Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2005
TOWN OF HILLSBOROUGH, CALIFORNIA
Comprehensive Annual Financial Report
For The Fiscal Year Ended
June 30, 2005
Prepared by:
Finance Department
Town of Hillsborough
Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2005
TABLE OF CONTENTS
INTRODUCTORY SECTION
Letter of Transmittal ----------------------------------------------------------------------------------- 1
GFOA Certificate of Achievement ------------------------------------------------------------------- 5
CSFMO Certificate of Award ------------------------------------------------------------------------- 6
Organizational Chart and Principal Officials ------------------------------------------------------ 7
FINANCIAL SECTION
Independent Auditors’ Report ------------------------------------------------------------------------ 9
Management’s Discussion and Analysis ---------------------------------------------------------- 11
Basic Financial Statements:
Government- wide Financial Statements:
Statement of Net Assets -------------------------------------------------------------------- 21
Statement of Activities ---------------------------------------------------------------------- 22
Fund Financial Statements:
Balance- Sheet Governmental Funds ---------------------------------------------------- 23
Statement of Revenues, Expenditures and Changes in Fund
Balances – Governmental Funds ------------------------------------------------------- 24
Reconciliation of the Statement of Revenues, Expenditures
and Changes in Fund Balances of Governmental Funds to
the Statement of Activities ---------------------------------------------------------------- 25
Statement of Net Assets – Proprietary Funds ----------------------------------------- 26
Statement of Revenues, Expenses and Changes in Fund Net
Assets – Proprietary Funds -------------------------------------------------------------- 27
Statement of Cash Flows – Proprietary Funds ---------------------------------------- 28
Notes to the Financial Statements ------------------------------------------------------------- 29
Required Supplementary Information:
Schedule of Funding Progress – Employees Retirement System --------------------- 47
Schedule of Revenues, Expenditures and Changes in Fund
Balances – Budget and Actual – General Fund ------------------------------------- 48
Schedule of Revenues, Expenditures and Changes in Fund
Balances – Budget and Actual – Police and Fire Special Tax Fund ----------- 49
Note to Required Supplementary Information ---------------------------------------------- 50
Combining Statements and Individual Fund Schedules:
Nonmajor Governmental Funds:
Combining Balance Sheet – Nonmajor Governmental Funds -------------------------- 51
Combining Statement of Revenues, Expenditures and Changes in
Fund Balances – Nonmajor Governmental Funds ----------------------------------- 52
Schedule of Revenues, Expenditures and Changes in Fund
Balances – Budget and Actual
Gas Tax Fund --------------------------------------------------------------------------------- 53
Measure “ A” Fund ---------------------------------------------------------------------------- 54
Police Grants Fund -------------------------------------------------------------------------- 55
Capital Assets Used in the Operation of Governmental Funds:
Comparative Schedules by Source ------------------------------------------------------ 57
Schedule by Function and Activity ------------------------------------------------------- 58
Schedule of Changes by Function and Activity --------------------------------------- 59
STATISTICAL SECTION
Net Assets by Component ----------------------------------------------------------------------- 61
Changes in Net Assets --------------------------------------------------------------------------- 62
Governmental Activities Tax Revenues by Source ---------------------------------------- 63
Fund Balances of Governmental Funds ----------------------------------------------------- 64
Changes in Fund Balances --------------------------------------------------------------------- 65
Assessed Values of Taxable Property -------------------------------------------------------- 66
Property Tax Rates -------------------------------------------------------------------------------- 67
Principal Property Taxpayers ------------------------------------------------------------------- 68
Property Tax Levies and Collections ---------------------------------------------------------- 69
Ratio of Outstanding Debt by Type ------------------------------------------------------------ 70
Computation of Direct and Overlapping Debt ----------------------------------------------- 71
Legal Debt Margin Information ----------------------------------------------------------------- 72
Schedule of Enterprise Funds Bond Coverage -------------------------------------------- 73
Water and Sewer Rates -------------------------------------------------------------------------- 74
Demographic and Economic Statistics ------------------------------------------------------- 75
Full- Time Equivalent City Government Employees by Function ----------------------- 76
Operating Indicators by Function --------------------------------------------------------------- 77
Capital Assets Statistics by Function ---------------------------------------------------------- 78
INTRODUCTORY SECTION
2
initially included a series of large estates, some of which, over time, were divided into the now
existing mix of large estate parcels, acreage and minimum one- half acre lots. The Town is
located west of Highway 101 and El Camino Real and east of Highway 280 within a short
commute to San Francisco and minutes from San Francisco International Airport. The
community location offers excellent weather and a geographic advantage to its residents.
Greenbelt canyons are located throughout the community’s hilly topography. The community is
well known for its trees and rural nature.
The community residents provide a commendable level of support to the municipal government
and individual departments through a number of advisory bodies, a community beautification
foundation, enhanced communication through a quarterly newsletter, an annual holiday party for
the employees, and other forms of recognition. The residents work diligently at maintaining the
historical and strong family- based community values. Hillsborough’s community based school
system receives many awards and consistently provides high scholastic achievement. There are
several private schools located in the community.
The Town currently has a land area of approximately 6.23 square miles and a population of
10,983. It is empowered to levy a property tax on both real and personal property located within
its boundaries. The Town has also approved a public safety special tax designated for public
safety operations and capital expenditures including paramedic and fire automatic aid response
programs, and a voter- approved ½ % sales tax designated for streets and road purposes.
The Town operates under the council- manager form of government. Policy- making and
legislative authority are vested in the governing city council, which consists of a mayor, a vice-mayor
and three council members. Council members are elected to overlapping four- year terms,
in even numbered years. The Council members select the Mayor and Vice- Mayor every year.
The Council is responsible among other things, for passing ordinances, adopting the budget,
appointing commission and board members and hiring the City Manager and the City Attorney.
The City Manager is responsible for carrying out the policies and ordinances of the governing
council, for overseeing the day- to- day operations of the Town, and for appointing the heads of the
town departments.
The Town of Hillsborough provides a full range of services, including police and fire protection,
construction and maintenance of streets and other infrastructure, sanitation services, delivery of
water service and certain recreational activities and other community services.
The annual budget serves as the foundation for the Town of Hillsborough’s financial planning and
control. The Town’s departments are required to submit requests for appropriation to the City
Manager who uses these requests as the starting point for developing a proposed budget. Prior
to June 30 of each year, the City Manager submits to the City Council a proposed operating
budget for review. The Council holds public hearings and a final budget is adopted on or before
June 30.
The appropriated budget is prepared by fund, function, and department. The department heads
may make transfers of appropriations within a department. The City Manager may transfer
budgeted amounts within any fund. Any revisions that alter the total expenditures of any fund
must be approved by the City Council. The legal level of budgetary control ( i. e., the level at which
expenditures may not legally exceed appropriations) is the fund level.
Budget- to- actual comparisons are provided in this report for each individual governmental fund
for which an appropriated annual budget has been adopted. For the general fund and another
major governmental fund, this comparison is presented on pages 48 and 49 as part of the
required supplementary information. For governmental funds other than the major funds, with
appropriated annual budgets, this comparison is presented in the governmental fund subsection
of this report starting on page 53.
3
Factors Affecting Financial Condition
The information presented in the financial statements is perhaps best understood when it is
considered from the broader perspective of the specific environment within which the Town
operates.
Local economy. The Town which heavily relies on property taxes and construction permit
revenues is experiencing the normal change in demographics as older long- term residents are
replaced with younger families. This change has provided increased revenues to the community
through increased assessed value and residential construction permits. Town saw some
improvements to the local economy during the year with increased permit activities and some
robust turnovers on property ownership.
Long- term financial planning.
The Town, as in most governments in the area, is faced with increasing retirement, workers
compensation and health benefits costs. The Town is projected to face some structural gap
between operating revenues and the increasing expenditures. During the last three years, Town
implemented new fees and various permanent revenue enhancements. Additionally, it has
adopted cost- cutting measures such as merging fire operations with the City of Burlingame. As
needed, Town has deferred scheduled funding of the replacement reserves, various capital
improvement projects and has left vacancies unfilled. With an improved financial picture these
last two years, Town was able to resume a certain level of transfers to the replacement reserves.
However, Town management and staff continue to be cautious of the difficult times ahead. With
the help of the volunteer Financial Advisory Committee, Town continues to explore long- term
solutions for the projected shortfalls in the ensuing years such as an alternative funding for library
services and analysis of the public safety tax to determine its sufficiency to cover current program
costs.
Cash management policies and practices. The Town’s cash and investments are managed on
a pooled basis. The average investment portfolio was $ 34 million in fiscal year 2004- 2005. Most
of the funds were invested with the State of California Local Agency Investment Fund ( LAIF)
during the first part of the year until an updated investment policy was later implemented allowing
investments in other instruments. Investment earnings totaled $ 815,331 for the fiscal year ended
June 30, 2004 earning an average return of approximately 2.37%.
Risk management. The town has a limited risk management program for liability and workers’
compensation. The Town is in a public- entity risk pool for workers compensation that is self-insured
for claims up to $ 250,000. Claims in excess of $ 250,000 are insured up to $ 6.1 million.
The Town is self- insured for general liability claims up to $ 50,000 and claims in excess of the self-insurance
retention are insured up to $ 10 million through another public- entity risk pool.
The risk management program of the Town focuses on proactive identification of exposures to
eliminate any potential impacts to public safety and welfare. This is accomplished through the
effective monitoring of the Town programs, particularly those departments with higher risk
exposures, and by providing clear guidance to correct identified exposure.
Pension and other post- employment benefits. The Town provides retirement benefits through
a defined benefit pension plan offered by the public agency portion of the California Public
Employees Retirement System ( CalPERS), an agent multiple- employer public employee plan.
Each year, an independent actuary engaged by CalPERS calculates the amount of the annual
contribution that the Town must make to ensure that the plan will be able to fully meet its
obligations to retired employees on a timely basis. As a matter of policy, the Town fully funds
each year’s annual required contribution to the pension plan as determined by the actuary.
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FINANCIAL SECTION
11
Town of Hillsborough
Management’s Discussion and Analysis
As management of the Town of Hillsborough, we offer readers of the Town’s financial statements
this narrative overview and analysis of the financial activities of the Town of Hillsborough for the
fiscal year ended June 30, 2005. We encourage readers to consider the information presented
here in conjunction with additional information that we have furnished in our letter of transmittal,
which can be found on pages 1- 4 of this report.
Financial Highlights
􀂾 The assets of the Town exceed its liabilities at the close of 2004- 2005 fiscal year by
$ 52,626,522 ( net assets). Of this amount, $ 25,483,859 ( 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 $ 3,034,131; 50% of which from governmental
activities and the other 50% from enterprise operations. Increase in net assets by
approximately $ 1.5 million in governmental activities resulted from better than expected
revenues and by not filling vacant positions. The other $ 1.5 million were from sewer
operations which recognized capital contributions from other governments for
approximately $ 480,000 pursuant to a reimbursement agreement. The other $ 1.1 million
resulted from transactions relating to contractual disposal costs with another government
of which $ 695,000 was classified as other non- operating revenue and the other $ 400,000
recognized with the current year’s operations.
􀂾 As of June 30, 2005, the Town’s governmental funds reported combined ending fund
balances of $ 10,170,431, a 9% increase over the prior year. Except for $ 20,261, these
fund balances are available for spending at the Town’s discretion ( unreserved fund
balances).
􀂾 The Town’s general fund reported a $ 1.4 million increase in fund balance. At the end of
the current fiscal year, unreserved fund balance for the general fund was $ 9,093,870 up
from $ 7,525,440 in 2003- 2004. The fund balance reserve is approximately 62 percent of
total general fund expenditures.
􀂾 Water consumption was down 14% from last year’s due mostly to a wet winter; hence,
revenue projections were short by 9% for the year. However, while cost of the San
Francisco water was originally expected to rise, Town’s wholesale water rates were
decreased by 9.7% starting April 2005. Despite the shortfall, due to the reimbursement
relating to sewer disposal costs discussed above, debt service coverage was up at $ 2.43
from $ 2.20 in the previous year. Debt covenant requires $ 1.20 coverage.
Overview of the Financial Statements
This discussion and analysis is intended to serve as an introduction to the Town’s basic financial
statements made up of three components: 1) government- wide financial statements, 2) fund
financial statements, and 3) notes to the financial statements. This report also contains other
supplementary information in addition to the basic financial statements such as this
management’s discussion and analysis.
Government- wide financial statements. The government- wide financial statements are
designed to provide readers with a broad overview of the Town’s finances, in a manner similar to
a private- sector business.
The statement of net assets presents information on all of the Town of Hillsborough’s assets and
liabilities, with the difference between the two, reported as net assets. Over time, increases or
decreases in net assets may serve as a useful indicator of whether the financial position of the
Town is improving or deteriorating.
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The statement of activities presents information showing 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. earned but unused vacation leave).
Both of these government- wide financial statements distinguish functions of the Town of
Hillsborough 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 include general government, public safety, community services and streets.
The business- type activities of the Town include the water and sewer operations.
The government- wide financial statements can be found on pages 21- 22 of this report.
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 of objectives. The Town
of Hillsborough, like other state and local governments, uses fund accounting to ensure and
demonstrate compliance with finance- related legal requirements. All of the funds of the Town of
Hillsborough can be divided into two categories: governmental funds and proprietary 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 financials
statements, it is useful to compare the information presented for governmental funds with similar
information presented for governmental activities in the government- wide financial statements.
By doing so, readers may better understand the long- term impact of the government’s near- term
financing decisions. Both the governmental fund balance sheet and the governmental fund
statement of revenues, expenditures, and changes in fund balances provide a reconciliation to
facilitate this comparison between governmental funds and governmental activities.
The Town maintains six individual governmental funds. Information is presented separately in the
governmental fund balance sheet and in the governmental fund statement of revenues,
expenditures and changes in fund balances for the general fund and the police and fire special
tax fund which are considered to be major funds. Data from the other four governmental funds
are combined into a single, aggregated presentation. Individual fund data for each of these
nonmajor governmental funds is provided in the form of combining statements elsewhere in this
report.
The Town of Hillsborough adopts an annual appropriated budget for its general fund. A
budgetary comparison statement has been provided for the general fund to demonstrate
compliance with this budget.
The basic governmental fund financial statements can be found on pages 23- 25 of this report.
Proprietary funds. The Town of Hillsborough maintains two different types of proprietary funds.
Enterprise funds are used to report the same functions presented as business- type activities in
the government- wide financial statements. The Town uses enterprise funds to account for the
water and sewer operations. Internal service funds are an accounting device used to accumulate
and allocate costs internally among the Town of Hillsborough’s various functions. The Town uses
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an internal service fund to account for the replacement of the fleet and other equipments.
Because this service predominantly benefits governmental rather than business- type function, it
has been included within governmental activities in the government- wide financial statements.
Proprietary funds provide the same type of information as the government- wide financial
statements, only in more detail. The proprietary fund financial statements provide separate
information for the internal service fund and the water and sewer operations, with the latter being
considered major funds.
The basic proprietary fund financial statements can be found on pages 26- 28 of this report.
Notes to the financial statements. The notes provide additional information that is essential to
a full understanding of the data provided in the government- wide and fund financial statements.
The notes to the financial statements can be found on pages 29- 45 of this report.
Other information. In addition to the basic financial statements and accompanying notes, this
report also presents certain required supplementary information concerning the Town of
Hillsborough’s general fund budgetary schedule and progress in funding its obligation to provide
pension benefits to its employees. Required supplementary information can be found on pages
47- 50 of this report.
The combining statements referred to earlier in connection with nonmajor governmental funds are
presented immediately following the required supplementary information. Combining statements
and individual fund schedules can be found on pages 51- 59 of this report.
Government- wide Financial Analysis
As noted earlier, net assets may serve over time as a useful indicator of a government’s financial
position. The Town’s assets exceeded liabilities by $ 52,626,522 at June 30, 2005.
TOWN OF HILLSBOROUGH’S NET ASSETS
Governmental Activities Business- type Activities Total
2005 2004 2005 2004 2005 2004
Current and other assets $ 14,898,872 $ 13,185,317 $ 24,604,367 $ 26,659,377 $ 39,503,239 $ 39,844,694
Capital assets 9,522,619 9,490,931 37,407,437 34,615,793 46,930,056 44,106,724
Total assets 24,421,491 22,676,248 62,011,804 61,275,170 86,433,295 83,951,418
Long- term liabilities 1,250,804 1,419,446 28,305,526 28,791,100 29,556,330 30,210,546
Other liabilities 2,142,227 1,754,487 2,108,216 2,393,994 4,250,443 4,148,481
Total liabilities 3,393,031 3,173,933 30,413,742 31,185,094 33,806,773 34,359,027
Net assets:
Invested in capital assets,
Net of related debt
9,118,260
8,894,074
17,504,142
18,261,566
26,622,402
27,155,640
Restricted 20,261 204,588 500,000 500,000 520,261 704,588
Unrestricted 11,889,939 10,403,653 13,593,920 11,328,510 25,483,859 21,732,163
Total net assets $ 21,028,460 $ 19,502,315 $ 31,598,062 $ 30,090,076 $ 52,626,522 $ 49,592,391
By far the largest portion of the Town’s net assets ( 51 percent) reflects its investment in capital
assets ( e. g. land, buildings, machinery, equipment and infrastructure) less any related debt used
to acquire those assets that is still outstanding. The Town of Hillsborough uses these capital
assets to provide services to citizens; consequently, these assets are not available for future
spending. Although the Town’s investment in its capital assets is reported net of related debt, it
should be noted that the resources needed to repay this debt must be provided from other
sources, since the capital assets themselves cannot be used to liquidate these liabilities.
An additional portion of the Town of Hillsborough’s net assets ( 1 percent) represents resources
that are subject to external restrictions on how they may be used. The remaining balance of
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unrestricted net assets ($ 25,483,859) may be used to meet the Town’s ongoing obligations to
citizens and creditors.
At June 30, 2005, the Town of Hillsborough is able to report positive balances in all three
categories of net assets, both for the government as a whole, as well as for its separate
governmental and business- type activities.
The Town’s net assets increased by $ 3,034,131. Net assets increased by approximately $ 1.5
million in governmental activities resulting from better than expected revenues and by not filling
vacant positions. Sewer operations recognized capital contributions from other governments for
approximately $ 480,000 pursuant to a reimbursement agreement. The other $ 1.1 million resulted
from transactions relating to contractual disposal costs with another government of which
$ 695,000 was classified as other non- operating revenue and the other $ 400,000 recognized with
the current year’s operations.
Governmental activities. Governmental activities increased the Town of Hillsborough’s net
assets by $ 1,526,145 accounting for 50 percent of the total growth in the net assets of the Town.
TOWN OF HILLSBOROUGH’S CHANGES IN NET ASSETS
Governmental Activities Business- type Activities Total
2005 2004 2005 2004 2005 2004
REVENUES
Program revenues:
Charges for services $ 2,351,693 $ 2,133,222 $ 10,983,732 $ 11,923,663 $ 13,335,425 $ 14,056,885
Operating grants and
Functional taxes
2,973,402
3,198,961
2,973,402
3,198,961
Capital grants, contributions
& Other Non- Operating 1,175,603 1,101,276 1,175,603 1,101,276
General revenues:
Property taxes 7,863,429 7,321,906 7,863,429 7,321,906
Other taxes 2,277,574 2,054,383 2,277,574 2,054,383
Gain on sale of assets 9,932 9,932
Investment earnings 298,670 107,018 391,634 249,343 690,304 356,361
All others 700,775 580,603 700,775 580,603
Total revenues 16,475,475 15,396,093 12,550,969 13,274,282 29,026,444 28,670,375
EXPENSES
General government 849,893 748,034 849,893 748,034
Public safety 10,408,830 9,795,994 10,408,830 9,795,994
Community services 2,155,271 1,917,420 2,155,271 1,917,420
Streets 1,512,620 1,482,061 1,512,620 1,482,061
Interest on long- term debt 22,716 30,448 22,716 30,448
Water 6,387,594 6,502,981 6,387,594 6,502,981
Sewer 4,655,389 5,398,232 4,655,389 5,398,232
Total expenses 14,949,330 13,973,957 11,042,983 11,901,213 25,992,313 25,875,170
Increase in net assets 1,526,145 1,422,136 1,507,986 1,373,069 3,034,131 2,795,205
Net assets– July 1, 2004 19,502,315 18,080,179 30,090,076 28,717,007 49,592,391 46,797,186
Net assets– June 30, 2005 $ 21,028,460 $ 19,502,315 $ 31,598,062 $ 30,090,076 $ 52,626,522 $ 49,592,391
The graph below breaks down expenses by function and compares them to corresponding
program revenues for governmental activities.
15
Expenses and Program Revenues – Governmental Activities
$ 0
$ 2,000
$ 4,000
$ 6,000
$ 8,000
$ 10,000
$ 12,000
General government Public safety Community services Streets Interest on long- term
debt
Thousands
Expenses Program Revenues
The following breaks down revenues by source.
Revenues by Source – Governmental Activities
Property tax
48%
Functional taxes
18%
Franchise tax
4%
Business license tax
4%
Motor vehicle license fee
4%
Other taxes
2%
All others
4%
User charges
14%
Investment earnings
2%
The majority of the $ 1.5 million change in the governmental funds’ net assets resulted from the
General Fund’s operations where revenues increased by $ 1.2 million – an 8.5% increase over the
previous year. Meanwhile, expenditures increased by 7% or approximately $ 950,000 mainly from
retirement and overtime cost.
The table below summarizes the major revenue increases in the General Fund during the year:
04/ 05 03/ 04 Increase %
REVENUES
Property taxes $ 7,863,429 $ 7,321,906 $ 541,523 7%
ERAF refund 422,229 299,521 122,708 41%
Business license 639,134 596,959 42,175 7%
Construction permits 869,697 812,423 57,274 7%
Vehicle license fee 705,702 490,656 215,046 44%
Interest earnings 211,526 70,243 141,283 201%
Service charges 1,120,255 959,659 160,596 17%
Total $ 11,831,972 $ 10,551,367 $ 1,280,605 12%
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Budget projections for almost all revenue segments were met or exceeded with the Town
realizing 3% more of total budget. Property taxes, construction permits and business license tax
revenues all increased by 7%. Motor vehicle license fee – a state subvention – has been
restored to its normal level. Service charges increased by 17% with staff’s continued awareness
to get reimbursed for services that benefit private individuals. Interest earnings also increased
due to an improved market and the implementation of an updated investment policy that allows
investment in instruments other than the state pool. Lastly, Town currently has a new revenue
source – the return of local property tax commonly called excess ERAF. Property tax
contributions made by the County to the Education Revenue Augmentation Fund ( ERAF) in
excess of mandated school funding are returned to the County agencies and other taxing
districts. This year’s excess ERAF amounted to $ 422,000.
Business- type activities. There is approximately a $ 1.5 million increase in net assets in the
business- type activities of the Town. Highlights of the activities are as follows:
􀂾 No rate increase was authorized for this report year resulting from healthy operations
during the previous year. But a wet winter brought about a 14% decrease in water
consumption this year. Fortunately while cost of the San Francisco water ( Town’s water
source) was originally expected to rise, Town’s wholesale water rates were decreased by
9.7% starting April 2005. Despite the shortfall, due to the reimbursement for sewer
disposal costs discussed below, debt service coverage was up to $ 2.43 from $ 2.20 in the
previous year. Debt covenant requires $ 1.20 coverage.
􀂾 Sewer operations recognized a capital contribution of $ 480,325 reflecting project costs
shared by three other agencies. Town recorded non- operating revenue in the amount of
$ 695,278 returned by the City of Burlingame covering excess sewer disposal billings from
the previous year. Additionally, disposal costs from both Cities of San Mateo and
Burlingame decreased by approximately $ 200,000. The sewer operations’ net assets
increased by a total of $ 1.6 million.
$ 6,223
$ 5,153
$ 6,408
$ 4,677
$ 0
$ 1,000
$ 2,000
$ 3,000
$ 4,000
$ 5,000
$ 6,000
$ 7,000
Water Sewer
Thousands
Revenues Expenses
Financial Analysis of the Government’s Funds
As noted earlier, the Town of Hillsborough uses fund accounting to ensure and demonstrate
compliance with finance- related legal requirements.
Governmental funds. The focus of the Town of Hillsborough’s governmental funds is to provide
information on near- term inflows, outflows, and balances of spendable resources. Such
17
information is useful in assessing the Town’s financing requirements. In particular, unreserved
fund balance may serve as a useful measure of the Town’s net resources available for spending
at the end of a fiscal year.
As of June 30, 2005, the Town’s governmental funds reported combined ending fund balances of
$ 10,170,431, up $ 818,628 from the previous year. $ 9,093,870 of this amount constitute
unreserved – undesignated fund balance, which is available for spending at the Town’s
discretion, all of which is in the general fund, the Town’s chief operating fund. The remainder of
the fund balance is either reserved or designated to indicate that it is not available for new
spending as it has already been committed for a variety of restricted purposes.
The Town’s general fund balance increased by $ 1,378,697 during the current fiscal year. From a
combination of better than expected revenues, continued awareness to be reimbursed for
services to private individuals, the Town realized a $ 1.2 million increase in revenues. As
discussed earlier, expenditures increased by $ 950,000 mainly from retirement and overtime cost.
Proprietary funds. The Town’s proprietary funds provide the same type of information found in
the government- wide financial statements, but more detail.
Unrestricted net assets of the Water fund at the end of the year amounted to $ 9,403,171, slightly
up from $ 9,198,742, and Sewer fund net assets increased to $ 3,902,218 from $ 1,883,195.
Factors concerning the finances of these two funds have already been addressed in the
discussion of the business- type activities.
General Fund Budgetary Highlights
The chart below summarizes the budget variances:
BUDGET ACTUAL VARIANCE
REVENUES
Supplemental roll-
Property tax
$ 200,600 $ 350,558 $ 149,958
Business license tax 580,511 639,134 58,623
Construction permits 806,053 869,697 63,644
Service charges 957,176 1,120,255 163,079
Interest 150,000 211,526 61,526
Other subventions 37,674 37,674
Total 534,504
EXPENDITURES
Finance 284,641 260,414 24,227
Police 5,714,555 5,333,407 381,148
Fire 5,444,034 5,235,790 208,244
Planning 415,414 325,459 89,955
Building 926,890 876,277 50,613
Streets 1,378,475 1,335,972 42,503
Total 796,690
GRAND TOTAL $ 1,331,194
Capital Asset and Debt Administration
Capital assets. The Town of Hillsborough’s investment in capital assets for its governmental and
business type activities as of June 30, 2005, amounts to $ 26,622,402 ( net of accumulated
depreciation). This investment in capital assets includes land, buildings and system,
improvements, machinery and equipment, roads, highways, and bridges.
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Major capital asset events during the year included the following:
Water Main Replacement Phase III- This project cost $ 2.4 million and replaced 14,100 feet of
mains, 39 fire hydrants and 135 residential water services.
Pump Stations Improvement – This project entailed repair or replacement of roofs at five pump
houses.
Vulnerability Assessment Projects- The projects totaling $ 156,000 included metal siding for
Crocker Reservoir, cyber lock access control system to the water facilities, entry gates, fencing of
the Darrell Tank site, and installation of metal doors and site motion sensors at pump stations.
Enhancements to the Supervisory Control and Data Acquisition ( SCADA) System- Additional
hardware was installed to create an effective information backup system. An independent audit
of the software configuration and documentation was also done to ensure stability of the platform.
Sewer Lining Project Phase I- This project costing $ 407,000 rehabilitated approximately 6,200
linear feet of sewer lines and 665 feet of storm drain pipes.
Pinehill/ Ralston Sewer Relocation- The $ 1 million project would install a new sewer main on
Pinehill between Ralston and Robin to divert flows from two sewer mains currently located in
steep easement areas.
Sewer Cleaning and Video Inspection Phase II- This $ 285,000 project cleaned, videotaped and
spot- repaired 13,000 linear feet of existing pipe in anticipation of future sewer main lining
projects.
Crystal Springs/ El Cerrito Sanitary Sewer Improvement Project- Several projects were approved
to revegetate the landscape, monitor mitigation measures and accurately document sewage
flows.
Shady Creek Retaining Wall Repair- This project will repair failed walls and slopes to protect a
sanitary sewer main located in an easement.
Jewell Drive Storm Drain Repair- This project replaced a damaged storm drain line that was
causing flooding in the area.
2004 Street Projects – This project that cost approximately $ 600,000 treated 23 street segments
using asphalt overlays.
TOWN OF HILLSBOROUGH’S CAPITAL ASSETS
( Net of depreciation)
Governmental Activities Business- type Activities Total
2005 2004 2005 2004 2005 2004
Land $ 1,456,560 $ 1,456,560 $ 1,456,560 $ 1,456,560
Land improvements 1,302,403 1,403,503 1,302,403 1,403,503
Buildings 704,429 773,487 $ 115,409 $ 127,089 819,838 900,576
Machinery and equipment 1,676,363 1,945,781 489,088 432,828 2,165,451 2,378,609
Infrastructure 4,382,864 3,911,600 4,382,864 3,911,600
Water and sewer lines 36,802,940 34,055,876 36,802,940 34,055,876
Total $ 9,522,619 $ 9,490,931 $ 37,407,437 $ 34,615,793 $ 46,930,056 $ 44,106,724
19
Additional information on the Town of Hillsborough’s capital assets can be found in Note 5
starting from page 37 of this report.
Long- term debt.
At June 30, 2005, the Town of Hillsborough had total debt outstanding excluding compensated
absences in the amount of $ 29,104,359.
TOWN OF HILLSBOROUGH’S OUTSTANDING DEBT
( Certificates of Participation and Capital Lease Obligations)
Governmental Activities Business- type Activities Total
2005 2004 2005 2004 2005 2004
Certificates of participation $ 28,700,000 $ 29,200,000 $ 28,700,000 $ 29,200,000
Capital lease obligations $ 404,359 $ 596,857 404,359 596,857
Total $ 404,359 $ 596,857 $ 28,700,000 $ 29,200,000 $ 29,104,359 $ 29,796,857
Total debt paid during the year was $ 692,498. The certificates of participation recorded in the
business- type activities were issued through the Public Improvement Corporation to finance the
acquisition, construction and installation of certain improvements to the water and sewer systems.
The debt is secured by a pledge of the net revenues of the water and sewer funds.
The Town of Hillsborough maintains ratings of AA from Standard & Poor’s and AA+ from Fitch.
Additional information on the Town’s long- term debt can be found in Note 9 on pages 40- 41 of
this report.
Economic Factors, Other Actions and Next Year’s Budgets and Rates
As in the most recent years, the Town’s capital improvement plan program continues to be a
major component of its financial picture. Below are some of the forthcoming projects:
El Arroyo Water Tank Replacement Project- This $ 1.2 million project will replace two 500k- gallon
water tanks at the El Arroyo Tank site and construct additional mains on Eucalyptus, San
Raymundo and El Arroyo to eliminate mains that currently exist within private properties.
Vista Park- Full renovation of the park was proposed largely funded by the Hillsborough
Beautification Foundation.
2005 Water Main Replacement Phase IV- This project will include 3 miles of new water main.
On December 2004, the Town passed a new ordinance which requires homeowners applying for
a plumbing permit to install backwater protection such as a backflow prevention device on their
sewer laterals. The ordinance also requires that the device be installed in all properties with
drainage unit fixtures at an inadequate height differential by January 1, 2007. Such device can
prevent sewage from entering and damaging homes.
Sewer rates were increased by 4% for the 2005- 2006 budget year to finance debt service
requirement for the sewer operations. While no water rates increases were authorized for the
current and onto the start of the 2005- 2006 budget year, the City Council has approved subject to
a public hearing, a 15% mid- year water rate increase effective January 1, 2006 to address
change in water consumption level and in anticipation of additional debt planned in early 2006
that continues the capital improvement program.
20
Although Town’s financial outlook has improved, there still remain many uncertainties concerning
state funding and the economy in general. It is uncertain how the most recent natural disasters
would affect the local economy. Town will continue to carefully plan its fiscal operations to
counter any unanticipated actions by the state and economic downturns.
The Town, with the help of the volunteer Financial Advisory Committee, continues to explore
long- term solutions for the projected shortfalls in the ensuing years.
Requests for Information
This financial report is designed to provide a general overview of the Town of Hillsborough’s
finances for all those with an interest in the Town’s finances. Questions concerning any of the
information provided in this report or requests for additional financial information should be
addressed to the Finance Director, Town of Hillsborough, 1600 Floribunda Avenue, Hillsborough,
CA 94010.
BASIC FINANCIAL STATEMENTS
GOVERNMENT- WIDE FINANCIAL STATEMENTS
Governmental Business- type
Activities Activities Total
ASSETS
Cash and investments:
Town Treasury $ 14,602,552 $ 11,547,427 $ 26,149,979
Trustee ( Restricted) 8,796,705 8,796,705
Receivables, net of estimated uncollectibles:
Accounts 80,561 1,356,977 1,437,538
Interest 93,064 144,564 237,628
Property tax receivable from County 355,000 355,000
Internal balances ( 288,531) 288,531
Due from other governments 55,053 1,771,198 1,826,251
Prepaids 1,173 47,914 49,087
Supplies 55,887 55,887
Cost of bond issuance ( net of accumulated amortization) 595,164 595,164
Capital assets ( net of accumulated depreciation):
Land 1,456,560 1,456,560
Land improvements 1,302,403 1,302,403
Buildings 704,429 115,409 819,838
Machinery and equipment 1,676,363 489,088 2,165,451
Infrastructure 4,382,864 4,382,864
Water and sewer lines 36,802,940 36,802,940
Total Assets 24,421,491 62,011,804 86,433,295
LIABILITIES
Accounts payable and other current liabilities 355,377 843,520 1,198,897
Accrued payroll liabilities 507,920 507,920
Deposits 680,863 586,899 1,267,762
Uninsured claims 490 68,228 68,718
Deferred revenue ( unearned) 395,484 395,484
Accrued interest payable 880 109,569 110,449
Current portion of long- term debt 201,213 500,000 701,213
Non- current liabilities:
Due in more than one year 1,250,804 28,305,526 29,556,330
Total Liabilities 3,393,031 30,413,742 33,806,773
NET ASSETS
Invested in capital assets, net of related debt 9,118,260 17,504,142 26,622,402
Restricted for:
Debt Service 500,000 500,000
Local Legislated Restrictions 20,261 20,261
Unrestricted 11,889,939 13,593,920 25,483,859
Total Net Assets $ 21,028,460 $ 31,598,062 $ 52,626,522
The notes to the financial statements are an integral part of this statement.
TOWN OF HILLSBOROUGH
STATEMENT OF NET ASSETS
JUNE 30, 2005
21
Operating Capital Grants
Grants and Contributions
Charges for Functional and other Non- Governmental Business- type
Functions/ Programs Expenses Services Taxes Operating Rev Activities Activities Total
Governmental Activities:
General government $ 8 49,893 $ 183,974 $ ( 665,919) $ ( 665,919)
Public safety 1 0,408,830 594,236 $ 2,390,867 ( 7,423,727) ( 7,423,727)
Community services 2 ,155,271 1,476,419 ( 678,852) ( 678,852)
Streets 1 ,512,620 97,064 582,535 ( 833,021) ( 833,021)
Interest on long- term debt 2 2,716 - ( 22,716) ( 22,716)
Total governmental activities 1 4,949,330 2,351,693 2,973,402 - ( 9,624,235) ( 9,624,235)
Business- type Activities:
Water 6 ,387,594 5,942,747 - $ ( 444,847) ( 444,847)
Sewer 4 ,655,389 5,040,985 $ 1,175,603 1,561,199 1,561,199
Total business- type activities 1 1,042,983 10,983,732 - 1,175,603 - 1,116,352 1,116,352
Total $ 2 5,992,313 $ 13,335,425 $ 2,973,402 $ 1,175,603 ( 9,624,235) 1,116,352 ( 8,507,883)
General Revenues:
Property tax 7,863,429 7,863,429
Property transfer tax 294,927 294,927
Franchise tax 586,374 586,374
Sales Tax 51,436 51,436
Motor vehicle license tax 705,702 705,702
Business license tax 639,135 639,135
All others 700,775 700,775
Gain on sale of fixed assets 9,932 9,932
Unrestricted investment earnings 298,670 391,634 690,304
Total general revenues 11,150,380 391,634 11,542,014
Change in net assets 1,526,145 1,507,986 3,034,131
Net assets - beginning 19,502,315 3 0,090,076 49,592,391
Net assets - ending $ 21,028,460 $ 3 1,598,062 $ 52,626,522
The notes to the financial statements are an integral part of this statement.
Net ( Expense) Revenues and
Changes in Net Assets
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
TOWN OF HILLSBOROUGH
STATEMENT OF ACTIVITIES
22
FUND FINANCIAL STATEMENTS
Police and Fire Other Total
General Special Tax Governmental Governmental
Fund Fund Funds Funds
Cash and investments:
Town Treasury $ 10,557,258 $ - $ 1,012,332 $ 11,569,590
Receivables, net of estimated uncollectibles:
Accounts 49,624 49,624
Interest 67,279 7 ,019 74,298
Property tax receivable from County 355,000 355,000
Due from other governments 5 5,053 55,053
Due from other funds 197 197
Prepaids 1,173 1,173
Total Assets $ 11,030,531 $ - $ 1,074,404 $ 12,104,935
Liabilities:
Accounts payable and other current liabilities $ 331,643 $ - $ 1 7,907 $ 349,550
Accrued payroll 507,920 507,920
Due to other funds 1 97 197
Deposits payable 680,863 680,863
Uninsured claims 490 490
Deferred revenue ( unearned) 395,484 395,484
Total Liabilities 1,916,400 - 1 8,104 1,934,504
Fund Balances:
Reserved for prepaids and other purposes 20,261 20,261
Unreserved - designated and reported in:
Special revenue funds 2 82,845 282,845
Capital projects fund 7 73,455 773,455
Unreserved - undesignated 9,093,870 9,093,870
Total fund balances 9,114,131 - 1,056,300 10,170,431
Total Liabilities and Fund Balances $ 11,030,531 $ - $ 1,074,404
Amounts reported for governmental activities in the statement of net assets are different
because:
Capital assets used in governmental activities are not financial resources and,
therefore, are not reported in the funds. 8,268,713
The internal service fund is used by the Town to charge the costs of fleet
and other equipment management and the management information systems
to individual funds. The assets and liabilities of the internal service fund are
included in the governmental activities in the statement of net assets. 3,657,637
Long- term liabilities, including capitalized leases, are not due and payable in the
current period and therefore are not reported in the funds. ( 1,068,321)
Net assets of governmental activities $ 21,028,460
The notes to the financial statements are an integral part of this statement.
LIABILITIES AND FUND BALANCES
TOWN OF HILLSBOROUGH
BALANCE SHEET - GOVERNMENTAL FUNDS
JUNE 30, 2005
ASSETS
23
Police and Fire Other Total
General Special Tax Governmental Governmental
Fund Fund Funds Funds
REVENUES:
Taxes:
Property $ 7,863,429 $ 7,863,429
Public safety special tax $ 2,188,202 2,188,202
Franchise taxes 586,374 586,374
Business license tax 639,135 639,135
All others 589,025 589,025
Permits 1,002,682 1,002,682
Intergovernmental 825,357 $ 669,534 1,494,891
Service charges 1,120,255 140,490 1,260,745
Fines and forfeitures 39,559 39,559
Investment earnings 211,526 3 5,174 246,700
Miscellaneous 449,278 3 9,168 488,446
Total Revenues 13,326,620 2,328,692 7 43,876 16,399,188
EXPENDITURES:
Current:
General government 727,012 1 8,617 745,629
Public safety 10,563,783 7 8,957 10,642,740
Community services 1,990,926 1 37,352 2,128,278
Streets 1,335,972 1 4,904 1,350,876
Capital outlay 8,922 7 04,115 713,037
Total Expenditures 14,626,615 - 9 53,945 15,580,560
EXCESS ( DEFICIENCY) OF REVENUES OVER
( UNDER) EXPENDITURES ( 1,299,995) 2,328,692 ( 210,069) 818,628
OTHER FINANCING SOURCES ( USES):
Transfers in 2,678,692 4 00,000 3,078,692
Transfers out - ( 2,328,692) ( 750,000) ( 3,078,692)
Total Other Financing Sources ( Uses) 2,678,692 ( 2,328,692) ( 350,000) -
NET CHANGE IN FUND BALANCES 1,378,697 - ( 560,069) 818,628
BEGINNING FUND BALANCES 7,735,434 1 ,616,369 9,351,803
ENDING FUND BALANCES $ 9,114,131 $ - $ 1,056,300 $ 10,170,431
The notes to the financial statements are an integral part of this statement.
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
TOWN OF HILLSBOROUGH
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS
24
Amounts reported for governmental activities in the statement of activities ( page 22 ) are different because:
Net change in fund balances - total governmental funds ( page 24) $ 818,628
Governmental funds report capital outlays as expenditures. However, in the statement of
activities, the cost of those assets is allocated over the estimated useful lives and
reported as depreciation expense. This is the amount by which capital outlays exceeded
depreciation in the current period. 199,452
The issuance of long- term debt ( e. g. leases) provides current financial resources to
governmental funds, while the repayment of long- term debt consumes the current
financial resources of governmental funds. Neither transaction, however, has any effect
on net assets. This amount is the effect of these items in the treatment of long- term debt. 12,846
Some expenses reported in the statement of activities do not require the use of current
financial resources and, therefore, are not reported as expenditures in governmental funds. ( 45,308)
The internal service fund is used by the Town to charge the costs of fleet and other
equipment management and management information systems to individual funds. 53,571
The net revenue of certain activities of the internal service fund is reported with governmental
activities. 486,956
Change in net assets of governmental activities ( page 22) $ 1,526,145
The notes to the financial statements are an integral part of this statement.
TOWN OF HILLSBOROUGH
RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
THE STATEMENT OF ACTIVITIES
25
Governmental
Activities -
Total Internal Service
Current Year Prior Year Current Year Prior Year Current Year Fund
ASSETS
Current Assets:
Cash and investments:
Town Treasury $ 8,822,365 $ 8,183,295 $ 2,725,062 $ 1,509,721 $ 11,547,427 $ 3,032,962
Trustee ( Restricted) 2,744,564 5,081,759 6,052,141 7,764,125 8,796,705
Receivables, net of estimated
uncollectibles:
Accounts 1,346,247 1,793,078 10,730 117,132 1,356,977 30,937
Interest 83,359 45,648 61,205 36,420 144,564 18,766
Due from other governments 1,771,198 1,101,276 1,771,198
Prepaids 16,800 9,290 31,114 20,677 47,914
Supplies 55,887 129,323 55,887
Total current assets 13,069,222 15,242,393 10,651,450 10,549,351 23,720,672 3,082,665
Noncurrent assets:
Cost of bond issuance ( net of
accumulated amortization) 199,941 208,540 395,223 412,520 595,164
Capital assets:
Buildings and improvements 292,176 292,176 49,161 49,161 341,337
Machinery and equipment 552,767 455,279 473,642 444,502 1,026,409 2,483,150
Water and sewer lines 47,583,524 44,760,161 39,036,239 37,067,234 86,619,763
Less accumulated depreciation ( 30,893,541) ( 29,741,800) ( 19,686,531) ( 18,710,920) ( 50,580,072) ( 1,229,244)
Total capital assets net of
accumulated depreciation 17,534,926 15,765,816 19,872,511 18,849,977 37,407,437 1,253,906
Total noncurrent assets 17,734,867 15,974,356 20,267,734 19,262,497 38,002,601 1,253,906
Total Assets 30,804,089 31,216,749 30,919,184 29,811,848 61,723,273 4,336,571
LIABILITIES
Current liabilities:
Accounts payable 289,980 374,139 553,540 787,559 843,520 5,828
Deposits 484,445 427,100 102,454 586,899
Uninsured claims 5,000 26,725 63,228 189,515 68,228
Accrued interest payable 38,304 32,148 71,265 56,808 109,569 710
Certificates of participation - current 178,702 178,702 321,298 321,298 500,000
Capital leases payable - current 187,719
Total current liabilities 996,431 1,038,814 1,111,785 1,355,180 2,108,216 194,257
Noncurrent liabilities:
Certificates of participation 10,389,857 10,568,559 17,810,143 18,131,441 28,200,000
Compensated absences 53,699 60,363 51,827 30,737 105,526
Capital leases payable 196,146
Total noncurrent liabilities 10,443,556 10,628,922 17,861,970 18,162,178 28,305,526 196,146
Total Liabilities 11,439,987 11,667,736 18,973,755 19,517,358 30,413,742 390,403
NET ASSETS
Invested in capital assets, net of
related debt 9,710,931 10,100,271 7,793,211 8,161,295 17,504,142 869,331
Restricted for:
Debt Service 250,000 250,000 250,000 250,000 500,000
Unrestricted 9,403,171 9,198,742 3,902,218 1,883,195 13,305,389 3,076,837
Total Net Assets $ 19,364,102 $ 19,549,013 $ 11,945,429 $ 10,294,490 31,309,531 $ 3,946,168
Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds 288,531
Net assets of business- type activities $ 31,598,062
The notes to the financial statements are an integral part of this statement.
TOWN OF HILLSBOROUGH
STATEMENT OF NET ASSETS
JUNE 30, 2005
PROPRIETARY FUNDS
Water Sewer
Business- type Activities - Enterprise Funds
26
Governmental
Activities -
Total Internal Service
Current Year Prior Year Current Year Prior Year Current Year Fund
OPERATING REVENUES:
Sale of water $ 5,539,081 $ 6,701,055 $ 5,539,081
Water meter charges 332,697 332,247 332,697
Sewer service charges $ 4,960,583 $ 4,660,549 4,960,583
Connection fees 63,982 99,526 15,767 25,524 79,749
Other services $ 771,490
Miscellaneous 6,987 27,801 64,635 76,961 71,622 39,215
Total Operating Revenues 5,942,747 7,160,629 5,040,985 4,763,034 10,983,732 810,705
OPERATING EXPENSES:
Water purchases, utilities and pumping 2,267,030 2,523,000 2,267,030
Sewage treatment services and utilities 1,037,438 1,929,565 1,037,438
Personnel, overhead and facilities 1,946,003 1,734,204 1,277,617 1,184,269 3,223,620
Materials, supplies and other 642,264 824,721 561,514 638,276 1,203,778 ( 479)
Depreciation and amortization 1,160,341 1,088,884 992,907 966,842 2,153,248 282,270
Total Operating Expenses 6,015,638 6,170,809 3,869,476 4,718,952 9,885,114 281,791
Operating Income ( loss) ( 72,891) 989,820 1,171,509 44,082 1,098,618 528,914
NONOPERATING REVENUES ( EXPENSES):
Investment earnings 280,113 133,437 111,521 115,906 391,634 66,355
Gain on sale of fixed assets 9,932
Reimbursement from other government 695,278 695,278
Interest expense ( 392,133) ( 354,045) ( 807,694) ( 710,350) ( 1,199,827) ( 22,716)
Total nonoperating revenue ( expenses) ( 112,020) ( 220,608) ( 895) ( 594,444) ( 112,915) 53,571
Income ( loss) before contributions
and transfers ( 184,911) 769,212 1,170,614 ( 550,362) 985,703 582,485
Capital contributions - 480,325 1,101,276 480,325
Change in net assets ( 184,911) 769,212 1,650,939 550,914 1,466,028 582,485
Total net assets - beginning 19,549,013 18,779,801 10,294,490 9,743,576 3,363,683
Total net assets - end $ 19,364,102 $ 19,549,013 $ 11,945,429 $ 10,294,490 $ 3,946,168
Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. 41,958
Change in net assets of business- type activities ( page 22 ) $ 1,507,986
The notes to the financial statements are an integral part of this statement.
TOWN OF HILLSBOROUGH
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS
PROPRIETARY FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
Business- type Activities - Enterprise Funds
Water Sewer
27
Governmental
Activities -
Internal
Total Service
Current Year Prior Year Current Year Prior Year Current Year Fund
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers and users $ 6,446,923 $ 6,776,336 $ 4,869,583 $ 4,751,368 $ 11,316,506 $ 479
Receipts from interfund services provided 810,705
Payment to suppliers ( 3,864,584) ( 3,976,163) ( 2,596,275) ( 2,530,097) ( 6,460,859)
Payment to employees ( 1,008,295) ( 876,872) ( 581,607) ( 505,411) ( 1,589,902)
Payment to interfund services used ( 29,040) ( 30,390) ( 48,340) ( 50,280) ( 77,380)
Net cash provided ( used) by operating activities 1,545,004 1,892,911 1,643,361 1,665,580 3,188,365 811,184
CASH FLOWS FROM NONCAPITAL FINANCING
ACTIVITIES
Reimbursement from other government 695,278 695,278
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Proceeds from capital debt 5,765,682 9,171,318 -
Receipts from capital contributions 88,207 88,207
Cost of issuance ( 49,470) ( 78,693) -
Acquisition and construction of capital assets ( 2,865,732) ( 1,118,552) ( 1,866,623) ( 1,388,245) ( 4,732,355) ( 139,614)
Principal paid on capital debt ( 178,702) ( 140,103) ( 321,298) ( 259,897) ( 500,000)
Interest paid on capital debt ( 441,097) ( 359,949) ( 822,304) ( 682,058) ( 1,263,401) ( 23,049)
Capital lease payment ( 179,653)
Proceeds from sale of capital assets 9,932
Net cash provided ( used) by capital
and related financing activities ( 3,485,531) 4,097,608 ( 2,922,018) 6,762,425 ( 6,407,549) ( 332,384)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment earnings 242,402 117,658 86,736 85,696 329,138 56,478
Net cash provided by investing activities 242,402 117,658 86,736 85,696 329,138 56,478
Net increase ( decrease) in cash and cash equivalents ( 1,698,125) 6,108,177 ( 496,643) 8,513,701 ( 2,194,768) 535,278
Cash and cash equivalents - beginning 13,265,054 7,156,877 9,273,846 760,145 22,538,900 2,497,684
Cash and cash equivalents - ending ( including $ 2,744,564
and $ 6,052,141 for the water and sewer funds,
respectively reported in restricted accounts $ 11,566,929 $ 13,265,054 $ 8,777,203 $ 9,273,846 $ 20,344,132 $ 3,032,962
Reconciliation of operating income to net cash
provided ( used) by operating activities:
Operating income ( loss) $ ( 72,891) $ 989,820 $ 1,171,509 $ 44,082 $ 1,098,618 $ 528,914
Adjustments to reconcile operating income to net
cash provided ( used) by operating activities:
Depreciation and amortization expense 1,160,341 1,088,884 992,907 966,842 2,153,248 282,270
( Increase) decrease in accounts receivable 446,831 ( 431,593) 106,402 ( 11,666) 553,233
( Increase) decrease in due from other governments ( 277,804) ( 277,804)
( Increase) decrease in inventories and prepaids 65,926 12,904 ( 10,437) 4,476 55,489
Increase ( decrease) in customer deposits 57,345 47,300 - 57,345
Increase ( decrease) in accounts payable ( 105,884) 174,806 ( 360,306) 654,045 ( 466,190)
Increase ( decrease) in compensated
absences payable ( 6,664) 10,790 21,090 7,801 14,426
1,617,895 903,091 471,852 1,621,498 2,089,747 282,270
Net cash provided ( used) by operating activities $ 1,545,004 $ 1,892,911 $ 1,643,361 $ 1,665,580 $ 3,188,365 $ 811,184
The notes to the financial statements are an integral part of this statement.
Business- type Activities - Enterprise Funds
Water Sewer
TOWN OF HILLSBOROUGH
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
28
NOTES TO THE FINANCIAL STATEMENTS
29
TOWN OF HILLSBOROUGH
Notes to the Financial Statements
June 30, 2005
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Town’s accounting policies:
A. Reporting Entity
The Town of Hillsborough is a municipal corporation governed by a five- member council. The
accompanying financial statements present the Town and its component units, entities for which
the government is considered to be financially accountable. Blended component units, although
legally separate entities, are, in substance, part of the government’s operations.
Blended component unit - The operations of the Hillsborough Public Improvement Corporation
( HPIC) which was established to assist in the financing of the acquisition of public improvements
on behalf of the Town are combined with that of the Town’s Water and Sewer funds in these
financial statements. The City Council sits as its Board of Directors and has full accountability for
its operations.
B. Government- wide and Fund Financial statements
The government- wide financial statements ( i. e., the statement of net assets and the statement of
activities) report information on all of the activities of the Town of Hillsborough and its component
unit. For the most part, the effect of interfund activity has been removed from these statements.
Governmental activities, which normally are supported by taxes and intergovernmental revenues,
are reported separately from business- type activities, which rely to a significant extent on fees
and charges for support.
The statement of activities demonstrates the degree to which the direct expenses of a given
function or segment are offset by program revenues. Direct expenses are those that are clearly
identifiable with a specific function or segment. Program revenues include 1) charges to
customers or applicants who purchase, use, or directly benefit from goods, services, or privileges
provided by a given function or segment and 2) grants, functional taxes and contributions that are
restricted to meeting the operational or capital requirements of a particular function or segment.
Taxes and other items not properly included among program revenues are reported instead as
general revenues.
Separate financial statements are provided for governmental funds and proprietary funds. Major
individual governmental funds and major individual enterprise funds are reported as separate
columns in the fund financial statements.
The Town does not have any fiduciary funds or fiduciary- type component units.
C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation
The government- wide financial statements are reported using the economic resources
measurement focus and the accrual basis of accounting, as are the proprietary fund financial
statements. Revenues are recorded when earned and expenses are recorded when a liability is
incurred, regardless of the timing of related cash flows. Property taxes are recognized as
30
revenues in the year for which they are levied. Grants and similar items are recognized as
revenue as soon as all eligibility requirements imposed by the provider have been met.
Governmental fund financial statements are reported using the current financial resources
measurement focus and the modified accrual basis of accounting. Revenues are recognized as
soon as they are both measurable and available. Revenues are considered to be available when
they are collectible within the current period or soon enough thereafter to pay liabilities of the
current period. For this purpose, the Town considers revenues to be available if they are
collected within 60 days of the end of the current fiscal period. Expenditures generally are
recorded when a liability is incurred, as under accrual accounting. However, debt service
expenditures, as well as expenditures related to compensated absences and claims and
judgments, are recorded only when payment is due.
Property taxes, franchise taxes, licenses, and interest associated with the current fiscal period are
all considered to be susceptible to accrual and so have been recognized as revenues of the
current fiscal period. All other revenue items are considered to be measurable and available only
when cash is received by the Town.
The Town reports the following major governmental funds:
The General Fund is the Town’s primary operating fund. It accounts for all financial resources of
the general government, except those required to be accounted for in another fund.
The Police and Fire Special Tax Fund is used to account for revenues apportioned under a Town
of Hillsborough voter- approved special tax which proceeds are designated for public safety
operations and capital expenditures.
The Town reports the following major proprietary funds:
The Water Fund accounts for the activities associated with the distribution and transmission of
potable water to the Town’s residents.
The Sewer Fund accounts for activities associated with the treatment and transmission of
sewage.
Additionally, the Town reports an Internal Service Fund that accounts for fleet management and
the replacement of other equipments provided to other departments on a cost reimbursement
basis.
The Town does not have any fiduciary fund and fiduciary- type component unit; hence, no such
statements are included in this financial report.
Private- sector standards of accounting and financial reporting issued on or before November 30,
1989, generally are followed in both the government- wide and proprietary fund financial
statements to the extent that those standards do not conflict with or contradict guidance of the
Governmental Accounting Standards Board. The Town also has the option of following
subsequent private- sector guidance for its enterprise funds, subject to the same limitation. The
Town has elected not to follow subsequent private- sector guidance.
As a general rule the effect of interfund activity has been eliminated from the government- wide
financial statements. Exceptions to this general rule are charges between the government’s
water and sewer functions of the Town. Elimination of these charges would distort the direct
costs and program revenues reported for the various functions concerned.
Amounts reported as program revenues include 1) charges to customers or applicants for goods,
services, or privileges provided, 2) operating grants, functional taxes and contributions, and 3)
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capital grants and contributions. Internally dedicated resources are reported as general revenues
rather than as program revenues.
Proprietary funds distinguish operating revenues and expenses from nonoperating items.
Operating revenues and expenses generally result from providing services and producing and
delivering goods in connection with the water and sewer funds’ principal ongoing operations. The
principal operating revenues of the water and sewer funds, and of the Town’s internal service
fund, are charges to customers for sales and services. The Town also recognizes as operating
revenues the portion of connection fees intended to recover the cost of connecting new
customers to the system. Operating expenses for the enterprise and the internal service funds
include the cost of sales and services, administrative expenses, and depreciation on capital
assets. All revenues and expenses not meeting this definition are reported as nonoperating
revenues and expenses.
When both restricted and unrestricted resources are available for use, it is the town’s policy to
use restricted resources first, then unrestricted resources as they are needed.
The preparation of the financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying
notes. Actual results may differ from those estimates.
D. Assets, Liabilities, and Net Assets or Equity
1. Deposits and Investments
The Town’s cash and cash equivalents are considered to be cash on hand, demand deposits and
short- term investments with original maturities of three months or less from the date of
acquisition.
The Town’s investment policy and the California Government Code allow the Town to invest in
the US Government, certificates of deposits placed with commercial banks, banker’s
acceptances, commercial paper, money market funds, repurchase agreements, the County of
San Mateo Pooled Fund, and the California Local Agency Investment Fund ( LAIF) pool. LAIF is
regulated by the California Government Code Section 16429 under the oversight of the State
Treasurer. The Town reports its investment in LAIF at the fair value amount LAIF provided. The
Town’s position in the pool is approximately the same as the value of the pool shares. Included
in LAIF’s investment portfolio are collateralized mortgage obligations, mortgage- backed
securities, other asset- backed securities, loans to certain state funds, and floating rate securities
issued by federal agencies, government- sponsored enterprises and corporations. Cash and
investments with the Trustee are invested pursuant to governing bond covenants.
The Town’s investments are carried at fair value as required by generally accepted accounting
principles.
2. Receivables and Payables
Activity between funds that are representative of lending/ borrowing arrangements, outstanding at
the end of the fiscal year are referred to as either “ due to/ from other funds” ( i. e., the current
portion of interfund loans) or “ advances to/ from other funds” ( i. e. the non- current portion of
interfund loans). All other outstanding balances between funds are reported as “ due to/ from other
funds.” Any residual balances outstanding between the governmental activities and business-type
activities are reported in the government- wide financial statements as “ internal balances’”
32
Advances between funds, as reported in the fund financial statements, are offset by a fund
balance reserve account in applicable governmental funds to indicate that they are not available
for appropriation and are not expendable available financial resources
3. Property Taxes
Property taxes become an enforceable lien on property as of March 1, levied on July 1, payable
in two installments on November 1 and February 1 and delinquent on December 10 and April 10.
The County bills and collects the property taxes and remits them to the City.
The County is permitted by State Law ( Proposition 13) to levy taxes at 1% of the full market value
of the property ( at time of purchase) and can increase the assessed property valuation by no
more than 2% per year. This tax levy is distributed to the different governmental agencies under
the State- mandated alternate method of apportioning taxes ( commonly referred to as the “ Teeter
Plan”) whereby all local agencies with historical tax delinquency rates less than 3%, receive from
the County 100% of their respective shares of the amount of ad valorem taxes levied, without
regard to the actual collection of taxes levied. The County handles all delinquencies, retaining
interest and penalties.
Receivables are shown net of an allowance for uncollectibles where applicable. Unbilled services
revenues in the Enterprise Funds are accrued at year- end.
4. Inventories and Prepaid Items
All inventories are valued at cost using the first- in/ first- out ( FIFO) method. Inventories of
governmental funds are recorded as expenditures when consumed rather than when purchased.
Certain payments to vendors reflect costs applicable to future accounting periods and are
recorded as prepaid items in the financial statements.
5. Restricted Assets
Certain proceeds of the Town’s enterprise fund bond issue are classified as restricted assets on
the balance sheet because they are maintained in separate bank accounts and their use is limited
by the applicable bond covenant.
6. Capital Assets
Capital assets, which include property, plant, equipment, infrastructure ( e. g., roads, sidewalks,
and similar items), and water and sewer lines, are reported in the applicable governmental or
business- type activities columns in the government- wide financial statements. Capital assets are
defined by the government as assets with an initial, individual cost of more than $ 5,000 and an
estimated useful life in excess of two years.
Major outlays for capital assets and improvements are capitalized as projects are constructed.
Interest incurred during the construction phase of capital assets of business- type activities is
included as part of the capitalized value of the assets constructed.
Initial capitalization of general infrastructure assets ( i. e., those reported by governmental
activities) is included regardless of their acquisition date or amount. Town estimated the
historical cost for the initial reporting of these assets through back trending ( i. e., estimating the
current replacement cost of the infrastructure to be capitalized and using a price- level index to
deflate the cost to the acquisition or estimated acquisition year). As Town constructs or acquires
additional capital assets each period, including infrastructure assets, they are capitalized and
reported at historical cost. The reported value excludes normal maintenance and repairs which
are essentially amounts spent in relation to capital assets that do not increase the capacity or
33
efficiency of the item or extend its useful life beyond the original estimate. Town values donations
of capital assets at the estimated fair value of the item at the date of its donation.
Property, plant and equipment are depreciated using the straight line method over the following
estimated useful lives:
Assets Years
Buildings 40 years
Building improvements 30 years
Machinery and equipment 3- 15 years
System infrastructure 30- 50 years
Transmission and distribution systems 40 years
7. Compensated Absences
It is the Town’s policy to permit employees to accumulate earned but unused vacation up to a
certain amount. Sick leave vests in varying amount depending on bargaining units and groups.
Both are accrued when incurred in the government- wide and proprietary fund financial
statements. A liability for these amounts is reported in governmental funds only if they have
matured, for example, as a result of employee resignations and retirements.
8. Long- Term Obligations
In the government- wide financial statements, and proprietary fund types in the fund financial
statements, long- term debt and other long- term obligations are reported as liabilities in the
applicable governmental activities, business- type activities, or proprietary fund type statement of
net assets. Bond premiums and discounts, as well as issuance costs, are deferred and
amortized over the life of the bonds using the effective interest method. Bonds payable are
reported net of the applicable bond premium or discount. Bond issuance costs are reported as
deferred charges and amortized over the term of the related debt.
9. Fund Equity
In the fund financial statements, governmental funds report reservations of fund balance for
amounts that are not available for appropriation or are legally restricted by outside parties for use
for a specific purpose. Designations of fund balance represent tentative management plans that
are subject to change.
10. Comparative Data/ Reclassifications
Comparative total data for the prior year have been presented only for individual enterprise funds
in the fund financial statements in order to provide an understanding of the changes in the
financial position and operations of these funds. Also, certain amounts presented in the prior
year data have been reclassified in order to be consistent with the current year’s presentation.
NOTE 2 – RECONCILIATION OF GOVERNMENT- WIDE AND FUND FINANCIAL STATEMENTS.
A. Explanation of Certain Differences Between the Governmental Fund Balance Sheet and the
Government- Wide Statement of Net Assets
The governmental fund balance sheet includes a reconciliation between fund balance – total
governmental funds and net assets – governmental activities as reported in the government- wide
statement of net assets. One element of that reconciliation explains that “ long- term liabilities
34
including capitalized leases, are not due and payable in the current period and therefore are not
reported in the funds.” The details of this $ 1,068,321 difference are as follows:
Accrued interest payable $ 170
Capital leases payable 20,493
Compensated absences 1,047,658
Net adjustment to reduce fund balance – total governmental funds to arrive
at net assets – governmental activities $ 1,068,321
B. Explanation of Certain Differences Between the Governmental Fund Statement of Revenues,
Expenditures and Changes in Fund Balances and the Government- Wide Statement of
Activities
The governmental fund statement of revenues, expenditures and changes in fund balances
includes a reconciliation between net changes in fund balances – total governmental funds and
changes in net assets of governmental activities as reported in the government- wide statement of
activities. One element of that reconciliation explains that “ Governmental funds report capital
outlays as expenditures. However, in the statement of activities, the cost of those assets is
allocated over the estimated useful lives and reported as depreciation expense.” The details of
this $ 199,452 difference are as follows:
Capital outlay $ 713,038
Depreciation expense ( 513,586)
Net adjustment to increase net changes in fund balances – total governmental
funds to arrive at changes in net assets of governmental activities $ 199,452
Another element of that reconciliation states that “ the issuance of long- term debt ( e. g. leases)
provides current financial resources to governmental funds, while the repayment of long- term
debt consumes the current financial resources of governmental funds. Neither transaction,
however, has any effect on net assets.” The 12,846 difference refers to the down payment on
capital lease.
Another element of that reconciliation states that “ some expenses reported in the statement of
activities do not require the use of current financial resources and, therefore, are not reported as
expenditures in the governmental funds.” The details of this $ 45,308 are as follows:
Compensated absences ( $ 45,415)
Accrued interest 107
Net adjustment to decrease net changes in fund balances – total governmental
funds to arrive at changes in net assets of governmental activities ( $ 45,308)
NOTE 3 – STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY.
Excess of Expenditures over Appropriations
For the year ended June 30, 2005, expenditures exceeded appropriations for $ 490, $ 1,935,
$ 1,348 and $ 27,691 in the Police and Fire Special Tax, Gas Tax, Measure “ A” and Police Grants
funds respectively. These over expenditures were funded by available fund balance in the
respective funds.
NOTE 4 – CASH AND INVESTMENTS
The Town’s deposits and investments are invested pursuant to its investment policy guidelines.
The objectives of the policy are, in order of priority, preservation of capital, liquidity and yield. The
35
policy addresses the soundness of financial institutions in which the Town will deposit funds,
types of investment instruments as permitted by the California Government Code, and the
percentage of the portfolio which may be invested in certain instruments with longer terms to
maturity.
Total Town cash and investments at fair value on June 30, 2005 are as follows:
Deposits and investments $ 26,149,979
Restricted cash and investments – held by fiscal agent 8,796,705
Total $ 34,946,684
Cash and investments as of June 30, 2005 consist of the following:
Cash on hand $ 3,825
Deposits with financial institutions 224,717
Investments 34,718,142
Total cash and investments $ 34,946,684
Investments Authorized by the California Government Code and the Town’s Investment Policy
The table below identifies the investment types that are allowed by the California Government
Code and are authorized by the Town’s more restrictive investment policy. The second part of
the table relates to investments of debt proceeds held by bond trustees and governed by the
provisions of the Town’s debt agreements. The table addresses interest rate risk, credit risk, and
concentration of credit risk.
Authorized Investment Type
Maximum
Maturity
Maximum
Percentage
Of Portfolio
Maximum
Investment in
One Issuer
AUTHORIZED FOR THE CITY:
U. S. Treasury Obligations 5 years None None
Banker’s Acceptances 180 days 20% Lower of $ 1M or 10%
Time Certificate of Deposit 2 years None $ 500,000
Commercial Paper 180 days 10% $ 1M up to 3 months
$ 500,000 up to 6 months
Local Agency Investment Fund ( LAIF) N/ A None N/ A
Repurchase Agreements 30 days 20% 20%
County Pooled Investment Funds N/ A 10% N/ A
Money Market Mutual Funds( Custodial Accounts Only) N/ A None None
TOWN OVERALL POOL
2 years
5 years
80%
20%
AUTHORIZED BY DEBT AGREEMENTS:
U. S. Treasury Obligations None None None
U. S. Agency Securities None None None
Certificates of Deposits/ Bankers Acceptances 360 days None None
Commercial Paper 270 days None None
Money Market Funds N/ A None None
Local Agency Bonds None None None
Investment Contracts None None None
Repurchase Agreements N/ A None None
Local Agency Investment Fund ( LAIF) N/ A None N/ A
Interest Rate Risk
Changes in market interest rates will affect the fair value of an investment. Generally,
investments with longer maturities are more sensitive to changes in market interest rates. The
Town manages its exposure to interest rate risk by purchasing a combination of shorter and
longer term investments and by timing cash flows from maturities so that investments mature
evenly over time as necessary to provide the cash flow and liquidity needed for operations. The
following table shows the distribution of the Town’s investments by maturity:
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Remaining Maturity ( in Months)
Investment Type
12 Months
Or Less
13- 24
Months
25- 60
Months
Total
U. S. Treasury bills $ 2,987,864 $ 2,987,864
U. S. Treasury notes 1,975,300 $ 3,973,320 $ 2,968,159 8,916,779
Commercial paper 994,560 994,560
San Mateo County Pool 2,004,629 2,004,629
Local Agency Investment Fund ( LAIF) 10,964,960 10,964,960
Money Market Funds ( Custodial Bank) 52,645 52,645
HELD BY BOND TRUSTEE:
Money Market Funds 57,205 57,205
Local Agency Investment Fund ( LAIF) 8,739,500 8,739,500
Total $ 27,776,663 $ 3,973,320 $ 2,968,159 $ 34,718,142
Credit Risk
Credit risk – when an issuer of an investment does not fulfill its obligation to the holder investment
– is measured by the assignment of a rating by a nationally recognized statistical rating
organization. Presented below is the minimum rating required by the Town’s investment policy,
or debt agreements, and the actual rating as of year end for each investment type:
Rating as of Year End
Investment Type
Amount
Minimum
Legal
Requirement
Exempt
From
Disclosure
AAA/ A1- P1
Not
Rated
U. S. Treasury bills $ 2,987,864 N/ A $ 2,987,864
U. S. Treasury notes 8,916,779 N/ A 8,916,779
Commercial paper 994,560 A1- P1 $ 994,560
Local Agency Investment Fund ( LAIF) 10,964,960 N/ A $ 10,964,960
San Mateo County Pool 2,004,629 N/ A 2,004,629
Money market funds ( Custodial bank) 52,645 N/ A 52,645
HELD BY BOND TRUSTEE:
Money market funds 57,205 N/ A 57,205
Local Agency Investment Fund ( LAIF) 8,739,500 N/ A 8,739,500
Totals $ 34,718,142 $ 11,904,643 $ 1,104,410 $ 21,709,089
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial
institution, a government will not be able to recover its deposits or will not be able to recover
collateral securities that are in the possession of an outside party. Custodial credit risk for
investments is the risk, that, in the event of the failure of the counterparty ( e. g. broker- dealer used
by the Town to buy the securities), the government will not be able to recover the value of its
investment or collateral securities that are in the possession of another party. The California
Government Code and the Town’s investment policy do not contain legal or policy requirements
that would limit the exposure to custodial credit risk for deposits or investments, other than the
following provision: A financial institution is required to secure deposits in excess of the $ 100,000
( government insured amount) made by state and local governmental units by pledging securities
in an undivided collateral pool held by a depository regulated under state law secured by US
government securities at a constant margin ratio of 110% for government securities.
As of June 30, 2005, all Town’s deposits with financial institutions were within the $ 100,000
government insured amount. As of June 30,2005, commercial papers for $ 994,560 were held by
a third- party custodial bank.
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Investment in the State and the County Investment Pool
The Town is a voluntary participant in the Local Agency Investment Fund ( LAIF) that is regulated
by the California Government Code under the oversight of the Treasurer of the State of California.
Likewise, it is also a voluntary participant in the San Mateo County Pool regulated by the
California Government Code under the oversight of the San Mateo County Treasurer. The
balance available for withdrawal is based on the accounting records maintained by LAIF and the
San Mateo County, which are recorded on an amortized cost basis.
Interest and investment income consists of the following at June 30, 2005:
Interest earned $ 655,853
Net change in fair market value 48,836
Total $ 704,689
NOTE 5 – CAPITAL ASSETS
Capital asset activity for the year ended June 30, 2005 was as follows:
Beginning
Balance
Increases
Decreases
Ending
Balance
Governmental Activities:
Land – not being depreciated $ 1,456,560 $ $ $ 1,456,560
Capital assets, being depreciated
Land improvements 1,938,715 1,938,715
Buildings 2,587,158 2,587,158
Machinery and equipment 4,263,219 173,183 ( 83,091) 4,353,311
Infrastructure 9,544,657 654,361 10,199,018
Total capital assets being depreciated 18,333,749 827,544 ( 83,091) 19,078,202
Less accumulated depreciation for:
Land improvements ( 535,212) ( 101,100) ( 636,312)
Buildings ( 1,813,671) ( 69,058) ( 1,882,729)
Machinery and equipment ( 2,317,438) ( 442,601) ( 83,091) ( 2,676,948)
Infrastructure ( 5,633,057) ( 183,097) ( 5,816,154)
Total accumulated depreciation ( 10,299,378) ( 795,856) ( 83,091) ( 11,012,143)
Total capital assets, being depreciated, net 8,034,371 31,688 8,066,059
Governmental activities capital assets, net $ 9,490,931 $ 31,688 $ $ 9,522,619
Beginning
Balance
Increases
Decreases
Ending
Balance
Business- type Activities:
Land – not being depreciated $ $ $ $
Capital assets, being depreciated
Buildings 341,337 341,337
Machinery and equipment 899,780 126,627 1,026,407
Systems & transmissions 81,827,396 4,792,368 86,619,764
Total capital assets being depreciated 83,068,513 4,918,995 87,987,508
Less accumulated depreciation for:
Buildings ( 214,248) ( 11,680) ( 225,928)
Machinery and equipment ( 466,952) ( 70,367) ( 537,319)
Systems & transmissions ( 47,771,520) ( 2,045,304) ( 49,816,824)
Total accumulated depreciation ( 48,452,720) ( 2,127,351) ( 50,580,071)
Total capital assets, being depreciated, net 34,615,793 2,791,644 37,407,437
Business- type activities capital assets, net $ 34,615,793 $ 2,791,644 $ $ 37,407,437
Depreciation expense was charged to functions/ programs as follows:
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Governmental Activities:
General government $ 136,076
Public safety 178,683
Community services 764
Public works 198,063
Capital assets held by the Town’s internal service funds are charged
to the various functions based on their usage of the assets
282,270
Total depreciation expense – governmental activities $ 795,856
Business- type Activities:
Water $ 1,151,740
Sewer 975,611
Total depreciation expense – business- type activities $ 2,127,351
NOTE 6 – INTERFUND TRANSACTIONS
The following is a summary of the interfund transactions for the year ended June 30, 2005:
Transfer In
Nonmajor
General Governmental
Transfer Out Fund Funds Total
Police and Fire special tax fund $ 2,328,692 $ 2,328,692
Nonmajor governmental funds 350,000 400,000 750,000
Total $ 2,678,692 $ 400,000 $ 3,078,692
The transfers in to the General Fund included $ 2,328,692 transfer from the Police and Fire
Special Tax Fund – a pass though fund – and $ 350,000 from the Measure “ A” fund to cover street
related costs incurred in the General Fund. Revenues from the voter- approved Police and Fire
Special Tax are designated for public safety operations and capital expenditures accounted for in
the General Fund. The $ 400,000 transfers in to the Capital Projects Fund covered transfers from
the Gas Tax and the Measure “ A” funds for streets related projects.
NOTE 7 – LEASES
Capital Leases - The Town has entered into lease agreements as lessee for photocopiers and
reproduction equipment and fire engines. The lessors were granted security interests in any and
all rights, titles and interests of the Town in the equipments. These lease agreements are
classified as capital leases for accounting purposes, and therefore have been recorded at the
present value of the future minimum lease payments as of the inception date.
The assets acquired through capital leases are as follows:
Governmental
Activities
Asset: Amount
Machinery and equipment $ 950,834
Less: Accumulated depreciation 200,496
Total $ 750,338
The future minimum lease payments for these leases are as follows:
Governmental
Activities
Year Ending 6/ 30 Amount
2006 $ 217,050
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2007 209,875
Total minimum lease payments 426,925
Less: Amount representing interest ( 22,566)
Present value of minimum lease payments $ 404,359
NOTE 8 – INTEREST RATE SWAPS
Objective of interest rate swap. As a means to manage variable interest rate exposure and potentially
lower its long- term borrowing costs, the Town entered into various interest rate swaps relating to its
variable- rate bonds.
Terms. On May 31, 2000, the Town signed a swap agreement to convert the 2000 Series A COPs to a
fixed rate of 5.262 percent based on a notional amount of $ 4,900,000 which matched the par amounts of
the bonds. The swap was structured to comply with regulations governing the variable rate refunding of
the 1997 fixed rate tax- exempt COPs to its first call date of June 1, 2007. The Town pays the
counterparty the fixed rate and receives variable payments based on the actual remarketing rates reset
on a weekly basis.
On August 21, 2003, the Town entered into a swap agreement to convert the 2000 Series B variable- rate
COPs to a fixed rate of 3.75 percent, subject to an early termination under certain conditions, until they
mature on June 1, 2030. Concurrent with the bond issuance of the 2003 Series A COPs ( See Note 9),
the Town also entered into a swap agreement to convert the 2003 Series A variable- rate COPs to a fixed
rate of 3.77 percent, subject to an early termination under certain conditions, until they mature on June 1,
2033. Under both swaps, the Town pays the counterparty the fixed rates and receives variable payments
based on The Bond Market Association Municipal Swap Index ( BMA). Both swaps are intended to
remain in place for the life of the bonds, barring an early termination. The counterparty will have the right,
but not the obligation, to terminate these transactions in whole, but not in part, on each day that the daily
weighted average of the BMA index for any immediate preceding rolling consecutive 180- days period is
more than 7 percent. The notional amounts of the swaps match the principal amounts of the associated
debts. There was no cash paid or received when the swaps were initiated.
Fair value. The following fair values of the swaps as of June 30, 2005 provided by the counterparty are
derived from proprietary models based upon well recognized financial principles:
Bond Issue
Notional
Amount
Fair
Values
2000A $ 4,900,000 ($ 227,489)
2000B 9,300,000 ( 437,728)
2003A 14,500,000 ( 742,014)
Total ($ 1,407,231)
Credit risk. As of June 30, 2005, the Town was not exposed to credit risk because the swaps had
negative fair values. However, should interest rates increase and the swaps’ fair values become positive,
Town would be exposed to credit risk in the amount of the derivatives’ fair values. The swap counterparty
is rated Aa2 by Moody’s Investors Services, AA- by Standard & Poor’s and A+ by Fitch Ratings as of
October 1, 2005.
Termination risk. The Town or the counterparty may terminate the swap if the other party fails to perform
under the terms of the contract. The swaps may be terminated by the counterparty if the Town’s credit
quality rating falls below Baa2 by Moody’s Investors Service and BBB by Fitch Ratings and by Standard &
Poor’s. If the swap is terminated, the variable- rate bond would no longer carry a synthetic interest rate.
Also, if at the time of termination, the swaps have negative fair values, Town would be liable to the
counterparty for a payment equal to the swaps’ fair values.
40
As noted above, counterparty will also have the right, but not the obligation, to terminate the 2000B and
2003A swaps in whole, but not in part, on each day that the daily weighted average of the BMA index for
any immediate preceding rolling consecutive 180 days period is more than 7 percent. Under such early
termination event, the counterparties shall be liable to pay only the accrued interest for the period from
the last payment date to the termination date.
Rollover risk. The Town is exposed to rollover risk on swaps that mature or may be terminated prior to
the maturity of the associated debt. The swap termination date on the Series 2000A COPs is June 1,
2007 after which the debt will be in a variable- rate mode. The related debt matures on June 1, 2030.
The outstanding principal of the Series 2000A COPs as of June 1, 2007 will be $ 4,900,000.
Refer to Note 9 for swap payments and associated debt service requirements.
NOTE 9 – LONG- TERM DEBT
Long- term liability activity for the year ended June 30, 2005, was as follows:
Beginning
Balance
Additions
Reductions
Ending
Balance
Due Within
One Year
Governmental activities:
Capital leases $ 596,857 $ ($ 192,498) $ 404,359 $ 201,213
Compensated absences 1,030,727 64,153 ( 47,222) 1,047,658
Governmental activity long- term liabilities $ 1,627,584 $ 64,153 ($ 239,720) $ 1,452,017 $ 201,213
Business- type activities:
Compensated absences $ 91,100 $ 21,090 $ ( 6,664) $ 105,526 $
Certificates of participation 29,200,000 ( 500,000) 28,700,000 500,000
Business- type activity long- term liabilities $ 29,291,100 $ 21,090 ($ 506,664) $ 28,805,526 $ 500,000
Compensated absences— Compensated absences due within one year represent unpaid
balances of reimbursable unused leave of employees who are retired as of the balance sheet
date. All compensated absences for governmental activities are paid out of the General Fund.
Certificates of participation( COPs)— The certificates are recorded in the Enterprise Fund and
were issued by the Public Improvement Corporation . Two issues on June 1, 2000, comprised of
$ 4,900,000 Series A, proceeds of which were used to advance refund the 1997 COPs that will
mature on the June 1, 2007 call date and $ 10,100,000 Series B that were used to refund and
retire the 1995 COPs and to finance the acquisition, construction and installation of certain
improvements to the Town’s water and sewer systems. The debt bears variable rates with
principal payments payable annually at June 1 from 2001 through 2030.
On August 21, 2003, the Town issued $ 15,000,000 of variable rate certificates of participation
( water and sewer system projects) 2003 Series A to finance various water and wastewater
projects, consistent with the enterprise’s ten year capital improvement plan.
The Town received ratings of AA+ from Fitch and AA from Standard & Poor’s for the above bond
issue.
A standby purchase agreement ( SPA) provides for the payment of the purchase price of the
tendered variable- rate COPs during the daily, weekly, and extended- rate modes in the event
remarketing proceeds following such a tender are insufficient. The SPA expires on May 26,
2008.
41
Interest accruing on the COPs is determined at the weekly rate and is payable on the first
business day of each calendar month. The debt is secured by a pledge of the net revenues of
the Enterprise Funds.
There are limitations and covenants contained in the various debt agreements. The Town
complies with all restrictive limitations and covenants at June 30, 2005.
In 2005, the Town’s total interest cost was approximately 4.4%. Using rates as of June 30, 2005,
debt service requirements of the variable- rate debt and net swap payments, assuming current
interest rates remain the same, for their term were as follows. As rates vary, variable- rate bond
interest payments and net swap payments will vary. ( Refer to Note 8.)
Year Ending Variable- Rate Bonds
June 30 Principal Interest
Interest Rate
Swaps, Net
Total
2006 $ 500,000 $ 636,853 $ 628,315 $ 1,765,168
2007 500,000 625,758 618,650 1,744,408
2008 600,000 614,663 440,768 1,655,431
2009 600,000 601,349 431,103 1,632,452
2010 600,000 588,035 421,438 1,609,473
2011- 2015 4,300,000 2,691,647 1,931,359 8,923,006
2016- 2020 5,100,000 2,183,496 1,583,539 8,867,035
2021- 2025 6,200,000 1,575,490 1,152,656 8,928,146
2026- 2030 7,800,000 812,154 621,321 9,233,475
2031- 2033 2,500,000 113,169 98,991 2,712,160
$ 28,700,000 $ 10,442,614 $ 7,928,140 $ 47,070,754
1997 Certificates of Participations Advance Refunding- As discussed above, the 1997 Certificates
of Participations were advanced refunded to reduce total debt service. The refunded bonds are
considered to be defeased and the liability has been removed from the proprietary funds
statement of net assets. The proceeds of the refunding bonds were placed in an irrevocable trust
for the purpose of generating resources to pay the remaining debt service and the remaining
principal balance as of the initial redemption date - June 2, 2007. Outstanding principal balance
on the refunded bonds as of June 30, 2005 was $ 4,320,000.
The internal service fund predominantly serves the governmental funds. Accordingly, the capital
lease for the fund is included as part of the capital lease for governmental activities discussed in
Note 7.
NOTE 10 – RISK MANAGEMENT
The town is exposed to various risks of loss related to torts; theft of, damage to, and destruction
of assets; errors and omissions; and natural disasters for which the Town carries commercial
insurance. The Town has established a limited risk management program of these types of risks.
The Town joined a public- entity risk pool ( The Cities Group – a Joint Power Authority) that
operates a Workers’ Compensation self- insured program. The pool indemnifies the membership
for their Workers’ Compensation losses and recovers those costs from the members through a
retrospective, loss experience based contribution- rating plan. The pool is self- insured for claims
up to $ 250,000 per occurrence. Claims in excess of this amount are insured up to $ 6.1 million.
The Town has no deductible for these claims. The Town’s premiums for the fiscal year ended
June 30, 2005 were $ 493,230. Financial statements for the pool may be obtained from The
Cities Group, P O Box 111, Burlingame, CA 94011.
Effective October 1, 2002, the Town participates in the Association of Bay Area Governments
Pooled Liability Assurance Network ( ABAG PLAN) organized within the Joint Powers Authority
Association of Bay Area Governments. The PLAN provides $ 10,000,000 coverage for general
42
and automobile liability in excess of the Town’s $ 50,000 deductible. Effective July 1, 2003, Town
also joins the ABAG PLAN pool for the commercial property including boiler and machinery
coverage, with $ 5,000 per incident deductible and certain specified limits.
Liabilities are reported when it is probable that a loss has occurred and the amount of the loss
can be reasonably estimated. The result of the process to estimate the claims liability is not an
exact amount as it depends on many complex factors, such as inflation, changes in legal
doctrines, and damage awards. Accordingly, claims are reevaluated periodically to consider
these factors, estimated recoveries from salvage or subrogation, and other economic and social
factors. The estimate of the claims liability also includes amounts for incremental claim
adjustment expenses related to specific claims and other claim adjustment expenses regardless
of whether allocated to specific claims. The amount recorded as liability for known claims are
based on the recommendation of the third- party administrator. No accrued liability for incurred
but not reported claims ( IBNRs) has been recorded as amounts for such claims cannot be
reasonably estimated. The Town’s remaining exposure for claims filed under this program is
minimal.
The Town is self- insured for all other insurable risk, except for excess insurance coverage
provided by commercial insurance companies that are limited to the following:
• Earthquake in excess of 15% per unit subject to $ 25,000 minimum deductible, but limited
to a maximum of $ 10,000,000
• Employment Practices Liability in excess of $ 100,000, but limited to a maximum of
$ 5,000,000.
There is no significant change in insurance coverage from that of the prior year and there were no
settlements that exceeded coverage for each of the past three years.
Below is a reconciliation of changes in the aggregate liabilities for claims for the fiscal years
ending June 30, 2005 and 2004.
2005 2004
Beginning Balance $ 287,129 $ 203,743
Claims incurred and changes in estimates for prior year claims ( 52,689) 360,744
Claims paid ( 165,722) ( 277,358)
Ending Balance $ 68,718 $ 287,129
NOTE 11 – JOINT POWERS AGREEMENT
The Town participates in the City/ County Association of Governments of San Mateo County
( C/ CAG), which is governed by a board consisting of a representative from each member. The
board controls the operations of C/ CAG, including selection of management and approval of
operating budget. The association was established under a 1990 Joint Exercise of Powers
Agreement between the Town, San Mateo County and a majority of cities within the County for
the purpose of developing State- mandated plans such as an integrated waste management plan.
The Town makes annual nonrefundable contributions to C/ CAG, which are used along with other
member contributions to finance C/ CAG operations. The Town’s contribution during the year
totaled $ 13,000. Financial information related to the association may be obtained from the City of
San Carlos, 666 Elm Street, San Carlos, CA 94070. The Town’s share of year- end assets,
liabilities or fund equity has not been calculated by C/ CAG.
43
NOTE 12 – COMMITMENTS AND CONTINGENT LIABILITIES
The Town is obligated through cost sharing agreements with other municipalities to pay its pro-rata
share of operating expenses, capital expenses and debt service for the operation of
wastewater treatment plants. The Town is billed its portion of expenses pursuant to an
agreements it entered into with the municipalities. The costs incurred by the Town under these
agreements amounted to $ 1,027,620 and $ 1,228,390 as of June 30, 2005 and 2004,
respectively.
The Town is also obligated to pay a portion of the cost of operations of the local libraries, which
are operated, by the Cities of Burlingame and San Mateo. The portion of these costs paid by the
Town amounted to $ 579,411 and $ 527,895 as of June 30, 2005 and 2004, respectively.
At June 30, 2005, the Town has outstanding construction contracts and commitments for the
water and sewer operations, as follows:
Water Fund $ 2,880,641
Sewer Fund 3,060,805
Total $ 5,941,446
The Town is subject to litigation arising in the normal course of business. In the opinion of the
Town’s management, there is no pending litigation, which is likely to have a material adverse
effect on the financial position of the Town.
NOTE 13 – OTHER POST- EMPLOYMENT BENEFITS
The Town provides postretirement health benefits, administered through the California Public
Employees Retirement System ( CalPERS), pursuant to various Town Employee Associations’
Memoranda of Understanding. To be eligible for these benefits, the employees must retire from
the Town on or after attaining age 50 with benefits depending upon years of services varying from
a minimum of 3 to 6 years. The town is required to pay a specified premium for each employee.
As of year- end, there were 79 employees who are receiving this benefit. The Town finances the
plan on a pay- as- you- go basis. For the year ended June 30, 2005, the Town paid $ 521,883 for
these benefits. ( See Note 15 regarding GASB Statement No. 45.)
NOTE 14 – EMPLOYEE RETIREMENT SYSTEMS
A. PERS Pension Plan
Plan Description. The Town provides retirement and disability benefits, annual cost- of- living
adjustments and death benefits to its employees through a defined benefit pension plan offered
by the Public Agency portion of the California Public Employees Retirement System ( CalPERS),
an agent multiple- employer plan, which acts as a common investment and administrative agent
for participating public employers within the State of California. A menu of benefit provisions, as
well as other requirements, are established by State statutes within the Public Employee’s
Retirement Law. The Town selects optional benefit provisions from the benefit menu by contract
with CalPERS and adopts those benefits through local resolutions. The Town participates in
separate Safety ( police and fire) and Miscellaneous ( all other) Employee Plans. CalPERS issues
a separate comprehensive annual financial report. Copies of its annual financial report may be
obtained from CalPERS Executive Office at 400 P Street, Sacramento, CA 95814.
Funding Policy. Active plan members are required to contribute 8% ( miscellaneous) or 9%
( public safety) of their annual covered salary. For fiscal year 2005, plan members contributed
44
$ 758,989. The Town is required to contribute the actuarially determined remaining amounts
necessary to fund the benefits for its members. The actuarial methods and assumptions used re
those adopted by the CalPERS Board of Administration. The contribution requirements of the
plan members are established by State statute and the employer contribution rate is established
and may be amended by CalPERS.
Annual Pension Cost. For fiscal year 2005, the Town’s annual pension cost was $ 1,698,864 The
required contribution for the current year was determined as part of the June 30, 2002 actuarial
valuation using the entry age normal actuarial cost method with the contributions determined as a
percent of pay. The actuarial assumptions included ( a) 8.25% investment rate of return ( net of
administrative expenses); ( b) projected salary increases that vary by duration of service ranging
from 3.75% to 14.20% for miscellaneous members ( from 4.272% to 11.59% for safety members),
and ( c) 3.75% cost- of- living adjustment. Both ( a) and ( b) include an inflation component of 3.5%.
The Plans’ provisions and benefits in effect at June 30, 2005 are summarized below:
Police Fire Miscellaneous
Benefit vesting schedule 5 years service 5 years service 5 years service
Benefit payments Monthly for life Monthly for life Monthly for life
Retirement age 50 50 55
Monthly benefits, as a % of annual salary 3% 2% - 2.7% 2% - 2.7%
Required employee contribution rates 9% 9% 8%
Required employer contribute rates 16.947%/ 28.382% 17.411% 17.741%
Initial unfunded liabilities are amortized over a closed period that depends on the plan’s date of
entry into CalPERS. Subsequent plan amendments are amortized as a level percentage of pay
over a closed 20- year period. Gains and losses that occur in the operation of the plan are
amortized over an open 13- year period, which results in an amortization of 10% of unamortized
gains and losses each year. If the plan’s accrued liability exceeds the actuarial value of plan
assets, then the amortization payment on the total unfounded liability may not be lower than the
payment calculated over a 30- year amortization period.
The three- year trend information for the Town is as follows:
Annual Percentage Net
Fiscal Year Pension Of APC Pension
Ending Cost Contributed Obligation
Miscellaneous 6/ 30/ 03 $ 46,520 100% $ - 0 -
6/ 30/ 04 $ 392,107 100% $ - 0 -
6/ 30/ 05 $ 676,201 100% $ - 0 -
Public Safety 6/ 30/ 03 $ - 0 - $ - 0 -
6/ 30/ 04 $ 254,267 100% $ - 0 -
6/ 30/ 05 $ 1,022,663 100% $ - 0 -
B. Social Security
The Town’s Local 856 union members, management and part- time seasonal and temporary
employees are covered under Social Security that requires these employees and the Town to
each contribute 7.65% of the employees’ pay. Total contributions to Social Security during the
year ended June 30, 2005 amounted to $ 358,733.
NOTE 15 – NEW ACCOUNTING PRONOUNCEMENTS
In March 2003, the Governmental Accounting Standards Board ( GASB) issued Statement No. 40,
Deposit and Investment Risk Disclosures effective for periods beginning after June 15, 2004. The
45
statement adds to and changes certain of the financial statement disclosure requirements for cash and
investments of local governments. This report reflects the implementation of these requirements.
In November 2003, GASB issued Statement No. 42, Accounting and Financial Reporting
Impairment of Capital Assets and for Insurance Recoveries establishing guidance for accounting and
reporting for impairment of capital assets and for insurance recoveries, whether associated with an
impaired capital asset or not. This statement is effective for periods beginning after December 31, 2004,
or during the 2005- 06 fiscal year. Town does not believe this statement will have a significant impact on
the financial statements.
In May 2004, GASB issued Statement No. 44, Economic Condition Reporting: The Statistical
Section, which provides guidance on the tables and narrative explanations in the statistical section. The
requirements of this statement are effective for fiscal periods beginning after June 15, 2005. Town is
implementing this requirement for this report year.
In July 2004, GASB issued Statement No. 45, Accounting and Financial Reporting by Employers
for Post- employment Benefits Other than Pensions. This will require local governmental employers who
provide other post- employment benefits ( OPEB) as part of the total compensation offered to employees
to recognize the expense and related liabilities ( assets) in the government- wide financial statements of
net assets and activities. It establishes standards for the measurement, recognition, and display of OPEB
expense/ expenditures and related liabilities ( assets), note disclosures, and, if applicable, required
supplementary information ( RSI) in the financial reports of the local governmental employer.
Town’s current financial reporting practices for OPEB are based on pay- as- you- go basis ( See
Note 13.) It does not measure or recognize the cost of OPEB during the periods when employees render
the services or to provide relevant information about OPEB obligations and the extent to which progress
is being made in funding those obligations.
The Statement provides for prospective implementation, i. e. employers set the beginning net
OPEB obligation at zero as of the beginning of the initial year. The Town will be required to implement
the provisions of this Statement for the fiscal year ended June 30, 2007. The Town is in the process of
determining the impact the implementation of this Statement will have on the government- wide statement
of net assets and activities.
In December 2004, GASB issued Statement No. 46, Net Assets Restricted by Enabling
Legislation. This Statement sets the criteria and specifies the accounting and financial reporting
requirements for such assets. The requirements of this Statement are effective for periods beginning
after June 15, 2005. Town does not believe this Statement will have a significant impact on the financial
statements.
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REQUIRED SUPPLEMENTARY
INFORMATION
Actuarial Overfunded Annual UAAL as a
Valuation Accrued Value of ( Unfunded) Funded Covered % of
Date Liability Assets Liability Status Payroll Payroll
( a) ( b) ( a) - ( b) ( b) / ( a) ( c) [( a)-( b)]/( c)
PUBLIC SAFETY:
POLICE: ( 2)
Retirement Program
6/ 30/ 2002 17,234,459 17,351,927 ( 117,468) 100.7% 1 ,985,589 - 5.9%
6/ 30/ 2003 ( 1) 1,218,082,935 1,083,690,137 134,392,798 89.0% 1 84,098,257 73.0%
6/ 30/ 2004 5,383,921,942 4,424,586,846 959,335,096 82.2% 5 75,296,434 166.8%
FIRE:
Retirement Program
6/ 30/ 2002 20,620,093 20,759,574 ( 139,481) 100.7% 2 ,685,455 - 5.2%
6/ 30/ 2003 ( 1) 1,218,082,935 1,083,690,137 134,392,798 89.0% 1 84,098,257 73.0%
6/ 30/ 2004 996,203,370 885,549,650 110,653,720 88.9% 1 49,407,703 74.1%
MISCELLANEOUS: ( 3)
Retirement Program
6/ 30/ 2002 14,241,181 12,396,728 1,844,453 87.0% 3 ,168,847 58.2%
6/ 30/ 2003 ( 1) 515,421,442 456,062,164 59,359,278 88.5% 1 20,692,360 49.2%
6/ 30/ 2004 426,958,282 334,956,019 92,002,263 78.5% 9 0,667,029 101.5%
( 1) Effective with the 6/ 30/ 2003 valuation, CalPERS established risk pools for plans containing less than 100 active members.
Town's 3 plans are included in these risk pools.
( 2) Police Plan's 6/ 30/ 2003 valuation reflects data for Safety 2% at 50 Risk Pool and Safety 3% at 60 Risk Pool for the 6/ 30/ 2004
valuation.
( 3) Miscellaneous Plan's 6/ 30/ 03 valuation reflects data for Miscellaneous 2.7% at 55 Risk Pool and Miscellaneous 3% at 60 Risk
Pool for the 6/ 30/ 2004 valuation.
TOWN OF HILLSBOROUGH
SCHEDULE OF FUNDING PROGRESS
EMPLOYEES RETIREMENT SYSTEM
47
Variance with
Final Budget -
Original Final Positive
Budget Budget Actual ( Negative)
REVENUES:
Taxes:
Property $ 7,470,606 $ 7,707,606 $ 7,863,429 $ 155,823
Franchise taxes 605,196 595,196 5 86,374 ( 8,822)
Business license tax 580,511 580,511 6 39,135 58,624
All others 136,243 597,774 5 89,025 ( 8,749)
Permits 1,016,053 956,053 1,002,682 46,629
Intergovernmental 716,550 785,800 8 25,357 39,557
Service charges 1,073,482 957,176 1,120,255 163,079
Fines and forfeitures 29,500 29,500 3 9,559 10,059
Investment earnings 150,000 150,000 2 11,526 61,526
Miscellaneous 398,700 434,465 4 49,278 14,813
Total Revenues 12,176,841 12,794,081 13,326,620 532,539
EXPENDITURES:
Current:
General government 726,597 773,387 7 27,012 46,375
Public safety 10,601,599 11,153,169 10,563,783 589,386
Community services 2,081,264 2,127,694 1,990,926 136,768
Streets 1,378,475 1,378,475 1,335,972 42,503
Capital outlay 8,930 8,930 8 ,922 8
Total Expenditures 14,796,865 15,441,655 14,626,615 815,040
EXCESS ( DEFICIENCY) OF REVENUES OVER
( UNDER) EXPENDITURES ( 2,620,024) ( 2,647,574) ( 1,299,995) 1,347,579
OTHER FINANCING SOURCES ( USES):
Operating transfers in 2,665,442 2,678,202 2,678,692 490
Operating transfers out - - - -
Total Other Financing Sources ( Uses) 2,665,442 2,678,202 2,678,692 490
NET CHANGE IN FUND BALANCES 45,418 30,628 1,378,697 1,348,069
BEGINNING FUND BALANCES 7,735,434 7,735,434 7,735,434 -
ENDING FUND BALANCES $ 7,780,852 $ 7,766,062 $ 9,114,131 $ 1,348,069
TOWN OF HILLSBOROUGH
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
GENERAL FUND
48
Variance with
Final Budget -
Original and Positive
Final Budget Actual ( Negative)
REVENUES:
Police and Fire special tax $ 2,188,202 $ 2,188,202 $ -
Investment earnings 140,000 140,490 490
Total Revenues 2,328,202 2,328,692 490
EXPENDITURES:
Current:
General Government - - -
Total Expenditures - - -
EXCESS OF REVENUES OVER EXPENDITURES 2,328,202 2,328,692 490
OTHER FINANCING USES:
Operating Transfers Out ( 2,328,202) ( 2,328,692) ( 490)
EXCESS OF REVENUES OVER EXPENDITURES
AND OTHER USES - - -
BEGINNING FUND BALANCES - - -
ENDING FUND BALANCES $ - $ - $ -
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
TOWN OF HILLSBOROUGH
POLICE AND FIRE SPECIAL TAX FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
49
50
Town of Hillsborough
Note to Required Supplementary Information
June 30, 2005
Budgetary Information
The Town adopts annual budgets on a basis consistent with generally accepted
accounting principles for all governmental funds except the capital projects funds, which
adopt project- length budgets. All appropriations lapse at fiscal year- end. Encumbrances
which are commitments related to unperformed contracts for goods or services at year-end
lapse and are automatically reappropriated and reencumbered in the subsequent
fiscal year. Such encumbrances in the governmental funds at June 30, 2005 were
$ 3,216. Budgets are also adopted and controlled for the proprietary funds. Budget
comparisons for these funds are not legally mandated and thus are not presented.
Prior to June 30, the Town Manager submits to the Town Council a proposed operating
budget for review. The Council holds public hearings and a final budget is adopted on or
before June 30.
The appropriated budget is prepared by fund, function, and department. The Town’s
department heads may make transfers of appropriations within a department. The Town
Manager may transfer budgeted amounts within any fund. Any revisions that alter the
total expenditures of any fund must be approved by the Town Council. The legal level of
budgetary control ( i. e., the level at which expenditures may not legally exceed
appropriations) is the fund level. Budget amounts shown in these financial statements
include all supplemental appropriations made during the year for the General and the
Special Revenue funds.
A schedule of revenues, expenditures and changes in fund balances – budget and actual
– of the Town’s general fund and the Police and Fire special tax fund – another major
governmental fund- are presented as required supplementary information.
COMBINING STATEMENTS AND INDIVIDUAL
FUND SCHEDULES
Nonmajor Governmental Funds
Special Revenue Funds
Special revenue funds are used to account for specific revenues that are legally restricted to
expenditure for particular purposes.
Gas Tax Fund – This fund is used to account for receipts and disbursements of funds
apportioned under Streets and Highways Code Sections 2105, 2106, 2107 and 2107.5 of the
State of California for the purpose of financing major street construction projects.
Measure “ A” Fund – This fund is used to account for receipts and disbursements of a San Mateo
County half- cent sales tax approved by the voters in June 1988 ( Measure A) for the purpose of
improving local transportation including streets and roads.
Police Grants Fund – This fund is used to account for activities funded by proceeds from various
police grants and programs.
Capital Projects Fund
Capital projects funds are used to account for the acquisition and construction of major capital
facilities other than those financed by proprietary funds and trust funds.
Total
Nonmajor
Gas Police CAPITAL Governmental
Tax Measure A Grants PROJECTS Funds
ASSETS
Cash and investments:
Town Treasury $ - $ 71,304 $ 156,410 $ 784,618 $ 1,012,332
Interest receivable 258 1,958 802 4 ,001 7,019
Due from other governments 21,409 33,644 55,053
Total Assets $ 21,667 $ 106,906 $ 157,212 $ 788,619 $ 1,074,404
LIABILITIES
Accounts payable $ - $ - $ 2,743 $ 15,164 $ 17,907
Due to other funds 197 197
Total Liabilities 197 - 2,743 1 5,164 18,104
FUND BALANCES
Unreserved -
Designated for streets 21,470 106,906 128,376
Designated for public safety 154,469 154,469
Designated for capital improvement plan 7 73,455 773,455
Total Fund Balances 21,470 106,906 154,469 773,455 1,056,300
Total Liabilities & Fund Balances $ 21,667 $ 106,906 $ 157,212 $ 788,619 $ 1,074,404
SPECIAL REVENUE FUNDS
TOWN OF HILLSBOROUGH
COMBINING BALANCE SHEET
NONMAJOR GOVERNMENTAL FUNDS
JUNE 30, 2005
51
Total
Nonmajor
Gas Police CAPITAL Governmental
Tax Measure A Grants PROJECTS Funds
REVENUES:
Police and fire special tax $ - $ - $ - $ - $ -
Intergovernmental 217,071 352,463 100,000 - 669,534
Investment earnings 1,477 7,447 5,462 20,788 35,174
Miscellaneous 39,168 39,168
Total Revenues 218,548 359,910 105,462 59,956 743,876
EXPENDITURES:
Current:
General government 11,935 6,548 134 18,617
Public safety 63,437 15,520 78,957
Community services 137,352 137,352
Public works 14,904 14,904
Capital outlay 49,754 654,361 704,115
Total Expenditures 11,935 6,548 113,191 822,271 953,945
EXCESS OF REVENUES OVER
EXPENDITURES 206,613 353,362 ( 7,729) ( 762,315) ( 210,069)
OTHER FINANCING SOURCES ( USES):
Transfers In 400,000 400,000
Transfers Out ( 200,000) ( 550,000) ( 750,000)
Total Other Financing Sources ( Uses) ( 200,000) ( 550,000) - 400,000 ( 350,000)
NET CHANGE IN FUND BALANCES 6,613 ( 196,638) ( 7,729) ( 362,315) ( 560,069)
BEGINNING FUND BALANCES 14,857 303,544 162,198 1,135,770 1,616,369
ENDING FUND BALANCES $ 21,470 $ 106,906 $ 154,469 $ 773,455 $ 1,056,300
SPECIAL REVENUE FUNDS
TOWN OF HILLSBOROUGH
COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
NONMAJOR GOVERNMENTAL FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
52
Variance with
Final Budget -
Original and Positive
Final Budget Actual ( Negative)
REVENUES:
Intergovernmental $ 220,000 $ 217,071 $ ( 2,929)
Investment earnings 500 1,477 977
Total Revenues 220,500 218,548 ( 1,952)
EXPENDITURES:
Current:
General Government 10,000 11,935 ( 1,935)
Total Expenditures 10,000 11,935 ( 1,935)
EXCESS OF REVENUES OVER EXPENDITURES 210,500 206,613 ( 3,887)
OTHER FINANCING USES:
Operating Transfers Out ( 200,000) ( 200,000) -
EXCESS OF REVENUES OVER EXPENDITURES
AND OTHER USES 10,500 6,613 ( 3,887)
BEGINNING FUND BALANCES 14,857 14,857 -
ENDING FUND BALANCES $ 25,357 $ 21,470 $ ( 3,887)
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
TOWN OF HILLSBOROUGH
GAS TAX FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
53
Variance with
Final Budget -
Original and Positive
Final Budget Actual ( Negative)
REVENUES:
Intergovernmental $ 350,000 $ 352,463 $ 2,463
Investment earnings 500 7,447 6,947
Total Revenues 350,500 359,910 9,410
EXPENDITURES:
Current:
General Government 5,200 6,548 ( 1,348)
Total Expenditures 5,200 6,548 ( 1,348)
EXCESS OF REVENUES OVER EXPENDITURES 345,300 353,362 8,062
OTHER FINANCING USES:
Operating Transfers Out ( 550,000) ( 550,000) -
EXCESS OF REVENUES OVER EXPENDITURES
AND OTHER USES ( 204,700) ( 196,638) 8,062
BEGINNING FUND BALANCES 303,544 303,544 -
ENDING FUND BALANCES $ 98,844 $ 106,906 $ 8,062
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
TOWN OF HILLSBOROUGH
MEASURE " A" FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
54
Variance with
Final Budget -
Original and Positive
Final Budget Actual ( Negative)
REVENUES:
Intergovernmental $ 100,000 $ 100,000 $ -
Investment earnings 500 5,462 4,962
Total Revenues 100,500 105,462 4,962
EXPENDITURES:
Current:
General government - -
Public safety 35,500 63,437 ( 27,937)
Capital Outlay 50,000 49,754 246
Total Expenditures 85,500 113,191 ( 27,691)
EXCESS OF REVENUES OVER EXPENDITURES 15,000 ( 7,729) ( 22,729)
OTHER FINANCING USES:
Operating Transfers Out - -
EXCESS OF REVENUES OVER EXPENDITURES
AND OTHER USES 15,000 ( 7,729) ( 22,729)
BEGINNING FUND BALANCES 162,198 162,198 -
ENDING FUND BALANCES $ 177,198 $ 154,469 $ ( 22,729)
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
TOWN OF HILLSBOROUGH
POLICE GRANTS FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
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CAPITAL ASSETS USED IN THE OPERATION OF
GOVERNMENTAL FUNDS
2005 2004
Governmental funds capital assets:
Land $ 1,456,560 $ 1,456,560
Land improvements 1,938,715 1,938,715
Building and improvements 2,587,158 2,587,158
Machinery and equipment 1,870,161 1,832,509
Infrastructure 10,199,018 9,544,657
Total governmental funds capital assets $ 18,051,612 $ 17,359,599
Investments in governmental funds capital assets by source:
General fund $ 1,197,087 $ 1,209,189
Special revenue fund 111,634 61,880
Capital projects funds 10,668,274 10,013,913
Other - unclassified 6,074,617 6,074,617
Total governmental funds capital assets $ 18,051,612 $ 17,359,599
( 1) This schedule presents only the capital asset balances related to governmental funds. Accordingly, the capital
assets reported in the internal service fund are excluded from the above amounts. Generally, the capital assets of
internal service funds are included as governmental activities in the statement of net assets.
JUNE 30, 2005
TOWN OF HILLSBOROUGH
CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS
COMPARATIVE SCHEDULES BY SOURCE ( 1)
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Machinery
Land and Buildings and and
Function and Activity Improvements Improvements Equipment Infrastructure Total
General Government:
Council $ $ 6,155 $ 6,891 $ - $ 13,0