Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2004
TOWN OF HILLSBOROUGH, CALIFORNIA
Comprehensive Annual Financial Report
For the fiscal year ended
June 30, 2004
Prepared by:
Finance Department
Town of Hillsborough
Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2004
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 --------------------- 43
Schedule of Revenues, Expenditures and Changes in Fund
Balances – Budget and Actual – General Fund ------------------------------------- 44
Schedule of Revenues, Expenditures and Changes in Fund
Balances – Budget and Actual – Police and Fire Special Tax Fund ----------- 45
Note to Required Supplementary Information ---------------------------------------------- 46
Combining Statements and Individual Fund Schedules:
Nonmajor Governmental Funds:
Combining Balance Sheet – Nonmajor Governmental Funds -------------------------- 47
Combining Statement of Revenues, Expenditures and Changes in
Fund Balances – Nonmajor Governmental Funds ----------------------------------- 48
Schedule of Revenues, Expenditures and Changes in Fund
Balances – Budget and Actual
Gas Tax Fund --------------------------------------------------------------------------------- 49
Measure “ A” Fund ---------------------------------------------------------------------------- 50
Police Grants Fund -------------------------------------------------------------------------- 51
Capital Assets Used in the Operation of Governmental Funds:
Comparative Schedules by Source ------------------------------------------------------ 53
Schedule by Function and Activity ------------------------------------------------------- 54
Schedule of Changes by Function and Activity --------------------------------------- 55
STATISTICAL SECTION
Government- wide Information:
Government- wide Expenses by Function ---------------------------------------------------- 57
Government- wide Revenues ------------------------------------------------------------------- 58
Fund Information:
General Governmental Expenditures by Function ----------------------------------------- 59
General Governmental Revenues by Source ----------------------------------------------- 60
General Governmental Tax Revenues by Source ----------------------------------------- 61
Property Tax Levies and Collections ---------------------------------------------------------- 62
Assessed Values of Taxable Property -------------------------------------------------------- 63
Assessed Values of Taxable Property – Use Category ---------------------------------- 64
Computation of Legal Debt Margin ------------------------------------------------------------ 65
Computation of Direct and Overlapping Debt ----------------------------------------------- 66
Table of Construction Activity ------------------------------------------------------------------- 67
Property Tax Rates -------------------------------------------------------------------------------- 68
10 Top Taxpayers --------------------------------------------------------------------------------- 69
Water Sales, Meter Charges and Sewer Service Charges ------------------------------ 70
Water and Sewer Rates -------------------------------------------------------------------------- 71
Ten Largest Water Accounts ------------------------------------------------------------------- 72
Seven Largest Sewer Accounts ---------------------------------------------------------------- 73
Schedule of Enterprise Funds Bond Coverage -------------------------------------------- 74
Schedule of Insurance in Force ---------------------------------------------------------------- 75
Miscellaneous Statistics -------------------------------------------------------------------------- 76
INTRODUCTORY SECTION
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
10,850. 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 44 and 45 as part of the
required supplementary information. For governmental funds other than the general fund, with
appropriated annual budgets, this comparison is presented in the governmental fund subsection
of this report starting on page 49.
2
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. Towards the end of the
fiscal year, the Town saw some improvements to the local economy 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 two years, the
Town has 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.
Meanwhile, it has deferred scheduled funding of the replacement reserves, various capital
improvement projects and has left vacancies unfilled. The surge in economy experienced
towards the end of the 2003- 2004 fiscal year will fill the current year’s gap between revenues and
expenditures.
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 $ 30 million in fiscal year 2003- 2004.
Although, the Town’s investment policy allowed investing in a variety of investment vehicles, most
of the funds were invested with the State of California Local Agency Investment Fund ( LAIF).
Investment earnings totaled $ 363,504 for the fiscal year ended June 30, 2004 earning an average
return of approximately 1.2%.
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.
3
The Town also provides post- retirement health benefits pursuant to various Town Employee
Associations’ Memoranda of Understanding. The benefits vary depending upon a retiree’s years
of service. As of year- end, there are 78 employees who are receiving this benefit. The Town
finances the plan on a pay- as- you- go basis. Long- term costs for the benefits are projected to be
in excess of $ 10 million. The Town has reviewed various means to help reduce the impact of
these benefits to its future financial position and when able, provided annual transfers to reserves
for future health benefit costs starting July 2001.
Additional information on the Town’s pension arrangement and postemployment benefits can be
found in Notes 12 and 13 in the notes to the financial statements.
Awards and Acknowledgements
The Government Finance Officers Association ( GFOA) awarded a Certificate of Achievement for
Excellence in Financial Reporting to the Town of Hillsborough for its comprehensive annual
financial report ( CAFR) for the fiscal year ended June 30, 2003. This was the second year that
the Town has received this prestigious award. In order to be awarded a Certificate of
Achievement, the town published an easily readable and efficient organized CAFR. This report
satisfied both GAAP and applicable legal requirements. A Certificate of Achievement is valid for
a period of one year only. We believe that our current CAFR continues to meet the Certificate of
Achievement Program’s requirements and we are submitting it to the GFOA to determine its
eligibility for another certificate.
The Town also received the GFOA’s Distinguished Budget Presentation Award for its Three- Year
Operating and Capital Budget for fiscal years 2002- 2004. In order to qualify for the Distinguished
Budget Presentation Award, the town’s budget document was judged to be proficient in several
categories, including as a policy document, a financial plan, an operations guide, and a
communications device.
Additionally, the Town was also awarded the California Society of Municipal Finance Officers’
( CSMFO) Certificate of Award for Outstanding Financial Reporting for its CAFR for the fiscal year
ended June 30, 2003. This is the third year that the Town has received this award in recognition
for meeting professional standards and criteria in reporting that reflect a high level of quality in the
annual financial statements. This award is also valid for a period of one year only and we will be
submitting this year’s report to CSMFO to determine its eligibility for the certificate.
CSMFO also awarded the Town the Certificate of Award for Excellence in Operational Budgeting
for the budget document discussed above.
We wish to extend our appreciation to all the departments who contributed financial information to
the report. The preparation of this report could not have been accomplished without the efficient
and dedicated services of the entire staff of the Finance Department.
We also like to thank the members of the City Council, the Finance Advisory Committee and the
City Manager for their interest and support in planning and conducting the financial operations of
the town in a responsible and progressive manner.
Respectfully submitted,
Maria Edna J. Masbad
Finance Director
4
This page is intentionally left blank.
8
FINANCIAL SECTION
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, 2004. 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 2003- 2004 fiscal year by
$ 49,592,391 ( net assets). Of this amount, $ 21,732,163 ( unrestricted net assets) may be
used to meet the Town’s ongoing obligations to citizens and creditors.
􀂾 The Town’s total net assets increased by $ 2,795,205, $ 1,101,276 of which were
contributed sewer and storm drain lines from other governments pursuant to a
reimbursement agreement. Net assets increased by approximately $ 1.7 million from
regular operations resulting from the implementation of new user fees, better than
expected revenues and cost- cutting measures employed by the Town that included the
merging of fire operations with the City of Burlingame and not filling vacant positions.
􀂾 As of June 30, 2004, the Town’s governmental funds reported combined ending fund
balances of $ 9,351,803, a 14% increases over the prior year. 98% of this total,
$ 9,147,215, is available for spending at the Town’s discretion ( unreserved fund balance).
􀂾 The Town’s general fund reported a $ 1 million increase in fund balance. At the end of
the current fiscal year, unreserved fund balance for the general fund was $ 7,525,440 up
from $ 6,666,273 in 2002- 2003. The fund balance reserve is approximately 55 percent of
total general fund expenditures.
􀂾 In line with the city goal to participate in providing efficient inter- jurisdictional operations,
on April 20, 2004, the Town approved a Joint Powers Agreement ( JPA) with the City of
Burlingame for fire combined services that provides both economic and service delivery
benefits. Project negotiations that started three years ago culminated with the approval
of the JPA by both councils in April 2004. The Town’s estimated cost savings from this
activity are in excess of $ 700,000 annually. Contract implementation starts on July 2004;
however, a coverage area study evaluation was started on October 2003 resulting to
expenditures savings in the Fire Department for the 2003- 2004 fiscal year.
􀂾 On August 2003, the Town issued $ 15 million of variable rate certificates of participation
2003 Series A to finance various water and wastewater projects consistent with the
enterprise’s ten year capital improvement plan. Bond proceeds will fund two- thirds of the
total projects planned for the next five years totaling $ 23.2 million.
To take advantage of the lower long- term rates and to minimize exposure to variable rate
fluctuations, the Town entered into a floating to fixed rate knockout at 7% swap
agreements for the $ 9.7 million COPs 2000 Series B and the $ 15 million COPs 2003
Series A.
􀂾 A 12% increase in water consumption together with the 15% and 30% increases for the
year in the water and sewer rates respectively, more than covered operations and the 1.2
rate debt service coverage required by the covenant for the debt issues. The healthy
trend of the past years’ operations allowed the Town not to increase the water fees and
authorized a slight increase ( 5%) in the sewer rates for the following year.
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
11
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.
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.
12
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
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- 42 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
43- 46 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 47- 55 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 $ 49,592,391 at June 30, 2004.
TOWN OF HILLSBOROUGH’S NET ASSETS
Governmental Activities Business- type Activities Total
2004 2003 2004 2003 2004 2003
Current and other assets $ 13,185,317 $ 11,876,512 $ 26,659,377 $ 10,246,145 $ 39,844,694 $ 22,122,657
Capital assets 9,490,931 9,470,935 34,615,793 34,084,058 44,106,724 43,554,993
Total assets 22,676,248 21,347,447 61,275,170 44,330,203 83,951,418 65,677,650
Long- term liabilities 1,419,446 1,488,014 28,791,100 14,470,949 30,210,546 15,958,963
Other liabilities 1,754,487 1,779,254 2,393,994 1,142,247 4,148,481 2,921,501
Total liabilities 3,173,933 3,267,268 31,185,094 15,613,196 34,359,027 18,880,464
Net assets:
Invested in capital assets,
Net of related debt
8,894,074
8,689,913
18,261,566
19,484,058
27,155,640
28,173,971
Restricted 204,588 188,633 500,000 500,000 704,588 688,633
Unrestricted 10,403,653 9,201,633 11,328,510 8,732,949 21,732,163 17,934,582
Total net assets $ 19,502,315 $ 18,080,179 $ 30,090,076 $ 28,717,007 $ 49,592,391 $ 46,797,186
13
By far the largest portion of the Town’s net assets ( 55 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 ( 1.4 percent) represents resources
that are subject to external restrictions on how they may be used. The remaining balance of
unrestricted net assets ($ 21,732,163) may be used to meet the Town’s ongoing obligations to
citizens and creditors.
At June 30, 2004, 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 $ 2,795,205, $ 1,101,276 of which, were contributed sewer
and storm drain lines from other governments pursuant to a reimbursement agreement. Net
assets increased by approximately $ 1.7 million from regular operations resulting from the
implementation of new user fees, better than expected revenues and cost- cutting measures
employed by the Town that included the merging of fire operations with the City of Burlingame
and not filling vacant positions.
Governmental activities. Governmental activities increased the Town of Hillsborough’s net
assets by $ 1,422,136 accounting for 51 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
2004 2003 2004 2003 2004 2003
REVENUES
Program revenues:
Charges for services $ 2,133,222 $ 1,686,492 $ 11,923,663 $ 9,402,007 $ 14,056,885 $ 11,088,499
Operating grants and
Functional taxes
3,198,961
2,889,847
3,198,961
2,889,847
Capital grants and
Contributions 363,600 1,101,276 628,200 1,101,276 991,800
General revenues:
Property taxes 7,321,906 6,863,862 7,321,906 6,863,862
Other taxes 2,054,383 1,613,970 2,054,383 1,613,970
Investment earnings 107,018 216,459 249,343 192,093 356,361 408,552
All others 580,603 199,682 580,603 199,682
Total revenues 15,396,093 13,833,912 13,274,282 10,222,300 28,670,375 24,056,212
EXPENSES
General government 748,034 861,208 748,034 861,208
Public safety 9,795,994 9,332,715 9,795,994 9,332,715
Community services 1,917,420 1,757,876 1,917,420 1,757,876
Streets 1,482,061 1,057,967 1,482,061 1,057,967
Interest on long- term debt 30,448 35,070 30,448 35,070
Water 6,502,981 5,486,503 6,502,981 5,486,503
Sewer 5,398,232 4,660,778 5,398,232 4,660,778
Total expenses 13,973,957 13,044,836 11,901,213 10,147,281 25,875,170 23,192,117
Increase in net assets
before transfer
1,422,136
789,076
1,373,069
75,019
2,795,205
864,095
Transfers
Increase in net assets 1,422,136 789,076 1,373,069 75,019 2,795,205 864,095
Net assets– July 1, 2003 18,080,179 17,291,103 28,717,007 28,196,338 46,797,186 45,487,441
Prior period adjustment 445,650 445,650
Net assets– June 30, 2004 $ 19,502,315 $ 18,080,179 $ 30,090,076 $ 28,717,007 $ 49,592,391 $ 46,797,186
14
The graph below breaks down expenses by function and compares them to corresponding
program revenues for governmental activities.
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
47%
Functional taxes
21%
Franchise tax
4%
Business license tax
4%
Motor vehicle license fee
3%
Other taxes
2%
All others
4%
User charges
14%
Investment earnings
1%
The majority of the $ 1.1 million change in the governmental funds’ net assets resulted from the
General Fund’s operations where revenues increased by $ 1.5 million – a 12% increase over the
previous year. Meanwhile, expenditures increased by 7% or approximately $ 930,000; a $ 1.3
15
million increase in various line items as reflected further in this report, was tempered by cuts and
savings on some controllable costs
The table below summarizes the major revenue increases in the General Fund during the year:
03/ 04 02/ 03 Increase %
REVENUES
Property taxes $ 7,321,906 $ 6,794,180 $ 527,726 8%
ERAF refund 300,000 300,000 100%
Business license 596,959 421,194 175,765 42%
Construction permits 812,423 592,012 220,411 37%
Franchise fees 597,022 271,332 325,690 120%
Service charges 959,659 735,901 223,758 30%
Total $ 10,587,969 $ 8,814,619 $ 1,773,350 20%
The 8% increase in property taxes resulted from a more robust turnover of properties in the
Town. The $ 300,000 ERAF refund processed by the County Controller was one- time revenue
that resulted from the local tax base increasing at a rate faster than the increase in funding limits
for schools and community colleges. The increase in construction permits was due to increased
activity in remodels and a few new houses. The franchise fees resulted from the imposition of a
2% fee on water and sewer utilities and the increase of the refuse franchise fee from 5% to 10%.
Lastly, in addition to some smaller fees, the 30% increase in service charges resulted largely from
the implementation of the alarm monitoring fee.
The table below summarizes the major expenditures approximate increases in the General Fund
during the year:
Salaries $ 290,000
Retirement costs 500,000
Health insurance costs ( active & retirees) 250,000
Workers compensation 150,000
Library services 86,000
Total $ 1,276,000
Business- type activities. There is a $ 1,373,069 increase in net assets in the business- type
activities of the Town. Highlights of the activities are as follows:
􀂾 Water usage increased by 12 percent and coupled with the 15% rate increase in water
fees brought in $ 769,212 increase in the water operations’ net assets despite the 34%
increase in water purchases, utilities and pumping costs.
􀂾 Although the 30% increase in sewer rates resulted in approximately $ 1 million more in
sewer service charges designed to cover the additional debt service for the new bond
issue, a 58% ($ 702,300) increase in disposal costs mostly covering capital components
charged by the cities with which the Town contracts for disposal services, prevented the
Town to fully fund depreciation for the Sewer Fund.
$ 7,294
$ 4,879
$ 6,525
$ 5,429
$ 0
$ 1,000
$ 2,000
$ 3,000
$ 4,000
$ 5,000
$ 6,000
$ 7,000
$ 8,000
Water Sewer
Thousands
Revenues Expenses
16
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
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, 2004, the Town’s governmental funds reported combined ending fund balances of
$ 9,351,803, up $ 1,116,334 from the previous year. $ 7,525,440 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.
As a measure of the general fund’s liquidity, it may be useful to compare both unreserved fund
balance and total fund balance to total fund expenditures. Unreserved fund balance represents
55 per cent of total general fund expenditures while total fund balance represents 57 percent of
that same amount.
The Town’s general fund balanced increased by $ 1,069,161 during the current fiscal year. From
a combination of new user fees and better than expected revenues, the Town realized a $ 1.5
million increase in revenues. Likewise, while the expenditures were expected to greatly increase
because of higher health insurance and retirement costs, they increased by only 7% over the
previous year resulting from various factors fully discussed earlier in this report.
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 $ 9,198,742, up from
$ 7,933,958, and those of the Sewer fund amounted to $ 1,883,195 up from $ 605,361. 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 only 2 areas where revenues did not materialize were in investment earnings and operating
transfers in. However, overall revenues exceeded projections by approximately $. 5 million and
expenditures savings were realized for another $. 5 million thereby realizing $ 1 million more over
budget.
The chart below summarizes the budget variances:
BUDGET ACTUAL VARIANCE
REVENUES
Property taxes $ 7,125,640 $ 7,321,906 $ 196,266
Property transfer tax 200,000 293,903 93,903
Construction permits 766,100 812,423 46,323
MV license fee 415,000 490,104 75,104
OES reimbursement 33,303 33,303
Rents 145,000 170,023 25,023
Encroachment fees 14,483 50,234 35,751
Total 8,666,223 9,171,896 505,673
17
EXPENDITURES
Police 4,683,518 4,478,765 204,753
Fire 5,558,865 5,309,874 248,991
Total $ 10,242,383 $ 9,788,639 453,744
GRAND TOTAL $ 959,417
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, 2004, amounts to $ 27,155,640 ( net of accumulated
depreciation). This investment in capital assets includes land, buildings and system,
improvements, machinery and equipment, roads, highways, and bridges. The modest increase in
the Town’s investment in capital assets for the fiscal year resulted from the 1.5% increase for
business- type activities.
Major capital asset events during the year included the following:
􀂾 $ 1.1 million water fund projects and $ 2.4 million sewer improvement projects.
􀂾 Various streets projects for approximately $ 384,000.
TOWN OF HILLSBOROUGH’S CAPITAL ASSETS
( Net of depreciation)
Governmental Activities Business- type Activities Total
2004 2003 2004 2003 2004 2003
Land $ 1,456,560 $ 1,456,560 $ 1,456,560 $ 1,456,560
Land improvements 1,403,503 1,458,089 1,403,503 1,458,089
Buildings 773,487 840,517 $ 127,089 $ 138,771 900,576 979,288
Machinery and equipment 1,945,781 2,030,976 432,828 239,903 2,378,609 2,270,879
Infrastructure 3,911,600 3,684,793 3,911,600 3,684,793
Water and sewer lines 34,055,876 33,705,384 34,055,876 33,705,384
Total $ 9,490,931 $ 9,470,935 $ 34,615,793 $ 34,084,058 $ 44,106,724 $ 43,554,993
Additional information on the Town of Hillsborough’s capital assets can be found in Note 5
starting from page 35 of this report.
Long- term debt. On August 2003, the Town issued $ 15 million of variable rate certificates of
participation 2003 Series A to finance various water and wastewater projects consistent with the
enterprise’s ten year capital improvement plan. Bond proceeds will fund two- thirds of the total
projects planned for the next five years totaling $ 23.2 million. At June 30, 2004, the Town of
Hillsborough had total debt outstanding excluding compensated absences in the amount of
$ 29,796,857.
TOWN OF HILLSBOROUGH’S OUTSTANDING DEBT
( Certificates of Participation and Capital Lease Obligations)
Governmental Activities Business- type Activities Total
2004 2003 2004 2003 2004 2003
Certificates of participation $ 29,200,000 $ 14,600,000 $ 29,200,000 $ 14,600,000
Capital lease obligations $ 596,857 $ 781,022 596,857 781,022
Total $ 596,857 $ 781,022 $ 29,200,000 $ 14,600,000 $ 29,796,857 $ 15,381,022
Total debt paid during the year was $ 584,165. The certificates of participation recorded in the
business- type activities were issued through the Public Improvement Corporation to finance the
18
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 8 on pages 37- 39 of
this report.
Economic Factors and Next Year’s Budgets and Rates
Although the Town’s operations are impacted by the cost- cutting measures employed as part of
the recent year’s budget strategies and some vacant positions continue to be unfilled, there had
been no lay- offs and any drastic reduction in services. The sudden surge in economy
experienced towards the end of 2003- 2004 that enabled Town to realize $. 5 million more
revenues than projected would allow the Town to fill the current year’s gap between revenues
and expenditures.
However, Town management and staff continue to be cautious of the difficult times ahead. The
State continues to aggressively seize additional City revenues, at least for the time being, and
even higher increases in the health insurance and employee retirements costs are projected.
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.
19
This page is intentionally left blank.
20
BASIC FINANCIAL STATEMENTS
GOVERNMENT- WIDE FINANCIAL STATEMENTS
Governmental Business- type
Activities Activities Total
ASSETS
Cash and investments:
Town Treasury $ 12,915,777 $ 9,693,016 $ 22,608,793
Trustee ( Restricted) 12,845,884 12,845,884
Receivables, net of estimated uncollectibles:
Accounts 111,056 1,910,210 2,021,266
Interest 43,624 82,068 125,692
Property tax receivable from County 310,434 310,434
Internal balances ( 246,573) 246,573
Due from other governments 50,499 1,101,276 1,151,775
Prepaids 500 29,967 30,467
Supplies 129,323 129,323
Cost of bond issuance ( net of accumulated amortization) 621,060 621,060
Capital assets ( net of accumulated depreciation):
Land and improvements 2,860,063 2,860,063
Buildings 773,487 127,089 900,576
Machinery and equipment 1,945,781 432,828 2,378,609
Infrastructure 3,911,600 3,911,600
Water and sewer lines 34,055,876 34,055,876
Total Assets 22,676,248 61,275,170 83,951,418
LIABILITIES
Accounts payable and other current liabilities 441,675 1,161,698 1,603,373
Accrued payroll liabilities 528,030 528,030
Deposits 439,162 427,100 866,262
Uninsured claims 70,889 216,240 287,129
Deferred revenue ( unearned) 65,273 65,273
Accrued interest payable 1,320 88,956 90,276
Current portion of long- term debt 208,138 500,000 708,138
Non- current liabilities:
Due in more than one year 1,419,446 28,791,100 30,210,546
Total Liabilities 3,173,933 31,185,094 34,359,027
NET ASSETS
Invested in capital assets, net of related debt 8,894,074 18,261,566 27,155,640
Restricted for:
Debt Service 500,000 500,000
Local Leglislated Restrictions 204,588 204,588
Unrestricted 10,403,653 11,328,510 21,732,163
Total Net Assets $ 19,502,315 $ 30,090,076 $ 49,592,391
The notes to the financial statements are an integral part of this statement.
TOWN OF HILLSBOROUGH
STATEMENT OF NET ASSETS
JUNE 30, 2004
21
Operating
Grants and Capital Grants
Charges for Functional and Governmental Business- type
Functions/ Programs Expenses Services Taxes Contributions Activities Activities Total
Governmental Activities:
General government $ 7 48,034 $ 194,931 $ ( 553,103) $ ( 553,103)
Public safety 9 ,795,994 562,800 $ 2,653,212 ( 6,579,982) ( 6,579,982)
Community services 1 ,917,420 1,304,056 ( 613,364) ( 613,364)
Streets 1 ,482,061 71,435 545,749 ( 864,877) ( 864,877)
Interest on long- term debt 3 0,448 - ( 30,448) ( 30,448)
Total governmental activities 1 3,973,957 2,133,222 3,198,961 - ( 8,641,774) ( 8,641,774)
Business- type Activities:
Water 6 ,502,981 7,160,629 - $ 657,648 657,648
Sewer 5 ,398,232 4,763,034 1,101,276 466,078 466,078
Total business- type activities 1 1,901,213 11,923,663 - 1,101,276 - 1,123,726 1,123,726
Total $ 2 5,875,170 $ 14,056,885 $ 3,198,961 $ 1,101,276 ( 8,641,774) 1,123,726 ( 7,518,048)
General Revenues:
Property tax 7,321,906 7,321,906
Property transfer tax 293,904 293,904
Franchise tax 597,022 597,022
Sales Tax 75,842 75,842
Motor vehicle license tax 490,656 490,656
Business license tax 596,959 596,959
All others 580,603 580,603
Unrestricted investment earnings 107,018 249,343 356,361
Total general revenues 10,063,910 249,343 10,313,253
Change in net assets 1,422,136 1,373,069 2,795,205
Net assets - beginning 18,080,179 2 8,717,007 46,797,186
Net assets - ending $ 19,502,315 $ 3 0,090,076 $ 49,592,391
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, 2004
TOWN OF HILLSBOROUGH
STATEMENT OF ACTIVITIES
22
FUND FINANCIAL STATEMENTS
TOWN OF HILLSBOROUGH
BALANCE SHEET - GOVERNMENTAL FUNDS
JUNE 30, 2004
Police and Fire Other Total
General Special Tax Governmental Governmental
Fund Fund Funds Funds
ASSETS
Cash and investments:
Town Treasury $ 8,818,897$ - $ 1,599,196 $ 10,418,093
Receivables, net of estimated uncollectibles:
Accounts 111,056 111,056
Interest 29,109 5 ,626 34,735
Property tax receivable from County 310,434 310,434
Due from other governments 5 0,499 50,499
Due from other funds 535 7 ,749 8,284
Prepaids 500 500
Total Assets $ 9,270,531 $ - $ 1,663,070 $ 10,933,601
LIABILITIES AND FUND BALANCES
Liabilities:
Accounts payable and other current liabilities $ 403,258$ - $ 3 8,417 $ 441,675
Accrued payroll 528,030 528,030
Due to other funds 8 ,284 8,284
Deposits payable 439,162 439,162
Compensated absences 28,485 28,485
Uninsured claims 70,889 70,889
Deferred revenue ( unearned) 65,273 65,273
Total Liabilities 1,535,097 - 4 6,701 1,581,798
Fund Balances:
Reserved for prepaids and other purposes 204,588 204,588
Unreserved - designated and reported in:
General fund 5,406 5,406
Special revenue funds 4 80,599 480,599
Capital projects fund 1 ,135,770 1,135,770
Unreserved - undesignated 7,525,440 7,525,440
Total fund balances 7,735,434 - 1,616,369 9,351,803
Total Liabilities and Fund Balances $ 9,270,531 $ - $ 1,663,070
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. 8,069,261
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. 3,117,110
Long- term liabilities, including capitalized leases, are not due and payable in the
current period and therefore are not reported in the funds. ( 1,035,859)
Net assets of governmental activities $ 19,502,315
The notes to the financial statements are an integral part of this statement.
23
TOWN OF HILLSBOROUGH
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Police and Fire Other Total
General Special Tax Governmental Governmental
Fund Fund Funds Funds
REVENUES:
Taxes:
Property $ 7,321,906$ - $ - $ 7,321,906
Public safety special tax 2,137,608 - 2,137,608
Franchise taxes 597,022 597,022
Business license tax 596,959 596,959
All others 771,070 771,070
Permits 952,786 952,786
Intergovernmental 596,706 9 26,247 1,522,953
Service charges 959,659 136,288 - 1,095,947
Fines and forfeitures 38,843 38,843
Investment earnings 70,242 1 8,271 88,513
Miscellaneous 220,821 2 6,017 246,838
Total Revenues 12,126,014 2,273,896 9 70,535 15,370,445
EXPENDITURES:
Current:
General government 595,017 1 4,995 610,012
Public safety 9,750,383 7 2,958 9,823,341
Community services 1,830,695 3 9,493 1,870,188
Streets 1,288,426 4 ,187 1,292,613
Capital outlay 31,228 6 26,729 657,957
Total Expenditures 13,495,749 - 7 58,362 14,254,111
EXCESS ( DEFICIENCY) OF REVENUES OVER
( UNDER) EXPENDITURES ( 1,369,735) 2,273,896 2 12,173 1,116,334
OTHER FINANCING SOURCES ( USES):
Transfers in 2,623,896 5 62,622 3,186,518
Transfers out ( 185,000) ( 2,273,896) ( 727,622) ( 3,186,518)
Total Other Financing Sources ( Uses) 2,438,896 ( 2,273,896) ( 165,000) -
NET CHANGE IN FUND BALANCES 1,069,161 - 4 7,173 1,116,334
BEGINNING FUND BALANCES 6,666,273 1,569,196 8,235,469
ENDING FUND BALANCES $ 7,735,434 $ - $ 1,616,369 $ 9,351,803
The notes to the financial statements are an integral part of this statement.
24
TOWN OF HILLSBOROUGH
RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO
THE STATEMENT OF ACTIVITIES
FOR THE FISCAL YEAR ENDED JUNE 30, 2004
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) $ 1,116,334
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. 132,321
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. 12,230
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. ( 110,984)
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. ( 4,800)
The net revenue of certain activities of the internal service fund is reported with governmental
activities. 277,035
Change in net assets of governmental activities ( page 22) $ 1,422,136
The notes to the financial statements are an integral part of this statement.
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 $ 8,183,295 $ 7,153,166 $ 1,509,721 $ 752,056 $ 9,693,016 $ 2,497,684
Trustee ( Restricted) 5,081,759 3,711 7,764,125 8,089 12,845,884
Receivables, net of estimated
uncollectibles:
Accounts 1,793,078 1,361,485 117,132 105,466 1,910,210
Interest 45,648 29,869 36,420 6,210 82,068 8,889
Due from other governments 1,101,276 1,101,276
Prepaids 9,290 9,754 20,677 21,259 29,967
Supplies 129,323 141,763 3,894 129,323
Total current assets 15,242,393 8,699,748 10,549,351 896,974 25,791,744 2,506,573
Noncurrent assets:
Cost of bond issuance ( net of
accumulated amortization) 208,540 143,352 412,520 312,441 621,060
Capital assets:
Buildings and improvements 292,176 292,176 49,161 49,161 341,337
Machinery and equipment 455,279 206,940 444,502 431,512 899,781 2,430,710
Water and sewer lines 44,760,161 43,855,607 37,067,234 35,671,552 81,827,395
Less accumulated depreciation ( 29,741,800) ( 28,661,516) ( 18,710,920) ( 17,761,374) ( 48,452,720) ( 1,009,040)
Total capital assets net of
accumulated depreciation 15,765,816 15,693,207 18,849,977 18,390,851 34,615,793 1,421,670
Total noncurrent assets 15,974,356 15,836,559 19,262,497 18,703,292 35,236,853 1,421,670
Total Assets 31,216,749 24,536,307 29,811,848 19,600,266 61,028,597 3,928,243
LIABILITIES
Current liabilities:
Accounts payable 374,139 186,330 787,559 187,349 1,161,698
Deposits 427,100 379,800 427,100
Uninsured claims 26,725 39,728 189,515 135,680 216,240
Compensated absences - 1,560 -
Accrued interest payable 32,148 3,711 56,808 8,089 88,956 1,043
Certificates of participation - current 178,702 62,902 321,298 137,098 500,000
Capital leases payable - current 179,653
Total current liabilities 1,038,814 672,471 1,355,180 469,776 2,393,994 180,696
Noncurrent liabilities:
Certificates of participation 10,568,559 5,034,462 18,131,441 9,365,538 28,700,000
Compensated absences 60,363 49,573 30,737 21,376 91,100
Capital leases payable 383,864
Total noncurrent liabilities 10,628,922 5,084,035 18,162,178 9,386,914 28,791,100 383,864
Total Liabilities 11,667,736 5,756,506 19,517,358 9,856,690 31,185,094 564,560
NET ASSETS
Invested in capital assets, net of
related debt 10,100,271 10,595,843 8,161,295 8,888,215 18,261,566 858,153
Restricted for:
Debt Service 250,000 250,000 250,000 250,000 500,000
Unrestricted 9,198,742 7,933,958 1,883,195 605,361 11,081,937 2,505,530
Total Net Assets $ 19,549,013 $ 18,779,801 $ 10,294,490 $ 9,743,576 29,843,503 $ 3,363,683
Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds 246,573
Net assets of business- type activities $ 30,090,076
The notes to the financial statements are an integral part of this statement.
TOWN OF HILLSBOROUGH
STATEMENT OF NET ASSETS
JUNE 30, 2004
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 $ 6,701,055 $ 5,341,433 $ 6,701,055
Water meter charges 332,247 328,702 332,247
Sewer service charges $ 4,660,549 $ 3,589,855 4,660,549
Connection fees 99,526 65,598 25,524 8,509 125,050
Other services $ 559,630
Miscellaneous 27,801 4,560 76,961 63,350 104,762 94,500
Total Operating Revenues 7,160,629 5,740,293 4,763,034 3,661,714 11,923,663 654,130
OPERATING EXPENSES:
Water purchases, utilities and pumping 2,523,000 1,884,527 2,523,000
Sewage treatment services and utilities 1,929,565 1,333,854 1,929,565
Personnel, overhead and facilities 1,734,204 1,664,398 1,184,269 1,320,426 2,918,473
Materials, supplies and other 824,721 867,628 638,276 844,786 1,462,997
Depreciation and amortization 1,088,884 1,041,932 966,842 911,278 2,055,726 324,152
Total Operating Expenses 6,170,809 5,458,485 4,718,952 4,410,344 10,889,761 324,152
Operating Income ( loss) 989,820 281,808 44,082 ( 748,630) 1,033,902 329,978
NONOPERATING REVENUES ( EXPENSES):
Investment earnings 133,437 157,565 115,906 34,528 249,343 25,648
Interest expense ( 354,045) ( 148,475) ( 710,350) ( 323,607) ( 1,064,395) ( 30,448)
Total nonoperating revenue ( expenses) ( 220,608) 9,090 ( 594,444) ( 289,079) ( 815,052) ( 4,800)
Income ( loss) before contributions
and transfers 769,212 290,898 ( 550,362) ( 1,037,709) 218,850 325,178
Capital contributions - 375,000 1,101,276 253,200 1,101,276
Change in net assets 769,212 665,898 550,914 ( 784,509) 1,320,126 325,178
Total net assets - beginning 18,779,801 17,937,558 9,743,576 10,258,780 3,038,505
Prior period adjustment 176,345 269,305
Restated total net assets - beginning 18,779,801 18,113,903 9,743,576 10,528,085 3,038,505
Total net assets - end $ 19,549,013 $ 18,779,801 $ 10,294,490 $ 9,743,576 $ 3,363,683
Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. 52,943
Change in net assets of business- type activities ( page 22 ) $ 1,373,069
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 REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS
PROPRIETARY FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2004
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 $ 6,776,336 $ 5,797,512 $ 4,751,368 $ 3,654,153 $ 11,527,704
Receipts from interfund services provided $ 654,130
Payment to suppliers ( 3,976,163) ( 4,332,492) ( 2,530,097) ( 4,282,589) ( 6,506,260)
Payment to employees ( 876,872) ( 52,985) ( 505,411) ( 8,795) ( 1,382,283)
Payment to interfund services used ( 30,390) ( 136,390) ( 50,280) ( 88,280) ( 80,670)
Net cash provided ( used) by operating activities 1,892,911 1,275,645 1,665,580 ( 725,511) 3,558,491 654,130
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Proceeds from capital debt 5,765,682 9,171,318 14,937,000
Cost of issuance ( 49,470) ( 78,693) ( 128,163)
Acquisition and construction of capital assets ( 1,118,552) ( 467,839) ( 1,388,245) ( 2,060,066) ( 2,506,797) ( 379,849)
Principal paid on capital debt ( 140,103) ( 62,902) ( 259,897) ( 137,098) ( 400,000)
Interest paid on capital debt ( 359,949) ( 154,518) ( 682,058) ( 336,777) ( 1,042,007) ( 30,766)
Capital lease payment ( 171,935)
Proceeds from sale of capital assets 7,000
Net cash provided ( used) by capital
and related financing activities 4,097,608 ( 685,259) 6,762,425 ( 2,533,941) 10,860,033 ( 575,550)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment earnings 117,658 160,252 85,696 64,381 203,354 26,674
Net cash provided by investing activities 117,658 160,252 85,696 64,381 203,354 26,674
Net increase ( decrease) in cash and cash equivalents 6,108,177 750,638 8,513,701 ( 3,195,071) 14,621,878 105,254
Cash and cash equivalents - beginning 7,156,877 6,406,239 760,145 3,955,216 7,917,022 2,392,430
Cash and cash equivalents - ending ( including $ 5,081,759
and $ 7,764,125 for the water and sewer funds,
respectively reported in restricted accounts $ 13,265,054 $ 7,156,877 $ 9,273,846 $ 760,145 $ 22,538,900 $ 2,497,684
Reconciliation of operating income to net cash
provided ( used) by operating activities:
Operating income ( loss) $ 989,820 $ 281,808 $ 44,082 $ ( 748,630) $ 1,033,902 $ 329,978
Adjustments to reconcile operating income to net
cash provided ( used) by operating activities:
Depreciation and amortization expense 1,088,884 1,041,932 966,842 911,278 2,055,726 324,152
( Increase) decrease in accounts receivable ( 431,593) 33,419 ( 11,666) ( 7,561) ( 443,259)
( Increase) decrease in inventories and prepaids 12,904 27,845 4,476 380 17,380
Increase ( decrease) in customer deposits 47,300 23,800 - 47,300
Increase ( decrease) in accounts payable 174,806 ( 182,732) 654,045 ( 903,914) 828,851
Increase ( decrease) in compensated
absences payable 10,790 49,573 7,801 22,936 18,591
Total adjustments 903,091 993,837 1,621,498 23,119 2,524,589 324,152
Net cash provided ( used) by operating activities $ 1,892,911 $ 1,275,645 $ 1,665,580 $ ( 725,511) $ 3,558,491 $ 654,130
Noncash investing, capital and financing activities:
Net fixed assets contributed from prior years $ 176,345 $ 269,305 $ -
Contributions of capital assets 375,000 253,200 -
$ - $ 551,345 $ - $ 522,505 $ -
The notes to the financial statements are an integral part of this statement.
TOWN OF HILLSBOROUGH
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Business- type Activities - Enterprise Funds
Water Sewer
28
NOTES TO THE FINANCIAL STATEMENTS
29
TOWN OF HILLSBOROUGH
Notes to the Financial Statements
June 30, 2004
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 general fund as its only major governmental fund. 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 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)
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
31
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.
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. The Town
invested only in the California LAIF pool during the 2003- 2004 fiscal year. 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’”
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.
32
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. Such assets are recorded at historical cost or
estimated historical cost if purchased or constructed. Donated capital assets are recorded at
estimated fair market value at the date of donation.
The costs of normal maintenance and repairs that do not add to the value of the asset or
materially extend assets lives are not capitalized.
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.
Property, plant and equipment is 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
33
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
including capitalized leases, are not due and payable in the current period and therefore are not
reported in the funds.” The details of this $ 1,035,859 difference are as follows:
Accrued interest payable $ 277
Capital leases payable 33,340
Compensated absences 1,002,242
Net adjustment to reduce fund balance – total governmental funds to arrive
at net assets – governmental activities $ 1,035,859
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
34
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 $ 132,321 difference are as follows:
Capital outlay $ 657,957
Depreciation expense ( 525,636)
Net adjustment to increase net changes in fund balances – total governmental
funds to arrive at changes in net assets of governmental activities $ 132,321
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 12,230 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 $ 110,984 are as follows:
Compensated absences ($ 111,085)
Accrued interest 101
Net adjustment to decrease net changes in fund balances – total governmental
funds to arrive at changes in net assets of governmental activities ($ 110,984)
NOTE 3 – STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY.
Excess of Expenditures over Appropriations
For the year ended June 30, 2004, expenditures exceeded appropriations for $ 9,761 and $ 5,234
in the Gas Tax and Measure “ A” funds respectively. These over expenditures were funded by
available fund balance in the Gas Tax and Measure “ A” funds.
NOTE 4 – DEPOSITS 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
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.
Investments held by the Town during the year did not include repurchase agreements.
Other deposits and investments maintained outside the Town Treasury are invested pursuant to
governing bond covenants or California Government Code provisions.
Total Town deposits and investments at fair value on June 30, 2004 are as follows:
Deposits and investments $ 22,608,793
Restricted cash and investments – held by fiscal agent 12,845,884
Total $ 35,454,677
35
The California Government Code requires California banks and savings and loan associations to
secure the deposits not covered by Federal depository insurance by pledging government
securities as collateral. The fair value of pledged securities must equal at least 110% of the
deposits or 150% for mortgage backed collateral. The collateral must be held at the pledging
bank’s trust department or other bank, acting as its agent, in the Town’s name.
Bank deposits are categorized as follows:
Category 1 – Insured or collateralized with securities held by the Town or by its agent in the
Town’s name.
Category 2 – Collateralized with securities held by the pledging financial institution’s trust
department or agent in the Town’s name.
Category 3 – Uncollateralized, including any bank balance that is collateralized with securities
held by the pledging financial institution, or by its trust department or agent but not in the Town’s
name.
The Town has cash and deposits at June 30, 2004 as follows:
Carrying Bank Balance
Amount Category 1 Category 2 Total
Federally insured deposits $ 717,924 $ 157,209 $ 157,209
Uninsured by collateralized deposits $ 920,863 920,863
Total $ 717,924 $ 157,209 $ 920,863 $ 1,078,072
Investments are categorized into these three categories of credit risk:
( 1) Insured or registered, or securities held by the Town or its agent in the Town’s name.
( 2) Uninsured and unregistered, with securities held by the counterparty’s trust department or
agent in the town’s name.
( 3) Uninsured and unregistered, with securities held by the counterparty, or by its trust
department or agent, but not in the Town’s name.
At year- end, the government’s investment balances were as follows:
Non- categorized
Money Market Funds ( US Government Securities) $ 4,679
Local Agency Investment Fund 34,732,074
Total $ 34,736,753
Interest and investment income consists of the following at June 30, 2004:
Interest earned $ 453,487
Net change in fair market value ( 89,983)
Total $ 363,504
NOTE 5 – CAPITAL ASSETS
Capital asset activity for the year ended June 30, 2004 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 1,891,981 46,734 1,938,715
Buildings 2,587,158 2,587,158
36
Machinery and equipment 4,669,512 446,087 ( 852,380) 4,263,219
Infrastructure 9,160,694 383,963 9,544,657
Total capital assets being depreciated 18,309,345 876,784 ( 852,380) 18,333,749
Less accumulated depreciation for:
Land improvements ( 433,892) ( 101,320) ( 535,212)
Buildings ( 1,746,641) ( 67,030) ( 1,813,671)
Machinery and equipment ( 2,638,536) ( 524,282) ( 845,380) ( 2,317,438)
Infrastructure ( 5,475,901) ( 157,156) ( 5,633,057)
Total accumulated depreciation ( 10,294,970) ( 849,788) ( 845,380) ( 10,299,378)
Total capital assets, being depreciated, net 8,014,375 26,996 7,000 8,034,371
Governmental activities capital assets, net $ 9,470,935 $ 26,996 $ 7,000 $ 9,490,931
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 638,451 261,329 899,780
Systems & transmissions 79,527,160 2,300,236 81,827,396
Total capital assets being depreciated 80,506,948 2,561,565 83,068,513
Less accumulated depreciation for:
Buildings ( 202,566) ( 11,682) ( 214,248)
Machinery and equipment ( 398,548) ( 68,404) ( 466,952)
Systems & transmissions ( 45,821,776) ( 1,949,744) ( 47,771,520)
Total accumulated depreciation ( 46,422,890) ( 2,029,830) ( 48,452,720)
Total capital assets, being depreciated, net 34,084,058 531,735 34,615,793
Business- type activities capital assets, net $ 34,084,058 $ 531,735 $ $ 34,615,793
Depreciation expense was charged to functions/ programs as follows:
Governmental Activities:
General government $ 134,776
Public safety 222,728
Community services 765
Public works 167,367
Capital assets held by the Town’s internal service funds are charged
to the various functions based on their usage of the assets
324,152
Total depreciation expense – governmental activities $ 849,788
Business- type Activities:
Water $ 1,080,284
Sewer 949,546
Total depreciation expense – business- type activities $ 2,029,830
NOTE 6 – INTERFUND TRANSACTIONS
The following is a summary of the interfund transactions for the year ended June 30, 2004:
Transfer In
Nonmajor
General Governmental
Transfer Out Fund Funds Total
General fund $ 185,000 $ 185,000
Police and Fire special tax fund $ 2,273,896 2,273,896
Nonmajor governmental funds 350,000 377,622 727,622
Total $ 2,623,896 $ 562,622 $ 3,186,518
37
The transfers in to the General Fund included $ 2,273,906 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.
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 128,731
Total $ 822,103
The future minimum lease payments for these leases are as follows:
Governmental
Activities
Year Ending 6/ 30 Amount
2005 $ 217,050
2006 217,050
2007 209,875
Total minimum lease payments 643,975
Less: Amount representing interest ( 47,118)
Present value of minimum lease payments $ 596,857
NOTE 8 – LONG- TERM DEBT
Long- term liability activity for the year ended June 30, 2004, was as follows:
Beginning
Balance
Additions
Reductions
Ending
Balance
Due Within
One Year
Governmental activities:
Capital leases $ 781,022 $ ($ 184,165) $ 596,857 $ 192,499
Compensated absences 953,244 192,478 ( 114,995) 1,030,727 28,485
Governmental activity long- term liabilities $ 1,734,266 $ 192,478 ($ 299,160) $ 1,627,584 $ 220,984
Business- type activities:
Compensated absences $ 72,509 $ 20,151 $ ( 1,560) $ 91,100
Certificates of participation 14,600,000 15,000,000 ( 400,000) 29,200,000 500,000
Business- type activity long- term liabilities $ 14,672,509 $ 15,020,151 ($ 401,560) $ 29,291,100 $ 500,000
Compensated absences— Compensated absences due within one year represent unpaid
balances of reimbursable unused leave of employees expected to retire in the following year. All
compensated absences for governmental activities are paid out of the General Fund.
38
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.
The Town signed interest swap agreements to convert the 2000 Series A COPs to a fixed rate of
5.262 percent until June 1, 2007. On August 13, 2003, the Town entered into a floating to fixed
rate knockout swap agreement to convert the 2000 Series B 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 to the bond issuance of the 2003 Series A bonds, the Town also entered into a
floating to fixed rate knockout swap agreement to convert the bonds into a fixed rate of 3.77
percent, subject to an early termination under certain conditions, until they mature on June 1,
2033. Both swaps are intended to remain in place for the life of the bonds, barring 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
immediately preceding rolling consecutive 180 day period is more than 7.00%.
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,
2005.
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, 2004.
In 2004, the Town’s total interest cost was approximately 4.17%. The following is the computed
annual principal, interest and other costs requirements on the 2000 COPs based on a 5.262%
interest on Series A through 2007 and at 6.5% thereafter, 4.14% interest on Series B until
maturity and 4.16% interest on 2003 Series A until maturity:
Year Ending Business- type Activities
June 30 Principal Interest
2005 $ 500,000 $ 1,285,928
2006 500,000 1,265,168
2007 500,000 1,244,408
2008 600,000 1,284,310
2009 600,000 1,256,660
2010- 2014 4,000,000 5,810,560
2015- 2019 4,900,000 4,768,550
2020- 2024 5,900,000 3,535,690
2025- 2029 7,500,000 1,996,080
2030- 2033 4,200,000 394,950
Total $ 29,200,000 $ 22,842,304
39
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, 2004 was $ 4,420,000.
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 9 – 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, 2004 were $ 609,941. 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
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.
40
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, 2004 and 2003.
2004 2003
Beginning Balance $ 203,743 $ 120,158
Claims incurred and changes in estimates for prior year claims 360,744 438,339
Claims paid ( 277,358) ( 354,754)
Ending Balance $ 287,129 $ 203,743
NOTE 10 – 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.
NOTE 11 – 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 $ 1,923,668 and $ 1,221,346 as of June 30, 2004 and 2003,
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 $ 527,895 and $ 441,960 as of June 30, 2004 and 2003, respectively.
At June 30, 2004, the Town has outstanding construction contracts and commitments for the
water and sewer operations, as follows:
Water Fund $ 110,332
Sewer Fund 188,239
Total $ 298,571
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 12 – 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’
41
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 78 employees who are receiving this benefit. The Town finances the
plan on a pay- as- you- go basis. For the year ended June 30, 2004, the Town paid $ 538,412 for
these benefits.
NOTE 13 – 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 2003, plan members contributed
$ 763,237. 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 2004, the Town’s annual pension cost was $ 646,374. The
required contribution for the current year was determined as part of the June 30, 2001 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 11.587% 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, 2004 are summarized below:
Safety Miscellaneous
Benefit vesting schedule 5 years service 5 years service
Benefit payments Monthly for life Monthly for life
Retirement age 50 55
Monthly benefits, as a % of annual salary 2% - 2.7% 2% - 2.7%
Required employee contribution rates 9% 8%
Required employer contribute rates 4.828% 11.034%
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
42
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/ 02 $ - 0 - $ - 0 -
6/ 30/ 03 $ 46,520 100% $ - 0 -
6/ 30/ 04 $ 392,107 100% $ - 0 -
Public Safety 6/ 30/ 02 $ - 0 - $ - 0 -
6/ 30/ 03 $ - 0 - $ - 0 -
6/ 30/ 04 $ 254,267 100% $ - 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, 2004 amounted to $ 346,435.
REQUIRED SUPPLEMENTARY
INFORMATION
TOWN OF HILLSBOROUGH
SCHEDULE OF FUNDING PROGRESS
EMPLOYEES RETIREMENT SYSTEM
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:
Retirement Program
6/ 30/ 2001 1 ,985,589 0.0%
6/ 30/ 2002 17,234,459 17,351,927 ( 117,468) 100.7% 1 ,985,589 - 5.9%
6/ 30/ 2003 19,229,185 17,316,608 1,912,577 90.1% 2 ,172,772 88.0%
1959 Survivor Program
6/ 30/ 2001 - 1 ,985,589 0.0%
6/ 30/ 2002 - 1 ,985,589 0.0%
6/ 30/ 2003 - 2 ,172,772 0.0%
FIRE:
Retirement Program
6/ 30/ 2001 2 ,685,455 0.0%
6/ 30/ 2002 20,620,093 20,759,574 ( 139,481) 100.7% 2 ,685,455 - 5.2%
6/ 30/ 2003 22,053,789 20,482,413 1,571,376 92.9% 2 ,853,812 55.1%
1959 Survivor Program
6/ 30/ 2001 - 2 ,685,455 0.0%
6/ 30/ 2002 - 2 ,685,455 0.0%
6/ 30/ 2003 - 2 ,853,812 0.0%
MISCELLANEOUS:
Retirement Program
6/ 30/ 2001 11,592,098 13,084,601 ( 1,492,503) 112.9% 2 ,732,067 - 54.6%
6/ 30/ 2002 14,241,181 12,396,728 1,844,453 87.0% 3 ,168,847 58.2%
6/ 30/ 2003 16,663,339 12,450,463 4,212,876 74.7% 3 ,691,761 114.1%
1959 Survivor Program
6/ 30/ 2001 641 ( 641) 2 ,732,067 0.0%
6/ 30/ 2002 624 ( 624) 3 ,168,847 0.0%
6/ 30/ 2003 647 ( 647) 3 ,691,761 0.0%
43
TOWN OF HILLSBOROUGH
GENERAL FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Variance with
Final Budget -
Original Final Positive
Budget Budget Actual ( Negative)
REVENUES:
Taxes:
Property $ 7,125,640 $ 7,125,640 $ 7,321,906 $ 196,266
Franchise taxes 593,500 593,500 5 97,022 3,522
Business license tax 720,000 570,000 5 96,959 26,959
All others 360,000 620,000 7 71,070 151,070
Permits 746,100 896,100 9 52,786 56,686
Intergovernmental 688,200 488,200 5 96,706 108,506
Service charges 1,235,300 930,300 9 59,659 29,359
Fines and forfeitures 18,500 18,500 3 8,843 20,343
Investment earnings 150,000 150,000 7 0,242 ( 79,758)
Miscellaneous 175,100 175,100 2 20,821 45,721
Total Revenues 11,812,340 11,567,340 12,126,014 558,674
EXPENDITURES:
Current:
General government 589,063 624,497 5 95,017 29,480
Public safety 10,269,680 10,203,883 9,750,383 453,500
Community services 1,880,923 1,856,467 1,830,695 25,772
Streets 1,442,298 1,289,188 1,288,426 762
Capital outlay 32,500 32,500 3 1,228 1,272
Total Expenditures 14,214,464 14,006,535 13,495,749 510,786
EXCESS ( DEFICIENCY) OF REVENUES OVER
( UNDER) EXPENDITURES ( 2,402,124) ( 2,439,195) ( 1,369,735) 1,069,460
OTHER FINANCING SOURCES ( USES):
Operating transfers in 2,680,000 2,680,000 2,623,896 ( 56,104)
Operating transfers out ( 185,000) ( 185,000) ( 185,000) -
Total Other Financing Sources ( Uses) 2,495,000 2,495,000 2,438,896 ( 56,104)
NET CHANGE IN FUND BALANCES 92,876 55,805 1,069,161 1,013,356
BEGINNING FUND BALANCES 6,666,273 6,666,273 6,666,273 -
ENDING FUND BALANCES $ 6,759,149 $ 6,722,078 $ 7,735,434 $ 1,013,356
44
TOWN OF HILLSBOROUGH
POLICE AND FIRE SPECIAL TAX FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Variance with
Final Budget -
Original and Positive
Final Budget Actual ( Negative)
REVENUES:
Police and Fire special tax $ 2,200,000 $ 2,137,608 $ ( 62,392)
Investment earnings 130,000 136,288 6,288
Total Revenues 2,330,000 2,273,896 ( 56,104)
EXPENDITURES:
Current:
General Government - - -
Total Expenditures - - -
EXCESS OF REVENUES OVER EXPENDITURES 2,330,000 2,273,896 ( 56,104)
OTHER FINANCING USES:
Operating Transfers Out ( 2,330,000) ( 2,273,896) 56,104
EXCESS OF REVENUES OVER EXPENDITURES
AND OTHER USES - - -
BEGINNING FUND BALANCES - - -
ENDING FUND BALANCES $ - $ - $ -
45
46
Town of Hillsborough
Note to Required Supplementary Information
June 30, 2004
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, 2004 were
$ 4,100. 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.
TOWN OF HILLSBOROUGH
COMBINING BALANCE SHEET
NONMAJOR GOVERNMENTAL FUNDS
JUNE 30, 2004
Total
Nonmajor
Gas Police CAPITAL Governmental
Tax Measure A Grants PROJECTS Funds
ASSETS
Cash and investments:
Town Treasury $ - $ 273,962 $ 161,592 $ 1,163,642 $ 1,599,196
Interest receivable 1,056 1,168 632 2 ,770 5,626
Due from other governments 22,085 28,414 50,499
Due from other funds 7 ,749 7,749
Total Assets $ 23,141 $ 303,544 $ 162,224 $ 1,174,161 $ 1,663,070
LIABILITIES
Accounts payable $ - $ - $ 26 $ 38,391 $ 38,417
Due to other funds 8,284 8,284
Total Liabilities 8,284 - 26 3 8,391 46,701
FUND BALANCES
Unreserved -
Designated for streets 14,857 303,544 318,401
Designated for public safety 162,198 162,198
Designated for capital improvement plan 1,135,770 1,135,770
Total Fund Balances 14,857 303,544 162,198 1,135,770 1,616,369
Total Liabilities & Fund Balances $ 23,141 $ 303,544 $ 162,224 $ 1,174,161 $ 1,663,070
47
TOWN OF HILLSBOROUGH
COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
NONMAJOR GOVERNMENTAL FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Total
Nonmajor
Gas Police CAPITAL Governmental
Tax Measure A Grants PROJECTS Funds
REVENUES:
Police and fire special tax $ - $ - $ - $ - $ -
Intergovernmental 217,034 328,715 100,598 279,900 926,247
Service charges -
Investment earnings 2,103 3,698 1,342 11,128 18,271
Miscellaneous 26,017 26,017
Total Revenues 219,137 332,413 101,940 317,045 970,535
EXPENDITURES:
Current:
General government 9,761 5,234 14,995
Public safety 26,731 46,227 72,958
Community services 39,493 39,493
Public works 4,187 4,187
Capital outlay 12,316 614,413 626,729
Total Expenditures 9,761 5,234 39,047 704,320 758,362
EXCESS OF REVENUES OVER
EXPENDITURES 209,376 327,179 62,893 ( 387,275) 212,173
OTHER FINANCING SOURCES ( USES):
Transfers In 562,622 562,622
Transfers Out ( 350,000) ( 350,000) ( 27,622) ( 727,622)
Total Other Financing Sources ( Uses) ( 350,000) ( 350,000) ( 27,622) 562,622 ( 165,000)
NET CHANGE IN FUND BALANCES ( 140,624) ( 22,821) 35,271 175,347 47,173
BEGINNING FUND BALANCES 155,481 326,365 126,927 960,423 1,569,196
ENDING FUND BALANCES $ 14,857 $ 303,544 $ 162,198 $ 1,135,770 $ 1,616,369
48
TOWN OF HILLSBOROUGH
GAS TAX FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Variance with
Final Budget -
Original and Positive
Final Budget Actual ( Negative)
REVENUES:
Intergovernmental $ 223,000 $ 217,034 $ ( 5,966)
Investment earnings 2,000 2,103 103
Total Revenues 225,000 219,137 ( 5,863)
EXPENDITURES:
Current:
General Government - 9,761 ( 9,761)
Total Expenditures - 9,761 ( 9,761)
EXCESS OF REVENUES OVER EXPENDITURES 225,000 209,376 ( 15,624)
OTHER FINANCING USES:
Operating Transfers Out ( 350,000) ( 350,000) -
EXCESS OF REVENUES OVER EXPENDITURES
AND OTHER USES ( 125,000) ( 140,624) ( 15,624)
BEGINNING FUND BALANCES 155,481 155,481 -
ENDING FUND BALANCES $ 30,481 $ 14,857 $ ( 15,624)
49
TOWN OF HILLSBOROUGH
MEASURE " A" FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Variance with
Final Budget -
Original and Positive
Final Budget Actual ( Negative)
REVENUES:
Intergovernmental $ 343,000 $ 328,715 $ ( 14,285)
Investment earnings 7,000 3,698 ( 3,302)
Total Revenues 350,000 332,413 ( 17,587)
EXPENDITURES:
Current:
General Government - 5,234 ( 5,234)
Total Expenditures - 5,234 ( 5,234)
EXCESS OF REVENUES OVER EXPENDITURES 350,000 327,179 ( 22,821)
OTHER FINANCING USES:
Operating Transfers Out ( 350,000) ( 350,000) -
EXCESS OF REVENUES OVER EXPENDITURES
AND OTHER USES - ( 22,821) ( 22,821)
BEGINNING FUND BALANCES 326,365 326,365 -
ENDING FUND BALANCES $ 326,365 $ 303,544 $ ( 22,821)
50
TOWN OF HILLSBOROUGH
POLICE GRANTS FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2004
Variance with
Final Budget -
Original and Positive
Final Budget Actual ( Negative)
REVENUES:
Intergovernmental $ 100,000 $ 100,598 $ 598
Investment earnings 1,342 1,342
Total Revenues 100,000 101,940 1,940
EXPENDITURES:
Current:
General government - -
Public safety 27,000 26,731 269
Capital Outlay 12,500 12,316 184
Total Expenditures 39,500 39,047 453
EXCESS OF REVENUES OVER EXPENDITURES 60,500 62,893 2,393
OTHER FINANCING USES:
Operating Transfers Out ( 28,000) ( 27,622) 378
EXCESS OF REVENUES OVER EXPENDITURES
AND OTHER USES 32,500 35,271 2,771
BEGINNING FUND BALANCES 126,927 126,927 -
ENDING FUND BALANCES $ 159,427 $ 162,198 $ 2,771
51
52
This page is intentionally left blank.
CAPITAL ASSETS USED IN THE OPERATION OF
GOVERNMENTAL FUNDS
TOWN OF HILLSBOROUGH
CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS
COMPARATIVE SCHEDULES BY SOURCE ( 1)
JUNE 30, 2004
2004 2003
Governmental funds capital assets:
Land $ 1,456,560 $ 1,456,560
Land improvements 1,938,715 1,891,981
Building and improvements 2,587,158 2,587,158
Machinery and equipment 1,832,509 2,355,249
Infrastructure 9,544,657 9,160,694
Total governmental funds capital assets $ 17,359,599 $ 17,451,642
Investments in governmental funds capital assets by source:
General fund $ 1,209,189 $ 1,927,960
Special revenue fund 61,880 49,565
Capital projects funds 10,013,913 9,399,500
Other - unclassified 6,074,617 6,074,617
Total governmental funds capital assets $ 17,359,599 $ 17,451,642
( 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.
53
Machinery
Land and Buildings and and
Function and Activity Improvements Improvements Equipment Infrastructure Total
General Government:
Council $ $ 6,155 $ 6,891 $ - $ 13,046
Finance - 75,379 75,379
General Services 3,348,541 195,409 273,287 3,817,237
Total General Government 3,348,541 201,564 355,557 - 3,905,662
Public Safety:
Police 76,075 931,334 1,007,409
Fire 46,734 892,846 535,001 1,474,581
Total Public Safety 46,734 968,921 1,466,335 - 2,481,990
Community Services:
Building 5,980 6,755 12,735
Total Community Services 5,980 6,755 - 12,735
Public Work:
Streets 1,410,693 3,862 9 ,544,657 10,959,212
Total Public Work 1,410,693 3,862 9 ,544,657 10,959,212
TOTAL GOVERNMENTAL FUNDS
CAPITAL ASSETS $ 3,395,275 $ 2,587,158 $ 1,832,509 $ 9 ,544,657 $ 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 the internal service fund are included as
governmental activities in the statement of net assets.
TOWN OF HILLSBOROUGH
CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS
JUNE 30, 2004
SCHEDULE BY FUNCTION AND ACTIVITY ( 1)
54
Governmental Governmental
Funds Capital Funds Capital
Assets Assets
July 1, 2003 Additions Retirements June 30, 2004
General Government:
Council $ 13,046 $ - $ - $ 13,046
Finance 75,379 75,379
General Services 3,761,270 55,967 3,817,237
Total General Government 3,849,695 55,967 - 3,905,662
Public Safety:
Police 915,671 91,738 1,007,409
Fire 2,102,154 122,427 750,000 1,474,581
Total Public Safety 3,017,825 214,165 750,000 2,481,990
Community Services:
Building 12,735 12,735
Total Community Services 12,735 - - 12,735
Public Work:
Engineering - -
Streets 10,571,387 387,825 10,959,212
Total Public Work 10,571,387 387,825 - 10,959,212
TOTAL GOVERNMENTAL FUNDS CAPITAL ASSETS $ 17,451,642 $ 657,957 $ 750,000 $ 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 the internal service fund are included as
governmental activities in the statement of net assets.
TOWN OF HILLSBOROUGH
CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS
SCHEDULE OF CHANGES BY FUNCTION AND ACTIVITY ( 1)
FOR THE YEAR ENDED JUNE 30, 2004
55
56
This page is intentionally left blank.
STATISTICAL SECTION
TOWN OF HILLSBOROUGH
GOVERNMENT- WIDE EXPENSES BY FUNCTION
LAST TWO FISCAL YEARS ( 1)
Interest on
Fiscal General Public Community Long- term
Year Total Government Safety Services Streets Debt Water Sewer
2001- 02$ 20,341,969 $ 664,416 $ 8 ,770,939 $ 1,706,523 $ 1,066,992 $ - $ 4 ,780,576 $ 3,352,523
2002- 03 23,192,117 861,208 9 ,332,715 1,757,876 1,057,967 35,070 5 ,486,503 4,660,778
2003- 04 25,875,170 748,034 9 ,795,994 1,917,420 1,482,061 30,448 6 ,502,981 5,398,232
Source: Town's Finance Department
( 1) Information from 93- 94 through 00- 01 were stated under the old governmental financial reporting model.
57
TOWN OF HILLSBOROUGH
GOVERNMENT- WIDE REVENUES
LAST TWO FISCAL YEARS ( 1)
PROGRAM REVENUES GENERAL REVENUES
Grants &
Contributions
Operating Capital Not
Grants & Grants & Restricted Unrestricted
Fiscal Charges for Functional Contri- to Specific Investment Miscel-
Year Services Taxes butions Taxes Programs Earnings laneous Total
2001- 02 $ 1 0,616,055 $ 2 ,782,366 $ - $ 8,477,375 $ - $ 647,790 $ 192,779 $ 22,716,365
2002- 03 1 1,088,499 2 ,889,847 991,800 8,477,832 - 408,552 199,682 24,056,212
2003- 04 1 4,056,885 3 ,198,961 1,101,276 9,376,289 356,361 580,603 28,670,375
Source: Town's Finance Department
( 1) Information from 93- 94 through 00- 01 were stated under the old governmental financial reporting model.
58
TOWN OF HILLSBOROUGH
GENERAL GOVERNMENTAL EXPENDITURES BY FUNCTION ( 1)
LAST TEN FISCAL YEARS
Fiscal General Public Community Public Capital
Year Total Government Safety Services Works Outlay
1993- 94 $ 9,421,762 $ 871,616 $ 5,232,143 $ 457,807 $ 1,046,157 $ 1,814,039
1994- 95 7,472,195 970,960 5,382,990 569,315 464,407 8 4,523
1995- 96 8,989,951 695,436 5,580,156 1,537,741 516,776 6 59,842
1996- 97 8,686,652 804,279 6,106,813 1,365,651 343,375 6 6,534
1997- 98 9,140,152 1,187,829 6,200,209 1,223,023 382,668 1 46,423
1998- 99 10,358,770 828,105 7,207,418 1,027,897 246,058 1,049,292
1999- 00 9,980,684 606,958 7,328,859 748,735 650,047 6 46,085
2000- 01 11,069,878 909,503 7,745,863 958,668 608,265 8 47,579
2001- 02 ( 2) 14,012,240 593,361 8,697,839 1,727,252 989,953 2,003,835
2002- 03 ( 2) $ 13,549,342 701,861 9,042,643 1,758,364 1,192,607 8 53,867
2003- 04 14,254,111 610,012 9,823,341 1,870,188 1,292,613 6 57,957
( 1) Includes general, special revenue and capital projects funds.
( 2) Certain functions were reclassified from general government to community services - $ 661,990
and $ 645,121 in FY 2002- 03 and 2001- 02 respectively.
Source: Town's Finance Department
59
TOWN OF HILLSBOROUGH
GENERAL GOVERNMENTAL REVENUES BY SOURCE ( 1)
LAST TEN FISCAL YEARS
Fiscal Licenses & Intergovern- Charges Miscel-
Year Total Taxes Permits mental for Services laneous
1994- 95 $ 7 ,945,918 $ 5 ,475,413 $ 247,283 $ 974,765 $ 323,635 $ 9 24,822
1995- 96 8 ,161,378 5 ,692,897 291,420 1,032,926 340,249 8 03,886
1996- 97 8 ,985,990 5 ,972,617 415,774 1,523,362 426,921 6 47,316
1997- 98 9 ,117,297 6 ,244,928 427,335 1,166,556 447,773 8 30,705
1998- 99 1 0,442,474 7 ,195,366 582,960 1,166,361 722,953 7 74,834
1999- 00 1 1,787,082 8 ,003,941 532,547 1,321,176 1,015,086 9 14,332
2000- 01 1 3,257,904 8 ,567,160 757,279 1,679,442 1,160,563 1 ,093,460
2001- 02 1 3,610,970 9 ,541,314 702,091 1,435,748 1,011,728 9 20,089
2002- 03 1 3,416,120 1 0,010,412 592,012 1,368,867 1,005,587 4 39,242
2003- 04 1 5,370,445 1 1,424,565 952,786 1,522,953 1,095,947 3 74,194
( 1) Includes general, special revenue and capital projects funds.
Source: Town's Finance Department
60
TOWN OF HILLSBOROUGH
GENERAL GOVERNMENTAL TAX REVENUES BY SOURCE
LAST NINE FISCAL YEARS ( 1)
Vehicle Business Property Public General
Fiscal Property Sales Franchise License License Transfer Safety Fund
Year Tax Tax Tax Fee Tax Tax Tax Tax Total
1995- 96 $ 3 ,854,742 $ 59,743 $ 1 58,179 $ 417,257 $ 299,385 $ 117,490 $ 1,408,696 $ 6,315,492
1996- 97 4 ,028,505 48,962 1 65,963 437,378 340,753 185,556 1,417,666 6,624,783
1997- 98 4 ,268,819 60,817 2 09,009 469,236 355,201 192,911 1,420,926 6,976,919
1998- 99 4 ,640,000 69,272 1 82,140 513,799 524,770 203,902$ 1,744,490 20,415 7,898,788
1999- 00 5 ,170,249 82,528 2 19,642 566,017 601,303 351,841 1,793,176 4,982 8,789,738
2000- 01 5 ,700,371 86,678 2 67,610 608,087 598,293 262,445 1,875,898 9,399,382
2001- 02 6 ,713,362 79,288 3 02,034 603,700 559,221 219,770 1,918,162 10,395,537
2002- 03 6 ,863,862 70,267 2 71,332 650,556 421,194 200,621 2,098,084 10,575,916
2003- 04 7 ,321,906 75,842 5 97,022 490,656 596,959 293,904 2,137,608 11,513,897
Source: Town's Finance Department
( 1) Information for the fiscal years 93- 94 and 94- 95 were not available and hence not included in this report.
61
TOWN OF HILLSBOROUGH
PROPERTY TAX LEVIES AND COLLECTIONS ( 1)
LAST SIX FISCAL YEARS ( 2)
Educational
Revenue
Augmentation
Fiscal Fund Amount Percent
Year Secured Unsecured HOPTR Unitary ( ERAF) Shift Total Received ( 3) Received
1998- 99 $ 4 ,595,065 $ 572,618 $ 77,131 $ 88,773 $ ( 762,978) $ 4,570,609 $ 4,602,635 100.16%
1999- 00 5 ,034,587 601,603 77,418 93,614 ( 831,188) 4,976,034 5,028,318 99.88%
2000- 01 5 ,564,809 703,374 77,289 47,688 ( 919,728) 5,473,432 5,461,414 98.14%
2001- 02 6 ,381,400 804,156 80,764 52,336 ( 1,052,665) 6,265,991 6,243,446 97.84%
2002- 03 6 ,869,562 803,356 77,357 50,977 ( 1,122,773) 6,678,479 6,575,434 95.72%
2003- 04 7 ,457,682 797,767 78,907 46,345 ( 1,207,430) 7,173,271 7,130,272 95.61%
( 1) Town gets approximately $ 0.187 per dollar of property tax.
( 2) Information from fiscal years 93- 94 through 97- 98 were not available and hence not included in this report.
( 3) Receipts exclude supplemental taxes
Source: San Mateo County Assessor's Office
62
TOWN OF HILLSBOROUGH
ASSESSED VALUES OF TAXABLE PROPERTY
LAST TEN FISCAL YEARS
Secured
Fiscal Gross Exemptions Net % of
Year Values ( 1) Values Unsecured Total Change
1994- 95 $ 2,382,797,098 $ 8,642,689$ 2,374,154,409 $ 3,259,023 $ 2,377,413,432 3%
1995- 96 ( 2) 2,471,937,561 4,603,436 2,476,540,997 4%
1996- 97 ( 2) 2,565,295,646 2,554,425 2,567,850,071 4%
1997- 98 2,719,533,026 9,190,783 2,710,342,243 3,322,420 2,713,664,663 6%
1998- 99 2,941,617,433 11,145,203 2,930,472,230 3,376,784 2,933,849,014 8%
1999- 00 3,194,528,889 13,097,454 3,181,431,435 3,413,692 3,184,845,127 9%
2000- 01 3,506,585,684 14,352,645 3,492,233,039 4,956,263 3,497,189,302 10%
2001- 02 4,002,196,504 19,311,054 3,982,885,450 6,970,312 3,989,855,762 14%
2002- 03 4,265,002,027 20,057,597 4,244,944,430 4,295,776 4,249,240,206 7%
2003- 04 4,593,643,316 36,750,869 4,556,892,447 4,892,748 4,561,785,195 7%
( 1) Exclusive of HOPTR
( 2) Information on exemptions for these years were not available.
Source: San Mateo County Assessor's Office
63
TOWN OF HILLSBOROUGH
ASSESSED VALUES OF TAXABLE PROPERTY- USE CATEGORY
FISCAL YEAR 2003- 04
No of Assessed % to Net Taxable
Category Parcels Value Total Value
Residential 3,850$ 4,464,395,782 97.1% $ 4,461,163,925
Exempt 69 0.0%
Recreational 7 5,215,313 0.1% 5 ,215,313
Institutional 1 9,105,403 0.2%
Vacant 121 53,414,856 1.2% 5 3,414,856
Miscellaneous 13 928,389 0.0% 9 28,389
Unknown 26 60,583,573 1.3% 3 6,169,964
Unsecured 4,894,336 0.1% 4 ,894,336
4,087 $ 4,598,537,652 100.0% $ 4,561,786,783
Source: San Mateo County Assessor's Office
64
TOWN OF HILLSBOROUGH
COMPUTATION OF LEGAL DEBT MARGIN
June 30, 2004