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HomeMy Public PortalAboutAudit Report - District- FY03MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Independent Auditor's Reports and General -Purpose Financial Statements For the Year Ended March 31, 2003 i L. L r L MIDPENINSULA REGIONAL OPEN SPACE DISTRICT FOR 1'HE YEAR ENDED MARCH 31, 2003 Table of Contents Page(s) Independent Auditor's Report 1 General -Purpose Financial Statements: Combined Balance Sheet 2 Combined Statement of Revenues, Expenditures and Changes in Fund Balances 3 Statement of Revenues, Expenditures and Changes in Fund Balance Budget and Actual — General Fund 4 Notes to General -Purpose Financial Statements 5 - 14 Other Report: Independent Auditor's Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of General -Purpose Financial Statements Performed in Accordance with Government Auditing Standards 15 iT 1 Macias,Gint & Company 11P Collllked Public Accounfonis and Monogemenl Consullo, is Mt. Diablo Plaza 2175 N. California Boulevard Suite 620 Walnut Creek, CA 94596-3565 925.274.0190 925.274.3819 FAX www.maciasgini.com Board of Directors Midpeninsula Regional Open Space District INDEPENDENT AUDITOR'S REPORT We have audited the accompanying general-purpose financial statements of the Midpeninsula Regional Open Space District (District), as of and for the year ended March 31, 2003, as listed in the table of contents. These general- purpose financial statements are the responsibility of the District's management. Our responsibility is to express an opinion on these general-purpose financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general-purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the general-purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the general-purpose financial statements referred to above present fairly, in all material respects, the financial position of the District as of March 31, 2003, and the results of its operations for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated May 27, 2003 on our consideration of the District's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Q Certified Public Accountants Walnut Creek, California May 27, 2003 Offices located throughout California r 9 GENERAL-PURPOSE FINANCIAL STATEMENTS (1 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT COMBINED BALANCE SHEET MARCH 31, 2003 Account Groups ASSETS AND OTHER DEBITS Assets: Cash and investments Restricted cash and investments Receivables: Taxes Interest Notes receivable Prepaid items Land Structures and improvements Equipment Other Debits: Amount available in Debt Service Fund Amount to be provided for retirement of general long-term debt TOTAL ASSETS AND OTHER DEBITS LIABILITIES, FUND EQUITY AND OTHER CREDIT Liabilities: Accounts payable $ 287,659 $ Accrued liabilities 377,522 Deposits 41,204 Deferred revenue 786,538 Promissory notes 87,557 Certificates of participation Revenue bonds Total liabilities 1,580,480 Fund Equity and Other Credit: Investment in general fixed assets - - 238,156,566 Fund balance: Reserved for: Encumbrances 253,354 Debt service - 3,514,640 Notes receivable 271,079 Prepaid items 150 Unreserved, designated for: Budgeted land acquisitions 15,000,000 - Future capital purchases 20,560,547 General Fund Debt Service Fund $ 32,555,772 $ - $ 3,514,640 4,692,726 145,883 271,079 150 General General Fixed Long -Term Assets Debt 224,837,518 10,768,917 2,550,131 Total (Memorandum Only) $ 32,555,772 3,514,640 4,692,726 145,883 271,079 150 224,837,518 10,768,917 2,550,131 3,514,640 3,514,640 113,991,223 113,991,223 $ 37,665,610 $ 3,514,640 $ 238,156,566 $ 117,505,863 $ 396,842,679 11,529,230 14,655,000 91,321,633 $ 287,659 377,522 41,204 786,538 11,616,787 14,655,000 91,321,633 Total fund equity and other credit 36,085,130 3,514,640 238,156,566 TOTAL LIABILITIES, FUND EQUITY AND OI'D:LR CREDIT 117,505,863 119,086,343 238,156,566 253,354 3,514,640 271,079 150 15,000,000 20,560,547 277,756,336 $ 37,665,610 $ 3,514,640 $ 238,156,566 $ 117,505,863 $ 396.842,679 See accompanying notes to general-purpose financial statements. 2 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT COMBINED STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES YEAR ENDED MARCH 31, 2003 Debt Total General Service (Memorandum Fund Fund Only) Revenue: General property tax $ 18,528,887 $ $ 18,528,887 Other property taxes 250,048 250,048 Investment income 1,127,266 101,501 1,228,767 Grants 85,718 85,718 Donations 1,011,046 - 1,011,046 Rental income and other 830,931 - 830,931 Other revenue 134,735 - 134,735 Total revenue 21,968,631 101,501 22,070,132 Expenditures: Salaries and benefits 5,460,570 - 5,460,570 Professional services 472,864 - 472,864 Vehicle expenditures 181,856 - 181,856 Insurance 92,937 - 92,937 Communications and publications 148,954 - 148,954 Site supplies and services 340,718 - 340,718 Utilities and communication 153,458 153,458 Other 465,962 - 465,962 Capital outlay: Land 9,640,163 - 9,640,163 Structures and improvements 511,143 511,143 Equipment 281,635 - 281,635 Debt service: Principal retirement 3,324,548 3,324,548 Interest and fiscal charges 4,282,984 4,282,984 Total expenditures 17,750,260 7,607,532 25,357,792 Excess (deficiency) of revenues over (under) expenditures 4,218,371 (7,506,031) (3,287,660) Other financing sources (uses): Proceeds from promissory notes 150,000 150,000 Operating transfers in - 7,068,983 7,068,983 Operating transfers out (7,068,983) (7,068,983) Total other financing sources (uses) (6,918,983) 7,068,983 150,000 Excess (deficiency) of revenues and other financing sources over (under) expenditures and other financing uses (2,700,612) (437,048) (3,137,660) Fund balances, beginning of year 38,785,742 3,951,688 42,737,430 Fund balances, end of year $ 36,085,130 $ 3,514,640 $ 39,599,770 1 See accompanying notes to general-purpose financial statements. c L. L. MIDPENINSULA REGIONAL OPEN SPACE DISTRICT STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - GENERAL FUND YEAR ENDED MARCH 31, 2003 Revenue: General property tax Other property taxes Investment income Grants Donations Rental income and other Other revenue Total revenue Expenditures: Salaries and benefits Professional services Vehicle expenditures Insurance Communications and publications Site supplies and services Utilities and communication Other Capital outlay: Land Structures and improvements Equipment Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses): Proceeds from promissory notes Operating transfers out Total other financing souces (uses) Excess (deficiency) of revenues and other financing sources over (under) expenditures and other financing uses Fund balance, beginning of year Fund balance, end of year Budget Actual Variance $ 18,403,000 190,000 1,170,000 4,342,000 25,000 757,600 125,000 $ 18,528,887 250,048 1,127,266 85,718 1,011,046 830,931 134,735 $ 125,887 60,048 (42,734) (4,256,282) 986,046 73,331 9,735 25,012,600 21,968,631 (3,043,969) 5,792,622 5,460,570 332,052 881,460 472,864 408,596 201,450 181,856 19,594 94,395 92,937 1,458 169,600 148,954 20,646 363,750 340,718 23,032 173,390 153,458 19,932 613,020 465,962 147,058 25,194,000 9,640,163 15,553,837 1,283,279 511,143 772,136 287,851 281,635 6,216 35,054,817 17,750,260 17,304,557 (10,042,217) (7,289,568) (7,289,568) 253,482 $ (17,331,785) 4,218,371 14,260,588 150,000 (7,068,983) (6,918,983) 150,000 220,585 370,585 (1,344,055) (1,597,537) (2,700,612) $ 14,631,173 38,785,742 $ 36,085,130 See accompanying notes to general-purpose financial statements. 4 r•� r L MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO GENERAL-PURPOSE FINANCIAL STATEMENTS YEAR ENDED MARCH 31, 2003 NOTE A: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The Midpeninsula Regional Open Space District (District) was formed in 1972 to acquire and preserve public open space land in the 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. 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 (Authority), pursuant to the California Government Code. The District is financially accountable for the Authority, as it appoints a voting majority; is able to impose its will on 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. Fund Accounting The accounts of the District are organized on the basis of one fund and account groups, each of which is considered a separate accounting entity. All resources and operations of the District, including the Authority, are reported in the General Fund. The District reports its fixed assets in the General Fixed Assets Account Group and reports its long-term liabilities in the General Long -Term Debt Account Group. Basis of Accounting The records of the District are maintained on the modified accrual basis of accounting. Under this method, revenues, including property taxes, are generally recognized in the period they become measurable and available, and expenditures are generally recognized when the obligation is incurred, except for principal and interest on long-term debt, which are recognized as expenditures when due. Revenues are considered to be available if they are collected within 60 days of the end of the current fiscal year. Substantially all revenues are susceptible to accrual. Budgets and Budgetary Accounting The Board of Directors of the District adopts an annual operating budget for the General Fund 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 fund level. Encumbrances are recorded as reservations of fund balance since they do not constitute expenditures or liabilities. The encumbered appropriation balance is carried forward to the succeeding year and is reappropriated. All unencumbered appropriations lapse at the end of the fiscal year. The budget is presented on a basis consistent with accounting principles generally accepted in the United States of America. Investments The District records investment transactions on the trade date. Investments are reported at fair value. Fair value is defined as the amount that the District could reasonably expect to receive for an investment in a current sale between a willing buyer and seller and is generally measured by quoted market prices. 5 r� r LJ MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO GENERAL-PURPOSE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED MARCH 31, 2003 General Fixed Assets Land, structures, improvements and equipment purchased by the District are stated at cost in the General Fixed Assets Account Group (Account Group). Donations of capital assets are stated at their estimated fair market value as of the date received and are recorded as additions to the Account Group, however, are not recorded as revenue in the General Fund as these types of donations do not represent spendable financial resources. Depreciation is not recorded for fixed assets. In addition, during the current fiscal year, the District also approved an increase in their fixed assets capitalization rate from $500 to $5,000 to be effective starting fiscal year 2003/04. This accounting change will be retroactively adjusted to next year's fixed assets balance. Property Tax Levy, Collection and Maximum Rates The State of California (State) Constitution Article XIIIA provides that the combined maximum property tax rate on any given property may not exceed one percent of its assessed value unless voters have approved an additional amount for general obligation debt. Assessed value is calculated at 100 percent of market value as defined by Article XIIIA and may be increased by no more than two percent per year unless the property is sold or transferred. The State Legislature has determined the method of distribution of receipts from the one percent tax levy among the counties, cities, school districts and special districts. The District receives property tax revenues from Santa Clara and San Mateo Counties. The Counties assess properties and bill for the collection of property taxes as follows: Santa Clara San Mateo Secured Unsecured Secured Unsecured Valuation/lien dates January I Levy Dates Due dates Delinquent after October 1 50% on November 1 50% on February 1 December 10 (for November) April 10 (for February) January 1 January 1 On or before July 1 November 1 Upon receipt of billing 50% on November 1 50% on February 1 August 31 December 10 (for November) April 10 (for February) January 1 July 1 July 1 August 31 Taxes are secured by liens on the property being taxed. The term "unsecured" refers to taxes on personal property and not land and buildings. Supplemental property taxes are levied based on changes in assessed values between the date of real property sales and new construction and the next normal assessment date. Property tax revenues are recognized when measurable and available to fmance current operations. Available means collected within the current period or expected to be collected soon thereafter to be used to pay liabilities of the current period (not to exceed 60 days). Compensated Absences Vacation pay is accrued when earned and is included in the General Fund as accrued liabilities. Sick leave is recorded as an expenditure when paid. Use of Estimates The preparation of the general-purpose financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the general-purpose financial statements, as well as revenues and expenditures during the reporting period. Actual results could differ from those estimates. r' u r MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO GENERAL-PURPOSE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED MARCH 31, 2003 Total (Memorandum Only) Column The total column in the combined balance sheet is captioned as "Total (Memorandum Only)" because it does not represent consolidated financial information and is presented only to facilitate financial analysis. The column does not represent information that reflects financial position or results of operations in accordance with accounting principles generally accepted in the United States of America. Pronouncements to be Implemented in Future Years • GASB Statement Nos. 34 and 37 In June 1999 and in June 2001, the GASB approved Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments, and Statement No. 37, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments: Omnibus. These statements establish new financial reporting requirements for state and local governments throughout the United States. When implemented, these statements will require new information and will restructure much of the information that governments have presented in the past. Some of the most significant changes include the presentation of government -wide financial statements on the accrual basis of accounting; all capital assets, including infrastructure, and long-term debt will be reported at the government -wide level only; the budgetary comparison schedule for the general fund will be reformatted and presented as required supplementary information; and the District will now prepare and report management's discussion and analysis. The costs to implement GASB Statement No. 34 are unknown at this time. The District is in the planning stages and anticipates various analyses to be required before the full impact of these statements can be determined. • GASB Statement No. 38 In June 2001, the GASB approved Statement No. 38, Certain Financial Statement Note Disclosures. This statement modifies, adds and deletes various note disclosure requirements. The statement addresses disclosure requirements for revenue recognition policies, actions taken in response to legal violations, debt service requirements, variable -rate debt, receivable and payable balances, interfund transfers and balances, and short-term debt. • GASB Statement No. 40 In March 2003, the GASB approved Statement No, 40, Deposit and Investment Risk Disclosures. This statement amends GASB Statement No. 3, Deposits with Financial Institutions, Investments (including Repurchase Agreements), and Reverse Repurchase Agreements, to add certain other note disclosures, which are designed to inform the financial statement users about deposit and investment risks that could affect the government's ability to provide services and meet its obligations as they become due. • GASB Statement No. 41 In May 2003, the GASB approved Statement No. 41, Budgetary Comparison Schedules - Perspective Differences. This statement amends GASB Statement No. 34 to clarify the budgetary presentation requirements. • GASB Interpretation No. 6 In March 2000, the GASB approved Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements. This interpretation clarifies the application of standards for modified accrual recognition of certain liabilities and expenditures in areas where differences have arisen, or potentially could arise, in interpretation and practice. L MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO GENERAL-PURPOSE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED MARCH 31, 2003 NOTE B: CASH AND INVESTMENTS The District's cash and investments consist of the following at March 31, 2003: Cash and investments Restricted cash and investments $ 32,555,772 3,514,640 Total cash and investments $ 36,070,412 Deposits At March 31, 2003, the carrying amount of the District's deposits was $4,395,843 and the bank balance was $4,511,615. The difference between the bank balance and the carrying amount represents outstanding checks and deposits in transit. Of the bank balance, $200,000 was covered by federal depository insurance and $4,311,615 was collateralized by the pledging fmancial institutions as required by Section 53652 of the California Government Code. Under the California Government Code, a financial institution is required to secure deposits in excess of those covered by federal depository insurance made by state or local governmental units by pledging government securities held in the form of an undivided collateral pool. The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure public deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. The collateral must be held at the pledging financial institution's trust department or other bank, acting as the pledging financial institution's agent, in the District's name. Investments Statutes authorize the District to invest in the County of Santa Clara Treasurer's investment pool, obligations of the U.S. Treasury or its agencies, certificates of deposit, bankers' acceptances, commercial paper and mutual funds invested in U.S. Government securities. The District did not enter into any reverse repurchase agreements during the year ended March 31, 2003. Information is not available on whether the various mutual funds and the County of Santa Clara Treasurer's investment pool in which the District has invested used, held or wrote derivative financial products during the year ended March 31, 2003. The County of Santa Clara Treasurer's investment pool is subject to regulatory oversight by the County's Treasury Oversight Committee, as required by California Government Code Section 27134. The fair value of the District's position in the pool is approximately the same as the value of the pool shares. * Provisions of the District's bond trust agreements require that certain restricted accounts be established. These accounts are held by trustees for the repayment of debt and as reserves. These funds have been invested only as permitted by specific state statutes and applicable resolutions or bond indentures. The cash equivalents and investments held by trustees have been classified as restricted on the balance sheet because their use is limited by bond covenants. 8 L L MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO GENERAL-PURPOSE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED MARCH 31, 2003 Custodial Credit Risk The District's investments are categorized below to give an indication of the level of custodial credit risk assumed by the District at March 31, 2003. Category 1 includes investments that are insured or registered, or securities held by the District or its agent in the District's name. Category 2 includes uninsured and unregistered investments, with the securities held by the counterparty's trust department or agent in the District's name. Category 3 includes uninsured and unregistered investments, with securities held by the counterparty, or by its trust department or agent, but not in the District's name. There were no Category 1 or 3 investments at March 31, 2003. The District's investments were classified as follows at March 31, 2003: Fair Value Category 2 Investments: U.S. Government securities Investments not subject to categorization: County of Santa Clara Treasurer's investment pool Mutual funds $ 3,416,640 28,170,406 87,523 Total $ 31,674,569 NOTE C: NOTES RECEIVABLE On December 17, 1997, the District sold 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 purchaser in the amount of $288,800 over 25 years at a rate of 10% per annum. Monthly principal and interest payments of $2,624 are due on the 1'' of each month and late if not paid by the 10th, with the final payment scheduled on December 1, 2022. The outstanding balance at March 31, 2003 is $271,079. NOTE 1): FIXED ASSETS Changes in the General Fixed Assets Account Group for the year ended March 31, 2003, were as follows: Balances Balances April 1, 2002 Additions Retirements March 31, 2003 Land $ 214,597,355 $ 10,240,163 $ $ 224,837,518 Structures and improvements 10,257,774 511,143 10,768,917 Equipment 2,451,136 281,635 (182,640) 2,550,131 $ 227,306,265 $ 11,032,941 $ (182,640) $ 238,156,566 The District received land donations equal to an estimated fair market value of $600,000 during fiscal year 2002/03. The donations came from the Bay Area Ridge Trail Council and the Peninsula Open Space Trust. The donations were recorded as additions to the General Fixed Assets Account Group, but were not reported in the General Fund, as the District did not receive spendable resources as a result of the donations. 9 r= MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO GENERAL-PURPOSE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED MARCH 31, 2003 NOTE E: LONG-TERM DEBT Changes in long-term debt for the year ended March 31, 2003 is presented below. Promissory Notes: 1995 Hosking Property Aine Property Lazenby Property McKannay-Seimers Property McKannay-Tate/A. Property Dalolia Property -current Dalolia Property -noncurrent 1993 Certificates of Participation Revenue Bonds: 1996 1999 1999, Second Issue Total Balance April 1, 2002 Additions and Accretion $ 11,100,000 $ 500,000 97,647 48,671 250,000 340,000 12,336,318 15,165,000 29,688,178 31,340,245 29,952,091 90,980,514 $ 118,481,832 90,000 150,000 240,000 Balance Retirements March 31, 2003 $ (100,000) (500,000) (11,290) (5,798) (340,000) (2,443) $ 11,000,000 86,357 42,873 250,000 87,557 150,000 (959,531) 11,616,787 (510,000) 14,655,000 547,236 (850,000) 875,372 (515,000) 803,511 (520,000) 2,226,119 (1,885,000) $ 2,466,119 $ (3,354,531) The following is a detail of the long-term debt of the District as of March 31, 2003: Promissory Notes 29,385,414 31,700,617 30,235,602 91,321,633 $ 117,593,420 • An early payment of the principal option has been exercised by Richard McKannay, the holder, on the McKannay Tate/A. Property Note, in January 2003. In accordance with paragraph 3 of the Note, 8.1% prepayment penalty was applied to the face amount of the $340,000 note, which totaled $27,540. This resulted in principal balances due of $312,460. • 1995 Notes, principal balance of $11,000,000, comprised of $855,000 of Serial Notes, bearing interest at rates ranging from 6.15% to 7%, maturing annually from September 1, 2003 through September 1, 2009, and $10,145,000 of 7% term notes due on September 1, 2014. • The five land contract promissory notes aggregate to a total debt of $616,787, bearing interest at fixed rates from 4.1% to 7%, and maturing at different intervals through October 10, 2017. 1993 Certificates of Participation • 1993 Certificates of Participation, include serial certificates with a principal balance bearing interest at rates ranging from 4.75% to 5.6%, maturing annually from September September 1, 2009. 1993 Certificates of Participation also include $4,345,000 of 5.70% due on September 1, 2014 and $5,910,000 of 5.75% term certificates due on September 1 of $4,400,000, 1, 2003 through term certificates , 2020. 10 r r MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO GENERAL-PURPOSE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED MARCH 31, 2003 Revenue Bonds • On July 24, 1996, the Authority on behalf of the District issued the 1996 Revenue Bonds, which have a principal balance outstanding of $29,385,414. These bonds are comprised of $15,145,000 in current interest bonds, bearing interest at rates ranging from 4.6% to 5.75%, and maturing annually from September 1, 2003 through September 1, 2012. This issue also includes $4,900,000 of current interest term bonds, bearing interest at 5.9% due September 1, 2014 and $9,340,414 of capital appreciation bonds, bearing interest at rates ranging from 6.2% to 6.3%, maturing annually from September 1, 2015 through September 1, 2026. Accretion on the capital appreciation bonds for the year ended March 31, 2003 was $547,236. • On January 27, 1999, the Authority on behalf of the District issued the 1999 Revenue Bonds, first issue, which has a principal balance outstanding of $31,700,617. These bonds are comprised of $14,445,000 of current interest bonds, bearing interest at rates ranging from 3.75% to 4.625%, maturing annually from September 1, 2003 through September 1, 2014. This issue also includes $17,255,617 capital appreciation bonds, bearing interest at rates ranging from 5.2% to 5.4%, maturing annually from September 1, 2015 through September 1, 2030. Accretion on the capital appreciation bonds for the year ended March 31, 2003 was $875,372. A portion of the proceeds was used to advance refund the 1992 Promissory Notes. • On August 30, 1999, the Authority on behalf of the District issued the 1999 Revenue Bonds, second issue, which has a principal balance outstanding of $30,235,602. These bonds comprised of $10,415,000 current interest bonds, beginning interest at rates ranging from 4.25% to 5.2% maturing annually from August 1, 2003 through August 1, 2012. This issue also includes $6,185,000 of current interest term bonds, bearing interest at 5.25% due August 1, 2013 through August 1, 2017 and $13,635,602 capital appreciation bonds, bearing interest at rates ranging from 6.2% to 6.35 %, maturing annually from August 1, 2018 through August 1, 2031. Accretion on the capital appreciation bonds for the year ended March 31, 2003 was $803,511. A portion of the proceeds was used to repay the 1990 Promissory Notes. All debt is payable from limited ad valorem property taxes levied on all taxable property within the District. The District has not pledged its full faith and credit of taxing power for payment of the debt, nor is the debt collateralized by any District property. Maturities of long-term debt are as follows: Year ending Total Debt March 31, Principal Interest Future Accretion Service 2004 $ 446,110 $ 4,121,912 $ 2,357,275 $ 6,925,297 2005 619,044 3,982,421 2,496,207 7,097,672 2006 803,859 3,824,929 2,643,377 7,272,165 2007 1,015,090 3,648,237 2,799,264 7,462,591 2008 1,242,213 3,450,929 2,964,400 7,657,542 2009-2013 13,425,631 13,157,750 17,663,190 44,246,571 2014-2018 24,096,388 3,808,476 21,634,739 49,539,603 2019-2023 22,795,737 273,557 18,709,263 41,778,557 2024-2028 27,323,396 - 12,566,605 39,890,001 2029-2032 25,825,952 3,789,048 29,615,000 $ 117,593,420 $ 36,268,211 $ 87,623,368 $ 241,484,999 11 r ca MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO GENERAL-PURPOSE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED MARCH 31, 2003 NOTE F: 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 $830,931 was received during the year ended March 31, 2003. NOTE G: EMPLOYEES' RETIREMENT PLAN Plan Description - The District's defined benefits pension plan, Public Employees' Retirement System (PERS) provides retirement and disability benefits, annual cost -of -living adjustments, and death benefits to plan members and beneficiaries. The PERS is part of the Miscellaneous portion of the California Public Employees' Retirement System (CalPERS), an agent multiple employer plan administered by Ca1PERS, which acts as a common investment and administrative agent for participating public employers within the State of California. A menu of benefit provisions as well as other requirements are established by State statutes within the Public Employees' Retirement Law. The District selects optional benefit provisions from the benefit menu by contracts with CaIPERS and adopts those benefits through District resolution, A separate report for the District's plan is not prepared; however, Ca1PERS issues a separate comprehensive annual financial report. Copies of the Ca1PERS' annual financial report may be obtained from the Ca1PERS Executive Office - 400 P Street - Sacramento, CA 95814. Funding Policy - Active plan members in the PERS are required to contribute 7% of their annual covered salary, which is currently paid by the District on behalf of its employees. The District is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by the Ca1PERS Board of Administration. The required employer contribution rate for the year ended March 31, 2003 was 1.468%. The contribution requirements of the plan are established by State statute and the employer contribution rate is established and may be amended by Ca1PERS. Annual Pension Cost - For the year ended March 31, 2003, the District's annual pension cost was $296,724 and the District actually contributed $296,724. The required contribution for the year ended March 31, 2003 was determined as part of the June 30, 2000 actuarial valuation using the entry age normal actuarial cost method with the contributions determined as a percent of pay. The actuarial assumptions included (a) 8.25 % investment rate of return (net of administrative expenses); (b) projected -salary increases that vary by duration of service; and (c) 2% cost -of -living adjustment. Both (a) and (b) include an inflation component of 3.5%. The actuarial value of the District's assets was determined using a technique that smoothes the effect of short-term volatility in the market value of investments over a three-year period. The District's actuarial excess assets are being amortized as a level of percentage of projected payroll on a closed basis. The remaining amortization period at June 30, 2000 was 14 years. Three -Year Trend Information for the Fund Fiscal Year ended March 31, Annual Percentage Net Pension Of APC Pension Cost (APC) Contributed Obligation 2001 $ 261,223 100% $ 2002 269,187 100% 2003 296,724 100% 12 L. MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO GENERAL-PURPOSE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED MARCH 31, 2003 Schedule of Funding Progress Actuarial Valuation Date * 6/30/99 6/30/00 6/30/01 (A) Entry Age Actuarial Accrued Liability $ 6,356,332 7,422,454 8,163,873 (B) Actuarial Asset Value $ 8,269,579 9,493,705 10,097,065 (C) (Excess Assets) Actuarial Accrued Liability [(A) — (B)] $ (1,913,247) (2,071,251) (1,933,192) (D) Funded (E) Ratio Covered [(B) / (A)] Payroll 130.1% $ 2,986,627 127.9% 3,271,912 123.7% 3,696,670 * There were no changes in actuarial assumptions since the prior year's actuarial valuation. NOTE H: RESERVATIONS AND DESIGNATIONS OF FUND EQUITY (F) Overfunded Actuarial Liability as a Percentage of Covered Payroll [(C) / (E)] (64.060%) (63.304%) (52.296%) Reserved fund balance represents that portion of fund balance, which is not available for appropriation for expenditure or is legally segregated for a specific future use. Portions of the unreserved fund balance have been designated for future acquisition of open space and for future capital purchases to be decided at a future date. Such plans or intentions are subject to change and may or may not result in expenditures. NOTE I: 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 San 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 and 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. NOTE J: CONTINGENCIES The District has entered into numerous agreements, has properties that will require environmental remediation, and is named in certain claims and litigation. In the opinion of management, after consultation with counsel, the liability, if any, resulting therefrom will not have a material effect on the District's financial position. NOTE K: 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 (Authority). The Authority is composed of 89 California public entities and is organized under a joint powers agreement pursuant to California Government Code §6500 et seq. The purpose of the Authority 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 Authority'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. The District did not have settled claims that exceeded the District's commercial insurance coverage in any of the past three years. 13 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT NOTES TO GENERAL-PURPOSE FINANCIAL STATEMENTS (CONTINUED) YEAR ENDED MARCH 31, 2003 Self -Insurance Programs of the Authority 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 $30,001 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 and $50,000,000 annual aggregate. Workers Compensation: The District also participates in the workers compensation pool administered by the Authority. 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 are pooled above that level to $50,000. Costs from $50,001 to $100,000 per claim are pooled based on the member's losses under its retention level. Costs between $100,001 and $500,000 per claim are pooled based on payroll. Costs in excess of $500,000 are paid by excess insurance purchased by the Authority. 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 Authority. The policy covers sudden and gradual pollution of scheduled property, streets, and storm drains owned by the District. Coverage is on a claims -made basis. There is a $50,000 deductible. The Authority has a limit of $50,000,000 for the 3 -year period from July 1, 2000 though June 30, 2003, with reinstatement of $50,000,000 if the initial $50,000,000 is depleted. Each member of the Authority has a $10,000,000 limit during the 3 -year term of the policy. Property Insurance: The District participates in the all-risk property protection program of the Authority. This insurance protection is underwritten by several insurance companies. The District property is currently insured according to a schedule of covered property submitted by the District to the Authority. 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 purchases earthquake and flood insurance on a portion of its property. The earthquake insurance is part of the property protection insurance program of the Authority. There is a deductible of 5% of value with a minimum deductible of $100,000. Premiums for the coverage are paid annually and are not subject to retroactive adjustments. 14 r L. O 1'HLR REPORT r r L: L. L, Macias, Gini & Company ar Certified Public Aecounfants and Munagemanl Cansullartls Board of Directors Midpeninsula Regional Open Space District Mt. Diablo Plaza 2175 N. California Boulevard Suite 620 Walnut Creek, CA 94596-3565 925.274.0190 925.274.3819 rAx www.maciasgini_com INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF GENERAL-PURPOSE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS We have audited the general-purpose financial statements of Midpeninsula Regional Open Space District (District) as of and for the year ended March 31, 2003, and have issued our report thereon dated May 27, 2003. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the District's general-purpose financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of general-purpose financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Internal Control over Financial Reporting In planning and performing our audit, we considered the District's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the general-purpose financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the general-purpose financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the District's Board of Directors and District management and is not intended to be and should not be used by anyone other than these specified parties. Certified Public Accountants Walnut Creek, California May 27, 2003 a c.. LLt Offices located throughout California 15 L,