Town

of

Atherton

Atherton, California

Basic Financial Statements and

Independent Auditors' Report

For the year ended June 30, 2006

3

Town of Atherton

Table of Contents

I. INTRODUCTION Page

City Officials 4

Independent Auditors' Report 5

Management's Discussion & Analysis 6

II. FINANCIAL SECTION

Basic Financial Statements:

Government- Wide Financial Statements:

Statement of Net Assets 17

Statement of Activities and Changes in Net Assets 18

Fund Financial Statements

Governmental Fund Financial Statements:

Balance Sheet 22

Reconciliation of the Governmental Funds Balance Sheet to the Government- Wide Statement of Net Assets 24

Statement of Revenues, Expenditures and Changes in Fund Balances 25

Reconciliation of the Governmental Funds Statements of Revenues, Expenditures and Changes in Fund Balances to the

Government- Wide Statement of Activities and Changes in Net Assets 27

Proprietary Fund Financial Statements:

Statement of Net Assets 30

Statement of Revenues, Expenses and Changes in Net Assets 31

Statement of Cash Flows 32

Fiduciary Fund Financial Statements

Statement of Fiduciary Net Assets 34

Notes to the Basic Financial Statements 35

Required Supplementary Information:

Public Employees Retirement System Schedule of Funding Progress 55

Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual – Major Fund:

General Fund 56

Library

Road Construction Fund

57

58

Supplementary Information:

Non- Major Governmental Funds:

Combining Balance Sheet 62

Combining Statement of Revenues, Expenditures and Changes in Fund Balances 66

Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual – Non - Major Funds:

State Park Grants Fund

COPS Grant Fund

Gas Tax Fund

Transportation Fund

Special Tax Fund

Tennis Fund

71

72

73

74

75

76

Fiduciary Funds:

Statement of Fiduciary Net Assets 78

Statement of Changes in Assets and Liabilities 80

4

CITY OFFICIALS

CITY COUNCIL

Mayor Charles E. Marsala

Vice Mayor Alan B. Carlson

Council Member Jerry Carlson

Council Member James R Janz

Council Member Kathy McKeithan

ADMINISTRATION & DEPARTMENT HEADS

City Manager Jim Robinson

Assistant City Manager Wende C. Protzman

Police Chief Robert J. Brennan

Public Works Director Duncan Jones

Interim Planning/ Building Administrator Gary Binger

Finance Director John P. Johns

Acting City Clerk Kathi Hamilton

Park Program Manager Jean Cardona

City Attorney Marc G. Hynes

Town Arborist Kathy Hughes Anderson

City Planner Neil Martin & Associates

Deputy Town Planner Lisa Costa Sanders

6

Town of Atherton

Management's Discussion and Analysis

For the year ended June 30, 2006

As management of the Town of Atherton, we offer readers of the Town of Atherton's financial statements this narrative and

analysis of the financial activities of the Town of Atherton for the fiscal year ended June 30, 2006. We encourage readers to

consider the information presented here.

Financial Highlights

􀂷 The assets of the Town of Atherton exceeded its liabilities at the close of the most recent fiscal year by $ 41,861,432 ( net

assets). Of this amount, $ 8,161,460 ( unrestricted net assets) may be used to meet the Town's ongoing obligations to

citizens and creditors.

􀂷 The Town's total net assets increased by $ 2,886,732. Page 18 of the basic financial statements provides a reconciliation

between the increase in fund balance as reported on the governmental funds statements of revenues, expenditures and

changes in fund balance with the government- wide statement of activities and changes in net assets.

􀂷 As of the close of the current fiscal year, the Town of Atherton's governmental funds reported combined ending fund

balances of $ 14,891,594, an increase of $ 2,689,432 in comparison with the prior year. Approximately one- half of this

total amount, $ 7,300,831 is available for spending at the Town's discretion ( unreserved fund balance).

􀂷 At the end of the current fiscal year, unreserved fund balance for the General Fund was $ 4,702,141, or 50 percent of the

total general fund expenditures.

Overview of the Financial Statements

This discussion and analysis is intended to serve as an introduction to the Town of Atherton's basic financial statements.

The Town of Atherton's basic financial statements comprise three components: 1) government- wide financial statements, 2)

fund financial statements and 3) notes to the financial statements. This report also contains supplementary information in a

separate section.

Government- wide financial statements. The government- wide financial statements are designed to provide readers with a

broad overview of the Town of Atherton's finances, in a manner similar to a private- sector business.

The statement of net assets presents information on all of the Town of Atherton's assets and liabilities; the difference between

the two reports is net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the

financial position of the Town of Atherton is improving or deteriorating.

The statement of activities shows how the Town'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 leave).

7

Town of Atherton

Management's Discussion and Analysis, Continued

For the year ended June 30, 2006

The government- wide financial statements are intended to distinguish functions of the Town of Atherton that are

principally supported by taxes and intergovernmental revenues ( governmental activities) from other functions that are

intended to recover all or a significant portion of their costs through user fees and charges ( business- type activities). The

governmental activities of the Town of Atherton include general government, public works administration, parks and

recreation, police, parks maintenance, library maintenance, and streets and public facilities. At present the Town does not

provide municipal services for any business- type activities ( such as utilities).

The government- wide financial statements include not only the Town of Atherton itself ( known as the primary government),

but also the Atherton Channel District, a legally separate special purpose district. The Atherton Channel District, although

legally separate, functions for all practical purposes as a department of the Town of Atherton, and therefore has been

included as an integral part of the primary government.

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 Town of Atherton, like other state and local governments,

uses fund accounting to ensure and demonstrate the compliance with finance- related legal requirements. All of the funds of

the Town of Atherton can be divided into three categories: governmental, proprietary, 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. Such 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 prove a reconciliation to facilitate this comparison

between governmental funds and governmental activities.

The Town of Atherton maintains sixteen individual governmental funds. Information is presented separately in the

government fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund

balances for the general fund and the special tax special revenue fund, both of which are considered to be major funds.

Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each

of these non- major governmental funds is provided in the Required Supplementary Information.

The Town of Atherton adopts an annual appropriated budget for its general fund and special tax special revenue fund. A

budgetary comparison statement has been provided for the general fund and the special tax special revenue fund to

demonstrate compliance with this budget.

8

Town of Atherton

Management's Discussion and Analysis, Continued

For the year ended June 30, 2006

Proprietary funds. The Town of Atherton maintains one type of proprietary fund type, internal service funds. Internal

service funds are an accounting device used to accumulate and allocate costs internally among the Town of Atherton's

various functions. The Town of Atherton uses internal service funds to account for its fleet of vehicles, management

information systems, and certain administrative services functions activities. Because of these services predominantly

benefit governmental rather than business- type functions, they have been included within governmental activities in the

government- wide financial statements. 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 statement because the resources of those funds are not

available to support the Town of Atherton's own programs. The accounting used for fiduciary funds is much like that used

for proprietary funds.

Notes to the financial statements. The notes proved additional information that is essential to a full understanding of the

data provided in the government- wide and fund financial statements.

Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain

required supplementary information concerning the Town of Atherton's progress in funding its obligation to provide pension

benefits to its employees.

Government- Wide Financial Analysis

As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the

Town of Atherton, assets exceeded liabilities by $ 41,861,432 at the close of the most recent fiscal year.

The largest portion of the Town of Atherton's net assets consists of investments in capital assets ( 65 percent). An additional

portion of the Town of Atherton's net assets ( 16 percent) represents resources that are subject to external restrictions on

how they may be used. The remaining balance of unrestricted net assets ($ 8,161,460) may be used to meet the Town's

ongoing obligations to citizens and creditors.

9

Town of Atherton

Management's Discussion and Analysis, Continued

For the year ended June 30, 2006

Town of Atherton's Net Assets

Net Assets

Invested in capital assets, net of related debt $ 27,099,826

Restricted for:

Capital projects 993,547

Debt service 625,138

Special projects 4,981,461

Unrestricted 8,161,460

Total net assets $ 41,861,432

At the end of the current fiscal year, the Town of Atherton is able to report positive balance in all three activities. The same

situation held true for the prior fiscal year.

Governmental activities. Governmental activities increased the Town of Atherton's net assets by $ 2,886,732. The increase

in net assets was due to a combination of factors including continued strength in the real estate market resulting in rising

property tax revenues, lower than expected expenditures for employee salaries and benefits and continued investments in

the Town's infrastructure.

Financial Analysis of the Town's Government- Wide Financial Statements

The following table provides a comparison of revenues, expenditures, assets, liabilities and net assets for all

governmental- type activities for the fiscal year ended June 30, 2005 and 2006.

Town of Atherton

Comparative Analysis of Revenues, Expenditures, Assets, Liabilities, and Net Assets

For the Years Ended June 30, 2005 and 2006

2006 2005 Variance Change

Revenues $ 12,760,532 $ 11,498,603 $ 1,261,929 11%

Expenditures $ 10,541,125 $ 10,548,052 $ ( 6,927) 0%

Assets $ 43,537,389 $ 40,664,572 $ 2,872,817 7%

Liabilities $ 1,675,957 $ 1,689,872 $ ( 13,915) ( 1)%

Net Assets $ 41,861,432 $ 38,974,700 $ 2,886,732 7%

Total assets and total fund equity increased by 5% and 6% respectively.

As noted earlier, the Town of Atherton uses fund accounting to ensure and demonstrate compliance with finance- related

legal requirements.

10

Town of Atherton

Management's Discussion and Analysis, Continued

For the year ended June 30, 2006

Governmental funds. The focus of the Town of Atherton's governmental funds is to provide information on near- term

inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Town of Atherton'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 the current fiscal year, the Town of Atherton's governmental funds reported combined ending fund

balances of $ 14,891,594 an increase of $ 2,689,432 in comparison with the prior year. 49% percent of this total amount

($ 7,300,831) constitutes unreserved fund balance, which is available for spending at the government's discretion. The

remainder of fund balance is reserved to indicate that is not available for new spending because it has already been

committed:

􀂷 To liquidate contracts and purchase orders of the prior period $( 2,896,298)

􀂷 To provide for a contingency for economic uncertainty $( 3,015,300)

􀂷 To provide for a reserve for future building inspections $( 1,054,027)

􀂷 For compensated absences $( 625,138)

The general fund is the chief operating fund of the Town of Atherton. At the end of the current fiscal year, unreserved fund

balance of the general fund was $ 4,702,141, while total fund balance reached $ 9,490,384. As a measure of the general fund's

liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund expenditures. For

the year ended June 30, 2006 total general fund balance represents 90 percent of FY 2006 expenditures.

The fund balance of the general fund increased by $ 1,907,599 for the 12 months ended June 30, 2006. Key factors in this

growth are as follows:

􀂷 A refund of excess property tax contributions to the Educational Revenue Augmentation Fund by the San Mateo

County Controller in the amount of $ 576,000 resulting from excess contribution withheld by the Controller in previous

fiscal years;

􀂷 An additional $ 400,000 in secured property taxes resulting from higher than expected growth in property assessments

combined with a change in the manner in which the California State Controller apportions motor vehicle license fees;

􀂷 A $ 100,000 favorable variance in real property transfer taxes and sales tax revenues due to favorable economic

conditions and a conservative approach by the Finance Department in estimating such revenues;

􀂷 Increased investment income resulting from rising interest rates and higher cash balances held within the Town's

treasury;

11

Town of Atherton

Management's Discussion and Analysis, Continued

For the year ended June 30, 2006

􀂷 A favorable variance in the amount of $ 600,000 in expenditures for employee salaries and benefits due to unanticipated

vacancies in the Police Department and administration combined with a lower than expected cost of providing health

care and retirement benefits.

General Fund Budgetary Highlights

In FY 2005- 06 the budget adopted by the City Council remained unchanged during the year. Hence there was no

difference between the original budget and the final budget.

During the year, however, revenues exceeded budgetary estimates by $ 1,105,058 ( a favorable variance of 13 percent of

estimated revenues) and expenditures were less than appropriations, by $ 780,255 ( a favorable variance of 9 percent of

general fund appropriations).

Capital Assets

The Town of Atherton's investment in capital assets for its governmental activities as of June 30, 2006, amounts to

$ 27,099,826 ( net of accumulated depreciation). This investment in capital assets includes land, building, computers, a

telecommunications system, improvements, machinery, equipment, park facilities, a corporation yard, and roads. The total

increase in the Town of Atherton's investment in capital assets for the current fiscal year was $ 216,574 ( all of which were

for governmental activities).

Major capital asset events during the current fiscal year included the following:

􀂷 The reconstruction of Selby Lane at a cost of $ 966,000;

􀂷 The resurfacing of various streets within the Town at a cost of $ 266,000;

􀂷 Major repairs to the Atherton Channel at a cost of $ 480,000.

12

Town of Atherton

Management's Discussion and Analysis, Continued

For the year ended June 30, 2006

Town of Atherton's Capital Assets

Balance

July 1, 2005 Additions Retirements

Inventory

Adjustments

Transfers Balance

June 30, 2006

Governmental Activities:

Capital assets, not being

depreciated:

Land $ 690,884 $ - $ - $ - $ - $ 690,884

Construction in progress 30,258 1,058,724 - 455,363 ( 659,123) 885,222

Total non depreciable assets 721,142 1,058,724 - 455,363 ( 659,123) 1,576,106

Capital assets, being depreciated:

Buildings 1,668,094 - - - - 1,668,094

Other improvements 618,127 151,162 ( 19,758) - - 749,531

Vehicles 499,462 65,276 - - - 564,738

Equipment - computer 44,985 5,996 ( 8,495) - - 42,486

Equipment - furniture/ equipment 419,094 - ( 10,712) - - 408,382

Infrastructure 46,044,631 - ( 346,180) 396,610 659,123 46,754,184

Total depreciable assets 49,294,393 881,557 ( 385,145) 396,610 659,123 50,187,415

Accumulated Depreciation:

Buildings ( 621,173) ( 37,392) - - - ( 658,565)

Other improvements ( 488,641) ( 20,609) 11,854 - - ( 497,396)

Vehicles ( 286,630) ( 73,149) - - - ( 359,779)

Equipment - computer ( 13,810) ( 5,812) 3,034 - - ( 16,588)

Equipment - furniture/ equipment ( 356,506) ( 12,991) 7,498 3,291 - ( 358,708)

Infrastructure ( 21,365,523) ( 1,537,666) 318,469 ( 187,939) - ( 22,772,659)

Total accumulated depreciation ( 23,132,283) ( 1,687,619) 340,855 ( 184,648) - ( 24,663,695)

Depreciable assets, net 26,162,110 ( 806,062) ( 44,290) 211,962 - 25,523,720

Governmental activities

capital assets, net $ 26,883,252 $ 252,662 $ ( 44,290) $ 667,325 $ - $ 27,099,826

Additional information on the Town of Atherton's capital assets can be found in Note 4 of this report.

Economic Factors Affecting Subsequent Years

In June of 2005 the residents of Atherton approved Measure W, thereby renewing the Atherton Special Tax for an

additional five years. The maximum tax levy approved by the electorate was consistent with the amounts that were in

effect during the previous four fiscal years and is expected to generate $ 1.865 million in additional funds annually for the

five years ended June 30, 2010. Of this amount, the Town expects to expend approximately $ 1.4 million annually for

infrastructure maintenance and improvements and to expend the balance on current operations.

􀂷 The assessed value of real and personal property within the Town of Atherton in FY 2006- 07 will amount to $ 4.86

Billion. As a result property tax revenues are expected to increase by 10% over the $ 3.6 million collected in FY 2005- 06.

13

Town of Atherton

Management's Discussion and Analysis, Continued

For the year ended June 30, 2006

􀂷 In order to provide a greater margin of security, the Town elected to increase its reserves for economic uncertainty

from $ 3.2 million to $ 4.8 million. At this higher level, the Town expects to have a minimum of six months reserves in

place for the current five- year financial planning horizon.

􀂷 The permitted value of residential renovation and construction is expected to exceed $ 100 million for the fifth

consecutive year. As a result, the Building Department is expected to be fully self- supporting at current permit fee

levels.

􀂷 Pension expenses for municipal employees will amount to 18 percent of covered payroll for miscellaneous employees

and 35 percent for safety employees.

􀂷 Employee salary and benefit expenses will increase at levels consistent with expected changes in the consumer price

index during the past year ( approximately 3 percent).

All of these factors were considered in preparing the Town of Atherton's budget for Fiscal Year 2005- 06.

This financial report is designed to provide a general overview of the Town of Atherton's finances. Questions concerning

any of the information provided in this report or requests for additional financial information should be addressed to the

Atherton Finance Department, 91 Ashfield Road, Atherton, California 94027.

14

BASIC FINANCIAL STATEMENTS

15

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16

GOVERNMENT- WIDE FINANCIAL STATEMENTS

17

Town of Atherton

Statement of Net Assets

June 30, 2006

Governmental

Activities

ASSETS

Cash and investments in treasury $ 15,956,920

Accounts 323,167

Interest 156,006

Miscellaneous 1,470

Non- depreciable 1,576,106

Depreciable, net 25,523,720

TOTAL ASSETS 43,537,389

LIABILITIES

Accounts payable 225,369

Accrued payroll 348,809

Deposits payable 476,641

Compensated absences payable 625,138

TOTAL LIABILITIES 1,675,957

NET ASSETS

Investment in capital assets, net of related debt 27,099,826

Restricted for:

Capital projects 993,547

Debt service 625,138

Special projects 4,981,461

Unrestricted:

Unrestricted 8,161,460

TOTAL NET ASSETS $ 41,861,432

See accompanying Notes to the Basic Financial Statements.

18

Town of Atherton

Statement of Activities and Changes in Net Assets

For the year ended June 30, 2006

Program Revenues Net ( Expenditure)

Revenue and

Changes in Net

Assets

Functions/ Programs Expenditures Charges for

Services

Operating Grants Governmental

Activities

Primary Government:

General government $ 2,317,478 $ 2,195,192 $ 481,240 $ 358,954

Public works administration 990,706 - - ( 990,706)

Parks and recreation 4,402 - - ( 4,402)

Police 4,277,921 62,120 - ( 4,215,801)

Library maintenance 27,898 - 450,000 422,102

Streets and public facilities 2,922,720 1,169,195 220,654 ( 1,532,871)

Total governmental activities $ 10,541,125 $ 3,426,507 $ 1,151,894 ( 5,962,724)

General revenues:

Taxes:

Property taxes 6,042,958

Sales taxes 413,476

Motor vehicle fee taxes 680,742

Other taxes 670,179

Total Taxes 7,807,355

Investment earnings 351,753

Miscellaneous 23,023

Total general revenues 8,182,131

Change in Net Assets 2,219,407

Net assets - beginning of year, as restated 39,642,025

Net assets - end of year $ 41,861,432

See accompanying Notes to the Basic Financial Statements.

19

FUND FINANCIAL STATEMENTS

Governmental Fund Financial Statements

Proprietary Fund Financial Statements

Fiduciary Fund Financial Statements

20

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21

GOVERNMENTAL FUND FINANCIAL STATEMENTS

The General Fund- This Fund accounts for all general revenues of the Town not specifically levied or collected for other

Town funds and the related expenditures. The General Fund accounts for all financial resources of a governmental unit

which are not accounted for in other funds.

Library - This Fund is used to account for funds dedicated to the Town's library operations.

Road Construction - This Fund is used to account for moneys dedicated to road construction.

22

Town of Atherton

Balance Sheet

Governmental Funds

June 30, 2006

Major Funds

General Library Road Construction

ASSETS

Cash and investments in treasury $ 10,047,525 $ 1,947,895 $ 1,394,142

Receivables:

Accounts 191,080 - -

Interest 156,006 - -

Miscellaneous 1,470 - -

Receivables Total 348,556 - -

Due from other funds 62,101 - -

TOTAL ASSETS $ 10,458,182 $ 1,947,895 $ 1,394,142

LIABILITIES AND FUND BALANCE

LIABILITIES

Accounts payable $ 216,071 $ 609 $ 20,583

Accrued payroll 275,086 - -

Deposits payable 476,641 - -

Due to other funds - - -

TOTAL LIABILITIES 967,798 609 20,583

FUND BALANCE

Reserved for:

Encumbrances 109,078 - -

Special projects, encumbrances - - 1,206,265

Contingency 3,000,000 - -

Future building inspection 1,054,027 - -

Capital projects, encumbrances - - -

Compensated absences 625,138 - -

Unreserved, Designated:

Insurance 500,000 - -

Unreserved, Undesignated:

Special revenue funds - 1,947,286 167,294

Capital project funds - - -

Undesignated 4,202,141 - -

TOTAL FUND BALANCE 9,490,384 1,947,286 1,373,559

TOTAL LIABILITIES AND FUND BALANCE $ 10,458,182 $ 1,947,895 $ 1,394,142

See accompanying Notes to the Basic Financial Statements.

23

Other

Governmental

Total

$ 2,055,258 $ 15,444,820

132,087 323,167

- 156,006

- 1,470

132,087 480,643

- 62,101

$ 2,187,345 $ 15,987,564

$ 39,230 276,493

5,649 280,735

- 476,641

62,101 62,101

106,980 1,095,970

- 109,078

1,544,915 2,751,180

15,300 3,015,300

- 1,054,027

36,040 36,040

- 625,138

- 500,000

115,701 2,230,281

368,409 368,409

- 4,202,141

2,080,365 14,891,594

$ 2,187,345 $ 15,987,564

24

Town of Atherton

Reconciliation of the Governmental Funds Balance Sheet

to the Government- Wide Statement of Net Assets

June 30, 2006

Total Fund Balances - Total Governmental Funds $ 14,891,594

Amounts reported for governmental activities in the Statement of Net Assets were

reported differently because:

Capital assets used in governmental activities were not current financial

resources and therefore were not reported in the Governmental Funds Balance

Sheet.

Non depreciable assets ( Land and construction in progress) 1,576,106

Depreciable buildings, property, equipment and infrastructure, net ( does

not include capital assets of $ 230,857 net, related to the internal service

funds) 25,292,863

Total capital assets 26,868,969

Internal service funds were used by management to charge the costs of certain

activities to individual funds. The assets and liabilities of the internal service

funds were included in governmental activities in the Government- Wide

Statement of Net Assets. 726,007

Compensated absences payable were not due and payable in the current period.

Therefore, they were not reported in the Governmental Funds Balance Sheet.

The long- term liabilities were adjusted as follows:

Total compensated absences ( 625,138)

Net Assets of Governmental Activities $ 41,861,432

See accompanying Notes to the Basic Financial Statements.

25

Town of Atherton

Statement of Revenues, Expenditures and Changes in Fund Balances

Governmental Funds

For the year ended June 30, 2006

Major Funds

General Library Road Construction

REVENUES

Property taxes $ 4,075,437 $ 74,872 $ -

Special assessments - - -

Sales taxes 167,393 - -

Measure A grants - - -

Other taxes 1,350,921 - -

Permits and licenses 1,716,348 - -

Fines and forfeitures 57,453 - -

From other agencies 444,564 450,000 -

Service charges 335,165 - -

Use of money and property 323,658 35,269 18,139

Road impact fees - - 1,169,195

Other revenues 53,416 - -

TOTAL REVENUES 8,524,355 560,141 1,187,334

EXPENDITURES

Current:

General government 908,351 - -

Public works administration 991,929 - -

Parks and recreation - - -

Police 4,112,398 - -

Library maintenance - 27,898 -

Streets and public facilities 1,908,078 - 335,825

TOTAL EXPENDITURES 7,920,756 27,898 335,825

REVENUES OVER ( UNDER) EXPENDITURES 603,599 532,243 851,509

OTHER FINANCING SOURCES ( USES)

Transfers in 1,304,000 - -

Transfers ( out) - - ( 310,000)

TOTAL OTHER FINANCING SOURCES ( USES) 1,304,000 - ( 310,000)

REVENUES AND OTHER FINANCING SOURCES OVER

( UNDER) EXPENDITURES AND OTHER FINANCING USES 1,907,599 532,243 541,509

FUND BALANCES:

Beginning of year 7,582,785 1,415,043 832,050

End of year $ 9,490,384 $ 1,947,286 $ 1,373,559

See accompanying Notes to the Basic Financial Statements.

26

Other

Governmental

Total

$ 53,302 $ 4,203,611

1,839,347 1,839,347

- 167,393

246,083 246,083

- 1,350,921

- 1,716,348

- 57,453

350,054 1,244,618

6,000 341,165

32,745 409,811

- 1,169,195

- 53,416

2,527,531 12,799,361

- 908,351

- 991,929

4,402 4,402

114,853 4,227,251

- 27,898

1,706,195 3,950,098

1,825,450 10,109,929

702,081 2,689,432

- 1,304,000

( 994,000) ( 1,304,000)

( 994,000) 0

( 291,919) 2,689,432

2,372,284 12,202,162

$ 2,080,365 $ 14,891,594

27

Town of Atherton

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, 2006

Net Changes in Fund Balances - Total Governmental Funds $ 2,689,432

Governmental activities in the Statement of Activities and Changes in Net Assets

were reported differently because:

Governmental funds report capital outlay 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 construction in progress and other

improvements recorded in the current period net of internal service fund capital

asset additions of $ 71,272. This amount also includes a loss of $( 38,829)

associated with the disposal of capital assets. 1,171,057

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 expense was not

reported as expenditures in governmental funds. Depreciation expense

associated with internal service funds of $ 78,961 is not reported here. ( 1,608,658)

Payroll expense on compensated absences 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, compensated absences expense

was not reported as expenditures in governmental funds. This amount

represents the net activity of $ 242,840 in additions and $( 190,382) in deductions. ( 52,458)

Internal service funds were used by management to charge the costs of certain

activities to individual funds. The net revenue of the internal service funds was

reported with governmental activities. 20,034

Change in Net Assets of Governmental Activities $ 2,219,407

See accompanying Notes to the Basic Financial Statements.

28

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29

PROPRIETARY FUND FINANCIAL STATEMENTS

Internal Service Fund- This fund is used to account for special activities and services performed by a designated Town

department for other departments on a cost reimbursement basis.

30

Town of Atherton

Statement of Net Assets

Proprietary Funds

June 30, 2006

Governmental

Activities Internal

Service Funds

ASSETS

Current assets:

Cash and investments $ 512,100

Noncurrent assets:

Depreciable capital assets 607,225

Accumulated depreciation ( 376,368)

TOTAL ASSETS 742,957

LIABILITIES

Current liabilities:

Accounts payable 11,913

Accrued payroll 5,037

TOTAL LIABILITIES 16,950

NET ASSETS

Unrestricted 726,007

TOTAL NET ASSETS $ 726,007

See accompanying Notes to the Basic Financial Statements.

31

Town of Atherton

Statement of Revenues, Expenses, and Changes in Net Assets

Proprietary Funds

For the year ended June 30, 2006

Governmental

Activities Internal

Service Funds

OPERATING REVENUES

Service charges $ 505,495

TOTAL OPERATING REVENUES 505,495

OPERATING EXPENSES

Risk management 235,809

Depreciation 78,962

Supplies and maintenance 170,393

TOTAL OPERATING EXPENSES 485,164

OPERATING INCOME ( LOSS) 20,331

NONOPERATING REVENUES ( EXPENSES)

Interest income 5,164

Gain ( loss) on sale of assets ( 5,461)

TOTAL NONOPERATING REVENUES ( EXPENSES) ( 297)

CHANGE IN NET ASSETS 20,034

NET ASSETS:

Beginning of year 705,973

End of year $ 726,007

See accompanying Notes to the Basic Financial Statements.

32

Town of Atherton

Statement of Cash Flows

Proprietary Funds

For the year ended June 30, 2006

Governmental

Activities

Internal

Service Funds

CASH FLOWS FROM OPERATING ACTIVITIES:

Cash received from customers/ other funds $ 505,495

Cash payments to suppliers for goods and services 426,374

Net cash provided ( used) by operating activities 79,121

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:

Acquisition or disposal of fixed assets ( 71,273)

Net cash provided ( used) by capital and related financing actvities 7,848

Net increase ( decrease) in cash and cash equivalents

CASH AND CASH EQUIVALENTS:

Beginning of year 504,252

End of year $ 512,100

RECONCILIATION OF OPERATING INCOME TO NET

CASH PROVIDED BY OPERATING ACTIVITIES:

Operating income ( loss) $ 25,495

Adjustments to reconcile operating income ( loss) to net

cash provided ( used) by operating activities:

Depreciation 78,962

Changes in assets and liabilities:

Accounts payable ( 26,783)

Accrued payroll 1,447

Total adjustments 53,626

Net cash provided ( used) by operating activities $ 79,121

See accompanying Notes to the Basic Financial Statements.

33

FIDUCIARY FUND FINANCIAL STATEMENTS

Agency Funds- These funds account for assets held in an agency capacity for others and therefore cannot be used to

support the Town's programs.

34

Town of Atherton

Statement of Fiduciary Net Assets

Fiduciary Funds

June 30, 2006

Agency Funds

ASSETS

Cash and investments $ 147,755

TOTAL ASSETS $ 147,755

LIABILITIES

Deposits payable $ 147,755

TOTAL LIABILITIES $ 147,755

See accompanying Notes to the Basic Financial Statements.

35

Town of Atherton

Notes to the Basic Financial Statements

For the year ended June 30, 2006

1. SIGNIFICANT ACCOUNTING POLICIES

The basic financial statements of the Town of Atherton, California ( Town) have been prepared in conformity with generally

accepted accounting principles ( GAAP) as applied to governmental agencies. The Governmental Accounting Standards

Board ( GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting

principles. The more significant of the Town's accounting policies are described below.

A. Financial Reporting Entity

The Town was incorporated in 1923 and is situated between the cities of Menlo Park and Redwood City on the Peninsula of

the San Francisco Bay Area. The Town operates under the Mayor- Council- Manager form of government created by charter

in 1923 and provides the following services: public safety ( police), public works and streets, park services, and general

administration services.

The Town is governed by a five- member council elected by Town residents. The Town is legally separate and fiscally

independent, which means it can issue debt, set and modify budgets and fees and sue or be sued. The accompanying basic

financial statements include the financial activities of the Town, the primary government, 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 review of the blended component unit included in the accompanying basic financial statements of

the Town in which the Council functions as the governing board:

The Atherton Channel District - was established to assist in the maintenance and rehabilitation of the areas

within the Town determined to be in the flood plain of the local stream. The District has all accounting and

administrative functions performed by Town staff and the District receives advances from the Town to

finance operations. The financial activities of the District have been included in the Atherton Channel

District Capital Projects Fund in the accompanying basic financial statements.

The above component unit is included in the Town's basic financial statements using the blended method since the

governing body of this component unit is substantially the same as the governing body of the Town and this component

unit provides services entirely to the Town.

Discretely presented component units are reported in a separate column in the basic financial statements to emphasize that

they are legally separate from the Town. The Town does not have any component units that are discretely presented.

Financial information for the component unit may be obtained from the Town's Finance Department.

36

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

B. Basis of Accounting and Measurement Focus

The accounts of the Town 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 Town'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 the governmental activities for the Town, the primary

government, accompanied by a total column. Fiduciary activities of the Town are not included in these statements.

These financial statements are presented on an " economic resources” measurement focus and the accrual basis of accounting.

Accordingly, all of the Town's assets and liabilities, including capital assets and related current year infrastructure asset

additions 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 while expenses are recognized in the period in which a liability is incurred.

Certain types of transactions are reported as program revenues for the Town and are presented in the following three

categories:

􀂷 Charges for services

􀂷 Operating grants

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 following interfund

activities have been eliminated:

􀂷 Due to/ from other funds

􀂷 Transfers in/ out

The Town 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) pronouncements and

Statements Interpretations, Accounting Principles Board ( APB), and Accounting Research Bulletins ( ARB) of the

Committee on Accounting Procedure.

37

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

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 non- major funds aggregated. 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 Town has presented all major funds that met applicable criteria.

All governmental funds are accounted for on a spending or " current financial resources” measurements focus. Accordingly,

only current assets and current liabilities generally are included on the balance sheets. The Statement of Revenues,

Expenditures and Changes in Fund Balances present increases ( revenues and other financial sources) and decreases

( expenditures and other financial uses) in net current assets. 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.

Revenues are recorded when received in cash, except those revenues subject to accrual ( generally 60 days after year- end)

are recognized when due. The primary revenue sources, which have been treated as susceptible to accrual by the Town, are

property taxes, charges for services, federal and state grants, sales tax, and interest. Expenditures are recognized in the

accounting period in which the related fund liability is incurred.

Deferred revenues arise when potential revenues do no meet both the " measurable" and " available" criteria for recognition

in the current period. Deferred revenues also arise when the government receives resources before it has a legal claim to

them, as when grant monies are received prior to incurring qualifying expenditures. In subsequent periods when both

revenue recognition criteria are met or when the government has a legal claim to the resources, the deferred revenue is

removed from the balance sheet and revenue is recognized.

The Reconciliation of the Fund Financial Statements to the Government- Wide Financial Statements is provided to explain

the differences created by the integrated approach of GASB Statement No. 34.

Proprietary Fund Financial Statements

Proprietary fund financial statements include a Statement of Net Assets, a Statement of Revenues, Expenses and Change in

Net Assets, and a Statement of Cash Flows for all proprietary funds.

The Town's proprietary funds represent Internal Service funds of which have been combined with the governmental

activities in the government- wide financial statements.

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 non current) are included on the Statement of Net Assets.

38

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

The Statement of Revenues, Expenses and Change 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

while expenses are recognized in the period in which the liability is incurred.

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 non- operating revenues. Operating expenses are those expenses that are essential to the

primary operations of the fund. All other expenses are reported as non- operating expenses.

Fiduciary Fund Financial Statements

Fiduciary fund financial statements normally include a Statement of Net Assets and a Statement of Changes in Fiduciary

Net Assets. The Town's fiduciary funds represent agency funds. Agency funds are custodial in nature ( assets equal

liabilities) and do not involve measurement of results of operations. As a result, a statement of Changes in Fiduciary Net

Assets in not presented in this report.

C. Recognition of Interest Liability

In government- wide financial statements, interest payable on long- term debt is recognized as the liability is incurred for

governmental activities and business type activities.

In the fund financial statements, proprietary fund types recognize the interest payable when the liability is incurred.

D. Use of Restricted and Unrestricted Net Assets

When an expense is incurred for purposes for which both restricted and unrestricted net assets are available, the Town's

policy is to apply restricted net assets first.

E. Cash, Cash Equivalents and Investments

The Town pools cash and investments from all sources, for the purpose of increasing income through investment activities.

Interest income on investments is allocated on the basis of average month- end cash and investment balances in each fund.

Cash and cash equivalents represent cash and investments and restricted cash and investments with an original maturity

term of three months or less.

The Town invests in the California Local Agency Investment Fund ( LAIF), which is part of the Pooled Money Investment

Account operated by the California State Treasurer. LAIF funds are invested in high quality money market securities and

are managed to insure the safety of the portfolio. A portion of LAIF's investments are in structured notes and asset- backed

securities. As of June 30, 2006 LAIF had invested 2.567% of its funds in such securities.

39

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

The Town also invests in the San Mateo County Investment Fund ( SMCPIF), which is part of the Pooled Money Investment

Account operated by the San Mateo County Treasurer. SMCPIF funds are invested in high quality money market securities

and are manage to insure the safety of the portfolio.

LAIF and SMCPIF determines fair value on its investment portfolio based on market quotations for these securities where

market quotations are readily available, and on amortized cost or best estimate for those securities where market value is

not readily available.

In accordance with GASB statement No. 31, highly liquid money market investments with maturities of one year or less at

time of purchased 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.

In accordance with GASB Statement No. 40, Deposit and Investment Disclosures ( Amendment of GASB No. 3), certain

disclosure requirements, if applicable, for Deposits and Investment Risks are specified in the following areas:

􀂷 Interest Rate Risk

􀂷 Credit Risk

Overall

Custodial Credit Risk

Concentrations of Credit Risk

􀂷 Foreign Currency Risk

In addition, other disclosures are specified including use of certain methods to protect deposits and investments, highly

sensitive investments, credit quality at year- end and other disclosures.

F. Capital Assets

Capital assets are valued at historical cost or estimated historical cost if actual historical cost was not available. Donated

fixed assets are valued at their estimated fair market value on the date donated. Town policy has set the capitalization

threshold for reporting capital assets at $ 5,000. Depreciation is recorded on a straight- line basis over estimated useful lives

of the assets as follows:

Buildings 40 Years

Improvements other than buildings 20 Years

Machinery and equipment 5- 20 Years

Infrastructure 20- 50 Years

Assets are grouped by asset type into one of the following accounts - land, land improvements, infrastructure assets ( e. g.,

roads, bridges, sidewalks, and similar items), buildings and improvements, machinery and equipment, lease

improvements, software, and construction in progress.

40

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

GASB Statement No. 34 requires the inclusion of infrastructure capital assets in local governments' basic financial

statements. In accordance with Statement No. 34, the Town has included the value of all infrastructures in the basic

financial statements.

The Town defines infrastructure as the basic physical assets that allow the Town to function. The assets include streets,

sewer, and park lands. Each major infrastructure system can be divided into subsystems. For example the street system

can be subdivided into pavement, curb and gutters, sidewalks, medians, streetlights, landscaping and land. These

subsystems were not delineated in the basic financial statements. The appropriate operating department maintains

information regarding the subsystems.

For all infrastructure systems, the Town elected to use the Basic Approach as defined by GASB Statement No. 34 for

infrastructure reporting. Estimated historical 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 to 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, unrecovered 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 estimated historical cost.

G. Compensated Absences

Government- Wide Financial Statements

For governmental and business- type activities, compensated absences are recorded as incurred and the related expenses

are reported.

Fund Financial Statements

In governmental funds, compensated absences are recorded as expenditures in the years paid.

H. Property Taxes

San Mateo County assesses properties and bills, and collects property taxes for the Town. Secured and unsecured taxes are

levied on the preceding March 1. Secured taxes are due in two installments on November 1 and February 1. If unpaid, such

taxes become delinquent on December 10 and April 10, respectively, and a 10% penalty attaches to any delinquent

payments. Unsecured taxes are due as of January 1 lien date and become delinquent if unpaid on August 31. A 10%

penalty attaches to delinquent unsecured taxes. If unsecured taxes remain unpaid on October 31, an additional 1.5%

attaches on the first day of each month until unpaid. The term “ unsecured” refers to taxes on property not secured by liens

on real property.

41

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

Property tax revenues are recorded when they become measurable and available. Available means due, or past due, and

receivable within the current period and collected no longer than 90 days after the close of the current period.

Property taxes levied are recorded as revenue when received, in the fiscal year of the levy, because of the adoption of the

“ alternate method of property tax distribution,” known as the Teeter Plan, by the Town and County. The Teeter Plan

authorizes the Auditor/ Controller of the County to allocate 100% of the secured property taxes billed, but not yet paid.

I. Post Employment Benefits Other than Pensions

The Town provides post- retirement health care benefits to all employee groups with 20 years of service as required by

current association and management agreements. The Town records premium payments on a " pay- as- you- go" basis.

J. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires Town

management to make estimates and assumptions that affect certain amounts and disclosures. Accordingly, actual results

could differ from those estimates.

K. Net Assets

Government- Wide Financial Statements

In the government- wide financial statements, net assets are classified in the following 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 attributed to the acquisition, construction, or improvement of the assets.

Restricted Net Assets– This amount is restricted by external creditors, grantors, contributors, or laws or regulations of

other governments.

Unrestricted Net Assets– This amount is 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

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 equity be segregated or identify the portion of the

fund equity not available for future expenditures.

42

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

L. GASB Statement No. 34 ( Inclusion of Infrastructure)

In 2004, the Town implemented GASB No. 34 but elected to defer the inclusion of all prior period infrastructure capital

assets in accordance with GASB Statement No. 34. GASB Statement No. 34 permits the Town to defer infrastructure assets

acquired prior to the year of implementation for a period not to exceed 4 years after the date of implementation of GASB

Statement No. 34. Accordingly, only the infrastructure which resulted from current year activities was included in the prior

year basic financial statements.

In 2005, the Town elected to complete the implementation of GASB Statement No. 34 by including the infrastructure assets

acquired prior to fiscal year 2004.

M. Implementation of New GASB Pronouncements

In 2005, the Town adopted new accounting standards in order to conform to the following Governmental Accounting

Standards Board Statements:

􀂷 Statement No. 40, Deposit and Investment Risk Disclosures, an amendment of GASB Statement No. 3.

GASB Statement No. 40 updates the custodial credit risk disclosure requirements of GASB Statement No. 3 and establishes

more comprehensive disclosure requirements addressing other common risks of deposits and investments of state and

local governments, such as credit risk, concentration of credit risk, interest rate risk, and foreign currency risk.

2. CASH AND INVESTMENTS

The Town maintains a cash and investment pool, which includes cash balances and authorized investments of all funds,

which the Town invests to enhance interest earnings. The pooled interest is allocated to the funds quarterly, based on

average daily cash and investment balances in these funds.

A. Cash Deposits

At June 30, 2006, the carrying amount of the Town’s deposits was $ 727,277. Bank balances before reconciling items were

$ 701,429 at that date, the total amount of which was collateralized or insured with securities held by pledging financial

institutions in the Town’s name as discussed below.

The California Government Code requires California banks and savings and loan associations to secure the Town’s cash

deposits by pledging securities as collateral. This Code states that collateral pledged in this manner shall have the effect of

perfecting a security interest in such collateral superior to those of a general creditor. Thus, collateral for cash deposits is

considered to be held in the Town’s name.

43

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

According to California law, the market value of pledged securities with banking institutions must equal at least 110% of

the Town’s cash deposits. California law also allows institutions to secure Town deposits by pledging first trust deed

mortgage notes having a value of 150% of the Town’s total cash deposits. The Town may waive collateral requirements for

cash deposits, which are fully insured up to $ 100,000 by the Federal Deposit Insurance Corporation. The Town, however,

has not waived the collateralization requirements.

The Town follows the practice of pooling cash and investments of all funds, except for funds required to be held by fiscal

agents under provisions of bond indentures. Interest income earned on pooled cash and investments is allocated on a

quarterly basis to the various funds based on average daily cash and investment balances. Interest income from cash and

investments with fiscal agents is credited directly to the related fund.

B. Investments

The Town is authorized by State statutes and in accordance with the Town’s Investment Policy ( Policy) to invest in the

following:

􀂷 San Mateo County Investment Pool Fund ( SMCPIF)

􀂷 State Local Agency Investment Fund ( LAIF)

􀂷 Insured and/ or collateralized certificates of deposit

The Policy, in addition to State statutes, establishes that funds on deposit in banks must be federally insured or

collateralized and investments shall ( 1) have maximum maturity not to exceed five years, ( 2) be laddered and based on

cash flow forecasts; and ( 3) be subject to limitations to a certain percent of the portfolio for each of the authorized

investments. The Town’s investments comply with the established policy.

In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External

Pools, investments were stated at fair value using the aggregate method in all funds and component units, resulting in the

following investment income:

Realized gain/( loss) on matured/ sold investments $ -

Unrealized gain/( loss) in changes in fair value of

investments ( 212,608)

Net gain/( loss) ( 212,608)

Interest income 323,097

Total investment income $ 110,489

44

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

The calculation of realized gains and losses is independent of a calculation of the net change in the fair value of

investments. Realized gains and losses in investments that had been held in more than one fiscal year that matured or were

called / sold in the current year were included as a change in the fair value of investments reported in the prior year( s) and

the current year.

The Town’s portfolio value fluctuates in an inverse relationship to any change in interest rate. Accordingly, if interest rates

rise, the portfolio value will decline. If interest rates fall, the portfolio value will rise.

In accordance with GASB Statement No. 31, the portfolio, for year- end reporting purposes, is treated as if it were all sold.

Therefore, fund balance reflects the portfolio’s change in value. These portfolio value changes are unrealized unless sold.

The Town’s policy is to buy and hold investments until their maturity dates.

C. Summary of Cash and Investments

The following is a summary of cash and investments at June 30, 2006:

Government -

Wide

Governmental

Activities

Fiduciary Funds

Statement of Net

Assets Total

Cash and investments $ 15,956,920 $ 147,755 $ 16,104,675

Deposits and investments were categorized as follows at June 30, 2006:

Credit Quality

Ratings Fair Value Days to Maturity

Town Treasury Deposits:

Deposits Not Rated $ 726,577 N/ A

Petty Cash Not Rated 700 N/ A

Total Town treasury deposits 727,277

Town Treasury Investments:

San Mateo County Investment Pool Funds Not Rated 11,259,426 N/ A

Local Agency Investment Funds Not Rated 4,117,972

Total Town treasury investments 15,377,398

Total cash and investments $ 16,104,675

45

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

D. Risk Disclosures

Interest Rate Risk. As a means of limiting its exposure to fair value losses arising from rising interest rates, the Town's

investment policy requires that at least 30% of the Town's investment portfolio mature in less than one year. Additional

limitations are that the average maturity of the investment portfolio will not exceed three years, and no investment will

have a maturity of more than five years from its date of purchase. The Town has no other risk or exposure which require

disclosure.

E. Investments in Local Agency Investment Funds ( LAIF)

The Town's investments with the LAIF at June 30, 2006, included a portion of the pool funds invested in Structured Notes

and Asset- Backed Securities. These investments included the following:

Structured Notes are debt securities ( other than asset- backed securities) whose cash flow characteristics

( coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/ or have

embedded forwards or options.

Asset- Backed Securities, the bulk of which are mortgage- backed securities, entitle their purchasers to receive a

share of the cash flows from a pool of assets such as principal and interest repayments from a pool of

mortgages ( such as Collateralized Mortgage Obligations) or credit card receivables.

As of June 30, 2006, the Town had $ 4,117,972 invested in LAIF, which had invested 2.567% of the pool investment funds in

Structured Notes and Asset- Backed Securities.

The Town valued its investments in LAIF as of June 30, 2006, by multiplying its account balance with LAIF by a fair value

factor determined by LAIF. This fair value factor was determined by dividing all LAIF participants' total aggregate fair

value by total aggregate amortized cost resulting in a factor of .998185821.

F. Investments in San Mateo County Pooled Investment Fund

The Town invests in the San Mateo County Pooled Investment Fund ( SMCPIF), an external investment pool. The pool

determines fair value on its investment portfolio based on market quotations for those securities where market quotations

are readily available and based on amortized cost or best estimate for those securities where market value is not readily

available.

As of June 30, 2006, the Town had $ 11,259,426 invested in SMCPIF. The Town valued its investments in SMCPIF as of June

30, 2006, by multiplying its account balance with SMCPIF by a fair value factor determined by SMCPIF. This fair value

factor was determined by dividing all SMCPIF participants' total aggregate fair value by total aggregate amortized cost

resulting in a factor of .982108.

46

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

G. Summary of Investment to Maturity

Investments held in the Town grouped by maturity date at June 30, 2006 were as follows:

Maturity

Current to one year $ 16,105,375

Total $ 16,105,375

3. RECEIVABLES

A. Government- Wide and Fund Financial Statements

At June 30, 2006, the Government- Wide and Fund Financial Statements show the following receivables:

Accounts Receivable

As of June 30, 2006, accounts receivable consists of the following items:

Property tax $ 56,460

Measure A sales tax 4,276

Franchise fee 50,251

Grants 115,188

Other accounts receivable 96,992

Total accounts receivable $ 323,167

4. CAPITAL ASSETS

In accordance with GASB Statement No. 34, the Town has reported all capital assets including infrastructure acquired in

the current year in the Government- Wide Statement of Net Assets. The Town has elected to use the basic approach as

defined by GASB Statement No. 34 for all infrastructure reporting, whereby depreciation expense and accumulated

depreciation have been recorded.

Capital assets include land, buildings, and equipment used in Town operations. Infrastructure includes roads, bridges,

curbs, sidewalks, drainage systems, street and traffic lights, park improvements and other improvements used by all

citizens.

47

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

A. Government- Wide Financial Statements

The following is a summary of capital assets for governmental activities:

Balance

July 1, 2005 Additions Retirements

Inventory

Adjustments

Transfers Balance

June 30, 2006

Governmental Activities:

Capital assets, not being

depreciated:

Land $ 690,884 $ - $ - $ - $ - $ 690,884

Construction in progress 30,258 1,058,724 - 455,363 ( 659,123) 885,222

Total non depreciable assets 721,142 1,058,724 - 455,363 ( 659,123) 1,576,106

Capital assets, being depreciated:

Buildings 1,668,094 - - - - 1,668,094

Other improvements 618,127 151,162 ( 19,758) - - 749,531

Vehicles 499,462 65,276 - - - 564,738

Equipment - computer 44,985 5,996 ( 8,495) - - 42,486

Equipment - furniture/ equipment 419,094 - ( 10,712) - - 408,382

Infrastructure 46,044,631 - ( 346,180) 396,610 659,123 46,754,184

Total depreciable assets 49,294,393 881,557 ( 385,145) 396,610 659,123 50,187,415

Accumulated Depreciation:

Buildings ( 621,173) ( 37,392) - - - ( 658,565)

Other improvements ( 488,641) ( 20,609) 11,854 - - ( 497,396)

Vehicles ( 286,630) ( 73,149) - - - ( 359,779)

Equipment - computer ( 13,810) ( 5,812) 3,034 - - ( 16,588)

Equipment - furniture/ equipment ( 356,506) ( 12,991) 7,498 3,291 - ( 358,708)

Infrastructure ( 21,365,523) ( 1,537,666) 318,469 ( 187,939) - ( 22,772,659)

Total accumulated depreciation ( 23,132,283) ( 1,687,619) 340,855 ( 184,648) - ( 24,663,695)

Depreciable assets, net 26,162,110 ( 806,062) ( 44,290) 211,962 - 25,523,720

Governmental activities

capital assets, net $ 26,883,252 $ 252,662 $ ( 44,290) $ 667,325 $ - $ 27,099,826

Governmental activities depreciation expenses for capital assets for the year ended June 30, 2006 are as follows.

General Government

General Government, related to Internal Service

$ 1,559,291

78,961

Public Works Administration 39,927

Police 9,440

Total depreciation expense $ 1,687,619

48

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

5. COMPENSATED ABSENCES

The Town’s compensated absences consist of accrued vacation pay, floating holiday pay for all regular employees and paid

time off and floating holiday pay for management employees. Some employees are allowed to accrue compensatory time.

The total amount of the accrued liability is recorded in the Government- Wide Financial Statements and charges for

compensated absences expense is charged to the various program activities. The net activity for compensated absences for

2005- 06 is $ 52,458.

Summary of changes in compensated absences for the year ended June 30, 2006 is as follows.

Balance

July 1, 2005 Additions Deductions

Balance

June 30, 2006

Governmental Activities $ 572,680 $ 242,840 $ ( 190,382) $ 625,138

Total $ 572,680 $ 242,840 $ ( 190,382) $ 625,138

6. INTERFUND TRANSACTIONS

A. Due To/ From Other Funds

At June 30, 2006, the Town had the following short- term receivables and payables:

Due from Other Funds

Due to Other Funds General Fund Total

Governmental Funds

Non- major Governmental Funds $ 62,101 $ 62,101

Total $ 62,101 $ 62,101

The Town has recorded due from/ due to all funds requiring cash at June 30, 2006. The short- term loans will be repaid

during fiscal year 2007.

B. Interfund Transfers

49

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

Transfers during the fiscal year ended June 30, 2006 comprise the following:

Transfers Out

Governmental

Funds

Transfers In Road

Construction

Special Revenue

Non- major

Governmental

Funds Total

Governmental Funds

General Fund $ 310,000 $ 994,000 $ 1,304,000

Total $ 310,000 $ 994,000 $ 1,304,000

7. EMPLOYEE RETIREMENT PLANS

A. Plan Description

The Town contributes to the California Public Employees Retirement System ( PERS), an agent multiple- employer public

employee defined benefit pension plan. PERS provides retirement and disability benefits, annual cost- of- living adjustments

and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for

participating public entities within the State of California. Benefit provisions and all other requirements are established by

state statute and Town ordinance. Copies of PERS’ annual financial report may be obtained from their Executive Office

located at 400 P Street, Sacramento, CA 95814.

B. Funding Policy

Active plan members are required by state statute to contribute 7% for miscellaneous and 9% for safety employees of their

annual covered salary. The Town makes the contributions required of Town employees on their behalf and for their

account, which amounted to $ 342,138 for the year ended June 30, 2006.

The Town, as employer, is required to contribute an actuarially determined payment that is reflected as a percentage of

annual covered payroll for miscellaneous and safety employees. The contribution rate for the fiscal year 2006 was 13.095%

for miscellaneous employees and 31.551% for safety employees.

50

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

C. Annual Pension Cost

For the fiscal year 2006, the Town’s annual pension cost of $ 911,806 for PERS was equal to the Town’s required

contribution. The required contribution was determined as a part of the June 30, 2004 actuarial valuation using the entry

age method. The actuarial assumptions included ( a) 7.75% investment rate of return ( net of administrative expenses), ( b)

projected salary increases that range from 3.25% to 14.45% for miscellaneous and 3.25% to 13.15% for safety employees

depending on age, service and type of employment, and ( c), 3.25% per year cost- of- living adjustments for retirees. Both ( a)

and ( b) included an inflation component of 3.0%. The actuarial value of PERS assets was determined using techniques that

smooth the effects of short- term volatility in the market value of investments over a three year period. The average

remaining amortization period at June 30, 2004 was 17 years for miscellaneous and 17 years for safety employees for prior

and current service unfunded liabilities.

Three- Year Trend Information for PERS

Fiscal Year

Annual Pension

Cost ( APC)

Percentage of

APC

Contributed

Net Pension

Obligation

6/ 30/ 2004 $ 451,373 100% $ -

6/ 30/ 2005 $ 818,899 100% $ -

6/ 30/ 2006 $ 911,806 100% $ -

8. RISK MANAGEMENT

A. Risk Pool

The Town belongs to ABAG Plan Corporation, which covers general liability claims in an amount up to $ 5,000,000. The

Town has a deductible or uninsured liability of up to $ 25,000 per claim. Once the Town's deductible is met, the ABAG Plan

becomes responsible for payment of all claims up to the limit. Other coverage includes Risk Property Coverage with a total

insured value of $ 1,669,000,000 with a deductible of $ 25,000 for property damage and $ 10,000 for auto/ vehicle damage,

and Public Official Bond insurance of $ 1,000,000 with a deductible of $ 5,000. During the fiscal year ended June 30, 2006, the

Town contributed $ 113,942 for current year coverage.

The Cities Group covers workers' compensation claims up to $ 750,000 each and has coverage above that limit to a

maximum of $ 12,400,000. The Town has no deductible for the claims. During the fiscal year ended June 30, 2006, the Town

contributed $ 62,127 for current year coverage.

Each risk pool is governed by a board consisting of representatives from member municipalities. The board controls the

operations of each risk pool, including selection of management and approval of operating budgets, independent of any

influence by member municipalities beyond their representation on the board. The Town's contributions to each risk pool

equal the ratio of the Town's payroll to the total payrolls of all entities participating in the same layer of each program, in

each program year. Actual surpluses or losses are shared according to a formula developed from overall loss costs and

51

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

spread to member entities on a percentage basis after a retrospective rating.

B. Liability for Uninsured Claims

Municipalities are required to record their liability of uninsured claims and to reflect the current portion of this liability as

expenditure in their financial statements. As discussed above, the Town has coverage for such claims, but it has retained

the risk for deductible or uninsured portions of these claims. The Town includes its claims liability amount as part of

accounts payable, since the amount is considered a current liability. The Town's liability for uninsured claims based on

claims experience was computed as follows:

Liability Balance

July 1

Current Year

Claims and

Changes in

Estimates

Claims Payments

for Current and

Prior Fiscal Years

Liability Balance

June 30

2003- 04 $ - $ 101,052 $ ( 47,087) $ 53,965

2004- 05 53,965 53,500 ( 41,390) 66,075

2005- 06 66,075 7,400 66,025 7,450

9. JOINT VENTURES

The Town participates in several active joint ventures through formally organized and separate entities established under

the Joint Exercise of Powers Act of the State of California. As separate legal entities, these entities exercise full powers and

authorities within the scope of the related Joint Powers Agreement ( JPA), including selection of management and approval

of operating budgets, independent of any influences by each member beyond representation on each Board. Obligations

and liabilities of these joint ventures are not the Town's responsibility, and the Town does not have an equity interest in the

assets of each joint venture except upon dissolution.

A. Town/ County Association of Governments ( C/ CAG)

C/ CAG was established under a 1990 Joint Exercise of Powers Agreement between the Town, the County and a majority of

cities and towns within the County for the purpose of developing State mandated plans. Members of C/ CAG pay their

pro- rata share of the total annual contributions required based on the member's 1990 population. Financial statements for

C/ CAG may be obtained by mailing a request to the Town of San Carlos, 666 Elm Street, San Carlos, California 94070.

B. South Bayside Waste Management Authority ( Authority)

The Authority is a joint powers agreement formed on October 13, 1999 for the purpose of joint ownership, financing and

administration of the San Carlos Transfer Station and the San Mateo Recyclery; and the planning, administration, review,

monitoring, enforcement and reporting of solid waste and recyclable material within the Authority's service area.

52

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

Members of the Authority include 11 municipalities located on the mid and lower Peninsula as well as certain

unincorporated areas within the County. The Authority is controlled by a 12- member board consisting of one

representative from each community. Through the operation of franchise agreements, BFI Waste Systems of North America

Inc. provides refuse and recyclable materials collection and disposal services for the benefit of residents and businesses of

each member agency.

C. Alcohol Violation Temporary Housing Authority ( AVTHA)

AVTHA was established between the County and most of the cities and towns in the County to provide temporary housing

and counseling to persons accused of alcohol related law violations. AVTHA contracts with an operator to provide such

services. The costs of operating the temporary housing are allocated to each member based on alcohol related arrests

occurring within each member's jurisdiction. Financial statements for AVTHA may be obtained by mailing a request to

Redwood City, 801 Marshall Street, Suite 600, Redwood City, California 94063.

D. Library Joint Powers Agreement

In December 1998, the Town joined with the County and ten other municipalities in the County to coordinate and expand

library services throughout the County, including those in the Town.

Property tax revenues in excess of the JPA's costs of maintaining the library are remitted to the Town and are deposited

into the Library Special Revenue fund. Expenditures of this fund are subject to the approval of the Library JPA.

10. COMMITMENTS AND CONTINGENCIES

The Town is subject to litigation arising in the normal course of business. In the opinion of the Town Attorney, there is no

pending litigation which is likely to have a material adverse effect on the financial position of the Town.

11. RESTATEMENTS OF PRIOR PERIOD BALANCES

During the fiscal year 2006, the Town completed its implementation of GASB Statement No. 34 which resulted in the

following adjustment:

GASB 34

Adjustments

Net Assets as

Previously

Reported

Capital Assets,

Net

Net Assets as

Restated

Net Assets $ 38,974,700 $ 667,325 $ 39,642,025

53

Town of Atherton

Notes to the Basic Financial Statements, Continued

For the year ended June 30, 2006

12. DISCLOSURE OF SUBSEQUENT EVENTS

At the regularly scheduled meeting of September 20th, 2006 the Atherton City Council adopted a resolution to:

􀂷 Rescind the $ 22 per cubic yard surcharge on all excavation activity requiring the removal and transportation

across the Town’s roadways; and,

􀂷 Refund with interest all excavation surcharges collected since the May 16th, 2005 effective date of the excavation

surcharge.

The City Council’s decision to rescind and refund excavation surcharges was based upon a consensus among the Council

that the fee had become unduly burdensome on those who wanted to develop their property. The effect upon the Road

Impact Fund in FY 2006- 07 will amount to an estimated $ 800,000 one- half of which represents monies collected in FY

2005- 06 that will be refunded in FY 2006- 07. Sufficient reserves exist within the Road Impact Fee fund to comply with the

Decision of the Council.

54

REQUIRED SUPPLEMENTARY INFORMATION

55

Town of Atherton

Required Supplementary Information

For the year ended June 30, 2006

The most recent information available from the Public Employee Retirement System follows.

PUBLIC EMPLOYEE RETIREMENT SYSTEM

SCHEDULE OF FUNDING PROGRESS

SAFETY PLAN

Valuation

Date

Entry Age

Accrued

Liability

Value of

Assets

Unfunded

( Overfunded)

Liability

Funded

Ratio

Annual

Covered

Payroll

Unfunded

( Overfunded)

Liability as %

of Payroll

2002 $ 13,981,721 $ 12,469,898 $ 1,511,823 89.2% $ 1,609,221 93.95%

2003 4,270,573,982 3,577,742,166 692,831,816 83.8% 476,089,674 145.53%

2004 5,383,921,942 4,424,586,846 959,335,096 82.2% 575,296,434 166.75%

CalPERS Risk Pool Information ( See note below)

MISCELLANEOUS PLAN

Valuation

Date

Entry Age

Accrued

Liability

Value of

Assets

Unfunded

( Overfunded)

Liability

Funded

Ratio

Annual

Covered

Payroll

Unfunded

( Overfunded)

Liability as %

of Payroll

2002 $ 5,175,328 $ 5,236,789 $ ( 61,461) 101.2% $ 2,155,176 ( 2.85)%

2003 2,596,966,545 2,372,879,034 224,087,511 91.4% 725,020,458 30.91%

2004 2,746,095,668 2,460,944,656 285,151,012 89.6% 743,691,970 38.34%

CalPERS Risk Pool Information ( See note below)

As of the actuarial valuation date of June 30, 2004, the Town's miscellaneous plan became part of a CalPERS Risk Pool for

employers with less than 100 active plan members. The schedule of funding programs for miscellaneous employees

presented above for June 30, 2004, is for the whole pool and not that of the Town individually.

56

Town of Atherton

Required Supplementary Information

Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual -

General Fund

For the year ended June 30, 2006

Budget Final Budget Actual Variance from

Final Budget

Favorable

( Unfavorable)

REVENUES

Property taxes $ 3,651,651 $ 3,651,651 $ 4,075,437 $ 423,786

Sales taxes 126,000 126,000 167,393 41,393

Other taxes 830,760 830,760 1,350,921 520,161

Permits and licenses 1,839,879 1,839,879 1,716,348 ( 123,531)

Fines and forfeitures 35,000 35,000 57,453 22,453

From other agencies 303,166 303,166 444,564 141,398

Service charges 336,208 336,208 335,165 ( 1,043)

Use of money and property 291,633 291,633 323,658 32,025

Other revenues 5,000 5,000 53,416 48,416

TOTAL REVENUES 7,419,297 7,419,297 8,524,355 1,105,058

EXPENDITURES

Current:

General government 1,237,055 1,237,055 908,351 328,704

Public works administration 1,042,371 1,042,371 991,929 50,442

Police 4,521,000 4,521,000 4,112,398 408,602

Streets and public facilities 1,900,584 1,900,584 1,908,078 ( 7,494)

TOTAL EXPENDITURES 8,701,010 8,701,010 7,920,756 780,254

REVENUES OVER ( UNDER) EXPENDITURES ( 1,281,713) ( 1,281,713) 603,599 1,885,312

OTHER FINANCING SOURCES ( USES)

Transfers in 1,301,161 1,301,161 1,304,000 2,839

TOTAL OTHER FINANCING SOURCES ( USES) 1,301,161 1,301,161 1,304,000 2,839

REVENUES AND OTHER FINANCING

SOURCES OVER ( UNDER) EXPENDITURES

AND OTHER FINANCING USES $ 19,448 $ 19,448 1,907,599 $ 1,888,151

FUND BALANCE

Beginning of year 7,582,785

End of year $ 9,490,384

57

Town of Atherton

Required Supplementary Information

Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual -

Library Fund

For the year ended June 30, 2006

Budget Final Budget Actual Variance from

Final Budget

Favorable

( Unfavorable)

REVENUES

Property taxes $ 200,000 $ 200,000 $ 74,872 $ ( 125,128)

From other agencies - - 450,000 450,000

Use of money and property - - 35,269 35,269

TOTAL REVENUES 200,000 200,000 560,141 360,141

EXPENDITURES

Current:

General government 71,045 71,045 - 71,045

Library maintenance - - 27,898 ( 27,898)

TOTAL EXPENDITURES 71,045 71,045 27,898 43,147

REVENUES OVER ( UNDER) EXPENDITURES 128,955 128,955 532,243 403,288

REVENUES AND OTHER FINANCING

SOURCES OVER ( UNDER) EXPENDITURES

AND OTHER FINANCING USES $ 128,955 $ 128,955 532,243 $ 403,288

FUND BALANCE

Beginning of year

1,415,043

End of year $ 1,947,286

58

Town of Atherton

Required Supplementary Information

Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual -

Road Construction Fund

For the year ended June 30, 2006

Budget Final Budget Actual Variance from

Final Budget

Favorable

( Unfavorable)

REVENUES

Use of money and property $ - $ - $ 18,139 $ 18,139

Road impact fees 1,158,328 1,158,328 1,169,195 10,867

TOTAL REVENUES 1,158,328 1,158,328 1,187,334 29,006

EXPENDITURES

Current:

Streets and public facilities 1,288,671 1,288,671 335,825 952,846

TOTAL EXPENDITURES 1,288,671 1,288,671 335,825 952,846

REVENUES OVER ( UNDER) EXPENDITURES ( 130,343) ( 130,343) 851,509 981,852

OTHER FINANCING SOURCES ( USES)

Transfers ( out) ( 310,000) ( 310,000) ( 310,000) -

TOTAL OTHER FINANCING SOURCES ( USES) ( 310,000) ( 310,000) ( 310,000) -

REVENUES AND OTHER FINANCING

SOURCES OVER ( UNDER) EXPENDITURES

AND OTHER FINANCING USES $ ( 440,343) $ ( 440,343) 541,509 $ 981,852

FUND BALANCE

Beginning of year

832,050

End of year $ 1,373,559

59

SUPPLEMENTARY INFORMATION

60

This page intentionally left blank.

61

NON- MAJOR GOVERNMENTAL FUNDS

62

Town of Atherton

Combining Balance Sheet

Non- Major Governmental Funds

June 30, 2006

Special Revenue

Transportation Tennis Supplemental

Law

Enforcement

Services

State Park

Grants

ASSETS

Cash and investments in treasury $ 527,577 $ 23,691 $ 11,153 -

Accounts - - - 98,133

TOTAL ASSETS $ 527,577 $ 23,691 $ 11,153 $ 98,133

LIABILITIES AND FUND BALANCE

LIABILITIES

Accounts payable $ - $ - $ - $ 36,032

Accrued payroll - - - -

Due to other funds - - - 62,101

TOTAL LIABILITIES - - - 98,133

FUND BALANCE

Reserved for:

Encumbrances 483,502 - - -

Contingency 15,300 - - -

Undesignated 28,775 23,691 11,153 -

TOTAL FUND BALANCE 527,577 23,691 11,153 -

TOTAL LIABILITIES AND FUND BALANCE $ 527,577 $ 23,691 $ 11,153 $ 98,133

63

Special Revenue Capital Projects

Special Tax Police on the

Street

Gas Tax COPS Grant Storm Drainage Facilities

Construction

Channel

Drainage District

$ 1,005,832 $ 4,455 $ 69,090 $ 5,983 $ 43,455 $ 66,529 $ 39,068

- - 33,784 - - - 170

$ 1,005,832 $ 4,455 $ 102,874 $ 5,983 $ 43,455 $ 66,529 $ 39,238

$ - $ - $ - $ - $ - $ - $ 3,198

- - - 5,649 - - -

- - - - - - -

- - - 5,649 - - 3,198

1,003,400 - 58,013 - - - 36,040

- - - - - - -

2,432 4,455 44,861 334 43,455 66,529 -

1,005,832 4,455 102,874 334 43,455 66,529 36,040

$ 1,005,832 $ 4,455 $ 102,874 $ 5,983 $ 43,455 $ 66,529 $ 39,238

( Continued)

64

Town of Atherton

Combining Balance Sheet

Non- Major Governmental Funds

June 30, 2006

Capital Projects

Capital

Improvement

Total

ASSETS

Cash and investments in treasury $ 258,425 $ 2,055,258

Accounts - 132,087

TOTAL ASSETS $ 258,425 $ 2,187,345

LIABILITIES AND FUND BALANCE

LIABILITIES

Accounts payable $ - 39,230

Accrued payroll - 5,649

Due to other funds - 62,101

TOTAL LIABILITIES - 106,980

FUND BALANCE

Reserved for:

Encumbrances - 1,580,955

Contingency - 15,300

Undesignated 258,425 484,110

TOTAL FUND BALANCE 258,425 2,080,365

TOTAL LIABILITIES AND FUND BALANCE $ 258,425 $ 2,187,345

65

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66

Town of Atherton

Combining Statement of Revenues, Expenditures and Changes in Fund Balances

Non- Major Governmental Funds

For the year ended June 30, 2006

Special Revenue

Transportation Tennis Supplemental

Law

Enforcement

Services

State Park

Grants

REVENUES

Property taxes $ - $ - $ - $ -

Special assessments - - - -

Measure A grants 246,083 - - -

From other agencies - - - 57,733

Service charges - 6,000 - -

Use of money and property 7,609 251 - 9

TOTAL REVENUES 253,692 6,251 - 57,742

EXPENDITURES

Current:

Parks and recreation - 4,402 - -

Police - - - -

Streets and public facilities 31,800 - - 96,430

TOTAL EXPENDITURES 31,800 4,402 - 96,430

REVENUES OVER ( UNDER) EXPENDITURES 221,892 1,849 - ( 38,688)

OTHER FINANCING SOURCES ( USES)

Transfers ( out) ( 25,000) - - -

TOTAL OTHER FINANCING SOURCES ( USES) ( 25,000) - - -

REVENUES AND OTHER FINANCING SOURCES OVER

( UNDER) EXPENDITURES AND OTHER FINANCING USES

196,892 1,849 - ( 38,688)

FUND BALANCES:

Beginning of year 330,685 21,842 11,153 38,688

End of year $ 527,577 $ 23,691 $ 11,153 $ -

67

Special Revenue Capital Projects

Special Tax Police on the

Street

Gas Tax COPS Grant Storm Drainage Facilities

Construction

Channel

Drainage District

$ - $ - $ - $ - $ - $ - $ 53,302

1,839,347 - - - - - -

- - - - - - -

- - 190,726 100,551 - - 1,044

- - - - - - -

12,136 - 984 879 756 1,147 4,520

1,851,483 - 191,710 101,430 756 1,147 58,866

- - - - - - -

- - - 114,854 - - -

1,094,394 - 23,250 - 2,563 - 457,758

1,094,394 - 23,250 114,854 2,563 - 457,758

757,089 - 168,460 ( 13,424) ( 1,807) 1,147 ( 398,892)

( 864,000) - ( 100,000) - - - ( 5,000)

( 864,000) - ( 100,000) - - - ( 5,000)

( 106,911) - 68,460 ( 13,424) ( 1,807) 1,147 ( 403,892)

1,112,743 4,455 34,414 13,758 45,262 65,382 439,932

$ 1,005,832 $ 4,455 $ 102,874 $ 334 $ 43,455 $ 66,529 $ 36,040

( Continued)

68

Town of Atherton

Combining Statement of Revenues, Expenditures and Changes in Fund Balances

Non- Major Governmental Funds

For the year ended June 30, 2006

Capital Projects

Capital

Improvement

Total

REVENUES

Property taxes $ - $ 53,302

Special assessments - 1,839,347

Measure A grants - 246,083

From other agencies - 350,054

Service charges - 6,000

Use of money and property 4,454 32,745

TOTAL REVENUES 4,454 2,527,531

EXPENDITURES

Current:

Parks and recreation - 4,402

Police ( 1) 114,853

Streets and public facilities - 1,706,195

TOTAL EXPENDITURES ( 1) 1,825,450

REVENUES OVER ( UNDER) EXPENDITURES 4,455 702,081

OTHER FINANCING SOURCES ( USES)

Transfers ( out) - ( 994,000)

TOTAL OTHER FINANCING SOURCES ( USES) - ( 994,000)

REVENUES AND OTHER FINANCING SOURCES OVER

( UNDER) EXPENDITURES AND OTHER FINANCING USES

4,455 ( 291,919)

FUND BALANCES:

Beginning of year 253,970 2,372,284

End of year $ 258,425 $ 2,080,365

69

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70

NON- MAJOR SPECIAL REVENUE BUDGET TO ACTUAL COMPARISONS

The following funds are not included in this section because budgets are not prepared:

􀂷 Supplemental Law Enforcement Services

􀂷 Police on the Street

71

Town of Atherton

Required Supplementary Information

Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual -

State Park Grants Fund

For the year ended June 30, 2006

Budget Final Budget Actual Variance from

Final Budget

Favorable

( Unfavorable)

REVENUES

From other agencies $ 197,399 $ 197,399 $ 57,733 $ ( 139,666)

Use of money and property - - 9 9

TOTAL REVENUES 197,399 197,399 57,742 ( 139,657)

EXPENDITURES

Current:

Streets and public facilities 196,736 196,736 96,430 100,306

TOTAL EXPENDITURES 196,736 196,736 96,430 100,306

REVENUES OVER ( UNDER) EXPENDITURES 663 663 ( 38,688) ( 39,351)

REVENUES AND OTHER FINANCING

SOURCES OVER ( UNDER) EXPENDITURES

AND OTHER FINANCING USES $ 663 $ 663 ( 38,688) $ ( 39,351)

FUND BALANCE

Beginning of year

38,688

End of year $ -

72

Town of Atherton

Required Supplementary Information

Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual -

COPS Grant Fund

For the year ended June 30, 2006

Budget Final Budget Actual Variance from

Final Budget

Favorable

( Unfavorable)

REVENUES

From other agencies $ 100,000 $ 100,000 $ 100,551 $ 551

Use of money and property - - 879 879

TOTAL REVENUES 100,000 100,000 101,430 1,430

EXPENDITURES

Current:

General government 100,000 100,000 - 100,000

Police - - 114,854 ( 114,854)

TOTAL EXPENDITURES 100,000 100,000 114,854 ( 14,854)

REVENUES OVER ( UNDER) EXPENDITURES - - ( 13,424) ( 13,424)

REVENUES AND OTHER FINANCING

SOURCES OVER ( UNDER) EXPENDITURES

AND OTHER FINANCING USES $ - $ - ( 13,424) $ ( 13,424)

FUND BALANCE

Beginning of year

13,758

End of year $ 334

73

Town of Atherton

Required Supplementary Information

Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual -

Gas Tax Fund

For the year ended June 30, 2006

Budget Final Budget Actual Variance from

Final Budget

Favorable

( Unfavorable)

REVENUES

From other agencies $ 172,376 $ 172,376 $ 190,726 $ 18,350

Use of money and property - - 984 984

TOTAL REVENUES 172,376 172,376 191,710 19,334

EXPENDITURES

Current:

Streets and public facilities 50,000 50,000 23,250 26,750

TOTAL EXPENDITURES 50,000 50,000 23,250 26,750

REVENUES OVER ( UNDER) EXPENDITURES 122,376 122,376 168,460 46,084

OTHER FINANCING SOURCES ( USES)

Transfers ( out) ( 100,000) ( 100,000) ( 100,000) -

TOTAL OTHER FINANCING SOURCES ( USES) ( 100,000) ( 100,000) ( 100,000) -

REVENUES AND OTHER FINANCING

SOURCES OVER ( UNDER) EXPENDITURES

AND OTHER FINANCING USES $ 22,376 $ 22,376 68,460 $ 46,084

FUND BALANCE

Beginning of year

34,414

End of year $ 102,874

74

Town of Atherton

Required Supplementary Information

Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual -

Transportation Fund

For the year ended June 30, 2006

Budget Final Budget Actual Variance from

Final Budget

Favorable

( Unfavorable)

REVENUES

Measure A grants $ 180,000 $ 180,000 $ 246,083 $ 66,083

Use of money and property - - 7,609 7,609

TOTAL REVENUES 180,000 180,000 253,692 73,692

EXPENDITURES

Current:

Streets and public facilities 298,420 298,420 31,800 266,620

TOTAL EXPENDITURES 298,420 298,420 31,800 266,620

REVENUES OVER ( UNDER) EXPENDITURES ( 118,420) ( 118,420) 221,892 340,312

OTHER FINANCING SOURCES ( USES)

Transfers ( out) ( 25,000) ( 25,000) ( 25,000) -

TOTAL OTHER FINANCING SOURCES ( USES) ( 25,000) ( 25,000) ( 25,000) -

REVENUES AND OTHER FINANCING

SOURCES OVER ( UNDER) EXPENDITURES

AND OTHER FINANCING USES $ ( 143,420) $ ( 143,420) 196,892 $ 340,312

FUND BALANCE

Beginning of year

330,685

End of year $ 527,577

75

Town of Atherton

Required Supplementary Information

Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual -

Special Tax Fund

For the year ended June 30, 2006

Budget Final Budget Actual Variance from

Final Budget

Favorable

( Unfavorable)

REVENUES

Special assessments $ 1,858,000 $ 1,858,000 $ 1,839,347 $ ( 18,653)

Use of money and property - - 12,136 12,136

TOTAL REVENUES 1,858,000 1,858,000 1,851,483 ( 6,517)

EXPENDITURES

Current:

Streets and public facilities 1,767,077 1,767,077 1,094,394 672,683

TOTAL EXPENDITURES 1,767,077 1,767,077 1,094,394 672,683

REVENUES OVER ( UNDER) EXPENDITURES 90,923 90,923 757,089 666,166

OTHER FINANCING SOURCES ( USES)

Transfers ( out) ( 864,000) ( 864,000) ( 864,000) -

TOTAL OTHER FINANCING SOURCES ( USES) ( 864,000) ( 864,000) ( 864,000) -

REVENUES AND OTHER FINANCING

SOURCES OVER ( UNDER) EXPENDITURES

AND OTHER FINANCING USES $ ( 773,077) $ ( 773,077) ( 106,911) $ 666,166

FUND BALANCE

Beginning of year

1,112,743

End of year $ 1,005,832

76

Town of Atherton

Required Supplementary Information

Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual -

Tennis Fund

For the year ended June 30, 2006

Budget Final Budget Actual Variance from

Final Budget

Favorable

( Unfavorable)

REVENUES

Service charges $ 7,000 $ 7,000 $ 6,000 $ ( 1,000)

Use of money and property - - 251 251

TOTAL REVENUES 7,000 7,000 6,251 ( 749)

EXPENDITURES

Current:

General government 25,011 25,011 - 25,011

Parks and recreation - - 4,402 ( 4,402)

TOTAL EXPENDITURES 25,011 25,011 4,402 20,609

REVENUES OVER ( UNDER) EXPENDITURES ( 18,011) ( 18,011) 1,849 19,860

REVENUES AND OTHER FINANCING

SOURCES OVER ( UNDER) EXPENDITURES

AND OTHER FINANCING USES $ ( 18,011) $ ( 18,011) 1,849 $ 19,860

FUND BALANCE

Beginning of year

21,842

End of year $ 23,691

77

FIDUCIARY FUND FINANCIAL STATEMENTS

78

Town of Atherton

Statement of Fiduciary Net Assets

Fiduciary Funds

June 30, 2006

Evans Estate H- P Park

Improvement

Tree Committee

ASSETS

Cash and investments $ 117,346 $ 5,851 $ 24,558

TOTAL ASSETS $ 117,346 $ 5,851 $ 24,558

LIABILITIES

Deposits payable $ 117,346 $ 5,851 $ 24,558

TOTAL LIABILITIES $ 117,346 $ 5,851 $ 24,558

See accompanying Notes to the Basic Financial Statements.

79

Total

$ 147,755

$ 147,755

147,755

$ 147,755

80

Town of Atherton

Statement of Changes in Assets and Liabilities

Fiduciary Funds - Agency Funds

For the year ended June 30, 2006

Balance

July 1, 2005 Additions Deletions

Balance

June 30, 2006

Evans Creative Design Fund

Assets:

Cash and investments $ 113,204 $ 5,326 $ ( 1,184) $ 117,346

Interest receivable 1,877 - ( 1,877) -

Total assets $ 115,081 $ 5,326 $ ( 3,061) $ 117,346

Liabilities:

Accounts payable $ - $ 1,184 $ ( 1,184) $ -

Deposits payable 115,081 3,708 ( 1,443) 117,346

Total liabilities $ 115,081 $ 4,892 $ ( 2,627) $ 117,346

MA Little League

Assets:

Cash and investments $ - $ 2,910 $ ( 2,910) $ -

Total assets $ - $ 2,910 $ ( 2,910) $ -

Liabilities:

Deposits payable $ - $ - $ - $ -

Total liabilities $ - $ - $ - $ -

H- P Park Improvement Fund

Assets:

Cash and investments $ 5,851 $ - $ - $ 5,851

Total assets $ 5,851 $ - $ - $ 5,851

Liabilities:

Deposits payable $ 5,851 $ - $ - $ 5,851

Total liabilities $ 5,851 $ - $ - $ 5,851

Tree Committee

Assets:

Cash and investments $ 4,617 $ 40,428 $ ( 20,487) $ 24,558

Total assets $ 4,617 $ 40,428 $ ( 20,487) $ 24,558

Liabilities:

Accounts payable $ 580 $ 4,948 $ ( 5,528) $ -

Deposits payable 4,037 42,544 ( 22,023) 24,558

Total liabilities $ 4,617 $ 48,072 $ ( 26,971) $ 24,558

All Agency Funds

Assets:

Cash and investments $ 123,672 $ 48,664 $ ( 24,581) $ 147,755

Interest receivable 1,877 - ( 1,877) -

Total assets $ 125,549 $ 48,664 $ ( 26,458) $ 147,755

Liabilities:

Accounts payable $ 580 $ 6,132 $ ( 6,712) $ -

Deposits payable 124,969 46,252 ( 23,466) 147,755

Total liabilities $ 125,549 $ 52,964 $ ( 29,598) $ 147,755