with interest,
to property owners of excise tax collected by the City dating back to 1990.
In May 2000 the action was settled by all parties with the City having a maximum
repayment of $ 4,500,000 which includes about 2,100 refund claims and interest
totaling about $ 3,357,777, and legal fees of $ 1,142,223.
As of June 30, 2006, the City had an outstanding balance due of $ 200,000. The
City plans on paying the balance in 2007.
F. Interfund Balances and Transactions
Interfund receivable and payable balances at June 30, 2006 were:
Advances to Advances from
Other Funds Other Funds
Long- term advances:
General fund $ 11,577,144
Capital projects funds:
Redevelopment agency $ 11,577,144
$ 11,577,144 $ 11,577,144
The City has advanced funds to its Redevelopment Agency for the acquisition of land
and other financial assistance. The balance due at June 30, 2006 was $ 11,577,144.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
5 5
Transfer amounts for the year ended June 30, 2006 were:
Transfer in
Low and Gateway
Moderate University
General Income Debt Service NonMajor
Fund Housing Total Funds Total
Transfer out
Major Funds
General Fund $ 65,847 $ 65,847
Redevelopment Agency
Capital Projects $ 1,265,236 3,000 1,268,236
Low and Moderate
Income Housing Fund 568,346 568,346
Nonmajor Funds $ 36,351 $ 86,441 62,850 185,642
Total $ 36,351 $ 86,441 $ 1,833,582 $ 131,697 $ 2,088,071
IV. Other Information
A. Risk Management
The City is exposed to various risks of loss related to torts, theft of, damage and
destruction of assets, errors and omissions, and natural disasters. The City purchases
commercial insurance to provide coverage with respect to certain risks.
Liabilities are reported when it is probable that a loss has occurred and the amount of
the loss can be reasonably estimated. Claim liabilities are calculated considering recent
claim settlement trends including the frequency and amount of payouts and other
economic and social factors. The liability for claims and judgments is reported in the
general long- term debt account group because it is not expected to be liquidated with
expendable available financial resources.
The City’s commercial insurance policies include general liability coverage of $ 7
million with a $ 100,000 retention per occurrence, and a $ 9 million excess liability
coverage and employee dishonesty coverage of $ 1,000,000. The State Compensation
Insurance Fund provides workers’ compensation insurance with a $ 1 million per
occurrence coverage.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
5 6
Changes in the balance of claims liabilities during the past two years were as follows:
Unpaid claims, beginning of fiscal year $ 88,000 $ 402,000
Incurred claims 314,000
Claim payments ( 47,000)
Unpaid claims, end of fiscal year $ 402,000 $ 3 55,000
Year ended
6/ 30/ 05
Year ended
6/ 30/ 06
Adequacy of Protection
During the past three fiscal years none of the above programs of protection have had
settlements or judgments that exceeded pooled or insured coverage. There have been
no significant reductions in pooled or insured liability coverage from coverage in the
prior year.
B. Operating Leases
The City leases building and office facility space under noncancellable operating leases.
Total costs for such leases were $ 388,472 for governmental activities and $ 33,778 for
business- type activities for the fiscal year ended June 30, 2006. The future minimum
lease payments for these leases are as follows:
Year Ending
June 30,
2007 $ 268,097
2008 77,175
Total $ 345,272
C. Joint Ventures
The City is one of twelve members of the South Bayside Waste Management Authority
( Authority), which is a joint powers agreement that commenced operations March 1,
2000. The Authority was formed for the purpose of joint ownership, financing, and
administration of the San Carlos Transfer Station and the San Mateo Recyclery; and the
planning, administration management, review, monitoring, enforcement, and reporting
of solid waste, recyclable material, and plant material collection activities with the
service area of the Authority.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
5 7
Through the operation of franchise agreements with each member, BFI Waste Systems
of North America, Inc. collects fees charged for the use of the facilities and remits them
to the Authority. Pursuant to an Operations Agreement with the Authority, BFI will
operate the facilities and be paid compensation based on costs, a provision for profit and
incentives for cost savings and performance.
The City does not maintain any equity interest in the Authority. Below is the audited
financial information as of and for the fiscal year ended June 30, 2005 ( latest available):
Total assets $ 32,119,670
Total liabilities ( 19,286,700)
Total fund equity $ 12,832,970
Operating revenue $ 38,825,773
Operating expenses 36,497,311
Operating income 2,328,462
Nonoperating revenues ( expenses), net ( 986,348)
Net income $ 1,342,114
The City is also one of five members of the San Francisquito Creek Joint Powers
Authority ( SFCJPA) which exists to manage flood control and other environmental
issues surrounding the San Francisquito Creek. The City has no equity interest in the
SFCJPA. Below is the audited information as of and for the year ended June 30, 2005
( latest available):
Total assets $ 3 60,462
Total liabilities ( 209,992)
Total fund equity $ 150,470
Operating revenue $ 314,225
Operating expenses 581,739
Operating loss ( 267,514)
Nonoperating revenues ( expenses), net 235,125
Net income ( loss) $ ( 32,389)
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
5 8
D. Retirement Plans
1. Plan Description 401( k)
Administration – The City maintains the East Palo Alto Retirement Plan ( Plan), a
single- employer, defined- contribution pension plan administered by the City.
General – On October 23, 1985, the City adopted a defined- contribution plan
funded by employer and employee contributions. The contributions to the Plan
are placed into the City of East Palo Alto Retirement Trust. The Plan was open to
all eligible employees on their employment commencement date. As of January 1,
2001, this plan was replaced by California Public Employees Retirement System
as the retirement plan for the City.
Contributions – The participants were permitted to defer a portion of
compensation into the Plan. The deferral could be greater than 3.5 percent;
however, the amount of deferral could not exceed 15 percent of compensation.
The City no longer makes any contributions to the Plan on behalf of the
employees. Participants forfeit their benefit from employer contributions to the
extent that they terminate employment without becoming fully vested.
Participant amounts – Each participant’s account is credited with the participant’s
contribution, allocations of the City’s contribution, and the Plan earnings.
Allocations are based on participant earnings or account balances, as defined. The
benefit to which a participant is entitled is the benefit that can be provided from
the participant’s vested account.
Vesting – Participants are immediately vested in their contributions plus actual
earnings thereon. Vesting in the City’s contribution portion of their accounts plus
actual earnings thereon is 100 percent vested after five ( 5) years of credited
services or if the participant reaches age 65 while an employee of the City or if the
termination of employment with the City is due to death or complete disability.
Participant notes receivable – Participants may borrow from their fund accounts a
minimum of $ 1,000 up to a maximum $ 50,000 or 50 percent of the vested
interested of the participant’s account. Each loan bears a reasonable rate of
interest, which equals the rate of return commensurate with the prevailing interest
rate charge on similar commercial loans. Loans shall be repaid within five ( 5)
years from the date of the loan, unless the loan is used to acquire the participant’s
principal residence. All loans shall be repaid in amortized payments through
payroll deduction. Each loan is secured by the participant’s salary deferral
account under the Plan.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
5 9
Payment of benefits – Benefits under the Plan are distributable upon normal
retirement at age 65 and termination of employment, disability, and death.
Payments are made on single lump sum distribution equal to the value of the
participant’s vested interest in his or her account.
2. ICMA Retirement Corporation
General – The City is also a participant in the ICMA Retirement Corporation.
The Plan is only available to a limited number of management employees on their
employment commencement date.
Contributions – Under the Plan, the City’s contribution is based on the City’s
agreement with each employee. The City contributes 7 percent of qualifying
compensation to the Plan. Each participating employee is required to make a
minimum contribution to the Plan based on their specific agreement. Both the
City contribution and participant contributions are 100 percent vested
immediately.
3. Plan Description ( California Public Employees Retirement System)
General – In 2001 the City joined the California Public Employees Retirement
System ( CalPERS), and began to contribute to CalPERS, a cost sharing multiple-employer
public employee defined benefit pension plan. CalPERS provides
retirement and disability benefits annual cost- of- living adjustments, and death
benefits to plan members and beneficiaries. CalPERS acts as a common
investment and administrative agent for participating public entities within the
State of California. Benefit provisions and all other requirements are established
by State statute and City ordinance. Copies of CalPERS’ annual financial report
may be obtained from their Executive Office located at 400 P Street, Sacramento,
CA 95814.
Funding policy – Active plan members are required by State statute to contribute
7% of their annual covered salary. The City is required to contribute to actuarially
determined remaining amounts necessary to fund the benefits for its members.
The actuarial methods and assumptions used are those adopted by the CalPERS
Board of Administration. The required employer contribution rate for fiscal year
2005- 06 was 9.326% for miscellaneous employees and 14.264% for police
officers. The contribution requirements of the plan members are established by
State statute and the employer contribute rate is established and may be amended
by CalPERS.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
6 0
Annual Pension Cost: For 2006, the City’s annual pension cost of $ 794,025 for
PERS was equal to the City’s required and actual contributions. The required
contribution was determined as part of the June 30, 2005 actuarial valuation using
the entry age normal actuarial cost method. The actuarial assumptions included ( a)
7.75% investment rate of return ( net of administrative expenses), ( b) projected
annual salary increase that vary by duration of service, and ( c) 3.25% per year cost-of-
living adjustments. Both ( a) and ( b) included an inflation component of 3%. The
actuarial value of PERS assets was determined using techniques that smooth the
effects of short- term volatility in the market value of investments over a three- year
period ( smooth market value).
The following is three- year trend information for the miscellaneous employees plan:
Annual
Fiscal Pension Percentage of Net Pension
Year Cost ( APC) APC Contributed Obligation
6/ 30/ 04 $ 196,630 - $ - 0-
6/ 30/ 05 227,308 - - 0-
6/ 30/ 06 357,380 - - 0-
The following is three- year trend information for the safety police plan:
Annual
Fiscal Pension Percentage of Net Pension
Year Cost ( APC) APC Contributed Obligation
6/ 30/ 04 $ 252,264 - $ - 0-
6/ 30/ 05 302,739 - - 0-
6/ 30/ 06 436,645 - - 0-
E. Conduit Debt
The Redevelopment Agency, on June 1, 1999, authorized the issuance of up to $ 13
million of the Redevelopment Agency of the City of East Palo Alto Multifamily
Housing Mortgage Revenue Bonds, 1999 Series A and Series B, and taxable 1999
Series C to assist a developer in financing the construction of a multifamily rental
housing project known as Gateway 101 Apartments. The bonds are to be secured by
the developer’s project and related rental operations, and are not an obligation of the
Redevelopment Agency.
CITY OF EAST PALO ALTO
Notes to Financial Statements ( Continued)
June 30, 2006
6 1
F. Commitments and Contingencies
Grant programs – Amounts received or receivable from grantor agencies are subject
to audit and adjustment by grantor agencies, principally the Federal government.
Any disallowed claims, including amounts already collected, may constitute a
liability of the applicable funds. The amount, if any, of expenditures, which may be
disallowed by the grantors, cannot be determined at the present time.
62
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63
Required Supplementary Information
CITY OF EAST PALO ALTO
Required Supplementary Information
PERS Schedule of Funding Progress
June 30, 2006
Funded Status of Plan - Miscellaneous Employees
Entry Age Unfunded UAAL as
Actuarial Liability/ a % of
Actuarial Actuarial Accrued ( Excess Funded Covered Covered
Valuation Asset Value Liability Asset) Ratio Payroll Payroll
Date ( a) ( b) [( b)-( a)] [( a)/( b)] ( e) {[( b)-( a)]/( e)}
6/ 30/ 03: $ 661,542 $ 739,843 $ 78,301 89.4% $ 2,261,449 3.462%
6/ 30/ 04: 428,025,075 437,494,341 9,469,266 97.8% 159,135,314 5.950%
6/ 30/ 05: 459,996,995 484,351,523 24,354,528 95.0% 174,127,476 13.987%
Funded Status of Plan - Safety Employees
Entry Age Unfunded UAAL as
Actuarial Liability/ a % of
Actuarial Actuarial Accrued ( Excess Funded Covered Covered
Valuation Asset Value Liability Asset) Ratio Payroll Payroll
Date ( a) ( b) [( b)-( a)] [( a)/( b)] ( e) {[( b)-( a)]/( e)}
6/ 30/ 03: $ 739,037 $ 759,103 $ 20,066 97.4% $ 2,444,070 0.821%
6/ 30/ 04: 72,447,509 78,992,753 6,545,244 91.7% 26,179,185 25.002%
6/ 30/ 05: 74,447,690 80,635,642 6,187,952 92.3% 26,985,629 22.931%
The significant increase in June 30, 2004 figures reflects the City of East Palo Alto's mandated
participation in risk pool for CalPERS.
64
CITY OF EAST PALO ALTO
General Fund
Budgetary Comparison Schedule
For the Year Ended June 30, 2006
Positive
( Negative)
Budgeted Amounts Actual Variance with
Original Final Amounts Final Budget
Fund balances - beginning $ 13,138,930 $ 13,138,930 $ 13,138,930
Resources ( inflows):
Taxes and assessments 9,147,645 10,121,617 10,320,062 $ 198,445
Licenses and permits 860,000 834,500 854,222 19,722
Intergovernmental 477,000 302,500 350,150 47,650
Charges for services 1,419,589 1,336,880 1,364,050 27,170
Interest 351,000 288,993 327,578 38,585
Contributions and donations 213,270 69,053 ( 144,217)
Transfers in 200,000 556,342 36,351 ( 519,991)
Other revenues 1,924,077 559,000 40,926 ( 518,074)
Amount available
for appropriations 14,379,311 14,213,102 13,362,392 ( 850,710)
Charges to appropriations ( outflows):
Current:
General government 2,035,078 2,615,182 2,069,490 545,692
Public safety 8,943,892 8,989,312 8,696,534 292,778
Culture and recreation 599,826 599,904 531,889 68,015
Public works 1,122,065 809,052 577,733 231,319
Community development 1,045,250 1,022,728 839,121 183,607
Capital outlay 22,521 190,186 ( 167,665)
Principal 900,000 895,000 884,510 10,490
Transfers out 200,000 588,864 65,847 523,017
Total charges to
appropriations 14,846,111 15,542,563 13,855,310 1,687,253
Resources over ( under)
charges to appropriations ( 466,800) ( 1,329,461) ( 492,918) 836,543
Fund balance - ending $ 12,672,130 $ 11,809,469 $ 12,646,012 $ 836,543
See Accompanying Note to Required Supplementary Information.
65
66
CITY OF EAST PALO ALTO
Note to Required Supplementary Information
June 30, 2006
I. Budgeting
The City adopts a budget annually for all governmental fund types, except for capital
projects. This budget is effective July 1 for the ensuing fiscal year. From the effective
date of the budget, which is adopted at the department level, the amounts stated therein
as proposed expenditures become appropriations to the various City departments. The
legal level of budgetary control is the fund level. The City Council may amend the
budget by resolution during the fiscal year. The City Manager has the authority to make
adjustments to the operating budget between departments. Transfers of operating
budgets between funds, use of unappropriated fund balances, and significant changes in
capital improvement project budgets require the approval of the City Council.
Annual budgets are adopted on a basis consistent with accounting principles generally
accepted in the United States except for capital projects, which are adopted on a project
length basis. Supplemental appropriations made during the fiscal year were not
substantial.
Under encumbrance accounting, purchase orders, contracts and other commitments for
the expenditures of monies are recorded in order to reserve that portion of the applicable
appropriation. Encumbrance accounting is employed as an extension of the formal
budgetary process. Encumbrances outstanding at year- end are carried over to the next
fiscal year as part of that year’s budget resolution.
The City does not budget for individual Redevelopment Agency funds therefore, a
detailed budgetary comparison schedule has not been included for the Low and
Moderate Income Housing Special Revenue Fund or Debt Service Fund.
67
Supplementary Information
CITY OF EAST PALO ALTO
Balance Sheet
Nonmajor Governmental Funds
June 30, 2006
Federal and
NPDES Gas State Law
Assets Fees Tax Enforcement Park in Lieu
Cash and cash equivalents $ 918 $ 514,453 $ 241,975 $ 1,069,567
Receivables, net 40,321
Loans receivable
Deposits
Total Assets $ 918 $ 554,774 $ 241,975 $ 1,069,567
Liabilities and Fund Balances
Liabilities:
Accounts payable $ 841 $ 9,582 $ 2,454
Retention payable
Deferred revenue
Due to the General Fund
Notes payable
Total Liabilities 841 9,582 2,454
Fund Balances:
Reserved for:
Encumbrances $ 7,461
Capital projects
Unreserved 77 545,192 239,521 1,062,106
Total Fund Balance 77 545,192 239,521 1,069,567
Total Liabilities and Fund Balance $ 918 $ 554,774 $ 241,975 $ 1,069,567
68
Federal
Rent ISTEA and State Housing Housing
Stabilization Grant Grants U. S. EPA in Lieu Assist
$ 222,113 $ 6 39,807 $ 110,585 $ 637,740
$ 200,044 $ 36,731
296,465
$ 222,113 $ 639,807 $ 2 00,044 $ 36,731 $ 110,585 $ 934,205
$ 1,722 $ 29,001 $ 7,759 $ 5,027 $ 29,530
39,745 28,972
520,350
1,722 68,746 36,731 5,027 549,880
296,465
220,391 $ 639,807 131,298 105,558 87,860
220,391 639,807 131,298 105,558 384,325
$ 222,113 $ 639,807 $ 2 00,044 $ 36,731 $ 110,585 $ 934,205
( Continued)
69
CITY OF EAST PALO ALTO
Balance Sheet
Nonmajor Governmental Funds ( Continued)
June 30, 2006
Public
Improvements Local
Assets in Lieu Measure A Grants
Cash and cash equivalents $ 354,413 $ 1,155,494 $ 206,056
Receivables, net 30,773
Loans receivable
Deposits 2,665
Total Assets $ 354,413 $ 1,158,159 $ 236,829
Liabilities and Fund Balances
Liabilities:
Accounts payable $ 6,232 $ 6,480 $ 48,308
Retention payable 62,454
Deferred revenue
Due to the General Fund
Notes payable
Total Liabilities 6,232 68,934 48,308
Fund Balances:
Reserved for:
Encumbrances
Capital projects
Unreserved 348,181 1,089,225 188,521
Total Fund Balance 348,181 1,089,225 188,521
Total Liabilities and Fund Balance $ 354,413 $ 1,158,159 $ 236,829
70
Capital Total
CYSFF Total Projects Nonmajor
Child/ Special Capital Governmental
Family Revenue Improvements Funds
$ 45,095 $ 5,198,216 $ 28,058 $ 5,226,274
307,869 427,592 735,461
296,465 296,465
2,665 2,665
$ 45,095 $ 5,805,215 $ 455,650 $ 6,260,865
$ 3,250 $ 150,186 $ 13,059 $ 163,245
62,454 30,453 92,907
175,443 175,443
68,717 68,717
520,350 520,350
3,250 801,707 218,955 1,020,662
303,926 58,719 362,645
177,976 177,976
41,845 4,699,582 4,699,582
41,845 5,003,508 236,695 5,240,203
$ 45,095 $ 5,805,215 $ 4 55,650 $ 6,260,865
71
CITY OF EAST PALO ALTO
Statement of Revenues, Expenditures
and Changes in Fund Balances
Nonmajor Governmental Funds
For the Year Ended June 30, 2006
Federal and
NPDES Gas State Law
Fees Tax Enforcement
Revenues:
Intergovernmental $ 129,196 $ 756,640 $ 199,189
Charges for services
Interest 153 20,503 11,659
Contributions and donations
Total Revenues 129,349 777,143 210,848
Expenditures:
Current:
General government 5,469 50,994
Public safety 35,062
Culture and recreation
Public works 258,305 589,032
Community development
Debt service:
Interest
Capital outlay 74,013
Total Expenditures 263,774 640,026 109,075
Excess ( Deficiency) of
Revenues Over
Expenditures ( 134,425) 137,117 101,773
Other Financing Sources ( Uses):
Transfers in 127,600 1,097
Transfers out
Total Other Financing
Sources ( Uses) 127,600 1,097
Net Change in
Fund Balance ( 6,825) 137,117 102,870
Fund Balances, Beginning of Year 6,902 408,075 136,651
Fund Balances, End of Year $ 77 $ 545,192 $ 239,521
72
Federal
Rent ISTEA and State Housing
Park in Lieu Stabilization Grant Grants U. S. EPA in Lieu
$ 586,757 $ 8,744
$ 276,143
$ 36,350 8,789 737 $ 5,054
186,489 79,724
222,839 284,932 587,494 8,744 84,778
2,892 51,120 48,611 8,744
51,619
39,986
1,461 149,484
190,891 10,304
18,215 184,494
22,568 242,011 474,194 8,744 10,304
200,271 42,921 113,300 74,474
( 36,351) ( 62,850) ( 86,441)
( 36,351) ( 62,850) ( 86,441)
163,920 42,921 50,450 ( 11,967)
905,647 177,470 $ 639,807 80,848 117,525
$ 1,069,567 $ 220,391 $ 639,807 $ 131,298 $ - $ 105,558
( Continued)
73
CITY OF EAST PALO ALTO
Statement of Revenues, Expenditures
and Changes in Fund Balances ( Continued)
Nonmajor Governmental Funds
For the Year Ended June 30, 2006
Public
Housing Improvements
Assist in Lieu Measure A
Revenues:
Intergovernmental $ 417,498
Charges for services
Interest 40,800
Contributions and donations $ 148,063
Total Revenues 148,063 458,298
Expenditures:
Current:
General government 5,000
Public safety
Culture and recreation 18,510
Public works 16,056
Community development
Debt service:
Interest $ 14,140
Capital outlay 8,735
Total Expenditures 14,140 48,301
Excess ( Deficiency) of
Revenues Over
Expenditures ( 14,140) 148,063 409,997
Other Financing Sources ( Uses):
Transfers in
Transfers out
Total Other Financing
Sources ( Uses)
Net Change in
Fund Balance ( 14,140) 148,063 409,997
Fund Balances, Beginning of Year 398,465 200,118 679,228
Fund Balances, End of Year $ 384,325 $ 348,181 $ 1,089,225
74
Capital Total
CYSFF Total Projects Nonmajor
Local Child/ Special Capital Governmental
Grants Family Revenue Improvements Funds
$ 2,098,024 $ 2,098,024
276,143 276,143
$ 2,047 126,092 126,092
$ 112,598 526,874 $ 102,389 629,263
112,598 2,047 3,027,133 102,389 3,129,522
35,375 9,250 217,455 217,455
30,804 117,485 117,485
35,691 94,187 94,187
16,907 1,031,245 1,031,245
201,195 201,195
14,140 14,140
4,700 290,157 90,232 380,389
123,477 9,250 1,965,864 90,232 2,056,096
( 10,879) ( 7,203) 1,061,269 12,157 1,073,426
3,000 131,697 131,697
( 185,642) ( 185,642)
3,000 ( 53,945) ( 53,945)
( 7,879) ( 7,203) 1,007,324 12,157 1,019,481
196,400 49,048 3,996,184 224,538 4,220,722
$ 188,521 $ 41,845 $ 5,003,508 $ 236,695 $ 5,240,203
75