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HomeMy WebLinkAboutStaff Report 161-06TO: FROM: HONORABLE CITY COUNCIL CITY MANAGER PIC-I DEPARTMENT:ADMINISTRATIVE SERVICES DATE: SUBJECT: MARCH 13, 2006 CMR: 161:06 APPROVAL OF PUBLIC IMPROVEMENT CORPORATION FINANCIAL STATEMENTS RECOMMENDATION Staffrecommends that the Board of Directors of the Public Improvement Corporation (PIC) approve the 2004-05 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. Prior to that, the existing PIC Board of Directors elected new directors with the City Council having a veto authority. 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: 161:06 Page 1 of 2 DISCUSSION The attached financial statements show the financial condition of the PIC. All debt service pasa’nents have been made on time and all financial requirements, such as the maintenance of reserves, have been met. At year-end, June 30, 2005, total outstanding debt (principal) on the COPs equaled $10.6 million as follows: COP Description 1998 Golf Course 2002A Civic Center Refinancing 2002B Dow-ntown Parking Improvements Total COPs Principal Outstanding (millions) 155.7 $2.5 $2.4 $10.6 Year Debt will be Retired 2018 2012 2022 RESOURCE IMPACT Approval of the Public Improvement Corporation’s financial statements will have no resource impact. POLICY IMPLICATIONS Approval of the Public Improvement Corporation’s financial statements is consistent with prior Council policy direction and resolutions. ENVIRONMENTALREVIEW This is not a project under the ~a..Environmental Quality Act (CEQA). PREPARED BY: .---~"~’ ia---"’~--~ ~/"~"~--"~O’~--~ ------- TARUN~ARAYAN Senior Financial Analyst DEPARTMENT APPROVAL: CITY MANAGER APPROVAL: EMILY Assistant City Manager ATTACHMENTS Attachment A: City of Palo Alto Public Improvement Corporation Financial Statements for the Year Ended June 30, 2005 CMR: 161:06 Page 2 of 2 ATTACHMENT A CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION CO~ {PONENT UNIT FINANCIAL STATEMENTS FOR THE YEAR ENDED "rN .JUi E 30, 2005 qAZE & A$SOCIATES ACCOUNTANC Y COFIPORATION CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION COMPONENT UNIT FINANCIAL STATEMENTS ~NFOR THE YEAR ENDED J-U~ ’E 30, 2005 Table of Contents Pa~____~e Independent Auditor’s Report .............................................................................................................] Management’s Discussion and Analysis ...............................................................................................3 Financial Statements: Government-wide Financial Statements Statement c, fNet Assets .......................................................................................................... Statement of Activities ..........................................................................................................9 Fund Financial Statements Balance Sheer ...........................................................................................................................12 Statement of Rex enues, Expenditures and Changes in Fund Balances ..................................... Statement of Revennes, Expenditures and Changes in Fund Balances - Governmental Funds to the Statement of Activities ...............................................................14 Notes to Financial Statements ...........................................................................................................i 5 This P~e Left Intentional!F,, Blank & ASSOC A INDEPENDENT AUDITOR’S REPORT The Honorable Mayor and Members of the City’ Council of the Cib’ of Palo Alto, California We have audited the accompanying component unit financial statements of the governmental activities and each major fund of the Palo Alto Public Improvement Corporation, a component unit of the Cib’ of Palo Alto, as of and for the year ended June 30, 2005 as listed in the Table of Contents. These financial statements are the responsibilib’ of the City,’s management. Our responsibiliU is to express an opinion on these financial statements based on our audit. We conducted our audit in 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 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 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 odr 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, 2005, and the results of its operations for the year then ended, m conformib’ with generally accepted accounting principles in the United States of America. Management’s Discussion and Analysis 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 supplementau information. However we did not audit the information and we express no opinion on it. October 1, 2005 Professional Corporation This Page Left ~n~en~ional F’ Bank MANAGEMENT’S DISCUSSION AND ANALYSIS For %ur consecutive years the Palo Alto Public Improvement Corporation, a component unit of the City of Palo Alto, has followed the provisions of Government Accounting Standards Board Stateroom 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 ro assist the City in 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 2005 FINANCIAL HIGHLIGHTS-CORPORATON-WIDE BASIS AND FUND BASIS GASB 34 requires the issuance of Corporation-wide financial statements as well as fund financial statements. The Corporation-wide financial statements report the balance of the Corpo~:ation’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 Civ’ic 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 fisc!l year 2005 a partial redemption was done by placing excess construction and debt service reserve funds into an escrow account to defense $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 $573 thousand in fiscal year 2005, an increase of $51 thousand from prior year. The interest on leases on the assets securing these COPs issues was $534 thousand, and increase of $35 thousand from prior year; this revenue and $43 thousand in interest income resulted in an income of $4 thousand in fiscal year 2005, a decrease of $24 thousand from prior year. The Corporation ended fiscal year 2005 with total assets of $10.8 million,, a decrease of $1.6 million from prior year. Total assets included $!.4 million in cash, a decrease of $1.1 million from prior year and $~.8 million in present value of leases receivable from the City of Palo Aho, a decrease of $0.~ million from prior year. It had liabilities of $10.8 million a decrease of $1.6 million from prior );ear, including $i0.6 million in long-term debt. At the Fund level, the Corporation reported a negative $!.0 million in revenues over expenditures, which was principally due to defeasance of debt financed by the 2002B Downtown Parking Improvements Certificates of Participation bond proceeds. Prior year was a negative $1.4 million for a difference of $0.4 million. As of June 30, 2005, the Corporation has two funds, Debt Service Fund, which reported a $1.4 million fund balance and the Capital Projects Fund, "~s, hich reported a $0.1 million fund balance same as from prior year and a decrease from prior year of $0.9 million respectively. OVERVIEW OF THE AGENCY’S BASIC FINANCIAL STATE~IENTS 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 financi!l statements, along with the Notes to these financial s~atements. 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 actix, ities and financial position-long-term and short-term. The Corporation-wide Financial Statements provide a longer-term view of the Corporation’s activizies as a whole, and comprise the statements of Ne~ Assets and the Statement of Activities. The sta’;ement 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 procure. 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, current assets, liabilities and fund balances; they exclude capital assets, long-term debt and other ]ong-term amounts. Together, all these statements are now called the Basic Financial Statements. DEBT ADMINISTRATION The Corporation issues deb’t in the form of Certificates of Participation (termed COPs) in future lease receipts from the Cib.’ 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 ~.00z, one of which refunded an earlier issue " ~NECONO~ IIC OUTLOOK AND MAJOR L :ITIATES The economy of the City of Palo A]to and its major initiatives for the coming );ear are discussed in detail in the Cit~.’s Comprehensive Annual Financial Report. CONTACTING THE AGENCY’S FINA~ CIAL MANAGEMENT These Basic. Financial Statements are intended to provide ci,izens, taxpayers, investors, and creditors wi~h a general ovem,iew of the Agency’s finances. Questions about these Statements should be directed to the Finance Depa~:ment of the City of Palo A]to.. 250 Hamilton Avenue, CA 94301. This Page Left Intentionally Blank CITY OF PALO ALTO PUBLIC IMPROVEMENT STATEMENT OF NET ASSETS AND STATE~ lENT OF ACTIVITIES The Statement of Net Assets and the Staiement 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 Corporation funds have been eliminated. The Statement of Net Assets reports the difference bet~veen 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 in a single column that presents the financial position of the entire Corporation. The Corporation’s Governmental Activities include.-the activities of its Debt Service and Capital Projects Funds. The Statement of ,A.cti~,ities reports " ~ ¢~- and decreases in tlne Corporation’s net assets. It is also prepared on the full accrual basis, which means it includes all the Corporation’s revenues and alt its expenses, regardless of when cash changes hands. This differs from the ~modified accrual~’ basis used in the Fund financial statements, which reflect onl> 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 gox, ernmental 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 LMPROVEMENT CORPORATION A COMPONENT L~IT OF THE CITY OF PALO ALTO STATEMENT OF NET ASSETS JUNE 30, 2005 ASSETS Cash and investments held by trostee (Note 3) " Interest receivable Construction in progress Investmeni in leases to City of Palo Alto {.~ote 2D) Total Assets LL~BILITIE S interest payable Long-term debt (Note 4) Due in one year Due in more than one year Total Liabilities NET ASSETS $1,435,925 15,350 2,546,438 6,819,792 ]0,817,505 177,155 710,000 9,9!5,000 10,802,!55 Unrestricted Total Net Assets See accompanying notes to financial statements PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT U_~.IT OF THE CITY OF PALO ALTO STATEMENT OF ACTIVITIES FOR THE FISCAL 5’~AR ENDED ;L._~E 30; 2005 EXPENSES interest and fiscal agent charges $573,427 573,427 3~4,~0~ (39,!24) 43~III 3,957 11,363 $15,350 Total Program Expenses REVEN-UES Interes* on leases from C b’ of Palo Alto Net Program Expenses GENER_AL Interest from cash and investments Change in Net Assets Nei assets at the beginning of year Net assets a1 the end of )’ear See accompanying notes to ~nancial s~.atements This Page Left ][ntentionallF’ B tank FUND FINANCIAL STATEMENTS ] M~or funds are defined generally as having significant activities or balances in the current year. All of the Corporation’s Funds were determined to be Ma.jor Funds in fiscal 2005. Debt Service Fund - This fund accounts for debt service payments on the Corporation’s tong-term debt issues. Capital Projects Fund - This fund accounts for the Corporation’s pro~ject capital outlays. PALO ALTO PUBLIC IMPROVEMENT COXPO~ATION A COMPONENT UNIT OF THE CITY OF PALO ALTO BALANCE SHEET JUNE t 0, ~0 v 5 ASSETS Case and investments held by trustee I~ote Interest receivable Investment in leases to City’ of Palo Alto Tota! Assets Deferred revenue Total Liabiiities Rese.~.’ed for: Debt sen’ice CapKai ~rc~iec LIABILITIES FUND BAL.~,., CE~ Total Fund Balances Tota! L~b~u~es and Fund Balances Debt SerwJce Capital Projects $!,340,452 $95,473 15,156 194 6,819,792 $8,175,400 $6,819=792 6,819,792 1,3 ~" ~.,6o8 608 $8,175,400 $95,667 $95,667 95,667 $95,667 Totals i 43~ 15,350 6,819,792 $8,271,067 $6,819,792 6,8!9,792 1355.608 95,667 1,451,275 Accrual adjustmeni to remove deferred revenue from the balance sheet Deferred revenue Construction in Progress used in governmenta! activities is not a financial resource and therefore not reposed in funds Some liabilities, including bonds payable, are not due and payable in the current period and therefore are not repor*ed in the funds Long-term debt interest payable Due within one year D~e in more than one .v, ear See accompanying notes to financial statements 6,819,792 z.~46.4.~ 8 (71o,ooo) (9,915,000) $]5,350 12 PALO ALTO PUBLIC IMPROVENIENT CORPORATION A CON,IPONENT LTIT OF THE CITY OF PAL, O ALTO STATE.MENT OF REVENUES, EXPENDITURES AND CHANGES ~ FLeD BALANCES FOR THE FISCAL YEAR ENDED JL~E 30, 2005 Debt Service Capital Projects Totals REVENUES Lease receipts from Cib’ of Palo Alto: Principal Interesl Interest from cash and investments Total Revenues EXPENDITURES Debt service: Principal repayment Interest and fiscal agent charges Capital prqects Total Expend itures EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES OTHER FINANCING SOURCES (USES) Payment to bond escrow agent Transfers in Transfers (out) Total Other Financing Sources (Uses’) EXCESS (DEFICIENCY) OF REVENUES AND OTHER FINANCING SOURCES OVER EXPENDITURES AND OTHER USES Fund balances at beginning of year Fund balances at end of year $690,000 590,978 35,225 1,3!6,203 690,000 595,491 i,285,49! 30,7!2 9s,s73) 1,423,769 $1,355,608 1],940 11,940 (4,054) (940,073) (940,073) (944,127) 1,039,794 $95,667 $690,000 590,978 43,111 1,324,089 690,000 595,49! 11,940 1;297,43] 26,658 (1,038,946) 940,073 (940,073) (1,038,946) i,012,288) 2,463,563 $!,451~275 See aocompanvin~ notes to ~nancial statements PALO ALTO PUBLIC IMPROVEMENT CORPO~-~TION STATE~MENT OF REVENUES, EXPENDITURES AND CHANGES IN FUiND BALANCES GOVERNMENTAL FLTD S TO THE STATEMENT OF ACTIVITIES - FOR THE YEAR ENDED fOrTE 30., 2005 Net change in fund balar, ces-tota] governmental funds Amounts reported for governmental aciivities in the statemem of activities are different because: Bond proceeds provide current financial resources to fiovernmenta] funds, but issuing debt increases long-term liabilities in the Statement of.Net Assets. Repayment of bond principal is an expenditure in the go’~ernmental funds, but in the Statement of Net Assets the repa.,..Tnent reduces tong-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 f~nds, 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 Interest paFable Change in net assets of governmental activities See accompanying notes to financial statements ($1,012,288) 1,590,000 11,940 (607,729) 22,064 $3,987 14 CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO Notes to Financial Statements General Description The Palo Alto Public Improvement Corporation (the Corporation) was incorporated in September ] 983 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 Internal Revenue Code. The Corporation provides financing of public capital improvements for the Cib’ through the issuance 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 CiD’ for lease payments which are sufficient in timing and amount to meet the debt service requirements of the COPs. The Corporation is an integral part of the CiD, of Palo Alto. It primarily services the Ci~’ and its governing body is composed of the CiD Council. Therefore, the financial data of the Corporation has also been included as a blended component unit within the Cit)"s comprehensive annual financial report for the year ended June 30~ 2005. NOTE 2 -SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Government-wide Statements: The Statement of Net Assets and the Statement of Activities include the financial activities of the Corporation. Eliminations l~ave 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 function of the Corporation’s activities. Direct expenses are those that are specifically associated with a program or f’~nct.ion 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 at! taxes, are presented 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 column. 3:[ajor Funds The Corporation’s major govermnental type funds be identified and presented separately in the Fund f~nancial statements. Major funds are defined as funds fl~at have either assets, liabilities, revenues or expenditures equal to ten percent of their fund-type total and five percent of the grand tota!. The Corporation has determined that all its funds are ca@or funds. CITY OFPALOALTOPUBLICIMPROVEMENT" CORPORATION A COMPONENT UNIT OF THE CITY OF PALO ALTO Notes to Financial Statements NOTE " SIGNIFICANT ACCOUNTING POLICIES (Continued)] The Corporation reported the fol]owinfi 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. C. Capital Projects Fund- This fund accounts for the Corporations project capital outlays. Construction in Progress Net Financing Costs Interest incurred on debt used to finance projects are netted with interest earned on unspent proceeds of the debt. These "Net Financing Costs" are capitalized and added to construction in profess during the construction period to reflect the true pro~iect costs, including financing costs. Investment in Leases Improvements financed by the Corporation are. leased to the CiD’ for their entire estimated useful life and will become the Ci~, 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. A Trustee. under the provisions of the Corporation’s COP issues holds Corporation’s cash. [NOTE3-CASHANDINVEST~fENTSHELDBYTRUSTEE~ " ’ ’ ’ ’ ] A.Interest Rate Risk and invests all the 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 sensitivi~, of its fair value to changes in market interest rates. Information about the sensitivilT 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 maturiD’: Investment Type Amount Maturity Date CAMP $3 U $ Agency Obligations FNMA 588,18~January 28~ 2008 FHLMC 713,530 October 3, 2005 Money Market Mutual Funds 96,496 N/A Total investments held by Trustee $!,435,925 16 CITY OF PALO ALTO PUBLIC IMPROVEMENT CORPOI~4TION A COMPONENT UNIT OF THE CITY OF PALO ALTO Notes to Financial Statements NOTE 3 - CASH AND (Continued)]iINVESTMENTSHELDBYTRUSTEE Mutual Funds are. available for withdrawal on demand and at June 30, 2005 matured in an average of 1 day B.Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fu!~l 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, 2005 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 ~as not rated as of June 30, 2005. C.Investment Policy The 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. AI! these funds have been invested as permitted under the Code. The Investment Policy is described in detail in the CiD" of Palo Alto Comprehensive Financial Report. CITY OF PALO ALTO PUBLIC L IPROYEMENT CORPORATION A COMPO~ ENT 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 Cib~, rather than the general provisions of the Cip~."s investment policy. Authorized investment Type U S Oovemmenl Securities US Oovemmen Agency. Securities(C’. ,, Maximum Minimum Credit Maturity QualiW i 0 years I 0 years Maximum Maximum Percentage of investment in One Portfolio I~suer No Limit No Limit No Limit (A)No Limit 10% of the par value 20%of poafotio 30%$5 million $40 million per No Limit account No Limit No Limn No Limit No Limit No Limit 10% 20%10% ]0%$5 million 10%$5 million ~.ert~t,cales of Deposh 10 years Bankers Acceptances ] 80 days (D)NiA (D) Commercial Paper 270 days Loca’, Agency ]nvestmen! ’Fund N/A NiA Short-Term Repurchase Agreements i year C~ry.’ of Paid Alto Bonds N/A .NiA Money ldarket Deposii Accounts NiA NiA (E) Mutual Funds (F)N/A Negotiable Cei’cificates of Deposi~] 0 years Medium Term Corporate Noles 5 ),ea~s AA ’* ~ Callable and muh>ste9 secur;ties are binned to no more than twenty’ mercent of the par value of the oortfoiio. prowded that 11 the poten!ia~ caP. date~ are kno~vn at ~he nine of purchase .:j the interest rates at which they "step-up" are known al the 1hue of purchase ~v~ihe entire face va]ue oflhe _~ecun>~ <~. "~ea~ama~ ’~a at the call date (E) The tesserofS3millioe ori0%ofouutandmgcommercia!paperofanyonems~tut~on. Debl Agreemenls: (C) Utilib’ Revenue Bonds 2002 Series A and 1999 Ser~es A allow Oenera~ Ob)igat~ons ors:ares w;th a Mmlmum Credil Qual]b, Rating of A2/A by Moodis and S&P ,~,,~’, Utiii~’~ Revenue Bonds 2002 Series A and I ....... doe <=r;e< A reqmre a ~v!Jmmum Credk Qualib’ Rating of A-1~-t by Moody’s and S&P a~d maturing no more than 360 days U~JliU, Revenue Bonds ]995 limi~ the maximum matunW ~o 365 days UtiliD, Revenue Bonds 2002 Series A and 1999 Series A require a Minimum Credil QualiD, Rating of AAAm or AAAm-G by S&P, (E’) (P)Utility; Revenue Bonds 2002 Series A, Golf PIC COP ]998, University’ Avenue Parking Bond 2001 and University Avenue Parking Bond 2002 are allowed to invest in the California Asse~ Managemenl Program The Ci~, must maintain required amounts of cash and invesm~ents 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 CiU 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 *he Code. 18 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: GovernmentM ActMi2,.’ Debt: Certificates of Participation 1998 Golf Course .1 00-5 00%, due 09/0V20i 8 2002A Civic Center Refinancing 200-4.00%, due 03/01/2012 2002B Downtown parldng improvementS 4 55-6.00%~ due 03/01/2022 Balance Defeasances &Balance Current June 30° 2004 Retirements June 30, 2005 Potion $5,965,000 $285.000.$5 .680.000~--~<°°; 0~3,q .~ 2.885.000 aw nr~o v .16r~ oor~330,000 3,365.000 980,000 2,385,000 85,000 $ t2,215,000 $1,590,000 $10,625,000 57 t0,000 On January !6, 2002 the Corporation issued the 2002A Civic Center Refinancing Certificates of Participation in the amount of $3.5 million to refund the CiD"s 1992 Civic Center Project Certificates of Participation. Principal payments for the 2002A COPs are due annually on March t and interest payments semi-annually on March 1 and September ! and are payable from lease revenues from the CiD~ from available funds. During the year ended June 30, 2002 the !992 Civic Center COPs were retired. On JanuaD’ 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 [he non-parking area contained in the Cib":s Bryant2F]orence Garage comptex. Principal payments are due annually on March 1 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 Ci7 defeased $900 thousand of the 2002B Downtown Parking improvements Certificates of Participation. The Cib’ placed $!.039 million in surplus cash from the Civic Center Refinancing and Downtown Parking Impro,,’ement Project Construction account in an irrevocable trust to provide for future debt payments. Accordingly, the trust account assets and the liabilib; for the defeased Bonds are not included on the financial statements. Theoutstanding amount of the defeased debt at June 30, 2005 is $89’0 thousand. The defeasance resulted in an overall debt service savings of $1.511 thousand and an economic, gain of $462 thousand. I~ 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 i9"78 Golf Course Lease Revenue Bonds issued by the Cit7through the Palo Alto Golf Course Corporation, and to finance various improvements ar 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 fine terms of the 1998 COPs, the Corporation transferred $473 thousand ~o an agent for the Golf Course Corporation which used tlne funds to retire 19"~8 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: Governrnen"cal Activities Yorthe Year Endin~June30 Principal Interest 2006 $7!0,000 $501,000 2007 740,000 475,000 2008 770,000 446,000 2009 800,000 415,000 2010 840,000 38t,000 2011-2015 3,450,000 1,354,000 2016-2020 2,890,000 523,000 2021-2022 425,000 42,000 Total $10,625,000 $4.137.000 The Bond documents require a Trustee to hold a portion of proceeds in a reserve fund for debt service purposes only. At June 30, 2005, the Trustee held $1.436 million reserved, as discussed in Note 3. IN NET ASSETS AND FUND BALANCES~ OTE 5 - A.~,~et Assets Net Assets are divided into three captions at the Government-wide level, and are described below: Resmicted 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. (_7nresrriczed describes the portion of Net Assets which is not restricted as to use. Fund Balances Fund balances consist of reserved and unreserved amounts Reserved fund balances represent that portion of fund balance which is legally segregated for debt service and capital projects.