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HomeMy WebLinkAboutFiscal Year 2007-08 Financial Statementr O1.V.\ U! ♦s. \I. \19 WA &10 14 I•\ M!» 1101! W P �LIF O Comprehensive Annual Financial Report For the Year Ended June 30, 2008 Prepared by the Administrative Services Department Dennis C. Danner, Director The City of Newport Beach was incorporated September 1, 1906 The present City Seal was adopted July 22, 1957 Introductory Section I I II ! 1 t t Y r YY � r r \♦ 1 r r r J J J ♦\ ♦ � I v J Y 0 1Y,cn/� ff 11 S II2FTrr! 1 is 0 0 con m n eta . CITY OF NEWPORT BEACH Comprehensive Annual Financial Report Year Ended June 30, 2008 TABLE OF CONTENTS INTRODUCTORY SECTION (Unaudited) Tableof Contents ............................................................ ............................... Letter of Transmittal... .............................................. ............... ..................... GFOA Certificate of Achievement for Excellence in Financial Reporting ...... List of City Officials ......................................................... ............................... OrganizationChart .......................................................... ............................... FINANCIAL SECTION .........................1 ......................... 5 ....................... 20 ....................... 21 ....................... 22 Independent Auditors' Report ............................................................... .............................25 Management's Discussion and Analysis ............................................. .............................29 (Required Supplementary Information) Basic Financial Statements Government -wide Financial Statements: Statement of Net Assets .................................................................... .............................49 Statement of Activities ...................................................................... ............................... 50 Fund Financial Statements: Governmental Funds: BalanceSheet ................................................................................. .............................58 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets ............................................................ .............................59 Statement of Revenues, Expenditures and Changes in Fund Balances ...................... 60 Reconciliation of Statement of Revenues, Expenditures and Changes In Fund Balances of Governmental Funds to the Statement of Activities ..............61 Budgetary Comparison Statements: GeneralFund ............................................................................ .............................62 Tide and Submerged Land Fund ............................................... .............................64 ContributionsFund .................................................................... .............................65 Proprietary Funds: Statement of Net Assets ............................................................. ............................... 69 Statement of Revenues, Expenses and Changes in Fund Net Assets .....................70 Statement of Cash Flows ........................................................... ............................... 71 Fiduciary Funds: Statement of Fiduciary Assets and Liabilities — Agency Funds ..... ............................... 75 Notes to the Financial Statements ..................................................... .............................79 1 Supplementary Schedules Non -Major Governmental Funds: Combining Balance Sheet .................................. ............................... ............................138 Combining Statement of Revenues, Expenditures and Changes in FundBalances ................................................... ............................... ............................144 Budgetary Comparison Schedules: StateGas Tax Fund ........................................... ............................... ............................150 Asset Forfeiture Fund ........................................ ............................... ............................151 OTSDUI Grant Fund ......................................... ............................... ............................152 186 JAGFund ........................................................... ............................... ............................153 Circulation and Transportation Fund .................. ............................... ............................154 Building Excise Tax Fund ................................... ............................... ............................155 Combined Transportation Fund ......................... ............................... ............................156 Arterial Highway Rehabilitation Fund ................. ............................... ............................157 Community Development Block Grant Fund ...... ............................... ............................158 Air Quality Management District Fund ................. ............................... ..........................159 194 Environmental Liability Fund .............................. ............................... ............................160 Supplemental Law Enforcement Fund ............... ............................... ............................161 Traffic Congestion Relief Fund ........................... ............................... ............................162 Newport Coast Annexation Fund ....................... ............................... ............................163 Proposition 1B Transportation Fund .................. ............................... ............................164 Internal Service Funds: Combining Statement of Net Assets .................. ............................... ............................167 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets....... 168 Combining Statement of Cash Flows ................. ............................... ............................169 Fiduciary Funds: Combining Statement of Fiduciary Assets and Liabilities ................. ............................173 Statement of Changes in Fiduciary Net Assets .. ............................... ............................174 STATISTICAL SECTION (Unaudited) Financial Trends: NetAssets by Component ....................................... ............................... ............................179 Changesin Net Assets ............................................. ............................... ............................180 Fund Balances of Governmental Funds ................... ............................... ............................182 Changes in Fund Balance of Governmental Funds . ............................... ............................183 Revenue Capacity: Assessed Value and Estimated Actual Value of Taxable Property ......... ............................185 Property Tax Rates, Direct and Overlapping Governments, Last Ten Fiscal Years ........... 186 Principal Property Taxpayers as of June 30, 2008 .. ............................... ............................187 Property Tax Levies & Collections ........................... ............................... ............................188 Debt Capacity: Ratio of Outstanding Debt by Type .......................... ............................... ............................190 Ratio of General Bonded Debt Outstanding .............. ............................... ...........................192 Schedule of Direct and Overlapping Debt ................. ............................... ...........................193 Computation of Legal Debt Margin ................................... ................ .................................. 194 Revenue Bond Coverage, Last Ten Fiscal Years .... ............................... ............................196 K Demographic and Economic Information Demographic and Economic Statistics, Last Ten Fiscal Years ............... ............................198 PrincipalEmployers ................................................. ............................... ............................199 Operating Information: Full Time City Employees by Function ...................... ............................... ...........................201 Operating Indicators by Function ............................. ............................... ............................202 Capital Asset Statistics by Function ......................... ............................... ............................204 Water Sold by Customer Type ................................. ............................... ............................206 WaterRates ............................................................. ............................... ............................207 MajorWater Customers ........................................... ............................... ............................208 9 This page left blank intentionally. CITY OF NEWPORT BEACH ADMINISTRATIVE SERVICES Dennis Danner, Director /Treasurer December 15, 2008 Honorable Mayor and Members of the City Council, and Citizens of the 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 (GARS). The Comprehensive Annual Financial Report (CAFR) of the City of Newport Beach for the year ended June 30, 2008, 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. The City of Newport Beach's financial statements have been audited by Mayer Hoffman McCann P.C., 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, 2008, 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, 2008, 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. 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 A narrative introduction, overview, and analysis accompany the basic financial statements in the form of the Management's Discussion and Analysis (MD &A). The 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 general vicinity of Newport Beach and the County of Orange relative to the counties of Los Angeles, San Bernardino, Riverside and San Diego is illustrated on the map below: Los Angeles v County leg Bernardino ® 0 County Riverside 0 Orange County 1County NEWPORT BEAN v m Soul} Diego County 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 21 square mile harbor area. This bay area and the ten miles of ocean beach offer outstanding fishing, swimming, surfing, and aquatic sports activities. The City has a permanent population of 84,554. 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 following map illustrates the communities within the City of Newport Beach; the City's bay, recreational harbor and beachfront topography; and the City's location relative to the bordering cities of Costa Mesa to the north, Irvine to the east and Laguna Beach to the south. Lassa Mere LMo Isle N 11ro 7 W aeon 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; and 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 is 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 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. LOCAL ECONOMIC MIX From 1950 to 2008, the population of the City increased from 12,120 to 84,554. As vacant land becomes increasingly scarce, population growth is expected to flatten considerably as the City becomes relatively built -out. According to the Center for Demographic Research at California State University Fullerton, the City of Newport Beach will be home to an estimated 88,340 residents by 2010 and 91,321 residents by the year 2015. Newport Beach's physical setting encompasses about 25.3 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. U This current land use mix produces General Fund revenues of approximately $159 million. Tax revenues represent nearly 74.6% of all General Fund revenues. The remaining 25.4% is generated by a large number of very diverse sources. The top three individual revenue sources, Property Taxes, Sales Taxes and Transient Occupancy Taxes (TOT), represent 69.4% of all General Fund revenues. General Fund Revenues ■ Property Taxes 25.4% ■ Sales Taxes ■ Sales Tax In Lieu ■ Transient Occupancy Taxes 5.2% ■ Other Taxes 8.1% ■ All Other Sources 5.0% Property Taxes — Largely a residential community, residential property accounts for nearly 42.5% of all General Fund revenues. Of the City's 41,850 dwelling units, 60% of the housing is single - family units and 40% is multi - family units. The City receives, on average, approximately 16.5% of the property taxes generated within City limits. The remainder goes to school districts, the County, and other government entities. Sales Taxes — In March of 2004, voters approved Proposition 57 which allowed the State to enact revenue swapping procedures commonly referred to as the "Triple Flip." In doing so, Sales Taxes were reallocated to cities in two separate revenue streams "Sales Taxes" and "Sales Taxes In Lieu" which impacted the timing and distribution method but did not materially impact the revenue category in total. Sales Taxes in total represent 18.8% of all General Fund revenues. 9 The City's sales tax base is generated from a relatively diverse business community and is not dependent on any one merchant or industry. The following chart demonstrates the diversity of the City sales tax revenue. The largest segment, "Auto Sales - New," accounts for 20% of total sales taxes and is represented by 10 dealerships. The next largest segment, "Restaurants," accounts for 19.1% of total sales taxes and is represented by 336 restaurants. The "Other" categorization accounts for another 16.3% and is represented by 1,020 businesses. Sales Tax by Business Segment 2.6% 3.4 %_\ 3.5% __- 4.91. ' 6.5% ■ New Auto Sales - 10 • Restaurants -336 • Leasing- 51 • Department Stores - 33 • Miscellaneous Retail - 790 • Apparel Stores - 185 ■ Service Stations -17 • Food Markets - 36 • Furniture / Appliance - 289 • Misc. Vehicle Sales - 47 • Other- 1020 Transient Occupancy Taxes (TOT) — The TOT accrues to the City at a rate of 10% of room charges (with 18% of this collection 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 approximately twenty inns, motels, hotels and resorts and accounts for 89% of TOT revenues. The residential category is made up of some 700 vacation rentals representing only 11% of TOT revenue. Together, they account for nearly $12.8 million in annual TOT revenue. Annual Revenue Percent (In Millions) of Total Commercial Property: Inns, Motels and Hotels $11.4 89% Residential Property: Vacation Rentals $ 1.4 11% $12.8 100% 10 I=Ko]� M 7A IIK6l1jI Kola] : E-1lyi T81 to] :k34aa*01Iki lei y6YN_1M:JA_1�I�II�W U.S. Economy — Although, on December 1, 2008, the National Bureau of Economic Research (NBER) officially announced the U.S. economy slipped into recession in 2007, it is clear the nation's economy has been slowing since 2004. In its current state, the U.S. and World economy abroad has become increasingly fragile. According to a Rueters article, "the NBER does not define a recession as two consecutive quarters of decline in real gross domestic product, as is the rule of thumb in many countries. Instead, it looks for a decline in economic activity, spread across the economy and lasting more than a few months." The NBER felt the broad decline in economic activity in 2008 met this test. Even today, this current recession is among the longest on record and many economists believe this recession will continue though the middle of 2009. As illustrated below, the California Legislative Analysts Office (LAO) predicts the Gross Domestic Product (GDP) growth to continue its downward slide through 2009 before rebounding in 2010. 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% U.S. Real GDP Growth 2004 2005 2006 2007 2008 2009 2010 Estimated Projected Projected 3.6% 1 3.1% 1 2.9% 1 2.0% 1.3% -1.0% 1.5% Source: LAO's Economic Forecast State of California — The economic outlook for the State generally mirrors that of the nation as a whole, although problems in the real estate market appear to be more pronounced in California than the rest of the nation resulting in a slightly more depressed outlook. The State has had significant structural budget shortfalls since 2001 -02 when revenues plunged following the steep stock market decline. The current economic recession will further erode the State's revenue base. State finances heavily depend on personal income taxes (PIT), sales and use taxes (SUT) and corporate income and franchise taxes, together representing 95% of the State's General Fund budget. Given the depressed California real estate market and plunging stock values, 11 capital gains income will likely remain repressed. Reduced wealth, combined with the near collapse of the financial and credit markets and job losses in a broad range of industries have resulted in considerable consumer fear resulting in a sharp contraction of consumer spending further impacting SUT and corporate income tax revenue prospects. The dramatic decreases in State revenues paint a particularly bleak overall budget outlook. As demonstrated in the following chart, the annual gap between projected revenues and expenditures has been massive and continues to exist into the foreseeable future unless corrective actions are taken. 0 -s -10 -1s -20 -2s State Budget Operating Shortfalls (In Billions) 2008 -09 2009 -10 2010 -11 2011 -12 2012 -13 2013 -14 Source: lAO's California Fiscal Outlook Considering previously accumulated fund balance of $2.9 billion, the projected cumulative deficit, from the annual operating shortfalls illustrated above, is projected to be -$8.4 billion at the end 2008 -09 and -$27.9 billion at the end to 2009 -10. A plan that permanently addresses the State's structural deficit represents an enormous challenge and will require substantial ongoing solutions. LOCAL ECONOMY Local Impact of the State's Budget - The impact of the State's budget crisis on the City of Newport Beach is currently unknown. However, as the State's budget deficits continue to balloon, there is a considerable downside risk that the State may attempt to shift the burden to local governments by reallocating revenues or permanently shifting revenues. In the early nineties, the State enacted a number of permanent revenue shifts from local governments to schools. The cumulative impact of the ERAF shifts I, II & III since 1993 have cost City of Newport Beach taxpayers in excess of $78 million. 12 With the passage of California Proposition 1A in 2004 voters elected to make it much more difficult for State legislators to raid local government finances. Proposition 1A does the following: 1. Strengthens prohibitions against unfunded State mandates by requiring the State to suspend State mandates in any year the Legislature does not fully fund the reimbursement of costs associated with those mandates; 2. Expands definition of a State mandate to include transfer of responsibility of a program for which the State previously had full or partial responsibility; and 3. Prohibits the State from • Reducing the local Bradley -Burns Uniform Sales & Use Tax rate or altering its method of allocation, except to comply with federal law or an interstate compact; • Decreasing Vehicle License Fee (VLF) revenue from the 0.65 percent rate without providing replacement funding to cities and counties; and • Shifting property taxes from cities, counties or special districts, with the following exceptions: a) The State may reallocate among cities, counties and special districts (but not schools or any other local entity) with a two - thirds vote of both houses of the Legislature. b) Beginning in FY 2008 -09, the State may borrow up to 8 percent of the property tax revenue within a county (currently about $1.3 billion on a statewide basis) if: — The governor declares a "fiscal hardship'; — The Legislature enacts an urgency statute by a two- thirds vote; — The funds are repaid within three years; — The FY 2003 -04 VLF backfill gap has been repaid; — Any previous borrowing of this kind has been repaid; and — The State has not borrowed from the revenues more than twice in 10 years. Although the State will continue to face substantial budget shortfalls for the next several years, this proposition limits the State's ability to divert tax revenues that were intended for local government. California's policymakers therefore face an even more difficult challenge in resolving their budget problems. 13 Property Taxes - Unlike many cities, property taxes, not sales taxes, are the number one source of revenue for the City, representing 42.5% of all General Fund revenues. Due to the limited supply of scenic coastal property and the unique access to the scenic Newport Bay and one of the best recreational yacht harbors, the Newport Beach community consists of 70% affluent residential neighborhoods and 30% high -end commercial districts. Sales data for the month of November, 2008, demonstrates the relatively high density of affluence throughout the residential communities. CITY OF NEWPORT BEACH Median Home Sales* Month Ending November 2008 % Price Number Median Change from of Home Sales Zip Code Sales Price 92625 $ 3,000,000 92660 $ 1,225,000 92661 $ 3,450,000 92663 $ 2,350,000 92657 $ 1,393,000 % Price Number Sales Change from of Home Change from 2007 Sales 2007 89.9% 9 50.0% -18.6% 8 -52.9% 0.0% 2 -66.7% -9.6% 1 -85.7% -40.1% 5 25.0% * Source: DataQuick Information Systems Due to a vigorous demand for coastal property, the City has enjoyed long -term stability in its number one revenue source. Over a ten -year period, assessed valuation increased an average of 11.1 % per annum and 7.6% over a twenty -year period. Even after considering recent market corrections, assessed property values are still expected to increase but at a much slower pace during the next few years. Since Californians passed Proposition 13 in 1978, assessed property value is reassessed to market value only when the property changes ownership. Otherwise, the assessed value grows by no more than 2% per year. This practice creates a constant lag and buffer between assessed and market values. Even though Proposition 13 insulates the tax base from erratic market value gyrations, the real estate boom of the early 2000's led to dramatic increases in local property tax revenues. Those increases reflected a combination of soaring real estate prices and historically high sales rates (both of which led to large reassessments). 14 While the City's operating budget is typically built around a 4% annual growth in property tax collections, the following chart illustrates that assessed property values increased to a high of 12.6% in 2005 -06 before dropping to 9.8% in 2006 -07, 8.7% in 2007 -08 and 5.96% in 2008 -09. Although assessed value growth has slowed for the last several years and will likely continue to decrease in 2009 -2010, we are hopeful that assessed valuations will modestly rebound in years thereafter. 14.00% 12.00 10.00 8.00 6.00 4.00 2.00 0.00 -2.00 20 Year Assessed Property Value Growth ♦Assessed Value Growth Typical Budgeted Growth — Trendline (3 Yr Average Growth) rn m m rn rn T rn m T 4 4 M O N M N W n W OI O 0 M m 0 m m M co m 0 Co °O N 4 `' 4 Q CJ °O o °O N N 4 4 o 0 0 N N 4 [ °O N 4 r` °O N 4 M °O N "The 2000 -03 datapoint was normalized to reduce the impact the Newport Coast Annexation had on the assessed valuation growth trendline. Sales and Transient Occupancy Revenues - Because sales tax and TOT revenues follow the whim of consumer sentiment, they are impacted with much greater volatility than property taxes. The current economic recession, falling home prices and tightening credit policies have significantly depressed consumer spending patterns. Although 2007 -08 sales taxes produced a modest increase, 2008 -09 and the first half of 2009 -10 will likely contract precipitously until consumer confidence is restored. Transient occupancy tax collections would generally expect to follow a similar trend as sales taxes but due to recent hotel expansions and the addition of a new luxury resort, the additional rooms for rent will likely bolster TOT tax revenues enough to maintain or exceed 2007 -08 levels. 15 OTHER FACTORS IMPACTING FISCAL PLANNING Defined Benefit Pension Costs — The City contracts with the California Public Employees' Retirement System (CaIPERS) 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). Because the City pays the entire actuarially required contribution each year, by definition, its net pension obligation at the end of each year is $0. For more information on the City's pension plan and funding levels, see Footnote 10 in the notes to the financial statements. Post Employment Healthcare Plans — New Plan: Effective January 2006, the City and employee associations agreed to major changes in the Post Employment Healthcare Plan. All employees and eligible retirees will participate in a Health Reimbursement Arrangement (HRA). All employees, hired after January 1, 2006, and certain employees hired prior to this date, as well as employees who elected to fully convert (Fully Converted) to a defined contribution formula, participate in a program that requires mandatory employee and employer contributions. However, once these contributions have been made to the employee's account, the City has no further funding obligation to the Plan. Old Plan: Employees with greater than five years of service or miscellaneous employees that had a combined factor of age and years of service that is greater than, or equal to, 50 (47 for safety employees) had the option to retain a hybrid of the former defined benefit or fully convert to the new plan. Employees electing to retain a hybrid of the former defined benefit formula (Hybrid) participate in a program requiring mandatory defined contributions by employees and the City, as well as a defined benefit consisting of an ongoing contribution from the City to the participant's HRA account, each month after retirement. Employees who retired prior to January 1, 2006, continue to receive an ongoing defined benefit consisting of a contribution made by the City to the participant's HRA account each month. The defined benefit portion of the plan is closed to new participants. Funding: The City has elected to prefund a portion of this obligation by placing previously accumulated cash reserves into a benefit trust and set a plan in motion to amortize the remaining unfunded liability over a twenty -year period. During the current year, the City placed $8.8 million in trust, reducing the City's unfunded accrued liability (UAL) to $49.8 million. For more information concerning the City's OPEB obligation, please see Footnote 11 in the notes to the financial statements. 16 Comprehensive Facilities Replacement Plan — Recently, City staff, along with a citizen -based committee, developed an entity -wide master replacement plan for all major critical facilities. Through a combination of utilizing cash resources and staggered debt issues, the intent of the plan was to develop a perpetual, systematic basis for replacing critical facilities with a level contribution from the operating budget. As of June 30, 2008, the City has set aside $20 million to pre -fund this effort. STEWARDSHIP The City has taken a conservative approach to forecasting revenues, often assuming a "worst case scenario." This fiscal conservatism has helped stabilize the City's finances and as a result, we are able to maintain our course without drastic cuts in service. The City has demonstrated fiscal discipline with an ability to prepare balanced budgets and save during prosperous and difficult economic periods. The General Fund ended the year with a $79.0 million fund balance, a net increase of $9.1 million even after transferring $5.9 to the Insurance Reserve internal service fund to bolster cash reserves used to fund workers' compensation and general liability claims. Of this amount, $6.8 million is reserved to indicate it is not available to finance new activities because it has already been committed to fulfill contractual obligations or it is otherwise legally restricted beyond the City Council's control. Within the Council's discretion, the City Council has designated $18.9 million for contingencies, $14.0 million for unspecified future appropriations, $6.4 million for capital projects that were not completed during the fiscal year, and $33.0 million designated for other special purposes including $20.0 million for facilities identified for replacement in the City's facilities replacement plan. 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 direction, 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 meets with each department and prepares a proposed budget document for 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. Budgets are adopted for the General Fund and Special Revenue Funds. The legal level of budgetary control is at the fund level. The City Manager is authorized to transfer budgeted amounts between departments within any fund; however, any revisions which increase the total appropriations of any fund over $10,000 must be approved by the City Council. 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 17 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 State Treasurer's Local Agency Investment Fund (LAIF) are examples. The City's current investment strategy is to 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, which is 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 placed in money market accounts or with the State Treasurer's 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. AWARDS & ACKNOWLEDGMENTS Awards — The City has prepared a comprehensive annual financial report for fourteen straight years. The City has been fortunate to receive 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, 2007. 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 is Achievement program requirements and we are submitting it to GFOA to determine its eligibility for another certificate. Acknowledgments - Preparation of this report was accomplished through the efficient and dedicated services of virtually everyone in the City's Accounting Division and Print Shop. In addition, members of the Administrative Services Department would like to thank the City Manager, and 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, Mayer Hoffman McCann P.C., for their time and assistance in the preparation of the report. This report was completely prepared and published by City employees. Homer t. Bludau City Manager 19 , �x Dennis C. Danner Administrative Services Director Certificate of Achievement for Excellence in Financial Reporting Presented to City of Newport Beach California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2007 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. µ0E OFpi ��• T, (3. x / / ° °NIRUSIA Ah0 \CO Ma President Executive Director 20 NEWPORT BEACH CITY OFFICIALS CITY COUNCIL L to R: Council Members Michael F. Henn and Keith D. Curry, Mayor Edward D. Selich, Council Members Steven Rosansky, Nancy Gardner and Don Webb, and Mayor Pro Tem Leslie Daigle L to R: City Manager Homer Bludau, City Attorney Robin Clauson and City Clerk LaVonne Harkless Sharon Wood............ Dave Kiff ................... Dennis C. Danner..... Jay Elbettar .............. Steve Lewis .............. Mark Harmon............ Barbara Ramsey ...... Cynthia Pirtle............ David Lepo ............... John Klein ................. Steve Badum............ Laura Deitweiler....... Steve Myrter ............. ........................ Assistant City Manager /Director of Community & Economic Development ................................................... ............................... ......................Assistant City Manager .......................................... ............................... Administrative Services Director /Treasurer ................................................................................... ............................... Building Director .............................................................................................. ............................... Fire Chief .................................................................... ............................... General Services Director .................................................................. ............................... Human Resources Director ...................................................................... ............................... Library Services Director .................................................................................. ............................... Planning Director .................................................................. ............................... .........................Police Chief ........................................................................... ............................... Public Works Director ........... . ..... .. ......... I ....................... ............................ Recreation & Senior Services Director ................... ............................... ........... ............................... ......................Utilities Director ELECTORATE r BUILONGOODE 1 BOARD OF APPEALS r , CITV CLERK CIVIL SERVICE BOARD L- - - - - -J PLANNING COMMISSION L- - - - - -J FF ASSISTANT CITY MANAGER mom Niya. Emnomic oev.mpmem CcAe smOcer cnt PLANNING Lard Use and Development Lnng -Range Planning Planning Commission Support Housing Programs BUILDING Administrator, Plan ChecklPermit Services Public Counter Inspections Use and Occupancy Residential Building Ramrods FIRE Fire Suppression (Operations) Ocean Lifeguards Training and Education Havardoue Materials Fire Prevention Junior❑feguard Program Administration Emergency Medical Services POLICE Patrol Support Services Traffic Chief of Police Detective MAYOR COUNCIL II CITYATTORNEY II CITY MANAGER. ADMINISTRATIVE SERVICES AccountinglRepoding /Budgeting Treasury Management Billing &Receivable. Paymi ccounts Peye 1. I Cashledng Geographic Information Systems Revenue Information Technology Purchasing& Warehousing Printing & Postal Service s O ELECTED OFFICIALS Fiscal Year 2008 -2009 r - - - - - - i BOARD OF LIBRARYTRUSTEES L- - - - - -J r PARK$ BEAC, 1 RECREATION COMMISSION ION - CITY ARTS COMMISSION L- - - - - -J r- - - - - -� HARBOR COMMISSION L- - - - - -J ASSISTANTCITY MANAGER n.rmrRa.- PudlclMV.. Enumnmemet,rd an, UTILITIES Water Service Wastewater Collodion Electrical Services Oil & Gas Production Administration Street Lights GENERAL SERVICES Parks and Trees Operators Support Field Maintenance Traffic Signs & Markings Building Maintenance Refuse Collection Equipment Maintenance Recycling PUBLIC WORKS Engirermig CIP Design & Construction Infmstructure Master Planning Development Be,,.. Tmfd Planning &Engineadng Public Right of Way Permitting LIBRARY SERVICES Central Library &Branches Information& Reference Services Adult & Youth Progams Ads & Cultural Services Literacy Services Board of Library Trustees Suppod City Arts Commission Support Sister City Association Support RECREATION & SENIOR SERVICES Youth& Adult Spoils Programs Senior Programs& Services PlaygroundlPark Development Special Events Facility Managemenb'Reservatlons PB &R Commission Support HUMAN RESOURCES RecmAndent General Liability Employ.. /Uflor Halatlons Benefits Administration I ClassificationlCompensation Workers Compensation Citywide Training Retiree Counseling &Benefits Civil Service8card Suppot Grievances &Disciplines r - - - -j mi COUNCILAPPOINTED BOARDS & COMMISSIONS COUNCILAPPOINTED POSITIONS CITV DEPARTMENTS Financial Section �zi Mayer Hoffman McCann P.C. An Independent CPA Firm Conrad Government Services Division 2301 Dupont Drive, Suite 200 Irvine, California 92612 949 - 474 -2020 ph 949 - 263 -5520 fx www.mhrn- pc.corn City Council City of Newport Beach Newport Beach, California INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Newport Beach, California, as of and for the year ended June 30, 2008, which collectively comprise the City's basic financial statements, as listed in the table of contents. These financial statements are the responsibility of the City of Newport Beach's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Newport Beach, as of June 30, 2008, and the respective changes in financial position and cash flows, where applicable, of the City of Newport Beach, California and the respective budgetary comparison information for the general fund and major special revenue funds of the City for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described further in note 11 to the financial statements the City changed its method of accounting for post employment benefits for fiscal years ending on or after June 30, 2008. The information identified in the accompanying table of contents as management's discussion and analysis and required supplementary information is not a required part of the basic financial statements, but is supplementary information required by the accounting standards generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. 25 City Council City of Newport Beach Newport Beach, California Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Newport Beach's basic financial statements. The introductory section, combining and individual nonmajor fund financial statements, schedules and statistical tables are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual nornmajor fund financial statements and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical tables have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. In accordance with Government Auditing Standards, we have also issued a report dated December 22, 2008 on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Irvine, California December 22, 2008 IA.w,er ISG �srw�z I?Jr�wo+.m /f 26 Management's Discussion and Analysis 27 a 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, 2008. 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 assets 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 $2.3 billion. The vast majority of this figure is represented by illiquid capital assets including land and infrastructure. Capital assets net of accumulated depreciation and any related debt totaled $2.158 billion, while the remaining balance of net assets totaled $142.4 million. Of this amount, $101.4 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 $45.8 million (1.80 %) to $2.3 billion as a result of current year activities. The increase is partially attributable to the annexation of West Santa Ana Heights and contributions for cooperative projects including Santa Ana Heights Fire Station and several smaller capital projects. The City's total debt decreased by $1.7 million, from $53.4 million to $51.7 million, during the current fiscal year. The decrease is the net result of regular debt service payments. Short -term Financial Resources (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 of 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 $117 million, an increase of $19.6 million. Approximately $98.1 million is unreserved fund balance available to fund current obligations at the City Council's discretion. Of the $98.1 million unreserved fund 29 balance, City Council has designated $18.9 million for contingencies, $14.0 for unspecified future appropriations, $6.4 million for capital projects that were not completed during the fiscal year, and $34.0 million designated for other special purposes including $20 million for facilities identified for replacement in the City's facilities replacement plan. The remaining $24.8 million is made up of smaller amounts designated across various funds. The General Fund reported an increase of $9.1 million in fund balance after transferring $29 million to other funds. Of this transfer, $17.4 million represented a routine transfer to subsidize the operations of the Tide and Submerged Land Fund and a $5.9 million transfer to the Insurance Reserve internal service fund to bolster cash reserves used to fund worker's compensation and general liability claims. Also included was a $2.7 million transfer to the Retiree Insurance internal service fund representing the City's annual required contribution to the retiree medical program. The remaining $3 million represented various nonrecurring transfers to other funds. • At the end of the current fiscal year, unreserved fund balance for the General Fund was $72.3 million, or 57.3% of total General Fund expenditures. Although unreserved and available to fund current obligations, 100% of this balance is designated for contingencies, capital projects, appropriations, and other special purposes. 1917/4N9IArJ 01 aI n1:8aI, /_10 1dL1I-IIF_AI=I Jd4,11 &y The financial section of the comprehensive annual financial report contains the following information: Independent Auditors' 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. Management's Discussion and Analysis is intended to be an introduction to the Basic Financial Statements. H9I, EX, ldr_14'lr_A94M4,kV 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. 30 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, community services 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 providing Water and Wastewater services. 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 to 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 31 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. 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, 2008, as shown in Table 1, were $2.3 billion. 32 Current and other assets Capital assets Total assets Long -term liabilities outstanding Other liabilities Total liabilities Net assets Invested in capital assets, net of debt Restricted Unrestricted Total net assets, as restated Table 1 Net Assets (in thousands) Governmental Activities Business -Type Activities Total 2007 2008 2007 2008 2007 2008 $ 155,365 $ 175,010 $ 20,832 $ 18,315 $ 176,197 $ 193,325 2,050,294 2,070,835 110,285 108,954 2,160,579 2,179,789 2,205,659 2,245,845 131,117 127,269 2,336,776 2,373,114 55,029 48,600 4,540 3,095 53,369 51,695 18,797 17,527 3,537 3,195 22,334 20,722 67,626 66,127 8,077 6,290 75,703 72,417 2,020,826 2,050,925 35,770 40,989 75,237 87,803 $ 2,131.833 $ 2.179.717 107,231 107,314 15,809 13.639 S123,040 $ 120.953 2,128,057 2,158,239 35,770 40,989 91,046 101,442 $ 2,254,873 $ 2,300,670 Invested in Capital Assets - By far the largest component of net assets, $2.158 billion (93.8%), reflects the City's investment in capital assets (e.g., land, buildings, infrastructure, and equipment) less accumulated depreciation and any related outstanding debt used to acquire those assets. The City's capital assets do not represent a financial resource and consequently are not readily available for funding current obligations. Restricted Assets - An additional portion of the City's net assets, $41 million (1.8%), represents resources that are subject to external restrictions on how they may be used. Unrestricted Assets - The remaining balance of unrestricted net assets, $101.4 million (4.4 %), may be used to meet the City's ongoing obligations to citizens and creditors. Overall, the City's net assets increased $45.8 million in the current fiscal year. The increase is largely attributable to capital contributions of $31 million related the annexation of West Santa Ana Heights and capital construction projects. Other key financial activity for the year ended June 30, 2008, is shown in Table 2. 33 Table 2 Changes in Net Assets (in thousands) Expenses: General government Public safety Public works Community development Community services Interest Water Wastewater Total expenses Increases in net assets Net assets, beginning, as restated Net assets, ending, as restated 14,166 69,795 39,180 9,021 23,304 523 15,557 75,821 42,631 10,053 19,147 532 - - Governmental Activities Business -Type Activities Total 155,989 163,741 2007 2008 2007 2008 2007 2008 Revenues: 5 2.179.717 $123.040 $ 120,953 Program Revenues: Charges for services $ 38,919 $ 40,122 $ 21,454 $ 20,823 $ 60,373 $ 60,945 Operating grants and capital contributions 16,425 15,779 - - 16,425 15,779 Capital grants and contributions 6,904 31,038 - - 6,904 31,038 General Revenues: Taxes: Property taxes 63,003 67,389 - - 63,003 67,389 Sales tax 21,088 21,855 - - 21,088 21,855 Sales tax in -lieu 7,348 8,018 - - 7,348 8,018 Transient occupancy taxes 12,059 12,751 - - 12,059 12,751 Othertaxes 8,776 8,277 - - 8,776 8,277 Intergovernmental (Unrestricted): - - Motor Vehicle License Tax 515 373 - - 515 373 Investment related income 2,631 4,164 736 662 3,367 4,826 Property income - - - - - - Miscellaneous 2,232 1,859 - - 2,232 1,859 Share of joint venture net income (loss) - - - - - - Total revenues 179,900 211,625 22,190 21,485 202,090 233,110 Expenses: General government Public safety Public works Community development Community services Interest Water Wastewater Total expenses Increases in net assets Net assets, beginning, as restated Net assets, ending, as restated 14,166 69,795 39,180 9,021 23,304 523 15,557 75,821 42,631 10,053 19,147 532 - - - - 17,400 3,260 20,148 3,423 155,989 163,741 20,660 23,571 23,911 2,107,922 47,884 2.131,833 1,530 121,510 (2,086) 123,039 $2,131,833 5 2.179.717 $123.040 $ 120,953 14,166 15,557 69,795 75,821 39,180 42,631 9,021 10,053 23,304 19,147 523 532 17,400 20,148 3,260 3,423 176,649 187,312 25,441 45,798 2,235,632 2,254,872 $2,261,073 $2,300.670 Governmental Activities - The cost of all governmental activities in the current fiscal year was $163.7 million. As shown in the statement of activities, $40.1 million of the cost was paid by those who directly benefited from the programs, $46.8 million was financed by contributions and grants received from other governmental organizations, developers, and property owners for both capital and operating activities, and $76.8 million was subsidized through general City revenues. Net assets were restated to reflect the City's election to retroactively implement GASB 45 related to the retiree post employment medical benefits. Net assets, as restated, for governmental activities of the City at the beginning of the year were $2.132 billion, and increased by $47.9 million by the end of the year. The growth was primarily attributable to an overall increase in general revenues of 34 $7 million, an increase in program revenues from charges for services of $1.2 million, an increase from operating grants and capital grants of $23.5 million. 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 (Library Services 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. Each program's net cost (total cost less revenues generated by the activities) is presented in Tables 3 and 4. The net cost shows the extent to which the City's general taxes support each of the City's programs. 35 General government Public safety Public works Community development Community services Interest 80.000 70.000 60.000 50.000 40.000 30.000 20.000 10.000 Table 3 Governmental Activities (in thousands) 2007 Total Cost Net Cost of Service of Service $ 14,166 $ (10,364) 69,795 (52,681) 39,180 (17,241) 9,021 (3,338) 23,304 (9,846) 523 (523) $ 155,989 $ (93,993) 2008 Total Cost Net Cost of Service of Service $ 15,557 $ (12,376) 75,821 (57,155) 42,631 2,519 10,053 (4,456) 19,147 (4,801) 532 (533) $ 163,741 $ (76,802) Table 4 Program Expenses and Revenue - Governmental Activities Year Ended June 30, 2008 (in millions) General Public Safety Public Works Community Community Interest Government Development Services ■Total Expenses ❑ Program Revenues Of the $76.8 million in program revenues that financed the governmental activities, $57.2 million was utilized for public safety, $12.4 million was utilized for general government, $4.5 million was utilized for community development, $4.8 million was utilized for community services and $532,569 was utilized for interest on long -term debt. The net cost of funding Public Works activities decreased dramatically over 2007 again 36 due to capital contributions associated with the annexation of West Santa Ana Heights. Interest costs only represent 1/3 of 1 % of total governmental activities. 56 Table 5 Governmental Activities Year Ended June 30, 2008 Sources of Revenue 19% of ❑ Charges for Services ■ Contributions ❑Taxes ❑Other Functional Expenses General Government ■ Pub is Safety ❑ Public Works ❑ Community Develop me nt ■ Community Services ❑ Interest Major Governmental Activities in the current fiscal year included the following: Revenues: Excluding transfers, total program and general revenues in the current year amounted to $211.6 million. Of this amount, 41% represents program generated 37 revenue (19% charges for services and 22% capital grants and contributions), while the remaining 59% represents general revenue sources (56% taxes and 3% from other sources). • The City reported $31 million in capital contributions representing a 350% increase over the prior year. The vast majority of this increase is attributable to the right -of -way acquired when West Santa Ana Heights was annexed. Capital contributions related to the construction of Fire Station 7 also contributed to this total. • The $7 million increase in General Revenues over the prior year is a combination of a few key factors: o At $67.4 million, property taxes represent the largest individual recurring source of revenue for the City. Over the past ten years, assessed values have increased an average of 11.1% per year. Assessed property values increased 8.7% in the current year. Property tax collections, in total, including unsecured property and prior year collections, increased $4.4 million or 7% in the current year. o At nearly $21.9 million and $12.8 million respectively, sales taxes and transient occupancy taxes represent the number two and three top individual revenue sources for the City. Sales taxes increased $7 million or 3.7% from the prior year while transient occupancy taxes increased $.6 million or 5.7% from the prior year. o Investment income increased $1.5 million or 58% over the prior year due to increasing cash reserve balances and generally favorable fixed income yields for most of the year. Expenses: • In the current year, expenses for all governmental activities totaled $164 million. Overall, an increase of $8 million (5 %) from the prior year, which can be attributed to the following factors: o General Government expenses increased $1.4 million (10 %) when compared to the prior year due to legal consulting fees concerning group homes and site planning for a new Civic Center. o Public Safety expenses are up $6 million (9 %) in the current year. The increase is primarily due to increases in salaries and benefits, and additional grant funded personnel. o Public Works expenses were up $3.5 million (9 %) for costs associated with capital contributions benefiting other agencies, water quality studies and other major infrastructure maintenance projects that were not capitalized. 38 o Community Development expenses increased $1 million (11 %) in the current year, due to professional services contracts associated with a major revision of the zoning code, City -wide wayfinding signage improvements and various other studies. o Community Service expenditures decreased $4.2 million (18 %) due to the construction of the Back Bay Science Center in the prior year which represented a one -time capital contribution benefiting another governmental entity. 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, produced a $2.1 million decrease in net assets. The decrease in net assets was comprised of an operating loss of $1.6 million, non - operating expenses of $576,714, and an off - setting $124,743 consolidation adjustment related to internal service fund activities. 25.000 20.000 15.000 10.000 5.000 Table 6 Program Expense & Revenue - Business -type Activities Year Ended June 30, 2008 (in millions) Water Wastewater ■Total Expenses ■Program Revenues Major Business -type Activities in the current fiscal year included the following: Water Of the $20.1 million in water related expenses, $6.6 million (32.8 %) is for the purchase of water, $4.4 million (21.9 %) is for maintenance, supplies, and depreciation of the water system, $3.9 million (19.5°/x) covers employee related costs, $1.7 million (8.4 %) is for professional services, and the remaining $3.5 million (17.4 %) is collectively 39 attributable to other miscellaneous expenses, interest on outstanding debt, and loss on removal of capital assets. Wastewater Of the $3.4 million in wastewater related expenses, $1.3 million (39 %) is for maintenance, supplies, and depreciation of the wastewater system, $1.4 million (40.1 %) is for employee related costs, and the remaining $714,366 (20.9 %) is attributable to other individually insignificant expenses. 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 $117 million, an increase of $19.6 million from the prior year. The General Fund represented $79 million or 67.5% of the combined fund balances of the Governmental Funds. Reserved Fund Balance — The City has $18.9 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 ($11.4 million), 2) for permanent endowment ($4.6 million), 3) as a reserve for affordable housing ($1.7 million), and 4) for a variety of other restrictions that make these resources unavailable for spending ($1.2 million). Unreserved Fund Balance — The remaining $98.1 million is classified as unreserved fund balance, which is available for spending at the City Council's discretion but may be designated for special purposes. Of the $98.1 million unreserved fund balance, City Council has designated $18.9 million for contingencies, $14.0 million for unspecified future appropriations, $6.4 million for capital projects that were not completed during the fiscal year, and $34.0 million designated for other special purposes including $20 million for facilities identified for replacement in the City's facilities replacement plan. The remaining $24.8 million is made up of smaller amounts designated across various funds. Major activities in the Governmental Funds in the current fiscal year included the following: 40 • The General Fund ended the year with a $79 million fund balance, a net increase of $9.1 million after transferring $29 million to other funds. Of this transfer, $17.4 million represented a routine transfer to subsidize the operations of the Tide and Submerged Land Fund and a $5.9 million transfer to the Insurance Reserve internal service fund to bolster cash reserves used to fund workers' compensation and general liability claims. Also included, was a $2.7 million transfer to the Retiree Insurance internal service fund representing the City's annual required contribution to the retiree medical program. The remaining $3 million represented various nonrecurring transfers to other funds. • 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 ($17.4 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 $1.7 million in fund balance. • The Contributions Fund reported revenues and expenditures of approximately $2.5 million related to a variety of grants and cooperative agreements associated with water quality projects, street projects and park improvement projects. 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. Major activities in the Enterprise Funds in the current fiscal year included the following: • Net assets in the Water Fund decreased $2.4 million largely due to a relatively high level of water transmission maintenance expenses, increasing energy costs and increases in the cost of supplies. Net assets in Wastewater Fund increased by $223,988. Unrestricted net assets at year end were $10.4 million for the Water Fund, and $3.2 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 in the Internal Service Funds increased $7.6 million in the current year. The increase is primarily attributable to a $5.9 million cash transfer from the General Fund to the Insurance Reserve fund intended to bolster cash reserves in this fund. Net assets decreased in the Retiree Insurance fund due to the City's election not to fund the accrued liabilities associated with an "implied subsidy" calculated in accordance with GASB 45. Also a contributing factor, the Equipment Maintenance Fund net assets increased by $2.2 million in the current year through user fees 41 charged to departments for maintenance and replacement of the City's rolling stock fleet. GENERAL FUND BUDGETARY HIGHLIGHTS Final budgeted revenues for the General Fund increased $6.9 million from the original budget during the year ended June 30, 2008. Significant factors contributing to this fluctuation are highlighted as follows: Final budgeted property taxes revenues increased $1.6 million from the original budget due to higher than expected assessed property valuations and collections. Final budgeted expenditures for the General Fund decreased $19.3 million from the original budget during the year ended June 30, 2008. Significant factors contributing to this fluctuation are highlighted as follows: • Public safety and public works functions were decreased by $18.4 million and $3.6 million respectively. This budget reduction was primarily due to a routine allocation of expenditures from General Fund cost centers to the Tidelands Fund for police, fire and beach maintenance services utilized in support of tidelands operations. • Budgeted expenditures for community services increased $1.2 million due to amendments reflecting additional expenditures related to new grants for library materials, operations, maintenance and repairs. • Final budgeted capital outlays from the General Fund increased $1.1 million from the original budget during the year ended June 30, 2008, due to amendments reflecting additional expenditures for 1) Mariners Park restroom for $639,800, 2) McFadden Square monument for $235,500, and 3) various smaller budgetary increases. • During the current year, final transfers out budgeted for the General Fund varied from the original budget by approximately $21.6 million primarily due to the expenditure allocation to the Tidelands Fund, a $5.9 million transfer to the Insurance Reserve internal service fund and a $2.7 million transfer to the Retiree Insurance internal service fund. Variance with Final Budget Actual revenues exceeded final budget by $5.0 million for the year ended June 30, 2008. Significant factors contributing to this favorable variance are summarized as follows: 42 • A $2 million favorable variance was realized due to higher than expected investment yields in the early part of the year and an increase in the fair value of investments measured at the end of the year. • A $385,000 favorable variance was realized due to higher than expected transient occupancy tax revenues. • A $364,000 favorable variance was realized due to higher than expected regular parking fines. • A $843,000 favorable variance was realized due to higher than expected charges for services in connection with plan checking fees, engineering fees, paramedic service fees and various staff service fees. • A $732,000 favorable variance was realized due to unexpected timing differences associated with the collection of intergovernmental grant revenues. • A $643,000 favorable variance was realized do to an increase in unexpected other revenues. Actual General Fund expenditures of $126 million were significantly less than final budgetary estimates of $132.1 million. Significant factors contributing to this $6.1 million favorable variance are summarized as follows: • A $2.9 million favorable variance was realized from capital improvement projects that were not completed by year end. • A $1.1 million favorable variance was realized in Public Works expenditures due to the cost allocation to the Tidelands Fund. • A $1.2 million favorable variance was realized from Community Development, primarily due to expenditure re- budgets to the following fiscal year for professional and technical services related to rewriting the zoning codes for the General Plan Update. Conservative budgeting, timing of expenditures and favorable variances contributed to the $8.4 million net increase in General Fund, fund balance. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The City's investment in capital assets for governmental and business -type activities as of June 30, 2008, amounts to $2.180 billion (net of accumulated depreciation). This investment is comprised of a broad range of capital assets including land, buildings, machinery and equipment, park facilities, road improvements, storm drains, piers, oil wells, sound walls and bridges. The total net increase (including additions and deletions) of $19.2 million represents a 0.9% increase over last year. The $19.2 million net increase is the result of additions of $46.1 million, and deletions of $26.9 million. 43 Table 7 Capital Assets at Year End (net of depreciation, in thousands) Major capital asset events during the current fiscal year included the following: • The City capitalized $46.1 million in capital assets in the current year. Of the $46.1 million, $21.4 million was paid for through current year expenses, the remaining $24.7 million represents additions from work in progress started in previous years. • Of the $44.2 million capitalized as governmental assets in the current year, $22.6 million represents additions from work in progress started in previous years. Of the $1.9 million capitalized in the current year as business -type assets, $3.6 million represented additions for infrastructure consisting of major repairs and upgrades to the water mains, additions to wastewater and water pump stations, and completion of the Irvine Avenue & Dover Drive Water Transmission Main improvement 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 $51.7 million for all governmental and business -type activities. 44 Governmental Activities Business -Type Activities Total 2007 2008 2007 2008 2007 2008 Land $ 1,785,699 $ 1,807,381 $ 2,016 $ 2,016 $ 1,787,715 $ 1,809,397 Structures 35,847 54,641 99 94 35,946 54,735 Equipment 9,073 8,964 7 28 9,080 8,992 Infrastructure 194,376 194,541 106,001 106,503 300,377 301,044 Work in progress 25,299 5,307 2,162 313 27,461 5,620 Totals $ 2,050,294 $ 2,070,834 $ 110,285 $ 108,954 $ 2,160,579 $ 2,179,788 Major capital asset events during the current fiscal year included the following: • The City capitalized $46.1 million in capital assets in the current year. Of the $46.1 million, $21.4 million was paid for through current year expenses, the remaining $24.7 million represents additions from work in progress started in previous years. • Of the $44.2 million capitalized as governmental assets in the current year, $22.6 million represents additions from work in progress started in previous years. Of the $1.9 million capitalized in the current year as business -type assets, $3.6 million represented additions for infrastructure consisting of major repairs and upgrades to the water mains, additions to wastewater and water pump stations, and completion of the Irvine Avenue & Dover Drive Water Transmission Main improvement 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 $51.7 million for all governmental and business -type activities. 44 Certificates of participation Note payable Pre - annexation agreement CDBG Loan Purchase Installment Agreement Capital leases Revenue bonds Claims and judgments Workers' compensation payable Compensated absences Net OPEB Obligation Totals Table 8 Outstanding Debt at Year -End (in thousands) Governmental Business -Type Total Activities Activities 2007 2008 2007 2008 2007 $ 4,980 $ 4,665 $ - $ - $ 4,980 1,469 1,298 - - 1,469 12,000 10,800 - - 12,000 2,134 2,056 - - 2,134 3,000 1,500 3,000 50 - - - 50 4,837 5,614 11,442 11,334 8,917 9,113 - 2,221 $ 48,829 $ 48,601 4,540 3,095 $ 4,540 $ 3,095 2008 4,665 1,298 10,800 2,056 1,500 4,540 3,095 4,837 5,614 11,442 11,334 8,917 9,113 - 2,221 $ 53,369 $ 51,696 The City's total debt decreased $1.6 million during the current fiscal year. The cumulative decrease is the net result of regular debt service payments, offsetting increases in claims and judgments payable of $3 million, compensated absences payable of $2 million, and an increase in a net OPEB obligation. The net OPEB obligation of $2.2 million resulted in the City's election not to fund the implicit subsidy associated with GASB 45 and the City's post employment Retiree Medical plan. Additional information on the City's long -term debt and OPEB Obligation can be found in Note (6) and Note (11) of the Notes to the Financial Statements. FACTORS AFFECTING NEXT YEAR'S BUDGET Overall the 2008 -2009 operating budget, excluding capital improvement projects and internal service charges, increased 2.01 % over the 2007 -2008 amended budget. A brief summary of the factors considered when preparing the 2008 -2009 budget are as follows: • In January of 2008, the City Council established seven new priorities related to the City's resource allocation and retained five of the existing priorities from 2007. These priorities which included: the new City Hall design, the Facilities Financing Plan, the resolution of group homes /code enforcement issues, the Water Quality Master Plan, benchmarking of the City's services to ensure continuous improvement, Banning Ranch, traffic flow improvements, Airport Policy Implementation, alignment of policies /codes with the General Plan, parks and recreational facilities, improved communication with the public, and an update of fees to ensure cost recovery, provided the basis for the Fiscal Year 2008 -2009 budget. 45 • Salary and benefit contracts with the Firefighters Association and the Fire Management Association expired December 31, 2007, but the Firefighters Association contract was subsequently settled. The Fire Management Association contract remains unsettled as negotiations with this group continue. Although the precise settlement details were not available when the 2008 -09 Budget was developed, the City did reserve sufficient resources in anticipation of the negotiations. The Lifeguard Management Association contract expires December 31, 2008 and negotiations with this group are currently underway. • In the fall of 2006, we began a comprehensive cost allocation study to identify overhead expenses City -wide and by department. Concurrent with the cost allocation study, we conducted a cost of services study to ensure our fees and charges were appropriate. The last time we completed similar studies was in 1996. Both of these projects were completed and submitted to Council. The cost of services and cost allocation plan models allowed City staff to recommend to the City Council increases to the Master Fee Schedule. The potential revenue associated with the implementation of the new fee schedule is estimated to be $3.5 million. Although the nationwide troubles in the housing market have slowed the growth of Newport Beach assessed property values from 9.8% in 2006 -07 to 8.7% in 2007 -08, and 5.9% in 2008 -09, the 2008 -09 Budget was built around a very conservative 4% assessed value growth assumption. Although assessed values do not appear to be negatively impacting the 2008 -09 Budget, many factors associated with the housing market crisis are being considered for future fiscal years. 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. The City's Budgets, Comprehensive Annual Financial Reports as well as other City financial information can be found on the City's website at: www. city. newport- beach.ca.us /financial info. 46 Government -wide Financial Statements 47 CITY OF NEWPORT BEACH Statement of Net Assets June 30. 2008 Assets: Cash and investments (note 4) Receivables: Accounts Notes Interest Intergovernmental receivables Cash with fiscal agent (note 4) Internal balances Investment in joint venture (note 15) Prepaid items Inventory Capital assets, (note 5): Non - depreciable Depreciable Accumulated depreciation Total assets Liabilities: Accounts payable Accrued salaries and benefits Accrued interest payable Deposits payable Unearned revenue Noncurrent liabilities (note 6): Due within one year Due in more than one year Total liabilities Net Assets: Invested in capital assets, net of related debt Restricted for: Community development Public safety Public works Community services Debt Service Permanent Funds: Nonexpendable Expendable Unrestricted Total net assets Governmental Business -type Activities Activities Total $ 144,985,859 $ 12,353,815 $ 157,339,674 11,939,299 4,401,794 16,341,093 50,000 - 50,000 1,827,739 1,827,739 9,621,652 - 9,621,652 3,030,912 1,454,305 4,485,217 (53,060) 53,060 - 2,595,599 - 2,595,599 432,696 25,000 457,696 579,144 - 579,144 1,812,688,602 2,329,399 1,815,018,001 397,216,271 155,366,368 552,582,639 (139,069,938) (48,741,469) (187,811,407) 2,245,844,775 127,242,272 2,373,087,047 7,298,543 2,917,600 10,216,143 3,755,995 135,696 3,891,691 156,300 72,463 228,763 3,071,059 68,883 3,139,942 3,244,715 - 3,244,715 9,629,855 1,510,000 11,139,855 38,971,019 1,585,000 40,556,019 66,127,486 6,289,642 72,417,128 2,050,925,370 107,313,603 2,158,238,973 5,214,589 - 5,214,589 399,008 - 399,008 22,195,061 - 22,195,061 7,049,847 - 7,049,847 565,989 - 565,989 4,629,781 - 4,629,781 934,648 - 934,648 87,802,996 13,639,027 101,442,023 $ 2,179,717,289 S 120,952,630 $ 2,300,669,919 See accompanying notes to basic financial statements 49 CITY OF NEWPORT BEACH Statement of Activities Year Ended June 30, 2008 General revenues: Taxes: Property tax Sales tax Sales tax in -lieu Transient occupancy tax Business license tax Franchise tax Other taxes Intergovernmental (Unrestricted): Motor vehicle license tax Investment income Net increase in fair value of investments Other Total general revenues Change in net assets Net assets at beginning of year, as restated (note 17 ) Net assets at end of year See accompanying notes to basic financial statements 50 Operating Capital Total Charges for Grants and Grants and Program Expenses Services Contributions Contributions Revenues Functions /Programs Primary government: Governmental activities: General government $ 15,556,657 $ 3,055,982 $ 124,461 $ - $ 3,180,443 Public safety 75,821,082 16,649,400 2,016,742 - 18,666,142 Public works 42,631,401 5,616,118 9,508,355 30,025,596 45,150,069 Community development 10,052,871 5,597,309 - - 55597,309 Community services 19,146,588 9,203,513 4,129,293 1,012,319 14,345,125 Interest on long -term debt 532,569 - - - Total governmental activities 163,741,168 40,122,322 15,778,851 31,037,915 86,939,088 Business -type activities: Water 20,148,517 17,270,511 - - 17,270,511 Wastewater 3,423,592 3,552,780 - - 3,552,780 Total business -type activities 23,572,109 20,823,291 - - 20,823,291 Total primary government $ 187,313,277 $ 60,945,613 $ 15,778,851 $ 31,037,915 $ 107,762,379 General revenues: Taxes: Property tax Sales tax Sales tax in -lieu Transient occupancy tax Business license tax Franchise tax Other taxes Intergovernmental (Unrestricted): Motor vehicle license tax Investment income Net increase in fair value of investments Other Total general revenues Change in net assets Net assets at beginning of year, as restated (note 17 ) Net assets at end of year See accompanying notes to basic financial statements 50 Net (Expense) Revenue and Changes in Net Assets Primary Government Governmental Business -type (2,878,006) Activities Activities Total $ (12,376,214) $ - $ (12,376,214) (57,154,940) - (57,154,940) 2,518,668 - 2,518,668 (4,455,562) - (4,455,562) (4,801,463) - (4,801,463) (532,569) - (532,569) (76,802,080) - (76,802,080) - (2,878,006) (2,878,006) - 129,188 129,188 - (2,748,818) (2,748,818) $ (76,802,080) $ (2,748,818) $ (79,550,898) 67,388,838 - 67,388,838 21,855,242 - 21,855,242 8,017,539 - 8,017,539 12,751,518 - 12,751,518 4,119,108 - 4,119,108 3,853,119 - 3,853,119 304,920 - 304,920 373,350 - 373,350 3,655,314 588,870 4,244,184 508,485 72,913 581,398 1,858,883 1,858,883 124,686,316 661,783 125,348,099 47,884,236 (2,087,035) 45,797,201 2,131,833,053 123,039,665 2,254,872,718 $ 2,179,717,289 $ 120,952,630 $ 2,300,669,919 See accompanying notes to basic financial statements 51 This page left blank intentionally. 52 Fund Financial Statements 53 y Governmental Funds 55 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 Contributions Fund is used to account for revenues received from other government agencies or private developers and expended for specific streets, highway, construction, or water quality projects. 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. 56 This page left blank intentionally. 57 CITY OF NEWPORT BEACH Governmental Funds Balance Sheet June 30, 2008 See accompanying notes to basic financial statements 58 Tide and Other Submerged Governmental Assets General Land Contributions Funds Totals Cash and investments $ 75,278,961 $ 1,454,824 $ 2,115,166 $ 32,611,212 $ 111,460,163 Receivables: Accounts 6,291,724 1,208,343 1,847,374 910,878 10,258,319 Notes 50,000 - - - 50,000 Interest 1,827,739 - - - 1,827,739 Intergovernmental receivables 5,552,883 - 1,263,645 2,805,124 9,621,652 Cash with fiscal agent - - - 3,030,912 3,030,912 Due from other funds (notel2) 3,297,073 - - - 3,297,073 Prepaid items 127,836 - - 137,728 265,564 Inventory 229,546 229,546 Total assets $ 92,655,762 $ 2,663,167 $ 5,226,185 $ 39,495,854 $ 140,040,968 Liabilities and Fund Balances Liabilities: Accounts payable $ 5,054,805 $ 799,117 $ 214,928 $ 734,294 $ 6,803,144 Accrued payroll 3,688,974 31,343 - - 3,720,317 Deposits payable 2,913,141 157,918 - - 3,071,059 Unearned revenue 1,911,171 - 801,487 532,057 3,244,715 Unavailable revenue 28,532 - 2,559,015 1,607,945 4,195,492 Due to other funds (note 12) 2,009,179 2,009,179 Total liabilities 13,596,623 988,378 3,575,430 4,883,475 23,043,906 Fund balances: Reserved for encumbrances 4,712,988 1,415,088 856,506 4,455,273 11,439,855 Reserved for debt service - - - 565,989 565,989 Reserved for permanent endowment - - - 4,629,781 4,629,781 Reserved for affordable housing 1,686,724 - - - 1,686,724 Reserved for prepaid items 127,836 - - 137,728 265,564 Reserved for inventories 229,546 - - - 229,546 Reserved for long -term receivable 50,000 - - - 50,000 Unreserved: Designated for special purposes 32,931,278 259,701 794,249 - 33,985,228 Designated, reported in: Special revenue funds - - - 21,167,789 21,167,789 Capital projects funds - - - 4,475,016 4,475,016 Permanent funds - - - 934,648 934,648 Designated for contingencies 18,868,974 - - - 18,868,974 Designated for capital projects 6,418,065 - - - 6,418,065 Designated for appropriations 14,033,728 - - - 14,033,728 Undesignated, reported in: Special Revenue Funds - - - (550,783) (550,783) Capital projects funds (1,203,062) (1,203,062) Total fund balances 79,059,139 1,674,789 1,650,755 34,612,379 116,997,062 Total liabilities and and fund balances $ 92,655,762 $ 2,663,167 $ 5,226,185 $ 39,495,854 $ 140,040,968 See accompanying notes to basic financial statements 58 CITY OF NEWPORT BEACH Governmental Funds Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets June 30, 2008 Fund balances of governmental funds $ 116,997,062 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets net of accumulated depreciation have not been included as financial resources in governmental fund activity. Amount excludes capital assets from internal service funds which are added below. 2,063,209,639 Long term debt that have not been reported in the governmental fund activity. Amounts exclude long -term debt activity from internal service funds which have been added below: Certificates of participation payable (4,665,000) Note payable (1,298,254) Pre - annexation agreement (10,800,000) CDBG loan (2,056,000) Purchase agreement (1,500,000) Accrued interest payable for the current portion of interest due on long -term debt (156,300) has not been reported in the governmental funds. Some of the revenue will be collected after year -end, but is not available soon 4,195,492 enough to pay for the current period's expenditures, and therefore is reported as unavailable revenue in the governmental funds. 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. 13,248,111 Investment in joint ventures is not a current financial resource and therefore not reported 2,595,599 in the governmental funds. Internal balance created by the consolidation of internal service fund activities (53,060) related to enterprise funds is not reported in the governmental funds. Net assets of governmental activities $ 2,179,717,289 See accompanying notes to basic financial statements 59 CITY OF NEWPORT BEACH Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances Year Ended June 30, 2008 Other financing sources (uses) Transfers in (note 13) 5,521,342 Tide and - 4,663,645 Other Transfers out (note 13) (29,039,614) (88,707) Submerged (36,076,952) Governmental General Land Contributions Funds Totals Revenues (8,493,030) Net change in fund balances 9,145,937 887,858 (5,704) 9,567,678 Taxes and assessments: Fund balances, beginning 69,913,202 786,931 1,656,459 25,044,701 97,401,293 Property tax $ 67,388,838 $ - $ - $ - $ 67,388,838 Sales tax 21,855,242 - - - 21,855,242 Sales tax in -lieu 8,017,539 - - - 8,017,539 Transient occupancy tax 12,751,518 - - - 12,751,518 Othertaxes 8,288,855 - - 456,209 8,745,064 Intergovernmental 3,083,152 - 2,232,264 15,690,013 21,005,429 Licenses and permits 4,994,304 1,310,621 - 169,864 6,474,789 Charges for services 14,935,333 137,845 - - 15,073,178 Fines and forfeitures 3,957,864 - - 704,578 4,662,442 Investment income 3,655,314 199,829 187,378 1,420,545 5,463,066 Net increase in fair value of investments 508,485 - 26,100 185,903 720,488 Property income 6,603,973 8,613,830 - - 15,217,803 Donations 1,202,474 - 47,242 909,921 2,159,637 Other 1,458,770 28,084 2,718,241 4,205,095 Total revenues 158,701,661 10,290,209 2,492,984 22,255,274 193,740,128 Expenditures Current: General government 14,425,553 82,550 - - 14,508,103 Public safety 53,650,324 19,353,724 - 482,365 73,486,413 Public works 25,454,281 3,953,555 - 701,105 30,108,941 Community development 7,769,980 393,083 - 540,778 8,703,841 Community services 12,639,243 1,838,903 - - 14,478,146 Capital outlay 10,455,571 853,702 2,498,688 6,716,677 20,524,638 Debt service (note 6): Principal 1,500,000 170,948 - 1,593,000 3,263,948 Interest and fiscal charges 142,500 66,114 - 368,685 577,299 Total expenditures 126,037,452 26,712,579 2,498,688 10,402,610 165,651,329 Excess (deficiency) of revenues over expenditures 32,664,209 (16,422,370) (5,704) 11,852,664 28,088,799 Other financing sources (uses) Transfers in (note 13) 5,521,342 17,398,935 - 4,663,645 27,583,922 Transfers out (note 13) (29,039,614) (88,707) (6,948,631) (36,076,952) Total other financing sources (uses) (23,518,272) 17,310,228 (2,284,986) (8,493,030) Net change in fund balances 9,145,937 887,858 (5,704) 9,567,678 19,595,769 Fund balances, beginning 69,913,202 786,931 1,656,459 25,044,701 97,401,293 Fund balances, ending $ 79,059,139 $ 1,674,789 $ 1,650,755 $ 34,612,379 $ 116,997,062 See accompanying notes to basic financial statements RUS CITY OF NEWPORT BEACH Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmenal Funds to the Statement of Activities Year ended June 30, 2008 Net change in fund balances - total governmental funds $ 19,595,769 Amounts reported for governmental activities in the statement of activities differ from the amounts reported in the statement of activities because: 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. 20,869,467 Payment of debt service principal is an expenditure in the governmental funds, but the 3,263,948 repayment reduces long -term liabilities in the statement of net assets. Accrued Interest for debt service. This is the net change in accrued interest forth e current period. 45,060 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 unavailable revenue in the governmental funds.This is the net change in unearned revenue for the current (3,469,898) period. 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. 7,605,614 Investment in joint ventures creates an explicit, measurable equity interest reported only in the statement of activities. 99,039 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. (124,763) Change in net assets of governmental activities $ 47,884,236 See accompanying notes to basic financial statements 61 CITY OF NEWPORT BEACH General Fund Budgetary Comparison Statement For the Year Ended June 30, 2008 62 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues Taxes and assessments: Property $ 65,514,837 $ 67,114,837 $ 67,388,838 $ 274,001 Sales 22,877,127 22,877,127 21,855,242 (1,021,885) Sales tax in -lieu 7,568,701 7,568,701 8,017,539 448,838 Transient occupancy 11,275,932 12,365,932 12,751,518 385,586 Othertaxes 7,218,461 8,218,461 8,288,855 70,394 Intergovernmental 2,183,026 2,351,022 3,083,152 732,130 Licenses and permits 3,876,320 4,829,679 4,994,304 164,625 Charges for services 13,701,298 14,092,377 14,935,333 842,956 Fines and forfeitures 3,593,500 3,593,500 3,957,864 364,364 I nvestment income 2,189,695 2,189,695 3,655,314 1,465,619 Net increase in fair value of investments - - 508,485 508,485 Property income 6,300,171 6,300,171 6,603,973 303,802 Donations 306,000 1,370,330 1,202,474 (167,856) Other 209,800 815,200 1,458,770 643,570 Total revenues 146,814,868 153,687,032 158,701,661 5,014,629 Expenditures General government: City council 1,306,696 1,311,099 1,531,705 (220,606) City clerk 382,780 557,733 563,092 (5,359) City attorney 1,112,509 1,297,813 1,636,695 (338,882) City manager 1,436,789 1,578,545 1,426,985 151,560 Administrative services 7,599,761 7,855,022 7,274,379 580,643 Human resources 1,891,692 2,024,012 1,992,697 31,315 Total General government 13,730,227 14,624,224 14,425,553 198,671 Public safety: Police 41,905,549 34,816,449 34,848,703 (32,254) Fire 30,219,517 18,950,909 18,801,621 149,288 Total Public safety 72,125,066 53,767,358 53,650,324 117,034 Public works: General services 22,690,451 20,517,086 19,422,193 1,094,893 Public works 5,203,225 4,796,196 4,641,478 154,718 Utilities 1,238,214 1,253,165 1,390,610 (137,445) Total Public works 29,131,890 26,566,447 25,454,281 1,112,166 62 CITY OF NEWPORT BEACH General Fund Budgetary Comparison Statement (continued) Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Community development Planning 3,519,274 4,267,900 3,119,517 1,148,383 Building 3,774,923 4,082,078 4,388,407 (306,329) Code and Water Quality Enforcement 713,325 348,587 262,056 86,531 Total Community development 8,007,522 8,698,565 7,769,980 928,585 Community services: Net change in fund balance (12,117,601) 770,587 9,145,937 Library Services 6,186,385 7,051,393 6,415,157 636,236 Recreation and senior services 6,141,976 6,444,252 6,224,086 220,166 Total Community services 12,328,361 13,495,645 12,639,243 856,402 Capital outlay 14,504,954 13,371,330 10,455,571 2,915,759 Debt service: Principal 1,500,000 1,500,000 1,500,000 - Interest and Fiscal Charges 142,500 142,500 142,500 - TotalDebtService 1,642,500 1,642,500 1,642,500 - Total expenditures 151,470,520 132,166,069 126,037,452 6,128,617 Excess (deficiency) of revenues over expenditures (4,655,652) 21,520,963 32,664,209 11,143,246 Other financing sources (uses) Transfers in - 8,302,815 5,521,342 (2,781,473) Transfers out (7,461,949) (29,053,191) (29,039,614) 13,577 Total other financing sources (uses) (7,461,949) (20,750,376) (23,518,272) (2,767,896) Net change in fund balance (12,117,601) 770,587 9,145,937 8,375,350 Fund balance, beginning 69,913,202 69,913,202 69,913,202 - Fund balance, ending $ 57,795,601 $ 70,683,789 $ 79,059,139 $ 8,375,350 63 CITY OF NEWPORT BEACH Tide and Submerged Land Budgetary Comparison Statement For the Year Ended June 30, 2008 Expenditures General government Public safety Public works Community services Community development Capital outlay Debt service: Principal Interest and fiscal charges 82,550 - 19,353,724 601,259 3,834,712 1,930,168 2,039,139 - 393,083 2,934,750 2,133,312 82,550 19,353,724 - 3,953,555 (118,843) 1,838,903 200,236 393,083 - 853,702 1,279,610 170,948 170,948 170,948 - 66,114 66,114 66,114 - Total expenditures 5,703,239 28,073,582 26,712,579 Variance with Excess (deficiency) of revenues Final Budget Budgeted Amounts over expenditures Positive (17,162,619) Original Final Actual (Negative) Revenues Transfers in 137,206 Licenses and permits 1,291,525 1,291,525 1,310,621 19,096 Charges for services 40,000 40,000 137,845 97,845 Fines and forfeitures 1,200 1,200 - (1,200) Investment income 84,000 84,000 199,829 115,829 Property income 8,074,238 9,494,238 8,613,830 (880,408) Other - - 28,084 28,084 Total revenues 9,490,963 10,910,963 10,290,209 (620,754) Expenditures General government Public safety Public works Community services Community development Capital outlay Debt service: Principal Interest and fiscal charges 82,550 - 19,353,724 601,259 3,834,712 1,930,168 2,039,139 - 393,083 2,934,750 2,133,312 82,550 19,353,724 - 3,953,555 (118,843) 1,838,903 200,236 393,083 - 853,702 1,279,610 170,948 170,948 170,948 - 66,114 66,114 66,114 - Total expenditures 5,703,239 28,073,582 26,712,579 1,361,003 Excess (deficiency) of revenues over expenditures 3,787,724 (17,162,619) (16,422,370) 740,249 Other financing sources (uses) Transfers in 137,206 17,398,935 17,398,935 - Transfers out (5,622,474) (3,021,256) (88,707) 2,932,549 Total other financing sources (uses) (5,485,268) 14,377,679 17,310,228 2,932,549 Net change in fund balance (1,697,544) (2,784,940) 887,858 3,672,798 Fund balance, beginning 786,931 786,931 786,931 Fund balance (deficit), ending $ (910,613) $ (1,998,009) $ 1,674,789 $ 3,672,798 64 CITY OF NEWPORT BEACH Contributions Fund Budgetary Comparison Statement For the Year Ended June 30, 2008 Revenues: Intergovernmental Investment income Net increase in fair value of investments Donations Total revenues Expenditures: Capital outlay Net change in fund balance Fund balance, beginning Fund balance (deficit), ending 65 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 468,066 $ 2,668,976 $ 2,232,264 $ (436,712) 95,000 95,000 187,378 92,378 - - 26,100 26,100 580,000 588,333 47,242 (541,091) 1,143,066 3,352,309 2,492,984 (859,325) 6,506,182 4,875,993 2,498,688 2,377,305 (5,363,116) (1,523,684) (5,704) 1,517,980 1,656,459 1,656,459 1,656,459 - $ (3,706,657) $ 132,775 $ 1,650,755 $ 1,517,980 65 This page left blank intentionally. 66 Proprietary Funds /l t a �-. �„ t.. � � i� i •yaps_ ( y' ♦i fiy i �p+ R`"! M ' F , • �4� � rT4 ' r Vii'.. j• r�`� r,} fl idly.. �- • 4 •u it Vf r"1•••y_ q ! d 7• • •` :t to , y 67 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. LIM CITY OF NEWPORT BEACH Proprietary Fund Statement of Net Assets June 30, 2008 Assets Current assets: Cash and investments Receivables: Accounts Intergovernmental receivables Inventories Prepaid items Total current assets Non - current assets: Cash with fiscal agent Capital assets (note 5): Land Structures Equipment Infrastructure Work in progress Less accumulated depreciation Total capital assets (net of accumulated depreciation) Total noncurrent assets Total assets Liabilities Current liabilities: Accounts payable Accrued payroll Deposits payable Accrued interest payable Bonds payable (note 6) Capital leases - current Workers compensation - current General liability - current Compensated absences - current Total current liabilities Non - current liabilities (note 6): Bonds payable Workers' compensation General liability Compensated absences Net OPEB obligation Total noncurrent liabilities Total liabilities Net Assets Invested in capital assets, net of related debt Unrestricted Total Net Assets Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Net assets of business -type activities 53,060 $ 120,952,630 See accompanying notes to basic financial statements 69 Enterprise Funds Governmental Total Activities Enterprise Internal Service Water Wastewater Funds Funds $ 9,758,520 $ 2,595,295 $ 12,353,815 $ 33,525,696 3,677,682 724,112 4,401,794 1,680,980 - - - 349,598 25,000 25,000 167,132 13,461,202 3,319,407 16,780,609 35,723,406 1,454,305 - 1,454,305 - 2,016,450 - 2,016,450 - 205,793 - 205,793 - 185,521 - 185,521 22,317,426 112,380,885 42,594,169 154,975,054 - 312,949 - 312,949 - (36,226,102) (12,515,367) (48,741,469) (14,692,130) 78,875,496 30,078,802 108,954,298 7,625,296 80,329,801 30,078,802 110,408,603 7,625,296 93,791,003 33,398,209 127,189,212 43,348,702 2,821,888 95,712 2,917,600 495,399 100,371 35,325 135,696 35,678 72,439 24 72,463 - 68,883 - 68,883 - 1,510,000 - 1,510,000 - - - - 1,287,694 - - - 2,812,315 - - - 1,824,926 ,654,973 4,573,581 131,061 4,704,642 8,111,185 1,585,000 - 1,585,000 - - - - 8,521,685 - - - 3,788,599 - - - 7,458,122 2,221,000 1,585,000 1,585,000 21,989,406 6,158,581 131,061 6,289,642 30,100,591 77,234,801 30,078,802 107,313,603 7,625,295 10,397,621 3,188,346 13,585,967 5,622,816 $ 87,632,422 $33,267,148 120,899,570 $ 13,248,111 53,060 $ 120,952,630 See accompanying notes to basic financial statements 69 CITY OF NEWPORT BEACH Proprietary Fund Statement of Revenues, Expenses and Changes in Fund Net Assets For the Year Ended June 30, 2008 Enterprise Funds Operating revenues: Charges for sales and services: Water sales Sewer service and connection fees Retiree Reimbursements Employee Contributions 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 OPEB ARC- Cash subsidy OPEB ARC- Implied subsidy Other Total operating expenses Operating income (loss) Nonoperating revenues (expenses): Investment income Net increase in fair value of investments Gain (loss) on removal of capital assets Interest expense Other fiscal charges Total nonoperating revenues (expenses) Income (loss) before transfers Transfers in (note 13) Transfers out (note 13) Change in net assets $ 17,166,497 $ - - 3,544,722 104,014 8,058 17,270,511 3,552,780 Governmental Total Activities Enterprise Internal Service Funds Funds $ 17,166,497 $ 3,544,722 1,050,640 - 401,436 112,072 14,689,030 20, 823, 291 16,141,106 6,603,152 - 6,603,152 - 3,939,442 1,375,691 5,315,133 1,443,079 1,486,553 562,037 2,048,590 2,064,397 1,682,477 367,546 2,050,023 62,378 1,143,055 533,036 1,676,091 338,478 1,779,714 238,462 2,018,176 - - - - 460,693 - - - 2,339,836 - - - 3,371,513 - - - 1,807,046 - - - 2,629,000 - - - 2,648,000 2,370,423 376,787 2,747,210 1,551,500 19,004,816 3,453,559 22,458,375 18,715,920 (1,734,305) 99,221 (1,635,084) (2,574,814) 479,357 109,513 588,870 1,358,669 57,659 15,254 72,913 172,324 (1,098,506) - (1,098,506) 156,735 (137,765) - (137,765) (330) (2,226) - (2,226) - (701,481) 124,767 (576,714) 1,687,398 (2,435,786) 223,988 (2,211,798) (887,416) - - - 8,618,030 - - - (125,000) (2,435,786) 223,988 (2,211,798) 7,605,614 Net assets, beginning of year, as restated (note17) 90,068,208 33,043,160 Net assets, end of year $ 87,632,422 $ 33,267,148 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds Change in net assets of business -type activities 124,763 $ (2,087,035) See accompanying notes to basic financial statements 70 5,642,497 $ 13,248,111 CITY OF NEWPORT BEACH Proprietary Fund Statement of Cash Flows For the Year ended June 30, 2008 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 noncepital financing activities: Cash received from other funds Cash paid to other funds Net cash provided by noncapital financing activities Cash Flows from capital related financing activities: Acquisition of capital assets Proceeds from sale of capital assets Principal payments on long -term liabilities Interest paid on long -term liabili0es Other fiscal charges Net cash (used) for capital related financing activities Cash Flows from investing activities: Interest on investments Net cash provided by investing activities Net increase (decrease) 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 (Increase) decrease in accounts receivable (Increase) in inventories Increase in prepaid items Increase (decrease) in accounts payable and accrued payroll (Decrease) in accrued interest payable Increase in deposits payable Decrease in workers' compensation Increase in general liability Increase in compensated absences Decrease in net OPEB obligation Total adjustments Net cash used for operating activities Non -cash investing, capital and financing activities: Net increase in fair value of investments Loss on disposal of capital assets Total of non-cash activities 9,905,924 (125,000) 9,780,924 (1,544,116) Enterprise Funds (272,087) (1,816,203) (1,944,639) - Governmental - 365,056 Total Activities - (1,445,000) Enterprise Internal Service Water Wastewater Funds Funds $ 17,370,125 $ 3,567,702 $ 20,937,827 $ 14,432,178 (3,913,663) (1,366,997) (5,280,660) (5,493,882) (11,509,876) (1,233,443) (12,743,319) (15,534,641) (2,266,409) (368,729) (2,635,138) 1,502,129 (319,823) 598,533 278,710 (5,094,216) 9,905,924 (125,000) 9,780,924 (1,544,116) (272,087) (1,816,203) (1,944,639) - - - 365,056 (1;445,000) - (1,445,000) (49,490) (137,765) - (137,765) (330) (2,226) (2,226) (3,129,107) (272,087) (3,401,194) (1,629,403) 537,016 124,767 661,783 1,530,993 537,016 124,767 661,783 1,530,993 (2,911,914) 451,213 (2,460,701) 4,588,298 14,124,739 2,144,082 16,268,821 28,937,398 $ 11,212,825 $ 2,595,295 $ 13,808,120 $ 33,525,696 $ 9,758,520 $ 2,595,295 $ 12,353,815 33,525,696 1,454,305 1,454,305 $ 11,212,825 $ 2,595295 $ 13,808,120 $ 33,525,696 $ (1,734,305) $ 99,221 $ (1,635,084) $ (2,574,814) 1,486,553 562,037 2,048,590 2,064,397 209,604 22,980 232,584 (1,456,853) - - - (143,460) (25,000) - (25,000) (144,870) (219,632) (85,705) (305,337) 275,698 (31,067) - (31,067) - (5,976) - (5,976) - - - - (108,000) - - - 776,477 - - - 196,209 (3,979,000) 1,414,482 499,312 1,913,794 (2,519,402) $ (319,823) $ 598,533 $ 278,710 $ (5,094,216) $ 57,659 $ 15,254 $ 72,913 $ 354,546 (1,098,506) (1,098,506) $ (1,040,847) $ 15,254 $ (1,025.593) $ 354,546 See accompanying notes to basic financial statements 71 This page left blank intentionally. 72 Fiduciary Funds 73 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. 74 CITY OF NEWPORT BEACH Agency Funds Statement of Fiduciary Assets and Liabilities June 30, 2008 Assets Totals Cash and investments (note 4) $ 2,543,686 Cash with fiscal agent (note 4) 4,337,777 Intergovernmental receivable 124,363 Total assets $ 7,005,826 Liabilities Due to bondholders $ 6,336,441 Due to ILJAOC 448,933 Due to others 220,452 Total liabilities $ 7,005,826 See accompanying notes to basic financial statements 75 This page left blank intentionally. 76 Notes to the Financial Statements z N O �i 77 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 (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 Ent!ty 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 79 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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. b. 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). 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. ON CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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 81 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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. 82 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Proorietary & 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. 83 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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. Contributions Fund 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. 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. 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. 84 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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 $7,222,723 at June 30, 2008. 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. e. 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, 2008, the balance of this account was $9,621,652. 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 15th 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 payments to reduce the principal shall not be subject to any pre - payment penalty. 85 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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. The City chose to value and report on infrastructure assets in their entirety (e.g. Prior to 1980). 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 capital asset class as follows: Structures 30 -75 years Equipment 3 -15 years Infrastructure 20 -75 years L 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 1• k. CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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 Levy date Due dates Collection dates Compensated Absences March 1 July 1 November 1 — 1"installment March 1 — 2nd installment December 10 —1" installment April 10 — 2nd installment 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. Unearned Revenue Unearned revenues are those where asset recognition has been met, but the revenue recognition criteria have not been met. 87 (2) CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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 $116,997,062 differs from "net assets" of governmental activities $2,179,263,434 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 $2,187,587,447 Accumulated depreciation (124,377,808) Total capital assets, net" $2.063,209.639 'Amount excludes net capital assets of $7,625,296 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, 2008 were: Certificates of participation $ 4,665,000 Note payable 1,298,254 Pre - annexation agreement 10,800,000 CDBG Loan 2,056,000 Purchase agreement 1,500,000 Total $20.319.254 [ii CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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 156 300 Investment in Joint Venture Investment in joint ventures is not a current financial resource and hence reported only in the statement of net assets. Net equity in joint venture $2.595.599 Unavailable 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 unavailable revenue in the governmental funds. Unavailable revenue $4.195.492 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 $13.248.111 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. M CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Explanation of Differences betweeen Government Funds Balance Sheet and the Statement of Net Assets Assets Cash and investments Receivables: Accounts Notes Interest Intergovernmental receivables Cash with fiscal agent Interfund balances Investment in joint venture Prepaid items Inventory Capital assets Accumulated depreciation Total assets Liabilities and Fund Balances / Net Assets Liabilities: Accounts payable Accrued payroll Accrued interest payable Deposits payable Claims payable Workers' compensation payable Compensated absences payable Unearned revenue Unavailable revenue Due to other funds Long -term liabilities Total liabilities Fund balances / net assets Total liabilities and and fund balances / net assets Total Capital Governmental Related Funds Items $ 111,460,163 $ 10,258,319 50,000 1,827,739 9,621,652 3,030,912 3,297,073 265,564 229,546 Long -term Accumulated Debt Depreciation Transactions 2,187,587,447 - - - - (124,377,808) - $ 140,040,968 $ 2,187,587,447 $ (124,377,808) $ - $ 6,803,144 $ - $ - $ 3,720,317 - - 3,071,059 3,244,715 - - - 4,195,492 - - - 2,009,179 - - - - - - 20,319,254 23,043,906 - 20,319,254 116,997,062 2,187,587,447 (124,377,808) (20,319,254) $ 140,040,968 $ 2,187,587,447 $ (124,377,808) $ - nil CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Investment Internal Reclassifications - Interest in Joint Unavailable Service and Statement of Payable Venture Revenue Funds Eliminations Net Assets $ - $ - $ - $ 33,525,696 $ - $ 144,985,859 - - - 1,680,980 - 11,939,299 - - - - - 50,000 - - - - - 1,827,739 - - - - - 9,621,652 - - - - - 3,030,912 - - - - (3,350,133) (53,060) - 2,595,599 - - 2,595,599 - - - 167,132 - 432,696 - - - 349,598 - 579,144 - - - 22,317,426 - 2,209,904,873 - - - (14,692,130) - (139,069,938) $ - $ 2,595,599 $ - $ 43,348,702 $ (3,350,133) $ 2,245,844,775 $ - $ - $ - $ 495,399 $ - $ 7,298,543 - - - 35,678 - 3,755,995 156,300 - - - - 156,300 - - - - - 3,071,059 - - - 1,824,926 - 1,824,926 - - - 2,812,315 - 2,812,315 - - - 1,654,973 - 1,654,973 - - - 3,244,715 - - (4,195,492) - - - - - - 1,287,894 (3,297,073) - - - - 21,989,406 - 42,308,660 156,300 - (4,195,492) 30,100,591 (3,297,073) 66,127,486 (156,300) 2,595,599 4,195,492 13,248,111 (53,060) 2,179,717,289 $ - $ 2,595,599 $ - $ 43,348,702 $ (3,350,133) $ 2,245,844,775 91 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 b. Explanation of Differences between Enterprise Funds and Government - wide Statement of Net Assets Total net assets of the City's Enterprise Funds of $120,899,570 differs from net assets of the business -type activities of $120,952,630 reported in the government -wide statement of net assets. The difference, $53,060, results from the consolidation of internal service fund activities related to the enterprise funds. Explanation of Differences between Enterprise Funds and Government -wide Statement of Net Assets Total Internal Government wide Enterprise Service Statement of Assets Funds Funds Net Assets Cash and investments Receivables: Accounts Cash with fiscal agent Interfund balances Prepaid items Capital assets, net Total assets Liabilities and Fund Balances / 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 Invested in capital assets, net of related debt Unrestricted $ 12,353,815 $ $ 12,353,815 4,401, 794 4,401, 794 1,454,305 - 1,454,305 - 53,060 53,060 25,000 25,000 108,954,298 - 108,954,298 $ 127,189,212 $ 53,060 $ 127,242,272 $ 2,917,600 $ $ 2,917,600 135,696 135,696 68,883 68,883 72,463 72,463 1,510,000 1,510,000 1,585,000 1,585,000 6,289,642 6,289,642 $ 107,313,603 $ 107,313,603 13,585,967 53,060 13,639,027 $ 120,899,570 $ 53,060 $ 120,952,630 92 C. CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Explanation of Differences between Governmental Fund Operating Statements and the Statement of Activities The "net change in fund balances" for governmental funds $19,595,769 differs from the "change in net assets' for governmental activities $47,430,381 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. Capital outlay Net change to Internal Service Fund capital assets Capital Contribution Net change in capital related items Depreciation expense Deletions to accumulated depreciation Net change in accumulated depreciation 93 $11,557,744 (3,832,221) 19.693.170 S27 418.693 ($7,609,816) 1.060.590 f $6.549.2261 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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 $ 315,000 Note payable 170,948 Pre - annexation agreement 1,200,000 CDBG loan 78,000 Purchase agreement 1,500,000 Total principal payments made $3 263 948 Accrued Interest 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 45 060 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 99 039 Unavailable 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 unavailable revenue in the governmental funds. Net change in unavailable revenue $3.469.898 94 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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 57.178 614 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. 95 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Explanation of Differences between Governmental Fund Operating Statements and the Statement of Activities Total Capital 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 Total other financing sources (uses) Net change in fund balances I net assets 19,693,170 4,205,095 193, 740,128 19, 693,170 Long -term Debt Transactions 14,508,103 Governmental Related Accumulated 326,089 - Funds Items Depreciation Revenues: (843,107) - Taxes and assessments $ 118,758,201 $ - $ Intergovernmental 21,005,429 - Licenses and permits 6,474,789 - Chargesforservices 15,073,178 - Fines and forfeitures 4,662,442 - Investment income 5,463,066 Net Increase in fair value of investments 720,488 - Property income 15,217,803 - Shareofjointventurenetgain - - Donations 2,159,637 - 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 Total other financing sources (uses) Net change in fund balances I net assets 19,693,170 4,205,095 193, 740,128 19, 693,170 Long -term Debt Transactions 14,508,103 - 326,089 - 73,486,413 1,944,638 (843,107) - 30,108,941 1,887,583 5,941,770 - 8,703,841 - 107,342 - 14,478,146 - 1,017,132 - 20,524,638 (11,557,744) - - 3,263,948 - - (3,263,948) 577,299 165,651,329 (7,725,523) 6,549,226 (3,263,948) 27,583,922 - - - (36,076,952) (8,493,030) 19,595,769 27,418,693 (6,549,226) 3,263,948 Fund balances / net assets beginning of year as restated 97,401,293 2,160,168,754 (117,828,582) (23,583,202) Fund balances / net assets end of year $ 116,997,062 $ 2,187,587,447 $ (124,377,808) $ (20,319,254) 96 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 - - - 8,618,030 Investment (125,000) Internal Reclassifications Accrued in Joint Unavailable Service and Statement of Interest Venture Revenue Fund Eliminations Activities $ - $ - S - S - $ - $ 118,758,201 - - (3,469,898) - - 17,535,531 - - - - - 6,474,789 - - - - (124,763) 14,948,415 - - - - - 4,662,442 - - - - - 5,463,066 - - - 1,358,669 - 2,079,157 - - - 172,324 - 15,390,127 - 99,039 - - - 99,039 - - - - - 2,159,637 - - - - - 19,693,170 - - - 156,735 - 156,735 4,205,095 99,039 (3,469,898) 1,687,728 (124,763) 211,625,404 - - - 618,134 104,331 15,556,657 - - - 900,429 332,709 75,821,082 - - - 468,459 4,224,648 42,631,401 - - - 280,851 960,837 10,052,871 - - - 306,941 3,344,369 19,146,588 - - - - (8,966,894) - (45,060) 330 532,569 (45,060) 2,575,144 163,741,168 - - - 8,618,030 (36,201,952) - (125,000) 36,201,952 8,493,030 45,060 99,039 (3,469,898) 7,605,614 (124,763) 47,884,236 (201,360) 2,496,560 7,665,390 5,642,497 71,703 2,131,833,053 $ (156,300) $ 2,595,599 $ 4,195,492 $ 13,248,111 $ (53,060) $ 2,179,717,289 97 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Explanation of Differences between Enterprise Funds Operating Statement and the Statement of Activities The change in net assets for the City's enterprise funds ($2,211,798) differs from the change in net assets of the business -type activities ($2,087,035) reported in the government -wide statement of activities. The difference $53,060 results from the consolidation of internal service fund activities related to the enterprise funds. Explanation of Differences between Enterprise Funds Operating Statement and the Statement of Activities Nonoperating revenues (expenses) Investment income Total Internal Business -type activities 72,913 - Enterprise Service Statement of (1,098,506) Funds Fund Activities Operating revenues: (2,226) - (2,226) Total nonoperating revenues (expenses) Charges for sales and services: (576,714) Water sales $ 17,166,497 $ - $ 17,166,497 Intergovernmental - - - Sewer service and connection fees 3,544,722 - 3,544,722 Other 112,072 - 112,072 Total operating revenues 20,823,291 - 20,823,291 Operating expenses: Purchase of Water 6,603,152 - 6,603,152 Salaries and wages 5,315,133 5,315,133 Depreciation 2,048,590 - 2,048,590 Professional Services 2,050,023 - 2,050,023 Maintenance and supplies 1,676,091 (124,763) 1,551,328 System maintenance 2,018,176 - 2,018,176 Other 2,747,210 - 2,747,210 Total operating expenses 22,458,375 (124,763) 22,333,612 Operating income (1,635,084) 124,763 (1,510,321) Nonoperating revenues (expenses) Investment income 588,870 - 588,870 Net decrease in fair value of investments 72,913 - 72,913 Loss on removal of capital assets (1,098,506) - (1,098,506) Interest expense (137,765) - (137,765) Other (2,226) - (2,226) Total nonoperating revenues (expenses) (576,714) - (576,714) Change in net assets Net assets, beginning of year (2,211,798) 124,763 (2,087,035) 123,111,368 (71,703) 123,039,665 Net assets, end of year $ 120,899,570 $ 53,060 $ 120,952,630 no CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 (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 and Permanent Funds 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 legal level of budgetary control is at the fund level. 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. 99 (4) CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Expenditures exceeded appropriations in the following non -major governmental funds. Appropriations Expenditures Justice Assistance Grant $ - $ 7,422 The following funds reported deficit fund balances: Special Revenue Funds OTS DUI Grant $ 117,233 Justice Assistance Grant $ 7,422 Arterial Highway Rehabilitation $ 350,599 Community Development Block Grant $ 75,529 Capital Projects Marine Science Center $ 724,825 City Hall Improvements $ 56,397 Misc SAH Projects $ 282,006 Marina Park $ 139,834 Internal Service Funds Compensated Absences Retiree Insurance $ 6,838,051 $ 1,956,131 Variance $ (7,422) The City's intentions are to eliminate deficit fund balances through future grant funding, other future revenue sources, or interfund transfers. Cash and Investments Cash and investments as of June 30, 2008 are classified in the accompanying financial statements as follows: Statement of net assets Cash and investments $ 157,339,674 Cash with fiscal agent 4,485,217 Fiduciary funds: Cash and investments 2,543,686 Cash with fiscal agent 4,337,777 Total cash and investments $ 168,706,354 100 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Cash and investments as of June 30, 2008 consist of the following: Cash on hand $ 28,332 Deposits with financial institutions 1,167,806 Investments 167,510,216 Total cash and investments $ 168,706,354 Investments Authorized by the California Government Code and the Entity's Investment Policy The table below identifies the investment types that are authorized for the City by the California Government Code (or the City's investment policy, where more restrictive). The table also identifies certain provisions of the California Government Code (or the City's investment policy, where more restrictive) that address interest rate risk and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City's investment policy. 101 Maximum Maximum Maximum Percentage Investment Authorized Investment Type Maturity of Portfolio* in One Issuer Local Agency Bonds 5 years 15% None U.S. Treasury Obligations 5 years None None U.S. Agency Securities 5 years None None Banker's Acceptances 180 days 30% 10% Commercial Paper 270 days 25% 10% Negotiable Certificates of Deposit 1 year 30% 10% Repurchase Agreements 30 days None None Reverse Repurchase Agreements 30 days 10% of base value None Medium -Term Notes 4 years 30% None Mutual Funds N/A 20% 10% Money Market Mutual Funds N/A 20% 10% Mortgage Pass- Through Securities 5 years 20% None County Pooled Investment Funds N/A 5% None Local Agency Investment Fund (LAIF) N/A None None JPA Pools (other investment pools) N/A None None Excluding amounts held by bond trustee that are not subject to California Government Code restrictions. 101 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Investments Authorized by Debt Agreements Investment of debt proceeds held by bond trustee (i.e. fiscal agent) are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City's investment policy. The table below identifies the investment types that are authorized for investments held by bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk, credit risk, and concentration of credit risk. 102 Maximum Maximum Percentage Investment Authorized Investment Type Maximum Maturity Allowed in One Issuer U.S. Treasury Obligations None None None U.S. Agency Securities None None None Banker's Acceptances 30 days - 360 days None None Commercial Paper 180 days - 270 days None 10% Money Market Mutual Funds N/A None None Investment Agreements None None None Certificates of Deposit None None None Demand Deposits 30 days - 360 days None None Time Deposits 30 days - 360 days None None Local Agency Bonds None None None Forward Delivery Agreement None None None Forward Purchase and Sale Agreement None None None Corporate Notes None None None Repurchase Agreements None None None Local Agency Investment Fund N/A None None Municipal Obligations None None None County Pooled Investment Funds N/A None None 102 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Disclosures Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations. Information about the sensitivity of the fair values of the City's investments (including investments held by bond trustee) to market interest rate fluctuations is provided by the following table that shows the distribution of the City's investments by maturity: Investment Type Money Market Funds U.S. Treasury Notes U.S. Agencies Corporate Notes Municipal Bond Commercial Paper LAIF Repurchase Agreements Asset - backed Securites Mortgage - backed Securities Cash with Fiscal Agent: Money Market Funds Investment Agreements Total $ 9,521,672 $ 8,436,797 $ 1,084,875 $ - $ - $ 9,521,672 13,212,051 5,680,586 4,715,038 2,816,427 - 13,212,051 85,271,671 11,922,828 57,183,726 16,165,117 85,271,671 28,252,931 18,360,738 9,892,193 - - 28,252,931 1,810,164 - 1,810,184 - - 1,810,184 3,225,204 3,225,204 - - - 3,225,204 7,222,723 7,222,723 - - - 7,222,723 6,761,000 6,761,000 - - - 6,761,000 2,534,380 2,534,380 - - - 2,534,380 875,406 - - 875,406 - 875,406 7,642,418 7,642,418 - 7,642,418 1,180,576 1,180,576 1,180,576 $ 167,510,216 $ 71,786,674 $ 74,686,016 $ 19,856,950 $ 1,180,576 $ 167,510,216 Investment agreements are recorded at cost (not fair value) because these agreements represent nonparticipating contracts that are nonnegotiable and whose redemption terms do not consider market rates. Investments with Fair Values Hiahly Sensitive to Interest Rate Fluctuations As of June 30, 2008 the City did not have any investments (including investments held by fiscal agent) whose fair values were highly sensitive to interest rate fluctuations. 103 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Government Code, the City's investment policy, or debt agreements, and the actual rating as of year end for each investment type. Investment Tyne Money Market Funds U.S. Treasury Notes U.S. Agencies Corporate Notes Municipal Bond Commercial Paper Loral Agency l uvesiment Fund Repurchase Agreements Assaf- backed Securities Modgage- backed Securities Cash Am Fiscal Agent: Money Market Funds Investment Agreements Minimum Exempt Legal Frcm Not Fair Value RaBno Oiwlosure AAA AA. AA AA- A+ A A -1+ A_t Rated 9,521,672 A $ 1,424,046 $ 106,192 $ - $ 13,212,051 NIA 5,416,626 1,152,159 - 85,271,671 NIA - 65,743,197 - 28,252,931 A - 7,636,452 3,739,656 1,818184 AA - - - 3,225,204 A -1 - - - 7,222,723 NIA - - - 6,761,000 NIA - - - 2,534,380 AAA - 2,534,380 - 875,406 AAA - 875,406 - $ $ - $ - $ - 1.048.440 - - 4,004,288 8,211115 1.058,571 3.600,849 1,011,560 - 798,624 - 550,000 - - - 8 - $ 7991,434 6,643,266 421.878 - 18,058,156 1,930,000 745,204 - - 7,222,723 - 6,761,000 7,642,418 A - 7,642,418 - - - - - - - - 1,180576 NIA - - - 1,180,576 - - - - - - $ 167,510,216 $ 6.840,672 $ 85,690,204 $ 3.739,656 $ 61 $ 9,261,555 $ 1,857,195 $ 3,600,049 $ 2,351,878 $ 745,204 $ 46,676,579 Concentration of Credit Risk The investment policy of the City contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. Investments in any one issuer that represent 5% or more of total City's investments are as follows: Issuer Investment Type Reported Amount FFCB Federal agency securities $ 9,970,727 FHLB Federal agency securities $18,996,837 FHLMC Federal agency securities $27,375,815 FNMA Federal agency securities $28,402,801 Custodial Credit Risk Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker - dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The 104 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. As of June 30, 2008, none of the City's deposits with financial institutions in excess of federal depository amounts were held in uncol lateral ized accounts. As of June 30, 2008, City investments in the following investment types were held by the same broker - dealer (counterparty) that was used by the City to buy the securities: Investment TvDe Reoorted Amount Money Market Funds $ 7,939,199 U.S. Treasury Notes 888,199 U.S. Agencies 34,831,776 Corporate Notes 5,834,462 Mortgage backed Securities 875,406 Repurchase Agreements 6,761,000 Commercial Paper 745,204 Asset - Backed Securities 2,534,380 For investments identified herein as restricted cash with fiscal agent, the fiscal agent selects the investment under the terms of the applicable trust agreement, acquires the investment, and holds the investment on behalf of the reporting government. Investment in State Investment Pool The City is a voluntary participant in the Local Agency Investment Fund (LAIF) that is regulated by the California Government Code under the oversight of the Treasurer of the State of California. The fair value of the City's investment in this pool is reported in the accompanying financial statements at amounts based upon the City's pro -rata share of the fair value provided by LAIF for the entire LAIF portfolio (in relation to the amortized cost of that portfolio). The balance available for withdrawal is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. LAIF is not rated. 105 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 (5) Capital Assets Capital asset activity for the year ended June 30, 2008 was as follows: Governmental Activities: M Beginning Balance Balance Additions Deletions June 30, 2008 Non - depreciable: Land and rights of way $ 1,785,698,769 $ 21,682,500 $ - $ 1,807,381,269 Work in progress 25,299,436 2,621,199 (22,613,302) 5,307,333 Depreciable: Structures 47,443,410 19,615,831 67,059,241 Equipment 25,651,361 2,560,919 (1,351,964) 26,860,316 Infrastructure 297,775,937 7,408,360 (1,887,583) 303,296,714 2,181,868,913 53,888,809 (25,852,849) 2,209,904,873 Less accumulated depreciation for: Structures (11,596,739) (821,904) - (12,418,643) Equipment (16,578,623) (2,379,907) 1,062,508 (17,896,022) Infrastructure (103,400,005) (6,472,402) 1,117,134 (108,755,273) (131,575,367) (9,674,213) 2,179,642 (139,069,938) Net Capital Assets $ 2,050,293,546 $ 44,214,596 $ (23,673,207) $ 2,070,834,935 M CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Business -type Activities: Non - depreciable: Land Work in progress Depreciable: Structures Equipment Infrastructure Less accumulated depreciation for: Structures Equipment Infrastructure Net Beginning Governmental Business -type Balance Balance Additions Deletions June 30, 2008 $ - Public safety 1,164,746 $ 2,016,450 $ - $ - $ 2,016,450 2,162,006 278,757 (2,127,814) 312,949 205,793 - Water 205,793 148,191 37,330 - 185,521 152,732,484 3,627,930 (1,385,360) 154,975,054 157,264,924 3,944,017 (3,513,174) 157,695,767 (107,030) (5,145) (112,175) (141,813) (15,632) - (157,445) (46,730,890) (2,027,813) 286,854 (48,471,849) (46,979,733) (2,048,590) 286,854 (48,741,469) $ 110,285,191 1,895,427 _L(3 $ 108,954,298 Depreciation expense was charged in the following functions in the Statement of Activities: 107 Governmental Business -type Activities Activities General government $ 326,089 $ - Public safety 1,164,746 - Public works 7,058,904 - Community development 107,342 - Community service 1,017,132 - Water - 1,486, 553 Wastewater - 562,037 $ 9,674,213 $ 2,048,590 107 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 (6) Lonq -Term Debt Changes in Long-Term Liabilities Long -term liability for the year ended June 30, 2008, was as follows: Amounts Beginning Ending Due Within Balance Additions Deletions Balance One Year Governmental activities: Certificates of participation payable $ 4,980,000 $ - $ (315,000) $ 4,665,000 $ 330,000 Note payable 1,469,202 - (170,948) 1,298,254 178,641 Pre - annexation agreement 12,000,000 - (1,200,000) 10,800,000 1,200,000 CDBG Loan 2,134,000 - (78,000) 2,056,000 84,000 Purchase Agreement Payable 3,000,000 - (1,500,000) 1,500,000 1,500,000 Capital leases payable 49,490 - (49,490) - - Workers' compensations payable 11,442,000 2,329,754 (2,437,754) 11,334,000 2,812,315 Claims and judgements payable 4,837,048 3,007,023 (2,230,546) 5,613,525 1,824,926 Compensated absences 8,916,886 2,003,255 (1,807,046) 9,113,095 1,699,973 Net OPEB obligation 6,200,000 5,277,000 (9,256,000) 2,221,000 - Total governmental activities 55,028,626 12,617,032 (19,044,784) 48,600,874 9,629,855 Business -type activities: Water Revenue Bonds payable Total 4,540,000 - (1,445,000) 3,095,000 1,510,000 $ 59,568,626 $ 12,617,032 $ (20,489,784) $ 51,695,874 $ 11,139,855 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, compensated absences, and net OPEB obligation are typically liquidated from the Internal Service funds through resources collected from individual funds. 108 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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 $300,000 to $535,000 through June 1, 2019. Principal payments are payable annually on June 1 of each year. At June 30, 2008, the City has a required cash reserve balance for debt service of $565,589, which is recorded as a restricted asset and reservation of fund balance in the Debt Service Fund. The outstanding balance at June 30, 2008, amounted to $4,665,000. The annual amortization requirements of the Certificates of Participation are as follows: Year Ending June 30 Principal Interest Total 2009 330,000 235,463 565,463 2010 345,000 220,448 565,448 2011 360,000 203,025 563,025 2012 380,000 184,845 564,845 2013 400,000 165,655 565,655 2014 -2018 2,315,000 504,337 2,819,337 2019 535,000 27,553 562,553 $ 4,665,000 $ 1,541,326 $ 6,206,326 • 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 109 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 beginning August 1, 1987. The outstanding balance at June 30, 2008, amounted to $1,298,254. The annual amortization requirements for the Note Payable are as follows: Year Ending June 30 2009 2010 2011 2012 2013 2014 -2016 Principal 178,641 186,679 195,080 203,859 213,032 320,963 $ 1,298,254 Interest 58,421 50,383 41,982 33,203 24,030 21,131 $ 229,150 • Newport Coast Pre - Annexation Agreement Payable Total 237,062 237,062 237,062 237,062 237,062 342,094 $ 1,527,404 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 which began in the 2003 fiscal year, is payable over a period of fifteen years in equal installments of $1,200,000. The outstanding balance at June 30, 2008, amounted to $10,800,000. • CDBG Loan In fiscal year 2003, 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 $84,000 to $208,000 through June 30, 2023. The outstanding balance at June 30, 2008, amounted to $2,056,000. The annual amortization requirements for the CDBG Loan are as follows: Year Ending June 30 Principal Interest Total 2009 84,000 112,253 196,253 2010 89,000 108,535 197,535 2011 95,000 104,345 199,345 2012 102,000 99,653 201,653 2013 108,000 94,485 202,485 2014 -2017 512,000 313,982 825,982 2018 -2021 663,000 180,203 843,203 2022 -2023 403,000 25,013 428,013 $ 2,056,000 $ 1,038,469 $ 3,094,469 110 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 • Purchase Agreement Payable In Fiscal Year 2007, the City entered into an agreement with the California Department of Transportation (CalTrans) for the purchase of a 15.05 -acre parcel of land at the corner of Superior Avenue and Coast Highway. The purchase price was $5 million, to be paid in three installments with a 4.75% interest. The outstanding balance at June 30, 2008, amounted to $1,500,000. The principal balance together with interest of $71,250 is due on December 31,2009. • 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, 2008, 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, 2008, for general liability amounted to $5,613,525 and for workers' compensation was $11,334,000. • 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, 2008, is $9,113,095. Net OPEB Obligation (NOO) The net OPEB obligation is the difference between the ARC and the actual contributions made. The City has elected to fund the cash subsidy portion $2,629 million of the ARC. As for the implied subsidy $ 2.221 million, the City has elected to fund it on a pay -as- you -go basis, thus resulting in net OPEB obligation of $2.221 million. Business -tvoe 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, 2008, the City has a required cash reserve ill (7) CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 balance of $1,454,305 which is recorded as cash with fiscal agent. Ten annual principal payments are payable on August 1, and semiannual interest payments are payable on February 1 and August 1. At June 30, 2008, the outstanding principal balance was $3,095,000, and accrued interest payable was $68,883. The annual amortization requirements for the Water Revenue Bonds are as follows: Year Ending June 30 Principal Interest Total 2009 1,510,000 71,325 1,581,325 2010 1,585,000 - 1,585,000 $ 3,095,000 $ 71,325 $ 3,166,325 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, 2008, for each district under the Bond Acts of 1911 and 1915, and other special assessments, are as follows: Bonds Outstanding Assessment District Original Issue June 30, 2008 No. 64 Channel Road 180,794 36,000 No. 68 Newport Shores 3,813,562 3,080,000 No. 69 West Newport 4,978,498 3,935,000 No. 70 Bay Shores 1,380,996 1,030,000 No. 71 Balboa Boulevard 796,942 315,000 No. 74 Island Avenue 222,629 145,000 No. 75 Balboa Business 821,204 660,000 No. 78 Little Balboa Island 1,348,196 830,000 No. 79 Beacon Bay 1,215,134 780,000 No. 82 Corona del Mar 274,967 185,000 No. 86 Balboa Peninsula 300,174 185,000 No. 92 Coast Highway 1,425,000 1,425,000 No. 95 -1 CIOSA Refunding Series A 15,495,000 10,040,000 112 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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, 2008, are as follows: Series 2007D $ 86,475,000 Series 2007E $ 86,475,000 Series 2008A $ 66,800,000 Series 2008B $ 65,185,000 Series 2008C $ 70,095,000 Series 2008D $ 80,000,000 Series 2008E $ 80,000,000 Series 2008F $ 90,000,000 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 2007 Series bonds commence on December 1, 2012, and are required to be made through December 1, 2026. For the 2008 Series bonds, varying redemption payments commence on December 1, 2012, and are required to be made through December 1, 2028. (8) Risk Management — 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 $26 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 $1,000,000 SIR. This coverage provides for work - related accidents and diseases. 113 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 The Insurance Reserve fund was established to account for costs associated with general liability and workers' compensation. The 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 $16,947,525 which represents the discounted present value at June 30, 2008; 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 $61,249,768 at June 30, 2008. 114 General Liability Workers' Compensation June 30, 2007 June 30, 2008 June 30, 2007 June 30, 2008 Unpaid claims, beginning of fiscal year $ 4,812,002 $ 4,837,048 $ 11,160,000 $ 11,442,000 Incurred claims (including IBNR) 2,284,546 3,371,513 3,005,597 2,339,836 Claim payments (2,259,500) (2,595,036) (2,723,597) (2,447,836) Unpaid claims, end of fiscal year $ 4,837,048 $ 5,613,525 $ 11,442,000 $ 11,334,000 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 $61,249,768 at June 30, 2008. 114 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 (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. 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 8% (9% for safety employees) of their annual covered salary. The City makes the contribution required of City safety employees on their behalf and for their account. In January 2008, non - safety employees modified their PERS benefits and agreed to contribute 1% of the required 8% of annual salary for the participant contribution and 2.42% of the City's employer contribution which is discussed below. Benefit provisions and all other requirements are established by State statues and City contract with employee bargaining groups. Under GASB 27, an employer reports an annual pension cost (APC) equal to the annual required contribution (ARC) plus an adjustment for the cumulative difference between the APC and the employer's actual plan contributions for the year. The cumulative difference is called the net pension obligation (NPO). The ARC for the period July 1, 2007 to June 30, 2008 has been determined by an actuarial valuation of the plan as of June 30, 2005. The contribution rate indicated for the period is 8.691% for non - safety employees and 26.098% for safety employees of annual covered payroll. Without the cost sharing agreement with non - safety employees, the contribution rate would be 11.111% for non- safety employees. In order to calculate the dollar value of the ARC for inclusion in financial statements prepared as of June 30, 2008, the contribution rate is multiplied by the payroll of covered employees that were paid during the period from July 1, 2007 to June 30, 2008. 115 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Annual Pension Cost For 2008, the City's annual pension cost of $16,453,906 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: Safety Plan June 30, 2005 Entry Age Actuarial Cost Method Level Percent of Payroll 32 Years as of the Valuation Date 15 -Year Smoothed Market 7.75% (net of administrative expenses) 3.25% to 13.15% depending on age, service, and type of employment 3.00% 3.25% A merit scale varying by duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25% 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 30 -year rolling period, which results in an amortization of about 6% 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. 116 Miscellaneous Plan Valuation Date June 30, 2005 Actuarial Cost Method Entry Age Actuarial Cost Method Amortization Method Level Percent of Payroll Average Remaining 32 Years as of the Valuation Period Date Asset Valuation Method 15 -Year Smoothed Market Actuarial Assumptions Investment Rate of 7.75% (net of administrative Return expenses) Projected Salary 3.25% to 14.45% depending Increases on age, service, and type of employment Inflation Rate 3.00% Payroll Growth 3.25% Individual Salary A merit scale varying by Growth duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25% Safety Plan June 30, 2005 Entry Age Actuarial Cost Method Level Percent of Payroll 32 Years as of the Valuation Date 15 -Year Smoothed Market 7.75% (net of administrative expenses) 3.25% to 13.15% depending on age, service, and type of employment 3.00% 3.25% A merit scale varying by duration of employment coupled with an assumed annual inflation growth of 3.0% and an annual production growth of 0.25% 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 30 -year rolling period, which results in an amortization of about 6% 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. 116 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 THREE -YEAR TREND INFORMATION FOR PERS ($ Amount in Thousands) Fiscal Annual Pension Percentage of Net Pension Year Cost (APC) APC Contributed Obligation 6/30/06 $15,064 100% $0 6/30/07 $16,207 100% $0 6/30/08 $16,454 100% $0 The Schedule of Funding Progress, below, shows the recent history of the actuarial value of assets, actuarial accrued liability, their relationship, and the relationship of the unfunded actuarial accrued liability to payroll. The Schedule of Funding Progress, below, presents multiyear trend information about whether the actuarial value of the plan assets is increasing or decreasing overtime, relative to the actuarial accrued liability for benefits. SCHEDULE OF FUNDING PROGRESS FOR PERS ($ Amount in Thousands) Entry Age $ Unfunded $150,730 Normal Actuarial Liability Annual Valuation Accrued Value of (Excess Covered UAAL as a Date Liability Assets Assets ) Funded Status Payroll % of Payroll 80.8% 83.2% 24,303 AVA Market (A) (B) (A - B) (B /A) Value (C) [(A -B) / CI 06/30/2005 Misc. $ 161,371 $150,730 $ 10,641 93.4% 96.1% $ 34,218 31.098% Safety 267,192 215,965 51,227 80.8% 83.2% 24,303 210.785% Total $ 428,563 $366,695 $ 61,868 85.6% 88.1% $ 58,521 105.719% 06/30/2006 Misc. $ 183,637 $163,158 $ 20,479 88.8% 94.2% $ 37,224 55.016% Safety 296,420 231,701 64,719 78.2% 83.1% 26,053 248.413% Total $ 480,057 $394,859 $ 85,198 82.3% 87.4% $ 63,277 134.643% 06/30/2007 Misc. $ 192,178 $178,524 $ 13,654 92.9% 107.7% $ 36,795 37.108% Safety 308,552 250,062 58,490 81.0% 94.7% 25,035 233.633% Total $ 500,730 $428,586 $ 72,144 85.6% 99.7% $ 61,830 116.681% More current information regarding actuarial data is not yet available from PERS. 117 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Plan Description - Defined Contribution Plan Pursuant to City Council Resolution No. 91 -106, the City entered into a defined contribution plan administrated by the private administrator known as 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, 2008, the City's covered payroll for employees participating in the plan was $2,878,082. Employees made contributions of $107,928 (3.75% of current covered payroll), which was matched by the employer in the same amount. Assets of the plan totaled $1,595,781 at June 30, 2008. (11) Post Employment Health Care Benefits (OPEB) The following description of the City of Newport Beach Medical Expense Reimbursement Plan (the "Plan ") provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. Plan Description Effective January 2006, the City and employee associations agreed to major changes in the Post Employment Healthcare Plan. All employees and eligible retirees will participate in a Health Reimbursement Arrangement ( "HRA ") sponsored by the City, held in trust and managed by ING (Trustee), under IRS Revenue Ruling 2002 -41 (June 26, 2002) and IRS Notice 2002 -45 (June 26, 2002). All employees hired after January 1, 2006, and certain employees hired prior to this date, as well as employees who elected to fully convert (Fully Converted) to a defined contribution formula, participate in a program that requires mandatory employee and employer contributions. However, once these contributions have been made to the employee's account, the City has no further funding obligation to the Plan on their behalf. Certain employees hired prior to January 1, 2006, had the option to retain a hybrid of the former defined benefit Plan, or to fully convert to the new Plan. Employees electing to retain a hybrid of the former defined benefit formula (Hybrid) participate in a program requiring mandatory defined contributions by employees and employer, as well as a defined benefit consisting of an ongoing contribution, from the City to the participant's HRA account, each month after retirement. Additionally, these employees are eligible to receive health care benefits under the City's group health care plans. However, in order to receive these benefits these employees are required to pay the City $100 per month, 118 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 up until their retirement, to offset the unfunded portion of post employment health benefits existing at the inception of the Plan. Employees who retired prior to January 1, 2006, continue to receive an ongoing defined benefit consisting of a contribution made by the City to the participant's HRA account each month. The defined benefit portion of the plan is closed to new participants. The City of Newport Beach is the sole employer for the Plan. Total participants involved in the plan were 1,211 as of June 30, 2008, consisting of 535 miscellaneous employees, 276 safety employees, and 400 retirees and their beneficiaries. Benefits Provided The City provides post - employment medical, dental and vision benefits to its retirees, the same benefits as those afforded to active employees, with the general exception that once a retiree becomes eligible for Medicare (that is, reaches age 65), he or she must join a Medicare HMO or a Medicare Supplement plan, with Medicare becoming the primary payor. Employees become eligible to retire and receive City -paid healthcare benefits upon attaining age 50 (safety) or age 55 (miscellaneous) and 5 years of covered PERS service or upon disability before age 50. The payment of benefits, for the purpose of reimbursing eligible health care expenses, cease upon the earliest of the following: (1) the date of the participant's, their spouse's, or qualified dependant's death; (2) the date the balance of any fully converted participant account reaches zero, if no further contributions will be made to said account; or (3) the date of termination of the Plan. Plan Contributions Contributions to the Plan are based on the participant's status as "Fully Converted" or "Hybrid" as described above. All employees contribute 1% of their annual salary. Fully Converted employees also receive a contribution from the City of $1.50 per month for each year of service and age, after five years of employment. Additionally, Fully Converted employees who previously participated in the defined benefit program receive a one -time contribution from the City upon retirement. This contribution consists of $100 per month for every month paid into the defined benefit program, up to a maximum of 180 months. Further, the City contributes a percentage of any flexible leave bank conversions. The percentage contributed to the HRA account is based on the bargaining unit each employee is associated with. Hybrid employees receive a one -time contribution of $75 per month for every month paid into the defined benefit program, up to a maximum of 180 months. For Hybrid employees, the City also contributes a percentage of any flexible leave bank conversions. The percentage contributed to the HRA account is based on the bargaining unit each employee is associated with. Upon retirement, Hybrid employees receive a defined benefit consisting of a monthly contribution, made by the City, to the participant's HRA account of approximately $400. 119 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Employees who retired prior to January 1, 2006, continue to receive a defined benefit consisting of a monthly contribution, made by the City, to the participant's HRA account each month of approximately $400 (approximately $425 for certain retired Police employees). The defined benefit component of the plan is closed to new participants; however, an actuarial valuation is utilized to determine the accrued liability and funding requirements associated with this component of the plan. Actuarial Valuation, Assumptions and Methods Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi -year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for the benefits. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial assets, consistent with the long -term perspective of the calculations. Valuation Date: June 30, 2006 Roll forward valuation from June 30, 2006 to June 30, 2007 to determine the 2007/2008 plan cost Actuarial Cost Method: Entry Age Normal (EAN) Cost Method Amortization Method: Level percent of payroll for next 20 years Amortization Period: Level contribution amount for next 20 years Projected Salary Increases: 3.25% per year Discount Rate: 7.75 % for cash subsidy, full pre- funding through CalPERS OPEB Trust 5% for implied subsidy, no pre- funding, benefits paid from the City's General fund 120 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Implied Subsidy Because one of the two health plans offered by the City is a non- community -rated plan and retirees are offered the same premium rates as active employees, GASB 45 requires that an implied subsidy (the difference between expected claims and premiums paid for retirees) be valued for the life of the retiree and accrued as a cost of the retiree health care plan. The City has elected to fund the implied subsidy on a pay -as- you -go basis since employer contributions to active and retiree medical plans are fixed, irrespective of the calculated implied subsidy, and significant uncertainty exists whether additional cash flows will occur in the future as a result of the implied subsidy. Annual Required Contribution (ARC) The 2007 -08 Annual Required Contribution (ARC) includes the Normal Cost plus a 20 -year amortization of the Unfunded AAL (in 000's): Date ARC 06/30/2008 Cash Subsidy $ 2,629 Implied Subsidy 2,648 Total $ 5,277 Annual ARC as Actual Percentage Net OPEB Covered a % of Contribution Contributed Obligation Payroll Payroll $ 2,629 100.0% $ - $ 54,748 4.8% 427 16.1% 2,221 $54,748 4.8% $ 3,056 57.9% $ 2,221 $54,748 9.6% 121 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Net OPEB Obligation (NOO) The NOO is the historical difference between the ARC and actual contributions. If the City always contributes the ARC, then the NOO will equal zero. Benefit payments are considered contributions. Contributions in excess of benefit payments must be segregated in a trust for the sole purpose of paying Plan benefits in order to be considered Plan Assets for the purpose of GASB 45. Consistent with paragraph 37 of GASB 45, the City has elected to compute the cash subsidy component of the NOO at transition retroactively. The calculation period used to compute the cash subsidy component of the NOO at transition is 9 years. This calculation resulted in a $6.2 million July 1, 2007, cash subsidy component of the NOO. The NOO for the implied subsidy at transition is set at zero. The June 30, 2008, NOO is (in 000's): July 1, 2007 2007/2008 NOO AOC Prefunding Contributions & Benefit June 30, 2008 Payments NOO Cash Subsidy $ 6,200 ' $ 2,629 $ (8,829)2 $ - Implied Subsidy - 2,648 (427) 3 2,221 Total $ 6,200 $ 5,277 $ (9,256) $ 2,221 1 - Based on a prior period adjustment to the cash subsidy component of the NOO 2 - 2007 -08 AOC and $6.2 million payment on retroactive NOO 3 - 2007 -08 estimated implied subsidy Annual OPEB Cost (AOC) The AOC is equal to the ARC, except when the City has a Net OPEB Obligation (NOO) at the beginning of the year. In that case, the AOC will equal the ARC adjusted for expected interest on the NOO and reduced by an amortization of the NOO. The 2007/2008 AOC is determined as follows (in 000's): ARC Cash Subsidy $ 2,629 Implied Subsidy 2,648 Total $ 5,277 Interest Amortization on NOO of NOO $ 481 $ (481) $ 481 $ (481) 122 AOC as % of Total AOC Payroll $ 2,629 4.8% 2,648 4.8% $ 5,277 9.6% CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Benefit Obligation and Funding Status The schedule below shows the actuarial accrued liability (AAL), actuarial value of assets, funded status, and the relationship of the unfunded actuarial accrued liability (UAAL) to payroll as of the most recent valuation date. The unfunded actuarial accrued liability at June 30, 2007, was based on an actuarial roll - forward of the June 30, 2006, valuation results assuming no demographic and contribution gains /losses. (12) Interfund Receivables and Pavables At June 30, 2008, interfund receivables and payable were as follows: General Fund Internal Service Funds Nonmajor Funds Total Due from $ 3,297,073 $ 3,297,073 Due to 1,287,894 2,009,179 $ 3,297,073 The above balances are primarily due to reclassification of negative cash balance in the city wide cash pool. 123 Actuarial Actuarial Unfunded Annual UAAL as Valuation Accrued Value of AAL Funded Covered a % of Date Liability Assets (UAAL) Status Payroll Payroll 06/30/2006 Cash Subsidy $29,639 $ - $29,639 0.0% $54,748 54.1% Implied Subsidy 26,409 - 26,409 0.0% 54,748 48.2% Total $56,048 $ - $56,048 0.0% $54,748 102.4% (12) Interfund Receivables and Pavables At June 30, 2008, interfund receivables and payable were as follows: General Fund Internal Service Funds Nonmajor Funds Total Due from $ 3,297,073 $ 3,297,073 Due to 1,287,894 2,009,179 $ 3,297,073 The above balances are primarily due to reclassification of negative cash balance in the city wide cash pool. 123 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 (13) Interfund Transfers Interfund transfers at June 30, 2008, consisted of the following: Transfers In Tide and Submerged Internal Non -Major General Fund Land Service Fund Funds Total General Fund $ - $ 17,398,935 $ 8,618,030 3,022,649 $ 29,039,614 p' Tide and E2 Submerged Land _ - - 88,707 88,707 c Internal Service Fund 125,000 - - - 125,000 Non -Major Funds $5,396,342 - - 1,552,289 6,948,631 Total $5,521,342 $ 17,398,935 $8,618,030 $4,663,645 $ 36,201,952 The City typically uses transfers to fund ongoing subsidies. The general fund transferred $17,398,935 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 $506,355 in the Newport Coast Annexation fund, 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 yearend. Reserved for debt service This account sets aside a portion of fund balance to meet the annual debt service requirements. 124 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Reserved for permanent endowment This account reflects a permanent endowment established for the maintenance and dredging of Upper Newport Bay. Reserved for affordable housing This account reflects amounts collected from developers to build affordable housing to all income levels in compliance with State planning laws. 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 purposes This account reflects funds that have been designated for special projects which vary in nature. 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. Designation for appropriations This account reflects unspent appropriations that may be utilized to augment the operating budget. (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 125 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 constructing public facilities including parks and road improvements. At June 30, 2008, the contributions from property owners are held in trust as cash with fiscal agent totaling $811,743. 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 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 Board Members. The cities have a 50% 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 $1,000,000. 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 $54,718 for fiscal year 2007- 08. The City's 50% interest in the net equity of this joint venture at June 30, 2008, amounts to $2,469,463. Complete separate financial statements can be obtained at the City of Costa Mesa at 77 Fair Drive, Costa Mesa, 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 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 $440,385. The City's 10.25% interest in the net equity of this joint venture at June 30, 2008, amounts to $126,136. Complete separate financial statements can be obtained at the Metro Cities Fire Authority offices at 201 S. Anaheim Boulevard, Suite 302, Anaheim, California. 126 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 Intearated Law and Justice Aaencv of Oranae Count The City is a participant in a joint venture agreement with the several other public agencies of Orange County for the operation of the Integrated Law and Justice Agency of Orange County ( ILJAOC). The Integrated Law and Justice Agency of Orange County went into effect fiscal year 2007. The ILJAOC consists of 23 member agencies with an oversight board consisting of 12 members from the participating member agencies. The City acts as a treasurer for the ILJAOC and as such the activities of the ILJAOC are recorded in an Agency Fund. Annually, each member agency pays a percentage of the operating and replacement costs for the ILJAOC. The City's annual contribution and interest in the net equity of this joint venture at June 30, 2008, was immaterial. Complete separate financial statements can be obtained at the City of Newport Beach., 3300 Newport Boulevard, Newport Beach, California. (16) Commitments and Contingencies Claims and Judaments 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 Aareement The City entered into a Circulation Improvement and Open Space Agreement (CIOSA) with a developer whereby the City received a loan of $14,395,572 to be used only for certain transportation and circulation improvements. 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, 2008, the City received $704,578 of Fair Share Fees, and $352,289 was paid to the CIOSA Construction capital projects fund. Through June 30, 2008, $3,545,454 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. 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. 127 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 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 was used in locating, planning, and constructing a Community Center within the annexed area. Contractual commitments Construction and contractual commitments for major construction projects are as follows: Water Transmission Main Master Plan Improvement Oasis Senior Center Eastbluff Drive Street Rehabilitation Signal System Improvement Marina Park Birch Street Rehabilitation Mariners Park Restroom /Storage Building (17) Net Asset Restatements Total Project Project To Date Unexpended Budget Expenditures Commitments 2,232,282 1,775,332 457,762 1,617,440 531,158 1,082,592 1,180,000 68,519 1,111,785 981,200 243,382 755,051 833,327 139,834 693,534 721,600 194 682,748 672,800 151,325 534,550 Beginning Net Assets have been restated by ($6,200,000) to accrue Net OPEB obligation in the retiree Insurance fund due to retroactive implementation of GASB 45 for nine prior fiscal years for the cash subsidy component of the NOD. Net Assets Government -type Activities: Net assets at July 1, 2007, as previously reported $ 2,138,033,053 Adjustment to accrue Net OPEB obligation (6,200,000) Net assets at July 1, 2007, as restated $ 2,131,833,053 Total Internal Service Fund - Retiree Insurance Fund Net assets at July 1, 2007, as previously reported 11,842,497 Adjustment to accrue Net OPEB obligation (6,200,000) Net assets at July 1, 2007, as restated $ 5,642,497 128 CITY OF NEWPORT BEACH Notes to Basic Financial Statements June 30. 2008 (18) Subsequent Events Limited Obligation Bond Issues Subsequent to year end the City has issued certain limited obligation, 1915 Act assessment district improvement bonds listed as follows: District Name Par Value Issue Date Assessment District 101 Central Balboa District $2,467,597 September, 1, 2008 Assessment District 99 -2 Balboa Peninsula Ocean $1,978,487 December 1, 2008 Front District The bonds are issued in serial maturities over fifteen years ranging from 2.7% to 5.4 %. The proceeds of these bonds, together with certain investment earnings, and certain monies will be used to finance the cost of the undergrounding power, telephone and cable facilities. Bond proceeds will also be used to establish a debt service reserve fund and to pay the costs of issuance of the Bonds. The aggregate assessed value levied in the two districts exceeds $191 million. Although the City will be collecting and disbursing 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. Financial Markets A number of financial institutions have reported financial difficulties as an indirect result of delinquencies associated with home mortgages. The full ramifications of this are not determinable at this time and it's not possible to determine with certainty all of the institutions that might be impacted by current market conditions. 129 This page left blank intentionally. 130 Supplementary Information 131 o� • cot 1O •. SVK } { j r x 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 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 Office of the Traffic Safety DUI Grant Fund (OTS) is used to account for federal funding of the Selective Traffic Enforcement Program (STEP). These funds are used exclusively for DUI enforcement. The Justice Assistance Grant Fund (JAG) is used to account for federal support of law enforcement activities. 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 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. 134 The Traffic Congestion Relief Fund is used to account for all revenues received from the State Treasury related to Assembly Bill 2928. State law requires that these funds be used exclusively for maintenance or reconstruction costs on public streets and roads. The Newport Coast Annexation Fund is used to account for revenues and expenditures related to the Newport Coast Annexation Agreement. The Prop f B Fund is used to account for all revenues and expenditures related to the Prop 1 B fund. State law requires that these funds be used exclusively for all transportation related projects, including state highway safety and rehabilitation projects, local street and road improvements, congestion relief, traffic reduction and traffic safety. Non -major Debt Service Funds Debt Service Funds are used to account for debt service transactions including revenue collections and payments of principal and interest on long -term obligations of the City. The City of Newport Beach Debt Service Fund is as follows: The Library COP Fund is used to account for the debt service transactions related to the Certificates of Participation used to finance the construction of the Central Library. Non -major Capital Projects Funds Capital Projects Funds are used to account for resources used for the acquisition and construction of capital facilities by the City, except those financed by Enterprise Funds. The City of Newport Beach Capital Projects Funds are as follows: The Assessment District Fund is used to account for the receipt and expenditure of funds received from 1911 Act and 1915 Act Assessment Districts for capital improvement projects. The CIOSA Construction Fund is used to account for the receipt and expenditure of funds for the Circulation Improvement and Open Space Agreement (CIOSA). The improvements include street and frontage improvements. The Bonita Canyon Development Fund is used to account for the receipt and expenditure of funds for the Bonita Canyon Public Facilities Agreement. The improvements include certain public parks and recreation facilities, and street improvements and facilities. The Oil Spill Remediation Fund is used to account for the receipt of the settlement proceeds from the American Trader Company. These funds must be used on projects affecting the areas damaged by the spill. The Fire Station 7 Fund is used to account for the property acquisition, design and construction of a new fire station which will replace a temporary fire station that provides service in the northern part of the city. The Marine Science Center Fund is used to account for the design and construction of a new Marine Science Center. The City Hall Improvement Fund is used to account for the design and construction of a new Civic Center Complex. 135 The Oasis Senior Center Fund is used to account for revenues and expenditures associated with the development and construction of the Oasis Senior Center. The Misc. Santa Ana Heights Projects Fund is used to account for various grants and projects associated with providing public works, parks and recreation opportunities within the part of the City known as Santa Ana Heights. The Marina Park Fund is used to account for the design and construction of the Marina Park. Non -major Permanent Funds Permanent 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 the reporting government's programs. The City of Newport Beach Permanent Fund is as follows: The Bay Dredging Fund is used to account for the receipt of permanent endowments intended to fund the ongoing cost of maintaining and dredging of the Upper Newport Bay. The Ackerman Fund is used to account for the receipt of permanent endowments intended as follows: 75% of the fund's investment proceeds will be used for the purchase of High Tech Library Equipment while the remaining 25% will be used for Scholarships for needy students. 136 This page left blank intentionally. 137 Assets Cash and investments Receivables: Accounts Intergovernmental receivables Cash with fiscal agent Prepaid items Total Assets Liabilities and Fund Balances Liabilities: Accounts payable Unearned revenue Unavailable revenue Due to other funds Total Liabilities Fund balances: Reserved for encumbrances Reserved for debt service Reserved for permanent endowment Reserved for prepaid items Unreserved: Designated for special purposes Undesignated Total fund balances Total liabilities and fund balances CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2008 Special Revenue $ 68,948 $ - $ 19,486 $ - $ Circulation State Asset OTS and Gas Tax Forfeiture DUI Grant JAG Transportation $ 3,006,891 $ 199,196 $ - $ - $ 2,227,197 5,000 - 52 - - 350,059 - 117,492 7,422 - $ 3,361,950 $ 199,196 $ 117,544 $ 7,422 $ 2,227,197 $ 68,948 $ - $ 19,486 $ - $ 77,240 - - 311 7,422 - 350,059 - 117,233 - - - - 97,747 7,422 - 419,007 - 234,777 14,844 77,240 1,833,703 - - - 602,023 1,109,240 199,196 - - 1,547,934 - - (117,233) (7,422) - 2,942,943 199,196 (117,233) (7,422) 2,149,957 $ 3,361,950 $ 199,196 $ 117,544 $ 7,422 $ 2,227,197 138 Special Revenue Building $ 53,788 Arterial Community Air Quality 38,356 Excise Combined Highway Development Management Environmental Tax Transportation Rehabilitation Block Grant District Liability - - 260,763 91,761 - - $ 339,239 $ 3,444,574 $ - $ - $ 366,654 $ 2,467,593 - 450,000 - - - 5,826 - 237,180 361,258 116,008 - - - - - - - 90,861 - - - - - 137,728 259,228 $ 339,239 $ 4,131,754 $ 361,258 $ 116,008 $ 366,654 $ 2,702,008 $ 80,011 $ 53,788 $ 36,126 $ 33,602 $ 4,090 $ 38,356 - 448,301 53,710 - - - - 2,105 361,258 66,174 - - - - 260,763 91,761 - - 80,011 504,194 711,857 191,537 4,090 38,356 64,721 529,980 - - - 27,780 - - - - - 137,728 194,507 3,097,580 - - 362,564 2,498,144 - - (350,599) (75,529) - - 259,228 3,627,560 (350,599) (75,529) 362,564 2,663,652 $ 339,239 $ 4,131,754 $ 361,258 $ 116,008 $ 366,654 $ 2,702,008 (continued) 139 CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2008 (continued) Special Revenue Supplemental Traffic Newport Law Congestion Coast Prop 1B Enforcement Relief Annexation Transportation Assets Cash and investments $ - $ 4,035 $ 10,800,000 $ - Receivables: Accounts - - - - Intergovernmental receivables - - - 1,354,589 Cash with fiscal agent - - - - Prepaid items - - - - Total Assets $ - $ 4,035 $ 10,800,000 $ 1,354,589 Liabilities and Fund Balances Liabilities: Accounts payable - Unearned revenue - - - - Unavailable revenue - - - - Due to other funds - - - - Total Liabilities - - - - Fund balances: Reserved for encumbrances - - - - Reserved for debt service - - - - Reserved for permanent endowment - - - - Reserved for prepaid items - - - - Unreserved: Designated for special purposes - 4,035 10,800,000 1,354,589 Undesignated - - - - Total fund balances - 4,035 10,800,000 1,354,589 Total liabilities and fund balances $ - $ 4,035 $ 10,800,000 $ 1,354,589 140 Debt Service Capital Projects Library Assessment CIOSA Bonita Canyon Oil Spill COP District Construction Development Remediation Fire Station 7 $ - $ - $ 2,666,713 $ - $ 21,501 $ 77,620 565,989 1,562,319 - 811,743 - - $ 565,989 $ 1,562,319 $ 2,666,713 $ 811,743 $ 21,501 $ 77,620 $ - $ 19,333 $ - $ - $ - $ - - 476,671 - 27,603 - - - 496,004 - 27,603 - - - 219,092 - - 5,362 27,620 565,989 - - - - - - 847,223 2,666,713 784,140 16,139 50,000 565,989 1,066,315 2,666,713 784,140 21,501 77,620 $ 565,989 $ 1,562,319 $ 2,666,713 $ 811,743 $ 21,501 $ 77,620 (continued) 141 CITY OF NEWPORT BEACH Combining Balance Sheet Non -Major Governmental Funds June 30, 2008 (continued) Liabilities and Fund Balances Liabilities: Accounts payable $ 1,740 $ Capital Projects - $ 169,777 Unearned revenue Marine City Hall Mariners Oasis Unavailable revenue Science Center Improvements Library Senior Center Assets 700,772 42,496 - - Cash and investments $ - $ - $ - $ 1,425,570 Receivables: Accounts 450,000 - - - Intergovernmental receivables - - - - Cash with fiscal agent - - - - Prepaid items - - - - Total Assets $ 450,000 $ - $ - $ 1,425,570 Liabilities and Fund Balances Liabilities: Accounts payable $ 1,740 $ 13,901 $ - $ 169,777 Unearned revenue 22,313 - - - Unavailable revenue 450,000 - - - Due to other funds 700,772 42,496 - - Total Liabilities 1,174,825 56,397 - 169,777 Fund balances: Reserved for encumbrances - - - 1,144,992 Reserved for debt service - - - - Reserved for permanent endowment - - - - Reserved for prepaid items - - - - Unreserved: Designated for special purposes - - - 110,801 Undesignated (724,825) (56,397) - - Total fund balances (724,825) (56,397) - 1,255,793 Total liabilities and fund balances $ 450,000 $ - $ - $ 1,425,570 142 Permanent FUnd Total Other Misc Marina Ackerman Governmental SAH Projects Park Bay Dredging Donation Funds $ - $ - $ 4,454,507 $ 1,109,922 $ 32,611,212 - - - - 910,878 261,116 - - - 2,805,124 - - - - 3,030,912 - - - - 137,728 $ 261,116 $ - $ 4,454,507 $ 1,109,922 $ 39,495,854 $ 22,939 $ 94,957 261,116 - 259,067 44,877 (282,006) (139,834) b Zb], Il6 D - $ - $ 734,294 532,057 1,607,945 2,009,179 4,883,475 - - 4,455,273 - - 565,989 3,857,000 772,781 4,629,781 - - 137,728 597,507 337,141 26,577,453 - - (1,753,845) 4,454,507 1,109,922 34,612,379 $ 4,454,507 $ 1,109,922 $ 39,495,854 143 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, 2008 Special Revenue Expenditures: Current: Public safety - 77,680 233,845 7,422 Public works - - - - Community development - - - - Capital outlay 1,362,030 - - - Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures 1,362,030 77,680 233,845 7,422 Excess (deficiency) of revenues over expenditures (58,990) 88,727 (117,233) (7,422) Other financing sources (uses): Transfers in - - Transfers out (160,000) - Total other financing sources (uses) (160,000) - Net change in fund balances (218,990) 88,727 (117,233) (7,422) Fund balances (deficit), beginning 3,161,933 110,469 - - Fund balances (deficit), ending $ 2,942,943 $ 199.196 $ (117,233) S (7,422) 144 State Asset OTS Gas Tax Forfeiture DUI Grant JAG Revenues: Other taxes $ - $ - $ - S - Intergovernmental 1,131,183 160,795 116,612 - Licenses, permits and fees - - - - Fines and forfeitures - - - - Investment income 146,457 5,112 - Net increase in fair value of investments 20,400 500 - - Donations - - - - Other 5,000 - - - Total revenues 1,303,040 166,407 116,612 - Expenditures: Current: Public safety - 77,680 233,845 7,422 Public works - - - - Community development - - - - Capital outlay 1,362,030 - - - Debt service: Principal - - - - Interest and fiscal charges - - - - Total expenditures 1,362,030 77,680 233,845 7,422 Excess (deficiency) of revenues over expenditures (58,990) 88,727 (117,233) (7,422) Other financing sources (uses): Transfers in - - Transfers out (160,000) - Total other financing sources (uses) (160,000) - Net change in fund balances (218,990) 88,727 (117,233) (7,422) Fund balances (deficit), beginning 3,161,933 110,469 - - Fund balances (deficit), ending $ 2,942,943 $ 199.196 $ (117,233) S (7,422) 144 Special Revenue Circulation Building Arterial Community Air Quality and Excise Combined Highway Development Management Environmental Transportation Tax Transportation Rehabilitation Block Grant District Liability S - $ - $ - $ - $ - $ - $ 456,209 - - 1,409,562 545,050 344,865 100,327 - - 169,864 - - - - - 704,578 - - - - - - 97,188 13,696 129,539 3,437 - 14,077 120,515 13,537 1,908 18,044 479 - 1,961 15,449 420,450 - - - - - - 1,235,753 185,468 1,557,145 548,966 344,865 116,365 592,173 - 17,402 683,703 - - - - 117,878 - - 906,706 151,888 245,611 361,258 50,088 - - - - - - 78,000 - - - - - - 115,482 - - 906,706 151,888 245,611 361,258 361,448 17,402 683,703 329,047 33,580 1,311,534 187,708 (16,583) 98,963 (91,530) - - 14,128 - - (432,289) - - - - (432,289) - - - 14,128 - - (103,242) 33,580 1,311,534 187,708 (2,455) 98,963 (91,530) 2,253,199 225,648 2,316,026 (538,307) (73,074) 263,601 2,755,182 $ 2.149,957 $ 259,228 S 3,627,560 $ (350,599) $ (75,529) $ 362,564 S 2,663,652 (continued) 145 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, 2008 (continued) Revenues: Other taxes Intergovernmental Licenses, permits and fees Fines and forfeitures Investment income Net increase in fair value of investments Donations Other Expenditures: Current: Public safety Public works Community development Capital outlay Debt service: Principal Interest and fiscal charges Excess (deficiency) of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning Fund balances (deficit), ending Special Revenue Supplemental Traffic Newport Law Congestion Coast Prop 1B Enforcement Relief Annexation Transportation $ - $ - $ $ 161,946 - 2,000,000 1,354,589 1,472 1,724 457,091 - 240 63,670 163,418 1,964 2,520,761 1,354,589 163,418 112,846 - 1,200,000 163,418 - 1,312,846 1,964 1,207,915 1,354,589 1,200,000 - (1,959,821) (759,821) 1,964 448,094 1,354, 589 - 2,071 10,351,906 - S $ 4,035 $ 10,800,000 $ 1,354,589 146 Debt Service Capital Projects Library Assessment CIOSA Bonita Canyon Oil Spill COP District Construction Development Remediation Fire Station 7 - - - - - - 5,500,000 22,559 5,359 97,072 1,068 984 - - 2,303 13,522 - 137 - - - - - - 350,000 - 1,901,886 - 811,355 - - 22,559 1,909,548 110,594 812,423 1,121 5,850,000 1,675,348 - - 10 424,505 315,000 253,203 - 568,203 1,675,348 10 424,505 (545,644) 234,200 110,594 812,423 1,111 5,425,495 545,074 221,189 352,289 - - - - - (4,372,473) 545,074 221,189 352,289 - - (4,372,473) (570) 455,389 462,883 812,423 1.111 1,053,022 566,559 610,926 2,203,830 (28,283) 20.390 (975,402) $ 565,989 $ 1,066,315 $ 2,666.713 $ 784,140 $ 21,501 $ 77,620 (continued) 147 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, 2008 (continued) Revenues: Other taxes Intergovernmental Licenses, permits and fees Fines and forfeitures Investment income Net increase in fair value of investments Donations Other Total revenues Expenditures: Current: Public safety Public works Community development Capital outlay Debt service: Principal Interest and fiscal charges Excess (deficiency) of revenues over expenditures Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances Fund balances, beginning Fund balances (deficit), ending Capital Projects Marine City Hall Mariners Oasis Science Center Improvement Library Senior Center $ - $ $ $ 923,726 - 1,758,771 - 60,880 - - - 139.471 923,726 - 1,758,771 200,351 742,364 66,852 86,013 531,158 742,364 66,852 86,013 531,158 181,362 (66,852) 1,672,758 (330,807) 88,707 267,148 388,510 1,586,600 (24,048) - - 88,707 243,100 388,510 1,586,600 270,069 176,248 2,061,268 1,255,793 (994,894) (232,645) (2,061,268) - $ (724,825) $ (56,397) $ - $ 1255.793 148 - Permanent Funds - - 482,365 Total - - Other Misc Marina Ackerman Governmental SAH Projects Park Bay Dredging Donation Funds $ - $ - $ - S - $ 456,209 182,587 - - - 15,690,013 - - - - 169,864 - - - - 704,578 - - 193,976 48,339 1,420,545 - - 27,020 6,733 185,903 - - - - 909,921 - - - - 2,718,241 182,587 - 220,996 55,072 22,255,274 - - - - 482,365 - - - - 701,105 281,616 139,834 - 1,450 540,778 - - - - 6,716,677 - - - - 1,593,000 - - - - 368,685 281,616 139,834 - 1,450 10,402,610 (99,029) (139,834) 220,996 53,622 11,852,664 - - - - 4,663,645 - (6,948,631) - - - - (2,284,986) (99,029) (139,834) 220,996 53,622 9,567,678 (182,977) - 4,233,511 1,056,300 25,044,701 $ (282,006) $ (139,834) $ 4.454.507 $ 1.109,922 $ 34,612,379 149 Revenues: Intergovernmental Investment income Net increase in fair value of investments Other 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 (deficit), ending CITY OF NEWPORT BEACH Budgetary Comparison Schedule State Gas Tax Special Revenue Fund For the Year Ended June 30, 2008 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 1,507,500 $ 1,507,500 $ 1,131,183 $ (376,317) 147,000 147,000 146,457 (543) - - 20,400 20,400 - - 5,000 5,000 1,654,500 1,654,500 1,303,040 (351,460) 5,081,549 3,922,949 1,362,030 2,560,919 (3,427,049) (2,268,449) (58,990) 2,209,459 (160,000) (160,000) (160,000) (3,587,049) (2,428,449) (218,990) 2,209,459 2,041,022 2,787,206 3,161,933 374,727 $ (1,546,027) $ 358,757 2,942,943 $ 2,584,186 150 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Asset Forfeiture Special Revenue Fund For the Year Ended June 30, 2008 151 Variance with Final Budget Budget Amounts Positive Original Final Actual (Negative) Revenues: Intergovernmental $ 40,000 $ 40,000 $ 160,795 $ 120,795 Investment income 5,250 5,250 5,112 (138) Net increase in fair value of investments - - 500 500 Total revenues 45,250 45,250 166,407 121,157 Expenditures Public safety 100,895 100,895 77,680 23,215 Net change in fund balance (55,645) (55,645) 88,727 144,372 Fund balance, beginning 110,469 110,469 110,469 - Fund balance, ending $ 54,824 $ 54,824 $ 199,196 $ 144,372 151 Revenues: Intergovernmental Investment income Net increase in fair value of investments Total revenues Expenditures Public safety Net change in fund balance Fund balance, beginning Fund balance (deficit), ending CITY OF NEWPORT BEACH Budgetary Comparison Schedule OTS DUI Grant Special Revenue Fund For the Year Ended June 30, 2008 Variance with Final Budget Budget Amounts Positive Original Final Actual (Negative) $ - $ 347,249 $ 116,612 $ (230,637) 347,249 116,612 (230,637) 347,249 233,845 113,404 - - (117,233) (117,233) 152 _L_11 7,233) $ (117,233) Revenues: Intergovernmental Investment income Net increase in fair value of investments Total revenues Expenditures Public safety Net change in fund balance Fund balance, beginning Fund balance (deficit), ending CITY OF NEWPORT BEACH Budgetary Comparison Schedule JAG Special Revenue Fund For the Year Ended June 30, 2008 Budget Amounts Original Final Actual Variance with Final Budget Positive (Negative) 7,422 (7,422) (7,422) (7,422) $ $ $ (7,422) $ (7,422) 153 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Circulation and Transportation Special Revenue Fund For the Year Ended June 30, 2008 154 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues: Licenses, permits and fees $ 300,000 $ 300,000 $ 704,578 $ 404,578 Investment income 155,400 155,400 97,188 (58,212) Net increase in fair value of investments - - 13,537 13,537 Donations - - 420,450 420,450 Total revenues 455,400 455,400 1,235,753 780,353 Expenditures: Capital outlay 2,724,190 1,893,950 906,706 987,244 Excess (deficiency) of revenues over expenditures (2,268,790) (1,438,550) 329,047 1,767,597 Other financing uses: Transfers out (460,000) (230,000) (432,289) (202,289) Net change in fund balance (2,728,790) (1,668,550) (103,242) 1,565,308 Fund balance, beginning 2,253,199 2,253,199 2,253,199 - Fund balance (deficit), ending $ (475,591) $ 584,649 $ 2,149,957 $ 1,565,308 154 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Building Excise Tax Special Revenue Fund For the Year Ended June 30, 2008 155 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues: Licenses, permits and fees $ 150,000 $ 150,000 $ 169,864 $ 19,864 Investment income 10,500 10,500 13,696 3,196 Net increase in fair value of investments - - 1,908 1,908 Total revenues 160,500 160,500 185,468 24,968 Expenditures: Capital outlay 377,009 225,809 151,888 73,922 Net change in fund balance (216,509) (65,309) 33,580 98,889 Fund balance, beginning 225,648 225,648 225,648 - Fund balance, ending $ 9,139 $ 160,339 $ 259,228 $ 98,889 155 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Combined Transportation Special Revenue Fund For the Year Ended June 30, 2008 Revenues: Intergovernmental Investment income Net increase in fair value of investments Total revenues Expenditures: Capital outlay Net change in fund balance Fund balance, beginning Fund balance (deficit), ending 156 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 1,700,000 $ 1,700,000 $ 1,409,562 $ (290,438) 59,774 59,774 129,539 69,765 - - 18,044 18,044 1,759,774 1,759,774 1,557,145 (202,629) 4,084,916 2 424 961 245,611 2,179,350 (2,325,142) (665,187) 1,311,534 1,976,721 2,316,026 2,316,026 2,316,026 - $ (9,116) $ 1,650,839 $ 3,627,560 $ 1,976,721 156 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Arterial Highway Rehabilitation Special Revenue Fund For the Year Ended June 30, 2008 157 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) Revenues: Intergovernmental $ 653,000 $ 653,000 $ 545,050 $ (107,950) Investment Income - - 3,437 3,437 Net increase in fair value of investments 479 479 Total revenues 653,000 653,000 548,966 (104,034) Expenditures: Capital outlay 653,001 652,601 361,258 291,343 Net change in fund balance (1) 399 187,708 187,309 Fund balance (deficit), beginning (538,307) (538,307) (538,307) - Fund balance (deficit), ending $ (538,308) $ (537,908) $ (350,599) $ 187,309 157 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Community Development Block Grant Special Revenue Fund For the Year Ended June 30, 2008 Revenues: Intergovernmental Investment income Total revenues Expenditures: Community development Capital outlay Debt service: Principal Interest and fiscal charges Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources: Transfers In Transfers (Out) Total other financing (uses) Net change in fund balance Fund balance (deficit), beginning Fund balance (deficit), ending 158 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 447,432 $ 525,732 $ 344,865 $ (180,867) 447,432 525,732 344,865 (180,867) 142,091 140,707 117,878 22,829 109,500 180,009 50,088 129,921 78,000 78,000 78,000 - 115,483 115,483 115,482 1 445,074 514,199 361,448 152,751 2,358 11,533 (16,583) (28,116) - 14,129 14,128 (1) (30,900) (15,450) 15,450 (30,900) (1,321) 14,128 15,449 (28,542) 10,212 (2,455) (12,667) (73,074) (73,074) (73,074) $ (101,616) _L __L62,8621 $ (75,529) $ (12,667) 158 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Air Quality Management District Special Revenue Fund For the Year Ended June 30, 2008 Expenditures Public works 26,415 26,415 Variance Net change in fund balance 77,785 77,785 with Final Fund balance, beginning 263,601 263,601 Budget Fund balance, ending Budgeted Amounts $ 341,386 Positive Original Final Actual (Negative) Revenues: Intergovernmental $ 100,000 $ 100,000 $100,327 $ 327 Investment income 4,200 4,200 14,077 9,877 Net increase in fair value of investments - - 1,961 1,961 Total revenues 104,200 104,200 116,365 12,165 Expenditures Public works 26,415 26,415 17,402 9,013 Net change in fund balance 77,785 77,785 98,963 21,178 Fund balance, beginning 263,601 263,601 263,601 - Fund balance, ending $ 341,386 $ 341,386 $362,564 $ 21,178 159 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Environmental Liability Special Revenue Fund For the Year Ended June 30, 2008 Expenditures Public works $ 90,000 $ 90,000 $ 70,315 Variance Capital outlay - 676,530 613,388 with Final Total expenditures 90,000 766,530 683,703 Budget Net change in fund balance Budgeted Amounts (91,530) Positive Fund balance, beginning Original Final Actual (Negative) Revenues: $ 3,136,982 $ 2,460,452 $ 2,663,652 $ 203,200 Taxes $ 392,000 $ 392,000 $ 456,209 $ 64,209 Investment income 79,800 79,800 120,515 40,715 Net increase in fair value of investments - - 15,449 15,449 Total revenues 471,800 471,800 592,173 120,373 Expenditures Public works $ 90,000 $ 90,000 $ 70,315 $ 19,685 Capital outlay - 676,530 613,388 63,142 Total expenditures 90,000 766,530 683,703 82,827 Net change in fund balance 381,800 (294,730) (91,530) 37,546 Fund balance, beginning 2,755,182 2,755,182 2,755,182 - Fund balance, ending $ 3,136,982 $ 2,460,452 $ 2,663,652 $ 203,200 160 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Supplemental Law Enforcement Special Revenue Fund For the Year Ended June 30, 2008 Revenues: Intergovernmental Investment income Total revenues Expenditures: Public safety Net change in fund balance Fund balance, beginning Fund balance, ending 22,100 $ 22,100 161 Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ 140,000 $ 161,946 $ 161,946 $ 2,100 1,472 1,472 - 142,100 163,418 163,418 - 120,000 163,418 163,418 22,100 $ 22,100 161 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Traffic Congestion Special Revenue Fund For the Year Ended June 30, 2008 Revenues: Investment income Net increase in fair value of investments Total revenues Expenditures: Capital outlay Net change in fund balance Fund balance, beginning Fund balance (deficit), ending Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ - $ - $ 1,724 $ 1,724 - 1,964 1,964 176,000 176,000 - 176,000 (176,000) (176,000) 1,964 177,964 2,071 2,071 2,071 $ (173,929) _L__(173,929 $ 4,035 $ 177,964 162 Revenues Intergovernmental Investment income Net increase in fair value of investments Total revenues Expenditures Capital outlay Debt service: Principal Total expenditures Excess (deficiency) of revenues over expenditures Other financing uses Transfers in Transfers out Total other financing (uses) Net change in fund balance Fund balance, beginning Fund balance, ending CITY OF NEWPORT BEACH Newport Coast Annexation Budgetary Comparison Statement For the Year Ended June 30, 2008 Budgeted Amounts Original Final Variance with Final Budget Positive Actual (Negative) $ - 2,000,000 2,000,000 $ - 753,900 753,900 457,091 (296,809) 63,670 63,670 753,900 2,753,900 2,520,761 (233,139) 125,421 125,421 112,846 12,575 1,200,000 1,200,000 1,200,000 - 1,325,421 1,325,421 1,312,846 12,575 (571,521) 1,428,479 1,207,915 (220,564) 1,200,000 1,200,000 1,200,000 - (1,909,985) (2,216,340) (1,959,821) 256,519 (709,985) (1,016,340) (759,821) 256,519 (1,281,506) 412,139 448,094 35,955 10,351,906 10,351,906 10,351,906 - $ 9,070,400 $ 10,764,045 $ 10,800,000 $ 35,955 163 CITY OF NEWPORT BEACH Budgetary Comparison Schedule Proposition 1B Transportation Special Revenue Fund For the Year Ended June 30, 2008 Revenues: Intergovernmental Investment income Total revenues Expenditures: Capital outlay Net change in fund balance Fund balance, beginning Fund balance, ending Variance with Final Budget Budgeted Amounts Positive Original Final Actual (Negative) $ - $ - $ 1,354,589 $ 1,354,589 164 1,354,589 1,354,589 1,354,589 1,354,589 1,354,589 $ 1,354,589 Internal Service Funds 165 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 Absences 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. IM. Assets Current assets: Cash and investments Receivables: Accounts Inventories Prepaid items Total current assets Non - current 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 Due to general fund Workers' compensation - current General liability - current Compensated absences - current Total current liabilities Non - current liabilities: Workers' compensation General liability Compensated absences Net OPEB obligation 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, 2008 Total Insurance Compensated Retiree Equipment Internal Reserve Absence Insurance Maintenance Service Funds $ 19,086,525 $ 2,275,044 $ - $ 12,164,127 $ 33,525,696 - - 1,430,764 250,216 1,680,980 - - - 349,598 349,598 167,132 167,132 19,086,525 2,275,044 1,597,896 12,763,941 35,723,406 22,317,426 22,317,426 (14,692,130) (14,692,130) 7,625,296 7,625,296 19,086,525 2,275,044 1,597,896 20,389,237 43,348,702 $ 155,871 $ - $ 45,133 $ 294,395 $ 495,399 - - - 35,678 35,678 - - 1,287,894 - 1,287,894 2,812,315 - - - 2,812,315 1,824,926 - - - 1,824,926 1,654,973 1,654,973 4,793,112 1,654,973 1,333,027 330,073 8,111,185 8,521,685 - - - 8,521,685 3,788,599 - - - 3,788,599 - 7,458,122 - - 7,458,122 2,221,000 2,221,000 12,310,284 7,458,122 2,221,000 - 21,989,406 17,103,396 9,113,095 3,554,027 330,073 30,100,591 - - - 7,625,295 7,625,295 1,983,129 (6,838,051) (1,956,131) 12,433,869 5,622,816 $ 1,983,129 _L__(6,,838051 $(1,956,131) $20,059,164 $ 13,248,111 167 CITY OF NEWPORT BEACH Internal Service Funds Combining Statement of Revenues, Expenses and Changes in Fund Net Assets For the Year Ended June 30, 2008 168 Total Insurance Compensated Retiree Equipment Internal Reserve Absence Insurance Maintenance Service Funds Operating revenues: Charges for services 5 6,528,118 S 2.139,954 $ - $ 5,970,905 $ 14,638,977 Retiree reimbursements - - 1,050,640 - 1,050,640 Employee contributions - - 401,436 - 401,436 Other 381 43,744 5,928 50,053 Total operating revenues 6,528,499 2,139,954 1,495,820 5,976,833 16,141,106 Operating expenses: Salaries and wages - - - 1,443,079 1,443,079 Depreciation - - - 2,064,397 2,064,397 Professional services - - - 62,378 62,378 Maintenance and supplies - - - 338,478 338,478 Fleet parts and supplies - - - 460,693 460,693 Workers' compensation 2,339,836 - - - 2,339,836 Claims and judgments 3,371,513 - - - 3,371,513 Compensated absences - 1,807,046 - - 1,807,046 OPEB ARC- Cash subsidy - - 2,629,000 - 2,629,000 OPEB ARC- Implied subsidy - - 2,648,000 - 2,648,000 Other 1,551,500 1,551,500 Total operating expenses 5,711,349 1,807,046 6,828,500 4,369,025 18,715,920 Operating income (loss) 817,150 332,908 (5,332,680) 1,607,808 (2,574,814) Nonoperating revenues (expenses): Investment income 544,291 83,252 211,712 519,414 1,358,669 Net Increase in fair value of investments 75,816 11,597 29,490 55,421 172,324 Gain on sale of capital assets - - - 156,735 156,735 Interest expense (330) (330) Total nonoperating revenues 620,107 94,849 241,202 731,240 1,687,398 Income (loss) before transfers 1,437,257 427,757 (5,091,478) 2,339,048 (887,416) Transfers in 5,918,030 - 2,700,000 - 8,618,030 Transfer out (125,000) (125,000) Change in net assets 7,355,287 427,757 (2,391,478) 2,214,048 7,605,614 Net assets (accumulated deficit), beginning, as restated (5,372,158) (7,265,808) 435,347 17,845,116 5,642,497 Net assets, (accumulated deficit), ending $ 1,983,129 $ (6,838,051) $ (1,956,131) $ 20,059,164 $ 13,248,111 168 CITY OF NEWPORT BEACH Combining Statement of Cash Flows - Internal Service Funds For the Year Ended June 30, 2008 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 (decrease) 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) in accounts receivable (Increase) in inventories Increase in prepaid items Increase in accounts payable and accrued payroll Decrease in workers' compensation Increase in general liability Increase in compensated absences Decrease in net OPEB obligation Total adjustments Net cash provided (used) by operating activities Non -cash investing, capital, and financing activities: Net increase in fair value of investments Total of non -cash activities - (1,944,639) (1,944,639) - 365,056 365,056 - (49,490) (49,490) (330) (330) (1,629,403) (1,629,403) 620,107 94,849 241,202 574,835 1,530,993 Total 94,849 Insurance Compensated Retiree Equipment Internal - (1,250,054) Reserve Absences Insurance Maintenance Service Funds Cash flows from operating activities 4,588,298 10,987,709 1,651,078 6,436,147 9,862,464 Receipts from user departments $ 6,528,118 $ 2,139,954 $ - $ 5,764,106 $ 14,432,178 Payments to employees (2,447,836) (1,610.,837) - (1,435,209) (5,493,882) Payments to suppliers (2,519,984) - (12,161,063) (853,594) (15,534,641) Other operating cash receipts 381 196,209 (5,332,563) 1,495,820 5,928 1,502,129 Net cash provided (used) for operating activities 1,560,679 529,117 (10,665,243) 3,481,231 (5,094,216) Cash flows from noncapital financing activities: Cash received from other funds 5,918,030 - 3,987,894 - 9,905,924 Cash paid to other funds - - - (125,000) (125,000) Net cash provided (used)by noncapital financing 5.918.030 3.987.894 (125.000) 9.780.924 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 (decrease) 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) in accounts receivable (Increase) in inventories Increase in prepaid items Increase in accounts payable and accrued payroll Decrease in workers' compensation Increase in general liability Increase in compensated absences Decrease in net OPEB obligation Total adjustments Net cash provided (used) by operating activities Non -cash investing, capital, and financing activities: Net increase in fair value of investments Total of non -cash activities - (1,944,639) (1,944,639) - 365,056 365,056 - (49,490) (49,490) (330) (330) (1,629,403) (1,629,403) 620,107 94,849 241,202 574,835 1,530,993 620,107 94,849 241,202 574,835 1,530,993 2,064,397 - - (1,250,054) (206,799) (1,456,853) 8,098,816 623,966 (6,436,147) 2,301,663 4,588,298 10,987,709 1,651,078 6,436,147 9,862,464 28,937,398 $ 19,086,525 $ 2,275,044 $ $ 12,164,127 $ 33,525,696 $ 817,150 $ 332,908 $ (5,332,680) $ 1,607,808 $ (2,574,814) - - - 2,064,397 2,064,397 - - (1,250,054) (206,799) (1,456,853) - - - (143,460) (143,460) - - (144,870) - (144,870) 75,052 - 41,361 159,285 275,698 (108,000) - - - (108,000) 776,477 - - - 776,477 - 196,209 - - 196,209 (3,979,000) (3,979,000) 743,529 196,209 (5,332,563) 1,873,423 (2,519,402) $ 1.560.679 $ 529.117 $ (10.665.243) _L_2 481 231 $ (5.094.2161 75,816 11,597 211,712 55,421 354,546 $ 75,816 $ 11,597 $ 211,712 $ 55,421 $ 354,546 This page left blank intentionally. 170 Fiduciary Funds 171 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 District 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 Business Improvement District Fund is used to account for monies collected from local business districts for district property improvements and business enhancement. The Integrated Law and Justice Agency for Orange County (ILJAOC) Fund is used to account for monies collected from member agencies for the operation of ILJAOC. 172 Assets CITY OF NEWPORT BEACH Agency Funds Combining Statement of Fiduciary Assets and Liabilities June 30, 2008 Special Business Assessment District Improvement ILJAOC Fund Fund Fund Totals Cash and investments $ 1,998,664 $ 120,869 $ 424,153 $ 2,543,686 Cash with fiscal agent 4,337,777 - - 4,337,777 Intergovernmental receivable - - 124,363 124,363 Total assets $ 6,336,441 $ 120,869 $ 548,516 $ 7,005,826 Liabilities Due to bondholders $ 6,336,441 $ $ - $ 6,336,441 Due to ILJAOC - 448,933 448,933 Due to others - 120,869 99,583 220,452 Total liabilities $ 6,336,441 $ 120,869 $ 548,516 $ 7,005,826 173 CITY OF NEWPORT BEACH Statement of Changes in Fiduciary Net Assets All Agency Funds For the Year Ended June 30, 2008 Totals - All Agency Funds: Assets Cash and investments $ 3,294,227 Cash with fiscal agent 3,022,209 Intergovernmental receivable 436,485 Total Assets $ 6,752,921 Liabilities Due to bondholders $ 6,191,382 Balance 125,054 Due to ILJAOC - Total Liabilities Balance June 30, 2007 $ Additions Deductions June 30, 2008 Special Assessment: $ 8,909,429 _L L,6,56,5241 $ 7,005,826 $ 6,689,211 Assets $ 6,336,441 479,302 (383,904) 220,452 Cash and investments $ 3,169,173 $ 2,789,928 $ (3,960,437) $ 1,998,664 Cash with fiscal agent 7,005,826 3,022,209 3,899,283 (2,583,715) 4,337,777 Total Assets $ 6,191,382 $ 6,689,211 _L±,544,1521 $ 6,336,441 Liabilities Due to bondholders $ 6,191,382 $ 6,689,211 $ (6,544,152) $ 6,336,441 Business Improvement District: Assets Cash and investments $ 125,054 $ 379,719 $ (383,904) $ 120,869 Liabilities Due to others $ 125,054 $ 379,719 $ (383,904) $ 120,869 ILJAOC: Assets Cash and investments $ - $ 563,136 $ (138,983) $ 424,153 Intergovernmental receivable $ 436,485 $ 1,277,363 $ (1,589,485) $ 124,363 Total Assets $ 436,485 $ 1,840,499 $ (1,728,468) $ 548,516 Liabilities Due to City of Newport Beach $ 436,485 $ - (436,485) $ - Due to others - 99,583 99,583 Due to ILJAOC - 448,933 448,933 Total Liabilitites $ 436,485 $ 548,516 $ (436,485) $ 548,516 Totals - All Agency Funds: Assets Cash and investments $ 3,294,227 Cash with fiscal agent 3,022,209 Intergovernmental receivable 436,485 Total Assets $ 6,752,921 Liabilities Due to bondholders $ 6,191,382 Due to others 125,054 Due to ILJAOC - Total Liabilities $ 6,316,436 $ 3,732,783 $ (4,483,324) $ 2,543,686 $ 3,899,283 $ (2,583,715) 4,337,777 $ 1,277,363 $ (1,589,485) 124,363 $ 8,909,429 _L L,6,56,5241 $ 7,005,826 $ 6,689,211 $ (6,544,152) $ 6,336,441 479,302 (383,904) 220,452 448,933 448,933 $ 7,617,446 _L±,928,0561 $ 7,005,826 174 Statistical Section e............. . ...... ..., vi h• R N . f/r �1• N . A co e-� r,. N. O ti 3r n vi h• R N . f/r �1• N . A co e-� r,. N. O ti FINANCIAL TRENDS This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules contain trend information illustrating how the City's financial performance and well -being has changed over time: • Net Assets by Component • Changes in Net Assets • Fund Balances of Governmental Funds • Changes in Fund Balance of Governmental Funds Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. 177 This page left blank intentionally. 178 Governmental activities: Invested in capital assets, net of related debt Restricted Unrestricted Total governmental activities Business -type activities: Invested in capital assets, net of related debt Restarted Unrestricted Total business -type activities Primary government: Invested in capital assets, net of related debt Restricted Unrestricted Total primary government CITY OF NEWPORT BEACH Net Assets by Component Last Seven Fiscal Years (accrual basis of accounting) Fiscal 2002 2003 2004 2005' 2006 2007 2008 $ 1,391,677,813 $ 1,412,372,465 $ 1,512,651,096 $ 1,915,348,883 $ 2,005,643,651 $ 2,027,026,053 $ 2,050,925,370 38,889,956 37,650,692 45,494,082 54,285,743 51,901,103 35,017,831 40,988,923 41,095,786 49,322,283 46,772,913 61,894,956 56,662,229 75,989,169 87,349,141 $ 1,471,463,555 $ 1,499,345,440 $ 1,604918,091 $ 2,031,529,582 $ 2,114206,983 $ 2,138,033,053 $ 2,179,263,434 $ 87;470,314 $ 91,912,205 $ 94206,704 $ 99,641,411 $ 104,602,266 $ 107,231,308 $ 107,313,603 26,123,500 24,227,579 21,493,528 19,665,535 16,907,367 15,808,357 13,665,882 $ 113,593,814 $ 116,139,784 $ 115,700,232 $ 119,306,946 $ 121,509,633 $ 123,039,665 $ 120,979,485 $ 1,479,148,127 $ 1,504,284,670 $ 1,606,857,800 $ 2,014,990,294 $ 2,110,245,917 $ 2,134,257,361 $ 2,158,238,973 38,689,956 37,650,692 45494,082 54,285,743 51,901,103 35,017,831 40,988,923 67,219,286 73,549,862 68,266,441 81,560,491 73,569,596 91,797,526 101,015,023 $ 1,585,057,369 $ 1,615,485,224 $ 1,720,618,323 $ 2,150,836,528 $ 2,235,716,616 $ 2,261,072,718 $ 2,300,242,919 1 2005 data varies from trend because of increased capital assets related to PCH Relinquishment The City of Newport Beach implemented GASB 34 for the fiscal year ended June 30, 2002. Information prior to the implementation of GASB 34 is not available. 179 CITY OF NEWPORT BEACH Changes in Net Assets Last Seven Fiscal Years (accrual basis of accounting) Fiscal Year 2002 2003 2004 2005 2006 2007 2008 Expenses: Governmental activities: (72,834,540) (73,690,766) (85,518,756) (69,493,849) (19,836,950) (95,021,324) (77,229,080) General government $ 12792,860 $ 10,799,630 $ 11,428,379 $ 11,378,609 $ 14,509,827 $ 14,166,168 $ 15,553,314 Public safety 47,168,918 56,521,871 58,178,633 63,214,291 67,789,121 70,823,463 56,643,277 Public works 30,320,516 32,089,038 38,127,832 46,359,871 33,870,359 39,179,844 39,508,930 Community development 4,471,397 5,782,215 6,229,785 6,437,006 8,157,925 9,020,868 9,687,986 Community services 11,044,086 10,404,285 14,741,504 13,073,215 13,803,755 23,304,053 42,242,092 Interest on long -tern debt 517,102 673,944 542,126 508,869 479,529 523,401 532,569 Total governmental activities expenses 106,314,879 116,270,983 129,248,259 140,971,861 138,610,516 157,017,797 164,168,168 Business -type activities: Water 14,806,514 14,540,036 17,185,034 14,467,233 16,228,213 17,399,900 20,128,376 Wastewater 2,588,833 3,115,136 3,363,954 2,740,908 3,143,629 3,259,837 3,416,878 Total business -type activities 33,480,339 42,580,217 43,729,503 71,478,012 118,773,566 61,996,473 86,939,088 expenses 17,395,347 17,655,172 20,548,988 17,208,141 19,371,842 20,659,737 23,545,254 Total primary government expenses 123,710,226 133,926,155 149,797,247 158,180,002 157,982,358 177,677,534 187,713,422 Program revenues: Governmental activities: (72,834,540) (73,690,766) (85,518,756) (69,493,849) (19,836,950) (95,021,324) (77,229,080) Charges for services: 2,216,181 1,603,053 763,805 3,265,727 1,862,770 794,281 (2,721,963) General government 2,270,082 3,008,162 2,109,141 2,412,769 2,623,272 2,944,100 3,055,982 Public safety 10,549,410 11,603,584 15,739,912 16,264,493 13,669,509 15,756,327 16,649,400 Public works 5,436,948 5,009,048 5,481,464 6,031,248 5,133,728 5,482,167 5,616,118 Community development 3,236,483 4,022,904 5,196,276 5,129,858 5,667,289 5,682,636 5,597,309 Community services 2,533,899 6,039,226 3,946,566 3,952,862 9,433,278 9,054,504 9,203,513 Operating Grants and Contributions: 7,891,059 8,750,565 10,681,329 17,480,834 12,772,599 16,172,023 15,778,851 Capital Grants and Contributions. 1,562,458 4,146,728 674,815 20,205,948 69,473,891 6,904,716 31,037,915 Total governmental activities progranamvenues 33,480,339 42,580,217 43,729,503 71,478,012 118,773,566 61,996,473 86,939,088 Business -type activities: Charges for services: Water 16,665,724 16,489,284 18,430,000 17,573,196 17,923,523 17,918,968 17,270,511 Wastewater 2,945,804 2,768,941 2,882,793 2,900,672 3,311,089 3,535,050 3,552,780 Total business -type activities program revenues 19,611,528 19,258,225 21,312,793 20,473,868 21,234,612 21,454,018 20,823,291 Total primary government program revenues 53,091,867 61,838,442 65,042,296 91,951,880 140,008,178 83,450,491 107,762,379 Net revenues (expenses): Governmental activities (72,834,540) (73,690,766) (85,518,756) (69,493,849) (19,836,950) (95,021,324) (77,229,080) Business -type activities 2,216,181 1,603,053 763,805 3,265,727 1,862,770 794,281 (2,721,963) Total net revenues (expenses) $ (70,618,359) $ (72,087,713) $ (84,754,951) $ (66,228,122) $ (17,974,180) $ (94,227,043) $ (79,951,043) 2005 data vanes from trend because of increased capital assets related to PCH Relinquishment. 2006 data vanes from tend because of increased capital assets related mostly to Bristol St. Relinquishment, Newport Coast Community Center, and Fire Station If 7 e 2008 data varies from Vend because of increased capital assets related to Santa Ana Heights Annexation. The City of Newport Beach implemented GASS 34 for the fiscal year ended June 30, 2002 Information pnpr to the implementation of CA S8 34 is not available. 180 CITY OF NEWPORT BEACH Changes in Net Assets Last Seven Fiscal Years (accrual basis of accounting) Primary Revenue Sources $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 - $20,000,000 - $10,000,000 - $- 2002 2003 2004 2005 2006 2007 2008 •Property Taxes ElSeles Tax GTransient Occupancy Taxes a Sales Tax - In Lieu 181 Fiscal Year 2002 2003 2004 2005 2006 2007 2008 General revenues and other changes in net assets: Govemmemal activities: Taxes: Properlytaxes $ 33,583,659 $ 39,474,864 $ 43,631,829 $ 46,303,366 $ 57,888,545 $ 63,003,057 $ 67,388,838 Sales tax 18,796,571 20,133,598 21,843,884 18,977,828 21,465,557 21,088,118 21,855,242 Sales tax in -lieu - - - 5,339,827 5,720,028 7,348,253 8,017,539 Transient occupancy taxes 7,690,655 8,055,266 8,045,132 9215,862 9,832,729 12,059,008 12,751,518 Business license 2,470,857 2,030,845 2,830,127 3,458,165 3,848,381 3,770,172 4,119,108 Franchise taxes 2,735,641 2,465,584 2,765,519 3,029,476 3,162,588 4,613,932 3,853,119 Motor vehicle license fees 4,380,070 3,970,103 3,624,917 6,395,860 300,751 391,559 304,920 Motor vehicle fines 711,693 742,957 - - - - - Other taxes 341,820 314,725 266,642 240,534 508,331 515,128 373,350 Investment income 2,171,474 2,111,451 584,415 1,209,074 1,939,941 3,175,582 3,655,314 Net increase in fair value of investments 1,093,913 318,686 (360,586) (258,125) (715,615) (545,533) 506,485 Gain on sale of assets 160,236 130,954 - - - - - Other 12,570 1,294,628 214,536 761,111 776,907 2,232,070 1,832,028 Property income 3,771,556 - - - - - - Share of joint venture net income 2,120,562 389,418 146,819 100,325 (513,791) 253,207 Capital contributions 836,206,102 17,836,792 102,713,421 213,779,060 - - - Sale of service rights 25,000,000 - - - - - - Transfers 33,277 57,783 40,000 Total governmental activities 941,247,399 99,303,148 186,364,438 308,552,363 104,254,352 117,904,553 124,659,461 Business -type activities: Investment income 888,779 505,619 203,041 424,157 549,012 792,936 588,870 Net increase in fair value of investments 428,199 440,697 (87,078) (87,921) (169,095) (57,185) 72,913 Property income 27,100 29,880 29,280 26,970 - - - Capital contributions - - 215,331 - - - - Transfers - (33,277) (57,783) - (40,000) - - Total business -type anfvd.s 1,344,078 942,919 302,791 363,206 339,917 735,751 661,783 Total primary government 942,591,477 100,246,067 186667,229 308,915,569 104,594,269 118,640,304 125,321,244 Changes in net assets Governmental activities 868,412,859 25,612,382 100,845,682 239,058,514 84,417,402 22,883,229 124,659,461 Business -type activities 3,560,259 2,545,972 1,066,596 3,628,933 2,202,687 1,530,032 661,783 Total primary government $ 871,973;118 $ 28,158,354 $ 101,912,278 $ 242,687,447 $ 86,620,089 $ 24,413,261 $ 125,321,244 Primary Revenue Sources $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 - $20,000,000 - $10,000,000 - $- 2002 2003 2004 2005 2006 2007 2008 •Property Taxes ElSeles Tax GTransient Occupancy Taxes a Sales Tax - In Lieu 181 CITY OF NEWPORT BEACH Fund Balances of Governmental Funds Last Seven Fiscal Years (modified accrual basis of accounting) All other governmental funds Reserved $ 4,669,957 $ 4,693,197 $ 3,973,823 $12,230,132 $18,157,202 Fiscal Year $ 9,788,771 Unreserved, reported in: 2002 2003 2004 2005 2006 2007 2008 General fund: Capital projects funds 7,120,032 - - 6,076,969 2,077,124 (1,196,933) 3,271,954 Permanent funds 15 Reserved $ 3,165,787 $ 4,393,418 $ 6,678,579 $ 4,673,198 $ 9,374,722 $ 7,233,703 $ 6,807,094 Unreserved 25,171,551 31,929,366 $28,145,118 37,765,801 49,814,197 45,212,339 62,679,499 72,252,045 Total general fund $28,337,338 $36,322,784 $44,444,380 $54,487,395 $54,587,061 $69,913,202 $79,059,139 Tide and submerged land fund: Reserved $ 294,876 $ 457,777 $ 340,208 $ 552,713 $ 538,965 $ 642,985 $ 1,415,088 Unreserved 238,822 356,075 120,328 194,174 27,633 143,946 259,701 Total tide and submerged land fund $ 533,698 $ 813,852 $ 460,536 $ 746,887 $ 566,598 $ 786,931 $ 1,674,789 Mariners library fund: Reserved $ - $ 382,900 $ 142,016 $ 1,029,047 $ - $ - $ - Unreserved - 596,800 824,438 - (1,750,160) (2,061,268) - TotalMarinerslibrary fund $ - $ 979,700 $ 966,454 $ 1,029,047 $(1,750,160) $(2,061,266) $ - Contributions fund Reserved $ 7,501 $ - $ - $ 1,155,638 $ 3,223,047 $ 1,656,459 $ 856,506 Unreserved (457,464) (956,689) 1,042,147 - - 794,249 Total Contributions fund $ 7,501 $ (457,464) _L _L56,6891 $ 2,197,785 $ 3,223,047 $ 1,656,459 $ 1,650,755 All other governmental funds Reserved $ 4,669,957 $ 4,693,197 $ 3,973,823 $12,230,132 $18,157,202 $ 8,958,652 $ 9,788,771 Unreserved, reported in: Special revenue funds 11,057,395 18,789,098 16,895,613 10,099,453 7,506,021 18,684,221 20,617,006 Capital projects funds 7,120,032 - - 6,076,969 2,077,124 (1,196,933) 3,271,954 Permanent funds 15 - 285,506 404,771 660,029 934,648 Total all other governmental funds $22,847,399 $23,482,295 $20,869,436 $28,692,060 $28,145,118 $27,105,969 $34,612,379 Fund Balances $90,000,000 $80,000,000 $70,000,000 $60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 fr 2002 2003 2004 2005 2006 2007 2008 ■Total General Fund ■Total all other Governmental Funds The City of Newport Beach has elected to show only seven years of data for this schedule. 182 CITY OF NEWPORT BEACH Changes in Fund Balances of Governmental Funds Last Seven Fiscal Years (modified accrual basis of accounting) Other financing sources (uses) Transfers in 10,927,460 14,376,167 Fiscal Year 20,601,957 25,194,920 20,271,396 27,583,922 2002 2003 2004 2005 2006 2007 2008 Revenues: Proceeds from issuance of debt 18,000,000 2,630,736 Taxes $ 65,878,471 $ 72,864,836 $ 79,874,751 $ 86,995,139 $ 102,737,810 $ 112,230,054 $ 118,758,201 Intergovernmental 26,227,740 10,379,792 16,108,023. 24,125,313 14,842,994 18,866,929 21,005,429 Licenses and permits 3,350,958 4,397,520 5,429,632 4,968,234 5,708,965 4,574,659 6,474,789 Charges for services 10,338,569 11,156,294 11,516,782 13,104,478 13,135,366 14,452,723 15,073,178 Fines and forfeitures 3,384,164 3,448,826 3,605,963 3,422,735 3,841,843 4,126,351 4,662,442 Investment income 2,758,557 1,941,046 887,513 2,356,747 3,847,982 5,431,137 5,463,066 Net increase (decrease) in fair value of investments 1,268,972 1,468,682 (360,586) (493,879) (1,325,211) (626,881) 720,488 Property income 10,130,165 10,947,021 11,857,671 12,337,339 13,625,142 13,965,815 15,217,803 Donations 746,774 1,819,159 2,704,367 1,087,626 883,405 1,379,461 2,159,637 Contributions from property owners - - - 14,779,013 - - - Other 1,782,696 2,590,504 478,200 980,446 1,042,882 1,967,465 4,205,095 Total revenues 125,867,066 121,013,680 132,102,316 163,663,391 158,341,178 176,367,713 193,740,128 Expenditures Current: General government 12,292,008 9,689,275 11,024,256 10,920,667 12,531,200 13,706,061 14,425,553 Public safety 47,841,176 53,035,377 56.849,718 59,482,134 65,262,069 68,843,947 54,132,689 Public works 19,418,067 21,259,782 22,780,896 24,365,996 26,430,751 28,352,293 26,876,363 Community development 4,586,192 5,457,498 5,723,031 6,144,917 7,900,503 7,753,035 8,310,758 Community services 9,418,041 9,382,608 10,827,346 10,351,414 12,730,727 13,988,589 37,540,081 Capital outlay 38,613,906 14,684,897 15,188,550 33,486,048 24,811,237 40,615,169 20,524,638 Debt service: Principal retirement 1,291,099 1,822,913 1,668,350 1,688,801 1,715,542 3,736,587 3,263,948 Interest and fiscal charges 466,974 529,808 520,228 499,077 480,909 458,035 577,299 Total expenditures 133,927,463 115,862,158 124,582,375 146,939,054 151,862,938 177,453,716 165,651,329 Excess (deficiency) of revenues over (under) expenditures (8,060,397) 5,151,522 7,519,941 16,724,337 6,478,240 (1,086,003) 28,088,799 Other financing sources (uses) Transfers in 10,927,460 14,376,167 16,553,395 20,601,957 25,194,920 20,271,396 27,583,922 Transfers out (11,669,089) (14,342,890) (18,495,612) (20,612,176) (31,177,725) (22,521,396) (36,076,952) Proceeds from issuance of debt 18,000,000 2,630,736 Total other financing sources (uses) 17,258,371 2,664,013 (1,942,217) (10,219) (5,982,805) (2,250,000) (8,493,030) Net change in fund balances $ 9,197,974 $ 7,815,535 $ 5,577,724 $ 16,714,118 $ 495,435 $ (3,336,003) $ 19,595,769 Debt service as a percentage of noncapital expenditures 1.6% 2.2% 1.8% 1.7% 1.7% 2.9% 2.6% The City of Newport Beach has elected to show only seven years of data for this schedule. 183 REVENUE CAPACITY This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules present factors affecting the City's ability to generate its own revenue and its most significant local revenue source, the property tax: • Assessed Value and Estimated Actual Value of Taxable Property • Direct and Overlapping Property Tax Rates • Principal Property Tax Payers • Property Tax Levies and Collections Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. 184 CITY OF NEWPORT BEACH Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years City Fiscal Year Taxable Assessed Total Direct Ended June Value Tax Rate 30 Public Utility Secured Unsecured 1999 354,820 12,343,526,263 1,009,975,297 13,353,856,380 1.000% 2000 324,960 13,091,299,313 1,295,776,000 14,387,400,273 1.000% 2001 2,000 15,087,602,671 915,394,966 16,002,999,637 1.000% 2002 2,000 16,515,797,641 913,075,074 17,428,874,715 1.000% 2003 16,531,505 21,339,270,499 1,085,951,066 22,425,221,565 1.000% 2004 16,531,505 23,219,166,299 1,372,432,950 24,591,599,249 1.000% 2005 53,310 25,193,662,254 1,484,019,033 26,677,681,287 1.000% 2006 53,310 28,136,607,566 1,914,106,993 30,050,714,559 1.000% 2007 53,310 31,423,473,042 1,569,867,249 32,993,340,291 1.000% 2008 53,310 34,188,568,583 1,668,015,342 35,856,583,925 1.000% NOTE: In 1978 the voters of the State of California passed Proposition 13 which limited property taxes to a total maximum rate of 1 % based upon the assessed value of the property being taxed. Each year, the assessed value of property may be increased by an "inflation factor" (limited to a maximum increase of 2 %). With few exceptions, property is only re- assessed at the time that it is sold to a new owner. At that point, the new assessed value is reassessed at the purchase price of the property sold. The assessed valuation data shown above represents the only data currently available with respect to the actual market value of taxable property and is subject to the limitations described above. Source: County of Orange Auditor - Controller's Office 185 CITY OF NEWPORT BEACH Direct and Overlapping Property Tax Rates (Rate per $100 of assessed value) Last Ten Fiscal Years 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 City Direct Rates City basic rate $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000 Total City Direct Rate 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Overlapping Rates: Water Districts 0.009 0.009 0.009 0.008 0.007 0.006 0.005 0.005 0.005 0.004 School Districts 0.0000 0.0000 0.0000 0.0069 0.0067 0.0122 0.0343 0.0349 0.0315 0.0308 Total Direct Rate $ 1.009 $ 1.009 $ 1.009 $ 1.015 $ 1.013 $ 1.018 $ 1.040 $ 1.040 $ 1.036 $1.035 NOTE: In 1978, California voters passed Proposition 13 which sets the property tax rate at a 1.00% fixed amount. This 1.00% is shared by all taxing agencies for which the subject property resides within. In addition to the 1.00% fixed amount, property owners are charged taxes as a percentage of assessed property values for the payment of other debt obligations. Source: Orange County Auditor Controller's Office 186 CITY OF NEWPORT BEACH Principal Property Taxpayers Current Year and Nine Years Ago Source, HdL, Coren and Cone Co. 187 2008 1999 Taxable Assessed Percent of Total Percent Total City Taxable Taxable Assessed City Taxable Value Assessed Value Taxpayer Value Rank Assessed Value Rank Irvine Company $ 1,448,383,889 1 4.04% $ 787,729,750 1 5.90% 4000 MacArthur Limited Partnership 153,070,961 2 0.43% N/A 0.00% Jau Semiconductor Inc. 148,657,479 3 0.41% N/A 0.00% Newport Bluffs LLC 132,779,429 4 0.37% N/A 0.00% Balboa Bay Club Inc. 126,342,822 5 0.35% N/A 0.00% UDR Newport Beach North Ltd. Partner. 113,278,316 6 0.32% N/A 0.00% 100 Bayview LLC 119,340,000 7 0.33% N/A 0.00% Coronado South Apts. Ltd. Partnership 110,168,052 8 0.31% N/A 0.00% HHR Newport Beach LLC 83,512,395 9 0.23% N/A 0.00% Newport Healthcare Center LLC 81,600,000 10 0.23% N/A 0.00% MacArthur 4500 LLC 78,562,301 11 0.22% N/A 0.00% CSDV Limited Partnership 79,501,240 12 0.22% N/A 0.00% Rockwell Semiconductor Systems Inc. 74,048,434 13 0.21% 712,262,218 2 5.33% Cornerstone Partners IV LLC 69,185,326 14 0.19% N/A 0.00% Park Newport Land Limited 69,212,296 15 0.19% 55,690,802 6 0.42% $ 2,887,642,940 8.05% $ 1,555,682,770 11.65% Source, HdL, Coren and Cone Co. 187 Fiscal Year Taxes Levied for Ended June the Fiscal Year 30 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 22,738,432 24,667,494 27,405,295 31,298,541 ' 37,092,528 42,469,238 45,111,328 47,286,816 70,194,492 69,315,117 CITY OF NEWPORT BEACH Property Tax Levies and Collections Last Ten Fiscal Years Collected within the Fiscal Year of Levy Collections in Total Collections to Date Percent of Amount Levy 23,198,860 102.02% 25,605,677 103.80% 27,742,716 101.23% 30,753,144 98.26% 36,881,012 99.43% 42,091,095 99.11% 54,547,755 2 120.92% 46,286,404 97.88% 69,629,167 99.19% 69,089,231 99.67% ' Includes estimated levy for Newport Coast properties that were annexed on January 1, 2002. 2 Collections include nearly $10 million of Property Tax in lieu of Sales Tax and Vehicle License Fees not included in the levy. Source: Orange County Auditor Controller's Office 188 Percent of Subsequent Amount Levy Years 22,084,910 97.13% 1,113,950 24,207,104 98.13% 1,398,573 26,856,091 98.00% 886,625 30,651,143 97.93% 102,001 36,351,026 98.00% 529,986 41,420,410 97.53% 670,685 54,063,951 119.85%2 483,804 45,558,039 96.34% 728,365 68,820,402 98.04% 808,765 68,242,326 98.45% 846,904 Total Collections to Date Percent of Amount Levy 23,198,860 102.02% 25,605,677 103.80% 27,742,716 101.23% 30,753,144 98.26% 36,881,012 99.43% 42,091,095 99.11% 54,547,755 2 120.92% 46,286,404 97.88% 69,629,167 99.19% 69,089,231 99.67% ' Includes estimated levy for Newport Coast properties that were annexed on January 1, 2002. 2 Collections include nearly $10 million of Property Tax in lieu of Sales Tax and Vehicle License Fees not included in the levy. Source: Orange County Auditor Controller's Office 188 This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules exhibit the City's levels of outstanding debt over time, to help readers assess the affordability of the current level of outstanding debt, and the City's ability to issue additional debt: • Ratios of Outstanding Debt by Type • Ratios of General Bonded Debt Outstanding • Direct and Overlapping Debt • Legal Debt Margin Information • Pledged Revenue Coverage Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. 189 Fiscal N/A 2,657,180 Year N/A N/A Ended Certificates of N/A June 30 Participation Note Payable 18,000,000 N/A 1,150,927 1999 7,070,000 2,589,255 2000 6,845,000 2,469,399 2001 6,610,000 2,350,930 2002 6,365,000 2,219,660 2003 6,110,000 2,082,483 2004 5,845,000 1,939,133 2005 5,570,000 1,789,332 2006 5,280,000 1,632,789 2007 4,980,000 1,469,202 2008 4,665,000 1,298,254 CITY OF NEWPORT BEACH Ratios of Outstanding Debt by Type Last Ten Fiscal Years Governmental Activities Pre- Purchase Annexation Agreement Agreement CDBG Loan Capital Leases Payable N/A N/A 2,657,180 N/A N/A N/A 1,798,655 N/A N/A N/A 914,830 N/A 18,000,000 N/A 1,150,927 N/A 16,800,000 2,400,000 1,293,586 N/A 15,600,000 2,340,000 862,975 N/A 14,400,000 2,276,000 420,773 N/A 13,200,000 2,207,000 166,056 N/A 12,000,000 2,134,000 49,490 3,000,000 10,800,000 2,056,000 - 1,500,000 Note: This excludes claims and judgements and employee compensated absence liabilities. Details regarding the City's outstanding debt can be found in the notes to the financial statements. These ratios are calculated using personal income and population for the prior calendar year. 190 Business -type Activities Total Percentage of Governmental Water Revenue Total Business- Total Primary Personal Debt Per Activities Bonds type Activities Government Income' Capita ' 12,316,435 14,225,000 14,225,000 26,541,435 0.62% 365 11,113,054 13,200,000 13,200,000 24,313,054 0.53% 329 9,875,760 12,095,000 12,095,000 21,970,760 0.50% 314 27,735,587 10,950,000 10,950,000 38,685,587 0.80% 511 28,686,069 9,765,000 9,765,000 38,451,069 0.72% 484 26,587,108 8,535,000 8,535,000 35,122,108 0.65% 435 24,456,105 7,255,000 7,255,000 31,711,105 0.56% 382 22,485,845 5,925,000 5,925,000 28,410,845 0.45% 341 23,632,692 4,540,000 4,540,000 28,172,692 0.43% 335 20,319,254 3,095,000 3,095,000 23,414,254 0.33% 277 191 CITY OF NEWPORT BEACH Outstanding Debt Serviced by the General Fund Last Ten Fiscal Years (In Thousands, except Per Capita) Assessed value was used because the actual value of taxable property is not readily available in the State of California. 192 Purchase Percent of Fiscal Year Certificates of Agreement Assessed Ended June 30 Participation Payable Total Value' Per Capita 1999 7,070 N/A 7,070 0.05% 97 2000 6,845 N/A 6,845 0.05% 93 2001 6,610 N/A 6,610 0.04% 94 2002 6,365 N/A 6,365 0.04% 84 2003 6,110 N/A 6,110 0.03% 77 2004 5,845 N/A 5,845 0.02% 72 2005 5,570 N/A 5,570 0.02% 67 2006 5,280 N/A 5,280 0.02% 63 2007 4,980 3,000,000 3,004,980 9.11% 35,681 2008 4,665 1,500,000 1,504,665 4.20% 17,795 Assessed value was used because the actual value of taxable property is not readily available in the State of California. 192 City Assessed Valuation: Redevelopment Agency Incremental Valuation: Adjusted Assessed Valuation: OVERLAPPING TAX AND ASSESSMENT DEBT: Orange County Teeter Plan Obligations Metropolitan Water District Coast Community College District Rancho Santiago Community College District Laguna Beach Unified School District Laguna Beach U.S.O. Community Facilities District No. 98 -1 Newport Mesa Unified School District Newport Mesa U.S.O. Community Facilities District No. 90 -1 Santa Ana Unified School District Irvine Ranch Water DisMct Improvement Districts CITY OF NEWPORT BEACH Direct and Overlapping Debt June 30, 2008 $ 35,856,583,925 726,249,790 $ 35,130,334,135 Percentage Outstanding Debt Estimated Share of Applicable ' 6/30/08 Overlapping Debt 9.554% 1.989% 34.290% 3.561% 12.771% 100.000% 71.563% 100.000% 8.337% 16.115 % - 100.000% Bonita Canyon Public Facilities Financing Authority Community Facilities District No. 98 -1 100.000% City of Newport Beach Special Improvement District No. 95 -1 100.000% City of Newport Beach 1915 Act Bonds 100.000% Orange County Assessment District No. 88 -1 100.000% Orange County Assessment District No. 99 -1 R 100.000% Orange County Assessment District No. 01 -1 100.000% Orange County Assessment District No. 01 -1 R 100.000% TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT DIRECT AND OVERLAPPING GENERAL FUND DEBT: OVERLAPPING GENERAL FUND DEBT: Orange County General Fund Obligations Orange County Pension Obligations Orange County Board of Education Certificates of Participation Municipal Water District of O.C. Water Facilities Corporation South Orange County Community College District Certificates of Participation Newport Mesa Unified School District Certificates of Participation Santa Ana Unified School District Certificates of Participation Irvine Ranch Water District Certificates of Participation City of Newport Beach Certificates of Participation TOTAL GROSS OVERLAPPING GENERAL FUND DEBT Less: MWDOC Water Facilities Corporation (100 %self- supporting) Santa Ana Unified School District OZAB (supported by scheduled deposits to trustee) TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND DEBT GROSS COMBINED TOTAL DEBT (2) NET COMBINED TOTAL DEBT 9.554% 9.554 9.554 11.360% 2.821% 71.563% 8.337% 11.400% 100.000% The percentage of overlapping agency's assessed valuation located within boundaries of the city. 123,725,000 327,215,000 347,758,867 321,779,339 34,945,000 9,815,000 168,563,480 14,985,000 126,037,965 49,413,228 42,615,000 10,040,000 12,606,000 37,123,296 16,130,000 55,639,000 7,700,000 1,706,091,175 $ 532,326,000 72,729,867 19,590,000 19,295,000 34,945,000 1,020,000 64,855,968 107,745,000 4,665,000 857,171,835 11,820,687 6,508,306 119,246,515 11,458,562 4,462,826 9,815,000 120,629,083 14,985,000 10,507,785 44,622,306 42,615,000 10,040,000 12,606,000 37,123,296 16,130,000 55,639,000 7,700,000 535,909,366 $ 50,858,426 6,948,611 1,871,629 2,191,912 985,798 729,943 5,407,042 12,282,930 4,665,000 85,941,291 - 2,191,912 - 170,267 $ 83,579,112 621,850,657 619,488,478 2 Previously classified Orange County Sanitation District certificates of participation have been reclassified as district revenue supported issues and are no longer included as direct debt in the debt statement. 3 Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and nonbonded capital lease obligations. Ratios to 2007 -08 Assessed Valuation: Total Overlapping Tax and Assessment Debt 1.490% Ratios to Adjusted Assessed Valuation: Combined Direct Debt ($4,665,000) 0.010% Gross Combined Total Debt 1.770% Net Combined Total Debt 1.760% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6130/08: $0.000 YV:($425) Source: California Municipal Statistics, Inc 193 CITY OF NEWPORT BEACH Legal Debt Margin Information Last Ten Fiscal Years Fiscal Year 1999 2000 2001 2002 2003 Assessed valuation $ 13,353,856,380 $ 14,387,400,273 $ 16,002,999,637 $ 17,428,874,715 $ 22,425,221,565 Conversion percentage 25% 25% 25% 25% 25% Adjusted assessed valuation 3,338,464,095 3,596,850,068 4,000,749,909 4,357,218,679 5,606,305,391 Debt limit percentage 15% 15% 15% 15% 15% Debt limit 500,769,614 539,527,510 600,112,486 653,582,802 840,945,809 Total net debt applicable to limit: General obligation bonds - Legal debt margin $ 500,769,614 $ 539,527,510 $ 600,112,486 $ 653,582,802 $ 840,945,809 Total debt applicable to the limit as a percentage of debt limit 0.0% 0.0% 0.0% 0.0% 0.0% NOTE: The Government Code of the State of California provides for a legal debt limit of 15% of gross assessed valuation. However, this provision was enacted when assessed valuation was based upon 25% of market value. Effective with the 1981 -82 fiscal year, each parcel is now assessed at 100% of market value (as of the most recent change in ownership for that parcel). The computations shown above reflect a conversion of assessed valuation data for each fiscal year from the current full valuation perspective to the 25% level that was in effect at the time that the legal debt margin was enacted by the State of California for local governments located within the state. Source: City Administrative Services Department 194 Fiscal Year 2004 2005 2006 2007 2008 $ 24,591,599,249 $ 26,677,681,287 $ 30,050,714,559 $ 32,993,340,291 $ 35,856,583,925 25% 25% 25% 25% 25% 6,147,899,812 6,669,420,322 7,512,678,640 8,248,335,073 8,964,145,981 15% 15% 15% 15% 15% 922,184,972 1,000,413,048 1,126,901,796 1,237,250,261 1,344,621,897 $ 922,184,972 $ 1,000,413,048 $ 1,126,901,796 $ 1,237,250,261 $ 1,344,621,897 0.0% 0.0% 0.0% 0.0% 0.0% 195 CITY OF NEWPORT BEACH Pledged- Revenue Coverage Last Ten Fiscal Years Water Revenue Bonds Debt Service Fiscal Less Year Operating Net Available Ended Water Revenue z Revenue June 30 ' Expenses Principal Interest Coverage 1999 17,658,076 11,145,936 6,512,140 335,000 593,469 7.01 2000 17,770,491 11,713,223 6,057,268 1,025,000 551,668 3.84 2001 17,839,320 11,784,120 6,055,200 1,145,000 510,224 3.66 2002 17,809,919 13,257,934 4,551,985 1,105,000 465,572 2.90 2003 17,326,604 12,430,144 4,896,460 1,185,000 418,172 3.05 2004 18,321,122 15,261,360 3,059,762 1,230,000 367,742 1.92 2005 17,878,016 12,967,118 4,910,898 1,280,000 314,622 3.08 2006 18,026,750 14,190,147 3,836,603 1,330,000 258,762 2.41 2007 18,534,689 15,614,885 2,919,804 1,385,000 199,900 1.84 2008 17,807,527 17,518,263 289,264 1,445,000 137,765 0.18 Gross revenues includes operating revenues, interest, property, and intergovernmental revenues in the Water Fund. 2 Total Water Fund operating expenses do not include interest or depreciation expenses. 196 ��Ti �[iZr] 7a11'.I [ _ ► � d�P►L�] � TC�71 �17i : t7 7 ��F_� � CiP►I This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules depict demographic and economic indicators to assist the reader in understanding the socio- economic, environment in which the City's financial activities take place: • Demographic and Economic Statistics • Principal Employers Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. 197 Fiscal Year CITY OF NEWPORT BEACH Demographic and Economic Statistics Last Ten Fiscal Years Population Personal Income Per Capita Unemployment (in thousands) Income Rate 1999 72,623 4,288,461 59,051 1.8% 2000 73,965 4,630,061 62,598 1.6% 2001 70,032 4,413,066 63,015 1.6% 2002 75,662 4,865,294 64,303 2.5% 2003 79,392 5,325,060 67,073 2.4% 2004 80,800 5,434,285 67,256 1.9% 2005 83,120 5,635,370 67,798 2.4% 2006 83,361 6,335,186 75,997 2.1% 2007 84,218 6,518,052 77,395 2.6% 2008 84,554 7,059,752 83,494 2.4% Source: City of Newport Beach Library Services Department lim CITY OF NEWPORT BEACH Principal Employers Current Year and 3 years ago Source: Newport Beach Chamber of Commerce im 2008 2005' Number of Percent of Total Number of Percent of Total Employer Employees Rank Employment Employees Rank Employment Hoag Memorial Hospital 4,168 1 5.05% 3,640 1 N/A Pacific Life Insurance 2,997 2 3.63% 2,788 2 N/A Downey Savings & Loan 2,234 3 2.71% 1,386 3 N/A City of Newport Beach 827 4 1.00% 788 4 N/A Pacific Investment Management Co. 735 5 0.89% 530 7 N/A Jazz Semi - Conductor 649 6 0.79% 730 5 N/A The Island Hotel 520 7 0.63% 525 2 8 N/A Newport Beach Marriott Hotel & Tennis Club 473 8 0.57% 475 9 N/A Conexant Systems Inc. 290 9 0.35% 650 6 N/A Mindspeed Technology 280 10 0.34% 390 10 N/A ' Information for nine years ago is not available. 2 The Island Hotel was formerly the Four Seasons Hotel. Source: Newport Beach Chamber of Commerce im This section of the City of Newport Beach's Comprehensive Annual Financial Report (CAFR) presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the City's overall financial health. The statistical information presented herein is un- audited. The following schedules present information on the City's operations and resources including service and infrastructure data to facilitate the readers understanding of how financial statement information relates to the services the City provides and the activities it performs: • Full Time City Employees by Functions • Operating Indicators by Function • Capital Asset Statistics by Function • Water Sold by Customer Type • Water Rates • Major Water Customers Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive annual financial reports and underlying accounting records for the relevant year. M Function General government Public safety Community development Public works Community services Balboa yacht basin Water Wastewater CITY OF NEWPORT BEACH Full -time City Employees by Function Last Ten Fiscal Years Full -Time Employees as of June 30, 2008 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 63 69 75 77 77 84 86 90 93 93 342 344 358 384 384 385 385 388 393 397 37 39 42 44 46 46 47 48 52 56 154 157 155 163 164 162 162 163 163 165 49 51 53 57 58 57 60 65 66 68 1 1 1 1 1 1 1 31 31 34 33 33 33 34 34 34 35 11 11 10 12 12 13 13 13 13 13 Total 688 703 728 771 775 781 788 801 814 827 Source: City Administrative Services Department 201 Source: City of Newport Beach 202 CITY OF NEWPORT BEACH Operating Indicators by Function Last Ten Fiscal Years Fiscal Year 1999 2000 2001 2002 2003 Police: Adult Arrests 3,029 3,396 3,494 3,684 3,485 Parking Citations Issued 72,711 76,993 74,068 73,191 68,907 Fire: Fire Responses 260 353 365 359 442 Fire Inspections 6,216 6,173 6,173 6,400 4,460 General Services: Street Patching (tons of mix) 3,200 4,400 5,000 5,500 5,500 Sidewalk Repair (square feet) 59,645 65,000 50,000 50,000 55,000 Recreation & Senior Services: Co- Sponsored Youth Organizations 132,500 141,594 165,464 188,689 200,077 Senior Transportation Services 10,260 10,260 11,000 10,917 12,094 Water: New connections 253 163 154 118 99 Average daily consumption (hundred cubic ft.) 17 17 17 17 17 Sewer: New connections N/A N/A N/A N/A 50 Miles of Pipe Cleaned N/A N/A N/A 202 262 Library Services: Library Circulation of Materials 1,240,000 1,130,000 1,250,713 1,263,200 1,347,583 Source: City of Newport Beach 202 Fiscal Year 2004 2005 2006 2007 2008 3,201 3,079 2,999 3,289 3,599 71,076 72,665 74,780 67,170 67,258 423 228 214 175 247 4,500 4,550 6,470 7,136 6,682 5,000 4,500 4,600 4,980 4,644 50,000 50,000 55,000 59,459 60,222 185,627 194,749 194,722 201,258 255,424 12,041 11,936 13,000 13,493 14,500 53 55 52 95 60 17 17 17 17 17 25 24 24 45 45 293 205 335 226 241 1,392,346 1,475,025 1,443,078 1,622,573 1,622,573 203 CITY OF NEWPORT BEACH Capital Asset Statistics by Function Last Ten Fiscal Years Fiscal Year 1999 2000 2001 2002 Police: Stations 1 1 1 1 Fire: Fire stations 6 6 6 7 Lifeguard Headquarters 1 1 1 1 Public works: Streets (miles) 234 311 315 325 Streetlights N/A N/A N/A 7,277 Traffic signals N/A N/A 121 130 Recreation & Senior Services: Parks 45 45 45 47 Community centers 10 10 10 11 Aquatic Center 1 1 1 1 Water: Water mains (miles) N/A N/A 282.35 294.81 Maximum daily capacity (thousands of gallons) N/A N/A 20,959 20,796 Wastewater: Sanitary sewers (miles) N/A N/A 200.02 176.90 Storm sewers (miles) N/A N/A 103.08 51.40 Library Services: Libraries 4 4 4 4 Source: City of Newport Beach 204 Fiscal Year 2003 2004 2005 2006 2007 2008 1 1 1 1 1 1 7 7 8 8 8 8 1 1 1 1 1 1 333 333 333 333 399 401 7,277 7,277 7,277 7,277 7,278 7,278 131 131 144 147 145 148 47 47 47 47 47 48 11 11 11 11 12 13 1 1 1 1 1 1 294.81 294.81 298.42 299.88 297.40 297.40 21,291 20,092 20,633 19,369 20,392 20,365 178.40 179.15 179.15 179.15 202.80 202.80 53.50 57.60 57.60 57.60 95.50 95.50 4 4 4 4 4 4 205 CITY OF NEWPORT BEACH Water Sold by Type of Customer Last Ten Fiscal Years (in hundred cubic feet) Fiscal Year Source: City Utilities Department M. 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Type of Customer: Residential N/A N/A 4,227,699 4,459,302 4,430,485 4,362,402 4,289,629 4,190,791 4,492,489 4,046,969 Commercial N/A N/A 1,487,538 1,552,366 1,604,931 1,659,565 1,568,462 1,440,377 1,302,578 1,184,904 Government N/A N/A 678,594 480,809 597,395 486,051 487,189 607,650 601,659 361,457 Total N/A N/A 6,393,831 6,492,477 6,632,811 6,508,018 6,345,280 6,238,818 6,396,726 5,593,330 Total direct rate per 100 cubic ft. 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.08 2.08 2.08 Source: City Utilities Department M. CITY OF NEWPORT BEACH Water Rates Last Ten Fiscal Years Fiscal Year Ended June Monthly Rate per 30 Base Rate 100 cubic ft 1999 8.85 2.50 2000 8.85 2.50 2001 8.85 2.50 2002 8.85 2.50 2003 8.85 2.50 2004 8.85 2.50 2005 8.85 2.50 2006 10.75 2.73 2007 10.75 2.73 2008 10.75 2.73 Note: Rates are based on 3/4" meter, which is the standard household meter size. The City charges an excess -use rate above normal demand. 207 CITY OF NEWPORT BEACH Major Water Customers Current Year and Seven Years Ago ' Information for fiscal years ended prior to 2001, is not available. Source: City Revenue Division M. 2008 2001' Percent of Total Percent of Total Water Customer Water Charges Rank Water Revenues Water Charges Rank Water Revenues Big Canyon Country Club $ 206,375 1 1.16% $ 169,900 2 0.95% Irvine Apartment Management 132,099 2 0.74% N/A 0.00% Hoag Memorial Hospital 121,240 3 0.68% 101,436 6 0.57% Newport Beach Country Club 118,389 4 0.66% 152,362 3 0.86% Park Newport Ltd 94,305 5 0.53% 150,062 4 0.84% UDR Newport Beach 92,155 6 0.52% N/A 0.00% The Irvine Company 90,384 7 0.51% 267,688 1 1.50% Pacific View - Pierce Bros. 68,636 8 0.39% 47,466 11 0.27% Newport-Mesa USD 66,691 9 0.37% N/A 0.00% Irvine Retail Properties 63,257 10 0.36% N/A 0.00% Spyglass Hill Community Assoc. 46,548 11 0.26% N/A 0.00% Eastbluff Homeowners Comm. Assoc. 45,002 12 0.25% N/A 0.00% Newport Dunes Resort 44,762 13 0.25% N/A 0.00% Villa Balboa Community Assoc. 40,779 14 0.23% N/A 0.00% De Anza Bayside Village 40,463 15 0.23% 63,948 8 0.36% $ 1,271,085 7.14% $ 952,862 5.35% ' Information for fiscal years ended prior to 2001, is not available. Source: City Revenue Division M.