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2011032105 - FY 2009/10 Comprehensive Annual Financial Report (CAFR)we of MEETING DATE: 3121/2011 ITEM NO: 5 rWi( 1pS COUNCIL /AGENCY AGENDA REPORT DATE: MARCH 15, 2010 TO: MAYOR AND TOWN COUNCIL/ CHAIR AND MAMBERS OF THE REDEVELOPMENT AGENCY ¢� FROM: GREG LARSON, TOWN MANAGER/EXECUTIVE DIRECTOR SUBJECT: ACCEPT THE FY 2009/10 COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) RECOMMENDATION Accept the FY 2009/10 Comprehensive Annual Financial Report (CAFR). BACKGROUND The attached FY 2009/10 CAFR presents the Town of Los Gatos and Town of Los Gatos Redevelopment Agency's financial, operational, and current economic condition for the fiscal year ending June 30, 2010. The CAFR received an unqualified opinion from C.G. Uhlenberg LLP, the Town's external auditors. An unqualified opinion indicates the financial data of the Town is fairly presented according to general accounting principles. New auditing standards require that any "significant deficiency" or "material weaknesses" discovered in the audit be communicated in writing to management. A material weakness is a significant deficiency which could lead to a material misstatement of the financial statements. The auditor's report found the Town's internal control structure to have no reportable material weaknesses. DISCUSSION C.G. Uhlenberg LLP, the Town's auditors, conducted an audit in accordance with Generally Accepted Auditing Standards (GAAS) and the standards for financial audits contained in the Government Audit Standards (1994 Revision), issued by the Comptroller General of the United States. These standards require that they plan and perform the audits to obtain reasonable assurance as to whether the financial statements are free of material misstatement. PREPARED BY : STEPHEN D. CONWAYt. e �! Finance and Administrative icea Director SDC:pg NVINANCE\CAFRTY 2009- 101CAFR Agenda Report 2009- 10.doc - Reviewed by: ) Assistant Town Manager /Deputy Director (11t) Town Att orney /General Counsel Clerk Administrator /Secretary Finance` Community Development PAGE 2 MAYOR AND TOWN COUNCIL /CHAIR AND MEMBERS OF THE REDEVELOPMENT AGENCY SUBJECT: ACCEPT THE FY 2009/10 COMPREHENSIVE ANNUAL FINANCIAL REPORT (CAFR) AND MANAGEMENT LETTER MARCH 15, 2010 On March 14, 2010, the Council Finance Committee reviewed the CAFR for year ending June 30, 2010 with the Town's auditors and received an unqualified or "clean" opinion for the year, meaning that the financial statements were fairly presented and contained no material misstatements. The review also included a discussion of Town assets. The CAFR reported that the Town's assets exceeded liabilities by approximately $124 million. Of the $124 million, $66.2 million are capital infrastructure assets, or non -cash assets. The remaining $57.8 million reflects a comprehensive accounting of working capital and restricted funds, which ensure responsible fiscal management, and funds designated for specific proposes. The $57.8 million is classified into 3 reserve categories: Restricted /Obligated, Financial Best Practices, and Designated. Restricted /Obligated funds represent a mix of restricted reserves that have been legally appropriated for a specific use and obligated cash to cover outstanding operating costs or legally binding contracts for services. The Financial Best Practices category recognizes the prudent use of "pre- funding" methods for ongoing business needs like vehicle replacement or the establishment of emergency reserves for catastrophic events. Designated funds are those that have been dedicated for specific purposes via Council policy. Examples of designated reserves include capital and special projects, land acquisition, and revenue. stabilization to preserve basic services to the community while making incremental organizational adjustments to align services with revenues over time. CONCLUSION As noted in the auditor's opinion, the CAFR fairly presents the fiscal year ending June 30, 2010 financial activity for the Town of Los Gatos and Redevelopment Agency. After reviewing the financial documents with the Town's external auditors and Town staff, the Council Finance Committee recommends that the Council accept the CAFR for year ending June 30, 2010. ENVIRONMENTAL ASSESSMENT Is not a project defined under CEQA, and no farther action is required. Attachments: Comprehensive Annual Financial Report (CAFR) — Available for viewing in the Clerk Department and at the Los Gatos Public Library. TOWN OF LOS GATOS CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2010 PREPARED BY THE OFFICE OF THE TOWN MANAGER This page left intentionally blank 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 WE 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 H, 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 28,910. 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. This page left intentionally blank TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2010 TABLE OF CONTENTS TITLE INTRODUCTORY SECTION: 07.T -M Tableof Contents ................................................................................................. ............................... i Letterof Transmittal ................................................................ ............................... ............................ iii PrincipalOfficers ................................................................................................. ............................... ix OrganizationChart ................................................................:.............................. ............................... x GFOAAward ...................................................................................................... ............................... xi FINANCIAL SECTION: IndependentAuditor's Report ............................................................................ ............................... Management's Discussion and Analysis ............................................................ ............................... Basic Financial Statements: Government -Wide Financial Statements: .................................................................................... 12 Statementof Net Assets ......................................................................... ............................... 13 Statementof Activities .......................................................................... ............................... 14 Fund Financial Statements: GovernmentalFunds: ........................................................................................................... 15 BalanceSheet ..................................................................................... ............................... 16 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets ............................................................. : .......................... ......... 17 Statement of Revenues, Expenditures and Changes in Fund Balances ............................. 18 Reconciliation of Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances to the Statement of Activities ....... ............................... 19 Statement of Revenue, Expenditures and Changes in Fund Balances — Budget and Actual (GAAP) General Fund ..................................... ............................... 20 Proprietary Funds — Internal Service Funds: ................. Statement of Net Assets ............... ............................... Statement of Revenue, Expenses and Changes in Net Statement of Cash Flows ............. ............................... 21 22 23 24 FiduciaryFunds: ............... -- ........................ ...................................................................... 25 Statement of Fiduciary Net Assets ..................................................... ............................... 26 Statement of Changes in Fiduciary Net Assets .................................. ............................... 27 Notes to the Basic Financial Statements ....................................................... ............................... 28 SUPPLEMENTARY INFORMATION: Major Governmental Fund Schedules (other than the General Fund): .......................................... 56 Schedule of Revenue, Expenditures and Changes in Fund Balance — Budget and Actual (GAAP) Appropriated Reserves Fund .................... ............................... 57 TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2010 TABLE OF CONTENTS Schedule of Revenue, Expenditures and Changes in Fund Balance — Budget and Actual (GAAP) Certificates of Participation Fund ............. ............................... 58 Schedule of Revenue, Expenditures and Changes in Fund Balance — Budget and Actual (GAAP) Redevelopment Agency Affordable Housing Fund ................ 59 Nonmajor Governmental Funds: ...................................................................................................... 60 CombiningBalance Sheets ........................................................................... ............................... 61 Combining Schedule of Revenues, Expenditures and Changes in FundBalances ....................................................................................... ............................... 63 Budgeted Nonmajor Funds Combining Schedule of Revenues, Expenditures and Changes in Fund Balances — Budget and Actual (GAAP) .................... ............................... 65 InternalService Funds ....................................................................................... ............................... 70 CombiningStatement of Net Assets ............................................................. ............................... 71 Combining Statement of Revenue, Expenses and Changes in Net Assets- ................................. 72 Combining Statement of Cash Flows ..................................................... . ............................... I.... 73 AgencyFunds :.................................................................................................... ............................... 74 Statement of Changes in Assets and Liabilities - Parldng Improvement District #88 ................. 75 STATISTICAL SECTION: NetAssets by Component .................................................................................... ............................... 77 Changesin Net Assets ......................................................................................... ............................... 78 Fund Balances, Governmental Funds .................................................................. ............................... 80 Changes in Fund Balances, Governmental Funds ................................................ ............................... 81 Assessed Value and Estimated Actual Value of Taxable Property ...................... ............................... 82 Directand Overlapping Property Tax Rates ........................................................ ............................... 83 PrincipalProperty Tax Payers ............................................................................. ............................... 84 PropertyTax Levies and Collections ................................................................... ............................... 85 Ratiosof Outstanding Debt by Type ................................................................... ............................... 86 Direct and Overlapping Governmental Activities Debt ....................................... ............................... 87 LegalDebt Margin ............................................................................................... ...............I............... 88 Demographicand Economic Statistics ........... I .................................................... ............................... 89 PrincipalEmployers ............................................................................................. ............................... 90 Full-time Equivalent Town Government Employees by Function/ Program ........ ............................... 91 Operating Indicators by Function/ Program ......................................................... ............................... 92 Capital Assets Statistics by Function / Program .................................................... ............................... 93 OTHER INDEPENDENT AUDITOR'S REPORTS: Report on Compliance and on Internal Control over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ............. 94 17 T) - iii i E OF THE TOWN MANAGER (408) 354 -6832 FAx: (408) 399 -5786 December 17, 2010 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, 2010. 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 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, 2010, 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 C.G. Uhlenberg LLP, the Town's independent certified public accountants. Page 2 Mayor and Town Council December 17, 2010 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 30,802. 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 elected 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. It also includes the financial activities of the Los Gatos Redevelopment Agency which is governed by the Los Gatos Town Council who sit as the board members for the Agency. Financial information for the Los Gatos Redevelopment Agency is aggregated and merged with that of the Town in the financial statements in accordance with generally accepted accounting principles. ECONOAUC 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, the Town has experienced significant reductions in two of its economically sensitive revenues: sales tax and revenues related to private development activity. 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, strategic expenditure slowdowns, and departmental cost saving efficiencies among other strategies that have allowed the Town to remain fiscally balanced during these challenging economic times. Page 3 Mayor and Town Council December 17, 2010 General Fund revenues (including operating transfer -ins) declined by approximately $182,428 from the prior year. The Town relies heavily on sales tax revenues to support General Fund operations, comprising approximately 27% of General Fund revenues in FY 2009 /10. The FY 2009/10 $8.3 million sales tax receipts were $170,000 lower than the prior year's collection. This decrease in sales tax due to the continued effects of the national economic recession combined with a loss of a significant auto dealership. Other smaller declines were experienced in revenue related to private development activity including "charges for services ". and "licenses and permits." Property tax revenue (accounting for 31% of Town general fund revenues), however increased 0.5% from the prior year, mitigating some of the revenue losses sustained due to the economy. This increase is mainly the result of two factors. The first factor is the turnover of "Proposition 13" parcels to new owners. In most cases, the properties are reassessed at the current market value, resulting in additional tax revenue. The second factor is that property in the Town remains very desirable, keeping home prices generally strong. Despite the slow economic recovery, the Town continues to strategically use its Economic Vitality program to ensure fiscal health for 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 imposed an approximate $480,000 property tax "take" from the Town's Redevelopment Agency which was later ruled unconstitutional by the California Courts. Unfortunately the State was successful in taking an additional $2.2 million in redevelopment funds in FY 2009 /10 with another planned take scheduled for FY 2010/11. As a result of the State's actions, voters recently passed Proposition 22, a measure that prohibits the State from seizing redevelopment funds and other local governmental revenue. This initiative, coupled with the passage of proposition 1 A in 2005, will provide needed revenue stability protection for the future. 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's high level of services were maintained, and the General Fund continued in strong fiscal health through FY 2009 /lO.The Town will continue to work diligently through its outreach efforts to the community, the League of California Cities, and local legislators to prevent any future revenue losses. MAJOR INITIATIVES Despite the ongoing revenue challenges, FY 2009/10 was a year of high activity centering on two priority capital projects. First, the new Police Operations Building on Los Gatos Boulevard opened in the Fall 2009. This project required renovations and additions (approximately $2.4 million in the fiscal year) which resulted in a 12,000 square foot operations center for the Police Department. The second public building is Page 4 Mayor and Town Council December 17, 2010 the new Los Gatos Library. The construction of the new 30,000 square foot library began, which will be 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 the fiscal year, and is expected to open in 2012. The Town and Redevelopment Agency continued its efforts in addressing the critical capital asset and infrastructure needs of the Town. Approximately $16.0 million in Town infrastructure and other capital asset improvements were made in the year; including $9.0 million for land acquisition investments related to affordable housing, and the Town's planned new sports facility ($4.5 million and $3.5 million respectively), bridge improvements totaling $1.2 million, $435,000 in building and site improvements for the new library building, $40,000 in curb, gutter and sidewalk improvements, $150,000 in retaining wall repairs, $507,000 for traffic signal improvements, and $452,000 for various parking lot improvements. In addition approximately $995,000 was invested in the Town's streets, including improvements to major arterials and neighborhoods 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 the following years. All of these improvements are funded either through debt issuance, with grant assistance, or via revenues accumulated from prior years due to budget savings and excess revenues that Town Council policy strategically allocated for this purpose. 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. 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. Page 5 Mayor and Town Council December 17, 2010 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, 2009 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. State law requires an annual audit of the Town's accounts by independent certified public accountants. The accounting firm of C.G. Uhlenberg LLP performs this function for the Town of Los Gatos, and their report is included in the financial section of the CAFR. 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 Jenny Haruyama, Assistant Finance Director, Glenda Cracknell, Accountant/Finance Analyst; Linda Isherwood, Accountant/Finance Analyst and Gitta Ungvari Administrative Analyst, for their efforts in preparing this report. Page 6 Mayor and Town Council December 17, 2010 Respectfully submitted, Greg Larson Town Manager A 404 Stephen D. Conway Director of Finance & Administrative Services PSJ:SDC:pd N.TINANCE\CAMCAFR 2010 Transmittal Letter .doc TOWN OF LOS GATOS PRINCIPAL OFFICERS JUNE 30 9 2010 TOWN COUNCIL Mayor Diane McNutt Vice Mayor Joe Pirzynski Council Member Steve Rice Council Member Barbara Spector Council Member Mike Wasserman COUNCIL APPOINTEES Town Manager Greg Larson Acting Town Attorney Michael Martello APPOINTED OFFICIALS Assistant Town Manager Pamela Jacobs Chief of Police Scott Seaman Community Development Director Wendie Rooney Community Services Director Regina Fallmer Finance and Administrative Services Director Stephen Conway Human Resources Director Rumi Portillo Library Director Peggy Conaway Parks and Public Works Director Todd Capurso This page left intentionally blank -:. Town of Los Gatos Organizational Structure This page left intentionally blank Certificate of Achievement for Excellence in Financial Reporting . Presented to Town of Los Gatos California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2009 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officals Association of the United States and Canada to government emits end public employee retimmart systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in govemment amounting and financial reporting, This page left intentionally blank C. G. UHLENBERG LLP CERTIFIED PUBLIC ACCOUNTANTS & CONSUL 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, 2010, 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 ex aminin g, 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, 2010, 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 December 17, 2010 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. Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and budgetary comparison information on pages 3 through 11 and 56 through 75 be presented to supplement the basic financial statements. Such 333 Twin Dolphin Drive, Suite 230 . Redwood City, CA 94065 . Phone (650) 802 -8668 . Fax (650) 802 -0866 M IF 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, 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 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. d L December 17, 2010 Redwood City, California Management's Discussion and Analysis This page left intentionally blank 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, 2010. 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 2009/10 by $124,044,771 (net assets). Of this amount, $47,191,225 (unrestricted net assets) may be used to meet the Town's ongoing obligations to citizens and creditors. • The Town's net assets increased by $4,096,194 during the fiscal year. The increase is mostly due to expenditure savings in the General- Fund and redevelopment revenues exceeding budget estimates for the fiscal year. • Total fund balances for governmental funds at year end were $65,245,545, an increase of $5,700,876 (10 %) from the prior year. The aforementioned increase was largely attributable to General Fund expenditure budget savings and redevelopment revenues exceeding expenditures. • At the end of FY 2009 110, unreserved fund balance for the General Fund was $21,586,573, approximating 65% of General Fund expenditures for the current fiscal year. • The Town and Redevelopment Agency continued its efforts in addressing the critical capital asset and infrastructure needs of the Town. Approximately $16.1 million in Town infrastructure and other capital asset improvements were made in the year, including $9.0 million for land acquisition investments related to affordable housing, and the Town's planned new sports facility ($4.5 million and $3.5 million respectively), bridge improvements totaling $1.2 million, $435,000 in building and site improvements for the new library building, $40,000 in curb, gutter and sidewalk improvements, $150,000 in retaining wall repairs, $507,000 for traffic signal improvements, and $452,000 for various parking lot improvements. In addition approximately $995,000 was invested in the Town's streets, including improvements to major arterials and neighborhoods to enhance pedestrian and traffic safety. OYERYIEw 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. 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 govemment - 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 (kmown as the primary government), but also a legally separate Town of Los Gatos Redevelopment Agency (the Agency) for which the Town is financially accountable. Financial information for this blended component unit is reported as if it were part of the primary government because its sole purpose is to provide redevelopment in the Town. Additional information on this legally separate entity can be found in Note 1(A) 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-tern view of the Town's general government operations and the basic services it 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. 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 28 -55 of this report. 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 $124 million at the end of the current fiscal year. Town of Los Gatos Net Assets Unrestricted 31,072,288 . 51,619,635 Total net assets $ 124,044,771 $ 119,948,577 Capital assets represent approximately 44.1% 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 $13.6 million. The increase is the net result of approximately $16 million in infrastructure and other capital improvement made in the year. An additional portion of the Town's net assets (21.5n/o) represents resources that are subject to external restrictions on how they may be used. The Restricted Net Asset balance is composed largely of the Town's Redevelopment Agency Capital Projects and Low and Moderate Housing Funds which provide financing for low and moderate income housing opportunities and capital projects which serve the Town and its redevelopment project area. 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 25.0% of the Town's net assets at year end. Governmental Acti 2010 2009 Current and other assets $ 96,424,621 $ 90,722,619 Capital assets 76,147,647 62,720,506 Total assets 172572,268 - 153,443,125 Current liabilities 18,190,600 19,996,221 Long -term liabilities outstanding 30,336,897 13,496,327 Toted liabilities 48527,497 33,494,548 Net assets: Investment in capital assets, net of related debt 66,248,489 52,666,506 Restricted 26,723,994 15,663,436 Unrestricted 31,072,288 . 51,619,635 Total net assets $ 124,044,771 $ 119,948,577 Capital assets represent approximately 44.1% 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 $13.6 million. The increase is the net result of approximately $16 million in infrastructure and other capital improvement made in the year. An additional portion of the Town's net assets (21.5n/o) represents resources that are subject to external restrictions on how they may be used. The Restricted Net Asset balance is composed largely of the Town's Redevelopment Agency Capital Projects and Low and Moderate Housing Funds which provide financing for low and moderate income housing opportunities and capital projects which serve the Town and its redevelopment project area. 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 25.0% of the Town's net assets at year end. Governmental activities Torun of Los Gatos Statement of Activities For the Year Ended June 30, 2010 As shown in the schedule above, governmental activities for the year increased the Town's Net Assets by $4,096,194. Key elements of the increase in net assets are as follows: Property Tax revenues collected for the Town and the Redevelopment Agency accounted for 43.8 % of total Town revenues. In the midst of a national recession, properly tax revenue held strong, increasing 2.8 % from the prior year. The increase from the prior year amount is mainly due to two factors. The first factor is the gain resulting from the turnover of "pre- Proposition 13" parcels to new owners. In most cases, the property is reassessed at the current market value, generating higher taxes collected for that parcel. The second factor is that property in the Town remains very desirable; home prices remained strong, reflecting the continued desirability of the Town. Governmental Activities 2010 2009 Revenues: Program revenues: Charges for services $ 8,016,656 $ 6,192,143 Operating grants . and contributions 850,395 1,422,186 Capital grants and contributions 3,074,453 1,330,638 General revenues: Property taxes 18,856,081 18,343,063 Sales taxes 8,317,217 8,487,000 Other taxes 2,623,622 2,664,698 Motor Vehicle In Lieu 92,595 101,265 Investmeateamngs 1,155,929 2,949,119 Gain os Sale of Property - 5,841,138 Other 52,459 66,802 Total revenues 43,039,407 47,398,051 Expenses: Police Department 13,266,849 13,467,503 Parks and Public Works 7,458,085 7,987,816 General government 4,647,801 5,323,467 Community Development 3,522,477 3,389,151 Redevelopment 6,636,270 2,939,550 Library Services 2,038,009 2,067,476 Community Services 966,055 1,162,284 Sanitation 655,713 407,048 Interest and fees 612,700 631,159 Total expenses 39,803,959 37,375,454 Increase in net assets 3,235,448 10,022,597 Net assets, beginning 119,948,577 109,925,980 Prior period adjustments 860,746 - Not assets, ending $ 124,044,771 $ 119,948,577 As shown in the schedule above, governmental activities for the year increased the Town's Net Assets by $4,096,194. Key elements of the increase in net assets are as follows: Property Tax revenues collected for the Town and the Redevelopment Agency accounted for 43.8 % of total Town revenues. In the midst of a national recession, properly tax revenue held strong, increasing 2.8 % from the prior year. The increase from the prior year amount is mainly due to two factors. The first factor is the gain resulting from the turnover of "pre- Proposition 13" parcels to new owners. In most cases, the property is reassessed at the current market value, generating higher taxes collected for that parcel. The second factor is that property in the Town remains very desirable; home prices remained strong, reflecting the continued desirability of the Town. • Sales Tax revenue of $8.3 million accounted for 19.3 % of Town total revenues for the year. This 2.0% decrease of approximately $170,000 from the prior year collections is due large part to a general decline in sales tax resulting from the national recession and loss of a significant auto dealership. • Other Taxes, Other Revenues, and Motor Vehicle in Lieu Taxes of $2,716,217 accounted for 6.3% of total revenues, decreasing moderately from the prior year's amount of $2,765,963 because of the economy. • Investment Earnings of $1,155,929 accounted for 2.7% of total revenues, a 60.8% decrease from the prior year. This reduced the size of the invested portfolio interest rate position relative to the market in prior years. Total expenditures increased approximately $2,428,505 or 6.5% from the prior year. A large portion of the increase was due to the first year of a two year implementation of a State of California budget "take" of approximately $2.2 million for the Supplemental Educational Reallocation Account Fund (SERAF) payment made by the redevelopment agency during the fiscal year and increases in redevelopment tax increment tax sharing "pass through" account payments made to local taxing districts. FINANCIAL ANALYsis of THE TowN's FDNDs 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 2009110, the Town's governmental funds reported combined ending fund balances of $65,245,545, an increase of $5,700,876 in comparison with the prior year. The majority of this increase is from the General Fund expenditure budget savings and redevelopment property tax revenues exceeding estimates. Approximately 56.86 % or $37,101,224 of the total amount of governmental fund balances of $65,245,545 constitutes unreserved fund balance, which is available for spending at the Town's discretion. The remainder of fund balance is reserved and is not available for new spending because it has already been committed to: 1) pay debt service ($465,490); 2) provide for loanstadvances due to the Town ($1,500,000); 3) provide for appropriated capital projects ($20,933,143); 4) provide for low and moderate housing ($5,140,056); and 5) to provide for dedicated repair and maintenance in lighting and landscape districts ($105,632). 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, unreserved fund balance of the General Fund was $21,586,573, while total fund balances were $23,086,573. The General Fund net overall fund balance decreased to $23,086,573. General fund revenues decreased by $182,428 from the prior year. The largest decrease occurred in the sales tax revenues of approximately $169,783 due to the general effect on sales tax resulting from the national economic recession. General Fund expenditures (excluding transfers -out) increased $2,444,159 from the prior fiscal year. The biggest factor contributing to the overall increase in expenditures was the one -time expenditure of approximately $3.1 million for the purchase of land for new sports park facility. Excluding that expenditure item, General Fund expenditures actually decreased slightly from the prior year. Other Maiar Funds General Fund Appropriated Reserve (GFAR) Capital Proiects 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 increased approximately $13,250,826 from the prior year due to debt issuance made in the fiscal year. Certificates of Participation (COP) RDA Debt Service Fund The COP RDA Debt Service Fund balance totals $7,419,222 all of which is reserved or designated for the payment of debt service for Town and Redevelopment Agency activities. The net fund balance decreased in the debt service fund by $568,890 due to the net effect of tax increments received during the fiscal year and a one -time payment of approximately $2.2 million made to the State of California as part of a budget "take" related to the State's budget crisis. Redevelopment Agency Low & Moderate Housing Capital Projects Fund. This fund is used as the primary capital projects fund for the Town's Redevelopment Agency's low and moderate income housing capital program. Fund balances decreased approximately $3,491,069 from the prior year due to land acquisition expenditures for low and moderate housing. Other Non -Maior Other Governmental Funds. These funds consist primarily of special revenue fonds 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 approximately $1,549,205. Redevelopment Agency Capital Projects Fund balances decreased approximately $656,610 from the prior year due to remaining expenditures for approved capital improvements including the new police facility and library building made in the fiscal year. 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 $370,318 and $160,198 respectively versus $216,151 and $37,029 in the prior year. The increase in operating income in the Equipment Replacement from the prior year is attributable to a general slowing down of equipment replacement as one part of the organizational response to the national recession. 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 $111,271, ($7,087) and $34,936 respectively. Revenues exceeded expenditures in the Building Maintenance Fund due decreased heating, ventilation and air conditioning maintenance and repair costs experienced in the prior year. 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 $142,095 and ($13,064) respectively, versus ($776) and $236,256 in the prior year. Operating income increases for the year in the Worker's Compensation and decreases in the Self Insurance funds reflect the experience of loss claims in the current year from the prior year in the worker's compensation and the similar claims experience in the current year as the prior year in the general liability arena. -GOVERNMENT FUNDS BUDGETARY HIGHIdGIITs: Budget Adjustments Comparing the FY 2009/10 original budget (or adopted) General Fund amount of $32,572,253 (including budgeted transfers -out), the final budget amount of $36,078,489 shows a net increase of $3,506,236. Additions to the original budget included approved additions of $2,989,130 in net miscellaneous adjustments approved by Town Council throughout the fiscal year. The increase in General Fund appropriations occurred from the following budget adjustments: • The General Fund appropriated budget was increased by $3,100,000 to finance the Sport Facility land purchase. • Other General Fund adjustments included a saving of $95,200 in building maintenance expenses. due to lease of the Neighborhood Center to the Los Gatos - Saratoga Recreation Department. • The elimination a Senior Coordinator position and temporary sharing of administrative staff through a joint agreement with the Los Gatos Saratoga Recreation Department generated $84,000 in salary/benefit savings. Comparing the FY 2009 /10 final amended budget to the actual result shows $1.9 million operational saving 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 The Town's investment in capital assets for its governmental activity as of June 30, 2010, is recorded at $76,147,647 (net of accumulated depreciation). The investment in capital assets includes land, buildings and improvements, infrastructure, construction in progress and machinery and equipment. During FY 2009 /10 the Town's $16 million investment in capital assets for the current year represented approximately 21% of total assets for governmental activities. Major capital asset events during the current fiscal year include the following: Original . Approved Prior Year Misc. Adjustments Final Budget Carryforwards Encumbrances & Budget Mid -Year Adjustments $32,572,253 ^ 3154,116 $ -0- 83,352 118 836,078,489 The increase in General Fund appropriations occurred from the following budget adjustments: • The General Fund appropriated budget was increased by $3,100,000 to finance the Sport Facility land purchase. • Other General Fund adjustments included a saving of $95,200 in building maintenance expenses. due to lease of the Neighborhood Center to the Los Gatos - Saratoga Recreation Department. • The elimination a Senior Coordinator position and temporary sharing of administrative staff through a joint agreement with the Los Gatos Saratoga Recreation Department generated $84,000 in salary/benefit savings. Comparing the FY 2009 /10 final amended budget to the actual result shows $1.9 million operational saving 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 The Town's investment in capital assets for its governmental activity as of June 30, 2010, is recorded at $76,147,647 (net of accumulated depreciation). The investment in capital assets includes land, buildings and improvements, infrastructure, construction in progress and machinery and equipment. During FY 2009 /10 the Town's $16 million investment in capital assets for the current year represented approximately 21% of total assets for governmental activities. Major capital asset events during the current fiscal year include the following: $4.5 million in land acquisition investments related to affordable housing; $3.5 million land acquisition investments for a future sports facility, $1.2 million for bridge improvements; • $995,000 for streets improvements; • $507,000 for traffic signal improvements; $435,000 in building and site improvements for the new library building; $452,000 for various parking lot improvements; and • $190,000 for curb, gutter and sidewalk improvements and retaining wall repairs. June 30, 2010 Town of Los Gatos Capital Assets (net of accumulated depreciation) Governmental Activities Land $ 24,999,455 Construction in Progress Buildings Equipment Infrastructure 2,056,926 12,516,161 3,003,776 33,569,329 $ 76,147,647 Additional information on the Town's capital assets is found in Note 5 of this financial report. Debt Administration At the end of the current fiscal year, the Town had total bonded debt outstanding of $26,018,095. The entire liability is comprised of debt backed by the Town's obligation to pay lease payments to the Town's Redevelopment Agency, The Town's long -term obligations outstanding as of June 30, 2010 consist of the following: Town of Los Gatos Outstanding Debt June 30, 2010 Certificates of Participation Total Outstanding Debt Governmental Activities $ 26,018,095 26,018,095 The Town's debt obligations increased by $15,963,095 during the fiscal year. The increase resulted from the issuance of an 18 -year Certification of Participation in the original amount of $15,675,000, dated June 1. 2010. The COPS are being issued to finance the construction of the new Town Library. The rating of the Town's certificates of participation series from Moody's ranges from Aaa to Aa2 and in May 2009 the Town was one of twelve California cities to receive a ratings upgrade from Standard & Poor's, raising two notches from AA- to AA +. Additional information on the Town's long -term debt can be found in Note 6 of this report. 10 During the development and adoption of the Town's FY 2010/11 budget, the Town Council and management considered the following factors: • The Town anticipated modest decreases in sales tax growth for FY 2010/11. Early in 2010 the Town experienced declines in retail sales tax resulting due to the effects of a national recession coupled with the loss of Honda dealership in the Fall 2009. Conservative sales tax estimates for FY 2010/11 were budgeted reflecting a moderate decrease (approximately $300,000) from the prior year's adopted sales tax of approximately $8.7 million dollars. With sales tax representing approximately 25% of the Town's General Fund revenues, further declines in local sales tax collections will significantly impact the Town. • General property tax collections represent approximately 31% of the Town's General Fund revenues and reflect modest revenue growth of approximately 5% (not including the State's property tax `backfill" shifts). The Town is encouraged by the continuous trend of no negative growth in property tax collections, despite the slow economy. The growth in property taxes is largely attributable to the increase in 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 2.5% at June 30, 2009 to 1.92% at June 30, 2010. Due to a continued forecast of declining interest rates for FY 2010/11 and reduced cash balances from prior years, investment earnings are expected to be lower than the prior year. Budgeted estimates have been reduced by $280,000 from the adjusted budget estimate of $1.3 million in the prior year. This trend was built into the adopted budget estimates for the FY 2010/11. • Transient Occupancy Tax (TOT) revenues are expected to be lower in FY 2010/11 due to declines in travel and tourism. Given the reduction in travel activity, the FY 2010/11 TOT revenues were budgeted at $989,000. An 8 % decrease from the FY 2009110 adopted budget. This change reflects the anticipated room rate reductions and expected decline in tourism and business travel. 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. 11 This page left intentionally blank Basic .Financial Statements This page Ze,/t intentionally blank TOWN OF LOS GATOS, CALIFORNIA 'REHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2010 GOVERNMENT -WIDE FINANCIAL STATEMENTS STATEMENT OF NET ASSETS AND STATEMENT OF ACTIVITIES 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. 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. 12 TOWN OF LOS GATOS, CALIFORNIA STATEMENT OF NET ASSETS JUNE 30, 2010 LIABrLrr1ES Accounts payable Governmental Accrued payroll and benefits Activities ASSETS 192,620 Cash and investments (Note 3) $ 74,049,000 Restricted cash and investments (Note 3) 17,637,287 Receivables: - 4,584,369 Accounts 2,187,827 Interest 189,965 Intergovernmental 755,729 Materials, supplies and deposits 25,076 Long term notes receivables (Note 4) 1,579,737 Capital Assets (Note 6): 485,000 Nondepreciable 27,058,381 Depreciable, net of accumulated depreciation 49,089,266 Total Assets $ 172,572,268 LIABrLrr1ES Accounts payable $ 2,706,634 Accrued payroll and benefits 3,841,227 Accrued interest payable 192,620 Pass through obligations 3,210,934 Due to Other Governments 1,935 Unearned Revenue - - 4,584,369 Deposits 3,160,842 Claims payable (Note 12) 492,039 Long -term liabilities: 31,072,288 Due within one year $ 124,044,771 Compensated absences (Note l) 1,225,838 Certificates of participation (Note 7) 485,000 Due in more than one year Post retirement benefits (Note 11) 2,024,863 Compensated absences (Note 1) 1,068,101 Certificates of participation (Note 7) 25,533,095 Total Liabilities $ 48,527,497 NET ASSETS (Note 9) Invested in capital assets, net of related debt $ 66,248,489 Restricted for. Capital projects 19,524,130 Housing 5,140,056 Community development 185,305 Debt service 465,490 Redevelopment projects 1,409,013 Total Restricted Net Assets 26,723,994 Unrestricted 31,072,288 Total Net Assets $ 124,044,771 The notes to the financial statements are an integral part of this statement 13 TOWN OF LOS GATOS, CALIFORNIA STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2010 Total Governmental Activities S 39,803,959 S 9,016,656 $ 850,395 $ 3,074,453 (27,862,455) General revenues: Taxes: Net (Expense) Propertytaxes 18,856,081 Sales taxes 8,317,217 Other taxes Revenues and Motor vehicle in lieu 92,595 investment earnings 1,155,929 Miscellaneous Changes In " 31,097,903 Change in Net Assets Program Revenues Net Assets - Beginning Net Assets Prior Period Adjustments (Note 2) 860,746 Net Assets - Ending Operating Capital " Charges for Grants and Grants and Governmental Functions/Programs Expenses Services Contributions Contributions Activi(es Govemmental Activities: Police department $ 13,266,849 $ 2,110,357 $ 81,997 $ - $ (11,074,495) Parks and public works 7,458,085 779,300 594,775 3,074,453 (3,009,557) General government 4,647,801 1,337,772 10,237 - (3,299,792) Conannnity development 3,522,477 3,423,467 - -- (99,010) Redevelopment 6,636,270 19,380 - - (6,616,890) Ubraryservices 2,038,009 57,633 13,996 - (1,966,380) Community services 966,055 153,746 124,287 - (688,022) Sanitation 655,713 135,000 25,103 - (495,610) Interest end fees 612,700 (612,700) Total Governmental Activities S 39,803,959 S 9,016,656 $ 850,395 $ 3,074,453 (27,862,455) General revenues: Taxes: Propertytaxes 18,856,081 Sales taxes 8,317,217 Other taxes 2,623,622 Motor vehicle in lieu 92,595 investment earnings 1,155,929 Miscellaneous 52,459 Total general revenues 31,097,903 Change in Net Assets 3,235,448 Net Assets - Beginning 119,948,577 Prior Period Adjustments (Note 2) 860,746 Net Assets - Ending $ 124,044,771 The notes to the financial statements are an integral part of this statement 14 TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2010 FUND FINANCIAL STATEMENTS & MAJOR GOVERNMENTAL FUNDS 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, 2010. 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. Redevelopment Agency Affordable Housing Fund is used for the implementation of the Agency's required Affordable Housing Set -Aside Program obligations 15 TOWN OF LOS GATOS, CALIFORNIA GOVERNMENTAL FUNDS BALANCESHEET JUNE 30, 2010 ASSETS Cash & Investments Restricted cash & investments Receivables: Accounts Interest Intergovernmental Receivable Advances to Other Funds Total Assets Redevelopment Other Total Appropriated Certificates of Low & Modemte Governmental Governmental General Reserves Participation Housing Funds Funds S 28,380,016 $ 11,422,073 $ 12,513,635 $ 5,164,285 $ 4,335,898 $ 61,815,907 - 16,118,937 465,490 - - 1,015,867 17,600,294 554,820 1,632,029 - - - 2,186,849 189,965 - - - - 189,965 513,470 89,668 8,022 2,006 142,563 755,729 1,500,000 - - - - 1,500,000 $ 31,138,271 $ 29,262,707 $ 12,987,147 $ 5,166,291 S 5,494,328 $ 84,048,744 LIABILITIES Accounts Payable $ 769,766 $ 633,017 $ 856,991 $ 20,093 $ 21OX6 $ 2,490,183 Accrued payroll and benefits 3,789,310 4,824 - 6,142 8,799 3,809,075 Pass Through Obligations - - 3,210,934 - - 3,210,934 Due to othergovemments 1,790 - - - - 1,790 Deferred revenue 283,984 4,170,519 - - 129,866 4,584,369 Deposits 3,160,842 - - 3,160,842 Advance from Other Funds - - 1,500,000 - - 1,500,000 Compensated Absences 46,006 - 46,006 Total Liabilities 8,051,698 4,808,360 5,567,925 26,235 348,981 18,803,199 - FUND BALANCE Reserved for. Capital Outlay - - 16,118,937 - - 4,814,206 20,933,143 Debt Service - - 465,490 - - 465,490 Advances to OiberFunds 1,500,000 - - - - 1,500,000 Repair and Maintenance - - - 105,632 105,632 Low &Modaate Housing -- - - 5,140,056 - 5,140,056 Unreserved, designated for. Vascna Land Sale 2,991,589 - - - 2,991,589 Open Space 562,000 - - - - 562,000 Post RelirementMedical 400,000 - - - - 400,000 Parking - 1,460,210 - - 1,460,210 Market Fluctuations 526,525 - - - - 526,525 SuaWnability 190,553 - - - - 190,553 Productivity Enhancements 100,000 - - - - 100,000 Economic Uncertainty 3,678,001 - - - - 3,678,001 Capital Projects 4,231,246 6,853,200 - - - 11,084,446 Carryover 127,340 - - - - 127,340 ComcesfPEG - 22,000 - - - 22,000 Revenue Stabilization Fund 5,903,680 - - - - 5,903,680 Debt Service - - 6,953,732 - - 6,953,732 Special Revenue Fund - - - - 225,509 225,509 UndesignaGd 2 - - _ - - 2 ,875,639 Total Fund Balances 23,086 ,573 24,454,347 7,419,222 5,140,056 5,145,347 65,245,545 Total Liabilities and Fund Galan $ 31,138,271 $ 29,262,707 $ 12,987,147 $ 5,166,291 $ 5,494,328 $ 84,048,744 The notes to the financial statements are an integral part of this statement 16 TOWN OF LOS GATOS, CALIFORNIA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE GOVERNMENT -WIDE STATEMENT OF NET ASSETS — GOVERNMENTAL ACTIVITIES NNE 30, 2010 Fund Balance -Total Governmental Funds $ 65,245,545 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. 76,147,647 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. 11,555,353 ALLOCATION OF INTEREST ON LONG TERM DEBT Interest payable on long -term debt does not require the use of current financial resources and, therefore, are not reported in the Governmental Funds. (192,620) 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. Certificates of Participation $ (26,018,095) Post Retirement Benefits (2,024,863) Compensated absences (2,247,933) (30,290,891) 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. 1,579,737 Net Assets- Governmental Activities $ 124,1144,771 The notes to the financial statements are an integral part of this statement 17 TOWN OF LOS GATOS, CALIFORNIA GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2010 The notes to the financial statements are an integral part of this statement 18 Redevelopment other Total Approptiated Certificate of Low & Moderate Governmental Governmental General Reserves Participation Housing Fund - Funds Funds REVENUES Properly Taxes S 9,775,954 $ - $ - $ - $ 33,510 $ 9,809,464 Pmpom Tax lnctements - 9,768,775 - - 9,768,775 Less:Electiun Amount - - (745,912) - - (745,912) Sales Taxes 8,317,217 - - - 8,317,217 OthorTaxes 2,627,974 80,279 - - 109,587 2,817,840 Licenses &Permits 2,977,199 - - - - - 2,977,199 Imergovernmental 878,656 2,654,421 - - 549,648 4,082,725 Charges for Services 4,055,322 227,752 - - 135,000 4,418,074 Pines and forlbitures. 662,699 - - - - 662,699 Interest 870,512 - 163,530 50,648 89,513 1,174,203 Use ofProperty 51,948 - - - 51,948 Other 1,135,659 22,000 931,371 16,044 259 2,105,333 Total Revenue 31,353,140 2,984,452 10,117,764 66,692 917,517 45,439,565 EXPENDITURES Current: General Government 5,483,753 - - - 5,483,753 Public Safety 12,821,498 - - - - 12,821,498 Parks and Public Works 5,123,973 - - - 28,772 5,152,745 Co ®uaiyDevelopusnt 3,412,914 40,000 - - - 3,452,914 Cortaaunity Services 708,496 - - - 553,485 1,261,981 Library Services 1,999,430 - - - - 1,999,430 Sanitation and Other 218,377 309,158 - - 114,977 642,512 Reaevelopment - - 7 ,221,725 827,563 642,927 8,692,215 Capital Outlay 3,515,181 6,502,803 4,534,771 1 16,141,561 Debtservicc - Principal - - 465,000 - - 465,000 Interest &Fees 620,356 620,356 Total Expenditures 33,283,622 6,851,961 8,307,081 5 ,362,334 2,928,967 56,733,965 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (1,930,482) (3,867,509) 1,810,683 (5,295,642) (2,011,450) (11,294,400) OTHER FINANCING SOURCES (USES) Debt Issuance - - 15,675,000 - - - 15,675,000 Debt premiums - 753,095 - - 753,095 Transfets in 814,696 834,636 - 1,804 ,573 575,000 4,028,905 Ttransfm (old) (825,000) (144,396) (2,379,573) (112,756) (3,461,725) Total OtherFinancing Sources (Uses) (10,304) 17,118,335 (2,379,573) 1 462a4 16,995,275 NET CHANGES IN FUND BALANCES (1,940,786) 13,250,826 (568,890) (3,491,069) (1,549,206) 5,700,875 BEGINNING FUND BALANCES 25,027,359 11,203,521 7988,112 8,631,125 6,694,553 59,544,670 ENDING FUND BALANCES S 23,086,573 $ 24,454,347 $ 7,419,222 $ 5,140,056 $ 5,145,347 $ 65,245,545 The notes to the financial statements are an integral part of this statement 18 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, 2010 Net change in Fund Balances -Total Governmental Funds $ 5,700,875 Amounts reported for Governmental Activities in the Statement of Activities are different because of the following: 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 $ 16,018,198 Current Year Depreciation (2,591,058) 13,427,140 LONG -TERM DEBT PROCEEDS AND PAYMENTS Debt proceeds provide current financial resources to governmental funds, but issuing debt (16,428,095) increases long -term liabilities in the Statement of Net Assets. 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 participation 465,000 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 as revenue or expenditures in governmental funds,(net change): Interest payable 7,654 Compensated absences 70,146 Post retirement benefits (971,155) 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 governrental activities. 244,892 LONG TERM NOTES RECEIVABLES AND ASSOCIATED DEFERRED REVENUE Expenditures to establish deferred revenue associated with long term notes receivables are recorded for Statement of Revenues, Expenditures and Changes in Fond Balances, however, they have no impact on the Statement of Activities - 566,185 Interest income from long term notes receivables is recorded on the Statement of Activities but is considered a resource not available for governmental funds 58,141 The issuance of long term notes receivables is recorded as an expenditure on the governmental funds but increases long -term assets in the Statement of Net Assets 94,665 Change in Net Assets - Governmental Activities $ 3,235,448 The notes to the financial statements are an integral part of this statement 19 TOWN OF LOS GATOS, CALIFORNIA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL (GAAP) FOR THE YEAR ENDED JUNE 30, 2010 Public Safety 12,926,566 12,950,329 12,821,498 VARIANCE WITH Community Development 3,843,823 3,917,957 3,412,914 FINAL BUDGET Parks & Public Works _ ORIGINAL FINAL 5,123,973 POSITIVE Community Services BUDGET BUDGET ACTUAL (NEGATIVE) REVENUES 2,067,116 2,144,866 1,999,430 145,436 Properly Taxes $ 9,248,120 $ 9,548,120 $ 9,775,954 $ 227,834 Sales Taxes 8,677,460 8,377,460 8,317,217 (60,243) Other Taxes 2,774,260 2,724,260 2,627,974 (96,286) Licenses & Permits 3,027,130 2,727,130 2,977,199 250,069 Intergovernmental 796,090 710,165 878,656 168,491 Charges for Services 4,055,495 4,035,995 4,055,322 19,327 Fines and forfeitures 496,040 596,040. 662,699 66,659 Interest 1,580,000 1,300,000 870,512 (429,488) Use of Property 61,675 50,675 51,948 1,273 Other 1,369,228 1,369,228 1,135,659 (233,569) Total Revenues 32,085,498 31,439,073 31,353,140 (85,933) EXPENDITURES Current General GovernmenC Town Council 159,321 166,015 160,697 5,318 Town Attorney 214,912 261,056 252,369 8,687 A dministra tive Services 2,361,441 2,375,636 2,363,715 11,921 Non - Departmental 3,261,970 3,163,035 2,706,972 456,063 Total General Government 5,997,644 5,965,742 5,483,753 481,989 Public Safety 12,926,566 12,950,329 12,821,498 128,831 Community Development 3,843,823 3,917,957 3,412,914 505,043 Parks & Public Works 5,602,015 5,625,998 5,123,973 502,025 Community Services 1,040,033 875,609 708,496 167,113 Library Services 2,067,116 2,144,866 1,999,430 145,436 Sanitation & Other 270,056 266,762 218,377 48,385 Capital Outlay 3,506,224 3,515,181 (8,957) Total Expenditures 31,747,253 35,253,487 33,283,622 1,969,865 EXCESS (DEFICIT) OF REVENUES OVER EXPENDITURES 338,245 (3,814,414) (1,930,482) (2,055,798) OTHER FINANCING SOURCES (USES) Operating transfers in 338,040 617,280 814,696 197,416 Operating transfers (out) (825,000) (825,000) (825,000) - Total Other Financing Sources (Uses) _ (486,960 ) (207,720) (10,304) 197,416 NET CHANGES IN FUND BALANCES - $ (148,715) $ (4,022,134) (1,940,786) FUND BALANCE, BEGINNING 25,027,359 FUND BALANCE, ENDING S 23,086,573 - The notes to the financial statements are an integral part of this statement 20 TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30; 2010 PROPRIETARY FUNDS - INTERNAL SERVICE FUNDS 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. 21 TOWN OF LOS GATOS, CALIFORNIA PROPRIETARY FUNDS - STATEMENT OF NET ASSETS JUNE 30, 2010 Governmental Activities Internal Service Funds ASSETS Current Assets: Cash and investments available for operations (Note 3) $ 12,233,093 Restricted cash and cash equivalents (Note 3) 36,993 Accounts Receivable 978 Materials, supplies, and deposits 25,076 Total current assets 12,296,140 Noncurrent Assets: Capital assets, net of accumulated depreciation (Note 6) 61,326 Total noncurrent assets 61,326 Total Assets $ 12,357,466 L1A13II.ITIES Current Liabilities: Accounts payable $ 216,451 Accrued payroll and benefits 32,152 Due to other governments 145 Total current liabilities 248,748 Noncurrent liabilities: Claims payable (Note 12) 492,039 Total noncurrent liabilities 492,039 Total Liabilities $ 740,787 NET ASSETS (Note 9) Invested in capital assets $ 61,326 Restricted for workers compensation claims 36,993 Unrestricted 11,518,360 Total Net Assets $ 11,616,679 The notes to the financial statements are an integral part of this statement 22 TOWN OF LOS GATOS, CALIFORNIA PROPRIETARY FUNDS - STATEMENT OF REVENUE, EXPENSES AND CHANGES IN NET ASSETSNET ASSETS FOR THE YEAR ENDED JUNE 30, 2010 Governmental Activities Internal Service Funds OPERATING REVENUES Charges for services $ 4,121,582 Interest 39 Other 156,559 Total Operating Revenues 4,278,180 OPERATING EXPENSES Salaries and related expenses 1,003,588 Insurance expenses 310,796 Depreciation 13,401 Services and Supplies 2,151,728 Total Operating Expenses 3,479,513 Operating Income 798,667 Transfers in (Note 5) 8,990 Transfers (out) (Note 5) (576,170) Net transfers (567,180) Change in Net Assets 231,487 BEGINNING NET ASSETS 11,385,192 ENDING NET ASSETS $ 11,616,679 The notes to the financial statements are an integral part of this statement 23 TOWN OF LOS GATOS, CALIFORNIA PROPRIETARY FUNDS - STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2010 Governmental Activities Internal Service Funds 9 f ]�.i NMI ] Tt 1;7:4 y 1 [�7: L�711 q / Mme` Receipts from customers $ 4,284,506 Payments to suppliers (1,615,811) Payments to employees (1,006,528) Claims paid (941,241) Cash Flows From Operating Activities 720,926 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers In 8,990 Transfers Out (576,170) Net cash provided (used) by noncapital financing activities (567,180) CASH FLOWS FROM CAPITAL RELATED FINANCING ACTIVITIES Acquisition of Capital Assets 136 Cash Flows used by capital related Financing Activities 136 Net Cash Flows 153,882 Cash and investments at beginning of period 12,116,204 Cash and investments at end of period $ 12,270,086 Reconciliation of Operating Income to Cash Flows from Operating Activities: Operating Income 798,667 Adjustments to reconcile operating income to cash flows from operating activities: Depreciation 13,401 Change in assets and liabilities: Receivables, net 6,326 Other assets - 7,169 Accounts payable and other accrued expenses - 48,207 Other accrued expenses (152,844) Cash Flows From Operating Activities $ 720,926 The notes to the financial statements are an integral part of this statement 24 TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED .TUNE 30, 2010 FIDUCIARY FUNDS 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. 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. 25 TOWN OF LOS GATOS FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS JUNE 30, 2010 PRIVATE PURPOSE TRUST AGENCY FUND Parking Improvement Library District #88 ASSETS Cash and investments (Note 3) Restricted cash and investments (Note 3) Intergovernmental receivable Total Assets $ 339,536 $ 46,752 - 279,606 - 358,913 339,536 $ 685,271 LIABILMES Accounts payable Due to other governments Total Liabilities 275 $ - - 685,271 275 $ 685,271 NET ASSETS Reserved for library trust Total Net Assets 339,261 $ 339,261 The notes to the financial statements are an integral part of this statement 26 TOWN OF LOS GATOS PRIVATE PURPOSE LIBRARY TRUST FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FOR THE YEAR ENDED NNE 30, 2010 Trust Fund ADDITIONS Interest $ 6,540 Other 20,738 Total Additions 27,278 DEDUCTIONS Library services 21,572 Total Deductions 21,572 CHANGE IN NET ASSETS 5,706 NET ASSETS, BEGINNING OF YEAR 333,555 NET ASSETS, END OF YEAR $ 339,261 The notes to the financial statements are an integral part of this statement i 27 Notes to Basic Financial Statements This page left intentionally blank TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Description of the Financial Reporting End The Town of Los Gatos (the "Towe 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 are provided primary through the Redevelopment Agency of the Town. 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, 2010 was 30,802. 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. The Agency is governed by the Town Council in a separate capacity from the Town as members of the Redevelopment Agency Board. The financial statements of the Agency's can be obtained from the Town of Los Gatos at 110 East Main St., Los Gatos, California, 95031. C. Description of Joint Ventures and Public Entitv Risk Pool As described in Note 12, 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'D are not included in the accompanying basic financial statements as boards separate from and independent of the Town administer them. 28 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 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 minimi 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. 29 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 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. Maior Funds GASB Statement 34 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. Redevelopment Agency Affordable Housing Fund is used for the implementation of the Agency's required Affordable Housing Set -Aside Program obligations. 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 are 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. The Town reported the following Fiduciary Funds in the accompanying financial statements: 30 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 Library Private Purpose Trust Fund was established to provide for the servicing of donations and bequests to the Town's Library Program. History Project 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 Trust Fund was established by Austen 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 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. Parking Improvement District Agency Fund was established to account for non- obligation bond debt service payments and assessments. F. Basis of Accountin 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. 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 31 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30.2010 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 follows statements and interpretations of the Financial Accounting Standards Board and its predecessors issued on or before November 30, 1989, in accounting for its business -type activities, unless those pronouncements conflict with GASB pronouncements. Cash Eanivalents - 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. 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 Pavables - 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 fund balance reserve account in applicable Town funds to indicate the extent to which they are not available for appropriation and are not expendable available financial resources. 32 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 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 Statement 34, 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 2540 years Machinery and equipment 2 -20 years Furniture and fixtures 5 -12 years Software 5 -7 years Infrastructure 20 -40 years 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% 33 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 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 Balance Additions Payments Ending Balance Current Portion Compensated absences are liquidated by the fund that has portion of governmental activities compensated absences fund. Only compensated absences related to terminat ed financial statements. $ 2,389,619 1,259,705 (1,355,385) $ 2,293,939 $ 1,225,838 recorded the liability. The long -term is liquidated primarily by the General employees are reported in the fund Long Term Liabilities - In the government -wide financial statements long -term debt and other long -term obligations are reported as liabilities in the applicable governmental activities 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. hi 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. 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 3CII 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. 34 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 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 I Levy dates January l January 1 Due dates (delinquent as of) 50% on November 1 (December 10) March 1 (August 31) 50% on February 1 (April 10) 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. 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. 35 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 Reclassifications — Certain accounts in the prior -year financial statements have been reclassified for the presentation in the current -year financial statements. G. Upcoming Accounting and Reporting Chanties The GASB has issued Statement No. 54, "Fund Balance Reporting and Governmental Fund Type Definitions." This Statement establishes new categories for reporting fund balance and revises the definitions for governmental fund types. The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2010. The Town is currently evaluating the impact of this pronouncement on its financial statements. The GASB has issued Statement No, 57, "OPEB Measurements by Agent Employers and Agent Multiple - Employer Plans ", which expands the use of the alternative measurement method to an agent employer government that has an individual - employer OPEB plan with fewer than 100 total plan members. The Statement also provides guidance about the frequency and timing of measurements by governments that participate in agent multiple- employer other postemployment benefit plans and how those measurements must be coordinated with the reporting needs of the agent multiple - employer OPEB plan itself. The provisions related to the frequency and timing of measurements are effective for actuarial valuations first used to report funded status information in OPEB plan financial statements for periods beginning after June 15, 2011. The Town is currently evaluating the impact of this pronouncement on its financial statements. The GASB has issued Statement No. 59, Financial Instruments Omnibus. The Statement updates and improves existing standards regarding financial reporting of certain financial instruments and external investment pools. The Statement is effective for financial statements for periods beginning after June 15, 2010, with earlier application encouraged. The Town is currently evaluating the impact of this pronouncement on its financial statements. 2. CHANGE IN FINANCIAL STATEMENT PRESENTATION AND PRIOR PERIOD ADJUSTMENT During the current year, the Town has determined that long term notes receivables and associated deferred revenue were presented incorrectly in prior years. To correct this error, notes receivables and associated deferred revenue were eliminated on fund financials. The deferred revenue on government -wide Statement of Net Assets was also eliminated. This change had no impact on fund balances but increased beginning net assets by $860,746. 3. 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 36 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 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 $7,897,091 as of June 30, 2010. 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, 2010, $7,647,091 of the Town's cash balance was not insured by FDIC and was 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 m aximiz e 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, 2010, LAY had approximately $71 billion in investments. LAW 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, 2010 included a portion of the pooled funds invested in structured notes and asset - backed securities. These investments are described as follows. 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. 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 apool of mortgages (such as Collateralized Mortgage Obligations) or credit card receivables. As of June 30, 2010 the Town had $20,995,480 invested in LAIF, which had invested 5.42% 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 37 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 LAIR This factor is the result of dividing all LAIF participants' total aggregate fair value (69,555,776,591) by total aggregate amortized cost (69,441,630,091) resulting in a factor of 1.001643776. Custodial Credit Risk - This 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 and Interest Rate Risk Policies - 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, 2010. 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% 38 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS NNE 30, 2010 The following is a summary of the Town's Cash and Investments (stated at fair value) as of June 30, 2010. (1) Limited to US Agency Obligations with liquid markets and readily determinable fair market values, including FBLB, FNMA, Freddie Mac, FFCB, the Federal Land Bank, and the TVA. 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 Town Funds Totals Cash and investments available for operation $ 74,049,000 $ 386,288 $ 74,435,288 Restricted cash and investments 17,637,287 279,606 17,916,893 Total cash and investments $ 91,686,287 $ 665,894 $ 92,352,181 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. 39 Available Concentration Time to Weighted for Investment of Credit Mature Average Investment Type /Cash Deposit Operations Restricted Total Rating Risk (Years) Matimty U.S. Government Agency securities: UnionBank(1) $ 45,615,192 $ - $ 45,615,192 Aaa/AAA_ 54% 1.53 0.83 Government Securities Money Market Mutual Funds 421,693 17,270,679 17,692,372 Not Rated 21% LAIF 20,849,240 146,240 20,995,480 Not Rated 25% 0.56 0.14 Total Investments 66,886,125 17,416,919 84,303,044 100% Cash Deposits with Banks 7,545,013 220,368 7,765,381 Certificates of Deposit - 279,606 279,606 Cash on hand at Town 4,150 4,150 Total Cash and Investments $ 74,435,288 $ 17,916,893 $ 92,352,181 (1) Limited to US Agency Obligations with liquid markets and readily determinable fair market values, including FBLB, FNMA, Freddie Mac, FFCB, the Federal Land Bank, and the TVA. 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 Town Funds Totals Cash and investments available for operation $ 74,049,000 $ 386,288 $ 74,435,288 Restricted cash and investments 17,637,287 279,606 17,916,893 Total cash and investments $ 91,686,287 $ 665,894 $ 92,352,181 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. 39 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 4. LONG -TERM NOTES RECEIVABLE The Town had the following long -term notes receivable as of June 30, 2010: Description Interest Rate Maturity General Fund: Open Doors Associates, Ltd. 7% 2024 Community Development Block Grant Fund (CDBG): Active Home Loans Varioius Open Doors Associates, Ltd. Housing Conservation Loans 1V14WON)OW 7% 0 -5% Redevelopment Agency Affordable Housing Fund (RDA Housing) Project Match Dittos Lane Family Housing, L.P. Total RDA Housing Total Long -Term Notes Receivable Various 2024 Various Balance 627,705 205,525 82,733 98,660 386,918 Various Various 470,449 3% Various 94,665 565,114 $ 1,579,737 Ouen Doors Associates Ltd. And Mid - Peninsula Housine 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 Ioans, 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, 2010, $710,438 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. 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 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 40 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 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, 2010, no interest or principal payment has been made. Dittos Predevelopment Loan — During the year ended June 30, 2010, the Town entered into a loan agreement with Dittos Lane Family Housing, L.P., a California limited partnership, in the principal amount of $94,665. The loan is used to redevelop the affordable housing rental property, a maximum of 32 townhouse style apartments, and secured by the property. In addition, the loan repayments including principal, interest, late charges, prepayment fees, reasonable costs, and etc. are guaranteed by ROEM Development Corporation, a company affiliated with the borrower. 5. INTERFUND TRANSACTIONS Inter -fund Receivables and Pavables - 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 due to or due from other funds are long -term loans between funds that are to be repaid in their entirety over several years. As of June 30, 2010, inter -fund receivables and payables consisted of the following: General Fund Certificates of Participation Total Advances Advances From Other To Other Funds Funds $ - $ 1,500,000 1,500,000 - $ 1,500,000 $ 1,500,000 The General Fund has an advance of 1,500,000 to the Certificates of Participation Debt Service Fund to finance Agency operations. 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. 91 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 Transfers between funds during the fiscal year ended June 30, 2010 were as follows: 6. CAPITAL ASSETS Changes in capital assets during the fiscal year are shown as follows: Balance at Balance at June 30, 2009 Additions Retirements June 30, 2010 Capital Assets not being depreciated: Fund Receiving Transfers Land $ 17,348,389 $ 7,651,066 $ - $ 24,999,455 Redevelopment 438,488 1,620,438 - 2,058,926 Total capital assets not being depreciated 17,786,877 Low and - 27,058,381 General Appropriated Internal Moderate Nonmajor Total Funds Malting Transfers Fund Reserve Service Housing Governmental Transfers Out General Fund $ $ 825,000 $ $ - . $ - $ 825,000 Certificates of Participation 8,938,883 Infrastructure - Streets 44,060,271 1,804,573 575,000 2,379,573 Appropriated Reserve 135,406 - 8,990 - - 144,396 Internal Service 568,370 7,800 - 576,170 Nonmajor Governmental 110,920 1,836 - 4,917,886 Equipment and Improvements 112,756 Total Transfers In $ 814,696 $ 834,636 $ 8,990 $ 1,804,573 $ 575,000 $ 4,037,595 6. CAPITAL ASSETS Changes in capital assets during the fiscal year are shown as follows: Balance at Balance at June 30, 2009 Additions Retirements June 30, 2010 Capital Assets not being depreciated: Land $ 17,348,389 $ 7,651,066 $ - $ 24,999,455 Construction in Progress 438,488 1,620,438 - 2,058,926 Total capital assets not being depreciated 17,786,877 9,271,504 - 27,058,381 Capital Assets being depreciated: Buildings and Improvements 13,743,088 3,690,959 - 17,434,047 Equipment & Vehicle 8,765,705 834,279 729,827 8,870,157 Infrastructure - All Other 7,712,317 1,226,566 - 8,938,883 Infrastructure - Streets 44,060,271 994,890 - 45,055,161 Total capital assets being depreciated 74,281,381 6,746,694 729,827 80,298,248 Less accumulated depreciation for: Buildings and Improvements 4,653,305 264,581 - 4,917,886 Equipment and Improvements 5,853,816 742,392 729,827 5,866,381 Infrastructure -All Other 819,600 246,135 - 1,065,735 Infrastructure - Streets 18,021,030 1,337,950 19,358,980 Total acccumulated depreciation 29,347,751 2,591,058 729,827 31,208,982 Net capital assets being depreciated 44,933,630 4,155,636 - 49,089,266 Governmental activity capital assets, net $ 62,720,507 $ 13,427,140 $ - $ 76,147,647 42 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30. 2010 Depreciation Allocation - 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: 7. 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. Original Issue Balance Balance Current Amount _ June 30, 2009 Additions Retirements June 30, 2010 Portion 1992 Certificates of Participation, 5 -9 %, due 8/1/2012 $ 2,960,000 $ 685,000 $ - $ 215,000 $ 470,000 $ 230,000 2002 Certificates of Participation, Series A, 2.5 -5 0 /o, due 8/1/2031 10,725,000 9,370,000 - 250,000 9,120,000 255,000 2010 Certificates of Participation, 2.5-4.25°/., due 8/1/2028 15,675,000 - 15,675,000 - 15,675,000 - Total Long -Term Debt $ 29,360,000 $ 10,055,000 $ 15,675,000 $ 465,000 $ 25,265,000 $ 485,000 1992 Certificates of Participation (1992 COPs) - The Town issued 1992 COPs in the original principal amount of $2,960,000 dated August 1, 1992 to finance certain construction costs of the Town's Parking Lot 4 Project, which 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 1 which interest payments payable semi- annually on February 1 St and August l The Town has pledged motor vehicle license fee revenues as collateral for the repayment of the Certificates. 43 Depreciation Governmental Activities Expense General Government $ 203,141 Public Safety 332,698 Parks & Public Works 1,802,110 Community Development 74,129 Community Services 12,799 Library 34,713 Sanitation 29,775 Redevelopment 101,693 Total Governmental Activities $ 2,591,058 7. 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. Original Issue Balance Balance Current Amount _ June 30, 2009 Additions Retirements June 30, 2010 Portion 1992 Certificates of Participation, 5 -9 %, due 8/1/2012 $ 2,960,000 $ 685,000 $ - $ 215,000 $ 470,000 $ 230,000 2002 Certificates of Participation, Series A, 2.5 -5 0 /o, due 8/1/2031 10,725,000 9,370,000 - 250,000 9,120,000 255,000 2010 Certificates of Participation, 2.5-4.25°/., due 8/1/2028 15,675,000 - 15,675,000 - 15,675,000 - Total Long -Term Debt $ 29,360,000 $ 10,055,000 $ 15,675,000 $ 465,000 $ 25,265,000 $ 485,000 1992 Certificates of Participation (1992 COPs) - The Town issued 1992 COPs in the original principal amount of $2,960,000 dated August 1, 1992 to finance certain construction costs of the Town's Parking Lot 4 Project, which 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 1 which interest payments payable semi- annually on February 1 St and August l The Town has pledged motor vehicle license fee revenues as collateral for the repayment of the Certificates. 43 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 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, the Town issued $15,675,000 in 2010 COPS 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 I 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. Future debt service requirements of the 1992, 2002, and 2010 Certificates of Participation (collectively the "COPS ") as of June 30, 2010, were as follows: For the Year Governmental Activities Ending June 30 Principal Interest 2011 $ 485,000 $ 864,486 2012 1,035,000 1,053,726 2013 925,000 1,017,971 2014 955,000 980,577 2015 990,000 938,055 2016 -2020 5,540,000 4,034,537 2021 -2025 6,805,000 2,693,908 2026 -2030 7,260,000 1,057,451 2031 1,270,000 64,250 $ 25,265,000 $ 12,704,961 The Agency must maintain 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 Town fails to meet its obligations under the COPS issue and totaled $940,387 at June 30, 2010. 44 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 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. 8. SPECIAL ASSESSMENT DISTRICT DEBT WITHOUT COMNffn%IENT 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 $490,000 as of June 30, 2010 and was excluded from the Town's financial statements. 9. NET ASSETS AND FUND BALANCES GASB Statement 34 adds the concept of Net Assets, which is measured on the full accrual basis, to the concept of Fund Balance, which is measured on the modified accrual basis. Net Assets - Net Assets is 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 Govemment -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 is 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 is not restricted to use. Reservations of Fund Balances - Fund balance consists of reserved and unreserved amounts. Reserved fand balance represents that portion of fund balance or retained earnings that has been appropriated for expenditure or is legally segregated for a specific future use. As of June 30, 2010, portions of fund balance had been reserved because of the following: 45 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30.2010 Encumbrances are reserved to encumber fund balance for purchase order commitments made before fiscal year end. Capital Outlay reserves are funded from storm drain fees, construction taxes and debt proceeds that are legally restricted for major capital projects. Debt Service reserves reflect the cash balances in the debt service funds that are restricted for debt service payments. Advances to Other Funds are reserved to reflect long -term loans to other funds that are not available for expenditure. Repairs and Maintenance reserves reflect 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. Low & Moderate Housing reserves reflect the amounts to be expended for low and moderate - income housing or rental rehabilitation. Designations of Fund Balances - A portion of unreserved fund balance may be designated to indicate plans for financial resource usage in a future period, such as for general contingencies or capital projects. As of June 30, 2010, portions of unreserved fund balance had been designated for the following purposes and the remaining balance is unreserved. Vasona Land Sale designations will be used for acquisition and development of a new Town sports park. Open Space designations will be used to make selective open space acquisitions. Post Retirement Medical designations will be used to aid in funding actuarially determined requirements for retiree medical costs. Parking designations will be used to mitigate parking issues within the Town. Market Fluctuations designations will be used to mitigate parking issues within the Town. Sustainability designations will be used to fund ongoing sustainability initiatives and programs. Productivity Enhancement designations will be used to fund requests that result in streamlining or improving existing service levels. Economic Uncertainty designations will be used to fund future fluctuations in the economy that are not currently foreseen. This designation is calculated at 25% of the 2003 -04 operating budget. 46 TORN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30.2010 Capital Projects designations will be used for the acquisition and construction of capital facilities. Carryover designations will be used for encumbered items re- appropriated in the following year. Comcast PEG designations will be used to fund capital improvements linked to the televising of council and planning commission meetings. Revenue Stabilization designations 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. Debt Service designations will be used to fund the future payments of principal and interest on long -term debt. Special Revenue Fund designations will be used for the activities of the respective revenue Rind. Excess of Expenditures over Appropriations — No general fund or special revenue funds have expenditures in excess of budget for the year ended June 30, 2010. 10. 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 defied 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, 2010 was 14.584% of annual covered payroll for non - safety (miscellaneous) and 33.838% 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, 2010, the Town's $3,041,472 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, 2007 actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included: (a) 7.75% investment rate of return (net of administrative expenses); (b) projected annual salary increases that vary by age, duration of service, and type of employment; (c) 3.0% inflation; 47 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 (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 10% 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 of Net Pension Ended Cost (APC) APC Contributed Obligation 6/30/2008 1,569,903 100% 6/30/2009 1,633,426 100% - 6/30/2010 1,638,539 100% Miscellaneous Plan: Fiscal Year Annual Pension Percentage of Net Pension Ended Cost (APC) APC Contributed Obligation 6/30/2008 1,255,648 100% 6/30/2009 1,200,192 100% 6/30/2010 1,402,933 100% 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, 48 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30.2010 Safety Plan: Miscellaneous Plan: Unfunded Entry Age Actuairal Unfunded Annual (Overfunded) Valuation Accrued Value of (Overfunded) Funded Covered Liability as % Date Liability Assets Liability Ratio Payroll of Payroll 2006 $ 7,278,049,834 $ 6,102,615,567 $ 1,175,434,267 83.8% $ 754,730,438 155.7% 2007 $ 7,986,055,176 $ 6,826,599,459 $ 1,159,455,717 85.5% $ 831,607,658 139.4% 2008 $ 8,700,467,733 $ 7,464,927,716 $ 1,235,540,017 85.8% $ 914,840,596 135.1% Miscellaneous Plan: 11. 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 maybe obtained from their Executive Office, 400 P Street, Sacramento, CA 95814. Funding Poll ev - 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, 2010, the Town contributed $949,845 to the plan, including $399,845 for current premiums (approximately 70% of total premiums) and an additional $550,000 to prefund benefits. Plan members receiving benefits 49 Unfunded Entry Age Actuairal Unfunded Annual (Overfunded) Valuation Accrued Value of (Overfunded) Funded Covered Liability as % Date Liability Assets Liability Ratio Payroll of Payroll 2006 $ 49,962,417 $ 45,930,398 $ 4,032,019 91.9% $ 8,628,525 46.7% 2007 $ 55,198,246 $ 50,026,550 $ 5,171,696 90.6% $ 8,739,598 59.2% 2008 $ 59,377,787 $ 53,904,084 $ 5,473,703 90.8% $ 9,643,094 56.8% 11. 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 maybe obtained from their Executive Office, 400 P Street, Sacramento, CA 95814. Funding Poll ev - 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, 2010, the Town contributed $949,845 to the plan, including $399,845 for current premiums (approximately 70% of total premiums) and an additional $550,000 to prefund benefits. Plan members receiving benefits 49 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 contributed $185,874, or approximately 30% of the total premiums, through their required contribution of $472 per month for retiree -only coverage and $643 for retiree and spouse coverage. Annual OPEB Cost and Net OPEB Obligation - As of June 30, 2010 and for the year then ended, the Town's Net OPEB Obligation (N00) and Annual OPEB Cost were as follows: NOO as of June 30, 2009 Annual OPEB Cost Annual Required Contribution Interest on N00 NOO adjustment Contributions made (includes benefit payments) NOO as of June 30, 2010 1,953,000 58,000 (90,000) 1,053,708 1,921,000 (949,845) $ 2,024,863 Trend Information - Three -year trend information will be presented in 2011. FY 08/09 was the year of implementation of GASB No. 43 and GASB No. 45 and the Town has elected to implement prospectively. As such, comparative data for prior years is not available. Actual Annual OPEB Employer Percentage Net OPEB Year Cost Contribution Contributed Obligation 2009 $ 1,800,000 $ 746,292 41% $ 1,053,708 2010 1,921,000 949,845 49% 2,024,863 Funded Status and Funding Progress - As of January 1, 2010, the most recent actuarial valuation date, the plan was 2.4% funded. The actuarial accrued liability (AAL) for benefits was $17,712,000 and the actuarial value of plan assets was approximately $425,000, resulting in an unfunded actuarial accrued liability (UAAL) of $17,287,000. The covered payroll (annual payroll of active employees covered by the plan) was $13,477,000 and the ratio of UAAL to the covered payroll was 128 %. 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. 50 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30.2010 In the January 1, 2010 actuarial valuation, the entry age normal actuarial cost method was used. The actuarial assumptions used in the valuation are as follows: 1. Investment return of 5.25% per annum for the FY 08/09, trending upward 0.25% — 0.30% per year to 7.75 % in FY 17/18. 2. Projected salary increases of 3.25 %. 3. The annual healthcare cost trend rate of 4.5% is the ultimate rate. The select rates were 9.7% -10.9% depending on plans but were reduced to the ultimate rate in 2017. 4. Total inflation is assumed to increase 3.0% annually. 5. Amortization method: Level percentage of payroll. 6. Amortization period: a. 30 -year closed period for initial unfunded actuarial accrued liability (UAAL) (28 years remaining as of June, 30, 20 10) 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) 12. 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 51 Unfunded Entry Age Actuaial Unfunded Annual (Overfunded) Valuation Accrued Value of (Overfunded) Funded Covered Liability as % Date Liability Assets Liability Ratio Payroll of Payroll 2008 $ 14,265,000 $ - $ 14,265,000 0.0% $ 13,372,000 106.7% 2010 17,712,000 425,000 17,287,000 2.4% 13,477,000 128.3% 12. 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 51 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS NNE 30, 2010 for vehicle damage. Once the Town's deductible is met, ABAG becomes responsible for payment of all claims up to the limit. Condensed full accrual basis audited financial information of ABAG as of and for the year ended June 30, 2009, as provided by ABAG, P.O. Box 2050, Oakland, CA 94604, is as follows: Total Assets $ 44,979,622 Total Liabilities 17,617,173 Net Assets $ 27,362,449 Total Operating Revenue $ 9,615,371 Total Operating Expense 14,980,964 Net Operating Income (5,365,593) General Revenue 2,643,949 Change in Net Assets (2,721,644) Beginning Net Assets 30,084,093 Ending Assets $ 27,362,449 Local Aeencv Workers' Compensation Joint Powers Authority fLAWCX) — 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, 2009, is as follows: 52 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 Total Assets $ 42,235,314 Total Liabilities 29,895,891 Net Assets $ 12,339,423 Total Operating Revenue $ 10,677,774 Total Operating Expense 8,315,831 Net Operating Income 2,361,943 General Revenue 2,481,801 Change in Net Assets 4,843,744 Beginning Net Assets 7,495,679 Ending Assets $ 12,339,423 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. 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. 53 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 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 corriputed as follows as of June 30, 2010: Workers' Self Compensation Insurance Internal Internal Service Fund Service Fund Total Claims payable balance - June 30, 2008 $ 432,771 $ 441,200 $ 873,971 Claims incurred 375,818 277,694 653,512 Inc. /(Dec.) in estimated liability for prior claims 7,795 109,047 116,842 Claims paid (298,518) (705,401) (1,003,919) Claims payable balance - June 30, 2009 517,866 122,540 640,406 Claims incurred 1,880,461 229,875 (2,219) (290,036) 2,110,336 (2,219) (2,256,484) Inc. /(Dec.) in estimated liability for prior claims Claims paid (1,966,448) Claims payable balance - June 30, 2010 13. SERAF $ 431,879 $ 60,160 $ 492,039 On July 24, 2009, the State Legislature passed Assembly Bill (AB) 26 4x, which requires redevelopment agencies statewide to deposit a total of $2.05 billion of property tax increment in county "Supplemental" Educational Revenue Augmentation Funds ( SERAF) to be distributed to meet the State's Proposition 98 obligations to schools. The SERAF revenue shift of $2.05 billion will be made over two years, $1.7 billion in fiscal year 2009 -2010 and $350 million in fiscal year 2010 -2011. The SERAF would then be paid to school districts and the county offices of education which have students residing in redevelopment project areas, or residing in affordable housing projects financially assisted by a redevelopment agency, thereby relieving the State of payments to those schools. The Agency paid approximately $2.2 million to SERAF due in May 2010 from the Certificates of Participation Fund. The Agency's share of this revenue shift for the year ended June 30, 2011 is approximately $457,000. 14. COMMITMENTS AND 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. 54 TOWN OF LOS GATOS, CALIFORNIA NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30, 2010 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, 2010, the Town has uncompleted construction contracts. The remaining commitment on the construction contracts was approximately $1,490,730. 55 Supplementary .Information This page left intentionally blank TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2010 MAJOR GOVERNMENTAL FUND SCHEDULES (OTHER THAN THE GENERAL FUND) 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. Redevelopment Agency Affordable Housing Fund is used for the implementation of the Agency's required Affordable Housing Set -Aside Program obligations 56 TOWN OF LOS GATOS APPROPRIATED RESERVES FUND IG SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (GAAP) FOR THE YEAR ENDED JUNE 30, 2010 REVENUES Other taxes Intergovernmental Charges for services Other Total Revenues EXPENDITURES Community development Sanitation and other Capital outlay Total Expenditures Variance Original Final Positive Budget Budget Actual (Negative) $ 80,000 $ 80,000 $ 80,279 $ 279 2,740,730 2,668,872 2,654,421 (14,451) 177,000 232,620 227,752 (4,868) - 22,000 22,000 2,997,730 2,981,492 2,984,452 2,960 40,000 40,000 - 309,158 309,158 26,188,480 6,758,937 6,502,803 (256,134) 26,188,480 6,798,937 6,851,961 53,024 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (23,190,750) (3,817,445) (3,867,509) 55,984 OTHER FINANCING SOURCES (USES) Debt Issuance 14,000,000 14,000,000 15,675,000 1,675,000 Operating transfers in 959,480 851,836 834,636 (17,200) Operating transfers (out) (171,000) (179,990) (144,396) 35,594 Total Other Financing Sources (Uses) 14,788,480 14,671,846 16,365,240 1,693,394 CHANGE IN FUND BALANCE $ {8,402,270) $ 10,854,401 12,497,731 $ 1,749,378 BEGINNING FUND BALANCE ENDING FUND BALANCE 11,203,521 $ 23,701,252 57 TOWN OF LOS GATOS CERTIFICATES OF PARTICIPATION FUND SCHEDULE OF REVENUES, EXPENDITURE! AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (GAAP) FOR THE YEAR ENDED NNE 30, 2010 EXPENDITURES Redevelopment 3,714,360 3,714,360 7,221,725 (3,507,365) Debt Service: Principal 465,000 465,000 465,000 Interest & fees 614,970 614,970 620,356 (5,386) Total Expenditures 4,794,330 4,794,330 8,307,081 (3,512,751) EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 3,521,590 3 706,590 1,810,683 (1,895,907) OTHER FINANCING SOURCES (USES) Operating transfers in - - - Operating transfers (out) (70,460) (70,460) (2,379,573) (2,309,113) Total Other Financing Sources (Uses) (70,460) (70,460) (2,379,573) Variance CHANGE IN FUND BALANCE Original Final (568,890) Positive Budget Budget Actual (Negative) REVENUES Property taxes $ 8,132,460 $ 8,132,460 $ 9,768,775 $ 1,636,315 Less ERAF payment (745,910) (745,910) (745,912) (2) Interest 3,400 188,400 163,530 (24,870) Other 925,970 925,970 931,371 5,401 Total Revenues 8,315,920 8,500,920 10,117,764 1,616,844 EXPENDITURES Redevelopment 3,714,360 3,714,360 7,221,725 (3,507,365) Debt Service: Principal 465,000 465,000 465,000 Interest & fees 614,970 614,970 620,356 (5,386) Total Expenditures 4,794,330 4,794,330 8,307,081 (3,512,751) EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 3,521,590 3 706,590 1,810,683 (1,895,907) OTHER FINANCING SOURCES (USES) Operating transfers in - - - Operating transfers (out) (70,460) (70,460) (2,379,573) (2,309,113) Total Other Financing Sources (Uses) (70,460) (70,460) (2,379,573) (2,309,113) CHANGE IN FUND BALANCE $ 3,451,130 $ 3,636,130 (568,890) BEGINNING FUND BALANCE ENDING FUND BALANCE 7,988,112 $ 7,419,222 58 TOWN OF LOS GATOS REDEVELOPMENT AGENCY HOUSING SET ASIDE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL (GAAP) FOR THE YEAR ENDED JUNE 30, 2010 Variance Original Final Positive Budget Budget Actual (Negative) REVENUES Interest $ 200,000 $ 200,000 $ 50,648 $ (149,352) Other - - 16,044 16,044 Total Revenues 200,000 200,000 66,692 (133,308) EXPENDITURES Redevelopment 383,354 770,354 827,563 (57,209) Capital outlay - 4,621,874 4,534,771 87,103 Total Expenditures 383,354 5,392,228 5,362,334 29,894 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (183,354) (5,192,228) (5,295,642) (103,414) OTHER FINANCING SOURCES (USES) Operating transfers in Operating transfers (out) 1,571,430 1,571,430 1,804,573 (233,143) Total Other Financing Sources (Uses) 1,571,430 1,571,430 1,804,573 (233,143) CHANGE IN FUND BALANCE $ 1,388,076 $ (3,620,798) (3,491,069) BEGINNING FUND BALANCE 8,631,125 ENDING FUND BALANCE $ 5,140,056 59 TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2010 NONMAJOR GOVERNMENTAL FUNDS 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. 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, Iandscaping, irrigation systems and lighting within the boundaries of Tract No. 8439. 60 TOWN OF LOS GATOS $ NONMAJOR GOVERNMENTAL FUNDS $ 2,508,102 COMBINING BALANCE SHEETS $ 595,048 JUNE 30, 2010 Restricted cash & investments CAPITAL PROJECTS FUNDS - Storm Construction Gas Redevelopment Total Drains Tax Tax Agency Capital Capital Projects Funds Fund Fund Projects Funds ASSETS Cash & Investments $ 722,709 $ 2,508,102 S 359,469 $ 595,048 $ 4,185,328 Restricted cash & investments - - - 832,492 832,492 Receivables: Accounts - - - - - Intergovernmental Receivable - - - - - Long Term Notes Receivable - - - - Total Assets $ 722,709 $ 2,508,102 $ 359,469 $ 1,427,540 $ 5,017,820 LIABILITIES Accounts Payable $ - S I85,087 $ - $ 12,475 $ 197,562 Accrued payroll and benefits - - - 6,052 6,052 Deferred revenue Total Liabilities 185,087 18,527 203,614 FUND BALANCE Reserved fir. Repair and Maintenance - - -. - Long Term Notes Receivable - - - - - Capital Projects 722,709 2,323,015 359,469 1,409,013 4,814,206 Unreserved, designated for. Unallocated Fund Balance Total Fund Balances 722,709 2,323,015 359,469 1.409,013 4,814,206 Total Liabilities and Fund Balance $ 722,709 $ 2,508,102 $ 359,469 $ 1,427,540 $ 5,017,820 (Continued) 61 a (Concluded) 62 TOWN OF LOS GATOS NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEETS JUNE 30, 2010 SPECIAL REVENUE FUNDS Community Non -Point Total Total Non Major Development Source Lighting and Special Revenue Governmental Fund Maintenance Landscaping Funds Funds ASSETS Cash & Investments $ - $ 44,427 S 106,143 $ 150,570 $ 4,335,898 Restricted cash & investments 183,375 - - 183,375 1,015,867 Receivables: Accounts - - - - - intergovernmental Receivable - 140,342 - 2,221 142,563 142,563 Long Term Notes Receivable - Total Assets $ 323,717 $ 44,427 $ 108,364 $ 476,508 $ 5,494,328 LIABILITIES Accounts Payable $ 8,400 $ 1,622 $ 2,732 $ 12,754 $ 210,316 Accrued payroll and benefits 146 2,601 - 2,747 8,799 Deferred revenue 129,866 129,866 129,866 Total Liabilities 138,412 4,223 2,732 145,367 348,981 FUND BALANCE Reserved for. Repair and Maintenance - - 105,632 - 105,632 105,632 Long Term Notes Receivable - - - - - Capital Projects - - - - - 4,814,206 Unreserved, designated for: Unallocated Fond Balance 185,305 40,204 225,509 225,509 Total Fund Balances 185,305 40,204 105,632 331,141 5,145,347 Total Liabilities and Fund Balance $ 323,717 $ 44,427 $ 108,364 $ 476,508 $ 5,494,328 (Concluded) 62 TOWN OF LOS GATOS NONMAJOR GOVERNMENTAL FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2010 REVENUES Property Taxes Other Taxes Intergovernmental Charges for Services Interest Other Total Revenues EXPENDITURES Current: Parks and Public Works Community Services Sanitation and Other Redevelopment Capital Outlay: Debt Service: Interest & Fees Total Expenditures EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers in Transfers (out) Total Other Financing Sources (Uses) Changes in Fwd Balances Fund Balances at Beginning of year Fund Balances at End of year 39,962 61,285 2,665 68,766 505,042 5,951 642,927 45,890 - 17,180 208,348 722,753 594,635 45,890 17,190 208,348 722,753 1,237,562 (5,928) 61,285 (14,515) (139,582) (217,711) (1,231,611) 575,000 (106,000) (106,000) 575,000 (5,928) 61,285 (14,515) (139,582) (323,711) (656,611) 207,256 510,697 (36086) 2,462,597 693,180 2,065,624 _L201,328 $ 571,982 $ (5D.601) $ 2,323,015 $ 359,469 $ 1,409,013 (Continued) 63 CAPITAL PROJECTS FUNDS Storm Storm Storm Redevelopment Drains Drains Drains Construction Gas Agency Capital Basin I Basin g Basin Tax Tax Proje $ - $ - $ - $ - $ - $ ' 36,062 50,415 3,525 19,585 - - _ _ - 499,702 - 3,900 10,870 (860) 49,181 5,340 5,951. 39,962 61,285 2,665 68,766 505,042 5,951 642,927 45,890 - 17,180 208,348 722,753 594,635 45,890 17,190 208,348 722,753 1,237,562 (5,928) 61,285 (14,515) (139,582) (217,711) (1,231,611) 575,000 (106,000) (106,000) 575,000 (5,928) 61,285 (14,515) (139,582) (323,711) (656,611) 207,256 510,697 (36086) 2,462,597 693,180 2,065,624 _L201,328 $ 571,982 $ (5D.601) $ 2,323,015 $ 359,469 $ 1,409,013 (Continued) 63 (Concluded) 64 TOWN OF LOS GATOS NONMAJOR GOVERNMENTAL FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES . FOR THE YEAR ENDED JUNE 30, 2010 SPECIAL. REVENUE FUNDS Community Non -Polut - Development Source Lighting and Fund Maintenance Landscaping Total REVENUES Properly Taxes $ - $ - $ 33,510 S 33,510 Other Taxes - - - 109,587 Intergovernmental 49,946- - - 549,648 Charges for Services - 135,000 - 135,000 Interest 13,191 - 1,940 89,513 Other 259 259 Total Revenues 63,137 135,000 35,709 917,517 EXPENDITURES Current: Parks and Public Works - - 28,772 28,772 Community Services 553,485 - - 553,485 Sanitation and Other - 114,977 - 114,977 Redevelopment 642,927 Capital Outlay: - - - .1,588,806 Debt Service: Interest & Fees Total Expenditures 553,485 114,977 28,772 2,928,967 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (490,348) 20,023 6,937 (2,011,45D) OTHER FINANCING SOURCES (USES) Transfers in - - 575,000 Transfers(out) (1836) (4920) (112,756) Total OtherFinancbrg Sources (Uses) (1,836) (4,920) 462,244 Changes in Fond Balances (492,184) 20,023 2,017 (1,549,206) Fund Balances at Beginning ofycar 677,489 20,181 103,615 6,694,553 Fond Balances at Bud ofyear S 185,305 S 40,204 S 105,632 S 5,145347 (Concluded) 64 TOWN OF LOS GATOS BUDGETED NONMAJOR FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL (GAAP) FOR THE YEAR ENDED JUNE 30, 2010 REVENUES Property taxes Other taxes Intergovernmental Charges fur services Interest Other Total Revenues EXPENDITURES Parks and public works Community services Sanitation and other Redevelopment Capital outlay Total Expenditures EXCESS (DEFICIENCY) OF REVENUES OVEREXPENDITURES OTHER FINANCING SOURCES (USES) Operating transfers in Operating transfers (out) Total Other Financing Sources (Uses) CHANGE IN FUND BALANCE BEGINNING FUND BALANCE ENDING FUND BALANCE COMMUNITY DEVELOPMENT NON -POINT BLOCK GRANT SOURCE MAINTENANCE Variance Variance Positive Positive Budget Actual (Negative) Budget Actual (Negative) $ - $ - $ - $ 41,794 49,946 8,152 - - 135,000 135,000 - 35,000 13,191 (21,809) - - - 76794 63,137 (13,657) 135,000 135,000 269,958 553,485 (283,527) - - - - 147,335 114,977 32,358 269,958 553,485 (283,527) 147,335 114,977 32,358 (193164) (490348) (297184) (12,335) 20,023 32,35 , (1836) (1836) - - - (1836) (1836) - $ 195,000 (492,184) $ (297,184) $ (12,335) 20,023 $ 32,358 677,489 20,181 $ 185,305 $ 40,204 (Continued) 65 TOWN OF LOS GATOS BUDGETED NONMAJOR FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL (GAAF) FOR THE YEAR ENDED JUNE 30, 2010 REVENUES Property taxes Other taxes Intergovernmental Charges for services Interest Other Total Revenues EXPENDITURES Parks and public works Community services Sanitation and other Redevelopment Capital outlay Total Expenditures EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES LIGHTING AND LANDSCAPING STORM DRAINS BASIN 1 Variance Variance Positive Positive Budget Actual (Negative) Budget Actual (Negative) $ 33,510 $ 33,510 $ - $ - $ - S - - - - 45,000 36,062 (8,938) 2,350 1,940 (410) 3,220 3,900 680 - 259 259 - - - 35,860 35,709 (151) 48,220 39,962 (8,258) 38,370 28,772 9,598 - - - 55,000 45,890 9,110 38,370 28,772 9,598 55,OOD 45,890 9,110 (2,510) 6,937 9,447 (6,780) (5,928) 852 OTHER FINANCING SOURCES (USES) Operating transfers in Operating transfers (out) (4,920) (4,920) - - - Total Other Financing Sources (Uses) _ (4,920) (4920) - - - CHANGE IN FUND BALANCE _L __L7,430 2,017 $ 9,447 $ (6,760) (5,928) $ 852 BEGINNING FUND BALANCE 103,615 207,256 ENDING FUND BALANCE $ 105,632 S 201,328 (Continued) 66 REVENUES Property taxes Other taxes Intergovernmental Charges for services Interest Other Total Revenues EXPENDITURES Parks and public works Community services Sanitation and other Redevelopment Capital outlay Total Expenditures EXCESS. ( DEFICIENCY) OF REVENUES OVER EXPENDITURES OTHER FINANCING SOURCES (USES) Operating transfers in Operating transfem (out) Total Other Financing Sources (Uses) CHANGE IN FUND BALANCE BEGINNING FUND BALANCE ENDING FUND BALANCE TOWN OF LOS GATOS BUDGETED NONMAJOR FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDTTURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL (GAAP) FOR THE YEAR ENDED JUNE 30, 2010 STORM DRAINS BASIN 2 STORM DRAINS BASIN 3 Variance Variance Positive Positive Budget Actual (Negative) Budget Actual (Negative) 45,000 50,415 5,415 5,000 3,525 (1,475) 7,630 10,870 3,240 - (860) (860) 52,630 61,285 8,655 5,000 2,665 (2,335) 11,000 17,180 (6,180) 11,000 17,180 ( 6,180) 52,630 61,285 8 (6,000) (14,515) ( 8,515) $ 52,630 61,285 $ 8,655 510,697 $ 571,982 (14,515) (36,086) $ 50,601 (Continued) 67 TOWN OF LOS GATOS BUDGETED NONMAJORFUNDS _COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL (GAAP) FOR THE YEAR ENDED JUNE 30, 2010 REVENUES Property taxes Other taxes Intergovernmental Charges for services Interest Other Total Revenues EXPENDITURES Parks and public works Community services Sanitation and other Redevelopment Capital outlay Total Expenditures EXCESS (DEFICUINCY) OF REVENUES OVER EXPENDITURES CONSTRUCTION TAX 208,348 GAS TAX 722,753 Variance 208,347 Variance (1) 722,753 722,753 - Positive Positive Budget Actual (Negative) Budget Actual (Negative) $ - $ - $ - $ - $ - $ - 15,000 19,585 4,585 - - - - - - 581,000 499,702 (81,298) 37,080 49,181 12,101 14,670 5,340 (9,330) 52,080 68,766 16,686 595,670 505,042 (90,628) 208,347 208,348 (1) 722,753 722,753 208,347 208,348 (1) 722,753 722,753 - (156,267) (139,582) 16,685 (127,083) (217,711) (90,628) OTHER FINANCING SOURCES (USES) Operating transfers in Operating transfers (nut) - - (106,000) (106,000) - Total Other Financing Sources (Uses) - (106,000) (106,000) CHANGE IN FUND BALANCE $ ISfi,26 (139,582) $ 16,685 $ (233,083) (323,711) $ 90,628 BEGINNING FUND BALANCE 2,462,597 683,180 ENDING FUND BALANCE $ 2,323,015 S 359,469 (Continued) 68 (Concluded) 69 TOWN OF LOS GATOS BUDGETED NONMAJOR FONDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL (GAAP) FOR THE YEAR ENDED JUNE 30, 2010 REDEVELOPMENT AGENCY CAPITAL PROJECT TOTALS Variance Variance Positive Positive Budget Actual (Negative) Budget Actual (Negativ R13VENUFS Properly taxes $ - $ - $ - $ 33,510 $ 33,510 $ - Othertaxes - - - 110,000 109,587 (413) Intergovernmental - - - 622,794 549,648 (73,146) Charges for services 135,000 135,000 Interest 60,000 5,951 (54,049) 159,950 89,513 (70,437) Other - 259 259 Total Revenues 60,000 5,951 (54,049) 1,061,254 917,517 (143,7 EXPENDITURES Parks and public works - - - 38,370 28,772 9,598 Community services - - - - 269,958 553,485 (283,527) Sanitation and other - - - 147,335 114,977 32,358 Redevelopment 696,519 642,927 53,592 696,519 642,927 53,592 Capital outlay 594,088 594,635 (547) 1,591,188 1,588,806 2,382 Total Expenditures 1,290,607 1 237 562 53,045 2,743,370 2,928,967 ( 185,597) EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (1230607) (1231611) (1004) (1682116) (2,011,4 0) (329,334) OTHER FINANCING SOURCES (USES) Operating transfers in 575,000 575,000 - 575,000 575,000 - Operating transfers (out) - - (112,756) (112,756) - Total Other Financing Sources (Uses) 575,000 575,000 462 244 462,244 -- CHANGE IN FUND BALANCE $ - 655,60 (656,611) $ (1,004) $ (1,2 (1,549,206) $ 329,334 BEGINNING FUND BALANCE 2,065,624 6,694,553 ENDING FUND BALANCE $ 1,409,013 $ 5,145,347 (Concluded) 69 TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2010 PROPRIETARY FUNDS INTERNAL SERVICE FUNDS 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 fixnds: 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. 70 §� q! § §k� §§q| �q2§ A&�| a2]/ §� \ (� } i&) §. a _ e] § 2 m Lei §f , - �\ � ) ` ;) ® ]§ - \ ° § § � K � » g " k � < \\ ©e . \ (� } i&) R 1 §. !d * a!| e] § 2 R 1 ( . } , / , , $ E. o ! m § � e d) \} B \ §§ J§ - \ )E \; §km( § - ! / § B k■ ;2 - �kik e o, & CIL ^ § - B � § 7 () e � =e _ ( . } , / , , $ E. o ! m Oc �yC G m � G Vi G G wv C U I R a u a a 8 c a l E g 6 w q V ;g � '� z � � v. •$ E .5 v � ti ° a ° w 8 E m y$y gF> gg ,�. E E ? � 3 S O � O $ •a ' G ,5 ,s ° � eo � ' S (6 �' 2 0• w J1 aoaa mQm.- re o 0 o m r° � m i g r e n mrnn'gg Vi ei p 0.1 fy 9 C C n b V' CG C u y O V r V m P r l M C G N P N r YO v N N S w m ri v N o i v E � N N m o m m $ rn e rl o r o a y r'1 N fV Vi N v X V �O h N • �j . n IX m w en I R a u a a 8 c a l E g 6 w q V ;g � '� z � � v. •$ E .5 v � ti ° a ° w 8 E m y$y gF> gg ,�. E E ? � 3 S O � O $ •a ' G ,5 ,s ° � eo � ' S (6 �' 2 0• w J1 aoaa TOWN OF LOS GATOS, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2010 AGENCY FUND PARKNG IMPROVEMENT DISTRICT #88 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. 74 TOWN OF LOS GATOS AGENCY FUND PARHING IMPROVEMENT DISTRICT #88 STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FOR THE YEAR ENDED JUNE 30, 2010 Balance Balance June 30, 2009 Additions Deletions June 30, 2010 ASSETS Cash and Investments (Note 3) $ 52,951 $ 139,685 $ 145,884 $ 46,752 Restricted cash and investments (Note 3) 275,110 4,496 - 279,606 Intergovernmental receivable 460,424 - 101,511 358,913 Total Assets $ 788,485 $ 144,181 $ 247,395 $ 685,271 LIABILITIES Due to other governments $ 788,485 $ 144,181 $ 247,395 $ 685,271 Total Liabilities $ 788,485 $ 144,181 $ 247,395 $ 685,271 75 Statistical Section This page left intentionally blank 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 understand the environment within which (Schedule 12, Schedule 13, and schedule 14). economic indicators to help the reader the Town's financial activities take place 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). 76 Thispage left intentionally blank Town of Los Gatos Net Assets by Component Last Eight Fiscal Years (Accrual Basis of Accounting) Schedule I w 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. 77 Investment Fiscal in Capital Assets Total Year Net of Related Debt Restricted Unrestricted Net Assets 2003 33,799,130 24,016,830 20,984,676 78,800,636 2004 38,417,211 11,463,187 (1) 29,308,135 79,188,533 2005 38,234,229 13,295,871 31,410,468 82,940,568 2006 41,019,121 12,665,493 38,609,085 92,293,699 2007 43,281,315 20,423,828 37,893,056 101,598,199 2008 48,581,378 18,459,776 42,884,826 109,925,980 2009 52,665,506 15,663,436 51,619,635 119,948,577 2010 50,129,552 26,723,994 47,191,225 124,044,771 w 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 $10.7 million Certificates of Participation in FY2003. 77 This page left intentionally blank N PN rN p�MOOD O q m W OQO neyr C N b N N M V rn °e �O N Q P O b V W vm�ri ri 3 m N K •A r m m r a b o P b O Nb h Mu O NMWM ^fS f`� N - M .- N N � � O PN MQN [2 VNf'l VOA y m CL ONNQVPrO r hNn " C; a I rP N [ `` N (H y �� v M m .NO Q M N Vl m O1 nma ° m nrnon p Q^ b N N N N w M m b N V h O N C O VONfS �+ lf O N r N b -NmarN ^ n N N m N V M N V^ PpMp��bMbN PmQ Q m rN N P N ro m W b m N N W f9 mN �� V � rormPm M rrrm� M Q N P r Q O V N h p - O .g .9 ..• P1 �� V n.w Cg Cg .gym i4$ A63 M W N r O r b O O r q r N r V r OP m 1�vi P_ O C OQ nln P GN N V PMI�N r Q M P V m O� O W V P G m 1 N I C ` f O� l h m M t P N y b m V A N O VI� b N v � N Y . Q M e O V N P ^ Q - Q N N h eoo on ocean N v N n� y w ' P l�Tn� N O O r } M r m m M M P M N O V r N N � Q g q ryC b T I � y N a O Q C m 1 N�Dmb � b NlNO EW r r" ry M p r b N O m q r , m r O^ N Q - m n-1G O hb PP - v V "ro �o -9rfw O M P N r N ' h M b Q V P ID Q P m O C V h r P ro N d N.i r N Q N O a m- b P O M T r W �r O M P M r e mo M N ti O c9 V N bP a H O M N Q P V m d b m q P am �+ P P m O n - V �m A M h O .g a � E MIA W n na !! E �\ \ � « ƒ§ƒ }IIN ul� % ) / § ! \ | � \ k \ m O N P N li m 1 1 Nf n T �Vyy� w •n w ov v°`i ti ON „� Hbm vO� (`� Y1�NN r N fA f9 N W O b V Y OP IAO -A l O 5 - N _P r r M m rpO tNF r N l y m y n l� N l b ry . N . m M ry w e9 rA V b W N O M M N O M O.� O mPO r V3 N e9 M •% V^ b m n u 'O N W m V OI�I�N eµ N N V_ r (S MQN N W N W M P N P N m O N amao o • N K N N o d N_ I � N N N H 9 (A W W r W � b V b m � vqi m o m v cry V 69 iH d3 CN' NVP . � i M O CMN .'+POM O O R O R W W W' U N Kf O W ONNN DJ I�b O N H 4 JI�� F W C 0 9 ~ 4 F O w a UMm N w ^�Xd �c ��$_ 8 N Rl H w w�ao�•' s 8 NUR P " w Nmnmm b „ w w ac�nmo w aRU mg ° m w N K �sw a b a' kx - 1 a mR e amN V N N P N E N s�� aP� erfM qe W ffi P � b ° n a'SNM1 = ° N MU „rce 'M M U .16gnoPgery $ S6' a c� s e6 - a an c Sn m Ms gg � S 4 3 g 8 47 HA 8 ��g�� O � ' ga � .t 'gym$ 8 e a i � g W m g a` q C m ce �� a� �e � 9 a e �p d .e i a 's U9• m Town of Los Gatos Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years 0 ®uo:ecuml Els a Fiscal Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Utility and Unsecured Percent Secured Percent Property Change Property Change 177,486,954 23.83% 4,084,688,126 10.68% 185,521,158 4.53% 4,685,070,118 14.70% 201,539,300 8.63 °% 4,913,724,163 4.88% 175,689,995 - 12.83% 5,258,601,739 7.02% 179,611,684 2.23% 5,654,906,203 7.54% 186,694 3.94 6,259,830,939 10.70% 194,195,209 4.02% 6,840,335,733 9.27% 201,629,315 3.83% 7,392,958,751 8.08% 216,402,089 7.33% 7,949,991,620 7.53% 241,286,055 11.50% 8,076,101,607 1.59% Source. Santa Clara County Assessed Value Report 2009 2010 Total Assessed 4,262,175,080 4,870,591,276 5,115,263,463 5,434,291,734 5,834,517,887 6,446,525,005 7,034,530,942 7,594,588,066 8,166,393,709 8,317,387,662 Estimated Full Market 16,338,752,504 18,740,280,472 19,654,896,652 21,034,406,956 22,619,624,812 25,039,323,756 27,361,342,932 29,571,835,004 31,799,966,480 32,304,406,428 Schedule 5 Total Direct Tax Rate 1.0356 1.0364 1.0388 1.0388 1.0388 1.0388 1.0388 1.0388 1.0388 1.0388 82 This page left intentionally blank Town of Los Gatos Direct and Overlapping Property Tax Rates Last Ten Fiscal Years b v x `v a Schedule 6 Sowce: Santa Clara County Book of Tax Rates 83 - o y ■Santa Clara Valley Water District ti ti rypa ,lptio • County Retirement Levy School District Bonds and Loans ®Basic County Wide Levy - School County Santa Clara Fiscal Basic County District Bonds Retirement Valley Water Year Wide Levy and Loans Levy District Total 2001 1.0000 0.0320 0.0356 0.0075 1.0751 2002 1.0000 0.0734 0.0364 0.0062 1.1160 2003 1.0000 0.0635 0.0388 0.0072 1.1095 2004 1.0000 0.0749 .0.0388 0.0087 1.1224 2005 1.0000 0.0726 0.0388 0.0092 1.1206 2006 1.0000 0,0996 0.0388 0.0078 1.1462 2007 1.0000 0.0941 0.0388 0.0072 1.1401 2008 1.0000 0.1032 0.0388 0.0071 1.1491 2009 1.0000 0.0970 0.0388 0.0061 1.1419 2010 1.0000 0.1147 0.0388 0.0074 1.1609 Sowce: Santa Clara County Book of Tax Rates 83 - o y ■Santa Clara Valley Water District ti ti rypa ,lptio • County Retirement Levy School District Bonds and Loans ®Basic County Wide Levy - This page left intentionally blank pF �e �e eeeeeNN"I��'I� •�- �S��SSS��Sb�Sa fi a > Deese ddddddecddd6dodd6dd�u 0 - g �eg$�mg �aaaaaaaasaaaaa$ s a et °: 00 o dddnr(ef ,$ _ I M e��ooa �n�'�ee�...... fib > pppp C ppCG 6d CIN s H IM '> Pww�w�w saw £3w (.: > o p' 0060 C dC BOO opoCdCv e s �gaaaaggNIP�a�aas�xaaaaa�6 $�« WL � s i t n �nNdrino S p aE , > 000e c000p s�s..'e e X c�...EHH6ddryrySSMon. �.. 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S � •�� u� ��Se �� m� 6 9 z �'� �w r ymtm go 1 4, mo f H4 S ill ua k dF This page left intentionally blank Town of Los Gatos Property Tax Levies and Collections Last Tea Fiscal Years $17.0 $16.0 $15.0 $14.0 $13.0 $12.0 a $11.0 $10.0 $9.0 $8.0 $7.0 $6.0 $5.0 Tax Levied b p9 e 49 1, 4 1 e 6 9 t o $9.5 $9.0 $8.5 $8.0 $7.5 $7d ° SU $5.( $4.: $4A Value of Property Schedule 8 Sources: Santa Clara County Auditor - Controller Office and the Tom of Los Gatos 85 Value of Redevelopment Agency Value of Town Redevelopment Total Property Value of Town Property - Property Property Tax Property Tax Tax Levied Property subject Subject to Subject to Fiscal Levied and Levied and and to Local Tax Local Local Year Collected Collected Collected Rate Tax Rate Tax Rate 2001 3,917,932 3,232,042 7,149,974 4,310,115,280 585,708,196 4,895,823,476 2002 4,425,047 4,079,598 8,504,645 4,918,304,676 667,237,082 5,585,541,758 2003 4,736,560 4,037,443 8,774,003 5,162,418,263 1,941,931,823 7,104,350,086 2004 4,834,464 4,376,896 9,211,361 5,480,295,734 753,210,332 6,233,506,066 2005 5,348,483 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 2007 6,386,562 7,425,925 13,812,488 7,034,530,942 996,479,040 8,031,009,982 2008 6,901,935 8,072,176 14,974,111 7,594,588,066 1,081,483,541 8,676,071,607 2009 7,465,403 8,574,251 16,039,654 8,166,393,709 1,096,883,582 9,263,277,291 2010 7,608,137 9,022,863 16,630,999 8,317,387,662 1,134,135,499 9,451,523,161 Sources: Santa Clara County Auditor - Controller Office and the Tom of Los Gatos 85 This page left intentionally blank Town of Los Gatos Ratios of Outstanding Debt by Type Last Ten Fiscal Years * Data is being compiled by departments but unavailable at printing 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 Schedule 9 Per Capita 76.42 66.69 432.98 419.56 405.49 389.65 372.25 348.03 329.70 820.24 01 Governmental Activities 1992 2002 2010 Certificate Certificate Certificate Total Total Percentage of Fiscal of of of Governmental Primary Personal Year Participation Participation Participation Activities Government Income 2001 2,185,000 2,185,000 2,185,000 2002 1,925,000 1,925,000 1,925,000 2003 1,775,000 10,725,000 12,500,000 12,500,000 2004 1,615,000 10,515,000 12,130,000 12,130,000 2005 1,445,000 10,300,000 11,745,000 11,745,000 2006 1,270,000 10,075,000 11,345,000. 11,345,000 2007 1,085,000 9,845,000 10,930,000 10,930,000 2008 890,000 9,610,000 10,500,000 10,500,000 2009. 685,000 9,370,000 10,055,000 10,055,000 2010 470,000 9,120,000 15,675,000 25,265,000 25,265,000 * Data is being compiled by departments but unavailable at printing 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 Schedule 9 Per Capita 76.42 66.69 432.98 419.56 405.49 389.65 372.25 348.03 329.70 820.24 01 Tc va of Los Gatos Direct and Overlapping Governmental Activities Debt As of June 30, 2010 2009 /10 Assessed Valuation: Redevelopment Incremental Valuation Adjusted Assessed Valuation: DIRECT AND OVERLAPPING BONDED DEBT: Santa Clam County Santa Clam Valley Water District, Zone W -1 West Valley - Mission Community College District Campbell Union High School District Los Gatos - Saratoga Joint Union High School District Cambrian School District Campbell Union High School District Los Gatos Union School District Saratoga Union School District - Union School District Town of Los Gatos 1915 Act Bonds Santa Clara Valley Water District Benefit Assessment District Santa Clara County General Fond Obligations Santa Clara County Pension Obligations Santa Clara County Board ofEdacation Certificates of Parteipation West Valley-Mission Community College District General Fund Obligations Los Gatos - Saratoga Joint Union High School District Certificates of Participation Saratoga Union School District Certificates of Participation To»v of Los Gatos Cerdfeates of Participation Santa.Clant County Vector Control District Certificates of Participation Schedule 10 $8,317,387,662 $897,418,958 $7,419,968,704 Estimated Share of Direct and Debt at Overlapping Debt °%Applicable June30,2010. mJune30,2010 2.746% $ 350,000,000 $ 9,618,000 3.093% $ 910,000 $ 28,146 10.286% $ 215,069,692 $ 22,122,069 8.278% $ 136,395,000 $ 11,290,778 29.430% $ 58,915,000 $ 17,338,685 0.236% $ 19,169,944 $ 45,241 8.765% $ 98,223,346 S 8,609,276 65.809% S 85,445,000 $ 56,230,500 0.015% $ 49,432,159 $ 7,415 20.420% $ 75,127,615 S - 15,341,059 100.000% $ 490,000 S 490,000 2.748% $ 152,440,000 $ 4,189,051 2.748% $ 825,070,000 $ 22,672,924 2.748 ° %a $ 388,044,822 $ 10,663,472 2.748 °% $ 13,580,000 $ 373,178 10.286% $ 56,120,000 $ 5,772,503 29.430% $ 10,205,000 $ 3,003,332 0.015% $ 6,380,000 $ 957 100.000% $ 25,480,000 5 25,480,000 2.748% $ 3,965,000 $ 108,958 Midpeninsula Regional Open Space Park District General pond Obligations 4.627% S 113,788,031 $ 5,264,972 TOTAL DIRECT AND OVERLAPPING BONDED DEBT $ 2,684,250,609 (1) $ 218,650,516 (I) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bands and non - bonded capital lease obligations. Ratios to 2009110. Assessed Valuation Total Overlapping Tax and Assessment Debt: 1.75% Ratios to Adjusted Assessed Valuation Combined Direct Debt ($25,480,000 ): 0.34 Combined Total Debt: 2.95% State School Building Aid Repayable as of 6/30/10: $0.0 Source Data: California Municipal Statisdcs, Inc. 87 u Q , ) { \ /]§ } \ �| e \!\ \\ \ RR k) \ \ � a° \ ) I} \ j2 \k G \ G 1 !!a; u Q , ) { \ /]§ } \ �| e \!\ § \ \ � \ G \ G ( \ ] » \ \ ! ) \ f \ )&[R § - m k3) } Eg8@IgGm ) {, 497477 ;; i ƒ )§I\ \ } } { { } } }} % - 0cp 06 a 7 ƒ )§I\ \ �-- - - - - -- % - ƒ \ \ k( 0cp 06 a 7 ) }° „ . �\{ b) $\; ) \) §) 7(k \\ ;�`.N\\}j\ ,,,00,,,� „j }k\ \k# E ƒ m \ k( 2 { \§ b) !w ) \) §) 7(k )\ \k# E tZLf cs— $#$4 \% &sst ! \\\ ) \\ \ \ m ; Q «! \ \ § \§ )§ § ] �k- �- {�. ■` !�! §\ § §) \| 2 . ~ ) � ¥$ /a ) « mK ■K;n;N;am " ) � ) ; ! ! ! m \ ! � � \ ) °)�# , &| !)i]! ■ ! k { �k k HIM ) O O �/1 O v1 O OI O v1 O N O m aO O T V1 O h O h O O vl v O v1 O h 0 0 v Q O N O m 0 M M Om N O 0 0 0 O .: vi7 •., •..i o�t� V ° o N m N O N o N o 0 O N N O O V1 O O O O O V1 O N O V1 O O N w .D d O G N p N O N q p ggq r3 � •E z •n '� � � I ° q 7 � • a ;� HW� W C7 P -1 M �. 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O i C , N q � y O 0 U U w o OA Nf MYbe -i^ hb hb`D N m ro0 P M+N Nm O y U N O m N m N O O P O m m O N W2 NOD hh� O Nh C' � N O�� N O b Q N ^ N pp d y O b U•y� �' G n�.3 .9 Of R ° $ �zz zzz _° P O N r ti Y n eA a �t� V° o ai W a W V W Pk 0 `� o N y U p er . 0 O ^� O O O O O w q o d w ZZa Ornv,t: azz azzz M l N 'd O � O U N � NN ao O O N .a P1 C R3 ti O � O � N O N r ti Y n eA a �t� V° o ai W a W V W Pk 0 `� o N y U p er . 0 O ^� O O O O O w q o d w ZZa Ornv,t: azz azzz M Other Independent Auditor's Reports This page left intentionally blank C. G. CERTIFIED PUBLIC ACCOUNTANTS -& CONSULTA REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOYERNMENTAUDITINGSTANDARDS The Honorable Mayor and Members of the Town Council Town of Los Gatos We have audited the financial statements of the governmental activities, the business -type 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, 2010, which collectively comprise the Town's basic financial statements and have issued our report thereon dated December 17, 2010. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered 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 objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed the 333 Twin Dolphin Drive, Suite 230 . Redwood City, CA 94065 . Phone (650) 802 -8668 . Fax (650) 802 -0866 I r, following instance of noncompliance or other matters that are required to be reported under Government Auditing Standards. The Town failed to submit Federal grant project reimbursement claims for Robert Road Bridge Reconstruction Project at least once every six months required by the grant agreement. 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. Redwood City, California December 17, 2010 95