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HomeMy Public PortalAboutAudit Report - District- FY09MIDPENINSULA REGIONAL OPEN SPACE DISTRICT BASIC FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2009 PREPARED BY THE FINANCE DEPARTMENT r This Page Left Intentionally Blank L r MIDPENINSULA REGIONAL OPEN SPACE DISTRICT BASIC FINANCIAL STATEMENTS For the Year Ended MARCH 31, 2009 Table of Contents INDEPENDENT AUDITORS' REPORT 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 Statementof Activities 13 NOTES TO FINANCIAL STATEMENTS 15 SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures and Changes in Fund Balances — Budget and Actual 36 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 @mazeassociates. corn www. rnazeassociates. corn INDEPENDENT AUDITORS' REPORT Board of Directors Midpeninsula Regional Open Space District Los Altos, California We have audited the accompanying financial statements of the governmental activities and each major fund of the Midpeninsula Regional Open Space District, as of March 31, 2009 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 governmental activities and each major fund of the Midpeninsula Regional Open Space District as of March 31, 2009 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. As described in Note 9, the District implemented the provisions of GASB Statement No. 45, Accounting and Financial Reporting by Employers of Post employment Benefits other than Pensions. 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. June 3, 09 A Professional Corporation 1 This Page Left Intentionally Blank Fl 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, 2009. We encourage readers to consider the information presented here in conjunction with our basic financial statements. FINANCIAL HIGHLIGHTS Property tax revenue growth was stronger than expected in fiscal 2009, increasing by about 6.4%, compared to property tax growth of 3.6% in fiscal 2008 and underlying growth of 9.2% in fiscal 2007. 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 $27.9 million of land in fiscal 2009. The largest land purchase in fiscal 2009 was the $22.5 million acquisition of the 1,047 acre Mindego Ranch property, as an addition to the Russian Ridge Open Space Preserve. Approximately one-third of the value of the fiscal 2009 acquisitions, $9.2 million, was funded by grants and gifts. The largest grant, in support of the Mindego Ranch purchase, was $7.5 million from the California Coastal Conservancy. The District added $1.6 million and $41.6 million of land in fiscal 2008 and 2007, respectively. During fiscal 2009, the District funded approximately 97% of the estimated present value of its Retiree Healthcare Plan by making a $1.9 million irrevocable deposit into the California Employers' Retiree Benefit Trust. The actuarial valuation of future benefits under this plan was calculated at $1.95 million as of March 31, 2008. Retiree healthcare cost is being charged to expense based on the actuarially determined annual required contribution --$177,000 in fiscal 2009. The assets of the District exceeded liabilities at the close of the 2009 fiscal year by $245.8 million (net assets). Of this amount, $206.0 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 $38.4 million is unrestricted. About half of the unrestricted balance is projected to be used for land acquisition in fiscal 2010 as the approved budget for fiscal 2010 forecasts land purchases totaling $20.0 million, or $18.2 million net of associated grant income. The District's total net assets increased by $18.2 million in fiscal 2009, as general and program revenues exceeded program expenditures. Program expenditures were within budget. The District's total long-term debt obligations declined by $1.0 million to $125.0 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. 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 (GASB 34), Basic Financial Statements — and Management's Discussion and Analysis (MD&A) — for State and Local Governments. NET ASSETS Statement of Net Assets — March 31, 2008 and 2009 Assets: Current assets Retiree Health Trust 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 0 302,143,421 355,785,041 2,257,299 125,945,409 128,202,708 176,198,012 1,433,211 49,951,110 $227,582,333 March 31, 2009 $ 40,565,462 1,723,000 330,931,437 373,219,899 2,506,547 124,951,534 127,458,081 205,979,903 1,405,211 38,376,704 $,245,761,818 Increase $13,076,158 1,723,000 28,788,016 17,434,858 249,248 - 993,875 - 744,627 29,781,891 - 28,000 -11,574,406 $18,179,485 Analysis of Net Assets The District's assets at the close of this fiscal year are $245.8 million more than its liabilities. This is the result of the District's inventory of capital assets. The net investment in capital assets, $206.0 million, consists primarily of the District's 57,000 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 $1.4 million for debt service. Unrestricted net assets are used to finance additional land acquisition projects. The District's budget for fiscal year 2010 includes $18.2 million for land acquisitions, net of related grant income. L. Changes in Net Assets — Fiscal Years Ending March 31, 2008 and 2009 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 2009 $ 895,661 230,365 24,767,516 2,069,617 278,418 28,241,577 18,628,106 9,613,471 $ 879,296 9,049,506 26,350,722 1,228,471 488.273 37,996,268 19,816,783 18,179,485 Increase $- 16,365 8,819,141 1,583,206 - 841,146 209,855 9,754,691 1,188,677 8,566,014 % Increase - 1.8 nm 6.4 - 40.6 75.4 34.5 6.4 89.1 For the year ended March 31, 2009, the District's net assets increased by $18.2 million. The increase in overall expenses was due to planned increases in salaries, benefits, services and supplies. Salaries and benefits represented 47% of expenses compared to 45% in fiscal 2008. Salaries and benefits increased 9.4% over the prior fiscal year. Approximately 22% of this increase was due to initiating accounting for projected future retiree healthcare costs, as required by GASB 45. Services and supplies increased by 14.6%. The largest single line item expense growth in this category was election expense, representing 29% of the increase. There was no District election in fiscal 2008. Interest charges decreased slightly due to the impact of scheduled principal repayments. Program revenues include rental income, grants and donations. Grant income is mostly tied to acquisitions of specific parcels of land. Grant income was relatively high in fiscal 2009 due to the acquisition of the Mindego Ranch property, for which the District received $8.1 million of grant finding, including $7.5 million from the California Coastal Conservancy. The District also received $0.95 million from Santa Clara County to reimburse the District for one-half of the cost of another land purchase. Overall tax revenue increased by 6.4% in fiscal 2009. This is approximately equal to the average rate of growth in recurring tax revenue for the prior five fiscal years. The District receives approximately two-thirds of its tax revenue from Santa Clara County and one-third from San Mateo County. The growth in recurring tax revenue, excluding the negative impact of ERAF III, was 3.6% in fiscal 2008 and 9.2% in fiscal 2007. GENERAL FUND The General Fund balance sheet includes all District accounts except for debt and capital assets. At March 31, 2009, the General Fund had a fund balance of $36.6 million, down $13.1 million from the prior year-end. This decrease was the result of spending cash to complete land purchases. All but $0.1 million of this fund balance is unreserved and designated for future land acquisitions, including $18.2 million budgeted for land purchases in fiscal year 2010, net of associated grant funding. 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 2009 was $7.59 million, consisting of $2.54 million of principal and $5.04 million of interest. CAPITAL ASSETS As of March 31, 2009, the District's investment in capital assets is $330.9 million, net of accumulated depreciation. The District added $27.9 million of land in fiscal year 2009, representing 97% of the total increase in capital assets, and has committed $1.6 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, 2009, the District's long-term debt includes $1.7 million of subordinated notes issued to sellers in District land purchase transactions, $112.4 million of Authority revenue bonds sold to the public in 1999, 2004, and 2007, $4.3 million of Refunding Promissory Notes sold to the public in 2005, and $6.6 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 April 2009, Ambac and MBIA were rated Ba3 and B3, respectively, by Moody's. The District's last stand-alone credit rating was AA- from Standard & Poor's in November 2006. Additional information on the District's long-term obligations can be found in Note 6 in the Notes to the Basic Financial Statements. I BUDGETARY PERFORMANCE The Budgetary Comparison Schedule —General Fund shows how the District financial results compared to the original budget adopted in March 2008 and the final budget adjusted in December 2008. Total District revenue in fiscal 2009 was $0.6 million (1.5%) over budget, due primarily to higher tax revenue from the Santa Clara County portion of the District. Interest income was under budget due to a significant reduction in interest rates. Excluding land purchases and debt service, fiscal year 2009 expenditures were approximately $1.7 million, or 11.0%, below the final budget. Salaries and benefits were 0.7% below budget, services and supplies cost $0.6 million, or 15.9%, less than budget, and non -land capital spending was $1.1 million, or 38.6%, under budget. This overall operating expense budget performance, 89% 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 2010 on March 25, 2009. This budget assumes very low growth in property tax revenue, about 1.7%, due to downward reassessments and slow turnover of residential property in both Santa Clara and San Mateo County portions of the District. Updated reports from the county assessors in June 2009 indicate that the fiscal 2010 secured property tax revenue increase within District boundaries will likely be in the 2.5 to 3.0 percent range. Secured property taxes typically represent about 90% of District tax revenue. The total land acquisition budget is $20.0 million in fiscal 2010, partially covered by $1.8 million of associated acquisition -related grant income. Debt service requirements are $7.8 million. If all revenues and expenditures occur as budgeted, the District's cash position would decrease by $14.8 million in fiscal year 2010. 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. 7 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT STATEMENT OF NET ASSETS MARCH 31, 2009 ASSETS Cash and investments (Note 2) $28,916,501 Restricted cash and investments (Note 2) 1,405,211 Receivables: Taxes 7,257,000 Interest 440,000 Deposit 1,064,453 Prepaid expense 18,565 Notes receivable (Note 3) 247,931 Deferred charges 1,215,801 Net OPEB Asset (Note 9) 1,723,000 Capital assets (Note 4): Nondepreciable Land 319,200,973 Construction in progress 1,637,226 Depreciable, net of accumulated depreciation Structures and improvements 5,136,617 Infrastructure 2,928,915 Equipment 542,848 Vehicles . 1,484,858 Total Assets 373,219,899 LIABILITIES Accounts payable 852,403 Accrued liabilities 181,685 Deposits payable 54,940 Interest payable 409,850 Compensated absences (Note 5): Due in one year 162,680 Due in more than one year 844,989 Long-term debt (Note 6): Due in one year 3,163,002 Due in more than one year 121,788,532 Total Liabilities 127,458,081 NET ASSETS (Note 11) t, F, r Investment in capital assets, net of related debt 205,979,903 Restricted for debt service 1,405,211 Unrestricted 38,376,704 r 1 Total Net Assets $245,761,818 See accompanying notes to financial statements MIDPENINSULA REGIONAL OPEN SPACE DISTRICT STATEMENT OF ACTIVITIES FOR THE YEAR ENDED MARCH 31, 2009 Program Expenses: General government Salaries $6,725,098 Benefits 2,569,105 Directors 22,200 Service and Supplies 3,202,321 Depreciation (Note 4) 652,625 Interest 6,264,697 Loss on refunding of debt 380,737 Total program expenses 19,816,783 Program revenues: Charges for services (Note 7) Capital grants and operating contributions 879,296 9,049,506 Total program revenues 9,928,802 Net program expenses 9,887,981 General revenues: Property tax increment 26,350,722 Use of money and property 1,228,471 Miscellaneous 488,273 Total general revenues and transfers Change in Net Assets Net assets - beginning Net assets - ending 28,067,466 18,179,485 227,582,333 $245,761,818 See accompanying notes to financial statements 9 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT GOVERNMENTAL FUNDS BALANCE SHEET MARCH 31, 2009 ASSETS Cash and investments (Note 2) Receivables Taxes Interest Deposit Prepaid expense Restricted cash and investments (Note 2) Notes receivable (Note 3) Total Governmental General Fund Debt Service Fund Funds $28,916,501 $28,916,501 7,257,000 7,257,000 440,000 440,000 1,064,453 1,064,453 18,565 18,565 $1,405,211 1,405,211 247,931 247,931 Total Assets $37,944,450 $1,405,211 $39,349,661 LIABILITIES Accounts payable $852,403 $852,403 Accrued liabilities 181,685 181,685 Deposits payable 54,940 54,940 Deferred revenue (Note 3) 247,931 247,931 Total Liabilities FUND BALANCES 1,336,959 1,336,959 Reserved for: Debt service S1,405,211 $1,405,211 Encumbrances $75,050 75,050 Unreserved, designated for: Budgeted land acquisition 20,378,775 20,378,775 Unreserved 16,153,666 16,153,666 Total fund balance 36,607,491 1,405,211 38,012,702 Total liabilities and fund balance $37,944,450 $1,405,211 $39,349,661 See accompanying notes to financial statements r L. r L. 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, 2009 Total fund balances reported on the governmental funds balance sheet $38,012,702 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. 330,931,437 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 247,931 DEFERRED CHARGES Bond issuance costs are expended in governmental funds when paid, however, they are capitalized and amortized over the life of the corresponding bonds for purposes of the statement of net assets 1,215,801 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 (124,951,534) Accrued interest payable (409,850) Compensated absences (1,007,669) Net OPEB Asset Net OPEB Asset is not available to pay for current period expenditures and, therefore, are deferred on the modified accrual basis in the balance sheet of government funds 1,723,000 NET ASSETS OF GOVERNMENTAL ACTIVITIES $245,761,818 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, 2009 L Total Governmental General Fund Debt Service Fund Funds REVENUES Property taxes $26,350,722 $26,350,722 Grant income 9,049,506 9,049,506 Investment income 1,161,531 $66,940 1,228,471 Property management (Note 7) 879,296 879,296 Other income 498,507 498,507 Total Revenues 37,939,562 66,940 38,006,502 EXPENDITURES Current: Salaries 6,562,418 6,562,418 Benefits 2,569,105 2,569,105 Directors 22,200 22,200 Services and supplies 3,183,539 3,183,539 Capital outlay: New land purchases 27,780,800 27,780,800 Land acquisition support costs 240,833 240,833 Structures and improvements 976,416 976,416 Equipment 165,854 165,854 Vehicles 295,520 295,520 Debt service: Principal 2,543,964 2,543,964 Interest and fiscal charges 5,043,740 5,043,740 Total Expenditures EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 41,796,685 7,587,704 49,384,389 (3,857,123) (7,520,764) (11,377,887) OTHER FINANCING SOURCES (USES) Transfers in 7,492,764 7,492,764 Transfers (out) (7,492,764) (7,492,764) Total Other Financing Sources (Uses) SPECIAL ITEM OPEB Funding (Note 9) (7,492,764) 7,492,764 (1,723,000) (1,723,000) NET CHANGE IN FUND BALANCES (13,072,887) (28,000) (13,100,887) Fund balances at beginning of year 49,680,378 1,433,211 51,113,589 Fund balances at end of year $36,607,491 $1,405,211 $38,012,702 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, 2009 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 IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS ($13,100,887) 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 29,459,423 Loss from the retirement of capital assets are deducted from the fund balance (18,782) Depreciation expense is deducted from the fund balance (652,625) NOTES RECEIVABLE I 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. 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. (10,234) Accreted interest on capital appreciation bonds (1,286,825) Repayment of debt principal is added back to fund balance 2,543,964 Change in accrued interest payable 9,859 Amortization of bond premium 56,009 Amortization of loss on refunding (319,273) 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 Net OPEB Asset (162,680) 1,723,000 CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $18,179,485 See accompanying notes to financial statements 13 This Page Left Intentionally Blank L r MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 NOTE 1— 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 fund. 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 March 31, 2009 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. L. 16 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 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 March 31, 2009 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. K. 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. r. L. 18 r L MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 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. 2009 Cash and cash equivalents, available for District operation $196,855 Investments, available for District operation 28,719,646 Restricted cash and investments 1,405,211 , Total Cash and Investments The District's cash and investments consist of the following at March 31: 2009 Cash on hand $800 Deposits 196,055 Investments 30,124,857 Total Cash and Investments $30,321,712 $30,321,712 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: Authorized Investment Type Maximum Minimum Maximum Maximum Remaining Credit Percentage Investment 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 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% 19 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 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, 2009, 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 12 to 24 More than Investment Type or less Months 25 Months Total Held by District: California Local Agency Invest went Fund $10,920,224 $10,920,224 Santa Clara County Pool $17,144,047 17,144,047 Certificates of Deposit 655,375 655,375 Held by Trustees: Guaranteed Investment Contract $1,371,911 1,371,911 Money Market Mutual Funds (U.S. Securities) 33,300 33,300 Total Investments $11,608,899 $17,144,047 $1,371,911 $30,124,857 The District is a participant in the Local Agency Investment Fund (LAW) 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 LAW, 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, 2009, these investments matured in an average of 197 days. c L L. L. r 20 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 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 377 days at March 31, 2009. 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, 2009 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 $1,371,911 $1,371,911 33,300 33,300 Totals $1,405,211 Not rated: California Local Agency Investment Fund 10,920,224 Santa Clara County Pool 17,144,047 Certificates of Deposit 655,375 Total Investments G. Restricted Cash and Investments The District has the following restrictions on cash and investments: $30,124,857 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 $1,405,211 at March 31, 2009. 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 1st 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, 2009 was $234,840. 21 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 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, 2009 was $13,091. 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 r 22 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 NOTE 4 — CAPITAL ASSETS (CONTINUED) Changes in capital assets accounts are summarized below: Balance at Additions & Retirements & Balance at March 31, 2008 Transfers Transfers March 31, 2009 Capital assets not being depreciated: Land $291,299,339 $28,021,634 ($120,000) $319,200,973 Construction in Progress 875,730 Total capital assets not being depreciated 939,030 (177,534) 1,637,226 292,175,069 $28,960,664 ($297,534) 320,838,199 Capital assets being depreciated: Structures and improvements 10,715,910 $192,608 10,908,518 Infrastructure 3,486,826 171,864 3,658,690 Equipment 973,092 144,590 ($31,157) 1,086,525 Vehicles 2,142,182 287,231 (107,183) 2,322,230 Total capital assets being depreciated: 17,318,010 $796,293 ($138,340) 17,975,963 Less accumulated depreciation for: - Structures and improvements 5,438,412 $333,489 5,771,901 Infrastructure 626,785 102,990 729,775 Equipment 517,047 57,787 ($31,157) 543,677 Vehicles 767,414 158,359 (88,401) 837,372 Total accumulated depreciation Net capital assets being depreciated Total capital assets, net 7,349,658 $652,625 ($119,558) 7,882,725 9,968,352 10,093,238 $302,143,421 $330,931,437 Adjustments made were based on a physical inventory of capital assets at March 31, 2009. Construction in progress represents construction of structure and improvements and infrastructure not yet placed in service at March 31, 2009. At March 31, 2009, the District had made commitments of approximately $1.6 million for construction work, legal and consulting fees, and purchases of supplies and equipment. 23 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 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 $1,007,669 as of March 31, 2009. L. L 24 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 NOTE 6 — LONG-TERM DEBT A. Current Year Transactions and Balances Original Amount Issue Balance Balance due within Amount March 31, 2008 Additions ' Retirements March 31, 2009 one year Promissory Notes Hunt Living Trust Promissory Note 5,00-5.50%, due 4/22023 $1,500,000 $1,500,000 $1,500,000 A1ne Land Contract Promissory Note 7,00%, due 1/312009 192,000 16,890 ($16,890) Lazenby Land Contract Promissory Note 6.00%, due 8/31/2008 100,000 8,227 (8,227) Daloia Land Contract Promissory Note 6.25%, due 10/102017 240,000 178,799 (13,851) 164,948 $14,738 2005 Refunding Promissory Notes 3.25-5.00%, due 4/1/2015 4,630,000 4,395,000 (140,000) 4,255,000 150,000 Total promissory notes 6,662,000 6,098,916 (178,968) 5,919,948 164,738 Revenue Bonds 1999 Lease Revenue Bonds 3.70-5.40%, due 4/1/2031 29,663,021 24,468,021 (1,085,000) 23,383,021 1,205,000 2004 Revenue Bonds 2.00-5.40%, due 9/1/2034 31,900,010 31,745,010 (145,000) 31,600,010 200,000 2007 Series A Revenue Refunding Bonds 4.00-5.00%, due 9/1/2027 52,415,000 52,415,000 52,415,000 2007 Series B -T Taxable Revenue Refunding Bonds, 5,15%, due 9/1/2012 6,785,000 6,155,000 (1,135,000) 5,020,000 1,330,000 Unanroribed premium 774,868 (56,009) 718,859 (56,009) Unasnortized loss on refunding (4,539,401) 319,273 (4,220,128) 319,273 Total revenue bonds 120,763,031 111,018,498 (2,101,736) 108,916,762 2,998,264 Accreted Interest 1999 Revenue Bonds Accretion 8,498,280 $1,196,375 9,694,655 2004 Lease Revenue Bonds Accretion 329,715 90,454 420,169 Total Accretion 8,827,995 1,286,829 10,114,824 Total debt $127,425,031 $125,945,409 $1,286,829 ($2,280,704) $124,951,534 $3,163,002 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. The note is due in fill 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, 2009 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 land 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, 2009, two notes were paid off, the outstanding balance of the Daloia Land Contract note amounted to $164,948. 25 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 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, 2009 the outstanding balance was $4,255,000 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 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 1. Principal payments on the Capital Appreciation Bonds are payable at maturity beginning March, 2016, At March 31, 2009 the outstanding balance of these bonds was $33,077,676. 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 1. Principal payments on the Capital Appreciation Bonds are payable at maturity beginning March, 2020. At March 31, 2009 the outstanding balance of these bonds was $32,020,179 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. 26 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 NOTE 6 — LONG-TERM DEBT (Continued) At March 31, 2009 the outstanding balance of 2007 Series A Bonds is $52,415,000 and the outstanding 2007 Series B -T Bonds is $5,020,000, and the remaining balance of the defeased debt was $17,004,968. D. Debt Service Requirements Annual debt service requirements are shown below for all long-term debt: For The Year Ending March 31 Promissory Notes Principal Interest Total 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 1,163,888 173,758 1,337,646 2015-2019 1,291,205 753,401 2,044,606 2020-2024 1,500,000 337,500 1,837,500 Total payments due $5,919,948 $2,302,128 $8,222,076 For The Year Revenue Bonds Ending March 31 Principal Accreted Interest Interest Total 2010 $2,735,000 $4,634,175 $7,369,175 2011 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 3,065,000 4,026,021 7,091,021 2015-2019 22,507,709 $1,894,127 17,750,956 42,152,792 2020-2024 7,797,803 7,292,904 13,377,070 28,467,777 2025-2029 45,502,861 15,632,511 8,425,834 69,561,206 2030-2034 17,209,658 7,721,452 2,443,000 27,374,110 2035 3,155,000 78,875 3,233,875 Less unaccreted interest (10,114,824) (10,114,824) Total payment due $112,418,031 $22,426,170 $63,754,003 $198,598,204 Plus: unamortized premiums 718,859 Minus: unamortized loss on refundings (4,220,128) Total carrying amount $108,916,762 E. Debt Repayment All debt is payable from limited ad valorem property taxes levied on all taxable property within the District. 27 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 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 $879,296 was received during the year ended March 31, 2009. 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 2.5% Required employee contribution rates 8.0% Required employer contribution rates 12.262% 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 arrrued liability. The District does not have a net pension obligation since it pays these actuarially required contributions bi-weekly. 28 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 NOTE 8 — RETIREMENT PLAN (Continued) 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. 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 $2,492,824 by agreeing to contribute that amount to the Side Fund through an addition to its normal contribution rates over the next 22 years. CALPERS latest available actuarial value (which differs from market value) and funding progress for the State-wide pool are set forth below at their actuarial valuation date of June 30, 2007. Actuarial Unfunded Unfunded Annual (Overfunded) Valuation Accrued Value of (Overfunded) Funded Covered Liability as % Date Liability Assets Liability Ratio Payroll of Payroll 2005 $579,276,103 $500,388,523 $78,887,580 86.38% $129,379,492 60.97% 2006 912,988,585 787,758,909 125,229,676 86.28% 200,320,145 62.51% 2007 1,315,454,361 1,149,247,298 166,207,063 87.37% 289,090,187 57.49% Audited annual financial statements are available from CALPERS at P.O. Box 942709, Sacramento, CA 94229-2709. Actuarially required contributions were $1,115,702, $1,104,388, and $958,262 for fiscal years 2009, 2008 and 2007 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. 29 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 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. As of March 31, 2009, 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 units, 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: Eligibility -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) Benefit District pays retiree premiums up to: $300 per month effective 10/1/2006 $350 per month effective 1/1/2009 Surviving Spouse Continuation -Retirement plan election -Same benefit continues to surviving spouse Dental, Vision and Life None As of March 31, 2009, approximately 82 active employees were eligible to receive retirement health care benefits. 17 30 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 NOTE 9 — OTHER POST EMPLOYMENT BENEFITS (Continued) A. Funding Policy and Actuarial Assumptions The annual required contribution (ARC) was determined as part of a January 1, 2009 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) 7.75% investment rate of return, (b) 3.25% projected annual salary increase, and (c) 3.0% 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 City's OPEB unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll using a 30 year amortization period. In accordance with the District's budget, the ARC is to be funded through out 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 Ca1PERS, and is managed by an appointed board not under the control of the City Council. This Trust is not considered a component unit by the City and has been excluded from these financial statements. Separately issued financial statements for CERBT may be obtained from CALPERS at P.O. Box 942709, Sacramento, CA 94229-2709. B. 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 (ARC) and Annual OPEB cost $177,000 Contribution to CERBT - Made by District Contributions in excess of the ARC Net OPEB Asset at March 31, 2008 Net OPEB Asset at March 31, 2009 1,900,000 1,723,000 0 $1,723,000 31 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 NOTE 9 — O1'HER POST EMPLOYMENT BENEFITS (Continued) The actuarial accrued liability (AAL) representing the present value of future benefits, included in the actuarial study dated March 31, 2008, amounted to $1,949,000 and was unfunded since no assets had been transferred into CERBT as of that date. However, as of March 31, 2009, the District transferred contributions to CERBT which totaled $1,900,000 and reduced the unfunded actuarial liability to $49,000. NOTE 10 — RISK MANAGEMENT A. Coverage The District is exposed to various risks of toss 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 119 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 JPL4 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. 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. rr C. 32 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 NOTE 10 — RISK MANAGEMENT (Continued) 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 JPLA. 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. B. Liability for Uninsured Claims The District's liability for uninsured claims was estimated by management based on prior years claims experience and was computed as follows as of March 31, 2009: Amount Unpaid claims, beginning of fiscal year $0 Incurred claims 150,000 Claim payments 0 Unpaid claims, end of fiscal year $150,000 33 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Notes to the Financial Statements March 31, 2009 NOTE 11— 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 12 — 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. �. 34 r i 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, 2009 Budgeted Amounts Variance Positive Original Final Actual (Negative) REVENUES Property taxes - $23,714,000 $25,632,000 $26,350,722 $718,722 Grant income 3,921,000 9,157,000 9,049,506 (107,494) Investment income 1,600,000 1,410,000 1,161,531 (248,469) Property management - rents 846,000 926,000 879,296 (46,704) Other income 250,000 250,000 498,507 248,507 Total Revenues 30,331,000 37,375,000 37,939,562 564,562 EXPENDITURES Current: Salaries 6,485,221 6,649,650 6,562,418 87,232 Benefits 2,549,049 2,547,131 2,569,105 (21,974) Directors 25,000 25,000 22,200 2,800 Services and supplies 3,338,385 3,784,167 3,183,539 600,628 Capital outlay New land purchases 30,000,000 37,163,000 27,780,800 9,382,200 Land acquisition support costs 300,000 428,474 240,833 187,641 Structures and improvements • 859,200 1,763,710 976,416 787,294 Equipment 450,000 227,500 165,854 61,646 Vehicles 338,000 316,000 295,520 20,480 Total Expenditures 44,344,855 52,904,632 41,796,685 11,107,947 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (14,013,855) (15,529,632) (3,857,123) 11,672,509 OTHER FINANCING SOURCES (USES) Transfers (out) (7,492,764) (7,492,764) Total Other Financing Sources (Uses) (7,492,764) (7,492,764) SPECIAL ITEM: OPEB Funding (1,723,000) (1,723,000) NET CHANGE IN FUND BALANCES ($14,013,855) ($17,252,632) (13,072,887) $4,179,745 Fund balance at beginning of year 49,680,378 Fund balance at end of year $36,607,491 36