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HomeMy Public PortalAboutAudit Report - District- FY08MIDPENINSULA REGIONAL OPEN SPACE DISTRICT BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2008 PREPARED BY THE FINANCE DEPARTMENT This Page Left Intentionally Blank MIDPENINSULA REGIONAL OPEN SPACE DISTRICT BASIC FINANCIAL STATEMENTS For the Year Ended MARCH 31, 2005 Table of Contents INDEPENDENT AUDITORS' OPINION 1 MANAGEMENT'S DISCUSSION AND ANALYSIS 3 BASIC FINANCIAL STATEMENTS Statement of Net Assets 8 Statement of Activities 9 Balance Sheet 10 Reconciliation of the Governmental Funds — Balance Sheet with the Statement of Net Assets 11 Statement of Revenues, Expenditures and Changes in Fund Balances 12 Reconciliation of the Net Change in Fund Balances — Total Governmental Funds with the Statement of Activities 13 NOTES TO FINANCIAL STATEMENTS 15 SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures and Changes in Fund Balances — Budget and Actual 34 This Page Left Intentionally Blank MAZE & ASSOCIATES ACCOUNTANCY CORPORATION 3478 Buskirk Ave. - Suite 215 Pleasant Hill, California 94523 (925) 930-0902 • FAX (925) 930-0135 maze @mazeass ocia tes. corn www.mazeassociates.com INDEPENDENT AUDITORS' REPORT Board of Directors Midpeninsula Regional Open Space District Los Altos, California We have audited the accompanying financial statements of the business -type activities and major fund of the Midpeninsula Regional Open Space District, as of March 31, 2008 and for the year then ended, as listed in the Table of Contents. These financial statements are the responsibility of the management of the District. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted. our audit in accordance with generally accepted auditing standards in. the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements. An. audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly in all material respects, the financial position of the business -type activities of the Midpeninsula Regional Open Space District as of March 31, 2008 and the changes in the financial position and cash flows, thereof for the year then ended in conformity with generally accepted accounting principles in the United States of America, Management's Discussion and Analysis is required by the Governmental Accounting Standards Board, but is not part of the basic financial statements. We have applied certain limited procedures to this information, principally inquiries of management regarding the methods of measurement and presentation of this information, but we did not audit this information and we express no opinion on it. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements of Midpeninsula Regional Open Space District. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. May 28, 2008 A Professional Corporation 1 This Page Left Intentionally Blank Management's Discussion and Analysis 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, 2008. We encourage readers to consider the information presented here in conjunction with our basic financial statements. FINANCIAL HIGHLIGHTS Property tax revenue growth slowed significantly in fiscal 2008, increasing by about 3.6%, compared to underlying property tax growth of 9.2% in fiscal 2007 and 7.7% in fiscal 2006. Actual total property tax revenue increased by 18.6% in fiscal 2007 due to the favorable impact of the completion of the state "take -away" program, ERAF III, in June 2006. The District added a modest $1.6 million of land in fiscal 2008. This was a significant reduction from the $41.6 million of land added in fiscal 2007. Several land purchase transactions were negotiated and approved in fiscal 2008, but closing was delayed into fiscal 2009. The assets of the District exceeded liabilities at the close of the 2008 fiscal year by $227.6 million (net assets). Of this amount, $176.2 million is invested in capital assets, net of related debt, $1.4 million is restricted by the terms of existing District debt, and the remaining $50.0 million is unrestricted. A majority of the unrestricted balance is projected to be used in fiscal 2009 as the approved budget for fiscal 2009 forecasts land purchases totaling $37.4 million, or $28.4 million net of associated grant income. The District's total net assets increased by $9.6 million in fiscal 2008, as general and program revenues exceeded program expenditures. Program expenditures were within budget. The District's total long-term debt obligations declined by $0.4 million to $125.9 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. This is the third year the District has presented its financial statements under the new reporting model required by the Governmental Accounting Standards Board Statement No. 34 (GASH 34), Basic Financial Statements — and Management's Discussion and Analysis (MD&A) — for State and Local Governments. 3 NET ASSETS Statement of Net Assets — March 31, 2008 and 2007 Assets: Current assets Capital assets Total assets Liabilities: Accounts payable and other liabilities Long-term debt Total liabilities Net assets: Invested in capital assets, net of related debt Restricted Unrestricted Total net assets March 31, 2008 $ 53,641,620 302,143,421 355,785,041 2,257,299 125,945,409 128,202,708 176,198,012 1,433,211 49,951,110 $227.582,333 March 31, 2007 Increase $ 46,441,203 $ 7,200,417 300,272,448 1,870,973 346,713,651 9,071,390 2,431,922 126,312,867 128,744,789 174,598,403 738,627 42,631,832 $217,968,862 - 174,623 - 367,458 - 542,081 1,599,609 694,584 7,319,278 $ 9.613 471 Analysis of Net Assets The District's assets at the close of this fiscal year are $227.6 million more than its liabilities. This is the result of the District's inventory of capital assets. The net investment in capital assets, $176.2 million, consists primarily of the District's 56,000 acres of land in 25 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 $1.4 million for debt service. Unrestricted net assets are used to finance additional land acquisition projects. The District's budget for fiscal year 2009 includes $28.4 million for land acquisitions, net of related grant income. 4 Changes in Net Assets — Fiscal Years Ending March 31, 2008 and 2007 Revenues: Program revenue: Charges for services Grants and contributions General revenue: General property tax Investment income Other Total Revenues Expenses Change in net assets Analysis of Change in Net Assets Fiscal 2008 Fiscal 2007 $ 895,661 230,365 24,767,516 2,069,617 278,418 28,241,577 18,628,106 9,613,471 Increase $ 837,248 $ 58,413 26,827,098 - 26,596,733 23,909,402 2,064,013 249,495 53,887,256 16,034,183 37,853.073 858,114 5,604 28,923 -25,645,679 2,593,923 -28.239.602 % Increase 7.0 -99.1 3.6 0.3 11.6 -47.6 16.2 - 74.6 For the year ended March 31, 2008, the District's net assets increased by $9.6 million. The increase in overall expenses was principally due to higher interest charges. Salaries and benefits represented 45% of expenses compared to 50% in fiscal 2007. Salaries and benefits increased 6.1% over the prior fiscal year. Services and supplies increased by 5.7%. Interest charges increased due to the impact of the issuance of the 2007 Revenue Refunding Bonds in fiscal 2007. Program revenues include rental income, grants, gifts of land, and donations. Grants and contribution income is mostly tied to acquisitions of specific parcels of land. Such income was very low in fiscal 2008 due to the few land acquisitions completed. The major contributor of record fiscal 2007 program revenue was the Peninsula Open Space Trust, which provided gifts of land totaling $20.2 million. Overall tax revenue in fiscal 2008 increased by 3.6% as the local residential real estate market slowed significantly from the torrid pace of the prior five years. The growth in recurring tax revenue, excluding the impact of ERAF III, was 9.2% in fiscal 2007 and 7.7% in fiscal 2006. GENERAL FUND The General Fund balance sheet includes all District accounts except for debt and capital assets. At March 31, 2008, the General Fund had a fund balance of $49.7 million, up $7.0 million from the prior year-end. All but $0.1 million of this fund balance is unreserved and designated for futm'e land acquisitions, including $37.4 million budgeted for land purchases in fiscal year 2009. 5 DEBT SERVICE FUND The only asset in the Debt Service Fund, $1.4 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. 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 2008 was $7.42 million, consisting of $1.85 million of principal and $5.57 million of interest. CAPITAL ASSETS As of March 31, 2008, the District's investment in capital assets is $302.1 million, net of accumulated depreciation. The District added $1.6 million of land in fiscal year 2008, representing 68% of the total increase in capital assets and has committed $0.9 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. LONG-TERM DEBT As of March 31, 2008, the District's long-term debt includes $1.7 million of subordinated notes issued to sellers in District land purchase transactions, $114.8 million of Authority revenue bonds sold to the public in 1999, 2004, and 2007, $4.4 million of Refunding Promissory Notes sold to the public in 2005, and $5.1 million of accreted interest, unamortized premium and unamortized loss on refunding. The Authority bonds and 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 increased loss projections from mortgage -related risk exposures, these insurance companies no longer carry AAA ratings. As of June 2008, Ambac and MBIA were rated Aa3 and A2, respectively, by Moody's and AA by 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 2007 and the final budget adjusted in December 2007. Total District revenue in fiscal 2008 was $1.4 million (4.6%) below budget, due to lower income from land acquisition grants. Land acquisition grants are tied to completion of specific land purchases and few land purchases were completed in fiscal 2008. Other revenue categories were above budget. Excluding land purchases, fiscal year 2008 expenditures were approximately $1.4 million, or 10.3%, below the final budget. Salaries and benefits were $0.4 million, or 4.7%, below 6 budget, services and supplies cost $0.6 million, or 17.2%, less than budget, and non -land capital spending was $0.3 million, or 29.0%, under budget. This expense budget performance, 90% of budget, was within the normal range of recent years (89% to 94% of budget). ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The Board of Directors adopted the District's budget for fiscal year 2009 on March 26, 2008. This budget assumes continued below -average growth in property tax revenue, about 3%, due to slower turnover of residential property in both Santa Clara and San Mateo County portions of the District. The District receives about 2/3 of its tax revenue from Santa Clara County and 1/3 from San Mateo County. The total land acquisition budget is $37.4 million in fiscal 2009, partially covered by $9.0 million of associated acquisition -related grant income. Debt service requirements are $7.6 million. If all revenues and expenditures occur as budgeted, the District's cash position would decrease by $27.7 million in fiscal year 2009. The District is currently pursuing potential land acquisition 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. MIDPENINSULA REGIONAL OPEN SPACE DISTRICT STATEMENT OF NET ASSETS MARCH 31, 2008 ASSETS Cash and investments (Note 2) $42,899,419 Restricted cash and investments (Note 2) 1,433,211 Receivables: Taxes 7,255,777 Interest 394,830 Grant 114,365 Prepaid expense 8,588 Notes receivable (Note 3) 258,165 Deferred charges 1,277,265 Capital assets (Note 4): Nondepreciable Land 291,299,339 Construction in progress 875,730 Depreciable, net of accumulated depreciation Structures and improvements 5,277,498 Infrastructure 2,860,041 Equipment 456,045 Vehicles 1,374,768 Total Assets 355,785,041 LIABILITIES Accounts payable 610,215 Accrued liabilities 324,312 Deposits payable 58,074 Compensated absences (Note 5) 844,989 Interest payable 419,709 Long-term debt (Note 6): Due in one year 2,280,704 Due in more than one year 123,664,705 Total Liabilities 128,202,708 NET ASSETS (Note 10) Investment in capital assets, net of related debt 176,198,012 Restricted for debt service 1,433,211 Unrestricted 49, 951,110 Total Net Assets $227,582,333 See accompanying notes to component unit financial statements 8 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED MARCH 31, 2008 Program Expenses: General government Salaries $6,039,229 Benefits 2,426,423 Directors 23,900 Service and Supplies 2,793,575 Depreciation (Note 4) 507,656 Interest 6,456,136 Loss on refunding of debt 381,187 Total program expenses 18,628,106 Program revenues: Charges for services (Note 7) Capital grants and operating contributions 895,661 230,365 Total program revenues 1,126,026 Net program expenses 17,502,080 General revenues: Property tax increment 24,767,516 Use of money and property 2,069,617 Miscellaneous 278,418 Total general revenues and transfers Change in Net Assets Net assets - beginning Net assets - ending 27,115,551 9,613,471 217, 968, 862 $227,582,333 See accompanying notes to financial statements 9 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT GOVERNMENTAL FUNDS BALANCE SHEET MARCH 31, 2008 Total Governmental General Fund Debt Service Fund Funds ASSETS Cash and investments (Note 2) $42,899,419 $42,899,419 Receivables Taxes 7,255,777 7,255,777 Interest 394,830 394,830 Grant 114,365 114,365 Prepaid expense 8,588 8,588 Restricted cash and investments (Note 2) $1,433,211 1,433,211 Notes receivable (Note 3) 258,165 258,165 Total Assets $50,931,144 Accounts payable Accrued liabilities Deposits payable Deferred revenue (Note 3) Total Liabilities LIABILITIES FUND BALANCES $610,215 324,312 58,074 258,165 $1,433,211 $52,364,355 $610,215 324,312 58,074 258,165 1,250,766 1,250,766 Reserved for: Debt service Encumbrances 148,965 Unreserved, designated for: Budgeted land acquisition 37,350,000 Unreserved 12,181,413 Total fund balance 49,680,378 Total liabilities and fund balance $50,931,144 See accompanying notes to financial statements $1,433,211 $1,433,211 148,965 37,350,000 12,181,413 1,433,211 51,113,589 $1,433,211 $52,364,355 10 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Reconciliation of the GOVERNMENTAL FUNDS --BALANCE SHEET with the STATEMENT OF NET ASSETS FOR THE YEAR ENDED MARCH 31, 2008 Total fund balances reported on the governmental funds balance sheet $51,113,589 Amounts reported for Governmental Activities in the Statement of Net Assets 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 government funds $302,143,421 258,165 DEFERRED CHARGES Bond issuance costs are expended in governmental funds when paid, however, they are capitalized ; 1,277,265 amortized over the life of the corresponding bonds for purposes of the statement of net assets LONG TERM LIABILITIES The liabilities below are not due and payable in the current period and therefore are not reported in the Funds: Long-term debt (125,945,409) Accrued interest payable (419,709) Compensated absences (844,989) NET ASSETS OF GOVERNMENTAL ACTIVITIES $227,582,333 See accompanying notes to financial statements 11 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED MARCH 31, 2008 Total Governmental General Fund Debt Service Fund Funds REVENUES Property taxes $24,767,516 Grant income 230,365 Investment income 1,988,757 Property management (Note 7) 895,661 Other income 297,548 Total Revenues 28,179,847 $80,860 $24,767,516 230,365 2,069,617 895,661 297,548 80,860 28,260,707 EXPENDITURES Current: Salaries 6,143,657 6,143,657 Benefits 2,426,423 2,426,423 Directors 23,900 23,900 Services and supplies 2,809,371 2,809,371. Capital outlay: New land purchases 1,540,000 1,540,000 Land acquisition support costs 90,244 90,244 Structures and improvements 268,652 268,652 Equipment 140,416 140,416 Vehicles 351,306 351,306 Debt service: Principal 1,851,613 1,851,613 Interest and fiscal charges 5,566,476 5,566,476 Total Expenditures 13,793,969 7,418,089 21,212,058 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 14,385,878 (7,337,229) 7,048,649 OTHER FINANCING SOURCES (USES) Transfers in Transfers (out) Total Other Financing Sources (Uses) NET CHANGE 1N FUND BALANCES Fund balances at beginning of year Fund balances at end of year 7,337,332 7,337,332 (7,337,332) (7,337,332) (7,337,332) 7,337,332 7,048,546 42,631,832 103 7,048,649 1,433,108 44,064,940 $49,680,378 $1,433,211 $51,113,589 See accompanying notes to financial statements 12 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Reconciliation of the NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS with the STATEMENT OF ACTIVITIES FOR THE YEAR ENDED MARCH 31, 2008 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 Assets of Governmental Activities reported in the Statement of Activities, which is prepared on the full accrual basis. NET CHANGE TN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS $7,048,649 Amounts reported for governmental activities in the Statement of Activities are different because of the following: CAPITAL ASSETS 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 2,390,618 Proceeds from the retirement of capital assets are deducted from the fund balance (11,989) Depreciation expense is deducted from the fund balance (507,656) 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. (7,141) Loan additions increase the receivables in the statement of net assets and do not generate en expenditure in the statement of activities 15,796 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 (1,221,475) Repayment of debt principal is added back to fund balance 1,851,613 Change in accrued interest payable 274,772 Amortization of bond premium 57,043 Amortization of loss on refunding (319,723) Amortization of deferred amounts (61,464) 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 104,428 CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $9,613,471 See accompanying notes to financial statements 13 This Page Left Intentionally Blank MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE I — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. 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. B. Reporting Entity As required by generally accepted accounting principles, these basic financial statements present 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 fiord. C. 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 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. 15 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 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. Separate statements for each fund category —governmental 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. D. 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. E. 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. 16 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. F. 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. Encumbrances are recorded as reservations of fund balance since they do not constitute expenditures or liabilities. All unencumbered appropriations lapse at the end of the fiscal year. G. 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. H. 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. 17 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 1— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) I. 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. J. 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. If. Debt Discount and Issuance Costs Debt discount and issuance costs are capitalized as an offset to long-term debt and amortized using the effective interest 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. NOTE 2 — CASH AND INVESTMENTS A. 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 Department of a bank as the custodian of all District managed investments, regardless of their form. 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 or .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. 18 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 2 — CASH AND INVESTMENTS (Continued) B. Classification Cash and investments are classified in the financial statements as shown below, based on whether or not their use is restricted. 2008 Cash and cash equivalents, available for District operation $4,509,708 Investments, available for District operation 38,389,711 Restricted cash and investments 1,433,211 Total Cash and Investments $44,332,630 The District's cash and investments consist of the following at March 31: 2008 Cash on hand $800 Deposits 4,508,908 Investments 39,822,922 Total Cash and Investments $44,332,630 C. 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 U.S. Treasury Obligations 5 years N/A No Limit No Limit U.S. Agency Securities 5 years N/A No Limit No Limit $40 million per California Local Agency Investment Fund Upon Demand N/A account N/A 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 I 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% 19 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 2 — CASH AND INVESTMENTS (Continued) D. 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 unexpended bond proceeds or are pledged reserves to be used if the District fails to meet its obligations under these debt issues. The California Government Code requires these funds to be invested in accordance with District resolutions, bond indentures or State statutes. At March 31, 2008, the bond indentures provided no advice about investing the bonds and contain no limitations for maximum investment in any one issuer or the maximum percentage of the portfolio that may be invested in any one investment type. E. 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 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: 12 Months More than Investment Type or less 25 months Total Held by District: California Local Agency Investment Fund $10,825,817 $10,825,817 Santa Clara County Pool 27,046,120 27,046,120 Certificates of Deposit 517,774 517,774 Held by Trustees: Guaranteed Investment Contract $1,393,436 1,393,436 Money Market Mutual Funds (U.S. Securities) 39,775 39,775 Total Investments $38,429,486 $1,393,436 $39,822,922 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 LAIF 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, 2008, these investments matured in an average of 205 days. 20 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 2 — CASH AND INVESTMENTS (Continued) 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 matured in an average of 447 days at March 31, 2008. F. 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, 2008 for each investment type as provided by Moody's investment rating system. Investment Type Held by Trustees: Guaranteed Investment Contract Money Market Mutual Funds (U.S. Securities Aaa Total $1,393,436 $1,393,436 39,775 39,775 Totals $1,433,211 1,433,211 Not rated: California Local Agency Investment Fund 10,825,817 Santa Clara County Pool 27,046,120 Certificates of Deposit 517,774 Total Investments G. Restricted ('as/i and Investments $39,822,922 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 service are administered by the Bank. The cash and investment amounts were $1,433,211 at March 31, 2008. NOTE 3 — NOTES RECEIVABLE On December 17, 1997, the District sold the title to and possession of estate 10 -acre parcel near the Skyline Ridge Open Space Preserve. purchase in the amount of $288,800 over 25 years at a rate of 10% per and interest payments of $2,634 are due on the ls' of each month and with the final payment scheduled December 1, 2022. The outstanding was $243,130. a 50 -year fee determinable The District financed the annum. Monthly principal late if not paid by the 10°', balance at March 31, 2008 21 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 3 — NOTES RECEIVABLE (Continued) On March 31, 2003, the District entered into an agreement with Graphic Arts Center Publishing Company (The Company), in which the Company would pay royalties to the District for the sales of their books. In 2007, the Company filed for Chapter 11 bankruptcy, in which the U.S. Bankruptcy court ruled that the District will be paid back in full plus interest over the 5 year period that began in spring 2007. The royalties due to the District total $15,305 over 5 years with an interest rate of 8.25% per annum. Monthly principal and interest payments of $375 are due with the final payment scheduled to be received in February 2012. The outstanding balance at March 31, 2008 was $15,035. 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 10 to 30 years Infrastructure 30 to 40 years Equipment 5 to 20 years Vehicles 10 to 20 years Changes in capital assets accounts are summarized below: Balance at Retirements & Balance at March 31, 2007 Additions Transfers March 31, 2008 Capital assets not being depreciated: Land Construction in Progress $289,669,096 739,428 Total capital assets not being depreciated 290,408,524 $1,630,243 251,525 ($115,223) $1,881,768 ($115,223) $291,299,339 875,730 292,175,069 Capital assets being depreciated: Structures and improvements 10,698,086 $17,824 10,715,910 Infrastructure 3,355,718 15,885 $115,223 3,486,826 Equipment 849,260 123,832 973,092 Vehicles 1,904,289 351,306 (113,413) 2,142,182 Total capital assets being depreciated: 16,807,353 $508,847 $1,810 17,318,010 Less accumulated depreciation for: Structures and improvements 5,111,789 $326,623 5,438,412 Infrastructure 528,091 98,694 626,785 Equipment 461,732 55,315 517,047 Vehicles 841,817 27,024 ($101,427) 767,414 Total accumulated depreciation 6,943,429 507,656 ($101,427) 7,349,658 Net capital assets being depreciated 9,863,924 9,968,352 Total capital assets, net $300,272,448 $302,143,421 22 MIDPENFNSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 4 — CAPITAL ASSETS (Continued) Adjustments made were based on a physical inventory of capital assets at March 31, 2008. Construction in progress represents construction of structure and improvements and infrastructure not yet placed in service at March 31, 2008. At March 31, 2008, the District had made commitments of approximately $2.9 million for construction work, legal and consulting fees, and purchases of supplies and equipment. NOTE 5 — ACCRUED 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 ten 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 time. 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 Percentage of equivalent cash value of accrued sick leave 10-15 20% 16-20 25% 21 or more 30% Workers who retire from the District and elect to continue CalPers medical coverage during retirement may elect 1) apply equivalent cash value of 100% of accrued sick leave toward their cost of the retiree medical plan premiums, or 2) receive a cash payment of the percentage of equivalent cash value of accrued sick leave based on years of employment as described above, and apply the remainder of the equivalent cash value toward their cost of retiree medical plans premiums. 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. Compensated absences were $844,989 as of March 31, 2008. 23 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 6 - LONG-TERM DEBT A. Current Year Transactions and Balances Original Amount Issue Balance Balance due within Amount March 31, 2007 Additions Retirements March 31, 2008 one year Promissory Notes Hunt Living Trust Promissory Note 5.00-5.50%, due 4/2/2023 $1,500,000 $1,500,000 $1,500,000 Aine Land Contract Promissory Note 7.00%, due 1/31/2009 192,000 32,724 (G15,834) 16,890 $16,890 Lazenby Land Contract Promissory Note 6.00%, due 8/31/2008 100,000 15,986 (7,759) 8,227 8,227 Daloie Land Contract Promissory Note 6.25%, due 10/10/2017 240,000 192,853 (14,054) 178,799 13,851 2005 Refunding Promissory Notes 3,25-5,00%, due 4/1/2015 4,630,000 4,515,000 (120,000) 4,395,000 140,000 6,098,916 178,968 Total promissory notes 6,662,000 6,256,563 (157,647) Revenue Bonds 1999 Lease Revenue Bonds 3.70-5.40%, due 4/1/2031 29,663 021 25,438,021 (970,000) 24,468,021 1,085 000 2004 Revenue Bonds 2.00-5.40%, due 9/1/2034 31,900 010 31,840,010 (95,000) 31,745 010 145,000 2007 Series A Revenue Rebinding Bonds 52,415 000 4.00-5.00%, due 9/1/2027 52,415,000 52,415 000 2007 Series B -T Taxable Revenue Refunding Bonds, 5.15%, due 9/1/2012 6,785,000 6,785,000 (630,000) 6,155,000 1,135,000 Unamortized premium 830,877 (56,009) 774,868 56,009 Unamortized loss on refinrding (4,859,124) 319,723 (4,539,401) (319,273) Total revenue bonds 120,763,031 112,449,784 (1,431,286) 111 018,498 2,101,736 Accreted Interest 8,498,280 1999 Revenue Bonds Accretion 7,362,606 $1,135,674 2004 Lease Revenue Bonds Accretion 243,914 85,801 329,715 Total Accretion 7,606 520 1,221 475 8,827,995 Total debt $127,425,031 $126,312,867 $1,221,475 (G1,588,933) $125,945,409 $2,280,704 B. 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 between the District and the Peninsula Open Space Trust (POST), which is the one-half owner of the Hunt Partial Interest Property. 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, 2008 the outstanding balance due on the note was $1,500,000. Land Purchase Contract Promissory Notes During fiscal years ending 1989, 2000, and 2003 the District 'entered into three- laud purchase contract promissory notes in the amounts of $100,000, $192,000, and $240,000, respectively. The promissory notes bear interest at fixed rates from 6.0% to 7.0% and mature at different intervals through October 10, 2017. At March 31, 2008 the aggregate outstanding balance of these notes amounted to $203,196. 24 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 6 — LONG-TERM DEBT (Continued) 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, 2008 the outstanding balance was $4,395,000. C. Revenue Bonds 1999 Lease Revenue Bonds On January 20, 1999 the Authority, on behalf of the District, issued $29,663,021 of 1999 Lease Revenue Bonds for the purpose of acquiring land to preserve and use as open space, 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 3.7% to 5.4% and are due semi-annually on March I and September 1. The Capital Appreciation Bonds accrete interest at 5.2% to 5.4% and compound semi-annually on March 1 and September 1. Principal payments on the Current Interest Bonds are due annually September I. Principal payments on the Capital Appreciation Bonds are payable at maturity beginning March, 2016, At March 31, 2008 the outstanding balance of these bonds was $32,966,301. 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 5.4% and compound semi-annually on March 1 and September 1. Principal payments on the Current Interest Bonds are due annually September I. Principal payments on the Capital Appreciation Bonds are payable at maturity beginning March, 2020. At March 31, 2008 the outstanding balance of these bonds was $32,074,725. 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 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. 25 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 6 — LONG-TERM DEBT (Continued) At March 31, 2008 the outstanding balance of 2007 Series A Bonds is $52,415,000 and the outstanding 2007 Series B -T Bonds is $6,155,000, and the remaining balance of the defeased debt was $48,985,811. D. Debt Service Requirements Annual debt service requirements are shown below for all long-term debt: For The Year Ending March 31 Principal Promissory Notes Interest Total 2009 $178,968 $293,371 $472,339 2010 164,738 285,009 449,747 2011 175,681 277,866 453,547 2012 796,684 254,163 1,050,847 2013 827,752 220,431 1,048,183 2014-2018 2,455,093 514,659 2,969,752 2019-2023 1,500,000 375,000 1,875,000 Total payments due $6,098,916 $2,220,499 $8,319,415 For The Year Ending March 31 Revenue Bonds Principal Accreted Interest Interest Total 2009 $2,365,000 $4,750,380 $7,115,380 2010 2,735,000 4,634,175 7,369,175 201.1 3,125,000 4,499,536 7,624,536 2012 3,660,000 4,343,129 8,003,129 2013 3,660,000 4,175,407 7,835,407 2014-2018 20,314,297 $1,115,330 18,596,336 40,025,963 2019-2023 27,000,511 6,290,487 14,488,386 47,779,384 2024-2028 31,985,761 14,140,395 9,670,659 55,796,815 2029-2033 13,867,462 10,994,782 3,036,875 27,899,119 2034-2035 6,070,000 309,500 6,379,500 Less unaccreted interest (8,827,995) (8,827,995) Total payment due $114,783,031 $23,712,999 $68,504,383 $207,000,413 Plus: unamortized premiums 774,868 Minus: unamortized loss on refundings (4,539,401) Total carrying amount $111,018,498. E. 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 $895,661 was received during the year ended March 31, 2008. 26 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 8 — RETIREMENT PLAN A. 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 which 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, 2008, 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 8,0% Required employer contribution rates 11.936% 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. 27 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 8 — RETIREMENT PLAN (Continued) 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 $2,470,881 by agreeing to contribute that amount to the Side Fund through an addition to its normal contribution rates over the next 23 years. Audited annual financial statements are available from CALPERS at P.O. Box 942709, Sacramento, CA 94229-2709. Actuarially required contributions were $1,104,388, $958,262 and $785,982 for fiscal years 2008, 2007 and 2006 respectively. The District made these contributions as required, together with certain immaterial amounts required as the result of the payment of overtime and other additional employee compensation. NOTE 9 — RISK MANAGEMENT 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). The CAL JPIA is composed of 114 California public entities and is organized under a joint powers agreement pursuant to California Government Code Section 6500 et seq. The purpose of the 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. The 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 Liability: Each member government pays a primary deposit to cover estimated losses for a fiscal year (claims year). 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 of each occurrence is charged directly to the member; costs from $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. 28 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 9 —RISK MANAGEMENT (Continued) Worker's Compensation: The District also participates in the worker's compensation pool administered by the 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 the CAL JPIA. The excess insurance provides coverage to statutory limits. Purchased Insurance Environmental Insurance: The District participates in the pollution legal liability and remediation legal liability insurance, which is available through the CAL JPIA. The policy covers sudden and gradual pollution of property, streets, and storm drains owned by the District. Coverage is on a claims -made basis. There is a $50,000 deductible. The CAL JPIA has a limit of $50,000,000 for the 3 -year period from July 1, 2005 through July 1, 2008. Each member of the CAL JPIA has a $10,000,000 limit during the 3 -year term of the policy. Property Insurance: The District participates in the all-risk property program of the CAL JPIA. This insurance is underwritten by several insurance companies. The property is currently insured according to a schedule of covered property submitted by the District to the CAL JPIA. There is a $5,000 per loss deductible. Premiums for the coverage are paid annually and are not subject to retroactive adjustments. Earthquake and Flood Insurance: The District participates in the earthquake and flood program on a portion of its property. The earthquake insurance is part of the property protection insurance program of CAL JPIA. The District currently has earthquake protection in the amount of $0. There is a deductible of 5% of value with a minimum deductible of $100,000 for the District's flood coverage. Premiums for the coverage are paid annually and are not subject to retroactive adjustments. Crime Insurance: The District participates in the crime program of the CAL JPIA in the amount of $1,000,000 per claim, with a $2,500 per claim deductible. The fidelity coverage is provided through CAL JPIA. Premiums are paid annually and are not subject to retroactive adjustments. Special Event Tenant User Liability Insurance: The District participates in the tenant user liability program of the CAL JPIA. The District protects itself by requiring tenant users of certain property to purchase tenant user liability insurance for certain activities on District property. 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. 29 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 10 — NET ASSETS Net Assets is the excess of all the District's assets over all its liabilities, regardless of 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 District -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 District'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 District cannot unilaterally alter. Unrestricted describes the portion of Net Assets which is not restricted to use. NOTE 11— COMMITMENTS AND CONTINGENCIES A. Commitments During May 2000, the District and the County of Santa Clara (the County) entered into an agreement whereby the District would operate and manage the Rancho San Antonio County Park (the Park). The Park encompasses 165 acres owned by the County and serves as a gateway facility to the District's Rancho Santa Antonio Open Space Preserve (the Preserve). The Preserve includes the Deer Hollow Farm, a homestead and educational center operated by the City of Mountain View. Under the agreement, the District agreed to manage the Park for a term of ten years to ensure that Deer Hollow Farm receives funding for operations of no less than $50,000 per year. In return, the County contributed $1,500,000 to the District for the purpose of acquiring open space. B. 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. NOTE 12 — SUBSEQUENT EVENTS A. Funding of Retiree Healthcare Plan The District had an actuarial valuation performed for its' Retiree Healthcare Plan (the Plan) as of March 31, 2008. This was done in order to determine the Plan Benefit Obligations pursuant to Governmental Accounting Standards Board Statement No. 45 (GASB 45), and to calculate the Annual Required Contribution for fiscal year 2008-2009. GASB 45 financial information for the 2008-2009 fiscal year is as follows: The Present Value Benefit as of March 31, 2008 was calculated at $1,949,000. The PVB is a measure of the District obligation for expected retiree healthcare benefits due to both past and future service for current employees and retirees. 30 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements NOTE 12 — SUBSEQUENT EVENTS (Continued) The Annual Required Contribution (ARC) for the year ended March 31, 2009 was calculated at $177,000. The ARC is the sum of the Normal Cost plus an amortization of the Unfunded Actuarial Accrued Liability (UAAL) determined as of the end of the fiscal year. The Normal Cost is the value of District provided benefits expected to be earned or allocated to the fiscal year. The UAAL is excess of the District's obligation for benefits earned for past service over Plan Assets. On June 5, 2008 the District funded $1.9 million of the Present Value Benefit. 31 This Page Left Intentionally Blank SUPPLEMENTARY INFORMATION MIDPENINSULA REGIONAL OPEN SPACE DISTRICT GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED MARCH 31, 2008 Budgeted Amounts Original Final Actual Variance Positive (Negative) REVENUES Property taxes $23,714,000 $24,650,000 $24,767,516 $117,516 Grant income 3,921,000 1,878,000 230,365 (1,647,635) Investment income 1,600,000 1,930,000 1,988,757 58,757 Property management - rents 846,000 846,000 895,661 49,661 Other income 250,000 250,000 297,548 47,548 Total Revenues 30,331,000 29,554,000 28,179,847 (1,374,153) EXPENDITURES Current: Salaries 6,485,221 6,391,739 6,143,657 248,082 Benefits 2,549,049 2,603,717 2,426,423 177,294 Directors 25,000 25,000 23,900 1,100 Services and supplies 3,338,385 3,391,071 2,809,371 581,700 Capital outlay New land purchases 30,000,000 29,948,000 1,540,000 28,408,000 Land acquisition support costs 300,000 185,000 90,244 94,756 Structures and improvements 859,200 533,600 268,652 264,948 Equipment 450,000 182,200 140,416 41,784 Vehicles 338,000 355,800 351,306 4,494 Total Expenditures 44,344,855 43,616,127 13,793,969 29,822,158 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (14,013,855) (14,062,127) 14,385,878 28,448,005 OTHER FINANCING SOURCES (USES) Transfers (out) (7,337,332) (7,337,332) Total Other Financing Sources (Uses) (7,337,332) (7,337,332) NET CHANGE IN FUND BALANCES ($14,013,855) ($14,062,127) 7,048,546 $21,110,673 Fund balance at beginning of year 42,631,832 Fund balance at end of year $49,680,378 34