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Audit Report - District- FY13
MIDPENINSULA REGIONAL OPEN SPACE DISTRICT ANNUAL FINANCIAL REPORT YEAR ENDED MARCH 31, 2013 - MIDPENINSULA REGIONAL OPEN SPACE DISTRICT TABLE OF CONTENTS MARCH 31, 2013 INDEPENDENT AUDITOR'S REPORT MANAGEMENT'S DISCUSSION AND ANALYSIS 2 BASIC FINANCIAL STATEMENTS Statement of Position 8 Statement of Activities 9 Balance Sheet — Governmental Funds 10 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 11 Statement of Revenues, Expenditures, and Changes in Fund Balances — Governmental Funds 12 Reconciliation of the Statement of Revenues, Expenditures and Change in Fund Balances — Total Governmental Funds with the Statement of Activities 13 NOTES TO FINANCIAL STATEMENTS REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures and Changes in Fund Balances — Budget and Actual 15 37 )„n9 Vavrinek, Trine, Day & Co., LLP Certified Public Accountants INDEPENDENT AUDITOR'S REPORT Board of Directors Midpeninsula Regional Open Space District Los Altos, California VALUE THE DIFFERENC: We have audited the accompanying financial statements of the governmental activities and each major fund of the Midpeninsula Regional Open Space District as of and for the year ended March 31, 2013 which collectively comprise the District's basic financial statements as listed in the Table of Contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or en -or. Auditor's Responsibility 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly in all material respects, the respective financial position of the governmental activities and each major fund of the Midpeninsula Regional Open Space District as of March 31, 2013, and the respective changes in the financial position thereof for the year then ended in conformity with generally accepted accounting principles in the United States of America. 1 260 Sheridan Avenue, Suite 440 Palo Alto, CA 94306 Tel: 650,462.0400 Fax: 650.462.0500 www.vtdcpa.com FRESNO • LAGUNA HILLS • PALO ALTO • PLEASANTON • RANCHO CUCAMONGA • RIVERSIDE • SACRAMENTO Accounting principles generally accepted in the United States of America require that the management discussion and analysis and the budgetary comparison information as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Government Auditing 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 inquires 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. Vavrintk, r1hL, Palo Alto, California July18, 2013 Pay 2(0. LLP 2 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS MARCH 31, 2013 This section of the Midpeninsula Regional Open Space District's (the District) basic financial statements presents a narrative overview and analysis of the District's financial activities for the fiscal year ended March 31, 2013. We encourage readers to consider the information presented here in conjunction with our basic financial statements. FINANCIAL HIGHLIGHTS Property tax revenue exceeded expectations in fiscal 2013 due to higher than projected growth in assessed valuations and income from the dissolution of redevelopment agencies. Reported tax revenue increased by $1.5 million, or 5.3%. The assessed valuation of secured property within the District, as of July 1, 2012, increased by approximately 4.6%. District tax revenue growth never exactly matches the rate of increase in assessed valuation because the District's hybrid fiscal year spans two tax years. During fiscal 2013, the District received $0.9 million from trust funds related to the dissolution of redevelopment agencies within the District. Approximately 30% of this redevelopment -related income represented one-time payments. The District received 66% of its tax revenue from Santa Clara County and 34% from San Mateo County. Property tax revenue increased by 5.4% in fiscal 2012 due to the resumption of supplemental (SB813) tax allocations by Santa Clara County and a change in the method of computing the year-end tax accrual. The District added land and associated structures with appraised values totaling $13.5 million in fiscal 2013. The three largest land acquisitions each involved partner support, either in the form of bargain sales or grants. The largest property, the 952 acre Toto Ranch, on the San Mateo coast, was acquired for $3.5 million, approximately half of its appraised value, in a bargain purchase from the Peninsula Open Space Trust (POST). The District received a $375,000 grant from the Living Landscape Resource Fund to partially fund a $1.4 million addition to the El Corte de Madera Creek preserve. The Sempervirens Fund sold the District a $1.0 million addition to this same preserve for half its appraised value. Net of grants and gifts, the District used $5.8 million of cash for land purchases in fiscal 2013, down from $9.1 million in fiscal 2012. The District added $24.0 million and $10.0 million of land and associated structures in fiscal 2012 and 2011, respectively. District expenditures were again within the annual budget. Recorded expenses include one significant non- recurring charge. The District made a decision to pay-off its $2.5 million CalPERS side fund liability in March 2013. This pre -payment is expected to save the District over $2 million of retirement expense over the next 18 years. Excluding land acquisition transactions, debt service and the non -recurring CalPERS payment, total District spending, $19.6 million, was $3.9 million, or 16.6%, below budget and up 14.1% over fiscal 2012. The largest factor in the budget variance was the re -scheduling of the next phase of the multi -year Mt. Umunhum project into fiscal 2014. In fiscal 2013, salaries and benefits, excluding the CalPERS side fund pay-off, increased by 5.9%, services and supplies expenses grew by 54.7% and non -land capital spending and land acquisition expenses rose by 7.0%. The large percentage spending increase for services and supplies was principally due to accruing $0.6 million of additional insurance expense to fully cover the District's projected retrospective liability to the California Joint Powers Insurance Authority (CJPIA). 3 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS MARCH 31, 2013 The assets of the District exceeded liabilities at the close of the 2013 fiscal year by $299.3 million (net assets). Of this amount, $259.6 million is invested in capital assets, net of related debt, $1.6 million is restricted by the terms of existing District debt, $1.1 million is restricted to pay for future retirement medical expenses, and the remaining $36.9 million is unrestricted. About 24% of the unrestricted balance is projected to be used for capital expenditures in fiscal 2014 as the approved budget for fiscal 2014 forecasts land purchases and other capital expenditures totaling $12.7 million, or $8.9 million net of associated grant and gift income. Another $1.9 million of the unrestricted balance is an endowment to provide stewardship to the Hawthorns property, acquired is fiscal 2011.The District's total net assets increased by $9.6 million in fiscal 2013, as general and program revenues exceeded program expenditures. Program expenditures were within budget. The District's total long-term debt obligations declined by $1.6 million, to $139.0 million. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the District's basic financial statements. The District's basic financial statements consist of three components: (1) government -wide financial statements; (2) fund financial statements and (3) notes to the basic financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Statements of Position (formerly Statement of Net Assets) Presented below are condensed statements of position for the past two years: Years ended: Assets Current Assets Retiree Health Trust Capital assets Total assets Liabilities Accounts payable and Other current liabilities Long-term debt Total liabilities Net Position Invested in capital assets, net of related debt Restricted Unrestricted Total net position March 31, 2013 $ 44,722,294 1,097,306 398,589,610 444,409,210 8,207,851 136,913,221 145,121,072 259,637,822 2,730,928 36,919,388 $ 299,288,138 March 31, 2012 Increase (Decrease) $ 48,018,249 1,334,306 385,932,042 435,284,597 7,256,368 138,328,785 145,585,153 245,393,422 1,567,913 42,73 8,109 $ 289,699,444 4 $ (3,295,955) (237,000) 12,657,568 9,124,613 951,483 (1,415,564) (464,081) 14,244,400 1,163,015 (5,818,721) $ 9,588,694 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS MARCH 31, 2013 Analysis of Net Assets The District's assets at the close of this fiscal year are $299.3 million more than its liabilities. This is the result of the District's inventory of capital assets. The net investment in capital assets, $259.6 million, consists primarily of the District's over 60,000 acres of land in 26 open space preserves protected for public enjoyment. The investment in capital assets is offset by long-term debt obligations on promissory notes and lease revenue bonds. The net assets subject to external restrictions are composed of $1.6 million for debt service and $1.1 million for future retirement medical expenses. Unrestricted net assets are used to finance additional capital projects. The District's budget for fiscal year 2014 includes $8.9 million for land acquisition and other capital projects, net of related grant and gift income. Changes in Net Position Presented below is an analysis of the District's revenues and expenses over the past two years: Increase % Increase March 31, 2013 March 31, 2012 (Decrease) (Decrease) Revenues Program revenue Charges for services Grants and contributions Land donations General revenue General property tax Investment income Other Total Revenues $ 1,380,887 913,338 3,890,155 30,269,803 287,642 298,068 37,039,943 $ 1,319,580 $ 61,307 4.6 1,452,738 (539,400) (37.1) 13,927,600 (10,037,445) (72.7) 28,737,153 1,532,650 5.3 374,544 (86,902) (23.2) 393 542 (95,474) (24.3) 46,205,157 (9,165,214) (19.8) Expenses 27,451,249 22,601,256 4,849,993 21.5 Change in net assets $ 9,588,694 $ 23,603,901 $ (14,015.207) Analysis of Change in Net Position For the year ended March 31, 2013, the District's net position increased by $9.6 million. The net position increase was unusually large in fiscal 2012 because the District received its largest ever land donation, $13.9 million, in that year. Program revenues include rental income, grants, gifts of land, cash donations and park management fees from Santa Clara County. Grant income is tied to specific preserve development projects and land acquisitions. In fiscal 2013, the District received $538,338 of preserve development -related grant income and a $375,000 acquisition grant. The District received $3.9 million of land donations, mostly from POST and Sempervirens Fund. Rental income increased by 5.5%, due to acquisition of land containing additional rental assets. 5 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS MARCH 31, 2013 Tax revenue increased by $1.5 million, or 5.3%, in fiscal 2013. A majority of the increase, $0.9 million, was income from the dissolution of redevelopment agencies within the District. Approximately 30% of this redevelopment -related income is non -recurring. Investment income declined due to smaller cash balances and lower interest rates. Fiscal 2013 expenses include two extraordinary items: $2.5 million to pay-off the District's CalPERS side fund liability and $0.6 million to fully cover the District's projected retrospective insurance liability to CJPIA. Excluding these two items, total expenses increased by $1.7 million, or 7.6%, from the prior year. GENERAL FUND The General Fund balance sheet includes all District accounts except for capital assets, retirement assets and debt. At March 31, 2013, the General Fund had a fund balance of $37.5 million, down $4,3 million from the prior year-end. This decrease was the result of using cash reserves to purchase land. Except for the $1.9 million Hawthorns endowment fund, all of this fund balance is unreserved and designated for future capital projects, including $8.9 million budgeted for capital expenditures in fiscal year 2014, net of associated grant and gift funding. DEBT SERVICE FUND The only asset in the Debt Service Fund, $1.6 million, is a reserve fund required by the terms of the District's 2004 Revenue Bonds. The funds are held by the bond trustee and will be used to make the final debt service payment on this issue in 2033. The District receives the interest earned on this reserve fund, and this is shown on the Statement of Revenues, Expenditures and Changes in Fund Balance -- Governmental Funds. Total debt service in fiscal year 2013 was $8.9 million, consisting of $2.8 million of principal and $6.0 million of interest. CAPITAL ASSETS As of March 31, 2013, the District's investment in capital assets is $398.4 million, net of accumulated depreciation. The District added $10.9 million of land in fiscal year 2013, representing 92% of the total increase in capital assets, and has committed $4.4 million of its fund balance for various uncompleted capital projects included in construction in progress. Additional information on the District's capital assets can be found in Note 4 in the Notes to the Basic Financial Statements. 6 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS MARCH 31, 2013 LONG-TERM DEBT As of March 31, 2013, the District's long-term debt includes $2.5 million of subordinated notes issued to sellers in District land purchase transactions, $100.7 million of Authority revenue bonds sold to the public in 2004, 2007 and 2011, $18.1 million of District refunding promissory notes sold to the public in 2005 and 2012, and $17.7 million of accreted interest, unamortized premium and unamortized loss on refunding. The 2004 and 2007 Authority bonds and 2005 Refunding notes were originally rated AAA by Moody's and Standard & Poor's based on municipal bond insurance policies purchased from Ambac Assurance Corporation and MBIA. Due to substantial losses from mortgage -related risk exposures, these insurance companies no longer carry investment grade credit ratings. The District's current stand- alone credit rating on promissory notes is AA+ from Fitch and AA from Standard & Poor's. Additional information on the District's long-term obligations can be found in Note 6 in the Notes to the Basic Financial Statements. BUDGETARY PERFORMANCE The Budgetary Comparison Schedule —General Fund shows how the District financial results compared to the original budget adopted in March 2012 and the final budget adjusted in December 2012. Due principally to delays in completing capital projects containing grant and gift funding, total District revenue, exclusive of land donations, was under budget by $2.5 million, or 7%. Most of these grants and gifts have been re -budgeted for receipt in fiscal 2014. Tax revenue was 4.8% above budget, most due to the unexpected level of income from the dissolution of redevelopment agencies within the District. Total expenditures were $3.6 million, or 11.3%, below budget, leaving an excess of revenue over expenditures, exclusive of land donations, of $4.6 million, or $0.5 million more than budgeted. Excluding land acquisition transactions, debt service, and the non -recurring CalPERS pay-off, total District spending, $19.6 million, was $3.9 million, or 16.6%, below the final budget. The largest factor in the spending variance was the re -scheduling of the next phases of the multi -year Mt. Umunhum capital project into fiscal 2014. Salaries and benefits, excluding the non -recurring CalPERS pay-off, were $0.5 million, or 4.4%, below budget, services and supplies cost $0.3 million, or 5.7%, less than budget, non -land capital spending was $2.8 million, or 48.8%, under budget, and land acquisition support expenses were $0.3 million, or 39.5% under budget. This overall operating budget performance, 83% of budget, was at the low end of the range of recent years (82% to 94% of budget). 7 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT MANAGEMENT'S DISCUSSION AND ANALYSIS MARCH 31, 2013 ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The Board of Directors adopted the District's budget for fiscal year 2014 on March 13, 2013. This budget assumes approximately 5% growth in property tax revenue. The budget projects spending $12.7 million for land and other capital projects, or $8.9 million net of associated grant and gift income. Operating expenditures and debt service are budgeted at $17.5 million and $8.9 million, respectively. If all revenues and expenditures occur as budgeted, the District's cash position would decrease by $5.0 million in fiscal year 2014. Since the adoption of the budget, the District learned that property tax revenue in fiscal 2014 is likely to exceed the budget projections by some $1.5 million, due to higher growth in assessed valuation of secured and unsecured property in both counties and additional redevelopment property tax trust funds. The District is currently pursuing potential land acquisitions and other capital projects which would use up all undesignated reserves within three years. ADDITIONAL FINANCIAL INFORMATION This financial report is designed to provide a general overview of the District's finances for all those with an interest in the District's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the District Clerk, 330 Distel Circle, Los Altos, CA 94022. 8 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT STATEMENT OF NET POSITION MARCH 31, 2013 ASSETS Cash and investments (Note 2) $ 32,535,513 Receivables Taxes 8,027,198 Interest 42,580 Deposit 1,046,895 Rent 612 Prepaid expense 28,997 Restricted cash and investments (Note 2) 1,633,622 Note receivable (Note 3) 195,653 Deferred charges 1,211,224 Net OPEB Asset (Note 9) 1,097,306 Capital assets (Note 4) Nondepreciable Land 379,410,829 Construction in progress 4,396,366 Depreciable, net of accumulated depreciation Structures and improvements 7,397,095 Infrastructure 5,146,364 Equipment 775,677 Vehicles 1,463,279 Total assets 444,409,210 LIABILITIES Accounts payable Accrued liabilities Deposits payable Deferred revenue Interest payable Compensated absences (Note 5) Due in one year Due in more than one year Long-term debt (Note 6) Due within one year Due in more than one year Total liabilities 811,242 1,304,721 81,730 1,971,040 524,612 221,424 1,254,515 3,293,082 135,658,706 145,121,072 NET POSITION (Note 11) Invested in capital assets, net of related debt 259,637,822 Restricted for debt service 1,633,622 Restricted for OPEB 1,097,306 Unrestricted 36,919,3 88 Total net position $ 299,288,138 See accompanying notes to financial statements. 9 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED MARCH 31, 2013 Program expenses: General government: Salaries $ 8,309,803 Benefits 3,961,927 CALPERS side fund redemption 2,510,958 Directors 31,500 Services and supplies 4,360,703 Depreciation 839,870 Interest 7,436,488 Total program expenses 27,451,249 Program revenues: Charges for services 1,380,937 Capital grants and operating contributions 913,338 Land donation 3,890,155 Total program revenues 6,184,430 Net program expenses 21,266,819 General revenues: Property tax increment 30,269,803 Investment income 287,642 Miscellaneous 298,068 Total general revenues 30,855,513 Changes in net assets 9,588,694 Net position - beginning of the year 289,699,444 Net position - end of the year $ 299,288,138 See accompanying notes to financial statements. 10 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT GOVERNMENTAL FUNDS BALANCE SHEET MARCH 31, 2013 ASSETS Cash and investments (Note 2) Receivables Taxes Interest Deposit Rent Prepaid expense Restricted cash and investments (Note 2) Note receivable (Note 3) Total Assets LIABILITIES Accounts payable Accrued liabilities Deposits payable Deferred revenue (Note 3) Total liabilities FUND BALANCES Restricted Debt service Unassigned Total fund balance TOTAL LIABILITIES AND FUND BALANCE General Fund Debt Service Fund $ 32,535,513 $ 8,027,198 42,580 1,046,895 612 28,997 195,653 1,633,622 Total Govern mental Funds $ 32,535,513 8,027,198 42,580 1,046,895 612 28,997 1,633,622 195,653 $ 41,877,448 $ 1,633,622 $ 43,511,070 $ 811,242 $ 1,304,721 81,730 2,166,693 4,364,386 37,513,062 - $ 811,242 1,304,721 81,730 - 2,166,693 4,364,386 1,633,622 1,633,622 - 37,513,062 37,513,062 1,633,622 39,146,684 $ 41,877,448 $ 1,633,622 $ 43,511,070 See accompanying notes to financial statements. 11 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT RECONCILIATION OF THE GOVERNMENTAL FUNDS - BALANCE SHEET WITH THE STATEMENT OF NET POSITION MARCH 31, 2013 Total fund balances reported on the governmental funds balance sheet Amounts reported for Governmental Activities in the Statement of Net Position are different from those reported in the Governmental funds above because of the following: CAPITAL ASSETS Capital assets used in Governmental Activities are not current assets or financial resources and therefore are not reported in the Governmental funds. NOTES RECEIVABLE Notes receivables are not available to pay for current period expenditures and, therefore, are deferred on the modified accrual basis in the balance sheet of the Governmental funds DEFERRED CHARGES Bond issuance costs are expended in the Governmental funds when paid, however, they are capitalized and amortized over the life of the corresponding bonds for purposes of the Statement of Net Position $ 39,146,684 398,589,610 195,653 1,211,224 LONG-TERM LIABILITIES The liabilities below are not due and payable in the current period and therefore are not reported in the Governmental funds: Long-term debt (138,951,788) Accrued interest payable (524,612) Compensated absences (1,475,939) NET OPEB ASSET Net OPEB Asset is not available to pay for current period expenditures and, therefore, is not recognized in the Governmental funds but deferred on the Statement of Net Position NET POSITION OF GOVERNMENTAL ACTIVITIES See accompanying notes to financial statements. 12 1,097,306 $ 299,288,138 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED MARCH 31, 2013 REVENUES Property tax Grant income Investment income Property management (Note 7) Other income Total Revenues EXPENDITURES Current Salaries Benefits Directors Services and supplies Capital outlay New land purchases Land acquisition support costs Structures and improvements Equipment Vehicles Debt service Principal Interest and fiscal charges Total Expenditures EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES OTHER FINANCING SOURCES (USES): Transfers in Transfers out Total Other Financing Sources (Uses) NET CHANGE IN FUND BALANCES Fund Balance at beginning of year Fund Balance at end of year General Fund Debt Service Fund Total $ 30,269,803 $ 913,338 221,933 1,380,937 145,800 65,709 $ 30,269,803 913,338 287,642 1,380,937 145,800 32,931,811 65,709 32,997,520 8,309,803 6,014,461 31,500 4,356,948 6,194,600 517,312 2,206,010 540,204 152,912 8,309,803 6,014,461 31,500 4,356,948 6,194, 600 517,312 2,206,010 540,204 152,912 2,842,752 2,842,752 6,033,790 6,033,790 28,323,750 8,876,542 37,200,292 4,608,061 (8,810,833) (4,202,772) (8,876,542) (8,876,542) 8,876,542 (4,268,481) 41,781,543 8,876,542 8,876,542 (8,876,542) 65,709 1,567,913 1,633,622 $ 39,146,684 (4,202,772) 43,349,456 $ 37,513,062 See accompanying notes to financial statements. 13 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -- TOTAL GOVERNMENTAL FUNDS WITH THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED MARCH 31, 2013 The schedule below reconciles the net changes in fund balances reported on the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balance, which measures only changes in current assets and current liabilities on the modified accrual basis, with the change in net position of Governmental Activities reported in the Statement of Activities, which is prepared on the full accrual basis. Net change in fund balances - total Governmental funds $ (4,202,772) 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. The capital outlay expenditures are therefore added back to fund balance 9,611,038 Depreciation expense is deducted from the fund balance (839,871) Loss on disposal of capital assets is expensed on the statement of activities, but does not impact the Governmental funds. (3,754) Donation of land is not reported in Governmental funds. However, the fair value of the land is recognized as revenue in the statement of activities. 3,890,155 Payment of principal on general obligation bonds is an expenditure in the governmental funds, but it reduces long-term liabilities in the statement of net position and does not affect the statement of activities. 2,015,000 NOTES RECEIVABLE Repayment of notes receivable is reported as revenue in Governmental funds, and thus, has the effect of increasing fund balance because current financial resources have been received. However, the loan payments reduce the receivables in the statement of net assets and do not generate revenue in the statement of activities. (11,305) LONG-TERM DEBT PROCEEDS AND PAYMENTS Repayment of bond principal is an expenditure in the Governmental funds, but in the Statement of Net Assets the repayment reduces long-term liabilities. Accreted Interest on capital appreciation bonds (1,080,299) Repayment of debt principal on current interest promissory notes 827,752 Change in accrued interest payable 85,036 Amortization of bond premium 163,573 Amortization of loss on refunding (339,194) Amortization of deferred amounts (68,241) See accompanying notes to financial statements. 14 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES — TOTAL GOVERNMENTAL FUNDS WITH THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED MARCH 31, 2013 ACCRUAL OF NON -CURRENT ITEMS The amounts below included in the Statement of Activities do not provide or (require) the use of current financial resources and therefore are not reported as revenue or expenditures in Governmental funds (net change): Compensated absences (221,424) Net OPEB Asset (237,000) CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES 9,588,694 See accompanying notes to financial statements. 15 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 NOTE 1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General The Midpeninsula Regional Open Space District (the District) was formed in 1972 to acquire and preserve public open space land in northern and western portions of Santa Clara County. In June 1976, the southern and eastern portions of San Mateo County were annexed to the District. The District annexed a small portion of the northern tip of Santa Cruz County in 1992. In September 2004, the District completed the Coastside Protection Program, which extended the District boundaries to the Pacific Ocean in San Mateo County, from the southern borders of Pacifica to the San Mateo/Santa Cruz County line. Reporting Entity As required by generally accepted accounting principles, these basic financial statements present the Midpeninsula Regional Open Space District and its component unit. The component unit discussed in the following paragraph is included in the District's reporting entity because of the significance of their operational or financial relationships with the District. Blended Component Unit. The District and the County of Santa Clara entered into a joint exercise of powers agreement dated May 1, 1996, creating the Midpeninsula Regional Open Space District Financing Authority (the Authority), pursuant to the California Government Code. The District is financially accountable for the Authority, as it appoints a voting majority of the governing board; is able to impose its will in the Authority; and the Authority provides specific financial benefits to, and imposes specific financial burdens on, the District. The Authority was formed for the sole purpose of providing financing assistance to the District to fund the acquisition of land to preserve and use as open space. As such, the Authority is an integral part of the District, and accordingly, all of the Authority's activity is blended within the accompanying debt service fund. Basis of Presentation The District's Basic Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. The Government Accounting Standards Board is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the United States of America. These Statements require that the financial statements described below be presented. Government -wide Statements. The Statement of Net Position (formerly the Statement of Net Assets) and the Statement of Activities display information about the primary government (the District) and its component unit. These statements include the financial activities of the overall District government. Eliminations have been made to minimize the double counting of internal activities. 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 District'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 meeting the operational needs of a particular program and (c) fees, grants 16 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 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 District's funds, including blended component units. The emphasis of fund financial statements is on major individual governmental funds, each of which is displayed in a separate column. Major Funds Major funds are defined as funds that have either 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 District may also select other funds it believes should be presented as major funds. The District reported all of its funds as major governmental funds in the accompanying financial statements: General Fund. The General Fund is the general operating fund of the District. It is used to account for all financial resources. The major revenue sources for this Fund are property taxes, grant revenues and interest income. Expenditures are made for public safety and other operating expenditures. Debt Service Fund. The Debt Service Fund is used to account for accumulation of resources for, and the payment of long-term debt principal, interest and related costs. Resources are provided by General Fund transfers and interest income on unspent funds. Basis of Accounting The government -wide 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. 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 District considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after year—end. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. 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. Non -exchange transactions, in which the District gives or receives value without directly receiving or giving equal value in exchange, include taxes, grants, entitlements, and donations. On the accrual basis, revenue from taxes is recognized in the fiscal year for which the taxes are levied or assessed. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The District may fund programs with a combination of cost -reimbursement grants and general revenues. Thus, both restricted and unrestricted net assets may be available to finance program expenditures. The District's policy is to first apply restricted grant resources to such programs, followed by general revenues, if necessary. 17 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 Budgets and Budgetary Accounting The District's Board of Directors adopts an annual operating budget for the District as a whole, which includes both its General and Debt Service Funds on or before March 31, for the ensuing fiscal year. The Board of Directors may amend the budget by resolution during the fiscal year. The legal level of control, the level at which expenditures may not legally exceed the budget, is at the category level. Use of Estimates The preparation of basic financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Compensated Absences The total amount of liability for compensated absences is reflected in the basic financial statements. See Note 5 for additional information regarding compensated absences. Cash and Cash Equivalents For purposes of the statement of cash flows the District defines cash and cash equivalents to include all cash and temporary investments with original maturities of three months or less from the date of acquisition. Property Taxes Property taxes are levied by Santa Clara and San Mateo Counties and a portion is distributed to the District. The District recognizes property taxes as revenue in the fiscal year of levy. Debt Discount and Issuance Costs Debt discount, premiums, and issuance costs are capitalized as an offset to long-term debt and amortized using the straight line method over the life of the related debt. Issuance costs for the District's tax-exempt commercial paper short-term borrowings are expensed as incurred. Subsequent Events Management has evaluated subsequent events for recognition and disclosure through July 18, 2013, which is the date the financial statements were available to be issued. NOTE 2 — CASH AND IN''VESTMENTS Policies The District and its fiscal agents invest in individual investments and in investment pools. Individual investments are evidenced by specific identifiable pieces of paper called securities instruments, or by an electronic entry registering the owner in the records of the institution issuing the security, called the book entry system. In order to maximize security, the District employs the Trust Depaitinent of a bank as the custodian of all District managed investments, regardless of their form. 18 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 California Law requires banks and savings and loan institutions to pledge government securities with a market value of 110% of the District's cash on deposit for first trust deed mortgage notes with a value of 150% of the District's cash on deposit as collateral for these deposits. Under California Law this collateral is held in an investment pool by an independent financial institution in the District's name and places the District ahead of general creditors of the institution pledging the collateral. The District's investments are carried at fair value, as required by generally accepted accounting principles. The District adjusts the carrying value of its investments to reflect their fair value at each fiscal year end, and it includes the effects of these adjustments in income for that fiscal year. In the District's case, fair value equals fair market value, since all District's investments are readily marketable. Classification Cash and investments as of March 31, 2013, are classified in the financial statements as shown below, based on whether or not their use is restricted. Cash and cash equivalents, available for District operation $ 32,535,513 Restricted cash and investments 1,633,622 Total Cash and Investments $ 34,169,135 The District's cash and investments consist of the following at March 31, 2013: Cash in bank $ 13,422 Deposits 2,084,646 Investments 32,071,067 Total Cash and Investments $ 34,169,135 19 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 Investments Authorized by the California Government Code and the District's Investment Policy The District's Investment Policy and the California Government Code allow the District to invest in the following, provided the credit ratings of the issuers are acceptable to the District and approved percentages and maturities are not exceeded. The table below also identifies certain provisions of the California Government Code or the District's Investment Policy where it is more restrictive: Maximum Minimum Maximum Maximum Remaining Credit Percentage Investment Authorized Investment Type Maturity Quality of Portfolio In One Issuer US Treasury Obligations 5 years N/A No Limit No Limit US Agency Securities 5 years N/A No Limit No Limit California Local Agency Investment Fund Upon Demand N/A $40 million per account Negotiable Certificates of Deposit 5 years N/A 30% No Limit Bankers Acceptances 180 days N/A 40% 30% Commercial Paper 270 days A 25% 10% Repurchase Agreements 1 year N/A No Limit No Limit Reverse Repurchase Agreements 92 days N/A 20% No Limit Medium Term Notes 5 years A 30% No Limit Money Market and Mutual Funds N/A Highest Category 20% 10% Investments Authorized by Debt Agreements The District must maintain required amounts of cash and investments with trustees or fiscal agents under the terms of certain debt issues. These funds are used if the District fails to meet its obligations under these debt issues. 20 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Normally, the longer the maturity of an investment, the greater the sensitivity of its fair value changes to changes in market interest rates. The District generally manages its interest rate risk by holding investments to maturity. Information about the sensitivity of the fair values of the District's investments (including investments held by bond trustees) to market interest rate fluctuations is provided by the following table that shows the distribution of the District's investments by maturity or earliest call date: Investment Type 12 Months or less More than 12 Months Total Held by District California Local Agency Investment Fund $ 7,803,382 $ - $ 7,803,382 Santa Clara County Pool 22,634,063 22,634,063 Held by Trustees US Federal Agency Securities - 1,631,647 1,631,647 Money Market Mutual Funds 1,975 1,975 Total Investments $ 30,439,420 $ 1,631,647 $ 32,071,067 The District is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The District reports its investment in LAW at the fair value amount provided by LAIF, which is the same as the value of the pool share. The balance is available for withdrawal on demand, and is based on the accounting records maintained by LAW, which are recorded on an amortized cost basis. Included in LAIF's investment portfolio are collateralized mortgage obligations, mortgage -backed securities, other asset -backed securities, loans to certain state funds, and floating rate securities issued by federal agencies, government -sponsored enterprises, United States Treasury Notes and Bills, and corporations. At March 31, 2013, these investments had an average maturity date of less than one year. The fair value of the District's investment in the pool is reported at amounts based on the District's pro -rata share of the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost of the portfolio). The balance available for withdrawal is based on the accounting records maintained by the County Treasurer, which is recorded on the amortized costs basis. Santa Clara County Pool funds were available for withdrawal on demand and had an average maturity date of less than one year. 21 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the actual rating as of March 31, 2013, for each investment type as provided by Moody's investment rating system. Investment Type Not Rated Aaa Total Held by Trustees US Federal Agency Securities $ $ 1,631,647 $ 1,631,647 Money Market Mutual Funds 1,975 1,975 California Local Agency Investment Fund 7,803,382 - 7,803,382 Santa Clara County Pool 22,634,063 22,634,063 Total Investments $ 30,437,445 $ 1,633,622 $ 32,071,067 Concentration Risk The District was not exposed to concentration of credit risk because it had no investments in any one issuer that exceeded 5% of its total investment portfolio. Restricted Cash and Investments The District has the following restrictions on cash and investments: Restricted for Debt Service. The District has moneys held by Bank of New York as trustee, pledged to the payment or security of its outstanding bond issues. All transactions associated with debt serve are administered by the Bank. The cash and investment amounts were $1,633,622 as of March 31, 2013. NOTE 3 — NOTES RECEIVABLE On December 17, 1997, the District sold the title to and possession of a 50 -year fee determinable estate 10 -acre parcel near the Skyline Ridge Open Space Preserve. The District financed the purchase in the amount of $288,800 over 25 years at a rate of 10% per annum. Monthly principal and interest payments of $2,634 are due on the l Et of each month and late if not paid by the 10th, with the final payment scheduled December 1, 2022. The outstanding balance at March 31, 2013 was $195,653. On November 10, 2011, the District received the gift of the 79 acre Hawthorns property, in Portola Valley, California, and an endowment of $2,018,445 to manage the property in perpetuity. The outstanding balance of the endowment liability was $1,971,040 as of March 31, 2013. 22 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 NOTE 4 -- CAPITAL ASSETS Capital assets are recorded at the time of purchase and are capitalized at cost. The District capitalizes as part of the asset cost, any significant interest incurred during the construction phase of the asset. Depreciation is provided using the straight-line method for assets other than land. Estimated useful lives are as follows: Structures and improvements Infrastructure Equipment Vehicles 10 to 30 years 30 to 40 years 5 to 20 years 10 to 20 years Changes in capital assets accounts are summarized below: Capital assets not being depreciated Land Construction in progress Total capital assets not being depreciated Capital assets being depreciated Structure and improvements Infrastructure Equipment Vehicles Total capital assets being depreciated Less accumulated depreciation for Structure and improvements Infrastructure Equipment Vehicles Total accumulated depreciation Net captial assets being depreciated Total capital assets, net Balance at Additions & Retirements & Balance at March 31, 2012 Transfers Transfers March 31, 2013 $ 368,468,116 $ 10,942,713 $ - $ 379,410,829 4,778,954 1,751,944 (2,134,532) 4,396,366 373,247,070 12,694,657 (2,134,532) 383,807,195 14,102,668 4,403,183 1,302,609 2,691,791 22, 500,251 6,916,859 1,064,055 645,676 1,188,689 9,815,279 12,684,972 573,007 2,010,865 213,859 143,337 (7,250) (40,891) 14,675,675 6,414,048 1,509,218 2,794,237 2,941,068 (48,141) 25,393,178 361,721 - 203,629 91,248 (3,383) 183,273 (41,004) 839,871 (44,387) 10,610,763 7,278,580 1,267,684 733,541 1,330,958 2,101,197 (3,754) 14,782,415 $ 385,932,042 $ 14,795,854 $ (2,138,286) $ 398,589,610 Construction in progress represents construction of structures, equipment and improvements and infrastructure not yet placed in service at March 31, 2013. 23 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 At March 31, 2013, the District had made commitments of approximately $6,676,940 for construction work, legal and consulting fees, and purchases of supplies and equipment. NOTE 5 — ACCURED COMPENSATED ABSENCES in accordance with the District's memorandum of understanding with various employee groups, employees accrue fifteen days of vacation during the first nine years of service, twenty days between service years 10 and fourteen, twenty-one days between service years fifteen and nineteen, twenty-three days between service years twenty and twenty-four, and twenty-five days after twenty-five years of service. An employee may accumulate vacation time earned to a maximum of two times the amount of his/her annual vacation accrual. Full-time employees accrue twelve days of sick leave annually from the date of employment. An employee may accumulate sick leave time earned on an unlimited basis. Upon resignation, separation from service, or retirement from District employment, workers in good standing with ten or more years of District employment shall receive a cash payment of the equivalent cash value of accrued sick leave as follows: Years of Employment 10-15 16-20 21 or more Percentage of equivalent cash value of accrued sick leave 20% 25% 30% An employee hired before August 9, 2006, who retires from the District shall receive a cash payment of the percentage of equivalent cash value or accrued sick leave based on years of employment as described above, and apply the remainder of the equivalent cash value toward his/her cost of retiree medical plan premiums and/or other qualified medical expenses. Upon retirement, the amount qualified and designated for retiree medical costs shall be deposited in the Retiree Health Savings (RHS) plan, set up by the District. The cost for maintaining the retiree's RHS account and the annual fee for the reimbursement process of qualified medical expenses will be paid for by the retiree. An employee hired on or after August 9, 2006, who retires from the District may elect to receive only a cash payment of the percentage of equivalent cash value of accrued sick leave based on years of employment as described above. In all cases the equivalent cash value of accrued sick leave will be based on current rate of pay as of the date of separation from District employment. The District accrues for all salary -related items in the government -wide statements for which they are liable to make a payment directly and incrementally associated with payments made for compensated absences on termination. Accrued compensated absences were $1,475,939 as of March 31, 2013. 24 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 The change in compensated absences was as follows: Governmental Activities Beginning Balance, at April 1, 2012 Net change Ending balance, at March 31, 2013 Current Portion NOTE 6 — LONG-TERM DEBT Summarized below are the current year's activities for long-term debt: Current Interest Promissory Notes Hunt Living Trust Promissory Note 5.00-5.50%, due 4/2/2023 Daloia Land Contract Promissory Note 6.25%, due 10/10/2017 2005 Refunding Promissory Notes 3.25-5.00%, due 4/1/2015 Bergman Note 2012 Promissory Refunding Note Unamortized Premium Total promissory notes Current Interest Revenue Bonds 2004 Revenue Bonds 2.00-5.40%, due 9/1/2034 2007 Series A Rev Refunding Bonds 4.00-5.00%, due 9/1/2027 2007 Series B -T Taxable Revenue Refunding Bonds, 5.15%, due 9/1/2012 2011 Lease Revenue Bond Unamortized Premium Unamortized loss on refunding Total revenue bonds Original Issue Amount Beginning Balance Additions Retirements $ 1,254,515 221,424 1,475,939 221,424 Ending Balance Amount due within one year 1,500,000 $ 1,500,000 $ 240,000 117,846 4,630,000 3,165,000 850,000 850,000 15,790,000 15,790,000 2,146,066 23,010,000 23,568,912 30,560,000 29,385,000 52,415,000 52,415,000 6,785,000 405,000 20,500,000 20,500,000 NA 369,290 NA (3,640,802) - $ 1,500,000 $ 17,753 100,093 18,888 810,000 2,355,000 1,145,000 850,000 15,790,000 540,000 67,391 2,078,675 - 895,144 22,673,768 1,703,888 490,000 28,895,000 1,120,000 51,295,000 620,000 630,000 405,000 - 20,500,000 96,182 273,108 - 339,194 (3,301,608) 339,194 105,535,000 99,433,488 2,450,376 97,661,500 1,589,194 Capital Appreciation Bonds and Notes 2004 Lease Revenue Bonds Accretion 1,340,010 2,061,515 111,468 2,172,983 - 2012 Promissory Refunding Notes - 15,474,707 968,830 16,443,537 Total Accretion 15,228,031 17,536,222 1,080,298 18,616,520 Total debt $ 143,773,031 $ 140,538,622 $ 1,080,298 $ 3,345,520 $ 138,951,788 $ 3,293,082 25 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 Promissory Notes Hunt Living Trust Promissory Note. On April 1, 2003, the District entered into a $1,500,000 promissory note with the Hunt Living Trust as part of a lease and management agreement. The note is due in full on April 1, 2023 and bears interest at 5.5% semi-annually through April 1, 2013 and 5.0% per annum until the maturity, or prior redemption, of the note. At March 31, 2013, the outstanding balance on the note was $1,500,000. Daloia Land Purchase Contract Promissory Note. During fiscal year ending 2003 the District entered into a land purchase contract promissory note in the amount of $240,000. The promissory note bears interest at a fixed rate of 6.25%© and matures October 10, 2017. At March 31, 2013, the outstanding balance of the Daloia Land Contract note was $100,093. 2005 Refunding Promissory Note. On June 30, 2005, the District issued $4,630,000 of 2005 Refunding Promissory Notes for the purpose of refunding all of its outstanding 1995 Promissory Notes. The 2005 notes bear interest rates from 3.25% to 5.00%. Principal and interest rates are due semi-annually on March 1 and September 1. At March 31, 2013, the outstanding balance was $2,355,000. 2010 Bergman Note. On Nov 30, 2010, the District issued a promissory note with Principal of $850,000 and interest of 4% to finance the purchase of land. Interest and principal are due on a quarterly basis beginning February 28th, 2011 and mature on November 30, 2015. At March 31, 2013, the outstanding balance was $850,000. 2012 Refunding Promissory Notes. On January 19. 2012, the District advance refunded $34,652,643 in 1999 lease revenue bonds by issuing $31,264,707 in promissory notes. The 2012 notes bear interest rates ranging from 2.00% to 6.04%. The notes are a blend of current interest and capital appreciation notes maturing through 2042. The net proceeds of $33,295,663 (after payment of $278,683 in underwriting fees, insurance, and other issuance costs and a premium of $2,309,638) were used to purchase U.S government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the 1999 Series bonds. As a result, the 1999 Series bonds are considered to be defeased and the liability for those bonds has been removed from the long-term debt in the financial statements. At March 31, 2013,the outstanding balance of the notes, including accreted interest of $832,793, was $32,233,537. Revenue Bonds 2004 Revenue Bonds. On January 20, 2004, the Authority on behalf of the District, issued $31,900,010 of 2004 Revenue Bonds for the purpose of acquiring land to preserve and use as open space, repay a portion of a 1995 Promissory Note, purchase a reserve fund surety policy, and pay bond issue costs. The bonds consist of Current Interest and Capital Appreciation Bonds. The Current Interest Bonds bear interest at 2.0% to 5.4% and are due semi-annually on March 1 and September 1. The Capital Appreciation Bonds accrete interest at 5.2% to %.4% and compound semi-annually on March 1 and September 1. Principal payments on the Current Interest Bonds are due annually September 1. Principal payments on the Capital Appreciation Bonds are payable at maturity beginning March, 2020. At March 31, 2013, the outstanding balance of these bonds was $31,067,983. 26 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 2007 Series A Revenue Refunding Bonds and Series B -T Taxable Revenue Refunding Bonds. On December 15, 2006 the District issued six series of promissory notes (2007 District Notes) for the purpose of refunding its 1996 Project Lease, 1996 Promissory Notes, 1999 Project Lease, and 1999 Promissory Notes. On December 15, 2006 the Authority, on behalf of the District, issued $52,415,000 of 2007 Series A Revenue Refunding Bonds and $6,785,000 of 2007 Series B -T Taxable Revenue Refunding Bonds for the purpose of defeasing the aggregate purchase price of the 2007 District Notes. The Series A bonds bear interest from 4.0% to 5.0% and Series B -T bonds bear interest at 5.15%. Interest for both series A and B -T are due semi- annually on March 1 and September 1. Principal payments for the Series A bonds begin September, 2012 and are due annually, thereafter. Principal payments for the Series B -T bonds are due annually on September 1. At March 31, 2013 the outstanding balance of 2007 Series A Bonds is $51,295,000 and there is no remaining 2007 Series B -T Bonds. 2011 Revenue Bonds. On May 19, 2011, the Authority, on behalf of the District, issued $20,500,000 of 2011 Revenue Bonds for the purpose of acquiring land to preserve and use as open space and pay bond issue and related costs. The Bonds are not general obligations. Each year, the District will appropriate revenues -mainly limited properly tax collections that Santa Clara County and San Mateo County allocate to the District — to pay its obligations under a Lease Agreement for use and occupancy of District land in addition to other District debt and lease obligations unrelated to this financing. The Current Interest Bonds bear interest at 2.0% to 6.0°/o and are due semi-annually on March 1 and September 1. Principal payments on the Current Interest Bonds are due annually September 1. At March 31, 2013, the outstanding balance of these bonds was $20,500,000. 27 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 Debt Service Requirements Annual debt service requirements are shown below for all long-term debt: Promissory Notes Year Ending March 31 Principal Remaining Accretion Interest Total 2014 2015 2016 2017 2018 2019-2023 2024-2028 2029-2033 2034-2037 2038-2042 Total payments due Plus: unamortized premiums Plus: accreted interest Total carrying amount 1,703,888 1,650,096 1,226,382 387,750 398,012 2,125,000 5,140,000 11,737,859 2,806,707 8,894,106 $ 9,930,000 8,605,000 45,335,000 905,308 831,875 782,314 744,646 3,489,516 2,743,700 795,825 $ 2,609,196 2,481,971 2,008,696 1,132,396 3,887,528 4,868,700 5,935,825 21,667,859 11,411,707 54,229,106 36,069,800 $ 63,870,000 2,078,675 968,830 $ 39,117,305 $ 10,293,184 $ 110,232,984 Revenue Bonds Remaining Year Ending March 31 Principal Accretion 2014 2015 2016 2017 2018 2019-2023 2024-2028 2029-2033 2034-2037 2038-2042 Total payment due Plus: unamortized premiums Plus: accreted interest Minus: unamortized loss on refundings Total carrying amount $ 1,295,000 1,495,000 3,260,000 3,960,000 4,245,000 23,793,612 30,086,399 15,170,000 11,965,000 6,760,000 102,030,011 273,108 832,973 (3,301,609) $ 99,834,483 Interest $ $ 4,974,518 4,916,630 - 4,810,530 - 4,647,855 - 4,456,905 312,691 19,724,660 1,394,326 14,531,003 7,149,846 3,140,688 812,713 $ 1,707,017 $ 69,165,348 Total $ 6,269,518 6,411,630 8,070,530 8,607,855 8,701,905 43,83 0,963 46,011,728 22,319,846 15,105,688 7572713 $ 172,902,376 28 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 Debt Repayment All debt is payable from limited ad valorem property taxes levied on all taxable property within the District. NOTE 7 — RENTAL INCOME The District leases (rents) certain land and structures to others under operating leases with terms generally on a month -to -month basis. Rental income of $1,081,958 was received during the year ended March 31, 2013. NOTE 8 — RETIREMENT PLAN Pension Plan All permanent District employees are eligible to participate in the pension plan offered by California Public Employees Retirement System (CALPERS) an agent multiple employer defined benefit pension plan with acts as a common investment and administrative agent for its participating member employers. CALPERS provides retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. The District's employees participate in the Miscellaneous (non safety) Employee Plan. Benefit provisions under the Plan are established by State statute and District resolution. Benefits are based on years of credited service, equal to one year of full time employment. Funding contributions for the Plan are determined annually on an actuarial basis as of June 30 by CALPERS; the District must contribute these amounts. The Plans' provisions and benefits in effect at March 31, 2013, are summarized as follows: Miscellaneous Benefit vesting schedule 5 years service Benefit payments Monthly for life Retirement age 50 Monthly benefits, as a % of annual salary 2.0-2.5% Required employee contribution rates 7.941% Required employer contribution rates 16.291% CALPERS determines contribution requirements using a modification of the Entry Age Normal Method, Under this method, the District's total normal benefit cost for each employee from date of hire to date of retirement is expressed as a level percentage of the related total payroll cost. Normal benefit cost under this method is the level amount the District must pay annually to fund an employee's projected retirement benefit. This level percentage of payroll method is used to amortize any unfunded actuarial liabilities. The actuarial assumptions used to compute contribution requirements are also used to compute the actuarial accrued liability. The District does not have a net pension obligation since it pays these actuarially required contributions bi-weekly. CALPERS uses the market related value method of valuing the Plan's assets. An investment rate of return of 7.75% is assumed, including inflation at 3.0%. Annual salary increases are assumed to vary by duration of service. Changes in liability due to plan amendments, changes in actuarial assumptions, or changes in actuarial methods are amortized as a level percentage of payroll on a closed basis over twenty years. Investment gains and losses are accumulated as they are realized and ten percent of the net balance is amortized annually. 29 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 As required by new State law, effective July 1, 2005, the District's Miscellaneous Plan was terminated, and the employees in the plan were required by CALPERS to join new State-wide pools. One of the conditions of entry to these pools was that the District true -up any unfunded liabilities in the former Plans, either by paying cash or by increasing its future contribution rates through a Side Fund offered by CALPERS. The District satisfied its Miscellaneous Plan's unfunded liability of $2,510,958 by agreeing to contribute that amount to the Side Fund through an addition to its normal contribution rates over the next 21 years. In 2013, the District made a one-time payment of $2,510,958 to eliminate the liability. The required contributions representing annual pension cost, for the year ended March 31 were as follows: Annual Percentage of Net Fiscal Year Pension Cost APC Pension Ending (APC) Contributed Obligation 3/31/2013 3/31/2012 3/31/2011 4,298,913 100% $ 1,572,759 100% 1,415,161 100% The latest available actuarial values of the above State-wide pools (which differs from market value) and funding progress were set forth as follows. The information presented below relates to the State-wide pools as a whole, of which the District is one of the participating employers: Actuarial Unfunded Unfunded Annual (Overfunded) Valuation Accrued Value of (Overfunded) Funded Covered Liability as % Date Liability Assets Liability Ratio Payroll of Payroll 2010 1,972,910,641 1,603,482,152 369,428,489 81.27% 352,637,380 104.76% Audited annual financial statements are available from CALPERS at PO Box 942709, Sacramento, CA 94229- 2709. NOTE 9 — OTHER POST EMPLOYMENT BENEFITS During fiscal year 2009, the District implemented the provisions of Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This Statement establishes uniform financial reporting standards for employers providing postemployment benefits other than pensions (OPEB). The provisions of this statement are applied prospectively and do affect prior years financial statements. Required disclosures are presented below. The District joined the California Employers' Retiree Benefit Trust (CERBT), an agent multiple -employer plan administered by CALPERS, consisting of an aggregation of single -employer plans. District Board authorized a deposit of $1,900,000 with CERBT on June 5, 2008, to begin funding its OPEB liability. By Board resolution and through agreements with its labor unit, the District provides certain health care benefits for retired employees (spouse and dependents are not included) under third -party insurance plans. A summary of eligibility and retiree contribution requirements are shown below by bargaining unit: 30 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 Eligibility Benefit Surviving Spouse Continuation Dental, Vision and Life -Service or disability retirement from the District -Age 50 and 5 years of service -Continue participation in Public Employees Medical and Hospital Care Act (PEMHCA) District pays retiree premiums up to: $350 per month effective 1/1/2009 -Same benefit continues to surviving spouse None As of March 31, 2013, approximately 99 active employees and 17 retirees were eligible to receive retirement health care benefits. Funding Policy and Actuarial Assumptions The annual required contribution (ARC) was determined as part of a March 31, 2010, actuarial valuation using the entry age normal actuarial cost method. This is a projected benefit cost method, which takes into account those benefits that are expected to be earned in the future as well as those already accrued. The actuarial assumptions included (a) 7.25% investment rate of return, (b) 3.25% projected annual salary increase, and (c) 0% health inflation increases. The actuarial methods and assumptions used include techniques that smooth the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets. Actuarial calculations reflect a long-term perspective and actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to revision at least biannually as results are compared to past expectations and new estimates are made about the future. The District's OPEB unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll using a 30 year open amortization period. In accordance with the District's budget, the ARC is to be funded throughout the year as a percentage of payroll. Concurrent with implementing Statement No. 45, the District Board passed a resolution to participate in the California Employers Retirees Benefit Trust (CERBT), an irrevocable trust established to fund OPEB. CERBT is administrated by CalPERS, and is managed by an appointed board not under the control of the District Board. This Trust is not considered a component unit by the District and has been excluded from these financial statements. Separately issued financial statements for CERBT may be obtained from CALPERS at P© Box 942709, Sacramento, CA 94229-2709. 31 MIDPENINSITLA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 Funding Progress and Funded Status Generally accepted accounting principles permits contributions to be treated as OPEB assets and deducted from the Actuarial Accrued Liability (AAL) when such contributions are placed in an irrevocable trust or equivalent arrangement. During the fiscal year 2009, the District made contribution in excess of the ARC and amortized its net OPEB obligation as presented below: Annual required contribution interest on net OPEB asset Adjustment to annual required contribution Annual OPEB cost Net OPEB Asset at March 31, 2012 Net OPEB Asset at March 31, 2013 197,000 (97,000) 137,000 237,000 1,334,306 $ 1,097,306 The Plan's annual required contributions and actual contributions for fiscal years ended March 31, 2011 to 2013 are set forth below: Fiscal Year 3/31/2013 3/31/2012 3/31/2011 Annual OPEB Cost Actual Contribution 237,000 $ 179,255 153,000 Percentage of Annual OPEB Cost Net OPEB Asset 0% $ 0% 0% 1,097,306 1,334,306 1,513,561 The Schedule of Funding Progress presents multi -year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Trend data from the actuarial studies is presented below: Actuarial Valuation Date 6/30/2011 3/31/2010 3/31/2008 Actuarial Value of Assets $ 2,058,000 1,894,000 Entry Age Actuarial Accrued Liability $ 1,844,000 1,500,000 1,078,000 Overfunded (Underfunded) Actuarial Accrued Liability $ 214,000 394,000 (1,078,000) Funded Ratio 111.61% 126.27% 0.00% Covered Payroll $ 7,331,000 5,772,000 5,590,000 Overfunded (Underfunded) Actuarial Liability as Percentage of Covered Payroll 2.9% 6.8% -19.3% 32 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 3112013 NOTE 10 — RISK MANAGEMENT Coverage The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; injuries to employees; and natural disasters. Prior to July 1, 2002, the District managed and financed these risks by purchasing commercial insurance. On July 1, 2002, the District joined the California Joint Powers Insurance Authority (CAL JPIA). CAL JPIA is composed of 119 California public entities and is organized under a joint powers agreement pursuant to California Government Code Section 6500 et seq. The purpose of CAL JPIA is to arrange and administer programs for the pooling of self-insurance losses, to purchase excess insurance or reinsurance, and to arrange for group -purchased insurance for property and other coverages. CAL JPIA's pool began covering claims of its members in 1978. Each member government has an elected official as its representative on the Board of Directors. The Board operates through a 9 -member Executive Committee. During the past three fiscal years, none of the programs of protection have had settlements or judgments that exceeded pooled or insured coverage. There have been no significant reductions in pooled or insured liability coverage from coverage in the prior year. Self -Insurance Programs of the CAL JPIA General and Automobile Liability. Each government member pays a primary deposit to cover estimated losses for a fiscal year (claims year). General liability (GL) coverage includes bodily injury, personal injury, or property damage to a third party resulting from a member activity. The GL program also provides automobile liability coverage. Six months after the close of a fiscal year, outstanding claims are valued. A retrospective deposit computation is then made for each open claims year. Costs are spread to members as follows: the first $30,000 to $750,000 are pooled based on member's share of costs under $30,000; costs in excess of $750,000 are shared by the members based upon each individual member's payroll. Costs of covered claims above $5,000,000 are currently paid by reinsurance. The protection for each member is $50,000,000 per occurrence, up to $50,000,000. Worker's Compensation. The District also participates in the Worker's Compensation program administered by CAL JPIA. Pool deposits and retrospective adjustments are valued in a manner similar to the General Liability pool. The District is charged for the first $50,000 of each claim. Costs from $50,000 to $100,000 per claim are pooled based on the member's losses under its retention level. Costs between $100,000 and $2,000,000 per claim are pooled based on payroll. Costs from $2,000,000 to $5,000,000 are paid by excess insurance purchased by CAL JPIA. The excess insurance provides coverage to statutory limits. Purchased Insurance Environmental Insurance. The District participates in the Pollution and Remediation Legal Liability Program, which is available through CAL JPIA. The policy provides coverage for both first and third party damages, including sudden and gradual pollution at or from property, streets, sanitary sewer trunk lines and storm drain outfalls owned by the District. Coverage is on a claims -made basis. There is a $50,000 deductible. CAL JPIA has a limit of $50,000,000 for the 3 -year period from July 1, 2008 through July 1, 2011. Each member of CAL JPIA has a $10,000,000 aggregate limit during the 3 -year policy term. 33 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 Property Insurance. The District participates in the All -Risk property program of CAL JPIA which includes all-risk coverage for real and personal property (such as buildings, office furniture, equipment, vehicles, etc). This insurance is underwritten by several insurance companies. Property is currently insured according to a schedule of covered property submitted by the District to CAL JPIA. The All -Risk deductible is $5,000 per occurrence; $1,000 for non -emergency vehicles. Premiums for the coverage are paid annually and are not subject to retroactive adjustments. Boiler & Machinery Insurance. The District participates in the optional coverage for boiler and machinery, which is purchased separately under the property program. Coverage is for physical damage for sudden and accidental breakdown of boilers and machinery, and electrical injury. There is a $5,000 per accident or occurrence deductible; properties on property schedule are covered. Crime Insurance. The District participates in the crime program of CAL JPIA in the amount of $1,000,000 per claim, with a $2,500 per occurrence deductible. Insurance provides coverage for employee dishonesty, failure to faithfully perform duties, forgery, counterfeiting, theft, robbery, burglary, and computer fraud. Premiums are paid annually and are not subject to retroactive adjustments. Special Event Tenant User Liability Insurance. The District participates in the special events program of CAL JPIA which provides liability insurance when District promises are used for special events. The insurance premium is paid by the tenant user to the District according to a schedule. The District then pays the insurance arranged through CAL JPIA. There is no deductible and the District is added as additional insured. Liability limits are purchased in $1 million per occurrence increments. Vendors/contractors program. General liability coverage is provided to vendors/contractors who otherwise could not contract with the District as they could not meet the minimum insurance requirement: $1 million per occurrence, $1 million in aggregate. NOTE 11— NET POSITION Net Position is the excess of all the District's assets over all its liabilities, regardless of fund. Net Position is divided into three captions under GASS Statement 34. These captions apply only to Net Position, which is determined only at the Government -wide level, and are described below: Invested in Capital Assets, net of related debt describes the portion of Net Position which is represented by the current net book value of the District's capital assets, less the outstanding balance of any debt issued to finance these assets. Restricted describes the portion of Net Position which is restricted as to use by the terms and conditions of agreements with outside parties, governmental regulations, laws, or other restrictions with the District cannot unilaterally alter. Unrestricted describes the portion of Net Position which is not restricted to use. 34 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO FINANCIAL STATEMENTS MARCH 31, 2013 Contingent Liabilities The District has entered into numerous agreements, has properties that will require environmental remediation, and is named in certain claims and litigations. In the opinion of management, after consultation with counsel, the liability, if any, resulting there from will not have a material effect on the District's financial position. 35 REQUIRED SUPPLEMENTARY INFORMATION 36 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGETARY BASIS FOR THE YEAR ENDED MARCH 31, 2013 Budgeted Amounts Variance Favorable Original Final Actual (Unfavorable) REVENUES Property taxes $ 28,495,000 $ 28,875,000 30,269,803 $ 1,394,803 Grant income 4,794,000 4,794,000 913,338 (3,880,662) Investment income 300,000 300,000 221,933 (78,067) Property management - rents 1,109,000 1,109,000 1,380,937 271,937 Other income 388,000 388,000 145,800 (242,200) Land Donation 615,000 615,000 3,890,155 3,275,155 Total Revenues 35,701,000 36,081,000 36,821,966 740,966 EXPENDITURES Current Salaries 9,002,479 8,806,300 8,309,803 496,497 Benefits (1) 3,850,107 3,530,634 6,014,461 (2,483,827) Directors 25,000 29,000 31,500 (2,500) Services and supplies 4,278,923 4,622,065 4,356,948 265,117 Capital Outlay New land purchases 9,000,000 8,434,000 6,194,600 2,239,400 Land acquisition support costs 705,000 861,000 517,312 343,688 Structures and improvements 4,804,080 4,623,080 2,206,010 2,417,070 Equipment 641,275 866,275 540,204 326,071 Vehicles 170,000 177,000 152,912 24,088 Total Expenditures 32,476,864 31,949,354 28,323,750 3,625,604 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 3,224,136 4,131,646 8,498,216 4,366,570 OTHER FINANCING SOURCES (USES) Transfers (out) Total Other Financing Sources (Uses) NET CHANGE IN FUND BALANCE (8,876,542) (8,876,542) (8,876,542) (8,876,542) (8,876,542) (8,876,542) $ (5,652,406) $ (4,744,896) (378,326) $ 4,366,570 Fund balance at beginning of year 41,781,543 Sub -total $ 41,403,217 Land donation (3,890,155) Fund balance end of year $ 37,513,062 (1) The unfavorable variance noted is due to the CALPERS side fund repayment referred to in Note 8 to the financial statements 37 - -