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HomeMy WebLinkAboutFiscal Year 2002-03 Financial StatementCITY OFNEWPORT BEACH CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2003 W �k -t I-V Comp rehensive,4nnual Financial Report For the Year Ended June 30, 2003 Prepared by the Administrative Services Department Dennis Danner, Director THE CITY OF NEWPORT BEACH WAS INCORPORATED SEPTEMBER 1, 1906 THE PRESENT CITY SEAL WAS ADOPTED JUNE ZZ, 1957 [fill :a:16'1 to] N[N_1 9 Founding Citizens of Long Ago The dramatic coastline of Newport Beach and its proximity to the water have always played a great part in the development of the City. The City's first inhabitants thousands of years ago were the Shoshone Indians who lived along the Pacific coast, supported by the abundance of the seas and fertile land. In the mid 1700's, the Spanish aristocrat and military leader Gaspar de Portola led an expedition to claim California frontier land for Spain. Portola enlisted the aid of Father Junipero Serra and numerous European soldiers to explore previously unmapped territory. Decades later in the 1800's, land holdings of the Capistrano Mission were parceled out as Spanish and Mexican land grants to great war heroes and aristocratic families. Later, many of the Spanish and Mexican landowners were forced to sell large tracts of their land. The most prominent landowners of the area, Don Jose Sepulveda and Don Bernardo Yorba, men whose combined holdings comprised Newport Beach's upper bay and lower bay, sold their tracts to American entrepreneurs by the names of Flint, Bixby, Irvine, and McFadden. The Enterprising McFaddens Santa Ana, Tustin, and Orange became new farming communities for the settlers who arrived by steamer and covered wagon. Not long after, hide and tallow businesses emerged. The first stirrings of commerce began when in 1870, a small stern wheeler from San Diego named "The Vaquero" made its first trip to a marshy lagoon to exchange lumber for hides, tallow, livestock, and grain. James McFadden of Santa Ana and other ranch owners in the Lower Bay decided from then on that the area should be called "Newport." Recognizing a lucrative opportunity, James McFadden and his brother Robert established a shipping business inside the bay. In 1888, the isolated settlement changed when James built a wharf that extended from the shallow bay of the peninsula to deeper water where large steamers could dock. Shipping activity increased dramatically, and in two years, Newport was known as a vibrant Southern California shipping town. Attracted by the activity, Pacific Electric Railroad established itself in Newport in 1905, connecting the city to Los Angeles by rail. Rapid transit brought camping families to the waterfront, and small hotels and beach cottages sprang up to cater to the emerging tourist industry. At about the same time, the McFadden brothers sold their holdings of Peninsula land. West Newport, East Newport, Bay Island, and Balboa became vacation communities in the beach boom decade. In 1906 with a population of 206 citizens, the scattered settlements were incorporated as the City of Newport Beach.' These early settlements soon filled in on the Peninsula, West Newport, Balboa Island, and Lido Isle, developing from West to East. Entrance Into a New Age Parts of Newport Heights and Corona del Mar were annexed soon after the turn of the century. Between 1934 and 1936, the federal government and the county undertook work around the harbor. They dredged the Lower Bay, extended the jetties, and created the present day contours of Newport Beach. In 1936, community members dedicated the City's main harbor, named Newport Harbor. Just six years later, during World War II, the harbor became a vital hub as naval ships were built and repaired in its coastal waters. The opening of Santa Ana Army Air Base, Army Air Force West Coast Training Center, and El Toro Marine Base followed soon after, attracting thousands of service personnel to Orange County. Newport Beach businesses flourished due in large part to this influx of new military personnel. At the end of the war, many service men and women decided to stay, triggering a real estate boom in Newport Beach. Seasonal rentals became year -round housing, and the City's identity as primarily a summer resort location began to change. The Santa Ana Freeway, built in the 1950's, brought even more citizens to the city. During this time, housing development began to spread northward from the waterfront to the hills and mesa areas. The subdivision patterns changed, becoming less traditional, with non - linear streets and sprawling, ranch -style homes on larger lots. Industries changed too, as the fishing industry, once the backbone of Newport Beach's economy, gradually declined to be replaced with vibrant new businesses and commercial centers. The City's largest retail area, Fashion Island, was built by The Irvine Company to accommodate the shopping and office needs of the City's growing poplulation. By the 1970's, rapid urbanization led to the building of shopping centers, hotels, high -scale restaurants, and new homes in gated communities and attached townhouses. Drawn by these amenities, big businesses such as Collins Radio (now Conexant Systems) and Pacific Life Insurance Company established their headquartering offices in Newport Beach. The progressive, entrepreneurial spirit that characterized so much of the city's history is still very much a part of Newport Beach today. The pressures of growth and development, however, are affecting traffic levels and exerting a greater demand on infrastructure and services. Now more than ever, an active citizenry will be called on to meet the challenges and visions for the future of Newport Beach. (Footnotes) 1 Lee, Ellen K. Newport Bay: A Pioneer History, Fullerton: Sultana Press, 1973 Introductory Section 0 0 N . `i CITY OF NEWPORT BEACH Comprehensive Annual Financial Report Year Ended June 30, 2003 TABLE OF CONTENTS INTRODUCTORY SECTION (Unaudited) Tableof Contents .............................................................. ............................... Letterof Transmittal ........................................................... ............................... GFOA Certificate of Achievement for Excellence in Financial Reporting ......... CSMFO Certificate of Award for Outstanding Financial Reporting ................... List of City Officials ............................................................ ............................... OrganizationChart ............................................................ ............................... FINANCIAL SECTION Independent Auditors' Report ................................................................ ..............................1 Management's Discussion and Analysis .............................................. ..............................3 (Required Supplementary Information) Basic Financial Statements Government -wide Financial Statements: Statement of Net Assets ..................................................................... .............................19 Statement of Activities ........................................................................ .............................20 Fund Financial Statements: Governmental Funds: BalanceSheet ................................................................................. .............................24 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets ............................................................ .............................25 Statement of Revenues, Expenditures and Changes in Fund Balances ...................... 26 Reconciliation of Statement of Revenues, Expenditures and Changes In Fund Balances of Governmental Funds to the Statement of Activities ...............27 Budgetary Comparison Statements: GeneralFund ............................................................................. .............................28 Tide and Submerged Land Fund ............................................... .............................30 Newport Coast Annexation ........................................................ .............................31 Proprietary Funds: Statement of Net Assets ............................................................... .............................33 Statement of Revenues, Expenses and Changes in Fund Net Assets ......................34 Statement of Cash Flows .............................................................. .............................35 Fiduciary Funds: Statement of Fiduciary Assets and Liabilities — Agency Funds ........ .............................37 Notes to the Financial Statements ...................................................... .............................39 Supplementary Schedules Non -Major Governmental Funds: Combining Balance Sheet .................................................................. .............................86 Combining Statement of Revenues, Expenditures and Changes in FundBalances .................................................................................... .............................92 Budgetary Comparison Schedules: StateGas Tax Fund ............................................................................ .............................97 Traffic Congestion Relief Fund ........................................................... .............................98 AssetForfeiture Fund ......................................................................... .............................99 ContributionsFund ............................................. ............................... ............................100 Circulation and Transportation Fund .................. ............................... ............................101 Building Excise Tax Fund ..................................... ............................... ...........................102 Combined Transportation Fund .......................... ............................... ............................103 Arterial Highway Rehabilitation Fund .................. ............................... ............................104 Community Development Block Grant Fund ...... ............................... ............................105 Ackerman Donation Fund ................................... ............................... ............................106 Air Quality Management District Fund ................ ............................... ............................107 Environmental Liability Fund ............................... ............................... ............................108 Supplemental Law Enforcement Fund ............... ............................... ............................109 Miscellaneous Grants Fund ................................ ............................... ............................110 Internal Service Funds: Combining Statement of Net Assets ............................................... ............................... 111 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets .......112 Combining Statement of Cash Flows ................. ............................... ............................113 Fiduciary Funds: Combining Statement of Fiduciary Assets and Liabilities .................. ............................115 Statement of Changes in Fiduciary Net Assets .. ............................... ............................116 STATISTICAL SECTION (Unaudited) MiscellaneousStatistics .............................................. ............................... ............................117 Governmental Revenues by Source, Last Ten Fiscal Years ....................... ............................118 Governmental Expenditures by Function, Last Ten Fiscal Years ............... ............................118 Assessed and Estimated Actual Value of Taxable Property, Last Ten Fiscal Years ................120 Secured Property Tax Levies and Collections, Last Ten Fiscal Years ........ ............................120 Construction Activity, Last Ten Fiscal Years ................ ............................... ............................122 Bank Deposits, Last Ten Fiscal Years ......................... ............................... ............................122 Property Tax Rates, Direct and Overlapping Governments, Last Ten Fiscal Years ................124 Computation of Legal Debt Margin .............................. ............................... ............................124 Principal Property Taxpayers as of June 30, 2003 ...... ............................... ............................125 Schedule of Direct and Overlapping Bonded Debt ...... ............................... ............................126 Revenue Bond Coverage, Last Ten Fiscal Years ........ ............................... ............................127 Demographic Statistics, Last Ten Fiscal Years ............ ............................... ............................128 CITY OF NEWPORT BEACH ADMINISTRATIVE SERVICES Dennis Danner, Director/ Treasurer November 14, 2003 Honorable Mayor and Members of the City Council City of Newport Beach Newport Beach, California The City Charter and California state law require that the City of Newport Beach issue annually a complete set of financial statements and that an independent firm of certified public accountants audit this report in conformance with generally accepted auditing standards (GAAS). The Comprehensive Annual Financial Report (CAFR) of the City of Newport Beach for the year ended June 30, 2003, is hereby submitted. The CAFR was prepared in conformance with generally accepted accounting principles (GAAP) as promulgated by the Governmental Accounting Standards Board (GASB). This report consists of City management's representations concerning the finances of the City of Newport Beach. Responsibility for the accuracy and completeness of the data presented rests with the City. Management of the City is also responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the government are protected from loss, theft, or misuse, and to ensure that adequate accounting data is compiled to allow for the preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. We believe the information presented in this report is complete and accurate in all material respects, and that it is reported in a manner designed to fairly present the financial position and results of operations of the various activities of the City of Newport Beach. Further, the City of Newport Beach's financial statements have been audited by Conrad and Associates, LLP, a firm of licensed certified public accountants. The goal of the audit was to provide reasonable assurance that the financial statements of the City of Newport Beach for the fiscal year ended June 30, 2003, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based on the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Newport Beach's financial statements for the year ended June 30, 2003, are fairly presented in conformity with GAAP. The independent auditor's report is presented as the first component of the financial section of this report. In order to conform to GAAP, the City was required to implement GASB Statement 34 that significantly changed the format and the required information presented in the annual report. The new model now requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of the Management's Discussion and 3300 Newport Boulevard - Post Office Box 1768 - Newport Beach, California 92658 -8915 Telephone: (949) 644 -3127 - Fax: (949) 644 - 3339 'Website: www.city.newport- beach.ca.us III Analysis (MD &A). This letter of transmittal is designed to complement the MD &A and should be read in conjunction with it. The City of Newport Beach MD &A can be found immediately following the report of the independent auditors and will provide further information regarding the format and content of this report. PROFILE OF THE CITY The City of Newport Beach is located in the coastal center of Orange County, in the heart of Southern California, with Los Angeles County to the north and San Diego County to the south. There are currently 34 cities within the County offering one of the finest climates in the United States. Orange County is now the second largest county in California trailing only Los Angeles and surpassing San Diego and is the sixth largest county in the nation. In fact, according to the 2000 Census, Orange County now has a greater number of residents than twenty of the Country's states including Montana, Mississippi, and New Hampshire. The City of Newport Beach is one of Southern California's most scenic and dynamic communities. It surrounds Newport Bay, well known for its picturesque islands and one of the greatest natural yacht harbors in the world, accommodating over 9,000 boats of all types docked within its 15 square mile harbor area. This bay area and the six miles of ocean beach offer outstanding fishing, swimming, surfing, and aquatic sports activities. The City has a permanent population of 79,392. During the summer months, the population grows to over 100,000 with 20,000 to 100,000 tourists daily. There are fine residential areas, modern shopping facilities, and a quality school system. A major campus of the University of California is located immediately adjacent to the City, and eight other colleges are within a 30 -mile radius. The City of Newport Beach was incorporated September 1, 1906. The current City Charter was adopted in 1954. The City operates under a Council- Manager form of government. Council members are elected by district but voted on by the population as a whole, and serve four -year staggered terms. The governing council consists of the mayor and six other members and is responsible for among other things, policy- making, passing local ordinances, adopting the budget, appointing committees and hiring the City Manager, City Attorney, and City Clerk. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day to day operations of the City, and for appointing heads of departments. The City of Newport Beach is a full service city providing its residents and visitors with the following functional services: general governance, legal, financial, information technology, and administrative management; police, fire, paramedic, lifeguard, and emergency medical transport services; engineering, construction, and maintenance of public facilities, public streets, beaches, and parks; planning, zoning, and economic development services; building inspection, plan check, and code enforcement services; libraries and cultural and arts services; recreation and senior services; water, wastewater, rubbish disposal, and street light utility services. The City provides water and sewer service to most areas within City limits, but it does not provide gas, electrical, or other utility service. Public elementary and secondary education are provided by school districts, which are separate government entities. The City's financial statements present the financial activity of the City of Newport Beach (the primary government) and the Newport Beach Public Facilities Corporation (a component unit iv of the City). The Corporation is blended into the City's financial statements because of its operational and financial relationship with the City. Even though it is a legally separate organization, City of Newport Beach elected officials have continuing accountability for fiscal matters of the Corporation. Additional information about the Newport Beach Public Facilities Corporation and the reporting entity in general can be found in footnote 1a of the notes to the financial statements. UZN_1 1111111 XKRi . M Sr, I Los y_[0111 t0] *1 From 1950 -2003, the population of the City increased from 12,120 to 79,392. As vacant land becomes increasingly scarce, sources for future projections show that population growth will continue, but at a slower rate. By the year 2020, Newport Beach will be home to an estimated 88,676 residents, an increase of 13.4% over a twenty -year period. Newport Beach's physical setting encompasses about 26 square miles of land, of which approximately 75% is developed and 25% is undeveloped including the City's coastal beaches used for recreation and open space. The developed land is 70% residential and 30% non- residential. This current land use mix produces General Fund revenues of approximately $103.8 million. The top three revenue categories include Property Taxes, Sales Taxes, and Transient Occupancy Taxes (TOT). These account for 65% of General Fund revenues. The remaining 35% of revenue is generated by significantly smaller and very diverse sources. General Fund Revenues 35% 38% ■ Property Taxes ■ Sales Taxes n\\ 8% 19% ❑Transient Occupancy Taxes ❑All Other Sources Property Taxes — Largely a residential community, residential property accounts for nearly 80% of all City Property Tax. Of the City's 37,567 dwelling units, 60% of the housing is single - family units and 40% are multi - family units. The City receives, on average, approximately 16.5% of the property taxes generated within City limits. The remainder goes to the school district, the County, and other government entities. The affluent neighborhoods and relatively constant demand for scenic coastal property account for the stability of property taxes in the City. Recent home sale prices by Newport Beach zip code are as follows: v Median Home Sales* 4 Weeks Ending October 23, 2003 * Source: DataQuick Information Systems Unlike many inland areas of the County, the City's assessed property values are less affected by real estate cycles due to this unique demand and limited supply of coastal property. Over a ten -year period, total assessed property values increased an average of 7.7% per annum. Sales Taxes — The chart below demonstrates the diversity of the City Sales Tax revenue stream. The largest segment, "Restaurants," accounts for only 20% of total sales taxes and is represented by 296 restaurants. The next largest segment, "New Auto Sales," accounts for 15% of total sales taxes and is represented by five dealerships. The "All- Other," categorization accounts for another 15% and is represented by 651 businesses. The City's sales tax base is largely diverse and is not dependent on any one segment or any one individual merchant. Sales Taxes by Business Segment 15% 20% 2% 3% 3% Q 3 % = 4%� 15% 4% 6% 1 0% 6°% 9% ■ Restaurants - 296 0 Department Stores - 25 ■ Apparel Stores - 133 ■ New Auto Sales - 5 0 Miscellaneous Retail - 645 ■ Leasing - 56 • Furniture/ Appliance -227 O Food Markets - 36 • Misc. Vehicle Sales - 50 ■ Office Equipment - 76 ❑ Service Stations - 16 ■ Other - 651 ■Light Industry - 181 Transient Occupancy Taxes (TOT) — The TOT accrues to the City at a rate of 10% of room charges (with 1 % going to the local Conference and Visitors Bureau). The City distinguishes its transient occupancy taxpayers in two broad property type categories, commercial and residential property. The commercial category is composed of nine hotels (Balboa Bay Club, Extended Stay America, Four Seasons Hotel, Hyatt Newporter Hotel, Marriott Ownership Resorts, Marriott Suites, Marriott Hotel & Tennis Club, Newport Hotel, and Sutton Place Hotel) and eleven inns and motels. The residential category is made up of some 581 vacation rentals. Together, they account for nearly $8.0 million in annual TOT revenue as follows: vi Median Percentage Sales Change from Zip Code Price 2002 92625 $ 1,098,750 13.2% 92660 $ 977,500 14.3% 92661 $ 1,512,500 116.4% 92662 $ 1,850,000 N/A 92663 $ 591,000 39.1% 92657 $ 1,125,000 -18.4% * Source: DataQuick Information Systems Unlike many inland areas of the County, the City's assessed property values are less affected by real estate cycles due to this unique demand and limited supply of coastal property. Over a ten -year period, total assessed property values increased an average of 7.7% per annum. Sales Taxes — The chart below demonstrates the diversity of the City Sales Tax revenue stream. The largest segment, "Restaurants," accounts for only 20% of total sales taxes and is represented by 296 restaurants. The next largest segment, "New Auto Sales," accounts for 15% of total sales taxes and is represented by five dealerships. The "All- Other," categorization accounts for another 15% and is represented by 651 businesses. The City's sales tax base is largely diverse and is not dependent on any one segment or any one individual merchant. Sales Taxes by Business Segment 15% 20% 2% 3% 3% Q 3 % = 4%� 15% 4% 6% 1 0% 6°% 9% ■ Restaurants - 296 0 Department Stores - 25 ■ Apparel Stores - 133 ■ New Auto Sales - 5 0 Miscellaneous Retail - 645 ■ Leasing - 56 • Furniture/ Appliance -227 O Food Markets - 36 • Misc. Vehicle Sales - 50 ■ Office Equipment - 76 ❑ Service Stations - 16 ■ Other - 651 ■Light Industry - 181 Transient Occupancy Taxes (TOT) — The TOT accrues to the City at a rate of 10% of room charges (with 1 % going to the local Conference and Visitors Bureau). The City distinguishes its transient occupancy taxpayers in two broad property type categories, commercial and residential property. The commercial category is composed of nine hotels (Balboa Bay Club, Extended Stay America, Four Seasons Hotel, Hyatt Newporter Hotel, Marriott Ownership Resorts, Marriott Suites, Marriott Hotel & Tennis Club, Newport Hotel, and Sutton Place Hotel) and eleven inns and motels. The residential category is made up of some 581 vacation rentals. Together, they account for nearly $8.0 million in annual TOT revenue as follows: vi Commercial Property: Hotels Inns / Motels Residential Property: Vacation Rentals (581 Units) Annual Revenues Percent In Millions of Total $ 6.7 84% $ 0.4 5% $ 0.9 11% $ 8.0 100% ECONOMIC OUTLOOK & FACTORS EFFECTING FISCAL PLANNING U.S. Economy — The economy today has clearly improved since October 2002, when equities markets bottomed out during the second worst bear market in history. Although every major index is up from a year ago, the returns have not made up for the two previous years of staggering losses. Most experts agree the economy is poised for recovery, but the strength and the breadth of the economic recovery thus far have been a bit lackluster and controversial. While some economists continue to point to the relatively weak labor market, high unemployment, and soaring federal trade and budget deficits, others dismiss these indicators as lagging side effects of a past recession. However, regardless of whether the recent bull run has enough economic substance to sustain continued growth may not be the most pertinent issue facing local governments in the near term. A continued economic recovery will mean a brighter day ahead. However, in large part, local governments represent the tail end of the economic train and the last to emerge from economic recession. In fact, it is probable that the worst of the economic recession has yet to hit local government budgets. State of California — Poor sales and income in the private sector have translated to layoffs and sharp declines in sales and personal income taxes statewide. While poor sales tax returns have hurt local governments moderately, the sharp drop in personal income and capital gains taxes along with other problems have had a more debilitating impact on the State of California's financial position. California is now ranked amongst the lowest states in credit ratings, and local governments have a valid concern that the State might look to the fiscal resources of cities and counties to help mitigate the State's own fiscal crisis. Many pledges to leave local funding in tact have been made by political figures at the State level. However, history has shown that when the State is in trouble, it has a tendency to permanently dip into local governments' pockets. In a November 7, 2003, news update, the California League of Cities cited there is "concern among local officials who over the years have routinely seen the State take local taxes to fund State services. One example of this has been the twelve -year old practice of shifting local property taxes to a special Educational Revenue Augmentation Fund (ERAF) in each county to be distributed to schools, allowing the State general fund's responsibility for school funding to be reduced and the monies spent elsewhere in the State budget." In Newport Beach, ERAF has cost taxpayers $42.8 million dollars in lost property tax dollars that would have otherwise been used to fund City operations and capital improvements. During the latest State budget crisis, the State has already passed on the following cuts to local government budgets: vii • Local Street and Road Maintenance Funding of the Traffic Congestion Relief Act: The elimination of second, third, and fourth quarter 2002 -03 apportionments for street and road maintenance. The impact on the City is approximately $150,000. • Public Library Foundation: Reduction in the Public Library Foundation per capita formula grants to local libraries. The estimated impact on the City is $100,000. • State - Funded Mandates: Continue the suspension of payment for various budget year and prior year reimbursable non - Proposition 98 mandates. The estimated impact on the City is $250,000. • Deferral of VLF Offset due to cities: In June 2003, State officials determined there were insufficient funds in the State general fund to finance what is known as the VLF Offset (the fee reduction from 2.0% to 0.65% realized by vehicle owners that would have otherwise been transferred to local governments). For three months, the State short paid the VLF backfill which cost the City approximately $1 million until the full VLF tax was reinstated in October of 2003. • With the swearing in of a new governor, the VLF has once again been reduced to 0.65% with an unknown impact on local government. The State's $30 plus billion budget shortfall of 2003 -04 was largely bridged by $9.2 billion in program savings, a $16 billion borrowing against future operations, a $2.26 billion one -time Tobacco bond sale, $2.5 billion of new revenues and a $3.4 billion VLF tax increase. Since well over half of these measures deferred the short fall to future years or were one -time solutions, the State's Legislative Analyst's Office (LAO) estimates that the operating shortfall under the current plan will re- emerge in 2004 -05 in the magnitude of $10 billion or more. Governor -elect Schwarzenegger had repeatedly vowed to repeal the $3.4 billion VLF tax increase which would increase this gap to over $13 billion. However, he has promised to seek legislative approval to place a major deficit reduction plan on the ballot for voter consideration in March of next year. If successful, the plan would reportedly save $20 billion. It is reported that Governor -elect Schwarzenegger might refinance the State's short term debt to bridge the current problem over a longer period of time. It is impossible to predict how this might be resolved in the end. The uncertainty of this outcome and future State actions has most cities hoping for the best but preparing for the worst. Local Economy — Since geographic and socioeconomic conditions in Orange County remain very desirable, property values in Newport Beach are projected to maintain healthy increases over the next several years. With interest rates at historic lows, the demand for real estate in the City and across Orange County remains high. Median home prices have increased 17.8% across the County over last year, even though inflation indexes have been reasonably low. The total Newport Beach assessed valuation for 2003 -04 increased by nearly 8.9 %. As the City grows due to recent annexations, the City's property tax revenues are also anticipated to maintain a favorable trend for many years to come. The outlook for Sales Tax and TOT is also encouraging. Sales tax collections through the first quarter of 2003 -04 are up 4.5% higher than initial projections. Hotel management is viii encouraged by relatively high occupancies, even though the trend may be partly attributable to discounted room rates. OTHER FACTORS EFFECTING FINANCIAL CONDITION Orange County Property Tax Lawsuit — The City is closely monitoring a County of Orange lawsuit regarding calculation of property tax assessments. In 1978, California Proposition 13 limited annual property tax assessments to increase no more than 2% per year. All 58 counties in California have interpreted that the 2% per year allowance is cumulative and can be recaptured from any year where market conditions declined or remained flat, yet the County of Orange is being sued. A Seal Beach homeowner alleges that the County is violating Proposition 13 by increasing tax assessments more than 2% in any one year to recapture taxes they could not collect when property values declined or remained flat. The lawsuit has been granted class action status and will now be heard by the 4th District Court of Appeals. Since this issue is making its way through the appellate courts and quite possibly will end up in the State Supreme Court, it will be years before it is finally resolved. For anxious taxpayers everyone has a stake in the outcome. For local governments and school districts, the outcome of this case could have tremendous financial implications. A January 2002 report issued by the Orange County auditor - controller showed that a successful class- action lawsuit that included all affected taxpayers between 1998 and 2002 would cause a shortfall for the City of Newport Beach of $3.4 million the first year due to refunds and $1.7 million in subsequent years. Defined Benefit Pension Plan — The City contracts with the California Public Employees' Retirement System (PERS) for certain defined pension benefits. The City's contributions to the plan include a fixed employer paid member contribution and an actuarially determined employer contribution that fluctuates each year based on an annual actuarial plan valuation. This variable rate employer contribution includes the normal cost of providing the contracted benefits plus or minus an amortization of plan changes and net actuarial gains and losses since the last valuation period. It is the City's policy to make contributions to the plan equaling at least 100% of the actuarially required contribution (annual pension cost). Benefit revisions in recent years have and will impact future PERS rates. California Senate Bill 90 increased the maximum benefit level for safety employees from 85% to 90% of total compensation. Other contract benefit changes include the miscellaneous employees' benefit formula increase from 2% at age 60 to 2% at age 55 and the police safety employees benefit formula increase from 3% at age 55 to 3% at age 50. Newport Beach fire and marine safety employees have a 3% at age 55 benefit formula. A portion of the accrued unfunded benefits related to all prior covered service credit will be paid from available pension assets while the remaining obligation will be amortized and paid in conjunction with the normal cost employer rate. More significant than the benefit changes have been the pension asset investment losses caused by the downturn in the equities markets between 2000 and 2002. Although PERS has a fifteen -year average compounded return on investments of 9.38 %, recent actuarial investment losses will have a significant impact on actuarially required employer contributions beginning in 2003 -2004. The PERS actuaries assume an annual investment return of 8.25 %. The actual investment returns for fiscal years ended 2001, 2002, and 2003 were - 7.23 %, - 6.40% and 4.00% respectively. This produced a three -year actuarial loss of - 15.48 %, ix - 14.65 %, and -4.25% respectively or a three -year cumulative actuarial loss of - 34.38 %. Based on June 30, 2000, market values of total City pension assets, this amounts to a -$112 million swing in expected vs. actual investment returns. This is slightly mitigated by the actuarial conventions used to smooth out market fluctuation over time. However, the resulting actuarially determined and projected employer rates resulting from three consecutive years of known actuarial investment losses and expected future investment returns of 8.25% are nearly cataclysmic. The City's employer PERS rates not including the employer paid member contributions of 7% for miscellaneous employees and 9% for safety employees are as follows: * Projections were calculated by PERS actuarial staff. Although the above increases in PERS rates are staggering, it is difficult to put them into perspective without examining the related cost in dollars. The chart below represents the additional annual PERS cost above and beyond what was currently contributed to PERS during fiscal year ended 2003 based on the above rates and projected payrolls. $25 $20 $15 $10 $5 $0 Projected Cumulative Cost Increases over 2002.03 Based on PERS Rate Increases (In Millions) 2004 2005 2006 2007 2008 2009 These estimates will be mitigated or worsened by any year that actual investment losses exceed or do not meet the expected investment return of 8.25 %. The PERS investment return for the first quarter of fiscal year 2004 was 3.36% (14.1% annualized); we hope this trend continues. For more information on the City's pension plan and funding levels, see footnote 10 in the notes to the financial statements. X Miscellaneous Safety Fiscal Plan Plan Year Actual Projected Actual Projected 2003 0.0% 1.5% 2004 0.0% 17.6% 2005 4.3% 30.2% 2006 6.5% 33.1% * 2007 9.3% * 40.0% * 2008 10.2% * 40.6% 2009 10.4% 39.8% * Projections were calculated by PERS actuarial staff. Although the above increases in PERS rates are staggering, it is difficult to put them into perspective without examining the related cost in dollars. The chart below represents the additional annual PERS cost above and beyond what was currently contributed to PERS during fiscal year ended 2003 based on the above rates and projected payrolls. $25 $20 $15 $10 $5 $0 Projected Cumulative Cost Increases over 2002.03 Based on PERS Rate Increases (In Millions) 2004 2005 2006 2007 2008 2009 These estimates will be mitigated or worsened by any year that actual investment losses exceed or do not meet the expected investment return of 8.25 %. The PERS investment return for the first quarter of fiscal year 2004 was 3.36% (14.1% annualized); we hope this trend continues. For more information on the City's pension plan and funding levels, see footnote 10 in the notes to the financial statements. X Post Employment Health Plan — The City of Newport Beach also provides post - employment health benefits for certain retirees. At the end of the current fiscal year, there were 302 retired employees receiving this benefit, which is funded on a pay -as- you -go basis. Current GAAP precludes agencies from recognizing a liability for the promise to provide current employees this future benefit. None - the -less, the City has begun a forced savings plan to accumulate sufficient resources to fund the current and future expected costs of the plan plus an amortization of expected future benefits previously accrued. Additional information on the City of Newport Beach post - employment benefits can be found in footnote 11 in the notes to the financial statements. Employee Bargaining Agreements — Current employee bargaining unit agreements provide for salary and benefit increases ranging from 2% to 4% of salary and benefits. All employee agreements are due to expire during calendar year 2004. There will be many factors considered during negotiations to renew these agreements. Summary of Economic Status — Even though the local economy remains strong, the rippling effect of the past economic recession is very serious. The factors previously discussed including the poor performance in the equities markets, PERS rate increases, the State budget, and the Orange County property tax lawsuit may have a profound impact on local governments for many years to come. The City's current fiscal posture is relatively strong and we are as prepared as we can be for an economic crisis of this magnitude. Due to conservative fiscal policy and strong local economic vitality, the City has maintained a fair amount of momentum from the past economic boom and the recent economic upturn is helping the City maintain its course. With this problem becoming increasingly clear on the horizon for the past two years, the City has been preparing by building reserves, holding the operating budget flat and deferring capital projects where feasible. As of June 30, 2003, the City's General Fund Contingency, and Stabilization reserves were fully funded at nearly $13 million. In addition, the City has designated nearly $10 million for planned capital projects, set aside $6 million to offset the rising PERS costs, and has designated another $2 million for future operational shortfalls. A lot can go wrong in the coming years, but with a $31 million dollar buffer and a strong local economy, the City has positioned itself well to work through this crisis with the intent to limit the impact on public services as much as possible. RESULTS OF PRIOR YEAR STAFF PRIORITIES City staff believes there are many factors that add to the quality of life in Newport Beach. For any life aspect we can favorably impact, there is a direct relationship in creating value for our citizens and customers. Protecting their quality of life also protects and enhances the City's economic stability and ability to serve. John Wayne Airport Settlement Agreement — In the direct flight path of Orange County's John Wayne Airport (JWA), further expansion of this airport could impact both the property values and quality of life in Newport Beach. The City is committed to ensuring that Newport Beach's quality of life and economic resources are not compromised by an expansion at John Wayne Airport. Therefore, it was our number one priority in fiscal year 2003 to obtain all necessary approvals to extend the John Wayne Airport settlement agreement and maintain the integrity of the settlement agreement once approved. xi The new Settlement Agreement (SA) for JWA went into effect January 1, 2003. This SA required the approval of the Orange County Board of Supervisors, and sign -offs from the Airport Working Group and Stop Polluting Our Newport (SPON). In December 2002, the FAA gave its approval to the agreement. Previously, the JWA air carriers agreed not to oppose the SA. In January 2003, Federal Circuit Court Judge Hatter validated the SA. (Priority Accomplished) General Plan Public Outreach, General Plan Update — A General Plan is a long -range plan that includes goals, policies, and programs to guide the future growth of the community. Land use and zoning decisions are important to maintain the appropriate balance of residential and commercial development. These decisions can often affect the traffic, economic viability, as well as charm of a city. The City is soliciting public input to update this plan through a variety of different public outreach tools including: community newsletters, a vision festival, neighborhood workshops, surveys, and a community based advisory committee. City officials will use this plan to link community values, visions, and priorities with decisions about physical development including topics such as zoning, street projects, and housing. The current General Plan was adopted in 1970. The General Plan outreach process was completed with the final public event, the Visioning Summit, in November 2002, and the publication of "Community Directions for the Future" in January, 2003. These products were the culmination of a full year of visioning activities that included four newsletters, a Visioning Festival, eight neighborhood workshops, a statistically valid community telephone survey, and twelve meetings of the 38- member General Plan Advisory Committee (GPAC). Following completion of the visioning process, the GP Update Committee developed the scope for the GP update. This and a professional services agreement with EIP Associates, Inc. were approved by the City Council in June, 2003. At the same time, GPAC was reviewing technical studies that will be used in the update, including baseline results from the traffic and fiscal impact models. (Priority Accomplished) Local Coastal Plan (LCP) — A new State law signed by Governor Davis in October 2001 requires the City to submit a Local Coastal Plan (LCP) to the California Coastal Commission (CCC) for approval and certification by June 30, 2003. An LCP includes a land use plan, zoning ordinances, zoning district maps, and other legal instruments necessary to implement a land use plan. Once the CCC certifies the LCP, the Coastal Development Permit authority is delegated to the City. Currently the City does not have a certified LCP. The cost of implementing the LCP is expected to exceed $250,000. Once staff began the LCP development process, we realized this priority's timeframe was far too optimistic. But since staff had no experience with the LCP process, we had no way of knowing in advance what a realistic timeframe goal was. During the summer of 2002, staff began drafting the new Coastal Land Use Plan (CLUP). This included collecting data on land uses, public access, and coastal resources, and the preparation of exhibits. Also during this period, technical consultants prepared studies of biological resources, coastal hazards, and the coastal area parking supply. By November 2002, all of the technical studies were completed and the first draft of the (CLUP) was ready xii for review. The LCP Certification Committee ( LCPCC) reviewed and directed revisions to the CLUP through the fall of 2002. Per LCPCC direction, copies of the CLUP were distributed to the senior management staff for review and comment in January 2003. After much review and many comments, the draft was finalized by mid -April 2003. In April, the draft CLUP was sent to Coastal Commission staff for preliminary comments. City committees and commissions also received the draft at this time. During this timeframe, staff began drafting the LCP implementation plan. The Coastal Commission's staff comments were received by the City on July 14, 2003. (Priority begun and good progress made, but the duration of the priority will be more than twice as long as originally envisioned due to the complexity of the process.) Traffic Signalization Management System — Safe, smooth traffic flow throughout the City is a goal most every citizen can appreciate. Through a series of surveys and studies of traffic signals and traffic flow patterns, including public input and education, a Traffic Signalization Management System will be placed in service to maximize smooth and safe traffic flow throughout the City. A contract for this work was awarded to a traffic consultant on December 17, 2002. After insurance issues were cleared, work began on February 10, 2003. Traffic counts for all City and Pacific Coast Highway (PCH) intersections (nearly 100) within the City were taken. Using available software, traffic count data was entered into the software model. Traffic counts were completed and field observations were done at key intersections to verify the data. Several meetings with Caltrans staff were held to share preliminary data; Caltrans appears willing to utilize our data and recommendations on signalization sequencing for PCH intersections. The initial implementation of timing changes began September 2003. Jamboree and MacArthur are the first arterials affected. Staff is currently reviewing the technology options for state of the art signal control, and staff training is taking place. (This priority should be completed by January 1, 2004.) Water Quality — Newport Bay is the City's most treasured environmental asset. From the ecological reserve and parkland in the Upper Bay to the boating, residential, and visitor - serving uses in the Lower Bay, Newport Bay is home to six endangered species, the nation's largest small craft harbor, tour and charter boat operations, more than sixty different commercial ventures, rowing clubs, yacht races, millions of visitors annually, and more. The National Pollutant Discharge Elimination System (NPDES) requires the State Water Resources Control Board and its nine Regional Boards to direct local agencies' compliance with the federal Clean Water Act. Compliance is achieved via a five -year permit (NPDES Permit) that directs the County of Orange and all 34 cities (as co- permittees) to adopt a uniform water quality ordinance, to enforce the ordinance itself, to adopt and use best management practices that reduce urban runoff (street sweeping with citations, for instance), to educate the population as to water quality, and to further minimize any water quality impacts. After much consideration, it was decided that our existing municipal code enforcement component would be combined with the newly mandated water quality enforcement component into a new Code and Water Quality Enforcement Division under the City Manager's Ad Office. The Division added two new Code Enforcement Officer positions and a Water Quality/Watershed Specialist position. All new positions have been hired. The Division is working from a portable trailer located on the City Hall front lawn. (Priority Accomplished) Develop a Comprehensive Strategic Plan for Existing City Buildings — In January 2002, Griffin Advisors, Inc. was hired by the City Council to develop a City Hall Facility Needs Assessment as Phase 1 of the City Hall Facilities Master Plan process. In April 2003, Griffin provided a recommendation for a new City Hall estimated at 62,000 square feet. A concept was presented that included a 2 -story parking garage and a new Station 2 fire station. On June 10, 2003, the Council approved an agreement with Griffin Holdings, Inc. for $578,185 to move forward with facilities schematic design, a public outreach program, and to begin conversations with Fritz Duda regarding a potential exchange of property to accommodate the schematic design work. On June 24, 2003, the Mayor appointed Council Members Ridgeway and Heffernan to a Building Ad Hoc Committee to work with Griffin in site and facility planning. (Priority is currently on hold at the direction of City Council.) Mariners Library Joint Use Plan — The City and the Newport-Mesa Unified School District have a unique opportunity to receive State construction funding to replace the Mariners Library. This funding is available for "Joint Use" library projects that combine a public library and a school library in one service unit. This library project is expected to cost $5.1 million with $3.2 coming from a State grant, $1.06 coming from local donations, and the remaining coming from City appropriations. This is a unique opportunity to enhance the library services for the school and the community. The project provides the opportunity to maximize the use of State funding and donor contributions to replace the Mariners library and develop a joint use synergy. Many meetings and much work have gone into developing the package that needs to be sent to the State for approval. The Library Ad Hoc Committee began meeting and reviewing concepts. The interior and exterior colors, materials, and textures have been chosen by the Library Working Group, and approved by the Library Ad Hoc Committee. A package consisting of the schematic design, specifications, and supporting documents was submitted to the State Library Office of Construction on July 2, 2003. (Priority Accomplished) Santa Ana Heights /Bay Knolls Annexation Process — On September 26, 2000, the City Council adopted Resolution 2000 -81 directing City staff to process an annexation application for the Newport Coast, Santa Ana Heights, and the Bay Knolls community. The City filed its application to annex these territories on March 19, 2001. The Newport Coast portion of the City's annexation effort became effective January 1, 2002. The City Council adopted Resolution 2002 -3 and added another neighborhood (about nine homes in the Emerson /Churchill tract) to its pending application on May 28, 2002. The annexation package for LAFCO was submitted, and LAFCO held its hearings and approved the annexation of East Santa Ana Heights and Bay Knolls in November 2002. On July 1, 2003, the annexation of both neighborhoods became effective and the City began serving these areas. (Priority Accomplished) Santa Ana Heights Fire Station — In March 2001, the City established a temporary fire station on Zenith Street serving Santa Ana Heights and the airport area when a nearby Orange County Fire Authority (OCFA) station closed in December 2000. Since that time, staff has worked to find a site for a permanent station. AV Numerous meetings took place between City staff and County staff regarding the fire station site and construction. Several sites large enough to accommodate the fire station were identified, and County staff was tasked with the responsibility to initiate the acquisition process. Without any progress being made, City staff assumed the responsibility in July 2003, for site procurement. In July 2003, the City and County entered into an agreement whereby the County would provide up to $2.5 million for fire station site acquisition costs and another $1.6 million for station construction from RDA funds. To date, a site has not been acquired; however, several potential sites are in the initial stages of being purchased. (Priority not accomplished in terms of site acquisition, but funding for site acquisition and construction have been secured.) Disaster Preparedness — Increase the level of disaster preparedness training received by City employees which results in increased competence in performing the Emergency Operation Center (EOC) duties. A Training Needs Assessment was conducted in August 2002 to identify areas for additional training and to create a strategy for implementation. In February 2003, eleven members of the Emergency Preparedness Committee attended week -long training at the California Specialized Training Institute. A new method for DOC /EOC communications was developed for testing during a March 2003 exercise. The exercise was conducted utilizing the scenario of an airplane accident in the Back Bay. Other agency representatives were utilized in the exercise. Staff preparation and responses during this exercise were at a higher level than previous exercises. The disaster exercise was deemed a huge success. Approximately 57 staff members participated. (Priority Accomplished) Cable N Franchise and Ordinance Renewal /Revision — The first meeting with the City's franchise agreement negotiation team and the Adelphia and Cox people took place this past summer. After that meeting, it was incumbent on the City to provide a written summary of those negotiation points we were seeking to include in our franchise agreements, as well as changes to our Municipal Code Section 5.44 to be now entitled "Cable Communications Franchises" rather than "Community Antenna Television." Those draft documents are expected to be completed and provided to Adelphia and Cox this week. Once the documents are received by Adelphia and Cox, they have 30 days to respond to us in writing. After these written comments are received, we will begin meeting with both companies in earnest, most likely mid - October. It is anticipated negotiations will be successful and the new franchise agreements will be before Council for approval in April 2004. (Progress is taking longer than originally anticipated. Negotiations will begin soon. We expect to have a new Franchise Agreement by April 2004.) Big Canyon Reservoir — Approximately $900,000 for the project has been earmarked in the Federal budget, thanks to Congressman Chris Cox. There is the possibility that more Federal funding may be obtained; however, that would not be finally determined until October, 2003. We expect to award the contract for the landscaping mitigation this month (September), and advertise for bids for the cover and disinfection system in November. The Federal environmental documents (needed for Federal funding) should be ready for certification in November, with award of contract for the cover and disinfection system anticipated on December 9th. Construction should begin in January, 2004, with construction expected to be completed in the fall of 2004. (Behind schedule but proceeding well.) xv STEWARDSHIP Budget — The annual budget serves as the foundation for the City of Newport Beach's financial planning and control. The Administrative Services Department, with City Manager approval, develops budget guidelines and appropriation limits for each department every year in January. The departments then submit revenue and expenditure appropriation requests which are summarized by the Administrative Services Department and presented to the City Manager for review. The City Manager then presents a proposed budget document to the City Council. The City Council holds a budget hearing and adopts a budget on or before June 30, the close of the City's fiscal year. Cash Management — It is the City's policy to invest all temporarily idle short-term funds and longer -term reserves in a manner that will maximize return without sacrificing security or jeopardizing liquidity requirements. Idle funds are invested in accordance with the Government Code and a formal Investment Policy approved by the City Council. The policy, which is reviewed and updated annually, allows investments in a variety of specific instruments, as well as certain state, county, and private sector investment pools and asset management services. Certificates of deposit, demand deposits, bankers acceptances, U.S. Government and Agency Securities, commercial paper, repurchase agreements, and the Local Agency Investment Fund are examples. The City's current investment strategy is to normally place most of the funds with five private sector investment management firms. Each of these intermediaries is guided by and constrained to an investment program at least as restrictive as the policy governing the City's direct investments. Regular reporting, both in writing and by personal presentation, is required. Additionally, with regard to the private sector firms, well - established and highly reputable third party custodians hold all cash or securities managed by them on the City's behalf. Smaller, more liquid portions of the portfolio are invested directly by City staff or placed with the State Pool (LAIF). For more information on the City's investment policy, see footnote 4 in the notes to the financial statements. Risk Management — The City maintains a risk management program, which is a combination of self- insured retention, excess insurance coverage, and written policies regarding department safety procedures. The City is also insured for environmental liabilities associated with waste disposal. As part of the City's Risk Management program, resources are aggressively set aside in an Internal Service Fund (Insurance Reserve Fund) to meet current and probable losses. All claims are investigated, valued, reserved, and defended and /or settled in accordance with generally accepted industry practices. Additional information on the City of Newport Beach's risk management activity can be found in footnote 8 in the notes to the financial statements. xvi OTHER INFORMATION Awards — The City has prepared a comprehensive annual financial report for eleven straight years. The City has been fortunate to receive state and national awards for excellence in financial reporting each of those years. The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Newport Beach for its comprehensive annual financial report for the fiscal year ended June 30, 2002. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current comprehensive annual financial report continues to conform to the Certificate of Achievement Program's requirements and we are submitting it to GFOA to determine its eligibility for another certificate. The California Society of Municipal Finance Officers ( CSMFO) is a state organization which sponsors extensive training and emphasizes high standards in all aspects of municipal finance operations, including financial reporting. As a result of last year's report, the City of Newport Beach is fortunate to have remained among the ranks of California cities that have met the rigorous standards of financial reporting required of recipients of the CSMFO Outstanding Financial Reporting Award. We will be submitting the report to CSMFO for consideration again this year as well. ACKNOWLEDGMENTS Preparation of this report could not have been accomplished without the efficient and dedicated services of a number of personnel. It would be difficult to name them all. Virtually everyone in the Accounting Division and the Print Shop contributed to the project. We would also like to thank Brent Jacobsen and Rich Martin for their personal photographs contributed to this year's report. In addition, members of the Administrative Services Department would like to thank the Mayor and City Council for their interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. We would also like to thank our auditors, CONRAD AND ASSOCIATES, LLP for their time and assistance in the preparation of the report. This report was completely prepared and published by City employees. Hoker L- Bludau City Manager xvii Dennis C. Danner Administrative 'Services Director Certificate of Achievement flor Excellence in Financial Reporting in 0 Ppesented to City of Newport Beach, For Osc0impirchul -ixe Aillim-al, 'F p 'oall -Icja ll ROPOIrlk' rear &N F -OscaI Year 1e.'nded )wile 3q, 2002 by Ccrl fieMcof'AdIiewcart[M far Lzcav ente in Ftffl utciil RcpbrBniV :Is jJF6 rnitvd by Ithi ! Cab. ern.iuue.rut'I'n5nii �cd_3,I�i�ii�rs r'lssucia tion or the 4Jnkul.'i,Statu: mid Q nada to sp ernmenl: unii3 wind public compk5yee rcEixcow ni; systems; +Nhcsc commpreherisivo annual firnarm-' a9 mpaTis (CA'I`Rs) achieve the highest, ;strreo4il�es)s eri, fg��crnia9cr�t :�ctii*lrn�ii3e� and flalam% &a0 repuT iri,F. y v �o �4 xviii CaliforniaSociely Of 34unicipal Jitnarnze Officers Cc rtifficate of A-vvnjrd Outuandhng Financial'Reporting 2001-2002 Presoinitedl tollie ,Cif ofNemport Beach in F�r.divaavivFvr&prt of eEU .UVMM fe felwff� Feb-ndury 2003, Dtdievied to Evcdleu in xix NEWPORT BEACH CITY OFFICIALS City Council ;I Gary Proctor Council Member Garold B. Adams Council Member LaVonne M. Harkless City Clerk r I Steve Bromberg Mayor r Mayor Pro Tern Richard A. Nichols Council Member Principal Administrative Officers 1-9 Homer L. Bludau City Manager l it Don Webb Council Member John Heffernan Council Member Robert H. Burnham City Attorney Sharon Wood .. ............................... Assistant City Manager/ Director of Community Et Economic Development Dave Kiff .............................................. ............................... ......................Assistant City Manager Dennis C. Danner ................................. ............................... Administrative Services Director /Treasurer Bob MCDonell ....................................................................... ............................... Chief of Police TimRiley .................................................................................. ............................... Fire Chief David E. Niederhaus .......................... ............................... ........................General Services Director Marie Knight ............................................ ............................... Recreation Ft Senior Services Director Patricia L. Temple .............................................................. ............................... Planning Director Jay Elbettar ...................................................................... ............................... Building Director Steve Badum ....................................... ............................... .........................Public Works Director Linn Livingston ....................................................... ............................... Human Resources Director Eldon Davidson ................................................................... ............................... Utilities Director Linda Katsouleas ................................................................. ............................... Library Services xx r BUILDING CODE L BOARD OF APPEALS J r - - - - - - CIVIL SERVICE BARD L - - - - -J r - - - - - - PLANNING COMMISSION III ELECTORATE III MAYOR a COUNCIL CITY CLERK *4-1 CITYATTORNEY CITY MANAGER ASSISTANT CITY MANAGER PLANNING Current Plana & Projects Advance Planning Cade Enforcement FIRE Fire Suppression (Operations) Ocean Lifeguard. Tait and Education Haaartlous Materials Fire Pravantlan Junior Lifeguard Pmgram Adinnistafion Emergency Medical Services BUILDING Plan Checking Inspection. Permits ADMINISTRATIVE SERVICES Accounting Purchasing & Warehousing Teiry Man m ageent Sitting &Receivables much lclnfmosillon Steam Telecommunication. ement Information Systems Revenue O ELECTED OFFICIALS Fiscal Year 2002 -2003 Revised January 14, 2003 HUMAN RESOURCES Personnel Administrate Benefd Management par Management Labor Relations BOARD OF LIBRARY TRUSTEE) r PB &R COMMISSION L_ - - - -J r - - - - - - 'L CITYARTS COMMISSION J r - - - - - - HARBOR COMMISSION ASSISTANTCITY MANAGER. Harom Reeomen PuEllG lnlmmetlm UTILITIES Water Wastewater Electrical Oil & Gas POLICE Patrol Support Services TraFC Animal Control Detective Parking PUBLIC WORKS Engeneedng cIPMM nagement Construction Management Development Services Traffic GENERAL SERVICES Parka and Trees Operators Support Field Maintenance Traffic Signs& Markings Bull Maintenance Refuse Collection Equipment Maintenance Ra ing RECREATION & SENIOR SERVICES Recreation Senior Services LIBRARY SERVICES Lien, CulturalAds - - - - L J 0 0 COUNCILAPPOINTED BOARDS &COMMISSIONS COUNCILAPPOINTED POSITIONS CITY DEPARTMENTS This page left blank intentionally. XXi Financial Section I ti. 0 CIIt'y'C@U'11e11 City of'Newpon Rm—;h Newpytyirt Batch, California Irdepemil! eul,oa��ggiL;- laMn+t7; URTaF ED PUBLIC {yy�� 915 Fbw y --dsi mzsm W'o have .mudiaed the accompanying finnnoiia1 stat,ments of ilrc governmental acdvi asy, the htl5inC.55€,' types actiwitics, cash rmaalpr iiwod, and tore aggregalo rcmatuning fund iaaiforneailon or the Lilt+ of Newport BcRCh, Call:forenia, IS or aittd ror 11w year ended June 30. 2001, which collockive ke cow. prim rho City's basic' finanei;al, slatenwms, as 11sied in the tabilt of comems. Thcso rmanc'il'i srateasteedls Pre 'hhc responsibility or the mana mean: of the City g'f Beach. Our rmponsilsihiLy is Icy exlroress' opinholus mar these rmanciaul siatcinticruts based on our mudi't. We conduct-ad our auclil in 9cwrdamcw wilh audiltn,g simndaids generiAlly sccaptW in the 4 eked uatv� of ¢Anmei rt3 2314 t' C�:cnerna>'ront rJu1.diling Sfvnrdr ds— is.sueed, by the C-*mpinilllsr Gmieral mf tivG. TU'lThed SWC—S. Those st mcl,ards regtuim that we'plan a11d perr ©ran the, audit a�,, ob1 i'aatn 'rGmson'ab1.c :assurance abotu ,alhether d1e fflalvraaal 5talenaLmIS pro free of rltater'ual niissaaleraeum. Ad1 Miff it includes cx inislal g. pal . a iesa bLa i�S, e'41ial1eaice sutnliUfthka 1:119, It nyunts and disc.Ipsves in the rananciall stave - rents: Ail audit-31—go hl'ohaes ass ss:le.g the: atccouniing pritvcipihcs user) aarai signiira_c lnt es! imnlus'1rmack. by managernent„ as mraIll P$ ct +aalual', ate the iiveuil fi',mmnsi'ml statenaent',presentatiern,: We behe a abaft ouur audit p rovldes'2 reasonable' basis J`or iiaar,olniimui & 11n Gar Opindob,, ph14 igiialnciaul stalitwnients referred tai AbovC, ptr°scltt f9Jrly. in ati h1vNeriAll respect Z, the respo tie. fiinmoic.i91 pimi'timn or the eoterrgim noal K t.VitiCSn i','hc- buusincss= ynp eaclix� lies, cau=h um €jlorfund. and Pile, a regale r>emauning;'rund aror©aainakn of I Ci y of':i�fas��pon pia lclr, �alil�rnia, as of aunt 30; 2003. Tnd the rwspectfiwe changes in fnarwiail position and case flows, where applit9b1c, of"'the Chl31 or Ne Cori BQTA, , California and the resp,Ce N'T htutligctaT;R comparison niforlvaanion for the gcneiral rand 9mt1 major special revenue fulitJs of ahe City for Ilea year them, e1Lded "im with accoudating, prenci;ppll;s gcnvrmfly' accepted °im q4e, U ite Stautw ofAmcdem. The, in :format on iderai,fued in 'obe amoimpaon.ying ta1b'lc of cmanteumis as cdi.scdmFwv aetrrdf drnyadr -54 RM not a mqul'ired pail of flie basic, finauncial statemmis, ht'it are snpplcmen. tart' h4bi iaaltun req uirrl by theGove mmonlal Accoun11ns S.i;andirAs Board. 'Weahave applied cermin limited procedures, Which consisied pria- i6pallly oti inguiriwy of 'nro:aana emenit ree u'cl,tng the mmhods or nicasurem.lenl and presentation ofJh' . requir€d supplementary iaafiormadon. However, w clad aunt auidil', the i13W1a.1niran wntl express no oil on an 'it; Our andlul tvas connitrete four the p }LIIP030 of famling ophidons on 'Me fonauaCrall, - .LmWffndnat's 'Ihrt't collccpiiwciir earsllprise ehe City c':f i`v'c%yTfl,l Beaoln's Ii - slc fiimamei'al stawmcm us. The iura- WLICtury Smiion, combi:lthng and i,iLdivj n>dl r,.4mmtajor ',fiund financial statem4: w 'and sta,istima.l tab[as are pre- smntcd for PalwwS or add,iuionaal UrEml±-sis and aur- ',toot a rer{ui!recE part' of''ahe bask finnanch -mi --mm ',ncnts. Ile combining and fi,idivicfual nonmatjor rand fin iciall slalernaamrs have been stlN eeteil 10 tlyo wu liiliru9 procedures appsl'iad in the mudit o'f'the basic',flnancial 2tagern"Is and:, i.n our ophmork, ,Bra iffai.rly slanted hi all 'nvaat;eriall respects 61 ralmrioo 't'o the (basic 6nanchal mmaimann taken as a whole The p itrgtlttclo:ry za =iicn and saael,s&A tableq ha" not been subjemed tee the .auditing prrecdures ap p plied irNthe sttitdit of the basio'fimamelall staleveeitm and, acowdingl, , ive express: no ppp,J*n on then. i. mraititRSS OF lSMW Atirb Q,.'IirmR.N1ASOCIt1V Or LrRTIFIM PUDLX AIM. UNTAMS imEmak S: Hrm4EkkAN,1NST'IT'inl OF CIRT111DI U[LC AAXm91l tirA .mT%PRilt'' {'A'{' PRx—OCH 3Ht70tq City counel l', Chy of Nmvpon',B,eacit Nmpta r ieeuch, California In accordance, 'iY! ah Govwvrrraev_ro, a fyRaa ing swunflard s, wc. havc dlsD issuod a, Tepon dated Oviober 3,[;, 2003 Caen our comideral ion, Df uhe Eli'sy's i:nLc nal con.trrsl over Ein. ancial rElj -maing rind inn Ord? accts a, Wi ca3 5,qa Mre %vill% c�tHain pro isi,d,fis of laws, rcgulwionsr coe mess and grants, 1_fLtaq','rrepert is an iuriegr�al past rig' am aukh'l, pg2rsre�ne �I in ac ;rda nc,4; wk,Ilh G- om'ramaj a' As alffing ,5't'ra'rdrirarra r .rn €1 shctrl[II 0� 'eca 1, p€a. cvnj mcl�cTd v ,loh alas r pc ,ird orasE lcnDng iCltic rc nnits cif Ourrau lk.. Ocq ubcr J 1., 2001 Management s Discussion and Analysis �Ewpcom MANAGEMENT'S DISCUSSION AND ANALYSIS This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents management's discussion and analysis of the City's financial performance during the fiscal year that ended on June 30, 2003. This analysis should be read in conjunction with the Transmittal Letter at the front of this report and the accompanying Basic Financial Statements. FINANCIAL HIGHLIGHTS Long -term Economic Resource (Government -wide) Focus — Economic resources are differentiated from financial resources in that the economic measurement focus measures changes in net assets as soon as the event occurs regardless of the timing of related cash flows. Therefore, this measurement focus includes both current spendable resources and fixed non - spendable assets, and long -term claims against these assets. The resulting net asset utilizing this measurement focus provides one measure of the City's overall long -term financial condition. • The assets of the City exceeded liabilities at the close of the most recent fiscal year by $1.615 billion. Of this amount, $73.6 million represents unrestricted net assets that may be used to meet the City's ongoing obligations to citizens and creditors for both governmental and business -type activities. • The City's total net assets increased $28.2 million (1.8 %) to $1.615 billion as a result of current year operations. Approximately $17.6 million of this increase is attributable to the capital contribution of land known as Arroyo Park. • The City's total debt increased by $1.7 million during the current fiscal year from $56.5 million to $58.2 million. The increase is the net result of regular debt service payments (reducing principal by $2.8 million), net increases in the worker's comp payable, claims and judgments payable ($1.9 million), net increase in debt associate with lease obligations $143,659, and the newly incurred CDBG loan associated with the Balboa Village Improvement Project ($2.4 million). Short -term Financial Resource (Fund) Focus — The Financial resources focus measures inflows of current spendable assets. The resulting net difference between current financial assets and current financial liabilities otherwise known as fund balance (or net working capital in the private sector) is a measure the City's ability to finance activities in the near term. • At the close of the current fiscal year, the City's Governmental Funds reported a combined ending fund balance of $74.5 million, an increase of $7.8 million. Approximately $65 million is unreserved fund balance available for spending at the City's discretion. Of the $65 million unreserved fund balance, $63 million is designated for stabilization, contingencies, capital projects, and other special purposes. • The General Fund reported an increase of $8 million in fund balance after transferring $13 million to other funds. 3 • At the end of the current fiscal year, unreserved fund balance for the General Fund was $31.9 million, or 38% of total General Fund expenditures. Of the $31.9 million, $29.9 million has been designated for capital projects, contingencies, stabilization, and other special projects. OVERVIEW OF THE FINANCIAL STATEMENTS The financial section of the comprehensive annual financial report contains the following information: Independent Auditor's Report, Management's Discussion and Analysis (this section), the Basic Financial Statements, and the Supplementary Information section, an optional section that presents combining and budgetary schedules for individual non -major funds. The Basic Financial Statements are comprised of three components: 1) Government - wide Financial Statements, 2) Fund Financial Statements and, 3) Notes to the Financial Statements. The Management's Discussion and Analysis is intended to be an introduction to the Basic Financial Statements. BASIC FINANCIAL STATEMENTS Government -wide Financial Statements — The Government -wide Financial Statements are intended to provide a "Big Picture" view of the City as a whole using accounting methods similar to those used by private sector companies. The statement of net assets includes all of the City's assets (including non - spendable assets like streets, roads, and land rights) and liabilities (including long -term liabilities that may be paid over twenty or so more years). All of the current year revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two Government -wide Financial Statements report the City's net assets and how they have changed. Net assets — the difference between the City's assets and liabilities — is one way to measure the City's financial health, or position. Over time, increases or decreases in the City's net assets are an indicator of whether its financial health is improving or deteriorating, respectively. To assess the overall health of the City, one should also consider additional non - financial factors such as changes in the City's property tax base and the condition of the City's roads. The Government -wide Financial Statements of the City are divided into two categories: Governmental Activities — This statement depicts the extent to which programs are self- supporting and the net amount provided by property taxes and other general revenues. Most of the City's basic services are included in this category, such as the public safety, public works, community development and community services departments, and general administration. Taxes and other general revenues finance most of these activities. Business -type Activities — The City accounts for its Water and Wastewater utilities as business enterprises. The City charges fees to customers to recover the cost of supplying the Water and Wastewater services it provides. 4 Fund Financial Statements — Funds are accounting devices that the City uses to track and control resources intended for specific purposes. The Fund Financial Statements provide more detailed information about the City's most significant funds (major funds) but not the City as a whole. Some funds are required by State and Federal law or by bond covenants. Other funds are utilized simply to control and manage resources intended for particular purposes. The City utilizes three broad categories of funds: Governmental Funds — Governmental Funds are used to account for essentially the same functions reported as Governmental Activities in the Government -wide Financial Statements. However, unlike the Government -wide Financial Statements, Governmental Fund Financial Statements utilize the financial resources measurement focus and thus concentrate on near -term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Consequently, the Governmental Fund Financial Statements provide a detailed short- term view that helps a reader determine whether there are more or fewer financial resources that can be spent in the near future to finance City programs. Also included in the Governmental Funds are Permanent Funds. These funds are used to report resources that are legally restricted for the extent that only earnings, not principal, may be used for purposes that support City programs. Proprietary Funds — Services for which the City charges customers a fee are generally reported in Proprietary Funds (Enterprise Funds and Internal Service Funds). Like the Government -wide Financial Statements, these funds provide both long and short-term financial information utilizing the economic resources measurement focus. The City's Enterprise Funds (Water and Wastewater Funds) are individual funds represented in the combined presentation of Business -type Activities in the Government -wide Financial Statements. The individual fund presentation provides more detailed information about each business segment, its operating statements, and statements of cash flow. The City also uses Internal Service Funds that are utilized to report and allocate the cost of certain centrally managed and operated activities (e.g. fleet maintenance, risk management, etc.). Because the Internal Service Funds primarily serve the government, they are reported with Governmental Activities rather than the Business - type Activities in the Government -wide Financial Statements. Fiduciary Funds — The City utilizes Fiduciary Funds to account for assets held by the City in a trustee capacity, or as an agent for other governmental entities, private organizations, or individuals. All of the City's fiduciary activities are reported in a separate statement of fiduciary net assets and a statement of changes in fiduciary net assets. We exclude these activities from the City's Government -wide Financial Statements because the City cannot use these assets to finance its operations. Notes to the Financial Statements — The financial statements also include the Notes to the Financial Statements that provide important narrative details about the information contained in the financial statements. Information contained in the Notes to the Financial Statements is critical to a reader's full understanding of the Government -wide and Fund Financial Statements. 5 Supplementary Information - In addition to the required elements of the Basic Financial Statements, we have also included a Supplementary Information section, which includes budgetary and combining schedules that provide additional details about the City's non -major Governmental Funds, Internal Service Funds, and Fiduciary Funds. GOVERNMENT -WIDE FINANCIAL ANALYSIS Net Assets - Net assets may serve over time as a useful indicator of a government's financial position. The City's combined net assets for the year ended June 30, 2003, as shown in Table 1, were $1.615 billion. Table 1 Net Assets (in thousands) Invested in Capital Assets - By far the largest component of net assets, $1.504 billion (93 %), reflects the City's investment in capital assets (e.g., land, buildings, infrastructure, and equipment) less any related outstanding debt used to acquire those assets. The City's capital assets do not represent a financial resource and consequently are not available for future spending. Restricted Assets - An additional portion of the City's net assets, $37.7 million (2.3 %), represents resources that are subject to external restrictions on how they may be used. Unrestricted Assets - The remaining balance of unrestricted net assets, $73.6 million (4.6 %) may be used to meet the City's ongoing obligations to citizens and creditors. At the end of the fiscal year, the City reported positive balances in all three categories of net assets for both Governmental and Business -type Activities. [:1 Governmental Activities Business -Type Activities Total 2002 2003 2002 2003 2002 2003 Current and other assets $ 113,993 $ 124,006 $ 28,346 $ 26,763 $ 142,339 $ 150,770 Capital assets 1,421,683 1,441,059 98,420 101,677 1,520,103 1,542,736 Total assets 1,535,675 1,565,065 126,766 128,441 1,662,441 1,693,506 Long -term liabilities outstanding 45,593 48,437 9,765 9,765 55,358 58,202 Other liabilities 16,350 17,283 3,407 2,536 19,757 19,818 Total liabilities 61,942 65,720 13,172 12,301 75,114 78,020 Net assets Invested in capital assets, net of debt 1,393,947 1,412,372 87,470 91,912 1,481,418 1,504,285 Restricted 38,690 37,651 - - 38,690 37,651 Unrestricted 41,096 49,322 26,124 24,228 67,219 73,550 Total net assets, as restated $ 1,473,733 $ 1,499,345 $ 113,594 $ 116,140 $ 1,587,327 $ 1,615,485 Invested in Capital Assets - By far the largest component of net assets, $1.504 billion (93 %), reflects the City's investment in capital assets (e.g., land, buildings, infrastructure, and equipment) less any related outstanding debt used to acquire those assets. The City's capital assets do not represent a financial resource and consequently are not available for future spending. Restricted Assets - An additional portion of the City's net assets, $37.7 million (2.3 %), represents resources that are subject to external restrictions on how they may be used. Unrestricted Assets - The remaining balance of unrestricted net assets, $73.6 million (4.6 %) may be used to meet the City's ongoing obligations to citizens and creditors. At the end of the fiscal year, the City reported positive balances in all three categories of net assets for both Governmental and Business -type Activities. [:1 Overall the City's net assets increased $28.2 million during the current fiscal year. Approximately $17.6 million (62 %) of this increase is attributable to the capital contribution of land known as Arroyo Park. Excluding this Special item, net assets increased $10.6 million in the current year reflecting generally favorable economic conditions, high levels of service charge activity, and a significant amount of grants and contributions that fund City programs. The key financial activity for the year ended June 30, 2003 is as follows: Revenues: Program Revenues: Charges for services Operating grants and capital contributions Capital grants and contributions General Revenues: Taxes: Property taxes Sales tax Transient occupancy taxes Other taxes Investment related income Property income Capital contributions Sale of service rights Miscellaneous Total revenues Expenses: General government Public safety Public works Community development Community services Interest Water Wastewater Total expenses Increases in net assets before transfers Transfers Increase in net assets Net assets, beginning, as restated Net assets, ending Table 2 Changes in Net Assets (in thousands) Governmental Activities Business -Type Activities Total 2002 2003 2002 2003 2002 2003 $ 27,798 $ 29,683 $ 19,612 $ 19,258 $ 47,410 $ 48,941 7,891 8,751 - - 7,891 8,751 1,562 4,147 - - 1,562 4,147 33,584 18,797 7,691 10,640 3,265 836,206 25,000 2,293 974,728 39,475 - 20,134 - 8,055 - - 9,524 - 2,430 1,317 946 - 27 30 17,837 - - 1,815 141,850 20,956 20,234 33,584 39,475 18,797 20,134 7,691 8,055 10,640 9,524 4,582 3,376 27 30 836,206 17,837 25,000 - 2,293 1,815 995,683 162,085 12,793 10,800 - - 12,793 10,800 47,169 56,522 - - 47,169 56,522 30,321 32,089 - - 30,321 32,089 4,471 5,782 - - 4,471 5,782 11,044 10,404 - - 11,044 10,404 517 674 - - 517 674 - - 14,807 14,540 14,807 14,540 - - 2,589 3,115 2,589 3,115 106,315 116,271 17,395 17,655 123,710 133,926 868,413 25,579 3,560 2,579 871,973 28,158 - 33 - (33) - - 868,413 25,612 3,560 2,546 871,973 28,158 605,320 1,473,733 110,034 113,594 715,354 1,587,327 $ 1,473,733 $ 1,499,345 $ 113,594 $ 116,140 $ 1,587,327 $ 1,615,485 7 Governmental Activities — The cost of all governmental activities in the current fiscal year was $116.3 million. As shown in the statement of activities, $29.7 million of the costs was paid by those who directly benefited from the programs, $12.9 million was financed by contributions and grants received from other governmental organizations, developers, and property owners for both capital and operating activities, and $73.7 million was subsidized through general City taxes. Net assets for governmental activities of the City at the beginning of the year were $1.474 billion, and increased by $25.6 million by the end of the year accounting for 91% of the total growth of net asset for the City as a whole. Of the $25.6 million increase, $17.6 million represents the contributed capital mentioned above. The City is a full service city providing residents and visitors with the following functional services: General Government is comprised of six departments (City Council, City Clerk, City Manager, City Attorney, Human Resources, and Administrative Services) providing general governance, executive management, legal services, records management, risk management, finance, accounting, and information technology services. Public Safety is comprised of two departments (Police and Fire) providing general law enforcement, fire suppression and prevention services, paramedic and medical transport services, disaster preparedness, and ocean lifeguard services. Public Works is comprised of two departments (Public Works and General Services) providing, engineering, construction and maintenance of public streets, highways, buildings, beaches, parks, and related infrastructure; as well as traffic engineering, street lighting, and trash disposal services. Community Development is comprised of two departments (Planning and Building) that provide planning and zoning services; economic development services, and building plan check and code enforcement services. Community Services is comprised of two departments (Libraries & Arts and Recreation & Senior Services) providing library services, cultural and arts programs, recreation services, and senior social and transportation services. Business Enterprise Operations are overseen by one department (Utilities) providing water and wastewater services. [3 Each programs' net cost (total cost less revenues generated by the activities) is presented below. The net cost shows the extent to which the City's general taxes support each of the City's programs. General government Public safety Public works Community development Community services Interest $60 $50 $40 $30 $20 $10 $0 Table 3 Governmental Activities (in thousands) 2002 Total Cost Net Cost of Service of Service $ 12,793 $ (10,274) 47,169 (34,767) 30,321 (18,833) 4,471 (1,235) 11,044 (3,436) 517 (517) $ 106,315 L L 2003 Total Cost Net Cost of Service of Service $ 10,800 $ (7,791) 56,522 (43,808) 32,089 (18,426) 5,782 (1,759) 10,404 (1,232) 674 (674) $ 116,271 $ (73,691) Table 4 Program Expenses and Revenue - Governmental Activities Year Ended June 30, 2003 (in Millions) General Public Safety Public Works Community Community Government Development Services ❑Total Expenses ■Program Revenues Interest Of the $73.7 million in general revenues that financed the Governmental Activities, 60% was utilized for Public Safety, 25% was utilized for Public Works, and the remaining 15% supplemented Community Development, Community Services, General Government, and Interest. 9 Table 5 Governmental Activities Year Ended June 30, 2003 Sources of Revenue (Excluding Special Items) 4% 24% 10% ■ Charges for SenAces ■ Contributions Li Taxes ❑ Other 28% Functional Expenses 9% 1% 9% ■ General Government ■ Public Safety [3 Public Works :3 Community Development 8% ■ Community SeNces ■ Interest Major Governmental Activities in the current fiscal year included the following: Revenues: • Excluding the Special Item, the combined program and general revenue for all governmental activities is $124.3 million in the current year. Of the $124.3 million, 34% represents program revenue, 32% is from property taxes, and 16% is from sales taxes and transient occupancy taxes. The remaining revenue sources of 18% are represented by significantly smaller sources and are broadly diverse. • As mentioned above, the City reported a Special item related to the capital contribution of park land known as Arroyo Park. The contribution resulted in a one time infusion of $17.6 million into the statement of activities, and increased the capital assets of the City by the estimated value of the land at time of donation. • The City's combined program revenue and general revenue is $141.9 million. This amount includes one Special item totaling $17.6 million and operating /capital grants and contributions of $12.9 million. Overall, excluding the Special item, combined program revenue and general revenue is up $10.5 million from the prior year. The $10.5 million net increase over prior year is a combination of a few key factors: IN • Charges for services were up $1.9 million from the previous year from the net effect of increases and decreases within the various functions of the City. The most significant swings within this account related to increases in Public Safety and General Government charges for services and minor decreases in the other functions. • Operating and capital grants were up $3.4 million over the prior year primarily due to the $1.1 million of donations received for the Mariners Library Project, several grants related to water quality, and a myriad of less significant increases from a variety of contribution and grant sources. • Property taxes were up $5.9 million in the current year. Over the past 10 years, property taxes revenue have increased an average of 7.7% per year; however in the current year, the assessed valuation of all property within the City jumped by 26.7% due to the addition of property in the newly annexed area known as Newport Coast. • Sales and transient occupancy taxes are up $1.7 million (6 %) representing a healthy increase in the local economy. • All other general tax revenues were down a net $1.1 million (10.5 %). The most significant decreases occurred in the motor vehicle license fees and also in franchise taxes as the cable companies no longer have to pay franchise fees on the internet services they provide. Expenses • In the current year, expenses for all governmental activities are $116.3 million. Overall, the amount is up $10 million (8.5 %) from the prior year which can be attributed to the following factors: • General Government expenses are down almost $2 million (15.6 %) when compared to the prior year. In recent years there has been a profusion of expenses related to the John Wayne Airport Settlement Agreement ($4.1 M in the previous year); however, legal cost associated with the continuous effort significantly tapered off in the current year. • Public Safety expenses are up $9.4 million (16.6 %) in the current year, reflecting the first full year of the City providing services to the newly annexed 7,779 acre region known as Newport Coast. In addition to the increase in safety services provided, safety PERS rates increased from an annual average of 5.2% in 2002 -2003 to 12% in 2002 -2003. • Public Works expenses are up $1.8 million (5.9 %) in the current year, which is due to a combination of less significant increases to General Services salary related expenses and maintenance and operation related expenses. • Community Development expenses were up $1.3 million (22.7°/x) primarily due to costs associated with the General Plan update process. 11 • Of the $116.3 million, 4% includes costs associated with repair and maintenance of City infrastructure, facilities, and major technology systems, and 7% is depreciation expense. These capital related items were all functionally distributed with the vast majority of activity allocated to Public Works ($8.9 million). Business -type Activities — Business -type activities are financed primarily by fees charged to external parties for goods and services. The City's two business -type activities, water and wastewater utilities, increased the City's net assets by $2.5 million, accounting for less than 9% of the total growth in the City's net assets. Of the $2.5 million increase in net assets, $1.9 million represents the net revenue from water activity, $346,195 represents net expenses from wastewater activity, and the remaining $942,919 represents investment income, net increase in fair value of investments, and property income. $20 $15 $10 $5 $0 Table 6 Program Expense & Revenue - Business -type Activities Year Ended June 30, 2003 (in Millions) Water Wastewater ■Total Expenses ■Program Revenues Major Business -type Activities in the current fiscal year included the following: Water Of the $14.5 million in water related expenses, 34% is for the purchase of water, 20.8% is for maintenance, supplies and depreciation of the water system, 20% covers employee related costs, and the remaining 25.2% is collectively attributable to the amount paid to internal services funds, interest related to debt service payments, and other miscellaneous expenses. Wastewater Of the $3.1 million in wastewater related expenses, $1.4 million (45 %) is maintenance, supplies and depreciation of the wastewater system, almost one million (31%) is employee related costs, and the remaining 24% is attributable to other individually insignificant expenses. lira FINANCIAL ANALYSIS OF THE CITY'S FUNDS As noted earlier, the City uses fund accounting to highlight available financial resources and to ensure and demonstrate compliance with finance - related legal requirements. Governmental Funds — Utilizing the financial resources measurement focus, the City's Governmental Funds provide information on near -term inflows and outflows, and balances of spendable resources. This information is useful in assessing the City's financing requirements. In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. Fund Balance — As of the end of the current fiscal year, the City's Governmental Funds reported combined fund balances of $74.5 million, an increase of $7.8 million from the prior year. The General Fund represented $36.3 million or 48.7% of the combined fund balances of the Governmental Funds. Reserved Fund Balance — The City has $9.6 million in fund balance that is reserved to indicate it is not available to finance new activities because it has already been committed: 1) to fulfill contractual obligations and purchase orders ($8.5 million), 2) as a debt service reserve consistent with bond covenants ($566,317), and 3) for a variety of other restrictions that make these resources unavailable for spending ($480,442). Unreserved Fund Balance — The remaining $64.9 million is classified as unreserved fund balance, which is available for spending at the City's discretion. Major activities in the Governmental Funds in the current fiscal year included the following: • The General Fund ended the year with a $36.3 million fund balance, a net increase of $8 million. Excluding net transfers out of $11.6 million, excess revenues over expenditures totaled $19.8 million. See note (13) in the Notes to the Financial Statements for more information regarding interfund transfers. • The activities of the Tide and Submerged Land Fund are routinely subsidized by the General Fund. At year end, the General Fund transferred sufficient resources ($12.4 million) to cover the Tide and Submerged Land Fund's deficit and other outstanding commitments and designations of fund balance. The Tide and Submerged Land Fund ended the current year with $813,852 in fund balance. • The Newport Coast Annexation Fund ended the year with a $13.9 million fund balance. The net decrease of $1.1 million in fund balance in the current year relates primarily to regularly scheduled debt service payments. Proprietary Funds — The City's Proprietary Funds (Enterprise and Internal Service Funds) presented in the Fund Financial Statements section basically provide the same type of information in the Government -wide Financial Statements, but include individual segment information. 13 Major activities in the Enterprise Funds in the current fiscal year included the following: • Net assets in the Water Fund grew by $3.2 million and decreased in the Wastewater Fund by $12,701. Unrestricted net assets at year -end was $11.6 million for the Water Fund, and $3.3 million in the Wastewater Fund. • Other factors concerning the finances of these two funds have already been addressed above in the discussion of the City's business -type activities. Major activities in the Internal Service Funds in the current fiscal year included the following: • Net assets at fiscal year end for the Internal Service Funds was $4.7 million. Included in this amount is an accumulated deficit in the Insurance Reserve Fund and the Compensated Absence Fund in the amounts of $4.2 million and $6.8 million, respectively. • Net assets decreased $2.2 million in the current year. The decrease is a combination of increases and decreases in the various Internal Service Funds; however, the most significant factor is the $3.4 million decrease in the Insurance Reserve Fund which is primarily the result of a significant increase in insurance premium rates. Also a contributing factor, the Equipment Maintenance Fund contributed $1.1 million of the an increase in current year net assets through user fees charged to departments related to the maintenance and replacement of the City's rolling stock fleet. GENERAL FUND BUDGETARY HIGHLIGHTS The final appropriations for the General Fund at year -end were $2.5 million more than the original budget and total actual expenditures were $5.6 million less than the final budget. Several factors moving in opposing directions contributed to the final variance can be briefly summarized as follows: Changes to Original Budget • $900,000 allocated to public safety activities for a pension contract amendment • $975,000 in increases allocated to community development for expenditures related to the General Plan Update Of this increase, $650,000 was funded from the receipt of additional grants and donations. The remaining funds were budgeted from available fund balance. During the year, however, revenues exceeded budgetary estimates and expenditures were less than budgetary estimates therefore eliminating the need to draw upon existing fund balance. Variance with Final Budget • The timing of capital projects in this fund accounts for over $3 million of this variance, most of which was encumbered and will be expended in the following fiscal year. • The timing of the General Plan update process accounts for another $800 thousand. 14 • The remaining $1.8 million in variances are the opposing results of a variety of activities and are individually insignificant. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The City's investment in capital assets for governmental and business -type activities as of June 30, 2003, amounts to $1.543 billion (net of accumulated depreciation). This investment in a broad range of capital assets includes land, buildings and systems, improvements, machinery and equipment, park facilities, roads, storm drains, piers, oil wells, sound walls, and bridges. The total net increase (including additions and deletions) of $22.6 million represents a 1.5% increase over last year. Included in the $22.6 million net increase is the $17.6 million Special item. Table 7 Capital Assets at Year End (net of depreciation, in thousands) Totals $ 1,421,683 $ 1,441,059 $ 98,420 $ 101,677 $ 1,520,103 $ 1,542,736 Major capital asset events during the current fiscal year included the following: • Excluding the $17.6 million in capital contributions related to the Special item mentioned above, the City capitalized $19 million in capital assets in the current year. Of the $19 million, $15.1 million was paid for through current year expenses and the remaining $3.9 million represents reclasses from work in progress paid for in previous years. • Of the $30.4 million capitalized as governmental assets in the current year, $17.6 million represents the capital contribution, $1.9 million for phase two of three for the Balboa Village Improvements, $1.3 million in improvements to various beach restroom and parking facilities, $260 thousand for a fire rescue boat, $490 thousand in improvements to the Balboa Island Bridge, $5.7 million in other infrastructure related improvements, and the remainder for miscellaneous facility and park improvements. • Of the $6.3 million capitalized in the current year as business -type assets, $1.5 million represented additions and work in progress for major repairs and upgrades to the wastewater mains, and $4.8 million as current year capital additions and work in progress to the water system. 15 Governmental Activities Business -Type Activities Total 2002 2003 2002 2003 2002 2003 Land $ 1,201,894 $ 1,219,745 $ 2,016 $ 2,016 $ 1,203,910 $ 1,221,761 Structures 21,307 22,151 124 119 21,432 22,270 Equipment 8,311 8,615 5 2 8,316 8,617 Infrastructure 180,654 178,786 94,676 95,867 275,330 274,652 Work in progress 9,517 11,762 1,598 3,673 11,114 15,435 Totals $ 1,421,683 $ 1,441,059 $ 98,420 $ 101,677 $ 1,520,103 $ 1,542,736 Major capital asset events during the current fiscal year included the following: • Excluding the $17.6 million in capital contributions related to the Special item mentioned above, the City capitalized $19 million in capital assets in the current year. Of the $19 million, $15.1 million was paid for through current year expenses and the remaining $3.9 million represents reclasses from work in progress paid for in previous years. • Of the $30.4 million capitalized as governmental assets in the current year, $17.6 million represents the capital contribution, $1.9 million for phase two of three for the Balboa Village Improvements, $1.3 million in improvements to various beach restroom and parking facilities, $260 thousand for a fire rescue boat, $490 thousand in improvements to the Balboa Island Bridge, $5.7 million in other infrastructure related improvements, and the remainder for miscellaneous facility and park improvements. • Of the $6.3 million capitalized in the current year as business -type assets, $1.5 million represented additions and work in progress for major repairs and upgrades to the wastewater mains, and $4.8 million as current year capital additions and work in progress to the water system. 15 • Work in progress for governmental activities as of the close of the fiscal year reached $11.8 million. Major projects near completion included Bonita Canyon Sports Park improvements ($6.8 million), Balboa Village Phase II improvements ($1.9 million), Mariners Library ($211,274), various pavement overlay projects ($1.7 million), and $1.2 million in miscellaneous improvement projects. • Work in progress for business -type activities as of the close of the fiscal year totaled $3.7 million primarily relating to the water and wastewater main projects, pump station improvements, and the Big Canyon Reservoir Cover project. Additional information on the City's capital assets can be found in Note (5) of the Notes to the Financial Statements. Long -term Debt At the end of the current fiscal year, the City had total long -term debt outstanding of $58.2 million for all governmental and business -type activities. Table 8 Outstanding Debt at Year -End (in thousands) Governmental Activities Business -Type Activities Total 2002 2003 2002 2003 2002 2003 Certificates of participation $ 6,365,000 $ 6,110,000 $ - $ - $ 6,365,000 $ 6,110,000 Note payable 2,219,660 2,082,483 - - 2,219,660 2,082,483 Pre - annexation agreement 18,000,000 16,800,000 - - 18,000,000 16,800,000 CDBG Loan - 2,400,000 - - - 2,400,000 Capital leases 1,150,927 1,293,586 - - 1,150,927 1,293,586 Revenue bonds - - 10,950,000 9,765,000 10,950,000 9,765,000 Claims and judgments 6,431,000 7,326,000 - - 6,431,000 7,326,000 Workers' compensation payable 3,270,000 4,285,236 - - 3,270,000 4,285,236 Compensated absences 8,156,088 8,139,727 - - 8,156,088 8,139,727 Totals $ 45,592,675 $ 48,437,032 $ 10,950,000 $ 10;950,000 $ 56,542,675 $ 58,202,032 The City's total debt increased by $1.7 million during the current fiscal year as the net result of regular debt service payments and the liability associated with the CDBG loan. The City's Revenue Bonds and Certificates of Participation were insured and therefore, maintain "AAA" rating from Standard & Poor's Corporation and an "Aaa" from Moody's Investors Services. Additional information on the City's long -term debt can be found in Note (6) of the Notes to the Financial Statements. KIM FACTORS EFFECTING NEXT YEAR'S BUDGET Overall the 2003 -2004 operating budget excluding capital improvement projects, debt service and internal charges increased 2.03% over the 2002 -2003 amended budget. A brief summary of the factors considered when preparing the 2003 -2004 budget are as follows: • The uncertainty of the current State of California budget and deficit resulted in the following revenue reductions: Motor Vehicle License Fee ($2,850,000), Public Library Foundation Program ($100,000), and SB 90 Mandated Cost Reimbursement ($250,000). • Negotiated cost of living adjustments ranging from 2% to 4% account for a portion of the increase to the City's operating budget. • The City budgeted for a $3.87 million increase to the operating budget to account for increases in the defined benefit pension rates. CONTACTING THE CITY'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City's finances and to demonstrate the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City's Administrative Services Department, 3300 Newport Boulevard, Newport Beach, CA 92663 -3884, (949) 644 -3126. 17 This page left blank intentionally. M-1 Government -,vide Financial Statements �EWPCOM CITY OF NEWPORT BEACH Statement of Net Assets June 30, 2003 Net Assets Invested in capital assets, net of related debt Governmental Business -type Restricted for: Activities Activities Total Assets Public safety 368,973 - 368,973 Cash and investments (note 4) $ 95,449,114 $ 21,745,927 $ 117,195,041 Receivables: - 10,727,146 Endowment - nonexpendable 3,000 Accounts 7,254,978 3,972,234 11,227,212 Notes 50,000 - 50,000 Lease - - - Interest 1,243,108 - 1,243,108 Intergovernmental receivables 14,061,393 - 14,061,393 Restricted cash with fiscal agent (note 4) 2,285,327 1,427,475 3,712,802 Internal balances 382,179 (382,179) - Investment in joint venture (note 15) 2,510,000 - 2,510,000 Prepaid items 303,775 - 303,775 Inventory 367,607 - 367,607 Other 98,971 - 98,971 Capital assets, (note 5): Non - depreciable 1,231,507,178 5,689,010 1,237,196,188 Depreciable 314,845,961 135,816,446 450,662,407 Accumulated depreciation (105,294,604) (39,828,251) (145,122,855) Total assets 1,565,064,987 128,440,662 1,693,505,649 Liabilities Accounts payable 5,557,705 2,116,747 7,674,452 Accrued salaries and benefits 4,420,019 131,339 4,551,358 Accrued interest payable 162,419 209,086 371,505 Deposits payable 5,392,637 78,706 5,471,343 Deferred revenue 1,749,735 - 1,749,735 Noncurrent liabilities (note 6): Due within one year 7,378,961 1,230,000 8,608,961 Due in more than one year 41,058,071 8,535,000 49,593,071 Total liabilities 65,719,547 12,300,878 78,020,425 Net Assets Invested in capital assets, net of related debt 1,412,372,465 91,912,205 1,504,284,670 Restricted for: Community development 6,960,431 - 6,960,431 Public safety 368,973 - 368,973 Public works 19,590,995 - 19,590,995 Community services 10,727,146 - 10,727,146 Endowment - nonexpendable 3,000 - 3,000 Endowment - expendable 147 - 147 Unrestricted 49,322,283 24,227,579 73,549,862 Total net assets $ 1,499,345,440 $ 116,139,784 $ 1,615,485,224 See accompanying notes to basic financial statements. 19 CITY OF NEWPORT BEACH Statement of Activities Year Ended June 30, 2003 General revenues: Taxes: Property taxes Sales taxes Transient occupancy taxes Business license tax Franchise taxes Motor vehicle license tax Motor vehicle fines Other taxes Investment income Net increase in fair value of investments Gain on sale of assets Other Property income Share of joint venture net income (note 15) Capital contributions (note 16) Transfers (Note 13) Total general revenues, special items, and transfers Change in net assets Net assets at beginning of year, as restated (note 18) Net assets at end of year See accompanying notes to basic financial statements. all Program Revenues Operating Capital Total Charges for Grants and Grants and Program Expenses Services Contributions Contributions Revenues Functions /Programs Primary government: Governmental activities: General government $ 10,799,630 $ 3,008,162 $ - $ - $ 3,008,162 Public safety 56,521,871 11,603,584 1,110,404 - 12,713,988 Public works 32,089,038 5,009,048 6,036,269 2,618,032 13,663,349 Community development 5,782,215 4,022,904 - - 4,022,904 Community services 10,404,285 6,039,226 1,603,892 1,528,696 9,171,814 Interest on long -term debt 673,944 - - - - Total governmental activities 116,270,983 29,682,924 8,750,565 4,146,728 42,580,217 Business -type activities: Water 14,540,036 16,469,284 - - 16,489,284 Wastewater 3,115,136 2,768,941 - - 2,768,941 Total business -type activities 17,655,172 19,258,225 - - 19,258,225 Total primary government $ 133.926,155 S 48,941.149 $ 8,756,565 S 4,146,728 $ 61.838,442 General revenues: Taxes: Property taxes Sales taxes Transient occupancy taxes Business license tax Franchise taxes Motor vehicle license tax Motor vehicle fines Other taxes Investment income Net increase in fair value of investments Gain on sale of assets Other Property income Share of joint venture net income (note 15) Capital contributions (note 16) Transfers (Note 13) Total general revenues, special items, and transfers Change in net assets Net assets at beginning of year, as restated (note 18) Net assets at end of year See accompanying notes to basic financial statements. all Net (Expense) Revenue and Changes in Net Assets Primary Government Governmental Business -type 1,949,248 Activities Activities Total $ (7,791,468) $ - $ (7,791,468) (43,807,883) - (43,807,883) (18,425,689) - (18,425,689) (1,759,311) - (1,759,311) (1,232,471) - (1,232,471) (673,944) - (673,944) (73,690,766) - (73,690,766) - 1,949,248 1,949,248 - (346,195) (346,195) - 1,603,053 1,603,053 $ (73,690,766) $ 1,603.053 $ (72,087,713) 39,474,864 - 39,474,864 20,133,598 - 20,133,598 8,055,266 - 8,055,266 2,030,845 - 2,030,845 2,465,584 - 2,465,584 3,970,103 - 3,970,103 742,957 - 742,957 314,725 - 314,725 2,111,451 505,619 2,617,070 318,686 440,697 759,383 130,954 - 130,954 1,294,628 - 1,294,628 - 29,880 29,880 389,418 - 389,418 17,836,792 - 17,836,792 33,277 (33,277) - 99,303,148 942,919 100,246,067 25,612,382 2,545,972 28,158,354 1,473,733,056 113,593,814 1,587,326,870 $ 1,499,345,438 $ 116,139,786 $ 1,615,485,224 See accompanying notes to basic financial statements. 21 This page left blank intentionally. PJa Fund Financial Statements �Ewpcom Governmental Funds GOVERNMENTAL FUNDS Major Funds The General Fund is used to account for fiscal resources which are dedicated to governmental operations of the City, and not required to be accounted for in another fund. The Tide and Submerged Land Fund is a Special Revenue Fund used to account for all revenues and expenditures related to the operation of the City's tidelands, including beaches and marinas. The Newport Coast Annexation Fund is a Special Revenue Fund used to account for revenues and expenditures related to the Newport Coast Annexation Agreement. Non -major Funds Non -major governmental funds are those governmental funds which do not meet the criteria of a major fund. For reporting purposes in this section, they are combined together as Other Governmental Funds. This page left blank intentionally. 23 CITY OF NEWPORT BEACH Governmental Funds Balance Sheet June 30, 2003 See accompanying notes to basic financial statements. 24 Tide and Newport Other Submerged Coast Governmental Assets General Land Annexation Funds Totals Cash and investments (note 4) $ 38,812,500 $ 536,482 $ 13,937,697 $ 23,930,706 $ 77,217,385 Receivables: Accounts 4,514,490 745,859 - 1,972,290 7,232,639 Notes 50,000 - - - 50,000 Interest 1,243,108 - - - 1,243,108 Intergovernmental receivables 3,777,337 - 10,000,000 284,056 14,061,393 Restricted cash with fiscal agent (note 4) - - - 2,285,327 2,285,327 Due from other funds(note12) 1,153,574 - - - 1,153,574 Prepaid items 256,706 - - - 256,706 Inventory 170,738 - - - 170,738 Other - - 98,971 98,971 Total assets $ 49,978,453 $ 1,282,341 $ 23,937,697 $ 28,571,350 $ 103,769,841 Liabilities and Fund Balances Liabilities: Accounts payable $ 3,003,921 $ 292,178 $ 16,836 $ 1,912,652 $ 5,225,587 Accrued payroll 4,351,634 31,364 - - 4,382,998 Deposits payable 5,247,690 144,947 - - 5,392,637 Deferred revenue 1,052,424 - 10,000,000 2,022,829 13,075,253 Due to other funds (note 12) - - 1,153,574 1,153,574 Total liabilities 13,655,669 468,489 10,016,836 5,089,055 29,230,049 Fund balances: Reserved for encumbrances 3,915,976 457,777 23,322 4,123,880 8,520,955 Reserved for debt service - - - 566,317 566,317 Reserved for permanent endowment - - - 3,000 3,000 Reserved for prepaid items 256,703 - - - 256,703 Reserved for inventories 170,739 - - - 170,739 Reserved for long -term receivable 50,000 - - - 50,000 Unreserved: Designated for special purposes 11,133,104 356,075 13,897,539 18,789,098 44,175,816 Designated for stabilization 2,165,449 - - - 2,165,449 Designated for contingencies 10,827,245 - - - 10,827,245 Designated for capital projects 5,790,223 - - - 5,790,223 Undesignated, reported in: General fund 2,013,345 - - - 2,013,345 Total fund balances 36,322,784 813,852 13,920,861 23,482,295 74,539,792 Total liabilities and and fund balances $ 49,978,453 $ 1,282,341 $ 23.937.697 S 28,571,350 $ 103,769,841 See accompanying notes to basic financial statements. 24 CITY OF NEWPORT BEACH Governmental Funds Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets June 30, 2003 Fund balances of governmental funds $ 74,539,792 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets net of depreciation have not been included as financial resources in governmental fund activity. Amount excludes capital assets from internal service funds which are added below. 1,433,452,167 Long term debt from the General Long Term Debt Account Group that have not been included in the governmental fund activity. Amounts exclude long -term debt activity from internal service funds which have been added below: Certificates of participation payable (6,110,000) Note payable (2,082,483) Pre - annexation agreement (16,800,000) CDBG loan (2,400,000) Accrued interest payable for the current portion of interest due on long -term debt (162,419) has not been reported in the governmental funds. Some of the revenue will be collected after year -end, but is not available soon enough to pay for the current period's expenditures, and therefore is reported as deferred revenue in the governmental funds. 11,325,518 Internal service funds are used by management to charge the costs of certain activities, such as self- insurance, workers' compensation, compensated absences, retiree insurance and fleet management, to individual funds. The assets (including capital assets) and liabilities of the internal service funds must be added to the statement of net assets. 4,690,686 Investment in joint ventures is not a current financial resource and therefore not reported in the governmental funds. 2,510,000 Internal balance created by the consolidation of internal service fund activities related to enterprise funds is not reported in the governmental funds. 382,179 Net assets of governmental activities $ 1,499,345,440 See accompanying notes to basic financial statements. 25 CITY OF NEWPORT BEACH Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances Year Ended June 30, 2003 See accompanying notes to basic financial statements. K-i Tide and Newport Other Submerged Coast Governmental General Land Annexation Funds Totals Revenues Taxes and assessments: Property $ 39,474,864 $ - $ - $ - $ 39,474,864 Sales 20,133,598 - - - 20,133,598 Transient occupancy 8,055,266 - - - 8,055,266 Other 4,796,662 - - 404,446 5,201,108 Intergovernmental 6,003,149 18,333 - 4,358,310 10,379,792 Licenses and permits 2,305,118 1,039,968 - 1,052,434 4,397,520 Charges for services 11,099,872 56,422 - - 11,156,294 Fines and forfeitures 3,380,531 11,623 - 56,672 3,448,826 Investment income 890,479 47,556 250,448 752,563 1,941,046 Net increase in fair value of investments 776,245 40,815 208,516 443,106 1,468,682 Property income 5,661,293 5,285,728 - - 10,947,021 Donations 532,657 - - 1,286,502 1,819,159 Other 410,251 65,728 - 2,114,525 2,590,504 Total revenues 103,519,985 6,566,173 458,964 10,468,558 121,013,680 Expenditures Current: General government 9,633,085 56,190 - - 9,689,275 Public safety 38,587,018 13,813,431 - 634,928 53,035,377 Public works 18,200,691 2,603,450 - 455,641 21,259,782 Community development 5,263,375 - - 194,123 5,457,498 Community services 8,175,901 1,078,207 - 128,500 9,382,608 Capital outlay 3,624,758 857,575 32,397 10,170,167 14,684,897 Debt service (note 6): Principal 230,736 137,177 1,200,000 255,000 1,822,913 Interest and fiscal charges 2,852 99,885 43,300 383,771 529,808 Total expenditures 83,718,416 18,645,915 1,275,697 12,222,130 115,862,158 Excess (deficiency) of revenues over expenditures 19,801,569 (12,079,742) (816,733) (1,753,572) 5,151,522 Other financing sources (uses) Transfers in (note 13) 950,829 12,359,896 - 1,065,442 14,376,167 Transfers out (note 13) (12,997,688) - (298,228) (1,046,974) (14,342,890) Long -term debt issued 230,736 - - 2,400,000 2,630,736 Total other financing sources (uses) (11,816,123) 12,359,896 (298,228) 2,418,468 2,664,013 Net change in fund balances 7,985,446 280,154 (1,114,961) 664,896 7,815,535 Fund balances, beginning 28,337,338 533,698 15,035,822 22,817,399 66,724,257 Fund balances, ending $ 36,322,784 $ 813,852 $ 13,920,861 $ 23,482,295 $ 74,539,792 See accompanying notes to basic financial statements. K-i CITY OF NEWPORT BEACH Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year ended June 30, 2003 Net change in fund balances - total governmental funds $ 7,815,535 Amounts reported for governmental activities in the statement of activities differ from the amounts reported in the statement of activities because: Donations of capital assets do not report revenue in the governmental funds 17,578,871 Governmental funds report capital outlays as expenditures. However, in the statement of activities, the costs of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. 1,796,763 Repayment of debt service principal is an expenditure in the governmental funds, but the 1,822,913 repayment reduces long -term liabilities in the statement of net assets. Proceeds from long -term debt is an other financing source in the governmental funds, but new debt issuances increase long -term liabilities in the statement of net assets. (2,630,736) Accrued Interest for debt service. This is the net change in accrued interest for the current period. (53,504) Deferred revenue. This is the net change in deferred revenue for the current period. 754,218 Internal service funds are used by management to charge the costs of certain activities, such as self- insurance, workers' compensation, compensated absences, retiree insurance and fleet management, to individual funds. The net revenue of the internal service funds is reported in the statement of activities. (2,175,918) Investment in joint ventures creates an explicit, measurable equity interest reported only in the statement of activities. 389,418 Internal balance created by the consolidation of internal service funds activities related to enterprise funds is reflected as a reduction of revenues in the statement of activities. 314,824 Change in net assets of governmental activities $ 25,612,384 See accompanying notes to basic financial statements. 27 CITY OF NEWPORT BEACH General Fund Budgetary Comparison Statement For the Year Ended June 30, 2003 See accompanying notes to basic financial statements. 0:3 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues Taxes and assessments: Property $ 36,880,101 $ 36,880,101 $ 39,474,864 $ 2,594,763 Sales 19,841,351 19,841,351 20,133,598 292,247 Transient occupancy 8,298,000 8,298,000 8,055,266 (242,734) Other 4,930,000 4,930,000 4,796,662 (133,338) Intergovernmental 3,690,627 3,864,970 6,003,149 2,138,179 Licenses and permits 1,819,860 1,819,860 2,305,118 485,258 Charges for services 9,515,856 9,521,162 11,099,872 1,578,710 Fines and forfeitures 3,125,250 3,125,250 3,380,531 255,281 Investment income 1,500,000 1,500,000 890,479 (609,521) Net increase in fair value of investments - - 776,245 776,245 Property income 5,284,288 5,284,288 5,661,293 377,005 Donations 300,000 827,293 532,657 (294,636) Other 255,435 269,220 410,251 141,031 Total revenues 95,440,768 96,161,495 103,519,985 7,358,490 Expenditures General government: City council 1,103,215 1,118,215 1,327,729 (209,514) City clerk 370,832 374,406 355,939 18,467 City attorney 804,613 819,872 868,118 (48,246) City manager 855,633 1,093,814 994,278 99,536 Administrative services 4,948,641 5,103,527 4,940,375 163,152 Human resources 1,296,402 1,271,199 1,146,646 124,553 Total General government 9,379,336 9,781,033 9,633,085 147,948 Public safety: Police 24,620,249 25,303,367 24,784,447 518,920 Fire 13,548,114 14,268,915 13,802,571 466,344 Total Public safety 38,168,363 39,572,282 38,587,018 985,264 Public works: General services 13,710,515 13,894,785 13,708,213 186,572 Public works 3,482,851 3,507,751 3,149,064 358,687 Utilities 1,081,971 1,082,094 1,343,414 (261,320) Total Public works 18,275,337 18,484,630 18,200,691 283,939 See accompanying notes to basic financial statements. 0:3 Community development: Planning Building Total Community development Community services: Library Recreation and senior services Total Community services Capital outlay Debt service: Principal Interest and fiscal charges Total Debt service Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses) Transfers in Transfers out Long -term debt issued Total other financing sources (uses) Net change in fund balance Fund balance, beginning Fund balance, ending CITY OF NEWPORT BEACH General Fund Budgetary Comparison Statement (continued) 4,160,474 (8,759,089) (11,816,123) (3,057,034) 12,726,414 (1,952,973) 7,985,446 9,938,419 28,337,338 28,337,338 28,337,338 - $ 41,063,752 $ 26,384,365 $ 36,322,784 $ 9,938,419 See accompanying notes to basic financial statements. 29 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) 2,624,556 3,600,010 2,447,239 1,152,771 2,652,359 2,832,008 2,816,136 15,872 5,276,915 6,432,018 5,263,375 1,168,643 4,925,869 5,259,781 5,168,319 91,462 2,825,998 3,150,955 3,007,582 143,373 7,751,867 8,410,736 8,175,901 234,835 8,023,010 6,674,680 3,624,758 3,049,922 - - 230,736 (230,736) - - 2,852 (2,852) - - 233,588 (233,588) 86,874,828 89,355,379 83,718,416 5,636,963 8,565,940 6,806,116 19,801,569 12,995,453 4,160,474 4,160,474 950,829 (3,209,645) - (12,919,563) (12,997,688) (78,125) 230,736 230,736 4,160,474 (8,759,089) (11,816,123) (3,057,034) 12,726,414 (1,952,973) 7,985,446 9,938,419 28,337,338 28,337,338 28,337,338 - $ 41,063,752 $ 26,384,365 $ 36,322,784 $ 9,938,419 See accompanying notes to basic financial statements. 29 CITY OF NEWPORT BEACH Tide and Submerged Land Budgetary Comparison Statement For the Year Ended June 30, 2003 Expenditures General government 56,190 56,190 56,190 Variance with Public safety 13,813,431 13,813,431 13,813,431 Final Budget Public works Budgeted Amounts 2,597,645 Positive (5,805) Original Final Actual (Negative) Revenues Capital outlay 1,280,412 1,548,909 857,575 Intergovernmental $ 18,333 $ 18,333 $ 18,333 $ Licenses and permits 1,153,000 1,153,000 1,039,968 (113,032) Charges for services 33,500 33,500 56,422 22,922 Fines and forfeitures - - 11,623 11,623 Investment income - - 47,556 47,556 Net increase in fair value of investments - - 40,815 40,815 Property income 5,359,492 5,359,492 5,285,728 (73,764) Other - 40,000 65,728 25,728 Total revenues 6,564,325 6,604,325 6,566,173 (38,152) Expenditures General government 56,190 56,190 56,190 Public safety 13,813,431 13,813,431 13,813,431 - Public works 2,597,645 2,597,645 2,603,450 (5,805) Community services 1,517,185 1,093,963 1,078,207 15,756 Capital outlay 1,280,412 1,548,909 857,575 691,334 Debt service: Principal 137,177 137,177 137,177 - Interest and fiscal charges 99,885 99,885 99,885 Total expenditures 19,501,925 19,347,200 18,645,915 701,285 Excess (deficiency) of revenues over expenditures (12,937,600) (12,742,875) (12,079,742) 663,133 Other financing sources (uses) Transfers in - 12,359,896 12,359,896 - Transfers out (3,830,474) - - Total other financing sources (uses) (3,830,474) 12,359,896 12,359,896 - Net change in fund balance (16,768,074) (382,979) 280,154 663,133 Fund balance, beginning Fund balance, ending 533,698 533,698 533,698 $ (16,234,376) $ 150,719 $ 813,852 $ 663,133 See accompanying notes to basic financial statements. [till CITY OF NEWPORT BEACH Newport Coast Annexation Budgetary Comparison Statement For the Year Ended June 30, 2003 Expenditures Capital outlay 55,720 Variance 23,323 Debt service (note 6): with Final Principal Budget 1,200,000 Budgeted Amounts - Positive 43,890 Original Final Actual (Negative) Revenues Total expenditures 1,243,890 1,299,610 Intergovernmental $ - $ - $ - $ Investment income 468,390 468,390 250,448 (217,942) Net increase in fair value of investments - - 208,516 208,516 Total revenues 468,390 468,390 458,964 (9,426) Expenditures Capital outlay 55,720 32,397 23,323 Debt service (note 6): Principal 1,200,000 1,200,000 1,200,000 - Interest and fiscal charges 43,890 43,890 43,300 590 Total expenditures 1,243,890 1,299,610 1,275,697 23,913 Excess (deficiency) of revenues over expenditures (775,500) (831,220) (816,733) (33,339) Other financing uses Transfers out - - (298,228) (298,228) Net change in fund balance (775,500) (831,220) (1,114,961) (331,567) Fund balance, beginning 15,035,822 15,035,822 15,035,822 - Fund balance, ending $ 14,260,322 $ 14,204,602 $ 13,920,861 _L __1283,741L See accompanying notes to basic financial statements. 31 This page left blank intentionally. Kea Proprietary Funds PROPRIETARY FUNDS Business -type Activities The Water Fund is a Major Fund used to account for the operations of the City's water utility, a self- supporting activity which is entirely financed though user charges. The Wastewater Fund is a Major Fund used to account for the operations of the City's wastewater system, a self - supporting activity which is entirely financed through user charges. Governmental Activities The Internal Service Funds are used to allocate the cost of providing goods and services by one department to other departments on a cost reimbursement basis. CITY OF NEWPORT BEACH Proprietary Fund Statement of Net Assets June 30, 2003 Liabilities Current liabilities Accounts payable 1,973,135 Enterprise Funds 2,116,747 332,118 Accrued payroll 99,624 31,715 131,339 Governmental Capital leases - current - - Total Activities Workers' compensation - current - - Enterprise Internal Service Assets Water Wastewater Funds Funds Current assets: - - - 1,000,000 Cash and investments (note 4) $ 18,847,952 $ 2,897,975 $ 21,745,927 $ 18,231,729 Restricted cash with fiscal agent (note 4) 1,427,475 - 1,427,475 - Receivables: 78,682 24 78,706 - Accounts 3,442,610 529,624 3,972,234 22,339 Inventories - - - 196,869 Prepaid items 1,517,768 24 1,517,792 47,068 Total current assets 23,718,037 3,427,599 27,145,636 18,498,005 Noncurrent assets: 8,535,000 - 8,535,000 - Capital assets (note 5): - - - 862,975 Land 2,016,450 - 2,016,450 - Structures 205,793 - 205,793 - Equipment 132,246 - 132,246 18,946,775 Infrastructure 96,823,575 38,654,832 135,478,407 - Work in progress 2,924,641 747,919 3,672,560 - Less accumulated depreciation (29,838,844) (9,989,407) (39,828,251) (11,340,407) Total capital assets (net of accumulated depreciation) 72,263,861 29,413,344 101,677,205 7,606,368 Total noncurrent assets 72,263,861 29,413,344 101,677,205 7,606,368 Total assets 95,981,898 32,840,943 128,822,841 26,104,373 Liabilities Current liabilities Accounts payable 1,973,135 143,612 2,116,747 332,118 Accrued payroll 99,624 31,715 131,339 37,021 Capital leases - current - - - 430,611 Workers' compensation - current - - - 2,030,000 General liability - current - - - 2,260,000 Compensated absences - current - - - 1,000,000 Total current liabilities 2,072,759 175,327 2,248,086 6,089,750 Current liabilities payable from restricted assets: Deposits payable 78,682 24 78,706 - Accrued interest payable 209,086 - 209,086 - Bonds payable (note 6) 1,230,000 - 1,230,000 - Total current liabilities payable from restricted assets 1,517,768 24 1,517,792 Noncurrent liabilities: Bonds payable (note 6) 8,535,000 - 8,535,000 - Capitalleases - - - 862,975 Workers' compensation - - - 5,296,000 General liability - - - 2,025,236 Compensated absences - - - 7,139,727 Total noncurrent liabilities 6,535,000 - 8,535,000 15,323,938 Total liabilities 12,125,527 175,351 12,300,878 21,413,688 Net Assets Invested in capital assets, net of related debt 62,498,861 29,413,344 91,912,205 6,312,782 Unrestricted 21,357,510 3,252,248 24,609,758 (1,622,097) Total Net Assets $ 83,856,371 $ 32,665,592 116,521,963 $ 4,690,685 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds (382,179) Net assets of business -type activities $ 116,139,784 See accompanying notes to basic financial statements. 33 CITY OF NEWPORT BEACH Proprietary Fund Statement of Revenues, Expenses and Changes in Fund Net Assets For the Year Ended June 30, 2003 Operating revenues: Charges for sales and services: Water sales Sewer service and connection fees Other Total operating revenues Operating expenses: Purchase of water Salaries and benefits Depreciation Professional services Maintenance and supplies System maintenance Fleet parts and supplies Workers' compensation Claims and judgments Compensated absences Retiree insurance Other Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Investment income Net increase in fair value of investments Property income Gain on sale of fixed assets Interest expense Other fiscal charges Total nonoperating revenues Income before transfers Capital contributions - donated capital Transfers out (note 13) Change in net assets Net assets, beginning Net assets, ending Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Change in net assets of business -type activities Enterprise Funds Water Wastewater $ 16,427,741 $ - - 2,729,801 61,541 39,140 16,489,282 2,768,941 $ 16,427,741 $ - 2,729,801 - 100,681 12,270,365 19,258,223 12,270,365 4,999,688 Governmental Total Activities Enterprise Internal Service Funds Funds $ 16,427,741 $ - 2,729,801 - 100,681 12,270,365 19,258,223 12,270,365 4,999,688 - 4,999,688 - 2,933,207 971,428 3,904,635 980,027 1,237,668 505,173 1,742,841 1,691,280 1,521,192 334,252 1,855,444 49,316 730,682 380,724 1,111,406 608,231 1,055,151 515,802 1,570,953 - - - - 456,768 - - - 3,508,179 - - - 5,268,349 - - - 1,807,921 - - - 1,132,143 1,190,224 206,886 1,397,110 13,667,812 2,914,265 16,582,077 15,502,214 2,821,470 (145,324) 2,676,146 (3,231,849) 441,481 74,735 516,216 410,956 365,961 64,138 430,099 346,887 29,880 - 29,880 - - - - 130,797 (418,173) - (418,173) (71,529) - - - (19,103) 419,149 138,873 558,022 798,008 3,240,619 (6,451) 3,234,168 (2,433,841) - - - 257,922 (27,027) (6,250) (33,277) 3,213,592 (12,701) 3,200,891 (2,175,919) 80,642,779 32,678,292 $ 83,856,371 $ 32,665,591 See accompanying notes to basic financial statements. 34 (272,740) 6,866,604 $ 4,690,685 (382,179) $ 2,545,972 CITY OF NEWPORT BEACH Proprietary Fund Statement of Cash Flows For the Year ended June 30, 2003 Cash flows from operating activities: Cash received from customers or user departments Cash payments to employees for services Cash payments to suppliers for goods and services Cash received (payments made) for other operating activities Net cash provided by operating activities Cash flows from noncapital financing activities: Cash received from other funds Cash paid to other funds Net cash provided by (used for) noncapital financing activities Cash flows from capital related financing activities: Acquisition of capital assets Proceeds from sale of capital assets Principal payments on long -tens liabilities Interest paid on long -term liabilities Net cash used for capital related financing activities Cash flows from investing activities: Interest on investments Property income Net cash provided by investing activities Net increase in cash and cash equivalents Cash and cash equivalents, beginning Cash and cash equivalents, ending Reconciliation of cash equivalents to the statement of net assets Cash and investments reported on statement of net assets Cash and investments with fiscal agent reported on statement of net assets Cash and cash equivalents Reconciliation of operating income to net cash used for operating activities: Operating income (loss) Adjustments to reconcile operating income to net cash used for operating activities: Depreciation Decrease in accounts receivable Decrease in inventories Decrease in prepaid items Increase (decrease) in accounts payable and accrued payroll (Decrease) in accrued interest payable (Decrease) in deposits payable Increase in workers' compensation Increase in general liability Decrease in compensated absences Total adjustments Net cash used for operating activities Noncash inveslino. capital and financino activities: Disposal of filmed assets Capital contributions Acquisition of equipment by capital leases Total of noncash activities (27,027) (6,250) (33,277) (27,027) (6,250) (33,277) (3,879,983) Enterprise Funds (4,999,732) (216,021) - - - Governmental (1,185,000) - Total Activities (418,173) Enterprise Internal Service Water Wastewater Funds Funds $ 16,492,643 $ 2,775,879 $ 19,268,522 $ 12,231,087 (2,933,207) (971,428) (3,904,635) (5,417,488) (7,907,575) (1,289,307) (9,196,862) (6,484,198) (1,152,383) (206,034) (1,358,417) 34,884 4,499,478 309,110 4,808,588 364,285 (27,027) (6,250) (33,277) (27,027) (6,250) (33,277) (3,879,983) (1,119,749) (4,999,732) (216,021) - - - 830,797 (1,185,000) - (1,185,000) (2,183,077) (418,173) (418,173) (90,632) (5,483,156) (1,119,749) (6,602,905) (1,658,933) 807,442 138,873 946,315 757,843 29,880 29,880 $ 2,821,470 837,322 138,873 976,195 757,843 (173,383) (678,016) (851,399) (536,805) 20,448,810 3,575,991 24,024,801 18,768,534 $ 20.275427 S 2,897,975 S 23.173402 $ 18,231,729 $ 18,847,952 $ 2,897,975 $ 21,745,927 $ 18,231,729 1,427,475 1,427,475 $ 20,275,427 $ 2,897,975 $ 23,173,402 $ 18,231,729 $ 2,821,470 $ (145,324) $ 2,676,146 $ (3,231,849) 1,237,668 505,174 1,742,842 1,691,280 68,129 7,789 75,918 63,907 - - - 52,390 - 3,158 399,138 (96,817) 302,321 (108,476) (23,700) - (23,700) - (3,227) - (3,227) - - - - 895,000 - - - 1,015,236 (16,361) 1,678,008 416,146 2,094,154 3,596,134 $ 4,499,478 $ 270,822 $ 4,770,300 $ 364,285 $ 1,087,354 $ 371,407 $ 1,458,761 $ 389,860 - - - 257,922 ,700,049 $ 1,087,354 $ 371,407 $ 1,458,761 $ 2,347,831 See accompanying notes to basic financial statements. 35 This page left blank intentionally. Mi Fiduciary Funds FIDUCIARY FUNDS Agency Funds, a type of Fiduciary Funds, are used to account for assets held by the City as an agent for other government entities, private organizations, or individuals. CITY OF NEWPORT BEACH Agency Funds Statement of Fiduciary Assets and Liabilities June 30, 2003 Assets Cash and investments (note 4) Restricted assets -cash and investments (note 4) Total assets Liabilities Due to bondholders Due to others Total liabilities Totals $ 2,373,848 1,307,077 $ 3,680,925 $ 3,421,333 259,592 $ 3,680,925 See accompanying notes to basic financial statements. 37 This page left blank intentionally. 01 Notes to the Financial Statements �EWPCOM CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 (1) Summary of Significant Accounting Policies The basic financial statements of the City of Newport Beach (the "City ") have been prepared in conformity with generally accepted accounting principles ( "GAAP ") as applicable to government units. The Governmental Accounting Standards Board ( "GASB ") is the accepted standard - setting body for establishing governmental accounting and financial reporting principles. a. Reporting Entity The City of Newport Beach was incorporated on September 1, 1906. The current City Charter was adopted in 1954. The City operates under a Council- Manager form of government and provides the following services: public safety (police, fire, and marine), highway and streets, cultural and recreation, public improvements, planning and zoning, utilities, and general administrative services. The financial statements present the financial activity of the City of Newport Beach (the primary government) and its component unit. The component unit discussed below is included in the City's reporting entity because of the significance of its operational or financial relationship with the City. This entity is legally separate from the City. However, the City of Newport Beach's elected officials have continuing full or partial accountability for fiscal matters of the component unit. The financial reporting entity consists of: (1) the City, (2) organizations for which the City is financially accountable, and (3) organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City's financial statements to be misleading or incomplete. An organization is fiscally dependent on the primary government if it is unable to adopt its budget, levy taxes or set rates or charges, or issue bonded debt without approval by the primary government. In a blended presentation, a component unit's balances and transactions are reported in a manner similar to the balances and transactions of the City. Component units are presented on a blended basis when the component unit's governing body is substantially the same as the City's or the component unit provides services almost entirely to the City. Blended Component Unit The financial statements of the City of Newport Beach include the financial activities of the Newport Beach Public Facilities Corporation (the "Corporation "). The Corporation was formed on March 9, 1992, for the purpose of assisting the City of Newport Beach in the financing of public improvements, including a public library. The Corporation is governed by a Board of Directors comprised of seven individuals appointed by the City Council of the City of Newport Beach. The Corporation's financial data and transactions are included in the debt service 39 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 fund. Separate financial statements are not prepared for the Corporation. The debt service fund is used solely to account for the activities of the Corporation and contains no other City debt financing activities. Basis of Accounting and Measurement Focus The basic financial statements of the City are composed of the following: • Government -wide financial statements • Fund financial statements • Notes to the financial statements Financial reporting is based upon all GASB pronouncements, as well as the FASB Statements and Interpretations, APB Opinions, and Accounting Research Bulletins that were issued on or after November 30, 1989 that do not conflict with or contradict GASB pronouncements. Government -wide Financial Statements Government -wide financial statements display information about the reporting government as a whole, except for its fiduciary activities. These statements include separate columns for the governmental and business -type activities of the primary government (including its blended component units), as well as its discretely presented financial statements. The City of Newport Beach has no discretely presented component units. Eliminations have been made in the Statement of Activities so that certain allocated expenses are recorded only once (by the function to which they were allocated). However, general government expenses have not been allocated as indirect expenses to the various functions of the City. Government -wide financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Under the economic resources measurement focus, all (both current and long -term) economic resources and obligations of the reporting government are reported in the government -wide financial statements. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Under the accrual basis of accounting, revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange -like transactions are recognized when the exchange takes place. Program revenues include charges for services, special assessments, and payments made by parties outside of the reporting government's citizenry if that money is restricted to a particular program. Program revenues are netted with program expenses in the statement of activities to present the net cost of each program. aml CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Amounts paid to acquire capital assets are capitalized as assets in the government -wide financial statements, rather than reported as an expenditure. Proceeds of long -term debt are recorded as a liability in the government -wide financial statements, rather than as another financing source. Amounts paid to reduce long -term indebtedness of the reporting government are reported as a reduction of the related liability, rather than as an expenditure. Fund Financial Statements The underlying accounting system of the City is organized and operated on the basis of separate funds, each of which is considered to be a separate accounting entity. The operations of each fund are accounted for with a separate set of self - balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Fund financial statements for the primary government's governmental, proprietary, and fiduciary funds are presented after the government -wide financial statements. These statements display information about major funds individually and non -major funds in the aggregate for governmental and enterprise funds. Fiduciary statements include financial information for fiduciary funds. Fiduciary funds of the City primarily represent assets held by the City in a custodial capacity for other individuals or organizations. Governmental Funds In the fund financial statements, governmental funds are presented using the modified- accrual basis of accounting. Their revenues are recognized when they become measurable and available as net current assets. Measurable means that the amounts can be estimated, or otherwise determined. Available means that the amounts were collected during the reporting period or soon enough thereafter to be available to finance the expenditures accrued for the reporting period. The City uses an availability period of 60 days. Sales taxes, property taxes, franchise taxes, gas taxes, motor vehicle license fee, transient occupancy taxes, grants, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period to the extent normally collected within the availability period. Other revenue items are considered to be measurable and available when cash is received by the City. Revenue recognition is subject to the measurability and availability criteria for the governmental funds in the fund financial statements. Exchange transactions are recognized as revenues in the period in which they are earned (i.e., the related goods or services are provided). Locally imposed derived tax revenues are recognized as revenues in the period in which the underlying exchange 41 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 transaction upon which they are based takes place. Imposed non - exchange transactions are recognized as revenues in the period for which they were imposed. If the period of use is not specified, they are recognized as revenues when an enforceable legal claim to the revenues arises or when they are received, whichever occurs first. Government - mandated and voluntary non - exchange transactions are recognized as revenues when all applicable eligibility requirements have been met. In the fund financial statements, governmental funds are presented using the current financial resources measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. The reported fund balance (net current assets) is considered to be a measure of '.available spendable resources." Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Accordingly, they are said to present a summary of sources and uses of "available spendable resources" during a period. Non - current portions of long -term receivables due to governmental funds are reported on their balance sheets in spite of their spending measurement focus. Special reporting treatments are used to indicate, however, that they should not be considered "available spendable resources," since they do not represent net current assets. Recognition of governmental fund type revenue represented by non - current receivables is deferred until they become current receivables. Non- current portions of other long -term receivables are offset by fund balance reserve accounts. Revenues, expenses, gains, losses, assets, and liabilities resulting from non - exchange transaction are recognized in accordance with the requirements of GASB Statement No. 33. Because of their spending measurement focus, expenditure recognition for governmental fund types excludes amounts represented by non - current liabilities. Since they do not affect net current assets, such long -term amounts are not recognized as governmental fund type expenditures or fund liabilities. Amounts expended to acquire capital assets are recorded as expenditures in the year that resources were expended, rather than as fund assets. The proceeds of long -term debt are recorded as other financing sources rather than as a fund liability. Amounts paid to reduce long -term indebtedness are reported as fund expenditures. When both restricted and unrestricted resources are combined in a fund, expenses are considered to be paid first from restricted resources, and then from unrestricted resources. M CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Proprietary & Fiduciary Funds The City's enterprise and internal service funds are proprietary funds. In the fund financial statements, proprietary and fiduciary funds are presented using the accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized when the related goods or services are delivered. In the fund financial statements, proprietary funds are presented using the economic resources measurement focus. This means that all assets and all liabilities (whether current or non- current) associated with their activity are included on their balance sheets. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in total net assets. Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal values. Non - operating revenues, such as subsidies, taxes, and investment earnings result from non - exchange transactions or ancillary activities. Amounts paid to acquire capital assets are capitalized as assets in the proprietary fund financial statements, rather than reported as expenditure. Proceeds of long -term debt are recorded as a liability in the proprietary fund financial statements, rather than as other financing source. Amounts paid to reduce long -term indebtedness of the proprietary funds are reported as a reduction of the related liability, rather than as expenditure. Agency funds are custodial in nature (assets equal liabilities) and do not involve the recording of City revenues and expenses. C. Fund Classifications The City utilizes the following broad categories of funds: Major Funds Major funds are those funds which are either material or of particular importance. Major Governmental Funds — Governmental funds are generally used to account for tax supported activities. The following governmental funds met the criteria of a major fund: General Fund The General Fund is the general operating fund of the City. It is used to account for all activities, except those required to be accounted for in another fund. 43 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Tide and Submerged Land The Tide and Submerged Land Fund is used to account for all revenues and expenditures related to the operation of the City's tidelands, including beaches and marinas. Newport Coast Annexation Fund The Newport Coast Annexation Fund is used to account for revenues and expenditures related to the Newport Coast Annexation Agreement. Major Proprietary Funds — Proprietary funds are used to report an activity for which a fee is charged to external users to recover the cost of operation. Water Fund The Water Fund is an enterprise fund used to account for the activities associated with the transmission and distribution of potable water by the City to its users. Wastewater Fund The Wastewater Fund is an enterprise fund used to account for the activities associated with providing sewer services by the City to its users. Internal Service Funds — The Internal Service Funds are used to account for the City's self- insured general liability and workers' compensation, compensated absences, retiree insurance, and the cost of maintaining and replacing the City's rolling stock fleet. City departments are the primary users of these services and are charged a fee on a cost reimbursement basis. Fiduciary Funds — The Fiduciary Funds are used to account for assets held by the City as an agent for property owners with special assessments, local businesses in business improvements districts, and other individuals who have made miscellaneous special deposits with the City. d. Cash and Investments For purposes of the statement of cash flows, cash and cash equivalents are defined to be cash on hand, demand deposits and highly liquid investments with a maturity of three months or less from the date of purchase. For financial statement presentation purposes, cash and cash equivalents are shown as cash and investments and restricted cash and investments in the proprietary funds. Investments Investments are generally stated at fair value. 44 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Cash and investments are pooled to maximize investment yields. The net change in fair value and interest earned on the investments is allocated to the respective funds based on each fund's average monthly cash and investments balance. The City's investment in LAIF is $77,677 at June 30, 2003. This investment value is based on information provided by the State Treasurer's Office. The carrying value of the City's position in the fund is materially consistent with the fair value of the fund shares. This pool is under the regulatory oversight of the State Treasurer's Office. The LAIF Board consists of five members as designated by Statute. The Chairman is the State Treasurer, or his designated representative. Two members qualified by training and experience in the field of investment of finance, and two members who are treasurers, finance or fiscal officers or business managers employed by any County, City or local district or municipal corporation of this state, are appointed by the State Treasurer. The term of each appointment is two years, or at the pleasure of the appointing authority. G. Intergovernmental Receivables Intergovernmental receivables represent grant reimbursement requests, capital project billings, and pending transfers of taxes and fees collected by other government agencies. As of June 30, 2003, the balance of this account was $14,061,393 of which $10,000,000 represents a receivable from the Irvine Ranch Water District in conjunction with the Newport Coast Pre - annexation Agreement. See Note (17) for more information. f. Inventories Inventories are valued at cost, which approximates market, using the first -in, first - out method. The City follows the consumption method for inventory control. The costs of governmental fund type inventories are recorded as expenditures when consumed. g. Notes Receivable Included in notes receivable is a $50,000 loan to the City Manager to purchase a home in the City. As required by the City Charter and the employment agreement, the City Manager has to establish residency in, and become an elector of, the City of Newport Beach. The City Manager shall pay a simple interest on the unpaid balance of the loan, which shall be due on or before September 15`h of each fiscal year. The interest rate on the loan shall be the average rate of return on all City investments during the fiscal year. The City Manager may, but is not required to make payments to reduce the principal amount of the loan at any time and 45 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 payments to reduce the principal shall not be subject to any pre - payment penalty. The entire unpaid balance of the loan is due March 26, 2012, or at the City Manager's separation from City employment. h. Capital Assets Capital assets, which include land, structures, equipment, and infrastructure assets, are reported in the applicable governmental or business -type activities columns in the Government -wide Financial Statements. Capital assets are recorded at cost where historical records are available and at an estimated original cost where no historical records exist. Equipment purchased in excess of $5,000 is capitalized if it has an expected useful life of three years or more. Building, infrastructure, and improvements are capitalized if cost is in excess of $30,000. The cost of normal maintenance and repairs that do not add to the value of the asset's lives are not capitalized. Major capital outlay for capital assets and improvements are capitalized as projects are constructed. For debt - financed capital assets, interest incurred during the construction phase is reflected in the capitalization value of the asset constructed, net of interest earned on the invested proceeds over the same period. Capital assets acquired through lease obligations are valued at the present value of future lease payments at the date acquired. Contributed capital assets are valued at their estimated fair market value at the date of contribution. Capital assets used in operations are depreciated over their estimated useful lives using the straight -line method in the government -wide financial statements and in the fund financial statements of the proprietary funds. Depreciation is charged as an expense against operations and accumulated depreciation is reported on the respective balance sheet. The range of lives used for depreciation purposes for each fixed asset class as follows: Structures 30 -75 years Equipment 3 -15 years Infrastructure 20 -75 years Claims and Judgments The City accounts for material claims and judgments and associated legal and administrative costs when it is probable that the liability claim has been incurred and the amount of the loss can be reasonably estimated. The City records the estimated loss liabilities in the Internal Service Fund. Included therein are claims incurred but not reported, which consists of (a) known loss events expected to be presented as claims later, (b) unknown loss events that are expected to become claims, and (c) expected future development on claims already reported. This is based upon historical actual results that have established a reliable pattern U-71 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 supplemented by specific information about current matters. Small dollar claims and judgments are recorded as expenditures when paid. Property Taxes The assessment, levy, and collection of property taxes are the responsibility of the County of Orange. The City records property taxes as revenue when received from the County, except at year -end, when property taxes received within 60 days are accrued as revenue. Property taxes are assessed and collected each fiscal year according to the following property tax calendar: Lien date March 1 Levy date July 1 Due dates November 1 — 1st installment March 1 — 2nd installment Collection dates December 10 — 1st installment April 10 — 2nd installment k. Compensated Absences It is the City's policy to permit employees to accumulate earned but unused vacation and limited amounts of earned but unused sick leave benefits, which will be paid to employees upon separation from City service. Beginning in fiscal year 1990, the City adopted a general leave plan to replace the traditional vacation and sick leave plan. The City uses a general leave plan which permits a maximum of three years' accrual for every employee, above which the excess is paid out as current compensation. All employees hired prior to January 1, 1990, were given the option of remaining in the traditional vacation and sick leave plan or enrolling in the general leave plan. All employees hired on or after January 1, 1990, are automatically enrolled in the general leave plan. Compensated absences are accrued in the Compensated Absence Internal Service Fund when employee services have been rendered and when it becomes probable that the City will compensate the employees for benefits through paid time off or cash payments at termination or retirement. Benefits that have been earned but are not yet available for use because employees have not met certain conditions are accrued to the extent it is probable that the employees will meet the conditions for compensation in the future. Deferred Revenue Deferred revenues are those where asset recognition has been met, but the revenue recognition criteria have not been met. 47 (2) CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Reconciliation of Government -wide and Fund Financial Statements a. Explanation of Differences Between Governmental Funds Balance Sheet and the Statement of Net Assets The "total fund balances" of the City's governmental funds $74,539,792 differs from "net assets" of governmental activities $1,499,345,440 reported in the statement of net assets. This difference primarily results from the long -term economic focus of the statement of net assets versus the current financial resources focus of the governmental fund balance sheets. Capital Related Items When capital assets (property, plant, and equipment) that are to be used in governmental activities are purchased or constructed, the cost of those assets are reported as expenditures in governmental funds. However, the statement of net assets includes those capital assets among the assets of the City as a whole. Cost of capital assets $1,527,406,364 Accumulated depreciation (93.954,197) Total capital assets, net* $1.433.452.167 *Amount excludes net capital assets of $7,606,368 from Internal Service funds. Long -term Debt Transactions Long -term liabilities applicable to the City's governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities. All liabilities (both current and long -term) are reported in the statement of net assets. Balances at June 30, 2003 were: Certificates of participation $ 6,110,000 Note payable 2,082,483 Pre - annexation agreement 16,800,000 CDBG Loan 2,400,000 Total $27.392.483 !Y.3 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Accrued Interest Accrued liabilities in the statement of net assets differ from the amount reported in governmental funds due to accrued interest on outstanding debt payable (see Note 6). Accrued interest added 1162-41 Certain Deferred Revenue Some of the revenue will be collected after year -end, but is not available soon enough to pay for current period's expenditures, and therefore is reported as deferred revenue in the governmental funds. Deferred revenue earned $11325.518 Internal Service Funds Internal service funds are used by management to charge the costs of certain activities (such as equipment management and self- insurance authorities) to individual funds. The assets (including capital assets) and liabilities of the internal service funds are included in governmental activities in the statement of net assets, because they primarily serve governmental activities of the City. Internal Service Funds $4590.686 Reclassifications and Eliminations Interfund balances must generally be eliminated in the government -wide statements, except for net residual amounts due between governmental activities. Amounts involving fiduciary funds should be reported as external transactions. Any allocations must reduce the expenses of the function from which the expenses are being allocated, so that expenses are reported only once – in the function in which they are allocated. Investments in joint ventures are not a current financial resource and are not reported in the governmental funds. Therefore, it is added for the statement of net assets. Interfund balance created due to the consolidation of internal service activities to governmental and enterprise funds is not reported in the fund statements and must be added to the statement of net assets. cM CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 (2) Explanation of Differences between Governmental Funds (a) Balance Sheet and the Statement of Net Assets, (Continued) Total Capital Governmental Related Assets Funds Items Cash and investments $ 77,217,385 $ Receivables: Accounts 7,232,639 Notes 50,000 Lease - Interest 1,243,108 Intergovernmental receivables 14,061,393 Restricted cash with fiscal agent 2,285,327 Interfund balances Long -term Accumulated Debt Depreciation Transactions $ - S - $ Interest Payable Due from other funds 1,153,574 - - - - Investment in joint venture - - - - Prepaid items 256,706 - - - - Inventory 170,738 - - - Other 98,971 - - - Capital assets - 1,527,406,364 - - - Accumulated depreciation - - (93,954,197) Total assets $ 103,769,841 $ 1,527,406,364 $(93,954,197) $ - $ Liabilities and Fund Balances I Net Assets Liabilities: Accounts payable $ 5,225,587 $ - Accrued payroll 4,382,998 - - - - Accrued interest payable - - - - 162,419 Deposits payable 5,392,637 - - - - Capital leases payable - - - - - Claims payable - - - - - Workers' compensation payable - - - - - Compensated absences payable - - - - - COP payable - current - - - - - Note payable - current - - - - - Deferred revenue 13,075,253 - - - - Interfund payables - - - - Duetootherfunds 1,153,574 - - - Long -term liabilities 27,392,483 Total liabilities 29,230,049 27,392,483 162,419 Fund balances / net assets 74,539,792 1,527,406,364 (93,954,197) (27,392,483) (162,419) Total liabilities and and fund balances/ net assets $ 103,769,841 $ 1,527,406,364 (93,954,197) 6 $ 6111 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Investment Certain Internal Reclassifications in Joint Deferred Service and Statement of Venture Revenue Funds Eliminations Net Assets $ - $ - 18,231,729 $ - $ 95,449,114 - - 22,339 - 7,254,978 - - - - 50,000 - - - - 1,243,108 - - - - 14,061,393 - - - - 2,285,327 - - - 382,179 382,179 - - - (1,153,574) - 2,510,000 - - - 2,510,000 - - 47,069 - 303,775 - - 196,869 - 367,607 - - - - 98,971 - - 18,946,775 - 1,546,353,139 - (11,340,407) - (105,294,604) $ 2,510,000 $ - $ 26,104,374 $ (771,395) $ 1,565,064,987 M $ - $ 332,118 $ 37,021 430,611 2,260,000 2,030,000 1,000,000 (11,325,518) $ 5,557,705 4,420,019 162,419 5,392,637 430,611 2,260,000 2,030,000 1,000,000 1,749,735 - (1,153,574) - 15,323,938 42,716,421 (11,325,518) 21,413,688 (1,153,574) 65,719,547 2,510,000 11,325,518 4,690,686 382,178 1,499,345,439 $ 2,510,000 $ $ 26,104,374 $ (771,396) $ 1,565,064,986 51 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Explanation of Differences between Enterprise Funds and Government - wide Statement of Net Assets Total net assets of the City's Enterprise Funds of $116,521,963 differs from net assets of the business -type activities of $116,139,784 reported in the government -wide statement of net assets. The difference, $382,179 results from the consolidation of internal service fund activities related to the enterprise funds. (2) Reconciliation of government -wide and fund financial statements (b) Explanation of Differences between Enterprise Funds and Government -wide Statement of Net Assets. (Continued) Assets Cash and investments Receivables: Accounts Restricted cash with fiscal agent Interfund balances Capital assets, net Total assets Liabilities and Fund Balances I Net Assets Liabilities: Accounts payable Accrued payroll Accrued interest payable Liabilities from restricted assets Noncurrent liabilities: Due within one year Due in more than one year Total liabilities Net Assets Total Internal Government wide Enterprise Service Statement of Funds Funds Net Assets $ 21,745,927 $ - $ 21,745,927 3,972,234 - 3,972,234 1,427,475 - 1,427,475 - (382,179) (382,179) 101,677,205 - 101,677,205 $ 128,822,841 $ (382,179) S 128.440,662 $ 2,116,747 $ 131,339 1,517,792 8,535,000 12,300,878 $ 2,116,747 131,339 1,517,792 _ 8,535,000 12,300,878 Invested in capital assets, net of related debt 91,912,205 - 91,912,205 Restricted for debt service - - - Unrestricted 24,609,758 (382,179) 24,227,579 $ 116,521,963 $ (382,179) $ 116,139,784 M [*A CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Explanation of Differences between Governmental Fund Operating Statements and the Statement of Activities The "net change in fund balances" for governmental funds $7,815,535 differs from the "change in net assets' for governmental activities $25,612,383 reported in the statement of activities. The differences arise primarily from the long -term economic focus of the statement of activities versus the current financial resources focus of the governmental funds. The effect of the difference is illustrated below. Capital Related Items When capital assets that are to be used in governmental activities are purchased or constructed, the resources expended for those assets are reported as expenditures in governmental funds. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. In governmental funds, significant maintenance projects are reclassified as functional expenses in the statement of net assets. Also, contributed capital is not recorded in governmental funds; therefore it is added for the statement of net assets. Beginning net assets in the statement of activities has been changed to reflect a correction in valuation of infrastructure. See Note (18) for more information. Capital outlay Net change to Internal Service Fund capital assets Contributed land Net change in capital related items Depreciation expense Deletions to accumulated depreciation Net change in accumulated depreciation 53 $10,583,500 (1,660,665) 17,578,871 $26.501.706 ($8,138,962) 1,012,890 ($7.126.0721 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Long -term Debt Transactions Repayment of debt service is reported as an expenditure in governmental funds and, thus, has the effect of reducing fund balance because current financial resources have been used. Issuance of debt is reported as an other financing source in governmental funds, thus increasing fund balance. For the City as a whole, however, the principal payments reduce the liabilities, and proceeds from long term debt increase liabilities in the statement of net assets. Certificates of Participation Note payable Pre - annexation agreement Office equipment lease payable Total principal payments made Office equipment lease payable CDBG Loan Total proceeds from long term debt Net change in long -term debt transactions Accrued Interest $255,000 137,177 1,200,000 230.736 1,822,913 (230,736) (2.400.000) (2,630,736) 807 823 Interest accrued on outstanding debt payable is not recorded as an expenditure in governmental funds, and, thus has been added to the statement of activities. Net change in accrued interest (53 504 Investment in Joint Venture Investment in joint ventures creates an explicit, measurable equity interest reported only in the statement of activities. Net change in investment in joint venture JK9 418 54 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Certain Deferred Revenue Some of the revenue will be collected after year -end, but is not available soon enough to pay for current period's expenditures, and therefore is reported as deferred revenue in the governmental funds. Net change in deferred revenue $154 218 Internal Service Funds Internal service funds are used by management to charge the costs of certain activities, such as equipment management and self- insurance activities, to individual funds. The adjustments for internal service funds "closes" those funds by reimbursing or charging additional amounts to participating departments in individual funds for costs over or under charged for those activities. Net change in Internal Service Funds ($2.175.9181 Reclassification and Eliminations Interfund balances must generally be eliminated in the government -wide financial statements, except for net residual amounts due between governmental and business -type activities. Any allocations must reduce the expenses of the function from which the expenses are being allocated, so that expenses are reported only once — in the function in which they are allocated. Amounts involving fiduciary funds should be reported as external transactions. 55 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 (2) Reconciliation of Government -wide and Fund Financial Statements (c) Explanation of Differences between Governmental Fund Operating Statements and the Statement of Activities, (Continued) Revenues: Taxes and assessments Intergovernmental Licenses and permits Charges for services Fines and forfeitures Investment income Net increase in fair value of investments Property income Share of joint venture net income Donations Contributed capital Gain on sale of capital assets Other Total revenues Expenditures: Current: General government Public safety Public works Community development Community services Capital outlay Debt service: Principal retirement Interest and fiscal charges Total expenses Other financing sources (uses): Transfers in Transfers out Proceeds from long -term debt Total other financing sources (uses) Net change in fund balances I net assets Fund balances / net assets beginning, restated Fund balances / net assets, ending Total Capital Governmental Related Accumulated Funds Items Depreciation Long -term Debt Transactions Accrued Interest $ 72,864,836 $ - $ - $ - $ 10,379,792 - - - - 4,397,520 - - - - 11,156,294 - - - - 3,448,826 - - - - 1,941,046 - - - - 1,468,682 - - - - 10,947,021 - - - - 1,819,159 - - - - 17,578,871 - - - 2,590,504 121,013,680 17,578,871 9,689,275 - 204,135 53,035,377 - 1,047,101 21,259,782 1,660,665 5,050,617 5,457,498 - 103,836 9,382,608 - 720,383 14,684,897 (10,583,500) - 1,822,913 - - (1,822,913) - 529,808 53,504 115,862,158 (8,922,835) 71126,072 (1,822,913) 53,504 14,376,167 - - - (14,342,890) - - - 2,630,736 (2,630,736) 2,664,013 (2,630,736) 7,815,535 26,501,706 (7,126,072) (807,823) (53,504) 66,724,257 1,500,904,658 (86,828,125) (26,584,660) (108,915) $ 74,539,792 $ 1,527,406,364 $ (93,954,197) $ (27,392,483) $ (162,419) 61.1 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Investment Certain Internal Reclassifications 482,166 in Joint Deferred Service and Statement of Venture Revenue Fund Eliminations Activities - - (4,101,397) $ - $ - $ 72,864,836 - 754,218 - - 11,134,010 - - - - 4,397,520 - - - 382,179 11,538,473 - - - - 3,448,826 - - 410,956 2,352,002 - - 346,887 - 1,815,569 - - - - 10,947,021 389,418 - - - 389,418 - - - - 1,819,159 - - 257,922 - 17,836,793 - - 130,797 - 130,797 585,161 3,175,665 389,418 754,218 1,731,723 382,179 141,850,089 - - 495,500 410,720 10,799,630 - - 1,957,227 482,166 56,521,871 - - 1,249,650 2,868,324 32,089,038 - - 37,137 183,744 5,782,215 - - 77,495 223,799 10,404,285 - - (4,101,397) - 90,632 673,944 3,907,641 67,356 116,270,963 - - - (14,342,890) 33,277 - - - 14,342,890 - 33,277 389,418 754,218 (2,175,918) 314,823 25,612,383 2,120,582 10,571,300 6,866,604 67,355 1,473,733,056 $ 2,510,000 $ 11,325,518 $ 4,690,686 $ 382,178 $ 1,499,345,439 57 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Explanation of Differences between Enterprise Funds Operating Statement and the Statement of Activities The change in net assets for the City's enterprise funds $3,200,892 differs from the change in net assets of the business -type activities $2,545,970 reported in the government -wide statement of activities. The difference ($654,922) results from the consolidation of internal service fund activities related to the enterprise funds. (2) Reconciliation of Government -wide and Fund Financial Statement (d) Explanation of Differences between Enterprise Funds Operating Statement and the Statement of Activities, (Continued) Operating revenues: Charges for sales and services: Water sales Sewer service and connection fees Other Total operating revenues Operating expenses: Purchase of Water Salaries and wages Depreciation Professional services Maintenance and supplies System maintenance Other Total operating expenses Operating income Nonoperating revenues (expenses): Investment income Net increase in fair value of investments Property income Gain on sale of fixed assets Interest expense Total other financing sources Income before transfers Transfers in Transfers out Change in net assets Net assets, beginning Net assets, ending Total Enterprise Funds $ 16,427,741 $ 2,729,802 100,681 19,258,224 — Internal Business -type activities service Statement of Fund Activities $ 16,427,741 2,729,802 100,681 19,258,224 4,999,688 - 3,904,635 - 1,742,841 - 1,855,444 - 1,111,406 654,922 1,570,953 - 1,397,110 16,582,077 654,922 2,676,147 (654,922) 4,999,688 3,904,635 1,742,841 1,855,444 1,766,328 1,570,953 1,397,110 17,236,999 2,021,225 505,619 - 505,619 440,696 - 440,696 29,880 - 29,880 (418,173) (418,173) 558,022 558,022 3,234,169 (654,922) 2,579,247 (33,277) - (33,277) 3,200,892 (654,922) 2,545,970 113,321,071 272,743 113,593,814 $ 116,521,963 $ (382,179) $ 116,139,784 61.1 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 (3) Budgetary Control and Compliance The City adheres to the following general procedures in establishing the budgetary data reflected in the financial statements: During April, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means of financing them. Public hearings are conducted at City Council meetings to obtain taxpayer comments. Prior to July 1, the budget is legally adopted through passage of an appropriation resolution. • Budgets are adopted on an annual basis consistent with generally accepted accounting principles for General and Special Revenue Funds. • The City of Newport Beach does not present budget information on Capital Projects Funds since the City approved project - length budgets. These project - length budgets authorize total expenditures over the duration of a construction project rather than year -by -year budgeting. • The City of Newport Beach does not present budget information on Debt Service Fund since the City is not required to and does not adopt an annual budget. • The budget is formally integrated into the accounting system and employed as a management control device during the year. • The City Manager is authorized to transfer budgeted amounts between departments within any fund; however, any revisions which alter the total appropriations of any fund must be approved by City Council. • At fiscal year -end, budget appropriations lapse. Budget appropriations for incomplete capital projects are re- budgeted in the following fiscal year by Council action and are included in the revisions noted above. Projects that are not started during the budget year are reevaluated in the following year. • Encumbrances represent commitments related to unperformed contracts for goods and services. The City utilizes an encumbrance system as a management control technique to assist in controlling expenditures. Under this system, encumbrance accounting for the expenditure of funds is recorded in order to indicate outstanding commitments and is employed in the governmental fund types. Encumbrances outstanding at year -end are reported as reservations of fund balances since they do not constitute expenditures or liabilities. Encumbrances and their related budgets are honored in the subsequent year to fulfill these commitments and are presented in the original adopted budget. 59 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Expenditures exceeded appropriations in the following non -major governmental funds. Environmental Liability Asset Forfeiture Appropriations $ 174,586 $ 236,664 The following funds reported deficit fund balances: Special Revenue Funds Arterial Highway Rehabilitation Program Contributions Internal Service Funds Insurance Reserve Compensated Absences (4) Cash and Investments Expenditures $ 195,339 $ 256,466 Variance $ (20,753) $ (19,802) $ 598,917 $ 457,464 $4,226,905 $6,848,829 The City has elected to pool all cash and investments of all funds, except for funds required to be held by outside fiscal agents under the provisions of certificates of participation. Cash and investments at June 30, 2003, consisted of the following: Governmental activities $ 97,734,440 Business -type activities 23,173,402 Fiduciary funds 3,680,925 Total $ 124,588,767 1--111 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Total carrying value of cash and investments at June 30, 2003, consisted of the following: Pooled cash deposits $ 1,626,502 Pooled investments 118,804,888 Total unrestricted cash and investments 120,431,390 Restricted cash and investments: Cash and investments with fiscal agents 4,157,377 Total cash and investments $ 124,588,767 Authorized Deposits /Investments Under the provisions of the City's investment policy, and in accordance with Section 53601 of the California Government Code, the City may deposit and invest in the following: • Certificates of Deposit (or Time Deposits) • Negotiable Certificates of Deposit • Bankers Acceptances • U.S. Treasury Issues • Securities of Federal Agencies and Federal Instrumentalities • Commercial paper • Repurchase Agreements and Reverse Repurchase Agreements • Passbook Savings Accounts • Local Agency Investment Fund (State of California Investment Pool) • County Investment Pools (Los Angeles) • Money Market Funds /Mutual Funds • Medium Term Corporate Bonds /Notes • Mortgage- backed securities and Asset - backed securities • Municipal Bonds The City investment policy contains several additional requirements, including the following investment limitations (as a percentage of the total portfolio): 10% for certificates of deposit, 30% for negotiable certificates of deposit, 30% for bankers acceptances, 25% for commercial paper, 10% for reverse repurchase agreements, 5% for the Los Angeles County investment pool, 30% for medium term notes, 20% for asset - backed securities, 15% for municipal bonds, and 20% for money market funds. 61 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Deposits Deposits consist of cash and demand deposits accounts. Deposits in banks are maintained in financial institutions that provide Federal Depository Insurance Corporation protection on the bank balances. The California Government Code requires California banks and savings and loan associations to secure a city's deposits by pledging government securities as collateral. The market value of pledged securities must equal at least 110% of a city's deposits. California law also allows financial institutions to secure city deposits by pledging first trust deed mortgage notes having a value of 150% of a city's total deposits. The City may waive collateral requirements for deposits that are fully insured up to $100,000 by federal depository insurance. The City's deposits at year -end are categorized below to give an indication of the level of credit risk assumed by the City in three categories as follows: Category 1 Insured or collateralized with securities held by the City or its agent in the City's name. Category 2 Collateralized with securities held by the pledging financial institution's trust department or agent in the City's name. Category 3 Uncollateralized. As of June 30, 2003, the City's deposit balances were as follows: Category 1 2 3 Petty Cash $ - $ - $ Deposits: Demand deposits 300,000 4,855,959 Total deposits $ 300,000 $ 4,855,959 $ Investments Bank Carrying Balance Amount 5,155,959 $ 8,232 1,698,832 $ 5,155,959 $ 1,707,064 The investments that are represented by specific identifiable investment securities are classified as to credit risk by three categories as follows: Category 1 Insured, registered, or securities held by the City or its agent in the City's name. Category 2 Uninsured and unregistered, with securities held by the counterparty's trust department or agent in the City's name. 1-YA CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Category 3 Uninsured and unregistered, with securities held by the counterparty or by its trust department or agent but not in the City's name. The City's investments at June 30, 2003, are summarized below for the credit risk and carrying amounts: Investments with fiscal agents: Mutual funds invested in US Government Securities* $4,157,377 Not subject to categorization. 63 Category Carrying 1 2 3 Amount Pooled Investments U.S. Treasury Notes $ - $ 14,707,542 $ - $ 14,707,542 Federal Home Loan Bank - 22,072,838 - 22,072,838 Federal Farm Credit Bank - 252,658 - 252,658 Federal Home Loan Mortgage Corporation - 24,131,537 - 24,131,537 Federal National Mortgage Association - 28,626,953 - 28,626,953 Other Government Securities - 5,586,825 - 5,586,825 Money market funds* - - - 6,358,509 Medium term notes - 16,990,349 16,990,349 State of California: Local Agency Investment Fund* - - 77,677 Total pooled investments $ - $ 112,368,702 $ $ 118,804,888 Investments with fiscal agents: Mutual funds invested in US Government Securities* $4,157,377 Not subject to categorization. 63 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 (5) Capital Assets Capital asset activity for the year ended June 30, 2003 was as follows: Governmental Activities: Non - depreciable: Land Work in progress Depreciable: Structures Equipment Infrastructure Less accumulated depreciation for: Structures Equipment Infrastructure Net Beginning Balance, as Restated $ 1,201,893,932 9,516,778 29,513,690 20,107,967 258,819,066 1,519,851,433 (8,206,244) (11,796,953) (78,165,335) (98,168,532) Additions $ 17,850,886 4,921,641 1,448,504 2,461,619 3,713,053 30,395,703 (605,040) (2,048,876) (5,485,046) (8,138,962) Deletions (2,676,059) (868,021) (349,917) (3,893,997) 759,027 253,863 1,012,890 Ending 6/30/2003 Balance $ 1,219,744,818 11,762,360 30,962,194 21,701,565 262,182,202 1,546,353,139 (8,811,284) (13,086,802) (83,396,518) (105,294,604) $ 1,421,682,901 $ 22,256,741 $(2,881,107) $ 1,441,058,535 Beginning balance has been restated to include correction of value of City -owned bridges and related accumulated depreciation. See Note (18) for further discussion. 64 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Business -type Activities: Non - depreciable: Land Work in progress Depreciable: Structures Equipment Infrastructure Less accumulated depreciation for: Structures Equipment Infrastructure Net Beginning Balance, as Restated Additions Ending 6/30/2003 Balance $ 2,016,450 $ - $ - $ 2,016,450 1,597,682 3,333,639 (1,258,761) 3,672,560 205,793 - 205,793 132,246 - 132,246 132,753,553 2,924,854 (200,000) 135,478,407 136,705,724 6,258,493 (1,458,761) 141,505,456 (81,305) (5,145) (86,450) (126,948) (3,122) - (130,070) (38,077,157) (1,734,574) 200,000 (39,611,731) (38,285,410) (1,742,841) 200,000 (39,828,251) $ 98,420,314 $ 4,515,652 $(1,258,761) $ 101,677,205 Depreciation expense was charged in the following functions in the Statement of Activities: 65 Governmental Business -type Activities Activities General government $ 204,135 $ - Public safety 1,047,101 - Public works 6,063,507 - Community development 103,836 - Community service 720,383 - Water - 1,237,668 Wastewater - 505,173 $ 8,138,962 $ 1,742,841 65 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Construction commitments for major construction projects are as follows: Balboa Village Phase I & II Mariners Library Irvine Ave Main Replacement Bonita Canyon Sports Park Big Canyon Resevoir Cover CDM Beach Improvements (6) Long -Term Debt Total Project Project To Date Unexpended Budget Expenses Commitments Due Within 7,399,373 6,578,310 821,063 5,200,000 202,857 4,997,143 2,300,000 1,959,630 227,803 32,226,878 31,370,370 856,508 4,300,000 78,248 4,221,752 2,212,233 89,343 2,122,890 Changes in Long -Term Liabilities Long -term liability for the year ended June 30, 2003, was as follows: Governmental activities: Certificates of participation payable Note payable Pre - annexation agreement Office equipment lease payable CDBG Loan Capital leases payable Workers' compensations payable Claims and judgements payable Compensated absences Total governmental activities Business -type activities: Water Revenue Bonds payable Total Internal service funds predominantly serve the governmental funds. Accordingly, long -term liabilities for them are included as part of the above totals for governmental activities. Also, liabilities for workers' compensation, claims and judgments, and compensated absences are typically liquidated from the Internal Service funds through resources collected from individual funds. 1-1y Amounts Beginning Ending Due Within Balance Additions Deletions Balance One Year $ 6,365,000 $ - $ (255,000) $ 6,110,000 $ 265,000 2,219,660 - (137,177) 2,082,483 143,350 18,000,000 - (1,200,000) 16,800,000 1,200,000 - 230,736 (230,736) - - - 2,400,000 - 2,400,000 60,000 1,150,927 1,700,049 (1,557,390) 1,293,586 430,611 6,431,000 4,403,179 (3,508,179) 7,326,000 2,030,000 3,270,000 6,283,585 (5,268,349) 4,285,236 2,260,000 8,156,088 1,791,560 (1,807,921) 8,139,727 1,000,000 45,592,675 16,809,109 (13,964,752) 48,437,032 7,388,961 10,950,000 - (1,185,000) 9,765,000 1,230,000 $ 56,542,675 $ 16,809,109 $ (15,149,752) $ 58,202,032 $ 8,618,961 Internal service funds predominantly serve the governmental funds. Accordingly, long -term liabilities for them are included as part of the above totals for governmental activities. Also, liabilities for workers' compensation, claims and judgments, and compensated absences are typically liquidated from the Internal Service funds through resources collected from individual funds. 1-1y CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Governmental Activities • Certificates of Participation In Fiscal Year 1998 -99, the Newport Beach Public Facilities Corporation issued $7,330,000 of Refunding Certificates of Participation to advance refund the 1992 Certificates of Participation used to finance the construction of the Central Library. The refunding was undertaken to reduce total debt service payments over the next twenty years by $690,228 and resulted in an economic gain of $495,745. The Refunded Certificates were executed and delivered pursuant to the Prior Trust Agreement. The City has previously entered into a project lease with the Newport Beach Public Facilities Corporation to lease certain property, facilities, improvements, and equipment. The lease payments made by the City are held by a trustee who makes semi - annual payments on the Certificates of Participation. The lease payments began May 15, 1994, and are in amounts sufficient to cover the payment of principal and interest of the Certificates. The 1998 Certificates consist of $2,995,000 of Serial Certificates with interest rates from 3.6% to 4.55% and $4,335,000 of Term Certificates with interest rates from 5.05% to 5.15 %. Interest on the Certificates is payable semiannually on June 1 and December 1 of each year. Future principal payments range from $265,000 to $535,000 through June 1, 2019. Principal payments are payable annually on June 1 of each year. At June 30, 2003, the City has a required cash reserve balance for debt service of $566,317, which is recorded as a restricted asset and reservation of fund balance in the Debt Service Fund. The outstanding balance at June 30, 2003, amounted to $6,110,000. The annual amortization requirements of the Certificates of Participation are as follows: Year Ending June 30 Principal Interest Total 2004 $ 265,000 $ 297,685 562,685 2005 275,000 286,688 561,688 2006 290,000 275,000 565,000 2007 300,000 262,530 562,530 2008 315,000 249,480 564,480 2009 -2013 1,815,000 1,009,435 2,824,435 2014 -2018 2,315,000 504,338 2,819,338 2019 535,000 27,552 562,552 $ 6,110,000 $ 2,912,708 $ 9,022,708 67 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Note Payable Note payable consists of a note to the California Department of Boating and Waterways in 1987 for a loan in the amount of $3,300,000. The note is payable in thirty annual principal and interest installments of $237,062 at 4.5% rate of interest beginning August 1, 1987. The outstanding balance at June 30, 2003, amounted to $2,082,483. The annual amortization requirements for the Note Payable are as follows: Year Ending June 30 Principal Interest Total 2004 $ 143,350 $ 93,712 $ 237,062 2005 149,801 87,261 237,062 2006 156,542 80,520 237,062 2007 163,587 73,475 237,062 2008 170,948 66,114 237,062 2009 -2013 977,291 208,019 1,185,310 2014 -2016 320,963 21,131 342,094 $ 2,082,482 $ 630,232 $ 2,712,714 Newport Coast Pre - Annexation Agreement Payable In conjunction with the January 1, 2002, annexation of Newport Coast, the City entered into an agreement payable with the Newport Coast Committee for a total of $18,000,000 to reduce property owner assessments used to finance certain road and street improvements. The principal -only agreement is payable over a period of fifteen years, beginning in the current fiscal year, in equal installments of $1,200,000. The outstanding balance at June 30, 2003, amounted to $16,800,000. • CDBG Loan In the current year, the City received $2,400,000 in Section 108 loan proceeds to assist with the funding for the Balboa Village Improvement Program. The loan is collateralized by future Community Development Block Grant allocations with an average interest rate of 6.5 %. Future principal payments range from $60,000 to $208,000 from August 1 and February 1 of each year. The outstanding balance at June 30, 2003, amounted to $2,400,000. [:t:1 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 The annual amortization requirements for the CDBG Loan are as follows: Year Ending Payments 2004 $ 460,165 June 30 Principal Interest Total 2004 $ 60,000 $ 154,050 $ 214,050 2005 64,000 150,020 214,020 2006 69,000 145,698 214,698 2007 73,000 141,083 214,083 2008 78,000 136,175 214,175 2009 -2013 478,000 594,491 1,072,491 2014 -2018 662,000 410,866 1,072,866 2019 -2023 916,000 156,651 1,072,651 $ 2,400,000 $ 1,889,034 $ 4,289,034 • Capital Leases Rolling Stock Leases - Equipment Maintenance Internal Service Fund: In the current year, the City entered into a lease- purchase agreement, payable monthly, as lessee for financing the acquisition of a heavy duty street maintenance vehicles and fire trucks. The term of the lease is five years and the interest rate for the lease is 2.72 %. The lease agreement qualifies as a capital lease for accounting purposes as the title transfers at the end of the lease term or the lease contains a bargain purchase option, and therefore have been recorded at the present value of their future minimum lease payment as of the inception date. The assets acquired through capital leases, totaling $6,754,827, were classified as equipment in the Equipment Maintenance Internal Service Fund. Future minimum lease payments under the leases are as follows: Year Ending June 30 Payments 2004 $ 460,165 2005 459,776 2006 261,321 2007 119,567 2008 49,820 Total minimum lease payments 1,350,649 Less: amount representing interest (57,063) Present value of future minimum lease payments $ 1,293,586 M CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 • Claims and Judgments The City retains the risk of loss for general liability and workers' compensation claims as described in note (8). These amounts represent estimates of amounts to be paid for reported general liability and workers' compensation claims including incurred- but -not- reported claims based upon past experience, modified for current trends and information. While the ultimate amount of losses incurred through June 30, 2003, is dependent on future developments, based upon information from the City's attorneys, the City's claims administrators and others involved with the administration of the programs, City management believes the accrual is adequate to cover such losses. The estimated liability at June 30, 2003, for general liability amounted to $4,285,236 and for workers' compensation was $7,326,000. • Compensated Absences The City's policies relating to compensated absences are described in Note (1). This liability, to be paid in future years from available and future resources, at June 30, 2003, is $8,139,727. Business -type activities • Water Revenue Bonds In Fiscal Year 1998 -99, the City issued $14,225,000 of Refunding Water Revenue Bonds to refund the 1994 Water Revenue Bonds used to finance the construction and acquisition of water storage and transmission facilities. The refunding was undertaken to reduce total debt service payments over a ten -year period by $481,153 and resulted in an economic gain of $418,469. The bonds are secured by a pledge of net revenues of the water fund. The 1998 Serial Bonds bear interest ranging from 3.6% to 4.5 %. At June 30, 2003, the City has a required cash reserve balance of $1,427,475 which is recorded as a restricted asset. Ten annual principal payments are payable on August 1, and semiannual interest payments are payable on February 1 and August 1. At June 30, 2003, the outstanding principal balance was $9,765,000, and accrued interest payable was $209,086. till CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 The annual amortization requirements for the Water Revenue Bonds are as follows: Year Ending June 30 Principal Interest Total 2004 $ 1,230,000 $ 392,958 $ 1,622,958 2005 1,280,000 341,183 1,621,183 2006 1,330,000 286,693 1,616,693 2007 1,385,000 229,331 1,614,331 2008 1,445,000 168,833 1,613, 833 2009 -2010 3,095,000 140,208 3,235,208 $ 9,765,000 $ 1,559,206 $ 11,324,206 (7) Limited Obligation Bonds Special Assessment Districts Bonds The City has issued certain Assessment District and Community Facilities District Bonds. Although the City collects and disburses funds for these districts, the City has no obligation or duty to pay any delinquency out of any available funds of the City. Neither the faith and credit nor the taxing power of the City is pledged to the payment of the bonds, and therefore the bonded indebtedness is not shown in the financial statements of the City. The City holds reserve funds on behalf of bondholders; the assets are recorded in the Special Assessment Agency Fund. Bonds outstanding at June 30, 2003 for each district under the Bond Acts of 1911 and 1915, and other special assessments, are as follows: Assessment District No. 57 No. 59 No. 60 No. 61 No. 62 No. 63 No. 64 No. 65 No. 66 No. 67 No. 70 No. 71 No. 72 No. 74 No. 78 No. 79 No. 82 Corona Highlands McFadden Square Bay Avenue East Bay Front Hazel Drive Newport Island Channel Road Rocky Point East Newport CDM Blk -133 Bay Shores Balboa Boulevard Balboa Coves Island Avenue Little Balboa Island Beacon Bay Corona del Mar Original Issue 71 $938,598 530,609 236,533 127,299 335,210 536,531 180,794 53,125 171,911 64,431 1,380,996 796,942 192,908 222,629 1,280,000 1,215,134 274,967 Bonds Outstanding June 30, 2003 $125,147 195,000 90,000 45,000 115,000 225,000 97,000 20,000 80,000 41,000 1,380,996 575,000 125,000 210,000 1,146,804 1,180,000 260,000 (8) CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 No. 86 Balboa Peninsula 738,430 738,430 No. 95 -1 CIOSA Refunding Series A 15,495,000 15,495,000 Other Limited Obligation Bonds The City has issued revenue bonds for the purpose of advancing the net proceeds of the bonds to Hoag Memorial Hospital Presbyterian for the purposes of financing the acquisition, construction and equipping of health facilities located within the City. The bonds are limited obligations of the City payable from payments required to be made by Hoag Memorial Hospital. The City is not obligated to pay the principal or interest of the bonds except from payments made by Hoag, and neither the faith and credit nor the taxing power of the City is pledged to the payment of the principal and interest on the bonds. Bonds outstanding at June 30, 2003 are as follows: Series 1992 $ 91,000,000 Series 1996 100,000,000 Series 1999 125,000,000 The revenue bonds are subject to, at the option of Hoag Memorial Hospital Presbyterian, optional and mandatory tender for purchase. If no tender or purchase is made, varying redemption payments on the 1992 bonds commence on October 1, 2013 and are required to be made through October 1, 2022. For the Series 1996 bonds, if no tender for purchase is made, redemption is required to be made on October 1, 2026. If no tender or purchase is made for the Series 1999 bonds, redemption is required to be made on December 1. 2029. Risk Manaqement — General Liability and Workers' Compensation The City is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees, and natural disasters. The City carries commercial insurance with independent third parties for loss risks associated with real and personal property, and automotive liability. The City purchases fidelity bonds for employees in key positions. Settled claims from these risks have not exceeded commercial insurance coverage for the past three years. For general liability, the City has excess insurance coverage of $25 million per occurrence with a self- insured retention (SIR) of $500,000 per occurrence. For workers' compensation and employer's liability insurance, the City has excess insurance coverage of $1,000,000 per occurrence with a $300,000 SIR. This coverage provides for work - related accidents and diseases. The Insurance Reserve fund was established to account for costs associated with general liability, workers' compensation, and compensated absence benefits. The V#A CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Insurance Reserve fund is accounted for as an internal service fund where assets are set aside for risk management, administration, claim settlements and benefit distribution. A premium is charged to each fund that accounts for part-time or full -time employees. The total charge allocated to each of the funds is calculated using trends in actual experience after considering unexpected and unusual claims. Fund Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNR). Claims liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of payouts and other economic and social factors. The total liability claims payable include $11,611,236 which represents the discounted present value at June 30, 2003; the claims were discounted using an interest rate of five percent. For the past three years, no payment on any claim or judgment has exceeded the amount of applicable insurance. (9) Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to defer a portion of their salary until future years. Section 457 plan assets were placed in trust for the exclusive benefit of all employees and their beneficiaries. Therefore, all employee assets held in Section 457 plans are not the property of the City and are not subject to the claims of the City's general creditors. The assets under the plan, which are not included in the accompanying financial statements, totaled $41,583,769 at June 30, 2003. 73 General Liability Workers' Compensation June 30, 2002 June 30, 2003 June 30, 2002 June 30, 2003 Unpaid claims, beginning of fiscal year $ 4,016,336 $ 3,270,000 $ 6,198,814 $ 6,431,000 Incurred claims (including IBNR) 1,225,402 6,283,585 2,048,490 4,403,179 Claim payments (1,971,738) (5,268,349) (1,816,304) (3,508,179) Unpaid claims, end of fiscal year $ 3,270,000 $ 4,285,236 $ 6,431,000 $ 7,326,000 For the past three years, no payment on any claim or judgment has exceeded the amount of applicable insurance. (9) Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to defer a portion of their salary until future years. Section 457 plan assets were placed in trust for the exclusive benefit of all employees and their beneficiaries. Therefore, all employee assets held in Section 457 plans are not the property of the City and are not subject to the claims of the City's general creditors. The assets under the plan, which are not included in the accompanying financial statements, totaled $41,583,769 at June 30, 2003. 73 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 (10) Pension Plan Plan Description - Defined Benefit Plan The City contributes to the California Public Employees Retirement System (PERS), an agent multiple - employer public employee defined benefit pension plan. PERS provides retirement and disability benefits, annual cost -of- living adjustments, and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and city ordinance. Copies of PERS' annual financial report may be obtained from their executive office: 400 P Street, Sacramento, CA 95814. Funding Policy Participants are required to contribute 7% (9% for safety employees) of their annual covered salary. The City makes the contributions required of City employees on their behalf and for their account. The City is required to contribute at an actuarially determined rate; the current rate is 0.00% for non - safety employees and 15.37% for safety employees of annual covered payroll. The contribution requirements of plan members and the City are established and may be amended by PERS. Annual Pension Cost For 2003, the City's annual pension cost of $6,283,125 for PERS was equal to the City's required and actual contributions. A summary of principle assumptions and methods used to determine the annual required contribution is shown below: Valuation Date Actuarial Cost Method Amortization Method Average Remaining Period Asset Valuation Method Actuarial Assumptions Investment Rate of Return Projected Salary Increases Miscellaneous Plan June 30, 2002 Entry Age Actuarial Cost Method Level Percent of Payroll 22 Years as of the Valuation Date 3 Year Smoothed Market 8.25% (net of administrative expenses) 3.75% to 14.20% depending on age, service, and type of employment 74 Safety Plan June 30, 2002 Entry Age Actuarial Cost Method Level Percent of Payroll 15 Years as of the Valuation Date 3 Year Smoothed Market 8.25% (net of administrative expenses) 4.27% to 11.59% depending on age, service, and type of employment CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Inflation Rate Payroll Growth Post Retirement Benefit Increases 3.50% 3.75% 2.00% per year cost -of- living adjustments 3.50% 3.75% 2.00% per year cost -of- living adjustments Initial unfunded liabilities are amortized over a closed period that depends on the plan's date of entry into PERS. Subsequent plan amendments are amortized as a level percent of pay over a closed 20 -year period. Gains and losses that occur in the operation of the plan are amortized over a rolling period, which results in an amortization of 10% of unamortized gains and loses each year. If the plan's accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30 -year amortization period. THREE -YEAR TREND INFORMATION FOR PERS ($ Amount in Thousands) Fiscal Annual Pension Percentage of Net Pension Year Cost (APC) APC Contributed Obligation 6/30/01 $5,597 100% $0 6/30/02 $5,020 100% $0 6/30/03 $6,283 100% $0 75 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 SCHEDULE OF FUNDING PROGRESS FOR PIERS ($ Amount in Thousands Entry Age $101,385 Unfunded ($35,660) Normal Actuarial Liability Annual Valuation Accrued Value of (Excess Funded Covered UAAL as a Date Liability Assets Assets) Status Payroll % of Payroll (A) (B) (A - B) (B / A) (C) [(A -B) / Cl 06/30/2000 Misc. $101,385 $137,045 ($35,660) 135.2% $26,052 (136.880 %) Safety 178,527 187,793 (9,266) 105.2% 21,428 (43.242 %) Total $279,912 $324,838 ($44,926) 116.1% $47,480 (94.621 %) 06/30/2001 Misc. $110,252 $141,132 ($30,880) 128.0% $26,865 (114.945 %) Safety 197,338 195,209 2,129 98.9% 21,816 9.759% Total $307,590 $336,341 ($28,751) 109.3% $48,681 (59.060 %) 06/30/2002 Misc. $120,030 $132,552 ($12,522) 110.4% $29,910 (41.866 %) Safety 212,722 184,202 $28,520 86.6% 22,955 124.243% Total $332,752 $316,754 $15,998 95.2% $52,865 30.262% More current information regarding actuarial data is not yet available from PERS. Plan Description - Defined Contribution Plan As of January 1, 1992, the City entered into a defined contribution plan with Public Agency Retirement System ( "PARS ") for all of its part -time employees. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. All part-time employees are eligible to participate from the date of employment. Federal legislation requires contributions of at least 7.5% to a retirement plan, and City Council resolved to match the employees' contributions of 3.75 %. The City's contributions for each employee (and interest earned by the accounts) are fully vested immediately. For the year ended June 30, 2003, the City's covered payroll for employees participating in the plan was $2,233,713. The City made employer contributions of $83,764 (3.75% of current covered payroll). Assets of the plan totaled $1,835,496 at June 30, 2003. (11) Post - Employment Health Care Benefits As established by a City Council approved Memorandum of Understanding between the City and its employees, the City provides post - employment health care benefits. Employees who retire from the City with seven years of service and participate in PIERS retirement are eligible to receive health care benefits covering themselves and a KU CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 qualified family member from the City's insurance carriers, Health Net and PERS. The City pays 50% of the total plan premiums while the active and retired employees split the remaining premium at a rate of 25% each. This program is funded on a pay -as- you -go basis. As of June 30, 2003, 302 retirees are enrolled in City's health plans out of the 509 retirees eligible to receive benefits. In July 2000, the City established a program to begin setting resources aside to fund the "promise to pay" current active employees this future benefit. The City contributes $20 per month to this fund and the active employees each contribute $10 per month. Contributions will continue until the projected liability is satisfactorily funded, approximately 30 years. The City's expenditure for post - employment health care benefits for the past three fiscal years are as follows: Year Ending June 30 2001 2002 2003 (12) Interfund Receivables and Payables Post - employment Health Care Expenditure $609,034 $706,538 $844,316 At June 30, 2003, interund receivables and payables were as follows: General Fund Nonmajor funds Total Due From $ 1,153,574 $ 1,153,574 Due to 1,153, 574 $ 1,153,574 Interfund receivables and payables were created in order to eliminate deficit cash balances in special revenue funds. 77 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 (13) Interfund Transfers Interfund transfers at June 30, 2003, consisted of the following: Transfers In: Tide and Submerged Non -major General Fund Land Funds Tntal General Fund $ - $ 12,359,896 $ 637,792 $ 12,997,688 O Non -major Funds 619,324 - 427,650 1,046,974 y Newport Coast Annexation Fund 298,228 - 298,228 ca c Water Fund 27,027 27,027 Wastewater Fund 6,250 6,250 Total $ 950,829 $ 12,359,896 $ 1,065,442 $ 14,376,167 The City typically uses transfers to fund ongoing subsidies. The general fund transferred $12,359,896 to subsidize for the maintenance and operation of the Tide and Submerged Land Fund. As required by the pre- annexation agreement, interest accrued in the amount of $298,228 in the Newport Coast Annexation fund but is due to and was subsequently transferred to the General Fund. (14) Reserved and Designated Fund Balances The City has set up 'reserves" of fund equity to segregate fund balances which are not appropriable for expenditure in future periods, or which are legally set aside for a specific future use. Fund "designations" also may be established to indicate tentative plans for financial resource utilization in a future period. The following provides explanations as to the nature and purpose of each reserve and designation. Reserved for encumbrances Amounts reserved for encumbrances are commitments for materials and services on purchase orders and contracts that are legally committed but not expended by fiscal year end. Reserved for debt service This account sets aside a portion of fund balance to meet the annual debt service requirements. Vt.] CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Reserved for permanent endowment This account reflects a permanent endowment established for the maintenance and dredging of Upper Newport Bay. Reserved for prepaid items This account reflects prepaid items which are not available, spendable resources. Reserved for inventories This account reflects the value of inventories purchased by the City but not yet issued to the operating departments. Reserved for long -term receivable This account reflects the value of the note receivable which is not an available and spendable resource. Designated for special projects This account reflects funds that have been designated for special projects which vary in nature. Designation for stabilization This account stabilizes fluctuating revenues and expenditures, providing stability by smoothing out year -to -year volatility in the City's finances. Designated for contingencies Contingency designations represent funds for unexpected emergencies. Designated for capital projects This account reflects unspent appropriations committed to capital projects in the prior year. (15) Joint Venture Agreements Bonita Canyon Public Facilities Financing Authority The Bonita Canyon Public Facilities Financing Authority (Authority) is a joint venture formed by the City of Newport Beach, Irvine Unified School District, and Newport-Mesa Unified School District. The Authority's Board is comprised of two members appointed by each of the member agencies. The Authority created Community Facilities District 98 -1 to finance public facilities that will benefit the properties within their boundaries. The Authority issued $45,000,000 of special tax bonds that will be repaid by special assessments; the City is not obligated in any manner to repay the bonds. The Authority paid the City $30,577,712 (81.7 %) to pay for the costs of acquiring and constructing public facilities including parks and road improvements. At June 30, 2003, the remaining bond proceeds are held in trust as restricted cash totaling $856,508. The City does not make any annual contributions to this joint venture. The City does not include the Authority as a component unit, as the City is not financially accountable for the 79 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Authority's activities and the Authority is not fiscally dependent on the City. The City's equity interest in this joint venture is not readily determinable. Complete separate financial statements can be obtained at the Newport Mesa Unified School District, 2985 Bear Street, Suite 8M, Costa Mesa, California. Air Borne Law Enforcement The City is a participant in a joint venture agreement with the City of Costa Mesa for the operation of the Air Borne Law Enforcement program (ABLE). The oversight Board consists of the Chiefs of Police of Costa Mesa and Newport Beach and one appointee for each Member Agency for a total of four (4) Board Members. The Cities have a 50 percent interest in the venture, with each City having provided an initial investment of two helicopters and related equipment. The City of Newport Beach's cost of participating in the ABLE program is recorded in the General Fund, which provides for the maintenance and operation of the program as well as replacement of capital equipment used in the operation of the program. Annually, the amounts paid by the City to this joint venture are approximately $500,000. Operation costs are offset by fees collected from surrounding cities that may subscribe to regular patrol or request assistance on an as- needed basis. Shared equally between the Cities of Newport Beach and Costa Mesa, the City's share of net income from subscribers and other cities amounts to $389,418 for fiscal year 2002 -03. The City's 50% interest in the net equity of this joint venture at June 30, 2003, amounts to $2,510,000. Complete separate financial statements can be obtained at the City of Costa Mesa at 77 Fair Drive, Costa Mesa, California. Central Net The City of Newport Beach is a Member in a joint venture agreement with the Cities of Huntington Beach and Fountain Valley for the operation of the Central Net Training facility. The oversight board consists of the existing City Manager of each City and as an alternate, the Fire Chief of each City. The City of Newport Beach's costs are based on the number of personnel using the training facilities and is recorded in the General Fund as an expenditure for service. Upon termination of the agreement, the property and assets of the joint venture become the property of the City of Huntington Beach, provided that the funds remaining in the training facility budget are paid to each Member in proportion to their most recent contribution to the budget. Annually, the amounts paid by the City to this joint venture are approximately $150,669. Cash balances held by this joint venture at June 30, 2003 were immaterial. The City does not have a material measurable equity interest in the joint venture. Complete financial statements can be obtained at the Central Net offices at 18301 Gothard Street, Huntington Beach, California. Metro Cities Fire Authority The City of Newport Beach is a Member of a joint venture agreement with the Cities of Anaheim, Fountain Valley, Fullerton, Garden Grove, Huntington Beach, and Orange for the operation of a communication network to provide fire suppression, emergency medical assistance, and rescue services. The oversight board consists of one voting 1.111 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 member and one alternate appointed by the governing body of each member agency. The City of Newport Beach's costs are based each fiscal year upon the number of recorded incidents attributable to the City divided by the recorded incidents attributable to all members during the year and, are recorded in the General Fund as an expenditure for service. Upon termination of the agreement, the proceeds from the sale of the property and assets of the joint venture will be paid to each member agency pursuant to their fair share percentage. Annually, the amounts paid by the City to this joint venture are approximately $325,574. The City's 9.94% interest in the net equity of this joint venture at June 30, 2003, amounts to $76,913. Complete separate financial statements can be obtained at the Metro Cities Fire Authority offices at 201 S. Anaheim Boulevard, Suite 302, Anaheim, California. (16) Special Items Capital Contributions In the current year, the City received contributed capital of $17,578,871 consisting of passive and active parkland known as Arroyo Park. In the Governmental -wide Financial Statements, the contributed capital is recorded as a separate line item in the General Revenue section of the Statement of Activities. This amount is also reported as a current year addition to Capital Assets as land on the Government -wide Statement of Net Assets. (17) Commitments and Contingencies Claims and Judgments Numerous claims and suits have been filed against the City in the normal course of business. The estimated liability under such claims, based upon information received from the City Attorney, contracted attorneys and the Risk Manager, has been estimated and recorded as accrued claims and judgments payable (See Note 6). Circulation Improvement and Open Space Agreement The City entered into a Circulation Improvement and Open Space Agreement ( CIOSA) with a developer whereby the City could receive a loan amount up to $14,395,572 to be used only for certain transportation and circulation improvements, of which $10,205,673 had been received as of June 30, 2003. The City agreed to match the contribution (without interest) by pledging 50% of future Fair Share Fees (developer impact fees) which are recorded in the Circulation and Transportation Special Revenue Fund. During the year ended June 30, 2003, the City received $855,301 of Fair Share Fees, and $427,650 was paid to the CIOSA Construction capital projects fund. Through June 30, 2003, $1,990,911 of Fair Share Fees has been paid. No additional liability has been recorded, because any future repayment is uncertain; any amounts not contributed by February 20, 2016, will be forgiven. a CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 Newport Coast Pre - Annexation Agreement In Fiscal Year 2001 -02, the City entered into a Pre - Annexation Agreement with the Newport Coast Committee that stipulated certain terms and conditions for the annexation of property collectively known as Newport Coast. In conjunction with the annexation, the City also agreed to sell the water service rights for the annexed area to Irvine Ranch Water District for $25.0 million. Of the $25.0 million payable from the Irvine Ranch Water District, $15.0 million was received in the current year and the remaining $10.0 million is due in three installments ranging from $2.0 to $5.0 million through January 1, 2008. At June 30, 2003, the remaining receivable of $10.0 million has been recorded as an Intergovernmental Receivable in the Newport Coast Annexation Special Revenue Fund. Among other basic provisions, the Pre- Annexation Agreement stipulates specific requirements for the use of proceeds from the sale of the water rights to Irvine Ranch Water District. The City has entered into an agreement to reimburse Newport Coast residents $18.0 million of the $25.0 million for certain public road and street improvements previously financed by property owner assessments. The assessment debt relief will be provided to Newport Coast residents in equal installments of $1.2 million over 15 years. The remaining $7.0 million may be used in locating, planning, and constructing a Community Center within the annexed area. In the event that the Community Center is constructed for less than $7.0 million, or not at all, the Newport Coast Committee has the option to allocate the funds to further reduce the property owner assessments. In the Government -wide Statements, the $16.8 million outstanding assessment debt relief has been recorded as a Noncurrent Liability, and the $7.0 million, including applicable interest earnings, has been restricted in the Net Assets. (18) Net Asset Restatements Beginning Net Assets has been restated by the net effect of changes resulting from the correction of an error in the 2001 -02 comprehensive evaluation of City -owned capital assets. The adjustment increased the governmental activities beginning net assets in the Government -wide Financial Statements by $2,269,502. i FA CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30, 2003 The effect of the restatement is shown below: (19) Subsequent Event Annexations The City adopted Resolutions 2000 -81 and 2001 -27 that started a reorganization process that could lead to the annexation of two unincorporated areas within or adjacent to the City's sphere of influence: the areas known as eastern Santa Ana Heights and Bay Knolls. The adoption of the resolutions allowed the City to file a reorganization application with the Orange County Local Agency Formation Commission ( LAFCO). The application is the first step in the reorganization process as outlined in California Law (Government Code §56000 et seq.) Under the reorganization plan that was certified and approved by LAFCO in late 2002, City services for Santa Ana Heights and Bay Knolls commenced on July 1, 2003. The services that the City will provide include law enforcement, fire, paramedic, animal control, library, recreation, public works, general maintenance, and administrative services to the proposed areas of annexation. The City has begun pre - zoning the area known as West Santa Ana Heights and may annex that territory effective July 1, 2004. The services that the City would provide after that date include law enforcement, fire, paramedic, animal control, library, recreation, public works, general maintenance, and administrative services. M Prior Period Adjustment Governmental Activities: Infrastructure $ 2,830,841 Accumulated depreciation (561,339) Net effect of changes $ 2,269,502 (19) Subsequent Event Annexations The City adopted Resolutions 2000 -81 and 2001 -27 that started a reorganization process that could lead to the annexation of two unincorporated areas within or adjacent to the City's sphere of influence: the areas known as eastern Santa Ana Heights and Bay Knolls. The adoption of the resolutions allowed the City to file a reorganization application with the Orange County Local Agency Formation Commission ( LAFCO). The application is the first step in the reorganization process as outlined in California Law (Government Code §56000 et seq.) Under the reorganization plan that was certified and approved by LAFCO in late 2002, City services for Santa Ana Heights and Bay Knolls commenced on July 1, 2003. The services that the City will provide include law enforcement, fire, paramedic, animal control, library, recreation, public works, general maintenance, and administrative services to the proposed areas of annexation. The City has begun pre - zoning the area known as West Santa Ana Heights and may annex that territory effective July 1, 2004. The services that the City would provide after that date include law enforcement, fire, paramedic, animal control, library, recreation, public works, general maintenance, and administrative services. M This page left blank intentionally. E:LI Su pplementag Information �Ew P CO) Non Major Governmental Funds 73�- NON -MAJOR GOVERNMENTAL FUNDS Non -major Special Revenue Funds Special Revenue Funds are used to account for the proceeds of specific revenue sources which are legally restricted to expenditures for specified purposes. The City of Newport Beach Special Revenue Funds are as follows: The State Gas Tax Fund accounts for all State Gas Tax related revenues and expenditures, including street repair, construction, and maintenance. State law requires that these funds be used exclusively for maintenance of the street and highway system. The Traffic Congestion Relief Fund was established to account for all revenues received from the State Treasury as per Assembly Bill 2928. These funds must be used only for maintenance or reconstruction costs on public streets or roads. The Asset Forfeiture Fund was established to account for all revenues resulting from the seizure of assets in conjunction with criminal cases (primarily drug trafficking). It is the City's policy that all such funds shall be used for enhancement of law enforcement programs. The Contributions Fund is used to account for revenues received from other government agencies or private developers and expended for specific street or highway construction projects. The Circulation and Transportation Fund is used to account for fair share revenues collected from developers and restricted for capital improvement projects meeting the circulation element of the City's General Plan. The Building Excise Tax Fund is used to account for revenues received from builders or developers on building or remodeling projects within the City. Expenditures from this fund are used exclusively for public safety, libraries, parks, beaches, or recreational activities. The Combined Transportation Fund is used to account for the revenues and expenditures of funds received from the Orange County Combined Transportation Funding Program. Expenditures from this fund are used exclusively for transportation related purposes. The Arterial Highway Rehabilitation Fund is used to account for federal funds available through the Federal Highway Administration Arterial Highway Rehabilitation Program to share the cost of rehabilitating certain arterial roadways in the City. The Community Development Block Grant Fund is used to account for revenues and expenditures relating to the City's Community Development Block Grant program. These funds are received from the Federal Department of Housing and Urban Development and must be expended exclusively on programs for low or moderate income individuals /families. The Ackerman Donation Fund is used to account for the receipt and disbursement of funds received from the Ackerman Trust. These funds are split between the City and the University of California, Irvine. The City's portion must be used for library and scholarship purposes. The Air Quality Management District Fund is used to account for revenues received from the South Coast Air Quality Management District restricted for the use of reducing air pollution. The Environmental Liability Fund is used to account for solid waste fees restricted for mitigation of future environmental liability relating to the handling of solid waste. The Supplemental Law Enforcement Services Fund (SLESF) is used to account for revenues received from the county to be used exclusively for front line law enforcement services. The Misc. Grants Fund is used to account for all other short -term grant programs Nonf -major ICebill Ser0ce Fnun ds Debt Serrice, Funds .are tmed to accomint for cleft serAce tra:nsartlions including revenue col'lectio'ns and pa,ymprits of principall and interest oni Bong -terin obligations of the Giity; Tine Clittj of Newport BGugdla Debt Seratce Fttnrll its as follllows- The Sitxraa-y COP Fund is used to account for the debt sei-�ice transactions related to the Certificates of Participation used to finance the construction ofthe Cantral Library. Now -major CapiRaI Proj edsi F2un s Capitall Rrojed& 'Rinds are used to account for n�,ources nosed for the acquilsililoini and construction of c -1pitall facilliities by the City, excepttllo,se#inanced by Enterprise Funds: Time �Gliv� of Newport Beaeln Gapiltal Projects FLI lids acre as folllio-om: The Asses.smoenr Distdcf Fund is used to accounIfor the receipt and expenditure of funds received from 1911 Act and 1915 Act Assessment Districts for capital improvement projecls. The CYOSA Consbwc on Fund is used to account for the receipt and expenditure of funds for the Gireutation Improvement and Open Space agreement 1CIQSAj. The impr7Jements include street and frontage im praaemenis. The L%ni a 0arayan Devebloment Rnpdis used to account For the receipt and expenditure cf funds for the Bonita Canyon Public Facilities Agreement The improvements include certain public parks and ner_reaticn facilities. and street impr- cwements and facilities. The 0,9 SOrdr Rene ediatio,a Fnwd, is used to account for the receipt of the satllement proceeds from the American Trader Company. These funds must be used on prg9ecm affecting the areas damaged by the spill: Non -tinajor Perim n en t Ftunds Permalment: Funds are used to report resouirce,s that are legally restricted for the extent that only earnlings, na prilneilpal,, inay Ibe, eked for purposes [:hint support the reportinig gwdariniineyont''s programs. The i.iity of Newport Bench IPerniziagnt Fuinid is as follovm: The Bay Vvedging Fund is used to account for the receipt of permanent endowments intended to fund the on'goin'g cost of maintaining and dredging of the Upper Newport Bays. 0 CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2003 Liabilities and Fund Balances Liabilities: Accounts payable Special Revenue $ 51,850 $ 91,420 Traffic - - - State Congestion Asset - - Gas Tax Relief Forfeiture Contributions Assets 21,988 - 51,850 Cash and investments $ 3,828,739 $ 28,185 $ 279,806 $ - Receivables: Reserved for encumbrances Accounts - - - 661,261 Intergovernmental receivables - 54,271 2,367 - Restricted cash with fiscal agent - - - - Other - - Total Assets $ 3,828,739 $ 82,456 $ 282,173 $ 661,261 Liabilities and Fund Balances Liabilities: Accounts payable $ 21,988 $ - $ 51,850 $ 91,420 Deferred revenue - - - 683,914 Due to other funds - - - 343,391 Total Liabilities 21,988 - 51,850 1,118,725 Fund balances: Reserved for encumbrances 1,130,425 - 12,272 - Reserved for debt service - - - - Reserved for permanent endowment - - - - Unreserved: Designated for special purposes 2,676,326 82,456 218,051 - Undesignated - - (457,464) Total fund balances (deficit) 3,806,751 82,456 230,323 (457,464) Total liabilities and fund balances $ 3,828,739 $ 82,456 $ 282,173 $ 661,261 1:1:71 Circulation Building $ 362,774 Arterial Community and Excise Combined Highway Development Transportation Tax Transportation Rehabilitation Block Grant $ 5,153,816 $ 296,250 $ 2,366,927 $ - $ - - - 666,812 605,368 - - - 205,639 - - 1,719,010 $ 5,153,816 $ 296,250 $ 3,033,739 $ 605,368 $ 1,924,649 $ 89,718 $ 18,950 $ 362,774 $ 394,887 $ 239,408 - - 666,812 605,368 4,081 - - - 204,030 584,374 89,718 18,950 1,029,586 1,204,285 827,863 567,388 83,797 668,821 - 725,845 4,496,710 193,503 1,335,332 - 370,941 - - (598,917) 5,064,098 277,300 2,004,153 (598,917) 1,096,786 $ 5,153,816 $ 296,250 $ 3,033,739 $ 605,368 $ 1,924,649 —Tc`on—tinu—ecTT M CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2003 (continued) Liabilities and Fund Balances Liabilities Accounts payable $ - $ - $ 11,038 Special Revenue - 21,431 - - 41,223 Due to other funds - 21,779 Air Quality Total Liabilities Supplemental 11,038 - 41,223 Fund balances: Ackerman Management Environmental Law Misc Reserved for debt service Donation District Liability Enforcement Grants Assets Designated for special purposes 286,159 - 1,745,120 - - Cash and investments $ 286,159 $ - $ 1,641,506 $ - $ 41,223 Receivables: fund balances $ 286,159 $ 43,210 $ 1,757,895 $ - $ 41,223 Accounts - 21,431 17,418 - - Intergovernmental receivables - 21,779 - - - Restricted cash with fiscal agent - - - - - Other - - 98,971 - - Total Assets $ 286,159 $ 43,210 $ 1,757,895 $ $ 41,223 Liabilities and Fund Balances Liabilities Accounts payable $ - $ - $ 11,038 Deferred revenue - 21,431 - - 41,223 Due to other funds - 21,779 - - - Total Liabilities - 43,210 11,038 - 41,223 Fund balances: Reserved for encumbrances - - 1,737 - - Reserved for debt service - - - - - Reserved for permanent endowment - - - - - Unreserved: Designated for special purposes 286,159 - 1,745,120 - - Undesignated - - - - - Total fund balances (deficit) 286,159 - 1,746,857 - - Total liabilities and fund balances $ 286,159 $ 43,210 $ 1,757,895 $ - $ 41,223 1 *1 Debt Service Capital Projects Library Assessment CIOSA Bonita Canyon Oil Spill Mariners COP District Construction Development Remediation Library $ 2,750 $ 1,278,555 $ 5,230,469 $ 943,510 $ 1,569,964 $ 979,700 566,317 - - - - - $ 569,067 $ 1,278,555 $ 5,230,469 $ 943,510 $ 1,569,964 $ 979,700 $ 2,750 $ 604,509 $ 1,750 $ - $ 21,610 $ - 2,750 604,509 1,750 - 21,610 - - 211,447 86,077 - 253,171 382,900 566,317 - - - - - - 462,599 5,142,642 943,510 1,295,183 596,800 566,317 674,046 5,228,719 943,510 1,548,354 979,700 $ 569,067 $ 1,278,555 $ 5,230,469 $ 943,510 $ 1,569,964 $ 979,700 (continued) 0 CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2003 (continued) Liabilities and Fund Balances Liabilities Accounts payable Permanent Fund $ 1,912,652 Deferred revenue - Total Due to other funds Other Total Liabilities - Governmental Fund balances: Bay Dredging Funds Assets - 4,123,880 Cash and investments $ 3,147 $ 23,930,706 Receivables: 3,000 3,000 Accounts - 1,972,290 Intergovernmental receivables - 284,056 Restricted cash with fiscal agent - 2,285,327 Other - 98,971 Total Assets $ 3,147 $ 28,571,350 Liabilities and Fund Balances Liabilities Accounts payable $ - $ 1,912,652 Deferred revenue - 2,022,829 Due to other funds 1,153,574 Total Liabilities - 5,089,055 Fund balances: Reserved for encumbrances - 4,123,880 Reserved for debt service - 566,317 Reserved for permanent endowment 3,000 3,000 Unreserved: Designated for special purposes 147 19,845,479 Undesignated - (1,056,381) Total fund balances (deficit) 3,147 23,482,295 Total liabilities and fund balances $ 3,147 $ 28,571,350 411 This page left blank intentionally. 91 CITY OF NEWPORT BEACH Non -Major Governmental Fund Types Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year ended June 30, 2003 Expenditures: Current: General government - - - - Public safety - - 256,466 - Public works - - - - Community development - - - - Community services - - - - Capital outlay 1,621,506 363,000 - 834,023 Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures 1,621,506 363,000 256,466 834,023 Excess (deficiency) of revenues over expenditures (122,255) (162,076) (195,115) (464,965) Other financing sources (uses): Transfers in - - - - Transfers out (160,000) - - - Long -term debt issued - - - - Total other financing sources (uses) (160,000) - - - Net change in fund balances (282,255) Special Revenue (195,115) (464,965) Fund balances (deficit), beginning Traffic 244.532 425,438 7,501 State Congestion Asset $ 230,323 $ (457,464) Gas Tax Relief Forfeiture Contributions Revenues: Othertaxes $ - $ - $ - $ - Intergovernmental 1,332,752 192,176 1,480 314,433 Licenses, permits and fees - - - - Charges for services - - - - Fines and forfeitures - - 46,315 - Investment income 89,601 4,708 10,702 - Net increase in fair value of investments 76,898 4,040 2,854 - Donations - - - 29,789 Other - - - 24,836 Total revenues 1,499,251 200,924 61,351 369,058 Expenditures: Current: General government - - - - Public safety - - 256,466 - Public works - - - - Community development - - - - Community services - - - - Capital outlay 1,621,506 363,000 - 834,023 Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures 1,621,506 363,000 256,466 834,023 Excess (deficiency) of revenues over expenditures (122,255) (162,076) (195,115) (464,965) Other financing sources (uses): Transfers in - - - - Transfers out (160,000) - - - Long -term debt issued - - - - Total other financing sources (uses) (160,000) - - - Net change in fund balances (282,255) (162,076) (195,115) (464,965) Fund balances (deficit), beginning 4,089,006 244.532 425,438 7,501 Fund balances (deficit), ending $ 3,806,751 $ 82,456 $ 230,323 $ (457,464) 00A Special Revenue Circulation Building Arterial Community and Excise Combined Highway Development Transportation Tax Transportation Rehabilitation Block Grant - - 1,010,077 366,441 835,483 855,301 197,133 - - - 134,128 6,676 49,984 - 28,085 115,109 5,729 42,896 - - 1,104,538 209,538 1,102,957 366,441 863,568 194,123 957,397 180,428 1,042,573 679,318 1,782,510 - - - - 72,846 957,397 180,428 1,042,573 679,318 2,049,479 147,141 29,110 60,384 (312,877) (1,185,911) - - - - 78,126 (427,650) - - - - 2,400,000 (427,650) - - - 2,478,126 (280,509) 29,110 60,384 (312,877) 1,292,215 5,344,607 248,190 1,943,769 (286,040) (195,429) $ 5,064,098 $ 277,300 $ 2,004,153 $ (598,917) $ 1,096,786 (continued) 93 Revenues: Othertaxes Intergovernmental Licenses, permits and fees Charges for services Fines and forfeitures Investment income Net increase in fair value of investments Donations Other Total revenues Expenditures: Current: General government Public safety Public works Community development Community services Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Long -term debt issued Total other financing sources (uses) Net change in fund balances Fund balances (deficit), beginning Fund balances (deficit), ending CITY OF NEWPORT BEACH Non -Major Governmental Fund Types Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year ended June 30, 2003 (continued) Special Revenue Air Quality Supplemental Ackerman Management Environmental Law Misc Donation District Liability Enforcement Grants $ - $ - $ 404,446 $ - $ - 123,573 - 144,048 37,847 - - 10,357 - - 5,926 - 43,027 159 852 5,086 - 36,927 136 81 185,000 - - - - 196,012 123,573 494,757 144,343 38,780 130,641 128,500 195,339 144,343 38,780 128,500 130,641 195,339 144,343 38,780 67,512 (7,068) 299,418 (15,488) (443,836) (15,488) (443,836) 67,512 (22,556) (144,418) 218,647 22,556 1,891,275 - - $ 286,159 $ - $ 1,746,857 M91 Debt Service Capital Projects Library Assessment CIOSA Bonita Canyon Oil Spill Mariners COP District Construction Development Remediation Library 5,571 20,126 117,348 194,454 41,145 - - 17,271 100,708 - 35,310 - - - 1,981 - - 1,069,732 - 2,089,689 - - - - 5,571 2,127,086 220,037 194,454 76,455 1,069,732 325,000 - - - 1,696,610 295,444 63,331 563,995 90,032 255,000 - - - - - 310,925 - - - - - 565,925 1,696,610 620,444 63,331 563,995 90,032 (560,354) 430,476 (400,407) 131,123 (487,540) 979,700 559,666 - 427,650 - - - 559,666 - 427,650 - - (688) 430,476 27,243 131,123 (487,540) 979,700 567,005 243,570 5,201,476 812,387 2,035,894 - $ 566,317 $ 674,046 $ 5,228,719 $ 943,510 $ 1,548,354 $ 979,700 (continued) 95 Revenues: Othertaxes Intergovernmental Licenses, permits and fees Charges for services Fines and forfeitures Investment income Net increase in fair value of investments Donations Other Total revenues Expenditures: Current: General government Public safety Public works Community development Community services Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Long -term debt issued Total other financing sources (uses) Net change in fund balances Fund balances (deficit), beginning Fund balances (deficit), ending CITY OF NEWPORT BEACH Non -Major Governmental Fund Types Combining Statement of Revenues, Expenditures and Changes in Fund Balances For the Year ended June 30, 2003 (continued) Permanent Fund Total Other Governmental Bay Dredging Funds $ - $ 404,446 - 4,358,310 - 1,052,434 - 56,672 71 752,563 61 443,106 - 1,286,502 - 2,114,525 132 10,468,558 - 634,928 - 455,641 - 194,123 - 128,500 - 10,170,167 255,000 383,771 12,222,130 132 (1,753,572) 1,065,442 (1,046,974) 2,400,000 2,418,468 132 664,896 3,015 22,817,399 $ 3,147 $ 23,482,295 K-i Revenues: Intergovernmental Investment income Net increase in fair value of investments Total revenues Expenditures: Current: Capital outlay Excess (deficiency) of revenues over expenditures Other financing uses: Transfers out Net change in fund balance Fund balance, beginning Fund balance, ending CITY OF NEWPORT BEACH Budgetary Comparison Schedule State Gas Tax Special Revenue Fund For the Year Ended June 30, 2003 97 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 1,357,500 $ 1,357,500 $ 1,332,752 $ (24,748) 100,000 100,000 89,601 (10,399) - - 76,898 76,898 1,457,500 1,457,500 1,499,251 41,751 4,047,095 3,559,432 1,621,506 1,937,926 (2,589,595) (2,101,932) (122,255) 1,979,677 (160,000) (160,000) (160,000) - (2,749,595) (2,261,932) (282,255) 1,979,677 4,089,006 4,089,006 4,089,006 - $ 1,339,411 $ 1,827,074 $ 3,806,751 $ 1,979,677 97 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Traffic Congestion Special Revenue Fund For the Year Ended June 30, 2003 61.1 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues Intergovernmental $ 150,000 $ 150,000 $ 192,176 $ 42,176 Investment income - - 4,708 4,708 Net increase in fair value of investments - - 4,040 4,040 Total revenues 150,000 150,000 200,924 50,924 Expenditures Capital outlay 363,000 363,000 363,000 - Net change in fund balance (213,000) (213,000) (162,076) 50,924 Fund balance, beginning 244,532 244,532 244,532 - Fund balance, ending $ 31,532 $ 31,532 $ 82,456 $ 50,924 61.1 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Asset Forfeiture Special Revenue Fund For the Year Ended June 30, 2003 .. Variance with Final Budget Budget Amounts Positive Original Final Actual (Negative) Revenues Intergovernmental $ 35,000 $ 35,000 $ 1,480 $ (33,520) Fines, forfeitures & penalties - - 46,315 46,315 Investment income 2,000 2,000 10,702 8,702 Net increase in fair value of investments - - 2,854 2,854 Total revenues 37,000 37,000 61,351 24,351 Expenditures Public safety 305,869 236,664 256,466 (19,802) Net change in fund balance (268,869) (199,664) (195,115) 4,549 Fund balance, beginning 425,438 425,438 425,438 - Fund balance, ending $ 156,569 $ 225,774 $ 230,323 $ 4,549 .. CITY OF NEWPORT BEACH Budgetary Comparison Schedule Contributions Special Revenue Fund For the Year Ended June 30, 2003 1101111 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues Intergovernmental $ 4,886,319 $5,742,199 $ 314,433 $(5,427,766) Donations 120,000 27,371 29,789 2,418 Other - - 24,836 24,836 Total revenues 5,006,319 5,769,570 369,058 (5,400,512) Expenditures Capital outlay 5,996,755 3,794,469 834,023 2,960,446 Net change in fund balance (990,436) 1,975,101 (464,965) (2,440,066) Fund balance, beginning 7,501 7,501 7,501 - Fund balance (deficit), ending $ (982,935) $ 1,982,602 $ (457,464) $ (2,440,066) 1101111 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Circulation and Transportation Special Revenue Fund For the Year Ended June 30, 2003 Revenues Intergovernmental Licenses, permits and fees Investment income Net increase in fair value of investments Total revenues Expenditures Capital outlay Excess (deficiency) of revenues over expenditures Other financing uses: Transfers out Net change in fund balance Fund balance, beginning Fund balance, ending Budgeted Amounts Original Final Variance with Final Budget Positive Actual (Negative) 855,301 855,301 134,128 134,128 115,109 115,109 1,104,538 1,104,538 2,602,830 1.726,100 957,397 768,703 (2,602,830) (1,726,100) 147,141 1,873,241 (427,650) 427,650 (2,602,630) (1,726,100) (280,509) 2,300,891 5,344,607 5,344,607 5,344,607 - $ 2,741,777 $ 3,618,507 $ 5,064,098 $ 1,445,591 101 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Building Excise Tax Special Revenue Fund For the Year Ended June 30, 2003 `[IYA Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues Licenses, permits and fees $ 175,000 $ 175,000 $ 197,133 $ 22,133 Investment income 7,500 7,500 6,676 (824) Net increase in fair value of investments - - 5,729 5,729 Total revenues 182,500 182,500 209,538 27,038 Expenditures Capital outlay 435,347 274,117 180,428 93,689 Net change in fund balance (252,847) (91,617) 29,110 120,727 Fund balance, beginning 248,190 248,190 248,190 - Fund balance (deficit), ending _L __j4,657) $ 156,573 $ 277,300 $ 120,727 `[IYA CITY OF NEWPORT BEACH Budgetary Comparison Schedule Combined Transportation Special Revenue Fund For the Year Ended June 30, 2003 Expenditures Capital outlay 1,792,179 1,795,529 1,042,573 Variance Net change in fund balance 519,901 516,551 60,384 with Final Fund balance, beginning 1,943,769 1,943,769 1,943,769 Budget Fund balance, ending Budgeted Amounts $ 2,004,153 Positive Original Final Actual (Negative) Revenues Intergovernmental $ 2,205,580 $ 2,205,580 $ 1,010,077 $ (1,195,503) Investment income 106,500 106,500 49,984 (56,516) Net increase in fair value of investments - - 42,896 42,896 Total revenues 2,312,080 2,312,080 1,102,957 (1,209,123) Expenditures Capital outlay 1,792,179 1,795,529 1,042,573 752,956 Net change in fund balance 519,901 516,551 60,384 (456,167) Fund balance, beginning 1,943,769 1,943,769 1,943,769 - Fund balance, ending $ 2,463,670 $ 2,460,320 $ 2,004,153 $ (456,167) 103 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Arterial Highway Rehabilitation Special Revenue Fund For the Year Ended June 30, 2003 Revenues Intergovernmental Expenditures Capital outlay Net change in fund balance Fund balance, beginning Fund balance (deficit), beginning Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 980,613 $ 980,613 $ 366,441 $ (614,172) 1,158,908 1,158,908 679,318 479,590 (178,295) (178,295) (312,877) (134,582) (286,040) (286,040) (286,040) $ (464,335) $ (464,335) $ (598,917) $ (134,582) I[IE! CITY OF NEWPORT BEACH Budgetary Comparison Schedule Community Development Block Grant Special Revenue Fund For the Year Ended June 30, 2003 Expenditures: Current: Community development Community services Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources: Transfers in Long -term debt issued Total other financing sources Net change in fund balance Fund balance (deficit), beginning Fund balance (deficit), ending 196,500 339,258 194,123 2,176,258 2,386,000 1,782,510 Variance with Final Budget Positive (Negative) $ 345,483 28,085 373,568 145,135 603,490 - - 72,846 (72,846) 2,372,758 2,725,258 2,049,479 675,779 217,242 Budgeted Amounts 1,049,347 - Original Final Actual Revenues: 2,100,000 2,400,000 300,000 Intergovernmental $2,590,000 $ 490,000 $ 835,483 Investment income - - 28,085 Total revenues 2,590,000 490,000 863,568 Expenditures: Current: Community development Community services Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources: Transfers in Long -term debt issued Total other financing sources Net change in fund balance Fund balance (deficit), beginning Fund balance (deficit), ending 196,500 339,258 194,123 2,176,258 2,386,000 1,782,510 Variance with Final Budget Positive (Negative) $ 345,483 28,085 373,568 145,135 603,490 - - 72,846 (72,846) 2,372,758 2,725,258 2,049,479 675,779 217,242 (2,235,258) (1,185,911) 1,049,347 - - 78,126 78,126 - 2,100,000 2,400,000 300,000 - 2,100,000 2,478,126 378,126 217,242 (135,258) 1,292,215 1,427,473 (195,429) (195,429) (195,429) - $ 21,813 $ (330,687) $ 1,096,786 $ 1,427,473 105 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Ackerman Donation Special Revenue Fund For the Year Ended June 30, 2003 Expenditures Community services 187,986 187,986 128,500 59,486 Variance 1,014 1,014 67,512 66,498 Fund balance, beginning with Final 218,647 218,647 - Fund balance, ending $ 219,661 Budget $ 286,159 $ 66,498 Budgeted Amounts Positive Original Final Actual (Negative) Revenues Investment income $ 4,000 $ 4,000 $ 5,926 $ 1,926 Net increase in fair value of investments - - 5,086 5,086 Donations 185,000 185,000 185,000 - Total revenues 189,000 189,000 196,012 7,012 Expenditures Community services 187,986 187,986 128,500 59,486 Net change in fund balance 1,014 1,014 67,512 66,498 Fund balance, beginning 218,647 218,647 218,647 - Fund balance, ending $ 219,661 $ 219,661 $ 286,159 $ 66,498 fi[11Ly CITY OF NEWPORT BEACH Budgetary Comparison Schedule Air Quality Management District Special Revenue Fund For the Year Ended June 30, 2003 Revenues Intergovernmental Investment income Total revenues Expenditures Public works Excess (deficiency) of revenues over expenditures Other financing uses Transfers out Net change in fund balance Fund balance, beginning Fund balance (deficit), ending Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 150,000 $ 116,000 $ 123,573 $ 7,573 - 1,500 - (1,500) 150,000 117,500 123,573 6,073 177,311 132,311 130,641 1,670 (27,311) (14,811) (7,068) 7,743 (45,000) (45,000) (15,488) 29,512 (72,311) (59,811) (22,556) 37,255 22,556 22,556 22,556 - $ (49,755) $ (37,255) $ - $ 37,255 107 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Environmental Liability Special Revenue Fund For the Year Ended June 30, 2003 Revenues Taxes Fines, forfeitures & penalties Investment income Total revenues Expenditures Public works Excess (deficiency) of revenues over expenditures Other financing uses Transfers out Net change in fund balance Fund balance, beginning Fund balance, ending Budgeted Amounts Original Final $ 462,000 S - 462,000 494,757 494,757 98,971 174,586 195,339 (20,753) 363,029 (174,586) 299,418 474,004 (443,836) (443,836) 363,029 (174,586) (144,418) 30,168 1,891,275 1,891,275 1,891,275 - $ 2,254,304 $ 1,716,689 $ 1,746,857 $ 30,168 6111:1 Variance with Final Budget Positive Actual (Negative) $ 404,446 $ 404,446 10,357 10,357 79,954 79,954 494,757 494,757 98,971 174,586 195,339 (20,753) 363,029 (174,586) 299,418 474,004 (443,836) (443,836) 363,029 (174,586) (144,418) 30,168 1,891,275 1,891,275 1,891,275 - $ 2,254,304 $ 1,716,689 $ 1,746,857 $ 30,168 6111:1 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Supplemental Law Enforcement Special Revenue Fund For the Year Ended June 30, 2003 Revenues Intergovernmental Investment income Total revenues Expenditures Public safety Net change in fund balance Fund balance, beginning Fund balance, ending 109 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 164,000 $ 164,000 $ 144,048 $ (19,952) 1,000 1,000 295 (705) 165,000 165,000 144,343 (20,657) 165,000 165,000 144,343 20,657 109 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Miscellaneous Grants Special Revenue Fund For the Year Ended June 30, 2003 Net change in fund balance - - - - Fund balance, beginning Fund balance, ending UK Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues Intergovernmental $ 55,495 $ 39,448 $ 37,847 $ (1,601) Investment income - - 852 852 Net increase in fair value of investments - - 81 81 Total revenues 55,495 39,448 38,780 (668) Expenditures Public safety 55,495 39,448 38,780 668 Net change in fund balance - - - - Fund balance, beginning Fund balance, ending UK Internal Service Funds INTERNAL SERVICE FUNDS The Internal Service Funds are used to allocate the cost of providing goods and services by one department to other departments on a cost reimbursement basis. The City of Newport Beach Internal Service Funds are listed below: The Insurance Reserve Fund is used to account for the City's self- insured general liability and workers' compensation program. The Compensated Absence Fund is used to account for the City's accumulated liability for compensated absences. The Retiree Insurance Fund is used to account for the cost of providing post - employment Health Care Benefit. The Equipment Fund is used to account for the cost of maintaining and replacing the City's rolling stock fleet and the rental of the fleet to operating departments. Assets Current assets: Cash and investments Receivables: Accounts Inventories Prepaid items Total current assets Noncurrent assets: Capital assets: Equipment Less accumulated depreciation Total capital assets (net of accumulated depreciation) Total assets Liabilities Current liabilities: Accounts payable and accrued liabilities Accrued payroll Capital leases - current Workers' compensation - current General liability - current Compensated absences - current Total current liabilities Noncurrent liabilities: Capital leases Workers' compensation General liability Compensated absences Total Noncurrent liabilities Total liabilities Net Assets Invested in capital assets, net of related Unrestricted Total net assets CITY OF NEWPORT BEACH All Internal Service Funds Combining Statement of Net Assets June 30, 2003 111 Total Insurance Compensated Retiree Internal Reserve Absence Insurance Equipment Service Funds $ 7.478,124 S 1,294,578 $ 1,652,285 $ 7,806,742 $ 18,231.,729 - - 12,495 9,844 22,339 - - - 196,869 196,869 47,068 47,068 7,478,124 1,294,578 1,711,848 8,013,455 18,498,005 - - - 18,946,775 18,946,775 (11,340,407) (11,340,407) 7,606,368 7,606,368 7,478,124 1,294,578 1,711,848 15,619,823 26,104,373 93,793 - - 238,325 332,118 - 3,680 - 33,341 37,021 - - - 430,611 430,611 2,030,000 - - - 2,030,000 2,260,000 - - - 2,260,000 - 1,000,000 - 1,000,000 4,383,793 1,003,680 - 702,277 6,089,750 - - - 862,975 862,975 5,296,000 - - - 5,296,000 2,025,236 - - - 2,025,236 7,139,727 7,139,727 7,321,236 7,139,727 - 862,975 15,323,938 11,705,029 8,143,407 1,565,252 21,413,688 - - - 6,312,782 6,312,782 (4,226,905) (6,848,829) 1,711,848 7,741,789 (1,622,097) $ (4,226,905) $ (6,848,829) $ 1,711,848 $14,054,571 $ 4,690,685 111 CITY OF NEWPORT BEACH Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Assets For the Year Ended June 30, 2003 Total operating revenues Operating expenses: Salaries and wages Depreciation Professional services Maintenance and supplies Fleet parts and supplies Workers' compensation Claims and judgments Compensated absences Retiree Insurance Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Investment income Net increase in fair value of investments Gain on sale of fixed assets Interest expense Other fiscal charges Total nonoperating revenues Income (loss) before donated capital Capital contributions - donated capital Change in net assets Net assets (accumulated deficit), beginning Net assets (accumulated deficit), ending 5,043,263 1,455,909 1,532,299 Total 12,270,365 Insurance Compensated Retiree Internal 804,618 Reserve Absence Insurance Equipment Service Funds Operating revenues: 980,027 - - Charges for services $ 5,027,204 $ 1,455,909 $ 1,532,299 $ 4,220,069 $ 12,235,481 Other 16,059 18,825 34,884 Total operating revenues Operating expenses: Salaries and wages Depreciation Professional services Maintenance and supplies Fleet parts and supplies Workers' compensation Claims and judgments Compensated absences Retiree Insurance Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Investment income Net increase in fair value of investments Gain on sale of fixed assets Interest expense Other fiscal charges Total nonoperating revenues Income (loss) before donated capital Capital contributions - donated capital Change in net assets Net assets (accumulated deficit), beginning Net assets (accumulated deficit), ending 5,043,263 1,455,909 1,532,299 4,238,894 12,270,365 (3,420,408) (290,950) 472,899 804,618 - - - 980,027 980,027 - - - 1,691,280 1,691,280 - - - 49,316 49,316 - - - 608,231 608,231 - - - 456,768 456,768 3,508,179 - - - 3,508,179 5,268,349 - - - 5,268,349 - 1,807,921 - - 1,807,921 1,132,143 1,132,143 8,776,528 1,807,921 1,132,143 3,785,622 15,502,214 (3,733,265) (352,012) 400,156 453,272 (3,231,849) 168,366 32,861 144,491 28,201 42,632 167,097 30,111 144,084 - 130,797 (71,529) (19,103) 410,956 346,887 130,797 (71,529) (19,103) 312,857 61,062 72,743 351,346 798,008 (3,420,408) (290,950) 472,899 804,618 (2,433,841) 257,922 257,922 (3,420,408) (290,950) 472,899 1,062,540 (2,175,919) (806,497) (6,557,879) 1,238,949 12,992,031 6,866,604 _§_(L226,9051 848,829 (6,848,829) $ 1,711,848 $ 14,054,571 $ 4,690,685 11K CITY OF NEWPORT BEACH Combining Statement of Cash Flows - Internal Service Funds For the Year Ended June 30, 2003 Cash flows from operating activities Receipts from user departments Payments to employees Payments to suppliers Other operating cash receipts Net cash provided for operating activities Cash flows from capital and related financing activities: Acquisition of capital assets Proceeds from sale of capital assets Principal payment Interest paid Net cash used for capital and related financing activities Cash flows from investing activities: Interest on investments Net cash provided for investing activities Net increase in cash and cash equivalents Cash and cash equivalents, beginning Cash and cash equivalents, ending Reconciliation of operating income to net cash provided (used) by operating activities: Cash flows from operating activities Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation Changes in operating assets and liabilities. (Increase) decrease in accounts receivable (Increase) in inventories (Increase) in prepaid items Increase in accounts payable and accrued payrol Increase in workers' compensation (Decrease) in general liability Increase in compensated absences Total adjustments Net cash provided by operating activities Noncash investing, capital, and financing activities: Disposal of fixed assets Capital contributions Acquisition of equipment by capital leases Total of noncash activities (90,632) (90,632) (1,658,933) (1,658,933) 312,857 61,062 72,743 311,181 Total Insurance Compensated Retiree 311,181 Internal Reserve Absences Medical Equipment Service Funds $ 5,027,204 $ 1,455,909 $ 1,536,365 $ 4,211,609 $ 12,231,087 (2,613,179) (1,824,282) - (980,027) (5,417,488) (4,216,991) (41,685) (1,128,985) (1,096,537) (6,484,198) 16,059 3,596,134 18,825 34,884 (1,786,907) (410,058) 407,380 2,153,870 364,285 - - - (216,021) (216,021) - - - 830,797 830,797 - - - (2,183,077) (2,183,077) (90,632) (90,632) (1,658,933) (1,658,933) 312,857 61,062 72,743 311,181 757,843 312,857 61,062 72,743 311,181 757,843 3,158 - 3,158 36,122 (41,685) - (102,913) (1,474,050) (348,996) 480,123 806,118 (536,805) 8,952,174 1,643,574 1,172,162 7,000,624 18,768,534 $ 7,478,124 $ 1,294,578 $ 1,652,285 $ 7,806,742 $ 18,231,729 $ (3,733,265) $ (352,012) $ 400,156 $ 453,272 $ (3,231,849) 1,691,280 1,691,280 - - 4,066 59,841 63,907 - - - 52,390 52,390 - - 3,158 - 3,158 36,122 (41,685) - (102,913) (108,476) 895,000 - - - 895,000 1,015,236 - - - 1,015,236 - (16,361) - - (16,361) 1,946,358 (58,046) 7,224 1,700,598 3,596,134 $ (1.786.9071 $ !410.0581 $ 407.380 $ 2.153.870 $ 364.285 - - 389,860 389,860 - - 257,922 257,922 1,700,049 1,700,049 $ $ $ $ 2,347,831 $ 2,347,831 113 This page left blank intentionally. MEI Fiduciary Funds FIDUCIARY FUNDS Fiduciary Funds are used to account for assets held by the City in a trustee capacity, or as an agent for other government entities, private organizations, or individuals. The City of Newport Beach Fiduciary Funds are listed below: The Special Assessment Fund is used to account for funds received from affected property owners and payable to holders of 1911 Act, 1915 Act and other special assessment bonds. The Special Deposit Fund is used to account for special deposits held by the City in its fiduciary capacity. The Business Improvement District Fund is used to account for monies collected from local business districts for district property improvements and business enhancement. CITY OF NEWPORT BEACH Agency Funds Combining Statement of Fiduciary Assets and Liabilities June 30, 2003 Special Special Business Assessment District Deposit Improvement Assets Fund Fund Fund Totals Cash and investments $ 2,114,256 $ 74,750 $ 184,842 $ 2,373,848 Restricted assets -cash and investments 1,307,077 1,307,077 Total assets $ 3,421,333 $ 74,750 $ 184,842 $ 3,680,925 Liabilities Due to bondholders $ 3,421,333 $ - $ - $ 3,421,333 Due to others - 74,750 184,842 259,592 Total liabilities $ 3,421,333 $ 74,750 $ 184,842 $ 3,680,925 115 Special Assessment: Assets Cash and investments Restricted assets - cash and investments Total Assets Liabilities Due to bondholders Special Deposit: Assets Cash and investments Liabilities Due to others Business Improvement District: Assets Cash and investments Liabilities Due to others Totals - All Agency Funds: Assets Cash and investments Restricted assets - cash and investments Total Assets CITY OF NEWPORT BEACH Statement of Changes in Fiduciary Net Assets All Agency Funds For the Year Ended June 30, 2003 Balance June 30, 2002 Additions Deductions Balance June 30, 2003 $ 1,650,223 $8,649,034 $ (8,185,001) $ 2,114,256 1,328,138 12,770 (33,831) 1,307,077 $ 2,978,361 $ 8,661,804 $ (8,218,832) $ 3,421,333 $ 1,030,921 $ 125,643 $ 2,978,361 $ 8,661,804 $ (8,218,832) $ 3,421,333 $ 1,030,921 $ 125,643 $ (1,081,814) $ 74,750 $ $ 1,030,921 $ 125,643 $ (1,081,814) $ 74,750 $ 159,818 $ 215,937 $ (190,913) $ 184,842 $ 159.818 $ 215,937 $ (190,913) $ 184,842 $ 2,840,962 1,328,138 $ 4,169,100 $ 8,990,614 12,770 $ 9,003,384 Liabilities Due to bondholders $ 2,978,361 $ 8,661,804 Due to others 1,190,739 341,580 Total Liabilities $ 4,169,100 $ 9,003,384 1111 $ (9,457,728) (33, 831) $ (9,491,559) $ (8,218,832) (1,272,727) $ (9,491,559) $ 2,373,848 1,307,077 $ 3,680,925 $ 3,421,333 184,842 $ 3,680,925 Statistical Section A V) h• N . n A Cn ro n N . S+ CITY OF NEWPORT BEACH Miscellaneous Statistics June 30, 2003 General Information Date of Incorportation ................................................................. ............................... 1906 Form of Government ............................................... ............................... Council- Manager Population Permanent............................................................................... Acres ............................... 79,392 Summer................................................................................. HarborWaters ........................................................................... ............................... 100,000 Tourist ...................................................... ............................... 20,000 to 100,000 per day Housingunits .................................................. ............................... .........................41,400 Occupancy Factor per dwelling unit ............................................ ............................... 2.00 Area Square Miles Acres Land.... ............................... ...........................25.0 .................. ............................... 16,584 Bay................................... ............................... 2. 5.................... ............................... 1,600 Ocean............................. ............................... 23.0 .................. ............................... 14,894 Total............................... ............................... 50.5 .................. ............................... 32,739 Population Density Per square mile ................. .......................3,026.48 Per acre........................... 4.66 Recreational Area Acres OceanWater ........................................................................... ............................... 14,894 HarborWaters ........................................................................... ............................... 1,598 Parks............................................................................................ ............................... 258 Beaches....................................................................................... ............................... 237 Total........................................................................................ ............................... 16,987 Water Frontage Miles UpperBay Frontage ....................................................................... ............................... 13 Ocean............................................................................................. ............................... 10 Harbor............................................................................................ ............................... 21 TotalWater Frontage ....................................................................... .............................44 Newport Harbor Boats......................................................................................... ............................... 9,900 Residential................................................................................. ............................... 1,230 Commercial Slips and Side Ties ................................................ ............................... 2,330 BayMoorings ............................................................................ ............................... 1,235 Public Safety Police Fire Numberof Stations ............. ..............................1 ............................. ............................... 8 Number of Personnel ......... ............................237 ....................... ............................... 148 Unaudited — See Accompanying Auditors' Report. 117 Governmental Revenues by Source (1) (Last Ten Fiscal Years) (1) Includes General, Special Revenue, Debt Service and Capital Projects Funds (2) Includes Investment Income and Property Income. Governmental Expenditures by Function (1) (Last Ten Fiscal Years) Fiscal General Public Public Community Fines, Capital Debt Year Government Licenses, Inter- Charges Forfeitures Revenue from Service Total Fiscal 4,607,009 Fees and governmental for and Use of Money 1,175,175 76,054,587 Year Taxes Permits Revenue Services Penalties and Property (2) Other Total 1993 -1994 39,809,139 2,247,233 8,993,289 5,077,369 2,706,194 8,660,599 1,841,189 69,335,012 1994 -1995 39,719,830 2,409,523 10,704,000 5,109,513 3,156,530 9,676,426 1,089,385 71,865,207 1995 -1996 42,853,480 4,851,571 8,315,543 6,278,416 2,855,063 11,000,272 6,540,913 82,695,258 1996 - 1997 44,523,935 4,081,509 11,871,417 7,185,210 2,529,015 10,497,715 10,208,241 90,897,042 1997 -1998 49,385,380 7,303,302 19,656,742 8,314,830 2,573,575 11,422,977 1,593,409 100,250,215 1998 -1999 52,903,507 5,680,496 15,189,324 8,779,962 3,290,019 10,666,337 31,864,699 128,374,344 1999 -2000 58,846,994 4,247,945 10,867,163 9,068,527 3,442,171 12,405,600 1,508,626 100,387,026 2000 -2001 62,908,305 4,553,923 11,463,635 9,906,851 3,555,946 16,069,217 8,439,505 116,897,382 2001 -2002 65,878,471 3,350,958 26,227,740 10,338,569 3,384,164 14,157,694 2,529,470 125,867,066 2002 -2003 72,864,836 4,397,520 10,379,792 11,156,294 3,448,826 14,235,813 4,530,599 121,013,680 (1) Includes General, Special Revenue, Debt Service and Capital Projects Funds (2) Includes Investment Income and Property Income. Governmental Expenditures by Function (1) (Last Ten Fiscal Years) Fiscal General Public Public Community Community Capital Debt Year Government Safety Works Development Services Outlay Service Total 1993 -1994 4,607,009 32,330,338 15,018,898 3,406,712 5,910,752 13,605,703 1,175,175 76,054,587 1994 -1995 5,505,610 33,389,922 14,661,343 3,336,672 5,857,959 8,523,773 1,550,294 72,825,573 1995 -1996 5,442,862 34,571,273 14,779,614 2,952,247 5,916,194 11,291,759 1,069,045 76,022,994 1996 -1997 5,673,321 35,647,247 15,502,095 3,329;545 6,585,335 20,696,487 890,609 88,324,639 1997 -1998 6,790,020 39,168,311 16,579,275 3,475,998 6,916,999 20,849,681 1,299,284 95,079,568 1998 -1999 7,471,850 40,514,411 16,846,674 4,688,087 7,733,720 50,684,045 1,252,111 129,190,898 1999 -2000 9,441,381 41,735,933 16,898,630 4,271,201 7,932,497 13,984,120 1,795,347 96,059,109 2000 -2001 10,239,134 45,346,306 18,477,955 3,842,610 8,623,119 17,293,323 1,777,945 105,600,392 2001 -2002 12,292,008 47,841,176 19,418,067 4,586,192 9,418,041 38,613,906 1,758,073 133,927,463 2002 -2003 9,689,275 53,035,377 19,368,504 5,457,498 11,273,886 14,684,897 2,352,721 115,862,158 (1) Includes General, Special Revenue, Capital Projects and Debt Service Funds Source: City Administrative Services Department Unaudited -See Accompanying Auditors' Report. 111.1 $160 $140 $120 w A o $100 w O $80 U1 C O $60 $40 $20 $0 Governmental Revenues and Expenditures (Last Ten Fiscal Years) 1993 -94 1994 -95 1995 -96 1996 -97 1997 -98 1998 -99 1999- 2000 -01 2001 -02 2002 -03 2000 3% 9% 9`. fi[ly 5% Governmental Revenues by Source (Fiscal Year 2002 -2003) 12% 4% 470 Governmental Expenditures by Function (Fiscal Year 2002.2003) 13% 2% 8% I , ,O Unaudited -See Accompanying Auditors' Report. 119 3% ■ Taxes ❑ Licenses & Permits * Intergovernmental ❑ Charges for Services ■ Fines & Forfeitures ❑ Use of Money & Property ❑ Miscellaneous ❑General Government ■ Public Safety ❑Public Works ❑Community Development ■Culture and Recreation ■ Capital Outlay ■ Debt Service Assessed and Estimated Actual Value of Taxable Property (Last Ten Fiscal Years) Total Fiscal Secured Public Unsecured Assessed & Estimated Year Valuation Utility Valuation Valuation 1993 -1994 11,179,271,032 354,820 865,424,090 12,045,049,942 1994 -1995 11,178,202,789 354,820 686,344,530 11,864,902,139 1995 -1996 11,078,301,482 354,820 725,943,222 11,804,599,524 1996 -1997 11,154,286,162 354,820 754,892,821 11,909,533,803 1997 -1998 11,551,641,504 354,820 778,209,144 12,330,205,468 1998 -1999 12,343,526,263 354,820 1,009,975,297 13,353,856,380 1999 -2000 13,091,299,313 324,960 1,295,776,000 14,387,400,273 2000 -2001 15,087,602,671 2,000 (1) 915,394,966 16,002,999,637 2001 -2002 16,515,797,641 2,000 913,075,074 17,428,874,715 2002 -2003 20,990,583,190 16,531,505 (2) 1,067,598,118 22,074,712,813 (1) Southern California Edison sold property significantly affecting the Public Utility Value. (2) Pacific Bell acquired property significantly affecting the Public Utility Value. 1996 -1997 Source: County of Orange Auditor - Controller's Office 20,096,688 97.73% Secured Property Tax Levies and Collections (Last Ten Fiscal Years) (1) Effective FY 92/93- 95/96, Orange County reduced Secured Property Tax Levy as a result of the State Budget Process (2) Funds were withheld due to the Orange County Bankruptcy. (3) Includes estimated levy for Newport Coast properties that were annexed on January 1, 2002. Source: County of Orange Auditor - Controller's Office Unaudited -See Accompanying Auditors' Report. 11.111 Total Total Percent Delinquent % of Total Tax Fiscal Current Current of Levy Tax Total Collections Year Levy Collections Collected Collections Collections Total Levy 1992 -1993 18,859,889 (1) 18,508,590 98.14% 536,760 19,396,649 102.85% 1993 -1994 17,870,028 (1) 17,131,159 95.87% 526,025 17,657,184 98.81% 1994 -1995 17,730,237 (1) 17,105,142 (2) 96.47% 409,355 (2) 17,514,497 98.78% 1995 -1996 17,843,233 (1) 17,432,840 97.70% 368,913 17,801,753 99.77% 1996 -1997 20,563,561 20,096,688 97.73% 897,670 20,994,358 102.09% 1997 -1998 21,144,504 20,472,716 96.82% 1,040,120 21,512,836 101.74% 1998 -1999 22,738,432 22,084,910 97.13% 1,113,950 23,198,860 102.02% 1999 -2000 24,667,494 24,207,104 98.13% 1,398,573 25,605,677 103.80% 2000 -2001 27,405,295 26,856,091 98.00% 886,625 27,742,716 101.23% 2001 -2002 31,298,541 (3) 30,651,143 97.93% 102,001 30,753,144 98.26% 2002 -2003 37,092,528 36,351,026 98.00% 529,986 36,881,012 99.43% (1) Effective FY 92/93- 95/96, Orange County reduced Secured Property Tax Levy as a result of the State Budget Process (2) Funds were withheld due to the Orange County Bankruptcy. (3) Includes estimated levy for Newport Coast properties that were annexed on January 1, 2002. Source: County of Orange Auditor - Controller's Office Unaudited -See Accompanying Auditors' Report. 11.111 $24,000 $22,000 N $20,000 R c $16,000 O $16,000 O $14,000 0 $12,000 is > $10,000 a $8,000 d N a" $6,000 o $4,000 $2,000 $0 $40,000 $35,000 N o $30,000 0 0 $25,000 N N F0 $20,000 N C $15,000 u N O o $10,000 N O F $5,000 $0 Total Assessed Valuation /Property Tax Collections (Last Ten Fiscal Years) Total Assessed Valuation -*-Property Tax Collections lG 1993 -94 1994 -95 1995 -96 1996 -97 1997 -98 1998 -99 1999 -2000 2000 -01 2001 -02 2002 -03 Total Property Tax Collections /Delinquencies (Last Ten Fiscal Years) O Total Collections --0- Delinquent Collections 1993 -94 1994 -95 1995 -96 1996 -97 1997 -98 1998 -99 1999 -2000 2000 -01 2001 -02 2002 -03 Unaudited -See Accompanying Auditors' Report. 121 $40,000 $35,000 N N $30,000 o `o N $25,000 O $20,000 N O $15,000 y U $10,000 F N $5,000 a a $0 $2,000 $1,750 m 0 $1,500 0 9 $1,250 v c $1,000 0 0 $750 N 6 U c $500 O- C a $250 � $0 1993 -94 1994 -95 1995 -96 1996 -97 1997 -98 1998 -99 1999 -2000 2000 -01 2001 -02 2002 -03 Unaudited -See Accompanying Auditors' Report. 121 $40,000 $35,000 N N $30,000 o `o N $25,000 O $20,000 N O $15,000 y U $10,000 F N $5,000 a a $0 $2,000 $1,750 m 0 $1,500 0 9 $1,250 v c $1,000 0 0 $750 N 6 U c $500 O- C a $250 � $0 Construction Activity (Last Ten Fiscal Years) Fiscal Building Permits Percentage Estimated Percentage Year Issued Change Valuation Change 1993 -1994 6,986 -3.65% 70,339,522 -2.54% 1994 -1995 7,672 9.82% 79,691,510 13.30% 1995 -1996 8,302 8.21% 145,760,839 82.91% 1996 -1997 9,085 9.43% 203,944,317 39.92% 1997 -1998 10,332 13.73% 224,507,349 10.08% 1998 -1999 12,076 16.88% 302,598,185 34.78% 1999 -2000 10,412 - 13.78% 220,623,249 - 27.09% 2000 -2001 9,361 - 10.09% 226,778,793 2.79% 2001 -2002 9,030 -3.54% 145,048,360 - 36.04% 2002 -2003 9,483 5.02% 187,489,183 29.26% Source: City Building Department Bank Deposits (Last Ten Fiscal Years) (thousands) Calendar Year Bank Deposits 1993 4,787,068 1994 4,468,401 1995 4,430,534 1996 3,757,025 1997 3,431,100 1998 3,719,517 1999 3,607,965 2000 3,455,359 2001 3,542,539 2002 4,117,157 2003 data for bank deposits will not be available until 12 -31 -03 Source: The Findley Reports on California Financial Insitutions Unaudited -See Accompanying Auditors' Report. iY *a $350 N N e $300 0 `o � $250 0 $200 T u $150 Q c 0 $100 N o $50 U $0 $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 1993 Estimated Value of Construction /Number of Building Permits (Last Ten Fiscal Years) 1993 -94 1994 -95 1995 -96 1996 -97 1997 -98 1998 -99 1999- 2000 -01 2001 -02 2002 -03 2000 Bank Deposits (Millions of Dollars) 16,000 14,000 12,000 w 10,000 E a 8,000 0 n 6,000 z 91MILI 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 Unaudited -See Accompanying Auditors' Report 123 Property Tax Rates -- Direct and Overlapping Governments (Per $100 of Assessed Value) (Last Ten Fiscal Years) Fiscal School County County Flood County, City Metro Water Year Districts Improvement Control & School Levy District Total 1993 -1994 0.00000 0.00011 0.00067 1.00000 0.00326 1.00404 1994 -1995 0.00000 0.00013 0.00037 1.00000 0.00881 1.00931 1995 -1996 0.00000 0.00012 0.00000 1.00000 0.00890 1.00902 1996 -1997 0.00000 0.00000 0.00000 1.00000 0.00857 1.00857 1997 -1998 0.00000 0.00000 0.00000 1.00000 0.00890 1.00890 1998 -1999 0.00000 0.00000 0.00000 1.00000 0.00890 1.00890 1999 -2000 0.00000 0.00000 0.00000 1.00000 0.00890 1.00890 2000 -2001 0.00000 0.00000 0.00000 1.00000 0.00880 1.00880 2001 -2002 0.00690 0.00000 0.00000 1.00000 0.00770 1.01460 2002 -2003 0.00674 0.00000 0.00000 1.00000 0.00670 1.01344 Source: County of Orange Auditor - Controller's Office Computation of Legal Debt Margin June 30. 2003 Total assessed value of all real & personal property $22,074,712,813 Debt limit percentage 15% Total debt limit $3,311,206,922 Amount of debt applicable to debt limit $6,110,000 Legal debt margin $3,305,096,922 (1) The fiscal year 2003 debt limit is based on assessed value being equivalent to 100% of market value. Source: City Administrative Services Department Unaudited- See Accompanying Auditors' Report. IiPZi CITY OF NEWPORT BEACH Principal Taxpayer Balboa Bay Club HMH Properties, Inc. Downey Savings & Loan Association Irvine Apartment Communities Irvine Company Koll Center Newport Newport Beach North LLC Newport Beach South LLC Park Newport Land Ltd. Rockwell Semiconductor Systems Inc. Principal Taxpayers June 30, 2003 Property Tax (listed alphabetically) Total Top Ten Principal Taxpayers S 2,526,663,685 12.03% (1) Percentange of total secured assessed valuation. Unaudited -See Accompanying Auditors' Report. Source: HdL, Coren and Cone Co. 125 2002 -03 Assessed Percent Type of Business Valuation of Total 1 Hospitality $ 130,527,619 0.62% Real Estate 66,554,216 0.32% Real Estate 63,067,551 0.30% Apartment Buildings 321,979,070 1.53% Real Estate 1,135,744,910 5.41% Office Buildings 60,426,821 0.29% Real Estate 65,947,277 0.31% Real Estate 64,346,954 0.31% Real Estate 62,769,580 0.30% Aerospace 555,299,687 2.64% Total Top Ten Principal Taxpayers S 2,526,663,685 12.03% (1) Percentange of total secured assessed valuation. Unaudited -See Accompanying Auditors' Report. Source: HdL, Coren and Cone Co. 125 Schedule of Direct and Overlapping Bonded Debt June 30, 2003 2002 -03 Assessed Valuation: Orange County General Fund Obligations $22,190,679,678 (after deducting $234,541,887 redevelopment incremental valuation) Orange County Pension Obligations 9.135% 11,032,567 Orange County Board of Education Certificates of Participation DIRECT AND OVERLAPPING BONDED DEBT: %Applicable Orange County Transit District Authority Debt 6/30/03 OVERLAPPING TAX AND ASSESSMENT DEBT: Orange County Water District Certificates of Participation 12.572 % 19,621,749 Municipal Water District of Orange County Water Facilities Corporation Orange County Teeter Plan Obligations 9.135% Coast Community College District Certificates of Participation 31.995 % $11,366,224 Metropolitan Water District 1.963 944,122 % 8,721,511 Coast Community College District 31.995% 10.826 % 5,456,396 35,194,500 Rancho Santiago Community College District 4.502% City of Newport Beach Certificates of Participation 100.000 % 4,327,548 Laguna Beach Unified School District 5.473% 152,061,009 TOTAL GROSS DIRECT AND OVERLAPPING BONDED DEBT 1,161,644 Newport Mesa Unified School District 69.749% (451,269) 27,550,855 Newport Mesa Unified School District Community Facilities District No. 90 -1 17.535% 3,232,577 Santa Ana Unified School District 10.841 % 15,636,316 Irvine Ranch Water District Improvement Districts 0.094 -100. % 63,088,893 Bonita Canyon Public Facilities Financing Authority Comm. Facilities Dist. No. 98 -1 81.407% 36,291,241 City of Newport Beach Special Improvement District No. 95 -1 100.000% 15,100,000 City of Newport Beach 1915 Act Bonds 100.000% 6,524,230 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT 228,195,539 DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT: Orange County General Fund Obligations 9.135% 89,083,515 Orange County Pension Obligations 9.135% 11,032,567 Orange County Board of Education Certificates of Participation 9.135 % 1,825,173 Orange County Transit District Authority 9.135% 564,086 Orange County Water District Certificates of Participation 12.572 % 19,621,749 Municipal Water District of Orange County Water Facilities Corporation 11.083% 5,307,095 Coast Community College District Certificates of Participation 31.995 % 2,597,994 South Orange County Community College District Certificates of Participation 2.188% 944,122 Newport Mesa Unified School District Certificates of Participation 66.120% 2,029,884 Santa Ana Unified School District Certificates of Participation 10.826 % 5,456,396 Irvine Ranch Water District Certificates of Participation 14.741 % 7,488,428 City of Newport Beach Certificates of Participation 100.000 % 6,110,000 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT 152,061,009 TOTAL GROSS DIRECT AND OVERLAPPING BONDED DEBT $380,256,548 (1) Less: Orange County Transit District Authority (80% self - supporting) (451,269) MWDCO Water Facilities Corporation (100% self- supporting) (5,307,095) TOTAL NET DIRECT AND OVERLAPPING BONDED DEBT $374,498,184 (1) Excludes tax and revenue anticipation notes, revenue, mortgage revenue and tax allocation bonds and non - bonded capital lease obligations. Ratios to Assessed Valuation: Combined Direct Debt ($6,110,000) 0.03% Total Gross Combined Debt 1.71% Total Net Combined Debt 1.69% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6/30/03: $0 Source: California Municipal Statistics, Inc. Unaudited -See Accompanying Auditors' Report. 11047 Revenue Bond Coverage (Last Ten Fiscal Years) (3) Net Revenue Fiscal Gross Operating Available for Debt Service Requirements Year Revenues (1) Expenses (2) Debt Service Principal Interest I otall Coverage 1994 -1995 $ 14,817,854 $ 11,471,118 $ 3,346,736 $ - $ 811,037 $ 811,037 7.27 1995 -1996 16,145,307 13,220,028 2,925,279 820,000 898,878 1,258,420 2.32 1996 -1997 18,221,967 14,651,987 3,569,980 845,000 854,130 1,699,130 2.10 1997 -1998 16,497,212 12,350,445 4,146,767 875,000 784,390 1,659,390 2.50 1998 -1999 17,658,076 11,145,936 6,512,140 335,000 593,469 928,469 7.01 1999 -2000 17,770,491 11,713,223 6,057,268 1,025,000 551,668 1,576,668 3.84 2000 -2001 18,215,185 11,784,120 6,431,065 1,105,000 510,225 1,615,225 3.98 2001 -2002 17,809,919 13,289,297 4,520,622 1,145,000 456,573 1,601,573 2.82 2002 -2003 17,326,604 12,430,144 4,896,460 1,185,000 465,573 1,650,573 2.97 (1) Gross revenues includes operating revenues, interest and intergovernmental revenues in the Water Fund (2) Total Water Fund operating expense excludes depreciation. (3) No revenue bonds were issued prior to fiscal year 1994 -95. 127 Demographic Statistics (Last Ten Fiscal Years) Source: City Library Services Department Unaudited -See Accompanying Auditors' Report. fiY4:1 City Fiscal City Orange County Population Per Capita Median Unemployment Year Population Population % of County Income Age Rate 1993 -1994 68,784 2,523,774 2.73% 49,593 40.7 4.3% 1994 -1995 69,301 2,564,345 2.70% 50,515 40.3 3.6% 1995 -1996 70,098 2,615,046 2.68% 52,452 40.6 3.2% 1996 -1997 69,069 2,672,457 2.58% 53,569 41.7 2.6% 1997 -1998 70,030 2,710,718 2.58% 56,000 43.5 2.0% 1998 -1999 72,623 2,775,600 2.62% 59,051 43.9 1.8% 1999 -2000 73,965 2,828,400 2.62% 62,598 44.4 1.6% 2000 -2001 70,032 2,846,289 2.46% 63,015 41.6 1.6% 2001 -2002 75,662 2,939,500 2.57% 64,303 40.9 2.5% 2002 -2003 79,392 2,978,000 2.67% 67,073 50.8 2.4% Source: City Library Services Department Unaudited -See Accompanying Auditors' Report. fiY4:1