ANNIVERSARY
Comprehensive
~ I Annual 0
4, Financial Report
For the Fiscal Year Ended June 0 200
II
."' 11
City ~! FM! lpitas
CITY OF MILPIT AS, CALIFORNIA
COMPREHENSIVE ANNUAL FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED JUNE 30, 2005
Prepared by
THE DEPARTMENT OF FINANCIAL SERVICES
CITY OF MILPITAS
Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2005
Pa2; e
I INTRODUCTORY SECTION: I
Table of Contents 1
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 OutstandingFinancial Reporting xix
I FINANCIAL SECTION: I
Independent Auditor's Report on Basic Financial Statements 1
Management's Discussion and Analysis 3
Basic Financial Siatements:
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 ofthe 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 MILPIT AS
Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2005
Pae: e
I FINANCIAL SECTION: ( Continued)
Proprietary Funds:
StatementofN et Assets 29
Statementof Revenues, Expensesand Changes in Fund Net Assets 30
Statementof 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 ami 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 of Revenues, Expenditures and Changes in
Fund Balances - Budget and Actual ( Non GAAP Legal Basis) 72
Fiduciary Funds:
Statementsof Changes in Assets and Liabilities- All Agency Funds 77
11
CITY OF MILPITAS
Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2005
Pa2e
I STATISTICAL SECTION:
General GovernmentalRevenues by Source- Last Ten Fiscal Years 81
General GovernmentalExpendituresby Function- LastTenFiscalYears 82
Assessed Value of Taxable Property - Last Ten Fiscal Years 83
- 1
Property Tax Rates - All Direct and Overlapping Governments -
Last Ten Fiscal Years 84
Special Assessment Billings and Collections """"""'"'''''''''''''''''''''''''''''''''''''''''''''''''''''''' """"" 85
Computation of Direct and OverlappingDebt 86
Computationof Legal Bonded Debt Margin 87
DemographicStatistics- Last Ten Fiscal Years "'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''' 88
Construction and Business Activity - Last Ten Fiscal Years """'"'''''''''''''''''''''''''''''''''''''''''''''''''''''''' 89
Principal Property Taxpayers 90
City and County Taxable Retail Sales - Last Ten Calendar Years 91
Taxable Retail Sales Comparedwith NeighboringCities 92
Largest Employers 94
Top 25 Sales Tax Generators 95
History of General Fund Balance 96
Miscellaneous Statistics "'"'''''''' "'''''''''''''''''''''''''''''''' 97
III
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 controlled by the City. The Agency has the same governing
board as the City and the City also has control of the Terrace Gardens' governing board. However, the
Agency and Terrace Gardens Inc. issue their own component unit financial statements.
General Information: 408.586.3000
v
rniflmiII ~ r1w J~ wCi~ fof the Stateof California. TheCil wasillcorated in 1954andrates
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 terms, and the Mayor is
selected every two years in a separate citywide election.
The City provides a full range of municipal services. These include: police, fire, community services,
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 Valley," 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 65,000 in 2005. The Bay Area has experienced significant
employment growth from 1992 through 2000, adding more than 170,000jobs. However, in 2001, Santa
Clara County experienced its first negative job growth since 1992. This trend continued in 2002 through
2004. Over 130,000 jobs were lost as a result of the economic recession. This region is 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 have begun to see
economic growth, the Silicon Valley is lagging. Milpitas is similarly impacted because of its location
and comparable economic mix.
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 Yzacre 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 Palm One, Linear Technology,
KLA- Tencor. Several of these top employers make Milpitas their corporate headquarters. The two
largest non- manufacturing employers in Milpitas are The Great Mall of the Bay Area and the Milpitas
Unified School District.
VI
Consumer Confidence Level
Despite recent fluctuations of the consumer confidence index, the overall consumers' assessment of
current economic conditions remain favorable, primarily due to improvedjob 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 recent months.
Consumer Confidence
160.00
80.00
150.00
140.00
130.00
120.00
110.00
100.00
90.00
70.00
60.00
50.00
40.00
Jan. QO Jan~ 1 Jan~ 2 Jan- D3 Jan. 04 Jan~ 5
Source: Consumer Research Center
Top Ten Sales Tax Generators bv Economic Sef! 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 $ 13.8 million, with the top ten
economic segments generated about $ 9.7 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
Restaurants
17%
Office Equip
8%
Service Stations
7%
Apparel Stores
14' 10
Source: MBIA MuniServices Company
Vll
Many of the major activitiesinitiated in FY04- 05are consistentwith the City Council's directionto
focus on projectsand fundingthat will providefor the economicstabilityof the community, especially
developmentsin the Midtownareathat will enhancethe City's long- termfinancialcondition.
Maior Activitv in the Citv
MidtownSpecificPlan - The visionfor this area includeshigh densityhousingwithinwalkingdistance
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 garages, 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 and a 104- unit Senior Housing project
restricted for low- income seniors.
TransitSub- AreaLand UsePlan - The City developedphase I of a Transit Sub- AreaLand 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 will initiate phase II of the Plan which
will include a general plan amendment, zoning changes, design guidelines, fiscal impact study and
environmental report. 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.
ResidentialDevelopment- Residentialdevelopmentactivitiesremainedrelativelystrongandhaveshown
signs of increased activities. Although Milpitas still represents one of the more affordable alternatives in
Santa Clara County, the median home price in Milpitas is catching up with the County's median home
prices at $ 670,000. Residential development approvals in progress outside the Midtown area include
Barry Swenson's Twin Towers ( 181 condominium units). Spurred by the high density potential of the
Midtown Plan, residential and mixed use development approvals in progress within the Midtown area
include KB Homes ( 683 units of single family homes, townhouses and condominiums), Apton Plaza ( 98
condominium units and 3,000 square feet of retail space), and Fairfield ( 481 apartment units).
Residential development under construction includes 285 town houses and condominium units of the
Parc Place project, of which 58 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
anticipated to begin in FY 05- 06. Other commercial development activities include the development of
land adjacent to the KB Homes for three car dealerships.
Vlll
CITY ANNUAL PERFORMANCE REPORT
During fiscal year 2004- 2005, 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 ofthese programs and projects is as follows:
Fire
. Completed implementation of the " Learn Not to Burn" program for licensed home childcare
facilities.
Implemented revisions to the department's tactical performance standards for Weapons of Mass
Destruction, hazardous materials, high- rise, and high- density residential.
Developed a " Save a Life" campaign by increasing the number of citizens certified in Cardio-
Pulmonary Resuscitation within the community, with a goal of 100 new community participants per
year.
Improved the life- safety inspection program by adding seating plan layouts to the electronic
inspection program to reduce staff inspection time, and increase the business responsible awareness
to the hazards of overcrowding.
Expanded " Strategic Actions For Emergencies" ( SAFE) training program by 30 members in various
neighborhoods.
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Police
. Reduced violent crimes ( murder, rape, robbery and aggravated assault) by 2.5%.
Placed the entire Police Fleet on the City's high- speed wireless network to increase information
availability and functionality in emergency vehicles.
Conducted 10,993 patrol checks of potential terrorist targets such as utilities, churches, government
buildings and schools.
Achieved an accident- free year of students walking to and from schools at designated crossings.
Provided fingerprint service to over 6,000 children using the digital fingerprint system.
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Ell!:!: ineerinl!
. Completed the annual report and audit for the Community Rating System of the National Flood
Insurance Program. This allows the residents of Milpitas to continue to purchase flood insurance at a
25% discount ( an annual savings of nearly $ 350,000 for the entire community).
Completed design for Sports Center Circulation improvements, construction of Abel Street Right
Turn Lane improvements, construction of the Hillside Water system, and several other public
improvement projects.
Developed new Water Distribution System Seismic Upgrade Plan.
Completed the review and approval of several land development projects including Apton Plaza, KB
residential development, Parc Place, and Kennedy Subdivision.
Conducted the review and participated in the preparation of all traffic improvement plans including
the City's annual street resurfacing project.
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IX
Planninf/ Neifhborhood Services
. Completed the Environmental Impact Report for the North Main Street projects three months ahead
of schedule.
Led th~ Sign Code Task Force in completing amendments to the Sign, Zoning and Neighborhood
Beautification Ordinance Codes.
Completed Phase I of the Midtown Transit Sub- area ',' isioning Project to prepare the City for major
developments in that area.
Monitored the Calaveras/ Selwyn neighborhoods to ensure continuation of the task force efforts to
resolve code violations.
Eliminated code enforcement customer service request backlog by 100%.
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Recreation Services
. Assisted 124 qualified families in the Recreation Assistance Program. After School Stay and Play,
and Camp Stay and Play, utilizing 100% of Community Development Black Grant funding.
Renovated the Interim Senior Center with minimal disruption to Senior Services.
Added twelve new fitness classes to increase daily attendance for drop- in participants by 10%.
Implemented Raising a Reader Pilot Program in conjunction with Milpitas Unified School District at
Rose and Randall elementary schools for pre- kindergarten students.
Received an Award of Excellence from the California Park and Recreation Society for the 50TH
Anniversary City Calendar in 2005.
...
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Buildine Inspection
. Successfully responded to 85' requests for after- hours and weekend inspections to allow construction
projects to be completed on time.
Completed development of the new building permit fee schedule and implemented in September
2004
Completed the 2004 " Performance Measures" study conducted inclusive of Milpitas and nearby
cities. The results showed that the Building Division performed above average in the following:
permit issuance over the counter, number of plan checks per month, waiting time at counter and
waiting time for each inspection.
Introduced cross training of plan checkers, permit technicians and building inspectors.
Developed handouts for homeowners and contractors to clarify submittal and code requirements.
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Administration
. Provided oversight for the completion of the Interim Senior Center improvements and design of the
new Library.
Facilitated and funded college classes at Milpitas High School and Monday afternoon Library hours
at the Milpitas High School for the public.
Led citywide service/ activity prioritization and expenditure reduction analysis and managed the
impact of economic recession without reduction of essential City services.
Provided direction for the continued implementation of the Public Safety Terrorism Response Plan.
Initiated consideration of the location and development of a County Health Clinic, parking garage
and senior housing on Main Street.
Received Standard & Poor's " AA" rating for the City of Milpitas' financial condition and
management.
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x
Human Resources
. Conducted a customer survey for workers' compensation to enhance service delivery.
Recruited several essential positions and secured appointment of skilled highly qualified candidates.
Provided specialized and personalized back injury prevention training for all Public Works
personnel.
Formalized a bay area wide public agency medical benefits consortium to review the possibility of a
regionalized pooling of benefits through a bulk purchase process.
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Information Services
. Completed the Final Phase of the Expanded Public Safety Technology Project with the
implementation of the new Computer Aided Dispatch System.
Expanded the City's wireless access system to improve connectivity between Public Safety vehicles
and the City's network.
Completed the scanning and conversion of over 3 million documents into the document imaging
system.
Completed the fiber connections to Fire Station # 2, the temporary Senior Center and the Fleet
Garage.
Continued to deliver Geographic Information System products for other City departments and public
agencIes.
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Finance
. Conducted an actuarial study on retiree medical benefits and provided recommendations to the City
Couricil.
Led in the citywide efforts to form a Community Facility District in connection with the Midtown
development.
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.
Implemented late payment and reconnection fees for utility accounts in accordance with the updated
utility ordinance.
Developed an online vendor registration system via the City's website that automatically updates
approved applications to the Purchasing bidders list database.
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Public Works
. Maintained infrastructure to preserve integrity with minimum disruption to the public.
Investigated approximately 3,500 customer service requests within 30 minutes of receipt.
Maintained employee skills though safety meetings, section cross training and local seminars.
Provided technical and operational assistance for the Hillside Water System project, Storm Pump
Station improvement project and the Sewer Rehabilitation project.
Implemented a weed and insect control program through the use of monitoring, early detection and
treatment, and the use of cultural and mechanical means to reduce pesticide applications.
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XI
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 assur~ nce 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 andjudgments 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 safe~ uard 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
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 eXplainedin the Notes to the Financial Statements.
xii
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 2.82% on the City's
month- end average investment balances. This compared with a return of 2.93% 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 2004- 2005 were as
follows:
Project Category Amount
General Government Projects
Park Projects
Street Projects
Water Projects
Sewer Projects
Redevelopment Agency Projects
$ 803,986
1,162,725
7,093,024
896,207
1,579,459
5,780,875
Total $ 17,316,276
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.
XIII
AWARDS
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, 2004. 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 rr: ceived the GFOA
Certificate of Achievement for sixteen of the last seventeen years ( fiscal years ended 1988- 2004). The
1992- 93 report was not submitted to GFOA due to timing delays.
In addition, the City received the California Society of Municipal Finance Offic" ers( CSMFO) Certificate
of Award for Outstanding Financial Reporting for its Comprehensive Annual Financial Report for the
fiscal year ended June 30, 2004. 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 2004. 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,
'" rC"
Emma C. Karlen, CPA
Director of Financial Services
xiv
DIRECTORY OF OFFICIALS
June 30, 2005
City Council
Mayor Jose " Joe" Esteves
Vice- Mayor Armando Gomez
Councilmember Robert Livengood
Councilmember 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, Wilson and Silver
Chief Information Officer
William Marion
Human Resources Director
Vacant
City Engineer
t
Greg Armendariz
Planning & Neighborhood Svc Director
ThomasWilliams
Chief Building Official
Keyvan Irannejad
xv
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City of Milpitas
XVI
Citizens
Community Advisory
Commission
Arts Commission
Planning Commission
Library Advisory
Commission
Citizen's Emergency
Preparedness Advisory
Commission
City Council
Parks, Recreation &
Cultural Resources
Commission
Recycling & Source
Reduction Advisory
Commission
Senior Advisory
Commission
Telecommunications
Commission
City
Attorney
Sister Cities
Commission
I
MobileHome
Park Rental
Youth Advisory Review Board
Commission
Economic Development
Commission
Bicycle Transportation
Advisory Commission
City Manager
I
Assistant
City Manager
XVII
I, e I
RDA& Economic Building Recreation
Administration Engineering
Development Inspection Services
L-.
Information Human Planningand
Police . I Services Resources
Public Works Neighborhood. I Fire
Services -. I
Certificate of
Acllievement
for Excellence
in Financial
Reportillg
Presented to
City of Milpitas,
Califorl1ia
For its Comprehensive Annual
Financial Report
for the Fiscal Year Ended
June 30, 2004
A Certificate of Achievement for Excellence in Financial
Reporting is presented by the Govemment Finance Officers
Association of the United States and Canada to
government Wlits and public employee retirement
systems whose comprehensive annual financial
reports ( CAFRs) achieve the highest
standards in goverl1ll1ent accounting
and [ mancial reporting.
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President
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Executive Director
XVlll
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California Societyof
JVLunicipa3linanceOfficers
Certificate of Award
Outstanding Financial Reporting 2003- 04
Presented to the
City of Milpitas
This ceI1!{ ccateis ismed in recognition of meeting professional standards and criteria ill reporting
which reflect a high level of quality in the annual financial statemellts
and ill the under( l'ing accoullting system ji- OI11which the reports werc prepared.
February24, 2005
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Bill Thomas, Chair
Professiooal & Technical Standards Committee
Dedicated to Excellence in Municipal Financial Management
XIX
AAAZE&
. .,,~ ASSOCIA TES
INDEPENDENT AUDITOR'S REPORT ON
BASIC FINANCIAL STATEMENTS
ACCOUNTANCY CORPORATION
1931 San Miguel Drive - Suite 100
Walnut Creek, California 94596
( 925) 930- 0902. FAX ( 925) 930- 0135
E- Mail: maze@ mazeassociates. com
Website: www. mazeassociates. com
To the Honorable Members of the City Council
City of Milpitas, California
We have audited the financial statements of the governmental activities, the business- type activities, each major fund, and
the aggregate remaining fund information of the City of Milpitas as of and for the year ended June 30, 2005, 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 statements of Terrace Gardens, Inc. as of and for the year
ended December 31, 2004, which represent 2%, 1%, and 3% of the assets, revenues, and capital assets of the reporting,
respectively. These component unit financial statements were audited by other auditors, whose report thereon has been
furnished to us. Our opinion, insofar as it relates to the amounts included for this entity, is based solely on the report of
these 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 auditors provide a reasonable basis 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 30,2005 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 the United States of America.
In accordance with Government Auditing Standards, we have also issued reports dated September 23, 2005 on our
consideration of the 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 statements that 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 the~ ~
Septembe, 23, 2005 ~ f
A ProfessionJt 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,
2005. Please read this document in conjunction with the accompanying Transmittal Letter and Basic
Financial Statements.
FISCAL 2005 FINANCIAL HIGHLIGHTS
The City's revenues in fiscal 2005 reflected a moderate recovery in the business activities in the Silicon
Valley. The recovery is moderate as job growth continued to be limited and vacancy rates for office,
manufacturing and R & D space remained high. However, 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 2005
financial highlights include the following:
City- wide: . The City's total net assets were $ 342.6 million at June 30,2005. Of this total, $ 217.1 million
were Governmental assets and $ 125.5 million were Business- type assets.
. City- wide revenues include program revenues of $ 47.4 million and general revenues and
transfers of $ 60 million, totaling $ 107 million, an increase of $ 4 million from the prior year's
total of $ 103 million.
. Total City- wide expenses were $ 209 million which included a special item redevelopment
expense of $ 102 million. Total expenses increased $ 105 million from the prior year's $ 104
million.
Fund Level:
. Governmental Fund balances were $ 212 million, a decrease of$ 6l million from fiscal 2004.
. Governmental Fund revenues increased to $ 83.6 million in fiscal 2005, up $ 4 million from the
prior year's $ 79.6 million. . Governmental Fund expenditures were $ 100.5 million in fiscal 2005, an increase of $ 10.1
million from fiscal 2004' s level of $ 90.4 million. . General Fund revenues of $ 46.3 million represented an increase of $ 9.4 million from fiscal
2004' s revenues of$ 36.9 million.
. Net transfers into the General Fund were $ 13.9 million in fiscal 2005, $ 1.2 million less than
fiscal 2004' s transfers of $ 15.1 million.
. General Fund balance of $ 28 million at the fiscal 2005 year- end represented a decline of $ 5
million from fiscal 2004' s fund balance of$ 33 million.
3
OVERVIEW OF THE COMPREHENSIVE ANNUAL FINANCIAL REPORT
This ComprehensiveAnnual 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 tht 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 Improvement Districts 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- 21 of 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 ofthe governing board of these t: ntities.
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 fmancial 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 2005 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 of the 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 ofthe City as a whole. Comparisons of
the net assets and activities with fiscal 2004 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
2005 2004
Cash and investments
Other assets
Capital assets
Total assets
Long- term debt outstanding
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 $ 217.1 million at June 30, 2005, a decrease of $ 104.6 million
from 2004. This increase is reflected as Change in Net Assets in the Governmental Activities column of
the Statementof Activities and is also shown in Table 2 of this analysis:
. Cash and investments decreased $ 37.2 million principally due to payments for land acquisition,
capital project construction as well as installment payments to the County of Santa Clara under
the Purchase Agreement as explained in Note 7E of the Notes to Basic Financial Statements.
Capital assets increased $ 1.9 million from last year, as a result of $ 17.1 million asset addition in
fiscal 2005, reduced by $ 15.2 million depreciation of the capital assets.
.
. Long- term debt increased $ 47.7 million due to an Installment Purchase Agreement entered with
the County of Santa Clara to purchase two parcels of land for redevelopment. The purchase value
of the land was $ 102.3 million of which $ 48 million were paid in prior and current fiscal years.
Other liabilities increased $ 17.4 million due to the obligation to remit the resale value of the land
to the County of Santa Clara under the Installment Purchase Agreement.
.
6
$ 214.2 $ 251.4
42.5 46.7
- 265.7 263.8
522.4 561.9
253.4 205.7
- 51.9 34.5
- 305.3 240.2
225.1 192.4
( 27.0) 130.1
19.0 ( 0.8)
$ 217.1 $ 321.7
. Net assets invested in capital assets net of related debt increased $ 32.7 million primarily due to
the land acquisition under the Installment Purchase Agreement. The Redevelopment Agency was
obligated to sell the land for redevelopment with sale proceeds to go to the County.
Fiscal Year 2005 Government Activities
Sources of Revenue
Engineering and Planning
11%
Public Works
2%
Fire
1%
Other taxes < 1%
HoteVMotel tax
6%
Investment earnings
1%
Trans fers 5%
Building
3%
5%
Functional Expense
( Exluding Special Item)
Interest on long tean debt
10% General Government
19%
Public Works
20%
Recreation
5%
Engineering and Planning
8%
As the Sources of Revenue Chart above shows, $ 35.9 million or 40% of the City's fiscal 2005
governmental activities revenue came from property taxes, while $ 13.8 million or 16% came from sales
and use taxes. The remainder came from a variety of sources, including charges for services, grants and
contributions, franchise 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 2005, the
City added $ 17.1 million in capital assets. The composition of Fiscal 2005' 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
2005 2004
Expenses
General Government
Building
Public Works
Engineering and Planning
Recreation
Police
Fire
Interest on long term debt
Total expenses
$ 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
Investment fair value change
Miscellaneous
Total general revenues
Deficiency before transfers &
special item
Special Item
Transfers
Changes in net assets
8
$ 13.2
2.0
17.6
7.1
4.2
19.6
13.9
9.8
87.4
9.3 7.2
3.8 4.2
- 12.0 13.8
- 25.1 25.2
35.9 34.8
13.8 12.1
5.0 4.7
0.1 0.1
2.8 2.6
0.4 3.0
1.1 1.3
( 3.7)
- 0.3 0.3
- 59.4 55.2
( 6.6) ( 7.0)
( 102.3)
4.3 8.2
$( 104.6) $ 1.2
Table 2 compares fiscal 2005 expenses and revenues with those of fiscal 2004. Expenses increased $ 3.7
million in total in fiscal 2005 due to increased general government administration for midtown
developments and increased employer's contribution to retirement benefits. Depreciation expense for
capital assets also increased $ 1.4 million. Other functional expenses were at approximately the level as
fiscal 2004 despite increased pension expense and health insurance premiums, primarily due to delayed
hiring of vacant positions. Fiscal 2005 expense included a special item of redevelopment expense of
$ 102.3 million. Detail for this item is explained in Note 7E of the Notes to the Basic Financial
Statements.
Table 2 shows that total government revenues increased $ 4.1 million in fiscal 2005. Program revenues
decreased $ 0.1 million while general revenues increased $ 4.2 million. The biggest contributor to the
increase in program revenues was charges for services which increased $ 2 million in fiscal 2005, due to
increased development that require plan checks and building permits. However, lower capital grants and
contributions from other agencies offset some of the service charges increase.
The increase of sales tax revenue by $ 1.7 million and hotel/ motel tax revenue by $ 0.3 million reflect
moderate recovery of economic activity in Silicon Valley last year. Property tax revenue increased $ 1.1
million due to the allocation of more property tax revenue from the State to offset the permanent
reduction of motor vehicle license tax. However, the additional allocation was offset by contributions to
the Education Revenue Augmentation Fund ( ERAF) as mandated by the State to help balance the State
budget. In fiscal 2005, the City and RDA contributed $ 1 million and $ 3 million respectively.
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
increased $ 3.8 million primarily due to decreased capital grants and contributions received by the
Engineering for capital projects and increased general government administrative expense.
Table 3
Governmental Activities
( in Millions)
Net ( Expenses) Revenue
From Services
2005 2004
General Government
Building
Public Works
Engineering and Planning
Recreation
Police
Fire
Interest on long term debt
$( 12.6)
0.8
( 14.6)
2.3
( 2.3)
( 16.8)
( 13.5)
( 9.3)
$( 9.0)
( 0.5)
( 16.1)
5.8
( 1.8)
( 17.7)
( 13.1)
( 9.8)
Totals $( 66.0) $( 62.2)
9
Business- type Activities
Table 4
Business- Type Net Assets at June 30
( in Millions)
Business- Type Activities
2005 2004
Cash and investments
Other assets
Capital assets
Total assets
Other liabilities
Total liabilities
Net assets:
Invested in capital assets
Restricted
Unrestricted
Total net assets
The net assets of business- type activities were $ 125.4 million in fisca12005, a net increase of$ 2.7 million
from fiscal 2004. Total assets increased $ 1.8 million while total liabilities decreased $ 0.9 million. The
increase in net assets are explained by the $ 6.3 million net revenues from the Water, Sewer and Recycled
Water Funds offset by the non- operating expenses of$ 3.6 million.
10
$ 28.5 $ 29.5
1.9 2.1
97.6 94.6
128.0 126.2
- 2.6 3.5
2.6 3.5
97.5 94.7
6.8 4.9
21.1 23.1
$ 125.4 $ 122.7
Table 5
Changes in Business- Type Net Assets
( in Millions)
Business- Type Activities
2005 2004
Expenses
Water Utility
Recycled Water Utility
Sewer Utility
Total expenses
$ 9.7
0.2
6.0
15.9
$ 9.9
0.2
6.2
16.3
Revenues
Program revenues:
Charges for services
Capital Grants
Total program revenues:
General revenues:
Investment earnings
Total general revenues
Excess before transfers
Transfers
Changes in net assets
Table 5 compares fiscal 2005 expenses and revenues with those of fiscal year 2004. Expenses decreased
$ 0.4 million in total in fiscal 2005 due to a decrease in the amount of purchased water. Total program
revenue maintained a similar level as last year. Increase in charges for services was offset by decreased
capital contributions received from other agencies to fund their share of the construction cost of capital
improvement projects. Total general revenue shows a decrease of$ O. 4 million from last year entirely due
to investment earnings decrease. The transfers represent reimbursements for administration costs
incurred by the General Fund and the cost of capital assets construction by other funds.
11
21.7 20.6
0.6 1.6
2- 2.3 22.2
0.6 1.0
- 0.6 1.0
7.0 6.9
( 4.3) ( 8.2)
$ 2.7 $( 1.3)
FINANCIAL ANALYSIS OF THE CITY'S FUNDS
Table 6 below summarizes activities and balances of the governmental funds at the fund level:
Table 6
Fina. lcial Highlights of Governmental Funds at Fund Level at June 30
( in Millions)
2005 2004
Total assets
Totalliabilities
Total fund balances
Total revenues
Total expenditures
Total other financing sources
Total special item expenditure
$ 251.4
39.1
212.3
83.6
100.5
4.3
48.0
$ 292.0
19.1
272.9
79.6
90.4
147.2
0.0
At June 30, 2005, the City's governmental funds reported combined fund balances of $ 212.3 million, a
decrease of $ 60.6 million from last year. However, the fund balances of the Housing Reserve Fund and
Other Governmental Funds increased $ 4 million and $ 1.6 million respectively while the fund balances of
the General Fund, Redevelopment Project Fund and Street Improvement Fund decreased $ 4.9 million,
$ 58.7 million and $ 2.6 million respectively.
Revenues at the fund level totaled $ 83.6 million, an increase of $ 4 million. Revenues for the General
Fund increased $ 9.4 million while the Housing Reserve Fund, Redevelopment Project Fund, Street
Improvement Fund and Other Governmental Funds declined $ 0.5 million, $ 0.7 million, $ 3.8 million and
$ 0.4 million respectively.
Expenditures increased $ 10.1 million this year to $ 100.5 million from last year's $ 90.4 million. The
expenditures of General Fund, Housing Reserve Fund, Redevelopment Project Fund and Street Fund
increased $ 7.2 million, $ 0.3 million, $ 12.3 million and $ 2 million respectively, but expenditures of Other
Governmental Funds declined $ 11.7 million.
Analyses of Major Governmental Funds
General Fund
General Fund revenues increased to $ 46.3 million this fiscal year, up $ 9.4 million from the prior fiscal
year. Increases came from property tax, sales tax, license and permits, and charges for services
categories. Property tax revenue increased $ 3.1 million due to the " triple flip" budget balancing strategy
of the State whereby the state would offset the impact of reduced motor vehicle license tax by an
increased allocation of property tax revenues to local agencies. In addition, General Fund contributed
approximately $ 1 million property tax revenue into the Education Revenue Augmentation Fund to help
balance the State budget. Sales tax revenue increased $ 3.6 million partly due to defeasance of the Great
Mall Sales Tax Bonds which released the sales tax revenue pledged for the bonds to the General Fund and
partly due to improved economic activities in this region. Licenses and permits were up $ 1.3 million as
the volume of. new construction permits increased due to increased development activities. Charges for
12
Services were up $ 0.6 million due to increases in recreation services and private developer planning
review services. Intergovernmental revenue declined $ 2.5 million due to reduction of motor vehicle tax.
In fiscal 2004, there was a downward adjustment to the market value ofthe City's investment portfolio to
comply with Governmental Accounting Standard Board Statement No. 31. In fiscal 2005, the fair value
adjustment was relatively insignificant and not separately stated.
General Fund expenditures increased $ 7.2 million, as General Government expenditures increased $ 2.4
million, Police expenditures increased $ 1.3 million and Fire expenditures increased $ 2.5 million. The
increases were due to increased employer's retirement contributions to CalPERS and renewed
contributions to the Equipment Replacement fund. In fiscal 2004, contributions to the Equipment
Replacement Fund were suspended to help balance that fiscal year's budget. The increase in Fire
expenditures also included the purchase of two fire engines suitable for rescue efforts in high- density
housing areas. Net transfers into the General Fund decreased $ 1.2 million in fiscal 2005. Comparedto
the final budget, expenditures were below the final budgeted amount by $ 5 million. The variances are
explained by reductions in services and supplies expenditures, and additional savings in personnel due to
retirements in various functions. The differences between the original budget and final budget were
primarily due to the purchase of two fire engines and litigation expense for a construction lawsuit.
At June 30, 2005, the fund balance of the General Fund was $ 28 million, of which $ 1.3 million was
reserved for encumbrances and other items; $ 5.4 million was designated for the Library Project, $ 4.4
million was designated for employee sick leave and medical benefits, $ 5.4 million for possible future
PERS rate increases, $ 0.7 million for capital contingencies, and $ 10.8 million was undesignated.
Housin!! 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 2005, the balances of loans to developers
increased from $ 5.4 million to $ 5.8 million, due to new loans provided to first time homebuyers.
Principal payments and in many cases interest payments on the " Silent Second" 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 decreased to $ 0.6 million in fiscal 2005, from $ 1.1 million in fiscal 2004, due to a loan
repayment of approximately $ 0.9 million from a developer in fiscal 2004. The net transfers of $ 3.9
million from the Redevelopment Project Fund comprised of $ 5.2 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 $ 22.2 million is available only to fund future low and
moderate- incomeprogram expenditures.
13
Redevelopment Proiect
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 $ 27.1 million in fiscal 2005, a decrease of $ 0.7 million from fiscal 2004. Property tax increment
revenues decreased to $ 22.2 million in fiscal 2004, a decrease of $ 2 million or 8% from fiscal 2004.
Many of the developments in the Project Area were completed as the d.:: mand for research and
development and other high technology space bottomed out. As a result, the County Assessor reduced
the assessed valuation for a number of newly completed developments pursuant to Proposition 8 to their
current market value. Furthermore, as mandated by the State, the Agency contributed $ 3 million from
fiscal 2005 tax increment revenues to ERAF. In fiscal 2004, the contribution to ERAF was $ 2 million.
Sales tax revenue declined $ 0.3 million due to termination of a sales tax reimbursement agreement with a
development. Any remaining sales tax revenue after the termination of the agreement was released to the
General Fund. Revenue from the use of assets increased $ 1 million due to investment of unspent bond
proceeds for the full year as opposedto only 7 months in fiscal 2004.
Fund expenditures were $ 24.4 million in fiscal 2005, an increase of$ 12.3 million. Interest and principal
payments totaling $ 14.7 million for the 2003 Tax Allocation Bonds were consolidated to the
Redevelopment Project Fund in fiscal 2005. Capital outlay increased $ 4 million due to construction in
progress for many Midtown related infrastructure projects. Fund expenditures also included a special
item of redevelopment expense to account for the payments to the County of Santa Clara under an
Installment Purchase Agreement. Detail for that transaction is explained in Note 7E of the Notes to Basic
Financial Statements.
The Fund's fiscal year end fund balance of$ 136.1 million may be used only for redevelopment purposes.
Of this amount, $ 8.5 million was reserved for outstanding encumbrances and prepaids, $ 7.0 million was
reserved for property held for resale or redevelopment, $ 92.6 million was designated for committed
capital projects and $ 28 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 $ 2.9 million in fiscal 2005, a decrease of
$ 3.9 million from fiscal 2004. Intergovernmental revenues decreased to $ 1.1 million in fiscal 2005 from
$ 3.1 million in fiscal 2004. Developer contributions were $ 1.4 million in fiscal 2005, down from $ 3.5
million in the prior year.
Fund expenditures were $ 7.1 million in fiscal 2005, an increase of $ 2 million from fiscal 2004 due to
increased capital outlay.
The fund ended fiscal 2005 with $ 10.5 million in fund balance, of which $ 1.8 million was reserved for
encumbrances outstanding, $ 3 million was designated for capital projects and $ 5.7 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 $ 1.1 million from last year, while
operating expenses decreased $ 0.4 million. Total revenues and total operating expenses were $ 21.7
million and $ 15.9 million respectively. Non- operating revenues of $ 1.2 million in fiscal 2005 were $ 0.2
million lower than the prior year primarily due to lower interest income. Developer contributions to the
proprietary funds decreased $ 1.3 million in fiscal 2005. Transfers in to Business- type Activities increased
$ 0.9 million in fiscal 2005, while transfers to Government- type Activities were $ 3 million less than the
pnor year.
Water Utilitv
Water fund revenues were $ 12.4 million in fiscal 2005, up $ 0.2 million from the prior year. The increase
in revenues is primarily due to a rate increase implemented at the beginning of the fiscal year but the
increased in rate was partly offset by lower usage of water services. Expenses were $ 9.7 million in fiscal
2005, down $ 0.2 million from the prior year due to less purchased water expense. Net assets of the Water
Utility Fund increased $ 0.3 million in the current year to a total of $ 48.1 million. The increase comprised
$ 2.7 million in operating income for the current year, $ 0.2 million in non- operating revenues, offset by
net transfers out of $ 2.6 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 $ 3
million were for reimbursements of administration costs incurred by the General Fund and return of
unused funding to the Redevelopment Project Fund due to completion of certain water capital
improvement projects.
This Fund's Net Assets includes $ 41.6 million invested in capital assets, $ 0.3 million in restricted net
assets, and $ 6.2 million in unrestricted net assets.
Recvcled Water Utilitv
Recycled Water fund revenues were $ 1 million in fiscal 2005, up $ 0.1 million from the prior year.
Expenses were $ 0.3 million in fiscal 2005, at the same level as last fiscal year. Net assets of the Fund
increased $ 0.5 million in the current year to a total of $ 2 million. This increase included $ 0.8 million in
operating income and $ 0.1 million in non- operating income, offset by transfers out totaling $ 0.4 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 $ 1.6 million in unrestricted net
assets, with a small amount of restricted net assets.
Sewer Utility
Sewer fund revenues were $ 8.3 million in fiscal 2005, up $ 0.8 million from the prior year due to a rate
increase implemented at the beginning of the fiscal year. Expenses were $ 6 million in fiscal 2005, down
$ 0.1 million from the prior year due to decreased expenses in purchased sewer capacity. Non- operating
revenues in fiscal year 2005 consists of $ 0.4 million interest income and $ 0.5 million of subsidy from
other agencies to fund their share of the construction cost of capital improvement projects. Net assets of
the Sewer Utility Fund increased $ 1.9 million in the current year to a total of$ 75.4 million. This increase
comprised of $ 2.2 million in operating income, $ 0.9 million in non- operating revenues, offset by net
transfers out totaling $ 1.2 million. Transfers in of $ 1 million represent reimbursements for the cost of
capital assets constructed by the Sewer Enterprise Fund for other funds. Transfers out of $ 2.2 million
represent reimbursements for administration costs incurred by the General Fund and return of unused
15
funding to the Redevelopment Project Fund due to completion of certain sewer capital improvement
projects.
$ 13.4 million of the Fund's Net Assets was unrestricted at the fiscal year end. Of the remainder, $ 55.6
million was invested in capital assets and $ 6.4 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 2005 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)
2005 2004
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
$ 32.9
22.6
90.7
20.3
19.3
29.6
72.6
200.1
14.6
( 237.1)
$ 30.4
21.8
88.1
19.0
16.0
29.6
72.5
195.2
13.0
( 221.8)
Totals $ 265.6 $ 263.8
Business- type Activities:
Land
Construction in progress
Distribution facilities
Service lines
Sewer lines
Capacity rights
Less accumulated depreciation
$ 1.1
16.3
67.3
5.8
50.2
32.0
( 75.2)
$ 1.1
14.2
67.3
5.6
50.2
29.3
( 73.0)
Totals $ 97.5 $ 94.7
The principal additions in fiscal 2005 were construction in progress, most of which are expenditures on
Midtown infrastructure projects and Library related projects. Other additions included street system, and
16
sewer capacity rights. Further detail on capital assets, current year additions and construction in progress
can be found in Note 8.
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
of the 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. In fiscal 2005, the Redevelopment Agency entered into
an Installment Purchase Agreement with the County of Santa Clara to acquire land for redevelopment
purposes. Each of the City's debt issues is discussed in detail in Note 9 to the financial statements. At
June 30, 2005 the City's debt comprised:
Table 8
Outstanding Debt
( in Millions)
Governmental Activity Debt:
Balance
June 30, 2005
Balance
June 30, 2004
Redevelopment Agency 2003 Tax Allocation Bonds
2% - 5.25%, due September 1, 2032
Technology Certificates of Participation, Series 2000
4% - 4.25%, due November 1, 2009
Installment Purchase Agreement with the County
Of Santa Clara, due June 30, 2023
$ 194.4 $ 200.0
4.6 5.7
54.3 0.0
Total Governmental Activity Debt $ 253.3 $ 205.7
LOCAL IMPROVEMENT DISTRICT DEBT
Local improvement districts in different parts of the City have issued debt to fmance infrastructure and
facilities construction entirely in those districts. At June 30, 2005, a total of $ 31.7 million in local
improvement district debt was outstanding, issued by three 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 15to 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
accompanyingTransmittal 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 ofthe 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 avai] able for operations ( Note 3)
Restricted investments ( Note 3)
Receivables:
Accounts
Due from other governments
Interest
Developer ( Note 7E)
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
Totalassets
LIABILITIES
Accounts payable
Accrued payroll
Interest payable
Uninsured claims payable ( Note 13)
Refundable deposits
Advance from other governments ( Note 8E)
Unearned revenue
Due to the County ( Note 7E)
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 ] 0)
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 MILPIT AS
STATEMENT OF NET ASSETS
JUNE 30, 2005
Governmental
Activities
$ 110,498,554
; 03,749,588
2,001,447
2,839,527
], 753,584
17,750,000
8,848,394
2,334,021
6,988,800
55,511,786
2] 0,] 41,44]
522,4] 7,] 42
4,268,087
2,853,496
3,049,337
4,057,632
], 9] 7,250
143,330
17,750,000
1,353,411
2,848,] 21
854,656
4,503,711
481,974
7,849,949
8,750,000
244,600,736
305,28] ,690
225,140,169
2], 756,245
( 48,730,310)
( 26,974,065)
18,969,348
$ 217,135,452
Primary Government
Business- Type
Activities
$ 28,48] ,995
1,488,46 ]
40,357
204,666
234,212
17,478,529
80,074,099
128,002,3] 9
1,158,807
121,983
50,000
80,200
747,407
226,] 09
] 66,291
2,550,797
97,552,628
6,773,850
6,773,850
21,125,044
$] 25,45], 522
See accompanying notes to financial statements
19
Total
$] 38,980,549
103,749,588
3,489,908
2,879,884
1,958,250
17,750,000
8,848,394
2,568,233
6,988,800
72,990,315
290,2] 5,540
650,4] 9,46]
5,426,894
2,975,479
3,049,337
4, ] 07,632
1,997,450
747,407
143,330
17,750,000
] ,353,4 II
3,074,230
854,656
4,670,002
48] ,974
7,849,949
8,750,000
244,600,736
307,832,487
322,692,797
28,530,095
( 48,730,310)
( 20,200,2] 5)
40,094,392
$ 342,586,974
Component
Unit
Terrace Gardens Inc.
$] 5,065
] ,030,476
3,759
45,903
1,565,277
7,943,360
10,603,840
69,300
13,897
76,312
] 59,509
10,444,33 I
$ 10,444,33 ]
Functions/ Programs
Primary Government:
Governmental Activities:
General Government
Building
Public Works
Engineering and 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
Hotel/ Motel taxes
Other taxes
Franch ise fees
Motor vehicle in lieu
Investment earnings
Miscellaneous
Special item ( Notes 7E and 9):
Redevelopment expense
Transfers ( Note 4)
38,912,960
( 2,992,506)
13,816,170
4,985,854
131,925
2,771,467
420,823
1,069,010
331,972
626,60 I
( 102,280,736)
4,294,392 ( 4,294,392)
Change in Net Assets
Total general revenues, special item and transfers
2,68 J, 692
Net Assets- Beginning
Net assets- Ending
( 38,538,669) ( 3,667,791 )
( 104,572,124)
321,707,576 122,769,830
$ 217,135,452 $ 125,451,522
See accompanying notes to financial statements
20
CITY OF MILPIT AS
STA TEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2005
Net ( Expense) Revenue and
Program Revenues Changes in Net Assets
Operating Capital Primary Government
Charges for Grants and Grants and Governmental Business- type
Expenses Services Contributions Contributions Activities Activities
$ 17,412,109 $ 905,738 $ 631,345 $ 3,219,201 ($ 12,655,825)
2,047,798 2,898,854 851,056
17,794,591 311,151 12,238 2,853,763 ( 14,617,439)
7,115,725 1,677,492 1,953,376 5,779,077 2,294,220
4,169,978 1,482,468 245,758 159,915 ( 2,281,837)
18,772,592 1,109,754 866,882 ( 16,795,956)
14,448,368 888,091 70,296 ( 13,489,981)
9,337,693 ( 9,337,693)
91,098,854 9,273,548 3,779,895 12,011,956 ( 66,033,455)
9,667,874 12,430,082 15,000 $ 2,777,208
247,297 1,016,889 69,125 838,717
6,039,578 8,252,762 520,374 2,733,558
15,954,749 21,699,733 604,499 6,349,483
$ 107,053,603 $ 30,973,281 $ 3,779,895 $ 12,616,455 ( 66,033,455) 6,349,483
$ 1,443,218 $ 1,219,475
Total
($ 12,655,825)
851,056
( 14,617,439)
2,294,220
( 2,281,837)
( 16,795,956)
( 13,489,981)
( 9,337,693)
( 66,033,455)
2,777,208
838,717
2,733,558
6,349,483
( 59,683,972)
38,912,960
( 2,992,506)
13,816,170
4,985,854
131,925
2,771,467
420,823
1,695,611
331,972
( 102,280,736)
( 42,206,460)
( 101,890,432)
444,477,406
$ 342,586,974
Net ( Expense)
Revenue and
Changes in Net Assets
Component Unit
Terrace
Gardens Inc.
($ 223,743)
4,547
2,729
7,276
( 216,467)
10,660,798
$ 10,444,331
21
Cash and investments available for operations ( Note 3)
Restricted investments ( Note 3)
Receivables:
Accounts
Due ITom other governments
Interest
Developer ( Note 7E)
Due ITom other funds ( Note 4B)
Loans receivable ( Note 5)
Prepaids, materials, supplies and deposits
Property held for resale ( Note 6)
ASSETS
Total Assets
LIABILITIES
Accounts payable
Accrued payroll
Uninsured claims payable ( Note 13)
Refundable deposits
Deferred revenue
Due to other funds ( Note 4B)
Due to the County ( Note 7E)
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
Unreserved, designated for:
Long- tenn portion of:
Sick leave payable
Retiree medical benefits
PERS stabilization
Library project
Projects, reported in Capital Projects Funds
Capital contingency
Unreserved, undesignated
Reported in:
General Fund
Special Revenue Funds
Capital Projects Funds
1,586,142
6,988,800
184,888
1,496,001
2,823,334
3,548
12,173,643
2,997,661
2,233,110
6,988,800
711,362
174,327
458,532
1,378,360 6,953,777 1,634,143
92,534,334 3,038,400 1,024,728
2,641,964
1,740,884
5,432,703
5,388,552
96,597,462
700,000
2,627,171
1,740,884
5,432,703
5,388,552
14,793
700,000
10,809,119
23,744,626
40,803,210
10,809,119
TOTAL FUND BALANCES 28,042,650 212,25 I ,734
Total Liabilities and Fund Balances $ 38,834,148
Amounts reported for Governmental Activities in the Statement of Activities
Net Assets are different ITom those reported in the Governmental Funds above because of the following:
CAPITAL ASSETS
Capital assets used in Governmental Activities are not current assets or financial resources and therefore are not reported in the Governmental Funds, 265,653,227
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 ofthe Internal Service Funds are therefore included
in Governmental Activities in the Statement of Net Assets. 5,402,889
ACCRUAL OF NON- CURRENT REVENUES AND EXPENSES
Revenues which are deferred on the Fund Balance Sheets because they are not available currently are taken
into revenue in the Statement of Activities. 7,216,381
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- cUlTent portion of accrued vacation, sick leave and retiree medical benefits
Non- current portion of uninsured claims payable
NET ASSETSOF GOVERNMENTALACTIVITIES
( 253,350,736)
( 3,049,337)
( 15,201,781)
( 1,786,925)
$ 217,135,452
See accompanying notes to financial statements
23
CITY OF MILPIT AS
GOVERNMENTAL FUNDS
BALANCE SHEET
JUNE 30,2005
Other Total
Housing Redevelopment Street Governmental Governmental
General Reserve Project Improvement Funds Funds
$ 35,324,529 $ 15,947,894 $ 30,131,300 $ 11,050,755 $ 12,621,596 $ 105,076,074
6,134,667 97,219,619 395,302 103,749,588
1,329,214 35,808 553,832 79,269 1,998,123
1,138,925 36,041 664,279 1,000,282 2,839,527
310,143 123,870 1,141,043 90,429 88,099 1,753,584
17,750,000 17,750,000
98,478 98,478
174,327 5,850,733 2,823,334 8,848,394
458,532 1,586,142 184,888 3,548 2,233,110
6,988,800 6,988,800
$ 38,834, I48 $ 28,092,972 $ 154,852,945 $ I 2,544, I 83 $ 17,011,430 $ 251,335,678
$ 1,235,467 $ 898,386 $ 1,307,617 $ 760,399 $ 4,201,869
2,679,528 71,761 35,206 40,200 2,826,695
2,270,707 2,270,707
1,898,407 18,843 1,917,250
117,56I $ 5,850,733 660,717 730,700 7,359,711
98,478 98,478
17,750,000 17,750,000
1,263,339 60,782 8,624 1,332,745
844,515 844,515
481,974 481,974
10,79I, 498 5,850,733 18,780,929 2,012,164 1,648,620 39,083,944
20,863,879 2,880,747
28,008,963 5,659,795 7,134,452
22,242,239 136,072,016 10,532,019 15,362,810
$ 28,092,972 $ 154,852,945 $ 12,544,183 $ 17,011,430
CITY OF MILPIT AS
GOVERNMENTAL FUNDS
STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES
FOR THE YEAR ENDED JUNE 30, 2005
24
Other Total
Housing Redevelopment Street Governmental Governmental
General Reserve Project Improvement Funds Funds
REVENUES
Property taxes $ 13,121,765 $ 25,215,408 $ 38,337,173
Less: Educational Revenue
Augmentation Fund payment ( Note 16) ( 2,992,506) ( 2,992,506)
Sales taxes 14,270,542 138,813 14,409,355
Other taxes 8,607,569 $ 458,70 I 9,066,270
Licenses and fines 4,327,666 4,327,666
Interest and others 1,069,010 $ 582,989 3,797,870 $ 352,404 346,40 I 6,148,674
Intergovernmental 971,726 273,330 1,074,915 2,593,460 4,913,43]
Charges for services 3,804,800 37,526 3,842,326
Developer contributions 1,439,356 1,439,356
Other 163,236 710,580 3,223,5 J2 4,097,328
Total Revenues 46,336,314 582,989 27,143,495 2,866,675 6,659,600 83,589,073
EXPENDITURES
Current:
General Government 12,079,611 40 I, 963 334,360 174,065 35,749 13,025,748
Building 2,025,585 49,803 2,075,388
Public Works 7, I 05,664 102,804 527,969 7,736,437
Engineering and Planning 3,653, I06 1,334,706 488,648 967,382 6,443,842
Recreation 4,198,701 4,198,701
Police 19,474,969 248,260 19,723,229
Fire 15,363,198 15,363,198
Capital outlay 8,016,429 6,352,571 1,629,303 15,998,303
Debt service:
Principal 1,045,000 5,560,000 6,605,000
Interest and fees 214,810 9,163,896 9,378,706
Total Expend itures 65,160,644 401,963 24,409,391 7,118,088 3,458,466 100,548,552
EXCESS ( DEFICIENCY) OF REVENUES
OVER EXPENDITURES ( 18,824,330) 181,026 2,734, I04 ( 4,251,413) 3,201,134 ( 16,959,479)
OTHER FINANCING SOURCES ( USES)
Transfers in ( Note 4) 13,869,691 5,160,555 1,294,101 2,605,000 165,513 23,094,860
Transfers ( out) ( Note 4) ( 4,881) ( 1,294,026) ( 14,726,776) ( 1,019,348) ( 1,755,437) ( 18,800,468)
Total Other Financing Sources ( Uses) 13,864,810 3,866,529 ( 13,432,675) 1,585,652 ( 1,589,924) 4,294,392
SPECIAL ITEM ( Notes 7E and 9):
Redevelopment expense ( 48,000,000) ( 48,000,000)
NET CHANGE IN FUND BALANCES ( 4,959,520) 4,047,555 ( 58,698,571) ( 2,665,761) 1,611,210 ( 60,665,087)
Fund balances at beginning of period 33,002,170 18,194,684 194,770,587 13,197,780 13,751,600 272,916,821
FUND BALANCES AT END OF PERIOD $ 28,042,650 $ 22,242,239 $ 136,072,016 $ 10,532,019 $ 15,362,810 $ 212,251,734
See accompanying notes to financial statements
CITY OF MILPITAS
Reconciliation ofthe
NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS
with the
STATEMENT OF ACTIVITIES
FOR THE YEAR ENDED JUNE 30, 2005
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
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, 525,408 have already been added to capital assets)
Donated assets from developers
Loss on retirement of capital assets ( Internal service fund retirement of $ 6,813 has already
been deducted from capital assets)
Depreciation expense is deducted from the fund balance
( Depreciation expense is net of internal service fund depreciation of
$ 1,019,447 which has already been allocated to serviced funds.)
LONG TERM DEBT PAYMENTS
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
Redevelopment expense - installment purchase agreement with the County
Installment payment to the County is added back to fund balance
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):
Due from other governments
Non- current portion of accrued vacation, sick leave and retiree medical benefits
Non- current portion of uninsured claims payable
Interest payable
Deferred revenue
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
CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES
25
($ 60,665,087)
15,998,303
32,776
6,835
( 14,691,795)
6,605,000
( 102,280,736 )
48,000,000
( 176,713)
( 766,002)
1,869,052
41,013
1,361,938
93,292
($ 104,572,124)
CITY OF MILPITAS
GENERAL FUND
STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES
BUDGET AND ACTUAL ( NON GAAPLEGAL BASIS)
FOR THE YEAR ENDED JUNE 30, 2005
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, Recreation and Neighborhood Services
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 1
Budgetary fund balance, June 30
See accompanying notes to financial statements
26
524,219
80,501
25,053
1,005,660
827,391
1,587,152
396
17,] 94
16,2] 7
917,983
5,001,766
9,697,988
( 6,60 I ,895)
( 3,324)
( 6,605,219)
$ 3,092,769
Variance with
Budgeted Amounts Budget
Actual Amounts Positive
Ot. ginal Final Budgetary Basis ( Negative)
$ 9,360,232 $ 9,360,232 $ 13,121,765 $ 3,76 I ,533
12,404,622 12,404,622 14,270,542 1,865,920
8,164,000 8,164,000 8,607,569 443,569
2,917,000 2,917,000 4,327,666 1,410,666
1,861,000 1,861,000 1,069,010 ( 791,990)
3,9] 2,000 3,928,985 971,726 ( 2,957,259)
2,929,963 2,929,963 3,804,800 874,837
47,000 74,290 163,236 88,946
41,595,817 41,640,092 46,336,3] 4 4,696,222
6,149,016 6,263,556 5,739,337
827,487 1,627,487 1,546,986
2,889,289 2,889,289 2,864,236
8,143,818 8,212,818 7,207,158
6,958,864 7,158,804 6,331,413
21,066,190 21,064,633 19,477,481
14,195,063 15,374,802 15,374,406
2,487,826 2,487,826 2,470,632
1,208,782 1,279,782 1,263,565
3,193,544 3,254,965 2,336,982
1,045,250 1,045,000 1,045,000
214,310 214,810 214,810
68,379,439 70,873,772 65,872,006
( 26,783,622) ( 29,233,680) ( 19,535,692)
24,706,586 20,471,586 13,869,691
( 1,557) ( 4,88])
24,706,586 20,470,029 13,864,810
($ 2,077,036) ($ 8,763,651) ( 5,670,882)
711,362
33,002,170
$ 28,042,650
Revenues
Interest and others
Total Revenues
Expenditures
Current:
General Government
Non- departmental
Tota] Expenditures
CITY OF MILPITAS
HOUSING RESERVEFUND
STATEMENT OF REVENUES, EXPENDITURES
AND CHANGES IN FUND BALANCES
BUDGET AND ACTUAL
FOR THE YEAR ENDEDJUNE 30, 2005
Budgeted Amounts
Actual Amounts
Budgetary Basis
$ 582,989
582,989
EXCESS ( DEFICIENCY) OF REVENUES
OVER EXPENDITURES 283,800
OTHER FINANCING SOURCES ( USES)
Transfers in
Transfers ( out)
5,547,600
( 1,134,428)
Net change in fund balance
Total Other Financing Sources ( Uses)
$ 4,696,972
Budgetary fund balance, July]
Adjustment to budgetary basis:
Encumbrance expenditures
Budgetary fund balance, June 30
4,413,172
See accompanying notes to financial statements
27
Variance with
Budget
Positive
( Negative)
$ 125,989
125,989
88,995
88,995
214,984
( 387,045)
( 159,598)
( 546,643)
($ 331,659)
Original Final
$ 283,800 $ 457,000
283,800 457,000
] 0,963 10,963
1,858,355 1,769,360
1,869,318 1,780,323
( 1,412,318) ( 1,197,334)
5,547,600 5,160,555
( 1,134,428) ( 1,294,026)
4,413,172 3,866,529
$ 3,000,854 2,669,195
18,194,684
1,378,360
$ 22,242,239
See accompanying notes to financial statements
29
CITY OFMILPITAS
PROPRIETARY FUNDS
STATEMENT OFNET ASSETS
JUNE 30, 2005
Governmental
Activities-
Business- type Activities- Enterprise Funds Equipment
Recycled Management
Water Sewer Internal Service
Water Utility Utility Utility Totals Fund
ASSETS
Current Assets
Cash and investments
available for operations ( Note 3) $ 6,684,807 $ 1,656,178 $ 20,141,010 $ 28,481,995 $ 5,422,480
Receivables:
Accounts 849,142 39,737 599,582 1,488,461 3,324
Due from other governments 2,741 37,616 40,357
Due from other funds ( Note 4B) 74,282 74,282
Interest 50,565 11,680 142,421 204,666
Total current assets 7,587,255 1,707,595 20,994,911 30,289,761 5,425,804
Noncurrent assets:
Advance to other funds ( Note 4C) 74,282 74,282
Prepaids, materials, supplies and deposits 227,270 313 6,629 234,212 100,911
Capital assets and capacity rights ( Note 8):
Land and construction in progress 6,918,131 10,560,398 17,478,529
Depreciable capital assets, net 34,682,587 351,871 45,039,641 80,074,099 4,489,543
Total noncurrent assets 4] ,827,988 352,] 84 55,680,950 97,861,] 22 4,590,454
Total assets 49,4] 5,243 2,059,779 76,675,861 ] 28, 150,883 10,0] 6,258
LIABILITIES
Current liabilities:
Accounts payable 827,458 331,349 1,158,807 66,218
Accrued payroll 72,6] 6 ], 528 47,839 121,983 26,801
Due to other funds ( Note 4B) 74,282 74,282
Uninsured claims payable ( Note 13) 50,000 50,000
Refundable deposits 38,000 42,200 80,200
Accrued vacation ( Note 12) 20,666
Sick leave payable ( Note 12) 10,141
Total noncurrent ] iabilities 1,012,356 43,728 429,188 1,485,272 123,826
Non- current liabilities:
Advances from other funds ( Note 4C) 74,282 74,282
Advances from other governments ( Note 8E) 747,407 747,407
Accrued vacation ( Note 12) 140,449 85,660 226, I09
Sick leave payable ( Note 12) 115,928 50,363 166,291
Total liabilities 1,343,015 43,728 1,3] 2,618 2,699,361 123,826
NET ASSETS
Invested in capital assets and capacity rights 41,600,718 351,871 55,600,039 97,552,628 4,489,543
Restricted for capital projects 313,770 60,618 6,399,462 6,773,850
Unrestricted 6,157,740 ], 603,562 13,363,742 21,125,044 5,402,889
Total net assets $ 48,072,228 $ 2,0] 6,051 $ 75,363,243 $] 25,45] ,522 $ 9,892,432
CITY OF MILPITAS
PROPRIETARY FUNDS
STATEMENT OF REVENUE, EXPENSES
AND CHANGES IN FUNDNET ASSETS
FOR THE YEAR ENDED JUNE 30, 2005
30
Governmenta]
Activities-
Business- type Activities- Enterprise Funds Equipment
Recycled Management
Water Sewer Interna] Service
Water Utility Utility Utility Totals Fund
OPERATING REVENUES
Charges for services $ 12,253,605 $ 1,016,889 $ 8,252,762 $ 21,523,256 $ 1,575,717
Other operating revenue 176,477 176,477 30,734
Tota] Operating Revenues 12,430,082 1,016,889 8,252,762 21,699,733 1,606,451
OPERATING EXPENSES
Purchased water 5,680,524 169,582 5,850,106
Purchased sewer capacity 3,207,786 3,207,786
Personnel services 1,706,388 57,429 1,058,193 2,822,010 618,871
Services and supplies 708,092 69 463,392 1,17I, 553 937,779
Claims
Depreciation 1,277,924 20,217 969,263 2,267,404 1,019,447
Repairs and maintenance 294,946 340,944 635,890 15,269
Total Operating Expenses 9,667,874 247,297 6,039,578 ] 5,954,749 2,591,366
Operating Income ( Loss) 2,762,208 769,592 2,213,] 84 5,744,984 ( 984,915)
NONOPERATING REVENUES
Interest income 176,081 44,889 405,63 I 626,601
Taxes and subsidies 69,125 488,699 557,824
Total Nonoperating Revenues 176,08] 114,014 894,330 ], 184,425
Income Before Contributions and Transfers 2,938,289 883,606 3,107,514 6,929,409 ( 984,9 15)
Contributions 15,000 31,675 46,675 1,078,207
Transfers in ( Note 4) 360,000 1,000,000 1,360,000
Transfers ( out) ( Note 4) ( 3,02] ,24]) ( 4] 1,680) ( 2,22], 471) ( 5,654,392)
Change in net assets 292,048 471,926 1,917,718 2,681,692 93,292
Total net assets- beginning 47,780,180 1,544,125 73,445,525 122,769,830 9,799,140
Total net assets- ending $ 48,072,228 $ 2,016,051 = $ 75,363,243 $ I 25,45 I ,522 $ 9,892,432
See accompanying notes to financial statements
31
CITY OF MILPITAS
PROPRIETARY FUNDS
STATEMENT OF CASHFLOWS
FOR THE YEAR ENDED JUNE 30, 2005
Governmental
Activities-
Business- type Activities- Enterprise Funds Equipment
Management
Recycled Water Sewer Internal Service
Water Utility Utility Utility Totals Fund
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers $ 12,649,154 $ 1,048,461 $ 8,245,4 79 $ 21,943,094 $ 1,603,127
Payments to suppliers ( 6,849,512) ( 195,966) ( 4,836,901) ( 11,882,379) ( 922,020)
Payments to employees ( 1,704,854) ( 61,382) ( 1,046,712) ( 2,812,948) ( 613,248)
Net cash provided by operating activities 4,094,788 791,113 2,361,866 7,247,767 67,859
CASH FLOWS FROM NONCAP1T AL
FINANCING ACTIVITIES
Advances to other funds 74,283 74,283
Advances from other funds ( 74,283) ( 74,283)
Taxes and subsidies 69,125 488,699 557,824
Transfers in 360,000 1,000,000 1,360,000
Transfers ( out) ( 3,021,241) ( 411,680) ( 2,221,471) ( 5,654,392)
Cash Flows from Noncapital Financing Activities ( 2,735,524) ( 342,555) ( 658,489) ( 3,736,568)
CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES
Acquisition of capital assets, net of retirement ( 812,748) ( 4,267,352) ( 5,080,100) ( 440,388)
Advances from other governments ( 63,855) ( 63,855)
Cash Flows from Capital and Related
Financing Activities ( 812,748) ( 4,331,207) ( 5,143,955) ( 440,388)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received 174,045 42,095 402,347 618,487
Cash Flows from Investing Activities 174,045 42,095 402,347 618,487
Net increase in cash and cash equivalents 720,561 490,653 ( 2,225,483) ( 1,014,269) ( 372,529)
Cash and investments at beginning of period 5,964,246 1,165,525 22,366,493 29,496,264 5,795,009
Cash and investments at end of period $ 6,684,807 $ 1,656,178 $ 20,141,010 $ 28,481,995 $ 5,422,480
NONCASH TRANSACTIONS:
Contributions and transfers of capital assets, net $ 15,000 $ 31,675 $ 46,675 $ 1,078,207
Reconciliation of operating income to net cash provided by
operating activities:
Operating income $ 2,762,208 $ 769,592 $ 2,2 \ 3, 184 $ 5,744,984 ($ 984,915)
Adjustments to reconcile operating income to net cash provided
by operating activities:
Depreciation 1,277,924 20,217 969,263 2,267,404 1,019,447
Change in assets and liabilities:
Receivables, net 220,572 ( 970) ( 7,283) 212,319 ( 3,324)
Materials, supplies and deposits ( 89,654) ( 45) 607 ( 89,092) 18,043
Accounts and other payables ( 76,262) 2,319 ( 8 \ 3,905) ( 887,848) 18,608
Net cash provided by operating activities $ 4,094,788 $ 791,1 \ 3 $ 2,361,866 $ 7,247,767 $ 67,859
See accompanying notes to financial statements
CITY OF MILPITAS
FIDUCIARY FUNDS
STATEMENT OF FIDUCIARYNET ASSETS
JUNE 30, 2005
Agency
Funds
ASSETS
Cash and investments ( Note 3) $ 8,283,596
Accounts receivable 2,501
Due from other governments 5,436
Interest receivable 16,093
Total Assets $ 8,307,626
LIABILITIES
Refundable deposits $ 502,839
Due to Local Improvement Districts 7,804,787
Total Liabilities $ 8,307,626
See accompanying notes to financial statements
33
CITY OF MILPIT AS
Notes to Basic Financial Statements
I NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The City of Milpitas was incorporated as a general law city on January 26, 1954. The City operates under the
Council- Manager form 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 financial statements and accounting policies of the City conform with generally accepted accounting
principles applicable to governments. The Governmental Accounting Standards Board ( GASB) is the
accepted standard- setting body for governmental accounting and financial reporting principles. Significant
accounting policies 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 financial statements.
Each discretely presented component unit, on the other hand, is reported in a separate column in the basic
financial statementsto emphasize it is legally separate fromthe 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 financial activities are
integral to those of the City. Their financial activities have been aggregated and merged ( termed " 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 performs all
accounting and administrative functions for the Agency. The financial activities of the Agency are included
in the Housing Reserve SpecialRevenue Fund and the RedevelopmentProject Capital Projects.
The Milpitas Public Financing Authority is a separate government entity whose purpose is to assist with the
financing or refinancing of certain public capital improvements within the City, principally the
Redevelopment Project 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 governing body as the City, which also performs all
accounting and administrative functions for the Authority. During fiscal year 2005, there were no financial
activities to report.
Financial statements for the Milpitas Redevelopment Agency and Milpitas Public Financing Authority may be
obtained ITomthe City of Mil pitas located at 455 East Calaveras Blvd., Milpitas, CA 95035.
35
CITY OF MILPIT AS
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 ccmplex 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. During fiscal year 2005 the City Council began to
exercise control over the Board of Terrace Gardens. The financial activities of Terrace Gardens, Inc. as of
and for the year ended December 31, 2004 are therefore discretely presented in the Terrace Gardens Inc.
Component Unit column of the Statementof Net Assets and the Statementof 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
CITY OF MILPITAS
Notes to Basic Financial Statements
I 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, fines 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
redevelopment project areas.
Street Improvement Fund - Established to account for the construction and maintenance of the street
system in Milpitas. Financing is 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 services are accounted for in this fund, including, but not limited to, 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, capitalimprovements, 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 accounted for in this fund, including, but not limitedto, administration,
operations, capital improvements, maintenance, financing, and billing and collection.
The City also reports the following fund types:
Internal Service Fund - The Equipment Management Internal Service Fund is used to finance and account
for the replacement of equipmentused by City departmentson a cost reimbursementbasis.
37
CITY OF MILPIT AS
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 financial activities of these funds are excluded from the
City- widefinancial statement, but are presented in separate Fiduciary Fund financial 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 have 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 GovernmentAccounting 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 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
I NOTE 1 - SUMMARY OF SIGNIFICANT 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 amot/ r. tlevied 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 1 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 I, 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 property beingtaxed. Propertytax revenues are recognizedby the City in the
fiscal year they are assessed, providedthey becomeavailableas defined above.
G. Revenue Recognition/ or Water, 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. Closed and New Funds
The Hetch- Hetchy Ground Lease Special Revenue Funds were established as of July I, 2004. The LID# 14
Agency Fund was closed as of June 30,2005.
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 financial 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 prescribed by 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
appropriated budget at the department level without City Council approval.
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.
39
CITY OF MILPIT AS
Notes to Basic Financial Statements
I NOTE 2 - BUDGETS AND BUDGETARY ACCOUNTING ( Continued)
B. Adjustments to GAAP Basis from Budgetary Basis
City budgets are adopted on a basis consistent with generally accepted accounting principles ( GAAP) except
that encumbrances are considered budgetary expenditufcs 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.
c. Expenditures in Excess of Appropriations
The funds below incurred expenditures in excess of their budgets in the amounts below. Sufficient resources
were available within each fund to finance these expenditures.
Fund / Department
Special Revenue Funds
Housing and Community Development
Planning & Neighborhood Services
Gas Tax
Public Works
Amount
$ 2,638
1,885
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
individual funds can make expenditures at any time.
A. Policies
The City invests in individual investmentsand in investmentpools. Individual investments are evidenced by
specific identifiablesecurities instruments, or by an electronic entry registeringthe 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 Departmentof a bank as the custodianof 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.
40
CITY OF MILPIT AS
Notes to Basic Financial Statements
I NOTE 3 - CASH AND INVESTMENTS ( Continued)
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
$ 138,980,549
103,749,588
242,730,137
15,065
1,030,476
1,045,541
8,283,596
$ 252,059,274
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.
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
Minimum
Credit
Quality
State of California Local Agency Investment
Fund ( LAIF Pool)
U. S. Treasury Bonds, Notes and Bills
I Year
Upon Demand
5 Years
U. S. Government Agency Obligations
Bankers Acceptances
5 Years
Commercial Paper
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
AI/ PI
2 Years
5 Years
Upon Demand
AA
Top Rating
Category
Security Swa~ s N/ A
( A) Eligible Commercial Paper and Medium Term 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
I NOTE 3 - CASH AND INVESTMENTS ( Continued)
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 identifies the investmenttypes that are authorized for investments held by fiscal agents. The table also
identifies certain provisions ofthese debt agreements:
Maximum
Maturity
Minimum
Credit
Authorized Investment Type Quality
U. S. Treasury Bonds, Notes and Bills
U. S. Government Agency Obligations
5 Years
5 Years
Money Market Funds Upon
Demand
1- 2Years
AAm
Time Certificates of Deposit - Banks
or Savings and Loans
Bankers Acceptances 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 Mutual Funds
5 Years
Upon
Demand
AA
Upon
Demand
Aaa
( A) The combined total of commercial paper and medium term corporate notes may not represent more
than 10% of the outstandingpaper and notes of an issuing corporation.
E. Investments Authorizedfor Terrace Gardens Inc.
Terrace Gardens, Inc. investments conform with the California Government Code.
42
Maximum Maximum
Percentage Investment
ofportfolio In One Issuer
100% No Limit
100% No Limit
20% 10%
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
I NOTE 3 - CASH AND INVESTMENTS ( Continued)
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 of the City's investments by maturity or earliest call date:
Investment Type
12Months
or less
13to 24
Months
25to 60
Months
Morethan
60 Months Total
City:
U. S. Government Agency Issues
Corporate Notes
U. S. Treasury Notes
California Local Agency Investment Fund
Mutual Funds ( U. S. Securities)
Certificates of Deposit
Total Investments
Demalld Deposits- City of Milpitas
Demalld Deposits - Terrace Gardells
Total Cash and Investments
Investment Repurchase Agreement
Terrace Gardells, IlIc.:
The City is a participant in the Local Agency Investment Fund ( LAIF) that is regulated by California
Government Code Section 16429 under the oversight of the Treasurer of the State of California. The City
reports its investment in LAIF at the fair value amount provided by LAIF, which is the same as the value of
the pool share. The balance is available for withdrawal on demand, and is based on the accounting records
maintained by LAIF, which are recorded on an amortized cost basis. Included in LAIF's investment
portfolio are collateralized mortgage obligations, mortgage- backed securities, other asset- backed securities,
loans to certain state funds, and floating rate securities issued by federal agencies, government- sponsored
enterprises, United States Treasury Notes and Bills, and corporations. At June 30, 2005 these investments
matured in an average of 151days.
Mutual funds are available for withdrawal on demand and at June 30, 2005 matured in an average of22 days.
43
$ 43,119.085 $ 39,012,77\ $ 19,667,849 $ 142.608 $ 101.942,313
3,976,827 4,030,318 1,954,487 9.961,632
7,979,688 8,936,875 2,998,125 19,914,688
28,929,991 28,929,991
1,404,081 1,404,081
86,294,318 86,294,318
917,104 917,104
86,326,776 $ 51,979,964 $ 110,914,779 $ 142,608 249,364,127
2,566,710 2,566,710
128,617 128,617
$ 89,022,103 $ 252,059,