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CAFRCALIFORNIA TOWN OF LOS GATOS & REDEVELOPMENT AGENCY COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012 TOWN OF LOS GATOS CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012 PREPARED BY THE OFFICE OF THE TOWN MANAGER TOWN HISTORY The name Los Gatos comes from "El Rancho de Los Gatos." A ranch established in 1839 by a Mexican land grant and so named because of the large number of mountain lions in the area. In 1854, James Alexander Forbes purchased some of this land and built a flour mill. In 1860, the first hotel was opened to provide a stage stop on the toll road which had been built between San Jose and Santa Cruz. Wheat production gave way to orchards, and rapid growth ensued when the railroad reached Los Gatos in 1878. The residential subdivisions of Broadway, Bayview, Fairview, and Almond Grove were built in the 1880's. By 1887, the population had grown to 1,500 and Los Gatans voted to incorporate. Fruit industries faded slowly during the Depression and World War II, but the postwar period brought an influx of people producing residential and commercial development. Highway 17 was constructed through the center of Town. Growth levelled off in the early 1970's, leaving Los Gatos with its small-town atmosphere and pedestrian-oriented downtown. Because of its distance from other centers of population, Los Gatos developed as a complete community including residential, business and industrial elements. Preserving Los Gatos as a complete and well-balanced community has been and remains a prominent goal of the community. From the first 100-acre town site in 1890 with a population of 1,652, Los Gatos grew slowly so that by 1963 the area was 6.3 square miles, with a population of 11,750. Today Los Gatos covers between 14 and 15 square miles and has a population of 29,854. This relatively slow growth over the first 80 years resulted in a human scale community with narrow streets and small buildings. As it exists now, Los Gatos' boundaries encompass a wide variety of terrain, ranging from level land to steep and densely wooded hillsides. The sharp visual contrasts among these features and charming architecture create the picturesque setting of the Town. In the midst of an increasingly uniform urban complex, this setting has attracted people with a preference for the Town's distinctive, high quality natural and urban environment. The slow growth of the Town over an extended number of years has left the Town with a heritage of older, established residential areas and a downtown with many historic buildings representing the various eras in the Town's history. Protection of these historic resources is an important community goal. The Town's two museums, known as the Tait Avenue and Forbes Mill museums, also help to preserve the Town's valued history. Introductory Section TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012 TABLE OF CONTENTS TITLE PAGE INTRODUCTORY SECTION: Table of Contents................................................................................................................................ i Letter of Transmittal ........................................................................................................................... iii Principal Officers ................................................................................................................................ ix Organization Chart ............................................................................................................................. x GFOA Award ..................................................................................................................................... xi FINANCIAL SECTION: Independent Auditor’s Report ........................................................................................................... 1 Management’s Discussion and Analysis ........................................................................................... 3 Basic Financial Statements: Government-Wide Financial Statements: .................................................................................... 13 Statement of Net Assets ....................................................................................................... 14 Statement of Activities ......................................................................................................... 15 Fund Financial Statements: Governmental Funds: ........................................................................................................... 16 Balance Sheet.................................................................................................................... 17 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets ................................................................................................ 18 Statement of Revenues, Expenditures and Changes in Fund Balances ............................. 19 Reconciliation of Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities ...................................... 20 Statement of Revenue, Expenditures and Changes in Fund Balances – Budget and Actual (GAAP) General Fund .................................................................... 21 Proprietary Funds – Internal Service Funds: ....................................................................... 22 Statement of Net Assets .................................................................................................... 23 Statement of Revenue, Expenses and Changes in Net Assets........................................... 24 Statement of Cash Flows .................................................................................................. 25 Fiduciary Funds: .................................................................................................................. 26 Statement of Fiduciary Net Assets .................................................................................... 27 Statement of Changes in Fiduciary Net Assets ................................................................. 28 Notes to the Basic Financial Statements ...................................................................................... 29 SUPPLEMENTARY INFORMATION: Major Governmental Fund Schedules (other than the General Fund): ......................................... 60 Schedule of Revenue, Expenditures and Changes in Fund Balance – Budget and Actual (GAAP) Appropriated Reserves Fund ................................................... 61 i TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012 TABLE OF CONTENTS Schedule of Revenue, Expenditures and Changes in Fund Balance – Budget and Actual (GAAP) Certificates of Participation Fund ........................................... 62 Schedule of Revenue, Expenditures and Changes in Fund Balance – Budget and Actual (GAAP) Redevelopment Agency Affordable Housing Fund ................ 63 Nonmajor Governmental Funds: ...................................................................................................... 64 Combining Balance Sheets .......................................................................................................... 65 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances ...................................................................................................................... 66 Budgeted Nonmajor Funds Combining Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual (GAAP) ................................................... 68 Internal Service Funds: ..................................................................................................................... 72 Combining Statement of Fiduciary Net Assets............................................................................ 73 Combining Statement of Revenue, Expenses and Changes in Net Assets .................................. 74 Combining Statement of Cash Flows .......................................................................................... 75 Agency Funds: ................................................................................................................................... 76 Statement of Changes in Assets and Liabilities - Parking Improvement District #88 ................. 77 STATISTICAL SECTION: Net Assets by Component .................................................................................................................. 79 Changes in Net Assets ........................................................................................................................ 80 Fund Balances, Governmental Funds ................................................................................................. 81 Changes in Fund Balances, Governmental Funds .............................................................................. 82 Assessed Value and Estimated Actual Value of Taxable Property..................................................... 83 Direct and Overlapping Property Tax Rates ....................................................................................... 84 Principal Property Tax Payers ............................................................................................................ 85 Property Tax Levies and Collections .................................................................................................. 86 Ratios of Outstanding Debt by Type .................................................................................................. 87 Direct and Overlapping Governmental Activities Debt ...................................................................... 88 Legal Debt Margin.............................................................................................................................. 89 Demographic and Economic Statistics ............................................................................................... 90 Principal Employers ........................................................................................................................... 91 Full-time Equivalent Town Government Employees by Function/Program ...................................... 92 Operating Indicators by Function/Program ........................................................................................ 93 Capital Assets Statistics by Function/Program ................................................................................... 94 OTHER INDEPENDENT AUDITOR’S REPORTS: 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 ................................................................................................. 95 ii TOWN OF LOS GATOS OFFICE OF THE TOWN MANAGER (408) 354-6832 FAX: (408) 399-5786 January 30, 2013 Honorable Mayor and Town Council, I am pleased to submit the Town’s Comprehensive Annual Financial Report (CAFR) for the fiscal year ending June 30, 2012. This report was prepared by management and the Finance staff in the Town Manager’s Department, which assumes responsibility for the accuracy of the data and the completeness and fairness of the presentation and all disclosures. The information in this report is intended to present the reader with a comprehensive view of the Town’s financial position and the results of its operations for the fiscal year ending June 30, 2012, along with additional disclosures and financial information designed to enable the reader to gain an understanding of the Town’s financial activities. This report was prepared as prescribed in Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local Governments (GASB 34). This new GASB Statement requires management to provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of a Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The MD&A can be found immediately following the Independent Auditor’s Report. This Comprehensive Annual Financial Report is organized into three sections: I. The Introductory Section includes the table of contents, letter of transmittal, listing of elected officials and Town administrative personnel, and organization chart delineating organizational structure. II. The Financial Section includes the independent auditors’ opinion, management’s discussion and analysis, the basic financial statements, notes to the financial statements, combining statements of non-major funds, and required supplemental information. III. The Statistical Section includes both financial and non-financial data about the Town. The Comprehensive Annual Financial Report is prepared in accordance with Generally Accepted Accounting Principles (GAAP) promulgated by the Governmental Accounting Standards Board (GASB) and includes the report of Chavan & Associates LLP, the Town’s independent certified public accountants. Page iv Mayor and Town Council January 30, 2013 This Comprehensive Annual Financial Report will be submitted to the Government Finance Officers Association for consideration to be awarded its Achievement of Excellence in financial reporting certification. This award is granted only to entities whose reports meet the highest standards of municipal financial reporting. THE REPORTING ENTITY AND ITS SERVICES Los Gatos is a general law Town, incorporated under the laws of California in 1887. The Town is located in the foothills and level terrain of the Santa Clara Valley, in an area referred to internationally as “Silicon Valley.” From the first 100-acre town site and an 1890 population of 1,652, Los Gatos grew slowly so that by 1963 the area was 6.3 square miles, with a population of 11,750. Today Los Gatos covers approximately 14 square miles with a population of 29,854. This relatively slow growth over the first 80 years resulted in a human scale community with narrow streets and small buildings. Preserving Los Gatos as a complete and well-balanced community has been and remains a prominent goal for the community. Five council members are elected at large for staggered four-year terms to govern the Town. The Mayor and Vice-Mayor are appointed by the Council from its own ranks and serve for one-year terms. The Town Manager and Town Attorney are appointed and supervised directly by the Council. The Town Manager oversees traditional municipal services such as Public Safety, Parks & Public Works, Community Development, Community Services and a Public Library. This report includes all funds of the Town of Los Gatos. As of February 1, 2012, in accordance with Assembly Bill 1X26, the Redevelopment Agency for the Town of Los Gatos was dissolved. Until its dissolution, the Town of Los Gatos Redevelopment Agency was governed by a board that as the same is the Town’s governing body. Therefore, the financial activity of the Redevelopment Agency through January 31, 2012 has been blended into the Town’s basic financial statements. As a result of the dissolution, the RDA Successor Agency private-purpose trust fund was created and the Certificates of Participation (COP) RDA Debt Service Fund and Redevelopment Agency Low & Moderate Housing Capital Projects Fund were closed out as of June 30, 2012. ECONOMIC CONDITIONS AND OUTLOOK Consistent with other Silicon Valley communities, the Town of Los Gatos has been impacted by the effects of the national economic downturn. As a result of the recession and a change in the business model for one of the Town’s largest businesses, the Town has experienced significant reductions in sales tax revenues. The Town of Los Gatos also experienced a decrease in property tax revenues due to the dissolution of the Redevelopment Agency. Page v Mayor and Town Council January 30, 2013 In recent years, the Town has implemented a number of strategies to keep operating revenues in balance with ongoing operating expenditures. These steps included selected hiring freezes, the elimination of vacant positions, organizational realignments, and departmental cost saving efficiencies among other strategies that have allowed the Town to remain fiscally balanced during these challenging economic times. General Fund revenues (including operating transfer-ins) increased by 4% from the prior year. The Town relies heavily on sales tax revenues to support General Fund operations, comprising approximately 29% of General Fund revenues in FY 2011/12. The FY 2011/12 $9.9 million sales tax receipts were $100,000 lower than the prior year’s collection. This increase in sales tax is due to a business model change in Netflix, an internet streaming provider, which previously accounted for nearly 40% of all sales tax received by the Town. Los Gatos property values remain largely stable, although the volume of housing sales has decreased in the past year. The turnover rate of Prop 13 housing units, which are often revalued at current market rates, is not offsetting the loss of property tax growth due to the slow housing market. Despite the slow economic recovery, the Town continues to strategically use its Economic Vitality program to ensure the fiscal health of the Town. The Town continues to experience challenges due to the State of California’s budget deficit. Since 1991, the State has diverted or taken portions of Town revenues such as property taxes to balance its fiscal equation. In FY 2008/09, the State took $480,000 million in property tax from the Town Redevelopment Agency. While that action was found unconstitutional by the State Supreme Court, the State was successful in taking an additional $2.7 million in redevelopment funds in FY 2009/10 and FY 2010/11. More recently, ABx1 26, which dissolved all Redevelopment Agencies in the state of California, was signed into law on June 29, 2011, by the Governor of the State of California, and was subsequently upheld by the California State Supreme Court on December 29, 2011. Effective February 1, 2012, redevelopment agencies were dissolved and suspended all activities, with the exception of the implementation of existing contracts and payment of enforceable obligations entered into prior to February 1, 2012. This dissolution significantly impacted the Town due to reductions in administrative and program reimbursements previously paid by the Redevelopment Agency. The Town has managed to limit the effects of State revenue reductions with pro-active strategic budgetary changes and expenditure reductions made on an organizational basis. Despite the reductions to various state sources of local government revenue, the Town has maintained high service levels due to the General Fund’s strong fiscal health through FY 2011/12. The Town continues to diligently outreach to the community, the League of California Cities, and local legislators to prevent any future revenue losses. Page vi Mayor and Town Council January 30, 2013 MAJOR INITIATIVES Despite the ongoing revenue challenges, FY 2011/12 was a year of high activity centering on the new Los Gatos Library capital project. The new 30,000 square foot library is an environmentally “green” building as well as offering adequate space for a wide range of library services. The conceptual design for the library was completed in 2009, the Environmental Impact report was approved by the Town Council in January 2010; the construction contract was awarded in May 2010, followed by the groundbreaking in June. Construction of the new library was completed in February 2012. Major initiatives addressing the critical capital asset and infrastructure needs of the Town were a priority for the fiscal year. Approximately $14 million in Town infrastructure and other capital asset improvements were made in FY 2011/12, including $6 million for the new library building, $3.1 million in bridge improvements, $1.4 million for curb, gutter, sidewalk improvements, and retaining wall repairs, 1.2 million for Los Gatos Creekside Sports Park, $450,000 for traffic signal improvements, and $100,000 in park improvements. In addition, approximately $1.5 million was invested in the Town’s streets and roads, including improvements to major arterials and neighborhood collector streets to enhance pedestrian and traffic safety. Additional infrastructure improvements were scheduled in accordance with the Town’s approved Capital Improvement Plan, and will continue into future years. All of these improvements are funded either through debt issuance, grants, or via revenues accumulated from prior year budget savings and/or excess revenues per Town Council policy. ACCOUNTING SYSTEM AND BUDGETARY CONTROL The effectiveness of internal control is considered in the development and evaluation of the Town’s accounting system. Internal accounting controls are designed to provide reasonable but not absolute assurance regarding: 1) safeguarding of assets against loss from unauthorized loss or disposition, 2) accuracy and reliability of accounting data, 3) adherence to managerial policy. The concept of reasonable assurance recognizes that the cost of internal control should not outweigh its benefits, and that management must make estimates and judgments in evaluating these costs and benefits. All governmental fund types use the modified accrual basis of accounting. This means that revenues are recorded when measurable and available rather then when received. Page vii Mayor and Town Council January 30, 2013 Measurable means the amount can be determined and available means the cash is received within forty-five days after the end of the fiscal year. Expenditures are recorded when the liability is incurred, rather than when paid. An exception to this rule is principal and interest on general long-term debt, which is not recognized by debt service funds until it is due. Proprietary (internal service) funds are accounted for using the accrual basis of accounting, similar to that used by corporations. Proprietary fund revenues are recognized when they are earned rather than when the cash is received, even if the cash is not available and proprietary fund expenses are recognized when they are incurred. With the implementation of GASB 34, the Town now prepares its Basic Financial Statements on the accrual basis. Internal accounting procedures have been developed to provide reasonable assurance regarding the safeguarding of assets and the reliability of financial records for preparing financial statements and maintaining asset accountability. An annual operating budget and five-year capital improvement plan is adopted by the Town Council on a basis consistent with generally accepted accounting principles. All budget adjustments and transfers between funds must be approved by the Town Council by resolution during the fiscal year. The Town Manager is authorized to transfer unencumbered appropriations within a budget category, within a fund. Appropriations are valid for each fiscal year and lapse at year-end. AWARDS The Town’s Comprehensive Annual Financial Report for the fiscal year ended June 30, 2011 was awarded a Certificate of Achievement for Excellence in Financial Reporting by the national Government Finance Officers Association. This prestigious award recognizes the report’s conformance with strict accounting and reporting standards established by the Government Accounting Standards Board and government finance organizations. This award is annual in nature and valid for one year only. This year’s report will be submitted for award consideration by this organization, as we believe it continues to meet these standards. INDEPENDENT AUDIT State law requires an annual audit of the Town’s accounts by independent certified public accountants. The accounting firm of Chavan & Associates, LLP performs this function for the Town of Los Gatos, and its report is included in the financial section of the CAFR. Page viii Mayor and Town Council January 30, 2013 ACKNOWLEDGEMENTS The preparation of this Comprehensive Annual Financial Report, as presented herein, is the result of the combined efforts and dedicated services of the excellent staff of the Department of Finance. Special thanks to Jen Callaway, Finance & Budget Manager, Krysten Lee, Accountant; Linda Isherwood, Accountant/Finance Analyst, Nicole Tram, Accounts Payable Technician, and Gitta Ungvari Administrative Analyst, for their efforts in preparing this report. Respectfully submitted, _____________________________ ___________________________________ Greg Larson Stephen D. Conway Town Manager Director of Finance & Administrative Services PSJ:SDC:pd N:\FINANCE\CAFR\CAFR 2011-12 Transmittal Letter .doc TOWN OF LOS GATOS PRINCIPAL OFFICERS JUNE 30, 2012 TOWN COUNCIL Mayor Steve Rice Vice Mayor Barbara Spector Council Member Diane McNutt Council Member Joe Pirzynski Council Member Steve Leonardis COUNCIL APPOINTEES Town Manager Greg Larson Town Attorney Judith Propp APPOINTED OFFICIALS Assistant Town Manager Pamela Jacobs Deputy Town Manager Regina Falkner Chief of Police Scott Seaman Community Development Director Wendie Rooney Finance and Administrative Services Director Stephen Conway Human Resources Director Rumi Portillo Interim Library Director Linda Dydo Parks and Public Works Director Todd Capurso ix Town of Los Gatos Organizational Structure COMMUNITY DEVELOPMENT CDD Administration Development Review Code Compliance Inspection Services Advanced Planning BMP Housing Program RDA Housing Program POLICE Police Administration Records/Communications Patrol Investigations Traffic Support Services Parking Management PARKS & PUBLIC WORKS PPW Administration Park Services Engineering Development Engineering Program Streets & Signals Building Maintenance Landscape & Lighting Environmental Services LIBRARY Library Administration Reference Services Children's Program Reading/Literacy Program Collection Maintenance Circulation & System Administration Los Gatos History Program HUMAN RESOURCES Recruitment Benefits Management Training Employee Relations Organizational Development FINANCE General Ledger Accounts Payable Accounts Receivable Payroll Business License Tax Purchasing Budget Administration Financial Reporting Treasurer CLERK & ADMINISTRATIVE PROGRAMS Records ManagementBoards & CommissionsElection CoordinationClaims & InsuranceCustomer Service CenterL egislative CoordinationP ublic InformationCable/Broadcasting ManagementCDBG/ADA ProgramsArts & CultureCommunity Grants INFORMATION TECHNOLOGY Technology Support IT Systems Management Technology Planning & Implementation Website Management ASSISTANT TOWN MANAGER TOWN MANAGER ELECTED TOWN COUNCIL BOARDS & COMMISSIONSTOWN ATTORNEY RESIDENTS of LOS GATOS x xi Financial Section Page | 1 1475 Saratoga Ave, Suite 180, San Jose, CA 95129 Tel: 408-217-8749 • E-Fax: 480-247-5523 info@cnallp.com • www.cnallp.com INDEPENDENT AUDITOR’S REPORT The Honorable Mayor and Members of Town Council Town of Los Gatos, California We have audited the accompanying financial statements of the governmental activities, each major fund and the aggregate remaining fund information of the Town of Los Gatos (the “Town”), as of and for the year ended June 30, 2012, which collectively comprise the Town’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Town’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities, each major fund and the aggregate remaining fund information of the Town as of June 30, 2012, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparisons listed as a part of the basic financial statements for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated January 22, 2013 on our consideration of the Town’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. As explained further in Note 12 to the basic financial statements, the California State Legislature has enacted legislation requiring the dissolution of redevelopment agencies in the State of California effective February 1, 2012. As a result of the dissolution, the Town as closed its Redevelopment Agency funds and moved related assets, liabilities and resulting operations into a newly created Successor Agency private purpose trust fund. The dissolution resulted in an extraordinary loss of $5,038,620 in the governmental fund statements and an extraordinary gain of $11,864,453 in the government-wide statement of activities. In addition, an amount due to other governments of $13,246,779 was reported in the Successor Agency trust fund, as of June 30, 2012, reflecting obligations that resulted from the dissolution. Page | 2 1475 Saratoga Ave, Suite 180, San Jose, CA 95129 Tel: 408-217-8749 • E-Fax: 480-247-5523 info@cnallp.com • www.cnallp.com Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 3 through 11 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Town’s financial statements as a whole. The introductory section, combining and individual nonmajor fund financial statements, budgetary schedules included in the supplementary information, and statistical section are presented for purposes of additional analysis and are not a required part of the financial statements. The combining and individual nonmajor fund financial statements and budgetary schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. January 22, 2013 San Jose, California Management’s Discussion and Analysis 3 MANAGEMENT’S DISCUSSION AND ANALYSIS Our discussion and analysis of the Town of Los Gatos financial performance provides an overview of the Town’s financial activities for fiscal year ending June 30, 2012. This information is presented in conjunction with the audited financial statements that follow this section. FINANCIAL HIGHLIGHTS • Town assets exceeded its liabilities at the close of FY 2011/12 by $132,692,897 (net assets). Of this amount, $37,192,210(unrestricted net assets) may be used to meet the Town’s ongoing obligations to citizens and creditors. • The Town’s Net Assets increased by $16,455,199 million due primarily to the extraordinary gain on the dissolution of the former Redevelopment agency, pursuant to the enactment of California Assembly Bill (AB) 1X26 that dissolved all Redevelopment Agencies in the State of California. • Total fund balances for governmental funds at year end were $36,676,312, a decrease of $8,591,017 (19%) from the prior year. The decrease is mainly the result of the dissolution of the former Redevelopment Agency’s fund balances, in accordance with AB 1X26. • At the end of FY 2011/12, fund balance for the General Fund was $26,012,295, approximately 82% of General Fund expenditures for the current fiscal year. • The Town’s total capital assets increased by $624,345 as a result of approximately $8.2 million, net of construction in progress, in capital improvements made and approximately $7.6 million in capital assets removed as a result of the RDA dissolution. OVERVIEW OF THE FINANCIAL STATEMENTS The financial statements presented herein include all of the activities of the Town and its component units using the integrated approach as prescribed by GASB Statement No. 34. Government-wide financial statements The government-wide financial statements present the financial picture of the Town from the economic resources measurement focus using the accrual basis of accounting. The statement of net assets – presents information on all of the Town’s assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Town is improving or deteriorating. 4 The statement of activities – presents information showing how the Town’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the Town that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business–type activity). The governmental activities of the Town include public safety, parks and public works, community development, library, community services, debt service, redevelopment, and general government. The Town has no business-type activities. The government-wide financial statements include not only the Town itself (known as the primary government), but also a legally separate Town of Los Gatos Redevelopment Agency (the Agency) for which the Town was financially accountable. In accordance with Assembly Bill 1X 26 (AB 1X26) which provides for the dissolution of all redevelopment agencies in the State of California, the Town of Los Gatos agreed to serve as the successor agency and thereby to hold the assets until they were distributed to other units of state and local government. In accordance with AB 1X26, the Town of Los Gatos Redevelopment Agency dissolved and ceased to operate as a legal entity on February 1, 2012. Prior to February 1, 2012, the final seven months of activity of the redevelopment agency continued to be reported in the governmental funds of the Town. After February 1, 2012, the assets and activities of the dissolved redevelopment agency are reported in a fiduciary fund (RDA Successor Agency private-purpose trust fund) in the financial statements of the Town. Additional information on the dissolution of the RDA and this newly formed fiduciary fund can be found in Note 12 in the notes to basic financial statements. Fund financial statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Town, like other local governments, uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. The funds of the Town are segregated into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental funds – The Town’s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using the modified accrual basis of accounting, which measures cash and other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short- term view of the Town’s general government operations and the basic services it 5 provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the Town’s operations. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. Proprietary funds – The Town maintains one type of proprietary fund: internal service funds. Proprietary funds are reported using the accrual basis of accounting. Internal service funds are an accounting device used to accumulate and allocate costs internally among the Town’s various functions. The Town uses internal service funds to account for its fleet of vehicles and computer equipment, and for its risk management activities. The Internal Service funds have been included within 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 Town. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the Town’s own programs. Included in fiduciary funds is the RDA Successor Agency private-purpose trust fund created upon the dissolution of the former Redevelopment Agency. The Trust Fund was created to hold the assets of the former Redevelopment Agency until they are transferred for governmental purposes to other entities, or distributed to the underlying taxing jurisdictions in Santa Clara County after the payment of enforceable obligations. Notes to basic financial statements The notes provide additional information essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to basic financial statements can be found on pages 29-59 of this report. 6 Government-wide Financial Analysis Net assets may serve over time as a useful indicator of a government’s financial position. In the case of the Town, assets exceeded liabilities by $132.7 million at the end of the current fiscal year. 20122011 Current and other assets64,236,189$ 91,845,942$ Capital assets89,056,388 88,432,043 Total assets153,292,577 180,277,985 Current liabilities15,050,917 33,519,022 Long-term liabilities outstanding5,548,763 30,521,265 Total liabilities20,599,680$ 64,040,287$ Net assets: Investment in capital assets, net of related debt90,333,451$ 72,567,355$ Restricted5,167,236 14,764,334 Unrestricted37,192,210 2,890,009 Total net assets132,692,897$ 116,237,698$ Activities Town of Los Gatos Net Assets Governmental Capital assets represent approximately 58% of the Town’s total assets consisting of investments made by the Town in permanent or long-lived assets (e.g., land, buildings, infrastructure, machinery and equipment), less any related debt used to acquire those assets still outstanding. The Town uses these capital assets to provide services to citizens and customers; consequently, these assets are not available for future spending. Although the Town’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. For the current year, Investment in Capital Assets, Net of Related Debt increased by approximately $17.7 million as a result of approximately $8.2 million, net of construction in progress, in capital improvements made and approximately $7.6 million in capital assets removed as a result of the RDA dissolution. An additional portion of the Town’s net assets (3.9%) represents resources that are subject to external restrictions on how they may be used. The balance of Unrestricted Net Assets may be used to meet the Town’s ongoing obligations to citizens, customers, and creditors. The Town’s Unrestricted Net Assets represent 28% of the Town’s net assets at year end. 7 Governmental activities 20122011 Revenues: Program revenues: Charges for services8,292,298$ 7,491,282$ Operating grants and contributions 1,030,369 1,055,005 Capital grants and contributions 641,811 2,375,759 General revenues: Property taxes14,088,866 18,226,001 Sales taxes9,889,100 9,971,409 Other taxes3,698,753 2,906,264 Motor Vehicle In Lieu15,238 139,814 Investment earnings 331,420 760,905 Gain of Sale of Property - (870,127) Other 2,275,160 41,943 Extraordinary Gain ( Loss) on dissolution of RDA 11,864,453 Total revenues52,127,468$ 42,098,255$ Expenses: Police Department14,124,798$ 13,495,885$ Parks and Public Works7,827,332 7,155,905 General government6,145,143 5,180,153 Community Development3,434,551 3,099,269 Library Services1,938,577 1,892,805 Redevelopment919,821 16,794,022 Interest and fees1,123,842 1,278,381 Community Services- 666,015 Sanitation158,205 342,893 Total expenses35,672,269$ 49,905,328$ Increase in net assets16,455,199 (7,807,073) Net assets, beginning116,237,698 124,044,771 Prior period adjustments- - Net assets, ending132,692,897$ 116,237,698$ Governmental Activities As shown in the schedule above, governmental activities for the year increased the Town’s Net Assets by $16,455,199. Key elements of the increase in net assets are as follows: • Property Tax revenues collected for the Town and the Redevelopment Agency accounted for 32% of total Town revenues. Property tax revenues for Town activities fell by $4.1 million or 23%, from FY 10/11 due primarily to the dissolution of the redevelopment agency. Under AB 1X26, the former Redevelopment Agency did not receive its usual second-half-of-the-fiscal-year infusion of property tax increment revenue from the County of Santa Clara. Instead, this revenue was diverted to a new Real Property Tax Trust Fund administered by the County Auditor-Controller, out of which the Town, as 8 Successor Agency to the Town of Los Gatos Redevelopment Agency, paid enforceable obligations with the excess distributed to underlying taxing entities. • Sales Tax revenue of $9.9 million accounted for 22% of Town total revenues for the year. The 1% decrease of approximately $82,309 from the prior year collections is due to the a business model change in Netflix, an internet streaming provider, which previously accounted for nearly 40% of all sales tax received by the Town. • Other Taxes, Other Revenues, and Motor Vehicle in Lieu Taxes of $3,713,991 accounted for 8.3% of total revenues, increasing by 20% from the prior year’s amount of $3,088,021 because of the of the increased Transient Occupancy and Franchise tax collected. • Investment Earnings of $331,420, net of amortized premiums, accounted for 0.7% of total revenues decreased by 56% from the prior year. This decrease due to a declining interest rate environment and reduced cash balances from prior years as a result of significant capital expenditure spending in the past fiscal year. • Total expenditures decreased approximately $18 million or 27% from the prior year. This decrease was primarily the result of the dissolution of the former Redevelopment Agency and its related capital project activity. FINANCIAL ANALYSIS OF THE TOWN’S FUNDS The Town uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. Governmental funds The focus of the Town’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. As of the end of FY 2011/12, the Town’s governmental funds reported combined ending fund balances of $36,676,312, a decrease of $8,591,017 in comparison with the prior year. This decrease was primarily due to the dissolution of the former redevelopment agency. Approximately 86% or $31,509,076 of the total amount of governmental fund balances of $36,676,312 is assigned or unassigned fund balance, which is available for spending at the Town’s discretion. The remainder of fund balance is restricted and is not available for new spending because it has already been restricted to (1) provide for appropriated capital projects ($5,037,319); and (2) to provide for dedicated repair and maintenance in lighting and landscape districts ($129,917). General Fund - The General Fund is the chief operating fund of the Town. It accounts for all financial resources except those required to be accounted for in another fund. At the end of the current fiscal year, the General Fund net fund balance increased by 1% 9 from prior year balances to $26,012,295 primarily as a result of an increase in revenues. The largest increase occurred in Transient Occupancy Taxes and Franchise Fee collections. General Fund expenditures (excluding transfers-out) increased by 6% from the prior fiscal year primarily due to a previously bargained increased for Public Safety Officers and benefit cost payments related to the Town’s pension and post-retirement medical plans for both safety and non-safety employees. Additionally, the General Fund absorbed administrative and other costs effective February 1, 2012 from the former Redevelopment Agency. Other Major Funds General Fund Appropriated Reserve (GFAR) Capital Projects Fund. The GFAR fund is used as the primary capital projects fund for the Town and is used for the acquisition and construction of major capital projects in the Town. Fund balances decreased to $6,666,737 primarily due to capital spending made on the new library building during the fiscal year. Certificates of Participation (COP) RDA Debt Service Fund. As a result of the Redevelopment Agency Dissolution, this fund has been closed as of June 30, 2012. Redevelopment Agency Low & Moderate Housing Capital Projects Fund. As a result of the Redevelopment Agency Dissolution, this fund has been closed as of June 30, 2012. Other Non-Major Other Governmental Funds. These funds consist primarily of special revenue funds used to account for specific revenue sources for which expenditures are restricted by law or regulation to finance particular functions or activities of the Town and other non-major capital projects funds. Total fund balances for other non-major other governmental funds decreased by $658,776. Proprietary funds The Town’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Internal Service Funds - The Town has seven internal service funds: Worker’s Compensation, Self Insurance; Stores, Vehicle Maintenance, Building Maintenance, Management Information Systems, and Equipment Replacement funds. Revenues to these funds are generated from fees charged to the Town’s operating programs for services provided. The Equipment Replacement Fund charges replacement costs and the Vehicle Maintenance Fund charges vehicle maintenance costs to all user departments based on equipment assignment and usage of equipment. Net operating income before transfers at year end for both funds was $39,510 and $82,893 respectively versus $356,669 and $10,287 in the prior year. The increase in operating income in the Vehicle Maintenance Fund from the prior year is attributable to the contracting out maintenance services to 10 reduce General Fund operating expenses. The decrease in Equipment Replacement Fund is attributable to the cyclical nature of fleet purchases in accordance with the Town’s fleet replacement schedule. The Building Maintenance, Stores, and Management Information Systems funds charge premiums based on use and labor charges to provide Town-wide building maintenance, mail and office inventory and duplication charges, and management information services. Net operating income (loss) before transfers at year end was $140,786, ($39,075) and $207,843 respectively. Revenues exceeded expenditures in the Building Maintenance Fund due to decreased heating, ventilation and air conditioning maintenance and repair costs experienced in the prior year. The office store expenditures increased because of the additional copiers added to the maintenance lease for the New Library building during FY 2011/12. Management information systems also experienced savings on anticipated repairs and replacements. The Worker’s Compensation and Self Insurance Fund charge premiums based on exposure levels by department for liability, property, Worker’s Compensation and Self Insurance costs. Net operating income before transfers at year end was ($509,246) and ($470,928) respectively, versus 84,509 and ($12,567) in the prior year. The decrease of Operating income for the year in the Worker’s Compensation and Self Insurance funds reflects the adverse experience of loss claims in the current year from the prior year in Worker’s Compensation and general liability claim payments and settlements. GOVERNMENT FUNDS BUDGETARY HIGHLIGHTS: Budget Adjustments Comparing the FY 2011/12 original budget (or adopted) General Fund Expenditures of $32,971,938 (excluding budgeted transfers-out), the final budget amount of $33,130,615 shows a net increase of $158,677. Additions to the original budget included approved additions of $158,677 in net miscellaneous adjustments approved by Town Council throughout the fiscal year. Original Budget + Approved Carryforwards + Prior Year Encumbrances + Misc. Adjustments & Mid-Year Adjustments = Final Budget $32,971,938 $-0- $-0- $158,677 $33,130,615 The increase in General Fund appropriations occurred from the following budget adjustments: • $43,000 decrease from the Manager’s Contingency to the Pageant Ground Access Project for the final design phase of the Pageant Grounds. • $103,975 increase in Traffic Safety Grant Money from the State of California. • $62,500 increase in Next Door Solutions to Domestic Violence for PD partnership to provide assistance to domestic violence victims. 11 • $20,052 increase in grant money from the Santa Clara Public Health Department for Obesity Prevention to aid the Town in expanding obesity prevention efforts. • $15,150 increase for the purchase of 35 portable radios partially paid by the State of California EMPG grant. Comparing the FY 2011/12 final amended budget to the actual result shows $4.4 million in operational savings due to various cost saving methods. These steps included selected hiring freezes, strategic expenditure slowdowns, and departmental cost saving efficiencies among other strategies. Capital Assets As of June 30, 2012, the Town’s investment in capital assets for its governmental activity is recorded at $89,056,388 (net of accumulated depreciation). The investment in capital assets includes land, buildings and improvements, infrastructure, construction in progress and machinery and equipment. During FY 2011/12 the Town’s $14 million investment in capital assets for the current year represented approximately 16% of total assets for governmental activities. Major capital asset events during the current fiscal year include the following: • $6 million for the new library building • $3.1 million for bridge improvements; • $1.5 million for street improvements; • $1.4 million for curb, gutter and sidewalk improvements and retaining wall; • $1.2 million Los Gatos Creekside Sports Park; • $0.45 million for traffic signal improvements; and • $0.1 million for various park improvements. Governmental Activities Land20,329,684$ Construction in Progress 3,360,517 Buildings 23,713,029 Equipment2,489,383 Infrastructure 39,163,775 89,056,388$ June 30, 2012 Town of Los Gatos Capital Assets (net of accumulated depreciation) Additional information on the Town’s capital assets is found in Note 5 of this financial report. Debt Administration As of June 30, 2012, the Town had no outstanding log-term debt. As a result of the dissolution of the redevelopment agency, the Town transferred $24,422,785 in outstanding debt to the Successor Agency’s Private Purpose Trust Fund. 12 Economic Factors and Next Year’s Budgets and Rates A product of an ongoing examination of how the Town provides cost-effective services, the Town’s budget emphasizes outcomes or results for the community and allows for longer-term financial planning decisions. During the development and adoption of the Town’s FY 2012/13 budget, the Town Council and management considered the following factors: • The Town anticipates a decline in sales tax growth for FY 2012/13. Sales tax estimates for FY 2012/13 were budgeted reflecting a 21% decline from the prior year’s adopted sales tax of approximately $9.4 million dollars due to a business model change in Netflix, an internet streaming provider, which previously accounted nearly 40% of all sales tax received by the Town. With sales tax representing approximately 24% of the Town’s General Fund revenues, any fluctuation in local sales tax collections will significantly impact the Town. • General property tax collections represent approximately 24.5% (not including the State’s property tax “backfill” shifts) of the Town’s General Fund revenues and anticipated to experience moderate growth rate of 3% to 4% based on data from the Santa Clara County Tax Assessor’s Office. Los Gatos is one of the few cities in Santa Clara County that did not encounter significant loss of assessed valuation due to the recent recession and expects positive growth for FY 2012/13. The growth in property tax is largely attributable to the increased assessed valuation that occurs upon the turnover of housing stock in the Town. • The Town’s investment portfolio experienced a decline in its overall weighted average annual yield, lowering from 1.46% at June 30, 2011 to 0.97% at June 30, 2012. As a result of declining interest rates for FY 2011/12, and reduced cash balances due to significant capital expenditures, investment earnings are expected to be lower than the prior year. Budgeted estimates have been reduced to $421,656 from the adjusted budget estimate to $979,849 from the prior year. • Transient Occupancy Tax (TOT) revenues are expected to be higher in FY 2012/13 as personal and business related travel is gaining strength. Given the increase in travel activity, the FY 2012/13 TOT revenues were budgeted at $1,000,000. Reflecting 7% increase from the FY 2011/12 adopted budget. Requests for Information This financial report is designed to provide citizens, taxpayers, customers, investors, and creditors, with a general overview of the Town’s finances and to demonstrate the Town’s accountability for the money it receives. If you have any questions about this report or need any additional information, contact the Stephen Conway, Director of Finance, at 110 East Main Street, Los Gatos, California, 95030, or phone (408) 354-6828. Basic Financial Statements TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012 GOVERNMENT-WIDE FINANCIAL STATEMENTS STATEMENT OF NET ASSETS AND STATEMENT OF ACTIVITIES 13 The purpose of the Statement of Net Assets and the Statement of Activities is to summarize the entire financial activities and financial position of the Town. They are prepared on the same basis of accounting (accrual) used by most businesses, which means they include all the Town’s assets and liabilities, as well as its revenues and expenses. The effect of the entire Town’s transactions is accounted for, regardless of when cash changes hands, and all material internal transactions between funds have been eliminated. The Statement of Net Assets report the Town’s total assets and liabilities, including capital assets and long-term debt, and presents similar information to the old balance sheet format while focusing the reader on the composition of the Town’s net assets (assets minus liabilities). The Statement of Net Assets summarizes the financial position of the Town’s governmental activities in a single column. The Town’s governmental activities include the activities of the General Fund, Special Revenue Funds, Capital Projects Funds and Debt Service Funds. These funds are serviced by the Town’s Internal Service Funds; therefore internal service activities are consolidated with governmental activities after eliminating inter-fund transactions and balances. The Statement of Activities reports increases and decreases in the Town’s net assets and is prepared on the full accrual basis of accounting, which means it includes all the Town’s revenues and expenses regardless of when cash changed hands. This differs from the “modified accrual” basis of accounting used in the fund financial statements, which reflect only current assets, current liabilities, available revenues and measurable expenditures. The format of the Statement of Activities presents the Town’s expenses before revenues and by program. Program revenues (revenues generated directly by specific programs) are deducted from program expenses to arrive at the net expense of each governmental program, which is offset by general revenues as listed before the change in net assets. From these components, the change in net assets is computed and reconciled to the Statement of Net Assets. Both of these statements include the financial activities of the Town and the Redevelopment Agency of the Town of Los Gatos, which is a legally separate, but a component unit of the Town because it is controlled by the Town, which is financially accountable for its activities. Since the Redevelopment Agency was dissolved as of February 1, 2012, there was no activity in these statements during the last five months of the year and no ending balances to report at June 30, 2012. The Statement of Net Assets, Statement of Activities, fund financial statements and the notes to financial statements comprise the Basic Financial Statements of the Town. The term “Basic Financial Statements” replaces the term “General Purpose Financial Statements” which is no longer used. TOWN OF LOS GATOS, CALIFORNIA STATEMENT OF NET ASSETS JUNE 30, 2012 The notes to the financial statements are an integral part of this statement 14 Governmental Activities ASSETS Cash and investments (Note 2)58,953,574$ Restricted cash and investments (Note 2)1,314,179 Receivables: Accounts1,320,164 Intergovernmental1,471,857 Materials, supplies and deposits40,631 Long term notes receivables (Note 3)1,135,784 Capital Assets (Note 5): Nondepreciable23,690,201 Depreciable, net of accumulated depreciation65,366,187 Total Assets153,292,577$ LIABILITIES Accounts payable 1,999,607$ Accrued payroll and benefits3,457,118 Due to other governments6,786 Unearned Revenue5,365,991 Deposits3,104,374 Claims payable (Note 11)1,117,041 Long-term liabilities: Due within one year Compensated absences (Note 1)1,415,240 Due in more than one year Post retirement benefits (Note 10)2,881,907 Compensated absences (Note 1)1,251,616 Total Liabilities20,599,680$ NET ASSETS (Note 1) Invested in capital assets, net of related debt90,333,451$ Restricted for: Capital projects5,037,319 Lighting and landscape repairs and maintenance129,917 Total Restricted Net Assets5,167,236 Unrestricted37,192,210 Total Net Assets132,692,897$ TOWN OF LOS GATOS, CALIFORNIA STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2012 The notes to the financial statements are an integral part of this statement 15 Net (Expense) Revenues and Changes in Net Assets OperatingCapital Charges forGrants andGrants andGovernmental Functions/ProgramsExpensesServicesContributionsContributionsActivities Governmental Activities: General government6,145,143$ 1,108,424$ 6,453$ -$ (5,030,266)$ Public safety 14,124,798 2,324,397 29,980 - (11,770,421) Parks and public works7,827,332 1,215,382 993,827 641,811 (4,976,312) Community development3,434,551 3,448,433 - - 13,882 Redevelopment919,821 - - - (919,821) Library services1,938,577 37,662 109 - (1,900,806) Community services- 23,000 - - 23,000 Sanitation158,205 135,000 - - (23,205) Interest and fees1,123,842 - - - (1,123,842) Total Governmental Activities35,672,269$ 8,292,298$ 1,030,369$ 641,811$ (25,707,791) General revenues and special items: Taxes: Property taxes14,088,866 Sales taxes9,889,100 Franchise taxes1,931,027 Other taxes1,767,726 Motor vehicle in lieu15,238 Investment earnings331,420 Miscellaneous2,275,160 Special items: Extraordinary gain (loss) on dissolution of Redevelopment Agency 11,864,453 Total general revenues and special items42,162,990 Change in Net Assets16,455,199 Net Assets - Beginning116,237,698 Net Assets - Ending132,692,897$ Program Revenues TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012 FUND FINANCIAL STATEMENTS & MAJOR GOVERNMENTAL FUNDS 16 Fund Financial Statements: The Fund Financial Statements only present major funds individually while nonmajor funds are combined in a single column. Major funds are generally defined as having significant activities or balances in the current year. No distinction is made between fund types and the practice of combining like funds and presenting their totals in separate columns has been discontinued along with the use of the General Fixed Assets and General Long-Term Debt Account Groups. Major Governmental Funds: The Town determined that the following funds were major funds for the year ended June 30, 2012. Individual non-major funds can be found in the supplemental section. General Fund is the general operating fund of the Town and is used to account for all financial resources except those required to be accounted for in another fund. Appropriated Reserves Fund is used to account for resources provided for capital projects not fully funded from other sources. Certificates of Participation Fund is used to account for the Certificates of Participation issued to finance several capital improvement projects throughout the Town. As a result of the Redevelopment Agency Dissolution, this fund has been closed as of June 30, 2012. Redevelopment Agency Affordable Housing Fund is used for the implementation of the Agency’s required Affordable Housing Set-Aside Program obligations. As a result of the Redevelopment Agency Dissolution, this fund has been closed as of June 30, 2012. TOWN OF LOS GATOS, CALIFORNIA GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2012 The notes to the financial statements are an integral part of this statement 17 Other NonmajorTotal AppropriatedGovernmentalGovernmental GeneralReservesFundsFunds ASSETS Cash & Investments32,327,101$ 10,271,123$ 3,891,537$ 46,489,761$ Restricted Cash & Investments- 1,277,063 37,116 1,314,179 Receivables: Accounts1,105,239 - 202,500 1,307,739 Intergovernmental1,267,848 - 204,009 1,471,857 Due from Other Funds124,142 - - 124,142 Total Assets 34,824,330$ 11,548,186$ 4,335,162$ 50,707,678$ LIABILITIES Accounts Payable388,680$ 1,458,790$ 2,198$ 1,849,668$ Accrued Payroll and Benefits3,436,632 - 1,427 3,438,059 Due to other governments5,270 1,490 - 6,760 Deferred revenue1,734,707 3,421,169 210,115 5,365,991 Deposits3,104,374 - - 3,104,374 Due to Other Funds- - 124,142 124,142 Compensated Absences142,372 - - 142,372 Total Liabilities8,812,035 4,881,449 337,882 14,031,366 FUND BALANCE (Note 8) Restricted for: Capital Outlay- 1,277,063 3,760,256 5,037,319 Repairs and Maintenance- - 129,917 129,917 Assigned to: Vasona Land Sale1,645,329 - - 1,645,329 Open Space562,000 - - 562,000 Post Retirement Medical400,000 - - 400,000 Parking - 1,460,210 - 1,460,210 Sustainability140,553 - - 140,553 Productivity Enhancements100,000 - - 100,000 Economic Uncertainty4,178,192 - - 4,178,192 Capital Projects 7,755,004 3,907,464 - 11,662,468 Comcast PEG- 22,000 - 22,000 Budget Stabilization 6,721,808 - - 6,721,808 Special Studies490,000 - - 490,000 Unassigned4,019,409 - 107,107 4,126,516 Total Fund Balances26,012,295 6,666,737 3,997,280 36,676,312 Total Liabilities and Fund Balance34,824,330$ 11,548,186$ 4,335,162$ 50,707,678$ TOWN OF LOS GATOS, CALIFORNIA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE GOVERNMENT-WIDE STATEMENT OF NET ASSETS – GOVERNMENTAL ACTIVITIES JUNE 30, 2012 The notes to the financial statements are an integral part of this statement 18 Fund Balance - Total Governmental Funds36,676,312$ Amounts reported for Governmental Activities in the Statement of Net Assets are different from those reported in the Governmental Funds because of the following: CAPITAL ASSETS Capital assets used in the Governmental Activities are not financial resources and, therefore, are not reported in the Governmental Funds.89,056,388 ALLOCATION OF INTERNAL SERVICE FUND NET ASSETS Internal service funds are used by management to charge the cost of management of certain activities such as insurance, central services and maintenance to individual governmental funds. The net current assets of the internal service funds are therefore included as Governmental Activities in the Statement of Net Assets. 11,230,804 LONG-TERM LIABILITIES Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the Governmental Funds. Post Retirement Benefits(2,881,907) Compensated absences(2,524,484) (5,406,391) LONG-TERM NOTES RECEIVABLES In governmental funds, notes receivables are not available to pay for current period expenditures and, therefore, are offset by deferred revenue. 1,135,784 Net Assets - Governmental Activities132,692,897$ TOWN OF LOS GATOS, CALIFORNIA GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE FISCAL YEAR ENDED JUNE 30, 2012 The notes to the financial statements are an integral part of this statement 19 Other RedevelopmentNonmajorTotal AppropriatedCertificates of Low & ModerateGovernmentalGovernmental GeneralReservesParticipationHousing FundFundsFunds REVENUES Property Taxes9,864,539$ -$ -$ -$ 37,760$ 9,902,299$ Property Tax Increments- - 4,510,833 - - 4,510,833 Less: Election Amount- - (324,266) - - (324,266) Sales Taxes 9,889,100 - - - - 9,889,100 Other Taxes3,136,686 277,780 - - 284,287 3,698,753 Licenses & Permits3,242,348 - - - - 3,242,348 Intergovernmental798,258 - - - 871,471 1,669,729 Charges for Services3,879,826 1,535,845 - - 135,000 5,550,671 Fines and Forfeitures809,461 - - - 329 809,790 Interest259,146 - (22,715) 2,166 52,887 291,484 Use of Property38,974 - - - - 38,974 Other 2,310,981 1,183 1,989,852 1,100,000 10,312 5,412,328 Total Revenues34,229,319 1,814,808 6,153,704 1,102,166 1,392,046 44,692,043 EXPENDITURES Current: General Government8,046,701 - - - 93 8,046,794 Public Safety13,392,953 - - - - 13,392,953 Parks and Public Works5,424,955 - - - 16,005 5,440,960 Community Development3,226,195 - - - - 3,226,195 Library Services1,805,479 - - - - 1,805,479 Sanitation and Other- - - - 116,607 116,607 Redevelopment- - 1,995,431 741,298 545,426 3,282,155 Capital Outlay- 10,274,345 - - 655,146 10,929,491 Debt service: Principal- - 934,167 - - 934,167 Interest & Fees- - 1,143,185 - - 1,143,185 Total Expenditures31,896,283 10,274,345 4,072,783 741,298 1,333,277 48,317,986 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES2,333,036 (8,459,537) 2,080,921 360,868 58,769 (3,625,943) OTHER FINANCING SOURCES (USES) Transfers in (Note 4)231,723 1,923,428 - 837,313 742,976 3,735,440 Transfers (out) (Note 4)(1,849,882) (213,779) (1,487,313) - (110,920) (3,661,894) Total Other Financing Sources (Uses)(1,618,159) 1,709,649 (1,487,313) 837,313 632,056 73,546 Extraordinary Gain (Loss) - RDA Dissolution(442,919) - (2,047,919) (1,198,181) (1,349,601) (5,038,620) NET CHANGES IN FUND BALANCES271,958 (6,749,888) (1,454,311) - (658,776) (8,591,017) BEGINNING FUND BALANCES25,740,337 13,416,625 1,454,311 - 4,656,056 45,267,329 ENDING FUND BALANCES26,012,295$ 6,666,737$ -$ -$ 3,997,280$ 36,676,312$ TOWN OF LOS GATOS, CALIFORNIA RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE GOVERNMENT-WIDE STATEMENT OF ACTIVITIES – GOVERNMENTAL ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2012 The notes to the financial statements are an integral part of this statement 20 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS(8,731,092)$ Amounts reported for Governmental Activities in the Statement of Activities are different because of the following: EXTRAORDINARY GAIN (LOSS) FROM DISSOLUTION OF REDEVELOPMENT AGENCY The extraordinary gain (loss) reported in the governmental funds from the dissolution of the RDA is different from the reported in the government-wide statements as follows: Capital assets reported in the government-wide financial statements - Increase (decrease) to net assets(7,558,545) Loans receivable reported in the government-wide financial statements - Increase (decrease) to net assets(493,777) Long-term liabilities reported in the government-wide financial statements - Increase (decrease) to net assets: Certificates of participation24,523,618 Interest payable431,777 CAPITAL ASSET TRANSACTIONS Governmental funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is capitalized and allocated over their estimated useful lives and reported as depreciation expense. Expenditures for capital assets (additions)11,266,014$ Current Year Depreciation(3,083,124) 8,182,890 LONG-TERM DEBT PROCEEDS AND PAYMENTS Repayment of debt principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Assets. Certificates of participation934,167 Premiums from the issuance of long-term debt are amortized as interest income in the statement of activities over the life of the debt, but recorded as revenue at the time of issuance in the governmental funds statement of revenues, expenditures and changes in fund balances.37,655 ACCRUAL OF NON-CURRENT ITEMS The amount below included in the Statement of Activities does not require the use of current financial resources and therefore is not reported in the governmental funds: Interest payable19,343 Compensated absences(81,386) Post retirement benefits(330,044) ALLOCATION ON INTERNAL SERVICE FUND ACTIVITY Internal service funds are used by management to charge the costs of certain activities to individual funds. The net revenue of the internal service fund is reported with governmental activities.(621,763) LONG TERM NOTES RECEIVABLES AND ASSOCIATED DEFERRED REVENUE Interest income from long term notes receivables is recorded on the Statement of Activities but is considered a resource not available for governmental funds2,281 CHANGE IN NET ASSETS - GOVERNMENTAL ACTIVITIES16,315,124$ TOWN OF LOS GATOS, CALIFORNIA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL (GAAP) FOR THE FISCAL YEAR ENDED JUNE 30, 2012 The notes to the financial statements are an integral part of this statement 21 Variance With Final Budget OriginalFinal Positive BudgetBudgetActual(Negative) REVENUES Property Taxes9,799,400$ 9,689,400$ 9,864,539$ 175,139$ Sales Taxes 9,400,000 8,600,000 9,889,100 1,289,100 Other Taxes2,653,850 2,924,610 3,136,686 212,076 Licenses & Permits2,842,050 2,842,050 3,242,348 400,298 Intergovernmental739,893 961,950 798,258 (163,692) Charges for Services3,641,736 3,704,236 3,879,826 175,590 Fines and Forfeitures671,596 671,596 809,461 137,865 Interest717,981 603,981 259,146 (344,835) Use of Property37,223 37,223 38,974 1,751 Other 2,504,234 2,507,079 2,310,981 (196,098) Total Revenues33,007,963 32,542,125 34,229,319 1,687,194 EXPENDITURES Current: General Government: Town Council207,655 207,655 188,334 19,321 Town Attorney223,864 223,864 215,794 8,070 Administrative Services2,827,498 2,847,550 2,641,570 205,980 Non-Departmental5,537,931 5,474,781 5,001,003 473,778 Total General Government8,796,948 8,753,850 8,046,701 707,149 Public Safety13,435,045 13,631,820 13,392,953 238,867 Community Development3,173,694 3,173,694 3,226,195 (52,501) Parks & Public Works5,662,894 5,662,894 5,424,955 237,939 Library Services1,903,357 1,908,357 1,805,479 102,878 Total Expenditures32,971,938 33,130,615 31,896,283 1,234,332 EXCESS (DEFICIT) OF REVENUES OVER EXPENDITURES36,025 (588,490) 2,333,036 2,921,526 OTHER FINANCING SOURCES (USES) Operating Transfers In416,920 416,920 231,723 (185,197) Operating Transfers Out(3,350,000) (3,350,000) (1,849,882) 1,500,118 Total Other Financing Sources (Uses)(2,933,080) (2,933,080) (1,618,159) 1,314,921 Extraordinary Gain (Loss) - RDA Dissolution- - (442,919) (442,919) NET CHANGES IN FUND BALANCES(2,897,055)$ (3,521,570)$ 271,958 3,793,528$ BEGINNING FUND BALANCE25,740,337 ENDING FUND BALANCE 26,012,295$ TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012 PROPRIETARY FUNDS - INTERNAL SERVICE FUNDS 22 Internal service funds account for Town operations financed and operated in a manner similar to a private business enterprise. The intent of the Town is that the cost of providing goods and services to other Town funds be financed through user charges to those funds. TOWN OF LOS GATOS, CALIFORNIA PROPRIETARY FUNDS - STATEMENT OF NET ASSETS JUNE 30, 2012 The notes to the financial statements are an integral part of this statement 23 Governmental Activities Internal Service Funds ASSETS Current Assets: Cash & investments (Note 2)12,463,813$ Accounts Receivable12,425 Materials, supplies, and deposits40,631 Total current assets12,516,869 Noncurrent Assets: Capital assets, net of accumulated depreciation (Note 5)20,683 Total noncurrent assets20,683 Total Assets12,537,552$ LIABILITIES Current Liabilities: Accounts payable149,939$ Accrued payroll and benefits19,059 Due to other governments26 Total current liabilities169,024 Noncurrent liabilities: Claims payable (Note 11)1,117,041 Total noncurrent liabilities1,117,041 Total Liabilities1,286,065$ NET ASSETS (Note 1) Invested in capital assets, net of related debt20,683$ Unrestricted11,230,804 Total Net Assets11,251,487$ TOWN OF LOS GATOS, CALIFORNIA PROPRIETARY FUNDS - STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 The notes to the financial statements are an integral part of this statement 24 Governmental Activities Internal Service Funds OPERATING REVENUES Charges for services4,062,521$ Interest30 Use of money and property135,314 Other447,347 Total Operating Revenues4,645,212 OPERATING EXPENSES Salaries and related expenses1,075,759 Insurance expenses1,078,288 Depreciation9,542 Services and Supplies3,029,840 Total Operating Expenses5,193,429 Operating Income(548,217) Transfers in (Note 4)- Transfers out (Note 4)(73,546) Net transfers(73,546) Change in Net Assets(621,763) BEGINNING NET ASSETS11,873,250 ENDING NET ASSETS 11,251,487$ TOWN OF LOS GATOS, CALIFORNIA PROPRIETARY FUNDS - STATEMENT OF CASH FLOWS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 The notes to the financial statements are an integral part of this statement 25 Governmental Activities Internal Service Funds CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers4,634,501$ Payments to suppliers(2,086,607) Payments to employees(1,089,249) Claims paid(1,564,032) Net cash provided (used) by operating activities(105,387) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers In- Transfers Out(73,546) Net cash provided (used) by noncapital financing activities(73,546) Net Increase(Decrease) in Cash and Investments(178,933) Cash and investments - beginning of year12,642,746 Cash and investments - end of year12,463,813$ Reconciliation of Operating Income to Cash Flows from Operating Activities: Operating Income(548,217)$ Adjustments to reconcile operating income to cash flows from operating activities: Depreciation9,542 Change in assets and liabilities: Receivables, net(10,711) Other assets1,876 Accounts payable and other accrued expenses(131,594) Other accrued expenses573,717 Cash Flows From Operating Activities(105,387)$ TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012 FIDUCIARY FUNDS 26 Trust funds are used to account for assets held by the Town as a trustee agent for individuals, private organizations and other governments. The financial activities of these funds are excluded from the government-wide financial statements, but are presented in separate Fiduciary Fund financial statements. Library Private Purpose Trust Fund was established to provide for the servicing of donations and bequests to the Town's Library Program. RDA Successor Agency Private Purpose Trust Fund was established to account for the assets and liabilities transferred from the dissolution of the Town’s former Redevelopment Agency and the continuing operations related to existing Redevelopment Agency obligations. Agency funds are used to account for assets held by the Town as an agent for individuals, private organizations and other governments. The financial activities of these funds are excluded from the government-wide financial statements, but are presented in separate Fiduciary Fund financial statements. Agency funds have no measurement focus. Parking Improvement District Agency Fund was established to account for non-obligation bond debt service payments and assessments. The notes to the financial statements are an integral part of this statement 27 AGENCY FUND Total RDAPrivateParking SuccessorPurpose TrustImprovement LibraryAgencyFundsDistrict #88 ASSETS Cash and investments (Note 2)874,259$ 15,525,289$ 16,399,548$ 26,730$ Restricted cash and investments (Note 2)- 1,186,876 1,186,876 284,992 Accounts receivable- 31,169 31,169 - Intergovernmental receivable- - - 92,346 Loans receivable (Note 3)- 493,777 493,777 - Capital assets (Note 5): Nondepreciable- 5,321,307 5,321,307 - Depreciable, net of accumulated depreciation- 2,237,238 2,237,238 - Total Assets874,259 24,795,656 25,669,915 404,068$ LIABILITIES Accounts payable15,000 99,000 114,000 -$ Due to other governments (Note 13)30 13,246,779 13,246,809 404,068 Interest payable- 431,777 431,777 - Long-term debt (Note 6): Due within one year- 925,000 925,000 - Due in more than one year- 23,497,785 23,497,785 - Total Liabilities15,030 38,200,341 38,215,371 404,068$ NET ASSETS Held in trust859,229 (13,404,685) (12,545,456) Total Net Assets859,229$ (13,404,685)$ (12,545,456)$ TOWN OF LOS GATOS FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2012 PRIVATE PURPOSE TRUST FUNDS The notes to the financial statements are an integral part of this statement 28 RDA Successor LibraryAgencyTotal ADDITIONS Property taxes-$ -$ -$ Investment earnings9,686 (6,641) 3,045 Gifts, bequests and endowments26,065 - 26,065 Repayment of Town obligations- 11,820,314 11,820,314 Other1,177 105,000 106,177 Total Additions36,928 11,918,673 11,955,601 DEDUCTIONS Program expenses of former RDA- 207,960 207,960 Payments to other governments- 13,246,779 13,246,779 Interest and fiscal agency expenses of RDA- 4,166 4,166 Library services184,444 - 184,444 Total Deductions184,444 13,458,905 13,643,349 Extraordinary Gain (Loss) - RDA Dissolution- (11,864,453) (11,864,453) CHANGE IN NET ASSETS(147,516) (13,404,685) (13,552,201) NET ASSETS - BEGINNING OF YEAR1,006,745 - 1,006,745 NET ASSETS - END OF YEAR 859,229$ (13,404,685)$ (12,545,456)$ TOWN OF LOS GATOS PRIVATE PURPOSE TRUST FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 PRIVATE PURPOSE TRUST FUNDS Notes to Basic Financial Statements TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 29 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Description of the Financial Reporting Entity The Town of Los Gatos (the “Town”) operates under a Council-Manager form of government and provides the following services; public safety (including police, emergency management and fire services), parks and public works, community development, community services, library, sanitation, public improvements, planning and zoning, general administration services, and redevelopment. Redevelopment services were provided primary through the Redevelopment Agency of the Town which has been dissolved as of February 1, 2012. Please see Note 12 for additional information. The Town is largely a residential community located in the foothills of the Santa Cruz Mountains and was incorporated as a municipal corporation in 1887. The Town’s population as of January 1, 2012 was 29,854. As required by generally accepted accounting principles, these financial statements present the Town as the Primary Government, with its component unit for which the Town is considered financially accountable. The component unit discussed below is included in the Town's reporting entity because of the significance of their operational and financial relationships with the Town. B. Description of Blended Component Units The following component unit, although a legally separate entity, is reported as if it was part of the primary government because the Town Council is that component unit's governing body or it provides services entirely to the Town. Under the blended method of inclusion, the component units' balances and transactions are reported in a manner similar to the balances and transactions of the Town itself. The Town of Los Gatos Redevelopment Agency (the “Agency”) was established as a result of the Loma Prieta Earthquake in 1989 and the need to rebuild existing infrastructure. The Redevelopment Agency area encompasses approximately 440 acres in and around Downtown Los Gatos, which includes retail and residential areas, lodging, schools, and main traffic thoroughfares. Projects such as street and utility reconstruction, parking, streetscape and civic improvements were called out in the Plan. Through February 1, 2012, the Agency was governed by the Town Council in a separate capacity from the Town as members of the Redevelopment Agency Board. Effective February 1, 2012, due to AB 1x 26, the dissolution of Redevelopment Agencies throughout CA, the activities of the dissolved Redevelopment Agency were recorded in the Successor Agency fiduciary fund. C. Description of Joint Ventures and Public Entity Risk Pool As described in Note 11, the Town participates in two joint ventures and public entity risk pool activities through formally organized separate legal entities. The financial activities of the ABAG PLAN Corporation (“ABAG”) and the Local Agency Workers’ Compensation Excess Joint Powers Authority (“LAWCX”) are not included in the accompanying basic financial statements as boards separate from and independent of the Town administer them. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 30 D. Basis of Presentation The Town’s Basic Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. The Government Accounting Standards Board (“GASB”) is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the U.S.A. The accompanying financial statements are presented on the basis set forth in Government Accounting Standards Board Statements No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, No. 36, Recipient Reporting for Certain Non-exchange Revenues, an Amendment of GASB Statement No. 33, No. 37, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments; Omnibus, and No. 38, Certain Financial Statement Note Disclosures. These Statements require that the financial statements described below be presented. Government-wide Statements: The Statement of Net Assets and the Statement of Activities display information about the primary government (the Town) and its component units. These statements include the financial activities of the overall Town government, except for fiduciary activities. Eliminations have been made to minimize the double counting of internal activities. These statements present governmental activities of the Town. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the Town’s governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs, (b) grants and contributions that are restricted to meet the operational needs of a particular program and (c) fees, grants and contributions that are restricted to financing the acquisition or construction of capital assets. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the Town's funds, including fiduciary funds and blended component units. Separate statements for each fund category—governmental, proprietary and fiduciary—are presented. The emphasis of fund financial statements is on major individual governmental funds, each of which is displayed in a separate column. All remaining governmental are aggregated and reported as nonmajor funds. Internal service funds of the Town (which provide services primarily to other funds of the Town) are presented, in summary form, as part of the proprietary fund financial statements. Since the principal users of the internal services are the Town’s governmental activities, financial activities of the internal service funds are presented in the governmental activities column when presented at the government-wide level. The costs of these services are allocated to the appropriate function/program in the Statement of Activities. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 31 Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with the principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Non-operating revenues, such as subsidies and investment earnings, result from non-exchange transactions or ancillary activities. E. Major Funds GASB defines major funds and requires that the Town’s major governmental funds be identified and presented separately in the fund financial statements. All other funds, called nonmajor funds, are combined and reported in a single column, regardless of their fund-type. Major funds are defined as funds that have assets, liabilities, revenues or expenditures/expenses equal to ten percent of their fund-type total and five percent of the grand total. The General Fund is always a major fund. The Town may also select other funds it believes should be presented as major funds. The Town reported the following major governmental funds in the accompanying financial statements: General Fund is the general operating fund of the Town and is used to account for all financial resources except those required to be accounted for in another fund. Appropriated Reserves Fund is used to account for resources provided for capital projects not fully funded from other sources. Certificates of Participation Fund is used to account for the Certificates of Participation issued to finance several capital improvement projects throughout the Town. As a result of the Redevelopment Agency Dissolution, this fund has been closed as of June 30, 2012. Redevelopment Agency Affordable Housing Fund is used for the implementation of the Agency’s required Affordable Housing Set-Aside Program obligations. As a result of the Redevelopment Agency Dissolution, this fund has been closed as of June 30, 2012. The Town also reports the following fund types: Internal Service Funds are used to account for services, which are provided to other departments on a cost-reimbursement basis. Those services include workers compensation, self-insurance, stores, vehicle maintenance, building maintenance, management information, and equipment replacement. Fiduciary Funds include Private-Purpose Trust Funds and agency funds used to account for assets held by the Town as an agent for individuals, private organizations, and other governments. The financial activities of this fund are excluded from the government-wide financial statement but are presented in a separate Fiduciary Fund financial statement. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 32 The Town reported the following Fiduciary Funds in the accompanying financial statements: Library Private Purpose Trust Fund provides for the servicing of donations and bequests to the Town's Library Program and includes the following: • History Project Private Purpose Trust Fund was established to provide for the servicing of donations, bequests, grant monies and expenditures to the history project partnership of Los Gatos Public Library and the Museum of Los Gatos. • Clelles Ness Private Purpose Trust Fund was established by Ansten R. Ness, M.D. and the Board of Library Trustees for the Town of Los Gatos, as a memorial to his wife, Clelles Ness. to use the income and principal of the trust estate to provide materials and services not ordinarily available from public funds. • Susan E. (Betty) McClendon Private Purpose Trust Fund is a bequest to the Los Gatos Public Library from the estate of Susan McClendon was established to be used solely for children's services. • Barberra J. Cassin Private Purpose Trust Fund is a bequest to the Town from the estate of Barberra J. Cassin was established to be distributed to the Los Gatos Public Library for the purpose of establishing an endowment fund, which is to be used for the support of science, the arts and humanities projects. RDA Successor Agency Private Purpose Trust Fund accounts for the assets, liabilities and operations transferred from the dissolution of the Town’s Redevelopment Agency, which includes the following: • Certificates of Participation issued to finance several capital improvement projects throughout the Town. • Redevelopment projects and related property tax revenue. • Affordable Housing Set-Aside Program obligations. • Repayment of obligations incurred by the Town’s Redevelopment Agency prior to its dissolution. Parking Improvement District Agency Fund was established to account for non-obligation bond debt service payments and assessments. F. Basis of Accounting The government-wide and fiduciary fund (except for agency funds) financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Agency funds have no measurement focus. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 33 Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The Town considers property tax revenues reported in the governmental funds to be available if the revenues are collected or are reasonably expected to be collected within sixty days after year-end. For revenues other than property taxes, the Town generally applies the sixty-day period rule but would make exceptions considering the measurable and available criteria. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, which is recognized upon becoming due and payable; and except for claims, judgments and compensated absences, which are recognized when estimable and probable. Governmental capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of governmental long-term debt and acquisitions under capital leases are reported as other financing sources. Those revenues susceptible to accrual are property and sales taxes, certain intergovernmental revenues, and interest revenue. Fines, forfeitures, licenses and permits, and charges for services are not susceptible to accrual because they are not measurable until received in cash. Non-exchange transactions, in which the Town gives or receives value without directly, receiving or giving equal value in exchange, include taxes, grants, entitlements, and donations. On the accrual basis, revenue from taxes is recognized in the fiscal year for which the taxes are levied or assessed. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The Town may fund programs with a combination of cost-reimbursement grants, categorical block grants and general revenues. Thus, both restricted and unrestricted net assets may be available to finance program expenditures. The Town’s policy is to first apply restricted grant resources to such programs followed by general revenues as necessary. Certain indirect costs are included in program expenses reported for individual functions and activities. The Town applies all applicable GASB pronouncements for certain accounting and financial reporting guidance including those applicable to accounting and reporting for proprietary operations. In December of 2010, GASB issued GASB No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. This statement incorporates pronouncements issued on or before November 30, 1989 into GASB authoritative literature. This includes pronouncements by the Financial Accounting Standards Board (FASB), Accounting Principles Board Opinions (APB), and the Accounting Research Bulletins of the American Institute of Certified Public Accountants' (AICPA) Committee on Accounting Procedure, unless those pronouncements conflict with or contradict with GASB pronouncements. Cash Equivalents - The Town’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 34 State of California statutes and the Town’s investment policy authorize the Town to invest in obligations of the U.S. Treasury, its agencies and instrumentalities, collateralized, non-negotiable certificates of deposits, commercial paper rated A-1/P-1, medium-term corporate notes rated A or its equivalent or better by Moody’s or Standard & Poor’s, asset backed corporate notes, bankers’ acceptances, mutual funds, and the State Treasurer’s investment pool (Local Agency Investment Fund). The Town does not enter into repurchase or reverse repurchase agreements. Investments for the Town, as well as for its component units, are reported at fair value. The value is determined based upon market closing prices. The fair value of mutual funds is stated at share value. Materials, Supplies and Deposits are held for consumption and are stated at cost using the first-in, first-out method. The costs are recorded as expenditures at the time the item is consumed. Interfund Receivables and Payables - Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as “advances to/advances from other funds”. All other outstanding balances between funds are reported as “due to/from other funds”. Advances between funds and due from/to other funds are offset by a nonspendable fund balance in applicable Town funds to indicate the extent to which they are not available for appropriation and are not expendable available financial resources. Capital Assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Contributed capital assets are valued at their estimated fair market value on the date contributed. Capital assets, including infrastructure, are recorded if acquisition or construction costs exceeds $10,000. As required by GASB, the Town depreciates capital assets with limited useful lives over their estimated useful lives. The purpose of depreciation is to spread the cost of capital assets equitably among all users over the life of these assets. The amount charged to depreciation expense each year represents that year’s pro rata share of the cost of capital assets. The Town depreciates using the straight line method which means the cost of the asset is divided by its expected useful life in years and the result is charged to expense each year until the asset is fully depreciated. The Town has assigned the useful lives listed below to capital assets: Buildings 25-40 years Improvements 25-40 years Machinery and equipment 2-20 years Furniture and fixtures 5-12 years Software 5-7 years Infrastructure 20-40 years TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 35 Major capital outlay for capital assets and improvements are capitalized as projects are constructed. Capital assets may be acquired using federal and state grants, contributions from developers, and contributions or grants from other governments. GASB 34 requires that these contributed assets be accounted for as revenue at the time they are contributed. Deferred Compensation Plan - The Town established a deferred compensation plan created in accordance with California Government Code Section 53212 and Internal Revenue Code Section 457. The plan, available to all Town employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. Deferred compensation plans are not reported as part of the Town’s assets or liabilities, as the deferred compensation plan trustees hold those funds in trust on behalf of employees until the employees are eligible to receive the benefits. Compensated Absences - Accumulated Vacation, Sick Pay and Other Employee Benefits are accrued as earned. Upon termination, employees are paid for all unused vacation at their current hourly rates. Sick leave earned is cashed out based on the following schedule for employees with at least 150 hours accrued and up to a maximum amount as specified under labor contract provisions: For employees under contract 1-59 months 25.0% For employees under contract 60-119 months 37.5% For employees under contract 120 months or more 50.0% The Town’s liability for compensated absences is determined annually. For all governmental funds, amounts expected to be paid out of current financial resources are recorded as liabilities of each fund; the long-term portion is recorded in the Statement of Net Assets. The changes of the compensated absences were as follows: Beginning Balance2,473,963 Additions1,584,561 Payments(1,391,668) Ending Balance2,666,856$ Current Portion1,415,240$ Compensated absences are liquidated by the fund that has recorded the liability. The long-term portion of governmental activities compensated absences is liquidated primarily by the General fund. Only compensated absences related to terminated employees are reported in the fund financial statements. Unearned Revenue and Deferred Revenue - In the government-wide financial statements, unearned revenue is recognized for transactions for which revenue has not yet been earned. Typical transactions for which unearned revenue is recorded are unearned grant revenues and prepayments from customers. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 36 In the fund financial statements, deferred revenue is recorded when transactions have not yet met the revenue recognition criteria based on the modified accrual basis of accounting. The Town records deferred revenue for transactions for which revenues have not been earned, or for which funds are not available to meet current financial obligations. Typical transactions for which deferred revenue is recorded are grants received but not yet earned or available, interest accrued on interfund advances, long-term assessments and long-term loans receivables. Long-Term Liabilities - In the government-wide financial statements and private-purpose trust funds long-term debt and other long-term obligations are reported as liabilities in the applicable statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Net Assets - Net Assets are the excess of all the Town’s assets over all its liabilities, regardless of each fund. Net Assets are divided into three captions under GASB Statement 34. These captions apply only to Net Assets, which is determined only at the Government-wide level, and are described below: Invested in Capital Assets, net of related debt describes the portion of Net Assets which is represented by the current net book value of the Town’s capital assets, less the outstanding balance of any debt issued to finance these assets. Restricted describes the portion of Net Assets which are restricted as to use by the terms and conditions of agreements with outside parties, governmental regulations, laws, or other restrictions which the Town cannot unilaterally alter. These principally include debt service requirements and redevelopment funds restricted to low and moderate income purposes. Unrestricted describes the portion of Net Assets which are not restricted to use. Fund Balances - The Town does not have a policy identifying a minimum unassigned fund balance. Because amounts in the nonspendable, restricted, committed, and assigned categories are subject to varying constraints on their use, the remaining fund balances are otherwise unassigned. In accordance with Government Accounting Standards Board 54, Fund Balance Reporting and Governmental Fund Type Definitions, the Town classifies governmental fund balances as follows: Non-spendable includes fund balance amounts that cannot be spent either because it is not in spendable form or because of legal or contractual constraints. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 37 Restricted includes fund balance amounts that are constrained for specific purposes which are externally imposed by providers, such as creditors or amounts constrained due to constitutional provisions or enabling legislation. Committed includes fund balance amounts that are constrained for specific purposes that are internally imposed by the government through formal action of the highest level of decision making authority and does not lapse at year-end. Committed fund balances are imposed by the Town Council. Assigned includes fund balance amounts that are intended to be used for specific purposes that are neither considered restricted or committed. Fund balance may be assigned by the Town Manager or the Finance Director. Unassigned includes fund balances within the funds which have not been classified within the above mentioned categories. The Town uses restricted/committed amounts to be spent first when both restricted and unrestricted fund balance is available unless there are legal documents/contracts that prohibit doing this, such as a grant agreement requiring dollar for dollar spending. Additionally, the Town would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent asset and liabilities at the dates of the financial statements and the reported amounts of revenues and expenditures/expenses during the reporting periods. Actual results could differ from those estimates. Property Tax Levy, Collection and Maximum Rates - State of California Constitution Article XIII A provides that the combined maximum property tax rate on any given property may not exceed 1% of its assessed value unless an additional amount for general obligation debt has been approved by voters. Assessed value is calculated at 100% of market value as defined by Article XIII A and may be adjusted by no more than 2% per year unless the property is sold, transferred, or substantially improved. The State Legislature has determined the method of distribution of receipts from a 1% tax levy among the counties, cities, school districts and other districts. The County of Santa Clara assesses properties, bills for and collects property taxes on the following schedule: Secured Unsecured Valuation/lien dates January 1 January 1 Levy dates January 1 January 1 Due dates (delinquent as of) 50% on November 1 (December 10) March 1 (August 31) 50% on February 1 (April 10) TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 38 The term "unsecured" refers to taxes on personal property other than land and buildings. These taxes are secured by liens on the property being taxed. Property taxes levied are recorded as revenue and receivables when they are collected during the fiscal year of levy or within 60 days of year-end. Budgets and Budgetary Accounting - The Town follows the procedures below when establishing the budgetary data reflected in the financial statements: 1. The Town Manager submits to the Town Council a proposed operating and capital improvement budget for the fiscal year commencing the following July 1. The budgets include the proposed expenditures and the means of financing them. 2. Public hearings are conducted to obtain taxpayer comments. 3. The budget is legally enacted through adoption of Town resolution by Council. 4. The Town Manager is authorized to implement the programs as approved in the adopted budget. Within a specific fund, the Town Manager may transfer appropriations between categories, departments, projects and programs as needed to implement the adopted budget, whereas the Town Council must authorize budget increases and decreases, and transfers between funds. 5. Budgets are adopted on a basis consistent with generally accepted accounting principles except for proprietary funds which budget for capital outlays but not depreciation. Budgets were adopted for the General Fund, Special Revenue Funds, Internal Service Funds and Capital Projects Funds. 6. Budgeted amounts are as originally adopted or as amended by Town Council. Individual amendments were not material in relation to original appropriations. Excess of Expenditures over Appropriations - Expenditures exceeded budget by $388,207 in the Town’s Redevelopment Agency Housing Set Aside Fund dues unanticipated redevelopment costs associated with the dissolution of the RDA. No other general fund or special revenue funds have expenditures in excess of budget for the year ended June 30, 2012. Encumbrances - Under encumbrance accounting, purchase orders, contract and other commitments for expenditures are recorded in order to reserve that portion of the applicable appropriation. Encumbrance accounting is employed as an extension of formal budgetary integration in all funds. Encumbrances outstanding at year-end are reported as reservations of fund balances since they do not constitute expenditures or liabilities; unexpended and unencumbered appropriations lapse at year end in all funds. Encumbered appropriations are carried forward to the following year. Reclassifications - Certain accounts in the prior-year financial statements have been reclassified for the presentation in the current-year financial statements. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 39 G. Newly Implemented Accounting Pronouncements Summary of Statement No. 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions an amendment of GASB Statement No. 5 (Issued 06/11). The objective of this Statement is to clarify whether an effective hedging relationship continues after the replacement of a swap counterparty or a swap counterparty’s credit support provider. This Statement sets forth criteria that establish when the effective hedging relationship continues and hedge accounting should continue to be applied. The provisions of this Statement were implemented as of June 30, 2012, and did not have a significant impact on the District’s financial statements. H. Upcoming Accounting and Reporting Changes Summary of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements (Issued 12/10). The objective of this Statement is to incorporate into the GASB’s authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncements issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncements: 1. Financial Accounting Standards Board (FASB) Statements and Interpretations 2. Accounting Principles Board Opinions 3. Accounting Research Bulletins of the American Institute of Certified Public Accountants’ (AICPA) Committee on Accounting Procedure. This Statement also supersedes Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, thereby eliminating the election provided in paragraph 7 of that Statement for enterprise funds and business-type activities to apply post-November 30, 1989 FASB Statements and Interpretations that do not conflict with or contradict GASB pronouncements. The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2011. The implementation of this standard will not have a significant impact on the District’s financial statements. Summary of Statement No. 63 Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position (Issued 06/11). This Statement provides financial reporting guidance for deferred outflows of resources and deferred inflows of resources. Concepts Statement No. 4, Elements of Financial Statements, introduced and defined those elements as a consumption of net assets by the government that is applicable to a future reporting period, and an acquisition of net assets by the government that is applicable to a future reporting period, respectively. Previous financial reporting standards do not include guidance for reporting those financial statement elements, which are distinct from assets and liabilities. Concepts Statement 4 also identifies net position as the residual of all other elements presented in a statement of financial position. This Statement amends the net asset reporting requirements in Statement No. 34, Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 40 Governments, and other pronouncements by incorporating deferred outflows of resources and deferred inflows of resources into the definitions of the required components of the residual measure and by renaming that measure as net position, rather than net assets. The provisions of this Statement are effective for financial statements for periods beginning after December 15, 2011. The implementation of this standard will not have a significant impact on the District’s financial statements. Summary of Statement No. 65 Items Previously Reported as Assets and Liabilities (Issued 03/12). This Statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. This Statement amends the financial statement element classification of certain items previously reported as assets and liabilities to be consistent with the definitions in Concepts Statement 4. The provisions of this Statement are effective for financial statements for periods beginning after December 15, 2012. Earlier application is encouraged. The implementation of this standard will not have a significant impact on the District’s financial statements. Summary of Statement No. 67 Financial Reporting for Pension Plans - an amendment of GASB Statement No. 25 (Issued 06/12). This Statement replaces the requirements of Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 50, Pension Disclosures, as they relate to pension plans that are administered through trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. This Statement establishes a definition of a pension plan that reflects the primary activities associated with the pension arrangement-determining pensions, accumulating and managing assets dedicated for pensions, and paying benefits to plan members as they come due. This Statement also details the note disclosure requirements for defined contribution pension plans administered through trusts that meet the identified criteria. This Statement is effective for financial statements for fiscal years beginning after June 15, 2013. Earlier application is encouraged. The determination of the impact on the District’s financial statements from the implementation of this standard is pending as of the issuance date of this report. Summary of Statement No. 68 Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27 (Issued 06/12). The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. This Statement establishes a definition of a pension plan that reflects the primary activities associated with the pension arrangement-determining pensions, accumulating and managing assets dedicated for pensions, and paying benefits to plan members as they come due. This Statement is effective for fiscal years beginning after June 15, 2014. Earlier application is encouraged. The determination of the impact on the District’s financial TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 41 statements from the implementation of this standard is pending as of the issuance date of this report. NOTE 2 - CASH AND INVESTMENTS The Town pools cash from all sources and all funds except Restricted Cash and Investments so that it can be invested at the maximum yield, consistent with safety and liquidity, while existing funds have cash available for expenditures. Cash and Investments Defined - The Town includes only cash deposits in banks as cash. Investments in LAIF and government securities mutual funds are net in the order of liquidity, since they may be withdrawn without penalty. U.S. Treasuries, U.S. Agencies and Certificates of Deposit are the Town’s least liquid investments, since they must be held to maturity. Cash Deposits with Banks and Custodial Credit Risk - California Law requires banks and savings and loan institutions to pledge government securities with a market value of 110% of the Town’s cash on deposit or first trust deed mortgage notes with a value of 150% of the deposit as collateral for these deposits. Under California Law this collateral is held in the Town’s name and places the Town ahead of general creditors of the institution. The Town has waived collateral requirements for the portion of deposits covered by Federal Depository Insurance Corporation (FDIC). The bank balance of the Town’s cash deposits was $14,563,155 as of June 30, 2012. The bank balance and the carrying amount differed due to deposits in transit and outstanding checks. The FDIC insured the bank balances up to $250,000 for each bank, except for non-interest bearing transaction accounts at institutions participating in FDIC’s Temporary Liquidity Guarantee Program, which are provided with unlimited deposit insurance coverage. As of June 30, 2012, the Town’s cash balances were fully insured by FDIC or were collateralized as discussed above. Investments - The Town and its fiscal agent invest in individual investments and in investment pools. Individual investments are evidenced by specific identifiable pieces of paper called “securities instruments,” or by an electronic entry registering the owner in the records of the institution issuing the security, called the book entry system. In order to maximize security, the Town employs the Trust department of a bank as the custodian of all its investments, regardless of their form. The Town invests in the California State Treasurer’s Local Agency Investment Fund (LAIF). LAIF, established in 1977, is regulated by California Government Code Section 16429 and under the day to day administration of the State Treasurer. As of June 30, 2012, LAIF had approximately $63 billion in investments. LAIF determines fair value on its investment portfolio based on market quotations for those securities where market quotations are readily available, and on amortized cost of best estimate for those securities where market value is not readily available. The Town’s investments with LAIF at June 30, 2012 included a portion of the pooled funds invested in structured notes and asset-backed securities. These investments are described as follows: TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 42 1. Structured Notes are debt securities (other than asset-backed securities) whose cash flow characteristics (coupon rate, redemption amount, or stated maturity) depend upon one or more indices and / or that have embedded forwards or options. 2. Asset-Backed Securities, the bulk of which are mortgage-backed securities, entitle their purchasers to receive a share of the cash flows from a pool of assets such as principal and interest repayments from a pool of mortgages (such as Collateralized Mortgage Obligations) or credit card receivables. As of June 30, 2012, the Town had $14,108,187 invested in LAIF, which had invested 4.73% of the pool investments funds in Structured Notes and Asset-Backed Securities. The Town valued its investments with LAIF by multiplying its account balance with a fair value factor determined by LAIF. This factor was 1.012 and was the result of dividing all LAIF participants’ total aggregate fair value by total aggregate amortized cost. Risk Disclosures - 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 the changes in market interest rates. One of the ways that the Town manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the Town's investments to market interest rate fluctuations is provided in the summary of cash and investments table on page 43 that shows the distribution of the Town's investments by maturity. Credit Risk is the risk of loss due to the failure of the security issuer. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The summary of cash and investments table on page 43 shows the minimum rating under the actual rating of the Town’s investments at year end. Custodial Credit Risk 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 its investment or collateral securities that are in the possession of another party. The Town’s investment in money market fund and LAIF is not categorized as to custodial credit risk. Its U.S. Government Agency Securities investment is held by a third party financial institution under the third party’s trust department’s name and thus not exposed to custodial credit risk. Concentration of Credit Risk is the risk that the Town’s investments are exposed because the types of investments have been too limited. The Town’s Policy states that, with the exception of US Treasury securities and LAIF, no more then 50% of the Town’s total investment portfolio will be invested in one single security type or with a single financial institution. The Town was in compliance with this policy as of June 30, 2012. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 43 The following table summarizes the Towns policy related to maturities and concentration of investments: Maximum Maximum Portfolio Investment Type Maturity Percentage US Treasury Obligations 5 years None US Agency Obligations 5 years None Bankers Acceptances 180 days 15% Commercial Paper 180 days 15% Medium Term Notes 3/5 years 15% Collateralized CD's 5 years 15% CA LAIF NA 65% Money Market Funds NA 15% Marking Investments to Fair Value - The Town adopted Governmental Accounting Standards Board (GASB) Statement 31, which requires that the Town's investments be carried at fair value instead of cost. Under GASB 31, the Town must adjust the carrying value of its investments to reflect their fair value at each fiscal year end, and it must include the effects of these adjustments in income for that fiscal year. The following is a summary of the Town’s Cash and Investments (stated at fair value) as of June 30, 2012: AvailableConcentrationTime toWeighted forInvestmentof CreditMatureAverage OperationsRestrictedTotalRatingRisk(Years)Maturity U.S. Government Agency securities: Union Bank(1)46,731,039$ -$ 46,731,039$ Aaa/AAA77%2.07 1.59 Government Securities Money Market Mutual Funds17,330 - 17,330 Not Rated0% LAIF14,108,187 - 14,108,187 Not Rated23%0.73 0.17 Total Investments60,856,556 - 60,856,556 100% Cash Deposits with Banks14,519,196 - 14,519,196 Certificates of Deposit- 2,786,047 2,786,047 Cash on hand at Town4,100 - 4,100 Total Cash and Investments75,379,852$ 2,786,047$ 78,165,899$ (1) Limited to US Agency Obligations with liquid markets and readily determinable fair market values, including FHLB, FNMA, Freddie Mac, FFCB, the Federal Land Bank, and the TVA. Investment Type/Cash Deposit TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 44 Cash and investments are classified in the financial statements as shown below, based on whether or not their use is restricted by Town debt or Agency agreements. Fiduciary Total TownFundsTotals Cash and investments available for operations58,953,574$ 16,426,27875,379,852$ Restricted cash and investments1,314,179 1,471,868 2,786,047 Total cash and investments60,267,753$ 17,898,146$ 78,165,899$ NOTE 3 - LONG-TERM NOTES RECEIVABLE The Town had the following long-term notes receivable as of June 30, 2012: Interest RateMaturity Balance General Fund: Open Doors Associates, Ltd.7%2024718,659$ BMP Loans3%Various39,130 Total General Fund757,789 Active Home LoansVariousVarious184,614 Open Doors Associates, Ltd.7%202494,721 Housing Conservation Loans0-5%Various98,660 Total CDBG377,995 Total Long-Term Notes Receivable - Government-wide Statement of Net Assets1,135,784 Project MatchVariousVarious493,777 Total Long-Term Notes Receivable1,629,561$ Community Development Block Grant Fund (CDBG): Description Successor Agency Affordable Housing (RDA Housing): Open Doors Associates Ltd. And Mid-Peninsula Housing Coalition - The Town has cooperation agreements with these two developers and several other governmental agencies (the “Developers”). Under these agreements, the Developers constructed a 64-unit low and moderate-income housing project. To assist in financing this project, the Town advanced funds to these developers under notes, which are secured by deeds of trust subordinated by construction loans, permanent financing and other loans on the project up to a maximum of $6.5 million. Under a note dated April 21, 1992, the Town agreed to loan a maximum amount of $339,250 to Open Doors Associates, Ltd. to cover the cost of traffic impact fees, planning fees and building permit taxes. As of June 30, 2012, $718,659 of such costs, including accrued interest, had been incurred by Open Doors Associates, Ltd. in connection with the project and advances by the Town under this note. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 45 Active Home Loans and Housing Conservation Loans - The Town uses CDBG Fund (funded through federal grants) to assist low and moderate income homeowners to improve their homes and to fund low income housing rental properties acquisition and rehabilitation. These loans are secured by deeds of trust. Project Match - The Redevelopment Agency entered into a loan agreement with Project Match, a nonprofit benefit corporation to acquire and rehabilitate four or five bedroom single family homes. The property is to provide affordable housing rental to very low income senior households. The loan receivable is evidenced by a promissory note and secured by a deed of trust. Since inception of the loan till June 30, 2012, no interest or principal payment has been made. This loan was transferred to the Successor Agency as of February 1, 2012. NOTE 4 - INTERFUND TRANSACTIONS Inter-fund Receivables and Payables - Amounts due to or due from other funds reflect inter-fund balances for services rendered or short-term loans expected to be repaid in the next fiscal year. Advances to or from other funds are long-term loans between funds that are to be repaid in their entirety over several years. As of June 30, 2012, inter-fund receivables and payables consisted of the following: Due toDue From OtherOther FundsFunds General Fund-$ 124,142$ Non-Point Source Maintenance Fund124,142 - Totals124,142$ 124,142$ Transfers - With Council approval resources may be transferred from one fund to another. Transfers routinely reimburse funds that have made an expenditure on behalf of another fund. Transfers may also be made to pay for capital projects or capital outlays, lease or debt service payments, operating expenses and low and moderate-income housing projects. Transfers between funds during the fiscal year ended June 30, 2012 were as follows: Low and General Appropriated ModerateNonmajor Total Funds Making TransfersFundReserveHousingGovernmentalTransfers Out General Fund-$ 1,849,882$ -$ -$ 1,849,882$ Appropriated Reserve120,803 - - 92,976 213,779 Certificates of Participation- - 837,313 650,000 1,487,313 Internal Service Funds- 73,546 - - 73,546 Nonmajor Governmental110,920 - - - 110,920 Total Transfers In231,723$ 1,923,428$ 837,313$ 742,976$ 3,735,440$ Fund Receiving Transfers TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 46 NOTE 5 - CAPITAL ASSETS Changes in the Town’s capital assets during the fiscal year are shown as follows: Balance at June 30, 2011 Transfers to RDA Successor Agency Adjustments and Additions Retirements Balance at June 30, 2012 Capital Assets not being depreciated: Land25,650,991$ (5,321,307)$ -$ -$ 20,329,684$ Construction in Progress4,276,988 - 2,305,044 3,221,515 3,360,517 Total capital assets not being depreciated29,927,979 (5,321,307) 2,305,044 3,221,515 23,690,201 Capital Assets being depreciated: Buildings and Improvements25,549,604 (4,067,708) 6,040,553 - 27,522,449 Equipment & Vehicle9,153,629 - 535,335 - 9,688,964 Infrastructure - All Other10,408,373 - 4,100,535 - 14,508,908 Infrastructure - Streets46,978,091 - 1,506,062 - 48,484,153 Total capital assets being depreciated92,089,697 (4,067,708) 12,182,485 - 100,204,474 Less accumulated depreciation for: Buildings and Improvements5,045,723 (1,830,470) 594,167 - 3,809,420 Equipment and Improvements6,439,666 - 759,915 - 7,199,581 Infrastructure - All Other1,311,870 - 307,127 - 1,618,997 Infrastructure - Streets20,788,374 - 1,421,915 - 22,210,289 Total acccumulated depreciation33,585,633 (1,830,470) 3,083,124 - 34,838,287 Net capital assets being depreciated58,504,064 (2,237,238) 9,099,361 - 65,366,187 Governmental activity capital assets, net88,432,043$ (7,558,545)$ 11,404,405$ 3,221,515$ 89,056,388$ Depreciation expense is charged to functions and programs based on their usage of the related assets. The amount allocated to each function or program is as follows: Depreciation Expense General Government249,362$ Public Safety328,771 Parks & Public Works2,163,007 Community Development110,346 Library77,777 Sanitation37,082 Redevelopment116,779 Total Governmental Activities3,083,124$ Governmental Activities TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 47 Changes in the RDA Successor Agency trust fund capital assets during the fiscal year are shown as follows: Balance at June 30, 2011 Transfers from Town RDA Adjustments and Additions Retirements Balance at June 30, 2012 Capital Assets not being depreciated: Land-$ 5,321,307$ -$ -$ 5,321,307$ Total capital assets not being depreciated- 5,321,307 - - 5,321,307 Capital Assets being depreciated: Buildings and Improvements- 4,067,708 - - 4,067,708 Total capital assets being depreciated- 4,067,708 - - 4,067,708 Less accumulated depreciation for: Buildings and Improvements- 1,830,470 - - 1,830,470 Total acccumulated depreciation- 1,830,470 - - 1,830,470 Net capital assets being depreciated- 2,237,238 - - 2,237,238 Governmental activity capital assets, net-$ 7,558,545$ -$ -$ 7,558,545$ NOTE 6 - LONG-TERM OBLIGATIONS The Town generally incurs long-term debt to finance projects or purchase assets, which will have useful lives equal to or greater than the related debt. The Town’s bonded debt issues and transactions are summarized below in the schedule of changes in long-term debt and discussed in detail thereafter. Transfers toDueDue in InterestMaturityOriginalBeginningSuccessorEndingWithin OneMore Than Long-Term DebtRateDateIssueBalanceAgencyDeletionsBalanceYearOne Year 1992 COP5-9%20122,960,000$ 240,000$ 100,833$ 139,167$ -$ -$ -$ 2002 COP2.5-5%203110,725,000 8,865,000 8,600,000 265,000 - - - 2010 COP2.5-4.25%202815,675,000 15,675,000 15,145,000 530,000 - - - Subtotal COP's29,360,000 24,780,000 23,845,833 934,167 - - - Premiums 753,095 715,440 677,785 37,655 - - - Total Long-Term Debt30,113,095$ 25,495,440$ 24,523,618$ 971,822$ -$ -$ -$ As of February 1, 2012, the management transferred long-term debt issued by the Town’s Redevelopment Agency to the Successor Agency trust as a part of the RDA dissolution. The following summarizes the changes in long-term debt in the Successor Agency trust fund during the fiscal year ended June 30, 2012: TransfersDueDue in InterestMaturityOriginalBeginningfromEndingWithin OneMore Than Long-Term DebtRateDateIssueBalanceTownDeletionsBalanceYearOne Year 1992 COP5-9%20122,960,000$ -$ 100,833$ 100,833$ -$ -$ -$ 2002 COP2.5-5%203110,725,000 - 8,600,000 - 8,600,000 275,000 8,325,000 2010 COP2.5-4.25%202815,675,000 - 15,145,000 - 15,145,000 650,000 14,495,000 Subtotal COP's29,360,000 - 23,845,833 100,833 23,745,000 925,000 22,820,000 Premiums 753,095 - 677,785 - 677,785 - 677,785 Total Long-Term Debt30,113,095$ -$ 24,523,618$ 100,833$ 24,422,785$ 925,000$ 23,497,785$ TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 48 1992 Certificates of Participation (1992 COPs) - The 1992 COPs have an original principal amount of $2,960,000 (dated August 1, 1992) and were issued to finance certain construction costs of the Town’s Parking Lot 4 Project that was constructed on land located in the Los Gatos Central Redevelopment Project Area. The COPs are similar to bond debt as they allow investors to participate in a share of guaranteed payments. Because they are similar to debt, the present value of the total of the payments to be made is recorded as long-term debt. Principal payments are due annually on August 1st, which interest payments payable semi-annually on February 1st and August 1st. Motor vehicle license fee revenues were pledged as collateral for the repayment of the Certificates. 2002 Certificates of Participation (2002 COPs) - On July 18, 2002, the Town and the Los Gatos Redevelopment Agency issued $10,725,000 in 2002 COPs, Series A, to finance the acquisition, construction, rehabilitation, equipping and improvement of several capital improvement projects. The Town has pledged lease payments of real property and facilities comprised of the Parks and Public Works Service Center and Baseball Field, as well as Parking Lot No. 1, 2, and 3, as collateral for the repayment of the Certificates. Principal payments are due annually on August 1st, with interest payments due semi-annually on February 1st and August 1st. 2010 Certificates of Participation (2010 COPs) - On June 1, 2010, $15,675,000 of 2010 COPs were issued to finance the acquisition, construction, and improvement of a library on the Town’s Civic Center campus, to be owned and operated by the Town. Principal payments are due annually on August 1, with interest payments due semi-annually on February 1 and August 1. To assist the Town in paying the cost of acquisition and construction of various projects, the Town and its Redevelopment Agency entered into lease and reimbursement agreements in 1992, 2002, and 2010. Under the agreements, the Agency will use available net tax increment revenues resulting from the projects’ effect on land values to repay the Town for all lease payments made by the Town to the Agency under the lease agreements for the projects. Net tax increment revenues are all taxes allocated to and paid into the Redevelopment Agency Capital Projects Fund for the Project Area. As of February 1, 2012, tax increment revenues and related obligations from these agreements have been and will be reported in the Successor Agency private-purpose trust fund. See Note 12 for additional disclosure. Future debt service requirements of the 1992, 2002, and 2010 Certificates of Participation (collectively the “COPs”) as of June 30, 2012, were as follows: For the Year Ending June 30,PrincipalInterestTotal 2013925,000$ 1,017,971$ 1,942,971$ 2014955,000 980,578 1,935,578 2015990,000 938,055 1,928,055 20161,025,000 897,398 1,922,398 20171,065,000 858,303 1,923,303 2018-20226,000,000 3,537,179 9,537,179 2023-20277,430,000 2,070,788 9,500,788 2028-20325,355,000 486,475 5,841,475 Total COP Debt Service23,745,000$ 10,786,745$ 34,531,745$ TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 49 The Successor Agency must maintain a required amount of cash and investments with the trustee under the terms of the COPs issues. These funds are pledged as reserves to be used if the Successor Agency fails to meet its obligations under the COPs issue and totaled $940,387 as of June 30, 2012. The California Government Code requires these funds to be invested in accordance with Town ordinance, bond indentures or State statues. All these funds have been invested as permitted under the Code. NOTE 7 - SPECIAL ASSESSMENT DISTRICT DEBT WITHOUT COMMITMENT Special assessment districts are established in various parts of the Town to provide improvements to properties located in those districts. Properties are assessed for the cost of the improvements. These assessments are payable over the term of the debt issued to finance the improvements and are used to pay debt service on debt issued to fund the improvements. The Town is acting only as an agent and has no legal liability with respect to the payment of any indebtedness of the Downtown Parking Assessment District. The principal amount of the non- obligated debt outstanding was $140,000 as of June 30, 2012 and was excluded from the Town’s financial statements. NOTE 8 - FUND BALANCES Fund balance for governmental funds is reported in classifications (nonspendable, restricted, committed, assigned, and unassigned) that comprise a hierarchy based primarily on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. As of June 30, 2012, the Non-point Source Maintenance special revenue fund had a deficit fund balance of $58,464 which was subsidized by the Town’s General Fund. As of June 30, 2012, fund balances were classified as follows: Restricted Capital Outlay funded from storm drain fees, construction taxes and debt proceeds are legally restricted for major capital projects. Repairs and Maintenance reflects legally restricted balances for repairs and maintenance of lighting and landscape property and open space property that are financed with special tax assessments on the benefiting property. Assigned Vasona Land Sale assigned fund balance will be used for acquisition and development of a new Town sports park. Open Space assigned fund balance will be used to make selective open space acquisitions. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 50 Post Retirement Medical assigned fund balance will be used to aid in funding actuarially determined requirements for retiree medical costs. Parking assigned fund balance will be used to mitigate parking issues within the Town. Market Fluctuations assigned fund balance will be used to manage changes in fair values of investments. Sustainability assigned fund balance will be used to fund ongoing sustainability initiatives and programs. Productivity Enhancements assigned fund balance will be used to fund requests that result in streamlining or improving existing service levels. Economic Uncertainty assigned fund balance will be used to fund future fluctuations in the economy that are not currently foreseen. This designation is calculated at 25% of the operating budget. Capital Projects assigned fund balance will be used for the acquisition and construction of capital facilities. Carryover assigned fund balance will be used for encumbered items re-appropriated in the following year. Comcast PEG assigned fund balance will be used to fund capital improvements linked to the televising of council and planning commission meetings. Revenue Stabilization assigned fund balance will be used to mitigate the cyclical changes in locally generated revenues from temporary downturns in the local economy, or "one-time" revenue losses where recovery of the revenue base is deemed likely in the near future. Special Revenue Fund assigned fund balance will be used for the activities of the respective revenue fund. NOTE 9 - EMPLOYEES' RETIREMENT PLAN Plan Description - The Town of Los Gatos contributes to the California Public Employees Retirement System (PERS), a cost-sharing multiple-employer public employee defined benefit pension plan. PERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and Town ordinance. Copies of PERS' annual financial report may be obtained from their Executive Office, 400 P Street, Sacramento, CA 95814. Funding Policy - Participants are required to contribute 7% (9% for safety employees) of their annual covered salary. The Town is required to contribute at an actuarially determined rate. The rates for the fiscal year ended June 30, 2012 was 19.623% of annual covered payroll for non-safety (miscellaneous) TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 51 and 39.313% for safety employees. The contribution requirements of plan members and the Town are established and may be amended by PERS. Annual Pension Cost - For fiscal year ended June 30, 2012, the Town's $3,947,080 annual pension cost for PERS was equal to the Town's required and actual contributions. The required contribution was determined as part of the June 30, 2010, 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 from 3.55% and 14.45% that vary by age, duration of service, and type of employment; (c) 3.0% inflation; (d) 3.25% payroll growth; and (e) individual salary growth based on a merit scale varying by duration of employment coupled with an assumed annual inflation of 3.0% and an annual production growth of 0.25%. The actuarial value of PERS assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a three-year period (smoothed market value) depending on the size of investment gains and/or losses. Initial unfunded liabilities are amortized over a closed period that depends on the plan’s date of entry into PERS. Subsequent plan amendments are amortized as a level percentage of payroll over a closed 20-year period. Gains and losses that occur in the operation of the plan are amortized over a rolling period, which results in an amortization of 6% of unamortized gains and losses each year. If the plan’s accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30 year amortization period. Three Year Trend Information PERS Safety Plan: Fiscal Year Annual Pension Percentage ofNet Pension EndedCost (APC)APC Contributed Obligation 6/30/20101,638,539100% - 6/30/20111,730,796100% - 6/30/20122,094,561100% - Miscellaneous Plan: Fiscal Year Annual Pension Percentage ofNet Pension Ended Cost (APC) APC Contributed Obligation 6/30/20101,402,933100% - 6/30/20111,203,491100% - 6/30/20121,852,519100% - TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 52 Plan Actuarial Value and Funding Progress (Required Supplementary Information) The information presented below relates to the cost-sharing plans as a whole, of which the Town of Los Gatos is one participating employer. Safety Plan: Unfunded Entry AgeActuairalUnfundedAnnual(Overfunded) ValuationAccruedValue of(Overfunded)FundedCoveredLiability as % DateLiabilityAssetsLiabilityRatioPayrollof Payroll 20088,700,467,733$ 7,464,927,716$ 1,235,540,017$ 85.8%914,840,596$ 135.1% 20099,721,675,347$ 8,027,158,724$ 1,694,516,623$ 82.6%973,814,168$ 174.0% 201010,165,475,166$ 8,470,235,152$ 1,695,240,014$ 83.3%955,980,815$ 177.3% Miscellaneous Plan: Unfunded Entry AgeActuairalUnfundedAnnual(Overfunded) ValuationAccruedValue of(Overfunded)FundedCoveredLiability as % DateLiabilityAssetsLiabilityRatioPayrollof Payroll 200859,377,787$ 53,904,084$ 5,473,703$ 90.8%9,643,094$ 56.8% 200966,123,224$ 56,676,749$ 9,446,475$ 85.7%9,101,528$ 103.8% 201070,468,550$ 59,225,131$ 11,243,419$ 84.0%8,888,743$ 126.5% NOTE 10 - OTHER POSTEMPLOYMENT BENEFITS The Town recognizes the cost of postemployment healthcare in the year when employee services are received, reports the accumulated liability from prior years, and provides information useful in assessing potential demands on the Town’s future cash flows based on GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (GASB 45). Because the Town adopted the requirements of GASB 45 prospectively, recognition of the liability accumulated from prior years will be phased in over ten years, commencing with the 2009 liability. Plan Description - The Town provides the contribution to California Employer’s Retiree Benefit Trust (CERBT), an agent multiple-employer defined benefit healthcare plan administered by the PERS. The purpose of the CERBT Fund is to provide California government employers with a trust through which they may prefund retiree medical costs and Other Post Employment Benefits (OPEB). The Town uses CERBT as its investment vehicle and requests disbursements on an as needed basis to reimburse the Town for the cost of retiree health insurance benefits. Benefit provisions and all other requirements are established by state statute and Town ordinance. Copies of PERS' annual financial report may be obtained from their Executive Office, 400 P Street, Sacramento, CA 95814. Funding Policy - The contribution requirements of plan members and the Town are established and may be amended by the Town. The required contribution is based on projected pay-as-you-go financing requirements, with an additional amount to prefund benefits as determined by the Town. For the year ended June 30, 2012, the Town contributed $1,725,956 to the plan, including $635,956 for TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 53 current premiums and an additional $1,090,000 to prefund benefits. All related obligations are paid from the Town’s General Fund. Annual OPEB Cost and Net OPEB Obligation - As of June 30, 2012 and for the year then ended, the Town’s Net OPEB Obligation (NOO) and Annual OPEB Cost were as follows: NOO as of June 30, 20112,551,863$ Annual OPEB Cost Annual Required Contribution2,129,000 Interest on NOO153,000 NOO adjustment(226,000) Net annual OPEB cost2,056,000 Contributions made (includes benefit payments)(1,725,956) NOO as of June 30, 20122,881,907$ Trend Information Actual Annual OPEBEmployerPercentageNet OPEB YearCostContributionContributedObligation 20101,921,000 949,845 49%2,024,863 20111,928,000 1,401,000 73%2,551,863 20122,056,000 1,725,956 84%2,881,907 Funded Status and Funding Progress - As of June 30, 2011, the most recent actuarial valuation date, the plan was 8.8% funded. The actuarial accrued liability (AAL) for benefits was $22,121,000 and the actuarial value of plan assets was approximately $3,272,382, resulting in an unfunded actuarial accrued liability (UAAL) of $18,848,618. The covered payroll (annual payroll of active employees covered by the plan) was $13,915,000 and the ratio of UAAL to the covered payroll was 136%. Actuarial Methods and Assumptions - Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. Actuarially determined amounts are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the June 30, 2011 actuarial valuation, the entry age normal actuarial cost method was used. The actuarial assumptions used in the valuation are as follows: 1. Ultimate investment return of 7.25% (upward trend 0.25%-0.30% per year to 7.25% in FY 17/18) 2. Projected salary increases of 3.25%. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 54 3. The annual healthcare cost trend ultimate rate is 5%. The select rates were 9%-9.4% depending on plans but were reduced to the ultimate rate in 2021. 4. Total inflation is assumed to increase 3% annually. 5. Amortization method: Level percentage of payroll. 6. Amortization period: a. 30-year closed period for initial unfunded actuarial accrued liability (UAAL) (26 years remaining as of June, 30, 2012) b. 20-year closed period for method, assumption, and plan changes c. 15-year closed period for gains and losses; and d. Maximum 30 year combined period 7. Actuarial method for valuing assets: Investment gains and losses spread over a 5-year rolling period, not less than 80% nor more than 120% of market value. Plan Actuarial Value and Funding Progress (Required Supplementary Information) Unfunded Entry AgeActuairalUnfundedAnnual(Overfunded) ValuationAccruedValue of(Overfunded)FundedCoveredLiability as % DateLiabilityAssetsLiabilityRatioPayrollof Payroll 200814,265,000$ -$ 14,265,000$ 0.0%13,372,000$ 106.7% 201017,712,000 425,000 17,287,000 2.4%13,477,000 128.3% 201122,121,000 3,272,382 18,848,618 14.8%13,915,000 135.5% NOTE 11 - RISK MANAGEMENT The Town participates in the following public entity risk pools through formally organized and separate legal entities. The Town does not have an equity interest in the joint ventures. These entities exercise full powers and authorities within the scope of the related agreements including the preparation of annual budgets, accountability for all funds, the power to make and execute contracts and the right to sue and be sued. Obligations and liabilities of the separate entities are not those of the Town, although the Town retains an ongoing financial interest or an ongoing financial responsibility. Association of Bay Area Governments PLAN Corporation (ABAG) - The Town participates in ABAG, which covers general liability claims in the amount up to $5,000,000 plus $15,000,000 in excess liability for total coverage of $20,000,000 per occurrence. The Town has a deductible or uninsured liability of up to $50,000 per claim. ABAG also provides all risk property coverage of $100,000,000, excluding flood and earthquake coverage. The Town has a $5,000 deductible for property damage and a $10,000 deductible for vehicle damage. Once the Town’s deductible is met, ABAG becomes responsible for payment of all claims up to the limit. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 55 Condensed full accrual basis audited financial information of ABAG as of and for the year ended June 30, 2011, as provided by ABAG, P.O. Box 2050, Oakland, CA 94604, is as follows: Total Assets47,150,382$ Total Liabilities20,617,172 Net Assets26,533,210$ Total Operating Revenue8,860,971$ Total Operating Expense14,935,442 Net Operating Income(6,074,471) General Revenue811,754 Change in Net Assets(5,262,717) Beginning Net Assets31,796,107 Ending Net Assets26,533,390$ Local Agency Workers’ Compensation Joint Powers Authority (LAWCX) - The Town is a member of LAWCX for workers compensation claims coverage. The Town has a $250,000 self- insured retention level or uninsured liability for all employees. Once the Town’s deductible is met, LAWCX becomes responsible for claims up to $1,000,000. For claims greater than $1,000,000, LAWCX has a commercial policy providing coverage. Financial statements may be obtained from LAWCX at 6371 Auburn Blvd., Suite B, Citrus Heights, California, 94604-2050. Condensed full accrual basis audited financial information of LAWCX as of and for the year ended June 30, 2011, is as follows: Total Assets62,184,207$ Total Liabilities34,242,051 Net Assets27,942,156$ Total Operating Revenue8,664,105$ Total Operating Expense6,872,538 Net Operating Income1,791,567 General Revenue- Change in Net Assets1,791,567 Beginning Net Assets24,148,497 Ending Net Assets25,940,064$ The Town has not significantly reduced its insurance coverage from the prior year and settlements have not exceeded insurance coverage for the past three years. TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 56 Liability for Uninsured Claims - The Town is required to record its liability for uninsured claims and to reflect the current portion of this liability as an expenditure in its financial statements. As discussed above, the Town has coverage for such claims, but it has retained the risk for the deductibles, or uninsured portion of these claims. The change in Workers’ Compensation and Self Insurance Service Funds’ claims liabilities, is based on historical trend information provided by its third party administrator and was computed as follows as of June 30, 2012: Workers' Self CompensationInsurance InternalInternal Service FundService FundTotal Claims payable balance - June 30, 2010431,879$ 60,160$ 492,039$ Claims incurred 481,829 374,916 856,745 Inc./(Dec.) in estimated liability for prior claims- - - Claims paid(399,585) (406,083) (805,668) Claims payable balance - June 30, 2011514,123 28,993 543,116 Claims incurred 1,023,598 320,219 1,343,817 Inc./(Dec.) in estimated liability for prior claims- - - Claims paid(730,338) (39,554) (769,892) Claims payable balance - June 30, 2012807,383$ 309,658$ 1,117,041$ NOTE 12 - REDEVELOPMENT AGENCY DISSOLUTION On December 29, 2011, the California Supreme Court upheld Assembly Bill 1X 26 (“the Bill”) that provides for the dissolution of all redevelopment agencies in the State of California. This action impacted the reporting entity of the Town that previously had reported a redevelopment agency as a blended component unit. The Bill provides that upon dissolution of a redevelopment agency, either the Town or another unit of local government will agree to serve as the “successor agency” to hold the assets until they are distributed to other units of state and local government. On January 9, 2012, the Town Council elected to become the Successor Agency for the former redevelopment agency in accordance with the Bill as part of Town resolution number 2012-001. After enactment of the law, which occurred on June 28, 2011, redevelopment agencies in the State of California cannot enter into new projects, obligations or commitments. Subject to the control of a newly established oversight board, remaining assets can only be used to pay enforceable obligations in existence at the date of dissolution (including the completion of any unfinished projects that were subject to legally enforceable contractual commitments). In future fiscal years, successor agencies will only be allocated revenue in the amount that is necessary to pay the estimated annual installment payments on enforceable obligations of the former redevelopment agency until all enforceable obligations of the prior redevelopment agency have been paid in full and all assets have been liquidated. The Bill directs the State Controller of the State of California to review the propriety of any transfers of assets between redevelopment agencies and other public bodies that occurred after January 1, 2011. If the public body that received such transfers is not contractually committed to a third party for the TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 57 expenditure or encumbrance of those assets, the State Controller is required to order the available assets to be transferred to the public body designated as the successor agency by the Bill. Management believes, in consultation with legal counsel, that the obligations of the former redevelopment agency due to the Town are valid enforceable obligations payable by the successor agency trust under the requirements of the Bill. The Town’s position on this issue is not a position of settled law and there is considerable legal uncertainty regarding this issue. It is reasonably possible that a legal determination may be made at a later date by an appropriate judicial authority that would resolve this issue unfavorably to the Town. In accordance with the timeline set forth in the Bill (as modified by the California Supreme Court on December 29, 2011) all redevelopment agencies in the State of California were dissolved and ceased to operate as a legal entity as of February 1, 2012. Prior to that date, the final seven months of the activity of the redevelopment agency continued to be reported in the governmental funds of the Town. After the date of dissolution, the assets and activities of the dissolved redevelopment agency are reported in a fiduciary fund (RDA Successor Agency private-purpose trust fund) in the financial statements of the Town. The transfer of the assets and liabilities of the former redevelopment agency as of February 1, 2012 (effectively the same date as January 31, 2012) from governmental funds of the Town to fiduciary funds was reported in the governmental funds as an extraordinary loss in the governmental fund financial statements. The receipt of these assets and liabilities as of January 31, 2012 was reported in the private-purpose trust fund as an extraordinary loss. An extraordinary gain equal to the extraordinary loss in reported in the trust fund was reported in the Town’s government-wide statement of activities. Because of the different measurement focus of the governmental funds (current financial resources measurement focus) and the measurement focus of the trust funds (economic resources measurement focus), the extraordinary loss recognized in the governmental funds was not the same amount as the extraordinary loss that was recognized in the fiduciary fund financial statements. The difference between the extraordinary loss recognized in the fund financial statements and the extraordinary gain recognized in the fiduciary fund financial statements is reconciled as follows: Total extraordinary loss reported in the governmental funds - increase to net assets of the Successor Agency Trust Fund(5,038,620)$ Capital assets reported in the government-wide financial statements - Increase (decrease) to net assets(7,558,545) Loans receivable reported in the government-wide financial statements - Increase (decrease) to net assets(493,777) Long-term liabilities reported in the government-wide financial statements - Increase (decrease) to net assets: Certificates of participation24,523,618 Interest payable431,777 Net decrease to net assets of the Successor Agency Trust Fund as a result of initial transfers (equal to amount of extraordinary gain reported in the government-wide financial statements of the Town).11,864,453$ TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 58 NOTE 13 - COMMITMENTS AND CONTINGENCIES The Town participates in several federal and state grant programs. These are subject to examination by grantors and the amount, if any, of disallowed expenditures cannot be determined at this time. The Town expects such amounts, if any, to be immaterial. The Town is subject to litigation arising from the normal course of business. The Town Attorney believes there is no pending litigation which is likely to have a material adverse effect on the financial position of the Town. As of June 30, 2012, the Town has open construction contracts. The remaining commitment on the construction contracts was approximately $1,490,730. As of June 30, 2012, $13,246,779 was reported in the Successor Agency Trust Fund as due to other governments for obligations owed to the County of Santa Clara resulting from the County’s due diligence review. The Successor Agency trust fund reported a net deficit as of June 30, 2012. NOTE 14 - TOWN/SUCCESSOR AGENCY GRANTS, COOPERATIVE AGREEMENTS Public Improvement Grants and Cooperative Agreements In January of 2011, the Redevelopment Agency entered into a public improvement grant and cooperative agreement with the Town for the purpose of funding the acquisition of public land and designing and constructing various public improvements to be owned by the Town provided that the projects were in accordance with the Redevelopment Agency’s five year implementation plan and redevelopment plan. The improvement plan, as indentified in the agreement, called for approximately $24 million to be granted to the Town for the following projects: a. Expansion and improvement of current and new downtown parking b. Highway 9 improvements from Highway 17 to Monte Sereno c. Almond Grove Area street, sidewalk and other improvements d. Downtown Los Gatos gateways, signage, banners and art e. Storm drain, retaining wall, street and other improvements f. New Los Gatos library building During the fiscal year ended June 30, 2012, the rights and obligations resulting from this cooperative agreement were transferred to the Successor Agency Trust Fund as a part of the Town’s dissolution of its Redevelopment Agency. Affordable Housing Cooperative Agreement In March of 2011, the Redevelopment Agency entered into an affordable housing cooperative agreement with the Town for the purpose of funding affordable housing projects and programs to be developed and/or administered by the Town in accordance with the Redevelopment Agency’s five year TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2012 59 implementation plan and redevelopment plan. The improvement plan, as indentified in the agreement, called for approximately $16 million to be granted to the Town for the following projects: a. Development of affordable housing at 224 Main St. b. Development of affordable housing at Dittos Lane c. Acquisition of property and development of affordable housing on Knowles Ave d. Partnership with Senior Housing Solutions for the creation of senior housing in Los Gatos e. Partnerships for the conversion of existing residential developments dedicated to affordable housing f. Grants to the Santa Clara County Housing Trust for the development of affordable housing. During the fiscal year ended June 30, 2012, the rights and obligations resulting from this cooperative agreement were transferred to the Successor Agency Trust Fund as a part of the Town’s dissolution of its Redevelopment Agency. Supplementary Information TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012 MAJOR GOVERNMENTAL FUND SCHEDULES (OTHER THAN THE GENERAL FUND) 60 Schedule of Revenue, Expenditures and Changes in Fund Balances – Budget and Actual (GAAP): Appropriated Reserves Fund is used to account for resources provided for capital projects not fully funded from other sources. Certificates of Participation Fund is used to account for the 1992 and 2002 Certificates of Participation issued to finance the Parking Lot #4 project ad several capital improvement projects throughout the Town. As a result of the Redevelopment Agency Dissolution, this fund has been closed as of June 30, 2012. Redevelopment Agency Affordable Housing Fund is used for the implementation of the Agency’s required Affordable Housing Set-Aside Program obligations. As a result of the Redevelopment Agency Dissolution, this fund has been closed as of June 30, 2012. 61 Variance OriginalFinal Positive BudgetBudgetActual(Negative) REVENUES Other taxes80,000$ 80,000$ 277,780$ 197,780$ Intergovernmental7,572,712 6,010,000 - (6,010,000) Charges for services2,716,536 1,426,061 1,535,845 109,784 Other- - 1,183 1,183 Total Revenues10,369,248 7,516,061 1,814,808 (5,701,253) EXPENDITURES Sanitation and other- - - - Capital outlay16,730,465 10,456,932 10,274,345 182,587 Total Expenditures16,730,465 10,456,932 10,274,345 182,587 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES(6,361,217) (2,940,871) (8,459,537) (5,518,666) OTHER FINANCING SOURCES (USES) Operating transfers in3,754,625 1,949,882 1,923,428 (26,454) Operating transfers (out)(112,000) (112,000) (213,779) (101,779) Total Other Financing Sources (Uses)3,642,625 1,837,882 1,709,649 (128,233) CHANGE IN FUND BALANCE(2,718,592)$ (1,102,989)$ (6,749,888) (5,646,899)$ BEGINNING FUND BALANCE 13,416,625 ENDING FUND BALANCE6,666,737$ BUDGET AND ACTUAL (GAAP) FOR THE FISCAL YEAR ENDED JUNE 30, 2012 TOWN OF LOS GATOS APPROPRIATED RESERVES FUND COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE 62 Variance OriginalFinal Positive BudgetBudgetActual(Negative) REVENUES Property taxes8,205,160$ 8,205,160$ 4,510,833$ (3,694,327)$ Less ERAF payment- - (324,266) (324,266) Interest151,200 151,200 (22,715) (173,915) Other2,094,727 2,094,727 1,989,852 (104,875) Total Revenues10,451,087 10,451,087 6,153,704 (4,297,383) EXPENDITURES Redevelopment5,950,809 5,950,809 1,995,431 3,955,378 Debt Service: Principal1,035,000 1,035,000 934,167 100,833 Interest & fees1,213,726 1,213,726 1,143,185 70,541 Total Expenditures 8,199,535 8,199,535 4,072,783 4,126,752 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES2,251,552 2,251,552 2,080,921 (170,631) OTHER FINANCING SOURCES (USES) Operating transfers in- - - - Operating transfers (out)(991,032) (991,032) (1,487,313) (496,281) Total Other Financing Sources (Uses)(991,032) (991,032) (1,487,313) (496,281) Extraordinary Gain (Loss) - RDA Dissolution- - (2,047,919) (2,047,919) CHANGE IN FUND BALANCE1,260,520$ 1,260,520$ (1,454,311) (666,912)$ BEGINNING FUND BALANCE1,454,311 ENDING FUND BALANCE-$ BUDGET AND ACTUAL (GAAP) FOR THE FISCAL YEAR ENDED JUNE 30, 2012 TOWN OF LOS GATOS CERTIFICATES OF PARTICIPATION FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE 63 Variance OriginalFinal Positive BudgetBudgetActual(Negative) REVENUES Interest25,000$ 151,200$ 2,166$ (149,034)$ Other- - 1,100,000 1,100,000 Total Revenues25,000 151,200 1,102,166 950,966 EXPENDITURES Redevelopment353,091 353,091 741,298 (388,207) Capital outlay53,000 53,000 - 53,000 Total Expenditures406,091 406,091 741,298 (335,207) EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES(381,091) (254,891) 360,868 615,759 OTHER FINANCING SOURCES (USES) Operating transfers in1,641,032 1,641,032 837,313 (803,719) Operating transfers (out)- - - - Total Other Financing Sources (Uses)1,641,032 1,641,032 837,313 (803,719) Extraordinary Gain (Loss) - RDA Dissolution- - (1,198,181) (1,198,181) CHANGE IN FUND BALANCE1,259,941$ 1,386,141$ - (187,960)$ BEGINNING FUND BALANCE- ENDING FUND BALANCE-$ BUDGET AND ACTUAL (GAAP) FOR THE FISCAL YEAR ENDED JUNE 30, 2012 TOWN OF LOS GATOS REDEVELOPMENT AGENCY HOUSING SET ASIDE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012 NONMAJOR GOVERNMENTAL FUNDS 64 Capital Projects Funds: Storm Drain Basin Funds were established to account for fees paid in conjunction with the development in specified drainage areas. Construction Tax Funds were established to account for tax levies on building additions or alterations including capital improvements, underground utilities and parks. Gas Tax Fund was established to account for revenue and expenditures under the State of California Streets and Highways Code Sections 2106, 2107 and 2107.5. The revenues must be used for the maintenance and construction of streets. Redevelopment Agency Capital Projects Fund is used to account for redevelopment projects and related property tax revenue. As a result of the Redevelopment Agency Dissolution, this fund has been closed as of June 30, 2012. Special Revenue Funds: Community Development Block Grant Fund was established to account for grant funds received and expended under the Community Development Act of 1974. Non-Point Source Maintenance Fund was established to comply with obligations under the National Pollutant Discharge Elimination system permit issued by the California Regional Water Quality Control Board. Lighting and Landscape Fund was established to account for maintenance of trees, landscaping, irrigation systems and lighting within the boundaries of Tract No. 8439. 65 Storm Construction GasTotal Community Non-PointTotalTotal Non Major DrainsTax TaxCapital ProjectsDevelopmentSourceLighting andSpecial RevenueGovernmental FundsFundFund FundsFundMaintenanceLandscapingFunds Funds ASSETS Cash & Investments1,116,921$ 2,450,322$ 193,300$ 3,760,543$ -$ -$ 130,994$ 130,994$ 3,891,537$ Restricted cash & investments- - - - 37,116 - - 37,116 37,116 Receivables: Accounts- - - - - 202,500 - 202,500 202,500 Intergovernmental Receivable- - - - 203,664 - 345 204,009 204,009 Total Assets1,116,921$ 2,450,322$ 193,300$ 3,760,543$ 240,780$ 202,500$ 131,339$ 574,619$ 4,335,162$ LIABILITIES Accounts Payable287$ -$ -$ 287$ 94$ 395$ 1,422$ 1,911$ 2,198$ Accrued payroll and benefits- - - - - 1,427 - 1,427 1,427 Due to other funds- - - - - 124,142 - 124,142 124,142 Deferred revenue- - - - 210,115 - - 210,115 210,115 Total Liabilities287 - - 287 210,209 125,964 1,422 337,595 337,882 FUND BALANCE Restricted for: Capital Projects 1,116,634 2,450,322 193,300 3,760,256 - - - - 3,760,256 Committed to: Repairs and Maintenance- - - - - - 129,917 129,917 129,917 Unassigned- - - - 30,571 76,536 - 107,107 107,107 Total Fund Balances1,116,634 2,450,322 193,300 3,760,256 30,571 76,536 129,917 237,024 3,997,280 Total Liabilities and Fund Balances1,116,921$ 2,450,322$ 193,300$ 3,760,543$ 240,780$ 202,500$ 131,339$ 574,619$ 4,335,162$ TOWN OF LOS GATOS NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEETS JUNE 30, 2012 SPECIAL REVENUE FUNDS CAPITAL PROJECTS FUNDS Storm Construction GasRedevelopmentTotal DrainTax TaxAgency CapitalCapital Projects FundsFundFundProjects Funds REVENUES Property Taxes-$ -$ -$ -$ -$ Other Taxes239,900 44,387 - - 284,287 Intergovernmental- - 871,471 - 871,471 Charges for Services- - - - - Fines and Forfeitures- - - - - Interest10,717 24,976 4,565 1,979 42,237 Other - - - - - Total Revenues250,617 69,363 876,036 1,979 1,197,995 EXPENDITURES Current: Parks and Public Works- - - - - General Government- - - - - Sanitation and Other- - - - - Redevelopment545,426 545,426 Capital Outlay439 4,707 650,000 - 655,146 Total Expenditures439 4,707 650,000 545,426 1,200,572 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES250,178 64,656 226,036 (543,447) (2,577) OTHER FINANCING SOURCES (USES) Transfers in- - - 650,000 650,000 Transfers (out)- - (106,000) - (106,000) Total Other Financing Sources (Uses)- - (106,000) 650,000 544,000 Extraordinary Loss - Dissolution- - - (1,349,601) (1,349,601) Changes in Fund Balances250,178 64,656 120,036 (1,243,048) (808,178) Fund Balances - Beginning of year866,456 2,385,666 73,264 1,243,048 4,568,434 Fund Balances - End of year1,116,634$ 2,450,322$ 193,300$ -$ 3,760,256$ (Continued) FOR THE FISCAL YEAR ENDED JUNE 30, 2011 CAPITAL PROJECTS FUNDS TOWN OF LOS GATOS NONMAJOR GOVERNMENTAL FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES 66 REVENUES Property Taxes Other Taxes Intergovernmental Charges for Services Fines and Forfeitures Interest Other Total Revenues EXPENDITURES Current: Parks and Public Works General Government Sanitation and Other Redevelopment Capital Outlay Total Expenditures EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers (out) Total Other Financing Sources (Uses) Extraordinary Loss - Dissolution Changes in Fund Balances Fund Balances - Beginning of year Fund Balances - End of year Community Non-PointTotal DevelopmentSourceLighting andSpecial Revenue FundMaintenanceLandscapingFundsTotal -$ -$ 37,760$ 37,760$ 37,760$ - - - - 284,287 - - - - 871,471 - 135,000 - 135,000 135,000 - - 329 329 329 9,408 - 1,242 10,650 52,887 10,312 - - 10,312 10,312 19,720 135,000 39,331 194,051 1,392,046 - - 16,005 16,005 16,005 93 - - 93 93 - 116,607 - 116,607 116,607 545,426 - - - - 655,146 93 116,607 16,005 132,705 1,333,277 19,627 18,393 23,326 61,346 58,769 92,976 - - 92,976 742,976 - - (4,920) (4,920) (110,920) 92,976 - (4,920) 88,056 632,056 - - - - (1,349,601) 112,603 18,393 18,406 149,402 (658,776) (82,032) 58,143 111,511 87,622 4,656,056 30,571$ 76,536$ 129,917$ 237,024$ 3,997,280$ (Concluded) SPECIAL REVENUE FUNDS AND CHANGES IN FUND BALANCES FOR THE FISCAL YEAR ENDED JUNE 30, 2012 TOWN OF LOS GATOS COMBINING SCHEDULE OF REVENUES, EXPENDITURES NONMAJOR GOVERNMENTAL FUNDS 67 68 TOWN OF LOS GATOS BUDGETED NONMAJOR FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL (GAAP) FOR THE FISCAL YEAR ENDED JUNE 30, 2012 VarianceVariance PositivePositive BudgetActual(Negative)BudgetActual(Negative) REVENUES Property taxes-$ -$ -$ -$ -$ -$ Other taxes- - - - - - Intergovernmental210,594 - (210,594) - - - Charges for services- - - 135,000 - (135,000) Fines and forfeitures- - - - - - Interest12,500 9,408 (3,092) - - - Other - 10,312 10,312 - - - Total Revenues223,094 19,720 (203,374) 135,000 - (135,000) EXPENDITURES Parks and public works- - - - - - General government31,881 93 31,788 - - - Sanitation and other- - - 135,300 116,607 18,693 Redevelopment- - - - - - Capital outlay- - - - - - Total Expenditures31,881 93 31,788 135,300 116,607 18,693 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES191,213 19,627 (171,586) (300) (116,607) (116,307) OTHER FINANCING SOURCES (USES) Operating transfers in- 92,976 92,976 - - - Operating transfers (out)- - - - - - Total Other Financing Sources (Uses)- 92,976 92,976 - - - Extraordinary Gain (Loss) - RDA Dissolution- - - - - - CHANGE IN FUND BALANCE 191,213$ 112,603 (78,610)$ (300)$ (116,607) (116,307)$ BEGINNING FUND BALANCE(82,032) 58,143 ENDING FUND BALANCE30,571$ (58,464)$ (Continued) COMMUNITY DEVELOPMENT BLOCK GRANT NON-POINT SOURCE MAINTENANCE 69 REVENUES Property taxes Other taxes Intergovernmental Charges for services Fines and forfeitures Interest Other Total Revenues EXPENDITURES Parks and public works General government Sanitation and other Redevelopment Capital outlay Total Expenditures EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES OTHER FINANCING SOURCES (USES) Operating transfers in Operating transfers (out) Total Other Financing Sources (Uses) Extraordinary Gain (Loss) - RDA Dissolution CHANGE IN FUND BALANCE BEGINNING FUND BALANCE ENDING FUND BALANCE TOWN OF LOS GATOS BUDGETED NONMAJOR FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL (GAAP) FOR THE FISCAL YEAR ENDED JUNE 30, 2012 VarianceVariance PositivePositive BudgetActual(Negative)BudgetActual(Negative) 37,760$ 37,760$ -$ -$ -$ -$ - - - 92,000 239,900 147,900 - - - - - - - - - - - - - 329 329 - - - 2,440 1,242 (1,198) 10,540 10,717 177 - - - - - - 40,200 39,331 (869) 102,540 250,617 148,077 48,660 16,005 32,655 - - - - - - - - - - - - - - - - - - - - - - - - 440 439 1 48,660 16,005 32,655 440 439 1 (8,460) 23,326 31,786 102,100 250,178 148,078 - - - - - - (4,920) (4,920) - - - - (4,920) (4,920) - - - - - - - - - - (13,380)$ 18,406 31,786$ 102,100$ 250,178 148,078$ 111,511 866,456 129,917$ 1,116,634$ (Continued) STORM DRAIN FUNDSLIGHTING AND LANDSCAPING 70 REVENUES Property taxes Other taxes Intergovernmental Charges for services Fines and forfeitures Interest Other Total Revenues EXPENDITURES Parks and public works General government Sanitation and other Redevelopment Capital outlay Total Expenditures EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES OTHER FINANCING SOURCES (USES) Operating transfers in Operating transfers (out) Total Other Financing Sources (Uses) Extraordinary Gain (Loss) - RDA Dissolution CHANGE IN FUND BALANCE BEGINNING FUND BALANCE ENDING FUND BALANCE TOWN OF LOS GATOS BUDGETED NONMAJOR FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL (GAAP) FOR THE FISCAL YEAR ENDED JUNE 30, 2012 VarianceVariance PositivePositive BudgetActual(Negative)BudgetActual(Negative) -$ -$ -$ -$ -$ -$ 15,000 44,387 29,387 - - - - - - 832,290 871,471 39,181 - - - - - - - - - - - - 36,010 24,976 (11,034) 2,020 4,565 2,545 - - - - - - 51,010 69,363 18,353 834,310 876,036 41,726 - - - - - - - - - - - - - - - - - - - - - - - - - 4,707 (4,707) 650,000 650,000 - - 4,707 (4,707) 650,000 650,000 - 51,010 64,656 13,646 184,310 226,036 41,726 - - - - - - - - - (106,000) (106,000) - - - - (106,000) (106,000) - - - - - - - 51,010$ 64,656 13,646$ 78,310$ 120,036 41,726$ 2,385,666 73,264 2,450,322$ 193,300$ (Continued) CONSTRUCTION TAXGAS TAX 71 REVENUES Property taxes Other taxes Intergovernmental Charges for services Fines and forfeitures Interest Other Total Revenues EXPENDITURES Parks and public works General government Sanitation and other Redevelopment Capital outlay Total Expenditures EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES OTHER FINANCING SOURCES (USES) Operating transfers in Operating transfers (out) Total Other Financing Sources (Uses) Extraordinary Gain (Loss) - RDA Dissolution CHANGE IN FUND BALANCE BEGINNING FUND BALANCE ENDING FUND BALANCE TOWN OF LOS GATOS BUDGETED NONMAJOR FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL (GAAP) FOR THE FISCAL YEAR ENDED JUNE 30, 2012 VarianceVariance PositivePositive BudgetActual(Negative)BudgetActual(Negative) -$ -$ -$ 37,760$ 37,760$ -$ - - - 107,000 284,287 177,287 - - - 1,042,884 871,471 (171,413) - - - 135,000 135,000 - - - - - 329 329 10,000 1,979 (8,021) 73,510 52,887 (20,623) - - - - 10,312 10,312 10,000 1,979 (8,021) 1,396,154 1,392,046 (4,108) - - - 48,660 16,005 32,655 - - - 31,881 93 31,788 - - - 135,300 116,607 18,693 715,952 545,426 170,526 715,952 545,426 170,526 - - - 650,440 655,146 (4,706) 715,952 545,426 170,526 1,582,233 1,333,277 248,956 (705,952) (543,447) 162,505 (186,079) 58,769 244,848 600,000 650,000 50,000 600,000 742,976 142,976 - - - (110,920) (110,920) - 600,000 650,000 50,000 489,080 632,056 142,976 - (1,349,601) - - (1,349,601) - (105,952)$ (1,243,048) 212,505$ 303,001$ (658,776) 387,824$ 1,243,048 4,656,056 -$ 3,997,280$ (Concluded) TOTALS REDEVELOPMENT AGENCY CAPITAL PROJECT TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012 PROPRIETARY FUNDS INTERNAL SERVICE FUNDS 72 Internal service funds are used to finance and account for special activities and service performed by a designed department for other departments in the Town on a cost reimbursement basis. The concept of major funds does not extend to internal service funds because they are used for internal activities only. In the Government-Wide Statement of Activities, the net revenues and expenses of the internal service funds are allocated to the Town departments or programs that generated them, thus eliminating internal service funds. However, internal service funds are still presented separately in the fund financial statements and include the following funds: Equipment Replacement Fund was established to account for the replacement of major Town equipment and all vehicle replacement. Workers’ Compensation Fund was established to account for future claims that may occur related to workers compensation injuries. Self Insurance Fund was established to account for future general liability claims against the Town. Stores Fund was established to account for the purchase of photocopy equipment, postage and bulk meter expenses. Management Information Fund was established to account for the replacement of management information computer systems and components. Vehicle Maintenance Fund was established to account for preventative maintenance and repair provided for all Town vehicles and equipment. Building Maintenance Fund was established to account for preventative maintenance and repair for all Town buildings. 73 EquipmentWorker'sSelfManagementVehicleBuilding ReplacementCompInsuranceStoresInformationMaintenanceMaintenanceTotal ASSETS Cash & Investments 3,140,417$ 3,109,740$ 1,910,155$ 200,837$ 2,530,487$ 486,414$ 1,085,763$ 12,463,813$ Receivables: Accounts - - - - 678 631 11,116 12,425 Materials, Supplies and Deposits- - - 6,861 - 33,770 - 40,631 Equipment (Net)- - - - - 12,724 7,959 20,683 Total Assets3,140,417$ 3,109,740$ 1,910,155$ 207,698$ 2,531,165$ 533,539$ 1,104,838$ 12,537,552$ LIABILITIES Accounts Payable 6,851 - 3,205 1,128 50,698 8,681 79,376 149,939 Accrued Payroll and Benefits166 1,719 2,152 - 7,115 3,130 4,777 19,059 Due to Other Governments- - - - 7 19 - 26 Claims Payable- 807,383 309,658 - - - - 1,117,041 Total Liabilities 7,017$ 809,102$ 315,015$ 1,128$ 57,820$ 11,830$ 84,153$ 1,286,065$ NET ASSETS Invested in capital assets, net of related debt -$ -$ -$ -$ -$ 12,724$ 7,959$ 20,683$ Unrestricted3,133,400 2,300,638 1,595,140 206,570 2,473,345 508,985 1,012,726 11,230,804 Total Net Assets3,133,400$ 2,300,638$ 1,595,140$ 206,570$ 2,473,345$ 521,709$ 1,020,685$ 11,251,487$ TOWN OF LOS GATOS INTERNAL SERVICE FUNDS COMBINING STATEMENT OF NET ASSETS JUNE 30, 2012 74 EquipmentWorker'sSelfManagementVehicleBuilding ReplacementCompInsuranceStoresInformationMaintenanceMaintenanceTotal OPERATING REVENUES Charges for services 319,819$ 673,984$ 513,165$ 91,494$ 1,031,659$ 540,100$ 892,300$ 4,062,521$ Interest- 30 - - - - - 30 Use of money and property - - - - - - 135,314 135,314 Other216,185 167,664 - 262 - 631 62,605 447,347 Total Operating Revenues536,004 841,678 513,165 91,756 1,031,659 540,731 1,090,219 4,645,212 OPERATING EXPENSES Salaries and benefits 10,078 102,326 122,613 - 436,578 183,925 220,239 1,075,759 Insurance expenses- 432,716 645,572 - - - - 1,078,288 Depreciation expenses- - - - - 6,772 2,770 9,542 Services and supplies486,416 815,882 215,908 130,831 387,238 267,141 726,424 3,029,840 Total Operating Expenses496,494 1,350,924 984,093 130,831 823,816 457,838 949,433 5,193,429 Operating Income (loss)39,510 (509,246) (470,928) (39,075) 207,843 82,893 140,786 (548,217) Transfers (in) - - - - - - - - Transfers (out)- - - - - - (73,546) (73,546) Net Transfers- - - - - - (73,546) (73,546) Change in Net Assets39,510 (509,246) (470,928) (39,075) 207,843 82,893 67,240 (621,763) BEGINNING NET ASSETS3,093,890 2,809,884 2,066,068 245,645 2,265,502 438,816 953,445 11,873,250 ENDING NET ASSETS3,133,400$ 2,300,638$ 1,595,140$ 206,570$ 2,473,345$ 521,709$ 1,020,685$ 11,251,487$ TOWN OF LOS GATOS INTERNAL SERVICE FUNDS COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 75 EquipmentWorker'sSelfManagementVehicleBuilding ReplacementCompInsuranceStoresInformationMaintenanceMaintenanceTotal CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 536,004$ 842,150$ 513,165$ 91,936$ 1,031,368$ 540,565$ 1,079,313$ 4,634,501$ Payments to suppliers(499,830) - - (128,693) (451,881) (293,271) (712,932) (2,086,607) Payments to employees(10,230) (103,698) (124,847) - (442,689) (186,596) (221,189) (1,089,249) Claims paid- (957,986) (606,046) - - - - (1,564,032) Net Cash Provided (Used) by Operating Activities 25,944 (219,534) (217,728) (36,757) 136,798 60,698 145,192 (105,387) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers In - - - - - - - - Transfers Out- - - - - - (73,546) (73,546) Net Cash Provided (Used) by Noncapital Financing Activities - - - - - - (73,546) (73,546) Net Increase(Decrease) in Cash and Investments25,944 (219,534) (217,728) (36,757) 136,798 60,698 71,646 (178,933) Cash and investments - beginning of year3,114,473 3,329,274 2,127,883 237,594 2,393,689 425,716 1,014,117 12,642,746 Cash and investments - end of year 3,140,417$ 3,109,740$ 1,910,155$ 200,837$ 2,530,487$ 486,414$ 1,085,763$ 12,463,813$ Reconciliation of Operating Income to Cash Flows from Operating Activities: Operating Income 39,510$ (509,246)$ (470,928)$ (39,075)$ 207,843$ 82,893$ 140,786$ (548,217)$ Adjustments to reconcile operating income to cash flows from operating activities: Depreciation - - - - - 6,772 2,770 9,542 Change in assets and liabilities: Receivables, net - 472 - 180 (291) (166) (10,906) (10,711) Other assets - - - 2,193 - (317) - 1,876 Accounts payable (13,414) (4,020) (27,464) (55) (70,754) (28,500) 12,613 (131,594) Accrued payroll and benefits(152) 293,260 280,664 - - 16 (71) 573,717 Cash Flows From Operating Activities25,944$ (219,534)$ (217,728)$ (36,757)$ 136,798$ 60,698$ 145,192$ (105,387)$ TOWN OF LOS GATOS INTERNAL SERVICE FUNDS COMBINING STATEMENTS OF CASH FLOWS FOR THE FISCAL YEAR ENDED JUNE 30, 2012 TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2012 AGENCY FUND PARKNG IMPROVEMENT DISTRICT #88 76 Agency funds are used to account for assets held by the Town as an agent for individuals, private organizations and other governments. The financial activities of these funds are excluded from the government-wide financial statements, but are presented in separate Fiduciary Fund financial statements. 77 Balance Balance June 30, 2011AdditionsDeletionsJune 30, 2012 ASSETS Cash and investments (Note 3)41,943$ 132,996$ 148,209$ 26,730$ Restricted cash and investments (Note 3)282,914 2,078 - 284,992 Intergovernmental receivable225,343 - 132,997 92,346 Total Assets550,200$ 135,074$ 281,206$ 404,068$ LIABILITIES Due to other governments550,200$ 135,074$ 281,206$ 404,068$ Total Liabilities550,200$ 135,074$ 281,206$ 404,068$ FOR THE FISCAL YEAR ENDED JUNE 30, 2012 TOWN OF LOS GATOS AGENCY FUND PARKING IMPROVEMENT DISTRICT #88 STATEMENT OF CHANGES IN ASSETS AND LIABILITIES Statistical Section 78 STATISTICAL (UNAUDITED) This part of the Town of Los Gatos Comprehensive Annual Financial Report (“CAFR”) presents the detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the Town’s overall financial health. Financial Trends These schedules contain trend information to help the reader understand how Town’s financial performance and well-being have changed over time. (Schedule 1, Schedule 2, Schedule 3, and Schedule 4). Revenue Capacity These schedules contain information to help the reader assess one of the Town’s most significant local revenue source, the property tax (Schedule 5, Schedule 6, Schedule 7, and Schedule 8). Debt Capacity These schedules present information to help the reader assess the affordability of the Town’s current levels of outstanding debt and its ability to issue additional debt in the future (Schedule 9, Schedule 10, and Schedule 11) Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the Town’s financial activities take place (Schedule 12, Schedule 13, and schedule 14). Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the Town’s CAFR relates to the services the Town provides and activities it performs (Schedule 15 and Schedule 16). 79 Town of Los GatosSchedule 1 Net Assets by Component Last Ten Fiscal Years (Accrual Basis of Accounting) Investment Fiscalin Capital AssetsTotal YearNet of Related Debt Restricted UnrestrictedNet Assets 200333,799,13024,016,83020,984,67678,800,636 200438,417,21111,463,18729,308,13579,188,533 200538,234,22913,295,87131,410,46882,940,568 200641,019,12112,665,49338,609,08592,293,699 200743,281,31520,423,82837,893,056101,598,199 200848,581,37818,459,77642,884,826109,925,980 200952,665,50615,663,43651,619,635119,948,577 201050,129,55026,723,99447,191,225124,044,769 201172,567,35514,652,82329,017,520116,237,698 201290,333,4515,167,23637,192,210132,692,897 * This data has only been available since implementation of GASB34 in FY2003. (1) The decrease in Restricted Net Assets from FY2003 to FY2004 was primarily due to the issuance of the $10.7 million Certificates of Participation in FY2003. (2) The decrease in Restricted Net Assets from FY2010 to FY2011 was primarily due to the issuance of the $15.7 million Certificates of Participation in FY2010. 0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 35,000,000 40,000,000 45,000,000 50,000,000 55,000,000 60,000,000 65,000,000 70,000,000 75,000,000 80,000,000 85,000,000 90,000,000 95,000,000 Invesment in Capital Assets Net of Related DebtRestrictedUnrestricted 80 Town of Los GatosSchedule 2 Changes in Net Assets Last Ten Fiscal Years (Accrual Basis of Accounting) Expenses2002/032003/042004/052005/062006/072007/082008/092009/102010/112011/12 Governmental Activities: General government4,140,359$ 4,246,133$ 4,341,526$ 4,383,584$ 4,570,391$ 5,233,730$ 5,323,467$ 4,647,801$ 5,180,153$ 6,145,143$ Police department10,337,213 9,980,927 10,524,840 11,133,362 11,556,350 12,313,637 13,467,503 13,266,849 13,495,885 14,124,798 Parks and public works6,410,103 6,179,328 5,953,319 6,523,888 7,222,052 6,958,449 8,671,678 7,458,085 7,155,905 7,827,332 Community development2,277,109 2,229,686 2,494,689 2,887,818 2,735,223 3,064,865 3,389,151 3,522,477 3,099,269 3,434,551 Community services973,554 1,046,351 920,562 948,650 2,388,250 1,060,922 1,162,284 1,270,240 666,015 - Library services 1,779,697 1,807,662 1,786,696 1,880,465 1,892,448 1,956,767 2,067,476 2,038,009 1,892,805 1,938,577 Sanitation833,096 832,538 834,525 574,344 414,610 502,196 407,048 655,713 342,893 158,205 Redevelopment1,563,166 1,828,924 2,133,008 2,093,546 2,434,935 3,360,585 2,939,550 6,992,935 16,794,022 919,821 Interest and fees1,139,358 662,867 696,266 708,585 704,794 670,415 631,159 612,700 1,278,381 1,123,842 Total Governmental Activities29,453,655$ 28,814,415$ 29,685,430$ 31,134,241$ 33,919,053$ 35,121,567$ 38,059,316$ 40,464,809$ 49,905,328$ 35,672,269$ Program Revenues Charges for Services: General government2,159,167$ 1,959,401$ 1,640,632$ 1,981,557$ 2,127,670$ 1,149,911$ 1,155,409$ 1,337,772$ 1,156,931$ 1,108,424$ Police department1,403,332 1,446,067 1,386,479 1,343,028 1,250,636 895,569 1,358,361 2,110,357 2,153,843 2,324,397 Parks and public works351,605 472,366 757,790 591,079 676,095 576,107 637,933 779,300 810,022 1,215,382 Community development1,815,495 2,025,305 2,569,923 3,070,115 2,997,419 2,954,123 2,700,614 3,404,087 3,097,192 3,448,443 Community services152,697 347,970 182,075 147,895 134,366 98,803 23,000 Library services57,913 72,013 61,671 62,444 61,091 60,123 56,932 57,633 39,491 37,662 Sanitation871,698 903,097 889,948 690,314 437,794 166,660 135,000 135,000 135,000 135,000 Operating Grants and Contributions: General government- - - - - 54,242 8,834 10,237 15,638 6,453 Police department590,489 546,508 566,180 745,797 645,034 744,347 538,629 81,997 27,748 29,980 Parks and public works616,962 706,621 556,121 549,873 545,432 565,857 633,923 594,775 809,272 993,827 Community services285,812 124,920 262,554 180,897 68,912 146,236 190,447 124,287 182,683 - Library services26,070 12,981 14,987 11,379 16,735 11,409 10,462 13,996 10,662 109 Sanitation8,155 8,023 7,857 41,044 39,891 25,103 9,002 - Redevelopment143,043 Capital Grants and Contributions: Parks and public works 881,758 1,166,929 867,951 931,616 1,381,631 2,020,121 1,330,638 3,074,453 2,375,759 641,811 Total Program Revenues9,356,041$ 9,792,333$ 9,764,334$ 10,165,957$ 10,208,449$ 9,385,751$ 8,944,968$ 11,883,363$ 10,922,046$ 9,964,488$ General Revenues2002/032003/042004/052005/062006/072007/082008/092009/102010/112011/12 Property taxes9,051,608$ 9,645,339$ 11,931,215$ 13,810,457$ 16,082,348$ 17,311,052$ 18,343,063$ 18,856,081$ 18,226,001$ 14,088,866$ Sales taxes6,928,817 6,914,526 7,904,130 8,655,566 9,253,891 9,345,432 8,487,000 8,317,217 9,971,409 9,889,100 Other taxes1,835,328 1,823,019 1,864,997 2,247,997 2,327,516 2,904,908 2,664,698 2,623,622 2,906,264 3,698,753 Motor vehicle in lieu1,722,801 1,298,455 314,041 666,494 194,104 137,330 101,265 92,595 139,814 15,238 Interest1,642,527 Investment earnings(92,621) 1,286,433 1,922,819 3,607,966 4,190,951 2,949,119 1,155,929 760,905 331,510 Proceeds from sale of property262,568 - Proceeds from sale of property- - (6,378) Loss on disposal of capital assets(3,592) Sale of property6,525,000 (870,127) Miscellaneous22,356 25,415 378,693 2,850,836 334,818 9,842 66,802 52,459 41,943 2,275,160 Extraordinary gain (loss) dissolution of 11,864,453 Total General Revenues21,466,005$ 19,614,133$ 23,673,131$ 30,150,578$ 31,800,643$ 33,899,515$ 39,136,947$ 31,097,903$ 31,176,209$ 42,163,080$ Change in Net Assets1,368,391$ 592,051$ 3,752,035$ 9,182,294$ 8,090,039$ 8,163,698$ 10,022,597$ 2,516,457$ (7,807,073)$ 16,455,299$ a. Investment Earnings revenue was down due to the economy downturn. b. Investment Earnings revenue was down due to declining interest rates and reduced cash balances. * These line items have only been available since implementation of GASB34 in 2002/03. 81 Town of Los Gatos Schedule 3 Fund Balance, Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) 2002/032003/042004/052005/062006/072007/082008/092009/102010/112011/12 General Fund Reserved2,894,473$ 1,852,516$ 2,097,545$ 2,128,873$ 4,732,394$ 2,048,261$ 8,165,607$ 4,491,589$ -$ -$ Unreserved9,701,339 10,544,144 12,144,819 18,000,209 16,406,211 17,236,569 16,861,752 18,594,984 Nonspendable1,500,000 Restricted Assigned21,806,781 21,992,886 Unassigned2,433,556 4,019,409 Total general fund12,595,812$ 12,396,660$ 14,242,364$ 20,129,082$ 21,138,605$ 19,284,830$ 25,027,359$ 23,086,573$ 25,740,337$ 26,012,295$ All Other Governmental Funds Reserved14,605,959$ 11,189,030$ 12,844,667$ 12,088,367$ 15,820,345$ 14,917,629$ 15,265,127$ 10,525,384$ -$ -$ Unreserved, reported in: Special revenue funds1,067,615 845,014 962,032 1,123,335 836,191 1,030,161 522,105 225,509 Capital project funds5,294,418 4,078,709 3,853,747 3,842,580 8,169,857 11,719,905 11,203,521 24,454,347 Debt service funds2,575,400 3,704,844 4,032,770 4,960,030 3,849,382 5,747,185 7,526,557 6,953,732 Restricted14,764,334 5,167,236 Assigned4,786,547 5,389,674 Unassigned(23,889) 107,107 Total all other governmental funds23,543,392$ 19,817,597$ 21,693,216$ 22,014,312$ 28,675,775$ 33,414,880$ 34,517,310$ 42,158,972$ 19,526,992$ 10,664,017$ Fiscal Year 82 Town of Los Gatos Schedule 4 Changes in Fund Balances, Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) 2002/032003/042004/052005/062006/072007/082008/092009/102010/112011/12 Revenues: Taxes17,788,711$ 18,541,280$ 22,099,118$ 25,112,221$ 27,888,072$ 29,773,634$ 29,643,262$ 29,967,385$ 31,549,352$ 27,676,719$ Intergovernmental4,515,854 4,719,901 4,242,451 3,993,032 4,085,983 3,128,239 2,134,352 4,082,725 3,248,303 1,669,729 Charges for Service3,383,422 3,236,450 3,062,960 3,529,178 4,269,571 2,996,660 3,421,131 4,418,074 4,107,386 5,550,671 Licenses & Permits1,937,094 2,031,387 2,417,204 2,637,977 2,705,028 3,337,822 2,692,187 2,977,199 2,967,819 3,242,348 Investment income2,547,576 465,432 1,828,216 4,975,513 4,179,736 4,190,955 2,949,120 1,174,203 691,022 291,484 Fines and Forfeitures187,117 751,532 580,937 1,005,773 561,665 369,292 618,771 662,699 737,903 809,790 Use of Property60,749 51,948 38,502 38,974 Other 282,660 267,052 1,597 232,694 110,486 1,180,063 1,581,078 2,105,333 2,904,862 5,412,328 Total revenues30,642,434 30,013,034 34,232,483 41,486,388 43,800,541 44,976,665 43,100,649 45,439,565 46,245,148 44,692,043 Expenditures: Current Public safety10,211,315 9,986,069 10,506,167 11,706,091 11,576,850 12,214,891 12,971,105 12,821,499 13,004,041 13,392,953 Public Works4,903,638 4,625,525 4,399,171 4,742,401 4,956,451 5,261,706 5,785,584 5,152,745 5,222,504 5,440,960 Community Development2,269,870 2,249,641 2,527,730 2,936,730 2,776,231 3,035,240 3,280,856 3,452,914 2,973,587 3,226,195 Community Services1,004,142 1,265,296 933,759 950,333 2,395,429 1,056,835 1,149,290 1,261,981 663,645 - Library Services1,811,866 1,798,331 1,770,991 1,876,022 1,904,900 1,946,595 2,007,518 1,999,430 1,806,611 1,805,479 Sanitation & Other819,658 846,809 848,547 551,164 387,674 470,660 375,483 642,512 314,899 116,607 General Government 4,048,876 4,234,148 4,372,991 4,358,853 4,586,513 5,120,970 5,145,355 5,483,753 6,318,706 8,046,794 Redevelopment1,459,013 1,773,889 2,084,767 2,573,514 2,966,132 3,284,847 3,861,525 8,692,216 18,958,126 13,282,155 Capital outlay9,077,120 6,911,405 2,142,212 4,682,848 4,689,187 8,697,478 7,759,577 16,141,561 215,839,303 210,929,491 Debt service Principal repayment150,000 370,000 385,000 400,000 414,167 429,167 445,000 465,000 485,000 934,167 Interest and fiscal charges904,565 668,721 698,906 714,079 711,346 676,913 638,221 620,356 1,019,881 1,143,185 Total expenditures36,660,063 34,729,834 30,670,241 35,492,035 37,364,880 42,195,302 43,419,514 56,733,966 66,606,303 48,317,986 Excess (deficiency) of revenues over (under) expenditures(6,017,629) (4,716,800) 3,562,242 5,994,353 6,435,661 2,781,363 (318,865) (11,294,401) (20,361,155) (3,625,943) Other financing sources(uses): Debt Issuance- - - - - - - 16,428,095 - - Transfers in3,256,337 2,352,051 2,130,315 2,854,245 10,611,169 8,810,379 5,370,708 4,028,905 3,928,107 3,735,440 Transfers out(2,456,337) (1,702,052) (2,130,315) (2,640,785) (9,375,847) (8,706,409) (4,731,885) (3,461,724) (3,545,168) (3,661,894) Proceeds from issuance of debt10,725,000 - - - - - - - - - Total other financing sources(uses)11,525,000 649,999 - 213,460 1,235,322 103,970 638,823 16,995,276 382,939 73,546 Special item: Sale of property- - - - - - 6,525,000 - - - Extraordinary Gain (Loss) RDA Dissolution(5,038,620) Net change in fund balances5,507,371$ (4,066,801)$ 3,562,242$ 6,207,813$ 7,670,983$ 2,885,333$ 6,844,958$ 5,700,875$ (19,978,216)$ (8,591,017)$ Debt service as a percentage of non capital expenditures3.98%3.88%3.95%3.75%3.57%3.41%3.13%2.75%3.05%5.94% 1Increase due to SERAF payment to State in the amount of $2.2M and increased Pass Through Payments. 2The increase in capital outlay is due to purchases of land for low-moderate housing projects in the amount of $4.3M and purchase of land for a sports park in the amount of $3.1M. Fiscal Year 83 Town of Los GatosSchedule 5 Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years Utility and Total FiscalUnsecured PercentSecuredPercentTotal EstimatedDirect YearPropertyChangePropertyChangeAssessedFull MarketTax Rate 2003201,539,3008.63%4,913,724,1634.88%5,115,263,46319,654,896,6521.0460 2004175,689,995-12.83%5,258,601,7397.02%5,434,291,73421,034,406,9561.0475 2005179,611,6842.23%5,654,906,2037.54%5,834,517,88722,619,624,8121.0480 2006186,694,0663.94%6,259,830,93910.70%6,446,525,00525,039,323,7561.0466 2007194,195,2094.02%6,840,335,7339.27%7,034,530,94227,361,342,9321.0460 2008201,629,3153.83%7,392,958,7518.08%7,594,588,06629,571,835,0041.0459 2009216,402,0897.33%7,949,991,6207.53%8,166,393,70931,799,966,4801.0449 2010241,286,05511.50%8,076,101,6071.59%8,317,387,66232,304,406,4281.0462 2011217,353,236-9.92%8,044,692,600-0.39%8,262,045,83632,178,770,4001.0460 2012217,297,593-0.03%8,152,459,1571.34%8,369,756,75032,609,836,6281.0452 Source: Santa Clara County Assessed Value Report 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Millions UnsecuredSecured 84 Town of Los GatosSchedule 6 Direct and Overlapping Property Tax Rates Last Ten Fiscal Years CountySanta ClaraCounty School FiscalBasic CountyRetirementValley WaterDirect Rate District Bonds YearWide LevyLevyDistrictSubtotal and LoansTotal 20031.00000.03880.00721.04600.06351.1095 20041.00000.03880.00871.04750.07491.1224 20051.00000.03880.00921.04800.07261.1206 20061.00000.03880.00781.04660.09961.1462 20071.00000.03880.00721.04600.09411.1401 20081.00000.03880.00711.04590.10321.1491 20091.00000.03880.00611.04490.09701.1419 20101.00000.03880.00741.04620.11471.1609 20111.00000.03880.00721.04600.12521.1712 20121.00000.03880.00641.04520.12691.1721 Source: Santa Clara County Book of Tax Rates 0.00 0.25 0.50 0.75 1.00 1.25 Per Hundred $ Santa Clara Valley Water District County Retirement Levy School District Bonds and Loans Basic County Wide Levy 85 Town of Los GatosSchedule 7 Principle Property Tax Payers Last Five Fiscal Years * Percentage Percentage Percentage Percentage Percentage Percentage Percentage of Total Cityof Total Cityof Total Cityof Total Cityof Total Cityof Total Cityof Total City Taxable TaxableTaxable TaxableTaxable TaxableTaxable TaxableTaxable TaxableTaxable TaxableTaxable Taxable AssessedAssessedAssessedAssessedAssessedAssessedAssessedAssessedAssessedAssessedAssessedAssessedAssessedAssessed ASSESSEE NAMEValueValueValueValueValueValueValueValueValueValueValueValueValueValue Sobrato Interests IV/Sobrato Land Holdings$38,914,3710.62%$65,972,4840.96%$93,581,2151.27%$147,774,9331.86%$156,934,5611.94%$150,781,0921.87%$157,554,5251.93% Boccardo Corporation$18,463,3980.29%$19,614,7940.29%$20,044,5300.27%$20,519,2740.26%$37,747,0200.47%$36,839,0210.46%$37,173,8770.46% Knowles Los Gatos LLC$18,000,0000.29%$19,500,0000.29%$22,000,0000.30%$35,000,0000.44%$32,000,0000.40%$45,778,7570.57%$46,123,4680.57% SRI Old Town LLC$27,370,1910.44%$27,917,5940.41%$28,475,9450.39%$29,045,4630.37%$29,626,3710.37%$29,556,1550.37%$29,778,7120.37% CH Rea lty IV Downing LP$0 0.00%$0 0.00%- 0.00%$28,815,000 0.36%$29,391,300 0.37%$19,000,000 0.24%$19,143,068 0.23% Hercules Holding II LLC$00.00%$00.00%- 0.00%$18,417,1110.23%$25,886,8050.33%$25,865,4520.32%- 0.00% Health Care REIT Inc,$00.00%$00.00%- 0.00%$24,480,0000.31%$24,969,6000.31%$19,720,7490.25%$19,869,2450.24% 750 University LLC$11,550,0000.18%$15,500,0000.23%$19,000,0000.26%$22,000,0000.28%$21,000,0000.26%$20,950,2290.26%- 0.00% Grosvenor USA Ltd.$00.00%$00.00%$20,145,0000.27%$20,547,9000.26%$20,958,8580.26%$20,909,1850.26%$21,066,6300.26% Alberto Way Holdings LLC$00.00%$00.00%$20,114,4000.27%$20,516,6870.26%$20,927,0180.26%$20,877,4180.26%$21,034,6230.26% D&K Los Gatos LLC$00.00%$00.00%- 0.00%$14,041,5730.18%$20,400,0000.26%$20,351,6510.25%$15,284,3240.19% CHL Ventures LP$00.00%$00.00%$19,380,0000.26%$19,767,5990.25%$20,162,9500.25%$20,115,1630.25%$20,266,6300.25% San Jose Water Works$16,778,5270.27%$17,303,3410.25%$17,828,9020.24%$19,934,4910.25%$20,162,8480.25%$23,313,9780.29%$29,369,1370.36% Toll House Hotel LLC$13,063,0370.21%$13,943,3900.20%$17,991,9460.24%$16,127,9370.20%$18,986,1450.24%$15,848,6260.20%$15,696,0890.19% Grade Way Apartments VI$00.00%$00.00%- 0.00%$14,151,2370.18%$14,434,2610.18%- 0.00%- 0.00% Lyon Baytree Apartments LLC$00.00%$15,799,0760.23%$16,232,9770.22%$16,722,7480.21%$14,161,5250.18%$14,111,4070.18%$14,177,0390.17% KSL Capital Partners$00.00%$00.00%$00.00%$27,838,9030.35%$14,030,0960.18%$39,960,1140.50%$41,698,7510.51% Los Gatos Hotel Corp.$15,240,2300.24%$15,574,8900.23%$15,919,8360.22%- 0.00%$13,906,2730.17%$15,978,0090.20%$15,683,9790.19% David A. and Shari Flick$00.00%- 0.00%- 0.00%- 0.00%$14,614,4470.18%$14,724,4870.18% Pter R. Hofman$0- 0.00%- 0.00%- 0.00%$13,247,1240.16%- 0.00% Paul H. Roskoph$11,730,0000.19%$11,964,6000.17%- 0.00%- 0.00%$12,696,9240.16%- 0.00%$12,926,4570.16% Elizabeth K. Dodson$11,523,0060.18%$00.00%- 0.00%- 0.00%$12,617,1400.16%- 0.00%- 0.00% Health Care Property Partners$26,238,2350.42%$26,762,9980.39%$27,298,2540.37%$27,844,2160.35%- 0.00%- 0.00%- 0.00% BR3 Partners$14,492,1440.23%$12,890,0000.19%$15,718,5940.21%$21,182,5950.27%- 0.00%- 0.00%- 0.00% Community Hospital of Los Gatos Inc.$24,916,7740.40%$25,415,1050.37%- 0.00%$17,081,9710.21%- 0.00%- 0.00%- 0.00% Ohana University Ave. LLC$11,793,9340.19%$12,029,8100.18%- 0.00%- 0.00%- 0.00%- 0.00%- 0.00% Robert M. Granum II$10,975,1550.18%$00.00%- 0.00%- 0.00%- 0.00%- 0.00%- 0.00% GS Baytree LP$10,785,2610.17%$00.00%- 0.00%- 0.00%- 0.00%- 0.00%- 0.00% Robson Homes LLC$00.00%11,500,001 0.17%- 0.00%- 0.00%- 0.00%- 0.00%- 0.00% GHC Shannon Valley Ranch LLC$0 0.00%$13,355,200 0.20%$20,087,540 0.27%- 0.00%- 0.00%- 0.00%- 0.00% Sports Resorts Inc.$28,128,7740.45%$29,845,5530.44%$17,142,6780.23%- 0.00%- 0.00%- 0.00%- 0.00% Good Samaritan Hospital LP$15,561,6320.25%$15,213,3170.22%$15,866,5480.21%- 0.00%- 0.00%- 0.00%$19,372,7950.24% Windrose Los Gatos Properties LLC$00.00%$00.00%$14,626,6410.20%- 0.00%- 0.00%- 0.00%- 0.00% Grade Way Associates VI$13,311,0000.21%$13,577,2200.20%$13,873,7630.19%- 0.00%- 0.00%$14,400,0500.18%$14,508,4820.18% Park Row East Apartments Ltd.$13,231,6910.21%$13,496,3230.20%$13,766,2490.19%- 0.00%- 0.00%- 0.00%- 0.00% LG Business Park LLC$13,231,6910.21%$13,496,3230.20%$00.00%- 0.00%- 0.00%- 0.00%$18,342,9310.23% Total - Principal taxpayers365,299,051$ 5.84%410,672,019$ 6.00%449,095,018$ 6.07%561,809,638$ 7.07%560,999,695$ 6.95%582,218,627$ 7.24%583,795,249$ 7.16% Total - All real properties assessed by the Town (1)$6,259,830,939 $6,840,335,733 $7,392,958,751 $7,949,991,620 $8,075,202,207 $8,043,793,200 $8,151,530,237 (1) Assessed value includes only net secured real properties. Source Data: California Municipal Statistics, Inc. 2011/122005/062006/072007/082008/092009/102010/11 86 Town of Los Gatos Schedule 8 Property Tax Levies and Collections Last Ten Fiscal Years Value of Redevelopment AgencyValue of TownRedevelopmentTotal PropertyValue of TownPropertyProperty Property TaxProperty TaxTax LeviedProperty subjectSubject to Subject to FiscalLevied andLevied andandto Local TaxLocal Local YearCollectedCollectedCollectedRateTax RateTax Rate 20034,736,560$ 4,037,443$ 8,774,003$ 5,162,418,263$ 1,941,931,823$ 7,104,350,086$ 20044,834,464 4,376,896 9,211,361 5,480,295,734 753,210,332 6,233,506,066 20055,348,483 5,013,350 10,361,833 5,834,517,887 804,306,862 6,638,824,749 2006 5,739,846 5,976,062 11,715,909 6,446,525,005 897,448,660 7,343,973,665 20076,386,562 7,425,925 13,812,488 7,034,530,942 996,479,040 8,031,009,982 20086,901,935 8,072,176 14,974,111 7,594,588,066 1,081,483,541 8,676,071,607 20097,465,403 8,574,251 16,039,654 8,166,393,709 1,096,883,582 9,263,277,291 20107,608,137 9,022,863 16,630,999 8,317,387,662 1,134,135,499 9,451,523,161 20117,567,880 6,861,650 14,429,530 8,262,045,836 1,117,973,351 9,380,019,187 20127,520,265 3,349,254 10,869,519 8,369,756,750 1,115,727,508 9,485,484,258 Sources: Santa Clara County Auditor-Controller Office and the Town of Los Gatos $4.0 $4.5 $5.0 $5.5 $6.0 $6.5 $7.0 $7.5 $8.0 $8.5 $9.0 $9.5 Billions Value of Property $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 $11.0 $12.0 $13.0 $14.0 $15.0 $16.0 $17.0 Millions Tax Levied 87 Town of Los Gatos Schedule 9 Ratios of Outstanding Debt by Type Last Ten Fiscal Years 199220022010 CertificateCertificateCertificateTotalTotal Percentage of FiscalofofofGovernmentalPrimaryPersonal Per YearParticipationParticipationParticipationActivitiesGovernmentIncomeCapita 20031,775,000 10,725,000 12,500,000 12,500,000 8.7%432.98 20041,615,000 10,515,000 12,130,000 12,130,000 9.1%419.56 20051,445,000 10,300,000 11,745,000 11,745,000 8.7%405.49 20061,270,000 10,075,000 11,345,000 11,345,000 7.9%389.65 20071,085,000 9,845,000 10,930,000 10,930,000 7.3%372.25 2008890,000 9,610,000 10,500,000 10,500,000 6.2%348.03 2009685,000 9,370,000 10,055,000 10,055,000 5.5%329.70 2010470,000 9,120,000 15,675,000 25,265,000 25,265,000 19.4%820.24 2011240,000 8,865,000 15,675,000 24,780,000 24,780,000 19.7%835.72 2012- - - - - 0.0%1)0.00 * Data is being compiled by departments but unavailable at printing 1)Debt was transferred to the Successor Agency trust fund as a part of the RDA dissolution Notes: Details regarding the Town's outstanding debt can be found in the notes to the financial statements (1) See Schedule 12 for personal income and population data Governmental Activities 88 Town of Los GatosSchedule 10 Direct and Overlapping Governmental Activities Debt As of June 30, 2012 2011/12 Assessed Valuation:$8,369,756,750 Redevelopment Incremental Valuation$0(2) Adjusted Assessed Valuation:$8,369,756,750 Estimated Share of Direct and Debt atOverlapping Debt DIRECT AND OVERLAPPING BONDED DEBT:% ApplicableJune 30, 2012at June 30, 2012 Overlapping Tax & Assesment Debt Santa Clara County2.795%316,800,000$ 8,854,560$ West Valley-Mission Community College District10.489%210,961,930$ 22,127,797$ Campbell Union High School District8.294%161,195,000$ 13,369,513$ Los Gatos-Saratoga Joint Union High School District29.808%51,160,000$ 15,249,773$ Cambrian School District0.444%18,304,944$ 81,274$ Campbell Union High School District8.856%148,704,944$ 13,169,310$ Los Gatos Union School District66.374%94,060,000$ 62,431,384$ Saratoga Union School District0.015%45,413,558$ 6,812$ Union School District20.266%70,008,042$ 14,187,830$ Town of Los Gatos 1915 Act Bonds100.000%260,000$ 260,000$ Santa Clara Valley Water District Benefit Assessment District2.795%133,440,000$ 3,729,648$ Total Overlapping Tax and Assesmet Debt153,467,901$ Overlapping General Fund Debt Santa Clara County General Fund Obligations2.795%770,947,000$ 21,547,969$ Santa Clara County Pension Obligations2.795%383,034,822$ 10,705,823$ Santa Clara County Board of Education Certificates of Participation2.795%11,540,000$ 322,543$ West Valley-Mission Community College District General Fund Obligations10.489%65,715,000$ 6,892,846$ Campbell Union High School District General Fund Obligations8.294%12,451,514$ 1,032,729$ Los Gatos-Saratoga Joint Union High School District Certificates of Participation29.808%9,070,000$ 2,703,586$ Saratoga Union School District Certificates of Participation0.015%5,830,000$ 875$ Santa Clara County Vector Control District Certificates of Participation2.795%3,630,000$ 101,459$ Midpeninsula Regional Open Space Park District General Fund Obligations 4.623%138,474,717$ 6,401,686$ Total Overlapping General Fund Debt49,709,515$ Total of Overlapping Debt203,177,416$ Direct Debt Town of Los Gatos Certificates of Participation (2)100.000%-$ -$ Total Direct Debt-$ Total Direct and Overlapping Bonded Debt203,177,416$ Ratios to 2011/12 Assessed Valuation: Total Overlapping Tax and Assessment Debt: 1.83% Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($23,985,000 ): 0.32% Combined Total Debt: 3.03% State School Building Aid Repayable as of 6/30/12: $0.00 Source Data: California Municipal Statistics, Inc. (1) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. (2) Excludes RDA asessed valuation and debt transferred to the Successor Agency trust as a part of the RDA dissolution. 89 Town of Los Gatos Schedule 11 Legal Debt Margin Information, Last Ten Fiscal Years (In Thousands of Dollars) Legal Debt Margin Calculation for Fiscal Year 2012/13 Assessed Value8,107,537,357 Debt limit1,216,130,604 Debt applicable to limit:- Legal Debt Margin1,216,130,604 2003/042004/052005/062006/072007/082008/092009/102010/112011/122012/13 Debt limit702,761 788,790 842,159 932,872 1,019,970 1,102,766 1,185,727 1,204,551 1,195,035 1,216,131 Debt applicable to limit- - - - - - - - - - Legal debt margin702,761 788,790 842,159 932,872 1,019,970 1,102,766 1,185,727 1,204,551 1,195,035 1,216,131 Total net debt applicable to the limit0.00%0.00%0.00%0.00%0.00%0.00%0.00%0.00%0.00%0.00% as a percentage of debt limit Notes: (2) Excludes RDA asessed valuation and debt transferred to the Successor Agency trust as a part of the RDA dissolution. (1) The Town of Los Gatos is a general law city and has a debt limit of 15%. Fiscal Year 90 Town of Los GatosSchedule 12 Demographic and Economic Statistics Last Ten Fiscal Years Personal IncomePer CapitaPublic County Fiscal(thousands PersonalMedian School Unemployment YearPopulationof dollars)IncomeAgeEnrollmentRate Ended(1)(2)(3)(4)(5)(6) 200328,870 1,432,385 49,615 41.895,525 9.1% 200428,911 1,338,724 46,305 42.525,529 6.7% 200528,965 1,342,904 46,363 44.045,610 5.5% 200629,116 1,430,527 49,132 44.195,718 4.7% 200729,362 1,500,751 51,112 44.645,742 4.8% 200830,170 1,681,525 55,735 44.865,870 6.0% 200930,497 1,833,083 60,107 45.356,006 11.9% 201030,802 1,303,695 42,325 45.096,100 11.1% 201129,651 1,254,979 42,325 44.226,184 8.7% 201229,854 1,732,069 58,018 42.646,352 7.9% Source: (1) California State Dept. of Finance - Population Research Unit (January 2010) (2) California State Dept. of Finance - Estimate equals county per capita average times population (3) California State Dept of Finance - county per capita at: labormarketinfo.edd.ca.gov (4) Claritas demographic snapshot report (5) Los Gatos Saratoga Joint Union and Los Gatos Union Elementary School Districts (6) State of California, Employment Development Dept., Labor Market Info. Div. 91 Town of Los Gatos Schedule 13 Principal Employers Last Seven Fiscal Years PercentagePercentagePercentagePercentagePercentagePercentagePercentage of Total Townof Total Townof Total Townof Total Townof Total Townof Total Townof Total Town Major EmployersEmployeesEmploymentEmployeesEmploymentEmployeesEmploymentEmployeesEmploymentEmployeesEmploymentEmployeesEmploymentEmployeesEmployment Columbia Health Care Assoc/Mission Oaks Hospital2,000 13.36%2,000 13.09%2,000 12.89%2,000 12.31%2,000 12.17%2,000 12.60%2,000 13.89% - 0.00%- 0.00%- 0.00%800 4.92%700 4.26%700 4.41%700 4.86% Community Hospital of Los Gatos730 4.88%730 4.78%730 4.70%- 0.00%- 0.00%- 0.00%- 0.00% Los Gatos Union School District300 2.00%300 1.96%300 1.93%300 1.85%300 1.83%300 1.89%275 1.91% Los Gatos-Saratoga High School District300 2.00%300 1.96%300 1.93%300 1.85%300 1.83%300 1.89%270 1.88% Netflix280 1.87%280 1.83%280 1.80%- 0.00%280 1.70%800 5.04%800 5.56% Safeway250 1.67%250 1.64%250 1.61%200 1.23%250 1.52%250 1.57%900 6.25% Alain Pinel Realtors220 1.47%220 1.44%220 1.42%- 0.00%220 1.34%220 1.39%150 1.04% Verizon200 1.34%200 1.31%200 1.29%200 1.23%- 0.00%- 0.00%- 0.00% Courtside Tennis Club200 1.34%200 1.31%200 1.29%200 1.23%200 1.22%200 1.26%200 1.39% Town of Los Gatos152 1.02%152 0.99%135 0.87%189 1.16%152 0.92%150 0.94%150 1.04% 2011/12 El Camino Hospital, Los Gatos 2010/112005/062006/072007/082008/092009/10 92 Town of Los Gatos Schedule 14 Full-time-Equivalent Employees by Function/Program Last Ten Fiscal Years 2002/032003/042004/052005/062006/072007/082008/092009/102010/112011/12 Function/Program General Government23.25 23.10 21.35 19.95 20.75 20.50 19.95 18.35 18.90 20.15 Police73.00 69.00 65.30 62.00 62.00 61.00 61.00 60.00 59.50 60.50 Culture and Recreation4.25 4.25 4.25 4.25 4.25 5.25 5.25 5.25 3.25 - Economic Development1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Library11.25 10.75 11.10 10.35 10.35 10.35 10.35 10.35 8.60 8.60 Planning19.00 18.60 19.60 18.80 18.80 18.80 18.80 17.80 15.00 16.00 Public Works44.00 41.00 37.00 37.00 34.00 34.00 37.00 35.00 32.50 32.00 Total175.75 167.70 159.60 153.35 151.15 150.90 153.35 147.75 138.75 138.25 Full-time equivalent employment is calculated as one or more employee positions totaling one full year of service or approximately 2,080 hours a year. Full-time-Equivalent Employees as of June 30 93 Town of Los Gatos Operating Indicators Last Seven Fiscal Years Schedule 15 FUNCTION/PROGRAM General government 2006/072007/082008/092009/102010/112011/12 Building Permits Issued Residential Permits Issued878 762 676 733 711 747 Residential Permits Value80,030,698 69,104,606 48,162,274 51,090,808 42,974,043 66,072,341 Commercial Permits Issued136 127 24 117 128 107 Commercial Permits Value31,916,848 27,232,018 4,356,307 7,908,146 31,289,431 17,663,124 Publically Owned Permits Issued2 11 11 - Publically Owned Permits Value2,308,160 5,732,014 40,000 - Residential Parking Permits Number of Special Event Permits Issued67 72 76 87 96 89 Number of Annual Permits Issued492 621 752 686 713 1,223 City Clerk Number of Council Resolutions Passed117 130 143 167 76 59 Number of Ordinances Passed 4 6 13 16 6 13 Number of Contracts Passed156 221 197 206 218 227 General Services Number of Purchase Orders Issued588 557 396 365 336 318 Police Physical Arrests1,062 1,165 925 831 872 690 Parking Violations10,136 4,041 11,148 11,512 14,377 12,938 Traffic Violations1,674 1,714 2,588 3,008 2,718 2,908 DUI Arrests148 100 88 110 98 89 Library Circulated e-audiobooks1,506 965 1,516 1,852 1,994 3,388 Other Public Works Street Resurfacing/Overlay/Reconstruction (miles)1.7 2.1 3.5 4.7 4.7 8.0 ADA Compliance: Curb Ramps9 9 9 13 17 19 Traffic Circles1 1 1 1 1 1 Street Poles1,575 1,575 1,575 1,605 1,708 1,611 Planning and Development Department Building & Safety Inspections Performed13,376 11,110 10,367 9,055 10,977 11,738 Redevelopment: Number of active projects2 4 3 3 1 - Note : Data prior to 2005/06 is not available. * Source: Town of Los Gatos, Finance Department Fiscal Year 94 Town of Los Gatos Schedule 16 Capital Asset Statistics by Function/Program Last Six Fiscal Years 2006/072007/082008/092009/102010/112011/12 Function/Program Police Number of Stations1 1 1 2 2 2 Number of Patrol Units15 15 15 14 14 14 Parking Enforcement Vehicles3 3 3 2 2 2 Other Public Works Streets (miles)112 112 112 112 112 112 Streetlights2,190 2,190 2,190 2,112 2,115 2,116 Traffic Signals 28 28 28 28 28 29 Parks and Recreation Number of Parks12 12 12 12 12 12 Number of Community Centers1 1 1 1 1 1 Parking Number of Parking Garages1 1 1 1 1 1 Number of Parking Lots22 22 22 22 22 22 Number of Off Street Parking Garage Spaces1,126 1,126 1,126 1,126 1,126 1,126 Source: Town of Los Gatos, Finance Department Note: Certain data required by GASB 44 was not available prior to 2005/06. Fiscal Year Other Independent Auditor’s Reports Page | 95 1475 Saratoga Ave, Suite 180, San Jose, CA 95129 Tel: 408-217-8749 • E-Fax: 480-247-5523 info@cnallp.com • www.cnallp.com 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 The Honorable Mayor and Members of the Town Council Town of Los Gatos We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Town of Los Gatos (the “Town”) as of and for the year ended June 30, 2012, which collectively comprise the Town’s basic financial statements and have issued our report thereon dated January 22, 2013. 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 Management of the District is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered Town’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 Town’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Town’s internal control over financial reporting. A deficiency in internal control 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 and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, 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 Other Matters As part of obtaining reasonable assurance about whether Town of Los Gatos’ 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 Page | 96 1475 Saratoga Ave, Suite 180, San Jose, CA 95129 Tel: 408-217-8749 • E-Fax: 480-247-5523 info@cnallp.com • www.cnallp.com 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 Government Auditing Standards. This report is intended solely for the information and use of management, Town Council, others within the entity, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. San Jose, California January 22, 2013