Front Cover: Montara Lighthouse

By Michael Kellicut

Half Moon Bay, CA

County of San Mateo, California

Comprehensive Annual

Financial Report

For the Fiscal Year Ended June 30, 2003

Tom Huening

Controller

COUNTY OF SAN MATEO, CALIFORNIA

Comprehensive Annual Financial Report

Prepared by the Controller’s Office

For the Fiscal Year Ended June 30, 2003

COUNTY OF SAN MATEO

COMPREHENSIVE ANNUAL FINANCIAL REPORT

For the Fiscal Year Ended June 30, 2003

Table of Contents

Page

INTRODUCTORY SECTION

Letter of Transmittal ............................................................................................................................... ......... i

GFOA Certificate of Achievement for Excellence in Financial Reporting for 2002...................................... xi

Organization Chart.......................................................................................................................... .............. xii

List of Elected and Appointed Officials........................................................................................................ xiii

FINANCIAL SECTION

Independent Auditor’s Report ............................................................................................................................ 1

Management’s Discussion and Analysis ( Required Supplementary Information)......................................... 3

Basic Financial Statements:

Government- wide Financial Statements:

Statement of Net Assets......................................................................................................................... .. 15

Statement of Activities ............................................................................................................................. 16

Fund Financial Statements:

Governmental Funds:

Balance Sheet.......................................................................................................................... ............. 18

Reconciliation of the Governmental Funds Balance Sheet

to the Government- wide Statement of Net Assets – Governmental Activities ............................... 19

Statement of Revenues, Expenditures, and Changes in Fund Balances ............................................... 20

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

Governmental Funds to the Government- wide Statement of Activities – Governmental

Activities..................................................................................................................... ................... 21

Proprietary Funds:

Statement of Fund Net Assets............................................................................................................... 22

Statement of Revenues, Expenses, and Changes in Fund Net Assets................................................... 23

Statement of Cash Flows ...................................................................................................................... 24

Fiduciary Funds:

Statement of Fiduciary Net Assets........................................................................................................ 26

Statement of Changes in Fiduciary Net Assets..................................................................................... 27

Notes to the Basic Financial Statements:

( 1) The Financial Reporting Entity.............................................................................................................. 28

( 2) Summary of Significant Accounting Policies........................................................................................ 29

( 3) Stewardship, Compliance and Accountability....................................................................................... 35

( 4) Cash and Investments ............................................................................................................................ 35

( 5) Receivables.................................................................................................................... ........................ 40

( 6) Interfund Transactions................................................................................................................... ....... 41

COUNTY OF SAN MATEO COMPREHENSIVE ANNUAL FINANCIAL REPORT

For the Fiscal Year Ended June 30, 2003

Table of Contents ( Continued)

Page

( 7) Capital Assets......................................................................................................................... ................. 44

( 8) Leases......................................................................................................................... ............................. 46

( 9) Long- Term Liabilities .............................................................................................................................. 47

( 10) Net Assets/ Fund Balances....................................................................................................................... 50

( 11) Employees’ Retirement Plan and Post Retirement Benefits .................................................................... 51

( 12) Risk Management ............................................................................................................................... .... 53

( 13) Related Party Transactions................................................................................................................... ... 53

( 14) Commitments and Contingencies ............................................................................................................ 54

( 15) Subsequent events ............................................................................................................................... .... 55

Required Supplementary Information ( other than MD& A):

Infrastructure Assets Reported Using the Modified Approach .......................................................................... 56

Schedule of Funding Progress ............................................................................................................................ 56

General Fund ............................................................................................................................... ...................... 57

Budgetary Comparison Schedule – General Fund.............................................................................................. 58

Notes to Required Supplementary Information – Budgetary Basis of Accounting ............................................ 67

Combining and Individual Fund Statements and Schedules:

Nonmajor Governmental Funds:

Combining Balance Sheet ............................................................................................................................. 68

Combining Statement of Revenues, Expenditures, and Changes in Fund Balances ..................................... 69

Special Revenue Funds:......................................................................................................................... ... 70

Combining Balance Sheet .................................................................................................................... 72

Combining Statement of Revenues, Expenditures, and Changes in Fund Balances............................ 74

Budgetary Comparison Schedules:

Road Fund ............................................................................................................................... ........ 76

County Fire Protection Fund............................................................................................................ 77

County Service Area Fund............................................................................................................... 78

Sewer and Sanitation Fund .............................................................................................................. 79

Flood Control Zone Fund................................................................................................................. 80

Lighting Districts Fund .................................................................................................................... 81

Emergency Medical Services Fund ................................................................................................. 82

County Half- Cent Transportation Fund ........................................................................................... 83

County- wide Road Improvement Fund ........................................................................................... 84

Solid Waste Fund ............................................................................................................................ 85

Public Authority In- Home Supportive Service ( IHSS) Fund .......................................................... 86

Other Special Revenue Funds:

Fish and Game Fund ................................................................................................................... 87

Off- Highway Vehicle License Fees Fund................................................................................... 87

Highlands Landscape Maintenance District .............................................................................. 87

Water Districts ........................................................................................................................... 88

Various Drainage Districts.......................................................................................................... 88

COUNTY OF SAN MATEO COMPREHENSIVE ANNUAL FINANCIAL REPORT

For the Fiscal Year Ended June 30, 2003

Table of Contents ( Continued)

Page

Debt Service Fund:.......................................................................................................................... ...... 90

Budgetary Comparison Schedule - Other Debt Service Fund ......................................................... 91

Capital Projects Funds:......................................................................................................................... 92

Combining Balance Sheet ................................................................................................................ 93

Combining Statement of Revenues, Expenditures, and Changes in Fund Balances........................ 94

Budgetary Comparison Schedules:

Parks Acquisition Fund............................................................................................................... 95

Accumulated Capital Outlay Fund.............................................................................................. 96

Criminal Facility Fund................................................................................................................ 97

Courthouse Construction Fund ................................................................................................... 98

Other Capital Projects Funds ...................................................................................................... 99

Nonmajor Enterprise Funds: ............................................................................................................................. 100

Combining Statement of Fund Net Assets ................................................................................................. 101

Combining Statement of Revenues, Expenses, and Changes in Fund Net Assets ..................................... 102

Combining Statement of Cash Flows......................................................................................................... 103

Internal Service Funds: ............................................................................................................................... ..... 105

Combining Statement of Fund Net Assets ................................................................................................. 106

Combining Statement of Revenues, Expenses, and Changes in Fund Net Assets ..................................... 107

Combining Statement of Cash Flows......................................................................................................... 108

Fiduciary Funds: ............................................................................................................................... ............... 110

Investment Trust Funds:

Combining Statement of Fiduciary Net Assets ...................................................................................... 111

Combining Statement of Changes in Fiduciary Net Assets ................................................................... 112

Agency Funds:

Combining Statement of Changes in Assets and Liabilities................................................................... 113

STATISTICAL SECTION ( Unaudited).............................................................................................................. 115

Financial Trends:

Government- wide:

Government- wide Expenses and Program Revenues by Function/ Program,

Last Three Fiscal Years .................................................................................................................... 116

Government- wide Net ( Expense)/ Revenue by Function/ Program and General Revenues by Source,

Last Three Fiscal Years .................................................................................................................... 117

Government- wide Program Revenues by Category, Last Three Fiscal Years........................................ 118

Government- wide Net Assets by Category, Last Three Fiscal Years..................................................... 119

All Governmental Funds:

Expenditures by Function for All Governmental Funds, Last Ten Fiscal Years .................................... 120

Revenues by Source for All Governmental Funds, Last Ten Fiscal Years............................................. 121

COUNTY OF SAN MATEO COMPREHENSIVE ANNUAL FINANCIAL REPORT

For the Fiscal Year Ended June 30, 2003

Table of Contents ( Continued)

Page

Governmental Fund Balances, Last Ten Fiscal Years ............................................................................ 122

Tax Revenues by Source for All Governmental Funds, Last Ten Fiscal Years...................................... 123

Revenue Capacity Information

Property Tax Levies and Collections, Last Ten Fiscal Years..................................................................... 124

Taxable Assessed Value of Property, Last Ten Fiscal Years ..................................................................... 125

Direct and Overlapping Property Tax Rates, Last Ten Fiscal Years.......................................................... 126

Direct and Overlapping Sales Tax Rates, Last Ten Years ......................................................................... 127

Principal Property Tax Payers, Current Year, Five Years Ago, Nine Years Ago....................................... 128

Debt Burden Information

Ratios of Total Debt Outstanding by Type, Last Ten Fiscal Years ............................................................ 129

Legal Debt Service Margin, Last Three Fiscal Years ................................................................................. 130

Direct and Overlapping Debt as of June 30, 2003....................................................................................... 131

Demographic and Economic Information

Construction and Bank Deposits, Last Ten Fiscal Years............................................................................. 132

Demographic and Economic Statistics, Last Ten Years.............................................................................. 133

Principal Employers, Two Years Ago, Six Years Ago, Nine Years Ago.................................................... 134

Miscellaneous Statistical Information ......................................................................................................... 135

Operating Information

Full- time Equivalent County Employees by Function/ Program, Last Ten Fiscal Years............................. 136

Capital Asset and Infrastructure Statistics, Last Three Fiscal Years........................................................... 137

Operating Statistics By Function/ Program for the Fiscal Years Ended 2000, 2001 and 2002 .................... 138

INTRODUCTORY SECTION

􀂃 Controller’s Letter of Transmittal

􀂃 Certificate of Achievement – Government

Finance Officers Association

􀂃 Organization Chart

􀂃 List of Elected and Appointed Officials

( This Page Intentionally Left Blank)

i

COUNTY OF SAN MATEO

OFFICE OF CONTROLLER

TOM HUENING, CONTROLLER

Members of the Board of Supervisors and

Citizens of San Mateo County: December 12, 2003

The Comprehensive Annual Financial Report ( CAFR) of the County of San Mateo ( County) for the fiscal year of 2002- 03 is

presented in compliance with Section 25253 of the Government Code of the State of California. This report was prepared by

the Office of the County Controller, which is responsible for both the accuracy of the presented data and the completeness

and fairness of the presentation including all disclosures. We believe the data, as presented, is accurate in all material aspects

and presented in a manner designed to fairly set forth the financial position and results of operations and cash flows, if

applicable, of the County, as measured by the financial activity of its various funds, and that all disclosures necessary to

enable the reader to gain the maximum understanding of the County’s financial affairs have been included.

The CAFR represents the culmination of all budgeting and accounting activities engaged in by management during the year,

covering all funds of the County and its financial transactions. The CAFR is organized into three sections:

• The Introductory Section is intended to familiarize the reader with the organizational structure of the

County, the nature and scope of the services it provides, and the specifics of its legal operating

environment set within the context of the local economy.

• The Financial Section includes the independent auditor’s report on the basic financial statements,

Management’s Discussion and Analysis ( MD& A) of the County’s overall financial position and results

of operations, the audited basic financial statements, notes to the basic financial statements, required

supplementary information, and combining and individual fund statements and schedules to provide

readers with a comprehensive understanding of the County’s financial activities of the past fiscal year.

This letter is designed to complement the MD& A and should be read in conjunction with it. The

County’s MD& A can be found on pages 3- 14 of this report.

• The Statistical Section contains comprehensive statistical data on the County’s physical, economic, social and

political characteristics.

THE REPORTING ENTITY

The County of San Mateo, California, established by an Act of the State Legislature in 1856, is a legal subdivision of the

State of California charged with governmental powers. The County’s powers are exercised through a Board of Supervisors

( Board), which, as the governing body of the County, is responsible for the legislative and executive control of the County.

The County provides various services including public protection, road construction and public facilities maintenance,

sanitation, health and social services, elections and records, planning, zoning and tax collection.

The governmental reporting entity consists of the County ( Primary Government) and its blended and discretely presented

component units. Component units are legally separate entities for which the primary government is financially accountable

or other organizations for which the nature and significance of the relationship with the primary government are such that

exclusion would make the enclosed financial statements misleading or incomplete.

Blended Component Units

San Mateo County has four independent fiscal agencies that are considered blended component units for reporting the

financial results of the County. They vary widely in function and provide essential services.

• The San Mateo County Joint Powers Financing Authority ( JPFA) assists the County in the financing of public capital

improvements. JPFA is reported as a major governmental fund in the County’s financial statements.

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• The San Mateo County Employees’ Retirement Association ( SamCERA) administers the financial activities of the

County’s pension plan. SamCERA is reported as a Pension Trust Fund in the County’s financial statements.

• The Housing Authority of the County of San Mateo ( Housing Authority) provides housing assistance to low and

moderate income families. The Housing Authority is reported as a major enterprise fund in the County’s financial

statements.

• The In- Home Supportive Services ( IHSS) Public Authority assists consumers in finding in- home supportive services

personnel, provides training and support for providers and recipients and their families, and performs other functions

related to the delivery of in- home supportive services. The IHSS Public Authority is reported as a special revenue fund

in the County’s financial statements.

Discretely Presented Component Unit

First 5 San Mateo County ( First 5), previously presented as the Children and Families First Commission, was established in

March 1999 under the authority of the California Children and Families First Act of 1998 and sections 130100, et seq. of the

Health and Safety Code. The Board appoints all members of the First 5. The Board can remove appointed members at will.

The First 5 accounts for receipts and disbursements of California Children and Families Trust Fund allocations and

appropriations. The First 5 is a discretely presented component unit as the governing body of the First 5 is not substantially

the same as that of the County, and the First 5 does not provide services entirely or almost entirely to the County.

ECONOMIC CONDITIONS AND OUTLOOK

San Mateo County is one of 58 California counties and one of the nine counties in the San Francisco- Oakland Bay Area. The

County covers 447 square miles ( ranked 56th among the 58 counties for land size). It is located on a peninsula that is flanked

by the Pacific Ocean on the west, the San Francisco Bay on the east, the City/ County of San Francisco to the north, and the

counties of Santa Clara and Santa Cruz to the south. Most of the estimated 720,630 residents live along the densely

populated north- south transportation corridor between the counties of San Francisco and Santa Clara. The County is home to

20 cities and the San Francisco International Airport. Seventy- four percent of the County’s land is reserved for agriculture,

watershed, open space, wetlands or parks that contribute to its urban/ rural characteristics and natural beauty. Key public

policy issues relate to the economy, land use, congestion management and quality of life.

The County has a charter form of government. A five- member Board of Supervisors, each elected to four- year terms, serves

as the legislative body. Members run at- large in non- partisan elections but must reside within a specific district. A County

Manager is appointed by the Board and runs the day- to- day business. The County Manager appoints the heads of seven

agencies/ departments. The Board appoints the County Counsel and the Director of the Child Support Services. Elected

officials include the Assessor- Clerk- Recorder, Controller, District Attorney, Treasurer- Tax Collector, Sheriff and the

Coroner.

The County’s demographic makeup mirrors California; it is rich in diversity with a plurality of ethnicities. Approximately

half of the residents are Caucasian, while Asian/ Pacific Islanders and Hispanics each comprise a little more than 20%.

African- Americans comprise 3.3% and those identifying themselves as “ Two or More Races” comprise 3.2%. Of the

estimated 255,000 households in the County, roughly two- thirds are identified as “ family households” and about half of the

“ family households” include children under 18 years of age. The median age in the County for both sexes is 36.8 years and

increasing.

The County consistently ranks in the top five of California counties in terms of highest per capita personal income and lowest

percentage of persons below poverty level. The County is one of the safest urban/ suburban counties in California, an

indicator of the area’s relative economic prosperity.

Employment Trends

The County’s unemployment rate averaged 5.16% for FY 2002- 03, up from the 4% average for FY 2001- 02. This compares

with an unadjusted unemployment rate of 6.3% for California and 5.8% for the nation. Layoffs have dominated the headlines

reflecting the rise in unemployment. Statistics released by the State’s Employment Development Department show that,

between June 2002 and June 2003, approximately 22,900 jobs were lost in the West Bay region ( San Mateo, San Francisco

and Marin counties). San Mateo County lost approximately 9,160 jobs which represents close to 40% of the losses of this

West Bay region. The services sector provides a third of all jobs in the County. Of the 22,900 jobs lost, 9,000 were

professional and business services including 3,200 from information services and 2,800 from the leisure and hospitality

sector ( many lost at San Francisco International Airport).

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The Travel Industry

In calendar year 2000 San Francisco International Airport ( SFO), which is located in the County, was ranked the 5th largest

airport in the nation for passenger travel. In just two years, SFO has dropped to the 11th largest airport for passenger travel.

Preliminary statistics show that passenger traffic continued to decline in FY 2002- 03. This downward trend reflects the

events of 9/ 11, the war with Iraq, the depressed Bay Area economy and the impact of SARS on Pan Pacific Travel.

Traditionally, the County has had an abundance of jobs and tax revenue generated by the hospitality, transportation and

service industry sectors. However, in FY 2002- 03, hotel occupancy rates averaged 56.3% while room rates averaged $ 118

for the County’s 15,000 hotel rooms. Garage and parking lot use fell 14.3%. United Airlines ( the County’s largest employer)

cut 25% of its flights, laid off employees and filed for protection under Chapter 11 of the Federal Bankruptcy Act. Other

carriers have also downsized. The one bright spot was the 8.1% increase in the total cargo and mail traffic.

Commercial and Residential Real Estate Trends

The County has 34,347,131 square feet ( s. f.) of net rentable office space. For the past two years, the demand for office space

has decreased while the supply of new office space has increased. The result is a very competitive commercial real estate

market. Class A office space is being offered at $ 2.25/ s. f. and the office vacancy rate is nearly 25%. This contrasts with the

average asking rate of $ 6-$ 12/ s. f. just two years ago. The current market conditions have halted all commercial development

projects. The completion of 500 Forbes building project for Cell Genesys in South San Francisco emptied the pipeline of all

planned industrial construction while the completion of Kaiser Permanente Health System’s new office project in Daly City

and Visa’s new office building in Foster City signaled the end of all planned office space development. After ten quarters of

decline, the key indicators of vacancy, availability, net absorption and lease rates all indicate that the market is stabilizing.

This is the first step toward recovery, however, an economic turnaround is not expected in the near future.

Despite the depressed local economy, residential property values remained among the highest in the nation. While the

slowing economy has created a slight measure of housing relief, demand has far outpaced supply for several years. This gap

combined with the lowest mortgage interest rates in 45 years and a soft stock market kept the residential real estate market

very active. At the close of FY 2002- 03, the median price for a single family home was $ 644,000 representing a 3.87%

increase over the prior year. The median price for a townhouse was $ 395,000, which was slightly higher than the prior year.

Home sellers received an average of nearly 98% of the listed price. The number of residential properties on the market

increased by 25% compared to last fiscal year. Home ownership remains out of reach for many service employees, teachers,

public safety employees and tradespeople. The average rent for a 2- bedroom/ 2- bathroom apartment fell 6.9% to

$ 1,766/ month in FY 2002- 03 according to the Tri- County Apartment Association. Occupancy rates for rentals averaged 93%,

which is comparable with last year. The City/ County Association of Governments ( C/ CAG) has projected a housing deficit

of 15,600 units by the end of the decade. Housing remains a significant challenge for residents, employers and policymakers.

Major Infrastructure Improvement Projects

FY 2002- 03 heralded the completion of two major Bay Area transportation projects with a third on the way. Local leaders

have worked diligently to bring these projects to completion. Because many workers are forced to reside outside the County

due to the high cost of living and shortage of the housing, the freeways have been operating at maximum capacity handling

the combination of local traffic and out- of- county commuters. The completion of these projects will help alleviate

congestion, support the County’s economic vitality and improve the quality of life.

In June 2003, the Bay Area Rapid Transit District ( BART) opened four new stations in San Mateo County, the culmination of

a 16- year, voter approved project. The stations are located in South San Francisco, San Bruno, Millbrae, and inside the SFO

terminal. The Millbrae station ( across the freeway from SFO) was designed as an intermodal, cross- platform station linking

Caltrain ( commuter rail), rapid rail ( the coming “ Baby Bullet”), SamTRANS ( the County’s bus system) and BART. The

system will serve an estimated 70,000 new daily riders by 2010, eliminate 10,000 daily auto trips to SFO and relieve

congestion on the County’s main transportation corridor. Transportation leaders are working on a smart pass to allow transit

passengers to use any of the 29 Bay Area transit systems with a single card.

In October 2002, Caltrans, the State Highway Division of Transportation, completed a 3- lane bridge span adjacent to the San

Mateo/ Hayward Bridge. Each span now carries one- way traffic improving the capacity and the safety of this bottlenecked

nine- mile Peninsula and East Bay connector stretch.

The third major project is an upgrade of Caltrain, the three- county commuter railway system that runs between San Francisco

and Gilroy. Caltrain is adding and upgrading tracks to carry the “ Baby Bullet”, an express rail service from San Francisco to

San Jose. Service is expected to begin midyear 2004. Weekend service was discontinued in April 2002 to provide the

downtime necessary for this capital improvement. Ridership has also suffered in this economy. Officials hoped that it would

buoy with the completion of the BART/ SFO project, but now expect a lag period due to the economy.

iv

Measure A, the 1988 voter approved transportation initiative, established a 20 year ½ cent sales tax to fund local

transportation improvements including grade separations, freeway interchanges, transit projects, paratransit programs and

road improvements. Transportation leaders on the Board of Supervisors have publicly indicated their intent to lead an effort

in 2004 to reauthorize this tax, which is set to expire in 2008, to fund future congestion management projects.

Tax Revenue

County sales tax revenue fell slightly by $ 273,000 or 1.7% from $ 16,155,000 in FY2001- 02 to $ 15,882,000 in FY 2002- 03,

indicative of the stagnant local economy.

The total taxable assessed value of all property for FY 2002- 03 was $ 95,455,006,571, an increase of 5.9% or about $ 5.3

billion more than the previous year. This is reflected in the annual increase in property taxes levied of $ 61,640,000 in FY

2002- 03 over the prior year and an active real estate market.

The total taxable assessed value of the secured property ( real property) for FY 2002- 03 was $ 85,595,412,478, an increase of

10.7% or about $ 5.4 billion more than the previous year. This is primarily due to the active real estate market that was fueled

by rock bottom interest rates and an idling stock market.

The total taxable assessed value of the unsecured property ( personal property) for FY 2002- 03 was $ 9,859,594,093, a

decrease of 0.78% or about $ 77 million less than the previous year. The decrease was primarily due to a decline in airport

travel as a major portion of the unsecured roll is derived from the airline and car rental fleets that have been diminished or

relocated to areas where property taxes are lower.

The impacts of 9/ 11 on property tax are still unfolding. Most of the airlines operating out of San Francisco, as well as a

number of other airport- based concessionaires, filed calamity reassessment claims with the San Mateo County Assessor.

These claims were denied because, as provided by statute, the claimants did not suffer physical damage to their property

located in San Mateo County. The California State Board of Equalization ( SBE) subsequently adopted a new property tax

rule, which would, in some cases, afford property tax relief to taxpayers that claim economic losses even in the absence of

physical damage to their property. California Assessors have challenged this property tax rule as unconstitutional and this

action is in progress. Assessment appeals of the FY 2002- 03 assessments are still outstanding. Activity at SFO is still

declining and has resulted in lower assessed values at the airport. The FY 2003- 04 assessed values are 3.75% lower than

those enrolled in FY 2002- 03.

Transient Occupancy Taxes ( TOT), after dropping precipitously in FY 2001- 02, continued to decline. A total of $ 589,900

was earned in FY 2002- 03 as compared to $ 665,800 in FY 2001- 02 when travel plummeted after 9/ 11. This is consistent

with the decline in airport passenger travel and hotel occupancy rates. The County used to receive a million dollars a year in

TOT from a deluxe airport property hotel that was torn down in the airport renovation project. Plans to replace this property

have been postponed indefinitely.

Proposition 172 Sales Tax, the Public Safety Fund, yielded $ 64,180,000 in FY 2002- 03 as compared to $ 67,547,000 in FY

2001- 02. These funds, based on a statewide formula, are restricted to public safety purposes and are allocated to Cities, the

Sheriff, District Attorney, Probation, Coroner, County Fire and Public Safety Communications Dispatching.

Proposition 10, a ballot initiative known as Children and Families First, increased tobacco taxes to fund early childhood ( ages

0- 5) development programs. First 5 San Mateo County ( formerly known as Children and Families First) received $ 9,759,000

in FY 2002- 03, a decrease of approximately 2.6% or $ 261,000 less than the prior year. Another tobacco- related source of

revenue, the tobacco lawsuit settlement, brought in $ 8,638,000, an increase of $ 384,000 or 4.7% over the prior year’s

$ 8,254,000. Tobacco settlement money is used for County Health Services.

MAJOR INITIATIVES AND SERVICE EFFORTS AND ACCOMPLISHMENTS

Health Services and the San Mateo Medical Center

The County operates a full service hospital. In 1994, the Board of Supervisors approved the construction of a new facility.

The final phase of the construction of the San Mateo Medical Center ( SMMC) was completed this year. SMMC is a state of

the art, integrated health center combining a full service hospital, mental health services, pharmacy operations, a

rehabilitation center and an administration building. The new SMMC has increased the capacity to serve the medically

indigent and insured residents. The project cost $ 125 million and was financed with lease revenue bonds.

Health care costs have continued to spiral. The County General Fund subsidy to the SMMC for FY 2002- 03 was $ 39

million.

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In April 2003, the State Department of Social Services ( SDSS) approved a three- year administrative waiver to permit Mental

Health to operate the Canyon Oaks Youth Residential Treatment Facility. This is the only such waiver for a county

residential treatment program in California. Mental Health also received approval for a residential reimbursement rate and an

operating license from SDSS. The program is expected to open in August 2004. It will serve 12 seriously emotional

disturbed youth. Priority will be granted for local youths being served in out- of- county- residential treatment facilities.

In October 2003, the County assumed control of the Burlingame Healthcare Center, a 281- bed skilled nursing facility that

had been in State receivership since November 2002 due to the bankruptcy of its previous operator. The current census is

approximately 140 patients. Given the County’s aging demographics, this facility will help address a growing unmet need.

During FY 2002- 03, health insurance was provided to approximately 30,000 children in San Mateo County. The Health

Services Agency in partnership with the Human Services Agency has aggressively enrolled children in medical insurance

programs including Medi- Cal, Healthy Families and the new Healthy Kids program. This year, the Board allocated $ 1.5

million for the Healthy Kids Program that has a total budget of $ 4.5 million. As of mid- May 2003, 2,231 children had been

enrolled in Healthy Kids, 35% of those estimated to be eligible for the program. Approximately 95% of the enrolled children

are from families with incomes below 250% of the federal poverty level; nearly all are undocumented and therefore do not

qualify for MediCal or Healthy Families.

Human Services. Between 1998 and 2002, the County had a steadily declining rate of families on public assistance

compared to California as a whole. During this period, the County's public assistance, or CalWORKs, rate decreased at 1.9

times the rate of the state. The total number of CalWORKs participants in the County decreased by 68.9% ( statewide, the

number of recipients decreased 35.5%) and the total number of Food Stamps recipients in the County decreased by 22.5%

from 7,115 to 5,515 ( statewide, the number of recipients decreased 27.3%). The County has increased the proportion of

CalWORKs recipients under age 18 from 76.9% of all recipients in 1998 to 82.9% in 2002. Statewide in 2002, only 77.7% of

CalWORKs recipients were under age 18.

The Office of Housing secured additional Section 8 housing vouchers, linking families on cash aid with affordable housing

for the innovative Moving- to- Work program. This program helps low- income families move from public assistance to

economic self- sufficiency. Between 1999 and 2002, the County's Moving- to- Work caseload increased 68.8% from 349 to

589; statewide, the Moving- to- Work caseload decreased 21.2%. While these statistics are impressive, the current economic

slump has created an additional demand for services. The success rates deteriorated somewhat and the costs for providing

services escalated. Because the statistics are reported on a calendar year basis, the impacts reported in FY 2002- 03 are

diluted by the averages of prior year successes and a stronger local economic base.

Due to the downturn that began in 2001, the Human Services Agency, along with collaborative partners, secured additional

funding to expand employment and training services. These services are provided through PeninsulaWorks, the County’s

one- stop employment centers, to help dislocated workers, particularly those severely affected in the airline, travel, and hotel

industries. Additional funding allowed for the opening of a temporary employment center near the San Francisco

International Airport, temporary emergency cash assistance, and training for new careers.

The Human Services Agency’s expenditures increased 2.8% from FY2001- 02 to FY2002- 03. This growth reflects increased

labor costs, growth in funding for substance abuse treatment for clients in the criminal justice system, increased placement

costs for Foster Care, and caseload growth in CalWORKs and General Assistance programs. These increases were offset in

part by lower expenditures for housing projects, childcare and facilities and automation infrastructure upgrades compared to

the previous fiscal year.

Child Support Services. In FY 2002- 03, the San Mateo County Department of Child Support Services processed 14,768

child support cases and collected $ 30.4 million on behalf of approximately 22,000 dependents. The percent of dollars of

current support collected is 56.4%. The County is the 8th ranked county in the state for collections. Among those counties

with caseloads over 2,500, the County is ranked 3rd in the state for collections. Child Support Service departments collect

arrearages until the debt is paid in full, which can take a number of years in some cases. San Mateo County is ranked 2nd in

the state with its 67% rate of collection on arrearages.

Public Safety

Crime Suppression. According to the FBI Index, San Mateo County reported 2.7 crimes per capita as compared to the Bay

Area counties average of 3.7 crimes per capita and the state’s average of 4 crimes per capita. It ranks as the third safest Bay

Area County, only slightly behind Napa and Marin. Crimes included in the FBI index are criminal homicide, forcible rape,

robbery, assault, burglary, larceny, theft, arson and motor vehicle theft. The most current available statistics reflect the

calendar year 2001.

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Sheriff’s Forensic Laboratory. A 30,000 square feet state- of- the- art Forensic Lab opened in January 2003. The total

project cost is $ 17 million with an annual debt service anticipated to be $ 730,000. The Sheriff’s budget covered the design

fees, geotechnical and environmental consulting fees, and administrative costs. The facility has been designed with a half-acre

of photovoltaic energy panels to reduce energy consumption costs. The Coroner’s Office is now headquartered in this

facility. It is the only full service forensic laboratory in the County able to analyze evidence including fingerprints, firearms

and bullet/ casings, gun shot residues, trace comparisons for hair, fiber, fabric, rope, tape, tires, shoes, glass, forensic biology

analyses for sperm, blood, enzyme and DNA, toxicology testing for drugs and alcohol, as well as document analysis for

handwriting, ink and paper. Forensic scientists also provide crime scene investigations.

Probation- Youth Center. The County has begun the planning for a new $ 125 million Youth Center. It is a collaborative

project expected to meet the needs of juveniles and their families who are involved with our criminal justice and/ or social

services systems. The Center will replace the inadequate, 55- year old Hillcrest Juvenile Hall. As planned, the Center will

have 180 secure beds, a 30- bed girls camp and a 24- bed group home complex. The project includes the construction of the

new Juvenile Hall, Girls Ranch, Receiving Home, Probation Administrative Office, Juvenile Probation and Juvenile Courts.

The County intends to construct the project with the sale of lease revenue bonds. The County did receive a state-administered

federal juvenile justice grant of $ 21 million to fund a portion of the Juvenile Hall component.

Emergency Services Council Joint Powers Authority and the County Radio Project. The Mutual Aid/ Emergency

Services Council ( ESC) $ 25.6 million upgrade of the County Radio System was completed in January 2003. It was partially

financed with $ 16.5 million of bond proceeds. This countywide mutual aid and tactical communications project converted

the County’s aging analog system to a digital and microwave system. The Sheriff’s Radio System upgrade project will

bundle a number of radio frequencies in a “ pipeline” allowing multiple conversations between agencies and units to take

place simultaneously. This will improve the efficiency and effectiveness of all of the emergency response agencies in the

County. Project completion is anticipated in January 2004. Funding sources include bond proceeds, State and federal funds,

public safety sales tax revenue, charges to user agencies and the County's General Fund.

Public Works

Recycling. The County has stepped up its efforts to promote recycling within government as well as countywide.

RecycleWorks, the County’s recycling and composting program by presenting a “ green” lecture series, operates a

comprehensive website, www. recycleworks. org, as well as a hotline and numerous outreach and public education programs

to encourage residents to recycle, reuse, and otherwise practice “ green” strategies in their daily lives. The County’s internal

efforts at recycling have been impressive. Mixed paper recycling in County facilities topped 100 tons this year and a program

to recycle bottles and cans has begun.

Facilities & Infrastructure Improvements. Using the County’s Facilities Assessment Program developed in 2001 which

identified and quantified physical deficiencies in 74 facilities and made recommendations to address the deficiencies, the

Department prioritized the next stage of the seismic retrofit project for the Hall of Justice & Records, the ADA compliance

renovation projects, and the upgrading of various Heating/ Ventilation/ Air Conditioning ( HVAC) systems for energy

conservation projects.

A Computerized Maintenance Management System to provide information to better manage as well as schedule routine and

preventive maintenance activities for County facilities was acquired this fiscal year. System implementation began in July

2003. Initial use of the system will be to support the Road, Facility, and Wastewater programs. Future use will cover other

programs including Street Lighting and Flood Control programs. The system will help the Department improve operations,

control costs and be more responsive to customers.

Energy Conservation. Through a number of innovative programs, the County has managed to significantly reduce the

consumption of both electricity and gas in County facilities. Since 2001, over 25,000 new energy efficient lamps and ballast

have been installed in County facilities. Both the 555 County Center and the new Forensic Lab were designed for efficient

energy usage. The County received the Environmental Protection Agency’s Energy Star Award for the 555 County Center

and the new San Mateo County Forensic Lab was named to the 2003 " Top 10 Green projects" list by the American Institute

of Architects ( AIA).

Information Services. In 2003, the San Mateo County’s Information Services Department completed the e- Government

project. The primary goal of this project was to provide County services over the web and to provide an additional means of

communication with residents. To ensure website availability and quick website response times, a new technology

infrastructure has been installed. San Mateo County’s e- Government environment uses new technology software systems

that allow individual departments to update their web pages. This decentralized approach will keep San Mateo County’s web

content current. San Mateo County’s e- Government model was developed using the latest “ common terminology based

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navigation”. The use of common terminology based navigation means that all visitors to San Mateo County’s web site are

able to locate the information they are searching for regardless of web experience. This new navigation architecture was

developed by San Mateo County’s Information Services Department in collaboration with Nevada County, the State

Libraries, and the State Department of General Services. This navigation architecture has been recognized by California

State Association of Counties ( CSAC) and has since been used by numerous other counties.

Environmental Services

In 2001, the County acquired the eastern parcel of the Mirada Surf property, which included an option to buy the western

parcel for $ 3 million provided the transaction was completed by July 30, 2003. This year the San Mateo County Parks

Foundation secured a $ 1.5 million State Coastal Conservancy grant along with Proposition 12 funding ( a Land and Water

Conservation Fund grant) and private fundraising to exercise this option. This 60- acre coastal property will be dedicated to

open space and habitat conservation, public access and outdoor recreation forevermore.

Legal Issues and Liabilities

On October 14, 2003, the California Supreme Court announced that it would not accept any appeals of the Ventura II

decision. This ruling granted the Ventura decision the force of law. The Ventura decision, in which the State Supreme Court

broadened the definition of “ compensation earnable” to include a few pay items SamCERA had not previously included,

must be applied retroactively. All current retiree benefits must be recalculated if any of those new pay items were excluded

from the calculation of their benefits. “ Terminal Pay” is excluded from “ compensation earnable.” The Retirement Board has

the authority to collect member contributions retroactively from all current and retired members on all new “ compensation

earnable” added by Ventura. SamCERA’s actuary estimated that the decision would increase pension benefits by $ 16.2

million as of 6/ 30/ 2002 plus attorney fees. The increased pension benefits will be paid through the Ventura contingency

reserve fund of $ 32.1 million.

FINANCIAL INFORMATION

The Board of Supervisors, County Manager, and departments have been proactive in their response to the downturn in the

economy and the State budget crisis. The Countywide hiring freeze first placed on all vacant positions in mid- November

2001 continues. Departments were directed to produce budgets reflecting reductions of 8% and up to 20% of their Net

County Cost. In the June budget hearings, the Board eliminated 89 permanent positions through the budget process. The

County’s takeover of the Burlingame Health Center resulted in an increase of 270 positions and another 20 positions were

added for the Human Services Medi- Cal TeleCenter for an overall increase of 201 positions. Employee and Public Services

was successful at placing most of the employees who occupied positions that were eliminated. The Board of Supervisors

approved the Recommended FY 2003- 04 and FY 2004- 2005 budgets in June, with the understanding that interim steps might

be necessary once the State budget was adopted or the State budget situation worsened.

The County’s Reserves Policy established minimum requirements for Departmental Reserves ( 2% of Net Appropriations,

excepting Service Departments), General Fund Appropriation for Contingencies, Reserves for Countywide Capital

Improvements, Reserves for Automation Projects, and guidelines for the use of these funds. The policy has helped the

County maintain fiscal stability and continue the provision of critical programs and services in this period of economic

uncertainty. The State’s efforts to deal with the negative $ 50 billion dollar budget swing have just begun. The County will

maintain its fiscally conservative approach in anticipation of future negative fiscal impacts from the State’s deficit.

All of the County’s three- year labor contracts expired in FY 2002- 03. Contract negotiations led by the Employee and Public

Services Department produced four- year agreements with the major labor unions and increases of four percent in FY 2002-

03, three percent in FY 2003- 04 and FY 2004- 05, and four percent in FY 2005- 06. Substantial improvements to the

retirement packages were also approved. The four- year contracts provide the County with stability in labor costs and help

with longer term planning.

The primary fiscal agents for the County— the Board of Supervisors, County Manager, Controller, Assessor and Treasurer

have made public access to financial information a priority. The County’s budget, Comprehensive Annual Financial Report

( CAFR) and Popular Annual Financial Report ( PAFR) are all available on the County website, www. co. sanmateo. ca. us.

Residents can look up the assessed value of their property or pay their property taxes online. Board meetings ( including

budget hearings) air on Peninsula TV, a local access cable channel operated by a consortium of public agencies.

County management is responsible for establishing and maintaining a comprehensive internal control framework designed to

ensure that the assets of the County are protected from loss, theft or misuse, and that accounting data are compiled to allow

for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control

framework is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of

reasonable assurance recognizes that: ( 1) the cost of a control should not exceed the likely benefits and ( 2) the evaluation of

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costs and benefits requires estimates and judgments by management. All internal control evaluations occur within the above

framework. We believe that the County's internal accounting controls adequately safeguard assets and provide reasonable

assurance of proper recording of financial transactions.

Budgetary Controls

The County maintains budgetary controls with the objective of ensuring compliance with legal provisions embodied in the

annual appropriated budget approved by the County’s Board of Supervisors. Activities of the General Fund, certain special

revenue, certain debt service and capital projects funds are included in the annual appropriated budget. The legal level of

budgetary control ( that is, the level at which expenditures cannot legally exceed the appropriated amounts) is maintained at

the object level ( i. e., Salaries & Benefits, Services & Supplies) for all budget units within the County. Any amendments or

transfers of appropriations between object levels or between budget units within any department or fund must be authorized

by the County Manager’s office and approved by the Board of Supervisors. The Board of Supervisors must approve

supplemental appropriations normally financed by unanticipated revenues during the year. Pursuant to Board Resolution, the

County Manager is authorized to approve transfers and revision of appropriations under $ 50,000 within a single budget unit

as deemed necessary and appropriate. Any appropriations remaining in the department at the end of the fiscal year

automatically lapse and are transferred to fund balance. The year- end fund balance, along with projected revenues, becomes

available for appropriation the following year. An encumbrance accounting system is used to facilitate effective budgetary

control. An encumbrance reserves a portion of an appropriation at the time a commitment is made to acquire goods or

services. Open encumbrances are reported as reservations of fund balances at fiscal year- end and are re- appropriated as part

of the following year’s budget.

Debt Administration

The County has capital lease obligations under lease/ purchase agreements for various County buildings and other properties.

Recent lease/ purchase agreements have been made with the JPFA, a joint exercise of powers agency organized in May 1993

( composed of the County of San Mateo and the Community Development Commission for the County of San Mateo) to

assist the County in the financing of public capital improvements. Total outstanding obligations in the form of lease revenue

bonds ( backed by a pledge of revenues consisting of base rental payments payable by the County under the lease/ purchase

agreements) at June 30, 2003 were $ 292,189,000.

Cash Management

The County sponsors an investment pool that is managed by the County Treasurer for the purpose of earning interest through

investments. Cash and investments for most County activities are included in the investment pool. Cash and investments

managed separately from the investment pool include those of the SamCERA and JPFA. The investment pool also includes

both voluntary and involuntary participation from entities external to the County reporting entity. State of California statutes

require certain government entities and special districts to maintain their surplus cash with the County Treasurer.

California Government Code statutes and the County’s investment policy govern the County’s investment pool activity. The

County’s investment policy has the following objectives: safety, liquidity, yield and public trust. Those statutes and policy

authorize the County Treasurer to invest in securities issued by the U. S. Government Treasury and its Agencies, certain

corporate bonds and notes, bankers’ acceptances, certificates of deposit, commercial paper, repurchase agreements, and the

State of California Local Agency Investment Fund ( LAIF) and securities lending transactions. A Treasury Oversight

Committee monitors and reviews the management of public funds maintained in the investment pool. The County pool

investments returned an average gross yield of 3.65% during the fiscal year ended June 30, 2003. This compares with the

average yield of 4.02% earned during the previous fiscal year.

Pension Trust Fund Operations

The County participates in and contributes to a defined benefit pension plan that provides retirement, disability, and death

benefits for substantially all employees of the County. Contributions are made to SamCERA, which is reported as a Pension

Trust Fund in the County’s financial statements.

The SamCERA Pension Trust Fund is governed by the Board of Retirement, and investments are managed by investment

management advisory firms. The investment policy of the Board of Retirement is to pursue an investment strategy which ( 1)

reduces risk through the prudent diversification of the portfolio across a broad selection of distinct asset classes and ( 2)

adopts an asset allocation plan to guide the structure of the investment portfolio. The investment objective of the Board of

Retirement, among others, is to generate portfolio returns that, over the long- term, exceed the rate of inflation by not less than

3.25% by generating market returns within each asset class.

SamCERA’s latest asset allocation plan ( as revised April 2000) specified an asset allocation target of 65% equities, 29%

fixed income securities and 6% real estate. At June 30, 2003, actual asset allocation was 65% equities, 29% fixed income

securities and 6% real estate. For FY2002- 03, SamCERA’s total plan return was 3.86% compared to a negative 3.3% for the

ix

previous fiscal year. The positive total plan return may be attributed to SamCERA’s fixed income and real estate portfolios,

which provided positive returns throughout the fiscal year. The equity portfolio had another challenging year, but benefited

from a strong market rally in the fourth quarter of the fiscal year.

Major changes occurred in June 2002 as the estimated aggregate County contribution rate increased from approximately

11.7% to approximately 18.7% for the new fiscal year. 64% of this increase is attributable to the granting of new retirement

benefits to County employees in nine contributory pension plans, 19% is attributable to three- years of declining investment

markets, and 17% is attributable to actuarial assumption changes such as improved life expectancy. The cumulative impact

of these three factors caused the Funding Ratio of Actuarial Assets to Accrued Actuarial Liabilities to decline from 98.6% to

85.3% and caused the Unfunded Actuarial Accrued Liability ( UAAL) to increase from $ 19.5 million to $ 243.7 million. The

Board of Retirement adopted a new twenty- year schedule for the amortization of the UAAL, with full funding slated for June

30, 2022. As of June 30, 2003, the funding ratio of actuarial assets to accrued actuarial liabilities declined further to 76% and

the UAAL increased further to $ 427.6 million due to the continued effects of the above factors.

A Comprehensive Annual Financial Report is available from SamCERA at 100 Marine Parkway, Suite 125, Redwood

Shores, California 94065 or via www. samcera. org.

Risk Management

The County maintains a comprehensive risk management program administered by a full- time professional risk manager and

staff. The County is self- insured for property damage, general liability, workers’ compensation, automobile liability, vision,

dental and long- term disability insurance. Commercial insurance companies provide excess insurance coverage for property

damage, earthquake, flood damage, general liability, workers’ compensation, automobile liability and medical malpractice

claims.

The County currently reports its risk management activities in its Workers’ Compensation Insurance, Long- Term Disability,

and Personal Injury and Property Damage Trust Funds ( Internal Service Funds). A separate Employee Benefits Trust Fund is

maintained to cover self- insured employee benefits programs.

The County’s Risk Management office administers claims for the various programs, provides loss prevention services, and

minimizes risks through various risk control strategies. County management believes that assets of the self- insurance funds

together with the commercial insurance companies’ coverage will be adequate to meet insurance claims as they come due.

In accordance with the California Government Code Section 24156, the County maintains a Program of Self- Insurance in lieu

of official bonds for certain elective County officers ( Assessor- County Clerk- Recorder, Coroner, District Attorney, Sheriff

and Members of the Board of Supervisors) and a blanket bond of $ 1.5 million each for the Treasurer- Tax Collector and the

Controller.

OTHER INFORMATION

Independent Audit

The Charter of the County ( Article VI Section 603) provides that the Board of Supervisors shall have an annual audit made

by a certified public accountant and the auditor shall report on the County’s financial transactions and records and the

effectiveness of internal controls. The Board of Supervisors in consultation with the Grand Jury selected the firm of Macias,

Gini & Company LLP to perform the FY 2002- 03 audit. In addition to meeting the requirements set forth in State statutes,

the audit was also designed to meet the requirements of ( 1) the Federal Single Audit Amendments of 1996, ( 2) the related

U. S. Office of Management and Budget's Circular A- 133, ( 3) auditing standards generally accepted in the United States of

America, and ( 4) the standards set forth in the General Accounting Office's Government Auditing Standards as used by the

auditors in conducting the engagement. The independent auditor’s report on the basic financial statements as well as

combining and individual fund statements and schedules is included in the financial section of this report. The auditor’s

reports on internal controls and compliance with applicable laws, regulations, contracts and grant agreements can be found in

a separately issued single audit report.

Certificate of Achievement

The Government Finance Officers Association of the United States and Canada ( GFOA) awarded a Certificate of

Achievement for Excellence in Financial Reporting to the County for its comprehensive annual financial report for the fiscal

year ended June 30, 2002. In order to be awarded a Certificate of Achievement, a government must publish an easily readable

and efficiently organized comprehensive annual financial report. This report must satisfy both accounting principles generally

accepted in the United States and applicable legal requirements.

x

A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual

financial report continues to meet the Certificate of Achievement Program's requirements and we are submitting it to the

GFOA to determine its eligibility for another certificate.

Acknowledgments

I wish to extend a special thanks to all the departments and agencies that contributed financial information to this report. It is

my goal to publish financial information on a schedule that is more helpful to policy leaders and County managers. Without

the cooperation of these professionals it would not be possible. I also wish to express my appreciation to the staff of the

Controller’s Office, especially Bob Adler, Lorna Uy, Tat- Ling Chow, Carol Marks, Susan Tumang, Irene Levintov, Rene

Orbeta, Celia Bautista, Alana Pijuan- Tugadi and Jacqueline Chen- Lee whose hard work, professionalism and dedication are

responsible for the preparation of this report. I wish to also thank the Grand Jury Auditors, Macias, Gini & Company LLP,

and specifically Kevin O'Connell, Cynthia Pon, Linda Hurley, Kendra Gorrie, Annie Louie and Guian DelaCueva, for their

extra efforts and assistance. Most importantly, I would like to thank the Board of Supervisors, the County Manager’s Office

and all County departments for their continued efforts in planning and conducting the County’s financial operations in a

responsible and progressive manner.

Respectfully submitted,

Tom Huening, CPA

Controller

SAN MATEO COUNTY VOTERS

Board of Supervisors

Rose Jacobs Gibson,

Mark Church, Jerry Hill,

Richard S. Gordon,

Michael D. Nevin

County Manager/

Clerk of the Board

John L. Maltbie

County Counsel

Thomas F. Casey III

Environmental

Services

Marcia Raines

Public Works

Neil Cullen

Employee and

Public Services

Mary Welch

Health Services

Margaret Taylor

Human Services

Maureen Borland

Information

Services

Luther Perry

Private Defender

Bar Association

Assessor- County

Clerk- Recorder

Warren Slocum

Controller

Tom Huening

Coroner

Robert Foucrault

District Attorney/

Public

Administrator

James Fox

Sheriff/ Office of

Emergency Svcs

Don Horsley

Treasurer- Tax

Collector

Lee Buffington

Probation

( appointed by

Judiciary)

Loren Buddress

Superior Court

( appointed by

Judiciary)

Peggy Thompson

Agricultural

Commissioner/

Sealer

Animal Control

UC Cooperative

Extension

Fire Protection

LAFCo

Library

Parks and

Recreation

Planning and

Building

Administrative

Services and

Airports

Engineering and

Resource

Protection

Facility Services

Road Services

Human Resources

Public Safety

Communications

Purchasing/

Copy Center/

Mail Services

Revenue Services

Aging and Adult

Services

Food and

Nutrition

Services

Emergency

Medical

Services

Mental Health

Public Health

Correctional

Health

Northern Region

Central Region

Southern

Region

Program

Support

Business

Systems

Communication

Services

Health

Applications

Production

Services

San Mateo Medical

Center

Nancy Steiger

Quality/

Performance

Improvement

Patient Care

Services

Ancillary and

Support Services

Ambulatory and

Medical Staff

Services

Financial and

Compliance

Services

Administrative

Services

Child Support

Services

Peggy Jensen

xiii

COUNTY OF SAN MATEO PUBLIC OFFICIALS

ELECTED OFFICIALS June 30, 2003

Supervisor, District 4 Rose Jacobs Gibson, President

Supervisor, District 1 Mark Church

Supervisor, District 2 Jerry Hill

Supervisor, District 3 Richard S. Gordon

Supervisor, District 5 Michael D. Nevin

Assessor/ Clerk/ Recorder Warren Slocum

Controller Tom Huening

Coroner Robert Foucrault

District Attorney/ Public Administration James Fox

Sheriff/ Office of Emergency Services Don Horsley

Treasurer/ Tax Collector Lee Buffington

APPOINTED OFFICIALS

County Manager John L. Maltbie

County Counsel Thomas F. Casey III

County Probation Officer ( appointed by the Judiciary) Loren Buddress

Court Executive Officer/ Jury Commissioner Peggy Thompson

Private Defender ( appointed by the Bar Association) John Digiancinto

Release on Own Recognizance ( appointed by the Bar Association) Skip Duranczyk

Employee & Public Services Director Mary Welch

Environmental Services Director Marcia Raines

Health Services Director Margaret Taylor

San Mateo Medical Center Director Nancy Steiger

Human Services Director Maureen Borland

Information Services Director Luther Perry

Public Works Director Neil Cullen

Child Support Services Director Peggy Jensen

AFFILIATED ORGANIZATIONS

Administrator, San Mateo County Employees’ Retirement Association Sid McCausland

Manager, Housing Authority of San Mateo County Frank Salmeron

( as of June 30, 2003)

( This Page Intentionally Left Blank)

FINANCIAL SECTION

􀂃 Independent Auditor’s Report

􀂃 Management’s Discussion and Analysis

􀂃 Basic Financial Statements

􀂃 Required Supplementary Information

􀂃 Combining and Individual Fund

Statements and Schedules

( This Page Intentionally Left Blank)

Management’s Discussion and Analysis

( This Page Intentionally Left Blank)

COUNTY OF SAN MATEO

Management’s Discussion and Analysis

Required Supplementary Information

3

This section of the County of San Mateo’s ( County’s) comprehensive annual financial report presents our discussion and

analysis of the County’s financial performance during the fiscal year ended June 30, 2003. Please read it in conjunction with

the transmittal letter at the front of this report and the County’s basic financial statements following this section. All dollar

amounts are expressed in thousands unless otherwise indicated.

FINANCIAL HIGHLIGHTS

􀂃 The assets of the County exceeded its liabilities at the close of the 2002- 2003 fiscal year by $ 612,499 ( net assets). Of

this amount, $ 204,671 ( unrestricted net assets) may be used to meet the County’s ongoing obligations to citizens and

creditors, $ 87,257 is restricted for specific purpose ( restricted net assets), and $ 320,571 is invested in capital assets, net

of related debt.

􀂃 The County’s total net assets increased by $ 29,878. Governmental activities increased the County’s net assets by

$ 20,789 and business- type activities by $ 9,089.

􀂃 As of June 30, 2003, the County’s governmental funds reported combined ending fund balances of $ 370,618, a decrease

of $ 4,107 in comparison with the prior year. Approximately 78% of this total amount, $ 289,686, are available to meet

the County’s current and future needs ( unreserved fund balance).

􀂃 At the end of the fiscal year, unreserved fund balance for the General Fund was $ 222,896, or 39% of total General Fund

expenditures.

􀂃 The County’s total long- term debt decreased by $ 6,100 in comparison with the prior year. The decrease resulted

primarily from the retirement of lease revenue bonds in an amount of $ 5,062.

OVERVIEW OF THE FINANCIAL STATEMENTS

This discussion and analysis is intended to serve as an introduction to the County’s basic financial statements. The County’s

basic financial statements comprise three components: 1) Government- wide financial statements, 2) Fund financial

statements, and 3) Notes to the basic financial statements. Required Supplementary Information is included in addition to the

basic financial statements.

Government- wide Financial Statements are designed to provide readers with a broad overview of the County’s finances, in

a manner similar to a private- sector business.

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

two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the

financial position of the County is improving or deteriorating.

The statement of activities presents information showing how the County’s net assets changed during the most recent fiscal

year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the

timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result

in cash flows in a future fiscal period ( e. g., uncollected taxes and earned but unused vacation leave).

Both of these government- wide financial statements distinguish functions of the County that are principally supported by

taxes and intergovernmental revenues ( governmental activities) from other functions that are intended to recover all or in part

a portion of their costs through user fees and charges ( business- type activities). The governmental activities of the County

include general government, public protection, public ways and facilities, health and sanitation, public assistance, education

and recreation. The business- type activities of the County include the San Mateo Medical Center ( SMMC) that incorporated

the Hospital and Community Clinics activities after the two merged operations in July 2002, Airports, Coyote Point Marina,

and Housing Authority operations.

Component units are included in our basic financial statements and consist of legally separate entities for which the County is

financially accountable and that have substantially the same board as the County or provide services entirely to the County.

Examples are: the San Mateo Joint Powers Financing Authority ( JPFA), San Mateo County Employees’ Retirement

Association ( SamCERA), San Mateo County Housing Authority, and In- Home Support Services ( IHSS) Public Authority.

First 5 San Mateo County ( First 5), formerly known as Children and Families First Commission, is reported as a discretely

presented component unit because First 5 has some financial accountability to the County Board.

The government- wide financial statements can be found on pages 15- 17 of this report.

COUNTY OF SAN MATEO

Management’s Discussion and Analysis ( Continued)

Required Supplementary Information

4

Fund Financial Statements are groupings of related accounts that are used to maintain control over resources that have been

segregated for specific activities or objectives. The County, like other state and local governments, uses fund accounting to

ensure and demonstrate compliance with finance- related legal requirements. All of the funds of the County can be divided

into three categories: governmental funds, proprietary funds, and fiduciary 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 the County’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 County’s

near- term financing decisions. Both the governmental funds balance sheet and the governmental funds statement of

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

governmental funds and governmental activities.

The County maintains 20 individual governmental funds. Information is presented separately in the governmental funds

balance sheet and in the governmental funds statement of revenues, expenditures, and changes in fund balances for the

General Fund and JPFA. Data from the other governmental funds are combined into a single, aggregated presentation.

Individual fund data for each of these nonmajor governmental funds are provided in the form of combining statements

elsewhere in this report.

The governmental fund financial statements can be found on pages 18- 21 of this report.

Proprietary funds are maintained in two ways. Enterprise funds are used to report the same functions presented as business-type

activities in the government- wide financial statements. The County uses enterprise funds to account for the SMMC,

Airport, Coyote Point Marina and Housing Authority operations. Internal service funds are used to accumulate and allocate

costs internally among the County’s various functions. The County uses internal service funds to account for its workers’

compensation insurance, long- term disability trust, employee benefits trust, personal injury and property damage, fleet

maintenance and Tower Road construction functions. 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 detail.

The SMMC and Housing Authority operations are considered to be major funds of the County. The County’s six internal

service funds are combined into a single, aggregated presentation in the proprietary fund financial statements. Individual

fund data for each of these nonmajor enterprise and internal service funds are provided in the form of combining statements

elsewhere in this report.

The proprietary fund financial statements can be found on pages 22- 25 of this report.

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 statements because the resources of those funds are not available to support

the County’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds.

The fiduciary fund financial statements can be found on pages 26- 27 of this report.

Notes to the Financial Statements provide additional information that is essential to a full understanding of the data

provided in the government- wide and fund financial statements.

The notes can be found on pages 28- 55 of this report.

Required Supplementary Information is presented concerning the County’s General Fund budgetary schedule,

infrastructure assets reported using the modified approach, and the SamCERA pension schedules. The County adopts an

annual appropriated budget for its General Fund. A budgetary comparison schedule has been provided for the General Fund

to demonstrate compliance with this budget. The SamCERA pension schedules have been provided to present SamCERA’s

progress in funding its obligation to provide pension benefits to County employees.

Required supplementary information can be found on pages 56- 67 of this report.

COUNTY OF SAN MATEO

Management’s Discussion and Analysis ( Continued)

Required Supplementary Information

5

Combining and individual fund statements and schedules referred to earlier provide information for nonmajor

governmental funds, nonmajor enterprise funds, internal service funds, and fiduciary funds and are presented immediately

following the required supplementary information.

Combining and individual fund statements and schedules can be found on pages 68- 114 of this report.

GOVERNMENT- WIDE FINANCIAL ANALYSIS

As noted earlier, net assets may over time serve as a useful indicator of the County’s financial position. County assets

exceeded liabilities by $ 612,499 at June 30, 2003.

County’s Net Assets

2003 2002 2003 2002 2003 2002 Variance (%)

Assets:

Current and other assets $ 5 78,699 $ 5 33,113 $ 1 8,094 $ 8 ,503 $ 5 96,793 $ 541,616 1 0.19

Capital assets 5 61,603 529,861 40,476 41,868 602,079 571,729 5.31

Total assets 1 ,140,302 1 ,062,974 5 8,570 5 0,371 1 ,198,872 1,113,345 7 .68

Liabilities:

Curent and other liabilities 1 53,050 103,212 15,370 17,858 168,420 121,070 39.11

Long- term liabilities 4 04,763 3 62,873 1 3,190 8 ,515 4 17,953 371,388 1 2.54

Total liabilities 5 57,813 4 66,085 2 8,560 2 6,373 5 86,373 492,458 1 9.07

Net assets:

Invested in capital assets,

net of related debt 2 81,735 2 64,251 3 8,836 3 8,721 3 20,571 302,972 5 .81

Restricted 8 4,038 73,545 3,219 2,638 87,257 76,183 14.54

Unrestricted 2 16,716 2 59,093 ( 12,045) ( 17,361) 2 04,671 241,732 ( 15.33)

Total net assets $ 5 82,489 $ 5 96,889 $ 3 0,010 $ 2 3,998 $ 6 12,499 $ 620,887 ( 1.35)

Activities Activities Total

Governmental Business- type

The changes in the County’s net assets are summarized as follows:

􀂃 The County’s total assets increased by $ 85,527 ( or 8%). The County received a $ 62,616 cash collateral through its

securities lending activity. This activity significantly increases the County’s assets this year.

􀂃 The County’s total liabilities increased by $ 93,915 or ( or 19%). Two major factors account for this increase:

− With the $ 62,616 cash collateral obtained through its securities lending activity, the County’s liability increased

correspondingly by the same amount.

− The long- term liabilities increased by $ 46,565. The increase is primarily due to the change in the method of

computing the compensated absences liability. In prior years, the County treated the retirees’ sick leave healthcare

conversion benefits on a pay- as- you- go- basis and did not include retirees in its compensated absences liability

computation. This year the County included the retirees’ sick leave healthcare conversion benefits in its calculation

of compensated absences liability.

The composition of the County’s net assets can be summarized as follows:

􀂃 A portion of the County’s net assets, 33%, is unrestricted net assets that may be used to meet the County’s ongoing

obligations to citizens and creditors.

􀂃 Another 52% of the County’s net assets reflect its investment in capital assets ( e. g., land, buildings and equipment), less

any related debt used to acquire those assets that is still outstanding. The County uses these capital assets to provide

services to citizens; consequently, these assets are not available for future spending. Although the County’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.

􀂃 The remaining portion of the County’s net assets, 15%, represents resources that are subject to external restrictions on

how they may be used.

COUNTY OF SAN MATEO

Management’s Discussion and Analysis ( Continued)

Required Supplementary Information

6

The County’s net assets have increased by $ 29,878 during the current fiscal year. This growth largely reflects rate increases

in operating and capital grants, and investment earnings.

Governmental activities. Governmental activities increased the County’s net assets by $ 20,789, thereby accounting for

70% of the total growth in the net assets of the County. Reclassifications were made to the 2002 revenues and expenses to

conform to the current year’s presentation.

County’s Change in Net Assets

2003 2002 2003 2002 2003 2002 Variance (%)

Revenues:

Program revenues:

Charges for services $ 108,204 $ 100,255 $ 72,148 $ 77,154 $ 180,352 $ 1 77,409 1.66

Operating grants and contributions 343,808 347,463 102,962 83,099 446,770 4 30,562 3.76

Capital grants and contributions 18 17 5,839 - 5 ,857 1 7 34352.94

General revenues:

Property taxes 141,582 139,879 - - 141,582 1 39,879 1.22

Other taxes 23,444 23,141 - - 23,444 2 3,141 1.31

Motor vehicle in- lieu taxes 49,785 46,295 - - 49,785 4 6,295 7.54

Unrestricted interest and

investment earnings 23,329 22,624 719 896 24,048 2 3,520 2.24

Security lending activities:

Securities lending income 588 - 31 - 6 19 - -

Securities lending expenses ( 525) - ( 27) - ( 552) - -

Miscellaneous 13,890 16,574 849 10,059 14,739 2 6,633 ( 44.66)

Total revenues 704,123 6 96,248 1 82,521 1 71,208 8 86,644 8 67,456 2.21

Expenses:

General government 60,667 64,940 - - 60,667 6 4,940 ( 6.58)

Public protection 224,777 210,969 - - 224,777 2 10,969 6.55

Public way and facilities 21,546 24,925 - - 21,546 2 4,925 ( 13.56)

Health and sanitation 152,449 151,538 - - 152,449 1 51,538 0.60

Public assistance 172,014 167,864 - - 172,014 1 67,864 2.47

Education 190 194 - - 1 90 1 94 ( 2.06)

Recreation 7,685 8,007 - - 7 ,685 8 ,007 ( 4.02)

Interest on long- term liabilities 14,603 14,677 - - 14,603 1 4,677 ( 0.50)

San Mateo Medical Center - - 131,243 142,399 131,243 1 42,399 ( 7.83)

Airports - - 1,744 1,525 1 ,744 1 ,525 14.36

Coyote Point Marina - - 1,153 1,027 1 ,153 1 ,027 12.27

Housing Authority - - 68,695 48,314 68,695 4 8,314 42.18

Total expenses 653,931 6 43,114 2 02,835 1 93,265 8 56,766 8 36,379 2.44

Change in net assets before

special items and transfers 50,192 5 3,134 ( 20,314) ( 22,057) 2 9,878 3 1,077 ( 3.86)

Special items - ( 1,598) - ( 11,445) - ( 13,043) ( 100.00)

Transfers ( 29,403) ( 12,225) 29,403 12,225 - - -

Change in net assets 20,789 3 9,311 9 ,089 ( 21,277) 2 9,878 1 8,034 65.68

Net assets - July 1, as restated 561,700 5 57,578 2 0,921 4 5,275 5 82,621 6 02,853 ( 3.36)

Net assets - June 30 $ 582,489 $ 5 96,889 $ 3 0,010 $ 2 3,998 $ 6 12,499 $ 6 20,887 ( 1.35)

Total

Governmental Business- type

Activities Activities

Expenses and Program Revenues – Governmental Activities

$ 60,667

$ 38,067

$ 224,777

$ 122,052

$ 21,546 $ 19,217

$ 152,449

$ 134,005

$ 172,014

$ 137,424

$ 190

$ 20

$ 7,685

$ 1,245

$ 0

$ 50,000

$ 100,000

$ 150,000

$ 200,000

$ 250,000

( In Thousands)

General

government

Public

protection

Public ways

and facilities

Health and

sanitation

Public

assistance

Education Recreation

expenses

program revenues

COUNTY OF SAN MATEO

Management’s Discussion and Analysis ( Continued)

Required Supplementary Information

7

Key elements of the increase/ decrease in revenues for governmental activities are as follows:

􀂃 Charges for services increased by $ 7,949 or 8%. The majority of this increase was caused by the following:

− Public Works performed a higher level of reimbursable work to other County departments and other governmental

agencies, resulting in revenue increase of $ 2,770.

− The recording fees and supplemental tax administrative fees increased by $ 1,304 during the current fiscal year. The

increase is attributed to rising home sales and supplemental assessment activity resulting from low mortgage interest

rates.

− A new contract to provide security services between the Sheriff’s Office and CalTrain and San Mateo County

Transit resulted in revenue increase of $ 863.

− Document recording fees increased by $ 475 due to an increase in construction and refinancing of homes in the

County.

− Other immaterial fluctuations account for the balance of the change.

􀂃 Property taxes increased by $ 1,703 or 1%. This increase was primarily due to increased home sales and higher

assessments.

􀂃 Motor vehicle in- lieu taxes increased by $ 3,490 or 8% in consequence of increased number of identification renewals for

off- highway vehicles.

􀂃 Unrestricted interest and investment earnings increased by $ 705 or 3%. This increase is mainly due to increases in

investment income because of higher interest earnings from the County’s investment pool.

􀂃 Miscellaneous revenues decreased by $ 2,684 or 16%. This decrease was mainly due to the following:

− The Youth and Families Services and Public Health Services realized a lesser amount of revenues, $ 1,043 and $ 448

respectively, from miscellaneous reimbursements this year.

− In FY 2001- 02, the Board authorized a one- time unemployment insurance premium refund of $ 1,500 to departments

eligible for receiving the excess contribution. Out of the $ 1,500, the General Fund departments received a total of

$ 1,066 refund. As a result, the insurance recoveries and refunds of this year were much lower, showing a net

decrease of $ 1,053.

Key elements of the increase/ decrease in expenses for governmental activities are as follows:

􀂃 General government expenses decreased by $ 4,273 or 7%. The majority of this decrease was caused by the following:

− Spending on the e- Government project that provides County services over the web decreased by $ 2,140. Higher

spending was incurred in the prior year as the project was still under development. The Information Services

Department completed the e- Government project in the current year.

− In FY 2001- 02, the County dissolved the East Palo Alto County Waterworks District ( EPACWD). The ownership

of the EPACWD was transferred to the cities of East Palo Alto and Menlo Park, and the fund balance of the

EPACWD was distributed between these two cities at a ratio of 90% and 10%, respectively. The transfer of fund

resources resulted in a $ 1,953 disbursement in the prior fiscal year.

− In the current fiscal year, the Election Office conducted only one major election versus two in the prior year. This

resulted in a $ 677 cost savings of services and supplies in the Election Office.

􀂃 Public protection expenses increased by $ 13,808 or 7%. Key factors accounting for this increase were as follows:

− Increase in salaries and benefits as negotiated for deputies and staff as well as actions taken to address security

concerns resulted in increased spending of $ 3,253 in the Sheriff’s Office.

− Negotiated increases in salaries and benefits plus inflationary increases in various services and supplies attributed to

increased spending of $ 3,129 in the Probation Department.

− Higher public safety services spending in various departments/ divisions, including fire protection, county district

attorney, county coroner, county corrections, planning and building, accounted for the remaining increases.

COUNTY OF SAN MATEO

Management’s Discussion and Analysis ( Continued)

Required Supplementary Information

8

􀂃 Public way and facilities expenses decreased by $ 3,379 or 14%. Elements contributed to this decrease were as follows:

− The majority of this decrease was caused by reduced activities for public ways and facilities in the Road Fund. The

overall reduced spending aggregated to $ 2,131 including $ 1,788 for reconstruction/ resurfacing and other repair work

on roads, $ 209 for professional and contractual service costs, $ 23 for equipment and facilities maintenance, and

$ 107 for various services and supplies outlay.

− Other immaterial decreases in other special revenue funds administrated by the Public Works Department accounted

for the balance of the change.

􀂃 Public assistance expenses increased by $ 4,150 or 2%. The majority of this increase was caused by higher costs for

foster care placement, general assistance, interim aid, CALWORKs, Welfare to Work training, and Proposition 36

substance abuse treatment.

For the most part, increases in expenses closely paralleled inflation and growth in the demand for services.

Revenues by Source - Governmental Activities

Other taxes

3%

Motor vehicle

in- lieu taxes

7%

Property taxes

20%

Operating

grants and

contributions

50%

Charges for

services

15%

Miscellaneous

2%

Unrestricted

interest &

investment

earnings

3%

Expenses by Function/ Program – Governmental Activities

Public

assistance

27%

General

government

9%

Recreation

1%

Health and

sanitation

24%

Public way and

facilities

3%

Public

protection

36%

COUNTY OF SAN MATEO

Management’s Discussion and Analysis ( Continued)

Required Supplementary Information

9

Key elements of the increases in transfers out for governmental activities are as follows:

During the current fiscal year, transfers out increased by $ 17,178 or 140%. On account of reduced funding from the federal

and State governments, the County’s General Fund provided an additional $ 14,119 subvention to the SMMC compared to the

prior fiscal year.

Business- type activities. Business- type activities increased the County’s net assets by $ 9,089. Key elements accounting for

the increases or decreases in revenues and expenses are as follows:

􀂃 San Mateo Medical Center. This year the SMMC’s expenses decreased by $ 11,156 ( or 8%). The reduction is a result of

a reorganization which reduced inter- agency revenues and expenses in the amount of $ 12,100.

􀂃 Housing Authority. In the current fiscal year, operating grants and contributions received by the Housing Authority

increased by $ 20,400 or 42%, primarily due to 100% of housing unit rented in the Section 8 Vouchers Program. The

housing assistance payments thus increased by $ 19,400 or 46%, and which is the major factor accounting for the $ 19,863

( or 24%) increase in the operating grants and contributions of the business- type activities.

Expenses and Program Revenues – Business- type Activities

$ 131,243

$ 108,379

$ 1,744 $ 1,771 $ 1,153 $ 1,123

$ 68,695 $ 69,676

$-

$ 20,000

$ 40,000

$ 60,000

$ 80,000

$ 100,000

$ 120,000

$ 140,000

( In Thousands)

San Mateo

Medical Center

Airports Coyote Point

Marina

Housing

Authority

expenses

program revenues

Revenues by Source – Business- type Activities

Operating grants

and contributions

57%

Charges for

services

40%

Capital grants and

contributions

3%

COUNTY OF SAN MATEO

Management’s Discussion and Analysis ( Continued)

Required Supplementary Information

10

FINANCIAL ANALYSIS OF THE COUNTY’S FUNDS

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

requirements.

Governmental funds. The general government functions are contained in the General, special sevenue, debt service, and

capital projects fund. Included in these funds are the special districts governed by the Board of Supervisors. The focus of the

County’s governmental funds is to provide information on near- term inflows, outflows, and balances of spendable resources.

Such information is useful in assessing the County’s financing requirements. In particular, unreserved fund balance may

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

As of June 30, 2003, the County’s governmental funds reported combined ending fund balances of $ 370,618, a decrease of

$ 4,107 in comparison with the prior year. Approximately 78% of this total amount or $ 289,686 constitute unreserved fund

balance, which is available to meet the County’s current and future needs. The remainder of fund balance is reserved to

indicate that it is not available for new spending because it has been committed ( 1) to pay debt service ($ 34,505), ( 2) to

reflect inventories and the amount due from other funds that are long- term in nature and thus do not represent available

spendable resources ($ 8,468), and ( 3) to liquidate contractual commitments ($ 19,042), and ( 4) to pay for capital projects

($ 18,917).

The General Fund is the chief operating fund of the County. At June 30, 2003, unreserved fund balance of the General Fund

was $ 222,896 while total fund balance reached $ 239,269. As a measure of the General Fund’s liquidity, it may be useful to

compare both unreserved fund balance and total fund balance to total fund expenditures. Unreserved fund balance represents

39% of total fund expenditures, while total fund balance represents 42% of that same amount. The fund balance of the

County’s General Fund increased by $ 15,651 during the current fiscal year.

The following provides an explanation of revenues by source that changed significantly over the prior year:

Revenues Classified by Source - General Fund

Percent Percent Percent

Revenues by Source Amount of Total Amount of Total Amount of Change

Taxes $ 155,458 24.45 $ 153,643 23.85 $ 1,815 1.18

Licenses and permits 3,901 0.61 3,815 0.59 86 2.25

Use of money and property 17,507 2.75 15,093 2.34 2,414 15.99

Intergovernmental 360,540 56.71 371,136 57.61 ( 10,596) ( 2.86)

Charges for services 77,040 12.12 75,898 11.78 1,142 1.50

Fines, forfeitures, and penalties 7,744 1.22 7,939 1.23 ( 195) ( 2.46)

Other 13,605 2.14 16,657 2.59 ( 3,052) ( 18.32)

Total $ 635,795 100.00 $ 644,181 100.00 $ ( 8,386) ( 1.30)

FY 2003 FY 2002 Increase/( Decrease)

􀂃 Taxes increased by $ 1,815 or 1%. This increase was mainly due to additional assessments by the Assessor’s Office based

on reappraisals of real property due to changes in ownership or completion of new construction.

􀂃 Use of money and property increased by $ 2,414 or 16%. This increase is mainly due to increase in investment income

because of higher interest earnings from the County’s investment pool. In addition, a hiring freeze was in place for the

entire fiscal year, generating additional interest income from savings from unspent appropriations.

􀂃 Intergovernmental revenues decreased by $ 10,596 or 3%. The majority of the decrease was due to the following:

− In FY 2002- 03, State allocated a lesser amount of its receipt from Proposition 172, a measure that devotes ½ cent

sales tax to law enforcement, to the County. Consequently, the Sheriff’s Office received a $ 1,985 less and the

Probation Department a $ 2,160 less funding from Proposition 172.

− State funding for mental health services decreased by $ 2,491. In the prior year, Mental Health received a $ 3,478

state- mandated cost reimbursement compared to none this year as the State decided to defer cost reimbursement to

counties.

− Other immaterial decreases account for the balance of the change.

COUNTY OF SAN MATEO

Management’s Discussion and Analysis ( Continued)

Required Supplementary Information

11

􀂃 Charges for Services increased by $ 1,142 or 2%. The majority of this increase was accounted for as follows:

− During the current fiscal year, the Sheriff’s Office, as part of a new contract, was providing security services to

CalTrain and San Mateo County Transit District, which resulted in revenue increase of $ 863.

− Document recording fees increased by $ 475 due to an increase in construction and refinancing of homes and higher

supplemental tax fees revenue due to increased home sales and supplemental assessment activity in the County.

􀂃 Other revenues decreased by $ 3,052 or 18%. This decrease was primarily due to the following:

− The Youth and Families Services and Public Health Services realized a lesser amount of revenues, $ 1,043 and $ 448

respectively, from miscellaneous reimbursements this year.

− In FY 2001- 02, the Board authorized a one- time unemployment insurance premium refund of $ 1,500 to departments

eligible to receiving the excess contribution. Out of the $ 1,500, General Fund departments received a $ 1,066

refund. As a result, the insurance recoveries and refunds of this year showed a net decrease of $ 1,053.

The following provides an explanation of expenditures by function that changed significantly over the prior year:

Expenditures by Function - General Fund

Percent Percent Percent

Expenditures by Function Amount of Total Amount of Total Amount of Change

General government $ 49,842 8.81 $ 51,481 8.91 $ ( 1,639) ( 3.18)

Public protection 208,833 36.91 197,558 34.68 11,275 5.71

Health and sanitation 127,146 22.47 129,005 24.11 ( 1,859) ( 1.44)

Public assistance 170,225 30.09 164,977 30.25 5,248 3.18

Education 192 0.03 197 0.04 ( 5) ( 2.54)

Recreation 7,018 1.24 7,238 1.32 ( 220) ( 3.04)

Capital outlay 2,337 0.41 2,930 0.56 ( 593) ( 20.24)

Debt service - principal retirement 143 0.03 684 0.12 ( 541) ( 79.09)

Debt service - interest charges 15 0.00 42 0.01 ( 27) ( 64.29)

Total $ 565,751 100.00 $ 554,112 100.00 $ 11,639 2.10

FY 2003 FY 2002 Increase/( Decrease)

􀂃 General government expenditures decreased by $ 1,639 or 3%. The decrease was primarily due to a $ 2,140 decreased

spending on the e- Government project that provides County services over the web. The Information Services Department

completed the e- Government project in the current year. Higher spending was incurred in the prior year as the project

was still under development.

􀂃 Public protection expenditures increased by $ 11,275 or 6%. Key factors accounting for this increase were as follows:

− Increase in salaries and benefits for deputies and staff as negotiated as well as actions taken to address security

concerns resulted in increased spending of $ 3,253 in the Sheriff’s Office.

− Negotiated increases in salaries and benefits plus inflationary increases in various services and supplies attributed to

increased spending of $ 3,129 in the Probation Department.

− Higher public safety services spending in various departments/ divisions, including fire protection, county district

attorney, county coroner, county corrections, planning and building accounted for the remaining increases.

􀂃 Health and sanitary expenditures decreased by $ 1,859 or 1%. In FY 2001- 02, an incentive payment of $ 1,540 was made

out of a Child Welfare Program administered by the General Fund to promote health and sanitary awareness for minors.

This transaction accounted for an 83% decrease in health and sanitary expenditures this year.

􀂃 Public assistance expenditures increased by $ 5,248 or 3%. The majority of this increase was caused by higher costs for

foster care placement, general assistance, interim aid, CALWORKs, Welfare to Work training, and Proposition 36

substance abuse treatment.

􀂃 Debt service expenditures decreased by $ 568 or 78%. The reduction in debt payments was principally due to the final

payment of a long- term capital lease liability for the upgrade of the County’s telephone system infrastructure in the prior

year.

COUNTY OF SAN MATEO

Management’s Discussion and Analysis ( Continued)

Required Supplementary Information

12

Proprietary funds. The County’s proprietary funds provide the same type of information found in the government- wide

financial statements, but in more detail.

Unrestricted net assets ( deficits) amounted to ($ 16,681) for the SMMC and $ 1,494 for the Housing Authority at June 30,

2003. The total increases in net assets for these funds were $ 6,341 and $ 1,561. Factors concerning the finances of these

major funds have already been addressed in the discussion of the County’s business- type activities.

GENERAL FUND BUDGETARY HIGHLIGHTS

The County’s final budget for the fiscal year 2003 exceeded its original budget by $ 11,657 or 1.36%. The key elements of

the difference between the original and final budget are listed below:

􀂃 $ 7,510 unanticipated revenues from federal and State grants applied at different times for the Disproportionate Share

Hospital Payments program ($ 3,289), Sheriff’s Office records management system ($ 2,381), various aging programs

($ 413), substance abuse and mental health services administration ($ 337), AIDS program ($ 297), child support incentive

program ($ 250), pest detection program ($ 244), countywide emergency preparedness project ($ 235), and other programs

($ 64).

􀂃 $ 3,658 unanticipated revenues from the micro- graphic conversion funding ($ 1,587), election service charges ($ 796),

document recording fees ($ 631), legal counseling service charges ($ 190), rental charges for various facilities leased to

the courts $( 156), supplemental tax administrative fees ($ 133), and other services ($ 165).

􀂃 $ 972 donations from the Peninsula Community Foundation and First 5 for the children’s health initiative programs

($ 772), Robert Wood Johnson Foundation for the health education ($ 110), Lucille Packard Foundation for the children’s

health program ($ 67), and San Mateo County Parks and Recreation Foundation for the parks and recreation activities

($ 23).

􀂃 $ 616 additional funding from the Governor’s 25% discretionary fund.

􀂃 $ 331 contribution from the non- General Fund reserves to cover additional contract costs and lease payments.

􀂃 $ 1,430 reduction in appropriation. The reduction included $ 355 adjustment to the anticipated revenue from Proposition

172, $ 1,000 transfer of appropriation to the SMMC as financial assistance, and $ 75 to the Parks Acquisition capital

project fund for land acquisition.

During the year, General Fund revenues and expenditures were less than budgetary estimates. Actual revenues were $ 9,710

lower than estimates. While tax as well as use of money and property revenues exceeded their estimates, intergovernmental

revenues ( federal and State revenues) came in lower than estimates. Actual expenditures were $ 268,911 lower than the final

budgetary appropriations. The bulk of these cost savings resulted from the unspent appropriations of ( a) $ 117,982 in

contingency reserves, ( b) $ 39,089 in salaries and benefits due to the hiring freeze, ( c) $ 67,712 in services & supplies and ( d)

$ 37,329 in other charges for government programs including general government, public protection, heath and sanitation,

public assistance, and recreation. These savings eliminated the need to draw upon existing fund balance.

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital assets. The County’s investment in capital assets for its governmental and business- type activities as of June 30,

2003 amounted to $ 602,079 ( net of accumulated depreciation). This investment in capital assets includes land and

easements, infrastructure, construction in progress, structures and improvements, and equipment. The total increase in the

County’s investment in capital assets for the current period was 5% ( a 6% increase for governmental activities and a 3%

decrease for business- type activities).

County’s Capital Assets

( net of depreciation)

2003 2002 2003 2002 2003 2002 Variance (%)

Land and easements $ 58,220 $ 58,020 $ 10,147 $ 1 0,147 $ 6 8,367 $ 68,167 0.29

Infrastructure 94,138 85,707 - - 9 4,138 85,707 9.84

Construction in progress 42,450 88,921 - 2 78 4 2,450 8 9,199 ( 52.41)

Structures & improvements 352,530 281,458 23,836 2 4,621 3 76,366 3 06,079 22.96

Equipment 14,265 15,755 6,493 6 ,822 2 0,758 22,577 ( 8.06)

Total $ 561,603 $ 529,861 $ 40,476 $ 4 1,868 $ 6 02,079 $ 5 71,729 5.31

Activities Activities Total

Governmental Business- type

COUNTY OF SAN MATEO

Management’s Discussion and Analysis ( Continued)

Required Supplementary Information

13

Major capital asset transactions/ events during the current fiscal year included the following:

􀂃 During the year, the Health Center construction that was administered by the JPFA was completed and fully occupied as

of December 31, 2002. Construction in progress in the amount of $ 40,452 was transferred to structures and

improvements.

􀂃 Construction in progress for governmental activities decreased by $ 46,471 or 52%. Additional costs were incurred for

various projects in progress amounting to $ 35,639. During the year, the Health Center construction was completed as

discussed above. In addition, two projects under the 2001 Capital Projects, namely, forensics laboratory and mutual aid

communications system, were completed in January 2003 and their costs of $ 17,596 and $ 9,516 were transferred to

structures and improvements.

􀂃 The commitments outstanding as of June 30, 2003 amounted to $ 17,049 for the Colma Creek Flood Control System and

$ 1,963 for the Sheriff’s radio system.

The County’s infrastructure assets are recorded at historical cost in the government- wide financial statements as required by

GASB Statement No. 34. The County has elected to use the modified approach for infrastructure to report its pavement

subsystem of the road network of $ 67,237. The infrastructure assets reported under the modified approach are not subject to

depreciation per GASB Statement No. 34. The remaining networks and other road network subsystems use the depreciation

method of reporting. These networks and subsystems are being evaluated for the appropriateness and feasibility of

conversion to the modified approach in future periods.

The County manages its maintained pavement subsystem of the road network using the Metropolitan Transportation

Commission’s Pavement Management Program ( Program). The Program establishes a Pavement Condition Index ( PCI) on a

scale from zero to one hundred ( 0 – 100) for each road segment being maintained by the Department of Public Works. The

Program has defined the pavement of roads with PCI of 40 or higher to be in a “ Fair” or better condition and roads with PCI

of 55 or higher to be in “ Good” or better condition. The County’s policy is to maintain at least 75% of its primary

maintained road system ( roads with structural sections) at a PCI of 55 or higher and the secondary maintained road

subsystem ( roads without structural sections) at a PCI of 40 or higher. Condition assessments are determined every three

years.

At June 30, 2003, the County’s maintained pavement subsystem was rated at a PCI of 76 on the average for the primary roads

and 54 for secondary roads.

For the year ended June 30, 2003, the actual maintenance and preservation costs of $ 6,615 were more than the estimated

amount by $ 215 or 3%.

Additional information on the County’s capital assets can be found in Note 7 on pages 44- 45 of this report.

Long- term debt. At June 30, 2003, the County had total debt outstanding of $ 294,275. Of this amount, $ 277,234 comprised

of lease revenue bonds, $ 14,955 of certificates of participation, $ 1,838 of notes payable, and $ 248 of capital lease

obligations.

County’s Outstanding Debt

Lease Revenue Bonds, Certificates of Participation, Notes Payable and Capital Lease Obligations

2003 2002 2003 2002 2003 2002 Variance (%)

Lease revenue bonds ( including $ 277,234 $ 282,296 $ - $ - $ 2 77,234 $ 282,296 ( 1.79)

accreted interest)

Certificates of participation 14,955 15,175 - - 14,955 1 5,175 ( 1.45)

Notes payable 315 353 1,523 1 ,645 1,838 1,998 ( 8.01)

Capital lease obligations 131 251 117 6 55 2 48 9 06 ( 72.63)

Total $ 292,635 $ 298,075 $ 1,640 $ 2 ,300 $ 2 94,275 $ 300,375 ( 2.03)

Activities Activities

Governmental Business- type

Total

COUNTY OF SAN MATEO

Management’s Discussion and Analysis ( Continued)

Required Supplementary Information

14

During the current fiscal year, the County’s total debt decreased by $ 6,100 ( or 2%). The decrease was due to retirement of

debt as scheduled in the financing agreements. The County’s Ordinance No. 3773 limits the County annual debt service to

4% of the average annual County budget for the current and the preceding four fiscal years. This fiscal year’s debt service

limit is $ 38,019. The amount of debt subject to the debt service limit is $ 19,969, which is $ 18,050 less than authorized.

Additional information on the County’s long- term debt can be found in Note 9 on page 47- 50 of this report.

ECONOMIC FACTORS AND NEXT YEAR’S BUDGET AND RATES

􀂃 San Mateo County faces a third consecutive year of recession. The “ Dot. Com Bust”, terrorism, war and recently the

Asian SARS health scare have taken their toll on the County's economy. Since 2001, the County has lost 12,800 jobs.

The unemployment rate has tripled to 5.2%. The County’s largest employer, United Airlines, has reduced its workforce

at San Francisco International Airport ( SFO) by 4,000 jobs and filed for bankruptcy protection.

􀂃 Most economists and business leaders are not predicting major improvement in the local economy next year. Some,

however, are predicting a bottoming out of the downturn. Under these circumstances, the County must maximize all

local revenue sources, utilize its reserves, increase productivity and reduce services.

􀂃 Expenditures of the recommended budget for FY 2003- 04 are $ 1.2 billion, representing a 2.4% decrease from the prior

year. Expenditures of the recommended budget for FY 2004- 05 are $ 1.15 billion, a further decrease of 4%. The FY

2003- 04 recommended budget expenditures include $ 22.7 million negotiated increases for salaries, retirement benefits

($ 23.5 million) and employee health and dental costs ($ 4.2 million).

􀂃 Revenues of the recommended budget for FY 2003- 04 anticipate a loss of $ 35.6 million in inter- governmental revenue

that will be partially offset by a $ 7 million increase in taxes, $ 7.8 million in charges for services, $ 1.1 million in licenses,

permits and franchise fees, and $ 1.1 million in use of money and property. For FY 2003- 04, inter- governmental revenue

represents 43% of total County revenue. The County receives revenue from the State for over 50 State/ County programs.

State revenue should reimburse the County for all costs including both increased costs of services and caseload growth.

When the State reduces payments, the County is required to bear a greater portion of program costs or reduce services.

For example, payments to the SMMC have remained fixed for 4 years while the cost of providing services has risen.

􀂃 Pursuant to the Board’s direction, departments were asked to reduce their Net County Costs ( NCC) by 8% to 20% for the

FY 2003- 04 Recommended Budget. Where feasible, departments have raised fees to fully recover costs for services.

Charges for services in the FY 2003- 04 Recommended Budget will go up by $ 7.8 million. However, in most

departments revenue from higher fees is not sufficient to meet NCC targets. As a result, the Recommended Budget

proposes expenditure reductions in many departments. These reductions are in addition to those made last year to

balance the budget. Every effort has been made to maintain critical health and safety programs as well as “ safety net”

services for our most vulnerable populations. Most prevention services have been maintained at current levels. Overall a

net of 103 positions will be eliminated. Depending on the number of retirements this summer, as many as 30 employees

could be laid off.

􀂃 In December 2003, the State repealed the vehicle license fee that provides financial support to counties and local

governments. The County is expecting a loss in revenues of $ 45 million that will affect various County programs. At

this time, the State has not identified or approved any financial relief to offset this loss.

All of these factors were considered in preparing the County's budget for FY 2003- 04.

During the current fiscal year, unreserved fund balance in the General Fund increased to $ 222,896. The County has

appropriated the full amount of spending in the 2004 fiscal year budget.

REQUEST FOR INFORMATION

This financial report is designed to provide a general overview of the County’s finances for all those with an interest in the

County’s finances. Questions concerning any of the information provided in this report or requests for additional financial

information should be addressed to the Office of the Controller, 555 County Center, Redwood City, CA 94063. This entire

report is available online at www. co. sanmateo. ca. us.

Basic Financial Statements -

Government- Wide Financial Statements

( This Page Intentionally Left Blank)

Governmental Business- type Component

Activities Activities Total Unit

Assets:

Cash and investments $ 352,275 $ 14,807 $ 367,082 $ 32,363

Restricted cash and investments 31,322 - 31,322 -

Securities lending collateral 60,089 2,527 62,616 5,524

Receivables ( net) 57,200 13,875 71,075 644

Due from other governmental agencies 51,673 9,568 61,241 1,699

Inventories 560 466 1,026 -

Other assets 716 894 1,610 277

Internal balances 24,043 ( 24,043) - -

Receivable from external parties 821 - 821 -

Capital assets:

Nondepreciable 167,907 10,147 178,054 -

Depreciable, net 393,696 30,329 424,025 -

Total assets $ 1,140,302 $ 58,570 $ 1,198,872 $ 40,507

Liabilities:

Accounts payable $ 20,666 $ 5,673 $ 26,339 $ 547

Accrued interest payable 6,656 - 6,656 13

Accrued salaries and benefits 8,188 2,017 10,205 -

Accrued liabilities - 1,238 1,238 -

Securities lending collateral - due to borrowers 60,089 2,527 62,616 5,524

Due to other governmental agencies 31,221 3,368 34,589 -

Deferred revenue 26,124 408 26,532 -

Deposits 106 139 245 -

Compensated absences:

Due within one year 25,987 5,880 31,867 22

Due beyond one year 53,557 5,040 58,597 9

Estimated claims:

Due within one year 11,929 - 11,929 -

Due beyond one year 20,315 630 20,945 -

Long- term liabilities:

Due within one year 7,491 175 7,666 -

Due beyond one year 285,484 1,465 286,949 -

Total liabilities 557,813 28,560 586,373 6,115

Net Assets:

Invested in capital assets, net of related debt 281,735 38,836 320,571 -

Restricted for:

Debt service 34,505 - 34,505 -

Other purposes 49,533 3,219 52,752 224

Unrestricted 216,716 ( 12,045) 204,671 34,168

Total net assets 582,489 30,010 612,499 34,392

Total liabilities and net assets $ 1,140,302 $ 58,570 $ 1,198,872 $ 40,507

The notes to the financial statements are an integral part of this statement.

Primary Government

COUNTY OF SAN MATEO

Statement of Net Assets

( Dollars in Thousands)

June 30, 2003

15

Operating Capital

Charges for Grants and Grants and

Expenses Services Contributions Contributions

Functions/ Programs:

Primary government

Governmental activities:

General government $ 60,667 $ 30,544 $ 7,505 $ 1 8

Public protection 224,777 24,441 97,611 -

Public ways and facilities 21,546 3,812 15,405 -

Health and sanitation 152,449 42,777 91,228 -

Public assistance 172,014 5,406 132,018 -

Education 190 - 20 -

Recreation 7,685 1,224 21 -

Interest on long- term debt 14,603 - - -

Total governmental activities 653,931 108,204 343,808 1 8

Business- type activities:

San Mateo Medical Center 131,243 67,948 34,592 5 ,839

Airports 1,744 1,768 3 -

Coyote Point Marina 1,153 1,123 - -

Housing Authority 68,695 1,309 68,367 -

Total business- type activities 202,835 72,148 102,962 5 ,839

Total primary government $ 856,766 $ 180,352 $ 446,770 $ 5 ,857

Component unit:

First 5 San Mateo County $ 8,279 $ - $ 9,759 $ -

General revenues:

Taxes:

Property taxes

Property transfer taxes

Sales and use taxes

Transient occupancy taxes

Aircraft taxes

Motor vehicle in- lieu taxes

Unrestricted interest and investment earnings

Securities lending activities:

Securities lending income

Securities lending expenses

Miscellaneous

Transfers

Total general revenues and transfers

Change in net assets

Net assets - beginning, as previously reported

Prior period adjustment

Net assets - beginning, as restated

Net assets - ending

The notes to the financial statements are an integral part of this statement. ( Continued)

( Dollars in Thousands)

Program Revenues

COUNTY OF SAN MATEO

Statement of Activities

For the Fiscal Year Ended June 30, 2003

16

Business-

Governmental type Component

Activities Activities Total Unit

Functions/ Programs:

Primary government

Governmental activities:

$ ( 22,600) $ - $ ( 22,600) $ - General government

( 102,725) - ( 102,725) - Public protection

( 2,329) - ( 2,329) - Public ways and facilities

( 18,444) - ( 18,444) - Health and sanitation

( 34,590) - ( 34,590) - Public assistance

( 170) - ( 170) - Education

( 6,440) - ( 6,440) - Recreation

( 14,603) - ( 14,603) - Interest on long- term debt

( 201,901) - ( 201,901) - Total governmental activities

Business- type activities:

- ( 22,864) ( 22,864) - San Mateo Medical Center

- 27 27 - Airports

- ( 30) ( 30) - Coyote Point Marina

- 981 981 - Housing Authority

- ( 21,886) ( 21,886) - Total business- type activities

( 201,901) ( 21,886) ( 223,787) - Total primary government

Component unit:

1,480 First 5 San Mateo County

141,582 - 141,582 -

5,849 - 5,849 -

15,882 - 15,882 -

590 - 590 -

1,123 - 1,123 -

49,785 - 49,785 -

23,329 719 24,048 1,527

588 31 619 68

( 525) ( 27) ( 552) ( 61)

13,890 849 14,739 -

( 29,403) 29,403 - -

222,690 30,975 253,665 1,534

20,789 9,089 29,878 3,014

596,889 23,998 620,887 31,378

( 35,189) ( 3,077) ( 38,266) -

561,700 20,921 582,621 31,378

$ 582,489 $ 30,010 $ 612,499 $ 34,392

Primary Government

Changes in Net Assets

Net ( Expenses) Revenues and

( Dollars in Thousands)

COUNTY OF SAN MATEO

Statement of Activities

For the Fiscal Year Ended June 30, 2003

17

( This Page Intentionally Left Blank)

Basic Financial Statements -

Fund Financial Statements

( This Page Intentionally Left Blank)

Joint

Powers Other

General Financing Governmental

Fund Authority Funds Total

Assets:

Cash and investments $ 229,235 $ - $ 94,938 $ 324,173

Restricted cash and investments - 31,322 - 31,322

Securities lending collateral 39,089 - 16,204 55,293

Receivables ( net):

Accounts 11,242 - 22 11,264

Interest 3,240 321 754 4,315

Taxes 16,086 - 1,231 17,317

Other 23,638 - 238 23,876

Due from other funds 15,778 - 6,680 22,458

Due from other governmental agencies 51,064 - 609 51,673

Inventories 104 - 362 466

Other assets 51 - 6 57

Advances to other funds 4,995 - 3,007 8,002

Total assets $ 394,522 $ 31,643 $ 124,051 $ 550,216

Liabilities:

Accounts payable $ 15,399 $ 60 $ 4,459 $ 19,918

Accrued salaries and benefits 7,816 - 187 8,003

Securities lending collateral - due to borrowers 39,089 - 16,204 55,293

Due to other funds 949 - 1,790 2,739

Due to other governmental agencies 31,221 - - 31,221

Advances from other funds 3,000 - 7 3,007

Deferred revenue 57,769 - 1,637 59,406

Deposits 10 - 1 11

Total liabilities 155,253 60 24,285 179,598

Fund Balances:

Reserved for:

Encumbrances 11,274 - 7,768 19,042

Debt service - 12,666 21,839 34,505

Inventories and advances 5,099 - 3,369 8,468

Capital projects - 18,917 - 18,917

Unreserved, reported in

General fund

Undesignated 222,896 - - 222,896

Special revenue funds:

Designated - - 13,391 13,391

Undesignated - - 46,624 46,624

Capital projects funds:

Designated - - 3,735 3,735

Undesignated - - 3,040 3,040

Total fund balances 239,269 31,583 99,766 370,618

Total liabilities and fund balances $ 394,522 $ 31,643 $ 124,051 $ 550,216

The notes to the financial statements are an integral part of this statement.

COUNTY OF SAN MATEO

Balance Sheet

Governmental Funds

June 30, 2003

( Dollars in Thousands)

18

COUNTY OF SAN MATEO

Reconciliation of the Governmental Funds Balance Sheet to

the Government- wide Statement of Net Assets - Governmental Activities

June 30, 2003

( Dollars in Thousands)

Fund balances - total governmental funds ( page 18) $ 3 70,618

Amounts reported for governmental activities in the

statement of net assets are different because:

Deferred charges in governmental activities are not financial resources and,

therefore, are not reported in the governmental funds. 659

Capital assets used in governmental activities are not financial resources

and, therefore, are not reported in the governmental funds. 556,731

Other long- term assets are not available to pay for current- period expenditures

and, therefore, are deferred in the governmental funds. 33,282

Internal service funds are used by management to charge the costs of

management of fleet maintenance, tower road construction, worker's

compensation, long- term disability, employee benefits, and personal injury

and property damage to individual funds. The assets and liabilities are

included in governmental activities in the statement of net assets. 22

Interest payable on long- term debt does not require the use of current

financial resources and, therefore, is not accrued as a liability

in the governmental funds. ( 6,654)

Long- term liabilities, including bonds payable, are not due and payable

in the current period and, therefore, are not reported in the governmental

funds.

Lease revenue bonds, net of unamortized discount of $ 137 ( 277,234)

Certificates of participation ( 14,955)

Notes payable ( 315)

Capital leases ( 131)

Compensated absences ( 79,194)

State settlement ( 340) ( 372,169)

Net assets of governmental activities ( page 15) $ 5 82,489

The notes to the financial statements are an integral part of this statement.

19

Joint

Powers Other

General Financing Governmental

Fund Authority Funds Total

Revenues:

Taxes $ 1 55,458 $ - $ 1 1,259 $ 1 66,717

Licenses and permits 3 ,901 - 4 ,405 8 ,306

Use of money and property 1 7,507 1 ,316 4 ,349 2 3,172

Intergovernmental 3 60,540 3 ,181 2 9,354 3 93,075

Charges for services 7 7,040 - 1 3,031 9 0,071

Fines, forfeitures and penalties 7 ,744 - 1 ,045 8 ,789

Other 1 3,605 1 18 1 ,037 1 4,760

Total revenues 6 35,795 4 ,615 6 4,480 7 04,890

Expenditures:

Current:

General government 4 9,842 3 89 2 ,903 5 3,134

Public protection 2 08,833 - 6 ,827 2 15,660

Public ways and facilities - - 2 2,606 2 2,606

Health and sanitation 1 27,146 - 2 1,217 1 48,363

Public assistance 1 70,225 - - 1 70,225

Education 1 92 - - 1 92

Recreation 7 ,018 - - 7 ,018

Capital outlay 2 ,337 2 0,576 1 9,256 4 2,169

Debt service:

Principal 1 43 5 ,282 1 5 5 ,440

Interest 1 5 1 4,686 6 1 4,707

Total expenditures 5 65,751 4 0,933 7 2,830 6 79,514

Excess