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Agenda Report - February 1, 2006 K-01
AGENDA ITEM j" CITY OF LODI COUNCIL COMMUNICATION M AGENDA TITLE: REVIEW OF THE CITY'S ANNUAL FINANCIAL REPORT (FY 2004-05) BY MACIAS, GWI & COMPANY MEETING DATE: February 1,2006 PREPARED BY: Interim Finance Director RECOMMENDED ACTION: That the City Council receives for file the following reports and financial statements submitted by Macias, Gini & Company LLP and the Finance Departmentfor Fiscal - Year 2004-05: • The Combined Annual Financial & Single Audit Report • Management Report • Report on Applying Agreed-upon Procedures BACKGROUND INFORMATION: The annual audit was conducted to assure the City Council and other interested parties that the City's financial records and reports are prepared in accordance with generally accepted accounting principles (GAAP), that internal controls are adequate to safeguard the City against loss from unauthorized use or disposition of assets and that the City has complied with all agreements and covenants to obtain grant funds and debt financing. Macias, Gini & Company LLP ("MG") issued an "unqualified opinion." Scott Brunner, Director of MG will be present to do the presentation and answer questions during the Council meeting. The reports will be provided to Federal and State oversight agencies, bond trustees and insurance companies for their review and evaluation. Copies of the reports are provided to the City Council and also available to the public by contacting the Finance Department or the City's website at www, lodi.aov and at the Lodi Public Library. Certificate of Achievement The City received a Certificate of Achievement for Excellence in Reporting from the Government Finance Officers Association of United States and Canada (GFOA) for the 111h year and the California Society of Municipal Finance Officers (CSMFO) for the ninth year in a row. A copy of the GFOA certificate is included in the 2004-05 Financial Reports. FUNDING: None Ruby R.tVaiste, Interim Finance Director APPROVED:_/Z'r—) Blair g, City Manager K,,l City of Lodi Comprehensive Annual Financial Report Analysis (Unaudited) Fund Balance Analysis Budget and Actual June 30.2005 Elements Comprising Fund Balance June 30,2005 Other Assets/ Funds Budget Actual Cash (Current Liabilities) Total General Unreserved 1,565,087 1,506,926 ReseNedlDesignated 35_3_,578 488,246 1,918,665 1,995,172 -96,110 2,091,282 1,995,172 Electric Unreserved 3,698,483 4,896,603 ReseredlDesignated 2.400.000 2,572,434 6,098,483 7,469,037 4,896,603 2,572,434 7,469,037 Wastewater Unreserved 2,105,679 584,922 ReseredlDesignated 758,660 1.688,947 2,864,339 2,273,869 2,273,869 2,273,869 Water Unreserved 269,497 4,300,091 ReseredlDesignated 1.196.307 0 1,465,804 4,300,091 4,300,091 4,300,091 Library Unreserved 757,574 697.158 ReseredlDesignated 0 0 757,574 697,158 697,158 697,158 Capital Outlay Unreserved 3,059,161 5,490,595 ReseredlDesignated 1,679 480 972,701 4,736,641 6,472,296 5,554,942 917,354 6,472,296 Community Development Block Grant Unreserved 0 0 Reserves{/Designated D D 0 0 0 Employee Benefits Unreserved 0 0 Reserved/DesignatedD 0 0 0 0 Vehicle and Equipment Replacement Unreserved 50.000 150,175 ReseredlDesignated 0 2,141 50,000 152,316 157,521 -5,205 152,316 Self Insurance Unreserved 0 0 ReseNedlDesignated 2,920,165 3,261,419 2,920,165 3,261,419 3,261,419 3,261,419 Public Safety Special Revenue Unreserved 276.876 283,516 ReservedlDesignated 0 0 276,876 283,516 344,544 -61,028 283,516 Streets Unreserved 3,712,746 1,009,182 ReservedlDesignated 0 3,965.554 3,712,746 4,974,736 3,607,519 1,367,217 4,974,736 Transit Unreserved 0 230,355 ReservedlDesignated D 0 0 230,355 -1,688,947 1,919,302 230.355 Transpottation Development Act Unreserved 35,399 107.229 ReservedlDesignated 0 1.680 35,399 108,909 108,389 520 108,909 Sub -total 23.416.998 8,601,876 32,216,674 Trust and Agency Unreserved 350,000 448.588 ReservedlDesignated 550,000 694.327 900,000 1,142,915 1,142,915 1,142,915 Debt Service Unreserved 0 0 ReservedlDesignated D D 0 0 Total All Funds Unreserved 15,880,502 19,714,340 Reserved/Designated 9,858,190 13,647,449 25,738,692 33,361,789 24,559,913 8,801.876 CITY OF LODI, CALIFORNIA Report to Management For the Fiscal Year Ended June 30. 2005 MACIAS GINI & COMPANYLLP CERTIFIED PUBLIC ACCOUNTANTS & MANAGEMENT CONSULTANTS U CITY OF LODI, CALIFORNIA Report to Management For the Fiscal Year Ended June 30.1005 CITY OF LODI, CALIFORNIA Report to Management For the Fiscal Year Ended dune 30.2005 Table of Contents Page(s) 'Transmittal Letter .......................................................................................... 1 RequiredCommunications........................................................................................................................ 2-4 Current -Year Management Comments and Recommendations.............................................................. 5-12 Prior -N ear Management Comments and Recommendations............................................................... 13-15 ACIAS GINI & COMPANY LLP l 5 Street, Ste 300 amento, California 95816 o 4W PHONE 9169282755 FAX Cit. Council CitN of Lodi. California We have audited the financial statements of the City of Lodi. California (City) for the year ended June 30. 2005. and have issued our report thereon dated January 25. 2006. Professional standards require that we provide you with information related to our audit. That information is included in the Required Communications section of this report. Also, in planning and performing our audit of the financial statements of the City for the year ended June 30, 2005_ we considered the Cih"s internal controls in order to determine our auditing procedures for the purpose of expressing an opinion on the financial statements. and not to provide assurance on internal control over financial reporting. During our audit for the fiscal year ended June 30. 2005. we became aware of certain matters that represent an opportunity for strengthening the City's internal control and operational efficiency. The memorandum that accompanies this letter summarizes our comments and suggestions regarding the matters. We also followed up on those matters we became aware of during the previous year's audit. Those matters are included in the Status of Prior Year Recommendations section of this report. This report does not affect our report dated January 2 5 2006. on the basic financial statements of the City. This letter is intended solel-v for the information and use of City Council and management and is not intended to he and should not be used by anyone other than these specified parties. We would like to thank the Citx's management and staff for the courtesy and cooperation extended to us during the course of our engagement. We have discussed our comments and suggestions with management and would be pleased to discuss them further. E ertitied Public Accountants Sacramento California .fanuar\ 25. 2006 1 CERTIFIED PUBLIC ACCOUNTANTS R MANAGEMENT CONSULTANTS CITY OF LODI, CALIFORNIA Report to Management Required Communications For the Fiscal Year Ended June 30,2005 1. The Auditor's Responsibility Under U.S. Generally Accepted Auditing Standards and OMB Circular A-133 As stated in our engagement letter dated July 16, 2003. our responsibility, as described by professional standards. is to plan and perform our audit to obtain reasonable, but not absolute. assurance about whether the basic financial statements are free of material misstatement and are fairy presented in accordance with U.S. generally accepted accounting standards. Because an audit is designed to provide reasonable. but not absolute assurance and because we did not perform a detailed examination o f all transactions. there is a risk that material misstatements may exist and not detected by us. In planning and performing our audit. we considered the City's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the basic financial statements and not to provide assurance on the internal control over financial reporting, We also considered internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A- 133. As part of obtaining reasonable assurance about whether the City's basic financial statements are tree of material misstatement, we performed tests of the City's compliance with certain provisions of laws. regulations. contracts and grants, noncompliance with which could have a direct and material effect on the determination of basic financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit. Also, in accordance with OMB Circular A-133, we examined. on a test basis. evidence about the City's compliance with the types of compliance requirements described in the U.S. Ofj�ce of Management and Budget Circular- A-133 Compliance Supplement applicable to each of its major federal programs for the purpose of expressing an opinion on the City's compliance with those requirements. While our audit provides a reasonable basis for our opinion. it does not provide a legal determination on the City's compliance with those requirements. 11. Significant Accounting Policies Management has the responsibility for the selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City are described in Note 1 to the financial statements. As described in Note 1 to the financial statements. the Cih changed accounting policies related to financial statement disclosures for common deposit and investment risks by adopting Governmental 4ccounting. Standards Board ((jASB} Statement No. 40. Deposit and Risk Disclosures fun arrrendnrent ro GASB Siatenrent No. 3 - Deposits with Financial Institutions. Investments (including Repurchase Agreenients) and Reverse Repurchase Agreements), in 2005. We noted no transactions entered into by the Citi during the year that were both significant and unusual. and of which. under pi-ofessional standards. we are required to inform you. or transactions for which there is a lack of authoritative guidance or consensus. CITY OF LODI, CALIFORNIA Report to Management Required Communications (Continued) For the Fiscal Year Ended June 30. 2005 III. Accounting Estimates .Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were (1 ) depreciation, 12) allowance for doubtful accounts. (31 compensated absences. and (4) self-insurance liability. We evaluated the key factors and assumptions used to develop those estimates in determining that they are reasonable in relation to the financial statements taken as a whole. IV. Audit Adjustments For the purposes of this report. professional standards define an audit adjustment as a proposed correction of the financial statements that. in our judgment, may not have been detected except through our auditing procedures. An audit adjustment may or may not indicate matters that could have a significant effect on the City's financial reporting process (that is, cause future financial statements to be materially misstated). In our judgment, none of the adjustments we posed. whether recorded or unrecorded by the City. either individually or in aggregate, indicate matters that could have a significant effect on the City's financial reporting process. V. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter. whether or not resolved to our satisfaction. concerning a financial accounting, reporting or auditing matter that could be significant to the basic financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. VI. Consultations with Other Independent Accountants In some cases. management may decide to consult with other accountants about auditing and accounting matters. similar to obtaining a "second opinion" on certain situations. If consultation involves applications caf an accounting principle to the governmental unit's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements. our professional standards require the consulting accountant to check with us w determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. VII. Issues Discussed Prior to Retention of Independent Auditors We generally discuss a variety of matters. including the application of accounting principles and auditing standards. with management each year prior to retention as the City's auditors. Hnwever, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. 3 CITY OF LODI, CALIFORNIA Report to Management Required Communications (Continued) For the Fiscal Year Ended June 30, 200-5 VIII. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing our audit 4 CITY OF LODI, CALIFORNIA Report to Management Current -Year Management Comments and Recommendations For the Fiscal Year Ended June 30,2005 ENVTRONMENTAL REMEDIATION Condition Tile Governmental Accounting Standards Board (GASB) issued a Preliminary Views (PV) document on issues related to Accounting and Financial Reporting for Pollution Remediation Obligations on March 15. 2W. This document is proposing that once any one of five specified obligating events occurs. governments would be required to estimate the components of expected pollution remediation outlays and determine whether outlays for those components should be accrued as a liability or. if appropriate. capitalized when goods and services are acquired. Recommendation With the Cin -'s ongoing environmental contamination remediation issue, we recommend that the City be aware of and review this possible ne;4 future GASB standard and ensure that the City be positioned to implement this standard if and when it becomes effective. Management Response The Cit-\ is aware of this PV and pians to analyze its impact on the City's financial statements. so the City's well-positioned if and when it becomes effective. INFORMATION TECHNOLOGY (IT) Information Technology Administration —Policies and Procedures Condit ion Administrative policies and procedures exist covering certain areas of IT. but lack sections dealing with networh security, password protection and configuration. and confidentiality of information. Recommendation The City should consider appending the current administrative policies and procedures to include sections pertaining to computer networh security. password protection and configuration. and ccmfidentialit, of information. Management Response A neiA Electronic Media Use Police has been drafted and is in the process of being approved. The new policy is reported b. Information Systems (IS) management to address the areas of computer network securit, .passwords. and confidentiality of information. Information Technology Administration —New -Hire Training New -hire training for the City is not property documented to include an introduction of IT policies and procedures. view -hire training is the first introduction an employee has to the City's operations and can be an effective method of communicating all pertinent IT policies and procedures. An Information Security Handbooh has been completed and is currently under review by the City Manager's office. The Cin!,s IS management reported that the handbook is designed to be distributed to all current and new employees and contains information specific to this finding. CITY OF LODI, CALIFORNIA Report to Management Current -Year Management Comments and Recommendations For the Fiscal Year Ended June 30,2005 Recommendation The Cit\ should continue with efforts to review and implement the Information Securih Handbook and disseminate the information to all current and nev employees. A statement of understanding should also he signed bx employees confirming receipt and acceptance of the policies. Management Response Information Systems management agrees with the recommendation. Logical SecuritN—Securit-, Administration C ondition The Securih administration function is not a documented role with defined responsibilities. Rec ontmmndation The job description for the Information S}stems Manager should he updated to include the Securih administrator function with a defined role and responsibilities. In this way the expectations of the role and the associated responsibilities are cleark defined for all personnel Management Response Citi 1S management report that a recommendation has been made to the Cith Manager. including new language to be included in the IS Managerjob description. in response to this recommendation. Logical Security —Failed Logon Attempts Condition Three failed logon attempts will lock out the user from the networh for five minutes. While the five minute disabling period provides a level of control over unauthorized system access, it still leaves the s,, stem \vulnerable to repeated attempts over an extended period of time and could he enhanced RecnMnrendurion While a measure of control exists to address repeated unauthorized access attempts. the Ciri_' should consider increasing the disabling period to 15-30 minutes to enhance security Management Response Infomiation Systems management agrees that a lockout period of more than five minutes can be done and ma-, be useful. Steps will he taken to implement this recommendation. Logical Securih -Passwords c rendition Passwords for the network are onl,, required to be non -zero in length and six to 10 characters for the AS400 and applications. There are no expiration periods for passwords on the network. AS400. or applications. Periodic changing of passwords provides an increased level of security on the network and applications. There is no set number of changes required until a password can he reused. CITY OF LODI, CALIFORNIA Report to Management Current -Year Management Comments and Recommendations For the Fiscal Year Ended June 30, 2005 Recommendation Password securih for the Citx 's network and financial applications should be enhanced by: o Establishing a minimal configuration standard for the network. AS400, and applications for a password length of at least 6 characters containing both alphas and numerics. c Instituting and enforcing an expiration period for passwords. o Configuring the network. AS400. and application to allow only a minimal number (e.g. 5) of password changes before a password can be reused. Manazemeni Response Information Systems management agrees in principle with the recommendation. There are several reasons the IS Division has not implemented such requirements and restrictions. The Graphical User Interface (GUI) version of the AS400 interface will not easily allow users to change their expired passwords. and most of the IBM users rely on the GUI. The likely result would he some users being lacked ont of the system for extended periods of time and a significant amount of time being spent re- enabiing user accounts. Logical Securihl — Automatic Log Off Condition There is no automated function to log a user off the network after a set period of inactivity An open network account with no activity creates the risk of unauthorized usage b) someone other than the account owner and should be curtailed whenever possible by automatically logging off an account after a period of inactivity Recommendation The Cit\ should consider enhancing their network securit>, by implementing an auto logout period for network connections. Alternatively. desktop screensavers with the password protection activated could be forced down through the network domain. Instituting password protected screen savers should not pose a rish of data loss. lanazremew Response Information Systems management agrees in principle with the recommendation. The main reason this procedure has not been implemented is that it must be done enterprise -wide. The Information Systems Division will research the possibilih of pushing screensaver password requirements to end users and implement accordingiN Logical Security — Departing Employees Condition There is not an official polic} and associated procedures outlining the timely notification of the network and applications managers of a departing employee. contractor or temporary worker. Disabling or removing the accounts of inactive users in a timely manner is essential to inhibit malicious activity on the computer s. stems. CITY OF LODI, CALIFORNIA Report to Management Current -Year Management Comments and Recommendations For the Fiscal Year Ended June 30, 2005 Recommendation The Cih should develop an official policN and procedure to ensure that the network manager and the financial application managers are notified in a timely manner whenever there is a departing employee. contractor or temporary worker with an active user account to the computer systems. Management Response Information Systems management agrees with this recommendation. Such a policy would l ikel) be developed and advanced b,, someone not in the IS Division Logical Security —Access Rights Condition There is no polio and procedure to ensure that all system and application access rights are authorized and up-to-date. All users must complete a written application. signed by their supervisor. the respective department head and IS Manager. in order to he issued a user account for the AS400 or any systems hosted hr the IBM. The user accounts remain active until revoked. While this addresses the initial issuance of user accounts and their associated authorization level. it does not address the control objective of ensuring that all access rights are up-to-date. Personnel may move between positions wherein the authorizations for those positions are not the same. Currently. reviews only check for obsoletc accounts and do not address existing accounts for appropriateness. Reeonimendation The IS Division should establish procedures to periodically review the lists of system and application users to ensure that access rights are authorized and up-to-date. In addition. the process for approving authorization to access the financial application should he reviewed to ensure that only authorized persons are given the proper access to the system. This could include a review of persons by the Director of Finance. Management Response Information Systems management believes the current level of review is sufficient, given the number of authorized signatures required to obtain a user account. Periodic reviews are made to ensure that no obsolete accounts exist. Accounts will also be reviewed for appropriateness. Accounting System Development and Maintenance Condition While most procedures for the accounting system development and maintenance are in place. they are not formalk documented. Having the policies. procedures and standards formally documented should address anx ambiguit\ in implementation and reliance upon only a few key individuals Program changes are not always initiated. tested and approved by the functional users before being applied to the production system. The IS Division Programmer is not restricted from making changes in the production environment and is also responsible for transporting changes and updates from the test environment to tine production sten 8 CITY OF LODI, CALIFORNIA Report to Management Current -Year Management Comments and Recommendations For the Fiscal Year Ended June 30. 2005 Rec on7mondarion Official policies. procedures and standards for the accounting system development and maintenance should he documented and maintained. These policies. procedures and standards should ensure that: c ;All nevi programs and changes are initiated and approved by the appropriate user management. c The impact of neu programs and updates are assessed in a test environment before implementation in the production system. c 1'rogrammers do not have update access to the production system. except for emergency fixes. c Am emergene} fix in the production system is properly logged. c Program testing is reviewed and approved by someone other than the programmer. o The process of moving programs into the production system is formal. well documented. and performed by someone independent from programming. Munazement Response Cin IS management staff report that a new Documentation system (DOCS) has been implemented for use b. ISD staff members. The system is a repositon for system assignments. location of source code files. etc. Management report that current staffing does not allow for implementation of some of these recommendations. Packaged .Accounting Software and Systems Software — Selection Method ( ondition There is not currently a documented system and application software selection method outlined for the C itN Recommendwion The Cit\ should document their system and application software selection processes and ensure that the following areas are addressed: o Business needs. c Technical requirements. o Analysis/comparison of several products o Implementation issues. including conversion. and o Cost/benefit analysis The Cir\ should pursue the needs assessment for the new financial and billing system as noted below, but the procedures for system and application acquisition should he documented. Mana_uement Response The Information Systems Manager has recommended to upper management that a qualified consultant he hired to examine the citt_�'s business. technical and user needs as part of the process of selecting a replacement for the cih 's current financial and billing systems software. Packaged Accounting Software and Systems Software — Test Environment Condition The IS Division has implemented a test environnient for application software. but not for system software. Update and patches are being applied directly to the production system. CITY OF LODI, CALIFORNIA Report to Management Current -Year Management Comments and Recommendations For the Fiscal Year Ended June 30,2005 &commendation Procedures to test updates to system software should be implemented. either on a separate machine or as a partition " ith the current AS400. to ensure that updates and upgrades are not applied directly to the production system without proper testing beforehand. Manakentew Response The recommendation has merit. under ideal conditions. The IS Division will research the possibility of partitioning ft the current system to allow for system software testing. Additionally. Information Systems management feels that current testing practices do not present an unacceptable level of risk to the city or the IBM computing environment. Computer Operations — Guidance and Continuity .Condition Computer operations policies. procedures. and standards are not officially documented to provide official guidance and continuih to computer operations. Recommendation The IS Division should develop and officially document computer operations policies. procedures. and standards. Manaye went Response Cit. IS management reported that the operations desk has thoroughly documented procedures related to the processes and activities of that station. At the same time. the information Systems Manager has begun the process of compiling an IS Division Poke,, and Procedures book that will address standards and operating procedures. Computer Operations — Computer Room Condii ion The Cit, has moved the computer room which now has a separate dedicated air conditioning system, llninterrupred Power Supply (UPS) and generator. The room is secured with standard lock and key eontrohed by the IS Division staff and facilities maintenance. An intrusion alarm system and temperature and water alarms have been installed and are monitored b. a local securit} company. The room is equipped with a sprinkler system for tire suppression. Recommendation The IS Division should consider replacing the water sprinkler system with a dry fire suppression system. If local building ordinance requires the use of a water based system. the City should consider a dual system with a pre -action t -,,-pe sprinkler. "Vanakenaeni Response It is agreed that a d n fire suppression system such as halon would be better than water sprinklers. However. cost ma-, be prohibitive. 10 CITY OF LODI, CALIFORNIA Report to Management Current -Year Management Comments and Recommendations For the Fiscal Year Ended June 30,2005 Computer Operations — Disaster Preparedness/Business Continuity Plans Condition The Cit\ currentK has no disaster preparedness or business continuity plans in place, Reconlnlendation The Cin should work to develop a comprehensive disaster preparedness and business continuit} plan. The plan. upon completion. should be thoroughb, tested and provisions made for periodic reviews of the Plan. Mana,Qemenl Response The Cit` IS manager reported that the Division is in the process of developing a disaster recovery and business continuity plan. Computer Operations — Service Level Agreements Condition Service level agreements between the IS Division and the user departments are not in place. Help -desk services are provided. but without documented policies and agreements. an acceptable level of service cannot he proper]\ defined Recommendation Service level agreements between the user departments and the IS Division should be instituted to define the level of sen ice to be expected. A4anazenmew Response Information Systems management agrees with this recommendation. Computer Operations — Unauthorized Use of Software Condition There are no procedures in place to ensure that there is no unauthorized use of software within the City. Rcc:omnzendation The IS Division should institute official procedures for the review of software installed on computers at least year]\ . The City should make efforts to protect itself from the liability of employees using unauthorized software. An alteniative to the physical review of installed software is to require administrator privileges on netv<ork computers in order to install any software. Management Response The policing of installed software on users' PCs is not done currently. nor is it considered practical at this time. CITY OF LODI, CALIFORNIA Report to Management Current -Year Management Comments and Recommendations For the Fiscal Year Ended June 30, 2005 Computer Operations — Read -Write Access to the JDE Application ( 'nwr]il inn It was noted during our rcvieA that read-write access to the JDE application is limited to select Finance and IT Divisions personnel. Other City departments may have only read access to the application. As such. an! PO or obligating document must be done manually and then submitted to the Finance Division. Having the individual departments conduct their purchasing outside of the financial application can create situations where departments spend money for which the) mat not have the budget. City IS managenienr report that an updated purchasing polio has been passed by the City Council and is scheduled for implementation. Recommendation It is recommended that a revieu he conducted specific to the Purchasing/Accounts Payable function. The Cit,, should continue with efforts to implement the neA purchasing policy. ensuring that all department POs are managed within the financial application and that budgeted funds are available. Mai agement Response Users are granted read-write privileges as warranted. Many departments are now inputting their own requisition and purchasing data. and users are being granted access rights commensurate with their needs. Other Matters During the time under audit. the City's IS Division was a sub -office to the City Manager's office and not on par with other City departments. such as Finance and Human Resources. The concern this structure created was that the IS Division was reporting to a functional user or did not have the organizational status of their functional users. This structure had the potential to create conflicts of interest and project planning concerns. However. since year-end. the City has undergone an organizational restructuring. No". Finance and Human Resources have become divisions. along with the IS Division. of the new Internal Sen ices Department. which report to the neu Deputy City Manager. Nor\ that the IS Division is on par a ith the Finance and Human Resources divisions. it appears that this concern has been addressed. In surnmar, . our review of general computer controls of the financial application at the City found that most of these conditions do not preclude the Cite from a basic level of assurance. Therefore. efforts should he made to either implement the recommendations when staffing and/or funding is available or look for other controls that can he instituted that will strengthen controls. However. the Cit\ should address the physical protection of computer assets in the computer room before a basic level of assurance i�, warranted, 12 CITY OF LODI, CALIFORNIA Report to Management Prior -Year Management Comments and Recommendations For the Fiscal Year Ended dune 30,2005 CAPITAL ASSETS Condirion During our audit of the Cit\'s financial statements for the year ended June 30. 2004. we noted that the acquisition and construction of capital assets is maintained on a spreadsheet, outside of the City's accounting system. which can lead to inaccurate recording and depreciation of capital assets. Reconzniendation We recommend that the City place into operation the JDE fixed asset module that records the City's capital assets and automatically calculates depreciation. The system would support the City's deprecation method and automatically post accumulated depreciation expense to the General Ledger module for a specified accounting period. The system provides methods to track assets. their beginning cost. current value, and method of depreciation. Some of the advantages include: l . Flexible Asset Numbering System - an unlimited number of assets can he maintained. The assets can be grouped by many types of categories for reporting purposes. 2. User Defined Asset Control - Accumulated depreciation, depreciation expense and asset master accounts can be user specified for each asset. 3. Reports - variety of reports can he produced including a listing of all assets by type, category and description, method of depreciation. and all other information maintained in the master file. The module could be programmed to also print reports listing assets with original cost and current book value plus calculated depreciation for a specified period. To reduce operating overhead. the City should consider hiring temporary staff for data entry into the capital assets module. Prior Fear Alfana�,,enzent Response When Finance migrated to the JDE General Accounting system in 1997, the implementation of all the modules was prioritized. The Fixed Asset module at the time was at the lowest priority. The task of converting the asset files in JDE requires se[ up and data entry that the current personnel can nor accommodate without overtime or part time help. In light of the current budget cut demands from management. the implementation of the Fixed Asset module is recommended to be deferred at this time. Current Year Status Condition unchanged. Cttrrew Year Mana�nzezu Response This condition/recommendation will he addressed in the upcoming budget 13 CITY OF LODI, CALIFORNIA Report to Management Prior -Year Management Comments and Recommendations For the Fiscal Year Ended June 30, 2005 FTA INDIRECT COSTS C onditiun We noted, during our review of the fiscal year 2003/2004 Federal Transit Administration (FTA) apportionment. that management had originally decided to use the apportionment to cover indirect costs. Per our review of FTA guidelines. grantees who intend to seek FTA reimbursement for indirect costs must prepare a cost allocation plan that has been approved by the FTA or another cognizant Federal agency. Further inquiry determined that the cost allocation plan has not been approved in the prescribed manner. Reconiniendation We recommend that the City perform a review of all grants and make the determination if indirect costs can he applied against grant funds. Prior tear Vana_Zenient Response The Finance Department and Transit will work together in the development of a comprehensive cost allocation plan that will be submitted to FTA for approval. The City will also look into the other grants to determine if indirect costs can be reimbursed once a cost allocation plan is established. Current Year Status Condition unchanged. Current fear Managerrtenl Response This condition/ recommendation will be addressed in the upcoming budget. FTA DRAWDOWNS C ondition It has come to our attention that FTA apportionments are revealed to the City through the Federal Register. The City of Lodi can draw down FTA apportioned funds throughout the year in accordance r�'ith amounts established per the FTA. Currently, Tiffani Fink, Transportation Manager is responsible for the dra,,A down of funds as needed. However, this process has not occurred due to ongoing negotiations between the City of Lodi and the City of Galt to split FTA funds. Recommendation We recommend once negotiations between the two cities is finalized. procedures be put in place where the Transportation Manager makes withdraw requests to the Finance Department for FTA funds. Prior Year Management Response Procedures for FTA drawdowns are nova set in place as follows: When an FTA Electronic Clearinghouse Operation (ECHO) drawdown is to he requested, the City Transportation Manager will complete the drawdown request form. attaching all necessary information as backup. This packet will then be sent to the City's Senior Accountant for review. The Senior Accountant shall attach all necessary run data and verify the correct expenditures and reimbursement ratios. 14 CITY OF LODI, CALIFORNIA Report to Management Prior -Year Management Comments and Recommendations For the Fiscal Year Ended .lune 30, 2005 Thr Senior Accountant will then process and requesr the drawdown from the ECHO system. 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'. - ,t". u."Sud $:;` '2T:� •"� ,S.i"ems / .CY E "�.. i" .� �Y %. ...��>e'•e:.':d'= ls "Oz ;.0.'a�,gi.,;p,s v t { S a.:f „1 M NO .r1s is fir [ �a x .." e :: ,PT CITY OF LODI, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended June 30,2005 JOHN BECKMAN, MAYOR SUSAN HITCHCOCK, MAYOR PRO TEMP LARRY HANSEN, COUNCILMEMBER BOB JOHNSON, COUNCILMEMBER JOANNE MOUNCE, COUNCILMEMBER BLAIR KING, CITY MANAGER Prepared by the Finance Department James Krueger, Finance Director/Treasurer Ruby Paiste, Accounting Manager Coriene Wadiow, Sr. Accountant Odette Bondoc, Accountant IT INTRODUCTORY SECTION CITY OF LODI COMPREHENSIVE ANNUAL FfNANCfAL REPORT FOR THE YEAR ENDED JUNE 30,2005 TABLE OF CONTENTS INTRODUCTORY SECTION Table of Contents i Letter of Transmittal v Certificate of Achievement for Excellence in Financial Reporting AV Organization Chart of the City of Lodi xv Directory of Officials and Advisory Bodies xvi FINANCIAL SECTION Independent Auditors' Report 1 MANAGEMENT DISCUSSION AND ANALYSIS BASIC FINANCIAL STATEMENTS Government -wide Financial Statements: Statement of Net Assets 13 Statement of Activities 14 Fund Financial Statements: 15 Balance Sheet —Governmental Funds 18 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets 19 Statement of Revenues, Expenditures and Changes in Fund Balances — Governmental Funds 20 Reconciliation of the statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 21 Statement of Net Assets — Proprietary Funds 22 Statement of Revenues, Expenses and Changes in Net Assets — Proprietary Funds 23 Statement of Cash Flows— Proprietary Funds 24 Statement of Fiduciary Net Assets — Fiduciary Funds 25 Statement of Changes in Fiduciary Net Assets - Fiduciary Funds 26 Notes to Basic Financial Statements 27 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress — Pension Plan 67 Schedule of Revenues, Expenditures and Changes in Fund Balance — Budget and Actual — General Fund 68 Schedule of Revenues, Expenditures and Changes in Fund Balance — Budget and Actual -- Streets Fund 69 Notes to the Required supplementary Information 70 CITY OF LODI COMPREHENSIVEANNUAL FINANCIAL REPORT FOR TH E YEAR ENDED J U N E 30,2005 TABLE OF CONTENTS -continued COMBININGAND INDIVIDUAL FUND STATEMENTSAND SCHEDULES Combining Balance Sheet - Nonmajor Governmental Funds 73 Combining Statement of Revenues, Expendituresand Changes in Fund Balances- Nonmajor Governmental Funds 74 Nonmajor Governmental Funds- Special Revenue Funds 75 Combining Balance Sheet-Nonmajor Governmental Funds -Special Revenue Funds 76 Combining Statement of Revenues, Expendituresand Changes in Fund Balances- Nonmajor Governmental Funds - Special Revenue Funds 77 Schedule of Revenues, Expendituresand Changes i n Fund Balance - Budget and Actual - Nonmajor Governmental Funds - Special Revenue Funds 78 Nonmajor Governmental Funds- Capital Project Funds 83 Combining Balance Sheet-Nonmajor Governmental Funds - Capital Project Funds 84 Combining Statement of Revenues, Expendituresand Changes in Fund Balances - Nonmajor Governmental Funds- Capital Project Funds 85 Combining Statement of Fiduciaiy Net Assets - Private -Purpose Trust Funds 87 Combining Statement of Changes in Fiduciary Net Assets - Fiduciaiy Funds 88 Statement of Changes in Assets and Liabilities -Agency Funds 89 STATISTICAL TABLES (UNAUDITED) Government -wide information: Government -wide Expenses by Function- Last Ten Fiscal Years 91 Government -wide Revenues- Last Ten fiscal Years 92 Fund information: General Governmental Revenues by Source - Last Ten Fiscal Years 93 General Governmental Expenditures by Function- Last Ten Fiscal Years 94 General Governmental Tax Revenues by Source- Last Ten Fiscal Years 95 Secured Tax Levies and Collections- Last Ten Fiscal Years 96 Assessed Full Cash Value of all Taxable Property - Last Ten Fiscal Years 97 Property Tax Rates- Direct& Overlapping Governments- Last Ten Fiscal Years 98 Special Assessment Billings and Collections- Last Ten Fiscal Years 99 Ratio d Net General Bonded Debtto Taxable Assessed Value and Net Bonded Debt Per Capita - Last Ten Fiscal Years 100 Computation of Directand Overlapping General Bonded Debt- June 30, 2005 101 Debt Ratios- June 30,2005 101 Computation of Legal Debt Margin- June 30,2005 102 Ratio ofAnnual Debt Service Expendituresfor General Bonded Debtto Total Governmental Expenditures- Last Ten Fiscal Years 103 Revenue Bond Coverage- Last Ten Fiscal Years 104 Demographic Statistics- Last Ten Fiscal Years 105 Construction Activity - Last Ten Fiscal Years 106 CITY OF LOD) COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30,2005 TABLE OF CONTENTS -continued Bank Deposits - Last Ten Fiscal Years 107 Principal Employers -June 30,2005 108 Principal Taxpayers- June 30,2003 109 Surety Bonds of Principal Officials — June 30, 2005 110 Gann Appropriation Limitation- Last Ten Fiscal Years 111 Personnel Authorized- Last Ten FiscalYears 112 Schedule of Taxable Sales and Permits by Category— Last Ten Fiscal Years 113 Schedule of Business Tax Receipts Issued— Year ended June 30,2005 115 Miscellaneous Statistics- June 30, 2005 116 SINGLEAUDIT Schedule of Expenditures of FederalAwards 117 Notes to the Schedule of Expendituresof Federal Awards 119 IndependentAuditor's Reporton Complianceand on Internal Control Over Financial Reporting Based on an Audit of Basic Financial Statements Performed in Accordance with GovernmentAuditing Standards 120 IndependentAuditor's Report on compliance with Requirements Applicable to Each Major Program, I nternal Control over Compliance and Schedule of Expend itu resof FederalAwards in Accordance with Circular A-1 33 122 Schedule of Findings and Questioned Costs 125 Schedule of Prior Findings and Questioned Costs 132 (This page intentionally left blank.) = = = r = = = = = = m = m m m r = = m CITY COUNCIL JOHN BECKMAN, Mayor SUSAN HITCHCOCK, Mayor Pro Tempore COUNCILMEMBERS: LARRY HANSEN BOBJOHNSON JOANNE MOUNCE January 25,2006 CITY OF LODI CITY HALL, 221 WEST PINE STREET P.O. BOX 3006 LODI, CALIFORNIA 95241-1910 (209) 333-6706 FAX (209) 333-6795 To the Honorable Mayor, Members of the City Council and Managerof the City of Lodi: BLAIR KING City Manager SUSAN BLACKSTON City Clerk STEVE SCHWABAUER City Attorney The Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2005, is hereby submitted. This report is provided to present the financial position, results of operations and cash flows of the City's proprietary funds as of June 30, 2005, in conformity with generally accepted accounting principles. The report conforms b the highest standards of financial reporting as established by the Governmental Accounting Standards Board (GASB), for reporting by State and local governments. The responsibility for the accuracy, fairness and completeness of the report rests with the City. This report consists of management's representations concerning the finances of the City of Lodi. 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 Lodi has established a comprehensive internal control framework that is designed to protect the City's assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City's financial statements in conformity with GAAP. We believe that the information is accurate in all material respects and that it is presented in a manner designed to fairly present the financial position of the City. In addition, we believe that all disclosures necessary to enable the reader to gain full understanding of the City's financial activities have been included. The CAFR is presented in four sections: introductory, a financial section, a statistical section and single audit section. The introductory section includes the transmittal letter, the City's organization chart and a list of principal officials. The financial section includes the independent auditors' report, management discussion and analysis, the basic financial statements, notes to the financial statements, required supplementary schedules, and the combining and individual statements. The single audit section includes the schedule of expenditures of federal awards, notes to the schedule, and reports on compliance and internal control based on the audit of the basic financial statements and on compliance and internal control with requirements applicable to each major program in accordance with OMB Circular A-133. The statistical section includes selected financial and demographic information presented on a multi-year basis. This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The MD&A can be found immediately following the independent auditors' report. THE REPORTING ENTITY AND SERVICES PROVIDED The funds and account groups included in the CAFR are those deemed dependent upon the City and controlled by the City Council and reflect the City's financial reporting entity in accordance with GASB Statement 14. The City provides a wide range of municipal services including public safety (police, fire and graffiti abatement), public utilities services (electric, water and wastewater), transportation services (streets, flood control and transit) leisure, cultural and social services (parks and recreation, library and community center), and general government services (management, human resources administration, financial administration, building maintenance and equipment maintenance). Several municipal services are provided through other government agencies, private companies or public utility companies, including: Number of Facilities Elementary and Secondary Schools 18 Sanitation (solid waste) and Cable Television 2 Ambulance 1 Gas and Telephone 2 ECONOMIC CONDITION AND OUTLOOK The City is located in the San Joaquin Valley between Stockton 10 miles to the south, and Sacramento 35 miles to the north, and adjacent to U.S. Highway 99. The City population is 62,467 and is contained in an area of 12.81 square miles. The City has grown steadily since incorporation in 1906 and is projected to grow to 70,500 people by the year 2007. The City's growth is provided for in both the General Plan and the City's growth control ordinance that allows an increase in populationof 2% per year until the growth limits are reached. Lodi is built on a strong and broad based agricultural industry with national and industrial markets for its commodities and products. Wines, processed foods, nuts, fruit and milk are major commodities of the Lodi area and provide the basic material for food processing and packaging. These commodities support the operations of General Mills, Guild Winery and Pacific Coast Producers to name just three companies in the business of processing local agricultural commodities. In addition, Lodi has a wide range of small, financially sound businesses that add to the economic strength of the City. These companies range in size from 10 to 150 employees and produce a wide variety of products, services and commodities. Over the past several years, there has been an increase in industrial and residential development that has been unprecedented since the early 1980s. This new development combined with the growing strength of the wine/grape industry is a positive indicatorfor Lodi. The City's focus on economic development has successfully encouraged numerous big industries to move to Lodi that collectively created hundreds of new jobs. Vi =1== M M==== M= r M M M M M i Economic Development Lodi continues to be committed to promoting economic development (business retention and attraction) and expanding the tax base to fund city services rather than increase taxes to pay for these services. The City developed long and short-term economic development goals in conjunction with the Chamber of Commerce that resulted in the revitalization projects for the downtown and Cherokee Lane areas. In addition to revitalization efforts, the City has adopted a number of incentives to retain and attract new businesses. These incentives included infrastructure improvements, regulatory flexibility, tax credits and utility rate incentives. MAJOR GOALS, OBJECTIVES AND PROJECTS To assist the citizens of Lodi in understanding where the City intends to allocate available resources, the City Council, the City Manager and Department Heads have established a hierarchy of major goals. objectives and major projects that support and re-enfbrce the City's mission statement. Four major City goals were established as policy direction and focal points for the efforts of City staff. These goals include: Ensure a High Quality of Life and a Safe Environmentfor Citizens Ensure Efficient and ProductiveCity Organization Ensure Public Trust, and Ensure the Development of the Lodi Economy for a Fiscally Sound City Organization City Council, the City Manager and Department Heads established nineteen major City objectives: Maintain City's Sense of Community Provide Employee Training and Education Provide for a Balanced Community Evaluate Telecommunications Opportunities Enhance Access through Implementationof Information Systems Strategic Plan Provide Resources to Maintain City's Infrastructure Promote Urban Forestry Promote Public Relations and Marketing Efforts Attract, Retain and Invest in a Quality City Work Force Ensure Open and Accessible Public Meetings Encourage Public Arts, Cultural and Recreational Opportunities Pursue Efforts to be Entrepreneurial Provide Approariate and Sufficient City Facilities Improve Customer Service Develop Short and Long Range Operational Plans Continue to use Partnerships to Advance City's Objectives Develop Effective Records Management Program Provide a Balanced Budget& Adhere to Adopted Policies Promote Comm ercialllndustrial Base Projects represent the foundation of the planning statements for the City of Lodi. These projects are designed to accomplish specific objectives and become the focus for organization wide effort. As discussed above, economic revitalization continued to be an active focal point of the City in 2004-05. The following major City projects were planned in the 2003-05 two-year budget document: 1) remodel of the old Public Safety building and Civic Center Complex; 2) replacement of Animal Shelter Facility; 3) construction of the DeSenedetti Park/G-Basin; 4) development and construction of an indoor sports and activity center; and 5) construction of an aquatics complex. vii During fiscal year 2004-05, some of these projects were in various phases of the capital improvement project process, and some General Fund projectswere put on hold until a revenuestream is identified. The slow down in the capital devetopment comes at a time when the cost of City services is increasing leaving less discretionary money. However, the projects identified by the City Councils in the past years remain a high priority. The major Capital Projects that were placed on hold due to budget constraints facing the City in 2004-05 are: Public Safety Building Remodel and Expansion The Public Safety Building is over thirty years old and it has many mechanical and design deficiencies. Remodeling this building to provide additional workspace. parking and related site improvements, a complete retrofit of the HVAC system, replacement of jail facility, full compliance with the Americans with Disabilities Act requirements, more space for public safety des and a Police and Civic center parking structure Animal Shelter Facility The Lodi Animal shelter was built in the 1960's to service a community of approximately26.000. As most shelters built at that time, its purposewas to be a "dog pound" i.e. a place to impound stray and vicious dogs before euthanizing them. The current shelter cannot meet the newly mandated State law or fulfill the expectations of a community eager to provide more humane animal care. The estimated cost of the project is $4 million, which is $1.5 greater than the original estimate made in June 2001. This will be an 18,000 square foot facility on a 3 -acre site. It will include kennels, isolation kennels, community classroom, a clinic, storage areas, exercise areas and areas set aside for expansion of kennels. The project completed the design phase prior to being placed on hold pending identification of a revenue source. DeBenedetti Park/G-Basin This project consists of design and development of a youth sports complex (with lighted fields) and park within the "G -basin", which provides storm water storage in the park. This project is one of the highest unranked projects identified by the Parks and Recreation Commission and the City Council. The estimated cost of the project is $11.2 million, which is approximately $5 million greater than the estimate in June 2001. The project has gone through the schematic design and construction design phases. The General Fund portion of the project has been put on hold; however, the portions funded by other sources of revenue are expected to proceed. Indoor Sports and Activity Center This project consists of development and construction of a 40,000 square foot building to provide space for a gymnasium, exercise rooms, kitchen, meeting rooms and offices for community use. The estimated cost is $10.9 million and is currently in the schematic design phase. The construction design phase has been completed. Aquatics Complex This project consists of design and construction of a recreation pool with water features, a 50 -meter competitive pool, snack bar, changing rooms, showers, parking and picnic areas. The estimated cost of the project is $7 million, which is a $4 million, increase from the estimate made in June 2001. The project passed through the design phase prior to being placed on hold Viii M M M M M M M M M M M M M M M M M a i A Citizens Sales Tax Initiativewas circulated in the Fall of 2004 and is slated for the November 2006 general election. If approved, a %Y, cent sales tax increasewould be used to fund the Indoor Sports and Activity Center and the Aquatics Complex. FINANCIAL INFORMATION, MANAGEMENTAND CONTROL A detailed understanding of the financial position and operating results of the City is provided in the following sections of this report. The following is a brief description of the City's financial condition, management practices and control techniques. Basis of Accounting Basis of accounting refers to the policy as to when revenues, expenditures or expenses are recognized in the financial accounts and reported in the financial statements. The City's accounting records for general government operations are maintained on a modified accrual basis. Revenues are recorded when available and measurable. Expenditures are recorded when the services- or goods are received and the liability incurred. For proprietary fund types, the City uses the accrual basis of accounting. As such, the measurement focus is on net income in addition to financial position and changes in financial position. Revenues are recognized when earned and expenses are recognized as the liability is incurred. We believe that the City's internal accounting controls adequately safeguard assets and provide reasonable assurance of proper recording of financial transactions. Accounting System and Budgetary Control In developing the City's accounting system, consideration is given to the adequacy of the internal controls. The objective of the City's internal accounting controls is to provide reasonable, but not absolute. assurance that the assets are safeguarded against loss from unauthorized use or disposition; and to ensure that transactions are properly recorded to permit the preparation of financial statements in accordance with generally accepted accounting principles. The concept of reasonable assurance recognizes that the cost of control should not exceed the benefits likely to be derived and that estimates andjudgments are required to be made by management in evaluating these costs and benefits. In addition. the City maintains budgetary controls. The objective of these controls is to ensure compliance with legal provisions embodied in the annual appropriated budget approved by the City Council. The City Manager is responsible for the preparation of the budget and its implementation after adoption. The City Council has the authority to amend the budget at any time during the year. The City Manager has the authority to make adjustments to the budget as long as those changes will not have a significant policy impact nor affect budgeted yearend balances. During fiscal year 2004-05, the City Council and City Manager made several supplemental budget appropriations, the majority of which relate to capital projects. Fund Balance it is the City's goal to target and maintain an unreserved, undesignated fund balance in the General Fund and working capital balances in the Electric, Water and Wastewater enterprise funds of at least 15% of operating expenditures. This goal allows for variations from year-to-year to account for economic and fiscal changes. The General Fund maintained an unreserved undesignated fund balance of $1,506,926 or 3.5% of operating expenditures at the end of fiscal year 2004-05. The fund balance is of concern to the City Council and was addressed during the fiscal year by implementing budget cuts and raising various fees. Cash Management The City has written investment policies that address a wide range of investments. These policies describe the City's investment objectives, investment authority, allowable investment vehicles, maturity terms and eligible financial institutions. They also describe the City's capital ix preservation and cash management objectives. As provided in the policy, investments are intended to be held until maturity and investment terms are to be consistent with the City's cash flow needs. Investment reports are issued both monthly and quarterly to the City Manager and City Council to provide detailed information regarding the City's investments and compliance with City policy and as required by state law. An important objective of the City's investment policy is to achieve a reasonable rate of return on public funds while minimizing risks and preserving capital. i n evaluating the performance of the City's investment portfolio, investments are expected to yield a rate of return that regularly meets or exceeds an average rate of return on a three-month U.S. Treasury Bill. Appropriation Limitation Article XIII B of the Constitution of the State of California (Proposition 4) provides for the limitation of expenditures by state and local governments. Under the provisions of this article, City appropriations funded through tax sources may not exceed Fiscal Year 1979 appropriation levels except as adjusted for increases in population and the growth in the California per capita income or non-residential assessed valuation due to new construction within the city. Excluded from the limitation are appropriations funded through charges for services, fines and forfeitures, grants, transfers of service responsibilities between government agencies and indebtedness incurred prior to Fiscal Year 1979. Pursuantto subsequent legislation adopted after Article XIII B, the City is required to annually establish and adopt its appropriations limit by resolution. For 2004-05, the City's appropriations subject to limit were $29,221,131 and the appropriation limitwas $62,182,939 a favorable variance of $32,961;808. Debt Administration At June 30, 2005, the City had outstanding Certificates of Participation of $145,077,626. These liabilities are discussed in Note 8 of the Basic Financial Statements and summarized below. The City issued a $5.0 million Certificates of Participation (1995) COP to fund its share of capital improvements in the downtown and Cherokee Lane areas. These bonds were refunded by the issuance of the 2002 Certificates of Participation. The City also issued $1.97 million limited obligation improvement bonds for the Central City Revitalization Assessment District on July 22, 1996. The improvement bonds of the assessment district are not general obligations of the City. The City also issued $10.12 million for the renovation of the Performing Arts Center on August 1, 1996; the 2002 Certificates of Participation also refunded these bonds. The Electric Utility issued $43.96 million Certificates of Participation to finance the costs of certain improvements to the distribution and transmission facilities of the City's electric system. These bonds were also refunded by the issuance of the 2002 Electric Systems Revenue Certificates of Participation. On November 2002, the City issued the 2002 Revenue Certificates of Participation Series C for $21,225,000 and 2002 Series D for $22,740,000, to buy out the energy purchase agreement entered into by the City in January 2002 with Calpine. On October 21, 2003, the City of Lodi and the City of Fort Bragg issued Water and Wastewater revenue bonds (20036) through the California Statewide Communities Development Authority ("the Authority) under its pooled financing program. Total bonds issued were $9,855,000 of which $5,000,000 was for the upgrade of the City o f Lodi's wastewater facilities. M IM = =1 = = = = =1 M = M M M M = The City issued $27,360,000 in Wastewater Certificates of Participation (2004A) to finance the costs of improvementsto the wastewater collection, treatment and disposal system The City's debt management policy includes a commitment to monitor all forms of debt annually during the preparation of the City's Financial Plan and Budget to ensure compliance. Also, the Cityvvill generally conduct financing on a competitive basis, will seek an investment grade rating on any direct debt and will obtain credit enhancements such as letters of credit or insurance when necessary for marketing purposes, availability and cost effectiveness. Interim Financial Reporting Monthly financial reports are prepared to present the City's financial condition and results of operations. These executive reports are organized using the "pyramid" approach. As such. the highest level of summary data is presented first, followed by progressively greater levels of detail. The reports provide current period and year to date revenues, expenditures and encumbrances for all activities and funds, including year to date estimates and variances. Single Audit The City is subject to financial and compliance reporting required by the Single Audit Act Amendments of 1996 and OMB Circular A-133, which is a requirement of all local and state governments receiving federal financial awards. As part of the Single Audit, tests are made to determine the adequacy of internal controls, including that portion related to federal financial awards, as well as to determine that the City has complied with certain applicable laws and regulations governing federal funds. The Single Audit report is published as part of the annual financial statements for easy reference. Competitive Bidding Policy All required purchases for materials, equipment and services during 2004-05 were made pursuant to competitive bidding procedures as established under the City's purchasing ordinance. Contracts for construction projects were awarded pursuant to competitive bidding procedures established by the State of California for projects in excess of $5,000. Risk Management The City is self-insured for dental care, workers' compensation, general liability and unemployment insurance. General liability and workers' compensation are administered by outside agencies. The City administers unemployment insurance. Self-insurance transactions are accounted for under the City's Claims and Benefits Fund. At June 30, 2005, the Claims and Benefits Fund had a deficit of $1,895,488. The City is implementing a phased deficit reduction plan recommended by an actuary to gradually eliminate the deficit in the Internal Service Fund. INDEPENDENTAUDIT The City Council requires an annual audit of the records and accounts of the City by an independent certified public accountant. To ensure internal control periodically the City conducts a request for proposal (RFP) process for auditing services. The accounting firm of Macias, Gini & Company LLP was selected to perform this audit. The independent auditors' report precedes the basic financial statements and concludes that the City's basic financial statements are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Xi CERTIFICATES OF ACHIEVEMENT The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2004. The City did not submit for the California Society of Municipal Finance Officers (CSMFO) award program last year. These Certificates of Achievement are prestigious national and state awards recognizing conformance with the highest standards for preparation of state and local government financial reports. In order to be awarded a Certificate o f Achievement, a governmental unit must publish an easily readable and efficiently organized CAFR, whose contents conform to program standards. The CAFR must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate ofAchievement is valid for a period of one year only. The City has received a Certificate of Achievement for the last ten consecutive years. We believe our current report continues to conform to the Certificate of Achievement program requirements and we are submitting it to GFOA and CSMFO this year. ACKNOWLEDGMENTS As always the professionalism, dedication and efficiency of the Finance Department Accounting staff made it possible for the timely preparation of this report and are to be commended. I would also like to personally thank Ruby Paiste. Accounting Manager, and Cory Wadlow, Senior Accountant, Odette Bondoc, Accountant 11 and Tyson Mordhorst, Senior Programmer Analyst. Their work in preparing this year's CAFR is greatly appreciated. I would also like to thank you for your continued interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. Respectfully submitted, �ames R Krueger Finance Director/Treasurer Xii Certificate of Achievement for Excellence in Financial Reporting Pyesented to City of Lodi, California For its Comprehensive Annual Fln"mcial Report rot- the Fiscal Year Ended .111111C 30, 2004 A Ccrtiiicate ol•Achiewment for Excellence in Financial Reporting is presented by the Gowniment Finance Ofliccrs Association ortlie United States and Canada to LION. ern ment units and public employee retirement systems whose comprehensive anneal financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. 4 RFF � �wR03 JR4 � U President mwatrr s aaw Executive Director •r X City of Lodi Community Finance Parks and Public Works Development Recreation Community ElecMc Fire Police Center UUP' Xv — prqWd bjMmaMjsO4" M M M M M M M M M M M M M M DIRECTORY OF OFFICIALS AND ADVISORY BODIES CITY COUNCIL John Beckman Mayor Susan Hitchcock Mayor Pro Temp Larry Hansen Council Member Bob Johnson Council Member Joanne Mounce Council Member ADVISORY BODIES Finance Director/Treasurer Planning Commission Eastside Improvement Committee Library Board Lodi Arts Commission Recreation Commission Youth Commission Site Plan and Architectural Review Committee Lodi Senior Citizens' Commission PRINCIPAL ADMINISTRATIVE OFFICERS Blair King City Manager Steve Schwabauer City Attorney Susan Blackston City Clerk Nancy Martinez Library Services Director James Krueger Finance Director/Treasurer Mike Pretz rettre Fire Chief Tea Community Center Director Richard Prima Public Works Director David Dockham Interim Electric Utility Director Randy Hatch Community Development Director Jerry Adams J Police Chief Tony Goehring Parks & Recreation Director xvi (This page intentionally left blank.) mm = mm mm m m m m = = a* m m m= m FINANCIAL SECTION The Financial Section is comprised of the Independent Auditors' Report, Management Discussion and Analysis, Basic Financial Statements, including the notes, required Supplementary Information, and Supplementary Information which includes Combining and Individual Fund Statements and Schedules. m m = = m = = m = = = = m = = = = m = ITUARE MACIAS GfNi & COMPANY,,, 3000 S Street, Ste, 300 Sacramento, California 95816 916.928.46110 1'110\P, 916.928.2755 FAX The Honorable Members of City Council City of Lodi, Caiifortlia INDEPENDENT AUDITOR'S REPORT We have audited the accompanying financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund illforntation of the City of Lodi, California (City), as of and for the year ended June 30, 2005, which collectively coniprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Govertrnient Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes 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, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2005, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Notc 1, the City adopted the provisions of Governmental Accounting Standards Board Statement No. 40, Deposit and Investment Risk Disclosure& during the year ended June 30,2005. Certified public accountants 8 management consultants In accordance with Government Auditing Standards, we have also issued our report dated January 25, 2006 on our consideration of the City's internal coutrol over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our tastiM of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or ori compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered i n assessing the results of our audit. The management's discussion and analysis, the schedule of funding progress — pension plan, and schedules of revenues, expenditures and changes in fund balance — budget and actual — for the General Fund and Streets Fund are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Q3' audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The introductory section, combining and individual nonmajor fund statements, and the statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor hand statements have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated, in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. auk &+'N+� ti PcanY L, -LF) Certified Public Accountants Sacramento, California January 25, 2006 MANAGEMENT'S DISCUSSION AND ANALYSIS This section of the Comprehensive Annual Financial Report is presented as discussion and analysis of the financial performance of the City of Lodi (the City) for the fiscal year ended June 30,2005. FINANCIAL HIGHLIGHTS ■ The assets of the City of Lodi exceeded its liabilities at the close of the 2005 fiscal year by $188,421,402 (net assets). Of this amount, $3,585,970 is a deficit (unrestricted net assets), needed to meet the City's ongoing obligations to citizens and creditors. ■ The City's total net assets increased by $26,622,911 in fiscal year 2005. ■ As of June 30, 2005, the City's governmental funds reported combined ending fund balances of $14,684,103, an increase of $3,199,356 in comparison with the prior year. Of this amount, $8,556,623 is available for spending at the City's discretion (unreserved fund balance). ■ At the close of the fiscal year, fund balance for the general fund was $2,692,330 or 6.3 % of total general fund expenditures of $42,862,827. ■ The City's total long-term debt decreased by $21,223,169(11.3%) during the current fiscal year. The key factor in this decrease was the forgiveness of the Environmental Abatement Program bonds in the Water Fund. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements are comprised of three components: (1) Government -wide financial statements, (2) Fund financial statements, and (3) Notes to the Financial Statements. This report also includes other supplementary information in addition to the basicfinancial statements. Government -wide Financial Statements The government -wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private -sector business. The statement of net assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether or not the financial position of the City is improving or deteriorating. The statement of activities 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. 3 Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods, such as revenues pertaining to uncollected taxes and expenses pertaining to earned but unused vacation and sick leave. Both of the 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 users fees and charges (business -type activities). The governmental activities of the City include general government, public protection, public works, library, and parks and recreation. The business -type activities of the City include electric operations, wastewater system, water operations and public transit. Fund Financial Statements The fund financial statements are designed to report information about groupings of related accounts, which are 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 the following three categories: Governmental funds, Proprietary funds, and Fiduciary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government -wide financial statements. Most of the City's basic services are reported in governmental funds. These statements, however, focus on (1) how cash and other financial assets can readily be converted to available resources and (2) the balances left at year-end that are available for spending. Such information may be useful in determining financial resources available in the near future to finance City programs. 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 funds balance sheet and the governmental funds statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains several individual governmental funds organized according to their type (special revenue, capital projects and debt service). Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures, and changes in fund balances for the general fund and the streets fund, which are considered to be major funds. Data from the remaining governmental funds are combined into a single, aggregated presentation. Individual fund data for each of the non -major governmental funds is provided in the form Of combining statements elsewhere in this report. The City adopts an annual budget for its general fund and special revenue funds. Budgetary comparison statements have been provided for the general fund and the special revenue funds to demonstrate compliance with this budget. Proprietary Funds. Proprietary funds are generally used to account for services for which the City charges customers -either outside customers, or internal units or departments of the City. Proprietary funds provide the same type of information as shown in the government - wide financial statements, only in more detail. The City maintains the following two types of proprietary funds: 4 • 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 operations of the Electric, Wastewater, Water, all of which are considered to be major funds and the Transit system, which is considered to be a nonmajor proprietary fund. • Internal Service fund is used to report activities that account for various employee benefits and self-insurance activities of the City. Because these activities predominantly benefit governmental rather than business -type functions, they have been included within the governmental activities in the govern ment-wide financial statements. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the City. The activities of the Downtown and Cherokee Lane special assessments, the Industrial Way -Beckman special assessment and various landscape and lighting districts are accounted for and reported under the fiduciary funds. The activities of the Private Sector trust and the Holz bequest are also accounted for under the fiduciary funds. Since the resources of this fund are not available to support the City's own programs, it is not reflected in the govemment-wide financial statements. The accounting used for fiduciary funds is much like that used for proprietary funds, Notes to the Financial Statements The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the govemment-wide and fund financial statements. Required Supplementary Information In addition to the basic financial statements and accompanying notes, this report presents certain required supplementary information concerning the City's progress in funding its obligation to provide pension benefits to its employees, and a schedule comparing budget to actual amounts in the General Fund and Streets Fund. Combinina Statements The combining statements in connection with non -major governmental funds and fiduciary funds are presented immediately following the required supplementary information on pensions. GOVERNMENT -WIDE FINANCIAL ANALYSIS As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. The City of Lodi assets exceeded liabilities by $188,421,402 at the close of the current fiscal year. The largest portion of the City's net assets reflects its investment in capital assets net of any associated depreciation (e.g., land, buildings and improvements, 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. 5 Assets: Current and other assets Capital assets Total assets City of Lodi's Net Assets Governmental Business-tvoe Activities Activities' Total 2005 2004 2005 2[104 2005 2004 23,020,354 18,935,593 83,430,392 109,272,639 $ 106,450,746 128,208,232 133,148,186 128,334,732 125,103,772 113,895,765 258,251,958 242,230,497 156,168,540 147,270,325 208,534,164 223,168,404 364,702,704 370,438,729 Liabilities: Long-term liabilities outstanding 41,302,639 41,002,293 124,657,175 146,180,690 165,959,814 187,182,983 Other liabilities 3,908,832 3,750,597 6,412,656 17,706,658 10,321,488 21,457,255 Total liabilities 45,211,471 44,752,890 131,069,831 163,887,348 176,281,302 208,640,238 Net assets: Invested in capital assets, net of related debt 106,292,681 100,749,086 67,667,955 64,214,183 173,960,636 164,963,269 Restricted 13,465,723 11,205,788 2,350,888 2,577,822 15,816,611 13,783,610 Unrestricted (8,801,335) (9,437,439) 7,445,490 (7,510,949) (1,355,845) (16,948,388) Total net assets $ 110,957,069 102,517,435 77,464,333 59,281,056 $ 188,421,402 161.798.491 An additional portion of the City's net assets, $15,816,611 (8.4%) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets represents a deficit of $1,355,845. At the end of the current fiscal year, the City is able to report positive balances in two of the three categories of net assets for the government as a whole. Unrestricted net assets are negative for the governmental activities. The deficit in unrestricted net assets in the governmental activities at the end of the year was $8,801,335 caused primarily by the accrual of compensated absences of $9,307,134 and the inclusion of the internal service fund in the governmental activities that had negative net assets of $1,895,488. Refer to pages 8-9 for analysis of the business -type activities and internal service fund negative unrestricted net assets. 6 Revenues Program revenues: Charges for services Operating grants and contributions Capital grants and contributions General revenues: Properlytaxes Other taxes Grants and contributions not restricted to specific programs Litigation -environmental lawsuits proceeds Other Total revenues Expenses General government Public protection Public works Library Parks and recreation Intereston lorig-term debt Eteclric Wastewater Water Transit Total expenses Changes in net assets before special items and transfers City of Lodi's Changes in Net Assets Governmental Business -type Activities Activities Total 2005 2004 2005 2004 20(15 20J)4 5,604,193 4,828,330 70,046,788 65,709,989 $ 75,650,981 70.538.319 2,194,994 2,321,453 2,730,943 2,547,266 4,925,937 4,868,719 17,556,575 13,893,743 3,401.579 8,268,229 20,960,154 22,161,972 7,124,388 7,787,535 7,124,388 7,187,535 10,252,443 9,571,855 10,252,443 9,571,855 13,192,542 11, 895, 689 13,192,542 11, 695,689 9,149,692 864,834 9,149,692 864.834 758.278 714,940 4,312,412 4,875 811 5,070,690 5,591,751 56,685,413 50,413,545 89,641,414 82,267,129 146,326,827 132,680,674 9,957,816 13,166,925 9,957,816 13,166,925 22,252,819 19,162,270 22,252,819 19,162,270 12,376,743 11,867,698 12,376,743 11,867, 698 1,464,470 1,409,413 1,484,470 1,409,413 4,565,240 4,095,367 4,565,240 4,095,367 1,616, 501 1.267.017 1,616,501 1,267,017 57,308,243 55,942,822 57,308,243 55,942,822 10,652,509 6,297,010 10,652,509 6,297,010 11,748,462 7,488,844 11,748,462 7,488,844 3,017,821 3,064,298 3,017,821 3,064,298 52,253,589 50,968,690 82,727,035 72,792,974 134,980,624 123,761,664 4,431,824 (555.145) 6,914,379 9,474,155 11,346,203 8,919,010 7 Special item —forgiveness of debt 15,276,708 15,276,708 Transfers Changes in net assets Net assets at beginning of year 4,007,810 2,914,914 (4,007,810) (2,914,914) 6,439,634 2,359,769 18.183,277 6,559,241 26,622,911 8,919,010 102,517,435 100.157,666 59,281,056 52,721,815 161,798,491 152,879,481 Net assets at end of year $ 110,957,069 102,517,435 77,464,333 59,281,056 $ 188,421,402 161,798,491 ANALYSIS OF CHANGES IN NETASSETS Governmental activities. Governmental activities increased the City's net assets by $8,439,634. This reflects the increase in charges for services, $ 775,863; capital grants and contributions of $3,664,832; increases in general revenues of $1,957,632 and transfers of $1,092,896; offset by a decrease in operating grants and contributions of $126,459 and increase in expenses of $1,284,899. Business -type activities. Business -type activities increased the City's net assets by $18,183,277. This reflects primarily the receipt of a number of settlements from third parties in connection with the PCErTCE litigation amounting to $9,149,692 and the settlement of the $15.625 million Environmental Abatement Program bonds plus accrued interest of $5.65 million with Lehman Brothers for $6.0 million resulting in a forgiveness of debt (special item) FINANCIAL ANALYSIS OF THE CITY'S FUNDS Governmental Funds. The focus of the City of Lodi'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 $14,684,103, an increase of $3,199,356 in comparison to the prior year. The General Fund is the chief operating fund of the City. At the end of the current fiscal year, unreserved fund balance of the general fund was $1,506,926, while total fund balance was $2,692,330, an increase of $1,239,342 from prior year. As a measure of the general fund's liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund expenditures. Unreserved fund balance represents 3.5% of total general fund expenditures. Proprietary Funds The City's proprietary funds provide the same type of information found in the government -wide financial statements, but in more detail Unrestricted net assets at the end of the year fbr the Electric Fund were $2,459,806, Wastewater Fund $1,962,812 and the Water Fund $2,792,517 The unrestricted net assets of the Water Fund increased by $22,364,870 compared to prior year as a result of settlements 8 received by the City from defendants of the PCE/TCE litigation and from the forgiveness of debt obtained via a settlement of the Environmental Abatement Program bonds issued through Lehman Brothers. The Internal Service Fund is reporting a deficit in unrestricted net assets as a result of the City not fully funding its self-insurance activities. The City plans to implement the deficit reduction plan recommended by an actuary to gradually eliminate the deficit in the Internal Service Fund. Other factors concerning the finances of these funds are discussed in the City of Lodi's business -type activities. General Fund Budgetary Highlights Significant differences between the original operating budget and the final amended operating budget in the General Fund were a net increase in appropriation of $4,691,847, a decrease in transfers out of $4,664,782. and a decrease in other financing sources of $837,327 primarily due to the change in budgeting employee benefits and insurances. The increase in appropriations can be briefly summarized as follows: ■ $817,624 increase in general government $2,524,547 increase in public protection ■ $769,672 increase in public works $145,141 increase in library $434,863 increase in parks and recreation The $124,478 in capital outlay was for the improvements made to the Accordia Building leased by the City for the use of the Finance department. Significant differences between the final budget and the actual revenues and expenditures can be briefly summarized as follows: ■ Taxes — a favorable variance of $321,902 includes an increase in property taxes of $123,107, real property transfer taxes of $168,611 and $30,184 of other taxes compared to estimated revenues. ■ Licenses and permits - a favorable variance of $925,065 was the result of increased building permit fees, plumbing permits, electrical permits and mechanical permits amounting to $761,375; business license fees were higher than expected by $ 147,721; and $15,969 in various other licenses and permits. ■ Intergovernmental revenues — a favorable variance of $1,235,877 was due to the receipt of deferred Vehicle License Fees in the amount of $991,063 and an increase in various grants in the amount of $244,814. ■ Charges for services exceeded estimated revenues by $702,074 as a result of new and increased police fees, fire fees, engineering fees, community center fees, and parks and recreation fee increases implemented during the year. ■ Fines, forfeits and penalties- the implementation of increased fees for returned checks and late fees resulted in a positive variance of $363.335. For expenditures, there was a favorable variance between the final budget and actual expenditures of $1,089,575. Factors contributing to this difference are the following: Full time salaries budgeted at E (top) step, employee participation in the voluntary time off program, position vacancies, and the continued overall effort to reduce spending and costs. Capital Assets and Debt Administration Capital assets. The City of Lodi's investment in capital assets for its governmental and business -type activities as of June 30, 2005, amounts to $258,251,958 (net of accumulated depreciation). This investment in capital assets includes land, buildings and improvements, machinery and equipment, vehicles, infrastructure and construction in progress. The total increase in the City of Lodi's investment in capital assets for the current fiscal year was 6.6% (a 3.8% increase in governmental activities and a 9.6% increase in business -type activities) as shown in the table below. Changes in Capital Assets, Net of Depreciation Governmental Activities Business -type Activities Total 2005 2004 2nn5 2004 2005 2004 Land $ 23,798,811 $ 23,798,811 $ 5,247,806$ 5,247,806$ 29,046,617 $ 29,046,617 Buildingsand Improvements 40,323,027 41,026,803 27,253,059 24,902,110 67,576,086 65,928,913 Machineryand Equipment 1,257,056 1,797,112 69,865,611 62,823,423 71,122,669 64,620,535 Vehicles 2,251,552 2,487,373 2,430,020 2,403,851 4,681,572 4,891,224 Infrastructure 61,081,916 55,464,893 61,081,916 55,464,693 Work of Art 62,024 62,024 62,024 62,024 Construction in Progress 4,373,796 3,697,716 20,307,276 18,518,575 24,681,074 22,216,291 Total $ 133,148,186 $ 128,334,732 $ 125,103,772 $ 113,895,765$ 258,251,958$ 242,230,497 A significant increase in i nfrastructu re compared to prior year was primarily due to additional streets built by residential development. The increase in machinery and equipment and construction in progress in wastewater was due primarily to improvements to the White Slough Water Pollution Control Facility. Additional information on the City of Lodi's capital assets can be found in note 6 on pages 40-42 of this report. 10 M M i M M M M M M M M M M M M M M M M Long-term debt. At the end of the current fiscal year, the City of Lodi had total bonded debt outstanding of $145,077,626, Of this amount, $25,030,000 is the outstanding balance of the bonds issued to fund the new public safety building, refinancing of the performing arts center and the downtown and Cherokee Lane improvements. The total of $120,047,626 from the business -type activities consists of $41,383,217 for the Wastewater Fund; and $78,664,409for the Electric Fund. City of Lodi's Outstanding Debt Governmental Business -type activities activities Total Certificates of Participation $ 25,030,000 120,047,626 145,077,626 The City of Lodi's total bonded debt decreased by $22,349,851 (13.3%) during the current fiscal year. The key factor in this decrease was the settlement of the $15,625,000 Environmental Abatement Certificates of Participation in the Water Fund pertinent to the groundwater contamination. Additional information on the City of Lodi's long-term debt can be found in note 8 on pages 43-55 of this report. Economic factors and next year's budget. The City faced significant budget challenges in the last two fiscal years. As a result of downward economic trends and personnel expenditures, which were increasing at a pace that outstripped the resources available to fund these expenditures, the City faced an operating deficit in the General Fund for fiscal year 2004-05. In order to eliminate this projected deficit, planned expenditures were reduced by approximately $1.9 million and property tax revenues of approximately $1.9 million (originally planned to be used for repayment of debt service) were shifted to the General Fund. Additionally, the City received $991,063 of deferred Vehicle License Fees from the State in 2004-05 that were not to be realized until August 2006. The 2005-06 budget process was embarked upon in January 2005. Expenditure reductions and revenue increases resulted in a balanced General Fund budget for 2005-06. All departments accounted in the General Fund reduced budgeted expenditures in order to balance the fiscal year 2005-06 budget. The Electric Utility budget for 2005-06 was adopted with expenditures exceeding revenues by approximately $8.2 million. Most of this deficit will be alleviated through a combination of rate increases approved by resolution of the City Council in November2005. In addition, vacancies and reductions in operational expenditures will help reduce most of this deficit. However, the Electric Utility will still incur an operating loss in fiscal year 2005-06. Burgeoning energy purchase costs, which have risen from approximately $33.5 million in 2004-05 to a revised budget CF $42.1 million in 2005-06, are the main reason for this deficit. The rate increases approved in November 2005, will result in more than $10 million in additional revenues in fiscal year 2006-07 and subsequent years. The rate increases in conjunctionwith other cost cutting measures will be used to build cash balances in fiscal year 2006-07. REQUEST FOR INFORMATION This financial report is designed to provide citizens, taxpayers, customers, investors and creditors with a general overview of the City's finances and to demonstrate the City' accountability for the money it receives. If you have any questions about this report or need additional information, contact the Accounting Division of the Finance Department of the City of Lodi at 300 W. Pine Street, Lodi. California, 95240. 12 BASIC FINANCIAL STATEMENTS The Government -wide Financial Statements provide a broad overview ef the City's financial position and operating results. Information is grouped by governmental activities or business -type activities. The Fund Financial Statements report information about the City's Governmental Funds, Proprietary Funds, and the Fiduciary Fund The notes have an integral role in disclosing information essential to the fair presentation of the Basic Financial Statements. i== r m w==== m= m m= m GOVERNMENT -WIDE FINANCIAL STATEMENTS m m m r m m m m m r r= r== m= m m ASSETS Cash and investments Restricted assets Accounts receivable.net Property tax receivable Interest receivable Internal balances Due from other governmental agencies Loan receivable Advance receivable Inventory Other assets Deferred charges Capital assets, net: Nondepreciable Depreciable, net TOTALASSETS LIABILITIES Accounts payableand accrued liabilities Accrued salaries and wages Accrued interest Unearned revenue Long-term liabilities: Due within one year Due in more than one year TOTAL LIABILITIES NET ASSETS Invested in capital assets, net of related debt Restricted for. Capital projects Debt service Other purposes Unrestricted (deficit) TOTAL NET ASSETS The notes to the Financial statements are an integral pan of this statement. CITY OF LODI STATEMENTOFNETASSETS June 30,2005 Governmental Business -type 1,243,875 Activities Activities Total $ 13,635,382 9,781,616 $ 23,416,998 1,690, 573 28,421, 893 30.1 12,466 3,323,927 6,375,074 9,699,001 1,604,552 1,604, 552 127,780 45,334 173,114 (1,225,173) 1,225,173 2,650,301 1,698,235 4,348,536 1,084,000 1,084,000 1,955,896 1,955,896 106,954 2,056,996 2,163,950 22.058 6,966 29,024 31,863,209 31,863,209 28, 234, 633 25, 555,082 53, 789, 715 104,913,553 39,548,690 204,462,243 156,166,540 208,534,164 364,702,704 2,373,914 4,322,207 1,243,875 11,382, 725 291,043 848.008 72,697 1,242,441 5,012,337 4,181,989 36,290,302 120,475,186 45,211,471 131,069,831 106,292,681 11, 382, 725 1,690,573 392,425 (8, 801, 335) $ -- 13 6,696,121 1,243,875 1,139,051 1,242,441 9,194,326 156,785,488 176,281,302 67, 667, 955 173,960, 636 11,382, 725 2,278,191 3,968,764 72,697 465.122 7,445,490 .(1,355,8451 188,421,402 CITY OF LODI STATEMENT OF ACTIVITIES Year ended June 30,2005 Busi ness-typeactivities: Taxes: Net (Expense) Revenueand 57,308243 53,908,133 1,044,279 (2,355,831) Program Revenues Wastewater Changes in Net Assets 799.214 (1,767,567) (1,767,567) Operating Capital 483,400 1,074,686 13.551719) 1,127,392 13.551,7191 1,127,392 Transit Charges for Grants and Grants and Governmental Business -type Fu nrtloRslPLDgrams Expenses Services Contributions Contributions Activities Activities Total PRIMARY GOVERNMENT: 9,149,692 9,149,692 Other 608.020 2,432,652 3,040,672 Governmental activities: 15,276,708 15,276,708 Transfers 4007,810 (4.007.810)_ General government $ 9,957,816 3,638,762 37.487 839,601 (5,441.. 966). $ (5,441,966) Public protection 22,252,819 622.905 742.183 716,944 (20,170,787) (20,170,787) Publicworks 12,376,743 460.829 1,140,854 13,813,992 3,038,732 3,038,732 Library 1,484,470 48.536 109,030 (1.326.964) (1,326,904) Parks 8 recreation 4,565,240 833.161 165,640 2,188,038 (1,378,401) H,378.401). Intereston long-term debt 1 ,616,501 (1,616,501) (1,616,501) Total governmental activities 52,253,589 5,604,193 2.194.994 17,558,575 (26,895,827) (26,895,82 Busi ness-typeactivities: Taxes: Electric 57,308243 53,908,133 1,044,279 (2,355,831) (2,355,831) Wastewater 10,652,509 8,085,728 799.214 (1,767,567) (1,767,567) Water 1.748,462 7.713,343 821 339.584 2,730,943 483,400 1,074,686 13.551719) 1,127,392 13.551,7191 1,127,392 Transit 352.453 352,453 _ Total business -type activities Total primary government $ 1 - 75,650,981 4,925,937 13,192,542 , 150,258 The netts to the financial statements are an integral part of this statement. General revenues: Taxes: Propertytaxes 7,124, 388 7,124, 388 Franchise taxes 8,917,504 8.917.504 Business license tax 982.486 982.486 Transient occupancy lax 352.453 352,453 Grants and contributions not restricted to specific programs 13,192,542 13,192,542 Investment earnings 150,258 1,879,760 2,030,018 Litigation-environmentallawsults proceeds 9,149,692 9,149,692 Other 608.020 2,432,652 3,040,672 Special item- forgiveness of debt 15,276,708 15,276,708 Transfers 4007,810 (4.007.810)_ Total general revenues, spedal item and transfers 35,335,461 24,731,002 60,066,4637 Change in net assets 8,439,634 18,183,277 26,622,911 Net assets.beginntng of year 102,517,435 59.281.056 161,798,491 Net assets. end of year S 110,957,069 77,464,333 $ 188,421,402; 14 FUND FINANCIAL STATEMENTS m i m air == i m m m m r= r m FUND FINANCIAL STATEMENTS Governmental Fund Types Governmental funds consist of the General Fund, special revenue funds, debt service fund and capital projects funds. Major Governmental Funds include: General Fund This fund is maintained to account for all financial resources that are not restricted as to their use. This includes property and sales taxes, business tax receipts, franchise taxes and various subventions such as Motor Vehicle In - Lieu fees received from the State of California. With the exception of grant programs, General Fund resources can be utilized for any legitimate governmental purpose. Streets Fund This fund was established to account for the following: Gas Tax To account for revenues and expenditures apportioned to the City under the Streets and Highway Code. Portions of the tax rate levied by the State of California on all gasoline purchases are allocated to cities throughout the State on a population basis. These funds are restricted for expenditure by the State of California for street related purposes only. Development Impact Mitigation Fees To account for impact fees charged to provide for the building of various storm drains and street improvements needed to serve new development. The fees are calculated on a per acre basis and are collected at subdivision final map approval or with building permit stage effective November4, 1991. 15 Measure K Sales Tax To account for revenues and expenditures apportioned to the City for sales tax collections under Measure K. Expenditures for administration, maintenance and construction must be for street -related projects. Intermodal Surface Transportation EfficiencyAct (ISTEA) To account for revenues from the federal highway administration for programs including surface transportation program (STP) for streets and roads, congestion mitigation and air quality program (CMAQ) and hazard elimination safety (HES) for street lighting projects. Proprietary Fund Types Proprietary funds consist of the enterprise funds and the internal service funds Major Enterprise Funds include: Electric Fund The City established this fund in order to account for the provision of electric services to the residents of the City. All activities necessaryto provide such services are accounted for in this fund, including but not limited to, source of supply, overhead, systems maintenance, customer service, engineering, administration, capital improvements maintenance and debt service. Sewer Fund This fund was established by the City in order to account for the provision of waste water collection and treatment services to the residents of the City. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, improvements and debt service. Water Fund This fund was established by the City in order to account for the provision of water to the residents of the City as well as some customers in the County. All activities to provide such services are accounted for in this fund, 15 ■� � Ir � � � � � � � r � � I• lillll� � � � l� including, but not limited to administration, operations, distribution, maintenance, capital improvements and debt service. Nonmajor Enterprise Fund: Transit Fund This fund is used to account for the operations of the Dial -A -Ride and the Grapeline bus system. Fiduciary Fund Type Private -purpose Trust Fund This fund is used to account for trust agreements under which the principal and income benefit individuals, private organizations or other governments. Agency Fund This fund was established to account for special assessments collected on the property tax roll by the City on behalf of the property owners within the Industrial Way Beckman Districts and the Downtown and Cherokee Lane Districts and various landscape and lighting districts around the City. 17 CITY OF LODE BALANCESHEET GOVERNMENTAL FUNDS June 30,2005 The notes to the financial statements are an integral part of this statement. 8 Other Total General Streets Governmental Governmental Fund Fund Funds Funds ASSETS Cash and mvestments $ 601.048 3,607,519 6,165,396 $ 10,373,963 Restricted assets 1,690, 573 1,890,573 Receivables: Accounts, net 3,030,774 256.533 1,233 3,288,540 Properly taxes 1,604,552 1,504,552 interest 1,569 31,362 70.221 103.152 Due from other funds 507,515 18,972 526,487 Due from other governmental agencies 166.149 1,555,180 928.972 2,650,301 Loan receivable 1,084,000 1,084,000 Inventory 106,954 106.954 Advances to other funds 250.960 676.770 927.730 Other assets 12.736 12.736 Total assets $ 5,774,742 5,958,109 10,636,137 $ 22,366,988 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable and other liabilities $ 1,838,537 306.603 142.530 $ 2,287,670 Accrued salaries and wages 1,243, 875 1,243, 875 Due to other funds 526.487 526.487 Advances from other funds 676,770 1,475,133 2,152,903 Deferred revenue 1,473,950 1,473, 950 Total liabilities 3,082,412 983.373 3,619,100 7,684,885 Fund balances: Reserved 1,185,404 3,965,554 976.522 6,127,480 Unreserved reported in: General Fund 1,506,926 1,508,926 Special revenue funds 1,009,182 390.745 1,399,927 Capital projectsfunds 5,649,770 5,649,770 Total fund balances 2,692,330 4,974,736 7,017,037 14,684,103 Total liabilities and fund balances $ 5,774,742 5,958,109 10,636,137 $ 22,368,988 The notes to the financial statements are an integral part of this statement. 8 CITY OF LODI RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS June 30,2005 Amounts reported for governmental activities in the statement of net assets are different because: Fund balances- total governmental funds Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds Nondepreciable capital assets Depreciable capital assets, net Long-term liabilities are not due and payable in the current period and therefore are not reported in th a governmental funds as follows: Compensated absences Bonds payable and other long-term debt Interest on long-term debt is not accrued in the funds, but rather is recognized as an expenditure when due Other long-term assets are not available to pay for current period expenditures and, therefore, are deferred in the funds Internal service funds are used by management to charge the costs of general liability insurance, workers' compensation insurance,health benefits insurance and other insurance to individual funds. The assets of the internal service funds are included in governmental activities in the statement of net assets Net assets of governmental activities The notes to the financial statements are an integral part of this statement. 19 $ 14,684,103 28,234,633 104,913,553 (9,307,134) (26,855,505) (291,043) 1,473,950 (1,895,488) $ 110,957,069 CITY OF LODI STATEMENT OF REVENUES, EXPENDITURESAND CHANGES IN FUND BALANCES GOVERNMENTALFUNDS Year ended June 30,2005 Revenues: Taxes Licenses and permits I ntergovernmentalrevenues Charges for services Fines, forfeits and penalties Investment and rental income Miscellaneous revenue Total revenues Expenditures: Current: General government Public protection Publicworks Library Parks and recrealion Capital outlay Debt service: Interest and fiscal charges Principal payments Total expenditures Excess (deficiency) of expenditures over(under)reveAues Olher financing sources (uses): Transfers in Transfers out Capital lease proceeds Total other financing sources (uses) Net change in fund balances Fund balances, beginning of year Fund balances, end of year The notes to the financial statements are an integral panof this statement 20 Other Total General Streets Governmental Governmental Fund Fund Funds Funds $ 16,698,748 907.115 $ 17,605,863 2,511,180 2.511,180 14,419,838 7,280,090 1,134,109 22,834,037 2,646,094 2,983,959 3,773,974 9,404,027 1,186,280 3.700 1,189,980 338,920 129.899 283.513 752.332 174,375 24.670 259.135 458.180 37,975,435 11,325,733 5,454,431 54,755,599 10,857,842 10,857,842 20,044,101 306,255 20, 350, 356 5,429,372 931,939 7,361.311 1,420,257 1,420,257 3,671,803 18,972 3,690,775 124.478 7,535,027 1,848,437 9,507,942 48.475 1,596,954 1,645,429 266,499 588.120 854,619 42,862,827 7,535,027 5,290,677 55,688,531 (4,887,392) 3,790,706 163,754 (932.932) 8,043,184 5,204 1,968,981 8,017,369 (40,928) (1,541,147) (2,427,484) (4,009,559) 124,478 124.478 6,126,734 (1,535,943) (458.503) 4,132,288 1,239,342 2,254,763 (294.749) 3,199,356 1,452,988 2,719,973 7,311,786 11,484,747 $ 2,692,330 4,974,736 7,017,037 $ 14,684,103 The notes to the financial statements are an integral panof this statement 20 CITY CF LODI RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURESAND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTMTIES Year ended June 30,2005 Amounts reported for governmental activities amdifferert because: Netchange infund balances. total governmental funds Govemmerrtel funds report capital outlays aseKpenditures. However, in me statement of activitiesthe cost of those assets isaffocafet over their estimated useful lives and reported as depreciation expense. Capital outlays, capital oonfribvYons and depreciation expense areas follows; Capitallzed capital outlays Capitalccntrf bulicris Depreciation expense Book valveondrsposad capital assets Long-terndebt proceeds, net of discounts, provide current financial respurces to governmental funds, but issuing debt proceeds increases long-termllabilities in the statement or net assets. Repayments of the principalare expendituresinthe govemfhenial funds, butthe repayments reducelong-term liabilities inthe statements net assets. Proceeds from capital lease Repaymentsofprinclpal are as follows Capital leases Certificatesef participation principal Loan prtncipal Internal service funds are used by managementto charge the costs of Certain activities. such as health benefits and self-insurance, to individual funds. The net revenue (expenses)of internal service funds is reported with governmental activities. Deferred revenues recognized in me funds matwere prevfously recognized in the statementofecdvittisa Other expenses in the statement ofactivitiesthatdonot useurrrent ftaancial resources are not repoded as expenditures in the governmental funds. Change in compensated absenoes Change in accrued Interest Change in net assets of governmentalactivities The notes I o the financial statements are an integral part of this statement 21 b 3,199,356 9.507,942 2,546,016 (7,127,520) (112,984) (124,478) 268.499 500.000 88,120 1,682,444 (618.202) (1,398,487) 28.928 $ 8,439,634 ASSETS Current 85set57 Cash and Investments RadriGed assets Receivables: Aamu*, nal lnt$rest Due Mom oBter f sws Due frau oaten governmental agencies Adyw receivable Inventory Other assets Total current assets Noncurrent assets: Advances to other funds Deferred a www and Other assets Capital assets,net: Dapredabfs, not TOW capital asaals TOW notKxNTOM assets TOTAL ASSETS LIABILITIES Current liabilities: Aoo&,Ms psyabla and OYty liabilities Accrued ikaraat Dos to other folds urlaarrod faverxn Sex -int mos liability A=uod co VWWAW absences CaAKa alas d particpalion payable Wakr sofa pry" TOW dlrwit Ifb616ae Nonaxrent bbill'sa: 8a/411ata wile liali ft Aemod compensated absences Coles OF psrtielpallon payable wow rola payable Toth ION 02+erlt Nsbillwas TOTAL LIABILITIES NET ASSETS (DEFICIT) WAdiad in eWW els I , nal cNreltatsd debt Restricted: debt $anis Otherptxposes Unrestrided (de6eil) TOTAL NETASSETS (DEFICIT1 The roles to the financial statements are an inre6r31 parr of this statement. M M M M M w CITY OFLODI sTATE1tENT OF NET ASSETS PROPRIETARYFUNDS June 30, 2005 Govanvnental Activltlas - Bwir Aj"e Activities -Enterprise Funds Internal Nonmajof Fund Service Elacft Malewater Water Tramt Total Fund $ 4,696,603 5$4922 4,30,091 S 9,781,616 S 3,261,419 11,873,387 16,247,795 300,711 26,421,893 31,863,209 4,381,969 1,078,453 518,605 395,047 61375,074 35.387 12.989 19.137 13,208 45.334 24,628 38,534,166 1,668,947 18,993,678 1,688, 947 125,103,772 69,571,932 55,627,785 20.218,651 1,698,235 1,698, 235 158.19Z,154 19558% 75,463,733 25,530,697 1,955,896 210,223,111 1,867, 609 11.549 177,838 2,056, 996 228 5,145 AM . 6,956 9.572 24,989,581 19,625,948 5,312.046 2.094,2tS2 t2,wu,,�t � 77777,17- 995.350 659,223 1,225,173 160.329 1,225,173 31,037,785 825,444 823,610 18,564 31,863,209 3,989,765 19,664,643 840,030 860,644 25,555,062 34,544,401 35,137,698 18,153,648 11,712,943 99,548,690 38,534,166 55.W2.341 18,993,678 12,573,587 125,103,772 69,571,932 55,627,785 20.218,651 12,573,587 158.19Z,154 9414,M7,85960,612 75,463,733 25,530,697 fA,7,869 210,223,111 995.350 659,223 2,507,305 160.329 4,322,207 86.244 192.953 823,610 18,564 12.861 648,0014 1, 668, 947 1,668, 947 74.223 1,168,218 1,242,441 1,592,605 390.403 207,506 14.241 1,770 813.917 2,126,946 1,285.904 3,414,652 151 220 153, 220 3,707,651 2,850,466 3,561,548 1,863,927 12,283,592 1,679,449 3.547.195 1,042.910 646,223 36,974 1.,r 76,535,461 40,097,313 116,632,774 .2.07fb9Q5 77_ ,, 240. 2 t 7� 3. 81,2682W,0202 2 - X1 �.. 43,63A,002 5,974, 7 1863,927 132, 10,738,367 27,592,448 16,763,553 12,573,587 67,667,955 3,720 2,274,471 2,278,191 72,697 72,697 2459606 1,962,812 2,792,517 ;30,355 7,445490 (1,886.40 8 77,464,333 $ (1 895,4` � 22 CITY OFLODI STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NETASSETS PROPRIETARY FUNDS Year ended June 30, 2005 OPERATING REVENUES Charges for services OPERATING EXPENSES Pereonnelservices Supplier. matenais and services Ulsises Depredation and amortization Claims TOTAL OPERATING EXPENSES OPERATING INCOME (LOSS) NONOPERATING R M N U E S (EXPENSES) t washbwd Inw" tnterest expense Rent Operating grants Loss from fila disposition of' itsl assets lawsuits proceeds Other revenues TOTAL N ONOPERATING REVENUES (EXPENSES) INCOME(LOSS) BEFORESPECIALITEM,CAPITAL CONTRIBUTIONSAND TRANSFERS Special Berm- forglvemss of debt capmw oar11ri m&ms Tra(Isfam 1111 Transkm out Nat special item, capital contdtru8ans and transfers Change in net alseta NETASSETS (DEFICIT)- BEGINNINGOFYEAR NET ASSETS (DEFICIT) • END OF YEAR Gove mmental Ac"es- Business-type Activities • Enterprise Funds Internal Normajor Fund Swipe Efectiic Wi owme"I WNW Transit TOW Fund $ 53,908,133 8,065,728 7,713,343 339,584 6 70,148,788 $ 7,964,404 5,397,010 2,338,247 971,238 87;043 8,791,538 351.251 9,386,738 4,057,231 7,824,190 2,468,038 23,736,195 5,211,868 33194.132 635,100 720.902 51.739 34,901.873 5,884,766 1,413,562 794,992 380.444 8,473,764 (1.359.1621 (1,359,162) 1.224,805 54,162,646 8,442,140 10.311,322 2,987,262 75,903,370 6,787,924 (254,513) (356,412) (2,597,979) (2,647,678) (5,856,582) 1,178,480 1,275,248 583.759 40.753 1,879,790 54,361 (3,145,597) (2.210.389) (77,978) (30,559) (5,464,503) 182.345 10.254 9,091 201.890 2,730,943 2,730,943 (1.359.1621 (1,359,162) 9,149,692 9,149,692 1,110j92 400,377 469,875 250,788 2230,962 4Si,093 (760,157) (1,063,888) 8,233,184 2,960,243 _ 9,369,382 505.964 (1,014,670) (1,420,300) 5,635.205 312.585 3,512,800 1,682,444 15.278.708 15,278,708 1,044,279 799.214 483,400 1,074,686 3,401,579 70 385 8.154 8.152 13.764 1W.455 2.5� 19.548L (873645) (693.673) (221,199) (4,108,265) It 404BL4L 133523 15074,59' 86725 14,670,477 (2,419,554) (1,286,777) 20,709,792 1,179.816 18,183,277 1,682,444 15,694,144 33,116,508 (1,153,722) 11,624,T26 59,281,058 20 — Z 13,274,590 31,829,731 19,556970 12,803,942 5 77,464,333 Z (1.0(15.41]!) The notes to the financial statements ars at integral part of this report 23 Cash flows Born operating acMss: Roos" from auslomers and users Race4ft fitifn WerMtd swAm provided Cash paid to suppliers for goods E services pay lam to wgp)oyees PwflrW b thr ird~ 9MVIcas proNded Proceeds korn YYgaYon salaMlarae Net cash pc0vtded by opera8ng activities Cash flows Ram norxapiW flnenag adi0m: Receipt of due from other funds Receipt of advance ro abler holds Loaned to olher funds Repaid 10 CMW krids Transfers in Transfers out Net cash provided by (used in) noncepital 8nancktg ecdvillas Cash flows from capkel and related nhanclng act"es: AcgWslren NO ow"loefen of eaggl saaau Fees received tram devalopm Capital tis received Pttndpal Payment on debt Interest Peynords on debt Nat rash provided by (used in) ce" and reteled 8nencirg ae8vitlea Cash flows from invea8ng aetivltiea: Rent of CRY Property Proceeds Ram salsa end matudlies ot kwestnlenu lnteneal on Wwe*nWs Net Cash provided by Investing aaMes Net increase (decrease) In Cash and cash equivalents Cash and cash equivalerta, begW" of yew Cash and ash egrivaienfa, end of year Cash tows from op&iWV acavWee: Opens" blooms (las] AA$tmWa t 10 ratarl10 OF 11 h Imm"te (ION)10 rat cash provided by opens", adiv9les: Depradedw mW mralZadOn Operm" 9wft Proceeds Rom N6gobm sal9erAeMs Olnx revenues Changs In assets end SabM6as: Decrease M ecomm remty" w"Imem o IN ailsiKrdl nage sive " Decrease in due h0m other governmental agencies (Increase) deeraase In ktwrtory Decrease in eater assets Increase (deaeave) in amaa,ts payade and other 8ebai8as Increase (decrrue) In Compensated absehces Decrease In t mWwd revenue Decease in se84rglm" kab9lty Net cash proNded by go$ 0 0 salvoes Nommallt Cgft oontdbtNona Special Rech - trovssrea of debt Cost ol iswence paid Rom debt proceeds Booty vans ofaspow M" as 0 In wast miAvasW The rola to the fimmcial avenwa m an integral pat of this statement. CITY OF LODI STATEMENTOFCASH FLOM PROPRIETARY FUNDS Year ended June 30, 2005 24 m= m= m m=== m r===== m m r Govemmental Business -type Activities - Enterprise Funds AcWfies- Nonmajor Fund Internal Service EMalt{C _ Mrsssa W Water Ttava Total .Fund I 54,313,303 11,163,761 8,223,187 4,824,298 I 78,524,549 I 397.725 397.725 8,803,549 (47,024,232) (6,868,420) (6,280,084) (2,633,899) (62,806,535) (6,788,456) (5,157,258) (2.092,582) (976.691) (90.385) (8,316.915) (351.251) (1,737) (608.241) (691.266) (32.175) (1,333,441) 9.149,592 9,149¢92 .2.527.801 1,594,516 9.424.816 _ 2,67.839 _ 115.614.974%663,842 3,579,002 3,579,002 2,400,000 171,590 2,571,590 !1,688 947) (1,690,055) (1,890,055) 70.385 6,154 6.152 13.764 100,455 _ (2,519,5481 L673,845) (693,673) _(221,199) (4,108,265) - - 3,529,839 (2,354,638) _ _ (511-931) (2,097,490)1436,220) (3,691,359) (9,199,246) (350,790) (13,241.395) 67.215 483,400 550.615 48,636 48.636 (5,896.000) (540,000) (494,866) (6,929,966) _(3.5413.985) ._11,109.19)_ .(5.733.110) (28,076) _ (11,211,490) (13.127,344) (11.581,350)(8,083,388) 20,560_ (30,783,500) 162.345 10,254 9,091 201.690 4,326,193 7,623,626 11,949,819 1.293.027 ,✓,551-4% 32.087 .1.876.610 3$,595 5.619.2208,357,467 42,341 9.091 _ 14,028,119 33.595 (1,450,484) (3,984,003) 2,857,860 (2,576,627) 1,697,437 6.347.087. _ 4,588.925 _ 1,r42,231 12.358.243 1,563,982 i � 8 603 584,922 4,300,091 I 9,761,616 5 3,261,419 I (254.513) (356,412) (2,597,979) (2.647,679) f (5,856,582) $ 1,176,480 5,884,766 1,413,562 794,992 380,444 8,473,784 2,730,943 2,730,943 9,149,692 9,149,692 1,110,192 400,377 469.625 250,766 2,230,962 451,603 576,423 2,659,688 19.897 1.534483 4,790,491 106,508 (884,937) (884,937) 33.142 18.188 111,302 160.632 (24,640) 961 (15,460) (39.139) 1.217 3.612 4,134 830 8,793 281,034 (4,120,459) (2,785,291) 1.589,180 (148,299) (5,462,869) 16.217 239.752 243.665 (5,453) (3,342) 474,622 (18,786) (143,612) (162,398) I 2,6 7801 �594'.t5�8. _ Z.��� 3 15 6� 61144 97�� $ I 1,044,279 731,999 1,026,050 S 2,602,328 I 15,276,708 15,276,7138 128,647 128,647 1,388,102 1,359,162 19 19 24 m= m= m m=== m r===== m m r CITY OF LODI STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS June 30,2005 ASSETS Cash and Investments Receivables: Special assessments Interest Otherassets TOTAL ASSETS LIABILITIES Agency obligations TOTAL LIABILITIES NET ASSETS The notes to the financial staterne is are an integral pan of this statement 25 Private -Purpose Trust Funds Agency Fund 694.327 $ 390,802 53.580 2,923 1.283 694,327 448,588 694,327$ 448.588 448,588 CITY OF LODI STATEMENT OF CHANGES IN FIDUCIARY NETASSETS FIDUCIARY FUNDS Year ended June 30,2005 ADDITIONS Investment and rental income Total additions DEDUCTIONS Current Library Total deductions CHANGE IN NETASSETS NETASSETS, BEGINNING OF YEAR NETASSETS, EN D OF YEAR The notes to the financial statements are an integral part of this statement. 26 Private -Purpose Trust Funds � 56,676 56,676 6,238 6,238 50.438 643,889 $ 694,327 NOTES TO THE FINANCIAL STATEMENTS == m= m m= m m m= r i m r m r CITY OF LODI Notes to Basic Financial Statements June 30,2005 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) THE FINANCIAL REPORTING ENTITY The City of Lodi (City) was incorporated o n December 6, 1906, as a municipal corporation under the General Laws of the State of California. The City operates under a Council -Manager form of government and provides the following services: general government, public works, public protection (police and fire), public utilities, library, parks and recreation. The accounting policies of the City conform to generally accepted accounting principles (GAAP) as applicable to governments in the United States of America. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for governmental accounting and financial reporting principles. An elected five -member council governs the City of Lodi. As required by GAAP. these financial statements present the City and its component units, entities for which the City is considered to be financially accountable. The component units, although legally separate entities, are, in substance, part of the City's operations and therefore, their activities are blended with data of the City. Blended Component Units The blended component units of the City are as follows: The Lodi Public Improvement Corporation (LPIC) was formed on April 26, 1988. for the purpose of rendering financial assistance to the City in the issuance of the 1988 Certificatesof Participation (refunded by the issuance of the 1991 Certificatesof Participation)to finance the expansion of the City's White Slough Pollution Control Facility, the 1995 and 1996 Certificates of Participation to finance the Central City Revitalization Projects and the Performing Arts/ Conference Center, (refunded by the issuance of the 2002 Certificates of Participation), the issuance of the 1999 Certificates of Participation to finance the Electric Systems improvements (refunded by the 2002 Certificates of Participation Series A) and the issuance of the 2004 Wastewater System Revenue Certificates of Participation Series A to provide funds to finance the costs of certain improvements to the wastewater collection, treatment and disposal system of the City. The City Council constitutes the Board of Directors of LPIC. The funds of LPIC have been included in the Enterprise (Electric and Wastewater) Funds and in the other governmental funds in the accompanying basic financial statements. The Lodi Financing Corporation (LFC)was formed on October 12, 1999, for the purpose of assisting the City with the financing of the costs of its environmental abatement program and enhancing the water supply of the City for the use, benefit and enjoyment of the citizens served by the City. The City Council is the Board of Directors of LFC. The funds of LFC are included in the Water Fund in the accompanying basic financial statements. 21 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 (b) Government -wide and fund financial statements The government -wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the non - fiduciary activities of the primary government and its component units. For the most part the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business -type activities that rely, to a significant extent, on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include (1) charges to customers or applicants who purchase, use, or directly benefitfrom goods, services. or privileges provided by a given function or segment and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government -wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. (c) Measurement focus, basis of accounting, and financial statement presentation The government -wide financial statements are reported using the economic resources measurement focus and accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grant and similar items are recognizedas revenue as soon as all eligibility requirements have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers property tax revenues to be available if they are collected within 60 days of the end of the current fiscal year. All other revenues are considered to be available if they are generally collected within 120 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to vacation, sick leave, claims and judgments, are recorded only when payment is due. Property taxes, other local taxes, licenses, intergovernmental revenues, and interest associated with the current fiscal period are all considered susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenues are considered to be measurable and availablewhen the City receives cash. 28 r� 1, r rr rr r rir r rr r r r� r r rr r r �r r CITY OF LODI Notes to Basic Financial Statements (continued) June 30.2005 The City reports the following major governmental fund: The General Fund is the City's primary operating fund. It accounts for all financial resources of the City except those required to be accounted for in another fund. The Street Fund accounts for Gas Tax revenues apportioned to the City under the Streets and Highway Code, impact fees charged to provide for the building of various storm drains and street improvements needed to serve new developments, and to account for funds apportioned to the City for sales tax collections under Measure K. The City reports the following major proprietary (enterprise)funds: The Electric Fund accounts for the provision of electric Services to the residents of the City. All activities necessary to provide such services are accounted for in this fund, including but not limited to, source of supply, overhead, systems maintenance, customer service, engineering, administration, capital improvements, and maintenance and debt service. The Wastewater Fund accounts for the provision of wastewater collection and treatment services to the residents of the City. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, improvements and debt service. The Water Fund accounts for the provision of water to the residents of the City as well as some customers in the County. All activities to provide such services are accounted for in this fund, including, but not limited to administration, operations, distribution, maintenance, capital improvements and debt service. Additionally, the City reports the following fund types: The Internal Service Fund accounts for the City's claims and benefits The fiduciary funds accountfor assets held in trust for other agencies. Private -Purpose Trust Fund is used to account for trust agreements underwhich the principal and income benefit individuals, private organizations or other governments. This fund was established to account for assets held and invested by the Library Board as trustee. The Library can only spend the funds in accordance with the trust agreements. Agency Fund accounts for assets held by the City as a trustee or as an agent for individuals, private organizations, related organizations and/or other governmental units. This fund was established to account for special assessments collected on the 29 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 property tax roll by the City on behalf of the property owners within the Industrial Way/Beckman Districts, the Downtown/Cherokee Lane Districts and various landscape and lighting districts around the City. Private—sector standards of accounting and financial reporting issued priorto December 1, 1989, are followed in both the business -type activities in the government -wide and the proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the GASB. The City also has the option of the following subsequent private -sector guidance for their business -type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private -sector guidance. The effect of interfund activity has been eliminated from the government -wide financial statements. Exceptions to this rule are charges to other City departments from the Electric, Wastewater, Water and Transit Funds. These charges have not been eliminated because elimination would distort the direct costs and program revenues reported in the statement of activities. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services in connection with the fund's principal ongoing operations. The principal operating revenues of the City's enterprise fund and internal service fund are charges for customer services including: electric, wastewater, water and public transportation fees. Operating expenses for enterprise funds and internal service fund include the cost of services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, and then unrestricted resources as they are needed. (d) Adoption of New Accounting Standards The City adopted the provisions of GASB Statement No. 40, Deposit and Investment Risk Disclosures (an amendment of GASB Statement No. 3) ("GASB 40"). The adoption of GASB 4 0 required the City to include a presentation of Depositand Investment Risk Disclosures. The adoption of GASB 40 did not have an impact on the City's financial statements. (e) Cash and Investments The City maintains a cash and investmentpool that is available for all funds of the City for the purpose of increasing interest earnings through investment activities. Investments are generally stated at fair value with the exception of guaranteed investment contracts, which are stated at cost. Income earned or losses arising from the investment of pooled cash are allocated to various funds based on month-end cash balances in accordance with California Government Code Section 53647. Changes in fair value of investments are recognized as a component of interest and investment income. 30 it r M CITY OF LODI Notes to Basic Financial Statements (continued) June 30.2005 Proceeds from debt and other cash and investments held by fiscal agents by agreement are classified as restricted assets. (f) Restricted Assets In the Enterprise (Electric) Fund, restricted assets represent the proceeds of the 1999 Certificates of Participation held by the trustee for the planned improvements of the city electric systems. In the Capital Outlay Reserve Fund, the restricted assets represent the proceeds of the 2002 Improvement bonds reserved for debt service. In the Wastewater fund, the restricted assets represent the proceeds of the 20038 and the 2004A Certificates of Participation issued for improvements to the City's wastewater collection, treatment and disposal system. In the Water Fund, the restricted assets represent funds held by the attorneys in connection with the PCEITCE litigation. (g) Property Taxes San Joaquin County is responsible for assessing, collecting and distributing property taxes in accordance with enabling legislation. Revenue received is based on an allocation factor calculated by the County under the provisions of Proposition 13 plus a percentage of the increase in market value in specific areas. The City's property tax is liened based on the assessed value listed as of the prior January 1 st for all real and personal property located in the City. Property sold after the assessment date (January 1st) is reassessed and the amount of property tax assessed is prorated, The assessed value at January 1, 2003, upon which the 2004 levywas based, was $4,096,649,000. Secured property taxes are levied on October 1 and are due in two installments on November 1 and February 1. The tax becomes delinquent after December 10 and April 10, respectively. Unsecured property tax is levied on July 1, due on July 31 and becomes delinquent after August 31. Property taxes levied for the year ended June 30, 2005, are recorded as receivables, net of estimated uncollectible amounts. Property taxes paid to the City by the County within 60 days of the fiscal year end are considered "available" and are, therefore, recognized as revenue. In 1993, the City made an agreement with the San Joaquin County to participate in the Teeter Plan. The Teeter plan is an alternative method of apportioning property tax money. The cities receive 95% of the property taxes in advance from the County and the 5% remaining after reconciling the cities' balances at June 30. As part a the agreement, the County keeps the penalties and interest on the delinquent taxes. (h) DueFrom/Due To Other Funds and Internal Balances During the course of operations, numerous transactions occur between individual funds for goods provided or services rendered. In the fund financial statements, these receivables and payables are classified as "due from other funds" or "due to other funds." In the government -wide financial statements, these receivables and payables are eliminated within the governmental activities and business -type activities columns. Receivables and payables between the governmental activities and the business -type activities are classified as internal balances. 31 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 (i) Transfers In the fund financial statements, interfund transfers are recorded as transfers in (out) except for transactions that are described below: Charges for services are recorded as revenues of the performing fund and expenditures of the requesting fund. Unbilled costs are recognized as an asset of the performing fund at the end of fiscal year. Reimbursements for expenditures, initially made by one fund that is properly applicable to another fund, are recorded as expenditures in the reimbursing fund and as other revenue in the fund that is reimbursed. Reimbursements are eliminated for purposes of government - wide reporting. (j) Long-term obligations In the government -wide financial statements and in the proprietary fund type financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business -type activities, or proprietary fund statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. Gains or losses Occurring from advance refunding are deferred and amortized into expense for both governmental and business -type activities. (k) Loan receivable Loan receivable reported in the HOME Program & Community Development Block Grant Special Revenue Fund represent funds the City loaned to a developer for a low-income housing project. The City will receive principal and interest from the original loan in thirty years and can use it for allowable projects or to make new loans. (1) Advance receivable Advance receivable reported in the Enterprise Fund (Electric) represents the City's portion of the Northern California Power Agency's (NCPA) General Operating reserve that is refundable upon demand by the City. (See Note 13.) (m) Inventory General fund inventories are recorded at cost and are recognized as expenditures when consumed rather than when purchased. For the proprietary fund types, inventories are recorded at cost using the weighted average cost method, which approximates market, and expense is recognized when inventories are consumed in operations. 32 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 (n) Deferred Charges Deferred charges reported in the Electric Fund include costs incurred in connection with the issuance of the 2002 Certificates of Participation Series A and B amortized over 30 years. It also includes the buyout cost of the Calpine energy purchase contract amortized over 9.5 years. The deferred charges reported in the Wastewater Fund include costs incurred on the issuance of the 1991 Certificates of Participation amortized over 32.5 years and the costs incurred on the issuance of the 20038 and 2004A Certificates of Participation amortized over 20 years. (o) Capital Assets Capital assets, which include land, buildings and improvements, machinery and equipment, vehicles, infrastructure (e.g., streets, streetlights, traffic signals, sidewalks, and bridges), and electric lines, wastewater lines and storm drains are reported in the applicable governmental or business -type activities columns in the government -wide financial statements. Capital assets are defined by the City as assets with individual cost of $3,000 or more and have an estimated useful life in excess of two years. Such assets are recorded at historical cost. Donated capital assets are recorded at estimated fair market value at the date Cf donation. Capital outlay is recorded as expenditures in the General and other governmental funds and as assets in the govemment-wide financial statements to the extent the City's capitalization threshold is met. ThL- cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset useful lives are not capitalized As required by the Governmental Accounting Standards Board Statement No. 34, beginning July 1, 2002, the City has capitalized infrastructure, primarily its network of streets, as part of the capital assets shown in the governmental activities column on the govemment-wide statement of net assets. This capitalization included infrastructure that could be identified and has been acquired since July 1, 1980. Depreciation of capital assets is provided on the straight-line basis over the following estimated useful lives: Years Buildingsand improvements 3-40 Machinery and equipment 2-40 Vehicles 5-15 Infrastructure 10-50 (p) Compensated AbsencesNacatlon and Sick Leave Accumulated vacation and vested sick leave benefits are accrued when incurred in the government -wide financial statements and the proprietary financial statements. A liability for these amounts is reported in the governmental funds only if they have matured. 33 CITY OF LODI Notes to Basic Financial Statements (continued) June 30.2005 (q) Self -Insurance The City is self-insured for general liability. workers' compensation, dental benefits, unemployment and long-term disability. Various City funds are charged premiums for the City's self-insurance liability, which is accounted for as an internal service fund. The accrued liability for estimated self-insured claims represents an estimate of the eventual loss on claims arising prior to year-end including claims incurred but not reported, (r) Fund Equity 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 balance represent tentative management plans that are subject to change. (s) Statement of Cash Flows A statement of cash Rows is presented for proprietary fund types. For purposes of reporting cash flows, the City considers all highly liquid investments with maturities of three months or less when purchased and investments maintained in the pool to be cash equivalents. (t) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. 2) Cash and Investments Cash and investmentsas of June 30, 2005 are classified in the accompanying financial statements as follows: Statement of net assets: Cash and investments $ 23,416,998 Restricted assets 30,112,466 Fiduciaryfunds cash and investments: Private-purposetrust funds 694,327 Agency fu n d 390,802 Total cash and investments $ 54,614,593 34 M r M M r M M M M M MW M r r M M M W CITY OF LOQI Notes to Basic Financial Statements (continued) June 30.2005 Cash and investments as of June 30, 2005 consist of the following: Cash on hand $ 1.812 Depositswith financial institutions 2,673,961 Investments 51,938,820 Total cash and investments $ 54,614,593 a) Authorized Investments The City has adopted an investment policy pursuant to Government Code Section 53601 which authorizes the City to invest in obligations of the U. S.Treasury, U.S Government agency securities and instruments, commercial paper rated A-1 by Standard & Poor's or P-1 by Moody's Commercial Paper Record, bankers' acceptances, certificates of deposits, mutual funds, government investment contracts, medium term notes as permitted by the Government Code, and the State of California Local Agency Investment Fund (LAIF). The City is not authorized to enter into reverse repurchase agreements. The City selects its investments based on safety, liquidity and yield. b) Investments Authorized by Debt Agreements Investments of debt proceeds held by bond trustee are governed by the provisions of the debt agreements and to the extent that they are permissible investments of funds of the City. The following table below identifies the permitted investment types authorized per the City's investment policy. The table also identifies certain provisions that address interest rate risk, credit risk, and concentration of credit risk. Permitted Investments/Deposits Maximum Maturity Maximum % of Portfolio Maximum Investment in One issuer Minimum Credit Quality U.S. Treasury Obligations 5 years 100% AAA U.S. Agency Securities 5 years 100% AAA Banker's Acceptances 180 days 40% 25% AAA Certificates of Deposit 5 years 100% 33% Negotiable Certificates of Deposit - 5 years 30% Commercial Paper 270 days 40% AAA California State Local Agency Investment Fund (LAI F) Indefinite 100% $40m per account unrated Money Market Mutual Funds Indefinite 20% AAA Guaranteed investment contracts (GICs) 5 years 100% AA - Medium teml Notes 5 years 30% AAA 35 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 c) Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. Information about the sensitivity of the fair values of the City's investments to market interest rate fluctuations is provided by the following table that shows the maturity date of each investment: Investmentas of June 30, 2005 LAIF Money Market Mutual Funds Equities and options Held by bond trustee: Money Market Mutual Funds Guaranteed investment contracts(GICs) Total Maturity Maturity Less than One Year One to Five Years Total 21,705.117 $ 21,705,117 317,190 317,190 104,047 104,047 13,611,731 13,611,731 16,200,735 16,200,735 $ 35,738,085 16,200,735 $ 51,938,820 Investments in equities are shares of stocks received by the Library as an endowmentfrom a private citizen. d) Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The money market funds are registered under the Federal Investment Company Act of 1940,whose shares are registered under the Federal Securities Act of 1933,and have a rating by S &P of "AAAM- G," "AAA -m" or "AA-tn" and rated by Moody's "Aaa." "Aal" or "AaV The GICs and LAIF do not have a rating provided by a nationally recognized statistical rating organization e) Concentration of Credit Rlsk The investment policy of the City contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the Caiifomia Government Code, Investments in LAIF and money market mutual funds are not subject to the concentration of credit risk disclosure. Of the remaining investments, only the GICs which are all issued by IXIS Funding Corporation, exceeded 5% of total City investments. 36 rr ■■r rr r r■� rr �r rr r� rr r r r rr rr rr r rr r CITY OF LOU Notes to Basic Financial Statements (continued) June 30.2005 f) Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover collateral securities that are in the possession of an outside parry, The California Government Code and the City's investment policy do not contain legal or policy requirements that would limit the exposure to custodial risk for deposits, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law. The market value of he pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured deposits. $3,624,250 of the City's deposits with financial institutions, which exceeded federal depository insurance limits, was collateralized in this fashion. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer)to a transaction, a government will not be able to recover the value of the investment or collateral securities that are in the possession of another party The California Code and the City's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for investments. With respect to investments, custodial credit risk generally applies only to direct investments in marketable securities. Custodial credit Ak does not apply to a local government's indirect investment in securities through the use of mutual funds or government investment pools such as LAIF. g) Investment in State Investment Povl The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the City's investment in this pool is reported in the accompanying financial statements at amounts based upon the City's pro -rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF. which are recorded on an amortized basis. The total amount invested by all public agencies in LAIF at June 30, 2005 was $18.6 billion. LAIF is part of the California Pooled Investment Account (PMIA), which at June 30, 2005 had a balance of $60.5 billion, Of this amount, 2.406% was invested in derivative financial products. PMIA is not SEC -registered, but, is required to invest according to California State Code. The average maturity of PMIA investments was 165 days as of June 30.2005. The Local Investment Advisory Board has oversight responsibility for LAIF. The Board consists of five members as designated by state statute. The value of the pool of shares in LAIF, which maybe withdrawn, is determined on an amortized cost basis, which is different than the fair value of the pooled treasury's portion in the pool. Withdrawals from LAIF are done on a dollar for dollar basis. 37 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 In accordance with GASB 31, investments are marked to fair values annually and an adjustment is made to each fund accordingly. However, actual daily activity is done on a dollar to dollar basis and only a withdrawal from the pool size thatjeopardizes pool participantswould cause the withdrawal to be done at market value. (3) ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS Revenues of the General Fund, Electric, Wastewater and Water funds are reported net of uncollectible amounts. Total uncollectible amounts related to revenues of the current period are as follows: Uncollectibles related to late charges and services Uncollectibles related iD electric sales and services Uncollectibles related to wastewater services Uncollectibles related to water sales and services Total uncollectibles of the current fiscal year (4) INTERFUND RECEIVABLESIPAYABLES Interfund receivables and payables at June 30,2005 areas follows: Duefrom Other governmental Other governmental Nonmajorfund -Transit Due to Streets Other governmental Wastewater $ 13,500 163,600 24,800 32,100 $ 234600 Amount $ 507,515 18,972 1,688,947 $ 2,215,434 "Due to" and "due from" balances are recorded primarily when funds overdraw their share of pooled cash or when there are short-term loans between funds. The $507,515 and the $1 8,972 representcash deficits in other governmental funds. The $1,688,947 representsthe cash deficit in the Transit Fund. 38 CITY OF LODI Notes to Basic Financial Statements (continued) June 30.2005 Advances from Advances to Amount General Other governmental $ 250,960 Other governmental Streets 676,770 Water Other governmental 1,225,173 $ 2,152,903 The $250,960 from the General Fund to the Other governmental is an advance used for the start up costs of a redevelopment agency. The $676,770 advance from Other governmental was used for the Lower Sacramento Road expansion project. The $1,225,173 advanced from the Water Fund was used for the construction of Fire Station #4. (5) TRANSFERS Transfers for the year ended June 30,2005, are summarized as follows: Transfers in Other Transfers out: General Streets Governmental Electric Wastewater Water Transit Total General $ 18,655 22,273 $ 40,928 Streets 1,411, 276 116,107 13,764 1,541,147 Other governmental 599,368 5,204 1,816,606 3,154 3,152 2,427.484 Electric 2,504,548 5,000 5,000 5,000 2,519,548 Wastewater 644,896 6,308 22,641 673,845 Water 661,897 6,305 25,471 693,673 Transit 221,199 221,199 Total $ 6,043,184 5.204 1,968,981 70,385 8,154 8,152 13,764$ 8,117 824 During the year, various interfund transfers were made to finance expenditures, subsidize operating losses and service debt The total transfers out of $1,411,276 frorn Streets to the General Fund include the transfer of $985,000 gas tax revenues to fund the Public Works Street Maintenance Division and $426,276 for engineering cost of Services. The transfers out of $116,107 from Streets to Other Governmental represent transfer of $96,107 to the Debt Service Fund for the principal and interest payment of the City's Measure K loan; and $20,000 to the Transportation Fund. 39 CJTY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 Transfers out from Other Governmental to the General Fund of $599,368 include transfers of $432,984 from Police Facilities Impact fees to cover debt service associated with the financing of the New Police Building; $110,183 for the lease payment of the new fire truck; $50,000 to reimburse the General Fund for the costs associated with the administration of the IMF program; and $6,201 for the Arts in Public Places program. The $1,816,606 transfers out from Other Governmental to Other Governmental represent transfers of $1,679,987 to the Debt Service Fund for the principal, interest and fiscal charges required to pay the 2002 Certificates of Participation; $45,000 to the Vehicle and Equipment Fund; and $91,619 for operations. The $2,504,548 transfer out from the Electric Fund, $644,896 from Wastewater, $661,897 from Water and the $221,199 from Transit represent primarily cost of services reimbursement to the General Fund. (6) CAPITAL ASSETS Capital assets activity of the primary government for the year -ended June 30, 2005, was as follows: Balance Balance Governmental activities June 30,2004 Increases Decreases June 30,2005 Capital assets, not being depreciated. Land Work of art Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Buildings and improvements Machinery and equipment Vehicles Infrastructure Total capital assets, being depreciated I-ess accumulated depreciation for: Buildings and improvements Machinery and equipment Vehicles Infrastructure 5 23,798,811 23,798,811 62,024 62.024 3,697,716 1,490,424 (874042) 4,373,798 27358,551 1,490,424 (814,342) 28,234,633 55,582,099 778.264 56,360,363 7,505,642 36,733 7,542,375 8,507,369 416.777 (112.9841 8,811,162 85,268,709 19,14§.192 95,4'1 4,811 156,863,819 11,377,876 (112,984) 968,128,711 14,555,296 1,482,040 16,037,336 5,708,530 576,701 6,285,317 6,019,995 539.814 6,559,610 29,803,816 4,529,079 34,332,895 40 M Total accumulated depreciation Total capital assets, being depreciated, net Governmental activities capital assets, net Business -type activities Capital assets, not being depreciated: Land Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Buildings and improvements Machinery and equipment Vehicles Total capital assets, being depreciated Less accumulated depreciation for. Buildings and improvements Machinery and equipment Vehicles Total accumulated depreciation Total capital assets, being depreciated, net Business -type activities capital assets, net CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 56, 087,638 7,127,520 63,215.158 100,776,181 4,250,356 (112.984) 104.913,553 $ 128,334,732 5,740 760 (927,326) $ 133,148,186 Balance Balance June 30,2004 Increases Decreases June 30,2005 5,247,806 $ 5,247,806 18,518,575 8,886,814 (7,098,113) 20,307,276 23,766,381 8,886,814 (7,098,113) 25,555,082 32,647,744 3,315,866 (1,502,408) 34,461,202 90,604,278 10,634,441 (1,359,162) 99,879,557 5,601,087 304,715 6,905,802 129,853.109 14,255,022 (2,861,570) 141,246,561 7,745,634 964.917 (1,502,408) 7,208,143 27,780,855 2,233,091 30,013,946 4,197,236 278,546 4,475,782 39,723,725 3,476,554 (1,502,408) 41,697,871 90,129,384 10,778,468 (1,359,162) 99,548,690 113,895,765 19,665,282 B 457,275 5 125 103 772 41 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 Depreciation expense was charged to function/programs of the primary government as follows: Governmental activities: General government $ 748,670 Public protection 1,052,873 Public works 4,699,475 Library 4,767 Parks and recreation 621,735 Total depreciation expense- governmental activities $ 7,127,520. Business -type activities: Electric $ 944,676 Wastewater 1,356,442 Water 794,992 Transit 380,444 Total depreciation expense - business -type activities $ 3,476,554 (7) Operating Leases The City is obligated under various operating leases for the use of buildings and office space. Total costs for such leases were $164,384 for the year ended June 30,2005. Future minimum lease payments required by lease agreements that have initial or remaining noncancellable lease terms of one year or more as of June 30, 2005, are as follows: FiscalYears Ending 2006 $ 142,400 2007 71,400 Total minimum lease payments required under operating leases $ 213,800 42 (8) CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 Long -Term Obligations The following is a summary of debt transactions of the City for the year ended June 30, 2005: Governmental activities: Compensated absences 2002 Certificates of Participation Note payable Loan payable Capital leases Self-insurance liability Governmental activity long-term liabilities Business -type activities: Compensaledabsences California Safe Drinking Water Note Payable Certificates of Participation: 1991 Certificates cf Participation Less deferred amounts: For issuance discounts Net Amounts Due Wlthln Interest Rates June 30,2004 Additions Reductions June 30,2005 One Year $ 13904802 613,917 (139,295) $ 2,379,424 $ 613,917 3.41% 2,378,411 (148.286) 2,230,125 153,220 4,5-6,6% 9,390,000 2000 Env'ronmentat Abatement Certificates ofParticipation -variable (185,000) 9,205,000 195,000 (325,702) 14.475 (311,227). (14.475) 9,064,298 (170,525) 8,893,773 180,525 2002 Certificates of Participation A & B Variable 50,460,000 43 16 (3,700,000) 46.760.000 Amounts Due Within Interest Rates June 30,2004 Additions Reductions June 30,2005 One Year $ 7,908,647 2,520,272 (1,121,785) 9,307,134 $ 2,520,272 3.0-5.0% 25,530,000 (500,000) 25,030,000 520,000 5.0% 245.000 245,000 4.0% 456,295 (BB,120) 368,175 89,662 5.3-5.39% 1,354,351 124,478 (266.499) 1,212,330 289.598 5,508,000 1,224,805 (1,592,805) 5,140,000 1,592,805 $ 41,002,293 -36869j555 (3,569,209) $ 41 302 639 $ — — 5,012,337 Amounts Due Wlthln Interest Rates June 30,2004 Additions Reductions June 30,2005 One Year $ 13904802 613,917 (139,295) $ 2,379,424 $ 613,917 3.41% 2,378,411 (148.286) 2,230,125 153,220 4,5-6,6% 9,390,000 2000 Env'ronmentat Abatement Certificates ofParticipation -variable (185,000) 9,205,000 195,000 (325,702) 14.475 (311,227). (14.475) 9,064,298 (170,525) 8,893,773 180,525 2002 Certificates of Participation A & B Variable 50,460,000 43 16 (3,700,000) 46.760.000 Less deferred amounts: From refunding Net 2002 Certificates of Participation C & D Add deferred amounts: For issuance premium Total 2003 Cetiicates of Participation B Add deferred amounts: For issuance premium Total 2004 Certificates of Participation A Add deferred amounts: For issuance premium Total Total Certificates of Participation Business -type activity long-term liabilities CITY OF LODI (185,000) 4,815,000 185.000 Notes to Basic Financial Statements (continued) (4,102) 74.861 4,102 June 30,2005 (189,102) 4,889,861 189,102 2.0-5.5% 27,360,000 (170,000) 27,190,000 Amounts 430.860 (21,277) 409.583 Due Within Interest Rates June 30,2004 Additions Reductions June 30, 2005 One Year 141,897,477 (21 49,851 120,047,6Z6 3,414,852 (7,453,920) 286.689 (7,167,231) (286,68 43 Q,DR12 (3.413.311) 39,592,769 (286.688) 1.54-5.25% 40,840,000 (2,195,000) 38,645,000 2,350,000 492,276 (65,636) 426.640 65,636 41,332,276 (2,260,536) 39,071,640 2,415,635 2.0-5.0% 5,000,000 (185,000) 4,815,000 185.000 78,963 (4,102) 74.861 4,102 5,078,963 (189,102) 4,889,861 189,102 2.0-5.5% 27,360,000 (170,000) 27,190,000 895.000 430.860 (21,277) 409.583 21.277 27,790,860 (191,277) 27,599,583 916.277 141,897,477 (21 49,851 120,047,6Z6 3,414,852 $ 146,180,690 613,917 (22,137,432} $ 124,657,175 $ 4,18.1,989 Internal service funds predominantly serve the governmental funds. Accordingly, long-term liabilities for them are included as part of the above totals for governmental activities. At yearend $5,140,000 of internal service funds self-insurance liability was included in the above amounts. Also, for the governmental activities, compensated absences are generally liquidated by the general fund. Long-term debt payable at June 30, 2005, comprised of the following individual issues: California Safe Drinking Water Note Payable The City entered into a contract on October 16, 1991,with the State of California Departmentof Water Resources to assist the City in financing the construction of water wells enabling the City to meet safe drinking water standards established by the State. The original amount of the note was $3,129,828 and is secured by the project and a pledge of user fees collected by the Water Enterprise Fund. Semiannual payments of $114,006, are payable each October 1 and April 1 through 2016. 44 M r r M M M M M ,! r M M M M M M M M M CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 Annual debt service requirements to maturity of water note payable are as follows: Fiscal Year Ending Business -type Activities June 30, Principal Interest 2006 $ 153,220 $ 74,758 2007 150,488 69,488 2008 163,810 64,166 2009 169,695 58,281 2010 175,409 52,567 2011-2015 971,779 168,109 2016-2017 437,724 18,853 Total $ 2,230,125 $ 506,222 Note Payable The City issued a $245,000 promissory note to James E. Dean and Carol Dean, as trustees of the James E. Dean Family Trust, for the purchase of 307 W. Elm Street property, which is the site of the new Public Safety Building. Interest is payable quarterly and principal is due on April 1, 2007. Annual debt service requirements to maturity of the note payable are as follows: Fiscal Year Ending Governmental Activities June 30, Principal 2006 $ 2007 245,000 Total $ 245,000 Interest $ 12,250 9,188 $ 21,438 Loan Payable The City entered into an agreement and issued a promissory note to San Joaquin County Council of Governments, ajoint powers agency acting as the San Joaquin County Transportation Authority, in the amount of $840,000 on February 5, 1999 for the purpose of funding the Kettleman Lane/SR 99 Interchange project. The balance remaining as of June 30, 2005, is $368,175. Interest and principal is due and payable annually and matureson July 1,2009. 45 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 Annual debt service requirementsto maturity of loan payable are as follows: Fiscal Year Ending Governmental Activities June 30, Principal Interest 2006 $ 89.662 $ 6,443 2007 91,232 4,874 2008 92,828 3,277 2009 94,453 1,653 Total $ 368,175 $ 16,247 Certificates of Participation $11,170,000 Certificates of Participation (1991 Wastewater Treatment Plant Expansion Refunding Project) were sold in December 1991 for the repayment of the 1988 Wastewater Treatment Plant Expansion Project at a lower interest rate with approximately $1,400,OOOof additional proceeds. Principal is payable annually on August 1 in amounts from $100, OOOto $760, OOOwith final payment due August 1, 2026. $5,000,000 California Statewide Communities Development Authority Water and Wastewater Revenue Bonds were issued on October 7, 2003. The City of Lodi along with the City of Fort Bragg issued $9.855 million 2003 Series B revenue bonds through the California Statewide Communities Development Authority (the "Authority") pooled financing program. The City of Lodi's portion is $5.0 million for the upgrade of its wastewater facilities. Principal is payable annually on October 1 in amounts from $185, 000to $365, OOONith final payment due October I.2023. The Authority's Water and Wastewater Pooled Financing Program is available to California water and wastewater agencies to facilitate the financing or refinancing of capital improvements. The program is available to California cities and special districts that operate water or wastewater enterprises, The Authority is authorized pursuant to Chapter 5 of Division 7 of Title 1 of the California Government Code to issue bonds to finance and refinance water and wastewater public capital improvements of local agencies located throughout California. $27,360,000 Certificates of Participation (2004A COP) were issued on May 12. 2004 to provide funds to finance the costs of certain improvements to the wastewater collection, treatment and disposal system of the City. Principal is payable annually on October 1 in amounts from $170, 000to $2,070, Oftith final payment due October 1, 2024. $26,745,000 Certificates of Participation (2002 COP) were issued in January 2002 to provide funds to finance the costs of constructing, furnishing and equipping a new police building and jail for the City; to finance portions of certain other projects and to refund the outstanding 46 CITY OF LODi Notes to Basic Financial Statements (continued) June 30,2005 1995 and 1996 Certificates of Participation. The 1995 Certificates of Participation (1995 COP) were sold in October 1995 to finance the City Downtown Revitalization and the Cherokee Lane Beautification projects. The 1996 Certificates of Participation (1996 COP) were sold in August 1996 to finance the construction of the Hutchins Street Square Conference and PerformingArts Center. Principal is payable annually on October 1 in amounts from $730.000 to $1,600,000 with final payment due October 1, 2031. $46,760,000 2002 Variable Rate Demand Series A and $8,400,000 2002 Taxable Series B Electric System Revenue Certificates of Participation were sold in January 2002. The proceeds of the 2002A Certificates of Participation were used to advance refund the 1999 Electric System Certificates of Participation Series A and the 1999 Series B Capital Appreciation certificates, The 1999 Series A and Series B Revenue Certificates of Participation were sold on August 18, 1999, to provide funds to finance the costs of certain improvementsto the distribution and transmission facilities of the City's Electric System. As of June 30, 2005, the outstanding balance of the advanced refunded certificates is $43,957,682. The proceeds of the 20028 Certificates were deposited in the Rate Stabilization Fund and applied to certain power purchase costs of the City. Principal for Series is payable annually beginning 2011 to 2032 in amounts ranging from $1,175,000 to $ 3,460,000. SeriesB was fully paid as of June 30, 2005. The interest rate on the 2002A Certificates is determined based on the "Weekly Rate Index" for weekly interest rate periods. "Weekly Rate Index" is defined as The Bond Market Association Municipal Index as of the most recent date for which such index is published. $21,225,000 Revenue Certificates of Participation 2002 Series C and $22,740,000 Revenue Certificates of Participation Series D were issued to buyout the energy purchase agreement with Calpine. In February 2001, the City entered into an energy purchase agreement (the Original Agreement) with Calpine Energy Services L.P. (Calpine) to purchase 25 MW of energy at $651mwh for a ten-year period beginning January 1, 2002. Since the execution of the Original Agreement, actions of the State in connection with the energy market conditions, including the initiation of conservation programs, and other factors, have resulted in lower electric load requirements and reduced energy costs throughout the State. As a result, the City's need for the energy purchased under the Original Agreement to serve its load has been reduced. The Original Agreement was amended on September 4, 2002, and was divided into three parts. The City sold its interests in the energy purchased under the Original Agreement to Calpine and nets the payments due from the City with respect to its purchase of such energy against the payments due from Calpine with respect to its purchase of the City's rights to such energy. On November 21, 2002, the City issued $21,225,000 Revenue Certificates of Participation 2002 Series C and $22,740,000 Revenue Certificates of Participation2002 Taxable Series D to buy out the amended contract in the amount of $42,406,175. On June 29, 2000, the Lodi Financing Corporation was authorized to issue variable rate Certificates of Participation up to Sixteen Million Dollars ($16,000,000) intended to fund the investigation and clean up of the groundwater and soil contamination located within an area approximately 600 acres encompassing the City's business area. Total bonds issued were $15,625,000 and accrued interest was $5,651,708. During the fiscal year, the City settled with Lehman Brothers on this liability for $6.0 million resulting in a forgiveness of debt (special item) of $15,276,708. 47 CITY OF LODI Nates to Basic Financial Statements (continued) June 30,2005 The various indentures contain significant limitations and restrictions on annual debt service requirements, maintenance of and flow of moneys through various restricted accounts and minimum revenue bond coverage. The City is in compliance with all such significant limitations and restrictions. Interest Rate Swaps 1999 $42 Million Forward Basis Swap Objective: As a means to lower its borrowing costs, the City executed a forward floating -to -floating ("Basis") swap in connection with its existing $42,000,000 Electric System Revenue Certificates of Participation, 1999 Series A and B. The intention of the swap was to provide protection against rising short-term interest rates since the City's net payment increases as rates rise. Terms: Under the swap, the City pays Citigroup (previously Salomon) a variable payment computed as The Bond Market Association Municipal Swap Index Tm (BMA) and received a variable payment computed as 74.25% of the London Interbank Offered Rate (LIBOR). The swap has a notional amount of $42 million and the associated fixed rate bonds had a $42 million principal amount at the time the swap was executed. The swap began on July 15, 2003 and matures on September 29, 2014. As of June 30, 2005. rates were as follows: Rates Interest rate swap: Variable payment to counterparty BMA 2.2800% Fixed paymentfrom counterparty 74.25% of LIBOR (2.4800%) Net interest rate swap payments (0.2000%) FairValue: As of June 30, 2005. the swap had a fair value of ($573,174). The fair value was estimated using the zero-coupon method. This method calculates the future payments required by the swap, assuming that tile current forward rates by the yield curve correctly anticipate future spot rates. These payments are then discounted using the spot rates implied by the current yield curve for hypothetical zero-coupon rate bonds due on the date of each future net settlement on the swaps. Credit Risk: As of June 30, 2005, the City was not exposed to credit risk because the swap had a negative fair market value. However, should interest rates change and the fair value of the swap becomes positive, the City would be exposed to credit risk in the amount of the swap's fair value. The counterparty was rated Aal by Moody's Investors Service, AA- by Standard & Poor's, and AA+ by Fitch Ratings. To mitigate the potential for 48 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 credit risk, the counterparty is required to post collateral should the fair value exceed certain thresholds. In the event of a downgrade of the counterparty below AAA by Standard 8 Poor's, the threshold amount is $10 million. Basis Risk: As noted above, the swap exposes the City to basis risk should the relationship between LIBOR and BMA converge. If a change occurs that results in the rates' moving to convergence, the expected cost savings of the swap may not be realized. Termination Risk: The swap contract uses the International Swap Dealers Association Master Agreement, which includes standard termination events, such as failure to pay and bankruptcy. The Schedule to the Master Agreement includes an "additional termination event." That is, the swap may be terminated by the City if the counterparty's credit rating falls below BBB- as determined by Fitch or BB8- as determined by Standard 8 Pooes. Also, if at the time of an early termination of the swap, if the swap has a negative fair value, the City would be liable to the counterparty for a payment equal to the swap's fair value. 2002 $46.8 Million Step -Up Coupon Swap Objective: In connection with its issuance of $46,760.000 of Electric System Revenue Certificates of Participation 2002 Variable Rate Demand Series A, the City entered into a swap transaction with Salomon Smith Barney on January 2002. The intention of the swap was to change the City's variable interest rate on the bonds to a synthetic fixed rate that steps up over time. The swap was structured with step-up coupons in order to provide the City with lower debt service in the earlier years of the transaction. Terms: Under the swap, the City pays Citigroup (previously Salomon) a fixed rate with an initial coupon of 2.503%. Beginning July 1, 2005, the swap coupon stepped up to 3.749% and then steps up to 4.945% on July 1, 2010 until maturity. In exchange, the City receives an initial variable rate equal to 59.65%of the I -month London Interbank Offered Rate (LIBOR). Beginning January 1, 2004, the percent of LIBOR received by the City stepped up to 60.56% and then steps up to 62.92% of LIBOR on January 1, 2006 until maturity. The 4.945% coupon in the final period reflects the above -market fixed rate required to offset the first two periods' below-market fixed rates cf 2.503% and 3.749% respectively. The effective at -market fixed rate for the entire swap term equals 3.85% or approximately 61.71 % of LIBOR. The notional amount of the swap matches the notional amount of the bonds outstanding in each year. The bonds' variable-rate coupons are assumed to be based on The Bond Market Association Municipal Swap Indexj" (BMA). 49 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 The bonds and related swap mature on July 1, 2032. As of June 30, 2005, rates were as follows: Terms Rates Interest rate swap: Fixed payment to counterparty Fixed 3.7490% Variable payment from counterparty 60.56% of LIBOR (2.0227%) Net interest rate swap payments 1.7263% Variable rate bond payments BMA 2.2800% ,Synthetic interest rate on bonds 4.0063% Fair Value: As of June 30, 2005, the swap had a fair value of ($6,514,993). The negative fair value of the swap is a result of the decline in interest rates since the inception date of the swap. The fair value was estimated using the zero-coupon method. This method calculates the future payments required by the swap, assuming that the current forward rates by the yield curve correctly anticipate future spot rates. These payments are then discounted using the spot rates implied by the current yield curve for hypothetical zero-coupon rate bonds due on the date of each future net settlement on the swap. Credit Risk: As of June 30, 2005, the City was not exposed to credit risk because the swap had a negative fair market value. However, should interest rates change and the fair value of the swap becomes positive, the City would be exposed to credit risk in the amount of the swap's fair value. The counterparty was rated Aa I by Moody's Investors Service, AA- by Standard & Poor's, and AA+ by Fitch Ratings. To mitigate the potential for credit risk, the counterparty is required to post collateral should the fair value exceed certain thresholds. In the event of a downgrade of the counterparty below AAA by Standard & Poor's, the threshold amount is $10 million. Basis Risk: As noted above, the swap exposes the City to basis risk should the relationship between LIBOR and BMA converge, changing the synthetic rate on the bonds. If a change occurs that results in the rates' moving to convergence, the expected cost savings of the swap may not be realized. Termination Risk: The swap contract uses the International Swap Dealers Association Master Agreement, which includes standard termination events, such as failure to pay and bankruptcy. The Schedule to the Master Agreement includes an "additional termination event." That is, the swap may be terminated by the City if the counterparty's credit rating falls below Baa3 as determined by Moody's Investor Service or BBB- as determined by Standard & Poor's. If the swap is terminated, the bonds would no longer carry a synthetic fixed interest rate. Also, if at the time of an early termination of the swap, if the swap has a negative fair value, the City would be liable to the counterparty for a payment equal to the swap's fair value. 50 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 2003 $42 Million Fixed -to -Floating Swap Termination 2003 $42 Million Fixed -to -Floating Swap Objective: On April 16, 2003 the City executed two transactions with Citibank, which comprised 1) the termination of an existing $42 million fixed -to -floating swap maturing 2014 and 2) the execution of a new $42 million fixed -to -floating swap maturing 2009. The City initially entered into a swap in September 1999 in order to covert its fixed-rate Bonds, into synthetic variable-rate debt. The fixed -receiver rate on the swap was 5.11 %. Since interest rates had declined substantially since the City entered into the swap, the City received a net payment from Citibank to terminate the swap in the amount of $4,743,000. The City executed a new $42 million fixed -to -floating swap to manage interest rate volatility in its liability portfolio. Terms: Under the swap, the City receives a fixed rate of 4.00°/Q and pays The Bond Market Association Municipal Swap Index TM (BMA) +100 bps. The swap has a notional amount of $42 million and matures on January 15, 2009. As of June 30, 2005, rates were as follows: FairValue: As of June 30, 2005, the swap had a fair value of ($544,188). The fair value was estimated using the zero-coupon method. This method calculates the future payments required by the swap, assuming that the current forward rates by the yield curve correctly anticipate future spot rates. These payments are then discounted using the spot rates implied by the current yield curve for hypothetical zerosou pon rate bonds due on the date of each future net settlementon the swaps. Credit Risk: As of June 30, 2005, the City was not exposed to credit risk because the swap had a negative fair market value. However, should interest rates change and the fair value of the swap becomes positive, the City would be exposed to credit risk in the amount of the swap's fair value. The counterparty was rated Aa I by Moody's Investors Service, AA- by Standard & Poor's, and AA+ by Fitch Ratings. To mitigate the potential for credit risk, the counterparty is required to post collateral should the fair value exceed certain thresholds. In the event of a downgrade of the counterparty below AAA by Standard & Poor's, the threshold amount is $10 million. 51 Terms Ra es Interest rate swap: Variable payment to counterparty BMA + 100 bps 3.2800% Fixed paymentfrom counterparty Fixed (4.0000°/A Net interest rate swap payments (0.7200%) FairValue: As of June 30, 2005, the swap had a fair value of ($544,188). The fair value was estimated using the zero-coupon method. This method calculates the future payments required by the swap, assuming that the current forward rates by the yield curve correctly anticipate future spot rates. These payments are then discounted using the spot rates implied by the current yield curve for hypothetical zerosou pon rate bonds due on the date of each future net settlementon the swaps. Credit Risk: As of June 30, 2005, the City was not exposed to credit risk because the swap had a negative fair market value. However, should interest rates change and the fair value of the swap becomes positive, the City would be exposed to credit risk in the amount of the swap's fair value. The counterparty was rated Aa I by Moody's Investors Service, AA- by Standard & Poor's, and AA+ by Fitch Ratings. To mitigate the potential for credit risk, the counterparty is required to post collateral should the fair value exceed certain thresholds. In the event of a downgrade of the counterparty below AAA by Standard & Poor's, the threshold amount is $10 million. 51 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 Basis Risk: The swap does not expose the City to basis risk since tiie swap is not based on the LIBOR index. If a change occurs that results in BMA increasing, the expected savings of the swap may not be realized. Termination Risk: The swap contract uses the International Swap Dealers Association Master Agreement, which includes standard termination events, such as failure to pay and bankruptcy. The Schedule to the Master Agreement includes an "additional termination event." That is, the swap may be terminated by the City if the counterparty's credit rating falls below BBB- as determined by Fitch or BBB- as determined by Standard & Poor's. If the swap is terminated, the bonds would no longer carry a synthetic fixed interest rate. Also, if at the time of an early termination of the swap, if the swap has a negative fair value, the City would be liable to the counterparty for a payment equal to the swap's fair value. Swap payments and associated debt. Using rates as of June 30, 2005, debt service requirements of the variable-rate debt and net swap payments, assuming current interest rates remain the same, for their term were as follows. As rates vary, variable rate bond interest payments and net swap payments will vary. Fiscal Year Ending June 30 2006 2007 2008 2009 2010 2011-2015 2016-2020 2021-2025 2026-2030 2031-2033 2002 Electric Certificates of Participation Series A Variable -Rate Bonds Interest Rate Principal Interest Swaps, Net Total $ 1,066,128 684,099 $ 1,750,227 1,066,128 1,266,728 2,332,856 1,066,128 1,266,728 2,332,856 1,066,128 1,266,728 2,332,856 1,066,128 1,266,728 2,332,856 6,540,000 5,163,972 8, 85,704 19,889,676 8,440,000 4,402,794 10,925,000 3,386,598 14,110,000 2,072,748 6,745,000 457,596 $ 46,760,000 20,814,348 52 7,384,258 5,597,526 3,288,400 591,120 30,798,019 20,227,052 19,909,124 19,471,148 7.793.716 $ 98,372,367 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 Annual debt service requirements to maturityfor certificates of participation are as follows: FiscalYear Ending June 30, 2006 2007 2008 2009 2010 2011-2015 2016-2020 2021-2025 2026-2030 2031-2032 Total Capital Leases Governmental Activities Principal Interest $ 520,000 $ 1,156,372 535,000 1,140,547 555,000 1,123,642 565,000 1,104,874 590,000 1,084,071 3,300,000 5,037,572 4,085,000 4,201,120 5,165,000 3,094,263 6,595,000 1,636,125 3,120,000 158,000 $ 25,030,000 $ 19,736,586 Business -type Activities Principal Interest $ 3,625,000 $ 5,510,895 3,620,000 5,984,888 6,595,000 5.871,401 4,320,000 5,632,747 4,550,000 5,451,167 37,710,000 25,204,056 19,260,000 17,447,959 24,610,000 11,285,309 15,580,000 5,412,068 6,745,000 1,048,716 $ 126,615,000 $ 88,849,206 The City has entered into lease agreements for financing the acquisition of two fire trucks and the improvements to the leased Finance Building. These lease agreements qualify as capital leases for accounting purposes and, therefore, have been recorded at the presentvalue of their future minimum lease payments as of inception date. The assets acquired through capital leases are as follows: Asset: Vehicles Leasehold improvements Less accumulated depreciation Total 53 Governmental Activities $2,307,123 124.478 (916,741) $ 1,514,860 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 The present values of future minimum capital lease payments as of June 30, 2005, are as follows: Fiscal Years Ending 2006 $ 340,422 2007 307,125 2008 279.348 2009 148,003 2010 148,003 2011 148,003 Total minimum lease payments 1,370,904 Less amounts representing interest (158,574) Present value of minimum capital lease payments $ 1,212,330 Special Assessment District Debt The City issued limited obligation improvement bonds on July 22, 1996, for the "Lodi Central City Revitalization Assessment District." These bonds have no governmental commitment and debt service is recorded in an Agency Fund. These bonds were issued under the Improvement Act of 1915 and will mature in the year 2011. The City's liability in the event of delinquent assessment shall not exceed the balance of the established Reserve Fund The amount outstanding as of June 30, 2005, is $1,000,000. Industrial Development Bonds The City of Lodi has lent its name to the City of Lodi Industrial Development Authority for the purpose of issuing the following industrial development bonds: Minton Corporation $5,000,000; Dart Corporation $8,000,000; Wallace Computer Services $3,000,000; and Luster -Cal Nameplate Corporation $3,000,000. These bonds are special obligation bonds only, payable solely out of the bond revenues or other sources of the above companies and are not a pledge of the general credit of the City. The City is not obligated for the redemption or administration of these industrial development bonds. Woodbridge Irrigation District Bonds On October 8, 2003, the City lent its name to the Woodbridge Irrigation District (the "District") in the procurement of $11.745 million 2003 Revenue Certificates of Participation, to provide funds to finance the costs of construction of a new diversion dam on the Mokelumne River and related facilities of the water district. A significant portion of the District's sources of paymentfor the 2003 Certificates are expected to be derived 54 M M M CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 from amounts to be received by the Districtfrom the City of Lodi pursuantto an Agreementfor purchase of water from the Woodbridge Irrigation District by the City of Lodi, dated May 13, 2003 (the "Lodi Water Sales Agreement'). Under the agreement, the City will purchase 6,000 acre feet of water per annum from the Districtfor 40 years. (9) Nature and Purpose of Reported Fund Equity The following is a summary of reserved, unreserved -designated and unreserved -undesignated fund balances at June 30, 2005: Reserved for: Library Encumbrances Advances to other funds Inventory Total Reserved Unreserveddesignatedfor: Specific projects and programs Total Designated Unreserved- undesignated Total Fund Balances 1,506,926 1,506,926 $ 2,692,330 4,974,736 7,017,037 $ 14,684,103 Reserved Fund Balance Reserved representsthat portionthat is legally segregated for specific purposesand is not available for discretionary appropriation. Unreserved -Designated Fund balance Designated represents that portion for which the City has made tentative plans. Unreserved -Undesignated Fund Balance Undesignated represents that portionwhich isavailablefor budgeting in future periods. 55 Other General Streets Governmental Total $ 697,158 $ 697,158 130,332 3,965,554 299,752 4,395,638 250,960 676,770 927,730 106,954 106,954 1,185,404 3,965,554 976,522 6,127,480 1,009,182 6,040,515 7,049,697 1,009,182 6,040,515 7,049,697 1,506,926 1,506,926 $ 2,692,330 4,974,736 7,017,037 $ 14,684,103 Reserved Fund Balance Reserved representsthat portionthat is legally segregated for specific purposesand is not available for discretionary appropriation. Unreserved -Designated Fund balance Designated represents that portion for which the City has made tentative plans. Unreserved -Undesignated Fund Balance Undesignated represents that portionwhich isavailablefor budgeting in future periods. 55 CITY OF LODI Notes to Basic Financial Statements (continued) June 30.2005 (10) Defined Benefit Pension Plan (a) Plan Description The City of Lodi contributes to the California Public Employees' Retirement System (PERS); an agent multiple -employer public employee defined benefit pension plan. 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 tnandal report may be obtained from their Executive Office- 400 P Street, Sacramento, CA 95814. (b) Funding policy Participants are required to contribute 7% (9% for safety employees) of their annual covered salary. The City makes the contributions required of City employees on their behalf and for their account. The City is required to contribute at an actuarially determined rate; the current rate is 6.92% for miscellaneous employees, 30.152%fa- fire employees and 24.608% for police employees, of annual covered payroll. The contribution requirements of plan members and the City are established and may be amended by PERS. (c) Annual Pension Cost For fiscal 2005, the City's annual pension cost of $3,614,422 for PERS was equal to the City's required and actual contributions. The required contribution was determined as part of the June 30, 2002, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) 8.25% investment rate of return (net of administrative expenses) (b) projected annual salary increases that vary by age, length of service, and type of employment (c) 3.75% payroll growth, and (d) 3.50% inflation. The actuarial value of PERS assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a three-year period (smoothed market value). PERS unfunded actuarial liability is being amortized as a level percentage of projected payroll on a closed basis. Amortization of the remaining period varies: (a) safety police plan over 19 years (b) safety fire plan over 19 years, and (c) miscellaneous plan over 20 years as of the valuation date. 56 CITY OF LORI Notes to Basic Financial Statements (continued) June 30, 2005 d) Trend Information Three -Year Trend information ($ Amounts in Thousands): (11) Post -Retirement Health Care Benefits The City provides no post -employment benefits for its employees. However, employees hired prior to July 1, 1994, who retire after ten years of service. may elect to convert accumulated sick leave time to establish an individual medical insurance account. Depending on the bargaining unit of the employee, the value of the insurance account shall be determined by the following options: a) Option W'Bank" The number of accumulated hours shall be reduced by 16-213% and the remaining balance converted into days. The days are then multiplied by the current monthly premium being paid for the employee and, if applicable, his/her dependents. Fifty percent of that amount will be placed into an account to be used by the City to pay medical insurance premiums for the employee and, if applicable, his/her dependents. For each year of employment over ten years, 2.5% will be added to the 50% used in determining the account amount. Total premiums shall be paid from the account until its depletion, at which time the benefit ceases. b) Option II —"Conversion" The number of accumulated hours is multiplied by 50% and converted into days. The City pays one month's premium for employee and dependents for each day. For each year of employment in excess often years, 2.5% is added to the 50%. The employee must pay any increase in premiums. c) Option III — "Cash -Out" A retiring employee will be able to choose a cash pay-off of accumulated sick leave at the rate of 30% of base pay per hour. d) Option IV —"Service Credit" A retiring employee will be able to convert unused sick leave to service credit for CALPERS retirement purposes 57 Annual Percentage Net Fiscal Year Pension of APC Pension Ended Cost (APC) Contributed Obligation 6130103 543 100% $0 6130104 1,304 100% $0 6130105 3,614 100% $0 (11) Post -Retirement Health Care Benefits The City provides no post -employment benefits for its employees. However, employees hired prior to July 1, 1994, who retire after ten years of service. may elect to convert accumulated sick leave time to establish an individual medical insurance account. Depending on the bargaining unit of the employee, the value of the insurance account shall be determined by the following options: a) Option W'Bank" The number of accumulated hours shall be reduced by 16-213% and the remaining balance converted into days. The days are then multiplied by the current monthly premium being paid for the employee and, if applicable, his/her dependents. Fifty percent of that amount will be placed into an account to be used by the City to pay medical insurance premiums for the employee and, if applicable, his/her dependents. For each year of employment over ten years, 2.5% will be added to the 50% used in determining the account amount. Total premiums shall be paid from the account until its depletion, at which time the benefit ceases. b) Option II —"Conversion" The number of accumulated hours is multiplied by 50% and converted into days. The City pays one month's premium for employee and dependents for each day. For each year of employment in excess often years, 2.5% is added to the 50%. The employee must pay any increase in premiums. c) Option III — "Cash -Out" A retiring employee will be able to choose a cash pay-off of accumulated sick leave at the rate of 30% of base pay per hour. d) Option IV —"Service Credit" A retiring employee will be able to convert unused sick leave to service credit for CALPERS retirement purposes 57 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 (12) Claims and Benefits The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City is self-insured as discussed in the following paragraphs for which liabilities are recorded in the Internal Service Fund. The City is self-insured for general liability up to the first $500.000 per occurrence with claims from $500,000 to $40,000,000 per occurrence and in the aggregate insured through the California Joint Powers Risk Management Authority. insurance coverage for general liability increased from $25,000,000 in prior year to $40,000,000 in the current year. The City never had any settlements that exceeded its general liability insurance coverage. (See note 14) The City is self-insured for workers' compensation up to the first $250,000 per claim. Any claims of $250,000 up to California statutory limits are covered under a purchased policy through the membership with the Local Agency Workers' Compensation Excess Joint Powers Authority. Workers' compensation coverage increased from $50,000,000 in prior year to $100,000,000 in the current year. The City never had any settlements that exceeded its workers' compensation insurance coverage. (See note 14). The City is fully self-insured for dental, unemployment and long-term disability for its employees General liability and workers' compensation claims areadministered by an outside agency and all other claims are administered by the City. The City has accrued a liability of $5,140,000 at June 30, 2005, for all self-insured claims in the Internal Service Fund that includes an amount for incurred but not reported claims. The liability amount is based on the requirements of Governmental Accounting Standards Board Statement No. 10, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicatesthat it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. In the opinion of the City, the amounts accrued are adequate to cover claims incurred but not reported in addition to known claims. Changes in the self-insurance liability for fiscal years ended June 30, 2005 and 2004 are as follows: Current -Year Claims and Changes Claim Beoinnina in Estimates Pavments Ending FY03-04 $ 3,290,581 3,860,633 (1,643,214) $ 5,508,000 FY 04-05 $ 5,508,000 1,224,805 (1,592,805) $ 5,140,000 58 M M M CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 (13) Participation in Joint Ventures Northern California Power Agency The City, along with fourteen other public agencies, is a member of the Northern California Power Agency (NCPA)that was formed in 1968 as a joint powers agency. Its membership consists of eleven cities with publicly owned electric utility distribution systems, one irrigation district, one public utility district, one port authority and four other associate member entities. NCPA is generally empowered to purchase, generate, transmit, distribute and sell electrical energy. Members participate in the projects of NCPA on an elective basis. A commission comprising of one representative from each member organization governs NCPA. The commission is responsible for the general management of the affairs, property and business of NCPA. Under the direction of the general manager, the staff of NCPA is responsible for providing various administrative, operating and planning services for NCPA and its associated power corporations. Project Financing and Construction NCPAs project construction and development programs have been individually financed by project revenue bonds collateralized by NCPA's assignment of all payments, revenues and proceeds associated with its interest in each project. Each Project Participant has agreed to pay its proportionate share of debt service and other costs of the related project, notwithstanding the suspension, interruption, interference, reduction or curtailment of output from the project for any reason. Certain of the revenue bonds are additionally supported by municipal bond insurance credit enhancements. Increase in Non-defaultinaProiect Participant's Original Proiect Entitlement Percentage Upon the failure of any Project Participant b make any payment, which failure constitutes a default under the Member Agreement for the projects, and except as sales and transfers are made pursuant thereto, the Member Agreements provide that Project Entitlementfor each non - defaulting Project Participant shall be automatically increased for the remaining term of the Member Agreement; pro rata with those of the non - defaulting Project Participant thereunder; provided, however, that the sum of such increase for any non -defaulting Project Participant shall not exceed, without written consent of such non -defaulting Project Participant, an accumulated maximum of 25% of the non -defaulting Project Participant's original Project Entitlement Percentage Share. General Operating Reserve�yith NCPA Members of NCPA established 'a general operating reserve in 1992 for the purposes of providing a vehicle to fund reasonably foreseeable contingent liabilities. It was set up primarilyto provide the following advantage:: minimizes the number and dollar amount of reserve that might otherwise be funded separately in connection with NCPAs individually financed operating plants, projectsand programs; provides each member with flexibility and unilateral control over the determinationof what they will fund, how they will fund it and what expenditures from the reserve will be made on their individual behalf. It provides funding for contingent liabilities that are not budgeted but that may require significant future expenditures. The reserve is segregated by participant and is refundable on demand by the participant. 59 CITY OF LODI Notes to Basic Financial Statements (continued) June 30.2005 As of June 30, 2005, the City's balance in the NCPA General Operating Reserve, which has been credited with annual interest earnings and settlements, is $1,955,896. Proiect Participation The NCPA members and their percentage share at June 30,2004,which s the most recent available data, are as follows: Hydro Combustion Multiple Geothermal Electric Turbine Capital Transmission Project Project Project#1 Facilities Project Alameda 16.8825 10.00 13.092 19.00 30.3590 Biggs 0.2270 0.4082 Gridley 0.3360 0.7103 Healdsburg 3.6740 1.66 3.500 6.6068 Lodi 10.2800 10.37 34.780 39.50 18.4861 Lompoc 3.6810 2.30 3.500 5.00 6.6194 Palo Alto 22.92 11.0736 Plumas-Sierra Rural Electric Cooperative 0.7010 1.69 1.090 1.4647 Roseville 7.8830 12.00 13.584 36.50 14.1756 Santa Clara 44.3905 37.02 25.000 Turlock Irrigation District 6.3305 Ukiah 5.6145 2.04 5.454 10.0963 Bulk power purchased by the City through NCPA amounted to $33,068,774iuring the year ended June 30,2005 and is reflected in utilities expense in the Electric Enterprise Fund. NCPA Geothermal Proiect A purchase power agreement with NCPA obligates the City for a 10.28% share of the operating costs and debt service of two of NCPA's 110 - megawatt steam powered plants, Project Number and Project Number 3. Outstanding long-term debt related to this project was approximately $217 million at June 30,2004. 60 CITY OF LODI Notes to Basic Financial Statements (continued) June 30.2005 In addition to federal geothermal leasehold, steam wells, gathering system and related facilities, the project consists of two electric generating stations (Plant 7 and Plant 2). Each plant has two 55MW turbine generator units utilizing low temperature geothermal steam; associated electrical, mechanical and control facilities: a heat dissipation system; a steam gathering system; a transmission tapline; and, other related facilities. Geothermal steam for the project is derived from the geothermal property, which includes wellpads. access roads, steam wells and reinjection wells. Calaveras Hydroelectric Proiect NCPA contracted to finance, manage, construct and operate Hydroelectric Project Number One for the licensed owner, Calaveras County Water District. In exchange, NCPA has the right to the electric output of the project for 50 years from February 1982. NCPA has also the option to purchase power from the project in excess of the District's requirements for the subsequent 50 years, subject to regulatory approval. Under a power purchase agreement the City is obligated to pay 10.37% of the debt service and operating costs. At June 30, 2004, approximately $501 million in long-term debt used to finance this project was outstanding. NCPA Combustion Turbine Proiect The project consists of five combustion turbine units, each nominally rated at 25 megawatts. Two such units are located in Roseville. two in Alameda and one in Lodi. The project provides capacity during peak load periods and emergency capacity reserves. Excess capacity and energy from the project are also sold to other entities from time to time. Under the NCPA power agreement, the City is obligated to pay 34.78% of the debt service and operating costs. At June 30, 2004 approximately $25 million in long-term debt was outstanding. Transmission Proiect The project was undertaken to meet certain obligations of NCPA under the NCPA/PG & E Interconnection Agreement. The project includes an ownership interest in PG & E s 230kv Castle Rock to Lakeville Substation Transmission Line in Sonoma County, additional firm transmission rights in that Transmission Line, and a central scheduling and dispatch facility in service at the NCPA headquaiters in Roseville. California. Under a power purchase agreement, the City is obligated to pay 18.4861% of the debt service and operating costs. At June 30, 2004, approximately $5.5 million in long-term debt was outstanding. Capital Facilities Proiect The Project consists of one 49.9 megawatt natural gas-fired steam injected combustion turbine generator unit located in Lodi, California. Wastewater is reclaimed from the City of Lodi's White Slough water pollution control facility, processed to eliminate contaminants, and used in the turbine to produce steam for power enhancement and emissions control. 61 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 Under a power purchase agreement, the City is obligated to pay 39.5% of the debt service and operating costs. At June 30, 2004, approximately $67 million in long-term debt was outstanding. The following are the most recent available audited condensed financial statements of NCPA: Combined Balance Sheet June 30,2004 Assets Current assets $ 69,064,000 Restricted assets 191, 898, 000 Electric plant, net 471,628,000 Other assets and deferred charges 263,688,000 Net revenues before refunds Total assets $ 996.278.000 Combined Statement of Revenue and Expenses Year ended June 30,2004 Sales to participants for resale $ 185,639,000 Operating expenses (137,542,000) Other revenues (expenses) (69,019,000) Future recoverable costs 25,275,000 Net revenues before refunds 4,353,000 Refunds to participants (12,051,000) Net revenues (7,698,000) Accumulated net revenues, beginning of year 18,498,000 Accumulated net revenues, end of year $ 10,800,000 Liabilities and Capitalization Current portion of long-term debt $ 54,555,000 Other current liabilities 46,365,000 Other liabilities and deferred credits 127,600,000 Long-term debt 756,958,000 Accumulated net revenues 10,800,000 Total liabilities and capitalization 996,278,000 Combined Statement of Cash Flow Year ended June 30,2004 Net cash provided by operating activities $ 85,498,004 Net cash used in investing activities (39,916,000) Net cash used in capital and related financing activities (104,491,000) Net cash provided by noncapital and related financing activities 864,000 Decrease in cash and cash equivalents (58,045,000) Cash and cash equivalents, beginning of year 119,197,000 Cash and cash equivalents end of year $ 61,152,000 At June 30, 2004, NCPA's total outstanding long-term debt was $811,513,000at an average interest rate of 5%. The current portion of long-term debt at June 30, 2004, was $54,555,000. 62 M M M M M M CITY CF I_OD) Notes to Basic Financial Statements (continued) June 30, 2005 Complete financial information for NCPA maybe obtained at the following administration office: Northern California PowerAgency 180 Cirby Way Roseville, CA 95678 Transmission Agency of Northern California The Transmission Agency of Northern California (TAMC) was organized under the California Government Code pursuant to a joint powers agreement entered into by fifteen Northern California utilities including the City of Lodi. The purpose of TANC is to provide electric transmission or other facilities for the use of its members through its authority to acquire, construct, finance, operate and maintain facilities for electric power transmission. The joint powers agreement provides that the costs of TANC's activities can be financed or recovered through assessment of its members or user charges through transmission contracts with its members. Each TANC member has agreed to pay a pro rata share of the costs to operate TANC and has the right to participate in future project agreements. The joint power agreement remains in effect until debt obligations and interest thereon have been paid, unless otherwise extended by the members. Increase in Non -defaulting Proiect Participant's Original Proiect Entitlement Percentage Upon the failure of any Project Participant to make any payment, which failure constitutes a default under the Member Agreement for the projects, and except as sales and transfers are made pursuant thereto, the Member Agreements provide that Project Entitlement for each non - defaulting Project Participant shall be automatically increased for the remaining term of the Member Agreement; pro rata with those of the non - defaulting Project Participant thereunder; provided, however, that the sum of such increase for any non -defaulting Project Participant shall not exceed, without written consent of such non -defaulting Project Participant, an accumulated maximum of 25% of the non -defaulting Project Participant's original Project Entitlement Percentage Share. Cal iforn ia-Oregon Transmission Proiect The project is a 339 -mile long, 500 -kilovolt alternating current transmission project between Southern Oregon and Central California. The project is operated in coordination with the Pacific AC Intertie as a part of the California -Oregon Intertie (COI)within the Western System Coordinating Council (WSCC) region. The WSCC approved rating of the COI is 4,800 MW and the Pacific Direct Current Intertie (PDCI) is 3,100 MW for a combined total of 7,900 MW of Transfer capability. Depending on the time of year, operational transfer capability of the combined COI and PDC1 is between 6,900 MW and 7,900 MW. TANC, California Department of Water Resources (CDWR). Western Area Power Authority (WAPA). and five other parties have agreed to an Interim Participation Agreement (IPA) under which project participant is granted a percentage entitlement in project transfer capability and is required to pay a percentageof the costs. Pursuantto the IPA and a subsequent agreement with WAPA, TANC is entitled to use approximately 1,242 MW, and is obligated to pay an average of approximately73 percentof the operating costs associatedwith the project. 63 CITY OF LODI Notes to Basic Financial Statements (continued) June 30.2005 In 2004, CDWR has an option to purchase, at the project participants' original cost, approximately 6 percent of entitlement in the project's transfer capability. If this option is exercised. TANC's percentage of entitlement in project transfer capability may be reduced pro -rata. Under the TANC joint powers agreement, the City is obligated to pay 1.89% of its debt service and operating costs. At June 30, 2004, approximately $394 million in long-term debt was outstanding of which $20 million is considered current. Complete financial information for TANC may be obtained at the following administration office: Transmission Agency of Northern California 3100 Zinfandel Drive, Suite 600 Sacramento, CA 95670 (14) Membership in Insurance Pools California Joint Powers Risk Management Authority The City is a member, along with twenty-four other public agencies, of California Joint Powers Risk Management Authority (CJPRMA) organized under a Joint Powers Agreement pursuant to the California Government Code for the purpose of sharing the risk of catastrophic general liability, automobile liability and public officials' errors and omissions losses because adequate insurance is not available in the commercial insurance market. CJPRMA has a twenty-one member Board of Directors, including a director from the City of Lodi. The Board members elect officers of CJPRMA every two years. The ultimate cost of the program to the City depends on the catastrophic losses of all members, as well as the City's own loss experience and will be determined retrospectively five years after the end of the current program year. The City periodically pays deposits to the CJPRMA. These deposits are recorded as expenditures in the year paid, as they are a reasonable estimate of the actual cost of the program. During the year ended June 30,2005 deposits of $274,191vere paid to CJPRMA. The participants and their percentage shares at June 30, 2005, are as follows: City of Alameda 3.61%. CCCMRMIA 8.51%. Chico 1.68%, Central San Joaquin Valley Risk Management Authority 9.62%, Fairfield 2.82%, Fremont 6.12%, Livermore 2.41 %, Lodi 2.22%, Manteca .42%, NCCSIF 7.87%, Petaluma 1.81%. Pomona (.74%), PERMA (.49%), Redding 3.80%, Redwood Empire Municipal Insurance Fund 6.54%, Roseville 3.90%, San Leandro 1.91%, San Rafael 2.54%, Santa Rosa 6.10%, Small Cities Organized Risk Effort 1.51%, Stockton 6.30%. Sunnyvale 5.85%. Vacaville 2.23%, Vallejo 2.63%, and Yolo County Public Agencies Risk Management Insurance Authority 10.83%. Local Agency Workers' Compensation Excess Joint Powers Authority The City, along with thirty-one other public agencies, is a member of the Local Agency Workers' Compensation Excess Joint Powers Authority (LAWCX), which was formed July 1992,for the purpose of sharing the risk of workers' compensation losses. All members are self-insured up to $250,OOOper occurrence, LAWCX members pool resources to pay claims from $250,OOOto $500,OOOper occurrence and then use group 64 M= M== IM==== i I' M= M M M CITY OF LODI Notes to Basic Financial Statements (continued) June 30, 2005 purchasing power to obtain excess coverage through a commercial insurance company up to statutory limits. The City paid $239,764 in deposits to LAWCX during the fiscal year ended June 30,2005. The participants at June 30, 2004, are as follows: Alameda, ABAG, BCJPIA. City of Benicia, CCCSIF, CCCTA, Central San Joaquin Valley Risk Mgmt Authority (CSJVRMA), City of Clovis, City of Coronado. East Bay Regional Park District, City of Encinitas. City of Fremont. City of Gilroy, City of Livermore, City of Lodi, City of Los Gatos, City of Merced, City of Morgan Hill, City of Newark, PARSAC, City of Placentia, PERMA, City of Roseville. City of San Leandro, City of Santee, Small Cities Org. Risk Effort (SCORE), City of South Lake Tahoe, City of Suisun City, City of Vacaville, City of Vallejo, Vector Control JPA and City of Vista. California Transit Insurance Pool The City, along with thirty-six other public agencies is a member of California Transit Insurance Pool (CaITIP), a joint powers insurance authority which was formed for the purpose of sharing the risk of property damage, bodily injury, personal injury and public officials errors and omissions losses for public transit systems. Liability protection coverage is provided under two programs: Program I applies to members who choose to utilize CaITIP's adjuster and/or those with a $0 deductible. Program I I applies to members with self-insured retentions who choose to provide their own adjusting services. CaITIP purchases excess insurance over its $500,000 retention up to $20 million per occurrence. Each member is provided with $5 million in excess of the pooled retention and has the option to choose one or both of two additional layers for the full $20 million. CaITIP also provides physical damage coverage to its members. This coverage program is optional for all members and offers damage or loss protection for transit, staff and maintenance vehicles to transit operators. CaITIP self -insures to $100,000, under which members have the option of five levels of deductible ranging from $500 to $10,000 per vehicle. Claims are administered by the CaITIP's adjuster. The City paid $135,166 in deposits to CaITIP during the fiscal year ended June 30,2005. There have been no reductions in insurance coverage from the prior year and there were no insurance settlements in excess of insurance coverage in any of the last three years. Self - Insured Limit Physical Program Retention (in millions) Damage City of Lodi Transit System I Prefunded 5 X 65 CITY OF LODI Notes to Basic Financial Statements (continued) June 30,2005 (15) Deficit in Fund Equity Internal Service Fund - Claims and Benefits - A deficit in fund equity at June 30, 2005, in the amount of $1,895,488 in the Internal Service Fund is due to the self-insurance liability to cover both incurred and incurred-but-not-reported(IBN R) claims. The City continues its effort to reach the reserves recommended by an actuary and gradually eliminate the deficit in the Internal Service Fund. (16) Commitments and Contingencies Litigation and claims- The City is engaged in litigation over its groundwater contamination as a potential responsible party and in litigationwith its former outside counsel regarding malpractice and fee claims. The City estimates that it will need to raise $45 million to cover past costs, past settlements and future obligations and have increased its water rates in an amount sufficientto cover these estimated expenses. The past costs and settlements approximate $19.5 million at June 30, 2005 and future obligations are estimated to be approximately $25.5 million. As such, the City Attorney does not anticipate a material effect on the City's financial condition. The City also faces a false imprisonment claim for a man who spent ten years in prison for a rape he was later found innocent of through DNA testing. However, exposure for fees and judgment is capped at $500,000 (the amount of the City's self-insured retention). It is anticipated that a wrongful death claim presently pending against the City will be resolved prior to year's end with no payout by the City. As such, the City Attorney does not anticipate a material effect on the City's financial condition from either of these actions. All other actions against the City are under $50.000 or have no arguable cost and will therefore not have a material financial effect on the City. Arbitrage Earnings Rebate Liability - Arbitrage earnings are defined as income earned on the unexpended tax-exempt certificate proceeds in excess of that which would have been earned had the moneys been invested in securities with a yield of the effective rate of the certificates. Currently, arbitrage earnings must be rebated b the United States Treasury every five years from the date of August 18, 1999, for the Electric System Certificates of Participation. The City rebated arbitrage of $132,928 in November 2004 and there is no cumulative arbitrage liability as of June 30,2005. 66 M M M M M M M M M r M M M M M M M M M RFC[ I IRFD SUPPLEMENTARY INFORMATION I I I I I I I I I I I I I I I I I I I Actuarial Valuation Date 6130102 $ 6130103 6130104 City of Lodi Required Supplementary Information Schedule of Funding Progress - Pension Plan June 30,2005 (in thousands of dollars) 67 Unfunded Entry Age Unfunded Actuarial Actuarial Actuarial Liability as Actuarial Accrued Accrued Funded Covered Percentage of Asset Value Liability Liability Ratio Payroll Covered Payroll (A) (B) [(B) - (A)] [(A) / (B)j (C) ([(B)—(A)Y(C)) 130,903 $ 134,344 $ 3,441 97% $ 23,361 14.73% 132,001 149,935 17,934 88% 24,978 71.80% 139,694 165,273 25,579 85% 25,640 99.76% 67 5CME002 OF REVENN1ES, E%PENM REVENUES Taxes Licenses and pamft IningovemmeMal revenues Charyas for W%ioaa Fines, forleih and penalties Investment and ramal income Miscellaneous revenue Tolet revemxs EXPENDITURES Current: General government: City Councii City Menager City CM& City Attorney Human Resaxras Infaonabon Systema community Carder C.omrmrnity Development Fiance Non Depertmenlal Total general government Public Protection: Police Fina Tool Public P Public Works Library Parks and recreation Capital oulley f 2< 478 — 124,478 124,478 Debt service' interest and 6sce1 charges 48,475 40,475 48,475 Principal payments 288,489 28¢,499 2�8! , " Total debt senica 314,974 314,974 314,974 Total axpenWhxes 39,260,555 43,952,402 42,862 Q27 _ _ 100 DEFICIENCY OF REVENUES UNDER EXPENDITURES (6,124 9341 (3,580,970) (4,887.392) 4,673,576 OTHER FINANCING SOURCES (USES) Transfers in 6,380,227 5,596,546 6,043,164 444,638 Trensfers out (4,6414,782) (40.928) (40,928) Proceeds from capitol lease 124,478 124,478 124,478 Other sources 3.687,237 .2,845 910 _ 2,845,910 Total other financing sources (usesl 5,523,160 8,566,0.14 6,125,734 Z442.= NET CHANGE IN FUND BALALINCE (801,774) (992,030) 1,239,342 2,231,378 FUND BALANCE , beginning M year 3,837,434 1.452,986 1,452.9w FUND 8ALANCE, end of year 3.23500 4W,952 2,M 3902.231,378 The note in the required supplementary information is an Integral part of this schedule. es CITY OF LODI SCHEDULE OF REVENUE, EXPENDITURESAND CHANGES IN FUND BALANCE BUDGETAND ACTUAL STREETS FUND Year ended June 30,2005 REVENUES Taxes I ntergovern mentalrevenues Charges for services Investmentand rental income Miscellaneous revenue Total Revenue EXPENDITURES Public works Capital outlay Total Expenditures EXCESSOFREVENUESOVER EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) NET CHANGE IN FUND BALANCE (485.002) 1,415,059 2,254,763 839.704 FUND BALANCE, BEGINNING OF YEAR 2,576,187 2,719,973 2,719,973 FUND BALANCE, END OF YEAR $ 2,091,185 4,135,032 4,974,736 839.704 The note to the required supplementary information is an integral part Cf this schedule. 69 Variance with Original Final Actual Final Budget 886.155 886.155 907.115 20,960 $ 8,482,000 14,788,148 7,280,090 (7,508,058) 1,355,000 1,365,000 2,983,959 1,628,959 129.899 129.899 24,670 24.670 10,723,155 17,029,303 11,325,733 (5,703,570) 9,796,880 14,078,301 7,535,027 6,543,274 9,796,880 14,078,301 7,535,027 6,543,274 926.275 2.951.002 3,790,706 839.704 5,204 5.204 (1.411,277) (1,541,147) (1,541,147) (1.411,277) (1,535,943) (1,535,943) NET CHANGE IN FUND BALANCE (485.002) 1,415,059 2,254,763 839.704 FUND BALANCE, BEGINNING OF YEAR 2,576,187 2,719,973 2,719,973 FUND BALANCE, END OF YEAR $ 2,091,185 4,135,032 4,974,736 839.704 The note to the required supplementary information is an integral part Cf this schedule. 69 CITY OF LOD? Notes to the Required Supplementary Information June 30, 2005 Budgetary Data The City adopts an annual budget for the general and special revenue funds. These budgets are prepared in accordance with generally accepted accounting principles. As part of the City's internal controls, the City maintains budgetary controls. The objective of these budgetary controls is to ensure compliancewith the legal provisions embodied in the annual appropriated budget approved by the City Council. The accompanying financial statements present budget and actual data only of funds for which an annual budget was adopted. The budgets of capital projects are primarily "long-term" budgets that emphasize the major programs and capital project plans extending over a number of years. Due to the long-term nature of these projects, "annual" budget and actual comparisons are not considered meaningful. Formal budgetary integration is not employed for Debt Service Funds since effective budgetary control is alternatively achieved through the bond indenture provisions. Accordingly, no budgetary information is included in the accompanying general-purpose financial statements for capital projects and debt service funds. The City Council follows the following procedures in establishing the budgetary data reflected in the accompanying general-purpose financial statements: Original Budget On or priorto the first regular Council meeting in June of each year, the City Manager submits to the City Council a proposed Financial Plan and Budget for the fiscal year commencing July 1. The budget includes proposed expendituresand the means of financing them. Budgeted revenues are adopted by the City Council at the time the budget is approved. Budgeted revenues are modified when the tax base changes, when fees are modified or when new revenue sources are identified. Public hearings are conducted during meetings of the City Council to obtain citizens' comments. Priorto July 1, the budget is legally enacted through passage of a resolution. Final Budget The final budgetary data presented in the basicfinancial statements reflects the following changes to the original budget: ■ Budgeted expenditures represent original appropriations adjusted by budget transfers and appropriation amendments. The legal level of budgetary control (that is, the level at which expenditures can not legally exceed the appropriated 70 amount) is at thedepartment level. The operating budget is prepared and controlled at the department level (e.g., city clerk, city manager, etc.)for the General Fund. Special revenue fund expenditures, including transfers out, are approved by Council at the fund level The City Manager m a y transfer appropriations from one activity to another within a department without approval from the City Council. All other appropriation adjustments during the year, whether transfers, increases or decreases, require City Council approval. 71 (This page intentionally left blank.) m = = = = m = m = = = = r = = w = m m COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES CITY OF LODi COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS June 30,2005 Assets Cash and investments Restricted assets Receivables: Accounts Interest Due from other funds Due from other governmental agencies Loan receivable Advances to other funds Total assets Liabilities and Fund Balances Liabilities: Accounts payable and other liabilities Due to other funds Advances from other funds Deferred revenue Total liabilities Fund Balances: Special Capital Revenue Protects Total $ 452,933 5,712,463 $ 6,165,396 1,690,573 1,690,573 1,233 1,233 3,530 66,691 70.221 18.972 18.972 539,022 389.950 928.972 1.084.000 1,084,000 676.770 676,770 $ 2,099,690 8,536,447 $ 10,636,137 $ 96.778 45,752 $ 142,530 526,487 526.487 1,476,133 1,476,133 1,084,000 389.950 1,473,950 1,707,265 1,911,835 3,619,100 Reserved for encumbrances 1.680 298,072 299.752 Reserved for advances to other funds 676,770 676,770 Unreserved -designated for specific projects and programs 390,745 5,649,770 6,040,515 Total fund balances 392.425 6,624,612 7,017,037 Total liabilitiesand fund balances 73 $ 2,099,690 8,536,447 $ 10,636,137 CITY OF LOM COMBINING STATEMENT OF REVENUES, EXPENDITURESAND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS Year ended June 30.2005 Revenues: Intergovernmental revenues Charges for services Fines, forfeits and penalties Investment and rental income Miscellaneous revenue Total revenues Expenditures: Current: Public protection Publicworks Parks and recreation Capital outlay Debt service: Interest and fiscal charges Principal payments Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses): Transfers in Transfers out Total otherfinancing sources (uses) Net change in fund balances Fund balances, beginning of year Fund balances, end of year 7 ] __1 ._J -----j .----._J Special Debt Capital Revenue Service Projects Total $ 1.119,509 14,600 $ 1,134,109 3,773,974 3,773, 974 3,700 3,700 11.428 272,085 283.513 259,135 259,135 1,134,637 4,319,794 5,454,431 306,255 306,255 852.629 79,310 931,939 18.972 18.972 72,534 1,775,903 1,848,437 1,187,974 408.980 1,596,954 588,120 588,120 1.250.390 1,776,094 2,264,193 5,290,677 (1 151 1 7-9 (1 77F 0-141 9 nFs EQ.L 163,754 118.580 1,776,094 74,307 1,968,981 (2,427,484) (2,427,484) 118.580 1.776.094 (2,353,177) (458.503) 2,827 (297,576) (294,749) 389.598 6,922,188 7,311,786 $ 392,425 6,624,612 $ 7,017,037 74 NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS NONMAJOR GOVERNMENTAL FUNDS Nonmajor Governmental Funds include: Special Revenue Funds account for the proceeds of specific revenue sources that are restricted by law or administrative action to expenditures for specified purposes, other than those for major capital projects; Debt Service Fu n d account for the accumulation of resources for the repayment cf principal and interest on general long-term debt; Capital Project Funds account for the financial resources to be used for the acquisition or construction of major capital facilities, other than those financed by proprietary funds. SPECIAL REVENUE FUNDS Special Grants This fund has been established to account for the receipt of smaller grants from Federal and State sources. Public Safety This fund was established to account for the revenues and expenditures related to the City's share of property forfeited by persons convicted of possession and selling illegal drugs and the State of California auto.theft prosecution moneys. Transportation This fund was established to account for the receipt of moneys from the State of California apportioned to the City for transportation purposes. The State has designated 114% of the 6% sales tax levied statewide for local transportation purposes. Funding for this program was provided during the 1971 legislative session with the enactment of the Transportation Development Act, which extended the 6% sales tax to include purchases of gasoline. Revenues allocated to the City o f Lodi under this program are divided into two categories: Article 8 funds, which are restricted for the improvement and maintenance of street systems; and Article 4 funds, which are restricted for public transit systems. HOME Program and Community Development Block Grants This fund was established to account for the City's HOME Program that provides adequate and affordable housing for low and very low-income residents, and Community Development Block Grants provided to the City principally for low and moderate income residents to develop a suitable living environment and expand economic opportunities. 75 CITY OF LODI COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS -SPECIAL REVENUEFUNDS June 30,2005 ASSETS Cash and Investments Receivables: Accounts Interest Due from other funds Due from other governmental agencies Loan receivable TOTALASSETS LIABILITIESAND FUND BALANCES LIABILITIES Accounts payable and other liabilities Due to other funds Advances from other funds Deferred revenue TOTAL LIABILITIES FUND BALANCES Fund balances: Reserved for encumbrances Unreserveddesignated for specific projects and programs TOTAL FUND BALANCES TOTAL LIABILITIESAND FUND BALANCES $ 83,973 270 12,535 $ 96.778 18.972 507,515 526.487 1,084,000 1,084,000 111111!111 .� 11680 1,680 283.516 107,229 390.745 283,516 108.909 392,425 $ 18.972 367.489 109.179 1,604,050 $ 2,099,690 76 HOME Program & Community Special Public Grants Safety Transportation Development Block Grants Total $ 344,544 108,389 $ 452,933 1,233 1,233 2,740 790 3,530 18,972 18,972 18,972 520,050 539,022 1,084,000 1.084.000 $ 18.972 367.489 109.179 1,604,050 $ 2,099,690 $ 83,973 270 12,535 $ 96.778 18.972 507,515 526.487 1,084,000 1,084,000 111111!111 .� 11680 1,680 283.516 107,229 390.745 283,516 108.909 392,425 $ 18.972 367.489 109.179 1,604,050 $ 2,099,690 76 REVENUES Intergovernmental revenues Charges for services Fines, forfeits and penalties Investmentand rental income Miscellaneous revenue Total revenues EXPENDITURES Current Public protection Publicworks Parks and recreation Capital outlay Total expenditures DEFICIENCYOF REVENUES UNDER EXPENDITURES OTHER FINANCING SOURCES Transfers in NET CHANGE IN FUND BALANCES FUND BALANCES, beginning ofyear FUND BALANCES. end of year CITY OF LODI COMBINING STATEMENT OF REVENUES, EXPENDITURESAND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS - SPECIAL REVENUE FUNDS Year ended June 30,2005 HOME Program & Community Special Public Development Grants Safety Transportation Block Grants $ 18,972 206.881 41,027 852.629 3,700 8,485 2,943 Total $ 1,119,509 3,700 11,428 18,972 219,065 43,970 852,629 1,134,637 306.255 852.629 18,972 72,534 18.972 306,255 72,534 852,629 (87,189) (28.564) 20,905 97,675 (65,284) 59.111 349.800 39,798 $ 283,516 108,909 77 306.255 852.629 18.972 72,534 1,250,390 (115,753) 118,580 2.827 389,598 $ 392,425 CITY OF LODI SCHEDULE OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL NONMAJOR GOVERNMENTAL FUNDS - SPECIAL REVENUE FUNDS Year ended June 30,2005 REVENUES Intergovernmental revenues Total Revenue EXPENDITURES Current Parks and recreation Total Expenditures NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNING OF YEAR FUND BALANCE, END OF YEAR 78 SPECIAL GRANTS FINAL BUDGET ACTUAL VARIANCE $ 18,972 18.972 18,972 18.972 18.972 18,972 18,972 18,972 - --� .} -,--i ) J _J J CITY OF LODI SCHEDULE OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL NONMAJOR GOVERNMENTAL FUNDS - SPECIAL REVENUE FUNDS Year ended June 30,2005 REVENUES Intergovernmental revenues Fines, forfeits and penalties Investment and rental income Total Revenue EXPENDITURES Current Public protection Total Expenditures DEFICIENCY OF REVENUES UNDER EXPENDITURES OTHER FINANCING SOURCES Transfers in NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNING OF YEAR FUND BALANCE, END OF YEAR 79 PUBLIC SAFETY FINAL BUDGET ACTUAL VARIANCE $ 148,737 206,881 58,144 3.700 3,700 8.485 8.485 148,737 219,066 70,329 444,277 306,255 138,022 444,277 306,255 138,022 (295,540) (87,189) 208,351 20,905 20,905 (274,635) (66,284) 208.351 349,800 349,800 $ 75,165 283.516 208.351 SCHEDULE OF REVENUE, EXPENDITURESAND CHANGES IN FUND BALANCE BUDGETAND ACTUAL NONMAJOR GOVERNMENTAL FUNDS - SPECIAL REVENUE FUNDS Year ended June 30,2005 REVENUES Intergovernmental revenues Investment and rental income Total Revenue EXPENDITURES Capital outlay Total Expenditures DEFICIENCY OF REVENUES UNDER EXPENDITURES OTHER FINANCING SOURCES Transfers in NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNING OF YEAR FUND BALANCE, END OF YEAR so TRANSPORTATION FINAL BUDGET ACTUAL VARIANCE $ 39,367 41,027 1,660 2.943 2.943 39,367 43,970 4,603 115,400 72,534 42,866 115,400 72,534 42.866 (76,033) (28,564) 47.469 97.675 97.675 21,642 69,111 47,469 39,798 39.798 $ 61,440 108,909 47,469 CITY OF LORI SCHEDULE OF REVENUE, EXPENDITURESAND CHANGES IN FUND BALANCE BUDGETAND ACTUAL NONMAJOR GOVERNMENTAL FUNDS -SPECIAL REVENUE FUNDS Year ended June 30,2005 REVENUES Intergovernmental revenues Total Revenue EXPENDITURES Current Public works Total Expenditures NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNING OF YEAR FUND BALANCE, END OF YEAR HOME PROGRAM and COMMUNITY DEVELOPMENT BLOCK GRANTS FINAL BUDGET ACTUAL VARIANCE $ 3,499,788 852,629 (2,647,159) 3,499,788 852.629 (2,647,159) 81 3,499,788 852.629 2,647,159 3,499.7$8 852,629 2,647,159 NONMAJOR GOVERNMENTAL FUNDS CAPITAL PROJECT FUNDS CAPITAL PROJECT FUNDS Vehicle and Equipment This fund was established to account for the financing and replacement of vehicles and equipment for all funds of the City with the exception of the Enterprise Funds. Financing is primarily provided through operating transfers from other funds, interest earnings and sales of surplus property. Library This fund is used to account for the acquisition, construction and installation of capital facilities for the Library Subdivision This fund is used to account for construction and installation projects dealing with subdivision work for others Hutchins Street Square When the old Lodi High School burnt down, the City purchased the property and renamed it Hutchins Street Square. The Old Lodi High Site Foundation was established and this organization organizes events to raise money for the capital restoration of Hutchins Street Square. Capital Outlay Reserve This fund was established to account for the entire City's construction projects and capital purchases in excess of $10,000with the exception of those funded through Enterprise Funds. Financing is provided primarily by operating transfers from other funds and from State and Federal grants. Lodi Lake This fund was established to account for moneys charged for activities held at Lodi Lake. The Council designated the moneys to be used for Lodi Lake capital projects. 83 ASSETS Cash and investments Restricted assets Receivables Interest Due from other governmental agencies Advances to otherfunds TOTALASSETS LIABILITIES Accounts payable and other liabilities Advances from other funds unearned revenue TOTAL LIABILITIES FUNDBALANCES Fund balances Resewed for encumbrances Reserved for advances lo other funds Unreserved -designated for specific projects and programs TOTAL FUND BALANCES TOTAL LIABILITIESAND FUND BALANCES CITY OFLODi COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS -CAPITAL PROJECT FUNDS June 30.2005 2.141 2,400 289.065 4.466 298.072 Capital 676.770 150.175 12.930 300.339 3.577 5.142120 Vehicle and Hutchins Outlay Lodi 46.003 $ 8,536,447 Equipment Library Subdivision Street Square Reserve Lake Total $ 157,521 15,212 300.339 3,517 5,190,159 45,655 5 5,712,463 1,690,573 1,690,573 118 66,225 348 66.691 389.950 389,950 676,770 676,770 5 157,521 15,330 300.339 3,577 8,013,677 46,003 $ 8,536.447 $ 5.205 39,639 908 $ 45.752 1,476,133 1,476,133 389.950 389.950 5.205 1.905.722 908 1,911,635 2.141 2,400 289.065 4.466 298.072 676,770 676.770 150.175 12.930 300.339 3.577 5.142120 40.629 5,649,770 152.316 15.330 300.339 3.577 6,107,955 45,095 6,624,612 $ 157.521 15.330 300.339 3.577 8,011,577 46.003 $ 8,536,447 84 CITY OF LODI COMB N NG STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND SALANC55 NONMAJORG0VERNYFN7A_FJNDS .CAPITAL PRO. EC7FUNDS YearendedJune30.2005 REVENUES Intergovernmental revenues Charges for services Investment and rental Income Mlscelfaneous revenue Total revenuer EXPENDITURES Current Public works Capital outlay interest andtiscel charges Total expenditures EXCESS (DEFICIENCY) OF REVENUE OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) NET CHANGE IN FUND BALANCES FUND BALANCES, BEGINNING OF YEAR FUND BALANCES END OF YEAR Hutchins Capital Vehicle and Street Outlay Lodf Equipment Library Subdrvislon square Reserve Lake Total 14.600 S 14,600 3,773,874 3,713,914 44 269.659 2.362 212.085 55.265 174,000 33.810 259.135 55.265 44 4.228,233 36.252 4,319,794 54,710 14,600 79.310 251.160 5,491 1,412,810 106.442 1,775,903 408.980 408,980 315.810 5.491 1,836,390 106,442 2,264,193 (260.605] (5,447) 2.391,843 (70.190) 2.055.601 51.307 1B4O00 5,000 74,307 110.454) (2,417.030) (2,4 2T,484)_ 40.653 (2,399,030) 5.000 (2,353,177) (219.152) (5.4471 (7,187) (65,190) (291.576) 312.068 20.771 300.339 3.577 6115142 110.265 8,922188 $ 152.316 15.330 3w339 3.577 6.107.955 45.095 S M FIDUCIARY FUNDS Private -purpose Trust Fund This fund is used to account for trust agreements under which the principal and income benefit individuals, private organizations or other governments. Agency Fund This fund was established to account for special assessments collected on the property tax roll by the City on behalf of the property owners within the IndustrialWay Beckman Districts and the Downtown and Cherokee Lane Districts. CITY OF LODI COMBINING STATEMENT OFF UDUCIARY NET ASSETS PRIVATE -PURPOSE TRUST FUNDS June 30,2005 Private -Purpose Trust Funds Private Hutchins Street Sector Square Bequest Total ASSETS Cash and investments $ 693,023 1,304 $ 694,327 TOTAL ASSETS 693,023 1,304 694,327 NETASSETS $ 693,023 1,304 $ 694,327 87 CITY OF LODI COMBINING STATEMENT OF CHANGES IN FIDUCIARY NETASSETS FIDUCIARYFUNDS Year ended June 30,2005 ADDITIONS Investment income and donations Total additions DEDUCTIONS Current Library Total deductions CHANGE IN NETASSETS NETASSETS, BEGINNING OF YEAR NETASSETS, END OF YEAR Y Private -Purpose Trust Funds Private Hutchins Street Sector Square Bequest Total $ 55,775 901 $ 56,676 55,775 6,238 6,238 49,537 643,486 $ 693,023 88 901 56,676 6.238 6,238 901 50,438 403 643,889 1,304$ 694,327 L-. L_.__ L__L- ASSETS Cash and investments Special assessment receivable Interest receivable Other assets TOTAL ASSETS LIABILITIES Agency obligations TOTAL LIABILITIES r CITY OF LODI STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS Year ended June 30, 2005 oardrrc;d balance 711104 Additions Deductions 6130105 $ 378,650 39,963 1,149 369,429 357,277 $ 390,802 53,580 39,963 53,580 2,923 1,149 2,923 1,283 1,283 $ 419,762 427,215 398,389 $ 448,588 $ 419,762 28,826 $ 419,762 28,826 89 $ 43,588 $ 443,588 STATISTICAL TABLES UNAUDITED Information is available beginning in fiscal year 2003, wben the City implemented GASB 34 "Basic Financial Statements - and Management Discussions and Analysis - for State and Local Governments." City Finance Department 91 CITY OF LODI w uT AWNWAIM14Y FUKTIQN LAST 111 FISCAL YEARS (Amounts In Thousands) Interest On Fiscal General Public Public Parks & Long-term Year Government Protection Works Library Recreation Debt Electric Wastewater Water Transit Total 2002-03 $ 12,238 $ 16,632 S 10,946 $ 1,454 S 3,969 $ 1,215 x 51,388 0 6,141 $ 12,879 S 5,389 $ 122,271 2003.04 13,167 19,163 11,868 1,409 4,095 1,267 55,943 6,297 7,489 3,064 123,762 2004-05 9,956 22,253 12,377 1,484 4,565 1,617 57,308 10,653 11,748 2,987 134,950 Information is available beginning in fiscal year 2003, wben the City implemented GASB 34 "Basic Financial Statements - and Management Discussions and Analysis - for State and Local Governments." City Finance Department 91 CITY OF LODI GOVERNMENT -WIDE REVENUES LAff TM Pftk ftAft (Amounts In Thousands) Note: Information is available beginning in Fiscal year 2003, when the City implemented GASB 34 "Basic Financial Statements and Mananagemenlls Discussion and Analysis for State and Local Governments." SOLiRCE: City Finance Department 92 Litigation SettlemenlIGain TSI 1170 1 S 2,728 $ 122,327 x'22 >f 865 132,681 p,0 � I 24,427 161,604 Charges Operating Caphel Fiscal for Grants and Grants And Year Services Contributions Contributions Motor Taxes Investment Vehicle In -Lieu Eamin s Other 2002-03 $ 2003-04 65,331 $ 70,538 13,727 $ 13,380 E 15,244 $ 3,430 $ 6,728 $ 2004-05 75.651 13,402 18,118 22,162 20,960 16,759 3,363 2 ,368 17,377 2 ,,030030 Note: Information is available beginning in Fiscal year 2003, when the City implemented GASB 34 "Basic Financial Statements and Mananagemenlls Discussion and Analysis for State and Local Governments." SOLiRCE: City Finance Department 92 Litigation SettlemenlIGain TSI 1170 1 S 2,728 $ 122,327 x'22 >f 865 132,681 p,0 � I 24,427 161,604 CITY OF LODI GENERAL GOVERNMENTAL REVENUES BY SOURCE LAST TEN FISCAL YEARS (Amounts in Thousands) 30,000 -------- — 25,000 20,000 15.000 k 10,000 5.000 - - v " N _ � 7 4 FE 1995-96 1996.97 _1997-98 1998-99 1999-00 2000-01 2501-02 2002-03 2003-04 2004-05 oTaxes ■ Licenses/ Permits s Inter- Governmental ❑Charges for Services _1 ■ Fines. Forfeits/ Penalties LI Use of Money & Property ■ Misc. Revenue ! Charges Use of Fiscal Licenses/ Inter - for Finer. Forfeits/ Money & Misc, Year Taxes Permits Governmental Services Penalties Property Revenue 1995-96 $ 17,070 $ 842 $ 6,642 $ 2.428 $ 421 $ 1.063 $ 140 $ 1996-97 17,029 1,012 6,316 1,908 453 1.216 80 1997-98 17,790 1.163 6.291 2.871 662 1,060 524 1998-99 18.594 1,267 8.493 3.874 878 982 243 1999-00 19,801 1,406 9.054 4,611 714 982 764 2000-01 21.909 1.592 11,641 4,249 765 1,509 383 2001-02 23.043 1,464 22,000 3.888 806 1,234 1,349 2002-03 24,100 1,669 7,385 6,272 803 832 453 2003-04 16.909 2,021 16,657 4.478 1.085 537 473 2004-05 17,606 2.511 22,834 9,404 1,190 752 458 General Governmental Revenues include General. Special Revenue. Debt Service and Capital Projects Funds. Excludes Expendable Trusts SOURCE: City Finance Department 93 Total 28.014 30,381 34,331 37,332 42.048 53.784 41,514 42,160 54.755 25.000 20,000 H 15,000 v a 10,x00 5,000 0 �JLY OF LODI GENERAL GOVERNMENTAL EXPENDITURES BY FUNCTION LAST TEN FISCALYEARS (Amounts in Thousands) 199596 1996-97 1997-98 1998-99 1999-00 200001 2001-02 2002-03 200304 200405 I OGeneral Government ■ Public Protection C]Public works ■t_ihrary Ip Parks 8 Recreation — p Debt Service 0 Capital Outlay Works Library Fiscal GeneraF Public Public Parks 6 Debt Capital Year _ Government Protection Works Library Recreation service Outlay Total 1995-96 I 5,217 $ 10.172 $ 6.012 I 954 S 2,158 I 500 S 5,378 S 30,431 1995-97 5,662 11.059 5 749 1012 2.312 939 10,810 37,783 1997-98 7,068 10.896 4,610 966 2.174 1,266 18,383 45,585 1998-99 7,239 11.225 5.151 1.030 2.230 1,262 6,640 34,797 1899-00 7.813 11.430 5.039 1,040 2.670 1.262 6,420 35,894 2000-01 6.862 13,190 6.312 1.184 2,999 1,265 12,045 45,877 2001-02 8,987 13.562 5.741 1,158 2,860 1,233 17,948 51,489 2002-03 10.674 15.597 6.926 1.316 3.385 1.950 12,942 52.990 2003-04 10.615 17.491 7.303 1.356 3.412 2,004 10,041 52,422 2004-05 10,858 20.351 7.361 1.420 3.691 2,500 a sMa 55 889 General Governmental Expenditures includes General. Special Revenue. Debt Service and Capital Projects FundS Excludes ExpendableTrusts. SOURCE: City Finance Department 94 $10,000 $9,000 $8,000 $7,000 $6.000 $5,000 54,000 $3,000 $2.000 $1,000 CITY OF LODI GEN ERALGOVERNMENTALTAXREVENUESBYSOURCE LAST TEN FISCAL YEARS (Amounts In Thousands) (1) General governmental lax revenues are included in taxes. licenses and permits. intergovernmental revenues and miscellaneous revenue of the City's General Fund SOURCE: City Finance Department 95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 E3 Property I ■ Sales & Use ❑ Transient Occupancy ❑ Franchise ■ Documentary Transfer ❑ Motor Veh . in Lieu ■ Public Protection ❑ Business License ■ In Lieu Franchise Fiscal Sales Transient Documentary Motor Veh . Public Business In Lieu Year Property & Use Occupancy Franchise Transfer in Lieu Protection License Franchise Total (1) 1995-96 $$ 4.206 5,763 $ 278 $ 503 $ 75 $ 2,023 $ 154 $ 470 $ 5.413 $ 16,885 1996-97 4,225 5,950 249 524 66 2.144 154 541 5,346 19.201 1987-98 4,374 6.205 278 586 77 2.478 180 593 5,546 20,317 1995.99 4.517 6.523 305 618 119 2,221 180 612 5,627 20,722 1999-00 4,932 7,095 318 675 116 3,006 196 658 5.721 22.719 2000-01 5,322 8.026 390 820 158 3,051 242 736 6,015 24.762 2001-02 5,641 8,300 439 931 172 3.276 231 767 6.569 26.346 2002-03 6.191 6.709 400 730 207 3,430 247 822 6.895 27.631 2003.04 6.946 6,533 317 800 240 2,767 264 874 7,580 28.323 2004-05 6,771 9.163 352 821 353 4,606 304 982 6.097 31.469 (1) General governmental lax revenues are included in taxes. licenses and permits. intergovernmental revenues and miscellaneous revenue of the City's General Fund SOURCE: City Finance Department 95 + 8,000 6.000 4000 P 2000 0 I 1996 1937 SOURCE: County Auditor -Controller C I N OF LODI SECURED TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (Amounts in Thousands) 1998 1939 ToteI Fiscal Tax Year Levy 1996 $ 3.781 1997 3,627 1998 4,444 1999 4653 2000 5,056 2001 5,182 2002 5,757 2003 5,832 2004 6,570 2005 7,057 SOURCE: County Auditor -Controller C I N OF LODI SECURED TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS (Amounts in Thousands) 1998 1939 2000 2001 2002 2003 2004 2005 ! s Tax Levy i —Tax Collections Percent current Year's Percent of Delinquent Total of Total Tax Collections Tax Tax Collections _ Collections to Tax Levy — Collections Collections to Tax Levy 3,615 95.6% 8 8 3,615 95.R 3,682 96.2% 3.682 96.2% 4.433 99.8% 4.433 99. B% 4,578 98.4% 4,578 98.4% 4,917 97.3% 4,917 97.3% 5,118 98.8% 5.118 98.8% 5.640 98.0% 5,640 98,0% 5.408 92.7% 5.408 92.7% 5.784 07.7% 5,764 07.7% 7,070 100.2% 7,070 100.2% 96 CITY OF LODI ASSESSED FULL CASH VALUE OF ALL TAXABLE PROPERTY LAST TEN FISCAL YEARS (Amounts in Thousands) Fiscal Secured Utility Year Roll Roll 1995-96 $ 2,427,757 S 3,560 1996-97 2,463,536 3.557 1997-98 2,515,478 3.699 1998-99 2,574,622 3.826 1999-00 2,707,343 3,525 2000-01 2,880,201 3.484 2001-02 3,096,937 3.379 2002-03 3,381.945 3.352 2003-04 3,619,116 3.893 2004-05 3,877,398 3.782 Fiscal 3,592,392 200,957 Year Land Improvements 1995.96 $ 691.116 S 1,654,842 1996-97 709.296 1,673,877 1997-98 728.900 1,705,635 1998-99 756,166 1,748,387 1999-00 787.249 1,847,800 2000-01 832.788 1,982,668 2001-02 889,262 2,164,121 2002-03 960.168 2,366,887 2003-04 1,027,462 2,549,660 2004-05 1,107,776 2,739,061 Source. San Joaquin County Assessors Office Unsecured Tax Less Net Tax Roll Roll Exemptions Roll S 125,011 S 2,556,328 S 170,899 $ 2,385,429 125,907 2,593,000 172,945 2,420,055 129.396 2,648,573 176.500 2,472,073 146,345 2,724,793 179.835 2,544,958 163.299 2,874,167 183.294 2,690,873 177,040 3,060,725 185.473 2,875,252 198.678 3,298,994 190.252 3,108,742 207.095 3,592,392 200,957 3,391,435 202.785 3,825,794 212,102 3.613.692 215.469 4,096,649 217.077 3,879,572 Personal Less NetAssessed Property Total Exemptions Value $ 210.370 $ 2,556,328 $ 170,899 $ 2,385,429 209.827 2,593,000 172.945 2,420,055 214.038 2,648 573 176.500 2,472,073 220,240 2,724,793 179.835 2,544,958 239.118 2,874,167 183,294 2,690,873 245.269 3,060,725 185.473 2,875,252 245.611 3,298,994 190.252 3,108,742 265.339 3,592,392 200,957 3,391,435 248.472 3,825,794 212,102 3.813.692 249.812 4,096,649 217.077 3,879,572 97 CITY OF LODI PROPERTY TAX RATES-- DIRECT OVERLAPPING GOVERNMENTS LAST TEN FISCAL YEARS Per 1100.00 of Assessed Value 2004-05 i © County -Wide Levy ■ County -Wide City ❑ County -Wide School d County -Wide All Other SOURCE San Joaquin County Auditor/Controller's Office 98 1 _ -1 __. __.7 _ _ ._.J _.. - I -- -.1 _ _ J _...] _ _1 ? 1 - 1 __ ..l . _ _ I - A _J __ 1 - _ _I ] Basic Fiscal County -Wide Year L _y Cm School All Other Intal 1995-96 1.0000 0.0123 0.0028 0.0034 1.0185 1996-97 1.0000 0.0000 0.0022 0.0034 1.0056 1997-98 1.0000 0.0000 0.0019 0.0034 1.0053 1998-99 1.0000 0.0000 0.0001 0.0034 1.0035 1999.00 1.0000 0.0000 0.0002 0.0034 1.0036 2000-01 1.0000 0.0000 0.0002 0.0000 1.0002 2001-02 1.0000 00000 00002 00000 1.0002 2002-03 1.0000 0.0000 0.0487 0.0000 1.0487 2003-04 1.0000 00000 0.0475 0.0000 1.0475 2004-05 1.0000 0.0000 0.0311 0.0000 1.0311 SOURCE San Joaquin County Auditor/Controller's Office 98 1 _ -1 __. __.7 _ _ ._.J _.. - I -- -.1 _ _ J _...] _ _1 ? 1 - 1 __ ..l . _ _ I - A _J __ 1 - _ _I ] C I N OF LODI SPECIAL ASSESSMENT BILLINGS AND COLLECTIONS LAST TEN FISCAL YEARS (Amounts in Thousands) 99 Total Outstanding Current and Delinquent Assessments Total Collection As Percent of current Current current Fiscal Assessments Assessments Assessments Year Due Collected Due 1995-96 51 50 98.0% 1995-97 125 125 100.0% 1997-98 0.0% 1998-99 0.0% 1999-00 0.0% 2000-01 0.0% 2001-02 0.0% 2002-03 0.0% 2003-D4 0.0% 2004-05 0.0% SOURCE City Finance Department 99 Total Outstanding Current and Delinquent Assessments CITY OF'LOpI RATIO OF NET GENERAL BONDED DEBT TO TAXABLE ASSESSED VALUE AND NET BONDED DEBT PER CAPITA LAST TEN FISCAL YEARS (Amounts in Thousands) SOURCE: City Finance Depariment 100 i Debt Payable Gross Gross From Net Percent of Net Net Fiscal Assessed Bonded Enterprise Bonded Bonded Debt to Bonded Debt Year Population Value Debt Revenue Debt Assessed Value Per capita 1995-96 54 2,556,328 15.078 10,078 5,000 0.1956% 92.59 1996-97 55 2,593,001 24.948 9,978 14,970 0.5773% 272.18 1997-98 56 2,648,573 24,372 9.672 14.500 0.5475% 258.93 1998-99 57 2,724,793 23,776 9,762 14.014 0.5143% 245.86 5999-00 58 2,874,167 23,146 9,636 13,510 0.4700% 232.93 2000-01 59 3,060,725 72,911 59,930 12,981 0.4241% 220.02 2001-02 59 3,298,994 101,675 74,930 26,745 0.8107% 453.31 2002-03 60 3,592,392 143.748 117,733 26.015 0.7242% 433.58 2003-04 60 3,825,793 174,205 148.675 25,530 0.6673% 425.50 2004-05 60 4,096,649 151,645 126,615 25,030 0.6110% 417.17 SOURCE: City Finance Depariment 100 i DIRECT DEBT: CERTIFICATE OF PARTICIPATION OVERLAPPING DEBT: NONE Total CITY OF LODI COMPUTATION pF DIRECT AND OVERLAPPING GENERAL BONDED DEBT June 30, 2005 Total Percent City's Share COP Applicable of Debt $ 25,030,000 100.00% $ 25,030,000 0 0 $ 25,030,000 $ 25,030,000 DEBT RATIOS June 30, 2005 Ratio of Direct Overlapping Debt to Assessed Full Cash Value = 25,030,000 14,096,649,000 Direct and Overlapping Debt Per Capita =25,030,000 !62,467 Taxable Assessed Full Cash Values For Capita = 4,086,649,000162,467 SOURCE: City Finance Department 101 o.61% $ 420 S 65,581 CITY OF LODI COMPUTATION OF LEGAL DEBT MARGIN June 30,2005 Assessed Full Cash Value as of June 30,2004 (1) Debt Limit- 15 Percent of Assessed Full Cash Value (2) Amount of Debt Applicable to Debt Limit LEGAL DEBT MARGIN (1) Assessed Value before exemptions applicable to 2004-05 Tax Roll (2) Section 43605 California Government Code SOURCE: San Joaquin County Auditor/Controller's Office City Finance Deparhnent $ 4,096,649,000 $ 614,497,350 0 $ 614,497,350 102 -- --._J J -_) J _._J .-.. 1 ] l l ) j 1 1 J "Zero balances occured in 1996-97 due to general obligation bonds paid off in 1995-96. SOURCE: City Finance Department 103 CITY OF LODi RATIO OF ANNUAL DEBT SERVICE EXPENDITURES FOR GENERAL BONDED DEBT TO TOTAL GOVERNMENTAL EXPENDITURES LAST TEN FISCAL YEARS (Amounts in Thousands) Percent of Total Total Debt Service Fiscal Debt Governmental to Governmental Year Principal Interest Service Expenditures Expenditures 1995-98 $ 118 $ 4 $ 122 $ 30,431 0.40% 1996-97 37,763 1997-98 470 818 1,288 45,585 283% 1998-99 485 797 1,282 34,797 3.68°/a 1999-00 505 777 1,282 35.694 3.59% 2000-01 530 755 1,285 45,877 280% 2001-02 555 679 1,234 51,489 2.40% 2002-03 730 1,220 1,950 52,990 3.68% 2003-04 455 1,186 1,671 52,422 3.19% 2004-05 500 1.172 1,672 55,689 3.00% "Zero balances occured in 1996-97 due to general obligation bonds paid off in 1995-96. SOURCE: City Finance Department 103 CITY OF LODI REVENUE BOND COVERAGE LAST TEN FISCAL YEARS U1:11 Current Fiscal Year's Net Debt Service Requirements Revenue Interest Total Direct Available Fiscal Gross Operating For Debt Year Revenue Expense Service 1995-96 3,339,315 3,301,761 37,554 1996-97 3,444,597 2,863,017 581,580 1997-98 3,946,058 2,913,965 1,032,089 1996-99 3,935,906 2,957,162 977,844 1999-00 3,874,750 3,146,931 727.819 2000-01 4,697,052 4,336,384 360.668 2001-02 4,138,729 4,807,716 (668,987) 2002-03 6,750,379 4,380,114 2,380,265 2003-04 59,458,915 51,244,047 8,214,868 2004-05 61,993,861 55,306,458 6,687,403 SOURCE City Of Lodi Finance Department U1:11 Current Fiscal Year's Debt Service Requirements Principal Interest Total Coverage 110.000 696,357 666,357 0.05 115,000 688,818 803.818 0.72 120.000 682,218 802,218 1.29 125,000 675.030 800.030 1.22 140,000 666.770 806.770 0.90 145,000 858.070 603.070 0.45 150,000 648,920 798.920 (0.84) 160,000 639,000 799.000 2.98 2,325,000 3,975,207 6,300,207 1.30 6,435,000 5,355,966 11,790,966 0.57 CITY OF LODI DEMOGRAPHIC STATISTICS LAST TEN FISCAL YEARS 700, 000 _ 600,000 -- - 500.000 400,000 _ 300.000 200,000 -- - — - — ---- - — --- 100,000 0 1996-9 1997-98 1998-99 1999-00 2000-01 2001.02 2002-0.` 2003-C4 2004-05 0 City Population ■ San Joaquin County Population Population San Joaquin Population Rank in Sire Fiscal Square City percent County percent of California Year Miles Population Change Population of County Cities 1995-96 1232 54.473 1.7% 529.300 10.3% 81 1996-97 1232 54.800 0.6% 535.420 10.2% 123 1997.98 1232 55.700 1.6% 545.200 10.2% 124 1998-99 1232 56,900 2.2% 554.400 10.3% 124 1999-00 1250 57.900 1.8% 566.600 10.2% 125 2000-01 1260 56,600 1.2% 583,700 10.0% 126 2001-02 1262 59.431 1.4% 596,000 10.0% 129 2002-03 1269 60,500 1.8% 613.500 9.9% 179 2003-04 1279 60,769 0.4% 630,600 9.6% 130 2004-05 1261 62.467 1.0% 653.333 9.6% 131 SOURCE: State of California. Departmentof Finance. Demographic Research Unit. City Finance Depanment Budget 105 3000 2500 2000 1500 1000 500 0 CITY OF LODI CONSTRUCTION ACTIVITY LAST TEN FISCAL YEARS Building Permits 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 SOURCE: City Community Development Department 106 Number of Estimated Fiscal Building Permits Percent Valuation Percent Year Issued Change (in thousands) Change 1996 1464 47.28% 29,019 -35.34% 1997 1486 1.50% 57,452 97.98% 1998 1632 9.83% 59,790 4.07% 1999 1749 7.17% 74,012 23.79% 2000 1856 6.12% 77.613 4.87% 2001 2275 22.58% 104,380 34.49% 2002 2090 -8.13% 69,693 -33.23% 2003 2492 19.23% 92,015 33.18% 2004 2659 6.70% 109,565 18.05% 2005 2716 2.14% 123.729 12.93% SOURCE: City Community Development Department 106 i i _ r i t -t !00,000 700,000 600,000 a 500,000 C g 400,000 2 300,000 200,000 100,000 0 CITY OF LODI BANK DEPOSITS LAST TEN FISCAL. YEARS' (Amounts in Millions) 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 IE BANKS ❑ SAVINGS & LOANS ❑ CREDIT UNIONS Fiscal SAVINGS & CREDIT Year BANKS LOANS UNIONS 1,999 $ 492,636 $ 282,339 S 14.111 1,990 540,545 267,501 12,813 1991 691,677 183,936 12,465 1992 649,252 198,756 13,993 6 993 666,342 191,014 15,405 1994 627.132 186,159 15,689 1995 643.109 159,276 16,036 1996 682,223 121,183 15,721 6 997 698,080 118,200 16,894 1698 725.210 113,431 17.729 Source: Califomia State Departmeni of Banking - Licensing & Statistics Section • Information on this page is the most recent data available. 107 C I N OF LODI PRINCIPAL EMPLOYERS JUNE 30.2005 Employer Activity Employees Lodi Unified School Dist Education 2.800 Lodi Memorial Hospital Health Care 1,160 General Mills Cereals and Food Mixes 457 Pacific Coast Producers Cannery 747 City of Lodi Government 429 Wal-Mart General Merchant 317 CertainTeed PVC Pipe Manufacturer 99 Target General Merchant 186 Valley Industries Trailer Hitches 295 Farmers and Merchants Bank Banking 314 SOURCE: City of Lodi Community Development Department 108 CITY OF LODI PRINCIPAL TAXPAYERS JUNE 30,2003. Property owner Land Use Assessed Valuation Percent of Total M General Mills. Inc Food Processing $ 177,786,543 5.26% Lodi Memorial Hospital Hospital 65,463,182 1.92% Pacific Coast Producers Manufacturing 47, 421, 529 1.40% Pacific Coast Producers Corp Manufacturing 31.718.276 0.94% Certainteed Corp Manufacturing 16,830,099 0.56% Lodi 2000 Distribution Trust Winery 17,245,650 0.51% Interlake Material Handlinglnc Manufacturing 14,400,942 0.43% Dart Container Corporation Warehousing 12, 5C4 2 99 0.37% Panattoni, Carl 0EtAl Developer 12,331,031 0.36% Sylvan Fountains Ltd PTP Property Management 11,200,982 0.33% $ 408,602,533 12.08% (1) Local Secured Assessed Valuation: $ 3,381,945,44D Source San Joaquin County Assessor's Omce .Information on this page is the most recent data available 109 CITY OF LODI SURETY BONDS OF PRINCIPAL OFFICIALS JUNE 30, 2005 City Manager $500.000 Deputy City Manager 500,000 City Attomey 500.000 City Clerk 500.000 Public Works Director 500,000 Police Chief 500.000 Fire Chief 500,000 Finance Director 500,000 Community Development Director 500,000 Electric Utilities Director 500.000 Community Center Director 500,000 Parks and Recreation Director 500.000 Human Resources Director 500,000 City employees are covered by a commercial fidelity band amounting to a maximum of 8500,000 per loss. SOURCE: City of Lodi 110 CITY OF LODI GANN APPROPRIATION LIMITATION Last Ten Fiscal Years FISCAL LIMIT CPI or POPULATION GROWTH APPROPRIATION YEAR BASE INCOME GROWTH FACTOR LIMITATION 1995-96 $ 36,515,234 10470 10131 1.0609 5 38,739,012 1996-97 38,739,012 10467 10168 1.0643 41,229,332 1997-98 41,229,332 10467 10070 10540 43,456,825 1998-99 43,456,825 10536 10120 1.0420 45,785,303 1999-00 45,785,303 10453 10194 1.0656 48,787,849 2000-01 48,787,849 10491 10129 1.0626 51,843,597 2001-02 51,843,597 10782 10190 1.0987 56,959,824 2002-03 56,959,824 09873 10214 10084 57,439,894 2003-04 57,439,894 10231 10169 1.0404 59,759,914 2004-05 59,759,914 10328 10075 1.0405 52,182,939 SOURCE City Finance Department, n fl BUDGETSUBJECT TO LIMIT VARIANCE 5 18,583,360 5 20,155,652 19,243,568 21,985,764 20,096,975 23,359,850 20,491,809 25,293,494 20,907,397 27,880,452 22,482,923 29,360,674 25,610,753 31,349,071 28,013,113 29,426,781 28,710,584 31,049,330 29,221,131 32,961,808 CITY QF LODI PERSONNEL AUTHORIZED LASTTEN FISCAL YEARS 13 Administration ■ Community Development ❑Electric Utility�� ❑ Finance Department ■ Fire Department 13 Library 1 ❑ Parks & Recreation 13 Police Department ■ Public Works Department DEPARTMENT 1995.96 1996-97 1997.98 1998-99 1999-00 200041 2001-02 2002-03 200344 200445 Administration 21 24 26 30 32 34 34 37 36 37 Community Development 13 14 14 15 15 17 17 18 17 17 Electric Utility 39 43 44 44 46 47 50 52 52 52 Finance Department 35 34 34 32 34 34 35 38 38 38 Fire Department 48 48 48 49 50 52 55 68 61 68 Library 15 14 14 14 14 14 14 15 15 15 Parks & Recreation 27 26 27 26 26 29 29 34 34 34 Police Departmenl 106 112 112 113 113 114 115 117 116 117 Public Works Department 87 92 94 95 99 103 108 110 110 111 Total 391 407 413 418 429 444 457 489 479 489 SOURCE: City of Lodi Finance Department 112 CITY OF LODI SCHEDULE OF TAXABLE SALES AND PERMITS BY CATEGORY LAST TEN FISCAL YEARS (Amounts in Thousands) 1996 1997 1598 1999 2000 2001 2002 2003 2.004 2005` SALES (IN THOUSANDS OF DOLLARS): Apparel Stores 5 5,651 S 5.633 s 5,020 S 4.778 5 4.458 S 4,702 S 5,417 5 5.696 $ 8.534 s 10,564 General Merchandise Stores 84.977 105,423 111,930 120,952 120,263 132.747 131,371 144,160 136,541 141,867 Drug Stores 13,411 Food Stores 34.029 34,247 34,344 37,328 42,977 42.600 43,271 44,448 45.666 50.684 Packaged Liquor Stores 6,150 Eating 8 Drinking Places 44.598 45.349 46,316 49.803 52.860 52,952 59,594 68.092 67,326 71.856 Home Furnishings&Appliances 12.808 12,136 17,319 22,254 17,908 18.055 15.886 19.252 19.780 18,433 Building Materials & Farm Tool 31.858 29.865 32.424 39.369 47,467 45.722 46,048 41.772 42.524 53.107 Auto Dealers & Supplies 102.788 101.933 106.531 123,667 141,640 137.830 166,102 201.528 199.904 189,591 Service Stations 35,095 35.746 29.203 36,491 46,794 45.675 45.130 43.212 45.754 47 431 Other Retail Stores 30.502 39.759 45.689 47.022 48.759 49.862 49.262 48.920 53.306 56,615 Total Retail Stores 401,867 410 091 428,776 481.664 523.126 530.145 562.081 617,080 619,335 640.148 Alt Other Outlets 116,040 130,660 133,453 143,207 154.590 153,314 148.736 141,456 138.337 156,725 TOTAL 5 517.867 $ 540.751 s 562.229 $ 624.871 S 677,716 683.455 S 710.817 S 758,536 S 755.672 s 796,873 PERMITS Apparel Stares 22 28 28 28 28 31 19 23 26 27 General Merchandise Stores 13 22 21 23 24 24 21 20 22 23 Drug stores 8 Food Stores 45 47 51 53 59 56 61 60 61 62 Packaged Liquor Starer 7 Eating & Drinking Places 146 146 151 151 148 153 160 165 181 180 Home Furnishings 8 Appliances 41 47 43 53 55 53 63 64 72 72 Building Materials & Farm Toot 30 25 22 22 23 23 24 26 24 25 Auto Dealers 8 Supplies 66 78 81 77 83 81 83 80 86 86 Service Stations 19 17 16 t5 15 16 16 15 18 18 Other Retail Stores 197 205 229 258 268 268 296 303 347 364 Total Retail Stores 594 615 642 680 703 705 743 756 837 857 All Other Outlets 918 900 669 875 882 869 912 894 837 917 TOTAL 1512 1515 1511 1555 1585 1574 1655 1650 1,674 1.774 ` First three quarters are actual. the fourth quarter is an estimate SOURCE State Board of Equalization. State of California 113 CITY OF LOBI SCHEDULE OF TAXABLE SALES LAST TEN FISCAL YEARS * Apparel Stores ■ General Merchandise Stores Q Drug Stores ❑ Food Stores Packaged Liquor Stores 0 Eating& Drinking Places Home Furnishings8 Appliances A Building Materials& Farm Tool ■ Auto Dealers & Supplies ■ Service Stations [p Other Retail Stores State Board of Equalization 916-445-3192 JOT Reynolds or Have I [ayes 916.455-6188 114 C I N OF LODI SCHEDULE OF BUSINESS TAX RECEIPTS ISSUED YEAR ENDED JUNE 30,2005 TYPE OF BUSINESS NO. OF BUSINESSES PERCENT Mining Located in Lodi: 0.09% Construction Agriculture. Forestry and Fishing 14 4.3W6 Mining 0 0.00% Construction 397 11.20% Manufacturing 125 3.53% Transportation and Public Utilities 31 0.87% wholesale trade 91 2.57% Retail trade 550 15.51% Finance. Insuranceand Real Estate 322 9.08°/6 Services 2,015 56.85% Total 3,545 Locatedoutside Lodi: Agricuiture. Forestry and Fishing 2 0.18% Mining 0.09% Construction 724 65.17% Manufacturing 12 1.08% Transportation and Public Utilities 8 0.72% wholesale trade 34 3.06% Retail trade 35 3.15% Finance. Insuranceand Real Estate 40 3.59% Services 255 22.95% Total 1111 100.00% Grand Total 4,656 SOURCE City Finance Records 115 CITY OF LODI MISCELLANEOUS STATISTICS JUNE 30.2005 POPULATION ELECTRiG UTILITY Population 52,457 Number of Customers 27.558 Assessed Value 54. lb Energy Sales (KWH) 455,235,098 Building Permitslssued 2,716 PeakDemand(MW) 121.0 Date of Incorporation December 6,1906 Form of Government Council -Manager PARKS & RECREATION Employees 429 Parks Developed 24 Area 12.81 Acres Paries Developed 275.34 Parks Undeveloped 5 FIREPROTECTION Acres Parks Undeveloped 97.25 Number of Stations 4 CommunityCenter Number of Firefighters 49 Swimming Pools 3 Number of Reserve Firefighters 0 Tennis Courts 11 Number of Calls Answered 4,273 Boat Ramp 1 Playgrounds 18 POLICE PROTECTION Ball Parks Various 26 Number of Stations Soccer Fields 22 Numberof Police Officers 78 Football Field 3 Numberof Reserve Officers 3 HandbalVBasketbalWolleyball Courts 7.5 Number of Support Personnel 39 Horseshoe Pits 10 Number of Calls Answered 47,198 PUBLIC WORKS EDUCATION Miles of Streets 190 Elementary Schools (public) 31 Miles of Alley Ways 14 Middle Schools (public) a Number of Street Lights 6,995 High Schools (public) 7 Number of Traffic Signals 60 ElementarySchwls Enrollment (public) 15,462 MiddleSchools Enrollment (public) 4,570 WATERIWASTEWATER High Schools Enmllment(public) 8,790 Miles of Water Mains 227 Miles of Wastewater Lines 182 K-8 Schools (private) 5 Numberof Waslewaler Treatment Plants 1 High Schools (private) 2 Average Daily Treatment 6,71VIG K-8 Enrollment(private) 1.249 Maximum Daily Capacity 8.5MG High School Enrollment (private) 339 HOSPITALS Numberof Hospitals 1 Numberof PatientBeds 172 116 L_ L__ L_ _ L- L_._.__ L� L_ L.- L__._ L- i - L _ _ L- L.� I _ I L- L____ i SINGLE AUDIT REPORTS CITY OF LODI SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR T1IL` FISCAL YEAR ENDED JUNE 30,2005 Federal Grantor Pass-through Grantor or Direct Proeram Title U.S. Department of Housing and Urban Development Passed through San Joaquin County Department of Planning and Building Inspection Community Development Block GrantlEntide.ment Grants: 2003-2004 Program Year 2002-2003 Program Year 2001-2002 Program Year 2000-2001 Program Year 1998-1999 Program Year Total U.S. Department of Housing and Urhan Develolrment U.S. Department of Justice Direct: Local Law Enforcement Block Grant Passed through San Joaquin County Office of the District Attorney Byrne Formula Grant Prograni Total U.S. Department of Justice U.S. Department of Transportation Direct: Federal Transit Formula Grant: 2004-2005 Program Year 2003-2004 Prograni Year Total Federal Transit Formula Grant CFDA Grant/Project Number Number Expenditures 14.218 NIA 793,586 14.218 NIA 46,344 14.218 NIA 9,000 14.218 NIA 3,029 14.218 NIA 670 852,629 16.592 2003 -LB -BX -0030 27.482 16.579 DC97080390 115,280 142.762 20.507 NIA 939,600 20.507 NIA 8.538 (Continued) See accompanying notes to the schedule of expenditures of federal awards 117 CITY OF NODI SCI IEDLJLE OF EXPENDITURES OF FEDERAL AWARDS (Continued) FOR 7'lIE FISCAL YEAR ENDED JUNE 30,2005 Federal Grantor Pas—through Grantor or Direct CFDA Grssxl4raject ?rop,rant Title Number Number Expenditures U.S. Department ofTransportation (Continued) Passed througfs California Department of Transportation: Highway Planning and Construction 20.205 CNIL-5)54(028) 109,670 Highway Planning and Construction 20.205 CML -5)54(025) 65,176 Highway Planning and Construction 20.205 CML -5154(021) 52,343 Total Highway Planning and Construction 227.189 Total U.S. Department ofTransponation 1,175,327 U.S. Department offiomeiand Security Assistance to Firefighters Grant 97.044 )M W -2003-FG- I 3104 48.737 Total federal awards $ 2,219,455 See accompanying notes to the schedule ofexpenditiires of federal awards. 118 CITY OF LODI NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30, 7.005 NOTE I - GENERAL The accompanying Schedule of Expenditures of Federal Awards (SEFA) for the fiscal year ended June 30, 2005, presents the activity of all federal award programs of the City of Lodi, California (City). The City reporting entity is defined in Note 1 of the City's basic financial statements. All federal awards received directly from federal agencies, as well as federal awards passed through other government agencies, are included in the SEFA. NOTE 2 - BASIS OF ACCOUNTING The accompanying SEFA is presented using the modified accrual basis of accounting for grants accounted for in governmental fund types and the full accrual basis of accounting for grants accounted for in proprietary fund types, as described in Note 1 of the City's basic financial statements. NOTE 3 - CATALOG OF FEDERAL DOMESTIC ASSISTANCE The CFDA numbers included in the accompanying SEFA were determined based on the program name, review of grant contract information and Office of Management and Budget's Catalog of Federal Domestic Assistance. NOTE 4 - SUBRECIPIENTS Of the federal expenditures presented in the schedule, the City provided federal awards to subrecipients as follows: Federal Program Community Development Block Grant/End(lernent Grant Federal CFDA Number 119 14.218 Amount Provided to Subrecipients 508,290 MACIAS GINI & COMPANY,,p 3000 S Street, Ste. 300 Sacramento, California 95816 916.928.4600 11110\'F 916.928.2755 FAX INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF BASIC FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS The Honorable Members of City Council City of Lodi, California We have audited the financial statements of the governmental activities, the business -type activities, each major fund and the aggregate remaining fund information of the City of Lodi, California (City), as of and for the fiscal year ended June 30, 2005, which collectively comprise the City's basic financial statements and have issued our report thereon dated January 25, 2006, which contained an explanatory paragraph discussing the City's adoption of the provisions of Governmental Accounting Standards Board Statement No. 40, Deposit and Investment Risk Disclosures. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. hrternal Control Over. Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. 120 Certified public accountants & management consuftants However, we noted other matters involving the internal control over financial reporting that we have reported to the management of the City in a separate letter dated January 25, 2006. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Govennnent Auditing Standards. This report is intended solely for the information and use of the City Council, management, federal and state grantor agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Certified Public Accountants Sacramento, California January 25, 2006 121 MACIAS GINI & COMPANYLLP 3000 S Street, Ste. 300 Sacramento, California 95816 916.928.4600 !'RUNE 916.928.2755 FAX INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM, INTERNAL CONTROL OVER COMPLIANCE AND SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS IN ACCORDANCE WITH OMB CIRCULAR A-133 The Honorable Members of City Council City of Lodi, California Compliance We have audited the compliance of the City of Lodi, California (City), with the types of compliance requirements described in the U. S. Office of Management add Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the fiscal year ended June 30, 2005. The City's major federal programs arc identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the City's management. Our responsibility is to express an opinion on the City's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits cf Stares, Local Governnients, and Non -Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City's compliance with those requirements. 122 Certified public accountants & management consultants As described in item 05-01 in the accompanying schedule of findings and questioned costs, the City did not comply with requirements regarding the Davis -Bacon Act compliance requirement that are applicable to its Community Development Block Grants/Entitlement Grants program. Also, as described in itenis 05-02 and 05-03 in the accompanying schedule of findings and questioned costs, the City did not comply with requirements regarding the subrecipient monitoring compliance requirements that are applicable to its Community Development Block Grants/Entitlement Grants program. Compliance with such requirements is necessary, in our opinion, for the City to comply with requirements applicable to that program. In our opinion, except for the noncompliance described in the preceding paragraph, the City complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 2005. Internal Control Over Compliance The management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. We noted certain matters involving the internal control over compliance and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over compliance that, in our judgment, could adversely affect the City's ability to administer a major federal program in accordance with the applicable requirements of laws, regulations, contracts, and grants. The reportable conditions are described in the accompanying schedule of findings and questioned costs as item 05-01, 05-02, and 05-03. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance \vitli applicable requirements of laws, regulations, contracts and grants caused by error or fraud that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we consider the reportable conditions described above to be material weaknesses. 123 Schedule of Expenditures of Federal Awards We have audited the financial statements of the governmental activities, the business -type activities, each major fund and the aggregate remaining fund information of the City, as of and for the fiscal year ended June 30, 2005, and have issued our report thereon dated January 25, 2006, which contained an explanatory paragraph discussing the City's adoption of the provisions of Governmental Accounting Standards Board Statement No. 40, Deposit and Investment Risk Disclosures. Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis, as required by OMB Circular A-133, and is not a required part of the basic financial statements. Such 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. This report is intended solely for the information and use of the City Council, management, federal and state grantor agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. 4Lt'as &&V' I' UP Certified Public Accountants Sacramento, California January 25, 2006 124 L___._ L_. L_,._ L_ L - L__ L_____ CITY OF LODI SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30, 2005 Section I — Sunmiary of Auditor's Results Financial Statements: Type of auditor's report issued: Unqualified internal control over financial reporting: • Material weaknesses identified? No • Reportable conditions identified that are not considered to be material weaknesses? None reported Noncompliance material to financial statements noted? No Tederal Awards: Internal control over major programs: • Material weaknesses identified? Yes • Reportable conditions identified that are not considered to be material weaknesses? None reported Type of auditor's report issued `on compliance for major programs: Qualified Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? Yes 125 CITY OF LODI SCHEDULE OF FJNDJNGS AND QUESTIONED COSTS (Continued) FOR THE FISCAL YEAR ENDED JUNE 30,2005 Identification of major programs: Community Development Block Grants/Bntitleiiient Grants CFDA #/14.218 Federal Transit Formula Grant CFDA #/20.507 Dollar threshold used to distinguish between type A and type B programs: $300,000 Auditee qualified as low-risk auditee? Yes None Section 11 — Financial Statement Findings 126 CITY OF LODI SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) FOR THE FISCAL YEAR ENDED JUNE 30,2005 Section III — Federal Award Findings and Questioned Costs Finding No. 05-01 Community Development Block Grants/Entitletnent Grants CFDA No. 14.218 Department of Housing arid Urban Development David -Bacon Act Criteria Non-federal entities shall include in their construction contracts, subject to Davis -Bacon Act, a requirement that contractors or subcontractors comply with the requirements of the Davis -Bacon Act and the DOL regulations (29 CFR part 5, "Labor Standards Provisions Applicable to Contracts Governing Federally Financed and Assisted Construction"). This includes a requirement for contractors or subcontractors to submit to the non-federal entity weekly, for each week in which any contract work is performed, a copy of the payroll and a statement of compliance (certified payrolls) (29 CFR sections 5.5 and 5.6). Condition The County of San Joaquin performs the function of ensuring that contractors submit weekly a copy of the payroll and a statement of compliance related to construction activities funded by Community Development Block Grant funds for the City. Per our testing of weekly payrolls submitted by one contractor to the County of San Joaquin, we noted that several weekly payrolls records were missing for the period of November 2004 through mid-March 2005. This period corresponds with the contractor's progress payments #/7 through #9, which were approved for payment using Community Development Block Grant funds allocated to the City. It is evident that the County of San Joaquin is not receiving a copy of the payroll and a statement of compliance for each week in which contract work is performed. As the County of San Joaquin was missing payrolls and statements of compliance, we could not ascertain a complete population to verify that contractors and subcontractors were submitting weekly required certified payrolls. Questioned Costs The amount paid on the contract in question during the year was $309,180. 127 CITY OF LODI SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) FOR THE FISCAL YEAR ENDED JUNE 30, 2005 Cause The County of San Joaquin does not reconcile copies of payrolls and statements of compliance received to progress payments made to the contractor on a timely basis. Per the County of San Joaquin, a final reconciliation of certified payrolls records with progress payments has not been completed. This final reconciliation process is typically done when the City has submitted a "Notice of Completion," a copy of the resolution from the City's City Council accepting the project as completed, and a request to release the contractor's retention payment, at which time the project is closed -out and reported to the Department of Housing and Urban Development's Department of Labor on the County's quarterly report. Effect The County of San Joaquin and the City could be subject to sanctions Recommendation The County of San Joaquin should reconcile on a timely basis, at least quarterly to ensure they are receiving a copy of payrolls and statement of compliance each week. Managen¢ent's Response County of San Joaquin indicated that the process of performing a final reconciliation when the City has submitted a Notice of Coinpletion, a copy of the resolution from the City's City Council accepting the project as completed, and a request to release the contractor's retention payment, at which time the project is closed -out and reported to the Department of Housing and Urban Development's Department of Labor on the County's quarterly report is sufficient. 128 I L_._ - l____ 1 L_ _ �___ _ L- L- L_L__ I I I L_ L..-:.... L- L- L- L_ _ L___ CITY OF LODI SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) FOR THE FISCAL YEAR ENDED JUNE 30, 2005 Finding No. 05-02 Community Development Block Grants/Entitlement Grants CFDA No. 14.218 Department of Housing and Urban Development Sub -recipient Monitoring Criteria A pass-through entity is responsible for award identification. At the time of the award, the pass-through entity should identify to the sub - recipient the federal award information (e.g., Catalog of Federal Doillestic Assistance (CFDA) title and number, award name, name of federal agency) and applicable compliance requirements. Corrditiori Per our review of the sub -recipient agreement between City and the Salvation Army, we noted that the City did not identify in that agreement the federal award information. Questioned Costs The amount passed -through to the Salvation Army during the year was $355,360. Cause The City was unaware of these requirements. Effect The City could be subject to sanctions. Recommendation We recommend that the City ensure it includes in its award documentation to sub -recipients the federal award information (e.g., CFDA title and number, award name, name of federal agency) and applicable compliance requirements. 129 CITY OF LODI SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) FOR THE FISCAL YEAR ENDED JUNE 30, 2005 Management's Response The Community Development Director for the City indicated that he consulted with the County of San Joaquin, who administers the Community Development Block Program Consolidated Plan for participating jurisdictions, which includes the City, and she indicated she was not familiar with the CFDA title and number of the program. Based on that information, the Community Development Director for the City believed that the City agreement with the Salvation Army was in accordance with OMB Circular A-133. Finding No. 05-03 Community Development Block Grants/Entitlement Grants CFDA No. 14.218 Department of Housing and Urban Development Sub -recipient Monitoring Criteria Monitoring the sub -recipient's use of federal awards through site visits or other means is required to provide reasonable assurance that the sub - recipient administers federal awards in compliance with laws, regulations, and the provisions of contracts or grant agreements and that performance goals are achieved. Condition The City has a sub -recipient agreement dated November 1, 2004 with the Salvation Army that requires the Salvation Army to submit three quarterly reports and one annual report. Per our testing, we noted that the Salvation Army has not submitted any of the required reports as required by the sub -recipient agreement. Further inquiry established that the City Community Development Department does not have a written sub -recipient monitoring procedures policy. Questioned Costs The amount passed -through to the Salvation Army during the year was $355,360. 130 CITY OF LODI SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) FOR THE FISCAL YEAR ENDED JUNE 30,2005 Cause The City Community Development Department does not have in place a sub -recipient monitoring policy that establishes written procedures for effective monitoring of sub -recipients. In addition, per admission of the Community Development Director the City, the Community Development Department does not have sufficient staff to document timely management decisions for audit and monitoring findings, maintain a system to track and following-up on reported deficiencies related to programs funded by the recipient, or maintaining regular contacts with sub - recipients and appropriate inquiries concerning the federal programs. Effect The City could be subject to sanctions Recommendation We recommend that the City put into place a comprehensive monitoring policy that establishes clear guidelines for communication of federal award requirements to sub -recipients, responsibilities for monitoring sub -recipients, process and procedures for monitoring, methodology for resolving findings of sub -recipient noncompliance or weaknesses in internal control, and requirements for and processing of sub -recipient audits, including appropriate adjustment of pass-through entity's accounts. In addition, we recommend that the City obtain sufficient staffing resources in order to enhance monitoring of sub -recipients. Additional funding for staff can be obtained by using Community Development Block Funds for administration. Currently, the Community Development Department can use 20% of Community Development Block Grant Funds for administration, however administration charges to these funds have been well below the allotted percentage. Management's Response The Community Development Director indicates that they will not receive any monitoring reports from the Salvation Army until after the City delivers the funds and that any monitoring requirements can be handled in their day to day involvement with the Salvation Army. 131 CITY OF LODI SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30,2005 Prior Year Finding 04-01 Federal Transit Formula Grant CFDA No. 20.507 U.S. Department of Transportation - Federal Transit Administration Special Tests and Provisions - Charter Service Criteria The City is required to comply with title 49 CFR part 604 with regard to its use of equipment for charter services funded with FTA funds. Condition The City used FTA funded equipment for charter services and did not follow the following procedures specified by the FTA under title 49 CFR part 604.11, Procedures: (a) To determine if there is at least one private charter operator willing and able to provide the charter service that the recipient desires, the recipient must complete a public participation process: (I) At least 60 days before it desires to begin to provide charter service if it is not doing so on May 13, 1987; or (2) Not more than 90 days after May 13, 1987 if the recipient is providing charter service on May 13, 1987 and desires to continue to provide charter service. (b) The public participation process,nnist at a minimum include: (1) Placing a notice in a newspaper, or newspapers, of general circulation within the proposed geographic charter service area; (2) Sending a copy of the notice to all private charter service operators in the proposed geographic charter service area and to any private charter service operator that requests notice; 132 CITY OF LODI SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS (Continued) FOR THE FISCAL YEAR ENDED JUNE 30,2005 (3) Sending a copy of the notice to the United Bus Owners of America , 1300 L Street, NW., suite 1050, Washington, DC 20005, and the American Bus Association, 1100 New York Avenue, NW, Suite 1050, Washington, DC 20005-3934. (c) The notice most: (1) State the recipient's name; (2) Describe the charter service that the recipient proposes to provide limited to the days, times of day, geographic area, and categories of revenue vehicle, but not the capacity or the duration of the charter service. (3) Include a statement providing any private charter operator desiring to be considered willing and able with at least 30 days from the date of the notice to submit written evidence to prove that it is willing and able; (4) State the address to which the evidence must be sent. (5) Include a statement that the evidence necessary for the recipient to determine if a private charter operator is willing and able includes only the following: (i) A statement that the private operator has the desire and the physical capability to actually provide the categories of revenue vehicle specified; and (ii) A copy of the documents to show that the private charter operator has the requisite legal authority to provide the proposed charter service and that it meets all necessary safety certification, licensing and other legal requirements to provide the proposed charter service. 6) Include a statement that the recipient shall review only that evidence submitted by the deadline, shall complete its review within 30 days of the deadline, and within 60 days of the deadline shall inform each private operator that submitted evidence what the results of the review are. 133 CITY OF LODI SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS (Continued) FOR THE FISCAL YEAR ENDED JUNE 30,2005 (7) Include a statement that the recipient shall not provide any charter service using equipment or facilities funded under the Acts to the extent that there is at least one willing and able private charter operator unless the recipient qualifies for one or more of the exceptions in 49 CFR 604.9(b). (d) Any recipient that desires to continue to provide charter service using FTA funded equipment or facilities shall follow the procedures in 49 CFR 604.11 (b) and (c) annually during the month in which it published its first newspaper notice to re -determine the extent to which there is at least one willing and able private charter operator. Cause The City was unaware of the compliance requirements of the FTA Effect The City could be liable to sanctioning by these grantor agencies. Recommendation The City should review FTA guidelines as they relate to charter services using FTA funded equipment and incorporate those guidelines into their policy on providing charter services. Prior Year Management's Response The City Transportation Department is implementing procedures as required by the FTA to ensure compliance is the use of equipment funded by the FTA in charter services. Current Status Per letter dated December 28, 2004 received from the FTA, the FTA considers the City's revised charter policy to be in compliance with FTA guidelines. Therefore, we consider the recommendation implemented. 134 L.L- L- I L_.__ L-- L.� I .__ L _ L..__ L______ L_._ [_�\�>�%\}%/{�\2;d\[ . N o S co j e