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HomeMy Public PortalAbout20141125 - Agenda Packet - Board of Directors (BOD) - 14-33 SPECIAL MEETING BOARD OF DIRECTORS OF THE MIDPENINSULA REGIONAL OPEN SPACE DISTRICT 330 Distel Circle Los Altos, CA 94022 Tuesday, November 25, 2014 SPECIAL MEETING BEGINS AT 5:00 A G E N D A 5:00 SPECIAL MEETING OF THE MIDPENINSULA REGIONAL OPEN SPACE DISTRICT CLOSED SESSION – CONFERENCE WITH LEGAL COUNSEL – POTENTIAL LITIGATION (GOVERNMENT CODE SECTION 54956.9(d)(2)) One Case: Discuss with Legal Counsel the Securities and Exchange Commission’s Municipal Continuing Disclosure Cooperation Initiative ADJOURNMENT TO A MEETING OF THE MIDPENINSULA REGIONAL OPEN SPACE DISTRICT BOARD OF DIRECTORS 6:00 SPECIAL MEETING OF THE BOARD OF DIRECTORS OF THE MIDPENINSULA REGIONAL OPEN SPACE DISTRICT ORAL COMMUNICATIONS – PUBLIC ADOPTION OF AGENDA CONSENT CALENDAR 1. Approve Minutes of the November 12, 2014 Board Meeting 2. Approve Claims Report BOARD BUSINESS 3. Fund Balance Policy and Initial Reserve Commitments (R-14-150) Staff Contact: Mike Foster, District Controller District Controller’s Recommendation: (1) Approve the proposed new District Fund Balance Policy. (2) Approve initial amounts for committed reserves and minimum general fund balance. 4. Resolution approving a Board Policy on Initial and Continuing Disclosures Relating to Meeting 14-33 Bond Issuances (R-14-149) Staff Contact: Sheryl Schaffner, General Counsel District Controller’s Recommendation: Adopt a Resolution of the Board of Directors of the Midpeninsula Regional Open Space District approving a new Board Policy: “Initial and Continuing Disclosures Relating to Bond Issuances.” ADJOURNMENT TO A MEETING OF THE MIDPENINSULA REGIONAL OPEN SPACE DISTRICT FINANCING AUTHORITY SPECIAL MEETING OF THE MIDPENINSULA REGIONAL OPEN SPACE DISTRICT FINANCING AUTHORITY ROLL CALL 1. Annual Financial Report of the Midpeninsula Regional Open Space District Financing Authority (R-14-144) Staff Contact: Mike Foster, Controller Controller’s Recommendation: Accept the Annual Financial Report of the Midpeninsula Regional Open Space District Financing Authority. 2. Resolution Authorizing the Execution and Delivery of Documents in Connection with the Refinancing of the 2004 Revenue Bonds (R-14-146) Staff Contact: Mike Foster, Controller and Steve Abbors, Executive Director Executive Director and Controller’s Recommendation: Adopt a Resolution of the Board of Directors of the Midpeninsula Regional Open Space District Financing Authority authorizing the execution and delivery of documents in connection with the refinancing of the Authority’s outstanding 2004 Revenue Bonds, and approving related documents and official actions. ADJOURNMENT OF SPECIAL MEETING OF THE MIDPENINSULA REGIONAL OPEN SPACE DISTRICT FINANCING AUTHORITY RECONVENE THE SPECIAL MEETING OF THE BOARD OF DIRECTORS OF THE MIDPENINSULA REGIONAL OPEN SPACE DISTRICT 5. Resolution Approving Documents Relating to Issuance of 2014 Refunding Promissory Notes (R-14-145) Staff Contact: Mike Foster, District Controller District Controller’s Recommendation: Adopt a Resolution of the Board of Directors of the Midpeninsula Regional Open Space District authorizing the issuance of a series of Refunding Promissory Notes, approving an Official Statement, and providing other matters properly related thereto. TO ADDRESS THE BOARD: The President will invite public comment on agenda items at the time each item is considered by the Board of Directors. You may address the Board concerning other matters during Oral Communications. Each speaker will ordinarily be limited to three minutes. Alternately, you may comment to the Board by a written communication, which the Board appreciates. Consent Calendar: All items on the Consent Calendar may be approved without discussion by one motion. Board members, the General Manager, and members of the public may request that an item be removed from the Consent Calendar during consideration of the Consent Calendar. In compliance with the Americans with Disabilities Act, if you need assistance to participate in this meeting, please contact the District Clerk at (650) 691-1200. Notification 48 hours prior to the meeting will enable the District to make reasonable arrangements to ensure accessibility to this meeting. Written materials relating to an item on this Agenda that are considered to be a public record and are distributed to Board members less than 72 hours prior to the meeting, will be available for public inspection at the District’s Administrative Office located at 330 Distel Circle, Los Altos, California 94022. CERTIFICATION OF POSTING OF AGENDA I, Jennifer Woodworth, District Clerk for the Midpeninsula Regional Open Space District (MROSD), declare that the foregoing agenda for the Special and Regular Meetings of the MROSD Board of Directors was posted and available for review on November 21, 2014, at the Administrative Offices of MROSD, 330 Distel Circle, Los Altos California, 94022. Agenda materials are also available on the District’s website at http://www.openspace.org. Signed this 21st day of November, 2014, at Los Altos, California. November 12, 2014 Board Meeting 14-32 SPECIAL AND REGULAR MEETING BOARD OF DIRECTORS MIDPENINSULA REGIONAL OPEN SPACE DISTRICT 330 Distel Circle Los Altos, CA 94022 November 12, 2014 DRAFT MINUTES SPECIAL MEETING – STUDY SESSION CALL TO ORDER President Harris called the Special Meeting of the Midpeninsula Regional Open Space District Board of Directors to order at 5:34 p.m. ROLL CALL Members Present: Cecily Harris, Larry Hassett, Curt Riffle, and Pete Siemens Members Absent: Jed Cyr, Nonette Hanko, and Yoriko Kishimoto Staff Present: General Manager Steve Abbors, Assistant General Manager Kevin Woodhouse, General Counsel Sheryl Schaffner, District Clerk Jennifer Woodworth III. STUDY SESSION 1. Financial and Operational Sustainability Model Study Update (R-14-140) General Manager Steve Abbors provided comments regarding the purpose of the Financial and Operational Sustainability Model Study (FOSM) and its implications moving forward during the implementation of Measure AA. Director Kishimoto arrived at 5:37 p.m. Nancy Hetrick of Management Partners and project manager on the FOSM, summarized the work completed thus far on the FOSM, including field tours, completion of a peer agency survey, informational interviews with members of District staff, and conducting focus groups and project team meetings. Ms. Hetrick also summarized the next steps of the project including data analysis and financial analysis. Meeting 14-32 Page 2 Andy Belknap of Management Partners and project director for the FOSM summarized the emerging themes of the FOSM including a need for updated business and management systems and an increasing focus on operations and restoration. Mr. Belknap outlined various sustainability challenges that will emerge as the District works to implement Measure AA, including a need for the Board of Directors to focus on policymaking over project implementation, the General Manager’s statute-limited spending authority, and a resource capacity gap. Director Riffle expressed his concern that the FOSM is looking backwards instead of looking at how the District will move forward toward Measure AA implementation. Mr. Belknap explained the FOSM has looked at what changes need to be made and mistakes corrected in order to create a sure foundation for the District to move forward. Director Kishimoto inquired regarding whether technology improvements for the Operations department were being suggested in addition to administrative information technology improvements. Mr. Belknap explained that a maintenance operating system will lead to an improved District visitor experience. Director Kishimoto suggested additional organizations, including the Golden Gate National Recreation Area that could be studied to learn about best practices and inquired as to why they were not studied. Ms. Hetrick explained that additional organizational analysis will continue outside of the peer agencies surveyed in order to develop recommendations for best practices for the District. Director Riffle inquired if Management Partners has uncovered any problems in District activities due to the Board obstructing staff efforts to complete their work. Mr. Belknap stated that the Board will need to elevate to a policymaking level instead of becoming involved in the details of project implementation. This change will be able to occur as the Board creates policies to govern project implementation, which will allow projects to move forward in a manner that the Board is comfortable with as staff will be implementing Board- created policy. Director Siemens inquired as to the type of management systems Management Partners is suggesting. Mr. Belknap explained that various software programs are available depending on the District’s need and suggested an Information Technology Strategic Plan is necessary to determine the systems needed and their ability to integrate into the District’s current software programs. Public comment opened at 6:43 p.m. No speakers present. Public comment closed at 6:43 p.m. Meeting 14-32 Page 3 No Board action required. IV. MEETING ADJOURNED President Harris adjourned the special meeting of the Board of Directors of the Midpeninsula Regional Open Space District at 6:46 p.m. REGULAR MEETING I. CALL TO ORDER President Harris called the Regular Meeting of the Midpeninsula Regional Open Space District Board of Directors to order at 7:01 p.m. II. ROLL CALL Members Present: Cecily Harris, Larry Hassett, Yoriko Kishimoto, Curt Riffle, and Pete Siemens Members Absent: Jed Cyr and Nonette Hanko Staff Present: General Manager Steve Abbors, Assistant General Manager Ana Ruiz, Assistant General Manager Kevin Woodhouse, General Counsel Sheryl Schaffner, Natural Resources Manager Kirk Lenington, Planning Manager Jane Mark, Planner II Gretchen Laustsen, and District Clerk Jennifer Woodworth III. ORAL COMMUNICATIONS No speakers present. IV. ADOPTION OF AGENDA Motion: Director Siemens moved, and Director Riffle seconded the motion to adopt the agenda. VOTE: 5-0-0 (Directors Cyr and Hanko absent) V. CONSENT CALENDAR 1. Approve Minutes of the Special and Regular Board Meetings of October 22, 2014, October 28, 2014, and October 29, 2014, as amended. 2. Approve the Claims Report 3. Authorization to Reject All Bids Received October 30, 2014 for the McDonald Ranch Fence Installation Project at La Honda Creek Open Space Preserve (R-14-131) General Manager’s Recommendation: Meeting 14-32 Page 4 1. Authorize the General Manager to reject all bids received to complete the McDonald Ranch Fence Installation Project at La Honda Creek Open Space Preserve. 2. Authorize the General Manager to solicit new bids to complete the McDonald Ranch Fence Installation Project at La Honda Creek Open Space Preserve. Public hearing opened at 7:05 p.m. No speakers present. Public hearing closed at 7:05 p.m. Motion: Director Riffle moved, and Director Hassett seconded the motion to approve the Consent Calendar, as amended. VOTE: 5-0-0 (Directors Cyr and Hanko absent) VI. BOARD BUSINESS 4. Deed Restriction as Required by Habitat Conservation Fund and Land and Water Conservation Fund Grants for El Corte de Madera Creek Staging Area and Trails Project (R-14-138) Planner II Gretchen Laustsen summarized the history of the project and recent changes to the administrative guidelines of the grant program which were implemented following the District’s original grant application. Public hearing opened at 7:11 p.m. No speakers present. Public hearing closed at 7:11 p.m. Motion: Director Siemens moved, and Director Kishimoto seconded the motion to authorize the General Manager to execute a deed restriction on parcels that pertain to the El Corte de Madera Creek Staging Area and Trails Project to fulfill Habitat Conservation Fund and Land and Water Conservation Fund Grant Agreements. VOTE: 5-0-0 (Directors Cyr and Hanko absent) VII. COMMITTEE REPORTS Director Kishimoto reported that the Action Plan and Budget Committee met twice recently to discuss the draft Employee Compensation Guiding Principles and midyear budget. VIII. STAFF REPORTS Assistant General Manager Kevin Woodhouse provided an update on the District’s ongoing work with Pacific Gas & Electric regarding the gas line through Edgewood. Mr. Woodhouse Meeting 14-32 Page 5 also provided an update on current Operations department recruitments and a scheduled Operations department staff retreat. General Manager Steve Abbors reported that he and Acting Skyline Superintendent Tom Lausten participated in a speed coaching event in partnership with the Santa Clara and San Mateo County City Managers Association. Mr. Abbors also provided an update regarding ongoing conversations with Lehigh Quarry. IX. DIRECTOR REPORTS The Board submitted their compensatory forms to the District Clerk. Directors Hassett, Kishimoto, Riffle, Siemens, and Harris reported that they attended the recent District Partners event at Picchetti Winery and thanked staff for their efforts in organizing the event. Director Harris requested that an item be added to a future Board meeting agenda regarding the potential Highway 17 wildlife crossing including whether the District has a grant for the project. X. ADJOURNMENT TO CLOSED SESSION President Harris adjourned the regular meeting of the Board of Directors of the Midpeninsula Regional Open Space District to a closed session at 7:27 p.m. 1. CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION (GOVERNMENT CODE SECTION 54956.9(b)) Two potential cases 2. CONFERENCE WITH REAL PROPERTY NEGOTIATORS (GOVERNMENT CODE SECTION 54956.8) Property: 3500 Portola Heights Road, La Honda, CA, 94020, San Mateo County APN 080-410-270 Agency Negotiator: Allen Ishibashi, Real Property Specialist Negotiating Party: Thomas Anderson, Sharon Niswander and Sid Frederick (Agent) Under Negotiation: Waiver of Right of First Refusal XII. ADJOURN MEETING President Harris adjourned the meeting of the Board of Directors of the Midpeninsula Regional Open Space District at 9:00 p.m. ________________________________ Jennifer Woodworth, CMC District Clerk page 1 of 4 CLAIMS REPORT MEETING 14-33 DATE 11-25-2014 MIDPENINSULA REGIONAL OPEN SPACE DISTRICT Check Number Notes Vendor No. and Name Invoice Description Check Date Payment Amount 68059 11454 - DECON ENVIRONMENTAL SERVICES, INC.Sierra Azul Demolitions Progress Payment - Crites/Stanton Property (SA)11/19/2014 $94,149.75 68090 11369 - BANK OF THE WEST COMMERCIAL CARD USA $74.16 - Tools, Batteries, Field Supplies 11/19/2014 $28,324.64 $504.76 - Regis. Fees and Lodging for CA Invasive Weed Symposium Conf.11/19/2014 $640.99 - CSDA Conference Expenses 11/19/2014 $248.11 - Office Supplies, Business Meal, Flag, E&O Insurance 11/19/2014 $52.86 - Lodging for CAL-IPC Conference 11/19/2014 $862.25 - Field Supplies, Regis. Fees for CA Invasive Weed Symposium 11/19/2014 $396.88 - Field Supplies, (1) Car Wash for District Vehicle 11/19/2014 $1,631.74 - Employee Recognition Event Expense, Career Fair Parking 11/19/2014 $1,335.04 - Tools & Equipment 11/19/2014 $781.92 - Web Services 11/19/2014 $259.69 - Tools, Replacement Parts for Saw 11/19/2014 $646.91 - Supplies for Bald Mtn Joint Work Day and Office Supplies 11/19/2014 $4,482.09 Well Permit, Rental Residence Repairs, Business Lunch 11/19/2014 $255.00 - IRWA Conference Registration 11/19/2014 $196.10 - Water Testing Materials 11/19/2014 $57.25 - Resource Book, Parking Fee, Supplies for Outreach Event 11/19/2014 $115.19 - Safety Program Water Jugs, Reusable Water Bottles for Staff Event 11/19/2014 $560.96 - Volunteer Supplies & Equipment, Conference Fees 11/19/2014 $372.43 - Name Badges, Event Supplies 11/19/2014 $443.33 - Parts for Water Line Repairs, Shutters (DHF)11/19/2014 $880.65 - Travel Expenses for NWS Training, IT Supplies 11/19/2014 $540.45 - AutoCad Software Annual License for Planning 11/19/2014 $430.44 -AO Supplies, Lunch Meeting 11/19/2014 $665.02 - Support Services Field & Uniform Supplies 11/19/2014 $122.51 - Sign Materials & Welding Equipment 11/19/2014 $505.44 - Training & Video Camera 11/19/2014 $2,804.52 - Event Catering at Picchetti Winery Event & Chairs 11/19/2014 $277.99 - Field Supplies - Camera 11/19/2014 $1,828.21 - CSDA Conference Expenses, Bay Nature Ad 11/19/2014 $816.00 - Signboard Materials for New Sign 11/19/2014 $631.25 - Volunteer Supplies, GPS Unit 11/19/2014 $351.72 - Removal of Propane Tank Fee, Hand Soap for Poison Oak 11/19/2014 $945.34 - Recruitment Expenses for HR Analyst Position 11/19/2014 $543.65 - Signboard Materials, Parts, Wood Stakes 11/19/2014 $53.74 - 16th Annual Central California Invasive Weed Synopsium Training 11/19/2014 $27.13 - Wireless Keyboard, Batteries 11/19/2014 $1,010.00 - CalPelra Conference Registration Fee (11-19 - 11-20)11/19/2014 $6.51 - 2015 Planner 11/19/2014 $147.51 - Nature Center & Geocaching Supplies 11/19/2014 $112.17 - Business Meal for AdHoc Committee Meeting 11/19/2014 $309.73 - Timers for Skills Assessments, Office Supplies 11/19/2014 68064 10452 - IFLAND SURVEY Mt. Umunhum Property Boundary Survey & Mapping 11/19/2014 $20,735.00 page 2 of 4 Purisima Creek Uplands Lot Line Adjustment 11/19/2014 68011 10662 - DAVID J POWERS & ASSOCIATES INC Ridge Vineyards Exchange Environmental Review Services 11/12/2014 $11,694.50 68019 11352 - HAMMER FENCES Pond DR05 Cattle Exclusion Fencing 11/12/2014 $11,480.00 68044 *10216 - VALLEY OIL COMPANY Fuel for District vehicles 11/12/2014 $11,322.37 68086 11139 - WINEGAR AIR SCIENCES Air Monitoring Study at Rancho San Antonio 11/19/2014 $9,407.00 68051 11442 - ACCO ENGINEERED SYSTEMS Administrative Office HVAC Assessment 11/19/2014 $6,028.00 68056 10723 - CALLANDER ASSOCIATES Bay Trail Concept Plan Study at Ravenswood OSP 11/19/2014 $5,235.54 68078 10102 - SHUTE, MIHALY & WEINBERGER LLP CEQA Legal Services - Ridge Vineyards Exchange (MB)11/19/2014 $3,853.40 Legal Services for Henry's Creek 11/19/2014 68017 10509 - GEOCON CONSULTANTS INC Geotechnical Consulting - Bald Mtn Staging Area - SAU 11/12/2014 $3,500.00 68025 10058 - LIEBERT CASSIDY WHITMORE Legal Consulting Services for Human Resources 11/12/2014 $2,952.00 68074 11241 - QUESTA ENGINEERING CORPORATION Harkins Bridge Engineering (PCR)11/19/2014 $2,477.50 68047 *11118 - WEX BANK Fuel for District vehicles 11/12/2014 $2,266.54 68007 11443 - CATERPILLAR FINANCIAL SERVICES CORPORATION Excavator Rental for Mt Umunhum Trail Construction (SAU)11/12/2014 $2,006.58 68073 *10180 - PG & E Electric Service - AO, AO2, Driscoll Ranch , Event Center 11/19/2014 $1,762.48 68032 11282 - PROELIA DEFENSE AND ARREST TACTICS, LLC Defensive Tactics Training for Rangers 10-2014 11/12/2014 $1,749.96 68053 *10128 - AMERICAN TOWER CORPORATION Repeater Site Lease - Coyote Peak 11/19/2014 $1,668.00 68081 10152 - TADCO SUPPLY Janitorial Supplies - (RSA)11/19/2014 $1,555.56 68020 10222 - HERTZ EQUIPMENT RENTAL INC Excavator/Bucket Equipment Rental (SAO/DHF/Hendrys Creek)11/12/2014 $1,522.50 68030 10641 - OVERLOOK ROAD MAINTENANCE ASSOC Road Maintenance Dues (ES)11/12/2014 $1,501.00 68060 10654 - DUTRA MATERIALS 40 Tons of Rock for Ancient Oaks Trail - RR 11/19/2014 $1,322.18 68040 11451 - SMITH SYSTEMS DRIVER TRAINING Driver Training 11/12/2014 $1,293.13 1195 **10177 - WOODSIDE & PORTOLA PRIVATE PATROL Patrol Service - Hawthorn 11/12/2014 $1,200.00 68021 10043 - HOWARD ROME MARTIN & RIDLEY LLP ECDM Parking Area Legal Consulting Services 11/12/2014 $1,184.56 68009 *10445 - COMMUNICATION & CONTROL INC Repeater Site Lease - Antenna Rental/Utility Fee 11/12/2014 $1,172.00 68079 10585 - SOL'S MOBILE SERVICE Vehicle Maintenance & Repairs - M24/M42 11/19/2014 $1,132.25 68027 10288 - MISSION VALLEY FORD TRUCK SALES, INC Vehicle Maintenance & Repairs - T32 11/12/2014 $1,130.39 68088 10959 - STATE WATER RESOURCES CONTROL Water Rights Fees - La Honda (LH)/Alpine Lake (SR)/Horseshoe Lake (RR)11/19/2014 $1,057.42 68023 11450 - LEE PANICH Archeological Surveys - Hicks Road Cultural Resource Assessment 11/12/2014 $1,051.91 68014 11172 - FUNIESTAS, APRIL Mileage/Lodging Reimbursement CalJPIA Risk Mgmt Forum 11/12/2014 $1,046.10 68070 10190 - METROMOBILE COMMUNICATIONS Portable radio 11/19/2014 $935.49 68057 10352 - CMK AUTOMOTIVE INC Vehicle Maintenance & Repairs - P83/P78 11/19/2014 $915.10 68061 10038 - ERGO VERA Ergonomic Evaluations for New Employees 11/19/2014 $858.00 68034 10194 - REED & GRAHAM INC Filter Fabric/Erosion Control Supplies (SAU)11/12/2014 $801.49 68077 11262 - SERVICE STATION SYSTEMS Diesel Hose & Retractor Repairs on Fuel Tank (FFO)11/19/2014 $771.01 68071 10125 - MOFFETT SUPPLY COMPANY INC Janitorial Supplies 11/19/2014 $768.78 68062 10187 - GARDENLAND POWER EQUIPMENT Helmet System/Chainsaw Service & Parts 11/19/2014 $768.73 68002 10004 - ACCOUNTEMPS Accounting Temp 11/12/2014 $761.57 68041 10302 - STEVENS CREEK QUARRY INC Base Rock for Mt. Umunhum Staging Area (SAU)11/12/2014 $748.31 68012 10032 - DEL REY BUILDING MAINTENANCE Janitorial Supplies (AO)11/12/2014 $651.42 Janitorial Service - Vacant Rental Residence 11/12/2014 68052 10004 - ACCOUNTEMPS Accounting Temp 11/19/2014 $625.61 68049 10185 - COSTCO Office Supplies/Staff Recognition Event Supplies 11/13/2014 $616.06 68037 *10136 - SAN JOSE WATER COMPANY Water Service (RSA/CP)11/12/2014 $599.48 68006 10141 - BIG CREEK LUMBER CO INC Lumber for Staging Area (SAU)11/12/2014 $524.02 68069 10512 - MARK THOMAS & COMPANY INC Lehigh Surveys & Rights of Way Engineering 11/19/2014 $495.00 68035 10324 - RICH VOSS TRUCKING INC Trucking of Base Rock (SAU)11/12/2014 $467.50 68066 11041 - INTERSTATE ALL BATTERY CENTER - SILICON VALLEY Batteries for Portable Radios 11/19/2014 $464.37 68010 10540 - CRAFTSMEN PRINTING RediRef Printing for Patrol Staff 11/12/2014 $455.66 68028 10073 - NORMAL DATA Measure AA Projects Database Development 11/12/2014 $435.00 68055 *10454 - CALIFORNIA WATER SERVICE CO-949 Water Service (FFO)11/19/2014 $406.32 page 3 of 4 68033 *10589 - RECOLOGY SOUTH BAY Garbage Service (RSA)11/12/2014 $393.93 68013 10169 - FOSTER BROTHERS SECURITY SYSTEMS Replacement Locks & Keys (SAU/ FFO)11/12/2014 $366.43 68042 10143 - SUMMIT UNIFORMS Uniform Jacket 11/12/2014 $346.91 68043 10107 - SUNNYVALE FORD Vehicle Maintenance & Repair - P84 11/12/2014 $341.88 68003 11170 - ALEXANDER ATKINS DESIGN, INC.Design of November 2014 Events Poster 11/12/2014 $330.00 68045 10977 - VOISS, SUE Mileage Reimbursement - CJPIA Conference 11/12/2014 $327.04 68039 10993 - SCHAFFNER, SHERYL Mileage Reimbursement for CJPIA Conference - Santa Barbara, CA 11/12/2014 $323.68 68008 10352 - CMK AUTOMOTIVE INC Vehicle Maintenance & Repairs - P80/P79/M24 11/12/2014 $288.27 68015 10168 - G & K SERVICES INC Shop Towel Service (FFO + SFO)11/12/2014 $275.68 68063 10655 - GRANDVIEW/ESPINOSA ROAD FUND Grandview/Espinosa Road Maintenance (TW)11/19/2014 $200.00 68048 11360 - YUNKER, CHRISTINA Mileage Reimbursement 11/12/2014 $183.68 68024 11326 - LEXISNEXIS MATTHEW BENDER Subscription Print Service Oct 2014 11/12/2014 $178.00 68084 10527 - WASTE MANAGEMENT Disposal of Wood Chips - Bald Mt (SAU)11/19/2014 $175.09 68065 10895 - INFANTE, LISA Mileage Reimbursement 11/19/2014 $175.06 68046 10527 - WASTE MANAGEMENT Hazardous Waste Fee 11/12/2014 $170.00 68068 11102 - KOENIG, PEGGY Reimbursement for Mileage & Event Supplies 11/19/2014 $169.90 68089 10960 - STATE WATER RESOURCES CONTROL Oversight for Mindego Landfill Closure 11/19/2014 $167.21 68029 10670 - O'REILLY AUTO PARTS Wiper Fluid for Vehicles (FFO)11/12/2014 $147.04 Replacement Battery for P80 11/12/2014 68083 10438 - VP II LLC Outreach Event Supplies 11/19/2014 $140.96 68018 10267 - HALF MOON BAY REVIEW Legal Ad - LHC Livestock Fence Installation Project 11/12/2014 $140.00 68004 10183 - BARRON PARK SUPPLY CO INC Faucet Repairs (RSA/CP)11/12/2014 $136.97 68067 10051 - JIM DAVIS AUTOMOTIVE Smog Check/Test - M42/M24/P84 11/19/2014 $135.00 68031 10422 - PEREZ, MIKE Reimbursement - Helmet 11/12/2014 $125.93 68038 11042 - SANTA CLARA COUNTY-OFFICE OF THE SHERIFF Live Scan Services for September 2014 11/12/2014 $120.00 68082 10338 - THE ED JONES CO INC Refurbished Ranger Badges 11/19/2014 $117.49 68005 10122 - BECK'S SHOES Boot Oil for (FFO/SAO)11/12/2014 $113.08 68054 10533 - ANDERSEN, JULIE Mileage Reimbursement 11/19/2014 $112.00 1196 **10850 - COMPLETE PEST CONTROL Bi-Weekly Rodent Control - Hawthorn Property 11/19/2014 $100.00 68072 10253 - PETERSON TRACTOR CO Tractor Parts 11/19/2014 $89.33 68058 10257 - DANIELSON, DENNIS Refund of security deposit less 6 days rent 11/19/2014 $83.97 68022 10394 - INTERSTATE TRAFFIC CONTROL PRO Signs - Mt Umunhum 11/12/2014 $74.32 68050 *10810 - A T & T Daniel Nature Center (SR)11/19/2014 $61.38 68026 11449 - MARK, JANE Cell Phone Reimbursement - (Jul-Sep-2014)11/12/2014 $60.00 68036 11426 - RIDGE WIRELESS INC.Internet Service (FFO)11/12/2014 $50.00 68080 10143 - SUMMIT UNIFORMS Uniform Baton Holder 11/19/2014 $42.41 68087 11176 - ZORO TOOLS Cord Assembly for Tool 11/19/2014 $32.65 68016 10187 - GARDENLAND POWER EQUIPMENT Chain Sharpening Kit (GP)11/12/2014 $32.43 68075 10134 - RAYNE OF SAN JOSE Water Service (FO)11/19/2014 $26.25 68076 11289 - SANTA CLARA CO. PUBLIC HEALTH LAB Water Testing (FO)11/19/2014 $20.00 $256,225.15 *Annual Claims **Hawthorn Expense BC = Bear Creek LH = La Honda Creek PR = Pulgas Ridge SG = Saratoga Gap TC = Tunitas Creek CC = Coal Creek LR = Long Ridge PC = Purisima Creek SA = Sierra Azul WH = Windy Hill ECdM = El Corte de Madera LT = Los Trancos RSA = Rancho San Antonio SR= Skyline Ridge AO = Administrative Office page 4 of 4 ES = El Sereno MR = Miramontes Ridge RV = Ravenswood SCS = Stevens Creek Shoreline Nature FFO = Foothills Field Office FH = Foothills MB = Monte Bello RR = Russian Ridge TH = Teague Hill SFO = Skyline Field Office FO = Fremont Older PR = Picchetti Ranch SJH = St Joseph's Hill TW = Thornewood SAO = South Area Outpost RR/MIN = Russian Ridge - Mindego Hill R-14-150 Meeting 14-33 November 25, 2014 AGENDA ITEM 3 AGENDA ITEM Fund Balance Policy and Initial Reserve Commitments DISTRICT CONTROLLER’S RECOMMENDATIONS 1. Approve the proposed new District Fund Balance Policy. 2. Approve initial amounts for committed reserves and minimum general fund balance. SUMMARY This report outlines a proposed Fund Balance Policy to establish appropriate District reserves for financial stability and in accordance with GASB 54. The report also recommends initial amounts for committed reserves and minimum general fund balance. DISCUSSION As the District has grown in size over the years, the complexity of its financial operations has also increased and the recent passage of Measure AA will add to the complexity. The District Controller recommends the Board of Directors adopt a new District Fund Balance Policy to strengthen the District’s financial management practices. The proposed Fund Balance Policy (Attachment 1) meets the requirements of GASB 54, which established the following five fund balance classifications with varying constraints: Non- Spendable, Restricted, Committed, Assigned, and Unassigned. These classifications are defined as part of the draft policy which is attached to this report and include Restricted funds for Hawthorn and OPEB, Committed Funds for (non-Measure AA-funded) infrastructure, emergency (fire, earthquake, and flood) response, and equipment replacement, and minimum balance requirements for the General Fund for working capital liquidity and land acquisitions prior to general obligation bond reimbursement. The proposed policy describes the purpose of each fund, authority for establishment and change, trigger for usage, procedure for replenishment, and frequency of review. Proposed amounts to be initially established for committed reserves and minimum general fund balance are shown in Attachment 2. R-14-150 Page 2 FISCAL IMPACT The policy changes and reserves discussed in this report will strengthen the financial stability of the District against present and future uncertainties such as economic downturns and revenue shortfalls. Maintenance of the proposed reserve amounts may restrict future spending on activities not covered by the reserves. BOARD COMMITTEE REVIEW The proposed policy changes and initial reserve amounts were reviewed by the Action Plan and Budget Committee on November 18, 2014. PUBLIC NOTICE Notice was provided pursuant to the Brown Act. No additional notice is necessary. CEQA COMPLIANCE No compliance is required as this action is not a project under CEQA. NEXT STEPS Following Board acceptance of the recommended policy changes, the General Manager will implement the policy. Following Board approval of the initial reserve amounts, the fund balance portion of the District balance sheet will reflect the new reserves. Attachment: 1. Draft Fund Balance Policy in Accordance with GASB Statement No. 54 2. Proposed initial amounts for Committed Reserves and minimum General Fund Balance Prepared by: Michael Foster, District Controller Kate Drayson, Administrative Services Manager Contact person: Michael Foster, District Controller Midpeninsula Regional Open Space District Board Policy Manual Fund Balance Policy in Accordance with GASB Statement No. 54 Policy 3.07 Chapter 3 – Fiscal Management Effective Date: Revised Date: Prior Versions: Board Policy 3.07 Page 1 of 3 Purpose The following policy is created and approved by the Board of Directors in order to [1] provide adequate funding to meet the District’s short-term and long-term plans, [2] provide funds for unforeseen expenditures related to emergencies such as natural disasters, [3] strengthen the financial stability of the District against present and future uncertainties such as economic downturns and revenue shortfalls, and [4] maintain an investment-grade bond rating. This policy has been developed, with the counsel of the District auditors, to meet the requirements of GASB 54. This policy identifies the required components of fund balance, the level of management authorized to approve or change target balances in each fund, the amounts that the District will strive to maintain in each fund, and the conditions under which fund balances may be spent, reimbursed and reviewed. Policy The components of District fund balance are as follows: Non-Spendable fund balance includes amounts that cannot be spent either because they are not in spendable form, e.g. prepaid insurance, or because of legal or contractual constraints. At all times, the District shall hold fund balance equal to the sum of its non-spendable assets. Restricted fund balance includes amounts that are constrained for specific purposes which are externally imposed by constitutional provisions, enabling legislation, creditors, or contracts. Individual funds will be identified by the General Manager and Controller and the amounts set based on legal or contractual requirements. Funds may only be spent as specified by contract or as externally directed. The continuing need for each fund and the amount reserved will be reviewed annually. Committed fund balance includes amounts that are constrained for specific purposes that are internally imposed by the District Board of Directors. Individual funds and target amounts will be established by the Board. Projects to be funded by committed funds require the approval of the Board. Funds spent from committed funds shall be reimbursed from the general fund within two years. The continuing need for each fund and the amount reserved will be reviewed annually. Any changes require the approval of two-thirds of the Board. ATTACHMENT 1 Board Policy 3.07 Page 2 of 3 Assigned fund balance includes amounts that are intended to be used for specific purposes that are neither restricted nor committed. Such amounts may be assigned by the General Manager if authorized by the Board of Directors to make such designations. Projects to be funded by assigned funds require the approval of the General Manager. Funds spent from assigned funds shall be reimbursed from the general fund within two years. The continuing need for each fund and the amount reserved will be reviewed annually. Unassigned fund balance includes amounts within the general fund which have not been classified within the above categories. The Board shall designate the minimum amount of unassigned fund balance which is to be held in reserve in consideration of unanticipated events that could adversely affect the financial condition of the District and jeopardize the continuation of necessary public services. Any spending from this minimum general fund reserve requires the approval of the Board. Any such spending will be reimbursed within two years. The minimum reserve amount will be reviewed annually. The specific reserve funds and amounts are as follows: Restricted Funds [1] 2004 Bond Reserve Fund: required by the terms of the 2004 Revenue Bonds; held by Bond Trustee; minimum amount $1,393,435. [2] Retiree Healthcare Plan Fund: established in 2008 with a $1.9 million contribution to the California Employers’ Retiree Benefit Trust; all withdrawals per Board-approved plan; amount of annual contribution authorized by the Board as part of the annual budget. [3] Hawthorns Fund: established in 2011 with a $2.0 million endowment from the Woods Family Trust, to provide stewardship funding for the Hawthorns property in Portola Valley; amount to be withdrawn each year authorized by the Board as part of the annual budget. Committed Funds [1] Infrastructure Fund: Implementation of the 2011 Strategic Plan, 2014 Vision Plan, and Measure AA projects will require expansion of field and office facilities beginning in fiscal 2016. Funding for such capital expenditures is not available from general obligation bonds under Measure AA. The Board shall commit an initial reserve amount and amend the amount as needed. The amount to be withdrawn each year for the Infrastructure Fund will be authorized by the Board as part of the annual budget. [2] Equipment Replacement Fund: Implementation of the 2011 Strategic Plan, 2014 Vision Plan, and Measure AA projects will, over time, require replacement of field and office equipment and vehicles. Funding for such capital expenditures is not available from general obligation bonds under Measure AA. The Board shall commit an initial reserve amount and amend the amount as needed. The amount to be withdrawn each year for the Equipment Replacement Fund will be authorized by the Board as part of the annual budget. Board Policy 3.07 Page 3 of 3 [3] Natural Disaster Fund: The District must be prepared to undertake emergency expenditures required to respond quickly to a major fire, earthquake or flood. Funding for such expenditures is not available from general obligation bonds under Measure AA. The Board shall commit an initial reserve amount and amend the amount as needed. All withdrawals from the Natural Disaster Fund require the approval of the General Manager. Assigned Funds None ATTACHMENT 2 Proposed Initial Reserve Amounts Per the new District Fund Balance Policy in Accordance with GASB Statement 54, the Controller recommends that the Board approve the following initial reserve amounts. Committed Funds Infrastructure Fund: $15.0 million; projected minimum requirement for expansion of field and office facilities over the next five years. Equipment Replacement Fund: $2.4 million; projected requirement for equipment and vehicle replacement based on the amount of accumulated depreciation recorded on capital assets in service. Natural Disaster Fund: $3.0 million; projected emergency expenditures required to respond quickly to a major fire, earthquake or flood. Unassigned Funds Minimum Balance of General Fund: $10.0 million; estimated amount needed to maintain cash flow liquidity over the fiscal year and to close land acquisition transactions when general obligation funding is temporarily not available. Total of Committed Reserves and Minimum General Funds: $30.4 million R-14-149 Meeting 14-33 November 25, 2014 AGENDA ITEM 4 AGENDA ITEM Resolution approving a Board Policy on Initial and Continuing Disclosures Relating to Bond Issuances GENERAL MANAGER’S AND CONTROLLER’S RECOMMENDATIONS Adopt a Resolution of the Board of Directors of the Midpeninsula Regional Open Space District (District) approving a new Board Policy: “Initial and Continuing Disclosures Relating to Bond Issuances.” SUMMARY The District has issued bonds relatively infrequently over the forty-two years of its existence. The voters recently authorized the issuance of up to $300 million in additional bonds over the next thirty years. This will increase the need for efficient and effective bond management protocols. In addition, the Securities and Exchange Commission has recently asked that all issuers of municipal bonds focus on improving overall performance on related disclosure requirements. For these reasons, it appears prudent at this time to adopt a formal policy to guide staff and the District’s Board of Directors relating to bond disclosure procedures and requirements. DISCUSSION Securities and Exchange Commission (SEC) Rule 15c2-12 requires that before a local government can issue municipal bonds to investors in a public sale, the bond underwriters must reasonably determine that the issuer has undertaken to provide certain updated disclosure information to the Municipal Securities Rulemaking Board after the issuance of the bonds. This information is contained in the continuing disclosure certificate and includes annual financial and operating data, audited financial statements and notices of certain listed events, and any material failure to disclose such events in the past. The SEC has recently begun to focus on trying to increase transparency in municipal securities and to improve consistency in meeting disclosure obligations, nation-wide. One of the identified means of accomplishing this goal is the use of formally adopted disclosure policies. The District’s role in fulfilling the underwriters obligations under this rule have traditionally been handled under the professional guidance and management of the General Manager, Controller, General Counsel and outside experts working with the District on each transaction, annually, and as needed. As the District’s finances and organization grow and become more complex, and in the interest of transparency and ensuring that our obligations are met in this R-14-149 Page 2 area, staff recommends the adoption of the attached Board Policy governing “Initial and Continuing Disclosures Relating to Bond Issuances.” The proposed policy, as presently crafted, is based on a template recommended by our bond counsel at Jones Hall. It is complex, befitting the subject. It will undoubtedly benefit from refinement and amendment as it is put to use. The proposed policy has the following key features:  It sets up a Disclosure Working Group, made up of the three Board appointees: the General Manager, the Controller and General Counsel to review, oversee, and approve all disclosure documents.  It sets up a Disclosure Coordinator role, to ensure that all of the appropriate information is compiled and reviewed.  It sets up a Financing Group, made up of the Disclosure Working Group, the Disclosure Coordinator and appropriate outside experts, for preparing the documents requiring for each new financing or re-financing.  It ensures that the Board of Directors regularly receives an appropriate level of information and training to fulfill its obligations. (Training is the only new aspect.) All of these functions are presently being undertaken by the same people set out in the proposed policy, with the exception of the creation of a “Disclosure Coordinator” which is new, and the anticipation of a role for a Finance Manager, which position does not exist at this time, but is anticipated to be recommended for addition in the next year. It is recommended that the policy take effect at the beginning of the FY2015-16 to allow the current Disclosure Working Group time to set up any adjustments to our processes necessary to ensure full compliance with the policy. As noted above, as the District’s “first take” on how to routinize and formalize this process, it is likely to need amendment as we start using it and figure out what parts work and what parts need improvement. This will be figured out as the process is applied to a series of actions that can have short timeframes for fulfilling the disclosure obligations addressed by the Policy. It therefore contains a clause delegating to the General Manager the ability to make temporary changes as needed to stay in compliance with the District’s disclosure obligations, but requiring any such changes be brought back to the Board within 90 days. FISCAL IMPACT No new impact. The policies proposed formalize and strengthen procedures for compliance with existing obligations and practices, and should add no new costs. PUBLIC NOTICE Public notice was provided as required by the Brown Act. R-14-149 Page 3 CEQA COMPLIANCE No compliance is required as this action is not a project under CEQA. NEXT STEPS After the Board’s adoption of this Policy, the General Manager, Controller and General Counsel will take all steps necessary to ensure compliance with it. Attachments: 1. Resolution Approving new Board Policy: “Initial and Continuing Disclosures Relating to Bond Issuances.” 2. Proposed Board Policy: “Initial and Continuing Disclosures Relating to Bond Issuances.” Responsible Department Heads: General Manager Steve Abbors Controller Mike Foster General Counsel, Sheryl Schaffner Prepared by: General Counsel Sheryl Schaffner Attachment 1 Resolutions/2014/14-__ Disclosure Policy Relating to Bond Issuances 1 RESOLUTION NO. 14-__ RESOLUTION OF THE MIDPENINSULA REGIONAL OPEN SPACE DISTRICT ADOPTING A BOARD POLICY: “INITIAL AND CONTINUING DISCLOSURE POLICIES RELATING TO BOND ISSUANCES” WHEREAS, the Midpeninsula Regional Open Space District (the “District”) has issued and in the future will continue to issue securities in the forms of bonds, notes or other types of indebtedness (referred to herein as “bonds”) in order to finance or refinance various open space projects; and WHEREAS, Securities and Exchange Commission Rule 15c2-12 (“SEC Rule 15c2-12”) sets forth certain obligations of bond underwriters to review and distribute official statements prepared by bond issuers and to obtain from bond issuers agreements to provide continuing disclosure on a continuing basis pursuant to SEC Rule 15c2-12 (“Continuing Disclosure Undertakings”) while bonds are outstanding such that the bond marketplace has continuing access to information about the issuer and its outstanding bonds and the security for such bonds; and WHEREAS; pursuant to SEC Rule 15c2-12, annual reports and notice of certain events are to be provided to the Municipal Securities Rulemaking Board (“MSRB”) through the Electronic Municipal Market Access (“EMMA”) online portal; and WHEREAS, the financial crisis of 2008 underscored the importance of providing bond investors with all material information regarding an issuer’s bonds and the importance of providing continuing disclosure to the municipal marketplace in order to enhance transparency and credibility in the marketplace; and WHEREAS, to that end, the Board of Directors of the District has determined that ensuring a solid continuing disclosure track record that will be viewed favorably by bond investors, rating agencies and the public is in the best interests of the District, and has determined to adopt this resolution setting forth a Board Policy regarding Initial and Continuing Disclosure Policies Relating to Bond Issuances, to ensure that each of the District’s annual reports and event filings are done in a timely and complete manner; NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Midpeninsula Regional Open Space District, as follows: Section 1. The above recitals are true and correct. Section 2. Adoption of Board Policy. The “Initial and Continuing Disclosure Policies Relating to Bond Issuances” is hereby approved and adopted. Section 3. Effective Date. This resolution shall take effect on the first day of the District’s upcoming Fiscal Year 2015/2016, April 1, 2015. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 2 PASSED AND ADOPTED by the Board of Directors of the Midpeninsula Regional Open Space District on ______, 2014, at a special meeting thereof, by the following vote: AYES: NOES: ABSTAIN: ABSENT: ATTEST: APPROVED: Secretary Board of Directors President Board of Directors APPROVED AS TO FORM: General Counsel I, the District Clerk of the Midpeninsula Regional Open Space District, hereby certify that the above is a true and correct copy of a resolution duly adopted by the Board of Directors of the Midpeninsula Regional Open Space District by the above vote at a meeting thereof duly held and called on the above day. District Clerk Midpeninsula Regional Open Space District Board Policy Manual Initial and Continuing Disclosures Relating to Bond Issuances Policy 3.06 Chapter 3 – Fiscal Management Effective Date: 04/01/2015 Revised Date: (none) Prior Versions: (none) Attachments: A – List of Disclosure Documents, to be Amended as Necessary B – Listed Events C – Cover Sheet Documenting Approval of Disclosure Document By Disclosure Working Group D – Form of Cover Letter for Transmittal of Official Statement by Financing Group to Disclosure Working Group E – Form of Staff Report Transmitting Official Statement by District Manager to District Board of Directors F – Form of Cover Letter for Transmittal of Financial Statements to Disclosure Working Group G – Required Tables and Supplemental Financial Disclosures Board Policy 3.06 Page 1 of 7 Attachment 2 Purpose The disclosure policies and procedures contained herein (the “Disclosure Procedures”) of the Midpeninsula Regional Open Space District (the “District”) are intended to ensure that the District’s disclosure documents(the “Disclosure Documents”), as listed on Attachment A to these Disclosure Procedures, are accurate and in compliance with applicable federal and state securities laws. Policy Article I: Key Participants and Responsibilities Section 1.01. Disclosure Working Group. (A) Composition. By adoption of these Disclosure Procedures, the District hereby establishes a disclosure working group (the “Disclosure Working Group”). The members of the Disclosure Working Group shall be the following: i. General Manager; ii. Controller; and iii. General Counsel. (B) Responsibilities. The Disclosure Working Group shall consult with the Financing Group (as defined in Section 1.03) or other interested parties as the Controller or any other member of the Disclosure Working Group determines is advisable related to disclosure issues and practices. The Disclosure Working Group shall meet as often as necessary to fulfill its obligations, but not less than once per calendar year. Members of the Disclosure Working Group may participate in meetings by telephone. Board Policy 3.06 Page 2 of 7 The Disclosure Working Group is responsible for: i. Reviewing and approving all preliminary and final official statements, private placement memoranda and remarketing memoranda relating to the District’s securities, together with any supplements, for which a continuing disclosure undertaking is required (each, an “Official Statement”) as further described in Article II, before such documents are released; ii. Reviewing and approving the District’s Financial Statements (as defined and further described in Section 3.02 below); iii. Reviewing and approving any other Disclosure Documents before such documents are released; iv. Reviewing annually the District’s status and compliance with continuing disclosure undertakings including filings of Disclosure Documents and compliance with these Disclosure Procedures and the annual financial report as described in Article III below; v. Reviewing any other items referred to the Disclosure Working Group; and vi. Evaluating the effectiveness of these Disclosure Procedures and approving changes to these Disclosure Procedures as further described in Section 5.04 of this Policy. (C) Determination of Disclosure Document Status. Whether or not a particular document or other communication is a Disclosure Document shall be determined by the Disclosure Working Group. At its initial meeting, the Disclosure Working Group shall establish a list of the District’s recurring Disclosure Documents, which list shall be added to Attachment A to these Disclosure Procedures to the extent such documents are not already contained therein. The Disclosure Working Group shall continue to update Attachment A to these Disclosure Procedures when appropriate. (D) Review and Approval. Following receipt of a Disclosure Document from a disclosure coordinator selected by the Finance Manager (the “Disclosure Coordinator”) or the Financing Group (as defined in Section 1.03 below), the Disclosure Working Group shall evaluate the Disclosure Document for accuracy and compliance with federal and state securities laws, and shall, if appropriate, ask questions of the Disclosure Coordinator. The Disclosure Working Group may send the Disclosure Document back to the Financing Group for revisions. The Disclosure Coordinator shall consult with the District’s disclosure counsel to the extent the Disclosure Coordinator considers appropriate to perform his or her responsibilities. Section 1.02. Disclosure Coordinator. (A) Appointment. The Controller, in consultation with the other members of the Disclosure Working Group, shall select and appoint the Disclosure Coordinator. (B) Responsibilities. The Disclosure Coordinator is responsible for: i. Serving as a “point person” for personnel to communicate issues or information that should be or may need to be included in any Disclosure Document; Board Policy 3.06 Page 3 of 7 ii. Monitoring compliance by the District with these Disclosure Procedures, including timely dissemination of the annual financial report and Listed Event filings; iii. Recommending changes to these Disclosure Procedures to the Disclosure Working Group as necessary or appropriate; iv. Communicating with third parties, including coordination with outside consultants assisting the District, in the preparation and dissemination of Disclosure Documents to make sure that assigned tasks have been completed on a timely basis and making sure that the filings are made on a timely basis and are accurate; v. In anticipation of preparing Disclosure Documents, soliciting “material” information (as defined for purposes of federal securities law) from District departments; vi. Maintaining records documenting the District’s compliance with these Disclosure Procedures; vii. Determining when Disclosure Documents are final and ready for review by the Disclosure Working Group to the extent required by these Disclosure Procedures; and viii. Ensuring compliance with training procedures as described below. The Disclosure Coordinator may file the following documents with the Municipal Securities Rulemaking Board (the “MSRB”), without prior review and approval of the Disclosure Working Group but after prior review and approval from the Controller if the Controller selects someone other than himself or herself to fill the role of Disclosure Coordinator: those Disclosure Documents that (i) the District is contractually obligated to file with the MSRB as a result of the occurrence of a Listed Event (as defined in Section 2.03) or as a result of the failure to timely file the required annual financial report and (ii) contain no discretionary content. (C) Training. Separate training sessions shall be conducted by the District’s disclosure counsel, with the assistance of the District General Counsel, for the District Board of Directors members. At a minimum, each District Board of Directors member must participate in a disclosure training session as part of his or her new member orientation. Section 1.03. Financing Group. General. The Controller shall identify a Financing Group (the “Financing Group”) for each financing (the composition of which may differ for each financing), which shall include, at a minimum, the following individuals: i. General Manager ii. General Counsel; iii. Controller; iv. Disclosure Coordinator; Board Policy 3.06 Page 4 of 7 v. The District’s outside bond counsel and disclosure counsel; vi. The District’s financial advisor (if any); vii. The District’s underwriter (if any); and viii. Such other such District staff as the Controller determines to be appropriate. It is the District’s policy to establish continuing working relationships with professional advisors with expertise in the area of public finance and federal securities laws applicable to the issuance of securities by the District. Article II: Review and Approval of Official Statements Section 2.01. Responsibilities of Financing Group. The Financing Group shall prepare the Official Statement and transmit the Official Statement to the Disclosure Working Group. More specifically: (A) The Financing Group shall be responsible for reviewing disclosure documents solicited from the Departments by the Disclosure Coordinator, as required by Section 1.04(B) above. The Financing Group shall identify persons assigned to assist with the review or preparation of an Official Statement (“Contributors”) who (a) should prepare portions of the Official Statement, (b) may have information necessary to prepare portions of the Official Statement or (c) should review portions of the Official Statement. (B) The Controller shall contact the individuals and departments identified as Contributors as soon as possible in order to provide adequate time for them to perform their assigned tasks. At the time a Contributor is first contacted, he or she shall be informed by the Controller of the applicable requirements of federal and state securities law, including the standard established by Rule 10b-5, promulgated by the Securities and Exchange Commission. (C) The Financing Group shall transmit the Official Statement to the Disclosure Working Group, using the cover letter attached to these Disclosure Procedures as Attachment D to these Disclosure Procedures. In so doing, the Financing Group shall (a) confirm that the Official Statement accurately states all material information relating to the District and that all information relating to the District has been reviewed by an appropriate person, (b) confirm that all information in the Official Statement other than the information described in the previous clause (a) will be addressed by a closing certificate or opinion by an appropriate person, (c) report any disclosure issues and concerns to the Disclosure Working Group and (d) confirm that the Official Statement is in substantially final form and is in a form ready to be “deemed final” by the District Board of Directors pursuant to Rule 15c2-12, promulgated by the Securities and Exchange Commission. (D) The Financing Group shall have at least one all-hands meeting or conference call to review the Official Statement before transmitting it to the Disclosure Working Group. Section 2.02. Responsibilities of Contributors. A Contributor shall assist in reviewing and preparing the Official Statement using his or her knowledge of the District and, if appropriate, by discussing the Official Statement with other members of the Contributor’s department, all for the purpose of ensuring the accuracy of the relevant portions of the Official Statement. The Financing Group shall identify all Contributors that participated in preparing the Official Statement and their responsibilities in the cover Board Policy 3.06 Page 5 of 7 letter it uses to transmit the Official Statement to the Disclosure Working Group (see Attachment D to these Disclosure Procedures). Section 2.03. Responsibilities of District General Counsel. The District General Counsel (or a designee) shall review the Official Statement and shall draft for the Official Statement descriptions of (i) any material current, pending or threatened litigation, (ii) any material settlements or court orders and (iii) any other legal issues that are material information for purposes of the Official Statement. Section 2.04. Responsibilities of Controller. The Controller shall review the Official Statement, identify any material difference in presentation of financial information from the Financial Statements and ensure there are no misstatements or omissions of material information in any sections that contain descriptions of information prepared by the Controller or other Contributors or of relevance to the finances of the District. In addition, the Controller shall determine whether the District’s then-available Financial Statements are appropriate to be included in the Official Statement and whether to seek the consent of the District’s auditor to include the Financial Statements in the Official Statement. Section 2.05. Review by Disclosure Working Group. Following receipt of the Official Statement from the Financing Group, the Disclosure Working Group shall evaluate the Official Statement for accuracy and compliance with federal and state securities laws, and shall, if appropriate, ask questions of the Financing Group and of any Contributor or other person who reviewed or drafted any section of the Official Statement. The Disclosure Working Group may send Official Statements back to the Financing Group for revisions and may instruct the Financing Group to solicit contributions from additional Contributors. Section 2.06. Approval by Disclosure Working Group. Upon approval of the Official Statement by the Disclosure Working Group, the Disclosure Working Group shall attach to the Official Statement a cover sheet in the form of Attachment C to these Disclosure Procedures. Each Official Statement and the attached cover sheet shall be retained in the files of the District Clerk for 5 years (or such longer period of time as may be required by state law). Section 2.07. Submission of Official Statements to District Board of Directors for Approval. As part of the docketing process, the District General Manager shall submit all Official Statements to the District Board of Directors for approval using a staff report that is similar in form and substance to the template attached as Attachment E to these Disclosure Procedures. The approval of an Official Statement by the District Board of Directors shall be docketed as a new business matter and shall not be approved as a consent item. The District Board of Directors shall undertake such review as deemed necessary by the District Board of Directors, following consultation with the Controller, to fulfill the District Board of Directors’s responsibilities under applicable federal and state securities laws. In this regard, the Controller shall consult with the District’s disclosure counsel to the extent necessary. Article III: Continuing Disclosure Filings Section 3.01. Overview. Under the continuing disclosure undertakings the District has entered into in connection with its debt offerings, the District is required each year to file annual financial reports with the MSRB’s Electronic Municipal Market Access (“EMMA”) system in accordance with such undertakings. Such annual financial reports are required to include certain updated financial and operating information, and the District’s audited financial statements. Board Policy 3.06 Page 6 of 7 The District is also required under its continuing disclosure undertakings to file notices of certain events with EMMA. Section 3.02. Financial Statements. The Controller shall submit the District’s audited financial statements (“Financial Statements”), as they are available, to the Disclosure Working Group with a cover sheet in the form of Attachment F to these Disclosure Procedures. The Disclosure Working Group shall review the audited Financial Statements according to these Disclosure Procedures and, when reviewed and approved for disclosure, shall transmit the audited Financial Statements to the District Board of Directors with a cover sheet in the form of Attachment C to these Disclosure Procedures. If the District does not have audited Financial Statements available, the Controller shall instead submit the District’s unaudited financial statements. Section 3.03. Annual Financial Reports. The Disclosure Coordinator shall ensure that the preparation of the District’s annual financial reports shall commence as required under each specific continuing disclosure undertaking. Before any annual financial report is submitted to EMMA, the Disclosure Coordinator shall confer with the Disclosure Working Group as needed regarding the content and accuracy of any such report, including all tables for all Official Statements for all outstanding District debt, including but not limited to those listed in Attachment G. Section 3.04. Disclosure of Listed Events. Pursuant to Rule 15c2-12(b)(5)(i)(C), the District is obligated to disclose to the MSRB notice of certain specified events with respect to the District’s securities (a “Listed Event”). Each member of the Disclosure Working Group shall notify the other members of the Disclosure Working Group if he or she becomes aware of any of the Listed Events listed in the District’s continuing disclosure undertakings. The Disclosure Working Group may meet to discuss the event and to determine, in consultation with disclosure counsel to the extent determined by the Disclosure Coordinator, whether a filing is required or is otherwise desirable. If such a filing is deemed necessary, the Disclosure Coordinator shall cause a notice of the Listed Event (a “Listed Event Notice”) that complies with Rule 15c2-12 to be prepared, and the Disclosure Coordinator shall file the Listed Event Notice as required by Rule 15c2-12. For securities issued after December 1, 2010, and variable rate demand obligations issued at any time but which convert from a mode exempted from Rule 15c2-12 to a mode not so exempted on or after December 1, 2010, such related continuing disclosure undertakings should contain Listed Events as listed in Attachment B to these Disclosure Procedures. Article IV: Public Statements Regarding Financial Information Section 4.01. Financial Information. Whenever the District makes statements or releases information relating to its finances to the public that are reasonably expected to reach investors and the trading markets (including, without limitation, all Listed Event Notices, statements in the audited Financial Statements, and other financial reports and statements of the District), the District is obligated to ensure that such statements and information are complete, true, and accurate in all material respects. The Controller shall have primary responsibility for ensuring that such statements and information are accurate and not misleading in any material respect. Article V: Miscellaneous Section 5.01. Documents to be Retained. The Disclosure Coordinator, working with the District Clerk as needed, shall be responsible for retaining records demonstrating compliance with these Disclosure Procedures. The Disclosure Coordinator shall retain an electronic or paper file (“Deal File”) for each continuing disclosure annual financial report that the District completes. Each Deal File shall include Board Policy 3.06 Page 7 of 7 final versions of Disclosure Documents accompanied by the cover sheet attached as Attachment C to these Disclosure Procedures; written confirmations, certifications, letters and legal opinions described herein; copies of these Disclosure Procedures and a list of individuals to whom they have been distributed and the dates of such distributions; and a written record of the dates of meetings of the Disclosure Working Group. The Deal File shall be maintained in a central depository for a period of five years from the later of the date of delivery of the securities referenced in the Disclosure Document, or the date the Disclosure Document is published, posted, or otherwise made publicly available, as applicable. Section 5.02. Education and Training. The Disclosure Coordinator shall ensure that the Disclosure Working Group, all Contributors, and the District Board of Directors are properly trained to understand and perform their responsibilities. The Disclosure Coordinator shall arrange for at least annual disclosure training sessions conducted by the District’s disclosure counsel. Such training sessions shall include education on these Disclosure Procedures, the District’s disclosure obligations under applicable federal and state securities laws and the disclosure responsibilities and potential liabilities of members of District staff and members of the District Board of Directors. Such training sessions may be conducted using a recorded presentation. Section 5.03. District’s Website. The District shall maintain an investor information section of the District’s website. Disclosure Documents that are material to the District’s securities, and no other information, shall be posted to the investor information section of the District’s website following review and approval as set forth in this Section 5.03. The investor information of the District’s website shall include the following statement: “The only information on this Web site that is posted with the intention of reaching the investing public, including bondholders, rating analysts, investment advisors, or any other members of the investment community, is located on the investor information web pages. Other than the specific information presented in the investor information web pages, no other information on the District’s website is intended to be the basis of or should be relied upon in making an investment decision. Because each security issued by the District or its related entities may involve different sources of payment and security, you should refer for additional information to the official statement and continuing disclosure filings for the particular security. The information posted in the investor information web pages speaks only as of its date.” Section 5.04. Amendments. In addition to the General’s Manager’s authority to adopt an Administrative Policy to make this Board Policy more specific, any provision of these Disclosure Procedures may be waived or amended at any time by the General Manager, with the written confirmation of the members of the Disclosure Working Group. This authority is triggered only if such waiver or amendment is necessary for timely and effective compliance with disclosures laws. Any waivers or amendments made under this provision shall be reported to the Board of Directors, with conforming revisions recommended for the Board’s consideration at the next update of this Board Policy and no later than within three months of implementation of such waiver or amendment. Board Policy 3.06 ATTACHMENT A LIST OF DISCLOSURE DOCUMENTS, TO BE AMENDED AS NECESSARY 1. Preliminary and final official statements, private placement memoranda and remarketing memoranda relating to the District’s securities, together with any supplements. 2. Financial Statements. 3. Filings made by the District with the Municipal Securities Rulemaking Board, whether made pursuant to a continuing disclosure undertaking to which the District is a party or otherwise. 4. Press releases and other information distributed by the District for public dissemination to the extent that such releases are reasonably expected, in the determination of the Disclosure Working Group, to reach investors and the trading markets for municipal securities. 5. Rating agency presentations. 6. Postings on the investor information section of the District’s website. 7. Such portions of the District’s published adopted annual budget as the Disclosure Working Group determines to be appropriate, which shall, at a minimum, include the executive summary. 8. Any other communications that are reasonably expected, in the determination of the Disclosure Working Group, to reach investors and the trading markets for municipal securities. Board Policy 3.06 ATTACHMENT B LISTED EVENTS The Disclosure Coordinator should review this list at least once each week to determine whether any event has occurred that may require a filing with EMMA. For securities (subject to Rule 15c2-12) issued on or after December 1, 2010, or for variable rate demand bonds that are converted from a mode currently exempted from rule 15c2-12 to a mode not so exempted on or after December 1, 2010, the following events automatically trigger a requirement to file on EMMA within ten (10) business days of their occurrence, without regards to the materiality of the event: 1. principal and interest payment delinquencies 2. unscheduled draws on debt service reserves reflecting financial difficulty 3. unscheduled draws on credit enhancements reflecting financial difficulty 4. substitution of credit or liquidity providers, or their failure to perform 5. adverse tax opinions or events affecting the tax-exempt status of the security 6. tender offers 7. defeasances 8. rating changes 9. bankruptcy, insolvency, receivership or similar event of the obligated person 10. failure to provide in a timely manner notice to provide required annual financial information by the date specified in any continuing disclosure undertaking The following events trigger a requirement to file notice of their occurrence on EMMA within a reasonable period of time after their occurrence, once they are determined to be material by the Disclosure Working Group: 1. non-payment related defaults 2. modifications to the rights of security holders 3. bond calls 4. release, substitution or sale of property securing repayments of the securities 5. the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms6. appointment of a successor or additional trustee or the change of name of a trustee Board Policy 3.06 ATTACHMENT C Cover Sheet Documenting Approval of Disclosure Document By Disclosure Working Group Date: [Option #1] The attached Disclosure Document has been reviewed and approved by the Disclosure Working Group pursuant to the District’s Disclosure Policies and Procedures. General Manager Controller General Counsel Note: The approval of only the Disclosure Coordinator is required for Disclosure Documents that (i) the District is contractually obligated to file with the MSRB as a result of the occurrence of a Listed Event or as a result of the failure to file the required annual financial report on a timely basis or (ii) contain no discretionary content. [Option #2] The attached Disclosure Document has been reviewed and approved by the Disclosure Coordinator pursuant to the District’s Disclosure Policies and Procedures. Disclosure Coordinator Board Policy 3.06 ATTACHMENT D Form of Cover Letter for Transmittal of Official Statement by Financing Group to Disclosure Working Group Disclosure Working Group: With respect to the attached Official Statement: (i) the Financing Group has performed its responsibilities set forth in subsection iii. of Section 3.01 of the Disclosure Policies and Procedures; (ii) the members of the Financing Group and the Contributors to the Official Statement are listed below; (iii) the Official Statement accurately reports all material information relating to the District, and all information relating to the District has been critically reviewed by an appropriate person; and (iv) all information in the Official Statement, other than the information described in the previous clause (iii) will be addressed by an appropriate person in a closing certificate or opinion and (iv) [Option #1: in our judgment, the Official Statement is in substantially final form and ready for review by the Disclosure Working Group] [Option #2: the following are significant disclosure issues or concerns identified by the Financing Group]. Controller Members of Financing Group: [to come] Contributors: [to come] Board Policy 3.06 ATTACHMENT E Form of Staff Report Transmitting Official Statement by District Manager to District Board of Directors To: Members of the Board of Directors From: General Manager Date: __________________ This Staff Report relates to the proposed issuance of ______ (the “Obligations”) by the District. The Board of Directors (Board) is asked to approve issuance of the Obligations and all related documents. The near-final versions of these documents are attached. The attached Preliminary Official Statement has been reviewed and approved for transmittal to the Board by the District’s Disclosure Working Group. The distribution of the Preliminary Official Statement by the District is subject to federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require the Preliminary Official Statement to include all facts that would be material to an investor in the Obligations. Material information is information that there is a substantial likelihood would have actual significance in the deliberations of the reasonable investor when deciding whether to buy or sell the Obligations. If the District Council concludes that the Preliminary Official Statement includes all facts that would be material to an investor in the Obligations, it must adopt a resolution that authorizes staff to execute a certificate to the effect that the Preliminary Official Statement has been “deemed final.” The Securities and Exchange Commission (the “SEC”), the agency with regulatory authority over the District’s compliance with the federal securities laws, has issued guidance as to the duties of the elected body with respect to its approval of the Preliminary Official Statement. In its “Report of Investigation in the Matter of County of Orange, California as it Relates to the Conduct of the Members of the Board of Supervisors” (Release No. 36761 / January 24, 1996) (the “Release”), the SEC stated that, if a member of the elected body has knowledge of any facts or circumstances that an investor would want to know about prior to investing in the Obligations, whether relating to their repayment, tax- exempt status, undisclosed conflicts of interest with interested parties, or otherwise, he or she should endeavor to discover whether such facts are adequately disclosed in the Preliminary Official Statement. In the Release, the SEC stated that the steps that a member of the elected body take include becoming familiar with the Preliminary Official Statement and questioning staff and consultants about the disclosure of such facts. Section 1. Purpose of Financing. Section 2. Documents for Approval; Security for the Obligations. Section 3. Risks Relating to Repayment and Tax-Exempt Status of the Obligations. Section 4. Requested Approvals. Board Policy 3.06 ATTACHMENT F Form of Cover Letter for Transmittal of Financial Statements to Disclosure Working Group Disclosure Working Group: I attach the District’s financial statements as of March 31, ____, along with an opinion of our independent auditor. I believe the financial statements present fairly, in all material respects, the financial position of the District as of March 31, ____ in accordance with accounting principles generally accepted in the United States of America and applicable laws and regulations of the State of California. In addition, the financial statements include a Management Statement and certain supplementary schedules that I conclude are true and accurate. These Financial Statements are ready for review by the Disclosure Working Group pursuant to Section 4.02 of the Disclosure Procedures. Controller Board Policy 3.06 ATTACHMENT G Annual Financial Report Required Tables and Supplemental Financial Disclosures The Annual financial report is due 210 days after end of fiscal year and will update all tables for all Official Statements for all outstanding District debt and CUSIP number, including: 1. Updated Tables from Official Statement a. District Secured and Unsecured Tax Receipts b. Projected District Revenues c. Projected Debt Coverage d. Composite District Payment Obligations e. District Debt Outstanding f. District Assessed Valuation g. Direct and Overlapping Debt 2. Supplemental Financial Disclosures a. Bonds Redeemed Prior to Maturity b. Amount of Bond Reserve Funds R-14-145 Meeting 14-33 November 25, 2014 AGENDA ITEM 5 AGENDA ITEM Resolution Approving Documents Relating to Issuance of 2014 Refunding Promissory Notes GENERAL MANAGER AND CONTROLLER’S RECOMMENDATION Adopt a Resolution of the Board of Directors of the Midpeninsula Regional Open Space District authorizing the issuance of a series of Refunding Promissory Notes, approving an Official Statement, and providing other matters properly related thereto. SUMMARY The resolution authorizes the District to issue up to $32 million of 2014 Refunding Promissory Notes (2014 Notes) and approves the Official Statement, other required note documents, and agreements with bond counsel and underwriters. The objective is to refinance the Financing Authority’s 2004 Revenue Bonds in order to obtain significant future cash savings. DISCUSSION The Financing Authority issued $31.9 million of revenue bonds in January 2004, with repayment beginning in 2005 and scheduled to complete in 2034. The current outstanding balance of the 2004 Revenue Bonds is $29.8 million. These bonds were issued at a true interest cost of 4.95%. The bond documents allow redemption, without penalty, on any March 1 or September 1, on or after September 1, 2014. Interest rates for municipal bonds have fallen to near historic lows, providing an opportunity to achieve significant savings on future debt service. Based on current market conditions, it is estimated that the 2004 Revenue Bonds can be refinanced at a true interest cost in the 3.4% to 3.6% range, and redeemed on March 1, 2015. The estimated future savings are $6.6 to $7.6 million, with present value savings of between $3.8 and $4.6 million. The 2014 Notes are proposed to be structured as current interest notes, maintaining the same final maturity as the 2004 Bonds of September 2034. Consistent with the District’s latest, post- Measure AA financial model, the amortization is slightly accelerated to back-load the debt service savings, when they are anticipated to be most valuable. The 2014 Notes will have the same terms and security as the District’s outstanding 2012 Notes, with the exception that the Additional Bonds Test has been slightly strengthened (at the suggestion of the rating agencies). There will be no reserve fund. The existing 2004 Bond Reserve Fund, with a current balance of $1.6 million, will be closed and the funds utilized to reduce the par amount of the 2014 Notes. The District is seeking bond ratings from Standard & Poor’s and Fitch and the interest cost estimates are based on an AA rating, as achieved in 2012. The agencies indicate that they will be able to report the rating on November 25. R-14-145 Page 2 The estimated Sources and Uses of the proposed refunding notes are shown below. SOURCES: Note Proceeds: Par Amount $26,085,000 Note Proceeds: Premium 3,194,160 Prior Reserve Fund 1,633,229 Total Sources $30,912,389 USES: Project Fund: New Money $ 0 Refunding Escrow Deposit: 2004 Bonds 30,651,964 Underwriters Discount 130,425 Other Cost of Issuance 130,000 Total Uses $30,912,389 If approved by the board, the schedule is to distribute the Preliminary Official Statement the week of December 1, price the notes during the week of December 8, close the transaction during the week of December 15, and call the 2004 Bonds on March 1, 2015. The proposed issue improves the District’s long-term financial plan and is easily accommodated within our statutory debt limit. After the proposed sale, District’s bonded indebtedness would be about 61% of the District’s statutory debt limit. The proposed bond counsel is Jones Hall of San Francisco. In August 2006, staff selected Chris Lynch of Jones Hall as our new bond counsel and we have been very pleased with his work on the 2007 and 2011 Bonds and 2012 Notes. Mr. Lynch is again working with the District on the 2014 Notes. Jones Hall is also proposed as Disclosure Counsel. District General Counsel has negotiated a fee of $72,500 for Jones Hall to provide both bond counsel and disclosure counsel services. The proposed underwriter is Stifel, which acquired the District’s long time banker, Stone & Youngberg (S&Y), in 2011. The Stifel/S&Y team has successfully managed many District financings, including the 2012 Notes, which the proposed issue closely resembles. Staff believes that Stifel can execute this transaction in an efficient and effective manner. The proposed underwriting fee of 0.5% of par value is competitive and consistent with fees on prior bond issues. SUMMARY OF THE PROPOSED TRANSACTION: 1. Amount: Par value of $26.1M; total amount of approximately $30.9M 2. Term: Twenty years 3. Average Life: 12.4 years 4. Purpose: Refinance the 2004 Bonds to reduce future debt service payments; projected net reduction of debt service of $6.6 to $7.6 million 5. Interest Rates: Estimated true interest cost of 3.4% to 3.6% 6. Reserve Fund: None 7. Underwriting Fee: 0.5% of par amount of amount issued, about $130,425 8. Other Costs of Issuance: Estimated at $130,000 9. Closing Schedule: Price by December 14, Close by December 21 R-14-145 Page 3 PARTIES TO THE TRANSACTION: 1. Issuer: Midpeninsula Region Open Space District 2. Trustee: Bank of New York Mellon Trust Company (BNY) 3. Underwriter: Stifel 4. Bond Counsel: Jones Hall 5. Disclosure Counsel: Jones Hall DUTIES OF THE PARTIES: 1. Issuer: Issue notes, make principal and interest payments 2. Trustee: Administers notes for the benefit of the holders, collects principal and interest from the District, makes payments to to holders; pays -off the 2004 bond 3. Underwriter: Purchases notes from the District and sells them to buyers 4. Bond Counsel: Prepares and certifies note documents; assures buyers of the tax-exempt status of the notes 5. Disclosure Counsel: Drafts District official statement and advises on compliance with federal securities laws THE DISTRICT’S DISCLOSURE OBLIGATIONS The attached Preliminary Official Statement has been reviewed and approved for transmittal to the Board of Directors by staff and the District’s financing team. The distribution of the Preliminary Official Statement by the District is subject to federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require the Preliminary Official Statement to include all facts that would be material to an investor in the 2014 Notes. Material information is information that there is a substantial likelihood that it would have actual significance in the deliberations of the reasonable investor when deciding whether to buy or sell the 2012 Refunding Notes. The Securities and Exchange Commission (the “SEC”), the agency with regulatory authority over the District’s compliance with the federal securities laws, has issued guidance as to the duties of the Board of Directors with respect to its approval of the Preliminary Official Statement. In its “Report of Investigation in the Matter of County of Orange, California as it Relates to the Conduct of the Members of the Board of Supervisors” (Release No. 36761 / January 24, 1996) (the “Release”), the SEC stated that, if a member of the Board of Directors has knowledge of any facts or circumstances that an investor would want to know about prior to investing in the 2014 Notes, whether relating to their repayment, tax-exempt status, undisclosed conflicts of interest with interested parties, or otherwise, he or she should endeavor to discover whether such facts are adequately disclosed in the Preliminary Official Statement. In the Release, the SEC stated that the steps that a member of the Board of Directors could take include becoming familiar with the Preliminary Official Statement and questioning staff and consultants about the disclosure of such facts. MAIN AGREEMENTS: Note that these documents are substantially complete and correct but are not meant to be in final form at this time. R-14-145 Page 4 1. Preliminary Official Statement: Describes note issue to potential buyers 2. Indenture (between District and BNY): Appoints BNY as Trustee for the notes, lists its duties and responsibilities, and details how the notes will be administered. 3. Escrow Deposit and Trust Agreement: Appoints BNY as Escrow Agent for District and Authority and specifies how the 2004 Bonds are to be paid-off. 4. Purchase Contract (between District and Stifel): Defines terms under which Stifel will purchase the notes from the District. 5. Professional Services Agreement (between District and Jones Hall): Appoints Jones Hall as Bond Counsel and Disclosure Counsel. FISCAL IMPACT Sale of the proposed 2014 Notes will reduce overall District debt service payments by $6.6 to $7.6 million over the next twenty years. The proposed sale is consistent with, and, in fact, improves, the District’s long-term financial model. BOARD COMMITTEE REVIEW The sale of the proposed 2014 Notes was not reviewed by committee, but will be considered by the full Board following the meeting of the Midpeninsula Regional Open Space Financing Authority on November 25, 2014. PUBLIC NOTICE Notice was provided pursuant to the Brown Act. No additional notice is necessary. CEQA COMPLIANCE No compliance is required as this action is not a project under CEQA. NEXT STEPS If approved by the Board, staff will proceed with finalization of the documentation and sell the notes. Attachment: 1. Resolution Authorizing the Issuance of a Series of Refunding Promissory Notes, Approving an Official Statement, and Providing Other Matters Properly Relating Thereto Prepared by: Michael Foster, Controller Resolutions/2014/14-___2004 Bond Refinance 1 RESOLUTION NO. 14-__ RESOLUTION OF THE MIDPENINSULA REGIONAL OPEN SPACE DISTRICT AUTHORIZING THE ISSUANCE OF A SERIES OF REFUNDING PROMISSORY NOTES, APPROVING AN OFFICIAL STATEMENT, AND PROVIDING OTHER MATTERS PROPERLY RELATING THERETO WHEREAS, the Midpeninsula Regional Open Space District (the “District”) previously entered into a Project Lease dated as of January 1, 1994 (the “2004 Project Lease”), with the Midpeninsula Regional Open Space District Financing Authority (the “Authority”) for the purpose of (i) financing the acquisition of open space, (ii) refunding on an advance basis, a portion of its 1995 Promissory Notes and (iii) prepaying on a current basis the District’s outstanding Certificates of Participation (1993 Open Space Project); and WHEREAS, the Authority issued its 2004 Revenue Bonds (the “2004 Bonds”) pursuant to an Indenture dated as of January 1, 2004 (the “2004 Indenture”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as successor trustee (the “1999 Trustee”); and WHEREAS, the 2004 Bonds were secured by and payable from the Base Rental Payments payable by the District under the 2004 Project Lease; and WHEREAS, the District wishes to refinance the 2004 Project Lease and the 2004 Bonds, and, for that purpose, wishes to issue its 2014 Refunding Promissory Notes (2004 Project Lease) (the “Notes”) pursuant to Article 3 of Chapter 3 of Division 5 of the Public Resources Code of the State of California (the “Law”) and an Indenture; and WHEREAS, in order to accomplish the prepayment of the 1999 Base Rental Payments and redemption and defeasance of the 2004 Bonds, the District and the Authority will enter into an Escrow Deposit and Trust Agreement (the “Escrow Agreement”); and WHEREAS, District staff has caused to be prepared and has reviewed a preliminary form of the Official Statement for the Notes (the "Official Statement"), which preliminary form is on file with the Secretary, and the District wishes at this time to approve the Official Statement in the public interests of the District; and WHEREAS, all conditions, things and acts required to exist, to have happened and to have been performed precedent to and in the issuance of the Notes, as contemplated by this resolution and the documents referred to herein exist, have happened and have been performed in due time, form and manner as required by the laws of the State of California. NOW, THEREFORE, BE IT RESOLVED by the Midpeninsula Regional Open Space District, as follows: Section 1. Recitals True and Correct. The District hereby finds and declares that the above recitals are true and correct. 2 Section 2. Issuance and Sale of the Notes. The District hereby authorizes and approves the issuance of the Notes to be designated “Midpeninsula Regional Open Space District Refunding Promissory Notes (2004 Project Lease).” The Notes may be issued in any combination of current interest notes and capital appreciation notes as determined by the Controller. The name of the Notes shall specify the year in which they were issued. Section 3. Security for the Notes. The Board hereby approves the pledge pursuant to the Indenture (as defined below) as security for the payment of principal of and interest on the Notes of the “Limited Taxes,” which term is generally defined in the Indenture as the limited ad valorem property taxes levied upon all taxable property in the District by the Board of Supervisors of Santa Clara County, the Board of Supervisors of San Mateo County and the Board of Supervisors of Santa Cruz County and allocated to the District under applicable law that are legally available to pay the interest on and principal of the Notes. The District shall not be obligated to pay the principal of or interest on the Notes except from the Limited Taxes. The pledge of the Limited Taxes to the Notes shall be on a parity with the District’s pledge of the Limited Taxes to following outstanding promissory notes of the District: (i) the Midpeninsula Regional Open Space District 2007 Refunding Promissory Notes (1996 Project Lease – 2nd Issue); (ii) the Midpeninsula Regional Open Space District 2007 Refunding Promissory Notes (1996 Promissory Notes); (iii) the Midpeninsula Regional Open Space District 2007 Refunding Promissory Notes (1999 Promissory Notes); (iv) the Midpeninsula Regional Open Space District 2007 Refunding Promissory Notes (1999 Project Lease – 2nd Issue); and (v) 2012 Refunding Promissory Notes (1999 Project Lease). Section 4. Approval of Indenture. The Indenture related to the Notes, by and between the District and The Bank of New York Mellon Trust Company, N.A., as trustee (the "Indenture"), in the form presented to this meeting, is hereby approved. The President, the Secretary, the General Manager and the Controller of the District (the "Designated Officers") are, and each of them acting alone is, hereby authorized and directed, for and in the name and on behalf of the District, to execute and deliver the Indenture, and the Secretary is hereby authorized and directed, for and in the name and on behalf of the District, to attest the Designated Officer's signature to the Indenture, in such form, together with such additions thereto or changes therein as are recommended or approved by the Designated Officer, upon consultation with Jones Hall, A Professional Law Corporation, bond counsel to the District, including such additions or changes as are necessary or advisable in accordance with Section 8 hereof; provided that no additions or changes shall authorize an aggregate principal amount of the Notes in excess of $32,000,000, or result in a true interest cost in excess of 4.25% per annum. The approval of such additions or changes shall be conclusively evidenced by the execution and delivery by a Designated Officer on behalf of the District of the Indenture. The date, maturity dates, aggregate principal amount (or maturity amount in the case of capital appreciation notes), annual maturity amounts, interest rate or rates, interest payment dates (or compounding dates in the case of capital appreciation notes), denominations, form, registration privileges, manner of execution, place of payment, terms of redemption and other terms of the Notes shall be as provided in the Indenture, as finally executed. Section 5. Approval of Refinancing and Escrow Agreement. The prepayment of the 2004 Base Rental Payments and the refunding of the 2004 Bonds are hereby approved, subject to achieving debt service savings in an amount acceptable to the Controller; issuance of the 2014 3 Notes in an amount sufficient to prepay the 2004 Base Rental Payments and the refunding of the 2004 Bonds shall be conclusive evidence of the Controller’s approval. The Designated Officers are, and each of them acting alone is, hereby authorized and directed, for and in the name of and on behalf of the District, to execute the Escrow Agreement in the form on file with the Secretary, together with any changes therein or additions thereto approved by the Designated Officers, whose execution thereof shall be conclusive evidence of approval of any such additions and changes, and such other documents as the Designated Officers determine are necessary to effectuate such refunding. Section 6. Sale of the Notes. The District hereby appoints Stifel, Nicolaus & Company, Incorporated (the “Underwriter”), as the underwriter for the Notes, and approves the sale of the Notes by negotiation with the Underwriter, pursuant to the Purchase Contract by and between the Authority and the Underwriter. The underwriter's discount (excluding original issue discount) proposed by the Underwriter, in an amount not to exceed 0.5% of the aggregate par amount (or maturity amount in the case of capital appreciation notes) of the Notes, is both reasonable and customary under the prevailing market conditions and is hereby approved, with the final discount to be identified in the Purchase Contract. The Designated Officers are, and each of them acting alone is, hereby authorized and directed, for and in the name of and on behalf of the District, to execute the Purchase Contract in the form approved by the Designated Officers, whose execution thereof shall be conclusive evidence of approval of the Purchase Contract. Section 7. Official Statement. The District hereby approves the preliminary Official Statement describing the Notes, in substantially the form on file with the Secretary. Distribution of the preliminary Official Statement and the final Official Statement by the Underwriter is hereby approved. The Designated Officers are hereby authorized and directed to approve any changes in or additions to the final form of the Official Statement, whose execution thereof shall be conclusive evidence of approval of any such changes and additions, and the Designated Officers are hereby authorized to execute a certificate deeming the preliminary Official Statement to be final for purposes of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934. Section 8. Municipal Bond Insurance. The Designated Officers, each acting alone, are hereby authorized and directed to obtain a municipal bond insurance policy for the Notes if it is determined, upon consultation with the Underwriter that such municipal bond insurance policy will reduce the true interest cost with respect to the Notes. Section 9. Official Action. All actions heretofore taken by the officers and agents of the District with respect to the preparation of the Official Statement and the Indenture and the sale and issuance of the Notes, are hereby approved, confirmed and ratified, and the proper officers of the District, including the Designated Officers and the District’s general counsel, are hereby authorized and directed, for and in the name and on behalf of the District, to do any and all things and take any and all actions and execute and deliver any and all certificates, agreements and other documents which they, or any of them, may deem necessary or advisable in order to consummate the lawful issuance and delivery of the Notes in accordance with this Resolution, including but not limited to those certificates, agreements and other documents described in the Indenture and the other documents herein approved, a termination agreement to terminate the 2004 Project Lease, and any certificates, agreements or documents as may be necessary to further the purpose hereof or provide additional security for the Notes, but which shall not create any obligation or liability of the District other than with respect to the limited tax revenues 4 pledged as security for the Notes in the Indenture and assets derived from the proceeds of the Notes. Section 10. Approval of Professional Service Agreement. The District hereby approves the form of the professional services agreement on file with the Secretary with respect to the services of Jones Hall, A Professional Law Corporation as bond counsel and disclosure counsel. The General Manager is hereby authorized and directed to execute the agreement on behalf of the District with such changes, additions or deletions as may be approved by the General Manager. Section 11. Effective Date. This resolution shall take effect from and after the date of approval and adoption thereof. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * PASSED AND ADOPTED by the Board of Directors of the Midpeninsula Regional Open Space District on ______, 2014, at a special meeting thereof, by the following vote: AYES: NOES: ABSTAIN: ABSENT: ATTEST: APPROVED: Secretary Board of Directors President Board of Directors APPROVED AS TO FORM: General Counsel I, the District Clerk of the Midpeninsula Regional Open Space District, hereby certify that the above is a true and correct copy of a resolution duly adopted by the Board of Directors of the Midpeninsula Regional Open Space District by the above vote at a meeting thereof duly held and called on the above day. District Clerk R-14-144 Meeting 14-33 November 25, 2014 FINANCING AUTHORITY MEETING AGENDA ITEM 1 AGENDA ITEM Annual Financial Report of the Midpeninsula Regional Open Space District Financing Authority DISTRICT CONTROLLER’S RECOMMENDATION Accept the Annual Financial Report of the Midpeninsula Regional Open Space District Financing Authority. DISCUSSION In May 1996, the District and Santa Clara County established the Midpeninsula Regional Open Space District Financing Authority (Financing Authority) with the purpose of providing financing assistance to the District to fund the acquisition of land to preserve and use as open space and to finance public capital improvements. Accordingly, the District and the Financing Authority are accounted as one blended unit for financial statement purposes. On June 5, 2014, the District’s independent auditors, Chavan & Associates, LLP., issued its report on the District’s financial statements for the fiscal year ending March 31, 2014 (Attachment 1). Through March 2014, the District has sold six series of Financing Authority bonds, with a total par value of $199.6 million. A summary of the six financings is shown in Table 1 below. Excluding the 2007 Bonds, which raised no new money and only refinanced existing Financing Authority bonds, the District has issued $140.5 million (net) of Financing Authority bonds, funding $77 million of new land acquisitions and repaying $60 million of prior public and private debt, which had been issued at higher interest rates and for shorter maturities. Table 1: District Financings Issuance Par Amount TIC* Purpose 1996 Bonds $29.9 M 6.25% $11M Land + pay-off 1988 Notes 1999-1 Bonds $29.7 M 5.26% $21M Land + pay-off 1992 Notes 1999-2 Bonds $28.4 M 5.93% $15M Land + pay-off 1990 Notes 2004 Bonds $31.9 M 4.99% $10M Land + pay-off 1993 COPs 2007 Bonds $59.2 M 4.57% Pay-off 1996 & 1999-2 Notes 2011 Bonds $20.5 M 5.60% Purchase $20M of Land * TIC = Total Interest Cost, including all costs of issuance Three Financing Authority bond issues remained outstanding on March 31, 2014, with a total outstanding balance of $101.69 million. This represented 73% of the District’s total outstanding R-14-144 Page 2 debt balance. The average total interest cost of these outstanding Financing Authority bonds was 4.95%. A summary of the activity on the Financing Authority bonds in fiscal 2014 is shown below. During the 2014 fiscal year, $1.30 million of principal was repaid, $4.97 million of interest was paid, and $116,990 of accretion was accrued. Accretion arises from the portion of notes sold as capital appreciation bonds (CABs). CABs are like zero-coupon bonds; they do not pay interest, instead they accrete each year to reflect the growing principal value to be paid at maturity. The purpose of CABs is to lengthen the average life of the debt. The 2004 Bonds include $1.3 million of CABs. Table 2: FY2013-14 Financing Authority Activity ($ millions) Balance March 2013 Principal Paid/Refunded Accretion Balance March 2014 Interest Paid FY2013-14 2004 Bonds $31.07 $0.62 $0.12 $30.57 $1.37 2007 Bonds $51.29 $0.63 $0.00 $50.66 $2.52 2011 Bonds $20.50 $0.05 $0.00 $20.46 $1.08 $102.86 $1.30 $0.12 $101.69 $4.97 It is currently anticipated that the District will prepay the 2004 Bonds, in their entirety, before the end of fiscal 2014-15, from the proceeds of a planned issuance of 2014 Refunding Promissory Notes. FISCAL IMPACT There are no unbudgeted fiscal impacts associated with the recommended action. BOARD COMMITTEE REVIEW This item was not previously reviewed by a Board Committee. PUBLIC NOTICE Notice was provided pursuant to the Brown Act. No additional notice is necessary. CEQA COMPLIANCE No compliance is required as this action is not a project under the California Environmental Quality Act. NEXT STEPS None. Attachment 1. District’s Financial Statements for the Fiscal Year ended March 31, 2014. Prepared by: Michael Foster, District Controller MIDPENINSULA REGIONAL OPEN SPACE DISTRICT ANNUAL FINANCIAL AUDIT REPORT MARCH 31, 2014 CHAVAN & ASSOCIATES, LLP CERTIFIED PUBLIC ACCOUNTANTS 1475 SARATOGA AVE., SUITE 180 SAN JOSE, CA 95129 Midpeninsula Regional Open Space District Santa Clara County Table of Contents TITLE PAGE FINANCIAL SECTION: Independent Auditor’s Report ..................................................................................................... 1 - 2 Management’s Discussion and Analysis ..................................................................................... 3 - 8 Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Position .............................................................................................. 9 Statement of Activities .................................................................................................. 10 Fund Financial Statements: Balance Sheet – Governmental Funds ........................................................................... 11 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position ....................................................................................... 12 Statement of Revenues, Expenditures, and Changes in Fund Balance – Governmental Funds ................................................................. 13 Reconciliation of Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balance to the Statement of Activities ................................. 14 Notes to the Basic Financial Statements ............................................................................... 15 - 36 REQUIRED SUPPLEMENTARY INFORMATION: Schedule of Revenue, Expenditures and Changes in Fund Balance – Budget and Actual (GAAP) General Fund ........................................................................... 37 Schedule of Funding Progress – Other Postemployment Benefits .............................................. 38 SUPPLEMENTARY INFORMATION: Schedule of Expenditures of Federal Awards ............................................................................. 39 Notes to Schedule of Expenditures of Federal Awards ............................................................... 40 OTHER INDEPENDENT AUDITOR’S REPORTS: Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ......................................... 41 - 42 Independent Auditor’s Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 ....................................................... 43 - 44 FINDINGS AND RECOMMENDATIONS: Schedule of Findings and Questioned Costs ............................................................................... 45 Status of Prior Year’s Findings and Recommendations .............................................................. 46 FINANCIAL SECTION Page | 1 1475 Saratoga Ave, Suite 180, San Jose, CA 95129 Tel: 408-217-8749 • E-Fax: 408-872-4159 info@cnallp.com • www.cnallp.com INDEPENDENT AUDITOR’S REPORT Board of Directors Midpeninsula Regional Open Space District Los Altos, California Report on the Financial Statements We have audited the accompanying financial statements of the Midpeninsula Regional Open Space District (the District), as of and for the year ended March 31, 2014, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements The District’s management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the District’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the District, as of March 31, 2014, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Page | 2 1475 Saratoga Ave, Suite 180, San Jose, CA 95129 Tel: 408-217-8749 • E-Fax: 408-872-4159 info@cnallp.com • www.cnallp.com Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, budgetary comparison information and other postemployment benefit information on pages 3 through 8, 37, and 38 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information As discussed in Note 1 to the financial statements, the District adopted the provisions of GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, and GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, effective July 1, 2012. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 5, 2014 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 grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control over financial reporting and compliance. June 5, 2014 San Jose, California Management’s Discussion and Analysis Midpeninsula Regional Open Space District Management’s Discussion and Analysis For the Fiscal Year Ended March 31, 2014 INTRODUCTION The Management’s Discussion and Analysis (MD&A) is a required section of the District’s annual financial report, as shown in the overview below. The purpose of the MD&A is to present a discussion and analysis of the District’s financial performance during the fiscal year that ended on March 31, 2014. This report will (1) focus on significant financial issues, (2) provide an overview of the District’s financial activity, (3) identify changes in the District’s financial position, (4) identify any individual fund issues or concerns, and (5) provide descriptions of significant asset and debt activity. This information, presented in conjunction with the annual Basic Financial Statements, is intended to provide a comprehensive understanding of the District’s operations and financial standing. Required Components of the Annual Financial Report FINANCIAL HIGHLIGHTS Driven by the strong economy in Silicon Valley, District property tax revenue increased above its long-term trend line in fiscal 2014, growing by $2.2 million, or 7.1%. Tax revenue also exceeded budget by $0.7 million, or 2.2%. The assessed valuation of secured and unsecured property within the District, as of July 1, 2013, increased by 8.1%. District tax revenue growth never exactly matches the rate of increase in assessed valuation because the District’s hybrid fiscal year spans two tax years and redevelopment-related taxes include some one-time distributions. The District received 67% of its tax revenue from Santa Clara County and 33% from San Mateo County. The District purchased $3.6 million of land and associated structures in fiscal 2014, highlighted by a 148 acre addition to the Monte Bello Open Space Preserve. District expenditures were again within the annual budget. Excluding land acquisition transactions and debt service, total District spending, $21.9 million, was $3.0 million, or 12.0%, below budget. As in most recent years, a large majority of the budget variance was due to delays and deferrals of capital projects; the District spent 95% of its budget for salaries and benefits, and 90% of the budget for services and supplies. The District’s net position increased by $11.9 million, or 4.0%, in fiscal 2014, as revenues exceeded expenditures. The assets of the District exceeded liabilities at the close of the 2014 fiscal year by $311.1 million. Of this total net asset amount, $268.9 million, or 86%, is invested in capital assets, net of related debt. Management’s Discussion & Analysis Government-Wide Financial Statements Fund Financial Statements Notes to the Financial Statements Basic Financial Statements 3 Midpeninsula Regional Open Space District Management’s Discussion and Analysis For the Fiscal Year Ended March 31, 2014 USING THE ANNUAL REPORT This annual report consists of a series of basic financial statements and notes to those statements. These statements are organized so the reader can understand the District as an entire operating entity. The statements provide an increasingly detailed look at specific financial activities. The Statement of Net Position and Statement of Activities comprise the government-wide financial statements and provide information about the activities of the whole District, presenting both an aggregate view of the District’s finances and a longer-term view of those finances. Fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short-term as well as what remains for future spending. The basic financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. OVERVIEW OF THE FINANCIAL STATEMENTS The full annual financial report is a product of three separate parts: the basic financial statements, supplementary information, and this section, the Management’s Discussion and Analysis. The three sections together provide a comprehensive financial overview of the District. The basic financials are comprised of two kinds of statements that present financial information from different perspectives, government-wide and fund statements.  Government-wide financial statements, which comprise the first two statements, provide both short-term and long-term information about the District’s overall financial position.  Individual parts of the District, which are reported as fund financial statements, focus on reporting the District’s operations in more detail. These fund financial statements comprise the remaining statements.  Notes to the financials, which are included in the financial statements, provide more detailed data and explain some of the information in the statements. The required supplementary information section provides further explanations and provides additional support for the financial statements. GOVERNMENT-WIDE FINANCIAL STATEMENTS - STATEMENT OF NET POSITION AND THE STATEMENT OF ACTIVITIES The view of the District as a whole looks at all financial transactions and asks the question, “How did we do financially during the fiscal year 2013 - 2014?” The Statement of Net Position and the Statement of Activities answer this question. These statements include all assets and liabilities using the accrual basis of accounting similar to the accounting practices used by most private-sector companies. This basis of accounting takes into account all of the current year revenues and expenses regardless of when cash is received or paid. These two statements report the District’s net position and changes in net position. This change in net position is important because it tells the reader that, for the District as a whole, the financial position of the District has improved or diminished. The causes of this change may be the result of many factors, some financial, and some not. Non-financial factors include the District’s property tax base, current property tax laws in California restricting revenue growth, facility conditions and other factors. In the Statement of Net Position and the Statement of Activities, the District reports governmental activities. Governmental activities are the activities where the District’s programs and services are reported. The District does not have any business type activities. 4 Midpeninsula Regional Open Space District Management’s Discussion and Analysis For the Fiscal Year Ended March 31, 2014 REPORTING THE DISTRICT’S MOST SIGNIFICANT FUNDS Fund Financial Statements The analysis of the District’s fund financial statements begins on page 11. Fund financial reports provide detailed information about the District’s major funds. The District uses one operating fund, the General Fund, to account for a multitude of financial transactions. Governmental Funds The General Fund is a governmental fund type and is reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the District’s general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the future to finance educational programs. The relationship (or differences) between governmental activities (reported in the Statement of Net position and the Statement of Activities) and governmental funds is reconciled in the financial statements. THE DISTRICT AS A WHOLE Recall that the Statement of Net Position provides the perspective of the District as a whole. Table 1 provides a summary of the District’s net position as of March 31, 2014 as compared to March 31, 2013: Percentage 2014 2013 Change Change Assets Current Assets 44,530,822$ 44,722,294$ (191,472)$ -0.43% Noncurrent Assets 407,253,012 399,686,916 7,566,096 1.89% Total Assets 451,783,834$ 444,409,210$ 7,374,624$ 1.66% Deferred Outflows of Resources Deferred loss on early retirement of long-term debt 2,962,414$ 3,301,608$ (339,194)$ 100.00% Total Deferred Outflows of Resources 2,962,414$ 3,301,608$ (339,194)$ 100.00% Liabilities Current Liabilities 2,175,974$ 4,693,345$ (2,517,371)$ -53.64% Noncurrent Liabilities 141,422,809 143,729,335 (2,306,526) -1.60% Total Liabilities 143,598,783$ 148,422,680$ (4,823,897)$ -3.25% Net Position Net Investment in Capital Assets 268,869,441$ 259,637,822$ 9,231,619$ 3.56% Restricted 4,326,997 2,730,928 1,596,069 58.44% Unrestricted 37,951,027 36,919,388 1,031,639 2.79% Total Net Position 311,147,465$ 299,288,138$ 11,859,327$ 3.96% Table 1 - Summary of Statement of Net Position Total net position increased by $11.9 million, as revenues exceeded expenditures. Noncurrent assets increased due to $8.1 million of capital expenditures. Total liabilities decreased due to $3.0 million of principal payments on outstanding debt and the reclassification of the $2.0 million Hawthorn endowment, received in fiscal 2012, from deferred revenue to fund equity. 5 Midpeninsula Regional Open Space District Management’s Discussion and Analysis For the Fiscal Year Ended March 31, 2014 Table 2 shows the changes in net position for fiscal year 2014 as compared to 2013. Percentage 2014 2013 Change Change Revenues Program revenues 3,322,797$ 6,184,430$ (2,861,633)$ -46.27% General revenues: Property taxes 32,433,076 30,269,803 2,163,273 7.15% Investment earnings 137,619 287,642 (150,023) -52.16% Miscellaneous 182,011 298,068 (116,057) -38.94% Total Revenues 36,075,503 37,039,943 (964,440) -2.60% Program Expenses Land preservation 17,929,658 19,338,464 (1,408,806) -7.28% Interest 7,162,596 7,272,915 (110,319) -1.52% Depreciation 1,094,962 839,870 255,092 30.37% Total Expenses 26,187,216 27,451,249 (1,264,033) -4.60% Change in Net Position 9,888,287 9,588,694 299,593 3.12% Adjustment to Beginning Net Position 1,971,040 - 1,971,040 100.00% Begininng Net Position 299,288,138 289,699,444 9,588,694 3.31% Ending Net Position 311,147,465$ 299,288,138$ 11,859,327$ 3.96% Table 2 - Summary of Changes in Net Position Program revenues decreased because the District received no material land donations in fiscal 2014. In fiscal 2013, the District received $3.9 million of land donations. Grant revenue totaled $1.9 million in fiscal 2014, a $1.0 million increase over the prior year. Approximately 82% of this grant revenue was related to the demolition of the old Air Force structures on the top of Mt. Umunhum. Property tax revenue increased by 7.1% due to growth in assessed valuation in both Santa Clara and San Mateo portions of the District. Investment earnings declined due to the impact of lower interest rates. THE DISTRICT’S FUND BALANCE Table 3 provides an analysis of the District’s fund balances and the total change in fund balances from the prior year. Percentage 2014 2013 Change Change Restricted for debt service 1,620,515$ 1,633,622$ (13,107)$ -1% Restricted for Hawthorne maintenance 1,702,557 - 1,702,557 100% Assigned for economic contingencies 5,000,000 - 5,000,000 100% Unassigned 34,453,279 37,513,062 (3,059,783) -8% Total Fund Balance 42,776,351$ 39,146,684$ 3,629,667$ 9% Table 3 - Summary of Fund Balance Following the completion of its new thirty year strategic plan, District management will develop recommendations for the Board of Directors to commit or assign a majority of the unassigned fund balance during fiscal 2015. 6 Midpeninsula Regional Open Space District Management’s Discussion and Analysis For the Fiscal Year Ended March 31, 2014 GENERAL FUND BUDGETING HIGHLIGHTS The District’s budget is prepared according to California law and in the modified accrual basis of accounting. During the course of the 2013-14 fiscal year, the District revised its General Fund budget which resulted in an increase in budgeted expenditures of $41,000 from the original to final budget. The final budgeted revenue and other financing sources estimate was $37,332,927. The original budgeted estimate was $36,046,000. CAPITAL ASSETS Table 4 shows March 31, 2014 capital asset balances as compared to March 31, 2013. Percentage 2014 2013 Change Change Land 383,509,165$ 379,410,829$ 4,098,336$ 1.08% Work-in-Progress 4,709,807 4,396,366 313,441 7.13% Structure and Improvements 7,201,862 7,397,095 (195,233) -2.64% Infrastructure 7,011,681 5,146,364 1,865,317 36.25% Equipment 884,424 775,677 108,747 14.02% Vehicles 1,606,002 1,463,279 142,723 9.75% Total Capital Assets - Net 404,922,941$ 398,589,610$ 6,333,331$ 1.59% Table 4 - Summary of Capital Assets Net of Depreciation LONG TERM LIABILITIES Table 5 summarizes the percent changes in long-term liabilities over the past two years. Percentage 2014 2013 Change Change Promissory Notes 38,296,191$ 39,117,305$ (821,114)$ -2.10% Revenue Bonds 101,862,705 103,136,897 (1,274,192) -1.24% Compensated Absences 1,263,913 1,475,939 (212,026) -14.37% Total Long-term Liabilities 141,422,809$ 143,730,141$ (2,307,332)$ -1.61% Table 5 - Summary of Long-term Liabilities BUDGETARY PERFORMANCE The budgetary comparison schedule following Note 10 of the footnotes shows how the District financial results of fiscal 2014, on a GAAP basis, compared to the original budget adopted in March 2013 and the final budget adjusted in December 2013. Total revenue was $1.3 million, or 3.3%, under budget, entirely due to delays in completing land transactions which included land donations. Total expenditures were $6.6 million, or 20.4%, below budget, leaving an excess of revenue over expenditure of $10.5 million. Delays and deferrals of capital outlays accounted for 78% of the total spending variance. Spending for salaries, benefits, services and supplies was at 92.4% of budget, higher than most recent years. ECONOMIC FACTORS AND NEXT YEAR’S BUDGET The Board of Directors adopted the District’s budget for fiscal year 2015 on March 26, 2014. This budget assumes growth in regular property tax income of 6.6% and a decrease of 37% in redevelopment-related taxes, for a net estimated tax revenue increase of 5.3%. The budget assumes the acquisition of $8.5 million of new 7 Midpeninsula Regional Open Space District Management’s Discussion and Analysis For the Fiscal Year Ended March 31, 2014 land and $6.0 million of other capital spending. Operating expenditures and debt service are budgeted at $19.1 million and $8.9 million, respectively. The budget also includes $0.8 million of election expenses and $0.6 million related to completion of the thirty year strategic plan and vision plan. If all revenues and expenditures occur as budgeted, the District’s cash position would decrease by $5.7 million in fiscal 2015. CONTACTING THE DISTRICT’S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, parents, participants, investors and creditors with a general overview of the District’s finances and to demonstrate the District’s accountability for the money it receives. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the District Clerk, Midpeninsula Regional Open Space District, 330 Distel Circle, Los Altos, California 94022. 8 Basic Financial Statements Governmental Activities Assets Current assets: Cash and investments 34,330,982$ Accounts Receivable: Deposits 694,849 Interest 32,773 Due from other governments: Taxes receivable 8,599,282 Due from grantor government 365,987 Other current assets 506,949 Total current assets 44,530,822 Noncurrent assets: Net OPEB asset 1,003,925 Notes receivable 183,164 Unamortized issuance costs 1,142,982 Non-depreciable capital assets 388,218,972 Capital assets, net of depreciation 16,703,969 Total noncurrent assets 407,253,012 Total Assets 451,783,834$ Deferred Outflows of Resources Deferred loss on early retirement of long-term debt 2,962,414$ Liabilities Current liabilities: Accounts payable 744,178$ Deposits payable 128,441 Payroll and other liabilities 881,852 Accrued interest 421,503 Total current liabilities 2,175,974 Noncurrent liabilities: Due within one year 3,498,284 Due after one year 137,924,525 Total noncurrent liabilities 141,422,809 Total Liabilities 143,598,783$ Net Position Net Investment in Capital Assets 268,869,441$ Restricted for: Debt service 1,620,515 Hawthorne maintenance 1,702,557 OPEB 1,003,925 Total restricted 4,326,997 Unrestricted 37,951,027 Total Net Position 311,147,465$ Midpeninsula Regional Open Space District Statement of Net Position March 31, 2014 The notes to the financial statements are an integral part of this statement. 9 Net (Expense) Capital Revenue and Charges for Grants and Changes in Expenses Services Contributions Net Position Governmental activities: Land preservation 17,929,658$ 1,422,095$ 1,900,702$ (14,606,861)$ Interest 7,162,596 - - (7,162,596) Depreciation 1,094,962 - - (1,094,962) Total governmental activities 26,187,216$ 1,422,095$ 1,900,702$ (22,864,419) General revenues: Property taxes 32,433,076 Investment earnings 137,619 Other revenues 240,094 Special items - loss on disposal of capital assets (58,083) Total general revenues and special items 32,752,706 Change in net position 9,888,287 Net position beginning 299,288,138 Prior period adjustment - Hawthorne contribution 1,971,040 Net position beginning as adjusted 301,259,178 Net position ending 311,147,465$ Midpeninsula Regional Open Space District Statement of Activities For the Fiscal Year Ended March 31, 2014 Program Revenues The notes to the financial statements are an integral part of this statement. 10 Debt Total General Service Governmental Fund Fund Funds ASSETS Cash and investments 32,710,467$ 1,620,515$ 34,330,982$ Receivables: Deposits 694,849 - 694,849 Interest 32,773 - 32,773 Due from other governments: Taxes receivable 8,599,282 - 8,599,282 Due from grantor government 365,987 - 365,987 Other current assets 506,949 - 506,949 Notes receivable 183,164 - 183,164 Total Assets 43,093,471$ 1,620,515$ 44,713,986$ LIABILITIES Liabilities: Accounts payable 744,178$ -$ 744,178$ Deposits payable 128,441 - 128,441 Payroll and other liabilities 881,852 - 881,852 Total Liabilities 1,754,471 - 1,754,471 DEFERRED INFLOWS OF RESOURCES Unearned revenue 183,164 - 183,164 FUND BALANCE Restricted for: Debt service - 1,620,515 1,620,515 Hawthorne maintenance 1,702,557 - 1,702,557 Assigned for: Economic contingencies 5,000,000 - 5,000,000 Unassigned 34,453,279 - 34,453,279 Total Fund Balance 41,155,836 1,620,515 42,776,351 Total Liabilities and Fund Balance 43,093,471$ 1,620,515$ 44,713,986$ Balance Sheet Midpeninsula Regional Open Space District March 31, 2014 Governmental Funds The notes to the financial statements are an integral part of this statement. 11 Total fund balance - governmental funds 42,776,351$ Amounts reported in the Statement of Net Position are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. Capital assets at cost 416,628,666$ Accumulated depreciation (11,705,725) 404,922,941 Principal on notes receivables are recorded as unearned revenue in the funds, which upon collection is a current financial resource. In the government-wide financial statements, repayment of the principal amount does not generate revenue in the statement of activities; therefore unearned revenue is not recorded. 183,164 Net OPEB assets are not available to pay for current period expenditures and, therefore, are not recognized in the governmental funds statements. 1,003,925 Interest payable on long-term debt does not require the use of current financial resources and, therefore, is not reported in the governmental funds.(421,503) Issuance costs, discounts and premiums related to bond issues are recorded as other financing sources and uses in the fund financial statements but are recorded as assets or liabilities and amortized over the life of the bond in the statement of net position: (1,045,228) Deferred loss on early retirement of long-term debt is recorded in the Statement of Net Position as a deferred outflow of resources and amortized on a straight line basis over the original life of the defeased bond. 2,962,414 Long-term liabilities are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-term liabilities at year-end consists of: Revenue bonds 101,685,779$ Promissory notes 36,284,907 Compensated absences 1,263,913 (139,234,599) Total net position - governmental activities 311,147,465$ Midpeninsula Regional Open Space District Balance Sheet to the Statement of Net Position March 31, 2014 Reconciliation of the Governmental Funds The notes to the financial statements are an integral part of this statement. 12 Debt Total General Service Governmental Fund Fund Funds Revenues: Property taxes 32,433,076$ -$ 32,433,076$ Grant income 1,900,702 - 1,900,702 Property management 1,422,095 - 1,422,095 Investment earnings 163,215 (13,107) 150,108 Other revenues 144,762 - 144,762 Total revenues 36,063,850 (13,107) 36,050,743 Expenditures: Current: Salaries and employee benefits 13,078,635 - 13,078,635 Services and supplies 4,224,310 - 4,224,310 Capital outlay 8,230,927 - 8,230,927 Debt service: Principal - 2,998,888 2,998,888 Interest - 5,859,356 5,859,356 Total expenditures 25,533,872 8,858,244 34,392,116 Excess (deficiency) of revenues over (under) expenditures 10,529,978 (8,871,351) 1,658,627 Other financing sources (uses): Transfers in - 8,858,244 8,858,244 Transfers out (8,858,244) - (8,858,244) Total other financing sources (uses) (8,858,244) 8,858,244 - Net changes in fund balance 1,671,734 (13,107) 1,658,627 Fund balance beginning 37,513,062 1,633,622 39,146,684 Prior period adjustment - Hawthorne contribution 1,971,040 - 1,971,040 Fund balance beginning - restated 39,484,102 1,633,622 41,117,724 Fund balance ending 41,155,836$ 1,620,515$ 42,776,351$ Midpeninsula Regional Open Space District Statement of Revenues, Expenditures and Changes in Fund Balance Governmental Funds For the Fiscal Year Ended March 31, 2014 The notes to the financial statements are an integral part of this statement. 13 Total net change in fund balance - governmental funds 1,658,627$ Capital outlays are reported in governmental funds as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. Expenditures capitalized as capital assets 7,485,569$ Depreciation expense (1,094,962) 6,390,607 Governmental funds do not report loss on disposal of capital assets. However, in the government-wide statement of activities and changes in net position, the cost to dispose of capital assets, net any proceeds, is accounted for as a special item. (58,083) Repayment of notes receivable is reported as revenue in the Governmental funds because financial resources were received and available during the fiscal year. In the statement of net position, the payment reduces the principal balance of notes receivable and does not generate revenue in the statement of activities. (12,489) Accreted interest on capital appreciation bonds is not recorded in the governmental funds but is required to be recorded under the accrual basis of accounting in the government wide financial statements.(1,067,155) The governmental funds report debt proceeds as an other financing source, while repayment of debt principal is reported as an expenditure. Interest is recognized as an expenditure in the governmental funds when it is due. The net effect of these differences in the treatment of long-term debt and related items is as follows: Repayment of bond principal 1,295,000$ Repayment of promissory notes princpal 1,703,888 2,998,888 Deferred loss on early retirement of long-term debt is amortized over the life of the debt in the statement of activities. Amortization expense is not reported in the governmental funds.(339,194) Issuance costs, discounts and premiums related to bond issues are recorded as other financing sources and uses in the fund financial statements but are recorded as assets or liabilities and amortized over the life of the bond in the statement of net position: Amortization of issuance costs and premiums - net 95,332 In the Statement of Activities, compensated absences are measured by the amount earned during the year. In governmental funds, however, expenditures for those items are measured by the amount of financial resources used (essentially the amounts paid). This year, vacation used exceeded the amounts earned.212,026 In the Statement of Activities, the net postemployment benefit asset is the amount by which the contributions toward the OPEB plan were more than the annual required contribution as actuarially determined. The net postemployment benefit is not recorded in the governmental fund statements. The change in the net OPEB was recorded in the Statement of Activities in the amount of: (93,381) Interest on long-term debt in the Statement of Activities differs from the amount reported in the governmental funds because interest is recognized as an expenditure in the funds when it is due and thus requires the use of current financial resources. In the Statement of Activities, however, interest expense is recognized as the interest accrues, regardless of when it is due.103,109 Change in net position of governmental activities 9,888,287$ Midpeninsula Regional Open Space District Statement of Revenues, Expenditures and Changes in Fund Balance For the Fiscal Year Ended March 31, 2014 Reconciliation of the Governmental Funds to the Statement of Activities The notes to the financial statements are an integral part of this statement. 14 Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 15 NOTE 1 - 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. Accounting Principles The accounting policies of the District conform to generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA). C. Reporting Entity As required by generally accepted accounting principles, these basic financial statements present the Midpeninsula Regional Open Space District and its component unit. The component unit discussed in the following paragraph is included in the District's reporting entity because of the significance of their operational or financial relationships with the District. Blended Component Unit. The District and the County of Santa Clara entered into a joint exercise of powers agreement dated May 1, 1996, creating the Midpeninsula Regional Open Space District Financing Authority (the Authority), pursuant to the California Government Code. The District is financially accountable for the Authority, as it appoints a voting majority of the governing board; is able to impose its will in the Authority; and the Authority provides specific financial benefits to, and imposes specific financial burdens on, the District. The Authority was formed for the sole purpose of providing financing assistance to the District to fund the acquisition of land to preserve and use as open space. As such, the Authority is an integral part of the District, and accordingly, all of the Authority's activity is blended within the accompanying debt service fund. D. Basis of Presentation Government-wide Financial Statements: The government-wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information on all of the activities of the District. The Statement of Net Position reports all assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position. The government-wide statements are prepared using the economic resources measurement focus. This approach differs from the manner in which governmental fund financial statements are Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 16 prepared. Governmental fund financial statements, therefore, include the reconciliation with brief explanations to better identify the relationship between the government wide statements and the statements for the governmental funds. The government-wide statement of activities presents a comparison between direct expenses and program revenues for each function or program of the District’s governmental activities. Direct expenses are those that are specifically associated with a service, program, or department and are therefore clearly identifiable to a particular function. The District does not allocate indirect expenses to functions in the statement of activities. Program revenues include charges paid by the recipients of goods or services offered by a program, as well as grants and contributions that are restricted to meeting the operational or capital requirements of a particular program. Revenues that are not classified as program revenues are presented as general revenues of the District, with certain exceptions. The comparison of direct expenses with program revenues identifies the extent to which each governmental function is self-financing or draws from the general revenues of the District. Fund Financial Statements: Fund financial statements report detailed information about the District. The accounting and financial treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets, deferred outflows, current liabilities and deferred inflows are generally included on the balance sheet. The Statement of Revenues, Expenditures, and Changes in Fund Balance for these funds present increases (i.e., revenues and other financing sources) and decreases (i.e., expenditures and other financing uses) in net current assets. E. Basis of Accounting Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Government-wide financial statements are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Revenues - Exchange and Non-exchange Transactions: Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded under the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. “Available” means the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the District, “available” means collectible within the current period or within 90 days after year-end. Non-exchange transactions, in which the District receives value without directly giving equal value in return, include property taxes, grants, and entitlements. Under the accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants and entitlements is recognized in the fiscal year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are to be used or the fiscal year when use is first permitted; matching requirements, Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 17 in which the District must provide local resources to be used for a specific purpose; and expenditure requirements, in which the resources are provided to the District on a reimbursement basis. Under the modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. Deferred Outflows/Deferred Inflows: A deferred outflow of resources is a consumption of net assets by the government that is applicable to a future reporting period. For example; prepaid items and deferred charges. A deferred inflow of resources is an acquisition of net assets by the government that is applicable to a future reporting period. For example; unearned revenue and advance collections. Unearned Revenue: Unearned revenue arises when assets are received before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are recorded as deferred inflows from unearned revenue. In the governmental fund financial statements, receivables associated with non-exchange transactions that will not be collected within the availability period have been recorded as deferred inflows from unearned revenue. Expenses/Expenditures: On the accrual basis of accounting, expenses are recognized at the time a liability is incurred. On the modified accrual basis of accounting, expenditures are generally recognized in the accounting period in which the related fund liability is incurred, as under the accrual basis of accounting. However, under the modified accrual basis of accounting, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Allocations of cost, such as depreciation and amortization, are not recognized in the governmental funds. When both restricted and unrestricted resources are available for use, it is the District’s policy to use restricted resources first, then unrestricted resources as they are needed. F. Fund Accounting The accounts of the District are organized into two funds with a separate set of self-balancing accounts that comprise of the District’s assets, deferred outflows, liabilities, deferred inflows, fund balance, revenues, and expenditures. 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, Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 18 grant revenues and interest income. Expenditures are made for land preservation 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. G. 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. H. Assets, Liabilities, and Equity 1. Cash and Cash Equivalents Cash and cash equivalents include all cash and temporary investments with original maturities of three months or less from the date of acquisition. 2. Prepaid Expenditures The District has the option of reporting expenditures in governmental funds for prepaid items either when purchased or during the benefiting period. The District has chosen to report the expenditure during the benefiting period. 3. Capital Assets Capital assets, which include land, buildings and improvements, furniture, equipment, and construction in progress, are reported in the government-wide financial statements. Such assets are valued at historical cost or estimated historical cost unless obtained by annexation or donation, in which case they are recorded at estimated market value at the date of receipt. The District utilizes a capitalization threshold of $10,000. Projects under construction are recorded at cost as construction in progress and transferred to the appropriate asset account when substantially complete. Costs of major improvements and rehabilitation of buildings are capitalized. Repair and maintenance costs are charged to expense when incurred. Equipment disposed of, or no longer required for its existing use, is removed from the records at actual or estimated historical cost, net of accumulated depreciation. Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 19 All capital assets, except land and construction in progress, are depreciated using the straight- line method over the following estimated useful lives: Assets Years Buildings and improvements 10 - 30 Infrastructure 30 - 40 Equipment 5 - 20 Vehicles 10 - 20 4. Compensated Absences In accordance with the District's memorandum of understanding with various employee groups, employees accrue fifteen days of vacation during the first nine years of service, twenty days between service years 10 and fourteen, twenty-one days between service years fifteen and nineteen, twenty-three days between service years twenty and twenty-four, and twenty-five days after twenty-five years of service. An employee may accumulate vacation time earned to a maximum of two times the amount of his/her annual vacation accrual. Full-time employees accrue twelve days of sick leave: annually from the date of employment. An employee may accumulate sick leave time earned on an unlimited basis. Upon resignation, separation from service, or retirement from District employment, workers in good standing with ten or more years of District employment shall receive a cash payment of the equivalent cash value of accrued sick leave as follows: Percentage of equivalent cash value of accrued Years of Employment sick leave 15-20 20% 16-20 25% 21 or more 30% An employee hired before August 9, 2006, who retires from the District shall receive a cash payment of the percentage of equivalent cash value or accrued sick leave based on years of employment as described above, and apply the remainder of the equivalent cash value toward his/her cost of retiree medical plan premiums and/or other qualified medical expenses. Upon retirement, the amount qualified and designated for retiree medical costs shall be deposited in the Retiree Health Savings (RH:S) plan, set up by the District. The cost for maintaining the retiree's RHS account and the annual fee for the reimbursement process of qualified medical expenses will be paid for by the retiree. An employee hired on or after August 9, 2006, who retires from the District may elect to receive only a cash payment of the percentage of equivalent cash value of accrued sick leave based on years of employment as described above. In all cases the equivalent cash value of accrued sick leave will be based on current rate of pay as of the date of separation from District employment. Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 20 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. 5. Long-Term/Noncurrent Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the Statement of Net Position. 6. Debt Discount and Issuance Costs Debt discounts, premiums, and issuance costs are capitalized as an offset to long-term debt and amortized using the straight line method over the life of the related debt. Issuance costs for the District's tax-exempt commercial paper short-term borrowings are expensed as incurred. 7. Fund Balance Classifications In accordance with Government Accounting Standards Board 54, Fund Balance Reporting and Governmental Fund Type Definitions, the District classifies governmental fund balances as follows:  Nonspendable fund balance includes amounts that cannot be spent either because it is not in spendable form or because of legal or contractual constraints.  Restricted fund balance includes amounts that are constrained for specific purposes which are externally imposed by providers, such as creditors or amounts constrained due to constitutional provisions or enabling legislation.  Committed fund balances includes amounts that are constrained for specific purposes that are internally imposed by the government through formal action of the highest level of decision making authority and does not lapse at year-end. Committed fund balances are imposed by the District’s board of directors.  Assigned fund balance includes amounts that are intended to be used for specific purposes that are neither considered restricted or committed. Fund balance may be assigned by the General Manager.  Unassigned fund balance includes positive amounts within the general fund which has not been classified within the above mentioned categories and negative fund balances in other governmental funds. The District uses restricted/committed amounts to be spent first when both restricted and unrestricted fund balance is available unless there are legal documents/contracts that prohibit doing this, such as a grant agreement requiring dollar for dollar spending. Additionally, the District would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made. Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 21 8. Net Position Net position represents the difference between assets, deferred outflows of resources, liabilities and deferred inflows of resources. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction or improvement of those assets. In addition, deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt also are included in the net investment in capital assets component of net position. Net position is reported as restricted when there are limitations imposed on its use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors, laws or regulations of other governments. The District applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available. Unrestricted net position reflect amounts that are not subject to any donor-imposed restrictions. This class also includes restricted contributions whose donor-imposed restrictions were met during the fiscal year. A deficit unrestricted net position may result when significant cash balances restricted for capital projects exist. Once the projects are completed, the restriction on these assets are released and converted to capital assets. 9. Property Taxes The District receives property tax revenue from Santa Clara and San Mateo Counties (the Counties). The Counties are responsible for assessing, collecting and distributing property taxes in accordance with state law. Secured property taxes are recorded as revenue when apportioned, in the fiscal year of the levy. The counties apportion secured property tax revenue in accordance with the alternate method of distribution prescribed by Section 4705 of the California Revenue and Taxation Code. This alternate method provides for crediting each applicable fund with its total secured taxes upon completion of the secured tax roll - approximately October 1 of each year. Taxes are levied annually on July 1st, and one-half are due by November 1st and one-half by February 1st. Taxes are delinquent after December 10th and April 10th, respectively. Supplemental property taxes are levied on a pro-rata basis when changes in assessed valuation occur due to the completion of construction or sales transactions. Liens on real property are established on January 15th for the ensuing fiscal year. On March 31, 1993, the Board of Supervisors adopted the "Teeter" method of property tax allocation. This method allocates property taxes based on the total property tax billed. At year-end, the County advances cash to each taxing jurisdiction equal to its current year delinquent taxes. Once the delinquent taxes are collected, the revenue from penalties and interest remains with the County and is used to pay the interest cost of borrowing the cash used for the advances. 10. Accounting Estimates The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 22 assumptions that affect the reported amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. I. New Accounting Pronouncements Summary of Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position (Issued 06/11). This Statement provides financial reporting guidance for deferred outflows of resources and deferred inflows of resources. Concepts Statement No. 4, Elements of Financial Statements, introduced and defined those elements as a consumption of Net Position by the government that is applicable to a future reporting period, and an acquisition of Net Position by the government that is applicable to a future reporting period, respectively. Previous financial reporting standards do not include guidance for reporting those financial statement elements, which are distinct from assets and liabilities. Concepts Statement 4 also identifies net position as the residual of all other elements presented in a statement of financial position. This Statement amends the net asset reporting requirements in Statement No. 34, Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local Governments, and other pronouncements by incorporating deferred outflows of resources and deferred inflows of resources into the definitions of the required components of the residual measure and by renaming that measure as net position, rather than net assets. The provisions of this Statement were effective as of July 1, 2012. Summary of Statement No. 65, Items Previously Reported as Assets and Liabilities (Issued 03/12). This Statement establishes accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities. This Statement amends the financial statement element classification of certain items previously reported as assets and liabilities to be consistent with the definitions in Concepts Statement 4. The provisions of this Statement are effective for financial statements for periods beginning after December 15, 2012. However, the District has chosen to implement these reporting requirements as of July 1, 2012. J. Upcoming Accounting and Reporting Changes Summary of Statement No. 67 Financial Reporting for Pension Plans - an amendment of GASB Statement No. 25 (Issued 06/12). This Statement replaces the requirements of Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 50, Pension Disclosures, as they relate to pension plans that are administered through trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. This Statement establishes a definition of a pension plan that reflects the primary activities associated with the pension arrangement-determining pensions, accumulating and managing assets dedicated for pensions, and paying benefits to plan members as they come due. This Statement also details the note disclosure requirements for defined contribution pension plans administered through trusts that meet the identified criteria. This Statement is effective for financial statements for fiscal years beginning after June 15, 2013. Earlier application is encouraged. The determination of the impact on the Entity’s financial Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 23 statements from the implementation of this standard is pending as of the issuance date of this report. Summary of Statement No. 68 Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27 (Issued 06/12). The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This Statement replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements (hereafter jointly referred to as trusts) that meet certain criteria. This Statement establishes a definition of a pension plan that reflects the primary activities associated with the pension arrangement-determining pensions, accumulating and managing assets dedicated for pensions, and paying benefits to plan members as they come due. This Statement is effective for fiscal years beginning after June 15, 2014. Earlier application is encouraged. The determination of the impact on the Entity’s financial statements from the implementation of this standard is pending as of the issuance date of this report. NOTE 2 - CASH AND INVESTMENTS Summary of Cash and Investments The following summarizes deposits as of March 31, 2014: Cash and Cash Equivalents Available Investment Cash and Investments for Operations Restricted Total Rating Maturities Cash Deposits: Cash in Banks 131,683$ 1,709,132$ 1,840,815$ N/A N/A Petty Cash 800 - 800 N/A N/A Total Cash Deposits 132,483 1,709,132 1,841,615 Investments: California Local Agency Investment Fund 7,825,290 - 7,825,290 Not Rated < 1yr Santa Clara County Pool 23,043,562 - 23,043,562 Not Rated < 1yr Cash with Fiscal Agent: US Federal Agency Securities - 1,407,475 1,407,475 Aaa > 1yr Money Market Mutual Funds - 213,040 213,040 Aaa > 1yr Total Investments 30,868,852 1,620,515 32,489,367 Total Cash and Cash Equivalents 31,001,335$ 3,329,647$ 34,330,982$ Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 24 Cash in Banks Cash balances in banks are insured up to $250,000 per insured bank by the Federal Deposit Insurance Corporation ("FDIC"). The District’s accounts are held with various banks. As of March 31, 2014, the District’s bank balances exceeded FDIC coverage by $1,634,549. Cash in Santa Clara County Treasury Santa Clara County is a fiscal agent of the District. The fair value of the District's investment in the county 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 investment pool funds were available for withdrawal on demand and had an average maturity date of less than one year. All cash and investments are stated at fair value. Pooled investment earnings are allocated monthly based on the average cash and investment balances of the various funds of the County. California Local Agency Investment Fund The District is a participant in the Local Agency investment Fund (LAIF) that is regulated by California Government Code Section 16429 under the oversight of the Treasurer of the State of California. The District reports its investment in LAIF at the fair value amount provided by LAIF, which is the same as the value of the pool share. The balance is available for withdrawal on demand, and is based on the accounting records maintained by LAIF, 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, 2014, these investments had an average maturity date of less than one year. Investments Authorized by Debt Agreements The District must maintain required amounts of cash and investments with trustees or fiscal agents under the terms of certain debt issues. These funds are used if the District fails to meet its obligations under these debt issues. Restricted for Debt Service The District has moneys held by Bank of New York as trustee, pledged to the payment or security of its outstanding bond issues. All transactions associated with debt serve are administered by the Bank. The cash and investment amounts were $1,620,515 as of March 31, 2014. Cash Restricted for Hawthorne Property Maintenance On November 10, 2011, the District received the gift of the 79 acre Hawthorne property, in Portola Valley, California, and an endowment of $2,018,445 to manage the property in perpetuity. The cash balance restricted for this purpose at March 31, 2014 was $1,709,132. Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 25 Policies and Practices 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 Remaining Maturity Maximum Percentage of Portfolio Maximum Investment In One Issuer Medium Term Notes 5 years 30% No Limit Money Market and Mutual Funds N/A 20% 10% U.S. Treasury Obligations 5 years No Limit No Limit Federal Agency Securities 5 years No Limit No Limit Banker's Acceptance 180 days 40% 30% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 5 years 30% No Limit Repurchase Agreements 1 year No Limit No Limit Reverse Repurchase Agreements 92 days 20% No Limit Local Agency Investment Fund (LAIF) N/A $40 million per account No Limit a) Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to the changes in market interest rates. The District manages its exposure to interest rate risk by investing in the Santa Clara County investment pool and LAIF, which had fair values of approximately $4.6 billion and $57.6 billion, respectively as of March 31, 2014. b) Credit Risk Credit risk is the risk of loss due to the failure of the security issuer. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The investment with the County’s investment pool is governed by the County’s general investment policy. The County’s investments in 2013-14 included U.S. government securities or obligations explicitly guaranteed by the U.S. government that are not considered to have credit risk exposure. The County’s two other investment types, LAIF and money market mutual funds, are not rated. c) Custodial Credit Risk – Deposits Custodial credit risk is the risk that in the event of a bank failure, the District’s deposits may not be returned to it. The District does not have a policy for custodial credit risk for deposits. However, the California Government code requires that a financial institution secure deposits made by State or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under State law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110 percent of the total amount deposited Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 26 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 percent of the secured public deposits and letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105 percent of the secured deposits. d) Concentration of Credit Risk The District was not exposed to concentration of credit risk because it had no investments in any one issuer that exceeded 5% of its total investment portfolio. 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, 2014 was $183,164. NOTE 4 - CAPITAL ASSETS AND DEPRECIATION Capital asset activity for the year ended March 31, 2014, is shown below: Balance Transfers/ Balance Description March 31, 2013 Additions Deletions Adjustments March 31, 2014 Non-depreciable Capital Assets: Land and land improvements 379,410,829$ 3,906,775$ -$ 191,561$ 383,509,165$ Construction in progress 4,396,366 2,557,080 (57,276) (2,186,363) 4,709,807 Total non-depreciable capital assets 383,807,195 6,463,855 (57,276) (1,994,802) 388,218,972 Depreciable Capital Assets: Structure and Improvements 14,675,675 224,210 - - 14,899,885 Infrastructure 6,414,048 231,287 - 1,994,802 8,640,137 Equipment 1,509,218 215,293 - - 1,724,511 Vehicles 2,794,237 350,924 - - 3,145,161 Total depreciable capital assets 25,393,178 1,021,714 - 1,994,802 28,409,694 Less accumulated depreciation for: Structure and improvements 7,278,580 419,443 - - 7,698,023 Infrastructure 1,267,684 360,772 - - 1,628,456 Equipment 733,541 106,546 - - 840,087 Vehicles 1,330,958 208,201 - - 1,539,159 Total accumulated depreciation 10,610,763 1,094,962 - - 11,705,725 Total depreciable capital assets - net 14,782,415 (73,248) - 1,994,802 16,703,969 Total capital assets - net 398,589,610$ 6,390,607$ (57,276)$ -$ 404,922,941$ Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 27 NOTE 5 – LONG-TERM DEBT The following is a summary of the changes in long-term debt for the year ended March 31, 2014: Balance Balance Due Within Long-term Obligations April 01, 2013 Additions Deductions March 31, 2014 One Year Promissory Notes: Current Interest 20,595,092$ -$ 1,703,888$ 18,891,204$ 1,650,096$ Capital Appreciation 15,474,708 - - 15,474,708 - Accreted interest 968,830 950,165 - 1,918,995 - Unamortized Bond Premium 2,078,675 - 67,391 2,011,284 67,391 Subtotal Promissory Notes 39,117,305 950,165 1,771,279 38,296,191 1,717,487 Revenue Bonds: Current Interest 100,690,000 - 1,295,000 99,395,000 1,495,000 Capital Appreciation 1,340,010 - - 1,340,010 - Accreted interest 833,779 116,990 - 950,769 - Unamortized Bond Premium 273,108 - 96,182 176,926 96,182 Subtotal Revenue Bonds 103,136,897 116,990 1,391,182 101,862,705 1,591,182 Compensated Absences 1,475,939 - 212,026 1,263,913 189,615 Total Long-term Obligations 143,730,141$ 1,067,155$ 3,374,487$ 141,422,809$ 3,498,284$ Promissory Notes Daloia Land Purchase Contract Promissory Note During the fiscal year ending 2003 the District entered into a land purchase contract promissory note in the amount of $240,000. The promissory note bears interest at a fixed rate of 6.25% and matures October 10, 2017. At March 31, 2014, the outstanding balance of the Daloia Land Contract note was $81,205. Hunt Living Trust Promissory Note On April 1, 2003, the District entered into a $1,500,000 promissory note with the Hunt Living Trust as part of a lease and management agreement. The note is due in full on April 1, 2023 and bears interest at 5.5% semi-annually through April 1, 2013 and 5.0% per annum until the maturity, or prior redemption, of the note. At March 31, 2014, the outstanding balance on the note was $1,500,000. 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, 2014, the outstanding balance was $1,210,000. 2010 Bergman Note On Nov 30, 2010, the District issued a promissory note with Principal of $850,000 and interest of 4% to finance the purchase of land. Interest is due on a quarterly basis beginning February 28, 2011 and Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 28 mature on November 30, 2015. The principal is due in full at maturity. At March 31, 2014, the outstanding balance was $850,000. 2012 Refunding Promissory Notes On January 19. 2012, the District advance refunded $34,652,643 in 1999 lease revenue bonds by issuing $31,264,707 in promissory notes. The 2012 notes bear interest rates ranging from 2.00% to 6.04%. The notes are a blend of current interest and capital appreciation notes maturing through 2042. The net proceeds of $33,295,663 (after payment of $278,683 in underwriting fees, insurance, and other issuance costs and a premium of $2,309,638) were used to purchase U.S government securities. Those securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the 1999 Series bonds. As a result, the 1999 Series bonds are considered to be defeased and the liability for those bonds has been removed from the long-term debt in the financial statements. At March 31, 2014, the outstanding balance of the notes, including accreted interest of $1,918,995, was $32,643,702. Revenue Bonds 2004 Revenue Bonds On January 20, 2004, the Authority on behalf of the District, issued $31,900,010 of 2004 Revenue Bonds for the purpose of acquiring land to preserve and use as open space, repay a portion of a 1995 Promissory Note, purchase a reserve fund surety policy, and pay bond issue costs. The bonds consist of Current Interest and Capital Appreciation Bonds. The Current Interest Bonds bear interest at 2.0% to 5.4% and are due semi-annually on March 1 and September 1. The Capital Appreciation Bonds accrete interest at 5.2% to 5.53% 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, 2014, the outstanding balance of these bonds was $29,615,010. 2007 Series A Revenue Refunding Bonds and Series B-T Taxable Revenue Refunding Bonds On December 15, 2006 the District issued six series of promissory notes (2007 District Notes) for the purpose of refunding its 1996 Project Lease, 1996 Promissory Notes, 1999 Project Lease, and 1999 Promissory Notes. On December 15, 2006 the Authority, on behalf of the District, issued $52,415,000 of 2007 Series A Revenue Refunding Bonds and $6,785,000 of 2007 Series B-T Taxable Revenue Refunding Bonds for the purpose of defeasing the aggregate purchase price of the 2007 District Notes. The Series A bonds bear interest from 4.0% to 5.0% and Series B-T bonds bear interest at 5.15%. Interest for both series A and B-T are due semiannually on March 1 and September 1. Principal payments for the Series A bonds began September, 2012 and are due annually, thereafter. Principal payments for the Series B-T bonds are due annually on September 1. At March 31, 2014 the outstanding balance of the 2007 Series A Bonds is $50,665,000. There is no remaining balance on the 2007 Series B-T Bonds. Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 29 2011 Revenue Bonds On May 19, 2011, the Authority, on behalf of the District, issued $20,500,000 of 2011 Revenue Bonds for the purpose of acquiring land to preserve and use as open space and pay bond issue and related costs. The Bonds are not general obligations. Each year, the District will appropriate revenues-mainly limited properly tax collections that Santa Clara County and San Mateo County allocate to the District – to pay its obligations under a Lease Agreement for use and occupancy of District land in addition to other District debt and lease obligations unrelated to this financing. The Current Interest Bonds bear interest at 2.0% to 6.0% and are due semi-annually on March 1 and September 1. Principal payments on the Current Interest Bonds are due annually September 1. At March 31, 2014, the outstanding balance of these bonds was $20,455,000. The following schedule summarizes the District’s outstanding Promissory Notes and Revenue Bonds as of March 31, 2014: Year of Interest Year of Original Outstanding Outstanding Long Term Debt Type Issue Rate Maturity Issue April 01, 2013 Additions Retirements March 31, 2014 Promissory Notes: Daloia Note Current Interest 2003 6.25% 2018 240,000$ 100,093$ -$ 18,888$ 81,205$ Hunt Note Current Interest 2004 5.00 - 5.50% 2024 1,500,000 1,500,000 - - 1,500,000 2005 Refunding Note Current Interest 2006 3.25 - 5.00% 2016 4,630,000 2,355,000 - 1,145,000 1,210,000 Bergman Note Current Interest 2011 4.00% 2016 850,000 850,000 - - 850,000 2012 Refunding Note Current Interest 2012 2.00 - 6.04% 2042 15,790,000 15,789,999 - 540,000 15,249,999 2012 Refunding Note CAB 2012 2.00 - 6.04% 2042 15,474,707 15,474,708 - - 15,474,708 Subtotal Promissory Notes 38,484,707 36,069,800 - 1,703,888 34,365,912 Revenue Bonds: 2004 Revenue Bonds Current Interest 2004 2.00 - 5.40% 2035 30,560,000 28,895,000 - 620,000 28,275,000 2004 Revenue Bonds CAB 2004 5.20 - 5.53% 2028 1,340,010 1,340,010 - - 1,340,010 2007 Series A Refunding Current Interest 2007 4.00 - 5.00% 2028 52,415,000 51,295,000 - 630,000 50,665,000 2011 Lease Revenue Current Interest 2012 2.00 - 6.00% 2042 20,500,000 20,500,000 - 45,000 20,455,000 Subtotal Revenue Bonds 104,815,010 102,030,010 - 1,295,000 100,735,010 Accreted Interest: 2012 Refunding Note 968,830 950,165 - 1,918,995 2004 Revenue Bonds 833,779 116,990 - 950,769 Subtotal Accreted Interest 1,802,609 1,067,155 - 2,869,764 Unamortized Bond Premium 2,351,783 - 163,573 2,188,210 Total Long Term Debt 143,299,717$ 142,254,202$ 1,067,155$ 3,162,461$ 140,158,896$ Promissory Notes future debt service requirements as of March 31, 2014 were as follows: Year Ending March 31, Principal Remaining Accretion Interest Total 2015 1,650,096$ -$ 831,875$ 2,481,971$ 2016 1,226,382 - 782,314 2,008,696 2017 387,750 - 744,646 1,132,396 2018 396,977 - 730,116 1,127,093 2019 395,000 - 714,050 1,109,050 2020-2024 3,700,000 - 3,257,225 6,957,225 2025-2029 7,540,000 - 2,200,275 9,740,275 2030-2034 10,175,601 11,202,899 89,875 21,468,375 2035-2039 6,041,487 17,004,488 - 23,045,975 2040-2042 2,852,619 18,268,911 - 21,121,530 Total Debt Service 34,365,912$ 46,476,298$ 9,350,376$ 90,192,586$ Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 30 Revenue Bonds future debt service requirements as of March 31, 2014 were as follows: Year Ending March 31, Principal Remaining Accretion Interest Total 2015 1,495,000$ -$ 4,916,630$ 6,411,630$ 2016 3,260,000 - 4,810,530 8,070,530 2017 3,960,000 - 4,647,855 8,607,855 2018 4,245,000 - 4,456,905 8,701,905 2019 4,545,000 - 4,246,515 8,791,515 2020-2024 25,226,468 324,942 18,558,988 44,110,398 2025-2029 25,433,542 1,263,475 13,229,396 39,926,413 2030-2034 14,265,000 - 6,724,188 20,989,188 2035-2039 7,710,000 - 3,237,069 10,947,069 2040-2042 10,595,000 - 1,519,313 12,114,313 Total Debt Service 100,735,010$ 1,588,417$ 66,347,389$ 168,670,816$ Amortization of the deferred loss on early retirement of long-term debt for the fiscal year ended March 31, 2014 was as follows: Beginning Balance, at April 1, 2013 3,301,608$ Net Change (339,194) Ending Balance, at March 31, 2014 2,962,414$ NOTE 6 – RENTAL INCOME The District rents certain land and structures to other entities under operating leases with terms generally on a month-to-month basis. Rental income of $1,115,570 was received during the year ended March 31, 2014. NOTE 7 - EMPLOYEE RETIREMENT SYSTEMS Pension Plan All permanent District employees are eligible to participate in the pension plan offered by California Public Employees Retirement System (CALPERS) an agent multiple employer defined benefit pension plan with acts as a common investment and administrative agent for its participating member employers. CALPERS provides retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. The District's employees participate in the Miscellaneous (non safety) Employee Plan. Benefit provisions under the Plan are established by State statute and District resolution. Benefits are based on years of credited service, equal to one year of full time employment. Funding contributions for the Plan are determined annually on an actuarial basis as of June 30 by CALPERS; the District must contribute these amounts. Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 31 The pension plans' provisions and benefits in effect at March 31, 2014, are summarized as follows: Benefit vesting schedule 5 years service Benefit payments Monthly for life Retirement age 55 Monthly benefits, as a % of annual salary 2.0-2.5% Required employee contribution rates 7.89% Required employer contribution rates 17.04% CALPERS determines contribution requirements using a modification of the Entry Age Normal Method. Under this method, the District's total normal benefit cost for each employee from date of hire to date of retirement is expressed as a level percentage of the related total payroll cost. Normal benefit cost under this method is the level amount the District must pay annually to fund an employee's projected retirement benefit. This level percentage of payroll method is used to amortize any unfunded actuarial liabilities. The actuarial assumptions used to compute contribution requirements are also used to compute the actuarial accrued liability. The District does not have a net pension obligation since it pays these actuarially required contributions bi-weekly. CALPERS uses the market related value method of valuing the Plan's assets. An investment rate of return of 7.50% is assumed, including inflation at 2.75%. 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 State law, effective July l, 2005, the District's Miscellaneous Plan was terminated, and the employees in the plan were required by CALPERS to join new State-wide pools. One of the conditions of entry to these pools was that the District true-up any unfunded liabilities in the former Plans, either by paying cash or by increasing its future contribution rates through a Side Fund offered by CALPERS. The District satisfied its Miscellaneous Plan's unfunded liability of $2,510,958 by agreeing to contribute that amount to the Side Fund through an addition to its normal contribution rates over the next 21 years. In 2013, the District made a one-time payment of $2,510,958 to eliminate the liability. The required contributions representing annual pension cost, for the year ended March 31 were as follows: Fiscal Year Ending Annual Pension Cost (APC) Percentage of APC Contributed Net Pension Obligation 3/31/2014 1,461,069$ 100% -$ 3/31/2013 4,298,913 100% - 3/31/2012 1,572,759 100% - Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 32 The latest available actuarial values of the above State-wide pools (which differs from market value) and funding progress were set forth as follows. The information presented below relates to the State- wide pools as a whole, of which the District is one of the participating employers: Valuation Date Accrued Liability Value of Assets Unfunded (Overfunded) Liability Funded Ratio Annual Covered Payroll Unfunded (Overfunded) Liability as % of Payroll 6/30/2012 2,254,622,362 1,837,489,422 417,132,490 81.50% 339,228,272 122.97% Audited annual financial statements are available from CALPERS at PO Box 942709, Sacramento, CA 94229-2709. Other Postemployment Benefits (OPEB) Plan Description 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. The District Board authorized a deposit of $1,900,000 in CERBT on June 5, 2008, to begin funding its OPEB liability. By Board resolution and through agreements with its labor unit, the District provides certain health care benefits for retired employees (spouse and dependents are not included) under third-party insurance plans. A summary of eligibility and retiree contribution requirements are shown below: 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) Retiree Medical Benefit District pays retiree premiums up to: $350 per month effective 1/1/2009 Must be at least equal to statutory PEMHCA minimum ($115 in 2013, $119 in 2014) PEMHCA Administrative Fee District pays CalPERS administrative fees (0.33% of premiums for 2013/14) Surviving Spouse Continuation Retiree benefit continues to surviving spouse if retiree elects survivor annuity under CalPERS retirement plan Other OPEB None As of March 31, 2014, approximately 99 active employees and 21 retirees were eligible to receive retirement health care benefits. Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 33 Funding Policy In accordance with the District's budget, the Annual Required Contribution (ARC) is to be funded throughout the year as a percentage of payroll. Concurrent with implementing Statement No. 45, the District’s Board of Directors passed a resolution to participate in CERBT, an irrevocable trust established to fund OPEB. CERBT is managed by an appointed board not under the control of the District. This Trust is not considered a component unit by the District and has been excluded from these financial statements. Separately issued financial statements for CERBT may be obtained from CALPERS at P.O. Box 942709, Sacramento, CA 94229-2709. Annual OPEB Cost and Net OPEB Obligation The District’s annual OPEB cost is calculated based on the ARC, an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of the District’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the District’s net OPEB obligation: Annual required contribution $ 225,000 Interest on net OPEB asset Adjustment to annual required contribution 120,000 Annual OPEB cost (expense) 265,000 Contributions made Dncrease in net OPEB asset 93,381 Net OPEB obligation (asset) - beginnin g Net OPEB obligation (asset) - ending (80,000) (171,619) (1,097,306) $ (1,003,925) The District’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2014 was as follows: Fiscal Net OPEB Year Annual Percentage of Annual Obligation/ Ended OPEB Cost Cost Contributed (Asset) March 31, 2012 $ 179,255 0% (1,334,306)$ March 31, 2013 237,000 0% (1,097,306) March 31, 2014 265,000 65% (1,003,925) Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 34 Funded Status and Funding Progress The most recent actuarial valuation date was June 30, 2013. The following summarizes the funded status of the plan as of March 31, 2014: $ 2,786,000 2,339,701 $ 446,299 84% $ 8,043,000 6% Funded ratio (actuarial value of plan assets/AAL) Projected covered payroll (active Plan members) UAAL as a percentage of covered payroll Actuarial accrued liability (AAL) Value of plan assets Unfunded actuarial accrued liability (UAAL) Actuarial Methods and Assumptions The ARC was determined as part of a June 30, 2013 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) 6.25% to 7.25% investment rate of return, (b) 3.25% projected annual salary increase, and (c) health inflation increases of 0% for 1 year, 1.5% for the next 5 years, and 3% thereafter. The actuarial methods and assumptions used include techniques that smooth the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets. Actuarial calculations reflect a long-term perspective and actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to revision at least biannually as results are compared to past expectations and new estimates are made about the future. The District's OPEB unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll using a 30 year open amortization period. NOTE 8 - JOINT VENTURES (JOINT POWERS AGREEMENTS) The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; injuries to employees; and natural disasters. Prior to July 1, 2002, the District managed and financed these risks by purchasing commercial insurance. On July 1, 2002, the District joined the California Joint Powers Insurance Authority (CAL JPIA). CAL JPIA is composed of 119 California public entities and is organized under a joint powers agreement pursuant to California Government Code Section 6500 et seq. The purpose of CAL JPIA is to arrange and administer programs for the pooling of self-insurance losses, to purchase excess insurance or reinsurance, and to arrange for group-purchased insurance for property and other coverages. CAL JPIA's pool began covering claims of its members in 1978. Each member government has an elected official as its representative on the Board of Directors. The Board operates through a 9-member Executive Committee. During the past three fiscal years, none of the programs of protection have had settlements or judgments that exceeded pooled or insured coverage. There have been no significant reductions in pooled or insured liability coverage from coverage in the prior year. Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 35 Self-Insurance Programs of the CAL JPIA General and Automobile Liability Each government member pays a primary deposit to cover estimated losses for a fiscal year (claims year). General liability (GL) coverage includes bodily injury, personal injury, or property damage to a third party resulting from a member activity. The GL program also provides automobile liability coverage. Six months after the close of a fiscal year, outstanding claims are valued. A retrospective deposit computation is then made for each open claims year. Costs are spread to members as follows: the first $30,000 to $750,000 are pooled based on member's share of costs under $30,000; costs in excess of $750,000 are shared by the members based upon each individual member's payroll. Costs of covered claims above $5,000,000 are currently paid by reinsurance. The protection for each member is $50,000,000 per occurrence, up to $50,000,000. Worker's Compensation The District also participates in the Worker's Compensation program administered by CAL JPIA. Pool deposits and retrospective adjustments are valued in a manner similar to the General Liability pool. The District is charged for the first $50,000 of each claim. Costs from $50,000 to $100,000 per claim are pooled based on the member's losses under its retention level. Costs between $100,000 and $2,000,000 per claim are pooled based on payroll. Costs from $2,000,000 to $5,000,000 are paid by excess insurance purchased by CAL JPIA. The excess insurance provides coverage to statutory limits. Purchased Insurance Environmental Insurance The District participates in the Pollution and Remediation Legal Liability Program, which is available through CAL JPIA. The policy provides coverage for both first and third party damages, including sudden and gradual pollution at or from property, streets, sanitary sewer trunk lines and storm drain outfalls owned by the District. Coverage is on a claims-made basis. There is a $50,000 deductible. CAL JPIA has a limit of $50,000,000 for the 3-year period from July 1, 2008 through July 1, 2011. Each member of CAL JPIA has a $10,000,000 aggregate limit during the 3-year policy term. Property Insurance The District participates in the All-Risk property program of CAL JPIA which includes all-risk coverage for real and personal property (such as buildings, office furniture, equipment, vehicles, etc). This insurance is underwritten by several insurance companies. Property is currently insured according to a schedule of covered property submitted by the District to CAL JPIA. The All-Risk deductible is $5,000 per occurrence; $1,000 for non-emergency vehicles. Premiums for the coverage are paid annually and are not subject to retroactive adjustments. Boiler & Machinery Insurance The District participates in the optional coverage for boiler and machinery, which is purchased separately under the property program. Coverage is for physical damage for sudden and accidental breakdown of boilers and machinery, and electrical injury. There is a $5,000 per accident or occurrence deductible. Midpeninsula Regional Open Space District Notes to the Basic Financial Statements For the Fiscal Year Ended March 31, 2014 36 Crime Insurance The District participates in the crime program of CAL JPIA in the amount of $1,000,000 per claim, with a $2,500 per occurrence deductible. Insurance provides coverage for employee dishonesty, failure to faithfully perform duties, forgery, counterfeiting, theft, robbery, burglary, and computer fraud. Premiums are paid annually and are not subject to retroactive adjustments. Special Event Tenant User Liability Insurance The District participates in the special events program of CAL JPIA which provides liability insurance when District promises are used for special events. The insurance premium is paid by the tenant user to the District according to a schedule. The District then pays the insurance arranged through CAL JPIA. There is no deductible and the District is added as additional insured. Liability limits are purchased in $1 million per occurrence increments. Special Event Tenant User Liability Insurance. The District participates in the special events program of CAL JPIA which provides liability insurance when District promises are used for special events. The insurance premium is paid by the tenant user to the District according to a schedule. The District then pays the insurance arranged through CAL JPIA. There is no deductible and the District is added as additional insured. Liability limits are purchased in $1 million per occurrence increments. Vendors/Contractors Program General liability coverage is provided to vendors/contractors who otherwise could not contract with the District as they could not meet the minimum insurance requirement: $1 million per occurrence, $1 million in aggregate. NOTE 9 - COMMITMENTS AND CONTINGENCIES Litigation The District may be exposed to various claims and litigation during the normal course of business. However, management believes there were no matters that would have a material adverse effect on the District’s financial position or results of operations as of March 31, 2014. NOTE 10 – SUBSEQUENT EVENTS Management has reviewed subsequent events and transactions that occurred after the date of the financial statements through the date the financial statements were issued. The financial statements include all events or transactions, including estimates, required to be recognized in accordance with generally accepted accounting principles. On June 3, 2014, voters approved Measure AA, a general obligation bond measure authorizing the District to issue up to $300 million in bonds, at a tax rate not to exceed $3.18 per $100,000 of assessed value of property owned, and with expenditures verified by an independent citizen oversight committee. The bond funds will be utilized to add trails and trail connections, open new preserves, protect redwood forests, preserve farmland, restore wetlands and streams, provide habitat connectivity and reduce fire risk. The funding for this bond measure will be used toward the 25 highest priority projects. As of June 5, 2014, the date of issuance of the financial statements, no Measure AA bonds were issued. Management has concluded that no liability exists for the Measure AA bonds as of March 31, 2014. REQUIRED SUPPLEMENTARY INFORMATION Variance with Final Budget Actual Positive - Original Final (GAAP Basis) (Negative) Revenues: Property taxes 30,285,000$ 31,723,000$ 32,433,076$ 710,076$ Grant income 2,386,000 2,234,927 1,900,702 (334,225) Property management 1,390,000 1,390,000 1,422,095 32,095 Investment earnings 280,000 280,000 163,215 (116,785) Land Donation 1,500,000 1,500,000 - (1,500,000) Other revenues 205,000 205,000 144,762 (60,238) Total revenues 36,046,000 37,332,927 36,063,850 (1,269,077) Expenditures: Current Salaries and employee benefits 13,699,239 13,699,239 13,078,635 620,604 Services and supplies 4,920,501 5,032,001 4,224,310 807,691 Capital outlay 13,511,708 13,441,208 8,230,927 5,210,281 Total expenditures 32,131,448 32,172,448 25,533,872 6,638,576 Excess (deficiency) of revenues over (under) expenditures 3,914,552 5,160,479 10,529,978 5,369,499 Other financing sources (uses): Transfers in - - - - Transfers out (8,874,965) (8,874,965) (8,858,244) 16,721 Total other financing sources (uses) (8,874,965) (8,874,965) (8,858,244) 16,721 Net change in fund balance (4,960,413) (3,714,486) 1,671,734 5,386,220 Fund balance beginning 37,513,062 37,513,062 37,513,062 - Fund balance ending 34,523,689$ 35,769,616$ 41,155,836$ 5,386,220$ Budgeted Amounts Midpeninsula Regional Open Space District Budget to Actual (GAAP) For the Fiscal Year Ended March 31, 2014 Schedule of Revenues, Expenditures and Changes in Fund Balance General Fund 37 Midpeninsula Regional Open Space District Schedule of Funding Progress – Other Postemployment Benefits For the Fiscal Year Ended March 31, 2014 38 Actuarial Accrued UAAL as Actuarial Liability Unfunded a Percentage Actuarial Value of (AAL) AAL Funded Covered of Covered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (a) (b) (b-a) (a/b) (c) ((b-a/c)) 3/31/2010 1,894,000$ 1,500,000$ (394,000)$ 126.27% 5,772,000$ -6.83% 6/30/2011 2,058,000 1,844,000 (214,000) 111.61% 7,331,000 -2.92% 6/30/2013 2,035,000 2,555,000 520,000 79.65% 8,043,000 6.47% SUPPLEMENTARY INFORMATION Midpeninsula Regional Open Space District Schedule of Expenditures of Federal Awards For the Fiscal Year Ended March 31, 2014 39 FEDERAL CATALOG PROGRAM PROGRAM NAME NUMBER EXPENDITURES U.S Department of Defense Community Economic Adjustment Almaden AFS Midpeninsula (SP), SP1024-10-01 (1)12.600 1,241,196$ Total Expenditures of Federal Awards 1,241,196$ (1)Audited as major program Midpeninsula Regional Open Space District Notes to Schedule of Expenditures of Federal Awards For the Fiscal Year Ended March 31, 2014 40 1. General The accompanying Schedule of Expenditures of Federal Awards presents activity of the federal financial assistance programs of the District All federal financial assistance received directly from federal agencies, as well as federal financial assistance passed through other government agencies, is included in this schedule. 2. Significant Accounting Policies The accompanying Schedule of Expenditures of Federal Awards is presented using the modified accrual basis of accounting, which is described in Note 1. Federal programs are labeled either as Type A or Type B. Type A programs are defined as based on the following criteria: Type A program means any program with all federal More than Equal to or less than expenditures that exceed: $300,000 $10 million $300,000 $10 million $100 million 3% of federal awards $100 million $1 billion $3 million $1 billion $10 billion 0.3% of federal awards $10 billion $20 billion $30 million $20 billion 0.15% of federal awards When total cash and noncash expenditures of federal awards for programs are: Federal programs not labeled Type A as described above are labeled Type B programs. 3. Relationship to the Basic Financial Statements The amounts reported in the accompanying Schedule of Expenditures of Federal awards agrees, in all material respects, to amounts reported within the District’s financial statements. Federal award revenues are reported principally in the District’s financial statements as grant income. 4. Relationship to Federal Financial Reports Amounts reported in the accompanying Schedule of Expenditures of Federal Awards agree or can be reconciled with the amounts reported or to be reported in the federal financial reports. 5. Pass-Through Entities' Identifying Number When federal awards were received from a pass-through entity, the Schedule of Expenditures of Federal Awards shows, if available, the identifying number assigned by the pass-through entity. When no identifying number is shown, the District has determined that no identifying number is assigned for the program or the District was unable to obtain an identifying number from the pass- through entity. OTHER INDEPENDENT AUDITOR’S REPORTS Page | 41 1475 Saratoga Ave, Suite 180, San Jose, CA 95129 Tel: 408-217-8749 • E-Fax: 408-872-4159 info@cnallp.com • www.cnallp.com INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Board of Directors Midpeninsula Regional Open Space District Los Altos, California We have audited, 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, the financial statements of the District as of and for the year ended March 31, 2014, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements, and have issued our report thereon dated June 5, 2014. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the District’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the District’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not Page | 42 1475 Saratoga Ave, Suite 180, San Jose, CA 95129 Tel: 408-217-8749 • E-Fax: 408-872-4159 info@cnallp.com • www.cnallp.com express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. June 5, 2014 San Jose, California Page | 43 1475 Saratoga Ave, Suite 180, San Jose, CA 95129 Tel: 408-217-8749 • E-Fax: 408-872-4159 info@cnallp.com • www.cnallp.com INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Board of Directors Midpeninsula Regional Open Space District Los Altos, California Report on Compliance for Each Major Federal Program We have audited the Midpeninsula Open Space District’s (the District) compliance with the types of compliance requirements described in OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of the District’s major federal programs for the year ended March 31, 2014. The District’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the District’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A- 133, Audits of States, Local Governments, and Non‑Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the District’s compliance. Opinion on Each Major Federal Program In our opinion, the District complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended. Page | 44 1475 Saratoga Ave, Suite 180, San Jose, CA 95129 Tel: 408-217-8749 • E-Fax: 408-872-4159 info@cnallp.com • www.cnallp.com Report on Internal Control over Compliance Management of the District is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the District’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Purpose of Report The purpose of this report is solely to describe the scope of our testing of internal control over financial reporting and compliance, and the result of that testing, and not to provide an opinion on the effectiveness of the District’s internal control over financial reporting or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control over financial reporting and compliance. Accordingly, this report is not suitable for any other purpose. June 5, 2014 San Jose, California Midpeninsula Regional Open Space District Schedule of Findings and Questioned Costs For the Fiscal Year Ended March 31, 2014 45 Section I - Summary of Auditor’s Results Financial Statements: Type of auditor's report issued Internal control over financial reporting: Material weaknesses? Yes X No Significant deficiencies identified not considered to be material weaknesses? Yes X No Non-compliance material to financial statements noted? Yes X No Federal Awards: Internal control over major programs: Material weaknesses? Yes X No Significant deficiencies identified not considered to be material weaknesses? Yes X No Type of auditor's report issued on compliance over major progra ms Any audit findings disclosed that are required to be reported in accordance with Circular A-133 Section .510(a) Yes X No Identification of Major Programs: CFDA Numbers Name of Federal Program Dollar threshold used to distinguish between type A and type B programs: Auditee qualified as low risk auditee? X Yes No 300,000$ Unmodified Unmodified 12.600 Community Economic Adjustment Section II - Financial Statement Findings None Section III - Federal Award Findings and Questioned Costs None Midpeninsula Regional Open Space District Status of Prior Year’s Findings and Recommendations For the Fiscal Year Ended March 31, 2014 46 Section II - Financial Statement Findings None Section III - Federal Award Findings and Questioned Costs None R-14-146 Meeting 14-33 November 25, 2014 FINANCING AUTHORITY AGENDA ITEM 2 Resolution Authorizing the Execution and Delivery of Documents in Connection with the Refinancing of the 2004 Revenue Bonds EXECUTIVE DIRECTOR AND CONTROLLER’S RECOMMENDATION Adopt a Resolution of the Board of Directors of the Midpeninsula Regional Open Space District Financing Authority authorizing the execution and delivery of documents in connection with the refinancing of the Authority’s outstanding 2004 Revenue Bonds, and approving related documents and official actions. DISCUSSION In order to achieve significant cash flow savings over the next 20 years, District staff is proposing to refinance the Authority’s $29.8 million of outstanding 2004 Revenue Bonds through the issuance of approximately $31 million of 2014 Refunding Promissory Notes. This proposed transaction is described in District board report number R-14-145, dated November 25, 2014. There is no benefit to utilizing the Authority on the proposed transaction. However, the Authority must authorize and execute the Escrow and Deposit Agreement related to the refinancing of its 2004 Revenue Bonds. Attachment 1. Resolution Authorizing the Execution and Delivery of Documents in Connection with the Refinancing of the Authority’s Outstanding 2004 Revenue Bonds, and Approving Related Documents and Official Actions Prepared by: Stephen Abbors, Executive Director Michael Foster, Controller Resolutions/2014/14-__-FA_2004 Bond Refinancing 1 RESOLUTION NO. 14-___-FA RESOLUTION OF THE BOARD OF DIRECTORS OF THE MIDPENINSULA REGIONAL OPEN SPACE DISTRICT FINANCING AUTHORITY AUTHORIZING THE EXECUTION AND DELIVERY OF DOCUMENTS IN CONNECTION WITH THE REFINANCING OF THE AUTHORITY’S OUTSTANDING 2004 REVENUE BONDS, AND APPROVING RELATED DOCUMENTS AND OFFICIAL ACTIONS WHEREAS, the Midpeninsula Regional Open Space District (the “District”) previously entered into a Project Lease dated as of January 1, 2004 (the “2004 Project Lease”), with the Midpeninsula Regional Open Space District Financing Authority (the “Authority”) for the purpose of (i) financing the acquisition of open space, (ii) refunding on an advance basis a portion of its 1995 Promissory Notes and (iii) prepaying on a current basis the District’s outstanding Certificates of Participation (1993 Open Space Project); and WHEREAS, the Authority issued its 2004 Revenue Bonds (the “2004 Bonds”) pursuant to an Indenture dated as of January 1, 2004 (the “2004 Indenture”), by and between the Authority and The Bank of New York Mellon Trust Company, N.A., as successor trustee (the “2004 Trustee”); and WHEREAS, the 2004 Bonds were secured by and payable from the Base Rental Payments payable by the District under the 2004 Project Lease (the “2004 Base Rental Payments”); and WHEREAS, the District wishes to refinance the 2004 Project Lease and the 2004 Bonds; and WHEREAS, to that end, the District has proposed to issue and sell its Midpeninsula Regional Open Space District 2014 Refunding Promissory Notes (2004 Project Lease) (the “2014 Notes”) under the provisions of Article 3 of Chapter 3 of Division 5 of the Public Resources Code of the State of California (the “Bond Law”); and WHEREAS, in order to accomplish the prepayment of the 2004 Base Rental Payments and redemption and defeasance of the 2004 Bonds, the District, the Authority and the 2004 Trustee will enter into an Escrow Deposit and Trust Agreement (the “Escrow Agreement”); and WHEREAS, the Board of Directors wishes at this time to approve all proceedings to which it is a party relating to the issuance and sale of the 2014 Notes and the refinancing of the 2004 Project Lease and the 2004 Bonds; NOW, THEREFORE, BE IT RESOLVED, DETERMINED AND ORDERED by the Board of Directors of the Midpeninsula Regional Open Space District Financing Authority, as follows: SECTION 1. Approval of Refinancing and Escrow Agreement. The prepayment of the 2004 Base Rental Payments and the refinancing of the 2004 Project Lease and the 2004 Bonds are hereby approved. The Chairperson, the Treasurer or the Controller (each, an “Authorized Officer”), are, and each of them acting alone is, hereby authorized and directed, for 2 and in the name of and on behalf of the Authority, to execute the Escrow Agreement in the form on file with the Secretary, together with any changes therein or additions thereto approved by an Authorized Officer, whose execution thereof shall be conclusive evidence of approval of any such additions and changes, and such other documents as the Authorized Officer determine are necessary to effectuate such refunding. SECTION 2. Approval of Refinancing. The refinancing of the 2004 Project Lease and the 2004 Bonds is hereby approved, subject to achieving debt service savings in an amount acceptable to the Controller; issuance of the 2014 Notes by the District in an amount sufficient to refinance the 2004 Project Lease and the 2004 Bonds shall be conclusive evidence of the Controller’s approval. SECTION 3. Official Actions. The Authorized Officers, the Secretary, the Authority, general counsel, and all other officers of the Authority are each authorized and directed in the name and on behalf of the Authority to make any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance and other documents, which they or any of them deem necessary or appropriate in order to consummate any of the transactions contemplated by the agreements and documents approved under this Resolution, including, but not limited to, a termination agreement related to the termination of the 2004 Project Lease. Whenever in this resolution any officer of the Authority is authorized to execute or countersign any document or take any action, such execution, countersigning or action may be taken on behalf of such officer by any person designated by such officer to act on his or her behalf if such officer is absent or unavailable. SECTION 4. Effective Date. This Resolution shall take effect immediately upon its passage and adoption. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * The foregoing resolution was passed and adopted by the Board of Directors of the Midpeninsula Regional Open Space District Financing Authority at a special meeting held on the _______, 2014, by the following vote: AYES: NOES: ABSTAIN: ABSENT: ATTEST: APPROVED: Secretary Midpeninsula Regional Open Space District Financing Authority Chairperson Midpeninsula Regional Open Space District Financing Authority 3 APPROVED AS TO FORM: General Counsel