--- - - --- --- ~
Comprehensive
Annual
Financial Report
For the Fiscal Year Ended June 30,2006
City of Milpitas CALIFORNIA
CITY OF MILPITAS, CALIFORNIA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED JUNE 30, 2006
Prepared by
THE DEPARTMENT OF FINANCIAL SERVICES
CITY OF MILPITAS
Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30,2006
Paee
I INTRODUCTORY SECTION: I
Table of Contents i
Letter of Transmittal. v
Directory of City Officials xv
Map of City's Location xvi
Organization Chart , , xvii
GFOA Certificate of Achievement... xviii
CSMFO Certificate of Award for Outstanding Financial Reporting xix
I FINANCIAL SECTION: I
Independent Auditor's Report on Basic Financial Statements 1
. Managenlent's Discussion and Analysis , 3
Basic Financial Statements:
Government- wide Financial Statements:
Statement of Net Assets. 19
Statement of Activities 20
Fund Financial Statements:
Governmental Funds:
Balance Sheet .: ';;... 23
Statementof Revenues, Expenditures, and Changes in Fund Balances 24
Reconciliation of the Net Change in Fund Balances Total Governmental
Funds with the Statement of Activities 25
Statements of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual:
General Fund '''''''' """"'" 26
Housing Reserve Fund ""'''' 27
CITY OF MILPITAS
Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2006
Paee
I FINANCIAL SECTION: ( Continued)
Proprietary Funds:
Statementof Net Assets , " ..."... 29
Statementof Revenue, Expensesand Changes in FundNet Assets """""'"'''''''''''''''''''''''''''''''''''' 30
Statement of Cash Flows. '''''''''''''''' 31
Fiduciary Funds:
Statementof FiduciaryNet Assets '"'''''''''''''''' '"'''''' '''''''' '"'''''''''' "'"'''''''''' 33
Notes to Basic Financial Statements. "'''''''''''''' 35
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:
RedevelopmentProject Fund " 65
Street ImprovementFund 66
Non- major Governmental Funds:
CombiningBalance Sheets ". , """""'"'''' 68
Combining Statements of Revenues, Expenditures and Changes
in Fund Balances 70
Combining Schedule. ofRevenues, Expenditures and Changes in
Fund Balances - Budget and Actual ( Non GAAP Legal Basis) 72
Fiduciary Funds:
Statementsof Changes in Assets and Liabilities- All AgencyFunds 77
11
CITY OF MILPITAS
Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2006
Paee
I STATISTICAL SECTION:
Net Assets - Last Five Fiscal Years"'"'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 81
Changes in Net Assets - Last Five Fiscal Years 82
Fund Balances, GovernmentalFunds - Last Ten Fiscal Years 84
Changes in Fund Balances, GovernmentalFunds- Last Ten Fiscal Years 85
Assessed Value and Actual Value of Taxable Property- Last Ten Fiscal Years 86
Direct and OverlappingProperty Tax Rates - Last Ten Fiscal Years 87
Principal Property Tax Payers- Fiscal Year 2005- 06 and 1996- 97 88
Property Tax Levies and Collections- Last Ten Fiscal Years 89
Ratios of OutstandingDebt by Type- Last Ten Fiscal Years 90
Bonded Debt Pledge Reyenue Coverage- Last Ten Fiscal Years 91
Computation of Direct and OverlappingDebt 92
Legal Debt Margin Information- Last Ten Fiscal Years 93
Demographic and Economic Statistics- Last Ten Fiscal Years 94
Principal Employers- Fiscal Year 2005- 06and 1996- 97 95
Taxable Sales by Category- Last Six Calendar Years 96
Direct and OverlappingSales Tax Rates - Last Ten Fiscal Years 97
Principal Sales Tax Payers... 98
Authorized Full- Time Equivalent City Government Employees by Function/ Program -
Last Ten Fiscal Years 99
Operating Indicators by Function/ Program- Last Ten Fiscal Years 100
Capital Assets Statisticsby Function/ Program- Last Ten Fiscal Years 102
iii
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CITY OF MILPITAS
455 EAST CALAVERASBOULEVARD, MILPITAS, CALIFORNIA 95035- 5479 www. ci. milpitas. ca. gov
October 30, 2006
Honorable Mayor, Members of the City Council and City Manager:
Submitted herewith is the Comprehensive Annual Financial Report ( CAFR) of the City of Milpitas ( the
City) for the fiscal year ended June 30, 2006. The report was prepared by the Finance Department of the
City. Responsibility for both the accuracy of the presented data and the completeness and fairness ofthe
presentation, including all disclosures, rests with the City. The data, as presented, is accurate in all
material aspects; and is presented in a manner designed to fairly set forth the financial position and
results of operations of the City as measured by the financial activity of its various funds. All disclosures
necessary to enable the reader to gain the maximum understanding of the City's financial affairs have
been included. The organization of the financial report follows the guidelines set forth by the
Government Finance Officers' Association of the United States and Canada.
The report is divided into three sections:
1. Introductory section, including this letter of transmittal, directory of City officials, Map
of City's location, City's organizational chart, and reporting awards.
II. Financial section, including the auditors' report of Maze & Associates, the City's
independent certified public accountants, management's discussion and analysis, the
basic financial statements, notes to the financial statements, required supplemental
information and the combining financial statements for non- major funds.
m. Statistical section, including a number of tables and graphs of unaudited data depicting
10 years of financial history about the City and information on its overlapping
governmental debt.
A separate single audit report has been prepared in conformity with the provisions of the Federal Single
Audit Act amendments of 1996 and U. S. Office of Management and Budget Circular A- 133, " Audits of
State and Local Governments."
THE REPORTING ENTITY AND ITS SERVICES
This report reflects the entity concept prescribed by generally accepted accounting principles. It
combines the financial statements of the Milpitas Redevelopment Agency ( the Agency) and the Terrace
Gardens Inc. with those of the City to constitute a single reporting entity. In accordance with the criteria
of the Government Accounting Standards Board Statement 14, the basic financial statements include the
financial activity of the City, the Agency, and Terrace Gardens. The Agency and Terrace Gardens are
separate legal entities from the City and are controlJed by the City. The Agency has the same governing
board as the City and the City also hascontrolof the TerraceGardens'govemingboard. However, the
Agency and Terrace Gardens Inc. issue their own component unit financial statements.
General Information: 408- 586- 3000
V
Milpitas is a general law city of the State of California. The City was incorporated in 1954 and operates
under a Council- Manager form of government. The City's political and legislative body is the City
Council and is empowered by the general laws of the State of California. to formulate citywide policy,
including a fiscal program, City services, and appointment of the City Manager and City Attorney. There
are four City Council members who are elected at- large for staggered four- year tenns, and the Mayor is
selected every two years in a separate citywide election.
The City provides a fun range of municipal services. These include: police, fire, communitYservices,
public improvements, planning, building and public facility inspection, engineering, water and sewer
utilities, redevelopment, and general administrative services.
Citizens of the City desiring to assist the City Council in forming government policy may do so by
serving on a City commission. The commissions act in an advisory capacity to the City Council. They
are: Planning Commission; Community Advisory Commission; Library Advisory Commission; Parks,
Recreation and Cultural Resources Commission; Telecommunications Commission; Arts Commission,
Bicycle Transportation Advisory Commission; Citizen's Emergency Preparedness Advisory Commission;
Senior Advisory Commission; Recycling and Source Reduction Advisory Commission; Sister Cities
Commission; Youth Advisory Commission; Economic Development Commission and the Mobile Home
Park Rental Review Board.
ECONOMIC CONDITION. OUTLOOK AND ACTIVITY
Milpitas is situated within the Silicon Valley region, known throughout the world as the home of high
technology, innovation and research. Milpitas, considered the " Crossroads of Silicon Vailey," with most
of its 13.6 square miles of land situated between two major freeways, 1- 680 and 1- 880, has experienced
tremendous growth since its incorporation in 1954. Over the past 30 years, the population growth has
increased from 26,561 in 1970 to over 62,698 in 2000 ( latest census). The Bay Area has experienced
significant employment growth from 1992 through 2000, adding more than 170,000jobs. HO'Never, in
2001, Santa Clara County experienced its first negative job growth since 1992. Between 2002 and 2004,
over 130,000jobs were lost as a result of the economic recession. This region was severely impacted
due to concentration of the high- tech industry and shifting of some of these technology and
manufacturing jobs overseas. Consequently, while the nation and the rest of the State began to see
economic growth, the Silicon Valley was still lagging. Milpitas is similarly impacted because of its
location and comparable economic mix. In fiscal years 2005 and 2006, economic activities in this region
began to improve but the recovery was moderate as job growth was still limited and vacancy rates for
office, manufacturing and R & D space remained high.
There are approximately 1,790 acres or 2.9 square miles of land area in the City limits designated for
various industrial uses; about 271 acres are vacant and available in parcels ranging in size from Y2acre to
75 acres. Included in this acreage total are eight industrial parks. An estimated 350 acres of land are
dedicated to regional and community retail centers supporting 3.5 million square feet of commercial
shops. There are 550 manufacturing plants in Milpitas. The Great Mall of the Bay Area is the largest
enclosed mall in Northern California, with approximately 1.1 million square feet of leasable space for
retail and entertainment operations. Several local shopping centers serve regional needs for Asian-oriented
retail and services.
The leading economic segments are restaurants, apparel stores and electronics equipment. The five
largest manufacturing employers are Cisco Systems, Inc., Lifescan Inc., Solectron Corporation, LSI
Logic Corporation, and Seagate Technology. Other major employers are Linear Technology, SanDisk,
and KLA- Tencor. Several of these top employers make Milpitas their corporate headquarters. The two
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-- ---- - _ m_- - u u - -. _ u_- u-largest
non- manufacturing employers in Milpitas are The Great Mall of the Bay Area and the Milpitas
Unified School District.
Milpitas Redevelopment Agency ( RDA) is one of the top ten RDAs in the State. With the 2003
expansion of the RDA, Redevelopment Area 1 encompasses 2,230 acres or 26% of the City. The Project
produces over $ 28 million in annual gross tax increment. In November 2003 the RDA issued $ 200
million in tax allocations bonds to generate funds for key City and Agency projects including a new
library, major infrastructure improvements and a new senior center.
Consumer Confidence Level
Despite recent fluctuations of the consunier confidence index, the overall consumers' assessment of
current economic conditions is moderately favorable, primarily due to improved job outlook. Consumers
are more optimistic than they were a year ago, which could lead to consumer spending. This sentiment is
reflected by increased local sales tax revenue in fiscal 2006.
Consumer Confidence
13( UJO
120.00
90.00
110.00
100.00
80.00
70.00
80.00
50.00
40.00
Jan.() 1 Jan. 02 JaMI3 Jan- 04 Jan- 45 Jan. Q6
Source: Consumer Research Center
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TODTenSalesTax GeneratorsbvEconomicSef! ment
The chart below provides an overview of the City's sales tax revenue by economic segment. Total
amount of sales tax revenue for the latest benchmark year was about $ 13.1 million, with the top ten
economic segments generated about $ 11 million. Sectors such as business- to- business, general retail and
food products all show improvement over a year ago.
City Sales Tax Revenues
Top 10 Economic Segments
Service Stations
6%-
Mlsc Retail
9%
Apparel Stores
15%
Source: MBIA MuniServices Company
Many of the major activities initiated in FY05- 06 are consistent with the City Council's direction to
focus on projects and funding that will provide for the economic stability of the community, especially
developments in the Midtown area that will enhance the City's long- term financial condition.
Maior Activitv in the Citv
Midtown Specific Plan - The vision for this area includes high density housing within walking distance
to light rail and BART to support the public investment in mass transit, transforming neighborhoods into
an attractive and economically vital district with plazas and a network of pedestrian and bicycle trails, a
vibrant streetscape along the north end of Main Street and a mixture of housing, shopping, employment,
entertainment, and cultural and recreational opportunities. The implementation efforts began by several
capital improvement projects such as the new Library, parking garage, Main Street and Abel Street
infrastructure improvements. Other development activities that are being planned by outside agencies
include the design and construction of a County Health Center, parking garage and a 103- unit Senior
Housing project restricted for low- income seniors.
Transit Sub- Area Land Use Plan - The City developed phase I of a Transit Sub- Area Land Use Plan
which provides a development concept for the area surrounding the future Montague/ Capitol BART
station and two VTA Light Rail Stations. In FY 05- 06, the City completed phase II of the Plan which
includes a general plan amendment, zoning changes, design guidelines, fiscal impact study and
environmental report. The next phase of this project is to complete the Precise Plan. The intent of the
Plan is to foster economic development of the area, strengthen and expand retail uses to increase sales tax
revenues, attract major retailers and provide housing and amenities such as parks, schools, retail and
restaurants.
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Residential Development - Residential development activities remained relatively strong and have shown
signs of increased activities. Milpitas represents one of the more affordable alternatives in Santa Clara
County, with median home price at $ 629,000, lower than the County's median home price of $ 675,000.
Residential development approvals in progress outside the Midtown area include Barry Swenson's Twin
Towers ( 181 condominium units), Aspen Apartments ( 101 units), Town Center ( 65 housing units) and
Baystone condominium ( 387 units). Spurred by the high density potential of the Midtown Plan,
residential and mixed use development that are in the planning stage include Apton Plaza ( 98
condominium units and 3,000 square feet of retail space), Centria ( 481 condominium units), and Oak
Springs ( 147 condominium units). Residential development under construction includes 683
condominium and townhouse units of the KB Homes project, of which 110 units will be deed restricted
for affordable housing.
Non- residential Development - Non- residential development includes redevelopment of existing tenant
spaces and buildings in the Town Center. A Super Safeway has been approved and construction is in
progress. Other commercial development activities include the development of land adjacent to the KB
Homes for three car dealerships. Piercy Toyota was recently approved to construct a 70,000 square foot
showroom and a 52- bay service area at that site.
Great Mall of the Bay Area - The Great Mall is the largest enclosed mall in Northern California, with
approximately 1.1 million square foot of leasable space. In 2003, Mills Corporation became the new
owner of the Great Mall and began its efforts to attract new anchor tenants. Kohl's Department Store
became one of the major anchor tenants in 2005. Other new tenants that were added include Nike, Anne
Klein, Borders Book, and Abercrombie & Fitch. Other tenant approvals in progress include a Neiman
Marcus outlet.
CITY ANNUAL PERFORMANCE REPORT
During fiscal year 2005- 2006, City staff initiated and implemented various programs and projects that
will significantly improve services to the citizens and the community. These efforts are consistent with
the City mission statement and the City Council's priorities and policy direction. A listing and brief
description of these programs and projects is as follows:
Fire
. Responded to 4,030 emergency incidents with an average response time of 4.12 minutes.
Became the first fire department in the county to certify all its response personnel in new federal
command training requirements.
Presented prevention information at nearly 70 events with over 16,000 public contacts in total.
Conducted 1,180 plan reviews, issued 562 approvals/ permits and performed 1,890 fire inspections.
Certified 47 new " Strategic Actions For Emergencies" ( SAFE) team members in various
neighborhoods and increased disaster care- and- shelter facility capacity by 300.
.
.
..
Police
. Reduced violent crimes ( murder, rape, robbery and aggravated assault) by 3.3%.
Reorganized the Community Relations Unit to provide two School Resource Officers to Milpitas
High School at no cost to the school.
Implemented a state of the art Computer Aided Dispatch system which received national recognition
in 911 Magazine.
Reduced the number of traffic collisions in 2005 to a five year low of995 incidents.
Maintained 100% compliance with registration requirements of known sex offenders.
.
.
..
IX
Enfineerinf
. Completed 17 construction contracts which results in the addition of $ 9 million of capital
improvements.
Completed the review and approval of land development projects including KB Homes, Centria, Oak
Springs, Apton Plaza and Parc Place residential projects, Buddhist Temple, Capitol retail center,
Town Center renovation, NextG franchise agreement and several hillside homes.
Converted residential recycling from multiple recycling bins to " Single Stream" to provide
convenience and an incentive for recycling.
Completed the implementation of three grant funded projects including a Citywide Traffic Signal
Retiming, GIS Collision Database Deployment, and Vehicle Speed Feedback Signs.
Updated the Stormwater Pollution Control Guidebooks.
.
.
.
.
Plannin2: 1Nei!! hborhood Services
. Completed phase II of the Transit Sub- areaLand Use Plan which includes a general plan amendment,
zoning changes, design guidelines, fiscal impact study and environmental report to provide guidance
to the developments for the area surrounding the future Montague/ Capitol BART station and two
VTA Light Rail Stations.
Completed entitlements for 1,260new housing units, primarily in the Midtown Area.
Created public information brochures on planning process to enhance customer service.
Resolved over 1,900 code violations to advance Neighborhood Beautification and to ensure public
health and safety.
Completed the negotiation of four Owner Participation Agreements to provide 164 affordable
housing units.
....
Recreation Services
. Increased yearly attendance at the Teen Center by 58% from 456 to 1,090 participants.
Solicited grants, donations and sponsorships to help fund various programs and received $ 13,616 for
Rainbow Theatre, Month of the Young Child and California Arts Day.
Finalized and distributed City of Milpitas Child Care Start Up brochures via website and hard copy.
Served over 14,800 participants in aquatics programs, including swim lessons, aquatics exercise,
recreation swim and swim team.
Offered volunteer training for the public and a Shelter Management Class for Recreation staff in
preparation for citywide emergencies.
.
..
.
Buildin!! Inspection . Extended express plan review hours from 8: 30 am - 11: 30 am to 8: 30 am - 4: 00 pm and
accomplished 72% of submitted plan checks over the counter.
Served more than 8,000 customers with the reduction of average waiting time from 5 minutes to 3
minutes.
Created and sent courtesy notices to homeowners doing work without a permit. As a result, Building
was able to generate more than $ 120,000 additional revenue.
Updated and enhanced Building Division information on " web- page" and developed information
handouts for the public.
Met 100% of expedited plan check requests and provide 90 after hours and weekend inspections.
.
.
.
.
x
Administration
. Provided oversight on the development and design for the new library and the design of the new
parking garage.
Implemented financial and personnel strategies to mitigate the loss of revenues due to slow economic
recovery without any noticeable reduction of City services.
Initiated Redevelopment Plan Amendment and merger to facilitate marketing businesses within the
Redevelopment project areas.
Increased City of Milpitas presence in Chamber of Commerce, Joint Venture Silicon Valley, North
Valley Private Industry Council and with commercial brokers and large- scale property owners.
.
.
.
Human Resources
. Conducted and completed State mandated Sexual Harassment training by January 2006.
Created, conducted and analyzed the results from a customer service survey for Human Resources
service delivery.
Developed and distributed a quarterly newsletter to all city staff.
Successfully transitioned two employee unions to the CalPERS Medical Plan.
Developed and implemented an exit interview process for employees that are retiring or leaving
employment with the City.
.
...
Information Services
. Implemented the new Computer Aided Dispatch System for Police Department.
Completed the Wireless Connection to the City's new Corporation Yard.
Implemented the Public Access Information System for providing access to City documents via the
internet.
Installed new security cameras at Fire Station 1, the McCarthy Ranch Lift Station and the
Community Center.
Implemented Mobile Computing in the Fire Department vehicles.
..
.
.
Finance
. Received awards from the Government Finance Officer's Association and California Society of
Municipal Finance Officers for Budget Presentation and Financial Reporting.
Continued with various cross training programs of professional staff and clerical staff to enhance
flexibility of staffing.
Revised Purchasing ordinance to comply with State law changes and to streamline the departmental
purchasing process and procedures.
Presented and recommended new budget guidelines and fiscal policies for Council's consideration
and received approval.
Revitalized and reconvened a citywide Risk Management and Safety Committee to discuss risk
issues and mitigate risk exposure to employees and to the public.
.
.
.
.
xi
Public Works
. Maintained infrastructure to preserve integrity with minimum disruption to the public.
Investigated approximately 3,300 customer service requests within 30 minutes of receipt.
Maintained employee skills though safety meetings, section cross training and local
Employees received 3,600 hours of training.
Handled all street light repairs within 24 hours.
seminars.
..
.
ACCOUNTING SYSTEM AND BUDGETARY CONTROL
In developing and evaluating the City's accounting system, consideration is given to the adequacy of
internal accounting controls. Internal accounting controls are designed to provide reasonable, but not
absolute, assurances regarding: ( 1) the safeguarding of assets against loss from unauthorized use or
disposition; and ( 2) the reliability of financial records for preparing financial statements and maintaining
accountability for assets. The concept of reasonable assurance recognizes that: ( 1) the cost of a control
should not exceed the benefits likely to be derived; and ( 2) the evaluation of costs and benefits requires
estimates and judgments by management.
All internal control evaluations occur within the above framework. The Finance Department staff
remains committed to improving the City's accounting system; to maintain the City's internal accounting
controls to adequately safeguard assets; and to provide reasonable assurances of proper recording of
financial transactions. Budgetary control is directed by the City Council and the members of the Agency
by resolution when the budget is adopted each year. Expenditures may not legally exceed appropriations
at the department level by fund. The City utilizes the encumbrance system as a management control
technique to assist in controlling expenditures. The City Manager has limited budget appropriation
authority in an amount not to exceed 1% of the total general fund budget, although the source of funds is
to be determined by the Manager. The appropriations must be reported to the City Council on a periodic
basis. Periodic reports of revenue, expense, and investment activity are prepared and distributed to the
City Council and City departments to monitor spending in relation to the budget. At fiscal year- end,
open encumbrances are reported as reservations of the fund balance. The City's accounting records are
organized and operated on a " fund" basis, which is the basic fiscal and accounting entity in governmental
accounting. Each fund is classified by category and fund type:
Category Fund Type
Governmental Funds: General Fund, Special Revenue Funds, Debt Service Funds, and Capital
Projects Funds
Proprietary Funds: Enterprise Funds and Internal Service Fund
Fiduciary Funds: Agency Funds
Governmental Funds: The basic financial statements necessary to fairly present the financial position
and operating results from major governmental funds are the balance sheet, and the statement of
revenues, expenditures and changes in fund balance. These funds are maintained using the modified
accrual basis of accounting, which is more thoroughly explained in the Notes to the Financial Statements.
Proprietary Funds: Generally accepted accounting principles applicable to private commercial business
are applicable to proprietary funds of a government agency. The basic financial statements required to
present the financial position and operating results from major proprietary funds are the statement of net
xii
assets, statement of revenues, expenses, and changes in net assets, and the statement of cash flows. The
accrual basis of accounting is utilized as explained in the Notes to the Financial Statements.
Fiduciary Funds: Fiduciary funds are used to account for assets held by a government agency acting as a
trustee or agent for individuals, assessment districts, organizations, other governmental units or other
funds of the same entity. These funds are also identified in this report as Agency Funds. The modified
accrual basis of accounting is used as explained in the Notes to the Financial Statements.
FINANCIAL ANALYSIS
General Accepted Accounting Principles ( GAAP) require that management provide a narrative
introduction, overview, and analysis to accompany the basic financial statements in the form of
Management's Discussion and Analysis ( MD& A). This letter of transmittal is designed to complement
MD& A and should be read in conjunction with it. The City of Milpitas' MD& A can be found
immediately following the report of the independent auditors.
CASH MANAGEMENT
The City has a formal investment policy, which is subject to annual review and approval by the City
Council. Available cash for operations was invested in the State Treasurer's Local Agency Investment
Fund, corporate notes, money market funds, commercial paper, and government securities. Restrictions
on the maturity and percentage of the investments and categorization of credit risk are discussed in the
Notes to the Basic Financial Statements. The City's portfolio was invested mainly in Federal Agency
Issues, U. S. Treasury Coupons and Corporate Notes. The average annual yield was 3.07% on the City's
month- end average investment balances. This compared with a return of 2.82% in the prior year.
Investment income includes appreciation or depreciation in the fair value of investments. Increases or
decreases in fair value during the current year do not necessarily represent trends that will continue nor
considered an impact to available financial resource, especially in the case of temporary changes in the
fair value of investments that the City intends to hold to maturity.
CAPITAL IMPROVEMENTS
Capital improvement expenditures are accounted for in the capital projects. At the end of the fiscal year,
the value of these projects is presented in the Statement of Net Assets as part of the Capital Assets.
City expenditures by project category for all capital improvements for fiscal year 2005- 2006 were as
follows:
Project Category Amount
General Government Projects
Park Projects
Street Projects
Water Projects
Sewer Projects
Redevelopment Agency Projects
$ 538,995
894,504
2,981,802
842,137
8,227,424
13,088,894
Total $ 26,573,756
xiii
INDEPENDENT AUDIT
Each year the City requires an independent annual audit of the City's financial records, the results of its
operations, and cash flows. This report includes the opinion of the City's independent auditors, Maze &
Associates, for the basic financial statements of the City. In addition, a separately issued document
contains the auditors' reports on the internal control structure and compliance with applicable laws and
regulations related specifically to the single audit.
A WARDS
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 for its Comprehensive
Annual Financial Report for the fiscal year ended June 30, 2005. The Certificate of Achievement is the
highest form of recognition for excellence in state and local government financial reporting.
In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable
and efficiently organized Comprehensive Annual Financial Report, whose contents conform to program
standards. Such CAFR must satisfy both generally accepted accounting principals and applicable legal
requirements.
A Certificate of Achievement is valid for a period of one year only. The City has received the GFOA
Certificate of Achievement for seventeen of the last eighteen years ( fiscal years ended 1988- 2005). The
1992- 93reportwasnot submittedto GFOAdueto timingdelays.
In addition, the City received the California Society of Municipal Finance Officers ( CSMFO) Certificate
of Award for Outstanding Financial Reporting for its Comprehensive Annual Financial Report for the
fiscal year ended June 30, 2005. Previously the City has received the CSMFO Certificate of Award for
five out of six years from fiscal years ended 1987 through 1992, and then again for fiscal years ended
June 30, 1998 through 2005. The 1988- 89 report and the 1992- 93 through 1996- 97 reports were not
submitted to CSMFO due to timing delays.
We believe our current report continues to conform to the Certificate program requirements. This report
will be submitted to GFOA and to CSMFO for award recognition.
ACKNOWLEDGMENTS
I extend my appreciation to the entire staff in the Finance Department and other departments who
assisted in the process of compiling the information for this report. In addition, I extend a special " thank
you" to the City's Accounting Services Division staff and our external auditors who contributed long
hours to make this document possible. Their efforts and continued dedication are greatly appreciated. I
sincerely thank the Mayor, members of the City Council and City Manager, for their support, interest,
and integrity in directing the financial affairs of the City in a responsible, professional, and progressive
manner.
Respectfully submitted,
~~~
Emma C. Karlen, CPA
Director of Financial Services
XIV
DIRECTORY OF OFFICIALS
June 30, 2006
City Council
Mayor Jose " Joe" Esteves
Vice- Mayor Armando Gomez
Councilmember Robert Livengood
Council member Althea Polanski
Councilmember Debra Giordano
City Manager
Charles Lawson
Police Chief
Thomas Nishisaka
Director of Financial Services
EmmaKarlen, CPA
Fire Chief
Clare Frank
City Clerk
Mary Lavelle
City Attorney
Myers, Nave, Riback, WilsonandSilver
Chief Information Officer
WilliamMarion
Human Resources Director
CarmenValdez
Public Works Director/ City Engineer
GregArmendariz
Planning & Neighborhood Svc Director
Tom Williams
Chief Building Officer
Keyvan Irannejad
xv
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The City of Milpitas is located near the southern tip of San Francisco Bay, forty- five miles south of San Francisco.
Milpitas is often called the " Crossroads of Silicon Valley" with most of its 13.56 square miles of land situated
between two major freeways ( 1- 880 and 1- 680), State Route 237, and a county expressway. The light rail line
opened for service in 2004 and an extension of BART, with a major multi- modal station, is in the planning stages.
xvi
Citizens
Community Advisory
Commission
Arts Commission
I
Planning Commission
Library Advisory
Commission
City Council
Parks, Recreation &
Cultural Resources
Commission
Citizen's Emergency
Preparedness Advisory
Commission
Recycling & Source
Reduction Advisory
Commission
Senior Advisory
Commission
Telecommunications
Commission
Sister Cities
Commission
City
Attomey MobileHome
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r I I I I
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XVll
c. 6 I
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Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
City of Milpitas
California
For its ComprehensiveArumal
Financial Report
for the Fiscal Year Ended
June 30, 2005
A Certificate of Achievement for Excellence in Financial
Reporting is presented by the Govenmlent Finance Officers
Association of the United States and Canada to
goveDill1ent units and public employee retirement
systems whose comprehensive annual financial
reports ( CAFRs) achieve the highest
standards in govenmlent accounting
and financial reporting. ~ President
~/~
Executive Director
XV11l
California Society of
: JVl, unicipal3inance Officers
Certificate of Award
Outstanding Financial Reporting 2004- 05
I II I
I
I
Presented to the
c I~ l
II
I ~
City of Milpitas
This certificate is issued in recognition of meeting professional standards and criteria in reporting
which reflect a high level of quality in the annual financial statements
and in the underlying accounting system from which the reports were prepared.
February 24, 2006
I . , A N
VV~\~ "\' ~ c{ J
Bill Thomas, Chair
Professional & Technical Standards Committee
Dedicated to Excellence ill MUllicipal Financial Management
XIX
1
1
IJ
MAJ~ S~ CIATES
INDEPENDENT AUDITOR'S REPORT ON
BASIC FINANCIAL STATEMENTS
ACCOUNTANCY CORPORATION
3478 Buskirk Ave. - Suite 215
Pleasant Hill, California 94523
( 925) 930- 0902' FAX( 925) 930- 0135
maze@ mazeassociates. com
www. mazeassociates. com
To the Honorable Members ofthe City Council
City of Milpitas, California
We have audited the financial statements of the governmentalactivities, the business- typeactivities, each major fund, and the
aggregate remaining fund informationof the City of Milpitas as of and for the year ended June 30, 2006, which collectively
comprise the City's basic financial statements as listed in the Table of Contents. These financial statements are the
responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the component unit financial statelilentsof Terrace Gardens, Inc. as of and for the year ended
December 31, 2005, which represent 1.66%, 1.03%, and 2.59% of the assets, revenues, and capital assets of the reporting,
respectively. These componentunit financialstatementswere audited by other auditors, whose report thereon has been furnished
to us. Our opinion, insofar as it relatesto the amountsincludedfor this entity, is based solelyon the report ofthese other auditors.
We conducted our audit in accordance with generally accepted auditing standards in the United States of America and the
standards for financial audit contained in Government Auditing Standards, issued by the Comptroller General of the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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
and the report of the other auditorsprovide a reasonablebasis for our opinion.
In our opinion, based on our audit and the report of the other auditors, 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 Milpitas as of June 30, 2006 and the respective
changes in the financial position and cash flows, where applicable, thereof and the respective budgetary comparisons listed as
part of the basic financial statements for the year then ended, in conformity with generally accepted accounting principles in t~ e
United States of America.
In accordance with Government Auditing Standards, we have also issued reports dated September 22,2006 on our consideration
ofthe City's internal control structure and on its compliance with laws and regulations.
Management's Discussion and Analysis is not a required part of the basic financial statements but is supplementary information
required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted
principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary
information. However we did not audit the information and express no opinion on it.
Our audit was conducted for the purpose of forming opinions on the financial statementsthat collectively comprise the basic
financial statements. The supplemental section listed in the Table of Contents is presented for purposes of additional analysis
and is not a required part of the basic financial statements. This information has been subjected to the auditing procedures
applied in the audit of the basic financial statements, and in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
The introductory section and statistical section have not been subjected to the auditing procedures applied in the audit of the
basic financial statements and, accordingly, we express no opinion on them.
71( ftlJe ~ ~~
September22, 2006
A Professional Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion provides readers of the City of Milpitas' financial statements a narrative
overview and analysis of the financial activities of the City of Milpitas for the fiscal year ended June 30,
2006. Please read this document in conjunction with the accompanying Transmittal Letter and Basic
Financial Statements.
FISCAL 2006 FINANCIAL HIGHLIGHTS
The City's revenues in fiscal 2006 continued to reflect a positive economic recovery in the business
activities in the Silicon Valley. However, the recovery is still considered moderate as job growth
continued to be limited and vacancy rates for office, manufacturing and R & 0 space remained high.
Compared to one year ago, local economy has gained strength and the Northern California technology
outlook is much improved. The factors that contributed to economic growth are renewed capital
investment in information technology, acceleration of home prices in the Santa Clara Valley that led to
demand for residential developments, and return to profitability for many high- tech companies. As
discussed below, economic growth translated primarily into increases in key revenues such as property
taxes, sales taxes, and building permit fees. Fiscal 2006 financial highlights include the following:
City- wide:
. The City's total net assets were $ 349.4 million at June 30, 2006. Of this total, $ 229.1 million
were Governmental assets and $ 120.3 million were Business- type assets.
. City- wide revenues include program revenues of $ 57 million and general revenues and transfers
of $ 70.3 million, totaling $ 127.3 million, an increase of $ 20.3 million from the prior year's total
of $ 107 million.
. Total City- wide expenses were $ 111.1 million, a decrease of $ 97.9 million from the prior year's
$ 209 million. However, prior year's expenses included a special item redevelopment expense of
$ 102 million. If that special item was excluded, FY 06 expenses would have been an increase of
$ 4.1 million.
Fund Level:
. Governmental Fund balances were $ 210 million, a decrease of $ 2.3 million from fiscal 2005.
. Governmental Fund revenues increased to $ 97 million in fiscal 2006, up $ 13.4 million from the
prior year's $ 83.6 million.
. Governmental Fund expenditures were $ 105.8 million in fiscal 2006, an increase of $ 5.3 million
from fiscal 2005' s level of$ 100.5 million.
. General Fund revenues of $ 56.3 million represented an increase of $ 10 million from fiscal
2005' s revenues of $ 46.3 million.
. Net transfers into the General Fund were $ 10.6 million in fiscal 2006, $ 3.3 million less than
fiscal2005' s transfersof$ 13.9 million. ..
. General Fund balance of $ 29.2 million at the fiscal 2006 year- end represented an increase of $ 1.2
million from fiscal 2005' s fund balance of $ 28 million.
3
OVERVIEW OFTHECOMPREHENSIVEANNUAL FINANCIAL REPORT
This Comprehensive Annual Financial Report is in six parts:
1) Introductory section, which includes the Transmittal Letter and general information,
2) Management's Discussion and Analysis ( this part),
3) The Basic Financial Statements, which include the Government- wide and the Fund financial
statements, along with the Notes to these financial statements,
4) Supplemental Information,
5) Combining statements for Non- major Governmental Funds and Fiduciary Funds,
6) Statistical information.
The Basic 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- long- term and short- term.
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. 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 on the full accrual basis, similar to that used by corporations. 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 of each of the City's programs. The
Statement of Activities explains in detail the change in net assets for the year.
The Fund Financial Statements report the City's operations in more detail than the City- 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, current assets, liabilities and
fund balances, but exclude capital assets, long- term debt and other long- term amounts.
Major Funds account for the major financial activities of the City and are presented individually, while
the activities of Non- major funds are presented in summary, with subordinate schedules presenting the
detail for each of these Non- major funds. Major Funds are explained below.
The City acts solely as a depository agent for Local ImprovementDistricts and certain other entities. The
fiduciary statements provide information about the cash balances and activities of these Districts and
other entities. These statements are separate from the City's financial statements and their balances are
excluded from the City's fund balances.
Together, all these statements are called the Basic Financial Statements.
The City- wide Financial Statements
All of the City's basic services are considered to be governmental activities, including general
government, community development, public safety, public works, recreation, public improvements,
planning and zoning, and general administration services. These services are supported by general City
revenues such as taxes, and by specific program revenues such as fees. The basic financial statements can
be found in pages 19- 21of this report.
4
All of the City's enterprise activities, including water, recycled water, and sewer are also reported on the
basic financial statements. Unlike governmental services, these activities are supported by charges paid
by users based on the amount of their service consumption.
The City's governmental activities include the activities of two separate legal entities, the Milpitas
Redevelopment Agency ( RDA) and Terrace Gardens, Inc., because the City is either financially
accountable for these entities or has control of the governing board of these entities.
Citywide financial statements are prepared on the accrual basis, which means they measure the flow of all
economic resources of the City as a whole.
Fund Financial Statements
Governmental Fund financial statements are prepared on the modified accrual basis, which means they
measure only current financial resources and uses. Capital assets and other long- lived assets, along with
long- term liabilities, are presented only in the citywide financial statements.
Enterprise and internal service fund financial statements are prepared on the full accrual basis and include
all these funds' assets and liabilities, both current and long- term.
The Fund financial statements provide detailed information about each of the City's most significant
funds, called Major Funds. Each Major Fund is presented individually, with all Non- major Funds
summarized and presented only in a single column. Subordinate schedules present the detail of these
Non- major funds. Major Funds present the major activities of the City for the year. The General Fund is
always a Major Fund, but other funds may change from year to year as a result of changes in the pattern
of the City's activities.
The City has three Major Governmental Funds in fiscal 2006 in addition to the General Fund. These are
the Housing Reserve Fund, the Redevelopment Project Fund and the Street Improvement Fund, each of
which is discussed in detail below.
All three ofthe City's Enterprise Funds are reported as Major Funds.
Comparisons of Budget and Actual financial information are presented only for the General Fund and
other Major governmental funds that are Special Revenue Funds, which in the City's case includes the
Housing Reserve Fund only.
Fiduciary Statements
The City is the agent for certain local improvement districts, holding amounts collected from property
owners which await transfer to these Districts' bond trustees. The City's fiduciary activities are reported
in the separate Statements of Fiduciary 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.
5
CITYWIDE FINANCIAL ANALYSIS
The analysis focuses on the net assets and changes in net assets of the City as a whole. Comparisons of
the current year's net assets and activities with fiscal 2005 are presented in table form. Any significant
changes are analyzed and discussed.
Governmental Activities
Table 1
Governmental Net Assets at June 30
( in Millions)
Governmental Activities
2006 2005
Cash and investments
Other assets
Capital assets
$ 212.4
25.7
270.0
$ 214.2
42.5
265.7
Total assets
Long- term liabilities
Other liabilities
Total liabilities
Net assets:
Invested in capital assets, net
of related debt
Restricted
Unrestricted
Total net assets
The City's governmental net assets were $ 229.1 million at June 30, 2006, an increase of $ 12 million from
2005. This increase is reflected as Change in Net Assets in the Governmental Activities column of the
Statement of Activities and is also shown in Table 2 of this analysis:
. Cash and investments decreased $ 1.8 million principally due to expenditure of bond proceeds for
the Midtown Garage and Library capital improvement projects.
Capital assets increased $ 4.3 million from last year, as a result of $ 20 million asset additions in
fiscal 2006, reduced by $ 15.7 million depreciation of the capital assets.
.
. Long- term liabilities decreased $ 8.3 million due to payments on outstanding bonds and
Installment Purchase Agreement. The City did not enter into any new long- term debt in FY 2006.
Other liabilities decreased $ 18 million due to fulfillment of the obligation to remit the resale
value of a property to the County of Santa Clara under the Installment Purchase Agreement.
Net assets invested in capital assets net of related debt decreased $ 0.9 million primarily due to
spending of the Tax Allocation Bond proceeds that funded these capital assets.
.
.
6
- 508.1 522.4
236.3 244.6
- 42.7 60.7
279.0 305.3
224.2 225.1
97.1 ( 27.0)
( 92.2) 19.0
$ 229.1 $ 217.1
Fiscal Year 2006 Government Activities
Sources of Revenue
Engineering and Planning
10%
Moter veh in lieu 2%
Franchise fees 3%
HoteYMotel tax
5%
Investment earnings
1%
Transfers 6%
Functional Expense
Interest on long term debt
10% General Govermnent
20%
Recreation
5%
Engineering and Planning
8%
As the Sources of Revenue Chart above shows, $ 41.6 million or 39% of the City's fiscal 2006
governmental activities revenue came : tromproperty taxes, while $ 15.6 million or 15% came : tromsales
and use taxes. The remainder came : troma variety of sources, including charges for services, building
permit fees, grants and contributions, : tranchise fees, hotel/ motel taxes, motor vehicle in lieu fees,
investment earnings and others.
7
The Functional Expenses Chart above includes only current year expenses, which are discussed in detail
below. It does not include capital outlays, which are added to the City's capital assets. In fiscal 2006, the
City added 19 million in capital assets. The composition of Fiscal 2006' s additions is shown in detail at
Table 7.
The Statement of Activities presents program revenues and expenses and general revenues in detail. All
these are elements in the Changes in Governmental Net Assets as summarized below.
Table 2
Changes in Governmental Net Assets
( in Millions)
Governmental Activities
2006 2005
Expenses
General Government
Building
Public Works
Engineering and Planning
Recreation
Police
Fire
Interest on long term debt
Total expenses
$ 18.6
2.2
17.2
7.4
4.3
20.5
14.4
9.4
94.0
$ 17.4
2.0
17.8
7.1
4.2
18.8
14.5
9.3
91.1
Revenues
Program revenues:
Charges for services
Operating contributions and grants
Capital Grants
Total program revenues:
General revenues:
Taxes:
Property taxes
Sales and uses taxes
Hotel/ Motel taxes
Other taxes
Franchise fees
Motor vehicle in lieu
Investment earnings
Miscellaneous
Total general revenues
Total Revenues
Surplus ( deficiency) before
transfers & special item
Special Item
Transfers
Changes in net assets
Beginning net assets
Changes in net assets
8
12.8 9.3
4.1 3.8
- 13.0 12.0
- 29.9 25.1
41.6 35.9
15.6 13.8
5.8 5.0
0.2 0.1
2.6 2.8
1.5 0.4
1.3 1.1
- 0.9 0.3
- 69.4 59.4
99.4 84.5
5.3 ( 6.6)
( 102.3)
- 6.6 4.3
12.0 ( 104.6)
- 217.1 321.7
$ 229.1 $ 217.1
Table 2 compares fiscal 2006 expenses and revenues with those of fiscal 2005. Expenses increased $ 2.9
million in total in fiscal 2006 due to increased general government administration for midtown
developments, addition of a Redevelopment Agency and Economic Development Manager, funding of
extended hours for the Library, and increased medical insurance premiums. Police functional expenses
went up due to increased sick leave cash outs, vacation accruals and increased depreciation expense for
equipment. Other functional expenses were at approximately the same level as fiscal 2005.
Table 2 shows that total government revenues increased $ 14.9 million in fiscal 2006. Program revenues
and general revenues increased $ 4.8 million and $ 10.1 million respectively. The biggest contributor to
the increase in program revenues was charges for services which increased $ 3.5 million in fiscal 2006,
due to increased development activities that require plan checks and building permits.
The increase of sales tax revenue by $ 1.8 million and hotel/ motel tax revenue by $ 0.7 million reflect
moderate recovery of economic activity in the Silicon Valley last year. The increase of property tax
revenue by $ 5.7 million reflects increased assessed values of properties that resulted from sales
transactions and the addition of residential properties in the Midtown. The increase in property tax
revenues was partially offset by contributions to the Education Revenue Augmentation Fund ( ERAF) as
mandated by the State to help balance the State budget. In fiscal 2006, the City and RDA contributed $ 1
million and $ 2.4 million respectively. Other increases included repayment of $ 1.1 million in motor
vehicle in- lieu tax from the State and the sale of a property that the City co- owned with a former
employee which returned approximately $ 660,000 of the City's contribution.
Table 3 presents the net cost of each of the City's largest programs- general government, building, public
works, engineering and planning, recreation, police, fire, and interest. Net cost is defined as total program
cost less the revenues generated by those specific activities. The net cost of providing similar programs
decreased $ 1.9 million primarily due to increased revenue for development services, capital grant
received by Information Services Department, and SB90 reimbursements by the State.
Table 3
Governmental Activities
( in Millions)
Net ( Expenses) Revenue
From Services
2006 2005
General Government
Building
Public Works
Engineering and Planning
Recreation
Police
Fire
Interest on long term debt
$( 12.2)
3.6
( 15.1)
3.3
( 2.7)
( 18.4)
( 13.2)
( 9.4)
$( 12.6)
0.8
( 14.6)
2.3
( 2.3)
( 16.8)
( 13.5)
( 9.3)
Totals $( 64.1) $ f66.0)
9
Business- typeActivities
Table 4
Business- Type Net Assets at June 30
( in Millions)
Business- Type Activities
2006 2005
The net assets of business- type activities were $ 120.3 million in fiscal 2006, a net increase of $ 4.2 million
from fiscal 2005. Total assets increased $ 4.1 million while total liabilities decreased $ 0.1 million. The
increase in net assets are explained by the $ 9.9 million net revenues from the Water, Sewer and Recycled
Water Funds offset by the non- operating expenses of $ 5.7 million.
10
Cash and investments $ 26.0 $ 28.5
Other assets 2.3 1.9
Capital assets 94.4 88.2
Total assets 122.7 118.6
Other liabilities 2.4 2.5
Total liabilities 2.4 2.5
Net assets:
Invested in capital assets 94.4 88.2
Restricted 12.9 6.8
Unrestricted 13.0 21.1
Total net assets $ 120.3 $ 116.1
Table 5
Changes in Business- Type Net Assets
( in Millions)
Business- Type Activities
2006 2005
Expenses
Water Utility
Recycled Water Utility
Sewer Utility
Total expenses
$ 9.8
0.3
7.1
17.2
$ 9.7
0.2
6.0
15.9
Revenues
Program revenues:
Charges for services
Capital Grants
Total program revenues:
General revenues:
Investment earnings
Total general revenues
Total Revenues
Excess before transfers
Transfers
Changes in net assets
Beginning net assets, restated
Changes in net assets
23.3
3.8
27.1
21.7
0.6
22.3
0.9
0.9
28.0
10.8
( 6.6)
4.2
116.1
$ 120.3
0.6
0.6
22.9
7.0
( 4.3)
2.7
113.4
$ 116.1
Table 5 compares fiscal 2006 expenses and revenues with those of fiscal year 2005. Expenses increased
$ 1.3 million in total in fiscal 2006 due to increased operating expense of the Wastewater Treatment Plant
for which the City is responsible for its contractual share and increased depreciation expense for utility
funds' capital assets. Total program revenue increased by $ 4.8 million due to utility rate increases,
increased usage by customers and increased capital contributions received from other agencies to fund
their share of the construction cost of capital improvement projects. Total general revenue shows an
increase of $ 0.3 million from last year entirely due to investment earnings. The transfers represent
reimbursements for administration costs incurred by the General Fund and the cost of capital assets
constructed by other funds.
11
FINANCIAL ANALYSIS OF THE CITY'S FUNDS
Table 6 below summarizes activities and balances of the governmental funds at the fund level:
Table 6
Financial Highlights of Governmental Funds at Fund Level at June 30
( in Millions)
2006 2005
Total assets
Total liabilities
Total fund balances
Total revenues
Total expenditures
Total other financing sources
Total special item expenditure
$ 231.8
21.9
209.9
97.0
105.8
6.4
0.0
$ 251.4
39.1
212.3
83.6
100.5
4.3
48.0
At June 30, 2006, the City's governmental funds reported combined fund balances of $ 209.9 million, a
decrease of $ 2.4 million from last year. However, the fund balances of the General Fund, Housing
Reserve Fund and Street Improvement Fund increased $ 1.2 million, $ 4.6 and $ 0.6 million respectively
while the fund balances of the Redevelopment Project Fund, and Other Governmental Funds decreased
$ 8.5 million, and $ 0.3 million respectively.
Revenues at the fund level totaled $ 97 million, an increase of $ 13.4 million. Revenues for the General
Fund, Housing Reserve Fund, Redevelopment Project Fund and Street Improvement Fund increased $ 10
million, $ 2 million, $ 2.4 million and $ 1.2 million respectively while Other Governmental Funds declined
$ 2.2 million.
Expenditures increased $ 5.3 million this year to $ 105.8 million from last year's $ 100.5 million. The
expenditures of General Fund, Housing Reserve Fund, and Redevelopment Project Fund increased $ 0.5
million, $ 2.4 million, and $ 6.7 million respectively, but expenditures of Street Improvement Fund and
Other Governmental Funds declined $ 3.7 million and $ 0.6 million respectively.
Analyses of Major Governmental Funds
General Fund
General Fund revenues increased to $ 56.3 million this fiscal year, up $ 10 million from the prior fiscal
year. Increases came in all revenue categories primarily in sales tax, licenses and permits, and
intergovernmental revenues. Property tax revenue increased $ 1.4 million due to annual 2% assessed
valuation increase and a number of property sales transactions that led to reassessment of those properties.
In fiscal 2006, General Fund also contributed approximately $ 1 million property tax revenue into the
Education Revenue Augmentation Fund to help balance the State budget pursuant to Proposition lA.
Sales tax revenue increased $ 2 million due to improved economic activities in this region. Licenses and
permits were up $ 3 million due to increased development activities, particularly in the Mid- town
Redevelopment area that require plan checks and building permits. Intergovernmental revenue increased
$ 1.3 million due to repayment of $ 1.1 million motor vehicle in- lieu tax from the State and resumption of
12
SB90 mandated cost reimbursements that were previously suspended. Other revenues also increased by
approximately $ 0.7 million, primarily attributed to sale of a property co- owned by the City with a former
employee.
General Fund expenditures increased $ 0.5 million due to increased medical insurance premiums, hiring of
consultants and temporary employees to help with the increased plan check and building inspection
workload, as well as increased sick leave and vacation cash outs due to retirements. These increased costs
were partially offset by additional vacancies that occurred throughout the fiscal year. Net transfers into
the General Fund decreased $ 3.3 million in fiscal 2006 due to $ 3 million funding for the Library Garage
Capital Improvement Project provided by the General Fund. Compared to the final budget, expenditures
were below the final budgeted amount by $ 2.7 million. The variances are explained by savings from
supplies and discretionary expenditures, and additional vacancies in various functions. The differences
between the original budget and final budget were primarily due to increased budget appropriations to
provide funding for extended hours of service at the Library, hiring of two temporary dedicated building
inspectors, additional consultant services, sick leave and vacation leave cash outs, and litigation expense
for a construction lawsuit. These costs were not anticipated at the time ofFY 06 budget preparation.
At June 30, 2006, the fund balance of the General Fund was $ 29.2 million, of which $ 1.3 million was
reserved for encumbrances and other items; $ 3.4 million was designated for the Library Project, $ 6.7
million was designated for employee sick leave and retiree medical benefits, $ 5.4 million for stabilization
of future PERS rate increases, and $ 12.4 million was undesignated.
Housine Reserve
This Fund accounts for Redevelopment Agency activities designed to increase the amount of low and
moderate income housing available in the City. In fiscal 2006, the balances of loans to developers
increased from $ 5.8 million to $ 7.3 million, due to new loans provided to first time homebuyers.
Principal payments and in many cases interest payments on the " Silent Second" loan program to assist
qualified low- income families to purchase homes in Milpitas are deferred until the property is sold or re-financed,
and are not considered revenues until they are received. Principal and interest on loans to non-profit
developers of such properties typically are at below- market rates and payments are deferred for
considerable periods of years to assist these non- profit organizations in their efforts to develop affordable
housing. All these loans are secured by deeds of trust on the underlying property, and if the facilities
constructed with these loans are not used for the purposes intended, the loans become due and payable
immediately.
Revenues increased to $ 2.6 million in fiscal 2006, from $ 0.6 million in fiscal 2005, due to contributions
by developers to support affordable housing pursuant to their development agreements. The net transfers
of $ 4.7 million from the Redevelopment Project Fund comprised of $ 5.8 million tax increment revenue
for the 20% set- aside housing reserve requirement, offset by the Housing Reserve Fund's share of the
administrative costs and debt service payments.
The Fund's fiscal year end fund balance of $ 26.8 million is available only to fund future low and
moderate- income program expenditures.
13
RedeveloomePnrtoiect
This Fund accounts for property tax increments and other Redevelopment Agency revenues used to
construct or acquire capital assets in the Redevelopment Agency's project areas. The Fund's revenues
were $ 29.5 million in fiscal 2006, an increase of $ 2.4 million from fiscal 2005. Property tax increment
revenues increased by $ 3.4 million in fiscal 2006, primarily due to increased assessed valuation for new
residential and commercial developments and the annual 2% assessed valuation increase as permitted by
Proposition 13. As mandated by the State, the Agency contributed $ 2.4 million from fiscal 2006 tax
increment revenues to ERAF. In fiscal 2005, the contribution to ERAF was $ 3 million. Revenue from
the use of assets decreased $ 0.5 million due to draw downs of bond proceeds.
Fund expenditures were $ 31.1 million in fiscal 2006, an increase of $ 6.7 million. Interest and principal
payments totaling $ 16.7 million which include $ 12.7 million debt service payments for the 2003 Tax
Allocation Bonds and $ 4 million installment payment pursuant to a Purchase and Sale Agreement with
the County of Santa Clara. Fund expenditures also included capital improvement project expenditures of
$ 13 million, an increase of $ 5 million over prior year.
The Fund's fiscal year end fund balance of $ 127.6 million may be used only for redevelopment purposes.
Of this amount, $ 0.1 million was reserved for outstanding encumbrances and prepaids, $ 7.0 million was
reserved for property held for resale or redevelopment, $ 90.5 million was designated for committed
capital projects and $ 30 million was undesignated.
Street Improvement Capital Proiect
This Capital Project Fund accounts for majority of the capital projects activity in the City that is not
developed in the redevelopment area. The Fund's revenues were $ 4 million in fiscal 2006, an increase of
$ 1.2 million from fiscal 2005. The increase was attributed to $ 0.1 million increase in Intergovernmental
revenues and $ 1.1 million increase in developer contributions.
Fund expenditures were $ 3.3 million in fiscal 2006, a decrease of $ 3.8 million from fiscal 2005, primarily
due to decreased capital outlay.
The fund ended fiscal 2006 with $ 11.1 million in fund balance, of which $ 0.2 million was reserved for
encumbrances outstanding, $ 6.7 million was designated for capital projects and $ 4.2 million was
undesignated.
Other Governmental Funds
These funds are not presented separately in the Basic Financial statements, but are individually presented
as Supplemental Information.
14
Analyses of Major Proprietary Funds
Total operating revenues of Business- type Activities increased $ 1.6 million from last year, while
operating expenses increased $ 1.3 million. Total revenues and total operating expenses were $ 23.3
million and $ 17.2 million respectively. Non- operating revenues of $ 1 million in fiscal 2006 were $ 0.2
million lower than the prior year primarily due to reduced subvention and grants received from other
agencies. Developer contributions to the proprietary funds increased $ 3.7 million in fiscal 2006.
Transfers in to Business- type Activities decreased $ 0.7 million in fiscal 2006, while transfers to
Government- type Activities were $ 1.6 million more than the prior year.
Water Utility
Water fund revenues were $ 13.2 million in fiscal 2006, up $ 0.8 million from the prior year. The increase
in revenues is primarily due to a rate increase implemented at the beginning of the fiscal year. Expenses
were $ 9.8 million in fiscal 2006, up $ 0.2 million from the prior year due to increased personnel and
consultant services costs. Net assets of the Water Utility Fund increased $ 0.4 million in the current year
to a total of $ 48.4 million. The increase comprised $ 3.4 million in operating income for the current year,
$ 0.2 million in non- operating revenues, offset by net transfers out of $ 3.2 million. Transfers in of $ 0.4
million represent reimbursements for the cost of capital assets constructed by the Water Enterprise Fund
for the other enterprise funds. Transfers out of $ 4.1 million were for reimbursements of administration
costs incurred by the General Fund, reimbursements for the cost of capital assets constructed by the
Redevelopment Agency Fund, and return of unused capital project funds.
This Fund's Net Assets includes $ 41 million invested in capital assets, $ 2.3 million in restricted net
assets, and $ 5.1 million in unrestricted net assets.
Recvcled Water Utility
Recycled Water fund revenues were $ 1.1 million in fiscal 2006, up $ 0.1 million from the prior year.
Expenses were $ 0.3 million in fiscal 2006, at the same level as last fiscal year. Net assets of the Fund
increased $ 0.4 million in the current year to a total of $ 2.4 million. This increase included $ 0.8 million in
operating income and $ 0.1 million in non- operating income, offset by transfers out totaling $ 0.5 million.
Transfers out are primarily reimbursements for the cost of capital assets constructed by the Water
Enterprise Fund for the Recycled Water Fund.
This Fund's Net Assets includes $ 0.4 million invested in capital assets and $ 2 million in unrestricted net
assets, with a small amount of restricted net assets.
Sewer Utility
Sewer fund revenues were $ 8.9 million in fiscal 2006, up $ 0.7 million from the prior year due to a rate
increase implemented at the beginning of the fiscal year. Expenses were $ 7 million in fiscal 2006, up $ 1
million from the prior year due to increased expenses in purchased sewer capacity and increased
depreciation expense for capacity rights. Non- operating revenues in fiscal year 2006 consists of $ 0.6
million interest income. Net assets of the Sewer Utility Fund increased $ 3.4 million in the current year to
a total of $ 69.4 million. This increase comprised of $ 1.9 million in operating income, $ 0.6 million in
non- operating revenues, $ 3.3 million in capital contributions by developers, offset by net transfers out
totaling $ 2.4 million. Transfers in of $ 0.2 million represent reimbursements for the cost of capital assets
constructed by the Sewer Enterprise Fund for other funds. Transfers out of $ 2.6 million represent
reimbursements for administration costs incurred by the General Fund, reimbursements for the cost of
capital assets constructed by the Redevelopment Agency Fund, and return of unused capital project funds.
15
$ 5.9 million of the Fund's Net Assets was unrestricted at the fiscal year end. Of the remainder, $ 53
million was invested in capital assets and $ 10.5 million was restricted as to use.
CAPITAL ASSETS
The City has recorded the cost of all its infrastructure assets such as roads, bridges, signals and similar
assets used by the general population and computed the amount of accumulated depreciation for these
assets based on their original acquisition dates. At the end of fiscal 2006 the cost of infrastructure and
other capital assets recorded on the City's financial statements was as shown in Table 7 below:
Table 7
Capital Assets at Year- end
( in Millions)
2006 2005
Governmental Activities:
Land
Construction in progress
Buildings and improvements
Other improvements
Machinery and equipment
Landscape system
Storm system
Street system
Traffic system
Less accumulated depreciation
$ 35.0
34.8
92.6
20.3
19.4
29.6
72.6
202.0
15.5
( 251.8)
$ 32.9
22.6
90.7
20.3
19.3
29.6
72.6
200.1
14.6
( 237.1)
Totals $ 270.0 $ 265.6
Business- type Activities:
Land
Construction in progress
Distribution facilities
Service lines
Sewer lines
Capacity rights
Less accumulated depreciation
$ 1.1
8.6
67.3
7.7
57.9
30.2
( 78.4)
$ 1.1
16.3
67.3
5.8
50.2
22.7
( 75.2)
Totals $ 94.4 $ 88.2
The principal additions in fiscal 2006 were construction in progress and capacity rights. Most of
construction- in- progress were expenditures on Midtown infrastructure projects and Library related
projects. Other additions included street system, and additional sewer capacity rights purchased in fiscal
2006. Further detail on capital assets, current year additions and construction- in- progress can be found in
Note 8.
16
The City depreciates all its capital assets over their estimated useful lives. The purpose of depreciation is
to spread the cost of a capital asset over the years of its useful life so that an allocable portion of the cost
ofthe asset is borne by all users. Additional information on depreciable lives may be found in Note 8.
DEBT ADMINISTRATION
Substantially all of the City's debt was issued to finance redevelopment projects and technological capital
outlays. These debt issues are secured by the property tax increment revenue of the Redevelopment
Agency and lease payments of the General Fund. Each of the City's debt issues is discussed in detail in
Note 9 to the financial statements. At June 30, 2006 the City's debt comprised:
Table 8
Outstanding Debt
( in Millions)
Governmental Activity Debt:
Balance
June 30, 2006
Balance
June 30, 2005
Redevelopment Agency 2003 Tax Allocation Bonds
2% - 5.25%, due September 1,2032
Technology Certificates of Participation, Series 2000
4% - 4.25%, dueNovember1,2008
Installment Purchase Agreement with the County
Of Santa Clara, due June 30, 2023
$ 190.8 $ 194.4
3.5 4.6
50.5 54.3
Total Governmental Activity Debt $ 244.8 $ 253.3
LOCAL IMPROVEMENT DISTRICT DEBT
Local improvement districts in different parts of the City have issued debt to finance infrastructure and
facilities construction entirely in those districts. At June 30, 2006, a total of $ 28.5 million in local
improvement district debt was outstanding, issued by fou~ local improvement districts. This debt is
secured only by special assessments on the real property in the district issuing the debt, and is not the
City's responsibility. The City does act as these Districts' agent in the collection and remittance of
assessments, and in the management of facilities construction. Further detail on these districts may be
found in Note 15 to the financial statements.
17
ECONOMIC OUTLOOK AND MAJOR INITIATIVES
The economy of the City and its 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 should be directed
to the Finance Department, at 455 East Calaveras Boulevard, Milpitas, CA 95035- 5479.
18
ASSETS
Cash and investments available for operations ( Note 3)
Restricted investments ( Note 3)
Receivables:
Accounts
Due from other governments
Interest
Loans receivable ( Note 5)
Prepaids, materials, supplies and deposits
Property held for resale ( Note 6)
Capital assets and capacity rights ( Note 8):
Land and construction in progress
Depreciable capital assets, net
Total assets
LIABILITIES
Accounts payable
Accrued payroll
Interest payable
Uninsured claims payable ( Note 13)
Refundable deposits
Advance from other governments ( Note 8E)
Unearned revenue
Accrued vacation ( Note 12):
Due within one year
Due in more than one year
Sick leave payable ( Note 12):
Due within one year
Due in more than one year
Retiree medical benefits ( Note 12):
Due within one year
Due in more than one year
Long term debt ( Note 9):
Due within one year
Due in more than one year
Total liabilities
NET ASSETS ( Note 10)
Invested in capital assets and capacity rights, net of related debt
Restricted for:
Capital projects
Redevelopment and community development activities
Total restricted net assets
Unrestricted
Total net assets
CITY OF MILPITAS
STATEMENT OF NET ASSETS
JUNE 30, 2006
Governmental
Activities
$ 125,429,450
86,962,542
2,120,628
3,451,445
2,367,704
9,852,389
916,263
6,988,800
69,857,365
200,144,417
508,091,003
5,195,909
1,600,228
3,009,268
4,033,114
1,175,386
158,149
1,257,738
3,057,422
854,656
4,231,720
646,518
8,995,393
8,508,118
236,283,094
279,006,713
224,223,446
21,598,457
75,471,000
97,069,457
( 92,208,613)
$ 229,084,290
Primary Government
Business- Type
Activities
$ 25,993,184
1,661,355
323,765
261,994
9,765,055
84,701,891
122,707,244
1,221,225
50,000
111,711
729,309
129,657
166,291
2,408,193
94,466,946
12,852,186
12,852,186
12,979,919
$ 120,299,051
See accompanying notes to financial statements
19
Total
$ 151,422,634
86,962,542
3,781,983
3,451,445
2,691,469
9,852,389
1,178,257
6,988,800
79,622,420
284,846,308
630,798,247
6,417,134
1,600,228
3,009,268
4,083,114
1,287,097
729,309
158,149
1,257,738
3,187,079
854,656
4,398,011
646,518
8,995,393
8,508,118
236,283,094
281,414,906
318,690,392
34,450,643
75,471,000
109,921,643
( 79,228,694)
$ 349,383,341
Component
Unit
Terrace Gardens Inc.
$ 27,844
951,619
4,160
30,807
1,565,277
7,888,361
10,468,068
61,650
26,698
74,731
55
163,134
10,304,934
$ 10,304,934
FunctionslPrograms
Primary Government:
Governmental Activities:
General Government
Building
Public Works
Engineeringand Planning
Recreation
Police
Fire
Interest on long term debt
Total Governmental Activities
Business- type Activities:
Water Utility
Recycled Water Utility
Sewer Utility
Total Business- type Activities
Total Primary Government
Component Unit:
Terrace Gardens Inc.
General revenues:
Taxes:
Property taxes
Less: Educational Revenue Augmentation
Fund payment ( Note 16)
Sales and use taxes
HotellMotei taxes
Other taxes
Franchise fees
Motor vehicle in lieu
Investment earnings
Miscellaneous
Transfers ( Note 4)
Total general revenues and transfers
Change in Net Assets
Net Assets- Beginning, as Restated ( Note 8E)
Net assets- Ending
44,026,089
( 2,421,926)
15,613,115
5,669,231
133,339
2,643,392
1,548,080
1,301,762
867,558
6,633,207
923,759
( 6,633,207)
76,013,847 ( 5,709,448)
11,948,838 4,208,944
217,135,452 116,090,107
$ 229,084,290 $ 120,299,051
See accompanying notes to financial statements
20
CITY OF MILPITAS
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2006
Net ( Expense) Revenueand
ProgramRevenues Changes in Net Assets
Operating Capital Primary Government
Charges for Grants and Grants and Governmental Business- type
Expenses Services Contributions Contributions Activities Activities
$ 18,650,748 $ 580,379 $ 1,169,425 $ 4,691,862 ($ 12,209,082)
2,195,063 5,799,623 3,604,560
17,156,452 344,026 48,569 1,644,066 ( 15,119,791)
7,453,156 2,412,165 1,769,191 6,634,710 3,362,910
4,265,682 1,495,580 102,729 ( 2,667,373)
20,472,656 1,132,213 879,443 ( 18,461,000)
14,380,713 1,069,531 119,831 ( 13,191,351)
9,383,882 ( 9,383,882)
93,958,352 12,833,517 4,089,188 12,970,638 ( 64,065,009)
9,836,770 13,224,233 509,261 $ 3,896,724
328,373 1,086,108 52,989 810,724
7,046,551 8,966,260 3,291,235 5,210,944
17,211,694 23,276,601 3,853,485 9,918,392
$ 111,170,046 $ 36,110,118 $ 4,089,188 $ 16,824,123 ( 64,065,009) 9,918,392
$ 1,450,305 $ 1,292,170
Total
($ 12,209,082)
3,604,560
( 15,119,791)
3,362,910
( 2,667,373)
( 18,461,000)
( 13,191,351)
( 9,383,882)
( 64,065,009)
3,896,724
810,724
5,210,944
9,918,392
( 54,146,617)
44,026,089
( 2,421,926)
15,613,115
5,669,231
133,339
2,643,392
1,548,080
2,225,521
867,558
70,304,399
16,157,782
333,225,559
$ 349,383,341
Net ( Expense)
Revenue and
Changes in Net Assets
Component Unit
Terrace
Gardens Inc.
($ 158,135)
18,738
18,738
( 139,397)
10,444,331
$ 10,304,934
21
ASSETS
Cash and investments available for operations ( Note 3)
Restricted investments ( Note 3)
Receivables:
Accounts
Due trom other governments
Interest
Loans receivable ( Note 5)
Prepaids, materials, supplies and deposits
Property held for resale ( Note 6)
Total Assets
LIABILITIES
Accounts payable
Accrued payroll
Uninsured claims payable ( Note 13)
Refundable deposits
Deferred revenue
Accrued vacation ( Note 12)
Sick leave payable ( Note 12)
Retiree medical benefits ( Note 12)
Total Liabilities
FUND BALANCES
Fund balances ( Note 10)
Reserved for:
Encumbrances
Loans
Prepaids, materials, supplies and deposits
Property held for resale
. Low and moderate income housing
Unreserved, designated for:
Long- term portion of:
Sick leave payable
Retiree medical benefits
PERS stabilization
Library project
Projects, reported in Capital Projects Funds
Unreserved, undesignated
Reported in:
General Fund
Special Revenue Funds
Capital Projects Funds
752,018
563,457 108
88,836
57,066
6,988,800
2,410
184,621
88,690
2,579,199
2,709
931,954
2,579,199
807,961
6,988,800
26,819,252 26,819,252
2,627,171
4,140,884
5,432,703
3,373,429
14,793
90,475,025 6,693,903 4,105,985
2,641,964
4,140,884
5,432,703
3,373,429
101,274,913
12,391,281
3,524,304
4,729,851
15,030,738
12,391,281
3,524,304
38,968,877
TOTAL FUND BALANCES 29,280,943 209,875,521
Total Liabilities and Fund Balances $ 39,319,667 $ 15,768,440
Amounts reported for Governmental Activities in the Statement of Net Assets
are different trom those reported in the Governmental Funds above because of the following:
CAPITAL ASSETS
Capital assets used in Governmental Activitiesare not current assets or fmancial resources and therefore are not reported in the Governmental Funds. 270,001,782
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 Statement of Net Assets. 5,908,366
ACCRUAL OF NON- CURRENT REVENUES AND EXPENSES
Revenues which are deferred on the Fund Balance Sheets because they are not availablecurrently are taken
into revenue in the Statement of Activities. 8,443,533
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
Interest payable
Non- current portion of accrued vacation, sick leave and retiree medical benefits
Non- current portion of uninsured claims payable
NET ASSETS OF GOVERNMENTAL ACTIVITIES
( 244,791,212)
( 3,009,268)
( 16,284,535)
( 1,059,897)
$ 229,084,290
Seeaccompanyingnotesto fmancial statements
23
CITY OF MILPITAS
GOVERNMENTAL FUNDS
BALANCE SHEET
JUNE30,2006
Other Total
Housing Redevelopment Street Governmental Governmental
General Reserve Project Improvement Funds Funds
$ 34,906,504 $ 20,281,438 $ 41,128,102 $ 10,660,115 $ 12,393,762 $ 119,369,921
6,334,337 80,503,265 124,940 86,962,542
1,575,758 35,807 483,573 25,490 2,120,628
1,754,577 83,892 1,102,638 510,338 3,451,445
519,371 324,669 1,202,658 116,553 132,002 2,295,253
7,273,190 2,579,199 9,852,389
563,457 108 57,066 184,621 2,709 807,961
6,988,800 6,988,800
$ 39,319,667 $ 34,249,549 $ 129,963,783 $ 12,547,500 $ 15,768,440 $ 231,848,939
$ 1,450,159 $ 156,999 $ 2,331,727 $ 607,816 $ 348,268 $ 4,894,969
1,600,228 1,600,228
2,973,217 2,973,217
1,156,374 18,843 1,175,217
130,641 7,273,190 827,260 370,591 8,601,682
1,237,072 1,237,072
844,515 844,515
646,518 646,518
10,038,724 7,430,189 2,331,727 1,435,076 737,702 21,973,418
30,022,329 4,216,697
26,819,360 127,632,056 11,112,424
$ 34,249,549 $ 129,963,783 $ 12,547,500
CITYOFMILPITAS
GOVERNMENTALFUNDS
STA1EMENTOF REVENUES, EXPENDITURES
ANDCHANGESIN FUNDBALANCES
FOR THEYEARENDEDJUNE30, 2006
24
Other Total
Housing Redevelopment Street Governmental Governmental
General Reserve Project Improvement FlUJds FlUJds
REVENUES
Property taxes $ 14,548,284 $ 28,606,441 $ 43,154,725
Less: Educational Revenue
Augmentation FlUJdpayment ( Note 16) ( 2,421,926) ( 2,421,926)
Sales taxes 16,227,888 16,227,888
Other taxes 9,595,542 $ 407,375 10,002,917
Licenses and fines 7,356,180 400 7,356,580
Interest and others 1,296,624 $ 855,525 3,317,749 $ 344,754 445,085 6; 259,737
Intergovernmental 2,288,888 30,000 1,198,620 2,527,817 6,045,325
Charges for services 4,128,811 35,935 4,164,746
Developer contributions 1,750,000 2,539,166 721,216 5,010,382
Other 867,197 24,689 1,447 293,106 1,\ 86,439
Total Revenues 56,309,414 2,605,525 29,556,953 4,083,987 4,430,934 96,986,813
EXPENDIlURES
Current:
General Government 12,062,227 2,768,971 293,721 374,929 109,030 15,608,878
Building 2,225,643 2,225,643
Public Works 7,566,916 38,331 183,457 7,788,704
Engineering and Planning 4,019,740 1,026,491 605,241 929,637 6,581,109
Recreation 4,284,286 4; 284; 286
Police 19,930,850 236,022 20,166,872
Fire 14,312,036 14,312,036
Capital outlay 13,088,890 2,338,231 1,433,535 16,860,656
Debt service:
Principal 1,090,000 7,469,524 8,559,524
Interest and fees 170,929 9,253,022 9,423,951
Total Expenditures 65,662,627 2,768,971 31,131,648 3,356,732 2,891,681 105,811,659
EXCESS ( DEFICIENCY) OF REVENUES
OVER EXPEND1lURES ( 9,353; 213) ( 163,446) ( 1,574,695) 727; 255 1,539,253 ( 8,824,846)
OTHER FINANCING SOURCES ( USES)
Transfers in ( Note 4) 14,291,506 5,867,736 6,462,164 1; 225,000 676,399 28,522,805
Transfers ( out) ( Note 4) ( 3,700,000) ( 1,127,169) ( 13,327,429) ( 1,371,850) ( 2,547,724) ( 22,074,172)
Total Other Financing Sources ( Uses) 10,591,506 4,740,567 ( 6,865,265) ( 146,850) ( 1,871,325) 6,448,633
NET CHANGE IN FUND BALANCES 1,238,293 4,577,121 ( 8,439,960) 580,405 ( 332,072) ( 2,376,213)
FlUJdbalances at beginning of period 28,042,650 22,242,239 136,072,016 10,532,019 15,362,810 212; 251,734
FUND BALANCES AT END OF PERIOD $ 29,280,943 $ 26,819,360 $ 127,632,056 $ 11,112,424 $ 15,030,738 $ 209,875,521
See accompanying notes to financial statements
CITY OF MILPITAS
Reconciliation of the
NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS
with the
STATEMENTOF ACTIVITIES
FOR THE YEAR ENDEDJUNE 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 ($ 2,376,213)
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 capitalized and allocated over
their estimated useful lives and reported as depreciation expense.
The capital outlay expenditures are therefore added back to fund balance
( Internal service fund additions of$ I, 001,438 have already been added to capital assets)
Donated assets from developers
Depreciation expense is deducted from the fund balance
( Depreciation expense is net of internal service fund depreciation of
$ 996,096 which has already been allocated to serviced funds.)
16,860,656
2,181,538
( 14,677,154)
LONGTERM DEBTPAYMENTS
Repayment of principal is an expenditure in the governmental funds, but
in the Statement of Net Assets the repayment reduces long- term liabilities.
Repayment of principal is added back to fund balance 8,559,524
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 accrued vacation, sick leave and retiree medical benefits
Non- current portion of uninsured claims payable
Interest payable
Deferred revenue
( 1,082,754)
727,028
40,069
1,227,152
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 488,992
CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 11,948,838
See accompanying notes to financial statements
25
__ n ....-----
CITY OF MILPITAS
GENERAL FUND
STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUNDBALANCES
BUDGETAND ACTUAL ( NON GAAP LEGAL BASIS)
FOR THE YEAR ENDED JUNE 30, 2006
Revenues
Property taxes
Sales taxes
Other taxes
Licenses and fines
Interest and other
Intergovernmental
Charges for services
Other
Total Revenues
Expenditures
Current:
Policy, Planning, and Implementation
City Attorney
Finance
Public Works
Planning, RecreationandNeighborhoodServices
Police
Fire
Information Services
Human Resources
Non- departmental
Debt service:
Principal
Interest and fees
Total Expenditures
EXCESS ( DEFICIENCY) OF REVENUES
OVER EXPENDITURES
OTHER FINANCING SOURCES ( USES)
Transfers in
Transfers ( out)
Total Other Financing Sources ( Uses)
Net change in fund balance
Adjustment to budgetary basis:
Encumbrance expenditures
Budgetary fund balance, July I
Budgetary fund balance, June 30
See accompanying notes to financial statements
26
317,481
124,025
99,700
617,640
504,553
726,196
20,626
31
238,060
49,173
2,697,485
11,010,751
( 6,098,386)
( 6,098,386)
$ 4,912,365
Variancewith
BudgetedAmounts Budget
Actual Amounts Positive
Original Final Budgetary Basis ( Negative)
$ 13,666,600 $ 13,666,600 $ 14,548,284 $ 881,684
15,562,977 15,562,977 16,227,888 664,911
8,935,250 8,935,250 9,595,542 660,292
3,779,000 3,912,932 7,356,180 3,443,248
1,423,000 1,423,000 1,296,624 ( 126,376)
837,000 1,086,365 2,288,888 1,202,523
3,068,963 3,341,540 4,128,811 787,271
52,000 67,484 867,197 799,713
47,324,790 47,996,148 56,309,414 8,313,266
5,972,524 6,950,658 6,633,177
816,185 1,516,185 1,392,160
2,705,629 2,705,629 2,605,929
8,381,610 8,270,223 7,652,583
6,931,408 6,589,506 6,084,953
20,651,047 20,681,619 19,955,423
14,425,894 14,413,573 14,392,947
2,479,412 2,529,662 2,529,631
1,367,948 1,216,794 978,734
1,446,155 2,958,106 2,908,933
1,090,000 1,090,000 1,090,000
170,929 170,929 170,929
66,438,741 69,092,884 66,395,399
( 19,113,951) ( 21,096,736) ( 10,085,985)
19,689,892 20,389,892 14,291,506
( 3,700,000) ( 3,700,000)
19,689,892 16,689,892 10,591,506
$ 575,941 ($ 4,406,844) 505,521
732,772
28,042,650
$ 29,280,943
CITY OF MILPITAS
HOUSINGRESERVE FUND
STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUNDBALANCES
BUDGETAND ACTUAL ( NON GAAP LEGAL BASIS)
FOR THE YEAR ENDED JUNE 30, 2006
Revenues
Interest and others
Developer contribution
Other
Total Revenues
Expenditures
Current:
General Goverrunent
Planning, Recreation and Neighborhood Services
Non- departmental
Total Expenditures
EXCESS ( DEFICIENCY) OF REVENUES
OVER EXPENDITURES
OTHER FINANCING SOURCES ( USES)
Transfers in
Transfers ( out)
Total Other Financing Sources ( Uses)
Net change in fund balance
Adjustment to budgetary basis:
Encumbrance expenditures
Budgetary fund balance, July I
Budgetary fund balance, June 30
See accompanying notes to financial statements
27
Variancewith
BudgetedAmounts Budget
Actual Amounts Positive
Original Final BudgetaryBasis ( Negative)
$ 506,000 $ 506,000 $ 855,525 $ 349,525
1,750,000 1,750,000
35,800 35,800 ( 35,800)
541,800 541,800 2,605,525 2,063,725
87,423 87,423 86,900 523
23,000 23,000 23,000
- 4,101,770 4,101,768 2
110,423 4,212,193 4,188,668 23,525
431,377 ( 3,670,393) ( 1,583,143) 2,087,250
5,325,400 5,325,400 5,867,736 542,336
( 764,576) ( 764,576) ( 1,127,169) ( 362,593)
4,560,824 4,560,824 4,740,567 179,743
$ 4,992,201 $ 890,431 3,157,424 $ 2,266,993
1,419,697
22,242,239
$ 26,819,360
See accompanying notes to financial statements
29
CITY OF MILPIT AS
PROPRIETARY FUNDS
STATEMENT OF NET ASSETS
JUNE 30, 2006
Govenunental
Activities-
Business- type Activities- EnterpriseFunds Equipment
Recycled Management
Water Sewer Internal Service
Water Utility Utility Utility Totals Fund
ASSETS
Current Assets
Cash and investments
available for operations ( Note 3) $ 7,259,260 $ 2,052,116 $ 16,681,808 $ 25,993,184 $ 6,059,529
Receivables:
Accounts 974,334 42,633 644,388 1,661,355
Due from other fimds ( Note 4B) 74,282 74,282
Interest 96,289 24,990 202,486 323,765 72,451
Prepaids, materials, supplies and deposits 253,326 323 8,345 261,994 108,302
Total current assets 8,583,209 2,120,062 17,611,309 28,314,580 6,240,282
Noncurrent assets:
Capital assets and capacity rights ( Note 8):
Land and construction in progress 5,858,546 3,906,509 9,765,055
Depreciable capital assets, net 35,237,304 331,654 49,132,933 84,701,891 4,473,058
Total noncurrent assets 41,095,850 331,654 53,039,442 94,466,946 4,473,058
Total assets 49,679,059 2,451,716 70,650,751 122,781,526 10,713,340
LIABILITIES
Current liabilities:
Accounts payable 903,114 2,587 315,524 1,221,225 300,940
Due to other funds ( Note 4B) 74,282 74,282
Uninsured claims payable ( Note 13) 50,000 50,000
Refundable deposits 58,500 53,211 111,711 169
Accrued vacation ( Note 12) 20,666
Sick leave payable ( Note 12) 10,141
Total current liabilities 1,035,896 55,798 365,524 1,457,218 331,916
Non- current liabilities:
Advances from other govenunents ( Note 8E) 729,309 729,309
Accrued vacation ( Note 12) 70,693 58,964 129,657
Sick leave payable ( Note 12) 115,928 50,363 166,291
Total non- current liabilities 186,621 838,636 1,025,257
Totalliabilities 1,222,517 55,798 1,204,160 2,482,475 331,916
NET ASSETS
Invested in capital assets and capacity rights 41,095,850 331,654 53,039,442 94,466,946 4,473,058
Restricted for capital projects 2,291,144 60,618 10,500,424 12,852,186
Unrestricted 5,069,548 2,003,646 5,906,725 12,979,919 5,908,366
Total net assets $ 48,456,542 $ 2,395,918 $ 69,446,591 $ 120,299,051 $ 10,381,424
----------
CITY OF MlLPITAS
PROPRIETARYFUNDS
STATEMENTOF REVENUE, EXPENSES
AND CHANGESIN FUNDNET ASSETS
FOR THEYEAR ENDEDJUNE 30, 2006
30
Governmental
Activities-
Business- type Activities- Enterprise Funds Equipment
Recycled Management
Water Sewer Internal Service
Water Utility Utility Utility Totals Fund
OPERATING REVENUES
Charges for services $ 13,070,833 $ 1,077,288 $ 8,905,500 $ 23,053,621 $ 2,508,922
Other operating revenue 153,400 8,820 60,760 222,980
Total Operating Revenues 13,224,233 1,086,108 8,966,260 23,276,601 2,508,922
OPERATING EXPENSES
Purchased water 5,622,972 235,033 5,858,005
Purchased sewer capacity 3,309,721 3,309,721
Personnel services 1,771,119 55,251 1,157,110 2,983,480 1,404,191
Services and supplies 934,075 14,578 576,185 1,524,838 59,273
Depreciation 1,298,775 20,217 1,858,480 3,177,472 996,096
Repairs and maintenance 209,829 3,294 145,055 358,178 289,783
Total Operating Expenses 9,836,770 328,373 7,046,551 17,211,694 2,749,343
Operating Income ( Loss) 3,387,463 757,735 1,919,709 6,064,907 ( 240,421)
NONOPERATING REVENUES
Interest income 228,442 63,285 632,032 923,759 154,820
Subventions and grants 52,989 9 52,998
Gain on sale of assets 11,660
Total Nonoperating Revenues 228,442 116,274 632,041 976,757 166,480
Income ( Loss) Before Contributions and Transfers 3,615,905 874,009 2,55 1,750 7,041,664 ( 73,941)
Capital contributions 2,466,500 2,466,500 378,359
Capital contributions- connection fees 509,261 824,726 1,333,987
Transfers in ( Note 4) 440,000 193,961 633,961 200,000
Transfers ( out) ( Note 4) ( 4,180,852) ( 494,142) ( 2,592,174) ( 7,267,168) ( 15,426)
Change in net assets 384,314 379,867 3,444,763 4,208,944 488,992
Total net assets- beginning, as restated ( Note 8E) 48,072,228 2,016,051 66,001,828 116,090,107 9,892,432
Total net assets- ending $ 48,456,542 $ 2,395,918 =- 9,446,591 $ 120,299,051 $ 10,381,424
See accompanying notes to financialstatements
31
CITY OF MILPITAS
PROPRIETARYFUNDS
STATEMENTOFCASHFLOWS
FOR THEYEARENDEDJUNE 30, 2006
Governmental
Activities-
Business- type Activities- Enterprise Funds Equipment
Management
Recycled Water Sewer InternaI Service
Water Utility Utility Utility Totals Fund
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts ftom customers $ 13,119,541 $ 1,094,223 $ 8,921,454 $ 23,135,218 $ 2,512,246
Payments to suppliers ( 6,717,276) ( 250,328) ( 4,048,502) ( 11,016,106) ( 121,556)
Payments to employees ( 1,913,491) ( 56,779) ( 1,231,645) ( 3,201,915) ( 1,430,992)
Net cash provided by operating activities 4,488,774 787,116 3,641,307 8,917,197 959,698
CASH FLOWS FROM NONCAPITAL
FINANCING ACTIVITIES
Advances to other funds 74,282 74,282
Advances ftom other funds ( 74,282) ( 74,282)
Transfers in 440,000 193,961 633,961 200,000
Transfers ( out) ( 4,180,852) ( 494,142) ( 2,592,174) ( 7,267,168) ( 15,426)
Cash Flows ftom Noncapit. aI Financing Activities ( 3,815,134) ( 494,142) ( 2,323,931) ( 6,633,207) 184,574
CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES
Proceeds ftom sale of capital assets 11,660
Acquisition of capital assets ( 793,907) ( 8,659,298) ( 9,453,205) ( 601,252)
Capital contributions 2,466,500 2,466,500
- Capital contributions - connection fees 509,261 824,726 1,333,987
Subventions and grants 52,989 9 52,998
Advances ftom other governments ( 18,098) ( 18,098)
Cash Flows ftom Capital and Related
Financing Activities ( 284,646) 52,989 ( 5,386,161) ( 5,617,818) ( 589,592)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received 185,459 49,975 609,583 845,017 82,369
Cash Flows ftom Investing Activities 185,459 49,975 609,583 845,017 82,369
Net increase ( decrease) in cash and cash equivalents 574,453 395,938 ( 3,459,202) ( 2,488,811) 637,049
Cash and investments at beginning of period 6,684,807 1,656,178 20,141,010 28,481,995 5,422,480
Cash and investments at end of period $ 7,259,260 $ 2,052,116 $ 16,681,808 $ 25,993,184 $ 6,059,529
Reconciliation of operating income to net cash provided by
operating activities:
Operating income ( loss) $ 3,387,463 $ 757,735 $ 1,919,709 $ 6,064,907 ($ 240,421)
Adjustments to reconcile operating income to net cash provided
by operating activities:
Depreciation 1,298,775 20,217 1,858,480 3,177,472 996,096
Change in assets and liabilities:
Receivables, net ( 125,192) ( 2,896) ( 44,806) ( 172,894) 3,324
Materials, supplies and deposits ( 26,056) ( 10) ( 1,716) ( 27,782) ( 7,391)
Accounts and other payables ( 46,216) 12,070 ( 90,360) ( 124,506) 208,090
Net cash provided by operating activities $ 4,488,774 $ 787,116 $ 3,641,307 $ 8,917,197 $ 959,698
NONCASH TRANSACTIONS:
Contributions and transfers of fixed assets, net $ 378,359
Retirement of capital assets, net $ 21,827
See accompanying notes to financial statements
CITY OF MILPITAS
FIDUCIARYFUNDS
STATEMENT OF FIDUCIARYNET ASSETS
JUNE 30, 2006
Agency
Funds
ASSETS
Cash and investments ( Note 3) $ 7,964,151
Accounts receivable 3,319
Due tTom other governments
Interest receivable
32,797
28,765
Total Assets $ 8,029,032
LIABILITIES
Refundable deposits $ 670,208
Due to Local Improvement Districts
Total Liabilities
7,358,824
$ 8,029,032
See accompanying notes to financial statements
33
CITY OF MILPITAS
Notes to Basic Financial Statements
! NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIE~
The City of Milpitas was incorporated as a general law city on January 26, 1954. The City operates under the
Council- Manager fonn of government and provides the following services: public safety, police, fire and
building inspection; parks and streets; water; sanitation; recreation services; planning and zoning; general
administration services, and redevelopment.
The fmancial statements and accounting policies of the City confonn with generally accepted accounting
principles applicable to governments. The Governmental Accounting Standards Board ( GASB) is the
accepted standard- setting body for governmental accounting and fmancial reporting principles. Significant
accountingpolicies are summarizedbelow:
A. Reporting Entity
The accompanying basic financial statements present the financial activity of the City, which is the primary
government presented, along with the financial activities of its component units, which are entities for which
the City is financially accountable. Although they are separate legal entities, blended component units are in
substance part of the City's operations and are reported as an integral part of the City's fmancial statements.
Each discretely ' pres~ nted component unit, on the other hand, is reported in a separate column in the basic
financial statements to emphasize it is legally separate from the government.
PRIMARY GOVERNMENT
The financial statements of the primary government of the City of Milpitas include the activities of the City as
well as the Milpitas Redevelopment Agency and the Milpitas Public Financing Authority, both of which are
controlled by and dependent on the City. While these are separate legal entities, their fmancial activities are
integral to those of the City. Their financial activities have been aggregated and merged ( tenned " blended")
with those of the primary government of the City in the accompanying financial statements.
Blended Component Units
The Milpitas Redevelopment Agency is a separate government entity whose purpose is to prepare and
implement plans for improvement, rehabilitation, and development of certain areas within the City. The
Agency is controlled by the City and has the same governing board as the City, which also perfonns all
accounting and administrativefunctions for the Agency. The financial activities of the Agency are included
in the Housing Reserve SpecialRevenueFund and the RedevelopmentProject Capital Projects.
The Milpitas Public Financing Authority is a separate governmententity whose purpose is to assist with the
fmancing or refmancing of certain public capital improvements within the City, principally the
RedevelopmentProject Area. The Authority has the power to purchase bonds issued by any local agency at
public or negotiated sale and may sell such bonds to public or private purchasers at public or negotiated sale.
The Authority is controlled by the City and has the same governingbody as the City, which also perfonns all
accounting and administrative functions for the Authority. During fiscal year 2006, there were no fmancial
activities to report.
Financial statements for the Milpitas Redevelopment Agency and Milpitas Public Financing Authority may be
obtained from the City of Milpitas located at 455 East Calaveras Blvd., Milpitas, CA 95035.
35
CITY OF MILPITAS
Notes to Basic Financial Statements
I NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( Continued)
Discretely Presented Component Unit
Terrace Gardens, Inc. is a non- profit public benefit corporation organized in September 1986 for the purpose
of developing and managing the operations of a residential complex known as Terrace Gardens, which is
located in the City of Milpitas and is dedicated to the needs of elderly persons. The Milpitas Redevelopment
Agency funded the construction of Terrace Gardens. City Council can appoint a voting majority of the
governing board and approves the annual budget. During fiscal year 2005 the City Council began to exercise
control over the Board of Terrace Gardens. Therefore, the financial activities of Terrace Gardens, Inc. as of
and for the year ended December 31,2005 are discretely presented in the Terrace Gardens Inc. Component
Unit column of the Statement of Net Assets and the Statement of Activities.
Financial statements for Terrace Gardens, Inc. may be obtained from Terrace Gardens, Inc., 186 Beresford
Court, Milpitas, CA 95035.
B. Basis of Presentation
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 United States of America.
These Standards require that the financial statements described below be presented.
Government- wide Statements: The Statement of Net Assets and the Statement of Activities display
information about the primary government, the City and its blended and discretely presented 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 of the 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 direct 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. Direct expenses are those that are specifically associated with a program or function and,
therefore, are clearly identifiable to a particular function. Program revenues include ( a) charges paid by the
recipients of goods or services offered by the programs, ( b) grants and contributions that are restricted to
meeting the operational needs of a particular program and ( c) fees, grants and contributions that are
restricted to financing the acquisition or construction of capital assets. Revenues that are not classified as
program revenues, including all 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, andfiduciary- 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.
36
n- U_- U- - -- u- - Unn- Uuu- - u- - u
CITY OF MILPITAS
Notes to Basic Financial Statements
! NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( Continued~
Proprietary fund operating revenues and expenses, such as charges for services and the related costs, result
from exchange transactions associated with the principal activity of the fund. Exchange transactions are
those in which each party receives and gives up essentially equal values. Nonoperating revenues and
expenses, such as subsidies, investment earnings and any related costs, result from nonexchange
transactions or ancillary activities.
c. Major Funds
Major funds are defined as funds that have either assets, liabilities, revenues or expenditures/ expenses
equal to ten percent of their fund- type total and five percent of the grand total. The General Fund is always
a major fund. The City may also select other funds it believes should be presented as major funds.
The City reported the following major governmental funds in the accompanying financial statements:
General Fund - The General Fund is the general operating fund of the City. It is used to account for all
financial resources except those required to be accounted for in another fund. The major revenue sources for
this Fund are sales taxes, property taxes, unrestricted revenues from the State, fmes and forfeitures and
interest income. Expendituresare incurred for public safety, most street work and the other services described
above.
Housing Reserve Fund - Established by the RedevelopmentAgency of the City of Milpitas to account for
tax allocations set aside for the purpose of increasing or improvingthe City's supply of low or moderate-income
housing.
Redevelopment Project Fund - Established to account for the financing and construction activities in the
redevelopmentproject areas.
Street Improvement Fund - Established to account for the construction and maintenance of the street
system in Milpitas. Financingis providedthrough State and Federal grants.
The City reported all its enterprise funds as major funds in the accompanying financial statements:
Water Utility Fund - Accounts for the provision of water services to residents of the City. All activities
necessary to provide such servicesare accounted for in this fund, including, but not limitedto, administration,
operations, capital improvements, maintenance, billing and collection.
Recycled Water Utility Fund - Accounts for the provision of recycled water services to businesses within
the City. All activities necessary to provide such services are accounted for in this fund, including, but not
limited to, administration, operations, capital improvements, maintenance, billing and collection.
Sewer Utility Fund - Accounts for the provision of sewer services to residents of the City. All activities
necessary to provide such services are accountedfor in this fund, including, but not limitedto, administration,
operations, capital improvements, maintenance, fmancing, and billing and collection.
The City also reports the following fund types:
Internal Service Fund - The EquipmentManagementInternal Service Fund is used to fmance and account
for the replacementof equipmentused by City departmentson a cost reimbursementbasis.
37
CITY OF MILPITAS
Notes to Basic Financial Statements
I NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ( Continued)
Fiduciary Funds - Agency funds are used to account for assets held by the City as an agent for individuals,
private organizations, and other governments. The [ mancial activities of these funds are excluded fTomthe
City- wide[ mancial statement, but are presented in separateFiduciary Fund [ mancial statements.
D. Basis of Accounting
The government- wide, proprietary, and fiduciary fund financial statements are reported using the economic
resources measurement focus and the full accrual basis of accounting. Revenues are recorded when
earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash
flows take place.
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 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 haye been satisfied.
Other revenues susceptible to accrual are sales taxes and interest revenue. Forfeitures, licenses, permits and
miscellaneous revenue are not susceptible to accrual because they are not measurable until received in cash.
Grant funding received in advance of the related expenditure is accounted for as deferred revenue.
Grant revenues are recognized in the fiscal year in which all eligibility requirements are met. Under the
terms of grant agreements, the City may fund certain programs with a combination of cost- reimbursement
grants, categorical block grants, and general revenues. Thus, both restricted and unrestricted net assets may
be available to finance program expenditures. The City's policy is to first apply restricted grant resources
to such programs, followed by unrestricted resources if necessary.
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 forty- five days after year- end. Expenditures are recorded when the related
fund liability is incurred, except for principal and interest on general long- term debt, claims and judgments,
and accumulated unpaid vacation, sick pay and other employee benefit amounts, which are recognized as
expenditures to the extent they have matured. General capital asset acquisitions are reported as
expenditures in governmental funds. Proceeds of general long- term debt and acquisitions under capital
leases are reported as otherfinancing sources.
The City follows Statements and Interpretations of the Financial Accounting Standards Board and its
predecessors issued on or before November 30, 1989, in accounting for its business- type activities, unless
those pronouncements conflict with Government Accounting Standards Board pronouncements.
E. Materials and Supplies
Supplies are valued at cost on a first- in first- out basis. Supplies in the enterprise and internal funds consist
principally of materials and supplies for utility and internal operations and are expensed as consumed.
Inventories of the governmental funds consist of expendable supplies and materials held for consumption.
The cost is recorded as an expenditure in the funds at the time individual inventory items are consumed.
Reported governmental fund inventories are equally offset by fund balance reserves which indicate that
they do not constitute available spendable resources even though they are a component of net current
assets.
38
CITY OF MILPITAS
Notes to Basic Financial Statements
! NOTE 1- SUMMARY OF SIGNJFICANT ACCOUNTING POLICIES ( Continued~
F. Property Tax
Santa Clara County assesses properties and bills, collects, and distributes property taxes to the City. The
County remits the entire amount levied and handles all delinquencies, retaining interest and penalties. Secured
and unsecured propertytaxes are levied on January 1.
Secured property tax is due in two installments, on November I and March 1, and becomes a lien on those
dates. It becomes delinquent on December 10 and April 10, respectively. Unsecured property tax is due on
July 1, and becomes delinquent on August 31. Collection of delinquent accounts is the responsibility of the
County, which retains all penalties.
The term " unsecured" refers to taxes on personal property other than real estate, land and buildings. These
taxes are secured by liens on the propertybeing taxed. Propertytax revenues are recognizedby the City in the
fiscal year they are assessed, providedthey becomeavailableas defmed above.
G. Revenue RecoglJitionfor Water Utility, Recycled Water Utility and Sewer Utility
Revenues are recognized based on cycle billings rendered to customers. Revenues for services provided but
not billed at the end of a fiscal period are not material and are not accrued.
- H. New Fund
The Public Art Special Revenue Fund was established as of July 1,2005.
I NOTE 2 - BUDGETS AND BUDGETARY ACCOUNTING
A. Budgets and Budgetary Accounting
The City adopts an annual operating budget on or before June 30 of the previous fiscal year. The operating
budget takes the form of a one year fmancial plan which is adopted in its entirety by the City Council by
resolution. Because Milpitas is a general law city, it is not subject to a budgetaryprocess prescribedby statute
or charter.
The operating budget is subject to supplemental appropriations throughout its term in order to provide
flexibility to meet changing needs and conditions. The City Manager may approve supplemental
appropriations in all funds providing the total increase does not exceed 1% of the original total General Fund
budget. All additional appropriations must be approved by City Council. Expenditures cannot exceed the
appropriatedbudget at the departmentlevelwithout City Councilapproval.
Budgeted amounts are as originally adopted, or as amended by the City Council. Individual amendments were
not material in relation to the original appropriations which were amended.
B. Adjustments to GAAP Basis from Budgetary Basis
City budgets are adopted on a basis consistentwith generally accepted accountingprinciples ( GAAP) except
that encumbrances are considered budgetary expenditures in the year of the commitment to purchase, and
capital projects expenditures are budgeted on a project length basis. The effects of these differences are
shown as encumbrance adjustments, expenditures capitalized for GAAP purposes and capital outlay in the
budget and actual statements.
39
m- - -- - n-- u- ---
CITY OF MILPITAS
Notes to Basic Financial Statements
I NOTE 3 - CASH AND INVESTMENTS I
The City pools cash from all sources and all funds except Cash and Investments held by Trustees and Terrace
Gardens, Inc. so that it can be invested at the maximum yield consistent with safety and liquidity, while
individualfunds can make expendituresat any time.
A. Policies
The City invests 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. In order to increase security, the City employs
the Trust Department of a bank as the custodian of certain City managed investments, regardless of their form.
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% of
the 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'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 of these adjustments in income for that fiscal year.
Restricted Cash and Investments - Time certificates of deposit are restricted as to use by agreements that name
other parties as beneficiaries and that require the interest on certain certificates to be credited to the parties
who provided the funds. None of these certificates may be redeemed until the City has met the terms of its
agreements with these parties; on redemption the proceeds of certain certificates must be paid by the City to
the beneficiary parties.
Other restricted cash and investments may be used only for capital projects by the Redevelopment Agency.
B. Classification
Cash and investments are classified in the financial statements as shown below, based on whether or not
their use is restricted under the terms of City debt instruments or Agency agreements.
Cash and investments available for operations
Restricted investments
Total Primary Government cash and investments
Cash and investments available for operations
Restricted investments
Total Component Unit cash and investments
Cash and investments
in Fiduciary Funds ( separate statement)
Total cash and investments
$ 151,422,634
86,962,542
238,385,176
27,844
951,619
979,463
7,964,151
$ 247,328,790
Cash and Investments Available for Operations is used in preparing proprietary fund statements of cash flows
because these assets are highly liquid and are expended to liquidate liabilities arising during the year.
40
CITY OF MILPITAS
Notes to Basic Financial Statements
! NOTE 3 - CASH AND INVESTMENTS ( Continued~
c. Investments Authorized by the California Government Code and the City's Investment Policy
The City's Investment Policy and the California Government Code allow the City to invest in the following,
provided the credit ratings of the issuers are acceptable to the City; and approved percentages and maturities
are not exceeded. The table below also identifies certain provisions of the California Government Code or the
City's Investment Policy where it is more restrictive:
Authorized Investment Type
Repurchase Agreements
Maximum
Maturity
1 Year
Minimum
Credit
Quality
State of California Local Agency Investment
Fund ( LAIF Pool)
U. S. Treasury Bonds, Notes and Bills
Upon Demand
5 Years
U. S. Government Agency Obligations
Bankers Acceptarices
Commercial Paper
5 Years
Negotiable Certificates of Deposit
Time Certificates of Deposit - Banks
or Savings and Loans
Medium Term Corporate Notes
Money Market and Mutual Funds of
Government Securities
180Days
270 Days
2 Years
Al/ Pl
2 Years
5 Years
Upon Demand
AA
Top Rating
Category
Security Swaps N/ A
( A) Eligible Commercial Paper and Medium Tenn Corporate Notes combined may not represent more
than 10% of the outstandingpaper of an issuingcorporation.
41
Maximum Maximum
Percentage Investment
of Portfolio In One Issuer
100% No Limit
No Limit $ 40,000,000 per
account
100% No Limit
100% No Limit
20% $ 5 millionor 10%
15% ( A)
30% No Limit
10% No Limit
30% ( A)
20% 10%
No Limit No Limit
CITY OF MILPITAS
Notes to Basic Financial Statements
\ NOTE 3 - CASH AND INVESTMENTS ( Continued) 1
D. Investments Authorized by Debt Agreements
The City must maintain required amounts of cash 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 resolutions, bond indentures or State statutes. The table
below identifiesthe investmenttypes that are authorizedfor investmentsheld by fiscal agents. The table also
identifies certain provisionsof these debt agreements:
Authorized Investment Type
Maximum
Maturity
Minimum
Credit
Quality
U. S. Treasury Bonds, Notes and Bills
U. S. Government Agency Obligations
Time Certificatesof Deposit- Banks
or Savings and Loans
Bankers Acceptances
5 Years
5 Years
1- 2Years
180Days A
CommercialPaper
Negotiable Certificatesof Deposit
270 Days AA, Al
Repurchase Agreements
Medium Term Corporate Notes
2 Years
1Year
State of California Local Agency
Investment Fund ( LAIF Pool)
Money Market and Mutual Funds
5 Years
Upon
Demand
AA
Upon
Demand
Aaa/ AAm
( A) The combined total of commercial paper and medium term corporate notes may not represent more
than 10% of the outstanding paper and notes of an issuing corporation.
E. Investments Authorized/ or Terrace Gardens Inc.
Terrace Gardens, Inc. investments conform with the California Government Code.
42
Maximum Maximum
Percentage Investment
of Portfolio In One Issuer
100% No Limit
100% No Limit
10% No Limit
20% $ 5,000,000 or
10%
15% ( A)
30% No Limit
100% No Limit
30% ( A)
No Limit $ 40,000,000 per
account
20% 10%
CITY OF MILPITAS
Notes to Basic Financial Statements
! NOTE 3 - CASH AND INVESTMENTS ( Continued) 1
F. Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an
investment. Normally, the longer the maturity of an investment, the greater the sensitivity of its fair value
to changes in market interest rates. The City generally manages its interest rate risk by holding investments
to maturity.
Information about the sensitivity of the fair values of the City's investments ( including investments held by
bond trustees) to market interest rate fluctuations is provided by the following table that shows the
distribution ofthe City's investments by maturity or earliest call date:
25to 60
Months
More than
60 Months Total Investment Type
City: