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HomeMy WebLinkAboutStaff Report 162-07City City of Palo Alto Manager’s Report TO: FROM: HONORABLE CITY COUNCIL CITY MANAGER PIC-I DEPARTMENT:ADMINISTRATIVE SERVICES DATE: SUBJECT: APRIL 9, 2007 APPROVAL OF 2005-06 PUBLIC FINANCIAL STATEMENTS CMR: 162:07 IMPROVEMENT CORPORATION RECOMMENDATION Staffrecommends that the Board of Directors of the Public Improvement Corporation (PIC) approve the 2005-06 financial statements for the Public Improvement Corporation. BACKGROUND The Public Improvement Corporation (PIC) is a nonprofit corporation formed by the City in 1983, allowing the City to issue Certificates of Participation (COPs) to fund capital improvements. The PIC, through a lease structure, finances the acquisition, improvement, and construction of certain City properties (described below). PIC uses the lease payments by the City’s General Fund to pay the debt service on the COPs. On July 13, 1998, Council adopted a resolution establishing itself as the Board of Directors of the PIC. In 1983 and 1998, the City of Palo Alto issued Certificates of Participation (COPs) to fund improvements to the Civic Center and the Golf Course, respectively. In 2002, the Civic Center bonds were refinanced due to a lower interest rate environment and COPs were issued to finance the construction of office space adjacent to the new parking structure on Bryant/Florence Street. The bylaws of the PIC require the Board of Directors of the Corporation to meet at least annually and approve the financial statements for the Corporation. Therefore, the City Council is required to meet annually as the Board of the PIC. The Board has no substantive oversight responsibilities, as it assigns all rights to receive lease payments to the Trustee (U.S. Bank Trust) for the benefit of the investors. CMR:162:07 Page 1 of 2 DISCUSSION The attached financial statements show the financial condition of the PIC. All debt service payments have been made on time and all financial requirements, such as the maintenance of reserves, have been met. At year-end, June 30, 2006, total outstanding debt (principal) on the COPs equaled $9.9 million as follows: COP Description 1998 Golf Course 2002A Civic Center Refinancing 2002B Downtown Parking Improvements Total COPs Principal Outstanding (millions) $5.4 $2.2 $2.3 $9.9 Year Debt will be Retired 2018 2012 2022 RESOURCE IMPACT Approval of the Public Improvement Corporation’s financial statements will have no resource impact. POLICY IMPLICATIONS Approval of the Public Improvement Corporation’s financial statements is consistent with prior Council policy direction and resolutions. ENVIRONMENTALREVIEW This is not a project under the California Environmental Quality Act (CEQA). ATTACHMENTS Attachment A: City of Palo Alto Public Improvement Corporation Financial Statements for the Year Ended June 30,20_0fib¯ PREPARED B~Y~. TA AN Senior Financial Acnalyst DEPARTMENT APPROVAL: ~.~-..~~ CARL YEA~ CITY MANAGER APPROVAL: ~7~ces EMI~ HARRISON Assistant City Manager CMR: 162:07 Page 2 of 2 C1TY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION COMPONENT UNIT FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 This Page Left Intentionally Blank CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION COMPONENT UNIT FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2006 Table of Contents Independent Auditor’s Report ............................................................................................................. Management’s Discussion and Analysis ..............................................................................................3 Financial Statements: Government-wide 1~inancial Statements Statement of Net Assets ..............................................................................................................8 Statement of A cti vities ...............................................................................................................9 Fund Financial Statements Balance Sheet ..........................................................................................................................12 Statement of Revenues, Expenditures and Changes in Fund Balances .....................................13 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds to the Statement of Activities ............................................................... Notes to Financial Statements ............................................................................................................1 This Page Left Intentionally Blank INDEPENDENT AUDITOR’S REPORT The Honorable Mayor and Members of the City Council of the City of Palo Alto, California We have audited the accompanying component unit:financial statements of the governmental activities and eacln major fund of the Palo Alto Public Improvement Corporation, a component unit of the City of Palo Alto. as of and for the year ended June 30, 2006 as listed in the Table of Contents. ]?hese financial statements are the responsibility of the Cit2’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit an accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free of malerial misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly in all material respects the financial position of the governmental activities and each major fund of the Palo Alto Public Improvement Corporation as of June 30, 2006, and the results of its operations for the year then ended. ~n conformity with generally accepted accounting principles in the United States of America. Management’s Discussion and Analys~s is not a required part of the basic component unit financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of required supplementary information. However we did not audit the information and we express no opinion on it. October 19.2006 This Page Left Intentionally B lank MANAGEMENT’S DISCUSSION AND ANALYSIS For five consecutive years the Palo Alto Public Improvement Corporation, a component unit of t-he City of Palo Alto, has followed the provisions of Government Accounting Standards Board Statement 34 (GASB 34), "Basic Financial Statements-and Management’s Discussion & Analysis- for State and Local Governments". GASB 34 represents a profound and far-reaching change in accounting and reporting for municipalities; it is an effort to make these statements clearer and more understandable to readers. The Corporation is controlled by the City of Palo Alto and was organized to assist the City m financing public improvements. The Corporation issues debt and turns the proceeds of the debt over to the City under lease agreements that provide a revenue source for the repayment of this debt. The Corporation has four debt issues and has turned the proceeds of these issues over to the City, which pledged certain lease payments as collateral for this debt, as discussed in Note 4 to the financial statements. FISCAL 2006 FINANCIAL HIGHLIGHTS-CORPORATON-WIDE BASIS AND FUND BASIS GASB 34 requires the issuance of Corpora’uon-wide financial statements as well as fund financial statements. The Corporation-wide financial statements report the balance of the Corporation’s long- term debt issue, while the individual fund statement does not. In fiscal year 2002, the Corporation issued its 2002A Civic Center Refinancing COPs in the amount of $3.5 million to refund its 1992 Civic Center Project COPs, reducing debt service requirements by $372 thousand and producing an accounting gain of $137 thousand. It also issued its 2002B Downtown Parking Improvements COPs in the amount of $3.55 million. In fiscal year 2005 a partial redemption was done by placing excess construction and debt service reserve funds into an escrow account to defease $900 thousand of 2002B Downtown Parking Improvements COP’s. These issues plus the 1998 Golf Course Capital Improvements COPs issue comprise all its outstanding debt. Interest expense on these COPs issues was $483 thousand in fiscal year 2006, a decrease of $90 thousand from prior year. The interes~ on leases on the assets securing these COPs issues was $453 thousand, a decrease of $81 thousand from prior year; the net program and $41 thousand in interest income resulted in an income of $12 thousand in fiscal year 2006, an increase of $24 thousand from prior year. The Corporauon ended fiscal year 2006 with total assets of $10.1 million, a decrease of $0.7 million from prior year. Total assets included $1.4 million in cash, same as prior ?,ear and $8.7mi!lion in present value of leases receivable from the City of Palo Alto, an increase of $1.9 million from prior year. It had liabilities of $10.1 million a decrease of $0.7 million from prior year, including $9.9 million in long-term debt. At the Fund level, the Corporation reported a negative $61 thousand in revenues over expenditures. Prior year was a negative $1.0 million for a difference of $939 thousand. As of June 30, 2006, the Corporation has one fund, Debt Service Fund, which reported a $1.4 million fund balance same as from prior year. OVERVIEW OF THE AGENCY’S BASIC FINANCIAL STATEMENTS The Basic Financial statements are in two parts: 1)Management’s Discussion and Analysis (this part), 2)The Basic Financial Statements, which include the Agency-wide and the Fund financial statements, along with the Notes to these financial statements. The Basic Financial Statements The Basic Financial Statements comprise the Corporation-wide Financial Statements and the Fund Financial Statements. These two sets of financial statements provide two different views of the Corporation’s financial activities and financial position-long-term and short-term The Corporation-wide Financial Statements provide a longer-term view of the Corporation’s acnvities as a whole, and comprise the statements of Net Assets and the Statement of Activities. The statement of Net Assets provides information about the financial position of the Corporation as a whole, including all its long-term liabilities on the full accrual basis, similar to that used by corporations The Statement of Activities provides information about all the Corporation’s revenues and all its expenses, also on the full accrual basis, with the emphasis on measuring net revenues or expenses of the Corporation’s program. The Statement of Activities explains in detail the change in Net Assets for the year. The Fund Financial Statements report the Corporation’s operations in more detail than the Corporation-wide statements and focus primarily on the short-term activities of the Debt Service and Capital Projects Funds. The Fund Financial Statements measure only current revenues and expenditures, currenl assets, liabilities and fund balances; they exclude capital assets, long-term debt and other long-term amounts. Together, all these statements are now called the Basic Financial Statements. DEBT ADMINISTRATION The Corporation issues debt in the form of Certificates of Participation (termed COPs) in future lease receipts from the City of Palo Alto. Legally, these COPs issues are the Corporation’s debt only; the City is liable only for the payment of the amounts set forth in the lease securing each COPs issue. The Corporation’s COPs issues are discussed in detail in Note 4 to the financial statements. The Corporation issued two COPs issued in fiscal 2002, one of which refunded an earlier issue. ECONOMIC OUTLOOK AND MAJOR INITIATES The economy of the City of Palo Alto and its major initiatives for the coming year are discussed in detail in the City’s Comprehensive Annual Financial Report. CONTACTING THE AGENCY’S FINANCIAL MANAGEMENT These Basic Financial Statements are intended to provide citizens, taxpayers, investors, and creditors with a general overview of the Agency’s finances. Questions about these Statements should be directed to the Finance Department of the City of Palo Alto, 250 Hamilton Avenue, CA 94301. This Page Left Intentionally Blank CITY OF PALO ALTO -PUBLIC IMPROVEMENT CORPORATION STATEMENT OF NET ASSETS AND STATEMENT OF ACTIVITIES The Statement of Net Assets and the Statement of Activities summarize the entire Corporation’s financial activities and financial position. They are prepared on the same basis as is used by most businesses, which means they include all the Corporation’s assets and all its liabilities, as well as all .its revenues and expenses. This is known as the full accrual basis-the effect of all the Corporation’s transactions is taken into account, regardless of whether or when cash changes hands, but all material internal transactions between Corporanon funds have been eliminated. The Statement of Net Assets reports the difference between the Corporation’s total assets and the Corporation’s total liabilities, including all the Corporation’s capital assets and all its long-term debt The Statement of Net Assets presents similar information to the old balance sheet format, but presents it in a way that focuses the reader on the composition of the Corporation’s net assets, by subtracting total liabilities from total assets. The Statement of Net Assets summarizes the financial position of all the Corporation’s Governmental Activities ~n a single column that presents the financi!l position of the entire Corporation. The Corporation’s Governmental Activities include the activities of its Debt Service and Capital Projects Funds. The Statement of Activities reports increases and decreases in the Corporation’s net assets. It is also prepared on the full accrual basis, which means it includes all the Corporation’s revenues and all its expenses, regardless of when cash changes hands. This differs from the "modified accrual" basis used in the Fund financial statements, which, reflect only current assets, current liabilities, available revenues and measurable expenditures. The Statement of Activities presents the Corporation’s expenses and follows with program revenues-that is, revenues which are generated directly by these programs-are then deducted from program expenses to arrive at the net expense of the governmental program, The Corporation’s general revenues are then listed in the Governmental Activities column, and the Change in Net Assets is computed and reconciled with the Statement of Net Assets. PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO STATEMENT OF NET ASSETS JUNE 30, 2006 ASSETS Cash and investments held by trustee (Note 3) Interest receivable Investment in leases to City of Palo Alto (Note 2D) Total Assets LIABILITIES Interest payable Long-term debt (Note 4): Due in one year Due in more than one )ear Total Liabilities NET ASSETS $1,365,883 23,964 8,718,276 10,108,123 166,244 740,000 9.175,000 10,081,244 Unrestricted Total Net Assets See accompanying notes to financial statements 26,879 $26,879 PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2006 EXPENSES interest and fiscal agent charges Total Program Expenses REVENUES Interest on leases from City of Palo Alto Net Program Expenses GENERAL REVENUES Interest from cash and investments Change in Net Assets Net assets at the beginning of year Net assets at the end of year See accompanying notes to financial statements $482,525 482,525 453,439 (29,086) 40,615 11,529 15,350 $26,879 This Page Left intentionally Blank FUND FINANCIAL STATEMENTS I Major funds are defined generally as having significant activities or balances in the current year. All of the Corporation’s Funds were determined to be Major Funds in fiscal 2006. Debt Service Fund - This fund accounts for debt service payments on the Corporation’s long-term debt issues. Capital Projects Fund - This fund accounts for the Corporation’s project capital outlays. PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO BALANCE SHEET JUNE 30, 2006 ASSETS Cash and investments held by trustee (Note 3) Interest receivable Investment in leases to City of Palo Alto (Note 2D) Total Assets Debt Service $1,365,883 23,964 8,718,276 $10,108,!23 $8.718,276 8,718,276 Capital Projects Totals $1,365,883 23,964 8,718,276 $10,108,123 $8,718,276 8,718,276 LIABILITIES Deferred revenue Total Liabilities FUND B ALANCES Reserved for: Debt service Total Fund Balances Total Liabilities and Fund Balances 1,389,847 1,389,847 $10,108,123 1,389,847 1,389,847 Accrual adjustment to remove deferred revenue from the balance sheet Deferred revenue Some liabilities, including bonds payable, are not due and pa} able in the current period and therefore are not reported in the funds Long-term debt Interest payable Due within one year Due in more than one year NET ASSETS OF GOVERNMENTAL ACTIVITIES See accompanying notes to financial statements 8,718,276 (166,244) (740,000) (9,175,000) $26,879 12 PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Debt Service REVENUES Lease receipts from City of Palo Alto: Principal interest Interest from cash and investments Total Revenues EXPENDITURES Debt service: Principal repayment Interesl and fiscal agent charges Capital projects Total Expenditures NET CHANGE 1N FUND BALANCE Fund balances at beginning of year Fund balances at end of year $710,000 z193,192 40,464 1,243,656 710,000 499,417 1,209,417 34,239 1,355,608 $1,389,847 See accompanying notesto financialstatements Capital Projects $151 151 95,818 95,818 (95,667) 95,667 Totals $710,000 493.192 40,615 1,243,807 710.000 499,417 95,818 1,305,235 (61,428) 1,451,275 $1,389,847 PALO ALTO PUBLIC IMPROVEMENT CORPORATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES 1N FUND BALANCES GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES -FOR THE FISCAL YEAR ENDED JUNE 30, 2006 Net change in fund balances-total governmental funds Amounts reported for governmental activities in the statement of activities are different because: Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the Statement of Net Assets. Repayment of bond principal is an expenditure in the governmental funds, but in the Statement of Net Assets the repayment reduces long-term liabilities Fund balance is increased by the amount of debt repayment Capital outlay and capitalized interest costs are treated as an expenditures in governmental funds, but recorded as Construction in Progress on the Statement of Net Assets Some amounts reported in the Statement of Revenues, Expenditures and Changes in Fund Balances reflect the collection of an asset which are not includable as revenues on the Statement of Activities Change in deferred revenue Change in ~nterest payable Change in net assets of governmental activities See accompanying notes to financial statements ($61,428) 710,900 98,733 (746,687) 10,911 $11,529 CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO Notes to Financial Statements NOTE 1 - DESCRIPTION OF REPORTING ENTITY General Description The Palo Alto Public Improvement Corporation (the Corporatibn) was incorporated in September 1983 under the General Nonprofit Corporation Law of the State of California to acquire, construct and lease capital improvement projects. The Corporation is exempt from federal income taxes under Section 501(c)(4) of the Interna! Revenue Code. The Corporation provides financing of public capital improvements for the City through the tssuance of Certificates of Participation (COPs), a form of debt which allows investors to participate in a stream of future lease payments. Proceeds from the COPs are used to construct projects which are leased to the City for lease payments which are sufficient in timing and amonnt to meet the debt service requirements of the COPs. The Corporation is an integral part of the City of Palo Alto It primarily services the City and its governing body is composed of the City Council Therefoie, the financial data of the Corporation has also been included as a blended component unit within the City’s comprehensive annual financial report for the year ended June 30, 2006. NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES Bas& of Presentation Government-wide Statements: The Statement of Net Assets and the Statement of Activities include the financial activities of the Corporation. Eliminations have been made to minimize the double counting of internal activities. The Statement of Activities presents a comparison between direct expenses and program revenues for each funcnon of the Corporation’s activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs and (b) grants and contributions that are restricted to meeting the operational or capital requirements.of a particular program Revenues that are not classified as program revenues, including all taxes, are p{esented as general revenues Fund Financial Statements: The fund financial statements provide information about the Corporation’s funds. Separate statements for each governmental fund are presented. The emphasis of fund financial statements is on major individual funds, each of which is displayed in a separate c o lumn. B.Major Funds The Corporation’s major governmental type funds be identified and presented separately in the Fund financial statements. Major funds are defined as funds that have either assets, liabilities, revenues or expenditures equal to ten percent of their fund-type total and five percent of the grand total. The Corporation has determined that all its funds are major funds. CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO Notes to Financial Statements NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)I The Corporation reported the following major governmental funds in the accompanying financial statements: Debt Service Fund - This fund accounts for debt service payments on the Corporation’s long-term debt issues. Capital Projects Fund - This fund accounts for the Corporations projecl capital outlays. C.Construction in Progress Net Financing Costs Interest incurred on debt used to finance projects are netted with interest earned on unspenl proceeds of the debt. These "Net Financing Costs" are capitalized and added to construction in progress during the construction period to reflect the true project costs, including financing costs. D.Investment in Leases Improvements financed by the Corporation are leased to the City for their entire estimated useful life and will become the City property at the conclusion of the lease. The Corporation therefore records the present value of the lease and considers the leased improvements to have been sold for this amount when leased. During fiscal 2005-2006, the remainder of project funds were expended Construction in progress amounting to $2,645,171 was closed and transferred to investment in leases. NOTE 3 -CASH AND INVESTMENTS HELD BY TRUSTEE A Trustee under the provisions of the Corporation’s COP issues holds and tnvests all the Corporation’s cash. A.Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment, Normally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. Information about the sensitivity of the fair values of the Corporation’s investments to market interest rate fluctuations is provided by the following table that shows the distribution of the Corporation’s investments by maturity: Investment Type Amount Maturity Date CAMP $63 N/A U.S. Agency Obligations: FNMA 612,142 January 28, 2008 FHLMC 734,47l July 5, 2006 Money Market Mutual Funds 19,207 N/A Total Investments held by Trustee $1,365,883 CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO Notes to Financial Statements NOTE 3 - CASH AND INVESTMENTS HELD BY TRUSTEE (Continued) Money Market Mutual Funds are available for withdrawal on demand and at June 30, 2006 and have an average.maturity of 3 days. B.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. The actual ratings as of June 30, 2006 for all U.S Agency Obligations and Mutual funds are Aaa as provided by Moody’s Investment Rating system. As an external investment pool, the California Asset Management Program was not rated as of June 30, 2006 Investment Policy l’he Corporation must maintain required amounts of cash and investments with trustees under the terms of certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if the Corporation fails to meet its obligations under these debt issues. The California Government Code requires these funds to be invested in accordance with bond indentures or State statute. All these funds have been invested as permitted under the Code. The fi~vestment Policy Is described in detail in the City of Palo Alto Comprehensive Financial Report. CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO Notes to Financial Statements NOTE 3 - CASH AND INVESTMENTS HELD BY TRUSTEE (Continued) The table below identifies the investment types that are authorized by the City’s Investment Policy. The table also identifies certain provisions of the City’s Investment Policy that address interest rate risk, credit risk and concentration of credit risk. The table addresses 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 City’s investment policy. Authorized Investment Type U.S Governmenl Securities U.S. Government Agency Securities (C) Maximum Minimum Credit Maturity Quality 10 years N/A 10 years N/A Maximum Maximum Percentage of Investment In One Portfolio Issuer No Limit No Limit No Limit (A)No Limit 10% of the par value 20%of portfolio 30%$5 million 15%$3 million (B) $40 million per No Limit account No Limit No Limit No Limit No Limit No Limit 10% 20%I0% 10%$5 million 10%$5 million Certificates o fDeposir Bankers Acceptances Commercial Paper 10 years N/A 80 days (D)N/A (D) 270 days AAA Local Agency [nvestment Fund N/A Short-Term Repurchase Agreements 1 year Cit~ of Palo Alto Bonds N/A Money Market De [msit Accounts N/A Mutual Funds (F)N/A Negoliable Certificates of Deposn 10 years Medium Term Corporate Notes 5 years (A) Callable and multi-step securities are limited to provided that: N/A N/A N/A N/A N/A AA no more man twenty percen,t of the par value of the porffobo, 1) the potential call dates are known atthe time of purchase. 2) the interest rates at which they "step-up" are known at the time of purchase. 3) the entire face value of the security is redeemed a~ the call date. (B) The lesser of $3 million or 10% of outstanding commercial paper of any one institution. Debt Agreements: (C) Utility Revenue Bonds 2002 Series A and 1999 Series A allow General Obligations of states with a Minimum Credit Quality Rating of A2/A by Mood3 ’s and S&P. (D) Utility Revenue Bonds 2002 Series A and 1999 Series A require a Minimum Credit Quality Rating of Aq/P-I by Moody’s and S&P and maturing no more than 360 days Utility Revenue Bonds 1995 limit the maximum maturity ro 365 days. Utility Revenue Bonds 2002 Series A and 1999 Series A require a Minimum Credit Quality Rating of AAAm or AAAm-G b) S&P. Utility Revenue Bonds 2002 Series A, Golf PIC COP 1998, University Avenue Parking Bond 2001 and University Avenue Parking Bond 2002 are allowed to invest in the California Asset Management Program. The City must maintain required amounts of cash and investments with trustees under the terms of certain debt issues. These funds are unexpended bond proceeds or are pledged as reserves to be used if the City fails to meet its obligations under these debt issues. The California Government Code requires these funds to be invested in accordance with City ordinance, bond indentures or State statute, All these funds have been invested as permitted under the Code. CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO Notes to Financial Statements NOTE 4 -CERTIFICATES OF PARTICIPATION The Corporation’s changes in long term debt are presented below: Balance June 30, 2005 Retirements Governmental Activity Debt: Certificates of Participation 1998 Golf Course 4.00-5.00%. due 09/01/2018 $5.680,000 $295,000 2002A Civic Center Refinancing 2.00-4.00%, due 03/01/2012 2,560,000 330,000 2002B Downtown Parking Improvements 4.55-6.00%, due 03/01/2022 Balance Curren{ June 30, 2006 Pomon $5,385,000 $310,000 2,230,000 340,000 2,385,000 85,000 2,300,000 90,000 $10,625,000 $710,000 $9,915,000 $740,000 On January 16, 2002 the Corporation issued the 2002A Civic Center Refinancing Certificates of Participation in the amount of $3.5 million to refund the City’s 1992 Civic Center Project Certificates of Participation. Principal payments for the 2002A COPs are due annually on March 1 and interest payments semi-annually on March 1 and September 1 and are payable from lease revenues from the City from available funds. During the year ended June 30, 2002 the 1992 Civic Center COPs were retired. On January 16, 2002 the Corporation issued the 2002B Downtown Parking Improvements Certificates of Participation in the amount of $3.555 million to finance the construction of certain improvements to the non-parking area contained in the Citv’s Bryant/Florence Garage complex Principal payments are due annually on March i and interest payments semi-annually on March 1 and September 1 and are payable from lease revenue received from the City from available funds. On January 25, 2005 the City defeased $900 thousand of the 2002B Downtown Parking Improvements Certificates of Participation. The City placed $1.039 million in surplus cash from the Civic Center Refinancing and Downtown Parking improvement Project Construction account m an irrevocable trust to provide for future debt payments. Accordingly, the trust account assets and the liability for the defeased Bonds are rim included on the financial statements. The outstanding amount of the defeased debt at June 30, 2006 is $840 thousand. The defeasance resulted in an overall debt service savings of $1,511 thousand and an economic gmn of $462 thousand. In August 1998. the Corporation issued the Golf Course Capital Improvements and Refinancing Project Certificates of Participation, Series 1998 in the amount of $7.750 million to refund and subsequently retire the 1978 Golf Course Lease Revenue Bonds issued by the City through the Palo Alto Golf Course Corporation, and to finance various improvements at the Palo Alto Public Golf Course, including upgrading five fairways and various traps, trees and greens, constructing new storm drain facilities, replacing the existing irrigation system, upgrading the driving range, and installing new cart paths. Under the terms of the 1998 COPs, the Corporation transferred $473 thousand to an agent for the Golf Course Corporation which used the funds to retire 19"78 Bonds. CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO Notes to Financial Statements NOTE 4 - CERTIFICATES OF PARTICIPATION (Continued) The COPs are payable and secured by lease revenues received by the Public Improvement Corporation from any City General Fund revenue source. Principal and interest are payable semi- annually each March 1 and September 1. Future annual debt service on the COPs is expected to be provided by the lease receipts discussed above, and equaled the following: Governmental Activities Forthe Year Endin~ June 30 Principal Interest 2007 $740,000 $475,000 2008 770,000 2009 800,000 415,000 2010 840,000 381,000 2011 870,000 345,000 2012-2016 3,200,000 1,183,000 2017-2021 2,475,000 377,000 2022 220,000 14,000 Total $9,915, {)00 $3,636,000 The Bond documents require a Trustee to hold a portion of proceeds in a reserve fund for debt service purposes only. At June 30, 2006, the Trustee held $1.366 million reserved, as discussed in Note 3. NOTE 5 - NET ASSETS AND FUND BALANCES A. Net Assets Net Assets are divided into three captions at the Government-wide level, and are described below: Restricted describes the portion of Net Assets which is restricted as to use by the terms and conditions of agreements with outside parties, governmental regulations, laws, or other restrictions which the Corporation cannot unilaterally alter.’ These principally include debt proceeds received for debt service requirements. Unrestricted describes the portion of Net Assets which is not restricted as to use. B.Fund Balances Fund balances consist of reserved and unreserved amounts. Reserved fund balances represen~ that portion of fund balance which is legally segregated for debt service and capital projects.