CITY OF Berkeley

CAliFOrNiA

Comprehensive Annual

Financial Report for

Year Ended June 30, 2006

CITY OF BERKELEY

CALIFORNIA

Comprehensive Annual Financial Report

For the fiscal year ended

June 30, 2006

Prepared by Finance Department

Robert Hicks

Acting Director of Finance

INTRODUCTORY SECTION

Letter of Transmittal 1- 16

GFOA Certificate of Achievement 17

CSMFO Certificate of Award 18

Government Structure 19

Organizational Chart 20

List of Elected and Appointed Officials 21

FINANCIAL SECTION

Independent Auditor's Report 23- 24

Management's Discussion and Analysis 25- 38

Basic Financial Statements 39

Government- wide Financial Statements:

Statement of Net Assets 40

Statement of Activities 41

Fund Financial Statements

Balance Sheet - Governmental Funds 42- 45

Statement of Revenues, Expenditures, and Changes in

Fund Balances - Governmental Funds 46- 49

Reconciliation of the Statement of Revenues, Expenditures, and Changes in

Fund Balances of Governmental Funds to the Statement of Activities 50

Statement of Revenues, Expenditures, and Changes in Fund Balances -

Budget and Actual - General Fund and Major Special Revenue Funds 51- 57

Statement of Net Assets - Proprietary Funds 58

Statement of Revenues, Expenses and Changes in Fund Net Assets -

Proprietary Funds 59

Statement of Cash Flows - Proprietary Funds 60- 61

Statement of Fiduciary Net Assets 62

Statement of Changes in Fiduciary Net Assets 63

Notes to the Financial Statements 64- 115

Required Supplementary Information:

Schedule of Funding Progress - CALPERS, Safety Members Pension Fund ( SMPF) 116- 117

Combining and Individual Fund Statements and Schedules: 118

Schedule of Revenues, Expenditures, and Changes in Fund Balances -

Budget and Actual - Major Capital Project Funds 119- 120

Schedule of Revenues, Expenditures, and Changes in Fund Balances -

Budget and Actual - Major Debt Service Funds 121- 122

Non- major Governmental Funds 123- 128

Combining Balance Sheet - Nonmajor Governmental Funds 129- 135

Combining Statement of Revenues, Expenditures and Changes in Fund

Balances - Non- major Governmental Funds 136- 140

City of Berkeley

Comprehensive Annual Financial Report

For the Fiscal Year Ended June 30, 2006

TABLE OF CONTENTS

City of Berkeley

Comprehensive Annual Financial Report

For the Fiscal Year Ended June 30, 2006

TABLE OF CONTENTS

Schedule of Revenues, Expenditures, and Changes in Fund Balances -

Budget and Actual - Non- major Governmental Funds 141- 150

Combining Statement of Net Assets - Internal Service Funds 151

Combining Statement of Revenues, Expenses and Changes in Fund Net

Assets - Internal Service Funds 152

Combining Statement of Cash Flows - Internal Service Funds 153- 154

Combining Statement of Fiduciary Net Assets - Pensions and

Other Employee Trust Funds 155

Combining Statement of Changes in Fiduciary Net Assets - Pension and

Other Employee Trust Funds 156

Statement of Changes in Assets and Liabilities - Agency Fund 157

Capital Assets Used in the Operation of Governmental Funds: 159

Comparative Schedules By Source 160

Schedule by Function and Activity 161- 162

Schedule of Changes by Function and Activity 163- 164

STATISTICAL SECTION

Financial Trends

Net Assets by Component 165

Changes in Net Assets 166- 167

Fund Balance, Governmental Funds 168

Changes in Fund Balances, Governmental Funds 169- 170

Revenue Capacity

Assess Value and Estimated Actual Values of Taxable Property 171

Direct and Overlapping Property Tax Rates 172

Principle Property Tax Payers 173

Property Tax levies and Collections 174

Debt Capacity

Ratios of Outstanding Debt by Type 175

Ratios of General Bonded Debt Outstanding 176

Direct and Overlapping Governmental Activities Debt 177

Legal Debt Margin Information 178

Pledged Revenue Coverage 179

Demographic and Economic Information

Demographic and Economic Statistics 180

Principal Employers 181

Full- Time- Equivalent City Government Employees by Function/ Program 182

Operating Information

Operating Indicators 183- 184

Capital Asset Statistics by Function/ Program 185

Department of Finance

Office of the Director

MEMORANDUM

DATE: December 11, 2006

TO: Honorable Mayor and Members of the City Council, City Manager, and Citizens

of the City of Berkeley

FROM: Robert Hicks, Acting Director of Finance

RE: Presentation of the Comprehensive Annual Financial Report

Attached is the Comprehensive Annual Financial Report ( CAFR) of the City of Berkeley for the

fiscal year ended June 30, 2006. The CAFR has been prepared by the Finance Department in

conformance with the principles and standards for financial reporting set forth by the

Governmental Accounting Standards Board ( GASB). Responsibility for the accuracy,

comprehensiveness and fairness of the presented data and the completeness and fairness of

presentation, including all disclosures, rests with the City’s management. The report has been

compiled in a manner designed to fairly set forth the financial position and results of operations

of the City as measured by the financial activity of its various funds. All disclosures necessary to

enable the reader to gain an understanding of the City’s financial affairs have been included.

The City prepared the CAFR in accordance with generally accepted accounting principles, which

included using the financial reporting requirements prescribed by GASB Statement No. 34, Basic

Financial Statements and Management’s Discussion and Analysis for State and Local

Governments ( GASB 34). This statement requires that management provide a narrative overview

and analysis to introduce the basic financial statements in the form of Management’s Discussion

and Analysis ( MD& A). This letter of transmittal is designed to complement the MD& A and

should be read in conjunction with it. The MD& A can be found immediately following the

independent auditor’s report.

The CAFR is presented in three ( 3) sections:

1. Introduction. This section includes the Letter of Transmittal with comments on the

organizational structure of the City, the City’s economy, major initiatives, cash

management, and risk management.

2. Financial Section. This section is prepared in accordance with generally accepted

accounting principles, which includes GASB 34 requirements by incorporating the

MD& A, the Basic Financial Statements including notes to the financial statements, and

Required Supplementary Information. The Basic Financial Statements include the

government- wide financial statements that present an overview of the City’s entire

financial operations, and the fund financial statements that present the financial

information of each of the City’s major funds, as well as its non- major governmental,

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Page 2

fiduciary, enterprise, and internal service funds. Also included in this section is the

Independent Auditor’s Report prepared by C. G. Uhlenberg & Co. LLP.

3. Statistical Section. This section includes tables containing financial trends information,

revenue capacity information, debt capacity information, demographic and economic

information, operating information and additional information about the City, which

includes GASB 44 requirements that are of interest to potential investors in the City’s

bonds and other readers.

THE REPORTING ENTITY

This report combines the financial statements of the City, the Berkeley Redevelopment Agency

( BRA), the Berkeley Housing Authority ( BHA), and the Rent Stabilization Board ( RSB) in

accordance with principles defining the governmental reporting entity adopted by the

Governmental Accounting Standards Board ( GASB). The Rent Stabilization Board is a

discretely presented component unit because the citizens elect its nine member Board of

Commissioners. The financial operations of the BRA and BHA, though legally separate from

the City, are closely related to the City. In fact, in separate sessions, the City Council members

serve as the governing board of the BRA and BHA. As a result, the BRA and BHA are

presented as blended component units in the financial statements. The financial activities of the

BRA are included with the capital project and debt service fund types; the financial activities of

the BHA are included with the enterprise funds.

PROFILE OF THE CITY

The City of Berkeley is located in Alameda County on the east side of the San Francisco Bay

approximately ten ( 10) miles east of San Francisco. The City encompasses a total area of

approximately 10.9 square miles and has an estimated population of 105,385 giving it the highest

population density of any city in the East Bay. The City is defined to a large degree, both

culturally and economically, by the presence of the University of California campus located on

the eastern side of the City.

The City of Berkeley is among the oldest cities in California. It was founded in 1864,

incorporated as a town in 1878, and incorporated as a city in 1909. The original City Charter

was adopted in 1895. At the geographic midpoint of the Greater Bay Area, Berkeley is 20

minutes from San Francisco and close to population centers in Contra Costa County and the

Silicon Valley.

The City provides a full range of services exceeding that of most similarly sized cities in

California: services include public safety ( police and fire); sanitation and sewer; housing; leisure

( parks, recreation and marina); health and human services including City funded health clinics;

animal control; public improvements; planning and zoning; general and administrative services;

and library services. In addition, the City’s reporting entity includes the financial activities of

the Redevelopment Agency, the Housing Authority and the Rent Stabilization Board.

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ECONOMIC CONDITION AND OUTLOOK

During FY 2006, the financial position of the City’s General Fund improved by $ 4,538,919 as

total assets increased by $ 3,201,933, and total liabilities decreased by $ 1,336,986. The

improvement in the General Fund’s financial position resulted primarily from the following:

• An operating surplus in FY 2006 of $ 13,967,549, as operating revenues totaled

$ 124,802,826 and operating expenditures totaled $ 110,835,277;

• Operating transfers out in FY 2006 of $ 16,383,124, which exceeded operating transfers

in of $ 4,735,968, for net transfers out of $ 11,647,156;

• Sale of fixed assets of $ 2,218,526.

The generation of the General Fund’s FY 2006 operating surplus of $ 13,967,549 was led by ( 1)

expenditures that were generally under the adopted budget; ( 2) a higher- than- expected

$ 4,499,440 increase in property- related tax revenues; and ( 3) a $ 3,130,426 increase in

economically- sensitive tax revenues including a $ 695,299 decrease in the fair value of

investments included in investment income, as follows:

Table 1

PROPERTY- RELATED TAXES

Description FY 2006 FY 2005 Difference

Real property $ 29,880,100 $ 27,468,890 $ 2,411,210 8.8%

Personal property 2,040,353 1,883,807 156,546 .8%

Supplemental 2,573,543 1,636,900 936,643 57.2%

Property transfer 14,608,560 13,656,509 952,051 7.0%

Redemptions 694,977 651,987 42,990 6.6%

Total $ 49,797,533 $ 45,298,093 $ 4,499,440 9.9%

Table 2

ECONOMICALLY- SENSITIVE INCOME

Description FY 2006 FY 2005 Difference

Sales tax $ 13,983,672 $ 13,103,459 $ 880,213 6.7%

Business license tax 11,077,244 10,651,572 425,672 4.0%

Transient occupancy

tax

3,008,772 2,637,110 371,662 14.1%

Investment income 3,486,865 2,033,986 1,452,879 71.4%

Total $ 31,556,553 $ 28,426,127 $ 3,130,426 11.0%

Helped by the improvement in the financial position of the City’s General Fund in FY 2006, the

City of Berkeley continued to be financially strong and to benefit from participation in the Bay

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Area’s diverse and stable economy. The City currently maintains bond ratings from the national

rating agencies of AA- from Standard and Poors and Aa3 from Moody’s.

The City is home to the main campus of the University of California. With 33,933 students and

approximately 13,500 employees, the University provides a high degree of economic stability for

the City and has spurred growth in the high technology and biotechnology sectors. The

Lawrence Berkeley Laboratory also has approximately 3,800 employees, and the Alta Bates

Medical Center has approximately 3,100 employees. Despite the large student population, the

City has an average median household income of $ 70,434.

During the fiscal year, the local economy improved slightly consistent with regional trends.

Berkeley’s current economic base consists of approximately 12,000 licensed businesses

operating in the City. These businesses include private manufacturing, technology research,

retail and service businesses, along with several state, federal, and non- profit institutions. These

businesses provide employment for 61,400, according to the State Economic Development

Department. This economic base generated slightly over $ 4.1 billion in gross business receipts

in FY 2006, up $ 46 million or 1.1% from FY 2005. Also, the City had over $ 1.38 billion in

taxable sales during the fiscal year, close to the total taxable sales in FY 2005. In addition, the

City’s unemployment rate ( as reported by the State of California Employment Development

Department) declined from 5.3% in FY 2005 to 4.8% in FY 2006, compared to 4.8% for the

County, 4.9% for the state and 4.6% for the U. S.

Taxable property values continued to rise, increasing at an average of 7.6% annually during the

last five years to $ 10.0 billion in FY 2006, or a strong $ 89,055 per capita. The tax base is

diverse, with the top ten property taxpayers accounting for only 4.3% of total assessed valuation.

Residential and commercial construction remains strong with the estimated value of permits

issued totaling $ 90,700,361 and $ 30,651,579, respectively.

The City takes an active role in guiding economic development to serve the business and

residential community. The City manages a number of programs intended to assist in local

business expansion and retention efforts, provide permit assistance to new businesses, seek out

appropriate sites, and work with local businesses and merchant organizations to improve the

local business climate. The City’s Work Source employment program requires certain new and

expanding businesses to consider Berkeley residents first in their hiring. The City’s Main Street

program helps to improve properties and businesses in Berkeley's historic Downtown, an effort

that is now supported by the Downtown Berkeley Business Improvement District ( BID).

The City has also worked with local businesses to establish BIDs in the Telegraph, Elmwood,

Solano, and North Shattuck districts. Since 1994, the City Council has resolved to promote

environmentally sustainable businesses in Berkeley and formally adopted the Precautionary

Principle based on the outcomes of the Kyoto Accord.

More than 130 arts and cultural organizations comprise an arts community that collectively is

among the largest employment sectors in Berkeley. The arts provide some 3,400 jobs, reach an

annual audience of 1.7 million people, and have a combined budget of $ 70 million. Arts, culture,

entertainment and restaurants help drive the City’s economic engine. In addition, the City

promotes the arts and has helped established the Downtown as a regional center for the arts,

culture and entertainment. The Arts District is now a major venue for theatre performances, with

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the 160- seat Aurora Theatre, the original Berkeley Repertory’s 400- seat theatre, the Berkeley

Repertory’s 600- seat Roda Theatre, the Jazz school ( a nationally recognized school for jazz

performance and study) and the upcoming renovations to the Freight& Salvage performance

space. The Berkeley Poetry Walk was installed in the sidewalks on Addison Street, and public

art projects continue to appear in the Downtown and adjacent areas of Berkeley.

As reflected in Table 2 above for economically sensitive General Fund revenues, the City’s

revenues have improved from the economic downturn experienced from FY 2002 to FY 2005.

For the first time in four fiscal years, all economically sensitive revenue categories are increasing

compared to the previous fiscal year.

Community Planning -- City Work Plan. One of the major components of the City’s efforts to

develop an integrated budget process is the establishment of policy priorities by the City

Council. One outcome of this process is an attempt through the budget to align City Council and

community expectations with resources available to the City to deliver desired results.

The City Council approved a composite of Citywide Critical Initiatives and Special Projects for

the upcoming fiscal year and reviewed its top priorities. Establishment of clear City Council

priorities helps ensure that certain programs and initiatives receive the management and

resources needed to deliver timely results. Council confers with the City Manager and staff

regarding priorities and maintenance of the work plan projects.

Moving Toward an Integrated Budget Process. The City is continually improving its budget

process and service delivery to align policy goals, program objectives and resources, and service

delivery – including establishing useful performance goals and integrating them with sustainable

performance goals. The two- year budget allows time to effectively integrate goal- setting and

policy- making processes, with the establishment of performance targets and the allocation of

resources. Short- term program and service objectives can be developed, and resources to meet

these objectives can be appropriately allocated through the budget process. To complete the

cycle, performance measures will be used to evaluate if services were effective and policy goals

met. This information can feed the subsequent assessment of community conditions and trends

for the next budget and performance cycle.

• Developing a Service- Based Outcomes Budget. An effective budget process provides

for allocation of limited resources to maximize the benefits of programs and services that

improve the quality of life in the community. Traditional city budgets, employed by most

municipalities, present funding information across organizational units such as

departments and divisions. The focus of this budget is inputs, or dollars and staffing

levels provided. Present efforts to supplement this financial information with

performance measures often emphasize measures of workload, or quantity, instead of

quality, or effectiveness. Rarely are performance measures linked to stated policy goals,

further limiting useful resource allocation decisions.

Over the next few budget cycles, the City will continue to design a budget process, which

focuses on services and includes performance and benchmark information to assist in

evaluating program outcomes and how effectively resources are used. Full

implementation and benefits of a performance- based budget cannot be achieved without

organizational changes in other areas.

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ACCOUNTING AND BUDGETARY SYSTEMS

The City’s accounting systems are designed to provide reasonable but not absolute assurance

regarding ( 1) the safeguarding of the City’s assets against loss from unauthorized use or

disposition; and ( 2) the reliability of the City’s financial records for preparing financial

statements and maintaining accountability for assets. The concept of reasonable assurance

recognizes that ( 1) the cost of controls should not exceed the benefits likely to be derived; and

( 2) the evaluation of costs and benefits requires estimates and judgments by management. All

internal control evaluations occur within this framework. We believe the City’s internal

accounting controls adequately safeguard assets and provide reasonable assurance of proper

recording of financial transactions.

As a recipient of federal and state funds, the City is responsible for ensuring that an adequate

internal control structure is in place to ensure compliance with applicable laws and regulations

related to these programs. This internal control structure is subject to periodic evaluation by

management and the Elected Auditor’s Office of the City.

The budget process is the vehicle through which the City establishes goals and objectives, and

prioritizes the desired programs or services that the City should provide, and which can be

financed by the City’s projected revenue for the budget year. It is the vehicle through which

policy decisions are made, effected, controlled and monitored. Under the City Charter, the City

Manager is responsible for preparing and recommending an operating budget and a capital

improvements budget for City Council consideration and adoption.

The City of Berkeley employs a two- year budget process. In year one of the biennial budget

cycle, the City Council formally adopts authorized appropriations for the first year of the two-year

budget and approves “ planned” appropriations for the second fiscal year. In year two of the

budget cycle, the City Council considers revisions and formally adopts authorized appropriations

for the second fiscal year. Although the budget cycle covers a two- year period, the City Charter

requires that the City Council adopt an annual appropriations ordinance for each budget year.

The City's Capital Budget is represented as the first year of the City's Five- Year Capital

Improvement Spending Plan. Upon adoption by Council, the projects included in the Capital

Budget represent legal appropriations. Capital expenditures are not fully " consumed" in the year

of expenditure but instead produce long- term, tangible, future benefits.

In addition to this budget planning process, the City maintains budgetary controls. The City’s

objective in maintaining budgetary control is to ensure compliance with legal provisions

embodied in the annual appropriated budget approved by the City Council. The City Manager is

authorized to transfer budgeted amounts within funds as deemed necessary in order to meet the

City’s needs. However, revisions that alter the total budget or move amounts from one fund to

another must be approved by the City Council. Activities of the General Fund, Special Revenue

Funds, Debt Service Funds, Capital Project Funds, and Proprietary Funds are included in the

annual appropriated budget.

The City maintains an encumbrance accounting system as one technique of accomplishing

budgetary control. Purchase orders, contracts, and other commitments for the expenditure of

money are secured in order to reserve that portion of the applicable appropriation.

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Encumbrances outstanding at year- end are reported as reservations of fund balance.

Unencumbered amounts lapse at year- end and may be appropriated as part of the following

year’s budget.

CASH MANAGEMENT

The City invests its temporarily idle cash in investments legally permissible by the State of

California and in accordance with its own investment policy. Those authorized investments are

detailed in Note I. E. 1 of the Notes to the Financial Statements.

The City's investment policy seeks the preservation of capital, liquidity, and yield, in that order

of priority. Maturities are selected to anticipate cash needs, thereby avoiding the need for forced

liquidations. Within the constraints of safety and liquidity, the highest yields are sought. In

addition, the City’s investment policy is designed to reflect and support the City’s policy position

on important social and environmental issues. Cash is invested on a pooled basis and the related

income allocated to funds on the basis of cash provided for investment.

For internal control purposes, the City has adopted the practice of having all purchased securities

wire- transferred in book entry form over the Federal Reserve Board’s wire system to its

safekeeping bank before funds are wire- transferred in payment of the investments ( delivery

versus payment method).

RISK MANAGEMENT

The City is exposed to various risks of loss related to torts; theft of, damage to, or restriction of

assets; errors or omissions; injuries to employees; or unforeseen events referred to as " acts of

God." As part of its risk management program, the City has insurance coverage for workers'

compensation claims in excess of $ 350,000 per occurrence and public liability claims between

$ 350,000 and $ 20,000,000. The City is fully insured for medical claims and is limited to $ 2,000

per participant for dental claims.

The City accounts for the Workers’ Compensation and Public Liability claims incurred, but not

paid, in the financial statements of the City. Continuing analysis is performed each year to

determine adequate reserve levels for current operations and in future budget periods. The City

conducts an actuarial study for workers’ compensation in each fiscal year, in order to update and

adjust the reserve and properly reflect the liability associated with these operations.

SPENDING LIMITATION

Article XIIIB of the California Constitution, also known as the GANN spending limit, restricts

the amount of “ proceeds of taxes” California governments may spend. As of June 30, 2006, the

City had not reached its Article XIIIB spending limitation.

FIDUCIARY OPERATIONS

Safety Members Pension Fund. The City administers a defined benefit retirement plan called

Safety Members Pension Fund ( SMPF). The plan is a single- employer defined benefit pension

plan for fire and police officers who retired before March 1973. In March 1973, all active fire

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and police officers were transferred from SMPF to the California Public Employees Retirement

System ( CalPERS). At July 1, 2006, the date of the most recent actuarial valuation, there were

39 retired members and surviving spouses, an actuarial accrued liability as of July 1, 2006 of

$ 10,509,882 and plan assets of $ 4,540,268.

ENTERPRISE OPERATIONS

The City's enterprise operations comprise nine ( 9) separate and distinct activities: Off- Street

Parking; Parking Meter; Marina Operations and Maintenance; Sanitary Sewer; Refuse Collection

and Disposal; Clean Storm Water; Permit Service Center; Building Purchase and Management;

and the Berkeley Housing Authority. The Clean Storm Water and Parking Meter Funds continue

to receive a subsidy from the General Fund.

MAJOR IMPACTS AND INITIATIVES

1. Major Capital Projects

• Marina Plan and Waterfront Overview. The Parks Recreation & Waterfront

Department continues to work with the Waterfront Commission to refine the Marina

Enterprise Fund financial forecasts, making recommendations to increase fees and

reviewing critical Capital Projects. The basis for these recommendations comes from the

Marina Plan which was adopted by Council on July 8, 2003 and continues to guide the

division.

The Marina Plan identifies major capital costs associated with maintaining and enhancing

the Berkeley Marina and associated parklands. Since the marina is funded through an

enterprise fund, 100% of the costs associated with its operation and maintenance are

funded through revenues generated from marina operations, leases or alternative sources

such as grants or loans. Financial forecasts indicate that shortfalls will occur and that

new revenue sources are needed. Without infrastructure improvements, docks will be

removed from service and the marina basin may eventually fill with silt.

In response to the City’s effort to meet the critical need for infrastructure repair, the

Department of Boating and Waterways has awarded the City a $ 9,000,000 loan ( initial $ 7

million loan with an additional $ 2 million awarded in FY 2005). $ 7 million of these

funds became available in early FY 2004, following the adoption of the necessary

Collateral Agreement and are being used for the design and construction to replace the A-E

and H & I docks and related restrooms. A grant from the Department of Boating and

Waterways for $ 290,000 was awarded in 2002 for the renovation of the restroom located

at the Marina Launch Ramp. Other capital improvement projects are also planned and/ or

in progress for Marina facilities and infrastructure, as outlined in the Marina Plan.

All of this information is incorporated into the Marina Plan documents, including the

annual loan debt service, which will be approximately $ 500,000 over the repayment life

of the loan.

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• Parks Bonds. Funding for parks and recreation capital projects is limited and the City

has developed a greater reliance on outside grant funding. The passage of Proposition 12

( State Parks Bond of 2000) allocated to the City approximately $ 1.3 million in grant

funding: $ 993,000 in per capita distribution without a required match and $ 359,300 in per

capita distribution that requires a 30% match ($ 108,000). This funding has been

allocated toward parks and recreation facilities improvements. Proposition 40 ( State

Parks Bond of 2002) also contains a Per Capita block grant allocation for parks

infrastructure improvements of approximately $ 460,000 and a $ 283,242 block grant.

These grant funds are being used toward parks and recreation CIP projects.

2. Community Emergency Preparation

The following overview describes the City’s comprehensive efforts to reduce risk, to better

prepare for disasters and safety actions taken last year to ensure community safety and

preparedness. Other City efforts include staff training, response preparations, community

preparedness initiatives, local and regional coordination and other preventive programs that

are underway or are in development.

a. Pre- Disaster Prevention Efforts

The community has the highest per capita investment in risk reduction in California.

Since 1989, Berkeley has invested in community sustainability on many fronts. The City

Council established an Office of Emergency Services in July 1989 and convened the

commission that later became the Disaster Council. This leadership continued and after

the 1989 Loma Prieta earthquake, the 1991 East Bay Hills fire, and the 2005- 2006 Winter

Storm, Berkeley acted to make risk reduction and community sustainability a priority.

b. Current Efforts

The Berkeley Fire Department, Fire Prevention and Office of Emergency Services ( OES)

Division, held a summit with Berkeley’s community partners on a coordinated response

for disasters with Alta Bates Summit, Lawrence Berkeley National Lab, University of

California, Bayer HealthCare, and the Berkeley Unified School District to improve

disaster preparedness and response. In addition, the City purchased more communication

equipment, including satellite phones with a gift from Bayer HealthCare, “ HAM Radio”

( amateur radio operator) for the City’s Emergency Operating Center, and antennas for the

new fire station.

The City’s OES is currently working with Health and Human Services and other City

departments to develop a pandemic flu continuity of operations plan. Additional plans

are in development to conduct an exercise on pandemic response.

c. Employee Disaster Response Training

Training for City staff is a must. All local government staff are designated Disaster

Service Workers, according to state law. Consequently, it is critical that we provide

adequate training for staff to know their disaster response responsibilities and have

learning opportunities to deepen that knowledge. Keeping training and disaster exercises

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on the organization’s larger schedule is a challenge when months of advance planning

and practice must be maintained.

In 2006, the City completed two important training programs: 1) the National Incident

Management Systems ( NIMS) and 2) the Response Information Management System

( RIMS). Completing the training requirement for NIMS qualified the City to adopt the

system for emergency incidents. Completing the training for RIMS allowed City staff to

access the system and to update the County and the State on Berkeley’s status during a

disaster.

Emergency Operations Center exercises provide an opportunity for senior staff members

to practice managing a disaster. In recent years, the City has averaged two disaster

exercises per year. With the goal of being more disaster ready, City expanded

participation, and included the B- Team ( alternates) and other support staff in the recent

exercises.

On November 30, 2006, another disaster response exercise was held in the City's

emergency operations center. Participating groups included the neighborhoods that

received supply caches, amateur radio operators, and City staff. The objectives of the drill

were to exercise on the emergency management procedures, communications with the

Alameda County Operational Area via the State’s OES Response Information

Management Systems ( RIMS), to evaluate the General Mobile Radio Service radios

range capabilities, the Berkeley’s Emergency Notification System, and communication

between fire stations and participating disaster preparedness groups using “ HAM Radio”

in a “ Zero Communication” situation.

In December 2006, about 60 City staff attended a four- day, 32- hour class in earthquake

emergency management. The trainers are from the California Specialized Training

Institute ( CSTI), the training division of the Governor’s Office of Emergency Services.

This training provided participants with the opportunity to plan for and participate in a

realistic earthquake simulation as an emergency team official.

d. Community Disaster Preparedness

The City has always been a leader in engaging community and neighborhood groups to

be disaster ready. The City offered training classes, made presentations to the public,

updated the City’s website information, and engaged in other outreach activities to

strengthen disaster preparedness for the Berkeley community.

The free year- round Community Emergency Response Training ( CERT) classes are

offered to the Berkeley public and cover basic preparedness, disaster mental health,

disaster first aid, fire suppression, light search and rescue, train- the- trainer class, and

radio communication/ incident command system.

In 2006, a new " Neighborhood Organizing Class" was offered to residents. Class

instructions were on the principles of organizing, the emergency preparedness binders,

drills and exercises, and how to enhance and revitalize already existing neighborhood

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groups. More than 1,020 people attended both the CERT and the Neighborhood

Organizing classes.

The Berkeley Fire Department personnel made 74 neighborhood presentations to

approximately 970 people about the “ 5 Critical Steps to take to prepare for an

Earthquake”. In 2006, its Chinese and Spanish translation was added to the City’s

website. Another website addition included the “ Disaster Preparedness Plan for Pets’.

City staffs are also working to incorporate pet disaster preparedness plans into the City's

emergency plans.

In May 2006, the City spearheaded a door- to- door community outreach campaign " Get

Ready, Berkeley" to inform residents about disaster preparedness. Two hundred

volunteers delivered more than 20,000 door hangers with safety information and

lifesaving tips to tens of thousands of families in Berkeley.

Another event to encourage community disaster preparedness was the June 2006

Community Disaster Supply Cache Competition. Applicants were neighborhood groups

that had to demonstrate a high degree of preparedness: they had been organized for at

least three years; they had satisfied six of the " Nine Steps to Become a Disaster Resistant

Neighborhood/ Group”, a minimum of eight people had trained and been formed into

Disaster First Aid, Fire Suppression, and Light Search & Rescue teams.

In October 2006, the City awarded disaster supply caches to 23 new neighborhood

groups. Caches contained emergency response equipment and supplies, thus, increasing

the self- sufficiency of groups and communities during a disaster. This program was

highly successful, as it motivated neighborhood groups to be disaster- ready.

e. Local and Regional Coordination

The City of Berkeley continues to work with other local jurisdictions and agencies in

order to practice disaster response and coordination. On April 18, 2006 the centennial of

the 1906 earthquake, the City participated in a multi- agency disaster response exercise

that simulated the 1906 -- 7.9 magnitude quake and its aftermath. This exercise involved

activation of emergency operation centers at the cities of Berkeley and Albany, Alta

Bates Summit Medical Center, Bayer Healthcare, Lawrence Berkeley National

Laboratory, Berkeley Unified School District, and the University of California, Berkeley,

to practice response and coordination techniques to effectively manage a regional

disaster.

f. Response

The City uses an emergency notification system to keep people informed during

disasters. Berkeley’s emergency radio station is 1610 AM. The Berkeley Emergency

Notification System ( BENS) is a telephone notification system that can contact residents

and businesses through an automatic message service center in the event of an

emergency.

December 11, 2006

Presentation of the Comprehensive Annual Financial Report

Page 12

When Hurricane Katrina hit the Gulf Coast of Louisiana, Mississippi and the City of New

Orleans, resulting in displacement and homelessness for thousands of individuals and

families, some evacuees came to the City and Alameda County.

In September 2005, Mayor Bates and the City Council appealed for assistance to the

community and directed that staff respond to the needs of evacuees. This resulted in City

staff working with the faith- based community, businesses, community- based

organizations, the University of California, and the general public to provide essential

support services, including case management, mental health, public health, housing,

clothing and transportation to displaced families and individuals. The City established its

own Hurricane Evacuee Resource Center on the first floor of its Civic Center Building.

The Center stayed open until February 2006, and served 181 individuals and 40 families.

City costs incurred totaled about $ 27,000 in staff costs; and were approved by FEMA for

cost reimbursement.

In December 2005, when FEMA activated the transition plan for Hurricane Katrina

evacuees, Berkeley officials again came through by participating in a County- wide

Hurricane Recovery effort, working with the cities of Oakland and Hayward, Alameda

County, the State Office of Emergency Services, the American Red Cross, the faith- based

community and county- wide representatives of housing and social service community-based

organizations. The City of Berkeley’s staff then successfully transferred all

caseloads to the group for continued processing.

g. Recovery

The City’s Finance Department has established procedures and protocols to document

expenditures accrued during disaster operations. These procedures were very effective

for submitting documentation for FEMA approval for both the Hurricane Katrina and the

2005- 2006 Winter Storms.

h. Health and Human Service Programs

The Public Health Division has been working with the University of California Center for

Infectious Diseases to get assistance in developing an exercise plan for pandemic flu

preparedness. Public Health plans to obtain additional input from the State Office of

Emergency Services and the City’s Office of Emergency Services. There is some City

funding to make this a reality.

i. Other Disaster Prevention Efforts

The City’s Corporation Yard facility plays a crucial role in the City’s overall operations

and serves as a center for emergency response and disaster recovery operations. The

building is seismically unsafe. In July 2006, the City was awarded a FEMA Pre- Disaster

Grant for $ 2.8 million to reconstruct the building to be seismically safe. City matching

funds of $ 962,633 is required by FEMA. The project is expected to be completed no

later than July 2009.

December 11, 2006

Presentation of the Comprehensive Annual Financial Report

Page 13

3. Economic Development

A. Berkeley Redevelopment Agency

The Berkeley Redevelopment Agency adopted a new Five- Year Implementation Plan on

June 28, 2005 authorizing completion of the West Berkeley Rail Stop and Transit Plaza,

the refinancing of existing bonds to capture up to $ 1.5 million toward affordable housing

projects, and prioritization of the expenditure of the remaining bond proceeds and net

available tax increment funding to complete other capital projects including the Aquatic

Park Connection ( APC), upon completion of the Rail Stop.

The Implementation Plan proposed how FY 2005- 2009 tax increment and the proceeds

from the refinanced bonds will be used to meet the Agency’s financial obligations prior

to the Agency’s refinancing of its debt. Refinancing of Agency debt triggered new pass

thru’s of tax increment to other taxing entities just as supplemental Educational Revenue

Augmentation Fund ( ERAF) payments were due to sunset. As part of the bond

refinancing actions, the Agency Board passed resolutions to extend the ability of the

Agency to collect tax revenue through December 31, 2015. The FY08 mid- year review

will project the net proceeds available to augment Bond proceeds for support of Capital

Projects, after the restructured debt service, the new pass- thrus and 20% set- aside. At the

time of this review, Agency Capital priorities will be revisited.

In FY06 the Project Area Committee began re- evaluating capital priorities among

inactive projects and began planning the commission of a West Berkeley Circulation

Master Plan including preparation of a draft scope of work for potential consulting

services. In order to pursue such a priority, the Five- Year Implementation Plan will need

to be revised. Such action will be sought in FY07.

i. Rail Stop and Transit Plaza

The purpose of the project was to develop infrastructure improvements for the West

Berkeley Amtrak Rail Stop and Transit Plaza including an ADA compliant and multi-modal

transportation stop for the City of Berkeley. Agency support resulted in

construction of permanent infrastructure and dramatically improved the existing

underutilized facility to encourage rail, bus, bicycle, and pedestrian use, and to

facilitate the growth and success of nearby businesses. Total project costs for the rail

stop and transit plaza were approximately $ 2.5million with just over $ 1million

covered from grants to the Agency. Construction on the project was primarily

completed in September 2005, with lighted kiosks completed by the spring of 2006.

Construction included lighting, seating, paving, curb ramps, trees, landscaping,

signage, and platform enhancements. A mural and poetry installation commissioned

by the Arts Commission with Redevelopment funds will be completed mid- year FY

2007.

December 11, 2006

Presentation of the Comprehensive Annual Financial Report

Page 14

ii. Aquatic Park Connection

The Aquatic Park Connection ( APC) is a set of proposed pedestrian and bike

enhancements within the public right of way between the West Berkeley

Redevelopment Project Area and the new I- 80 Bicycle and Pedestrian Overpass that

joins Aquatic Park to the Marina. Although this proposed project extends outside of

the West Berkeley Project Area, the Agency has identified it as a development project

that will enhance the overall Redevelopment Area, as well as the immediate Rail Stop

and Transit Plaza area. The total estimated project costs is $ 4million with the Agency

initially allocating $ 989,000 for 100% of the design and a portion of construction.

In FY06, the PAC initiated discussions to augment this allocation and target Agency

sponsored construction to the west end of Addison at Aquatic Park’s north entrance

and the rail crossing on Addison. Adjacent proposed development will be responsible

for adjacent streetscape development, compliant with the Master Plan’s design. This

will significantly reduce the gap in funding for the Agency, leaving pockets of

unimproved areas that may be fundable with grant sources, expected to be sought in

FY07.

iii. Inactive Agency Projects in Fiscal Year 2006

The Agency has several identified projects in and adjacent to the West Berkeley

Project Area that have been inactive for some time. However, the intensive effort to

complete the Rail Stop and Transit Plaza, complete design development of Aquatic

Park Connection and address issues with the Agency- owned housing required the

complete attention of the BRA this past year. Also, in FY06 staffing was reduced and

the consideration of the above mentioned West Berkeley Circulation Master Plan

continue to require the Agency’s full engagement in FY07 because while the rail stop

is complete, APC is moving towards construction.

In order to continue this concentrated undertaking, development of the following

projects were suspended and are under consideration for revision concurrent with the

proposed revision to the existing Implementation Plan: Streetscape Improvements,

Parking and Traffic Circulation; Second Street Paving; and Gilman Interchange.

B. San Pablo Avenue Crosswalk Project

This project involves the construction of decorative crosswalk treatments using specialty

concrete paving to be placed at the four nodal intersections along San Pablo Avenue. It

is part of a much larger effort by several regional agencies to improve San Pablo as a

transportation corridor.

In FY 2005/ 2006 CalTrans completely resurfaced and restriped the Avenue and AC

Transit is completing infrastructure improvements to support their Rapid Bus Service.

City staff worked closely with both of these agencies and wanted to insure that the pre-existing

decorative brick cross walks at San Pablo's four nodal intersections were

December 11, 2006

Presentation of the Comprehensive Annual Financial Report

Page 15

replaced with decorative specialty paving. In February 2005, AC Transit sent a letter of

commitment to the Mayor for the reimbursement of funds towards the implementation

of this project up to $ 500,000. These funds are to flow from unspent Measure B monies.

The Congestion Management Authority will be the agency that will manage the contract

for implementing these improvements along with a variety of other AC Transit

improvements.

Designs will be completed by the end of December 2006, and the project is tentatively

planned for construction in Spring/ Summer 2007.

4. Legislative Impacts

a. Cable Franchising

Prior to the recent passage of the State Bill AB2987, Federal and state laws allowed cities

to grant franchises to cable companies to use the public right- of- way ( PROW) to install

and provide video service. The cable company, in turn, applied for a permit to install the

video facilities. The permit also allowed for maintenance work once the installation was

complete. Under the current franchise agreement, the cable company pays Berkeley an

annual franchise fee of 5% of gross revenues, in quarterly installments. In addition, they

support the Public Access Channel programming ( B- TV). The cable franchise expires on

November 12, 2007. The recently passed State Bill AB 2987 allows companies to apply

for statewide cable television franchises. As a consequence, it is very unlikely that

Berkeley will grant another local franchise. However, the new bill maintains the City’s

5% franchise fee.

b. Utility Users Tax – Telecommunications and Video/ Cable

Due to changes in technology, evolving consumer preferences and habits, and legislative

changes, UUT on telephone and cable is in serious jeopardy. UUT from

telecommunications made up 40.5% of the UUT revenue in FY 2006 ( down from 43.7%

in FY 2005), and is showing an inclination to decline more in the future. There was a

$ 238,424 decrease in UUT telecommunications revenue between FY 2004 and FY 2005

and a further drop of $ 121,427 between FY 2005 and FY 2006.

With the eminent demise of the Federal Excise tax, the basis for collecting UUT on

telecommunications defined in our Ordinance ( both for landline and wireless) is in

jeopardy.

JUNE 30, 2006

CITY OF BERKELEY GOVERNMENT STRUCTURE

CITIZENS

ELECT

City Auditor Mayor & Council Rent Stabilization Board

APPOINT

Boards &

Commissions

Board of Library

Trustees

City Manager

JUNE 30, 2006

CITY OF BERKELEY ORGANIZATION CHART

CITY MANAGER

PUBLIC WORKS

( Includes Office of

Transportation)

CITY MANAGER'S OFFICE

CITY CITY CLERK

ATTORNEY

HUMAN

RESOURCES

FINANCE

PARKS,

RECREATION &

WATERFRONT

POLICE

FIRE & DISASTER

MANAGEMENT

HEALTH & HUMAN

SERVICES

PLANNING AND

DEVELOPMENT

Administration

Neighborhood Services &

Code Enforcement

Economic Development

Animal Control Services

Budget and Fiscal Management

Administrative Hearings

Public Information & Press Relations

University/ Educational Institution Liaison

Legislative Analysis

Grants Development

CITY AUDITOR

( Elected)

HOUSING INFORMATION

TECHNOLOGY

POLICE REVIEW

COMMISSION

LIBRARY

( Director reports to

Board of Trustees)

RENT BOARD

( Director reports to

Elected Board of

Commissioners)

DIRECTORY OF CITY OFFICIALS

ELECTED OFFICIALS

City Auditor – Ann- Marie Hogan

Mayor – Tom Bates

Vice- Mayor – Maxwell Anderson

Council members

Maxwell Anderson

Laurie Capitelli

Linda Maio

Darryl Moore

Betty Olds

Dona Spring

Kriss Worthington

Gordon Wozniak

APPOINTED BY CITY COUNCIL

City Manager – Phil Kamlarz

C. G. UHLENBERG LLP

CERTIFIED PUBLIC ACCOUNTANTS

ROBERT E. BARSANTI ( RETIRED) • PEGGY H. CHEN, C. P. A. • JEFFREY J. IRA, C. P. A. • KATHERINE CHAO, C. P. A . • JULIE LIN, C. P. A. • SHELDON D. CHAVAN, C. P. A.

INDEPENDENT AUDITOR’S REPORT

The Honorable Mayor and Members of the City Council

City of Berkeley, California

We have audited the accompanying financial statements of the governmental activities, the

business- type activities, the aggregate discretely presented component units, each major fund,

and the aggregate remaining fund information of the City of Berkeley, California, ( the City) as of

and for the year ended June 30, 2006, which collectively comprise the City's basic financial

statements as listed in the table of contents. These financial statements are the responsibility of

the City of Berkeley’s management. Our responsibility is to express opinions on these financial

statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United

States of America, and the standards applicable to financial audits contained in Government

Auditing Standards, issued by the Comptroller General of the United States, and the provisions

of Office of Management and Budget Circular A- 133, Audits of State and Local Governments and

Non- Profit Organizations. 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 provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects,

the respective financial position of the governmental activities, the business- type activities, the

aggregate discretely presented component units, each major fund, and the aggregate remaining

fund information of the City of Berkeley, California, as of June 30, 2006, and the respective

changes in financial position and cash flows, where applicable, thereof for the year then ended in

conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report dated

December 11, 2006 on our consideration of the City of Berkeley's internal control over financial

reporting and on our tests of its compliance with certain provisions of laws, regulations,

contracts, and grant agreements and other matters. The purpose of that report is to describe the

scope of our testing of internal control over financial reporting and compliance and the results of

that testing, and not to provide an opinion on the internal control over financial reporting or on

compliance. That report is an integral part of an audit performed in accordance with Government

Auditing Standards and should be considered in assessing the results of our audit.

333 Twin Dolphin Dr, Suite 230, Redwood City, CA 94065, Phone ( 650) 802- 8668, Fax ( 650) 802- 0866

C. G. UHLENBERG LLP

CERTIFIED PUBLIC ACCOUNTANTS

ROBERT E. BARSANTI ( RETIRED) • PEGGY H. CHEN, C. P. A. • JEFFREY J. IRA, C. P. A. • KATHERINE CHAO, C. P. A . • JULIE LIN, C. P. A. • SHELDON D. CHAVAN, C. P. A.

The management’s discussion and analysis, the schedules of funding status and employer

contributions, and the budgetary comparison information as listed in the table of contents are not

a required part of the basic financial statements, but are supplementary information required by

accounting principles generally accepted in the United States of America. 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 City of Berkeley's basic financial statements. The introductory section,

combining and individual nonmajor fund financial statements, and statistical section, as listed in

the table of contents, are presented for purposes of additional analysis and are not a required part

of the basic financial statements. The combining and individual nonmajor fund financial

statements have been subjected to the auditing procedures applied in the audit of the basic

financial statements and, in our opinion, are fairly stated in all material respects in relation to the

basic financial statements taken as a whole. The introductory and statistical sections have not

been subjected to the auditing procedures applied in the audit of the basic financial statements

and, accordingly, we express no opinion on them.

December 11, 2006

Redwood City, California

333 Twin Dolphin Dr, Suite 230, Redwood City, CA 94065, Phone ( 650) 802- 8668, Fax ( 650) 802- 0866

MANAGEMENT’S DISCUSSION AND ANALYSIS

As management of the City of Berkeley, we offer readers of the City of Berkeley’s financial statements

this narrative overview and analysis of the financial activities of the City of Berkeley for the fiscal year

ended June 30, 2006. We encourage readers to consider the information presented here in conjunction

with additional information that we have furnished in our letter of transmittal, which can be found on

pages 1- 16 of this report. All amounts, unless otherwise indicated, are expressed in millions of dollars.

Financial Highlights

• The City’s assets exceeded its liabilities ( net assets) by $ 370.2 million at the close of the fiscal year

ended June 30, 2006. Included in this amount was a balance of $ 115.8 million in unrestricted net

assets. Unrestricted net assets are net assets that may be used to meet the City’s ongoing obligations

to citizens and creditors.

• During the year, the City’s total net assets increased by $ 22.0 million from $ 348.2 million to $ 370.2

million, governmental activities revenues increased by $ 10.5 million while governmental activities

expenses increased $ 5.7 million and business- type activities revenues increased by $ 1.5 million,

while business activities expenses increased by $ 4.3 million.

• As of June 30, 2006 the City’s governmental funds reported a combined ending fund balance of

$ 126.3 million, an increase of $ 12.8 million from June 30, 2005. Approximately 46.7 percent of this

total amount ($ 59.0 million) is available for spending at the government’s discretion ( unreserved

fund balance).

• The total cost of all City programs increased by $ 10.0 million from $ 254.6 to $ 264.6 million. This

was accounted for primarily by increases of $ 3.7 million in General Government, $ 4.2 million in

Public Safety, $ 1.5 million in Culture and Recreation, $ 1.0 million in Refuse Services and $ 1.7

million in Permit Service Center. The increases were offset by decreases of $ 1.5 million in Highway

and Streets, and $ 1.2 million in Community Development/ Housing.

• At June 30, 2006 unreserved fund balance for the General fund was $ 26.1 million or 23.6% of

FY2006 total General fund expenditures.

• The City’s total long- term debt decreased by $ 2.1 million during the current fiscal year. This

decrease was primarily accounted for by the following:( 1) Note proceeds of $ 459,930; ( 2) decrease

to claims and judgments payable of $ 2,533,133; ( 3) increase in compensated absences payable of

$ 1,437,763; and ( 4) principal payments of ($ 1,505,808).

Overview of the Financial Statements

This discussion and analysis is intended to serve as an introduction to the City of Berkeley’s basic

financial statements. The City’s basic financial statements are comprised of three components: 1)

government- wide financial statements, 2) fund financial statements, and 3) notes to financial statements.

This report also contains other supplementary information in addition to the basic financial statements

themselves.

Government- wide financial statements. The government- wide financial statements are designed to

provide readers with a broad overview of the City’s finances, in a manner similar to a private sector

business.

The statement of net assets presents information on all of the City’s assets and liabilities, with the

difference between the two reported as net assets. Over time, increases or decreases in net assets may

serve as a useful indicator of whether the financial position is improving or deteriorating. You will need

to consider other nonfinancial factors, such as changes in the City’s property tax base and the condition

of the City’s roads, to assess the overall health of the City.

The statement of activities presents information showing how the government’s net assets changed

during the fiscal year. All changes in net assets are reported as soon as the underlying event giving rise

to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are

reported in this statement for some items that will only result in cash flows in future fiscal periods ( e. g.,

uncollected taxes and earned but unused vacation leave).

Both of the government- wide financial statements distinguish functions of the City that are principally

supported by taxes and intergovernmental revenues from other functions that are intended to recover all

or a significant portion of their costs through user fees and charges ( business- type activities). The

governmental activities of the City include all of the City’s basic services that are considered to be

governmental activities: general government, public safety, highways and streets, health and welfare,

culture- recreation, community development/ housing and economic development. Property taxes,

business license taxes, transient occupancy taxes, sales taxes, utility users taxes, ambulance fees and

franchise fees finance most of these activities. The business- type activities of the City include a Parking

related operation, a Clean Storm Water operation, a Marina, a Sanitary Sewer operation, a Refuse

Collection and Disposal operation, a Permit Service Center, Building Purchase and Management and a

Housing Authority.

The government- wide financial statements include not only the City itself ( known as the primary

government), but also a legally separate Rent Stabilization Board for which the City is financially

accountable. Financial information for this component unit is reported separately from the financial

information presented for the primary government itself. The Berkeley Housing Authority and Berkeley

Redevelopment Agency, although also legally separate, function for all practical purposes as

departments of the City of Berkeley, and therefore have been included as an integral part of the primary

government.

The government- wide financial statements can be found on pages 40- 41 of this report.

Fund financial statements. A fund is a grouping of related accounts that is used to maintain control

over resources that have been segregated for specific activities or objectives. The City of Berkeley, like

other state and local governments, uses fund accounting to ensure and demonstrate compliance with

finance- related legal requirements. Some funds are required to be established by State law and by bond

covenants. However, the City Council establishes many other funds to help it control and manage

money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes,

grants, and other money. All of the funds of the City of Berkeley can be divided into three categories:

governmental, proprietary, and fiduciary.

• Governmental funds— Governmental funds are used to account for essentially the same functions

reported as governmental activities in the government- wide financial statements. However, unlike

the government- wide financial statements, governmental fund financial statements focus on near-term

inflows and outflows of spendable resources, as well as on balances of spendable resources

available at the end of the fiscal year. Such information may be useful in evaluating a government’s

near- term financing requirements.

Because the focus of governmental funds is narrower than that of the government- wide financial

statements, it is useful to compare the information presented for governmental funds with similar

information presented for governmental activities in the government- wide financial statements. By

doing so, readers may better understand the long- term impact of the government’s near- term

financing decisions. Both the governmental fund balance sheet and the governmental fund statement

of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this

comparison between governmental funds and governmental activities.

The City of Berkeley maintains 75 individual governmental funds. Information is presented

separately in the governmental fund balance sheet and in the governmental fund statement of

revenues, expenditures, and changes in fund balances for the General fund, Grant fund, Paramedic

fund, Library fund, Gas Tax fund- 2106, Gas Tax fund- 2107, Gas Tax fund- State Prop. 111, Other

Special Gas Tax, CDBG fund, Sales Tax Street Improvement fund, Measure B Local Street and

Road fund, Measure B Bike and Pedestrian fund, Measure B Para Transit fund, Park Tax fund,

Capital Improvements fund, Measure G Capital Project fund, Measure S Capital Project fund,

Berkeley Redevelopment Agency Capital Project fund, Sales Lease Financing fund, Measure G Debt

Service fund, Berkeley Redevelopment Agency Debt Service fund and Measure S Debt Service fund

all of which are considered to be major funds. Data from the other 53 governmental funds are

combined into a single, aggregated presentation.

The City of Berkeley adopts an annual appropriated budget for all its special revenue funds, ( Except

Traffic Congestion Relief Fund; Fire Assessment District; UC Berkeley Reimbursement/ People’s

Park; Measure H School Tax Fund; Tieback Mitigation R- O- W; Inclusionary Housing Program; &

Lillie Wall Memorial; Impounded Neuter; East Bay Public Utility), capital project funds ( except

public Education/ Govt. access Fac.; PERS/ Parks CIP; Street Improvement Fund; State Park and

Recreation CIP; Theatre / Park Acquisition). A budgetary comparison statement has been provided

for the General Fund and major Special Revenue Funds to demonstrate compliance with this budget.

The basic governmental fund financial statements can be found on pages 42- 57 of this report.

• Proprietary funds— The City of Berkeley maintains two different types of proprietary funds.

Enterprise funds are used to report the same functions presented as business- type activities in the

government- wide financial statements. The City of Berkeley uses enterprise funds to account for its

Off Street Parking, Parking Meter, Clean Storm Water, Marina Operation/ Maintenance, Sanitary

Sewer, Refuse Collection/ Disposal, Permit Service Center, Building Purchase and Management and

Housing Authority operations, which are all considered to be major funds of the City of Berkeley.

Internal service funds are an accounting device used to accumulate and allocate costs internally

among the City of Berkeley’s various functions. The City of Berkeley uses internal service funds to

account for its public liabilities, workers compensation program, equipment maintenance, building

maintenance, supply warehouse, electrical warehouse, catastrophic loss reserves, computer

replacement, and sick leave and vacation payout. Because these services predominantly benefit

governmental rather than business- type functions, they have been included within governmental

activities in the government- wide financial statements.

Proprietary funds provide the same type of information as the government- wide financial statements,

only in more details. The nine internal service funds are combined into a single, aggregated

presentation in the proprietary fund financial statements. Individual fund data for the internal service

funds is provided in the form of combining statements elsewhere in this report.

The basic proprietary fund statements can be found on pages 58- 61 of this report.

Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties

outside the government. Fiduciary funds are not reflected in the government- wide financial

statement because the resources of those funds are not available to support the City of Berkeley’s

own programs. The accounting used for fiduciary funds is much like that for proprietary funds.

The basic fiduciary fund financial statements can be found on pages 62- 63 of this report.

Notes to the financial statements. The notes provide additional information that is essential to a full

understanding of the data provided in the government- wide and fund financial statements. The notes to

the financial statements can be found on pages 64- 115 of this report.

Other information. In addition to the basic financial statements and accompanying notes, this report

also presents certain required supplementary information concerning the City of Berkeley’s progress in

funding its obligation to provide pension benefits to its employees. Required supplementary information

can be found on pages 116- 117 of this report.

The combining statements referred to earlier in connection with non- major governmental funds and

internal service funds are presented immediately following the required supplementary information on

pensions. Combining and individual fund statements and schedules can be found on pages 118- 157 of

this report.

Government- wide Financial Analysis

As noted earlier, net assets may serve over time as a useful indicator of a government’s financial

position. In the case of the City of Berkeley, assets exceeded liabilities by $ 370.2 million at the close of

the fiscal year ended June 30. 2006.

By far the largest portion of the City of Berkeley’s net assets ( 67.6%) reflects its investment in capital

assets ( e. g., infrastructure, land, buildings, machinery and equipment, construction in progress), less any

related debt used to acquire those assets that is still outstanding. The City of Berkeley uses these capital

assets to provide services to citizens; consequently, these assets are not available for future spending.

Although the City of Berkeley’s investment in its capital assets is reported net of related debt, it should

be noted that the resources needed to repay this debt must be provided from other sources, since the

capital assets themselves cannot be used to liquidate these liabilities.

Table 1

City of Berkeley

Net Assets

( In Millions)

Governmental Business type

Activities Activities Total

2006 2005 2006 2005 2006 2005

Current and other assets $ 187.5 $ 172.9 $ 47.1 $ 40.2 $ 234.6 $ 213.1

Capital assets 188.4 190.3 158.9 157.8 347.3 348.1

Total assets 375.9 363.2 206.0 198.0 581.9 561.2

Other liabilities 41.0 40.0 5.1 5.2 46.1 45.3

Long- term debt outstanding 127.0 130.3 38.6 37.5 165.6 167.7

Total Liabilities 168.0 170.3 43.7 42.7 211.7 213.0

Net assets:

Invested in capital assets, net of related debt 116.2 118.1 134.2 132.9 250.4 251.0

Restricted for debt services 1.6 2.8 2.4 2.4 4.0 5.2

Unrestricted 90.1 72.0 25.7 20.0 115.8 92.0

Total net assets $ 207.9 $ 192.9 $ 162.3 $ 155.3 $ 370.2 $ 348.2

Restricted net assets ( 1.1%) represent debt service requirements. The remaining balance of unrestricted

net assets ( 31.3%), may be used to meet the City’s ongoing obligations to citizens and creditors.

At June 30, 2006 and June 30, 2005, the City was able to report positive balances in unrestricted net

assets for its governmental activities as well as its business- type activities.

The City’s net assets from governmental activities increased 7.8% from $ 192.9 million to $ 207.9 million.

This increase of $ 15.0 million comes from the change in net assets as recorded in the Statement of

Activities and flows through the Statement of Net Assets. This increase represents the degree to which

increases in ongoing revenues have exceeded similar increases in ongoing expenses and transfers.

Governmental activities. Governmental activities increased the City’s net assets by $ 15.0 million.

Business- type activities increased the City’s net assets by $ 7.0 million. Key elements of this increase are

as follows:

Table 2

City of Berkeley

Changes in Net Assets ( in Millions)

Governmental Business- type

Activities Activities Total

2006 2005 2006 2005 2006 2005

Revenues

Program revenues:

Charges for services $ 23.4 $ 22.3 $ 90.0 $ 89.1 $ 113.4 $ 111.4

Operating contributions and grants 24.3 21.8 0.4 - 24.7 21.8

Capital contributions and grants 3.2 1.2 3.2 1.2

Total program revenues 50.9 45.3 90.4 89.1 141.4 134.4

General revenues

Taxes:

. Property taxes

For general purposes 49.8 45.3 49.8 45.3

For debt service 8.5 8.7 8.5 8.7

For special purposes 22.1 21.5 22.1 21.5

Sales taxes 14.0 13.1 14.0 13.1

Utility users taxes 14.4 13.6 14.4 13.6

Transient occupancy taxes 3.0 2.6 3.0 2.6

Business license tax 11.1 10.7 11.1 10.7

Other taxes 9.8 10.0 9.8 10.0

Motor vehicle fees 5.7 6.6 5.7 6.6

Investment income 4.5 2.9 0.8 0.6 5.3 3.5

Miscellaneous 1.6 4.6 0.0 - 1.6 4.6

Total general revenues 144.5 139.6 0.8 0.6 145.3 140.2

Total revenues 195.4 184.9 91.2 89.7 286.6 274.6

Expenses

General government 23.7 20.0 23.7 20.0

Public safety 70.2 66.0 70.2 66.0

Highways and streets 12.6 14.1 12.6 14.1

Health and welfare 24.1 24.7 24.1 24.7

Culture and recreation 28.2 26.7 28.2 26.7

Community development/ housing 13.2 14.4 13.2 14.4

Economic development 1.9 2.7 1.9 2.7

Interest on long- term debt 5.4 5.0 5.4 5.0

Parking related 6.6 5.9 6.6 5.9

Marina operations and maintenance 4.0 4.4 4.0 4.4

Sewer services 10.4 9.7 10.4 9.7

Clean storm water 2.1 2.1 2.1 2.1

Refuse services 25.8 24.8 25.8 24.8

Permit service center 8.9 7.2 8.9 7.2

Building purchase and management 3.5 3.0 3.5 3.0

Housing authority 24.0 23.9 24.0 23.9

Total expenses 179.3 173.6 85.3 81.0 264.6 254.6

Increase in net assets before transfers 16.1 11.3 5.9 8.7 22.0 20.0

Transfers ( 1.1) ( 0.7) 1.1 0.7 ( 0.0) -

Increase ( decrease ) in net assets 15.0 10.6 7.0 9.4 22.0 20.0

Net assets, July 1 ( restated) 192.9 182.3 155.3 145.9 348.2 328.2

Net assets, June 30 $ 207.9 $ 192.9 $ 162.3 $ 155.3 $ 370.2 $ 348.2

Total governmental activities revenues increased approximately $ 10.5 million. Key factors in that

increase were the following:

• Charges for services increased by $ 1.1 million or 4.9%, which was primarily attributable to:

o An increase of $ 790,000 in the Rental Housing Safety Inspection program; and

o An increase in ambulance fees of $ 574,000.

• Operating grants increased by $ 2.5 million, primarily due to increases in the following grants:

o Federal Home grant $ 1,031,839

o Federal Medicaid FDS. Recovery grant 871,837

o Measure D fund 433,389

• Capital grants increased by $ 2.0 million, primarily due to increase in the following grants:

o Spruce Street Reconstruction grant $ 1,651,000

o FHWA TIP to HIP grant 232,255

• Property taxes for general purposes increased $ 4.5 million or 9.9%, as follows:

o An increase of $ 925,051or 7.0% in real property transfer taxes from FY 2005, as a result

of higher average sales prices, despite a decrease in the number of property sale

transactions; and

o An increase of $ 2,411,210 in real property taxes, due to an 8.8% increase in assessed

values.

o An increase of $ 936,643 in supplemental taxes, due to the increase in assessed values.

• Special purpose property taxes increased $. 6 million or 2.8% as a result of cost of living

adjustments.

o Library tax: $ 487,519 or 4.17%

• Transient Occupancy Taxes increased by $. 4 million. This revenue exceeded expectations, as

seven of the nine largest hotels experienced double- digit increases over FY 2005.

Total expenses increased by $ 5.7 million for governmental activities primarily due to salary and fringe

benefit increases.

General Government expense increased by $ 3.7 million due to realignment in community agency

expenses of $ 3,736,002. In FY06, the City budget realigned $ 0.6 million and $ 3.1 million,

respectively, of community agency expenses from the Parks and Recreation and Housing

Departments and reclassified them as general government expenses.

Public Safety expenses increased by $ 4.2 million. Contributing factors were as follows:

• Salaries increased by $ 1.42 million primarily due to COLA increases during the fiscal

year: Uniformed Police salaries increased by 5% or $ 0.56 million; Uniformed Fire

salaries increased by 6% or $ 0.94 million; Miscellaneous employees salaries increased by

5% or $ 0.27 million; and overtime decreased by $ 0.36 million.

• The increase in salary expenses for Fire in FY06 was also partly due to the City

discontinuing the browning out of stations on a revolving basis, which was in effect

during FY05.

• Fringe benefit expenses increased by more than $ 2.8 million, due primarily to a higher

PERS rate. The PERS rate increases for Fire and Police were 4.1% and 6.2%,

respectively. These increases translated into additional PERS expenses of $ 841,051 for

Fire and $ 1,396,213 for Police.

Highways and Streets expenses decreased by ($ 1.5) million. Contributing factor was as follows:

• Budget for capital program- Street repair decreased by $ 1.4 million.

Culture and Recreation expenses increased by $ 1.5 million. The primary reasons were as follows:

• Salaries and wages increased by $ 0.8 million because the number of employees in

Library was increased by 5 employees. Overtime increased by $ 0.1 million.

• Fringe benefit costs increased by $ 0.6 million due to increased in PERS expenses.

Community Development/ Housing expenses decreased by ($ 1.2) million. The primary reasons

were as follows:

• In FY06, the City budget realigned $ 0.6 million and $ 3.1 million, respectively, of

community agency expenses from the Parks and Recreation and Housing Departments

and reclassified them as general government expenses. Also Shelter Plus Care had $ 2.2

million in grant expenses in FY06, which used to be recorded under Health and Welfare

in FY05.

Interest expense on long- term debt increased by $ 0.4 million primarily due to an increase in the

principal amount, when the 2005 Tax Allocation Revenue Bonds were refunded in FY 06.

The charts below illustrate the City’s governmental expenses by function and revenues by source. As

shown, public safety is the largest function in terms of expenses ( 39.16%), followed by culture and

recreation ( 15.74%) health and welfare ( 13.46%), and general government ( 13.24%). General revenues

such as property, sales, utility users and business license taxes are not shown by function but are

effectively used to support citywide programs. Taxes are by far the largest segment of revenues

( 67.88%) followed by grants and subventions ( 17.04%) and charges for services ( 11.96%).

Fiscal Year 2006 Governmental Activities

( See Table 2)

Sources of Revenue

Investment

Income

2.30%

Taxes

67.88%

Other

0.82%

Charges for

services

11.96%

Grants &

Subventions

17.04%

Funtional Expenses

Highw ays and

Streets

7.04%

Economic

Development

1.08%

Interest on long-term

debt

2.94%

Health and

Welfare

13.46%

Community

Development and

Housing

7.34%

Culture and

Recreation

15.74%

Public Safety

39.16%

General

Government

13.24%

Business- type activities. Business- type activities increased the City’s net assets by $ 6,995,202, as follows:

sanitary sewer $ 4,039,471, clean storm water $ 134,094, permit service center $ 186,095, marina activities

$ 357,771, parking- related functions $ 1,676,009, building purchase and management ($ 1,221,813), housing

authority operations $ 755,349 and refuse operations $ 1,068,226.

• The most significant factor in the net increase of $ 4,039,471 in the Sanitary Sewer fund was that

more of the operation’s budget was used for capital expenditures ( i. e. infrastructure which is

required to be capitalized on an accrual basis), resulting in less operating expense. The net

increase in the fund was also partly due to a 3% fee increase imposed during the fiscal year.

• The net increase in the net assets of $ 1,676,009 for the Parking- related Operation consisted of a

$ 661,265 net increase for Off- Street Parking Operations, and an increase of $ 1,014,744 in net

assets for Parking Meter operations:

o Key factors for the Off- Street Parking Operations were: Operating revenues ($ 3,256,007)

exceeds operating expenses ($ 2,250,727) by $ 1,005,280. This operating income was

offset by non- operating interest expense of $ 249,544 and amortization of bond issuance

costs of $ 206,918.

o Key factors for the increase in Parking Meter operations were ( 1) An increase of

$ 645,419 in parking meter revenues due to the installation of “ Park EZ” systems in

several City locations. The result was more parking revenues generated because of less

broken meters. However, this increase was partially offset by an increase of $ 478,495 in

total operating expenses; and ( 2) There was an increase of $ 1,113,193 in the subsidy from

the General fund.

• The net increase of $ 1,068,226 in the Refuse fund was due to:

o Fee increases averaging 8%, and a lower percentage increase in operating expenses.

• The net decrease of $ 1,221,813 in the Building Purchase and Management fund was

primarily due to the following:

o Rental income increased by $ 657,346 and building maintenance expenses also increased

by $ 574,427 for a net increase in income of $ 82,919.

o The fund incurred non- operating expenses of $ 989,737, which was $ 70,135 higher than

the prior year.

o The fund transferred out $ 669,140 to the City’s Capital Improvement fund.

Expenses and Program Revenues - Business- type Activities

$-

$ 4,000,000

$ 8,000,000

$ 12,000,000

$ 16,000,000

$ 20,000,000

$ 24,000,000

$ 28,000,000

$ 32,000,000

Parking

related

Marina

operations and

maintenance

Sewer

services

Clean storm

water

Refuse

services

Permit service

center

Housing

authority

Building

Purchase

Revenues

Expenses

Sources of Revenue - Business- type Activity

Grants &

Subventions

0.42%

Charges for

services

98.71%

Investment

Income

0.87%

Financial Analysis of the City’s Funds

As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related

legal requirements.

Governmental funds. The focus of the City’s governmental funds is to provide information on

near- term inflows, outflows, and balances of spendable resources. Such information is useful in

assessing the City’s financing requirements. In particular, unreserved fund balance may serve as a

useful measure of a government’s net resources available for spending at the end of the fiscal year.

As of June 30, 2006, the City’s governmental funds reported combined fund balances of $ 126.3

million, an increase of $ 12.8 million from the prior fiscal year. The bulk of the increase came from

the General Fund $ 4.5 million, Grants Fund $ 1.6 million, Capital Improvement Capital Project Fund

$ 3.6 million, Berkeley Redevelopment Agency Fund Capital Project Fund $ 2.3 million, Measure S

Debt Service Fund $. 9 million and Other governmental funds $ 2.3 million. These increases were

offset by the following decreases: Measure G Capital Project Fund ($ 2.5 million) and Berkeley

Redevelopment Agency Fund Debt Service Fund ($ 1.0 million).

The General Fund is the chief operating fund of the City. As of June 30, 2006 unreserved fund

balance of the General Fund was $ 26.1 million and total fund balance was $ 38.5 million. As a

measure of the General Fund’s liquidity, it may be useful to compare both unreserved fund balance

and total fund balance to total expenditures. Unreserved fund balance represents 23.6 percent of total

General Fund expenditures of $ 110.8 million, while total fund balance represents 34.7 percent of

that same amount.

• The fund balance of the City’s General Fund increased by $ 4.5 million. The increase in

operations was primarily accounted for by the following:

o The General Fund generated an operating surplus in FY 2006 of $ 13,967,549, as

operating revenues totaled $ 124,802,826 and operating expenditures totaled

$ 110,835,277; however,

o General Fund operating transfers out in FY 2006 totaled ($ 16,383,124), which exceeded

operating transfers in of $ 4,735,968 for net transfers out of ($ 11,647,156).

o Proceeds from the sale of fixed assets of $ 2,218,526.

o As a result, the operating surplus $ 13,967,549 exceeded net transfers out ($ 11,647,156)

and proceeds from sale of fixed assets ($ 2,218,526) by $ 4,538,919.

General Fund Budgetary Highlights:

The City Council approved an original annual appropriation ordinance of $ 129,281,196 for FY 2006

and made supplementary budget appropriations totaling $ 4,498,692 during the year. The

supplementary budget appropriations consisted of the following: ( 1) FY2005 outstanding

encumbrances of $ 1,223,309; ( 2) unencumbered carryovers of $ 796,256, which were re-appropriated;

and ( 3) other budget adjustments of $ 2,479,127.

General fund expenditures were $ 5.2 million less than the approved budget, and the following

functions accounted for most of this total:

• General government - $ 5,280,426 under budget: These savings were mainly attributable to the

following factors:

o $ 529,959 was budgeted for election expenditures but it was not expended because there

was no election activity in fiscal year 2006.

o Expenses for professional services were under budget by $ 1,233,478. This was due to

contracts that were approved by Council in fiscal year 2006 not being implemented until

fiscal year 2007.

o Computer expenses were under budget by $ 2,400,000. This amount was budgeted for a

new Public Safety System. The IT department conducted the business analysis and

requested proposals in fiscal year 2006 and fiscal year 2007. They are now in the final

stages of contract negotiations. The amount will most likely be expended in fiscal year

2007 and fiscal year 2008.

• Community Development/ Housing- $ 342,477 under budget: This savings was attributable to a

year- long hiring freeze and resulting salary savings, and a significant balance remaining for

Community Agency contracts.

Proprietary funds. The City’s proprietary funds provide the same type of information found in the

government- wide financial statements, but in more detail.

Unrestricted net assets of the enterprise funds as of June 30, 2006 totaled $ 25,722,688, as follows:

Balance ( Deficit)

Fund Unrestricted Net Assets

Refuse Collections $ 1,602,197

Marina Operations 1,245,007

Sanitary Sewer 8,685,899

Clean Storm Water 1,102,228

Permit Service Center 5,805,892

Off- street Parking 5,509,532

Parking Meter 41,941

Building Purchase and Management ( 981,222)

Berkeley Housing Authority 2,711,214

Total $ 25,722,688

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital assets The City’s investment in capital assets for its governmental and business- type activities

as of June 30, 2006 amounts to $ 347.3 million ( net of accumulated depreciation). This investment in

capital assets includes land, buildings, improvements, machinery and equipment and infrastructure. ( See

Table 3 below.) The total decrease in the City’s net investment in capital assets was $ 0.8 million from

the fiscal year 2005 total. This represented a 1.0% decrease in governmental activities and a 1.0%

increase in business- type activities.

Capital assets for governmental activities decreased by $ 1.9 million because the City sold the 6th Street

building. Capital assets for business type activities increased $ 1.1 million, as a result of a $ 1.3 million

increase in sanitary sewer infrastructure, a building and improvement decrease of $ 0.4 million, and an

increase of $ 0.4 million in construction in progress.

Table 3

City of Berkeley

Capital Assets at Year- End

( Net of Depreciation, in Millions)

Government Business- Type

Activities Activities Total

2006 2005 2006 2005 2006 2005

Land $ 20.3 $ 20.3 $ 5.6 $ 5.6 $ 25.9 $ 25.9

Buildings and improvements 78.8 79.3 31.2 31.6 110.0 110.9

Improvements other than buildings 2.9 3.0 2.1 2.2 5.0 5.2

Machinery and equipment 9.7 9.6 1.1 1.2 10.8 10.8

Infrastructure 76.1 75.3 118.3 117.0 194.4 192.3

Construction in progress 0.6 2.8 0.6 0.2 1.2 3.0

$ 188.4 $ 190.3 $ 158.9 $ 157.8 $ 347.3 $ 348.1

Additional information on the City’s capital assets can be found in note C on page 159- 164 of this

report.

Long- term debt. At year- end, the City had total long- term obligations from governmental activities of

$ 127 million, a decrease of $ 3.3 million or 2.5% from the previous year ( as shown in table 4). The June

30. 2006 total included: $ 67.9 million in general obligation bonds, $ 8.3 million in lease revenue bonds,

$ 5.2 million in pension refunding bonds, $ 8.1 million in tax allocation bonds, $ 1.3 million in capital

lease obligations, notes and loans payable of $ 3.5 million, $ 13 million in compensated absences, and

$ 19.6 million in workers’ compensation and public liability judgments and claims.

Table 4

City of Berkeley

Outstanding Debt, at Year- End

( In Millions)

Government Business- Type

Activities Activities Total

2006 2005 2006 2005 2006 2005

General obligation bonds $ 67.9 $ 70.0 $ 67.9 $ 70.0

Lease revenue bonds 8.3 8.5 $ 5.3 $ 4.3 13.6 12.7

Pension refunding bonds 5.2 6.0 5.2 6.0

Certificates of participation 28.0 28.0 28.0 28.0

Tax allocation bonds 8.1 7.0 8.1 7.0

Capital leases 1.3 1.7 1.3 1.7

Loans and notes payable 3.5 3.2 3.3 3.4 6.9 6.6

Compensated absences 13.0 11.8 2.0 1.8 15.0 13.6

Judgments and claims 19.6 22.1 19.6 22.1

$ 127.0 $ 130.3 $ 38.6 $ 37.5 $ 165.6 $ 167.7

Standard & Poor’s Corporation and Moody’s Investors Service assigned the general obligation bonds

ratings of AA-/ Aa3 upon their issuance.

Additional information on the City’s long- term debt can be found in note F on pages 99- 105 of this

report.

ECONOMIC FACTORS AND NEXT YEAR’S BUDGET AND RATES

The City’s current economic base consists of over 3,700 private manufacturing, technology research,

retail and service businesses, and federal, state and non- profit institutions. The City is home to the main

campus of the University of California and with over 33,000 students and almost 14,000 employees; the

University provides a high degree of economic stability for the City and has spurred growing high

technology and biotechnology sectors. The economic base generates slightly more than $ 4.1 billion in

gross business receipts and approximately $ 1.38 billion in taxable sales. Taxable property values

continue to rise, increasing an average 7.6% annually during the last five years to $ 10.0 billion in FY

2006. In addition, the job picture improved in Berkeley according to the State Economic Development

Department, with the City’s unemployment rate decreasing to 4.8% in June 2006 from 5.3% in June

2005.

The City’s two- year budget ( 2006- 07) takes into account the historical trends of the economy for

projecting revenues from the City’s major revenue sources ( i. e., property tax, transient occupancy tax,

sales tax, business license taxes, utility users taxes, real property transfer tax, etc.). The City expects

General Fund revenues to increase approximately 5.2% in FY 2007. However, personnel expenditures

are projected to decrease 2.8% for FY 2007. The City’s General Fund is projected to face a $. 2.8 million

General Fund deficit in FY 2007 Budget.

REQUESTS FOR INFORMATION

This financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors

with a general overview of the City’s finances and to show the City’s accountability for the money it

receives. If you have questions about this report or need additional financial information, contact the

City’s Finance Department, at the City of Berkeley, 2180 Milvia Street, Third Floor, California 94704.

BASIC FINANCIAL STATEMENTS

City of Berkeley

Statement of Net Assets

June 30, 2006

Governmental Business- Type Component

Activities Activities Total Units

ASSETS

Cash and investments $ 1 25,172,778 $ 31,563,811 $ 156,736,589 $ 3,210,426

Receivables ( net of allowance for uncollectibles) 5 4,761,623 4,467,565 59,229,188 30,332

Internal balances 6 88,434 ( 688,434) ( 0)

Inventories 6 2,873 62,873

Property held for resale 4 58,550 458,550

Deferred costs 1 ,107,443 1,107,443

Restricted assets:

Cash and investments 5 ,248,384 11,863,709 1 7,112,093

Capital assets not being depreciated:

Land 2 0,327,797 5,558,671 25,886,468

Construction in progress 5 92,450 564,266 1,156,716

Capital assets net of accumulated depreciation:

Buildings 7 8,762,206 31,240,886 110,003,092

Improvements other than buildings 2 ,918,067 2,067,888 4,985,955

Machinery and equipment 9 ,708,347 1,094,411 10,802,758 70,424

Infrastructure 7 6,102,780 118,349,837 194,452,617

Total assets 375,911,732 206,082,610 581,994,342 3,311,182

LIABILITIES

Accounts payable and other current liabilities 1 1,979,961 3,971,436 15,951,397 245,009

Accrued interest payable 3 81,935 381,935

Advance - Rent Registration 2,104,323

Other liabilities 2 8,663,980 1,149,804 29,813,784 181,111

Noncurrent liabilities ( Note IV F):

Due within one year 1 1,780,037 1,059,036 12,839,073

Due in more than one year 1 15,193,493 37,543,086 152,736,579 152,989

Total liabilities 1 67,999,406 43,723,362 211,722,768 2,683,432

NET ASSETS

Invested in capital assets, net of related debt 1 16,173,114 134,279,309 250,452,423 70,424

Restricpted fpor: j

Debt service 1 ,563,274 2,357,251 3,920,525

Unrestricted ( deficit) 9 0,175,938 25,722,688 115,898,626 557,327

Total net assets $ 207,912,326 $ 162,359,248 $ 370,271,574 $ 627,751

Primary Government

The notes to the financial statements are an integral part of this statement

City of Berkeley

Statement of Activities

For the Year Ended June 30, 2006

Indirect Operating Capital

Expenses Charges for Grants and Grants and Governmental Business- Type Total Component

Functions/ Programs Expenses Allocation Services Contributions Contributions Activities Activities Unit

Primary Government:

Governmental activities:

General government $ 2 8,252,067 $ ( 4,515,048) $ 3,101,701 $ 316,925 $ ( 20,318,393) $ ( 20,318,393)

Public safety 7 0,198,107 12,866,468 1,219,697 ( 56,111,942) ( 56,111,942)

Highways and streets 1 2,548,340 69,775 1,679,570 550,381 $ 2,976,968 ( 7,411,195) ( 7,411,195)

Health and welfare 2 4,125,376 1,060,604 11,709,494 ( 11,355,278) ( 11,355,278)

Culture and recreation 2 8,218,967 2,577,201 593,529 219,644 ( 24,828,593) ( 24,828,593)

Community development/ housing 1 2,891,258 271,035 1,623,028 10,024,543 ( 1,514,722) ( 1,514,722)

Economic development 1 ,935,691 459,963 ( 1,475,728) ( 1,475,728)

Interest on long- term debt 5 ,368,380 ( 5,368,380) ( 5,368,380)

Total governmental activities 1 83,538,186 ( 4,174,239) 23,368,535 24,414,569 3,196,612 ( 128,384,231) ( 128,384,231)

Business- type activities:

Parking related 6 ,582,206 6,262,246 $ ( 319,959) $ ( 319,959)

Marina operations and maintenance 3 ,766,180 279,421 3,959,829 382,440 2 96,667 296,667

Sewer services 9 ,465,787 894,175 14,291,484 3 ,931,523 3,931,523

Clean storm water 1 ,928,094 139,993 2,103,895 3 5,808 35,808

Refuse services 2 3,919,788 1,866,827 26,943,113 1 ,156,497 1,156,497

Permit service center 7 ,909,814 993,823 9,011,732 1 08,095 108,095

Building purchase and management 3 ,474,788 2,668,506 ( 806,282) ( 806,282)

Housing authority 2 4,028,475 24,747,553 7 19,078 719,078

Total business- type activities 8 1,075,132 4,174,239 89,988,359 382,440 - - 5 ,121,427 5,121,427

Total primary government $ 2 64,613,318 $ 0 $ 113,356,894 $ 24,797,008 $ 3,196,612 $( 128,384,231) $ 5,121,427 $( 123,262,804)

Component units:

Rent stabilization $ 2 ,986,505 $ 3,019,263 $ 32,758

Total component units $ 2 ,986,505 $ 3,019,263 $ 5,121,427 $ 32,758

General revenues:

Taxes:

Property taxes, levied for general purposes 49,797,533 49,797,533

Property taxes, levied for debt service 8,474,026 8,474,026

Property taxes for special purposes:

Library 12,167,897 12,167,897

Parks 7,864,110 7,864,110

Paramedic 2,098,186 2,098,186

Sales taxes 13,983,672 13,983,672

Utility users taxes 14,367,544 14,367,544

Transient occupancy taxes 3,008,772 3,008,772

Business license fee 11,077,244 11,077,244

Other taxes 9,835,477 9,835,477

Motor vehicle fees 5,692,685 5,692,685

Other unrestricted state subventions 362,107 362,107

Contributions not restricted to specific programs 327,806 327,806

Interest and investment earnings 4,487,089 7 93,604 5,280,693

Miscellaneous 639,631 639,631

Gain on sales of capital assets 328,929 51 328,981

Transfers:

Primary government ( 1,080,120) 1 ,080,120 -

Total general revenues, special items, and transfers 143,432,590 1 ,873,775 145,306,365 -

Changes in net assets 15,048,359 6 ,995,202 22,043,561 32,758

Net assets-- beginning ( as restated) 192,863,967 155,364,046 348,228,013 594,993

Net assets-- ending $ 207,912,326 $ 162,359,248 $ 370,271,574 $ 627,751

Net ( Expense) Revenue and

Program Revenues Changes in Net Assets

Primary Government

The notes to the financial statements are an integral part of this statement

City of Berkeley

Fund Balance Sheets

Governmental Funds

June 30, 2006

Special Revenue

General Gas Tax Gas Tax

Fund Grants Paramedic Library State 2106 State 2107

ASSETS

Cash and investments in treasury $ 54,705,802 $ 4,521,099 $ 453,782 $ 3 ,219,580 $ 203,642 $ 1,278,869

Cash and investments with fiscal agent

Receivables ( net of allowance

where applicable):

Accounts 1,773,699 4,890,003 5 ,874

Accrued interest 1,264,948

Taxes 4,424,108 2 2,366 31,448 34,732 76,821

Special assessments 1 23,517

Subventions/ grants 694,815

Due from other funds 6,540,034

Advance to other funds 1,107,900

Notes receivable 3,235,977 17,426,563

Other 7,455

Property held for resale

Total assets $ 73,059,923 $ 27,532,480 $ 482,022 $ 3 ,374,545 $ 238,374 $ 1,355,690

LIABILITIES

Accounts payable 1,801,381 1,730,900 2 1,186 2 83,507 4,725 24,121

Accrued salaries and wages 3,125,189 525,412 8 3,120 4 42,633 19,589 137

Due to other funds 4,011,305

Advance from other funds

Deposits held

Deferred revenue 2,225,371 62,247 28,239 1 54,963

Other 2,370,364 54,543 218

Arbitrage Rebate Liability

Tax and revenue anticipation notes 25,000,000

Total liabilities 34,522,305 6,384,407 132,545 8 81,321 24,314 24,258

FUND BALANCES

Reserved for:

Encumbrances 1,540,338 1,714,856 2 0,513 750

Due from and advances to other funds 7,647,934

Property held for resale

Notes receivable 3,235,977 17,426,563

Debt service

Unreserved, reported in:

General fund 26,113,369

Special revenue funds 2,006,654 328,964 2 ,493,224 214,060 1,330,682

Capital projects funds

Total fund balances 38,537,618 21,148,073 349,477 2 ,493,224 214,060 1,331,432

Total liabilities and fund balances $ 73,059,923 $ 27,532,480 $ 482,022 $ 3 ,374,545 $ 238,374 $ 1,355,690

The notes to the financial statements are an integral part of this statement.

City of Berkeley

Fund Balance Sheets

Governmental Funds

June 30, 2006

ASSETS

Cash and investments in treasury

Cash and investments with fiscal agent

Receivables ( net of allowance

where applicable):

Accounts

Accrued interest

Taxes

Special assessments

Subventions/ grants

Due from other funds

Advance to other funds

Notes receivable

Other

Property held for resale

Total assets

LIABILITIES

Accounts payable

Accrued salaries and wages

Due to other funds

Advance from other funds

Deposits held

Deferred revenue

Other

Arbitrage Rebate Liability

Tax and revenue anticipation notes

Total liabilities

FUND BALANCES

Reserved for:

Encumbrances

Due from and advances to other funds

Property held for resale

Notes receivable

Debt service

Unreserved, reported in:

General fund

Special revenue funds

Capital projects funds

Total fund balances

Total liabilities and fund balances

Special Revenue

Measure B Measure B

Gas Tax Other Special Sales Tax Local St & Bike and

State Prop. 111 Gas Tax CDBG Street Improvement Road Pedestrian

$ 552,846 $ 787,515

$ 1 6,192

2 09,379

$ 56,318 10,000 $ 3 ,004 $ 3 57,071 42,602

3 9,248

7 2,866

4,392,533

$ 56,318 $ 562,846 $ 4,730,218 $ 3 ,004 $ 3 57,071 $ 830,117

5 ,024 3 ,473 9,034

2 4,087 4 9,797 1 18,144 2,783

1,245,352 506,830 7 56,441

1,849,587

1,274,463 - 2,409,687 - 8 83,619 2,783

6 7,762 362,258

7 2,866

4,392,533

( 1,285,907) 562,846 ( 2,507,126) 3 ,004 ( 526,548) 827,334

( 1,218,145) 562,846 2,320,531 3 ,004 ( 526,548) 827,334

$ 56,318 $ 562,846 $ 4,730,218 $ 3 ,004 $ 3 57,071 $ 830,117

The notes to the financial statements are an integral part of this statement.

City of Berkeley

Fund Balance Sheets

Governmental Funds

June 30, 2006

ASSETS

Cash and investments in treasury

Cash and investments with fiscal agent

Receivables ( net of allowance

where applicable):

Accounts

Accrued interest

Taxes

Special assessments

Subventions/ grants

Due from other funds

Advance to other funds

Notes receivable

Other

Property held for resale

Total assets

LIABILITIES

Accounts payable

Accrued salaries and wages

Due to other funds

Advance from other funds

Deposits held

Deferred revenue

Other

Arbitrage Rebate Liability

Tax and revenue anticipation notes

Total liabilities

FUND BALANCES

Reserved for:

Encumbrances

Due from and advances to other funds

Property held for resale

Notes receivable

Debt service

Unreserved, reported in:

General fund

Special revenue funds

Capital projects funds

Total fund balances

Total liabilities and fund balances

Special Revenue Capital Project

Measure B Measure G- Berkeley

Paratransit Capital Fire/ Seismic Redevelopment

Fund Park Tax Improvement Projects Measure S Agency

$ 2 ,339,751 $ 5,068,296 $ 5 ,456,245 $ 1 ,441,439 $ 2 ,965,977

3 ,089,545

354,653

$ 27,679 18,031

83,732

6 22,012

2,320,792

6,214,804 2 ,726,204

195,130

4 58,550

$ 27,679 $ 2 ,441,514 $ 1 4,153,675 $ 5 ,456,245 $ 1 ,441,439 $ 9 ,862,288

2,402 2 21,023 371,747 5 50,156 102

5,186 2 71,116 10,384 3,659

52,142

1 ,180,766

12,933

1 02,075 3 53,459

93 2 29,226

5 53,978 494,893

59,730 5 94,307 395,064 1 ,107,793 494,893 1 ,763,553

2,320,792

4 58,550

6,214,804 2 ,726,204

( 32,051) 1 ,847,207

5,223,015 4 ,348,452 946,546 4 ,913,981

( 32,051) 1 ,847,207 13,758,611 4 ,348,452 946,546 8 ,098,735

$ 27,679 $ 2 ,441,514 $ 1 4,153,675 $ 5 ,456,245 $ 1 ,441,439 $ 9 ,862,288

The notes to the financial statements are an integral part of this statement.

City of Berkeley

Fund Balance Sheets

Governmental Funds

June 30, 2006

ASSETS

Cash and investments in treasury

Cash and investments with fiscal agent

Receivables ( net of allowance

where applicable):

Accounts

Accrued interest

Taxes

Special assessments

Subventions/ grants

Due from other funds

Advance to other funds

Notes receivable

Other

Property held for resale

Total assets

LIABILITIES

Accounts payable

Accrued salaries and wages

Due to other funds

Advance from other funds

Deposits held

Deferred revenue

Other

Arbitrage Rebate Liability

Tax and revenue anticipation notes

Total liabilities

FUND BALANCES

Reserved for:

Encumbrances

Due from and advances to other funds

Property held for resale

Notes receivable

Debt service

Unreserved, reported in:

General fund

Special revenue funds

Capital projects funds

Total fund balances

Total liabilities and fund balances

Debt Service

Sales/ Lease Berkeley Other Total

t Financing G. O. Bonds Redevelopment G. O. Bonds Governmental Governmental

Program Measure G Agency Measure S Funds Funds

$ 6 ,792,559 $ 5 ,219,495 $ 15,437,773 $ 1 10,444,670

$ 32,043 $ 1 ,480,598 646,198 5 ,248,384

529,440 7 ,215,208

1 ,828,980

54,424 14,736 80,724 5 ,254,064

42,802 250,051

502,105 1 ,858,180

8 ,860,826

1 ,180,766

4,146,046 3 8,142,127

1,302 203,887

458,550

$ 33,345 $ 6 ,846,983 $ 1 ,495,334 $ 5 ,300,219 21,304,364 $ 1 80,945,693

1,108 520,915 5 ,550,804

255,204 4 ,936,440

251,745 1,286,290 8,110,105

1 ,180,766

106,367 119,300

54,424 80,724 571,535 5 ,482,624

3 55,653 223,300 3 ,233,397

1 ,048,871

2 5,000,000

- 54,424 6 07,398 81,832 2,963,611 5 4,662,307

1,271,057 4 ,977,534

1 0,041,592

458,550

4,146,046 3 8,142,127

33,345 6 ,792,559 8 87,936 5 ,218,387 684,620 1 3,616,847

2 6,113,369

12,879,204 1 8,141,547

( 640,174) 1 4,791,820

33,345 6 ,792,559 8 87,936 5 ,218,387 18,340,753 1 26,283,385

$ 33,345 $ 6 ,846,983 $ 1 ,495,334 $ 5 ,300,219 $ 21,304,364

-

1 82,067,735

6 ,590,067

( 38,110)

( 106,990,751)

$ 207,912,326

Amounts reported for governmental activities in the statement of net assets

are different because:

Capital assets used in governmental activities are not financial

resources and, therefore, are not reported in the funds ( Note IIA).

Other long- term assets are not available to pay for current period

expenditures and, therefore, are deferred in the funds ( Note IIA).

Internal service funds are used by management to charge the costs of

public liability, equipment maintenance, building maintenance, supply

warehouse, workers compensation, electrical warehouse and

catastrophic loss services to individual funds. The assets and

liabilities of the internal services funds are included in governmental

activities in the statement of net assets ( Note IIA).

Long- term liabilities, including bonds payable, are not due and

payable in the current period and, therefore, are not reported in the

funds ( Note IIA).

Net assets of governmental activities

The notes to the financial statements are an integral part of this statement.

City of Berkeley

Statement of Revenues, Expenditures,

and Changes in Fund Balances ( Deficit)

Governmental Funds

For the fiscal year ended June 30, 2006

Special Revenue

Gas Tax Gas Tax

General Grants Paramedic Library State 2106 State 2107

----------------------- -------------------- ------------------------------------------ --------------- ------------------

Revenues:

Taxes $ 93,077,910 $ 2,098,186 $ 12,167,897 $ 407,153 $ 851,608

Licenses and permits 297,027

Intergovernmental 6,546,416 $ 2 1,400,959 239,420

Charges for Service 5,353,528 188,556 24,001

Fines and Penalties 9,800,598 272,133

Rents and royalties 132,231

Franchise 1,531,999

Private contributions and donations 39,760 236,291

Indirect cost reimbursements 4,534,874

Investment income 3,468,865 98,394 35,719 5 ,615

Miscellaneous 19,618 8,959 6 86

----------------------- -------------------- ------------------------------------------ --------------- ------------------

Total revenues 124,802,826 21,696,868 2,098,186 12,952,146 412,768 875,609

----------------------- -------------------- ------------------------------------------ --------------- ------------------

Expenditures:

Current

General government 26,527,490 70,188 13,903 4 3,901 46,084 511

Public safety 65,070,231 874,677 3,206,266

Highway and streets 597,688 2,881,919 437,123 369,596

Health and welfare 8,960,404 13,959,299

Culture- recreation 4,523,697 1,017,227 12,823,158

Community development/ housing 2,610,694 3,103,480

Econompic development 1,433,519 3,263.00

Debt service

Principal repayment 337,374 95,434

Interest and fiscal charges 742,684 15,957

Cost of Issuance 31,496

----------------------- -------------------- ------------------------------------------ --------------- ------------------

Total expenditures 110,835,277 21,910,053 3,220,169 12,978,450 483,207 370,107

----------------------- -------------------- ------------------------------------------ --------------- ------------------

Excess( deficiency) over( under) expenditures 13,967,549 ( 213,185) ( 1,121,983) ( 26,304) ( 70,439) 505,502

----------------------- -------------------- ------------------------------------------ --------------- ------------------

Other financing sources( uses):

Transfers in 4,735,968 1,831,800 1,599,444

Transfers out p ( 16,383,124) ( 10,712) ( 50,822)

Issuance of debt

Issuance of refunding bonds

Premium on refunded bonds

Refunded bonds redeemed

Sales of capital assets 2,218,526

----------------------- -------------------- ------------------------------------------ --------------- ------------------

Total other financing sources( uses) ( 9,428,630) 1,831,800 1,588,732 ( 50,822) - -

----------------------- -------------------- ------------------------------------------ --------------- ------------------

Net change in fund balances 4,538,919 1,618,615 466,749 ( 77,126) ( 70,439) 505,502

Fund Balance, July 1, 2005 as restated 33,998,699 19,529,458 ( 117,272) 2,570,350 284,499 825,930

----------------------- -------------------- ------------------------------------------ --------------- ------------------

Fund Balance, June 30, 2006 $ 38,537,618 $ 2 1,148,073 $ 349,477 $ 2,493,224 $ 214,060 $ 1,331,432

============= =========== ============ =========== ========= ==========

The notes to the financial statements are an integral part of this statement

City of Berkeley

Statement of Revenues, Expenditures,

and Changes in Fund Balances ( Deficit)

Governmental Funds

For the fiscal year ended June 30, 2006

Revenues:

Taxes

Licenses and permits

Intergovernmental

Charges for Service

Fines and Penalties

Rents and royalties

Franchise

Private contributions and donations

Indirect cost reimbursements

Investment income

Miscellaneous

Total revenues

Expenditures:

Current

General government

Public safety

Highway and streets

Health and welfare

Culture- recreation

Community development/ housing

Econompic development

Debt service

Principal repayment

Interest and fiscal charges

Cost of Issuance

Total expenditures

Excess( deficiency) over( under) expenditures

Other financing sources( uses):

Transfers in

Transfers out p

Issuance of debt

Issuance of refunding bonds

Premium on refunded bonds

Refunded bonds redeemed

Sales of capital assets

Total other financing sources( uses)

Net change in fund balances

Fund Balance, July 1, 2005 as restated

Fund Balance, June 30, 2006

Special Revenue

Sales Tax Measure B Measure B

Gas Tax Other Special Street Local St & Bike and

Prop. 111 Gas Tax CDBG Improvement Road Pedestrian

------------------- ------------------ ------------------- ----------------------------------------------------------------------

$ 6 38,522 $ 20,000 $ 24,697 $ 2,296,638 $ 274,010

$ 3,203,825

5,566 29,368 44,164 28,526

6

------------------- ------------------ ------------------- ----------------------------------------------------------------------

638,522 25,566 3,233,199 24,697 2,340,802 302,536

------------------- ------------------ ------------------- ----------------------------------------------------------------------

159,213 511 16,000 6,071 150,799

934,020 23,761 2,387,570 243,236

2,521

3,368,456

------------------- ------------------ ------------------- ----------------------------------------------------------------------

1 ,093,233 511 3,386,977 29,832 2,538,369 243,236

------------------- ------------------ ------------------- ----------------------------------------------------------------------

( 454,711) 25,055 ( 153,778) ( 5,135) ( 197,567) 59,300

------------------- ------------------ ------------------- ----------------------------------------------------------------------

------------------- ------------------ ------------------- ----------------------------------------------------------------------

- - - - - -

------------------- ------------------ ------------------- ----------------------------------------------------------------------

( 454,711) 25,055 ( 153,778) ( 5,135) ( 197,567) 59,300

( 763,434) 537,791 2,474,309 8,139 ( 328,981) 768,034

------------------- ------------------ ------------------- ----------------------------------------------------------------------

$ ( 1,218,145) $ 5 62,846 $ 2,320,531 $ 3,004 $ ( 526,548) $ 827,334

=========== ========== =========== ========================================

The notes to the financial statements are an integral part of this statement

City of Berkeley

Statement of Revenues, Expenditures,

and Changes in Fund Balances ( Deficit)

Governmental Funds

For the fiscal year ended June 30, 2006

Revenues:

Taxes

Licenses and permits

Intergovernmental

Charges for Service

Fines and Penalties

Rents and royalties

Franchise

Private contributions and donations

Indirect cost reimbursements

Investment income

Miscellaneous

Total revenues

Expenditures:

Current

General government

Public safety

Highway and streets

Health and welfare

Culture- recreation

Community development/ housing

Econompic development

Debt service

Principal repayment

Interest and fiscal charges

Cost of Issuance

Total expenditures

Excess( deficiency) over( under) expenditures

Other financing sources( uses):

Transfers in

Transfers out p

Issuance of debt

Issuance of refunding bonds

Premium on refunded bonds

Refunded bonds redeemed

Sales of capital assets

Total other financing sources( uses)

Net change in fund balances

Fund Balance, July 1, 2005 as restated

Fund Balance, June 30, 2006

Special Revenue Funds Capital Project Funds

Measure B Measure G- Berkeley

Paratransit Capital Fire/ Seismic Measure S Redevelopment

Fund Park Tax Improvement Projects Agency

--------------------- ---------------------- --------------------- ------------------ ------------------- ----------------------

$ 178,030 $ 7,864,110

$ 594,612

24,512 $ 2,645

4,954 48,730

8,685

34,299 56,584 $ 228,884 $ 3 5,563 182,980

29,467 60,496 370

--------------------- ---------------------- --------------------- ------------------ ------------------- ----------------------

178,030 7,966,027 119,725 228,884 3 5,563 826,692

--------------------- ---------------------- --------------------- ------------------ ------------------- ----------------------

16,175 28,239 494,036 31,645

21,907

8,223 3,302,655 58,096 832,275

7,546,688 232,726 1 2,483

193,714 74,584 189,105 2,642,477 501,709

59,865 6 ,322

--------------------- ---------------------- --------------------- ------------------ ------------------- ----------------------

209,889 7,679,641 4,278,387 2,700,573 1 8,805 1,365,629

--------------------- ---------------------- --------------------- ------------------ ------------------- ----------------------

( 31,859) 286,386 ( 4,158,662) ( 2,471,689) 1 6,758 ( 538,937)

--------------------- ---------------------- --------------------- ------------------ ------------------- ----------------------

8,613,140 2,655,068

( 99,993) ( 814,613) ( 2,217,285)

2,392,829

--------------------- ---------------------- --------------------- ------------------ ------------------- ----------------------

- ( 99,993) 7,798,527 - - 2,830,612

--------------------- ---------------------- --------------------- ------------------ ------------------- ----------------------

( 31,859) 186,393 3,639,865 ( 2,471,689) 1 6,758 2,291,675

( 192) 1,660,814 10,118,746 6,820,141 9 29,788 5,807,060

--------------------- ---------------------- --------------------- ------------------ ------------------- ----------------------

$ ( 32,051) $ 1,847,207 $ 13,758,611 $ 4,348,452 $ 946,546 $ 8,098,735

============ ============ ============ ========== ========== ============

The notes to the financial statements are an integral part of this statement

City of Berkeley

Statement of Revenues, Expenditures,

and Changes in Fund Balances ( Deficit)

Governmental Funds

For the fiscal year ended June 30, 2006

Revenues:

Taxes

Licenses and permits

Intergovernmental

Charges for Service

Fines and Penalties

Rents and royalties

Franchise

Private contributions and donations

Indirect cost reimbursements

Investment income

Miscellaneous

Total revenues

Expenditures:

Current

General government

Public safety

Highway and streets

Health and welfare

Culture- recreation

Community development/ housing

Econompic development

Debt service

Principal repayment

Interest and fiscal charges

Cost of Issuance

Total expenditures

Excess( deficiency) over( under) expenditures

Other financing sources( uses):

Transfers in

Transfers out p

Issuance of debt

Issuance of refunding bonds

Premium on refunded bonds

Refunded bonds redeemed

Sales of capital assets

Total other financing sources( uses)

Net change in fund balances

Fund Balance, July 1, 2005 as restated

Fund Balance, June 30, 2006

Debt Service Funds

Sale/ Lease Berkeley Other Total

Financing G. O. Bonds Redevelopment G. O. Bonds Governmental Governmental

Program Measure G Agency Measure S Funds Funds

--------------------- ------------------- ------------------------- ------------------ ---------------------- ----------------------

$ 2,798,146 $ 1,525,567 $ 4,150,313 $ 6,895,276 $ 1 35,268,063

248,654 545,681

1,865,801 33,851,033

3,471,375 9,064,617

27,989 10,100,720

210,284 396,199

1,531,999

43,070 327,806

4,534,874

$ 22,256 81,519 107,205 4,465,507

123,826 243,428

--------------------- ------------------- ------------------------- ------------------ ---------------------- ----------------------

22,256 2,798,146 1,607,086 4,150,313 12,993,480 200,329,927

--------------------- ------------------- ------------------------- ------------------ ---------------------- ----------------------

2,076 617,868 28,224,710

990,131 70,163,212

1,674,171 13,750,333

1,675,790 24,595,493

1,641,391 27,799,891

181,202 2,076,348 14,941,769

514,648 2,017,617

795,000 1,050,000 782,000 975,000 211,000 4,245,808

285,877 1,127,343 432,139 2,254,544 509,836 5,368,380

251,856 2,751 286,103

--------------------- ------------------- ------------------------- ------------------ ---------------------- ----------------------

1,082,953 2,177,343 1,647,197 3,229,544 9,913,934 191,393,316

--------------------- ------------------- ------------------------- ------------------ ---------------------- ----------------------

( 1,060,697) 620,803 ( 40,111) 920,769 3,079,546 8,936,611

--------------------- ------------------- ------------------------- ------------------ ---------------------- ----------------------

1,080,878 272,779 3,312,642 24,101,719

( 710,562) ( 4,502,044) ( 24,789,155)

459,930 459,930

5,487,171 7,880,000

21,582 21,582

( 6,040,000) ( 6,040,000)

2,218,526

--------------------- ------------------- ------------------------- ------------------ ---------------------- ----------------------

1,080,878 - ( 969,030) - ( 729,472) 3,852,602

--------------------- ------------------- ------------------------- ------------------ ---------------------- ----------------------

20,181 620,803 ( 1,009,141) 920,769 2,350,074 12,789,213

13,164 6,171,756 1,897,077 4,297,618 15,990,678 113,494,171

--------------------- ------------------- ------------------------- ------------------ ---------------------- ----------------------

$ 33,345 $ 6,792,559 $ 887,936 $ 5,218,387 $ 18,340,753 $ 1 26,283,385

============ =========== ============== ========== ============ ============

The notes to the financial statements are an integral part of this statement

Net change in fund balances – total governmental funds ( Page 49) $ 12,789,213

The capital outlay expenditures are therefore added back to fund balance. ( Note II. B) 9 ,456,367

Depreciation expense is therefore deducted from fund balance. ( Note II. B) ( 10,356,804)

Deferred Revenue ( 653,138)

Sales of capital assets ( 1,889,597)

Debt Issued or Incurred ( 8,339,930)

Principal payments 4,245,808

Payment to refunded bond escrow agent 6,040,000

Capitalization of costs of issuance 251,855

Compensated absences ( 1,224,473)

Amortization of bond issuance costs ( 68,401)

Income 5,190,143

Transfers in 1,767,760

Transfers out ( 2,160,444)

Change in net assets of governmental activities $ 15,048,359

The notes to the financial statements are an integral part of this statement

Governmental funds report capital outlays as expenditures. However, in the Statement

of Activities the cost of those assets is allocated over their estimated useful lives and

reported as depreciation expense.

Amounts reported for governmental activities in the Statement of Activities are different

because:

City of Berkeley

Reconciliation of the Statement of Revenues, Expenditure, and Change in

Fund Balances of Governmental Funds to the Statement of Activities

For the Year Ended June 30, 2006

Revenues in the Statement of Activities that do not provide current financial resources

are not reported as revenues in the funds. ( Note II. B)

Issuance of long term debt provides current financial resources to governmental funds

but incurring debt increases long- term liabilities in the Statement of Net Assets.

Repayment of principal on long- term debts is an expenditures in the governmental

funds, but in the Statement of Net Assets the repayment reduces long- term liabilities.

( Note II. B)

Some expenses reported in the Statement of Activities do not require the use of current

financial resources and, therefore, are not reported expenditures in governmental funds.

( Note II. B)

Internal service funds are used by management to charge the costs of certain activates to

individual funds. The net revenue ( expense) of the internal service funds is reported

with governmental activities. ( Note II. B)

The net effect of various miscellaneous transactions involving capital assets ( i. e., Sales)

is to decrease net assets.. ( Note II. B)

CITY OF BERKELEY

Statement of Revenues, Expenditures and Changes in

Fund Balance - Budget and Actual ( Budget Basis)

General Fund and Major Special Revenue Funds

For the Year Ended June 30, 2006

Grants

----------------------- --------------------- - --------------------- - ----------------------- ---------------------- ---------------------- ----------------------- ------------------------

Variance with Variance with

Final Budget- Final Budget-

--------------------------------------------- Actual Positive --------------------------------------------- Actual Positive

Orginal Final Amount ( Negative) Orginal Final Amount ( Negative)

----------------------- --------------------- --------------------- ----------------------- ---------------------- ---------------------- ----------------------- ------------------------

Revenues:

Taxes $ 89,225,591 $ 8 9,225,591 $ 9 2,512,153 $ 3,286,562

License and permits 192,193 192,193 297,651 105,458

Intergovernmental 5,029,642 5,029,642 6,546,416 1,516,774 $ 15,601,861 $ 19,745,034 $ 20,818,590 $ 1 ,073,556

Charges for service 5,299,871 5,299,871 5,399,655 99,784 275,000 275,000 188,556 ( 86,444)

Fines and penalties 9,733,666 9,733,666 9,800,598 66,932

Rents and royalties 125,100 125,100 132,411 7,311 7,200 7,200 98,396 91,196

Franchise 1,464,015 1,464,015 1,531,999 67,984

Indirect cost reimbursemnts 4,068,770 4,068,770 4,541,899 473,129

Investment income 3,300,000 3,300,000 3,660,718 360,718

Private contributions and donations 35,000 35,000 39,760 4,760 5 ,398 5,398

Miscellaneous 500,000 500,000 12,593 ( 487,407) -

----------------------- --------------------- --------------------- ----------------------- ---------------------- ---------------------- ----------------------- ------------------------

Total revenues 118,973,848 1 18,973,848 1 24,475,853 5,502,005 15,884,061 20,027,234 21,110,940 1,083,706

----------------------- --------------------- --------------------- ----------------------- ---------------------- ---------------------- ----------------------- ------------------------

Expenditures:

Current:

General government 30,109,362 3 1,842,785 2 6,562,359 5,280,426 8,000 89,379 7 0,188 19,191

Public safety 64,408,121 6 4,922,094 6 5,070,231 ( 148,137) 225,479 772,523 516,999 255,524

Highway and streets 550,852 747,674 597,688 149,986 121,418 3,752,791 2,881,918 870,873

Health and welfare 8,988,384 8,951,464 8,960,404 ( 8,940) 14,715,377 16,317,636 14,222,028 2,095,608

Culture- recreation 3,979,082 4,095,710 4,523,697 ( 427,987) 4,095,878 4,831,742 754,376 4,077,366

Community development and housing 2,357,771 2,747,875 2,405,398 342,477 812,723 2,709,768 3,306,432 ( 596,664)

Economic development 1,496,076 1,545,623 1,433,519 112,104 1,119,164 3,426,795 3,346,852 79,943

Debt service

Principal repayment 304,677 304,677 304,677 - - - - -

Interest and fiscal charges 698,694 698,694 769,010 ( 70,316) - - - -

----------------------- --------------------- --------------------- ----------------------- ---------------------- ---------------------- ----------------------- ------------------------

Total expenditures 112,893,019 1 15,856,596 1 10,626,983 5,229,613 21,098,039 31,900,634 25,098,793 6,801,841

----------------------- --------------------- --------------------- ----------------------- ---------------------- ---------------------- ----------------------- ------------------------

Excess over( under) expenditures 6,080,829 3,117,252 1 3,848,870 10,731,618 ( 5,213,978) ( 11,873,400) ( 3,987,853) 7,885,547

Other financing sources ( uses):

Transfers in 4,686,468 4,686,468 4,735,968 49,500 1,831,800 1,831,800 1,831,800 -

Transfers out ( 16,388,177) ( 16,524,349) ( 16,383,124) 141,225 - - - -

Interfund repayments 13,000 13,000 1 0,212,900 10,199,900

Interfund advances - - ( 8,965,739) ( 8,965,739)

Loan repayments 3,000 5,000 109,651 104,651

Sale of Capital Assets - - 2,220,084 2,220,084

----------------------- --------------------- --------------------- ----------------------- ---------------------- ---------------------- ----------------------- ------------------------

Total other financing sources ( uses) ( 11,688,709) ( 11,824,881) ( 8,179,911) 3,644,970 1,834,800 1,836,800 1,941,451 104,651

----------------------- --------------------- --------------------- ----------------------- ---------------------- ---------------------- ----------------------- -----------------