TOWN OF HILLSBOROUGH, CALIFORNIA
Comprehensive Annual Financial Report
For the fiscal year ended
June 30, 2003
Prepared by:
Finance Department
Town of Hillsborough
Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2003
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 -------------------------------------------------------------------- 19
Statement of Activities ---------------------------------------------------------------------- 20
Fund Financial Statements:
Balance- Sheet Governmental Funds ---------------------------------------------------- 21
Statement of Revenues, Expenditures and Changes in Fund
Balances – Governmental Funds ------------------------------------------------------- 22
Reconciliation of the Statement of Revenues, Expenditures
and Changes in Fund Balances of Governmental Funds to
the Statement of Activities ---------------------------------------------------------------- 23
Statement of Net Assets – Proprietary Funds ----------------------------------------- 24
Statement of Revenues, Expenses and Changes in Fund Net
Assets – Proprietary Funds -------------------------------------------------------------- 25
Statement of Cash Flows – Proprietary Funds ---------------------------------------- 26
Notes to the Financial Statements ------------------------------------------------------------- 27
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
Note to Required Supplementary Information ---------------------------------------------- 45
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
Police and Fire Special Tax Fund -------------------------------------------------------- 49
Gas Tax Fund --------------------------------------------------------------------------------- 50
Measure “ A” Fund ---------------------------------------------------------------------------- 51
Police Grants Fund -------------------------------------------------------------------------- 52
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
2
initially included a series of large estates, some of which, over time, were divided into the now
existing mix of large estate parcels, acreage and minimum one- half acre lots. The Town is
located west of Highway 101 and El Camino Real and east of Highway 280 within a short
commute to San Francisco and minutes from San Francisco International Airport. The
community location offers excellent weather and a geographic advantage to its residents.
Greenbelt canyons are located throughout the community’s hilly topography. The community is
well known for its trees and rural nature.
The community residents provide a commendable level of support to the municipal government
and individual departments through a number of advisory bodies, a community beautification
foundation, enhanced communication through a quarterly newsletter, an annual holiday party for
the employees, and other forms of recognition. The residents work diligently at maintaining the
historical and strong family- based community values. Hillsborough’s community based school
system receives many awards and consistently provides high scholastic achievement. There are
several private schools located in the community.
The Town currently has a land area of approximately 6.23 square miles and a population of
10,825. 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, this
comparison is presented on page 44 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.
3
Factors Affecting Financial Condition
The information presented in the financial statements is perhaps best understood when it is
considered from the broader perspective of the specific environment within which the Town
operates.
Local economy. The Town 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.
However, the robust changes that were experienced some three to four years ago have flattened
as the downturn in California economy continues.
Long- term financial planning.
The Town, as in most governments in the area, is faced with increasing retirement, workers
compensation and health benefits costs. Coupled with the burst of the stock market bubble, the
Town faces structural gap between operating revenues and the increasing expenditures. To
address this challenge, staff, together with the Council and the Financial Advisory Committee, is
aggressively looking at options to close that gap. Some of the things being considered include an
alternate way to fund the annual cost of library services; utility tax on water, electricity, gas
telephone and/ or cable TV; a road parcel tax; sharing services with other jurisdictions; reducing
service levels; or dipping into reserves.
As discussed elsewhere in this report, the Town issued $ 15M Certificates of Participation to
continue the enterprise funds’ capital improvement plan that consist of improvements to the water
and sewer systems.
Cash management policies and practices. The Town’s cash and investments are managed on
a pooled basis. The average investment portfolio was $ 20 million in fiscal year 2002- 2003.
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 approximately $ 409,000 for the fiscal year ended June 30, 2003
earning an average return of over 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.
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 75 employees who are receiving this benefit. The Town
8
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FINANCIAL SECTION
11
Town of Hillsborough
Management’s Discussion and Analysis
As management of the Town of Hillsborough, we offer readers of the Town’s financial statements
this narrative overview and analysis of the financial activities of the Town of Hillsborough for the
fiscal year ended June 30, 2003. 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 2002- 2003 fiscal year by
$ 46,797,186 ( net assets). Of this amount, $ 17,934,582 ( 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 $ 864,095 primarily resulting from the
contributed capital assets ( water, sewer and storm drain lines and infrastructure)
associated with the Stonebridge development valued at $ 991,800. Net assets decreased
by $ 127,705 from regular operations. In summary, savings achieved by the departments
in the general fund ( governmental activities) were offset by increases in operating costs
in the town’s business- type activities, namely the water and sewer.
􀂾 As of June 30, 2003, the Town’s governmental funds reported combined ending fund
balances of $ 8,235,469, slightly down from $ 8,243,691 from the prior year. 97% of this
total, $ 8,046,836, is available for spending at the Town’s discretion ( unreserved fund
balance).
􀂾 At the end of the current fiscal year, unreserved fund balance for the general fund was
$ 6,459,792, or approximately 51 percent of total general fund expenditures.
􀂾 The Town acquired 2 fire engines in fiscal year 2002- 03 and entered into a
lease/ purchase agreement for $ 900,000 to fund them.
Overview of the Financial Statements
This discussion and analysis is intended to serve as an introduction to the Town’s basic financial
statements made up of three components: 1) government- wide financial statements, 2) fund
financial statements, and 3) notes to the financial statements. This report also contains other
supplementary information in addition to the basic financial statements such as this
management’s discussion and analysis.
Government- wide financial statements. The government- wide financial statements are
designed to provide readers with a broad overview of the Town’s finances, in a manner similar to
a private- sector business.
The statement of net assets presents information on all of the Town of Hillsborough’s assets and
liabilities, with the difference between the two, reported as net assets. Over time, increases or
decreases in net assets may serve as a useful indicator of whether the financial position of the
Town is improving or deteriorating.
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).
12
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 19- 20 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 which is considered to be a
major fund. Data from the other five governmental funds are combined into a single, aggregated
presentation. Individual fund data for each of these nonmajor governmental funds is provided in
the form of combining statements elsewhere in this report.
The Town of Hillsborough adopts an annual appropriated budget for its general fund. A
budgetary comparison statement has been provided for the general fund to demonstrate
compliance with this budget.
The basic governmental fund financial statements can be found on pages 21- 23 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.
13
The basic proprietary fund financial statements can be found on pages 24- 26 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 27- 41 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- 45 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 $ 46,797,186 at June 30, 2003.
Reclassifications were made to the 2002 assets and liabilities to conform to the current year’s
presentation.
TOWN OF HILLSBOROUGH’S NET ASSETS
Governmental Activities Business- type Activities Total
2003 2002 2003 2002 2003 2002
Current and other assets $ 11,876,512 $ 11,303,578 $ 10,246,145 $ 12,572,082 $ 22,122,657 $ 23,875,660
Capital assets 9,470,935 8,041,150 34,084,058 32,415,990 43,554,993 40,457,140
Total assets 21,347,447 19,344,728 44,330,203 44,988,072 65,677,650 64,332,800
Long- term liabilities 1,488,014 850,220 14,470,949 14,600,000 15,958,963 15,450,220
Other liabilities 1,779,254 1,203,405 1,142,247 2,191,734 2,921,501 3,395,139
Total liabilities 3,267,268 2,053,625 15,613,196 16,791,734 18,880,464 18,845,359
Net assets:
Invested in capital assets,
Net of related debt
8,689,913
8,041,150
19,484,058
17,615,990
28,173,971
25,657,140
Restricted 188,633 184,607 500,000 500,000 688,633 684,607
Unrestricted 9,201,633 9,065,346 8,732,949 10,080,348 17,934,582 19,145,694
Total net assets $ 18,080,179 $ 17,291,103 $ 28,717,007 $ 28,196,338 $ 46,797,186 $ 45,487,441
By far the largest portion of the Town’s net assets ( 60 percent) reflects its investment in capital
assets ( e. g. land, buildings, machinery and equipment), less any related debt used to acquired
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 ( 1.5 percent) represents resources
that are subject to external restrictions on how they may be used. The remaining balance of
unrestricted net assets ($ 17,934,582) may be used to meet the Town’s ongoing obligations to
citizens and creditors.
At June 30, 2003, 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.
14
The town’s net assets increased by $ 864,095 during the current fiscal year coming mainly from
the dedicated capital assets associated with the Stonebridge development valued at $ 991,800
and were recognized as in- kind contribution - $ 363,600 for infrastructure ( streets, curb & gutters,
etc.) and $ 628,200 of water and sewer lines.
Governmental activities. Governmental activities increased the Town of Hillsborough’s net
assets by $ 789,076 thereby accounting for 91 percent of the total growth in the net assets of the
Town. Reclassifications were made to the 2002 revenues and expenditures to conform to the
current year’s presentation.
TOWN OF HILLSBOROUGH’S CHANGES IN NET ASSETS
Governmental Activities Business- type Activities Total
2003 2002 2003 2002 2003 2002
REVENUES
Program revenues:
Charges for services $ 1,686,492 $ 1,787,562 $ 9,402,007 $ 8,828,493 $ 11,088,499 $ 10,616,055
Operating grants and
Functional taxes
2,889,847
2,782,366
2,889,847
2,782,366
Capital grants and
Contributions 363,600 628,200 991,800
General revenues:
Property taxes 6,863,862 6,713,362 6,863,862 6,713,362
Other taxes 1,613,970 1,764,013 1,613,970 1,764,013
Investment earnings 216,459 425,756 192,093 222,034 408,552 647,790
All others 199,682 192,779 199,682 192,779
Total revenues 13,833,912 13,665,838 10,222,300 9,050,527 24,056,212 22,716,365
EXPENSES
General government 861,208 664,416 861,208 664,416
Public safety 9,332,715 8,770,939 9,332,715 8,770,939
Community services 1,757,876 1,706,523 1,757,876 1,706,523
Streets 1,057,967 1,066,992 1,057,967 1,066,992
Interest on long- term debt 35,070 35,070
Water 5,486,503 4,780,576 5,486,503 4,780,576
Sewer 4,660,778 3,352,523 4,660,778 3,352,523
Total expenses 13,044,836 12,208,870 10,147,281 8,133,099 23,192,117 20,341,969
Increase in net assets
before transfer
789,076
1,456,968
75,019
917,428
864,095
2,374,396
Transfers ( 1,558,390) 1,558,390
Increase in net assets 789,076 ( 101,422) 75,019 2,475,818 864,095 2,374,396
Net assets– July 1, 2002 17,291,103 17,392,525 28,196,338 25,720,520 45,487,441 43,113,045
Prior period adjustment 445,650 445,650
Net assets– June 30, 2003 $ 18,080,179 $ 17,291,103 $ 28,717,007 $ 28,196,338 $ 46,797,186 $ 45,487,441
Key elements of the increase/ decrease in revenues and expenses for governmental activities are
as follows:
􀂾 Investment earnings decreased by 50% or $ 209,000 mainly due from the current market
condition. All other revenues were virtually unchanged. The capital contribution
recognized from the dedicated assets of a completed development contributed to a net
revenue increase of $ 168,000.
􀂾 Several factors contributed to the approximately $ 800,000 increase in expenses:
􀀹 Personnel costs in public safety increased by approximately $ 670,000 as salaries
were brought nearer to market.
􀀹 An additional accrual of $ 91,000 was recognized for compensated absences
( vacation leave for services already rendered and is probable to be paid and
certain sick leave payable upon termination).
􀀹 $ 35,000 in interest was paid on the lease/ purchase agreement for the 2 fire
engines.
15
The graph below breaks down expenses by function and compares them to corresponding
program revenues.
Expenses and Program Revenues – Governmental Activities
$ 0
$ 1,000
$ 2,000
$ 3,000
$ 4,000
$ 5,000
$ 6,000
$ 7,000
$ 8,000
$ 9,000
$ 10,000
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
49%
Motor vehicle
license fee
5%
Other taxes
7%
Capital
contributions
Investment 3%
earnings
2% All others
1%
Functional
taxes
21%
User charges
12%
Business- type activities. There is a slight increase of $ 75,019 in net assets in the business-type
activities of the Town. Highlights of the activities are as follows:
􀂾 Water usage projected to increase by 3 percent was flat and the 15% and 10% rate
increases in water and sewer respectively, only brought in approximately $ 574,000
increase in user charges.
􀂾 There was, however, a significant increase in operating expenses as follows:
􀀹 Approximately $ 413,000 against the self- insurance retention were paid relative to
a number of liability claims most of which were from sewer backup.
􀀹 Additional engineering costs of $ 150,000 were incurred for the continuing capital
improvement program.
16
􀀹 Contractual disposal cost increased by $ 225,000 to cover our allocated costs of
the capital improvements made to the systems of the contracting cities.
􀀹 A $ 472,000 interest expense was recognized in 2002- 2003; interest expense in
the previous year was capitalized.
􀀹 Maintenance costs including personnel and materials & services increased by
$ 700,000 most of which were sewer related.
􀂾 The capital assets contributions associated with a completed development for $ 628,200
contributed to the positive net asset change.
􀂾 On an individual basis, water revenues were sufficient to cover operating expenses;
however, there were not enough revenues in the sewer operations to cover operational
costs resulting to a $ 784,509 decrease in the sewer net assets.
$ 0
$ 1,000
$ 2,000
$ 3,000
$ 4,000
$ 5,000
$ 6,000
$ 7,000
Water Sewer
Expenses Program Revenues
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, 2003, the Town’s governmental funds reported combined ending fund balances of
$ 8,235,469, down $ 8,222 from the prior year. $ 6,459,792 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
51 per cent of total general fund expenditures while total fund balance represents 53 percent of
that same amount.
The Town’s general fund balanced increased by $ 470,839 during the current fiscal year.
Revenues, although virtually flat, were enough to cover expenditures.
17
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 $ 7,933,958, up from
$ 7,138,009, and those of the Sewer fund amounted to $ 605,361, down from $ 2,942,339. Factors
concerning the finances of these two funds have already been addressed in the discussion of the
business- type activities.
General Fund Budgetary Highlights
There was a slight difference between the original budget and the final amended budget
representing capital outlay authorized for the Fire Department out of the community improvement
donation designated for public safety.
Actual expenditures exceeded budgeted amount for $ 67,921 in the Streets Department resulting
from unexpected maintenance costs.
Above items were both funded out of current revenues. Although revenues came short of
budgetary estimates by approximately $ 300,000 due mainly from the extended economic
downturn, the departments realized savings of $ 670,000 thereby eliminating the need to draw
upon existing fund balance and adding a total of $ 470,000 excess revenues to the General Fund
fund balance – approximately $ 370,000 more from the projected $ 100,000.
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, 2003, amounts to
TOWN OF HILLSBOROUGH’S CAPITAL ASSETS
( Net of depreciation)
Governmental Activities Business- type Activities Total
2003 2002 2003 2002 2003 2002
Land and improvements $ 2,914,649 $ 3,018,356 $ 2,914,649 $ 3,018,356
Buildings 840,517 888,048 $ 138,771 $ 150,452 979,288 1,038,500
Machinery and equipment 2,030,976 1,348,901 239,903 316,270 2,270,879 1,665,171
Infrastructure 3,684,793 2,785,845 3,684,793 2,785,845
Water and sewer lines 33,705,384 31,949,268 33,705,384 31,949,268
Total $ 9,470,935 $ 8,041,150 $ 34,084,058 $ 32,415,990 $ 43,554,993 $ 40,457,140
Additional information on the Town of Hillsborough’s capital assets can be found in Note 5
starting from page 33 of this report.
Long- term debt. At June 30, 2003, the Town of Hillsborough had total debt outstanding
excluding compensated absences in the amount of $ 15,381,022.
TOWN OF HILLSBOROUGH’S OUTSTANDING DEBT
( Certificates of Participation and Capital Lease Obligations)
Governmental Activities Business- type Activities Total
2003 2002 F2003 2002 2003 2002
Certificates of participation $ 14,600,000 $ 14,800,000 $ 14,600,000 $ 14,800,000
Capital lease obligations $ 781,022 $ 57,213 781,022 57,213
Total $ 781,022 $ 57,213 $ 14,600,000 $ 14,800,000 $ 15,381,022 $ 14,857,213
18
The Town’s total debt increased by $ 900,000 in 2002- 2003 that resulted from a lease/ purchase
agreement entered into, to fund acquisition of 2 fire engines. Of this amount, $ 164,548 has been
paid. The certificates of participation recorded in the business- type activities were issued through
the Public Improvement Corporation to finance the acquisition, construction and installation of
certain improvements to the water and sewer systems. The debt is secured by a pledge of the
net revenues of the water and sewer funds.
The Town of Hillsborough maintains ratings of AA from Standard & Poor’s and AA+ from Fitch.
On August 2003, the Town of Hillsborough issued $ 15,000,000 Variable Rate Certificates of
Participation to finance additional acquisition, construction and installation of certain water and
sewer systems improvements to the Town’s water and sewer systems.
Additional information on the Town’s long- term debt can be found in Note 8 on pages 35- 36 of
this report.
Economic Factors and Next Year’s Budgets and Rates
The Town’s assessed valuation increased by 7% for the next fiscal year and though down from
the trend two years ago, still posed a healthy increase. This is the main factor considered in
preparing the Town of Hillsborough’s budget for the 2004 fiscal year since property taxes,
together with the a flat public safety special tax, represent 67% of the general fund revenues.
To balance the budget for fiscal year 2003- 2004 and overcome a $ 1.7M shortfall from projected
increases in operating costs particularly in the retirement and health insurance benefits costs,
City Council approved a combination of savings, additional revenue sources, expenditure cuts
and deferral of programs, eliminating the need to dip into the reserves going into the next fiscal
year. The Town continues to explore other areas to address the projected continued structural
gap between operating revenues and expenditures estimated to be approximately $ 10M in the
next five years.
The utility rates were also increased ( 15% in water and 30% in sewer) to pay for the additional
debt service in connection with a new bond issue ($ 15M) mentioned earlier and the projected
increase in operating costs in both water and sewer operations. The 30% increase in sewer was
necessary to cover the gap between the operating expenses and revenues as reflected in this
fiscal year’s operations.
Requests for Information
This financial report is designed to provide a general overview of the Town of Hillsborough’s
finances for all those with an interest in the Town’s finances. Questions concerning any of the
information provided in this report or requests for additional financial information should be
addressed to the Finance Director, Town of Hillsborough, 1600 Floribunda Avenue, Hillsborough,
CA 94010.
BASIC FINANCIAL STATEMENTS
GOVERNMENT- WIDE FINANCIAL STATEMENTS
Governmental Business- type
Activities Activities Total
ASSETS
Cash and investments:
Town Treasury $ 11,570,341 $ 7,905,222 $ 19,475,563
Trustee ( Restricted) 11,800 11,800
Receivables, net of estimated uncollectibles:
Accounts 179,501 1,466,951 1,646,452
Interest 48,964 36,079 85,043
Property tax receivable from County 215,166 215,166
Internal balances ( 193,630) 193,630
Due from other governments 51,622 51,622
Prepaids 31,013 31,013
Supplies 4,548 145,657 150,205
Cost of bond issuance ( net of accumulated amortization) 455,793 455,793
Capital assets ( net of accumulated depreciation):
Land and improvements 2,914,649 2,914,649
Buildings 840,517 138,771 979,288
Machinery and equipment 2,030,976 239,903 2,270,879
Infrastructure 3,684,793 3,684,793
Water and sewer lines 33,705,384 33,705,384
Total Assets 21,347,447 44,330,203 65,677,650
LIABILITIES
Accounts payable and other current liabilities 701,958 373,679 1,075,637
Accrued payroll liabilities 373,737 373,737
Deposits 347,950 379,800 727,750
Uninsured claims 28,335 175,408 203,743
Unearned revenue 79,283 79,283
Accrued interest payable 1,739 11,800 13,539
Current portion of long- term debt 246,252 201,560 447,812
Non- current liabilities:
Due in more than one year 1,488,014 14,470,949 15,958,963
Total Liabilities 3,267,268 15,613,196 18,880,464
NET ASSETS
Invested in capital assets, net of related debt 8,689,913 19,484,058 28,173,971
Restricted for:
Debt Service 500,000 500,000
Local Legal Restrictions 188,633 188,633
Unrestricted 9,201,633 8,732,949 17,934,582
Total Net Assets $ 18,080,179 $ 28,717,007 $ 46,797,186
The notes to the financial statements are an integral part of this statement.
TOWN OF HILLSBOROUGH
STATEMENT OF NET ASSETS
JUNE 30, 2003
19
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 $ 861,208 $ 172,576 $ ( 688,632) $ ( 688,632)
Public safety 9,332,715 393,653 $ 2,301,954 ( 6,637,108) ( 6,637,108)
Community services 1,757,876 1,069,180 ( 688,696) ( 688,696)
Streets 1,057,967 51,083 587,893 $ 363,600 ( 55,391) ( 55,391)
Interest on long- term debt 35,070 - ( 35,070) ( 35,070)
Total governmental activities 13,044,836 1,686,492 2,889,847 363,600 ( 8,104,897) ( 8,104,897)
Business- type Activities:
Water 5,486,503 5,740,293 375,000 $ 628,790 628,790
Sewer 4,660,778 3,661,714 253,200 ( 745,864) ( 745,864)
Total business- type activities 10,147,281 9,402,007 - 628,200 - ( 117,074) ( 117,074)
Total $ 23,192,117 $ 11,088,499 $ 2,889,847 $ 991,800 ( 8,104,897) ( 117,074) ( 8,221,971)
General Revenues:
Property tax 6,863,862 6,863,862
Property transfer tax 200,621 200,621
Franchise tax 271,332 271,332
Sales Tax 70,267 70,267
Motor vehicle license tax 650,556 650,556
Business license tax 421,194 421,194
All others 193,642 193,642
Gain on sale of capital assets 6,040 6,040
Unrestricted investment earnings 216,459 192,093 408,552
Total general revenues 8,893,973 192,093 9,086,066
Change in net assets 789,076 75,019 864,095
Net assets - beginning 17,291,103 28,196,338 45,487,441
Prior period adjustment 445,650 445,650
Net assets - ending $ 18,080,179 $ 28,717,007 $ 46,797,186
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, 2003
TOWN OF HILLSBOROUGH
STATEMENT OF ACTIVITIES
20
FUND FINANCIAL STATEMENTS
Other Total
Governmental Governmental
General Funds Funds
Cash and investments:
Town Treasury $ 7,601,574 $ 1,576,337 $ 9,177,911
Receivables, net of estimated uncollectibles:
Accounts 179,501 179,501
Interest 32,813 6 ,236 39,049
Property tax receivable from County 215,166 215,166
Due from other governments 5 1,622 51,622
Prepaids 4,548 4,548
Total Assets $ 8,033,602 $ 1,634,195 $ 9,667,797
Liabilities:
Accounts payable and other current liabilities $ 475,937 $ 64,999 $ 540,936
Accrued payroll 373,737 373,737
Deposits payable 347,950 347,950
Compensated absences 62,087 62,087
Uninsured claims 28,335 28,335
Deferred revenue 79,283 79,283
Total Liabilities 1,367,329 6 4,999 1,432,328
Fund Balances:
Reserved for prepaids and other purposes 188,633 188,633
Unreserved - designated and reported in:
General fund 17,848 17,848
Special revenue funds 608,773 608,773
Capital projects fund 960,423 960,423
Unreserved - undesignated 6,459,792 6,459,792
Total fund balances 6,666,273 1,569,196 8,235,469
Total Liabilities and Fund Balances $ 8,033,602 $ 1,634,195
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. 7,936,940
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. 2,844,875
Long- term liabilities, including capitalized leases, are not due and payable in the
current period and therefore are not reported in the funds. ( 937,105)
Net assets of governmental activities $ 18,080,179
The notes to the financial statements are an integral part of this statement.
LIABILITIES AND FUND BALANCES
TOWN OF HILLSBOROUGH
BALANCE SHEET - GOVERNMENTAL FUNDS
JUNE 30, 2003
ASSETS
21
Other Total
Governmental Governmental
General Funds Funds
REVENUES:
Taxes:
Property $ 6,863,862 $ 6,863,862
Public safety special tax $ 2,098,084 2,098,084
Franchise taxes 271,332 271,332
Business license tax 421,194 421,194
All others 355,940 355,940
Permits 592,012 592,012
Intergovernmental 690,472 678,395 1,368,867
Service charges 870,101 135,486 1,005,587
Fines and forfeitures 35,024 35,024
Investment earnings 133,155 35,151 168,306
Miscellaneous 235,912 235,912
Total Revenues 10,469,004 2,947,116 13,416,120
EXPENDITURES:
Current:
General government 654,110 47,751 701,861
Public safety 8,974,170 68,473 9,042,643
Community services 1,751,593 6,771 1,758,364
Streets 1,189,495 3,112 1,192,607
Capital outlay 28,891 824,976 853,867
Total Expenditures 12,598,259 951,083 13,549,342
EXCESS ( DEFICIENCY) OF REVENUES OVER
( UNDER) EXPENDITURES ( 2,129,255) 1,996,033 ( 133,222)
OTHER FINANCING SOURCES ( USES):
Operating transfers in 2,750,094 350,000 3,100,094
Operating transfers out ( 150,000) ( 2,825,094) ( 2,975,094)
Total Other Financing Sources ( Uses) 2,600,094 ( 2,475,094) 125,000
NET CHANGE IN FUND BALANCES 470,839 ( 479,061) ( 8,222)
BEGINNING FUND BALANCES 6,195,434 2,048,257 8,243,691
ENDING FUND BALANCES $ 6,666,273 $ 1,569,196 $ 8,235,469
The notes to the financial statements are an integral part of this statement.
FOR THE FISCAL YEAR ENDED JUNE 30, 2003
TOWN OF HILLSBOROUGH
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS
22
Amounts reported for governmental activities in the statement of activities ( page 20 ) are different because:
Net change in fund balances - total governmental funds ( page 22) $ ( 8,222)
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. 356,690
The effect of transactions involving capital assets ( i. e., sales, trade- ins, and donations) is to
increase net assets 363,600
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. 11,643
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. ( 98,529)
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. ( 105,877)
The net revenue of certain activities of the internal service fund is reported with governmental
activities. 269,771
Change in net assets of governmental activities ( page 20) $ 789,076
The notes to the financial statements are an integral part of this statement.
TOWN OF HILLSBOROUGH
RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO
FOR THE FISCAL YEAR ENDED JUNE 30, 2003
THE STATEMENT OF ACTIVITIES
23
Governmental
Activities -
Total Internal Service
Current Year Prior Year Current Year Prior Year Current Year Fund
ASSETS
Current Assets:
Cash and investments:
Town Treasury $ 7,153,166 $ 6,363,419 $ 752,056 $ 3,861,888 $ 7,905,222 $ 2,392,430
Trustee ( Restricted) 3,711 42,820 8,089 93,328 11,800
Receivables, net of estimated
uncollectibles:
Accounts 1,361,485 1,394,904 105,466 97,905 1,466,951
Interest 29,869 32,556 6,210 36,063 36,079 9,915
Prepaids 9,754 21,259 31,013
Supplies 141,763 169,608 3,894 4,274 145,657
Total current assets 8,699,748 8,003,307 896,974 4,093,458 9,596,722 2,402,345
Noncurrent assets:
Cost of bond issuance ( net of
accumulated amortization) 143,352 149,492 312,441 325,825 455,793
Capital assets:
Buildings and improvements 292,176 292,176 49,161 49,161 341,337
Machinery and equipment 206,940 298,455 431,512 317,588 638,452 2,314,263
Water and sewer lines 43,855,607 42,744,910 35,671,552 33,202,905 79,527,159
Less accumulated depreciation ( 28,661,516) ( 27,625,726) ( 17,761,374) ( 16,863,479) ( 46,422,890) ( 780,268)
Total capital assets net of
accumulated depreciation 15,693,207 15,709,815 18,390,851 16,706,175 34,084,058 1,533,995
Total noncurrent assets 15,836,559 15,859,307 18,703,292 17,032,000 34,539,851 1,533,995
Total Assets 24,536,307 23,862,614 19,600,266 21,125,458 44,136,573 3,936,340
LIABILITIES
Current liabilities:
Accounts payable 186,330 408,790 187,349 1,226,944 373,679 161,022
Deposits 379,800 356,000 379,800
Uninsured claims 39,728 135,680 175,408
Compensated absences - 1,560 1,560
Accrued interest payable 3,711 8,089 11,800 1,361
Certificates of participation - current 62,902 62,902 137,098 137,098 200,000
Capital leases payable - current 171,935
Total current liabilities 672,471 827,692 469,776 1,364,042 1,142,247 334,318
Noncurrent liabilities:
Certificates of participation 5,034,462 5,097,364 9,365,538 9,502,636 14,400,000
Compensated absences 49,573 21,376 70,949
Capital leases payable 563,517
Total noncurrent liabilities 5,084,035 5,097,364 9,386,914 9,502,636 14,470,949 563,517
Total Liabilities 5,756,506 5,925,056 9,856,690 10,866,678 15,613,196 897,835
NET ASSETS
Invested in capital assets, net of
related debt 10,595,843 10,549,549 8,888,215 7,066,441 19,484,058 798,543
Restricted for:
Debt Service 250,000 250,000 250,000 250,000 500,000
Unrestricted 7,933,958 7,138,009 605,361 2,942,339 8,539,319 2,239,962
Total Net Assets $ 18,779,801 $ 17,937,558 $ 9,743,576 $ 10,258,780 28,523,377 $ 3,038,505
Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds 193,630
Net assets of business- type activities $ 28,717,007
The notes to the financial statements are an integral part of this statement.
TOWN OF HILLSBOROUGH
STATEMENT OF NET ASSETS
JUNE 30, 2003
PROPRIETARY FUNDS
Water Sewer
Business- type Activities - Enterprise Funds
24
Governmental
Activities -
Total Internal Service
Current Year Prior Year Current Year Prior Year Current Year Fund
OPERATING REVENUES:
Sale of water $ 5,341,433 $ 4,859,952 $ 5,341,433
Water meter charges 328,702 299,596 328,702
Sewer service charges $ 3,589,855 $ 3,262,752 3,589,855
Connection fees 65,598 118,450 8,509 198,633 74,107
Other services $ 764,335
Miscellaneous 4,560 2,250 63,350 86,860 67,910
Total Operating Revenues 5,740,293 5,280,248 3,661,714 3,548,245 9,402,007 764,335
OPERATING EXPENSES:
Water purchases, utilities and pumping 1,884,527 1,998,880 1,884,527
Sewage treatment services and utilities 1,333,854 1,105,812 1,333,854
Personnel, overhead and facilities 1,664,398 1,349,012 1,320,426 1,134,862 2,984,824
Materials, supplies and other 867,628 386,398 844,786 269,082 1,712,414 40,653
Depreciation and amortization 1,041,932 1,046,286 911,278 842,767 1,953,210 260,281
Total Operating Expenses 5,458,485 4,780,576 4,410,344 3,352,523 9,868,829 300,934
Operating Income ( loss) 281,808 499,672 ( 748,630) 195,722 ( 466,822) 463,401
NONOPERATING REVENUES ( EXPENSES):
Gain on sale of disposal of fixed assets 6,040
Investment earnings 157,565 128,368 34,528 93,666 192,093 48,153
Interest expense ( 148,475) - ( 323,607) - ( 472,082) ( 35,070)
Total nonoperating revenue ( expenses) 9,090 128,368 ( 289,079) 93,666 ( 279,989) 19,123
Income ( loss) before contributions
and transfers 290,898 628,040 ( 1,037,709) 289,388 ( 746,811) 482,524
Capital contributions 375,000 253,200 628,200
Transfers in 1,165,152 393,238
Transfers out ( 125,000)
Change in net assets 665,898 1,793,192 ( 784,509) 682,626 ( 118,611) 357,524
Total net assets - beginning 17,937,558 16,144,366 10,258,780 9,576,154 2,680,981
Prior period adjustment 176,345 269,305
Restated total net assets - beginning 18,113,903 16,144,366 10,528,085 9,576,154 2,680,981
Total net assets - end $ 18,779,801 $ 17,937,558 $ 9,743,576 $ 10,258,780 $ 3,038,505
Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. 193,630
Change in net assets of business- type activities ( page 20 ) $ 75,019
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, 2003
25
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 $ 5,797,512 $ 5,245,528 $ 3,654,153 $ 3,528,978 $ 9,451,665
Receipts from interfund services provided $ 764,335
Payment to suppliers ( 4,332,492) ( 3,318,806) ( 4,282,589) ( 1,329,379) ( 8,615,081) ( 41,546)
Payment to employees ( 52,985) ( 8,795) ( 61,780)
Payment to interfund services used ( 136,390) ( 31,590) ( 88,280) ( 34,380) ( 224,670)
Net cash provided ( used) by operating activities 1,275,645 1,895,132 ( 725,511) 2,165,219 550,134 722,789
CASH FLOWS FROM NONCAPITAL
FINANCING ACTIVITIES
Transfer to other funds ( 125,000)
Net cash used by noncapital financing activities - - - - - ( 125,000)
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Proceeds from capital debt 900,000
Capital transfers from other funds 1,165,152 393,238 -
Acquisition and construction of capital assets ( 467,839) ( 700,510) ( 2,060,066) ( 3,525,250) ( 2,527,905) ( 831,517)
Principal paid on capital debt ( 62,902) ( 62,902) ( 137,098) ( 137,098) ( 200,000)
Interest paid on capital debt ( 154,518) ( 138,986) ( 336,777) ( 302,926) ( 491,295) ( 33,709)
Capital lease down payment ( 164,548)
Proceeds from sale of capital assets 28,803
Net cash provided ( used) by capital
and related financing activities ( 685,259) 262,754 ( 2,533,941) ( 3,572,036) ( 3,219,200) ( 100,971)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment earnings 160,252 176,618 64,381 175,853 224,633 51,559
Net cash provided by investing activities 160,252 176,618 64,381 175,853 224,633 51,559
Net increase ( decrease) in cash and cash equivalents 750,638 2,334,504 ( 3,195,071) ( 1,230,964) ( 2,444,433) 548,377
Cash and cash equivalents - beginning 6,406,239 4,071,735 3,955,216 5,186,180 10,361,455 1,844,053
Cash and cash equivalents - ending ( including $ 3,711
and $ 8,089 for the water and sewer funds, respectively,
reported in restricted accounts $ 7,156,877 $ 6,406,239 $ 760,145 $ 3,955,216 $ 7,917,022 $ 2,392,430
Reconciliation of operating income to net cash
provided ( used) by operating activities:
Operating income ( loss) $ 281,808 $ 499,672 $ ( 748,630) $ 195,722 $ ( 466,822) $ 463,401
Adjustments to reconcile operating income to net
cash provided ( used) by operating activities:
Depreciation and amortization expense 1,041,932 1,046,286 911,278 842,767 1,953,210 260,281
( Increase) decrease in accounts receivable 33,419 ( 44,931) ( 7,561) ( 21,128) 25,858
( Increase) decrease in inventories 27,845 ( 39,989) 380 1,861 28,225
Increase ( decrease) in customer deposits 23,800 50,200 - 23,800
Increase ( decrease) in accounts payable ( 182,732) 383,894 ( 903,914) 1,145,997 ( 1,086,646) ( 893)
Increase ( decrease) in compensated
absences payable 49,573 22,936 72,509
Total adjustments 993,837 1,395,460 23,119 1,969,497 1,016,956 259,388
Net cash provided ( used) by operating activities $ 1,275,645 $ 1,895,132 $ ( 725,511) $ 2,165,219 $ 550,134 $ 722,789
Noncash investing, capital and financing activities:
Net fixed assets contributed from prior years $ 176,345 $ 321,349 $ 269,305 $ 114,753 $ 445,650
Contributions of capital assets from developers 375,000 253,200 628,200
$ 551,345 $ 321,349 $ 522,505 $ 114,753 $ 1,073,850
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, 2003
Business- type Activities - Enterprise Funds
Water Sewer
26
NOTES TO THE FINANCIAL STATEMENTS
27
TOWN OF HILLSBOROUGH
Notes to the Financial Statements
June 30, 2003
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Town implemented the Governmental Accounting Standards Board ( GASB) Statement No.
34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and
Local Governments in this financial report.
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.
Complete financial statements for the individual component unit may be obtained by writing to the
Town of Hillsborough, Finance Department 1600 Floribunda Avenue, Hillsborough, California
94010.
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.
28
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
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.
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 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.
29
Proprietary funds distinguish operating revenues and expenses from nonoperating items.
Operating revenues and expenses generally result from providing services and producing and
delivering goods in connection with the water and sewer funds’ principal ongoing operations. The
principal operating revenues of the water and sewer funds, and of the Town’s internal service
fund, are charges to customers for sales and services. The Town also recognizes as operating
revenues the portion of connection fees intended to recover the cost of connecting new
customers to the system. Operating expenses for the enterprise and the internal service funds
include the cost of sales and services, administrative expenses, and depreciation on capital
assets. All revenues and expenses not meeting this definition are reported as nonoperating
revenues and expenses.
When both restricted and unrestricted resources are available for use, it is the town’s policy to
use restricted resources first, then unrestricted resources as they are needed.
D. Assets, Liabilities, and Net Assets or Equity
1. Deposits and Investments
The Town’s cash and investments 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 and its agencies, certificates of deposits placed with commercial banks,
banker’s acceptances, commercial paper, corporate notes, money market funds, repurchase
agreements 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 normally invests only
in the California LAIF pool. 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
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.
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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 increased 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.
3. 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.
4. 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.
5. 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
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6. 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.
7. 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.
8. 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.
9. 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 $ 937,105 difference are as follows:
Accrued interest payable $ 378
Capital leases payable 45,570
Compensated absences 891,157
Net adjustment to reduce fund balance – total governmental funds to arrive
at net assets – governmental activities $ 937,105
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
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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 $ 356,690 difference are as follows:
Capital outlay $ 853,867
Depreciation expense ( 497,177)
Net adjustment to increase net changes in fund balances – total governmental
funds to arrive at changes in net assets of governmental activities $ 356,690
Another element of that reconciliation states that “ The effect of transactions involving capital
assets ( i. e., sales, trade- ins, and donations) is to increase net assets. The $ 363,600 difference
refers to the infrastructure contribution associated with a development, that increases net assets
in the statement of activities, but do not appear in the governmental funds because they are not
financial resources.
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 11,643 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 $ 98,529 are as follows:
Compensated absences ($ 98,151)
Accrued interest ( 378)
Net adjustment to decrease net changes in fund balances – total governmental
funds to arrive at changes in net assets of governmental activities ($ 98,529)
NOTE 3 – STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY.
Excess of Expenditures over Appropriations
For the year ended June 30, 2003, expenditures exceeded appropriations for $ 1,337, $ 9,761 and
$ 5,133 in the Police and Fire Special Tax, Gas Tax and Measure “ A” funds respectively. These
over expenditures were funded by slightly greater than anticipated revenues for the Police and
Fire Special Tax and 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, 2003 are as follows:
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Deposits and investments $ 19,475,563
Restricted cash and investments – held by fiscal agent 11,800
Total $ 19,487,363
The California Government Code requires California banks and savings and loan associations to
secure the secure 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 nay 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, 2003 as follows:
Carrying Bank Balance
Amount Category 1 Category 2 Total
Federally insured deposits $ 254,352 $ 117,157 $ 117,157
Uninsured by collateralized deposits $ 563,484 563,484
Total $ 254,352 $ 117,157 $ 563,484 $ 680,641
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) $ 11,800
Local Agency Investment Fund 19,221,211
Total $ 19,233,011
Interest and investment income consists of the following at June 30, 2003:
Interest earned $ 412,401
Net change in fair market value ( 3,849)
Total $ 408,552
NOTE 5 – CAPITAL ASSETS
Capital asset activity for the year ended June 30, 2003 was as follows:
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Beginning
Balance
Increases
Decreases
Ending
Balance
Governmental Activities:
Land and improvements $ 3,352,930 ($ 4,389) $ 3,348,541
Buildings 2,567,777 $ 19,381 2,587,158
Machinery and equipment 3,610,847 1,148,509 ( 89,844) 4,669,512
Infrastructure 8,114,189 1,046,505 9,160,694
Total capital assets 17,645,743 2,214,395 ( 94,233) 19,765,905
Less accumulated depreciation for:
Land and improvements ( 334,574) ( 99,318) ( 433,892)
Buildings ( 1,679,729) ( 66,912) ( 1,746,641)
Machinery and equipment ( 2,261,946) ( 443,671) 67,081 ( 2,638,536)
Infrastructure ( 5,328,344) ( 147,557) ( 5,475,901)
Total accumulated depreciation ( 9,604,593) ( 757,458) 67,081 ( 10,294,970)
Governmental activities capital assets, net $ 8,041,150 $ 1,456,937 ($ 27,152) $ 9,470,935
Beginning
Balance
Increases
Decreases
Ending
Balance
Business- type Activities:
Buildings $ 341,337 $ 341,337
Machinery and equipment 616,043 $ 22,408 638,451
Systems & transmissions 75,947,815 3,579,345 79,527,160
Total capital assets 76,905,195 3,601,753 80,506,948
Less accumulated depreciation for:
Buildings ( 190,885) ( 11,681) ( 202,566)
Machinery and equipment ( 299,773) ( 98,775) ( 398,548)
Systems & transmissions ( 43,998,547) ( 1,823,229) ( 45,821,776)
Total accumulated depreciation ( 44,489,205) ( 1,933,685) ( 46,422,890)
Business- type activities capital assets, net $ 32,415,990 $ 1,668,068 $ 34,084,058
Depreciation expense was charged to functions/ programs as follows:
Governmental Activities:
General government $ 129,833
Public safety 208,236
Community services 1,782
Public works 157,326
Capital assets held by the Town’s internal service funds are charged
to the various functions based on their usage of the assets
260,281
Total depreciation expense – governmental activities $ 757,458
Business- type Activities:
Water $ 1,035,790
Sewer 897,895
Total depreciation expense – business- type activities $ 1,933,685
NOTE 6 – INTERFUND TRANSACTIONS
The following is a summary of the interfund transactions for the year ended June 30, 2003 is as
follows:
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Transfer In
Nonmajor
General Governmental
Transfer Out Fund Funds Total
General fund $ 150,000 $ 150,000
Nonmajor governmental funds $ 2,625,094 200,000 2,825,094
Internal service fund 125,000 125,000
Total $ 2,750,094 $ 350,000 $ 3,100,094
NOTE 7 – LEASES
Capital Leases - The Town has entered into lease agreements as lessee for photocopiers and
reproduction equipment. During 2002- 2003, the Town also entered into a capital/ lease
agreement to acquire 2 fire engines. 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 future minimum lease payments for these
leases are as follows:
Governmental
Activities
Year Ending 6/ 30 Amount
2004 $ 217,050
2005 217,050
2006 217,050
2007 209,875
Total minimum lease payments 861,025
Less: Amount representing interest ( 80,003)
Present value of minimum lease payments $ 781,022
NOTE 8 – LONG- TERM DEBT
Long- term liability activity for the year ended June 30, 2003, was as follows:
Beginning
Balance
Additions
Reductions
Ending
Balance
Due Within
One Year
Governmental activities:
Capital leases $ 57,213 $ 900,000 ($ 176,191) $ 781,022 $ 184,165
Compensated absences 916,308 131,661 ( 94,725) 953,244 62,087
Governmental activity long- term liabilities $ 973,521 1,031,661 ($ 270,916) $ 1,734,266 $ 246,252
Business- type activities:
Compensated absences $ 72,509 $ 72,509 $ 1,560
Certificates of participation $ 14,600,000 ($ 200,000) 14,600,000 200,000
Business- type activity long- term liabilities $ 14,600,000 $ 72,509 ($ 200,000) $ 14,672,509 $ 201,560
Certificates of participation— The certificates are recorded in the Enterprise Fund and were issued
by the Public Improvement Corporation on June 1, 2000. The issue 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. Interest is payable on the first business day of each
calendar month commencing on July 2000. The debt is secured by a pledge of the net revenues
of the Enterprise Funds.
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The Town signed interest swap agreements with Morgan Guaranty to convert the Series A COPs
to a fixed rate of 5.262 percent until June 1, 2007. The Town purchased a rate cap of 6.5 percent
on the Series B COPs for the first three years. On August 13, 2003, the Town signed an interest
swap agreement with JPMorgan Chase Bank to convert the 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.
A standby purchase agreement ( SPA) with Morgan Guaranty Trust Co. of New York 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 27, 2004.
There are limitations and covenants contained in the various debt agreements. The Town
complies with all restrictive limitations and covenants at June 30, 2003.
In 2003, the Town’s total interest cost was approximately 3.22%. 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, and 4.14% interest on Series B until
maturity:
Year Ending Business- type Activities
June 30 Principal Interest
2004 $ 200,000 $ 659,418
2005 200,000 651,138
2006 200,000 642,858
2007 200,000 634,578
2008 300,000 686,960
2009- 2013 2,000,000 3,194,180
2014- 2018 2,600,000 2,610,100
2019- 2023 3,000,000 1,912,500
2024- 2028 4,100,000 1,067,100
2029- 2030 1,800,000 133,020
Total $ 14,600,000 $ 12,191,852
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, 2003 was $ 4,520,000.
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 – SEGMENT INFORMATION – ENTERPRISE FUNDS
The tables below summarize financial data by segment for the Enterprise Funds as of June 30,
2003 and for the year then ended:
CONDENSED STATEMENT OF NET ASSETS
WATER SEWER TOTAL
Assets:
Current assets $ 8,699,748 $ 896,974 $ 9,596,722
Other noncurrent assets 143,352 312,441 455,793
Capital assets, net of accumulated depreciation 15,693,207 18,390,851 34,084,058
Total assets 24,536,307 19,600,266 44,136,573
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Liabilities:
Current liabilities 672,471 469,776 1,142,247
Noncurrent liabilities 5,084,035 9,386,914 14,470,949
Total liabilities 5,756,506 9,856,690 15,613,196
Net assets:
Invested in capital assets, net of related debt 10,595,843 8,888,215 19,484,058
Restricted 250,000 250,000 500,000
Unrestricted 7,933,958 605,361 8,539,319
TOTAL NET ASSETS $ 18,779,801 $ 9,743,576 $ 28,523,377
CONDENSED STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS
WATER SEWER TOTAL
Operating revenues $ 5,740,293 $ 3,661,714 $ 9,402,007
Depreciation and amortization expense ( 1,041,932) ( 911,278) ( 1,953,210)
Other operating expenses ( 4,416,553) ( 3,499,066) ( 7,915,619)
Operating income ( loss) 281,808 ( 748,630) ( 466,822)
Nonoperating revenues ( expenses):
Investment earnings 157,565 34,258 192,093
Interest expense ( 148,475) ( 323,607) ( 472,082)
Capital contributions 375,000 253,200 628,200
Change in net assets 665,898 ( 784,509) ( 118,611)
Beginning net assets 17,937,558 10,258,780 28,196,338
Prior period adjustment 176,345 269,305 445,650
Restated beginning net assets 18,113,903 10,528,085 28,641,988
ENDING NET ASSETS $ 18,779,801 $ 9,743,576 $ 28,523,377
CONDENSED STATEMENT OF CASH FLOWS
WATER SEWER TOTAL
Net cash provided ( used) by:
Operating activities $ 1,275,645 ( $ 725,511) $ 550,134
Capital and relating financing activities ( 685,259) ( 2,533,941) ( 3,219,200)
Investing activities 160,252 64,381 224,633
Net increase ( decrease) 750,638 ( 3,195,071) ( 2,444,433)
Beginning cash and cash equivalents 6,406,239 3,955,216 10,361,455
ENDING CASH AND CASH EQUIVALENTS $ 7,156,877 $ 760,145 $ 7,917,022
NOTE 10 – RISK MANAGEMENT
The town is exposed to various risks of loss related to torts; theft of, damage to, and destruction
of assets; errors and omissions; and natural disasters for which the Town carries commercial
insurance. The Town has established a limited risk management program of these types of risks.
The Town joined a public- entity risk pool ( The Cities Group – a Joint Power Authority) that
operates a Workers’ Compensation self- insured program. The pool indemnifies the membership
for their Workers’ Compensation losses and recovers those costs from the members through a
retrospective, loss experience based contribution- rating plan. The pool is self- insured for claims
up to $ 250,000 per occurrence. Claims in excess of this amount are insured up to $ 6.1 million.
The Town has no deductible for these claims. The Town’s premiums for the fiscal year ended
June 30, 2003 were $ 434,824. 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
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and automobile liability in excess of the Town’s $ 50,000 deductible. Effective July 1, 2003, Town
also joins the ABAG PLAN pool for the commercial property including boiler and machinery
coverage, with $ 5,000 per incident deductible and certain specified limits.
Liabilities are reported when it is probable that a loss has occurred and the amount of the loss
can be reasonably estimated. The result of the process to estimate the claims liability is not an
exact amount as it depends on many complex factors, such as inflation, changes in legal
doctrines, and damage awards. Accordingly, claims are reevaluated periodically to consider
these factors, estimated recoveries from salvage or subrogation, and other economic and social
factors. The estimate of the claims liability also includes amounts for incremental claim
adjustment expenses related to specific claims and other claim adjustment expenses regardless
of whether allocated to specific claims. The amount recorded as liability for known claims are
based on the recommendation of the third- party administrator. No accrued liability for incurred
but not reported claims ( IBNRs) has been recorded as amounts for such claims cannot be
reasonably estimated. The Town’s remaining exposure for claims filed under this program is
minimal.
The Town is self- insured for all other insurable risk, except for excess insurance coverage
provided by commercial insurance companies that are limited to the following:
• Earthquake in excess of 15% per unit subject to $ 25,000 minimum deductible, but limited
to a maximum of $ 10,000,000
• Employment Practices Liability in excess of $ 100,000, but limited to a maximum of
$ 5,000,000.
There is no significant change in insurance coverage from that of the prior year and there were no
settlements that exceeded coverage for each of the past three years.
Below is a reconciliation of changes in the aggregate liabilities for claims for the fiscal years
ending June 30, 2003 and 2002.
2003 2002
Beginning Balance $ 120,158 $ 112,915
Claims incurred and changes in estimates for prior year claims 438,339 79,654
Claims paid ( 354,754) ( 72,411)
Ending Balance $ 203,743 $ 120,158
NOTE 11 – SUBSEQUENT EVENTS
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. Concurrently, the
Town entered into a swap agreement with JPMorgan Chase Bank 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. Liquidity is provided through a standby purchase agreement .
The Town received ratings of AA+ from Fitch and AA from Standard & Poor’s for the above bond
issue.
NOTE 12 – 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
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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 13 – 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 $ 1,221,346 and $ 996,571 as of June 30, 2003 and 2002, 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 $ 441,960 and $ 423,400 as of June 30, 2003 and 2002, respectively.
At June 30, 2003, the Town has outstanding construction contracts and commitments for the
water and sewer operations, as follows:
Water Fund $ 256,961
Sewer Fund 159,439
Total $ 416,400
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 14 – CLOSED FUNDS, RESTATEMENTS, AND PRIOR PERIOD ADJUSTMENTS
Closed and Consolidated Funds
Pursuant to recommended practice, effective the current fiscal year, two nonmajor special
revenue funds were consolidated with the general fund, restating the beginning fund balance of
the general fund as follows:
Ending fund balances as of 6/ 30/ 02:
General fund $ 6,094,097
Burglar alarm fund – special revenue fund 79,239
Community improvement donation fund 22,098
Restated fund balance as of 6/ 30/ 02 – General Fund $ 6,195,434
Restatement - Governmental Funds Capital Assets
In compliance with GASB 34 requirements to include infrastructure and raise the capitalization
threshold in the capital assets used in the operation of governmental funds, beginning fund
balance of the governmental funds’ capital assets excluding those of the internal service fund,
has been restated as follows:
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Ending Balance Restated Balance
6/ 30/ 02 6/ 30/ 02
Governmental funds capital assets:
Land and improvements $ 3,352,931 $ 3,352,930
Building and improvements 3,928,189 2,567,777
Machinery and equipment 2,774,529 2,241,330
Infrastructure 8,114,189
Total governmental funds capital assets $ 10,055,649 $ 16,276,226
Prior Period Adjustment – Enterprise Funds
The prior period adjustments of $ 176,345 and $ 269,305 in the water and sewer funds
respectively, represented fixed assets contributed from prior years that were recently identified.
NOTE 15 – OTHER POST- EMPLOYMENT BENEFITS
The Town provides postretirement health benefits, administered through the California Public
Employees Retirement System ( CalPERS), pursuant to various Town Employee Associations’
Memoranda of Understanding. To be eligible for these benefits, the employees must retire from
the Town on or after attaining age 50 with benefits depending upon years of services varying from
a minimum of 3 to 6 years. The town is required to pay a specified premium for each employee.
As of year- end, there were 75 employees who are receiving this benefit. The Town finances the
plan on a pay- as- you- go basis. For the year ended June 30, 2003, the Town paid $ 432,125 for
these benefits.
NOTE 16 – 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 7% ( miscellaneous) or 9%
( public safety) of their annual covered salary. 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 2003, the Town’s annual pension cost was $ 46,520. The
required contribution for the current year was determined as part of the June 30, 2000 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
41
from 3.75% to 14.20% for miscellaneous members ( from 3.75% to 11.59% for safety members),
and ( c) 3.75% cost- of- living adjustment. Both ( a) and ( b) include an inflation component of 3.5%.
The Plans’ provisions and benefits in effect at June 30, 2003 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% 1.426% - 2.418%
Required employee contribution rates 9% 7%
Required employer contribute rates 0% 1.364%
Initial unfunded liabilities are amortized over a closed period that depends on the plan’s date of
entry into CalPERS. Subsequent plan amendments are amortized as a level percentage of pay
over a closed 20- year period. Gains and losses that occur in the operation of the plan are
amortized over an open 13- year period, which results in an amortization of 10% of unamortized
gains and losses each year. If the plan’s accrued liability exceeds the actuarial value of plan
assets, then the amortization payment on the total unfounded liability may not be lower than the
payment calculated over a 30- year amortization period.
The three- year trend information for the Town is as follows:
Annual Percentage Net
Fiscal Year Pension Of APC Pension
Ending Cost Contributed Obligation
Miscellaneous 6/ 30/ 01 $ - 0 - $ - 0 -
6/ 30/ 02 $ - 0 - $ - 0 -
6/ 30/ 03 $ 46,520 100% $ - 0 -
Public Safety 6/ 30/ 01 $ 30,099 100% $ - 0 -
6/ 30/ 02 $ - 0 - $ - 0 -
6/ 30/ 03 $ - 0 - $ - 0 -
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, 2003 amounted to $ 337,681.
42
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REQUIRED SUPPLEMENTARY
INFORMATION
Actuarial Overfunded Annual UAAL as a
Valuation Accrued Value of ( Unfunded) Funded Covered % of
Date Liability Assets Liability Status Payroll Payroll
( a) ( b) ( a) - ( b) ( b) / ( a) ( c) [( a)-( b)]/( c)
PUBLIC SAFETY:
Retirement Program
6/ 30/ 2000 $ 32,586,533 $ 40,735,553 $ 8,149,020 125.0% $ 4 ,389,410 185.7%
6/ 30/ 2001 35,475,361 41,367,976 5,892,615 116.6% 4 ,509,296 130.7%
6/ 30/ 2002 37,856,231 38,111,501 255,270 100.7% 4 ,671,044 5.5%
1959 Survivor Program
6/ 30/ 2000 212,596 212,596 4 ,389,410 4.8%
6/ 30/ 2001 4 ,509,296 0.0%
6/ 30/ 2002 4 ,671,044 0.0%
MISCELLANEOUS:
Retirement Program
6/ 30/ 2000 10,635,568 12,796,443 2,160,875 120.3% 2 ,343,505 92.2%
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%
1959 Survivor Program
6/ 30/ 2000 608 608 2 ,343,505 0.0%
6/ 30/ 2001 641 641 2 ,732,067 0.0%
6/ 30/ 2002 624 624 3 ,168,847 0.0%
TOWN OF HILLSBOROUGH
SCHEDULE OF FUNDING PROGRESS
EMPLOYEES RETIREMENT SYSTEM
43
Variance with
Final Budget -
Original Final Positive
Budget Budget Actual ( Negative)
REVENUES:
Taxes:
Property $ 7,021,800 $ 7,021,800 $ 6,863,862 $ ( 157,938)
Franchise taxes 313,525 313,525 2 71,332 ( 42,193)
Business license tax 500,000 500,000 4 21,194 ( 78,806)
All others 390,000 390,000 3 55,940 ( 34,060)
Permits 600,000 600,000 5 92,012 ( 7,988)
Intergovernmental 695,200 695,200 6 90,472 ( 4,728)
Service charges 772,750 772,750 8 70,101 97,351
Fines and forfeitures 17,500 17,500 3 5,024 17,524
Investment earnings 250,450 250,450 1 33,155 ( 117,295)
Miscellaneous 200,600 200,600 2 35,912 35,312
Total Revenues 10,761,825 10,761,825 10,469,004 ( 292,821)
EXPENDITURES:
Current:
General government 818,620 818,620 6 54,110 164,510
Public safety 9,311,222 9,311,222 8,974,170 337,052
Community services 1,994,088 1,994,088 1,751,593 242,495
Streets 1,121,574 1,121,574 1,189,495 ( 67,921)
Capital outlay 1,000 29,100 2 8,891 209
Total Expenditures 13,246,504 13,274,604 12,598,259 676,345
EXCESS ( DEFICIENCY) OF REVENUES OVER
( UNDER) EXPENDITURES ( 2,484,679) ( 2,512,779) ( 2,129,255) 383,524
OTHER FINANCING SOURCES ( USES):
Operating transfers in 2,761,248 2,761,248 2,750,094 ( 11,154)
Operating transfers out ( 150,000) ( 150,000) ( 150,000) -
Total Other Financing Sources ( Uses) 2,611,248 2,611,248 2,600,094 ( 11,154)
NET CHANGE IN FUND BALANCES 126,569 98,469 4 70,839 372,370
BEGINNING FUND BALANCES 6,195,434 6,195,434 6,195,434 -
ENDING FUND BALANCES $ 6,322,003 $ 6,293,903 $ 6,666,273 $ 372,370
TOWN OF HILLSBOROUGH
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
FOR THE FISCAL YEAR ENDED JUNE 30, 2003
GENERAL FUND
44
45
Town of Hillsborough
Note to Required Supplementary Information
June 30, 2003
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, 2003 were
$ 17,402. 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 is presented as required supplementary information.
46
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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.
Police and Fire Special Tax Fund – This fund is used to account for revenues from a Town of
Hillsborough voter- approved special tax which proceeds are designated for public safety
operations and capital expenditures.
Gas Tax Fund – This fund is used to account for receipts and disbursements of funds
apportioned under Streets and Highways Code Sections 2105, 2106, 2107 and 2107.5 of the
State of California for the purpose of financing major street construction projects.
Measure “ A” Fund – This fund is used to account for receipts and disbursements of a San Mateo
County half- cent sales tax approved by the voters in June 1988 ( Measure A) for the purpose of
improving local transportation including streets and roads.
Police Grants Fund – This fund is used to account for activities funded by proceeds from various
police grants and programs.
Capital Projects Fund
Capital projects funds are used to account for the acquisition and construction of major capital
facilities other than those financed by proprietary funds and trust funds.
Total
Police Nonmajor
and Fire Gas Police CAPITAL Governmental
Special Tax Tax Measure A Grants PROJECTS Funds
ASSETS
Cash and investments:
Town Treasury $ 131,411 $ 296,941 $ 155,525 $ 992,460 $ 1,576,337
Interest receivable 613 1,259 299 4 ,065 6,236
Due from other governments 23,457 28,165 51,622
Total Assets $ - $ 155,481 $ 326,365 $ 155,824 $ 996,525 $ 1,634,195
LIABILITIES
Accounts payable $ 28,897 $ 36,102 $ 64,999
Total Liabilities - - - 28,897 3 6,102 64,999
FUND BALANCES
Unreserved - -
Designated for streets $ 155,481 $ 326,365 481,846
Designated for public safety 126,927 126,927
Designated for capital improvement plan 9 60,423 960,423
Total Fund Balances - 155,481 326,365 126,927 960,423 1,569,196
Total Liabilities & Fund Balances $ - $ 155,481 $ 326,365 $ 155,824 $ 996,525 $ 1,634,195
The notes to the financial statements are an integral part of this statement.
SPECIAL REVENUE
TOWN OF HILLSBOROUGH
COMBINING BALANCE SHEET
NONMAJOR GOVERNMENTAL FUNDS
JUNE 30, 2003
47
Total
Police Nonmajor
and Fire Gas Police CAPITAL Governmental
Special Tax Tax Measure A Grants PROJECTS Funds
REVENUES:
Police and fire special tax $ 2 ,098,084 $ 2,098,084
Intergovernmental $ 219,915 $ 339,662 $ 118,818 678,395
Service charges 1 35,486 135,486
Investment earnings 4,502 6,997 2,469 $ 21,183 35,151
Total Revenues 2 ,233,570 224,417 346,659 121,287 21,183 2,947,116
EXPENDITURES:
Current:
General government 9,761 5,133 4 65 32,392 47,751
Public safety 68,007 466 68,473
Community services 6,771 6,771
Public works 3,112 3,112
Capital outlay 12,084 812,892 824,976
Total Expenditures - 9,761 5,133 80,556 855,633 951,083
EXCESS OF REVENUES OVER
EXPENDITURES 2 ,233,570 214,656 341,526 40,731 ( 834,450) 1,996,033
OTHER FINANCING SOURCES ( USES):
Transfers In 350,000 350,000
Transfers Out ( 2,233,570) ( 200,000) ( 350,000) ( 41,524) ( 2,825,094)
Total Other Financing Sources ( Uses) ( 2,233,570) ( 200,000) ( 350,000) ( 41,524) 350,000 ( 2,475,094)
NET CHANGE IN FUND BALANCES - 14,656 ( 8,474) ( 793) ( 484,450) ( 479,061)
BEGINNING FUND BALANCES 140,825 334,839 127,720 1,444,873 2,048,257
ENDING FUND BALANCES $ - $ 155,481 $ 326,365 $ 126,927 $ 960,423 $ 1,569,196
The notes to the financial statements are an integral part of this statement.
SPECIAL REVENUE
TOWN OF HILLSBOROUGH
COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
NONMAJOR GOVERNMENTAL FUNDS
FOR THE FISCAL YEAR ENDED JUNE 30, 2003
48
Variance with
Final Budget -
Original and Positive
Final Budget Actual ( Negative)
REVENUES:
Police and Fire special tax $ 2,100,233 $ 2,098,084$ ( 2,149)
Service charges 132,000 135,486 3,486
Total Revenues 2,232,233 2,233,570 1,337
EXPENDITURES:
Current:
General Government
Public safety
Total Expenditures - - -
EXCESS OF REVENUES OVER EXPENDITURES 2,232,233 2,233,570 1,337
OTHER FINANCING USES:
Operating Transfers Out ( 2,232,233) ( 2,233,570) ( 1,337)
EXCESS OF REVENUES OVER EXPENDITURES
AND OTHER USES - - -
BEGINNING FUND BALANCES - - -
ENDING FUND BALANCES $ - $ - $ -
FOR THE FISCAL YEAR ENDED JUNE 30, 2003
TOWN OF HILLSBOROUGH
POLICE AND FIRE SPECIAL TAX FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
49
Variance with
Final Budget -
Original and Positive
Final Budget Actual ( Negative)
REVENUES:
Intergovernmental $ 223,000 $ 219,915$ ( 3,085)
Investment earnings 2,000 4,502 2,502
Total Revenues 225,000 224,417 ( 583)
EXPENDITURES:
Current:
General Government - 9,761 ( 9,761)
Total Expenditures - 9,761 ( 9,761)
EXCESS OF REVENUES OVER EXPENDITURES 225,000 214,656 ( 10,344)
OTHER FINANCING USES:
Operating Transfers Out ( 200,000) ( 200,000) -
EXCESS OF REVENUES OVER EXPENDITURES
AND OTHER USES 25,000 14,656 ( 10,344)
BEGINNING FUND BALANCES 140,825 140,825 -
ENDING FUND BALANCES $ 165,825 $ 155,481 $ ( 10,344)
FOR THE FISCAL YEAR ENDED JUNE 30, 2003
TOWN OF HILLSBOROUGH
GAS TAX FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
50
Variance with
Final Budget -
Original and Positive
Final Budget Actual ( Negative)
REVENUES:
Intergovernmental $ 332,000 $ 339,662$ 7,662
Investment earnings 6,000 6 ,997 997
Total Revenues 338,000 346,659 8,659
EXPENDITURES:
Current:
General Government - 5 ,133 ( 5,133)
Total Expenditures - 5 ,133 ( 5,133)
EXCESS OF REVENUES OVER EXPENDITURES 338,000 341,526 3,526
OTHER FINANCING USES:
Operating Transfers Out ( 350,000) ( 350,000) -
EXCESS OF REVENUES OVER EXPENDITURES
AND OTHER USES ( 12,000) ( 8,474) 3,526
BEGINNING FUND BALANCES 334,839 334,839 -
ENDING FUND BALANCES $ 322,839 $ 326,365$ 3,526
FOR THE FISCAL YEAR ENDED JUNE 30, 2003
TOWN OF HILLSBOROUGH
MEASURE " A" FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
51
Variance with
Final Budget -
Original Final Positive
Budget Budget Actual ( Negative)
REVENUES:
Intergovernmental $ 100,000 $ 100,000 $ 1 18,818$ 18,818
Investment earnings 2,500 2,500 2 ,469 ( 31)
Total Revenues 102,500 102,500 1 21,287 18,787
EXPENDITURES:
Current:
General government 500 4 65 35
Public safety 68,010 6 8,007 3
Capital Outlay 12,100 1 2,084 16
Total Expenditures - 80,610 8 0,556 54
EXCESS OF REVENUES OVER EXPENDITURES 102,500 21,890 4 0,731 18,841
OTHER FINANCING USES:
Operating Transfers Out ( 54,015) ( 54,015) ( 41,524) 12,491
EXCESS OF REVENUES OVER EXPENDITURES
AND OTHER USES 48,485 ( 32,125) ( 793) 31,332
BEGINNING FUND BALANCES 127,720 127,720 1 27,720 -
ENDING FUND BALANCES $ 176,205 $ 95,595 $ 1 26,927$ 31,332
FOR THE FISCAL YEAR ENDED JUNE 30, 2003
TOWN OF HILLSBOROUGH
POLICE GRANTS FUND
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
52
CAPITAL ASSETS USED IN THE OPERATION OF
GOVERNMENTAL FUNDS
2003 2002
Governmental funds capital assets:
Land and improvements $ 3,348,541 $ 3,352,930
Building and improvements 2,587,158 2,567,777
Machinery and equipment 2,355,249 2,241,330
Infrastructure 9,160,694 8,114,189
Total governmental funds capital assets $ 17,451,642 $ 16,276,226
Investments in governmental funds capital assets by source:
General fund $ 1,927,960 $ 1,969,207
Special revenue fund 49,565 9,393
Capital projects funds 9,399,500 859,799
Other - unclassified 6,074,617 13,437,827
Total governmental funds capital assets $ 17,451,642 $ 16,276,226
( 1) This schedule presents only the capital asset balances related to governmental funds. Accordingly, the capital
assets reported in the internal service fund are excluded from the above amounts. Generally, the capital assets of
internal service funds are included as governmental activities in the statement of net assets.
JUNE 30, 2003
TOWN OF HILLSBOROUGH
CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS
COMPARATIVE SCHEDULES BY SOURCE ( 1)
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 3,348,541 195,409 217,320 3,761,270
Total General Government 3,348,541 201,564 299,590 - 3,849,695
Public Safety:
Police 76,075 839,596 915,671
Fire 892,846 1,209,308 2,102,154
Total Public Safety - 968,921 2,048,904 - 3,017,825
Community Services:
Building 5,980 6,755 12,735
Total Community Services 5,980 6,755 - 12,735
Public Work:
Streets 1,410,693 - $ 9 ,160,694 10,571,387
Total Public Work 1,410,693 - 9 ,160,694 10,571,387
TOTAL GOVERNMENTAL FUNDS
CAPITAL ASSETS $ 3,348,541 $ 2,587,158 $ 2,355,249 $ 9 ,160,694 $ 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 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, 2003
SCHEDULE BY FUNCTION AND ACTIVITY ( 1)
54
Restated
Governmental Governmental
Funds Capital Funds Capital
Assets Assets
July 1, 2002 Additions Deductions June 30, 2003
General Government:
Council $ 13,046 $ 13,046
Finance 75,379 75,379
General Services 3,703,145 $ 58,125 3,761,270
Total General Government 3,791,570 58,125 - 3,849,695
Public Safety:
Police 888,812 68,910 $ 42,051 915,671
Fire 2,058,227 43,927 2,102,154
Total Public Safety 2,947,039 112,837 42,051 3,017,825
Community Services:
Building 12,735 12,735
Total Community Services 12,735 - - 12,735
Public Work:
Engineering - -
Streets 9,524,882 1,046,505 10,571,387
Total Public Work 9,524,882 1,046,505 - 10,571,387
TOTAL GOVERNMENTAL FUNDS CAPITAL ASSETS $ 16,276,226 $ 1,217,467 $ 42,051 $ 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 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, 2003
55
56
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STATISTICAL SECTION
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
Source: Town's Finance Department
( 1) Information from 93- 94 through 00- 01 were stated under the old governmental financial reporting model.
TOWN OF HILLSBOROUGH
GOVERNMENT- WIDE EXPENSES BY FUNCTION
LAST TWO FISCAL YEARS ( 1)
57
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
Source: Town's Finance Department
( 1) Information from 93- 94 through 00- 01 were stated under the old governmental financial reporting model.
TOWN OF HILLSBOROUGH
GOVERNMENT- WIDE REVENUES
LAST TWO FISCAL YEARS ( 1)
PROGRAM REVENUES GENERAL REVENUES
58
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
( 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
TOWN OF HILLSBOROUGH
GENERAL GOVERNMENTAL EXPENDITURES BY FUNCTION ( 1)
LAST TEN FISCAL YEARS
59
Fiscal Licenses & Intergovern- Charges Miscel-
Year Total Taxes Permits mental for Services laneous
1993- 94 $ 7 ,862,623 $ 5 ,598,181 $ 277,720 $ 953,522 $ 343,608 $ 6 89,592
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
( 1) Includes general, special revenue and capital projects funds.
Source: Town's Finance Department
TOWN OF HILLSBOROUGH
GENERAL GOVERNMENTAL REVENUES BY SOURCE ( 1)
LAST TEN FISCAL YEARS
60
Vehicle Business Property General
Fiscal Property Sales Franchise License License Transfer Fund
Year Tax Tax Tax Fee 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 20,415 6,154,298
1999- 00 5 ,170,249 82,528 2 19,642 566,017 601,303 351,841 4 ,982 6,996,562
2000- 01 5 ,700,371 86,678 2 67,610 608,087 598,293 262,445 7,523,484
2001- 02 6 ,713,362 79,288 3 02,034 603,700 559,221 219,770 8,477,375
2002- 03 6 ,863,862 70,267 2 71,332 650,556 421,194 200,621 8,477,832
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.
TOWN OF HILLSBOROUGH
GENERAL GOVERNMENTAL TAX REVENUES BY SOURCE
LAST EIGHT FISCAL YEARS ( 1)
61
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%
( 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
TOWN OF HILLSBOROUGH
PROPERTY TAX LEVIES AND COLLECTIONS ( 1)
LAST FIVE FISCAL YEARS ( 2)
62
Fiscal Gross Exemptions Net % of
Year Values ( 1) Values Unsecured Total Change
1993- 94 $ 2,306,311,053 $ 8,438,258 $ 2,297,872,795 $ 3,712,440$ 2,301,585,235 5%
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%
( 1) Exclusive of HOPTR
( 2) Information on exemptions for these years were not available.
Source: San Mateo County Assessor's Office
TOWN OF HILLSBOROUGH
ASSESSED VALUES OF TAXABLE PROPERTY
LAST TEN FISCAL YEARS
Secured
63
No of Assessed % to Net Taxable
Category Parcels Value Total Value
Residential 3,843 $ 4,157,343,462 97.4% $ 4,154,171,050
Exempt 68 0.0%
Recreational 7 4,674,416 0.1% 4 ,674,416
Institutional 1 9,035,466 0.2%
Vacant 133 65,753,276 1.5% 6 5,753,276
Miscellaneous 13 914,245 0.0% 9 14,245
Unknown 14 27,281,162 0.6% 1 9,431,443
Unsecured 4,467,860 0.1% 4 ,467,860
4,079 $ 4,269,469,887 100.0% $ 4,249,412,290
Source: San Mateo County Assessor's Office
TOWN OF HILLSBOROUGH
ASSESSED VALUES OF TAXABLE PROPERTY- USE CATEGORY
FISCAL YEAR 2002- 2003
64
Assessed Valuation $ 4,249,240,206
Debt Limit ( 3.75% of Assessed Value) $ 159,346,508
Debt Subject To Limit -
Legal Debt Margin $ 159,346,508
( 1) Source: San Mateo County Assessor's Office
TOWN OF HILLSBOROUGH
COMPUTATION OF LEGAL DEBT MARGIN
June 30, 2003
65
Applicable 6/ 30/ 2003
Percentage Debt
DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT:
San Mateo Union High School District 13.142% $ 1 4,401,812
San Mateo Community College District 4.894% 4 ,741,093
Hillsborough School District 99.885% 1 3,484,475
Burlingame School District 0.026% 4 ,525
San Mateo- Foster City School District 0.539% 5 60,206
Town of Hillsborough -
Total Direct and Overlapping Tax and Assessment Debt 3 3,192,111
OVERLAPPING GENERAL FUND OBLIGATION DEBT:
San Mateo County General Fund Obligations 4.894% 1 3,404,349
San Mateo County Board of Education Certificates of Participation 4.894% 2 42,742
San Mateo County Mosquito Abatement District
Certificates of Participation 6.705% 1 27,730
Total Gross Overlapping General Fund Obligation Debt 1 3,774,821
Combined Total Debt $ 4 6,966,932 ( 1)
RATIOS TO ASSESSED VALUATION:
Direct Debt -
Total Overlapping Tax and Assessment Debt 0.78%
Combined Total Debt 1.11%
( 1) Excludes tax and revenue anticipation notes, revenue, mortgage revenue and tax allocation bonds and non- bonded
capital lease obligations.
Source: California Municipal Statistics, Inc.
Jurisdiction
TOWN OF HILLSBOROUGH
COMPUTATION OF DIRECT AND OVERLAPPING DEBT
June 30, 2003
66
Number of
Fiscal Building % of
Year Permits Value Change
1993- 94 761 $ 31,235,002 18%
1994- 95 723 27,937,334 - 11%
1995- 96 869 26,694,466 - 4%
1996- 97 846 40,374,190 51%
1997- 98 813 39,219,195 - 3%
1998- 99 972 59,146,954 51%
1999- 00 833 60,127,713 2%
2000- 01 817 79,263,526 32%
2001- 02 739 74,078,807 - 7%
2002- 03 697 54,048,277 - 27%
Source: Town of Hillsborough Building Department
Residential Construction
TOWN OF HILLSBOROUGH
TABLE OF CONSTRUCTION ACTIVITY
LAST TEN FISCAL YEARS
67
Countywide
Fiscal Year Tax Schools Total
93/ 94 1.0000 1.0000
94/ 95 1.0000 1.0000
95/ 96 1.0000 1.0000
96/ 97 1.0000 1.0000
97/ 98 1.0000 1.0000
98/ 99 1.0000 1.0000
99/ 00 1.0000 1.0000
00/ 01 1.0000 1.0000
01/ 02 1.0000 0.0153 1 .0153
02/ 03 1.0000 0.0244 1 .0244
03/ 04 1.0000 0.0516 1 .0516
Source: County of San Mateo Assessor's Office
TOWN OF HILLSBOROUGH
PROPERTY TAX RATES
DIRECT AND OVERLAPPING GOVERNMENTS
LAST TEN FISCAL YEARS
68
% of Total
No of Assessed Assessed
Taxpayer Parcels Value Valuation
James G. B. De Martini III Trust 5 $ 38,678,298 0.91%
Terence J. Garnett 2 20,042,092 0.47%
Val E. Vaden Trust 3 18,253,603 0.43%
Otto J. Miller 7 16,885,130 0.40%
Stonebridge Partners LLC 5 12,484,793 0.29%
Amati LLC 2 12,194,240 0.29%
Roland Van Der Meer Trust 2 10,098,000 0.24%
Nueva Day School 1 9,035,466 0.21%
Charles M. Parrish 2 8,843,400 0.21%
Rupert H. Johnson Jr. 1 8,728,616 0.20%
30 $ 155,243,638 3.64%
( 1) All residential properties
Source: HdL Coren & Cone, San Mateo County Assessor 2000- 01 Combined Tax Rolls
TOWN OF HILLSBOROUGH
TOP 10 TAXPAYERS ( BASED ON GROSS ASSESSED VALUES)
FISCAL YEAR 2001- 02
69
Fiscal Water Meter Sewer % of
Year Sales Charges Charges Total Change
1993- 94 $ 2,595,184 $ 265,549 $ 1,479,286 $ 4,340,019 14%
1994- 95 2,450,717 264,835 1,647,316 4,362,868 1%
1995- 96 2,873,159 263,838 1,832,471 4,969,468 14%
1996- 97 3,166,686 265,753 1,927,001 5,359,440 8%
1997- 98 2,697,112 271,838 2,023,835 4,992,785 - 7%
1998- 99 2,805,240 270,717 2,199,160 5,275,117 6%
1999- 00 3,654,934 273,563 2