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City of Santa Cruz, California

COMPREHENSIVE ANNUAL FINANCIAL REPORT For the Fiscal Year Ended June 30, 2007

Cover and Photo by Natalia Duarte

City of Santa Cruz State of California

Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2007

Prepared by Sandra Benoit Cheryl Fyfe Tori Hannah Kathryn Mintz Ralph Reader

Raymond Chin Ray Galindo

Kim Wigley Shelley Horrow Natalia Duarte

City of Santa Cruz Comprehensive Annual Financial Report For the year ended June 30, 2007 Table of Contents

INTRODUCTORY SECTION

Page

Transmittal Letter ................................................................................................................................................... i GFOA Certificate of Achievement for Excellence in Financial Reporting.................................................... xi Map of Santa Cruz...............................................................................................................................................xii Organization Chart ............................................................................................................................................xiii Directory of City Officials of the City of Santa Cruz.....................................................................................xiv FINANCIAL SECTION Independent Auditors’ Report........................................................................................................................... 1 Management’s Discussion and Analysis ......................................................................................................... 3 Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Assets..........................................................................................................................22 Statement of Activities and Changes in Net Assets ...........................................................................24 Fund Financial Statements: Government Fund Financial Statements: Balance Sheet .....................................................................................................................................30 Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Assets................................................................31 Statement of Revenues, Expenditures and Changes in Fund Balances ....................................32 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Government-Wide Statement of Activities and Changes in Net Assets ..............................................................33 Proprietary Fund Financial Statements: Statement of Net Assets ...................................................................................................................36 Statement of Revenues, Expenses and Changes in Net Assets ..................................................40 Statement of Cash Flows..................................................................................................................42 Fiduciary Fund Financial Statements: Statement of Fiduciary Net Assets .................................................................................................48 Statement of Changes in Fiduciary Net Assets.............................................................................49 Index to Notes to Basic Financial Statements ............................................................................................51 Notes to Basic Financial Statements ............................................................................................................53

City of Santa Cruz Comprehensive Annual Financial Report For the year ended June 30, 2007 Table of Contents, Continued

FINANCIAL SECTION, Continued

Page

Required Supplementary Information: Budgetary Information....................................................................................................................................98 Budgetary Comparison Schedule – General Fund ...............................................................................102 Reconciliation of Net Changes in Fund Balances – Budgetary to GAAP Basis: General Fund .......................................................................................................................................103 Budgetary Comparison Schedule – Redevelopment Agency ............................................................104 Reconciliation of Net Changes in Fund Balances – Budgetary to GAAP Basis: Redevelopment Agency .....................................................................................................................105 Defined Benefit Pension Plan .........................................................................................................................107 Supplementary Information: Non-Major Governmental Funds: Combining Balance Sheet.........................................................................................................................112 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ........................114 Schedule of Budget and Actual Revenues – General Fund .................................................................116 Schedule of Budget and Actual Expenditures and Other Financing Uses for Legally Adopted Appropriations by Department – General Fund .............................................118 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual: Police Special Revenue Fund.............................................................................................................120 State Highway Special Revenue Fund .............................................................................................121 Traffic Impact Fee Fund .....................................................................................................................122 Parks and Recreation Fund................................................................................................................123 Housing and Community Development Fund...............................................................................124 Transportation Development Act.....................................................................................................125 General Obligation Bond Debt Service ............................................................................................126 General Capital Improvement Projects............................................................................................127 Reconciliation of Net Changes in Fund Balances – Budgetary to GAAP Basis: Non-Major Governmental Funds .....................................................................................................128 Internal Service Funds: Combining Statement of Net Assets.......................................................................................................130 Combining Statement of Activities and Changes in Net Assets.........................................................131 Combining Statement of Cash Flows .....................................................................................................132

City of Santa Cruz Comprehensive Annual Financial Report For the year ended June 30, 2007 Table of Contents, Continued

FINANCIAL SECTION, Continued

Page

Private-Purpose Trust Funds: Combining Statement of Fiduciary Net Assets .....................................................................................134 Combining Statement of Changes in Fiduciary ....................................................................................135 Agency Funds: Combining Statement of Fiduciary Net Assets .....................................................................................138 Combining Statement of Changes in Assets and Liabilities................................................................139 STATISTICAL SECTION (Unaudited) Net Assets by Component..................................................................................................................................... 143 Changes in Net Assets ........................................................................................................................................... 144 Fund Balances of Governmental Funds .............................................................................................................. 146 Changes in Fund Balances of Governmental Funds ......................................................................................... 149 General Governmental Tax Revenue by Source ................................................................................................ 150 General Fund Revenue by Source ........................................................................................................................ 152 Assessed Value of Taxable Property.................................................................................................................... 153 Direct and Overlapping Property Tax Rates ...................................................................................................... 154 Principal Property Tax Owners ............................................................................................................................ 155 Property Tax Levies and Collections ................................................................................................................... 157 Ratios of Outstanding Debt by Type .................................................................................................................. 158 Ratios of General Bonded Debt Outstanding ..................................................................................................... 160 Computation of Direct and Overlapping Debt .................................................................................................. 161 Legal Debt Margin Information ........................................................................................................................... 162 Pledged-Revenue Coverage.................................................................................................................................. 164 Demographics and Economic Statistics............................................................................................................... 166 Principal Employers............................................................................................................................................... 167 Number of City Employees by Department....................................................................................................... 168 Operating Indicators by Function ........................................................................................................................ 169 Capital Asset Statistics by Function..................................................................................................................... 170

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809 Center Street, Room 8, Santa Cruz, CA 95060 831 420-5052 Fax: 831 420-5051 www.ci.santa-cruz.ca.us

November 30, 2007

To the Honorable Mayor, Members of the City Council and Citizens of the City of Santa Cruz, California: Comprehensive Annual Financial Report In accordance with the City Charter, the Comprehensive Annual Financial Report of the City of Santa Cruz for the fiscal year ended June 30, 2007, is submitted for your information and review. Various financing covenants and regulations associated with restricted funding sources also require the City of Santa Cruz, California (City) to publish a complete set of financial statements presented in conformance with generally accepted accounting principles (GAAP) and audited by a firm of licensed certified public accountants. Pursuant to the requirements noted above, we hereby issue the Comprehensive Annual Financial Report of the City of Santa Cruz, California for the fiscal year ended June 30, 2007. This report consists of management's representations concerning the finances of the City of Santa Cruz. Consequently, management assumes full responsibility for the completeness and reliability of all the information presented in this report. To provide a reasonable basis for making these representations, management of the City of Santa Cruz has established a comprehensive internal control framework that is designed both to protect the government's assets from loss, theft or misuse and to compile sufficient reliable information for the preparation of the City of Santa Cruz's financial statements in conformity with GAAP. Because the cost of internal controls should not outweigh their benefits, the City of Santa Cruz's comprehensive framework of internal controls has been designed to provide reasonable, rather than absolute, assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. Caporicci & Larson, a firm of licensed certified public accountants, has audited the City of Santa Cruz's financial statements. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Santa Cruz for the fiscal year ended June 30, 2007, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial presentation. The independent auditor concluded, based on the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Santa Cruz’s financial statements for the fiscal year ended June 30, 2007, are fairly presented in conformity with GAAP. The independent auditor's report is presented as the first component of the financial section of this report.

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The independent audit of the financial statements of the City of Santa Cruz was part of a broader, federally mandated "Single Audit" designed to meet the needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government's internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards. These reports are available in the City of Santa Cruz’s separately issued Single Audit Report. GAAP require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management's Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City of Santa Cruz's MD&A can be found immediately following the report of the independent auditors. Profile of the Government The City of Santa Cruz, incorporated in 1866, is located on the northern part of the Monterey Bay approximately 74 miles south of San Francisco and 30 miles from San Jose. The City of Santa Cruz was first founded in 1769 by the Spanish explorer Don Gaspar de Portola, who, along with Father Junipero Serra, began land based settlement in the area. Santa Cruz is the county seat for the County of Santa Cruz, and is a charter city which operates under the provisions of a voter-approved charter. The City has an area of 12 square miles and an estimated population of 57,553 as of January 2007. Santa Cruz is the home to the University of California, Santa Cruz (UCSC) which first opened in 1965 and has a current enrollment of over 15,000 students. UCSC has received worldwide recognition in the past few years for its high quality academic programs and sponsored research programs such as the California Institute for Quantitative Biomedical Research (QB3), the Center for Information Technology Research in the Interest of Society (CITRIS), and the Laboratory for Adaptive Optics. The area’s major industries include agriculture, tourism, manufacturing, food processing, and technology. Like other cities in California, the City of Santa Cruz has limited ability to set tax rates. The State Constitution (Prop 13) establishes a maximum rate for property tax and limits the growth of assessed value. Prop 13 sets the limit for increases of the property tax rate to 2% per year, but upon sale, full value becomes the assessed value. The property tax collected is allocated among the jurisdictions in the City's tax rate areas based on criteria established by the State Legislature. The City receives 21% of the property tax assessed against property within the City limits. The rates and tax base of two of the City's other major general revenues, sales and use tax and motor vehicle in lieu fees (VLF), are also controlled by the Legislature. Changes to existing local taxes and any new taxes require voter approval. Taxes used for general purposes are subject to approval by a simple majority of voters while taxes levied for specific purposes require a twothirds majority of voters. Assessments must be approved by a two-thirds vote with voting rights apportioned based on the amount of the assessment. In addition, fees for facilities and services are subject to requirements that they not be set at levels that exceed the reasonable costs of providing services. As a result, fund balances generated by differences between fee revenue and related expense are retained and designated for services and facilities that benefit fee payers. The City of Santa Cruz has operated under the council-manager form of government since its incorporation in 1866. Policy-making and legislative authority are vested in a seven member governing council consisting of the Mayor and six Council Members. The City Council is responsible, among other things, for passing ordinances, adopting the budget, approving nominees to commissions, and hiring the City Manager, City Clerk and City Attorney. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day-to-day operations of the City and for appointing the heads of the various departments. The Council is elected on a non-partisan basis. Council Members serve four-year ii

staggered terms, with either three or four Council Members elected every two years. The Mayor is selected by a majority of the City Council and serves a one year term. The Mayor and Council Members are elected at large, and all are subject to two term limits. The City of Santa Cruz provides a broad range of services including police and fire protection, construction and maintenance of streets, parks, flood control and other infrastructure, a wharf facility, recreational and cultural activities including a performing arts center and human services programs. It also operates municipal utilities for Water, Wastewater, Stormwater, and Refuse in addition to enterprise operations for parking facilities and a golf course. The water utility provides water service beyond the municipal boundaries and has a total service population of approximately 90,000. Certain infrastructure construction and community development activities are provided through a legally separate Redevelopment Agency. The Council sits as the Redevelopment Agency's board, and the Agency functions as a department of the City. Therefore, the City of Santa Cruz Redevelopment Agency has been included as an integral part of the City of Santa Cruz’s financial statements. Many major public services delivered within the City's boundaries, including education, and public transportation are provided by other agencies. The City of Santa Cruz is not financially accountable for the operations of the franchisees or these government agencies. As required by the City Charter, an annual budget is adopted by the City Council no later than the first regular meeting in July for the fiscal year beginning July first. As part of the budget process, all City departments submit budget requests for the next fiscal year. These requests are reviewed, and a final City Manager recommended budget showing estimated revenues and expenditures of the City is prepared. This proposed budget is transmitted to the City Council and made available to the public for review. Study sessions and a public hearing are conducted before final adoption of the budget by the City Council. The City Manager is authorized to approve appropriation transfers within any department up to a specified amount; however, any new appropriation or appropriation transfer between departments requires approval by the City Council. Several supplemental appropriations were necessary during the year and are reflected in the budget amounts in the financial statements. Expenditures may not legally exceed appropriations at the department level. The Council reviews budget results at the mid-year review and at budget adoption. Redevelopment budgets are adopted annually along with an annual report. The ongoing review and long range planning focus for financial management provides numerous opportunities to identify and respond to changes in revenues and expenditures and in community priorities. Factors Affecting Financial Condition We think that the information presented in the financial statements is best understood when it is considered from the broader perspective of the context within which the City of Santa Cruz operates. Economic Conditions and Outlook The City of Santa Cruz’s economic growth began to slow during the FY 2002 fiscal year and declined significantly through FY 2004. Tax revenues have shown steady positive growth for the last 10 years. The recent improvements in the local economy are being offset by significant labor cost increases and have resulted in projecting minimal increases in fund balance for future years. The local economy is linked to a large degree to the economy of the nearby Silicon Valley region, whose growth continues to improve. Over the last four year period, ending with fiscal year 2007, there has been substantial growth in assessed value of real property. The assessed value is approximately $6.2 billion which is an increase of $.5 billion or 8.7% increase over FY 2006. Property Tax revenues are up $2.1 million or 11.6% over the previous year. iii

Property tax revenues have increased 7% or more every year for the past 10 years, the dollar increase in 10 years is $10.9 million or 116.1%. Property values are expected to hold steady over the next few years, and taxes are expected to continue to increase due to the turnover of Prop 13 homes which will become fully taxable. An important event affecting City revenues took place in August 2005. At a special election called by the City Council, voters approved, by a 58% majority, continuation of a franchise tax on municipal utilities. This tax was previously charged as a type of fee which had been deemed invalid in recent court cases without voter approval. Another significant event that took place in recent years was the approval of a ¼ cent transactions and use tax by the voters. On October 8, 2003, the California Governor approved SB 566 which authorized cities to seek voter approval to levy a transactions and use tax in multiples of 0.25%. City Council authorized submitting Measure F, the ¼ cent sales tax measure, to the voters in March 2003. This is a five-year general tax which was approved by a 69% majority and is effective July 1, 2007. In November 2007, the voters approved Measure H, making the Measure F ¼ cent sales tax permanent and approving an additional ¼ cent sales tax to become effective April 1, 2007. Measure H is a Transaction and Use Tax and is not tied to site of the sale. The Measure H tax went into effect April 1, 2007, and the first quarter returns were 10% above original estimates, due mostly to the improvements in the local economy. The total Sales Tax (including the transaction tax) rate for Santa Cruz is 8.5%. Historical Trend Information Property Tax The historical trend for property tax has been very positive showing substantial growth given the assessed value of property is approximately $6.2 billion with growth in this year of 8.7%. Property Tax revenues are up $2.1 million or 11.6% over the previous year.

CITY OF SANTA CRUZ PROPERTY TAX In $ Millions 25.0

20.0

15.0

10.0

5.0

FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07

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Sales & Use Tax, Local Transactions and Use Tax and Supplemental Property Tax In-Lieu of Sales Tax Although sales tax revenues have consistently trended up over the past 10 years, beginning in FY06, there is significant upward movement, due to improvements in the local economy and increases in tourism. FY 07 was the 100th anniversary of the Santa Cruz Boardwalk; the celebration brought large numbers of visitors to the City. Sales tax increased $1.1 million or 9.4% in FY 07 over FY 06.

CITY OF SANTA CRUZ SALES TAX In $ Millions 14.0 12.0 10.0 8.0 6.0 4.0 2.0 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07

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Transient Occupancy Tax Transient Occupancy Tax (TOT) declined after 2001, initial declines were related to September 11th and the resulting lack of tourists. However, in Fiscal Year 02, The University of California acquired the Holiday Inn on a 10 year lease to use as a dormitory. This reduced the rooms available to pay TOT by 170. There have been no new hotels to make up for the reduction in rooms; however, rates have increased and TOT is again trending up. The Coast Hotel, the City’s major upscale hotel is in process of a remodel which will significantly upgrade the interior of the hotel. Their intention is to increase rates when the remodel is complete.

CITY OF SANTA CRUZ TRANSIENT OCCUPANY TAX In $ Millions 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07

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Utility Users Tax The utility users tax is the third largest revenue source for the City, coming after property tax and sales tax. The utility users tax is comprised of a tax on eight utilities; electric, wired telecom, wireless telecom, natural gas, cable, water, wastewater, and refuse (the last three being municipal utilities). The rate for the tax is 7% and hasn’t changed since October 1991. Clarifications of how the tax is applied were implemented in 1993 and 1994. Modest increases over the last three years can be attributed to a number of factors. There have been declines in electric and wired telecom while wireless telecom, gas, and cable have increased. The most significant factor for the rise in overall revenues point to the Water, Wastewater, and Refuse municipal utilities and the increase tax revenues due to recent customer rate increases.

CITY OF SANTA CRUZ UTILITY USERS TAX In $ Millions 8.4 8.2 8.0 7.8 7.6 7.4 7.2 7.0 6.8 6.6 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07

Risk management. The City of Santa Cruz uses a program of self-insurance for workers’ compensation and general liability claims, and employs a professional risk manager, supplemented by a professional claim administration firm, to minimize losses. The City is self-insured for workers' compensation up to $500,000 per occurrence. Santa Cruz participates in a multi-agency joint powers authority to provide excess insurance coverage for liability coverage. The joint powers authority and the City rely on estimates prepared by professional actuaries to set aside funds adequate to meet potential future losses. Excess coverage purchased through the joint powers authority covers claims in excess of $1,000,000 for general liability claims. As reflected in the financial statements, the Risk Management internal service fund had deficit net assets as of June 30, 2007, of $2.9 million, an improvement of $1.4 due to lower actual claims reducing the actuarial liabilities.

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Health care costs. The City contracts with CalPERS for employee health care coverage. program, employer premiums increased: • • •

Under this

15.2 % in FY 05 9.4% in FY 06 12.5% in FY 07

Expected increases for FY 08 are 8.4%. PERS manages rates to stay under the overall market due to their size and therefore the ability to affect rates. State budget. California faced budget deficits in previous years. noteworthy changes in state/local finance law. •

This imbalance created a number of

The “Triple Flip” In FY 04, the State of California issued State Deficit Reduction bonds under Proposition 57. Wall Street wanted a dedicated revenue stream. The State of California then devised a method to secure the dedicated revenue stream called the “Triple Flip”. 1. The State would take 25% of the local government 1% sales tax (Cities and Counties). This is to continue for nine (9) years, beginning in FY 05. 2. In January (6 months into the fiscal year), the State would require the Counties to take property tax which was earmarked for schools and pay back the first 6 months of the sales tax takeaway to the local governments. The State will then have the counties pay the estimated next 6 months in May. The difference between the estimated and actual sales tax in one year will be corrected in the next year payments. 3. Then the State, using State General Fund monies, would pay back the schools. The Sales Tax taken by the State in FY 06 was $2.3 million and it was repaid by the County in the form of “Property Tax in Lieu of Sales Tax”. Santa Cruz County pays the City in December and April our estimated 6 months payments. Beginning in FY07, the County now charges the City an administrative fee on this repayment of sales tax, The amount was 100 thousand dollars.



VLF-Property Tax Swap for FY 07 was $3.8 million. In 1999, the state began reducing the vehicle license fee (VLF) rate charged to vehicle owners, and backfilling city and county revenue losses from this tax reduction with state subventions. The FY 2005 state budget package permanently replaced the VLF backfill by shifting an equal amount of K-14 property taxes to cities and counties. Increased state aid offsets K-14 school district revenue losses.



FY 05 Property Tax Shift. The FY 05 state budget package included a $1.3 billion shift of property taxes (called ERAF III) from noneducational local agencies (cities, counties, special districts, and redevelopment agencies) to K-14 school districts. Unlike the two permanent property tax shifts enacted in the 1990’s, this tax shift sunseted in FY 07.



Proposition 1A. In 2004, state voters amended the State Constitution to prohibit the state from permanently reallocating the property tax in any county noneducation local agencies to K-14 school districts. Also, this measure generally requires a two-thirds vote of the Legislature to change the distribution of property taxes amounts for local agencies.

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Cash management and policies Cash temporarily idle during the year was invested in obligations of the U.S. Treasury and agencies of the Federal government, and the State Treasurer's Local Agency Investment Pool (LAIF). Maturities of the investments range from one day to 3.5 years, with an average maturity of 219 days. The average yield on investments not held by fiscal agents was 3.5%. The City has reduced the days to maturity by 123 days and the yields have increased an average of 68 basis points. Investment income includes appreciation in the fair value of investments. Increases in fair value during the current year, however, do not necessarily represent trends that will continue; nor is it always possible to realize such amounts. It is the City’s policy to hold investments to maturity; therefore, gains and losses due to temporary market value fluctuations are rarely realized. Major Initiatives The City of Santa Cruz operates four municipal utilities, including Water, Wastewater, Stormwater, and Refuse. The Water Department had not made any major capital improvements for the past 10 to 15 years while a new water supply project was being developed. Now, in order to address the pressing needs of an aging infrastructure and the need for a new water supply, the Water Department has embarked upon an ambitious program of capital improvements. The Bay Street Water Reservoir project began in FY 07 and amounted to a $13.8 million increase in Capital Assets. Major distribution and supply projects are planned, including a desalination plant. The National Marine Sanctuary Program (NMSP), an agency of the National Oceanic and Atmospheric Administration (NOAA), and the City of Santa Cruz are partnering to design and construct the Monterey Bay National Marine Sanctuary Education Center. The Education Center in the City of Santa Cruz will function as the Monterey Bay National Marine Sanctuary’s premier visitor center. The site was chosen after the NMSP studied 23 locations along California’s Central Coast, settling on the City’s ¾-acre “Fun Spot” property in the Santa Cruz beach area, visited by an estimated 3 million people per year. Formal design of the sanctuary project began in FY 07. The City will continue to use Development Impact Fees to enhance and upgrade park facilities. These fees will also be used for improvements to the greenbelt. The Parks and Recreation Department will continue to seek grants and other funding to renovate and upgrade outdated facilities. The development of Depot Park and the Multi Modal Station is an example of a successful partnership among numerous agencies. Awards The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Santa Cruz for its comprehensive annual financial report (CAFR) for the fiscal year ended June 30, 2006. The Certificate of Achievement is the highest form of recognition in the area of government accounting and financial reporting, and its attainment represents a significant accomplishment by a government and its management. In order to be awarded a Certificate of Achievement, the City publishes an easily readable and efficiently organized financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for one year only. We believe that our current comprehensive annual financial report (CAFR) meets the Certificate of Achievement Program’s requirements.

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Acknowledgements The Finance Department takes great pride in the preparation of this report. The professionalism, commitment and effort of the entire staff of the Finance Department have made this presentation possible. We would like to express our appreciation to all the members of the other departments who assisted and contributed to the preparation of this report. We also want to thank the partners and staff of our auditors for their assistance and support. We wish to also express our sincere thanks to the City Manager, the Mayor and the City Council Members for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Santa Cruz's financial operations. Respectfully submitted,

Sandra Benoit Director of Finance

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DIRECTORY OF CITY OFFICIALS CITY OF SANTA CRUZ Mayor Ryan Coonerty Vice Mayor Cynthia Mathews

Councilmember Mike Rotkin

Councilmember Ed Porter

Councilmember Lynn Robinson

Councilmember Emily Reilly

Councilmember Tony Madrigal

City Manager, Richard C. Wilson

Assistant City Manager .....................................................................Martín Bernal Chief of Fire ......................................................................................Ron Oliver Chief of Police...................................................................................Howard Skerry City Attorney .....................................................................................John G. Barisone City Clerk ..........................................................................................Lesile Cook Director of Finance............................................................................Sandra Benoit Director of Human Resources ...........................................................Lisa Sullivan Director of Information Technology .................................................Sharon Caiocca Director of Libraries ..........................................................................Anne M. Turner Director of Parks and Recreation ......................................................Dannettee E. Shoemaker Director of Planning and Community Development.........................Greg Larson Director of Public Works and City Engineer ....................................Mark Dettle Director of Redevelopment Agency..................................................Ceil Cirillo Director of Water Department...........................................................Bill Kocher

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To the Honorable Mayor and Members of the City Council of the City of Santa Cruz Santa Cruz, California Page 2 The accompanying Required Supplementary Information, such as Management’s Discussion and Analysis, budgetary comparison information and other information as listed in the table of contents, is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the Required Supplementary Information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the City’s basic financial statements. The accompanying Supplementary Information is presented for purpose of additional analysis and is not a required part of the basic financial statements. The Supplementary Information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The Introductory and Statistical Sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them.

Irvine, California November 30, 2007

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MANAGEMENT’S DISCUSSION AND ANALYSIS

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Management's Discussion and Analysis As management of the City of Santa Cruz we offer readers of the City’s financial statements this narrative overview and analysis of the financial activities of the City of Santa Cruz for the fiscal year ended June 30, 2007. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on page i of this report.

Financial Highlights – Primary Government (in $ millions) •

Government-Wide Highlights: Net Assets - The assets of the City of Santa Cruz exceeded its liabilities at the close of the fiscal year by $436.1. Of total Net Assets, $106.0 or 24.3% was reported as unrestricted net assets and may be used to meet the government’s ongoing obligations to citizens and creditors. Restricted net assets of $13.6 may be used for the City’s ongoing obligations related to programs with external restrictions. The remaining $316.5 represents the City’s investment in capital assets, less any related outstanding debt used to acquire those assets. Changes in Net Assets - The City’s total net assets increased by $19.9 or 2.7% in fiscal year 2007. The increase in Net Assets represents the degree to which revenues exceed expenses. The increase in net assets for governmental funds ($8.4) is a result of the reduction in expenses due to staff vacancies and moderate increases in revenue, mostly sales tax. The sales tax increase relates to the passage of a ballot measure which increased the tax rate by one-quarter percent. Business type activities increased net assets ($11.5) due to rate increases, reduced expenses resulting from grant funding and the delay of some programs.



Fund Highlights: Governmental Funds – Governmental funds include general, special revenue, debt service, and capital projects funds. As of the close of fiscal year 2007, the City’s governmental funds, including the Redevelopment Agency Fund, reported a combined ending fund balance of $49.2 which is an increase of $2.3 or 4.9% from the prior year. Approximately 68.3% of this amount, or $33.6, represents the unreserved fund balance available for appropriation. 58.3% of the unreserved fund balance, or $19.6, has been designated for various purposes. General Fund – Total fund balance of the General Fund on June 30, 2007 was $26.4, an increase of $3.6 or 15.8% from the prior year. 84.8% of the total fund balance, or $22.4, was unreserved. Of the unreserved fund balance, $8.5, or approximately 32.2%, is designated for various purposes. The designations include $6.4 for the City public trust, and varying amounts for other activities. The remaining unreserved balance of $13.9, or 52.7% of unreserved fund balance, is undesignated.

Overview of the Financial Statements This discussion and analysis are intended to serve as an introduction to the City’s basic financial statements. The City’s basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

4

Government-wide Financial Statements. The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances, in a manner similar to a private-sector business. They are comprised of the statement of net assets and statement of activities and changes in net assets. The statement of net assets presents information on all of the City’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities and changes in net assets presents information showing how the City'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 future fiscal periods (e.g., interest expense due but unpaid). Both of the above government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City include general government, public safety, parks and recreation, library, public works, transit, community and economic development and social services. The business-type activities of the City include the four municipal utilities: water, wastewater, refuse and stormwater; and also the golf course and parking enterprises. Blended Component Units – Component units are legally separate entities that meet certain criteria and would be misleading if their data were not included in this report. This report includes two separate legal entities in this category; The City of Santa Cruz Redevelopment Agency, and The Santa Cruz Public Improvement Financing Corporation. In this report all component units are blended with the primary government because the governing boards are substantively the same as the primary government, and the component units serve the primary government exclusively. The government-wide financial statements can be found on pages 21 - 25 of this report. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, 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 City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. The fund financial statements provide detail information about each of the City’s most significant funds, called major funds. The concept of major funds, and the determination of which are major funds, was established by GASB 34 and replaces the concept of combining like funds and presenting them in total. Instead, each major fund is presented individually, with all nonmajor funds summarized and presented in a single column. Individual fund data on the nonmajor funds is presented in the form of combining statements and schedules in the Supplemental Information section of this report on pages 111 through 115 of this report. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financing requirements.

5

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City has ten governmental funds, of which two are considered major funds for presentation purposes. Each major fund is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the City’s two major funds – the General Fund and the Redevelopment Agency Fund. Data from the other eight governmental funds are combined into a single, aggregated presentation. The basic governmental fund financial statements can be found on pages 27 through 33 of this report. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements on pages 111 through 115 of this report. Proprietary Funds – The City maintains two different types of proprietary funds – enterprise funds and internal service funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City uses enterprise funds to account for the four municipal utilities; water, wastewater, storm water, and refuse; and also the golf and parking enterprises. Internal service funds are used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for its equipment operations and maintenance, stores inventory, telecommunications, and risk management activities. Because these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the governmental-wide financial statements. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The fund financial statements for the proprietary funds provide separate information for the four municipal utilities; water, wastewater, storm water, and refuse; and also the golf course and parking enterprises. Conversely, the internal service funds are combined into a single aggregated column in the proprietary fund statements. Individual fund data for the internal service funds is provided in the form of combining statements on pages 129 - 132 of this report. Prior-period adjustments made in the Proprietary Funds amount to $.6 reduction of Net Assets. Part of the adjustments ($.3) in the Water Fund and ($.1) in the Wastewater Fund relates to projects capitalized in prior years which should have been expensed. The other adjustment was in Parking ($.2) and relates to land posted to Parking in error in FY 03. The basic proprietary fund financial statements can be found on page 35 - 45 of this report. Fiduciary Funds – Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. Fudiciary funds represent agency funds and private-purpose trust funds. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations and use the accrual basis of accounting. Agency funds include activities of the Library Joint Powers Authority, Payroll Payables and Special Assessments. Trust funds are used to account for resources legally held in trust for special purposes, such as McCaskill Trust for Local History, McCaskill Trust for Visually Impaired and the Finkeldey Trust for Musical Literature. Notes to the Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 53 - 96 of this report. 6

Other Information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City of Santa Cruz’s progress in funding its obligation to provide pension benefits to its employees, as well as providing a budgetary comparison schedule for the General Fund and the Redevelopment Agency Fund. Required supplementary information can be found on pages 97 - 107 of this report. Additional budgetary schedules for the General Fund and the combining statements referred to earlier in connection with nonmajor governmental funds and internal service funds are presented immediately following the required supplementary information in the section of this report titled Supplemental Information. Combining and individual statements and schedules can be found on pages 116 - 128 of this report.

Government-Wide Financial Analysis (in $ millions) Net Assets. As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. In the case of the City of Santa Cruz, combined net assets (governmental and businesstype activities) totaled $436.1 at the close of the fiscal year ending June 30, 2007. By far the largest portion of the City’s net assets $316.5 or 72.6% reflects its investment in capital assets (e.g., land, streets, bridges, water and sewer lines, buildings, machinery, and equipment), less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’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. An additional portion of the City’s net assets $13.5 or 3.1% represents resources that are subject to external restrictions on how they may be used. The remaining $106.0 or 24.3% of the City’s net assets, are “unrestricted,” and may be used to meet the government’s ongoing obligations to citizens and creditors. City of Santa Cruz's Net Assets (amounts expressed in $ millions)

Current assets Noncurrent assets Capital assets

$

Governmental Activities 2007 2006 57.9 $ 53.3 6.8 8.6 157.8 154.7

$

Business-Type Activities 2007 2006 69.6 $ 56.4 18.1 33.3 257.9 249.9

$

Total 2007 127.5 $ 26.7 415.7

2006 109.7 40.1 404.6

224.3

214.8

345.6

339.6

569.9

554.4

Current liabilities Noncurrent liabilities

14.9 27.1

11.9 29.1

10.9 81.0

11.5 85.3

25.8 108.1

23.4 114.4

Total liabilities

42.0

41.0

91.9

96.8

133.9

137.8

144.2 13.4 24.6

142.2 12.1 19.4

164.2 78.0

164.3 78.5

308.4 13.4 102.6

306.5 12.1 97.9

Total assets

Net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total net assets

$

182.3

$

173.8

$

7

242.2

$

242.8

$

424.5

$

416.6

Changes in Net Assets. The City’s net assets increased by $20.0 or 4.8%, from the prior fiscal year. The City’s expenses cover a range of services. Further analysis is provided within the governmental and business-type activity sections. City of Santa Cruz Changes in Net Assets (amounts expressed in $ millions) Governmental Activities 2007 Revenues: Program revenues: Charges for services Operating grants and contributions Capital grants and contributions Total program revenues General revenues: Property taxes Sales and use taxes Franchise taxes Transient occupancy taxes Utility users taxes Admissions taxes Other taxes Total taxes Unrestricted grants and contributions Unrestricted investment earnings Gain (loss) on sale of assets Miscellaneous

$

Business-Type Activities

2006

25.0 5.4 5.7 36.1

$

24.7 2.1 2.5 29.3

2007

$

Total

2006

56.9 1.7 58.6

$

51.2 2.5 53.7

2007

$

2006

81.9 5.4 7.4 94.7

$

75.9 2.1 5.0 83.0

24.6 12.8 2.6 3.8 8.3 1.9 2.4 56.4 2.6 0.3 2.7

22.4 11.7 2.1 3.4 8.3 1.7 2.4 52.0 1.1 1.4 0.5

3.6 0.1 0.5

2.1 0.1 0.5

24.6 12.8 2.6 3.8 8.3 1.9 2.4 56.4 6.2 0.4 3.2

22.4 11.7 2.1 3.4 8.3 1.7 2.4 52.0 1.1 3.5 0.1 1.0

98.1

84.3

62.8

56.4

160.9

140.7

12.5 29.6 12.0 9.6 11.5 0.7 10.6 1.8 1.3 -

9.8 27.2 11.7 9.2 9.0 0.6 7.4 2.6 0.9 -

16.2 15.4 13.0 2.6 1.9 2.2

15.2 16.2 12.7 3.0 1.9 2.3

12.5 29.6 12.0 9.6 11.5 0.7 10.6 1.8 1.3 16.2 15.4 13.0 2.6 1.9 2.2

9.8 27.2 11.7 9.2 9.0 0.6 7.4 2.6 0.9 15.2 16.2 12.7 3.0 1.9 2.3

89.6

78.4

51.3

51.3

140.9

129.7

8.5

5.9

11.5

5.1

20.0

11.0

-

0.1

-

(0.1)

-

-

8.5

6.0

11.5

5.0

20.0

11.0

Net assets, beginning of year Prior period adjustment (Note 16)

173.8 0.1

162.2 -

242.8 (0.6)

232.5

416.6 (0.5)

394.7 -

Net assets, beginning of year (as restated)

173.9

167.8

242.2

237.8

416.1

405.6

Total revenues Expenses: General government Public safety Parks and recreation Library Public works Transit Community and economic development Social services Interest and charges on long term debt Water Wastewater Refuse Parking Storm water Golf course Total expenses Increase (decrease) in net assets before transfers Transfers Change in net assets

Net assets - end of year

$

182.4

8

$

173.8

$

253.7

$

242.8

$

436.1

$

416.6

Governmental Activities. Governmental activities increased the City’s net assets by $8.5. A comparison of the cost of services by function for the City’s governmental activities is shown below, along with the revenues used to cover the net expenses of the governmental activities. Governmental Activities (amounts expressed in $ millions) 2007

2006

Expenses net of program revenues: General government

$

Public safety

(5.9)

$

(5.1)

(25.3)

(23.7)

Parks and recreation

(8.0)

(8.2)

Library

(0.8)

(0.7)

Public works

(5.4)

(2.9)

Transit

3.2

0.9

Community and economic development

(8.2)

(5.9)

Social services

(1.8)

(2.6)

Interest and fiscal charges on long-term debt

(1.3)

(0.9)

Total expenses net of program revenues governmental activities

(53.5)

(49.1)

Property taxes

24.6

22.4

Sales and use taxes

12.8

11.7

Franchise taxes

2.6

2.1

Transient occupancy taxes

3.8

3.4

Utility users taxes

8.3

8.3

Admission taxes

1.9

1.7

Other taxes

2.4

2.4

56.4

52.0

General revenues and transfers: General revenues:

Total taxes Unrestricted grants and contributions

-

1.1

Unrestricted investment earnings

2.6

1.4

Gain on sale of assets

0.3

0.0

Miscellaneous

2.7

0.5

Transfers Total general revenues and transfers $

Change in governmental activities net assets

9

-

0.1

62.0

55.1

8.5

$

6.0

Governmental Expenses. Total governmental activity expenses were $89.6 in fiscal year 2007. The largest expenses were incurred for public safety, parks and recreation, public works and general government. These expenses do not include capital outlays, which are now reflected in the City’s capital assets.

EXPENSES FOR GOVERNMENTAL ACTIVITIES FY 2007

Social Services 2%

Interest on Debt 1% General Government 14%

Community Dev. 12% Transit 1%

Public Works 13%

Public Safety 33% Library 11%

Parks & Recreation 13%

Governmental Revenues. Per GASB 34, program revenues are derived directly from the program itself or from parties outside the reporting government’s taxpayers or citizenry. They reduce the net cost of the function to be financed from the government’s general revenues. Total program revenues from governmental activities were $29.3 in fiscal year 2007. Governmental program revenues derive primarily from charges for services, which include licenses and permits, planning fees, developer fees, recreation charges, traffic and other fines and forfeitures, charges to the Library Joint Powers Authority for personnel services provided, and several other revenues. Program revenues under the operating grants and contributions category include revenues restricted for specific purposes, such as gasoline tax and other federal, state and local grants. Program revenues in the capital grants and contributions category also include federal, state and local grants, but are restricted specifically to be used for capital projects or acquisitions.

10

General revenues are all other revenues not categorized as program revenues, and include all taxes, unrestricted grants, contributions and investment earnings, gains on sales of capital assets, and other miscellaneous revenues. Total general revenues from governmental activities were $62.8 in fiscal year 2007. Taxes of $56.4 comprised 89.8% of the City’s general revenues for fiscal year 2007. The largest single source of general revenues received during fiscal year 2007 was $24.6 of property taxes, or 39.1% of general revenues, followed by $12.7 of sales and use taxes, or 20.2% of general revenues.

REVENUES BY SOURCE GOVERNMENTAL ACTIVITIES FY 2007

Capital Grants 5%

Interest Earnings 3%

Miscellaneous Revenue 4%

Property Tax 25%

Operating Grants 5% Sales Tax 13% Charges for Service 26%

Other Taxes 2%

Franchise Tax 3%

Adm ission Tax 2%

Utility User Tax 8%

11

Transient Occupancy Tax 4%

Business Type Activities. Net assets for business-type activities were $253.7, an increase of $11.5 from the prior fiscal year. Total program revenues for business-type activities were $58.6. The largest program revenues were charges for services of $56.9. Other program revenues included capital grants and contributions of $1.7. Total expenses for the business-type activities were $51.3 during fiscal year 2007.

REVENUE AND EXPENSE BUSINESS ACTIVITIES, FY 2007 30 25 20 Revenue Expense

15 10 5

W

W

at er as te w at er R ef us e Pa rk in St g or m wa G te ol r fC ou rs e

0

12

REVENUES BY SOURCE BUSINESS ACTIVITIES FY 2006

Operating Grants 0%

Capital Grants 3% General Revenue 7%

Charges for Service 90%

Financial Analysis of Individual Funds (in $ millions) As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds - The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City’s governmental funds reported combined ending fund balances of $49.2 which is an increase of $2.3 or 4.9% over the previous year. Approximately $33.6 of the fund balance is unreserved fund balance, which is available for spending at the government’s discretion. Unreserved fund balance increased by $2.2 or 7.0% over the previous year. It should, however, be noted that 58.3% of the unreserved fund balance, or $19.6, has been designated for various purposes, such as debt service, capital projects, public art, police programs and the City Public Trust, leaving $14.0 unreserved and undesignated. The remainder of fund balance $15.6 is reserved to indicate that it is not available for spending because it has already been legally committed. General Fund – Total fund balance of the General Fund on June 30, 2007 was $26.4, an increase of $3.6 or 15.8% over the prior year. Approximately 85% of this amount, or $22.4, was unreserved. Of the unreserved fund balance, $8.5, or 32.2% has been designated for specific uses. The designations include $6.4 for the City Public Trust, and $1.6 for Accrued Compensated Absences (i.e. vacations), and varying small amounts for other activities, such as unemployment insurance, housing, parks and recreation programs, and equipment and facilities maintenance. The remaining unreserved balance of $13.9, or 52.7% of unreserved fund balance, is undesignated and represents an increase of $2.5 or 21.9% over the previous year. 13

As a measure of the General Fund’s liquidity, it may be useful to compare unreserved fund balance, the undesignated portion of the unreserved fund balance, and the total fund balance to total fund expenditures. Unreserved fund balance ($22.4) represents 33.2% of total General Fund expenditures ($67.5), including transfers out. Unreserved and undesignated fund balance ($13.9) represents 20.6% of total expenditures, and total fund balance ($26.4) represents 39% of total fund expenditures ($67.5). The 20.6% percent of total expenditures that is represented by the undesignated, unreserved fund balance ($13.9) exceeds the City Council’s targeted minimum reserve level of 10% of the operating budget for the General Fund. Increase in fund balance is a result of savings realized in Police due to vacant positions $2.4; Parks and Recreation of $1.4 mostly due to delays in hiring park rangers, other vacancies and hiring temporaries for permanent positions; Public Works $.9 due to vacancies in positions; Planning $.9 due to savings for professional services and from vacancies; Finance $.1 due to vacant positions; Redevelopment Administration $.3 due to vacant positions; and other miscellaneous savings throughout the City. Revenue collections in the General Fund met or exceeded expectations. Redevelopment Agency Fund – The City of Santa Cruz Redevelopment Agency is responsible for redevelopment of areas identified under the Community Redevelopment Law as being blighted. The Agency’s operations are funded primarily by the issuance of debt, which is expected to be repaid out of property tax increment revenue generated by increases in property assessed values in the redevelopment areas. At the end of fiscal year 2007, the total fund balance of the Redevelopment Agency Fund was $15.9, a decrease of $1.6 from the prior year, or 11.2%. Of that amount, $6.8 is reserved to indicate that it is not available for spending because it has already been legally committed. The remainder of the unreserved fund balance of $ 9.1 is designated for either debt service or capital projects and represents an increase of $1.1 or 13.8% over the previous year. The Redevelopment Agency Fund had revenues of $12.3, including $11.0 of property tax increment revenue. Expenditures in this fund amounted to $10.6 which is a decrease of $3.6 over the previous year due to decreases in capital expenditures for the Salz Tannery Project. Proprietary Funds. The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. They include both enterprise funds and internal service funds. For the government-wide financial statements, the internal service funds are consolidated with governmental activities, and the enterprise funds comprise the business-type activities. As discussed in the business-type activities section previously, the City’s net assets increased by $6.0 as a result of operations in the enterprise funds. Net assets ($2.0 negative) in the internal service funds represent a decreased deficit of $1.3 or 39.4% over prior year ($3.3 negative). The decrease is due to decreases in expenditures in risk management due to changes in the actuarial projections.

General Fund Budgetary Highlights. The final amended General Fund budget, including transfers out and advances, totaled $76.5 and included amendments to the original budget resulting in a $2.6 increase in operating expenditure appropriations. The principal amendments can be summarized as follows:

14

Operating Appropriations Increases. Significant Appropriations Increases: • • • • • • •

Group Health Internal Service fund was combined with the General Fund, $1.2 Legal expenses for UCSC Litigation, $.6 Prior year project carryover, Hwy 1/17 Merge Lanes, $.1 Parks Department salaries, equipment, park ranger program funded by Measure H funds, $.1 Police Department salaries, equipment, safety program funded by Measure H funds, $ .1 Fire Department equipment funded by OTS Grant, $.1 Many other miscellaneous adjustments, $.4

These appropriations were offset by reduced expenditures in other areas of $8.2. Savings were realized in Police due to vacant positions $2.4; Parks and Recreation of $1.4 mostly due to delays in hiring park rangers, other vacancies and hiring temporaries for permanent positions; Public Works $.9 due to vacancies in positions; Planning $.9 due to savings for professional services and from vacancies; Finance $.1 due to vacant positions; Redevelopment Administration $.3 due to vacant positions; and other miscellaneous savings throughout the City. Revenue collections in the General Fund met or exceeded budget. Those revenues which were better than budget are Sales and Use Tax ($.6), Transient Occupancy ($.1), Admissions ($.2), Property Transfer ($.4), and Investment Earnings ($.4). Capital Assets and Debt Administration (in $ millions) Capital Assets. The City’s investment in capital assets for its governmental and business-type activities as of June 30, 2007, amounts to $415.7, net of accumulated depreciation of $270.0. This investment in capital assets includes land, land improvements, infrastructure, buildings, machinery and equipment, lease improvements, software, and construction in progress. Infrastructure assets are items that are normally immovable and of value only to the City such as roads, bridges, streets and sidewalks, drainage systems, lighting systems and similar items. The total additions to capital assets were $18.6 net of depreciation. Additions included $6.5 moved from construction in progress to capital assets. Capital assets for the current fiscal year, after restatements and deletions, were $11.1, net of accumulated depreciation. Major capital asset additions during the current fiscal year included the following: 1. 2. 3. 4. 5. 6.

Bay Street Reservoir, $13.8 Recycling Facility Upgrades, $2.3 Vehicles, $ 2.5 Skate Park, $1.4 Beach Street Bike Path, $1.0 Sewer System Improvements, $.6

15

Changes in capital assets from the prior year (as restated) are shown in the following table. Additional information on the City’s capital assets can be found in Note 5 on pages 70 - 73 of this report. Capital Assets (net of depreciation) (amounts expressed in $ millions) Governmental Activities

Business-Type Activities

June 30 2007 Land

$

50.6

Construction in progress Land improvements Infrastructure

June 30 2006

$

2007

50.5

$

Total 2006

11.6

$

2007

11.9

$

2006

62.2

$

62.4

10.8

5.1

23.3

10.4

34.1

15.5

7.0

4.0

4.0

3.3

11.0

7.3

168.6

65.0

177.8

106.6

346.4

171.6

Buildings

35.4

26.5

160.2

107.9

195.6

134.4

Machinery and equipment

10.6

3.0

23.2

9.5

33.8

12.5

Lease improvements

0.7

0.4

0.1

0.1

0.8

0.5

Software

1.1

0.2

0.6

0.2

1.7

0.4

Totals

$

284.8

$

154.7

$

400.8

$

249.9

$

685.6

$

404.6

Debt Administration (in millions) Long Term Debt - At the end of the current fiscal year, the City had $121.3 in long term debt outstanding compared to $127.7 last year, a decrease of $6.4 or 5.0%. Decreases to claims and judgments payable ($.6) due to the settlement of a large claim, and normal retirements through annual debt service. The debt associated with governmental activities increased by $2.2 or 6.1% from $36.0 to $33.8. Business-type activity debt was decreased by $4.2 or 4.6% from $91.7 to $87.5. The major increase in debt during the year included lease purchase of refuse trucks. The City currently has $7.1 in outstanding general obligation debt. This debt was approved by voters in November 1998, and authorized an ad valorem tax override for acquisition of open space property, improvements to fire stations, acquisition of a fire administration headquarters building, and construction of a community park. This tax override is currently assessed at $9 per $100,000 of assessed value. The largest single debt obligation of the City is a note payable to the State of California for the construction of secondary treatment improvements at the City's wastewater treatment plant. As of June 30, 2007, the outstanding balance on this note was $35.4. The chart below illustrates the changes in bonds, notes, loans and leases payable for the year ending June 30, 2007.

Bonds, Notes, Loans and Leases Payable (amounts expressed in $ millions) Governmental Activities

Business-Type Activities

June 30 2007 Certificates of participation

$

Revenue bonds payable

June 30 2006

4.1

$

2007 4.2

$

Total 2006

19.2

$

2007

20.9

$

2006

23.3

$

25.1

-

-

22.6

23.3

22.6

General obligation bonds

7.1

7.1

-

-

7.1

23.3 7.1

Notes payable

2.9

4.2

35.3

37.8

38.2

42.0

Tax allocation bonds payable

5.0

5.1

-

-

5.0

5.1

Capital lease obligations

1.0

1.2

3.5

3.1

4.5

4.3

Other long-term liabilities

0.9

1.0

-

-

0.9

1.0

Totals

$

21.0

$

22.8

16

$

80.6

$

85.1

$

101.6

$

107.9

The City of Santa Cruz also has significant liabilities for claims and judgments, compensated absences (accrued vacation pay), and landfill closure and post-closure costs. The amounts and changes of these liabilities are shown below. Claims and Judgments, Compensated Absences, and Landfill Closure Costs Payable (amounts expressed in $ millions) June 30 2007 Claims and judgements

$

June 30, 2007 2006

10.4

$

11.0

$

Increase

Percent

(Decrease)

Change

(0.6)

-5.5%

Due in less

Due in more

than one year

than one year

$

$

2.9

7.5

Compensated absences

3.2

2.9

0.3

10.3%

2.2

1.0

Closure and post closure landfill costs

6.1

5.8

0.3

5.2%

-

6.1

0.6

6.9%

Totals

$

9.3

$

8.7

$

$

2.2

$

7.1

Additional information on the City of Santa Cruz’s long term debt can be found in Note 6 to the financial statements. Economic Climate The City of Santa Cruz, and Santa Cruz County for that matter, is closely tied to the regional economy of the nine-county San Francisco Bay Area and to Silicon Valley in particular. Fiscal Year 2007 showed signs of recovery at the national level, along with the Bay Area and Silicon Valley. Local private employers include a diverse array of manufacturing, business services, retail, hotel and food services, and biotechnology companies. In addition to the local private employers, the local economy also benefits from the University of California Santa Cruz. The University is a major employer, and has potential spin-off benefits from federal and state funded scientific research ventures including biomedical research, technology research, and adaptive optics. The state, and the bay area in particular, experienced modest growth in jobs, personal income, and tourism in 2007 and the economy is expected to continue to improve during 2007, albeit modestly. However, the bay area regional economic opportunities and challenges including continued job growth, housing prices, and interest rates. The national economic problems will, of course, have an affect on the local economy as well.

Requests for Information This financial report is designed to provide a general overview of the City’s finances for all of its citizens, taxpayers, customers, investors and creditors. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the City of Santa Cruz, Finance Department, 809 Center Street, Room 8, Santa Cruz, CA 95060.

17

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18

BASIC FINANCIAL STATEMENTS

19

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20

GOVERNMENT-WIDE FINANCIAL STATEMENTS

21

City of Santa Cruz Statement of Net Assets June 30, 2007

Primary Government Governmental

Business-Type

Activities

Activities

Total

ASSETS Current assets: Cash and cash equivalents

$

Restricted cash and cash equivalents Interest receivable

42,640,326

$

56,087,726

$

98,728,052

3,026,030

2,803,575

5,829,605

832,087

1,055,772

1,887,859

Taxes receivable

4,306,295

-

4,306,295

Accounts receivable - net

1,819,818

7,166,955

8,986,773

Due from other governments

2,725,206

1,085,238

3,810,444

Notes receivable - due within one year

209,215

-

209,215

Loans receivable - due within one year

69,600

-

69,600 1,151,684

-

1,151,684

Prepaid items

Intergovernmental receivable - due within one year

475,776

209,784

685,560

Inventories

194,132

-

194,132

1,630,012

30,000

1,660,012

57,928,497

69,590,734

127,519,231

283,042

1,369,711

1,652,753

Notes receivable - due in more than one year

5,878,047

401,058

6,279,105

Loans receivable - due in more than one year

1,338,317

-

1,338,317

-

15,008,579

15,008,579

Deferred charges

268,466

2,099,149

2,367,615

Long-term internal balances

805,249

Deposits Total current assets Noncurrent assets: Restricted investments

Intergovernmental receivable - due in more than one year

(805,249)

-

Capital assets: Land Land improvements Infrastructure

50,609,567

11,590,526

62,200,093

7,024,152

3,956,018

10,980,170

168,644,770

177,843,083

346,487,853

Buildings

35,421,568

160,220,644

195,642,212

Machinery and equipment

10,602,374

23,223,969

33,826,343

Lease improvements

724,114

70,000

794,114

1,102,389

555,257

1,657,646

Construction in progress

10,758,619

23,346,697

34,105,316

Total capital assets

284,887,553

400,806,194

685,693,747

(127,114,151)

(142,893,351)

(270,007,502)

Total capital assets, net

157,773,402

257,912,843

415,686,245

Total noncurrent assets

166,346,523

275,986,091

442,332,614

Total assets

224,275,020

345,576,825

569,851,845

Software

Less accumulated depreciation

See accompanying Notes to Basic Financial Statements.

22

City of Santa Cruz Statement of Net Assets, Continued June 30, 2007

Primary Government Governmental

Business-Type

Activities

Activities

Total

LIABILITIES Current liabilities: Accounts payable and other current liabilities

$

Intergovernmental payable

6,689,918

$

2,896,841

$

9,586,759

2,438

-

2,438

Interest payable

210,494

1,355,408

1,565,902

Unearned revenue

883,491

67,024

950,515

Deposits payable

317,303

47,065

364,368

Claims and judgments payable - due within one year

2,943,930

-

2,943,930

Compensated absences payable - due within one year

1,612,688

555,243

2,167,931

Bonds, notes, loans and leases payable - due within one year

2,134,425

5,973,258

8,107,683

14,794,687

10,894,839

25,689,526

Total current liabilities Noncurrent liabilities: Claims and judgments payable - due in more than one year

7,498,625

-

7,498,625

Compensated absences payable - due in more than one year

806,344

277,621

1,083,965

18,760,273

74,662,628

93,422,901

-

6,055,236

6,055,236

Total noncurrent liabilities

27,065,242

80,995,485

108,060,727

Total liabilities

41,859,929

91,890,324

133,750,253

144,203,036

172,324,984

316,528,020

Capital projects

4,285,115

-

4,285,115

Debt service

5,701,004

-

5,701,004

Public safety

148,312

-

148,312

92,338

-

92,338

Bonds, notes, loans and leases payable - due in more than one year Landfill closure costs

NET ASSETS Invested in capital assets, net of related debt Restricted for:

Parks and recreation Community and economic development Unrestricted Total net assets

3,421,905

-

3,421,905

24,563,381

81,361,517

105,924,898

$

182,415,091

$

253,686,501

$

436,101,592

Bal. Sheet Net Assets - IS Net Assets $

-

$

-

$

-

See accompanying Notes to Basic Financial Statements.

23

City of Santa Cruz Statement of Activities and Changes in Net Assets For the year ended June 30, 2007

Program Revenues

Functions/Programs

Charges for Services

Expenses

Operating

Capital

Grants and Contributions

Grants and Contributions

Total

Primary government: Governmental activities: General government

$

12,494,563

$

5,507,904

$

1,033,655

$

-

$

6,541,559

Public safety

29,646,507

3,410,308

895,204

87,504

4,393,016

Parks and recreation

12,002,102

3,011,980

40,439

910,660

3,963,079 8,894,858

9,644,172

8,894,858

-

-

11,509,715

4,072,956

2,008,490

12,202

6,093,648

646,548

-

-

3,794,755

3,794,755

10,616,686

108,009

1,462,166

864,517

2,434,692

1,758,216

-

-

-

-

1,304,447

-

-

-

-

89,622,956

25,006,015

5,439,954

5,669,638

36,115,607

Water

16,203,872

22,442,267

-

1,112,837

23,555,104

Wastewater

15,377,903

13,978,613

-

206,207

14,184,820

Refuse

12,974,413

15,108,051

15,575

-

15,123,626

Parking

2,632,045

2,697,863

-

79,093

2,776,956

Storm water

1,938,275

875,730

-

264,112

1,139,842

Golf course

2,165,390

1,770,614

24,895

-

1,795,509

Library Public works Transit Community and economic development Social services Interest and fiscal charges on long-term debt Total governmental activities Business-type activities:

Total business-type activities Total primary government

51,291,898 $

140,914,854

56,873,138 $

81,879,153

40,470 $

5,480,424

1,662,249 $

7,331,887

General Revenues: Taxes: Property taxes Sales and use taxes Franchise taxes Transient occupancy taxes Utility users taxes Admission taxes Other taxes Total taxes Unrestricted investment earnings Gain on sale of assets Miscellaneous Transfers Total general revenues and transfers Change in net assets Net assets - beginning of year (as restated) Net assets - end of year See accompanying Notes to Basic Financial Statements.

24

58,575,857 $

94,691,464

Net (Expense) Revenue and Changes in Net Assets Governmental Activities

Business-Type Activities

$

$

(5,953,004)

$

(5,953,004)

(25,253,491)

-

(25,253,491)

(8,039,023)

-

(8,039,023)

(749,314)

-

(749,314)

(5,416,067)

-

(5,416,067)

3,148,207

-

3,148,207

(8,181,994)

-

(8,181,994)

(1,758,216)

-

(1,758,216)

(1,304,447)

-

(1,304,447)

(53,507,349)

-

(53,507,349)

-

7,351,232

7,351,232

-

(1,193,083)

(1,193,083)

-

2,149,213

2,149,213

-

144,911

144,911

-

(798,433)

(798,433)

-

(369,881)

(369,881)

-

7,283,959

7,283,959

(53,507,349)

7,283,959

(46,223,390)

24,593,312

-

24,593,312

12,770,015

-

12,770,015

2,607,388

-

2,607,388

3,750,509

-

3,750,509

8,288,655

-

8,288,655

1,909,012

-

1,909,012

2,466,711

-

2,466,711

56,385,602

-

56,385,602

2,628,122

3,637,989

6,266,111

322,288

51,527

2,648,223 3,367

373,815

530,158 (3,367)

3,178,381 -

61,987,602

4,216,307

66,203,909

8,480,253

11,500,266

19,980,519

173,934,838 $

-

Total

182,415,091

242,186,235 $

253,686,501

416,121,073 $

436,101,592

25

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26

FUND FINANCIAL STATEMENTS

27

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28

Governmental Fund Financial Statements General Fund - The General Fund is used to account for sources and uses of financial resources traditionally associated with governments, and which are not required to be accounted for in another fund. Redevelopment Agency Fund - The Redevelopment Agency fund is used to account for all the activities of the City of Santa Cruz Redevelopment Agency. This includes the accumulation of resources for and the payment of interest and principal on debt issued to finance redevelopment activities, and general redevelopment operations. Other Governmental Funds - Other Governmental funds is the aggregate of all the non-major governmental funds.

29

City of Santa Cruz Balance Sheet Governmental Funds June 30, 2007

Major Funds

Other

Total

General

Redevelopment

Governmental

Governmental

Fund

Agency

Funds

Funds

ASSETS Cash and cash equivalents

$

Interest receivable Taxes receivable

19,019,016

$

8,417,311

$

8,353,702

$

35,790,029

204,876

180,335

376,282

761,493

3,311,927

357,069

637,299

4,306,295

Accounts receivable - net

935,181

101,305

776,302

1,812,788

Due from other governments

325,222

-

2,399,984

2,725,206

3,895,686

-

-

3,895,686

475,776

-

-

475,776

Cash and cash equivalents

-

3,016,345

9,685

3,026,030

Investments

-

-

283,042

283,042

-

3,016,345

292,727

3,309,072

Due from other funds Prepaid items Restricted assets:

Total restricted assets Deposits

237,553

-

-

237,553

Notes receivable - net

266,964

4,874,571

945,727

6,087,262

-

-

1,407,917

1,407,917

2,131,815

351,000

-

2,482,815

Loans receivable - net Advances to other funds Inventory of land held for resale - net Total assets

-

60,491

-

60,491

$

30,804,016

$

17,358,427

$

15,189,940

$

63,352,383

$

3,358,803

$

240,637

$

2,854,696

$

6,454,136

LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Due to other funds

-

-

3,330,360

Intergovernmental payable

-

-

2,438

2,438

125,728

-

700,742

826,470 883,491

Deferred revenue

3,330,360

Unearned revenue

617,556

-

265,935

Deposits payable

151,509

165,794

-

317,303

-

1,005,400

1,229,332

2,234,732

Advances from other funds Claims and judgments payable Total liabilities

131,000

-

-

131,000

4,384,596

1,411,831

8,383,503

14,179,930

4,006,713

6,820,346

4,788,047

15,615,106 8,488,474

Fund Balances: Reserved Unreserved, designated, reported in: General fund

8,488,474

-

-

Redevelopment Agency fund

-

9,126,250

-

9,126,250

Special revenue funds

-

-

1,053,286

1,053,286

Debt service funds

-

-

909,576

909,576 13,924,233

Unreserved, undesignated, reported in: General fund

13,924,233

-

-

Special revenue funds

-

-

2,851,774

2,851,774

Capital projects funds

-

-

(2,796,246)

(2,796,246)

26,419,420

15,946,596

6,806,437

49,172,453

Total fund balances Total liabilities and fund balances

$

30,804,016

See accompanying Notes to Basic Financial Statements.

30

$

17,358,427

$

15,189,940

$

63,352,383

City of Santa Cruz

Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Assets June 30, 2007

Total Fund Balances - All Governmental Funds

$

49,172,453

Amounts reported for Governmental Activities in the Statement of Net Assets were different because: Capital assets used in governmental activities are not current financial resources. Therefore, they are not reported in the governmental funds. Except for the internal service funds reported below, the capital assets are adjusted as follows: Non-depreciable

GovernmentWide Statement of Net Assets

Internal Service Funds

$

$

Depreciable, net

61,368,186 96,405,216

$

Total capital assets

157,773,402

$

-

61,368,186

(195,360)

96,209,856

(195,360)

157,578,042

Interest payable on long-term debt does not require current financial resources. Therefore, interest payable is not reported as a liability in the governmental funds.

(210,494)

Internal Service Funds are used by management to charge the costs of certain activities, such as insurance and equipment management, to individual funds. The assets and liabilities of the Internal Service Funds are included in governmental activities in the statement of net assets. Equipment Operations Fund

713,332

Stores Services Fund

-

Telecommunications Fund

209,420

Risk Management Fund

(2,874,767)

Total internal service funds

(1,952,015)

Other long-term assets are not available to pay for current-period expenditures and, therefore, are deferred in the funds. Noncurrent liabilities were not due and payable in the current period. Therefore, they are not reported in the governmental funds. Except for the internal service funds reported above, the long-term liabilities are adjusted as follows. Compensated absences payable - due within one year

826,470 GovernmentWide Statement of Net Assets

Internal Service Funds

$

$

Compensated absences payable - due in more than one year

(1,612,688) (806,344)

Bonds, notes, loans and leases payable - due within one year Bonds, notes, loans and leases payable - due in more than one year Total long-term liabilities

$

30,599

(1,582,089)

15,300

(791,044)

(2,134,425)

-

(2,134,425)

(18,760,273)

-

(18,760,273)

45,899

(23,267,831)

(23,313,730)

$

Certain transactions related to debt issuance and refunding are reported as expenditures and other financing sources/uses in the governmental funds. For the statement of net assets, the net amount of these transactions is capitalized as deferred charges, and will be amortized as an adjustment to interest expense over the remaining life of the debt. Net Assets of Governmental Activities

268,466 $

See accompanying Notes to Basic Financial Statements.

31

182,415,091

City of Santa Cruz Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the year ended June 30, 2007

Major Funds Other

Total

General

Redevelopment

Governmental

Governmental

Fund

Agency

Funds

Funds

REVENUES: Taxes

$

Licenses and permits Intergovernmental

42,837,408

$

11,022,799

$

2,525,395

$

56,385,602

824,258

-

-

824,258

1,563,745

-

9,400,129

10,963,874 19,852,885

Charges for services

19,786,417

-

66,468

Fines and forfeitures

2,218,082

-

24,465

2,242,547

Use of money and property

3,061,718

844,921

468,706

4,375,345

187,732

384,865

1,891,666

2,464,263

70,479,360

12,252,585

14,376,829

97,108,774

Other revenues Total revenues EXPENDITURES: General government

12,261,663

-

-

12,261,663

Public safety

28,469,065

-

105,000

28,574,065

Parks and recreation

9,653,531

-

-

9,653,531

Library

9,693,097

-

-

9,693,097

Public works

4,233,034

-

707,017

4,940,051

Transit Community and economic development

-

-

646,548

646,548

13,424

8,235,291

1,780,277

10,028,992

Social services

1,651,827

-

106,389

1,758,216

Capital outlay

1,338,184

156,159

13,373,594

14,867,937

178,385

1,649,689

375,794

2,203,868

47,643

571,423

459,766

1,078,832

67,539,853

10,612,562

17,554,385

95,706,800

2,939,507

1,640,023

(3,177,556)

1,401,974

Debt service: Principal Interest and fiscal charges Total expenditures REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Proceeds from asset disposition Transfers in

62,804

-

285,737

348,541

615,094

8,288

637,132

1,260,514

Transfers out

(677)

Total other financing sources (uses) Net change in fund balances

-

(708,812)

(709,489)

214,057

899,566

677,221

8,288

3,616,728

1,648,311

(2,963,499)

2,301,540

22,802,692

14,298,285

9,769,936

46,870,913

FUND BALANCES: Beginning of year End of year

$

26,419,420

See accompanying Notes to Basic Financial Statements.

32

$

15,946,596

$

6,806,437

$

49,172,453

City of Santa Cruz Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Government-Wide Statement of Activities and Changes in Net Assets For the year ended June 30, 2007

Net Change in Fund Balances - All Governmental Funds

$

2,301,540

Amounts reported for governmental activities in the Statement of Activities and Changes in Net Assets were different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period, excluding the internal service funds, which are reported below.

2,984,924

The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins, and capital contributions) is to increase net assets.

(26,253)

Revenues considered "unavailable" at the end of the previous fiscal year were collected during the current year and are reported as revenues in the governmental funds. These revenues were previously included in the statement of activities.

145,718

Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds.

(278,400)

Proceeds of long-term debt and payments to refunding bond escrow agents are reported as financing sources/uses in governmental funds. In the statement of net assets, however, issuing or refinancing debt affects noncurrent liabilities.

(25,627)

Certain costs related to issuing new debt and refunding existing debt are reported as expenditures and financing uses in the governmental funds, but are capitalized in the statement of net assets, and will be amortized over the remaining life of the debt.

(116,262)

Repayment of principal is an expenditure in governmental funds, but reduces noncurrent liabilities in the statement of net assets.

2,203,868

Accrued but unpaid and accreted interest on long-term debt is reported in the statement of activities, but does not require the use of current financial resources. Therefore, it is not reported as an expenditure in the governmental funds.

(82,832)

Internal service funds are used by management to charge the costs of certain activities, such as insurance and equipment management, to individual funds. The net revenue of the internal service funds is reported with governmental activities. Change in Net Assets of Governmental Activities

1,373,577 $

See accompanying Notes to Basic Financial Statements.

33

8,480,253

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34

Proprietary Fund Financial Statements Water - Accounts for the activities of the City's water utility, which provides water delivery services to the residents of the City and some residents of the County. Wastewater - Accounts for the activities of the City's wastewater utility, which provides wastewater collection and treatment services to the residents of the City and some residents of the County. Refuse - Accounts for the activities of the City's refuse utility, which provides refuse pick-up services, recycling services, and a sanitary landfill for residents of the City. Parking - Accounts for the activities of the Downtown Parking District, which provides parking facilities in the downtown area. Storm Water - Accounts for storm water utility fees on properties within the City limits. These fees provide funding for flood control improvements associated with the U.S. Army Corps of Engineers San Lorenzo River Flood Control project, storm water pollution prevention programs, and measures to comply with the U.S. Environmental Protection Agency Non-Point Pollution Discharge Emissions Standards Program (NPDES). Golf Course - Accounts for the activities of the Delaveaga Golf Course, which provides recreational facilities to the public. Internal Service Funds - These funds are used to provide goods and services by one department or agency to other departments or agencies of the City on a cost reimbursement basis.

35

City of Santa Cruz Statement of Net Assets Proprietary Funds June 30, 2007

Enterprise Funds

Water

Wastewater

Refuse

Parking

ASSETS Current assets: Cash and cash equivalents

$

31,622,891

$

8,846,168

$

9,283,779

$

3,675,928

Restricted cash and cash equivalents

103,261

671,680

1,239,032

513,577

Interest receivable

384,675

494,115

108,274

42,184

3,740,192

1,717,406

1,551,135

35,026

-

581,999

-

41,431

Accounts receivable - net Due from other governments Notes receivable - due within one year

-

-

-

-

Intergovernmental receivable - due within one year

-

1,151,684

-

-

76,285

50,857

82,642

-

Inventories

Prepaid items

-

-

-

-

Deposits

-

-

-

30,000

35,927,304

13,513,909

12,264,862

4,338,146

Total current assets Noncurrent assets: Restricted investments Notes receivable - due in more than one year Intergovernmental receivable - due in more than one year

-

-

1,080,087

-

401,058

-

-

-

-

15,008,579

-

-

13,585

89,332

-

-

431,843

261,749

294,169

202,329

3,654,410

1,371,330

98,575

4,638,102

71,900

910,270

-

280,701

54,474,851

51,627,684

19,746,219

805,464

Buildings

9,204,251

126,672,607

2,709,093

20,398,375

Machinery and equipment

6,038,540

3,717,114

12,589,999

196,242

-

70,000

-

-

249,431

196,557

99,336

9,933

Advances to other funds Deferred charges Capital assets: Land Land improvements Infrastructure

Lease improvements Software Construction in progress

21,742,895

Less accumulated depreciation

466,907

25,465

346,709

(36,453,960)

(69,535,415)

(18,700,885)

(7,221,185)

Total capital assets (net of accumulated depreciation)

58,982,318

115,497,054

16,567,802

19,454,341

Total noncurrent assets

59,828,804

130,856,714

17,942,058

19,656,670

Total assets

95,756,108

144,370,623

30,206,920

23,994,816

See accompanying Notes to Basic Financial Statements.

36

Enterprise Funds

Governmental Activities Internal

Storm Water

$

Golf Course

2,658,907 611

$

Total

53 275,414

29,685

(3,161)

$

Service Funds

56,087,726

$

6,850,297

2,803,575

-

1,055,772

70,594 7,030

36,810

86,386

7,166,955

454,208

7,600

1,085,238

-

-

-

-

-

-

-

1,151,684

-

-

-

209,784

-

-

-

-

133,641

-

-

30,000

1,392,459

3,180,221

366,292

69,590,734

8,454,021

-

289,624

1,369,711

-

-

-

401,058

-

-

-

15,008,579

-

-

-

102,917

-

775,912

133,147

2,099,149

-

8,822

1,819,287

11,590,526

242,277

2,450,870

3,956,018

-

50,954,503

234,362

177,843,083

-

-

1,236,318

160,220,644

-

6,421

675,653

23,223,969

1,157,143

-

-

70,000

-

-

-

555,257

336,296

764,721

-

23,346,697

-

(9,385,974)

(1,595,932)

(142,893,351)

(1,298,079)

42,590,770

4,820,558

257,912,843

195,360

43,366,682

5,243,329

276,894,257

195,360

46,546,903

5,609,621

346,484,991

8,649,381

(Continued)

37

City of Santa Cruz Statement of Net Assets, Continued Proprietary Funds June 30, 2007

Major Funds

Water

Wastewater

Refuse

Parking

LIABILITIES Current liabilities: Accounts payable and other current liabilities

$

1,252,702

Due to other funds Interest payable Unearned revenue Deposits payable

$

842,029

$

575,325

$

79,998

-

-

-

-

185,000

911,273

118,362

50,121

622

-

48,013

-

27,561

58

603

18,843

Claims and judgments payable

-

-

-

-

Compensated absences payable

240,141

122,562

162,452

8,735

due in less than one year

293,126

2,699,538

2,355,291

205,000

Total current liabilities

1,999,152

4,575,460

3,260,046

362,697 351,000

Bonds, notes, loans and leases payable

Noncurrent liabilities: Advances from other funds

-

-

-

Claims and judgments payable

-

-

-

-

Compensated absences payable

120,070

61,281

81,226

4,367

12,553,584

36,412,158

10,217,696

5,940,000

-

-

6,055,236

-

Bonds, notes, loans and leases payable due in more than one year Landfill closure costs Total noncurrent liabilities

12,673,654

36,473,439

16,354,158

6,295,367

Total liabilities

14,672,806

41,048,899

19,614,204

6,658,064

Invested in capital assets, net of related debt

45,741,818

74,047,454

2,812,472

13,108,004

Unrestricted

35,341,484

29,274,270

7,780,244

4,228,748

NET ASSETS

Total net assets

$

81,083,302

$

103,321,724

$

10,592,716

$

17,336,752

$

-

$

-

$

-

$

-

See accompanying Notes to Basic Financial Statements.

38

Major Funds

Governmental Activities Internal

Storm Water

$

Golf Course

54,701

$

-

Total

92,086

$

Service Funds

2,896,841

$

235,782

557,166

557,166

8,160

58,031

32,621

1,355,408

-

-

18,389

67,024

-

-

-

47,065

-

-

-

-

2,812,930

1,861

19,492

555,243

30,599

170,000

250,303

5,973,258

-

284,593

970,057

11,452,005

3,087,471

-

-

351,000

-

-

-

-

7,498,625

931

9,746

277,621

15,300

5,770,000

3,769,190

74,662,628

-

-

-

6,055,236

-

5,770,931

3,778,936

81,346,485

7,513,925

6,055,524

4,748,993

92,798,490

10,601,396

36,490,770

124,466

172,324,984

4,000,609

736,162

81,361,517

$

40,491,379

$

860,628

$

253,686,501

$

-

$

-

$

-

195,360 (2,147,375) $

(1,952,015)

(Concluded)

39

City of Santa Cruz Statement of Revenues, Expenses and Changes in Net Assets Proprietary Funds For the year ended June 30, 2007

Enterprise Funds

Water

Wastewater

Refuse

Parking

OPERATING REVENUES: Charges for services

$

22,442,267

$

13,978,613

$

15,108,051

$

2,697,863

Use of property

6,600

-

-

139,548

Other revenues

246,898

1,304

49,863

44,920

22,695,765

13,979,917

15,157,914

2,882,331

7,138,553

4,472,202

5,770,172

996,117

Total operating revenues OPERATING EXPENSES: Personnel services Services, supplies, and other charges

6,927,313

5,368,800

4,726,929

835,390

Depreciation and amortization

1,865,073

4,362,255

1,866,235

486,577

Total operating expenses

15,930,939

14,203,257

12,363,336

2,318,084

Operating income (loss)

6,764,826

2,794,578

564,247

(223,340)

NONOPERATING REVENUES (EXPENSES): Intergovernmental Investment earnings Interest expense and fiscal charges Debt issuance costs Gain (loss) on sale of capital assets

-

206,207

15,575

79,093

1,826,747

801,488

531,447

191,062

(258,573)

(1,152,180)

(574,272)

(304,051)

(14,360)

(22,466)

(36,805)

(9,910)

3,067

2,680

(4,726)

50,506

(68,781)

6,700

Total nonoperating revenues (expenses)

1,556,881

(164,271)

Income (loss) before contributions and transfers

8,321,707

(387,611)

2,725,797

570,947

1,112,837

-

-

-

-

-

Capital contributions Transfers in

7,644

Transfers out

-

(777)

(5,038)

(5,196)

-

(5,196)

-

Total contributions and transfers

1,119,704

(5,038)

Change in net assets

9,441,411

(392,649)

2,720,601

570,947

7,872,115

16,922,805

NET ASSETS: Beginning of year

72,019,358

Prior period adjustment (Note 16)

(377,467)

Beginning of year, as restated End of year

103,829,258 (114,885)

71,641,891 $

81,083,302

See accompanying Notes to Basic Financial Statements.

40

-

103,714,373 $

103,321,724

(157,000)

7,872,115 $

10,592,716

16,765,805 $

17,336,752

Enterprise funds

Governmental Activities Internal

Storm Water

$

Golf Course

875,730

$

1,770,614

$

Service Funds

56,873,138

$

7,905,452

-

1,120

147,268

-

-

187,173

530,158

21,947

875,730

1,958,907

57,550,564

7,927,399

92,984

833,364

19,303,392

1,198,645

224,972

909,479

18,992,883

5,059,535

1,322,031

205,446

10,107,617

86,192

1,639,987

1,948,289

48,403,892

6,344,372

(764,257)

10,618

9,146,672

1,583,027

264,112

24,895

589,882

-

122,023

17,954

3,490,721

339,102

(241,333)

(206,620)

(2,737,029)

(56,955)

(10,481)

(150,977)

-

-

-

51,527

-

87,847

(174,252)

1,244,124

338,208

(676,410)

(163,634)

10,390,796

1,921,235

-

-

1,112,837

-

-

-

7,644

129,288

-

-

(11,011)

(676,946)

-

-

1,109,470

(676,410)

(163,634)

11,500,266

1,373,577

242,835,587

(3,325,592)

41,167,789

$

Total

1,024,262

-

-

41,167,789

1,024,262

40,491,379

$

860,628

(894)

(547,658)

(649,352)

-

242,186,235 $

253,686,501

(3,325,592) $

(1,952,015)

41

City of Santa Cruz Combining Statement of Cash Flows Proprietary Funds For the year ended June 30, 2007

Major Funds

Water

Wastewater

Refuse

Parking

CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers and users

$

Cash received from interfund services provided

21,570,235

$

656,678

13,058,038

$

28,555

14,218,492

$

2,403

2,684,952 9,241

Cash payments to suppliers for goods and services

(5,658,218)

(3,981,135)

(2,177,661)

(958,507)

Cash payments to employees for services

(7,106,775)

(4,492,632)

(5,786,226)

(991,625)

Cash payments for interfund services used

(2,061,278)

(1,026,603)

(2,276,388)

(38,392)

-

(105,336)

(70,383)

79,093

Cash payments to other governments Cash received from (payments to) others Net cash provided (used) by operating activities

253,498

1,362

49,863

184,468

7,654,140

3,482,249

3,960,100

969,230

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers in

7,644

Transfers out

(777)

Advances from other funds

-

Advances to other funds Receipts from other governments Net cash provided (used) by noncapital financing activities

-

-

-

(5,038)

(5,196)

-

-

-

254,499

8,045

10,669

-

-

-

1,120,317

26,575

50,413

14,912

1,125,948

21,379

304,912

1,112,837

-

-

-

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Capital contributions Purchase and construction of capital assets

(15,878,467)

(882,626)

(1,706,340)

138,675

Principal paid on capital debt

(379,430)

(2,314,975)

(1,145,540)

(191,427)

Interest paid on capital debt

(215,509)

(1,236,160)

(626,807)

(314,248)

Proceeds from sales of capital assets

3,067

2,680

(4,725)

50,506

Net cash provided (used) by capital and related financing activities

(15,357,502)

(4,431,081)

(3,483,412)

(316,494)

12,000,000

-

(21,987)

-

-

-

-

1,762,026

815,871

497,027

175,807

13,762,026

815,871

475,040

666,935

6,073,576

992,987

973,107

1,624,583

25,652,576

8,524,861

9,549,704

2,564,922

CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales and maturities of investments Interest receivables Investment income received Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents

491,128

CASH AND CASH EQUIVALENTS: Beginning of year End of year

$

31,726,152 -

See accompanying Notes to Basic Financial Statements.

42

$

9,517,848 -

$

10,522,811 -

$

4,189,505 -

Major Funds

Governmental Activities Internal

Storm Water

$

$

Golf Course

875,977

$

Total

1,747,596

$

Service Funds

54,155,290

$

696,877

166,159

-

-

(346,777)

(602,020)

(13,724,318)

(3,088,114)

7,763,957

(91,999)

(829,557)

(19,298,814)

(1,188,787)

64,800

(322,744)

(5,660,605)

(3,093,352)

9,148

-

(87,478)

-

-

745,459

1,234,650

-

511,149

738,734

17,315,602

559,863

-

-

7,644

-

-

(11,011)

(547,658)

-

(439,293)

(184,794)

-

-

439,293

-

458,007

-

579,563

24,895

1,801,763

-

1,018,856

(414,398)

2,071,609

(547,658)

-

-

1,112,837

-

(433,894)

(43,896)

(18,806,548)

(8,296)

(87,261)

(226,825)

(4,345,458)

(21,060)

(300,219)

(218,394)

(2,911,337)

(870)

-

-

(821,374)

(489,115)

(24,898,978)

-

145,628

12,614,769

-

-

-

-

(12,438)

112,637

22,515

3,385,883

339,101

112,637

168,143

16,000,652

326,663

821,268

3,364

10,488,885

308,642

1,838,250

272,103

48,402,416

6,541,655

2,659,518 -

$

275,467 -

51,528

$

58,891,301 -

(30,226)

$

6,850,297 (Continued)

43

City of Santa Cruz Combining Statement of Cash Flows, Continued Proprietary Funds For the year ended June 30, 2007

Major Funds

Water

Wastewater

Refuse

Parking

RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Operating income (loss)

$

6,764,826

$

(223,340)

$

2,794,578

$

564,247

Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization

1,865,073

4,362,255

1,866,235

486,577

-

-

303,829

-

(222,466)

(891,973)

(898,079)

(1,651)

(43,919)

(33,238)

(47,139)

3,495

Inventories

-

-

-

-

Notes and loans receivable

-

25,962

-

-

(748,264)

229,764

(101,332)

(82,416)

Estimated closure/postclosure costs Changes in assets and liabilities: Accounts receivable Prepaid items

Accounts payable and other current liabilities Due to other funds

-

-

-

-

Deferred revenue

-

-

10,573

-

Deposits payable

7,112

350

(2,019)

(47)

Claims and judgments payable

-

58

-

-

Compensated absences payable

31,778

12,808

31,085

997

889,314

3,705,589

1,165,522

404,983

Total adjustments Net cash provided (used) by operating activities

$

See accompanying Notes to Basic Financial Statements.

44

7,654,140

$

3,482,249

$

3,960,100

$

969,230

Major Funds

Governmental Activities Internal

Storm Water

$

$

Golf Course

(764,257)

$

Total

10,618

$

Service Funds

9,146,672

$

1,588,357

1,322,031

205,446

10,107,617

86,192

-

-

303,829

-

247

(23,018)

190

5,397

(115,214)

-

-

-

(2,036,940)

24,664 4,410 (247,385)

-

-

(47,857)

(20,682)

(770,787)

25,962

-

557,166

557,166

-

-

10,573

-

-

5,396

(152) (668,531)

-

-

58

795

3,807

81,270

1,275,406

728,116

8,168,930

511,149

$

738,734

$

17,315,602

(229,266) (3,518) -

5,092 (1,028,494) $

559,863

(Concluded)

45

This page intentionally left blank.

46

Fiduciary Fund Financial Statements Private - Purpose Trust Funds: Private-purpose trust funds are used to report the trust arrangements under which the principal and income benefit the Library Joint Powers Authority. Agency Funds: Agency funds are used to account for resources held by the City in a custodial capacity. These funds account for the receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments.

47

City of Santa Cruz Statement of Fiduciary Net Assets Fiduciary Funds June 30, 2007

PrivatePurpose

Agency

Trust Funds

Funds

ASSETS Cash and cash equivalents

$

Restricted cash and cash equivalents

537,000

$

-

1,644,287 75,985

Receivables: Interest receivable Taxes receivable Accounts receivable

6,147

16,701

-

651,199

-

530,842

Due from other governments

-

27,620

Prepaid items

-

-

Total assets

$

543,147

$

-

$

2,946,634

LIABILITIES Accounts payable and other current liabilities

$

Due to other governments

-

841,384 1,281,985

Deposits payable

-

533,653

Payable to bondholders

-

289,612

Total liabilities

-

NET ASSETS Held in trust for library programs

$

See accompanying Notes to Basic Financial Statements.

48

543,147

$

2,946,634

City of Santa Cruz Statement of Changes in Fiduciary Net Assets Fiduciary Funds For the year ended June 30, 2007

PrivatePurpose Trust Funds ADDITIONS: Investment earnings

$

Total additions

28,205 28,205

DEDUCTIONS: Library programs

9,027

Total deductions

9,027

Change in net assets

19,178

NET ASSETS: Beginning of year

523,969

End of year

$

See accompanying Notes to Basic Financial Statements.

49

543,147

This page intentionally left blank.

50

City of Santa Cruz Index to Notes to the Basic Financial Statements For the year ended June 30, 2007

Page Note 1 - Summary of Significant Accounting Policies..................................................................................53 A. B. C. D. E. F. G. H. I. J. K. L. M. N. O. P. Q. R.

Reporting Entity..............................................................................................................................53 Basis of Accounting and Measurement Focus............................................................................53 Use of Restricted/Unrestricted Net Assets.................................................................................56 Cash, Cash Equivalents and Investments ...................................................................................56 Restricted Cash and Investments with Fiscal Agents................................................................56 Prepaid Items ..................................................................................................................................57 Inventories .......................................................................................................................................57 Interfund Transactions...................................................................................................................57 Capital Assets..................................................................................................................................58 Interest Payable...............................................................................................................................58 Deferred Revenue ...........................................................................................................................59 Compensated Absences .................................................................................................................59 Bond Premiums, Discounts, and Issuance Costs .......................................................................59 Long-Term Debt..............................................................................................................................59 Net Assets ........................................................................................................................................60 Fund Balances – Reservations and Designations .......................................................................60 Property Taxes ................................................................................................................................60 Use of Estimates..............................................................................................................................60

Note 2 - Cash Deposits and Investments .........................................................................................................60 A. Cash Deposits..................................................................................................................................61 B. Investments .....................................................................................................................................62 C. Risk Disclosures ..............................................................................................................................63 Note 3 – Receivables ............................................................................................................................................66 Note 4 – Interfund Balances and Transactions ...............................................................................................67 A. Government-Wide Financial Statements ....................................................................................67 B. Fund Financial Statements ............................................................................................................68 Note 5 – Capital Assets ........................................................................................................................................70 A. Government-Wide Financial Statements ....................................................................................70 B. Fund Financial Statements ............................................................................................................73

51

City of Santa Cruz Index to Notes to the Basic Financial Statements, Continued For the year ended June 30, 2006

Page Note 6 – Long-Term Debt....................................................................................................................................73 A. Governmental Activities Long-Term Debt .................................................................................73 B. Proprietary Fund Obligations .......................................................................................................79 Note 7 – Risk Management and Self Insurance..............................................................................................85 Note 8 – Landfill Closure and Postclosure Costs ...........................................................................................87 Note 9 – Retirement Plans...................................................................................................................................88 A. Pension Plan ....................................................................................................................................88 Note 10 – Post-Employment Retirement Benefits ..........................................................................................90 Note 11 – Commitments and Contingencies ...................................................................................................90 Note 12 – Operating Leases ................................................................................................................................92 Note 13 – Reserved and Designated Fund Balances ......................................................................................93 Note 14 – Deficit Net Assets ...............................................................................................................................94 Note 15 – Subsequent Events .............................................................................................................................94 Note 16 – Prior Period Adjustments..................................................................................................................95 A. Government-Wide Financial Statements ....................................................................................95 B. Fund Financial Statements ............................................................................................................95

52

City of Santa Cruz

Notes to Basic Financial Statements For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The basic financial statements of the City of Santa Cruz, California (City) have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental agencies. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the City’s accounting policies are described below. A. Reporting Entity The City was incorporated as a town in 1866 under the laws of the State of California. It became a City in 1876. The City is a charter city administered under a council/manager form of government. The financial statements present the City and its component units (legally separate entities for which the City is considered to be financially accountable). Component units include those entities for which the City may have governing authority or is in a relationship of financial benefit or burden. Component units also include entities that are fiscally dependent upon the City. The financial activities of these entities are integrally related to those of the City and, therefore, blended with those of the City. Blending involves aggregating/merging component unit data and data from the City at the combined financial statement level. Based on the above criteria, the accompanying financial statements include the financial activities of the following entities as blended component units. Separate financial statements of these entities can be obtained from the Finance Department of the City. City of Santa Cruz Redevelopment Agency - The City of Santa Cruz Redevelopment Agency (Agency) was formed in 1956 to improve social, physical and economic conditions of the City by constructing a series of commercial, residential and public buildings in the downtown area. The City's Council members are the Agency's Directors and have full accountability for the Agency's fiscal matters. Santa Cruz Public Improvement Financing Corporation - The Santa Cruz Public Improvement Financing Corporation (Corporation) is a non-profit benefit corporation organized and operated under the laws of the State of California. The primary purpose of the Corporation is to serve as a financing vehicle for the City. The City Council has final responsibility for the operations of the Corporation. B. Basis of Accounting and Measurement Focus The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Government - Wide Financial Statements The City’s Government-Wide Financial Statements include a Statement of Net Assets and a Statement of Activities and Changes in Net Assets. These statements present summaries of governmental and business-type activities for the City accompanied by a total column. Fiduciary activities of the City are not included in these statements. 53

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued B. Basis of Accounting and Measurement Focus, Continued Government - Wide Financial Statements, Continued These basic financial statements are presented on an “economic resources” measurement focus and the accrual basis of accounting. Accordingly, all of the City’s assets and liabilities, including capital assets, as well as infrastructure assets, and long-term liabilities, are included in the accompanying Statement of Net Assets. The Statement of Activities presents changes in net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. Certain types of transactions are reported as program revenues for the City in three categories: Charges for services ¾ Operating grants and contributions ¾ Capital grants and contributions ¾

Certain eliminations have been made as prescribed by GASB Statement No. 34 in regards to interfund activities, payables and receivables. All internal balances in the Statement of Net Assets have been eliminated except those representing balances between the governmental activities and the businesstype activities, which are presented as internal balances and eliminated in the total primary government column. In the Statement of Activities and Changes in Net Assets, internal service fund transactions have been eliminated; however, those transactions between governmental and businesstype activities have not been eliminated. The following interfund activities have been eliminated: Due to/from other funds Advances to/from other funds ¾ Transfers in/out ¾ ¾

For its business type activities, the City applies all applicable GASB pronouncements currently in effect, as well as Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board (APB) Opinions, and Accounting Research Bulletins (ARB) of the Committee on Accounting Procedure that do not conflict with or contradict GASB pronouncements. Governmental Fund Financial Statements Governmental Fund Financial Statements include a Balance Sheet and a Statement of Revenues, Expenditures and Changes in Fund Balances for all major governmental funds and non-major funds aggregated. An accompanying schedule is presented to reconcile and explain the differences in net assets as presented in these statements to the net assets presented in the Government-Wide Financial Statements. The City has presented all major funds that met the applicable criteria. All governmental funds are accounted for on a spending or "current financial resources" measurement focus and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the Balance Sheet. The Statement of Revenues, Expenditures and Changes in Fund Balances presents increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. 54

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued B. Basis of Accounting and Measurement Focus, Continued Governmental Fund Financial Statements, Continued Revenues are recorded when received in cash, except for that revenues subject to accrual (generally 60 days after year-end) are recognized when due. The primary revenue sources, which have been treated as susceptible to accrual by the City, are property tax, sales tax, intergovernmental revenues and other taxes. Expenditures are recorded in the accounting period in which the related fund liability is incurred. Deferred revenues arise when potential revenues do not meet both the “measurable” and “available” criteria for recognition in the current period. Deferred revenues also arise when the government receives resources before it has a legal claim to them, as when grant monies are received prior to incurring qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met or when the government has a legal claim to the resources, the deferred revenue is removed from the Balance Sheet and revenue is recognized. The Reconciliation of the Fund Financial Statements to the Government-Wide Financial Statements is provided to explain the differences created by the integrated approach of GASB Statement No. 34. Proprietary Fund Financial Statements Proprietary Fund Financial Statements include a Statement of Net Assets, a Statement of Revenues, Expenses and Changes in Net Assets, and a Statement of Cash Flows for each major proprietary fund. A separate column representing internal service funds is also presented in these statements. However, internal service balances and activities have been combined with the governmental activities in the Government-Wide Financial Statements. Internal Service Funds may be used to report any activity that provides goods or services to other funds, departments, or agencies of the primary government. Examples are Equipment Operations, Stores Services, Telecommunications, and Risk Management Funds. Proprietary funds are accounted for using the "economic resources" measurement focus and the accrual basis of accounting. Accordingly, all assets and liabilities (whether current or noncurrent) are included on the Statement of Net Assets. The Statement of Revenues, Expenses and Changes in Net Assets presents increases (revenues) and decreases (expenses) in total net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. In these funds, receivables have been recorded as revenue and provisions have been made for uncollectible amounts. In accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Government Entities that Use Proprietary Fund Accounting, the City applies all GASB pronouncements currently in effect as well as FASB Statements and Interpretations, APB Opinions and ARB of the Committee on Accounting Procedure that do not conflict with or contradict GASB pronouncements. Operating revenues in the proprietary funds are those revenues that are generated from the primary operations of the fund. All other revenues are reported as non-operating revenues. Operating expenses are those expenses that are essential to the primary operations of the fund. All other expenses are reported as nonoperating expenses. 55

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued B. Basis of Accounting and Measurement Focus, Continued Fiduciary Fund Financial Statements Fiduciary Fund Financial Statements include a Statement of Net Assets and a Statement of Changes in Fiduciary Net Assets. The City's fiduciary funds represent agency funds and private-purpose trust funds. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The agency funds are accounted for using the accrual basis of accounting. Agency funds include Library Joint Powers Authority, Payroll Payables, and Special Assessments. The privatepurpose trust funds are used to account for resources legally held in trust for special purposes, such as McCaskill Trust for Local History, McCaskill Trust for Visually Impaired, and The Finkeldey Trust for Musical Literature. C. Use of Restricted/Unrestricted Net Assets When an expense is incurred for purposes for which both restricted and unrestricted net assets are available, the City’s policy is to apply restricted net assets first. D. Cash, Cash Equivalents and Investments Cash and cash equivalents are considered to be amounts in demand deposits, and short-term investments with original maturity of three months or less from the date of acquisition. For purposes of both the balance sheet and statements of cash flows, cash and cash equivalents includes not only currency on hand, but deposits in the City’s cash and investment pool. These deposits have the same characteristics for the participating funds as demand deposit accounts, in that the funds may deposit additional cash at any time and also effectively withdraw cash at any time without prior notice or penalty. Cash and cash equivalents also include restricted cash and money market funds held by fiscal agents. The City’s cash and investments are stated at fair value, which is based on a quoted market price. This includes all investments except the City’s investment in the California Local Agency Investment Fund (LAIF). LAIF determines fair value on its investment portfolio based on market quotations for those securities where market quotations are readily available and based on amortized cost or best estimate for those securities where market value is not readily available. The City valued its investments in LAIF as of June 30, 2007, by multiplying its account balance with LAIF times a fair value factor determined by LAIF (.999545022). This fair value factor was determined by dividing the total aggregate fair value for all LAIF participants by total aggregate amortized cost. E. Restricted Cash and Investments with Fiscal Agents Certain restricted cash and investments are held by fiscal agents for the redemption of bonded debt and for acquisition and construction of capital projects. F. Prepaid Items Certain payments applicable to future accounting periods are recorded as prepaid items. Prepaid items do not reflect current appropriable resources and, thus, an equivalent portion of fund balance is reserved. 56

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued G. Inventories Inventories consist of material and supplies which are stated at cost using the first-in, first-out method. Inventories are recognized as expenditures when consumed rather than when purchased. H. Interfund Transactions Activity between funds that is representative of lending/borrowing arrangements outstanding at the end of the fiscal year is referred to as either “due to/from other funds” (i.e., the current portion of interfund loans) or “advances to/from other funds” (i.e., the long-term portion of interfund loans). Any residual balances outstanding between the governmental activities and business-type activities are reported in the Government-Wide Financial Statements as “internal balances.” I.

Capital Assets Capital assets are defined by the City as assets having an estimated useful life in excess of one year, and an initial, individual cost in excess of the capitalization thresholds described below: Infrastructure Land improvements Buildings and lease improvements Machinery and equipment Software (if qualified)

$

25,000 10,000 10,000 5,000 5,000

All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Donated capital assets are valued at their estimated fair market value on the date donated. Assets acquired under capital leases are capitalized in accordance with generally accepted accounting principles. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest accrued during capital assets construction, if any, is capitalized for the businesstype activities and proprietary funds as part of the asset cost. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the asset’s useful life are not capitalized. Capital assets are reported in the applicable governmental or business-type activities in the Government-Wide Financial Statements. Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows: Land improvements Buildings and lease improvements Water tanks and water mains Underground sewer lines Other infrastructure Machinery and equipment Software ( if qualified)

57

20 years 15-50 years 30-50 years 50 years 5-100 years 5-20 years 5 years

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued I.

Capital Assets, Continued Assets are grouped by asset type into one of the following accounts – land, land improvements, infrastructure assets (e.g. roads, bridges, sidewalks, and similar items), buildings (and improvements), machinery and equipment, lease improvements, software, and construction in progress. GASB issued Statement No. 34 which requires the inclusion of infrastructure capital assets in local governments’ Basic Financial Statements. In accordance with Statement No. 34, the City has included the value of all infrastructure in the fiscal year 2003 Basic Financial Statements. For all infrastructure systems, the City elected to use the Basic Approach as defined by GASB Statement No. 34 for infrastructure reporting. Estimated historical costs were developed in one of three ways: (1) historical records; (2) standard unit costs appropriate for the construction/acquisition date; or (3) present cost indexed by a reciprocal factor of the price increase from the construction/acquisition date to the current date. The accumulated depreciation, defined as the total depreciation from the date of construction/acquisition to the current date on a straight line, unrecovered cost method was computed using industry accepted life expectancies for each infrastructure subsystem. The book value was then computed by deducting the accumulated depreciation from the estimated historical cost.

J.

Interest Payable In the Government-Wide Financial Statements, interest payable on long-term debt is recognized as the liability is incurred for governmental fund types and proprietary fund types. In the Fund Financial Statements, propriety fund types recognize the interest payable when the liability is incurred.

K. Deferred Revenue In the Government-Wide Financial Statements, deferred revenue is recognized for transactions for which revenue has not yet been earned. Typical transactions recorded as deferred revenues in the Government-Wide Financial Statements are long-term assessments, long-term loans receivable, and prepaid charges for services. In the Fund Financial Statements, deferred revenue is recorded when transactions have not yet met the revenue recognition criteria based on the modified accrual basis of accounting. The City records deferred revenue for transactions for which revenues have not been earned, or for which funds are not available to meet current financial obligations. Typical transactions for which deferred revenue is recorded are grants received but not yet earned or available, interest on interfund advances receivable, long-term assessments and loans receivable.

58

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued L. Compensated Absences The City has accumulated unpaid regular vacation leave (for all departments) which is accounted for in accordance with GAAP. The maximum accumulation of vacation leave is limited to the total number of hours accruable during two years. Employees are paid 100% of their accumulated vacation pay when they terminate their employment for any reason. Employees are allowed a partial payoff of accumulated sick leave up to a certain maximum amount. M. Bond Premiums, Discounts, and Issuance Costs For governmental type activities, bond premiums and discounts, as well as issuance costs, are recognized during the current period. Bond proceeds are reported as other financing sources net of the applicable premium or discount. Issuance costs, whether or not withheld from the actual net proceeds received, are reported as debt service expenditures. For business type activities, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using a straight-line method. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs and costs in excess of net assets acquired are reported as other assets in the accompanying financial statements. N. Long-Term Debt Government-Wide Financial Statements - Long-term debt and other long-term obligations are reported as liabilities in the appropriate activities. Fund Financial Statements - With the exception of advances from other funds, the governmental fund financial statements do not present long-term liabilities. However, the long term debt is shown as a reconciling item in the Reconciliation of the Governmental Funds Balance Sheet to the GovernmentWide Statement of Net Assets. O. Net Assets In the Government-Wide Financial Statements, net assets are classified in the following categories: Invested in Capital Assets, net of Related Debt – This amount consists of capital assets net of accumulated depreciation and reduced by outstanding debt that attributed to the acquisition, construction, or improvement of the assets. Restricted Net Assets – This amount is restricted by external creditors, grantors, contributors, laws or regulations of other governments. Unrestricted Net Assets – This amount is all net assets that do not meet the definition of “invested in capital assets, net of related debt” or “restricted net assets.”

59

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued P. Fund Balances - Reservations and Designations In the Fund Financial Statements, governmental funds report reservations of fund balances for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Designations of fund balances represent tentative management plans that are subject to change. Q. Property Taxes Assessed property values are determined annually by the County Assessor as of March 1, and become a lien on real property at July 1. Taxes are due November 1 and February 1 and are delinquent if not paid by December 10 and April 10, respectively. The County bills and collects property taxes and remits them to the City under the State authorized method of apportioning taxes whereby all local agencies, including cities, receive from the county their respective shares of the amount of ad valorem taxes collected. Property tax revenues are recognized when levied provided the measurement and availability criteria have been met. R. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. In addition, estimates affect the reported amount of expenses. Actual results could differ from these estimates and assumptions.

2. CASH DEPOSITS AND INVESTMENTS The following is a summary of cash, cash equivalents, and investments, including restricted cash and investments with fiscal agents at June 30, 2007: Government-Wide Statement of Net Assets Governmental Business-Type Activities Activities Total

Statement of Fiduciary Net Assets

Total

Unrestricted assets: Cash and cash equivalents

$

Total unrestricted assets Restricted assets: Cash and cash equivalents Investments with fiscal agents Total restricted assets Grand Total

$

42,640,326

$

56,087,726

$

98,728,052

$

2,181,287

$

100,909,339

42,640,326

56,087,726

98,728,052

2,181,287

100,909,339

3,026,030 283,042

2,803,575 1,369,711

5,829,605 1,652,753

75,985 -

5,905,590 1,652,753

3,309,072

4,173,286

7,482,358

75,985

7,558,343

45,949,398

$

60,261,012

60

$

106,210,410

$

2,257,272

$

108,467,682

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

2. CASH DEPOSITS AND INVESTMENTS, Continued The City pools its available cash for investment purposes. Investment income from this pool is allocated to each fund based on its proportionate share of the pool. Cash and investments not pooled include bond proceeds held by fiscal agents, and other amounts required to be segregated by bond indentures or other regulations. Investment income from cash and investments with fiscal agents is credited directly to the related fund. Cash, cash equivalents, and investments consisted of the following at June 30, 2007: Cash and cash equivalents: Pooled cash deposits

$

Outstanding checks

1,784,555 (3,868,492)

Other deposits and cash held by City

41,810

Certificates of deposit

596,000

Money market mutual funds available for debt service

7,462

Federal securities

64,656,826

State local agency investment fund

37,691,178

Total cash and cash equivalents

100,909,339

Restricted cash and cash equivalents: Pooled cash deposits

521,474

Other cash deposits

78,785

Money market mutual funds held by fiscal agents

2,262,641

Investment contracts held by fiscal agents

9,758

State local agency investment fund

3,032,932

Total restricted cash and cash equivalents

5,905,590

Restricted Investments: Federal securities held by fiscal agents

1,652,753

Total investments

1,652,753

Total cash, cash equivalents, and investments

$

108,467,682

A. Cash Deposits At June 30, 2007, the carrying amounts of the City’s cash deposits were ($1,441,868), net of outstanding checks in the amount of $3,868,492. Bank balances before reconciling items were $2,450,036. The total bank balance was collateralized or insured with securities held by the pledging financial institutions in the City’s name as discussed below. The California Government Code requires California banks and savings and loan associations to secure the City’s cash deposits by pledging securities as collateral. This Code states that collateral pledged in this manner shall have the effect of perfecting a security interest in such collateral superior to those of a general creditor. Thus, collateral for cash deposits is considered to be held in the City's name. 61

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

2. CASH DEPOSITS AND INVESTMENTS, Continued A. Cash Deposits, Continued The market value of pledged securities must equal at least 110% of the City's cash deposits. California law also allows institutions to secure city deposits by pledging first trust deed mortgage notes having a value of 150% of the City’s total cash deposits. The City may waive collateral requirements for cash deposits, which are fully insured up to $100,000 by the Federal Deposit Insurance Corporation. B. Investments The investments made by the City treasurer are limited to those allowable under State statutes as incorporated into the City’s Investment Policy, dated May 31, 2007, which is more conservative than that allowed by State statute. The scope of the investment policy includes all activities of the City and the following reporting entities: ¾ ¾ ¾

City of Santa Cruz City of Santa Cruz Redevelopment Agency Santa Cruz Public Improvement Financing Corporation

Under provisions of this policy, the City is authorized to invest in the following types of investments: ¾ ¾ ¾ ¾ ¾ ¾

¾ ¾

¾

Money market accounts deposited with a nationally or state-chartered bank. Bonds issued by the City. Purchases of this type shall not exceed five years to maturity. U.S. Treasury bills, notes, bonds, or certificates of indebtedness, or those securities backed by the full faith and credit of the U.S. Government with maturities not to exceed five years. Obligations, participations, or other instruments of, or issued by, a Federal agency or a United States government-sponsored enterprise with maturities not to exceed five years. Bankers’ acceptances with a term not to exceed 180 days’ maturity or 40% of the City’s portfolio. Nonnegotiable and nontransferable certificates of deposit issued by a nationally or statechartered bank, state or federal credit union, or by a state-licensed branch of a foreign bank. Purchases may not exceed 30% of the City’s portfolio with no more than 5% of the portfolio deposited with a single issuer. State of California Local Agency Investment Fund as long as the total amount of City and Agency combined funds invested does not exceed the limit set by LAIF. Shares of beneficial interest issued by diversified management companies investing in authorized securities and obligations (e.g., money market mutual funds). Purchases shall not exceed 20% of the City’s portfolio with no more than 10% of the portfolio in a single mutual fund. Repurchase agreements with primary dealers of the Federal Reserve with specific terms and conditions. The market value of securities that underlie a repurchase agreement shall be valued at 102% or greater of the funds borrowed against those securities, and the value shall be adjusted no less than quarterly. Securities that can be pledged for collateral consist only of investments permitted within this policy with a maximum maturity of five years. Purchases shall not exceed 92 days to maturity and 20% of the portfolio. 62

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

2. CASH DEPOSITS AND INVESTMENTS, Continued B. Investments, Continued Bond proceeds held by fiscal agents to be used only for specific capital outlay, payments of certain longterm debt and maintaining required reserves are invested in accordance with the requirements and restrictions of the City’s investment policy and as permitted by specific State statutes, applicable City ordinance or resolution, and bond indenture requirements. The City is a participant in LAIF, which is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The City’s investments with LAIF at June 30, 2007, included a portion of the pool funds invested in Structured Notes and Asset-Backed Securities: Structured Notes: debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and/or that have embedded forwards or options. Asset-Backed Securities: generally mortgage-backed securities that entitle their purchasers to receive a share of the cash flows from a pool of assets such as principal and interest repayments from a pool of mortgages (for example, Collateralized Mortgage Obligations) or credit card receivables. As of June 30, 2007, the City had $40,724,110 invested in LAIF accounts, which had invested 3.466% of the pool investments in structured notes and asset-backed securities. The City’s share of structured notes and asset-backed securities due to its holdings in LAIF amounted to approximately 1.284% of investments at June 30, 2007. C. Risk Disclosures Interest Rate Risk - In accordance with its investment policy, the City manages its exposure to declines in fair values by limiting the weighted average maturity of its investment portfolio to two and-one half (2 ½) years or less. The City is in 100% compliance with this provision of the investment policy. At June 30, 2007, the City had the following investment maturities: Investment Type

Fair Value

U.S. Treasuries

$

U.S. Agencies U.S. Treasury Money Market Mutual Funds Certificates of Deposit Local Agency Investment Fund Guaranteed Investment Contract Total Fair Value of Investments only*

$

Maturity (Days)

2,993,830

96

63,315,749

251

2,270,103

1

596,000

1,180

40,724,110

176

9,758

275

109,909,550

Portfolio Weighted Average Maturity (Days)

219

Portfolio Weighted Average Maturity (Years)

0.60

*Does not include net amount of bank balances

63

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

2. CASH DEPOSITS AND INVESTMENTS, Continued C. Risk Disclosures, Continued Investments with Fair Values Highly Sensitive to Interest Rate Fluctuations. Investments in callable bonds are investments that, although having clearly defined maturities, allow for the issuer to redeem or call such bonds earlier than their respective maturity dates. The investor must then replace the called bonds with investments that may have lower yield than the original bonds. As a result, the fair value of the callable bonds is highly sensitive to changes in interest rates. As of June 30, 2007, the City held $18,954,880 in callable securities, which amounted to approximately 17.25% of investments at June 30, 2007. The investment policy limits the purchase of callable U.S. Agency instruments to discreet calls and those that pay 100% of the principal at the redemption date. In addition, purchases of callable U.S. Agency instruments are not to exceed 30% of the value of the portfolio. The City is in compliance with these provisions of the investment policy. Credit Risk - State law limits investments in commercial paper and corporate bonds to the top two ratings issued by nationally recognized statistical rating organizations. The City’s investments are rated as follows: Moody's

Standard & Poor's

Aaa Aaa Aaa Aaa

AAA AAA AAA AAA

Not Rated Aaa Aaa Aaa

AAAm AAAm AAAm AAAm-G

Aaa

AAA

Not Rated

Not Rated

U.S. Agencies Federal Farm Credit Bank Federal Home Loan Bank Federal Home Loan Mortgage Corporation Federal National Mortgage Association U.S. Treasury Money Market Mutual Funds Blackrock Provident - Treasury Trust Fund Blackrock Provident - Treasury Fund Goldman Sachs - Financial Square Treasury Obligations Goldman Sachs - Treasury Instruments Portfolio Guaranteed Investment Contract Trinity Plus Funding Company External Pool State of California - Local Agency Investment Fund

The City’s investment policy requires that the management company of mutual funds must have attained the highest ranking or the highest letter and numerical rating provided by not less than two nationally recognized statistical rating organizations. The investment in BlackRock Treasury Trust Money Market Mutual Fund is rated by only one nationally recognized statistical rating organization; however, it is approved by the National Association of Investors Corporation. Concentration of Credit Risk - The City’s investment policy states that not more than 25% of the portfolio shall be invested in any one entity or any one instrument to protect the City from concentration of credit risk, with the following exceptions: U.S. Treasury Obligations and the external investment pool (State of California – Local Agency Investment Fund). In addition, purchases of mutual funds must not exceed 20% of the value of the portfolio. Purchases in a single mutual fund may not exceed 10% of the value of the portfolio. The City is in 100% compliance with these provisions of the investment policy. 64

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

2. CASH DEPOSITS AND INVESTMENTS, Continued C. Risk Disclosures, Continued The following chart presents investments in any one issuer (other than U.S. Treasury securities and external investment pools) that represent 5% or more of total investments at June 30, 2007: Percentage of Investment Type

Amount Invested

Federal Farm Credit Bank

$

Investments

10,458,484

9.52%

Federal Home Loan Bank

22,722,405

20.67%

Federal Home Loan Mortgage Corporation

11,916,540

10.84%

Federal National Mortgage Association

18,218,320

16.58%

63,315,749

57.61%

Total

$

The following chart presents the City’s investments in money market mutual funds by issuer at June 30, 2007: U.S. Treasury Money Market

Percentage of

Mutual Funds

Amount Invested

Blackrock Provident - Treasury Trust Fund

$

Investments

31,058

0.03%

350

0.00%

Goldman Sachs - Treasury Instruments Portfolio

1,147,953

1.04%

Goldman Sachs - Financial Square Treasury Obligations

1,090,742

0.99%

2,270,103

2.06%

Blackrock Provident - Treasury Fund

Total

$

Custodial Credit Risk - For deposits, custodial credit risk is the risk that, in the event of the failure of a deposit financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. For an investment, this is the risk that, in the event of the failure of the counterparty, the government will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City’s investment policy does not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the provision for deposits stated in Note 2A. $2,350,036 of the City’s deposits with financial institutions in excess of federal depository insurance limits was held in uncollateralized accounts. Of the City’s total cash and investment balance at June 30, 2007, $3,932,614 is held by fiscal agents, not in the name of the City, and invested as follows: $9,758 in a guaranteed investment contract; $1,652,753 in federal agency securities; and $2,270,103 in money market mutual funds.

65

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

3. RECEIVABLES Government-Wide Statements The following is a summary of receivables net of allowances for uncollectible amounts at June 30, 2007: Government-Wide Statement of Net Assets

Interest receivable

Governmental

Business-Type

Activities

Activities

$

832,087

$

Statement of Fiduciary

Total

1,055,772

$

1,887,859

Net Assets $

Total

22,848

$

1,910,707

Taxes receivable

4,306,295

-

4,306,295

651,199

Accounts receivable, net

1,819,818

7,166,955

8,986,773

530,842

9,517,615

Due from other governments

2,725,206

1,085,238

3,810,444

27,620

3,838,064

Notes receivable

6,087,262

401,058

6,488,320

-

6,488,320

Loans receivable

1,407,917

-

1,407,917

-

1,407,917

-

16,160,263

16,160,263

-

16,160,263

Intergovernmental receivable Total

$

17,178,585

$

25,869,286

$

43,047,871

$

1,232,509

4,957,494

$

44,280,380

Fund Financial Statements At June 30, 2007, the Fund Financial Statements show the following notes, loans and intergovernmental receivables: Notes Receivable - in the General Fund $266,964 (net of an allowance for uncollectible amounts of $371,925) consists of a note from Neary Lagoon Partners in the amount of $78,800; a promissory note from Santa Cruz Shaffer Road Investors for housing developments in the amount of $82,879; a loan to the River Street Shelter for repairs in the amount of $12,900; a loan to First Night Santa Cruz for $20,000; Harvey West Assessment District notes in the amount of $95,500; employee computer loans in the amount of $5,683; various notes for housing improvement activities in the Housing In-Lieu program of $273,127; and $70,000 in loans to two borrowers participating in the Accessory Dwelling Unit Loan Program. Some notes are secured by a deed of trust. The Redevelopment Agency Fund notes receivable balance of $4,874,571 (net of an allowance of $516,740) represents loans for low/moderate income housing projects. There are two types of loan repayment for these notes: due upon sale or transfer and lump sum payment at maturity. Interest rates range from 0% to 7%. The notes are all secured by a deed of trust. The $18,501 note receivable in the Public Works special revenue fund pertains to traffic impact fees owed to the City by an individual (“promissor”) who renovated residential property for commercial purposes. Any default results in the forfeiture of building permits issued to the promissor. Notes receivable in the Parks and Recreation special revenue fund of $245,896 pertain to a promissory note for housing developments – development impact fees. There is no interest on this promissory note. Loan repayment is deferred to a future date when monthly repayment will begin. The note is secured by a personal guarantee from Santa Cruz Shaffer Road Investors, LP, a California limited partnership.

66

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

3. RECEIVABLES, Continued In addition to a $75,000 interest-free loan made to the Homeless Services Center for local shelter operations payable in February 2017, notes receivable in the Housing and Community Development special revenue fund of $681,330 (net of an allowance of $1,369,408) consist of loans for buildings damaged in the 1989 earthquake. There are two types of loan repayments: monthly repayment and deferred to a future date when monthly repayment will begin. The interest rate on these notes is 3%. The notes are all secured by a deed of trust. Notes receivable in the enterprise funds are made up of two notes totaling $401,058. Both are due from Neary Lagoon Partners for water system connection fees pertaining to a low-moderate income housing project. These notes do not bear interest, and repayment is deferred until 2019. Loans Receivable - in other governmental funds $1,407,917 (net of an allowance of $5,335,072) consists of loans for rehabilitation of low/moderate income housing. The loans are made with Federal funds from the Department of Housing and Urban Development (HUD). The City administers these funds for HUD. There are four types of loan repayment schedules: monthly installments, due upon sale or transfer, deferred to a future date when monthly repayment will begin, and no repayment if the property remains in use for low/moderate income housing for a specified time period. Interest rates range from 0% to 7%. The loans are all secured by a deed of trust on the property being rehabilitated. Intergovernmental Receivables - in the enterprise funds $16,160,263 ($1,151,684 due within one year and $15,008,579 due in more than one year) is owed by the County of Santa Cruz for its share of a State Water Resources Board loan for wastewater treatment plant upgrades. Payments of interest and principal from the County of Santa Cruz are due in annual installments of $1,604,172, at an interest rate of 2.8%, with the final payment due August 1, 2018. Allowance for uncollectible notes and loans - When considerable uncertainty exists as to the collectability of a note (as determined by management) due to the terms of the loan or other factors, it is offset by an allowance for uncollectible notes.

4. INTERFUND BALANCES AND TRANSACTIONS A. Government-Wide Financial Statements Long-Term Internal Balances At June 30, 2007, the City had the following long-term internal balances: Internal Balances Payable Governmental Activities Internal Balances Receivable Business-Type Activities

67

$

805,249

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

4. INTERFUND BALANCES AND TRANSACTIONS, Continued A. Government-Wide Financial Statements, Continued This balance consists of the net amount of long-term advances between the Redevelopment Agency Fund and the Water, Wastewater and Parking enterprise funds. The advances are due to fund various projects. Transfers The City had the following transfers for the year ending June 30, 2007: Transfers In Governmental Activities Transfers Out Business-Type Activities

$

3,367

Transfers are made from the enterprise funds to the General Capital Improvement capital projects fund to finance a share of project expenses or debt service costs for projects from which those funds receive benefit. B. Funds Financial Statements The City had the following due to/from other funds as of June 30, 2007:

Due to Other Funds

Due from Other Funds

General

Non-Major Governmental Funds Golf Course Funds Internal Service Funds Total

$

Fund

Total

3,330,360

3,330,360

557,166

557,166

8,160

8,160

3,895,686

$

3,895,686

The outstanding balances between funds result mainly from a timing difference between when interest revenues are earned and when they are received for amounts which are transferred from the earning fund to the General Fund.

68

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

4. INTERFUND BALANCES AND TRANSACTIONS, Continued B. Funds Financial Statements, Continued Long-Term Advances

Advances from Other Funds

The City had the following long-term advances as of June 30, 2007: Advances to Other Funds

Redevelopment Agency Fund

Redevelopment

Water

Wastewater

General

Agency

Enterprise

Enterprise

Fund

Fund

Fund

Fund

$

Non-Major Governmental Funds

902,483

$

-

1,229,332

Parking Enterprise Fund $

2,131,815

13,585

-

-

Total

$

89,332

-

351,000 $

$

351,000

$

1,005,400

-

$

Total

1,229,332 -

13,585

$

89,332

351,000 $

2,585,732

Long-term advances were made 1) from the General Fund, the Water Enterprise Fund, and the Wastewater Enterprise Fund to the Redevelopment Agency Fund to finance redevelopment projects, 2) from the General Fund to the Housing and Community Development Special Revenue Fund as a deposit for matching grant funds, 3) from the Redevelopment Agency Fund to the Parking Enterprise Fund to finance two parking capital improvements projects. Transfers In/Out The City had the following transfers for the year ending June 30, 2007: Transfers In Non-Major General

Redevelopment Governmental Fund

Transfers Out

Fund General Fund

$

Non-Major Governmental Funds

-

Funds

$

66,220

-

$

677

8,288

634,304

$

Enterprise

Internal Service

Funds

Funds -

$

-

Total -

$

-

677 708,812

Enterprise Funds: Water Wastewater Refuse Internal Service Funds Total

-

-

777

-

-

777

1,216

-

-

3,822

-

5,038

-

-

1,374

3,822

-

5,196

547,658 $

615,094

$

8,288

$

637,132

$

7,644

129,288 $

129,288

676,946 $

1,397,446

Transfers are used to 1) move interest revenues from the earning fund to the General Fund, 2) move revenues from the General Fund and other funds to the General Capital Improvement Capital Projects Fund for financing various capital projects, and 3) to move unrestricted tax revenues from the General Capital Improvement Capital Projects Fund to the General Fund as an operating subsidy. 69

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

5. CAPITAL ASSETS A. Government-Wide Financial Statements At June 30, 2007 the City’s capital assets consisted of the following: Governmental

Business-Type

Activities

Activities

Total

Capital Assets: Capital assets, not being depreciated: Land

$

Construction in progress Subtotal, capital assets, not being depreciated

50,609,567

$

11,590,526

$

62,200,093

10,758,619

23,346,697

34,105,316

61,368,186

34,937,223

96,305,409

Capital assets, being depreciated: Land improvements

7,024,152

3,956,018

10,980,170

168,644,770

177,843,083

346,487,853

Buildings

35,421,568

160,220,644

195,642,212

Machinery and equipment

10,602,374

23,223,969

33,826,343

724,114

70,000

794,114

1,102,389

555,257

1,657,646

Subtotal, capital assets, being depreciated

223,519,367

365,868,971

589,388,338

Total capital assets

284,887,553

400,806,194

685,693,747

Infrastructure

Lease improvements Software

Less accumulated depreciation: Land improvements

(1,740,472)

(869,828)

(2,610,300)

(106,789,432)

(74,094,311)

(180,883,743)

Buildings

(9,718,039)

(55,806,172)

(65,524,211)

Machinery and equipment

(7,539,275)

(11,663,756)

(19,203,031)

Lease improvements

(370,457)

(14,234)

(384,691)

Software

(956,476)

(445,050)

(1,401,526)

(127,114,151)

(142,893,351)

(270,007,502)

Infrastructure

Total accumulated depreciation Total capital assets, net

$

70

157,773,402

$

257,912,843

$

415,686,245

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

5. CAPITAL ASSETS, Continued A. Government-Wide Financial Statements, Continued The following is a summary of capital assets for governmental activities: Prior Period Balance

Adjustments

July 1, 2006

(Note 15)

Balance Additions

Deletions

June 30, 2007

Governmental Activities: Capital assets, not being depreciated: Land

$

Construction in progress Subtotal, capital assets, not being depreciated

50,452,567

$

157,000

$

-

$

-

$

50,609,567

5,108,592

-

8,708,354

(3,058,327)

10,758,619

55,561,159

157,000

8,708,354

(3,058,327)

61,368,186

Capital assets, being depreciated: Land improvements Infrastructure

5,393,352

-

1,630,800

-

7,024,152

167,322,095

-

1,322,675

-

168,644,770

Buildings

35,421,568

-

35,600

(35,600)

35,421,568

Machinery and equipment

10,279,605

-

744,437

(421,668)

10,602,374

724,114

-

-

-

724,114

1,056,070

-

46,319

-

1,102,389

Subtotal, capital assets, being depreciated

220,196,804

-

3,779,831

(457,268)

223,519,367

Total capital assets

275,757,963

157,000

12,488,185

(3,515,595)

284,887,553

Lease improvements Software

Less accumulated depreciation: Land improvements Infrastructure

(1,394,671)

-

(345,801)

-

(1,740,472)

(102,361,142)

-

(4,428,290)

-

(106,789,432)

Buildings

(8,950,969)

-

(767,070)

-

(9,718,039)

Machinery and equipment

(7,210,260)

-

(724,430)

395,415

(7,539,275)

Lease improvements

(296,913)

-

(73,544)

-

(370,457)

Software

(808,382)

-

(148,094)

-

(956,476)

(121,022,337)

-

(6,487,229)

395,415

(127,114,151)

Total accumulated depreciation Total capital assets, net

$

154,735,626

$

157,000

71

$

6,000,956

$

(3,120,180)

$

157,773,402

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

5. CAPITAL ASSETS, Continued A. Government-Wide Financial Statements, Continued Depreciation expense of the governmental activities for the year ended June 30, 2007 was $6,487,229 and was distributed among City departments as follows: General government: City Council City Clerk Human Resources Finance Information Technology Non-Departmental Internal service funds

$

Total general government Public safety: Police Fire

6,781 5,529 23,758 190,420 7,977 157,877 86,192 478,534 410,960 253,717

Total public safety

664,677

Parks and Recreation Library Public Works Planning and Community Development Redevelopment Total depreciation expense

2,082,144 26,800 3,152,972 8,156 73,946 $ 6,487,229

The following is a summary of capital assets for business-type activities: Prior Period Adjustments (Note 15)

Balance July 1, 2006

Additions

Deletions

Balance June 30, 2007

Business-type Activities: Capital assets, not being depreciated: Land Construction in process

$

11,931,526 10,436,904

Subtotal, capital assets, not being depreciated

22,368,430

Capital assets, being depreciated: Land improvements Infrastructure Buildings Machinery and equipment Lease improvements Software

3,956,018 180,436,253 160,134,334 20,026,950 70,000 555,258

Subtotal, capital assets, being depreciated

365,178,813

Total capital assets

387,547,243

Less accumulated depreciation: Land improvements Infrastructure Buildings Machinery and equipment Lease improvements Software

249,863,264

$

(649,352) -

(137,683,979) $

(157,000) (492,352) (649,352)

(675,258) (73,818,113) (52,271,065) (10,573,668) (11,434) (334,441)

Total accumulated depreciation Total capital assets, net

$

$

72

(649,352)

16,870,800

$

$

11,590,526 23,346,697

16,870,800

(3,652,655)

34,937,223

1,078,911 86,310 4,636,891 -

(3,672,081) (1,439,872) (1)

3,956,018 177,843,083 160,220,644 23,223,969 70,000 555,257

5,802,112

(5,111,954)

365,868,971

22,672,912

(8,764,609)

400,806,194

(194,570) (3,945,598) (3,535,107) (2,318,933) (2,800) (110,609)

3,669,400 1,228,845 -

(869,828) (74,094,311) (55,806,172) (11,663,756) (14,234) (445,050)

(10,107,617) $

(184,000) (3,468,655)

12,565,295

4,898,245 $

(3,866,364)

(142,893,351) $

257,912,843

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

5. CAPITAL ASSETS, Continued B. Funds Financial Statements Business-type activities depreciation expense for the year ended June 30, 2007 is as follows: Water

$

1,865,073

Wastewater

4,362,255

Refuse

1,866,235

Parking

486,577

Storm Water

1,322,031

Golf Course

205,446

Total depreciation expense

$

10,107,617

The funds financial statements do not present general government capital assets consequently, they are shown in the Reconciliation of the Governmental Funds Balance Sheet to the Government-Wide Statement of Net Assets.

6. LONG-TERM DEBT A. Governmental Activities Long-Term Debt Classification

Compensated absences Claims and judgments

Balance

Accreted

July 1, 2006

Interest

$

2,108,335

$

Additions -

11,007,290

-

Certificates of participation

4,239,123

-

$

10,442,555

2,943,930

7,498,625

4,096,138

150,848

3,945,290

-

-

Tax allocation bonds payable

5,125,000

-

Capital lease obligations

1,247,913

-

944,836

-

2,558,193

$

2,419,032

$

1,612,688

$

806,344

(185,577)

7,055,865

193,004

6,862,861

(1,384,539)

2,920,487

1,421,374

1,499,113

(120,000)

5,005,000

125,000

4,880,000

27

(282,313)

965,627

146,019

819,608

16,235

(109,490)

851,581

98,180

753,401

$ (4,920,873)

$ 33,756,285

6,691,043

$ 27,065,242

100,000 -

$

Than One Year

(142,985)

115,367

115,367

One Year

(706,104)

-

4,205,026

$

June 30, 2007

141,369

7,126,075

$ 36,003,598

Due in More

$ (1,989,865)

General obligation bonds

Total

Amount

Due Within

2,300,562

Notes payable

Other long-term liabilities

Retirements

Amount Balance

$

Compensated absences and Claims and judgments As shown in the table above, the total amount outstanding at June 30, 2007 was $2,419,032 for compensated absences and $10,442,555 for claims and judgments. In prior years, compensated absences have been liquidated by the General Fund. Claims and judgments are paid by the separate internal service funds for each liability.

73

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

6. LONG-TERM DEBT, Continued A. Governmental Activities Long-Term Debt, Continued Certificates of Participation Certificates of Participation payable at June 30, 2007, are comprised of the following individual issues: Redevelopment Agency certificates of participation are part of the $2,080,000 Golf and Redevelopment Agency Certificates described under enterprise debt. The outstanding balance relating to the Agency at June 30, 2007, was $176,138. The Agency amount due within one year is $55,848 and amount due in more than one year is $120,290. For more information refer to the City of Santa Cruz Redevelopment Agency Basic Financial Statements. The City issued certificates in April 2001, in the amount of $4,415,000, to be used for the Civic Center Improvement Project. The certificates provide funds to finance the acquisition, construction and improvement of the project. The obligation of the City to make the lease payments does not constitute a debt of the City or the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State or any political subdivision thereof is obligated to levy or pledge any form of taxation. Annual payments are $75,000 - $270,000. The certificates bear interest at 4.6% - 5% and are payable semi-annually on April 1 and October 1 of each year, commencing October 1, 2001. Principal is payable annually on April 1 through the year 2031. The balance outstanding at June 30, 2007, was $3,920,000. The amount due within one year is $95,000 and amount due in more than one year is $3,825,000. The annual debt service requirements on the certificates of participation at June 30, 2007, were as follows: For the Year Ending June 30, 2008 2009 2010 2011 2012-2016 2017-2021 2022-2026 2027-2031 Total

Principal $

$

Interest

150,848 153,713 161,577 105,000 600,000 750,000 955,000 1,220,000 4,096,138

$

$

198,448 191,844 185,052 177,835 812,125 658,315 452,750 189,250 2,865,619

Total $

$

349,296 345,557 346,629 282,835 1,412,125 1,408,315 1,407,750 1,409,250 6,961,757

General Obligation Bonds In March 1999, the City issued $6,998,473 in general obligation bonds. The proceeds were used to upgrade fire stations, acquire open space property, and construct a community park and a fire administration facility. Annual payments ranging from $142,625 to $354,010 began September 1, 2000, and continue through September 1, 2029; interest ranges from 3.5% to 8.0%. The bonds are subject to early redemption at the option of the City beginning in 2008. 74

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

6. LONG-TERM DEBT, Continued A. Governmental Activities Long-Term Debt, Continued General Obligation Bonds, Continued The bonds are secured by and will be paid with annual ad valorem tax levies on all property subject to taxation within the City. The bonds were issued in two series. Series A consisted of $4,500,000 of general obligation bonds, and Series B consisted of $2,498,473 of general obligation bonds - capital appreciation bonds. During fiscal year ended June 30, 2007, $185,577 principal payments were made on the bonds. The balance outstanding of Series A bonds at June 30, 2007 was $4,015,000. The carrying value of the Series B bonds was increased to $3,040,865 in order to reflect the accreted interest due at June 30, 2007. The total balance outstanding at June 30, 2007 was $7,055,865. The annual debt service requirements on the general obligation bonds at June 30, 2007, were as follows: For the Year Ending June 30, 2008

Principal $

Interest

193,004

$

Total

233,546

$

426,550

2009

199,781

237,617

437,398

2010

205,937

241,998

447,935

2011

208,582

244,570

453,152

2012

213,768

249,272

463,040

2013-2017

1,142,922

1,313,398

2,456,320

2018-2022

1,299,821

1,416,715

2,716,536

2023-2027

1,506,721

1,485,529

2,992,250

2028-2032

1,032,693

909,057

1,941,750

Sub-total

6,003,229

6,331,702

12,334,931

Accreted Interest

1,052,636

-

1,052,636

Total

$

7,055,865

$

6,331,702

$

13,387,567

Notes Payable In July 2001, the Redevelopment Agency received Housing Enabled by Local Partnerships (HELP) Loan funds from the State of California, to be used to finance the acquisition, development, demolition of existing structures, and the construction of a multifamily rental apartment complex in the Beach Target Area. The proceeds for the note are to be repaid by July 2011 with an interest rate of 3%. The balance outstanding at June 30, 2007, was $812,487. In March 2006, the Redevelopment Agency received loan funds, from Salz Leathers, Inc., to be used to finance the acquisition of land. The proceeds of the note are to be repaid by March 2009 with an interest rate of 5%. The balance outstanding at June 30, 2007, was $2,028,000.

75

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

6. LONG-TERM DEBT, Continued A. Governmental Activities Long-Term Debt, Continued Notes Payable, Continued In January 2007, the City received loan funds, from Greg Fyvie, to be used for renovation of Lawn Bowling Park. The proceeds of the note are to be repaid by January 2011 with no annual interest. The balance outstanding at June 30, 2007, was $80,000. Tax Allocation Bonds In October 2004, The Redevelopment Agency issued $5,245,000 in tax allocation bonds. The proceeds were used, together with other funds, to redeem, on December 1, 2004, all of the Agency’s outstanding 1996 Merged Earthquake Recovery and Reconstruction Project Area Tax Allocation Refunding Bonds, in the amount of $2,505,000, and to raise additional funds for programs, projects and activities related to the Redevelopment Project. Annual principal payments of $120,000 - $305,000 will be made through October, 2031; interest ranges from 2.50% to 4.625%. The 2004 Tax Allocation Bonds will be secured by a pledge of and first lien of the tax increment revenues derived from the Redevelopment Project, net of certain amounts which are payable to other taxing agencies. The balance outstanding at June 30, 2007 was $5,005,000. The annual debt service requirements on the tax allocation bonds at June 30, 2007, were as follows: For the Year Ending June 30, 2008

Principal $

Interest

125,000

$

202,954

Total $

327,954

2009

130,000

199,766

329,766

2010

130,000

196,516

326,516

2011

135,000

192,866

327,866

2012

140,000

188,566

328,566

2013-2017

775,000

864,228

1,639,228

2018-2022

945,000

696,553

1,641,553

2023-2027

1,165,000

472,453

1,637,453

2028-2032

1,460,000

175,024

1,635,024

Total

$

$

5,005,000

76

3,188,926

$

8,193,926

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

6. LONG-TERM DEBT, Continued A. Governmental Activities Long-Term Debt, Continued Lease Obligations In August 2001, the City acquired miscellaneous vehicles, equipment and computer software under a capital lease agreement payable in semi-annual installments of $331,597 though August 2006, with an interest rate of 4.46%. This lease has been allocated to the General Fund, the Water, Wastewater, Refuse and Parking enterprise funds, and the Agency. The lease has been fully paid off as of June 30, 2007.

In June 2002, the City acquired land under a capital lease agreement with Zion’s First National Bank in the amount of $765,000. The agreement is payable in semi-annual installments of $61,362 through 2021, with a 4.88% interest rate through January 2007 and a variable interest rate thereafter. From January 2007 through January 2021, the interest is to be recomputed, for each interest period, based on 90% of the current Index Rate. The balance outstanding at June 30, 2007 was $612,086. In July 2004, the City entered into a five year capital lease agreement to obtain financing in the amount of $580,000 for the purchase of a seventy-five foot aerial fire truck to replace a 1979 Crown Telesquirt unit. The first interest payment of $9,657 is due in February, 2005, with annual installment payments of $125,781 beginning in August 2005 and ending in August 2009. Interest is at the rate of 3.33% and the payments will be made from the General Fund. The balance outstanding at June 30, 2007 was $353,541. The annual debt service requirements on the capital leases at June 30, 2007, were as follows: For the Year Ending June 30, 2008

Principal $

Interest

146,019

$

40,199

Total $

186,218

2009

151,302

34,914

186,216

2010

156,780

29,436

186,216

2011

36,681

22,903

59,584

2012

38,384

21,161

59,545

2013-2017

220,372

71,666

292,038

2018-2022

216,089

20,637

236,726

Total

$

965,627

$

77

240,916

$

1,206,543

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

6. LONG-TERM DEBT, Continued A. Governmental Activities Long-Term Debt, Continued Other Long-Term Liabilities The Redevelopment Agency is obligated under three separate Owner Participation Agreements (OPA) for various portions of the $1,250,000 Chestnut Street Special Assessment District Debt. Under the first OPA of the Redevelopment Agency owes $26,936 as of June 30, 2007. Under the second OPA, the Redevelopment Agency owes $225,981. Under the third OPA the Redevelopment Agency assumes responsibility for an additional 48.68% of the Special Assessment Debt contingent upon the availability of tax increment. The Redevelopment Agency is currently liable under this OPA for $598,664 and interest, currently estimated at $67,334. The debt is to be paid from tax increment revenues derived from the project. The annual debt service requirements for other long-term liabilities outstanding at June 30, 2007, are as follows: For the Year Ending June 30,

Principal

Interest

Total

2008 2009 2010 2011 2012 2013-2017

$

98,180 105,174 111,859 118,852 129,272 288,244

$

26,272 20,714 14,705 8,381 1,607 -

$

124,452 125,888 126,564 127,233 130,879 288,244

Total

$

851,581

$

71,679

$

923,260

Conduit Debt - During the fiscal year 2003, the Agency issued variable rate demand multifamily housing revenue bonds to provide funding for loans made to Santa Cruz Shaffer Road Investors L.P., and 1010 Pacific Investors L.P. (both California limited partnerships). The revenue bonds were used to finance a portion of the costs of building a 206-unit multifamily residential development and for the rehabilitation and equipping of a 113-unit multifamily residential development within the city limits. The housing facilities are to be occupied by persons of low and very low income, to the extent required by federal tax law. The bonds were issued under a Trust Indenture, dated July 1, 2002 between the Agency, and Wells Fargo Bank, National Association, as trustee. For the Shaffer Road Apartments, the Agency issued 2002 Series A bonds and 2002 Series A-T in the amounts of $29,925,000 and $2,750,000 respectively. For the 1010 Pacific Avenue Apartments, 2002 Series B bonds in the amount of $21,650,000 were issued. The amount outstanding as of June 30, 2007 is $53,525,000. The bonds mature on August 15, 2035. The bonds and interest are limited obligations of the Agency, payable solely from the “trust estate” which is specifically assigned and pledged to such purposes to the extent provided in the Official Statements. The trust estate includes the Agency’s interest in the loans made to the developer, including rights to receive payments on the loans, and rights to certain bond proceeds and related revenues. The Official Statements contain more information regarding the trust estate. The City is in no way obligated to repay the debt in the event of default and the debt is not recorded in the accompanying financial statements. 78

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

6. LONG-TERM DEBT, Continued B. Proprietary Fund Obligations A summary of long-term debt transactions of the City for the enterprise funds for the year ended June 30, 2007, is as follows: Classification Amount

Amount

Balance

Due Within

Due in More

Retirements

June 30, 2007

One Year

then One Year

$

$

Balance July 1, 2006 Compensated absences Landfill closure costs

$

751,594

Additions $

905,634

5,751,407

303,829

Certificates of participation

20,915,877

-

Revenue bonds payable

23,265,000

-

Notes payable

37,822,337 3,145,352

2,783,506

Lease obligations Total

$ 91,651,567

$

(824,364) -

832,864

$

555,243

$

277,621

6,055,236

-

(1,732,015)

19,183,862

1,799,151

17,384,711

(665,000)

22,600,000

590,000

22,010,000

-

(2,485,068)

35,337,269

2,553,787

32,783,482

1,574,043

(1,204,640)

3,514,755

1,030,320

2,484,435

$ (6,911,087)

$ 87,523,986

6,528,501

$ 80,995,485

$

6,055,236

Compensated absences As shown in the table above, the total amount outstanding at June 30, 2007 was $832,864 for compensated absences. In prior years, compensated absences have been liquidated primarily by enterprise funds. Landfill closure costs As shown in the table above, the total amount outstanding at June 30, 2007 was $6,055,236 for landfill closure costs. Refer to Note 8 for landfill closure details. Certificates of Participation Certificates of Participation payable at June 30, 2007, are comprised of the following individual issues: Santa Cruz Golf and Redevelopment Agency Certificates, issued in November, 1998, in the amount of $2,080,000, was used to refinance an issue used for improvements to the City's golf course and projects within the City's redevelopment plan areas. Annual payments of $125,000 to $215,000 will be made through May 2010; interest ranges from 3.5% to 4.25%. Annual debt service is covered by lease payments made by the City and secured by covenants made by the City in a lease with the Corporation. The balance outstanding relating to the Golf Course fund at June 30, 2007, was $438,862. Santa Cruz Parking Certificates issued in November 1998, in the amount of $7,955,000, were used for the construction of a second parking structure in the downtown area. The certificates are a liability of the Parking Enterprise Fund. Annual payments are $155,000 - $445,000. The certificates bear interest at 3.5% to 4.9%. Interest is payable semi-annually on May 1 and November 1 and principal is payable annually on May 1 through the year 2028. The balance outstanding at June 30, 2007, was $6,145,000. 79

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

6. LONG-TERM DEBT, Continued B. Proprietary Fund Obligations, Continued Certificates of Participation, Continued Santa Cruz Refuse Certificates, issued in October 1999, in amount of $4,345,000, were issued to repay the Wastewater Enterprise Fund for earlier loans to construct a tunnel at the City’s landfill and a leachate line from the landfill to the City’s sewer treatment plant. Annual payments of $100,000 to $245,000 will be made through October 2024; interest ranges from 4.0% to 5.625%. The balance outstanding at June 30, 2007, was $3,585,000. Santa Cruz Refuse Certificates issued in March 2001, in the amount of $7,500,000, were used in the purchase of certain property and improvements, and to finance the acquisition, construction and improvement of the project. The installment payments are payable solely from and secured by a first pledge of certain revenues of the City’s Refuse Enterprise Fund. Annual payments are $45,000 to $720,000. The certificates bear interest at 3.5% to 4.875%. Interest represented by the certificates will be payable semi-annually on April 1 and October 1 of each year, commencing October 1, 2001. Principal is payable annually on October 1 through the year 2021. The certificates are subject to optional and mandatory prepayment. The balance outstanding at June 30, 2007, was $4,950,000. Santa Cruz Refuse Certificates, issued in May 2004, in the amount of $1,590,000 was used to refinance the Santa Cruz Landfill Certificates issued in 1993. Annual payments of $495,000 to $545,000 will be made through 2008: Interest ranges from 4.0 % to 5.375%. The City is obligated, subject to abatement, under the Agreement to pay the certificate payments from any source of legally available funds. The City is currently liable and may become liable on other obligations payable from general revenues, some of which may have priority over the lease payments. The balance outstanding relating to the Refuse Fund at June 30, 2007, was $545,000. Santa Cruz Golf Agency Certificates issued in May 2004, in the amount of $3,700,000 was used to finance the acquisition and construction of improvements to the DeLaveaga Golf Course. Annual payments of $ 90,000 to $ 260,000 will be made through 2029; interest ranges from 4.0% to 5.375%. The City is obligated, subject to abatement, under the Agreement to pay the certificate payments from any source of legally available funds. The City is currently liable and may become liable on other obligations payable from general revenues, some of which may have priority over the lease payments. The balance outstanding relating to the Golf Course Fund at June 30, 2007 was $3,520,000.

80

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

6. LONG-TERM DEBT, Continued B. Proprietary Fund Obligations, Continued Certificates of Participation, Continued The annual debt service requirements on the certificates of participation at June 30, 2007, were as follows: For the Year Ending June 30,

Principal

Interest

Total

2008 2009 2010 2011 2012 2013-2017 2018-2022 2023-2027 2028-2032

$

1,799,151 1,306,288 823,423 670,000 690,000 3,995,000 5,105,000 3,845,000 950,000

$

904,066 830,538 786,841 751,332 721,962 3,094,902 1,994,448 795,945 63,369

$

2,703,217 2,136,826 1,610,264 1,421,332 1,411,962 7,089,902 7,099,448 4,640,945 1,013,369

Total

$

19,183,862

$

9,943,403

$

29,127,265

Annual principal and interest requirements for the certificates of participation are apportioned to the various funds based on the percentage share of certificate proceeds. Revenue Bonds Payable 2005 WasteWater Revenue Refunding Bonds, issued in November 2005, in the amount of $4,715,000 was used to refinance the Series B Sewer Revenue Bonds issued in February 1994. Annual payments of $200,000 to $350,000 will be made through November 2023; interest ranges from 3.0% to 4.50%. Annual debt service is payable solely from and secured by a lien on net revenues of the City’s sewer system. The balance outstanding at June 30, 2007, was $4,510,000. 2005 Storm Water Revenue Refunding Bonds, issued in September 2005, in the amount of $6,100,000 was used to refinance the Santa Cruz Storm Water Certificates issued in October 1999. Annual payments of $160,000 to $385,000 will be made through October 2029; interest ranges from 3.0% to 4.375%. The bonds are special obligations of the City payable solely from the revenues received by the City from the ownership and operation of the Storm Water Enterprise. All revenues are irrevocably pledged to the payment of the bonds. The balance outstanding at June 30, 2007, was $5,940,000. 2006 Water Revenue Bonds issued in May 2006, in the amount of $12,450,000 was used to finance construction of a new transmission main connecting the Graham Hill Water Treatment Plant to the Bay Street Reservoir. Annual payments of $220,000 to $555,000 will be made through March 2036; interest ranges from 4.0% to 4.625%. The bonds are special obligations of the City payable from the Net Revenues received by the City from the ownership and operation of the City’s Water System. The balance outstanding at June 30, 2007, was $12,150,000. 81

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

6. LONG-TERM DEBT, Continued B. Proprietary Fund Obligations, Continued Revenue Bonds Payable, Continued The annual debt service requirements on the revenue bonds at June 30, 2007, were as follows: Ending June 30, 2008

Principal $

Interest

590,000

$

939,456

Total $

1,529,456

2009

615,000

917,606

1,532,606

2010

635,000

895,831

1,530,831

2011

660,000

874,019

1,534,019

2012

680,000

851,150

1,531,150

2013-2017

3,780,000

3,860,073

7,640,073

2018-2022

4,565,000

3,031,466

7,596,466

2023-2027

4,475,000

2,024,243

6,499,243

2028-2032

3,885,000

1,106,428

4,991,428

2033-2037

2,715,000

327,207

3,042,207

Total

$

22,600,000

$

14,827,479

$

37,427,479

Under conditions of the various revenue bond covenants, the Wastewater Enterprise Fund is required to provide adequate cash and maintain adequate revenues to cover future bond payments. Cash and investments set aside for this purpose is shown in the financial statements as restricted cash and investments. Under conditions of the storm water revenue refunding bond covenant, the Storm Water Enterprise Fund is required to maintain adequate revenues to cover future bond payments. Under conditions of the water revenue bond covenant, the Water Enterprise Fund is required to maintain adequate revenues to cover future bond payments. Notes Payable State of California loans for the construction of a water main line north of the City. Proceeds for the note were received in September 1995, to be repaid in semi-annual installments of $46,679, including interest at 2.973%, through October 2015. This debt is recorded in the Water Enterprise Fund. The balance outstanding at June 30, 2007, was $696,710. State of California loans for the construction of secondary treatment improvements at the City's wastewater treatment plant. Loan proceeds were received as the City incurred project expenditures. Repayment began August 1999. Annual payments of $3,417,099, including interest at 2.8%, will be made through August 2018. This debt is recorded in the Wastewater Enterprise Fund. The balance outstanding at June 30, 2007, was $34,340,559. 82

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

6. LONG-TERM DEBT, Continued B. Proprietary Fund Obligations, Continued Notes Payable, Continued State of California loans for the construction of certain solid waste facilities to assist them to achieve or improve compliance with state minimum standards. Proceeds were received in March 2001, and the loan is to be repaid in $33,333 annual payments of principal through 2016. No interest is due on the principal balance of the loan outstanding. This debt is recorded in the Refuse Enterprise Fund. The balance outstanding at June 30, 2007, was $300,000. The annual debt service requirements on the notes at June 30, 2007, were as follows: For the Year Ending June 30, 2008

Principal $

Interest

2,553,787

$

981,752

Total $

3,535,539

2009

2,624,582

910,958

3,535,540

2010

2,697,248

838,295

3,535,543

2011

2,771,987

763,553

3,535,540

2012

2,848,804

686,736

3,535,540

2013-2017

15,299,171

2,205,441

17,504,612

2018-2022

6,541,690

276,016

6,817,706

Total

$

$

35,337,269

6,662,751

$

42,000,020

Lease Obligations The City leases equipment in the Refuse, Water, Wastewater, Parking, and Golf Course funds under various capital lease agreements payable in semi-annual and annual installments through August 2006 with interest rates ranging from 4.5% to 5.9%. In November 2002, the City entered into another equipment lease in the amount of $1,038,840 payable in sixty months. The payments are due in ten consecutive semi-annual payments, and each payment includes 3.26% interest per year on the unpaid balance. In December 2003, the City entered into an equipment lease agreement in the amount of $656,182 payable in sixty months. The payments are due in ten consecutive semi-annual payments, and each payment includes 3.13% interest per year on the unpaid principal. The combined Refuse, Water, Wastewater, Parking, and Golf Course funds balance outstanding at June 30, 2007, was $164,139. In January 2005, The City acquired four refuse trucks under a capital lease agreement payable in semiannual installments of $88,482 through February 2009 with an annual interest rate of 3.04%. This lease has been allocated to the Refuse fund. The balance outstanding at June 30, 2007, was $340,878. In April 2005, the City acquired twenty-five receptacles, three recycling trucks and a truck retrofit under a capital lease agreement payable in semi-annual installments of $85,636 through May 2010 with an annual interest rate of 3.70%. This lease has been allocated to the Refuse Fund. The balance outstanding at June 30, 2007, was $482,124. 83

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

6. LONG-TERM DEBT, Continued B. Proprietary Fund Obligations, Continued Lease Obligations, Continued In December 2005, the City entered into a capital lease agreement for lease rental of two fairway mowers. The lease is payable in quarterly installments of $9,584 through December 2010 with an annual interest rate of 3.90%. The lease has been allocated to the Golf Course Fund. The balance outstanding at June 30, 2007 was $60,632. In June 2, 2006, the City acquired one (1) front loader and five (5) side-loaders under a capital lease agreement payable in semi-annual installments of $135,798 through June 2011 with an annual interest rate of 4.16%. This lease has been allocated to the Refuse Fund. The balance outstanding at June 30, 2007, was $991,365 In December 2006, the City acquired three (3) trucks, one (1) street sweeper and (1) one sewer /storm drain vactor truck under a capital lease agreement payable in semi-annual installments of $118,213 through December 2011 with an annual interest rate of 3.88%. This lease has been allocated to the Refuse and Waste Water Funds. The balance outstanding at June 30, 2007 was $967,659 In May 2007, the City acquired one (1) Caterpillar D&T Waste Bulldozer under a capital lease agreement payable in semi-annual installments of $56,519 through May 2012 with an annual interest rate of 3.98%. This lease has been allocated to the Refuse Fund. The balance outstanding at June 30, 2007 was $507,958 The annual debt service requirements on the lease obligations at June 30, 2007, were as follows: For the Year Ending June 30, 2008

Principal $

Interest

1,030,320

$

125,208

Total $

1,155,528

2009

899,438

89,034

988,472

2010

755,677

55,830

811,507

2011

603,604

27,045

630,649

2012

225,716

5,536

231,252

Total

$

3,514,755

84

$

302,653

$

3,817,408

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

7. RISK MANAGEMENT AND SELF-INSURANCE The City has an established Risk Management Fund (an internal service fund) to account for a self-insurance program. For the period ending June 30, 2007, the City was self-insured for workers' compensation up to $500,000 per occurrence and for general liability up to $1,000,000 per occurrence. Claims in excess of these amounts are insured. The City is also completely self-insured for unemployment insurance, vision, and dental insurance claims, and this self-insurance program is accounted for in the General Fund. The City contracts with outside administrators to administer these programs. There were no significant reductions in insurance coverage. Settlements have not exceeded insurance coverage in any of the past three fiscal years. In January 1997, the City joined the Authority for California Cities Excess Liability (ACCEL). ACCEL is a joint powers authority organized under the provisions of Section 6500 et. seq. of the California Government code. ACCEL was founded in 1986 to provide medium-sized California cities self-funding for catastrophic losses. There are currently twelve members. ACCEL operates a liability risk pooling program which is subject to an annual independent financial audit and biennial actuarial study. ACCEL is governed by a twelve member Board of Directors. Each member agency appoints a representative to the Board of Directors. Each member of the Board of Directors has a single vote for policy and charter changes. ACCEL is funded by its member participants and, at the discretion of its Board of Directors, may assess the members for additional premiums (in an unlimited amount) in the event ACCEL assets at any time are insufficient to discharge its liabilities. For the 2006-2007 fiscal year, ACCEL charged its members $0.60 per one-hundred dollars of payroll for the self-funded $4,000,000 excess of a $1,000,000 member self-insured retention. Members also purchased commercial excess insurance limits of $30,000,000 excess of $5,000,000. In addition to the $35,000,000 program limits, eight members purchased optional limits of $10,000,000. Members were also charged administrative costs in equal amounts. The City’s share of administrative costs was $29,716 during the 2006-2007 fiscal year. ACCEL’s day-to-day operations are administered by Alliant Insurance Services, Inc. (Alliant) contracted by ACCEL to provide accounting, risk consulting, insurance brokerage, and program administration services. Alliant’s responsibility also includes the administration of policies and procedures as set forth by the ACCEL Joint Powers Authority Agreement, By-laws, and by the Board of Directors. ACCEL provides coverage above each member’s self-insured retention (SIR), subject to aggregate limit. Historically, nine members have $500,000 SIRS and two members have $1,000,000 SIRS. ACCEL provided an optional coverage of $500,000 excess of $500,000 per occurrence through 1989-90; however, this coverage is no longer available. Prior to July 1, 1990, ACCEL pooled losses incurred by its members up to $10,000,000. Effective July 1, 1990, ACCEL created a reinsurance pool within the $9,000,000 excess of $1,000,000 layer by purchasing $5,000,000 excess of $5,000,000 coverage. On July 1, 1997, ACCEL further reduced its exposure and purchased coverage of $17,000,000 excess of $3,000,000 coverage. Due to favorable market conditions, ACCEL purchased coverage of $19,000,000 excess of $1,000,000 effective July 1, 1998. Six members with SIR of $500,000 purchased additional coverage of $500,000 excess of $500,000 (including the City of Santa Cruz). As of July 1, 2000, nine members purchased insurance of $19,500,000 excess of $1,000,000. ACCEL was fully insured through June 30, 2003. 85

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

7. RISK MANAGEMENT AND SELF-INSURANCE, Continued As of July 1, 2003, the Authority purchased a reinsurance covering $20,000,000 excess of $2,000,000 and pooled losses in the layer $1,000,000 excess of $1,000,000. All members have SIR of $1,000,000. ACCEL members may participate in the purchase of other insurance, such as excess worker’s compensation and excess liability over $12,000,000 per occurrence where risk is not transferred to the pool. Effective September 1, 2003, ACCEL purchased excess insurance for all losses in excess of $2,000,000 per occurrence. ACCEL does not administer claims for these programs; therefore, no revenue or expense is reflected in ACCEL’s financial statements. ACCEL has a retrospective rating plan whereby all premiums collected, together with related investment income earned, in excess of pooled losses and loss expenses for each program year will be returned to members beginning five years after the end of the program year. Losses and loss expenses are allocated to each member based on a weighted actual loss formula. At the June 2007 Board of Directors meeting, a retrospectively rated refund was made available for distribution to the members for program years 2 through 16 in the amount of $11,236,868. Members may elect to have returned all or a portion of their refund, or choose to retain the funds in the respective program year in the name of the member city. The City of Santa Cruz’ retrospective rated refund is $673,531. Summary audited financial information for ACCEL as of and for the year ended June 30, 2007, is as follows: Assets Cash and investments Other assets

$

26,449,674 1,268,205

Total assets

$

27,717,879

$

11,672,000 15,201,949 747,392

Liabilities and Net Assets Unpaid claims liability Retrospectively rated refunds liability Other liabilities Total liabilities Net assets

27,621,341 96,538

Total liabilities and net assets

$

27,717,879

$

8,829,522 1,294,694 362,592

Revenues Premiums earned Investment income Administrative fees Total revenues

10,486,808 Expenses

Loss provision and premiums paid General and administrative

$

Total expenses

10,124,218 362,590 10,486,808

Net income / (loss) Net assets, beginning of year

96,538

Net assets, end of year

$

86

96,538

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

7. RISK MANAGEMENT AND SELF-INSURANCE, Continued Complete financial statements for ACCEL can be obtained from Alliant Insurance Services, Inc., 600 Montgomery Street, 9th Floor, San Francisco, CA 94111. Risk Management Fund revenues are primarily premium charges received from other funds and are planned to match expenses of insurance premiums for coverage in excess of self-insured amounts, estimated payments resulting from self-insurance programs, and operating expenses. Department charges are based on historical experience. Claims known to be payable and the estimated liability for the balance, based on a case-by-case review of all claims is recorded as claims payable. An additional estimate of the amount to be paid for claims incurred, but not reported, is also recorded as claims payable. Changes in the Risk Management Fund's claims liability amount for the years ended June 30, 2005 through 2007 are as follows: CLAIMS PAYABLE

June 30, 2005

$

Beginning

Claims

Balance

Incurred

14,376,121

$

3,350,942

Ending Payments $

(2,463,787)

Balance $

15,263,276

June 30, 2006

10,719,455

2,686,917

(2,399,082)

11,007,290

June 30, 2007

11,007,290

2,988,351

(3,553,086)

10,442,555

The General Fund and Redevelopment Agency Fund typically have been used in prior years to liquidate the liability for claims and judgments. 8. LANDFILL CLOSURE AND POSTCLOSURE COSTS In accordance with requirements established by the California Integrated Waste Management Board, the City has recognized a portion of the landfill's closure and postclosure care (closure) costs. These cost estimates are based on the amount of landfill used to date. The total estimated costs are as follows: Total estimated closure costs Total estimated postclosure costs Total estimated closure and postclosure costs

$

4,521,425 8,771,956

$

13,293,381

The City has increased the landfill’s capacity through excavations and plans to continue excavating in future years to increase capacity. This effort has also increased the estimates of the closure and postclosure costs. At June 30, 2007, the estimated landfill closure cost liabilities of $6,055,236 and estimated annual landfill closure cost of $303,828 were calculated as follows:

87

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

8. LANDFILL CLOSURE AND POSTCLOSURE COSTS, Continued Total estimated closure and postclosure costs

$

Percent of used capacity to total capacity

13,293,381 45.55%

Estimate landfill closure and postclosure cost liability Miscellaneous adjustments

6,055,135 101

Estimated total closure and postclosure costs liability

6,055,236

Previous closure costs accrued

5,751,408

Fiscal year 2007 expense for closure and postclosure costs

$

303,828

The landfill has an estimated remaining capacity of 5,708,635 cubic yards and has a projected closure date of January 2038. Based upon the requirements of the California Integrated Waste Management Board, the City set aside $166,558 to fund future closure and post closure costs for the year ended June 30, 2007. All cash is invested. The market value of the invested cash at June 30, 2007 was $3,369,908, and is available to provide for closure and postclosure costs. Total funds accumulated as of June 30, 2007, are comprised as follows: Closure

$

Postclosure

1,413,733 1,956,175

Total

$

3,369,908

The City has demonstrated acceptable financial assurance to the California Integrated Waste Management Board through an agreement pledging revenue for corrective actions costs on September 26, 2006. Sufficient funds to cover these potential costs are available in the Refuse Fund’s unrestricted cash account. The estimated closure and corrective action costs are current estimates based on data provided by an independent consultant and are subject to changes in inflation, technological advancements, or regulatory changes. 9. RETIREMENT PLANS A. Pension Plan Plan Description The City contributes to the California Public Employees' Retirement System (PERS); an agent multiple-employer defined benefit pension plan. The Police and Fire Safety plans are required to participate in a risk pool since there were less than 100 active members in at least one valuation since June 30, 2003. PERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and city ordinance. Copies of PERS’ Annual Financial Report may be obtained from their Executive Office located at 400 P Street, Sacramento, CA 95814. 88

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

9. RETIREMENT PLANS, Continued A. Pension Plan, Continued Funding Policy City employees are required to contribute 9% for safety employees and 11.163% for all other employees of their annual covered salary. The City employer is required to contribute at an actuarially determined rate; the fiscal year 2007 rate is 8.988% for miscellaneous employees, 35.164% for police safety employees, and 38.825% for fire safety employees of annual covered payroll. There is a cost sharing agreement with miscellaneous employees whereby the employee is required to pay the employer share above 6.354%, a portion on a pre-tax basis and a portion on a post-tax basis. In fiscal year 2007, the City amended its Miscellaneous Employees PERS contract to provide for Section 21548 Pre-Retirement Optional Settlement 2 Death Benefits. The additional cost to the City is 0.211% of the annual payroll. The contribution requirements of City employees and the City employer are established and may be amended by PERS. Annual Pension Cost For fiscal year 2007, the City’s annual pension cost of $6,462,742 for PERS was equal to the City’s required and actual contributions. The required contribution was determined as part of the June 30, 2004, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumption included (a) 7.75% investment rate of return (net of administrative expenses); (b) projected salary increases ranging from 3.25% to 14.45% depending on age, service, and type of employment, and (c) 2% per year cost-of-living adjustments. Both (a) and (b) included an inflation component of 3.0%. The actuarial value of PERS assets was determined using techniques that smooth the effects of volatility in the market value of investments over a fifteen-year period. PERS unfunded actuarial accrued liability (or surplus) is being amortized as a level percentage of projected payroll on a closed basis. The amortization period at June 30, 2004 was 16 years for public safety police employees, 16 years for public safety fire employees, and 30 years for miscellaneous employees for prior and current service unfunded liability. Fiscal

Annual

Percentage

Net

Year

Pension

of APC

Pension

Ended

Cost (APC)

Contributed

Obligation

June 30, 2005

6,175,176

100%

-

June 30, 2006

6,330,030

100%

-

June 30, 2007

6,462,742

100%

-

89

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

10. POST-EMPLOYMENT RETIREMENT BENEFITS Retiree Medical Plan The City contracts with CalPERS for retiree health care benefits. Covered employees who retire under the provisions of the City’s contract with CalPERS are eligible to continue CalPERS medical coverage. The City’s contribution rate for retiree enrollment is the minimum amount provided under Government Code Section 22892 of the Public Employees Medical and Hospital Care Act. The minimum rates for the following calendar years are listed below: • • • •

2006 - $64.60 2007 - $80.80 2008 - $97.00 2009 – CPI Adjustment

On June 30, 2007, 153 retired employees were eligible for the Retiree Medical Plan benefits. In fiscal year 2007, the City paid $135,096 towards the Retiree Medical Plan and recognized these expenditures as they were paid. Retiree Medical Incentive All part-time and full-time regular employees that meet specified Memorandum of Understanding (MOU) continuous service and minimum age requirements are also eligible to receive a retiree medical incentive. Miscellaneous employees must have at least 10 years of continued service with the City and be at least 55 years of age; and Public Safety employees must have a minimum of 5 years of continued service with the City and be at least 50 years of age. Retiree medical incentives will be provided until the retiree becomes eligible for Medicare or discontinues CalPERS medical coverage. On June 30, 2007, there were 70 participants in the retirement medical incentive program. In fiscal year 2007, the City paid $97,605 towards retiree medical incentives and recognized these expenditures as they were paid.

11. COMMITMENTS AND CONTINGENCIES The City participates in a number of Federally assisted grant programs, of which the principal grants are the Disaster Assistance Program, Community Development Block Grant (CDBG), Home Investments Partnership Program (HOME) grant program, various Department of Justice and Department of Transportation grant programs. These programs are subject to program compliance audits by the grantors or their representatives. The amount, if any, of expenditures, which may be disallowed by the granting agencies upon audit, cannot be determined at this time although the City expects such amounts to be immaterial.

90

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

11. COMMITMENTS AND CONTINGENCIES, Continued The California Legislature granted tidal and submerged lands in trust to the City to be used for a number of statewide purposes in furtherance of navigation, commerce and fisheries. In accordance with this legislation, revenues derived from the Wharf are required to be used for purposes permitted under the grant statute. There are a number of lawsuits presently against the City. While the ultimate outcome of these lawsuits is not determinable, in the opinion of the City Attorney and City management, recovery from the City, if any, would not have a material effect on the accompanying financial statements. The following schedule summarizes the major contractual commitments of the City as of June 30, 2007: Major Commitments and Contracts for Professional Services: Highway 1 Bike/Pedestrian Underpass

$

140,621

Tannery Arts Projects

185,446

Tait St. Diversion Study

144,850

GHWTP Electrical Improvelemts

361,166

Sanitary Sewer Flow Model

158,684

Geotech Services Newell Creek Dam

169,000

MBNMS Visitor Center

363,684

Bay St Reservoir Reconstruction SDC

114,963

Total major professional services

1,638,414

Major Commitments and Contracts for Capital Projects: Loan from South County Housing Corp

216,669

North Coast Rehabilitation

808,943

Felton Booster Pump Station Upgrade

561,157

Bay St System Transmission Improvement Project

2,713,893

Santa Cruz County Kinsley St Improvement Project

3,319,953

Archaeological Service for Bay St Reservoir

459,952

Desal Pilot Study on Water Supply

287,163

Total major capital projects

8,367,730

Total Commitments and Contracts

$

91

10,006,144

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

12. OPERATING LEASES The City is obligated under various operating leases for the use of land, buildings, office space and equipment. Lease expenditures, primarily for governmental funds, for the year ended June 30, 2007 were $225,213. Future minimum lease payments required by lease agreements that have initial or remaining noncancelable lease terms in excess of one year as of June 30, 2007 are as follows: Year Ending June 30, 2008

Balance $

86,752

2009

67,896

2010

23,078

Total future minimum lease payments

$

177,726

The City leases (as lessor) office facilities, buildings, and wharf facilities under operating leases to various entities and individuals. Total revenues from these leases for the year ending June 30, 2007 were $899,912. The total cost of leased assets as of June 30, 2007 was $27,714,643, and the accumulated depreciation of those assets that are depreciable amounted to $7,644,810. Future estimated revenues from these leases are as follows: Year Ending June 30, 2008

Amount $

953,983

2009

859,114

2010

748,565

Future years

4,570,593

92

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

13. RESERVED AND DESIGNATED FUND BALANCES Fund balances at June 30, 2007, have been reserved and designated for the following purposes: Redevelopment

Special

Debt

Capital

General

Agency

Revenue

Service

Projects

Fund

Fund

Funds

Fund

Funds

Total

Reserved for: Encumbrances

$

Noncurrent receivables and advances Prepaid items Debt service General plan update Capital projects Low and moderate income housing Total reserved

861,056

$

432,752

$

1,199,314

$

-

$

1,499,485

$

3,992,607

2,398,778

4,915,571

2,089,248

-

-

9,403,597

475,774

-

-

-

-

475,774

-

64,063

-

-

-

64,063

15,000

-

-

-

-

15,000

-

-

-

-

-

-

256,105

1,407,960

-

-

-

1,664,065

4,006,713

6,820,346

3,288,562

-

1,499,485

15,615,106

1,586,577

Designated for: 1,582,089

-

4,488

-

-

Capital projects

Accrued compensated absences

-

6,285,781

-

-

-

6,285,781

City public trust

6,436,475

-

-

-

-

6,436,475 42,584

Computer loan program CPVAW Debt service Equipment maintenance Housing Housing in-lieu program

42,584

-

-

-

-

3,245

-

-

-

-

3,245

-

2,840,469

-

909,576

-

3,750,045

49,536

-

-

-

-

49,536

-

-

299,478

-

-

299,478 206,013

206,013

-

-

-

-

Kiosk maintenance

31,632

-

-

-

-

31,632

Museum building

28,021

-

-

-

-

28,021

Parks and recreation programs

22,048

-

-

-

-

22,048

1,985

-

-

-

-

1,985

-

-

118,262

-

-

118,262

8,143

-

631,058

-

-

639,201

33,157

-

-

-

-

33,157

Planning/zoning programs Police programs Public works programs Street trees Unemployment insurance

16,944

-

-

-

-

16,944

Youth/teen programs

26,602

-

-

-

-

26,602

Total designated

8,488,474

9,126,250

1,053,286

909,576

-

19,577,586

Unreserved, Undesignated

13,924,233

-

2,851,774

-

(2,796,246)

13,979,761

Total fund balances

$

26,419,420

$

15,946,596

93

$

7,193,622

$

909,576

$

(1,296,761)

$

49,172,453

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

14. DEFICIT NET ASSETS The City had total net assets of $4,171,528 as of June 30, 2007, which was comprised of the General Capital Improvement Fund deficit net assets of $1,296,761 and the Risk Management Internal Service Fund deficit net assets of $2,874,767. The General Capital Improvement Fund deficit will be cleared with additional utility contributions and transfers from the General Fund once the undergrounding of utilities is complete. The Risk Management Internal Service Fund’s deficit is due to estimated workers’ compensation claims liabilities in excess of cash and other assets available in the fund, positively offset by the liability insurance net assets. It is anticipated that this deficit will be made up in future years by increased contributions from other City funds. The City has established an actuarially approved plan to fund the increased liability over a number of years. A detail listing of deficit net assets by fund is shown below: Net Assets Capital Improvement Fund

$

(1,296,761)

Risk Management Fund: Workers' compensation insurance

(3,300,551)

Liability insurance

425,784

Total

(2,874,767) $

Total net assets

(4,171,528)

15. SUBSEQUENT EVENTS On July 10, 2007, the City of Santa Cruz City Council approved a Resolution of Intention to issue debt to provide financing for the purchase of the Union Locust Building, to provide space for Library Administration and book processing, and for the Water Utility Administration offices. The City plans to issue Lease Revenue Bonds in the principal amount of $6,880,000 on December 4, 2007. The City of Santa Cruz Public Financing Authority will sell 2007 Lease Revenue bonds in the amount of $6,880,000 on December 4, 2007. The bonds are for 30 years. The City, which has a AA credit rating, will not provide insurance on the bonds, but will offer the bidder’s option allowing the winning bidder to purchase insurance on the bonds. The average annual debt service on the bonds is $430,000, to be paid two thirds by the Library and one third by the Water Utility. Payments are due December 31st and June 30th of each year.

94

City of Santa Cruz

Notes to Basic Financial Statements, Continued For the year ended June 30, 2007

16. PRIOR PERIOD ADJUSTMENTS A. Government-Wide Financial Statements The City recorded the following prior period adjustments in the Government-Wide Financial Statements. Adjustments to the Governmental Activities include an increase of $157,000 in Capital assets – land, belonging to the Redevelopment fund and incorrectly recorded in the Parking Enterprise Fund during the GASB 34 conversion. Adjustments to the Business-Type Activities include the $157,000 reduction in Capital assets – land in the Parking Enterprise Fund, and corrections to the Water and Wastewater Enterprise Funds in the total amount of $492,352 originally recorded in Capital assets Construction in Progress, and reclassified as prior-year expenditures. Accordingly, the net assets as of July 1, 2006, have been restated as follows: Prior Period Adjustments

Net Assets, as Previously

Capital

Net Assets,

Reported

Assets

As Restated

Government-Wide Financial Statements Governmental Activities: Net assets

$

173,777,838

Total governmental activities

$

157,000

$

173,934,838

173,777,838

157,000

173,934,838

242,835,587

(649,352)

242,186,235

242,835,587

(649,352)

242,186,235

Business-Type Activities: Net assets Total business-type activities Total government-wide

$

416,613,425

$

(492,352)

$

416,121,073

B. Funds Financial Statements The City recorded the following prior period adjustments in the fund financial statements. Adjustments to the Water and Wastewater Enterprise Funds in the total amount of $492,352 originally recorded in Capital assets - Construction in Progress, and reclassified as prior-year expenditures. Adjustments in the Parking Enterprise Fund include $157,000 in Capital assets – Land, belonging to the Redevelopment fund and incorrectly recorded in the Parking enterprise fund during the GASB 34 conversion. Accordingly, the net assets as of July 1, 2006, have been restated as follows: Prior Period Adjustments

Net Assets, as Previously

Capital

Net Assets,

Reported

Assets

As Restated

Major Enterprise Funds Water

$

Wastewater Parking Total business-type activities

$

95

(377,467)

$

71,641,891

103,829,258

72,019,358

(114,885)

$

103,714,373

16,922,805

(157,000)

192,771,421

$

$

(649,352)

16,765,805 $

192,122,069

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96

REQUIRED SUPPLEMENTARY INFORMATION

97

City of Santa Cruz Required Supplementary Information For the year ended June 30, 2007

1. BUDGETARY INFORMATION An annual budget is adopted by the City Council no later than the first regular meeting in July for the fiscal year beginning July first. As part of the budget process, all City departments submit budget requests for the next fiscal year. These requests are reviewed, and a final City Manager recommended budget showing estimated revenues and expenditures of the City is prepared. This proposed budget is transmitted to the City Council and made available to the public for review. Study sessions and a public hearing are conducted before final adoption of the budget by the City Council. The City Manager is authorized to approve appropriation transfers within any department up to a specified amount; however, any new appropriation or appropriation transfer between departments requires approval by the City Council. Several supplemental appropriations were necessary during the year and are reflected in the budget amounts in the financial statements. Expenditures may not legally exceed appropriations at the department level. Under the City Charter, all unexpended appropriations shall lapse at the end of the fiscal year unless they are lawfully committed, or are required by law to be continuously appropriated from year to year. Lawfully committed amounts include amounts legally encumbered at year end. Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation, is employed as an extension of formal budgetary integration in the governmental fund types. Encumbrances outstanding at year-end are reported as reservation of fund balances since they do not constitute expenditures or liabilities, and re-appropriations in the subsequent year provide authority to complete these transactions as expenditures. In addition, project-length (or non-lapsing) budgets are adopted for capital improvement and other projects, and grant-funded projects or programs that may not be completed within the fiscal year during which the budget appropriation for the project or program originates. Under these circumstances, the appropriation continues until project or program completion, or unless the appropriation is subsequently amended or rescinded by the City Council. In the Budgetary Comparison Schedules, the “Original Budget” column includes the final adopted budget amounts, re-appropriations for prior year encumbrances, and continuing appropriations for project-length budgets automatically carried over from prior years. The City Charter requires the City Council, upon recommendation of the City Manager and after providing sufficient funds to meet debt service and operating needs, to annually set aside in the enterprise funds an amount to be used for the acquisition and betterment of plant facilities. Such amounts, if any, would be shown in the financial statements as cash and investments held for betterment of plant facilities. No such funds were set aside during the year ended June 30, 2007.

98

City of Santa Cruz Required Supplementary Information, Continued For the year ended June 30, 2007

1. BUDGETARY INFORMATION, Continued Budgets are adopted each year for all general, special revenue, debt service, and capital projects funds. These governmental fund budgets are prepared on a basis consistent with generally accepted accounting principles (GAAP), except in the following areas: ¾

Budgetary basis revenues include repayments of loan principal. Budgetary basis expenditures include loans made. On a GAAP basis both of these are considered as reclassifications of fund balance (between reserved and unreserved fund balance).

¾

GAAP basis revenues include the fair value adjustment to investment earnings. GAAP basis expenditures include compensated absences expense. Neither of these are included in the budgetary basis.

A reconciliation of differences between budgetary and GAAP revenues and expenditures follows the budget comparison schedules.

99

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100

BUDGETARY SCHEDULES

101

City of Santa Cruz Required Supplementary Information, Continued For the year ended June 30, 2007 Budgetary Comparison Schedule, General Fund Variance with Budgeted Amounts Original

Final

Actual Amounts

Positive

(Budgetary Basis)

(Negative)

Budget to GAAP Actual Amounts Differences

(GAAP Basis)

REVENUES: Taxes

$

40,598,617

$

41,840,617

$

42,837,408

$

996,791

$

-

$

42,837,408

Licenses and permits

660,750

685,750

824,258

138,508

-

824,258

Intergovernmental

936,200

1,345,795

1,563,745

217,950

-

1,563,745

External

15,871,678

16,048,658

15,937,955

(110,703)

-

15,937,955

Internal

2,987,930

4,192,003

3,848,462

(343,541)

-

3,848,462

Interagency

1,008,124

1,008,124

797,529

(210,595)

(797,529)

-

19,867,732

21,248,785

20,583,946

(664,839)

(797,529)

19,786,417

Fines and forfeitures

2,019,200

2,019,200

2,218,082

198,882

-

2,218,082

Use of money and property

2,499,537

2,556,994

2,900,491

343,497

161,227

3,061,718

144,690

880,977

187,732

-

187,732

66,726,726

70,578,118

71,115,662

General government

11,915,487

14,249,508

12,261,663

1,987,845

Public safety

30,643,828

31,023,163

28,469,065

2,554,098

-

28,469,065

Parks and recreation

10,754,233

10,803,375

9,653,531

1,149,844

-

9,653,531

Library

10,099,964

10,099,964

9,693,097

406,867

-

9,693,097

Public works

4,698,421

4,896,756

4,233,034

663,722

-

4,233,034

Community and economic development

1,015,624

1,176,676

812,875

363,801

Social services

1,647,114

1,653,979

1,651,827

2,152

1,424,769

1,787,146

1,338,184

448,962

Charges for services:

-

Subtotal charges for services

Other revenues Total revenues

(693,245) 537,544

(636,302)

70,479,360

EXPENDITURES: Current:

Capital outlay

12,261,663

13,424

(799,451)

1,651,827 -

1,338,184

-

Debt service: Principal Interest and fiscal charges Total expenditures REVENUES OVER (UNDER) EXPENDITURES

218,375

218,375

178,385

39,990

-

178,385

47,690

47,690

47,643

47

-

47,643

72,465,505

75,956,632

68,339,304

7,617,328

(799,451)

67,539,853

(5,738,779)

(5,378,514)

2,776,358

8,154,872

163,149

2,939,507

OTHER FINANCING SOURCES (USES): Proceeds from asset disposition

-

11,458

62,804

51,346

-

62,804

Proceeds from long-term debt issued

-

-

-

-

-

-

72,178

617,178

82,208

(534,970)

1,078,000

428,000

615,094

187,094

-

(2,381,875)

(538,875)

538,198

-

Total other financing sources (uses)

(1,231,697)

517,761

Net change in fund balance

(6,970,476)

17,983,761

Loan principal receipts Transfers in Transfers out

(677)

-

(82,208)

615,094 (677)

759,429

241,668

(82,208)

677,221

(4,860,753)

3,535,787

8,396,540

80,941

3,616,728

18,287,187

18,287,187

-

3,893,153

22,802,692

FUND BALANCE: Beginning of the year End of year

$

11,013,285

$

13,426,434

102

$

21,822,974

$

8,396,540

$

3,974,094

$

26,419,420

City of Santa Cruz Required Supplementary Information, Continued For the year ended June 30, 2007

General Fund Reconciliation of Net Changes in Fund Balances - Budgetary to GAAP Basis: Net Change in Fund Balances - Budgetary Basis

$

3,535,787

The amount reported in the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances was different because: Interagency charges for personnel services provided to the redevelopment agency are a revenue and expenditure on a budgetary basis, but are eliminated in the Statement of Revenues, Expenditures, and

(797,529)

Changes in fund balances because the redevelopment agency is part of the reporting entity.

799,451

Unrealized gains and losses on investments, which are considered a component of investment income in the Statement of Revenues, Expenditures and Changes in Fund Balances, are not included as revenue on a budgetary basis.

161,227

On a budgetary basis, the City records loan principal receipts as revenue, but on a GAAP basis, the receipts reduce receivables.

(82,208)

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

$

3,616,728

$

21,822,974

Reconciliation of Fund Balances - Budgetary to GAAP Basis: Fund Balances - Ending - Budgetary Basis Cumulative effect of unrealized gains and losses on investments

(8,262)

Cumulative effect of transfer of unrealized gains/losses on investments from Group Health to the General Fund

(7,278)

Reserved and designated balances unavailable for appropriation

3,029,897

Designated for noncurrent component of compensated absences

1,582,089

Fund Balances - Ending - GAAP Basis

$

103

26,419,420

City of Santa Cruz Required Supplementary Information, Continued For the year ended June 30, 2007

Budgetary Comparison Schedule, Redevelopment Agency Final Budget Budgeted Amounts Original

Final

Actual Amounts

Positive

(Budgetary Basis)

(Negative)

Budget to GAAP Actual Amounts Differences

(GAAP Basis)

REVENUES: Tax increment

$

9,845,831

$

10,035,000

$

11,022,799

$

987,799

$

-

$

11,022,799

Use of money and property

542,861

537,442

788,641

251,199

Other revenues

162,000

502,000

384,865

(117,135)

10,550,692

11,074,442

12,196,305

10,420,262

11,733,731

9,367,291

2,366,440

(1,132,000)

8,235,291

2,219,322

2,411,322

156,159

2,255,163

-

156,159

4,563,691

5,127,895

5,235,544

(3,585,855)

1,649,689

591,027

602,847

571,423

31,424

-

571,423

-

-

-

-

-

-

17,794,302

19,875,795

15,330,417

4,545,378

(4,717,855)

10,612,562

(7,243,610)

(8,801,353)

(3,134,112)

5,667,241

4,774,135

1,640,023

3,820,098

4,406,670

4,141,786

Total revenues

1,121,863

56,280

844,921

-

384,865

56,280

12,252,585

EXPENDITURES: Current: Community and economic development Capital outlay Debt service: Principal Interest and fiscal charges Bond issuance costs Total expenditures REVENUES OVER (UNDER) EXPENDITURES

(107,649)

OTHER FINANCING SOURCES (USES): Loan proceeds Long term advance proceeds

(264,884)

(4,141,786)

-

-

-

-

28,193

28,193

27,501

(692)

(27,501)

-

310,000

310,000

-

(310,000)

-

-

Premiums on bonds sold

-

-

-

Payment to refunded bond escrow agent

-

-

-

8,288

-

8,288

(4,169,287)

8,288

Loan principal receipts Proceeds from long-term debt issued

Transfer in from City of Santa Cruz Total other financing sources (uses) Net change in fund balance

-

-

8,288

4,158,291

4,744,863

4,177,575

(3,085,319)

(4,056,490)

1,043,463

(1,585,970)

(7,653,137)

(3,337,064)

10,836,098

10,836,098

10,836,098

(567,288) 5,099,953

604,848

1,648,311

1,546,064

(1,791,000)

3,462,187

14,298,285

FUND BALANCE: Beginning of the year End of year

$

7,750,779

$

6,779,608

104

$

11,879,561

$

5,099,953

$

4,067,035

$

15,946,596

City of Santa Cruz Required Supplementary Information, Continued For the year ended June 30, 2007

Redevelopment Agency Fund Reconciliation of Net Changes in Fund Balances - Budgetary to GAAP Basis: Net Change in Fund Balances - Budgetary Basis

$

1,043,463

The amount reported in the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances was different because: Unrealized gains and losses on investments, which are considered a component of investment income in the Statement of Revenues, Expenditures and Changes in Fund Balances, are not included as revenue on a budgetary basis.

56,280

The Agency budgets for loan disbursements which will not be repaid within the current year. Although these amounts are recorded as long-term receivables on the Governmental Funds Balance Sheet, they are not available for appropriation.

1,132,000

On a budgetary basis, the Agency records loan principal receipts as revenue, but on a GAAP basis, they reduce receivables.

(27,501)

Proceeds of both short term loans and long term advances from the City are considered budgetary resources, but are not revenues on a GAAP basis.

(4,141,786)

The Agency budgets for both short term and long term loan and advance principal repayments to the City, but these payments are not considered expenditures on a GAAP basis.

3,585,855

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

$

1,648,311

$

11,879,561

Reconciliation of Fund Balances - Budgetary to GAAP Basis: Fund Balances - Ending - Budgetary Basis Reconciling item for prior year reserve

47,622

Cumulative effect of unrealized gains and losses on investments

(15,312)

Noncurrent advances from City

(1,005,400)

Reserved balances unavailable for appropriation

5,040,125

Fund Balances - Ending - GAAP Basis

$

All funds are reserved or designated for debt service, capital projects, or low and moderate income housing.

105

15,946,596

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106

City of Santa Cruz Required Supplementary Information, Continued For the year ended June 30, 2007

PUBLIC EMPLOYEE RETIREMENT SYSTEM (PERS) SCHEDULE OF FUNDING PROGRESS Miscellaneous Employees Unfunded (Overfunded) Unfunded

Actuarial

Entry Age

(Overfunded)

Liability as

Actuarial

Actuarial

Actuarial

Actuarial

Valuation

Value of

Accrued

Accrued

Funded

Covered

Covered

Date

Assets

Liability

Liability

Ratio

Payroll

Payroll

June 30, 2004

$

139,133,604

$

160,182,390

$

Percentage of

21,048,786

86.9%

$

33,778,451

62.3%

June 30, 2005

150,956,645

170,106,283

19,149,638

88.7%

32,905,030

58.2%

June 30, 2006

164,898,761

183,410,717

18,511,956

89.9%

33,001,059

56.1%

Police Safety Employees Unfunded (Overfunded) Unfunded

Actuarial

Entry Age

(Overfunded)

Liability as

Actuarial

Actuarial

Actuarial

Actuarial

Valuation

Value of

Accrued

Accrued

Funded

Covered

Percentage of Covered

Date

Assets

Liability

Liability

Ratio

Payroll

Payroll

CalPERS Risk Pool Information (see comment below): June 30, 2004

$

4,424,586,846

$

5,383,921,942

$

959,335,096

82.2%

$

575,296,434

166.8%

June 30, 2005

5,295,150,375

6,367,049,264

1,071,898,889

83.2%

664,147,796

161.4%

June 30, 2006

6,102,615,567

7,278,049,834

1,175,434,267

83.8%

754,730,438

155.7%

Fire Safety Employees Unfunded (Overfunded) Unfunded

Actuarial

Entry Age

(Overfunded)

Liability as

Actuarial

Actuarial

Actuarial

Actuarial

Valuation

Value of

Accrued

Accrued

Funded

Covered

Percentage of Covered

Date

Assets

Liability

Liability

Ratio

Payroll

Payroll

CalPERS Risk Pool Information (see comment below): 959,335,096

82.2%

575,296,434

166.8%

June 30, 2005

June 30, 2004

$

5,295,150,375

4,424,586,846

$

6,367,049,264

5,383,921,942

$

1,071,898,889

83.2%

$

664,147,796

161.4%

June 30, 2006

6,102,615,567

7,278,049,834

1,175,434,267

83.8%

754,730,438

155.7%

Since the City has less than 100 active members in Fire and Police plans in at least one valuation since June 30, 2004, the City is required to participate in a risk pool. An actuarial valuation was performed with other participants within the same risk pool. Therefore, standalone information of the schedule of the funding progress for the City was not disclosed. 107

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108

SUPPLEMENTARY INFORMATION

109

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110

Non-Major Governmental Funds Special Revenue Funds: Police - Accounts for state and federal grants and other revenues restricted to be used for police programs. State Highway Funds - This fund is used to account for the City's apportionment of the State excise tax on gasoline and other related grants or receipts that are restricted for the planning, construction and maintenance of streets and roads. It is also used to account for a subvention of the State sales tax on gasoline (Traffic Congestion Relief Funds) that are restricted for street and highway maintenance, and rehabilitation and reconstruction of necessary associated facilities such as drainage and traffic control devices. Traffic Impact Fee Funds - This fund is used for capital improvements to mitigate traffic impacts generated by land development. The fee provides financial resources for improvements to transit stops, bike and pedestrian facilities, signal coordination, park and ride lots, and other alternative transportation sources impacted by development, and is levied on all Citywide projects requiring a building permit (residential remodels and limited expansions expected to generate less than five new trips per day are exempt). Parks and Recreation - Accounts for tax and fee revenues restricted for parks and recreation use. Housing and Community Development - Accounts for receipts and expenditures under the Housing and Community Development Act, which includes Community Development Block Grant funds and HOME program funds. It also is used to account for Red Cross housing reconstruction loan repayments and income and related expenditures for a City-owned rental property. Transportation Development Act Fund - This fund is used to account for receipts of State Transportation Development Act (TDA) funds restricted to be used for specialized or unmet transit needs. Acting as the public agency sponsor, the City contracts with non-profit agencies to meet these obligations. Debt Service Fund: General Obligation Bonds - This fund accounts for the debt service for a $7 million general obligation bond issue approved by voters in November 1998. Funds for payment of principal and interest on the bonds are generated by a property tax override assessment of $9.00 per $100,000 of assessed value. Capital Projects Fund: General Capital Improvement - This fund is used to account for capital improvements for which special projects funds have not been established. A portion of the City's transient occupancy tax receipts, combined with other funding sources, such as grants, provides funding for capital projects of general benefit, such as storm drain improvements, or improvements to public buildings.

111

City of Santa Cruz Combining Balance Sheet Non-Major Governmental Funds June 30, 2007

Special Revenue Housing and Police

State

Traffic

Parks and

Community

Highway

Impact Fee

Recreation

Development

ASSETS Cash and cash equivalents

$

Interest receivable

279,254

$

2,315,418

$

622,364

$

1,702,939

$

2,323,554

3,487

27,327

8,694

20,276

309,421

-

-

-

-

-

3,358

10,010

145,479

-

-

-

266,212

-

-

65,209

Cash and cash equivalents

-

-

-

-

-

Investments

-

-

-

-

-

-

-

-

-

-

Notes receivable - net

-

-

18,501

245,896

681,330

Loans receivable - net

-

-

-

-

1,407,917

Taxes receivable Accounts receivable - net Due from other governments Restricted assets:

Total restricted assets

Total assets

$

286,099

$

2,618,967

$

795,038

$

1,969,111

$

4,787,431

$

-

$

1,141,574

$

-

$

1,921

$

32,605

LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other current liabilities Due to other funds Intergovernmental payable Deferred revenue Unearned revenue Advances from other funds Total liabilities

350

-

-

6,816

69,904

-

-

-

-

2,438

-

-

163,980

245,896

290,866

137,437

29,237

-

-

-

-

-

-

-

1,140,000

137,787

1,170,811

163,980

254,633

1,535,813

Fund Balances: Reserved

-

336,422

-

-

2,952,140

118,262

4,488

631,058

-

299,478

Special revenue funds

30,050

1,107,246

-

1,714,478

-

Capital projects funds

-

-

-

-

-

148,312

1,448,156

631,058

1,714,478

3,251,618

Unreserved, designated Unreserved, undesignated, reported in:

Total fund balances Total liabilities and fund balances

$

286,099

$

112

2,618,967

$

795,038

$

1,969,111

$

4,787,431

Debt Service

Capital Projects

Transportation

$

General

Total Other

Development

General

Capital

Governmental

Act

Obligation Bond

Improvement

Funds

-

$

870,494

-

8,978

-

30,104

$

239,679

$

(1,901)

8,353,702 376,282

607,195

637,299

-

-

617,455

776,302

-

-

2,068,563

2,399,984

-

-

9,685

9,685

-

-

283,042

283,042

-

-

292,727

292,727

-

-

-

945,727

-

-

-

1,407,917

$

-

$

909,576

$

3,823,718

$

15,189,940

$

-

$

-

$

1,678,596

$

2,854,696

$

-

-

3,253,290

3,330,360

-

-

-

2,438

-

-

-

700,742

-

-

99,261

265,935

-

-

89,332

1,229,332

-

-

5,120,479

8,383,503

-

-

1,499,485

4,788,047

-

909,576

-

1,962,862

-

-

-

2,851,774

-

-

(2,796,246)

(2,796,246)

-

909,576

(1,296,761)

6,806,437

-

$

909,576

$

3,823,718

$

15,189,940

113

City of Santa Cruz Combining Statement of Revenues, Expenditures and Changes in Fund Balances Non-Major Governmental Funds For the year ended June 30, 2007

Housing and Police

State

Traffic

Parks and

Community

Highway

Impact Fee

Recreation

Development

REVENUES: Taxes

$

Intergovernmental

-

$

-

102,097

3,103,117

$

-

$

-

442,783

$

105,840

1,721,938

Charges for services

35,330

470

-

-

-

Fines and forfeitures

24,465

-

-

-

-

Use of money and property

12,884

117,729

29,107

95,252

94,323

-

15,710

181,004

-

245,894

174,776

3,237,026

210,111

643,875

2,062,155

Public safety

105,000

-

-

-

-

Public works

-

707,017

-

-

-

Transit

-

-

-

-

-

Other revenues Total revenues EXPENDITURES: Current:

Community and economic development

-

-

-

-

1,780,277

Social services

-

-

-

-

106,389

3,536

2,683,168

-

52,511

53,464

Capital outlay Debt service: Principal

-

-

-

-

-

Interest and fiscal charges

-

-

-

-

25,519

108,536

3,390,185

-

52,511

1,965,649

210,111

591,364

96,506

Total expenditures REVENUES OVER (UNDER) EXPENDITURES

66,240

(153,159)

OTHER FINANCING SOURCES (USES): Proceeds from asset disposition Transfers in Transfers out Total other financing sources (uses) Net change in fund balances

-

-

-

-

285,737

677

148,416

-

-

-

(1,253)

-

(148,416)

(509,055)

(8,288)

(576)

148,416

(148,416)

(509,055)

277,449

61,695

82,309

373,955

569,363

1,632,169

2,877,663

65,664

(4,743)

FUND BALANCES: Beginning of year End of year

82,648 $

148,312

1,452,899 $

114

1,448,156

$

631,058

$

1,714,478

$

3,251,618

Debt Service

Capital Projects

Transportation

$

General

Total Other

Development

General

Capital

Governmental

Act

Obligation Bond

Improvement

Funds

-

$

646,548

$

584,641

$

1,497,971

-

3,720,589

$

2,525,395 9,400,129

-

-

30,668

66,468

-

-

-

24,465

-

33,243

86,168

468,706

-

-

1,449,058

1,891,666

646,548

617,884

6,784,454

14,376,829

-

-

-

105,000

-

-

-

707,017

646,548

-

-

646,548 1,780,277

-

-

-

-

-

-

106,389

-

-

10,580,915

13,373,594

-

185,577

190,217

375,794

-

230,506

203,741

459,766

646,548

416,083

10,974,873

17,554,385

-

201,801

(4,190,419)

(3,177,556)

-

-

-

285,737

-

-

488,039

637,132

-

-

(41,800)

(708,812)

-

-

446,239

214,057

-

201,801

(3,744,180)

(2,963,499)

-

707,775

2,447,419

9,769,936

-

$

909,576

$

(1,296,761)

$

6,806,437

115

City of Santa Cruz Schedule of Budget and Actual Revenues General Fund For the year ended June 30, 2007

Variance with Final Budget Budgeted Amounts Original

Final

Actual Amounts

Positive

(Budgetary Basis)

(Negative)

REVENUES: Taxes: Property Sales and use

$

13,062,800 11,924,813

$

13,062,800 12,166,813

$

12,985,872 12,770,015

$

(76,928) 603,202

773,000

773,000

787,225

Franchise

2,628,000

2,628,000

2,607,389

(20,611)

Transient occupancy

1,119,800

2,119,800

2,252,538

132,738

230,000

230,000

264,510

34,510

Business license

Parking

14,225

Utility users

8,631,700

8,631,700

8,288,655

(343,045)

Admission

1,700,000

1,700,000

1,909,012

209,012

220,000

220,000

641,579

421,579 22,110

Property transfer Business improvement

190,000

190,000

212,110

Other taxes

118,504

118,504

118,503

40,598,617

41,840,617

42,837,408

996,791

619,500

644,500

761,541

117,041

41,250

41,250

62,717

21,467

660,750

685,750

824,258

138,508

Total taxes

(1)

Licenses and permits: Construction permits Other licenses and permits Total licenses and permits Intergovernmental revenues: -

158,849

198,876

40,027

State

936,200

1,186,946

1,351,869

164,923

Local

-

-

13,000

13,000

936,200

1,345,795

1,563,745

217,950

Federal

Total intergovernmental revenues Charges for services: General government: Legislative

-

-

-

-

Management and support

-

-

845

845

1,074,660

1,117,460

1,262,611

145,151

7,000

7,000

10,940

3,940

1,308,195

1,308,195

1,229,820

Planning and zoning Other general government Public safety: Police

(78,375)

Fire

382,250

392,250

431,586

39,336

Protective inspection

355,200

435,200

634,768

199,568

25,000

25,000

35,634

10,634

46,000

46,000

48,862

2,862

1,488,250

1,488,250

1,451,614

900,000

910,000

971,964

61,964

5,586,555

5,729,355

6,078,644

349,289

Other public safety Parks and recreation: Parks Recreation Other parks and recreation Subtotal of charges for services

116

(36,636)

City of Santa Cruz Schedule of Budget and Actual Revenues, Continued General Fund For the year ended June 30, 2007

Variance with Final Budget Budgeted Amounts Original

Final

Actual Amounts

Positive

(Budgetary Basis)

(Negative)

Charges for services, Continued: Subtotal from previous page

$

5,586,555

$

5,729,355

$

6,078,644

$

349,289

Public works: Engineering Transportation

90,000

90,000

80,521

(9,479)

843,430

877,610

868,606

(9,004)

Community and economic development: Other community and economic development Internal charges for services provided

646,480

646,480

641,489

(4,991)

2,987,930

4,192,003

3,848,462

(343,541)

Interagency personnel services charges: Library

8,705,213

8,705,213

8,268,695

(436,518)

Redevelopment Agency

1,008,124

1,008,124

797,529

(210,595)

Subtotal interagency charges

9,713,337

9,713,337

9,066,224

(647,113)

19,867,732

21,248,785

20,583,946

(664,839)

1,738,000

1,738,000

1,846,688

108,688

281,200

281,200

371,394

90,194

2,019,200

2,019,200

2,218,082

198,882

Investment income

516,183

573,640

891,177

317,537

Rents and royalties

1,983,354

1,983,354

2,009,314

25,960

2,499,537

2,556,994

2,900,491

343,497

Total charges for services Fines and forfeitures: Court and traffic fines Other fines and forfeitures Total fines and forfeitures Use of money and property:

Total use of money and property Other revenues: Contributions and donations

45,040

77,036

84,200

Other miscellaneous revenues

99,650

803,941

103,532

(700,409)

144,690

880,977

187,732

(693,245)

66,726,726

70,578,118

71,115,662

537,544

Proceeds from asset dispositions

-

11,458

62,804

51,346

Proceeds from long-term debt issued

-

-

-

-

72,178

617,178

82,208

(534,970)

1,078,000

428,000

615,094

187,094

1,150,178

1,056,636

760,106

(296,530)

Total other revenues Total revenues

7,164

OTHER FINANCING SOURCES:

Repayment of loans and advances Transfers in Total other financing sources Total revenues and other financing sources

$

67,876,904

117

$

71,634,754

$

71,875,768

$

241,014

City of Santa Cruz Schedule of Budget and Actual Expenditures and Other Financing Uses For Legally Adopted Appropriations by Department - General Fund For the year ended June 30, 2007

Services, Supplies

City Council

$

Personnel

and Other

Debt

Capital

Actual Amounts

Services

Charges

Service

Outlay

(Budgetary Basis)

170,290

$

268,436

$

-

$

-

$

438,726

City Clerk

494,449

116,634

-

75,692

686,775

City Manager

604,978

646,101

-

-

1,251,079

City Attorney Human Resources Finance Information Technology

15,007

627,639

-

-

642,646

721,730

1,375,550

-

293

2,097,573

1,829,174

462,600

-

1,125

2,292,899

1,000,933

453,356

232,603

1,686,892

14,038,998

3,519,430

-

520,065

18,078,493

8,670,024

835,759

164,712

140,514

9,811,009

Parks and Recreation

6,869,258

3,306,833

-

151,726

10,327,817

Library

8,296,617

1,396,480

-

-

9,693,097

Public Works

3,150,025

1,069,663

-

206,765

4,426,453

Planning and Community Development

2,054,694

965,981

-

9,401

3,030,076

799,451

18,912

-

-

818,363

13,405

2,982,685

-

-

2,996,090

Police Fire

Redevelopment Administration Non-Departmental Debt service

-

-

61,316

-

61,316

Capital projects

-

-

-

-

-

48,729,033

18,046,059

226,028

1,338,184

68,339,304

Advances to other funds

-

-

-

-

-

Transfers out

-

-

-

-

677

Total expenditures

Total expenditures and other financing uses

$

48,729,033

$

18,046,059

Budget to GAAP Differences: See reconciliation in Required Supplementary Information Note 1.

118

$

226,028

$

1,338,184

$

68,339,981

Variance with Final Budget -

$

$

Final

Positive

Budget to GAAP

Actual Amounts

Budget

(Negative)

Differences

(GAAP Basis)

447,148

$

8,422

$

-

$

438,726

759,092

72,317

-

686,775

1,365,030

113,951

-

1,251,079

647,263

4,617

-

642,646

2,365,546

267,973

-

2,097,573

2,436,852

143,953

-

2,292,899

1,878,919

192,027

-

1,686,892

20,543,774

2,465,281

-

18,078,493

9,891,048

80,039

-

9,811,009

11,715,946

1,388,129

-

10,327,817

10,099,964

406,867

-

9,693,097

5,302,573

876,120

-

4,426,453

3,904,091

874,015

-

3,030,076

1,123,592

305,229

(799,451)

18,912

3,414,431

418,341

-

2,996,090

61,363

47

-

61,316

-

-

-

-

75,956,632

7,617,328

(799,451)

67,539,853

-

-

-

-

538,875

538,198

-

677

76,495,507

$

8,155,526

$

(799,451)

$

67,540,530

119

City of Santa Cruz Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Police Special Revenue Fund For the year ended June 30, 2007

Budgeted Amounts Original

Final

Actual Amounts

Budget to GAAP

Actual Amounts

(Budgetary Basis)

Differences

(GAAP Basis)

REVENUES: Intergovernmental

$

Charges for services

102,097

$

102,097

36,000

Fines and forfeitures Use of money and property Total revenues

$

102,097

36,000

35,330

$

-

$

102,097

-

35,330

-

-

24,465

-

24,465

7,181

7,181

10,056

2,828

12,884

145,278

145,278

171,948

2,828

174,776

105,664 2,097

105,664 2,097

105,000 3,536

-

105,000 3,536

107,761

107,761

108,536

-

108,536

37,517

37,517

63,412

2,828

66,240

EXPENDITURES: Current: Public safety: Police Capital outlay Total expenditures REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out Total other financing sources (uses) Net change in fund balance

(500)

(500)

677 (1,253)

-

677 (1,253)

(500)

(500)

(576)

-

(576)

37,017

37,017

62,836

2,828

65,664

85,640

85,640

85,640

(2,992)

82,648

FUND BALANCE: Beginning of the year End of year

$

122,657

$

122,657

120

$

148,476

$

(164)

$

148,312

City of Santa Cruz Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual State Highway Special Revenue Fund For the year ended June 30, 2007

Budgeted Amounts Original

Final

Actual Amounts

Budget to GAAP

Actual Amounts

(Budgetary Basis)

Differences

(GAAP Basis)

REVENUES: Intergovernmental

$

Charges for services Use of money and property Other revenues Total revenues

8,787,909

-

3,103,117

-

$

9,334,648 -

$

3,103,117 470

$

-

470

32,946

32,946

104,143

13,586

117,729

-

-

15,710

-

15,710

8,820,855

9,367,594

3,223,440

13,586

3,237,026

739,818 9,385,951

761,418 9,911,090

707,017 2,683,168

-

707,017 2,683,168

-

-

-

-

-

10,125,769

10,672,508

3,390,185

-

3,390,185

(1,304,914)

(1,304,914)

EXPENDITURES: Current: Public works: Transportation Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures REVENUES OVER (UNDER) EXPENDITURES

(166,745)

13,586

(153,159)

OTHER FINANCING SOURCES (USES): Proceeds from asset disposition Transfers in Total other financing sources (uses) Net change in fund balance

235,000

300,000 599,000

148,416

-

148,416

235,000

899,000

148,416

-

148,416

(405,914)

(18,329)

(1,069,914)

13,586

(4,743)

FUND BALANCE: Beginning of the year End of year

1,464,028 $

394,114

1,464,028 $

1,058,114

121

1,464,028 $

1,445,699

(11,129) $

2,457

1,452,899 $

1,448,156

City of Santa Cruz Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Traffic Impact Fee Fund For the year ended June 30, 2007

Budgeted Amounts Original

Final

Actual Amounts

Budget to GAAP

Actual Amounts

(Budgetary Basis)

Differences

(GAAP Basis)

REVENUES: Intergovernmental

$

Charges for services

-

$

-

-

Use of money and property Other revenues Total revenues

$

-

-

$

-

-

-

$

-

-

-

27,918

1,189

29,107

1,926

1,926

181,004

-

181,004

1,926

1,926

208,922

1,189

210,111

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

1,926

1,926

208,922

1,189

210,111

EXPENDITURES: Current: Public works: Transportation Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers out

(85,000)

(149,000)

(148,416)

-

(148,416)

Total other financing sources (uses)

(85,000)

(149,000)

(148,416)

-

(148,416)

Net change in fund balance

(83,074)

(147,074)

60,506

1,189

61,695

571,440

571,440

571,440

(2,077)

569,363

FUND BALANCE: Beginning of the year End of year

$

488,366

$

424,366

122

$

631,946

$

(888)

$

631,058

City of Santa Cruz Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Parks and Recreation Fund For the year ended June 30, 2007

Budgeted Amounts Original

Final

Actual Amounts

Budget to GAAP

Actual Amounts

(Budgetary Basis)

Differences

(GAAP Basis)

REVENUES: Taxes

$

Intergovernmental Use of money and property Total revenues

523,000

$

523,000

$

442,783

$

-

$

442,783

595,000

595,000

105,840

-

105,840

45,586

45,586

73,256

21,996

95,252

1,163,586

1,163,586

621,879

21,996

643,875

-

52,600

52,511

-

52,511

-

52,600

52,511

-

52,511

1,163,586

1,110,986

569,368

21,996

591,364

EXPENDITURES: Capital outlay Total expenditures REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers out Total other financing sources (uses) Net change in fund balance

(667,000)

(690,900)

(509,055)

-

(509,055)

(667,000)

(690,900)

(509,055)

-

(509,055)

496,586

420,086

60,313

1,648,201

1,648,201

1,648,201

21,996

82,309

FUND BALANCE: Beginning of the year End of year

$

2,144,787

$

2,068,287

123

$

1,708,514

(16,032) $

5,964

1,632,169 $

1,714,478

City of Santa Cruz Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Housing and Community Development Fund For the year ended June 30, 2007

Budgeted Amounts Original

Final

Actual Amounts

Budget to GAAP

Actual Amounts

(Budgetary Basis)

Differences

(GAAP Basis)

REVENUES: Intergovernmental

$

Use of money and property Other revenues Total revenues

4,282,550

$

4,544,333

$

1,721,938

$

-

$

1,721,938

50,129

50,129

81,308

13,015

94,323

-

-

245,894

-

245,894

4,332,679

4,594,462

2,049,140

13,015

2,062,155

4,294,506

4,842,653

2,073,625

(293,348)

1,780,277

106,659 599,785

106,389 614,785

106,389 53,464

-

36,000

545,000 56,000

25,519

-

106,389 53,464 25,519

5,036,950

6,164,827

2,258,997

(293,348)

1,965,649

EXPENDITURES: Current: Community and economic development: Housing and community development Social services: CDBG social services Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures REVENUES OVER (UNDER) EXPENDITURES

(704,271)

(1,570,365)

(209,857)

306,363

96,506

87,376 553,280 (259,000)

342,000 87,376 1,163,280 67,000 (259,000)

285,737 138,124 610,000 (8,288)

(138,124) (610,000) -

285,737 (8,288)

381,656

1,400,656

1,025,573

(748,124)

277,449

815,716

(441,761)

373,955

OTHER FINANCING SOURCES (USES): Proceeds from asset dispositions Loan principal receipts Proceeds from long-term debt Transfers in Transfers out Total other financing sources (uses) Net change in fund balance

(322,615)

(169,709)

FUND BALANCE: Beginning of the year End of year

1,631,300 $

1,308,685

1,631,300 $

1,461,591

124

1,631,300 $

2,447,016

1,246,363 $

804,602

2,877,663 $

3,251,618

City of Santa Cruz Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Transportation Development Act For the year ended June 30, 2007

Budgeted Amounts Original

Final

Actual Amounts

Budget to GAAP

Actual Amounts

(Budgetary Basis)

Differences

(GAAP Basis)

REVENUES: Intergovernmental

$

Total revenues

646,548

$

646,548

$

646,548

$

-

$

646,548

646,548

646,548

646,548

-

646,548

646,548

646,548

646,548

-

646,548

646,548

646,548

646,548

-

646,548

-

-

-

-

-

-

-

-

-

-

EXPENDITURES: Current: Transit Total expenditures REVENUES OVER (UNDER) EXPENDITURES FUND BALANCE: Beginning of the year End of year

$

-

$

-

125

$

-

$

-

$

-

City of Santa Cruz Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual General Obligation Bond For the year ended June 30, 2007

Budgeted Amounts Original

Final

Actual Amounts

Budget to GAAP

Actual Amounts

(Budgetary Basis)

Differences

(GAAP Basis)

REVENUES: Taxes

$

517,023

$

517,023

$

584,641

$

-

$

584,641

Use of money and property

12,904

12,904

33,243

-

33,243

Total revenues

529,927

529,927

617,884

-

617,884

185,577 230,673

185,577 230,673

185,577 230,506

-

185,577 230,506

416,250

416,250

416,083

-

416,083

113,677

113,677

201,801

-

201,801

711,143

711,143

711,143

EXPENDITURES: Debt service: Principal Interest and fiscal charges Total expenditures REVENUES OVER (UNDER) EXPENDITURES FUND BALANCE: Beginning of the year End of year

$

824,820

$

824,820

126

$

912,944

(3,368) $

(3,368)

707,775 $

909,576

City of Santa Cruz Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual General Capital Improvement Projects For the year ended June 30, 2007

Budgeted Amounts Original

Final

Actual Amounts

Budget to GAAP

Actual Amounts

(Budgetary Basis)

Differences

(GAAP Basis)

REVENUES: Taxes

$

Intergovernmental

2,300,700

$

3,818,780

Charges for services Use of money and property Other revenues Total revenues

1,300,700

$

5,719,090

1,497,971

$

3,720,589

-

$

1,497,971

-

3,720,589

-

-

30,668

-

30,668

50,000

50,000

52,251

33,917

86,168

3,443,592

3,550,263

1,449,058

-

1,449,058

9,613,072

10,620,053

6,750,537

33,917

6,784,454

15,462,496

16,439,873

10,580,915

-

10,580,915

201,328 204,722

221,328 204,722

190,217 203,741

-

190,217 203,741

15,868,546

16,865,923

10,974,873

-

10,974,873

(6,255,474)

(6,245,870)

(4,224,336)

33,917

(4,190,419)

2,000,000 2,708,971 (1,056,750)

2,650,307 (56,750)

488,039 (41,800)

-

488,039 (41,800)

3,652,221

2,593,557

446,239

-

446,239

(2,603,253)

(3,652,313)

(3,778,097)

33,917

(3,744,180)

2,178,391

2,178,391

2,178,391

269,028

2,447,419

EXPENDITURES: Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES): Proceeds from long-term debt Transfers in Transfers out Total other financing sources (uses) Net change in fund balance FUND BALANCE: Beginning of the year End of year

$

(424,862)

$

(1,473,922)

127

$

(1,599,706)

$

302,945

$

(1,296,761)

City of Santa Cruz Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual Non-Major Governmental Funds For the year ended June 30, 2007

Other Governmental Funds Reconciliation of Net Changes in Fund Balances - Budgetary to GAAP Basis: Net Change in Fund Balances - Budgetary Basis

$

(2,595,254)

The amount reported in the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances was different because: Unrealized gains and losses on investments, which are considered a component of investment income in the Statement of Revenues, Expenditures and Changes in Fund Balances, are not included as revenue on a budgetary basis.

86,531

The City budgets for loan disbursements which will not be repaid within the current year. Although these amounts are recorded as long-term receivables on the Governmental Funds Balance Sheet, they are not available for appropriation.

293,348

On a budgetary basis, the City records loan principal receipts as revenue, but on a GAAP basis, these receipts reduce receivables.

(748,124)

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

$

(2,963,499)

$

5,694,889

Reconciliation of Fund Balances - Budgetary to GAAP Basis: Fund Balances - Ending - Budgetary Basis Cumulative effect of unrealized gains and losses on investments

14,730

Noncurrent advances payable

(1,229,332)

Intergovernmental payable to be repaid from future appropriations

(2,438)

Reserved balances unavailable for appropriation

2,328,588

Fund Balances - Ending - GAAP Basis

$

128

6,806,437

INTERNAL SERVICE FUNDS Equipment Operations - This fund is used to account for the expenses related to city-wide fleet operations and maintenance activities, including vehicles, communications equipment, and other pooled equipment. Internal contributions to support this fund are based on cost recovery through charges to user departments and funds. These charges do not include the cost of equipment replacement. Stores Services - Accounts for the costs of operating a centralized warehouse used by the City. Telecommunications - This fund is used to account for the expenses related to the acquisition of communications equipment and ongoing maintenance of the telephone network including the main telephone switch, voice mail system, pagers, cell phones, and fax machines. Internal contributions to support this fund are based on cost recovery through user departments and funds. These charges do not include the cost of equipment replacement. Risk Management - Accounts for the expenses of the City's insurance program, including costs related to claims, administration, legal defense, and insurance premiums. Internal contributions to support this fund are based on cost recovery through charges to departments and funds. The following insurance activities are provided for in this fund: Workers' Compensation Insurance Liability Insurance Group Health Insurance

129

City of Santa Cruz Combining Statement of Net Assets All Internal Service Funds June 30, 2007

Equipment

Stores

Telecommun-

Risk

Operations

Services

ications

Management

Total

ASSETS Current assets: Cash and cash equivalents

$

671,232

$

-

$

96,452

$

6,082,613

$

6,850,297

Interest receivable

7,630

-

469

62,495

Accounts receivable - net

7,030

-

-

-

7,030

133,641

-

-

-

133,641

-

-

-

1,392,459

1,392,459

819,533

-

96,921

7,537,567

8,454,021

402,406

-

746,577

8,160

1,157,143

Inventories Deposits Total current assets

70,594

Noncurrent assets: Capital assets: Machinery and equipment Software

-

-

336,296

(331,839)

-

(959,576)

(6,664)

70,567

-

123,297

1,496

195,360

70,567

-

123,297

1,496

195,360

890,100

-

220,218

7,539,063

8,649,381

123,239

-

10,268

102,275

235,782

7,630

-

530

-

8,160

Claims and judgments payable

-

-

-

2,812,930

2,812,930

Compensated absences payable

30,599

-

-

-

30,599

Total current liabilities

161,468

-

10,798

2,915,205

3,087,471

-

-

-

7,498,625

7,498,625

Less accumulated depreciation

-

336,296 (1,298,079)

Total capital assets (net of accumulated depreciation) Total noncurrent assets Total assets LIABILITIES Current liabilities: Accounts payable and other current liabilities Due to other funds

Noncurrent liabilities: Claims and judgments payable Compensated absences payable

15,300

-

-

-

15,300

Total noncurrent liabilities

15,300

-

-

7,498,625

7,513,925

176,768

-

10,798

10,413,830

10,601,396

70,567

-

123,297

642,765

-

86,123

Total liabilities NET ASSETS Invested in capital assets, net of related debt Unrestricted Total net assets

$

713,332

$

130

-

$

209,420

1,496

195,360

(2,876,263) $

(2,874,767)

(2,147,375) $

(1,952,015)

City of Santa Cruz Combining Statement of Revenues, Expenses and Changes in Net Assets All Internal Service Funds For the year ended June 30, 2007

Equipment

Stores

Telecommun-

Risk

Operations

Services

ications

Management

Total

OPERATING REVENUES: Charges for services - internal

$

2,457,712

$

-

$

216,144

$

5,090,101

$

7,763,957

Charges for services - external

97,479

-

44,016

-

141,495

Other revenues

13,509

-

-

8,438

21,947

2,568,700

-

260,160

5,098,539

7,927,399

805,870

-

98,441

294,334

1,198,645

Total operating revenues OPERATING EXPENSES: Personnel services Services, supplies, and other charges

1,650,598

-

106,415

3,302,522

5,059,535

Depreciation and amortization

20,231

-

64,329

1,632

86,192

Total operating expenses

2,476,699

-

269,185

3,598,488

6,344,372

92,001

-

(9,025)

1,500,051

1,583,027

34,344

-

1,999

302,759

339,102

-

-

-

33,450

-

1,999

302,759

338,208

125,451

-

(7,026)

1,802,810

1,921,235

129,288

-

-

-

129,288

Operating income (loss) NONOPERATING REVENUES (EXPENSES): Investment earnings Interest expense and fiscal charges

(894)

Total nonoperating revenues (expenses) Income (loss) before transfers Transfers in Transfers out

Change in net assets

(894)

(27,932)

(226,658)

(1,109)

(421,247)

(676,946)

101,356

(226,658)

(1,109)

(421,247)

(547,658)

226,807

(226,658)

(8,135)

486,525

226,658

1,381,563

1,373,577

(4,256,330)

(3,325,592)

NET ASSETS: Beginning of year End of year

$

713,332

$

131

-

217,555 $

209,420

$

(2,874,767)

$

(1,952,015)

City of Santa Cruz Combining Statement of Cash Flows All Internal Service Funds For the year ended June 30, 2007

Equipment Operations

Stores Services

Telecommunications

Risk Management

$

$

Total

CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers and users Cash received from interfund services provided Cash payments to suppliers for goods and services Cash payments to employees for services Cash received from (payments to) others

$

Net cash provided (used) by operating activities

121,455 2,457,712 (1,790,799) (797,384) 16,135

$

7,119

126,216 (953) 125,263

44,016 216,144 (160,997) (98,222) (142) 799

688 5,090,101 (1,262,534) (293,181) (3,108,392)

$

166,159 7,763,957 (3,088,114) (1,188,787) (3,093,352)

426,682

559,863

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers in/out Net cash provided (used) by noncapital financing activities

101,356

(226,658)

(1,109)

(421,247)

(547,658)

101,356

(226,658)

(1,109)

(421,247)

(547,658)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Purchase and construction of capital assets Principal paid on capital debt Interest paid on capital debt Net cash provided (used) by capital and related financing activities

(8,296) (21,060) (870)

-

-

-

(8,296) (21,060) (870)

(30,226)

-

-

-

(30,226)

(2,626) 34,343

954 -

143 1,999

(10,909) 302,759

(12,438) 339,101

31,717

954

2,142

291,850

326,663

CASH FLOWS FROM INVESTING ACTIVITIES: Interests receivable Investment income received Net cash provided (used) by investing activities Net increase (decrease) in cash and cash equivalents

109,966

(100,441)

1,832

297,285

308,642

561,266

100,441

94,620

5,785,328

6,541,655

CASH AND CASH EQUIVALENTS: Beginning of year End of year

$

671,232

$

-

$

96,452

$

6,082,613

$

6,850,297

$

95,720

$

-

$

(8,806)

$

1,501,443

$

1,588,357

RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization Changes in current assets and liabilities: Accounts receivable Prepaid items Inventories Accounts payable and other current liabilities Due to other funds Deposits payable Claims and judgments payable Compensated absences payable

20,231

Total adjustments Net cash provided (used) by operating activities

$

132

-

64,329

23,976 (324) (133,641) (6,561) 2,626 5,092

5,000 129,288 (8,072) (953) -

(27) (54,555) (142) -

(88,601)

125,263

9,605

7,119

$

125,263

$

799

1,632

$

86,192

688 (239) (243,032) (160,078) (5,049) (152) (668,531) -

24,664 4,410 (247,385) (229,266) (3,518) (152) (668,531) 5,092

(1,074,761)

(1,028,494)

426,682

$

559,863

Private-Purpose Trust Funds McCaskill Trust - Local History - is restricted in purpose to promulgate local history. The principal and income benefit the Library Joint Powers Authority, McCaskill Trust - Visually Impaired - is restricted in purpose to providing library materials for the visually impaired. The principal and income benefit the Library Joint Powers Authority. The Finkeldey Trust - is restricted in purpose for the acquisition of musical literature. The principal and income benefit the Library Joint Powers Authority.

133

City of Santa Cruz Combining Statement of Fiduciary Net Assets Private-Purpose Trust Funds June 30, 2007

McCaskill

McCaskill

Total

Trust - Local

Trust - Visually

Finkeldey

Private-Purpose

History

Impaired

Trust

Trust Funds

ASSETS Cash and cash equivalents

$

269,107

$

256,952

$

10,941

$

537,000

Receivables: Interest receivable Total assets

3,094

2,927

126

6,147

272,201

259,879

11,067

543,147

NET ASSETS Held in trust for library programs

$

272,201

134

$

259,879

$

11,067

$

543,147

City of Santa Cruz Combining Statement of Changes in Fiduciary Net Assets Private-Purpose Trust Funds For the year ended June 30, 2007

McCaskill

McCaskill

Trust - Local

Trust - Visually

Finkeldey

Private-Purpose

Total

History

Impaired

Trust

Trust Funds

ADDITIONS: Investment earnings

$

Total additions

14,177

$

13,441

$

587

$

28,205

14,177

13,441

587

28,205

4,649

3,623

755

9,027

Total deductions

4,649

3,623

755

9,027

Change in net assets

9,528

9,818

(168)

19,178

262,673

250,061

DEDUCTIONS: Library programs

NET ASSETS: Beginning of year End of year

$

272,201

135

$

259,879

11,235 $

11,067

523,969 $

543,147

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136

Agency Funds Library Joint Powers Authority - Used to account for funds held by the City in an agency capacity for the Library Joint Powers Authority, which was established to finance the operations of the former City/County library system. Trust Deposit Holding - This fund is used to hold cash deposits received from outside parties on a temporary basis. Payroll Payables - Used to account for cash transferred from various funds to pay for payroll liabilities, which are paid out of this fund. Special Assessments - Accounts for assets held by the City in an agency capacity for special assessment districts. The City acts as agent for collection of principal and interest payments from the property owners and remits these monies to the bondholders. If funds are not available, the City is under no obligation to make bond payments from its own funds.

137

City of Santa Cruz Combining Statement of Fiduciary Net Assets Agency Funds June 30, 2007

Library

Trust

Total

Joint Powers

Deposit

Payroll

Special

Agency

Authority

Holding

Payables

Assessments

Funds

ASSETS Cash and cash equivalents

$

Restricted Cash and cash equivalents

665,882

$

532,915

-

-

$

244,315

$

-

201,175

$

75,985

1,644,287 75,985

Receivables: 13,652

1,228

-

1,821

16,701

Taxes receivable

Interest receivable

640,568

-

-

10,631

651,199

Accounts receivable

530,842

-

-

-

530,842

27,620

-

-

-

27,620

Due from other governments Total assets

$

1,878,564

$

534,143

$

244,315

$

595,552

$

1,517

$

244,315

$

289,612

$

-

$

2,946,634

LIABILITIES Accounts payable and other current liabilities

$

Due to other governments Deposits payable Payable to bondholders Total liabilities

$

-

1,027

532,626

-

-

533,653

-

-

-

289,612

289,612

1,878,564

$

534,143

138

-

$

244,315

-

841,384

1,281,985

$

289,612

1,281,985

$

2,946,634

City of Santa Cruz Combining Statement of Changes in Assets and Liabilities Agency Funds For the year ended June 30, 2007

Balance July 1, 2006 Library Joint Powers Authority Assets: Cash and cash equivalents Receivables: Interest receivable Taxes receivable Accounts receivable Due from other governments Total assets Liabilities: Accounts payable and other current liabilities Due to other governments Deposit payable Total liabilities Trust Deposit Holding Assets: Cash and cash equivalents Interest receivable Total assets Liabilities: Accounts payable and other current liabilities Deposits payable Total liabilities Payroll Payables Assets: Cash and cash equivalents Total assets Liabilities: Accounts payable and other current liabilities Total liabilities Special Assessments Assets: Cash and cash equivalents Investments Restricted cash and cash equivalents Receivables: Interest receivable Taxes receivable Total assets Liabilities: Payable to bondholders Total liabilities

$

510,464

Additions

$

10,813 553,799 527,368 16,467

12,958,192

Balance June 30, 2007

Deletions

$

61,803 640,568 527,384 27,620

12,802,774

$

58,964 553,799 523,910 16,467

665,882 13,652 640,568 530,842 27,620

$

1,618,911

$

14,215,567

$

13,955,914

$

1,878,564

$

507,536 1,110,680 695

$

3,787,784 171,305 332

$

3,699,768 -

$

595,552 1,281,985 1,027

$

1,618,911

$

3,959,421

$

3,699,768

$

1,878,564

$

521,125 1,472

$

1,544,139 8,041

$

1,532,349 8,285

$

532,915 1,228

$

522,597

$

1,552,180

$

1,540,634

$

534,143

$

5,521 517,076

$

1,095,156 1,545,506

$

1,099,160 1,529,956

$

1,517 532,626

$

522,597

$

2,640,662

$

2,629,116

$

534,143

$

246,417

$

70,052,566

$

70,054,668

$

244,315

$

246,417

$

70,052,566

$

70,054,668

$

244,315

$

246,417

$

693,782,719

$

693,784,821

$

244,315

$

246,417

$

693,782,719

$

693,784,821

$

244,315

$

178,624 89,494 -

$

352,186 89,985

$

329,635 89,494 14,000

$

201,175 75,985

1,975 9,885

6,774 10,630

6,928 9,884

1,821 10,631

$

279,978

$

459,575

$

449,941

$

289,612

$

279,978

$

9,634

$

-

$

289,612

$

279,978

$

9,634

$

-

$

289,612

139

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140

STATISTICAL SECTION (Unaudited)

This part of the City of Santa Cruz's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the city's overall financial health.

Contents

Page

Financial Trends

143 - 149

These tables contain trend information to help the reader understand how the city's financial performance and well-being have changed over time. Revenue Capacity

150 - 157

These tables contain information to help the reader assess the city's most significant local revenue source, the property tax. Debt Capacity

158 - 164

These tables present information to help the reader assess the affordability of the city's current levels of outstanding debt and the city's ability to issue additional debt in the future. Demographic and Economic Information

166 - 167

These tables offer demographic and economic indicators to help the reader understand the environment within which the city's financial activities take place. Operating Information

168 - 170

These tables contain service and infrastructure data to help the reader understand how the information in the city's financial report relates to the services the city provides and the activities it performs.

Sources:

Unless otherwise noted, the information in these tables is derived from the comprehensive annual financial reports for the relevant year.

141

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142

City of Santa Cruz

TABLE 1

Net Assets By Component Last Five Fiscal Years

Fiscal Year Ended June 30 2003

2004

2005

2006

2007

$ 136,369,360

$ 136,556,019

$ 139,024,926

$ 142,216,967

$ 144,203,036

Restricted

10,441,164

11,411,611

10,105,142

12,132,237

13,648,674

Unrestricted

16,662,826

12,267,438

18,695,330

19,428,634

24,563,381

$ 163,473,350

$ 160,235,068

$ 167,825,398

$ 173,777,838

$ 182,415,091

$ 168,876,424

$ 174,395,150

$ 179,988,569

$ 164,275,405

$ 172,324,984

-

-

704,469

-

-

62,492,429

58,267,139

57,125,277

78,560,182

81,361,517

$ 231,368,853

$ 232,662,289

$ 237,818,315

$ 242,835,587

$ 253,686,501

Governmental activities: Invested in capital assets, net of related debt

Total governmental activities net assets Business-type activities: Invested in capital assets, net of related debt Restricted Unrestricted Total business-type activities net assets Primary government: Invested in capital assets,

$ 305,245,784

$ 310,951,169

$ 319,013,495

$ 306,492,372

$ 316,528,020

Restricted

net of related debt

10,441,164

11,411,611

10,809,611

12,132,237

13,648,674

Unrestricted

79,155,255

70,534,577

75,820,607

97,988,816

105,924,898

$ 394,842,203

$ 392,897,357

$ 405,643,713

$ 416,613,425

$ 436,101,592

Total primary government net assets

The City of Santa Cruz implemented GASB 34 for the fiscal year ended June 30, 2003. Information prior to the implementation of GASB 34 is not available.

Source: City of Santa Cruz Finance Department

143

City of Santa Cruz

TABLE 2

Changes in Net Assets Last Five Fiscal Years

2003 Expenses Governmental activities: General government Public safety Parks and recreation Library Public works Transit Community and economic development Social services Interest and fiscal charges

$

2004

$

10,382,020 23,770,732 12,312,469 8,441,896 9,790,984 569,247 8,265,841 1,976,456 979,508

Fiscal Year Ended June 30 2005

11,451,699 27,054,407 13,022,089 8,697,195 9,618,748 588,183 7,140,903 1,803,125 1,126,311

$

9,889,427 27,218,149 11,944,976 8,934,173 7,801,586 586,896 7,719,248 1,715,326 1,066,994

$

2006

9,755,194 27,227,214 11,715,023 9,179,637 9,047,430 624,214 7,414,895 2,563,680 883,866

2007

$

12,494,563 29,646,507 12,002,102 9,644,172 11,509,715 646,548 10,616,686 1,758,216 1,304,447

Total governmental activities expenses

76,489,153

80,502,660

76,876,775

78,411,153

89,622,956

Business-type activities: Water Wastewater Refuse Parking Storm Water Golf course

13,994,913 14,824,444 14,824,819 2,222,770 2,165,345 1,745,322

13,707,644 15,456,161 14,924,093 2,471,710 1,956,563 1,811,128

14,643,440 15,524,855 14,581,347 2,565,800 2,150,359 1,781,330

15,204,565 16,192,904 12,700,841 2,960,225 1,925,661 2,325,920

16,203,872 15,377,903 12,974,413 2,632,045 1,938,275 2,165,390

Total business-type activities expenses

49,777,613

50,327,299

51,247,131

51,310,116

51,291,898

$ 126,266,766

$ 130,829,959

$ 128,123,906

$ 129,721,269

$ 140,914,854

$

$

$

$

$

Total primary government expenses Program Revenues Governmental activities: Charges for services: General government Public safety Parks and recreation Library Public works Transit Community and economic development Operating grants and contributions Capital grants and contributions

3,945,684 1,950,228 3,798,713 7,005,781 3,459,306 432,651 3,979,717 5,823,628

3,938,389 2,760,629 3,956,257 7,672,089 3,083,205 110,889 3,165,361 4,864,757

3,814,053 3,230,321 2,863,615 8,152,865 4,008,187 115,183 2,829,078 5,141,507

4,662,211 3,041,137 3,191,193 8,478,112 4,253,232 66,643 996,327 2,125,537 2,499,565

5,507,904 3,410,308 3,011,980 8,894,858 4,072,956 108,009 5,439,954 5,669,638

Total governmental activities program revenues

30,395,708

29,551,576

30,154,809

29,313,957

36,115,607

Business-type activities: Charges for services: Water Wastewater Refuse Parking Storm Water Golf course Operating grants and contributions Capital grants and contributions

14,278,839 11,461,188 13,341,636 2,209,631 892,378 1,867,914 85,446 2,312,416

15,687,800 11,664,391 14,583,240 2,478,911 862,150 1,933,684 138,515 3,391,001

17,283,215 11,911,915 14,562,560 2,635,129 872,569 992,439 369,968 6,439,375

19,480,617 13,079,711 13,525,848 2,654,549 869,490 1,608,752 15,704 2,480,435

22,442,267 13,978,613 15,108,051 2,697,863 875,730 1,770,614 40,470 1,662,249

Total business-type activities program revenues

46,449,448

50,739,692

55,067,170

53,715,106

58,575,857

Total primary government program revenues

76,845,156

80,291,268

85,221,979

83,029,063

94,691,464

(46,093,445) (3,328,165)

(50,951,084) 412,393

(46,721,966) 3,820,039

(49,097,196) 2,404,990

(53,507,349) 7,283,959

Net (expense)/revenue: Governmental activities Business-type activities Total primary government net (expense)/revenue

$

(49,421,610)

144

$

(50,538,691)

$

(42,901,927)

$

(46,692,206)

$

(46,223,390)

City of Santa Cruz

TABLE 2

Changes in Net Assets Last Five Fiscal Years

2003 General Revenues and Other Changes in Net Assets Governmental activities: Taxes Property taxes Sales and use taxes Frachise taxes Transient occupancy taxes Utility users taxes Admission taxes Other taxes Unrestricted grants and contributions Investment earnings Gain (loss) on sale of assets Extraordinary items Miscellaneous Transfers

$

Total governmental activities

2004

15,078,406 8,291,244 3,132,743 2,932,256 7,592,049 1,664,150 2,000,338 4,526,808 1,095,006 (4,963) 477,109 673,184 57,444

$

47,515,774

Business-type activities: Unrestricted grants and contributions Investment earnings Gain (loss) on sale of assets Miscellaneous Transfers $

Change in Net Assets Governmental activities Business-type activities

$

Total primary government

$

$

$

2006

22,384,981 11,738,917 2,136,686 3,385,148 8,304,371 1,715,133 2,303,363 1,121,274 1,380,087 24,318 487,841 67,517

2007

$

55,049,636

222 1,469,180 97,529 (78,584)

479,985

50,485,980

16,476,980 11,383,231 3,478,971 3,067,869 8,080,171 1,629,164 2,107,273 4,562,277 846,634 60,093 577,892 78,584 52,349,139

250 717,261 (11,712) 108,532 (334,346)

2,970,206

Total primary government

15,792,225 9,084,026 3,329,454 3,016,463 7,638,926 1,724,330 2,480,973 2,565,897 437,672 716,218 679,168 334,346 47,799,698

2,421,200 60,717 545,733 (57,444)

Total business-type activities

Fiscal Year Ended June 30 2005

61,987,602

2,079,379 91,920 508,500 (67,517)

1,488,347

24,593,312 12,770,015 2,607,388 3,750,509 8,288,655 1,909,012 2,466,711 2,628,122 322,288 2,648,223 3,367

3,637,989 51,527 530,158 (3,367)

2,612,282

4,216,307

$

48,279,683

$

53,837,486

$

57,661,918

$

66,203,909

1,422,329 (357,959)

$

(3,151,386) 892,378

$

5,627,173 5,308,386

$

5,952,440 5,017,272

$

8,480,253 11,500,266

1,064,370

$

(2,259,008)

$

10,935,559

$

10,969,712

$

19,980,519

The City of Santa Cruz implemented GASB 34 for the fiscal year ended June 30, 2003. Information prior to the implementation of GASB 34 is not available. Source: City of Santa Cruz Finance Department

145

City of Santa Cruz Fund Balances of Governmental Funds Last Ten Fiscal Years

Fiscal Year Ended June 30 1999 2000

1998 General Fund Reserved Unreserved, designated Unreserved, undesignated Total General Fund All other governmental funds Reserved Unreserved, designated, reported in: Redevelopment Agency fund Special revenue funds Debt service funds Capital projects funds Unreserved, undesignated, reported in: Redevelopment Agency fund Special revenue funds Capital projects funds Total all other governmental funds

2001

$

9,540,038 9,939,971

$

5,600,632 11,351,018

$

6,215,738 12,011,261

$

4,906,611 5,194,894 9,170,827

$

19,480,009

$

16,951,650

$

18,226,999

$

19,272,332

$

5,458,871

$

10,138,359

$

11,383,565

$

13,204,616

$

1,416,538 -

1,236,971 1,502,558 -

1,210,456 890,922 -

1,351,077 1,092,974 -

1,467,435 1,839,601

1,418,246 2,158,532

(63,288) 1,508,205

861,078 671,223

10,182,445

Source: City of Santa Cruz Finance Department

146

$

16,454,666

$

14,929,860

$

17,180,968

TABLE 3

2002

Fiscal Year Ended June 30 2004 2005

2003

2006

2007

$

4,008,809 6,392,382 6,974,625

$

5,237,443 5,922,853 4,806,652

$

4,388,586 7,638,171 5,964,197

$

3,870,996 7,435,828 8,729,971

$

4,327,113 7,120,993 11,354,586

$

4,006,713 8,488,474 13,924,233

$

17,375,816

$

15,966,948

$

17,990,954

$

20,036,795

$

22,802,692

$

26,419,420

$

14,174,955

$

12,311,339

$

13,691,282

$

10,721,195

$

11,148,536

$

11,608,393

$

994,997 2,591,507 -

4,014,256 589,008 470,840

3,987,557 509,404 457,945

6,497,637 476,904 557,277 91,180

7,958,925 536,451 707,775 92,641

9,126,250 1,053,286 909,576 -

(948,602) 660,747 1,558,754

(55,035) 1,747,678 446,564

2,207,906 (1,444,460)

3,185,320 2,196,529

3,341,962 281,931

2,851,774 (2,796,246)

19,032,358

$

19,524,650

$

19,409,634

$

147

23,726,042

$

24,068,221

$

22,753,033

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148

City of Santa Cruz

TABLE 4

Changes in Fund Balances of Governmental Funds Last Five Fiscal Years

Fiscal Year Ended June 30 2005 2006

2003

2004

$ 40,691,186 614,012 14,011,928 16,952,167 1,587,698 2,859,096 449,907

$ 42,529,756 529,649 10,258,114 17,191,373 1,805,734 2,345,707 592,012

$ 46,268,500 603,344 11,479,068 17,968,817 2,032,817 2,821,174 686,853

$ 52,035,729 615,448 5,696,237 19,347,463 1,965,235 3,234,159 1,049,925

$ 56,385,602 824,258 10,963,874 19,852,885 2,242,547 4,375,345 2,464,263

77,165,994

75,252,345

81,860,573

83,944,196

97,108,774

9,673,413 22,920,677 9,773,346 8,412,201 5,592,617 569,247 7,954,378 1,976,456 11,340,680

8,967,025 24,843,763 9,721,229 8,528,577 4,539,192 588,183 6,332,156 1,803,125 9,553,173

9,390,901 26,692,313 9,593,982 8,980,823 4,248,358 586,896 6,640,932 1,715,326 7,846,456

9,666,858 26,938,629 9,402,529 9,250,499 4,158,916 624,214 8,436,468 1,693,267 11,921,789

12,261,663 28,574,065 9,653,531 9,693,097 4,940,051 646,548 10,028,992 1,758,216 14,867,937

1,116,090 839,345 -

1,718,937 851,721 -

2,231,549 966,238 276,569

1,149,776 921,517 -

2,203,868 1,078,832 -

80,168,450

77,447,081

79,170,343

84,164,462

95,706,800

Excess of revenues over (under) expenditures

(3,002,456)

(2,194,736)

2,690,230

(220,266)

1,401,974

Other financing sourses (uses) Proceeds from asset dispositions Proceeds from long-term debt issued Premiums on bonds sold Payment to refunded bond escrow agent Transfers in Transfers out

777,750 1,565,684 (1,357,286)

756,823 3,244,346 (2,139,754)

139,104 5,825,000 23,994 (2,571,681) 1,928,681 (1,793,079)

25,256 3,200,000 861,257 (758,170)

348,541 1,260,514 (709,489)

1,861,415

3,552,019

3,328,343

899,566

$ 6,242,249

$ 3,108,077

$ 2,301,540

Revenues Taxes Licenses and permits Intergovernmental Charges for services Fines and forfeitures Use of money and property Other revenues Total revenues Expenditures General government Public safety Parks and recreation Library Public works Transit Community and economic development Social services Capital outlay Debt service: Principal Interest and fiscal charges Bond issuance costs Total expenditures

Total other financing sources (uses) Net change in fund balances Debt service as a percentage of noncapital expenditures

986,148 $ (2,016,308)

$

2.8%

(333,321)

3.8%

4.9%

2007

2.9%

The City of Santa Cruz implemented GASB 34 for the fiscal year ended June 30, 2003. Prior to that implementation, expenditure amounts were categorized differently in the fund statements. Information is not available now to reclassify those prior years' expenditures into comparable categories for this table. Source: City of Santa Cruz Finance Department 149

4.1%

City of Santa Cruz General Governmental Tax Revenues by Source1 Last Ten Fiscal Years

Fiscal Year Ended

Sales

June 30 1998

Property $

and Use

9,784,131

$

Franchise

7,191,934

$

1,736,039

$

Transient

Utility

Occupancy

Users

2,716,397

$

6,557,490

Admission $

1,539,111

1999

10,484,409

7,415,341

2,476,604

3,174,694

6,912,440

1,502,540

2000

12,176,209

8,857,748

2,771,014

3,541,396

7,149,619

1,583,897

2001

13,342,450

9,790,693

2,851,830

3,900,905

8,246,829

1,611,318

2002

14,944,971

9,126,341

2,996,907

3,131,378

7,627,331

1,612,526

2003

15,629,920

8,291,244

3,132,743

2,932,256

7,592,049

1,664,150

2004

15,792,225

9,084,026

2005

16,501,921

11,383,231

2006

22,348,981

2007

24,593,312

5

4

11,738,917 12,770,015

6

3,329,454

3,016,463

7,638,926

1,724,330

3,478,971

3,067,869

8,080,171

1,629,164

2,136,686

3,385,148

8,304,371

1,715,133

2,607,388

3,750,509

8,288,655

1,909,012

Notes:

1

This table includes all governmental fund types.

2

Beginning with fiscal year 2003, business improvement taxes include the Co-op Retail Management Business Real Property Improvement District.

3

Prior to fiscal year 2003, business license taxes were shown in Permits and Licenses.

4

A new quarter-cent sales tax override was implemented in fiscal year 2005. This temporary tax is scheduled to end on June 30, 2009.

5

Beginning in fiscal year 2006, property taxes include amounts for Property Taxes In Lieu of Vehicle License Fees.

6

A new permanent quarter-cent sales tax override was implemented in fiscal year 2007. In addition, the temporary quarter-cent sales tax override previously implemented in fiscal year 2005 was made permanent in fiscal year 2007.

Source: City of Santa Cruz Finance Department

150

TABLE 5

Parks and Parking $

147,877

Business Improvement2 $

175,114

Property

$

162,915

Recreation

Business License3

Transfer $

Facilities -

$

Total -

$

30,011,008

192,352

167,500

186,624

-

-

32,512,504

158,229

170,369

219,132

-

-

36,627,613

178,373

183,711

200,041

-

-

40,306,150

194,646

175,868

194,632

-

-

40,004,600

199,371

273,965

191,042

784,446

551,514

41,242,700

221,133

296,536

276,466

792,893

357,305

42,529,757

221,790

292,422

325,305

777,308

510,348

46,268,500

229,629

316,742

562,723

777,068

417,202

51,932,600

264,510

330,614

641,579

787,225

442,783

56,385,602

151

City of Santa Cruz

TABLE 6

General Fund Revenues by Source Last Ten Fiscal Years

Fiscal Year

Licenses

Ended June 30 1998

Taxes $

23,292,917

$

Charges

Fines

Use of Money

and

Inter-

for

and

and

Other

Permits

Governmental

Services

Forfeitures

Property

Revenues

1,366,948

$

3,410,230

$

6,290,188

$

1,064,554

$

3,623,968

$

280,513

Total $

39,329,318

1999

24,918,906

1,397,862

4,170,892

6,729,820

1,397,833

3,794,000

213,496

42,622,809

2000

27,646,368

1,595,964

4,732,311

6,566,033

1,347,496

3,574,121

324,802

45,787,095

2001

30,258,503

1,342,471

5,281,661

7,009,901

1,286,990

4,152,368

327,692

49,659,586

2002

29,238,472

1,267,939

5,339,612

7,151,012

1,282,697

3,577,774

397,896

48,255,402

2003

30,027,154

614,012

4,788,035

16,693,936

1,555,481

2,252,373

308,104

56,239,095

2004

31,696,322

529,649

3,745,601

16,865,754

1,799,557

2,086,163

418,764

57,141,810

2005

34,384,206

603,344

5,465,642

17,799,213

2,022,779

2,333,922

276,565

62,885,671

2006

39,495,863

615,448

1,073,997

19,062,464

1,962,697

2,541,909

216,721

64,969,099

2007

42,837,408

824,258

1,563,745

19,786,417

2,218,082

3,061,718

187,732

70,479,360

Notes: Beginning in fiscal year 2003, charges for personnel services provided to the Library Joint Powers Authority were included in General Fund charges for services, as well as charges for interfund personnel services provided. Also, prior to fiscal year 2003, business license taxes were shown in licenses and permits.

Source:

City of Santa Cruz Finance Department

152

City of Santa Cruz

TABLE 7

Assessed Value of Taxable Property Last Ten Fiscal Years

Fiscal Year Ended

Real Property

June 30

Residential

1998

$ 2,672,618,165

1999

2,760,380,015

Commercial $

398,841,413

Other $

449,610,460

Total

80,522,177

$ 3,151,981,755

87,470,143

3,297,460,618

$

Total

Total

Personal

Assessed

Direct Tax

Property

Value

Rate

176,321,921

$ 3,328,303,676

0.000%

186,050,833

3,483,511,451

0.000%

2000

2,980,522,986

510,282,517

92,665,671

3,583,471,174

198,830,667

3,782,301,841

0.009%

2001

3,193,569,036

537,141,067

113,773,535

3,844,483,638

207,913,809

4,052,397,447

0.009%

2002

3,494,071,877

611,373,783

111,624,535

4,217,070,195

237,668,331

4,454,738,526

0.009%

2003

3,657,553,824

663,946,747

122,103,592

4,443,604,163

237,898,436

4,681,502,599

0.009%

2004

3,882,699,208

700,948,081

123,781,647

4,707,428,936

225,168,674

4,932,597,610

0.009%

2005

4,150,085,545

755,991,976

126,848,221

5,032,925,742

217,439,195

5,250,364,937

0.009%

2006

4,563,844,105

788,484,799

110,751,935

5,463,080,839

216,627,737

5,679,708,576

0.009%

2007

5,032,785,543

841,223,841

112,527,378

5,986,536,762

219,805,452

6,206,342,214

0.009%

Notes: Total Direct Tax Rate is from Table 8. With the passage of a constitutional amendment (Proposition 13) and subsequently enacted State legislation, property is assessed according to a base year rather than on a percentage of market value. Accordingly, a reliable estimate of actual value of taxable property within the City is not possible.

Source: County of Santa Cruz Auditor-Controller's Office County of Santa Cruz Assessor's Office

153

City of Santa Cruz

TABLE 8 1

Direct and Overlapping Property Tax Rates Last Ten Fiscal Years

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

-

$ 0.009

$ 0.009

$ 0.009

$ 0.009

$ 0.009

$ 0.009

$ 0.009

$ 0.009

-

0.009

0.009

0.009

0.009

0.009

0.009

0.009

0.009

1.000

1.000

1.000

1.000

1.000

1.000

1.000

1.000

1.000

Direct Rates: Debt service

$

-

Total Direct Rate

-

$

Overlapping Rates2: County3

1.000

School Districts: Cabrillo College

-

0.014

0.007

0.012

0.021

0.019

0.019

0.038

0.037

0.024

Santa Cruz Schools

-

0.038

0.016

0.077

0.067

0.075

0.074

0.068

0.081

0.027

Bonny Doon Schools

0.056

0.056

0.019

0.021

0.035

0.036

0.034

0.033

0.029

0.023

Live Oak Schools

0.058

0.052

0.050

0.046

0.043

0.037

0.023

0.042

0.043

0.052

Scotts Valley Schools

0.087

0.087

0.077

0.073

0.052

0.084

0.055

0.054

0.050

0.044

1.201

1.247

1.169

1.229

1.218

1.251

1.205

1.235

1.240

1.170

$ 1.201

$ 1.247

$ 1.178

$ 1.238

$ 1.227

$ 1.260

$ 1.214

$ 1.244

$ 1.249

$ 1.179

Total Overlapping Rate Total Direct and Overlapping Rate

Notes: 1

Rates are per $100.00 of assessed value.

2

Overlapping rates are those of entities that apply to property owners within the City of Santa Cruz. Not all overlapping rates apply to all property owners (e.g., the rates for school districts apply only to the proportion of the city's property owners whose property is located within the geographic boundaries of the school district).

3

The passage of a constitutional amendment (Proposition 13) in June 1978 limits the property tax rate to a base of $1.00 per $100.00. The $1.00 rate is levied by the County and apportioned to local agencies according to a formula perscribed by the California legislature.

Source:

County of Santa Cruz Auditor - Controller's Office

154

City of Santa Cruz

TABLE 9

Principal Property Tax Owners Current Year and Nine Years Ago

Fiscal Year Ended June 30 2007

1998 Percentage

Percentage

of Total Assessed

of Total

Assessed

Assessed

Rank

Valuation

Valuation

44,807,943

1

0.722%

Cypress Point RE Investors LLC

40,341,510

2

0.650%

-

-

S C Beach Hotel Partners LLC

36,750,000

3

0.592%

-

-

Santa Cruz Shaffer Road Investors

32,328,651

4

0.521%

-

-

Tax Owner Santa Cruz Seaside Company

Valuation $

$

Assessed

24,563,417

Rank

Valuation

2

0.705%

1010 Pacific Investors

22,068,579

5

0.356%

-

-

CRRI/Seagate Ocean Street LLC

21,414,917

6

0.345%

-

-

222 Columbia Streeet LLC

20,525,460

7

0.331%

-

-

Cooper House LLC

20,223,262

8

0.326%

-

-

Harmony Partners LLC

18,358,801

9

0.296%

-

-

Wave Crest Development Inc

17,946,554

10

0.289%

-

-

Silicon Systems Inc

-

-

160,621,705

1

4.611%

Thomas J. Lipton, Inc.

-

-

18,375,960

3

0.528%

Fremont Central Investment

-

-

13,958,736

4

0.401%

The Price Company

-

-

13,774,455

5

0.395%

Outlook Apartments

-

-

13,180,866

6

0.378%

Frederick Electronics Corporation

-

-

13,016,156

7

0.374%

Pacific Square Ltd Partners

-

-

11,433,996

8

0.328%

Western Business Park

-

-

10,056,900

9

0.289%

Sequoia Equities III, LLC

-

-

8,887,340

10

0.255%

Totals

$

274,765,677

Total assessed value

$

6,206,342,214

4.427%

Notes: Tax owners and values presented in this table reflect the County's Assessment Roll Reports.

Source: County of Santa Cruz Assessor's Office

155

$

287,869,531

$

3,483,511,451

8.264%

This page is intentionally left blank.

156

City of Santa Cruz

TABLE 10 1

Property Tax Levies and Collections Last Ten Fiscal Years

Outstanding Fiscal

Total

Year Ended

Total Tax 2

June 30 1998

Levy $

9,396,855

Current Tax Collections $

2

Percent

Delinquent

of Levy

Tax

Collected

Collections

Total

3

$

-

Delinquent

Collections

Outstanding

Tax

as Percent of

Delinquent

Collections

Current Levy

$

Taxes $

Taxes as Percent of

3

Current Levy

9,396,855

100.0%

9,396,855

100.0%

-

-

1999

10,104,672

10,104,672

100.0%

-

10,104,672

100.0%

-

-

2000

11,732,295

11,732,295

100.0%

-

11,732,295

100.0%

-

-

2001

12,516,202

12,516,202

100.0%

-

12,516,202

100.0%

-

-

2002

14,190,378

14,190,378

100.0%

-

14,190,378

100.0%

-

-

2003

14,639,056

14,639,056

100.0%

-

14,639,056

100.0%

-

-

2004

15,335,693

15,335,693

100.0%

-

15,335,693

100.0%

-

-

2005

16,013,591

16,013,591

100.0%

-

16,013,591

100.0%

-

-

2006

18,191,952

18,191,952

100.0%

-

18,191,952

100.0%

-

-

2007

20,310,069

20,310,069

100.0%

-

20,310,069

100.0%

-

-

Notes: 1

This table includes levies and collections for the Redevelopment Agency.

2

Does not include amounts for Property Taxes in Lieu of Vehicle License Fees

3

Because it adopted a new method of distributing property taxes (commonly referred to as the "Teeter Plan"), the County is now responsible for all delinquent secured property taxes.

Source:

County of Santa Cruz Auditor-Controller's Office City of Santa Cruz Finance Department

157

City of Santa Cruz Ratios of Outstanding Debt By Type Last Ten Fiscal Years

Fiscal Year Ended June 30 1998

1999

2000

2001

2002

Governmental Activities: General obligation bonds

$

Tax allocation bonds

-

$

6,998,473

$

7,176,298

$

7,299,481

$

7,286,115

3,690,000

3,540,000

3,385,000

3,225,000

3,055,000

569,946

555,921

518,392

4,890,431

4,769,607

-

854,158

1,583,610

1,649,722

3,355,410

Notes

-

-

-

-

1,500,000

Other

-

-

-

531,900

998,692

4,259,946

11,948,552

12,663,300

17,596,534

20,964,824

Wastewater revenue bonds

20,570,000

19,745,000

5,210,000

5,085,000

4,955,000

Storm water revenue bonds

-

-

-

-

-

Certificates of participation Capital leases

Total Governmental Activities Business-type Activities:

Water revenue bonds

-

-

-

-

Golf course revenue bonds

225,000

155,000

80,000

-

-

Certificates of Participation

9,221,558

14,251,608

22,339,568

28,985,383

28,047,650

Leases

2,175,315

1,619,560

2,353,054

2,942,887

2,926,370

Notes

51,938,582

50,976,494

48,894,934

47,221,604

44,988,271

Total Business-type Activities

84,130,455

86,747,662

78,877,556

84,234,874

80,917,291

Total Primary Government

$

88,390,401

$

98,696,214

$

91,540,856

$

101,831,408

$

101,882,115

Personal income1

$

1,570,062,816

$

1,709,289,000

$

1,890,711,810

$

2,154,291,172

$

2,096,039,335

Debt as percentage of personal income Population2

5.63%

5.77%

4.84%

4.73%

4.86%

53,172

54,575

56,046

55,028

55,085

Debt per capita

1,662

1,808

1,633

1,851

1,850

Assessed value3

4,932,597,610

5,250,364,937

5,679,708,576

4,681,502,599

4,932,597,610

Debt as percentage of assessed value

1.79%

1.88%

1.61%

2.18%

Notes: 1

Personal income is calculated based on data from the US Department of Commerce, Bureau of Economic Analysis (refer to Table 16).

Source:

2

State Department of Finance

3

County of Santa Cruz Assessor's Office

City of Santa Cruz Finance Department

158

2.07%

TABLE 11

Fiscal Year Ended June 30 2003 $

2004

7,260,759

$

2005

7,228,152

$

2006

7,183,381

$

2007

7,126,075

$

7,055,866

2,880,000

2,695,000

5,245,000

5,125,000

5,005,000

4,642,350

4,513,661

4,377,108

4,239,123

4,096,139

2,450,555

1,765,216

1,766,635

1,247,913

965,627

1,500,000

1,624,706

1,334,942

4,205,026

2,920,485

985,663

920,263

1,029,804

944,836

851,581

19,719,327

18,746,998

20,936,870

22,887,973

20,894,698

4,955,000

4,820,000

4,680,000

4,715,000

4,510,000

-

-

-

6,100,000

5,940,000

-

-

-

12,450,000

12,150,000

-

-

-

-

-

28,047,650

29,831,339

28,662,892

20,915,877

19,183,861

4,624,099

3,939,187

3,108,344

3,145,352

3,514,756

44,883,261

42,593,574

40,240,469

37,822,337

35,337,269

82,510,010

81,184,100

76,691,705

85,148,566

80,635,886

$

102,229,337

$

99,931,098

$

97,628,575

$

108,036,539

$

101,530,584

$

2,085,569,904

$

2,109,542,853

$

2,247,596,565

$

2,365,518,375

$

2,638,747,497

4.90%

4.74%

4.34%

4.57%

3.85%

55,633

56,289

56,451

56,925

57,553

1,838

1,775

1,729

1,898

1,764

4,681,502,599

4,932,597,610

5,250,364,937

5,679,708,576

6,206,342,214

2.18%

2.03%

1.86%

1.90%

159

1.64%

City of Santa Cruz

TABLE 12

Ratios of General Bonded Debt Outstanding Last Ten Fiscal Years

Fiscal

Less: Amount

Year

General

Available

Percentage

Debt

Ended

Obligation

in Debt

of Assessed

Per

June 30

Bonds

Service Fund

Value

Capita

1998

$

-

$

-

Total $

-

-

$

Assessed Value1

Population2

-

$3,328,303,676

53,172

1999

6,998,473

12

6,998,461

0.20%

128

3,483,511,451

54,575

2000

7,176,298

125,218

7,051,080

0.19%

126

3,782,301,841

56,046

2001

7,299,481

277,763

7,021,718

0.17%

128

4,052,397,447

55,028

2002

7,286,115

324,117

6,961,998

0.16%

126

4,454,738,526

55,085

2003

7,260,759

389,184

6,871,575

0.15%

124

4,681,502,599

55,633

2004

7,228,153

457,945

6,770,208

0.14%

120

4,932,597,610

56,289

2005

7,183,381

557,277

6,626,104

0.13%

117

5,250,364,937

56,451

2006

7,126,075

707,777

6,418,298

0.11%

113

5,679,708,576

56,925

2007

7,055,866

909,576

6,146,290

0.10%

107

6,206,342,214

57,553

Source:

1

County of Santa Cruz Assessor's Office

2

State Department of Finance City of Santa Cruz Finance Department

160

City of Santa Cruz

TABLE 13

Computation of Direct and Overlapping Debt June 30, 2007

2006-2007 Assessed Valuation

$ 6,206,342,214

Redevelopment Incremental Valuation: Adjusted Assessed Valuation:

1,025,341,376 $ 5,181,000,838 Total

Percentage

Amount

Debt

Applicable

Applicable

Outstanding

to City (1)

to City

DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: Cabrillo Joint Community College District

$ 182,685,343

19.936%

Santa Cruz High School District

92,532,244

54.622%

50,542,962

Santa Cruz Elementary School District

23,975,466

94.275%

22,602,871

Live Oak School District

20,534,975

3.306%

678,886

Scotts Valley Unified School District

20,345,000

0.027%

City of Santa Cruz

6,003,228

100.000%

6,003,228 (2)

City of Santa Cruz 1915 Act Bonds

1,475,000

100.000%

1,475,000

Total Direct and Overlapping Tax and Assessment Debt

$

36,420,150

5,493

$ 117,728,590

$ 347,551,256

DIRECT AND OVERLAPPING GENERAL FUND DEBT: Santa Cruz County Certificates of Participation

73,135,799

20.224%

14,790,984

Santa Cruz County Office of Education Certificates of Participation

11,605,000

20.224%

2,346,995

Cabrillo Joint Community College District Certificates of Participation

2,845,000

19.936%

567,179

Scotts Valley Unified School District Certificates of Participation

4,190,000

0.027%

1,131

Santa Cruz City Schools Certificates of Participation

5,340,000

54.622%

2,916,815

Live Oak School District Certificates of Participation

3,920,000

3.306%

City of Santa Cruz General Fund Obligations

7,985,000

100.000%

894,969

100.000%

894,969

3,265,000

7.074%

230,966

Santa Cruz Consolidated Emergency Communication Center Monterey Bay Unified Air Pollution Control District Authority

129,595 7,985,000 (3)

29,863,634 (4)

Total Direct and Overlapping General Fund Debt

$ 113,180,768

$

Combined Total Debt

$ 460,732,024

$ 147,592,224

Notes: (1) Percentage of overlapping agency's assessed valuation located within boundaries of the city. (2) Excludes interest accretion amounts. (3) Excludes issues self-supporting from enterprise revenues ($6,760,000). (4) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue, and tax allocation bonds and nonbonded capital lease obligations. Ratios to 2006-2007 Assessed Valuation: Direct Debt ($6,003,228)

0.10%

Total Direct and Overlapping Tax and Assessment Debt

1.90%

Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($14,883,197)

0.29%

Combined Total Debt

2.85% $0

STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/07: Source: California Municipal Statistics, Inc.

161

City of Santa Cruz Legal Debt Margin Information Last Ten Fiscal Years

Fiscal Year Ended June 30

Debt limit

1998

1999

2000

2001

2002

$ 499,245,551

$ 522,526,718

$ 567,345,276

$ 607,859,617

$ 668,210,779

-

6,998,461

7,051,080

7,021,718

6,961,998

$ 499,245,551

$ 515,528,257

$ 560,294,196

$ 600,837,899

$ 661,248,781

Total net debt applicable to limit Legal debt margin Total net debt applicable to the limit as a percentage of debt limit

0.00%

1.34%

1.24%

Notes: Section 1418 of the Charter of the City of Santa Cruz limits general obligation bond indebtedness to 15% of the total assessed valuation of all real personal property within the City.

Source: County of Santa Cruz Auditor-Controller's Office City of Santa Cruz Finance Department

162

1.16%

1.04%

TABLE 14

Fiscal Year Ended June 30 2003

2004

2005

2006

$ 702,225,390

$ 739,889,642

$ 787,554,741

$ 851,956,286

6,871,575

6,770,208

6,626,104

6,418,298

$ 695,353,815

$ 733,119,434

$ 780,928,637

$ 845,537,988

0.98%

0.92%

0.84%

2007 $

930,951,332 6,146,290

$

0.75%

924,805,042

0.66%

Legal Debt Margin Calculation For Fiscal Year 2006-07: Total assessed value

$ 6,206,342,214

Debt limit (15% of total assessed value)

930,951,332

Debt applicable to limit: General obligation bonds (reported at accreted value)

7,055,866

Less: Amount available in debt service fund for repayment of bonds

909,576

Total net debt applicable to limit

6,146,290

Legal debt margin

$

163

924,805,042

City of Santa Cruz Pledged-Revenue Coverage Last Ten Fiscal Years

Fiscal Year Ended June 30 1998

1999

2000

2001

2002

Wastewater Revenue Bonds: Wastewater charges and other

$

10,730,501

$

12,179,844

$

12,846,315

$

11,585,518

$

12,146,047

Less: operating expenses

6,054,987

7,379,231

7,856,133

7,275,278

8,929,861

Net available revenue

4,675,514

4,800,613

4,990,182

4,310,240

3,216,186

Debt service: Principal

725,000

765,000

115,000

120,000

125,000

Interest

1,234,454

1,227,031

296,608

290,733

284,608

Total

1,959,454

1,992,031

411,608

410,733

409,608

2.39

2.41

12.12

10.49

7.85

Coverage Water Revenue Bonds: Water charges and other

$

14,468,484

$

14,425,845

$

-

$

-

$

-

Less: operating expenses

7,319,245

8,546,215

-

-

-

Net available revenue

7,149,239

5,879,630

-

-

-

Debt service: Principal

380,000

380,000

-

-

-

Interest

19,850

9,925

-

-

-

Total

399,850

389,925

-

-

-

17.88

15.08

-

-

-

Coverage Storm Water Revenue Bonds: Storm Water charges and other

$

-

$

-

$

-

$

-

$

-

Less: operating expenses

-

-

-

-

-

Net available revenue

-

-

-

-

-

Principal

-

-

-

-

-

Interest

-

-

-

-

-

Total

-

-

-

-

-

-

-

-

-

-

Debt service:

Coverage Certificates of Participation: Special assessments and other

$

-

$

-

$

-

$

11,510,578

$

12,080,193

Less: operating expenses

-

-

-

8,519,131

9,747,000

Net available revenue

-

-

-

2,991,447

2,333,193

Principal

-

-

-

110,000

100,000

Interest

-

-

-

223,868

537,580

Total

-

-

-

333,868

637,580

-

-

-

8.96

3.66

Debt service:

Coverage

Notes: Details regarding the city's outstanding debt can be found in the notes to the financial statements. Operating expenses do not include interest or depreciation.

Source:

City of Santa Cruz Finance Department

164

TABLE 15

Fiscal Year Ended June 30 2003 $

$

$

$

2004

12,306,445

$

2005

12,230,219

$

2006

12,578,070

$

2007

12,394,292

$

13,194,297

9,415,409

9,855,372

9,964,418

8,591,034

8,652,114

2,891,036

2,374,847

2,613,652

3,803,258

4,542,183

130,000

135,000

140,000

150,000

205,000

278,233

271,608

264,733

256,233

177,386

408,233

406,608

404,733

406,233

382,386

7.08

5.84

6.46

9.36

11.88

-

$

-

$

-

$

18,692,531

$

21,116,648

-

-

-

11,775,892

12,478,247

-

-

-

6,916,639

8,638,401

-

-

-

-

300,000

-

-

-

121,517

516,277

-

-

-

121,517

816,277

-

-

-

56.92

10.58

-

$

-

$

-

$

-

$

838,920

-

-

-

-

236,769

-

-

-

-

602,151

-

-

-

-

160,000

-

-

-

-

235,985

-

-

-

-

395,985

-

-

-

-

1.52

12,422,235

$

13,577,644

$

13,121,028

$

13,218,521

$

13,289,170

10,447,158

11,045,892

11,350,148

9,859,552

8,947,378

1,975,077

2,531,752

1,770,880

3,358,969

4,341,792

145,000

695,000

720,000

755,000

785,000

529,300

514,088

487,153

457,327

426,011

674,300

1,209,088

1,207,153

1,212,327

1,211,011

2.93

2.09

1.47

2.77

3.59

165

City of Santa Cruz

TABLE 16

Demographic and Economic Statistics Last Ten Fiscal Years

Fiscal Year June 30

Population1

Unemployment Rate2

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

53,172 54,575 56,046 55,028 55,085 55,633 56,289 56,451 56,925 57,553

7.9% 7.3% 6.4% 5.2% 5.8% 7.5% 7.9% 7.2% 6.4% 5.6%

Ended

Total

Per Capita

Personal

Personal Income3

Income $

1,570,063 1,709,289 1,890,712 2,154,291 2,096,039 2,085,570 2,109,543 2,247,597 2,365,518 2,638,747

$

29,528 31,320 33,735 39,149 38,051 37,488 37,477 39,815 41,555 45,849

Notes: Total Personal Income and Taxable Sales amounts are in thousands.

Source:

1

State Department of Finance

2

State Employment Development Department

3

U.S. Department of Commerce, Bureau of Economic Analysis

4

State Board of Equalization (based on most recent four quarters of data available)

166

Per Capita Taxable Sales4 $

680,283 634,138 725,287 828,500 809,628 761,208 761,986 795,060 813,834 828,447

Taxable Sales $

12,794 11,620 12,941 15,056 14,698 13,683 13,537 14,084 14,297 14,395

City of Santa Cruz

TABLE 17

Principal Employers Current Year and One Year Ago

Fiscal Year Ended June 30 2007

2006 Percentage

Number of Employees

Rank

Percentage

of Total

Number of

Employment

Employees

of Total Rank

Employment

Employer: University of California at Santa Cruz County of Santa Cruz City of Santa Cruz Plantronics Santa Cruz Beach-Boardwalk Costco Community Bridges Crow's Nest Lightsurf Technology Inc. Santa Cruz Biotechnology Incorporated Santa Cruz Sentinel

4,523 2,627 1,083 494 347 257 212 195 168 158

Totals

10,064

Total employment1

96,100

1 2 3 4 5 6 7 8 9 10

4.707% 2.734% 1.127% 0.514% 0.361% 0.267% 0.221% 0.203% 0.175% 0.164%

4,250 2,358 1,066 476 347 257 212 195

1 2 3 4 5 6 7 8

4.570% 2.535% 1.146% 0.512% 0.373% 0.276% 0.228% 0.210%

158 174

10 9

0.170% 0.187%

10.472%

9,493

93,000

This table shows the data for the current fiscal year and one year ago because earlier years' data is not available.

Source:

1

U.S. Department of Labor - Bureau of Labor Statistics City of Santa Cruz Business License database City of Santa Cruz Finance Department

167

10.208%

City of Santa Cruz

TABLE 18 1

Number of City Employees by Department Last Ten Fiscal Years

Fiscal Year Ended June 30 1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Departments: City Clerk

7

7

7

7

7

7

7

7

7

7

City Manager

5

5

5

5

5

5

5

5

4

5

Human Resources

12

12

12

13

13

13

12

12

13

14

Finance

34

34

36

38

38

38

36

35

38

27

-

-

-

-

-

-

-

-

-

16

120

122

126

134

136

133

126

124

125

132

52

53

55

59

59

58

55

54

53

55

Parks and Recreation

113

114

118

126

127

125

118

116

111

105

Library

115

116

120

128

130

127

120

118

119

118

Public Works

209

212

219

235

239

232

219

216

216

232

28

28

30

31

32

31

30

29

27

28

Information Technology 2 Police Fire

Planning and Community Development Redevelopment

8

8

8

9

9

9

8

8

9

10

Water

84

85

89

94

96

94

89

87

88

91

Total

768

787

796

825

879

891

872

825

722

749

Notes: 1

Personnel authorizations budgeted. Figures rounded to whole numbers.

2

Information Technology was part of the Finance Department previously, but it is now a separate department.

Source:

City of Santa Cruz Budget Document

168

City of Santa Cruz

TABLE 19

Operating Indicators By Function Last Five Fiscal Years

Fiscal Year Ended June 30 2003

2004

2005

2006

2007

Function: City Clerk Hours for creating the agenda for posting

326

305

291

**

300

**

**

600

600

600

450

280

180

400

100

40

-

60

120

-

Number of recruitments

**

**

**

**

87

Number of applications

**

**

**

**

2,155

Advisory body hours Election hours Initiative/referendum petitions processing hours Human Resources

Workers compensation claim payments

$

1,537,964

$

2,129,667

$

1,872,387

$

1,400,696

$

2,850,283

Police Calls for service

**

76,069

76,498

70,065

67,932

Cases

**

14,717

14,076

14,212

12,917

Fire Emergency calls

4,606

4,623

4,631

5,006

5,231

Inspections

1,603

1,853

1,727

1,794

1,223

275

306

305

294

236

Parks and Recreation Number of classes Facility rentals: Parks (Picnic Areas)

961

892

760

831

762

**

7,753

7,534

7,348

7,562

181

146

183

193

190

Louden Nelson Civic Auditorium Swimming pool Special events produced

**

200

167

146

162

32

30

20

22

22

1,877,256

1,856,142

1,899,739

1,975,986

2,051,331

289,726

288,821

293,525

313,496

322,971

470

432

432

438

430

Library (all locations) Items checked out Queries handled Open hours/week Pubic Works Overlay (square footage)

-

Seal coat (square footage)

-

524,963 -

-

251,106

351,239

-

320,879

342,000

Sewer 144

72

85

106

41

Average daily flow (MGD)

New connections

10.53

9.52

9.92

11.39

9.00

Annual total flow (MG)

3,843

3,475

3,621

4,157

3,283

23,724

23,799

23,924

24,044

24,253

10

10

10

9

9

3,603

3,660

3,448

3,340

3,369

$22

$25

$30

$34

$41

Water Active accounts Averge daily consumption (MGD) Annual consumption (MG) Averge monthly residential bill

This table shows data for the last five fiscal years. Prior years' data is not available. ** Unavailable Source: City of Santa Cruz Departments

169

City of Santa Cruz

TABLE 20

Capital Asset Statistics By Function Last Ten Fiscal Years

Fiscal Year Ended June 30 1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Function: Public Safety Police: Stations Vehicular patrol units Fire stations

1

1

1

1

1

1

1

1

1

1

43

55

55

78

78

43

43

61

61

63

3

3

3

3

3

3

3

3

3

3

Public Parking 19

20

21

23

22

26

20

21

21

20

Spaces

1,916

1,369

4,939

5,094

5,235

5,397

5,124

5,149

5,149

5,132

Parking meters

2,014

1,953

1,945

1,741

1,764

1,695

1,714

1,764

1,764

1,888

28

29

29

29

30

30

30

30

30

30

1,350

1,450

1,450

1,457

1,970

1,970

1,970

1,970

1,970

1,970

13

11

11

11

17

17

17

17

17

17

Swimming pools

1

1

1

1

1

1

1

1

1

1

Tennis courts

7

7

7

7

7

7

7

8

8

6

Golf course

1

1

1

1

1

1

1

1

1

1

Central library

1

1

1

1

1

1

1

1

1

1

Branch libraries within city

2

2

2

2

2

2

2

2

2

2

Branch libraries in county

7

8

7

7

7

7

7

7

7

7

Bookmobile

-

-

-

1

1

1

1

1

1

1

145

145

136

136

136

136

136

136

136

136

9

9

13

13

13

13

13

13

13

13

2,310

2,335

2,335

2,800

2,825

2,825

2,893

2,893

2,893

2,893

200

200

208

62

148

148

151

151

151

151

35

35

35

8

50

50

50

50

50

50

300

300

300

300

300

300

300

290

291

291

1,850

1,890

1,890

1,904

1,913

1,997

2,019

2,089

2,060

2,060

Lots

Parks and Recreation Parks Parks acreage Playgrounds

Libraries

Streets Miles of paved streets Miles of alleys Street lights Sewer Miles of sanitary sewers Miles of storm drains Water Miles of water mains Fire hydrants

Source:

City of Santa Cruz Departments

170

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