CITY OF CUPERTINO CALIFORNIA
COMPREHENSIVE ANNUAL
FINANCIAL REPORT
FOR FISCAL YEAR ENDED
JUNE 30 2006
PREPARED BY
CITY OF CUPERTINO
FINANCE DEPARTMENT
DAVID WOO
FINANCE DIRECTOR
INTRODUCTORYSECTION
CITY OF CUPERTINO CALIFORNIA
Comprehensive Annual Financial Report
For the Year Ended June 30 2006
Table of Contents
Page
INTRODUCTORY SECTION
Table of Contents
Letter of Transmittal
Organization Chart
Commissions and Committees
City Council and Directory ofCity Officials
Certificate of Award for Excellence in Financial Reporting
I
V
xv
XVI
XVll
XVlll
FINANCIAL SECTION
Independent Auditor s Report on Basic Financial Statements 3
Management s Discussion and Analysis 5
Basic Financial Statements
Government wide Financial Statements
Statement ofNet Assets 22
Statement ofActivities 23
Fund Financial Statements
Major Governmental Funds
Balance Sheet 25
Reconciliation ofthe Governmental Funds Balance Sheet with the
Statement ofNet Assets 26
Statement of Revenues Expenditures and Changes in Fund Balance 27
Reconciliation ofthe Net Change in Fund Balances Total Governmental
Funds with the Statement ofActivities 28
Statement ofRevenues Expenditures and Changes in Fund Balances
Budget and Actual
General Fund 29
Major Proprietary Funds
Statement ofNet Assets 31
Statement of Revenue Expenses and Changes in Fund Net Assets 32
Statement of Cash Flows 33
CITY OF CUPERTINO CALIFORNIA
Comprehensive Annual Financial Report
For the Year Ended June 30 2006
Table of Contents
Page
FINANCIAL SECTION Continued
Fiduciary Funds
Statement ofFiduciary Net Assets 35
Notes to Basic Financial Statements 37
Supplemental Information
Major Governmental Funds Other Than the General Fund and Special Revenue Funds
Schedule of Revenues Expenditures and Changes in Fund Balances Budget
and Actual
Public Facilities Corporation Debt Service Fund 64
Non major Governmental Funds
Combining Balance Sheets 66
Combining Statements ofRevenues Expenditures and Changes in Fund Balance 68
Combining Schedule of Revenues Expenditures and Changes in Fund Balance
Budget and Actual 70
Internal Service Funds
Combining Statement ofNet Assets 75
Combining Statements ofRevenues Expenses and Changes in Net Assets 76
Combining Statements ofCash Flows 77
Fiduciary Funds
Combining Statement of Changes in Assets and Liabilities All Agency Funds 79
11
CITY OF CUPERTINO CALIFORNIA
Comprehensive Annual Financial Report
For the Year Ended June 30 2006
Table of Contents
Page
STATISTICAL SECTION
Financial Trends
Net Assets by Component
Changes in Net Assets
Fund Balances ofGovernmental Funds
Changes in Fund Balance of Governmental Funds
83
84
86
87
Revenue Capacity
Assessed and Estimated Actual Value ofTaxable Property
Property Tax Rates All Overlapping Governments
Principal Property Taxpayers
Property Tax Levies and Collections
88
89
90
91
Debt Capacity
Ratio of Outstanding Debt by Type
Computation of Direct and Overlapping Debt
Computation of Legal Bonded Debt Margin
Ratio ofGeneral Bonded Debt Outstanding
92
93
94
95
Demographic and Economic Information
Demographic and Economic Statistics
Principal Employers
96
97
Operating Information
Full Time Equivalent City Government Employees by Function
Operating Indicators by FunctionProgram
Capital Asset Statistics by FunctionProgram
98
99
100
COMMUNITY PROFILE
III
CITY OF
CUPEIQINO
December 13 2006
To the Citizens ofCupertino Honorable Mayor
Members ofthe City Council and City Manager
It is our pleasure to submit the Comprehensive Annual Financial Report CAFR for the City of
Cupertino the City for the fiscal year ended June 30 2006 The Introductory Section includes
1 this transmittal letter 2 an organizational chart and 3 a list of principle officials The
Financial Section includes 1 the independent audit firm s report 2 a narrative section referred
to as Management s Discussion and Analysis MD A 3 the basic financial statements and
related notes 4 required supplemental information and 5 the combining financial statements
for non major funds The Statistical Section includes several tables ofunaudited data depicting
the financial history of the City as well as miscellaneous statistics
The City s annual report is prepared in accordance with Accounting Principles Generally
Accepted in the United States of America GAAP as promulgated by the Governmental
Accounting Standards Board GASB The report presents City information on an entity wide
basis and on a more detailed fund level basis The fund level reports emphasize the City s major
funds The MD A presents a comparative analysis of current and prior year results changes in
financial position a comparison of actual versus budget financial highlights trends and
disclosure of any known significant events or decisions that affect the financial condition of the
City This transmittal letter is designed to complement the MD A and should therefore be read
in conjunction with it The MD A is required supplementary information and is found in the
Financial Section of the CAFR
The accuracy of the data presented and the completeness and fairness of the presentations
including all disclosures are the responsibility of the management of the City To provide a
reasonable basis for making these representations management has established a comprehensive
internal control framework that is designed to protect the City s assets and provide sufficient
reliable information for the proper preparation of these financial statements We believe the data
is accurate in all material respects and is presented in a manner that fairly sets forth the City s
financial position Furthermore we believe that all disclosures necessary to enable the reader to
gain an understanding ofthe City s financial activity have been included
IV
Printedon Recycled Paper
REPORTING ENTITY
This Comprehensive Annual Financial Report includes all component units funds and account
groups of the City It reports all activities for which the City is considered to be financially
accountable The general governmental funds provide a full range of services including
planning building parks and recreation public works engineering maintenance and general
administrative activities This financial report incorporates data for the City of Cupertino the
Cupertino Public Facilities Corporation and the Cupertino Redevelopment Agency
The City operates under a Council City Manager form of government There are five council
members including the Mayor who serve four year terms The City Council appoints the City
Manager who is responsible for the daily administration of the City affairs The City Council
also appoints the City Attorney and the City Treasurer All other employees are appointed by the
City Manager
FACTORS AFFECTING ECONOMIC CONDITIONS
The City of Cupertino is located in Santa Clara County at the southern end of the San Francisco
Bay Peninsula The City is comprised of 11 square miles and is bordered by the cities of San
Jose Saratoga Sunnyvale Santa Clara and Los Altos
Hayward
1 k
11 11
Fremont
CUPERTINO
j
Milpitas
Sunnynle
San
Jose
Situated at the west end of Silicon Valley Cupertino
has earned the reputation of a balanced community
with a healthy climate for business and well
maintained residential neighborhoods community
parks and public facilities The excellent reputation of
Cupertino s schools has been a major attraction for
families wishing to settle in close proximity to jobs in
the Santa Clara Valley The City recognizes the
importance of quality school facilities and programs to
all Cupertino residents and works in partnership with
the schools in many programs affecting education and
youth
Cupertino is the corporate headquarters for major
companies such as Apple Computer Symantec and
Borland Software Key divisions of Hewlett Packard
are also located in Cupertino
The City has eight large shopping centers including its own regional mall Val1co Fashion Park
which is undergoing a massive expansion and renovation A new 16 screen AMC movie
complex will open in 2007 with new stores a food court and a bowling alley in future plans A
California Pizza Kitchen and Islands Restaurant will be built outside of the mall Hotel and
mixed use retail condominium developments adjacent to the mall are in conceptual phases
Alexander s Steakhouse and Dynasty Seafood Restaurant continue to pickup business The City
projects that if development plans come to fruition sales taxes from the mall could potentially
triple overcurrent amounts
v
The expansion of the Marketplace Center has led to new restaurants and services Petsmart and
Chuck E Cheese have opened new retail and entertainment establishments that replaced shuttered
grocery and video retailers Whole Foods Market is building a 63 000 square foot superstore on
the vacated Anderson Chevrolet dealer site The Homestead Center at Homestead Avenue and
Foothill Expressway is renovating and expanding Shopping center occupancy rates increased
during the year from 94 to 99 with average rents rising from 245 to 3 27 per square foot
Significantly Apple announced that in the next three to four years it plans to construct and open
a 50 acre second campus in the North Vallco area of the City an action which could add up to
3 000 more jobs and improve sales tax receipts and property valuations
Overall sales taxes rose more steeply than they did in the previous year increasing 16 during
2005 06 as opposed to the 7 rise in 2004 05 The leading tax sector business to business
consisting mostly of office equipment reached a new three year high in tax receipts and
climbed to 57 of the tax base up from 54 last year For the second straight year the sector
rode Apple s robust sales ofiPods The market segment also began to capture the company s up
and coming sales ofpersonal computers based on the Intel chip
On the other hand general retail ranked second suffered a three year low during the fiscal year
and dropped to 22 of the market compared to 25 last year The re development of Vallco
Fashion Park will hopefully reverse that trend in a couple of years The third ranked segment
food products also reached a three year high driven by business at the new restaurants Food
maintained asteady 12 ofthe base
Looking at fiscal 2006 07 through October sales taxes were down from the torrid pace of2005
06 They are projected to end up about 1 over 2005 06 results
The following chart shows actual sales tax receipts over the past nine years
Sales Tax Trend
14 000
12 000
2000
0
I
I
I
10 ACTUALEST I
en
g 10 000
o
S
8 000
6 000
rJJ
4 000
rJJ
1998 1999 2000 2001 2002 2003 2004 2005 2006
YEAR
VI
The strong residential real estate market continues in Cupertino contrary to other sectors of
California and the nation While Cupertino has seen a slowdown compared to the hot pace of
recent years the City s renowned school district has kept available properties in the city in high
demand Even better news is that starting in 2006 07 the City will receive five cents of each
property tax dollar paid by landowners in the city as opposed to four cents In 2006 07 alone this
means 1 35 million more to the City in ongoing revenue
Recognizing the long term real estate strength home building in the city carried on with the
Adobe Terrace Metropolitan Civic Park and Oak Park Village condominium and townhouse
projects in various stages of construction
Cell phone companies citing a new Internal Revenue Service notice on federal excise taxes have
challenged remittances ofutility user taxes to cities such as Cupertino The City plans to modify
its tax ordinance to address these arguments Up to 400 000 per year in City revenue is at risk
MAJOR INITIATIVES
1 Ensure Land Use is Compatible with Community Character
Carry out master plan for the Stevens Creek Corridor Park
Acquire parcels at Sterling and Barnhart for a park in the Rancho Rinconada area
Commence design
Conduct North Vallco land use study
Ensure that the walkable city concept IS present In all City development and
redevelopment projects
Pursue neighborhood park in the Homestead area
2 Protect and Promote our Public Safety
Add sheriff patrols for the late afternoons and evenings improve responses for incidences
at schools and add coverage for the larger crowds at Val1co
Study implement or complete traffic safety issues such as those involving the Safe
Routes to School program the Streets Smarts Program and the traffic signal at
McClellan and DeAnza
Continue emphasis on emergency response and preparedness including expansion of
CERT training improving community notification and coordination and providing
emergency response training for businesses and schools
3 Ensure the Financial Health of the Community
Implement the City s fiscal strategic plan
Attract companies with local sales offices that can that can generate taxes from a regional
or national base
Encourage retain and support healthy environment for retail growth
Consider retail in review of new development for potential revenue generating
possibilities
Consider a modification ofthe business license ordinance related to quarries
VB
4 Housing
Review effectiveness ofthe housing assistance program for Cupertino teachers
Conduct anexus study for housing mitigation fees
Pursue an affordable housing project on Cleo Avenue
5 Building Community
Continue to offer opportunities and programs to promote cultural understanding and
address the needs ofour diverse community
6 Pursue Infrastructure Improvements
Completed grading for the Mary Avenue Bicycle Footbridge Finish final plans and
designs and award contract for bridge construction
Department Focus Efforts and Accomplishments
Cupertino Adopts a Fiscal Strategic Plan
The 2000 through 2005 recession coupled with significant increases in retirement medical and
energy costs new infrastructure service needs and State take aways severely undermined the
ability of the City of Cupertino to continue delivering high quality municipal services The City
weathered the economic storm by cutting service levels freezing up to 17 staff positions
refinancing debt service turning to a full cost recovery fee structure for certain services gaining
one time revenues through the sale of surplus property and reducing employee compensation
through salary cutbacks and work furloughs Service levels clearly suffered and sacrifices were
necessary across the board
The City learned that our fiscal structure left us vulnerable to the whims ofeconomic fluctuations
and the ability ofthe State to raid our revenue sources Two major revenue sources sales tax and
property tax were principal weak points in the above scenario Cupertino is heavily dependent
on business to business sales taxes and its retail sales tax is significantly under performing due to
the condition of older strip shopping centers in the community and the recent loss of several
significant revenue producers Also Cupertino was one of four no low property tax cities frozen
by pre Proposition 13 to abnormally low tax rates
To address this important issue a fiscal strategic plan committee was formed As described
below the committee developed potential areas for short term and or long term savings The
committee also developed revenue strategies in an effort to stabilize and reposition the City s
revenue sources and recommended ways to decrease expenditures and risk exposure
viii
Short and or long term savings
A Streamline and reposition our workforce as opportunities arise
B Implement E Services with the goal ofbringing city hall to the customer and reducing our
cost of service delivery
C Pursue artificial turf in our athletic fields to reduce maintenance and risks associated with
InJury
D Pursue alternate energy sources for the City s infrastructure and vehicle replacement
needs
Areas for stabilizing and repositioning revenue sources
A Gained Property Tax Equity Allocation TEA relief with Santa Clara County
B Began assessing a sales tax in lieu fee for discontinuance ofretail land use
C Re assess park dedication fees on an ongoing basis to capture rising real estate costs
associated with park acquisition
D Negotiate with Hansen Cement regarding future land use rights In exchange for
annexation
E Support Redevelopment Economic Development for Vall co and other major projects
F Consider an Entertainment Tax and a modification to our existing Utility User Tax
Ordinance in conjunction with the next local election in 2007
G Phase out one time revenue to the General Fund
H Re visit the adoption of a county communication fee if our sales tax composition exceeds
50 from the business to business sector
I Consider a Refuse Vehicle Impact Fee
Areas for decreasing expenditures and risk exposure
A Require developers to maintain new open space associated with their projects
B Require safety enhancements in new developments
C Contract school maintenance
D Add capital improvement projects only if on going maintenance funding can be identified
LLD homeowners association development maintained owned
ix
E Increase the number of Block Leaders Neighborhood Watch programs and CERT
graduates
F Change accounting for Enterprise Funds
G Continue to investigate cost saving options for medical and retiree medical insurance
H Adopt a Sidewalk Liability Ordinance requiring the landowner to be responsible for
sidewalk maintenance and claims to third parties from failure to maintain
I Adopt a Tree Maintenance Ordinance requiring the landowner to be responsible for their
street trees
The committee finalized the Fiscal Strategic Plan and City Council adopted the plan during the
2006 07 budget process Some of the strategies have already been implemented Congratulations
to the Fiscal Strategic Plan Committee for their efforts
OTHER LONG TERM FINANCIAL ISSUES
Besides the topics discussed in the fiscal strategic plan other long term financial challenges for
the City are
Funding the City s retiree medical benefit liability
Diversification ofthe City s sales tax base away from business to business office equipment
Keeping long term revenues and expenditures in balance
Maintaining aging facilities and infrastructure
Constructing a park in the Rancho Rinconada area
Realizing the Stevens Creek Corridor Park vision
Seismically upgrading and increasing City Hall workspace
Improving storm drainage at Bubb and McClellan
The additional 1 35 million in TEA funding has addressed the long term imbalance of revenues
and expenditures however this balance could be threatened if the City s primary sales tax
producer hits a severe business downturn if the Vallco Fashion Park redevelopment stalls and
the forecasted tax revenues turn out lower than expected if retiree medical benefit and pension
costs skyrocket and if imprudent capital spending choices are made
The City s unfunded retiree medical liability will be required as a disclosure in the City s
financial statements starting in fiscal 2008 09 The annual installment to payoff this long term
liability must be paid by the City otherwise the unpaid amount is recorded as a liability against
reserves An updated valuation of these costs will be obtained in 2006 07 The last valuation in
2004 disclosed a 15 million unfunded liability with an annual required installment of
approximately 1 1 million For the past two years the City has set aside 3 5 million toward
this expense
x
ACCOUNTING SYSTEM AND BUDGETARY CONTROL
The City s accounting records are maintained on a modified accrual basis of accounting for all
governmental fund types and agency funds Under this basis revenues are recognized when
susceptible to accrual i e both measurable and available and expenditures other than interest
on long term obligations which is recorded when paid are recognized when the liability is
incurred The accrual basis of accounting is used by the proprietary fund types where revenues
are recognized when earned and expenses are recorded when incurred In compiling the
government wide financial statements the accrual basis of accounting is used to report all of the
City s financial activities Since the fund financial statements are still compiled using the
modified accrual method for governmental funds a reconciliation report is provided to show the
changes between the two reporting methods
In developing and evaluating the City s accounting system consideration is given to the
adequacy of internal accounting controls Such controls are designed to provide reasonable but
not absolute assurance regarding the safeguarding ofassets against losses from unauthorized use
or disposition and the reliability of financial records for preparing financial statements and
maintaining accountability of assets The concept of reasonable assurance recognizes that the
costs of a control should not exceed the benefits likely to be derived and that the evaluation of
costs and benefits requires estimates and judgments by management The City s internal
accounting controls adequately safeguard assets and provide reasonable assurance of the proper
recording of financial transactions
The City s budget is a detailed operating plan that identifies estimated costs and results in
relation to estimated revenues The budget includes 1 the programs projects services and
activities to be provided during the fiscal year 2 estimated revenue available to finance the
operating plan and 3 the estimated spending requirements of the operating plan The budget
represents aprocess through which policy decisions are made implemented and controlled The
level of budgetary control i e the level at which expenditures cannot legally exceed the
appropriated amount is the departmental level within the General and Special Revenue funds
and the project level within the Capital Project funds
Changes in Financial Reporting
The enclosed Statistical Section reflects the implementation of GASB Statement 44 providing
new information on the City s financial trends revenue generating ability debt capacity
demographics and economy
Cash Management
The City maintains a cash and investment pool for all City funds The City s funds are invested
by the City Treasurer according to the investment policy adopted by the City Council The
objectives of the policy are legality safety liquidity diversity and yield The policy addresses
soundness of financial institutions and the types of investments permitted by the California
government code
XI
The City investments may include obligations of the U S Treasury and Federal agencies
commercial paper banker s acceptances corporate bonds repurchase agreements certificates of
deposit and the State Treasurer s Local Agency Investment Fund Total investment earnings for
all funds were 0 9 million
Risk Management
Risk management issues factor substantially in the City s long term financial planning Whether
through partnership or self insurance programs the City strives to maintain sufficient assets to
pay expected losses maintain funding stability to avoid substantial fluctuation in annual expense
and monitor risk management policies and claim administration to mitigate future losses
The City maintains a program of commercial insurance combined with self insurance for
substantially all of its governmental operations except for major construction projects and
contractor supplied services In such circumstances insurance to protect the City is provided by
each contractor
INDEPENDENT AUDIT
City Ordinance requires an annual audit of the financial records by an independent certified
public accounting firm selected by the City Council The City s general purpose financial
statements were audited by Maze and Associates and their opinion thereon is included in the
Financial Section ofthis report
CERTIFICATE OF ACHIEVEMENT
The Government Finance Officers Association of the United States and Canada GFOA awarded
a Certificate of Achievement for Excellence in Financial Reporting to the City of Cupertino for
its Comprehensive Annual Financial Report for the year ended June 30 2005 In order to be
awarded a Certificate of Achievement a government unit must publish an easily readable and
efficiently organized Comprehensive Annual Financial Report This report must satisfy both
generally accepted accounting principles and applicable legal requirements
A Certificate of Achievement is valid for a period of one year only We believe that our current
report continues to meet the Certificate of Achievement Program s requirements and we are
submitting it to the GFOA to determine its eligibility for another certificate
David Woo
Finance Director
xii
ACKNOWLEDGMENTS
I would like to express my appreciation to the City employees City Manager and the members
of the City Council for their interest in conducting the financial operations of the City in a
responsible manner Special thanks go to the past and present Finance staff Dixie Farley Tina
Mao Yulia Rumalean and Richard Wong for their continued support and dedication Special
recognition goes to Jennifer Chang Dorothy Steenfott and David Woo for their efforts in the
preparation and production of this report
Reviewed by
vula afwzjrc
Carol A Atwood
Director ofAdministrative Services
xiii
t
Citizens
of Cupertino
CoCuinty c il ttCJ
Citizen Adivisoty
Commissions and CITY OF
Committees CUPEIQ INO
City Attorney City Managet City Treasurer
Charles Kilian David Knapp Carol Atwood
Public Information Officer
Rick Kitson
I
Director of Director of Director of Director of
Administrative Services Community Development Parks and Recreation Public Works
Carol Atwood Steve Piasecki Therese Smith Ralph Qualls
IT Manager City Clerk Building Official Recreation Supervisor Recreation Supervisor CityArchitect Assistant Director
Mariyah Serratos Kimberly Smith Greg Casteel Sports Center Senior Center Terry Greene ofPublic Works Eng
Don McCarthy Julia Lamy Glenn Goepfert
Finance Director Human Resources City Planner Recreation Supervisor Recreation Supervisor Public Works Environmental
David Woo Director Ciddy Wordell Blackberry Farm Youth Programs Project Manager Programs Manager
Sandy Abe Mike O Dowd Christine Hanel Carmen Lynaugh Lavenia Millar
Code Outreach Economic Development Recreation Supervisor Assistant Director Senior Civil Engineer
Enforcement Programs RDA Manager Quinlan Center of Public Works Maint David Stillman
Vacant Tom Walters Bob Rizzo
I
Parks Facilities Streets Public Works
Supervisor Supervisor Supervisor Supervisor
John Bisely Jim Davis Diane Mahan Ron Silva
CITY OF CUPERTINO CALIFORNIA
Fiscal Year 2005 06
COMMISSIONS AND COMMITTEES
AUDIT COMMITTEE PARKS RECREATION COMMISSION
Myoung Kang
Dolly Sandoval
Garrett Wade
Kris Wang
Jim Weber
Jeanne Bradford
Derek Chen
Margaret Goodrich
David Greenstein
Roger Peng
HOUSING COMMISSION SENIOR COMMISSION
Richard Abdalah
Sarah Hathaway Feit
Kim Mosleh
Frances Seward
Chihua Wei
Estelle Incociati
Christine Kennedy Pierce
Mavis Smith
Linda Walker
Frank Yap
FINE ARTS COMMISSION LIBRARY COMMISSION
Nancy Canter
Michael Harkin
Robert Harrison
Janet Mohr
Ann Woo
Ronald Miller
Sheila Mohan
Janet Riddell
Katherine Stakey
Susanna Tsai
PUBLIC SAFETY COMMISSION PLANNING COMMISSION
Fari Aberg
Charles Caldwell
Jay Cena
Nina Daruwalla
Hugh Riddell
TEEN COMMISSION
Cary Chien
Lisa Giefer
Marty Miller
Taghi Saadati
Gilbert Wong
ECONOMIC DEVELOPMENT
Yukti Gangwani
Vrinda Gupta
Cordelia Jiang
Diane Keng
Hannah Lee
Benjamin Lin
Abishek Menon
Tiffany Ou
Varun Pande
Alex Pommier
Rukmani Sahay
Shivani Sharma
Ana Yglesias
Carol Atwood
Cary Chien
Mike Foulkes
Christine Giusiana
David Knapp
Orrin Mahoney
Mark McKenna
Steve Piasecki
Ralph Qualls
Scott Stauffer
Kris Wang
BICYCLE PEDESTRIAN COMMISSION TECHNOLOGY INFORMATION
COMMUNICATIONS COMMISSION
Scott Fable
May Koski
Geoffrey Paulsen
Joseph Walton
James Wiant
Charlie Ahern
William Allen
Eric Klein
Andrew Radle
Steven Ting
xv
CITY OF CUPERTINO CALIFORNIA
Richard Lowenthal
Mayor
r
r
o Orrin Mahoney
Councilmember
CITY COUNCIL
Fiscal Year2005 06
Kris Wang
Vice Mayor
Patrick Kwok
Councilmember
If Dolly Sandoval
Councilmember
DIRECTORY OF CITY OFFICIALS
David W Knapp City Manager
Charles T Kilian City Attorney
Carol Atwood Director ofAdministrative Services
Steve Piasecki Director ofCommunity Development
Ralph Qualls Director ofPublic Works
Therese Smith Director ofParks and Recreation
XVI
Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
City of Cupertino
California
For its Comprehensive Annual
Financial Report
for the Fiscal Year Ended
June 30 2005
A Certificate of Achievement for Excellence in Financial
Reporting is presented by the Government Finance Officers
Association of the United States and Canada to
governmentunits and public employee retirement
systems whose comprehensive annual mancial
reports CAFRs achieve the highest
standards in government accounting
and mancial reporting
tff
President
Executive Director
xvu
FINANCIAL SECTION
1
MAZE
ASSOCIATES
INDEPENDENT AUDITOR S REPORT ON
BASIC FINANCIAL STATEMENTS
ACCOUNTANCY CORPORATION
3478 BuskirkAve Suite 215
Pleasant Hill California 94523
925 930 0902 FAX 925 930 0135
maze@ mazeassociates com
wwwmazeassociates com
To the City Council
City of Cupertino California
We have audited the basic financial statements of the governmental activities the business type activities each major
fund and the aggregate remaining fund information of the City of Cupertino as ofand for the year ended June 30
2006 which collectively comprise the City s basic financial statements as listed in the Table of Contents These basic
financial statements are the responsibility of the City s management Our responsibility is to express an opinion on
these basic financial statements based on our audits
We conducted our audit in accordance with generally accepted auditing standards in the United States ofAmerica and
generally accepted government audit standards issued by the Comptroller General of the United States of America
Those standards require that we plan and perform the audit to obtain reasonable assurance as to whether the financial
statements are free of material misstatement An audit includes examining on a test basis evidence supporting the
amounts and disclosures in the financial statements An audit also includes assessing the accounting principles used
and significant estimates made by management as well as evaluating the overall financial statement presentation We
believe that our audit provides a reasonable basis for our opinion
In our opinion the basic financial statements referred to above present fairly in all material respects the respective
financial position of the governmental activities the business type activities each major fund and the aggregate
remaining fund information of the City of Cupertino at June 30 2006 and the results of its operations and the cash
flows of its proprietary fund types thereof and the respective budgetary comparisons listed as part of the basic
financial statements for the year then ended in confonnity with generally accepted accounting principles in the United
States ofAmerica
In accordance with generally accepted government auditing standards we have also issued reports dated September
29 2006 on our consideration of the City of Cupertino internal control structure and on its compliance with laws and
regulations
Management s Discussion and Analysis is required by the Government Accounting Standards Board but is not part
ofthe basic component unit financial statements We have applied certain limited procedures to this information
principally inquiries ofmanagement regarding the methods of measurement and presentation ofthis information
but we did not audit this information and we express no opinion on it
Our audit was made for the purpose offorming an opinion on the basic financial statements taken as a whole The
supplemental section listed in the Table ofContents are presented for purposes of additional analysis and are not a
required part of the basic financial statements ofthe City of Cupertino Such information has been subjected to the
auditing procedures applied in our audit of the basic financial statements and in our opinion are fairly stated in all
material respects in relation to the basic financial statements taken as a whole
The introductory section and statistical section listed in the Table of Contents were not audited by us and we do not
express an opinion on these information
September 29 2006
3
A Professional Corporation
MANAGEMENT S DISCUSSION AND ANALYSIS
This is intended to provide an objective and easily readable analysis ofthe City of Cupertino s financial
performance for the year Please read it in conjunction with the accompanying Transmittal Letter and
Basic Financial Statements
FISCAL 2005 06 FINANCIAL HIGHLIGHTS
Financial highlights ofthe year include the following
The City s total net assets increased 3 5 million during fiscal 2005 06 At June 30 2006 net assets
totaled 125 1 million
Total City revenues including program and general revenues were 49 3 million while total
expenses were 45 8 million in fiscal 2005 06
Net assets in Governmental funds were 118 3 million while net assets in business activities were
6 8 million
Governmental program revenues were 140 million compared with 8 1 million in 2004 05
Governmental expenses were 38 6 million in 2005 06 compared with 344 million in the prior
year
Revenues from Business type activities were 8 2 million in current year compared with 7 8 million
in the prior year
Expenses of Business type activities were 7 2 million in current year compared with 7 8 million in
the prior year
General Fund revenues of 35 3 million represented an increase of 34million from the prior year
General Fund expenditures increased from 24 8 to 27 6 million in 2005 06
Actual expenditures in the General Fund were 3 million less than the final 2005 06 budget primarily
because of budget savings in Law Enforcement Administrative Services and Public Works
Unreserved General Fund balance of 23 9 million at June 30 2006 surpassed the last budgeted fund
balance of 149 million
OVERVIEW OF THE FINANCIAL STATEMENTS
The Basic Financial Statements comprise the City wide Financial Statements and the Fund Financial
Statements these two sets of financial statements provide two different views of the City s financial
activities and financial position
The City Wide Financial Statements provide a longer term view of the City s activities as a whole and
comprise the Statement of Net Assets and the Statement of Activities These statements are prepared on
the accrual basis which means they measure the flow ofall economic resources of the City as a whole
The accrual basis of accounting is similar to the accounting used by most private sector companies The
Statement of Net Assets provides information about the financial position of the City as a whole
including all its capital assets and long term liabilities The Statement of Activities provides information
about all the City s revenues and all its expenses also on the full accrual basis with the emphasis on
measuring net revenues or expenses for each ofthe City s programs The Statement of Activities explains
in detail the change in Net Assets for the year Over time increases or decreases in net assets can be
indicators of whether the financial condition ofthe City is improving or deteriorating
All of the City s activities presented are grouped into Governmental activities and Business type
activities as explained below All the amounts in the Statement of Net Assets and the Statement of
Activities are separated in order to provide a summary of these two types of activities for the City as a
whole
Governmental activities Most of the City s basic services are considered to be governmental
activities including general government community development public safety public works
culture recreation public improvements planning and zoning and general administration services
5
These services are supported by general City revenues such as property sales and other taxes and by
specific program revenues such as developer fees and grants
The City s governmental activities include the activities of a separate legal entity the Cupertino
Redevelopment Agency because the City is considered to be financially accountable for the Agency
The Cupertino Public Facilities Corporation from which the City leases its major facilities through
the payment of long term debt is also included as a component unit
Business type activities All the City s enterprise activities are reported here including solid waste
collection and disposal and the recreational operations of each of the City s various community
facilities Unlike governmental services these services are supported by charges paid by users based
on the amount of the service they use
The Fund Financial Statements report the City s operations in more detail than the government wide
statements and focus primarily on the short term activities of the City s General Fund and other Major
Funds The Fund Financial Statements measure only current revenues and expenditures and fund
balances they exclude capital assets long term debt and other long term amounts Because these
statements focus on the near term inflows and outflows of spendable resources such information may be
useful in evaluating near term financing requirements
The Fund Financial Statements provide detailed information about each of the City s most significant
funds called Major Funds Cupertino s Fund Financial Statements include governmental enterprise and
internal service funds as discussed below The concept of major funds and the determination of which
are major funds was established by GASB Statement 34 and replaces the concept of combining like
funds and presenting them in total Instead each Major Fund is presented individually with all Non
major Funds summarized and presented only in a single column Subordinate schedules which follow
the Notes to the Financial Statements present the detail of these Non major funds Major Funds present
the major activities of the City for the year and may change from year to year as a result of changes in the
pattern of City s activities and public interest For example the Capital Improvement Projects Fund may
or may not appear as a Major Fund depending on the volume ofconstruction activity in a certain year
Governmental Fund Financial Statements are prepared on the modified accrual basis which means they
measure only current financial resources and uses They present essentially the same functions reported
as governmental activities in the government wide financial statements However capital assets and
other long lived assets along with long term liabilities are not presented in the Governmental Fund
Financial Statements Reconciliations are provided to facilitate a comparison between governmental
funds and governmental activities statements to allow a better understanding of the long term impact of
the government s near term financial decisions
Enterprise and Internal Service Fund financial statements are prepared on the full accrual basis as in
the past and include all their assets and liabilities current and long term Enterprise funds are used to
report the same functions presented as business type activities in the government wide financial
statements and in more detail in the fund financial statements
Since the City s Internal Service Funds provide goods and services only to the City s governmental and
business type activities their activities are reported only in total at the Fund level Internal Service Funds
may not be Major Funds because their revenues are derived from other City Funds These revenues are
eliminated in the City wide financial statements and any related profits or losses are returned to the
activities which created them along with any residual net assets of the Internal Service Funds For the
City of Cupertino the internal service activities predominantly benefit governmental rather than business
type functions and are therefore included within governmental activities in the government wide
financial statements
Comparisons of budget and actual financial information are required in the Major Governmental Fund
Financial Statements only for the General Fund and other Major funds that are Special Revenue Funds
6
Since none of the City s Special Revenue funds are considered Major funds for financial statement
purposes budgetary comparison statements for these funds are included in this document as supplemental
statements only
Fiduciary Fund statements provide financial information about the activities of certain assessment
districts The City acts strictly as an agent for these districts holding amounts collected from property
owners which await transfer to the districts bond trustees The City s fiduciary activities are reported in
the separate Statement ofFiduciary Net Assets and the Agency Funds Statement of Changes in Assets
and Liabilities These activities are excluded from the City s other financial statements because the City
cannot use these assets to finance its own operations
The Notes to Basic Financial Statements provide additional detail that is essential to a full
understanding of the information provided in the government wide and fund financial statements
FINANCIAL ACTIVITIES OF THE CITY AS AWHOLE
This analysis focuses on the net assets and changes in net assets ofthe City s Governmental Activities
Tables 1 2 and 3 and Business Type Activities Tables 4 5 and 6 presented in the City wide Statement
ofNet Assets and Statement ofActivities that follow
Governmental Activities
Table 1
Governmental Net Assets at June 30
in Millions
Governmental Activities
2006 2005
Cash and investments 413 34 2
Other assets 6 0 5 6
Capital assets 1317 1436
Total assets 179 0 176 2
Long term debt outstanding 510 52 3
Other liabilities 8 9
Total liabilities 60 7 612
Net assets
Invested in capital assets net of debt 83 1 86 5
Restricted 8 3 7 3
Unrestricted 26 9
Total net assets lJ1B lJlSl
The City s net assets from governmental activities increased 3 3 million or 3 from the prior year This
increase is the Change in Net Assets reflected in the Statement of Activities as shown in Table 2 and is
explained below
Cash and investments increased 71 million mostly reflecting the 6 7 million Increase In
restricted and unrestricted net assets
7
Capital assets decreased 4 7 million 14 million of various capital assets were acquired or
completed and 1 7 million in mostly infrastructure was added to work in process Two Oak
Valley land parcels costing 12 million were sold and annual depreciation was 66 million
Payments on the 2002 certificates ofparticipation decreased long term debt by 13 million
Other liabilities increased 0 8 million due to a rise in accounts payable and development
application deposits
Capital assets net of related debt decreased 34 million representing the disposition and
depreciation ofcapital assets that were paid for by government revenues and reserves
Restricted net assets increased 1 million representing capital funds set aside for street and bridge
projects
Unrestricted net assets is the part of net assets that can be used to finance day to day operations
or reserved for certain purposes by the City Council without constraints established by debt
covenants or other legal requirements 26 9 million ofunrestricted net assets existed at June 30
2006 5 7 million higher than a year ago
Fiscal Year 200506 Governmental Activities
Sources of Revenues
Intergovernmental
7
Other
1 Charges for
Services
16
Operating
Contributions
Grants
8
Other Taxes
24
Capital Grants
Contributions
1
Property Tax
12
Sales Tax
26
8
As the Sources ofRevenue chart above shows sales tax is the largest category ofgovernmental revenue
representing just over one fourth ofreceipts Itwasthe largest growing sector rising 1 5 million or 16
over 2004 05 to 1 0 6 million this year due to phenomenal growth in the business to business and office
equipment sectors 9 8 million or 24 of the City s governmental 2005 06 revenues came from other
taxes the City s second largest source ofrevenue This category which was down 0 1 million from last
year represents transient occupancy hotel utility user park in lieu construction franchise and business
license taxes Charges for services at 6 5 million was the third leading revenue source at 16 rising
1 2 million or 22 over last year continuing the upswing in development approvals and building permit
fees that started in 2004 05
Functional Expense
Interest
6
Administration
4
Public
Works
42
Law
Enforcement
17
Public
Infonnation
2
Administrative
Services
11
Community
Development
12
The Functional Expense chart above includes only current year expenses which are discussed in detail
below It does not include capital outlays which are added directly to the City s capital assets as
opposed to being expensed
The Statement ofActivities presents program revenues expenses and general revenues in detail These
are all elements ofthe Changes in Governmental Net Assets summarized below
9
Table 2
Change in Governmental Net Assets
in Millions
Governmental Activities
2005 06 2004 05
4 9 4 3
10 7 92
9 8 9 9
3 16
2 9 23
7 7
2 0
L1 2
30 7 28 5
411 36 6
2 5 2 2
L1
3 16
Expenses
Administration
Law Enforcement
Public Information
Administrative Services
Recreation Services
Community Development
Public Warks
Interest on long term debt
Total expenses
13
6 6
9
42
24
45
146
2 3
38 6
Revenues
Program revenues
Charges for services
Operating contributions and grants
Capital grants and contributions
Total program revenues
6 5
34
2
140
General revenues
Taxes
Property taxes
Sales taxes
Other taxes
Motor vehicle in lieu
Intergovernmental unrestricted
Investment earnings
Miscellaneous
Gain on the sale ofland
Total general revenues
Total revenues
Excess of revenues over expenses before transfers
Transfers
Change in net assets
13
62
8
3 7
2 2
3
14 6
2 3
344
5 3
6
2
tl
Table 2 shows that total governmental revenues increased 4 5 million during fiscal 2005 06 driven by
the increases in sales tax 15 million and charges for services 12 million discussed previously
augmented by a net 11 million increase in Community Development Block Grants below market
housing contributions and gasoline taxes and 0 7 million more in the gain on the sale of Oak Valley
land
Total governmental spending increased by 42 million from fiscal 2004 05 With the improved revenue
picture the City addressed deferred maintenance of City facilities and streets by increasing public works
expenditures by 1 8 million Community Development expenses rose 1 2 million to handle the larger
volume ofdevelopment and building permit applications
10
The November 2005 election and higher insurance technology and depreciation costs caused
Administrative Service expenses to rise 0 5 million City s governmental revenues in excess of
expenditures climbed to 2 5 million at June 30 2006 an improvement from the 2 2 million positive
showing a year ago After 0 8 million in transfers from business type activities for reimbursement of
waste cleanup costs and debt payments on the 2002 debt issue overall net assets of governmental
activities increased 3 3 million during 2005 06 compared to 3 6 million during 2004 05
Table 3 presents the net cost of each of the City s programs Administration Law Enforcement Public
Information Administrative Services Recreation Services Community Development Public Works and
interest on long term debt Net cost is defined as total program cost less the revenues generated by those
specific activities it reflects the financial burden placed on the City s taxpayers by each function Net
revenue represents activities that generate revenues in excess of direct costs General taxpayers are not
supporting that function instead the net revenue generated covers administrative support provided by
other City functions
Table 3
Net Cost Revenue of Governmental Activities
in Millions
Net Cost Revenue
Of Activities
2005 06
Administration
Law Enforcement
Public Information
Administrative Services
Recreation Services
Community Development
Public Works
Interest on Long term Debt
Totals
13
5 7
9
4 2
2 1
2 0
13 7
2 3
28 2
2004 05
13
5 5
8
3 7
2 0
2 7
143
2 3
26 3
Administration comprises four percent of governmental expenses and includes activities of the
City Council City Manager and City Attorney Administrative Services which includes Finance
Human Resources Information Technology City Clerk Code Enforcemept and Emergency
Preparedness services accounts for 11 percent of all governmental service costs Net cost of
Administration was unchanged from prior year while comparable costs in Administrative
Services rose from 3 7 million to 4 2 million due to the Novem er 2005 election and higher
insurance expenses
The City s costs for Law Enforcement procured by contract with the Santa Clara County
Sheriffs Office were partially offset by 0 9 million in citations fines and grants Contract cost
increases caused the net cost of this activity to rise from 5 5 million to 5 7 million in 2005 06
Public Works expenses include Transportation Engineering Environmental Programs and the
maintenance and improvement of the City s streets grounds and facilities Offsetting revenues
include state grants gasoline taxes environmental fees facility rental damage restitutions and
storm drain fees totaling 2 6 million leaving 13 7 million as the 2005 06 net cost of public
works
Community Development programs include Planning Building and Housing Services Net
revenues of community development activities dropped from 2 7 million last year to 2 0
million this year because park in lieu taxes were considered as general rather than specific
11
program revenue this year Net revenues went toward covering development support services
provided by Administration Administrative Services and facilities maintenance
Much of the City s Park and Recreation programs are reported as business type activities for
which fees are charged to recover the costs ofthe programs However many community events
programs and services are available to the public free of charge The costs of administering these
general governmental activities are partially offset by facility rental fees which amounted to
0 2 million in fiscal year 2005 06 the same as last year
Interest on the long term debt that was re financed in 2002 was flat at 2 3 million
Business Type Activities
Business type activities in the City wide Financial Statements include the City s enterprise funds
Enterprise funds are used to account for operations that are financed and operated in a manner similar to
private business enterprise where the intent is that the costs of providing goods or services to the general
public on a continuing basis be financed or recovered primarily through user charges
Business type net assets totaled 6 8 million at June 30 2006 an increase of 0 2 million from the prior
year Cash investments rose 04 million while repayment of the Library furniture and fixtures
advance to the General Fund caused other current assets to decline 0 2 million Program revenues were
8 million this year a 4 increase of 04 million over last year while general revenues were flat at 0 2
million this year Expenses were 7 2 million in 2005 06 down 0 6 million or 9 from the prior year
Revenues over expenses before transfers were 1 million in 2005 06 as opposed to being zero in the
previous year Transfers to governmental activities declined to 0 8 million from 14 million because
2004 05 included a transfer to the Stevens Creek Corridor Park capital project fund Individual enterprise
funds comprising this performance are discussed in the Enterprise Funds portion of this analysis
Table 4
Business Type Net Assets at June 30
in Millions
Business TyPe Activities
2006 2005
Current liabilities
Total liabilities
7 2 6 8
0 6 0 8
0 5 0 6
8 3 8 2
12 LQ
15 16
0 5 0 6
6 3 6 0
6ft 6Ji
Cash and investments
Other current assets
Capital assets
Total assets
Net assets
Invested in capital assets
Unrestricted
Total net assets
12
Table 5
Change in Business Type Net Assets
in Millions
Business Type Activities
2005 06 2004 05
7 8 7 6
8 0 7 6
8 2 7 8
10 J
LID Wl
L2 Ll4
Expenses
Resource Recovery
Blackberry Farm
Sports Center
Recreation Programs
Senior Center
Total expenses
2 1
13
15
17
7 2
Revenues
Program revenues
Charges for services
Operating contributions and grants
Total program revenues
General revenues
Investment income
Total revenues
Excess of revenues over expenses before transfers
Transfers out
Change in net assets
2 9
13
15
17
4
7 8
Resource Recovery improved dramatically from a net cost of 503 thousand to a net revenue of 237
thousand because 2004 05 included the implementation ofa weekly recycling program which involved a
12 million purchase of new recycling containers Senior Center net revenue improved almost three fold
because 51 thousand of prior year travel program deposits were recognized as revenue this year
Table 6
Net Cost Revenue ofBusiness Type Activities
in thousands
Net Cost Revenue
OfActivities
2005 06 2004 05
Resource Recovery
Blackberry Farm
Cupertino Sports Center
Recreation Programs
Senior Center
237
147
28
602
LllQ
Total Business type Activities 780
13
503
122
67
478
Jm
179
THE CITY S FUND FINANCIAL STATEMENTS
Governmental Funds
At June 30 2006 the City s governmental funds reported combined fund balances of 36 8 million
which is an increase of 6 6 million or 22 compared with the prior year Robust permit charges for
services and tax revenues plus a one time sale of land combined with measured operating expenditure
growth caused the General Fund balance to increase by 4 6 million Non major fund balances increased
2 7 million led by a 1million increase in capital set asides for street and traffic improvements and a
14 million increase because of the movement of below market rate housing monies from the General
Fund to special revenue funds
The table below presents governmental fund revenues by source and the related changes for the prior
year Governmental fund revenues rose 3 8 million or 10 7 this year to a new total of 39 8 million
2 0 million of the increase came from taxes consisting of a 2 6 million increase in all General Fund tax
categories a 0 3 million increase in housing mitigation taxes and a 1 million decrease in park in lieu
taxes Booming residential and commercial development caused license permit and charges for services
receipts to climb 1 3 million over last year Rising interest rates on top of the higher cash balances
resulting from the better revenue picture caused use of money earnings to increase by 0 5 million
Community Development Block Grant receipts of 04 million for the LeBeaulieu affordable housing
project offset lower motor vehicle license fee revenues and caused intergovernmental revenues to increase
overall by 0 3 million Other revenues declined 0 3 million due to state grant dollars for street projects
being reported as intergovernmental revenue this year and because of lower donations received for the
library s furniture fixtures and equipment fund raising campaign
Table 7
Revenues Classified by Source
Governmental Fund Types 2005 06
in thousands
Increase Decrease
From previous year
Revenues by Source Amount ofTotal Amount Percent
Taxes 25 616 64 5 2 001 8 5
Use of Money Property 1 608 4 0 489 43 7
Intergovernmental 5 896 14 8 329 5 9
Licenses and Permits 3 615 9 1 719 24 8
Charges for Services 2 144 54 575 36 6
Fines and Forfeitures 630 16 70 12 5
Other Revenue 245 348 58 7
Total Revenues 39 754 100 0 3 835 10 7
Other Financing Sources
Proceeds from Land Sale 2 423 100 0 1 223 1019
Governmental fund expenditures in Table 8 decreased 4 1 million this year to 36 2 million primarily
from 7 3 million in fewer capital outlays due to the completion of the library and civic center projects
last year Community Development costs rose 1 3 million or 41 5 because ofthe boom in building
permits and plan checks and because of expenditures on the LeBeaulieu housing project Public Works
spending increased 0 7 million to address the deferred maintenance backlog Administrative Services
rose 04 million or 11 8 due to higher election and insurance costs while Public Information payments
grew by 12 5 because of increased media coverage of government meetings and events Law
Enforcement increased 04 million in accordance with the County Sheriffs cost of living and
compensation contract provisions
14
Table 8
Expenditures Classified by Major Service Area
Governmental Fund Types 2005 06
in thousands
Increase Decrease
from previous year
Expenditures by Service Area Amount of Total Amount Percent
Administration 1 236 34 74 64
Law Enforcement 6 500 18 0 355 5 8
Public Information 853 24 95 12 5
Administrative Services 4 103 113 432 11 8
Recreation Services 2 303 64 182 8 6
Community Development 4 468 142 1 311 41 5
Public Works 10 386 28 6 749 7 8
Capital Outlay 2 772 7 7 7 254 742
Debt Service
Principal 1 270 3 5 25 2 0
Interest 2263 ill2 11
Total 13564 100 0 4 058 UQJ1
Proprietary Funds
Proprietary funds include the City s enterprise and internal service funds Every enterprise fund is
considered a major proprietary fund in the Fund Financial Statements Enterprise activities comprise the
City s business type activities and as a whole are discussed in the business type activities section of this
analysis
Internal Service Funds are used to account for the financing of services provided by one department or
agency to other departments or agencies of the City on a cost reimbursement basis Because the services
are provided primarily to the general government these operations are reported as part of government
activities in the City wide Financial Statements In essence any income or losses that are related to an
internal service fund activity represent an adjustment of the expenses recorded by the various
governmental functions The following table shows actual revenues expenses including depreciation
and results of operations for the fiscal year ended June 30 2006
Table 9
Revenues Expenses and Changes in Net Assets
Internal Service Funds 2005 06
in thousands
Operating Operating Operating Incr Decr
Fund Revenues Expenses Income fLoss Net Assets
Management Information Systems 717 882 165 86
Workers Compensation 339 461 122 86
Equipment Revolving 856 859 3 11
Long Term Disability 4l 1
Totals 1 954 2 243 289 12
15
The Management Information Systems fund is financing the City s e Services initiative A 220 thousand
transfer from the General Fund offsets the MIS fund s 165 thousand operating loss and maintains
unrestricted net assets at 11 million Workers Compensation fund liability for future and current claims
was increased to 13 million which left unrestricted net assets at 70 thousand The Equipment
Revolving fund carried 1 6 million in unrestricted net assets for future replacement of existing
equipment
Major Governmental Funds
General Fund
Revenues
General Fund revenues increased 34 million or 11 to 35 3 million this fiscal year Growth in taxes
charges for services and licenses and permits overcame a decline in intergovernmental revenues Actual
revenues exceeded the final amended budget by 2 1 million or 6 The final budget was 2 7 million or
9 over the original adopted budget
The revenue growth was spearheaded by taxes which came in 7 or 16 million over the final budget
and 12 or 2 6 million over last year
Property taxes ended the year at 4 7 million rising 12 or 0 5 million over last year s result 14 or
0 6 million over the original budget and 3 or 0 1 million higher over the final budget All increases
reflect rising property assessments from the last stages ofthe strong local real estate market
Sales taxes of 10 7 million jumped 15 million or 16 higher than last year 15 million or 17 over
the original budget and 1 million or 11 over the final budget as the business to business office and
electronic equipment sectors accelerated its recent robust growth led by sales increases by the City s
largest tax provider
Transient occupancy or hotel taxes of 2 1 million met final budget expectations by rising 0 3 million
and 15 over last year as the Silicon Valley business expansion led to increased commercial travel into
the region The original budget had expected these taxes to be relatively flat compared to last year
Franchise utility user construction business license property transfer and other taxes of 7million rose
0 6 million over final budget and 0 5 million over last year The increase was spread over all
categories but in particular new structures at Valleo Shopping Center the commencement of the Adobe
Terrace mixed use project and other housing and commercial building activity caused construction tax
receipts to double over last year
Licenses and permits rose from 2 9 million in 2004 05 to 3 6 million in 2005 06 It exceeded final and
original budget expectations by 0 2 million and 0 8 million respectively Charges for services
increased from 1 2 million last year to 1 8 million this year and surpassed original budget projections
by 0 5 million The boom in commercial and residential building activity caused permit inspection
zoning planning and engineering review revenues reflected in these categories to jump
Intergovernmental revenues decreased from 4 3 million to 3 6 million this year because last year s
result included a repayment ofMotor Vehicle In Lieu Fees VLF that the State had borrowed in 2003 04
Final budget and actual receipts were 0 6 million over the original projections because of the increased
amount of property taxes received in exchange for the new lower VLF fee rate
Use ofmoney and property wasrelatively unchanged from last year
16
In the one time revenue category proceeds from the sale of two Oak Valley parcels for 24 million in the
current year was double the 1 2 million received for one parcel in the Valley last year
Transfers into the General Fund decreased 1 million from the prior year to a current year amount of 14
million due to lower park in lieu fee receipts
Expenditures
Fiscal 2005 06 overall expenditures at 27 6 million were 2 8 million or 11 higher than last year s
total of 24 8 million However this result came in 10 or 3 million under the final budget and 5 or
14 million under the original budget
Current year law enforcement costs of 6 5 million was under the final budget by 0 7 million or 9 due
to the lower usage of general law enforcement service and emergency calls patrol and investigations
However it exceeded past year expenditures by 6 or 04 million due to consumer price index and
compensation escalators built into the sheriff contract
Administrative services outlays grew from 3 7 million in 2004 05 to 4 1 million in 2005 06 due to the
bi annual council election and special initiative vote and due to increases in insurance accounting and
general administration However the result was still 0 9 million under final budget because spending in
disaster preparedness postage insurance claims and litigation came out lower than anticipated The
original budget had been augmented with budget carryovers from 2004 05 to address higher claims and
litigation costs
Public works expenditures of 8 9 million were 0 9 million under final budget due to traffic control and
study contingencies that were not needed and because of a vacancy in traffic engineering It was 0 9
million over the prior year due to the addressing of street facility and park maintenance that had been
deferred in the past years The final budget of 9 8 million was 0 3 million over the adopted budget
mostly due to contract carryovers
High development planning and building activity in the City caused community development costs to
climb significantly from 2 8 million last year to 3 6 million this year The 2005 06 budget for this
function rose from 3 3 million to 3 9 million in order to service the growing caseload of planning and
building applications The increase in the issuance ofdevelopment approvals and building permits caused
revenues in these areas to go up accordingly
Transfers out of the General Fund increased from 5 2 million in 2004 05 to 7 million in 2005 06 to
fund the Mary Ave Bicycle Footbridge capital project and to move the City s below market rate program
money to a separate special revenue fund
Table 10
General Fund Budget and Actual Comparison 2005 06
in millions
Budgeted Amounts
Original Final Actual Variance
Revenues amount available for appropriation
Expenditures of appropriations
Proceeds from sale ofland
30 5
29 0
15
323
30 6
24
35 3
27 6
24
2 1
3 0
Increase decrease in fund balance
lDJ Q2 Q2
4 6 5 1
Net transfers out to other funds
17
Fund Balance
At June 30 2006 the General Fund reported a combined ending fund balance of 26 8 million up 4 6
million from the prior year The City Council designated 23 8 million of this amount for l long term
actuarial liabilities of the City s retiree medical program 2 fluctuations in the City s CalPERS
retirement funding rates 3 a buffer in times of future economic uncertainty 4 operating contingencies
and emergencies and 5 specific budget carryovers for expenditures in 2006 07 2 9 million was
reserved for loans purchase order commitments advances to other funds affordable housing and public
access television programming 0 1 million represented the unreserved undesignated balance
Public Facilities Corporation
This fund accounts for the payments of principal and interest on the 2002 certificates of participation
COPs the refinanced the long term debt that funded many of the City s major parks and facilities As in
the previous year General Fund transfers into the fund cover the debt service payments of 3 5 million
Mary Avenue Bicycle Footbridge
This fund accounts for the design and construction of a pedestrian and bicycle bridge over Interstate 280
at the end ofMary Avenue The 10 million project was formerly within Other Governmental Funds but
because of significant grading and design work this year the higher capital outlays of 14 million caused
the project to become a major fund in 2005 06
Other Governmental Funds
Non major funds are not presented separately in the Basic Financial statements but are individually
presented as Supplemental Information They include all the City s Special Revenue and Capital Project
funds which account for revenue sources that are legally restricted to expenditure for specific purposes
such as streets and roads parks housing storm drainage and the Redevelopment Agency As for
significant activity street and road expenditures of the Transportation fund this year was 15 million
leaving an ending fund balance of 3 7 million that was earmarked for pavement management traffic
projects and repairs of curbs gutters and sidewalks
Enterprise Funds
Resources Recovery
Contractual service costs declined 1 million from last year because of prior year expenses to implement
a weekly recycling pickup service Other revenues increased 0 1 million because of a Bay Area Air
Quality Management District grant Operating income improved to 0 2 million compared to a 0 5
million loss the previous year With interest earnings and the second of four half million dollar annual
reimbursements to the General Fund for past waste cleanup costs fronted by the Fund the overall
unrestricted net assets ofthe Recovery fund remained relatively unchanged at 5 6 million
Blackberry Farm
Blackberry Farm s operating revenues of 1 2 million operating expenses of 1 3 million and operating
loss of 0 1 million weresimilar to 2004 05 results Net assets ofthis fund decreased 0 1 million to end
the current year at 04 million with 0 5 million ofthis invested in capital assets leaving a 0 1 million
unrestricted net asset deficit
18
The Farm s picnic and food operations closed in September 2006 to pave the way for the Stevens Creek
Corridor Park capital project that will vastly improve the Farm s picnic and recreational facilities
Unrestricted net assets in the previous year were used to provide funding for the capital project
Cupertino Sports Center
Operating revenues and expenses of 14 million for 2005 06 were flat compared to last year A 01
million transfer in 2005 06 to the General Fund impacted this break even operating margin and caused a
0 1 million decrease in net assets during the year The transfer was a contribution to help the General
Fund pay the debt service on the certificates of participation COP issued to help acquire and improve
recreational facilities and parkland Net assets were 01 million at June 30 2006 with most of it
unrestricted
Recreation Programs
Charges for services increased 8 or 0 2 million over the prior year while operating expenses were
steady A robust offering and enrollment of cultural youth classes and sports programs contributed to the
revenue improvement Operating income before transfers improved 0 1 million or 26 over last year
ending up at 0 6 million for 2005 06 Despite the transfer out of 0 2 million for COP debt service the
fund ended up with an increase in net assets of 04 million leaving an ending unrestricted net asset
balance of 0 5 million
Senior Center
Revenues ballooned to 0 7 million a 0 2 million or 49 increase from 2004 05 The aggressive
expansion of the travel program has resulted in increased trip bookings in the last few years and a review
of the program resulted in a large one time revenue recognition of reservation deposits received in prior
years Expenses jumped 24 or 0 2 million to 0 6 million in 2005 06 to pay for the additional trips
The one time revenue recognition caused an operating income of 0 1 million compared to a break even
result last year Net assets increased by this same amount leaving a 0 1 million unrestricted balance in
the fund at year end
CAPITAL ASSETS
At June 30 2006 the City had 132 2 million net of depreciation invested in a broad range of capital
assets used in governmental and business type activities as shown in the table on the following page
further detail may be found in Note 5 to the Basic Financial Statements
19
Table 11
Capital Assets Net of Depreciation at June 30
in Millions
Total Business type Activities
2006 2005
59 0 60 2
2 0 3
30 5 31 8
7 8 9 0
1 15
20 8 22 5
8 8 94
Ll L1
1317 1436
4 4
1 2
l5 0 6
132 2 137 0
Governmental Activities
Land
Construction in progress
Buildings
Improvements other than buildings
Machinery and equipment
Roads curbs gutters sidewalks medians and bridges
Storm drain structures and mains
Traffic signals
Total Governmental Activities
Business type Activities
Land
Improvements other than buildings
Machinery equipment
Total City
The two Oak Valley land parcels sold for 24 million this year had a cost of 1 2 million removed from
the capital asset list 14 million of various other capital assets were acquired or completed and 17
million in mostly infrastructure was in the process ofbeing built Depreciation was 6 6 million for the
year
DEBT ADMINISTRATION
The City s debt issues are discussed in detail in Note 6 to the Basic Financial Statements Unchanged
from last year except for scheduled debt service payments the City s debt comprise Certificates of
Participation COPs issued by the Cupertino Public Facilities Corporation and is serviced by the City
through lease payments to the corporation The outstanding principal at June 30 2006 is 51 million
At June 30 2006 a total of 0 1 million in special assessment district debt was outstanding issued by one
special assessment district This debt is secured by a traffic impact fee charged as a special assessment
on the real property in the district issuing the debt and is not the City s responsibility The City acts
solely as the District s agent in the collection and remittance of the assessment
ECONOMIC OUTLOOK AND MAJOR INITIATIVES
The impact ofthe economic environment and a description of the City s major initiatives for the coming
year are discussed in detail in the accompanying Transmittal Letter
CONTACTING THE CITY S FINANCIAL MANAGEMENT
This Comprehensive Annual Financial Report is intended to provide citizens taxpayers investors and
creditors with a general overview of the City s finances Questions about this Report can be directed to
the Finance Department at City Hall 10300 Torre Avenue Cupertino CA 95014 408 777 3220
20
CITY OF CUPERTINO
STATEMENT OF NET ASSETS AND
STATEMENT OF ACTIVITIES
The Statement of Net Assets and the Statement of Activities summarize the entire City s financial activities
and financial position They are prepared on the same basis as is used by most businesses which means
they include all the City s assets and all its liabilities as well as all its revenues and expenses This is
known as the full accrual basis the effect of all the City s transactions is taken into account regardless of
whether or when cash changes hands but all material internal transactions between City funds have been
eliminated
The Statement of Net Assets reports the difference between the City s total assets and the City s total
liabilities including all the City s capital assets and all its long term debt The Statement of Net Assets
presents similar information to the old balance sheet format but presents it in a way that focuses the reader
on the composition of the City s net assets by subtracting total liabilities from total assets
The Statement ofNet Assets summarizes the financial position of all the City s Governmental Activities in a
single column and the financial position ofall the City s Business Type Activities in a single column these
columns are followed by a Total column which presents the financial position ofthe entire City
The City s Governmental Activities include the activities of its General Fund along with all its Special
Revenue Capital Projects and Debt Service Funds Since the City s Internal Service Funds service these
Funds their activities are consolidated with Governmental Activities after eliminating inter fund
transactions and balances The City s Business Type Activities include all its Enterprise Fund activities
The Statement ofActivities reports increases and decreases in the City s net assets It is also prepared on the
full accrual basis which means it includes all the City s revenues and all its expenses regardless ofwhen
cash changes hands This differs from the modified accrual basis used in the Fund financial statements
which reflect only current assets current liabilities available revenues and measurable expenditures
The format ofthe Statement of Activities presents the City s expenses first listed by program and follows
these with the expenses of its business type activities Program revenues that is revenues which are
generated directly by these programs are then deducted from program expenses to arrive at the net expense
of each governmental and business type program The City s general revenues are then listed in the
Governmental Activities or Business type Activities column as appropriate and the Change in Net Assets
is computed and reconciled with the Statement ofNet Assets
Both these Statements include the financial activities of the City the Cupertino Redevelopment Agency and
the Cupertino Public Facilities Corporation which are legally separate but are component units of the City
because they are controlled by the City which is financially accountable for their activities
21
CITY OF CUPERTINO
STATEMENT OF NET ASSETS
JUNE 30 2006
Governmental Business Type
Activities Activities Total
ASSETS
Cash and investments Note 2 38 909 564 7 164 648 46 074 212
Cash and investments with fiscal agents Note2 2 40 I 369 2 401 369
Receivables
Accounts 2 520 097 464 388 2 49845
Loans Note 3 2 431 334 2 43I 334
Prepaid expenses and other assets 447 793 188 476 636 269
Land held for housing development Note 1 t 615 000 615 000
Internal balances Note 4 22 092 22 092
Capital assets
Non depreciable 61 035 969 389 929 61 425 898
Depreciable net accumulated depreciation 70 662 541 107 752 70 770 293
Total Assets 179 001 575 8 337 285 187 338 860
LIABILITIES
Accounts payable and accruals 4 380 609 265 692 4 63406 I
Accrued payroll and benefits 248 978 39 469 288 447
Deposits 1 402 058 168 689 1 570 747
Unearned revenue 77 941 924 186 1 002 127
Compensated absences Note I h
Due in one year 161 555 78 172 239 727
Due in more than one year 2 I 09 205 71 957 2 181 162
Claims payable Note 9
Due in one year 170 000 170 000
Due in more than one year I I 05 000 I 105 000
Long term debt Note 6
Due in one year
1 295 000 1 295 000
Due in more than one year 49 740 000 49 740 000
Total Liabilities 60 690 346 1 548 165 62 238 511
NET ASSETS Note 7
Invested in capital assets net of related debt 83 064 879 497 681 83 562 560
Restricted for
Special revenue projects 7 473979 7 437 799
Affordable housing 85 844 85 844
Public access television 753 715 753 715
Debt service 52 313 52 313
Total Restricted Net Assets 8 329 671 8 329 671
Unrestricted 26 916 679 6 291 439 33 208 118
Total Net Assets 118 3 II 229 6 789 120 1125 00 349
See accompanying notes to financial statements
22
CITY OF CUPERTINO
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30 2006
Net Expense Revenue and
Program Revenues Changes in NetAssets
Operating Capital
Charges for Grants and Grants and Governmental Business type
FunctionsfPrograms Expenses Services Contributions Contributions Activities Activities Total
Governmental Activities
Administration 1 354 543 22031 54 309 1 277 033 1 277 033
Law enforcement 6 577 199 722 164 150 413 5 704 622 5 704 622
Public information 914 024 914 024 914 024
Administrative services 4 208 389 4 208 389 4 230889
Recreation services 2 359 966 240 074 2 119 892 2 119 892
Community development 4 541 965 5 286 336 1 299 982 2 044 353 2 044 353
Public works 16 384 026 201 250 1 899 058 522 950 13 760 768 13 760 768
Interest on long tenn debt 2 262 913 2 262 913 2 262 913
Total Governmental Activities 38 603 025 6 473 025 3 403 762 522 950 28 203 288 28 203 288
Business type Activities
Resource recovery 2 10 1 198 2 203 127 135 539 237 468 237 468
Blackberry fann 1 302 855 1 155 986 146 869 146 869
Cupertino sports center 1 448 048 1 419 672 28 376 32786
Recreation programs 1 729 194 2 340319 602 215 602 215
Senior center 588 818 704 390 115 572 115 572
Total Business type Activities 7 170 113 7 814 584 15359 780 010 780 0I0
Total 45 773 138 14 287 609 3 53309 I 522 950 28 203 288 780 0I0 27 423 278
General revenues
Taxes
Property taxes
Incremental property tax
Sales taxes
Other taxes
Motor vehicle in lieu
Intergovernmental unrestricted
Investment earnings
Miscellaneous
Gain on the sale of land
Transfers Note 4
Total general revenues and transfers
4 728 811 4 728 811
185 676 185 676
10 671 642 10 671 642
9752 459 9 752 459
318 557 318 557
2 950 704 2 950 704
669 820 201 159 870 979
189 262 189 262
1 222 849 1 222 849
800 000 800 000
31 489 780 598 841 30 890 939
3 286 492 181 169 3 467 661
115 024 737 6 607 951 121 632 688
118 3 II 229 6 789 120 125 100 349
Change in Net Assets
Net Assets Beginning
Net Assets Ending
See accompanying nutes to financial statements
23
FUND FINANCIAL STATEMENTS
In the Fund Financial Statements only individual major funds are presented while non major funds are
combined in a single column Major funds are defined generally as having significant activities or balances
ih the current year
The funds described below were determined to be Major Funds by the City for fiscal 2006 Individual
non major funds may be found in the Supplemental section
GENERAL FUND
The general fund is the general operating fund of the City It is used to account for all financial resources
except those that are required to be accounted for in another fund
PUBLIC FACILITIES CORPORATION DEBT SERVICE FUND
This fund accounts for the payments of principal and interest on certificates of participation issued to
provide for the financing of the Civic Center Library Wilson Park and Memorial Park and other City
facilities through the issuance ofcertificates of participation
MARY AVENUE BICYCLEFOOTBRIDGE CAPITAL PROJECT FUND
This fund accounts for design and construction of a bicycle footbridge extension of Mary Avenue over
Interstate 280 It includes gateways paths residential buffering elements and landscaping
24
CITY OF CUPERTINO
GOVERNMENTAL FUNDS
BALANCE SHEET
JUNE 30 2006
Public Mary Avenue Other Total
Facilities Bicycle Governmental Governmental
General Corporation Footbridge Funds Funds
ASSETS
Cash and investments Note 2 25 355 171 50 704 9 30313 34 709 206
Cash and investments with fiscal agents Note 2 11 504 2389 865 240 I 369
Recei vab I es
Accounts 1 879 819 640 278 2 520 097
Loans Note 3 4197 85 I 49383 4231 334
Prepaid items 124 382 124 382
Land held for housing development Note It 615 000 615 000
Due from other funds Note 4 781 145 781 145
Advance to other funds Note 4 258 712 258 712
Other assets 3 884 300 000 303 884
Total Assets 29 912 468 2 440 569 11 792 092 44 145 129
LIABILITIES
Accounts payable and accruals 1 396 665 2 388 256 568 906 4 353 827
Accrued payroll and benefits 223 600 3 047 236 647
Deposits 1402 058 1 402 058
Due to other funds Note 4 781 145 781 145
Advance from other funds Note 4 22 092 258 712 280 804
Deferred revenue 47309 256 032 326 471
Total Liabilities 3 114 854 2 388 256 781 145 1 096 697 7 380 952
Fund balance Note 7
Reserved for
Encumbrances 296 386 46147 843 511 1 757 3 11
Debt service 532 13 52 313
Advances to other funds 258 712 271528
Prepaid items and other assets 124 382 400 000 524 382
Loans receivable 1 497 851 684 953 2 182 804
Land held for housing development 615 000 6 I 5 000
Low and moderate income housing 85 844 85 844
Capital projects
1 626 865 1 626 865
Public access television 71535 753 715
Unreserved reported in
General Fund 23 866 568 23 866 568
Special Revenue Funds 6 249 004 6249 004
Capital Project Funds 1398 559 190 2 I 8 1 208 341
TOTAL FUND BALANCES 26 797 614 532 13 781 145 10 3695 36 764 177
Total Liabilities and Fund Balances 29 491628 4240 569 11 792 092 44 145 129
See accompanying notes to financial statements
25
CITY OF CUPERTINO
Reconciliation of the
GOVERNMENT AL FUNDS BALANCE SHEET
with the
STATEMENT OF NET ASSETS
JUNE 30 2006
Total fund lJalances reported on the governmental funds balance sheet
Amounts reported for Governmental Activities in the Statement of Net Assets
are different from those reported in the Governmental Funds above because of the following
CAPITAL ASSETS
Capital assets used in Governmental Activities are not current assets or financial resources and
therefore are not reported in the Governmental Funds
ALLOCATION OF INTERNAL SERVICE FUND NET ASSETS
Internal service funds are not governmental funds However they are used by management to
charge the costs of certain activities such as insurance and central services and maintenance
to individual governmental funds The net current assets of the Internal Service Funds are therefore
included in Governmental Activities in the following line items in the Statement of Net Assets
Cash and investments
Prepaids
Capital assets net of accumulated depreciation
Accounts payable and accruals
Accrued payroll and benefits
Compensated absences
Claims payable
ACCRUAL OF NON CURRENT REVENUES AND EXPENSES
Revenues which are deferred on the Fund Balance Sheets because they are not available currently
are taken into revenue in the Statement of Activities
LONG TERM ASSETS AND LIABILITIES
The assets and liabilities below are not due and payable in the current period and therefore are not
reported in the Funds
Long term debt
Non current portion of compensated absences
NET ASSETS OF GOVERNMENTAL ACTIVITIES
See accompanying notes to financial statements
26
36 764 177
131 028 671
4 200 358
19 527
669 839
26 782
12 331
78 748
J 275 000
248 530
51 035 000
2 192 012
J 18 3II229
CITY OF CUPERTINO
GOVERNMENTAL FUNDS
STATEMENT OF REVENUES EXPENDITURES AND CHANGES IN FUND BALANCES
FOR THE YEAR ENDED JUNE 30 2006
Public Mary Avenue Other Total
Facilities Bicycle Governmental Governmental
General Corporation Footbridge Funds Funds
REVENUES
Taxes 24 420 110 1 196 443 25 616 553
Use of money and property 1 025 295 14 115 568 427 1 607 837
Intergovernmental 3 635 553 2 260 614 5 896 167
Licenses and permits 3 614 953 3 614 953
Charges for services 1 781 277 362 452 2 143 729
Fines and forfeitures 629 586 629 586
Other revenue 232 088 13 088 245 176
Total Revenues 35 338 862 14 115 440 1 024 39 754 001
EXPENDITURES
Current
Administration 1 236 390 1 236 390
Law enforcement 6 499 911 6 499 911
Public information 853 484 853 484
Administrative services 4 I 03 497 4 I 40937
Recreation services 2 302 995 2 302 995
Community development 3 463889 828 167 4 467 655
Public works 8 940 825 1 445 230 10 386 055
Capital outlay 1438 331 1 333 171 2 771 502
Debt service
Principal 1 270 000 1 270 000
Interest and fiscal charges 2 262 913 2 262 913
Total Expenditures 27 576 590 3 532 913 1 438 331 3 606 568 36 140524
EXCESS DEFICIENCY OF REVENUES
OVER EXPENDITURES 7 762 272 3 518 798 1 438 331 475946 3 599 599
OTHER FINANCING SOURCES USES
Proceeds from sale of land 2422 849 2 422 849
Transfers in Note 4 1 459 974 3 548 000 755 000 2 601 110 8 364 084
Transfers out Note 4 7 026 296 97 814 659 974 7 784 084
Total Other Financing Sources Uses 3 14473 3 548 000 657 186 1 941 136 3 002 849
NET CHANGE IN FUND BALANCES 4 618 799 29 202 78 I 145 2 735 592 6 460428
BEGINNING FUND BALANCES 22 178 815 23 III 7 959 803 30 161 729
ENDING FUND BALANCES 26 797 614 532 13 781 145 10 695 395 36 764 177
See accompanying notes to financial statements
27
CITY OF CUPERTINO
Reconciliation of the
NET CHANGE IN FUND BALANCES TOTAL GOVERNMENTAL FUNDS
with the
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30 2006
The schedule below reconciles the Net Changes in Fund Balances reported on the Governmental Funds Statement of
Revenues Expenditures and Changes in Fund Balance which measures only changes in current assets and current
liabilities on the modified accrual basis with the Change in Net Assets of Governmental Activities reported in the
Statement of Activities which is prepared on the full accrual basis
NET CHANGE IN FUND BALANCES TOTAL GOVERNMENTAL FUNDS 6 602 448
Amounts reported for governmental activities in the Statement of Activities
are different because of the following
CAPITAL ASSETS TRANSACTIONS
Governmental Funds report capital outlays as expenditures However
in the Statement of Activities the cost of those assets is capitali ed and allocated over
their estimated useful lives and reported as epreciation expense
The capital outlay expenditures are therefore added back to fund balance
Net of internal service fund additions of 129 266 2 765 529
Public works expenditures are added back to fund balance 169 382
Depreciation expense is deducted from the fund balance
Depreciation expense is net of Internal service fund depreciation
of 365 015 which has already been allocated to serviced funds 6204 585
RetIrement of Land 1 200 000
LONG TERM DEBT PROCEEDS AND PAYMENTS
Repayment of bond principal is an expenditure in the governmental funds but
in the Statement of Net Assets the repayment reduces long tenn liabilities
Repayment of debt principal is added back to fund balance 1 270 000
ACCRUAL OF NON CURRENT ITEMS
The amounts below included in the Statement of Activities do not provide or require the use of
current financial resources and therefore are not reported as revenue or expenditures in
governmental funds net change
Non current portion of compensated absences
Deferred revenue
110 902
17 868
ALLOCATION OF INTERNAL SERVICE FUND ACTIVITY
Internal Service Funds are used by management to charge the costs of certain activities
such as equipment acquisition maintenance and insurance to individual funds
The portion of the net revenue expense of these Internal Service Funds arising out
of their transactions with governmental funds is reported with governmental activities
because they service those activities
Change in Net Assets All Internal Service Funds 12 488
CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES 3 286 492
See accompanying notes to financial statements
28
CITY OF CUPERTINO
GENERAL FUND
STATEMENT OF REVENUES EXPENDITURES
AND CHANGES IN FUND BALANCE
BUDGET AND ACTUAL
FOR THE YEAR ENDED JUNE 30 2006
Budgeted Amounts
Variance with
Final Budget
Positive
Original Final Actual Amounts Negative
Revenues
Taxes 21 562 000 22 795 000 24 420 II0 1 625 10
Use of money and property 1 075 000 875 000 1 025 295 150 295
Intergovernmental 3 052 000 3 755 337 3 635 553 119 784
Licenses and pennits 2 800 000 3 370 000 3 614 953 244 953
Charges for services 1 285 000 1785 500 1 781 277 4 223
Fines and forfeitures 625 000 550 000 629 586 79 586
Other revenue 100 000 116 200 232 088 115 888
Amounts available for appropriation 43909 000 33 247 037 35 338 862 2 091 825
Charges for appropriation outflows
Administration 1 345 000 1 362 195 1 236 390 125 805
Law enforcement 6 969 000 7 13778 6 499 911 677 467
Public information 834 000 917 644 853 484 64 160
Administrative services 4 563 000 4 978 400 4 03 497 874 903
Recreation services 2 407 000 2 428 298 2 302 995 125 303
Community development 3 347 000 3 885 441 3 639 488 245 953
Public works 9 559 000 9 845 280 8 940 825 904 455
Total charges forappropriations 29 024 000 30 594 636 27 576 590 3 018 046
EXCESS DEFICIENCY OF REVENUES
OVER EXPENDITURES 1 475 000 2 64502 I 7 762 272 5 109 871
OTHER FINANCING SOURCES USES
Proceeds from sale of land 1 500 000 2 423 000 2 422 849 15 I
Transfers in 1 600 000 1 459 974 1459 974
Transfers out 5 118 000 7 026 296 7 026 296
Total other financing sources uses 2 018 000 3 143 322 3 143 473 IS I
NET CHANGE IN FUND BALANCE 543 000 490 921 4 618 799 5 109 720
BEGINNING FUND BALANCE 22 178 815
ENDlNG FUND BALANCE
26 797 614
See accompanying notes to financial statements
29
MAJOR PROPRIETARY FUNDS
Proprietary funds account for City operations financed and operated in a manner similar to a private
business enterprise The intent of the City is that the cost of providing goods and services be financed
primarily through user charges
The City has identified the funds below as major proprietary funds for fiscal 2006
RESOURCES RECOVERY FUND
This fund accounts for activity related to the collection and disposal of solid waste A private company has
been issued an exclusive franchise to perform these services
BLACKBERRY FARM FUND
This fund accounts for activities related to operating the picnic area and golf course
CUPERTINO SPORTS CENTER FUND
This fund accounts for the operation and maintenance ofthe Cupertino Sports Facility
RECREATION PROGRAMS FUND
This fund accounts for activities of the City s community center
SENIOR CENTER FUND
This fund accounts for the activities of the City s senior center
30
CITY OF CUPERTINO
PROPRIETARY FUNDS
STATEMENT OF NET ASSETS
JUNE 30 2006
Business type Activities Enterprise Funds Governmental
Cupertino Activities
Resources Blackberry Sports Recreation Senior Internal Service
Recovery Fann Center Programs Center Totals Funds
ASSETS
Current assets
Cash and investments Note 2 5 480 231 196 285 271 747 1 066 60 I 149 784 7 164 648 4 200 358
Accounts receivable 318 637 8 989 60 013 76 749 464 388
Prepaid expense
896 187 580 188 476 19 527
Advance to other funds Note 4 22 092 22 092
Total current assets 5 820 960 205 274 272 643 1 126 614 414 113 7 839 604 4 219 885
Capital assets Note 5
Non depreciable 389 929 389 929
Depreciable net of
accumulated depreciation 2 317 91 095 11 912 1 647 781 107 752 669 839
Total Assets 5 823 277 686 298 284 555 1 128 261 414 894 8 337 285 4 889 724
LIABILITIES
Current Liabilities
Accounts payable and accruals 151 729 63 920 27 004 21 191 1 848 265 692 26 782
Accrued payroll and benefits 2 364 14 583 4 655 15 714 2 153 43699 12 331
Compensated absences 78 172 78 172
Claims payable Note 9
170 000
Deposits 95 860 72 829 168 689
Deferred revenue
154 192 561 653 208 341 924 186
Total current liabilities 154 093 252 535 185 851 598 558 285 171 1 476 208 209 113
Non current Liabilities
Compensated absences Note I h 55 867 11 950 4 140 71 957 78 748
Claims payable Note 9
I I 05 000
Total Liabilities 209 960 264 485 185 851 598 558 289 311 1 548 165 1392 861
NET ASSETS Note 7
Invested in capital assets 2 317 481 024 11 912 1 647 781 497 681 669 839
Unrestricted 5 611 000 59 211 86 792 528 056 124 802 6 291 439 2 827 024
Total Net Assets 5 613 317 421 813 98 704 529 703 125 583 6 789 120 3496 863
See accompanying notes to financial statements
31
CITY OFCUPERTINO
PROPRIETARY FUNDS
STATEMENT OF REVENUE EXPENSES
AND CHANGES IN FUND NET ASSETS
FOR THE YEAR ENDED JUNE 30 2006
Business type Activities Enterprise Funds Governmental
Cupertino Activities
Resources Blackberry Sports Recreation Senior Internal Service
Recovery Fann Center Programs Center Totals Funds
OPERATING REVENUES
Charges for services 2 200 213 1 061 310 1368 007 2 331 409 704 390 7 665 329 1 952 673
Other 138 453 94 677 51 670 284 800 1 338
Total Operating Revenues 2 338 666 1 155 987 1 419 677 2 331 409 704 390 7 950 129 1 954 0 II
OPERATING EXPENSES
Salaries and benetits 164 216 576 029 229 541 490 584 131 694 1 592 064 721 503
Materials and supplies 53 451 234 687 202 513 152 496 444 606 1 087 753 413 009
Contractual services 1 883 320 419 622 1 010 041 1 082 549 10 955 4 406 487 30718
Insurance and claims
442 053
Depreciation 211 72 517 5 953 3 565 1 563 83 809 365 015
Total Operating Expenses 2 101 198 1 302 855 1 448 048 1 729 194 588 818 7 170 113 2 242 958
Operating Income Loss 237 468 146 868 28 371 602 215 115 572 780 016 288 947
NONOPERATING REVENUES EXPENSES
Interest income 159 601 4 389 6 421 26 882 3 860 201 153 112 667
Loss on capital asset disposal
31 232
Total Nonoperating Revenues Expenses 159 601 4 389 6 421 26 882 3 860 201 153 81 435
Income Loss Before Contributions and Transfers 397 069 142 479 21 950 629 097 119 432 981 169 207 512
Transfers in Note 4
220 000
Transfers out Note 4 500 000 100 000 200 000 800 000
Net transfers 500 000 100 000 200 000 800 000 220 000
Change in net assets 102 931 142 479 121 950 429 097 119 432 18 I 169 12 488
Net Assets Beginning 5 716 248 564 292 220 654 100 606 6 151 6 607 951 3 347845
Net Assets Ending 5 36137 421 813 98 704 529 703 125 583 6 789 120 3 496 863
See accompanying notes to financial statements
32
CITY OF CUPERTfNO
PROPRIETARY FUNDS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30 2006
Business type Activities Enterprise Funds
Governmental
Cupertino Activities
Resources Blackberry Sports Recreat ion Senior Internal Service
Recovery Fann Center Programs Center Totals Funds
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers 2345 623 1 I 53 457 1415 945 2 367 285 476 278 7 758 588 1 954 01 I
Cash payments to suppliers
for goods and services 1 947 871 648 25 1207 222 1 233 769 388 459 5 425 572 733 986
Cash payments to employees I 10 037 607 090 235 957 521 049 13 I 376 1 605 509 933 904
Net cash provided by operating activities 287 715 101 884 22374 461627 43 557 727 507 286 121
CASH FLOWS FROM NONCAPITAL
FINANCING ACTIVITIES
Advance to other funds 238 065 238 065
Transfers in 220 000
Transfers out 500 000 100 000 200 000 800 000
Cash Flows from Noncapital
Financing Activities 261 935 100 000 200 000 561 935 220 000
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Purchase of capital assets 2 528 2 528 129 266
Cash Flows from Capital and
Related Financing Activities 2 528 2 528 122669
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received 159 601 4 389 6 421 26 882 3 860 201 153 112 667
Cash Flows from Investing Activities 159 601 4389 6 421 26 882 3 860 201 I 53 112 667
Net Cash Flows 182 853 97 495 120 813 439 349 39 697 364 197 489 522
Cash and investments at beginning of year 5 297 378 293 780 392 560 627 252 189 481 6 800 45 I 3 710 836
Cash and investments at end of year 5480 23 I I 96 285 271 747 1 066 60 I 149 784 7 164 648 4 200 353
Reconciliation of operating income loss to
net cash provided by operating activities
Operating income loss 237 468 146 868 28 371 602 2I 5 115 572 780 016 288 947
Adjustments to reconcile operating income to
net cash provided by operating activities
Depreciation 211 72 S 17 5 953 3 565 1 563 83 809 365 015
Change in assets and liabilities
Accounts receivable 6 957 2 530 21 21 340 3 015 28 803
Prepaid expense 76 122 326 122 250 8 893
Accounts payable and accruals 11 100 26 706 5 256 1 276 1 848 23 986 6615
Accrued payroll and benefits 1 688 32 247 6 416 30 465 3 822 74 638 291 149
Deposits 20 648 7 407 28 055 78 748
DefelTed revenue 3 753 14 536 36 140 25 357 424 732
Compensated absences 55 867 1 186 4 140 61 193
Net cash provided by operating activities 287 715 10 I 884 27 234 612 467 43 557 727 507 286 121
See accompanying notes to financial statements
33
FIDUCIARY FUNDS
Fiduciary Funds include all agency funds that account for assets held by the City as an agent for
individuals private organizations other governmental units andor other funds
Agency Funds are custodial in nature and do not involve measurement of results of operations Such
funds have no equity since any assets are due to individuals or other entities at some future time
Special district assessments held by the City acting as an agent for bond debt service payments comprise
Agency funds The City is not liable for re payment ofthe bonds
34
ASSETS
CITY OF CUPERTINO
FIDUCIARY FUNDS
STATEMENT OF FIDUCIARY NET ASSETS
JUNE 30 2006
Cash and investments Note 2
LIABILITIES
Deposits
Total Assets
Total Liabilities
See accompanying notes to financial statements
35
Agency
Funds
236 049
236 049
236 049
236 049
CITY OF CUPERTINO CALIFORNIA
NOTES TOBASIC FINANCIAL STATEMENTS
For the Year Ended June 30 2006
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a Reporting Entitv
The City of Cupertino California the City was incorporated on October 3 1955 under
the laws ofthe State of California The City operates under a Council City Manager
form of government and provides services through the following departments
Administrative Services Community Development City Manager Parks and Recreation
Public Information and Public Works Engineering Fire services are provided by the
Santa Clara County Fire District and the City contracts with the Santa Clara County
Sheriff s Department for police services and with the Los Altos Garbage Company for
garbage and recycling services
The accompanying basic financial statements include all funds account groups and
boards and commissions that are controlled by the City Council The basic financial
statements include the City s blended component units entities for which the City is
considered to be financially accountable A blended component unit although a legally
separate entity is in substance part of the City s operations and so data from this unit is
combined with the City
Blended component units The Cupertino Public Facilities Corporation the
Corporation was incorporated in May 1986 under the Nonprofit Public Benefit
Corporation Law of the State of California The Corporation was organized as a
nonprofit corporation for the purpose of assisting the City in the acquisition
construction and financing of public improvements which are of public benefit to the
City The Corporation after acquiring certain properties from the City leases these back
to the City The lease money provides the funds for the debt service for the Certificates
of Participation issued by the Corporation to acquire the properties The Cupertino
Redevelopment Agency was formed in 2000 under the California Health Safety Code
to assist in the elimination ofareas considered to be in a blighted condition The City
Council acts as the Board of Directors of the Corporation and the Agency The Mayor
and Vice Mayor ofthe City have been elected President and Vice President respectively
ofthe Corporation The City Clerk has been elected Secretary and the City s Director of
Administrative Services has been appointed Treasurer ofboth entities
No separate financial statements are issued for the Corporation since it is reported
separately in the basic financial statements
b Measurement Focus Basis of Accounting and Basis ofPresentation
The City s Basic Financial Statements are prepared in conformity with accounting
principles generally accepted in the United States of America The Government
Accounting Standards Board is the acknowledged standard setting body for establishing
accounting and financial reporting standards followed by governmental entities in the
U SA
37
CITYOF CUPERTINO CALIFORNIA
NOTES TOBASIC FINANCIAL STATEMENTS
For the Year Ended June 30 2006
1 SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES continued
b Measurement Focus Basis ofAccounting and Basis of Presentation continued
Government wide Statements The Statement of Net Assets and the Statement of
Activities display information about the primary government the City and its
component units These statements include the financial activities of the overall City
government except for fiduciary activities Eliminations have been made to minimize the
double counting of internal activities These statements distinguish between the
governmental and business type activities ofthe City Governmental activities generally
are financed through taxes intergovernmental revenues and other nonexchange
transactions Business type activities are financed in whole or in part by fees charged to
external parties
The Statement of Activities presents a comparison between expenses and program
revenues for each segment of the business type activities of the City and for each
function of the City s governmental activities Expenses include direct and indirect
types Direct expenses are those that are specifically associated with a program or
function and therefore are clearly identifiable to a particular function Indirect expenses
such as depreciation information technology insurance and equipment replacement are
included in expenses for individual activities and functions Program revenues include
a charges paid by the recipients ofgoods or services offered by the programs b grants
and contributions that are restricted to meeting the operational or capital needs of a
particular program and c development fees which are considered capital grants under
California law Revenues that are not classified as program revenues including taxes are
presented as general revenues
Fund Financial Statements The fund financial statements provide information about
the City s funds including fiduciary funds and blended component units Separate
statements for each fund category governmental proprietary and fiduciary are
presented The emphasis of fund financial statements is on major individual
governmental and enterprise funds each of which is displayed in a separate column All
remaining governmental and enterprise funds are aggregated and reported as nonmajor
funds
Proprietary fund operating revenues such as charges for services result from exchange
transactions associated with the principal activity ofthe fund Exchange transactions are
those in which each party receives and gives up essentially equal values Nonoperating
revenues such as subsidies and investment earnings result from nonexchange
transactions or ancillary activities
38
CITY OF CUPERTINO CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the Year Ended June 30 2006
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
b Measurement Focus Basis of Accounting and Basis ofPresentation continued
Major Funds GASB Statement 34 defines major funds and requires that the City s
major governmental and business type funds be identified and presented separately in the
fund financial statements All other funds called non major funds are combined and
reported in a single column regardless oftheir fund type
Major funds are defined as funds which have either assets liabilities revenues or
expenditures equal to ten percent oftheir fund type total and five percent of the grand
total The General Fund is always a major fund The City may select other funds it
believes should be presented as major funds
The City reported the following major governmental funds m the accompanymg
financial statements
The General Fund is the general operating fund of the City It is used to account for all
financial resources except those that are required to be accounted for in another fund
The Public Facilities Corporation Debt Service Fund accounts for the payments of
principal and interest on certificates of participation issued to provide for the advance
refunding of the City HalVLibrmy Wilson Park and Memorial Park certificates of
participation
The Mary Avenue Bicycle Footbridge Capital Project Fund accounts for design and
construction of a bicycle footbridge extension of Mary Avenue over Interstate 280 It
includes gateways paths residential buffering elements and landscaping
The City reports all its enterprise funds as major funds in the accompanying financial
statements
The Resources Recovery Fund accounts for activity related to the collection and disposal of
solid waste A private company has been issued an exclusive franchise to perform these
servIces
The Blackberry Farm Fund accounts for activities related to operating the picnic area and
golf course
The Cupertino Sports Center Fund accounts for the operation and maintenance of the
Cupertino Sports Facility
The Recreation Programs Fund accounts for activities ofthe City s community center
The Senior Center Fund accounts for the activities ofthe City s senior center
39
CITY OF CUPERTINO CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the Year Ended June 30 2006
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
b Measurement Focus Basis ofAccounting and Basis ofPresentation continued
The City also reports the following fund types
Internal Service Funds These funds account for workers compensation management
information system maintenance and replacement equipment maintenance and
replacement and long term disability coverage all of which are provided to other
departments on a cost reimbursement basis
Fiduciary Fund This fund accounts for deposits held by the City as an agent
Basis of Accounting The government wide and proprietary financial statements are
reported using the economic resources measurementfocus and the full accrual basis of
accounting Revenues are recorded when earned and expenses are recorded at the time
liabilities are incurred regardless ofwhen the related cash flows take place
Governmental funds are reported using the current financial resources measurement
focus and the modified accrual basis of accounting Under this method revenues are
recognized when measurable and available The City considers all revenues reported in
the governmental funds to be available if the revenues are collected within sixty days
after year end Expenditures are recorded when the related fund liability is incurred
except for principal and interest on long term debt which are recognized as expenditures
to the extent they have become due and payable General capital asset acquisitions are
reported as expenditures in governmental funds Proceeds from long term debt and
acquisitions under capital leases are reported as otherfinancing sources
Fiduciary financial statements consisting of agency funds report only assets and
liabilities and therefore have no measurement focus They recognize receivables and
payables on a full accrual basis
Property taxes utility taxes franchise taxes interest and special assessments are
susceptible to accrual Sales taxes collected and held by the state at year end on behalf
of the City are also recognized as revenue Other receipts and taxes are recognized as
revenue when the cash is received
Grant revenues are recognized in the fiscal year in which all eligibility requirements are
met Under the terms ofgrant agreements the City may fund certain programs with a
combination ofcost reimbursement grants categorical block grants and general revenue
Thus both restricted and unrestricted net assets may available to finance program
expenditures The City s policy is to first apply restricted grant resources to such
programs followed by general revenues if necessary
40
CITY OF CUPERTINO CALIFORNIA
NOTES TOBASIC FINANCIAL STATEMENTS
For the Year Ended June 30 2006
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
b Measurement Focus Basis of Accounting and Basis ofPresentation continued
The City follows statements and interpretations of the Financial Accounting Standards
Board and its predecessors that were issued on or before November 30 1989 in
accounting for its business type activities unless they conflict with Government
Accounting Standards Board pronouncements
GASB 33 Non Exchange Transaction Non exchange transactions in which the City
gives or receives value without directly receiving or giving equal value in exchange
include property taxes grants entitlements and donations On the accrual basis revenue
from property taxes is recognized in the fiscal year for which the taxes are levied or
assessed Revenue from grants entitlements and donations is recognized in the fiscal
year in which all eligibility requirements have been satisfied
c Budgetary Practices
The budget ofthe City is a detailed operating plan which identifies estimated costs and
results in relation to estimated revenues The budget includes I the programs projects
services and activities to be provided during the fiscal year 2 estimated revenue
available to finance the operating plan and 3 the estimated spending requirements of
the operating plan The budget represents a process through which policy decisions are
made implemented and controlled The City prohibits expending funds for which there
is no legal appropriation All appropriations lapse at fiscal year end
In May of each year the City Manager submits to the City Council a proposed budget for
the fiscal year beginning July 1 Public hearings on the proposed budget are held during
the month of June and the budgets for all fund types are legally adopted by Resolution
prior to June 30 Original budget amounts are presented on the accompanying budgetary
statements include these legally adopted amounts
The City Manager is responsible for controlling the City s expenditures in accordance
with the adopted budget The City Manager is authorized to transfer appropriations
within functional expenditure classifications Any revision which requires transfers
between functional expenditure classifications or increases total appropriations must be
approved by the City Council Requests for additional personnel or capital outlay also
require the approval of the City Council The legal level ofbudgetary control is at the
departmental or project level
Budgets for governmental funds are adopted on a basis consistent with generally
accepted accounting principles Budget information is presented for the general special
revenue and debt service funds only Capital project funds are budgeted on a long term
project by project basis and hence budgets for these funds are not presented in the basic
financial statements
41
CITY OF CUPERTINO CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the Year Ended June 30 2006
d Cash and Investments
The City pools its cash resources consisting ofcash and investments of all funds for
investment except for restricted funds generally held by an outside fiscal agent Cash
amounts are reported net of outstanding warrants
Investments are stated at fairvalue
e Capital Assets
Capital assets are recorded at cost or estimated historical cost if purchased or
constructed Donated capital assets are recorded at their estimated fair value on the date
donated
Public domain infrastructure capital assets consisting ofroads bridges curbs gutters
medians sidewalks drainage and lighting systems have been capitalized and depreciated
Depreciation is recorded using the straight line method over the following useful lives
Buildings
Improvements
Vehic1es
Street equipment
Water equipment
Office equipment
Road curbs gutters sidewalks medians and bridges
Streetlights
Storm drain structure and mains
Traffic signals
The City capitalizes capital assets exceeding 1 000
Years
25
31
4 10
3 20
3 50
3 5
30 40
20
40
20
Major outlays for capital assets and improvements are capitalized as projects are
constructed Interest incurred during the construction phase is reflected in the capitalized
value of the asset constructed net ofinterest earned on the invested proceeds over the
same period
Some capital assets may be acquired using federal and state grant funds or they may be
contributed by developers or other governments These contributions are accounted for
as revenues at the time the capital assets are contributed
42
CITY OF CUPERTINO CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the Year Ended June 30 2006
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
t Land Held for Housing Development
Land held for redevelopment of 615 000 at June 30 2006 is stated at the lowest of
historical cost net realizable value or agreed upon sales price The land was purchased
using Federal grant funds for housing activities
g Claims and Judgments Pavable
Claims and judgments payable are accrued when the liability is incurred and the amount
can be reasonably estimated Claims and judgments payable are recorded in an internal
service fund for workers compensation and long term disability General liability claims
andjudgments are not material and are not accrued
h Compensated Absences
Compensated absences comprise vested accumulated vacation and sick leave The City s
liability for compensated absences is recorded in Governmental Activities or various
Proprietary funds as appropriate The liability for compensated absences is determined
annually For all governmental funds amounts expected to be permanently liquidated
such as what is due to be paid because of a realized employment action are recorded as
fund liabilities the long term portion is recorded in the Statement ofNet Assets In prior
years the governmental fund associated with the ongoing salary and benefit cost ofthe
employee has liquidated the long term liability
The changes in compensated absences were as follows
Business
Governmental Type
Activities Activities Total
Beginning Balance 2 081 111 153 359 2 243704
Additions 353 371 82 080 435 451
Payments 163 722 85 310 249 032
Ending Balance 2 270 760 150 129 2420 889
Current Portion 161 555 78 172 239 727
43
CITY OF CUPERTINO CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the Year Ended June 30 2006
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
i Fund Equitv
Reservations of fund balances represent those portions of fund balances which are not
available for appropriation or expenditure or are legally restricted for a specific future
use Designated fund balances represent management s tentative plans for future use of
financial resources
U Property Tax Calendar
All property taxes are levied and collected by the County ofSanta Clara Secured taxes
are levied on July 1 are due in two installments on November 1 and March 1 and become
delinquent on December 10 and April 10 Unsecured taxes are due on July 1 and become
delinquent on August 31 The lien date for secured and unsecured property taxes is
March 1
The City in fiscal year 1993 94 adopted an alternative method of property tax
distribution the Teeter Plan Under this method the City receives 100 of its
secured property tax levied in exchange for foregoing any interest and penalties collected
on delinquent taxes The City receives remittances as a series ofadvances made by the
County during the year
k Interfund Transactions
Transactions constituting reimbursements to a fund for expenditures expenses initially
made from it that are properly applicable to another fund
expenditures expenses in the reimbursing fund and as
expenditures expenses in the fund that is reimbursed
are recorded as
reductions of
1 Statement of Cash Flows
For purposes of reporting cash flows for the City s proprietary funds pooled cash and
investments are considered cash equivalents as the proprietary funds can access pooled
cash and investments in amanner similar to a demand deposit account
m Bond Discounts and Issue Costs
Debt discounts and issuance costs are recognized in the current period Debt discounts
and issuance costs incurred by proprietary fund types are amortized over the term of the
debt using the bonds outstanding method which approximates the effective interest
method
44
CITY OF CUPERTINO CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the Year Ended June 30 2006
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
n Inventories and Prepaids
Inventories are accounted for under the purchases method which considers inventories to
be recognized as an expenditure upon purchase with inventories insignificant at year
end Prepaid expenses are reported under the consumption method which recognizes the
expense in the period associated with the service rendered or goods consumed
2 CASH AND INVESTMENTS
The City s pooled idle funds are invested pursuant to investment policy guidelines adopted by the
City Council The objectives of the policy are to invest funds to the fullest extent possible and to
invest in accordance with the provisions of the California Government Code with the priority of
safety liquidity and yield The policy addresses the safekeeping of securities types of investment
instruments The City maintains a cash and investment pool that is available for use by all funds
Each fund type s portion of this pool is displayed on the combined balance sheet as cash and
investments
a Policies
California Law requires banks and savings and loan institutions to pledge government
securities with a market value of 110 of the City s cash on deposit or first trust deed
mortgage notes with a market value of 150 ofthe deposit as collateral for these deposits
Under California Law this collateral is held in a separate investment pool by another
institution in the City s name and places the City ahead of general creditors of the
institution
The City and its fiscal agents invest in individual investments and in investment pools
Individual investments are evidenced by specific identifiable securities instruments or by
an electronic entry registering the owner in the records of the institution issuing the security
called the book entry system Security instruments owned by the City are held in
safekeeping by a third party custodian acting as agent for the City under the terms of a
custody agreement Individual investments are generally made by the City and its fiscal
agents
The City s investments are carried at fair value as required by generally accepted
accounting principles The City adjusts the carrying value of its investments to reflect their
fair value at each fiscal year end and it includes the effects ofthese adjustments in income
for that fiscal year
45
CITY OF CUPERTINO CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the Year Ended June 30 2006
2 CASH AND INVESTMENTS continued
b Classification
The City s total cash and investments at fair value are presented on the accompanying
statement of net assets in the following allocation
Statement ofNetAssets
Cash and investments
Cash and investments with fiscal agent
Subtotal
Fiduciary Funds
Cash and investments
46 074 212
2401 369
48 475 581
236 049
Total Cash and investments 48 711 630
46
CITY OF CUPERTINO CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the Year Ended June 30 2006
2 CASH AND INVESTMENTS continued
c Authorized Investments by the Citv
The City s Investment Policy and the California Government Code allow the City to
invest its pooled idle funds in the following under limits and provisions that address
interest rate risk credit risk and concentration of credit risk This does not include the
City s investments of debt proceeds held by fiscal agents that are governed by the
provisions of debt agreements of the City
Maximum Minimum
Authorized Investment Type Maturity Credit Quality
us Treasury obligations 5 years N A
Federa Agency securities A 5 years B N A
California Loca Agency Investment
Fund N A N A
Non negotiab e Certificates of Deposit 5 years N A
time deposits
State of California registered state 5 years N A
warrants treasury notes or bonds
California local agency bonds notes 5 years N A
warrants orother obligations
Bonds issued by the loca agency 5 years N A
Bankers Acceptances 180 days N A
Commercia Paper 80 days A I P
Maximum
Percentage of
Portfolio
Maximum Investment
In One Issuer
None
None
Up to 40
million per State
law
None
None
None
None 10 of portfolio 5 of
issuer s net worth
None 10
None 0
None 0
40 None
25
0 of portfolio 5 of
issuer s net worth 10
of outstanding paper of
Issuer
Negotiab e Certificates of Deposit 5 years N A 30
Repurchase Agreements year N A None
Medium Term Corporate Notes 5 years A orbetter 30
Money market mutual funds investing
inUS Treasury or Government N A N A 20
Agency securities
10 ofportfo io 5 of
issuer s net worth
10 of portfolio 5 of
issuer s net worth
10 of portfolio 5 of
issuer s net worth
10
A Securities issued by agencies of the federal government such as the Government Nationa Mortgage Association GNMA the
Federal Home Loan Bank FHLB the Federa National Mortgage Association FNMA the Federa Home Loan Mortgage
Corporation FHLMC and the Federa Farm Credit Bank FFCB
B As allowed by City investment policy the City Council approved an exception to the 5 yearmaturity limit with an investment in
993 of one FHLMC security with maturity in 2007 The investment has a maturity value of 1 00 000
47
CITY OF CUPERTINO CALIFORNIA
NOTES TO BASIC FINANCIAL STATEMENTS
For the Year Ended June 30 2006
2 CASH ANDINVESTMENTS continued
d Authorized Investments by Debt Agreements
The City must maintain required amounts ofcash and investments with trustees or fiscal
agents under the terms of certain debt issues These funds are unexpended bond proceeds
or are pledged reserves to be used if the City fails to meet its obligations under these debt
issues The California Government Code requires these funds to be invested in
accordance with City ordinances bond indentures or State statutes The City s
Investment Policy allows investments ofbond proceeds to be governed by provisions of
the related bond indentures The following identifies the investment types that are
authorized for investments held by fiscal agents under the terms ofthe bond indentures of
the related debt issue
Authorized Investment Type
Money market mutual funds
California Local Agency Investment
Fund
U S Treasury obligations
us Federal agency obligations A
Pre refunded local agency municipal
obligations that are non callable or
irrevocably callable on a specified date
General obligations of states
US dollar denominated deposit
accounts federal funds and bankers
acceptances
Commercial paper
Time or demand accounts or certificates
of deposits collateralized
Investment agreements or other forms of
investments including repurchase
agreements approved by the financial
guaranty insurance carrier
Maximum
Maximum Minimum Credit Percentage of
Maturity Quality Portfolio
Aaam or
N A AAAm G None
Up to 40
million per
N A N A State law
N A N A None
N A N A None
Highest rating
N A category None
N A A2 A None
360 days P I A I A I None
270 days P I A I None
N A N A None
N A N A None
A Securities