C a l i f o r n i a
COMPREHENSIIVE ANNUALL FIINANCIIALL REPORTT
Mission Peak, Fremont
For the Fiscal Year Ended June 30, 2004
Located on the southeast side of the San Francisco Bay,
Fremont is a city of over 209,080 people with an area of 90
square miles, making it the fourth most populous city in the
Bay Area and California’s fifth largest city in area. With its
moderate climate and its proximity to major universities,
shopping areas, recreational and cultural activities,
employment centers, major airports, and the Bay Area Rapid
Transit system, Fremont captures metropolitan living at its
best.
The Fremont area was first settled with the establishment of
Mission San Jose by the Spanish. In the mid- 1840’ s, John C.
Fremont mapped a trail through Mission Pass to provide
access for American settlers into the southeastern San
Francisco Bay Area. In 1853, Washington Township was
established, taking in the communities of Mission San Jose,
Centerville, Niles, Irvington, and Warm Springs. On January
23, 1956, these communities joined together to form the City
of Fremont.
xiii
xiv
City of Fremont
June 30, 2004
City Council
City Staff
Gus Morrison
Steve Cho
Bob Wasserman
Bill Pease
Dominic Dutra
Jan Perkins
Harvey Levine
Dave Millican
Lynn Dantzker
Lynn Macy
Nancy Carlson
Harriet Commons
Daren Fields
Laura Gonzalez- Escoto
Annabell Holland
Dave Jensen
Bill Reykalin
Suzanne Shenfil
Craig Steckler
Mayor
Vice Mayor
Councilmember
Councilmember
Councilmember
City Manager
City Attorney
Deputy City Manager/ CFO
Assistant City Manager/ Development
Assistant City Manager/ City Clerk
Human Resources Director
Finance Director
Economic Development Director
Redevelopment Director
Parks & Recreation Director
Information Systems Director
Fire Chief
Human Services Director
Police Chief
xv
Fremont Community
Commissions City Council Boards
City Attorney City Manager
Community
Services Team
Administrative
Systems Group
City Clerk
City Manager’s Office
Finance
Information Systems
City Attorney’s Office
Human Resources
Fleet and Building
Maintenance
Risk Management
Development,
Environmental Services,
and Maintenance
Economic Development
Fire and Emergency
Services
Police & Neighborhood
Services
Human Services
Parks and Recreation
Housing and
Redevelopment
xvi
CITY OF FREMONT, CALIFORNIA
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
This part of the City of Fremont’s annual financial report presents management’s
discussion and analysis of the City’s financial activities and performance for the fiscal
year ended June 30, 2004. The information presented here should be considered in
conjunction with additional information presented in the transmittal letter in the
Introductory Section at the front of this report, and the City’s financial statements,
which follow.
This is the third year the City has prepared its annual financial report in accordance
with Governmental Accounting Standards Board ( GASB) Statement No. 34. As we
continue to fine- tune the implementation of those reporting requirements, we have
made some reclassifications between line items in the originally presented 2002/ 03
financial information so that the comparative analysis will be more meaningful. These
reclassifications did not materially change amounts reported in the 2002/ 03 annual
financial report, although current assets and current liabilities were reduced by
$ 5,450,000. There were no changes in noncurrent assets and liabilities, net assets, or
the change in net assets reported in that year.
FINANCIAL HIGHLIGHTS
• The assets of the City of Fremont exceeded its liabilities at the close of the 2003/ 04
fiscal year by $ 749,924,000 ( net assets). Of this amount, $ 50,006,000 is unrestricted
and may be used to finance day- to- day operations without constraints established
by debt covenants, enabling legislation, or other legal requirements.
• The City’s total net assets increased by $ 8,752,000 as a result of actions taken by the
City Council and City Manager to reduce costs and control spending. However,
sales tax and investment earnings continued to decline during 2003/ 04. In
addition, the State withheld the VLF backfill for three months ( amounting to $ 3.5
million), which resulted in the combined total of Motor Vehicle in Lieu and
revenue loss mitigation dropping from the prior year’s levels. Of the increase in
total net assets, $ 741,000 is due to developer dedications of infrastructure or right-of-
way easements. These revenues are not cash and the related assets cannot be
liquidated to pay expenses.
• As of June 30, 2004, the City’s governmental funds reported combined ending fund
balances of $ 276,028,000. Approximately 30% of this total amount ($ 84,521,000) is
reserved to indicate that it is not available for new spending because it has already
been committed either to liquidate contracts and purchase orders of the prior
period ($ 34,764,000), or to pay debt service ($ 49,757,000). The remaining 70%
3
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
($ 191,507,000) constitutes unreserved fund balance that is available for spending,
and has been designated for a variety of specific future uses.
• At the end of the 2003/ 04 fiscal year, unreserved fund balance for the General
Fund was $ 36,949,000. Of this amount, $ 13,339,000 was designated by City Council
policy for use for costs associated with catastrophes and disasters, and $ 2,668,000
was designated by City Council policy for start- up costs for future programs with
potential to generate revenues sufficient to cover costs and repay the start- up
investment. Both of these policies were adopted by the City Council in June 1996.
In addition, $ 7,906,000 was designated to provide funds to deal with significant
levels of financial uncertainty related to the City’s economic downturn and the
unknown effects of the State budget, $ 6,195,000 was appropriated in the 2004/ 05
operating budget, and ($ 1,125,000) was designated for fair value adjustments on
the City’s investment portfolio for net losses recognized by the City, but not yet
realized at June 30, 2004.
The remaining $ 7,402,000 is unreserved and undesignated because it was not
anticipated at the time the 2004/ 05 budget was adopted, which was before the
2003/ 04 books were closed. Had its existence been known at that time, it would
have been included in the amount appropriated in the 2004/ 05 budget. Given the
significant budget challenges the City faces over the next five years, this
unreserved undesignated fund balance will be factored into the City’s financial
forecast to help balance future years’ budgets and thus mitigate the potential need
for future additional service reductions, or capital project deferrals and
cancellations.
The City’s total capital debt increased by $ 7,755,000, net of debt repaid during the
year. This was due to the following:
• $ 21,930,000 in 2004 variable rate demand certificates of participation ( COPs)
issued for the repayment and redemption of the City’s fixed rate COP 1997
Police Facility Refinancing Project ($ 7,600,000) and the fixed rate COP 1998
Capital Improvement Financing Project ($ 14,330,000) in order to reduce annual
debt service expenditures.
• $ 41,425,000 in 2004 housing set- aside tax allocation bonds by the
Redevelopment Agency to refinance tax allocation bonds issued in 2000.
• $ 10,000,000 in general obligation bonds approved by the voters with the
passage of Measure R in November 2002 and issued on July 17, 2003. These
funds are to be used to construct replacement fire stations for Station # 2 in
4
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
Niles, Station # 6 in Centerville and Station # 8 in North Fremont, as well as for
structural strengthening of the remaining seven fire stations within the City and
the construction of a public safety- training center.
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the City of
Fremont’s basic financial statements. The City’s basic financial statements consist of
three components: 1) government- wide financial statements, 2) fund financial
statements, and 3) notes to the financial statements. This report also contains other
supplementary information in addition to the basic financial statements themselves.
Government- wide Financial Statements
The government- wide financial statements consist of a Statement of Net Assets and a
Statement of Activities and Changes in Net Assets. These statements are designed to
provide readers with a broad overview of the City’s finances, in a manner similar to a
private- sector business. They provide information about the activities of the City as a
whole and present a longer- term view of the City’s finances.
The 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. Over time,
increases or decreases in net assets may serve as a useful indicator of whether the
financial position of the City is improving or deteriorating.
The Statement of Activities and Changes in Net Assets presents information showing
how the City’s net assets changed during the most recent fiscal year. All changes in
net assets are reported as soon as the underlying event giving rise to the change
occurs, regardless of the timing of related cash flows. Thus, revenues and expenses
are reported in this statement for some items that will only result in cash flows in
future fiscal periods ( e. g., uncollected taxes, and earned but unused vacation and other
compensated leave).
All of the City’s activities are considered to be governmental in nature and, as a result,
no business- type activities are reported in these statements. Governmental activities
are those that are principally supported by taxes and intergovernmental revenues. For
the City of Fremont, governmental activities consist of police services, fire services,
human services, capital assets maintenance and operations, recreation services,
community development and environmental services, and general government
administration.
5
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
The City is the primary government in this report. There are no discretely presented
component units. However, these financial statements include three other entities
that, although legally separate, are important because the City is financially
accountable for them. These component units include the Redevelopment Agency of
the City of Fremont, the Fremont Public Financing Authority, and the Fremont Social
Services Joint Powers Authority ( JPA). These component units have been included as
an integral part of the City of Fremont ( that is, their accounts are “ blended” with those
of the City) and they are not reported as separate discrete component units in these
financial statements.
Fund Financial Statements
A fund is a grouping of related accounts that is used to maintain control over
resources that have been segregated for specific activities or objectives. The City of
Fremont, like other state and local governments, uses fund accounting to ensure and
demonstrate compliance with finance- related legal requirements. For governmental
activities, these statements tell how these services were financed in the short- term, as
well as what remains for future spending. 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. All of the funds of the City of
Fremont can be divided into three categories: governmental funds, proprietary funds,
and fiduciary funds.
Governmental funds. Governmental funds are used to account for essentially the
same functions reported as governmental activities in the government- wide financial
statements. However, unlike the government- wide financial statements,
governmental fund financial statements focus on near- term inflows and outflows of
spendable resources, as well as on balances of spendable resources available at the end
of the fiscal year. This information may be useful in evaluating a government’s near-term
financing requirements.
Because the focus of governmental funds is narrower than that of the government-wide
financial statements, it is useful to compare the information presented for
governmental funds with similar information presented for governmental activities in
the government- wide financial statements. By doing so, readers may better
understand the long- term impact of the government’s near- term financing decisions.
Both the governmental fund balance sheet and the governmental fund statement of
revenues, expenditures, and changes in fund balances provide a reconciliation to assist
the reader with this comparison between governmental funds and governmental
activities.
6
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
The City of Fremont maintains fifty- seven individual governmental funds.
Information is presented separately in the governmental fund balance sheet and the
governmental fund statement of revenues, expenditures, and changes in fund balances
for the following funds that are considered to be major funds:
• General Fund • Integrated Waste Management
• Redevelopment Agency • Development Cost Center
• Development Impact Fees • Recreation Services
• State Gas Tax • Capital Maintenance
Data from the other forty- nine governmental funds are combined into a single,
aggregated presentation. Individual fund data for each of these nonmajor
governmental funds is provided in the form of combining statements elsewhere in this
report.
The City adopts an annual appropriated budget for its General Fund, the
Redevelopment Agency, Integrated Waste Management, the Development Cost
Center, and Recreation Services. Budgetary comparison statements have been
provided as required supplementary information to demonstrate compliance with the
budget.
Proprietary funds. The only proprietary funds the City uses are internal service funds,
which are an accounting device used to accumulate and allocate costs internally
among the City’s various functions. The City uses internal service funds to account for
its risk management activities and for its information technology services. Because
both of these services exist to benefit governmental functions, they have been included
within governmental activities in the government- wide financial statements.
Both internal service funds are combined into a single, aggregated presentation in the
proprietary fund financial statements. Individual fund data for the internal service
funds is provided in the form of combining statements elsewhere in this report.
Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit
of parties outside the government. Fiduciary funds are not reflected in the
government- wide financial statements because the resources of those funds are not
available to support the City’s own programs. The only fiduciary funds the City has
are agency funds. The accounting used for these funds is much like that used for
governmental funds. These funds are reported in a separate statement of fiduciary net
assets.
7
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
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. The notes
to the financial statements follow the basic financial statements.
Other Information
In addition to the basic financial statements and accompanying notes, this report also
presents certain required supplementary information. This information includes
budgetary comparison schedules, as well as more detailed information about the
City’s use of the modified approach for certain of its infrastructure assets, and about
its participation in the California Public Employees’ Retirement System ( CalPERS)
defined benefit pension plan.
The combining statements referred to earlier in connection with nonmajor
governmental funds and internal service funds are presented immediately following
the required supplementary information.
GOVERNMENT- WIDE FINANCIAL ANALYSIS
Net assets may serve over time as a useful indicator of a government’s financial
position. In the case of the City of Fremont, assets exceeded liabilities by $ 749,924,000
at the close of the 2003/ 04 fiscal year. In comparison, last year assets exceeded
liabilities by $ 741,172,000. Information about net assets is presented in the summary
table, below:
SUMMARY OF NET ASSETS
JUNE 30, 2004 AND 2003
( dollars in thousands)
2004
2003
Percentage
Change
Current and other assets $ 336,655 $ 322,747 4.3%
Capital assets 694,000 669,555 3.7%
Total assets
1,030,655
992,302
3.9%
Current liabilities
62,568
41,214
51.8%
Noncurrent liabilities 218,163 209,916 3.9%
8
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
Total liabilities 280,731 251,130 11.8%
Net assets:
Invested in capital assets, net of
related debt
476,639
463,205
2.9%
Restricted 223,279 233,207 ( 4.3%)
Unrestricted 50,006 44,760 11.7%
Total net assets
$ 749,924
$ 741,172
1.2%
By far, the largest portion of the City’s net assets ( 63%) reflects its investment in capital
assets ( e. g., land, buildings, machinery and equipment) less any related debt used to
acquire those assets that is still outstanding. The City uses these capital assets to
provide services to citizens. This amount increased this year because proceeds of debt
issued in prior years were used in 2003/ 04 for capital asset acquisition and
construction. The amount of net assets invested in capital assets, net of related debt, is
reported as a distinct component of net assets because this amount is not available for
future spending. In addition, although the City’s investment in its capital assets is
reported net of related debt, the resources needed to repay this debt must be provided
from other sources because the capital assets themselves cannot be used to liquidate
these liabilities.
An additional portion of the City’s net assets ( 30%) represents resources that are
subject to external restrictions on how they may be used. This amount decreased
because of a reduction in the amount of unspent debt proceeds. The remaining
balance of unrestricted net assets ( 7%) may be used to finance day- to- day operations
without constraints established by debt covenants, enabling legislation, or other legal
requirements.
Current liabilities increased because of $ 15,262,000 in tax and revenue anticipation
notes ( TRANs) outstanding at June 30, 2004 that will be repaid in October 2004. No
TRANs were outstanding at June 30, 2003.
9
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
The City’s net assets increased by $ 8,752,000 ( 1.2%) during the current fiscal year.
Information about changes in net assets is presented in the summary table, below:
SUMMARY OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 2004 AND 2003
( dollars in thousands)
2004
2003
Percentage
Change
Revenues:-
Program revenues:
Charges for services $ 24,769 $ 21,320 16.2%
Operating grants and contributions 20,515 18,997 8.0%
Capital grants and contributions 741 5,400 ( 86.3%)
General revenues:-
Intergovernmental:
Allocated property tax 63,386 60,328 5.1%
Allocated sales tax 26,797 28,203 ( 5.0%)
Motor vehicle in lieu 3,813 4,010 ( 4.9%)
Revenue loss mitigation 5,728 8,004 ( 28.4%)
Other 470 719 ( 34.6%)
Other taxes and fees 22,696 18,055 25.7%
Investment earnings 3,439 10,185 ( 66.2%)
Miscellaneous and other 1,856 792 134.3%
Total revenues 174,210 176,013 ( 1.0%)
Program expenses:
General government 10,332 12,466 ( 17.1%)
Police services 39,157 38,441 1.9%
Fire services 23,593 24,182 ( 2.4%)
Human services 5,479 5,782 ( 5.2%)
Capital assets maintenance and operations 35,063 39,336 ( 10.9%)
Recreation services 5,236 5,382 ( 2.7%)
Community development and
environmental services
29,902
29,760
0.5%
Intergovernmental 8,941 6,372 40.3%
Interest on debt 7,755 7,458 4.0%
Total program expenses 165,458 169,179 ( 2.2%)
Increase in net assets
8,752
6,834
28.1%
Net assets, beginning of year 741,172 734,338 0.9%
Net assets, end of year
$ 749,924
$ 741,172
1.2%
10
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
Although net assets increased this fiscal year, this increase was due to decreased
expenses, rather than increased revenues, which overall declined by 1%. The City’s
revenues generally continued to soften during 2003/ 04 as the recession recovery
continued to elude Fremont and the Silicon Valley, although there were a few bright
spots.
Revenues. Charges for services increased by $ 3,449,000 ( 16.2%) over the prior year,
primarily due to increased development activity within the Development Cost Center,
largely attributable to the Catellus Pacific Commons project, and $ 1,700,000 resulting
from a new recycling disposal fee.
Operating grants and contributions increased $ 1,518,000 ( 8.0%) over the prior year,
primarily due to increases in grants and contributions for street maintenance projects,
paratransit services and an increase in Community Development Block Grant
revenues, as well as by a variety of relatively minor increases in other grant funding
sources throughout the organization.
Capital grants and contributions consist of developer dedications of right- of- way
easements this amount decreased by $ 4,659,000 because development activity dropped
off, and infrastructure serving the new Pacific Commons project was not yet ready for
acceptance by the City.
The City’s allocated property tax continued to exhibit modest growth. This is largely
attributable to low mortgage interest rates continuing to support the residential real
estate market. However, the City continues to watch a possible softening of property
tax revenues in the commercial real estate sector as the economic downturn continues
to affect Fremont’s businesses and those who provide goods and services to those
businesses. Although gross assessed valuation for secured property increased 5.9%
from 2002/ 03 to 2003/ 04, that for unsecured personal property decreased by 10.8%.
Unsecured personal property represents 5.9% of the 2003/ 04 total gross assessed
valuations.
Allocated sales tax continued its downward trend. The $ 1,406,000 decrease in 2003/ 04
is on top of a $ 993,000 decrease in 2002/ 03. The bulk of this decrease has been in
business to business sales – further evidence of the economic decline in Silicon Valley.
Revenue loss mitigation decreased by $ 2,276,000 ( 28.4%) because the State withheld
VLF backfill payments for the last 10 days of 2002/ 03 and the first three months of
2003/ 04 as the State struggled to resolve its own budget problems. The State has
promised to repay cities the value of this revenue loss in August 2006. As a result,
11
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
Fremont has a contingent revenue receivable of $ 3,544,000 that is not reflected in these
financial statements.
Other taxes and fees consists of the following ( dollars in thousands):
2003/ 04
2002/ 03
Percentage
Change
Business tax $ 5,324 $ 5,599 ( 4.9%)
Other taxes 3,380 2,896 16.7%
Development impact fees 6,988 2,687 160.1%
Franchises 7,004 6,873 1.9%
Total
$ 22,696
$ 18,055
25.7%
The City’s business tax remained relatively stable after taking into account a one- time
$ 369,000 refund due to a company’s inadvertent overpayment of its business tax
related to a business acquisition. The large increase in development impact fee
collections reflects the increased level of development activity, primarily the Catellus
Pacific Commons project.
Investment earnings decreased because of declining interest rates over the course of
the year, along with a $ 3,500,000 drop in the fair market value of the City’s
investments. In 2002/ 03, the average portfolio yield was 3.00%. In 2003/ 04, it was
2.37%, a decline of 21%.
The significant increase in miscellaneous and other revenue is attributable to some
significant one- time revenues in 2003/ 04. Chief among these were the following:
• $ 500,000 from Catellus in partial exchange for an amendment to the Pacific
Commons development agreement whereby the City relinquished its option to
purchase land for a business conference center.
• $ 400,000 in Community Development Block Grant Loan repayments that are used
as program income to fund future CDBG programs or projects.
Program Expenses. The prospect of reduced revenue growth first became apparent in
early 2001/ 02, and the City acted to immediately curb spending. Since 2001/ 02,
program expenses have declined 5.6%, from $ 175,163,000 in 2001/ 02 to $ 165,458,000 in
2003/ 04. Because of continuing revenue uncertainty, department budgets were
reduced 2% on average in 2002/ 03, compared to 2001/ 02 levels. The revenue picture
continued to worsen, and at midyear 2002/ 03, departments were instructed to cut
spending by roughly 10% in the City’s General Fund so that the City would not spend
12
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
beyond its means in 2002/ 03 and to position the organization for continued revenue
uncertainty in 2003/ 04. In February 2003, the City Manager recommended and the
City Council approved a Four Point Plan for restoring the City’s fiscal health and
closing the gap between expenditures and revenues. The plan included reducing
expenditures, making sure fees were charged where possible and at an appropriate
level, expanding retail recruitment efforts, and exploring tax increases.
The revenue picture continues to be under pressure. With the adoption of the 2003/ 04
budget, the City cut spending by roughly 20% in the City’s General Fund so that the
City would not spend beyond its means in 2003/ 04. This included laying off valuable
staff because 224 positions were eliminated, about half of which were filled, and
cutting important programs in all areas, including public safety and maintenance. The
result of these actions is the overall 2.2% reduction in actual program expenses funded
by all revenue sources throughout the organization.
Economic factors and next year’s budget are discussed in more detail later in this
discussion and analysis.
Information about the total and net cost of governmental activities is presented below:
TOTAL AND NET COST OF GOVERNMENTAL ACTIVITIES
FOR THE YEARS ENDED JUNE 30, 2004 AND 2003
( dollars in thousands)
Total Cost of Services Net Cost of Services
2004
2003
%
Change
2004
2003
%
Change
Police services
$ 39,157
$ 38,441
1.9%
$ 33,481
$ 33,233
0.7%
Fire services 23,593 24,182 ( 2.4%) 20,734 21,655 ( 4.3%)
Human services 5,479 5,782 ( 5.2%) 2,250 2,713 ( 17.1%)
Capital assets maintenance
and operations
35,063
39,336
( 10.9%)
18,279
19,405
( 5.8%)
Recreation services 5,236 5,382 ( 2.7%) 1,745 2,075 ( 15.9%)
Community development
and environmental services
29,902
29,760
0.5%
16,414
18,671
( 12.1%)
General government 10,332 12,466 ( 17.1%) 9,834 11,879 ( 17.2%)
Other 16,696 13,830 20.7% 16,696 13,830 20.7%
Total
$ 165,458
$ 169,179
( 2.2%)
$ 119,433
$ 123,461
( 3.3%)
Although police services expenses grew modestly this year, the actual amount spent
on police services has actually decreased 3.0% since 2001/ 02, when the total cost of
police services was $ 40,366,000. Similarly, fire services expenses decreased 3.3% since
13
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
2001/ 02, when the total cost of fire services was $ 24,387,000. The actual service impact
of these expense reductions is more severe than one might expect because the CalPERS
employer contribution rate for public safety increased from 11.335% of covered payroll
in 2002/ 03 to 13.092% in 2003/ 04, an increase of 15.5%. For employees other than
public safety employees, the contribution rate increased from 4.506% in 2002/ 03 to
7.252% in 2003/ 04, an increase of 60.9%.
Human services expenses decreased despite an increase in charges for services and
operating grants because of a reduction in General Fund support.
In spite of increased operating grants and contributions for capital assets maintenance
and operations, expenses in this function continued to decline because general tax
support was not available due to the City’s weakening revenue situation. Since
2001/ 02, the total cost of capital assets maintenance and operations has decreased
25.6% ( from $ 47,109,000 in 2001/ 02), and the net cost has decreased 41.5% ( from
$ 31,263,000). Maintenance of the City’s capital assets is an important priority, and
staff continues to work to find and deploy funding in the most effective way possible.
This decrease in both total cost and net cost has potentially significant implications for
the long- term if this trend continues.
Recreation services expenditures decreased in response to the economic downturn and
decreased demand for classes, combined with a reduction in general tax support from
the General Fund. Since 2001/ 02, the total cost of recreation services has decreased
16.7% ( from $ 6,110,000 in 2001/ 02), and the net cost has decreased 33.8% ( from
$ 3,133,000).
Community development and environmental services held steady because of
development activity at the Pacific Commons project, as reflected by the fact that total
cost of services was relatively unchanged, but the net cost of services declined because
of increased charges for services.
The total cost of general government services decreased significantly as the City
continued to reduce expenses throughout the organization. Since 2001/ 02, the total
decrease has been 18.5% ( from $ 12,678,000 in 2001/ 02).
The cost of other services increased because of tax increment pass- through payments
from the redevelopment agency to other taxing entities ($ 8.9 million in 2003/ 04,
compared to $ 6.4 million in 2002/ 03). The standard amount of these pass- through
payments is $ 7.6 million each year. In 2002/ 03, this amount was offset by the final use
of a sinking fund established for this purpose. In 2003/ 04, in addition to the normal
14
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
pass- through payments, the redevelopment agency also had to pay $ 1.3 million to the
State’s Education Revenue Augmentation Fund ( ERAF).
Economic factors and next year’s budget are discussed in more detail later in this
discussion and analysis.
FINANCIAL ANALYSIS OF THE CITY’S FUNDS
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance
with finance- related legal requirements. The focus of the City’s governmental funds is
to provide information on near- term inflows, outflows, and balances of spendable
resources. Such information is useful in assessing the City of Fremont’s financing
requirements. In particular, unreserved fund balance may serve as a useful measure
of a government’s net resources available for spending at the end of the fiscal year.
As of the end of 2003/ 04, the City’s governmental funds reported combined ending
fund balances of $ 276,028,000, a decrease of $ 12,155,000 from the prior year.
Approximately 30% of this total amount ($ 84,521,000) is reserved to indicate that it is
not available for new spending because it has already been committed either to
liquidate contracts and purchase orders of the prior period ($ 34,764,000), or to pay
debt service ($ 49,757,000). The remaining 79% ($ 191,507,000) constitutes unreserved
fund balance that is available for spending, and it has been designated for a variety of
specific future uses.
The following are the major funds that either qualified under the reporting criteria or
were considered to be important to financial statement users:
General Fund – The General Fund is the chief operating fund of the City of Fremont.
At the end of 2002/ 03, total fund balance was $ 34,060,000, of which $ 33,609,000 was
unreserved. At the end of 2003/ 04, total fund balance was $ 36,949,000, of which
$ 36,386,000 was unreserved. Of this unreserved amount, $ 13,339,000 ( 12.5% of
budgeted expenditures and transfers out) was designated by City Council policy for
use for costs associated with catastrophes and disasters, and $ 2,668,000 ( 2.5% of
budgeted expenditures and transfers out) was designated by City Council policy for
start- up costs for future programs with potential to generate revenues sufficient to
cover costs and repay the start- up investment. Both of these policies were adopted by
the City Council in June 1996. In addition, $ 7,906,000 was earmarked to provide funds
to deal with significant levels of financial uncertainty related to the Silicon Valley
economic downturn and the unknown effects of the ongoing State budget crisis,
$ 6,195,000 was appropriated in the 2004/ 05 operating budget, and ($ 1,125,000) was
15
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
designated for fair value adjustments on the City’s investment portfolio for net losses
recognized by the City, but not yet realized at June 30, 2004.
The remaining $ 7,402,000 is unreserved and undesignated because it was not
anticipated at the time the 2004/ 05 budget was adopted, which was before the
2003/ 04 books were closed. This is because the final payments for both property tax
and sales tax were slightly more than anticipated ( an indication that economic
recovery may finally be on the way), and because departments closed out the year
spending less than expected when those estimates were prepared in the spring of 2004.
Had the existence of this additional fund balance been known at that time, it would
have been included in the amount appropriated in the 2004/ 05 budget. Given the
significant budget challenges the City faces over the next five years, this unreserved
undesignated fund balance will be factored into the City’s financial forecast to help
balance future years’ budgets and thus mitigate the potential need for future
additional service reductions, or capital project deferrals and cancellations.
The fund balance of the City’s General Fund increased by $ 2,889,000 during the
2003/ 04 fiscal year. Key factors in this increase are as follows:
• Revenues ( primarily sales and property tax) and transfers in were 0.12% better
than projected. Positive results for property and sales tax were offset by the State’s
withholding of $ 3,544,000 in so- called motor vehicle license fee ( VLF) backfill
revenue for the first three months of 2003/ 04 as part of its own budget balancing
efforts. This withheld amount will supposedly be repaid by the State in August
2006. Charges for services were also better than projected, but this increase only
served to offset the declines in other revenue sources. In all, revenues were within
0.12% ($ 126,000) of budgeted projections.
• Expenditure savings and reduced transfers out helped mitigate some of the
revenue challenges, with a reduction of 6.1%. This was due to a restructuring of
fixed rate debt to variable rate debt, which saved the City $ 3.5 million, and $ 3.0
million in additional expenditure savings by departments, in addition to the
significant budget reductions they had already taken over the past two years.
• The 2003/ 04 adopted budget included a planned use of $ 3.8 million of beginning
fund balance to help mitigate the softening of the economy and allow for an
orderly transition to reduced staffing and service levels, as well as to provide
funding for the downtown plan. This planned use actually wound up being not
being necessary due to prompt and effective action taken to reduce expenditures as
the revenue picture remained stagnant, both in the form of savings from
restructuring debt and reduced operational expenditures.
16
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
Redevelopment Agency – The Redevelopment Agency is responsible for removing
barriers to economic development caused by inadequate transportation infrastructure,
and for encouraging development in underperforming historic commercial districts in
the City. The Agency’s operations and capital projects are funded primarily by annual
property tax increment revenue of approximately $ 27 million and the proceeds of $ 50
million in debt issued in 2000, to be repaid out of the property tax increment revenue
generated by increases in property assessed values in the redevelopment project areas.
The Agency started paying principal on this debt in 2001/ 02. On June 5, 2004, the
Agency issued tax allocation bonds in the amount of $ 41,425,000 to finance and
refinance certain redevelopment activities, including refunding the 2000 tax allocation
bonds.
Out of the $ 110,076,000 fund balance, $ 45,558,000 is reserved for debt service
payments, $ 17,053,000 is reserved for payments related to outstanding contracts and
purchase orders, $ 26,314,000 is designated for low and moderate income housing,
$ 11,077,000 is designated for capital projects, and $ 10,074,000 is designated for other
redevelopment purposes.
Development Impact Fees – This fund represents the aggregate total of park
dedication fees, park facility fees, fire impact fees, traffic impact fees and capital
facility fees. The fees are levied on all new development in the City to pay for the
construction and improvement of public facilities as a result of growth. Fees collected
in 2003/ 04 were 160% more than the amount collected in 2002/ 03. This increase in
annual collections is largely due to development activity at Pacific Commons, where
significant progress was made during 2003/ 04 towards completion of 700,000 square
feet of new retail development. During 2003/ 04, 92% of this fund’s expenditures
($ 4,671,000) were for traffic- related impacts, 8% ($ 399,000) were for park related
projects and $ 2,109,000 was transferred to other funds for use in mitigating additional
traffic- related impacts.
Because these funds are collected for construction or improvements of public facilities,
the unreserved fund balance of $ 39,480,000 is fully designated for capital projects, of
which $ 28,000,000 is related to park development. However, it has not yet been spent
because of the operational maintenance impacts of adding new parks. These projects
have been delayed until the economy improves and sufficient operating revenues exist
to ensure that park facilities can be adequately and appropriately maintained.
17
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
State Gas Tax – This fund is used to account for all of the gas tax receipts from the
State. Normally these funds are used for the maintenance of City streets. Gas tax
expenditures generally fell into four broad categories, as follows ( dollars in
thousands):
2003/ 04 2002/ 03
Pavement overlays and slurry sealing $ 1,185 $ 1,866
Street construction 961 167
Street and median maintenance 1,250 735
Traffic signal construction and maintenance 749 1,060
Cape sealing expenditures of $ 848,000 were incurred in 2003/ 04. However, they were
funded with Measure B and ACTIA monies, rather than gas tax.
The total fund balance of this fund at June 30, 2004, is $ 7,264,000, which is designated
for future street maintenance.
Integrated Waste Management – This fund was established to account for monies
received by the City to comply with the provisions of Assembly Bill ( AB) 939,
addressing recycling, household hazardous waste, and solid waste management
issues. These revenues may only be spent for integrated waste management and
waste reduction purposes. The City is currently in the process of completing
environmental assessments for a new materials recycling facility and a transfer station,
and negotiating a new disposal agreement. Funds have been accumulated to offset a
portion of these costs, and to reduce the need for rate increases related to higher costs
of operations of the new facilities. The unreserved fund balance of $ 7,316,000 is
designated for integrated waste management and waste reduction purposes and
transition costs associated with the closure of the existing landfill.
Development Cost Center – This fund was established to account for the transactions
and activities related to development services of the City, including engineering,
planning, and building and construction inspection activities. Its customers are not
only the development community, but also the City itself for its own capital projects.
Fees collected in this cost center are used for the benefit of the fee payers.
Development activity is increasing as the recessionary effects begin to fade. In
1999/ 00 and 2000/ 01, the total dollar valuation for building permits averaged
$ 357,400,000. In 2001/ 02, the total dollar valuation dropped to $ 239,133,000. In
2002/ 03, the total dollar valuation dropped still further, to $ 181,799,000. However, in
2003/ 04, the total dollar valuation increased to $ 241,257,000. A large portion of this is
18
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
development occurring at Pacific Commons. At the end of 2003/ 04, unreserved fund
balance totaled $ 3,422,000, up from $ 3,035,000 in the prior year. This fund balance will
be used to ensure continuity of critical development services.
Recreation Services – This fund was established to account for the transactions and
activities related to the delivery of recreation services. Fees collected for recreation
services are used for the development of programs and facilities benefiting fee payers.
At the end of the 2003/ 04 fiscal year, unreserved fund balance was $ 6,394,000, up from
$ 6,151,000 in the prior year, largely due to salary savings and unprogrammed interest
income. In addition, every effort is made to ensure that services offered are those the
community wants. This fund balance will be used to develop or maintain recreation
facilities and preserve the continuity of recreation services during the remainder of the
economic downturn. In addition, part of the fund balance is planned for a water play
facility that will replace the Swim Lagoon in Central Park.
Capital Maintenance – This fund is used to maintain and operate the capital assets of
the City. Primary functions include maintenance of City streets, parks, public
buildings, vehicles, medians and trees. Its resources consist of transfers from the
General Fund, as well as Integrated Waste Management and Gas Tax funds At
June 30, 2004, this fund had a total fund balance of $ 2,217,000, of which $ 1,970,000 was
unreserved, but designated for future capital maintenance needs.
Other Governmental Funds – These are nonmajor funds of the City and are presented
in the basic financial statements in the aggregate. At June 30, 2004, these funds had a
total fund balance of $ 58,889,000, of which $ 16,542,000 is reserved for encumbrances
($ 12,342,000) and debt service ($ 4,200,000). The remaining $ 42,347,000 is unreserved.
A significant portion of these funds is designated for capital projects ($ 33,136,000 or
78%). More information about these aggregated nonmajor funds can be found in the
combining statements immediately following the required supplementary
information.
GENERAL FUND BUDGETARY HIGHLIGHTS
A summary of the budgetary comparison schedule for the General Fund, located in
the required supplementary information following the notes to the financial
statements, is as follows:
19
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
SUMMARY OF GENERAL FUND BUDGETARY COMPARISON SCHEDULE
FOR THE YEAR ENDED JUNE 30, 2004
( dollars in thousands)
Original
Budget
Final
Budget
Actual
Variance from
Final Budget
Beginning fund balance,
July 1, 2003
$ 28,617
$ 28,617
$ 34,060
$ 5,443
Resources:
Revenues 96,661 96,668 96,803 142
Transfers in 6,741 6,741 6,725 ( 16)
Total amount available for
appropriation
103,402
103,409
103,528
119
Charges to appropriations:
Expenditures 77,643 77,614 73,787 3,827
Transfers out 29,638 30,079 26,852 3,227
Total charges to appropriations 107,281 107,693 100,639 7,054
Resources over ( under) charges
to appropriations
( ( 3,879)
( 4,284)
2,889
7,173
Ending fund balance,
June 30, 2004
$ 24,738
$ 24,333
$ 36,949
$ 12,616
Differences between the original budget and the final amended budget are due
primarily to the reappropriation of encumbrances outstanding at June 30, 2003.
Between the time the 2003/ 04 budget was adopted and the books for the prior fiscal
year ( 2002/ 03) were closed, the fund balance at June 30, 2003 increased by an
unexpected $ 5,443,000. This was because of unanticipated growth in sales and
property tax revenues in the final quarter of 2002/ 03.
Allocated sales tax is the City’s second largest source of revenue, and it can be volatile
in an uncertain economy. Revenue volatility, while common to cities nationwide, is
exacerbated in the Bay Area, especially in Silicon Valley communities that rely heavily
on high- tech, business- to- business sales, as Fremont does. Our actual allocated sales
tax revenue for 2003/ 04 was $ 26,796,000, which is 4.7% more than budgeted, but
$ 1,406,000 less than actual sales tax collections in 2002/ 03. The continued decline in
sales tax collections is of concern of the City. However, the positive increase from the
budget is an indication that the City’s sales tax may have stopped declining and may
be returning to historic growth patterns.
20
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
Offsetting the higher than expected collections of sales tax is action by the State to
withhold $ 3,544,000 in Vehicle License Fee ( VLF) backfill money for the first three
months of the fiscal year. Although the State has promised to repay these monies in
2006/ 07, the actual revenue received during 2003/ 04 was reduced. In addition, with
the continuing projected deficits in the State budget, the actual receipt of these monies
is uncertain.
Because of the continued uncertainty in the City’s economic situation, City
management took actions early in 2003/ 04 to aggressively manage spending. This
resulted in expenditures and transfers out for 2003/ 04 coming in at 6.2% below
budgeted levels. This allowed the General Fund to end 2003/ 04 with an operating
surplus of $ 2,889,000, rather than the operating deficit of $ 4,284,000 that was
anticipated. This was achieved by restructuring existing debt from fixed rate to
variable rate to realize savings of approximately $ 3.5 million, as well as continued
spending reductions of $ 3.0 million ( in addition to significant budget cuts already
taken prior to the start of 2003/ 04). This improves the City’s ability to deal with the
continuing prospect of a structural imbalance between resources and use of those
resources, and continued uncertainty about the State budget and its implications for
the future.
CAPITAL ASSET AND DEBT ADMINISTRATION
Capital Assets
Following is a summary of the City of Fremont’s capital assets at June 30, 2004 and
2003:
SUMMARY OF CAPITAL ASSETS
JUNE 30, 2004 AND 2003
( dollars in thousands)
2004
2003
Percentage
Change
Land $ 186,423 $ 172,352 8.2%
Land improvements 5,260 5,260 -
Infrastructure – non- depreciable 366,649 366,649 -
Infrastructure – depreciable 317,013 316,271 0.2%
Buildings and improvements 79,674 79,628 0.1%
Equipment 12,040 11,102 8.4%
Vehicles 23,591 24,476 ( 3.6%)
Construction in progress 55,937 42,618 31.3%
1,046,587 1,018,356 2.8%
Less: Accumulated depreciation 352,587 348,801 1.1%
21
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
Governmental activities capital assets, net
$ 694,000
$ 669,555
3.7%
The City’s investment in capital assets for its governmental activities as of
June 30, 2004, amounts to $ 694,000,000 ( net of accumulated depreciation), compared to
$ 669,555,000 in the prior year. This investment in capital assets includes land and land
improvements, buildings, equipment, vehicles, streets, curbs and gutters, and
construction in progress.
In 2003/ 04, the City added $ 29,743,000 in new capital assets, and disposed of
$ 1,512,000 in capital assets ( all vehicles). The major additions consisted of the
acquisition of land ($ 14 million), primarily for the Washington Boulevard grade
separation project ($ 11 million), and ongoing construction costs on the City’s new
Maintenance Center ($ 7 million) and the solid waste transfer station ($ 2 million).
The City has adopted the modified approach for its roads and streets, which means
that these capital assets are not required to be depreciated if certain conditions ( as
described in Item 2 of the Required Supplementary Information following the notes to
the financial statements) are met. The City’s policy is to achieve an average Pavement
Condition Index ( PCI) rating of 70 for all its roads and streets. This rating allows
minor cracking and raveling of the pavement along with minor roughness that could
be noticeable to drivers traveling at the posted speeds. At June 30, 2004, the City’s
roads and streets system was rated at an average PCI index of 74, down from the
average PCI index of 79 in the prior year.
The maintenance estimate for 2003/ 04 to maintain an average PCI rating of 74 was
$ 5,500,000. Actual expenditures for that period were $ 2,393,000. The difference
between the estimate and actual expenditures is attributable to the fact that
maintenance estimates are projected over a number of years and then divided by that
number of years to calculate an average. In reality, the actual expenditure of money
varies from year to year, depending on the nature of the work to be done and the size
and number of contracts awarded for that work.
Additional information about the City’s capital assets can be found in Note 1. G and
Note 4, following the basic financial statements.
Long- term Debt
At the end of 2003/ 04, the City had $ 214,105,000 in bonds and notes outstanding. Of
this amount, $ 62,505,000 are tax increment notes issued by the Redevelopment
22
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
Agency, $ 141,600,000 are certificates of participation and $ 10,000,000 are general
obligation bonds. Following is a schedule of outstanding debt:
SUMMARY OF LONG- TERM DEBT
JUNE 30, 2004
( dollars in thousands)
Balance
July 1, 2003
Incurred
or Issued
Satisfied or
Matured
Balance
June 30, 2004
Redevelopment Agency Tax
Allocation Bonds:
Series 2000 $ 44,645 $ - $ 41,610 $ 3,035
Series 2003 18,045 - - 18,045
Series 2004 - 41,425 - 41,425
General Obligation Bonds
Fire Safety Bonds 2003 - 10,000 - 10,000
Certificates of Participation ( COPs):
1990 Public Financing Authority 5,500 - 300 5,200
1991 Public Financing Authority 4,100 - 100 4,000
1997 Public Financing Authority 7,600 - 7,600 -
1998 Public Financing Authority 11,790 - 220 11,570
1998 Public Financing Authority 14,330 - 14,330 -
1998 Public Financing Authority 18,605 - 495 18,110
2001 Public Financing Authority 34,860 - 640 34,220
2001B Public Financing Authority 10,055 - 305 9,750
2002 Public Financing Authority 36,820 - - 36,820
2003 Public Financing Authority - 21,930 - 21,930
Total
$ 206,350
$ 73,355
$ 65,600
$ 214,105
New debt was issued during the year, as follows:
• The Redevelopment Agency issued tax allocation bonds for $ 41,425,000 to finance
and refinance certain redevelopment activities, including refunding a portion of
the tax allocation bonds issued in 2000.
• General obligation bonds were issued for $ 10,000,000, the first such issuance
resulting from the $ 51,000,000 Fire Safety Bond Measure ( Measure R) approved by
the voters in November 2002.
• Variable rate certificates of participation for $ 21,930,000 were issued to refinance
and restructure two of the City’s outstanding fixed rate COPs. This resulted in
debt service savings to the City of $ 3.5 million.
23
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
Forty- two percent of the outstanding debt is in fixed rate instruments ( compared to
50% in the prior year), with an average interest rate of approximately 3.36%
( compared to 4.57% in the prior year). The remaining 58% of the outstanding debt is
in variable rate notes with an average interest rate of 1.07% as of June 30, 2004
( compared to 1.44% in the prior year). The average interest rate on all outstanding
City debt is 2.53% at June 30, 2004 ( compared to 2.75% for the prior year).
The City Council adopted a debt policy in February 1996 that limits debt obligations of
the General Fund to 7% of budgeted expenditures and transfers out. As of
July 1, 2004, debt obligations were approximately 3.8% of budgeted expenditures and
transfers out, which is well within the policy limit.
As of June 30, 2004, the three largest outstanding debt obligations were:
• $ 41,425,000 in Redevelopment Agency tax allocation bonds. These bonds were
issued in 2003/ 04, as described above, and the proceeds refunded a
signification portion of the tax allocation bonds issued in 2000. The primary
purpose of the 2000 tax allocation bonds was to refinance the freeway
interchanges on Interstate 880 at Dixon Landing Road and Mission
Boulevard/ Warren Avenue, and a grade separation at Washington Boulevard.
The purpose of the Washington Boulevard grade separation is to improve
safety, relieve traffic congestion, and accommodate a Bay Area Rapid Transit
( BART) extension to Warm Springs and eventually to San Jose.
• $ 34,220,000 in capital COPs issued in 2001 to finance the following:
• A police detention and property evidence storage facility
• HVAC improvements to the existing police building
• Retiring notes used to purchase land for a potential city hall site
• Acquisition of and improvements to new city offices at 3300 Capitol Avenue
• Acquisition of a site to be used for future construction of the City’s Fire
Station 11 in the southern Industrial Area. Construction was to be funded
with a separate COP issue, but has been deferred due to the City’s current
budget challenges and related reductions in operating expenditures.
• $ 36,820,000 in capital COPs issued in 2002 to finance construction of the new
Maintenance Center, to refinance the 1997 COPs issued to acquire the land for
the new Maintenance Center, pay for seismic retrofit costs at the Development
Services Center, and to fund certain development costs of the proposed
Northgate Senior and Community Center ( which has also been deferred due to
24
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
the City’s current budget challenges and related reductions in operating
expenditures).
All of the issues summarized above are backed by either a stand- by letter of credit or
bond insurance. All of the debt issues backed by a letter of credit have an A+ rating
from Standard & Poor’s. All of the debt issues backed by bond insurance are rated
AAA by Standard & Poor’s.
In November 2002, Fremont voters approved Measure R by 74.4%, thereby
authorizing the City to issue $ 51 million in general obligation bonds, to be repaid by a
property tax levy. Proceeds from these bonds will be used to replace three fire
stations, build a public safety training center, and make remodeling and seismic
improvements to seven existing fire stations. The first issue of these bonds, in the
amount of $ 10 million, was sold in July 2003. These general obligation bonds were
rated AA- by Standard & Poor’s.
Additional information about the City’s long- term debt can be found in Note 5,
following the basic financial statements.
ECONOMIC FACTORS AND NEXT YEAR’S BUDGET
Fremont’s economy is part of the Silicon Valley. Between the end of calendar year
2000 and calendar year 2002, the City saw its sales tax drop by 21%. Neighboring
Santa Clara County and its cities saw a drop of 27%. This contrasts with Southern
California’s Inland Empire, where Riverside County saw an increase of 14% in sales
tax in the same period. This severe downturn in Silicon Valley resulted in the loss of
200,000 jobs. The Silicon Valley Manufacturers’ Group, in its annual forecast for 2004,
has predicted that employment will not return to 2000 levels until 2010. Although the
decline in Fremont’s sales tax continued through 2003/ 04, information received at the
end of 2003/ 04 indicates that the local economy may have stopped its decline and
stronger economic performance may be possible in 2004/ 05.
Locally, the City faces two major challenges. First, the economic downturn continues
to have a heavy impact on business- related revenues. The City’s dependence on non-retail
sales tax and other business- related revenues grew over the past several years,
leaving the City’s budget vulnerable to a business- led economic downturn like the
dot- com collapse. This hurts the City’s ability to provide basic services. Particularly
troubling is the fact that the City and other local governments in the region now face
increased demand for emergency preparedness and support of homeland defense
measures. Although the City received some positive economic news at the end of
25
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
2003/ 04, management remains cautious about the reports of economic recovery and
anticipates any recovery to be moderate.
The second challenge is related to the State’s severe budget problems. Seventy- eight
percent of the City’s general revenue and 74% of its General Fund revenue are
comprised of property, sales and vehicle tax allocations controlled by the State
Legislature. Fremont’s financial future is directly linked to the fiscal health of the State
government.
The State borrowed billions of dollars to defer the impact of over half of its budget
deficit in 2003/ 04. The State has also reduced the City’s local sales tax rate from 0.95%
to 0.50% in 2004/ 05. It will shift the local sales tax revenue to a fund established to
repay bonds the State issued to cover nearly $ 11 billion of its deficit. The Legislature
indicated that it would mitigate the revenue loss by using property tax revenues taken
from cities in 1992 and 1993. These funds are now used to provide funding to
education, which, in turn, reduces the State General Fund’s share of the
constitutionally mandated obligation for education funding. If the State cannot afford
to replace the funds used for education, there is a risk that the mitigation payments to
the City could be reduced.
Meanwhile, the City continues to lose more than $ 9.0 million annually from State
takeaways implemented during the fiscal crisis ten years ago. Until the threat of State
diversion of funds diminishes, the City will avoid implementing any new or expanded
services that commit ongoing resources.
Fremont is fortunate to have a diverse business community and a strong real estate
market. The 2004/ 05 budget assumptions acknowledge the uncertainty in the
economy and the State budget, and the budget includes contingency reserves to help
us deal with the risk.
In response to the unprecedented uncertainty that the City faces, the City’s focus will
be on preserving basic services and sustaining maintenance of infrastructure and
public facilities. The prudent budgeting and reserve policies developed since the last
recession have enabled the City to manage through this economic downturn.
However, despite seeing the first signs of economic recovery in three years at the end
of 2003/ 04, the City faces resource shortfalls in future budgets. Aggressive cost
cutting, economic development, and fee increases have helped with the resource
problem, but new resources will be needed to continue current service levels and
restore essential public safety and maintenance services. Prudent use of fund balance
will cushion the impact of reduced revenues and mitigate the effects on departmental
budgets and services.
26
City of Fremont, California
Management’s Discussion and Analysis
For the Fiscal Year Ended June 30, 2004
REQUESTS FOR INFORMATION
This financial report is designed to provide a general overview of the City of
Fremont’s finances for all those with an interest in the City’s finances. Questions
concerning any of the information provided in this report or requests for additional
financial information should be addressed to the City’s Finance Director, Harriet V.
Commons, at 3300 Capital Avenue, P. O. Box 5006, Fremont, California 94537- 5006.
27
BASIC FINANCIAL STATEMENTS
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GOVERNMENT- WIDE FINANCIAL STATEMENTS
33
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34
City of Fremont
Statement of Net Assets
June 30, 2004
( With comparative totals for June 30, 2003)
2004 2003
ASSETS
Current assets:
Cash and investments held by City $ 2 77,500,606 $ 2 30,282,383
Restricted cash and investments held by fiscal agent 26,516,741 6 5,534,770
Receivables:
Allocated property tax 1,212,611 980,640
Allocated sales tax 5,711,966 4,450,871
Due from other governmental agencies 6,185,894 8,404,553
Accrued interest 6,669,112 5,941,379
Other 2,825,582 2,701,518
Total receivables 22,605,165 2 2,478,961
Total current assets 3 26,622,512 3 18,296,114
Noncurrent assets:
Housing rehabilitation loans receivable, net 1,147,254 1,462,678
Condemnation deposits 7,438,965 2,988,300
Deferred charges 1,446,488 -
Land for Sale 2,821,430 2,821,430
Capital assets:
Nondepreciable assets 6 11,448,949 5 84,057,972
Depreciable assets, net 79,729,734 8 2,675,848
Total capital assets, net 6 91,178,683 6 66,733,820
Total noncurrent assets 7 04,032,820 6 74,006,228
Total assets 1 ,030,655,332 9 92,302,342
LIABILITIES
Current liabilities:
Accounts payable 7,370,052 4,807,785
Tax and revenue anticipation notes payable 15,261,771 -
Salaries and wages payable 4,621,225 4,000,333
Compensated absences 1,054,799 989,243
Claims payable 2,851,483 3,508,908
Due to other governmental agencies 7,604,438 7,637,561
Interest payable 1,877,920 1,214,829
Deferred revenue 7,582,708 6,378,706
Loans payable and other liabilities 1,500,000 1,500,054
Long- term debt - due within one year 6,730,000 6,455,000
Total current liabilities 56,454,396 3 6,492,419
Noncurrent liabilities:
Deferred revenue 6,113,748 4,721,311
Compensated absences 7,254,835 7,793,530
Claims payable 5,394,517 2,227,656
Long- term debt - due in more than one year 2 07,737,223 1 99,895,000
Total noncurrent liabilities 2 26,500,323 2 14,637,497
Total liabilities 2 82,954,719 2 51,129,916
NET ASSETS
Invested in capital assets, net of related debt 4 76,711,460 4 63,205,250
Restricted for:
Capital projects and capital asset maintenance 1 23,420,225 1 30,195,465
Debt service 47,879,351 4 8,780,528
Community development 38,776,970 3 9,173,317
Specific projects and programs 13,202,602 1 5,057,672
Total restricted 2 23,279,148 2 33,206,982
Unrestricted 47,710,005 4 4,760,194
Total net assets $ 7 47,700,613 $ 7 41,172,426
See accompanying Notes to Basic Financial Statements.
Governmental Activities
35
City of Fremont
Statement of Activities and Changes in Net Assets
For the year ended June 30, 2004
( With comparative totals for the year ended June 30, 2003)
Operating Capital
Charges for Grants and Grants and
Functions/ Programs Expenses Services Contributions Contributions Total 2004 2003
Primary government:
Governmental activities:
General government $ 1 0,497,335 $ 4 97,857 $ - $ - $ 4 97,857 $ ( 9,999,478) $ ( 11,878,735)
Police services 4 0,613,307 4 ,565,692 1 ,110,645 - 5 ,676,337 ( 34,936,970) ( 33,233,587)
Fire services 2 3,593,554 2 ,451,767 4 08,155 - 2 ,859,922 ( 20,733,632) ( 21,655,168)
Human services 5 ,532,651 1 ,316,513 1 ,911,850 - 3 ,228,363 ( 2,304,288) ( 2,713,508)
Capital assets maintenance and operations 3 5,292,159 1 ,573,602 1 4,468,401 7 41,323 1 6,783,326 ( 18,508,833) ( 19,404,706)
Recreation and leisure services 5 ,305,249 3 ,491,286 - - 3 ,491,286 ( 1,813,963) ( 2,075,194)
Community development and
environmental services 3 0,151,929 1 0,871,809 2 ,616,110 - 1 3,487,919 ( 16,664,010) ( 18,670,596)
Intergovernmental 8 ,940,670 - - - - ( 8,940,670) ( 6,371,857)
Interest on debt 7 ,754,841 - - - - ( 7,754,841) ( 7,457,832)
Total $ 167,681,695 $ 2 4,768,526 $ 2 0,515,161 $ 7 41,323 $ 4 6,025,010 $ ( 121,656,685) $ ( 123,461,183)
General revenues:
Intergovernmental:
Allocated property tax 63,385,957 60,328,147
Allocated sales tax 26,796,489 28,202,974
Motor vehicle in lieu 3,813,050 4,009,909
Revenue loss mitigation 5,728,458 8,004,274
Other 470,113 718,717
Total intergovernmental 1 00,194,067 101,264,021
Business taxes 5,323,827 5,599,379
Other taxes 3,380,411 2,895,600
Development impact fees 6,987,670 2,687,489
Franchises 7,003,922 6,872,912
Investment earnings 3,438,906 10,184,761
Miscellaneous 1,856,069 791,756
Total general revenues 128,184,872 130,295,918
Change in net assets 6,528,187 6,834,735
Net assets - beginning of year 741,172,426 734,337,691
Net assets - end of year $ 7 47,700,613 $ 7 41,172,426
Net ( Expense) Revenue and
Governmental
Program Revenues
See accompanying Notes to Basic Financial Statements.
Changes in Net Assets
Activities
36- 37
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38
GOVERNMENTAL FUNDS FINANCIAL STATEMENTS
39
City of Fremont
Balance Sheet
Governmental Funds
June 30, 2004
( With comparative totals for June 30, 2003)
Other
General Redevelopment Development Integrated Waste Development Cost Recreation Capital Governmental
Fund Agency Impact Fees State Gas Tax Management Center Services Maintenance Funds 2004 2003
Cash and investments held by City $ 48,992,532 $ 105,750,713 $ 43,933,887 $ 7,156,673 $ 7,013,342 $ 5,539,141 $ 7,134,611 $ 3,642,432 $ 44,552,000 $ 273,715,331 $ 225,669,734
Restricted cash and investments held by fiscal agent - 12,509,102 - - - - 7,331 - 14,000,308 26,516,741 65,534,770
Receivables:
Allocated property tax 808,672 403,939 - - - - - - - 1,212,611 980,640
Allocated sales tax 5,711,966 - - - - - - - - 5,711,966 4,450,871
Due from other governmental agencies 1,571,284 - - 355,547 - - - - 4,259,063 6,185,894 8,404,553
Housing loans receivable, net - - - - - - - - 1,147,254 1,147,254 1,462,678
Accrued interest 1,426,486 4,788,848 - - - - - - 453,778 6,669,112 5,941,379
Other 1,470,241 46,934 176,376 9,557 445,752 309,221 18,514 54,213 109,259 2,640,067 2,471,415
Condemnation deposits - 2,988,300 - - - - - - - 2,988,300 2,988,300
Due from other funds 2,987,150 - - - - - - - - 2,987,150 7,848,865
Total assets $ 62,968,331 $ 126,487,836 $ 44,110,263 $ 7,521,777 $ 7,459,094 $ 5,848,362 $ 7,160,456 $ 3,696,645 $ 64,521,662 $ 329,774,426 $ 325,753,205
Liabilities:
Accounts payable $ 1,180,144 $ 2,428,360 $ 834,849 $ 257,841 $ 18,307 $ 75,311 $ 37,224 $ 1,105,302 $ 1,199,546 $ 7,136,884 $ 4,616,305
Tax and revenue anticipation notes payable 15,261,771 - - - - - - - - 15,261,771 -
Salaries and wages payable 3,621,278 40,131 - - 19,892 363,498 114,412 306,594 48,479 4,514,284 3,887,890
Compensated absences 811,364 1,888 - - 3,168 103,787 36,644 68,061 20,984 1,045,896 979,405
Due to other funds - - - - - - - - 2,987,150 2,987,150 7,848,865
Due to other governmental agencies - 7,604,438 - - - - - - - 7,604,438 7,637,561
Loans payable and other liabilities - 1,500,000 - - - - - - - 1,500,000 1,500,000
Deferred revenue 5,144,881 4,837,472 - - - 1,759,411 577,803 - 1,376,887 13,696,454 11,100,017
Other accrued liabilities - - - - - - - - - - -
Total liabilities 26,019,438 16,412,289 834,849 257,841 41,367 2,302,007 766,083 1,479,957 5,633,046 53,746,877 37,570,043
Fund Balances:
Reserved for:
Encumbrances 563,369 17,053,333 3,795,866 535,768 102,162 124,252 - 246,860 12,341,743 34,763,353 20,863,626
Debt service - 45,557,642 - - - - - - 4,199,628 49,757,270 44,310,357
Unreserved, reported in:
General fund 36,385,524 - - - - - - - - 36,385,524 33,608,581
Special revenue funds - 36,387,831 - 6,728,168 7,315,565 3,422,103 6,394,373 - 9,211,108 69,459,148 72,648,982
Capital projects funds - 11,076,741 39,479,548 - - - - 1,969,828 33,136,137 85,662,254 116,751,616
Total fund balances 36,948,893 110,075,547 43,275,414 7,263,936 7,417,727 3,546,355 6,394,373 2,216,688 58,888,616 276,027,549 288,183,162
Total liabilities and fund balances $ 62,968,331 $ 126,487,836 $ 44,110,263 $ 7,521,777 $ 7,459,094 $ 5,848,362 $ 7,160,456 $ 3,696,645 $ 64,521,662 $ 329,774,426 $ 325,753,205
See accompanying Notes to Basic Financial Statements.
Governmental Funds
Total
ASSETS
LIABILITIES AND FUND BALANCES
Major Funds Major Funds
40- 41
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42
City of Fremont
Reconciliation of the Governmental Funds Balance Sheet
to the Government- Wide Statement of Net Assets
June 30, 2004
( With comparative totals for June 30, 2003)
2004 2003
Total Fund Balances - Total Governmental Funds $ 276,027,549 $ 288,183,162
Amounts reported for Governmental Activities in the Statement of Net Assets are different
because:
Capital assets used in governmental activities are not current financial resources and
therefore are not reported in the Governmental Funds Balance Sheet. 686,655,437 662,511,830
Interest payable on long- term debt does not require current financial resources. Therefore,
interest payable is not reported as a liability in the Governmental Funds Balance Sheet. ( 1,877,920) ( 1,214,829)
Deferred charges on bonds not recorded in the governmental funds, which were
previously recorded as expenditures and amortized over the terms of the bonds. 1,446,488 -
Condemnation deposit incurred during FY2003/ 04 reported as Noncurrent assets, while
reported as capital outlay in Governmental Funds Statements of Revenues, Expenditures,
and Changes in Fund Balances. 4,450,665 -
Internal service funds are used to charge the costs of insurance and information
technology to individual funds. The assets and liabilities of the internal service funds are
included in governmental activities in the Government- Wide Statement of Net Assets. 2,720,452 5,835,793
Accruals for compensated absences are long term liabilities and are not due and payable in
the current period and therefore they are not reported in the Governmental Funds Balance
Sheet. ( 7,254,835) ( 7,793,530)
Long- term debts are not due and payable in the current period and therefore they are not
reported in the Governmental Funds Balance Sheet. ( 214,467,223) ( 206,350,000)
Net Assets of Governmental Activities $ 747,700,613 $ 741,172,426
See accompanying Notes to Basic Financial Statements.
43
City of Fremont
Statement of Revenues, Expenditures and Changes in Fund Balances
Governmental Funds
For the year ended June 30, 2004
( With comparative totals for the year ended June 30, 2003)
Other
General Redevelopment Development Integrated Waste Development Cost Recreation Capital Governmental
Fund Agency Impact Fees State Gas Tax Management Center Services Maintenance Funds 2004 2003
REVENUES:
Intergovernmental:
Property tax $ 35,264,364 $ 2 7,440,400 $ - $ - $ - $ - $ - $ - $ 681,193 $ 63,385,957 $ 60,328,147
Sales tax 26,796,489 - - - - - - - - 26,796,489 28,202,974
Motor vehicle in lieu 3,813,050 - - - - - - - - 3,813,050 4,009,909
Revenue loss mitigation 5,728,458 - - - - - - - - 5,728,458 8,004,274
Other 733,763 - - 3,883,935 429,113 - - - 15,938,462 20,985,273 19,716,307
Business tax 5,323,827 - - - - - - - - 5,323,827 5,599,379
Other taxes 3,380,411 - - - - - - - - 3,380,411 2,895,600
Impact fees - - 6,987,670 - - - - - - 6,987,670 2,687,489
Franchises 7,003,922 - - - - - - - - 7,003,922 6,872,912
Charges for services 7,745,830 - - - 3,666,736 7 ,205,073 3,491,286 1 75,708 2,483,893 24,768,526 21,320,438
Investment earnings 480,918 1 ,333,602 462,782 80,008 - 4 4,033 71,249 - 930,718 3,403,310 10,045,155
Other 532,048 1 26,404 4,915 - - - 41,720 - 1,073,920 1,779,007 730,203
Total revenues 96,803,080 2 8,900,406 7,455,367 3,963,943 4,095,849 7 ,249,106 3,604,255 1 75,708 21,108,186 173,355,900 170,412,787
EXPENDITURES:
Current:
General government 10,270,078 - - - - - - - - 10,270,078 12,019,481
Police services 37,191,762 - - - - - - - 744,182 37,935,944 37,011,189
Fire services 22,586,818 - - - - - - - 464,122 23,050,940 22,298,745
Human services 2,423,626 - - - - - - - 3,056,994 5,480,620 5,685,116
Capital assets maintenance and operations - - 4,330,659 3,965,684 - - - 1 7,509,425 6,032,652 31,838,420 34,452,491
Recreation and leisure services - - - - - - 5,201,139 - - 5,201,139 5,324,337
Community development and environmental services 585,920 1 6,995,731 - - 1,225,030 7 ,683,602 - - 3,328,581 29,818,864 29,300,150
Intergovernmental - 8 ,940,670 - - - - - - - 8,940,670 6,371,857
Capital outlay 59,801 1 1,183,215 746,610 17,409 2,874,028 4 ,241 5,996 - 18,079,968 32,971,268 29,113,450
Debt service:
Principal - 2 ,915,000 - - - - - - 3,540,000 6,455,000 5,385,000
Interest and fiscal charges 668,517 3 ,198,011 - - - - - - 4,309,487 8,176,015 7,541,598
Total expenditures 73,786,522 4 3,232,627 5,077,269 3,983,093 4,099,058 7 ,687,843 5,207,135 1 7,509,425 39,555,986 200,138,958 194,503,414
REVENUES OVER ( UNDER) EXPENDITURES 23,016,558 ( 14,332,221) 2,378,098 ( 19,150) ( 3,209) ( 438,737) ( 1,602,880) ( 17,333,717) ( 18,447,800) ( 26,783,058) ( 24,090,627)
OTHER FINANCING SOURCES ( USES):
Debt proceeds - 4 1,425,000 - - - - - - 31,930,000 73,355,000 54,865,000
Transfers in 6,724,878 2 1,649 - - 744 2 ,330,637 2,472,951 2 0,959,222 6,891,656 39,401,737 103,043,213
Transfers out ( 26,852,320) ( 293,780) ( 2,109,054) ( 1,250,000) ( 2,112,996) ( 1,600,032) ( 626,961) ( 2,740,822) ( 1,398,327) ( 38,984,292) ( 102,510,598)
Payment to escrow agent - ( 38,695,000) - - - - - - ( 20,450,000) ( 59,145,000) ( 5,685,000)
Total other financing sources ( uses) ( 20,127,442) 2 ,457,869 ( 2,109,054) ( 1,250,000) ( 2,112,252) 7 30,605 1,845,990 1 8,218,400 16,973,329 14,627,445 49,712,615
Net change in fund balances 2,889,116 ( 11,874,352) 269,044 ( 1,269,150) ( 2,115,461) 2 91,868 243,110 8 84,683 ( 1,474,471) ( 12,155,613) 25,621,988
FUND BALANCES:
Beginning of year 34,059,777 1 21,949,899 43,006,370 8,533,086 9,533,188 3 ,254,487 6,151,263 1 ,332,005 60,363,087 288,183,162 262,561,174
- - - - - -
End of year $ 36,948,893 $ 1 10,075,547 $ 43,275,414 $ 7,263,936 $ 7,417,727 $ 3 ,546,355 $ 6,394,373 $ 2 ,216,688 $ 58,888,616 $ 276,027,549 $ 288,183,162
See accompanying Notes to Basic Financial Statements.
Major Funds Major Funds
Total
Governmental Funds
44- 45
City of Fremont
Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in
Fund Balances to the Government- Wide Statement of Activities and Changes in Net Assets
For the year ended June 30, 2004
( With comparative totals for the year ended June 30, 2003)
2004 2003
Net Change in Fund Balances - Total Governmental Funds $ ( 12,155,613) $ 2 5,621,988
Amounts reported for governmental activities in the Statement of Activities are different
because:
Governmental funds report capital outlays as expenditures. However, in the Government-
Wide Statement of Activities and Changes in Net Assets, the cost of those assets is
allocated over their estimated useful lives as depreciation expense. This is the amount of
capital assets additions recorded in the current period. 2 8,520,603 2 9,113,450
Condemnation deposit incurred during FY2003/ 04 reported as Noncurrent assets, while
reported as capital outlay in Governmental Funds Statements of Revenues, Expenditures,
and Changes in Fund Balances. 4 ,450,665 -
Contributions of infrastructure assets from developers not reported as revenue in
governmental funds. 7 41,323 1 ,272,083
Depreciation expense on capital assets is reported in the Government- Wide Statement of
Activities and Changes in Net Assets, but it does not require the use of current financial
resources. Therefore, depreciation is not reported as an expenditure in governmental
funds. ( 4,879,889) ( 9,655,403)
Losses on the disposal of capital assets is reported in the Government- Wide Statement of
Activities and Changes in Net Assets, but do not require the use of current financial
resources. Therefore, it is not reported as an expenditure in governmental funds. ( 238,430) ( 104,889)
Bond proceeds provide current financial resources to governmental funds, but issuing
debt increases long- term liabilities in the Government- Wide Statement of Net Assets.
Repayment of bond principal is an expenditure in governmental funds, but the repayment
reduces long- term liabilities in the Government- Wide Statement of Net Assets.
Bond proceeds ( 73,355,000) ( 54,865,000)
Long- term debt repayments 6 5,600,000 1 1,070,000
Interest expense accrued on long- term debt is reported in the Government- Wide Statement
of Activities and Changes in Net Assets, but it does not require the use of current financial
resources. Therefore, interest expense is not reported as an expenditure in governmental
funds. ( 663,091) 8 3,766
Unamortized long term discount/ premium is accrued in Government- Wide Statement of
Activities and Changes in Net Assets, but it does not require the use of current financial
resources. Therefore, unamortized long term discount/ premium is not reported as an
expenditure in governmental funds. ( 362,223) -
Prepaid bond issuance cost is deferred in Government- Wide Statement of Activities and
Changes in Net Assets, but it does require the use of current financial resources. Therefore,
bond issuance cost is reported as an expenditure in governmental funds. 1 ,446,488 -
Internal service funds are used to charge the costs of insurance and information
technology, to individual funds. The net revenue of the internal service funds is reported
with governmental activities. ( 3,115,341) 4 ,246,402
Changes in long term compensated absences in governmental activities are not reported in
governmental funds 5 38,695 5 2,338
Change in Net Assets of Governmental Activities $ 6 ,528,187 $ 6 ,834,735
46
PROPRIETARY FUND FINANCIAL STATEMENTS
47
City of Fremont
Statement of Net Assets
Proprietary Fund
June 30, 2004
( With comparative totals for June 30, 2003)
2004 2003
Cash and investments held by City $ 3,785,275 $ 4,612,649
Receivables:
Other 185,515 230,103
Depreciable asset 8,334,620 7,853,901
Less accumulated depreciation ( 3,811,374) ( 3,631,911)
Land held for resale 2,821,430 2,821,430
Total assets 11,315,466 11,886,172
Accounts payable 233,168 191,480
Salaries and wages payable 106,941 112,443
Compensated absences 8,903 9,838
Claims payable 8,246,000 5,736,564
Other accrued liabilities 2 54
Total liabilities 8,595,014 6,050,379
Invested in capital assets 4,523,246 4,221,990
Unrestricted ( 1,802,794) 1,613,803
Total net assets $ 2,720,452 $ 5,835,793
See accompanying Notes to Basic Financial Statements.
Internal Service
ASSETS
LIABILITIES
NET ASSETS
48
City of Fremont
Statement of Revenues, Expenses and Changes in Net Assets
Proprietary Fund
For the year ended June 30, 2004
( With comparative totals for the year ended June 30, 2003)
2004 2003
OPERATING REVENUES:
Charges for services $ 7,926,288 $ 8,239,434
Other 77,062 61,553
Total operating revenues 8,003,350 8,300,987
OPERATING EXPENSES:
Salaries and wages 2,376,717 2,410,770
Insurance premiums 709,484 724,676
Provision for claim losses 6,474,337 2,893,127
Claims administration 262,678 302,129
Materials and supplies 688,345 1,414,550
Depreciation 179,463 341,869
Other 45,816 44,033
Total operating expenses 10,736,840 8,131,154
OPERATING INCOME ( LOSS) ( 2,733,490) 169,833
NONOPERATING REVENUES ( EXPENSES):
Investment income 35,595 139,606
Total nonoperating revenues ( expenses) 35,595 139,606
Contributed capital assets - 4,469,578
Transfers in 34,221 34,627
Transfers out ( 451,667) ( 567,242)
INCREASE ( DECREASE) IN NET ASSETS ( 3,115,341) 4,246,402
NET ASSETS:
Beginning of year 5,835,793 1,589,391
End of year $ 2,720,452 $ 5,835,793
See accompanying Notes to Basic Financial Statements.
Internal Service
49
City of Fremont
Statement of Cash Flows
Proprietary Fund
For the year ended June 30, 2004
( With comparative totals for the year ended June 30, 2003)
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from users $ 7 ,970,876 $ 8,265,402
Other revenue 8 8,241 61,553
Less: Payments to suppliers ( 1,624,988) ( 2,449,426)
Payments to employees for services ( 2,394,333) ( 2,446,351)
Payments for claims paid ( 3,964,901) ( 3,619,030)
Payments to equipment ( 480,719) -
Payments to others ( 39,699) ( 40,755)
Net cash provided ( used) by operating activities ( 445,523) ( 228,607)
CASH FLOWS FROM INVESTING ACTIVITIES:
Interest on cash and investments 3 5,595 139,606
Net cash provided by investing activities 3 5,595 139,606
CASH FLOWS FROM NONCAPITAL ACTIVITIES:
Transfers in 3 4,221 34,627
Transfers out ( 451,667) ( 567,242)
Net cash provided ( used) by noncapital activities ( 417,446) ( 532,615)
Net increase ( decrease) in cash and cash investments ( 827,374) ( 621,616)
CASH AND INVESTMENTS:
Beginning of year 4 ,612,649 5,234,265
End of year $ 3 ,785,275 $ 4,612,649
RECONCILIATION OF OPERATING INCOME TO NET
CASH PROVIDED ( USED) BY OPERATING ACTIVITIES:
Operating income ( loss) $ ( 2,733,490) $ 169,833
Adjustments to reconcile operating income to net
cash provided ( used) by operating activities:
Depreciation 1 79,463 341,869
Changes in assets and liabilities:
Accounts receivable 4 4,588 25,968
Accounts payable 4 1,688 ( 2,761)
Salaries and wages payable ( 5,502) ( 37,897)
Compensated absences ( 935) 2,316
Claims payable 2 ,509,436 ( 725,903)
Machinery & Equipment ( 480,719) ( 2,032)
Other accrued activities ( 52) -
Net cash provided ( used) by operating activities $ ( 445,523) $ ( 228,607)
See accompanying Notes to Basic Financial Statements.
Internal Service
50
FIDUCIARY FUND FINANCIAL STATEMENTS
51
City of Fremont
Statement of Fiduciary Net Assets
Fiduciary Funds
June 30, 2004
( With comparative totals for June 30, 2003)
2004 2003
All Agency Funds
Assets:
Cash and investments held by City $ 14,512,783 $ 15,084,235
Restricted cash and investments
held by fiscal agent 25,482,346 25,055,681
Accounts receivable - 15,508
Other receivables 89,105 41,266
Total assets 40,084,234 40,196,690
Liabilities:
Accounts payable $ 35,604 $ 8,752
Deposits 40,048,630 40,187,938
Total liabilities $ 40,084,234 $ 40,196,690
See accompanying Notes to Basic Financial Statements.
Total
52
City of Fremont
Index to Notes to Basic Financial Statements
For the year ended June 30, 2004
Page
Note 1 - Summary of Significant Accounting Policies............................................................................... 55
A. Financial Reporting Entity ................................................................................................................... 56
B. Basis of Accounting and Measurement Focus................................................................................... 57
C. Cash and Investments.................................................................................................................... ...... 61
D. Restricted Cash and Investments........................................................................................................ 61
E. Interfund Transactions ......................................................................................................................... 61
F. Capital Assets......................................................................................................................... ............... 62
G. Claims Payable........................................................................................................................ .............. 62
H. Compensated Absences....................................................................................................................... 63
I. Long- Term Obligations ........................................................................................................................ 63
J. Net Assets and Fund Balances ............................................................................................................ 63
K. Fund Equity ............................................................................................................................... ........... 64
L. Use of Restricted/ Unrestricted Net Assets........................................................................................ 66
M. Allocated Property Tax......................................................................................................................... 66
N. Use of Estimates...................................................................................................................... .............. 67
Note 2 - Cash and Investments ....................................................................................................................... 67
A. Authorized Investments.................................................................................................................... .. 67
B. Deposits ............................................................................................................................... .................. 68
C. Risks ............................................................................................................................... ........................ 69
D. External Investment Pool ..................................................................................................................... 71
Note 3 – Receivables ............................................................................................................................... ......... 71
A. Housing Loans Receivable ................................................................................................................... 71
B. Interest Receivable..................................................................................................................... ........... 72
Note 4 – Capital Assets ............................................................................................................................... ..... 73
Note 5 - Long- Term Debt ............................................................................................................................... . 75
A. Variable Rate Demand Certificate of Participation .......................................................................... 76
B. Redevelopment Agency Tax Allocation Bonds................................................................................. 76
C. General Obligation Bonds, Election of 2002 ...................................................................................... 76
D. Special Assessment Debt ...................................................................................................................... 78
E. Community Facilities District Special Tax Bonds............................................................................. 78
F. Residential Mortgage Loan Program.................................................................................................. 78
G. Defeased Debt........................................................................................................................... ............ 78
H. Compensated Absences....................................................................................................................... 78
Note 6 – Risk Management..................................................................................................................... ........ 79
A. Participation in Public Entity Risk Pools............................................................................................ 79
53
City of Fremont
Index to Notes to Basic Financial Statements, Continued
For the year ended June 30, 2004
Page
Note 7 – Interfund Transactions .................................................................................................................... 81
A. Interfund Receivables and Payables................................................................................................... 81
B. Interfund Transfers ............................................................................................................................... 82
Note 8 – Retirement Benefits....................................................................................................................... .. 82
A. California Public Employees’ Retirement System ............................................................................ 82
B. Post- Retirement Benefits ...................................................................................................................... 84
Note 9 – Commitments and Contingencies ................................................................................................ 85
A. Housing Loan Commitments .............................................................................................................. 85
Note 10 – Subsequent Events .......................................................................................................................... 87
Tax Revenue and Anticipation Notes ....................................................................................................... 87
54
City of Fremont
Notes to Basic Financial Statements
For the year ended June 30, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The basic financial statements of the City of Fremont, California ( City) have been prepared in conformity
with generally accepted accounting principles ( GAAP) as applied to governmental entities. The
Governmental Accounting Standards Boards ( 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.
Governmental Activities
The City reports the following governmental activities:
General Government – These services are those that are associated with the general administration of the
government. These services are primarily provided by the following offices/ departments: City
Council, City Manager, City Attorney, City Clerk, Finance, Human Resources and the Office of
Neighborhoods. These offices provide services that support external as well other internal government
functions of the City.
Police Services – The Police Department is responsible for the safeguarding of citizens’ lives and
property, the preservation of constitutional rights, and neighborhood problem solving. These services
also include the animal shelter and jail bookings.
Fire Services – The Fire Department is responsible for providing fire and life safety emergency services in
Fremont. Services include emergency response, paramedic services, public education, emergency-preparedness
training and hazardous materials management services.
Human Services – The Human Services Department offers a range of services to the community,
including a senior center, paratransit services, counseling, and support for seniors, families and youth.
Capital Asset Maintenance and Operations – These services include maintenance of the City’s capital assets
and infrastructure, such as public buildings, parks, streets and vehicles.
Recreation and Leisure Services – Services provided by the Recreation Department include both
performing and visual arts, youth and adult sports, youth and early childhood enrichment programs,
park visitor services, and management of the community centers, special facilities, and historic sites.
Community Development and Environmental Services – These services are provided by the Development
and Environmental Services Department and include community planning, engineering, code
enforcement, building permit and inspection services, and environmental services that enhance and
preserve a high quality living environment within the City.
Intergovernmental – These expenditures represent payments to other governmental agencies made by the
Redevelopment Agency in accordance with pass- through fiscal agreements with those local taxing
authorities.
55
City of Fremont
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
A. Financial Reporting Entity
The City was incorporated in January 1956. The City has a council- manager form of government and
provides a wide range of municipal services. As required by generally accepted accounting principles in
the United States, these basic financial statements present the City and its component units.
Component units are legally separate organizations for which the elected officials of the primary
government are financially accountable. In addition, component units can be other organizations for which
the primary government’s exclusion would cause the reporting entity’s financial statements to be
misleading or incomplete.
The following is a brief overview of the component units included in the accompanying basic financial
statements of the City. Financial information for these component units can be obtained from the City’s
Finance Department.
Redevelopment Agency of the City of Fremont ( Agency) – A separate governmental entity established for the
purpose of redeveloping certain areas of the City through development of industrial parks, commercial
areas, and new residential housing. Funds for redevelopment projects are provided from various
sources, including incremental property tax revenues, tax allocation bonds and advances from the City.
Separate financial statements for the Agency are available from the City’s Finance Department.
Fremont Public Financing Authority ( Financing Authority) – A joint powers authority formed by the City
and the Agency, organized for the purpose of financing certain capital projects for the City or the
Agency. Separate financial statements are not issued for the Financing Authority.
Fremont Social Services JPA ( Social Services JPA) – A joint powers authority formed by the City and the
Agency, organized for the purpose of facilitating the activities of the Family Resource Center. In 1998,
the Social Services JPA entered into a 40- year lease with the City for the two buildings that house the
Family Resource Center. The Social Services JPA has committed to subleasing this space to CDBG-eligible
tenants at below- market rents over the 40- year lease term. Rents collected from CDBG- eligible
tenants are used to make payments on the debt service obligations incurred in connection with the
purchase of the buildings. Separate financial statements are not issued for the Social Services JPA.
The City Council serves in separate session as the governing body of the Agency, the Financing Authority,
and the Social Services JPA. As a result, the financial activities of these entities are integrally related to
those of the City and are “ blended” with those of the City.
Other governmental agencies that provide services within the City include the following:
• Fremont- Newark Community College District
• Fremont Unified School District
• Alameda County Flood Control & Water Conservation District
• Union Sanitary District
• Alameda County Water District
• East Bay Regional Park District
56
City of Fremont
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
A. Financial Reporting Entity, Continued
• Washington Township Hospital District and related organizations
• Alameda- Contra Costa Transit District
• Bay Area Rapid Transit District
• State of California
• County of Alameda
Financial information for the organizations listed above is not included in the accompanying basic financial
statements because they have independently elected governing boards, their operations are separate from
those of the City, and they are not financially dependent on the City.
B. Basis of Accounting and Measurement Focus
The accounts of the City are organized on the basis of funds, each of which is considered a separate
accounting entity. The operations of each fund are accounted for with 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.
Government – Wide Financial Statements
The City’s government- wide financial statements include a Statement of Net Assets and a Statement of
Activities and Changes in Net Assets. These statements present summaries of governmental activities for
the City. Fiduciary activities of the City are not included in these statements.
These statements are presented on an economic resources measurement focus and the accrual basis of
accounting. Accordingly, all of the City’s assets and liabilities, including capital assets, as well as
infrastructure assets and long- term liabilities, are included in the accompanying Statement of Net Assets.
The Statement of Activities presents changes in net assets. Under the accrual basis of accounting, revenues
are recognized in the period in which they are earned and expenses are recognized in the period in which
the liability is incurred. The types of transactions reported as program revenues for the City are reported in
three categories: ( 1) charges for services, ( 2) operating grants and contributions, and ( 3) capital grants and
contributions.
Certain eliminations have been made as prescribed by GASB Statement No. 34 in regards to interfund
activities, payables and receivables. All internal balances in the Statement of Net Assets have been
eliminated.
The City applies all applicable GASB pronouncements ( including all NCGA Statements and Interpretations
currently in effect), as well as the following pronouncements issued on or before November 30, 1989, unless
those pronouncements conflict with or contradict GASB pronouncements: Financial Accounting Standards
Board ( FASB) Statements and Interpretations, Accounting Principles Board ( APB) Opinions, and
Accounting Research Bulletins ( ARB) of the Committee on Accounting Procedure. The City applies all
applicable FASB Statements and Interpretations issued after November 30, 1989, except those that conflict
with or contradict GASB pronouncements.
57
City of Fremont
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
B. Basis of Accounting and Measurement Focus, Continued
Governmental Fund Financial Statements
Governmental fund financial statements include a Balance Sheet and a Statement of Revenues,
Expenditures and Changes in Fund Balances for all major governmental funds and aggregated non- major
funds. An accompanying schedule is presented to reconcile and explain the differences in net assets as
presented in these statements to the net assets presented in the government- wide financial statements. The
City has presented all major funds that meet the criteria prescribed in GASB Statement No. 34.
All governmental funds are accounted for on a spending or current financial resources measurement focus
and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are
included on the balance sheet. The Statement of Revenues, Expenditures and Changes in Fund Balances
present increases ( revenues and other financing sources) and decreases ( expenditures and other financing
uses) in net current assets.
The City reports the following major governmental funds:
General Fund – This fund is the City’s primary operating fund. It accounts for all financial resources and
outlays of the general government. The fund receives the City’s discretionary funding sources ( e. g.,
property tax, sales tax, charges for services, etc.) and uses its resources for the general operations of the
City ( e. g., police, fire, general government) not accounted for in other funds.
Redevelopment Agency – This fund accounts for the activities of the Redevelopment Agency of the City.
The fund receives incremental property taxes and disburses those proceeds for payment of principal
and interest on the redevelopment tax increment bonds issued to finance improvements in the
Irvington, Centerville, Niles and Industrial project areas. In addition, California Government Code
Section 33487, pertaining to redevelopment agencies, requires the Agency to set aside 20% of its tax
allocations for improving the community’s low and moderate income housing stock. These restricted
allocations are accounted for in this fund.
Development Impact Fees – This fund accounts for impact fees levied under California Government Code
Sections 66000- 63000 ( commonly referred to as AB1600) and Section 66477 ( commonly referred to as the
Quimby Act). The City assesses fees for fire, capital facilities, traffic, park dedication in lieu, and park
facilities. These fees are used to defray all or a portion of the cost of additional public facilities needed
to provide service to new development.
State Gas Tax – This fund accounts for monies apportioned to the City from State- collected gasoline
taxes. The annual allocation may be spent for street maintenance or construction. Funds are
apportioned by the State on the basis of population.
Integrated Waste Management – This fund accounts for monies received by the City to comply with the
provisions of AB939 for the purpose of addressing recycling, household hazardous waste and solid
waste management issues. These revenues may only be spent for integrated waste management and
waste reduction programs.
58
City of Fremont
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
B. Basis of Accounting and Measurement Focus, Continued
Development Cost Center – This fund accounts for services related to planning, engineering and
inspection of public and private development construction projects.
Recreation Services – This fund accounts for all recreation programs and services, including Central Park
and activities of the community centers. Fees are generated from the various classes and programs
offered to the public. All costs of these programs are funded from these fees and from resources
provided by the general fund.
Capital Maintenance – This fund accounts for maintenance activities related to the City’s capital assets,
including parks, streets, buildings, fleet, and urban forestry. This fund is primarily supported by the
general fund, and also receives contributions from State Gas Tax, Integrated Waste Management, and
Urban Water Runoff revenues.
Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which
they become both measurable and available to finance expenditures of the current period. Accordingly,
revenues are recorded when received in cash, except that revenues subject to accrual ( generally received
within 60 days after year- end) are recognized when due. The primary revenue sources that have been
treated as susceptible to accrual by the City are property tax, sales tax, special assessments,
intergovernmental revenues, other taxes, interest revenue, rental revenue and certain charges for services.
Fines, forfeitures and licenses and permits are not susceptible to accrual because they are usually not
measurable until received in cash. Expenditures are recorded in the accounting period in which the related
fund liability is incurred.
Deferred revenue arises when potential revenue does not meet both the measurable and available criteria
for recognition in the current period. Deferred revenues also arise when the City receives resources before
it has a legal claim to them, as when grant monies are received prior to incurring qualifying expenditures
or when monies are received before the related services are performed. In subsequent periods, when both
revenue recognition criteria are met or when the City has a legal claim to the resources, the liability for
deferred revenue is removed from the balance sheet and revenue is recognized.
The reconciliations of the fund financial statements to the government- wide financial statements are
provided to explain the differences between the integrated approach of GASB Statement No. 34 and the
traditional approach of fund accounting.
Proprietary Fund Financial Statements
Proprietary fund financial statements include a Statement of Net Assets, a Statement of Revenues, Expenses
and Changes in Net Assets, and a Statement of Cash Flows for all proprietary funds.
Proprietary funds are accounted for using the economic resources measurement focus and the accrual basis
of accounting. Accordingly, all assets and liabilities ( whether current or noncurrent) are included in the
Statement of Net Assets. The Statement of Revenues, Expenses and Changes in Net Assets presents
increases ( revenues) and decreases ( expenses) in total net assets. Under the accrual basis of accounting,
revenues are recognized in the period in which they are earned and expenses are recognized in the period
in which the liability is incurred.
59
City of Fremont
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
B. Basis of Accounting and Measurement Focus, Continued
Operating revenues in the proprietary funds are those revenues that are generated from the primary
operations of the fund. All other revenues are reported as nonoperating revenues. Operating expenses are
those expenses that are essential to the primary operations of the fund. All other expenses are reported as
nonoperating expenses.
The City reports the following proprietary fund:
Internal Service Funds – These funds account for the Risk Management and Information Technology
services provided to other departments or agencies of the government on a cost reimbursement basis.
Internal service fund balances and activities have been combined with governmental activities in the
government- wide financial statements.
Fiduciary Fund Financial Statements
Fiduciary fund financial statements consist of a Statement of Net Assets. The City’s fiduciary fund
represents agency funds, which are custodial in nature and do not involve measurement of results of
operations. The agency funds use the accrual basis of accounting.
The City reports the following agency funds:
Local Improvement Districts – This fund accounts for the special assessment bonds issued by local
improvement districts or community facility districts under various public improvement acts of the
State of California and secured by liens against properties deemed to have been benefited by the
improvements for which the bonds were issued. Property owners are assessed their proportionate
share, and the City acts as an agent in collecting the assessments from the property owners, forwarding
the collections to bondholders and initiating foreclosure proceedings when necessary.
Bonds, Deposits and Confiscated Assets – This fund accounts for bonds and deposits received in
conjunction with construction activity within the City, assets confiscated by the police, and other
deposits held by the City as a fiduciary.
Tri- City Waste Facility Financing Authority – This fund accounts for revenue bonds issued by the cities of
Fremont, Newark and Union City for the closure of the Durham Road Landfill.
Tri- City Waste Disposal Authority – This fund provides for the administration of funds collected by the
Tri- City Waste Disposal Authority, a joint powers authority ( JPA), which exists to administer disposal
agreements for the solid waste generated in the cities of Fremont, Newark, and Union City.
Southern Alameda County GIS – This fund accounts for monies collected from participating agencies for
the administration of the Geographic Information System ( GIS) through a JPA. The City is the
administrator of the GIS, which serves the participating agencies. The parties to the JPA are the City of
Fremont, City of Union City, City of Newark, Union Sanitary District, and Alameda County Water
District.
60
City of Fremont
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
C. Cash and Investments
The City pools cash resources from all funds in order to facilitate and maximize the management of cash.
The balance in the pooled cash account is available to meet current operating requirements. Cash in excess
of current requirements is invested in various interest- bearing accounts and other investments for varying
terms.
In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for
External Investment Pools, highly liquid money 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. Interest earned
on investments is allocated to all funds on the basis of daily cash and investment balances.
The City participates in an investment pool managed by the State of California, the Local Agency
Investment Fund ( LAIF), which has invested a portion of the pool funds in structured notes and asset-backed
securities. LAIF’s investments are subject to credit risk, with the full faith and credit of the State of
California collateralizing these investments. In addition, these structured notes and asset- backed securities
are subject to market risk as to change in interest rates.
Cash and cash equivalents are considered to be cash on hand, amounts in demand deposits and short- term
investments with original maturities of three months or less from the date acquired by the City.
D. Restricted Cash and Investments
Certain restricted cash and investments are held by a fiscal agent for the redemption of bonded debt and
for acquisition and construction of certain capital projects.
E. Interfund Transactions
During the normal course of operations, the City has numerous transactions among funds. The significant
interfund transactions that occurred during the year can be classified into two types:
Transfers – Transactions to allocate the occurrence of specific expenditures within the receiving fund.
These transactions are recorded as transfers in and out in the year in which they are approved.
Loans Between Funds – Transactions to loan resources from one fund to another. The interfund loans
will be paid back when permanent financing is obtained or definitive funding sources become
available. Short- term loans are recorded as “ due from other funds” in the disbursing fund and “ due to
other funds” in the receiving fund.
61
City of Fremont
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
F. Capital Assets
Capital assets are valued at historical cost or estimated historical cost if actual historical cost is not
available. Donated fixed assets are valued at their estimated fair market value on the date donated. City
policy has set the capitalization threshold for reporting infrastructure capital assets at $ 25,000 and for all
other capital assets at $ 5,000. Depreciation is recorded on a straight- line basis over estimated useful lives of
the assets, as follows:
Buildings 50 years
Building Improvements 20 years
Machinery and Equipment 5 - 25 years
Infrastructure 15 - 100 years
Vehicles 5 - 27 years
In June 1999, the Governmental Accounting Standards Board ( GASB) issued Statement No. 34, which
requires the inclusion of infrastructure capital assets in the City’s basic financial statements. In accordance
with GASB Statement No. 34, the City included all infrastructures in the 2001/ 02 basic financial statements
for the first time.
The City defines infrastructure as the basic physical assets that allow the City to function. These assets
include the street system, park and recreation lands and improvements system, storm water collection
system, and site amenities associated with buildings, such as parking and landscaped areas, used by the
City in the conduct of its business.
The City uses the modified approach, as defined by GASB Statement No. 34, for infrastructure reporting of
its streets, concrete and asphalt pavements. For all other infrastructure systems, the City uses the basic
approach, as defined by GASB Statement No. 34.
The City commissioned an appraisal of City- owned infrastructure and property as of December 31, 2001,
and has completed internal updates for June 30, 2003 and 2004. This appraisal determined the original cost,
which is defined as the actual cost to acquire new property in accordance with market prices at the time of
first construction/ acquisition. Original costs were developed in one of three ways: ( 1) historical records;
( 2) standard unit costs appropriate for the construction/ acquisition date; or ( 3) present cost indexed by a
reciprocal factor of the price increase from the construction/ acquisition date of the current date. The
accumulated depreciation, defined as the total depreciation from the date of construction/ acquisition to the
current date on a straight- line cost method, was computed using industry accepted life expectancies for
each infrastructure subsystem. The book value was then computed by deducting the accumulated
depreciation from the original cost.
G. Claims Payable
The City records a liability to reflect an actuarial estimate of ultimate uninsured losses for both general
liability claims ( including property damage claims) and workers’ compensation claims. The estimated
liability for workers’ compensation claims and general liability claims include incurred but not reported
( IBNR) claims. There is no fixed payment schedule to pay these liabilities.
62
City of Fremont
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
H. Compensated Absences
In accordance with negotiated labor agreements, employees accumulate earned but unused vacation and
other compensated leave, and sick pay benefits. There is no liability for unpaid accumulated sick leave
because the City does not pay any amounts when employees separate from service with the City. All
vacation and other compensated leave is accrued when incurred in the government- wide and proprietary
fund financial statements. A liability for these amounts is reported in governmental funds only if they are
expected to be settled with current financial resources.
I. Long- Term Obligations
In the government- wide financial statements, long- term debt and other long- term obligations are reported
as liabilities in the applicable governmental activities. Bond premiums and discounts, as well as issuance
costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds
payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as
deferred charges and amortized over the term of the related debt.
In the fund financial statements, governmental- type funds recognize bond premiums and discounts, as
well as bond issuance costs, during the current period. The face amount of debt issued is reported as other
financial sources. Premiums received on debt issuance are reported as other financing sources, while
discounts on debt issuance are reported as other financing uses. Issuance costs, whether or not withheld
from the actual debt proceeds received, are reported as debt service expenditures.
J. Net Assets and Fund Balances
Government- Wide Financial Statements
In the government- wide financial statements, net assets are reported in one of three categories:
Invested in Capital Assets, Net of Related Debt – This amount consists of capital assets net of accumulated
depreciation and reduced by outstanding debt that is attributed to the acquisition, construction, or
improvement of the assets.
Restricted Net Assets - external creditors, grantors, contributors, or laws or regulations of other
governments restrict this amount.
Unrestricted Net Assets – This amount consists of all net assets that do not meet the definition of
“ invested in capital assets, net of related debt” or “ restricted net assets.”
Fund Financial Statements
In the fund financial statements, governmental funds report reservations of fund balance for amounts that
are not available for appropriation or are legally restricted by outside parties for a specific purpose.
Designations of fund balance represent tentative management plans for future use of financial resources
and are subject to change.
63
City of Fremont
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
J. Net Assets and Fund Balances, Continued
Reservation of fund balances of governmental funds and retained earnings of proprietary funds are created
to either satisfy legal covenants, including state laws, that require a portion of the fund balance be
segregated or identify the portion of the fund balance that is not available for future expenditures.
K. Fund Equity – Reservations of fund balances of governmental funds and retained earnings of
proprietary funds are created to either satisfy legal covenants, including state laws, that require a portion of
the fund balance be segregated or identify the portion of the fund balance not available for future
expenditures. Designated fund balances represent tentative plans for future use of financial resources. Fund
reservations and designations used by the City include:
• Reserved for Encumbrances represents commitments for materials and services on purchase orders
and contracts, which are unperformed.
• Reserved for Debt Service is provided to set aside funds legally restricted for the payment of
principal and interest on long- term debt.
• Designated for Budget Uncertainty represents the amounts set up as a hedge against the primary
sources of uncertainty in the City’s budgets and long- range financial plans.
• Designated for Program Equity represents amounts provided for new programs or enterprises that
have the potential for costs to be covered by future revenues. This designation is funded at 2.5% of
expenditures and transfers out, in accordance with Council policy.
• Designated for Catastrophic Contingencies is provided to set aside funds to meet costs associated
with catastrophes and disasters. This designation is funded at 12.5% of expenditures and transfers
out, in accordance with Council policy.
• Designated for Fair Value Adjustments represents amounts provided for unrealized gains and
losses on changes in the fair market value of investments.
• Designated for Future Appropriations represents funds designated to cover future year
expenditures.
• Designated for Low and Moderate Income Housing Programs represents tax increment revenues
set aside for low and moderate- income housing projects.
• Designated for Future Maintenance represents funds designated for future maintenance on and/ or
replacement of fixed assets.
• Designated for Vehicle Replacement represents funds designated to cover the replacement cost
associated with City- owned vehicles.
64
City of Fremont
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
k. Fund Equity, Continued
• Designated for Capital Projects represents funds set aside for new capital projects as determined by
City Council.
• Designated for Specific Purposes represents funds designated for other specific purposes.
Fund balances and retained earnings at June 30, 2004, have been reserved or designated for the
following purposes:
Special Debt Capital Internal
General Revenue Service Projects Service
Fund Funds Funds Funds Funds Totals
Reserved:
Encumbrances $ 563,369 $ 3,276,064 $ - $ 30,923,920 $ - $ 34,763,353
Debt service - - 49,757,270 - - 49,757,270
Total reserved: 563,369 3,276,064 49,757,270 30,923,920 - 84,520,623
Unreserved:
Designated:
Budget uncertainty 7,906,000 - - - - 7,906,000
Program equity 2,668,235 - - - - 2,668,235
Catastrophic contingencies 13,339,175 - - - - 13,339,175
Fair value adjustments 1,985,114 - - - - 1,985,114
Future appropriations 6,195,000 - - - - 6,195,000
Low and moderate income - 26,314,219 - - - 26,314,219
housing programs
Future maintenance - - - 1,969,828 - 1,969,828
Vehicle replacement - - - 2,611,096 - 2,611,096
Capital projects - - - 81,081,330 - 81,081,330
Specific purposes - 40,081,342 - - - 40,081,342
Undesignated 4,292,000 3,063,587 - - - 7,355,587
Retained earnings - - - - 2,720,452 2,720,452
Totals $ 36,948,893 $ 72,735,212 $ 4 9,757,270 $ 116,586,174 $ 2,720,452 $ 278,748,001
65
City of Fremont
Notes to Basic Financial Statements, Continued
For the year ended June 30, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
L. Use of Restricted/ Unrestricted Net Assets
When an expense is incurred for purposes for which both restricted and unrestricted net assets are
available, the City’s policy is to apply restricted net assets first.
M. Allocated Property Tax
Under California law, property taxes are assessed and collected by the counties at a rate of up to 1% of
assessed value, plus other increases approved by the voters. Property taxes go into a pool and are then
allocated to cities based on complex formulas. Property taxes are collected by the Auditor- Controller of the
County of Alameda ( County) and are remitted upon collection to the various taxing entities, including the
City and the Agency. Accordingly, the City accrues only those taxes that are received from the County
within sixty days after year- end.
For assessment and collection purposes, property is classified as either “ secured” or “ unsecured” and is
listed accordingly on separate parts of the assessment roll. The “ secured roll” is that part of the assessment
roll containing State- assessed property and real property having a tax lien that is sufficient, in the opinion
of the assessor, to secure payment of the taxes. Unsecured property comprises all taxable property not
attached to land, such as personal property or business property. Every tax levied by a county that
becomes a lien on secured property has priority over all present and future private liens arising pursuant to
State law on the secured property, regardless of the time of the creation of the other liens. A tax levied on
unsecured property does not become a lien against the taxed unsecured property, but may become a lien on
other property owned by the taxpay