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Agenda Report - November 19, 2008 K-02
AGENDA ITEM WNw2v is% CITY OF LODI COUNCIL COMMUNICATION TM AGENDA TITLE: Review of City's Annual Financial Report (Fiscal Year 2007-08) by Macias, Gini & O'Connell, LLP MEETING DATE: November 19,2008 PREPARED BY: Ruby R. Paiste, Financial Services Manager RECOMMENDED ACTION: Receivefor file the following reports and financial statements submitted by Macias, Gini & O'Connell, LLP and the Finance Departmentfor Fiscal-Year2007-08: • 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 & O Connell, LLP ("MGO) issued an "unqualified opinion." Richard Green, Partner and Scott Brunner, Director of MGO 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 Financial Services Division or the City's Web site at www.lodi.gov and at the Lodi Public Library. Certificate of Achievement The City received a Certificate of Achievement for Excellence in Reportingfrom the Government Finance Officers Association of United States and Canada (GFOA) for the 15th 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 2007-08 Financial Reports. FISCAL IMPACT: NIA FUNDING AVAILABLE: NIA ing, City Manager APPROVED: BIfr.KI'ng, City Manager CITY OF LODI, CALIFORNIA Report to Management For the Year Ended June 30,2008 CITY OF LODI, CALIFORNIA Report to Management For the Year Ended June 30,2008 Table of Contents Page(s) TransmittalLetter........................................................................................_........._....................................... 1 RequiredCommunications ............................. ,...... .............................................. :... ......>........................ 24 Current Year Management Comment and Recommendation.. • --• •• •••••••:••.•••••................... 5 Status of Prior Year Recommendations .......:........:............................................................................. 6-10 MACIAS GINI & O1GONNELL LIP CERTIFIED PUBLIC ACCOUNTANTS S MANAGEMENT CONSULTANTS City Council City of Lodi, California 3000 S Street; Suite 300 Sacramenro. CA 95816 916.9211.46nu 2175 N.Cafifornia Boulevard. Suite 645 Walnut Creek- CA 94596 925.214.0 190 515 S. Figueroa Street, Suite 325 Lor Angeles. CA 90071 211.z66.6400 402 Weir Broadway, Suite 400 San Diego, CA 92101 619.573,1112 We have audited the financial statements of the City of Lodi, California (City) for the year ended June 30,2008, and have issued our report thereon dated November 10,2008. 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, 2008 we considered the City'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, 2008, we became aware of a certain matter that represents an opportunity for strengthening the City's internal control and operational efficiency. The Current Year Management Comment and Recommendation section of this report summarizes our comment and recommendation regarding the matter. 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 November 10, 2008, on the basic financial statements of the City. This letter is intended solely for the information and use of City Council and management and is not intended to be and should not be used by anyone other than these specified parties. We would like to thank the City'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. ezcl aS & 4 ( 1 Q Cp v vt.e (! L, L -f Certified Public Accountants Sacramento, California November 10,2008 www.mgocpa.com An Independent Member of the BDO Seidman Alliance CITY OF LODI, CALIFORNIA Report to Management Required Communications For the Year Ended June 30,2008 I. Our Responsibility Under U.S. Generally Accepted Auditing Standards and OMB Circular A-133 As stated in our engagement letter dated August 1, 2008, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S, generally accepted accounting principles. Our audit of the financial statements does not relive you or management of your responsibilities. 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 financial statements are free 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 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. Office 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. II. Other Information in Documents Containing Audited Financial Statements Our responsibility for other information in documents containing the governmental unit's financial statements and report such as an official statement for a bond offering does not extend beyond the financial information identified in the report. We do not have an obligation to perform any procedures to corroborate other information contained in these documents. III. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to you in our meeting about planning matters on August 21, 2008. CITY OF LODI, CALIFORNIA Report to Management Required Communications (Continued) For the Year Ended June 30,2008 IV. Significant Audit Findings QualitatNe Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. No new accounting policies were adopted, other than GASB Statement No. 50: Pension Disclosures —An Amendment of GASB Statements No. 25 and No. 27. The adoption of GASB 50 required the City to include a disclosure in the notes to the financial statements with the same information presented under the required supplementary information (RSI). The adoption of GASB 50 did not have an impact on the City's financial statements. The application of existing policies was not changed during the year ended June 30, 2008. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. 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, (2) allowance for doubtful accounts, (3) compensated absences, and (4) self-insurance liability. Depreciation Management's estimates of the expected lives of capital assets are based on experience and guidance from the Internal Revenue Service and impact the computation of the depreciation expense for the year. We evaluated the estimated useful lives of the capital assets for reasonableness and consistency. The resulting depreciation expense computations were reviewed for reasonableness in relation to the financial statements taken as a whole. Allowance for uncollcctible accounts Management's estimates as to the collectibility of accounts receivable is based on historical experience and trends. The resulting valuation and allowance were reviewed for reasonableness in relation to the financial statements taken as a whole. Compensated absences Management's estimate of the compensated absence accrual is based on outstanding vacation hours at current hourly rates. We evaluated the key factors and assumptions used to develop the compensated absence accrual in determining that it is reasonable in relation to the financial statements taken as a whole. Self-insurance liability Management's estimate of the self-insurance liability is based on the development of amounts from the various consultants' actuarial studies. For general liability and workers' compensation for the current year, the present value of estimated outstanding losses is reported at the 70% confidence level. We evaluated the actuaries' qualifications, key factors, and assumptions used to develop the claims and judgments payable in determining that it is reasonable in relation to the financial statements taken as a whole. N CITY OF LODI, CALIFORNIA Report to Management Required Communications (Continued) For the Year Ended June 30,2008 Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected MiSstate3Mmts Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate lege] of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of the audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated November 10,2008. Management 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 a consultation involves application of 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 to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues 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. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. CITY OF LODI, CALIFORNIA Report to Management Current Year Management Comment and Recommendation For the Year Ended June 30,2008 CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM (Ca1PERS) ENROLLMENT Condition During our audit, we noted that one part-time employee exceeded 1,000 hours during fiscal year 2002. However, based on our review of the Personnel Action Form (PAR) in the part-time employee's personnel file and the Ca1PERS' online database, the part-time employee was enrolled in Ca1PERS nine months later. For employees enrolling in Ca1PERS, the requirement is that they be enrolled once they exceed 1,000 hours in a given fiscal year. However, it appears that the City has the option of not enrolling part-time employees. Recommendation It is recommended that Human Resources determine what happened in this instance and that the necessary changes in the payroll and timekeeping system, as well as review the manual payroll controls that compliment the enrollment notification process, are developed to ensure that the Ca1PERS enrollment process is done timely for eligible employees. Mana.2ement Response Upon entering the Ca1PERS retirement system, the City of Lodi's Ca1PERS contract stated only full-time employees needed to be enrolled into the retirement system. There was no requirement that the City enroll part-time employees. However, in 1995, Ca1PERS mistakenly informed the City that the part-time employees (those working in excess of 1,000 hours in a fiscal year) must be enrolled in the retirement system as well. The City did so. However, in a subsequent audit, Ca1PERS recognized their error and indicated the City did not need to enroll part-time employees since their original contract allowed the City to do so. Thereafter, the City has not enrolled any employee into the Ca1PERS retirement system unless they are a full-time, regular employee. Those employees who were mistakenly enrolled as part- time employees have remained in this system. No new part-time employees have been enrolled into Ca1PERS. Enrolling part-time employees was a mistake by Ca1PERS, and since Ca1PERS identified their error it has been corrected and has not reoccurred. CITY OF LODI, CALIFORNIA Report to Management Status of Prior Year Recommendations For the Year Ended June 30,2008 The following is a summary of the status of prior years' recommendations. For more detail of the original conditions and recommendations, please refer to the management reports for the years in which the original findings were communicated. FROM YEAR ENDED JUNE 30.2007 - INTERNAL SERVICE FUNDS Current Year Status Condition unchanged. Prior year recommendation remains. Current YearManaQenient Response Budget Division staff conducted an audit of the health care invoices for April to June 2008. Several problem areas were identified and a comprehensive Findings and Recommendations Report has been written and is currently in review. Staff has corrected many of the errors relating to incorrect charges in both the payroll system and the Ca1PERS invoices and continues working toward resolving the remaining identified issues. FROM YEAR ENDED JUNE 30.2005 - ENVIRONMENTAL REMEDIATION Current Year Status In process of being implemented. Management is aware of GASB Statement No. 49 — Accounting and Financial Reporting for Pollution Remediation Obligations and is positioned to implement this standard for the fiscal year ending June 30,2009. Current YearManaaement Response The City is prepared to comply with the requirements of GASB Statement No. 49 for the year ending June 30,2009. INFORMATION TECHNOLOGY (IT) Information Technology Administration —Policies and Procedures Current Year Status In process of being implemented. The Electronic Media Acceptable Usage Policy has not yet been adopted for use within the City. A review of the draft policy found that it does define specific password standards that define the minimum password length, complexity of expiration period. Current YearManagernew Response Management agrees. Adoption should occur in fiscal year 2008-09 CITY OF LODI, CALIFORNIA Report to Management Status of Prior Year Recommendations (Continued) For the Year Ended June 30,2008 Logical Security — Departing Employees Current Year Status In the process of being implemented. The City has developed a draft policy 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 and is expected to he implemented in fiscal year 2008-09. Although we have not found any evidence of malicious activity on the computer systems, the draft policy does not address the 2006 recommendation in that the Information Systems division should conduct and audit of all user logons to the network and the AS 400 applications to ensure that only current and valid personnel have access. Current Year Management Response Management agrees. Procedures should be implemented during fiscal year 2008-09. Logical Security — Access Rights Current Year Status In the process of being implemented. User lists are periodically reviewed by ISD to identify obsolete accounts and user appropriateness. In addition, department heads are annually sent a list of users within their departments and their access rights. The Deputy City Manager is also sent a list for review. A draft policy has been developed that formally incorporates procedures to be performed, however, the draft policy does not ensure that the reviewers are properly enforcing a segregation of duties. The draft policy only requires that the reviewer sign off that he or she has reviewed the user list. Proper enforcement of segregation of duties could he evidenced by a screen print of the created user profile(s) to verify accurate implementation of the authorized access rights and could he attached to the user list. We considered applying audit procedures to test user accounts established in the financial application JD Edwards to ensure the system enforces a segregation of duties by identifying roles and levels of access, however, the system did not have the appropriate system version update to generate a user access report. Current YearManagenzent Response Management agrees. Policy covering this recommendation should be completed during fiscal year 2008- 09. Accounting System Development and Maintenance Current Year Status In process of being implemented. The IS Division has drafted a formal change control policy that incorporates procedures and standards as recommended, to ensure program changes applied to major systems follow an appropriate methodology and minimizes the risks associated with the continued operation without the proper change management oversight that include the inadvertent alteration or deletion of financial data or having the financial system unavailable for an extended period of time. Current Year Managenzent Response Management agrees. Formal polices covering this recommendation should be implemented during fiscal year 2008-09. CITY OF LODI, CALIFORNIA Report to Management Status of Prior Year Recommendations (Continued) For the Year Ended June 30,2008 Packaged Accounting Software and Systems Software — Selection Method Current Year -Status In process of being implemented. Formal policies are in process of development. Current Year Management Response Formal polices covering this recommendation should be implemented during fiscal year 2008-09. Packaged Accounting Software and Systems Software — Test Environment Current Year Status In process of being implemented. The IS Division has drafted a patch management policy documenting the process for applying patches and updates for operating systems and applications that follow the current change control draft policy and procedures. Current Year Manamement Response Management agrees. Formal polices covering this recommendation should be implemented during fiscal year 2008-09, Computer Operations — Computer Room Current YearStatus In process of being implemented. The City has determined that the risk to the IT equipment is acceptable given the cost of re -fitting the computer room. The City is trying to mitigate the risk by contracting for disaster recovery services. These services and the recovery plan should be thoroughly tested periodically. Current Year. Management Response Management agrees. The City had contracted with its IBM Business Partner in November 2007 to provide disaster recovery services, including recovery equipment hosting and priority equipment replacement. Replacing the current water-based fire suppression system is cost prohibitive. Computer Operations — Disaster Preparedness/Business Continuity Plans Current Year Status In process of being implemented. The City had developed an Information Systems Disaster Preparedness Plan in July 2007 and has also contracted with an IBM Partner for disaster recovery services including recovery equipment hosting and priority equipment replacement. The plan bas been tested and problems were discovered during this test phase. Problems are being resolved and the plan is expected to be retested by November 30,2008. Current Year Management Response Initial test was done. Problems were discovered and are being resolved. Retest shall be done by November 30,2008. CITY OF LODI, CALIFORNIA Report to Management Status of Prior Year Recommendations (Continued) For the Year Ended June 30,2008 Computer Operations — Service Level Agreements Current YearStatus In process of being implemented. No change from 2007 status. Current YearManagement Response Preliminary work is being done. Expect draft agreements by Dec. 31,2008. Computer Operations —Unauthorized Use of Software Current YearStatus In process of being implemented. The Information Systems Department (ISD) has revoked the majority of the local administrative rights that would enable users to install software or change computer configurations, therefore, reducing the possibility of any unauthorized software installations, with the exception of five users. ISD is expecting to revoke these remaining local administrative rights in the subsequent fiscal year. Current Year Managenient Response Management agrees. Currently, only persons with administrator privileges are able to install or uninstall software or change unit configurations. It is the current ISD policy to deliver all new and replacement PCs with non -admin privileges. The Information Systems Division has embarked on a program to revoke local admin rights on city PCs, a change that will prevent users from installing software or making configuration changes. Less than five users' PCs now have local admin user privileges. It is anticipated that these remaining city PCs will have undergone this change by 12/31/08. Computer Operations — Read -Write Access to the J.D. Edwards Application Current YearStatus Copies of all purchase orders are sent to the Budget Manager. In addition, there is a quarterly review of all purchases between $5,000 and $20,000 that are reported to the City Council. Approximately 2/3rds of all purchasing transactions are now being processed through the JDE application. As time and training allows, other departments are being trained in the use of the JDE application. Therefore, we consider the finding resolved. Other Matters Since 2005, the City has been in various stages of addressing our prior year recommendations. Efforts to implement several have been hampered by budgetary constraints and other higher priority undertakings. Overall, of the 11 IT findings and recommendations from our 2005 review that remained last year, one has been implemented and ten are in the process of being implemented. Several of the recommendations in the process of implementation will be completed before the end of fiscal year 2008-2009. CITY OF LODI, CALIFORNIA Report to Management Status of Prior Year Recommendations (Continued) For the Year Ended June 30,2008 FROM YEAR ENDED JUNE 30.2004 - CAPITAL ASSETS Current Year Status In process of being implemented. Beginning with the fiscal year 2008-09 management expects to record new capital assets purchases using the J.D. Edwards capital assets module. Current Year Managetnent Response Finance is currently in the initial stage of assessing the magnitude of this project and coordinating with Information Systems Division to evaluate and establish a project plan. The timeline for implementation is expected to be FY08-09, if not earlier. FEDERAL TRANSIT ADMINISTRATION INDIRECT COSTS Current Year Status Condition unchanged. Prior year recommendation remains. Current YearManaQenient Response Management had a review of the city-wide cost allocation plan in September 2007. The review included analysis of all direct and indirect costs and recommendations related to the in -lieu of transfers made to the General Fund. The review of the cost allocation plan will be expanded during 2007-08 to incorporate all charges that may be feasible for recovery from the Federal Transit Administration. 10 CITY OF LODI, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended June 30,2008 JOANNE MOUNCE, MAYOR LARRY HANSEN, MAYOR PRO TEMP SUSAN HITCHCOCK, COUNCILMEMBER BOB JOHNSON, COUNCILMEMBER PHIL KATZAKIAN, COUNCILMEMBER BLAIR KING, CITY MANAGER Prepared by the Financial Services Division Ruby Paiste, Financial Services Manager Coriene Wadlow, Supervising Accountant Odette Bondoc, Accountant II INTRODUCTORY SECTION CITY CF LODI COMPREHENSIVEANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30,2008 TABLE OF CONTENTS INTRODUCTORYSECTION Table of Contents i Letter of Transmittal v Certificate of Achievement for Excellence in Financial Reporting xiii Organization Chart of the City of Lodi xIV Directory of Officials and Advisory Bodies xv FINANCIAL SECTION IndependentAuditors' Report 1 MANAGEMENT'S DISCUSSION AND ANALYSIS 3 BASIC FINANCIAL STATEMENTS Government -wide Financial Statements: Statement of Net Assets 15 Statement of Activities 16 Fund Financial Statements: 17 Balance Sheet — Governmental Funds 19 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets 20 Statement of Revenues, Expenditures and Changes in Fund Balances — Governmental Funds 21 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 22 Statement of Net Assets — Proprietary Funds 23 Statement of Revenues, Expenses and Changes in Net Assets — Proprietary Funds 24 Statement of Cash Flows — Proprietary Funds 25 Statement of Fiduciary Net Assets —Fiduciary Funds 26 Statement of Changes in Fiduciary Net Assets - Fiduciary Funds 27 Notes to Basic Financial Statements 29 REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress— Pension Plan 73 Schedule of Revenues, Expenditures and Changes in Fund Balance — Budget and Actual — General Fund 74 Notes to the Required Supplementary Information 75 COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Combining Balance Sheet — Nonmajor Governmental Funds 77 Combining Statement of Revenues, Expenditures and Changes in Fund Balances — Nonmajor Governmental Funds 78 Nonmajor Governmental Funds - Special Revenue Funds 79 Combining Balance Sheet—Nonmajor Governmental Funds — Special Revenue Funds 81 Combining Statement of Revenues, Expenditures and Changes in Fund Balances — Nonmajor Governmental Funds — Special Revenue Funds 82 CITY OF LODI COMPREHENSIVEANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30,2008 TABLE OF CONTENTS -continued Schedule of Revenues, Expendituresand Changes in Fund Balance— Budget and Actual — Nonmajor Governmental Funds — Special Revenue Funds 83 Nonmajor Governmental Funds - Capital Project Funds 89 Combining Balance Sheet—Nonmajor Governmental Funds — Capital Project Funds 90 Combining Statement of Revenues, Expenditures and Changes in Fund Balances— Nonmajor Governmental Funds—Capital Project Funds 91 Combining Statement of Net Assets - Internal Service Funds 93 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets — Internal Service Funds 94 Combining Statement of Cash Flows Internal Service Funds 95 Combining Statement of Fiduciary Net Assets - Private-PurposeTrust Funds 97 Combining Statement of Changes in Fiduciary Net Assets - Fiduciary Funds 98 Statement of Changes in Assets and Liabilities - Agency Fund 99 STATISTICAL TABLES (UNAUDITED) Government -wide information: 101 Net Assets by Component - Last Six Fiscal Years 102 Changes in Net Assets - Last Six Fiscal Years 103 Fund information: Fund Balances, Governmental Funds - Last Ten Fiscal Years 105 Changes in Fund Balances of Governmental Funds - Last Ten Fiscal Years 106 Tax Revenues by Source, Governmental Funds - Last Ten Fiscal Years 108 Assessed Value and Estimated Actual Value of Taxable Property- Last Ten Fiscal Years 109 Direct & Overlapping Property Tax Rates - Last Ten Fiscal Years 110 Principal Property Taxpayers -Current Year and Nine Years Ago 111 Property Tax Levies and Collections- Last Ten Fiscal Years 112 Electric Sold by Type of Customer- Last Three Fiscal years 113 Ratios of Outstanding Debt by Type - Last Ten Fiscal Years 114 Ratios of General Bonded Debt Outstanding- Last Ten Fiscal Years 115 Legal Debt Margin Information - Last Ten Fiscal Years 116 Direct & Overlapping Governmental Activities Debt 117 Pledged -Revenue Coverage - Last Ten Fiscal Years 118 Demographic and Economic Statistics - Last Ten Fiscal Years 120 Principal Private Employers- Current Year and Nine Years Ago 121 Full -Time Equivalent City Government Employees By Department- Last Ten Years 122 Operating Indicators by Function/Program/Department - Last Three Fiscal Years 123 Capital Asset Statistics by Function/Program/Department - Last Four Fiscal Years 125 SINGLE AUDIT Schedule of Expenditures of Federal Awards 129 Notes to the Schedule of Expenditures of Federal Awards 130 CITY OF LODI COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30,2008 TABLE OF CONTENTS -continued IndependentAuditor's Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Basic Financial Statements Performed in Accordance with GovernmentAuditing Standards 131 IndependentAuditor's Report on Compliance with RequirementsApplicableto Each Major Program, Internal Control over Compliance and Schedule of Expenditures of FederalAwards in Accordance with CircularA-133133 Schedule of Findings and Questioned Costs 136 Schedule of Prior Findings and Questioned Costs 138 (This page intentionally left blank.) CITY COUNCIL JOANNE MOUNCE, Mayor LARRY HANSEN, Mayor Pro Tempore COUNCILMEMBERS: SUSAN HITCHCOCK BOBJOHNSON PH I L KATZAKIAN October 24,2008 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 of the City of Lodi: BLAIR KING City Manager RANDI JOHL City Clerk STEVE SCHWABAUER City Attorney The Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2008, 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, 2008, in conformity with generally accepted accounting principles. The report conforms to 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 conformitywith 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, financial, statistical and single audit. 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 (MD&A), 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 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 of Lodi (City) was incorporated 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. Under the Council-Managerform of government, policy making and legislative authority are entrusted to the City Council. The City Council consists of five members elected at -large by its voters for four-year terms, with no term limits. Elections are held in November of even -numbered years. Each year the Mayor and Mayor Pro -Tempore are chosen by the members of the City Council. The Mayor presides at Council meetings and acts as the ceremonial head of the City, the Mayor Pro Tempore serves as Mayor in his or her absence. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for appointing department heads, and overseeing the operations of the City. The City Manager, City Attorney and the City Clerk are appointed by the City Council. 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 63,362 and is contained in an area of 13.92 square miles. The City has grown steadily since incorporation in 1906 and is projected to grow to 67,670 people by the year 2012. The City's growth is provided for in both the General Plan and the City's growth control ordinance that allows an increase in population of 2% per year until the growth limits are reached. Lodi is built on a strong and broad based local economy. Lodi is known for its Zinfandel wine. It is an authentic dynamic wine region with 60 wineries within 10 miles of downtown. The employment base is diversified with food processing, packaging, plastic and service industries. 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. vi 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 indicator for Lodi. The City's focus on economic development has encouraged numerous big industries to move to Lodi that collectively created hundreds of newjobs. 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 has provided for additional retail sales and commercial activity with approval of new retail developments adjacent to Highway 99 and Harney Lane. Lodi is also committed to an Enterprise Zone with San Joaquin County. Finally, the City has approved the Lodi Community Improvement Project that will stimulate economic activity along Cherokee Lane, Kettleman Lane and the industrial areas of town. 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 established in 2004 a hierarchy of major goals, objectives and major projects that support and re -enforce 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 Productive City Organization Ensure PublicTrust, and Ensure the Developmentof the Lodi Economy for a Fiscally Sound City Organization City Council, the City Managerand 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 EnhanceAccess through Implementation of 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 PublicArts, Cultural and Recreational Opportunities Pursue Efforts to be Entrepreneurial Provide Appropriate 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 Commercial/Industrial Base Projects representthe 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 2007-08. The following projects are underway and will be completed in 2009. vil Court Space Remodel The court facility is being remodeled to provide additional workspace for the Finance and Budget divisions. Both divisions are currently housed in space that is leased. The court space was previously used by Superior Court#1 which moved across the street to the new police building. The use of this space by city departments will save more than $140,000 in annual lease payments. Municipal Service Center Transit Vehicle Maintenance Facility (MSC) The MSC Vehicle Maintenance Facility project will be roughly 14,250 square feet in size. The design designates heavy duty and light duty work bays, with the heavy duty bays large enough in size to accommodate the 40 foot transit buses utilized for fixed route service as well as fire engines. The new shop will incorporate electrical and mechanical systems capable of meeting the changing technology demands as the City seeks to further utilize compressed natural gas. Blue Shield of California Blue Shield of California will complete in 2009 a new service center that will employ a total of 1,600 employees at full capacity. The 200,000 square foot multi -story building sits on a 20 -acre site and that provides over 900 parking spaces to meet the needs of employees working in multiple shifts. White Slough Wastewater Treatment Plant Lodi completed the third and final phase of the Wastewater Treatment Plant project to restore treatment capacity to 8.5 million gallons per day. The third phase costs were approximately $20.6 million. In addition, the City replaced at a cost of $7.5 million the five mile sewer transmission line to the treatment plant. Killelea Substation The Killelea Substation was the first Lodi Electric Substation built in the early 1960's. The substation has been rebuilt. Additional land was acquired for expansion, new switching equipment was installed, new control building, and new security and alarms. The project cost approximately $4.6 million. 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. viii 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 year-end balances. During fiscal year 2007-08, the City Council and City Manager made several supplemental budget appropriations, the majority of which relate to operating budgets and 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 Water and Wastewater enterprise funds of at least 15% of operating expenditures. Based on a study completed during the last year, the target for the Electric enterprise fund working capital is $12.9 million. The goals allow for variations from year-to-year to account for economic and fiscal changes. The General Fund maintained an unreserved undesignated fund balance of $4,159,007 or 9.67%, of operating expenditures at the end of fiscal year 2007-08. 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 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 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. In 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 X111 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 X111 B, ix the City is required to annually establish and adopt its appropriations limit by resolution. For 2007-08, the City's appropriations subject to limit were $36,782,756 and the appropriation limitwas $72,598,226 leaving appropriations at $35,815,470 belowthe limit. Debt Administration At June 30, 2008, the City had outstanding Certificates of Participation of $156,940,860. These liabilities are discussed in Note 8 of the Basic Financial Statements and summarized below. The City issued $5.0 million of 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. In 1999, 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 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 (20038) 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 of Lodi's wastewater facilities. In 2004, the City issued $27,360,000 in Wastewater Certificates of Participation (2004A) to finance the costs of improvements to the wastewater collection, treatment and disposal system. In 2007, the City issued $30,320,000 in Wastewater Certificates of Participation (2007A) to finance Phase III of the wastewater improvements and to refundthe 1991 Certificatesof Participation. 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 City will 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 insurancewhen 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. The reports are available to all departments and to the public on the City's website. 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 purchasesfor materials, equipment and services during 2007-08 were made pursuantto 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 underthe City's Claims and Benefits Fund. At June 30, 2008, the Claims and Benefits Fund had net assets of $1,274,830. INDEPENDENT AUDIT 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 & O'Connell 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. 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, 2007. 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 of 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. Xi A Certificate of Achievement is valid for a period of one year only. The City has received a Certificate of Achievement for the last fifteen consecutive years. We believe our current report continues to conform to the Certificate of Achievement program requirements and we are submitting it to GFOA this year. ACKNOWLEDGMENTS As always the professionalism, dedication and efficiency of the Financial Services Division 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, Financial Services Manager, and Cory Wadlow, Supervising Accountant, Odette Bondoc, Accountant II and Tyson Mordhorst, Senior Programmer Analyst. Their work in preparing this year's CAFR is greatly appreciated. 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. Respectfullysubmitted, Blair King City Manager xii (This page intentionally left blank.) Certificate of Achievement for Excellence in Financial Reporting Presented to City of Lodi California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30,2007 A Certificate of Achievement for Excellence in Financial Reporting is presented by the GovernmentFinance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. a President Executive Director Community Center City of Lodi Parks and I I Community I I Electric Utility Recreation Development Financial Services Division xiv Public Works Fire Police Budget/ I Human Information Revenue/ Resources Systems Treasury Div. Division Division DIRECTORY OF OFFICIALS AND ADVISORY BODIES CITY COUNCIL Joanne Mounce Larry Hansen Susan Hitchcock Bob Johnson Phil Katzakian ADVISORY BODIES Planning Commission Library Board Recreation Commission Site Plan and Architectural Review Committee Budget and Finance Committee PRINCIPAL ADMINISTRATIVE OFFICERS Blair King Steve Schwabauer Randi Johl Nancy Martinez Mike Pretz James Rodems Wally Sandelin George Morrow Rad Bartlam David Main xv Mayor Mayor Pro Temp Council Member Council Member Council Member Lodi Improvement Committee Lodi Arts Commission Youth Commission Lodi Senior Citizens' Commission City Manager City Attorney City Clerk Library Services Director Fire Chief Community Center Director Public Works Director Electric Utility Director Interim Community Development Director Police Chief (This page intentionally left blank.) 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. MACIAS GINI & OICONNELL LLP CERTIFIED PUBLIC ACCOUNTANTS S MANAGEMENT CONSULTANTS The Honorable Members of City Council City of Lodi, California INDEPENDENT AUDITOR'S REPORT 3000 S Street, Suite 300 Sacramento, CA 95816 916.928.4600 2175 K California Boulevard, Suite 645 Walnut Creek, CA 94596 925.274.0 190 515 S. Figueroa Street, Suite 325 lot Angeles, CA 90071 213.286.6400 402 Wiest Broadway, Suite 400 San Diego, CA 92101 619.573.1112 We have audited the accompanying 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 year ended June 30, 2008, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express 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 GovernmentAuditing 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 statementpresentation. 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, 2008, and the respective changes in financial position, and where applicable, cash flows, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 1, the City adopted the provisions of Governmental Accounting Standards Board Statement No. 50, Pension Disclosures (an amendment cf GASB Statements No. 25 and 27) during the year ended June 30,2008. www.rngocpa.com An Independent Member of the BDO Seidman Alliance In accordance with GovernmentAuditing Standards, we have also issued our report dated November 10,2008 on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with GovernmentAuditing Standards and shouldbe considered in assessing the results of our audit. The management's discussion and analysis, the schedule of funding progress — pension plan, and schedule of revenues, expenditures and changes in fund balance — budget and actual — for the General 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. Our 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 schedules, 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 fund statements and schedules 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. r u�r�r C$-,'ft� 4 D 'C6vmeIf LLP Certified Public Accountants Sacramento, California November 10,2008 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, 2008. FINANCIAL HIGHLIGHTS • The assets of the City of Lodi exceeded its liabilities at the close of the 2008 fiscal year by $251,980,518 (net assets). Of this amount, $22,298,229 is unrestricted net assets, needed to meet the City's ongoing obligations to citizens and creditors. • The City's total net assets increased by $17,000,493 in fiscal year 2008. • As of June 30, 2008, the City's governmental funds reported combined ending fund balances of $20,177,603, a decrease of $866,422 in comparison with the prior year. Of this amount, $17,096,257 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 $5,308,862 (of which $4,159,007 is unreserved and undesignated) or 12.34 % of total general fund expenditures of $43,031,018. • The City's total long-term debt increased by $17,831,211(11 %) during the current fiscal year. 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 basic financial 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. 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. 3 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, community development, library, and parks and recreation. The business -type activities of the City include electric operations, wastewater operations, water operations and public transit operations. 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 Fiduciaryfunds. 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, which is considered to be a major fund. 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: • 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 majorfunds and the Transit system, which is considered to be a nonmajor proprietary fund. 0 • Internal Service funds are used to report activities that account for various employee benefits and self-insurance activities and fleet 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 government -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 government -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 government -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. Combininq 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 $251,980,518 at the close of the current fiscal year. The largest portion ($205,982,061) 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. S City cf Lodi's Net Assets Governmental Business -type Activities Activities Total 2008 2007 2008 2007 2008 2007 Assets: Current and other assets $ 34,037,758 32,649,784 100,662,535 82,844,456 $ 134,700,293 115,494,240 Capital assets 132,039,677 135,878,1 15 179,681,047 157,655,799 311,720,724 293,533,914 Total assets 166,077,435 168,527,899 280,343,582 240,500,255 446,421,017 409,028,154 Liabilities: Long-term liabilities outstanding Other liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total net assets 41,631,099 41,842,787 137,570,894 119,527,995 179,201,993 161,370,782 5,691,109 4,794,355 9,547,397 7,882,992 15,238,506 12,677,347 47,322,208 46,637,142 147,118,291 127,410,987 194,440,499 174,048,129 107,873,736 110,814,721 98,108,325 97,960,684 205,982,061 208,775,405 15,043,323 15,044,403 8,656,905 8,710,994 23,700,228 23,755,397 (4,161,832) (3,968,367) 26,460,061 6,417,590 22,298,229 2,449,223 $ 118,755,227 121,890,757 133,225,291 113,089,268 $ 251,980,518 234,980,025 An additional portion of the City's net assets, $23,700,228 (9.41 %) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted assets amounts to $22,298,229. At the end of the current fiscal year, the City is able to report positive balances in 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 $4,161,832 primarily due to the accrual of compensated absences for $11,479,158. Referto page 9 for analysis of the business -type activities unrestricted net assets. on Revenues Program revenues: Charges for services Operatinggrants and contributions Capital grants and contributions General revenues: Property taxes Othertaxes Grants and contributions not restricted to specific programs Litigation - environmental lawsuits proceeds Other Total revenues Expenses General government Public protection Publicworks Community development Library Parks and recreation Intereston long-termdebt Electric Wastewater Water Transit Total expenses Changes in net assets before transfers Transfers Changes in net assets Net assets at beginning of year Net assets at end of year City of Lodi's Change in NetAssets 6,222,568 4,745,278 4,128,972 Governmental 117,729,290 Business -type 168, 545, 875 Activities 23,327,792 Activities 10,599,292 Total 2008 2007 2008 2007 2008 2007 $ 5,125,103 4,392,225 90,003,049 84,772,926 $ 95,128,152 89,165,151 2,304,734 2,588,592 3,380,952 2,621,063 5,685,686 5,209,655 4,717,336 6,974,545 8,064,375 19,983,761 12,781,711 26,958,306 13,838,387 9,523,684 13,838,387 9,523,684 10,874,018 11,070,609 I0,874,018 11,070,609 9,593,031 14,771,547 2,084,506 1,495,383 48,537,115 50,816,585 8,891,315 6,222,568 4,745,278 4,128,972 115,084,969 117,729,290 9,593,031 14,771,547 8,891,315 6,222,568 6,829,784 5,624,355 163,622,084 168, 545, 875 8,306,827 7,852,819 8,306,827 7,852,819 25,531,071 23,327,792 25,531,071 23,327,792 12,224,480 10,599,292 12,224,480 10,599,292 2,027,038 2,130,349 2,027,038 2,130,349 1,695,638 1,630,145 1,695,638 1,630,145 4,414,367 4,171,750 4,414,367 4,171,750 1,165,982 1,201,086 1,165,982 1,201,086 65,201,065 67,533,822 65,201,065 67,533,822 12,227,529 9,270,669 12,227,529 9,270,669 9,919,629 9,874,702 9,919,629 9,874,702 3,907,965 3,576,807 3,907,965 3,576,807 55,365,403 50,913,233 91,256,188 90,256,000 146,621,591 141,169,233 (6,828,288) (96,648) 23,828,781 27,473,290 17,000,493 27,376,642 3,692,758 4,727,324 (3,692,758) (4,727,324) (3,135,530) 4,630,676 20,136,023 22,745,966 17,000,493 27,376,642 121,890,757 117,260,081 113,089,268 90,343,302 234,980,025 207,603,383 $ 118,755,227 121,890,757 133,225,291 113,089,268 $ 251,980,518 234,980,025 7 Analysis of Chanaes in Net Assets Governmental activities. Governmental activities decreased the City's net assets by $3,135,530 or 18.44% of the net increase in the City's net assets. The key factors impacting the change in net assets are: • Moderate revenue growth • Slow down on new residential developments • Increase in personnel costs • Charges for services increased by 17%, a net amount of $732,878 from the prior fiscal year largely from new and increased engineering fees ($490,060), increase in fire permit review and inspection fees ($135,600), and increase in contract for others offset by decreases in various other revenues ($107,218). • Operating grants and contributions decreased by $283,858 largely from the decrease in reimbursements received for State mandated costs. • Capital grants and contributions decreased by $2,257,209 or 32% from prior fiscal year. New developments in prior years contributed to the City's net assets but due to the unprecedented slow down in new developments there are no capital contributions accounted for from developers in the current year. Last fiscal year's amount was $ 2,136,331. • Propertytaxes — In prior year, the Vehicle License Fees (VLF) swap was based upon the original valuation of VLF and was included in Grants and Contributions not restricted to specific programs. In the current year, VLF's measurement and growth is based upon assessed valuation and it is now presented under property taxes resulting in a huge variance on both revenue classifications. VLF swap received in the current year was $4,503,172 compared to $4,265,591 in prioryear, an increase of $237,581. • Other revenues increased by $589,123 or 39% from prior fiscal year. This increase was primarily from the one-time administrative charge ($250,000) and the reoccurring surcharge ($52,105) paid by the San Joaquin County for wastewater treatment connection services for Flag City. Rent of city property also increased by $284,800 largely from rent paid by the County for Court #1 ($211,054), increased rent revenue from park facilities ($19,160) and from the Hutchins Street Square ($54,586). The City's governmental activities also realized the following revenue decreases: • Real property transfer tax - $109,887 — 46.8% • Sales and use taxes - $837,853 — 8.27% • Motor Vehicle license fees - $75,072 — 20.34% • In -lieu franchise taxes - $316,613 — 3.75% Expenses for governmental functions totaled $55,365,403 an increase of $4,452,170 from the prior fiscal year. This was largely due to increase in personnel costs and benefits ($2,762,966), increase in compensated absences ($781,851), increase in professional services related to the RedevelopmentAgency ($228,161), increase in supplies materials and services ($679,192). Business -type activities. Business -type activities increased the City's net assets by $20,136,023 or 118.44% of the total increase in the City's net assets. The key elements of this increase are: • Capital Contributions: Electric Fund - $984,785 Wastewater Fund - $6,459,572 Water Fund - $30,783 Transit Fund - $589,235 • Proceeds from litigation settlements -$8,891,315. • Wastewater treatment services- Flag City DomesticWaste Connection - $6,015,740. • Sale of combustion turbine 1(CT1) rights to Roseville Electric- $3,250,000. The City also implemented an Energy Cost Adjustment (ECA) for Electric Utility effective June 1, 2007, to replace the Market Cost Adjustment MCA) that was adopted in 2002. The ECA is intended to automatically adjust the electric rates for monthly fluctuations in the City's purchased power expenses. As a result, operating revenue increased by of $3,475,478. Wastewater and water rates were also increased during the year resulting in increased operating revenues of $567,690 or 7% in Wastewater Utility; and $1,310,370 or 13% in Water Utility. 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. Types of governmental funds reported by the City include the General Fund, special revenue funds, debt service fund and capital projects funds. As of the end of the current fiscal year, the City's governmental funds reported combined ending fund balances of $20,177,603, a decrease of $866,422 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 $4,159,007 while total fund balance was $5,308,862, a decrease of $1,010,540 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 9.67% of total general fund expenditures. GS Governmental fund'balances have increased for the last two years as a result of continued spending restraint and the receipt of unexpected revenues from the State of California which includes reimbursements for mandated costs and receipts of more than expected vehicle license fees. Proprietary Funds The City's proprietary funds providethe same type of information found in the government -wide financial statements, but in more detail. Unrestricted net assets at the end of the year for the Electric Fund were $3,359,856, Wastewater Fund $4,963,200, Water Fund $16,253,345 and Transit Fund $1,883,660. The Internal Services Funds unrestricted net assets were $1,237,202. 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 $1,690,978. The increase in appropriations can be briefly summarized as follows: • $25,360 decrease in general government • $1,043,033 increase in public protection • $568,211 increase in public works • $3,910 increase in library • $101,184 increase in parks and recreation Significant differences between the final budget and the actual revenues and expenditures can be briefly summarized as follows: • Taxes — an unfavorable variance of $1,065,870 was attributable to an unexpected downturn in tax revenues comprised primarily of property taxes ($886,956) which declined for the first time after a decade of steady and often substantial growth, in -lieu Vehicle License Fees (VLF) ($218,696) which actually did increase relative to the prior year, but not to the degree projected, and real property transfer tax ($124,965), which, like secured property taxes, were expected to increase but did not. • Intergovernmental revenues — an unfavorable variance of $1,328,435 was attributable to an unexpected downturn comprised primarily of sales and in -lieu sales tax ($909,895) and Public Safety - Prop 172 ($31,795) revenues which declined after a decade of solid growth, as well as motor vehicle in -lieu ($149,650) and state mandated costs reimbursements ($124,134) which were not realized as projected. • Charges for services — a favorable variance of $851,265 was largely from new and increased engineering fees ($490,060), increase in fire permit review and inspection fees ($135,600), and increase in contract for others offset by decreases in various other revenues ($225,605). • Fines, forfeits and penalties — a favorable variance of $105,974 resulted from enhanced revenues through moving violations ($59,499), late payments for utilities ($29,722), and utility connections ($26,726). 10 • For expenditures, a favorable variance between the final budget and actual expenditures of $984,015 was due to savings from several 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, 2008, amounts to $311,720,724 (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 6.20% (a 2.82% decrease in governmental activities and 13.97% increase in business -type activities) as shown in the table below. Land Buildings and Improvements Machinery and Equipment Vehicles Infrastructure Work of Art Construction in Progress Total Changes in Capital Assets, Net of Depreciation Governmental Activities Business-typeActivities Total 2008 2007 2008 2007 2008 2007 $ 24,016,374 $ 24,016,374 $ 5,438,359 $ 5,247,806 $ 29,454,734 $ 29,264,180 36,522,080 37,792,666 24,691,134 25,529,753 61,213,214 63,322,419 1,383,916 1,331,961 96,652,254 98,359,132 98,036,174 99,691,093 1,369,953 1,474,697 2,694,895 2,150,827 4,064,844 3,625,524 65,122,765 68,454,801 65,122,765 68,454,801 62,024 62,024 62,024 62,024 3,562,565 2,745,592 50,204,405 26,368,281 53,766,969 29,113,873 $ 132,039,677 $ 135,878,115 $ 179,681,047 $ 157,655,799 $ 311,720,724 $ 293,533,914 A significant increase in construction in progress compared to prior year was primarily due to the ongoing Phase III improvements to the White Slough Pollution Control Facility. Additional information on the City of Lodi's capital assets can be found in note 6 on pages 43-45 cf this report Long-term debt At the end of the current fiscal year, the City of Lodi had total bonded debt outstanding of $156,940,860. Of this amount, $23,420,000 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 $133,520,860 from the business -type activities consists of $58,848,294 for the Wastewater Fund; and $74,672,566 for the Electric Fund. 11 City of Lodi's Outstanding Debt Governmental Business -type Activities activities Total Certificates of Participation $ 23,420,000 133,520,860 156,940,860 The City of Lodi's total bonded debt increased by $17,437,938 (12.5°/x) during the current fiscal year. Bond Rating In response to a review of interim financial results, Fitch Rating Services changed the rating on outstanding electric utility debt instruments from BBB- to BBB. In light of more favorable financial results as reflected in the full year financial results as compared to the interim results, Fitch Ratings Services also removed the negative outlook to positive. Standard and Poor's also reviewed the rating on the outstanding electric utility debt instruments and boosted its rating to an A- from BBB+ and changed the outlook to positive. Additional information on the City of Lodi's long-term debt can be found in note 8 on pages 46-56 of this report. ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The General Fund budget wilt continue to emphasize balancing revenues against expenses to achieve financial stability. This will need to be accomplished while revenues are expected to decline and the City reduces its reliance upon the Electric Utility Fund. In Fiscal Year 2005-06, the City reduced the percentage of the transfer from the Electric Fund to the General Fund. In 2007, the City Council formally adopted a policy to limit the transfer to a fixed amount plus an increase based on the number of new customers rather than revenue. This has helped the Electric Utility build its cash reserves but has caused the General Fund to reduce expenditures. The budget continues with a process to organize expenses in order to see the full costs of providing services. In the past, certain costs critical to providing services, including debt service, insurance costs, vehicle replacement, and others, were not included within the department budget. However, now with the Fiscal Year 2008-09 budget, the Police Department budget will include debt service and vehicle replacement. Debt service costs for the Community Center will also be added to the Community Center budget. For those activities that can be fee supported, they have'been established as Special Revenue Departments. Policy makers will be able to more readily identify income which can flow to the activity and stay with the department rather than flowing into the General Fund. Management will continue to emphasize long-range budgeting to identify future revenues and expenditures as well as address upcoming issues that might affect these. In addition, a great deal of importance is being placed upon the need to address deferred maintenance and replacement of existing physical assets. While a long-term capital improvement program is not part of the General Fund budget now, management is working diligently to reintroduce this managementtool. 12 Economic Development Lodi's economy is continuing to diversify its base, as reflected in an unemployment rate that tracks roughly 2.5 percent lower than San Joaquin County overall. This is a trend that should continue with the opening of the expanded Blue Shield claims processing center in late 2008. Although agriculture is an important part of Lodi's past, present and future by providing residents with employment on farms and in processing plants, there are even morejobs in food and plastics manufacturing and in health-related businesses. Lodi Memorial Hospital, Blue Shield and Cottage Bakery have the highest year-round employment in Lodi, and large national and international manufacturers such as General Mills, CertainTeed and Thule find Lodi an attractive base for their West Coast operations. 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 Financial Services Division of the City of Lodi at 300 W. Pine Street, Lodi, California, 95240. 13 (This page intentionally left blank.) BASIC FINANCIAL STATEMENTS The Government -wide Financial Statements provide a broad overview of 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. GOVERNMENT -WIDE FINANCIAL STATEMENTS CITY OF LODI STATEMENT OF NET ASSETS June 30,2008 Governmental Business -type Activities Activities Total ASSETS Cash and investments $ 24,800,561 33,019,475 $ 57,820,036 Accounts receivable, net 3,800,047 10,803,987 14,604,034 Property tax receivable 1,806,441 1,806,441 Interest receivable 193,766 187,350 381,116 Internal balances (1,225,173) 1,225,173 Due from other governmental agencies 1,667,085 1,127,233 2,794,318 Restricted assets 1,693,870 28,139,820 29,833,690 Loan receivable 1,084,000 1,084,000 Advance receivable 6,486,707 6,486,707 Inventory 140,042 1,541,492 1,681,534 Other assets 77,119 6,229 83,348 Deferred charges 18,125,069 18,125,069 Capital assets, net: Nondepreciable 27,640,963 55,642,764 83,283,727 Depreciable, net 104,398,714 124,038,283 228,436,997 TOTAL ASSETS 166,077,435 280,343,582 446,421,017 LIABILITIES Accounts payableand accrued liabilities 2,204,783 4,543,125 6,747,908 Accrued salaries and wages 2,187,971 2,187,971 Accrued interest 278,690 2,746,971 3,025,661 Unearned revenue 1,019,665 2,257,301 3,276,966 Long-term liabilities: Due within one year 5,551,996 7,095,900 12,647,896 Due in more than one year 36,079,103 130,474,994 166,554,097 TOTAL LIABILITIES 47,322,208 147,118,291 194,440,499 NET ASSETS Invested in capital assets, net of related debt 107,873,736 98,108,325 205,982,061 Restricted for: Capital projects 13,105,776 13,105,776 Debt service 1,693,870 1,693,870 Other purposes 243,677 8,656,905 8,900,582 Unrestricted (deficit) (4,161,832) 26,460,061 22,298,229 TOTAL NET ASSETS $ 118,755,227 133,225,291 $ 251,980,518 The notes to the financial statements are an integral part of this statement. 15 Ftin atinnc/Prnnramc PRIMARY GOVERNMENT: Governmental activities: General government Public protection Publicworks Community development Library Parks& recreation Intereston long-termdebt Total governmental activities Business -type activities: Electric Wastewater Water Transit Total primary government CITY OF LODI STATEMENT OF ACTIVITIES Year ended June 30,2008 Net (Expense) Revenue and Program Revenues Changes in Net Assets Operating Capital Charges for Grants and Grants and Governmental Business -type Expenses Services Contributions Contributions Activities Activities Total 5 8,306,827 1,544,294 75,866 216,937 (6,469,730) $ (6,469,730) 25,531,071 837,361 715,574 228,153 (23,749,983) 40,082,700 (23,749,983) 112,224,480 754,397 1,133,262 3,891,604 (6,445,217) 20,136,023 (6,445,217) 2,027,038 1,085,147 234,980,025 57,839 (884,052) (884,052) 1695,638 52,711 75,980 (1,566,947) (1,566,947) 4,414,367 851,193 304.052 322,803 (2,936,319) (2,936,319) 1,165,982 (1,165,982) (1,165,982) 55,365,403 5,125,103 2,304,734 4,717,336 (43,218,230) (43,218,230) 65,201,065 69,284,342 984,785 5,068,062 5,068,062 12,227,529 9,091,220 17,526 6,459,572 3,340,789 3,340,789 9,919.629 11349.986 30.783 1.461.140 1.461.140 3,923,951 277,501 3,363,426 589,235 306,211 306,211 91,272,174 90,003,049 3,380,952 8,064,375 10,176,202 10,176,202 $ 146,637,577 95,128,152 5,685,686 12,781,711 (43,218,230) 10,176,202 $ (33,042,028) General revenues: Taxes: Property taxes Franchise taxes Business license tax Transient occupancy tax Grants and contributions not restricted to specific programs Investmenteamings Litigation- environmental lawsuits proceeds Other Transfers Total general revenues and transfers Change in net assets Net assets, beginning of year Net assets, end of year The notes to the financial statements are an integral part of this statement. 16 13,838,387 9,338,418 1,139,653 395,947 9,593,031 13,838,387 9,338,418 1,139,653 395,947 9,593,031 1,007.615 2,043,919 3,051,534 8,891,315 8,891,315 1,076,891 2,717,345 3,794,236 3,692,758 (3,692,758) 40,082,700 9,959,821 50,042,521 (3,135,530) 20,136,023 17,000,493 121,890,757 113,089,268 234,980,025 $ 118,755,227 133,225,291 $ 251,980,518 FUND FINANCIAL STATEMENTS 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 Fund: 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. 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. 17 Wastewater 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, 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 Funds These funds are used to account for assets held by the Library Board as trustee of the Lodi Public Library and for assets held by the City in accordance with the trust agreement on behalf of the Hutchins Street Square. 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. 18 ASSETS Cash and investments Restricted assets Receivables: Accounts, net Property taxes Interest Due from other funds Due from other governmental agencies Loan receivable Inventory Advances to other funds Other assets Total assets LIABILITIESAND FUND BALANCES Liabilities: Accounts payable and other liabilities Accrued salaries and wages Due to other funds Advances from other funds Deferred revenue Total liabilities Fund balances: Reserved Unreserved reported in: General Fund Special revenue funds Capital projects funds Total fund balances Total Iiabilitiesand fund balances CITY OF LODI BALANCESHEET GOVERNMENTAL FUNDS June 30,2008 Other Total General Governmental Governmental Fund Funds Funds $ 3,022,147 14,481,129$ 17,503,276 1,693,870 1,693,870 3,286,125 508,955 3,795,080 1,806,441 1,182,990 1,806,441 19,709 110,219 129,928 714,425 468,565 1,182,990 21,062 1,646,023 1,667,085 1,084,000 1, 084, 000 25,406 25,406 283,720 606,770 890,490 64,759 64,759 $ 9,243,794 20,599,531 $ 29,843,325 $ 1,746,961 328,472$ 2,075,433 2,187,971 2,187,971 1,182,990 1,182,990 2,115,663 2,115,663 2,103,665 2,103,665 3,.934.932 5.730.790 9.665.722 1,149,855 1,931,491 3,081,346 4,159,007 4,159,007 7,433,010 7,433,010 5,504,240 5,504,240 5,308,862 14,868,741 20,177,603 $ 9,243,794 20,599,531 $ 29,843,325 The notes to the financial statements are an integral part of this statement. 19 CITY OF LODI RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TOTHESTATEMENTOFNETASSETS June 30,2008 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 liabilitiesare not due and payable in the current period and therefore are not reported in the governmental funds as follows: Compensated absences Long-term debt Intereston 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, other insurance and the cost of operating and maintaining the City's fleet to individual funds. The assets of the internal service fund is 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. 20 20,177,603 27,640,963 104,361,086 (11,338,624) (24,165941) (278,690) 1,084,000 1,274,830 118,755,227 CITY OF LODI STATEMENTOF REVENUES, EXPENDITURESAND CHANGES IN FUND BALANCES GOVERNMENTALFUNDS Year ended June 30,2008 The notes to the financial statements are an integral part of this statement. 21 Other Total General Governmental Governmental Fund Funds Funds Revenues: Taxes $ 24,712,405 $ 24,712,405 Licenses and permits 80,925 601,584 682,509 Intergovernmental revenues 10,642,600 4,337,003 14,979,603 Charges for services 2,510,207 2,246,979 4,757,186 Fines, forfeits and penalties 1,317,407 3,500 1,320,907 Investmentand rental income 662,164 649,713 1,311,877 Miscellaneous revenue 630,413 191,744 822,157 Total revenues 40,556,121 8,030,523 48,586,644 Expenditures: Current: General government 9,545,370 9,545,370 Public protection 23,771,574 207,379 23,978,953 Public works 3,935,366 1,906,644 5,842,010 Community development 2,005,729 2,005,729 Library 1,672,910 1,672,910 Parks and recreation 3,826,450 3,826,450 Capital outlay 4,206,527 4,206,527 Debt service: Interestand fiscal charges 29,724 1,140,698 1,170,422 Principal payments 249,624 647,829 897,453 Total expenditures 43,031,018 10,114,806 53,145,824 Deficiency of revenues under expenditures (2,474,897) (2,084,283) (4,559,180) Other financing sources (uses): Transfers in 4.040.166 3,017,894 7,058,060 Transfersout (2,575,809) (789,493) (3,365,302) Total other financing sources (uses) 1,464,357 2,228,401 3,692,758 Net change in fund balances (1,010,540) 144,118 (866,422) Fund balances, beginning of year 6,319,402 14,724,623 21,044,025 Fund balances, end of year $ 5,308,862 14,868,741 $ 20,177,603 The notes to the financial statements are an integral part of this statement. 21 CITY OF LODI RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES Year ended June 30,2008 Amounts reported for governmental activities are different because: Net change in fund balances- total governmental funds Governmental funds report capital outlays as expenditures. However, in the statementof activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. Capital outlays, capital contributionsand depreciation expense are as follows: Capitalized capital outlays Depreciationexpense Book value on disposed capital assets Long-term debt proceeds, net of discounts, provide current financial resources to governmental funds, but issuing debt proceeds increases long-term liabilities in the statementof net assets. Repayments of the principal are expenditures in the governmental funds, but the repayments reduce long-term liabilities in the statementof net assets. Repayments of principal areas follows: Capital leases Certificatesof participation principal Loan principal Internal service funds are used by management to charge the costs of certain activities, such as health benefits and self-insurance, costs ofoperationand maintenanceof the City's fleet, to individual funds. The net revenue (expenses) of the internal service funds are reported with governmental activities. Deferred revenues recognized in the funds thatwere previously recognized in the statement of activities Other expenses in the statementof activities that do not use current financial resources are not reported as expenditures in the governmental funds. Change in compensated absences Change in accrued interest Change in net assets of governmental activities The notes to the financial statements are an integral part of this statement. 22 (866,422) 3,668,774 (7,502,630) (3,135) 249,624 555,000 92,829 2,153,598 (359,950) (1,127,658) 4,440 $ (3,135,530) ASSETS Currentassets Cash and Investments Restricted cash and investments Restricted assets with fiscal agents Receivables: Accounts, net Interest Due from other governmental agencies Advance receivable Inventory Otherassets Total current assets Noncurrent assets: Advancesto otherfunds Deferred charges Capital assets, net: Nondepreciable Depreciable, net Total capital assets Total noncurrent assets TOTALASSETS LIABILITIES Current liabilities: Accounts payableand other liabilities Accrued interest Unearned revenue Self-insurance liability Accrued compensated absences Certificatesof participation payable Water note payable Total current liabilities N o n cu rre n t l is b i l ities: Self -i n su ran cel iabi I ity Accrued compensated absences CertIfIcates of participation payable Water note payable Total noncurrentliabilities TOTAL LIABILITIES NETASSETS Invested in capital assets, net of related debt Restricted: Otherpurposes Unrestricted TOTAL NETASSETS CITY OF LODI STATEMENTOFNETASSETS PROPRIETARY FUNDS June 30,2008 Governmental AGtivifjaa - Business -type Activities-EnterpriseFunds Internal Nonmajor Fund Service Electric Wastewater Water Transit Total Funds $ 11,339,624 3,203,297 5,410,839 86.551 6,486,707 1,338,253 30 27,865,301 17,077,561 8,313,612 36,036,649 44,350,261 61,427,822 89,293,123 6,766,472 13,434,921 1,478,458 $ 33,019,475 $ 7.297.285 48,797,968 8,356,099 11,433,075 8,356,099 37,628 16,279,618 300,806 12,770,427 19,783,721 37,628 657,968 4,082,453 652,727 10,803,987 4,967 52.505 36,282 12.012 187,350 63,838 6,734 69,653,618 1,120,499 1,127,233 1,584,763 70,402,571 6,486,707 1,602,738 10,035 193,204 4,474,502 1,541,492 114,636 4.894 1,305 27,504,424 6,229 12,360 23,778,226 26,405,070 3,263,696 81,312,293 7,493,086 1,225,173 1,047,508 1,225,173 18,125,069 44,503,458 1.488.342 1,337,352 55,642,764 719,168 48,797,968 27,770,591 11,433,075 124,038,283 37,628 93,301,426 29,258,933 12,770,427 179,681,047 37,628 94,348,934 30,484,106 12,770,427 199,031,289 37,628 118,127,160 56,889,176 16,034,123 280,343,582 7,530,714 1,035,683 1,645,310 1,513,615 2,012,846 719,168 14,957 58,849 1,168,218 362,495 279,065 5,228 5,018,948 1,259,133 169,746 169,746 8,429,972 3,961,525 2,871,764 748,953 880,524 17,975 69,653,618 57,589,161 127,242,779 1,584,763 70,402,571 58,469,685 1,602,738 78,832,543 62,431,210 4,474,502 6,255,884 7,100,724 50,732,750 27,504,424 98,108,325 37.628 8,656,905 3,359,856 4,963,200 16,253,345 $ 10,460,580 55,695,950 52,414,674 The notesto the financial statementsare an integralpart ofthis statement. 23 348,517 Q,346,17B 129,350 1,030,234 2,257,301 1,999,702 1,285 648,073 54,404 6,278,081 169,746 1,380,036 16,643,297 2,183,456 3,986,298 1,647,452 86.130 127,242,779 1,584,763 130,474,994 4,072,428 1,380.036 147,118,291 6,255,884 12,770,427 98,108,325 37.628 8,656,905 1,883,660 26,460,061 1,237,202 14,654,087 $ 133,225,291$ 1,274,830 OPERATING REVENUES Chargesfor services OPERATING EXPENSES Personnelservices Supplies, materialsand services Utilities Depreciationand amortization Claims TOTAL OPERATING EXPENSES OPERATING INCOME (LOSS) NONOPERATINGREVENUES(EXPENSES) Investmentincome Interestexpense Rent Operatinggrants Litigation-environmentalawsuits proceeds Loss on disposal of capital assets Otherrevenues TOTAL NONOPERATINGREVENUES(EXPENSES) INCOME (LOSS) BEFORE CAPITAL CONTRIBUTIONSAND TRANSFERS Capital contributions Transfers in Transfers out Net capital contributionsand transfers Change in net assets NET ASSETS (DEFICIT)- BEGINNINGOF YEAR NETASSETS- ENDOFYEAR CITY OF LODI STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS PROPRIETARY FUNDS Year ended June 30,2008 Business-typeActivities- Enterprise Funds Nonmajor Fund Electric Wastewater Water Transit Total Governmental Activities - Internal Service Funds $ 69,284,342 9,091,220 11,349,986 277,501 $ 90,003,049 $ 10,390,135 5,623,019 2,996,028 1,121,921 137,627 9,878,595 1,241,965 9,964,149 2,394,804 6,021,057 3,142,833 21,522,843 6,054,086 39,680,743 798,652 779.845 74,261 41,333,501 2.246 5,972,437 1,873,498 1,184,324 553,244 9,583,503 1.447 1,589,702 61,240,348 8,062,982 9,107,147 3,907,965 82,318,442 8,889,446 8,043,994 1,028,238 2,242,839 (3,630,4641 7,684,607 1,500,689 808,439 836,862 380,568 18,050 2,043,919 313,556 (3,960,717) (2,333,677) (62,676) (15,986) (6,373,056) 165,931 11,534 4,200 181.665 17,526 3,363,426 3,380,952 8,891,315 8.891.315 (1,830,870) (749,806) (2,580,676) 1,581,255 418,409 396,454 139,562 2,535,680 339,353 (1,571,023) (2,725,819) 8,867,389 3,509,252 8,079,799 652,909 6,472,971 (1,697,581) 11,110,228 (121.212) 15,764,406 2,153,598 984,785 6,459,572 30,783 589,235 8,064,375 300,339 300,339 (2,792,475) (575,326) (624,296) (1,000) (3,993,097) (1,507,351) 5,884,246 (593,513) 588,235 4,371,617 4,965,620 4,186,665 10,516,715 467,023 20.136.023 2,153,598 5,494,960 51,509,285 41,897,959 14,187,064 113,089,268 (878.7681 $ 10,460,580 55,695,950 52,414,674 14,654,087 $ 133,225,291 $ 1,274,830 The rides to the financial statements are an integral pan of this report 24 Cash flows from operating activities: Receiptsfrom customersand users Receiptsfrom interfund services provided Cash paid to suppliersfor goods& services Paymentsto employees Payments for interfund Services provided Proceedsfrom litigationsettlements Net cash provided by (used in) operating activities Cashflows from noncapilalfinancing activities: Loanedfrom other funds Operatinggrants Transfersin Transfersout Net cash provided by (used in) noncapitalfinancing activities CITY OF LO DI STATEMENTOF CASH FLOWS PROPRIETARY FUNDS Yearended June 30,2008 (475,262) (475.262) 17.526 3,363,426 3,380,952 300.339 300.339 (2,792,475) (575.326) (624,296) (1,000) (3,993,097) (2,492,136) (557,800) (1,099,558) 3,362,426 (787.068) Cash flows from capital and relatedfinancing activities: 1,028,238 2,242,839 (3,630,464) S 7,664,607 $ Governmental Proceedsfrom Certificatesof Participation Business-typeActivities . Enterprise Funds 553.244 Activities- 21 407,852 Issuancecosts- Certificatesof Participation Nonmajor Fund InternalService Electnc Wastewater Water Transit Total Funds 67,776,893 11,537,102 13,939,458 1,170,685 $ 94,424,138 $ 528.382 317.188 Capital grants received 74.941 317,188 10,390,135 (49.140.492) (2,595,698) (6,099,389) (3,077,831) (60,913,410) (8,088,374) (5,565,589) (2,833,595) (1,128,225) (137.316) (9,664,727) (1,273,858) (2424) (726.428) (750.676) (56.013) (1,535,541) (8.756) (9,924,221) 338.806 8,891,315 (42.711) 8,891,315 247.688 13,385,576 5,381 381 14,852,483 (2,100,477) 31,518.963 1,556,285 (475,262) (475.262) 17.526 3,363,426 3,380,952 300.339 300.339 (2,792,475) (575.326) (624,296) (1,000) (3,993,097) (2,492,136) (557,800) (1,099,558) 3,362,426 (787.068) Cash flows from capital and relatedfinancing activities: 1,028,238 2,242,839 (3,630,464) S 7,664,607 $ 1,500,689 Proceedsfrom Certificatesof Participation 1,873,498 21,407,852 553.244 9583,503 21 407,852 Issuancecosts- Certificatesof Participation (337.074) 8,891,315 (337.074) Acquisitionand constructionof capital assets (7,220,349) (20,729,030) (552.215) (370,151) (28,871,745) Fees receivedfrom developers 579.994 6,384,631 30.783 3,038,507 6,995,408 Capital grants received 74.941 377.381 452.322 Principal paymentson debt (2,305,000) (1,355,000) (163,907) (157.172) (3,823,907) Interestpaymentson debt (3,458,097) (2,208,876) (64,118) (15.986) (5,747,077) Netcash provided by (used in) capital and relatedfinancing activities (12,403,452) 3,237,444 (749.457) (8.756) (9,924,221) Cashflowsfrom investingactivities: Rent of City property Intereston investments Net cash provided by investingactivities Net increase (decrease)in cash and cash equivalents Cash and cash equivalents. beginningof year Cash and cash equivalents.end of year Reconciliationto the Statementof net assets: Cash and investments Restrictedcash and investments Restrictedassetswithfscel agents Less long-term investments Total cash and cash equivalents Reconciliationof operating inoome(loss) to net cash provided by (used in) operatingactivities: Operating Income (loss) Adjustmentsto reconcileoperating income (loss) to net cash provided by (used in) operating activities: Depreciationand amortization Proceedsfrom litigation Settlements Other revenues Change in assetsand liabilities: (Increase)decrease in accounts receivable Increasein advance receivables Decrease(increase)in due From other governmentalagencies Decrease(increase)in inventory Decrease(increase)in otherassets Increase (decrease)! n amounts payableand other liabilities Increase (decrease)! n compensatedabsences Increase(decrease)inuneamed revenue Decreasein self-insuranceliability Net cash provided by (used in) operating activities Noncashlnvestina. Oaoltal and Financina Activities Capital contributions Cost of issuance paid from debt proceeds Book value of disposed capital assets Bond proceedsdeposited in escrowto defeasedebt 165.931 11.534 4,200 181.665 759.636 789.618 365.059 7.853 1,922,166 294,960 759.636 955.549 376.593 12,053 2,103,831 294,960 (750.376) 9016,574 13,380,061 1,265,246 22,911,505 1,851,245 15,293,297 11,859,666 8,711,765 213.212 36,077,940 5,446,040 $ 14,542,921 20,876,240 22,091,826 1478.458 $ 58,989,445 $ 7297.285 $ 11,339,624 6,766,472 13,434,921 1,478,458 $ 33,019,475 S 7,297,285 8,356,099 8,356,099 3,203,297 16,279,618 300.806 19,783,721 (2,169,850) (2,169,850) 5 14,542.921 20.876.240 22.091.826 1.478,458 $ 58.989.445 S 2297,285 8,043,994 1,028,238 2,242,839 (3,630,464) S 7,664,607 $ 1,500,689 5,972,437 1,873,498 1,184,324 553.244 9583,503 1,447 8,891,315 8,891,315 1,581,255 418.409 396.454 139.562 2,535,680 339.353 (1,075,524) 1,962,057 2,192,966 (40.992) 3,038,507 198.668 (1,696,044) (1,696,044) 78,448 (235.620) (157.172) 163.170 2.987 (6,452) 159.705 (6,112) 52 (706) 52 (602) (9,639) 338.806 (131,657) (42.711) 83.250 247.688 (26.228) 57.430 162.433 (6,304) 309 213.868 (31.893) (12.326) 1.030.234 1.017.908 (410,000) $ 13,385,576 5,381,381 14,852,483 (2,100,477) S 31.518.963 5 1,556,285 $ 404.791 211.854 $ 616.645 168.860 168.860 1,830,870 749.806 2,580,676 8,990,892 8,990,892 Thenotes to the fsaancialstatements are en integml panof this statement 25 CITY OF LODI STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS June 30,2008 ASSETS Cash and Investments Receivables: Special assessments Interest TOTALASSETS LIABILITIES Agency obligations TOTAL LIABILITIES NET ASSETS The notes to the financial statements are an integral part of this statement. 26 Private -Purpose Trust Funds $ 854,249 $ 854,249 $ 854,249$ Agency Fund 662,098 78,823 4,642 745,563 745,563 745,563 CITY OF LODI STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS Year ended June 30,2008 ADDITIONS Investmentand rental income Total additions DEDUCTIONS Current Library Total deductions CHANGE IN NETASSETS NETASSETS. BEGINNING OF YEAR NETASSETS, END OF YEAR The notes to the financial statements are an integral part of this statement. 27 Private -Purpose Trust Funds $ 6,098 6,098 L1.2102. 848,151 854,249 (This page intentionally left blank.) NOTES TO THE FINANCIAL STATEMENTS CITY OF LODI Notes to Basic Financial Statements June 30,2008 (�) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) The Financial Reporting Entity The City of Lodi (City) was incorporated on 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, community development, 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 Certificates of Participation (refunded by the issuance of the 1991 Certificates of 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 B), the 2002 Certificates of Participation Series C and D to fund the buy-out of the CalPine Energy Purchase Commitment, and the issuance of the 2004 and the 2007 Wastewater System Revenue Certificates of Participation Series A to provide funds to finance the costs of certain improvementsto the wastewater collection, treatment and disposal system and to refund the 1991 Wastewater Certificates of Participation. 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. 29 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 (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 busi ness-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 benefit from 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 private -purpose trust 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 recognized as revenue as soon as all eligibility requirements have been met. Agency funds use the accrual basis of accounting, but they do not have a measurement focus. 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 available when the City receives cash. 30 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30.2008 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 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, improvementsand 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 improvementsand debt service. Additionally, the City reports the following fund types: The Internal Service Funds account for the City's claims and benefits and fleet services. The fiduciary funds accountfor assets held in trust for other agencies. Private -Purpose Trust Funds are used to account for trust agreements under which the principal and income benefit individuals, private organizations or other governments. They were established to account for assets held and invested by the Library Board as trustee; and to account for assets held by the City in accordance with a trust agreement on behalf of the Hutchins Square. These funds can only be spent 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 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. 31 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 Private—sector standards of accounting and financial reporting issued prior to 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 funds and internal service funds are charges for customer services including: electric, wastewater, water and public transportation fees. Operating expenses for enterprise funds and internal service funds 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. 50, Pension Disclosures (an amendmenf of GASB Statement No. 25 and 27) ("GASB 50"). The adoption of GASB 50 required the City to include a disclosure in the notes to the financial statements with the same information presented under the required supplementary information (RSI). The adoption of GASB 50 did not have an impact on the City's financial statements. (e) Cash and Investments The City maintains a cash and investment pool 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 investment income. Restricted assets represent the proceeds from debt and other cash and investments held by fiscal agents by agreement that meet the definition of cash and cash equivalents, with the exception of a $2,169,850 guaranteed investment contract held in the Wastewater Fund which is a long- term investment. 32 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 (f) Restricted Cash and investments The City established an escrow account (the "Central Plume Fund") into which certain settlement payments were deposited with the mutual agreement between the City and the other parties that these funds will be used exclusively for environmental clean up, investigation or remediation expenses incurred by the City in the Central Plume Area and that it will not be used for the payment of legal or technical fees. These funds are accounted for in the Water Fund. (g) Restricted Assets with Fiscal Agents In the Electric Enterprise 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 representthe proceeds of the 2002 Improvement bonds reserved for debt service. In the Wastewater fund, the restricted assets represent the proceeds of the 20038, the 2004A and 2007A Certificates of Participation issued for improvements to the City's wastewater collection, treatment and disposal system. In the Water Fund, the restricted assets representfunds held by the attorneys in connection with the PCE/TCE litigation. (h) 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 Iiened 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, 2006, upon which the 2007 levy was based, was $5,330,510,000. 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, 2008, 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 agreementwith 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 of the agreement, the County keeps the penalties and interest on the delinquent taxes. 33 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 (i) Due From/Due To Other Funds, Advances To/Advances From 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." Long-term interfund loans receivable are reported as "advances to other funds." The corresponding long-term interfund loans payable are reported as "advances from 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. 0) 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. (k) Long-term obligations In the government -wide financial statements and in the proprietaryfund 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 as an expense for both governmental and business -type activities. (1) Loan receivable Loan receivable reported in the HOME Program & Community Development Block Grants Special Revenue Fund represent funds the City loaned to a developer on November 15, 1995 for a low-income housing project. The City will receive principal and interest from the original loan in 2025 and can use it for allowable projects or to make new loans. 34 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 (m) Advance receivable Advance receivable reported in the Electric Enterprise Fund 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.) (n) 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. (o) 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 20038 and 2004A Certificates of Participation amortized over 20 years; and the 2007A Certificates of Participation amortized over 30 years. (p) 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 and in the proprietary funds 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 of donation. Capital outlay is recorded as expenditures in the General and other governmental funds and as assets in the government -wide financial statements to the extent the City's capitalization threshold is met. The 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 government -wide statement of net assets. This capitalization included i nfrastructu re that could be identified and has been acquired since July 1, 1980. 35 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 Depreciation of capital assets is provided on the straight-line basis over the following estimated useful lives: Years Buildings and improvements 3-40 Machinery and equipment 2-40 Vehicles 5-15 Infrastructure 10-50 (q) Compensated Absences/Vacation and Sick Leave Accumulated vacation and vested sick leave benefits are accrued when incurred in the government -wide financial statements and the proprietary funds financial statements. A liability for these amounts is reported in the governmental funds only if they have matured. (r) 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 in an internal service fund. The accrued liability for estimated self-insured claims representsan estimate of the eventual loss on claims arising priorto year-end including claims incurred but not reported. (s) 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 subjectto change. (t) Statement of Cash Flows A statement of cash flows 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. (u) 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. 36 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 (2) CASH AND INVESTMENTS Cash and investments as of June 30, 2008 are classified in the accompanying financial statements as follows: Statement of net assets: Cash and investments $ 57,820,036 Restricted assets 29,833,690 Fiduciaryfunds cash and investments: Private-pu rpose trust funds 854,249 Agency fund 662,098 Total cash and investments $ 89,170,073 Cash and investments as of June 30, 2008 consist of the following: Cash on hand $ 1,711 Depositswith financial institutions 18,559,409 Restricted cash with fiscal agent 300,000 Investments 70,308,953 Total cash and investments $ 89,170,073 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 deposit, mutual funds, government investment contracts, medium term notes as permitted by the Government Code, and the State of California Local Agency Investment Fund (LAI F). 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 cf 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. 37 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 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 30,2008 LAI F Money Market Mutual Funds Equities and options Held by bond trustee: Money Market Mutual Funds Guaranteed investment contracts (GICs) Total Maturity Less than One Year $ 48,305,739 674,682 150.939 19,007,743 Maturity One to Five Years 2,169,850 S 68.139.103 2,169,850 Investments in equities are shares of stocks received by the Library as an endowmentfrom a private citizen. 38 Total $ 48,305,739 674,682 150,939 19,007,743 2,169,850 $ 70,308,953 Maximum Maximum % of Maximum Investment Minimum Credit Permitted Investments/Deposits Maturity Portfolio in One issuer 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 LocalAgency Investment Fund (LAIF) Indefinite 100% $40m per account unrated Money Market Mutual Funds Indefinite 20% AAA Guaranteed investment contracts (GICs) 5 years 100% AA - Medium term Notes 5 years 30% AAA 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 30,2008 LAI F Money Market Mutual Funds Equities and options Held by bond trustee: Money Market Mutual Funds Guaranteed investment contracts (GICs) Total Maturity Less than One Year $ 48,305,739 674,682 150.939 19,007,743 Maturity One to Five Years 2,169,850 S 68.139.103 2,169,850 Investments in equities are shares of stocks received by the Library as an endowmentfrom a private citizen. 38 Total $ 48,305,739 674,682 150,939 19,007,743 2,169,850 $ 70,308,953 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 d) Credit Risk Generally, credit risk is the risk that an issuer of an investmentwill 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 CompanyAct of 1940, whose shares are registered underthe Federal Securities Act of 1933, and have a rating by S &P of "AAAm- G," "AAA -m" or "AA -m" and rated by Moody's "Aaa," "Aal" or "AaZ" The GICs and LAIF do not have a rating provided by a nationally recognized statistical rating organization. e) Concentration cf Credit Risk 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 California Government Code. Investments in LAIF and money market mutual funds are not subject to the concentration of credit risk disclosure. 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 party. 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 the 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. $19,077,846 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 risk 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 Pool 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 39 (3) CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 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 cost basis. The total amount invested by all public agencies in LAIF at June 30, 2008 was $25.2 billion. LAIF is part of the California Pooled Investment Account (PMIA), which at June 30, 2008 had a balance of $70 billion. Of this amount, 14.72% were invested in structured notes and asset- backed securities. PMIA is not SEC -registered, but is required to invest according to California State Code. The average maturity of PMIA investments was 212 days as of June 30, 2008. The Local Investment Advisory Board has oversight responsibilityfor 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. In accordance with GASB Statement 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 that jeopardizes pool participants would cause the withdrawal to be done at market value. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS Receivablescf the General Fund, Electric, Wastewater and Water funds are reported net of uncollectible amounts. Total allowance provided for uncollectible amounts relatedto receivablesof the current period are as follows: Uncollectibles related to late charges and services Uncollectibles related to electric sales and services Uncollectibles related to wastewater services Uncollectibles related to water sales and services Total uncollectibles of the current fiscal year 40 20,500 214,100 55,200 76,600 $ 366,400 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 (4) INTERFUND RECEIVABLES/PAYABLES Interfund receivables and payables at June 30, 2008 areas follows: Due from Other governmental Other governmental Due to General Fund Other governmental Amount $ 714,425 468,565 $ 1,182,990 "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 $ 714,425 and $468,565 represent cash deficits in other governmental funds. Advances from General Other governmental Water Advances to Other governmental Other governmental Other governmental Amount $ 283,720 606,770 1,225,173 $ 2,115,663 The $283,720 from the General Fund to the Other governmental is an advance used for the start up costs of a redevelopment agency. The $606,770 advance from Other governmental was used for the Lower Sacramento Road expansion project and other street projects. The $1,225,173 advanced from the Water Fund was used for the construction of Fire Station #4. 41 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 (5) TRANSFERS Transfers for the year ended June 30, 2008, are summarized as follows: Transfers in Other Transfers out: General Governmental Electric Total General $ 2,575,809 $2,575,809 Other governmental 53,000 436,154 300,339 789,493 Electric 2,792,475 2,792,475 Wastewater 575,326 575,326 Water 618,365 5,931 624,296 Transit 1,000 1,000 Total $ 4,040,166 3,017,894 300,339 $ 7,358,399 During the year, various interfund transfers were made to finance expenditures, subsidize operating losses and service debt. Transfers out from Other Governmentalto the General Fund of $53,000 include transfers of $50,000 to reimbursethe General Fund for the costs associated with the administration of the Impact Mitigation Fees program; and $3,000 for internet service upgrade. The $2,792,475 transfer out from the Electric Fund is for cost of services reimbursementto the General Fund for $2,789,475 and $3,000 for internet service upgrade, $575,326 from Wastewater includes cost of services for $574,661 and $665 for internet service upgrade, $618,365 from Water Fund includes cost of services for $617,700 and $665 for internet service upgrade. The $1,000 transfer from Transit is also a contribution towards the internetservice upgrade. The $2,575,809 transfers out from the General Fund to Other Governmental represent transfers of $1,681,501 to the Debt Service Fund for the principal, interest and fiscal charges required to pay the 2002 Certificates of Participation; $7,225 to Capital Projects Fund for Lodi Lake improvements; $887,083 to the Vehicle and Equipment Replacement Fund which include $615,545 for vehicles, $154,447 for equipment replacements, $94,553 for information systems replacementsand $22,538 for park equipments. The transfer out of $436,154 from Other Governmental to Other Governmental includes $334,139 transferred from the Capital Outlay Reserve Fund to the Community Development Fund; and the annual transfer of $96,105 to the Debt Service Fund for the principal and interest payment 42 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 of the City's Measure K loan from San Joaquin Council of Governments for the construction costs incurred for the Highway 12/Kettleman Lane/Highway 99 Interchange Improvements projectand transfer of $5,910 for Fleet replacement. The $300,339 transfer out from Other Governmental to the Electric Fund is for the residual balance of the Subdivision Fund related to Electric Connections. (6) CAPITALASSETS Capital assets activity of the primary government for the year -ended June 30, 2008, was as follows: 43 Balance Balance Governmental activities June 30,2007 Increases Decreases June 30,2008 Capital assets, not being depreciated: Land $ 24,016,374 $ 24,016,374 Work of art 62,024 62,024 Construction in progress 2,745,592 1,022,630 (205,657) 3,562,565 Total capital assets, not being depreciated 26,823,990 1,022,630 (205,657) 27,640,963 Capital assets, being depreciated: Buildings and improvements 56,812,827 205,657 57,018,484 Machinery and equipment 8,385,192 398,831 (25,079) 8,758,944 Vehicles 9,064,138 257,503 (116,207) 9,205,434 Infrastructure 112,830,364 1,989,810 114,820,174 Total capital assets, being depreciated 187,092,521 2,851,801 (141,286) 189,803,036 Less accumulated depreciation for: Buildings and improvements 19,020,161 1,476,243 20,496,404 Machinery and equipment 7,053,231 343,741 (21,944) 7,375,028 Vehicles 7,589,441 362,247 (116,207) 7,835,481 Infrastructure 44,375,563 5,321,846 49,697,409 Total accumulated depreciation 78,038,396 7,504,077 (138,151) 85,404,322 Total capital assets, being depreciated, net 109,054,125 (4,652,276) (3,135) 104,398,714 Governmental activities capital assets, net $ 135,878,115 (3,629,646) (208,792) $ 132,039,677 43 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30, 2008 Business -type activities Balance Balance June 30,2007 Increases Decreases June 30,2008 Capital assets, not being depreciated: Land Construction in progress Total capital assets, not being depreciated Capital assets, being depreciated: Buildingsand improvements Machineryand equipment Vehicles Total capital assets, being depreciated Less accumulated depreciation for: Buildings and improvements Machineryand equipment Vehicles Total accumulated depreciation Total capital assets, being depreciated, net Business -type activities capital assets, net $ 5,247,806 190,553 $ 5,438.359 26,368,281 25,938,248 (2,102,124) 50,204,405 31,616,087 26,128,801 (2,102,124) 55,642,764 34,461,202 22,354 34,483,556 135,020,201 4,464,859 (2,580,675) 136,904,385 7,565,798 974,499 (435,824) 8,104,473 4,882,466 (435,824) 55,454,131 177,047,201 5,461,712 (3,016,499) 179,492,414 8,931,449 860,973 9,792,422 36,661,069 3,591,062 40,252,131 5,414,971 430,431 (435,824) 5,409,578 51,007,489 4,882,466 (435,824) 55,454,131 126,039,712 579,246 (2,580,675) 124,038,283 $ 157,655,799 26,708,047 (4,682,799)$ 179,681,047 44 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 Depreciation expense was charged to function/programs of the primary government as follows: Governmental activities: General government $ 593,748 Public protection 867,693 Publicworks 5,411,283 Community development 2,111 Library 37,895 Parks and recreation 589,900 Internal service funds 1,447 Total depreciation expense - governmental activities $ 7,504,077 Business -type activities: Electric Wastewater Water Transit (7) OPERATING LEASES Total depreciation expense - business -type activities $ 1,319,036 1,825,862 1,184,324 553,244 $ 4,882,466 The City is obligated under various operating leases for the use of buildings and office space. Total costs for such leases were $152,036 for the year ended June 30,2008. Future minimum lease payments required by lease agreements that have initial or remaining noncancellable leaseterms of one year or more as of June 30, 2008, are as follows: FiscalYears Ending 2009 $ 155,696 Total minimum lease payments required under operating leases $ 155,696 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 8) LONG-TERM OBLIGATIONS The following is a summary of debt transactions of the City for the year ended June 30, 2008: 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: Compensated absences California Safe Drinking Water Note Payable Certificates of Participation: 1991 Certificates of Participation Less deferred amounts: For issuance discounts Net Amounts Due Within Interest Rates June 30,2007 Additions Reductions June 30,2008 One Year (282,278) 282,278 8,517,722 (8,517,722) 46 10,383,393 3,787,819 (2,692,054) $ 11,479,158 $ 2,763,356 3.0-5.0% 23,975,000 (555,000) 23,420,000 565,000 5.0% 245,000 245,000 4.0% 187,280 (92,829) 94,451 94,451 5.3-5.39% 656,114 (249,624) 406,490 129,487 6,396,000 1,589,702 (1,999,702) 5,986,000 1,999,702 $ 41,842,787 5,377,521 (5,589,209) $ 41,631,099 $ 5,551,996 Amounts Due Within Interest Rates June 30,2007 Additions Reductions June 30,2008 One Year $ 2,081,657 648,074 (434,206) $ 2,295,525 $ 648,073 3.41% 1,918,416 (163,907) 1,754,509 169,746 4.5-6.6% 8,800,000 (8,800,000) (282,278) 282,278 8,517,722 (8,517,722) 46 2002 Certificates of ParticipationA & B Less deferred amounts: From refunding Net 2002 Certificates of Participation C & D Add deferred amounts: For issuance premium Total 2003 Certificates of Participation B Add deferred amounts: For issuance premium Total 2004 Certificates of ParticipationA Add deferred amounts: For issuance premium Total 2007 Certificates of ParticipationA Add deferred amounts: For issuance premium Less deferred amounts: From refunding Net Total Certificatesof Participation Business -type activity long-term liabilities CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 interest Rates June 30,2007 Additions Reductions June 30,2008 Variable 46,760,000 29,749,987 46,760,000 115,527,922 29,722,114 (6,593,854) 286,688 (6,307,166) $ 119,527,995 30,370,188 40,166,146 286,688 40,452,834 1.54-5.25% 36,295,000 (2,305,000) 33,990,000 295,368 (65,636) 229,732 36,590,368 (2,370,636) 34,219,732 2.0-5.0% 4,440,000 (195,000) 4,245,000 66,657 (4,102) 62,555 4,506,657 (199,102) 4,307,555 2.0-5.5% 25,380,000 (935,000) 24,445,000 367,029 (21,277) 345,752 25,747,029 (956,277) 24,790,752 4.0-5.0% 30,320,000 30,320,000 247,604 (5,502) 242,102 Amounts Due Within One Year (286.688 (286,688) 5,240,000 65,636 5,305,636 200.000 4,102 204,102 965.000 21,277 986,277 105,000 8,253 (845,490) 33,375 (812,115) (44,499) 29,722,114 27,873 29,749,987 68,754 115,527,922 29,722,114 (11,729,176) 133,520,860 6,278,081 $ 119,527,995 30,370,188 (12,327,289) $ 137,570,894 $ 7,095,900 47 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 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 year-end $5,986,000 of internal service funds self-insurance liability and $140,534 of compensated absences were included in the above amounts. Also, for the governmental activities, compensated absences are generally liquidated by the General Fund and the internal service funds. Long-term debt payable at June 30, 2008, 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 Department of 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 $114,012, are payable each October 1 and April 1 through 2017. Annual debt service requirements to maturity of water note payable are as follows: Fiscal Year Ending Business -type Activities June 30, Principal Interest 2009 $ 169,746 $ 58,277 2010 175,462 52,562 2011 181,496 46,528 2012 187,658 40,366 2013 194,263 33,762 2014-2017 845,884 66,211 Total $ 1,754,509 $ 297,706 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 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, 2012. Annual debt service requirementsto maturity of the note payable are as follows: Fiscal Year Ending June 30, 2009 2010 2011 2012 Total Governmental Activities Principal Interest $ $ 14,700 14,700 14,700 245,000 11,025 $ 245,000 $ 55,125 Loan Payable The City entered into an agreement and issued a promissory note to San Joaquin County Council of Governments, a joint 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, 2008, is $94,451. Interest and principal is due and payable annually and matures on July 1, 2009. Annual debt service requirementsto maturity of loan payable are as follows: Fiscal Year Ending Governmental Activities June 30, Principal Interest 2009 $ 94,451 1,653 Total $ 94,451 $ 1,653 49 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 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 $1,400,000 of additional proceeds. Principal is payable annually on August 1 in amounts from $100,000 to $760,000 with final payment due August 1, 2026. This Certificates of Participation was refunded in the current fiscal year. $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 $185,000 to $365,000 with final payment due October 1, 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 refinancewater 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 $170,000 to $2,070,000 with 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 1995 and 1996 Certificates of Participation. As of June 30, 2008, there are no outstanding balances of these refunded Certificates. 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 Performing Arts 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 improvements to the distribution and transmission facilities of the City's Electric System. As of June 30, 2008, the outstanding balance of the advanced refunded certificates is $43,957,682 and will be called in full on January 15, 2009. The proceeds of the 20028 Certificates were deposited in the Rate Stabilization Fund 50 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 and applied to certain power purchase costs of the City. Principal for Series A is payable annually beginning 2011 to 2032 in amounts ranging from $1,175,000 to $ 3,460,000. Series Bwas 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 buy out 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 $65/mwh 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. Asa 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 Certificatesof Participation 2002 Taxable Series D to buy out the amended contract in the amount of $42,406,175. 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. Current Refunding The City issued $30,320,000 Certificates of Participation (2007A COP) on November 16, 2007 to provide funds to finance the costs of certain improvementsto the wastewater collection, treatment and disposal system of the City and to allow the City to provide resourcesto purchase U.S. Government and Local Government Series Securities that were placed in an irrevocable escrow and trust to prepay and cause the immediate defeasance of the outstanding $ 8,575,000 Certificates of Participation (1991 Wastewater Treatment Plant Expansion Refunding Project). As a result, the refunded bonds are considered defeased and the liability has been removed from the Wastewater Enterprise Fund column of the Statement of Net Assets. This current refunding was undertaken to reduce total debt service payments over the next 29 years resulting in economic gain of $1,169,534 and an increase of $426,045 in future debt payments. The reacquisition price exceeded the net carrying amount of the old debt by $845,490. This amount is being netted against the new debt and amortized over the life of the old debt which is shorter than the refunding debt obligation. Principal is payable annually on October 1 in amounts from $105,000 to $2,980,000 with final payment due October 1, 2037. 51 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30.2008 interest Rate Swap 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 in January 2002. The intention of the swap was to change the City's variable interest rate on the Certificates 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 received 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 stepped up to 62.92% of LIBOR on January 1, 2007 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 of 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 Certificates outstanding in each year. The Certificates' variable-rate coupons are assumed to be based on The Bond Market Association Municipal Swap IndexTM (BMA). The Certificates and related swap mature on July 1, 2032. As of June 30, 2008, rates were as follows: Terms Rates Interest rate swap: Fixed paymentto counterparty Fixed 3.74900% Variable payment from counterparty 62.92% of LIBOR (1.97772%) Net interest rate swap payments 177128% Variable rate bond payments BMA 3.53473% Synthetic interest rate on bonds 5.30601% Fair Value: As of June 30, 2008, the swap had a fair value of ($8,929,097). 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 52 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 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, 2008, 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 Aa3 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: The swap exposes the City to basis risk should the relationship between LIBOR and BMA converge, changing the synthetic rate on the Certificates. 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 swap contract is insured by MBIA Insurance Corporation. The Schedule to the Master Agreement includes an "additional termination event." That is, the swap may be terminated by the City if both the insurer and the City's credit rating are downgraded below AA-,Aa3 and the City'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 Certificates 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, 2008, 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. 53 Fiscal Year Ending June 30 2009 2010 2011 2012 2013 2014-2018 2019-2023 2024-2028 2029-2033 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 2002 Electric Certificates of Participation Series A Variable -Rate Bonds Interest Rate Principal Interest Swaps, Net Total $ 1,652,838 828,251 $ 2,481,089 6,510,000 $ 1,652,838 828,251 2,481,089 4,450,000 1,652,838 1,107,875 2,760,713 1,175,000 1,632,071 1,370,067 4,177,138 1,240,000 1,589,389 1,334,237 4,163,626 7,245,000 7,223,123 6,063,563 20,531,686 9,360,000 5,764,430 4,839,040 19,963,470 12,095,000 3,876,975 3,254,587 19,226,562 15,645,000 1,439,429 1,208,351 18,292,780 $ 46,760,000 26,483,931 20,834,222 $ 94,078,153 Annual debt service requirementsto maturityfor certificatesof participation are as follows: Fiscal Year Ending June 30, 2009 2010 2011 2012 2013 2014-2018 2019-2023 2024-2028 2029-2033 2034-2038 Total Governmental Activities Principal $ 565,000 $ 590,000 610,000 630,000 655,000 3,740,000 4,700,000 5,980,000 5,950,000 $ 23,420,000 $ Interest 54 1,104,874 $ 1,084,071 1,060,956 1,036,156 1,010,047 4,569,058 3,573,113 2,264,500 613,250 16,316,025 $ Business -type Activities Principal Interest 6,510,000 $ 5,878,948 4,240,000 5,709,839 4,450,000 5,531,798 5,875,000 5,314,831 7,315,000 4,975,989 30,815,000 19,953,522 20,455,000 15,261,920 24,670,000 10,287,317 24,310,000 5,345,554 11,120,000 1,445,000 139,760,000 $ 79,704,718 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 Capital Leases The City has entered into a lease agreementfor financing the acquisition of two fire trucks. This lease agreement qualifies as a capital lease for accounting purposes and, therefore, has been recorded at the presentvalue of its future minimum lease payments as of inception date. The assets acquired through this capital lease are as follows: Governmental Activities Asset: Vehicles Less accumulated depreciation Total The presentvalues of future minimum capital lease payments as of June 30, 2008, are as follows: Fiscal Years Ending 2009 2010 2011 Total minimum lease payments Less amounts representing interest Present value of minimum capital lease payments $ 883,037 (294,346) $ 588,691 $ 148,003 148,003 148,003 444,009 (37,519) 406,490 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, 2008, is $605,000. 55 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 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 payment for the 2003 Certificates are expected to be derived from amounts to be received by the District from the City of Lodi pursuantto an Agreement for 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 District for 40 years. 56 (9) (10) CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 NATURE AND PURPOSE OF REPORTED FUND EQUITY The following is a summary of reserved, unreserved-designatedand unreserved-undesignatedfund balances at June 30, 2008: Other Governmental 1,324,721 606,770 1,931,491 12,937,250 12,937,250 Total $ 685,687 1,479, 763 14,868,741 $ 890,490 25,406 3,081,346 12,937,250 12,937,250 4,159,007 20,177,603 Reserved Fund Balance Reserved represents that portion that is legally segregated for specific purposes and is not available for discretionary appropriation. Unreserved -Designated Fund Balance Designated represents that portion for which the City has made tentative plans. Unreserved-UndesignatedFund Balance Undesignated represents that portion which is available for budgeting in future periods. 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 57 General Reserved for: Library $ 685,687 Encumbrances 155,042 Advances to other funds 283,720 Inventory 25,406 Total Reserved 1,149,855 U n reserved-desig natedfor: Specific projects and programs Total Designated Unreserved- undesignated 4,159,007 Total Fund Balances $ 5,308,862 Other Governmental 1,324,721 606,770 1,931,491 12,937,250 12,937,250 Total $ 685,687 1,479, 763 14,868,741 $ 890,490 25,406 3,081,346 12,937,250 12,937,250 4,159,007 20,177,603 Reserved Fund Balance Reserved represents that portion that is legally segregated for specific purposes and is not available for discretionary appropriation. Unreserved -Designated Fund Balance Designated represents that portion for which the City has made tentative plans. Unreserved-UndesignatedFund Balance Undesignated represents that portion which is available for budgeting in future periods. 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 57 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and city ordinance. Copies of PERS' annual financial report may be obtained from their Executive Office- 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 12.233% for miscellaneous employees, 23.509% for fire and 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 2008, the City's annual pension cost of $4,963,045 for PERS was equal to the City's required and actual contributions. The required contribution was determined as part of the June 30, 2005, actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) 7.75% investment rate of return (net of administrative expenses) (b) projected annual salary increases that vary by age, length of service, and type of employment (c) 3.25% payroll growth, and (d) 3.00% inflation. The actuarial value of PERS assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a fifteen -year period (smoothed market value). PERS unfunded actuarial liability is being amortized as a level percentage of projected payroll on a closed basis. Amortization of the remaining period varies: (a) safety police plan over 30 years (b) safety fire plan over 30 years, and (c) miscellaneous plan over 25 years. (d) Trend Information Three -Year Trend information ($ Amounts in Thousands): 58 Annual Percentage Net Fiscal Year Pension of APC Pension Ended Cost (APC) Contributed Obligation 6/30/06 $ 4,814 100% $0 6/30/07 4,437 100% $0 6/30/08 4,963 100% $0 58 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 (e) Funded Status and Funding Progress As of June 30, 2007, the most recent actuarial valuation date, the plan was 87% funded. The actuarial accrued liability for benefits was $203 million, and the actuarial value of assets was $177 million, resulting in an unfunded actuarial accrued liability (UAAL) of $26 million. The covered payroll (annual payroll of active employees covered by the plan) was $27 million, and the ratio of the UAAL to the covered payroll was 93.95%. The schedule of funding progress, presented as RSI following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability of benefits. (11) POST-RETIREMENT HEALTHCARE BENEFITS The City provides no post -employment benefits for its employees other than the minimum employer contribution required by statute if the City remains with CalPers health plan. There are currently 139 retirees of which the City contributed approximately $161,800 towards health care during the current fiscal year. The City's contributions are financed on a pay-as-you-go basis. Employees hired prior to July 1, 1994, who retire after ten years of service, however, 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 I- "Bank" The number of accumulated hours shall be reduced by 16-2/3% 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 59 (12) CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 d) Option IV — "Service Credit" A retiring employee will be able to convert unused sick leave to service credit for CALPERS retirement purposes. 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 -Claims and Benefits. 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. 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 with coverage up to $200,000,000 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 and unemployment for its employees. General liability and workers' compensation claims are administered by an outside agency and all other claims are administered by the City. The City has accrued a liability of $5,986,000 at June 30, 2008, for all self-insured claims in the Internal Service Fund -Claims and Benefits 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 indicates that 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, 2008 and 2007 are as follows: Current -Year Claims and Changes Claim Beginning in Estimates Payments Endina FY06-07 $ 7,083,000 1,578,383 (2,265,383) $ 6,396,000 FY07-08 $ 6,396,000 1,589,702 (1,999,702) $ 5,986,000 .E CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 (13) PARTICIPATION IN JOINT VENTURES Northern California PowerAgency 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 NCPAs 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 -defaulting Proiect Participant's Original Proiect Entitlement Percentase 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. General Operating Reserve with 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 primarily to provide the following advantages: minimizes the number and dollar amount of reserve that might otherwise be funded separately in connection with NCPAs individually financed operating plants, projects and programs; provides each member with flexibility and unilateral control over the determination of 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. 61 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 As of June 30, 2008, the City's balance in the NCPA General Operating Reserve, which has been credited with annual interest earnings and settlements, is $6,486,707. Proiect Participation The NCPA members and their percentage share at June 30, 2008, which is 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% 33.9667% Biggs 0.2270 .118 0.4500 Gridley 0.3360 .210 0.6771 Healdsburg 3.6740 1.66 3.500 7.3914 Lodi 10.2800 10.37 8.036 39.50 20.8659 Lompoc 3.6810 2.30 3.500 5.00 7.4058 Palo Alto 22.92 Plumas-Sierra Rural Electric Coop .7010 1.69 1.090 1.4136 Roseville 7.8830 12.00 40.000 36.50 15.7338 Santa Clara 44.3905 37.02 25.000 0.7004 Turlock Irrigation District 6.3305 0.0998 Ukiah 5.6145 2.04 5.454 11.2956 Bulk power purchased by the City through NCPA amounted to $39,611,551 during the year ended June 30, 2008 and is reflected in utilities expense in the Electric Enterprise Fund. This amount is net of the proceeds received from Roseville Electric for the sale of the combustion turbine one (CT1) rights in the amount of $3.25 million. 62 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 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 2 and Project Number 3. Outstanding long-term debt related to this projectwas approximately $102 million at June 30, 2007. In addition to federal geothermal leasehold, steam wells, gathering system and related facilities, the project consists of two electric generating stations (Plant 1 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 Hvdroelectric 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 powerfrom 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, 2007, approximately $483 million in long-term debt used to finance this projectwas 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 8.036% of the debt service and operating costs. At June 30, 2007 approximately $15 million in long-term debt was outstanding. Transmission Proiect The projectwas undertaken to meet certain obligations of NCPA under the NCPNPG & 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 headquarters in Roseville, California. Under a power purchase agreement, the City is obligated to pay 20.8659% of the debt service and operating costs. At June 30, 2007, approximately $3.0 million in long-term debt was outstanding. 63 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30.2008 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. Under a power purchase agreement, the City is obligated to pay 39.5% of the debt service and operating costs. At June 30, 2007, approximately $65 million in long-term debtwas outstanding. The following are the most recent available audited condensed financial statements of NCPA: Combined Balance Sheet June 30,2007 (in thousands) Assets Liabilities and Capitalization Current assets $ 77,165 Current portion of long-term debt $ 37,060 Restricted assets 184,316 Other current liabilities 147,476 Electric plant, net 375,441 Other liabilities and deferred credits 45,842 Other assets and deferred charges 246,136 Long-term debt 628,183 Accumulated net revenues 24,497 Total assets $ 883,058 Total liabilitiesand capitalization $ 883,058 64 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 Combined Statement of Revenue and Expenses Year ended June 30,2007 (in thousands) Sales for resale $ 310,084 Operating expenses (269,487) Other revenues (expenses) ( 27,155) Future recoverable costs ( 943) Net revenues before refunds Refundsto participants Net revenues Accumulated net revenues, beginning of year Accumulated net revenues, end of year 12,499 (17,767) (5,268) Combined Statement of Cash Flow Year ended June 30,2007 (in thousands) Net cash provided by operating activities $ 85,137 Net cash used in investing activities 34,191 Net cash used in capital and related financing activities (74,807) Net cash used in noncapital and related financing activities (16,698) Increase in cash and cash equivalents 27,823 29,765 Cash and cash equivalents, beginning of year 68,396 24,497 Cash and cash equivalents end of year $ 96,219 At June 30, 2007, NCPA's total outstanding long-term debtwas $665,243,000 at an average interest rate of 5%. The current portion of long-term debt at June 30, 2007, was $37,060,000. Complete financial information for NCPA may be 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 (TANC) 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. 65 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30.2008 Increase in Non-defaultina Proiect Participant's Oriainal Proiect Entitlement Percentaae 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'soriginal Project Entitlement Percentage Share. California -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 PDCI 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 percentage of the costs. Pursuantto the IPA and a subsequent agreementwith WAPA, TANC is entitled to use approximately 1,242 MW, and is obligated to pay an average of approximately 73 percent of the operating costs associated with the project. Under the TANC joint powers agreement, the City is obligated to pay 1.89% of its debt service and operating costs. At June 30, 2007, approximately $362 million in long-term debt was outstanding of which $15 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 66 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 (14) MEMBERSHIP IN INSURANCE POOLS California Joint Powers Risk Management Authority The City is a member, along with 16 other individual cities and 5joint powers authorities, 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-two 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 30,2008, deposits of $466,017were paid to CJPRMA. The participants at June 30, 2008, are as follows: City of Alameda, Chico, Fairfield, Fremont, Livermore, Lodi, NCCSIF, Petaluma, PERMA, Pomona, Redding, Redwood Empire Municipal Insurance Fund, Roseville, San Leandro, San Rafael, Santa Rosa, Small Cities Organized Risk Effort, Stockton, Sunnyvale, Vacaville, Vallejo, and Yolo County PublicAgencies Risk Management Insurance Authority. Complete financial information for CJPRMA maybe obtained at the following administration office: California Joint Powers Risk Management Authority 2333 San Ramon Valley Boulevard Suite 250 San Ramon, CA 94583-4456 Local Agency Workers' Compensation Excess Joint Powers Authority The City, along with thirty-four 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. LAWCX offers $150,000, 250,000, $350,000, $500,000 and $1 million self-insured retentions (SIR) or a member can attach directly to the purchased excess insurance. LAWCX coves the layer above the member SIR up to $5 million. The City of Lodi's self-insured retention is $250,000. LAWCX participates in the California State Association of Counties Excess Insurance Authority (CSAC-EIA) to obtain coverage up to $200 million. The City paid $296,144 in deposits to LAWCX during the fiscal year ended June 30,2008. 67 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 The participants at June 30, 2008, are as follows: Alameda, ABAG, BCJPIA, City of Benicia, CCCTA, CHWCA, Central San Joaquin Valley Risk Mgmt Authority (CSJVRMA), City of Clovis, City of Coronado, East Bay Regional Park District, City of Encinitas, FASIS, City of Gilroy, City of Livermore, City of Lodi, City of Los Gatos, City of Merced, MBASIA, MCLAIA, City of Morgan Hill, City of Newark, PARSAC, City of Placentia, PERMA, City of Roseville, City of San Leandro, City of Santa Maria, 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. Complete financial information for LAWCX maybe obtained at the following administration office: Local Agency Workers' Compensation Excess Joint Powers Authority 1831 K Street Sacramento, CA 95814 California Transit Insurance Pool The City, along with thirty-four other public agencies is a member of California Transit Insurance Pool (CaITIP), ajoint 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 II applies to members with self-insured retentionswho choose to provide their own adjusting services. CaITIP purchases excess insurance over its $1,000,000 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 $122,737 in deposits to CaITIP during the fiscal year ended June 30,2008. There have been no reductions in insurance coverage from the prioryear and there were no insurance settlements in excess of insurance coverage in any of the last three years. 68 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 Self - Insured Limit Physical Program Retention (in millions) Damage City of Lodi Transit System I Prefunded 20 Yes Complete financial informationfor CaMp maybe obtained at the following administration office: California Transit Insurance Pool 1415 L Street, Suite 200 Sacramento, CA 95814 (15) DEFICIT IN FUND EQUITY Nonmaior Governmental Fund — Community Development — A deficit in fund equity in the amount of $702,127 at June 30, 2008, is attributed to the unprecedented decrease in residential developments due to the slowing housing market. The City has initiated a contract with a consulting firm in order to complete a nexus study which is required in order to adjust the fees within the Building Division. The work is contemplated to take 3-4 months. The results of the study will be the foundation for increasing the fees com mensu rate with costs. (16) COMMITMENTSAND CONTINGENCIES Litigation and claims - The City has fully resolved the litigation over its groundwater contamination as a potential responsible party except the continuing litigation with its former outside counsel regarding malpractice and fee claims. The City estimates that it will need to raise $49.5 million to cover past costs, past settlements and future obligations and have increased its water rates in an amount sufficient to cover these estimated expenses. Citizen efforts to reduce these rates via initiative failed in the November 2006 election by a vote of 64% to 36%. As such, the City Attorney does not anticipate a material effect on the City's financial condition. The City owns a 1,000 acre wastewater treatment facility known as "White Slough" approximately 5 miles west of the contiguous city limit. Neighboring farming and dairy operations are in litigation over elevated nitrate levels in the area. Efforts to join the City in the litigation have been so far unsuccessful but are expected to continue. It is too early at this stage to estimate liability or damages if the City is joined in the action. However, the City Attorney does not currently expect the -matter to have a material effect on the City's financial condition. All other actions againstthe City are under $75,000 or have no arguable cost and will therefore not have a material financial effect on the City. role] CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 Water Purchase Agreement with Woodbridge Irrigation District- The City obtains its municipal water supply from wells located within the City, extracting water from the underground aquifer, which is replenished in part by flows of the Mokelumne River. To avoid wholly dependent upon wells and the possible impacts of eventual overdraft of the groundwater supply, the City made a commitment in 2003 to purchase surface water supply from Woodbridge Irrigation District for 40 years beginning in 2003. The agreement provides for the purchase of 6,000 acre feet per year and the City pays the District $1.2 million annually. Commencing on January 1 of the seventh year, the amount payable to the District shall be increased by two percent (2%) per year or by the change in the Consumer Price Index whichever is higher but shall not exceed five percent (5%). 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 to the United States Treasury every five years from the date of August 18, 1999, for the Electric System Certificates of Participation. The there is no cumulative arbitrage liability as of June 30, 2008. (17) SUBSEQUENT EVENTS On July 24, 2008, the City issued $60,685,000 2008 Certificates of Participationto provide funds to currently refund the outstanding $46,760,000 principal amount of the Electric System Revenue Certificates of Participation 2002 Series A Variable Rate Certificates and to fund certain costs relating to the termination of a swap agreement related to the refunded 2002 certificates. (18) FUTURE GASB PRONOUNCEMENTS In June 2004, the Governmental Accounting Standards Board (GASB) issued Statement No. 45, Accounting and Financial Reporting by Employers of Post -employment Benefits Other Than Pensions. GASB Statement No. 45 establishes standards for the measurement, recognition and display of other post -employment benefits (OPEBs) expenses/expenditures, related assets and liabilities, note disclosures and, if applicable, required supplementary information in the financial reports of state and local government employers. GASB No. 45 will be effective for the fiscal year ending June 30, 2009. The City does not provide post -employment benefits for its employees other than as described in Note 11. The City is currently working with an actuary to determine the unfunded actuarial liability. In addition, the City will be evaluating alternatives to funding and reducing the liability. The GASB has issued Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations, which provides guidance on how to calculate and report costs and obligations associated with pollution clean up efforts. The requirements of the new statement become effective for the fiscal year ending June 30, 2009. 70 CITY OF LODI Notes to Basic Financial Statements (Continued) June 30,2008 The GASB has issued Statement No. 51, Accounting and Financial Reporting for Intangible Assets, which establishes accounting and financial reporting requirements for intangible assets including easements, water rights, timber rights, patents, trademarks, and computer software. The requirements of this statement will be effective for the fiscal year ending June 30, 2010. 71 (This page intentionally left blank.) REQUIRED SUPPLEMENTARY INFORMATION City of Lodi Required Supplementary Information Schedule of Funding Progress- Pension Plan June 30,2008 (in thousands of dollars) 73 Unfunded Entry Age Unfunded Actuarial Actuarial Actuarial Liability as Actuarial Actuarial Accrued Accrued Funded Covered Percentage of Valuation Asset Value Liability Liability Ratio Payroll Covered Payroll Date (A) (B) [(B) - (A)] [(A) / (B)] (C) {[(B) — (A)]/(C)) 6/30/05 $ 150,967 $ 177,150 $ 26,183 85% $ 26,992 97.00% 6130106 163,888 190,366 26,478 86% 26,836 98.67% 6130107 177,504 203,172 25,669 87% 27,322 93.95% 73 CITY OF LODI SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE • BUDGET AND ACTUAL GENERALFUND Yearended June 30,2008 Variance with Original Final Actual Final Budget REVENUES Taxes $ 25,778,275 25,778,275 24,712,405 S (1,065,870) Licenses and permits 76,200 76.200 80,925 4,725 Intergovernmental revenues 11,575,727 11.971.035 10,642,600 (1,328,435) Chargesfor services 1,586,170 1,658,942 2,510,207 851.265 Fines, forfeits and penaihes 1,202,275 1,211,433 1,317,407 105,974 Investmentandrental inoome 600,350 600,350 662,164 61.814 Miscellaneous revenue 160,301 410.301 630,413 220.112 Total revenues 40,979,298 41,706,536 40,556,121 (1,150,415) EXPENDITURES Current: General government: City Council 96,250 95,861 95.861 City Manager 850,640 963,337 960.155 3.182 City Clerk 398,493 358,608 355,426 3.182 CityAttomey 488,571 529.692 527,306 2.386 Human Resources 721,510 546,244 541,945 4,299 Information Systems 1,160,369 1,200,757 1,171,790 28.967 Community Center 1,462,955 1,759,018 1,747,737 11.281 Financial Services 1,606,925 1,559,224 1,537,250 21,974 Budgetand Treasury 736.443 566.749 560,022 6,727 Non Departmental 2,132,085 2,049,391 2,047,878 1,513 Total general government 9,654,241 9,628,881 9,545,370 63,511 Public protection: Police 14,692,717 14,929,205 14,462,571 466,634 Fire 8,720,992 9,527,537 9,309,004 218.533 Total public protection 23,413,709 24,456,742 23,771,574 685.168 Public Works 3,500,296 4,068,507 3,935,366 133,141 Library 1,684,763 1,688,673 1,672,910 15,763 Parks and recreation 3,791,698 3,892,882 3,826,450 66.432 Debtservice: Interest and fiscal charges 29,724 29,724 29,724 Principal payments 249.624 249.624 249,624 Total debt service 279,348 279.348 279,348 Total expenditures 42,324,055 44,015,033 43,031,018 984.015 DEFICIENCY OF REVENUES UNDER EXPENDITURES (11_344,7V) (2,308,497) (2,474 897) (166,400) OTHER FINANCING SOURCES (USES) Transfers in 3.981 837 3.981.837 4,040166 56.329 Transfers out (1,936,642) (1,936,642) (2,575809) (639.167) Total otherfinancing sources (uses) 2,045,195 2,045,195 1,464,357 580,838 NET CHANGE IN FUND BALANCE 700,438 (263,302) 1,010,540 747,238 FUND BALANCE, beginning of year 4,180,958 6,319,402 6,319,402 FUND BALANCE. end of year 4,881,396 6,056,100 5,308,862 747.238 The note to the required supplementary information is an integralpart of this schedule CITY OF LODI Notes to the Required Supplementary Information June 30,2008 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 compliance with 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 basic 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 basic 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 Budgetfor the fiscal year commencing July 1. The budget includes proposed expenditures and the means of financing them. Budgeted revenues are adopted by the City Council at the time the budgets 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 reflectsthe following changes to the original budget: • Budgeted expenditures represent original appropriations adjusted by budgettransfers and appropriation amendments. The legal level of budgetary control (that is, the level at which expenditures can not legally exceed the appropriated 75 amount) is at the department 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 may 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. 76 COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES 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 Fund account for the accumulation of resourcesfor the repayment of principal and interest on general long-term debt; Capital Project Funds accountfor the financial resources to be used for the acquisition or construction of major capital facilities, other than those financed by proprietaryfunds. CITY OF LODI COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS Assets Cash and investments Restricted assets Receivables: Accounts, net 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: June 30,2008 Special Capital Revenue Projects Total 8,572,898 5,908,231 $ 14,481,129 1,693,870 1,693,870 508,955 508,955 76,953 33,266 110,219 468,565 468,565 1,646,023 1,646,023 1,084,000 1,084,000 606,770 606,770 $ 12,357,394 8,242,137 $ 20,599,531 $ 148,630 179,842 $ 328,472 1,182,990 1,182, 990 606,770 1,508,893 2,115,663 2,103,665 2,103,665 4,042,055 1,688,735 5,730,790 Reserved for encumbrances 882,329 442,392 1,324,721 Reserved for advances to other funds 606,770 606,770 Unreserved -designated for specific projects and programs 7,433,010 5,504,240 12,937,250 Total fund balances 8,315,339 6,553,402 14,868,741 Total liabilitiesand fund balances 77 $ 12,357,394 8,242,137 $ 20,599,531 CITY OF LODI COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS Year ended June 30,2008 78 Special Debt Capital Revenue Service Projects Total Revenues: Licenses and permits $ 601,584 $ 601,584 Intergovernmental revenues 3,971,929 365,074 4,337,003 Charges for services 1,842,603 404,376 2,246,979 Fines, forfeits and penalties 3,500 3,500 Investmentand rental income 391,153 258,560 649,713 Miscellaneous revenue 170,581 21,163 191,744 Total revenues 6,981,350 1,049,173 8,030,523 Expenditures: Current: Public protection 207,379 207,379 Publicworks 1,906,644 1,906,644 Community development 2,005,729 2,005,729 Capital outlay 2,288,035 1,918,492 4,206,527 Debt service: Interest and fiscal charges 1,129,778 10,920 1,140,698 Principal payments 647,829 647,829 Total expenditures 6.407.787 1,777,607 1,929,412 10,114,806 Excess (deficiency) of revenues over (under) expenditures 573,563 (1,777,607) (880,239) (2,084,283) Other financing sources (uses): Transfers in 334,281 1,777,607 906,006 3,017,894 Transfers out (105,015) (684,478) (789,493) Total otherfinancing sources (uses) 229,266 1,777,607 221,528 2,228,401 Net change in fund balances 802.829 (658,711) 144,118 Fund balances, beginning of year 7,512,510 7,212,113 14,724,623 Fund balances, end of year $ 8,315,339 6,553,402 $ 14,868,741 78 NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS SPECIAL REVENUE FUNDS 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. Community Development This fund was established to account for development planning and project review services including land use entitlements, permit processing and review/inspection of public improvements to ensure orderly physical growth and development of the City. 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 November 4, 1991. 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 Efficiency Act (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. 79 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 1/4% 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 DevelopmentAct, which extended the 6% sales tax to include purchases of gasoline. Revenues allocated to the City of 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 principallyfor low and moderate income residents to develop a suitable living environment and expand economic opportunities. 80 CITY OF LODI COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS- SPECIAL REVENUE FUNDS June 30,2008 81 HOME Program & Community Public Community Development Safety Development Streets Transportation Block Grants Total ASSETS Cash and Investments $ 129,953 8,340,266 102,679 $ 8,572,898 Receivables: Accounts, net 20,407 488,548 508,955 Interest 855 75,306 792 76,953 Due from other funds 468,565 468,565 Due from other governmental agencies 9,624 1,167,834 468,565 1,646,023 Loan receivable 1,084,000 1,084,000 TOTALASSETS $ 140,432 20,407 10,540,519 103,471 1,552,565 $ 12,357,394 LIABILITIESAND FUND BALANCES LIABILITIES Accounts payable and other liabilities $ 226 8,109 140,295 $ 148,630 Due to other funds 714,425 468,565 1,182,990 Advances from other funds 606,770 606,770 Deferred revenue 1,019,665 1,084,000 2,103,665 TOTAL LIABILITIES 226 722,534 1,766,730 1,552,565 4,042,055 FUND BALANCES (DEFICIT) Reserved for encumbrances 12,820 866.659 2.850 882,329 Unreserved -designated for specific projects and programs 140,206 (714,947) 7,907,130 100,621 7,433,010 TOTAL FUND BALANCES (DEFICIT) 140,206 (702,127) 8,773,789 103,471 8,315,339 TOTAL LIABILITIESAND FUND BALANCES $ 140,432 20,407 10,540,519 103,471 1,552,565 $ 12,357,394 81 REVENUES Licenses and permits intergovernmental revenues Charges for services Fines, forfeits and penalties investment and rental income Miscellaneous revenue Total revenues EXPENDITURES Current Public protection Publicworks Community development Capital outlay Total expenditures EXCESS (DEFICIENCY)OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) NET CHANGE IN FUND BALANCES FUND BALANCES (DEFICIT), beginning of year FUND BALANCES (DEFICIT), end of year CITY OF LODI COMBINING STATEMENT OF REVENUES, EXPENDITURESAND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS- SPECIAL REVENUE FUNDS Year ended June 30,2008 HOME Program& 207,379 1,894,984 11,660 2,005,729 2,243,880 44,155 207,379 2,005,729 4,138,864 44,155 11,660 (50,338) (860,331) 1,473,478 10,754 334,138 143 (8,910) (96,105) 325,228 (95,962) (50,338) (535,103) 1,377,516 10,754 190,544 (167,024) 7,396,273 92,717 $ 140,206 (702,127) 8,773,789 103,471 82 $ 601,584 3,971,929 1,842,603 3,500 391,153 170,581 6,981,350 207,379 1,906,644 2,005,729 2,288,035 6,407,787 573,563 334.281 (105,015) 229,266 802,829 7,512,510 $ 8,315,339 Community Public Community Development Safety Development Streets Transportation Block Grants $ 601,584 146,827 57,839 3,703,627 51,976 11,660 483,563 1,359,040 3,500 6,714 381,506 2,933 2,412 168,169 157,041 1,145,398 5,612,342 54,909 11,660 207,379 1,894,984 11,660 2,005,729 2,243,880 44,155 207,379 2,005,729 4,138,864 44,155 11,660 (50,338) (860,331) 1,473,478 10,754 334,138 143 (8,910) (96,105) 325,228 (95,962) (50,338) (535,103) 1,377,516 10,754 190,544 (167,024) 7,396,273 92,717 $ 140,206 (702,127) 8,773,789 103,471 82 $ 601,584 3,971,929 1,842,603 3,500 391,153 170,581 6,981,350 207,379 1,906,644 2,005,729 2,288,035 6,407,787 573,563 334.281 (105,015) 229,266 802,829 7,512,510 $ 8,315,339 CITY OF LODI SCHEDULE OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGETAND ACTUAL NONMAJOR GOVERNMENTAL FUNDS - SPECIAL REVENUE FUNDS Year ended June 30,2008 REVENUES Intergovernmental revenues Fines, forfeits and penalties Investmentand rental income Total Revenue EXPENDITURES Current Public protection NET CHANGE IN FUND BALANCE FUNDBALANCE, BEGINNINGOFYEAR FUND BALANCE, END OF YEAR 83 PUBLIC SAFETY FINAL BUDGET ACTUAL VARIANCE $ 146,827 146,827 3,500 3,500 6,714 6,714 157,041 157,041 207,379 207,379 (50,338) (50,338) 190,544 190,544 $ 140,206 140,206 CITY OF LODI SCHEDULE OF REVENUE, EXPENDITURESAND CHANGES IN FUND BALANCE BUDGETAND ACTUAL NONMAJOR GOVERNMENTAL FUNDS - SPECIAL REVENUE FUNDS Year ended June 30,2008 REVENUES Licenses and permits Intergovernmental revenues Charges for services Investmentand rental income Miscellaneous revenue Total Revenue EXPENDITURES Current Community development DEFICIENCY OF REVENUES UNDER EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) NET CHANGE IN FUND BALANCE FUND DEFICIT, BEGINNING OF YEAR FUND DEFICIT, END OF YEAR 84 COMMUNITY DEVELOPMENT FINAL BUDGET ACTUAL VARIANCE $ 1,068,375 601,584 (466,791) 57,839 57,839 561,686 483,563 (78,123) 14,591 (14,591) 12,210 2,412 (9,798) 1,714,701 1,145,398 (569,303) 2,005,729 2,005,729 (291,028) (860,331) (569,303) 334,138 334,138 (8,910) (8,910) 325,228 325,228 34,200 (535,103) (569,303) (167,024) (167,024) (132,824) (702,127) (569,303) CITY OF LODI SCHEDULE OF REVENUE, EXPENDITURESAND CHANGES IN FUND BALANCE BUDGETAND ACTUAL NONMAJOR GOVERNMENTAL FUNDS- SPECIAL REVENUE FUNDS Year ended June 30,2008 REVENUES Intergovernmental revenues Charges for services Investmentand rental income Miscellaneous revenue Total Revenue EXPENDITURES Current Publicworks Capital outlay Total Expenditures EXCESS (DEFICIENCY)OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total other financing sources (uses) NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNINGOF YEAR FUND BALANCE, END OF YEAR STREETS FINAL BUDGET ACTUAL VARIANCE $ 2,787,149 3,703,627 916,478 1,759,000 1,359,040 (399,960) 237,600 381,506 143,906 168,169 168,169 4,783,749 5,612,342 828,593 2,270,346 1,894,984 375,362 5.783.786 2.243.880 3,539,906 8,054.132 4,138,864 3,915,268 (3,270,383) 1,473,478 63,265 143 (159,370) (96.105) 196.105) (95,962) (3,366,488) 1,377,516 7.396.273 7,396,273 $ 4,029,785 8.773.789 85 4,743,861 (63,122) 63,265 143 4,744,004 4.744.004 SCHEDULE OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL NONMAJOR GOVERNMENTAL FUNDS- SPECIAL REVENUE FUNDS Year ended June 30,2008 REVENUES I ntergovern mental revenues Investmentand rental income Total Revenue EXPENDITURES Capital outlay NET CHANGE IN FUND BALANCE TRANSPORTATION FINAL BUDGET ACTUAL VARIANCE 52,075 3,610 55,685 51,976 (99) 2.933 677 54,909 148,402 44,155 (776) 104,247 (92,717) 10.754 103,471 FUND BALANCE, BEGINNING OF YEAR 92,717 92,717 FUND BALANCE, END OF YEAR $ 103,471 103,471 86 CITY OF LODI SCHEDULE OF REVENUE, EXPENDITURESAND CHANGES IN FUND BALANCE BUDGETAND ACTUAL NONMAJOR GOVERNMENTAL FUNDS- SPECIAL REVENUE FUNDS Year ended June 30,2008 HOME PROGRAM and COMMUNITY DEVELOPMENT BLOCK GRANTS FINAL BUDGET ACTUAL VARIANCE REVENUES Intergovernmental revenues $ 1,114,233 11,660 (1,102,573) EXPENDITURES Current Publicworks $ 1,114,233 11,660 1,102,573 NET CHANGE IN FUND BALANCE FUND BALANCE, BEGINNING OF YEAR FUND BALANCE, END OF YEAR 87 (This page intentionally left blank.) 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 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 subdivisionwork for others. Hutchins Street Square When the old Lodi High School burned down, the City purchased the property and renamed it Hutchins Street Square. The Old Lodi High Site Foundationwas established and this organization organizes events to raise moneyfor 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 $10,000 with 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. 89 CITY OF LODI COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS - CAPITAL PROJECT FUNDS June 30,2008 ASSETS Cash and investments Restricted assets Receivables: Interest Advances to other funds TOTALASSETS LIABILITIES Accounts payable and other liabilities Advances from other funds TOTAL LIABILITIES FUND BALANCES Reservedfor encumbrances Reservedforadvancesto other funds Unreserved-designatedfor specific projects and programs TOTAL FUND BALANCES TOTAL LIABILITIESAND FUND BALANCES Capital Vehicle and Hutchins Outlay Equipment Library Street Square Reserve $ 1,619,319 946 2,181 4,275,119 1,693,870 Lodi Lake Total 10,666 $ 5,908,231 1,693,870 33,184 82 33,266 606,770 606,770 $ 1,619,319 946 2,181 6,608,943 10,748 $ 8,242,137 $ 7,774 171,155 913 $ 179,842 1,508,893 1,508,893 7,774 1,680,048 913 1,688,735 1,202 437,900 3,290 442,392 606,770 606,770 1,610,343 946 .2,181 3,884,225 6,545 5,504,240 1,611,545 946 2,181 4,928,895 9,835 6,553,402 $ 1,619,319 946 2,181 6,608,943 10,748 $ 8,242,137 90 REVENUES I ntergovernmentalrevenues Chargesfor services Investmentand rental income M iscellaneousrevenue Total revenues EXPENDITURES Capital outlay Debt service: Interestand fiscal charges Total expenditures DEFICIENCYOF REVENUE UNDER EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers out Total otherfinancing sources (uses) NET CHANGE IN FUND BALANCES FUND BALANCES, BEGINNINGOFYEAR FUND BALANCES, END OF YEAR CITY OF LODI COMBINING STATEMENTOF REVENUES, EXPENDITURESAND CHANGES IN FUND BALANCES NONMAJORGOVERNMENTAL FUNDS - CAPITAL PROJECT FUNDS Year ended June 30, 2008 Hutchins Capital Vehicle and Street Outlay Lodi Equipment Library Subdivision Square Reserve Lake $ 365,074 404,376 5,631 252,929 13,100 8,063 18,731 665,368 365,074 591,373 11,731 850,078 465,310 $ 365,074 404,376 258,560 21,163 1,049,173 1,918,492 10.920 10,920 591,373 11,731 860.998 465,310 1,929,412 (572,642) (11,731) (195,630) (100,236) (880,239) 892.993 5.788 7.225 (300,339) (384.139) 892,993 (300,339) (378.351) 7,225 320.351 (11,731) (300.339) (573,981) (93,011) 1,291,194 12,677 300,339 2,181 5,502,876 102,846 $ 1,611,545 946 2,181 4,928,895 9,835 91 906.006 (684,478) 221,528 (658.711) 7,212,113 $ 6,553,402 (This page intentionally left blank.) INTERNAL SERVICE FUNDS Internal Service Funds are maintained to account for the internal transfer of services between operating units of the City and to achieve a level of operating efficiency that may not be available if the same activities were performed by multiple organizations. Claims and Benefits Funds This fund is used to account for the following insurance and certain employee benefits: General Liability Workers' Compensation Dental Chiropractic Life/accidental insurance Medical Employee assistance program Employee recognition program Unemployment insurance Flexible spending program Long Term Disability Vision Fleet Services This fund is used to account for the operation, maintenance and timely replacement of the City's fleet of vehicles which serve the transportation needs of all city departments. ASSETS Current assets: Cash and investments Receivables: Accounts, net Interest Inventory Other assets Noncurrent assets: Capital assets (net) Total current assets LIABILITIES Current liabilities: Accounts payable and other liabilities Self-insurance liability Accrued compensated absences Noncurrent liabilities: Accrued compensated absences Self-insurance liability Total liabilities NET ASSETS Invested in capital assets, net of related debt Unrestricted Total net assets CITY OF LODI COMBINING STATEMENT OF NET ASSETS INTERNAL SERVICE FUNDS June 30,2008 93 Fleet Claims and Services Fund Benefits Funds Total $ 15,216 7,282,069 $ 7,297,285 1,999,702 4,967 4,967 86,130 63,838 63,838 114,636 167,480 6,088,404 114,636 12,360 12,360 37,628 37,628 167,480 7,363,234 7,530,714 26,946 102,404 129,350 1,999,702 1,999,702 54,404 54,404 86,130 86,130 3,986,298 3,986,298 167,480 6,088,404 6,255,884 37.628 37,628 (37,628) 1,274,830 1,237,202 $ 1,274,830 $ 1,274,830 CITY OF LODI COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NETASSETS INTERNAL SERVICE FUNDS Year ended June 30,2008 OPERATING REVENUES Charges for services OPERATING EXPENSES Personnel services Supplies, materials and services Utilities Depreciation and amortization Claims TOTAL OPERATING EXPENSES OPERATING INCOME NONOPERATING REVENUES Investment income Other revenues TOTAL NONOPERATING REVENUES Change in net assets NET DEFICIT - BEGINNING OF YEAR NET ASSETS - END OF YEAR Fleet Services Fund $ 1,032,538 Z! 843,045 178,507 2,246 1,447 1,025,245 7,293 58,333 58.333 65,626 (65,626) Claims and Benefits Funds Total 9,357,597 $ 10,390,135 398,920 5,875,579 1,589,702 7,864,201 1,493,396 313,556 281,020 594.576 2,087,972 (813,142) 1,274,830 1,241,965 6,054,086 2,246 1,447 1,589,702 8,889,446 1,500,689 313,556 339,353 652.909 2,153,598 (878,768) $ 1,274,830 CITY OF LODI COMBINING STATEMENTOF CASH FLOWS INTERNAL SERVICE FUNDS Year ended June 30,2008 Cash flows from operating activities: Receipts from customers and users Receipts from interfund services provided Cash paid to suppliers for goods & services Paymentsto employees Net cash provided by operating activities Cash flows from investing activities: Interest on investments Net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Reconciliation of operating income (loss) to net cash provided by operating activities: Operating Income (loss) Adjustments to reconcile operating income (loss)to net cash provided by operating activities: Depreciation and amortization Other revenues Change in assets and liabilities: Decrease in accounts receivable Increase in inventory Decrease (increase) in other assets Decrease in accounts payable and other liabilities Decrease in compensated absences Decrease in self-insurance liability Net cash provided by operating activities 95 Fleet Claims and 1,500,689 Services Fund Benefits Funds Total 58,333 281,020 339,353 $ 60,219 468,163 $ 528,382 1,032,538 9,357,597 10,390,135 (202,603) (7,885,771) (8,088,374) (874,938) (398,920) (1,273,858) 15,216 1,541,069 1,556,285 294.960 294.960 15,216 1,836,029 1,851,245 5,446,040 5,446.040 $ 15,216 7,282,069 $ 7,297,285 ii 7,293 1,493,396 $ 1,500,689 1,447 1,447 58,333 281,020 339,353 198,668 198,668 (6,112) (6,112) 1,886 (11,525) (9,639) (15,738) (10,490) (26,228) (31,893) (31,893) (410,000) (410,000) $ 15,216 1,541,069 $ 1,556,285 (This page intentionally left blank.) FIDUCIARY FUNDS Private -purpose Trust Funds These funds are 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. ASSETS Cash and Investments TOTALASSETS NETASSETS CITY OF LODI COMBINING STATEMENT OF FIDUCIARY NET ASSETS PRIVATE -PURPOSE TRUST FUNDS June 30,2008 Private-Puroose Trust Funds Hutchins Street Library Square Bequest 852,803 1,446 $ 852,803 1,446 $ 852,803 97 1,446 $ Total 854,249 854,249 854,249 CITY OF LODI COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS ADDITIONS Investment income and donations CHANGE IN NETASSETS NETASSETS, BEGINNINGOFYEAR NET ASSETS, END OF YEAR Year ended June 30,2008 Private -Purpose Trust Funds Hutchins Street Library Square Bequest $ 6,038 6,038 846,765 $ 852,803 Total 60 $ 6,098 .c 3-M 1,386 848,151 1,446$ 854,249 CITY OF LODI STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUND Year ended June 30,2008 LIABILITIES Agency obligations $ Special Assessments 70,877 $ Balance TOTAL LIABILITIES $ Balance 70,877 711/07 Additions Deductions 6/30108 ASSETS Cash and investments $ 589,683 985,963 913,548 $ 662,098 Special assessment receivable 79,508 78,823 79,508 78,823 Interest receivable 5,495 4,642 5,495 4,642 TOTAL ASSETS $ 674,686 1,069,428 998,551 $ 745,563 LIABILITIES Agency obligations $ 674,686 70,877 $ 745,563 TOTAL LIABILITIES $ 674,686 70,877 $ 745,563 99 (This page intentionally left blank.) STATISTICAL TABLES UNAUDITED STATISTICAL SECTION The Statistical Section provides detailed information as a framework for understanding the information in the financial statements, notes and required supplementary information. This section presents additional data and analysis that may provide the reader with valuable insight regarding the demographics and the overall health of the City. Pages Financial Trends These schedules contain trend information to help the reader understand how the City's financial performance and well-being has changed overtime. 102-107 Revenue Capacity These schedules contain information to help the reader assess the factors affecting the City's most significant local revenue source, the property tax. 108-113 Debt Capacity These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future. 114-119 Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the City's financial activities take place and to help make comparisons over time and with other governments. 120-122 Operating Information These schedules contain information about the City's operations and resources to help the reader understand how the City's financial information relates to the services the city provides and the activities it performs. 123-127 Sources Unless otherwise noted, the information in these schedules are derived from the comprehensive annual financial reports for the current year. The City implemented GASB Statement 34 for the fiscal year ended June 30, 2003, schedules presenting government -wide information include information beginning that year. 101 CITY OF LODI NET ASSETS BY COMPONENT LAST SIX FISCAL YEARS (Dollar amounts in thousands) Governmental activities: Invested in capital assets, net of related debt Restricted Unrestricted Total governmental activities net assets Business -type activities: Invested in capital assets, net of related debt Restricted Unrestricted Total business -type activities net assets Fiscal Year 2008 2007 2006 2005 2004 2003 $ 107,874 $ 110,815 $ 111,572 $ 106,293 $ 100,749 $ 94,681 15,043 15,044 14,526 13,465 11,205 12,811 (4,162) (3,968) (8,838) (8,801) (9,437) (7,334) $ 118,755 $ 121,891 $ 117,260 $ 110,957 $ 102,517 $ 100,158 $ 98,109 $ 97,961 $ 77,494 $ 67,668 $ 64,214 $ 62,752 8,657 8,711 10,969 2,351 2,578 240 26,460 6,417 1,880 7,445 (7,511) (10,270) $ 133,226 $ 113,089 $ 90,343 $ 77,464 $ 59,281 $ 52,722 Primary government: Invested in capital assets, net cf related debt $ 205,983 $ 208,776 $ 189,066 $ 173,961 $ 164,963 $ 157,433 Restricted 23,700 23,755 25,495 15,816 13,783 13,051 Unrestricted 22,298 2,449 (6,958) (1,356) (16,948) (17,604) Total primary government net assets $ 251,981 $ 234,980 $ 207,603 $ 188,421 $ 161,798 $ 152,880 Note: The Cityof Lodi implemented GASB 34 for the fiscal year ended June 30, 2003. Information prior to the implementation of GASB 34 is not available. Source: City of Lodi Financial Services Division 102 CITY OF LODI CHANGES IN NET ASSETS LAST SIX FISCAL YEARS (Dollar amounts in thousands) Program Revenues Fiscal Year 2008 2007 2006 2005 2004 2003 Expenses Chargesforservices: 69.284 65,809 59,112 53.908 52,899 Governmental activities: General government $ 1,544 $ 1,280 $ 1.232 $ 3,639 $ 3,144 $ General government $ 8.307 $ 7.853 $ 9,746 $ 9.958 $ 13.167 S 12.238 Public protection 25,531 23.328 22,105 22,253 19,162 16,632 Publicvsuls 12,224 10,599 13,229 12,377 11.868 10.946 Community development 2,027 2,130 2,290 54 49 50 Library 1,696 1,630 1.485 1,484 1,409 1,454 Parks and recreation 4,414 4,172 4,114 4,565 4,095 3.989 Interestandt3d charges 1,166 1,201 1,234 1,617 1,267 1,214 Total governmental activitiesexpenses 55,365 50,913 54,203 52,254 50.968 46,473 Business -type activities: 17,122 7.038 (6.548) 3,732 (6.001) Total primary government net expense Electric 65,201 67,534 63.780 57,308 55,943 51.388 Wastewater 12,227 9,271 8,574 10,653 6,297 6,141 Water 9,920 9.875 8.256 11.748 7.489 12,879 Transit 3,908 3,577 3,643 3,018 3,064 5,389 Total business-typeactivitiesexpenses 91.256 90,257 84,253 82.727 72,793 75,797 Total primary govemmentexpenses $ 146,621 $ 141.170 $ 138,456 $ 134,981 $ 123,761 $ 122,270 Program Revenues Governmental activities: Chargesforservices: 69.284 65,809 59,112 53.908 52,899 48.873 General government $ 1,544 $ 1,280 $ 1.232 $ 3,639 $ 3,144 $ 2,355 Public protection 837 582 563 623 525 541 Publicworks 755 295 320 461 430 335 Community development 1.085 1,174 1,630 2,731 2,547 1,772 Library 53 53 54 49 50 57 Parks and recreation 851 1,007 918 833 679 586 Operating grants and contributions 2,305 2,589 2,587 2,195 2,321 3,315 Capitalgrants and contributions 4,717 6,975 14,631 17,559 13.894 6,814 Total governmental activities program revenues 12,147 13,955 21,935 25,359 21,043 14,003 Business -type activities: Chargesfor services: Electric 69.284 65,809 59,112 53.908 52,899 48.873 Wastewater 9,091 8.524 8.927 8.086 6,560 6,760 Water 11,350 10,040 8.343 7,713 6,007 5,532 Transit 278 401 386 340 244 293 Operating grants and contributions 3.381 2,621 3,377 2,731 2,547 1,772 Capital grants and contributions 8,064 19.984 11,146 3,401 8,268 6,566 Total business -type activities program revenues 101.448 107,379 91.291 76.179 76,525 89.796 Total primary government program revenues $ 113,595 $ 121,334 $ 113,226 $ 101,538 $ 97.568 $ 83.799 Net(Expense)/Revenue Governmental activities $ (43,218) $ (36,958) $ (32.268) $ (26,895) $ (29,925) $ (32.470) Business-typeactivities 10,192 17,122 7.038 (6.548) 3,732 (6.001) Total primary government net expense $ (33,026) $ (19,836) $ (25,230) $ (33,443) $ (26,193) $ (38,471) (Continued) 103 CITY OF LODI CHANGES IN NET ASSETS (Continued) LAST SIX FISCAL YEARS (Dollar amounts in thousands) General Revenues and Other Changes in Net Assets: Governmental activities: Taxes: Properly Franchise taxes Business license tax Transient occupancytax Grants and contributionsnot restrictedto Investmenteamings Other Transfers Total governmental activities Business -type activities: Investmenteamings Litigation -environmental lawsuits Gain on sale ofcapital assets Other Special item -forgiveness of debt Transfers Total business -type activities Total primary government Change in Net Assets Governmental activities Busi ness-type activities Total primary government Fiscal Year 2008 2007 2006 2005 2004 2003 $ 13,838 $ 9,524 3 8,031 $ 7,124 5 7.188 $ 6.398 9.338 9,609 8,721 8.918 8.381 7,624 1,140 1,082 973 982 874 822 396 380 368 352 317 400 9,593 14.772 14,215 13.193 11,895 12,069 1,008 874 328 150 125 269 1,077 621 1,012 608 590 137 3,693 4,727 4.923 4,008 2,915 2.981 40.083 41.589 38.571 35,335 32,285 30,700 2,028 2.380 2,008 1,880 2,242 6,457 8,892 6,222 6,700 9.150 865 2.728 2,717 1,749 2,056 2,432 2,635 1,594 15,277 (3,693) (4.727) (4,923) (4.008) (2,915) (2.981) 9,944 5,624 5.841 24,731 2,827 7,798 $ 50,027 $ 47,213 $ 44,412 $ 60,066 3 35,112 $ 38.498 $ (3,135) $ 4,631 $ 6,303 $ 8.440 $ 2,360 $ (1,770) 20,136 22,746 12,879 18,183 6,559 1,797 $ 17,001 $ 27,377 $ 19.182 $ 26,623 8.919 27 The City ofLodi implemented GASB -34 for the fiscal year ended June 30, 2003. Information prior to the implementation of GASB 34 is not available. Source: City of Lodi Financial Services Division 104 CITY OF LODI FUND BALANCES, GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (Dollar amounts in thousands) Fiscal Year 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 General Fund Reserved $ 1,150 $ 1,144 $ 1,321 $ 1,185 $ 1,296 $ 927 $ 856 $ 532 $ 473 $ 149 Unreserved 4.159 5.175 3,048 1,507 157 640 2,507 3,414 3,315 2,562 Total General Fund $ 5.309 $ 6,319 $ 4,369 $ 2,692 $ 1,453 $ 1,567 $ 3,363 $ 3.946 $ 3,788 $ 2,711 All other governmental funds Reserved $ 1,932 $ 1,874 $ 1,138 $ 4,942 $ 3,778 $ 6,405 $ 3,363 $ 2,779 $ 555 $ 2,166 Unreserved, reported in: Special revenue funds 7,433 6,651 6,271 1,400 534 2,322 1,814 2,439 5.774 2,298 Capital projects funds 5.504 6.200 5.663 5,650 5,720 7,655 17,905 1,695 3.511 2,230 Total all other governmental funds $ 14.869 $ 14.725 $ 13.072 $ 11,992 $ 10,032 $ 16,382 $ 23,082 $ 6,913 $ 9,840 $ 6,694 Source: City of Lodi Financial Services Division $ 20.178 $ 21.044 $ 17.441 $ 14.684 $ 11.485 $ 17.949 $ 26.445 $ 10.859 $ 13.628 $ 9.405 105 Revenues: Taxes Licenses and permits Intergovernmental revenues Charges for services Fines and forfeitures Investment and rental income Miscellaneous revenue Total revenues Expenditures: Current: General government Public protection Publicworks Community development Library Parks and recreation Capital outlay Debt service: Interestand fiscal charges Principal payments Total expenditures Excess (deficiency)of revenues Over (under) expenditures CITY OF LODI CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCALYEARS (Dollar amounts in thousands) Fiscal Year 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 $ 24,712 $ 20,594 $ 18,094 $ 17,606 $ 16,908 $ 24,100 $ 23,043 $ 21,909 $ 19,801 $ 18,594 683 717 1,020 2,511 2,021 1,669 1,464 1,592 1,406 1,267 14,980 19.892 25,491 22,834 16,657 7,385 22,000 11,641 9,054 8.371 4,757 4,696 3,848 9,404 4,479 6,272 3,888 4,249 4,611 3,874 1,321 1,245 1,173 1,190 1,085 803 806 765 714 878 1,312 998 707 753 537 832 1,234 1,509 982 982 822 304 653 458 473 453 1,349 383 764 242 48.587 48,446 50.986 54,756 42,160 41,514 53,784 42,048 37,332 34,208 9,545 8.893 8.345 10.858 10,815 10,874 8,987 8,862 7.813 7,239 23,979 22,211 20.863 20,351 17,491 15,597 13,562 13,190 11,430 11,225 5,842 5.587 7.827 7,361 7,303 6,926 5,741 6,312 5,039 5,151 2,006 2,062 1.847 1,673 1.588 1.468 1,420 1,356 1,316 1.158 1,184 1,040 1,030 3,826 3,598 3,440 3,691 3,412 3,385 2,860 2,999 2,670 2,230 4.207 3,526 7,232 9,508 10,041 12,943 17.948 12,044 6,420 6,640 1,170 1,205 1,238 1,645 1,245 1,220 679 755 777 797 898 900 892 855 759 730 555 530 505 485 53,146 49,570 53,152 55,689 52,422 52,991 51,490 45.876 35,694 34,797 (4.559) (1,124) (2,166) (933) (10,262) (11,477) 2,294 (3,828) 1.638 (589) 106 CITY OF LODI CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS (Continued) LAST TEN FISCALYEARS (Dollar amounts in thousands) Net change in fund balances (866) 3,603 2,757 .3,199 (6,464) Fiscal Year 15,286 (3,893) 4,223 1,300 Fund balances, beginning of year 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 Other financing sources (uses): 300 1,124 Transfers in 7,058 8,863 9.142 8,017 9,774 11,209 12,500 9,355 9,715 16,486 Transfers out (3,365) (4,136) (4,219) (4,009) (6,859) (8,228) (13,052) (10,090) (7,130) (14,410) Capital lease proceeds 4.8% 4.9% 5.7% 124 883 3.8% 148 670 4.8% Proceedsfrom bond refunding 13,269 Paymentto refunded bond escrow (13,269) Proceedsof certificatesof participation 13,396 Residual equity transfer (187) Total other financing sources (uses) 3,693 4,727 4,923 4,132 3.798 2,981 12,992 2.585 1.889 Net change in fund balances (866) 3,603 2,757 .3,199 (6,464) (8,496) 15,286 (3,893) 4,223 1,300 Fund balances, beginning of year 21,044 17,441 14,684 11,485 17,949 26,445 10,859 13,628 9,405 8.105 Adjustment to fund balance as previously reported 300 1,124 Fund balances, end of year $ 20,178 21,044 17,441 14,684 $ 11,485 $ 17,949 $ 26,445 $ 10,859 $ 13,628 $ 9,405 Debt service as a percentage of noncapital expenditures 4.4% 4.8% 4.9% 5.7% 5.0% 5.1% 3.8% 3.9% 4.6% 4.8% Source: City of Lodi Finance Services Division 107 City of Lodi TAX REVENUES BY SOURCE, GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (Dollar amounts in thousands) Fiscal Year Totals $ 34,956 $ 35,757 $ 32,617 $ 31,469 $ 28,324 $ 27,630 $ 26,346 $ 24,762 $ 22,719 $ 20,722 Note: General governmental tax revenues are included in taxes, licenses and permits, i ntergovern mental revenues and miscellaneous revenues. Source: City of Lodi Financial Services Division 108 69% 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 % Change 1999 to 2008 Property $ 9,210 $ 9,289 $ 7,676 $ 6,771 $ 6,948 $ 6,191 $ 5, 641 $ 5, 322 $ 4, 932 $ 4,517 104% Sales & Use 9,612 10,137 9,812 9,183 8,533 8,709 8,300 8,028 7,095 6,523 47% Transient Occupancy 396 380 368 352 317 400 439 390 318 305 30% Franchise 976 929 890 821 800 730 931 820 675 618 58% Documentary Transfer 125 235 355 353 240 207 172 158 116 119 5% Motor Vehicle in Lieu 4,797 4,635 4,402 4,606 2,767 3,430 3,276 3,051 3,008 2,221 1160-o Public Protection 338 390 310 304 264 247 231 242 196 180 88% Business License 1,140 1,082 973 982 874 822 787 736 658 612 86% In Lieu Franchise 8,362 8,680 7,831 8,097 7,581 6,894 6,569 6,015 5,721 5,627 49% Totals $ 34,956 $ 35,757 $ 32,617 $ 31,469 $ 28,324 $ 27,630 $ 26,346 $ 24,762 $ 22,719 $ 20,722 Note: General governmental tax revenues are included in taxes, licenses and permits, i ntergovern mental revenues and miscellaneous revenues. Source: City of Lodi Financial Services Division 108 69% CITY OF LODI ASSESSED VALUE AND ESTIMATEDACTUAL VALUE OF TAXABLE PROPERTY LASTTEN FISCALYEARS (Dollar amounts in thousands) Land 1,537,554 1,431,203 1,226,293 1,107,776 Fiscal Year 960,166 889,262 832,788 787,249 756,166 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 Secured roll $ 5,069,788 $ 4,799,141 $ 4,254,184 $ 3,877,398 $ 3,619,116 $ 3,381,945 $ 3,096,937 $ 2,880,201 $ 2,707,343 $ 2,574,622 Utility roll 2,035 2,773 3,654 3,782 3,893 3,352 3,379 3,484 3,525 3,826 Unsecured roll 258,687 242,082 216,065 215,469 202,785 207,095 198,678 177,040 163,299 146,345 Gross assessed value 5,330,510 5,043,996 4,473,903 4,096,649 3,825,794 3,592,392 3,298,994 3,060,725 2,874,167 2,724,793 Less exemptions (1) 243,259 229,049 220,590 217,077 212,102 200,957 190,252 185,473 183,294 179,835 Net assessed value 5,087,251 4,814,947 4,253,313 3,879,572 3,613,692 3,391,435 3,108,742 2,875,252 2,690,873 2,544,958 Land 1,537,554 1,431,203 1,226,293 1,107,776 1,027,462 960,166 889,262 832,788 787,249 756,166 Improvements 3,503,186 3,327,453 2,989,575 2,739,061 2,549,860 2,366,887 2,164,121 1,982,668 1,847,800 1,748,387 Personal property 289,770 285,340 258,035 249,812 248,472 265,339 245,611 245,269 239,118 220,240 Gross assessed value 5,330,510 5,043,996 4,473,903 4,096,649 3,825,794 3,592,392 3,298,994 3,060,725 2,874,167 2,724,793 Less exemptions (1) 243,259 229,049 220,590 217,077 212,102 200,957 190,252 185,473 183,294 179,835 Net assessed value $ 5,087,251 $ 4,814,947 $ 4,253,313 $ 3,879,572 $ 3,613,692 $ 3,391,435 $ 3,108,742 $ 2,875,252 $ 2,690,873 $ 2,544,958 Total Direct Tax Rate 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% (1) All exemptions (secured, utility, and unsecured rolls) are homeowners- $72,018 and other- $171,241=$243,259 Note: 10 978, the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1% based upon the assessed value of the property being taxed. Each year, the assessed value of property maybe increased by an "inflation factor" (limited to a maximum increase of 2%). With few exceptions, property is only assessed at the time that it is sold to a new owner. At that point, the property being sold is reassessed at the purchase price. The assessed valuation data shown above represents the only data currently availablewith respect to the the actual market value of taxable propertyand is subject to the limitations described above. Source: San Joaquin County Auditor-Controlleh Office 109 CITY OF LODI DIRECT AND OVERLAPPING PROPERTYTAX RATES LAST TEN FISCAL YEARS (Rate per $100 of assessed value) Basic Fiscal Countywide Year Lew School All Other Total 2008 1.0000 0.0478 0.0000 1.0478 2007 1.0000 0.0478 0.0000 1.0478 2006 1.0000 0.0570 0.0000 1.0570 2005 1.0000 0.0311 0.0000 1.0311 2004 1.0000 0.0475 0.0000 1.0475 2003 1.0000 0.0487 0.0000 1.0487 2002 1.0000 0.0002 0.0000 1.0002 2001 1.0000 0.0002 0.0000 1.0002 2000 1.0000 0.0002 0.0034 1.0036 1999 1.0000 0.0001 0.0034 1.0035 Source: San Joaquin County Tax Collector 110 Taxpayer General Mills, Inc Lodi Memorial HospitalAssn Pacific Coast Producers Corp. Pacific Coast Producers Parinehs Exchange 2004 LLC Certainteed Corp. Dart ContainerCorp. Archer Daniels Midland Co Corp Lodi Memorial HospitalAssn Cottage Bakery Inc Ford Construction Co Inc Dayton Hudson Corp California Waste Removal System GFLIP Limited Partners Wells Fargo Bank First Lodi Associates Wallace Computer Service Edmund N. Richmond Principal Secured PropertyValuation Other Secured Taxpayers Exemptions relative to secured tax roll Total Secured PropertyValuation CITY OF LODI PRINCIPAL PROPERTYTAX PAYERS CURRENTYEAR AND NINE YEARS AGO (Dollar amounts in thousands) Taxable Assessed Value $ 144,376 65,562 35,095 27,092 19,704 19,700 18,395 16,744 16,164 14,851 377,683 4,692,105 167,060 $ 4.902.728 Source: San Joaquin County Assessor's Office 111 2008 Rank 1 2 3 4 5 6 7 8 9 10 Fiscal Year Percent of Total City Taxable Assessed Value 2.945 1.337 0.716 0.553 0.402 0.402 0.375 0.341 0.330 0.303 1999 $ Percent of 95.703 Total City Taxable Taxable Assessed Assessed Value Rank Value 175,049 1 7.310% 44,686 2 1.866 12,885 6 15,623 14,354 12,941 11,775 11,620 10,738 10,455 7.704 320,126 95.703 2,254,496 3.407 179,835 100.000 % $ 2,394,787 3 4 5 7 8 9 10 0.538 0.652 0.599 0.540 0.492 0.485 0.449 0.437 13.368 94.141 7.509 100.000% CITY OF LODI PROPERTYTAX LEVIESAND COLLECTIONS LASTTEN FISCALYEARS (Dollaramounts in thousands) Fiscal Year Taxes Levied for the Fiscal Year Collected Within the Fiscal Year of the Levy Percent of Amount Levy (1) Total Collections to Date Percent of Amount Levy 2008 $ 8,167 $ 8,167 100.0% $ 8,167 100.0% 2007 8,170 8,170 100.0% 8,170 100.0% 2006 7,815 7,815 100.0% 7,815 100.0% 2005 7,057 7,057 100.0% 7,057 100.0% 2004 6,570 6,570 100.0% 6,570 100.0% 2003 5,832 5,832 100.0% 5,832 100.0% 2002 5,757 5,757 100.0% 5,757 100.0% 2001 5,182 5,182 100.0% 5,182 100.0% 2000 5,056 5,056 100.0% 5,056 100.0% 1999 4,653 4,653 100.0% 4,653 100.0% 1) Per agreement with San Joaquin County, the County provides the City of Lodi with 100% of the amount owed to the City for secured properties, regardless of collection status. In exchange, the County is entitled to 100% of revenues collected for interest and penalties. This agreement is commonly referred to as the Teeter Plan. Source: San Joaquin County Auditor/Controller's Office 112 CITY OF LODI ELECTRICITY SOLD BY TYPE OF CUSTOMER LAST THREE FISCAL YEARS Type cF Customer Billed Accounts Billed Accounts Billed Accounts 2008 2007 2006 City Accounts 187 186 184 Contract Large Industrial 5 5 6 Contract Medium Industrial 1 1 2 Contract Small Industrial 1 0 1 Domestic Residential 22,510 22,938 22,860 Domestic Mobile Home Park 13 13 13 Dusk to Dawn 92 95 95 Large Commercial 380 375 359 Large Industrial 32 33 33 Medium Industrial 8 10 13 Residental Low Income 1,943 2,003 1,910 Small Commerical 3,199 3,241 3,279 Small Industrial 9 9 Total 28,380 28,909 28.764 Information priorto the implementation of GASB 44 is not available Source: City of Lodi Financial Services Division 113 CITY OF LODI RATIOS OF OUTSTANDING DEBT BY TYPE LASTTEN FISCALYEARS (Dollaramounts in thousands, except per capita) Governmental Activities Business-typeActivities Details regarding the City's outstanding debt can be found in the Note 8 of these financial statements. (1) See Demographicand Economic Statisticstable for personal income and population. Source: City of Lodi Financial Services Division 114 Certificates Total Certificates Total Total Fiscal of Loan Notes Governmental of Notes Business -type Primary Percent of Personal Per Year Participation Payable Payable Activities Participation Payable Activities Government Income (1) Capita (1) 2008 $ 23,420 $ 94 $ 245 $ 23,759 $ 139,760 $ 1,755 $ 141,515 $ 165,274 n/a $ 2,608 2007 23.975 187 245 24,407 121,675 1,918 123,593 148,000 0.77 % 2.335 2006 24,510 279 245 25,034 125,340 2,077 127,417 152,451 0.84 2.427 2005 25,030 368 245 25,643 126,615 2,230 128,845 154,488 0.90 2,473 2004 25,530 456 245 26,231 148,675 2.378 151,053 177,284 1.07 2,917 2003 26,015 543 245 26,803 117,515 2,521 120,036 146,839 0.94 2.427 2002 26,745 622 245 27,612 75.285 2,660 77,945 105,557 0.72 1,776 2001 12,980 12,980 59,931 2,794 62,725 75,705 0.53 1.292 2000 13,510 13,510 55,544 2,923 58,467 71,977 0.52 1,243 1999 14,015 14,015 9,762 2,892 12,654 26,669 0.21 469 Details regarding the City's outstanding debt can be found in the Note 8 of these financial statements. (1) See Demographicand Economic Statisticstable for personal income and population. Source: City of Lodi Financial Services Division 114 CITY OF LODI RATIOS OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS (Dollar amounts in thousands, except per capita) Fiscal Year Certificates of Participation Total Percent of Assessed Value (1) of Property Per Capita 2008 23,420 $ 23,420 0.4 % $ 369.62 2007 23,975 23,975 0.5 378.18 2006 24,510 24,510 0.5 390.18 2005 25,030 25,030 0.6 400.69 2004 25,530 25,530 0.7 420.12 2003 26,015 26,015 0.7 430.00 2002 26,745 26,745 0.8 450.02 2001 12,980 12,980 0.4 221.50 2000 13,510 13,510 0.5 233.33 1999 14,015 14,015 0.5 246.31 General bonded debt is debt payable with governmental fund resources and general obligation bonds recorded in enterprise funds (of which, the City has none). (1) Assessed value has been used because the actual value of taxable property is not readily available in the State of California. Source: City of Lodi Financial Services Division 115 CITY OF LODI LEGAL DEBT MARGIN INFORMATION LAST TEN FISCALYEARS (Dollar amounts in thousands) 2008 2007 2006 2005 2004 FISCAL YEAR 2003 2002 2001 2000 1999 Assessed valuation (1) $ 5,159,269 $ 4,887,074 $ 4,325,000 $ 3,951,862 3 3,686,227 $ 3,464,195 $ 3,177,319 $ 2,942,348 $ 2,757,557 $ 2,611,744 Conversion percentage 25% 25% 25% 25% 25% 25% 25% 25% 25% 25% Adjusted assessed valuation 1,289,817 1,221,769 1,081,250 987.966 921,557 866,049 794,330 735,587 689,389 652,936 Debt limit percentage 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% Debt Limit 193,473 183.265 162,188 148,195 138,234 129,907 119,149 110,338 103,408 97,940 Total net debt applicable to limit Legal debt margin $ 193.473 $ 183,265 $ 162,188 $ 148,195 3 138,234 $ 129,907 $ 119,149 $ 110,338 $ 103,408 $ 97,940 0% 0% 0% 0% 00/0 0% 0% 0% 0% 0% Total netdebt applicable to the limit as a percent of debt limit The Government Code of the State of California provides for a legal debt limit of 15%of gross assessed valuation. However, this provision was enacted when assessed valuation was based upon 25% of market value. Effectivewith the 1982 fiscal year, each parcel is now assessed at 100% of market value (as of the most recent change in ownership for that parcel). The computation shown above reflect conversion of assessed valuation data for each fiscal year from the current full valuation perspective to the 25% level that was in effect at the time the legal debt margin was enacted by the State of California for local govemements located within the state. (1) Reflects City assessed valuation with other exemptionsof $171,241 deductedfor2008. Source: San Joaquin County Auditor-Controller'sCRoe 116 CITY OF LODI DIRECTAND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT June 30,2008 DIRECTAND OVERLAPPING GENERAL FUND DEBT: San Joaquin County Certificates of Participation $ 121,090,000 9.178 % 11,113, 640 Lodi Unified School District Certificatescf Participation 36,275,000 35.678 12,942,195 City of Lodi Certificates cf Participation 23,420,000 100.00 23,420,000 TOTAL DIRECTAND OVERLAPPING GENERAL FUND DEBT 47,475,835 COMBINEDTOTAL DEBT(2) 2007-08Assessed Valuation 2007-08 Population DEBT RATIOS $ 92,456,733 $ 5,330,510,000 63,362 Per Capita Value Total Gross Debt $ 92,456,733$ 1,459 1.73% (1) Percent of overlapping agency's assessed valuation located within the boundaries of the City. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non -bonded capital lease obligations. SOURCE: California Municipal Statistics., San Francisco, CA San Joaquin County Auditors -Control ler Office State of California, Department of Finance, Demographic Research Unit 117 Total Debt Percentage City's Share 06130108 Applicable (1) of Debt OVERLAPPING TAX AND ASSESSMENT DEBT: San Joaquin Community College District $ 82,231,890 8.322 % $ 6,851,561 Lodi Unified School District 105,175,000 35.678 37,524,337 City of Lodi 1915 Act Bonds 605,000 100.00 605,000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT 44, 980, 898 DIRECTAND OVERLAPPING GENERAL FUND DEBT: San Joaquin County Certificates of Participation $ 121,090,000 9.178 % 11,113, 640 Lodi Unified School District Certificatescf Participation 36,275,000 35.678 12,942,195 City of Lodi Certificates cf Participation 23,420,000 100.00 23,420,000 TOTAL DIRECTAND OVERLAPPING GENERAL FUND DEBT 47,475,835 COMBINEDTOTAL DEBT(2) 2007-08Assessed Valuation 2007-08 Population DEBT RATIOS $ 92,456,733 $ 5,330,510,000 63,362 Per Capita Value Total Gross Debt $ 92,456,733$ 1,459 1.73% (1) Percent of overlapping agency's assessed valuation located within the boundaries of the City. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non -bonded capital lease obligations. SOURCE: California Municipal Statistics., San Francisco, CA San Joaquin County Auditors -Control ler Office State of California, Department of Finance, Demographic Research Unit 117 CITY OF LODI PLEDGED -REVENUE COVERAGE LASTTEN FISCALYEARS (Dollars amounts in thousands) Less: Net Fiscal Gross Operating Available Debt Service Year Revenues 4C 1 axpenses (2) Revenue Principal Interest Total Coverage Electric Revenue Certificates of Participation 2008 $ 70,093 $ 55,268 $ 14,825 $ 2,305 $ 3,458 $ 5,763 2.57 2007 67,015 56,932 10,083 2,350 4,134 6,484 1.56 2006 60,339 54,283 6,056 - 2,049 2,049 2.96 2005 55,183 48,278 6,905 5,895 3,541 9,436 0.73 2004 55,074 46,858 8,216 2,150 3,203 5,353 1.53 2003 55,304 42,739 12,565 4,575 2,836 7,411 1.70 2002 49,089 63,545 (14,456) 1,100 1,359 2,459 (5.88) 2001 44,594 46,253 (1,659) 1,391 1,391 (1.19) 2000 41,219 40,016 1,203 1,330 1,330 0.90 1999 37,847 38,141 (294) continued 118 CITY OF LODI PLEDGED -REVENUE COVERAGE (continued) LASTTEN FISCALYEARS (Dollars amounts in thousands) Includes all nongeneral obligation long term debt backed by pledged revenues. Details regardingthe City's outstanding debt can be found in the Note 9 of these financialstatements (1) Total operating revenues including investmenteamings. (2) Total operating expenses exclusive of depreciationand amortization. Source: City of Lodi Financial Services Division 119 Less: Net Fiscal Gross Operating Available Debt Service Year Revenues(1) Expenses(2) Revenue Principal Interest Total Coverage Wastewater Certificates of Participation 2008 $ 9,928 $ 6,189 $ 3,739 $ 1,355 $ 2,209 $ 3,564 1.05 2007 9,446 5,287 4,159 1,315 2,055 3,370 1.23 2006 9,496 4,886 4,610 1,275 2,092 3,367 1.37 2005 8,650 7,028 1,622 540 1,909 2,449 0.66 2004 6,635 4,385 2,250 175 715 890 2.53 2003 6,824 4,380 2,444 160 639 799 3.06 2002 4,193 4,808 (615) 150 649 799 (0.77) 2001 4,868 4,336 532 145 658 803 0.66 2000 4,000 3.147 853 140 667 807 1.06 1999 4,196 2,957 1,239 125 675 800 1.55 Includes all nongeneral obligation long term debt backed by pledged revenues. Details regardingthe City's outstanding debt can be found in the Note 9 of these financialstatements (1) Total operating revenues including investmenteamings. (2) Total operating expenses exclusive of depreciationand amortization. Source: City of Lodi Financial Services Division 119 CITY OF LODI DEMOGRAPHIC AND ECONOMIC STATISTICS LASTTEN FISCALYEARS Fiscal Year Square Miles City Population Population Percent Change San Joaquin County Population Population Percent of County Rank in Size of California Cities Personal Income (millions of dollars) Per Capita Personal Income Unemployment Rate 2008 13.92 63,362 -0.1% 685,600 9.2% 133 n/a n/a 7.1% 2007 13.17 63,395 0.9% 679,687 9.3% 129 $ 19,286 $ 28,743 6.1% 2006 12.81 62,817 0.6% 668,265 9.4% 131 18,125 27,272 5.5% 2005 12.81 62,467 2.8% 653,333 9.6% 131 17,257 26,239 5.9% 2004 12.79 60,769 0.4% 630,600 9.6% 130 16,573 25,527 6.5% 2003 12.69 60,500 1.8% 613,500 9.9% 179 15,543 24,620 6.9% 2002 12.62 59,431 1.4% 596,000 10.0% 129 14,747 24,150 6.6% 2001 12.60 58,600 1.2% 583,700 10.0% 126 14,281 24,086 6.4% 2000 12.50 57,900 1.8% 566,600 10.2% 125 13,757 24,209 6.5% 1999 12.32 56,900 2.2% 554,400 10.3% 124 12,632 22,867 6.5% Personal income is the income received by all persons from all sources. Personal income is the some of net earnings by place of residence, rental income of persons, personal dividend income, personal interest income, and personal current transfer receipts. Per capita personal income is calculated as the personal income of residents of a given area divided by the resident population of the area. In computing per capita personal income, Bureau of Economic analysis uses the Census Bureau's annual midyear population estimates. Source: State of California, Departmentof Finance, Demographic Reseach Unitand Departmentof Labor. 120 CITY OF LODI PRINCIPAL PRIVATE EMPLOYERS CURRENT YEAR AND NINE YEARS AGO Total 9.135 34.97 5.420 Note: The City of Lodi implemented GASB 44 for the fiscal year ended June 30, 2006 121 20.75 Current Nine Years Ago Percent Percent of Total City of Total City Emplover Employees Rank Employment Employees Rank Emolovment Lodi Unified School District 3,301 1 12.64 % 2,247 1 8.60 Lodi Memorial Hospital 1,360 2 5.21 650 2 2.49 Pacific Coast Producers 1,200 3 4.59 530 4 2.03 Blue Shield 850 4 3.25 Cottage Bakery 700 5 2.68 General Mills 478 6 1.83 575 3 2.20 City of Lodi 460 7 1.76 418 5 1.60 Farmers& Merchants Bank 336 8 1.29 183 10 0.70 Walmart 285 9 1.09 226 6 0.87 Target 165 10 0.63 200 7 0.77 Valley Industries 191 9 0.73 Lodi Fab Industries, Inc 200 8 0.77 Total 9.135 34.97 5.420 Note: The City of Lodi implemented GASB 44 for the fiscal year ended June 30, 2006 121 20.75 2008 Department: Administration 19 Community Development 14 Electric 48 Finance 39 Fire 64 Library 14 Parks & Recreation 30 Police 125 Public Works 107 Total 460 Source: City of Lodi Budget Document 122 32 15 46 34 50 14 26 113 99 429 1999 30 15 44 32 49 14 26 113 95 418 CITY OF LODI FULL-TIME EQUIVALENTCITY GOVERNMENT EMPLOYEES BY DEPARTMENT FOR LAST TEN YEARS 2007 2006 2005 2004 2003 2002 2001 35 33 37 36 37 34 34 18 17 17 17 18 17 17 64 65 52 52 52 50 47 30 28 38 38 38 35 34 64 61 68 61 68 55 52 16 14 15 15 15 14 14 34 31 34 34 34 29 29 116 117 117 116 117 115 114 114 99 111 110 110 108 103 491 465 489 479 489 457 444 122 32 15 46 34 50 14 26 113 99 429 1999 30 15 44 32 49 14 26 113 95 418 CITY OF LODI OPERATING INDICATORSBY FUNCTION/PROGRAM/DEPARTMENT FOR LAST THREE FISCAL YEARS General government: Building permits issued Businesstax certificates: Retail sales and service Manufacturersand processors Professions Miscellaneous contractors, peddlers, delivery vehicles, etc. Utility billing/customer service: Numberof customers Energy sales (KWH) Peak demand (MW) Public safety: Police: Major reported crimes Total arrests Dispatched calls for service Fire: Interiorstructure fire ells Non-structuralfire calls Hazardous materials calls Emergency medical calls Total emergency calls Total number of units dispatched Publicworks: Miles of streets resurfaced Fleetjob orders completed Trees planted Water utility: New connections Water main breaks Wastewater utility: Average daily treatment (million gal/day) Library: Registered borrowers Circulation d library materials Reference, researchand informational questions answered Annual attendance at libraries Number of programsoffered Annual attendanceat programs Public access computer usage Community center: Community center bookings 123 Fiscal Year Fiscal Year Fiscal Year 2008 2007 2006 1,851 2,317 2,699 2442 2,632 2,565 78 78 125 398 404 322 1063 1,127 533 25,555 25,712 25,655 450,407,709 458,740,745 459,637,092 134 144 127 2,993 3,096 3,234 5,590 5,463 5,162 55,911 53,686 55,937 88 79 66 160 163 158 35 27 26 3,420 3,213 2,912 5,346 5,000 4,447 7,841 7,005 6,055 5 4 33 3,520 6,938 5,608 130 95 35 110 266 4 10 8 6.5MG 6.9MG 63MG 48,969 44,558 52,779 280,466 273,270 281,216 19,257 18,854 17,342 296,793 288,070 287,986 348 339 320 11,242 10,700 10,872 38,999 35,260 29,896 494 302 220 CITY OF LODI OPERATING INDICATORS BY FUNCTION/PROGRAM/DEPARTMENT FOR LAST THREE FISCAL YEARS Instructionalclasses Registered students Yearly attendance Parks and recreation: After school program registration (number cf participants/sites) Adult sports Program/Participation Programs offered Partnerships Tournaments Youth/Teen sports Program attendance Programs offered Aquatics Program attendance Number of programs Note: The City of Lodi implemented GASB44 for the fiscal year ended June 30, 2006. Information prior to the implementationof GASB 44 is not available. Source: City of Lodi 124 Fiscal Year Fiscal Year Fiscal Year 2008 2007 2006 530 478 509 5,550 3,548 4,369 14,410 14,429 15,369 3,014/4 145,000/12 135,000/12 28,000 36,000 36,000 11 11 11 3 3 5 10 20 20 195,000 200.000 200,000 14 14 20 50,000 59,000 59,000 3 8 6 CITY OF LODI CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM/DEPARTMENT LAST FOUR FISCAL YEARS Fiscal Year 2008 2007 2006 2005 General government: Total square miles 13.92 13.17 12.81 12.81 Public safety: Police: Facilities: Stations Animal control facility Police training facility (pistol range) Vehicles: Marked patrol cars Motorcycles and scooters Animal control vehicles Other automobiles Fire: Facilities: Fire stations Vehicles: Fire engines Trucks/Trailers Other automobiles Publicworks: Miles of streets Miles of alleyways Traffic signals Street lights 125 1 1 1 1 1 1 1 1 1 1 1 1 25 25 28 28 5 5 4 1 2 2 3 3 40 41 41 41 4 4 4 4 6 6 5 5 9 8 7 7 7 10 11 11 200 184 198 100 16 16 16 14 64 66 64 60 7,270 7,270 7,203 6,995 CITY OF LODI CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM/DEPARTMENT LAST FOUR FISCAL YEARS Parks and recreation: Parks and squares Park acreage Boating facilities - launch lanes Senior center Community Centers Swimming pools Baseball/softball diamonds Tennis courts Skateboard park Playgrounds Ballpark Soccer Field Football Field Handball/BasketballNolleyball Courts Horseshoe Pits Library: Central library Total items in collection Integrated library system Microform readers Microform readers/printers Self check out machines Electric utility: Overhead lines 12kv (miles) Overhead lines 60kv (miles) Underground lines (miles) 126 Fiscal Year 2008 2007 2006 2005 23 23 23 23 275 275 275 275 1 1 1 1 1 1 1 1 1 1 1 1 3 3 3 3 26 26 26 26 11 11 11 11 1 1 1 1 22 22 22 22 26 26 26 26 22 22 22 22 3 3 3 3 8 8 8 8 7 10 10 10 1 1 1 1 142,885 142,098 134,129 137,673 1 1 1 1 1 1 1 1 1 1 1 1 0 1 1 1 130 129 129 129 13 13 13 13 153 151 151 151 CITY OF LODI CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM/DEPARTMENT LAST FOUR FISCAL YEARS Water utility: Water main lines Water storage capacity (gallons) Water wells Water reservoirs Wastewater utility: Wastewater main lines (miles) Treatment capacity Wastewater treatment plant Stormwater utility: Stormwater main drain lines (miles) Stormwater pump stations Central parking district: Parking structure Parking spaces Parking lots Fiscal Year 2008 2007 2006 2005 233 238 235 230 1,100,000 1,100,000 1,100,000 1,100,000 26 26 26 25 2 2 2 2 194 189 182 182 8.5 8.5 MG 8.5 MG 8.5 MG 1 1 1 1 119 161 115 114 14 14 13 14 1 1 1 1 2453 2,453 2,453 2,453 25 25 25 25 Note: The City of Lodi implemented GASB 44 for the fiscal year ended June 30, 2006. Information prior to 2005 is not readily available. Source: City of Lodi Departments 127 (This page intentionally left blank.) SINGLE AUDIT REPORTS CITY OF LODI SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30,2008 Federal Grantor Pass-through Grantor or Direct CFDA Grant/Project Program Title Number Number Expenditures U.S. Department of Housing and Urban Development Passed through San Joaquin County Department of Planning and Building Inspection Community Development Block Grants/Entitlement Grants: 2003-2004 Program Year 14.218 B03 -UC -06-0009 $ 10,829 2001-2002 Program Year 14.218 B01 -UC -06-0009 965 Total Community Development Block Grants/Entitlement Grants 11,794 U.S. Department of Justice Direct: Edward Byrne Memorial Justice Assistance Grant Program 16.738 2006 -DJ -BX -0951 10,195 Edward Byrne Memorial Justice Assistance Grant Program 16.738 2005 -DJ -BX -1492 25,905 Total U.S. Department of Justice 36,100 U.S. Department of Transportation Direct: Federal Transit Formula Grants: 2007-2008 Program Year - Operating 20.507 CA -90-Y634-00 1,037,249 2007-2008 Program Year - Capital 20.507 CA -90-Y634-00 25,659 2006-2007 Program Year - Operating 20.507 CA -90-Y565-00 300,000 2005-2006 Program Year - Operating 20.507 CA -90-Y413-00 81,433 Total Federal Transit Formula Grants 1,444,341 Total federal awards $ 1,492,235 See accompanying notes to the schedule of expenditures of federal awards. 129 CITY OF LODI NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE FISCAL YEAR ENDED JUNE 30,2008 NOTE 1- GENERAL The accompanying Schedule of Expenditures of Federal Awards (SEFA) for the fiscal year ended June 30, 2008, 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 Federal CFDA Number Amount Provided to Subrecipients Federal Transit Formula Grants 20.507 $ 381,433 W111 - WWI. PAS MACIASGINI & 01CONNELLI_L.P CERTIFIED PUBLIC ACCOUNTANTS& MANAGEMENT CONSULTANTS The Honorable Members of City Council City of Lodi, California 3000 S Street, Suite 300 Sacramento, CA 95816 916.928.4600 2175 K California Boulevard. Suite 645 Walnut Creek, CA 94596 925.274.0 I90 515 S Figueroa Street Suite 325 L.osAngeles, CA 90071 213.286.6400 402 West Broadway. Suite 400 Sal Diego, CA 92101 619.573.1112 INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 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, 2008, which collectively comprise the City's basic financial statements and have issued our report thereon dated November 10, 2008. Our report contained an explanatory paragraph discussing the City's implementation of the provisions of Governmental Accounting Standards Board Statement No. 50, Pension Disclosures (an amendment of GASB Statements No. 25 and 27) during the year ended June 30, 2008. 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the City's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City's financial statements that is more than inconsequential will not be prevented or detected by the City's internal control. 131 www.mgocpa.com An Independent Member of the BOO Seidman Alliance A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the City's internal control. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and OtherMatters 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 GovernmentAuditing Standards. We noted certain matters that we reported to management of the City of Lodi, in a separate letter dated November 10, 2008. 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. 01C i�e -it LLP GrCrCt.S C$'�Vl/ ol��' Certified Public Accountants Sacramento, California November 10, 2008 132 MACIAS GINI R OICONNELL LLP CERTIFIED PUBLIC ACCOUNTANTS S MANAGEMENT CONSULTANTS The Honorable Members of City Council City of Lodi, California 3000 S Street, Suite 300 Sacramel t6,QZ69i606 2175 K California Boulevard, Suite 645 Walnut Creek, CA 94596 925.274.0190 515 S. Figueroa Street, Suite 325 Los Angeles, CA 90071 2 i3.286.6400 402 West Broadway, Suite 400 San Diego, CA 92101 619.573. 1112 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 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 and Budget (OMB) CircularA433 Compliance Supplement that are applicable to its major federal program for the fiscal year ended June 30, 2008. The City's major federal program is 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 its major federal program 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 GovernmentAuditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits cf States, Local Governments, 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. In our opinion, the City complied, in all material respects, with the requirements referred to above that are applicable to its major federal program for the year ended June 30, 2008. 133 www.mgocpa.com An Independent Member of the BDO Seidman Alliance 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, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance. A control deficiency in an entity's internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity's internal control. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. Schedule &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, 2008, and have issued our report thereon dated November 10, 2008. Our report contained an explanatory paragraph discussing the City's implementation of the provisions of Governmental Accounting Standards Board Statement No. 50, Pension Disclosures (an amendment of GASB Statements No. 25 and 27) during the year ended June 30, 2008. 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. 134 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. r LL-P Certified Public Accountants Sacramento, California November 10,2008 135 CITY OF LODI SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30,2008 Section I - Summary of Auditor's Results Financial Statements: Type of auditor's report issued: Internal control over financial reporting: • Material weaknesses identified? • Significant deficiencies identified that are not considered to be material weaknesses? Noncompliance material to financial statements noted? Federal Awards: Internal control over major programs: • Material weaknesses identified? • Significant deficiencies identified that are not considered to be material weaknesses? Type of auditor's report issued on compliance for major programs: Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? Unqualified No None reported No No None reported Unqualified No 136 CITY OF LODI SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) FOR THE FISCAL YEAR ENDED JUNE 30,2008 Identification of major programs: 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? No None None Section II -Financial Statement Findings Section III - Federal Award Findings and Questioned Costs 137 None CITY OF LODI SCHEDULE OF PRIOR YEAR FINDINGS AND QUESTIONED COSTS FOR THE FISCAL YEAR ENDED JUNE 30,2008 138 CITY OF LODI Agreed -Upon Procedures Report For Gann Appropriations Limit For the Fiscal Year Ended June 30,2008 3000 S Street. Suite 300 _1111W F—IMIN,00h.Sacrament916.92894600 w © 2175 N. California Boulevard. Suite 645 Walnut Creek CA 945% 925.274.0190 M AC I AS G I N I& O 1 C O N N E L L LLP 515 S. Figueroa Street. Suite 325 CERTIFIED PUBLIC ACCOUNTANTS S MANAGEMENT CONSULTANTS Los Angeles, CA 90071 213.286,6400 402 West Broadway, Suite 400 San Diego, CA 92101 619.573.1 112 City Council Lodi, California INDEPENDENTACCOUNTANT'S REPORT ONAPPLYING AGREED- UPONPROCED URES RELATED TO THEARTICLEXIIIB APPROPRIATIONSLIMIT CALCULATION We have performed the procedures enumerated below to the accompanying Appropriations Limit Worksheet of the City of Lodi, California (City) for the fiscal year ended June 30, 2008. These procedures, which were agreed to by the City Council of the City of Lodi, California, and the League of California Cities (as presented in the publication entitled Agreed-upon Procedures Applied to the Appropriations Limitation Prescribed by Article XIII -B of the California Constitutions), were performed solely to assist the City in meeting the requirements of Section 1.5 of Article XIIIB of the California Constitution. The City management is responsible for the Appropriations Limit Worksheet. This agreed-upon procedures engagement was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures performed and our findings were as follows: 1. We obtained the City's reports setting forth the calculations necessary to establish the City's appropriations limit and documentation utilized to calculate such limit for fiscal year 2007-08. Finding: No exceptions were noted as a result of our procedures. 2. We determined that the current appropriations limit and annual adjustment factors used to calculate the appropriations limit for fiscal year 2007-08 set forth in the accompanying Appropriations Limit Worksheet and the aforementioned City reports, were adopted by resolution of the City Council. We also determined that the population and inflation options were selected by a recorded vote of the City Council. Finding: No exceptions were noted as a result of our procedures. www.rngocpa.com An Independent Member of the BDO Seidman Alliance For the accompanying Appropriations Limit Worksheet, we added the appropriations limit, fiscal year 2006-07, amount to the annual adjustment amount and agreed the resulting amount to the appropriations limit, fiscal year 2007-08, as adopted, amount. Finding: No exceptions were noted as a result of our procedures. 4. We agreed the current year information presented in the accompanying Appropriations Limit Worksheet to the aforementioned City reports described in No. 1 above. Finding: No exceptions were noted as a result of our procedures. 5. We agreed the appropriations limit, fiscal year 2006-07, amount presented in the accompanying Appropriations Limit Worksheet to the prior year appropriations limit adopted by the City Council. Finding: No exceptions were noted as a result of our procedures. We were not engaged to, and did not perform an examination, the objective of which would be the expression of an opinion on the accompanying Appropriations Limit Worksheet. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. No procedures have been performed with respect to the determination of the appropriation limit for the base year, as defined by Article XIII -B of the California Constitution. This report is intended solely for the information and use of the City Council and management of the City of Lodi and is not intended to be and should not be used by anyone other than these specified parties. acy0S C77ku, r Or�vkvlQl� L(i� Certified Public Accountants Sacramento, California August 14,2008 2 CITY OF LODI APPROPRIATIONS LIMIT WORKSHEET FOR THE FISCAL YEAR ENDED JUNE 30,2008 Amount Appropriations limit, fiscal year 2006-07 $ 68,905,066 Adjustment factors: Population increase, 2007-08 1.0090 Inflation increase, 2007-08 1.0442 Total adjustment factor 5.3598% Annual adjustment 3.693.160 Appropriations limit, fiscal year 2007-08, as adopted $ 72.598.226